2 Oblicon Your Transcript Team

YOUR TRANSCRIPT TEAM | CIVIL LAW REVIEW | OBLIGATIONS AND CONTRACTS | ATTY.
BATHAN-LASCO | FIRST SEMESTER | 2021 - 2022
Limitations on the right of choice of debtor

ALTERNATIVE OBLIGATIONS He cannot choose the prestations which are (1) impossible, (2)
unlawful or (3) which could not have been the object of the
obligation i.e.. those which are not included in the choices
ARTICLE 1199. A person alternatively bound by which the obligor could select
different prestations shall completely perform one of
them. Example:
A is bound to give B a pack of shabu, or a bottle of milk taken
The creditor cannot be compelled to receive part of one from a goat, or a particular cigarette case, or a particular
and part of the other undertaking.||| fountain pen.
In an alternative obligation, the person alternatively bound by A cannot choose the first because this would be unlawful; nor
different prestations shall completely perform one of them. the second because this is impossible. A can therefore, choose
only between the third and fourth.
Even if there are several prestations, you have to choose 1 and
you must completely perform 1 of them. You cannot partially
perform 1 prestation and partially perform another. ARTICLE 1201. The choice shall produce no effect
except from the time it has been communicated.|
“The creditor cannot be compelled to receive part cone
and part of the other undertaking.”||
The choice of debtor will remain with him and it has no effect.
It will only have an effect when the choice is communicated to
This last paragraph does not avoid the situation wherein the
the creditor.
creditor will allow it. If the creditor allows it, then it is not a
problem. The provisions of the law come in, where there is
Once the choice is communicated to the creditor, the obligation
conflict.
now becomes a simple obligation to do or deliver the object
selected. It stops being an alternative obligation.
Can the debtor compel the creditor to receive a part of
one and a part of the other? For example there are 3
Note: If the right of choice is expressly given to the creditor,
different prestations:
the latter shall also communicate his choice to the debtor.
A - P500,000
Is there a particular form in communicating that
B - a specific parcel of land
choice?
C - a specific car.
There is no form that is required by law. What is required is
just mere notice to the creditor.
If there are 3 prestations, the debtor has to choose. He cannot
compel the creditor to receive P250k plus a portion of the land.
Any form may be employed. The law does not require a
The operative word is “compel”. He cannot compel the creditor.
particular form so long as there is selection of prestation and
But if the creditor will agree, then it is allowed.
such is being communicated to the creditor. Hence, it may be
communicated orally or in writing, expressly or impliedly.
ARTICLE 1200. The right of choice belongs to the
debtor, unless it has been expressly granted to the An election/choice once made is binding on the person
creditor. who makes it, and he will not, therefore, be permitted
to renounce his choice and take an alternative which
The debtor shall have no right to choose those was first open to him. (Reyes v. Martinez, 55 Phil 492)
prestations which are impossible, unlawful or which
could not have been the object of the obligation. The exception to the general rule is when the right of choice
belongs to the creditor, as agreed upon by parties, or if the
choice is given to the third person, as agreed as well by
General rule: The choice belongs to the debtor.
parties.
Exception: The creditor is allowed to choose if it has been
expressly granted to him.
Requisites for the Making of the Choice
1. Made properly so that the creditor or agent is
There are 2 obligations that are available and it is the debtor
informed
that has the choice. However, the creditor is allowed to choose
2. Made with full knowledge that a selection is indeed
if such is expressly granted to him.
being made. (ERROR in appreciating the meaning of
alternative obligations will give rise to vitiated
If there is no mention as to who has the right of choice, it shall
consent, and the choice can later on be annulled.)
be the debtor’s choice. However, even if the debtor has that
3. Made voluntarily and freely (without force,
choice and there are several prestations wherein some of the
intimidation, coercion, or undue influence);
prestations are impossible, unlawful or which could not
4. Made in due time, that is before or upon maturity
have been the object of the obligation, he has no option
(otherwise, the creditor can sue him in court with an
or right to choose those unlawful prestations.
alternative relief as “give this or that, depending upon
Sources: Atty. Bathan-Lasco’s Discussion 1

YOUR TRANSCRIPT TEAM | CIVIL LAW REVIEW | OBLIGATIONS AND CONTRACTS | ATTY. BATHAN-LASCO | FIRST SEMESTER | 2021 - 2022
your choice”);
5. Made to all proper persons (If there be joint creditors, ARTICLE 1204. The creditor shall have a right to
all of them must be notified.); indemnity for damages when, through the fault of the
6. Made without conditions unless agreed to by the debtor, all the things which are alternatively the object
creditor (otherwise, it can be said that no real choice of the obligation have been lost, or the compliance of
is being made) the obligation has become impossible.
7. May be waived, expressly or impliedly (since all rights The indemnity shall be fixed taking as a basis
in general may be waived) the value of the last thing which disappeared, or that of
the service which last became impossible.
Is the consent of the creditor to the choice of debtor
necessary before the choice can produce effect? Damages other than the value of the last thing
Consent is not required. This is because it is the debtor who or service may also be awarded.
has the right of choice.
If the alternatives are lost due to the negligence or fault of the

ARTICLE 1202. The debtor shall lose the right of debtor, the creditor have the right to indemnity for damages.
choice when among the prestations whereby he is
alternatively bound, only one is practicable. Basis for the indemnity - the value of the last thing which
disappeared or service which last become impossible
An alternative obligation also becomes a simple obligation even Note: If alternative 1 and 2 are destroyed due to the debtor’s
when the choice has not been communicated but by some fault but the third is destroyed due to fortuitous event, the
circumstances, only one is left to be practicable. obligation is extinguished.
If only one of the prestations is left, then the debtor has no

other choice but to deliver it. 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.
ARTICLE 1203. If through the creditor’s acts the Until then the responsibility of the debtor shall be
debtor cannot make a choice according to the terms of governed by the following rules:
the obligation, the latter may rescind the contract with
(1) If one of the things is lost through a
damages.
fortuitous event, he shall perform the
obligation by delivering that which the
Example: For P200k, D promised to teach C Mathematics for creditor should choose from among the
2021 or to buy him a state-of -the-art computer. If in 2021, C remainder, or that which remains if only
goes to Germany, D obviously cannot teach him, and since D is one subsists;
deprived of the right to choose because of C’s own act (of (2) If the loss of one of the things occurs
leaving), D may either: through the fault of the debtor, the
creditor may claim any of those
(1) Buy the state-of-the-art computer; or subsisting, or the price of that which,
(2) Rescind the contract with the right to recover through the fault of the former, has
whatever damages he has suffered disappeared, with a right to damages;
Note: the contract is not automatically rescinded. The law says (3) If all the things are lost through the
that the debtor “may rescind”. The debtor may allow the fault of the debtor, the choice by the
obligation to remain in force insofar as the possible choices are creditor shall fall upon the price of any
involved. one of them, also with indemnity for
damages.
EFFECTS OF LOSS
The same rules shall be applied to obligations
Loss may either be due to a fortuitous event or due to fault or to do or not to do in case one, some or all of the
negligence of the debtor. It is important to know this because prestations should become impossible.
the consequences are not the same if the right of choice
belongs to the debtor or the creditor.
If there is extinguishment or loss of one of the obligations, it The right of choice belongs to the debtor but they can agree
does not mean that the obligation will be totally extinguished. that the right of choice belongs to the creditor or third person.
It will depend on the reason for the loss or extinguishment.
RIGHT OF CHOICE BELONGS TO THE DEBTOR
Loss is due to fortuitous events

● All objects are lost - it extinguishes the obligation two or more, the creditor cannot claim damages because the
because no one is liable for a fortuitous event right of choice belongs to the debtor. He is the one who is
● Some are lost but there are still more than 1 that choosing anyway. If the debtor destroys all the other
remains - since it is the right of the debtor to choose, prestations, that means those were not his choice to begin
then he can still choose from the remainder with to deliver. There is no right to collect damages if there is a
● Some are lost, except one - pure and simple prestation that is left because the right of choice belongs to
obligation the debtor.
When the right of choice belongs to the debtor and the RIGHT OF CHOICE BELONGS TO THE CREDITOR
loss is due to a fortuitous event, and all objects or
prestation are lost, what happens to the obligation? The right of choice may belong to the creditor. Loss
The obligation is extinguished. may be due to a fortuitous event or fault or negligence.
If loss is still due to a fortuitous event but it is a loss of Loss is due to Fortuitous Events
one of the prestations or some of the prestations but
there are still some of the prestations that are If all of the prestations are lost due to a fortuitous
remaining, what would be the consequence? event, what happens to the obligation?
The obligation is extinguished.
If there is more than one that remains, you choose from the
remainder. If there is only one that remains, then, it becomes a Just the same if the right of choice belongs to the debtor
simple obligation. because no one is liable for a fortuitous event.
Is the debtor liable for damages for loss of one or some If there’s loss of some or one of the
of the prestation? objects/prestations, what would be the consequence?
No because no one is liable for fortuitous events. The creditor will choose from the remainder if there are two or
more. If there’s only one that remains, the obligation becomes
Loss is due to fault or negligence of the debtor a simple obligation.
If the loss is due to the fault or negligence of the Loss is due to Fault or Negligence of Debtor
debtor and all of the objects are lost?
If there’s loss due to the fault or negligence of the
The creditor has the right to choose whether to have the value debtor and all objects are lost, what would be the
of the last thing that was lost or in case of performance, the consequence?
last which becomes impossible to perform with damages.
The obligation still subsists but it is converted into a monetary
It is with damages because the loss is due to the fault or liability. And since the right of choice belongs to the creditor,
negligence of the debtor. The obligation is not extinguished but the creditor can now choose any of the prestation and that
is now converted into a monetary liability and the measure of choice of his, the value of such prestation will be the measure
the liability or indemnity is the value of the last thing that was of the monetary liability plus damages.
lost.
There is damages because the loss is due to the fault of the
Why is it that it is the value of the last thing that was debtor. He is liable for damages because now he restricted the
lost that would be the measure of the indemnity? creditor from choosing the prestation of his choice.
Because the right of choice is given to the debtor. Even if
everything is lost due to the fault of the debtor, then the If one or some are loss due to the fault or negligence of
debtor would have delivered the last thing that was with him. your debtor? What happens?
Plus damages. The creditor can still choose from the remainder of choices
that is available to him.
What if one or some of the prestations were lost due to
the fault or negligence of the debtor? Can you tell us then if your creditor can choose the
The debtor can choose from the remainder because it is his value of the object that was lost instead of choosing
right of choice anyway. from the remainder? Can the creditor choose an object
that was lost and instead ask the debtor to pay him the
Even if the prestation would be a specific car, a specific laptop, monetary value of that object instead of choosing from
a specific house, if the debtor burned his house down the remainder. Does he has that option?
intentionally. He still has the option to choose between the
specific car or laptop. Yes, the creditor also has that option, he can either opt for
payment of the value of the thing lost or he can choose from
If, however, most are lost except one, it becomes a simple the remainder of the prestation.
obligation because there is still one that is remaining and the
right of choice belongs to the debtor. If he chooses a prestation that was lost to be paid
monetary liability, can he claim damages?
If there are still prestations that are remaining, either one or

Yes, because he was restricted of his choice to opt for that

prestation. However, if the primary prestation is lost before the
substitution is made, and the loss is due to the fault or
How about if he chooses a prestation from the negligence on the part of the debtor, then he is liable for
remainder? damages.
In that case, he can no longer demand for damages because
he already chose among the available prestation What are the consequences if the substitute is lost
before the substitution is made?
Comments:
So your creditor can choose from those that were lost, so it is If the substitute is lost before the substitution, whether the
converted into a monetary liability plus damages. But if he loss was due to the fault or negligence of the debtor, there is
chooses from the remainder, those which were not lost, it is no liability because the debtor can always comply with the
just but fair and reasonable that he will not ask for damages principal obligation.
because he chose from the remainder and it can be completely
delivered to him. Comments:
The 2nd paragraph of Article 1206 tells you the effects of the
Example: loss or deterioration of the thing intended as a substitute if
such loss was due to the faults or negligence of the debtor.
D is obliged to give C either a car, a house or a condominium
unit. Before C communicated his choice to D, the car had been The law says that if there was loss due to the fault of the
destroyed due to a fortuitous event, and the house had been debtor before the substitution, it would not have any effect on
destroyed through D’s fault. What are C’s rights, if any? the primary obligation, you will still have to comply with your
obligation. However, if there was loss after the substitution is
C have the following rights: made, then your debtor is liable.
1. Choose the condominium unit since it has not been

ART. 1206, 2nd paragraph: The loss or deterioration of
destroyed; or
the thing intended as a substitute, through the negligence
2. The monetary value of the house with damages
of the obligor, does not render him liable. But once the
because C has been deprived of the right to select.
substitution has been made, the obligor is liable for the loss
of the substitute on account of his delay, negligence or
C cannot demand for the monetary value of the car because it
fraud.
was lost due to a fortuitous event.
When does the substitution take effect?

Your substitution takes effect when it is communicated. Just
FACULTATIVE OBLIGATION
like in alternative obligation. Such must be communicated to
the creditor.
Ong Guan Cuan vs. Century Insurance Company

ARTICLE 1206. When only one prestation has been
agreed upon, but the obligor may render another in
Facts: A building was insured against fire and that building
substitution, the obligation is called facultative.
was razed by fire while the insurance policy was in force.
The loss or deterioration of the thing intended The insurance policy contains a clause that the insurance
as a substitute, through the negligence of the obligor, company may either pay for damages or have the house
does not render him liable. But once the substitution rebuilt in a sufficient manner.
has been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud. The insurance company wanted to rebuild it instead of
paying for the amount of loss or damage and although it
would be smaller, it would be a sufficient indemnity to the
What is a facultative obligation? insured.
In a facultative obligation, there is only 1 prestation that has
been agreed upon, and in addition to that, a substitute is also Ruling:
stated. The Supreme Court ruled that the effect of the clause is to
make the obligation an alternative one because they have
Example: D promised to give C his diamond ring but it was the option to pay for damages or have the house rebuilt.
stipulated that D could give his car as a substitute.
In alternative obligations, the debtor, the insurance
What are the consequences if the primary prestation is company in this case, must notify the creditor of his
lost before the substitution is made? election. The purpose of this is to give the insured the
opportunity to express his consent or to impugn the choice
If the primary prestation is lost before the substitution is of the insurance company. The choice made by the
made, and the loss is due to a fortuitous event, the obligation insurance company shall only take a legal effect once
is extinguished because there was no substitution yet.

GR: In absence of any fact or law which would make the

consented by the insured. If such choice will be impugned
defendants solidarily liable, the presumption is that they are
by the insured, the court may declare what should be
only jointly liable.
proper.
XPNs:
1. When there is a stipulation in the contract that the
In this case, the insurance company did not give a formal
obligation is solidary
notice of its choice to rebuild and the plaintiffs did not give
2. When the nature of the obligation requires the liability
their consent for the new house to be built. The court said
to be solidary
that it would be unjust to compel the plaintiff to accept the
3. When the law declares the obligation to be solidary
rebuilding of a smaller house with a lower kind of materials,
without offering him an additional indemnity for the
Art. 1207 just basically describes to you the concept of joint
difference in size between the two houses. The election by
obligations. So, in solidary obligations, there’s the concurrence
the insurance company to rebuild the burnt house instead of
of two or more debtors or of two or more creditors. It implies
paying the value of the insurance was improper.
that each one of the former has the right to demand or that
each one of the latter is bound to render entire compliance
with the prestation. There is solidary liability only when the
Even if there was an election, or even if there was a obligation expressly so states or when the law or nature of the
communication on such election as stated by the witnesses of obligation requires solidarity.
the proposal to rebuild a house, such was not assented by Ong
Guan Can because the proposed house smaller and that is What does that tell you?
composed of materials of lesser kind. So, in that case, the SC
stated that the debtor in this case - Century Insurance - cannot That tells you that if there are two or more debtors on one
exercise the right of choice. side OR two or more creditors on the other side OR there are
two or more debtors AND two or more creditors, if it does not
Alright. To which actually Paras disagree. Why did Paras show the nature of the obligations, the presumption is: it is
disagree with this? Because if the debtor has the right of joint.
choice, supposedly, you are not to wait for the consent of the
creditor because then, if you wait for the consent of the JOINT OBLIGATIONS
creditor, then it is now as if you do not have the right of
choice. It is now actually your creditor who has the right of Why is the presumption joint? Why should it just be
choice. So, that I will have to agree with Paras because the law joint and not solidary? Why is it that it becomes
is very clear that there is no need for consent by the creditor solidary only when it is clear that it is expressly agreed
once the debtor communicates the choice in alternative upon or when the law requires it or when the nature of
obligations. the obligation requires solidarity? Why is it that the
default nature of an obligation is joint?
I think the reason why the policy of the law is to presume the
JOINT AND SOLIDARY OBLIGATIONS
default nature of concurrent obligations is joint is because of
the policy that one cannot be presumed to answer for the debt
of another. So, in this case, if there are concurrent obligors, for
example, in a case for sum of money, then the presumption is
ARTICLE 1207. The concurrence of two or more that a person is only liable for his/her own share. He cannot be
creditors or of two or more debtors in one and the presumed to answer for the debts of his own co-debtors.
same obligation does not imply that each one of the
former has a right to demand, or that each one of the Simply because when you are a joint debtor, your liability is
latter is bound to render, entire compliance with the less burdensome because you are to answer for your share of
prestation. There is a solidary liability only when the the debt. If it’s solidary, then it is more burdensome, it is more
obligation expressly so states, or when the law or the onerous because the creditor can demand from you the entire
nature of the obligation requires solidarity.| compliance of the obligation. That’s the reason behind the rule.
Let me illustrate concurrence of two or more creditors:

Joint Obligation - each obligor answers only for a part of the
whole liability and to each obligee belongs only a part of the You have D indebted to X and Y for P300k. Now, let’s
correlative rights. There are as many debts as there are talk about obligations first - if this were a joint
debtors and there are as many credits as there are creditors. obligation, or there was no mention as to whether this
is joint or solidary. So, we said that the presumption is
Solidary or Joint and Several - each of the former or of the - it is joint. How many obligations do you see there?
latter may demand the fulfillment of or must comply with the
whole obligation (can ask for reimbursement to others who are There are two obligations - the obligation of D to X and the
liable or subject to receive) obligation of D to Y. That is the essence of joint obligation.
There are as many debts as there are debtors and there are as
many credits as there are creditors.

So, in a joint obligation, X can only demand P150k from D - his obligated to four creditors each. So, there will be 12, in this
share in the credit. So, when there are cases such as this, you case.
have to look at which side has the concurrence of parties.
Here, you have the concurrence of creditors and the total Alright. So, that’s actually the shortcut in determining how
amount of the debts should be divided by the number of many obligations there are. But to see why there are 12, that’s
concurrent parties on one side. So, X and Y - there are two, so basically your debt of A to W, A to X, A to Y, A to Z; B to W, B
divide it by two - they each get P150k. So, X can demand from to X, B to Y, B to Z; C to W, C to X, C to Y, C to Z.
D only P150k and Y can also demand from D only his share of
P150k. That is the essence of your joint obligation. When you count that, there are 12 obligations. Again, the
principle behind the joint obligation is, to each his own. So
Another example - this time, the concurrence of two or there are as many debts as there are debtors, and there are as
more debtors. You have debtor A and debtor B many credits as there are creditors. And of course, because of
indebted to C for P500k. Again, how many obligations that, your law also says that debts or credits are being
are there? considered distinct and separate from one another, subject to
Since there are as many debts as there are debtors and oas the rules governing multiplicity of suits.
many credits as there are creditors, then there are two
obligations - A to C and B to C. SOLIDARY OBLIGATIONS
How much can C collect from A and how much can C A is indebted to X and Y in the amount of 100,000. If
collect from B? this were a solidary obligation, how much can Y
Because A is only liable for his proportionate share and the demand from A?
same is true for B, then C can only collect P250k from A and
P250k from B. The whole amount. Because it’s a solidary obligation, whatever
the amount that would be demanded from by one of the
Really, joint obligations in those example is really very simple solidary creditors, that should benefit all of them. So Y can
because then you just divide on that side that has the demand the entire debt of 100,000 from A. This is an example
concurrence of either debtors and creditors and you will know of concurrence of creditors.
how much can the creditor demand from the debtor. In this
case, it’s P250k each. How about if you have concurrence of debtors also: A,
B, and C are indebted to Y and Z for 100,000. If this is a
solidary obligation, how much can Z collect from C?
ARTICLE 1208. If from the law, or the nature or the Z can collect the entire amount from any one of the debtors.
wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or You can ask one person for the whole amount. So A, B, and C,
debt shall be presumed to be divided into as many they are considered as one, Y and Z, also considered as one,
shares as there are creditors or debtors, the credits or so Y or Z can demand from A or B or C the entire obligation of
debts being considered distinct from one another, 100,000. So that’s the essence of solidarity.
subject to the Rules of Court governing the multiplicity
of suits. Let’s have one side solidary and the other side joint:
A, B, and C are solidary debtors, while your creditors

From Art. 1208, you already know the different principles that are joint. A, B, and C solidarily bound themselves for
you should remember in joint: the amount of 120,000 to Y and Z joint creditors. How
much can Y demand from A?
1. Joint obligations is presumed by law, unless there is
express agreement to the contrary or when the Since Y is a joint creditor, Y can demand his share which is
nature of the obligation requires solidarity or if the half, but they can decide to increase.
law requires solidarity.
2. The creditor in joint obligations is entitled only to the If one side is solidary and the other is joint, you look at the
proportionate part of the creditor and the debtor is side which is joint, and then you divide the total amount of
also liable only to the proportionate part of the debt. debt or credit for that side. So in this case, the joint side is the
The principle is: to each his own. As opposed to a creditor side, so Y and Z will have to divide the 120,000 credit
solidary obligation where the principle is: the act of (because they are creditors) between both of them. So they
one is the act of all. So, that is the main difference have 60,000 each. So Y can only demand 60,000 from either A
between the two. or B or C.
Now, let’s have a concurrence of debtors and also a What if it is the debtor side that is joint and the
concurrence of creditors. How many obligations are creditor’s side that is solidary. How much can Y
there? demand from A?
In that case, what I would do is to multiply the amount of

debts with the amount of credits. So, there are three debtors

Y can only demand from A P40,000 because as we said, if your solvent to comply with the obligation to carry the share of the
liability is joint, then you should not shoulder the share of other. Unlike when the obligation is solidary. Because if the
another debtor. So A is only liable for P40,000. obligation is solidary, then you will be liable for the insolvent’s
share, because you can be asked to pay for the entire debt. So
So the trick really, is just look at which side is joint, and then you carry the insolvent’s share.
divide. If both sides are joint, let’s use the same example but
this time both sides are joint. A, B, C are joint, Y and Z are In fact if X is the creditor and A, B and C are solidary debtors,
joint. How do we do this? When there is only one side that is if C is insolvent and the amount of the debt is P90,000. X can
joint, it’s quite straightforward and simple: it’s the entire still collect P90,000 from A or B. But of course, if C cannot
amount of the debt, divided by the number of persons of that anymore pay his share of P30,000, his P30,000 share will have
side, which is joint. But how about if it’s both sides now? to be shared by A and B, diba? That’s the concept of solidary.
You will carry the share of the insolvent debtor.
If it’s both joint, if you ask now how much can Y collect
from A if both sides are joint? However, in joint, it’s to each his own. So if one of the debtors
Y can collect the amount of 20,000 because his share in the is insolvent or unwilling to comply, bahala na siya. You will not
debt is only 60,000 be made liable or made to carry the burden of the insolvent or
of the non-compliant debtor, because again it’s to each his
So this time, you divide both sides. So Y can collect only own. That is why the last statement of 1209 says that if one of
20,000. Why? Because 120,000 divided by 2 creditors. So the latter should be insolvent, the others should not be liable
there is 60,000 each, so Y’s share is only 60,000. Remember for his share.
the debtors’ side is also joint. So how much are you going to
collect from each of them? You as a joint creditor, your So in our example for the specific car, naa isa dili mu comply,
share, you will also divide it by the number of debtors you cannot deliver the car. So what happens? Then you will
you will collect it from because those debtors cannot convert it to monetary liability. So if the car is worth
also be made liable to pay for the share of the other P1.2M, then the debtors who are willing to comply will
debtors pertaining to your share. just deliver their share. That’s P1.2M divided by 3, that’s
P400,000, times 2 complying, that’s P800,000. They will not
So Y there has 60,000 divided by the 3 debtors, that’s 20,000. shoulder the share of the insolvent, because it’s joint. Only
So Y can collect from A 20k, from B 20k, from C 20k. And Z that the object is indivisible. That Is Art. 1209.
also can collect from A 20k, from B 20k, from C 20k. So when
you add up how much A has paid, A has paid to Y 20k plus A
also paid to Z 20k, how much really is his share in the debt?
It’s 40k, 120k divided by 3. ARTICLE 1210. The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor does solidarity
of itself imply indivisibility.
ARTICLE 1209. If the division is impossible, the right

of the creditors may be prejudiced only by their Just because the obligation is indivisible, that does not
collective acts, and the debt can be enforced only by necessarily mean that it is already solidary, because it can be
proceeding against all the debtors. If one of the latter solidary AND divisible, which is exactly our example on debt of
should be insolvent, the others shall not be liable for his money. The obligation is solidary but money is divisible. Or the
share. object could be indivisible – just like in our example of a
specific car – but the liability is joint. So just because it’s
indivisible doesn’t mean it’s solidary. Just because it’s solidary
What does that mean?
doesn’t mean the prestation is indivisible. That is Art. 1210.
The debt is to deliver a particular car and there are joint

debtors, A, B and C. They are to deliver a particular car to X.
How can that be done?
ARTICLE 1211. Solidarity may exist although the
creditors and the debtors may not be bound in the
That’s where Art 1209 comes in. Art. 1209 says that if the
same manner and by the same periods and conditions.
division is impossible, the creditors cannot simply just make a
demand upon A, because how can A comply with the
obligation. He cannot clearly give out 1/3 of the car, because it
For example: A, B and C are liable to X for P900,000 and they
is physically impossible. So how then will X our creditor collect?
agreed to be solidarily liable. But in addition to that agreement
to solidary liability, their agreement was A is liable to pay on
X will have to make a demand upon all of them, A, B
September 30, 2021. B is liable if he passes the 2022 Bar
and C. Now, what happens if A and B are willing to comply but
Exams. C is liable on December 20, 2021. They are bound by
C won't comply? So dili jud nila ma deliver ang car, because
different periods and one is even bound by condition. How
one is not compliant.
does that affect the solidary obligation?
What does Art. 1209 say? Art. 1209 says that since it is joint,
If the question now is: how much can X demand from B,
then you cannot burden the other debtors who are willing and
supposing today is October 3, 2021?

What if the assignee is one of the solidary creditors?

He can collect P300,000. Why? Go back to original debt! It’s Does it still need the consent of the others?
P900,000, but there are three debtors with different
terms and conditions. But there is one that is due and No. Because if the assignment is made to another solidary
demandable – that’s the share of A that was due on Sept 30, creditor, then there is no violation of the principle that in
2021. So that share is due and demandable. Kinsay gi solidary obligations it is based on mutual confidence or
panginlan ni X? who is he demanding from? Si B! Is B liable representation.
to pay? YES! Why? It’s solidary! But he is liable to pay
only that which is due and demandable. That is what is Since you already trust each other, there is no need to ask for
meant by Art. 1211. the consent of the others. Hence, it is necessary only if it is a
third person.
B cannot say “No, I will not pay because my condition has not
yet happened.” He cannot say that because it’s solidary. That’s
1211. Again, solidarity may exist although the creditors and
ARTICLE. 1214. The debtor may pay any one of the
the debtors may not be bound in the same manner and by the
solidary creditors; but if any demand, judicial or
same periods and conditions.
extrajudicial, has been made by one of them, payment
should be made to him.
Suppose today is already 2022 and B failed the Bar Exams.
How much can X collect from B? Again, B cannot say he
cannot pay because he failed. Naa man gihapon due and If A is indebted in the amount of 100,000 to Y and Z, A can
demandable, which are A’s and C’s shares. He is still pay either Y or Z. But, if Y already makes a demand, then A
liable by virtue of the solidary obligation. But of course, should pay to Y.
not with respect to his share, but with respect to the shares of
A and C.
ARTICLE. 1215. Novation, compensation, confusion or
And necessarily of course, after mabay-ran ang obligation to
remission of the debt, made by any of the solidary creditors
the creditor, you have learned this already, once you pay to the
or with any of the solidary debtors, shall extinguish the
creditor, that obligation is extinguished but a new one is
obligation, without prejudice to the provisions of article
created. The obligation between or among the debtors. Of
1219.
course, a will pay his share to B and C will pay his share to B.
That’s Art. 1211.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the others
for the share in the obligation corresponding to them.
ARTICLE. 1212. Each one of the solidary creditors

may do whatever may be useful to the others, but not A is indebted to Y and Z for 100,000. Y, in another contract, is
anything which may be prejudicial to the latter. also indebted to A for 100,000. There is now a compensation
that would result. Why compensation? Because A is indebted
to Y and Y is also indebted to A. There is an off-set. Art. 1215
The reason behind this is, whatever they do will affect the says that if there is compensation of the debt, it will extinguish
solidary creditors. Because the act of one is the act of all. the obligation. Why extinguished? Because Y and Z are
considered as one. The off-set here is for the same amount of
A and B are solidary creditors of X who is indebted to 100,000, hence obligation is extinguished.
them for 100,000. A, being a friend of X, he forgave the
debt of X. What is the effect of that condonation? BUT, while the obligation of A to Y and Z is extinguished, who
is at a disadvantage? It would be Z. What is the solution? The
Since the act of one is the act of all, X now is no longer liable, law says that the creditor who may have executed any of these
the obligation is extinguished. HOWEVER, A now has to pay B acts as well as he who collected the debt shall be liable to the
his share of 50,000. Since Art. 1212 says you cannot prejudice others for their share. Since Y is the cause of the
the rest of the creditors, what is the effect then? The effect is compensation, then Y should pay Z his share. Y is not at a
that A, who forgave the debt of B, will now be the one disadvantage here because the net effect of this would have
to pay B his share. been the same if there was no compensation.
ARTICLE. 1213. A solidary creditor cannot assign his rights He got 50,000 from A's pocket, he is still going to get 50,000
without the consent of the others. from his own pocket to pay A. What happens here? A does not
pay Y and Z anything because his obligation is extinguished. Y
does not pay A anything but the net effect is the same. Y will
A solidary creditor cannot assign his rights without the consent have to spend 50,000 from his pocket, this time, he does not
of the others. Why? Because this other person may not be pay it to A, he pays it to Z.
trusted by the other solidary creditors. Trust is necessary
because the act of one is the act of all. So, you have to get the The net effect. Si Y dapat makagasto from his pocket ug
consent. 50,000, utangan si A from Y and Z ug 100,000, why? As his
share is 50,000 so there is an inflow of 50,000 and that inflow

comes from A but if Y really has to pay A, 100,000 that would There is interest for the payment that was made from the time
be the inflow from A and from his own pocket of 50,000, that the payment was made by the solidary debtor to the original
he has to pay A. But becomes the obligation of A is creditor and interest will run from that time to the time of
extinguished due to compensation, Z now is at a disadvantage, payment by the other debtors of his share to him. There is no
Y will just give the share to Z, of 50,000. The net effect is the interest if the debt is not due and demandable and then you
same as he would still have to spend 50,000 anyway. paid in advance.
EXAMPLE:
ARTICLE 1217 (3). When one of the solidary debtors,
A is indebted to Y and Z for 100,000. Y condones A's debt, he
cannot because of his insolvency, reimburse his share to the
forgives the debt. A's obligation is extinguished. Again, who is
debtor paying the obligation, such share shall be borne by
at a disadvantage here, it is Z but because it was Y's act, that
all his co-debtors in proportion to the debt of each.
extinguished the obligation without the consent of Z, then it is
Y who will pay the share to Z. (Art. 1215)
A, B and C are solidary debtors of X for 900,000. X demands

ARTICLE 1216. The creditor may proceed against any one
from A payment and A pays the 900,000 but this time, C is
of the solidary debtors, or some or all of them
insolvent and cannot pay his share, as mentioned by Art. 1217,
simultaneously, the demand made against one against them
it does not matter for X because X has to collect the entire
shall not be an obstacle to those who may subsequently be
debt regardless of whether one of them is insolvent. What
directed against the other so long as the debt has not been
happens now? The law says that the other solidary debtors will
fully collected.
have to carry the burden.
Y and Z are indebted to A for 100,000. Art. 1216 tells you that When A pays, A can now collect from B and C, share of
your creditor A has a choice either to go after Y or to go after 300,000 each. C is insolvent. Unsaun man na? Law says it
Z or to go after them, together. It also says that if A chooses to must be shared by the other solvent debtors.
make a demand from Y, as it is his option, but Y only pays
70,000. Can A still go after Z? Yes. By virtue of Art. 1216 which Now, how much should A collect from B?
says that the demand made to one of them shall not be an 450,000 (his share (300,000) and the portion of the share of
obstacle to those which may be subsequently be directed C, the insolvent co-debtor (150,000).
against the other so long as the debt has not been fully
collected. The insolvent debtor is C. The share of C is 300,000. How
many more remaining debtors is insolvent? It’s A and B. So,
P300,000 ÷ 2. So you add P150,000 in their original share.
ARTICLE 1217 (1). Payment made by one of the solidary
debtors extinguishes the obligation. If two or more solidary
P300,000 + P150,000 = P450,000; or
debtors offer to pay, then the creditor will choose which
P900,000 ÷ 2 = P450,000
offer to accept.
Again, payment, so long as it is full payment by any one of the

ARTICLE 1218. Payment by a solidary debtor shall not
solidary debtors will extinguish the obligation. What is the
entitle him to reimbursement from his co-debtors if such
consequence? That obligation is extinguished but now there is
payment is made after the obligation has prescribed or
another obligation that is created, that is the obligation
become illegal.
between the debtors. Solidary debtor who paid will now
become the creditor of the other debtors as he will now be
collecting the share of the other debtors. He cannot collect anymore because, in the first place, the
obligation was no longer due. So, he should not have paid it.
Thus, he cannot collect.
ARTICLE 1217 (2). 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 ARTICLE 1219. The remission (condonation) made by the
intervening period may be demanded. 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
A, B and C are solidary debtors for 900,000 to X. A pays X the
paid by anyone of them before the remission was effected.
full amount. As we said, the debt of A, B and C is extinguished
due to payment of A to X. A new obligation is created. A is the
creditor, he was the one who paid. He will now collect from B A, B, and C are indebted to Z for P120,000. Z condones
and C. How much? Their share - 900,000/3 = 300,000 each. the share of B because they are very close friends. But
How much A collected? 600,000. Ana na creditor na sya? Yes, the remission was effected only after A has already
creditor for other's share, he has his own share in the paid the full amount of P120,000. Should B still pay his
obligation also. The 300,000 is his share on the obligation to X. share to A since it was the latter who paid P120,000?
He will only collect the share of the other solidary debtors. Can B say that he will not pay anymore because Z has
already condoned his debt?

refuse to pay damages on account of the fact that B

A: No, B is still liable because the remission was done and C were willing to deliver on time and they already
AFTER full payment was made. agreed that it was A who is supposed to deliver?
Would your answer be different if B’s share was A: He cannot because they are considered as one. So, if A
remitted BEFORE any payment was made? caused delay that made them liable for damages, then any of
A: Yes, because the remission became effective before the them can be compelled by the creditor to pay the damages
payment was made. because the act of one is the act of all. However, as between
the three of them, it should only be A who should shoulder the
If B was able to convince Z to forgive his share and Z remitted damages. That is what is meant by “without prejudice to their
his share, then A should pay only that which corresponds to A action against the guilty or negligent debtor.” As to the creditor,
and C’s share. In that example, P120,000 ÷ 3, what A should they don’t have a choice; either of them has to pay.
pay is only P80,000 because the share of B was already
remitted. If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the solidary
Supposing the share of B was already remitted but A debtors has incurred in delay through judicial/extrajudicial
still paid the full amount of P120,000. Where and from demand upon him by the creditor, the provisions of the
whom will A collect? preceding paragraph shall apply.
A should collect from the other debtors. But B cannot anymore
be compelled to pay because his share was remitted even prior Why? Because even if there was loss due to a fortuitous event,
to A’s payment. What happens now? A will collect from C there was already a delay. This is an exception to the general
his share of P40,000 but there is an overpayment of rule that a fortuitous even will not make you liable. You should
P40,000. Where will A get it from? From Z because of have complied with prior.
undue payment.
ARTICLE 1222. A solidary debtor, may, in actions filed by

ARTICLE 1220. The remission of the whole obligation, the creditor, avail himself of all defenses which are derived
obtained by one of the solidary debtors, does not entitle him from the nature of the obligation, and of those which are
to reimbursement from his co-debtors. personal to him and pertain to his own share. With respect
to those which personally belong to others, he may avail
himself thereof only as regards that part of the debt for
A, B, and C are indebted to X for P120,000. A, through
which the latter are responsible.
his efforts, was able to convince X to condone the
entire debt. If the entire debt was condoned, can A
now collect from B and C saying that it was through his Defenses available:
efforts that the entire debt was collected?
● Derived from the nature of the obligation - for
No, because he did not pay anything. There’s nothing to example, it is a void contract, then any of the solidary
reimburse because the entire debt was forgiven. So, B and C debtors can avail of such defense.
should also benefit. The act of one is the act of all. ● Defenses personal to him or pertaining to his own
share, such as minority or because there was force or
intimidation used upon me.
ARTICLE 1221. If the thing has been lost or if the

How about if it was another solidary debtor who is a
prestation has become impossible without the fault of the
minor or if there was vitiated consent on the other
solidary debtors, the obligation shall be extinguished.
solidary debtor?
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
You can tell the solidary creditor you will not pay for his share
of damages and interest, without prejudice to their action
because he is minor, but I will pay for my share.
against the guilty or negligent debtor.
When the obligation is solidary you have to pay the entire

If through a fortuitous event, the thing is lost or the
debt, but when there are defenses available to you then you
performance has become impossible after one of the
can use that to reduce what you pay or to not pay at all,
solidary debtors has incurred in delay through the judicial or
depending on the defense that you are using.
extrajudicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply.
If you signed as a surety, then you are solidarily liable. If

Example for 2nd paragraph: nothing is written there that it’s soliday, then your obligation is
joint. And there is one case (brothers and sisters) where they
A, B, and C are indebted to X. They have already agreed authorized their brother to contact a loan, but did not
that A will pay X. But A failed to deliver on said date authorize a mortgage.
and because of that, X is now asking for damages. X is
now going after B for the delivery and damages. Can B

On alternative and facultative. In alternative obligations

6. Novation
remember the effects of loss. Do not confuse it with
Other causes of extinguishment of obligations,such as
presentations that are generic. Why? Because they are never
annulment, rescission, fulfillment of a resolutory condition,
lost--regardless if due to a fortuitous event or the debtor’s
and prescription, are governed elsewhere in this Code.
fault. Just like money, that cannot be lost.
So if one of the prestations is money and it says “all are lost”, Is the list under Art. 1221 exclusive?
it becomes pure or simple because there is only one prestation
left--that which is generic. Do not apply those effects of loss No, there is rescission, annulment and prescription. The last
on generic things because again generic things never perish. paragraph of 1231 enlists other causes that are analogous to
those listed. You can have rescission as a means of
What is the effect of the death of a solidary debtor or extinguishing obligations, resolutory condition or resolutory
the creditor? period that extinguishes your obligation.
The nature and effect of obligations on transmissibility of rights
will now come in. So, pag namatay si solidary debtor or Now let’s talk about payment or performance.
solidary creditor, then the heirs will inherit. So you follow the
same rules, naa lay nisubsitute pertaining to that share. WHEN OBLIGATIONS ARE PAID OR PERFORMED
Q: In the book of Paras he said: if you pay, diba there ARTICLE 1233. A debt shall not be understood to have
are demanding creditors, any of the solidary creditors been paid unless the thing or service in which the obligation
can demand from any of the debtors. So, what if kuno consists has been completely delivered or rendered, as the
if you will not pay but payment should be made to the case may be.
one who made the demand and then it says sa Paras na
if you don’t pay the one who made the demand, the
obligation is not extinguished. But wouldn't be that the ARTICLE 1234. If the obligation has been substantially
case would be unjust enrichment kay it would not performed in good faith, the obligor may recover as though
extinguish the obligation but then the other creditor there had been strict and complete fulfillment, less damages
receives payment? suffered by the obligee.
A: Alright. The provision says that the general rule is you can
pay to anyone. But once there is already a creditor who is
demanding payment, then payment should be made to him. ARTICLE 1235. When the obligee accepts the
performance, knowing its incompleteness or irregularity, and
So, if your solidary creditors would be A and B. A already made without expressing any protest or objection, the obligation is
a demand. Even if A already made a demand, you paid to B. deemed fully complied with.
That is what we are saying nga that should not be because
then the payment is not valid.
What can the debtor do? The debtor can always ask B to When we talk about payment as a means of
give the money back. In that sense, the debtor is protected extinguishing obligation, does this confine itself to
because the payment is not considered valid. So, he has to ask monetary obligations because we use the term
B: give my money back so that I can pay to the demanding “payment”?
creditor. Because that’s undue payment man kay you did not
No, it is not only limited to monetary obligations. It includes
pay to the correct person. Practicality wise, muingon ta kag
performance therein. When you say “payment has been
pwede na because the act of one is the act of all - the act of
receiving payment should already be considered as such. But
made,” it can refer to delivery of a thing that was promised. If
then the law is clear that you have to pay to the demanding it’s an obligation to do, payment or performance is that of
creditor. So, what is now the option of the debtor? The option doing the thing that was promised to be done. Or if it was an
of the debtor now is to get back that payment because that is obligation not to do, then refraining from doing the thing that
considered undue payment. was agreed upon by the parties not to be done.
Now, can you say there is payment if the debt is P500k

and delivery of the amount paid is only P450k, can you
EXTINGUISHMENT OF OBLIGATIONS say there is payment?
No, because for there to be a valid payment, there are two

requisites:
ARTICLE 1231. Obligations are extinguished by:
1. Payment or performance (1) there has to be the very thing or object of the prestation
2. Loss of the thing due that is delivered; and
3. Condonation or remission of debt
4. Confusion or merger of the rights of the creditor (2) the service or thing is delivered completely.
& debtor
5. Compensation In that case, it was not the full amount that was delivered. It
cannot be considered a valid payment. So the general rule is

for a payment to be valid, it must be complete. So even if in you needed a new laptop because of the pandemic. You
our example, there had already been substantial payment of wanted a rose gold Macbook but ang niabot silver, there is
the amount of money that was agreed upon, you cannot delivery, yes. But it is irregular. But you then accepted the
consider that as payment. Because Art. 1233 tells you that for same. Dako man kaayo ang diperensya sa rose gold ug silver.
there to be valid payment, it must be the very thing or service But you did not give any objection. You just got it and then
contemplated that must be paid or delivered (if we are talking used it. You cannot now, after a week, complain that it’s not
about delivery of a thing or doing of a service), and if it’s a what you wanted. That is already considered valid delivery or
monetary obligation (which is also delivery of a thing, but this valid payment under art. 1235 because you accepted it without
time, a generic thing), it must be complete. any protest or objection. Again, the reason behind that is
estoppel. Estoppel is when by your own acts, you cannot now
What then are the exceptions? say otherwise. By your own acts you have accepted it, so you
cannot say you do not like it.
The exceptions are:
Remember that for Art. 1235 to apply, the obligee or the
(1) substantial performance in good faith (Art. 1234); or creditor must know, must be aware that it is
incomplete or irregular and then he accepts it without
(2) if the creditor accepts the irregular payment or any protest or objection. It is a different story altogether,
performance (Art. 1235) when he accepted, ni reklamo dayon siya, then of course, that
cannot fall under Article 1235.
Art. 1234 says that if there is substantial performance in good
faith, then your obligor may recover. Why does it say that your PERSONS WHO MAY PAY THE OBLIGATION
obligor may recover? It presupposes here that this is a
reciprocal obligation. So the obligor delivers and he is also
ARTICLE 1236. The creditor is not bound to accept
expecting something in return. So the law says that that may
payment or performance by a third person who has no
be considered payment to the extent that your obligor can
interest in the fulfillment of the obligation, unless there is a
recover so long as the partial delivery is substantial, and the
stipulation to the contrary.
reason for it being substantial was not due to the fault of the
debtor because he was in good faith.
Whoever pays for another may demand from the debtor
Example 1 (Substantial Performance): Supposing the what he has paid, except that if he paid without the
obligation of the debtor or obligor is to deliver 100 laptops to a knowledge or against the will of the debtor he can recover
particular school. Despite all the efforts of sourcing these only insofar as the payment has been beneficial to the
laptops, he was only able to source 90 out of the 100 laptops debtor.
that the debtor/supplier/obligor promised to the school.
As a general rule, that cannot be considered as a valid ARTICLE 1237. Whoever pays on behalf of the debtor
payment or delivery of the obligation he promised- the delivery without the knowledge or against the will of the latter,
of the 100 laptops. But remember: Art. 1234 gives you an cannot compel the creditor to subrogate him in his rights,
exception that if there is partial delivery and it is substantial- such as those arising from a mortgage, guaranty, or penalty
which in this case can be considered substantial as it was 90%
of what was promised- and it was in good faith- as it was not ARTICLE 1236 and 1237
his fault that he had difficulty from sourcing during the
pandemic. It talks about a third person who would pay a creditor in favor
of a debtor, when we say third person that means a third
Art. 1234 says that your debtor/supplier can recover to the person who may be interested in the fulfillment of the
extent of what he has delivered. So the school therefore, who obligation or a third person who is not interested in the
has received the 90 laptops, will also have to pay. Of course, fulfillment of the obligation.
not for all the laptops but only for the 90 laptops. That is what
is meant by Art. 1234. Equity. The reason why the payment Can you tell us the rules, or the consequences if a third
was not complete was not because of the debtor but because person pays the creditor in behalf of the debtor,
of causes that are not his fault. In this case, he did it in good whether it is with the knowledge or consent of the
faith. debtor or without his knowledge or against his will.
And the other exception is 1235 when the obligee accepts the If it is with knowledge and consent of the debtor, then the
performance knowing its incompleteness or irregularity without third person is entitled to the full reimbursement and the third
expressing any protests or objection, the obligation is deemed person is also subrogated into the rights of the creditor.
fully complied with. Here, the principle is estoppel. Because However, in cases where the payment is without the
you knew the delivery was not what you wanted but you knowledge or against the will of the debtor, then the third
accepted it anyway and you did not give any protest or person is only entitled to the beneficial reimbursement or only
objection. insofar as the payment has benefited the debtor.
Example 2 (Creditor Accepts Irregular Performance): General rule: The creditor cannot be compelled to accept
You entered into an agreement with a personal shopper and payment from a third person.

Exception: If there is an agreement to such where the debtor Why? Because that is the amount that benefited the debtor.
and creditor have to agree that your creditor should accept Again, there's an excess of P100,000 previously paid by the
payment from a third person. debtor, and also the 500,000 previously paid by the third
person. The third person gets that P400k from the debtor.
RULES IF THE CREDITOR SHOULD ACCEPT PAYMENT Where will he get the 100k? From the creditor. Because he
FROM A THIRD PERSON paid without the consent of the debtor so it's now incumbent
upon him to recover his money, because again, that is undue
Note: These rules will apply if there is no such previous payment.
agreement that the creditor must accept the payment of a
third person but he accepted the payment anyway. Of course, you already know what subrogation means. It is
stepping into the shoes of the creditor. So again, your
Payment from third person who has no interest in the subrogation is the right of the third person if he has paid with
fulfillment of the obligation the consent of your debtor. What does that mean? That means
that if the debt had, let's say securities, there's a mortgage in
A. If the debtor gave consent to the payment favor of the creditor. So he now becomes the new creditor
by the third person - third person have rights such that if he tries to recover from the debtor, and the debtor
to full reimbursement and subrogation cannot pay and there is a mortgage, then he can foreclose the
mortgage, just the same right as that of your creditor.
B. If the debtor has no knowledge about the
payment or is against his will - third person Payment from third person who has interest in the
is only entitled to beneficial fulfillment of the obligation
reimbursement
Rule: Regardless of whether it was done with or without
What do we mean when we say full reimbursement or the consent of the debtor, their rights, should they be the
subrogation? creditor, are full reimbursement and subrogation.
Full reimbursement will come in if there was already payment Examples of third persons who have interest in the fulfillment
made by the debtor previously, to your creditor. of the obligation are guarantors or mortgagors. They're
interested in the fulfillment, because if the obligation is
Example: extinguished, then their accessory obligation is also
The third person paid the creditor P500,000 which is the debt extinguished. They’re called third persons because they're not
of the debtor. Unknown to the third person, the debtor already a party to the principal obligation, but they're interested in the
paid before the amount of 100,000 so supposedly, the balance fulfillment of the obligation.
is only 400,000. But the third person paid the full debt of
500,000. Again, if that third person is interested in the fulfillment of the
obligation, it need not be with the consent of the debtor, he
A. If he paid with the consent of the debtor, we may not be a party to the principal obligation, but he has an
said his rights are full reimbursement plus obligation connected with it and he is interested in the
subrogation that means that even if the balance of fulfillment, because if the principal obligation is extinguished,
the debt is really just only 400,000, but since he paid his obligation is also extinguished. So with or without the
P500,000, he can recover the full amount of P500,000 consent of the debtor, if he pays the creditor, he has those two
from the debtor that's why we said full rights: full reimbursement and subrogation. That is your 1236
reimbursement. and your 1237.
Now you might ask, but the payment now is sobra it's now
more than the debt. Where do you get the excess?
ARTICLE 1238. Payment made by a third person who does
not intend to be reimbursed by the debtor is deemed to be
It will now be the debtor, who will get the excess from the
a donation, which requires the debtor's consent. But the
creditor because you're not supposed to give hassle anymore
payment is in any case valid as to the creditor who has
to the third person, because in the first place the debtor
accepted it.
consented to the payment. So it will now be the debtor who
will get the excess 100,000 from the creditor because that's
already considered undue payment, solutio indebiti.
How do we treat a payment made by a third person
B. If the third person paid against the will or who does not intend to be reimbursed?
without the consent of the debtor under the
same circumstances, where the debtor already We apply the provisions of Art. 1238 where we consider such
previously paid 100,000 but then the third person still payment a donation provided that there is consent from the
paid the full 500,000 when the balance is only debtor. Regardless of the absence of such consent, the
400,000. We said the right is only beneficial payment to the creditor shall be considered valid.
reimbursement. So how much can the third person
collect from the debtor? Only P400,000. Why is consent needed?

Because the rules of donation apply in this case. For a receive payment, and they are as follows:
donation to be perfected, there must be consent made known
to the donor from the donee. 1.The person for whose favor the obligation was constituted;
2.His successors-in-interest
Your Article 1238 says that in case a third person pays the 3.Any other person who was authorized to receive payment
creditor, pays your debt without any intention of being
reimbursed, it is considered a donation. And because it is So there are three sets of persons who are authorized to
considered as a donation, it must have the consent of the receive payment. So, if you are a debtor, you must make sure
debtor because your Civil Code on donations states that for a that you are paying to these persons and who are they? Of
donation to be valid it must have the consent of the donee course, the creditor, in whose favor the obligation was
(acceptance of the donee) because you cannot be compelled constituted, his successors-in-interest if the creditos I no
to accept the generosity of another. So the donee must give its longer alive or if he has already assigned it already to another
consent. person, and any other person who was authorized to receive
payment.
Your Art. 1238, however, says that regardless of whether the
debtor or the donee in this case will accept the donation, the What is the implication of Art. 1240?
payment is still valid with respect to the creditor.
If you make payment other than to these persons, then
What then is the importance of determining whether it payment is not valid. The creditor can ask you again to make
is a donation or not? payment.
That is important because that third person who paid the

ARTICLE 1241. Payment to a person who is incapacitated
creditor, if the debtor did not accept such donation, then that
to administer his property shall be valid if he has kept the
third person can recover the money paid. So, the initial
thing delivered, or insofar as the payment has been
intention was to donate it, pay without intention to be
beneficial to him.
reimbursed, but if the debtor does not want to the donation,
you can get it back from the debtor because it is not a valid
Payment made to a third person shall also be valid insofar
donation. But if it is with the consent of the debtor, then the
as it has redounded to the benefit of the creditor. Such
donation is valid, then you can no longer recover what you
benefit to the creditor need not be proved in the following
have paid to the creditor.
cases:
(1) If after the payment, the third person acquires the

ARTICLE 1239. In obligations to give, payment made by creditor's rights;
one who does not have the free disposal of the thing due
and capacity to alienate it shall not be valid, without (2) If the creditor ratifies the payment to the third person;
prejudice to the provisions of Article 1427 under the Title on
"Natural Obligations." (3) If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
What is the effect of payment that is made by an

incapacitated person?
We mentioned earlier that payment BY an
It shall be invalid. Why? Because he cannot enter into incapacitated person is void, how about payment TO an
contracts. And so, whatever payments or deliveries that he incapacitated person, what is the effect?
makes, it cannot be considered as valid.
We apply Art. 1241. The general rule provides that payment to
Of course, without prejudice to the provisions of Article 1427, an incapacitated person should not be valid. However, because
which actually speaks of buying something. But 1427, of 1241, it can be made valid, provided that first, he kept the
remember, speaks of ages 18-21 years of age, but now we thing paid or delivered and that he benefited from the
already consider them of legal age. In other words, payment payment.
by minors who are considered incapacitated persons by virtue
of Art. 1239, is void. As a general rule, when you are dealing with an incapacitated
persons, whether that incapacitated person is the payor or the
payee (receiver), it is void. Your 1241 now gives the exception.
The exception is, if that incapacitated person has kept the
ARTICLE 1240. Payment shall be made to the person in thing delivered or insofar the payment has been beneficial to
whose favor the obligation has been constituted, or his him. For example, an incapacitated person received payment
successor in interest, or any person authorized to receive it. of P500,000, and the P500,000 was spent on food or clothes.
That can still be considered as valid payment. That is for
To whom should your debtor make payment to? purposes of equity on the part of the person paying because if
we rule otherwise, then there would be an undue advantage
Art. 1240 provides the persons who may have the right to on the part of the incapacitated person for receiving payment

and that he benefited from it. And that is the reason behind
creditor to receive a different one, although the latter may
1241.
be of the same value as, or more valuable than that which is
due.
Your 2nd paragraph also says that payment to a third person
shall also be valid insofar as it has redounded to the benefit of
the creditor. We mentioned earlier that in Art. 1240, payment The general rule is that payment is considered complete when
to any other person, apart from the three persons, is not valid. the thing that you promised is the same thing as the thing you
actually delivered. You cannot compel the creditor to receive a
Now, 1241, also gives an exception, that is, payment to an different thing even if you tell him “you know, this is much
unauthorized person. It says, if it has redounded to the benefit more expensive than the other one”. The law is clear: if that is
of the creditor. That means that, the debtor has to prove that it what you promised, that is what you will deliver.
has redounded; “you who allege must prove.” But of course,
that is the general rule, there are exceptions. How about generic things? For generic things, your creditor
cannot demand that of a superior quality and your debtor
“ Such benefit to the creditor need not be proved in the cannot compel the creditor to receive one of inferior quality.
following cases: The principle behind is equity/fairness.
(1) If after the payment, the third person acquires In obligations to do and not to do, an act or forbearance
the creditor's rights; cannot be substituted for another against the obligor’s will.
Remember, the operative word is compel. If they will agree,
This is when, for example, you pay to X, your creditor is A. then there is no problem.
After you made payment, X is already the owner of the credit
because A sold the credit to X.
ARTICLE 1245. Dation in payment, whereby property is
(2) If the creditor ratifies the payment to the third
alienated to the creditor in satisfaction of a debt in money,
person as when the creditor gives you a document saying I
shall be governed by the law of sales.
acknowledge your payment and that’s fine.
(3) If by the creditor’s conduct the debtor was led to What is dation in payment?
believe that the third person had authority to receive
the payment. It is when a debtor substitutes a property as payment instead
of money.
Suppose, in our example, X is the secretary of A and you have
been in business with A for a long time and it has been your Why does the law say that this mode of payment shall
practice to pay to X. So, in subsequent transactions, A cannot be governed by the law on sales?
deny payment unless he shows proof that he notified you that
there is a change in the person who should receive payment. This is because the creditor is really buying the property from
The basis for this is the principle of estoppel. the debtor and the payment is charged against the debt.
Dation in payment is just like a sale. For example, I borrowed

P300,000.00. Because I am not liquid enough to pay the debt
ARTICLE 1242. Payment made in good faith to any person
in money, I will tell the creditor that instead of paying
in possession of the credit shall release the debtor.
P300,000.00, I will instead deliver a motorcycle. The creditor
agrees. This is like a sale because it is as if the creditor paid
When you say “in possession of the credit”, it does not mean me P300,000.00 for the motorcycle. Their difference is that in
possession of the document. It means the credit itself as when sale, there is no pre-existing debt. In dation in payment, there
the creditor already sold the credit to another. Your knowledge is a pre-existing debt.
in negotiable instruments will come handy here.
ARTICLE 1246. When the obligation consists in the

ARTICLE 1243. Payment made to the creditor by the delivery of an indeterminate or generic thing, whose quality
debtor after the latter has been judicially ordered to retain and circumstances have not been stated, the creditor cannot
the debt shall not be valid. 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
You are making payment against a valid order of the court.
consideration.
The court has said “don’t pay yet” and yet you paid. Usually,
the court will stop you from making payment to protect other
creditors. Hence, it cannot be considered valid payment and This involves delivery of determinate and indeterminate things.
must be returned. I discussed this already.
ARTICLE 1244. The debtor of a thing cannot compel the

ARTICLE 1247. Unless it is otherwise stipulated, the obligation shall be held in the abeyance.
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.
If the debt is in a different currency at the time it is
paid, at what currency should it be paid?
Extrajudicial expenses shall be for the account of the debtor.
This is because it is the debtor who wants the obligation to be Under Article 1249, it could be the currency stipulated. And if
extinguished. The exception is when there is contrary such is not possible, then the legal tender.
agreement. With regard to the judicial costs, follow the Rules
of Court. If the payment is by check, is that considered a
complete and valid payment?
A check is not yet a legal tender. It becomes a valid payment

ARTICLE 1248. Unless there is an express stipulation to
only when it is encashed.
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. ARTICLE 1250. In case an extraordinary inflation or
deflation of the currency stipulated should supervene, the
However, when the debt is in part liquidated and in part value of the currency at the time of the establishment of the
unliquidated, the creditor may demand and the debtor may obligation shall be the basis of payment, unless there is an
effect the payment of the former without waiting for the agreement to the contrary.
liquidation of the latter.
If there is extraordinary inflation and deflation and the

debt involves another currency, can you tell us the
Hence, if you borrowed P500,000.00 and your agreement was rules as to what would be the measure of payment
to pay one year from today, then you have to pay P500,000.00 today?
in full one year from today. You cannot compel the creditor to
receive P250,000.00 six months from today and another In such cases, it should be the value of the currency at the
P250,000.00 one year from today. You can ask but you cannot time of the establishment of the obligation unless there is an
compel. agreement to the contrary.
ART. 1248 - 1ST PARAGRAPH

ARTICLE 1251. Payment shall be made in the place
You cannot compel.
designated in the obligation.
Can you request, yes, if the creditor accepts, and all the
parties agree. But you can never compel him to receive, even
There being no express stipulation and if the undertaking is
when you make an assurance to pay.
to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation
ART. 1248 - 2ND PARAGRAPH
was constituted.
This gives you the exemption. When you say liquidated, it
means it is now determinable. For example, the payment is
In any other case the place of payment shall be the domicile
20,000 and 5% profit for the month of September. No period
of the debtor.
was mentioned thus it is demandable at once. With this, the
creditor can compel you with regard to the 20,000 but not with
If the debtor changes his domicile in bad faith or after he
the profit because September has not ended yet.
has incurred in delay, the additional expenses shall be borne
by him. These provisions are without prejudice to venue
under the Rules of Court.
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
Where should you make payment?
tender in the Philippines.
We first have to distinguish as to whether there is a stipulation
The delivery of promissory notes payable to order, or bills of
or not. If there is a stipulation, such is controlling. If there is
exchange or other mercantile documents shall produce the
none, we have to further classify as to whether the thing to be
effect of payment only when they have been cashed, or
delivered is a specific/determinate or a generic thing. If it is
when through the fault of the creditor they have been
the former, it must be at the place where such a thing is found
impaired.
at the time when the obligation was constituted. If it is the
latter, it must be at the domicile of the debtor.
In the meantime, the action derived from the original
If the debtor changes his domicile in bad faith, or after he has

incurred in delay, then any additional expenses that would be has been paid but in fact has never been paid, the deed of sale
incurred by the creditor should be paid by the debtor. is null and void ab initio for lack of consideration.
DOCTRINE:
Payment shall be made to the person in whose favor the
MONTECILLO V. REYNES
obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
FACTS:
Reynes sold 185 square meters of the Mabolo Lot to the
ATTORNEY’S COMMENTS:
Abucay Spouses who built a residential house on the lot
In this case, we follow the general rule—that payment must be
they bought. On March 1, 1984 she signed a Deed of Sale of
made to the creditor or to whom the obligation was
the Mabolo Lot in favor of Montecillo. Montecillo promised to
constituted. There was no evidence that Reynes gave
pay the agreed P47,000.00 purchase price within one month
authorization to Cebu Ice Storage. Thus, the payment to the
from the signing of the Deed of Sale. Montecillo failed to
latter is payment to an unauthorized person. The effect of this
pay the purchase price after the lapse of the one-month
is that Reynes can collect payment again.
period, prompting Reynes to demand from Montecillo the
return of the Deed of Sale. Since Montecillo refused to
return the Deed of Sale, Reynes executed a document
unilaterally revoking the sale and gave a copy of the PNB V. CA
document to Montecillo. Reynes signed a Deed of Sale FACTS:
transferring to the Abucay Spouses the entire Mabolo Lot, at The government instituted expropriation proceedings
the same time confirming the previous sale in 1981 of a against Tan (private respondent) who owned the parcel of
185-square meter portion of the lot. Reynes and the Abucay land abutting the national highway. The trial court required
Spouses argued that "for lack of consideration there (was) petitioner PNB (petitioner) to release to Tan the amount of
no meeting of the minds" between Reynes and Montecillo. P32,480.00 deposited with it by the government.
Thus, the trial court should declare null and void ab initio PNB’s Assistant Branch Manager issued a manager's check in
Montecillo's Deed of Sale. Montecillo argued that he paid the said amount and delivered it to a certain Sonia Gonzaga
P50,000.00 to Cebu Ice Storage for the release of the without the knowledge and consent of Tan. Upon demand
chattel mortgage which he argued constituted a lien on the for payment by Tan, PNB refused on the ground that it had
Mabolo Lot. He claims that the consideration for the sale of already paid and delivered the amount to Gonzaga by virtue
the Mabolo Lot was the amount he paid to Cebu Ice Storage of the SPA allegedly executed in her favor by Tan. Tan
for the mortgage debt of Jayag. denied that he executed any SPA in favor of Gonzaga.
RULING: RULING:
Article 1240 of the Civil Code provides as follows: There is no question that no payment had ever been made
"Payment shall be made to the person in whose favor the to Tan as the check was never delivered to him. When the
obligation has been constituted, or his successor in interest, court ordered PNB to pay Tan the amount of P32,480.00, it
or any person authorized to receive it." had the obligation to deliver the same to him. Under Art.
1233 of the Civil Code, a debt shall not be understood to
Montecillo's Deed of Sale does not state that the P47,000.00 have been paid unless the thing or service in which the
purchase price should be paid by Montecillo to Cebu Ice obligation consists has been completely delivered or
Storage. Montecillo failed to adduce any evidence before the rendered, as the case may be. The burden of proof of such
trial court showing that Reynes had agreed, verbally or in payment lies with the debtor. In the instant case, however,
writing, that the P47,000.00 purchase price should be paid neither the SPA nor the check issued by PNB was ever
to Cebu Ice Storage. Absent any evidence showing that presented in court.
Reynes had agreed to the payment of the purchase
price to any other party, the payment to be effective Furthermore, contrary to PNB's contention that all that is
must be made to Reynes, the vendor in the sale. needed to be proved is the existence of the SPA, it is also
necessary for evidence to be presented regarding the nature
Thus, Montecillo's payment to Cebu Ice Storage is not the and extent of the alleged powers and authority granted to
payment that would extinguish Montecillo's obligation to Gonzaga; more specifically, to determine whether the
Reynes under the Deed of Sale. Montecillo's payment to document indeed authorized her to receive payment
Jayag's creditor could not possibly redound to the benefit of intended for Tan. However, no such evidence was ever
Reynes. presented.
Considering that the contents of the SPA are also in issue

here, the best evidence rule applies. Hence, only the original
What we have here is a purported contract that lacks a cause
document (which has not been presented at all) is the best
— one of the three essential requisites of a valid contract.
evidence of the fact as to whether or not Tan indeed
Failure to pay the consideration is different from lack of
authorized Gonzaga to receive the check from PNB. In the
consideration. The former results in a right to demand the
absence of such document, PNB's arguments regarding due
fulfillment or cancellation of the obligation under an existing
payment must fail.
valid contract while the latter prevents the existence of a valid
contract. Where the deed of sale states that the purchase price

and was not the original creditor in the agreement between

DOCTRINE:
Panganiban and Gonzales. Therefore, the payment made to
Under Art. 1233 of the Civil Code, a debt shall not be
the government is not valid and will not extinguish the
understood to have been paid unless the thing or service in
obligation of Panganiban to Gonzales.
which the obligation consists has been completely delivered or
rendered, as the case may be.
The consignment is also not valid since Gonzales did not
notify Panganiban that there will be a consignation of
So it is the same principle as the previous case. The SC said
payment and according to the law, for consignation to be
that the alleged SPA was never even shown in court. The
effective, there must first be an attempt to tender payment
burden to prove payment is with the bank or the debtor in this
to the creditor and then notify the same once he consigns
case. The SC said clearly there was no valid payment so the
the payment to the Court.
bank should pay again.
Here, the SC said that the payment made by Panganiban to

Pagsibigan vs. CA, G.R. No. 90169,
Apr. 7, 1993, 221 SCRA 202 the revolutionary government which he should have paid to
Francisco Gonzales in order to redeem the property could not
This is an exception to the general rule that payment to be have extinguished the obligation because the revolutionary
considered valid payment must be complete. Here, it was government has nothing to do with it. He was saying that
shown that they did make substantial payments but the there was seizure and so it should have been paid already to
bank, in bad faith, lodged it to accounts payable and were the revolutionary government. The SC said that even if you say
now saying it was delinquent. The SC said that the bank that there was a seizure or an embargo, you could not say that
cannot do that: accept payment and not even inform the there was already a transfer of ownership from Gonzales to the
debtor in this case that they are not considering it as revolutionary government and so the payment should have
payment and just treated it as accounts payable and there been made still to Francisco.
were already interests mounting up. Also the Supreme Court
mentioned that you can also apply here the acceptance of Another was that he was saying that he made a consignment
irregular payments (because the payments were actually but when you do consign, there must be a notice of
late) because they accepted it without any protest or consignation. In fact, there are several notices prior to
objection. And we said that is also an exception to the consignation and after consignation is made. Here, there was a
general rule on valid payment. So if you accept payments lack of following of the requisites for a valid consignation.
knowing it was delayed and you did not even notify the
debtor (the bank here did not make any protest or BPI vs. CA, G.R. No. 104612, May 10, 1994, 232
objection), then that can be considered as valid payment. SCRA 302
FACTS:
This case involves the private respondents Eastern Plywood

and Lim. They held a joint bank account with CBTC which is
Tayag vs. CA, G.R. No. 96053, the predecessor in interest of the petitioner in this case.
Mar. 3, 1993, 219 SCRA 480 Another joint account is also opened by Mariano Velasco and
Lim. However, Velasco died and one-half of such joint
So just a similar principle with the previous case. There was account was released and transferred to Eastern with CBTC.
acceptance and even acceptance of payment during the Eastern then obtained a loan from CBTC and in this loan, an
pendency of the case so again, while it may have been unsecured promissory note was issued but they instituted
delayed, there was acceptance and no protest or objection. another agreement entitled a Holdout Agreement and this
So again, this is an exception to the general rule on was supposedly to serve as security for such loan. In the
payments to be considered valid, it must be complete. meantime, there was a settlement of Velasco’s estate and
the intestate court granted the motion of the heirs of
Velasco to withdraw the said amount. CBTC now is merged
with BPI and it was the latter which filed the complaint
against private respondents.
They argued that the Holdout Agreement provides for the

Panganiban vs. Cuevas, 7 Phil 477
security of the loan and so it was the duty of CBTC to debit
the account or set off such account. The private
ISSUE: Whether or not the payment made by Panganiban
respondents on the other hand said that the amount
to the revolutionary government to redeem the said
deposited in the joint account of Velasco and Lim came from
property is valid and whether the consignment to the court
Eastern and so therefore it was rightfully belonging to
by Gonzales of P200.00 as tender of payment is valid.
Eastern and since the holdout agreement only covers a
portion of the loan which was 73,000, the petitioner can
RULING
only hold that amount against the joint checking account
The payment to the revolutionary government is not valid
and must return the rest.
since the revolutionary government in this case is a stranger

ISSUE: Whether or not BPI was still liable to Eastern. The SC ruled in the negative because when you look at the
Deed of Assignment, the intention of the parties is very
RULING clear that they did not limit the respondent’s obligation as to
The SC held that the holdout agreement conferred to CBTC the obligation of around 40M. In fact, right after the
the power but not the duty to set off the loan subject of execution of the Deed of Assignment, petitioner was still
such agreement. When BPI demanded payment of the loan trying to charge respondent interests and charges. The SC
from Eastern, it exercised the right of collecting payment said that since the term of the Deed of Assignment is very
and disregarded its option under the Holdout Agreement. Its clear, then the stipulations therein should control. Therefore,
demand was in the correct order. In this case, BPI was the the Deed of Assignment did not constitute as dacion en
debtor and Eastern was the creditor in respect to the joint pago and the obligation of respondent was not
checking account therefore BPI was obliged to return the extinguished.
amount only to the creditor. When it allowed the heirs of
Velasco, it made payment to the wrong party and the law
provides that the payment made by the debtor to the wrong
party does not extinguish its obligation provided that the
Here, the SC said the basic rule that the agreement between
creditor is not at fault or in negligence. BPI was still liable to
the parties would have the force of law between them. You will
the true creditor here which is Eastern.
have to follow the terms. The Deed of Assignment did not
extinguish the obligation. It was not complete payment for an
outstanding obligation as in fact, there was still charging of
It was proven as to who really was the owner of the account. interest and other penalties which clearly meant that the
There was documentation to prove it. In fact, BPI is supposed assignment was not for the purpose of extinguishing the
to have knowledge of it because there was such obligation. The agreement between the parties will have to be
documentation but despite that, they released it to the heirs of followed.
Velasco. Remember that when there is a deposit, when you
deposit money to the bank, your bank now is actually the
debtor to the money that you deposited and that when you
FEBTC v Diaz Realty
deposit money there, the agreement there is that it should be
available upon demand. That means that if the depositor wants FACTS:
the money withdrawn then the bank as debtor must allow its Diaz obtained a loan from Pacific Banking Corp in the
withdrawal but to the correct person or owner of the account amount of P720,000 at 12% interest. The said loan was
or to the creditor. The creditor in this case is Eastern because secured with a real estate mortgage over two parcels of
there was proper documentation that they were really the land owned by Diaz Realty, herein respondent.
owner of the account and now, the money was released to the Subsequently, the loan account was purchased by FEBTC.
wrong persons, those not authorized. Thus, payment is not 2 years after, the respondent through its President inquired
valid. BPI will have to pay again. Remember that your BPI about its obligation and upon learning of the outstanding
would also have recourse. They can get it back from the obligation, it tendered payment in the form of an Interbank
person that they have wrongfully paid to because that is undue check in the amount of P1,450,000 in order to avoid the
payment. further imposition of interests. The payment was with a
notation for the full settlement of the obligation.
CALTEX v. IAC The petitioner accepted the check but it alleged in its
defense that it was merely a deposit. When the petitioner
FACTS: refused to release the mortgage, the respondent filed a suit.
The lower court ruled that there was a valid tender of
Petitioner Caltex agreed to supply respondents aviation fuel payment and ordered the petitioner to cancel the mortgage.
and when respondent had an outstanding obligation to Upon appeal, the appellate court affirmed the decision.
petitioner, it executed a Deed of Assignment over its
receivables from the National Treasury of the Philippines to RULING:
be applied as payment. The refund was issued by the Yes, there was valid tender of payment. Although
National Treasury however, the amount remitted to the jurisprudence tells us that a check is not a legal tender and
petitioner exceeded the amount supposedly covered by the a creditor may validly refuse it, this dictum does not prevent
Deed of Assignment. Therefore, respondent demanded a a creditor from accepting a check as payment. Here, the
refund for the remaining amount. However, petitioner Caltex petitioner accepted the check and the same was cleared.
refused to remit the alleged excess because they said that
respondent had other charges that needs to be paid. A tender of payment is the definitive act of offering the
creditor what is due him or her, together with the demand
ISSUE: Whether the Deed of Assignment entered into by that he accepts it. More important is that there must be a
the parties constituted as dacion en pago such that the concurrence of intent, ability and capability to make good
obligation is totally extinguished. such offer, and must be absolute and must cover the
amount due. The acts of the respondent manifest its intent,
RULING

debts must be in the same grade of rice.

ability and capability. Hence, there was a valid tender of
payment.
When will the choice of the debtor be considered to
have taken effect?
Meanwhile, the transfer of credit from Pacific Bank to the
Once the debtor makes the payment, he must designate which
petitioner did not involve an effective novation but an
debt he wants to apply the payment.
assignment of credit. As such, the petitioner has the right to
collect the full value of the credit from the respondent
Supposing he does not make any designation, but it is
subject to the conditions of the promissory note previously
now your creditor who writes in the receipt as to which
executed.
debt is being paid. Can the debtor complain or protest
to such designation?
Here, there was payment to another bank, but then they The debtor no longer has the right to complain because he did
accepted the same. So the SC said, you accepted it, you did not designate. In the first place, if he wanted to choose which
not make any protest/objection and so that should already be payment he is paying, he should have already designated it at
considered as valid payment. the time of payment. So, the general rule is that the debtor
cannot complain UNLESS there is a cause for invalidating the
contract.
APPLICATION OF PAYMENTS
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. (1173)
ARTICLE 1252. He who has various debts of the same
kind in favor of one and the same creditor, may declare at
Supposing that you have a debt that produces interest,
the time of making the payment, to which of them the same
then the debtor makes payment. But, it does not
must be applied. Unless the parties so stipulate, or when
mention as to what is being paid, the principal debt or
the application of payment is made by the party for whose
the interest? What is the rule there?
benefit the term has been constituted, application shall not
be made as to debts which are not yet due.
If there is no designation, it should be applied to the payment
of interest. This is because supposedly the period is for the
If the debtor accepts from the creditor a receipt in which an
benefit of both. Why is this important to take note? Because if
application of the payment is made, the former cannot
you are talking about interest, as a general rule, there must be
complain of the same, unless there is a cause for
a period so that you will know when to continue counting the
invalidating the contract. (1172a)
interest. Thus, if you apply the payment to the principal, then
it will reduce the interest that will be earned by the creditor
APPLICATION OF PAYMENT making it now disadvantageous to the creditor UNLESS if they
Designation of the debt to which the payment must be applied have agreed to apply it to the principal and not to the interest.
when the debtor has several obligations of the same kind in
favour of the same creditor.
ARTICLE 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application can
REQUISITES
not be inferred from other circumstances, the debt which is
1. There must be only one debtor and only one creditor
most onerous to the debtor, among those due, shall be
2. There must be two or more debts of the same kind
deemed to have been satisfied.
3. All of the debts must be due
4. The amount paid by the debtor must not be sufficient to
If the debts due are of the same nature and burden, the
cover the total amount of all the debts.
payment shall be applied to all of them proportionately.
(1174a)
Can you tell us the rules on application of payment.
The rule is that a payment cannot be applied if it is not yet
due. The EXCEPTION is if there is a stipulation to the contrary Supposing the debtor, where he has several debts of
or if the payment is made by the party for whose benefit the the same kind that are owing to that same creditor,
period has been constituted. paid the creditor but he did not apply the payment or
designate which debt has been paid by him nor did the
Who has the preferential right of choice in applying for creditor also put in the receipt as to which debt has
the payment? Creditor or Debtor? been paid. Where do you apply that payment?
The general rule is that the debtor has the choice how to apply You apply the payment to the most onerous obligation.
the payment.
Example: Where there is a debt that is due and one of the
Example: Debtor has several debts that are owing to a debts is a debt with an interest, so the interest bearing debt
particular creditor. For the rules on application of payment to must be paid first.
apply, the debts must also be of the same kind. So if it is
a debt in money, then all the debts must be debts in money. If Another would be if there are two debts due, then it would be
it is for the delivery of a particular grade of rice, then all the the older that would be paid considering that it has the most
Sources: Atty. Bathan-Lasco’s Discussion

20
interest and it’s older.

create a new contract in place of the existing one, novation
cannot be presumed to take place, unless the terms of the
Another example would be if the debtor is a joint debtor to
new contract are fully incompatible with the former
that creditor and there is another debt owing where is a
agreement on every point. Thus, a deed of cession of the
solidary debtor, so the more burdensome debt is the solidary
right to repurchase a piece of land does not supersede a
one because he can be held liable for the entire debt.
contract of lease over the same property.
Another is if one debt has a security and the other has no

The Supreme Court did not agree with respondent's
security, then the one that has security will be considered as
contention that petitioner's subsequent acceptance of
more burdensome.
payment (P100,000) effectively withdrew the cancellation of
the provisional sale. Unless the application of payment is
AGAIN, you only follow Art. 1254 if there is no designation
expressly indicated, the payment shall be applied to the
or application made by the debtor nor by the creditor.
obligation most onerous to the debtor. In this case, the
unpaid rentals constituted the more onerous obligation of
Supposing there are two debts that are due and both
Diaz to Espina. As the payment did not fully settle the
are equally burdensome, both have the same interest.
unpaid rentals, petitioner's cause of action for ejectment
How do we apply the payment?
survives.
The law provides that it must be applied proportionately or pro

rata. So, you have to look into the amount of the principal
debt. Because the unpaid rentals were older and due for several
months already, and so the SC said it is a more burdensome
Example: The first debt is 100,000 and the second debt is debt, payment must be paid to that debt.
200,000, then the payment is 50,000.
PAYMENT BY CESSION
How now do you apply the 50,000 if they are equally
burdensome? You look into the total of all the debts, 300,000
ARTICLE 1255. The debtor may cede or assign his
(100k+200k). Then you get the ratio: 1st debt - ⅓ 2nd debt -
property to his creditors in payment of his debts. This
⅔. The 50, 000 will be divided: 1st debt - 50,000 * ⅓ and 2nd
cession, unless there is stipulation to the contrary, shall only
debt - 50,000 * ⅔.
release the debtor from responsibility for the net proceeds
of the thing assigned. The agreements which, on the effect
Espina vs. CA of the cession, are made between the debtor and his
creditors shall be governed by special laws.
FACTS: Petitioner Mario Espina, owner of a Condominium
Unit, and private respondent Rene G. Diaz, lessee of said
CESSION OR ASSIGNMENT
unit, executed a Provisional Deed of Sale whereby the
A special form of payment whereby the debtor abandons all of
former sold to the latter the aforesaid condominium unit.
his properties for the benefit of his creditors in order that from
They agreed that the amount of P100,000.00 shall be paid
the proceeds thereof the latter may obtain payment of their
upon execution of the contract and the balance to be paid
credits.
through postdated checks. However, after the initial down
payment, the checks issued by Diaz in payment of six
What is payment by cession?
installments all bounced and were dishonored.
Payment by Cession is a special form of payment wherein the
Consequently, Espina cancelled the Provisional Deed of Sale
debtor assigns and abandon all its property so that the creditor
by a notarial notice of cancellation. Nonetheless, Diaz
may use all of its proceeds for the payment of the obligation.
continued to occupy the premises as lessee, but failed to
pay the rentals due.
When you say cession, this is where your debtor
transfer all the rights over the property so that the
On October 28, 1992, petitioner accepted payment from
creditors can sell the properties and the proceeds will
private respondent in the amount of P100,000.00. On
be used to pay the debt. How does this differ from
February 13, 1993,Espina gave Diaz a notice to vacate the
dacion in payment?
premises and to pay his back rentals, but Diaz failed to do
In dacion in payment involves transfer of ownership.
so. Petitioner Espina filedan action for unlawful detainer
● One of the most imperative difference between the
against Diaz. According to Diaz, the Provisional Deed of
two is, Dacion en payment involves a complete
Sale novated the existing contract of lease.
transfer of ownership while cession only involves
administration of the properties so net proceeds be
ISSUE: WON the provisional deed of sale novated the
gotten from it.
existing contract of lease and that petitioner Espina had no
● Cession usually involves a prior declaration of
cause of action for ejectment against respondent Diaz.
insolvency whereas such is not needed in dacion in
RULING: No. Novation takes place only if the parties payment.
expressly so provide, otherwise, the original contract ● Dacion en payment involves novation of contract and
remains in force. Where there is no clear agreement to usually exist with one debtor and one creditor while
cession that is not the case, for it usually involves

plurality of creditors.
RULING: The Stock Assignment made in this case was, in
fact, a pledge. The appellate court is correct in ruling that
In cession will that completely extinguish the
the following requirements of a contract of pledge have
obligation of the debtor?
been satisfied: 1. that it be constituted to secure the
Only up to the value of the net proceeds.
fulfillment of a principal obligation 2. that the pledgor be the
absolute owner of the thing pledged; and 3. that the person
It extinguishes the obligation up to the extent of the
constituting the pledge has the free disposal of the property,
net proceeds of properties sold.
and in the absence thereof, that he be legally authorized for
● In Dacion en pago there is usually one creditor and
the purpose In addition, it is also necessary that in order
one debtor while in cession there are several creditors
to constitute a contract of pledge, the thing pledged must
● In dation it does not presuppose insolvency of the
be placed in the possession of the creditor or of a third
debtor it could just be that the debtor and creditor
person by common agreement. All these requisites are
agree to instead in payment of money he pays
found in the transaction between the parties leading to the
another thing. Basically, it is a novation because you
execution of the Deed of Assignment of Shares of Stock. In
are changing the object of the obligation. While in
fact, this was admitted by Lopez in his letter where he asked
cession, it has to be that the debtor is insolvent,
what happened to his shares of stock “which were pledged
precisely why he is now transferring rights of
to your good selves to secure the said obligation.”
properties for it to be sold so that all the creditors
may have share in the proceeds at least they could
The stock assignment was not a dation in payment. Dation
recoup what they have lent to the debtor.
in payment is the delivery and transmission of ownership of
● In dation it does not involve all of properties of debtor
a thing by the debtor to the creditor as an accepted
while in cession it involves all properties not exempt
equivalent of the performance of the obligation. Hence, it
from attachment or execution.
extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as
Can you tell me an example of a property exempt from
may be proved, unless the parties by agreement, express or
attachment or execution?
implied, or by their silence, consider the thing as equivalent
Family home
to the obligation, in which case the obligation is totally
extinguished. Here, the debt or obligation at bar has not
Alright, of course unless the head of the family has
yet matured when Lopez "alienated" his 4,000 shares of
used that family home as security for a loan for he has
stock to Philamgen. Such fact being adverse to the nature
voluntarily waived such right of that family home being
and concept of dation in payment, the same could not have
exempt.
been constituted when the stock assignment was executed.
● In dacion there is transfer of ownership over the
property to the creditor, while in cession what is
transferred is only the right to sell the property so DOCTRINE: In case of doubt as to whether a transaction is a
that the proceeds may be applied to the debt or to pledge or a dation in payment, the presumption is in favor of
their credits. If you talk on the side of the creditors - pledge, the latter being the lesser transmission of rights and
their credit, if on the side of the debtor - debt. interests.
● Dacion is an act of novation while cession not an act
of novation, but both are forms of payment or Here, the SC said that when you look at the agreement, there
performance. was no transfer of ownership but it was actually merely a
security for the debt, nor there was cession.
Comments:
Lopez v. CA
So here the SC said, there was no transfer of ownership nor
FACTS: Petitioner Lopez secured a loan from Prudential cession. It was merely a security for the debt. The SC said that
Bank which was conditioned upon petitioner’s posting of if there is doubt as to whether this was a pledge, dacion (en
surety bond with respondent Philippine American General pago), or cession, then you have to treat it as a pledge. Why?
Insurance (Philamgen). Lopez also executed, aside from a Because in the law of Oblicon, if there is doubt, treat it with
promissory note in favor of the Bank, a surety bond, the situation that has the least transmission of rights. There is
indemnity agreement and a deed of assignment of his less transmission of rights in a pledge since it is just a security,
shares of stock in Baguio Military Institute in favor of there is no transfer of ownership. In cession there is also no
Philamgen. When petitioner failed to pay his obligation to transfer of rights, but you are giving your creditors the right to
the bank, Philamgen was forced to pay it for him, and sell your property. Pledge has the least transmission of rights
subsequently demanded petitioner for reimbursement. between the two. You have to go through the process of
Sought to be resolved in this case is whether the deed of applying for foreclosure if pledge, as opposed to cession where
assignment of shares of stock made in favor of Philamgen you tell your creditors you can sell already and apply the
was a pledge, which means his Lopez’s obligation has not proceeds to their credits.
been extinguished yet, and that his shares of stock would
only be returned to him once he has paid his obligations, OR
a dation payment as the petitioner claims it to be.
TENDER OF PAYMENT

(1) When the creditor is absent or unknown, or does

not appear at the place of payment;
ARTICLE 1256. If the creditor to whom tender of payment
How will you pay your creditor if he is absent or can’t be
has been made refuses without just cause to accept it, the
located? Clearly, the law gives the debtor a chance to
debtor shall be released from responsibility by the
extinguish his obligation by allowing consignation right away.
consignation of the thing or sum due.
(2) When he is incapacitated to receive the payment at

Consignation alone shall produce the same effect in the
the time it is due;
following cases:
Again, the payment to an incapacitated person is not valid. You
have to give the debtor a chance to extinguish his obligation.
(1) When the creditor is absent or unknown, or does not
Tender of payment would be useless, and he can right away
appear at the place of payment;
consign.
(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
(3) When, without just cause, he refuses to give a receipt;
receipt;
(4) When two or more persons claim the same right to
When we talk about ‘he’ here, its the creditor. Creditor here will
collect;
accept the payment but will not issue a receipt. So the law
(5) When the title of the obligation has been lost.
allows the debtor to consign it, so there is proof that he
actually paid. If a creditor fails to give a receipt, the creditor
may, in the future, say the debtor hasn’t paid yet.
ARTICLE 1257. In order that the consignation of the thing

(4) When two or more persons claim the same right to
due may release the obligor, it must first be announced to
collect;
the persons interested in the fulfillment of the obligation.
You don't know who to pay/ give tender of payment to. And so
The consignation shall be ineffectual if it is not made strictly
the law gives you a remedy, deposit it in court, and the
in consonance with the provisions which regulate payment.
obligation will be extinguished.
(5) When the title of the obligation has been lost.

ARTICLE 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority, before
This is with respect to the ‘known’ creditor in your perspective.
whom the tender of payment shall be proved, in a proper
So if the creditor no longer has the title to the credit, and you
case, and the announcement of the consignation in other
don't know who is in possession of such credit, then you don’t
cases. The consignation having been made, the interested
know who to make tender of payment to. So the law allows
parties shall also be notified thereof.
you to consign before the court.
CONCEPT For the consignation to be valid, there must be tender of

payment.
Tender of Payment - The act of offering the creditor what is
due him together with a demand that the creditor accept the Requisites of a Valid Consignation
same. 1. Tender of payment which is unjustifiably refused
unless tender is excused;
Consignation – Refers to the deposit of the object of the 2. Existence of a valid debt;
obligation in a competent court in accordance with the rules 3. Prior notice of consignation (before deposit);
prescribed by law after refusal or inability of the creditor to 4. Actual consignation (deposit);
accept the tender of payment. 5. Subsequent notice of consignation;
What is tender of payment? For a tender of payment to be valid, it must be unconditional

Tender of payment is the act of offering to the creditor what is and for the complete and whole obligation. It cannot be
due to him, and at the same time demanding the creditor to considered as a valid tender of payment if it is only partial.
accept the same. Another requisite is that it must actually be made meaning that
you are already bringing the thing promised because if you
When do you resort to consignation? merely say that you are willing to pay, a mere intention or
You resort to consignation when the creditor unjustly refuses desire is not valid tender of payment.
to accept the tender of payment. The refusal is without
justifiable cause. Art. 1257 is actually one of the requisites of a valid
consignation, the first notice of consignation. It must be given
Apart from that, Art. 1256 tell you that these 2 must come to the creditor and to all other persons who are interested in
together. Tender of payment first, then consignation, but there the fulfillment of the obligation. The provision also provides
are also exceptions. Exceptions meaning, you can consign that without this notice, the consignation is invalid.
directly with the court without need of tender of payment in
the following instances: Why is it important to give notice to the creditor and to
all persons interested in the performance of the
obligation prior to actual consignation?

Yes.
To enable the creditor and all parties interested in the
fulfillment of the obligation to reconsider the previous refusal What would be legal consequences if he will withdraw
and also to avoid litigation by the simple expedient of the thing deposited prior to judicial declaration that
accepting payment. the obligation has now been extinguished?
The purpose is to give the creditor a chance to change his The obligation remains as well as the accessory stipulations
mind. The reason why the debtor is consigning the thing in when the debtor withdraws the thing consigned before creditor
court is the creditor's refusal to accept without justifiable has accepted the consignation and before there was judicial
reasons. Perhaps, by this time, the creditor already realized declaration that the obligation is already extinguished.
this and so, it will do away with the consignation process. The
NCC provides that if the consignation is valid, the same will be Before the judicial declaration that the obligation has been
at the expense of the creditor because it was his unjustifiable extinguished due to the finding that the tender of payment and
refusal that led the debtor to be forced to resort to the consignation was validly made, the debtor informing the
consignation. court that he will withdraw the property or the thing deposited.
The obligation will subsists.
Is there a particular form or format that the debtor
must follow in notifying the creditor? Now what if it is the creditor who will authorize the
debtor to withdraw the thing, what would then be the
There is no particular form or format for the notice but it must effect of such pertaining to the creditor?
state that there was tender of payment on this date and that (1) The accessory stipulation is now foregone. The
the same was unjustifiably refused and therefore, the debtor is guarantors, sureties etc are all released unless they
now contemplating consignation. consented to authorizing the debtor to withdraw.
So, the purpose is really to tell the creditor that debtor is now (2) The creditor loses preference over the thing that was
resorting to consignation as creditor is not accepting payment. previously deposited. So it is now open to all
Notice of consignation may even be made during tender of creditors. If you remember earlier, the effect of
payment. consignating it in court is that it is now beyond the
reach of other creditors. But now if he authorized the
When the first notice of consignation is done, consignation debtor to withdraw, he shall lose every preference he
must be done by depositing the thing in court. Here, the thing has over the thing.
becomes in custodia legis. You have to prove to the court that
you made a valid tender of payment. If not, the rule will rule
against you and say that the configuration is invalid.
Eternal Gardens Memorial Park vs. CA, 282 SCRA 553
What are the legal effects if the thing is now deposited (1997)
in court?
Debtor may ask the judge to order the cancellation of the In the case of eternal garden, the eternal garden entered
obligation. into an agreement that was a land development agreement
with MUPM. Slowly, eternal garden will subdivide the land.
Can other creditors go after the property consigned? As per the agreement, 40% of the proceeds will go to
The property consigned may be longer be attached by other MUPM. However, there were two claimants who claimed that
creditors as this is already reserved for that particular creditor. they owned the property. Although, eternal gardens was
It also depends whether the thing is perishable or not ordered by the courts to confine the 40% of the net
perishable. If perishable, the court may order the sale of the proceeds, it did not. It said that it is justified in withholding
property and the proceeds thereof may now be reserved for the consignment of the particular proceeds because it is yet
the creditor concerned. to be determined who is the owner of the 40% net
proceeds. After the interpleader was dismissed, eternal
If the thing cannot be deposited physically like a parcel garden said that they cannot be made liable for any interest
of land, how will you consign it? that accrued during the times it held the payments.
The debtor now becomes the receiver. Meaning, he has to take
care of the property until the court will effect delivery to the However, the SC said that eternal garden cannot just say
creditor. Again, the expenses of the consignation when that it wont consign the 40% for the reason that they did
properly made shall be charged against the creditor. As stated not know who the owner would be. The law actually
in Art. 1249, the reason for this is he caused the consignation provides for remedies. You can have consignment as
through his unjustifiable refusal. remedy under the civil code and was made precisely for the
debtor to not incur onerous obligations for any reasons that
Once the consignation has been validly made, the court are not his fault. For failure of eternal gardens to consign
now will order the cancellation of the obligation. Prior the 40%, they are liable for interest.
to the cancellation of the obligation, can the debtor
inform the court that he will withdraw the thing
deposited?

24
Here, the SC simply said that they cannot set it aside just
they consigned the 7,400 to the Clerk of Court in Cebu City,
because you don't know who to pay or there are two or more
it was actually a valid consignation. Further the SC ruled
persons who are trying to collect. Precisely why the law
that in this case, the tender of payment, there was even no
provides you a remedy for that, and that is consignation. For
need for consignation because the tender of payment
you to extinguish your obligation so it will not be burdensome
is valid since this is merely an exercise of a right.
to you if it will accumulate interest, then the remedy is to
And there’s no debtor-creditor relationship between
consign the thing in court. If you don't consign then you will be
spouses.
liable for interest. That is what happened in this case.
Unfortunately, they did not consign it so interest begun to run
and they are liable for payment of such. Remember that one of the requisites of a valid consignation is
that there is a valid debt. So there must be a debt that is due.
There’s a debtor-creditor relationship. Here, there was no
debtor-creditor relationship because this was merely an
exercise of a right. And therefore, there is no need to consign
Rayos v. Reyes
a tender of payment would have already sufficed. Again, for
Facts: Spouses tazal owned 3 parcels of land and they sold you to resort to the remedy of consignation, you must be able
these 3 parcels of land to Reyes with a right to repurchase to prove that there was a valid debt that is due. There is a
in 2 years. However, they did not repurchase but sold 2 of debtor-creditor relationship.
those parcels to Rayos. Spouses tazal asked Reyes to
repurchase the property because it was not a sale with a
right to repurchase but an equitable mortgage. However, Adelfa Properties, Inc. v. CA
Reyes did not accept their payment and so spouses tazal
consigned the amount to the court. They then sold the last Facts: In the case of Adelfa, the brothers actually owned a
property to Rayos. parcel of land. They sold the eastern portion of the land to
Adelfa properties, and later on the latter issued interest with
Issue:WON there was proper consignation. the western portion of the said land. The parties executed a
Deed of Option to Purchase with Adelfa and later, instead of
Ruling: SC said there was no effective consignation Option to Purchase, it was stated there that Adelfa should
because of three reason. First, the consignation was invalid pay an option money and also pay the remaining balance
because the offer was unconditional because it was through instalments.
condition on the belief of spouses tazal that it was an
equitable mortgage and they can pay whatever time they But later on, certain Jimenez brothers came and claimed
wanted but that the redemption period has passed. Second, that they were actually co-owners of the whole property.
it was noted that when they consigned there was no notice Hence, civil action ensued and then Adelfa now suspended
to reyes. Third, reyes did not accept the consignation in the the payment of the remaining balance saying that they
court and there was no judicial declaration that the should pay only the remaining balance after the civil case
consignation was valid. has been already been dismissed or already been decided.
So, now the court is saying that, after the civil case has
been dismissed, no payment of the partial payment has
The SC said in this case that not all requisites were present.
been made. However, Adelfa only made an offer of tender of
There was no valid tender of payment because they were not
payment but no actual payment. Then, the brothers now
unconditional and they failed to notify the creditor.
refuse to sell the said parcel to Adelfa. The latter now is
saying that the brothers can be compelled because Adelfa
already made the tender of payment.
Badayos v. CA Issue: Whether or not the brothers can still be compelled

to sell the said portion of land.
Facts: This is a contract of deed of sale with the right to
repurchase. There was a stipulation that the couple had the Ruling: The court held that, in actuality, the option to
right to repurchase the land after 2 years from execution. purchase was actually a contract to sell since there was
There was an offer of repurchase from the spouses,however already a meeting of the minds and there was already
the petitioners in this case contended that no there was no acceptance of the offer. And actually, the option money paid
valid offer because the right actually elapsed. So, the right by Adelfa was actually earnest money. Since it was a
of the land is already theirs. contract to sell, since Adelfa already paid the down
payment, the court ruled that Adelfa is justified in
Issue: Whether or not there was a valid consignation after suspending the payment of said instalments because his
the end of the two years of the right to repurchase. possession to the property has been disturbed by the civil
cases.
Ruling: The SC said there was an issue on the meaning of
the after 2 years and from and after the execution of the However the court ruled that the brothers could not be
contract. When the spouses repurchased the property, it is compelled to sell the said property since Adelfa is already
still within the 4 year of the right to repurchase. Thus, when indelay in paying the remaining balance. The court said that

Adelfa should have made payment when the disturbance notified him that she is rescinding the Deed of Sale due to
had already eased, or when the civil action filed by Jimenez the demand compliance as to some provisions in their
brothers was dismissed by the court. So, the court held here agreement. Despite this, OSA continued to pay De Mesa
that proper action Adelfa should have taken was consigning and at the same time DBP, however both parties refused to
the said payment to the court and not suspending the accept payment. This led to OSA filing a complaint for
payments. consignation to the court. And therewith, OSA deposited the
necessary amount that OSA intended to pay to the
respondents.
So, first, the SC also said that you have to actually tender
Now, De Mesa in this case argues that the consignation
payment. It’s not enough that you give a letter saying that you
should be considered as invalid because there was no notice
desire to pay , that you’re offering to pay as mentioned earlier
as to the consignation made by OSA, which consignation of
on. That for a valid tender of payment, which is a requisite for
the properties, which corresponds to the payment of
a valid consignation for it to be valid, it must be actually made.
instalments. The SC ruled that the consignation is valid and
It’s not enough, as we’ve said, that you merely express your
it emphasized that although the general rule is that a valid
intention to pay. Another is that the SC said you should not
of tender of payment must first be made and that there
have suspended payment if you really wanted to be considered
should be unjustifiable refusal on the part of the creditor to
as having paid under the contract to sell. And you should have
accept the payment, it was during that time when the
consigned the thing in court, or the payment in court, which
debtor may now consign, there was an exception and that is
was the SC said still actually lack the requisites as we
when a debtor has proven that he was able to make
mentioned because there was no valid tender of payment
multiple tenders of payment and these were all unjustifiably
unaccepted by the creditors. In such a case, the court may
now allow the debtor to dispense with the requisite of the
Badayos v. CA valid tender of payment for later consignation. So, the
record shows that in this case, there were already several
Facts: This is a contract of deed of sale with the right to tenders of payment and these were consistently turned
repurchase. There was a stipulation that the couple had the down by the petitioners. OSA found it already pointless to
right to repurchase the land after 2 years from execution. keep on making these formal tenders of payment and
There was an offer of repurchase from the spouses,however serving notice of consignation to the court.
the petitioners in this case contended that no there was no
valid offer because the right actually elapsed. So, the right On the issue of not being given notice, the SC ruled that in
of the land is already theirs. a motion, OSA prayed for the lower court to be allowed to
deposit by way of consignation, the payments for
Issue: Whether or not there was a valid consignation after instalments. And this was granted by the court. The SC
the end of the two years of the right to repurchase. ruled that given the motion and the subsequent court order,
these already sufficiently serve as a notice to the petitioner
Ruling: The SC said there was an issue on the meaning of of OSA’s willingness to pay these instalments and the
the after 2 years and from and after the execution of the consignation of such payments are already with the court.
contract. When the spouses repurchased the property, it is
still within the 4 year of the right to repurchase. Thus, when
they consigned the 7,400 to the Clerk of Court in Cebu City, Here, the SC has an exception. There were several instalments
it was actually a valid consignation. Further the SC ruled for the 9th to the 12th instalment that debtor was following the
that in this case, the tender of payment, there was even no procedure making tenders of payment and then giving notice.
need for consignation because the tender of payment And then, somehow, napul.an na because it kept on being
is valid since this is merely an exercise of a right. refused, it was not accepted. So, they asked the court if they
And there’s no debtor-creditor relationship between could just go on with it by just doing away with a tender of
spouses. payment. According to them, it will yield the same result. It will
still not be accepted anyway. So here, the SC allowed this
because they were able to prove that from 9th to 12th
installment, they actually followed everything that needed to
be done.
De Mesa v. CA
And that there was already substantial compliance. So, the SC
This case involved a parcel of land that was owned by De gave an exception here based on the circumstances of the
Mesa which she mortgaged with the bank as security for her case.
loans. However, upon failure of paying her mortgage debt,
this property was then foreclosed and sold to the bank.
ARTICLE 1262. An obligation which consists in the delivery
However, eventually, De Mesa was allowed to repurchase
of a DETERMINATE THING shall be EXTINGUISHED if it
the properties and upon repurchasing the properties, she
should be LOST or DESTROYED without the fault of the
sold these properties to OSA House Inc. under a Deed of
debtor, and before he has incurred in delay.
Sale with assumption of mortgage. OSA continued to pay
the bank the quarterly instalments until the time DeMesa

A pandemic is a fortuitous event, for example you have

When by law or stipulation, the obligor is liable even for
an obligation, a debt in money, can you excuse yourself
fortuitous events, the loss of the thing does not extinguish
from payment in the debt due to a pandemic?
the obligation, and he shall be responsible for damages. The
same rule applies when the nature of the obligation requires
You will still be liable. Money is a generic thing and it never
the assumption of risk.
perishes so regardless of whether it’s the pandemic or it’s
Yolanda part II, you will still be liable. We are just lucky that
LOSS OF THE THING DUE we have the Bayanihan Act which temporarily suspended it. It
does not extinguish the obligation.
An obligation which consists in the delivery of a determinate
thing shall be extinguished if it shall be lost or destroyed
without the fault of the debtor
ARTICLE 1264. The courts shall determine whether, under
the circumstances, the partial loss of the object of the
Principle: your debtor, if it’s a determinate thing cannot be
obligation is so important as to extinguish the obligation.
liable for loss due to a fortuitous event granting that he has
not yet incurred delay because if there was already legal delay
and then let’s say that it is a delivery of a particular car Like a delivery of a particular car, and the engine was totally
supposedly it must be delivered today and there was also a lost without the fault of the debtor, then wala nay gamit ang
demand made by the creditor today and he did not deliver. particular car if the purpose of which is to use the car. Unless
of course, if it is just for exhibit, then it is not extinguished.
The next day, naguba ang car due to flooding. So, there was
already delay, the loss may have been due to a fortuitous
ARTICLE 1265. Whenever the thing is lost in the
event, but he is now liable for damages.
possession of the debtor, it shall be presumed that the loss
was due to his fault, unless there is proof to the contrary,
It would be different if it would be due today, but there was no
and without prejudice to the provisions of Article 1165. This
demand yet. So, there is just ordinary delay, so the next day,
presumption does not apply in case of earthquake, flood,
totally destroyed due to a storm. Can he be made liable for
storm or other natural calamity.
damages? No. because there was no LEGAL DELAY yet.
Take note(for 1st paragraph): Can you tell us the presumptions that are given by law
1st: It must be a fortuitous event without the fault of the when a particular thing is lost and such is in the
debtor; and possession of the debtor, who is presumed to be at
2nd: There must be no legal delay. fault?
The debtor himself/herself. But this presumption does not
2nd paragraph: This time, obligor is liable because the parties apply when there is earthquake or any other natural calamity
have agreed or the law provides for it.
Comments:
When is a determinate thing considered lost? It is merely a disputable presumption because the debtor can
When it perishes, it goes out of commerce or it disappears in offer proof that it’s not his fault because there was a fortuitous
such a way that its existence is unknown or it cannot be event.
recovered
LEGAL & PHYSICAL IMPOSSIBILITY
How about loss for obligations to do? When do you
ARTICLE 1266. The debtor in obligations to do shall also
consider it as being lost?
be released when the prestation becomes legally or
When there is legal, physical, moral and material impossibility.
physically impossible without the fault of the obligor.
With regard to legal impossibility, it contemplates that the

obligation is precluded by law MORAL IMPOSSIBILITY
ARTICLE 1267. When the service has become so difficult

With regard to physical impossibility, for example: acts of God,
as to be manifestly beyond the contemplation of the parties,
or the acts of other party
the obligor may also be released therefrom, in whole or in
part.
With regard to material or moral impossibility, it would be
impossibility with regard to the performance of the obligation
is so manifestly difficult as to be beyond the contemplation of
the parties ARTICLE 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the debtor
ARTICLE 1263. In an obligation to deliver a generic thing, shall not be exempted from the payment of its price,
the loss or destruction of anything of the same kind does whatever may be the cause for the loss, unless the thing
not extinguish the obligation. having been offered by him to the person who should
receive it, the latter refused without justification to accept it.

Article 1268 provides that whenever the debt proceeds from a LOSS OF THE THING DUE. — Until thus segregated or
criminal offense, like a theft, then the obligation of the debtor appropriated, the vendee does not assume the risk of loss as
will not be extinguished even if the cause thereof is a provided in article 1452 of the Civil Code.
fortuitous event.
In this case, the contract is merely an executory contract to
For instance, if a car is stolen - the obligation to return the sell, its subject matter being a generic or indeterminate thing.
same subsists even if the car is destroyed by accident EXCEPT A thing is generic when it is indicated only by its kind and
when the creditor is already in mora accipiendi. cannot be pointed out with particularity.
Mora accipiendi is when the creditor is already in default in the BATHAN: No segregation of a particular class. As we said, a
acceptance of the thing when he unjustly refuses acceptance generic thing never perishes.
thereof.
ARTICLE 1269. The obligation having been extinguished Labayen v. Talisay-Silay Milling Co.
by the loss of the thing, the creditor shall have all the rights
of action which the debtor may have against third persons Facts: The plaintiff, along with another, possesses the
by reason of the loss. hacienda known as Dos Hermanos of Talisay, Occidental
Negros. The defendant is a corporation dedicated to the
milling of sugar cane. Plaintiff and defendant entered into a
Essentially, the creditor may now go after the third person who
contract whereby it was agreed that the latter shall extend
caused the loss.
its railroad from its sugar central to a certain hacienda
(Hacienda Dos Hermanos).
Defendant failed to comply because the extension would be

Yu Tek Co. v. Gonzales very costly and dangerous to life and property by reason of
the contour of the land through which the said railroad
Facts: A contract was executed between the herein parties, would be constructed. It is this contract which is the basis of
whereby Mr. Basilio Gonzales (SELLER) acknowledges the plaintiff's cause of action. Recalling that the contract
provided for the construction of a railroad "whenever the
receipt of P3,000 from Yu Tek & Co.(BUYER) and that in
contour of the land, the curves, and elevations permit the
consideration of which he obligates himself to deliver to the same,'' and that such construction is possible but very
latter 600 piculs of sugar of the first and second grade, dangerous, the question then arises if the defendant can
according to the result of polarization, within 3 months. excuse itself on this ground, or if he plaintiff can recover
There is a stipulation providing for rescission with P1,200 from the defendant for damages for breach of contract,
penalty in case of failure to deliver.Gonzales (SELLER) through inability to mill cane.
argued that the sugar he is supposed to deliver will be
Ruling: It is elemental that the law requires parties to do
coming from his own hacienda which was destroyed by the
what they have agreed to do. If a party charges himself with
dry weather and because of the failure of his crop he must an obligation possible to be performed, he must abide by it
then be relieved from his obligation to deliver.No sugar was unless performance is rendered impossible by the act of
delivered, so the plaintiff (BUYER) filed a case praying for God, the law, or the other party. A showing of mere
the judgment of P3,000 plus P1,200. P3,000 was awarded, inconvenience, unexpected impediments, or increased
thus, both parties appealed. expenses is not enough.
However, one may not be obligated to do something that

Issue: W/N by the failure of his crop he was relieved from
when accomplished will prove to be dangerous to life and
complying with his undertaking by loss of the thing due. property. Here, what was entered into was a general
contract of the form used by the central and various
Ruling: proprietors of sugar-cane fields. It was intended to be
NO. Gonzales agreed to deliver the sugar and nothing is said limited in particular application to Haciendas where not
in the contract about where he was to get it. In designating impeded by physical impossibility. The contract was qualified
the article sold, it is clear that Gonzales could only say that by an implied condition which, if given practical effect,
it was “sugar”; the generic name for the thing sold. results in absolving the central from its promise. Not to
There was no “appropriation” of any particular lot of sugar, sanction an exception to the general rule would run counter
neither did any party stipulate this. to public policy and the lawby forcing the performance of a
contract undesirable and harmful.
Determinable subject matter of sale is NOT subject to
risk of loss until they are physically segregated or
particularly designated. What they agreed upon was a DOCTRINE: When the prestation which constitutes the object
generic thing. Genus nunquam perit. Hence, Gonzales of the obligation becomes legally or physically impossible
cannot blame the failure of his crop to evade his obligation without the fault of the debtor, he will be released from the
to deliver. obligation.
BATHAN: this is already moral impossibility - beyond what was

contemplated by the parties.
DOCTRINE:

CONDONATION OR REMISSION OF THE DEBT

Velosa v. Masa
Condonation is the gratuitous abandonment of a creditor of his
right of action against the debtor. ISSUE:
(1) Whether the Lower Court has correctly ordered the
Essential Requisites: payment and
(2) whether defendant really has paid for the services.
1. Cause or consideration si the liberality of the creditor
2. Acceptance of the debtor
RULING:
3. Consent of debtor
(1) Tabunting should make the payment.
4. Parties must be capacitated
(2) There was a receipt signed by the plaintiff for P700
5. Remission is not officious
services by the defendant during the trial which
shows that he really should have paid, but he failed
In condonation, liberality of the creditor, agreement and
to do so.
acceptance on the part of debtor, consent, parties must be
in determinate
capacitated and remission must not be inofficious.
Atty: The creditor was able to prove that him sending the
receipts was not as proof that payment has been made. The
When remission or condonation is mentioned it is more receipt was merely to collect payment. So the lesson there,
effectively a waiver of your rights to collect. It’s basically a don’t make a receipt if the payment has not yet been made.,
donation, and if it’s a donation then it must have the you make a bill to collect, not a receipt to collect. Because
acceptance of the debtor as the donee. the burden of proof will now rest on you to prove that there
was no payment because the law gives that presumption. It
should have been the debtor who should prove that there
What happens if the debtor does not accept?
payment but because of the receipt, the burden is now on
The debt still subsists and the right to collect also still subsists. you. But good for him (creditor), he was able to prove that
Statute of limitations tell you that he still has 10 years to there was no payment. But to be safe, issue a bill to collect,
collect so even if initially he is saying that he’s remitting the and not a receipt to collect.
debt.
Now can you tell us when implied remission takes

place?
CONFUSION, COMPENSATION, NOVATION
Delivery of the private document evidencing the debt
Why is it necessarily a private document, why not a ARTICLE 1275. The obligation is extinguished from the
public document that is voluntarily delivered to the time the characters of creditor and debtor are merged in the
debtor? Will not that have the same effect? same person.
Public document is accessible to everyone. There is only a
disputable presumption that should you find the private What is Confusion/Merger?
document in the hands of the debtor and presumption is it was It is a mode of extinguishing a contract where the characters
voluntarily delivered by the creditor to the debtor. Such that, of a debtor and creditor are merged into one person.
your creditor can claim that the document was only delivered
precisely because it was only to remind him about the debt What is the consequence of such confusion/merger?
and not remitting the debt, that’s your Art. 1272-72. Your Since you paid for the debt that you are supposed to fulfill, the
public document is accessible, it is notarized, as a notary public obligation is extinguished.
you file the documents that you have a copy of the office of
the executive judge. Atty: As we said, it must be the merger of the principal debtor
and that of the principal creditor.
If the principal obligation is remitted, what happens to
the accessory? REQUISITES
The accessory is also remitted. 1. The merger of the characters of creditor and debtor must be
in the same person
If it is the accessory that is remitted? 2. That it must take place in the person of either the principal
The principal still remains. creditor or the principal debtor
3. That it must be complete and definite
Supposing you have an accessory obligation of a thing
pledged and such, after being delivered to the creditor Take note: It does not follow however that the
is now found in the possession of the debtor. What is extinguishment of the obligation should be complete or total in
its legal implication? character. It merely means that whether the merger refers to
The accessory which is the thing pledged is remitted. Of the entire obligation or only a part thereof, it must be of such
course it is a disputable presumption again, if there’s a proof character that there will be a complete and definite meeting of
that it was not voluntarily delivered. all the qualities of creditor and debtor in the obligation or in
the part or aspect thereof which is affected by the merger
Suppose there is a merger but the debt also has

guaranty, what happens to the guaranty?

ARTICLE 1278. Compensation shall take place when two
It will also be extinguished. Since the guaranty is an accessory,
persons, in their own right, are creditors and debtors of
if the principal obligation is extinguished due to the merger,
each other.
the guaranty which is the accessory will also be extinguished.
When does compensation take place?

ARTICLE 1276. Merger which takes place in the person of
When two persons in their own right are creditors and debtors
the principal debtor or creditor benefits the guarantors.
to each other. Their obligations would be extinguished by
Confusion which takes place in the person of any of the
operation of law.
latter does not extinguish the obligation.
Art. 1278, speaks of a debtor being indebted to a creditor, but

What happens if there is a merger between the in another debt, that creditor is indebted to the debtor. So they
principal creditor and the guarantor? are debtors and creditors to each other.
The guarantee will be extinguished because of the merger, but
the principal obligation will remain. For example, A is indebted to B in the amount of 100K. In this
obligation, A is the debtor and B is the creditor. And B is also
Atty: If there is a merger in the principal debtor and creditor indebted to A in the amount of 95K. In this debt, B is the
now extinguish both the principal obligations and it benefits debtor and A is the creditor.
the guarantors being an accessory obligation. If there is
however a confusion taking place in the principal creditor, the In this example, A is the debtor of B in his own right, and B is
accessory obligation is extinguished but the principal obligation also the creditor of A in his own right. In the second obligation,
remains. B is the debtor of A in his own right, and A is the creditor in his
own right.
Ex. A is indebted to B in the amount of P100k, C is your
guarantor. If B assigns the credit that is P100k to A, then A will In that example, up to what amount can we consider to
become both the debtor and the creditor. Thus, the obligation have been compensated?
will be extinguished as well as the guaranty. Only up to the amount of 95K. Because compensation may be
for the full amount or partial, depending on the debt of each
So, if A is indebted B in the amount of 100K and C is still your other.
guarantor. If B assigns your credit of 100K to C, there is no
merger in the principal obligation, however, the contract of
ARTICLE 1279. In order that compensation may be proper,
guaranty is extinguished. What happens now? A will pay C
it is necessary:
because C is now the new creditor.
1. That each one of the obligors be bound principally,
and that he be at the same time a principal creditor
ARTICLE 1277. Confusion does not extinguish a joint of the other;
obligation except as regards to the share corresponding to 2. The debts must consist in a sum of money or if the
the creditor or debtor in whom the two characters concur. things due are consumables, they be of the same
kind and quality, if the latter has been stated;
3. Both debts must be due;
How about in a joint obligation and there is a confusion
4. The debts must be liquidated and demandable;
or merger in one of the joint debtors, will that
5. That over neither of them there be any retention or
extinguish the new obligation?
controversy, commenced by third persons and
That is Art. 1277, confusion does not extinguish a joint
communicated in due time to the debtor.
obligation except as regards the share corresponding to the
creditor or debtor in whom the two characters concur.
For example, A and B are joint debtors of C in the amount of What are the requisites for compensation to take
100K. If C will assign his credit to B, there is now a merger, B place?
is a debtor and at the same time a creditor. But what is Art. 1279
extinguished? Only the debt of B to C. The debt of A will 1. That each one of the obligors be bound principally,
remain. and that he be at the same time a principal creditor of
the other;
If this, however, was a solidary obligation, because they are 2. The debts must consist in a sum of money or if the
considered as one, if C will assign his credit to B, then the things due are consumables, they be of the same kind
entire obligation will be extinguished. If it were solidary and quality, if the latter has been stated;
3. Both debts must be due;
But since this is a joint obligation, and as we said, a joint 4. The debts must be liquidated and demandable;
obligation is where there are as many debts as there are 5. That over neither of them there be any retention or
debtors, and many credits as there are creditors, then, if there controversy, commenced by third persons and
is a merger or confusion in one of them, then that will only communicated in due time to the debtor.
extinguished that debt pertaining to the person in whom the
characters of creditor and debtor are merged. No. 1 Requisite:
A is indebted to B in the amount of 100K. There is a
guarantor C. Now B is indebted to C for the same

30
amount of 100K. Is there compensation?

ARTICLE 1283. If one of the parties to a suit over an
No. The first requisite tells us that the principal debtor and
obligation has a claim for damages against the other, the
creditor must owe each other. But in this example, A is the
former may set it off by proving his right to said damages
debtor of B, but B does not owe him, B owes C.
and the amount thereof.
In this case, there is no compensation because C is not
principally bound but is merely subsidiarilly bound.
How about if there’s a case that was filed by A against
No. 2 Requisite: B for collection of sum of money. So A now is collecting
A is indebted to B in the amount of 100K. B is indebted from B of B’s debt of P1 million but the way by which A
to A to deliver a particular car. Is there compensation? tried to collect from B’s debt, embarrassed B so much
No. The debts must both consist of money or a consumable. such that he felt that A abused his rights. If you can
So, if A owes money then B must also owe A money. still remember your abuse of rights doctrine. So now B,
in that same suit, filed a counterclaim for damages.
Of course we are talking about legal compensation. Such that Can they compensate each other (the money debt of B
if both parties agree to compensate these debts, then no to A which A is trying to collect and the damages that
problem. But by operation of law, there can be no B is trying to prove in court against A) ?
compensation in this case because requisite #2 is not complied
with. YES. Article 1283 says that if one of the parties to a suit over
an obligation has a claim for damages against the other, the
No. 3 Requisite: former may set it off by proving his right to said damages and
A owes B 100K due on January 5, 2020. B owes A 100K the amount thereof. So if B can prove that there’s really an
due on December 31, 2021. Can there be legal abuse of rights and the court actually grants him with damages
compensation today? that he is asking for. Let’s say for example, he’s asking for
No because as we said for legal compensation to take place, P100K for damages so that can be set-off. This is now an
both debts must be due and demandable but only one debt is example of partial compensation. He owes A P1M but then he
due. And so, there can be no compensation as of today. was able to prove damages worth P100K so he will just pay
However, when December 31, 2020 arrives, then there can be P900K.
legal compensation because by then both dues are
demandable.
ARTICLE 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
No. 5 Requisite:
before they are judicially rescinded or avoided.
A is indebted to B for P100K but 25% of that is being
claimed by the BIR. B is indebted to A for the amount
of P100K. Can there be compensation? How about if both debts are due. A to B and B to A. But
NO, because there’s a controversy over the 25K which is the debt of A to B, there is a ground that can be used to
claimed by the BIR. avoid the contract. In other words, 1 debt is voidable.
Can there be compensation?
Atty: There can be no compensation because there is no free
disposal of the debt of A in favor of B. YES, there may be compensation if the obligation between
them is either rescissible or voidable and it has not been
judicially rescinded yet (Art. 1284)
ARTICLE 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up compensation
Why can there be compensation? Does this not violate
as regards what the creditor may owe the principal debtor.
one of the requisites which says that both debts must
be valid?
As we mentioned earlier , Article 1280 says that the guarantor
may set up compensation as regards what the creditor may In this case, the obligation is valid until it is rescinded but if
owe the principal debtor. That’s why in our example earlier, if after there has been a compensation through operation of law
the principal creditor owes the guarantor. The guarantor can and it is judicially decreed, the effect is that there has been no
actually set up the compensation with respect to the creditor compensation at all.
and the effect of that is guaranty is extinguished. But of
course the principal obligation will remain. Atty: There is no violation of the requisites because when you
say that it is rescissible or it is voidable, it is valid until it is
As I’ve mentioned earlier, compensation may be total or annulled. So if both debts are due and if one is voidable or one
partial. When there are 2 debts of the same amount, of is rescissible, it can be legally compensated because as we
course, this is total compensation . said, it takes effect by operation of law. But what happens if
one of the parties decides that it must be rescinded such as
As I’ve mentioned also if the 2 debts are not yet due, there declared by the court? The effect is retroactive, it is as if there
may be NO legal compensation but the parties can agree to has been no compensation has taken place. This means that if
compensate even if the debts are not yet due and this is what one contract is avoided so the other will remain.
we call as voluntary compensation.
ARTICLE 1285. The debtor who has consented to the

X can collect the P20K from A (P100K-P80K=20K). Why P100K

assignment of rights made by a creditor in favor of a third
and P80K? Because these are debts which are already due and
person, cannot set up against the assignee the
demandable PRIOR to the assignment which is Sept. 3, 2021.
compensation which would pertain to him against the
So A, the debtor, may validly raise the defense of legal
assignor, unless the assignor was notified by the debtor at
compensation for the debts that is due and demandable prior
the time he gave his consent, that he reserved his right to
to the date of the assignment. Since the assignment was made
the compensation.
on September 3, only the debts prior to the assignment is
considered to be extinguished by compensation.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the
How much can X collect today (September 13) from A?
compensation of debts previous to the cession, but not of
Since you said that he can set up the amounts that
subsequent ones.
already matured prior to the compensation?
If the assignment is made without the knowledge of the

From the assigned debt of 100k, X can collect P20k because
debtor, he may set up the compensation of all credits prior
there was already a compensation of the P80k.
to the same and also later ones until he had knowledge of
the assignment
Article 1285 says that if the assignment is with the knowledge
but without the consent of the debtor, in this example, it’s B
Article 1285 talks about still 2 persons who are who assigned the credit. If X now will collect (inaudible) …
indebted to each other as principal debtors and take up the compensation with respect to debts maturing prior
creditors but one of them, the creditor in one to the assignment. The assignment was made on September 3.
obligation has assigned it to a 3rd person. Now what Look at the due dates before September 3. There is a debt of
are the different cases that are covered under Article P100k due on August 31. Then you have P80k due on August
1285? 15. So there is already legal compensation with respect to that.
Prior to the assignment on September 3. However, the due
There are 3 cases that are covered under Article 1285: which is P20k due today (September 13) because he can no
1) The assignment was made with the consent of the longer set compensation with respect to that because it did not
debtor (Art. 1285, par. 1) mature prior to the assignment.
2) The assignment was made with the knowledge but
without debtor’s consent (Article 1285, par. 2) Illustration: A is indebted to B P100k due on August 31, 2021.
3) The assignment was made without the knowledge of Debt of B to A is: 1) P80K due on August 15, 2021; and 2)
the debtor (Article 1285, par. 3) P20K which is due on September 10, 2021. B assigned his
credit of P100k to X. Such assignment was made on
1) The assignment was made with the consent of the September 3, 2021 but A knew of the assignment only on
debtor (Art. 1285, par. 1) September 13, 2021. How much can X collect from A today
Illustration: A is indebted to B in the amount of P100K. B is (September 13)?
also indebted to A in the amount of P100K. Now A assigned his
credit to X. Meaning for this debt since he is the creditor in this A can set up the defense of compensation for all debts
debt. So A assigned the debt to X. If X collects from B, can B (inaudible) … notification of the assignment.
refuse to pay and set up the compensation and B tells X that
he will not pay X because there’s already compensation as A is If the assignment was with the knowledge but without the
also indebted to B for P100K. This however, the assignment consent of the debtor, you look at the debts maturing prior to
was made with the consent of B. the assignment. Say A is indebted to B for ₱100,000 while B is
indebted for ₱80,000 due on August 15 and ₱20,000 due on
A: X can collect from B and B cannot refuse because here, September 13. B assigns his credit of ₱100,000 to X on
there is a consent from B. Meaning he can validly set up the September 3, 2021. if the assignment was made with the
defense of compensation. This is already considered as waiver knowledge, but against the will of the debtor, you look at the
of his right to compensation unless of course, when he made date of the assignment, and then you look at the debts
the consent he reserved his right to compensate. In other maturing prior to the date of the assignment because you
words, B must still pay X for P100K because he allowed A to know about it, but you just did not consent.
assign his rights.
What will happen?
2)The assignment was made with the knowledge but
without the debtor's consent (Article 1285, par. 2) There will be legal compensation which takes place by
Illustration: A is indebted to B for P100K due on August 31, operation of law prior to the assignment. What has been
2021. B is also indebted to A for 2 debts: 1) P80K which is compensated now? The debt of August 31 due, and August 15
due on August 15, 2021 and 2) P20K which is due on due, those are before September 3, 2021. So na complete na.
September 13, 2021. B assigned the credit to X meaning the There is already partial compensation. So if X collects from A,
P100K that B owes him, he assigned it to X on Sept. 3, 2021. he can collect only ₱20,000, because A can tell X that there
If X collects from A a debt that A has against B, now belonging was already compensation by operation of law, and I did not
to X. How much can X collect to B? agree to this assignment. Yes, I know about it but I did not
agree about it. So, prior to the assignment, there was already
compensation, so I will pay you only ₱20,000. as between A

and B, that’s a different matter. Since there was already

of the compensation.
compensation by operation of law, then the ₱20000 will now
go to X, but remember, 100,000 man sad ang total na debts ni
A. So of course ang ₱20,000 will have to be paid by B to A also
because it’s only partial compensation.
ARTICLE 1290. When all the requisites mentioned in
3)The assignment was made without the knowledge of
Article 1279 are present, compensation takes effect by
the debtor (Article 1285, par. 3)
operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors
If the compensation was without the knowledge of the debtor, are not aware of the compensation.
but of course it presupposes that he came to know of it,
because somebody else is trying to collect from him, it
presupposes that the knowledge of the debtor assignment will To recap on order of application, first you look at where the
come in only at the time that this third person is trying to debtor has applied the payment, if none, then you look at what
collect from him. So here, same thing, B assigns his credit of is specified by the receipt of the creditor, if none of those, then
₱100,000 to X, the assignment was made on September 3. But you choose which obligation is more burdensome so that that
A does not know about it, not until X tries to collect the debt will be the first one to be compensated. If equally
on September 13. burdensome, then compensation will be applied pro-rata. As
mentioned, it takes effect by operation of law and extinguishes
What then is the reckoning period? both debts to the concurrent amount even if the creditors and
The date of knowledge about the assignment, but not the date debtors are not aware of the compensation.
of assignment itself. So you look at what debts matured prior
to the date of knowledge. In this example, all the debts have How is novation effected? In what ways?
already matured. In other words, there is already total
compensation. So if X will now collect from A, A will say there Art. 1291 provides the different ways on how an obligation is
was already legal compensation which took effect by operation novated:
of law.
ARTICLE 1291. Obligations may be modified by:
ARTICLE 1287 provides that compensation shall not be
(1) Changing their object or principal conditions;
proper when one of the debts arises from a depositum or
from the obligations of a depositary or of a bailee in
(2) Substituting the person of the debtor;
commodatum.
(3) Subrogating a third person in the rights of the

The debts are not of the same kind, and when you are a creditor.
depositum or bailee, you are supposed to take care of that
thing that you are holding for the bailor. Neither can
compensation be set up against a creditor who has a claim for
Novation is basically extinguishing the old obligation and
support due to gratuitous title. Since support is a right granted
replacing it with a new one.
by law, you cannot, if you are entitled to support someone,
and this someone is also indebted to you, the law does not
Second, by substituting the person of the debtor
allow you to set it off to protect that other person who is
Third, by subrogating a third person in the rights of the
entitled for support. Because what is the use now of it being a
creditor.
right granted to him by law for support if it can just be
compensated.
Novation is basically extinguishing the old obligation and
replacing it with a new one. The new one either now has a
ARTICLE 1288. Neither shall there be compensation if one different object or principal condition or there is now a
of the debts consists in civil liability arising from a penal different debtor or a different creditor. Old obligations are
offense. extinguished and a new one is created.
Requisites for novation to take place:

These are the debts which cannot be compensated.
1. Previous valid obligation
Suppose there are several debts which are susceptible
2. There should be a clear or express agreement by the
of compensation, which debts are compensated first?
parties to the new obligation
3. Extinguishment of old obligation; and
If there are several debts susceptible of compensation, you
4. New obligation should be valid
follow the rules on application of payments.
In Art. 1291, it will tell you the 3 modes:
ARTICLE 1289. If a person should have against him
several debts which are susceptible of compensation, the 1. Real or objective
rules on the application of payments shall apply to the order 2. Personal or subjective
3. Mixed- change in the conditions or the change of

parties debtor, then C (new debtor) is only entitled to beneficial

reimbursement.
ARTICLE 1292. In order that an obligation may be
So in expromission, the initiative comes from C. Creditor must
extinguished by another which substitute the same, it is
give his consent because the creditor must not be compelled to
imperative that it be so declared in unequivocal terms, or
accept payment from a third person.
that the old and the new obligations be on every point
incompatible with each other.
B. Delegacion
Express vs. Implied Who initiates the change of debtor?
1.Express novation: it must be clear that the -old debtor proposes to the creditor; old debtor
intention is to novate. delegating the obligation to a new debtor
2.Implied novation: you must be able to prove that -You must have the consent of the new debtor
in all points, they are incompatible with each other.
Ex. A is indebted to B P100,000. It is now A who now
Why is it that we require that you have to prove that it delegates C to be the new debtor and it is with the consent of
is in all points incompatible? C and B.
Because novation is never presumed. You are now trying to

extinguish an old obligation and it might be that you are
ARTICLE 1294.If the substitution is without the knowledge
putting a party at a disadvantage. So you have to prove clearly
or against the will of the debtor, the new debtor’s insolvency
that the previous obligation cannot co-exist with the new
or non-fulfillment of the obligations shall not give rise to any
obligation.
liability on the part of the original debtor.
A is indebted to B in the amount of P100K. C is the new

ARTICLE 1293. Novation, which consists in substituting a
debtor. If C does not fulfill the obligation, can B compel
new debtor in the place of the original one, may be made
the old debtor to pay?
even without the knowledge or against the will of the latter,
but not without the consent of the creditor. Payment by the
No. If the substitution is without the knowledge or against the
new debtor gives him the rights mentioned in Articles 1236
will of the debtor. The obligation is not revived.
and 1237.
In expromission, the initiative comes from the new debtor. If
TN: Arts. 1236 and 1237 talks about payment by a third the substitution is without the knowledge or against the will of
person, either with knowledge or against the will of creditor or the original or old debtor, the new debtor’s insolvency or
payment by a third person who is interested in the fulfillment nonfulfillment of the obligation shall not revive the original
of the obligation. debtor’s liability to the creditor. Why? Because that old
obligation has been extinguished by novation. There’s already
Change of debtor: expromission or delegacion. a new obligation. If the new debtor is insolvent, the old debtor
had nothing to do with it, he did not consent to the change but
A.Expromission: When the creditor knew about the change the creditor consented to it, there’s a valid novation. So if the
but the debtor did not know or did not consent to the change. new debtor is insolvent, the old obligation is not revived.
Who initiates the change of debtor in expromission? How about if substitution is by delegacion? In other words, it is
the old debtor who volunteered the new debtor. The GR is, still
-the new debtor (ex. A tells the creditor that A will pay the it cannot be revived because the old obligation has been
debt of B, who was the original debtor) extinguished. Exception to this are:
-creditor must give consent to the substitution 1. When the insolvency of the new debtor was already
existing and of public knowledge at the time the old
What are the rights of the new debtor with the debtor delegated his debt
knowledge and consent of the old debtor? - This is to protect the creditor because at the
time that the old debtor delegated his debt,
1.He will be reimbursed it was already public knowledge that this
new debtor cannot pay because he is
2.He will subrogated with all the rights of the creditor insolvent.
2. If it is NOT of public knowledge but the old debtor
BUT if creditor pays without the knowledge and consent of the knew of it, then there is fraud involved and because
old debtor, the new debtor is entitled only to beneficial of that, the old obligation is revived. Again, to protect
reimbursement. the creditor.
Ex. A is indebted to B P100,000 against the will of the old If the insolvency of the new debtor is not of public knowledge

34
and the old debtor did not know about it, then he is free from
may take effect.
liability.
Art. 1300 talks about change in the creditor. It may be legal or

ARTICLE 1296. When the principal obligation is
voluntary (conventional). Legal novation is not presumed
extinguished in consequence of a novation, accessory
except in cases expressly mentioned in this Code; conventional
obligations may subsist only insofar as they may benefit
novation must be clearly established in order that it may take
third persons who did not give their consent.
effect.
The GR is, it will extinguish the accessory obligation because

ARTICLE 1301. Conventional subrogation of a third person
the principal obligation is extinguished BUT the accessory
requires the consent of the original parties and of the third
obligation MAY remain or subsists if it is beneficial to third
person
persons who did not give their consent to the novation.
ARTICLE 1297. If the new obligation is void, the original

one shall subsist, unless the parties intended that the ARTICLE 1302. It is presumed that there is legal
former relation should be extinguished in any event. subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
Why? Because clearly no valid novation has taken place. For a
(2) When a third person, not interested in the
valid novation to take place, the old obligation is valid and the
obligation, pays with the express or tacit approval
new obligation is also valid. So if the new obligation is not
of the debtor;
valid, then, there was actually no novation. So we continue
(3) When, even without the knowledge of the debtor, a
with the old obligation unless from the circumstances it can be
person interested in the fulfillment of the obligation
said that they really wanted to extinguish the previous
pays, without prejudice to the effects of confusion
obligation.
as to the latter's share. (1210a)
ARTICLE 1298. The novation is void if the original

Art. 1302. These are instances where subrogation takes effect
obligation was void, except when annulment may be
by operation of law.
claimed only by the debtor or when ratification validates
acts which are voidable.
Article 1302. It is presumed that there is legal subrogation:
Still the same explanation. You lack a requisite for a valid (1) When a creditor pays another creditor who is
novation to take place. There is nothing to novate if the old preferred, even without the debtor's knowledge;
obligation is void EXCEPT when annulment may be claimed (2) When a third person, not interested in the obligation,
only by the debtor or when ratification validates acts which are pays with the express or tacit approval of the debtor;
voidable. Because the exception really is not an exception - This is 1236. Even if he is not interested in
because it talks about a voidable obligation which is valid until the fulfillment of the obligation but the
annulled. You can novate a voidable obligation. If it is void, payment is made with the consent of the
then there is nothing to novate. debtor, then he is entitled to full
reimbursement and subrogation.
In order to effect the novation, it is essential that both old and (3) When, even without the knowledge of the debtor, a
new obligation must be valid. person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as
to the latter's share.
- Arts. 1236 and 1237. If it is a third person
ARTICLE 1299. If the original obligation was subject to a
who is interested in the fulfillment of the
suspensive or resolutory condition, the new obligation shall
obligation even if it is without the knowledge
be under the same condition, unless it is otherwise
or consent of the debtor, then, the rights are
stipulated.
the same for reimbursement and
subrogation.
How about if the old obligation was subject to a
suspensive or resolutory condition, will the new This is an example for No. 1 in Art. 1302:
obligation be also subject to the same suspensive or For example, A is indebted to B for P100,000 and there is a
resolutory condition? mortgage as security for the debt. A is also indebted to C for
YES unless the parties agree otherwise. P20,000 which is unsecured. If C pays another creditor who is
preferred, in this example, B is preferred because there is a
security. So if C pays B, C shall acquire the credit of B as well
ARTICLE 1300. Subrogation of a third person in the rights
as the right to foreclose the mortgage instituted in favor of B.
of the creditor is either legal or conventional. The former is
In other words, there is subrogation in favor of C. C now
not presumed, except in cases expressly mentioned in this
becomes the creditor for 2 debts. The 2 debts are the
Code; the latter must be clearly established in order that it
P100,000 plus the mortgage plus the P20,000. C now can

collect these 2 debts. If A cannot pay the P100,000, he can an heir so she inherits those properties and at the same time,
foreclose the mortgage because there is legal subrogation. in accordance with law, the estate should pay for the funeral
expenses so there is a merger of the debtor and creditor.
No. 2 in Art. 1302:
A is indebted to B for P100,000. C is a third person and pays B
with express approval or consent of A. If this is secured, let’s
Yek Tong Lin Fire vs. Pelagio Yusingco & Vincent
say with a mortgage, then C now becomes the new creditor of Madrigal
A. He can now collect the P100,000 from A and if A does not
pay, he can foreclose. The SC ruled that after the steamship Yusingco had been
sold by virtue of the judicial writ, the only right left to the
Again supposing there is a security apart from the guaranty, plaintiff was to collect its mortgage credit from the
the guaranty is extinguished because C paid by virtue of purchaser thereof at public auction, inasmuch as the rule is
confusion but there is also a novation because he now that a mortgage directly and immediately subjects the
becomes the new creditor. If this has a security apart from the property on which it is imposed, whoever its possessor may
guaranty, there is a mortgage, C can collect from A, if A cannot be, to the fulfillment of the obligation for the security of
pay, C can foreclose the mortgage even if C, the guarantor, which it was created. Obligations are extinguished by the
does not get the consent from A, because C as the guarantor merger of the rights of the creditor and debtor. Therefore,
is the third party who is interested in the fulfilment of the Yu tek’s collection of mortgage credit may not prosper.
obligation. Again why do we say that he is interested in the
fulfilment of the obligation? Because if the obligation is
Comments:
extinguished, his accessory obligation is also extinguished.
Here, Yek Tong Lin Fire was a mortgagee of the steamship
owned by Yusingco and then Yusignco owed Madrigal for the
Article 1303 basically just tells you what is subrogation. It is
repairs of the ship. Madrigal sued Yusingco but the latter,
the transfer to the person subrogated to the credit all the
Yusingco failed to pay. Yusingco was indebted to repairs in
rights thereto appertaining either against the debtor or against
favor of Madrigal. Madrigal asked for an attachment of that
third persons. In short, you step into the shoes of the creditor
steamship and he was granted a writ of execution. The
steamship was sold at a public auction.
ARTICLE 1303. Subrogation transfers to the persons
subrogated the credit with all the rights thereto In another debt, Yek Tong Lin Fire was a mortgagee. When
appertaining, either against the debtor or against third there was now the foreclosure of the steamship with respect to
person, be they guarantors or possessors of mortgages, the debt of Yusingco to Madrigal, Yek Tong Lin Fire became the
subject to stipulation in a conventional subrogation. highest bidder. He bought the steamship which was supposedly
a security for the debt to Yek Tong Lin because Yusingco was
also indebted to Yek Tong Lin Fire. Because Yek Tong Line Fire
ARTICLE 1304. A creditor, to whom partial payment has bought the steamship, there is now a merger of the qualities of
been made, may exercise his right for the remainder, and he Yek Tong Lin Fire being the mortgagee creditor and being the
shall be preferred to the person who has been subrogated owner now of the property that was secured by the debt.
in his place in virtue of the partial payment of the same
credit. What will happen? If Yek Tong Lin Fire will now go after to
Yusingco, and Yusingco cannot pay, the mortgage is
Illustration: extinguished because Yek Tong Lin Fire is now the owner of
A is indebted to B in the amount of 10k secured by a mortgage the steamship, he cannot foreclose its own property. But the
and 20k unsecured to C. If C pays to B 6k, what 1304 is telling principal obligation will actually remain, because what was
you, the remaining 4k should still be paid and that B is still merged was not the principal debtor-principal creditor
preferred so A must still pay B first because he is preferred. In relationship but what was actually merged was the character of
respect to application of payments, B’s is still burdensome; this the creditor and the mortgagee, the owner of the property.
should be applied to this debt first because B is preferred. The
preference is continuing. But of course, the principal obligation will actually remain
because what was merged was not the principal
debtor-creditor relationship but what was actually merged was
the character of the creditor and the mortgagee - owner of the
Sochayseng vs. Trujullo property.
The SC ruled that the P320 expenses for the funeral must be
paid not by the husband, but by the heir. Therefore, the Silahis Mktg. v. IAC
P320 expenses for funeral services shouldered by the [Please see digest. Audio was inaudible]
plaintiff must be extinguished because she becomes the
debtor in such case being the legitimate heir of the estate of Comment:
her daughter. In this case, the SC said that if you’re claiming
compensation, then you have to make sure that it is
liquidated. Here, the commissions are even disputed. So, if it
Comments:
is not even sure that it is due, then you cannot ask for
There is a confusion in that respect because the mother is also

compensation because you cannot even prove that it is due Tan v. Mendez
and demandable.
This involves petitioners in this case who are owners of a
travel and tour corporation and at the same time, operators
of a bus company. The respondent is the owner of three
gasoline stations. Part of their agreement was that
BPI v. CA respondent would extend a credit in exchange for the fuel
In this case, respondent Reyes has a joint savings account purchases and lubricant extended to the petitioners. In
with his wife and he also has a joint savings account with his return, respondent would also have the responsibility as the
mother for her pension. His mother died without the booking and ticketing agent of the bus operating company
knowledge of the US Treasury Dept. However, later on, the that petitioner was operating and as well as receiving the
US Treasury Dept. discovered that his mother died, so they remittances of one of the booking offices which is Baao.
demanded a refunded. However, Reyes verbally authorized
BPI to debit the amount to his other joint account with his When the petitioner issued several checks as payment, a
wife. Later on, he alleged that he did not authorize BPI few of the checks were dishonored due to insufficient funds.
The respondents demanded the petitioner to replace and
Issue: Whether or not the act of BPI was valid. make good of the check but this was not responded to. This
led to a filing of a case.
The Court held that yes, BPI’s act was valid because
compensation takes place when two persons, in their own Continuation: see digest
right are creditors and debtors of each other. So, under the
law, when all the requisites are present, then compensation
will take effect by operation of law. In this case, the
Comment: Apart from that, the Supreme Court also said that if
elements of legal compensation were present because the
you are talking about bouncing checks, you cannot simply ask
obligors are at the same time principally the creditors of
for compensation with respect to that, because your criminal
each other. Petitioner bank stands as a debtor to the private
liability attaches the moment that you issue a worthless check.
respondent being the depositor, and at the same time, the
So when you issue a worthless check, you cannot simply say
bank is also the creditor of the respondent with respect to
that your obligation with respect to that will already be
the dishonored US Treasury Warrant which was transferred
extinguished because again, that is a criminal liability.
to the respondent’s account. So, the debts involved also
consisted a sum of money and they are also due, liquidated,
and demandable. So, legal compensation took place.
Diongzon v. CA
[See digest]
Comment:
Comment: Here the Supreme Court said that is changing the
So, here, as you already know, the bank-depositor relationship
mode of payment, that is not changing the principal
is actually a debtor-creditor relationship. If you deposit money
conditions and therefore there is no novation. So just
in the bank, then you are actually the creditor of the bank. The
because there is partial payment, it cannot be said that they
bank is the debtor because the deposit is demandable at any
are already incompatible. That means that the original
time. That is why when you withdraw, the bank has to allow
obligation subsists.
your withdrawal. They are actually borrowing money from you.
So here, the treasury warrants which was deposited to the

account was actually dishonored in the US because the
Sandico v. Piguing
grandmother was already dead. It should not have been
deposited but just the same, the depositor transferred it. So,
[See digest]
when BPI noticed this, it deducted from the account. The SC
Comment: In other words, there was no novation because
said that this was fine because they debtors and creditors to
there was no more previous obligation. It was already
each other, you being the creditor of the bank and the bank is
extinguished by virtue of that order of the court saying that
the creditor with respect to the money which you transferred
the payment of the 4,000 was already in fulfillment of the
which is supposedly not due to you. So, there is compensation.
obligation in that case, therefore there was really nothing to
novate anymore because the first obligation has already
been extinguished. That’s why there was no express
novation, nor implied novation, because there was no more
obligation to novate.

Exams?
People’s Bank and Trust Company
It will continue. A resolutory condition will take effect at once
and the happening of the condition will extinguish the
[See digest]
obligation.
Comment: Here the Supreme Court said that the rem was
an additional security and then even if you require an
Regardless of the specific condition that it is the 2022
additional mortgage, it does not necessarily mean that the
Bar?
existing mortgage was novated because they can exist
If you go through the provisions on pure and conditional
together. They are not incompatible with each other. There
obligations, there is also the time. You are correct. You also
was no express novation, nor can you say there was implied,
have to look at the time element. If the time has already
because again, they can co-exist. You can have several
lapsed, there is no reason anymore for the obligation to
securities for a debt, just like in this case.
continue. If there is time and it has been impossible to fulfill
for the lapse of time, then the obligation is also extinguished.
In this example, the obligation is extinguished?

After the lapse of time and it is impossible to fulfill, then yes,
the obligation is extinguished.
Cruz v. CA
[See digest]
Comment: So anyway, in this case, just like in statutory TITLE II. CONTRACTS
construction, you have to try to reconcile first. And only
when they cannot be reconciled, then you say that … in
StatCon, if you remember, the new law is an implied repeal
of the previous law. It’s just the same as contracts of the ARTICLE 1305. A contract is a meeting of minds between
parties. So you have the deed of partial partition, where two persons whereby one binds himself, with respect to the
they actually agreed which property will go to whom. And other, to give something or to render some service.
then after that they made a MOA where they agreed that if
they sell the properties assigned to them, they would have
The last part, to give something or render some service, that is
to share it with everybody else. So some parties were saying
actually the obligation that we are talking about as we said
that the MOA was novayed the DPP.
that an obligation is the juridical necessity to give, to do and
not to do.
The SC said no, it did not novate it. First, there was no
express novation. It was not expressly stated in the MOA.
A contract now encapsulates that there are two or more
And second, there was no implied novation because they are
persons entering into such and they have agreed on some
not incompatible. Why are they not incompatible? They can
terms and conditions. That's why we say that it is a meeting of
exist together. Basically, the obligation under the DPP
minds.
remains because this property will go to which heir, and then
there’s just a subsequent agreement that since that property
What are the essential elements of the contract? What
is assigned to you, if you sell it then you have to share the
do we mean when we say essential, natural or
proceeds to the other heirs. So they can co-exist. No
accidental?
novation.
Essential - these are elements without which the contract
cannot exist.
Natural elements - those derived from the nature of the

contract and are ordinarily accompanying the same.
Quinto v. People
Accidental elements - those which exists because the parties

[See digest]
expressly provide for them.
Comment: There must be an agreement to release the first
debtor in novation. One concept that should be clear to you
What are the principles that we have to remember
is that in novation, there must be an agreement that the old
when we talk about contracts?
debtor must be released from liability. In this case, the SC is
● Autonomy of contracts which is Art. 1306,
telling you, if you say there is a novation then you have to
● Mutuality of contracts - Art. 1308,
prove that. Here, there was no agreement that the first
● Relativity of contracts - Art. 1311,
debtor is released. The original debtor is still liable because
● Consensuality of contracts - Art. 1315 and
there was no such agreement.
● Obligatory force and compliance in good faith - Art.
1129
Student Q’s Stages of Contracts

In the example, I will give you 50,000 monthly
allowance until you passed the 2022 Bar Examination. Contracts goes through different stages. The life of a contract
What will happen if he did not pass the 2022 Bar begins with negotiation so you talk about what you want to

38
be included in the contract and then once all the parties agree, are restrictions: it must not be contrary to law, morals, good
there is now perfection or meeting of the minds. Once all the customs, public order, or public policy.
terms and conditions are being fulfilled by the parties, there is
the consummation then death as it has already been
complied with.
ARTICLE 1307. Innominate contracts shall be regulated by
the stipulations of the parties, by the provisions of Titles I
Classification of contracts
and II of this Book, by the rules governing the most
There are several ways of classifying your contracts.
analogous nominate contracts, and by the customs of the
place.
According to relation with other contracts: Preparatory,
Principal and Accessory.
- For preparatory, a contract of partnership is Innominate contracts are perhaps those that are left unnamed
preparatory to any transactions entered into. because not all types of agreement can be named. But for you
- Principal contract - A contract of loan is the principal to know what rules will govern, you will just have to look at
and the contract of suretyship is the accessory. perhaps the most similar type of unnamed contract.
According to their perfection: Consensual, Real TYPES OF INNOMINATE CONTRACTS:

- Consensual - by the meeting of the minds, it is a) I give that you may give
already perfected b) I give that you may do
- Real - if there are certain formalities or when delivery c) I do that you may give
is needed to perfect a contract d) I do that you may do
According to the form: Common or Special Basically, there is an exchange: one is obliged to do something
in exchange for that other person to do or to give something
According to purpose: Transfer of ownership, conveyance of to you also.
use or rendition of service
MUTUALITY OF CONTRACTS
According to subject matter: Things or services
ARTICLE 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
According to nature of the vinculum which they
one of them.
produce: Unilateral or Bilateral
- Unilateral - only one is obliged
- Bilateral - Most contracts are bilateral; one is obliged Clearly, it has to be on both ends. You cannot make a contract
to give and in return, the other person will render his where it is only binding on one party.
service
It must be mutual: one is bound, and the other is also bound
According to cause: Onerous or Gratuitous by the stipulations of the contract.
- Onerous - meaning you part with something
- Gratuitous - receive something without parting It’s validity or compliance cannot be left to the will of one of
anything in return them because of the Mutuality of Contracts.
According to risks involved: Commutative or Aleatory

ARTICLE 1309. The determination of the performance
- Commutative - there’s an equivalent
may be left to a third person, whose decision shall not be
- Aleatory - when you do not know exactly how much
binding until it has been made known to both contracting
(e.g., contract of insurance)
parties.
According to names: Nominate or Innominate

- Nominate - there’s a designated name (e.g., contract But TN that what is left to the third person is the determination
of sale, contract of partnership, contract of loan) of how it is performed, NOT the validity of the contract.
- Innominate - if there’s no name for it but it is clear
that there is an obligation by one to the other and What makes a contract valid? The essential elements of a
vice versa contract.
“decision shall not be binding until it has been made known to

AUTONOMY OF CONTRACTS both contracting parties”
- This is to ensure utmost fairness.
ARTICLE 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. ARTICLE 1310. The determination shall not be obligatory
if it is evidently inequitable. In such case, the courts shall
decide what is equitable under the circumstances.
This tells you that you have the freedom to enter into any
contract that you like but this freedom is NOT absolute. There

Because it’s unfair. In such a case where there is evident Now you will have an incidental benefit because of course if
unfairness, one of the contracting parties can ask the court to there’s a development beside your vacant parcel of land, your
determine and decide what is equitable under the parcel will definitely appreciate in value.
circumstances.
Now, supposing AyalaLand will renege in its obligation and will
Art. 1308-1310 actually just emphasizes the importance of not continue the development, can you sue, being the
Mutuality of Contracts. neighbor? Because if it will not push through then the value of
your land will not appreciate? That is NOT the benefit in favor
RELATIVITY OF CONTRACTS of a third person that we are talking about because that is
merely incidental.
ARTICLE 1311. Contracts take effect only between the

What the law requires for a third person who is not really a
parties, their assigns and heirs, except in case where the
party to the contract is when in that contract, there was really
rights and obligations arising from the contract are not
a benefit conferred upon that third person and he has
transmissible by their nature, or by stipulation or by
accepted such benefit. Because then, if either of the parties to
provision of law. The heir is not liable beyond the value of
the contract will renege or fail to comply with the obligation
the property he received from the decedent.
then it affects you.
If a contract should contain some stipulation in favor of a

So for example, there is an agreement between A and B where
third person, he may demand its fulfillment provided he
B will pay 1M and then he will give 10% of that to X, and X
communicated his acceptance to the obligor before its
already accepted that benefit. So even if really, X is just a third
revocation. A mere incidental benefit or interest of a person
person not a principal party to the contract, he may actually
is not sufficient. The contracting parties must have clearly
enforce the contract if and when one of the parties fails to
and deliberately conferred a favor upon a third person.
comply with the conditions of the contract.
Art. 1311 tells us that we inherit rights as well as obligations. Requisites for stipulation pour autrui:
Illustration: 1. There must be a stipulation in favor of a third person;

Let’s say, your parents may have entered into a Contract to Sell 2. The stipulation must be a part only, and not the
with another person, if it is still effective and there is an whole of the contract;
intervening death by your parents, then you will have to abide 3. The contracting parties must have clearly and
by what they have entered into. Because the law says that it deliberately conferred a favor upon a third person, not
will also be binding upon the heirs. a mere incidental benefit or interest;
4. The third person must have communicated his
However, if there are debts contracted and there is a acceptance to the obligor before its revocation;
supervening death, you also inherit obligations. But this time, 5. Neither of the contracting parties bears the legal
there is a limitation: it must NOT be beyond the value of the representative or authorization of the third party
property received by the heir.
ARTICLE 1312. In contracts creating real rights third

Illustration:
person who come into possession of the object of the
X is the heir and A is his only parent. When A died, he left
contract are bound thereby subject to the provisions of the
P10M debt, but the properties that he left to the heir is only
Mortgage Law and the Land Registration Law.
P500,000. Then, the heir (X) is only liable to pay the debt to
the extent of P500,000.
GR: Art. 1311 tells you that if you are a third person, you
ARTICLE 1313. Creditors are protected in cases of
CANNOT sue on a contract, you cannot sue another party for
contracts intended to defraud them.
failure to abide by the terms of the contract because you are a
stranger to the contract.
XPN: Stipulation pour autrui. If you can still remember in your property or Land Registration
Laws where for example if there is a mortgage over the
property and its effect if registered or not registered.
Illustration (on incidental benefit which will not give
you a right to enforce a contract): If there’s no annotation that the land was previously mortgage
You have a parcel of land. Beside it, there is a contract entered and you also have no knowledge whatsoever and that you
into by your neighbor with Ayala Land, whereby they agreed conducted due diligence but this information never came up, if
that Ayala Land will develop that property. You will have an X fails to pay and the creditor wishes to foreclose the
incidental benefit because if there’s a development beside your mortgage, can the creditor foreclose now that the property is
vacant parcel of land, your parcel will definitely appreciate in in your possession? Not anymore because you have no
value. knowledge of it and it was not registered.
Supposing it was not registered but you HAD knowledge of it

or you did not exercise due diligence. There were

40
circumstances that would have aroused suspicion and you did can get back the car that was sold because that is an
nothing about it. unauthorized or unenforceable contract because he is not
authorized.
Can the third person foreclose that mortgage now in
your possession?
ARTICLE 1317 (2). xxx A contract entered into in the
Yes. So, this is now the exception to the relativity of contracts
name of another by one who has no authority or legal
because even if you are not a party to the mortgage, if it can
representation, or who has acted beyond his powers, shall
be shown that you are not a purchaser in good faith, then the
be unenforceable, unless it is ratified, expressly or impliedly,
property in your possession may still be foreclosed even if it is
by the person on whose behalf it has been executed, before
not your debt to begin with because of the rules on mortgage
it is revoked by the other contracting party.
and on land registration.
So, there are actually two types of unauthorized contracts:
ARTICLE 1314. Any third person who induces another to

(1) you have no authority at all to act for another or
violate his contract shall be liable for damages to the other
contracting party. (2) you may have an authority but there is a certain extent by
which you can exercise that power but you exceeded that
authority.
Why? Because you have induced him to violate but of course
your jurisprudence will tell you that if you will be made liable Example: You were only authorized to lease out a particular
for damages, it will definitely not be more than the violating car but instead of leasing it out, you sold the car. You had the
party. Yes, you will be made liable but at the end of the day, authority but your action exceeded that authority.
the one who will be most liable would be the party who
violated the contract. As I’ve mentioned, if it is unauthorized, it shall be considered
as unenforceable unless it is ratified expressly or impliedly by
the person on whose behalf it has been executed before it is
revoked by the other contracting party.
ARTICLE 1315. Contracts are perfected by mere consent,
and from that moment the parties are bound not only to the So, in our example, we said that X sold the car of A to Y. Now,
fulfillment of what has been expressly stipulated but also to if A ratifies it, then the contract instead of being
all the consequences which, according to their nature, may unenforceable, it is now valid. If he does not say it expressly
be in keeping with good faith, usage and law. but he received the payment of the car then that is implied
ratification or acceptance of the act of X who sold the car to Y.
So, the general rule in Article 1315 is that perfection of a
contract is by mere consent. So, once you have consented to So, what are the essential requisites of a contract?
the contract, there is already meeting of the minds, a contract,
as a general rule, is perfected. And then, you have the Again, when we say essential requisites, if one is not present,
exception which you will find in Article 1316. then the contract does not exist. It is void.
The requisites are: consent of the contracting parties, object

certain which is the subject matter of the contract and cause
ARTICLE 1316. Real contracts, such as deposit, pledge of the obligation which is established.
and commodatum, are not perfected until the delivery of
the object of the obligation.
CONSENT
So, your law specifically makes them an exception. It’s not the
consent that will perfect the contract but delivery. Again, these
are the real contracts such as deposit, pledge and
commodatum. So, they are perfected when they are delivered.
ARTICLE 1319. Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
ARTICLE 1317 (1). No one may contract in the name of
certain and the acceptance absolute. A qualified acceptance
another without being authorized by the latter, or unless he
constitutes a counter-offer.
has by law a right to represent him. xxx
Acceptance made by letter or telegram does not bind the

So, you cannot enter into a contract if you are not so offerer except from the time it came to his knowledge. The
authorized. contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
Example: A owns a specific car. X cannot sell the car of A if
he is not authorized to do so. If X sells the car of A to Y, then A

So, what then therefore are the requisites of consent When will there be meeting of the minds? Is it January
based on Article 1319? 29, 2009 when the offeree received the letter offer or
is it February 15, 2009 when the offerer received the
First, the consent must be manifested by the concurrence of acceptance?
the offer and the acceptance. Second, the contracting parties
must possess the necessary legal capacity. And third, the A: Your law says that acceptance made by letter or telegram
consent must be intelligent, free, spontaneous and real. does not bind the offerer except from the time it came to his
knowledge. In other words, the implication in our example is,
When we say intelligent, dili kay bright mo – meaning there is prior to February 15, 2009, the offerer can actually withdraw
no vice of consent. That you have entered into a contract and his offer because there has been no meeting of the minds yet
you have thought about it and when the offer was made, you – because there’s meeting of the minds only when it comes to
accepted it. Not necessarily again that you are bright or his knowledge, when he receives the letter or telegram by way
intelligent, only that you thought about it before you accepted of acceptance.
or gave your consent.
The offeror can actually withdraw his offer, prior to that,
Now, let’s illustrate what this offer and acceptance is because there has been no meeting of the minds just yet.
all about: There’s meeting of the minds only when it comes to his
knowledge, when he receives that letter or telegram by way of
First, we said offer must be certain and acceptance must also acceptance. Now you might ask, what if nanawag siya
be certain and absolute. So, if you have an offerer offering to before niabot? Nanawag si offeree na iyang giaccept?
sell a book to the prospective buyer and he offers to sell it for Will that constitute meeting of the minds?
1000 but the buyer does not accept it but instead gave
another offer. So, naghaggle siya: “No, too expensive. I will If the letter of revocation was sent on Feb 15 and there was
buy it for 800.” But the offerer or the seller says: “Okay, but I already a call for acceptance before Feb 15, there was meeting
will sell to you for 900”. Tihik man siya, di gihapon siya. So, of the minds already. Offeror already has knowledge of the
finally, the offerer offers it for 800. acceptance.
With those set of facts, is there now a perfected There was already a meeting of the minds because there was
contract? Now that the offerer has offered it at the already a call made. That brings the offeror the knowledge of
price to which the prospective buyer offered to buy it the acceptance of the offeree. We have to interject the reality,
for 800. because the Civil Code was made in the 1950s, so of course,
perhaps that must be the reason for this provision. The point
No. For there to be meeting of the minds, there must be the of this provision is once the offeror knows of this acceptance,
meeting also of the offer and the acceptance. then there is already a meeting of the minds. But of course
there are exceptions. What is the exception? In the same
Here, when the prospective buyer offered to buy it at 800, it set of circumstances that I have said, when can there
was not accepted. So, when he gave a counteroffer of 800, the still be no meeting of the minds even when the offeree
prospective buyer now became the offerer and the seller has called the offeror?
became the offeree. But he did not accept it, he made another
offer to sell it to 900 and still it was not accepted by the There can be no meeting of the minds when the offeror has
prospective buyer. So, when he lowered it again to 800, this specified the manner by which acceptance should be made. If
time trying to meet the counteroffer previously, there was no in our example, the offeror here has actually said acceptance
meeting of the minds yet because the offer has not yet been must be made by letter or telegram. So even if he calls before
accepted. This means that this again another offer that was the receipt of such letter, there can still be no meeting of the
made and must be accepted again. minds because you have to follow the specification or the
manner by which the offeror would want the acceptance to be
So, when the prospective buyer counter-offered the 800, this made.
means that there was an acceptance but it was qualified. This
is not the kind of acceptance that will bring forth meeting of Another example: Jan 29, 2009, there is now an offer made to
the minds because we said that the acceptance must be the offeree, offeree accepts it on Feb 15, can B still withdraw
absolute. his offer to C? yes, at anytime before he receives his letter of
acceptance from C. Can C also still withdraw his acceptance?
So, as I have mentioned, was there acceptance? Yes, he has to make sure the letter of revocation should be
received first by B before his letter of acceptance will be
Yes, actually there is but it was qualified. But that does not received. Perhaps, if iyang acceptance, iyang gisnail mail, he
mean that there is already meeting of the minds. must make sure he can use a faster courier for to send the
letter of revocation of acceptance.
Now, acceptance by letter or telegram: So, the offerer
offers a car for sale and it was sent January 29, 2009. The
offeree accepted it but the acceptance was made again thru
ARTICLE 1320. An acceptance may be express or implied.
letter or telegram on February 15, 2009.

42
As a general rule, there is no prescribed form. The law does The one who is entitled to the car still would be the heirs of
not prescribe any form of acceptance. It may be expressed or Ben because even if there was a call made by Carlo to Ben
implied. It may be in whatever form. accepting that donation, the law provides that if the value of
the donation of personal property exceeds P5000, acceptance
of the donation must be made in writing otherwise, the
donation is void.
ARTICLE 1321. The person making the offer may fix the
time, place and manner of acceptance all of which must be
So even if there was a call that was made, the donation could
complied with.
not be valid still. Now what if it was just a donation of
the thing worth 3000 pesos? Would your answer be
So if it’s not complied with, as in the case about the car of the different?
manager, where they agreed on the form of acceptance but he
did not follow it, so it was not considered as accepted. If you Yes by Express provision of law, only donations worth 5000 or
offer something and it states there that the acceptance must more, should be made in writing. So that call would have
be via email, unya wa ni email, gitext lang , then the offeror already been the meeting of the offer and the acceptance.
can treat it as not accepted. It’s just a qualified acceptance.
Comment: If it was not a donation, but let's say an offer to
sell the car worth 700,000 pesos and then Carlo made a call to
ARTICLE 1322. An offer made through an agent is Ben accepting the offer of 700,000 pesos, then even if the
accepted from the time acceptance is communicated to him. offeror has died prior to the written letter of acceptance, the
heirs of the offeror would still be bound to sell it for that price
because death came after the meeting of the minds. Unless of
So if an offer was made through the agent, then the law says course, again, the offer has specifically made a condition on
acceptance can also be made through him. Once the agent has the acceptance that it must be in writing.
knowledge of acceptance, then there is already meeting of the
minds. So, you have to look into whether when did the meeting of the
minds actually occur and you also have to look into what type
ARTICLE 1323. An offer becomes ineffective upon the of contract was being entered into.
death, civil interdiction, insanity, or insolvency of either
parties before acceptance is conveyed. ARTICLE 1324. When the offerer has allowed the offeree
a certain period to accept, the offer may be withdrawn at
When you say convey, it refers to the moment when the any time before acceptance by communicating such
offeror has knowledge of the acceptance of the offeree. So you withdrawal, except when the option is founded upon a
have here, Mr. Onion, who is residing in Cebu City consideration, as something paid or promised.
receives a letter from his friend, selling his gold watch
for P4,000. Mr. Garlic received the letter on Jan 31, Art. 1324 talks about an option contract; it says when the
2009. He communicated his acceptance on Feb 3, 2009. offer has allowed the offeree a certain period to accept, the
But unknown to him, Mr. Onion already died on Feb 1, offer may be withdrawn at any time before acceptance by
2009. So with that, is the offer of Mr. Onion still communicating such withdrawal, except when such option is
effective? founded upon a consideration as something paid or promise.
The offer is no longer effective because there can no longer be Example 1: An offeror offers to sell you a particular car and
a meeting of the minds. While Mr. Garlic received the offer on then he gives you 20 days within which to decide whether to
Jan 31, the acceptance was not conveyed to Mr. Onion. He accept or not the offer. Before the 20 day period ends, he can
already died before the acceptance was conveyed. actually withdraw the offer at any time. In other words, he is
under no obligation to actually wait for you to decide. That is
Since there was intervening death before the acceptance was
what the law is basically telling you. However, if that period of
conveyed, then the offer dies with the offeror. In other words,
time that the offer is making you wait, he is making you pay
Mr. Garlic cannot try to enforce upon the heirs of Mr. Onion to
for it, like in our example, you had to pay 10,000 pesos, then
sell the watch to him for P4,000 because the offer has already
there arises actually another contract which is the option
become ineffective.
contract. And so, now, the offer cannot withdraw the offer
within the 20 day period that was given to you, he will have to
wait until you decide within that 20 day period. So, again, it's
Ben who resides in Manila wrote to his friend Carlo,
not because there was a meeting of the minds on the contract
who is residing in Cotabato city stating in the letter
to sell but rather it is because there is another contract that
that Ben is donating to him, one new car worth
was made and that is your option contract.
700,000 pesos. Upon receipt of the letter, Carlo called
Ben by phone that he is accepting the donation. The
Again, if the option is without a consideration, then the offeror
same day Carl Carlo wrote and mailed a letter to Ben
may withdraw his offer anytime by communicating such
accepting the donation. Immediately after meeting the
withdrawal. So long as the offeree has not accepted yet
letter, carload died of a heart failure, who is now
because if the offering has already accepted then there is
entitled to the car, Carlo or the heirs of Ben?
already a meeting of the minds and he can no longer withdraw

43
it. If the option is with a consideration, and we call it option sale - that is merely an invitation to make an offer; Or there
money bringing about the birth of an option contract, then the could be lot for sale with description but there is no price.
offeror cannot withdraw his offer during that period.
The seller gives Mr. X, 10 days from today within which

ARTICLE 1326. Advertisements for bidders are simply
to decide on whether or not to buy the car worth 2
invitations to make proposals, and the advertiser is not
million pesos. If Mr. X paid 10,000 for the option, can
bound to accept the highest or lowest bidder, unless the
the seller withdraw his offer before Mr. X accepts the
contrary appears.
offer?
If it is with a consideration, then the seller cannot withdraw his

offer because there is an option contract. If Mr. X is just given
ARTICLE 1327. The following cannot give consent to a
the 10 days to decide without giving any consideration, he did
contract:
not pay for I, can the seller withdraw his offer before Mr. X
(1) Unemancipated minors;
accepts the offer, the answer is yes, the offer may be
(2) Insane or demented persons, and deaf-mutes who do
withdrawn at any time before acceptance.
not know how to write.
So before an offer may be withdrawn, of course, as you

mentioned, there must be no acceptance yet. Because if Who cannot give consent to a contract?
there's already acceptance, there's already meeting of the
minds. Second, the offeror must communicate to the offeree Under the law, it actually provides for specific persons who
the decision to withdraw the offer. In other words, if he gave cannot give consent to a contract and they are follows:
10 days for the offeree to decide whether to buy or not what 1. Minors
he is offering for sale. Just because additional an additional 2. Insane and demented persons
option contract, he cannot simply just offer it to somebody else 3. Deaf mutes who do not know how to write
and then sell it to somebody else. He has to communicate to
the offeree the decision to withdraw the offer and of course So, the capacity of the contracting parties, is, in effect, an
there must be no consideration for the option. So as I've said, essential element of a contract or to be more exact, it is an
once there is acceptance and such is communicated and indispensable requisite of consent. So, for you to be able to
received by the offer, the offer can no longer be withdrawn. give consent, you must be giving it intelligently and freely.
There must be no vice of consent.
Now what's the difference between an option money
and earnest money? A contract is voidable if only one of the contracting parties is
capacitated to give his consent. How about if both contracting
Option money - not part of the purchase price, you are really parties are incapacitated?
paying for the time given to you to decide. That is just proof of Not merely voidable. It makes the contract unenforceable.
the perfection of the option contract.
So, if only one, voidable. If both contracting parties, it
Earnest money - part of the purchase price. That proof of becomes unenforceable.
the perfection of the contract; it could be contract of sale.
Exceptions when a contract entered into by a minor
may have the effects of a valid contract would be, as
cited in the cases:
ARTICLE 1325. Unless it appears otherwise, business
1. Mercado v. Espiritu - that is, when entered into by a
advertisements of things for sale are not definite offers, but
minor who misrepresents his age;
mere invitations to make an offer.
2. When it involves the sale and deliveries of
necessaries to the minor
General Rule: Business advertisements of the things for sale 3. When it involves a natural obligation and such
are not definite offers but mere invitations to make an offer. obligation is fulfilled voluntarily by the minor.
Exception: When the advertisement is already complete - you

already have the price, the description of what is being sold. In
ARTICLE 1328. Contracts entered into during a lucid
that case, the advertisement can already be considered as an
interval are valid; Contracts agreed to during a state of
offer.
drunkenness or during a hypnotic spell are voidable.
What do we mean by that?

What do you mean by lucid interval?
That means the object, cause and consideration has already The period wherein an insane person is in full possession of his
been made clear and all you need is to give your consent. mental faculties. Thus, capable of giving consent.
But as a general rule, an advertisement is just an invitation to Who has the burden of proof to show that the contract
make an offer. Like, when you drive around and you see lot for was entered into during the lucid interval?

44
It is the other contracting party who entered into with the

insane person.
ARTICLE 1331. In order that mistake may invalidate
consent, it should refer to the substance of the thing which
Okay, so, if you are a known insane person, and you entered
is the object of the contract or to those conditions which
into a contract and now the other contracting party wants to
have principally moved the parties to enter into the
enforce it, he has now the burden of proof that such contract
contract.
was entered into during a lucid interval. If he can prove that it
was such, then the contract may be enforced.
Mistake as to the identity or qualifications of one of the
parties will vitiate consent only when such identity or
Contracts entered into during a state of drunkenness or
qualifications have been the principal cause of the contract.
during a hypnotic spell are voidable. Why voidable?
A simple mistake of account shall give rise only to its

Contracts that are voidable are valid until annulled. This talks
correction.
about a consent which was actually given - there is no lack of
consent, because if there is lack of consent then the contract is
void for lack of one of the essential requisites of a contract. As a general rule, only mistakes of fact vitiate consent and
But if there is consent, only that it is defective, then the make the contract voidable. Mistakes of law do not render the
contract is voidable. contract voidable because ignorance of the law excuses no
one. That is the case of Luna vs. Linatoc.
Now, when you are drunk and you enter into a contract, it is
not intelligently given. You are not in your right mind.
ARTICLE 1332. When one of the parties is not able to
So, contracts entered into a state of drunkenness are valid
read or when the language of the contract is not understood
unless annulled because consent is given but defective - there
by him and mistake or fraud is alleged, the person enforcing
was no intelligent consent. It was not actually freely made.
the contract must show that the terms thereof had been
fully explained to the former.
ARTICLE 1329. The incapacity declared in Art. 1327 is

Why? Because the other contracting party is at a disadvantage
subject to modification determined by law and is understood
because he is illiterate or he does not understand the language
to be without prejudice to special disqualifications
by which the contract is written. So, when you are the other
established by laws.
contracting party, and you want to enforce the contract, you
must make sure that you can prove that it was well-explained
Special disqualifications like “husband and wife cannot donate to the other contracting party.
to each other” pertaining to certain contracts, there are certain
people who cannot enter into certain contracts. In your study This will not apply when the allegation is that there was no
of Property and Succession, there are those who do not have contract at all. There is nothing to explain if there is no
the capacity to be donees or cannot inherit. contract at all. This article implies that there really was a
contract only that the party did not understand what the
contract meant. Because if you say that you did not sign
anything, your defense cannot be that you are illiterate.
ARTICLE 1330. A contract where consent is given
through mistake, violence, intimidation, undue influence, or
This article was intended to protect the person at disadvantage
fraud is voidable.
due to his handicap.
This talks of vices of consent. Your consent was given but it

ARTICLE 1333. There is no mistake if the party alleging it
was not given freely.
knew the doubt, contingency or risk affecting the object of
the contract.
When you say you entered into a contract because of
mistake, you will say that the contract was not intelligently
given because you were relying on a different set of facts. If there is a risk involved like when you get an insurance
contract, which is always based on a contingency, you cannot
When you say violence, physical force was employed upon say that you are not bound by it because you did not know of
you. When you say intimidation, there is no physical force the risk.
but there was moral compulsion.
ARTICLE 1334. Mutual error as to the legal effect of an
In undue influence, you look into the relationship between
agreement when the real purpose of the parties is
the contracting parties. If one of them holds a clout over the
frustrated, may vitiate consent.
other by reason of his rank or otherwise.
For fraud, by reason of insidious machinations, you were led Why? Because the intention is no longer there and there was a
to believe a certain fact when in fact it is not true. mistake of fact on both parties. I have assigned several cases
there on examples of mistake of fact.

45
unduly influenced was suffering from mental weakness, or

Requisites on mistake:
was ignorant or in financial distress.
(1) mistake is with respect to legal effect of agreement;
(2) mistake must be mutual and
(3) real intention of parties is frustrated. There is really more of a power of one person over another.
When you say oblicon, it’s the mother of all civil law provisions.
ARTICLE 1335. There is violence when in order to wrest
So, if you look at this provision, you may relate it to those
consent, serious or irresistible force is employed.
incapable of being heirs, incapable of being donees, etc.
There is intimidation when one of the contracting parties is

FRAUD
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants or ARTICLE 1338. There is fraud when, through insidious
ascendants, to give his consent. words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without
To determine the degree of intimidation, the age, sex and them, he would not have agreed to.
condition of the person shall be borne in mind.
This is the last vice of consent. There are 2 kinds of fraud —
A threat to enforce one's claim through competent authority,
dolo causante and dolo incidente.
if the claim is just or legal, does not vitiate consent.
Dolo causante is when one induces the other to enter into
You cannot say that there is violence when you were just the contract; it was the reason for entering into the contract.
pinched. That’s not an irresistible force. This is the kind of fraud that annuls or avoids a contract.
Remember that the law specifically enumerates the persons Example: If A will now offer to sell a diamond ring to B, and
who may be included for one to say that consent is vitiated. If by using machinations, convinces B that what A is showing to
one contracting party threatens to kill the persons in the list, him is a real diamond ring when it is not, and B believes him
then you can say there is intimidation. It does not include your and buys the ring, he can later on avoid the contract on the
uncle, aunt, or cousins. The law is specific. basis of vitiated consent, the vice of which is fraud. In the
beginning, there is already fraud.
It includes persons or property. If they threaten to burn down
your house, that is intimidation. Dolo incidente, on the other hand, is a fraud employed in the
performance of the contract.
To determine the degree of intimidation, the law says you have
to consider age, sex, and condition of a person. Example: A offers to sell a diamond ring to B. A shows him a
real diamond ring, and B agrees to buy; But what is actually
How about if you say, “I will sue you in court.” The law says given to B later on is a fake one. This does not vitiate consent,
that a valid claim through a competent authority, if the claim is thus you cannot annul the contract. You can only ask for
just and legal, does not vitiate consent. damages.
Dolo causante is serious in character because it affects

ARTICLE 1336. Violence or intimidation shall annul the
consent, it makes it defective. On the other hand, dolo
obligation, although it may have been employed by a third
incidente is not because there is no fraud at the time you gave
person who did not take part in the contract.
your consent.
For example, you were forced to enter into a contract because For fraud to vitiate consent, there must be:
“ginkulata ka” sa bodyguard of the other contracting party, this
will vitiate consent even if employed by a third person. This is (1) contracting parties;
a ground to annul the contract. (2) the fraud, insidious words or machinations must have been
serious or substantial in the contract;
So when you speak of violence, that is external whereas (3) it must have induced the other party to enter into the
intimidation is more of internal because you are being contract;
threatened that something bad is going to happen. Violence is (4) the fraud should have not been employed by both of the
physical compulsion, whereas intimidation is moral compulsion. parties or third persons.
Why? Because if both contracting parties have employed

ARTICLE 1337. There is undue influence when a person
fraud, then may silang pakungon. They cannot now complain
takes improper advantage of his power over the will of
another, depriving the latter of a reasonable freedom of because they are also guilty of such. Now as opposed to
choice. The following circumstances shall be considered: the violence and intimidation, if the violence or intimidation is
confidential, family, spiritual and other relations between the employed by third persons, it will still annul the contract. But in
parties, or the fact that the person alleged to have been fraud, it must not be employed by third persons. It must be
employed by the other contracting party.

46
employed by both contracting parties.

ARTICLE 1339. Failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by Incidental fraud only obliges the person employing it to pay
confidential relations, constitutes fraud. damages.
So if you are an agent or if you are a partner in a partnership,

ARTICLE 1345. Simulation of a contract may be absolute
if you still remember your partnership, there is a duty to
or relative. The former takes place when the parties do not
disclose information. And if you do not, then that can be
intend to be bound at all; the latter, when the parties
considered as fraud.
conceal their true agreement.
ARTICLE 1340. The usual exaggerations in trade, when

the other party had an opportunity to know the facts, are ARTICLE 1346. An absolutely simulated or fictitious
not in themselves fraudulent. contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public
Of course the usual exaggerations in trade, when the other
policy binds the parties to their real agreement.
party had an opportunity to know the facts, are not in
themselves fraudulent. So it is common place that there are
usual exaggerations in trade. But if the other party is not Now how about simulation of contracts? You already know that
withheld or stopped from looking into the real facts then you there are two types of simulation. The absolute simulation and
cannot consider that as fraud to avoid the contract. In one of relative simulation.
the cases, it was a house and it was flooded, the SC said that
there cannot be fraud or misrepresentation because the buyer What do you mean by an absolutely simulated
had every opportunity to know about it. In fact, the neighbors contract?
were already saying that if it rains, it will flood. So you cannot It is entered into by the parties who had actually no intention
use that to avoid the contract because of the Principle of Buyer to be bound at all. It is absolutely simulated.
Beware. So when you enter into a contract, you also have to
exercise due diligence. Why is that void?
It is void because of lack of consent. There is no consent at all
because the parties did not intend to be bound by it at all.
ARTICLE 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other party
Now how about relatively simulated contract?
has relied on the former's special knowledge.
It is when the parties have a real agreement, let’s say for
example a donation, but what they made appear in the
So again, mere opinion even if wrong, does not equate to contract is a contract of sale. So that is relatively simulated.
fraud unless of course, it is an expert and the other party has What is the effect? Art. 1346 says the parties are bound by
relied on such expertise. Then it may be considered fraud. their real agreement.
Now what do we mean by real agreement is it the

ARTICLE 1342. Misrepresentation by a third person does
intention or what appears on the contract?
not vitiate consent, unless such misrepresentation has
It is what appears on the contract. Why? Because this is to
created substantial mistake and the same is mutual.
penalize the parties for their deceit. They are now bound on
the new agreement which appears on the contract.
So as I have said earlier misrepresentation by a third person
does not vitiate consent as a general rule. It must be employed Now that ends the first essential element, which is consent.
by your other contracting party unless of course, as an
exception to the general rule, unless such misrepresentation
has created substantial mistake and it must be mutual,
OBJECT OF CONTRACTS
meaning, both sides or both contracting parties.
When we talk about object and cause, they actually refer to

ARTICLE 1343. Misrepresentation made in good faith is
the same depending on which perspective we are looking at.
not fraudulent but may constitute error.
Object - the thing you are giving up.

Misrepresentation done in good faith because you really Cause - the thing you are expecting to receive.
believed it, can you avoid the contract on the basis of fraud?
NO because there is good faith but the contract may still be Such that, in the other side, the other party, your object is his
avoided or annulled but on the ground of mistake or error. cause and your cause is the other party’s object. So object of
the contract is the thing right or service which is the subject
matter of the obligation which is created or established.
ARTICLE 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been

47
Example: I will buy a car from A. What is my object? As buyer determinable and you don’t need to enter into a new contract
buying a particular car, my object is that which I am giving up to be able to determine it.
which is the money that I will pay, while my cause is that
which I am expecting to receive and that is the car. On the
CAUSE OF CONTRACTS
part of the seller, the seller’s object is the car because that is
what he is going to give up and the cause is the money or the
price that I will pay. So that is basically how you determine
which is the object and which is the cause.
ARTICLE 1350. In onerous contracts the cause is
understood to be, for each contracting party, the prestation
Comment: So it is not accurate to say that in a contract of
or promise of a thing or service by the other; in
sale, the object is the thing that is being sold because whose
remuneratory ones, the service or benefit which is
perspective are we talking about? So it is not correct to say the
remunerated; and in contracts of pure beneficence, the
object is the car and the cause is the price because it depends
mere liberality of the benefactor.
on which contracting party we are talking about.
Whatever you expected from the other contracting party, that

ARTICLE 1347. All things which are not outside the
is your cause. In onerous contracts, for example in a contract
commerce of men, including future things, may be the
of sale, if you are the seller, then what you’re expecting from
object of a contract. All rights which are not intransmissible
the other party is the payment of the price. That’s your cause.
may also be the object of contracts.
In remuneratory ones, the service or benefit which is
No contract may be entered into upon future inheritance
remunerated. If you are in an employer-employee relationship,
except in cases expressly authorized by law.
for the employer, the cause of the employer is the service of
the employee. The object of the employer is the salary. For the
All services which are not contrary to law, morals, good
part employee, the object is the service rendered and the
customs, public order or public policy may likewise be the
cause is the salary.
object of a contract.
For contracts that are gratuitous, it is the mere liberality of the
Why is it that no contract can be entered into upon benefactor which is the cause or consideration.
future inheritance?
Future inheritance is an inchoate right. You’re not yet even
ARTICLE 1351. The particular motives of the parties in
sure if you will inherit it because somebody else still owns it.
entering into a contract are different from the cause thereof.
You cannot enter into contracts upon future inheritance except
as authorized by law.
Your cause is not the same as your motive. Your motive is
internal, your reason for entering into the contract. Even if
ARTICLE 1348. Impossible things or services cannot be
your motive is illegal, so long as your object and cause are
the object of contracts.
legal, the contract is valid.
This is because if it is considered an impossible thing or service Supposing you sell a car for Php500,000.00. The reason why
then it is as if there is no object at all. If there is no object you are selling a car is because you want to buy drugs. Your
then the contract is void. motive is illegal but that does not affect the contract of sale
that you entered into. It would be different if you bartered
When you talk about impossible things or services, your car with drugs because then your cause, if you’re the one
what are the different kinds of impossibility? who bartered the car, your cause is a legally impossible thing.
The law deems it as if there is no cause or consideration so the
1. Legal impossibility. The objects are deemed by law contract is void.
to not be allowed as objects of a contract.
2. Physical impossibility. It would be impossible for Distinction between cause and motive
the obligor to perform such acts such as flying like a 1. Cause is the direct or most proximate reason of a
bird, for example. contract but motive is the remote or indirect reason.
3. Moral impossibility. 2. Cause is objective or the juridical reason of a contract
while motive is psychological.
3. Cause will always be the same pertaining to the
ARTICLE 1349. The object of every contract must be
contract, motive will differ for each contracting party.
determinate as to its kind. The fact that the quantity is not
4. Illegality of the cause will affect the validity of
determinate shall not be an obstacle to the existence of the
contract while illegality of the motive will not affect
contract, provided it is possible to determine the same,
the contract.
without the need of a new contract between the parties.
ARTICLE 1352. Contracts without cause, or with unlawful

Let’s say you can sell your share in the profits of a business for
cause, produce no effect whatever. The cause is unlawful if
September. You can enter into that today even if September
it is contrary to law, morals, good customs, public order or
has not ended yet. This is because it can easily be

48
public policy. in the following article cannot be exercised.
If the contract is without cause or with unlawful cause, the

contract is void for absence of a cause and we said that a
cause is an essential requisite of a contract. Lacking one As a general rule, contracts are obligatory in whatever form, as
requisite, there is no contract, the contract is void. long as there is consent, object, and cause to make it valid.
However there are certain contracts where the law requires for
validity or convenience. Then you will have to follow the law
ARTICLE 1353. The statement of a false cause in
for certain types of contracts.
contracts shall render them void, if it should not be proved
that they were founded upon another cause which is true
Contracts that must appear in writing:
and lawful.
● Donations of personal property whose value exceed
Supposing you put in the contract that you are selling a P5,000.
particular parcel of land for P2M but the truth is you sold it for ● Sale of a piece of land or any interest therein through
P5M but you and the buyer agreed that only P2M shall be an agent
reflected so as to avoid paying a higher tax. ● Agreement regarding payment of interest in contract
of loan
The law says that if you can prove that there was really ● Antichresis
another cause that is legal, then the contract will be valid but if
there is actually no cause then the contract has no effect Contracts that must appear in public document:
whatsoever.
● Donation of immovable property
● Partnership where immovable property or real rights
ARTICLE 1354. Although the cause is not stated in the are contributed to the common fund
contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. Contracts that must be registered:
The presumption is there is a cause for why would someone ● Chattel mortgages
enter into a contract without receiving anything in return. ● Sales or transfer of large cattle
That’s the reason behind that but of course if it can be proved
that there was in fact no cause then the contract can be
declared void. ARTICLE 1357. If the law requires a document or other
special form, as in the act and contract enumerated in the
INADEQUACY OF THE PRICE following article, the contracting parties may compel each
other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with
ARTICLE 1355. Except in cases specified by law, lesion or the action upon the contract.
inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence. Remember that in the next provision, there is a particular form
that must appear in a public document. The form required is
Can that avoid the contract? not for validity but for convenience. That means that the
contract is already perfected. That’s why 1357 says you can
No, except in cases specified by law, lesion, or inadequacy of compel the other party to observe that particular form. If a
cause shall not invalidate a contract. Even if you sell a parcel of particular form is required to make a contract valid, you cannot
land worth 10 million for only 1 million pesos, you cannot ask simply compel the other party to compel that form because it
the court to annul the contract on the basis of inadequate was not yet perfected. In other words, there is a requirement
price. There is a price, an object, and consent. All essential by law that has not complied yet to make it valid. In 1358,
elements are pre even without the public document, the contract had already
perfected only that 1358 required it to be a public document
(notarized).
FORMS OF CONTRACTS
What are these contracts?
ARTICLE 1356. Contracts shall be obligatory, in whatever

form they may have been entered into, provided all the ARTICLE 1358. The following must appear in a public
essential requisites for their validity are present. However, document:
when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract (1) Acts and contracts which have for their object the
be proved in a certain way, that requirement is absolute and creation, transmission, modification or extinguishment of
indispensable. In such cases, the right of the parties stated real rights over immovable property; sales of real property

49
the written agreement that there was fraud, mistake, or

or of an interest therein a governed by Articles 1403, No. 2,
inequitable conduct, or accident.
and 1405;
Requisites to Reformation
For example, there is a sale of land. It was in writing but not
1. There must already be a meeting of the minds of the
notarized. The buyer can compel the seller to have it
contracting parties.
notarized under this provision.
2. Their true intention is not expressed in the
instrument.
(2) The cession, repudiation or renunciation of hereditary
3. Such failure to express their true intention is due to
rights or of those of the conjugal partnership of gains;
mistake, fraud, inequitable conduct, or accident.
(3) The power to administer property, or any other power
Remedy of Reformation vis-a-vis the Remedy of
which has for its object an act appearing or which should
Annulment
appear in a public document, or should prejudice a third
person;
Reformation presupposes a valid contract, and a meeting of
(4) The cession of actions or rights proceeding from an act the minds. On the other hand, in annulment, consent was
appearing in a public document. defective.
All other contracts where the amount involved exceeds five ARTICLE 1360. The principles of the general law on the
hundred pesos must appear in writing, even a private one. reformation of instruments are hereby adopted insofar as
But sales of goods, chattels or things in action are governed they are not in conflict with the provisions of this Code.
by Articles, 1403, No. 2 and 1405.
Instances where Reformation can be used as a remedy
Contracts entered into even if the amount exceeds 500 if it is 1. Mutual Mistake
verbally made, that would still be valid. Only that, either
contracting party can compel the other to observe this
requirement by law for convenience that it be made in writing. ARTICLE 1361. When a mutual mistake of the parties
causes the failure of the instrument to disclose their real
agreement, said instrument may be reformed.
REFORMATION OF INSTRUMENTS
It's not necessary that only one party was mistaken, it could be
both. The remedy of reformation is available to them.
When you talk about reformation of instruments, there is a
written agreement which does not reflect the true intention of 2. One party is innocent
the parties. Yes, there was an agreement but the instrument
evidencing the agreement is wrong. Here, consent was not
vitiated, there is already a perfected contract, but what is ARTICLE 1362. If one party was mistaken and the other
written has a mistake. acted fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former
Reformation of instruments is a remedy to correct the written may ask for the reformation of the instrument.
agreement so that what will now be reflected is the true Here, only the innocent party can ask for reformation and not
agreement. the one who committed the fraud.
ARTICLE 1359. When, there having been a meeting of the 3. One party knew of the defect
minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the ARTICLE 1363. When one party was mistaken and the
agreement, by reason of mistake, fraud, inequitable conduct other knew or believed that the instrument did not state
or accident, one of the parties may ask for the reformation their real agreement, but concealed that fact from the
of the instrument to the end that such true intention may be former, the instrument may be reformed.
expressed.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper One of the parties was mistaken, the other one knew of the
remedy is not reformation of the instrument but annulment mistake but decided not to tell the mistaken party.
of the contract.
4. Defect was due to person drafting the written
agreement, other than the contracting party
Note: if the mistake, fraud, inequitable conduct, or accident is
the reason why the other party entered into the contract, then
there is vitiation of consent. Remember that in reformation, ARTICLE 1364. When through the ignorance, lack of skill,
there is NO VITIATED CONSENT. It is only on the making of negligence or bad faith on the part of the person drafting
the instrument or of the clerk or typist, the instrument does

50
not express the true intention of the parties, the courts may
order that the instrument be reformed. ARTICLE 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control.
5. Agreement was merely a pledge/ mortgage,
but the instrument states sale
If the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
ARTICLE 1365. If two parties agree upon the mortgage or
pledge of real or personal property, but the instrument
states that the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper. ARTICLE 1371. In order to judge the intention of the
contracting parties, their contemporaneous and subsequent
acts shall be principally considered
Instances where reformation is not allowed
Suppose a case is filed in court because a contract was

ARTICLE 1366. There shall be no reformation in the
interpreted differently by the parties, the judge must look into
following cases:
to judge the intention of the contracting parties, their
(1) Simple donations inter vivos wherein no condition is
contemporaneous and subsequent acts. (Art. 1371)
imposed;
(2) Wills;
(3) When the real agreement is void.
ARTICLE 1372. However general the terms of a contract
may be, they shall not be understood to comprehend things
For the donation, they have to be PURELY GRATUITOUS.
that are distinct and cases that are different from those
Obviously for Simple Donations and Wills, you cannot reform
upon which the parties intended to agree.
because the intent of the party giving gratuitously should
always be upheld. When the real agreement is void, there is
nothing to reform at all. Example, in the agreement, it was stipulated that what will be
sold is the house that you owned. You have 2 houses, one
Estoppel exclusively owned by you and the other co-owned by you and
your sister. In interpreting the contract, the house must refer
to the one exclusively owned as you have the capacity to
ARTICLE 1367. When one of the parties has brought an
dispose it.
action to enforce the instrument, he cannot subsequently
ask for its reformation.
ARTICLE 1373. If some stipulation of any contract should

Supposing the real agreement was that the parcel of land is
admit of several meanings, it shall be understood as bearing
only to be used as security for a loan. I entered into a contract
that import which is most adequate to render it effectual.
with my creditor that I will execute a Real Estate Mortgage for
the said loan. But by mistake of the typist, what is shown there
is I am selling said parcel of land to the creditor instead of the In our previous example, what is more effectual is the sale of
mortgage. If I file a case against the creditor for payment of the house owned exclusively because the other house, you can
the sale, I am not enforcing the sale. Because I am already only sell your own interest or a portion of the house.
estopped. I have already tried to enforce the wrong contract.
ARTICLE 1374. The various stipulations of a contract shall

ARTICLE 1368. Reformation may be ordered at the be interpreted together, attributing to the doubtful ones that
instance of either party or his successors in interest, if the sense which may result from all of them taken jointly.
mistake was mutual; otherwise, upon petition of the injured
party, or his heirs and assigns.
If you use the principles in statcon, you read the law as a
whole. Same as in contracts, you take the stipulations together
If the other party acted fraudulently, then it must be asked by and interpret them as a whole.
the party who just made the mistake. He who comes to court
must come with clean hands.
ARTICLE 1375. Words which may have different

INTERPRETATION OF CONTRACTS significations shall be understood in that which is most in
keeping with the nature and object of the contract.
The same with principles of statutory construction. How you
interpret the law is the same as how you should interpret The purpose is to make the contract effective. Choose that
contracts because contract has the force of law between interpretation which will make it effective.
contracting parties.

ARTICLE 1376. The usage or custom of the place shall be

borne in mind in the interpretation of the ambiguities of a
contract, and shall fill the omission of stipulations which are
ordinarily established.
ARTICLE 1377. The interpretation of obscure words or

stipulations in a contract shall not favor the party who
caused the obscurity. omission of stipulations which are
ordinarily established.
To penalize the party who caused the obscurity.
ARTICLE 1378. When it is absolutely impossible to settle

doubts by the rules established in the preceding articles,
and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and
interests shall prevail. If the contract is onerous, the doubt
shall be settled in favor of the greatest reciprocity of
interests.
If the doubts are cast upon the principal object of the

contract in such a way that it cannot be known what may
have been the intention or will of the parties, the contract
shall be null and void.
Contemplates on ambiguity of terms in gratuitous contract.

Here, the interpretation which result to the least transmission
of rights and interest shall prevail. While in onerous contract,
the doubt shall be settled in favor of the greatest reciprocity of
interest. The reason for this is equity.
ARTICLE 1379. The principles of interpretation stated in

Rule 123 of the Rules of Court shall likewise be observed in
the construction of contracts.

2 Oblicon Your Transcript Team

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2 Oblicon Your Transcript Team

Uploaded by

Copyright:

Available Formats

YOUR TRANSCRIPT TEAM | CIVIL LAW REVIEW | OBLIGATIONS AND CONTRACTS | ATTY.

BATHAN-LASCO | FIRST SEMESTER | 2021 - 2022

Limitations on the right of choice of debtor

Sources: Atty. Bathan-Lasco’s Discussion 1

If the alternatives are lost due to the negligence or fault of the

If only one of the prestations is left, then the debtor has no

Loss is due to fortuitous events

Sources: Atty. Bathan-Lasco’s Discussion 2

Sources: Atty. Bathan-Lasco’s Discussion 3

Yes, because he was restricted of his choice to opt for that

1. Choose the condominium unit since it has not been

When does the substitution take effect?

Ong Guan Cuan vs. Century Insurance Company

Sources: Atty. Bathan-Lasco’s Discussion 4

GR: In absence of any fact or law which would make the

Let me illustrate concurrence of two or more creditors:

Sources: Atty. Bathan-Lasco’s Discussion 5

A, B, and C are solidary debtors, while your creditors

In that case, what I would do is to multiply the amount of

Sources: Atty. Bathan-Lasco’s Discussion 6

ARTICLE 1209. If the division is impossible, the right

The debt is to deliver a particular car and there are joint

Sources: Atty. Bathan-Lasco’s Discussion 7

What if the assignee is one of the solidary creditors?

ARTICLE. 1212. Each one of the solidary creditors

Sources: Atty. Bathan-Lasco’s Discussion 8

A, B and C are solidary debtors of X for 900,000. X demands

Again, payment, so long as it is full payment by any one of the

Sources: Atty. Bathan-Lasco’s Discussion 9

refuse to pay damages on account of the fact that B

ARTICLE 1222. A solidary debtor, may, in actions filed by

ARTICLE 1221. If the thing has been lost or if the

When the obligation is solidary you have to pay the entire

If you signed as a surety, then you are solidarily liable. If

Sources: Atty. Bathan-Lasco’s Discussion 10

On alternative and facultative. In alternative obligations

Now, can you say there is payment if the debt is P500k

No, because for there to be a valid payment, there are two

Sources: Atty. Bathan-Lasco’s Discussion 11

Sources: Atty. Bathan-Lasco’s Discussion 12

Sources: Atty. Bathan-Lasco’s Discussion 13

That is important because that third person who paid the

(1) If after the payment, the third person acquires the

What is the effect of payment that is made by an

Sources: Atty. Bathan-Lasco’s Discussion 14

Dation in payment is just like a sale. For example, I borrowed

ARTICLE 1246. When the obligation consists in the

ARTICLE 1244. The debtor of a thing cannot compel the

Sources: Atty. Bathan-Lasco’s Discussion 15

A check is not yet a legal tender. It becomes a valid payment

If there is extraordinary inflation and deflation and the

ART. 1248 - 1ST PARAGRAPH

If the debtor changes his domicile in bad faith, or after he has

Sources: Atty. Bathan-Lasco’s Discussion 16

Considering that the contents of the SPA are also in issue

Sources: Atty. Bathan-Lasco’s Discussion 17

and was not the original creditor in the agreement between

Here, the SC said that the payment made by Panganiban to

This case involves the private respondents Eastern Plywood

They argued that the Holdout Agreement provides for the

Sources: Atty. Bathan-Lasco’s Discussion 18

Sources: Atty. Bathan-Lasco’s Discussion 19