MODULE 4: NATURE AND EFFECTS OF OBLIGATIONS

A. Types of Real Obligations

1. Determinate or Specific
- particularly designated or physically segregated from all others
of the same class
- e.g., my Acer laptop, the house at JA-34 Pico, La Trinidad

2. Indeterminate or Generic
- designated merely by its class or genus
- e.g., a laptop, an iPad, a car

3. Limited Generic
- generic objects confined to a particular class
- e.g., one of my cars, the iPads sold by X

B. Obligations of a Debtor in an Obligation to Deliver

The obligations of the debtor in an obligation to deliver depends

upon the kind thing involved.

Basis Specific Generic

What the obligation Deliver the thing Deliver the thing
consists of agreed upon1 which is neither of
superior nor inferior
quality, if quality and
circumstances have
not been stated by the
Parties2 (The Rule on
Medium Quality)
Required diligence Take care of the thing If the object is generic,
to be observed with the proper but the source is
diligence of a good specified or limited,
father of a family the obligation is to
unless the law preserve the source.
requires or parties
stipulate another
standard of care3
What delivery Deliver all accessions, Delivery of another
comprises of accessories and fruits thing within the same

1
CIVIL CODE, art. 1165.
2
Ibid at art. 1246.
3
Ibid at art. 1163.

1
 of the thing even genus as the thing
though they may not promised if such thing
have been mentioned4 is damaged due to
lack of care or a
general breach is
committed
Effect of breach of Pay damages in case Pay damages in case
obligation of breach of obligation of breach of obligation
by reason of delay, by reason of delay,
fraud, negligence, fraud, negligence,
contravention of the contravention of the
tenor thereof5 tenor thereof6
(NCC, Art. 1170)
Effect of fortuitous Fortuitous event Obligation is not
event extinguishes the extinguished
obligation (genus nunquam
perit – genus
never perishes)

C. Remedies of a Creditor

In case the debtor fails to comply with his obligation to deliver, the
creditor has the following remedies.

1. In a specific real obligation

a. Specific performance or fulfillment of the obligation, with damages

b. Rescission or cancellation (in certain cases), with damages
c. Damages only7

2. In a generic real obligation

a. Specific performance or fulfillment of the obligation, with damages

b. Substitute performance or fulfillment by a third person at the
debtor’s expense, with damages
c. Rescission or cancellation, with damages
d. Damages only8

D. Rights of a Creditor over the Fruits of a Thing

4
Ibid at art. 1166.
5
Ibid at art. 1170.
6
Ibid.
7
Ibid.
8
Ibid.

2
 The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over
it until the same has been delivered to him. 9 As to when the obligation to
deliver arises, it is summarized in the table below:

Source of Obligation When Obligation Arises

Law, quasi-delict, quasi-
contract, or crime
Subject to a suspensive
condition
Subject to a suspensive
term/period
Pure
Based on the specific provision of the
applicable law
Contracts
From the happening of the condition
From the constitution, creation or
perfection of obligation
From the constitution, creation or
perfection of the obligation

A real right is the right or interest of a person over a specific thing

(i.e., ownership, possession, mortgage), without a definite subject against
whom the right may be personally enforced. This right is directed against
the whole world.

A personal right, on the other hand, is the right or power of a

person (creditor) to demand from another (debtor), as a definite passive
subject, the fulfillment of the latter’s obligation to give, to do, or not to
do. This is binding only against one person.

In an obligation to deliver fruits, the creditor only has a personal

right before the delivery of the fruits. After its delivery, the creditor
already has a real right in it.

E. Types of Personal Obligations

1. Positive
- to do

N.B. A positive personal obligation is considered breached:

a. If the debtor fails to perform the obligation; or
b. Even in case of performance but the same is done either in a
poor manner or in contravention of the tenor of the obligation. 10

2. Negative
- not to do

9
CIVIL CODE, art. 1164.
10
Ibid at art. 1167.

3
F. Remedies of a Creditor in Personal Obligations

1. Positive personal obligations

a. Not purely personal act

- to have obligation executed at debtor’s expense and damages

b. Purely personal act11

- damages only

N.B. If specific performance will be allowed, it will amount to

involuntary servitude which is prohibited by the Constitution.

2. Negative personal obligation

- to have the prohibited thing undone at the expense of the debtor
plus damages
- if thing cannot be physically or legally undone, only damages may
be demanded

G. Diligence Required

Diligence is the degree of care or the conduct to be observed by

the debtor in the fulfillment of his obligations. The degree of diligence to
be observed will depend as follows:

1. Diligence agreed upon (which could be slight, ordinary, or

extraordinary);
2. In the absence of such, that which is required by the law; or
3. In the absence of the foregoing, diligence of a good father of a
family, which is the reasonable diligence which an ordinary
prudent person would have done under the same
circumstances.

However, under the law, common carriers require the observance

of extraordinary diligence or the diligence of very cautious persons in
transporting passengers or goods.12 Banks likewise require the highest
degree of diligence, being imbued with public interest.

H. Breach of Obligations

1. Voluntary
- debtor is liable for damages if he is guilty of:
11
Meaning the consideration in the personal obligation is the debtor’s personal
qualifications. (e.g., a singer in a certain concert)
12
CIVIL CODE, arts. 1998-2002.

4
 a. Default (mora)
b. Fraud (dolo)
c. Negligence (culpa)
d. Breach through contravention of the tenor thereof13

2. Involuntary
- debtor is unable to perform the obligation due to fortuitous event
thus not liable for damages

Effects of breach of obligation

If a person obliged to do something fails to do it, or if he does it in

contravention of the tenor of the obligation or what has been poorly done
be undone, the same shall be executed at his cost.14

When the obligation consists in not doing, and the obligor does
what has been forbidden him, it shall also be undone at his expense. 15
However, if it is not possible to undo what was done, either physically or
legally, or because of the rights acquired by third persons who acted in
good faith, or for some other reason, his only remedy is an action for
damages caused by the debtor’s violation of his obligation.

I. Delay or Mora

Those obliged to deliver or to do something incur in delay from the

time the obligee (creditor) judicially or extrajudicially demands from them
the fulfillment of their obligation.

In reciprocal obligations, neither party incurs in delay if the other

does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties fulfills his
obligations, delay by the other begins.16

Kinds of Delay:

1. Ordinary delay
- this is the mere failure to perform an obligation at the stipulated
time

2. Legal delay

13
Ibid at art. 1170.
14
Ibid at art. 1167.
15
Ibid at art. 1168.
16
Ibid at art. 1169.

5
 - this delay already equates to non-fulfillment of the obligation and
arises after the extrajudicial or judicial demand has been made
upon the debtor
- Note that the creditor may only demand the fulfillment of the
obligation when the obligation is already due.

Kinds of Legal Delay:

1. Mora solvendi
- default on the part of the debtor/obligor

a. Ex re – default in real obligations (to give)

b. Ex personae – default in personal obligations (to do)

2. Mora accipiendi
- default on the part of creditor/oblige

3. Compensatio morae
- default on the part of both the debtor and creditor in reciprocal
obligations

Mora Solvendi

Requisites

1. Obligation Pertains to the debtor

2. Obligation is Determinate, due and demandable, and liquidated
3. Obligation has not been performed on its maturity date
4. There is Judicial or extrajudicial demand by the creditor
5. Failure of the debtor to comply with such demand

Necessity for demand

The rule is, when there is no demand, whether judicial or

extrajudicial, there is no delay. However, demand by the creditor would
NOT be necessary in the following instances:

1. The obligation or the law expressly so declares; or

2. From the nature and the circumstances of the obligation it appears

that the designation of time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the
establishment of the contract (time is of the essence); or

6
 3. Demand would be useless, as when the obligor has rendered it
beyond his power to perform17

Effects

1. Debtor may be liable for damages18 or interests.

N.B. The interest begins to run from the filing of the complaint when
there is no extrajudicial demand.

If the debtor can prove that loss would nevertheless transpire

even if he had not been in default, the court may equitably mitigate
his liability.19

2. When the obligation has for its object a determinate thing, the debtor
may bear the risk of loss of the thing even if the loss is due to
fortuitous event

3. Creditor may rescind or cancel the contract.

Mora Accipiendi

Requisites

1. Offer of Performance by a capacitated debtor

2. Offer must be to Comply with the prestation as it should be performed
3. Refusal of the creditor without just cause

Effects

1. Responsibility of debtor is limited to fraud and gross negligence

2. Debtor is exempted from risk of loss of thing; creditor bears risk of
loss
3. Expenses by debtor for preservation of thing after delay is chargeable
to creditor
4. If the obligation bears interest, debtor does not have to pay it from
time of delay
5. Creditor liable for damages
6. Debtor may relieve himself of obligation by consigning the thing or
depositing it in court

17
CIVIL CODE, arts. 1169(2).
18
Ibid at art. 1155.
19
Ibid at art. 2215(4).

7
 Compensatio Morae

This delay is possible in reciprocal obligations. One party incurs in

delay from the moment the other party fulfills his obligation, while he
himself does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. If neither party complies with his
prestation, default of one compensates for the default of the other.

Reciprocal obligations are those which arise from the same

cause, wherein each party is a debtor and a creditor of the other, such
that performance of one is conditioned upon the simultaneous fulfillment
of the other from the moment one of the parties fulfills his obligation,
delay by the other party begins.20

However, in reciprocal obligations, delay by the other party begins

only when the other fulfills his part of the obligation. In this case, there
is no need for demand. Demand would only be necessary when the
respective obligations are to be performed on separate dates.

J. Fraud or Deceit or Dolo

Fraud is the intentional evasion of the faithful performance of the

obligation. However, one must distinguish between fraud in the
perfection of the contract (causal fraud) and fraud in the performance of
an obligation (incidental fraud), which can be summarized in the table
below:

Causal Fraud Incidental Fraud

Criterion
(Dolo Causante) (Dolo Incidente)
Nature This is the essential This is the kind of
cause of the consent fraud which is not the
without which the efficient cause for the
party would not have giving of the consent
agreed to enter into to the contract, as it
the contract21 refers merely to an
incident therein and,
which even if not
present, the
20
ASJ Corporation v. Evangelista, G.R. No.158086, February 14, 2008. The perfect
illustration of a reciprocal obligation is in a contract of sale whereby the seller and the buyer
are both debtors and creditors. The seller is the creditor in the sense that the buyer owes him
the purchase price, but once paid, he becomes the debtor in the sense that he is obligated to
deliver the object of the sale. The buyer on the other hand is the debtor in the sense that he
must pay the purchase price. The buyer becomes the creditor once the seller has the obligation
to deliver to object of the sale.
21
CIVIL CODE, art. 1338.

8
 contracting party
would have still
agreed to the contract
Effect It renders the contract It does not affect the
voidable validity of the contract
Remedy Contract remains
Annulment with
valid. Remedy is claim
damages
for damages only

Therefore, in the performance of an obligation, the fraud referred to

under Article 1171 of the Civil Code is incidental fraud.

Waiver of fraud

With respect to fraud that has already been committed (past

fraud), the law does not prohibit renunciation of the action for damages
based on the same since such can be deemed an act of generosity. What
is renounced is the effect of fraud, particularly the right to indemnity.
However, the law prohibits any waiver of an action for future fraud since
the same is contrary to law and public policy. Waiver for future fraud is
void.22

Remedies of the Defrauded Party

1. Specific performance23; or
2. Resolution of the contract24; and
3. Damages, in either case.

K. Negligence or Culpa

The fault or negligence of the obligor consists in the omission of

that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and the
place. When negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2, shall apply. If the law or contract does not state
the diligence which is to be observed in the performance, that which
expected of a good father of a family shall be required.25

Test of negligence

22
Ibid at art. 1171.
23
Ibid at art. 1233.
24
Ibid at art. 1191.
25
Ibid at art. 1173.

9
 Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. 26
Fraud v. Negligence

Criterion Fraud Negligence

As to the intention
to cause damage
As to the mitigation
of liability
As to the waiver of
future fraud
There is no deliberate
There is deliberate intention to cause
intention to cause damage or injury even
damage if the act was done
voluntarily
Liability cannot be Liability may be
mitigated mitigated
Waiver for future
negligence may be
allowed. However,
when the nature of the
obligation or public
Waiver for future
policy requires
fraud is void
extraordinary
diligence, no waiver
for future negligence
may be allowed. (e.g.,
common carrier).

When negligence is so gross that it amounts to wanton attitude on

the part of the debtor or such negligence shows bad faith, the laws in
case of fraud shall apply.

Effect of good or bad faith of the obligor

If the obligor acted in good faith, he is responsible for the natural

and probable consequences of the breach of contract and which the
parties have reasonably foreseen at the time of the constitution of the
obligation.

If the obligor is guilty of fraud, bad faith, malice or wanton

attitude, he shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.

Contributory Negligence of the Creditor

The contributory negligence of the creditor reduces or mitigates the

damages which he can recover. However, if the negligent act or omission
26
Picart v. Smith, G.R. No. L-12219, March 15, 1918.

10
 of the creditor is the proximate cause of the event which led to the
damage or injury complained of, the creditor cannot recover damages.

Kinds of Negligence

1. Culpa contractual (contractual negligence)

- negligence which results from the breach of contract

2. Culpa aquiliana (civil negligence or tort or quasi-delict)

- acts or omissions that cause damage to another, there being no
contractual relation between the parties27

3. Culpa criminal (criminal negligence)

- those which results in the commission of a crime or delict

Culpa Culpa Culpa

Criterion
contractual aquiliana criminal
Negligence is
merely an Negligence is Negligence is
Existence of
incident in the substantive and substantive and
negligence
performance of independent independent
an obligation
There is no need
There is always There is no pre-
for a pre-
Contractual a pre-existing existing
existing
relations contractual contractual
contractual
relation relation
relation
The source of
obligation of The source of
The source of
defendant to pay obligation is an
Source of obligation is
damages is the act or omission
obligation defendant’s
breach or non- punishable by
negligence itself
fulfillment of the law
contract
Proof of the
Accused shall
existence of
be presumed
the contract and
The negligence innocent until
Proof of of its breach or
of the defendant the contrary is
negligence non-fulfillment
must be proved proved beyond
is sufficient
reasonable
prima facie to
doubt
warrant recovery
Defense Defense of “good Defense of “good Defense of
available father of father of a “good father of
27
CIVIL CODE, arts. 2176.

11
 a family” in the
selection &
a family” in the
supervision of
selection and
the employees is
supervision of
not a proper
the employees
complete family” in the
is not a proper
defense selection and
defense.
though it may supervision of
mitigate the employees is
The employee’s
damages. a proper and
guilt is
complete
automatically
Respondeat defense
the employer’s
superior or
civil guilt, if the
command
former is
responsibility or
insolvent
the master and
servant rule
Proof of guilt
Preponderance Preponderance beyond
Proof needed
of evidence of evidence reasonable
doubt

L. Contravention of Tenor of Obligation or Violatio

This refers to the act of contravening the tenor or terms or

conditions of the contract, which may be the cause for the claim of
damages under Article 1170 of the Civil Code. It is also known as
“violatio”, i.e., failure of common carrier to take its passenger to their
destination safely.

Under NCC, Art. 1170, the phrase “in any manner contravene the
tenor” of the obligation includes any illicit act which impairs the strict
and faithful fulfillment of the obligation, or every kind of defective
performance. Such violation of the terms of contract is excused in proper
cases by fortuitous events.

M. Fortuitous Events or Caso Fortuito

A fortuitous event is an occurrence or happening which could not

be foreseen, or even if foreseen, is inevitable.28

Requisites

1. Cause of breach is independent of the will of the debtor

28
CIVIL CODE, art. 1174.

12
 2. The Event is unforeseeable or unavoidable
3. Occurrence renders it absolutely impossible for the debtor to fulfill his
obligation in a normal manner – impossibility must be absolute not
partial, otherwise it is NOT caso fortuito
4. Debtor is free from any participation in the aggravation of the injury
to the creditor

N.B. The fortuitous event must not only be the proximate cause
but it must also be the only and sole cause. Contributory negligence of
the debtor renders him liable despite the fortuitous event.

If the negligence was the proximate cause, the obligation is not

extinguished. It is converted into a monetary obligation for damages.

The mere difficulty to foresee the happening is not impossibility to

foresee the same.29

Effects

1. On determinate obligation
- The obligation is extinguished.

2. On generic obligation
- The obligation is not extinguished (genus nunquam perit – genus
never perishes).

Cases

1. X, a government agency, entered into a compromise agreement with Y.

X failed to pay within the period stipulated. Thus, Y filed a motion for
execution to enforce its claim. X filed a comment and attributed the
delays to its being a government agency and the Christmas rush. Is the
delay of payment a fortuitous event?

No. The act-of-God doctrine requires all human agencies to be

excluded from creating the cause of the mischief. Such doctrine
cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of loss or injury. Since the
delay in payment in the present case was partly a result of human
participation – whether from active intervention or neglect – the whole
occurrence was humanized and was therefore outside the ambit of a
caso fortuito.

29
Republic v. Luzon Stevedoring Corp., G.R. No. L-21749, September 29, 1967.

13
 First, processing claims against the government are certainly
not only foreseeable and expectable, but also dependent upon the
human will. Second, the Christmas season is not a caso fortuito, but a
regularly occurring event. Third, the occurrence of the Christmas
season did not at all render impossible the normal fulfillment of the
obligation. Fourth, X cannot argue that it is free from any
participation in the delay. It should have laid out on the compromise
table the problems that would be caused by a deadline falling during
the Christmas season. Furthermore, it should have explained to Y the
process involved for the payment of Y’s claim.30

2. X, a dressmaker, accepted clothing materials from Karla to make 2

dresses for her. On the day X was supposed to deliver Karla’s dresses,
X called up Karla to say that she had an urgent matter to attend to and
will deliver them the next day. That night, however, a robber broke into
her shop and took everything including Karla’s dresses. X claims she is
not liable to deliver Karla’s dresses or to pay for the clothing materials
considering she herself was a victim of the robbery which was a
fortuitous event and over which she had no control. Do you agree?
Why?31

No. The law provides that except when it is otherwise declared

by stipulation or when the law provides or the nature of the obligation
requires the assumption of risk, no person shall be liable for those
events which could not be foreseen or which though foreseen were
inevitable.32

In this case, X cannot invoke fortuitous event as a defense

because she had already incurred delay at the time of the occurrence
of the loss.33

3. AB Corp. entered into a contract with XY Corp. whereby the former

agreed to construct the research and laboratory facilities of the latter.
Under the terms of the contract, AB Corp. agreed to complete the facility
in 18 months, at the total contract price of P10 million. XY Corp. paid
50% of the total contract price, the balance to be paid upon completion
of the work. The work started immediately, but AB Corp. later
experienced work slippage because of labor unrest in his company. AB
Corp.’s employees claimed that they are not being paid on time; hence,
the work slowed down. As of the 17 th month, work was only 45%
completed. AB Corp. asked for extension of time, claiming that its labor
30
Manila International Airport Authority v. Ala Industries Corp., G.R. No. 147349,
February 13, 2004.
31
Taken from the 2015 Bar Examinations.
32
CIVIL CODE, art. 1174.
33
Ibid at art. 1165.

14
 problems are cases of fortuitous event, but this was denied by XY Corp.
When it became certain that the construction could not be finished on
time, XY Corp. sent written notice cancelling the contract and requiring
AB Corp. to immediately vacate the premises. Can the labor unrest be
considered a fortuitous event?
No. Labor unrest is not a fortuitous event that will excuse AB
Corp. from complying with its obligation of constructing the research
and laboratory facilities of XY Corp. The labor unrest, which may even
be attributed in large part to AB Corp. itself, is not the direct cause of
noncompliance by AB Corp. It is independent of its obligation. It is
similar to the failure of a DBP borrower to pay her loan just because
her plantation suffered losses. It does not excuse compliance with the
obligation. AB Corp. could have anticipated the labor unrest which
was caused by delays in paying the laborer’s wages. The company
could have hired additional laborers to make up for the work
slowdown.34

N. Remedies, in detail

In case of breach of obligation, the following are the remedies

available:

1. Specific performance
2. Substitute performance by a third person in case of an
obligation to deliver a generic thing, and in obligations to do,
unless it is a purely personal act
3. Rescission (or resolution in reciprocal obligations)
4. Damages, in any case
5. Subsidiary remedies of creditors:
a. Accion subrogatoria
b. Accion pauliana
c. Accion directa

Specific Performance

Specific performance shall be availed in the order35 as follows:

1. Exhaustion of the properties of the debtor (not exempt from

attachment under the law)

2. Accion subrogatoria (subrogatory action)

34
See Development Bank of the Philippines v. Vda. De Moll, G.R. No. L-25802, January
31, 1972.
35
See CIVIL CODE, art. 1177.

15
 - an indirect action brought in the name of the debtor by the
creditor to enforce the former’s rights except:
a. Personal rights of the debtor
b. Rights inherent in the person of the debtor
c. Properties exempt from execution
e.g., family home

3. Accion pauliana (rescissory action)

- an action to impugn or assail the acts done or contracts
entered into by the debtor in fraud of his creditor

Illustrative Case

Sacramento Steel Corporation (SSC) is a business entity

manufacturing and producing steel and steel products. It entered into a
credit agreement with respondent International Exchange Bank (IEB). As
security for its obligations, SSC executed 5 separate deeds of chattel
mortgage constituted over various equipment found in its steel
manufacturing plant.

Subsequently, SSC defaulted in the payment of its obligations. IEB’s

demand for payment went unheeded. Meanwhile, Metropolitan Bank and
Trust Company (Metro Bank) filed a motion for intervention as a creditor of
SSC. It contends that the mortgage contracts between IEB and SSC were
entered into to defraud the latter’s creditors. Thus, it prayed for the
rescission of the chattel mortgaged executed by SSC in favor of IEB. Will
the action to rescind the mortgage prosper?

No. Jurisprudence is clear that the following successive measures

must be taken by a creditor before he may bring an action for rescission
of an allegedly fraudulent contract: (1) exhaust the properties of the
debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from execution;
(2) exercise all the rights and actions of the debtor, save those personal
to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana). It is thus
apparent that an action to rescind, or an accion pauliana, must be of last
resort, availed of only after the creditor has exhausted all the properties
of the debtor not exempt from execution or after all other legal remedies
have been exhausted and have been proven futile.36

Substitute Performance

36
Matropolitan Bank and Trust Company v. International Exchange Bank, G.R. No.
176008, August 10, 2011.

16
 This is a remedy of the creditor in case of non-performance by the
debtor where another party performs the obligation or the same is
performed at the expense of the debtor.

Applicability

1. Positive personal obligation but NOT purely personal, i.e., the

personal qualifications of the debtor are NOT the controlling motive in
the obligation

2. Generic real obligation

- The creditor may ask the fulfillment of the obligation at the
debtor’s expense.37

Rescission or Resolution

Rescission refers to the cancellation of the contract or reciprocal

obligation in case of breach on the part of one, which breach is violative
of the reciprocity between the parties. This is properly called resolution.

Rescission or resolution is applicable in reciprocal obligations,

since it is implied therein.

Characteristics of the Right

1. Can be demanded only if plaintiff is ready, willing and able to comply

with his own obligation and defendant is not
2. Not absolute
3. Needs judicial approval in the absence of a stipulation allowing for
extra-judicial rescission, in cases of non-reciprocal obligations
4. Subject to judicial review if availed of extrajudicially
5. May be waived expressly or impliedly
6. Implied to exist in reciprocal obligations therefore need not be
expressly stipulated upon

Rescission v. Fulfillment

As a general rule, the injured party can only choose either

fulfillment
or rescission of the obligation, and not both. However, if fulfillment has
become impossible, Article 1191 allows the injured party to seek
rescission even after he has chosen fulfillment.38

37
CIVIL CODE, art. 1165.
38
Ayson-Simon v. Adamos, G.R. No. L-39378, August 28, 1984.

17
 Illustrative Cases

1. Vermen and Seneca entered into an “offsetting agreement”, where

Seneca is obliged to deliver construction materials to Vermen, who is
obliged to pay Seneca and to deliver possession of 2 condominium
units to Seneca upon its completion. Seneca filed a complaint for
rescission of the offsetting against Vermen alleging that the latter had
stopped issuing purchase orders of construction materials without valid
reason, thus resulting in the stoppage of deliveries of construction
materials on its part, in violation of the Offsetting Agreement. Can the
agreement be rescinded?

Yes, because the provisions of the offsetting agreement are

reciprocal in nature. Article 1191 of the Civil Code provides the
remedy of rescission (more appropriately, the term is “resolution”) in
case of reciprocal obligations, where one of the obligors fails to comply
with that is incumbent upon him.39

2. Lina constituted a real estate mortgage over two parcels of land

covered by Transfer Certificate of Title (TCT) No.1 and TCT No. 2 to
secure the performance of their loan obligation with respondent
Development Bank of the Philippines (DBP). With the principal
obligation being ultimately unpaid, DBP foreclosed the mortgage. Later
on, Lina negotiated with DBP to buy back the property covered by TCT
No. 1 and signed the deed of conditional sale covering both lots for the
total consideration of P157, 000.00. Then she requested the release of
the property under TCT No. 1 after paying two quarterly amortizations,
but DBP did not approve the release and rescinded the deed of
conditional sale and the mortgaged parcels of land were then sold to
the highest bidder. Lina now avers that DBP could not resort to
rescission because her nonpayment of the amortizations was only a
slight or casual breach; and that the sale made by DBP to Cruz was
tainted with bad faith. Is she correct?

No. Article 1191 of the Civil Code makes it available to the

injured party alternative remedies such as the power to rescind or
enforce fulfillment of the contract, with damages in either case if the
obligor does not comply with what is incumbent upon him. There is
nothing in this law which prohibits the parties from entering into an
agreement that a violation of the terms of the contract would cause its
cancellation even without court intervention. The rationale for the
foregoing is that in contracts providing for automatic revocation,
judicial intervention is necessary not for purposes of obtaining a

39
Vermen Realty Development Corp. v. Court of Appeals, G.R. No. 101762, July 6,
1993.

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 judicial declaration rescinding a contract already deemed rescinded
by virtue of an agreement providing for rescission even without
judicial intervention, but in order to determine whether or not the
rescission was proper. Where such propriety is sustained, the
decision of the court will be merely declaratory of the revocation, but
it is not itself the revocatory act.40
N.B. In a contract to sell, the payment of the purchase price is a
positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force. 41

Damages

Those liable under Article 1170 shall pay damages only if aside
from the breach of contract, prejudice or damage was caused. 42

Note that if an action is brought for specific performance, damages

sought must be asked in the same action; otherwise, the damages are
deemed waived.43

Kinds (MENTAL)

1. Moral
2. Exemplary
3. Nominal
4. Temperate
5. Actual
6. Liquidated

Accion Subrogatoria

An accion subrogatoria or subrogatory action is an action

whereby the creditor, whose claim has not been fully satisfied, may go
after the debtor defendant debtor’s debtor (3rd person).44

Accion subrogatoria is different and distinct from active subjective

subrogation governed by Articles 1300 to 1304. In the latter, there is
change of creditors whereas in the former there is no change of creditors;
the creditor merely acts in the name and for the account of the debtor

40
Calilap-Asmeron v. Development Bank of the Philippines, G.R. No. 157330, November
23, 2011.
41
Ong v. Court of Appeals, G.R. No. 97347, July 6, 1999.
42
Berg v. Teus, G.R. No. L-6450, October 30, 1954.
43
Daywalt v. Augustinian Corp., G.R. No. L-13505, February 4, 1919.
44
CIVIL CODE, art. 1177.

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 after exhausting the assets of the latter but not enough to satisfy the
claims of the creditor.

Requisites

1. The debtor’s assets must be insufficient to satisfy claims against him

2. The creditor must have pursued all properties of the debtor subject to
execution
3. The right of action must not be purely personal
4. The debtor whose right of action is exercised must be indebted to the
creditor

In order to exercise accion subrogatoria, a previous approval of the

court is not necessary.
Effects

1. The creditor may exercise the subrogatory action in behalf of the

debtor not only up to the amount of his credit but in its totality.

N.B. The excess (if any) must be returned to the debtor.

2. The bringing of action does not entitle the creditor to preference.

3. The defendant (the debtor of the debtor) may avail himself of all
defenses available against the creditor.

Accion Pauliana

An accion pauliana is an action where the creditor files in court

for the rescission of acts or contracts entered into by the debtor designed
to defraud the former.45 When the creditor could not collect in any
manner, accion pauliana may be resorted by him to rescind a fraudulent
alienation of property.46

Requisites

1. Defendant must be indebted to plaintiff

2. The fraudulent act performed by the debtor subsequent to the
contract gives advantage to another
3. The creditor is prejudiced by such act
4. The creditor must have pursued all properties of the debtor subject to
execution
5. The creditor has no other legal remedy

45
Ibid.
46
Regalado v. Luchsinger and Co., 5 PHIL. REP. 625 (1906).

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 Accion directa

Accion directa is the right of a person to go directly against

another who is not a privy to the contract.

Instances applicable

1. Subsidiary liability of sublessee for the rent47

2. Right of sellers a retro to redeem property from persons other than the
buyer a retro48
3. Subsidiary liability of owners to laborers and material men 49
4. The principal may sue the substitute of the agent with respect to the
obligations which the substitute has contracted under the
substitution50

-oOo-

47
CIVIL CODE, art. 1652.
48
Ibid at art. 1608.
49
Ibid at art. 1729.
50
Ibid at art. 1893.

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