Obligation Reviewer

7/18/2019 Obligation Reviewer

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SOURCE: PARAS, TOLENTINO, JURADO Civil Code Annotations. Cases are chosen under the wisdom of Atty.Uribe

NOT FOR DISTRIBUTION UNTIL FINISHED

TABLE OF CONTENTS

PRELIMINARY MATTERS

Civil Law – the Branch of law which deals with therelationship of its citizen to one another (PARAS

I.

A. Definition of Obligation

- A juridical necessity to give, to do, or not to do(Art. 1156)

- A juridical relation whereby a person maydemand from another, the observance of a determinateconduct and in case of breach may demand satisfaction

from another

(a complete definition as it emphasizes the rightof the active subject and the obligation of the passivesubject)

B. Elements of an Obligation

1. Active Subject (Obligee/Payee/Creditor)

- Possessor of the right to demand

-The one who can enforce the obligation in court

2. Passive Subject (Obligor/Payor/Debtor)

-Has the duty to give, to do or not to do

-The one against whom the obligation may be enforced

3. Prestation (Object/Fact)

- The subject matter of the obligation

- The conduct necessary of the debtor

(Tolentino: It is only conduct as the oblige doesnot enforce ownership over the subject but instead thespecific performance of delivering to him the subjectmatter)

Requirements of Prestation:

1. It must be physically possible

2. Determinate or determinable

3. Must have its equivalent in money(includes sanctions for violations of

rights i.e. Nominal or moral damages)

4. Juridical Tie (Vinculum/Legal Tie)

-Object which binds the Parties

Sources of Juridical Tie:

1. Law

2. Unilateral Acts i.e. Quasi-Delict, Crime

3. Bi-Lateral Acts

C. KINDS OF OBLIGATIONS

-Civil Obligation

-Also known as Perfected Obligations, thosewhich are enforceable in Courts of Law

-Natural Obligations

-Those which are not being based on positivelaw but on equity and natural law, do not grant a right ofaction to enforce their performance, but after voluntaryfulfilment by the obligor, they authorize retention of whathas been delivered by reason thereof.

VILLAROEL vs. ESTRASA G.R. No. L-47362

FACTS:

Appellant’s Mother obtained a loan from the appellee onMay of 1912 in the amount of P1, 000 payable after 7years. Upon her death, Appellant- defendant executed adocument wherein he recognized the obligation of hismother in August 9, 1930 to which the plaintiff’s basetheir action. Plaintiff now claims the defence ofprescription

HELD:

The defendant being the only heir of theoriginal debtor with the right to succeed in herinheritance, that debt lawfully contracted by his mother,although it lost its efficacy by prescription, is neverthelessnow a moral obligation as far as he is concerned, a moralobligation which is a sufficientconsideration to create and make effective anddemandable the obligation which he had voluntarilycontracted on August 9, 1930.

ANSAY vs. NDC G.R. No. 13667

Facts:

Plaintiffs prayed that the court order their employers to

give them a 20% Christmas bonus all the whilerecognizing that it is not legally bound to do so



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Held:

An element of natural obligation before it can becognizable by the court is voluntary fulfillment by theobligor. Certainly retention can be ordered but only afterthere has been voluntary performance. But here therehas been no voluntary performance. In fact, the court

cannot order the performance.

Development Bank of the Philippines vs. Confessor G.R.No. L-48889 May 11, 1989

Facts:

Respondents executed a promissory note in 1940 inpayment of their loan. As the obligation remained unpaidin 10 years Respondent once again issued a secondarypromissory note expressly acknowledging the said loanand promising to pay the same before 1961

HELD:

There is no doubt that prescription has set in as to thefirst promissory note of February 10, 1940. However,when respondent Confesor executed the secondpromissory note on April 11, 1961 whereby he promisedto pay the amount covered by the previous promissorynote on or before June 15, 1961, and upon failure to doso, agreed to the foreclosure of the mortgage, saidrespondent thereby effectively and expressly renouncedand waived his right to the prescription of the actioncovering the first promissory note.

A new express promise to pay a debt barred will take thecase from the operation of the statute of limitations as this

proceeds upon the ground that as a statutory limitationmerely bars the remedy and does not discharge the debt ,there is something more than a mere moral obligation tosupport a promise, to wit a – pre-existing debt which is asufficient consideration for the new the new promise;upon this sufficient consideration constitutes, in fact, anew cause of action.

D. TYPES OF OBLIGATIONS

Generic-Determinate

Positive- Negative

Real- Personal

Principal- Accessory

Unilateral- Bi-Lateral

E. SOURCES OF OBLIGATIONS

1. Law

-Rule of conduct, promulgated by competent authority forthe common good of the people

- Are not presumed and must be clearly expressed(Necessarily presents a burden thus the Bill of Rightsshall apply)

2. Contracts

- A meeting of the minds between two parties wherebyone binds himself, with respect to the other, to givesomething, or to render some service

-Stipulations have the force of law between the partiesand must be complied with in good faith

3. Quasi- Contracts-Juridical relations arising from Lawful, Voluntary andUnilateral acts, by virtue of which the parties becomebound to each other, based on the principle that no oneshall be unjustly enriched at the expense of the other

-Its characteristics distinguishes itself from other sourcesof obligation, Lawful distinguishes itself from Crime,Voluntary distinguishes itself from Quasi-Delict andUnilateral distinguishes itself from Contracts

Kinds of Quasi- Contracts

I. Negotorium Gestio – Unauthorized Management

- Juridical relations which arise whenever aperson voluntarily takes charge of themanagement of another person’s propertywithout his authority

Requisites ***

II. Solutio Indebiti – Mistake in Payment

- When a person unduly delivers a thingthrough mistake whereby the latter has no

right to demand it

III. Other Quasi-Contracts

i. Payment by a third person of:

-Support

-Debts without the knowledge of thedebtor

-Funeral expenses

-Services of physician during anaccident or illness

-In cases of emergency when hesaves the property of another

-expenses of another as a measure ofprotection against lawlessness, or othercalamity in a small community

-Taxes

ii. Payment of services to the government uponassumption during the failure of a person to render thenecessary works under health or safety regulationsconcerning property

iii.. Commingling of property during an accidentor fortuitous event

iv. Rights of a finder of lost property

v. Rights of a possessor in good faith



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Cruz vs. Tuazon & Co. G.R. No. L-23749 April 29, 1977

Facts:

Plaintiff seeks to reimburse himself of thepermanent improvement on a 50 hectare land that it hasmade upon request of the Deudor family, which land is

now owned by the defendant. Defendant claims that it isnot a privy to the contract thus the action should not bedirected to him but to the Duedor instead. Plaintiffhowever contends that it is benefitting from theimprovement it has made and thus is unjustly enrichinghimself and thus based his action on Quasi-Contract

HELD:

A presumed quasi-contract cannot emerge asagainst one party when the subject matter thereof isalready covered by an existing contract with anotherparty. Predicated on the principle that no one should beallowed to unjustly enrich himself at the expense ofanother, Article 2124 creates the legal fiction of a quasi-

contract precisely because of the absence of any actualagreement between the parties concerned.

The act is voluntary because the actor in quasi-contractsis not bound by any pre-existing obligation to act. It isunilateral, because it arises from the sole will of the actorwho is not previously bound by any reciprocal or bilateralagreement.

Hermanos vs. Orense

Facts:

Defendant was the owner of a property whichwas sold and conveyed by his nephew to plaintiff

company without his knowledge and consent. Afterratifying the sale, he however refuses to convey the land

Held:

The sale of the said property made by Duran toGutierrez Hermanos was indeed null and void in thebeginning, but afterwards became perfectly valid andcured of the defect of nullity it bore at its execution by theconfirmation solemnly made by the said owner upon hisstating under oath to the judge that he himself consentedto his nephew Jose Duran's making the said sale.

Adille vs. C.A.

Facts:

The plaintiff’s mother sold a piece of land on apacto de retro sale. After her death defendant redeemedthe land and executed an affidavit representing himself tobe the sole heir. Plaintiffs heirs of the deceased motherfiled the present case for partition claiming that defendantacted only as an implied trustee, thus they too shallreceive a part of the land claimed. Defendant claims thatin claiming the land he acted as an inofficious managerunder negotorium Gestio

Held:

In order to constitute Negotorium Gestio the act must befor the benefit of others. He cannot be said to have

assumed the management of the property abandoned bythe others

Andres vs. Mantrust

Facts:

Due to the delay of the receipt of paymentprivate respondent bank mistakenly order a secondarypayment of the amount of P10,000 which the petitioner

refuses to return the amount claiming that the petitioner’sclient is still indebted to him thus he is not unjustlyenriched

HELD:

Private respondent has a right to be reimbursedthe amount mistakenly credited to Petitioner. Therequisites of Mistake of payment are (1) that he who paidwas not under obligation to do so; and, (2) that paymentwas made by reason of an essential mistake of fact. Theprivate respondent is not privy between Petitioner’s clientand the petitioner as it is merely a bank which wasordered to reimburse money. Even if the transaction wasattendant with negligence a common law rule that the

negligence must be borne by its actor cannot be appliedwhen there is an express law covering the transaction.

Puyat & Sons vs. Manila G.R. No. L-17447 April 30,1963

FACTS:

Petitioner seeks to reimburse himself the tax erroneouslypayed as it later found out that it was exempt from thepayment of retail taxes

HELD:

Petitioner categorically stated that the paymentwas not voluntarily made, but on the erroneous belief,that they were due. Under this circumstance, the amountpaid, even without protest is recoverable. "If the payerwas in doubt whether the debt was due, he may recover ifhe proves that it was not due" (Art. 2156, NCC).Petitioner had duly proved that taxes were not lawfullydue. There is, therefore, no doubt that the provisions ofsolutio indebtiti, the new Civil Code, apply to the admittedfacts of the case.

4. Delicts

-Governed by Penal Laws, Art. 2177, and Chapter onDamages

Art. 100 – Every person criminally liable shall also becivilly liable

Exception: Crimes with no offended parties suchas Contempt, Treason, Rebellion

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5. Quasi- Delicts

-Fault or negligence of a person, arising from his acts oromission, independent from any pre-existing contractualrelations, which causes damage to another

-Governed by chapter on Quasi-Delict and Special Laws

Requisites of Quasi-Delict:

-Wrongful act or omission broughtabout by Fault or negligence

-Damage suffered or incurred

-Relation of cause and effect

A. Fault

-wilfulness or deliberate intent to cause damageor injury to another,

B. Negligence

-Failure to observe for the protection of theinterests of another person, that degree of care,precaution and vigilance which the circumstances justlydemand whereby such other persons suffer injury

-Simply, Failure to observe the diligencerequired by law

Requirement of Negligence:

1. Duty on the part of the defendant to protectthe plaintiff from the injury complained of

2. Failure to perform that duty

3. Injury was brought about by such failure

Proximate Cause

-that cause, which in the natural and continuoussequence unbroken by any efficient intervening causeproduces the injury and without which the results wouldnot have occurred

Concurrent cause

-If two causes operate at the same time toproduce to produce a result which might be produced byeither independently of the other = both of them areequally liable

- If the two causes are successive and unrelatedin their operation, one of them must be proximate and theother is remote = One is the proximate cause and theother is remote

- If the two causes unrelated in their operationboth contribute to the injury, one of them as a direct

cause and the other merely furnishing the condition orgiving rise to the occasion by which the injury was madepossible = The former alone is liable

Question of Negligence depends upon the circumstances

Picart vs. Smith

“Would a reasonable man, in the position of the person towhom negligence is attributed, foresee harm to theperson injured as a reasonable consequence of thecourse about to be pursued?”

Civil liability in injuries may come from Criminal liabilityunder Art. 100 of the RPC or from Quasi-Delict

Employer’s Liability for acts of his employee (Art. 2180)

Civil liability of employerin Criminal Liability

-Subidiary-Proceeds fromconviction if theEmployee is insolvent-Applies only toemployees in Businessor industry only-Defence of properdiligence of a goodfather in Selection andsupervision does notapply

Civil liability of employerin Quasi-Delict

-Primary-Applies after finding ofliability-Applies in all cases offault or negligence- Defence of properdiligence of a goodfather in Selection andsupervision applies

Breach of Contract Fault of Negligenceresulting in Quasi-Delict

Pre-existing Contract No pre-existing contractbut the breach of acontract may amount to aquasi-delict if with fault ornegligence

Defense is only limited toFortuitous event ornegligence of the plaintiff

Defense of properdiligence of a good fatherin Selection andSupervision applies

No proof of negligence or

fault is required. Onlyrequired proof is that theContract exists and itwas not fulfilled

Plaintiff has the burden of

proof in provingnegligence or fault.Presumption ofNegligence of employer

Crime Quasi-Delict

-Public Interest -Private Concern

-Correctional &Reformation

-Indemnification andrepair

-Scope is only thosedefined as crimes

-Includes all acts of fault& negligence

-Criminal intent isnecessary in almost all

cases

-No intent necessary

-Not all crimes have civilliability

-Civil liability alwaysattaches



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-Proof beyondReasonable Doubt

-Mere preponderance ofevidence

Culpa Aquiliana – Negligence as a source of obligation

Culpa Contractual – Negligence in the performance ofcontract

Saludaga vs. FEU G.R. No 179337 April 30, 2008

Facts:

Petitioner filed a complaint against therespondent on grounds that they breached theirobligation to provide students with a safe and secureenvironment and an atmosphere conducive to learningdue to an accidental shooting which resulted in injuries tothe petitioner.

Held:

Institutions of learning must also meet theimplicit or "built-in" obligation of providing their studentswith an atmosphere that promotes or assists in attainingits primary undertaking of imparting knowledge.Necessarily, the school must ensure that adequate stepsare taken to maintain peace and order within the campuspremises and to prevent the breakdown thereof

When petitioner was shot inside the campus byno less the security guard who was hired to maintainpeace and secure the premises, there is a prima facieshowing that respondents failed to comply with its

obligation to provide a safe and secure environment to itsstudents. Having failed to exercise due diligence inselecting their security guards, they failed to prove thatthey ensured that the guards assigned in the campus metthe requirements stipulated in the Security Service Agreement they are liable to petitioner. Their defense ofFortuitous event cannot be appreciated absent any proofthat they are not negligent. Furthermore, when the effectis found to be partly the result of a person's participation -whether by active intervention, neglect or failure to act -the whole occurrence is humanized and removed fromthe rules applicable to acts of God

Orden vs. NACOCO No. L-3756, June 30, 195

Facts:

Plaintiff’s land was acquired by the Japaneseand subsequently acquired by respondent through aconcession granted by the U.S. The land was acquired bythe latter through the Trading with the enemy act. Plaintiffbrought this action in order to recover rentals from thetime defendant occupied the said land.

Held:

Plaintiff’s claim for rentals before it reclaimed theland may not be predicated on any negligence or offenseof the defendant-appellant, or any contract, express orimplied. Defendant is neither negligent nor privy to anycontract between petitioner. Neither is it a successor in

interest, having derived its title from law nor is it a trusteeof the plaintiff, as it is a trustee of the government.

People’s car vs. Commando Security G.R. No. L-12191 October 14, 1918

Facts:

Plaintiff was a clerk of the Manila Railroadcompany. One day when plaintiff was alighting from thetrain as it was slowing down one or both of his feet camein contact with a sack of watermelons with the result thathis feet slipped from under him and he fell violently on theplatform. His body at once rolled from the platform andwas drawn under the moving car, where his right arm wasbadly crushed and lacerated. It occurred during night timeas the station was dimly lighted. Defendant claimed that itwas the customary season for harvesting these melonsand a large lot had been brought to the station for theshipment to the market. He filed the present actionclaiming that it was negligent for defendant to place thewatermelons as it posed a menace to passengers

alighting from the train.

Held:

A master who exercises all possible care in theselection of his servant, taking into consideration thequalifications they should possess for the discharge ofthe duties which it is his purpose to confide to them, anddirects them with equal diligence, thereby performs hisduty to third persons to whom he is bound by nocontractual ties, and he incurs no liability whatever if, byreason of the negligence of his servants, even within thescope of their employment, such third person sufferdamage. This rule however only holds in liability in quasi-delict, the legal liability of the defendant is the contract of

carriage.

The liability of masters and employers for thenegligent acts or omissions of their servants or agents,when such acts or omissions cause damages whichamount to the breach of a contact, is not based upon amere presumption of the master's negligence in theirselection or control, and proof of exercise of the utmostdiligence and care in this regard does not relieve themaster of his liability for the breach of his contract.

Gutierrez vs. Gutierrez G.R. No. 34840 September 23,1931

Facts:

A passenger truck and an automobile of privateownership collided while attempting to pass eachother. At the time of the collision, the father was not inthe car, but the mother, together will several othermembers of the Gutierrez family, seven in all, wereaccommodated therein. A passenger in the autobus, bythe name of Narciso Gutierrez, was en route from SanPablo, Laguna, to Manila. Plaintiff sues both the cardriver and the owner of the truck

Held:

The head of a house, the owner of anautomobile, who maintains it for the general use of his

family is liable for its negligent operation by one of hischildren, whom he designates or permits to run it, where

http://philippinelawcases.blogspot.com/2012/04/sagrada-orden-de-predicadores-del.html






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the car is occupied and being used at the time of theinjury for the pleasure of other members of the owner'sfamily than the child driving it.

The liability of Saturnino Cortez, the owner ofthe truck, and of his chauffeur Abelardo Velasco rests ona different basis, namely, that of contract

II. NATURE AND EFFECTS OF OBLIGATION

A. NATURE OF THE OBJECT

1. Generic objects

-Object is designated by its genus only without particulardesignation

Delivery of anything belonging to the speciesstipulated will be sufficient and he cannot avoid the

obligation by paying damages

-The thing delivered must be neither superior ofinferior quality but acceptance of the creditor shall bindhim

2. Determinate Objects

- Object is physically segregated from all others of thesame class

-includes Limited Genus i.e. one of the horses in A’s stable

Accessory Obligations:

i. Obligation to preserve the thing/ to take care ofit with the proper diligence of a good father of a family(Art. 1163)

-Other standards of care

ii. Obligation to deliver the Fruits

Right of the Obligee prior to delivery – Personal Right(Jus in Personam)

-The power belonging to one person to demandof another, as a definite passive subject, the fulfilment of

a prestation to give to do or not to do

Right of the Obligee after delivery – Real right (Jus in Re)

-the power belonging to a person over a specificthing, without a passive subject individually determined,against whom such right may be personally exercised

-Direct and enforceable against the whole world

iii. Obligation to deliver the accessions andaccessories

Accessories – Those things which, destined forembellishment, use or preservation of another thing ofmore importance have for their object the completion of

the latter for which they are indispensable or convenient

Accessions – Everything which is produced by athing, or which is incorporated or attached thereto, eithernaturally or artificially

-Includes only Accession Continua, Accession Industrial

B. RIGHTS OF THE CREDITOR:

1. Positive Obligations

Obligation to Give

- Specific Performance- To rescind or resolve the obligation- Action for damages if specific

Obligation to Do

- To have the obligation performed at thedebtors expense if it is not performed or

even if it is done in contravention of thetenor of the obligation either by himself orby a third person

- TO ask that what has been done poorly beundone

- IF the qualifications of the debtor was theprimary consideration of the contract i.e.Singing- the debtor may only be obliged toplay damages

- The court cannot compel the debtor toperform the work under the penalty of lawas it would amount to INVOLUNTARYSERVITUDE violative of personal liberty

i.e. A contracted B to fix his laptop, however upon returnof the laptop, it substantially remained unfixed. A has anoption of asking a third person fix the laptop and askreimbursement from B for the expenses that he incurred

2. Negative Obligations

Obligation not to do

- For the act to be undone at the obligor’sexpense or damages

- There is no delay in Obligation not to dobecause Duh

- i.e. Obligation not to build a fourth floor

C. Breach of an Obligation Art. 1170

-entitles the offended party to damages

Voluntary Breach

I.. Default/Mora Art. 1169

-Delay which amounts to non-fulfilment of anobligation

-The demand contemplated by law is such whichshows that the creditor’s forbearance has ended. Thus, amere reminder or a follow up is not an effective demand



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-Effects: (1) Obligor is liable for the loss of thething even in cases of Fortuitous Event (2) He becomesliable for damages

Requisites of Delay:

i. the obligation is due and demandableii. There is a judicial or extra-judicial demandiiil Obligor fails to comply with the obligation

despite demand

-Fruits which arise after delay is owned by the creditor

i.e. A obliged himself to deliver a cow on June 1 to B. OnJune 2. The cow produces an offspring. B demanded onJune 3 that the cow be delivered to him together with thecow. Is B correct?

No, B cannot compel A to deliver the offspring ofthe cow. Delay only arises once there has been a judicialor extra-judicial demand which in this case was onlymade on July 3, a day after the offspring was produced.

Kinds of Delay:

i. Mora solvendi – default on the part of thedebtorii. Mora Accipiendi – default on the part of thecreditor or unjust refusal of payment – Theremedy is consignation iii. Compensatio Mora – default on both parties

in cases of reciprocal obligations

-Delay is generally necessary even if a periodhas been fixed in the obligation

-Absent any stipulation an obligation is due anddemandable within a reasonable period after theexecution of the contract

Exceptions when Demand is not needed to constituted

Delay:

i. When there is an express stipulationii. Where the law provides i.e. Taxesiii. From the Nature and Circumstances of theobligation it appears that the designation oftime was a controlling motive for theestablishment of the obligation

i.e. Wedding Dress, Flowers for Valentine,Christmas tree, A loan constituted to fulfil anotherobligation

iv. When demand would be useless, as when

the obligor has rendered it beyond his powerto perform

i.e. A bound himself to deliver to B a car 3 yearsfrom today. A knowingly destroyed the car he wassupposed to deliver to B. B is not obliged to wait for the 3year period in order to bring an action for damagesagainst

PRESCRIPTION

***not yet finished

II. Fraud

-Voluntary execution of a wrongful act, or a wilfulomission, knowing and intending the effects whichnaturally and necessarily arise from such act or omission

-Any voluntary act which prevents the normalrealization of the prestation. It must be voluntary thus,good faith is a defense

-Future fraud may not be waived by the partiesas it goes against public policy. But once an action forFraud accrues it may then be waived by the offendedparty

Kinds of Fraud1. During the constitution

-Contract becomes voidable *See chapters on Contract

2. During performance of the obligation

-Entitles the party to Damages

III. Negligence

-Omission or absence of due care required bythe parties

-In the absence of any stipulation by the parties,the standard of care shall be Diligence of a good father ofa family. Other standards of care:

Utmost diligence – Banking transactions

Extraordinary diligence – Contract of Carriage

RECIPROCAL OBLIGATIONS Art. 1191

- One where the fulfilment of an obligation by oneparty depends upon the fulfilment of theobligation by the other

- One party incurs in delay from the moment the

other party fulfils his obligation- The default of one party compensates the other- Except when the parties has set

different dates for their performance- The Default of one party entitles the party

demanding the obligation to RESCIND orDEMAND FULFILLMENT of the obligation withDAMAGES in either case.

- The right to rescind is impliedin reciprocal obligation, such that the party neednot stipulate in their agreement the availment ofsuch right.

- The right to rescind cannot beavailed of in cases of slight or casual breach asthe law contemplates non-fulfilment of the

obligation- The right to rescind (Also called Resolution)

obliges the party to return to each other what theparty may receive by virtue of the obligation as ifthe obligation has never existed

- Differentiate this from Economic Rescission whichis based on economic damage, under theChapter of rescission in CONTRACTS



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In cases of:Bad faith

- liable for all damages attributed tonon-performance

Good faith- liable only for natural and probable

consequences which could be foreseen

IV. Loss

-A thing is lost when it perishes, goes out ofcommerce, or disappears in such a manner that itsexistence is unknown or it cannot be recovered

V. Contravenes in any manner the tenor of the obligation

- Any illicit act which impairs the strict andfaithful fulfilment of the obligation, or every

kind of defective performance

Involuntary

I. EXCUSE FOR NON-PERFORMANCE- CASOFORTUITO

- An event which could not be foreseen orwhich although foreseen was inevitable

- Mere inconvenience, unexpectedimpediments or increased expenses will notrelieve a party from his obligation

- Extinguishes totally the obligation- Mere proof of a fortuitous event does not

relieve liability. It must be proven that thedebtor was free from any negligence or lackof foresight, otherwise the whole event willbe deemed “humanized” (Sicam vs. CA)

A. Kinds of fortuitous event:

Proper- Acts of God and independent of humanaction

Force Majeure – Arises from legitimate orillegitimate acts of persons other than obligor

Extraordinary – Could be reasonably foreseen,but inevitable

B. Requisites of Fortuitous event

1. Event must be independent of the will of thedebtor

2. Must be unforeseen or even if foreseen isinevitable

3. Event must render it impossible for theobligor to fulfil his obligation in a normal manner

4. Obligor must be free from any participation inany aggravation of any injury of the creditor

C. Exceptions: Circumstances where a partymay be liable for Fortuitous events:

1. Law

2. Stipulation of the parties

3 . Obligation is generic (under the principle thatthe genus does not perish GENUS NUNQUAM PERIT)

4. Nature of the obligation requires risks

-A contracted B to build a windmill. Bwas able to complete the job without any defect butduring a typhoon the windmill was broken. A cannot sueB because the nature of the windmill building is that it isbuilt to withstand strong winds

5. When the Loss is due partly to the fault of thedebtor

- A obliged himself to deliver B a car inhis garage. A hurricane came and swept the wholeneighbourhood but I was found during the trial that Afailed to store the car in his garage on that day. A is stillliable

6. Obligation arises from the crime

- A stole B’s watch as a result of which A was convicted of Theft. A was obliged by the court toreturn the watch to B but it was lost due to Fortuitousevent. A is still liable to indemnify B

7. When the debtor promised to deliver thesame thing to two or more persons who do not have thesame interest (Art. 1165 Par. 3)

8. Loss occurs after delay

D. Instances when there is no liability even if

there is a breach of obligation:

1. Fortuitous event

2. When the Creditor prevents fulfilment

3. When the Creditor waives the liability

D. USURY

-Taking of more interest than the Law allows

-Currently suspended

E. Remedy of Creditors

I. Enforce against the properties and to exhaustall his properties

II. Exercise the right to bring the actions whichthe debtor may have (Accion Subrogatoria)

-Contemplates a malicious or negligentinaction of the debtor.

-The debt must be certain, demandableand liquidated.

i.e. To substitute him in his action torecover money against another person



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III. Impugn acts which debtor may have done todefraud his creditors (Rescission)

i.e. To invalidate a contract of salemay fraudulently to conceal properties

Rights does not cover those which are

personal, non-patrimonial, exempted from execution andthose of public or honorary character.

Cases:

Sicam vs. CA G.R. No. 159617 August 8, 2007

Facts:

Respondent pawned her jewellery with petitionercorporation, which was later on robbed by two armedmen. She filed for indemnification of damagesrepresenting the value of her jewelries to which petitionerinterposed Caso fortuito as a defense

Held:

A robbery per se is not a fortuitous event as itdoes not foreclose the possibility of negligence. It isincumbent upon the party interposing such defense thathe did was not negligent. In this case petitioner failed toprove that he employed the services of a security guardknowing at the time of 1987 robbery was alreadyrampant.

The diligence with which the law requires theindividual at all times to govern his conduct varies withthe nature of the situation in which he is placed and theimportance of the act which he is to perform

Meralco v. Ramoy, G.R. No. 158911 March 4, 2008

Facts:

Prior to the occurrence of this case, anejectment case was filed by NPC against respondentwherein he was ordered to vacate his lot as it wasinterfering with his right of way. Thus petitioner upon theorder of Meralco and upon doing a joint survey cut off theelectricity of the said lots including respondent.Respondent filed for damages claiming that he wasoutside the boundaries

Held:

As a public utility, MERALCO has the obligationto discharge its functions with utmost care and diligence.In culpa contractual the mere proof of the existence of thecontract and the failure of its compliance justify, primafacie, a corresponding right of relief. The law, recognizingthe obligatory force of contracts, will not permit a party tobe set free from liability for any kind of misperformance ofthe contractual undertaking or a contravention of thetenor thereof. The remedy serves to preserve theinterests of the promissee that may include his"expectation interest," which is his interest in having thebenefit of his bargain by being put in as good a positionas he would have been in had the contract beenperformed, or his "reliance interest," which is his interest

in being reimbursed for loss caused by reliance on thecontract by being put in as good a position as he would

have been in had the contract not been made; or his"restitution interest," which is his interest in havingrestored to him any benefit that he has conferred on theother party which may only be avoided by proof of hisexercise of his due diligence.

It was not enough for MERALCO to merely rely

on the Decision of the MTC without ascertaining whetherit had become final and executory. Verily, only uponfinality of said Decision can it be said with conclusivenessthat respondents have no right or proper interest over thesubject property, thus, are not entitled to the services ofMERALCO.

Solar Harvest, Inc. v. Davao Corrugated Carton Corp.,G.R. No. 176868 July 26, 2010

Facts:

Petitioner entered into an agreement with the

respondent for the production of corrugated carbonboxes, specifically designed for petitioner. Petitionerdeposited his partial payment. After having been paid,petitioner claimed that despite his “follow-ups” he did notreceive the boxes thus he wrote a letter forreimbursement of his amount. Respondent claimed thatthe boxes were already finished and that it was petitionerwho was supposed pick up the boxes in their warehouse.

Held:

In reciprocal obligations, as in a contract of sale,the general rule is that the fulfillment of the parties’

respective obligations should be simultaneous. Hence, nodemand is generally necessary because, once a partyfulfills his obligation and the other party does not fulfill his,the latter automatically incurs in delay. But when differentdates for performance of the obligations are fixed, thedefault for each obligation must be determined by therules given in the first paragraph of the present article,19that is, the other party would incur in delay only from themoment the other party demands fulfillment of theformer’s obligation. Thus, even in reciprocal obligations, ifthe period for the fulfillment of the obligation is fixed,demand upon the obligee is still necessary before theobligor can be considered in default and before a causeof action for rescission will accrue.

Evident from the records and even from theallegations in the complaint was the lack of demand bypetitioner upon respondent to fulfill its obligation tomanufacture and deliver the boxes. The Complaint onlyalleged that petitioner made a "follow-up" uponrespondent, which, however, would not qualify as ademand for the fulfillment of the obligation. Petitioner’switness also testified that they made a follow-up of theboxes, but not a demand. Note is taken of the fact that,with respect to their claim for reimbursement, theComplaint alleged and the witness testified that ademand letter was sent to respondent. Without a previousdemand for the fulfillment of the obligation, petitionerwould not have a cause of action for rescission against

respondent as the latter would not yet be considered inbreach of its contractual obligation.



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Even assuming that a demand had beenpreviously made before filing the present case,petitioner’s claim for reimbursement would still fail, as thecircumstances would show that respondent was not guiltyof breach of contract.

Mindanao Terminal v. Phoenix Assurance, G.R. No.

162467 May 8, 2009

Facts:

Del Monte contracted the services of petitioner,a stevedoring company, to load and stow a shipment ofcartons of bananas and pineapples owned by Del MonteProduce ( different from Del Monte) which was insured.Upon arrival at the port of Korea it was found that theCargo was in bad condition. Respondent insurer filed thisclaim for reimbursement

Held:

It is the Court’s consistent ruling that the act that breaks

the contract may be also a tort. In fine, a liability for tortmay arise even under a contract, where tort is that whichbreaches the contract. In the present case, Phoenix andMcGee are not suing for damages for injuries arising fromthe breach of the contract of service but from the allegednegligent manner by which Mindanao Terminal handledthe cargoes belonging to Del Monte Produce. Despite theabsence of contractual relationship between Del MonteProduce and Mindanao Terminal, the allegation ofnegligence on the part of the defendant should besufficient to establish a cause of action arising fromquasi-delict.

In the absence of any higher degree of diligencestipulated, it is clear that Mindanao Terminal had duly

exercised the required degree of diligence in loading andstowing the cargoes, which is the ordinary diligence of agood father of a family. The loss was shown to be due tothe storm and improper storage wherein it was shownthat there were no spaces between the cargoes.

Agcaoili vs .GSIS, 165 SCRA 1, G.R. No. L-30056August 30, 1988

Petitioner applied for a purchase of a house and lot whichwas approved by respondent. The approval was subjectto the condition to occupy the house which he found to becompletely uninhabitable. The ceiling, stairs, doublewalling, lighting facilities, water connection, bathroom,toilet kitchen, drainage, were inexistent. Petitioner

refused to make any further payment until GSIScompleted the house.

Held:

Under the circumstances there can hardly beany doubt that the house contemplated was one thatcould be occupied for purposes of residence inreasonable comfort and convenience. There would be nosense to require the awardee to immediately occupy andlive in a shell of a house. By any objective interpretationof its terms, the contract can only be understood asimposing on the GSIS an obligation to deliver to Agcaoilia reasonably habitable dwelling in return for hisundertaking to pay the stipulated price. Since GSIS didnot fulfill that obligation, and was not willing to put thehouse in habitable state, it cannot invoke Agcaoili's

suspension of payment of amortizations as cause tocancel the contract between them. It is axiomatic that "(i)nreciprocal obligations, neither party incurs in delay if theother does not comply or is not ready to comply in aproper manner with what is incumbent upon him."

In this case, the Court can not require specific

performance of the contract in question according to itsliteral terms, as this would result in inequity. Theprevailing rule is that in decreeing specific performanceequity requires not only that the contract be just andequitable in its provisions, but that the consequences ofspecific performance likewise be equitable and just. Thegeneral rule is that this equitable relief will not be grantedif, under the circumstances of the case, the result of thespecific enforcement of the contract would be harsh,inequitable, oppressive, or result in an unconscionableadvantage to the plaintiff.

The completion of the unfinished house so that itmay be put into habitable condition, as one form of reliefto the plaintiff Agcaoili, no longer appears to be a feasible

option in view of the not inconsiderable time that hasalready elapsed. That would require an adjustment of theprice of the subject of the sale to conform to presentprices of construction materials and labor. It is more inkeeping with the realities of the situation, and withequitable norms, to simply require payment for the landon which the house stands, and for the house itself, in itsunfinished state, as of the time of the contract.

Arrieta vs. Naric G.R. No. L-15645 January 31,1964

Facts:

Petitioner won the bidding of respondent

corporation regarding the sale of Burmese rice. The latterobligated itself to pay the former thru a letter of credit inUS currency. Respondent applied a letter of creditthrough the PNB with a transmittal letter wherein it statedthat it did not have enough funds. In the meantime,petitioner has already made the a tender to her supplied.PNB acceded to the request of NARIC but demanded amarginal cash deposit which the latter still could notprovide. Petitioner filed this suit for unrealized income

Held:

The sole and principal reason for thecancellation of the allocation contracted by the appelleeherein in Rangoon, Burma, was the failure of the letter ofcredit to be opened with the contemplated period. It isfurther clear that what singularly delayed the opening ofthe stipulated letter of credit and which, in turn, causedthe cancellation of the allocation in Burma, was theinability of the appellant corporation to meet the conditionimportation by the Bank for granting the same.

The liability of the appellant, however, stems notalone from this failure or inability to satisfy therequirements of the bank. Its culpability arises from itswillful and deliberate assumption of contractualobligations even as it was well aware of its financialincapacity to undertake the prestation.

Having announced the bid, it must be deemed tohave impliedly assured suppliers of its capacity andfacility to finance the importation within the required



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period, especially since it had imposed the supplier the90-day period within which the shipment of the rice mustbe brought into the Philippines. Having entered in thecontract, it should have taken steps immediately toarrange for the letter of credit for the large amountinvolved and inquired into the possibility of its issuance. Article 11 of the Civil Code which provides:

Those who in the performance of their obligation areguilty of fraud, negligence, or delay, and those who in anymanner contravene the tenor thereof, are liable indamages.

Under this provision, not only debtors guilty offraud, negligence or default in the performance ofobligations a decreed liable; in general, every debtor whofails in performance of his obligations is bound toindemnify for the losses and damages caused thereby.

The phrase "any manner contravene the tenor" of the

obligation includes any illicit act which impairs the strictand faithful fulfillment of the obligation or every kind ordefective performance.

Telefast vs. Castro G.R. No. 73867 February 29, 1988

Facts:

The wife and mother of respondent passedaway, on the same day one of the daughters sent atelegram to his father informing him of his death. Thetelegram was not, however, sent. Thus it was only thedaughter who was present during her interment. She thusfiled a suit for damages

Held: Art. 1170 of the Civil Code provides that "those

who in the performance of their obligations are guilty offraud, negligence or delay, and those who in any mannercontravene the tenor thereof, are liable for damages." Art.2176 also provides that "whoever by act or omissioncauses damage to another, there being fault ornegligence, is obliged to pay for the damage done."

In the case at bar, petitioner and private respondent SofiaC. Crouch entered into a contract whereby, for a fee,petitioner undertook to send said private respondent's

message overseas by telegram. This, petitioner did notdo, despite performance by said private respondent ofher obligation by paying the required charges. Petitionerwas therefore guilty of contravening its obligation to saidprivate respondent and is thus liable for damages.

We find Art. 2217 of the Civil Code applicable to the caseat bar. It states: "Moral damages include physicalsuffering, mental anguish, fright, serious anxiety,besmirched reputation, wounded feelings, moral shock,social humiliation, and similar injury. Though incapable ofpecuniary computation, moral damages may berecovered if they are the proximate results of thedefendant's wrongful act or omission."

NPC vs. CA G.R. Nos. 103442-45 May 21, 1993

Facts:

Plaintiffs sought to recover actual damages for aflood caused by the negligent release of defendant of awater dam through the spillways of Angat Dam. Thateven with knowledge of the impending typhoon petitionerfailed to exercise due diligence and as a consequencethereof the town was inundated causing member of thehousehold, their furniture and animals to drown.

Petitioner as a defense contends that it gave writtennotice and that their loss was due to fortuitous event

Held:

defendants-appellees maintained a reservoirwater elevation even beyond its maximum and safe level,thereby giving no sufficient allowance for the reservoir tocontain the rain water that will inevitably be brought bythe coming typhoon.

From the mass of evidence extant in the record, We areconvinced, and so hold that the flash flood on October 27,1978, was caused not by rain waters (sic), but by storedwaters (sic) suddenly and simultaneously released from

the Angat Dam by defendants-appellees,

Said notice is ineffectual, insufficient andinadequate for purposes of the opening of the spillwaygates at midnight of October 26, 1978 and on October 27,1978. It did not prepare or warn the persons so served,for the volume of water to be released, which turned outto be of such magnitude, that residents near or along the Angat River, even those one (1) kilometer away, shouldhave been advised to evacuate. Said notice, addressed"TO ALL CONCERN (sic)," was delivered to a policeman(Civil Case No. SM-950, pp. 10-12 and Exhibit "2-A") forthe municipality of Norzagaray. Said notice was not thusaddressed and delivered to the proper and responsibleofficials who could have disseminated the warning to theresidents directly affected.

Thus it has been held that when the negligence of aperson concurs with an act of God in producing a loss,such person is not exempt from liability by showing thatthe immediate cause of the damage was the act of God.To be exempt from liability for loss because of an act ofGod, he must be free from any previous negligence ormisconduct by which that loss or damage may have beenoccasioned.

Jimenez vs. City of Manila G.R. No. 71049 May 29, 1987

Facts:

Petitioner went to Sta. Ana market which wasankle deep in flood at the time. Thereupon, he was struckby a nail in an uncovered opening, which he could notsee due to the dirty rain water and caused a one and ahalf-inch penetration. He turned ill and was sent to thehospital where he stayed sick for 20 days due to highfever. He was confined to crutches for 15 days and evenhad to hire a third person to operate his school bus. Thus,he filed this suit against Respondent City and AsiaticIntegrated Corporation for the injuries petitioner suffered.

Held:

Article 2189 of the Civil Code of the Philippineswhich provides that:



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Provinces, cities and municipalities shall be liable fordamages for the death of, or injuries suffered by anyperson by reason of defective conditions of roads,streets, bridges, public buildings and other public worksunder their control or supervision.

constitutes a particular prescription making "provinces,

cities and municipalities ... liable for damages for thedeath of, or injury suffered by any person by reason" — specifically — "of the defective condition of roads, streets,bridges, public buildings, and other public works undertheir control or supervision."

the Supreme Court clarified further that under Article2189 of the Civil Code, it is not necessary for the liabilitytherein established to attach, that the defective publicworks belong to the province, city or municipality fromwhich responsibility is exacted. What said article requiresis that the province, city or municipality has either "controlor supervision" over the public building in question.

A customer in a store has the right to assume that the

owner will comply with his duty to keep the premises safefor customers. If he ventures to the store on the basis ofsuch assumption and is injured because the owner didnot comply with his duty, no negligence can be imputedto the customer.

Petitioner had the right to assume that there were noopenings in the middle of the passageways and if any,that they were adequately covered. Had the openingbeen covered, petitioner could not have fallen into it.

Nakpil & Sons vs. C.A. G.R. No. L-47851 April 15, 1988

Facts:

The Philippine Bar Associations contracted theservices of petitioner for the creation of specifications,plans and designs of their new building which in turncontracted United Construction for the erection of thebuilding. HEHE. The building was completed but twoyears after a strong earthquake hit and it sustained majordamages unlike its surrounding buildings. Thus, PBA fileda complaint

Held:

The court holding that Petitioner as the architectwas liable stated “One who negligently creates adangerous condition cannot escape hability for thenatural and probable consequences thereof, although the

act of a third person, or an act of God for which he is notresponsible, intervenes to precipitate the loss.”

*******

Unlad vs. Dragon G.R. No. 149338 July 25, 2008

Facts:

Plaintiffs-Respondent and petitioner entered intoa Memorandum of Agreement wherein respondent shallallow petitioner to invest 4.8M in their rural bank and payup immediately the amount of 1.2M. Respondents filedfor rescission for the return of control of the rural bank.They claim that the action for rescission has already

prescribed because it is not the general rule onprescription which should apply but instead Art. 1389 onthe chapter on rescission

Held:

This is an erroneous proposition. Article 1389specifically refers to rescissible contracts as, clearly, thisprovision is under the chapter entitled "RescissibleContracts." It applies to rescissible contracts, asenumerated and defined in Articles 1380 and 1381. We

must stress however, that the "rescission" in Article 1381is not akin to the term "rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission isa principal action which seeks the resolution orcancellation of the contract while in Article 1381, theaction is a subsidiary one limited to cases of rescissionfor lesion as enumerated in said article.

Article 1144 specifically provides that the 10-year period is counted from "the time the right of actionaccrues." The right of action accrues from the momentthe breach of right or duty occurs.

Mutual restitution is required in cases involving rescissionunder Article 1191. This means bringing the parties back

to their original status prior to the inception of thecontract. Art. 1385 applies to this kind of rescission thus,Rescission has the effect of "unmaking a contract, or itsundoing from the beginning, and not merely itstermination." Hence, rescission creates the obligation toreturn the object of the contract. It can be carried out onlywhen the one who demands rescission can returnwhatever he may be obliged to restore. To rescind is todeclare a contract void at its inception and to put an endto it as though it never was. It is not merely to terminate itand release the parties from further obligations to eachother, but to abrogate it from the beginning and restorethe parties to their relative positions as if no contract hasbeen made.

Universal Food Corporation vs. C.A. G.R. No. L-29155May 13, 1970

Facts:

Plaintiff filed against respondent an action forrescission on their “Bill of assignment” to which he wasbound to render services as a permanent chief chemistfor the making of ketchup dun dun dun and to pay thesalaries thereof while plaintiff was to place the use of hisketchup formula to petitioner. Petitioner contends that theright to specific performance is not conjunctive with theright to rescind thus it was error for the court to awardboth rescission and the award for his salary thereof

Held:

One of the considerations for the transfer of theuse thereof was the undertaking on the part of thepetitioner corporation to employ the respondent patenteeas the Second Vice-President and Chief Chemist on apermanent status, at a monthly salary of P300, unless"death or other disabilities supervened. Under thesecircumstances, the petitioner corporation could notescape liability to pay the private respondent patentee hisagreed monthly salary, as long as the use, as well as theright to use, the formula for Mafran sauce remained with

the corporation.Magdalena vs. Myrick G.R. No. L-47774 March 14, 1941



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Facts:

Petitioner sold to respondent a piece of land fora sum of money to which respondent issued a promissorynote. Due to the inability of the respondent to pay thesum of instalment, the petitioner notified him that they arecancelling the contract. Defendant filed an action for the

return of his money already paid to which Petitioneravered that the contract was still in effect thus,respondent should be made to pay the unpaid balance.Petitioner states that the cancelation was just a merenotification and that cancellation to produce any effectmust be agreed upon by both parties.

Held:

The contract of sale, contract SJ-639, containsno provision authorizing the vendor, in the event of failureof the vendee to continue in the payment of the stipulatedmonthly installments, to retain the amounts paid to him onaccount of the purchase price. The claim, therefore, ofthe petitioner that it has the right to forfeit said sums in its

favor is untenable. Under article 1124 of the Civil Code,however, he may choose between demanding thefulfillment of the contract or its resolution. Theseremedies are alternative and not cumulative, and thepetitioner in this case, having to cancel the contract,cannot avail himself of the other remedy of exactingperformance. As a consequence of the resolution, theparties should be restored, as far as practicable, to theiroriginal situation which can be approximated only byordering, as we do now, the return of the things whichwere the object of the contract, with their fruits and of theprice, with its interest, computed from the date of theinstitution of the action.

U.P. vs. De Los Angeles G.R. No. L-28602 September29, 1970

Facts:

Petitioner and ALUMCO entered into an alogging agreement, the respondent failed to pay theamoun stated and upon request by the UP for rescission,it executed an acknowledgment of its debt which statedtherein that the contract may be rescinded without thenecessity of judicial suit. UP informed the respondent ofits decision to rescind the contract upon its failure tofurther pay its obligation. Respondent cited jurisprudencethat a rescission may only be decreed by the Court

Held:

the party who deems the contract violated mayconsider it resolved or rescinded, and act accordingly,without previous court action, but it proceeds at its ownrisk . For it is only the final judgment of the correspondingcourt that will conclusively and finally settle whether theaction taken was or was not correct in law. But the lawdefinitely does not require that the contracting party whobelieves itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect itsinterest.

In every case where the extrajudicial resolutionis contested only the final award of the court of competent

jurisdiction can conclusively settle whether the resolutionwas proper or not. It is in this sense that judicial actionwill be necessary, as without it, the extrajudicial resolution

will remain contestable and subject to judicial invalidation,unless attack thereon should become barred byacquiescence, estoppel or prescription.

Fears have been expressed that a stipulationproviding for a unilateral rescission in case of breach ofcontract may render nugatory the general rule requiring

judicial action but, as already observed, in case of abuseor error by the rescinder the other party is not barred fromquestioning in court such abuse or error, the practicaleffect of the stipulation being merely to transfer to thedefaulter the initiative of instituting suit, instead of therescinder.

Zulueta vs. Mariano G.R. No. L-29360 January 30, 1982

Facts:

Petitioner sold to respondent a house and lotwherein it was stipulated that upon his failure to fulfil theconditions tated in their contract, the amounts so paidshall be forfeited and considered as payment of rentals.

Thus the petitioner, upon failure of respondent to pay theamount filed an action for ejectment treating hisoccupancy thereof as one in the character of a lessee.Respondent moved to dismiss claiming that the action isone for rescission which is not within the jurisdiction ofthe MTC.

Held:

In his Complaint, petitioner had alleged violationby respondent of the stipulations of their agreement tosell and thus unilaterally considered the contractrescinded. Respondent Avellana denied any breach onhis part and argued that the principal issue was one ofinterpretation and/or rescission of the contract as well as

of set-off. Under those circumstances, proof of violation isa condition precedent to resolution or rescission. It is onlywhen the violation has been established that the contractcan be declared resolved or rescinded. Upon suchrescission, in turn, hinges a pronouncement thatpossession of the realty has become unlawful. Thus, thebasic issue is not possession but one of rescission orannulment of a contract. which is beyond the jurisdictionof the Municipal Court to hear and determine.

True, the contract between the parties providedfor extrajudicial rescission. This has legal effect, however,where the other party does not oppose it. Where it isobjected to, a judicial determination of the issue is stillnecessary.

Palay vs. Clave G.R. No. L-56076 September 21, 1983

Facts:

Petitioner executed a contract to sell in favour ofprivate respondent wherein it was stipulated that thecontract shall be automatically extra judicially rescindedupon default in payment of any instalment upon the lapseof 90 days of the grace period of one month, without needof notice and with full forfeiture.

Held:

Well settled is the rule, as held in previous

jurisprudence, that judicial action for the rescission of acontract is not necessary where the contract provides thatit may be revoked and cancelled for violation of any of its



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terms and conditions. However, even in the cited cases,there was at least a written notice sent to the defaulterinforming him of the rescission.

The act of a party in treating a contract ascancelled should be made known to the other. Thecontention that private respondent had waived his right to

be notified under paragraph 6 of the contract is neithermeritorious because it was a contract of adhesion, astandard form of petitioner corporation, and privaterespondent had no freedom to stipulate. A waiver mustbe certain and unequivocal, and intelligently made; suchwaiver follows only where liberty of choice has been fullyaccorded. Moreover, it is a matter of public policy toprotect buyers of real estate on installment paymentsagainst onerous and oppressive conditions. Waiver ofnotice is one such onerous and oppressive condition tobuyers of real estate on installment payments.

Furthermore, It would be most inequitable ifpetitioners were to be allowed to retain privaterespondent's payments and at the same time appropriate

the proceeds of the second sale to another.

Angeles vs. Calasanz G.R. No. L-42283 March 18, 1985

Facts:

Apellants entered into a contract to sell in favourof the Apellee. Apellants accepted and received onnumerous occasions delayed instalment payments fromthe plaintiffs. Defendants demanded the remittance ofthe past due accounts and upon failure thereofdemanded cancellation of the contract.

Held:

The breach of the contract adverted to by thedefendants-appellants is so slight and casual when weconsider that apart from the initial downpayment ofP392.00 the plaintiffs-appellees had already paid themonthly installments for a period of almost nine (9) years.In other words, in only a short time, the entire obligationwould have been paid. Furthermore, although theprincipal obligation was only P 3,920.00 excluding the 7percent interests, the plaintiffs- appellees had alreadypaid an aggregate amount of P 4,533.38. To sanction therescission made by the defendants-appellants will workinjustice to the plaintiffs- appellees. It would unjustlyenrich the defendants-appellants.

when the defendants-appellants, instead of

availing of their alleged right to rescind, have acceptedand received delayed payments of installments, thoughthe plaintiffs-appellees have been in arrears beyond thegrace period mentioned in paragraph 6 of the contract,the defendants-appellants have waived and are nowestopped from exercising their alleged right of rescission.

Boysaw vs. Interphil G.R. No. L-22590 March 20, 1987

Facts:

Petitioner engaged Gabriel Elorde in a boxingcontest. Respondent wrote to the Games and Amusements Boards claiming that it was not notified ofthe change in management of petitioner and thus

requested a postponement which was granted.Petitioners refused to accept the change of date even if it

was within the allowable postponement period of 30 daysprovided by the contract. While the bout was eventuallystaged, it was not within the period provided for in theoriginal contract. Plaintiff thus sued for damages

Held:

It is the appellees who had the right to rescindfrom the beginning since the change in the managementwas in fact a novation of debtor made without the consentof the creditor. Furthermore, it was stated therein thatBoysaw fought a boxing match which was prohibited fromthe contract. From the evidence, it is clear that theappellees, instead of availing themselves of the optionsgiven to them by law of rescission or refusal to recognizethe substitute obligor Yulo, really wanted to postpone thefight date owing to an injury that Elorde sustained in arecent bout. That the appellees had the justification torenegotiate the original contract, particularly the fight dateis undeniable from the facts aforestated. Under thecircumstances, the appellees' desire to postpone the fightdate could neither be unlawful nor unreasonable.The

refusal of the plaintiffs to accept a postponement withoutany other reason but the implementation of the terms ofthe original boxing contract entirely overlooks the fact thatby virtue of the violations they have committed of theterms thereof, they have forfeited any right to itsenforcement. Furthermore, the change

Pilipinas Bank vs. IAC G.R. No. L-67881 June 30, 1987

Facts:

Petitioner sold to Private respondents a piece ofland covered by a contract to sell wherein the contractwas to be rescinded automatically upon failure to paythree monthly instalments. The respondents were in

arrears for 19 months to which petitioners simply sent ademand letter. Upon the arrear of 20 months petitionerstated that it shall be constrained to avail of the automaticrescission clause. Respondent payed after the demand,but after some time failed again to pay its arrears. Afteralmost three years, petitioner wrote to the respondentreminding him of his liability. And after two yearsthereafter, it wrote a letter to respondent informing themthat the contract has been rescinded.

Held:

While it is true that a contractual provisionallowing "automatic rescission" (without prior need of judicial rescission, resolution or cancellation) is VALID,the remedy of one who feels aggrieved being to go toCourt for the cancellation of the rescission itself, in casethe rescission is found unjustified under thecircumstances, still in the instant case there is a clearWAIVER of the stipulated right of "automatic rescission,"as evidenced by the many extensions granted privaterespondents by the petitioner. In all these extensions, thepetitioner never called attention to the proviso on"automatic rescission."

Central Bank vs. C.A. G.R. No. L-45710 October 3, 1985

Facts:

Private respondent entered into a loanagreement for the amount of P80,000 which he securedwith a mortgage which was found to be.. However, only



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P17,000 was released by the petitioner to which privaterespondent issued a promissory note on the amountpayable in 3 years and thereafter the petitioner could notanymore fulfil his obligation because it was deemed asinsolvent by the Monetary Bank. Thus, private respondentsued for specific performance

Held:

the mere pecuniary inability to fulfill anengagement does not discharge the obligation of thecontract, nor does it constitute any defense to a decree ofspecific performance and, the mere fact of insolvency of adebtor is never an excuse for the non-fulfillment of anobligation but 'instead it is taken as a breach of thecontract by him Since Island Savings Bank was in defaultin fulfilling its reciprocal obligation under their loanagreement, Sulpicio M. Tolentino, under Article 1191 ofthe Civil Code, may choose between specificperformance or rescission with damages in either case.But since Island Savings Bank is now prohibited fromdoing further business by Monetary Board Resolution No.

967, WE cannot grant specific performance in favor ofSulpicio M, Tolentino.Rescission is the only alternative remedy left. WE rule,however, that rescission is only for the P63,000.00balance of the P80,000.00 loan, because the bank is indefault only insofar as such amount is concerned, asthere is no doubt that the bank failed to give theP63,000.00. As far as the partial release of P17,000.00,which Sulpicio M. Tolentino accepted and executed apromissory note to cover it, the bank was deemed tohave complied with its reciprocal obligation to furnish aP17,000.00 loan. The promissory note gave rise toSulpicio M. Tolentino's reciprocal obligation to pay theP17,000.00 loan when it falls due. His failure to pay the

overdue amortizations under the promissory note madehim a party in default, hence not entitled to rescission. Ifthere is a right to rescind the promissory note, it shallbelong to the aggrieved party, that is, Island SavingsBank. If Tolentino had not signed a promissory notesetting the date for payment of P17,000.00 within 3 years,he would be entitled to ask for rescission of the entireloan because he cannot possibly be in default as therewas no date for him to perform his reciprocal obligation topay.Since both parties were in default in the performance oftheir respective reciprocal obligations, that is, IslandSavings Bank failed to comply with its obligation tofurnish the entire loan and Sulpicio M. Tolentino failed to

comply with his obligation to pay his P17,000.00 debtwithin 3 years as stipulated, they are both liable fordamages. Article 1192 of the Civil Code provides that incase both parties have committed a breach of theirreciprocal obligations, the liability of the f irst infractor shallbe equitably tempered by the courts. WE rule that theliability of Island Savings Bank for damages in notfurnishing the entire loan is offset by the liability ofSulpicio M. Tolentino for damages, in the form ofpenalties and surcharges, for not paying his overdueP17,000.00 debt

NOT INCLUDED: PAYMENT OF PRINCIPAL***

KINDS OF OBLIGATIONS:

A. PURE OBLIGATIONS

I. Pure Obligations

- One whose effectivity does not depend upon acondition or a term

- Immediately demandable or within areasonable time (Art. 19)

B. CONDITIONAL OBLIGATIONS

-One whose effectivity depends upon a futureand uncertain event including past and unknown event(the future and uncertain event in such case is theacquisition of knowledge by the parties of the past event)

-i.e. upon marriage of A to B, upon the

CLASSIFICATION OF CONDITIONS

I. Suspensive Conditions

-the happening of an event gives rise to anobligation

-if the event does not happen the obligationdoes not come into existence

II. Resolutory Conditions

-the happening of an event extinguishes theobligation

-immediately demandable but once the conditionoccurs the right over the prestation terminates

III. Potestative Conditions

-One which depends upon the will of one of thecontracting parties

They may either be:

i. mixed potestative condition – thosewhich depend upon the will of thedebtor but subject to external acts

i.e. I will pay my loan if the house I live in is sold. In this

case the condition does not depend exclusively upon thewill of the debtor but is subject also to circumstancesbeyond his power or control. The condition states impliesthe obligor had already decided to sell his house(OSMENA vs. RAMA)

i.e. I promise to pay the purchase price as soon as theinhabitants have been vacated by the inhabitants and thepurchaser undertakes to do the same. It is not dependentsolely upon the will of the debtor as the creditor in casesof inaction of the debtor may choose to file a suit forejection or the inhabitants may voluntarily leave thepremises (JACINTO vs. CHUA)

ii. casual condition – one whichdepends exclusively upon chance or otherfactors or third persons



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iii. purely potestative condition – onewhich depends solely on the will of the contracting parties –it is not only the condition that is void but the wholeobligation under Art. 1182 as it is merely an illusoryobligation except when it is resolutory

i.e. I will lend you P100 if I feel like it

IV. Impossible Conditions (Art. 1183)

-Impossible conditions, those contrary to good customs orpublic policy and those prohibited by law shall annul theobligation which depends upon them.

- does not apply to donations and totestamentary dispositions as they shall be merelyconsidered as unwritten

-If the obligation is divisible, that part thereof which is notaffected by the impossible or unlawful condition shall bevalid

Kinds of Impossible Conditions:

i. Physically impossible

-when it is contrary to the laws ofnature

ii. Juridical impossibility

-when contrary to law, morals, goodcustoms and public policy

VOID or INEFFECTUAL CONDITIONS:

-those which are contrary to law, good customs,public policy

-those which are not capable of realization

-Condition to do an impossible thing

-Conditions which depend upon the sole will ofthe debtor except when they are resolutory

-Condition not to do shall be deemed unwritten

The Condition is extinguished and the obligationbecomes immediately demandable or extinguished when:

1) It becomes indubitable that the event will

not happen or cannot anymore occur

2) expiration of time for the condition tohappen

-If no time has been fixed by theparties, the condition shall be deemedfulfilled at such time as may have probablybeen contemplated by the parties, bearingin mind the nature of the obligation

i.e. I promise to pay X the amont ofP30,000 if he does marries Cynthia withintwo years. I will pay X if (1) he does notmarry Cynthia within 2 years or (2) If eitherCynthia or X marry another person thecondition becoming impossible

3) If the creditor voluntarily prevents itsfulfilment the condition is deemedcompleted through the acts of the creditor.Exception is when the act of the creditor isin exercise of a lawful right

-I.e. D obliged himself to C to build a

house. C files a case of rape against D,thus rendering D unable to fulfil hisobligation. D is still liable for his unfulfilledobligation

4) If the debtor has done all in his power tofulfil the obligation (Smith vs. Matti)

Retroactivity:

-The condition having been fulfilled shall retroactto the date when the obligation was constituted

-The interest and fruits shall be deemedmutually compensated in a bilateral obligation. In

unilateral obligations the debtor shall appropriate thefruits and interests received. In obligations to do and notto do, the courts shall decide.

i.e. A bound himself to give a piece of land to Bconditioned upon his passing the bar. After Bpasses the bar, B’s title to the land shall bedeemed to retroact from the date the obligationwas constituted. Prior to B passing the bar, theright to the fruits and interests of the piece ofland shall be appropriated by A, notwithstandingits retroactivity

-This is relevant in cases of Prior right to a titleof land under the principle of First in Time, First in Right

-i.e. in the above condition, if A sells the piece ofland to C. B is still entitled to the land withoutprejudice to the right of C as a purchaser ingood faith in case there is delivery

-If prior to the fulfillment of the condition, theobligee alienates the prestation. The fulfillment of thecondition serves to perfect the subsequent obligation. Ineffect the oblige is alienating/selling his interest thereonwhich is deemed an assignment

-i.e. Prior to passing the bar B mortagages theland to D. Upon passing the bar the mortgage is deemedperfected

Preservation of right

- The creditor, prior to the fulfillment of thecondition, bring the appropriate actions for thepreservation of his right which includes:

i. Restrict acts of alienation by the debtor

ii. Prevent concealment

iii. Demand security

C. OBLIGATIONS WITH A TERM OR PERIOD



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- One for whose fulfillment a day certain has beenfixed

- A day certain is understood to be that whichmust necessarily come, although it may not be knownwhen

- An obligation is deemed to be with a periodwhen its fulfillment is made to depend on Future and

Certain event.- There is no Retroactivity in an obligation with a

period since the obligation is already deemed effectivebut the right to demand performance is merelysuspended

- In cases of mistake of payment the debtor mayrecover the amount paid along with interest and fruitsfrom the time of payment until the arrival of the period

Kinds of Period:

i. Conventional – that agreed upon by the parties

ii. Legal – That which is fixed by the courts whenthe parties did not stipulate a period but from the nature

and circumstances it may be inferred that a period wasintended

OBLIGATIONS DEEMD TO BE WITH A PERIOD:

-Death of a party-When the debtor binds himself to pay when his

means permit him to do so-Contract of lease where the extinguishment has

been left to the will of the lessee or when the lessee“deems it fit to use”. In this circumstance the court cannotfix a period but instead shall determine the periodprobably contemplated by the parties bearing in mind thenature and the circumstances of the obligation

-“As soon as possible” -“Within a reasonable period”

FIXING OF A TERM

- If an obligation does not fix a period but from itsnature and the circumstances it can be inferred that aperiod was intended, the courts may fix the durationthereof

- The obligor shall file an action asking the courts to fixa period for the obligation which shall be included inthe prayer

- The court cannot in the exercise of its power create aperiod out of thin air nor create a period when aperiod has been stipulated

- Once a period has been fixed by the courts it cannotanymore be changed by it. But the parties may do soby waiving the benefit of a period or agreeing to a newperiod

LOSS OF A RIGHT TO A PERIOD

The obligor loses his right to a period when: (Art. 1198)

i. When after the obligation has been contracted,he becomes insolvent, unless he gives aguaranty or security

ii. When he does not furnish to the creditor theguaranties or securities which he has promised

iii. Where by his own acts he has impaired saidguaranties or securities after their establishment,and when through a fortuitous event theydisappear, unless he immediately gives newones equally satisfactory

-Impairment is any reduction in valuewhich does not amount to loss

-i.e. A obtained a loan payable in 2years, by which he mortgaged a house assecurity. If he mortgages or alienates his houseto another person, the obligation shall bedemandable at once

iv. When the debtor violates any undertaking inconsideration of which the creditor agreed to theperiodv. When the debtor attempts to abscond

BENEFIT OF A PERIOD

- A period is presumed to be for the benefit of the partyunless from the tenor of the obligation or othercircumstances it should appear that the period has beenestablished in favour of one or of the other.

-In such case neither may demand the obligationprematurely nor can either force the other to acceptfulfillment of the obligation

-The creditor may not want to receive the money to avoidthe fluctuations of the exchange rates or he wants tokeep the money safe, on the other hand The debtor isgiven time to perform the obligation or to raise money todeliver the price of the contract

-i.e. A contract of loan wherein the debtor is topay “on or about” 2 years from the date of execution. Theperiod is for the benefit of the Debtor. Thus the debtormay compel the creditor to accept payment prior to theexpiration of 2 years yet the Creditor may not compel thedebtor to perform his obligation until after the expiration oftwo years. KAPISH MOFO

Cases:

HSBC vs. Broqueza

Facts:

Petitioner-Defendant were employees of HSBCand were entitled to a retirement plant provided by thelatter. Both defendants obtained loans, one for a carloand and the other for emergency, where were paid byautomatic salary deduction. A labor dispute arose and asa result thereof they were both dismissed and could notpay the monthly amortization for the loan. Plaintiffs filed acase for recovery of the sum of money

Held:



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As may be gleaned from the promissory note ofthe loan issued, the obligation does not contain anyperiod for payment, thus it is demandable at once. Thepayroll deduction is merely a convenient mode ofpayment and not the sole source of payment for theloans. HSBC never agreed that the loans will be paid onlythrough salary deductions. Neither did HSBC agree that if

defendants ceases to be an employee of HSBC, herobligation to pay the loans will be suspended. HSBC canimmediately demand payment of the loans at anytimebecause the obligation to pay has no period. Thus upondemand of HSBC after the dismissal of the defendants,the whole obligation became due

Pay vs. Vda De Palanca G.R. No. L-29900 June 28,1974

Facts:

Petitioner is a creditor of the defendant’s father.The claim of the petitioner is based on a promissory notedated 15 years ago, whereby the deceased promised to

pay either upon receipt by him of his share from a certainestate or upon demand.

Held:

The obligation being due and demandable, itwould appear that the filing of the suit after fifteen yearswas much too late. For again, according to the CivilCode, the prescriptive period for a written contract is thatof ten years.

Smith vs. Matti No. 16570, March 09, 1922

Facts:

Plaintiff corporation and the defendant, enteredinto contracts whereby the former obligated itself to sell,and the latter to purchase from it, two steel tanks, thesame to be shipped from New York and delivered atManila "within three or four months;" subject tocontingencies, two expellers, which were to be shippedfrom San Francisco in the month of September, 1918, oras soon as possible; and two electric motors, as to thedelivery of which stipulation was made, couched in thesewords: "Approximate delivery within ninety days. — Thisis not guaranteed." Defendant refused to receive the saidgoods on grounds that the delivery took too long.

Held:

At the time of the execution of the contracts, theparties were not unmindful of the contingency of theUnited States Government not allowing the export of thegoods, nor of the fact that the other foreseencircumstances therein stated might prevent it.

Considering these contracts in the light of the civil law, wecannot but conclude that the term which the partiesattempted to fix is so uncertain that one cannot tell justwhether, as a matter of fact, those articles could bebrought to Manila or not. If that is the case, as we think itis, the obligations must be regarded as conditional. As itwas dependent not only upon the effort of the hereinplaintiff, but upon the will of third persons who could in noway be compelled to fulfill the condition. In cases like this,

which are not expressly provided for, but impliedlycovered, by the Civil Code, the obligor will be deemed to

have sufficiently performed his part of the obligation, if hehas done all that was in his power, even if the conditionhas not been fulfilled in reality.

Chavez vs. Gonzales No. 27454, April 30, 1970

Facts:

Plaintiff contracted the service of defendant forcleaning and servicing of his typewriter. After demands bythe plaintiff, defendant asked further for the sum of P6 forfurther repairs. But after nearly two months the plaintiff,exasperated asked for the return of the typewriter whichwas given back to the plaintiff in shambles with partsmissing. The defendant returned the sum of P6 and themissing parts and the plaintiff contracted the service of athird person to fix his typewriter. He then filed a complaintfor a recovery of sum of money

Held:

It is clear that the defendant-appellee

contravened the tenor of his obligation because he notonly did not repair the typewriter but returned it "inshambles". The defendant should thus be liable for thecost of executing his obligation in the proper manner. Thecost of the execution of the obligation in this case shouldbe the cost of the labor or service expended in the repairof the typewriter.

Encarnacion vs. Baldomar G.R. No. L-264 October 4,1946

Facts:

After the war, plaintiff asked the defendants tovacate the leased lot as they entended to use the same

due to the destruction of their office building. Thedefendats refused and upon filling of a case for ejectionthey contend that the contract which they had celebratedwith plaintiff since the beginning authorized them tocontinue occupying the house indefinitely and while theyshould faithfully fulfill their obligations as respects thepayment of the rentals

Held:

the defense thus set up by defendant LefradoFernando would leave to the sole and exclusive will ofone of the contracting parties (defendants in this case)the validity and fulfillment of the contract of lease, withinthe meaning of article 1256 of the Civil Code, since the

continuance and fulfillment of the contract would thendepend solely and exclusively upon their free anduncontrolled choice between continuing paying therentals or not, completely depriving the owner of all say inthe matter. If this defense were to be allowed, so long asdefendants elected to continue the lease by continuingthe payment of the rentals, the owner would never beable to discontinue it; conversely, although the ownershould desire the lease to continue, the lessees couldeffectively thwart his purpose if they should prefer toterminate the contract by the simple expedient ofstopping payment of the rentals. This, of course, isprohibited by the aforesaid article of the Civil Code.

Elezegui vs. Manila Lawn Tennis Club G.R. No.967 May 19, 1903

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Facts:

Plaintiff and defendant entered into a contract oflease which is terminable upon one month notice of thelessee and where it was stipulated that it may be leasedfor all the time the members may desire to use it and aslong as they shall see fit, even if the estate is sold.

Held:

The judgement of the lower court ruling in favourof the plaintiff presupposes that there is a legal termwhich may only be applied by the court in absence of astipulation of the parties with regards to a period. Itcannot be said that there is no stipulation with respect tothe duration of the lease. It cannot, however, be said tolast perpetually. If an usufruct may last for a lifetime howthen may a lease last perpetually. By its very nature alease is for a determinate period. The only action whichcan be maintained under the terms of the contract is thatby which it is sought to obtain from the judge thedetermination of this period which must be determined

from the circumstances present

PBC vs. Lui She G.R. No. L-17587, September 12, 1967

Facts:

A will was executed wherein a lease for a periodof 99 years was created between the deceased andrespondent with an option to buy for a period of 50 years,conditioned upon his acquisition of a Filipino Citizenship.Petitioner assails the validity of the clause which allowsthe lessee to withdraw at any time as it is violative of theprinciple that contracts must bind both party

Held:

Such a stipulation, as can be readily seen, doesnot make either the validity or the fulfillment of thecontract dependent upon the will of the party to whom isconceded the privilege of cancellation; for where thecontracting parties have agreed that such option shallexist, the exercise of the option is as much in thefulfillment of the contract as any other act which mayhave been the subject of agreement. Indeed, thecancellation of a contract in accordance with conditionsagreed upon beforehand is fulfillment

Lim vs. People

Facts:

Petitioner proposed to sell the tobacco ofcomplainant wherein she was to be entitled to theoverprice thereof, to which she agreed. A promissorynote was executed to that effect, which howeverbounced. Bounce. Bounce. Petitioner claimed that it waserroneous for the lower court to find that the promissorynote was immediately demandable

Held:

The proceeds of the sale of the tobacco shouldbe turned over to the complainant as soon as the samewas sold, or, that the obligation was immediatelydemandable as soon as the tobacco was disposed of.

Hence, Article 1197 of the New Civil Code, whichprovides that the courts may fix the duration of theobligation if it does not fix a period, does not apply.

Araneta vs. Phil Sugar Estate

Facts:

Petitioner sold a tract of land to respondent withstipulation that respondent shall build the Sto. DomingoChurch and that the Petitioner will construct roads to

surround the building. Petitioner was unable to complywith his obligation as there was a third-party occupying apart thereof and who refuses to vacate. Plaintiff moved toreconsider the decision which gave a period of two yearsto comply with the obligation as he claimed that thepleadings did not authorize the fixing of the period

Held:

The only thing the pleadings of the plaintiffprovided was that it gave the defendant a reasonableperiod to comply with his obligation. If the contract soprovided, then there was a period fixed, a "reasonabletime;" and all that the court should have done was todetermine if that reasonable time had already elapsed

when suit was filed if it had passed, then the court shoulddeclare that petitioner had breached the contract, asaverred in the complaint, and fix the resulting damages.On the other hand, if the reasonable time had not yetelapsed, the court perforce was bound to dismiss theaction for being premature. But in no case can it belogically held that under the plea above quoted, theintervention of the court to fix the period for performancewas warranted, for Article 1197 is precisely predicated onthe absence of any period fixed by the parties.

Fixing a date involves a two-step process. TheCourt must first determine that "the obligation does not fixa period" but from the nature and the circumstances itcan be inferred that a period was intended" The second

step, is that the court must decide what period was"probably contemplated by the parties" So that,ultimately, the Court fix a period merely because in itsopinion it is or should be reasonable, but must set thetime that the parties are shown to have intended. As therecord stands, the trial Court appears to have pulled thetwo-year period set in its decision out of thin air, since nocircumstances are mentioned to support it. Plainly, this isnot warranted by the Civil Code. The time set by the courtwas until the squatters has been evicted

Millare vs. Hernando G.R. No. L-55480 June 30, 1987

Facts:

The parties entered into a contract of loan,which was to be renegotiated every 5 years. Upon thearrival of the period Defendant refused to comply with theincreased rentals thus he ordered the former to vacate

Held:

The Contract of Lease can only mean that thelessor and lessee may agree to renew the contract upontheir reaching agreement on the terms and conditions tobe embodied in such renewal contract. Failure to reachagreement on the terms and conditions of the renewalcontract will of course prevent the contract from beingrenewed at all. In the instant case, the lessor and thelessee conspicuously failed to reach agreement both onthe amount of the rental to be payable during the renewalterm, and on the term of the renewed contract. While an

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implied lease may exist between the parties which maybe from a month to month basis, it cannot however lastfor 5 years as the lower court would order.

RULES COMMON TO CONDITION AND PERIOD:

Rules in case of Loss, Deterioration and Improvements:

Loss: a thing is deemed lost when it (a) perishes, (b)goes out of commerce or (c) disappears in such a waythat its existence is unknown or it cannot be recovered

-The loss of the thing shall extinguish theobligation unless it is with the fault of the debtor. In whichcase he shall pay damages

Deterioration

- Impairment is to be borne by the creditorunless it is with the fault of the debtor inwhich case, the creditor may choose

between fulfillment or rescission

Improvement

- Any improvement shall accrue to the benefitof the creditor unless it was improved at theexpense of the debtor, in which case heshall have the rights of an usufructuary (hemay remove the improvement unless it willcause damage to the principal thing)

In case there is both deterioration and improvement eachmay set off each other so far as they may be equal invalue.

D. OBLIGATIONS WITH MULTIPLEPRESTATIONS

I. CONJUNCTIVE

-One where the debtor has to perform severalprestations and may be extinguished only by theperformance of all of them

Right of Choice:

No right of choice as the fulfilment requires thatall of the object of the obligation be delivered

Effect of Loss:

Loss of one thing converts the prestation into asum of money unless it is susceptible of partialperformance, in such case the debtor shall deliver thething which is not loss and a sum of money representingthe object lost

II. ALTERNATIVE

-One where several objects are due and thefulfillment of one is sufficient to extinguish the obligation

Right of Choice:

Right of choice, in default of an agreement iswith the debtor.

The right of choice is made effective upon itscommunication to the creditor . The act of Delivery of theprestation is equivalent to its exercise by the debtor andthe creditor cannot refuse to accept it

The communication once made to the otherparty converts the obligation into a simple one. Thus, anyloss after the communication converts the action into onefor a sum of money and the creditor cannot compel thedebtor to deliver the other prestation which was due priorto the communication.

In cases of plurality of debtors, the choice bindsonly the debtor who made the communication or to whomthe communication was made, in case the right of choiceis with the creditor. i.e. If A, B, and C bind themselves todeliver a table or a chair to D and A communicated hischoice to deliver a table to D, B and C may still deliver achair or table to D.

Effect of Loss:

If the choice is with the Debtor-

The loss of one thing obliges the debtor tochoose between the things which are not lost.

In case all is lost the action shall be convertedinto a sum of money representing the value of the lostthing which disappeared

If the choice is with the Creditor

The loss of one thing obliges the creditor tochoose between the things which are not lost or the priceof the object which was lost

In case all is lost the action shall be convertedinto a sum of money for the value of any one of them withindemnity for damages

III. FACULTATIVE

- One where only one thing is due, butthe debtor may substitute the thing with another at hiselection

Right of Choice:

Always with the debtor and he may substitutethe principal for any cause

Effect of Loss:

Loss of the principal thing obliges him to deliverthe substitute but the nullity of the obligation to deliver theprincipal thing invalidates also the delivery of substitutefollowing the principle of the accessory follows theprincipal thing

Loss of the substitute prior to substitution doesnot make the debtor liable. He shall deliver the thingwhich is the principal object

Loss of the substitute after substitution rendershim for the loss of the substitute



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E. OBLIGATIONS WITH PLURALITY OFCREDITORS/ DEBTORS

-The issue of whether an obligation is joint or solidary isrelevant in determining the extent of the liability of debtors

and whether or not payment extinguished the wholeobligation

I. Joint Obligations

- One where the credit or debt shall bepresume to be divided into as many equalshares as there are creditors or debtors, thecredits or debt being considered distinctfrom one another

- Each obligors answers only for a part of thewhole liability and to each oblige belongsonly the right to his share

- Remission and Insolvency does not affectany of the co-debtors as the status of onedebtor cannot serve to enlarge nor evenaffect their obligation to the creditor

- It is erroneous to state that there is apresumption of Joint obligations as the lawmerely shifts the burden of evidence toprove that the obligation is joint. It is moreproper to use the term “the obligation isJoint, in the absence of proof to thecontrary”

II. Solidary Obligations

- Solidarity exists when1) Law provides

-Liability of Joint tortfeasorsand partners in a partnership, and also

a husband and wife in cases specified in thefamily Code are solidary

2) Nature of the obligation requiressolidarity

-Liability of an owner of thevehicle and his driver adjudged by the Courtas solidary

3) Stated by the parties-Jointly and individually, Joint

and several, Collectively

- Each one of the creditor has a right todemand, and each one of the debtor isbound to render, the entire obligation

- Solidary in Creditors (Active Solidarity)creates a mutual representation betweenand among the creditors, and the theirbeneficial acts will inure to others but notthose acts which are prejudicial

-Beneficial acts – to bring suit, stopprescription, to put debtor in delay

-Prejudicial acts – Remission, preventfulfilment of the condition

- The right to demand exists in each one ofthe creditors. But upon judicial demand theright to demand is consolidated into onecreditor. An action which is dismissed,

however, shall bind the co-creditors unlessthe cause of dismissal is personal to thecreditor.

- Remission of a Solidary Creditor entitles hisco-creditors, who did not concur with suchremission, from reimbursement. However,remission after payment of the wholeobligation does not exempt him fromreimbursing his share to the co-debtor whopaid

- Solidarity in Debtors (Passive Solidarity)obliges each of the solidary debtors to fulfil

the whole obligation

- Payment by one of the solidary debtorsentitle him to reimbursement from his co-debtors. Their liability to the paying debtorshall be joint.

- Reimbursement may be made in whole toone of the solidary debtor when one of themis responsible for the loss or impossibility ofperformance. In case there is fault,negligence or delay, after payment theshare of the co-debtors representingindemnity shall be recovered in whole from

the party in fault

Defenses:- -Void obligation/Prescription –

applicable to all- -Fraud and Force affecting consent of

one co-debtor/Minority/Remission – Total ifraised by the minor/remitted party, partial ifraised by the co-debtors

- -Insolvency – is not a defense. The co-debtor shall shoulder the insolvent partiesshare

- I.e mixture of Total and Partial Defense

- A B C and D are solidary debtors to E forthe sum of P400. C is insolvent and Econdones the share of D. E may demandfrom A B and C the whole amount of P300representing the amount after thecondonation. If A pays the whole obligationhe may thereafter seek reimbursement fromB of the amount of P133 and E the amountof P33. E although condoned from theobligation is still liable for the share borneby the co-debtors due to insolvency.

F. Divisible and Indivisible Obligations



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-Divisibility and Indivisibility is an issue only when there istwo or more parties to the obligation

-Indivisibility does not necessarily gives rise to solidarityas the determining factor of indivisibility is whether or notthe prestation may be performed partially or not

Solidarity IndivisibilityIssue is the vinculumnwhich ties the parties

Issue is the prestation ofthe obligation

In case of loss, uponconversion into one topay damages thesolidarity remains

In case of loss, uponconversion into one topay damages theindivisibility ceases

In case of death,solidarity does not boundthe heirs

In case of death, theobject is still indivisible

I. Indivisible Obligations

-One incapable of partial performance

-In case of non-compliance, the obligation isconverted into a monetary obligation which shall bedivisible

In cases of:

-to give definite things

-provided by law

-intention of the parties

- Generally in obligations to do

II. Divisibility

- One capable of partial performance

In cases of:

-Execution of a certain number of daysof work

-accomplishment of work by metricalunits

-Obligation to pay certain amounts ininstalment

-A contract to do several things atseveral times

-Intention of the parties always prevails

-In case the parties stipulate that an obligation to do isindivisible, there is no such thing as payment for the workalready done of for quantum meruit. Partial performanceis equivalent to non-performance in indivisible obligations

Joint Indivisible Obligations

-All debtors must comply with the obligation, in

case any of the parties does not comply, it shall give riseto damages but the debtors who may have been ready to

fulfil their promises shall not contribute to the indemnitybeyond the portion of the price of the thing

Cases:

Calang and Philtranco vs. People, G.R. No. 190696August 3,2010

Facts:

Due to a motor vehicle accident, the petitionerwas charged with Reckless imprudence resulting inhomicide and serious physical injuries and ordered thepetitioner to pay indemnity jointly and severally withrespondent for failing to prove that it had exercised thediligence of a good father of the family to prevent theaccident. Respondent moved to reconsider as it claims itwas never a party to the criminal complaint filed

Held:

We emphasize that Calang was chargedcriminally before the RTC. Undisputedly, Philtranco wasnot a direct party in this case. Since the cause of actionagainst Calang was based on delict, both the RTC andthe CA erred in holding Philtranco jointly and severallyliable with Calang, based on quasi-delict. Articles 2176and 2180 of the Civil Code pertain to the vicarious liabilityof an employer for quasi-delicts that an employee hascommitted. Such provision of law does not apply to civilliability arising from delict. If at all, Philtranco’s liabilitymay only be subsidiary. The provisions of the RevisedPenal Code on subsidiary liability – Articles 102 and 103 – are deemed written into the judgments in cases towhich they are applicable. Thus, in the dispositive portion

of its decision, the trial court need not expresslypronounce the subsidiary liability of the employer. Nonetheless, before the employers’ subsidiary liability isenforced, adequate evidence must exist establishing that(1) they are indeed the employers of the convictedemployees; (2) they are engaged in some kind ofindustry; (3) the crime was committed by the employeesin the discharge of their duties; and (4) the executionagainst the latter has not been satisfied due toinsolvency. The determination of these conditions may bedone in the same criminal action in which the employee’sliability, criminal and civil, has been pronounced, in ahearing set for that precise purpose, with due notice tothe employer, as part of the proceedings for the executionof the judgment.

Ronquillo vs. CA, 132 SCRA 274, G.R. No. L-55138September 28, 1984

Facts:

Petitioner along with three other defendants inthe lower court, issued a check in payment of foodstuffwhich was dishonoured by the drawee bank. Judgementwas entered based on compromise wherein they wereheld liable individually and jointly. Upon their failure topay, the defendants offered to pay their pro rata sharewhich was refused by the plaintiff, demanding the full

payment.

Held:



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Clearly then, by the express term of thecompromise agreement and the decision based upon it,the defendants obligated themselves to pay theirobligation "individually and jointly".The term "individually"has the same meaning as "collectively", "separately","distinctively", respectively or "severally". An agreementto be "individually liable " undoubtedly creates a several

obligation, and a "several obligation is one by which oneindividual binds himself to perform the whole obligation.

Malayan Insurance Co., Inc. vs. Court of Appeals, 165SCRA 536 , G.R. No. L-36413 September 26, 1988VERY IMPORTANT CASE

Facts:

A jeepney driven by respondent SAN LEONfigured in an accident with respondent PATRANCOduring the effectivity of an insurance contract.Respondent Vallejo, a passenger of the jeepneysustained injuries and filed a complaint against petitioner,the owner of the jeep, and PATRANCO for a sum of

money. The owner of the jeep also filed a cross-claimagainst petitioner for his insurance claim. Petitioner filed athird-party claim against SAN LEON for liabilities arisingout of its employer-employee relationship. Judgementwas thereby rendered wherein it was held that SANLEON, the owner of the jeep and petitioner was jointlyand severally liable. Upon appeal, the judgement wasmodified holding that SAN LEON has no obligation toreimburse petitioner as it was not privy to the contract ofinsurance

Held:

It is only respondents Sio Choy the owner of the jeep and San Leon Rice Mill, Inc, (to the exclusion of the

petitioner) that are solidarily liable to respondent Vallejosfor the damages awarded to Vallejos. Respondents SioChoy and San Leon Rice Mill, Inc. are the principaltortfeasors who are primarily liable to respondentVallejos. The law states that the responsibility of two ormore persons who are liable for a quasi-delict issolidarily.

While it is true that where the insurance contractprovides for indemnity against liability to third persons,such third persons can directly sue the insurer, however,the direct liability of the insurer under indemnity contractsagainst third party liability does not mean that the insurercan be held solidarily liable with the insured and/or the

other parties found at fault. The liability of the insurer isbased on contract; that of the insured is based on tort. Tohold otherwise would result in a violation of the principlesunderlying solidary obligation and insurance contracts. Insolidary obligation, the creditor may enforce the entireobligation against one of the solidary debtors. Thequalification made in the decision of the trial court to theeffect that petitioner is sentenced to pay up to P20,000.00only when the obligation to pay P29,103.00 is madesolidary, is an evident breach of the concept of a solidaryobligation.

Petitioner, upon paying respondent Vallejos theamount of riot exceeding P20,000.00, shall become thesubrogee of the insured, the respondent Sio Choy; as

such, it is subrogated to whatever rights the latter hasagainst respondent San Leon Rice Mill, Inc. Article 1217of the Civil Code gives to a solidary debtor who has paid

the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds toeach.Petitioner, upon payment to respondent Vallejosand thereby becoming the subrogee of solidary debtorSio Choy, is entitled to reimbursement from respondentSan Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents SioChoy and San Leon Rice Mill, Inc. are solidarily liable tothe respondent Martin C. Vallejos for the amount ofP29,103.00. Vallejos may enforce the entire obligation ononly one of said solidary debtors. If Sio Choy as solidarydebtor is made to pay for the entire obligation(P29,103.00) and petitioner, as insurer of Sio Choy, iscompelled to pay P20,000.00 of said entire obligation,petitioner would be entitled, as subrogee of Sio Choy asagainst San Leon Rice Mills, Inc., to be reimbursed by thelatter in the amount of P14,551.50 (which is 1/2 ofP29,103.00)

Philippine National Bank vs. Independent PlantersAssociation, Inc., 122 SCRA 113 , No. L-28046, May

16, 1983

Facts:

During a collection case, one of the solidarydebtors died and the lower court dismissed thecomplaints contending that the complaint should beprosecuted in the testate or intestate proceedings of thedeceased.

Held:

It is now settled that the quoted Article 1216grants the creditor the substantive right to seeksatisfaction of his credit from one, some or all of his

solidary debtors, as he deems fit or convenient for theprotection of his interests; and if, after instituting acollection suit based on contract against some or all ofthem and, during its pendency, one of the defendantsdies, the court retains jurisdiction to continue theproceedings and decide the case in respect of thesurviving defendants. A cursory perusal of Section 6,Rule 86 of the Revised Rules of Court reveals thatnothing therein prevents a creditor from proceedingagainst the surviving solidary debtors. A contrary rulingwould in effect repeal Art. 1216

G. obligations with a PENAL clause

Objectives:

- Encourages the party to comply with theobligation and ensures its performance

- A substitute for damages for future non-compliance which represents liquidationand does proof of loss or damage suffered.The amount represents the amount ofdamage suffered by the parties by suchnon-compliance and the debtor cannotavoid the penalty by proving that thedamages the creditor suffered is less thansuch amount suffered



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- Constitutes punishment for non-complianceand the amount constitutes indemnity

- Interests and Penalty are not inconsistentwith each other but may be reduced incases of partial fulfilment

- When the breach of the contract commitedby the defendant is not the onecontemplated by the parties in agreeingupon the liquidated damages, the law shalldetermine the nature of the damages andnot the stipulation (Art. 2228)

Kinds:

Subsidiary

-Enforceable only in case of breach

Joint

-Both principal and accessoryundertaking may be enforced

Damages may be awarded even with such stipulations incases of:

-stipulation to that effect

-Debtor refuses to pay the penalty

-Guilty of fraud in the fulfilment of theobligation (Future fraud may not be waived)

No penalty in cases of:

- Breach is creditors fault

- Fortuitous event

Penalty Facultative

Acessory object only incases of non-fulfillment

Substitution may be madeat any time

Creditor can demand bothprestations if given theright

Creditor can neverdemand both prestations

Cases:

Bachrach Motor Co. vs. Espiritu, 52 Phil. 346 , No.

28497, No. 28498, November 06, 1928

Facts:

The defendant contends that the 25 per centpenalty upon the debt, in addition to the interest of 12 percent per annum, makes the contract usurious.

Held:

Article 1152 of the Civil Code permits theagreement upon a penalty apart from the interest. Shouldthere be such an agreemnet, the penalty, as was held inthe case of Lopez vs. Hernaez (32 Phil., 631), does notinclude the interest, and which may be demamded

separetely. According to this, the penalty is not to beadded to the interest for the determination of whether theinterest exceeds the rate fixed by the law, since said rate

was fixed only for the interest. But considering that theobligation was partly performed, and making use of thepower given to the court by article 1154 of the Civil Code,this penalty is reduced to 10 per cent of the unpaid debt.

Robes-Francisco v. CFI, 86 SCRA 59, G.R. No. 72182November 25, 1986

Held:

The adjudgment of damages appears to be quiteexcessive in the premises. The grant of P50,000.00 asactual damages is made to rest on nothing moresubstantial than the sworn declarations of the privaterespondents.

Furthermore, while no proof of pecuniary loss isnecessary in order that moral damages may be awarded,the amount of indemnity being left to the discretion of theCourt (Art. 2216), it is, nevertheless, essential that theclaimant satisfactorily prove the existence of the factualbasis of the damages (Art. 2217) and its causal relation to

defendant's acts. This is so because moral damagesthough incapable of pecuniary estimation, are in thecategory of an award designed to compensate theclaimant for actual injury suffered and not to impose apenalty on the wrongdoer (Algara vs. Sandejas, 27 Phil.284). The trial court and the Court of Appeals both seemto be of the opinion that the mere fact that respondentswere sued without any legal foundation entitled them toan award of moral damages, hence they made no definitefinding as to what the supposed moral damages sufferedconsist of. Such a conclusion would make of moraldamages a penalty, which they are not, rather than acompensation for actual injury suffered, which they areintended to be. Moral damages, in other words, are notcorrective or exemplary damages.

Nor was there error in the appealed decision indenying moral damages, not only on account of theplaintiff's failure to take the witness stand and testify toher social humiliation, wounded feelings, anxiety, etc., asthe decision holds, but primarily because a breach ofcontract like that of defendant, not being malicious orfraudulent, does not warrant the award of moral damagesunder Article 2220 of the Civil Code.

Neither may private respondent recover exemplarydamages since he is not entitled to moral orcompensatory damages, and again because thepetitioner is not shown to have acted in a wanton,

fraudulent, reckless or oppressive manner.

Upon the same consideration, and absent any proof thatpetitioner refused in gross and evident bad faith to satisfythe private respondent's claim. no counsel fees should beawarded.

Pamintuan v. CA, 94 SCRA 556, G.R. No. 113605November 27, 1998

Held:

ME NO HABLE ESPANOLES MAN

Three functions of PENAL clause:

1) to encourage performance



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2) represents damages in the future fornonfulfillment

3) punishment

ALSO PENAL clause may be ignored if there is fraud inthe nonfulfillment of the obligation COZ ACCORDING TO

THE concurring opinion of sumone future fraud cannot bewaived RIGHT?

EXTINGUISHMENT

Modes of Extinguishment

1) Payment or performance

2) Loss of the thing due

3) Condonation or Remission

4) Confusion or Merger

5) Compensation

6) Novation

Others:

-Annulment of the contract

-Fulfilment of Resolutory Condition

-Prescription

-Death in cases of personal obligations

-Mutual dissent

-Unilateral waiver by the creditor

-Compromise by the parties-Impossibility of the fulfilment

-Fortuitous event

I. Payment

Requisites of a valid payment:

1. Identity – The thing which should be deliveredshould be the thing constituting the obligation

2. Integrity – A creditor cannot be compelled toaccept partial payment nor may he require the debtor todo so unless:

i. there is a contrary stipulation

ii. payment is subjected to different conditionterms or conditions

iii. when a debit is in part liquidated andunliquidated

iv. Joint obligations as to the whole

3. Indivisibility

-Payment shall also be made at the currency stipulated, ifit is not possible to do so it shall be made at the currencywhich is the legal tender in the Philippines

Legal Tender – All notes and coins issued by the CentralBank of the Philippines

1. Coins shall be legal tender in amounts Onethousand pesos (P1,000.00) for denominationsof 1-Piso, 5-Piso and 10-Piso coins; and

2. One hundred pesos (P100.00) fordenominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-sentimo coins. (Circular No.

537-2006 of the BSP)

*Promissory notes shall not produce the effect ofpayment until they have been encashed or impaired bythe creditor through his fault

-In cases of extraordinary inflation or deflation, thecurrency at the time of the constitution of the obligationshall apply. Applies only to contracts

How: Acts which produce payment:

-Delivery of money or performance, in anymanner, of an obligation

-Substantial performance in good faith, lessdamage suffered by the oblige

-Acceptance by the creditor with knowledge ofits incompleteness or irregularity without any protest orobjection

-Payment after judicial order to retain the debt is void. Incases of Garnishment, Interpleader and Injunction

i.e. D owes C a sum of money in the amount of P500.C in turn owes A a sum of money in the amount of P500. If uponfailure of C to pay, A garnished the debot of D to C. Any paymentmade by D to C during the garnishment shall be void as to C andin case his suit against A prospers, D shall be liable again to paythe amount of P500 to A. He may however, recover the amount

paid to C.

Who: Payment must be made to/Persons constitutedas Creditors:

-Persons in whose favour the obligation wasconstituted

-His successors in interest

-Agent of the creditor or any person authorizedto receive it

-Any person in the possession of the credit,made in good faith (must not merely be a person inpossession of a document evidencing credit)

-A third person provided it is proved that itredounded to his benefit

Benefit to the creditor need not beproved when:

i. After payment, the third person acquired thecreditor’s rights

ii. Creditor ratifies payment

iii. By the creditors conduct, the debtor has beenled to believe that the third person is authorizedto receive payment

Payment made to a person incapacitated to administerhis property shall only be valid if 1) he has kept the thingor 2) payment has been beneficial to him



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When two or more payment claims to be the creditor theremedy of the debtor is either consignation or to file a suitfor interpleader against the two creditors

Whom: Payment shall be made by:

-The debtor

-A Third person who does not intend to bereimbursed in which case it shall be deemed a donationwhich requires the debtor’s consent. But the paymentshall be valid in any case as to the creditor who consentsto the payment

-A Third person who does not have any interestin the fulfilment of the obligation in which he shall have aright to be reimbursed by he debtor

If with the knowledge and consent ofthe debtor: Only up to the extent thathe was benefitted by the payment

i.e. D owes C the amount of P500. T a personwithout interest in the obligation pays C thewhole amount of D’s obligation. If it turns outthat C partially remitted the amount of P200 ofD’s obligation. T is only entitled to be reimbursed the amount of P300 which benefitted D and hemay claim from D the amount of P200 whichshall be deemed a mistake in payment

If with the knowledge and consent ofthe debtor. The third person shall besubrogated in the rights of the creditor,thus he is entitled to full reimbursementand those arising from mortgage,

guaranty or penalty shall benefit himwhich is in the nature of a novation

-A Third person who has an interest in thefulfilment of the obligation in which case thereshall be legal subrogation, even without theknowledge and consent of the debtor

-A person who has an interest in theobligation is one who is benefitted by its extinguishment.i.e. surety, guaranty

-Payment made by one who does not have free disposalof the thing and capacity to alienate it shall not be valid.In such cases payment shall be made thru his legalguardian. Payment by his agent shall not be valid

because incapacity of the principal shall also meanincapacity of the agent.

Where: Place of Payment:

-The place designated

-Wherever the thing might be at the moment theobligation was constituted, if a determinate thing

-Domicile of the debtor

-it is the duty of the creditor to collectpayment from the debtor, thus in a contract of lease thelessee has the right to wait for the lessor or his agent tocollect payment at the place of rent

-A change in domicile in bad faith orafter delay shall entitle the creditor to reimbursement ofadditional expenses

Special Modes of payment:

1.) Dacion en Pago

-The delivery of another thing in substitution ofthe original prestation, in satisfaction of a debtdue in money

-applies only to a pre-existing debt in money

-It is in reality a novation of the object. The lawof sales shall apply by analogy because thetransaction is akin to a sale whereby the pre-

existing debt shall constitute the price

2.) Application of payment

-Designation of debt to which payment ust beapplied when the debtor has several obligations

of the same kind in favour of the same creditor

Requisites:

i. There must be two or more debts

ii. Debt must be in money or of the same kind

iii. Debt must be due or the period is for thebenefit of the debtor unless it is agreed upon bythe parties

iv. There is only one debtor and creditor

v. Payment is not enough to extinguish all debts

Rules:

i. Application of payment is made by thedeclaration of the debtor at the time of his payment. Incase he fails to do so the creditor may apply the paymentthru the issuance of a receipt. The debtor if he fails toapply payment, cannot complain of the same by thecreditor unless he has cause for invalidating the contract

ii. If the parties fail to do so and thecircumstances fails to show the intention of the parties, itshall be applied to the most onerous debt, if all debts areof the same nature and burden, it shall be applied to allproportionately

-A debt may be onerous according tothe presence or absence of: 1.) Interest payments 2.)Security 3.) Penalty clause

iii. The creditor cannot be compelled to acceptpartial extinguishment of a debt

iv. The debts must be liquidated

3.) Payment by Cession

- The process by which a debtor transfers all theproperties not subject to execution in favour ofhis creditors, so they may sell them to satisfytheir debts

-The creditor merely becomes assignees withauthority to sell and the net proceeds shall be



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applied to their respective debts, unless there isa stipulation which states its extinguishment

Requisites:

i. More than one debt

ii. More than one creditor

iii. Abandonment of all property not exempt fromexecution

iv. Acceptance or consent of the creditor

-Insolvency is not required, as it is by mere agreement ofthe parties (but check prescribed books of your professor)

-In case one of the creditor shall refuse the assignment,the debtor may file for insolvency instead and ask for adischarge of his obligations

4.) Tender of payment and consignation

Procedure:

i. Tender of payment was refused by the creditorwithout just cause

-Tender is the act of offering the creditor what isdue to him with a demand that he accept thesame. Refusal of the creditor puts him in delayas otherwise known as Mora accipiendi

Tender of payment is not required when:

-Creditor is absent or unknown or doesnot appear at the place of payment

-Creditor is incapacitated to receive

payment at the time it is due

-When without just cause, creditorrefuses to give a receipt

-When two or more person claims theright to collect

-When the title of the obligation hasbeen lost

-When the creditor notifies the debtorthat he would not accept payment,without waiving the obligation

ii. Prior notice of consignation

iii. Actual Consignation

-Consists in the deposit by the debtor of thething due, to the court

-The thing shall be considered as in custodialegis and is exempt from execution by other courts

iii. Subsequent Notice to all interested parties

iv. Order of consignation

-It is the order of consignation or acceptance bythe creditor prior to the order that extinguishes the

obligation. Prior to that the debtor may withdraw the thingas he still has ownership over the thing

-The creditor may either 1.) accept the thing, inwhich case the ownership over the thing shall retroactfrom the date it is deposited 2.) contest the consignation3.) Authorize the debtor to withdraw the thing, in whichcase he shall lose every preference or security over thething

-Expenses of consignation shall be borne by the creditor

-The procedure for consignation must be strictly compliedwith and substantial compliance is not enough

Exercise of redemption-A delivery of check is enough to exercise the right ofredemption, but will not produce payment until it isencashed-A valid tender of payment without need ofconsignation is sufficient to exercise the right, since itnot made in extinguishment of an obligation

Cases:

Landbank vs. Alfredo Ong G.R. No. 190755, November24, 2010

Facts:

Sps. Sy secured a loan from petitioner, a shortterm and a long term loan amounting to 16 Millionsecured by 3 residential lots, 5 cargo trucks and awarehouse. Finding that they could no longer settle theirobligation, they sold the 3 residential lots with anassumption of mortgage to their faither, hereinrespondent. Respondent was then informed that he

should pay the amount of P750,000 in order to easilyapprove the mortgage. However, the assumption ofmortgage was never approved due to the findings of aninvestigation that it had a subsisting real estate mortgage.Nevertheless, the Petitioners foreclosed on the land. Asrespondents payment of P750,000 was not returned hefiled this herein action for the recovery of the sum ofP750,000. Landbank claims that it is not liable to pay thesum of P750,000 but instead the Spouses Sy should bethe one who should pay respondent and claims thatnovation has taken place

Held:

Alfredo was not making payment to fulfill the

obligation of the Spouses Sy. Alfredo made a conditionalpayment so that the properties subject of the Deed ofSale with Assumption of Mortgage would be titled in hisname. It is clear from the records that Land Bank required Alfredo to make payment before his assumption ofmortgage would be approved. He was informed that thecertificate of title would be transferred accordingly. He,thus, made payment not as a debtor but as a prospectivemortgagor.

Alfredo, as a third person, did not, therefore,have an interest in the fulfillment of the obligation of theSpouses Sy, since his interest hinged on Land Bank’sapproval of his application, which was denied. Thecircumstances of the instant case show that the second

paragraph of Art. 1236 does not apply. As Alfredo madethe payment for his own interest and not on behalf of the



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Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demandfrom the debtors, the Spouses Sy, what he has paid.

Novation, in its broad concept, may either beextinctive or modificatory. It is extinctive when an oldobligation is terminated by the creation of a new

obligation that takes the place of the former; it is merelymodificatory when the old obligation subsists to the extentit remains compatible with the amendatory agreement. Anextinctive novation results either by changing the objector principal conditions (objective or real), or bysubstituting the person of the debtor or subrogating athird person in the rights of the creditor (subjective orpersonal). Under this mode, novation would have dualfunctions ─ one to extinguish an existing obligation, theother to substitute a new one in its place ─ requiring aconflux of four essential requisites: (1) a previous validobligation; (2) an agreement of all parties concerned to anew contract; (3) the extinguishment of the old obligation;and (4) the birth of a valid new obligation. x x x *****

In order that an obligation may be extinguishedby another which substitutes the same, it is imperativethat it be so declared in unequivocal terms, or that the oldand the new obligations be on every point incompatiblewith each other. The test of incompatibility is whether ornot the two obligations can stand together, each onehaving its independent existence

We do not agree, then, with the CA in holdingthat there was a novation in the contract between theparties. Not all the elements of novation were present.Novation must be expressly consented to. Moreover, theconflicting intention and acts of the parties underscore theabsence of any express disclosure or circumstances with

which to deduce a clear and unequivocal intent by theparties to novate the old agreement.(Landbank was madeto pay back the P750,000 as it had already foreclosed thelands)

J.M. Tuason vs. Javier No. L-28569. February 27, 1970.

Facts:

Plaintiff-Apellant executed a contract to sell withthe defendant a piece of land with an automaticrescission clause. After religiously paying for the past 8years the defendant failed to pay thus plaintiff filed thisaction.

Held:

According to Art. 1234 of said Code:“If theobligation has been substantially performed in good faith,the obligor may recover as though there had been a strictand complete fulfillment, less damages suffered by theobligee.” Respondent is granted a grace period of 60days to complete payment

Hermosa vs. Saldana G.R. No. L-26578 January 28,1974

Facts:

Plaintiff-private respondent entered into a writtencontract with the defendant-petitioner whereby the latter

agreed to sell to him two lots payable in 10 years. Plaintiff

paid religiously for 8 years, but upon default thereof thepetitioner cancelled the contract.

Held:

Applying fairness and justice, the Court awardedthe title to one of the lots, since even prior to the default

the payment received by petitioner already exceeded thepayment of one of the lots and should thus be consideredfully paid. Thus, the cancellation of one of the lot wasawarded to petitioner together with the right to retain theinterest on both lots.

Azcona vs. Jamandre G.R. No. L-30597 June 30, 1987

Facts:

Petitioner leased an 80 hectare land torespondent where the agreed rental was fixed at P7,200.Upon entry of the respondent of the piece of land, he paidthe amount of P7,000 which was covered by a receipt. Ayear after, the petitioner notified the respondent of its

decision to cancel the agreement claiming that there wasdefault in the amount of P200, which respondent arguesthat the receipt represented an express reduction of thestipulated rental in consideration of his allowing the use of16 hectares of the leased area by the petitioner asgrazing land for his cattle.

Held:

The signing of the receipt by the petitioner andits acceptance by the respondent manifested theiragreement on the reduction, which modified the leasecontract as to the agreed consideration while leaving theother stipulations intact. It seems to us that this meaningwas adequately conveyed in the acknowledgment made

by the petitioner that this was "payment for the rentalcorresponding to crop year 1961-62" and "corresponds tothe rentals due on or before January 30, 1961, as percontract." On the other hand, if this was not the intention,the petitioner does not explain why he did not specify inthe receipt that there was still a balance of P200.00 and,to be complete, the date when it was to be paid by therespondent. Under Art. 1235. When the obligee acceptsthe performance, knowing its incompleteness orirregularity, and without expressing any protest orobjection, the obligation is deemed fully complied with.

Aranas vs. Tutaan G.R. No. L-52807. February 29, 1984

Held:

If UTEX nevertheless chose to pay the wrongparties, notwithstanding its full knowledge andunderstanding of the final judgment, that it was liable topay all dividends after the trial court’s judgment in 1971 topetitioners as the lawfully declared owners of thequestioned shares of stock (but which could not beenforced against it pending the outcome of the appealfiled by the co-defendants Castañeda and Manuel in theCourt of Appeals), it only had itself to blame therefor.

Kalalo vs. Luz G.R. No. L-27782 July 31, 1970

Facts:

Apellant engaged the services of apellee as anengineer. After rendering such services, appellant sent acheck to the appelle, which he refused to accept as full



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payment because he had a different resume of fees. Heclaimed that the services provided were not inaccordance with the contract and the fees he wasdemanding was not justified

Held:

Ponce vs. C.A. G.R. No. L-49494 May 31, 1979

Facts:

Petitioner received from the private respondentsa promissory note in Philippine currency theconsideration of which was payable in USD. Upon defaultthereof, the court ordered the payment of the amount dueand upon appeal the respondents contend that thecontract is void because it contained payment of USDollars prohibited by law.

Held:

It is to be noted that while an agreement to payin dollars is declared as null and void and of no effect,what the law specifically prohibits is payment in currencyother than legal tender. It does not defeat a creditor'sclaim for payment. It may likewise be pointed out that thePromissory Note contains no provision "giving the obligeethe right to require payment in a particular kind ofcurrency other than Philippine currency, " which is what isspecifically prohibited by RA No. 529.

What is prohibited by RA No. 529 is the paymentof an obligation in dollars, meaning that a creditor cannotoblige the debtor to pay him in dollars, even if the loanwere given in said currency. In such a case, the

indemnity to be allowed should be expressed inPhilippine currency on the basis of the current rate ofexchange at the time of payment

New Pacific Timber vs. Seneris G.R. No. L-41764December 19, 1980

Facts:

A collection for a sum of money was filedwherein a compromise judgment was entered. Petitionerfailed to comply with his obligation thus an auction salewas scheduled. Private respondent tendered a check andcheck totalling P63,000 which was refused by the sheriff.The auction sale proceeded and the lot was sold for

P50,000 only. The petitioner thus questioned the action ofthe sheriff

Issue:

W.O.N. the tender of check was valid

Held:

YES, It is a well-known and accepted practice inthe business sector that a Cashier's Check is deemed ascash. Moreover, since the said check had been certifiedby the drawee bank, by the certification, the fundsrepresented by the check are transferred from the creditof the maker to that of the payee or holder, and for allintents and purposes, the latter becomes the depositor of

the drawee bank, with rights and duties of one in suchsituation. Where a check is certified by the bank on which

it is drawn, the certification is equivalent toacceptance. Said certification "implies that the check isdrawn upon sufficient funds in the hands of the drawee,that they have been set apart for its satisfaction, and thatthey shall be so applied whenever the check is presentedfor payment. It is an understanding that the check is goodthen, and shall continue good, and this agreement is as

binding on the bank as its notes in circulation, a certificateof deposit payable to the order of the depositor, or anyother obligation it can assume. The object of certifying acheck, as regards both parties, is to enable the holder touse it as money ." When the holder procures the check tobe certified, "the check operates as an assignment of apart of the funds to the creditors." Hence, the exception tothe rule enunciated under Section 63 of the Central Bank Act to the effect "that a check which has been clearedand credited to the account of the creditor shall beequivalent to a delivery to the creditor in cash in anamount equal to the amount credited to his account" shallapply in this case.

Roman Catholic vs. IAC G.R. No. 72110. November 16,1990

Facts:

Petitioner failed to pay his balance on a contractof sale. A grace period was provided to petitioner and onthe last day he tendered a check for the whole amountwhich was refused.

Issue:

W.O.N. there is a valid tender of payment

Held:

NO, a certified personal check which is not legaltender nor the currency stipulated, and therefore, can notconstitute valid tender of payment. Since a negotiableinstrument is only a substitute for money and not money,the delivery of such an instrument does not, by itself,operate as payment. the subsequent consignation didnot operate to discharge the former from its obligation tothe latter.

Tibajia vs. C.A. G.R. No. 100290 June 4, 1993

Facts:

Pursuant to a monetary judgment, the petitionerdelivered to the sheriff a cashier’s check for payment

thereof which the private respondents refused to accept.The latter instead insisted that the garnished amountrepresented by the check be withdrawn.

Issue:

W.O.N. there is valid payment

Held:

NO, a check is not legal tender and that acreditor may validly refuse payment by check, whether itbe a manager's, cashier's or personal check.

Velasco vs. Manila Electric Co. G.R. No. L-18390December 20, 1971

Facts:



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Appellant Velasco urges that the damagesawarded him are inadequate considering the present highcost of living

Issue:

W.O.N. the value of the currecy should be

considered in adjusting damages

Held:

NO, It can be seen from the employment of thewords "extraordinary inflation or deflation of thecurrency stipulated " that the legal rule envisagescontractual obligations where a specific currency isselected by the parties as the medium of payment; henceit is inapplicable to obligations arising from tort and notfrom contract, as in the case at bar, besides there beingno showing that the factual assumption of the article hascome into existence.

Commissioner of Public Highway vs. Burgos G.R. No. L-

36706 March 31, 1980Facts:

The determination of this issue lies in whetherextraordinary inflation should be taken into account inJust Compensation

Held:

Under art. 1250, it is clear that the foregoingprovision applies only to cases where a contract oragreement is involved. It does not apply where theobligation to pay arises from law, independent of contract.The taking of private property by the Government in theexercise of its power of eminent domain does not giverise to a contractual obligation. In the absence of anyagreement to the contrary, even assuming that there hasbeen an extraordinary inflation within the meaning of Article 1250 of the New Civil Code,the value of the pesoat the time of the establishment of the obligation, which inthe instant case is when the property was takenpossession of by the Government, must be consideredfor the purpose of determining just compensation.

Filipino Pipe vs. NAWASA G.R. No. L-43446 May 3,1988

Facts:

Having failed to comply with its obligation to pay,petitioner filed a collection suit against respondent,wherein judgment was rendered against the respondentand he again failed to pay. Petitioner filed anothercomplaint seeking an adjustment of the unpaid balance inaccordance with the value of the peso in the aforesaiddecision.

Issue:

W.O.N. adjustment due to extraordinary rise ofinflation is in order

Held:

NO, Extraordinary inflation exists "when there is

a decrease or increase in the purchasing power of thePhilippine currency which is unusual or beyond thecommon fluctuation in the value said currency, and such

decrease or increase could not have reasonably foreseenor was manifestly beyond contemplation the the parties atthe time of the establishment of the obligation. Whileappellant's voluminous records and statistics proved thatthere has been a decline in the purchasing power of thePhilippine peso, this downward fall of the currency cannotbe considered "extraordinary." It is simply a universal

trend that has not spared our country. Furthermore, it ismerely a worldwide occurrence, but hardly proof that it isextraordinary

Del Rosario vs. Shell G.R. No. L-28776 August 19, 1988

Facts:

Petitioner and Respondent were Lessor-Lessee.Under the lease agreement it was provided that theadjustment of the Philippine peso pursuant to adevaluation or a depreciation shall adjust the rentals paidaccordingly. Pursuiant to an E.O. petitioner demanded anincrease in payment of rent.

Issue:

W.O.N. the demand to pay increased rental isvalid

Held:

YES, while there has been no officialdevaluation as the term is technically understood, the factis that there has been a diminution or lessening in thepurchasing power of the peso, thus, there has been a"depreciation" (opposite of "appreciation"). Moreover,when laymen unskilled in the semantics of economicsuse the terms "devaluation" or "depreciation" theycertainly mean them in their ordinary signification —

decrease in value. Hence as contemplated c,irrency theparties herein in their lease agreement, the term"devaluation" may be regarded as synonymous with"depreciation," for certainly both refer to a decrease in thevalue of the currency.

Cases:

Filinvest vs. Acetylene G.R. No. L-50449 January 30,1982

Facts:

Respondent purchased from petitioner aCamaro, as security a chattel mortgage was executedtherein. Respondent failed to pay 9 of his instalment,which was demanded by the petitioner. Petitioner sent aletter to the effect that he will return the mortgageproperty pursuant to Art. 1484 and in full satisfactionthereof together with a “Voluntary Surrender with SPA toSell”

Issue:

W.O.N. there is dacion en pago

Held:

NO, The mere return of the mortgaged motorvehicle by the mortgagor, the herein appellant, to the



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mortgagee, the herein appellee, does not constitutedation in payment or dacion en pago in the absence,express or implied of the true intention of theparties. Dacion en pago , according to Manresa, is thetransmission of the ownership of a thing by the debtor tothe creditor as an accepted equivalent of the performanceof obligation. The undertaking really partakes in one

sense of the nature of sale, that is, the creditor is reallybuying the thing or property of the debtor, payment forwhich is to be charged against the debtor's debt. As such,the essential elements of a contract of sale, namely,consent, object certain, and cause or consideration mustbe present. In its modern concept, what actually takesplace in dacion en pago is an objective novation of theobligation where the thing offered as an acceptedequivalent of the performance of an obligation isconsidered as the object of the contract of sale, while thedebt is considered as the purchase price. In any case,common consent is an essential prerequisite, be it sale orinnovation to have the effect of totally extinguishing thedebt or obligation.

Citizens Surety and Insurance vs. CA G.R. No. L-48958June 28, 1988

Facts:

Petitioner issued two surety bonds for hisprincipal. The principal in turn executed a deed ofassignment of his stock of lumber in favor of his creditor.The principal failed to fulfil his obligation and petitionerwas compelled to pay and the principal failed toreimburse petitioner thus a claim for a sum of money wasfiled

Issue:

W.O.N. there is novation by the execution of adeed of assignment

Held:

NO, when the deed of assignment wasexecuted, the obligation of the assignor to refund theassignee had not yet arisen. In other words, there was noobligation yet on the part of the petitioner, Citizens' Suretyand Insurance Company, to pay Singer Sewing MachineCo. There was nothing to be extinguished on that date,hence, there could not have been a dation in payment.

Soco vs. Militante G.R. No. L-58961 June 28, 1983

Facts:

Respondent entered into a contract of lease withpetitioner over a commercial building and lot. After sometime the collector of petitioner stopped collecting the rent,allegedly due to the fact that respondent was sub-leasingthe premises to another at a higher price, therefore,respondent sent his payment of rentals by check topetitioner. The petitioner ordered the respondent tovacate and the payment of rentals was thus consigned tothe court. The lower court declared the consignation validon grounds of substantial compliance

Issue:

W.O.N. there is valid consignation

Held:

NO, There should be notice to the creditor priorand after consignation as required by the Civil Code. Thereason for this is obvious, namely, to enable the creditorto withdraw the goods or money deposited. Indeed, itwould be unjust to make him suffer the risk for anydeterioration, depreciation or loss of such goods or theessential requisites of a valid consignation must be

complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction isclearly evident and plain from the very language of thecodal provisions themselves which require absolutecompliance with the essential requisites therein provided.Substantial compliance is not enough for that wouldrender only a directory construction to the law.money byreason of lack of knowledge of the consignation."

Immaculata vs. Navarro

Facts:

Petitioner obtained a free patent which it sold to

respondent. He sold the land and offered to redeem suchbut the tender was not accepted. The respondentcontends that tender alone is not sufficient

Issue:

W.O.N. consignation is necessary

Held:

NO, The right to redeem is a RIGHT, not anobligation, therefore, there is no consignation requiredto preserve the right to redeem

II. Loss of the thing due

-A thing is lost when it perishes, goes out of commerce ordisappears in a way that its existence is unknown orcannot be recovered

* SEE FORTUITOUS EVENT

-Partial loss shall not extinguish the obligation unless it isso important as to extinguish the whole

-When the service has become so difficult, but notimpossible, as to be manifestly beyond the contemplationof the parties , the obligor may be released in whole or inpart. Also known as Doctrine of Unforseen Risks

-Contemplates extraordinary difficulties,and must be beyond contemplation at the timeof the constitution of the obligation and not thosewhich may be reasonably anticipated such asincrease in taxes, business losses or increase inprice of goods

-Loss in an obligation to deliver a generic thing shall notextinguish the obligation unless it goes out of commerceor has become unlawful

-When the prestation becomes legally or physicallyimpossible without the fault of the debtor, it shallextinguish the obligation. I.e. death in personal

obligations



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-loss of those which proceeds from a crime shall notextinguish the obligation unless the party to whom it isdue refuses to accept it without justification

-Loss shall be presumed to be the fault of the debtorwhen it is lost while in his possession unless there was atthat time a natural calamity

-The creditor shall have all the right of action which thedebtor may have against third persons by reason of theloss (subrogation)

i.e. D owes C a certain laptop. If T a friend of Dbreaks the laptop, C may file an action against T fordamages

Cases:

People vs Franklin G.R. No. L-21507 June 7, 1971

Facts:

Appellant is the surety of the accused who,under provisional liberty, was able to secure a Philippinepassport and depart from the Country. They contend thatthe obligation becoming impossible, he should bereleased therefrom

Held:

a person binds himself as surety for theaccused, he takes charge of, and absolutely becomesresponsible for the latter's custody, and under suchcircumstances it is incumbent upon him, or rather, it is hisinevitable obligation not merely a right, to keep theaccused at all times under his surveillance, inasmuch as

the authority emanating from his character as surety is nomore nor less than the Government's authority to hold thesaid accused under preventive imprisonment.

Laguna vs. Manabat G.R. No. L-23546 August 29, 1974

Facts:

Respondent’s assignor Binan transport leasedtheir certificate of public convenience to petitioner for aperiod of 5 years. Some time thereafter the assignorbecame insolvent and the lessee reduced the amount ofrentals paid. A complaint was filed and petitioner prayedfor the suspension of the lease until the operatingexpenses were back to normal on grounds of fluctuation

of the market and a reduction of rentals

Held:

Where a person by his contract charges himself with anobligation possible to be performed, he must perform it,unless the performance is rendered impossible by the actof God, by the law, or by the other party, it being the rulethat in case the party desires to be excused from theperformance in the event of contingencies arising, it is hisduty to provide therefor in his contract. Hence,performance is not excused by subsequent inability toperform, by unforeseen difficulties, by unusual orunexpected expenses ,

III. Condonation or Remission

-Gratuitous abandonment by the Creditor of his right

-Governed by the law on Donations, thus:

-Movables –must be accepted by thecreditor either orally or written, unless if theamount exceeds P5,000 in which case it shall bemade in a written instrument

-Immovables – must be made by thecreditor and accepted by the debtor in a publicinstrument

Implied Condonations:

-Voluntary delivery of a private documentevidencing a credit by the creditor to the debtor

-May be rebutted by claiming it isinofficous, in which case the debtor and his heirsmay further rebut the presumption by proving it

was made in payment of the credit

-Presumed to be made voluntarily

- Destruction of evidence of credit

-If the thing pledged is found in possession ofthe debtor or a third person who owns the thing, theaccessory obligation of pledge shall be presumed to havebeen remitted. Furthermore, (S)ince, by the lease, thelessee was to have the advantage of casual profits of theleased premises, he should run the hazard of casuallosses during the term and not lay the whole burden uponthe lessor

Occena vs. Jabson No. L-443349, October 29, 1976

Facts:

Private respondent filed for the modification ofthe terms and contracts of its subdivision contracts onaccount of alleged increase in prices of oil andconcomitant spiralling of prices as it would result in anunjust enrichment on the part of the petitioner citingarticle 1267

Held:

The cited article does not grant the courts thisauthority to remake, modify or revise the contract or to fix

the division of shares between the parties ascontractually stipulated with the force of law between theparties, so as to substitute its own terms for thosecovenanted by the parties themselves. Respondent'scomplaint for modification of contract manifestly has nobasis in law and therefore states no cause of action.Under the particular allegations of respondent's complaintand the circumstances therein averred, the courts cannoteven in equity grant the relief sought.

-Renunciation of the accessory shall not extinguish theprincipal

IV. Confusion or Merger of rights

-The meeting in one person of the qualities of creditorand debtor



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i.e. Father is the creditor of the son. Incase the father dies and the son inherits all, thecredit of the father shall be inherited by the sonin which case confusion takes effect. It will notapply if the Father is the debtor since debts arenot transmitted to the heirs

i.e. D owes C the sum of P500. If Cassigns his right to E pursuant to a debt and Eassigns his right to D, also in pursuant to a debt.Confusion shall take place in the person of D.

-If the confusion is of a temporary nature, the obligationshall be revived

V. Compensation

-Extinguishment in the amount of the obligation of thosepersons reciprocally creditors and debtors

-May be total or partial compensation/extinguishment

-Takes place by operation of law at the time the two debtsarises, although the right thereof must be proven as adefense

i.e. D owes C a sum of P700 while Cowes D the sum of P500. C filed an action torecover the sum of P700. D must set up thedefense of compensation which if proven shallbe deemed to have taken effect at the time thetwo debts has arisen, in order to lessen hisliability

Requisites:

1. Each one of the obligors must be boundprincipally

2. Must be in a sum of money or must be a thingof the same kind and quality

3. Must be due unless agreed upon by theparties

4. Mus be liquidated and demandable.

5. There must be no retention or controversy,commenced by a third party and communicatedin due time to the debtor

Kinds:

1. Legal Compensation

2. Conventional Compensation – when one ofthe requisites is missing and the parties agree todo so

3. Judicial Compensation/ Set-Off – When oneparty has a claim for damages and the othercounter-claims also for damages

4. Facultative Compensation – when only one ofthe parties can set up the compensation.

-In cases of debts arising from a depositum orfrom the obligations of a depositary or of a bailee incommodatum. In these cases only the person constitutingthe obligation may set up compensation due to the natureof trust reposed by the depositor or bailor

-Support is not subject to compensation due to its natureand it being equivalent to the right to life. Neither in civilliability arising from a crime

-Voidable or Recissible contracts may be compensatedbefore an action to annul or rescind the contract. In caseit is voided or rescinded the parties shall return to each

other what they have received

-In cases of assignment, compensation shall take effectand only those constituted before the notice of theassignment was given to the other. Those constitutedafter shall not be subject to compensation unless thedebtor reserves his right to compensation

-The guarantor may set up the compensation of theprincipal debtor in whose favour the guaranty wasconstituted

Cases:

BPI vs. C.A. G.R. No. 136202 January 25, 2007

Held:

A bank generally has a right of set-off over thedeposits therein for the payment of any withdrawals onthe part of a depositor. The right of a collecting bank todebit a client's account for the value of a dishonoredcheck that has previously been credited has fairly beenestablished by jurisprudence. To begin with, Article 1980of the Civil Code provides that "[f]ixed, savings, andcurrent deposits of money in banks and similarinstitutions shall be governed by the provisionsconcerning simple loan."

Hence, the relationship between banks and

depositors has been held to be that of creditor anddebtor. Thus, legal compensation under Article 1278 ofthe Civil Code may take place "when all the requisitesmentioned in Article 1279 are present,"

Gan Tion vs. C.A. G.R. No. L-22490 May 21, 1969

Facts:

The case is founded on a dispute over thedifference over rentals. Private respondent lessee wonthe dispute and was awarded attorney’s fees. Petitionerappealed and pleaded legal compensation as to theamount of unpaid rentals, which the CA refused to awardcontending that the amount was a trust fund to beawarded to defendant’s counsel

Held:

For an attorney's fee's the award is made infavor of the litigant, not of his counsel, and is justified byway of indemnity for damages recoverable by the formerin the cases enumerated in Article 2208 of the Civil Code.It is the litigant, not his counsel, who is the judgmentcreditor and who may enforce the judgment by execution.Such credit, therefore, may properly be the subject oflegal compensation.

PNB vs. Acero G.R. No. L-69255 February 27, 1987

Facts:

Isabella Corporation had a deposit withpetitioner bank which had two controverting claims.



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Respondent Acero claim is founded upon a notice ofgarnishment served with petitioner while the latter’s claimis based upon an alleged credit agreement between himand Isabella Corporation

Held:

Petitioner failed to adduce proof that it is acreditor of Isabella. Even if it be assumed that such anassignment had indeed been made, and PNB had beenreally authorized to apply the P2M deposit to thesatisfaction of ISABELA's indebtedness to it,nevertheless, since the record reveals that the applicationwas attempted to be made by PNB only on a prior datethat essayed application was ineffectual and futilebecause at that time, the deposit was already in custodialegis, notice of garnishment thereof having been servedon PNB

Francia vs. IAC G.R. No. L-67649 June 28, 1988

Facts:

Petitioner was delinquent in his payment of realestate taxes. He contends that legal compensationshould take effect as the government owes him moneyfrom an expropriation of his property

Held:

By legal compensation, obligations of persons,who in their own right are reciprocally debtors andcreditors of each other, are extinguished We haveconsistently ruled that there can be no off-setting of taxesagainst the claims that the taxpayer may have against thegovernment. A person cannot refuse to pay a tax on theground that the government owes him an amount equal

to or greater than the tax being collected. The collectionof a tax cannot await the results of a lawsuit against thegovernment.

"The general rule based on grounds of publicpolicy is well-settled that no set-off admissible againstdemands for taxes levied for general or localgovernmental purposes. The reason on which the generalrule is based, is that taxes are not in the nature ofcontracts between the party and party but grow out ofduty to, and are the positive acts of the government to themaking and enforcing of which, the personal consent ofindividual taxpayers is not required. ..."

Republic vs. De los Angeles G.R. No. L-26112 April 27,

1973

Facts:

CANNOT FIND

Solinap vs. Del Rosario G.R. No. L-50638 July 25, 1983

Facts:

Respondent as heirs of the deceased andPetitioner entered into a contract of lease wherein the

rentals were to be applied to their indebtedness. In orderto reduce the interest payable on the estate respondentspaid the rentals due to the PNB and sought

reimbursement from petitioner. Before the issue wasresolved, the petitioner filed a separate action againstrespondent in their personal capacity for collection of theirloan in which the respondents sought counterclaim for therentals payable to the estate.

Held:

Petitioner's claim against the respondent Luterosis still pending determination by the court. Thecounterclaim interposed by them, if ultimately found to bemeritorious, can defeat petitioner's demand. Upon thispremise, his claim in that case cannot be categorized asliquidated credit which may properly be set-off against hisobligation. Compensation cannot take place where one'sclaim against the other is still the subject of courtlitigation. It is a requirement, for compensation to takeplace, that the amount involved be certain andliquidated."

Sycip vs. C.A. G.R. No. L-38711, January 31, 1985

Facts:

A certain Lapuz was to sold the shares of stocksof another for which he was to get a commission. Accused appellant was entrusted the sale by Lapuz towhich he issued a check which was dishonoured. Lapuzfiled for a case of estafa

Held:

Compensation cannot take place in this casesince Lapuz is only an agent. Compensation takes placeonly when two persons in their own right are creditors anddebtors of each other, and that each one of the obligors isbound principally and is at the same time a principal

creditor of the other.

Cia Maritima vs. IAC G.R. No. L-51438 April 9, 1985

Held:

For compensation to take place, one of theelements necessary is that the debts be liquidated. Theamount expended for repairs and improvements had yetto be determined by the Trial Court. Rentals for the use ofthe vessel by PAN- ORIENTAL were neither due anddemandable at the time of dispossession but only afterthis Court had issued its Resolution

International Corporate Bank vs. IAC G.R. No. L-69560June 30, 1988

Facts:

Respondents secured a loan from petitioner,which was secured by a mortgaged. Upon failure to pay itwas sold at a public auction which is now beingquestioned vigorously be respondent along with a claimfor money representing her money market investment.Petitioner filed a petition for certiorari questioning theorder of the judge which allowed on motion the release ofthe amount representing the money market which itapplied to respondents loan on the basis of compensation

Held:

in order that legal compensation shall takeplace, "the two debts be due" and "they be liquidated and



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demandable." Compensation is not proper where theclaim of the person asserting the set-off against the otheris not clear nor liquidated; compensation cannot extend tounliquidated, disputed claim arising from breach ofcontract.

Mindanao Portland vs. CA No. L-62169, February 28,

1983

Facts:

Appellant filed a motion to direct payment ofattorney’s fees instead of to his client. Petitioner opposedconteding that it also has been awarded attorney’s fees ina different case against appellant’s client

Held:

petitioner Mindanao Portland CementCorporation (appellant) and respondent Pacweld SteelCorporation (appellee), were creditors and debtors ofeach other, their debts to each other consisting in final

and executory judgments of the Court of First Instance intwo (2) separate cases, ordering the payment to eachother of the sum of P10,000.00 by way of attorney's fees.The two (2) obligations, therefore, respectively offseteach other, compensation having taken effect byoperation of law and extinguished both debts to theconcurrent amount

VI. Novation

Express: Substitution or change of an obligationby another

Implied: Incompatibility of the terms andcondition or in every point of the newand old obligations such that the twoobligations cannot stand independentlyof each other

1. Effects:

i. Extinguishment of the old obligation

ii. Creation of a new obligation between theparties in lieu of the old

-If the new obligations is void, the original shallsubsist, unless the intention of the parties state that it willbe extinguished at any event

-If the new obligation is conditional it shall only take effectupon the happening of the condition, and non-compliancewill remit the parties to their old obligation

-Conditions shall be deemed attached to the newobligations unless expressly stated

-Accessory Obligations shall be deemed extinguishedexcept as to third person who did not give their consentand is benefited therefrom

-Slight modifications do not effect novation, such aschange in the mode of payment, additional security

2. Elements:i. A subsisting valid obligation

-Novation is void if the originalobligation is void, unless when annulment mayonly be claimed by the debtor or there isratification (The ratification of the new obligationis considered a waiver of the grounds forannulment)

ii. The new contract must clearly show theintention of the parties to discharge the prior obligation

-No novation can be claimed if the newobligation expressly acknowledges the oldobligation. It shall be merely suppletory

-Novation is never presumed

iii. Capacity to contract by the parties andconsent by all of them

-The parties who do not consentthereto may enforce the original obligation

iv. The new contract must be valid

3. Kinds of Novation:

I. Objective Novation- Change in the object orprincipal condition:

II. Subjective Novation

A. Substituting the person of the debtor

-Expromission

-substitution of the debtor without the consent oragainst the will of the debtor but with consent ofthe creditor

-The old debtor is not liable for insolvency or non -fulfillment

-Delegacion

-substitution of the debtor with consent of thedebtor and the creditor

-The old debtor shall be liable in case the newdebtor is insolvent at the time of substitution, itbeing known to him or is of public knowledge

B. Subrogating a third person in the rights of thecreditor

-Subrogation transfers to the person subrogatedthe credit with all the rights thereto includingaccessory obligations of penalty and security

-Conventional Subrogation

-Change in the creditor with the consent of theoriginal parties and the third person

-The debtor who did not consent may enforcethe obligation against the old creditor

-Legal Subrogation

Presumed when:

a. There are two creditors of the same debtor,and a creditor pays the other creditor who is preferred



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b. A third person without interest in theobligation pays with the consent, express or implied, ofthe debtor

c. When a person interested in the fulfillment ofthe obligation pays the creditor, even without the consentof the debtor

-i.e. insurance contracts

d. Payment by a solidary creditor

-In case the debtor has insufficient funds, the old debtorshall be preferred for the remainder

Subrogation

Cases:

Japan Airlines vs. Simangan G.R. No.170141 April 22, 2008

Facts:

Respondent booked a light to the US withpetitioner. Petitioner’s employee bumped off respondentcontending that he was only using his flight as a pretextto stay in Japan. He was made to wait and upon findingout that his travel information was in order, he wasrefunded his ticket and was offered to be rebooked thenext day. That act as petitioner claims amounted to anovation, therefore no breach of contract of carriage maybe found

Held:

Considering that respondent was forced to getout of the plane and left behind against his will, he could

not have freely consented to be rebooked the next day. Inshort, he did not agree to the alleged novation. Sincenovation implies a waiver of the right the creditor hadbefore the novation, such waiver must be express.

Salazar vs. JY Brothers G.R. No.171998 October 20, 2010

Facts:

In payment of its obligation petitioner indorsed acheck a Prudential Bank account which, upon dishonor itreplaced with a cross Solid Bank check.

Held:

Novation is done by the substitution or changeof the obligation by a subsequent one which extinguishesthe first, either by changing the object or principalconditions, or by substituting the person of the debtor, orby subrogating a third person in the rights of the creditor.

The obligation to pay a sum of money is notnovated by an instrument that expressly recognizes theold, changes only the terms of payment, adds otherobligations not incompatible with the old ones or the newcontract merely supplements the old one. The change inthe mode of paying the obligation was not a change inany of the objects or principal condition of the contract fornovation to take place.

Metropolitan Bank and Trust vs. Rural Bank of GeronaG.R. No. 159097 July 5, 2010

Facts:

Central Bank and respondent entered into anagreement wherein Metrobank would be the depositoryand the former would receive the advance released bythe former as proceeds of the loan. Upon failure of theagreement, Central bank debited Metrobank who in turn

debited respondent although it was insufficient. Thus aclaim was filed.

Held:

Art. 1302. It is presumed that there is legalsubrogation (2) When a third person, not interested in theobligation, pays with the express or tacit approval of thedebtor; Metrobank was a third party to respondent andcentral bank’s agreement and the facts show thatrespondent agreed to Metrobank’s payment to theCentralbank. As the entity against which the collectionwas enforced, Metrobank was subrogated to the rights ofCentral Bank and has a cause of action to recover fromRBG the amounts it paid to the Central Bank.(What would

happen if Respondent did not approve? Solutio Indebitii)

Fua vs. Yap G.R. No. L-48797 July 30, 1943

Facts:

Appelle obtained a favourable judgment and byvirtue of a writ of execution a land was to be sold at apublic auction, which however, did not materialize due toa subsequent agreement between them reducing theamount with mortgage security. However, a few monthsafter the sheriff sold the land to the appelle

Held:

Appellants liability under the judgment in civilcase had been extinguished by the settlement evidencedby the mortgage executed by them in favor of theappellee. Although said mortgage did not expresslycancel the old obligation, this was impliedly novated byreason of incompatibly resulting from the fact that,whereas the judgment was for P1,538.04 payable at onetime, did not provide for attorney's fees, and was notsecured, the new obligation is or P1,200 payable ininstallments, stipulated for attorney's fees, and is securedby a mortgage.

Millar vs. CA G.R. No. L-29981 April 30, 1971

Facts:

Petitioner obtained a favourable judgmentagainst private respondent. Pursuant to a writ ofexecution respondent’s jeepney was seized, and thelatter pleaded the release of the jeep with an agreementthat it will be secured by a mortgage therein. Theyexecuted a chattel mortgage with a stipulation forpayment in two instalments. Upon failure thereof, thepetitioner obtained a writ of execution and respondentclaims that the subsequent agreement novated the judgment

Held:

The mere reduction of the amount due in no

sense constitutes a sufficient indictum of incompatibilityespecially since such reduction was due to a partialpayment. There is no substantial incompatibility between



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the mortgage obligation and the judgment liability of therespondent sufficient to justify a conclusion of impliednovation. The stipulation for the payment of the obligationunder the terms of the deed of chattel mortgage servesonly to provide an express and specific method for itsextinguishment — payment in two equal installments. Thechattel mortgage simply gave the respondent a method

and more time to enable him to fully satisfy the judgmentindebtedness. The chattel mortgage agreement in nomanner introduced any substantial modification oralteration of the judgment. Instead of extinguishing theobligation of the respondent arising from the judgment,the deed of chattel mortgage expressly ratified andconfirmed the existence of the same, amplifying only themode and period for compliance by the respondent.

The unmistakable terms of the deed of chattelmortgage reveal that the parties constituted the chattelmortgage purposely to secure the satisfaction of the thenexisting liability of the respondent arising from the judgment against him in civil case 27116. As a security

for the payment of the judgment obligation, the chattelmortgage agreement effectuated no substantial alterationin the liability of the respondent.

Sandico vs. Piguing G.R. No. L-26115 November 29,1971

Facts:

Petitioners obtained a favourable judgment andmoved for the issuance of a writ of execution. Petitioneragreed to reduce the amount which respondent failed infull

Held:

Fundamental it is that novation effects a substitution ormodification of an obligation by another or anextinguishment of one obligation in the creation ofanother. In the case at hand, we fail to see what new ormodified obligation arose out of the payment by therespondent of the reduced amount of P4,000 andsubstitute the monetary liability for P6,000 of the saidrespondent under the appellate court's judgment. Additionally, to sustain novation necessitates that thesame be so declared in unequivocal terms — clearly andunmistakably shown by the express agreement of theparties or by acts of equivalent import — or that there iscomplete and substantial incompatibility between the twoobligations.

NPC vs. Dayrit G.R. Nos. L-62845-46 November 25,1983

Facts:

Respondent sought to compel petitioner torestore their service contract, to which he was terminated. A compromise agreement was entered between themand approved by the court to which respondent sought toenforce. Petitioner in the meantime executed anothercontract of service with another which expresslyrecognized the compromise agreement of the respondent

Held:

In the case at bar there is nothing in thesubsequent agreement which supports the petitioner'scontention. There is neither explicit novation norincompatibility on every point between the "old" and the"new" agreements.

Integrated Construction vs. Relova G.R. No. L-41117

December 29, 1986

Facts:

Petitioner and private respondent entered intoan agreement which however amounted to a breach ofcontract. An arbitration agreement was made but theparties made a subsequent agreement. Upon failure tocomply, petitioner filed for a motion for execution on theprevious judgment, which respondent judge however,refused to issue on grounds of novation due to thesubsequent agreement.

Held:

The tenor of the subsequent letter-agreement ina sense novates the judgment award there being ashortening of the period within which to pay thesuspensive and conditional nature of the said agreement(making the novation conditional) is expresslyacknowledged and stipulated in the MWSS' Resolution

MWSS' failure to pay within the stipulated period removedthe very cause and reason for the agreement, renderingsome ineffective. Petitioners, therefore, were remitted totheir original rights under the judgment award.

Cochingyan vs. R&B Surety G.R. No. L-47369 June 30,1987

Facts:

Held:

If subjective novation by a change in the personof the debtor is to occur, it is not enough that the juridicalrelation between the parties to the original contract isextended to a third person. It is essential that the olddebtor be released from the obligation, and the thirdperson or new debtor take his place in the new relation. Ifthe old debtor is not released, no novation occurs and thethird person who has assumed the obligation of thedebtor becomes merely a co-debtor or surety or a co-surety.

Where, as in this case, the parties to the newobligation expressly recognize the continuing existenceand validity of the old one, where, in other words, theparties expressly negated the lapsing of the oldobligation, there can be no novation.

Balila vs. IAC

Held:

The fact therefore remains that the amountdecreed by the trial court in its judgment by compromisewas novated and amended by the subsequent mutualagreements and actions of petitioners and private

respondents.



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People’s bank vs. Syvel G.R. No. L-29280 August 11,1988

Facts:

Held:

There is nothing in the Real Estate Mortgagewhich supports appellants 'submission. The contract onits face does not show the existence of an explicitnovation nor incompatibility on every point between the"old and the "new" agreements as the second contractevidently indicates that the same was executed as newadditional security to the chattel mortgage previouslyentered into by the parties.

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