#MYT
OBLIGATIONS AND CONTRACTS
I. OBLIGATIONS
A. General Provisions
1. Concept, Art. 1156
Article 1156. An obligation is a juridical
necessity to give, to do or not to do.
Juridical necessity means that
the court may be asked to order
the performance of an obligation
if the debtor does not fulfill it.
(according to RJ MArtinez)
A prestation is an obligation.
More specifically, it is the subject
matter of an obligation. (doing or
not doing an act, giving a thing)
Example:
1. Mercy Joy is obliged to give Hazel
Espina 5M on Dec. 25, 2012
pursuant to a contract of loan.
Miral is the passive subject; Hazel
is thre active subject; the giving
of loan is the efficient cause. The
obligaton here is unilateral.
2. Dexter Bascon is obliged to
transport the goods Frank Dinsay
from Japan to Pagadian, and
Frank is obliged to to pay Dexter
1M as transport costs, under a
contract of carriage. As regards
the transport of the goods which
is the prestation, Frank is the
Active subject and dexter is the
passive subject. As regards the
payment of the transport fees,
Dinsay is the passive and Dexter
is the active subject. The contract
of carriage is the efficient cause
for the obligations. The
obligations are bilateral, each
party is required to perform a
particular conduct.
Gaw vs. IAC, 220 SCRA 405 (1993)
- Focuses on the right of the creditor to resort to
court action in case of noncompliance by the
debtor with his obligation under the contract
(juridical necessity).
Perla Compania de Seguro vs. CA, 185 SCRA 741
(1990)
- It being specifically required that petitioner's
written consent be first secured before any
payment in settlement of any claim could be
made, private respondent is precluded from
seeking reimbursement of the payments made to
del Carmen, Magsarili and Antolin in view of her
failure to comply with the condition contained in
the insurance policy.
2. Requisites
Ang Yu Asuncion vs. CA, G.R. No. 109125,
Dec. 2, 1994, 57 SCAD 163, 238 SCRA 602
- The obligation is constituted upon the
concurrence of the essential elements
thereof, viz:
(a) The vinculum juris or juridical tie which is
the efficient cause established by the various
sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts);
(b) the object which is the prestation or
conduct; subject matter of the obligation;
required to be observed (to give, to do or not
to do); and
(c) the subject-persons who, viewed from the
demandability of the obligation, are the
active (obligee) and the passive (obligor)
subjects.
3. Obligation distinguished from cause of
action
De la Rama vs. Mendiola, 401 SCRA 704
(2003)
- A cause of action, broadly defined, is an act
or omission of one party in violation of the
legal right of the other
.
-The Agreement to Sell and Buy, being one of
the prestations of the compromise
agreement which was judicially confirmed
and had long become final and executory,
cannot be enforced in a separate action.
Bachrach Corporation vs. CA, 296 SCRA 487
(1998)
- In a breach of contract, the contract violated
is the subject matter while the breach thereof
by the obligor is the cause of action.
4. Classifications
B. Sources of Obligations, Art. 1157-1162
Article 1157. Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omissions punished by law;
and
5. Quasi-delict
If asked to give 5 sources, enumerate
what 1157 has provided for. However, if
asked only to give 2 sources, only
mention law and contract, since the
others are, actually, required by law.
Pelayo vs. Lauron, 12 Phil. 453
- According to article 1089 of the Civil Code,
obligations are created by law, by contracts, by
quasi-contracts, and by illicit acts and omissions or
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by those in which any kind of fault or negligence
occurs.
1. Law (obligation ex lege)
Article 1158. Obligations derived from law
are not presumed. Only those expressly
determined in this Code or in special laws are
demandable, and shall be regulated by the
precepts of the law which establishes them;
and as to what has not been foreseen, by the
provisions of this Book.
if regarding an obligation ex lege, there is a
conflict between the New CC and a Special
Law, the latter prevails unless the contrary
has been expressly stipulated in the NCC.
“Obligations derived from law are not
presumed” merely means that he obligation
must be clearly set forth in law.
Pelayo vs. Lauron Gr. 4089, 1909
- Involves the obligation of the husband to
support the wife required by the civil code.
SC:
- Obligations arising from law are not
presumed. Those expressly determined in
the code or in special laws, etc., are the only
demandable ones. Obligations arising from
contracts have legal force between the
contracting parties and must be fulfilled in
accordance with their stipulations. (Arts. 1090
and 1091.)
- The rendering of medical assistance in case
of illness is comprised among the mutual
obligations to which the spouses are bound
by way of mutual support. (Arts. 142 and
143.)
De la Cruz vs. Northern Theatrical
Enterprises, 95Phi. 739 (1954)
- That is why, we repeat, it is to the interest of
the employer to render legal assistance to its
employee. But we are not prepared to say
and to hold that the giving of said legal
assistance to its employees is a legal
obligation. While it might yet and possibly be
regarded as a moral obligation, it does not at
present count with the sanction of man-made
laws. (no law as a basis for the obligation)
Martinez vs. Martinez, 1 Phil 647 (1902)
- There is only the bare fact that the price
of property which was conveyed to the
defendant by a third person was paid by
the plaintiff. It can not be said that the law
by reason of this fact transfers any title or
interest in the thing itself to the plaintiff.
Article 1090 of the Civil Code provides that
"obligations derived from the law are not
to be presumed. Only those expressly
provided for in this Code or in special laws
are enforceable."
It is provided in Article 161 of the same
Code, relating to minors, that "the
ownership or enjoyment of property
Martinez Ycong Tibon
acquired by a minor child with funds of his
parents, pertain to the latter." This article
does not apply to the present case, for the
son was of age.
This is the only provision which we have
found anywhere in the laws now in force
that declares the property to belong to the
person who paid the money.
2. Contracts
Article 1159. Obligations arising from
contracts have the force of law between the
contracting parties and should be complied
with in good faith.
A contract is a meeting of minds
between two persons whereby one
binds, with respect to the other, to give
something or to render some service.
(1305)
This does not mean that laws are inferior
to contracts. This is because before a
contract can be enforced, it must be
valid, and it cannot be valid if it is against
the law.
An obligation Is a result of a contract or
some other sources. Hence, while a
contract, if valid, always results in
obligations, not all obligations come
from contracts. A contract always
presupposes a meeting of the minds and
this is not necessarily true for all kinds of
obligations.
The repudiation of an agreement validly
entered into cannot be made without
any justifiable reason.
The so-called Innominate Contracts:
For want of an express name, the
following are termed “contraltos
innominados”
a) Do ut des – I give that you may give
b) Do ut facias- I give dat u may do
c) Facio ut des – I do dat u may giv
d) Facio ut facias – I do dat u may do
Example:
A worked for B as an interpreter. Even
without an express agreement as to
compensation, A is entitled to
compensation because of facio ut des.
Cases nga perteng gipangita og au ni Miguel
Lumapas:
William Golangco Construction Corporation
vs. PCIB, 485 SCRA 293 (2006)
- Obligations arising from contracts have the
force of law between the parties and should
be complied with in good faith. In
characterizing the contract as having the
force of law between the parties, the law
stresses the obligatory nature of a binding
and valid agreement.
The provision in the construction contract
providing for a defects liability period was not
shown as contrary to law, morals, good
customs, public order or public policy. By the
nature of the obligation in such contract, the
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provision limiting liability for defects and
fixing specific guaranty periods was not only
fair and equitable; it was also necessary.
Without such limitation, the contractor would
be expected to make a perpetual guarantee
on all materials and workmanship.
Dio vs. St. Ferdinand Memorial Park, Inc.,
509 SCRA 453 (2006)
- Petitioner agreed to abide by all such rules
and regulations governing SFMPI, among
them Rule 69 which prevents lot owners from
"contract[ing] other contractors for the
construction of the said buildings and
memorial" but gives the owners free rein "to
give their own design for the mausoleum to
be constructed, as long as it is in accordance
with the park standards."
- Basic is the principle that contracts, once
perfected, bind both contracting parties. The
parties may establish such stipulations,
clauses, terms and conditions as they may
deem convenient, provided these are not
contrary to law, morals, good customs, public
order, or public policy. It follows that
obligations arising from contracts have the
force of law between the contracting parties
and should be complied with in good faith.
NHA vs. CA, G.R. No. 156437, March 1, 2004
- However, it must be understood that
contracts are not the only source of law
that govern the rights and obligations
between the parties. More specifically, no
contractual stipulation may contradict law,
morals, good customs, public order or public
policy. Verily, the mere inexistence of a
contract, which would ordinarily serve as the
law between the parties, does not
automatically authorize disposing of a
controversy based on equitable principles
alone. Notwithstanding the absence of a
perfected contract between the parties,
their relationship may be governed by other
existing laws which provide for their
reciprocal rights and obligations.
Tiu Peck vs. CA vs. CA 221 SCRA 618 (1993)
Gamayng facts: (gidigest ni Jesa Balahadia)
Sometime in 1983, petitioners and
private respondents decided to end their
business partnership. Accordingly, they
sought the help of five (5) respected
members of the Filipino Chinese Chamber of
Commerce and Industry of Olongapo City (of
which petitioners and private respondents
are members) to act as middlemen. Together
with the five (5) middlemen, Tiu Peck and Tan
King discussed the manner of their separation
and the liquidation of the partnership
properties. As a result of the discussion, an
"Agreement on the Apportionment of
Partnership Business" was drawn up.
Ruling: (ponente, Justice Graziella Corollo)
#MYT
- There is no question that petitioners and the
private respondents voluntarily entered into
the agreement to apportion or divide their
businesses, whether as partners or co-
owners. That agreement is the law between
them.
Royal Lines, Inc. vs. Court of Appeals, 143
SCRA 608 (1986) G.R. No. L-27239
- Article 1724 in question constitutes the
special rule applicable only to those
constructions built on land. All other matters
come under the general rules on contract and
under such rules no particular form is
required for the agreement under
consideration.
- There is no ambiguity in the language of
Article 1724. Plainly, it refers to a structure or
any other work to be built on land by
agreement between the contractor and the
landowner. It cannot apply to work done
upon a vessel, which is not erected on land or
owned by a landowner. Hence, the said
article is not controlling in this case.
- However, it does not follow that petitioner
is absolved of liability for the work done upon
its vessel which, to repeat, it does not deny.
Regarding this matter, the applicable rules, as
it itself contends, are the general rules on
contracts.
BAR 2004
The parties in a contract of loan of money
agreed that the yearly interest of 12% and it
can be increased If there is a law authorizing
the increase of interest rates. Suppose Regal
Oliva, the lender, would increase by 5% the
rate of interest to be paid by Rex Tibon, the
borrower, without a law authorizing such
increase, would Regal’s action be just and
valid? Why?
Suggested Answer (UP law Complex)
Regal’s action is not just and valid.
The debtor cannot be required to pay the
increase in interest there being no law
authorizing it, as stipulated in the contract.
Increasing the rate in the absence of such law
violates the principle of mutuality of
contracts.
3. Quasi-Contracts
Article 1160. Obligations derived from quasi-
contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book.
No one should unjustly enrich himself at
the expense of another. Favorite ‘saying”
ni ARRA BALAHADIA.
Negotiorum gestio – refers to the
voluntary administration of property,
business, or affairs of another without
his consent or authority. It creates an
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obligation to reimburse the gestor for
necessary and useful expenses.
Example: D and C are the owners of
adjacent vegetable farms. When C
noticed that D had not been around
for almost a week, he himself
cultivated the soil and placed
fertilizer on it, watered the plants,
removed the weeds and wilted
leaves. C incurred necessary and
useful expenses in the process. D
must reimburse C for such
expenses. Otherwise, he will be
unjustly enriching himself at the
expense of C.
Solution indebiti – according to mhealler
ycong, refers to payment by mistake of
an obligation which was not due when
paid. It creates an obligation to return
the payment.
QC is not an implied contract because
unlike in contract, in QC there is no
meeting of the minds.
BPI vs. Sarmiento, 484 SCRA 261 (2006)
- There is solutio indebiti where: (1) payment
is made when there exists no binding relation
between the payor, who has no duty to pay,
and the person who received the payment;
and (2) the payment is made through
mistake, and not through liberality or some
other cause. . . . The quasi-contract of solutio
indebiti is based on the ancient principle that
no one shall enrich himself unjustly at the
expense of another.
CIR vs Fortune Tobacco GR 167274
Under the Tax Code itself, apparently in
recognition of the pervasive quasi-contract
principle, a claim for tax refund may be based
on the following:
a. erroneously or illegally assessed or
collected internal revenue taxes;
b. penalties imposed without authority; and
c. any sum alleged to have been excessive or
in any manner wrongfully collected.
Other quasi-contracts:
Articles 2164 - 2175
Perez vs. Palomar, 2 Phil. 682
- If it is a fact sufficiently proven that the
defendant, Pomar, on various occasions
consented to accept an interpreter's services,
rendered in his behalf and not gratuitously, it
is but just that he should pay a reasonable
remuneration therefor, because it is a well-
known principle of law that no one should be
permitted to enrich himself to the damage of
another.
Martinez Ycong Tibon
Rodzssen Supply, Inc. vs. Far East Bank &
Trust Co., 148 SCAD 392, 357 SCRA 618
(2001)
- When both parties to a transaction are
mutually negligent in the performance of
their obligations, the fault of one cancels the
negligence of the other. Thus, their rights
and obligations may be determined
equitably. No one shall enrich oneself at the
expense of another.
2000 BAR question:
Rj went to a store to buy a pack of cigarettes
worth P225.00 only. He gave the vendor,
Mhealler, a P500-peso bill. Rj gave mhealler
the pack plus P375 as change. Was there a
discount, an oversight, or an error in the
amount given? What would be DPO’s duty, if
any, in case of an excess in the amount of
change given by the vendor? How is this
situational relationship between Rj and
Mhealler denominated?
Suggested Answer UP Law Complex:
There was an error in amount of change
given by Rj. This is a case of solution indebiti
in that Mhealler received something that is
not due him. He has the obligation to return
the P100,oo; otherwise he will unjustly enrich
himself at the expense of RJ.
4. Delict, Art. 1161, Revised Penal Code Art.
100
-NCC: Article 1161. Civil obligations arising
from criminal offenses shall be governed by
the penal laws, subject to the provisions of
article 2177, and of the pertinent provisions
of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book,
regulating damages.
- (RPC) Article 100. Civil liability of a person
guilty of felony. - Every person criminally
liable for a felony is also civilly liable.
Such liability includes restitution,
reparation of the damage caused,
and indemnification of
consequential damages. (Art. 104)
People vs. Catubig, 153 SCRA SCAD 624, 363
SCRA 621 (2001)
- Unlike the criminal liability which is basically
a State concern, the award of damages,
however, is likewise, if not primarily,
intended for the offended party who suffers
thereby.
5. Quasi-delict (murag delict),…almost
See Art. 2176
A quasi-delict is a fault or negligence
which causes damages to another, there
being no pre-exisitng contractual relations
between the parties.
Requisites:
4
 #MYT
a) There must be fault or negligence Obligations of one obliged to give a
attributable to the person charged; determinate thing
b) Damage or inury;
c) Direct relation of cause and effect 1. To take good care of the thing with
between the fault or negligence on the diligence of a good father of a
one hand and the damage or injury family unless another degree of
on the other(proximate cause). diligence is required.
Proximate cause is that adequate and Per Atty. Mayol, the more
efficient cause, which in the natural order appropriate way of saying take
of events, necessarily produces the care (as an obligation) is “to
damages or injury complained of. preserve and maintain.”
Damnum absque injuria
A tort or QD could be a means of DoaGFoaF – the ordinay care that
breaching a contract. an average person exercises in
taking care of his property.
Air France vs. Carrascoso, 18 SCRA 155
- Neglect or malfeasance of the carrier's 2. To deliver the thing including its
employees could give ground for an action for accessories and accessions.
damages. Damages here are proper because (Accessory follows the principal)
the stress of respondent's action is placed
upon his wrongful expulsion, which is a - This involves placing the thing in
violation of a public duty by petitioner- air the possession or control of the
carrier — a case of quasi-delict. creditor either actually or
constructively.
6. Enumeration by law is exclusive
Ka-strikta ba ni Graziella Corollo oi 3. Deliver the fruit

a) Natural – the
Reyes vs. Lim, 408 SCRA 560 (2003) spontaneous products of
- The principle that no person may unjustly the soil and the young
enrich himself at the expense of another is and other products of
embodied in Article 22 of the Civil Code. This animals. (art. 442)
principle applies not only to substantive rights b) Industrial – those
but also to procedural remedies. One produced by land of any
condition for invoking this principle is that kind through cultivation
the aggrieved party has no other action or labor. (442)
based on contract, quasi-contract, c) Civil fruits result of a
crime, quasi-delict or any other provision of juridical relation such as
law. Courts can extend this condition to the rents, price of lease (442)
hiatus in the Rules of Court where the
aggrieved party, during the pendency of the 4. Damages in case of breach (1170)
case, has no other recourse based on the
provisional remedies of the Rules of Court. Obligations of Debtor in generic obligations:
a) Deliver a thing which is neither of
Makati Stock Exchange vs. Campos, 585 superior nor inferior quality;
SCRA 120 (2009) b) Damages in case of breach

- The Civil Code enumerates the sources of
obligations:
Art. 1157.Obligations arise from:
(1)Law;
(2)Contracts;
(3)Quasi-contracts;
(4)Acts or omissions punished by law; and
(5)Quasi-delicts.
- Therefore, an obligation imposed on a
person, and the corresponding right granted
to another, must be rooted in at least one of
these five sources.
C. Nature and Effect of Obligations, Art. 1163
Article 1163. Every person obliged to give
something is also obliged to take care of it
with the proper diligence of a good father of
a family, unless the law or the stipulation of
the parties requires another standard of
care.
Chavez vs. Gonzales, GR No. 27454, April 30,
1970, 32 SCRA 547
- it is clear that defendant-appellee
contravened the tenor of his obligation
because he, not only, did not repair the
typewriter but returned it in shambles,
according to the appealed decision. For such
contravention, as appellant contends, he is
liable under Article 1167 of the NCC.
Piczon vs. Piczon, 61 SCRA 67 (1974)
- Instead of requiring appellees to
pay interest
at 12% only from August 6, 1964, the trial
court should
have adhered to the terms of the agreement
which plainly
provides that Esteban Piczon had obligated
Sosing-Lobos
and Co., Inc. and himself to "return or pay (to
Piczon and
Co., Inc.) the same amount (P12,500.00) with
Twelve Per

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Cent (12%) interest per annum commencing
from the date
of the execution hereof", Annex A, which was
on
September 28, 1956.
1. In obligations to give (real obligations)
Article 1164. The creditor has a right to the
fruits of the thing from the time the
obligation to deliver it arises. However, he
shall acquire no real right over it until the
same has been delivered to him.
Regal is obliged to give Jamby Congson a
p articular parcel of land on Dec.
th
25,2012. Before the 25 , Jamby, the
creditor, has no right whatsoever over
the furits. Jamby is only entitled to the
fruits, when Dec. 25 has already arrived.
But if the fruits and the land are actually
or constructively delivered only on Dec.
30, jamby became the owner of the said
fruits and land only from Dec. 30. From
The period of Dec. 25- Dec30, Jamby
only has a personal right, only after
delivery did she acquire a real right over
the properties, a right that is enforceable
against the whole world.
1999 BAR Q:
Lyn Oliveros bound HIMself to sell to
Mhealler a house and lot which is being
rented by another person, if Mhealler passes
the BAR. (As expected) Mhealler topped the
BAR.
XXXXX
Is Mhealler entitled to the rentals collected
by Lyn before he TOPPED the BAR?
Suggested Answer:
No, Mhealler Ycong is not entitled to the
rentals collected by Lyn.
Under 1164, there is no obligation on the part
of Lyn to deliver the fruits (rentals in this
case) of the thing until the obligation to
deliver the thing arises. As the suspensive
condition of passing the BAR has not been
fulfilled yet at the time when the rentals were
collected, Lyn, the seller, has no obligation to
delivers the rentals to Mhealler.
Article 1165. When what is to be delivered is
a determinate thing, the creditor, in addition
to the right granted him by article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he
may ask that the obligation be complied with
at the expense of the debtor.
If the obligor delays, or has promised to
deliver the same thing to two or more
persons who do not have the same interest,
he shall be responsible for any fortuitous
event until he has effected the delivery.
Martinez Ycong Tibon
Article 1166. The obligation to give a
determinate thing includes that of delivering
all its accessions and accessories, even
though they may not have been mentioned.
Accessory follows the Principal
Accessions – everything that is produced
by a thing or is incorporated or attached
thereto, either artificially or naturally.
(Art. 440)
Accessories – those joined to or included
with the principal thing for the latter’s
better use, perfection or enjoyment
(keys to a car or a house, or the bracelet
of the wristwatch.)
a. determinate things, Art 1164-1166
A thing is determinate when it is
particularly designated or physically
segregated from all others of the same
class(1460).
b. generic things
A thing is indeterminate when it is not
particularly designated or physically
segregated from all others of the same
class
Importance of knowing whether or not
the thing is specific or generic:
As a rule, the loss of a determinate thing
thru a fortuitous event extinguishes the
obligation.
2. Effect, in obligations to give, Art. 1164-1166,
1169, 1170
NOTES:
Rights of the creditor in determinate
obligations:
a) Compel Specific performance; plus
b) DAMAGES (in addition to the right
granted to him under 1170)
In generic:
a) Ask performance of the obligation; or
b) Fulfillment of the obligation at the
debtor’s expense;
c) Damages under 1170 in either a or b
Personal right – a right that may be enforced
by one person on another, such as the right
of the creditor to demand the delivery of the
thing and its fruits from the debtor. This is
also called jus in personam or jus ad rem.
Real right – the right or power over a specific
thing, such as possession or ownership, which
is a right enforceacle against the whole world.
This is the right acquired by the creditor over
the thing and its fruits when they have been
delivered to him. This is also called jus in re.
Caleon vs. Agus Development Corp., 207
SCRA 748 (1992)
- The lease of a building would naturally
include the lease of the lot and that the
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rentals of the building include the rentals of
the lot.
San Lorenzo Development Corp. vs. CA, 449
SCRA 99 (2005)
- Therefore, sale by itself does not transfer or
affect ownership; the most that sale does is
to create the obligation to transfer
ownership. It is tradition or delivery, as a
consequence of sale, that actually transfers
ownership.
3. Obligations to do/not to do, Art. 1167-1168
Article 1167. If a person obliged to do
something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it
in contravention of the tenor of the
obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
In obligations to do, if debtor fails to perform
his obligation
I. Fails to perform or performs It but
contravenes the tenor therof:
5. Have the obligation executed at the
debtor’s expense
6. Damages (1170)
II. Debtor performed the obligation poorly:
1. What has been poorly done may be
undone. (also applicable to negative
obligations);
2. Damages (1170)
Article 1168. When the obligation consists in
not doing, and the obligor does what has
been forbidden him, it shall also be undone at
his expense.
Per Atty. Mayol – restore the condion of the
property before the violation (status quo)
Undoing of the act at the debtor’s expense
Taguilig vs. CA, 77 SCAD 647, 266 SCRA 78
(1997)
- When the windmill failed to function
properly it became incumbent upon
petitioner to institute the proper repairs in
accordance with the guaranty stated in the
contract. Thus, respondent cannot be said to
have incurred in delay; instead, it is petitioner
who should bear the expenses for the
reconstruction of the windmill. Article 1167
of the Civil Code is explicit on this point that if
a person obliged to do something fails to do
it, the same shall be executed at his cost.
4. Delay or Mora, Art. 1169-1170
Article 1169. Those obliged to deliver or to do
something incur in delay from the time the
obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall
not be necessary in order that delay may
exist:
#MYT
(1) When the obligation or the law
expressly so declare; or
(2) When from the nature and the
circumstances of the obligation it
appears that the designation of the time
when the thing is to be delivered or the
service is to be rendered was a
controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as
when the obligor has rendered it beyond
his power to perform.
In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not
ready to comply in a proper manner with
what is incumbent upon him. From the
moment one of the parties fulfills his
obligation, delay by the other begins.
Article 1170. Those who in the performance
of their obligations are guilty of fraud,
negligence, or delay, and those who in any
manner contravene the tenor thereof, are
liable for damages.
Grounds for liability to pay damages:
1. Fraud;
2. Negligence;
3. Delay;
4. Contravention of the tenor of the
obligaion
Damages refer to the harm done and the
sum of money that may be recovered;
while
Injury refers to the wrongful, unlawful or
tortuous act. It is the legal wrong to be
redressed.
Delay or default or mora is the non-
fulfillment of an obligation with respect
to time.
No demand no delay
Kinds:
1) Mora solvendi – on the part of the
debtor.
a) Ex re – real obligations (to
give )
b) Ex persona – personal
obligations (to do)
2) Mora accipendi - delay on the part
of the creditor
a) When he refuses to
accept the thing due
without justifiable reason
3) Compensation morae – delay in
reciprocal obligations, both parties
are in default. It is as if there is no
delay.
Mora solvendi:
1. There is no MS in negative
obligations (one cannot be late in
not doing or giving)
2. No mora in natural obligations
3. Requisites: (paras)
a) Obligation is Due;
b) There is non-performance;
7

c) Demand (unless demand is not
necessary). Mere reminder is
not demand;
d) Demand must be for the
obligation that is due.
4. Effects of MS:
a) May be liable for damages;
b) Bears the risk of loss
c) Liable even for a fortuitous
event
Mora Accipiendi
- the creditor is guilty of default when he
unjustifiably refuses to accept PAYMENT
(performance) at the time said payment
or performance can be done. (Related
topic; tender of payment
andconsignation)
Reciprocal obligations
a) Performance may be set on different
dates:
Example: delivery on Dec. 16 while
payment is on Dec 20
If the seller has already delivered the
goods, the buyer cannot be compelled to
pay yet despite performance by the
buyer since his (buyer) obligation to pay
is not yet due. Demand is proper only
when Dec. 20 has arrived. Since upon
delivery the seller cannot demand yet,
then the buyer cannot be in default as of
the date of delivery although the seller
has performed his obligation in this
example of reciprocal obligations.
b) If no date or dates were set or not set on
different dates, it is understood that
performance must be simultaneous and
the rule is one cannot compel
performance by the other if he himself is
not willing and able to perform what is
incumbent upon him. And when one
performs and the other does not, the
latter will be in default.
Bar 2002
Miguel Lumapas supplies printing paper to
Philip UY pursuant to an order agreement
under which Miguel binds himself to deliver
the same volume of paper every month for a
period of 18 months, with Philip in turn
agreeing to pay within 60 days after each
delivery. 10 months thereafter, Miguel
sopped delivering the agreed monthly volume
of paper because Philip has not made any
payment at all (for the first 10 months).
Miguel sued Philip for breach of contract
(damages). Philip avers that Miguel cannot
demand payment for deliveries until he has
completed the obligation. Is this contention
tenable?
Suggested Answer UP Law Complex:
Philip having failed to pay for the printing
paper covered by the delivery invoices on
time, Miguel has the right to cease further
delivery. And the latter did not violate the
order agreement(GR 115117 – 06-08-2000)
Martinez Ycong Tibon
Miguel cannot be held liable for damages, for
breach of contract, as it was not he who
violated the order agreement, but Philip.
When the debtor incurs delay in
obligations to give or to do:
GR: from the time creditor demands
fulfillment of the obligation but the
debtor fails to comply with such
demand. Requisites:
i. Debtor does not perform his
obligation on the date it is due;
ii. Creditor demands the
performance of the obligation;
iii. Debtor does not comply with the
creditor’s demand.
Exceptions (Art. 1169) (demand is not
necessary)
i. The LAWSO provides (ex: law on
partnership 1788);
ii. Obligation or Stipulation;
iii. Time is of the essence of the
contract;
iv. Useless because of impossibility
on the part of the debtor to
perform.
v. In reciprocal obligations, where
the obligation arise out of the
same cause and must be fulfilled
at the same time, from the
moment one of the parties fulfills
his obligation.
Effects of delay:
i. Debtor shall be liable for damages
(1170);
ii. If the obligation consists in the
delivery of a determinate thing, he
shall be responsible for any
fortuitous event until he has
effected the delivery. (1165)
De Cortez vs. Venturanza, 79 SCRA 709
(1977)
- One cannot admit being delayed in the
payment of his obligation unless he believes
that his obligation is already due and
demandable. Stated otherwise, there is no
delay if the obligation is not yet due.
Palmares vs. CA, GR No. 126490, March 31,
1998, 288 SCRA 422
-Demand on the sureties is not necessary
before bringing suit against them, since the
commencement of the suit is a sufficient
demand. On this point, it may be worth
mentioning that a surety is not even entitled,
as a matter of right, to be given notice of the
principal's default.
SSS vs. Moonwalk Development & Housing
Corp. , GR No. 73345, April 7, 1993, 221 SCRA
119
- In order that the penalty may arise there
must be a breach of the obligation either by
total or partial non fulfillment or there is non-
8

fulfillment in point of time which is called
mora or delay. The debtor therefore violates
the obligation in point of time if there is mora
or delay. Now, there is no mora or delay
unless there is a demand.
Binalbaga Tech, Inc. vs. CA, GR No. 100594,
March 10, 1993, 219 SCRA 777
- A party to a contract cannot demand
performance of the other party's obligations
unless he is in a position to comply with his
own obligations. Similarly, the right to
rescind a contract can be demanded only if a
party thereto is ready, willing and able to
comply with his own obligations thereunder.
Barzaga vs. Court of Appeals, GR No. 115129,
Feb. 12, 1997
- The law expressly provides that those who
in the performance of their obligation are
guilty of fraud, negligence, or delay and those
who in any manner contravene the tenor
thereof, are liable for damages.
Agcaoili vs. GSIS, GR No. L-30056, August 30,
1988, 165 SCRA 1
- "(i)in reciprocal obligations, neither party
incurs in delay if the other does not comply or
is not ready to comply in a proper manner
with what is incumbent upon him." (Art.
1169, last paragraph, Civil Code)
Tanguilig vs. Court of Appeals, GR NO.
117190, Jan. 2, 1997
-In reciprocal obligations, neither party incurs
in delay if the other does not comply or is not
ready to comply in a proper manner with
what is incumbent upon him. (Art. 1169, last
par., New Civil Code)
Vermen Realty vs. Court of Appeals, 224
SCRA 549 (1993)
- In reciprocal obligations, the performance of
one is conditioned on the simultaneous
fulfillment of the other obligation (Abaya vs.
Standard Vacuum Oil Co., 101 Phil. 1262
[1957])
Aerospace Chemical Industries, Inc. vs. Court
of Appeals, 315 SCRA 94
- Delay begins from the time the obligee
judicially or extrajudicially demands from the
obligor the performance of the obligation.
Art. 1169 states: "Art. 1169. Those obliged to
deliver or to do something incur in delay from
the time the obligee judicially or
extrajudicially demands from them the
fulfillment of their obligation." In order that
the debtor may be in default, it is necessary
that the following requisites be present: (1)
that the obligation be demandable and
already liquidated; (2) that the debtor delays
performance; and (3) that the creditor
requires the performance judicially or
extrajudicially.
*Malayan Insurance Co., Inc. vs. IAC, 146
SCRA 45
5. Responsibility from fraud, Art. 1171
#MYT
Article 1171. Responsibility arising from fraud
is demandable in all obligations. Any waiver
of an action for future fraud is void.
Fraud is the deliberate or intentional
evasion by the debtor of the normal
compliance of his obligation.
Article 1170. Those who in the
performance of their obligations are
guilty of fraud, negligence, or delay, and
those who in any manner contravene
the tenor thereof, are liable for
damages. (in the performance of the
obligation)
Kinds:
i. Dolo causante or causal fraud refers
to one without which consent
would not have been give. Renders
the contract voidable.
- (dolo causante) the kind of fraud that will
vitiate consent is one where, thru insidious
words or machinations of one of the
contracting parties, the other is induced to
enter into a contract which, without them, he
would not have agreed to. This is also known
as causal fraud which is basically a deception
employed by one party prior to or
simultaneous to the contract in order to
secure the consent of the other. (Samson vs.
CA, GR No. 108245, Nov. 25, 1994, 238 SCRA
397)
ii. Dolo incidente or incidental fraud –
this refers to fraud without which
consent would have still been given
but the person giving it would have
agreed on different terms. Contract
is valid but the party employing the
fraud shall be liable for damages.
Far East Bank & Trust Co. vs. Court of
Appeals, 59 SCAD 253, 241 SCRA 671
(1995)
- Article 21 is a mere declaration of a general
principle in human relations that clearly must,
in any case, give way to the specific provision
of Article 2220 of the Civil Code authorizing
the grant of moral damages in culpa
contractual solely when the breach is due to
fraud or bad faith.
- 'In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for
all damages which may be reasonably
attributed to the non-performance of the
obligation."
- In contracts and quasi-contracts, the court
may award exemplary damages if the
defendant is found to have acted in a wanton,
fraudulent, reckless, oppressive, or
malevolent manner.
6. Responsibility from negligence, Art. 1172
Article 1172. Responsibility arising from
negligence in the performance of every kind
of obligation is also demandable, but such
9
 Martinez Ycong Tibon
liability may be regulated by the courts, 3. Culpa Criminal
according to the circumstances.
Culpa Culpa Culpa
Negligence is the omission of that diligence Contractual Aquiliana Criminal
which is required by the nature of the Negligence is Negligence is Negligence is
obligation and corresponds with the merely direct and direct and
circumstances of the person, of the time, and incidental, substantive substantive
o the place (1173) incident to the and and
It is the failure to observe, for the protection performance independent independent
of the interest of another person, that of an
degree of care, precaution and vigilance obligation
which the circumstances justly demand, already
whereby such other person suffers existing
injury.(NPC vs. Heirs of Casionan) because of a
The test of negligence is whether the contract
defendant in doing the alleged negligent act Pre-exisiting No Pre-existing No Pre-
used that reasonable care and caution which obligation oblig (except existing oblig
an ordinary person would have used in the the duty to be (except the
same situation. carefuk in all duty never to
human harm others)
Dolo Culpa relations)
Deliberate intention alThough voluntary, Preponderance Preponderance Beyond
to cause damage or still there is no of evidence reasonable
prejudice Deliberate intention doubt
to cause damage (criminal)
No mitigation or May be reduced in Good father of Good father of Not a defense
reduction by the certain cases a family is not a family in the here.
courts a defense selections and Employee’s
Waiver of an action Waiver of an action supervision of guilt is
to enforce liability to enforce liability employees is a automatically
due to future fraud is due to future culpa proper and employer’s
void in a certain sense be complete civil guilt, in
allowed. (remember defense case of
transpo) insolvency
Proof of Ordinarily, Accused is
Stipulations regarding Negligence: existence of Victim has to presumed
c) Gross negligence ca never be excused in the contract prove the innocent until
advance for this would be contrary to public and the breach negligence of the contrary
policy thereof, the defendant is proved.
d) Simple negligence may in certain cases be liability is Prosecution
excused or mitigated attached and has the
the debtor is burden of
Kinds: duty bound proving
1. Culpa contractual – negligence in the that there was his(accused)
performance of a contract (contract of no negligence negligence
common carriage) in carrying out
the terms of
Saludaga vs FEU GR 179337, 04-30-08 the contract

S a student of FEU was shot and wounded by
G, a security guard of the school, while inside
the campus. S sued FEU for damages on the
ground that it breached its obligation under
the enrollment contract to provide students
with a safe and secure environment and an
atmosphere conducive to learning.
Held:
PNB vs. CA, GR No. 126152, Sept. 28, 1999,
315 SCRA 309
-While petitioner's negligence in this case
may not have been attended with malice and
bad faith, nevertheless, it caused serious
anxiety, embarrassment and humiliation to
private respondent Lily S. Pujol for which she
is entitled to recover reasonable moral
damages.

FEU is liable for damages for breach of
contract due to negligence in providing a safe
learning environment. It is settled that in
culpa contractual, the mere proof of the
existence of the contract and the failure of its
compliance justify, prima facie,
corresponding right of relief.
2. Culpa Aquiliana (tort;quasi-delict; extra
contractual) - acts or omissions that cause
damage to another, there being no contractual
relation between the parties. (2176)
-Damages are not intended to enrich the
complainant at the expense of the defendant,
and there is no hard-and-fast rule in the
determination of what would be a fair
amount of moral damages since each case
a must be governed by its own peculiar facts.
The yardstick should be that it is not palpably
and scandalously excessive.
Southeastern College, Inc. vs. Court of
Appeals, Juanita de Jesus Vda. De Dimaano,
et. al., July 10, 1998, 292 SCRA 422

10

- When a person's negligence concurs with an
act of God in producing damage or injury to
another, such person is not exempt from
liability by showing that the immediate or
proximate cause of the damage or injury was
a fortuitous event. When the effect is found
to be partly the result of the participation of
man — whether it be from active
intervention, or neglect, or failure to act —
the whole occurrence is hereby humanized,
and removed from the rules applicable to acts
of God.
- It is not enough that the damage be capable
of proof but must be actually proved with a
reasonable degree of certainty, pointing out
specific facts that afford a basis for measuring
whatever compensatory damages are borne.
7. Degree of Diligence, Art. 1173
Article 1173. The fault or negligence of the
obligor consists in the omission of that
diligence which is required by the nature of
the obligation and corresponds with the
circumstances of the persons, of the time and
of the place. When negligence shows bad
faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a
good father of a family shall be required.
Negligence - It is the failure to observe,
for the protection of the interest of
another person, that degree of care,
precaution and vigilance which the
circumstances justly demand, whereby
such other person suffers injury (NPC vs
heirs of casionan)
Samson vs. CA, GR No. 108245, Nov. 25,
1994, 238 SCRA 397
-Bad faith is essentially a state of mind
affirmatively operating with furtive design or
with some motive of ill-will. It does not simply
connote bad judgment or negligence.
- (dolo causante) the kind of fraud that will
vitiate consent is one where, thru insidious
words or machinations of one of the
contracting parties, the other is induced to
enter into a contract which, without them, he
would not have agreed to. This is also known
as causal fraud which is basically a deception
employed by one party prior to or
simultaneous to the contract in order to
secure the consent of the other.
Dioquino vs. Laureano, GR No. L-25906, May
28, 1970, 33 SCRA 65
-it cannot be concluded that plaintiff was
prompted solely by the desire to inflict
needless and unjustified vexation on the
defendants.
- 1174 “no one should be held to account for
fortuitous cases”
#MYT
-where the risk is quite evident such that the
possibility of danger is not only foreseeable,
but actually foreseen, then it could be said
that the nature of the obligation is such that a
party could rightfully be deemed to have
assumed.
- 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.
Jarco Marketing Corporation vs. CA, 117
SCAD 818, 321 SCRA 375 (1999)
- “Attractive Nuisance” – One who maintains
on his premises dangerous instrumentalities
or appliances of a character likely to attract
children in play, and who fails to exercise
ordinary care to prevent children from
playing therewith or resulting thereto, is
liable to a child of tender years who is injured
thereby, even if the child is technically a
trespasser.
- this attractiveness is an implied invitation.
-Negligence, explained.
-Accident and negligence are intrinsically
contradictory.
-Test in determining existence of negligence.
(Picart vs. Smith)
-Children below 9 years old are conclusively
presumed incapable of contributory
negligence.
People vs. Fallouna, 424 SCRA 655 (2004)
- Accident and Negligence Distinguished.
Accident is a fortuitive circumstance, event or
happening; an event happening without any
human agency, or if happening wholly or
partly thru human agency, an event which
under the circumstance is unusual or
unexpected by the person to whom it
happens.
Negligence, on the other hand, is the failure
to observe, for the protection of the interest
of another person, that degree of care,
precaution and vigilance which the
circumstances justly demand without which
such other person suffers injury.
=a. stipulations of the parties
=b. diligence of a good father of the family
DoaGFoaF – the ordinay care that an
average person exercises in taking care of
his property.
=c. extraordinary diligence, common carriers,
Art. 1733,. 1755
Article 1173. The fault or negligence of the
obligor consists in the omission of that
diligence which is required by the nature of
the obligation and corresponds with the
11

circumstances of the persons, of the time and
of the place. When negligence shows bad
faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
Article 1755. A common carrier is bound to
carry the passengers safely as far as human
care and foresight can provide, using the
utmost diligence of very cautious persons,
with a due regard for all the circumstances.
Philippine Airlines vs. Court of Appeals, 106
SCRA 391
- a common carrier is required is required to
exercise the highest degree of care in the
discharge of its business.
La Mallorca vs. Court of Appeals, 17 SCRA
739
- (same principle)
Facts, made basis for the finding of
negligence
-the driver, although stopping the bus,
nevertheless did not put off the engine.
Secondly, he started to run the bus even
before the bus conductor gave him the signal
to go and while the latter was still unloading
part of the baggage of the passengers
Mariano and Beltran family.
8. Fortuitous events, Art. 1174
Article 1174. Except in cases expressly
specified by the law, or when it is otherwise
declared by stipulation, or when the nature of
the obligation requires the assumption of risk,
no person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.
Elements:
1. the cause must be independent of the
debtor’s will;
2. There must be impossibility of
foreseeing the event or of avoiding it even if
it can be foreseen;
3. The occurrence of the event must be of
such character as to render it impossible for
the debtor to perform his obligation in a
normal manner. (Sicam vs. Jorge).
Observation: dapat kaha i-apil tong dili sya
dapat guilty of negligence or misconduct??
Ask your prof beh,,pls…
it is not enough that the event should
not been foreseen or anticipated, but it
must be one impossible to foresee or
avoid. (Sicam vs. Jorge, GR 159617 08-
08-07)
Burden of proving that the loss was due
to FE rests on the one invoking.
It is necessary that the party invoking FE
as defense must not be guilty of
negligence or misconduct that may have
occasioned the loss (Sicam vs. Jorge)
Martinez Ycong Tibon
Exceptions:
1. LAWSO provides;
2. Stipulated by the parties;
3. The Nature of the obligation requires the
assumption of risk. (ex. insurance)
CASES
Asian Construction & Dev. Corp. vs. PCIB,
488 SCRA 192 (2006)
-“the debtor in obligations to do shall also be
released when the prestation becomes legally
or physically impossible without the fault of
the obligor”
Fil-Estate Properties, Inc. vs. Go, 530 SCRA
624 (2007)
-whether it is a fortuitous event is a question
of fact
-financial crisis that ensued in ASIA did not
constitute a valid justification to renege on
obligations, not among the fortuitous events
contemplated under 1174.
Victorias Planters Asso., Inc. vs. Victorias
Milling Co. (GR No. L-6648, July 25, 1955, 97
SCRA 318
- The stipulation in the contract that in the
event of force majeure the contract shall be
deemed suspended during said period does
not mean that the happening of any of those
events stops the running of the period agreed
upon. It only relieves the parties from the
fulfillment of their respective obligations
during that — the petitioners from delivering
sugar cane and the respondent central from
milling it.
-In order that the respondent central may be
entitled to demand from the petitioners the
fulfillment of their perform it but failed or
refused to do so and not when they were
prevented by force majeure such as war. To
require the petitioners to deliver the sugar
cane which they failed to deliver during the
six years is to demand from them the
fulfillment of an obligation which was
impossible of performance at the time it
became due. Nemo tenetur ad impossibilia.
The respondent central not being entitled to
demand from the petitioners the
performance of the latter's part of the
contracts under those circumstances cannot
later on demand its fulfillment. The
performance of what the law has written off
cannot be demanded and required. the
prayer that the petitioners be compelled to
deliver sugar cane for six more years to make
up for what failed to deliver, the fulfillment of
which was impossible, if granted would in
effect be an extension of the terms of the
contracts entered into by and between the
parties.
Ace-Agro Dev. Corp. vs. CA, GR No. 119729,
Jan. 21, 1997
- The suspension of work under the contract
was brought about by force majeure.
12

Therefore, the period during which work was
suspended did not justify an extension of the
term of the contract. For the fact is that the
contract was subject to a resolutory period
which relieved the parties of their respective
obligations but did not stop the running of
the period of their contract.
Republic vs. Luzon Stevedoring, GR No. L-
21749, Sept. 29, 1967
- Caso fortuito or force majeure (which in law
are identical insofar as they exempt an
obligor from liability) by definition, means
extraordinary events not forseeable or
avoidable, "events that could not be forseen,
or which though foreseen, were inevitable." It
is therefore not enough that the event should
not have been forseen or anticipated, but it
must be one impossible to foresee or to
avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the
same: "un hecho no constituye caso fortuito
por la sola circunstancia de que su existencia
haga más dificil o más onerosa la acción
diligente del presénto ofensor."
9. Usurious transactions, Art. 1175
Article 1175. Usurious transactions shall be
governed by special laws.
Cauton vs. Court of Appeals, GR No. 158382,
Jan. 27, 2004
-Stipulations authorizing iniquitous or
unconscionable interests are contrary to
morals ('contra bonos mores'), if not against
the law. Under Article 1409 of the Civil Code,
these contracts are inexistent and void from
the beginning. They cannot be ratified nor the
right to set up their illegality as a defense be
waived.
Liam Law vs. Olympic Sawmill Co., 129 SCRA
439 (1984)
- For sometime now, usury has been legally
non-existent. Interest can now be charged as
lender and borrower may agree upon (Central
Bank Circular No. 905, Series of 1982, 78 Off.
Gaz. 7336).
Almeda vs. CA, 70 SCAD 248, 256 SCRA 292
(1996)
- The manner of agreement is itself explicitly
stipulated by the Civil Code when it provides,
in Article 1956 that "No interest shall be due
unless it has been expressly stipulated in
writing." What has been "stipulated in
writing" from a perusal of interest rate
provision of the credit agreement signed
between the parties is that petitioners were
bound merely to pay 21% interest, subject to
a possible escalation or de-escalation, when
1) the circumstances warrant such escalation
or de-escalation; 2) within the limits allowed
by law; and (3) upon agreement.
- While the Usury Law ceiling on interest rates
was lifted by C.B. Circular 905, nothing in the
said circular could possibly be read as
granting respondent
bank carte blanche authority to raise
#MYT
interest rates to levels which would either
enslave its borrowers or lead to a
hemorrhaging of their assets.
10. Presumptions
Article 1176. The receipt of the principal by
the creditor without reservation with respect
to the interest, shall give rise to the
presumption that said interest has been paid.
The receipt of a later installment of a debt
without reservation as to prior installments,
shall likewise raise the presumption that such
installments have been paid.
Disputable presumtions ra ni sila,.. ingon
si Jesa Balahadia
Manila Trading & Supply Co. vs. Medina, 2
SCRA 549 (1961)
- The presumption that prior installments
were paid upon the presentation of a receipt
of payment subsequent thereto, is only prima
facie.
Ledesma vs. Realubin, 8 SCRA 608 (1963)
- Where the creditor proved as a fact that
prior purchases were for cash, the
presumption of payment of prior obligations
under Article 1171 of the new Civil Code
cannot prevail. Between a proven fact and a
presumptionpro tanto, the former stands,
and the latter falls.
11. Remedies of the Creditor, Art. 1177
Article 1177. The creditors, after having
pursued the property in possession of the
debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the
latter for the same purpose, save those which
are inherent in his person; they may also
impugn the acts which the debtor may have
done to defraud them.
Rights of creditors:
Exact payment;
Exhaust debtor’s properties, generally by
attachment (take note of those
exempted by law);
Accion subrogatoria – that is, exercising
all rights and actions except those
inherent in the person (like parental
authority; to hold office). Not the
remedy of subrogation referred to under
the law on Novation.
Accion pauliana (impugn or rescind acts
or contracts done by the debtor in fraud
of the creditor.)
Adorable vs. Court of Appeals, GR No.
119466, Nov. 25, 1999, 319 SCRA 511
- The following successive measures must be
taken by a creditor before he may bring an
13

action for rescission of an allegedly
fraudulent sale:
(1) exhaust the properties of the debtor
through levying by attachment and execution
upon all the property of the debtor, except
such as are exempt by law from execution;
(2) exercise all the rights and actions of the
debtor, save those personal to him (accion
subrogatoria); and
(3) seek rescission of the contracts executed
by the debtor in fraud of their rights (accion
pauliana).
8. Rule on transmissibility of rights and
exceptions thereto:
Article 1178. Subject to the laws, all rights
acquired in virtue of an obligation are
transmissible, if there has been no stipulation
to the contrary.
GR: all rights are transmissible.
EXC:
1. Prohibited by law;
2. Stipulation against transmission;
3. right is by nature not transmissible.
D. Different Kinds of Obligations
Article 1179. Every obligation whose
performance does not depend upon a future
or uncertain event, or upon a past event
unknown to the parties, is demandable at
once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of
the event.
1. Pure and Conditional Obligations
Article 1179. Every obligation whose
performance does not depend upon a future
or uncertain event, or upon a past event
unknown to the parties, is demandable at
once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of
the event.
a. pure obligations
- one without a term or condition and is
demandable at once.
Galar vs. Isasi, 47 O.G. 6241
- A demand note was subject neither to
suspensive condition nor a suspensive period.
The demand
was not a condition precedent since the
effectivity and
binding effect of the note does not depend
upon the
making of the demand. The note was binding
even before
the demand is made. Neither did the note
Martinez Ycong Tibon
constitute an
implied suspensive period since there was
nothing to
prevent the creditor for making demand at
any time. It
follows, therefore, that the demand note was
strictly a pure
obligation as defined in Article 1179.
Pay vs. vda de Palanca, 547 SCRA 618, June
28, 1974
- "Every obligation whose performance does
not depend upon a future or uncertain event,
or upon a past event unknown to the parties,
is demandable at once."
- The obligation being due and demandable, it
would appear that the filing of the suit after
fifteen years was much too late.
b. conditional obligations
- One, the demandability or
extinguishment of which, depends upon
the happening of a condition.
Condition, according to TAMAE
TAKAHASHI is an uncertain event which
wields an influence on a legal
relationship. Nya gisuon daun ni
Manresa.
c. classification of conditions (according to
Josie Uy)
1. Suspensive and Resolutory
2. Potestative, Casual and Mixed
3. Possible and Impossilble
4. Positive and Negative
5. Divisible and Indivisible
Divisible – one that is capable of partial
performance.
Note: 1183 If the obligation is divisible, that
part thereof which is not affected by the
impossible or unlawful condition shall be
valid.
Indivisible – not capable of partial
performance ny its nature or by law or by
stipulation.
Ka-char jud nis madam Josie Oi…
Insular Life Assurance Co., Ltd. vs. Toyota
Bel-Air, Inc., 550 SCRA 70 (2008)
- When a contract is subject to a suspensive
condition, its birth or effectivity can take
place only if and when the event which
constitutes the condition happens or is
fulfilled, and if the suspensive condition does
not take place, the parties would stand as if
the conditional obligation has never existed.
- Thus, the issuance of 12 postdated checks
and the posting of a surety bond are positive
suspensive conditions of the Compromise
Agreement, the non-compliance with which
14

was not a breach, casual or serious, but a
situation that prevented the obligation under
the Compromise Agreement from acquiring
obligatory force. For its non-fulfillment, there
was no contract or agreement to speak of,
Toyota having failed to comply or perform the
suspensive conditions which enforce a
juridical relation.
Gaite vs. Fonacier, GR No L-11827, 2 SCRA
381
- What characterizes a conditional obligation
is the fact that its efficacy or obligatory force
is subordinated to the happening of a future
and uncertain event; so that if the suspensive
condition does not take place, the parties
would stand as if the conditional obligation
had never existed.
Coronel vs. CA, GR No. 103577, Oct 7, 1996
-In a contract to sell, upon the fulfillment of
the suspensive condition which is the full
payment of the purchase price, ownership
will not automatically transfer to the buyer
although the property may have been
previously delivered to him. The prospective
seller still has to convey title to the
prospective buyer by entering into a contract
of absolute sale. A contract to sell as defined
hereinabove, may not even be considered as
a conditional contract of sale where the seller
may likewise reserve title to the property
subject of the sale until the fulfillment of a
suspensive condition, because in a
conditional contract of sale, the first element
of consent is present, although it is
conditioned upon the happening of a
contingent event which may or may not
occur. If the suspensive condition is not
fulfilled, the perfection of the contract of sale
is completely abated (cf. Homesite and
Housing Corp. vs. Court of Appeals, 133 SCRA
777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is
thereby perfected, such that if there had
already been previous delivery of the
property subject of the sale to the buyer,
ownership thereto automatically transfers to
the buyer by operation of law without any
further act having to be performed by the
seller.
Central Philippine University vs. CA, GR No.
112127, July 17, 1995, 246 SCRA 511, 63
SCAD 72
- Under Art. 1181 of the Civil Code, on
conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of
those already acquired, shall depend upon
the happening of the event which constitutes
the condition. Thus, 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. 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
#MYT
land, otherwise, it would be invading the
property rights of the donor. The donation
had to be valid before the fulfillment of the
condition. If there was no fulfillment or
compliance with the condition, such as what
obtains in the instant case, the donation may
now be revoked and all rights which the
donee may have acquired under it.
Luzon Brokerage Co., Inc. vs. Maritime
Building Co., Inc. GR No. L-25885, 46 SCRA
381
- The contract between the parties was a
contract to sell or conditional sale with title
expressly reserved in the vendor Myers
Building Co., Inc., (Myers) until the suspensive
condition of full and punctual payment of the
full price shall have been met on pain of
automatic cancellation of the contract upon
failure to pay any of the monthly installments
when due and retention of the sums
theretofore paid as rentals.
- Article 1592 (formerly Article 1504) of the
new Civil Code is not applicable to such
contracts to sell or conditionalsales and no
error was committed by the trial court in
refusing to extend the periods for payment.
- “The stubborn fact is that there can be no
rescission or resolution of an obligation as yet
non-existent, because the suspensive
condition did not happen.”
d. Obligations with a Period, Art. 1180
Article 1180. When the debtor binds himself
to pay when his means permit him to do so,
the obligation shall be deemed to be one with
a period, subject to the provisions of article
1197.
Similar phrases:
“when my means permit me to do so”
“when I can afford it”
When I am able to”
When I have money”
Article 1197. If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a period
was intended, the courts may fix the duration
thereof.
The court shall also fix the duration of the
period when it depends upon the will of the
debtor.
In every case the courts shall determine such
period as may under the circumstances have
been probably contemplated by the parties,
once fixed by the courts, the period cannot
be changed by them.
e. Kinds of Conditional Obligations:
suspensive and resolutory, Art. 1181
15

Article 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the happening of
the event which constitutes the condition.
Suspensive – the happening of
which gives rise to the obligation;
Resolutory – the happening of
which extinguishes the obligation.
Lichauco vs. Figueras Hermanos, 7 Phil 339
- In conditional obligations, the acquisition of
rights, as well as the extinction or loss of
those already acquired, shall depend upon
the event constituting the condition.
Jacinto vs. Kaparaz, 209 SCRA 246 (1992)
- In contract to sell, ownership is retained by
the seller and is not to pass until full payment
of the price. Such payment is a positive
suspensive condition the failure of which is
not a breach, casual or serious, but simply an
event that prevents the obligation of the
vendor to convey title from acquiring
binding force. In such a situation, to argue
that there was only a casual breach is to
proceed from the assumption that the
contract is one of absolute sale, where non-
payment is a resolutory question. Otherwise
stated, as capsulized in Luzon Brokerage Co.,
vs. Maritime Building Co., Inc., 46 SCRA 381
[1972] there can be no rescission or
resolution of an obligation as yet non-
existent, because the suspensive condition
did not happen. On the other hand, since in a
contract of sale, the non-payment of the
price is a resolutory condition, the remedy of
the seller under Article 1191 of the Civil Code
is to exact fulfillment or to rescind the
contract.
Santiago vs. Millar, 68 Phil. 39 (1939)
- The presentation or surrender of the ticket
is a condition precedent of payment. The
contract is aleatory in nature (art. 1790, Civil
Code), and the contracting parties may
establish any agreements, terms and
conditions they may deem advisable,
provided they are not contrary to law, morals,
or public order (art. 1255, Civil Code).
Ramos vs. CA, 80 SCAD 29, 279 SCRA 118
(1997)
Ducusin vs. CA, 122 SCRA 280 (1983)
- "The resolutory condition in the contract of
lease re: the need of the lessor's children of
the leased premises is not a condition the
happening of which is dependent solely upon
the will of the lessor. The happening of the
condition depends upon the will of a third
person - the lessor's children. Whenever the
latter require the use of the leased premises
for their own needs, then the contract of
lease shall be deemed terminated. The
Martinez Ycong Tibon
validity of the said condition as agreed upon
by the parties stands."
f. Potestative, casual and mixed conditions,
Art. 1182
Article 1182. When the fulfillment of the
condition depends upon the sole will of the
debtor, the conditional obligation shall be
void. If it depends upon chance or upon the
will of a third person, the obligation shall take
effect in conformity with the provisions of
this Code.
Potestative – a condition that depends upon
the will of one of the contracting parties
a. potestative on the part of the debtor
i. if suspensive – the obligation is void.
(1182). Even if condition is fulfilled, the
obligation is not demandable.
ii. If resolutory – obligation is valid.
b. Potestative on the part of the creditor –
obligation is valid .
Casual – depends upon chance or upon the
will of a third person.
Mixed - depends partly upon the will of one
of the parties and partly upon chance or upon
the will of a third person.
Rustan Pulp vs. IAC, GR No. 70789, Oct. 19,
1992, 214 SCRA 665
-A purely potestative imposition of this
character must be obliterated from the face
of the contract without affecting the rest of
the stipulations considering that the
condition relates to the fulfillment of an
already existing obligation and not to its
inception. It is, a truism in legal jurisprudence
that a condition which is both potestative
(or facultative) and resolutory may be valid,
even though the saving clause is left to the
will of the obligor.
Osmena vs. Rama. 14 Phil 99 (1909), Sept. 9,
1909
- A condition imposed upon a contract by
the promisor, the performance of which
depends upon his exclusive will, is void, in
accordance with the provisions of article 1115
of the Civil Code.
Naga Telephone Co., Inc. vs. Court of
Appeals, 230 SCRA 351 (1994)
- A potestative condition is a condition, the
fulfillment of which depends upon the sole
will of the debtor, in which case, the
conditional obligation is void. Based on this
definition, respondent court's finding that the
provision in the contract, to wit: "(a) That the
term or period of this contract shall be as
long as the party of the first part (petitioner)
has need for the electric light posts of the
16

party of the second part (private respondent)
. . ." is a potestative condition, is correct.
However, it must have overlooked the other
conditions in the same provision, to wit: ". . .
it being understood that this contract shall
terminate when for any reason whatsoever,
the party of the second part (private
respondent) is forced to stop, abandoned
(sic) its operation as a public service and it
becomes necessary to remove the electric
light post (sic);" which are casual conditions
since they depend on chance, hazard, or the
will of a third person. In sum, the contract is
subject to mixed conditions, that is, they
depend partly on the will of the debtor and
partly on chance, hazard or the will of a third
person, which do not invalidate the
aforementioned provision.
Lao Lim vs. CA, Gr No. 87047, Oct. 31, 1990,
191 SCRA 150
Trilllana vs. Quezon College, GR No. L-5003,
June 27, 1953, 93 Phil 383
Patente vs. Omega, R No. L-4433, May 29,
1953, 93 Phil. 218
- Article 1115 of the Civil Code provides that
"When the fulfillment of the condition
depends upon the sole will of the debtor, the
conditional obligation shall be void."
- it is so unfair to leave sole will of the debtor
as to leave the sole discretion of the creditor.
- A third party must determine that period,
taking into account the circumstances under
which the loan was granted. So Article 1128,
inspired by a true sense of justice, provides
that "if the obligation not point run, but its
nature and circumstances it is apparent that
the debtor wanted granted, the court shall
determine the length of that. Shall also set
the The duration of the courts when it has
been left at will of the debtor. "
Angeles vs. CA, GRNo. 11182, Nov. 8, 1993
g. Impossible Conditions, Art. 1183
Article 1183. Impossible conditions, those
contrary to good customs or public policy
and those prohibited by law shall annul the
obligation which depends upon them. If the
obligation is divisible, that part thereof which
is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing
shall be considered as not having been
agreed upon.
Examples of Atty. Mayol:
I will give you 5m if you can make a square
circle.
I will give you 5m if you can give me a cow’s
milk taken from a goat.
(both are impossible)
I will give you 5m if you will kill X (illegal or
prohibited by law)
#MYT
Possible – one that is capable of fulfillment in
its nature and by law.
Impossible – not capable of fulfillment in its
nature or due to operation of law, such as “if
you can swim across the Pacific ocean” or “if
you kill X”. both the obligation and the
condition are void.
Note: if the condition is not to do an
impossible thing, it shall be deemed as not
having been agreed upon. (1183). Obligation
is demandable at once.
h. Positive and Negative Conditions, Art. 1184-
1185
Article 1184. The condition that some event
happen at a determinate time shall extinguish
the obligation as soon as the time expires or if
it has become indubitable that the event will
not take place.
- this article speaks of a positive condition
- I will give you (Alpo Minguez) my land if you
marry Josie Uy this year (until Dec. 31, 2012).
If by the end of the year, Josie is already
dead, or Alpo Minguez has not yet married
her; the obligation is extinguished
Reasons:
1. expiration;
2. it has become indubitable that Minguez
could no longer marry her since she is already
dead.
Another reason but do not answer this way in
the exam because this is based on reality:
Dakong imposible kung mupatol si Josie ni
Minguez,..hehehe,..
Article 1185. The condition that some event
will not happen at a determinate time shall
render the obligation effective from the
moment the time indicated has elapsed, or if
it has become evident that the event cannot
occur.
If no time has been fixed, the condition shall
be deemed fulfilled at such time as may have
probably been contemplated, bearing in mind
the nature of the obligation.
-this article refers to a negative condition
Positive – a condition that some event happen
at a determinate time. The obligation is
extinguished as soon as the time expires or it
has become indubitable that the event will not
take place. (1184)
Negative – a condition that some event will
not happen at a determinate time. The
obligation becomes effective as soon as the
time indicated has elapsed or it has become
evident that the event will not occur. (1185)
Example:
17

I will give you (Jason minguez) 1m if by the
end of the year, you have not yet married
married Josie Uy. If by said date, Jason is not
yet married or if before the year ends she has
already died, the obligation is effective.
Reasons:
1. the time indicated has elapsed;
2. death makes it evident that the marriage
will not occur
Another reason, still not for exam purposes:
3. as if no condition,.. there’s no way na
musugot lage si Josie ni Minguez,, d man gani
sya musugot nko, minguez na nuon,..
i. Constructive Fulfillment, Art. 1186
Article 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents
its fulfillment. (suspensive)
Obligation becomes immediately
demandable.
Presumed fulfillment
Requisites:
I. Voluntarily made – (either
malicious or not, the intent to
prevent is present)
II. Actually prevents – (intention
without prevention, or prevention
without intention is not sufficient)
Example:
Nyera Yu promised to give Wilma Rada a car if
Mhealler Ycong wiil pass the BAR. For
Mhealler, passing the BAR is certain (murag
period), however, during the first Sunday,
Nyera Yu locked Mhealler’s room while the
latter was still inside preaparing for the BAR.
Aside from the fact that she has lascivious
intent for Mhealler, she locked his room so
that Mhealller could not go to UST to take
and top the BAR. Mhealler was fortunate that
Nyera was successful with the first
reason,,unfortunately ,for Mhealler, he did
not Top or even pass the BAR. what happens
to Nyera’s obligation to Wilma?
- Condition is Deemed fulfilled since Nyera
the debtor caused the nonfulfillment of the
agreed condition. The principle of
Constructive or Presumed Fulfillment is
applicable to this case. BLEH
Tayag vs. CA, GR No. 103577, Oct. 7,. 1996
(murag sayop ning yellow maam,.hehe) (G.R.
No. 96053. March 3, 1993)
- Anent the P10,000.00 specified as second
installment, the lower court counted against
the vendors the candid statement of Josefina
Tayag who sat on the witness stand and made
the admission that the check issued as
payment thereof was nonetheless paid on a
staggered basis when the check was
dishonored (TSN, September 1, 1983, pp. 3-4;
p. 3, Decision; p. 66, Rollo). Regarding the
third condition, the trial court noted that
plaintiff below paid more than P6,000.00 to
the Philippine Veterans Bank but Celerina
Labuquin, the sister and co-vendor of Juan
Martinez Ycong Tibon
Galicia, Sr. paid P3,778.77 which
circumstance was construed to be a ploy
under Article 1186 of the Civil Code that
"prematurely prevented plaintiff from paying
the installment fully" and "for the purpose of
withdrawing the title to the lot". The
acceptance by petitioners of the various
payments even beyond the periods agreed
upon, was perceived by the lower court as
tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil
Code. Furthermore, the trial court noted that
private respondent consigned P18,520.00, an
amount sufficient to offset the remaining
balance, leaving the sum of P1,315.00 to be
credited to private respondent.
Ong vs. Bognalbal, 501 SCRA 490 (2006)
- Assuming that there was indeed a novation
of the obligation of petitioner Ong to pay the
fourth billing so as to include as additional
condition the completion of the Kenzo
flooring, such new condition would,
nevertheless, be deemed fulfilled. This is
pursuant to Article 1186 of the Civil Code,
which provides:
The condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment.
According to petitioner Ong herself:
“Petitioner sent [respondent Bogñalbal]
letters demanding that he should return to
the jobsite with his people and comply with
his commitment. When the demand letters
were ignored, petitioner was constrained to
hire the services of another contractor, for
which she had to unnecessarily incur expenses
in the amount of P78,000.00. But just the
same, the completion of the project was
delayed for eighty two (82) days, which also
caused petitioner additional damages.”
j. Fulfillment of conditions
Article 1187. The effects of a conditional
obligation to give, once the condition has
been fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal
prestations upon the parties, the fruits and
interests during the pendency of the
condition shall be deemed to have been
mutually compensated. If the obligation is
unilateral, the debtor shall appropriate the
fruits and interests received, unless from the
nature and circumstances of the obligation it
should be inferred that the intention of the
person constituting the same was different.
In obligations to do and not to do, the courts
shall determine, in each case, the retroactive
effect of the condition that has been
complied with.
GR: The effect of the fulfillment of the
suspensive condition retroacts to the day of
the constitution of the obligation.
EXC: There shall be no retroactive eefect with
respect to the fruits and interests as follows:
18

1. In reciprocal Oblgations, the fruits and
interests shall be deemed to have been
mutually compensated. Parties will keep the
fruits and interests received by him prior to
the fulfillment of the condition.
2, In Unilateral, the debtor keeps the fruits
and interests received before the fulfillment
of the condition.
Enriquez vs. Ramos, 73 SCRA 116 (1976)
- The deed of sale with mortgage makes it the
express duty of the defendant-appellee to
pay the realty taxes on the mortgaged lots, to
register the mortgaged estates, and to
contribute P50,000 for the construction of
roads on the purchased lots. By its express
terms, if the defendant-appellee failed to
fulfill these conditions her entire obligation
was to become immediately due and
demandable and the mortgagee would have
the option to foreclose the mortgage. These
terms of the contract have the force of law
between the parties thereto.
- The planting of trees and the installation of
water facilities required by section 10 of
Ordinance 2969, supra, which the defendant-
appellee says must first be made before the
roads in question may be considered legally
completed are matters which could not have
been conceivably within the contemplation of
the parties. In the first place, these activities
involve a substantial outlay of funds which, by
its very nature, should have been unavoidably
referred to in the mentioned "Explanation."
In the second place, the said requirements
are imposed on the subdivision owner, and it
is obvious from this Court's decision in L-
18077 that it was the defendant-appellee
who intended to develop the purchased lots
into a subdivision.
In the third place, no evidence has been
adduced which would show that the planting
of trees and the putting up of water facilities
were within the contemplation of the parties
when they were negotiating for the purchase
of the lots in question. And in the fourth
place, there is nothing in Ordinance 2969
which would indicate that a street may be
considered completed only when trees are
planted on both sides of the street and water
facilities are built on the subdivision.
k. Preservations of Rights
Article 1188. The creditor may, before the
fulfillment of the condition, bring the
appropriate actions for the preservation of
his right.
The debtor may recover what during the
same time he has paid by mistake in case of a
suspensive condition.
o Example ni Paras:
Tet Legaspi in 1969 promised to give Tercel
Maria HIS land provided TERCEL MARIA passes
#MYT
the BAR in 1971. Maria passed the BAR in
1971.
- it is as if Maria was entitled to the land
beginning 1969. Therefore
1. Any donation or mortgage made by Maria in
1969 will be considered valid.
2. any alienation on the land made by Tet
should as a rule be considered invalid.
NOTE: this retroactive effect can apply only to
CONSENSUAL contracts and not to real
contracts (those perfected by delivery).
PLDT vs. Jeturian 97 Phil. 981
l. Rules in case of loss, deterioration or
improvement, Art. 1189
Article 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following
rules shall be observed in case of the
improvement, loss or deterioration of the
thing during the pendency of the condition:
(1) If the thing is lost without the fault of
the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of
the debtor, he shall be obliged to pay
damages; it is understood that the thing
is lost when it perishes, or goes out of
commerce, or disappears in such a way
that its existence is unknown or it cannot
be recovered;
(3) When the thing deteriorates without
the fault of the debtor, the impairment
is to be borne by the creditor;
(4) If it deteriorates through the fault of
the debtor, the creditor may choose
between the rescission of the obligation
and its fulfillment, with indemnity for
damages in either case;
(5) If the thing is improved by its nature,
or by time, the improvement shall inure
to the benefit of the creditor;
(6) If it is improved at the expense of the
debtor, he shall have no other right than
that granted to the usufructuary.
This article applies only if:
7. Suspensive condition is fulfilled;
8. Object is specific
Loss of the thing
I. Without debtor’s fault –
Obligation is extinguished.
II. With debtor’s fault – Debtor is
obliged to pay Damages.
A thing is considered lost when it
perishes, or goes out of commerce or
disappears in such a way that its
19

existence is unknown or it cannot be
recovered.
Deterioration of the thing
1. Without Debtor’s fault – impairment
shall be borne by the Creditor
2. With Debtor’s fault – Creditor may
choose between:
a. Rescission plus damages; and
b. Fulfillment plus damages
Improvement
1. by naute or by time – inure to the
benefit of the creditor.
2. at the expense of the debtor – debtor
will have the rights granted to a
usufructuary; also see (Art. 579 and 580)
m. Resolutory Conditions, Art. 1190
Article 1190. When the conditions have for
their purpose the extinguishment of an
obligation to give, the parties, upon the
fulfillment of said conditions, shall return to
each other what they have received.
In case of the loss, deterioration or
improvement of the thing, the provisions
which, with respect to the debtor, are laid
down in the preceding article shall be applied
to the party who is bound to return.
As for the obligations to do and not to do, the
provisions of the second paragraph of article
1187 shall be observed as regards the effect
of the extinguishment of the obligation.
Upon fulfillment of the resolutory
condition, the obligation is extinguished
Restitution. Parties must return what
they have received
1189. Obligations of the debtor shall be
the obligation of the party required to
return.
n. Rescission in Reciprocal Obligations, Art.
1191
Article 1191. The power to rescind
obligations is implied in reciprocal ones, in
case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the
obligation, with the payment of damages in
either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to
the rights of third persons who have acquired
Martinez Ycong Tibon
the thing, in accordance with articles 1385
and 1388 and the Mortgage Law.
The right to resolve or cancel the contract or
reciprocal obligations in case of non-
fulfillment on the part of the other party.
This article refers only to reciprocal
obligation, that is, to obligations where two
parties are reciprocally obliged to do or give
something. (example: contract of sale).
Example:
In a contract of sale, the buyer can rescind if
the seller does not deliver, or the seller can
rescind if the buyer does not pay. Provided
that the party invoking this right is willing and
ready to perform what is incumbent upon
him.
Aspon Simon vs. Adamos Gr l-39378
- in an action to rescind or for specific
performance, the latter was granted, but the
same later became impossible (in view of the
cancellation of certain titles). The remedy of
rescission may still be granted. Under 1191,
since specific performance has now become
impossible – because the titles of the lots
(formerly in the name of the debtor) have
already been nullified, rescission may be had.
Songcua vs. IAC, G.R. No. 7506, October 23,
1990, 191 SCRA 28
Tan vs. Court of Appeals, G.R. No. 80479,
July 28, 1989, 175 SCRA656
- In the absence of a stipulation to the
contrary, this power (rescission) must be
invoked judicially; it cannot be exercised
solely on a party's own judgment that the
other has committed a breach of the
obligation.
-Rescission will not be permitted for a slight
or casual breach of the contract but only for
such breaches as are so substantial and
fundamental as to defeat the object of the
parties in making the agreement.
Velarde vs. Court of Appeals, G.R. No.
108346, July 11, 2001
- The right of rescission of a party to an
obligation under Article 1191 of the Civil Code
is predicated on a breach of faith by the other
party who violates the reciprocity between
them. The breach contemplated in the said
provision is the obligor's failure to comply
with an existing obligation. When the obligor
cannot comply with what is incumbent upon
it, the obligee may seek rescission and, in the
absence of any just cause for the court to
determine the period of compliance, the
court shall decree the rescission.
Siy vs. Court of Appeals, G.R. No. L-39778,
Sept. 13, 1985, 138 SCRA 536
- "The injured party may choose between the
fulfillment and rescission of the obligation,
with the payment of damages in either case.
He may also seek rescission, even after he has
chosen fulfillment, if the latter should
20

become impossible . . .." The law, however,
does not authorize the injured party to
rescind the obligation and at the same time
seek its partial fulfillment under the guise of
recovering damages.
University of the Philippines vs. De Los
Angeles, G.R. No. L-28602, Sept. 29, 1970, 35
SCRA 102
- Where UP and ALUMCO had expressly
stipulated in the "Acknowledgment of Debt
and Proposed Manner of Payments" that,
upon default by the debtor LUMCO, the
creditor (UP) has "the right and the power to
consider the Logging Agreement dated 2
December 1960 as rescinded without the
necessity of any judicial suit," respondent
Alumco's contention that it is only after a
final court decree declaring the contract
rescinded for violation of its terms that UP
could disregard ALUMCO's rights under the
contract and treat the agreement as
breached and of no force or effect is
untenable. In connection with Article 1191 of
the Civil Code, it is not always necessary for
the injured party to resort to court for
rescission of the contract.
- There is no conflict between the ruling that
court action is not necessary to declare the
contract rescinded where there is agreement
to such effect in case of violation of the
terms thereof and the previous
jurisprudence of this court invoked by
respondent declaring that judicial action is
necessary for the resolution of a reciprocal
obligation, since in every case where the
extrajudicial resolution is contested, only the
final award of the court of competent
jurisdiction can conclusively settle whether
the resolution was proper or not. It is in this
sense that judicial action will be necessary, as
without it, the extrajudicial resolution will
remain contestable and subject to judicial
invalidation, unless attack thereon should
become barred by acquiescence, estoppel or
prescription.
- Fears have been expressed that a stipulation
providing for a unilateral rescission in case of
breach of contract may render nugatory the
general rule requiring judicial action v.
Footnote, Padilla, Civil Law, Civil Code Anno.
1967, ed. Vol. IV, page 140) but, as already
observed, in the case of abuse or error by the
rescinder, the other party is not barred from
questioning in court such abuse or error, the
practical effect of the stipulation being
merely to transfer to the defaulter the
initiative of instituting suit, instead of the
rescinder.
De Luna vs. Abrigo, G.R. No. 57455, Jan. 18,
1990, 181 SCRA 150
- The validity of the stipulation in the contract
providing for the automatic reversion of the
donated property to the donor upon non-
compliance cannot be doubted. It is in the
nature of an agreement granting a party the
right to rescind a contract unilaterally in case
#MYT
of breach, without need of going to court.
Upon the happening of the resolutory
condition of non-compliance with the
conditions of the contract, the donation is
automatically revoked without need of a
judicial declaration to that effect.
Roman vs. Court of Appeals, G.R. No. L-
37976, July 16, 1985, 137 SCRA 563
- In the second place, even conceding that
the Complaint was for rescission and
damages under Article 1191 of the Civil Code,
the trial Court did not fix a period (plazo)
within which ROMAN could comply with his
obligation under the contract to sell.
Moreover, there would have been no "just
cause", a requirement in Article 1191, for
fixing a period. After institution of the action
against him, what ROMAN should have done,
which he did not do, was to pay SARANGAYA
within 60 days after service of summons.
Central Philippine University, vs. Court of
Appeals, G.R. No. 112127, July 17, 1995, 246
SCRA 511
- When one of the obligors cannot comply
with what is incumbent upon him, the obligee
may seek rescission and the court shall
decree the same unless there is just cause
authorizing the fixing of a period. In the
absence of any just cause for the court to
determine the period of the compliance,
there is no more obstacle for the court to
decree the rescission claimed.
Santos vs. Court of Appeals, G.R. No. 120820,
August 1, 2000, 337 SCRA 67
-Article 1592 speaks of non-payment of the
purchase price as a resolutory condition. It
does not apply to a contract to sell. As to
Article 1191, it is subordinated to the
provisions of Article 1592 when applied to
sales of immovable property. Neither
provision is applicable in the present case.
Palay, Inc. vs. Clave, G.R. No. L-56076, Sept.
21, 1983, 124 SCRA 638
- Well settled is the rule, as held in previous
jurisprudence Torralba vs. de Los Angeles, 96
SCRA 69) that judicial action for the rescission
of a contract is not necessary where the
contract provides that it may be revoked and
canceled for violation of any of its terms and
conditions. However, even in the cited case,
there was at least a written notice sent to
the defaulter informing him of the
rescission. As stressed in University of the
Philippines vs. Walfrido de los Angeles, 33
SCRA 102 (1970) the act of a party in treating
a contract as cancelled should be made
known to the other.
- A stipulation entitling one party to take
possession of the land and building if the
other party violates the contract does not ex
proprio vigore confer upon the former the
right to take possession thereof if objected to
21

without judicial intervention and
determination.
- resolution of reciprocal contracts may be
made extrajudicially unless successfully
impugned in Court. If the debtor impugns the
declaration, it shall be subject to judicial
determination (UP vs. de los Angeles, supra).
o. both parties in breach in reciprocal
obligations, Art. 1192
Article 1192. In case both parties have
committed a breach of the obligation, the
liability of the first infractor shall be equitably
tempered by the courts. If it cannot be
determined which of the parties first violated
the contract, the same shall be deemed
extinguished, and each shall bear his own
damages.
- in pare delicto??
Camus vs. Price, Inc., G.R. Nos. L-17859-9,
July 18, 1962
- Even assuming, therefore, that the Lessee's
obligation to insure the building arose after
the completion of the construction of the
buildings in September, 1951, as the Lessor
also defaulted in the performance of his
corresponding duty, it can not really be
determined with definiteness who of the
parties committed the first infraction of the
terms of the contract. Under the
circumstances, the conclusion reached by the
Court of Appeals, that the parties are
actually in pari delicto, must be sustained,
and the contract deemed extinguished, with
the parties suffering their respective losses.
2. Obligations with a Period
Article 1193. Obligations for whose
fulfillment a day certain has been fixed, shall
be demandable only when that day comes.
Obligations with a resolutory period take
effect at once, but terminate upon arrival of
the day certain.
A day certain is understood to be that which
must necessarily come, although it may not
be known when.
If the uncertainty consists in whether the day
will come or not, the obligation is conditional,
and it shall be regulated by the rules of the
preceding Section.
- Are those, the demandabiltiy or
extinguishment of which, is subjected to the
expiration of the term which must
necessarily come.
Period – a space of time which determines
the effectivity or extinguishment of an
obligation.
Martinez Ycong Tibon
A day certain - is understood to be that which
must necessarily come, although it may not
be known when.
When we know that something will
happen but we are uncertain as to the
time it will happen, this is a term
When we are not even sure if something
will happen as a facto r not, this is a
condition.
Requisites for a valid period:
1. Refers to the future;
2. Certain (but it can be extended);
3. It must be physical and legally
possible, otherwise the obligation is
void. (Example: I will give you my
house one year after my death.
Here, the obligation is void.)
Paras: if an obligation is demandable “on
or about Dec. 5, 2000”, when is it really
demandable?
Answer: a few days before or after Dec.
5, and not a date far away or one fixed
by the debtor. (Sy vs. De leon, CA case)
Gaite vs. Fonacier, G.R. No. L-11827, July 31,
1961, 2 SCRA 831
- We find the court below to be legally correct
in holding that the shipment or local sale of
the iron ore is not a condition precedent (or
suspensive) to the payment of the balance of
P65,000, but was only a suspensive period or
term. What characterizes a conditional
obligation is the fact that its efficacy or
obligatory force (as distinguished from its
demandability) is subordinated to the
happening of a future and uncertain event; so
that if the suspensive condition does not take
place, the parties would stand as if the
conditional obligation had never existed.
Period vs, condition
1. As to fulfillment –
A condition is anevent that may or may not
happen; a period is an event that must
necessarily come, at a dtae known
beforehand, or at a time that cannot be
determined.
2. As to time – a condition may refer to the
future or to a past event unknown to the
parties; a period always refers to the future.
3. As to influence on the obligation – a
condition causes an obligation to arise or to
cease; a period merely fixes the time for the
efficaciousness of an obligation (Manresa)
4. As to the will of the debtor - P that
depends on the will of the debtor authorizes
the court to fix its duration. (1197 par. 2),
while a condition that depends on the will of
the debtor which is suspensive shall annul the
obligation (1182).
Article 1194. In case of loss, deterioration or
improvement of the thing before the arrival
of the day certain, the rules in article 1189
shall be observed.
22

- tawa lang sa taas ddto dapit sa 1189
Article 1195. Anything paid or delivered
before the arrival of the period, the obligor
being unaware of the period or believing that
the obligation has become due and
demandable, may be recovered, with the
fruits and interests.
- Mayol: murag gipanganak six months pas
tiyan bah,, premature
-prematurity coupled with honest mistake,
debtor may recover what he has paid (which
includes delivery, performance) plus the
fruits or interest.
Example ni paras:
-what if daw mr. Debtor paid prematurely
knowing fully well of the existence of the
term, how much can he recover?
Anser: Debtor can recover nothing. Debtor
must have been unaware of the period; or
must have believed that the obligation has
become due and demandable.
Personal: may be considered as a waiver to
make use of the period.
Example na pod:
Edlin Edrina sold to Horace Senagan a
particular automobile. It was agreed that
payment and delivery were to be made on
March 31. But on March 3, Edlin delivered the
car and Horacio paid the agreed price. Will
there be restitution(mutual)?
No. the actions of both parties show that
both implicitly agreed to the changing of the
date.
Even if there had been no change in the date
agreed upon, still it must be remembered
that the problem here is one where we are
dealing not with two unilateral obligations.
And we already know that in reciprocal
obligations, pending fulfillment of the
obligation, the interests and fruits are
deemed to compensate each other, when
there has been premature performance on
both sides. (1187, and Manresa)
The law presumes that the debtor knew
of the prematureness. This may,
however be rebutted by him.
Article 1196. Whenever in an obligation a
period is designated, it is presumed to have
been established for the benefit of both the
creditor and the debtor, unless from the
tenor of the same or other circumstances it
should appear that the period has been
established in favor of one or of the other.
GR: term is for the benefit of both the
creditor and the debtor. (Meaning: the
debtor cannot pay prematurely and the
creditor cannot demand prematurely.)
Ex:
#MYT
1. The term is for the benefit of the
debtor alone. Meaning, he is
required to pay only at the end, but
he may pay even before. Example,
D will pay C within 6 years. D can
pay even after one week from the
time obligation was contracted and
may also resist premature demand
for compliance.
2. Term is for the benefit of the
creditor alone. May demand before
but cannot be compelled to accept
premature payment.
Where there is stipulation on interest. It
could be said that the period for the
benefit of both. The debtor has a time to
earn for the payment and the creditor is
also benefited since interest may also be
earned.
Article 1197. If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a period
was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the
debtor.
In every case, the courts shall determine such
period as may under the circumstances have
been probably contemplated by the parties.
Once fixed by the courts, the period cannot
be changed by them.
- related to 1180
The only action which the creditor can
bring upon an obligation that does not
fix a term, but where a term was indeed
intended, is to ask the court to fix the
period within which the debtor must pay
for the simple reason that the fulfillment
of the obligation itself cannot be
demanded until after the court has fixed
the period for its compliance.
Article 1198. The debtor shall lose every right
to make use of the period:
(1) When after the obligation has been
contracted, he becomes insolvent,
unless he gives a guaranty or security for
the debt;
(2) When he does not furnish to the
creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has
impaired said guaranties or securities
after their establishment, and when
through a fortuitous event they
disappear, unless he immediately gives
new ones equally satisfactory;
(4) When the debtor violates any
undertaking, in consideration of which
the creditor agreed to the period;
23

(5) When the debtor attempts to
abscond. (1129a)
Cases where debtor loses the right to
make use of the period (IGIVA):
1. Insolvency of debtor;
2. Guranties or securities promised
were not delivered;
3. Impairment of guaranties or
securities;
4. Violation of undertaking; and
5. Attempts to abscond.
Term is extinguished and the obligation is
demandable at once.
Bar 1991
In a deed of sale, it was stipulated that the
buyer would construct a commercial
building on the lot while the seller will
construct a passageway boedering the lot.
The building was eventually finished but
the seller failed to complete the
passageway as some of the squatters
refused to vacate the premises. In fact,
prior to its execution, seller filed ejecment
cases against them.
Buyer now sues seller for specific
performance with damages. The defense is
that the obligation to construct the
passageway is with a period which,
incidentally, had not been fixed by them,
hence, the need for fixing a judicial period.
Will the action for specific performance
prosper?
Suggested Answer:
No, the action for specific performance will
not prosper for being premature under
1197. If a period has not been fixed
although contemplated by the parties, the
parties themselves should fix that period,
failing in which, the court maybe asked to
fix it taking into consideration the probable
contemplation of the parties. Before the
period is fixed, an action for specific
performance is premature.
Fernandez vs. CA, G.R. No.80231, October
18, 1988, 166 SCRA 577
- It is also important to bear in mind that in a
reciprocal contract like a lease, the period of
the lease must be deemed to have been
agreed upon for the benefit of both
parties, absent language showing that the
term was deliberately set for the benefit of
the lessee or lessor alone. We are not aware
of any presumption in law that the term of a
lease is designed for the benefit of the lessee
alone. Koh and Cruz in effect rested upon
such a presumption. But that presumption
cannot reasonably be indulged in casually in
an era of rapid economic change, marked by,
among other things, volatile costs of living
and fluctuations in the value of the domestic
currency. The longer the period the more
clearly unreasonable such a presumption
would be. In an age like that we live in, very
specific language is necessary to show an
intent to grant a unilateral faculty to extend
Martinez Ycong Tibon
or renew a contract of lease to the lessee
alone, or to the lessor alone for that matter.
We hold that the above-quoted rulings in Koh
v. Ongsiaco and Cruz v. Alberto should be and
are overruled.
Abesamis vs. Woodcraft Works, Inc., G.R.
No. L-18916, Nov. 28, 1969, 30 SCRA 372
- Where the obligation is reciprocal and with
a term, neither party could demand
performance nor incur in delay before the
expiration of the term. In case of fortuitous
event before the expiration of the term,
each party in such reciprocal obligation
bears his own loss.
- Where appellant waived the benefit of the
period by assuring appellee that it would take
delivery of the logs on June 25, 1951, and
appellee, on said date, was ready to comply
with his part of the obligation but appellant
failed in its commitment, without any
satisfactory explanation for such failure,
appellant should bear the corresponding loss
amounting to P7,685.26, representing the
value of appellee's logs lost while waiting for
appellant's vessel, the cost of rafting and
other incidental expenses.
Gregorio Araneta, Inc. vs. Phil. Sugar Estates
Development Co., Ltd, G.R. No. L-22558, May
31, 1967, 20 SCRA 330
- If the contract provided a "reasonable
time", then there was a period fixed, and all
that the court should have done was to
determine if that reasonable time had
already elapsed when suit was filed. If it had
passed, then the court should declare that
petitioner had breached the contract, as
averred in the complaint, and fix the resulting
damages. On the other hand, if reasonable
time had not yet elapsed, the court perforce
was bound to dismiss the action for being
premature. But in no case can it be logically
held that under the facts above quoted the
intervention of the court to fix the period for
performance was warranted, for Article 1197
is precisely predicated on the absence of any
period fixed by the parties.
Radiowealth Finance Company vs. Del
Rosario, G.R. No. 138739, July 6, 2000, 335
SCRA 288
- The contemporaneous and subsequent acts
of the parties manifest their intention and
knowledge that the monthly installments
would be due and demandable each month.
- We are convinced neither by their avowals
that the obligation had not yet matured nor
by their claim that a period for payment
should be fixed by a court. Convincingly,
petitioner has established not only a cause of
action against the respondents, but also a due
and demandable obligation.
- The obligation of the respondents had
matured and they clearly defaulted when
their checks bounced. Per the acceleration
clause, the whole debt became due one
month (April 2, 1991) after the date of the
24

Note because the check representing their
first installment bounced.
Allen vs. Province of Albay, G.R. No. 11433,
December 20, 1916, 35 Phil. 826
- Where strict performance on the part of the
contractor is prevented or waived by the
other party, a claim by such party of fines and
penalties for delay or failure cannot be
sustained.
- If it be true that the plaintiff contractor was
responsible for a large number of days of
delay and the provinces for only a few of the
days thereof, yet, under such circumstances,
we cannot "apportion" such delay between
the contracting parties and hold the
contractor liable in liquidated damages for
the number of days delayed by him in
completing the bridge.
- The result is that the provinces are limited
to such damages which they may have
suffered on account of an unreasonable delay
on the part of the plaintiff in completing the
bridge, if there were, in fact, an unreasonable
delay.
Pacific Banking Corp. vs. CA , 173 SCRA 102
- The rule which states that there can be no
valid extension of time by oral agreement
unless the extension is for a definite time, is
not absolute but admits of qualifications and
exceptions. "The general rule is that an
agreement to extend the time of payment, in
order to be valid, must be for a definite time,
although it seems that no precise date be
fixed, it being sufficient that the time can be
readily determined." (8 C.J. 425). In case the
period of extension is not precise, the
provisions of Article 1197 of the Civil Code
should apply.
- the date of maturity of the indebtedness
should be as may be determined by the
proper court under Art. 1197 of the Civil
Code.
3. Alternative & Facultative Obligations, Art.
1199-1206
Alternative Obligation - one where, out of
two or more prestations, only one is legally
due.
Example: Arnold Gonzalodo is obliged to give
Jan Patindol a specific book or a specific
calculator. Arnold may deliver the book or the
calculator. GR – choice is with the debtor.
ARTICLE 1199. A person alternatively bound
by different prestations shall completely
perform one of them.
The creditor cannot be compelled to receive
part of one and part of the other undertaking.
Eric Menchavez is obliged to give Ella
Beverly Samargo 4 books or 6
calculators. Eric, aside from giving his
heart, delivered only 2 books and 3
#MYT
calculators. Is the obligation
extinguished?
No, partial payment, generally, cannot
extinguish the obligation. Also under
1199, A person alternatively bound by
different prestations shall completely
perform one of them. And The creditor
cannot be compelled to receive part of
one and part of the other undertaking.
However, if under the same problem,
Ella, gikilig, she accepted the 2 books
and 3 calculators without
objection,..then the obligation is
extinguished.
Article 1200. The right of choice belongs to
the debtor, unless it has been expressly
granted to the creditor.
The debtor shall have no right to choose
those prestations which are impossible,
unlawful or which could not have been the
object of the obligation.
GR: the right to choose belongs to the
debtor. The only exception is when this
right is expressly granted to the creditor.
Example ni Paras:
A is obliged to give B this car or this ring
or this cigarette. Nothing is said in the
contract as to whom was given the right
to choose. Suppose B selects the car, is A
bound by the former’s choice?
No, in the absence of any stipulation, the
right of choice is given to the debtor
which is in this case A.
(compared to an obligation with a period
where the period is, generally, for the
benefit of both parties, in alternative
obligations, the right of choice is
generally, with the debtor.)
Atty. Mayol’s example: not exactly the
right words (mas nndot jud unta kung
naa mo pagstorya niya kay mabuang kag
kinatawa)
D is obliged to give C an eraser or
eyeglasses, or a pen on Nov. 30. On Nov.
29, D and C met in the park. C asked D.
C: oi debtor, unsa man jud imong ihatag
nko?
D: aw, ambot oi tawn lang. bahala
nalang ni,, tawn lang. d lang ko mupili.
Nov. 30 came and C told D,.
C: gusto ko ihatag nimo ang
anchohos(eyeglasses).
D: yahay. Akoy pili credi. Akoy magbuot
kay akong pagbuot aning kalibutana ang
maoy, MATSUMEN.
Question, can C compel D to deliver the
eyeglasses?
A: No, the rule is that the debtor has the
right to choose which obligation he will
perform. The creditor can enjoy the right
25

if the same has been EXPRESSLY granted
to him. In this case, there is no express
grant of the right choose in favor of the
creditor. Based on their conversation,
the debtor was indecisive but this doesnt
mean that he expressly granted the rght
to credi.
Limitations on the Debtor’s Choice
1. Impossible;
2. Unlawful;
3. Or which could not have been
the object of the obligation
Article 1201. The choice shall produce no
effect except from the time it has been
communicated.
Once choice is made, obligation ceases
to be alternative. It is now converted
into a simple one.
The choice may be communicated orally
or in writing
Requisites
1. Made properly (creditor or his
agent will actually know);
2. Made with full knowledge that a
selection is indeed being made. Like
in the example given by atty Mayol.
(see *example);
3. Made voluntarily and freely;
4. Made in due time (before or upon
matuirty);
5. Made to all the proper persons
(example joint creditors);
6. Without conditions;
7. May be waived
*Example napod:
D is obliged to give C a bolpen, or an eraser,
or eyeglasses.
Ang situation:
Padung na si D muhatag sa bolpen og
gahuwat na si C sa atbang. While D was about
to cross, He said to himself, sayang man, so
niatras sya, literally while C observing him. He
changed the bolpen to eraser. When he was
again about to cross, nakigstorya napod sa
kaugalingon, sayang man. C was able to
observe this PHENOMENON. Then, finally, D
surrendered to C his eyeglasses. C told D, I
want the eraser, I saw you earlier bringing the
eraser while going here. C answered, sure day
ka mao to akong ihatag?
Moral Lesson:
The choice shall produce no effect except
from the time it has been communicated.
Article 1202. The debtor shall lose the right of
choice when among the prestations whereby
he is alternatively bound, only one is
practicable.
Never mind the cause of the loss. For it is
the debtor who has the choice,..bisan
pag gub-on nah niya tanan, pabilin rag
isa,..which means that ang nabilin iyang
gipili..matod pang Mayol.
The obligation becomes simple.
Martinez Ycong Tibon
Article 1203. If through the creditor's acts the
debtor cannot make a choice according to the
terms of the obligation, the latter may rescind
the contract with damages.
Article 1204. The creditor shall have a right to
indemnity for damages when, through the
fault of the debtor, all the things which are
alternatively the object of the obligation have
been lost, or the compliance of the obligation
has become impossible.
The indemnity shall be fixed taking as a basis
the value of the last thing which disappeared,
or that of the service which last became
impossible.
Damages other than the value of the last
thing or service may also be awarded.
Article 1205. When the choice has been
expressly given to the creditor, the obligation
shall cease to be alternative from the day
when the selection has been communicated
to the debtor.
Until then the responsibility of the debtor
shall be governed by the following rules:
(1) If one of the things is lost through a
fortuitous event, he shall perform the
obligation by delivering that which the
creditor should choose from among the
remainder, or that which remains if only
one subsists;
(2) If the loss of one of the things occurs
through the fault of the debtor, the
creditor may claim any of those
subsisting, or the price of that which,
through the fault of the former, has
disappeared, with a right to damages;
(3) If all the things are lost through the
fault of the debtor, the choice by the
creditor shall fall upon the price of any
one of them, also with indemnity for
damages.
The same rules shall be applied to obligations
to do or not to do in case one, some or all of
the prestations should become impossible.
Rules on loss of a specific thing (or when the
obligation has become impossible) which is
one of the alternatives in alternative
oblgations:
1202 and 1204, pertinent articles (debtor has
the right to choose):
Loss is thru a fortuitousevent: the debtor will
1. If one or some are lost, choose from
the remainder;
2. If only one is left, then deliver
3. All of the things are lost, obligation
is extinguished.
Loss is due to the debtor’s fault, way nabag-o,
except sa no.3, after all, the debtor has the
right to choose.
26
 #MYT
one is sufficient is that one which
In number 3, the debtor will be liable for genereally is given,
damages, the value of the last thing which but the substitute
disappeared, or that of the service which last may be given to
became impossible. render payment.
If one is illegal, the If the principal
If all of them were lost athe same time, then others may be valid obligation is illegal,
debtor will choose the thing from where the and the obligation there is no necessity
basis for indemnity shall be made. For he has remains. of delivering the
the right to choose. substitute (the nullity
of the principal
1205, the creditor has the right to choose: carries with it the
nullity of the
In case the loss is thru a fortuitous event: the substitute).
debtor will (murag pareha ra pero credi will If it is impossible to Tawa lang ang taas,
choose) give all except one, ilisi ang illegal og
1. If only one or some are lost, deliver that last one must impossible
what the creditor has chosen from still be given
the remainder; The right to choose The right of choice is
2. If only one subsists, then deliver may be given to the given only to the
3. If all of the things were lost, then creditor debtor.
the obligation is extinguished
Ong Guan Can vs. Century Insurance
In case the loss is thru the debtor’ fault: Company, 46 Phil. 492
1. If only one or some are lost, - If this clause of the policies is valid, its effect
creditor may choose from the is to make the obligation of the insurance
remainder; company an alternative one, that is to say,
2. or the price of that which that it may either pay the insured value of
disappeared plus damages; the house, or rebuild it.
3. If all, the price of the thing chosen
by the creditor plus damages. - It must be noted that in alternative
obligations, the debtor, the insurance
Article 1206. When only one prestation has company in this case, must notify the creditor
been agreed upon, but the obligor may of his election, stating which of the two
render another in substitution, the obligation presentations he is disposed to fulfill, in
is called facultative. accordance with article 1133 of the Civil
Code.
The loss or deterioration of the thing
intended as a substitute, through the - The object of this notice is to give the
negligence of the obligor, does not render creditor, that is, the plaintiff in the instant
him liable. But once the substitution has been case, opportunity to express his consent, or
made, the obligor is liable for the loss of the to impugn the election made by the debtor,
substitute on account of his delay, negligence and only after said notice shall the election
or fraud. take legal effect when consented by the
creditor, or if impugned by the latter, when
Facultative obligation – is one where only one declared proper by a competent court.
prestation has been agreed upon but the
debtor may render another in substitution. Quizania avs. Reduguero, 50 O.G. 2444

In facultative obligations:
a) Only one object is due;
b) May be complied with in substitution of
one already due;
c) Choice is with the debtor;
d) Loss due to FE extinguishes the
obligation;
e) Debtor, in case of fault must deliver
substitute prestation without liability
Alternative vs. Facultative
1. D is to give C object a or object b. if object
a is lost, still D is obliged to give object b.
(alternative).
Facultative: same example excep that object
b is just a substitute. If object a is lost due to
FE then the obligation is extinguished, D no
longer has to deliver anything.
Alternative Facultative
Various things are Only one thing is
due, but the giving of principally due, and it
-
4. Joint and Solidary Obligations, Art. 1207-
1222
In a joint or solidary obligation, there is a
concurrence of two or more debtors
and/or two or more creditors in one and
the same obligation.
In a joint obligation, each debtor is liable
only for a proportionate part of the debt,
and each creditor is entitled only to a
proportionate part of the credit.
In a solidary obligation, each debtor is
liable for the whole obligation, and each
creditor is entitled to demand payment
of the whole obligation.
Joint vs. Solidary
In a joint obligation – each obligor
answers only for a part of the whole
liability and to each oblige belongs only a
part of the correlative rights.” Whereas,

27

In a solidary obligation, the relationship
between the active and the passive
subjects is so close that each of the
former or of the latter may demand the
fulfillment of or must comply with the
wholr obligation.” (Manresa)
Stated otherwise, inanion ra nah:
1. “to each his own: - joint
2. “one for all, all for one” – solidary
Article 1207. The concurrence of two or more
creditors or of two or more debtors in one
and the same obligation does not imply that
each one of the former has a right to
demand, or that each one of the latter is
bound to render, entire compliance with the
prestation. There is a solidary liability only
when the obligation expressly so states, or
when the law or the nature of the obligation
requires solidarity.
GR: joint
Exceptions:
a. stipulation;
b. law;
c. nature of the obligation requires
solidarity
Cases where law imposes solidary
liability:
a) Torts;
b) Quasi contracts;
c) Principals, accomplices, and
accessories in felony;
d) Bailees in commodatum
e) Legal provisions regarding the
obligations of the devisees and
legatees.
Query (Paras): may the obligation be joint on
the side of the creditors and solidary on the
side of the debtors, or vice versa?
Yes, in such cases, the rules applicable to
each subject of the obligation should be
applied, the character of the creditors or the
debtors determining their respective rights
and liabilities. (Manresa na pod).
Synonyms:
1. For joint
a) Mancomunada;
b) Mancomunada simple;
c) Proportionate
d) Pro rata
2. For solidary
a) Joint and several;
b) In solidum;
c) Mancomunada solidaria;
d) Juntos o separadamente;
e) Individually and collectively;
f) Each will pay the whole value
Note:
1. “We promise to pay”, when there are two
or more signatures = joint;
2. “I promise to pay” – two or more
signatures = solidary
BAR 2001
Four foreign medical students rented an
apartment. After a year, the 3 returned to
Martinez Ycong Tibon
th
their home country while the 4 transferred
to another house. The lessor discovered
unpaid telephone bills amounting to P80,000,
which should be paid by the lessees under the
lease contract. Lessor demanded payment of
th
the whole amount from the 4 student, but
the latter is only willing to pay ¼ of the
amount. Decide.
Suggested answer:
th
The 4 student is correct.
When There is a concurrence of two or more
debtors or two or more creditors, the law
presumes that the obligation is joint. There is
solidarity only when the obligation expressly
states, or when the LAWSO provides or when
the nature of the obligation requires
solidarity.
Since this case does not fall under any of the
excpetions provided for by law, then the
obligation of the four students is joint, that is,
one is only liable pro rata.
Article 1208. If from the law, or the nature or
the wording of the obligations to which the
preceding article refers the contrary does not
appear, the credit or debt shall be presumed
to be divided into as many shares as there are
creditors or debtors, the credits or debts
being considered distinct from one another,
subject to the Rules of Court governing the
multiplicity of suits.
Absent any agreement regarding the
respective shares of the debtors or the
creditors, the presumption is that, it is
pro rata. To follow the wording of the
law “credit or debt shall be presumed to
be divided into as many shares as there
are creditors or debtors.
The credits or debts are distinct from
one another.
Example:
A and B owe C 5000, the presumption is
that, A is liable to C for P2500 and so is
B, and C may only collect the same
amount from A and B. C cannot collect
the whole P5000 from A or B, only
P2500.
Article 1209. If the division is impossible, the
right of the creditors may be prejudiced only
by their collective acts, and the debt can be
enforced only by proceeding against all the
debtors. If one of the latter should be
insolvent, the others shall not be liable for his
share.
Indivisible Joint Obligation
The obligation is joint but since the
object is indivisible, the creditor must
proceed against ALL the joint debtors,
for compliance is possible only if all the
joint debtors would act together.
Article 1210. The indivisibility of an obligation
does not necessarily give rise to solidarity.
Nor does solidarity of itself imply
indivisibility.
28

Indivisibility refers to the subject matter
Solidarity refers to the tie between the
parties
Different kinds of Solidarity:
a) Active solidarity – on the part of the
creditors;
b) Passive – on the part of the dentors;
c) Mixed – both creditors and debtors
Second classification:
a) Conventional – agreement;
b) Legal – imposed by law
Article 1211. Solidarity may exist although
the creditors and the debtors may not be
bound in the same manner and by the same
periods and conditions.
2 different ways by which the debtors
may be bound:
a) Uniform – debtors are bound by the
same stipulations and clauses;
b) Otherwise – debtors though liable
for the same prestation, are
nevertheless not subject to the
same secondary stipulations and
clauses.
Examples:
A and B solidarily bound themsekves to
pay a total of P1M to C, D, and E subject
to the following terms and conditions:
C’s share will be due at the end of the
year; D, if he passes the BAR; and E, after
he has painted the house of X.
Here, the obligation is still solidary but
C’s share will only be due and
demandable at the end of the year, and
E and D’s respective shares upon
fulfillment of their respective conditions.
Supposing the obligation is to be subject
to different terms and conditions, the
following is the solution: the creditor
may recover that part which is pure and
unconditional, and should leave in
suspense or pending, the right to
demand the payment of the remainder
until the expiration of the term or the
fulfillment of the condition. Solidarity is
still preserved by recognizing in the
creditor the power, upon fulfillment of
the condition or the expiration of the
term, of claiming from any or all of the
debtors, that part of the obligation
effected by these conditions. (Scaveola)
A, B, C, D, and E borrowed money from
F. the contract stipulated solidary one,
and the debtors were bound under
different terms and conditions. F
brought an action to recover from A,
whose obligation was already due. A
claims that he cannot be made to pay
because the obligations incurred by his
solidary co-debtors were not yet due.
Issue: when the debtors of a solidary
obligation are bound by different terms
#MYT
and conditions, may the creditor sue one
of them? Ang answer kay nagfocus ra sa
isyu ha
Held: yes, the creditor may sue the one
whose share has already share has
already become due and demandable
but the creditor cannot recover yet from
the debtor sued, the shares of the other
debtors, until the conditions or terms of
the others have already been fulfilled. In
other words, F may recover now from A,
only A’s share; and when the conditions
and terms have been fulfilled for the
shares of B, C, D, and E, the creditor F
can recover their shares from A. This,
after all, is still a solidary obligation.
In 1997, A, B, and C bound themselves in
solidum to give X P300,000 subject to
the following stipulations: A to pay in
1998; B, if he passes the BAR; C, in 2000.
In 1998, how much can X demand from
A?
Only 100,000. Since this is solidary, X has
a right to 300,000 minus B’s share
(100,000) and C’s share (100,000).
Suppose X instead made a demand on C
in 1998, how much can he collect?
Still 100,000, the share corresponding to
A, because C’s share has not yet matured
and B has not yet passed the BAR.
Note:
In all examples, the rule is that the whole
solidary obligation can be recovered
from ANY of the solidary debtors MINUS
the share of those with unmatured
conditions or terms. (Manresa)
CASE:
- What may have led Operators in denying the
solidary character of its obligations was the
fact that it was engaged in the manufacture
of candy whereas Associated Biscuit was
supposed to manufacture biscuits, and the
fact that the two operators were required to
invest different minimum amounts in the
venture. But these conditions do not alter the
solidary nature of their obligations as
expressly provided. According to Article 1211
of the Civil Code, "solidarity may exist
although the debtors may not be bound in
the same manner and by the same periods
and conditions." Accordingly, the disparity in
their functions under the contracts does not
vary the fact that they were bound, in
connection with American's liabilities, jointly
and severally. G.R. No. L-34767 October 23,
1987 Operators vs ABC
Article 1212. Each one of the solidary
creditors may do whatever may be useful to
the others, but not anything which may be
prejudicial to the latter.
Solidary Creditors may do useful, not
prejudicial acts
29

Example of a beneficial act – to interrupt
the running of prescription like making a
demand.
Prejudicial – should not be performed,
otherwise, there will be liability for
damages. However in the case of
remission, the solidary creditor is
allowed to remit, and the obligation is
extinguished, without prejudice to his
liability to the other creditors (1215)
Article 1213. A solidary creditor cannot assign
his rights without the consent of the others.
GR: the solidary creditor cannot assign
his rights
Exception: he is allowed if all the others
consent.
Reason: this relationship implies mutual
agency and mutual confidence.
Article 1214. The debtor may pay any one of
the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by
one of them, payment should be made to
him.
A, B, and C are solidary Debtors while X,
Y, And Z are solidary creditors. When the
debt has become due and demandble, A
paid Z the whole obligation, is the
obligation extinguished? The answer is
YES, of course. (kastrikta ba ni ninang
Regal oi,. Ang ninang ni Joseph).
Situation 2:
The same set of debtors and creditors
but upon maturity, y demanded
payment from B. to extinguish the
obligation, can B refuse payment and
instead tell Y, “I want to pay X”?
Of course not. (layshu), basis: but if any
demand, judicial or extrajudicial, has
been made by one of them, payment
should be made to him.
If payment is not made to Y (the one
who made the demand), the obligation is
not extinguished.
Situation 3:
Y demanded payment on Nov. 21
(maturity date) while Z made his
demand on Nov. 23. To whom shall b
pay, in order that the obligation may be
extinguished?
To Y, being the one who first demanded
payment. First in time first in right.
Demands were made on the same time.
Like giving of the demand letter was
made on the same day. (ang lami na
example ni sir na ingon sya iwasi ang
literal kaau kay, when all the creditors, in
chorus telling the debtor “we would like
to demand payment from you, debtor”
ang nayabag kay not considered as to
have made his demand together with
the others.)
Answer: go back to the general rule.
Payment may be made to any.
Examples ni Paras:
Martinez Ycong Tibon
1. A nad B are solidary debtors of C, D,
and E. c made an extrajudicial demand
on A but A did no pay. May D and E sue
A?
Paras: Yes, although strictly speaking
payment must be made on the co-
creditor who first asked for payment,
which is C, still the law should not be
construed to effect an absurdity in that
D and E would be compelled to just
stand by idly, since c does not institute
any judicial action. Since C’s act is
prejudicial to D, and E, the 2 should be
allowed to make judicial demand.
2. A and B sol debtors, C, D, and E, sol
creditors. E asked payment from A, but B
(who did not receive any demand) pays
C. is he allowed to do that?
Yes, for after all, there was no demand
that was made on B. with respect to B,
the general rule applies.
Article1215. Novation, compensation,
confusion or remission of the debt, made by
any of the solidary creditors or with any of
the solidary debtors, shall extinguish the
obligation, without prejudice to the
provisions of article 1219.
The creditor who may have executed any of
these acts, as well as he who collects the
debt, shall be liable to the others for the
share in the obligation corresponding to
them.
Example: A and B are sol debtors of sol
creditors X and Y. A nd X agreed that
instead of paying the monetary
obligation, A will just paint the house of
X.
Here, the novation extinguishes the
monetary obligation. If B did not consent
to the novation, B will not be bound to X
and Y in any way and, moreover, will not
not be obliged to contribute to A except
insofar as he has benefited. Upon the
other hand, only X will be allowed to
prejudice hi s co-debtor Y, so X must
reimburse Y for his share of the credit.
(1215 par. 2)
A nd B are sol debtors of X. if A is
granted an extension o time within
which to pay, is B released from the
obligation?
NO, the only effect is this: if X sues B, B
will pay the whole debt minus the share
of A, when the extended period
terminates, x can demand the remaining
balance from either A or B. and if B pays
again, B will now have the right to collect
reimbursement from A, for A’s share.
(Inchausti and Co. vs. yulo, 34 phil 978).
Compensation:
A and B are sol debtors of X and Y for
400k. however, X is also indebted to A
30

for 400k. supposing a legal
compensation take place. Will the
obligations be extinguished?
Yes, for compensation (provided that all
the elements are present), takes effect
by operation of law. However, B should
reimburse A for the former’s share since
it was A’s credit that was used to
extinguish their solidary obligation to X
and Y. and X, must reimburse Y for the
latter’s share in the of A and B’s debt.
Remission:
A, B, and C are sol debtors of X ad Y, sol
creditors, in the amount of P30,000.
If X renounces or remits the whole
obligation without the consent of Y, will
the obligation be extinguished?
A: Yes, because the remission made by
any solidary creditor extinguishes the
whole obligation. However, X has to give
Y’s share of ½ or P15,000 since a solidary
creditor may not do anything prejudicial
to jis co-solidary creditors (1212).
And A, the co-solidary debtor of B
cannot demand reimbursement from B
even if the remission is made to his (A)
favor (Article 1220). Remission being a
gratuitous abandonment by the creditor
of their right to collect.
Suppose that X renounces A’s share
amounting to P10,000. However, it
turned out that B has already paid the
whole obligation before the remission
was effected. May B still collect from A,
A’s share of the obligation?
Answer: Yes, B may still collect from A
his share in the obligation. The remission
made by the creditor of the share which
affects affects one of the solidary
debtors does not release the latter from
his responsibility towards the co-
debtors, in case the debt had been
totally paid by anyone of them before
the remission was effected (Art. 1219).
Soriano: A may go after X or Y to collect
the sum he paid to B. (gaag nawng ah)
Article 1216. The creditor may proceed
against any one of the solidary debtors or
some or all of them simultaneously. The
demand made against one of them shall not
be an obstacle to those which may
subsequently be directed against the others,
so long as the debt has not been fully
collected.
EBM’s example:
Tet, Arnold, and Virnee are solidary
debtors of Tercel. The amount of the
obligation is P30,000. Upon maturity and
demand by Tercel, Virnee paid Tercel
P20,000. May Tercel demand payment
from Arnold?
#MYT
Answer: Yes, the payment made by
Virnee was only partial and did not
extinguish the solidary obligation. The
demand made by Tercel upon Virnee
may not preclude Tercel from collecting
from Arnold or Tet since there was no
full payment made by Virnee.
BAR 1992
X obtained a loan from A where Y was a
solidary co-maker. X failed to pay After
several demands against X and Y, A sued Y
alone for the recovery of the loan. Y refused
on the ground, inter alia, that X was not
impleaded. Decide.
Suggested Answer UP law Complex:
The defense is untenable. Y is still liable as
solidary debtor. The creditor may proceed
against any one of the solidary debtors. The
demand against one does not preclude
further demand against the others so long as
the debt is not fully paid.
Article 1217. Payment made by one of the
solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay,
the creditor may choose which offer to
accept.
He who made the payment may claim from
his co-debtors only the share which
corresponds to each, with the interest for the
payment already made. If the payment is
made before the debt is due, no interest for
the intervening period may be demanded.
When one of the solidary debtors cannot,
because of his insolvency, reimburse his share
to the debtor paying the obligation, such
share shall be borne by all his co-debtors, in
proportion to the debt of each.
Legal effects of payment in full bby one
of the solidary debtors: (sayop gasugod
ang number kay buangon ang word):
3. Extinguishes the obligation;
4. Payor-solidary debtor is entitled to
reimbursement;
5. In case of insolvency of one of the
solidary debtors, the share of that
insolven co-debtor in the debt shall
be borne by the other solidary
debtors in proportion to their
respective shares in the debt.
Example for the third effect:
A, B and C are sol debtors who
owed 30,000 from X . A paid X the
whole amount. However, B is
insolvent. A may ask
reimbursement only from C in the
amount of P15,000, (P1000 for C’s
share in the debt and 5,000 as his
contribution for B’s share).
BAR 1998
Joey, Jovy and Jojo are solidary debtors under
al loan obligation of P300,000 which has
fallen due. The creditor makes a demand on
Joey to pay the debt. To what extent can Jojo
31

be compelled by Joey to contribute to such
payment?
Answer: Jojo can be compelled by Joey to
contribute P50,000(1217 par. 3) when one of
the solidary debtors cannot, because of
insolvency, reimburse his share to the debtor
paying the obligation, such share shall be
borne by all his co-debtors, in proportion to
the debt of each.
Since the insolvent debtor’s share which joey
paid was P100,000, and there are only two
remaining debtors – Joey and Jojo – these
two shall share equally the burden of
reimbursement. Jojo may thus be compelled
by Joey to contribute P50,000.
*See 1219 for another question involving this
problem
Article 1218. Payment by a solidary debtor
shall not entitle him to reimbursement from
his co-debtors if such payment is made after
the obligation has prescribed or become
illegal.
Article 1219. The remission made by the
creditor of the share which affects one of the
solidary debtors does not release the latter
from his responsibility towards the co-
debtors, in case the debt had been totally
paid by anyone of them before the remission
was effected.
See example in 1215.
*See BAR problem under 1217 for factual
basis. BAR question 1998. How much if any,
may Joey be compelled to pay?
Answer: Joey can be compelled to pay only
the remaining balance of P200,000, in view of
the remission of JOJO’s share (P100,000) by
the creditor.
Article 1220. The remission of the whole
obligation, obtained by one of the solidary
debtors, does not entitle him to
reimbursement from his co-debtors.
See example in 1215.
Article 1221. If the thing has been lost or if
the prestation has become impossible
without the fault of the solidary debtors, the
obligation shall be extinguished.
If there was fault on the part of any one of
them, all shall be responsible to the creditor,
for the price and the payment of damages
and interest, without prejudice to their action
against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost
or the performance has become impossible
after one of the solidary debtors has incurred
in delay through the judicial or extrajudicial
demand upon him by the creditor, the
provisions of the preceding paragraph shall
apply.
Martinez Ycong Tibon
Article 1222. A solidary debtor may, in
actions filed by the creditor, avail himself of
all defenses which are derived from the
nature of the obligation and of those which
are personal to him, or pertain to his own
share. With respect to those which personally
belong to the others, he may avail himself
thereof only as regards that part of the debt
for which the latter are responsible.
Cases:
Republic of the Philippines vs. CA, G.R. No.
102073, Mar.13, 2001
Palmares vs. CA, G.R. No. 126490, Mar. 31,
1998, 288 SCRA 422
- Art. 2047. By guaranty, a person called the
guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor in
case the latter should fail to do so.
If a person binds himself solidarily with the
principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a
suretyship.
- A surety is an insurer of the debt, whereas a
guarantor is an insurer of the solvency of the
debtor. A suretyship is an undertaking that
the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. Stated
differently, a surety promises to pay the
principal’s debt if the principal will not pay,
while a guarantor agrees that the creditor,
after proceeding against the principal, may
proceed against the guarantor if the principal
is unable to pay. A surety binds himself to
perform if the principal does not, without
regard to his ability to do so. A guarantor, on
the other hand, does not contract that the
principal will pay, but simply that he is able to
do so. In other words, a surety undertakes
directly for the payment and is so
responsible at once if the principal debtor
makes default, while a guarantor contracts to
pay if, by the use of due diligence, the debt
cannot be made out of the principal debtor.
Sesbreno vs. CA, G.R. No. 89252, May 24,
1993, 222 SCRA 466
- Accordingly, petitioner's theory that
Pilipinas had assumed a solidary obligation to
pay the amount represented by the portion
of the Note assigned to him by Philfinance,
appears to be a new theory constructed only
after the trial court had ruled against him.
The solidary liability that petitioner seeks to
impute to Pilipinas cannot, however, be
lightly inferred. Under Article 1207 of the
Civil Code, "there is a solidary liability only
when the obligation expressly so states, or
when the law or the nature of the obligation
requires solidarity."
The record here exhibits no express
assumption of solidary liability vis-a-vis
petitioner, on the part of Pilipinas. Petitioner
has not pointed us to any law which imposed
such liability upon Pilipinas nor has petitioner
32

argued that the very nature of the
custodianship assumed by private respondent
Pilipinas necessarily implies solidary liability
under the securities, custody of which was
taken by Pilipinas.
PNB VS. STA. Maria, G.R. No. L-24765, Aug.
29, 1969, 29 SCRA 303
- Where as in this case, Valeriana, one of the
co-owners of the property involved, granted
Maximino not only the authority to mortgage
said property but also the special power of
attorney to borrow money in connection
therewith, her liability is not only on the
mortgage of her share in the property, but
also for the said loans which Maximo had
obtained from plaintiff bank, and
is joint pursuant to the provisions of Article
1204 of the Civil Code. It should be noted
that in the additional power of attorney, Exh.
E-1, executed by Valeriana, she did not grant
Maximo the authority to bind her solidarity
with him on any loans he might secure
thereunder.
Pacific Banking Corp. vs. Intermediate
Appellate Court, G.R. No. 72275, Nov. 13,
1991, 203 SCRA 496
- A contract of surety as distinguished from a
contract of guaranty where the guarantor
binds himself to the creditor to fulfill the
obligation of the principal debtor only in case
the latter should fail to do so, in a contract of
suretyship, the surety binds himself solidarily
with the principal debtor (Art. 2047, Civil
Code of the Philippines).
- As a surety he bound himself jointly and
severally with the debtor Celia Regala "to pay
the Pacific Banking Corporation upon
demand, any and all indebtedness,
obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the
use of Pacificard or renewals thereof issued in
(her) favor by Pacific Banking Corporation."
Ronquillo vs. CA, G.R. No. L-55138, Sept. 28,
1984, 132 SCRA 274
(LAWS)
Art. 1207.The concurrence of two or more
debtors in one and the same obligation does
not imply that each one of the former has a
right to demand, or that each one of the
latter is bound to render, entire compliance
with the prestation. There is a solidary
liability only when the obligation expressly so
states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208.If from the law, or the nature or the
wording of the obligation to which the
preceding article refers the contrary does not
appear, the credit or debt shall be presumed
to be divided into as many equal shares as
there are creditors and debtors, the credits or
debts being considered distinct from one
another, subject to the Rules of Court
governing the multiplicity of suits."
- The term "individually" has the same
meaning as collectively, " "separately,"
#MYT
"distinctively," respectively or "severally." An
agreement to be "individually liable"
undoubtedly creates a several obligation, (21
Words & Phrases,. Permanent Ed., p. 194)
and a "several obligation" is one by which
one individual binds himself to perform the
whole obligation (39 Words & Phrases,
Permanent Ed., p. 72). In the case of Parot vs.
Gemora, (7 Phil. 94, 97), We therein., ruled
that "the
phrase juntos or separadamente used in the
promissory note is an express statement
making each of the persons who signed
it individually liable for the payment of the
full amount of the obligation contained
therein."
- Likewise in Un Pak Leung vs. Negorra, (9
Phil. 381), We held that "in the absence of a
finding of facts that the defendants made
themselves individually liable for the debt
incurred they are each liable only for one-half
of said amount". The obligation in the case at
bar being described as "individually and
jointly", the same is therefore enforceable
against one of the numerous obligors.
Un Pak Leung vs. Negorra, G.R. No. 3128,
Dec. 19, 1907, 9 Phil. 381
- Parties to a contract are not severally liable
for the obligation thereby created, in the
absence of an express agreement to that
effect.
- In the absence of a finding of facts therefore
that the defendants made themselves
individually liable for the debt incurred, they
are each liable for one-half of said obligation.
Quiombing vs. CA, G.R. No. 93010, Aug. 30,
1990, 189 SCRA 325
- “A joint obligation is one in which each of
the debtors is liable only for a proportionate
part of the debt, and each creditor is entitled
only to a proportionate part of the credit.
A solidary obligation is one in which each
debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole
obligation. Hence, in the former, each
creditor can recover only his share of the
obligation, and each debtor can be made to
pay only his part; whereas, in the latter, each
creditor may enforce the entire obligation,
and each debtor may be obliged to pay it in
full.”
- The essence of active solidarity consists in
the authority of each creditor to claim and
enforce the rights of all, with the resulting
obligation of paying every one what belongs
to him; there is no merger, much less a
renunciation of rights, but only mutual
representation. (Tolentino)
Inciong, Jr. vs. CA, G.R. No. 96405, June 26,
1996, 257 SCRA 578
- A solidary or joint and several obligation is
one in which each debtor is liable for the
33

entire obligation, and each creditor is entitled
to demand the whole obligation.
-Under Art. 1207 thereof (NCC), when there
are two or more debtors in one and the same
obligation, the presumption is that the
obligation is joint so that each of the debtors
is liable only for the proportionate part of the
debt. There is a solidary liability only when
the obligation expressly so states, when the
law so provides or when the nature of the
obligation so requires.
- "A guarantor who binds himself in
solidum with the principal debtor under the
provisions of the second paragraph does not
become a solidary co-debtor to all intents and
purposes. There is a difference between a
solidary co-debtor, and a fiador in
solidum (surety). The later, outside of the
liability he assumes to pay the debt before
the property of the principal debtor has been
exhausted, retains all the other rights, actions
and benefits which pertain to him by reason
of the fianza; while a solidary co-debtor has
no other rights than those bestowed upon
him in Section 4, Chapter 3, title I, Book IV of
the Civil Code."
- Because the promissory note involved in this
case 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 entire obligation.
The choice is left to the solidary creditor to
determine against whom he will enforce
collection. Consequently, the dismissal of the
case against Judge Pontanosas may not be
deemed as having discharged petitioner from
liability as well.
Ynchausti vs. Yulo, 34 Phil.978
- "The solidary debtor may utilize against the
claims of the creditor of the defenses arising
from the nature of the obligation and those
which are personal to him. Those personally
pertaining to the others may be employed by
him only with regard to the share of the debt
for which the latter may be liable."
5. Divisible and Indivisible Obligations, Art.
1223-1225
Article 1223. The divisibility or indivisibility of
the things that are the object of obligations in
which there is only one debtor and only one
creditor does not alter or modify the
provisions of Chapter 2 of this Title.
Article 1224. A joint indivisible obligation
gives rise to indemnity for damages from the
time anyone of the debtors does not comply
with his undertaking. The debtors who may
have been ready to fulfill their promises shall
not contribute to the indemnity beyond the
corresponding portion of the price of the
thing or of the value of the service in which
the obligation consists.
Martinez Ycong Tibon
Article 1225. For the purposes of the
preceding articles, obligations to give definite
things and those which are not susceptible of
partial performance shall be deemed to be
indivisible.
When the obligation has for its object the
execution of a certain number of days of
work, the accomplishment of work by
metrical units, or analogous things which by
their nature are susceptible of partial
performance, it shall be divisible.
However, even though the object or service
may be physically divisible, an obligation is
indivisible if so provided by law or intended
by the parties.
In obligations not to do, divisibility or
indivisibility shall be determined by the
character of the prestation in each particular
case.
A divisible obligation is one capable of
partial performance (such as the
obligation to deliver 10 sacks of rice).The
following are deemed divisible:
1. When the obligation has for its
object the execution within a
certain number of workdays;
2. When it has for its object the
accomplishment of work by
metrical units;
3. Analogous things which by their
nature are susceptible of partial
performance.
An indivisible obligation is one not
capable of partial performance. The
following obligations deemed indivisible:
1. To give definite things;
2. Not susceptible of partial
performance (ex: the singer to
sing);
3. Indivisible by provision of law
(payment of a sum of money such
as tax, although, naturally, money is
divisible, the law requires that
payment of taxes must be in full.);
4. Indivisible because of agreement by
parties (although Divisible in
nature)
Government vs. CFI, G.R. No. L-32162, Sept.
28, 1984, 132 SCRA 156
- Read together with the stage-by-stage
construction and payment approach, would
inevitably lead to the conclusion that the
parties to the compromise contemplated a
divisible obligation necessitating therefore a
performance bond "in proportion to" the
uncompleted work.
- What is crucial in sub-paragraph B of
paragraph 1 of the compromise agreement
are the words "in proportion." If the parties
really intended the legal rate of 20%
performance bond to refer to the whole
unfinished work, then the provision should
34

have required the plaintiff contractor to
submit and file a new performance bond to
cover the remaining value/cost of the
unfinished work of the construction. Using
the words in proportion then significantly
changed the meaning of the paragraph to
ultimately mean a performance bond equal to
20% of the next stage of work to be done.
6. Obligations with a Penal Clause, Art. 1226-
1230
Article 1226. In obligations with a penal
clause, the penalty shall substitute the
indemnity for damages and the payment of
interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the
provisions of this Code. (1152a)
Penalty clause – is an accessory
undertaking in case of non-compliance
(EBM)
GR: substitute for damages
Exc: recover both the penalty and
damages:
1. Stipulation;
2. Debtor is guilty of fraud in the
fulfillment of the obligation;
3. Debtor refuses to pay the
penalty.
Function and concept:
(Suatengco) Guatengco vs. Reyes, 574 SCRA
187 (2008)
- Liquidated damages are those agreed upon
by the parties to a contract to be paid in case
of breach thereof. The stipulation on
attorney's fees contained in the said
Promissory Note constitutes what is known as
a penal clause.
- A penalty clause, expressly recognized by
law, is an accessory undertaking to assume
greater liability on the part of the obligor in
case of breach of an obligation. (concept)
-It functions to strengthen the coercive force
st
of obligation(1 function) and to provide, in
effect, for what could be the liquidated
nd
damages resulting from such a breach(2 ).
The obligor would then be bound to pay the
stipulated indemnity without the necessity of
proof on the existence and on the measure of
damages caused by the breach. It is well-
settled that so long as such stipulation does
not contravene law, morals, or public order, it
is strictly binding upon the obligor. The
attorney's fees so provided are awarded in
favor of the litigant, not his counsel.
SSS vs. Moonwalk, G.R. No. 73345, Apr. 7,
1993, 221 SCRA 119
#MYT
- A penal clause has been defined as "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 presentation
(generally consisting in the payment of a sum
of money) in case the obligation is not
fulfilled or is irregularly or inadequately
fulfilled"
- An accessory obligation has been defined as
that attached to a principal obligation in
order to complete the same or take its place
in the case of breach. Note therefore that an
accessory obligation is dependent for its
existence on the existence of a principal
obligation. A principal obligation may exist
without an accessory obligation but an
accessory obligation cannot exist without a
principal obligation.
- A penalty is demandable in case of non
performance or late performance of the main
obligation.
- A penal clause is an accessory undertaking
to assume greater liability in case of breach. It
has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat
of greater responsibility in the event of
breach. From the foregoing, it is clear that a
penal clause is intended to prevent the
obligor from defaulting in the performance of
his obligation.
Article 1227. The debtor cannot exempt
himself from the performance of the
obligation by paying the penalty, save in the
case where this right has been expressly
reserved for him. Neither can the creditor
demand the fulfillment of the obligation and
the satisfaction of the penalty at the same
time, unless this right has been clearly
granted him. However, if after the creditor
has decided to require the fulfillment of the
obligation, the performance thereof should
become impossible without his fault, the
penalty may be enforced. (1153a)
GR: debtor cannot substitute the
penalty/accessory undertaking for the
principal obligation.
Exc: expressly reserved
nd
2 part. GR: Penalty is Subsidiary (the
creditor cannot demand fulfillment and
at the same time the payment of the
penalty)
nd
Exc for 2 part: Joint, if agreed upon
Article 1228. Proof of actual damages
suffered by the creditor is not necessary in
order that the penalty may be demanded. (n)
Article 1229. The judge shall equitably reduce
the penalty when the principal obligation has
been partly or irregularly complied with by
the debtor. Even if there has been no
performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable.
35

CASEs:
Ruiz vs. CA, 401 SCRA 410 (2003)
- The 1% surcharge on the principal loan for
every month of default is valid. This surcharge
or penalty stipulated in a loan agreement in
case of default partakes of the nature of
liquidated damages under Art. 2227 of the
New Civil Code, and is separate and distinct
from interest payment. Also referred to as a
penalty clause, it is expressly recognized by
law.
- It is an accessory undertaking to assume
greater liability on the part of an obligor in
case of breach of an obligation. The obligor
would then be bound to pay the stipulated
amount of indemnity without the necessity of
proof on the existence and on the measure of
damages caused by the breach. Although the
courts may not at liberty ignore the freedom
of the parties to agree on such terms and
conditions as they see fit that contravene
neither law nor morals, good customs, public
order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced if it
is iniquitous or unconscionable.
Barons Marketing Corp. vs. CA, 286 SCRA 96
- Under Article 1229 of the Civil Code courts
are empowered to reduce such penalty if the
same is "iniquitous or unconscionable." It is
true that we have upheld the reasonableness
of penalties in the form of attorney's fees
consisting of twenty-five percent (25%) of the
principal debt plus interest. In the case at bar,
however, the interest alone runs to some four
and a half million pesos (P4.5M), even
exceeding the principal debt amounting to
almost four million pesos (P4.0M). Twenty
five percent (25%) of the principal and
interest amounts to roughly two million pesos
(P2M). In real terms, therefore, the attorney's
fees and collection fees are manifestly
exorbitant. Accordingly, we reduce the same
to ten percent (10%) of the principal.
Article 1230. The nullity of the penal clause
does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries
with it that of the penal clause. (1155)
Some CASES for obligations with a PENILE
clause:
Titan Construction Corp. vs. Uni-Field
Enterprises, Inc., 517 SCRA 180 (2007)
- The attorney's fees here are in the nature of
liquidated damages and the stipulation
therefor is aptly called a penal clause. It has
been said that so long as such stipulation
does not contravene law, morals, or public
order, it is strictly binding upon defendant.
The attorney's fees so provided are awarded
in favor of the litigant, not his counsel.
- On the other hand, the law also allows
parties to a contract to stipulate on liquidated
damages to be paid in case of breach. A
stipulation on liquidated damages is a
penalty clause where the obligor assumes a
Martinez Ycong Tibon
greater liability in case of breach of an
obligation. The obligor is bound to pay the
stipulated amount without need for proof
on the existence and on the measure of
damages caused by the breach.
- Articles 1229 and 2227 of the Civil Code
empower the courts to reduce the penalty if
it is iniquitous or unconscionable. The
determination of whether the penalty is
iniquitous or unconscionable is addressed to
the sound discretion of the court and
depends on several factors such as the type,
extent, and purpose of the penalty, the
nature of the obligation, the mode of breach
and its consequences.
Allen vs. Province of Albay, G.R. No. 11433,
Dec. 20, 1916, 35 Phil.826
- We must, therefore, conclude that the
provinces waived the contract time, whether
it were September 1 or November 1, by their
failure to deliver the steel promptly, by
reason of having placed the strict quarantine
on animals and on account of the change in
the plan subsequent to October 12, and that
the waver operated to eliminate the definite
date from which to assess liquidated
damages; and though the plaintiff, in
continuing the work, was obligated to
complete the same within a reasonable time,
the liquidated damage clause was not
thereby restored and made applicable to an
unreasonable time. Where strict performance
on the part of the contractor is prevented or
waived by the other party, a claim by such
party of fines and penalties for delay or
failure cannot be sustained. (District of
Columbia vs. Camden Iron Works, 181 U.S..
453.) The same rule applies in cases
containing liquidated damage clauses.
State Investment House vs. Court of Appeals,
G.R. No. 112590, July 12, 2001
- The respondent court disallowed the
payment of the deficiency altogether because
it found that the principal obligation of the
private respondent would not have ballooned
to such a horrendous amount of P4.8M as of
September 21, 1991 if not for the iniquitous
and unconscionable penalty charge of 3% per
month or 36% per annum. Contrary to
petitioner's contention, the respondent court
acted in accordance to Article 1229 as the
disallowance of the payment of deficiency
was in effect merely a reduction of the
penalty charges and not as a deletion of the
penalties. To allow the petitioner to recover
the amount of P6,835,021.21 at the time of
the foreclosure sale in 1983, or P7,651,969.41
at the time of the trial of the case in 1988
which amounts are almost three times more
than the original investment of about
P2,558,083.75 is rather unwarranted. While
the Court recognizes the right of the parties
to enter into contracts and are expected to
comply with the terms and obligations, this
rule is not absolute. The Court allowed to
temper interest rates when necessary.
Spouses Solangon vs. Salazar, G.R. No.
125944, June 29, 2001
36

- We find the interest at 5.5% per month, or
66% per annum, stipulated upon by the
parties in the promissory note iniquitous or
unconscionable, and hence, contrary to
morals ('contra bonos mores'), if not against
the law. The stipulation is void. The courts
shall reduce equitably liquidated damages,
whether intended as an indemnity or a
penalty if they are iniquitous or
unconscionable.
Palmares vs. CA, 288 SCRA 422
- It must be remembered that from the
principal loan of P30,000.00, the amount of
P16,300.00 had already been paid even
before the filing of the present case. Article
1229 of the Civil Code provides that the court
shall equitably reduce the penalty when the
principal obligation has been partly or
irregularly complied with by the debtor. And,
even if there has been no performance, the
penalty may also be reduced if it is iniquitous
or leonine. In a case previously decided by
this Court which likewise involved private
respondent M.B. Lending Corporation, and
which is substantially on all fours with the
one at bar, we decided to eliminate
altogether the penalty interest for being
excessive and unwarranted. Accordingly, the
penalty interest of 3% per month being
imposed on petitioner should similarly be
eliminated.
Manila Racing Club vs. Manila Jockey Club,
69 Phil.55
- The clause of the contract referring to the
forfeiture of the P100,000 already paid,
should the purchaser C fail to pay the
subsequent installments, is valid. It is in the
nature of a penal clause which may be legally
established by the parties (articles 1152 and
1255 of the Civil Code). In its double purpose
of insuring compliance with the contract and
of otherwise measuring before hand the
damages which may result from non-
compliance, it is not contrary to law, morals
or public order because it was voluntarily and
knowingly agreed upon by the parties.
Viewing concretely the true effects thereof in
the present case, the amount forfeited
constitutes only eight percent of the
stipulated price, which is not excessive if
considered as the profit which would have
been obtained had the contract been
complied with.
- There is, moreover, evidence that the
defendants, because of this contract with C.,
had to reject other propositions to buy the
same property. At any rate, the penal clause
does away with the duty to prove the
existence and measure of the damages cause
a by the breach.
Lambert vs. Fox, 26 Phil. 558
- A penalty imposed for the breach of a
contract not to sell shares of stock for one
year will be enforced if the agreement is
broken, no matter whether the person
seeking to enforce the penalty has suffered
damages or not.
#MYT
- The only case in which the courts are
authorized to intervene for the reduction of a
penalty stipulated in a contract is when the
principal obligation has been partly or
irregularly fulfilled and the court can see that
the party demanding the penalty has received
the benefits of such part or irregular
performance. In such case the court is
authorized to reduce the penalty to the
extent of the benefits received by the party
seeking to enforce the penalty.
- In enforcing a contract which provides a
penalty in case of breach, the party enforcing
the penalty is entitled to recover the sum
stipulated without proving damages.
Ligutan vs. CA, et. al., GR No. 138677, Feb.
12, 2002
- A penalty clause, expressly recognized by
law, is an accessory undertaking to assume
greater liability on the part of an obligor in
case of breach of an obligation.
-It functions to strengthen the coercive force
of the obligation and to provide, in effect, for
what could be the liquidated damages
resulting from such a breach.
-The obligor would then be bound to pay the
stipulated indemnity without the necessity of
proof on the existence and on the measure of
damages caused by the breach.
-Although a court may not at liberty ignore
the freedom of the parties to agree on such
terms and conditions as they see fit that
contravene neither law nor morals, good
customs, public order or public policy, a
stipulated penalty, nevertheless, may be
equitably reduced by the courts if it is
iniquitous or unconscionable or if the
principal obligation has been partly or
irregularly complied with.
E. Extinguishment of Obligations
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations,
such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are
governed elsewhere in this Code. (1156a)
BAR 1998:
Define Compensation as a mode of extinguishing
an obligation, and distinguish it from payment.
UP complex Suggested answer:
Compensation is a mode of extinguishing to
theconcurrent amount, the obligations of those
persons who, in their own right, are reciprocally
debtors and creditors of each other (Tolentino,
37

1991 ed. Page 365, citing 2 Castan 560 and francia
vs. IAC, 162 SCRA753). It involves the simultaneous
balancing of two obligations in order to extinguish
them to the extent in which the amount of one is
covered by that of the other. (De Leon, 1992
ed.,page 221, citing Manresa 401).
Payment means not only delivery of money but
also performance of an obligation. In payment,
capacity to dispose of the thing paid and capacity
to receive payment are required for debtor and
creditor, respectively; in compensation, such
capacity is not necessary, because the
compensation operates by law and not by the act
of the parties. In payment, the performance must
be complete; while in compensation, there may be
partial extinguishment of an obligation.
1. Payment or Performance, Art. 1231-1251
Article 1232. Payment means not only the delivery
of money but also the performance, in any other
manner, of an obligation.
Payment could mean:
1. Payment in money (legal tender);
2. Performance of service;
3. Delivery.
Article 1233. A debt shall not be understood to
have been paid unless the thing or service in which
the obligation consists has been completely
delivered or rendered, as the case may be.
GR: payment must be complete – total
extinguishment.
Example ni EBM, debt is P100,000. RJ, the
debtor (and not in good faith pero di pod
kaau in bad faith) paid Meyler, the creditor
P99,999. There is only partial payment.
Therefore Meyler can sue Rj for recovery of
the balance. Pero grabe pod oi, piso ra,..when
we talk of practicality, ay nalang,..
For one of the essential ingredients of
payment as a mode of extinguishing
obligations is integrity, that is, the payment
must be complete or full. Article 1233 of the
Civil Code states: "A debt shag not be
understood to have been paid unless the
thing or service in which the obligation
consists has been completely delivered or
rendered, as the case may be." G.R. No. L-
34767 October 23, 1987
Exceptions:
1. 1235 – waiver or estoppels;
2. 1234 – substantial compliance
CASE/S:
PNB vs. CA, G.R. No. 108630, Apr. 2, 1996, 256
SCRA 44
- A DEBT IS PAID BY COMPLETE DELIVERY OF THE
THING OR RENDITION OF SERVICE. - There is no
question that no payment had ever been made to
private respondent as the check was never
delivered to him. When the court ordered
petitioner to pay private respondent the amount
of P32,480.00, it had the obligation to deliver the
same to him. Under Art. 1233 of the Civil Code, a
debt shall not be understood to have been paid
Martinez Ycong Tibon
unless the thing or service in which the obligation
consists has been completely delivered or
rendered, as the case may be.
- The burden of proof of such payment lies with
the debtor. In the instant case, neither the SPA nor
the check issued by petitioner was ever presented
in court. The testimonies of petitioner’s own
witnesses regarding the check were conflicting.
Tagamolila testified that the check was issued to
the order of “Sonia Gonzaga as attorney-in-fact of
Loreto Tan,” while Elvira Tibon, assistant cashier of
PNB (Bacolod Branch), stated that the check was
issued to the order of “Loreto Tan.” Furthermore,
contrary to petitioner’s contention that all that is
needed to be proved is the existence of the SPA, it
is also necessary for evidence to be presented
regarding the nature and extent of the alleged
powers and authority granted to Sonia Gonzaga;
more specifically, to determine whether the
document indeed authorized her to receive
payment intended for private respondent.
However, no such evidence was ever presented.
Article 1234. If the obligation has been
substantially performed in good faith, the obligor
may recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee.
Doctrine of substantial performance; must
be done in good faith.
Example given by EBM:
Debtor forgot to construct a portion of a wall
(in good faith). That portion is worth 50,000.
If the total obligation is 5M, the debtor may
collect as though there had been complete
fulfillment less 50,000 which is the value of
the portion of the wall that the debtor failed
to construct.
Article 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied
with.
CASE/S:
1. Esguerra vs. Villanueva, G.R. No. L-23191, Dec.
19, 1967, 21 SCRA 1314
- Respondents maintain, and the lower court held,
that the "receipt" of said sums of P800.00 and
P1,400.00 by the Esguerras constituted
"acceptance" of the incomplete and irregular
performance of respondents' obligation under the
judgment in cases Nos. 1074 and 1075, and that,
this "acceptance" having been made without any
"protest or objection" on the part of the
Esguerras, said obligation must be "deemed fully
complied with," pursuant to Article 1235 of the
Civil Code of the Philippines.
- This theory is based upon the premise that
"receipt" of a partial payment is necessarily an
"acceptance" thereof, within the purview of said
provision, and that the Esguerras had not
protested or objected to said payment. Such
premise is untenable. The verb "accept," as used in
Article 1235, means to take as "satisfactory or
sufficient" or to "give assent to," or to "agree" or
38

"accede" to an incomplete or irregular
performance. The circumstances obtaining in the
case at bar clearly show that the Esguerras had
neither acceded or assented to said payment, nor
taken the same as satisfactory or sufficient
compliance with the judgment aforementioned.
- the law does not require the protest or
objection of the creditor to be made in a
particular manner or at a particular time. So long
as the acts of the creditor, at the time of the
incomplete or irregular payment by the debtor,
or within a reasonable time thereafter, evince
that the former is not satisfied with or agreeable
to said payment or performance, the obligation
shall not be deemed fully extinguished.
2. Pagsibigan vs. CA, G.R. No. 90169, Apr. 7, 1993,
221 SCRA 202
- From the conduct of the respondent bank it is
clear that it neither enforced its right under the
acceleration clause nor its right to foreclose under
the mortgage contract, For more than four years,
the respondent bank made petitioner believe that
it was applying her payment on the loan and
interest just like before when the respondent bank
accepted such payment and issued a receipt
therefor. It is bound by estoppel to apply the same
as payment for petitioner's obligation as it did
when it received previous payments on three
occasions. Its act of applying said payments to
accounts payable is clearly prejudicial to
petitioner. We cannot countenance this act of the
bank. We hold that the payment amounting to
P8,650.00 for the balance of P3,558.20 as of
August 26, 1978 plus the P1,000.00 it was asked to
pay on April 24, 1984 would at the very least
constitute substantial performance. Article 1234 of
the Civil Code, provides: "Article 1234. If the
obligation has been substantially performed in
good faith, the obligor may recover as though
there had been a strict and complete fulfillment,
less damages suffered by the obligee."
- Petitioner in this case has the right to move for
the cancellation of the mortgage and the release
of the mortgaged property, upon payment of the
balance of the loan. Thus, aside from the fact that
the respondent bank was estopped from enforcing
its right to foreclose by virtue of its acceptance of
the delayed payments for a period of more than
six years, the application of such payment to the
interest and the principal during the first three
payments constitutes a virtual waiver of the
acceleration clause provided in the contract. We
cannot sustain the legality of the foreclosure
under the peculiar facts of this case, because there
is substantial performance of the obligation on the
part of petitioner. Under Article 1235 of the Civil
Code, when the creditor accepts performance,
knowing its incompleteness and irregularity
without protest or objection, the obligation is
deemed complied with.
3. Tayag vs. CA, G.R. No. 96053, May 3, 1993, 219
SCRA 480
-- Both the trial and appellate courts were,
therefore, correct in sustaining the claim of private
respondent anchored on estoppel or waiver by
acceptance of delayed payments under Article
1235 of the Civil Code in that:
#MYT
When the obligee accepts the performance,
knowing its incompleteness or irregularity, and
without expressing any protest or objection, the
obligation is deemed fully complied with.
- considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting
the latter's delayed payments not only beyond the
grace periods but also during the pendency of the
case for specific performance (p. 27,
Memorandum for petitioners; p. 166, Rollo).
Indeed, the right to rescind is not absolute and will
not be granted where there has been substantial
compliance by partial payments (4 Caguioa,
Comments and Cases on Civil Law, First Ed. [1968]
p. 132). By and large, petitioners' actuation is
susceptible of but one construction — that they
are now estopped from reneging from their
commitment on account of acceptance of benefits
arising from overdue accounts of private
respondent.
Article 1236. The creditor is not bound to accept
payment or performance by a third person who
has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
GR: Creditor is not bound to accept payment
by third persons.
Exceptions:
1. stipulation;
2. payment by a third person interested in the
fulfillment of the obligation. Such as the
guarantor.
Rules on payment by Third persons:
1. With knowledge and consent of debtor –
payor entitled to reimbursement and
subrogation
2. Without debtor’s knowledge or consent
– payor only allowed beneficial
reimbursement
Article 1237. Whoever pays on behalf of the
debtor without the knowledge or against the will
of the latter, cannot compel the creditor to
subrogate him in his rights, such as those arising
from a mortgage, guaranty, or penalty.
Article 1238. Payment made by a third person who
does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the
debtor's consent. But the payment is in any case
valid as to the creditor who has accepted it.
Governed by the law on donations.
Article 725. Donation is an act of liberality
whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts
it.
Exapmle:
39

D owes C 5m. T paid C 5M without D’s
consent. No donation. And debtor must
reimburse T. follow the rule under 1237.
Article 1239. In obligations to give, payment made
by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of article
1427 under the Title on "Natural Obligations."
Payment must be made by the debtor who
must possess the following:
1. The free disposal of the thing – means
that the property must not be subject to
any claim by, or encrumbances in favor
of, third persons;
2. The capacity to alienate the thing –
capable of giving consent.
Rules in payment by incapacitated persons (di
ko sure ani):
1. Payment is not valid;
2. Creditor cannot be compelled to accept
payment;
3. Consignation is not proper
Article 1240. Payment shall be made to the person
in whose favor the obligation has been
constituted, or his successor in interest, or any
person authorized to receive it.
CASE:
Montecillo vs. Reynes, 385 SCRA 244 (2002)
- the Deed of Sale does not state that the
purchase price should be paid by Montecillo to
Cebu Ice Storage. Montecillo failed to adduce any
evidence before the trial court showing that
Reynes had agreed, verbally or in writing, that the
purchase price should be paid to Cebu Ice
Storage. Absent any evidence showing that
Reynes had agreed to the payment of the
purchase price to any other party, the payment to
be effective must be made to Reynes, the vendor
in the sale. Article 1240 of the Civil Code provides
as follows:
“Payment shall be made to the person in whose
favor the obligation has been constituted, or his
successor in interest, or any person authorized to
receive it.”
Thus, Montecillo’s payment to Cebu Ice Storage is
not the payment that would extinguish
Montecillo’s obligation to Reynes under the Deed
of Sale.
BPI vs. CA, G.R. No. 104612, May 10, 1994, 232
SCRA 302
- Because the ownership of the deposit remained
undetermined, BPI, as the debtor with respect
thereto, had no right to pay to persons other than
those in whose favor the obligation was
constituted or whose right or authority to receive
payment is indisputable. The payment of the
money deposited with BPI that will extinguish its
obligation to the creditor-depositor is payment to
the person of the creditor or to one authorized by
him or by the law to receive it. Payment made by
the debtor to the wrong party does not extinguish
the obligation as to the creditor who is without
Martinez Ycong Tibon
fault or negligence, even if the debtor acted in
utmost good faith and by mistake as to the person
of the creditor, or through error induced by fraud
of a third person.
Article 1241. Payment to a person who is
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar
as the payment has been beneficial to him.
Payment made to a third person shall also be valid
insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be
proved in the following cases:
(1) If after the payment, the third person acquires
the creditor's rights;
(2) If the creditor ratifies the payment to the third
person;
(3) If by the creditor's conduct, the debtor has
been led to believe that the third person had
authority to receive the payment.
Payment to a stranger:
Valid insofar as it has redounded to the
benefit of the creditor.
Proof of benefit to the creditor need not be
proved if:
1. Payee acquires the creditor’s rights
2. Ratification; and
3. Creditor’s conduct (murag estoppel)
Article 1242. Payment made in good faith to any
person in possession of the credit shall release the
debtor.
Example by EBM:
Charity (maker) executed a promissory Note
in favor of Casimpan. Casimpan ,in turn,
negotiated it to Bobong but Bobong lost it.
BaCOMO found the note and presented it to
Charity for payment. Charity, in good faith,
paid Bacomo.
Here, the obligation is extinguished.
Panganiban vs. Cuevas, 7 Phil 477
- 1164 “ Payment made in good faith to the person
who is in possession of the credit shall release the
debtor,” is in no wise applicable to a case in which
the payment was made to one who had done
nothing more than to make an attachment,
without being in actual possession, for
attachment, not having the character of
confiscation, does not deprive the real, lawful
owner of any of the rights of ownership.
- So that article 1164 of the Civil Code is not
applicable to the case at bar, nor is paragraph 2 of
article 1163 applicable to this case, because their
is nothing in the record to show that a payment
made by Panganiban to the revolutionary
government was for the benefit of Gonzalez. "That
the creditor was benefited by the payment made
to a third person by his debtor can not be
presumed, and must, therefore, be satisfactorily
established by the person interested in proving
this fact." Manresa, 8 Civil Code, 257.)
40
 #MYT
Article 1243. Payment made to the creditor by the Giving of the price Giving of the object
debtor after the latter has been judicially ordered may generally end in lieu of the credit
to retain the debt shall not be valid. the obligation of the may extinguish
buyer completely or
Example: Garnishment. (usual example for partially the credit
garnishment, banks are issued freeze order and (depending on the
the depositors (actually, the creditors are not agreement)
allowed to withdraw).

Article 1244. The debtor of a thing cannot compel CASE/S:

the creditor to receive a different one, although
the latter may be of the same value as, or more
valuable than that which is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by another act
or forbearance against the obligee's will.
EBM’s example:
Debtor: akong obligation nimo bolpen, pero
pobri man jud mi, di ko kapalit og BIC
na bolpen, mahimo ban a dawaton
nalang nimo ning BMW nko nga bag-
o? wa man gud koi lain mahatag kay
pobre ram n gud mi, gikural ra gani
akong bay og mga awto.
Creditor: d ko oi. Bolpen imong obligation,
bolpen na BIC i-hatag.
Rj: MAAYO MAN MO DATU MI. KAMI, POBRE
MO
Mga oplok
Article 1245. Dation in payment, whereby
property is alienated to the creditor in satisfaction
of a debt in money, shall be governed by the law
of sales.
Synonyms:
1. Datio in solutum;
2. Adjudicacion en pago
Dacio in Solutum – a process whereby the
debtor alienates his property or properties in
favor of his creditor to satisfy his monetary
obligation.
Dation in payment is governed by the law of
sales because the transfer or conveyance of
ownership of a thing as an accepted
equivalent of performance really partakes in
one sense of the nature of sale, i.e., the
creditor is really buying some property of the
debtor, payment for which is to be charged
against the debtor’s debt. However, it may
also be called a “novation”. But sales and
novatin require common consent. – PARAS
Caltex vs. Intermediate Appellate Court, GR No.
72703, Nov. 13, 1992, 215 SCRA 580
- 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.
- dation in payment does not necessarily mean
total extinguishment of the obligation. The
obligation is totally extinguished only when the
parties, by agreement, express or implied, or by
their silence, consider the thing as equivalent to
the obligation.
Article 1246. When the obligation consists in the
delivery of an indeterminate or generic thing,
whose quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a
thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken
into consideration.
Obligation to give generic things – deliver on
which is of moderation – EBM
Reason - equity
Article 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern.
Reason for the law: it is the debtor who
benefits primarily, since his obligation is thus
extinguished.
Article 1248. Unless there is an express stipulation
to that effect, the creditor cannot be compelled
partially to receive the prestations in which the
obligation consists. Neither may the debtor be
required to make partial payments.

Sale Dation In npayment However, when the debt is in part liquidated and
There is no pre- There is pre-existing in part unliquidated, the creditor may demand and
existing credit credit the debtor may effect the payment of the former
Gives rise to Extinguishes the without waiting for the liquidation of the latter.
obligation obligation
Cause or Cause or Partial performance is allowed under the
consideration is the consideration is the following circumstances:
PRICE (seller’s extinguishment of
viewpoint); OBJECT the obligation 1. Stipulation;
(buyer’s viewpoint) (debtor’s viewpoint); 2. Different prestations are subject to
acquisition of the different conditions or different terms.
thing offered (debt payable in installments);
(viewpoint of the 3. Partially liquidated and partially
creditor) unliquidated;
Greater freedom in Less freedom 4. Joint debtor pays his share;
the determination of 5. Partial compensation; the balance;
the price 6. Work is to be done by parts

41

Article 1249. The payment of debts in money shall
be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order,
or bills of exchange or other mercantile
documents shall produce the effect of payment
only when they have been cashed, or when
through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the
original obligation shall be held in the abeyance.
Legal tender is the money or currency which
the debtor may compel his creditor to accept
in payment of his debt.
Parties may stipulate that the payment may
be made in currency other than Philippine
legal tender at the time of payment.
Delivery of commercial documents (PB,
cgecks, bills of exchange) shall produce the
effect only when they have been cashed or
when through the fault of the creditor they
have been impaired.
Paras: D, in payment of a debt, paid C with C’s
onsent, a promissory note payable two
months later. During the intervening period,
may C bring an action to recover from D?
No, for under the law, pending the cashing of
the mercantile document, “the action derived
from the original obligation shall be held in
abeyance.”
CASE/S:
BPI vs. Sps. Royeca, GR 176664 – 07-21-08
- A check is not a legal tender and, therefore
cannot constitute a valid tender of payment. Since
a negotiable instrument is only a substitute for
money, and not money, the delivery of such an
instrument does not by itself, operate as payment.
The obligation is not extinguished and remains
suspended until the payment by commercial
document is actually realized.
FEBTC vs. Diaz Realty Inc., GR No. 138588, Aug.
23, 2001
- In general, a check does not constitute legal
tender, and that a creditor may validly refuse it. It
must be emphasized, however, that this 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
accepting it.
- 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
accept the same.
National Marketing Corp. vs. Federation of
United Namarco Distributors, Inc., G.R. No. L-
22578, Jan. 31, 1973, 49 SCRA 238
- the delivery of promissory notes payable to
order, or bills of exchange or drafts or other
mercantile document shall produce the effect of
payment only when realized, or when by the fault
of the creditor, the privileges inherent in their
negotiable character have been impaired.
Martinez Ycong Tibon
- A mere attempt to collect or enforce a bill or
note from which no payment results is not such an
appropriation of it as to discharge the debt
Article 1250. In case an extraordinary inflation or
deflation of the currency stipulated should
supervene, the value of the currency at the time of
the establishment of the obligation shall be the
basis of payment, unless there is an agreement to
the contrary.
Inflation – a sharp sudden increase of money
or credit or both without a corresponding
increase in business transaction. Effect: since
the value of money here tends to decrease,
the natural result is an increase in the price of
goods and services.
Deflation is the opposite
Basis for the payment is the value (real value
or worth) at the time the obligation was
constituted or incurred, unless the contrary
was stipulated.
BAR 2001
On July 1, 1998, Brian leased an office space in a
building for a period of five years at a rental rate of
P1000 a month. The contract contained a proviso
that “in case of inflation or devaluation of the
Philippine Peso, the monthly rental will
automatically be increased or decreased
depending on the deva;uation or inflation of the
peso to dollar.” Starting March 1, 2001, the lessor
increased the rental P2,000, on the ground of
inflation proven by the fact that the exchange rate
of the Philippine Peso to dollar had increased from
25P=1$ to P50=$1. Brian refused to pay the
increased rate and an action for unlawful detainer
was filed against him. Will the action prosper?
Why?
Suggested Answer:
It will not prosper. Extraordinary inflation or
deflation is defined as the sharp decrease in the
purchasing power of the peso. It does not
necessarily refer to the exchange rate of the peso
to dollar. The courts would decide whether or not
there is inflation or deflation. There being no
showing that the purchasing power of the peso
had been reduced tremendously, there could be
no inflation that would justify the increase in the
amount of rental to be paid. Hence, brian could
refuse to pay the increased rate.
Article 1251. Payment shall be made in the place
designated in the obligation.
There being no express stipulation and if the
undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might
be at the moment the obligation was constituted.
In any other case the place of payment shall be the
domicile of the debtor.
If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional
expenses shall be borne by him.
These provisions are without prejudice to venue
under the Rules of Court.
Rules on place of payment:
1. Place stipulated;
42

2. No situpaltion to this effect:
a) Place where the thing may be found
at the time the obligation was
constituted – DETERMINATE or
SPECIFIC
b) Debtor’s domicile - GENERIC
CASES:
Biala vs. CA, G.R. No. 43503, Oct. 31, 1990, 191
SCRA 50
- she raised the defense of payment of all her
debts in her answer before the trial court, there
was no proof presented evidencing payment
thereof as correctly found by the appellate court.
- When the existence of a debt is fully established
by the evidence contained in the record, the
burden of proving that it has been extinguished by
payment devolves upon the debtor who offers
such a defense to the claim of the creditor
- all the documents evidencing petitioner's debts
are still in the possession of respondent Lee. No
receipts or other satisfactory evidence was
presented by the petitioner to prove the alleged
payment to respondent. Promissory notes in the
hands of the creditor are proofs of indebtedness
rather than proofs of payment
- all the documents evidencing petitioner's debts
are still in the possession of respondent Lee. No
receipts or other satisfactory evidence was
presented by the petitioner to prove the alleged
payment to respondent. Promissory notes in the
hands of the creditor are proofs of indebtedness
rather than proofs of payment.
BPI vs. CA, G.R. No. 104612, May 10, 1994, 232
SCRA 302
Caltex vs.Intermediate Appellate Court, GR No.
72703, Nov. 13, 1992, 215 SCRA 580
FEBTC vs. Diaz Realty Inc., GR No. 138588, Aug. 23,
2001
National Marketing Corp. vs. Federation of United
Namarco Distributors, Inc., G.R. No. L-22578, Jan.
31, 1973, 49 SCRA 238
Ponce vs. Court of Appeals, 90 SCRA 533
a. Application of Payments, Art. 1252-1254
Special forms of Payment:
a) Application of Payments;
b) Dation in payment;
c) Assignment in favor of creditors (payment
by cession);
d) Tender of payment and consignation
Article 1252. He who has various debts of the
same kind in favor of one and the same creditor,
may declare at the time of making the payment, to
which of them the same must be applied. Unless
the parties so stipulate, or when the application of
payment is made by the party for whose benefit
the term has been constituted, application shall
not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in
which an application of the payment is made, the
former cannot complain of the same, unless there
is a cause for invalidating the contract.
#MYT
Application of payment is the designation of
the debt to which should be applied a
payment made by a debtor who owes several
debts in favor of the same creditor. Stated
differently, it is the phrase applied to show
which debt, out of two or more debts owing
to the same creditor, is being applied.
Importance: to know which debt has been
extinguished.
Requisites:
a) Severalty of debts;
b) Debts of the same kind;
c) Owed by the same debtor in favor of the
same creditor;
d) All debts are due;
e) Payment is insufficient to cover all debts
Rule when debts are not yet DUE: despite the
fact that not all debts are yet due, there may
still be application of payments ,
a) If the parties so stipulate; or
b) When the application of payment is
made by the party for whose benefit the
term has been constituted.
GR: It is the debtor who is given by the law
the right to select which of his debts he is
paying. If the debtor makes a proper
application and the creditor refuses, the
creditor will be in mora accipiendi
Exceptions:
a) Valid prior but contrary agreement;
b) Debtor cannot choose to pay part of the
principal ahead of the interest, unless
the creditor consents
How application of payment is made:
a) Debtor makes the designation;
b) If not, creditor makes it, b stating in the
receipt, unless there is cause for
invalidating the contract;
c) If neither the debtor nor the creditor has
made the application, or if the
application is not valid, then application
is made by operation of law.
If the creditor makes the application without
the knowledge and consent of the debtor, the
application is not valid. (BPI vs Espinosa, CA
case)
Once application of payment is made, it may
not be revoked unless both parties agreed.
Exception to the exception, if third parties
would be prejudiced.
Application must bemade at the time when
payment by the debtor is mdae, not
afterwards.
Article 1253. If the debt produces interest,
payment of the principal shall not be deemed to
have been made until the interests have been
covered.
Article 1254. When the payment cannot be
applied in accordance with the preceding rules, or
if application can not be inferred from other
circumstances, the debt which is most onerous to
the debtor, among those due, shall be deemed to
have been satisfied.
43
 Martinez Ycong Tibon
2. Debtor is released up to the amount of the
If the debts due are of the same nature and net proceeds of the sale, unless contrary is
burden, the payment shall be applied to all of stipulated. The balance remains collectible;
them proportionately. 3. Creditors will collect credits in the order of
preference agreed upon, or in default, in
CASES: the order ordinarily established by law.
1. Magdalena Estates, Inc. vs. Rodriguez, G.R. No.
L.-18411, Dec. 17, 1966, 18 SCRA 967 Dacion en Pago Cession
- Articles 1252 to 1254 of the Civil Code apply to a Does not affect ALL the In general, affects ALL
person owing several debts of the same kind of a properties the properties of the
single creditor. They cannot be made applicable debtor
to a person whose obligation as a mere surety is Does not require Requires more than
both contingent and singular; his liability is plurality of creditors one creditor
confined to such obligation, and he is entitled to Specific or concerned Consent of all the
have all payments made applied exclusively to creditors’ consent is creditors
said application and to no other. Besides, Article required
1253 of the Civil Code is merely directory, and not Insolvency is not Full or partial
mandatory. Inasmuch as the appellee cannot required insolvency is required
protest for non-payment of the interest when it Transfers ownership Does not transfer
accepted the amount of P5,000.00 from the Luzon upon delivery ownership
Surety Co., Inc., nor apply a part of that amount as An act of novation Not novation
payment for the interest, we cannot now say that
there was a waiver or condonation on the interest Lopez vs. CA, G.R. No. L-33157, June 29, 1982, 114
due. SCRA 671
- Assignment of property by the debtor to his
Espina vs. CA, G.R. No. 116805, June 22, 2000, 334 creditors, provided for in article 1255, is similar to
SCRA 186 dation in payment in that both are substitute
- Unless the application of payment is expressly forms of performance of an obligation. Unlike the
indicated, the payment shall be applied to the assignment for the benefit of creditors, however,
obligation most onerous to the debtor. In this dation in payment does not involve plurality of
case, the unpaid rentals constituted the more creditors, nor the whole of the property of the
onerous obligation of the respondent to debtor. It does not suppose a situation of financial
petitioner. As the payment did not fully settle the difficulties, for it may be made even by a person
unpaid rentals, petitioner's cause of action for who is completely solvent. It merely involves a
ejectment survives. Thus, the Court of Appeals change of the object of the obligation by
erred in ruling that the payment was "additional agreement of the parties and at the same time
payment" for the purchase of the property. fulfilling the same voluntarily.
b. Payment by Cession, Art. 1255 c. Tender of Payment and Consignation, Art.
CESSION is a process whereby the INSOLVENT 1256-1261
debtor alienates ALL HIS PROPERTIES not subject
to execution in favor of his CREDITORS in order Tender of Payment – the act of offering the
that these creditors will acquire THE RIGHT TO creditor what I due him together with a
SELL them and apply the proceeds to their credits. demand that the creditor accept the same.
Consignation – act of depositing the thing due
Article 1255. The debtor may cede or assign his
with the court or judicial authorities
property to his creditors in payment of his debts.
whenever the creditor cannot accept or
This cession, unless there is stipulation to the
refuses to accept payment, it generally
contrary, shall only release the debtor from
requires a prior tender of payment.
responsibility for the net proceeds of the thing
Tender of payment vs Consignation:
assigned. The agreements which, on the effect of
Tender is the antecedent of CONSIGNATION,
the cession, are made between the debtor and his
that is, an act preparatory to the
creditors shall be governed by special laws.
consignation,which is the principal, and from
which are derived the immediate
Kinds:
consequences which the debtor desires or
1. Legal – majority of creditors must agree
seeks to obtain.
(governed by Insolvency law);
2. Voluntary – all creditors must agree (the
Tender may be extrajudicial, while CON is
one referred to by 1255); requisites:
necessarily judicial and the priority of the first
a) More than one debt;
is the attempt to make a private settlement
b) More than one creditor;
before proceeding to the solemnities of
c) Complete or partial insolvency of
consignation.
debtor;
d) Abandonment of all debtor’s
Requisites for a valid tender of payment:
property not exempt from
1. In legal tender (lawful currency);
execution in favor of creditors;
2. Must include whatever interest due;
e) Acceptance or consent on the
3. Unconditional
part of the creditors.
4. Obligation is already due.
Effects:
1. Creditors do not become the owners;
Article 1256. If the creditor to whom tender of
merely assignees with authority to sell;
payment has been made refuses without just
cause to accept it, the debtor shall be released

44

from responsibility by the consignation of the
thing or sum due.
Consignation alone shall produce the same effect
in the following cases:
(1) When the creditor is absent or unknown, or
does not appear at the place of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to give
a receipt;
(4) When two or more persons claim the same
right to collect;
(5) When the title of the obligation has been
lost.
Effect of tender without consignation – does
not extinguish the debt.
If the loan is with interest, the tender of the
principal must be accompanied with the
tender of the interest which has accrued.
CASE/S:
Eternal Gardens Memorial Park vs. CA, 282 SCRA
553 (1997)
- Even disregarding the agreement, EGMPC cannot
“suspend” payment on the pretext that it did not
know who among the subject property’s claimants
was the rightful owner. It had a remedy under the
New Civil Code of the Philippines
- to give in consignation the amounts due, as
these fell due. Consignation produces the effect of
payment. The rationale for consignation is to avoid
the performance of an obligation becoming more
onerous to the debtor by reason of causes not
imputable to him. For its failure to consign the
amounts due, Eternal Gardens’ obligation to
NPUM necessarily became more onerous as it
became liable for interest on the amounts it failed
to remit.
Article 1257. In order that the consignation of the
thing due may release the obligor, it must first be
announced to the persons interested in the
fulfillment of the obligation.
The consignation shall be ineffectual if it is not
made strictly in consonance with the provisions
which regulate payment. (1177)
Requisites of Consignation:
1. Existence of a valid debt;
2. Valid prior tender, unless tender is
excused;
3. Prior notice of consignation (before
deposit);
4. Actual consignation;
5. Subsequent notice of consignation
First element:
Exclusion from the application of this rule: In
case of an option (sale) this is a privilege not a
duty or obligation to pay. Therefore, not a
debt. Also in legal redemption. No
consignation needed under these cases.
Therefore this rule will not apply.
#MYT
Second element: Tender must be a valid one.
GR: tender of payment precedes
consignation. Take note of those excused
from the requirement of prior and valid
tender.
Also incorporated under this element, the
fact of refusal by the creditor to accept the
payment without just cause.
Justified refusal:
rd
1. 1236 – payment by 3 person not
interested in the fulfillment of the
obligation;
2. 1244 - Payment of a different
prestation/object;
3. 1248 – partial payment;
4. 1249 – not in legal tender;
5. Payment is Premature
Third element: “must first be announced to
the persons interested in the fulfillment of
the obligation.”
Reason: a chance to reconsider his refusal
The notice of consignation may be made by
merely giving notice of the debtor’s intention
to take the case to court, in the event that
tender is rejected.
Actual deposit with the proper judicial
authorities. Before a deposit is made, a
complaint against the creditor to compel him
to accept has to be first filed in court.
Consignation must be made:
1. By depositing the very object that is due;
2. With the proper judicial authority which,
in certain case, may include the sheriff;
3. Accompanied by proof that tender had
been duly made, unless tender is
excused.
Effects of deposit:
1. Property is in custodial egis;
2. And will, therefore, be exempted from
attachment and execution;
3. If perishable by nature, the court may
order the sale of the property;
4. The debtor is the agent or receiver of the
court.
Fifth requirement: Mandatory requirement,
without such subsequent notice, the
consignation is void.
It would be advisable to issue formal notice;
however, it has been held that the mere filing
of th complaint and the service of summons
on the defendant-creditor, accompanied by a
copy of the complaint, can take the place of
said second notice (Limkako vs. teodoro, 74
phil 313).
Rayos vs. Reyes, 398 SCRA 24 (2003)
- In order that consignation may be effective the
debtor must show that (a) there was a debt due;
(b) the consignation of the obligation had been
made because the creditor to whom a valid tender
of payment was made refused to accept it; (c)
previous notice of the consignation had been given
to the person interested in the performance of the
obligation; (d) the amount due was placed at the
45

disposal of the court; and, (e) after the
consignation had been made the person
interested was notified thereof.
- Consignation and tender of payment must not be
encumbered by conditions if they are to produce
the intended result of fulfilling the obligation.
Badayos vs. CA, G.R. No. 57630, Mar. 13, 1992
- Applying the provision to the instant case, the
period to repurchase the property must be
deemed to be four (4) years from 9 March 1975 or
until 9 March 1979. Since petitioner consigned the
repurchase price on 11 August 1975, a fact private
respondents did not deny, this Court declares that
this consignation operated as a valid offer or
tender of the redemption price. It must be
emphasized that consignation was not necessary
for the reason that the relationship that existed
between petitioner and private respondents, in
respect to the right of redemption, was not one of
debtor-creditor. Petitioner was exercising a right,
not discharging an obligation, hence a mere tender
of payment is sufficient to preserve the right of
a vendor a retro.
Adelfa Properties, Inc. vs. CA, G.R. No. 111238,
Jan. 25, 1995, 240 SCRA 565
- The mere sending of a letter by the vendee
expressing the intention to
pay, without the accompanying payment, is not
considered a valid tender of payment. Besides, a
mere tender of payment is not sufficient to
compel private respondents to deliver the
property and execute the deed of absolute sale. It
is consignation which is essential in order to
extinguish petitioner's obligation to pay the
balance of the purchase price. The rule is different
in case of an option contract or in legal
redemption or in a sale with right to repurchase,
wherein consignation is not necessary because
these cases involve an exercise of a right or
privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender
of payment would be sufficient to preserve the
right or privilege.
- This is because the provisions on consignation
are not applicable when there is no obligation to
pay. A contract to sell, as in the case before us,
involves the performance of an obligation, not
merely the exercise of a privilege of a right.
consequently, performance or payment may be
effected not by tender of payment alone but by
both tender and consignation.
De Mesa vs. CA, G.R. Nos. 196467-68, Oct. 19,
1999, 317 SCRA 24
- The records, however, show that several tenders
of payment were consistently turned down by the
petitioner, so much so that the respondent OSSA
found it pointless to keep on making formal
tenders of payment and serving notices of
consignation to petitioner. Moreover, in a motion
dated May 7, 1987, OSSA prayed before the lower
court that it be allowed to deposit by way of
consignation all the quarterly installments,
without making formal tenders of payment and
serving notice of consignation, which prayer was
granted by the trial court in the Order dated July 3,
1982. The motion and the subsequent court order
served on the petitioner in the consignation
proceedings sufficiently served as notice to
petitioner of OSSA’s willingness to pay the
Martinez Ycong Tibon
quarterly installments and the consignation of
such payments with the court. For reasons of
equity, the procedural requirements of
consignation are deemed substantially complied
.
with in the present case
Article 1258. Consignation shall be made by
depositing the things due at the disposal of judicial
authority, before whom the tender of payment
shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the
interested parties shall also be notified thereof.
(1178)
There must be Proof that :
1. Tender had previously been made (GR);
2. Or that the debtor had previously
notified the creditor that consignation
will be made (in case tender is not
required).
BP Blg. 25, sec 5. b. Arrears in payment of
rent for three (3) months at any one time:
Provided, That in case of refusal by the lessor
to accept payment of the rental agreed upon,
the lessee shall either deposit, by way of
consignation, the amount in court, or in a
bank in the name of and with notice to the
lessor.
Article 1259. The expenses of consignation, when
properly made, shall be charged against the
creditor.
The expenses include those for the
preservation or warehousing of the goods
pending litigation.
Article 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation,
or before a judicial declaration that the
consignation has been properly made, the debtor
may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
Effects once consignation has been duly made:
1. Debtor may ask the court to order the
cancellation of the obligation;
2. Running of interest is suspended
3. However, before the creditor ACCEPTS,
or before the judge DECLARES that
consignation has been properly made,
the obligation remains.
If consignation is judicially approved or if all
the requisites are present or if the creditor
has signified his acceptance, the creditor
bears the loss. (Sia vs. CA, 92 Phil 335).
If the case in which the consignation was
made is dismissed, the consignation naturally
would produce NO effect.
If consignation is improperly made:
1. Obligation remains, the consignation is
NOT EFFECTIVE as a payment;
2. If At the time of consignation the debt
was already due, and the other
requisites for consignation are absent,
the debtor is in DEFAULT.
46

Debtor may withdraw the THING or SUM
CONSIGNED:
1. As a matter of right:
a) Before the creditor has accepted;
b) Before judicial declaration
2. As a matter of privilege:
When after consignation had been
properly made, the creditor authorizes
the debtor to withdraw the thing (1261).
Gamboa vs. Tan, G.R. No. L-17076, Jan. 29, 1962,
4 SCRA 40
- Art. 1260. ... Before the creditor has accepted the
consignation, or before a judicial declaration that
the consignation has been properly made, the
debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in
force.".
- the above article gives the depositor the right to
withdraw the amount deposited at any time
before the creditor accepts it (not to speak of the
court's order declaring it to be proper).
Article 1261. If, the consignation having been
made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors,
guarantors and sureties shall be released.
Effects:
a) Obligation remains;
b) Creditor loses any preference over the
thing;
c) The co-debtors, guarantors, and sureties
are released (unless they consented).
2. Loss of the Thing Due , Art. 1262- 1269
Loss under this section includes “impossibility of
performance”
When is there a loss?
a) The object perishes (physically, it Is
destroyed);
b) Goes out of commerce;
c) Dispaapears in such a way that:
3. Its existence is unkown;
4. Or it cannot be recovered. (1189)
Impossibility of performance includes:
a) Physical impossibility;
b) Legal impossibility, which is either:
1. Directly caused by as when
prohibited by law;
2. Or indirectly caused as when the
debtor is required to enter a
military draft. (paras)
3. Moral impossibility
(impracticability) Article 1267
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be
extinguished if it should be lost or destroyed
without the fault of the debtor, and before he has
incurred in delay.
When by law or stipulation, the obligor is liable
even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies
#MYT
when the nature of the obligation requires the
assumption of risk.
This article refers only to obligations to give a
specific thing.
GR: obligation is extinguished. The loss must
be after the obligation hass been incurred,
because the LOSS had been prior, there
would not be any subject matter and
therefore there would not have been any
obligation at all.
Exceptions:
1. Debtor is at fault (mora) (1165);
2. Debtor is made liable because of:
a) A provision of law;
b) Contractual stipulation;
c) Nature of the obligation requires
the assumption of risk on the parto
f the debtor
Examples: of letter a:
I. Debtor promised to deliver the
same thing to 2 or more
persons who do not have the
same interest. (1165);
II. Obligation arises from a crime
(1268);
III. When a borrower has lent the
thing to another who is not a
member of his own household
(1942 [4])
BAR 2000
Kristina brought her diamond ring to a jewelry
shop for cleaning. The jewelry shop undertook to
return the ring by Feb. 1, 1999. On said date, she
was informed that the job was not yet finished and
asked her to return after 5 days. On February 6,
Kristina returned, but she was informed that the
ring was stolen the night before. In an action for
damages, the jewelry shop put up the defense of
force majure. Will the action prosper?
Answer:
The action will prosper. Since the defendant was
already in default not having been delivered the
ring when delivery was demanded by plaintiff at
due date, the defendant is liable for the loss of the
thing and even when the loss was due to force
majeure.
BAR 1994
Dino sued Ben for damages for failure to deliver
the car he purchased which was due for delivery
on Dec. 31,1993. Ben reasoned that while he was
driving the car for delivery to Dino on January 1,
1994, a reckless truck driver rammed into it. Dino’s
complaint was dismissed on the ground that the
obligation was extinguished by force majure. Is the
dismissal correct?
Suggested answer:
It depends whether or not Ben, the seller, was
already in default at the time of the accident
because a demand for him to deliver on due date
was not complied with by him. The fact not having
been given in the problem, the trial court erred in
dismissing the complaint. Reason: there is default
making him responsible for FE including the
assumption of risk or loss.
If on the other hand, Ben was not in default as no
demand has been sent to him prior to the
47

accident, then we must distinguish whether the
price has been paid or not. If it has been paid, the
suit for damages should prosper but only to enable
the buyer to recover the price paid. It should be
noted that Ben, the seller. Must bear the loss on
the principle of res perit domino. He cannot be
held answerable for damages as the loss of the car
was not imputable to his fault or fraud. In any
case, he can recover the value of the car from the
party whose negligence caused the accident. If no
price has been paid at all, the trial court acted
correctly in dismissing the complaint,..
Liboga this problem oi
Article 1263. In an obligation to deliver a generic
thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
Genus nunquam perit – genus never perishes.
Exceptions:
1. If the generic thing is delimited (like 50
kilos of sugar from my 1999 harvest when
such harvest is completely destroyed) –
delimited generic thing;
2. if the generic thing has already been
segregated or set aside, in which case, it has
become specific.
Article 1264. The courts shall determine whether,
under the circumstances, the partial loss of the
object of the obligation is so important as to
extinguish the obligation.
Article 1265. Whenever the thing is lost in the
possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof
to the contrary, and without prejudice to the
provisions of article 1165. This presumption does
not apply in case of earthquake, flood, storm, or
other natural calamity.
Presumption – loss was due to the debotr’s
fault.
Presumption does not apply in the case of a
natural calamity. Although fire is not a natural
calamity, if a tenant Is able to prove that fire
caused in his apartment wasw purely
ACCIDENTAL, he is not liable. (Lizares vs.
Hernaez and Alunan, 40 Phil. 981).
Yu Tek Co. vs. Gonzales, 29 Phil. 384
- Article 1452 reads: “The injury to or the profit of
the thing sold shall, after the contract has been
perfected, be governed by the provisions of
articles 1096 (now, 1165) and 1182. (now, 1262)”
- There is a perfected sale with regard to the
"thing" whenever the article of sale has been
physically segregated from all other articles.
- We conclude that the contract in the case at bar
was merely an executory agreement; a promise of
sale and not a sale. At there was no perfected sale,
it is clear that articles 1452, 1096, and 1182 are
not applicable. The defendant having defaulted in
his engagement, the plaintiff is entitled to recover
the P3,000 which it advanced to the defendant,
and this portion of the judgment appealed from
must therefore be affirmed.
Of the railroad does not give rise to damages
Martinez Ycong Tibon
Article 1266. The debtor in obligations to do shall
also be released when the prestation becomes
legally or physically impossible without the fault of
the obligor.
PARAS: Effects of loss thru a Fortuitous
event in reciprocal obligations
GR: the obligation that was not extinguished
by the FE remains. (example if after
perfection a building that was sold is
destroyed by lightning, the buyer must still
pay, for he bears the loss even if the building
had not yet been delivered to him.)
Exceptions: provided for by law
I. Lease – if the object is destroyed, both
the lease and the obligation to pay the
rent are extinguished. (1655);
II. Contract for a piece of work – worker
or contractor cannot successfully ask
for the price if the thing be lost by a
fortuitous event prior to delivery. The
risk is on the owner.(171)
Article 1267. When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also
be released therefrom, in whole or in part.
Effect of difficulty betond the parties’
contemplation:
Refers to moral impossibility or
impracticability due to change of certain
conditions (rebus sic stantibus – a treaty or
agreement remains valid only if the same
conditions prevailing at the time of
contracting continue to exist at the time of
performance).
Also called the doctrine of “the frustration of
the commercial object”
Non-applicability to REAL obligations. This
article speaks of “service”
Requisites:
1. Service must become so difficult
that it was manifestly beyond the
contemplation of BOTH parties;
2. One of the parties must ask for
relief;
3. Object must be a future service
with future unusual change in
conditions.
The general rule is that impossibility of
performance releases the obligor. However, it
is submitted that when the service has
become so difficult as to be manifestly
beyond the contemplation of the parties, the
court should be authorized to release the
obligor ibn whole or in part. The intention of
the parties should govern and if it appears
that the service turns out to be difficult as to
have been beyond their contemplation, it
would be doing violence to that intention to
hold the obligor still responsible. (Report of
the Code Commission)
Examples of moral impossibility:
Labayen vs. Talisay-Silay Milling Co., 52 Phil. 440
- The duty to construct a railroad when such
construction was possible but very dangerous to
life and property, is excused by the law; therefore
48

failure to grind sugarcane in view of the
nonconstruction.
- if a party charges himself with an obligation
possible to be performed. He must abide by it
unless performance is rendered impossible by the
act of GOD, the law, or the other party. A showing
of mere inconvenience, unexpected impediments,
or increased expenses is not enough. Equity
cannot relieve from bad bargains simply because
they are such. So one must answer in damages
where the impossibility is only so in fact.
Castro, et al. vs Longa 89phil581
However, instead of extreme danger there is only
proved existence of mere inconvenience,
unexpected impediments, or increased expenses,
the same would not be enough to relieve a debtor
from his “bad bargain”
BAR 1993
Able Construction agreed to construct houses
within TROPICAL HOMES’ subdivision. 2 years
later, Able found that it could no longer continue
with the job due to the increase in the price of
construction materials. Cost of development had
risen to unanticipated levels and to such a degree
that the conditions and factors which formed the
original basis of the contract had been totally
changed. Able brought suit against Tropical to
relieve it of its obligation. Is Able entitled to the
relief sought?
Suggested Answer:
Yes, the Able Construction, Inc. is entitled to the
relief sought under Article 1267. The law provides:
“When the service has become so difficult as to be
manifestly beyond the contemplation of the
parties, the obligor may also be released
therefrom, in whole or in part.”
Article 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of
its price, whatever may be the cause for the loss,
unless the thing having been offered by him to the
person who should receive it, the latter refused
without justification to accept it.
An example where FE does not extinguish the
obligation.
Exception to the foregoing rule: when the
creditor is in MORA ACCIPIENDI.
Illustration:
A stole B’s car (theft). The court required A to
return the stolen car. Before A’s supposed
delivery, the car was destroyed by FE. A’s
liability is not extinguished. Ikaw nalang
hunahuna sa exception.
Article 1269. The obligation having been
extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor
may have against third persons by reason of the
loss.
Includes insurance indemnity
3. Condonation or Remission of the Debt, Art.
1270-1274
#MYT
EBM’s Definition - is the gratuitous abandonment
of one’s right to collect.
Sanchez Roman – it is the gratuitous
abandonment by the creditor of his right.
Article 1270. Condonation or remission is
essentially gratuitous, and requires the acceptance
by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the
rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the
forms of donation. (1187)
Requisites: (sayop ang numbering)
5. Validity of the obligation;
6. Essentially gratuitous;
7. Acceptance by the debtor;
8. Must strictly comply with the formalities
provided under the law on donation;
9. Obligation is due (at the time of
remission)
If not yet due, creditor has no right
to demand, therefore, he has no
right to condone.
Condonation is a waiver of one’s
right, right must have already
existed.
Waiver or remissions are not to be
presumed generally. They must be
clearly and convincingly shown,
either by express stipulation, or by
acts admitting of not other
reasonable explanation. (Arrieta vs.
NARIC, L-15645)
Classes of Remission:
- With respect to its effect or extent:
1. Total;
2. Partial (only a portion is remitted or the
remission may refer only to the
accessory obligations)
- As regards its date of effectivity:
1. Inter vivos;
2. Mortis causa
- its form:
1. Implied or tacit (this requires no
formality), (conduct is sufficient);
2. Express or formal. (requires formalities
of a donation if inter vivos; of a will or
codicil if mortis causa)
BAR 2000
- CHINKY ESPINA borrowed P500,000 from
ALEJANDRO AGUANTA and later paid P300,000.
After ALEJANDRO’s death, the administrator of the
estate requested payment from CHINKY of the
balance of the loan. CHINKY claimed that
ALEJANDRO condoned the balance, evidenced by a
notation at the back of the P300,000 check: “in full
payment of the loan.” Will this be a valid defense
in an action for collection?
Suggested Answer:
It depends. If the notation was written by
Alejandro, there was an implied condonation of
the balance that discharges the obligation. In such
case, the notation is an act of Alejandro from
which condonation may be inferred. The
49

condonation, being implied, need not comply with
the formalities of a donation to be effective. The
defense of full payment will, therefore be valid.
However, when the notation was written by
CHINKY, it merely proves her intention in making
that payment but in no way does it bind
ALEJANDRO (Yam vs. CA, GR. 104726, FEB, 1999).
In such case, the notation was not the act of
Alejandro from which condonation may be
inferred. There being no condonation at all, the
defense of full payment is not valid.
Alternative answer:
If the notation was written by Alejandro, it
amounted to an express condonation of the
balance which must comply with the formalities of
a donation of the balance which must comply with
the formalities of a donation to be valid under the
nd
2 par of 1270. Since the amount of the balance is
more than P5,000, the acceptance by Arturo must
also be in writing under Article 748. There being
no acceptance in writing by Arturo, the
condonation is void and the obligation to pay
subsists.
Article 1271. The delivery of a private document
evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of
the action which the former had against the latter.
If in order to nullify this waiver it should be
claimed to be inofficious, the debtor and his heirs
may uphold it by proving that the delivery of the
document was made in virtue of payment of the
debt. (1188)
Applies to “private documents” because a
copy of a public is easily obtainable, being a
public record.
This is an implied remission. (a voluntary
destruction by the creditor of the instrument
is likewise another form of implied remission.
– mura rag sa NEGO). The mere fact that the
creditor has omitted a certain debt or the
name of the debtor from an inventory made
by him does not imply a tacit remission.
Presumption of remission vs. presumption of
payment. The first prevails.
Article 1272. Whenever the private document in
which the debt appears is found in the possession
of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the
contrary is proved. (1189)
- Presumption of voluntary delivery
If the instrument of credit is still in the hands
of the creditor, this is evidence that the debt
has not yet been paid, unless the contrary be
fully proved. (Toribio vs. Fox) To rebut the
presumption, ordinarily, a receipt of payment
must be presented. (Pinon vs. Osorio)
If a document is found in the possession of a
joint debtor, the presumption is that only that
joint debtor’s debt has been remitted. Unlike
in a case of solidary debtors, the presumption
is that the whole obligation is extinguished.
CASE/S:
Velasco vs. Masa, 10 Phil. 279
Martinez Ycong Tibon
- Assuming that the document of indebtedness
was voluntarily returned to the debtor, the
question at issue would be, Whether the debt was
legally renounced, and if the creditor has thereby
waived his right to recover the amount from the
defendant debtor?
- "A remission may be made either expressly or by
implication.
- "ART. 1188.The surrender, made voluntarily by a
creditor to his debtor, of a private instrument
proving a credit, implies the renunciation of the
action which the former had against the latter.
"If in order to invalidate this renunciation, it
should be claimed that it is illegal, the debtor and
his heirs may support it by proving that the
delivery of the instrument was made by virtue of
the payment of the debt.
"ART. 1189.Whenever the private instrument
from which the debt appears should be in the
possession of the debtor, it shall be presumed
that the creditor delivered it of his own will,
unless the contrary is proven."
-It is an unquestionable fact, duly proven at the
trial, that the instrument proving the debt now
claimed passed to the possession of the debtor
and for this reason, unless the contrary be proven,
it must be presumed, in accordance with the
provisions of law, that the delivery of the
instrument was voluntarily made, and that this
fact implies a renunciation of the action which
the creditor had for the recovery of his credit. It
should be noted that the document returned to
the debtor is of a private nature, the only case
subject to the provisions of the above-quoted
articles of the Civil Code, so that a tacit
renunciation of the debt may be presumed, in the
absence of proof that the document was delivered
for some other reason than a gratuitous waiver of
the debt and the complete extinction of the
obligation to pay.
- It has already been said that, according to article
1189 of the code, the possession by the debtor of
a private document proving a debt supposes and
creates the presumption that the creditor
delivered it voluntarily, unless the contrary is
proven, and no such proof has been offered by the
plaintiff upon whom the burden rests to destroy
the said presumption.
- Therefore, considering that the delivery of the
document, made by the plaintiff's wife to the
defendant Masa, through Luis Ocseña, was
approved, though tacitly, by the said plaintiff
creditor, for the reasons stated in the judgment
appealed from, and no proof appearing in the
record that the delivery of the document was not
voluntarily made, it appears from the whole of the
foregoing that the debt now claimed was remitted
for reasons of gratitude and in acknowledgment of
the services rendered by the debtor to the plaintiff
creditor, and that the latter has implicitly waived
its recovery, and if thereafter he filed a complaint
against the defendant it was evidently due to
some trouble which subsequently arose between
them, thus putting an end to a long friendship
which existed between them.
50

Lopez vs. Tambunting, 33 Phil. 236
- (legal presumption), "that an obligation
delivered up to the debtor has been paid;" article
1188 of the Civil Code prescribes that the
voluntary surrender, by a creditor to his debtor, of
a private instrument proving a credit, implies the
renunciation of his right of action against the
debtor; and article 1189 of the same Code
likewise prescribes that whenever the private
instrument which evidences the debt is in the
possession of the debtor it shall be presumed
that the creditor delivered it of his own free will.
Nevertheless, pursuant to the last cited article, this
presumption cannot stand, when from the
evidence it appears that the evidence of the
obligation was not returned to the debtor, but was
sent to him solely for the purpose of collecting the
debt, and that the creditor's purpose was not to
leave the instrument evidencing the credit in the
possession of the debtor, if the latter did not
forthwith pay the amount mentioned therein.
Article 1273. The renunciation of the principal
debt shall extinguish the accessory obligations; but
the waiver of the latter shall leave the former in
force. (1190)
Article 1274. It is presumed that the accessory
obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is
found in the possession of the debtor, or of a third
person who owns the thing. (1191a)
Lopez vs. Tambunting, 33 Phil. 236
4. Confusion or Merger of Rights, Art. 1275-
1277
EBM, Confusion or merger – meeting of the
qualities of the creditor and debtor in one and
the same person.
Sanchez Roman: it is the meeting in one person of
the qualities of creditor and debtor with respect
to the same obligation
Confusion or merger, hinanggaw nga example:
Lisora sa example oi, I am MERGED, naglibog
ko,..oplok,..EBM: hoi oplok lahi tong confusion
nga LIBOG sa Cebuano oi..
Reason: if a debtor is his own creditor,
enforcement of the obligation becomes absurd,
since one cannot claim against himself. (Manresa)
Article 1275. The obligation is extinguished from
the time the characters of creditor and debtor are
merged in the same person. (1192a)
Article 1276. Merger which takes place in the
person of the principal debtor or creditor benefits
the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the
obligation. (1193)
* Accessory follows the principal. The merger with
respect to the principal debt, the guaranty is
extinguished; and not the other way around.
Example:
A owes B 100K guaranteed by C. B assigns the
credit to X. X assigns the credit to Y. Y assigns the
credit to C. Does A still have to pay C?
#MYT
Yes, however, the contract of guaranty is
extinguished, but not A’s obligation to pay the
100K
What if instead of assigning to C, Y assigned the
credit in favor of A, the debtor? What is the
effect? A’s obligation is extinguished and C is
released from his obligation as a guarantor.
Article 1277. Confusion does not extinguish a joint
obligation except as regards the share
corresponding to the creditor or debtor in whom
the two characters concur. (1194)
Example:
A, B, and C are joint debtors of X for 300K. X
assigned his credit (300K) in favor of A.
In this case, only A’s obligation is
extinguished. A may collect from B and c their
corresponding share in the debt which is
100K each.
In a joint obligation, the debts are distinct and
separate from each other.
Sochayseng vs. Trujillo, 31 Phil. 153
Yek Ton Lin Fire & Marine Insurance Co. vs.
Yusingco, 46 Phil. 473
5. Compensation, Art. 1278-1290
It is a sort of balancing (cum ponder – to weigh
together) between two obligations; it involves a
figurative operation of weighing two obligations
simultaneously in order to extinguish them to the
extent in which the amount of one is covered by
the other. (Manresa)
It is the extinguishment in the concurrent amount
of the obligations of those persons who are
reciprocally debtors and creditors of each other.
Distinguished from Payment:
1. While payment must be complete and
indivisible as a rule, in compensation, partial
extinguishment is always permitted;
2. While payment involves action or delivery,
true compensation (legal) takes place by
operation of law.
Distinguished from Merger:
1. As to number of persons:
In confusion there is only one person in
whom is merged the qualities of creditor and
debtor. In compensation, there must be 2
persons who are mutually creditor and
debtor to each other.
2. As to the number of obligations:
In confusion there can only be one
In compensation, there must be 2.
Kinds of compensation:
According to its effect or extent:
Total – both obligations are completely
extinguished because they are of the same or
equal amounts.
Partial – when a balance remains.
According to its origin or cause:
3. Legal – takes place by operation of law, and
need not be pleaded.
51

4. Voluntary or conventional – due to the
agreement of the parties;
5. Judicial (set-off) – this must be pleaded; it can
be made effective only by an order from the
court. (Yap vs. Chua Jamco, 14 phil 602, [Art.
1283]);
6. Facultative – here, one of the parties has the
choice of claiming the compensation or of
opposing it (perhaps because not all the
requisites of legal compensation are present).
Example:
A owes B 100K demandable and due on Jan.
12 1999. B owes A 100K due on or before Jan.
31, 1999. On jan. 12, 1999, B who was given
the benefit of the term, may claim
compensation because he could then choose
to pay his debt on said date, which is on or
Before Jan. 31, 1999., if on the other hand A
claims compensation, B can properly oppose
it because B could not be made to pay until
Jan. 31, 1999.
Note: it should be observed that while
facultative compensation is unilateral and
does not require mutual agreement,
voluntary or conventional requires mututal
consent.
Article 1278. Compensation shall take place when
two persons, in their own right, are creditors and
debtors of each other. (1195)
Article 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
A Guarantor is not principally liable,
therefore no legal compensation may
take place between a creditor and a
guarantor even if the other requisites
are present;
Dim’s question and EBM’s answer. If it is
a solidary debtor, legal compensation is
proper, provided that the other
requisites are also present.
(2) That both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor. (1196)
E owes X bank 100K. E deposited in X
bank 100K (creditor-debtor relationship
even if it is called bank deposits).
However, X bank received a garnishment
order issued by a proper authority. Will
there be legal compensation? NO, fifth
element is missing.
Silahis Mktg. Corp. vs. IAC, 180 SCRA 217
- It must be remembered that compensation takes
place when two persons, in their own right, are
Martinez Ycong Tibon
creditors and debtors to each other. Article 1279
of the Civil Code provides that: "In order that
compensation may be proper, it is necessary:
[1] that each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
[2] that both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
[3] that the two debts be due;
[4] that they be liquidated and demandable;
[5] that over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor."
-When all the requisites mentioned in Art. 1279 of
the Civil Code are present, compensation takes
effect by operation of law, even without the
consent or knowledge of the creditors and
debtors.
-Article 1279 requires, among others, that in order
that legal compensation shall take place, "the two
debts be due" and "they be liquidated and
demandable." Compensation is not proper where
the claim of the person asserting the set-off
against the other is not clear nor liquidated;
compensation cannot extend to unliquidated,
disputed claim existing from breach of contract.
BPI vs. CA, et.al., 255 SCRA 571
- Compensation shall take place when two
persons, in their own right, are creditors and
debtors of each other. Article 1290 of the Civil
Code provides that "when all the requisites
mentioned in Article 1279 are present,
compensation takes effect by operation of law,
and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are
not aware of the compensation."
- Legal compensation operates even against the
will of the interested parties and even without
the consent of them. Since this compensation
takes place ipso jure, its 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.
- The elements of legal compensation are all
present in the case at bar. The obligors bound
principally are at the same time creditors of each
other. Petitioner bank stands as a debtor of the
private respondent, depositor. At the same time,
said bank is the creditor of the private respondent
with respect to the dishonored U.S. Treasury
Warrant which the latter illegally transferred to his
joint account. The debts involved consist of a sum
of money. They are due, liquidated, and
demandable. They are not claimed by a third
person.
- PRESENCE OF PRIVATE RESPONDENT'S WIFE
DOES NOT NEGATE THE ELEMENT OF MUTUALITY
OF PARTIES
BAR 1998
X has a 1M deposit and a loan with Y bank
amounting to 800K which has become due. X tried
52

to withdraw his deposit, but Y bank allowed him
only 200K, claiming compensation. Assume that
the promissory note signed by X does not provide
for compensation, is compensation proper.
Suggested Answer:
Ybank is correct.Art.1287 does not apply. All the
requisite under 1279 are present. In the case of
Gullas vs PNB (62 Phil 519), the SC held: “ the Civil
Code contains provisions regarding compensation
(set off) and deposit. These portions of Philippine
law provide that compensation shall take place
when two persons are reciprocally creditor and
debtor of each other. In this connection, it has
been held that the relation existing between a
depositor and a bank is that of creditor and
debtor.xxx As a general rule, a bank has a right of
set off of the deposits in its hands for the payment
of any indebtedness to it on the part of a
depositor.’ Hence, compensation took place
between the mutual obligations of X and Y bank.
BAR 2008
E was granted a loan by XYZ bank for the purpose
of improving a building which XYZ leased from
him. When e defaulted on the PN, XYZ stopped
payment of rentals on the building on the ground
that legal compensation had set in. can XYZ validly
assert legal compensation?
BAR 2009
S had a deposit of 5M from a bank. To buy a new
car, she obtained a loan from the same bank for
1.2M, payable in 12 monthly installments. S issued
post-dated checks to cover the installments. On
rd th th
the 3 4 and 5 moths, the checks bounced. The
bank then declared the whole obligation due, and
proceeded to deduct the amount of 1M from S’
deposit after notice to her that this is a form of
compensation allowed by law. Is the bank correct?
Article 1280. Notwithstanding the provisions of
the preceding article, the guarantor may set up
compensation as regards what the creditor may
owe the principal debtor. (1197)
Article 1281. Compensation may be total or
partial. When the two debts are of the same
amount, there is a total compensation. (n)
Article 1282. The parties may agree upon the
compensation of debts which are not yet due. (n)
Conventional compensation
The requisites under 1279 do not apply
It is sufficient under this type of
compensation that the agreement or contract
which declares the compensation should
itself be valid; thus among other things, the
parties must have legal capacity and must
freely give their consent.
Article 1283. If one of the parties to a suit over an
obligation has a claim for damages against the
other, the former may set it off by proving his right
to said damages and the amount thereof. (n)
Judicial compensation or set-off. Pleading and
proof of the counterclaim must be made
All the requisites under 1279 must be
present, except that at the time o the
pleading, the claim need not yet be
#MYT
liquidated. The liquidation (or fixing of the
proper sum) must be made in the
proceedings.
Unless the pleading and proof are made, the
court cannot of its own accord declare
compensation. This is because of the
supplicatory character of our civil procedure.
The compensation takes place by the
judgment, as to the date the compensation
was pleaded.
Article 1284. When one or both debts are
rescissible or voidable, they may be compensated
against each other before they are judicially
rescinded or avoided. (n)
Rescissible and voidable debts are valid until
rescinded or voided.
To avoid unfairness if rescission or annulment
is later on decreed by the court, it is as if no
compensation ever took place. The decree
thus acts retroactively.
Article 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of
a third person, cannot set up against the assignee
the compensation which would pertain to him
against the assignor, unless the assignor was
notified by the debtor at the time he gave his
consent, that he reserved his right to the
compensation.
If the creditor communicated the cession to him
but the debtor did not consent thereto, the latter
may set up the compensation of debts previous to
the cession, but not of subsequent ones.
If the assignment is made without the knowledge
of the debtor, he may set up the compensation of
all credits prior to the same and also later ones
until he had knowledge of the assignment. (1198a)
The rule is that, compensation takes effect by
operation of law and extinguishes both debts to
the concurrent amount, even though the
creditors and debtors are not aware of the
compensation. Therefore, compensation takes
effect ipso jure.
From the foregoing, it may be said that if after
compensation has taken place, one of the
extinguished debts are assigned to a third party,
ordinarily this would be a useless act since there is
nothing more to assign. The defense of
compensation could be set up.
Exception: when the assignment was made with
the consent of the debtor. Such consent operates
as a WAIVER of the rights to the compensation.
Exception to the exception: at the time he gave
the consent, the debtor RESERVED his right to the
compensation.
Second paragraph; assignment made with the
knowledge but without the consent or against the
will of the debtor:
Effect: compensation can be set up regarding
debts previous to the cession or assignment. This
refers to debts maturing before the assignment
53

(that is before the NOTICE); hence here, legal
compensation has already taken place. Example:
A owes B 100K and B owes A 20K. both debts are
already due. Later, B, with the knowledge but
without the consent of A, assigned his credit to C.
how much can C successfully collect from A.
There is already partial compensation to the
extent of 20k. therefore A may set up the defense
of compensation in the amount of 20K, and may
only pay C in the amount of 80K, the remainder.
The same facts as that of the first problem,
the difference is that, let us change the
material dates. Both debts will mature on Aril
2 but the assignment was made, together
with the notice to the A, on March 3. On April
2, how much can C collect from A?
Answer: The whole obligation, 100K, since if
we still consider the compensation, assuming
it is proper, it took place only after the
assignment. It doesn’t matter if the obligation
of 20K had been incurred before the
assignment, since the law speaks of debts
before the cession or assignment, it refers to
debts maturing before the cession.
Third paragraph: assignment made without the
knowledge of the debtor
Debtor can set up compensation as a defense for
all debts maturing prior to his knowledge of the
assignment (whether debts matured before or
after the assignment)
Crucial time is the time of knowledge of the
assignment, not the time of the assignment itself
Article 1286. Compensation takes place by
operation of law, even though the debts may be
payable at different places, but there shall be an
indemnity for expenses of exchange or
transportation to the place of payment. (1199a)
Indemnity for expenses for transportation –
applies to transportation of the goods of the
object.
Indemnity for expenses of exchange – refers
to monetary exchange, in case the debts are
money debts.
Article 1287. Compensation shall not be proper
when one of the debts arises from a depositum or
from the obligations of a depositary or of a bailee
in commodatum.
Neither can compensation be set up against a
creditor who has a claim for support due by
gratuitous title, without prejudice to the
provisions of paragraph 2 of article 301. (1200a)
Article 1288. Neither shall there be compensation
if one of the debts consists in civil liability arising
from a penal offense. (n)
Compensation not proper in the following
cases:
1. Depositum;
2. Commodatum;
Martinez Ycong Tibon
3. Claims for support due by gratuitous
title;
4. Obligations arsing from criminal offense;
Satisfaction by the criminal of the
obligation is imperative.
The victim is allowed to claim
compensation.
5. Obligations in favor of the government.
Article 1289. If a person should have against him
several debts which are susceptible of
compensation, the rules on the application of
payments shall apply to the order of the
compensation. (1201)
Article 1290. When all the requisites mentioned in
article 1279 are present, compensation takes
effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the
creditors and debtors are not aware of the
compensation. (1202a)
BAR (2008)
E was granted a loan by XYZ Bank for the purpose
of improving a building which leased from him. E,
executed a PROM NOTE in favor of the bank, with
his friend R as cosignatory. To secure the PN, R
executed a real estate mortgage on his own
property. E defaulted. XYZ stopped payment of
rentals claiming legal compensation/ since there
was still a balance due on the PN, XYZ foreclosed
the mortgage. R opposed the foreclosure claiming
that when the bank invoked compensation, it
amounted to a new contract or novation, and had
the effect of extinguishing the security since he did
not give his consent as owner of the mortgaged
property. Does R have basis under the Civil Code
for claiming that the original contract was
novated? (Alternative answer pod daw ang 1292)
Garcia vs. Lim Dhiu Sing, 59 Phil. 562
Brimo vs. Goldemberg, 69 Phil. 502
Gullas vs. Philippine National Bank, 62 Phil. 519
BPI vs. CA, et.al., 255 SCRA 571
6. Novation, Art. 1291-1304
EBM: while it extinguishes the first, it creates a
new one.
By Novation is understood the substitution or
change of an obligation by another, which
extinguishes or modifies the first, either by
changing its object or principal condition, or
substituting another in place of the debtor, or
subrogating a third person in the right of the
creditor. (Manresa)
1. Objective (real);
Changes the object
2. Personal
Changes the person of the debtor:
a) Expromission;
b) Delegacion
Changes the person of the creditor
(subrogation)
Mixed
Kinds, according to form of its constitution
3. Express
54

4. Implied (when the two obligations are
essentially incompatible with each
other)
According to its extent or effect:
1. Total or extinctive novation (when the
old obligaton is completely
extinguished);
2. Partial or modificatory (this is also
termed imperfect or improper
novation)
- the old obligation is merely modified;
thus, it still remains in force except
insofar as it has been modified. Should
there be any doubt as to whether the
novation is total or partial, it shall be
presumed to be merely modificatory
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
creditor. (1203)
CASE/S:
Quinto vs. People, April 14, 1999, 305 SCRA 708
- Novation, in its broad concept, may either
be extinctive or modificatory. It is extinctive when
an old obligation is terminated by the creation of
a new obligation that takes the place of the
former; it is merely modificatory when the old
obligation subsists to the extent it remains
compatible with the amendatory agreement.
- An extinctive novation results either by
changing the object or principal conditions
(objective or real), or by substituting the person
of the debtor or subrogating a third person in the
rights of the creditor (subjective or personal).
Under this mode, novation would have dual
functions — one to extinguish an existing
obligation, the other to substitute a new one in its
place — requiring a conflux of four essential
requisites,
(1) a previous valid obligation;
(2) an agreement of all parties concerned to a
new contract;
(3) the extinguishment of the old obligation; and
(4) the birth of a valid new obligation.
- Novation is never presumed, and the animus
novandi, whether totally or partially, must appear
by express agreement of the parties, or by their
acts that are too clear and unequivocal to be
mistaken. The extinguishment of the old obligation
by the new one is a necessary element of novation
which may be effected either expressly or
impliedly. The term "expressly" means that the
contracting parties incontrovertibly disclose that
their object in executing the new contract is to
extinguish the old one. Upon the other hand, no
specific form is required for an implied novation,
and all that is prescribed by law would be an
incompatibility between the two contracts. While
there is really no hard and fast rule to determine
what might constitute to be a sufficient change
that can bring about novation, the touchstone for
contrariety, however, would be an irreconcilable
incompatibility between the old and the new
obligations.
#MYT
- (Forms) The first is when novation has been
explicitly stated and declared in unequivocal
terms. The second is when the old and the new
obligations are incompatible on every point.
- The test of incompatibility is whether or not the
two obligations can stand together, each one
having its independent existence. If they cannot,
they are incompatible and the latter obligation
novates the first. Corollarily, changes that
breed incompatibility must be essential in nature
and not merely accidental. 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 modificatory in nature and insufficient
to extinguish the original obligation.
- There are two forms of novation by substituting
the person of the debtor, depending on whose
initiative it comes from, to
wit: expromision and delegacion. In the former
(expromision), the initiative for the change does
not come from the debtor and may even be made
without his knowledge. Since a third person would
substitute for the original debtor and assume the
obligation, his consent and that of the creditor
would be required.
- In the latter(delegacion), the debtor offers, and
the creditor accepts, a third person who consents
to the substitution and assumes the obligation,
thereby releasing the original debtor from the
obligation, here, the intervention and the consent
of all parties thereto would perforce be
necessary. In either of these two modes of
substitution, the consent of the creditor, such as
can be seen, is an indispensable requirement.
Article 1292. In order that an obligation may
be extinguished by another which substitute the
same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new
obligations be on every point incompatible with
each other. (1204)
How implied novation may be made:
- by making SUBSTANTIAL CHANGES –
1. IN THE OBJECT OR SUBJECT MATTER of
the contract; ex; car instead of ring;
2. In the CUASE OR CONSIDERATION
(example, an upward change in the
price, Matute vs. Hernandez, 6 phil.68);
3. In the PRINCIPAL TERMS AND
CONDITIONS of te contract, examples:
a) If a debt subject to a condition
is made an absolute one
without a condition;
b) Reduction of the period
originally stipulated;
c) When, without the consent of
some subscribers, the capital
stock of a corporation is
increased. Here the
subscribers who did not
consent to the increase are
released or freed from their
subscription. (National
exchange Co. vs. Ramos, 51
phil 310).
55

BAR 1994
In 1978, B borrowed 1M from C payable in 2 years,
evidenced by a PN and secured by a mortgage
contract. C did not file any action for collection of
foreclosure after the lapse of 2 years. 1991, B,
without receiving any amount from C, executed
another PN worded the same as in the 1978
note,except for the date.
1. Can C demand payment on the 1991 PN in
1994?
Answer: YES, C can demand payment on the 1991
PN in 1994. Although the 1978 PN for 1M payable
2 years later on 1980 became a Natural obligation
after the laose of 10 years, such natural obligation
can be a valid consideration of a novated PN dated
in 1991 and payable 2 years later, or in 1993
All the elements of implied real novation are
present:
1. An old valid obligation;
2. A new valid obligation;
3. Capacity of the parties;
4. Animus novandi or intention to novate;
5. The old and new obligation should be
incompatible with each other on all material
points (1292). The two PN cannot stand
together, hence, the period of prescription
has not yet lapsed.
2. Can C demand payment on the 1991 promissory
note in 1994? Can C foreclose the mortgage if B
defaults?
No. the mortgage being an accessory contract
prescribed with the loan. The novation of the loan,
however, did not expressly include the mortgage,
hence the mortgage is extinguished under 1296.
The contract has been extinguished by the
novation or extinction of the principal obligation
insofar as third parties are concerned.
CASE/S:
1. People’s bank and Trust Co. vs. Syvel’s,
Inc., 164 SCRA 247
- Novation takes place when the object or
principal condition of an obligation is changed or
altered. It is elementary that novation is never
presumed; it must be explicitly stated or there
must be manifest incompatibility between the old
and the new obligations in every aspect.
2. Cruz vs. Court of Appeals, July 27, 1998, 293
SCRA 239
- Novation, one of the modes of extinguishing an
obligation, requires the concurrence of the
following: (1) there is a previous valid obligation;
(2) the parties concerned agree to a new contract;
(3) the old contract is extinguished; and (4) there is
a valid new contract. Novation may be express or
implied. Article 1292 of the Code provides: "In
order that an obligation may be extinguished by
another which substitutes the same, it is
imperative that it be so declared in unequivocal
terms [express novation], or that the old and the
new obligations be on every point incompatible
with each other [implied novation]."
- The MOA falls short of producing a novation,
because it does not express a clear intent to
Martinez Ycong Tibon
dissolve the old obligation as a consideration for
the emergence of the new one.
Article 1293. Novation which consists in
substituting a new debtor in the place of the
original one, may be made even without the
knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by
the new debtor gives him the rights mentioned in
articles 1236 and 1237. (1205a)
Passive subjective novation – change in the
person of the creditor:
Expromission (EBM)– initiative comes from a
third person – take note of the rule under
1236
- consent of new debtor and creditor. They
must agree that the first debtor must be
released from the obligation;
- (1294) in case of insolvency of new debtor,
and substitution is without the consent of
the old debtor, the old debtor is released
FOREVAH. Creditor may not revive his right
of action against old debtor. Reason: to
penalize creditor and new debtor
Delegacion (EBM) - intiative comes from the
debtor himself.
to delegate – is to let another act
in your behalf
- consent of ALL the parties is required;
Prties:
1. delegante – orig. debtor;
2. delegatario – creditor;
3. delegado – new debtor
In case of insolvency of New Debtor, Old
debtor is not released if insolvency is
existing AND known to the old debtor OR of
public knowledge. But GR: debtor is
released.
BAR 1996
Baldomero leased his house to Jose. Included in
the lease is the use of the telephone which Jose
was obliged to pay to the telephone company.
Jose surreptitiously vacated the premises, leabing
20K of unpaid phone bills. Baldomero refused to
pay on the gound that jose had already substituted
him. The telephone company countered that its
service contract was with Balfomero. Whose
contention is correct?
Answer: The telephone company is correct
because as far as it is concerned, the only person it
contracted with was Baldomero. The telephone
company has no contract with Jose. Baldomero
cannot substitute Jose in his stead without the
consent of the telephone company (1293).
Baldomero is, therefore, liable under the contract.
BAR 2001
A group of sugarcane planters entered into a long-
term milling contract with Central Azucarena. 10
years later, CA assigned its rights to a Taiwanese
group. The planters filed an action to annul the
agreement. Will the action prosper?
Answer: under 1293 such substitution cannot take
effect without the consent of the creditor. The
farmers, who are creditors as far as the obligation
to mill their sugarcane is concerned, may annul
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such assignment for not having given their consent
thereto.
Alternative answer:
The assignment is valid because there is absolute
freedom to transfer the credit and the creditor
need not get the consent of the debtor. He only
needs to notify him.
Article 1294. If the substitution is without the
knowledge or against the will of the debtor, the
new debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the
part of the original debtor. (n)
Article 1295. The insolvency of the new debtor,
who has been proposed by the original debtor and
accepted by the creditor, shall not revive the
action of the latter against the original obligor,
except when said insolvency was already existing
and of public knowledge, or known to the debtor,
when the delegated his debt. (1206a)
Deals only with insolvency.
Article 1296. When the principal obligation is
extinguished in consequence of a novation,
accessory obligations may subsist only insofar as
they may benefit third persons who did not give
their consent. (1207)
Does not apply in cases of novation by
subrogation of the creditor.
Also, 1296 Applies in particular to extinctive
novation. If the novation is merely
modificatory, are guarantors and sureties
released, if novation is made withot their
consent?
1. If the modified obligation is more
onerous, they are liable only for the
original obligation (art. 2054);
2. If the modified obligation is less onerous,
the guarantors and sureties are still
responsible.
Article 1297. If the new obligation is void, the
original one shall subsist, unless the parties
intended that the former relation should be
extinguished in any event. (n) read paras page
507-508.
Applies also when the new obligation Is subject to
a condition and that condition was not fulfilled.
Here, the old obligation subsists.
EXCEPTION: when the parties intended that the
former relation should be extinguished in any
event.
PROBLEM (PARAS):
D and C entered into a contract whereby D was to
give C 300K. later, they novated the contract by
stipulating that instead of cash, D would give a
particular car. Subsequently, the car was
destroyed by a Fortuitous event. Is D obliged to
give P300K?
No, because the original obligation had already
been extinguished by the valid novation.
Moreover, the obligation to deliver the particular
#MYT
car is also extinguished because of the fortuitous
event.
Article 1298. The novation is void if the original
obligation was void, except when annulment may
be claimed only by the debtor or when ratification
validates acts which are voidable. (1208a)
Article 1299. If the original obligation was subject
to a suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated. (n)
GR: the conditions attached to the old obligation
are also attached to the new obligation
Exc: if there is a contrary stipulation.
Article 1300. Subrogation of a third person in the
rights of the creditor is either legal or
conventional. The former is not presumed, except
in cases expressly mentioned in this Code; the
latter must be clearly established in order that it
may take effect. (1209a)
Subrogation (extinctive subjective novaton by
change of the creditor) is the transfer to a third
person of all the rights appertaining to the
creditor, including the right to proceed against
guarantors, or possessors of mortgages, subject to
any legal provision or any modification that may
be agreed upon.
Conventional or voluntary - 1301; must be clearly
established, otherwise, it is as if no subrogation
has taken place.
Legal – takes place by operation of law; not
presumed
Article 1301. Conventional subrogation of a third
person requires the consent of the original parties
and of the third person. (n)
Conventional or voluntary subrogation, the
consent of all the parties is required:
Debtor- because he becomes liable under the new
obligation; and because his old obligation ends;
Old creditor – because his credit is affected;
New creditor – because he becomes a party to the
obligation.
Distinctions between conventional
subrogation and assignment of credit
(Manresa)
Assignment of credit Conventional
subrogation
(a) here, there is mere (a) extinguishes the
transfer of the SAME obligation, and
right or credit (the creates a new one
transfer did not
extinguish the credit)
(b) this does not (b) this requires the
require the debtor’s debtor’s consent
consent (mere
notification to him is
sufficient)
(c) the defect in the (c) the defect of the
credit or right is not old obligation may be
cured simply by cured in such a way
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 Martinez Ycong Tibon
assigning the same that the new does not extinguish criminal liability but may only
(Here, the debtor obligation becomes prevent its rise.
generally has still the entirely valid. (Thus
right to present against here, there is no right - It is well-settled that the following requisites
the new creditor any to present against must be present for novation to take place: (1) a
defense available as the new creditor any previous valid obligation; (2) agreement of all the
against old creditor.) defense which he, parties to the new contract; (3) extinguishment of
the debtor, could the old contract; and (4) validity of the new one.
have set up against
the old creditor.) Sandico vs. Piguing, 42 SCRA 322
- Novation results in two stipulations — one to
Article 1302. It is presumed that there is legal extinguish an existing obligation, the other to
subrogation: substitute a new one in its place.
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge; - Fundamental it is that novation effects a
substitution or modification of an obligation by
(2) When a third person, not interested in the another or an extinguishment of one obligation
obligation, pays with the express or tacit approval by the creation of another.
of the debtor;
(3) When, even without the knowledge of the - In the case at hand, we fail to see what new or
debtor, a person interested in the fulfillment of modified obligation arose out of the payment by
the obligation pays, without prejudice to the the respondent of the reduced amount of P4,000
effects of confusion as to the latter's share. and substituted the monetary liability for P6,000
(1210a) of the said respondent under the appellate court's
judgment. Additionally, to sustain novation
Article 1303. Subrogation transfers to the persons necessitates that the same be so declared in
subrogated the credit with all the rights thereto unequivocal terms — clearly and unmistakably
appertaining, either against the debtor or against shown by the express agreement of the parties or
third person, be they guarantors or possessors of by acts of equivalent import — or that there is
mortgages, subject to stipulation in a conventional complete and substantial incompatibility
subrogation. (1212a) between the two obligations.

Article 1304. A creditor, to whom partial payment

has been made, may exercise his right for the
remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of
the partial payment of the same credit. (1213)

PARTIAL SUBROGATION:
TWO CREDITORS:

1. old creditor who remains a creditor as to the

balance;
2. new creditor who is a creditor to the extent of
what he had paid the creditor.

Example:

A owes B P500,000. With the consent of both, C

pays B P250,000. Now B and C are the creditors of
A to the amount of P250,000. Suppose A has only
P250,000 who should be preferred?

Answer: B, the original creditor, should be

preferred inasmuch as he is granted by the law
(Art. 1304, Civil Code) preferential right to recover
the remainder, over the person subrogated in his
place by virtue of the partial payment of the same
credit.

CASES:
Diongzon vs. Court of Appeals, 321 SCRA 477
(1999)
- Novation is not a mode of extinguishing criminal
liability and criminal liability, once incurred,
cannot be compromised. Indeed, there was no
novation, and even if there was, petitioner's
liability under B.P. Blg. 22 was not thereby
extinguished. As held by this Court, novation "may
prevent the rise of criminal liability as long as it
occurs prior to the filing of the criminal
information in court." In other words, novation

58