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OBLIGATIONS AND CONTRACTS MIDTERMS Serapio NOTES Block c DEAN MEL STA.
MARIA
OBLIGATIONS AND CONTRACTS i. Interruption may be
1. Natural: If more than 1 year, period is interrupted.
ENUMERATIONS 2. Civil: Receipt of judicial summons.
3. Express or tacit recognition
1. TWO KINDS OF PRESCRIPTION 7. INTERRUPTION OF PRESCRIPTION
a. Acquisitive- acquisition of right by lapse of time a. Filing of case before the court
b. Extinctive- rights are lost by lapse of time. b. Written extrajudicial demand
2. REQUISITIES OF LACHES c. Written acknowledgement of the debt already prescribed
a. Conduct on the part of the defendant giving rise to a situation which
complaint which seeks a remedy is made. 8. PRESCRIPTION WILL START TO RUN
b. Delay in asserting complainant’s rights.
c. Lack of knowledge or notice on the part of defendant that the NO PROVISION PROVIDES Date they may be brought
complainant would assert the right ENFORCEMENT OF OBLIGATION Last time of payment
d. Injury or prejudice to the complainant. TO PAY
3. PRESCRIPTION OF ACTIONS ENFORCEMENT OF JUDGEMENT Final judgment
ACCOUNTING Time where the person responsible
Uninterrupted adverse possession 30 years
ceased to perform
Immovable properties 30 years
BRING AN ACTION AS RESULT OF Day result was recognized by
Mortgage 10 years
ACCOUNTING agreement of interested parties.
Right of action by written contract 10 years
Obligation created by law 10 years
Judgment 10 years 9. ELEMENTS OF OBLIGATION
Movable properties 8 years a. Vinculum juris/juridical tie- efficient cause established by various
Oral contract 6 years obligations
Quasi contract 6 years b. Object of prestation- Prestation/conduct required to be observed
Injury to the rights of plaintiff 4 years c. Subject of prestation- Active (oblige) | passive (obligor).
Defective contract due to fraud 4 years from time fraud was 10. DELAY
discovered. a. Mora solvendi- delay/default committed by debtor
Quasi-delict 4 years b. Mora accipiendi- delay/default committed by creditor.
4. NON-PRESCRIPTABLE RIGHTS 11. REQUISITES OF DELAY
a. Demand a right of way a. Obligation that is demandable/due
b. Bring an action to abate a public/private nuisance b. Delay in the performance of the debtor.
5. KINDS OF ACQUISITIVE PRESCRIPTION c. Creditor makes a judicial/extrajudicial demand.
a. Ordinary: possession of thing in good faith and with just title for the time 12. GENERAL RULE: DEMAND MUST BE MADE
fixed by law. Exception: (no need for demand)
b. Extraordinary: Uninterrupted possession of things without need of good a. Obligation/law expressly declared
faith. b. Time is of essence
6. CHARACTERISTIC OF POSSESSION c. No use.
a. Concept of an owner 13. FORTUITIOUS EVENT
b. Public
a. Cause of breach must be independent of will of debtor
c. Peaceful
b. Event must be unforeseeable/unavoidable
d. Uninterrupted
c. Event rendered it impossible for the debtor to fulfill his obligations.
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OBLIGATIONS AND CONTRACTS MIDTERMS Serapio NOTES Block c DEAN MEL STA. MARIA
d. Debtor must have no participation in, or aggravation of injury. 19. CONSTRUCTIVE FULFILLMENT WILL GIVE RISE TO OBLIGATION
14. EXCEPTIONS TO FORTUITIOUS EVENT WHEN
a. Object is generic a. Condition is suspensive
b. Law demands/stipulated b. Obligor actually prevents the fulfillment of condition
c. Nature of obligation requires c. He acts voluntarily.
d. Bailee in commodatum 20. LOSS/DETERIORATION/IMPROVEMENT
15. BAILEE IN COMMODATUM IS LIABLE IF
a. Used the thing to a purpose different from it was intended LOST WITHOUT FAULT OF OBLIGATION IS
b. Keeps it longer than the period DEBTOR EXTINGUISHED
c. Delivered with appraisal Perishes, goes out of
commerce, Disappears WITH FAULT PAY DAMAGES
d. Lends it to the 3rd person not member of his household in a way its existence
e. He chose to save his own thing is unknown/cannot be
16. TYPE OF OBLIGATIONS recovered.
a. Pure and unconditional- demandable at once; not dependent upon any DETERIORATES WITHOUT FAULT OF IMPAIRMENT MUST BE
other event/act. DEBTOR SHOULDERED BY
b. Conditional- not demandable at one. Dependent on the happening of a CREDITOR
condition before giving rise to the obligation WITH FAULT RESCISSION w/damages
17. TYPES OF CONDITIONS FULFILLMENT w/damages
IMPROVEMENT NATURE/TIME Benefit to creditor.
CONDITION DEPENDENT ON VALID/VOID EXPENSE OF DEBTOR Usufructuary
Resolutory Demandable at once,
(subsequent) operates to discharge the 21. LOSE OF RIGHT TO PERIOD
obligation a. Insolvency unless he gives securities/ guaranties
Suspensive Happening of b. Does not furnish the securities/guaranties promised
(precedent) future/unknown event or c. Impairment of the same by his own acts.
past event unknown to d. Destruction of the same through Fortuitous event
parties e. Violation if any undertaking
Potestative Sole will of debtor VOID. Will then be f. Debtor attempts to abscond/flee from his obligation.
suspensive condition with a period. 22. RESPONSIBILITY OF THE DEBTOR (1205)
condition (Court will fix) a. One of the thing is lost through fortuitous event
Mixed condition Will of debtor VALID. i. Debtor shall perform the choice of the creditor among the
+chance/other factors remainder.
Resolutory Dependent on will of 3rd VALID. ii. If all alternatives are lost, obligation is extinguished.
condition parties iii. If only one remains, it is simple obligation and creditor can
Impossible Contrary to law, good RENDERS THE demand the delivery of the same.
condition customs, public policy OBLIGATION b. Loss of the thing through fault of debtor
INEFFECTIVE. i. Creditor may claim those subsisting
ii. Price of that thing lost through the fault of debtor + damages.
18. OBLIGATION DEPENDENT ON NON-OCCURRENCE ARISES WHEN c. Loss of all things through the fault of debtor
a. Lapse of the indicated time i. Creditor can choose the price of the alternatives + damages.
b. Evident that the event cannot occur.
23. SOLIDARY OBLIGATIONS
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a. Law expressly provides c.By the creditor’s conduct, the debtor has been made to believe that the 3 rd
b. Stipulated by the parties person is authorized to receive the payment.
c. Nature of obligation requires such solidarity 29. REQUISITES FOR DACION EN PAGO
24. BREACH OF CONTRACT FOR INCOMPLETE PAYMENT a. Performance of the prestation in lieu of payment (animo solvendi)
a. 1234- Substantial compliance b. Some difference between the prestation due and that which is given in
b. 1235- Acceptance despite irregularity/incompleteness. substitution (aliud pro-alio)
25. LEGAL SUBROGATION c. Agreement between debtor and creditor that the obligation is already
extinguished by reason of such performance.
KNOWLEDGE CONSENT RELATIONSHIP SUBROGATION 30. REQUISITES OF PACTUM COMMISORIUM (Void)
Without Against the Recover to the extent the No subrogation a. Creditor-debtor relationship between parties
knowledge will debtor has benefited. * except when 3rd b. Property of debtor was used as security for the loan
party is interested. c. There was automatic appropriation of the property upon failure to pay.
** 31. VENUE OF PAYMENT
With knowledge Against the Recover to the extent the No subrogation a. Parties may agree as to where the payment shall be made.
will debtor has benefited. * b. In absence of stipulation/agreement
With knowledge With 3rd person may collect the 3rd person can i. Where the thing is located at the time of the constitution of
consent amount he paid to the compel the the obligation.
creditor. creditor to transfer c. Any other case, domicile of the debtor.
mortgage/guaranty 32. CONSIGNATION
/penalty. a. Creditor refuses to accept payment. (need tender of payment)
Creditor accepts since it is 3rd person may collect the 3rd person can b. Creditor is absent/unknown/does not appear at place of payment
allowed in the contract with amount he paid to the compel the c. Creditor is incapacitated to receive the payment at the time it is due.
debtor creditor. creditor to transfer d. Without just cause, the creditor refuses to give a receipt.
mortgage/guaranty e. When two or more persons claim the same right to collect.
/penalty. f. Title of obligation has been lost.
3rd person paid withoutPayment will be 33. SUBJECTIVE IMPOSSIBILITY: must exist together.
intending to be reimbursed considered as a donation a. Prestation has become so difficult to render
that needs debtor’s b. It has become manifestly beyond the contemplation of the parties.
consent.
26. PERSON WHO CAN RECEIVE PAYMENT
a. Creditor/obligee
b. Successors-in-interest
c. Any person authorized to receive it. 34. REBUS SIC STANTIBUS
a. Event or change in the circumstance could not have been foreseen at the
27. PAYMENT TO INSANE/MINOR IS VALID IF time of execution of contract
a. By the time he reaches majority, he has still the thing delivered. b. Makes the performance of contract extremely difficult
b. Payment is beneficial to him. c. Must not due to the act of any of the parties
28. PAYMENT TO THIRD PERSON, BENEFIT TO CREDITOR MUST BE d. Contract is for future prestation.
PROVEN EXCEPT: 35. REQUISITES FOR COMPENSATION
a. Third party acquires the rights of the creditor a. Each one of obligors be bound principally and that they are the same
b. Ratification of payment time creditors of each other
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b.That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
c. That the two debts be due;
d. That they be liquidated and demandable;
e. That over neither of them there be any retention or controversy,
36. COMPENSATION WILL NOT OCCUR IN THE FOLLOWING
SITUATIONS
a. Debts arising from a depositum/obligations of a depository
b. Debts arising from the obligations of a bailee in commodatum
c. Debts arising from duty to support
d. Debts consisting of a civil liability from a penal offense
37. KINDS OF NOVATION
a. Subjective- change in the person of creditor/debtor
b. Objective- change in the object/principal condition.
c. Implied- complete incompatibility
d. Expressed- expressly stipulated.
38. REQUISITES FOR NOVATION
a. Previous valid obligation
b. Agreement of all parties to the contract
c. Extinguishment of the old contract
d. Validity of the new one.
39. INSTANCES WHEREIN CREDITOR CAN GO AGAINST ORIGINAL
DEBTOR IN DELEGACION
a. Insolvency has already been existing and of public knowledge at the time
of the delegacion of the old debtor.
b. When the insolvency of the new debtor is known to the old debtor when
he delegated his debt.
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PRESCRIPTION o SC: Even though prescription does not apply to registered property, a
registered landowner may lose his right to recover the possession of his
1106. DEFINITION OF PRESCRIPTION registered property by reason of laches.
By prescription, one acquires ownership and other real rights through the lapse of PRESCRIPTION v. LACHES
time in the manner and under the conditions laid down by law
PRESCRIPTION LACHES
Definition of prescription
Definition Acquisition/loss of rights through Avoid recognizing a right
 Statute of repose whose object is to suppress fraudulent and stale claims. lapse of time which would result in a
clearly inequitable
TWO KINDS OF PRESCRIPTION situation.
Focus Fact of delay Effect of delay
ACQUISTIVE EXTINCTIVE Reason Matter of time Question of inequity
Definition Acquisition of rights Loss of action Basis Statutory (law) Equity
Other name Adverse possession/usucapcion Limitation of action Fixed time
Effect Vests the property Bar the right of action COLORABL Without colorable title, the rules of laches and prescription will
Focus Acts of the Possessor Neglect of the owner E TITLE never apply to registered lands.
Important Claimant in possession Owner out of possession.
LESSON: WHEN POSSESSION IS MERELY TOLERATED, THE RIGHT TO
DOCTRINE OF STALE DEMANDS (Laches) RECOVER CAN NEVER BE BARRED BY LACHES.
 Reason: Public policy for the peace of society. 1. JACK ARROYO v. BOCAGO INLAND
 REQUISITES o As a registered owner, he has a right to eject any person illegally
o Conduct on the part of the defendant giving rise to a situation which occupying his property.
complaint which seeks a remedy is made. o This right is imprescriptible/can never be barred by laches.
o Delay in asserting complainant’s rights. o They have the right to recover their property if THE POSSESSION
o Lack of knowledge or notice on the part of defendant that the WAS UNAUTHORIZED, MERELY TOLERATED AT ALL.
complainant would assert the right 2. HEIRS OF ANACLETO NIETO v. MUNICIPALITY OF MEYCAUAYAN
o Injury of prejudice to the complainant. o Certificate of title was in the possession of the municipality of
o Bar the filing/prosecution of a suit Meycauayan but there was no proof that the same was transferred to the
municipality by donation/expropriation nor there was evidence of just
LESSON: DOCTRINE OF LACHES APPLIES INDEPENDENTLY OF compensation.
PRESCRIPTION. o SC: When possession is merely tolerated by the rightful owner, the right
1. Z.E LOTHO INC V. ICE COLD STORAGE
to recover can never be barred by laches.
o Plaintiff made no genuine efforts despite having knowledge since 1948.
o Those who occupy the land of others at the latter’s
o Plaintiff already lost his material records by the time he filed the suit on
tolerance/permission, absent any contract between them, are
1957. necessarily bound by an implied promise that the occupants will vacate
o No warning to the defendant. the property upon demand.
o SC: Dismissed on the ground of laches. o Unlawful deprivation will be counted from the date of demand to
vacate. Upon refusal, cause of action accrues.
2. CATHOLIC BISHOP OF BALANGA v. CA
o The landowner questioned the deed of donation after the donee has
possessed the property peacefully and adversely for 49 years.
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LESSON: LACHES IS THE FAILURE OF OR NEGLECT FOR AN o To determine if extinctive possession is applicable: nature and
UNREASONABLE AND UNEXPLAINED LENGTH OF TIME TO DO THAT circumstances.
WHICH BY EXERCISING DUE DILIGENCE COULD OR SHOULD HAVE BEEN o Giving of the title for safekeeping partakes the nature of a constructive
DONE EARLIER, OR TO ASSERT A RIGHT WITHIN REASONABLE TIME. trust: 10 years from the date of fraudulent registration/issuance of title.
1. TAGAYTAY REALTY CO. v. GACUTAN 1107. ACQUISITION BY CAPABLE PERSONS/MINORS.

o Rejected the claim of laches because it was shown that the other
party asserted his rights by making periodic written demands. Persons capable of acquiring property or rights by the other legal modes may
acquire the same by means of prescription
LESSON: THE LAW AIDS THE VIGILANT, NOT THOSE WHO SLEEP ON Minors and other incapacitated persons, may acquire property or rights by
THEIR RIGHTS. prescription, either personally or through their parents, guardians or legal
representatives.
2. CONSUELO PANGASINAN v. CRISTINA ALMAZORA
o Aquilina and her maternal grandmother borrowed money from PRESCRIPTION AS A MODE OF ACQUISITION.
Conrado Almazora in order to reconstruct their home. In return, they
gave him the owner’s duplicate copy of the land situated at EMANCIPATED (18 years) May acquire property by prescription
Minor, w/o assistance of Annullable/voidable.
Laguna owned by Aquilina.
parents/guardians (MAY BE RATIFIED)
o Following the death of Aquilina, the land was transferred to Aurora Minor, through Valid.
as her sole heir. However, Aurora learned from Cristina (wife of parents/guardians
Conrado) that the subject property has long been transferred in
the name of Conrado and the same was sold to Fullway. 1108. ACQUISITION BY CAPABLE PERSONS/MINORS.
o Aurora then demanded for the delivery of the payment the
Almazora’s received but it was unheaded. In return, she filed for a Prescription, both acquisitive and extinctive, runs against:
complaint of damages against the Almazora’s contending that the (1) Minors and other incapacitated persons who have parents, guardians or other
title of the land was given to Conrado for safekeeping purposes legal representatives;
only.
o However, she also admitted the fact that the Almazoras were staying (2) Absentees who have administrators, either appointed by them before their
in the land since 1912 with the permission and generosity from disappearance, or appointed by the courts;
Aquilina and Leoncia. Albeit this, Aurora claims to have made
repeated demands to return the copy of the title. (3) Persons living abroad, who have managers or administrators;
o RESPONDENTS: Assertion of fraud is baseless and non-
transmissible to the heirs who merely acquired the property through (4) Juridical persons, except the State and its subdivisions.
succession.
o SC: Petitioners are barred by laches. Purpose of laches is to prevent Persons who are disqualified from administering their property have a right to
recognition of right which would lead to a clearly inequitable claim damages from their legal representatives whose negligence has been the
situation. cause of prescription.
 Aurora and her family entrusted the owner’s duplicate copy
to Conrado; Took 5 decades to enforce their rights;
Respondents were not aware that Aurora would one day
come out and claim ownership to their prejudice.
The action has also prescribed.
o A registered land can never be acquired by adverse possession.
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PRESCRIPTION DOES NOT EXCEPTION NOTES PRESCRIPTION DOES NOT LIE BETWEEN PARENT AND CHILD
RUN AGAINST THE  Reason: Natural bond of filiation.
FOLLOWING: o Parents are the natural guardians without need of court appointment.
1. Minors/Incapacitated Unless they have Vda de Alberto: o Exception: imputation of legitimacy (1,2,3 years from knowledge/birth of
parents/legal guardians Illegitimate child cannot the child)
claim exception from
prescription.
PRESCRIPTION DOES NOT LIE BETWEEN GUARDIAN AND WARD
2. Absentee (2 yrs w/o Unless he has
administrator/court has  Reason: fiduciary relationship.
information)
appointed one or he can go It must be proven that  Limitation: during the period of guardianship
back to domicile but chose they cannot return.
not to. 1110: AGAINST/FOR A MARRIED WOMAN
3. Persons living abroad Unless they have
managers/administrators Prescription, acquisitive and extinctive, runs in favor of, or against a married
4. State and subdivisions Acting in proprietary Republic v. PNB: AFP woman. (n)
character filed a case for recovery
to PNB which the latter 1111: CO-OWNER/CO-PROPRIETOR.
NDC v. Tobia: National has negligently paid to
Development Corporation an unauthorized person. Prescription obtained by a co-proprietor or a co-owner shall benefit the others.
is a GOCC who filed a No prescription. AFP (1933)
collection which was acted as an
dismissed because they instrumentality for the
CO-OWNERSHIP:
don’t exercise a sovereign state.
function.  Ownership of undivided thing (house/business) belongs to different persons
1109: BETWEEN HUSBAND AND WIFE; PARENTS,CHILDREN AND  147: Man and woman, capacitated to marry each other, live exclusively as
GUARDIAN husband and wife without benefit of marriage/under void marriage.
o Properties acquired while living together: owned by them in equal
Prescription does not run between husband and wife, even though there be a shares.
separation of property agreed upon in the marriage settlements or by judicial o No participation but effort in care and maintenance of household:
decree. deemed contributed.
 148: Presence of legal impediment
Neither does prescription run between parents and children, during the minority or o Owned in proportion to their contributions
insanity of the latter, and between guardian and ward during the continuance of  When a person dies, heirs co-own their proper portion of inheritance.
the guardianship. (n)
 Prescription obtained by one will be also in favor of co-owners.
PRESCRIPTION DOES NOT LIE BETWEEN SPOUSES
1112: RENUNCIATION
o Exception: as may be provided by law. (5 years legsep/annulment)
Persons with capacity to alienate property may renounce prescription already
o 1. PACCION v. BILLION obtained, but not the right to prescribe in the future.
o Husband donated to his first wife.
Prescription is deemed to have been tacitly renounced when the renunciation
o Wife contended that while such was an invalid donation, the same has results from acts which imply the abandonment of the right acquired. (1935)
been acquired through acquisitive prescription.
o SC: No prescription between husband and wife
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RENUNCIATION Creditors and all other persons interested in making the prescription effective may
avail themselves thereof notwithstanding the express or tacit renunciation by the
LESSON: WHERE A PARTY ACKNOWLEDGED THE CORRECTNESS OF A debtor or proprietor.
DEBT AND PROMISES TO PAY IT AFTER THE SAME HAS PRESCRIBED AND
WITH FULL KNOWLEDGE OF SUCH PRESCRIPTION, HE THEREBY WAIVES ILLUSTRATION
THE BENEFIT OF PRESCRIPTION o A is indebted to B in the amount of 50,000.
o C guarantees said indebtedness and waives his right of excussion.
1. DEVELOPMENT BANK v. ADIL o If A should fail, B can go against C without exhausting all remedies.
o Spouses obtained a loan from the DBP in sum of 2,000 and promised to pay o If debt has already prescribed and A waives such prescription, C can resist
the account in 10 equal yearly amortizations. payment on the ground that the same has already been prescribed.
o As the 10 year period has lapsed with the obligation remained unpaid, o C will not be prejudiced by the waiver of A.
Confesor issued a second promissory note.
o SC: General rule: when a debt is already prescribed, it cannot be enforced 1115: CONFLICT BETWEEN PROVISION OF TITLE/SPECIAL LAWS
by the creditor The provisions of the present Title are understood to be without prejudice to what
o Except: When the debtor recognizes and acknowledge such shall be valid in this Code or in special laws is established with respect to specific cases of
and enforceable. (partakes nature of new contract). prescription
1113: SUBJECT OF PRESCRIPTION MORE SPECIFIC SHALL PREVAIL.

All things which are within the commerce of men are susceptible of prescription,  The more specific provision shall prevail.
unless otherwise provided. Property of the State or any of its subdivisions not  However, if different statutes are involved in providing different prescriptive
patrimonial in character shall not be the object of prescription. period as well as conflicting cause of action, they shall not exclude each other
from being availed of.
LESSON: PROPERTY OF STATE CANNOT BE ACQUIRED BY PRESCRIPTION
1. DIRECTOR OF FOREST v. FERNANDEZ 1116: TRANSITION
 An application was filed for the registration of a particular forest and timber Prescription already running before the effectivity of this Code shall be governed
on ground of prescription. by laws previously in force; but if since the time this Code took effect the entire
 SC: lands of public domain cannot ripen to private ownership. period herein required for prescription should elapse, the present Code shall be
applicable, even though by the former laws a longer period might be required.
2. LOVINA v. MORENO
 Ownership of navigable stream/bed cannot be acquired by prescription
RULES ON TRANSITORY PERIOD
3. REPUBLIC v. CA  Date of effectivity of Civil Code: AUGUST 30, 1950.
 Particular area adjacent to a bay, was at times covered by water due to rain Under the Old law Civil Code Prescription
and not due to rising of tide can be subject of prescription. Lapsed Before effectivity Lapsed.
 SC: Since it is not a property of the State, it can be subject to prescription. Still running Upon effectivity Civil Code
o Applicant must prove he has a title. Still running but balance Upon effectivity Old law shall apply.
o Registration under Torrens law is not a method of acquiring remaining is shorter
ownership. (applicant has just title and in good faith)
1114: EFFECTIVITY OF PRESCRIPTION DESPITE EXPRESS/TACIT

RENUNCIATION
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CHAPTER 2 1. RAMIREZ v. CA
 Land surrendered by debtor cannot be acquired ordinarily by prescription.
PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS 2. REPUBLIC v. CA
1117: ACQUISITIVE PRESCRIPTION  US possess a property for recreational purposes only as evidenced by the
Acquisitive prescription of dominion and other real rights may be ordinary or letter that expressly recognize the continuous possession of the land by its
extraordinary. Ordinary acquisitive prescription requires possession of things in rightful owners.
good faith and with just title for the time fixed by law.  The occupancy of the US is in form of commodatum.
3. RAMOS v. CA
ACQUISITIVE PRESCRIPTION: acquisition of rights through lapse of time  CONCEPT OF AN OWNER
ORDINARY EXTRAORDINARY o Respondents had undertaken acts indicative of ownership
 Uninterrupted possession- 10  Uninterrupted possession-8  Continuous possession of litigated parcel of land.
years years  Payment of tax declarations/receipt.
 In good faith  PUBLIC
 With just title o Notorious holding of the property known to the community
 PEACEFUL
o No valid interferences from others asserting their rights to the
LESSON: PROPERTY OF STATE CANNOT BE ACQUIRED BY PRESCRIPTION property.
1. GODINEZ v. COURT OF APPEALS  UNINTERRUPTED.
 Felix Bergado owned a land which was inherited by his seven children.
However, instead of 1/7 share, the judge committed a mistake and made it 1119: CONSENT BY TOLERANCE
1/6. Because of this, the land remained unregistered. Acts of possessory character executed in virtue of license or by mere tolerance of
 2/7 of the lands were transferred to Maximo Patalinhug while 5/7 were the owner shall not be available for the purposes of possession.
transferred to spouses Magsumbol.
 Igot brothers sued Bergado heirs for reconveyance. POSSESSION BY TOLERANCE
 SC: Magsumbols had acquired the land by prescription and the rights were  Not an assertion of ownership, no effect to possession/prescription.
properly transmitted to the Igots.  CONRADO v. CA
o Adverse, continuous, uninterrupted and notorious concept o Monterola never claimed ownership over the disputed property.
possession. o Possession, to constitute the foundation of prescriptive right must be
SC: lands of public domain cannot ripen to private ownership possession under claim of title. (en concepto de dueno)/adverse.
1118: CONCEPT OF OWNERSHIP 1120: INTERRUPTION

Possession has to be in the concept of an owner, public, peaceful and Possession is interrupted for the purposes of prescription, naturally or civilly.
uninterrupted
TWO KINDS OF INTERRUPTION
CHARACTERISTIC OF POSSESSION 1. Natural: if through any case it shall cease for more than a year
 Must be an adverse possession (OPPU) 2. Civil: judicial summons.
o Mere lessee/mortgagee- not in the concept of owner.
o Mere possession with juridical title not being in a concept of owner
(usufructuary, trustee, lessee, agent, pledge) cannot ripen to ownership.
 Possession must be en concepto dueno not concepto de dueno.
1121: NATURAL INTERRUPTION
LESSON: POSSESSION MUST BE IN THE CONCEPT OF AN OWNER
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Possession is naturally interrupted when through any cause it should cease for Judicial summons shall be deemed not to have been issued and shall not give rise
more than one year. The old possession is not revived if a new possession should to interruption:
be exercised by the same adverse claimant. (1944a) (1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should allow the
1122. EXEMPTION TO NATURAL INTERRUPTION proceedings to lapse;
If the natural interruption is for only one year or less, the time elapsed shall be (3) If the possessor should be absolved from the complaint.
counted in favor of the prescription. In all these cases, the period of the interruption shall be counted for the
prescription.
EXAMPLE OF NATURAL INTERRUPTION
 A is in possession of unregistered property in concept of an owner, in good faith INSTANCES WHEREIN A JUDICIAL SUMMON IS DEEMED NOT ISSUED
and just title. The land used to be owned by B. 1. Void for lack of legal solemnities: if served by person not authorized by court.
 In order to satisfy B’s indebtedness, the same land shall be sold at a public auction (sheriff)
even though A has already possession of land for 4 years. 2. Desistance/lapse: Voluntarily having the case dismissed
 Z appears and claims the property is his. A leaves to avoid any complication. 3. Absolved from complaint: Complains was not fully substantiated.
 However, Z is a defrauder and it was M who bought the property.
o A comes back within 2 years and stays there for 7 years. 1125. EXPRESS AND TACIT RECOGNITION
o Can A claim prescription against M? NO. Any express or tacit recognition which the possessor may make of the owner's
 Previous stay: 4 years right also interrupts possession.
 Period of interruption: 2 years
 New stay: 7 years. POSSESSION MUST BE IN THE CONCEPT OF AN OWNER. (exclusion of all
o Subsequent stay cannot be added to the years of previous stay. others)
o EXCEPT: If the interruption was one year or less.
1. CORPUS v. PADILLA
1123. CIVIL INTERRUPTION  One cannot recognize the right of another and at the same time, claim adverse
Civil interruption is produced by judicial summons to the possessor. possession which can ripen to ownership.
 For prescription to set it, the possession must be adverse, continuous, public and
CIVIL INTERRUPTION exclusion of all.
 Possessor must receive the judicial summons. It contemplates the service of
judicial notice, not mere notice of adverse claim. 2. DINOSO v. CA
 HEIRS OF BIENVENIDO v. SALOME GABRIEL  Seller and buyer entered into a contract of sale in April 6, 1940, giving the right to
o Tax receipts and declarations are prima facie proofs of ownership. repurchase before April 6. 1950. However, buyer immediately took possession of
o Coupled with actual possession, it may be a basis for a claim in property.
ownership.  W/N acquisitive prescription can be availed of the buyer?
o CIVIL INTERRUPTION TAKES LACE WITH SERVICE OF o Sale a retro did not become adverse until the expiration of the said
JUDICIAL SUMMONS. period.
 No action was filed by petitioners against respondent. o Until then, his claim of ownership was not absolute.
 No summon was received by the latter.
 From 1969, till filing of complaint by petitioners in March 2000,
latter have been continuous, public and adverse possession.
1124. EXCEPTION TO CIVIL INTERRUPTION 1126: TITLES
10
Against a title recorded in the Registry of Property, ordinary prescription of For the purposes of prescription, there is just title when the adverse claimant
ownership or real rights shall not take place to the prejudice of a third person, came into possession of the property through one of the modes recognized by law
except in virtue of another title also recorded; and the time shall begin to run from for the acquisition of ownership or other real rights, but the grantor was not the
the recording of the latter. owner or could not transmit any right. (n)
As to lands registered under the Land Registration Act, the provisions of that
special law shall govern. (1949a) 1130. VALID TITLE
The title for prescription must be true and valid. (1953)
TITLES
 Prescription does not apply to registered properties. 1131. NO PRESSUMPTION.
 Laches will apply except there is no mode of acquisition. For the purposes of prescription, just title must be proved; it is never presumed.
1127. GOOD FAITH LESSON: JUST TITLE REQUIRED IN ACQUISITVE PRESCRIPTION IS VALID
The good faith of the possessor consists in the reasonable belief that the person TITLE.
from whom he received the thing was the owner thereof, and could transmit his
ownership. 1. DOLIENDO v. BIARNESA
 A person brought a property from a valid auction and took continued possession
1128. for ten years.
The conditions of good faith required for possession in Articles 526, 527, 528, and  There was another person who bought the property prior to auction
529 of this Code are likewise necessary for the determination of good faith in the  SC: Acquisitive prescription because claim was based on just title.
prescription of ownership and other real rights. o VALID/JUST TITLE= COLORED TITLE: Person bought the thing in
good faith from one whom he believes to be the owner
GOOD FAITH 2. BALDOMERO FOCULAN-FUDALAN v. SPOUSES OCIAL.
 Not aware of any flaw which will invalidate  Possession in good faith: reasonable belief that the person whom the thing has
 Mistake upon a difficult question of law been received has ownership.
 Always presumed  Just title: adverse claimant had the property through one of the modes recognized
 Present until proven otherwise. by law but the grantor is not the owner.
 Occupation or use alone cannot confer title by prescription/adverse possession
INSTANCES OF BAD FAITH unless under with possession under claim of title.
1. NEGRETE v. CFI MARINDUQUE
 A person claimed a property by virtue of ordinary acquisitive prescription of 10 1132. PERIOD FOR PRESCRIPTION
years based on a deed of sale he knew involved a different property. The ownership of movables prescribes through uninterrupted possession for four
 COURT: No good faith years in good faith.
o Good faith: honest belief in the validity of one’s right, ignorance of a The ownership of personal property also prescribes through uninterrupted
superior claim and absence of intention to overreach another. possession for eight years, without need of any other condition.
2. REYES v. CA (9th Division) With regard to the right of the owner to recover personal property lost or of which
 Knowingly using a forged document is an act of bad faith. he has been illegally deprived, as well as with respect to movables acquired in a
3. MAGTIRA v. CA public sale, fair, or market, or from a merchant's store the provisions of Articles
 No good faith if claimant has actual/constructive notice of legal and valid rights of 559 and 1505 of this Code shall be observed. (1955a)
possession of another.
ORDINARY/EXTRAORDINARY/PERSONAL PROPERTY
1129: JUST TITLE Movables Good faith, uninterrupted 4 years

11
Extraordinary Uninterrupted, no other 8 years  FIRST: transfer in a manner provided by law.
prescription condition  SECOND: past and present possessor is still the possessor during the intervening
Personal property lost Possession in good faith = title. time unless there is proof to contrary.
If obtained in valid Need for reimbursement  THIRD: First day excluded, last day included.
public sale
Immovable, ordinary. Just valid title, concept 10 years CHAPTER3
of owner, uninterrupted,
adverse, public. PRESCRIPTION OFACTIONS (STATUTE OF LIMITATIONS)
Immovable, Uninterrupted, no other 30 years 1139. Actions prescribe by the mere lapse of time fixed by law.
extraordinary condition
 Contractual stipulations of parties > statute of limitation
1133. MOVABLES OBTAINED THROUGH CRIMES  Applicable only to civil cases and not to special proceedings.
Movables possessed through a crime can never be acquired through prescription
by the offender. 1140-1148 TABLE OF PRESCRIPTION AND CONDITIONS.
1134. IMMOVABLE PROPERTY MOVABLE 4 years Good faith,

Ownership and other real rights over immovable property are acquired by uninterrupted
ordinary prescription through possession of ten years. (1957a) 8 years All other cases except
crime
1135. In case the adverse claimant possesses by mistake an area greater, or less than that IMMOVABLE 30 years
expressed in his title, prescription shall be based on the possession. (n) IMMOVABLE through ordinary 10 years If all requisites for
acquisitive. ordinary acquisitive
Art. 1136. Possession in wartime, when the civil courts are not open, shall not be counted prescription is
in favor of the adverse claimant. present.
MORTGAGE 10 years
Art. 1137. Ownership and other real rights over immovables also prescribe through WRITTEN CONTRACT 10 years Must be in writing
uninterrupted adverse possession thereof for thirty years, without need of title or of good OBLIGATION BY LAW 10 years
faith. (1959a) JUDGMENT 10 years
ORAL CONTRACT 6 years
Art. 1138. In the computation of time necessary for prescription the following rules shall be QUASI-CONTRACT 6 years
observed: OTHER ACTIONS NOT FIXED IN 5 years
THIS CODE
(1) The present possessor may complete the period necessary for prescription by tacking INJURY TO RIGHTS 4 years
his possession to that of his grantor or predecessor in interest; QUASI-DELICT 4 years
FORCIBLE ENTRY/DETAINER 1 year
(2) It is presumed that the present possessor who was also the possessor at a previous time, DEFAMATION 1 year
has continued to be in possession during the intervening time, unless there is proof to the
contrary;
NO EXTINGUISHMENT BY PRESCRIPTION
1. Movables possessed through crimes
(3) The first day shall be excluded and the last day included.
2. Demand a right of way
3. Bring an action to abate private/public nuisance
MEANING
12
1150. The time for prescription for all kinds of actions, when there is no special provision Art. 1155. INTERRUPTION OF PRESCRIPTION
which ordains otherwise, shall be counted from the day they may be brought. The prescription of actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the creditors, and when there is
1151. OBLIGATIONS WITH ANNUITY/INTEREST. any written acknowledgment of the debt by the debtor.
The time for the prescription of actions which have for their object the
enforcement of obligations to pay principal with interest or annuity runs from the INTERRUPTION OF PRESCRIPTION
last payment of the annuity or of the interest. (1970a)  INTERRUPTION= STARTS ANEW THE PRESCRIPTIVE PERIOD.
1. Filed before the court
1152. VIRTUE OF FINAL JUDGME NT a. Desistance- no action has been commenced at all. (no deduction on
The period for prescription of actions to demand the fulfillment of obligation prescriptive period)
declared by a judgment commences from the time the judgment became final. b. DATE OF FILING until DISMISSAL HAS BECOME FINAL.
(1971) c. While case is pending, prescription is still interrupted.
2. Written Extrajudicial demand
EFFECTIVITY OF PRESCRIPTIVE PERIOD OF CONTRACTS 3. Written acknowledgement by debtor
 Only when the judgment became final. a. Payment interrupts the running of the prescriptive period.
b. But if acknowledgement is written by but there is no payment
1153. ACCOUNTING accompanied by communication signed by payor, payment would not
The period for prescription of actions to demand accounting runs from the day the interrupt the running of prescriptive period.
persons who should render the same cease in their functions.
The period for the action arising from the result of the accounting runs from the OBLIGATIONS
date when said result was recognized by agreement of the interested parties. General Provisions
(1972)
1156. OBLIGATION
PRESCRIPTIVE PERIOD FOR SHARES An obligation is a juridical necessity to give, to do or not to do. (n)
1. DIRA v. TANEGA
 One of the partners (A) demanded the payment of accountabilities of another ELEMENTS OF OBLIGATION
partner (B) who ignored such demand, and where the demanding partner (A) has
managed, operated and administered the affairs of partnerships as absolute owner. a. Vinculum juris/juridical tie- efficient cause established by various obligations
 Right filed by the delinquent-partner (B) in 1961 for an accounting of his share b. Object of prestation- Prestation/conduct required to be observed (to give, to do, or
has already prescribed. not to do)
 14 years have already passed. c. Subject-persons- Active (oblige/demand the payment/performance) | passive
(obligor/required to pay); natural/juridical.
1154. FORTITUTIOUS EVENT
The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him. (n)
KINDS OF OBLIGATION
FORTUITIOUS EVENT  Civil- right of action to compel the performance
 Unforeseen OR inevitable event  Natural- based on equity and do not grant a right of action to enforce their
 Act of God performance
 When there is a fortuitous event, prescription is interrupted.
 An entirely new one will commence when there is no longer fortuitous event. 1157. SOURCES OF OBLIGATION
Obligations arise from:
13
(1) Law; o SC: Private laws should be fulfilled according to the literal sense of
(2) Contracts; their stipulation.
(3) Quasi-contracts; 2. DAISY TIU v. PLATINUM PLANS
(4) Acts or omissions punished by law; and o Contract stipulation has a non-involvement stipulation which states that
(5) Quasi-delicts. (1089a) in case of separation, petitioner must not engage in the same business as
the employer.
LESSON: List provided in this article is exclusive. o SC: Parties are allowed to stipulate contracts as long as it is not contrary
 METROPOLITAN BANK v. TRUST COMPANY to law, public policy, public order
o Bank withheld the deposit of a depositor pursuant to a hold-out clause o Non-involvement clause is not necessarily void as long as there is
and on the belief that the latter has committed fraud. reasonable limitation as to time, trade and place.
o SC: Holdout clause applies if there is a valid and existing obligation
from any of the sources of obligation. LESSON: COMPLIANCE MUST BE IN GOOD FAITH
1. ERNESTO DEIPARINE v. CA
1158. SOURCE OF OBLIGATION: LAW o Contractor deviated from the plans and specifications of a building which
Obligations derived from law are not presumed. Only those expressly determined resulted to the impairment of the same.
in this Code or in special laws are demandable, and shall be regulated by the o SC: Art 19 of the CC requires that “every person must, in the
precepts of the law which establishes them; and as to what has not been foreseen, performance of his duties, act with justice, give everyone his due and
by the provisions of this Book. (1090) observe honesty and good faith.
MOST IMPORTANT SOURCE OF OBLIGATION 1160. SOURCE OF OBLIGATION: QUASI CONTRACTS

 Never presumed and does not depend on the will of parties. Obligations derived from quasi-contracts shall be subject to the provisions of
 Importance: existing law enters into and forms part of a valid contract without Chapter 1, Title XVII, of this Book. (n)
need for the party to make express reference thereto.
 Law is deemed incorporated in any contract. QUASI CONTRACTS
 No one should be unjustly enriched or benefited at the expense of another.
1159. SOURCE OF OBLIGATION: CONTRACTS.  Solutio indebtii- obligation to return what has been obtained by mistake.
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. (1091a) 1161. SOURCE OF OBLIGATION: DELICTS
Civil obligations arising from criminal offenses shall be governed by the penal
FORCE OF LAW OF CONTRACTS laws, subject to the provisions of Article 2177, and of the pertinent provisions of
 Contract- meeting of minds between two or more persons whereby one binds Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this
himself, with respect to another, to give something/render service. Book, regulating damages. (1092a)
 OBLIGATORY in nature. LAW BETWEEN THE PARTIES.
o Willful non-fulfillment/breach may involve sanctions.
 Must not be contrary to law, morals, public order and public policy. CIVIL LIABILITY
 Courts cannot stipulate for the parties nor amend their agreements.  Automatically attaches to any individual who is found to be criminally liable.
 Shall not be entitled to recover damages twice.
LESSON: PARTIES ARE ALLOWED TO STIPULATE AS LONG AS THE SAME  Guilt not proven beyond reasonable doubt, damages may be obtained
DOES NOT VIOLATE LAWS, MORALS PUBLIC ORDER, PUBLIC POLICY through preponderance of evidence.
1. PERLA COMPANIA v. CA
o Lower court changed the interpretation of contracts between two parties. 1162. QUASI-DELICT
14
Obligations derived from quasi-delicts shall be governed by the provisions of  Personal right is only enforceable against the debtor who is under the obligation to
Chapter 2, Title XVII of this Book, and by special laws. (1093a) give.
 Quasidelict: no preexisting contractual relation between the parties. o 3rd party in good faith can defeat personal right of creditor.
o REMEDY: Damages
OBLIGATIONS  Example: mango orchard
Nature and Effect of Obligations o A bought mango orchard from X to be delivered on March 1.
o Actual delivery was on April 1.
1163. PRESTATION TO GIVE o A can nevertheless ask X to deliver the fruits accruing from March 1
Every person obliged to give something is also obliged to take care of it with the (obligation to deliver)
proper diligence of a good father of a family, unless the law or the stipulation of o If B bought the fruits in good faith, then A’s remedy is to seek damages
the parties requires another standard of care. (1094a) against X.
PRESTATION TO GIVE 1165. DELIVERY
 Something: definite, known, distinctly decided, object certain. When what is to be delivered is a determinate thing, the creditor, in addition to the
 DETERMINATE THING. right granted him by Article 1170, may compel the debtor to make the delivery.
o Particular
 Computer- Generic | Computer with particular serial number- If the thing is indeterminate or generic, he may ask that the obligation be complied
Determinate. with at the expense of the debtor.
o Requires exercise of proper diligence of a good father.
 Except: If the obligor delays, or has promised to deliver the same thing to two or more
1. when the law provides/ stipulation of parties. persons who do not have the same interest, he shall be responsible for any
o Stipulation- must not contemplate fortuitous event until he has effected the delivery. (1096)
relinquishment of rights. Generic: any object belonging to the same kind.
2. Nature of obligation
a. Common carriers- extraordinary DELIVERY
b. Bank- highest degree of diligence. OBJECT REMEDY FOR NON-DELIVERY
Generic Ask the obligation to be complied at expense of
1164. RIGHT TO THE FRUITS OF THING debtor
The creditor has a right to the fruits of the thing from the time the obligation to Determinate Specific performance- filing of an action to
deliver it arises. However, he shall acquire no real right over it until the same has COMPEL the debtor to make the delivery
been delivered to him. (1095) Fraud/delay/contraventio Damages
n
Delay Liable for fortuitous event.
RIGHTS OBLIGATION ACTUAL FORTUITIOUS EVENT
TO DELIVER DELIVERY
 Unforeseen/foreseen yet inevitable.
PERSONAL right  x
 GENERAL RULE: debtor is relieved if lost is due to fortuitous event
power of one to demand of another the
o Exceptions:
fulfillment of prestation
 Delay in delivery
REAL rights  
 Promise to deliver the same thing to two or more person who do
Right that is enforceable against the whole
not have the same interests.
world
15
1166. ACCESSORIES
The obligation to give a determinate thing includes that of delivering all its In reciprocal obligations, neither party incurs in delay if the other does not comply
accessions and accessories, even though they may not have been mentioned. or is not ready to comply in a proper manner with what is incumbent upon him.
(1097a) From the moment one of the parties fulfills his obligation, delay by the other
begins. (1100a)
 DELIVERY OF DETERMINATE THING
o Principal always include the accessories and accession. DELAY
 Non-performance of an obligation with respect to time.
1167. LIABILITY FROM NON-PERFORMANCE/CONTRAVENTION. o Debt that is demandable and due
If a person obliged to do something fails to do it, the same shall be executed at his o Delay in the performance of the obligation
cost. o Extrajudicial demand.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be TWO KINDS OF DELAY.
undone. (1098) Mora accipiendi Creditor There is consignation.
Mora solvendi Debtor
1168. OBLIGATION NOT TO DO
When the obligation consists in not doing, and the obligor does what has been  Delay must be negligent/malicious.
forbidden him, it shall also be undone at his expense. (1099a) o Absence of which= not liable.
LESSON: POOR PERFORMANCE, CREDITOR HAS RIGHT TO DEMAND THAT LESSON: IMPORTANCE OF LIQUIDATED DEBT
THE POORLY DONE BE UNDONE 1. SELEGNA MANAGEMENT v. UNITED COCONUT PLANTERS
1. CHAVEZ v. GONZALES o A debt is liquidated when the amount is known and determinable by
o Repairer of typewriter returned the typewriter not in good condition.
inspection of terms and conditions.
o Owner contracted the services of another repairer to fix the typewriter. o Petitioners executed a promissory note which stated the total amount of
o SC: Repairer is liable not just to missing parts but to the subsequent obligation plus an acceleration clause.
action of repairing the said typewriter. o The amount is still determinable.
DEMAND
1169. DELAY
 Categorical assertion for the fulfillment of an obligation which is due and
Those obliged to deliver or to do something incur in delay from the time the
demandable.
obligee judicially or extrajudicially demands from them the fulfillment of their
 Cannot be furnished prior to the maturity date of obligation.
obligation.
 Mere letters of reminder/mere statement of failure to fulfill is not a demand.
However, the demand by the creditor shall not be necessary in order that delay  Demand is necessary even though there is a fixed period.
may exist:  Without demand, the effect of delay will not arise.
(1) When the obligation or the law expressly so declare; or  COMMENCEMENT OF SUIT IS A SUFFICIENT DEMAND.
(2) When from the nature and the circumstances of the obligation it appears  PURPOSE OF DEMAND: Making the obligor liable for interests and damages.
that the designation of the time when the thing is to be delivered or the  Art 1169 is applicable only when the obligation to do is something other than
service is to be rendered was a controlling motive for the establishment payment of money.
of the contract; or  DOLORES MACASLANG v. RENATO ZAMORA
(3) When demand would be useless, as when the obligor has rendered it o Intention can be gleaned from the words used.
beyond his power to perform. o “I will take over”- there is demand to vacate.
16
ii. Upon expiration of said date plus grace period, contractor still
LESSON: INACCURACY IN THE DEMAND LETTER WILL NOT RESULT TO failed to deliver.
THE NULLIFICATION OF SUCH DEMAND. iii. SC: Demand is useless for there is no condo available for
UNITED PLANTERS v. SPOUSES BELUSO delivery.
o Default commences upon judicial/extrajudicial demand. e. BRICKTOWN v. AMOR TIERRA CORPORATION
o Upon valid demand, the interests and penalties began running. i. Demand is not necessary after expiration of grace period.
ii. Grace period is not a right but an obligation.
LESSON: ACCEPTANCE OF PAYMENT IS NOT IPSO FACTO MEAN AN iii. When it is unconditionally conferred, it is effective without need
ABANDONMENT OF DEMAND for demand.
SELEGNA MANAGEMENT v. UNITED COCONUT
 Partial payment is only to evidence the intention to give a grace period. RECIPROCAL OBLIGATIONS
 Acceptance must be under the circumstances that indicate their intention to  Performance of one is conditioned upon the simultaneous fulfillment of another.
consider the performance complete and renounce their claim arising from defect.  Obligation of one is a resolutory condition.
 In absence of any stipulation: 6% interest.  Non-fulfillment will give rise to rescission of contract.
 Interest replaces the damages. o Contracts of lease and contracts of sale.
 Failure of another to perform his duties = no delay.
LESSON: EXTRAJUDICIAL DEMAND IS NOT REQUIRED FOR THE FILING  Mutual delay= no delay at all
OF A JUDICIAL DEMAND.
Exception: ejectment cases and consignment cases o AGCAOILI v GSIS
AUTO CORP v. INTRA STRATA.  Contract of sale for a housing unit which should be occupied
 Judicial demand may be commenced since obligation is already due and within 3 days.
demandable.  Agcaocili did not occupy such because it is not habitable.
 However, damages and interests shall start to run after the demand.  There was no substantial performance of duty and obligation.
 Grace period is not a right but an obligation.
 When it is unconditionally conferred, it is effective without need
DEMAND IS NOT NECESSARY IN THREE CASES for demand.
1. Obligation/law expressly declares o TANGQUILIG v CA
a. Promissory note stating that payment will be made even without demand.  Contract of construction of a windmill.
b. Taxes  It collapsed due to defects in construction.
2. Time is of essence in a contract
a. Stock market
b. BARGAZA v. CA.
i. Delivery of material for construction of a particular niche. POLO PANTALEON v. AMEX
3. When it has already become useless  Delay in credit card transaction.
a. Beyond his power to perform. o Relationship between card holder and issue is a contractual one.
b. Debtor promised to constitute his house as a collateral but before he can o Contract of adhesion- prepared solely by one party.
make the mortgage, he donates the house to his friend.  Use of credit card is a mere offer to enter to loan agreement
c. Obligation became immediately demandable. o Creditor-debtor relationship arises only after the issuer has approved the
d. MEGAWORLD v. TANSECO purchase request.
i. Contract of sale indicates that the condominium will be o First contract: agreement for providing credit facility
delivered on a particular date. o Second: Sales, (credit card holder and merchant), loan agreement (issuer
and holder) promise to pay (issuer and merchant)
17
o AMEX HAS NO OBLIGATION TO APPROVE ALL REQUESTS FAITH property
MADE BY ITS CARD HOLDERS. FRAUDULENT, RECKLESS, Exemplary.
 Amex is not guilty of culpable delay. OPPRESSIVE,
o No obligation MALEVOLENT
 No default. CRIMES AND QUASI Natural and probable
 No demand- demand is assertion of legal right. DELICTS consequences.
 Obligation to act within reasonable amount of time
o Company will still have to determine whether it will allow the charge  BAD FAITH
based on previous credit history. o Does not contemplate bad judgment or attendant negligence.
o A practice or a custom is not a source of legally demandable right. o Must be done with wrongful intent
o No provision in the contract that obligates AMEZ to act within
reasonable amount of time. OTHER KINDS OF DAMAGES
 Good faith. Moral Temperate Exemplary
o AMEX still has no unlimited right to put off action on cardholders Nominal Liquidated Actual
purchase request. 1171. WAIVER OF AN ACTION
o Abuse of rights doctrine (Art. 19 and 21). Responsibility arising from fraud is demandable in all obligations. Any waiver of
 Act with justice an action for future fraud is void. (1102a)
 Give everyone his due VOID STIPULATION
 Observe honesty and good faith.  Any fraudulent act shall not be a ground for filing of a suit.
o Good faith is presumed.  Involves a valid agreement but in the performance of the same, fraud is
o No evidence that AMEX acted in bad faith. committed.
o
1170. DAMAGES 1172. RESPONSIBILITY BECAUSE OF NEGLIGENCE
Those who in the performance of their obligations are guilty of fraud, negligence, Responsibility arising from negligence in the performance of every kind of
or delay, and those who in any manner contravene the tenor thereof, are liable for obligation is also demandable, but such liability may be regulated by the courts,
damages. according to the circumstances. (1103)
DAMAGES 1173. OMMISSION OF DILIGENCE REQUIRED OF A GOOD FATHER,

 May be awarded as a result of fraud, delay, negligence and contravention of tenor. The fault or negligence of the obligor consists in the omission of that diligence
 Any of the aforementioned + fortuitous event = still liable. which is required by the nature of the obligation and corresponds with the
 Measure: Natural and probable consequences of the breach circumstances of the persons, of the time and of the place. When negligence
o Good faith: only reasonable and probable consequence. (actual shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall
apply.
damages)
If the law or contract does not state the diligence which is to be observed in the
o GF EQUITY v. ARTURO VALENZONA
performance, that which is expected of a good father of a family shall be required.
 Company terminated the services of the coach based on a
(1104a)
provision declared void by the court.
 Only actual damage
NEGLIGENCE IN GENERAL
 Want of care required by the circumstances.
BREACH IN GOOD FAITH Actual damages Reasonable and probable
 Relative or comparative, depending on the situation of parties and degree of care
consequences of breach
and vigilance required.
FRAUDULENT OR IN BAD Moral damages Sentimental value of
 Must always be proven.
18
 Parties are both negligent = obligations may be determined equitably under the o REQUISITES
law. 1. Cause of breach must be independent of will of debtor
o SYQUIA v. CA 2. Event must be unforeseeable/unavoidable
 Personnel bore a hole on the grave of the deceased to prevent 3. Event rendered it impossible for the debtor to fulfill his obligations.
the vault from falling. 4. Debtor must have no participation in, or aggravation of injury.
 No bad faith.  If there is corresponding fraud, delay, contravention of tenor, person cannot
o PNB v. CA escape liability.
 Bank negligently dishonored the check of its depositor.  SPOUSES POON v. PRIME SAVINGS
 Bank is under an obligation to treat accounts of depositors with o Insolvency is not a fortuitous event.
meticulous care.  SIA v. CA
 No bad faith but still caused serious anxiety, malice o Bank failed to notify its client of the flooding of the safety box wherein
 Entitled to moral damages. client’s valuable stamp collection was stored and which resulted to the
destruction of the same.
1174. FORTUITIOUS EVENT o Bank was negligent and was made liable for damages.
Except in cases expressly specified by the law, or when it is otherwise declared by  DIOQUINO v. LAUREANO
stipulation, or when the nature of the obligation requires the assumption of risk, o Sudden and unexpected throwing of stone directed at car is fortuitous
no person shall be responsible for those events which could not be foreseen, or event.
which, though foreseen, were inevitable. (1105a) o Caso fortuito: extraordinary circumstances independent of will of
obligor.
FORTUITIOUS EVENT
 GENERAL RULE: No one should be held liable for fortuitous event LESSON: FORTUITIOUS EVENT DOES NOT GIVE RISE TO AN EXTENSION
 EXCEPTIONS:  VICTORIA PLANTERS v. VICTORIA MILLING
1. object of prestation is generic. o Provision: in event of fortuitous event, the delivery of certain products is
2. Stipulated by law/parties. suspended.
 1165: delivery of same thing to two or more person o SC: Period of time when contract was suspended cannot be deducted to
 1268: criminal offense
the term of contract.
 552: possessor in bad faith: liable for deterioration
 To add will result to extension.
 129 (6): loss and deterioration of movables used for benefit of
 Will only relieve the parties from fulfilling his obligation.
family.
3. Nature of obligation so requires.
1175. USURIOUS TRANSACTIONS
 REPUBLIC v. LUZON STEVEDORING
Usurious transactions shall be governed by special laws. (n)
 Towed barged.
 Difficulty to foresee the happening is not impossibility. 1176. PRESUMPTION OF PAYMENT
4. Bailee in commodatum The receipt of the principal by the creditor without reservation with respect to the
 Devotes the thing to any purpose different from that which he interest, shall give rise to the presumption that said interest has been paid.
intended
 Keeps it longer than the period stipulated The receipt of a later installment of a debt without reservation as to prior
 Delivered with appraisal in value installments, shall likewise raise the presumption that such installments have been
 Lends the same to a person not member of his household paid. (1110a)
 He chose to save his own thing.
 Act of God: accident, due directly and exclusively to natural causes without PAYMENT OF PRINCIPAL AND INTEREST
human intervention.  Presumption must always arise from a fact/set of facts.
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 Probative value: must be provided by law Every obligation whose performance does not depend upon a future or uncertain
 Payment of principal without reservation= interest already paid event, or upon a past event unknown to the parties, is demandable at once.
o Normally, interest is paid first.
Every obligation which contains a resolutory condition shall also be demandable,
 Payment of later installment=prior installments have been paid
without prejudice to the effects of the happening of the event. (1113)
o Later installment must indicate that it is indeed the latest installment
 MANILA TRADING v. MEDINA
o Respondents aver that the receipt dated January 1957 raise the OBLIGATION
presumption that prior installments were already paid. 1. Pure- unqualified obligation which is demandable immediately.
o No showing that the payment was made for the installment on January a. PAY v. VDA DE PALANCE
1957. i. Debtor issued a promissory note to pay a sum of money upon
1177. receipt of a particular sum of money from the estate/demand.
The creditors, after having pursued the property in possession of the debtor to ii. Case was filed 15 years after the said execution.
satisfy their claims, may exercise all the rights and bring all the actions of the iii. SC: Action has already prescribed. Promissory note’s
latter for the same purpose, save those which are inherent in his person; they may payment is a pure obligation.
also impugn the acts which the debtor may have done to defraud them. (1111) 2. Conditional- Dependent on a condition
a. Condition- act/event, other than lapse of time, must occur before an
PROTECTION OF CREDITORS obligation arises.
 Successive measures that may be undertaken by creditors b. Dependent on future/uncertain event/past event unknown to parties.
o Exhaust all properties of debtor
o Exercise all rights and actions of debtor except those that are personal to CONDITIONS
him (accion subrogatoria) 1. Resolutory- Demandable at once. Operates to DISCHARGE the obligation.
o Rescission of contracts in fraud of their rights (accion pauliana) (subsequent)
a. Example: contract provides that government shall continue to allow
 Creditor cannot bring those which are inherent in the person of obligor. (support,
refunds until government comes up with law disallowing such refund,
other personal rights, rescind a sale)
2. Suspensive- Demandable only upon the happening of future/unknown event/past
event unknown to parties. PERFORMANCE. (precedent)
1188. TRANSMISSIBILITY OF RIGHTS
a. If condition does not take place, the parties would stand as if there was
Subject to the laws, all rights acquired in virtue of an obligation are transmissible,
no conditional obligation at all.
if there has been no stipulation to the contrary. (1112)
b. Contract to sell- once payment of last installment occur- obligation to
execute the final deed of sale arises.
LIMITATIONS ON TRANSMISSIBILITY
c. Conditional contract of sale- Reserve title of the property until
1. He cannot transfer greater rights than he himself has.
fulfillment of obligation. | Automatic transfer.
2. It may be prohibited/limited by stipulation of parties.
d. Uncertain event (rains, passes the bar)
3. If personal qualification is a material ingredient attendant in the obligation.
e. JAVIER v. CA
4. Subject to pertinent laws.
i. Obligor was not liable because it involves non-happening of
suspensive condition.
3. Potestative suspensive condition- dependent upon the sole will of the debtor,
DIFFERENT KINDS OF OBLIGATIONS void.
Pure and Conditional Obligation 4. Mixed condition- Will of the debtor + chance and other factors
CONTRACT TO SELL v. CONTRACT OF SALE
Contract to sell Contract of sale
1179. PURE AND CONDITIONAL OBLIGATIONS No previous sale Upon fulfillment, sale becomes absolute.
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Ownership is automatically transferred.  Stipulation which says that the lease contract shall subsist “for
No buyer in bad faith/ 2nd buyer may be bad faith as long as the defendant needs the premises” is void.
No reconveyance. Reconveyance  Because it is dependent on the sole and exclusive will of lessee
1180. OBLIGATION WITH A PERIOD  If imposed not on the obligation itself but on the fulfillment, only the
condition is void.
When the debtor binds himself to pay when his means permit him to do so, the o TRILLANA v. QUEZON COLLEGE
obligation shall be deemed to be one with a period, subject to the provisions of  Payment will only be made if the creditor had harvested fish.
Article 1197. (n)  Since both the condition and the obligation relies heavily on the
OBLIGATION WITH A PERIOD harvesting of the fish, both are void.
o OSMENA v RAMOS
 Debtor- passive- he is the one that can be compelled  “If the house of strong material which I live in is sold.”
 Creditor- active- the one who can compel the performance. o SECURITY BANK v. TRUST COMPANY
 Presumption: the debtor really intends to satisfy his obligation.  “Owner shall equitably make the appropriate adjustments.”
 However, it is an uncertain event.  Void. Dependent on the petitioner’s bank will.
 Thus, a period is established for the benefit of both the creditor and debtor.  A condition facultative at once may be valid even though the condition is
 COURT MAY FIX THE DURATION OF THE PERIOD. made to depend upon the will of the obligor
o Leaves a thing to his friend’s home but such thing will be returned after
1181. CONDITIONAL OBLIGATIONS he comes home = VALID, Resolutory.
 If condition is void but obligation was unaffected, will it be considered as a
In conditional obligations, the acquisition of rights, as well as the extinguishment
pure obligation? – no.
or loss of those already acquired, shall depend upon the happening of the event
o PATENTE v. OMEGA
which constitutes the condition. (1114)
 Conversion to a pure obligation will result to an arrangement
beyond the contemplation of the parties.
 CONSIDER THAT THERE’S A PERIOD- Court will fix
CONDITIONAL OBLIGATION such period
SUSPENSIVE RESOLUTORY MIXED CONDITIONS - VALID
Condition precedent Condition subsequent  Depends not only on the will of the debtor but on chance and some other factors.
Act/event other than lapse of time The happening of the condition will o ROMERO v. CA
that must occur first before discharge the obligation.
 “Property shall be returned in the event that the seller “shall not
obligation will arise
be able to remove the squatters from the property within 60
days.”
1182. POTESTATIVE SUSPENSINVE CONDITION  SC: Not dependent on the sole will of debtor, but also of
squatters and government.
When the fulfillment of the condition depends upon the sole will of the debtor, the o NAGA TELEPHONE v. CA
conditional obligation shall be void. If it depends upon chance or upon the will of  Petitioner can use electrical posts of respondent as long as it
a third person, the obligation shall take effect in conformity with the provisions of needs but contract can be terminated should the respondent stop
this Code. (1115) operations (forced to stop, abandon)
 Potestative suspensive condition | (casual)
POTESTATIVE SUSPENSIVE CONDITION- VOID  Mixed condition = VALID.
 Condition depends upon the sole will of the debtor. = VOID.
o LAO LIN v. CA o ROLANDO CATUNGAL v. ANGEL RODRIQUEZ
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 Payment of buyer shall be made after successful negotiation for 1185. NOT HAPPENING OF CONDITION/NO TIME FIXED.
a right of way.
 Not dependent on the sole will of debtor but also to the will of The condition that some event will not happen at a determinate time shall render
third persons that will be affected. the obligation effective from the moment the time indicated has elapsed, or if it
 A resolutory condition dependent on the will of a third person is not void. has become evident that the event cannot occur.
o DUCUSIN v. CA If no time has been fixed, the condition shall be deemed fulfilled at such time as
 Term of contract is month-to-month until terminated by mutual may have probably been contemplated, bearing in mind the nature of the
agreement or terminated by the lessor on the ground that his obligation. (1118)
children need the premises for their own use.
 SC: Valid. This partakes a resolutory condition dependent on DEPENDENT ON NON-HAPPENING OF CONDITION
the will of 3rd parties- the lessor’s children. OBLIGATION: Non-election of Mr. X as President on or before 1998-
X becomes president Car should not be given
X does not become president/dies Car should be given
1183. IMPOSSIBLE CONDITIONS
NO TIME FIXED
Impossible conditions, those contrary to good customs or public policy and those
OBLIGATION: NON ELECTION OF X.; law provides that election- August 1998.
prohibited by law shall annul the obligation which depends upon them. If the X becomes president Car should not be given
obligation is divisible, that part thereof which is not affected by the impossible or X does not become president/dies Car should be given
after August 1998
unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having WELLEX GROUP v. U-LAND AIRLINES
been agreed upon. (1116a)  MOA undertaking to purchase a stock agreement within 40 day period and if
nothing happened, they will be released from their commitments.
 No purchase agreement was reached.
IMPOSSIBLE CONDITIONS  SC: Non-occurrence of purchase agreement gives rise to the obligation to free
 Impossible conditions are ineffective. – Whole obligation is annulled. each other from respective commitments. They must return to each other all the
 Obligation to give money when it snows- void. things they have received.
 Impossible conditions are also useless and should be considered as not having
acted upon SERGIO OSMENA v. POWER SECTOR ASSETS
 Two bidders. There’s an agreement that should the losing bidder not exercise his
1184. OBLIGATIONS WITH A DETERMINATE TIME right to top, the winning bidder must enter into and fully comply with the
Agreement.
The condition that some event happen at a determinate time shall extinguish the  Court nullified the “right to top”
obligation as soon as the time expires or if it has become indubitable that the event  SC: SPC can never invoked its right to top in view of its nullity. Condition is
will not take place. (1117) deemed complied.
OBLIGATION WITH DETERMINATE TIME
1186. CONSTRUCTIVE FULFILLMENT
 Existence of obligation as the conditions happens at a particular time and should
extinguish the same if condition does not happen within that period. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
OBLIGATION: Election of Mr. X as President on or before 1998
X becomes president Obligor has to give the car
X does not become president/dies Obligation to give the car is extinguished.
fulfillment. (1119)
DOCTRINE OF IMPLIED TERM.
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 Good faith obligation demands that parties should not impede, hinder, obstruct or The effects of a conditional obligation to give, once the condition has been
prevent the fulfillment of the obligation. fulfilled, shall retroact to the day of the constitution of the obligation.
 Said acts tantamount to a breach of contract= unlawful, unwarranted. Nevertheless, when the obligation imposes reciprocal prestations upon the parties,
the fruits and interests during the pendency of the condition shall be deemed to
CONSTRUCTIVE FULFILLMENT have been mutually compensated. If the obligation is unilateral, the debtor shall
 Obligor voluntarily prevents the happening of condition. appropriate the fruits and interests received, unless from the nature and
o Obligor will donate his new computer should the school donate the old circumstances of the obligation it should be inferred that the intention of the
computer to charity person constituting the same was different.
o Obligor destroys the old computer
RETROACTIVITY OF FRUITS
o Condition is deemed fulfilled and obligor is now bound to make the  Applies only to SUSPENSIVE CONDITION.
delivery of the new computer.  When the suspensive condition occurs, the effect retroacts to the day of the
 REQUISITES constitution of obligation.
o Condition is suspensive  Example
o Obligor actually prevents the fulfillment of condition o February 1996- obligor promises to give a specific car if it rains on
o He acts voluntarily. June.
o It rains on June.
TAYAG v. CA o All accessories starting from February 1996 should be given.
 Contract of sale. o If said car wins a prize during the period, the prize obtained should stay
o Buyer should pay the balance of the loan for a property that was with the obligor.
collaterized.  In unilateral obligations, the debtor shall appropriate the fruits
o Vendor prematurely paid the law, preventing the buyer from and interests received.
fulfilling his obligation.  In reciprocal obligations, fruits and interests are deemed to have been
o Condition is deemed fulfilled. Vendor should deliver the property. mutually compensated.
o Juan promises to give mango orchard to Pedro.
DEVELOPMENT BANK v. STA. INES o Pedro should give 50,00 in return
o Period of payment is dependent on a prior execution of Share Purchase o Obligation will happen if it rains on first Saturday of June.
Agreement. o All fruits and interests will mutually compensate one another.
o Buyer did not submit its recommendation and deliberately delayed
review VDA DE OUANO v. REPUBLIC
o Government expropriated land for purposes of building an airport on the
CARLOS LIM v. DEVELOPMENT BANK condition that it will allow the owners to reacquire the land should the
o Promissory notes were demandable as early as 1972 and 1976. airport not be completed.
o Only reason why properties were not mortgaged was a restraining order o Condition happened but government did not allow the owners to get back
from the court. on property.
o Only in 1989 when petitioners tried to negotiate. o Spouses must pay MCIAA the necessary expenses while the latter has
o DBP gave several extensions but they never settled their obligation. pay the spouses just compensation plus legal interest accruing from the
o DBP cancelled the Restructuring Agreement default.
o SC: No constructive fulfillment. o SC: Mutual compensation should apply. MCIAA may keep whatever
fruits it got and Spouses need not pay the interests.
1187. RETROACTIVITY OF FRUITS
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1188. PRESERVATION OF RIGHT BY CREDITOR SUMMARY OF RULES
The creditor may, before the fulfillment of the condition, bring the appropriate LOST WITHOUT FAULT OF OBLIGATION IS
actions for the preservation of his right. DEBTOR EXTINGUISHED
Perishes, Goes out of commerce,
The debtor may recover what during the same time he has paid by mistake in case Disappears in a way its existence is
of a suspensive condition. (1121a) unknown/cannot be recovered.
WITH FAULT PAY DAMAGES
RIGHT TO RECOVER
 Creditor may protect his interest even if the condition has not yet been fulfilled. DETERIORATES WITHOUT FAULT OF IMPAIRMENT
o Injunction suit to stop the debtor from alienation his property. DEBTOR MUST BE
 If debtor pays by mistake prior to the happening of condition, he can recover SHOULDERED
because the debt is not yet due and demandable. BY CREDITOR
 ALFREDO AND SUSANA BUOT v. CA WITH FAULT RESCISSION
 Recovery can likewise be made even if there was no mistake to prevent w/damages
unjust enrichment. FULFILLMENT
w/damages
1189. LOSS/DETERIORATION/ IMPROVEMENT IMPROVEMENT NATURE/TIME Benefit to creditor.
EXPENSE OF Usufructuary
When the conditions have been imposed with the intention of suspending the DEBTOR
efficacy of an obligation to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing during the pendency of the
condition: LOSS/DETERIORATION/IMPROVEMENT
(1) If the thing is lost without the fault of the debtor, the obligation shall be  If lost without fault of debtor, obligation is extinguished except THING IS
extinguished; GENERIC.
 CREDITOR’S CHOICE
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay o If deterioration is so grave that the object goes out of commerce, creditor
damages; it is understood that the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is unknown or it cannot can choose damages.
be recovered;  USUFRUCTUARY RIGHT
o Right to enjoy the property of another with the obligation of preserving
(3) When the thing deteriorates without the fault of the debtor, the impairment is its form and substance unless title/law provides otherwise.
to be borne by the creditor;
1190. RESTITUTION
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity for When the conditions have for their purpose the extinguishment of an obligation to
damages in either case; give, the parties, upon the fulfillment of said conditions, shall return to each other
what they have received.
(5) If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor; In case of the loss, deterioration or improvement of the thing, the provisions
which, with respect to the debtor, are laid down in the preceding article shall be
(6) If it is improved at the expense of the debtor, he shall have no other right than applied to the party who is bound to return.
that granted to the usufructuary. (1122)
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As for the obligations to do and not to do, the provisions of the second paragraph LESSON: BREACH MUST BE SUBSTANTIVE ENOUGH TO WARRANT
of Article 1187 shall be observed as regards the effect of the extinguishment of the RECISSION.
obligation. (1123)
PHILIPPINE ENTERPRISE v. NATIVIDAD
RESTITUTION  Lessee of a jukebox sought rescission on the ground that there were times that the
 Example machine doesn’t work.
o Obligor shall have continued possession of car as long as he does not bet  SC: no substantial breach= no rescission.
on lottery. o Occasional failure = not unsuitable/unserviceable.
o Obligor bets in lottery. Obligation is extinguished.
o Obligor must return the car subject to the aforecited provisions. LESSON: BREACH MUST BE SERIOUS AND FUNDAMENTAL AS TO DEFEAT
 Court shall determine the effect of extinguishment of obligation in obligations THE OBJECT OF THE PARTIE IN MAKING THE AGREEMENTS.
to do or not to do.
TAN v. CA
 Seller failed to clear the lot and failed to cause the cancellation of the mortgage
1191. RECIPROCAL OBLIGATIONS AND RESCISSION.
lien on the property.
The power to rescind obligations is implied in reciprocal ones, in case one of the  Bank which delated the cancellation.
obligors should not comply with what is incumbent upon him.  Failure to get the approval of the Secretary of Natural Resources.
 SC: There was still substantial compliance.
The injured party may choose between the fulfillment and the rescission of the o Time not of essence, slight delay is not a ground for resolution.
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause  WHEN THE FULFILLMENT OF A CONDITION DEPENDS ON THIRD
authorizing the fixing of a period. PERSON, THE OBLIGOR’S PART IS DEEMED FULFILLED FOR AS
LONG AS HE DOES ALL THAT IS IN HIS POWER.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage VELARDE v. CA
Law. (1124)  Slight delay of one month is a casual breach when time is of essence.
 However, qualified offer to pay is a repudiation of an existing obligation.
RECIPROCAL OBLIGATIONS
 Rescission was proper.
SANGCUA v. IAC
 Obligation of one is a resolutory condition of the obligation of another. INDUSTIAL v. ALABANG
 Resolution, not rescission. (can be used interchangeably).  Contract was entered into for an installation of a medical gas pipeline system.
o No test runs were conducted.
GOTESCO PROPERTIES v. SPOUSES FAJARDO o However, test runs are not part of essential parts of installation contract.
 Mutual restitution= return of benefits each party may have received. o No rescission.
o 1385: fruits, price with interest.
 Rescission/restitution= breach of faith. NOLASCO v. CUERPO
 NO RESCISSION IF THERE IS NO BREACH OF FAITH.  Non-performance of a remedial provision.
o Such breach must be substantive and serious.  Petitioners did not cause the transfer of the property to their names within 90 days
from the execution of said contract.
25
o “failure on the part of petitioners to undertake… shall automatically  Judicial intervention is necessary in order to determine whether or not the
authorize respondents to undertake the same and charge the costs rescission was proper. Mere affirmation of revocation
incidental to monthly amortizations.”
 SC: NO SUBSTANTIAL BREACH. KOREA TECHNOLOGIES V. LERMA
o Petitioner’s failure to undertake obligation does not defeat the object of  When an arbitration clause is availing, neither of the parties can unilaterally treat
parties entering into the subject contract. the contract as rescinded- must be first resolved by arbitration.
IMPLIED POWER TO RESCIND SANTOS V.CA

 Can only be enforced through court action.  In a contract to sell, title remains with the vendor. Payment of purchase price is a
 Decision of the court is the operative act of rescission. positive suspensive condition. Failure to pay will prevent the obligation to convey
 Immovable properties= judicial decision/notarial act. the title. If the vendor ejects the vendee for failure to meet condition precedent, he
 It can also be EXPRESSLY STIPULATED. is enforcing the contract, not rescinding it.
 NEED FOR NOTICE BEFORE RESCISSION CAN TAKE EFFECT.  In a contract of sale, vendor has already lost ownership and cannot recover it
 If there is a just cause to fix a period, the Court shall fix one unless contract is rescinded.
o ROMAN v. CA
 Lack of notice is not a just cause SPOUSES TUMIBAY V. SPOUSES LOPEZ
o CENTRAL PHILIPPINES v. CA  Fraudulent transfer of ownership of object of sale is a fundamental and substantial
 50 years have already passed. breach.
 RESCISSION CAN ONLY BE MADE WHEN THE ONE DEMANDING
JISON V. CA
THE RESCISSION CAN RETURN WHATEVER HE/SHE MAY BE
OBLIGED TO RESTORE.  Notice of cancellation is indispensable.
o Does not apply if remedy is specific performance.  Actual cancellation is 30 days after receipt.
REMEDY FOR NON-COMPLIANCE  PALAY v. CLAVE: Court invalidated the cancellation on the ground of lack of
 Fulfillment with damages. notice even though there is an express stipulation that seller has right to declare
the contract cancelled even though there is no notice.
 Rescission with damages.
 Injured party may seek rescission even he has chosen fulfillment.
FF CRUZ V. HR CONSTRUCTION
o However, parties are not allowed to rescind the obligation and choose
 Right of rescission may be waived by the agreement of the parties.
partial fulfillment under the guise of recovering damages,
o Express/implied.
o In Siy v. CA: recovery of penalty charges stipulated in the contract was
disallowed.
SPOUSES LINO FRANCISCO v. DEAC
 Rescission/resolution is not predicated on injury to economic interests but on the
CONSEQUENCES OF EXPRESS STIPULATION.
breach of faith by the defendant.
 Need for notice and review by proper court.
 Since construction was 75% complete already, partial rescission can be granted.
o If rescission is not warranted= responsible party will be liable for
damages.
1192. LIABILITY OF INFRACTOR.
o If resolution is affirmed, they will be entitled to indemnity.
 IT IS ONLY THE FINAL JUDGMENT OF THE COURT THAT WILL In case both parties have committed a breach of the obligation, the liability of the
CONCLUSIVELY AND FINALLY SETTLE. first infractor shall be equitably tempered by the courts. If it cannot be determined
which of the parties first violated the contract, the same shall be deemed
NEED FOR JUDICIAL INTERVENTION extinguished, and each shall bear his own damages. (n)
DE LUNA V. ABRIGO
26
LIABILITIES Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
 GENERAL RULE: If both parties committed breach, only the first violator is
punished, if it can be determined by fact/evidence. Obligations with a resolutory period take effect at once, but terminate upon arrival
 Court may still temper the liability if the injury has not been so great if not of the day certain.
for the subsequent breach.
A day certain is understood to be that which must necessarily come, although it
 If it cannot be determined, pari delicto rule will apply and parties will suffer their
may not be known when.
respective loses.
If the uncertainty consists in whether the day will come or not, the obligation is
SPOUSES FERNANDO v. CONTINENTAL AIRLINES
conditional, and it shall be regulated by the rules of the preceding Section. (1125a)
 Both parties were in default-
 CAI refuse to accept Lourdes’ ticket for the purchase of Fernando’s round trip PERIODS
ticket was offset by Spouses refusal to pay the additional amount not covered by  Particular time which is certain to happen-arise/extinguish the obligation.
the subject tickets.  TWO KINDS
o Suspensive period- give rise to the effectivity of obligation
GOLDLOOP v. GSIS o Resolutory period- extinguish the obligation.
 Parties entered into an agreement where the constructor will construct and  A day certain.
renovate certain buildings which after the construction will be subject to an o Will come but do not know when. (falling off front tooth)
arrangement of sharing in earning and in return, the owner of building will be o If uncertainty consists of whether the day will come, it is a condition.
given guaranteed payments free from all liens and encumbrances.
(passes entrance exam)
 City government did not issue building permit due to unpaid taxes
 Construction cased,
 Contractor failed to make the guaranteed payments  MANILA INTERNATIONAL AIRPORT v. OLONGAPO
 SC: RESCISSION. Both parties were order to restitute whatever they o Court cannot extend the life of a contract.
received from one another. o Courts have no power to make a contract for the party nor can they
 Uncertain which committed the first infraction, hence both parties must bear construe a contract in such a manner as to change the terms of
their respective damages. contracts not contemplated by the parties.
 CITY OF CEBU v. HEIRS OF CANDIDO RUBI
GEORGE FONG v. JOSE DUENAS o Silence on the part of seller for an extension to make payment is logically
 Parties entered in an oral joint venture agreement.
a denial thereof.
 Absence of written contract renders the Court unsure as to whose obligation must
be performed first. 1194. LOSS/DETERIORATION/IMPROVEMENT
 Both parties must bear their own respective damages.
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in Article 1189 shall be observed. (n)
DIFFERENT KINDS OF OBLIGATIONS

Obligations with a Period
1193. OBLIGATION WITH A PERIOD
27
LOST WITHOUT FAULT OF OBLIGATION IS PERIOD FOR THE BENEFIT OF BOTH PARTIES
DEBTOR EXTINGUISHED  Presumption is that period is intended to benefit both parties.
Perishes, Goes out of commerce,  Obligation being reciprocal and with a period, neither party could demand
Disappears in a way its existence is performance not incur delay before the expiration of the period.
unknown/cannot be recovered.  WAIVER
WITH FAULT PAY DAMAGES
o It may be waived by the person whose favor it was constituted.
DETERIORATES WITHOUT FAULT OF IMPAIRMENT  i.e. Obligation to deliver is due on July 31.
DEBTOR MUST BE  A promised to make earlier delivery on July 20.
SHOULDERED  He failed to fulfill the same.
BY CREDITOR  There’s a waiver of period and he shall suffer the loss.
WITH FAULT RESCISSION
w/damages 1197. COURT MAY FIX A PERIOD
FULFILLMENT
w/damages If the obligation does not fix a period, but from its nature and the circumstances it
IMPROVEMENT NATURE/TIME Benefit to creditor. can be inferred that a period was intended, the courts may fix the duration thereof.
EXPENSE OF Usufructuary The courts shall also fix the duration of the period when it depends upon the will
DEBTOR of the debtor.
In every case, the courts shall determine such period as may under the
1195. DELIVERY BEFORE THE PERIOD circumstances have been probably contemplated by the parties. Once fixed by the
Anything paid or delivered before the arrival of the period, the obligor being courts, the period cannot be changed by them. (1128a)
unaware of the period or believing that the obligation has become due and TWO-STEP PROCESS (Determine and Decide)
demandable, may be recovered, with the fruits and interests. (1126a)  GREGORIO ARANETA v. PHIL SUGAR
SUSPENSIVE PERIOD o DETERMINE
 In suspensive period, the obligation to pay or to give will only rise upon arrival  If obligation does not fix a period
of such period.  Period is made upon the will of the debtor
 Creditor has no right to obtain the thing to be paid until the arrival of such period. o DECIDE
 In case of early payment, debtor has the right to recover what he has given or paid  The period contemplated upon by the parties.
with fruits or interest.  BASIS: INTENTION OF PARTIES.
 Factors to consider: stipulation, intent, context
 i.e. A promises to deliver a mango orchard to b on December 1.
o If A delivered the same on November 1, he can recover the object plus
PERIOD DETERMINE FROM THE STIPULATION OF CONTRACT
fruits and interests.
 RADIOWEALTH v. DEL ROSARIO
o But if B is in possession of the object by December 1, A can only recover
o Due date for the first installment was left blank.
the fruits and interests from November 1-December 1.
o It does not follow that they can pay whenever they want.
1196.
o A careful perusal of the contract would show that the debt should be
Whenever in an obligation a period is designated, it is presumed to have been amortized monthly = each installment is payable each month.
established for the benefit of both the creditor and the debtor, unless from the o There is also a penalty clause and an acceleration clause which signify
tenor of the same or other circumstances it should appear that the period has been the intention to be paid at a definite date.
established in favor of one or of the other. (1127) “Once fixed by the courts, the period cannot be changed..” - DEFINITENESS.
1198. LOST OF RIGHT TO A PERIOD.
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The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, 1199. PARTIAL PERFORMANCE OF OBLIGATION
unless he gives a guaranty or security for the debt; A person alternatively bound by different prestation shall completely perform one
(2) When he does not furnish to the creditor the guaranties or of them.
securities which he has promised; The creditor cannot be compelled to receive part of one and part of the other
(3) When by his own acts he has impaired said guaranties or securities undertaking. (1131)
after their establishment, and when through a fortuitous event they disappear, The debtor shall have no right to choose those prestations which are impossible,
unless he immediately gives new ones equally satisfactory; unlawful or which could not have been the object of the obligation. (1132)
(4) When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period; DIFFERENT KIND OF PRESTATION
(5) When the debtor attempts to abscond. (1129a)  To give || To do || To not do.
FIVE INSTANCES WHERE THE DEBTOR LOSES RIGHT TO A PERIOD. PARTIAL PERFORMANCE OF DIFFERENT PRESTATION
1. Insolvency  General rule: Partial fulfillment is not considered as fulfillment at all.
Unless he gives a guaranty or security. Unless the creditor accepts such payment as complete performance.
a. If debtor becomes insolvent, creditor need not wait for the period to o Prestation: Give a house and a car OR paint two murals
demand payment. o The debtor cannot give a car and one mural.
b. Need not to be judicially declared.  Creditor will not be compelled to accept such satisfaction.
2. Does not furnish the creditor the guaranties/securities he promised  Obligation will not be satisfied through fulfillment of several prestation.
a. Guaranties and securities are meant to protect the interest of creditor.  However,
b. Securities- real-estate mortages/pledges. o If one of the alternatives become legally impossible
3. Impairment of guaranties after the establishment by his own act/loss of the  Obligation will cease to be an alternative.
same through fortuitous event
a. Unless he gives a new one equally satisfactorily.
b. Also applicable to fortuitous event. If the house was stuck by lighting,
debtor should also lose every right to a period. 1200. DEBTOR’S CHOICE
4. Violation of any undertaking, in consideration pf which the creditor agreed to a The right of choice belongs to the debtor, unless it has been expressly granted to
period. the creditor.
a. DEVELOPMENT BANK v. STA INES
i. Commencement of period was predicated on the execution of CHOICE OF THE DEBTOR
Share Purchase Agreement but it was not executed because the  General rule: Right of choice belongs to debtor
seller delayed. o Unless it was expressly granted to creditor
b. ALLEN v. ALBAY o Limitation: debtor cannot choose impossible, unlawful.
i. Contractor was prevented to finish the works on the contractual  Debtor
date o Passive subject in an obligation. (obliged to perform the prestation)
ii. Owner deemed waived the time limit/period. o Any doubt must be interpreted in favor of him.
5. Debtor attempts to abscond
a. flee from obligation/move away to evade payment
LIMITATION ON THE CHOICE OF DEBTOR
b. Obligation is immediately demandable.
 Impossible, unlawful, could have not been an object of the obligation
o CHOICES: Give a car, fly to the moon, not join the army.
DIFFERENT KINDS OF OBLIGATIONS  Debtor has no right to choose the second alternative.
Alternative Obligations
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1201. CREDITOR MUST BE NOTIFIED
The choice shall produce no effect except from the time it has been Damages other than the value of the last thing or service may also be awarded.
communicated. (1133) (1135a)
SIGNIFICANCE OF NOTIFICATION OF CHOICE TO CREDITOR CREDITOR’S RIGHT

 Communication to the creditor will give effect to the obligation.  Debtor will not be liable for reducing three to two alternatives so long as what
 When all the choices are possible and lawful, creditor has no right to oppose the remains are lawful, practicable and consistent with the obligation.
choice.  Debtor may cause the loss of thing, or render the service impossible.
 However, when the debtor is responsible for losing/rendering impossible all
1202. LOSS OF RIGHT OF CHOICE his alternative prestations, the creditor is entitled to damages.
The debtor shall lose the right of choice when among the prestations whereby he o Computation of damages: value of the last thing which disappeared +/
is alternatively bound, only one is practicable. (1134) other damages.
LOSS OF CHOICE 1205. CREDITOR’S CHOICE

 Majority of the choices must be practicable. When the choice has been expressly given to the creditor, the obligation shall
 If only one is practicable, creditor has no right to complain. cease to be alternative from the day when the selection has been communicated to
 “practicable” – capable of being done/feasible. the debtor.
 There are lawful and possible prestations but not practicable
o Kiss a leper. Until then the responsibility of the debtor shall be governed by the following
rules:
1203. IMPAIRMENT BY THE CREDITOR (1) If one of the things is lost through a fortuitous event, he shall perform the
If through the creditor's acts the debtor cannot make a choice according to the obligation by delivering that which the creditor should choose from among the
terms of the obligation, the latter may rescind the contract with damages. (n) remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the
IMPAIRMENT AND RESCISSION. creditor may claim any of those subsisting, or the price of that which, through the
 If the creditor himself prevents the debtor from fulfilling the choice, the latter may fault of the former, has disappeared, with a right to damages;
rescind the contract with damages (3) If all the things are lost through the fault of the debtor, the choice by the
 i.e. PRESTATIONS: Give a particular car, sing at a particular night club, not to creditor shall fall upon the price of any one of them, also with indemnity for
resign from job damages.
o Creditor burns the night club where the debtor may sing.
o Debtor has been prevented from making said choice through the fault of The same rules shall be applied to obligations to do or not to do in case one, some
creditor. or all of the prestations should become impossible. (1136a)
o REMEDY: Rescission with damages/ fulfillment (choose from
remaining ones) CREDITOR’S CHOICE
 Must be EXPRESSED.
1204. CREDITOR’S RIGHT TO INDEMNITY  Once the choice has been communicated to the debtor, obligation ceases to be an
The creditor shall have a right to indemnity for damages when, through the fault alternative.
of the debtor, all the things which are alternatively the object of the obligation  i.e. PRESTATION: Give a car, give a boat, give a truck
have been lost, or the compliance of the obligation has become impossible. o Creditor choice: truck
o Debtor is responsible to deliver it properly and take care of the
The indemnity shall be fixed taking as a basis the value of the last thing which choice with the diligence of a good father of the family.
disappeared, or that of the service which last became impossible.
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RESPONSIBILITY OF THE DEBTOR or that each one of the latter is bound to render, entire compliance with the
1. One of the thing is lost through fortuitous event prestation. There is a solidary liability only when the obligation expressly so
a. Debtor shall perform the choice of the creditor among the remainder. states, or when the law or the nature of the obligation requires solidarity. (1137a)
b. If all alternatives are lost, obligation is extinguished.
c. If only one remains, it is simple obligation and creditor can demand the SOLIDARY OBLIGATION
delivery of the same.  There are debts/obligations incurred by TWO OR MORE DEBTORS in
2. Loss of the thing through fault of debtor FAVOR of TWO OR MORE CREDITORS.
a. Creditor may claim those subsisting  Any, some or all of the creditors have the right to demand from any of the debtors
b. Price of that thing lost through the fault of debtor + damages. the SATISFACTION OF THE TOTAL OBLIGATION.
3. Loss of all things through the fault of debtor  When does it exist?
a. Creditor can choose the price of the alternatives + damages. o Express stipulation of the parties
o Law
1206. FACULTATIVE-ALTERNATIVE OBLIGATION o Nature of the obligation requires solidarity
When only one prestation has been agreed upon, but the obligor may render  Surety- creditor can immediately go against the surety for the
another in substitution, the obligation is called facultative. whole amount of indebtedness.
The loss or deterioration of the thing intended as a substitute, through the  Guarantor- only liable when creditor has unsuccessfully
negligence of the obligor, does not render him liable. But once the substitution has exhausted all means to collect from the debtor.
been made, the obligor is liable for the loss of the substitute on account of his
 Stipulation of the parties, he can be liable.
delay, negligence or fraud. (n)
 SESBRENO v. CA
o Promissory note was issued in favor of Philfinance was assigned to
FACULTATIVE-ALTERNATIVE OBLIGATION
petitioner as security for the payment of the indebtedness of Philfinance.
 PRINCIPAL OBLIGATION: Give a car
o Note was placed in custody of Pilipinas Bank
 FACULTATIVE: He can undertake another prestation: paint a mural.
o Bank informed Sesbreno that it had possession of the promissory note
 Not mandatory (parties may make it mandatory)
and that “upon your written instruction, we shall undertake physical
o Intended only to be substitute.
delivery of the above securities fully assigned to you.”
o However, if it is given, the creditor may not refuse it unless unlawful.
o SC: Bank did not become a solidary liable with Philfinance and Delta.
 Loss of substitute through negligence of debtor No express stipulation that will support such contention.
o Does not affect the obligation- NOT LIABLE.
 PNB v. STA.MARIA
o Bad faith- DEPENDING ON SITUATION o The principal, through a special power of attorney, empowered his agent
 Substitute was one reason which induced the creditor- fraud, to borrow money and deliver mortgages of real estate to creditor.
make the whole contract voidable. o Agent borrowed money but executed a mortgage under his own name.
 If not the reason for acceptance- not liable.
o SC: No solidary liability because the principal did not grant the agent to
 Once substitution has been made, obligor is liable for loss of substitute on
bind her solidary with him on any loan he might secure thereunder.
account of delay, negligence, fraud.
STIPULATION OF THE PARTIES CAN PROVE FOR SOLIDARY LIABILITY
 PACIFIC BANKING v. IAC
DIFFERENT KINDS OF OBLIGATIONS o There is a provision stating that the guarantor jointly and severally pay
Joint and Solidary Obligations the bank and all the indebtedness of principal debtor.
 RONQUILLO v. CA
1207. SOLIDARY OBLIGATIONS o An agreement to be “individually and jointly liable” indicates solidary
The concurrence of two or more creditors or of two or more debtors in one and the liability
same obligation does not imply that each one of the former has a right to demand,
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 SOME PHRASES THAT INDICATE SOLIDARY LIABILITY o As joint tortfeasors, they are solidary liable.
o “individually”- collectively, separately, severally.  AFP RETIREMENT AND SEPARATION BENEFIT v. EDUARDO
o Juntos o separadamente SANVICTORES
o Mancomun o insolidum o AFRSB and Prime East Property signed as “SELLER” = one seller in
o Jointly and severally the contract.
o Collectively/separately/distinctly/respectively
o I promise/I hereby bind myself – signed by two or more promisors. NATURE OF OBLIGATION REQUIRES IT.
 “I’ must not be identified- referring to each of them individually.  Abuse of right doctrine. (Art 19-22).
 If I refers to a particular person, then others cannot be held liable even though  R. TRANSPORT v. LUISITO YU
there are several signatories. o Actual operator and owner’s liability is joint unless the owner proves that
o Law does not make such presumption he has exercised due diligence in the selection and supervision of the
o No fact in the wording of document driver.
o Names of the only debtor/only creditor were identified in the body of the
document. 1208. PRESUMPTION OF JOINT OBLIGATION
o Easy to expressly indicate that the obligation is solidary if such was the If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debt shall be
intention.
presumed to be divided into as many shares as there are creditors or debtors, the
o Simple loan does not give rise to solidary obligation.
credits or debts being considered distinct from one another, subject to the Rules of
o In affixing their signatures, all persons read the clear and express content
Court governing the multiplicity of suits. (1138a)
of the body. And they shall be treated as mere witnesses.
 STIPULATION -> JUDICIAL DECISION-Joint JOINT OBLIGATION
o Decision must be enforced in a joint manner.  PRESUMPTION: Obligation is always joint.
 Joint debtors will only pay their respective shares in the indebtedness.
LAW EXPRESSLY STIPULATES FOR SOLIDARY LIABILITY  Joint creditors can only claim their share in the credit.
 Art 94 and 121: Spouses, in insufficiency of ACP/CPG shall be solidary liable for  SPOUSES IBANEZ v. JAMES
the unpaid balance. o Compromise agreement is a contract wherein parties make reciprocal
 Art 145: Separation of property: Liability of spouses for family expenses is
concessions to avoid litigation/put an end to one already commenced.
solidary. o Nowhere in the declaration which stated that the obligation created was
 Art 927: Two or more heirs take possession of estate, they will be solidary liable
solidary.
for any loss/destruction.
o IF SOLIDARITY CANNOT BE INFERRED, PRESUMPTION OF
 Art 1824: All partners are liable for everything chargeable to partnership.
JOINT WILL APPLY.
 1894/1895: agents may bind themselves solidarily and it has been agreed upon, all
agents are bound for the non-fulfillment of agency. 1209. IMPOSSIBLE DIVISION
 Bailees in commodatum- two or more bailees to whom a thing is loaned, they are If the division is impossible, the right of the creditors may be prejudiced only by
liable solidarily. their collective acts, and the debt can be enforced only by proceeding against all
 Negotiorum gestio- Responsibility of two or more officious managers are the debtors. If one of the latter should be insolvent, the others shall not be liable
solidary. for his share. (1139)
 2194: Responsibility of two or more person liable for quasi-delict is solidary
 RUKS KONSULT v. ADWORLD DIVISION
o Billboard was damaged by an adjacent billboard when it fell on the latter.  If division is impossible and obligation is joint, the creditors must act
o Both were liable because both were aware that the foundation of the collectively
billboard was weak yet took no positive action to reinforce the same
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o Obligation is to give a house to three creditors, one of the creditors
cannot undertake an act which will prejudice the others. (waiver) SOLIDARY CREDITORS PERFORM BENEFICIAL ACTS
 IN CASE OF RENEGEMENT,  Only one of the solidary creditors filed a suit against solidary debtors
o If all debtors- all must be sued. o Satisfaction of judgment against them by one solidary creditor will
o If only one- obligation will be a claim for damages. discharge their obligation to others.
o Those who are ready to fulfill their promises shall not contribute to the  Extrajudicial demand.
indemnity beyond the corresponding portion of the price of thing/value
of service in which the obligation consists. PREJUDICIAL ACTS ARE PROHIBITED
 House: 150,000.  Non-acceptance of complete payment because such will lead to delay/default.
 All will be liable to 50,000 each.  Remits the obligation in favor of one of the solidary debtors: creditors can’t
 Debtor who refuses to deliver shall be liable for anymore collect.
additional damages. o The fact that solidary creditors were prejudice will not invalidate the
extinguishment of the obligation.
1210. INDIVISIBILITY o REMEDY: Collect their share from solidary creditor who made the
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor remission. OR damages for lost interests.
does solidarity of itself imply indivisibility. (n)
1213. ASSIGNMENT OF RIGHTS NEED CONSENT.
INDIVISIBILITY OF OBLIGATION A solidary creditor cannot assign his rights without the consent of the others. (n)
 Solidary and indivisibility of obligation are not synonymous.
o Solidary obligation: Nature of obligation IMPLIED TRUST
o Indivisibility: Nature of object of prestation.  Relationship between solidary creditors is one of MUTUAL TRUST.
 Implied trust that creditors will act for the good of all creditors.
1211. DIFFERENT CONDITIONS OF SOLIDARITY  No assignment of rights without consent of others.
Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions. (1140)
DIFFERENT CONDITIONS IMPOSED
 A, B, C are liable solidarily to D in amount of 15,000. 1214. ORDER OF PAYMENT TO CREDITORS.
 D can collect from anyone the whole amount of indebtedness. The debtor may pay any one of the solidary creditors; but if any demand, judicial
o However if there are different periods, or extrajudicial, has been made by one of them, payment should be made to him.
 A- August 1, 1997 (1142a)
 B- May 1, 1998
 C-immediately PAYMENT TO CREDITOR
o D can only collect from all on May 1, 1998 (all debts are matured)  Anyone of the solidary creditors may accept full performance of the obligation.
o If D will claim on January 6, 1997, C can pay his respective share of o Demand- payment should be made to the one making the demand
5,000 and resist payment of the remaining 10,000 on the ground that A o Filed a case- payment should be made to the one who filed the case
and B’s share have not yet matured. o Payment of such to other solidary creditors shall not be valid.
o D can still claim payment from C on August 2, 1997.  DEAN MEL: This view should be abandoned.
o Better rule: Make payment to other non-demanding creditors VALID.
1212. BENEFICIAL; PREJUDICIAL ACTS o Must be interpreted in favor of the most beneficial to all solidary
Each one of the solidary creditors may do whatever may be useful to the others, creditors.
but not anything which may be prejudicial to the latter. (1141a)
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1215. EXTINGUISHMENT OF OBLIGATION BY SOLIDARY CREDITOR  If he accepts such partial payment from some of them, this will not prevent him
Novation, compensation, confusion or remission of the debt, made by any of the from claiming from others who have not yet paid.
solidary creditors or with any of the solidary debtors, shall extinguish the  INCIONG v. CA
obligation, without prejudice to the provisions of Article 1219. o Solidary indebtedness can still be claimed against other solidary debtors
who were not impleaded in the case.
The creditor who may have executed any of these acts, as well as he who collects  REPUBLIC GLASS v. LAWRENCE QUA
the debt, shall be liable to the others for the share in the obligation corresponding o Creditor may choose to proceed against some and not all the solidary
to them. (1143) debtors
o Creditor may also choose to collect part from some of solidary debtors
EXTINGUISHMENT OF OBLIGATION and the remaining debt from other debtors.
 Novation: change of creditor/debtor/principal condition of contract.
o Must be clear to release solidary debtors. 1217. PAYMENT BY SOLIDARY DEBTOR
 Compensation: two persons are both creditor-debtor of each other. Payment made by one of the solidary debtors extinguishes the obligation. If two
 Confusion: merger of characters of debtor/creditor in one person. or more solidary debtors offer to pay, the creditor may choose which offer to
 Remission: condonation of obligation. accept.
 Extinguishment of obligation made in favor of one solidary debtor will
benefit all other solidary debtors. He who made the payment may claim from his co-debtors only the share which
 Solidary creditor who caused the extinguishment of obligation shall be liable to corresponds to each, with the interest for the payment already made. If the
other solidary creditors for their corresponding shares in the obligation. payment is made before the debt is due, no interest for the intervening period may
be demanded.
1216. COLLECTION OF PAYMENT
The creditor may proceed against any one of the solidary debtors or some or all of When one of the solidary debtors cannot, because of his insolvency, reimburse his
them simultaneously. The demand made against one of them shall not be an share to the debtor paying the obligation, such share shall be borne by all his co-
obstacle to those which may subsequently be directed against the others, so long debtors, in proportion to the debt of each. (1145a)
as the debt has not been fully collected. (1144a)
PAYMENT BY SOLIDARY DEBTORS
COLLECTION OF PAYMENT  CREDITOR’S CHOICE: Whom against he will enforce the payment.
 IMPERIAL INSURANCE v. DAVID  If two or more solidary debtors offer to pay, he may choose which offer to accept.
o Husband and wife bound themselves severally and jointly.  The solidary debtor who paid for the whole amount of debt have the right to
o Husband died and wife resisted payment. collect from other solidary debtors their respective shares in the indebtedness.
o SC: If obligation is solidary, creditor may bring action in toto against any  If solidary debtor also paid the interest, other debtors must also have a share.
of the debtor obligated in solidum. o If payment is made before due date, no interest may be demanded.
 GUERRERO v. CA
o Creditor filed a suit against one of the solidary debtors. INSOLVENCY
o Suit was compromised without novation.  If one of the solidary debtor is insolvent, his share will be shouldered by his
o Solidary debtor defaulted in making payment. solidary debtors in proportion to the debt of each.
o Creditor demanded payment from other solidary debtor o A paid the whole indebtedness of 1500.
o SC: Solidary debtor cannot resist payment. Demand made to one does o B and C must give their respective shares= 500 each.
not bar other demands. o C cannot pay because he is insolvent.
o A and B shall shoulder his debt = 250 each.
SOLIDARY CREDITOR HAS THE RIGHT NOT TO ACCEPT PARIAL PAYMENT.
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o Since A already paid for the debt, he has the right to collect another 250 o B paid the whole obligation.
pesos from B, representing his share in C’s debt. o A, after B’s payment, persuaded D to condone the debt.
o D’s condonation/remission will have no effect because by the time he
PAYMENT OF ANY AMOUNT WILL NOT AUTOMATICALLY RESULT TO condoned this, the obligation is already extinguished.
REMBURSEMENT o B who made the payment can still collect from A his share.
 REPUBLIC GLASS v. QUA  1219 IS ONLY APPLICABLE WHEN THERE IS ONE CREDITOR.
o Solidary debtor can only recover reimbursement in so far as his payment o If there are solidary creditors, such remission without consent must not
his share in the obligation. be done.
o If he pays less than his share, he cannot demand reimbursement because o If the same was done, the solidary creditor who made the remission
his payment is less than his actual debt. shall be liable for the share and damages (lost interests).
1220. NO REIMBURSEMENT IN REMISSION

1218. NO REIMBURSEMENT The remission of the whole obligation, obtained by one of the solidary debtors,
Payment by a solidary debtor shall not entitle him to reimbursement from his co- does not entitle him to reimbursement from his co-debtors. (n)
debtors if such payment is made after the obligation has prescribed or become
illegal. (n) 1221. LOSS/IMPOSSIBLE PRESTATION
If the thing has been lost or if the prestation has become impossible without the
LOST OF RIGHT TO REIBURSEMENT THROUGH PRESCRIPTION fault of the solidary debtors, the obligation shall be extinguished.
 Rights and actions are lost through prescription.
 Written agreement=10 years. If there was fault on the part of any one of them, all shall be responsible to the
 If pursuant to a written loan agreement, A and B are bound to pay the creditor on creditor, for the price and the payment of damages and interest, without prejudice
May 2, 1997. to their action against the guilty or negligent debtor.
o If creditor does not collect before the lapse of 10 years, such obligation
will be extinguished. If through a fortuitous event, the thing is lost or the performance has become
o If A (solidary debtor) will pay such debt even though it has already impossible after one of the solidary debtors has incurred in delay through the
prescribed, B can refuse paying his share on the ground that such debt judicial or extrajudicial demand upon him by the creditor, the provisions of the
has already prescribed. preceding paragraph shall apply. (1147a)
LIABILITY OF SOLIDARY DEBTORS
1219. REMISSION AFTER PAYMENT.  LOSS/IMPOSSIBLE, without fault- obligation is EXTINGUISHED.
The remission made by the creditor of the share which affects one of the solidary  If any of them was at fault- all of them is LIABLE.
debtors does not release the latter from his responsibility towards the co-debtors,  If the same was lost through fortuitous event, with delay/fault/negligence, all of
in case the debt had been totally paid by anyone of them before the remission was them is LIABLE.
effected. (1146a)
1222. DEFENSE AVAILABLE TO DEBTOR
CONSEQUENCES OF REMISSION A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
 If before any of the solidary debtors made a payment, the obligation is which are derived from the nature of the obligation and of those which are
extinguished. personal to him, or pertain to his own share. With respect to those which
o A persuades D to condone the debt. personally belong to the others, he may avail himself thereof only as regards that
o B and C will benefit from such condonation. part of the debt for which the latter are responsible. (1148a)
o A cannot claim anything from B and C because he never paid anything.
 If debt was condoned after one has already made payment, the SOME DEFENSE AVAILABLE TO DEBTOR TO RESIST PAYMENT
remission/condonation has no effect.  Personal to him/co-debtors.
35
 Relative to the nature of the obligation o If only A and B are ready to deliver but C refuses, the joint obligation
o Share was not yet due. will be converted into a claim for damages,
o Voidable contracts (minor). o D can file a case for the amount of computer-30,000 + damages for non-
 B will still pay his respective share because there is no impediment to collect from delivery (exemplary, moral, attorney’s fee)
him. o A and B should not be held liable for the other damages.
1225. DIVISIBLE AND INDIVISIBLE OBLIGATIONS

For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which
by their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an

obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the

character of the prestation in each particular case. (1151a)
INDIVISIBLE OBLIGATIONS
DIFFERENT KINDS OF OBLIGATIONS  Obligation which is not susceptible of partial performance.
Divisible and Indivisible Obligations  Obligation to give a car/house.
 Obligation to sing and dance simultaneously.
1223.
The divisibility or indivisibility of the things that are the object of obligations in DIVISIBLE OBLIGATIONS
which there is only one debtor and only one creditor does not alter or modify the  Obligation has certain number of days of work, accomplishment of work by
provisions of Chapter 2 of this Title. (1149) metrical units/analogous thing
1224. JOINT INDIVISIBLE OBLIGATION LESSON: PARTIES THEMSELVES MUST STIPULATE WHETHER OR NOT
A joint indivisible obligation gives rise to indemnity for damages from the time THE OBJECT OF THE CONTRACT SHALL BE DIVISIBLE/INDIVISIBLE.
anyone of the debtors does not comply with his undertaking. The debtors who  GOVERNMENT v. CFI
may have been ready to fulfill their promises shall not contribute to the indemnity o Compromise agreement stated that the work was to be done in stages.
beyond the corresponding portion of the price of the thing or of the value of the o “in proportion”- divisible obligation.
service in which the obligation consists. (1150)
IN OBLIGATIONS NOT TO DO, divisibility/indivisibility shall be determined by the
LIABILITY OF JOINT DEBTORS character of prestation.
 Only bound to perform their respective portion in a particular indebtedness.
 If obligation is indivisible, they must coordinate with the rest of the debtors.
o A, B, C are bound to deliver a computer worth 30,000 to D.
o On due date, D demands payment from all of them.
36
o Absence of how it should be applied: penalty shall substitute for damages
and interests in case of non-compliance.
o Parties may stipulate that the award of the penalty pursuant to penalty
clause shall not constitute a bar to the recovery of other damages and in
the payment of interest.
 Other damages may be obtained if:
o Obligor refuses to pay the penalty
o Guilty of fraud in the fulfillment of the obligation.
o It must be proven.
o Damages must be natural and probable consequences of the breach,
which the parties have foreseen/reasonably foreseen.
 Consequential damages- loss of profits on account of
delay/failure of recovery.
 Penalty clause may be in any form which is determined/liquidated.
 Purpose
o Provide for liquidated damages
o Strengthen the coercive force of the obligation.
LESSON: IF THE PRINCIPAL OBLIGATION HAS BEEN COMPLIED WITH, THE

PENAL CLAUSE WILL LOSE ITS EFFICACY AND APPLICABILITY.
DIFFERENT KINDS OF OBLIGATIONS  SSS v. MOONWALK
Obligations with a Penal Clause o Penal clause is an accessory obligation for the purpose of insuring
performance.
1226. PENALTY AS A REPLACEMENT FOR DAMAGES/INTERES. o Imposes a special prestation (payment is sum of money) in case
In obligations with a penal clause, the penalty shall substitute the indemnity for obligation is not fulfilled.
damages and the payment of interests in case of noncompliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor PENALTY v. LIQUIDATED DAMAGES.
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
 Penalty- need a proof of loss
 Liquidated damages- payment may be made even without proof of loss.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code. (1152a)  In the Philippines, there is no difference between penalty and liquidated damages.
Only If there is no partial/irregular compliance.
PENAL CLAUSE o PENAL CLAUSE- Nature of penalty that does not regard the probable
 May only be enforced when it is demandable. (upon judicial/extrajudicial actual damages as a result of breach of contract.
demand)  Punitive
o Unless stipulation/law/nature of contract (time is of essence). o LIQUIDATED DAMAGES- Pre-determined amount of probable actual
damages calculated by the parties that might result from any breach.
 Penalties will replace damages/interest.
 Imposition of which bars any award for additional damages at
 CONTINENTAL CEMENT v. ASEA
large for the same breach. ; Compensatory.
o Court rejected any more claim for damages because the parties had
already stipulated a penalty clause.
 IT MUST BE GOVERNED BY THE STIPULATION OF THE PARTIES.
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LESSON: PROVISION ON LIQUIDATED DAMAGES OR PENALTY CLAUSE performance, the penalty may also be reduced by the courts if it is iniquitous or
MUST NOT BE APPLIED BEYOND THE IMPORT OF STIPULATION unconscionable. (1154a)
PROVIDING IT.
 BAYLEN CORP v. CA REDUCTION OF PENALTY
o If the provision/clause were applicable only to a situation where the  GENERAL RULE: Courts cannot create/nor amend contracts.
project was completed and delivered beyond the specific date of  Exception: If the penalty is unconscionable, the same may be tempered, reduced,
completion of delivery, it cannot be applied to an incomplete abandoned or even deleted.
project prior to the completion and delivery.  TOLOMEO v. CA
o Question of whether a penalty is reasonable/iniquitous can be partly
1227. PAYMENT OF PENALTY AS AN ACCESSORY OBLIGATION subjective and partly objective.
The debtor cannot exempt himself from the performance of the obligation by o Factors that may be considered:
paying the penalty, save in the case where this right has been expressly reserved  Type, extent, purpose of penalty, nature of obligation, mode of
for him. Neither can the creditor demand the fulfillment of the obligation and the breach and its consequences, supervening realities, standing and
satisfaction of the penalty at the same time, unless this right has been clearly relationship of parties.
granted him. However, if after the creditor has decided to require the fulfillment of o Dependent on the sound discretion of the court.
the obligation, the performance thereof should become impossible without his o Stipulated penalty may be deleted
fault, the penalty may be enforced. (1153a)  when there has been substantial performance in good faith.
 Penalty clause suffers from fatal infirmity
NO SUBSTITUTION  When exceptional circumstances so warrant.
 Debtor cannot merely substitute the performance of the principal obligation by  Penalty stipulation is not necessarily preclusive of interest. The
merely paying the penalty. two may be separately demanded.
o Parties may stipulate otherwise.  What may justify a court in not allowing the creditor to impose
 Creditor cannot demand fulfillment of obligation and penalty at the same time. full surcharges and penalties may not equally justify the non-
o Once obligation has been complied, the penal clause has lost its efficacy; payment/reduction of interest.
Parties may stipulate otherwise.  JISON v. CA
 Creditor demands fulfillment of an obligation that has become impossible, without o Liquidated damages, whether intended as an indemnity or a penalty, shall
his fault, the penalty may be enforced. be equitably reduced if they are iniquitous or unconscionable.
o If there is partial or irregular compliance, courts will strictly apply the
1228. PROOF OF ACTUAL DAMAGES. doctrine of strict construction and against the enforcement in its entirety
Proof of actual damages suffered by the creditor is not necessary in order that the of the indemnification.
penalty may be demanded. (n)  SPOUSES POON v. PRIME SAVINGS BANK
o GENERAL RULE: Courts have no power to ease the burden of
NO NEED FOR PROOF OF ACTUAL DAMAGES obligations voluntarily assumed by parties.
 Penalty is already liquidated and specified.  However, at stake in this case are not just the rights of the
 Debtor is obliged to pay the penalty if there is irregularity/no compliance with petitioners and liabilities of the lessee but also the interest of
the principal obligation regardless of whether/not the person seeking it suffers innocent debtors and creditors of a delinquent bank
damages. establishment.
 It is unjust to deprive depositors and creditors of what could
1229. REDUCTION OF PENALTY have been their last chance to recoup whatever assets they can
The judge shall equitably reduce the penalty when the principal obligation has still recover.
been partly or irregularly complied with by the debtor. Even if there has been no
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Strict adherence to the doctrine of freedom of contracts, at o Lessor’s heirs who inherit the leased property from deceased lessor
the expense of the rights of innocent creditors and investors, cannot set up the claim that the obligation to allow the property under the
will only work injustice rather than promote justice. lease contract in the possession of the lessee has been extinguished by the
 WILLIAM LOUH JR. v. BANK OF PHILIPPINE ISLANDS death of the lessor.
o 3. 5 % finance charge and 6% late payment charge monthly were o People v. Jose: Died pending appeal. Case was dismissed and he was
unconscionable. relieved of all personal and pecuniary penalties.
o Interest rate of 36% per annum is excessive and unconscionable.  Death of a party does not excuse non-performance
o Stipulated interest rates of 3% per month and higher are excessive, o Property right
iniquitous, unconscionable and exorbitant. o Property interest in the subject matter of the contract.
o Stipulation are invalid for being contrary to morals.
1230. NULLITY OF PENAL CLAUSE LIABILITY FOR CRIMES

The nullity of the penal clause does not carry with it that of the principal  Criminal- death extinguishes the obligation.
obligation.  Civil liability that does not solely not originally springs from the crime- civil
The nullity of the principal obligation carries with it that of the penal clause. liability shall persist despite the extinction of criminal liability.
(1155)  Torrijos v. CA: Accused was convicted of estafa. Criminal liability was
extinguished but civil liability did not arise from the crime itself but from
NULLITY OF PENAL CLAUSE deceitful acts which violated Arts 19-21. – Civil liability subsists.
 Penal clause is merely an accessory obligation so it does not invalidate the
principal obligation. WRITE-OFF DOES NOT MEAN EXTINGUISHMENT OF OBLIGATION.
 However, if it is the main obligation that it nullified, the penal clause will also be  Write-off – account is determined to be uncollectible and an uncollectible expense
nullified. is recorded in the books of account.
o When debt appears to be collectible, then the books will be adjusted to
reflect the amount to be collected as an asset.
EXTINGUISHMENT OF OBLIGATION
General Provisions EXTINGUISHMENT OF OBLIGATION
Payment or Performance
1231. EXTINGUISHMENT OF OBLIGATION
Obligations are extinguished: 1232. PAYMENT, IN GENERAL.
(1) By payment or performance: Payment means not only the delivery of money but also the performance, in any
(2) By the loss of the thing due: other manner, of an obligation. (n)
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor; PAYMENT
(5) By compensation;  Payment is not exclusively limited to the giving of money.
(6) By novation.  It also involves any manner of performing the obligation with an end view of
Other causes of extinguishment of obligations, such as annulment, rescission, extinguishing it.
fulfillment of a resolutory condition, and prescription, are governed elsewhere in  SOME PRESUMPTIONS
this Code. (1156a) o Receipt of principal by the creditor without reservation with respect to
interest shall give rise to the presumption that the INTEREST HAS
WAYS OF EXTINGUISHING AN OBLIGATION. BEEN PAID.
 Death of a party does not extinguish the obligation unless such is personal in
nature/in transmissible.
39
o Receipt of a later installment, without reservation as to prior installment  1235- Acceptance despite irregularity/incompleteness.
shall give rise to the PRESUMPTION THAT SUCH  COMPLETE DELIVERY must comprise everything necessary to satisfy
INSTALLMENTS HAVE BEEN PAID.  DETERMINATE THING- accessions and accessories even though not
 Presumptions can be rebutted by evidence. mentioned.
o Burden of proof is on the obligor.  Payment of loan with stipulated interest- payment of interest and principal.
o BIALA v. CA
 Promissory notes in the hands of creditor are proofs of BREACH OF OBLIGATION
indebtedness rather than proof of payment.  Anything less than a complete performance of obligation.
o ROYAL CARGO CORP v. DFS SPORTS UNLIMITED.  PNB v. CA
 The one who pleads payment has the burden of proving it. o PNB paid to an alleged attorney-in-fact
 RECEIPT v. INVOICE o No proof that such were the representative of creditor.
 Receipt: written acknowledgement of the fact of o PAYMENT HAS NO EFFECT.
payment  DESAMPARADOS v. INTERSTATE ESTATE OF VILLALBA
 Invoice- itemized list of goods and serices. o Nonpayment is a resolutory condition that extinguishes the transaction
 Respondent’s main evidence is 28 original copies of invoices. existing for a time and discharges the obligations created thereunder.
 INVOICE MAY NOT BE CONSIDERED AS AN o REMEDY: Sue for collection/ substantial breach- rescission.
EVIDENCE OF PAYMENT. o Rescission of immovable
 Words paid and audited were stamped by the respondents.  The vendee may pay, even after the expiration of the period, as
 Failure of the respondent to present supporting evidence: ORs long as THERE IS NO JUDICIAL/EXTRAJUDICIAL
and testimony of employees. DEMAND; NOTARIAL ACT.
o GO TONG v. BPI
 One who pleads payment has the burden of proof. 1234. EXCEPTION: SUBSTANTIAL COMPLIANCE
 When the creditor is on possession of the document of credit,
proof of non-payment is not needed for it is presumed. If the obligation has been substantially performed in good faith, the obligor may
o MULTI INTERNATIONAL v. MARTINEZ recover as though there had been a strict and complete fulfillment, less damages
 A receipt of payment is the best evidence of the fact of payment. suffered by the obligee. (n)
o AURELIO ALONZO v. JAIME AND PERLITA SAN JUAN
 RECEIPT v. VOUCHER SUBSTANTIAL COMPLIANCE
 Receipt- acknowledgement of delivery of money  It is not a complete performance.
 Voucher- documentary record of business transactions.  Substantial compliance warrant a reduction of damages.
 Reference to alleged check payments in vouchers do  BREACH MUST BE INESSENTIAL.
not vest with them the character of receipt. o It must not be material enough to compel rescission of contract.
 DOCTRINE OF SUBSTANTIAL COMPLIANCE
1233. FULL SATISFACTION OF DEBT o Part unperformed must not destroy the value or purpose of the contract.
A debt shall not be understood to have been paid unless the thing or service in o It must be done in good faith.
which the obligation consists has been completely delivered or rendered, as the  Willful, but not maliciously done.
case may be. (1157)
 Honest misapprehension of instruction.
 Inadvertent mix-up in details.
PAYMENT
o STANDARD: Whether the behavior of the party in default comports
 Payment contemplates FULL SATISFACTION of the obligation.
with standards of good faith and fair dealing.
o EXCEPTION
 PAGSIBIGAN v. CA
 1234- substantial compliance in good faith.
40
o Creditor had already paid more than the original amount of the loan. LESSON: OBJECTION/PROTEST NEED NOT BE CONCURRENT WITH THE
o There was substantial compliance to warrant the cancellation and release RECEIPT OF IRREGULAR PAYMENT.
of mortgage. SELEGNA MANAGEMENT v. UNITED COCONUT BANK
o Obligor can still recover as though there had been a strict and complete  Debtor failed to pay on maturity date giving the creditor a right to foreclose on the
fulfillment. property.
 Creditor was still required to pay some penalties.  Debtor made a partial payment.
o Defaulting party will be allowed to recover the contract price less the  ACCEPTANCE MUST BE MADE UNDER CIRCUMSTANCES THAT
cost of correction of the defects of the unfinished work. INDICATE THEIR INTENTION TO CONSIDER THE PERFORMANCE
 J.M TUASON v. JAVIER COMPLETE AND TO RENOUNCE THEIR CLAIM ARISING FROM THE
o An extension of time to pay was granted. DEFECT.
o Defendant religiously satisfied the monthly installments for a period of
almost 8 months. TAYAG v. CA
 Seller accepted payments in installment after due date and posterior to the grace
1235. EXCEPTION: ACCEPTANCE OF IRREGULAR/INCOMPLETE period without any protest to the delayed payments.
PERFORMANCE.  Constitute a waiver of right.
When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is LESSON: IF A PARTY FAILS TO INTERPOSE ANY OBJECTION TO THE
deemed fully complied with. (n) ENTRIES OR CONDITIONS IN AN INVOICE, SUCH FAILURE CAN BE
CONSIDERED AS IMPLIED ACCEPTANCE AND THEREFORE HE WILL BE
LIABLE TO PAY THE AMOUNT STATED THEREIN.
MANILA INTERNATIONAL v. AVIA PILIPINAS
WAIVER OF DAMAGES  Original contract of lease: rental of 6,580.
 1235 contemplates the waiver of damages arising from the breach which resulted  After termination of lease, lessee continued to stay in the premises paying the
in incompleteness/irregularity of the obligation. same amount.
 NO PROTEST/OBJECTION- Obligee accepts the performance as fully  SC rejected the claim of MIAA that respondent should be held liable for the
complied with. difference due to the price of rental without prior billing.
 CONSTANTE AMOR DE CASTRO v. CA o Petitioner kept on receiving the original rental fee without any
o 1235 does not apply to mere receipt of payment without waivering the reservation/protest from the latter.
balance that is due.
o THERE MUST BE A SHOWING THAT WAS ACCEPTANCE TO MANILA INTERNATIONAL v. DING VELAYO
EXTINGUISH THE OBLIGATION.  Lessor refused to comply with the option of the lessee to renew the lease on the
 ESGUERRA v. VILLANUEVA ground that the lessee breached certain provision in the contract
o Debtor claims that because the creditor accepted his partial payments,  Contract of lease stipulated that the respondent should build certain improvements
such acceptance is tantamount to extinguishment of obligation. such as parking, shopping mall and sports facilities.
o SC: No acceptance of incomplete/irregular performance  SC: Belated insistent on compliance with the said provision is a mere
 Accept means satisfactorily/sufficient/ to agree to an afterthought.
irregular/incomplete performance. o Respondent was required to submit for prior approval of petitioner all
 The following day, petitioners asked a judge to issue writs of construction plans on the subject property and to complete them within a
execution. – implied objection. year.
 Objection/refusal need not be done in a particular manner and o No protest/objection on the alleged incompleteness/irregularity.
time.
1236. PAYMENT OF THIRD PERSONS
41
The creditor is not bound to accept payment or performance by a third person who allowed in the contract with amount he paid to the compel the
has no interest in the fulfillment of the obligation, unless there is a stipulation to debtor creditor. creditor to transfer
the contrary. mortgage/guarant
y
Whoever pays for another may demand from the debtor what he has paid, except /penalty.
that if he paid without the knowledge or against the will of the debtor, he can 3rd person paid without Payment will be
recover only insofar as the payment has been beneficial to the debtor. (1158a) intending to be reimbursed considered as a donation
that needs debtor’s
1237. LEGAL SUBROGATION consent.
Whoever pays on behalf of the debtor without the knowledge or against the will of
the latter, cannot compel the creditor to subrogate him in his rights, such as those LEGAL SUBROGATION
arising from a mortgage, guaranty, or penalty. (1159a)  Transfer to the person subrogated the credit with all the rights pertaining thereto,
appertaining, either against the debtor or against 3rd persons, be they guarantors,
1238. REIMBURSEMENT AND DONATION possessors of mortgages.
Payment made by a third person who does not intend to be reimbursed by the * WITHOUT KNOWLEDGE/AGAINST THE WILL
debtor is deemed to be a donation, which requires the debtor's consent. But the  What is beneficial to the debtor can only be invoked by such debtor and not the
payment is in any case valid as to the creditor who has accepted it. (n) creditor.
 It is determined by law and not by the will of debtor.
 Beneficial effect must be determined at the time the payment was made.
PAYMENT BY THIRD PERSON ** INTERESTED THIRD PARTIES
 Payment by a third person, whether in good faith or bad faith, and accepted by  If the 3rd person who paid is the guarantor, surety, co-debtor, legal subrogation is
creditor can extinguish an obligation/indebtedness. presumed and they have the right to accessory obligations.
 WHETHER THE ONE WHO PAID COMPLETELY ACQUIRES THE REIMBURSEMENT
RIGHT OF THE CREDITOR AS AGAINST THE DEBTOR DEPENDS ON GEORGIA OSMENA-JALANDONI v. ENCOMENDIA
THE KNOWLEDGE/CONSENT OF THE LATTER.  Utilities and other expenses were paid by Encomendia.
 Jalandoni refused to reimburse asserting that she has no loan from her.
KNOWLEDGE CONSEN RELATIONSHIP SUBROGATION
 SC: Required Jalandoni to pay.
T
o She still benefited from the purportedly unauthorized payments.
Without Against the Recover to the extent the No subrogation
o When she learned about the payments, she did nothing to express or
knowledge will debtor has benefited. * except when 3rd
objection/repudiation of the same.
party is interested.
o She still used the financial assistance and actually made use of it.
**
With knowledge Against the Recover to the extent the No subrogation o In loans between friends and relatives, absence of acknowledgement or
will debtor has benefited. * receipts or promissory notes is natural.
With knowledge With 3rd person may collect the 3rd person can o There can be verbal loan.
consent amount he paid to the compel the o A simple loan exists when a person receives a loan of money and
creditor. creditor to transfer acquires its ownership.
mortgage/guarant o PRINCIPLE OF UNJUST ENRICHMENT. (Art. 22)- No duty to pay
y and no right to receive it.
/penalty.  Person is unjustly benefited
Creditor accepts since it is 3rd person may collect the 3rd person can  Benefit is derived at the expense with damages to another.
42
 Any person authorized to receive it.
LESSON: PAYMENT TO NON-PARTY o Authorized by creditor
TANGUILIG v. CA o Authorized by law (guardian, executor, administrator, assignee or
 Respondent was sued for non-payment of the windmill the latter has constructed liquidator of partnership)
for the former.
 Respondent claimed that he made the payment to another contractor who built the LESSON: PAYMENT MUST BE PAID TO THE PROPER PERSON.
deep-well. SPOUSES DE LA CRUZ v. CONCEPCION
 SC: Only contract existed between petitioner and respondent was the  When payment is made to the wrong party, obligation will not be extinguished
construction of a windmill. regardless of mistake/good faith.
o Any payment for the deep-well is ineffective.  Househelper was authorized to receive payment.
o Losloso’s authority was embodied in the letter of the petitioner.
LESSON: DONATION AS SIMPLE ACT OF LIBERALITY.
VICTORIA MOREO-LENTFER v. HANS JERGENS WOLF PANGANIBAN v. CUEVAS
 Beach house was fraudulently sold to the petitioner.  Payment made to the wrong person, even in good faith shall not extinguish the
 Said house was actually already sold to respondents who paid the price. obligation and shall not deprive the creditor to demand payment.
 Respondents act contradict any intention to donate the properties to petitioner. o Any loss shall be borne by the deceived debtor.
o Unless there is stipulation for the wrongful payment.
1239. INVALID PAYMENTS BPI v. CA

In obligations to give, payment made by one who does not have the free disposal  The bank, despite having knowledge of a dispute involving the subject deposit
of the thing due and capacity to alienate it shall not be valid, without prejudice to nevertheless allowed the withdrawal of the same by the heirs of the deceased.
the provisions of Article 1427 under the Title on "Natural Obligations." (1160a)  Said heirs has judicial resolution allowing such withdrawal however there is no
order to the bank to release the money.
INVALID PAYMENT  SC: Relationship between bank and depositor was one of creditor and debtor.
 As a general rule, the owner is the one who has the free disposal of thing due o Any withdrawal by depositor was in effect payment of debt by the bank.
and has the capacity to alienate it. o Payment of BPI to heirs of Velasco did not extinguish its obligation with
 Considered repealed due to 18 being age of emancipation. the true depositor, Eastern.
 It shall only apply to 17 years and below.
o Cannot alienate property without consent of court and parents. 1241. PAYMENT TO THIRD/ INCAPACITATED PERSON
o No right to recover from the creditor who has spent/consumed it in good Payment to a person who is incapacitated to administer his property shall be valid
faith. if he has kept the thing delivered, or insofar as the payment has been beneficial to
him.
1240. PERSONS WHO CAN RECEIVE PAYMENT
Payment shall be made to the person in whose favor the obligation has been Payment made to a third person shall also be valid insofar as it has redounded to
constituted, or his successor in interest, or any person authorized to receive it. the benefit of the creditor. Such benefit to the creditor need not be proved in the
(1162a) following cases:
(1) If after the payment, the third person acquires the creditor's rights;
PERSON WHO CAN RECEIVE PAYMENT (2) If the creditor ratifies the payment to the third person;
 Creditor/oblige (3) If by the creditor's conduct, the debtor has been led to believe that the
 Successors-in-interest third person had authority to receive the payment. (1163a)
43
Payment made in good faith to any person in possession of the credit shall release
PAYMENT MADE TO MINOR/INSANE. the debtor. (1164)
 There must be guardian appointed by the courts to handle his affairs.
 Father and mother as legal guardian of unemancipated child without need of court PAYMENT IN GOOD FAITH
appointment.  A person in possession of the credit is presumed to own the credit.
 Capacitated person in good faith is at disadvantage because capacitated person  A debtor who pays such person in good faith shall be released from debt.
cannot ask for annulment of contract and in case of annulment, the incapacitated  Regardless of how the 3rd person possessed the credit.
person is not obliged to make restitution except to the extent he has benefited.  NATIONAL POWER CORP v. LUCMAN IBRAHIM
o Basis of final judgment, the NPC paid the winners of that final judgment
GENERAL RULE: Payment made directly is VOIDABLE. It should be made to his and not the alleged true owner.
guardians o Payment was made to a person in possession of a credit
 EXCEPT o Debtor pays a possessor of credit, who is not the real creditor but
 When he has kept the thing delivered appears, under the circumstances, as the real creditor.
o By time he reaches age of majority, he still has the thing.
 Payment is beneficial to him 1243. PAYMENT MADE DESPITE JUDICIAL ORDER TO RETAIN
o Payment was used for his school tuition fees. Payment made to the creditor by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid. (1165)
PAYMENT TO UNAUTHORIZED 3RD PERSON, STILL BENEFICIAL
 If payment was made to an unauthorized third person and the same still benefited 1244. CREDITOR’S CHOICE
the creditor, such payment will be effective. The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value as, or more valuable than that which
PROOF OF PAYMENT is due.
GENERAL RULE: Benefit to the creditor must always be proven In obligations to do or not to do, an act or forbearance cannot be substituted by
 EXCEPT another act or forbearance against the obligee's will. (1166a)
o After the payment, a third person acquires the creditor’s right.
 A is indebted to B for 1000. ALTERNATIVE/FACULTATIVE CONDITION
 A does not pay despite proper demand.  Debtor has no choice in the payment of the obligation
 A pays X (3rd person) the principal amount- not effective.  If the obligation was to give a particular jeep, he cannot give a car even though the
 IF THERE IS CONCRETE PROOF latter is more expensive.
 Interest has not yet been paid
 B (creditor) empowers X to also collect the interest for 1245. DACION EN PAGO
himself (X) and not for B. Dation in payment, whereby property is alienated to the creditor in satisfaction of
 If a pays interest to X, the totality of the obligation will be a debt in money, shall be governed by the law of sales. (n)
extinguished.
o When the creditor ratifies the payment DACION EN PAGO/DATION IN PAYMENT.
 B after learning that payment was made to X approves of the  Transmission of ownership of a thing by the debtor to creditor as an accepted
same. equivalent of the performance of the obligation.
o By the creditor’s conduct, the debtor has been led to believe that the 3rd  Partakes a nature of sale whereby property is alienated to the creditor in
person has the authority to receive the payment. satisfaction of a debt in money.
 Objective novation of the obligation.
1242. PAYMENT TO THE ONE WHO HAS THE CREDIT  Common consent of the parties is required.
44
 Elements of a contract must be present: consent, object certain,  Pactum commisorium
cause/consideration. o Parties agree in one contract that in the event that the debtor fails the
 PNB v. PINEDA debt, the mortgaged/pledged property shall automatically be appropriated
o Mere repossession of the machinery and equipment for purposes of or owned by creditor.
securing payment of an obligation and not for the purpose of transferring o VOID
ownership is not dation in payment. o ELEMENTS
 REQUISITES  Creditor-debtor relationship between parties
o Performance of the prestation in lieu of payment (animo solvendi)  Property of debtor was used as security for the loan
o Some difference between the prestation due and that which is given in  There was automatic appropriation of the property upon failure
substitution (aliud pro-alio) to pay.
o Agreement between debtor and creditor that the obligation is already  BUSTAMANTE v. ROSEL
extinguished by reason of such performance. o Creditor and debtor entered into a loan agreement where it was stipulated
 CALTEX v. IAC that in event of default of debtor, the creditor has the option to buy the
o Debtor assigned to its creditor receivables of refunds from Special Fund collateral for a total consideration of 200,000.
Import Payments due from the National Treasury to be applied as o Intent of creditor is evident: debtor to be obliged to dispose of the
payment in amount of 4,072,683. collateral.
o Amount received by the creditor was more than that.  SPOUSES ENCARNACION v. EAST WEST BANKING CORP
o SC: IAC failed to consider subsequent acts which would show that there o Deed of assignment, transferred certain movable properties which
was no dacio en pago. assignee-creditor expressly acknowledged as “full payment” of the
 Dation in payment extinguishes the obligation to the extent of indebtedness.
the value of the thing delivered o SC: Pactum commisorium-VOID.
a. Express/implied agreement 1246. DELIVERY OF INDETERMINATE/GENERIC THING
b. Silence. When the obligation consists in the delivery of an indeterminate or generic thing,
 In order to judge the intention of the parties, their whose quality and circumstances have not been stated, the creditor cannot demand
contemporaneous and subsequent acts shall be principally a thing of superior quality. Neither can the debtor deliver a thing of inferior
considered. quality. The purpose of the obligation and other circumstances shall be taken into
 SPOUSES ENCARNACION v. EAST WEST BANKING CORP consideration. (1167a)
o Deed of assignment, transferred certain movable properties which
assignee-creditor expressly acknowledged as “full payment” of the DELIVERY OF INDETERMINATE/GENERIC THING.
indebtedness.  Obligations must be complied in good faith and any act which tends to implement
o SC: Nature of payment is dacion en pago. an obligation in a manner not consistent with its goals or purposes should always
 The offer must be certain and the acceptance absolute. be discouraged.
 Acceptance must be made known to the offeror.  Obligor, who is not rich, is bound to deliver a car to be used at a very simple
wedding, and the obligee knows the financial capability of the obligor and
DACION EN PAGO v. PACTUM COMMISORIUM likewise demand a multi-million car- INVALID DEMAND.
 Dacion en pago o However, the obligor cannot deliver a car which is so old it would not
o Before creditor becomes the owner of the collaterized property, an start unless it is pushed.
intervening agreement subsequent and independent fom the original
contract is entered into by the parties to have the property collaterized in 1247. FULL UTILIZATION OF BENEFIT.
the original agreement as payment of the debt, thereby extinguishing the Unless it is otherwise stipulated, the extrajudicial expenses required by the
obligation. payment shall be for the account of the debtor. With regard to judicial costs, the
Rules of Court shall govern. (1168a)
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The delivery of promissory notes payable to order, or bills of exchange or other
CREDITOR’S BENEFIT mercantile documents shall produce the effect of payment only when they have
 Creditor usually benefits from the obligation. been cashed, or when through the fault of the creditor they have been impaired.
 He must fully take the benefit by not spending in the extrajudicial expenses for the
payment/performance of the obligation. In the meantime, the action derived from the original obligation shall be held in
the abeyance. (1170)
1248. PARTIAL PERFROMANCE
Unless there is an express stipulation to that effect, the creditor cannot be MODE OF PAYMENT
compelled partially to receive the prestations in which the obligation consists.  Parties may agree that the obligation or transaction be settled in other currency at
Neither may the debtor be required to make partial payments. the time of payment.
 Promissory note
However, when the debt is in part liquidated and in part unliquidated, the creditor o Document where a promise to pay is made by the debtor to the creditor.
may demand and the debtor may effect the payment of the former without waiting o It is an unconditional promise in writing signed by the maker engaging to
for the liquidation of the latter. (1169a) pay on demand/fixed or determinable future time, a sum certain in money
to order or bearer.
 Bill of exchange
PARTIAL SATISFACTION OF OBLIGATION o Unconditional order in writing addressed by one person to another,
 What was prohibited is compulsory acceptance; not acceptance. signed by the person giving it requiring the former to pay on demand.
 NASSER v. CUEVAS  Check
o Compromise agreement wherein number of obligors agreed to pay a o Bill of exchange drawn on a bank payable on demand.
lawyer his legal fees by way of real property and cash. o Stale check- If it has not been presented to the bank for a period of 6
o Charging lien would be established on the property to secure payment. months from the date of the check.
o Obligors contended that this gave them a right to pay in installments.  Does not result automatically to extinguishment of obligation.
o SC: Nowhere in the said stipulation that expressly grants them nor by o It is only when the creditor does not present the check for payment
implication the option to pay in installments. and thereafter the bank upon which the check has been drawn
collapses/fails to the point that it cannot meet demands for payment.
PARTIAL PAYMENT ALLOWED. o If drawer had NO FUNDS/WITHDRAWN THE FUNDS, he will still
 If there is express stipulation (law/agreement) be liable.
 Debt is partially liquidated and partially unliquidated.
o Deliver 1000 and whatever money he may get from his deceased father’s  LAW IS CLEAR THAT ONLY PAYMENT IN CASH WILL EXTINGUISH
estate. THE OBLIGATION.
 BARONS MARKETING v. CA o If promissory note, bills of exchange, checks are given, obligation will
o Creditor cannot be considered in delay if he refuses to accept partial not be extinguished unless the same is ENCASHED.
performance unless good faith necessitates acceptance of it the creditor  FAR EAST BANK v. DIAZ REALTY
abuses his right in accepting. o If payment by way of fully-funded check were offered/tendered and the
obligee accepts the check as payment after the obligor’s manifestation
1249. CURRENCY/SECURITY that it had been given to settle the application, such obligee is
The payment of debts in money shall be made in the currency stipulated, and if it ESTOPPED from denouncing the efficacy of such tender of payment.
is not possible to deliver such currency, then in the currency which is legal tender
in the Philippines. 1250. EXTRAORDINATY INFLATION/DEFLATION
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the
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obligation shall be the basis of payment, unless there is an agreement to the  Parties may agree as to where the payment shall be made.
contrary. (n)  In absence of stipulation/agreement
o Where the thing is located at the time of the constitution of the
EXTRAORDINARY INFLATION obligation.
 Decrease/increase in the purchasing power of the Philippines which is unusual, o Any other case, domicile of the debtor.
beyond the common fluctuation in the value of said currency.
 Additional expenses may be charged to the debtor is he changes
 It was not foreseen or manifestly beyond the contemplation of the parties. his domicile in bad faith and if the change was made in order
 EFFECT OF THE SAME IS NEVER ASSUMED. that the creditor not to locate him/after he incurred delay.
o Party alleging it must lay down the factual foundation.
o Needs official declaration from competent authorities.
 VELASCO v. MANILA ELECTRIC CO
o Appellant was claiming that the amount of damages awarded to him was
inadequate because of the present high cost of living.
o SC: 1250 is inapplicable to the obligations arising from tort and not
from contract.
 COMMISSIONER OF PUBLIC HIGHWAY v. BURGOS PAYMENT OR PERFORMANCE
o 1250 is also not applicable to expropriations made by the government in Application of Payments
its exercise of power of eminent domain.
VALUE OF CURRENCY
1252. APPLICATION OF PAYMENTS
 Purchasing power of the currency.
 Par value/legal exchange rate/par of exchange. He who has various debts of the same kind in favor of one and the same creditor,
 Amount it takes on currency to buy a unit in another currency. may declare at the time of making the payment, to which of them the same must
 TELENGTAN v. US LINES be applied. Unless the parties so stipulate, or when the application of payment is
o Controlling is the value of peso at the time of establishment of the made by the party for whose benefit the term has been constituted, application
obligation. shall not be made as to debts which are not yet due.
1251. VENUE OF PAYMENT If the debtor accepts from the creditor a receipt in which an application of the
Payment shall be made in the place designated in the obligation. payment is made, the former cannot complain of the same, unless there is a cause
for invalidating the contract. (1172a)
There being no express stipulation and if the undertaking is to deliver a APPLICATION OF PAYMENTS
determinate thing, the payment shall be made wherever the thing might be at the  1252-1254 applies to a person owing several debts of the same kind to a single
moment the obligation was constituted. creditor.
 DEBTOR’S CHOICE: Which debt should the payment be applied.
In any other case the place of payment shall be the domicile of the debtor.
 There must be a declaration.
 Subject to rules from 1232-1251
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
o Creditor can validly refuse such declaration if it is to be applied to a debt
additional expenses shall be borne by him.
which will only partially pay the particular indebtedness.
These provisions are without prejudice to venue under the Rules of Court. (1171a)  IT CANNOT BE MADE ON DEBTS WHICH ARE NOT YET DUE.
o Unless the parties agree or when the application of payment is made by
VENUE OF PAYMENT the party for whose benefit the term has been constituted.
 Example
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o A owes B in the amount of 1K, 2K, 900.  Petitioner then asked if he could pay the balance in daily installments until second
 If paid before January 2: no interest. (benefit of debtor) loan is paid.
 If paid on February 2: with interest (benefit of creditor)  As of September 1994, petitioner had already paid an amount greater than the
o If A pays before January 2, the choice of payment belongs to him and he principal.
can choose from his debts to which the payment may be applied to, even  Respondent still filed a judicial foreclosure of mortgage.
if the debt is not yet due.  SC: ARTS 1176 AND 1253 FULLY SUPPORTS EACH OTHER.
 If debtor accepts from creditor a receipt in which an application of payment o Undisputed facts
is made, the former cannot complain of the same, unless there is a cause for  Petitioner failed to pay the full amount of loan upon maturity
invalidating the contract.  Second loan was subject to interest and in case of delay, to
o If B pays without declaration as to which debt it should apply and A penalty.
issues a receipt that such payment will be applied to the 1000 debt, and o 1176- GENERAL < 1253 – SPECIFIC.
the latter accepts it, then he is also estopped from assailing the said  1176- questions pertaining to effects an nature of obligation
application.  1253- application of payment and extinguishment of obligation.
 Right of debtor to apply payment is not mandatory  Resolves doubt on interest-bearing debts. (hierarchy- payment
o “may”- merely directory. received is payment for principal/interest).
o If debtor does not exercise such right, it will pass to the creditor who will a. Interest
make such application as he chooses. b. Principal
 If neither party has exercised its option, the COURT will apply payment.  APPLICATION OF 1253
 IT IS NOT APPLICABLE TO A SITUATION WHERE EACH SOLIDARY o Debt produces interest. (payment of interest is expressly stipulated)
DEBT IS IMPUTABLE TO SEVERAL DEBTORS. o Principal remains unpaid.
o Exception: 1176 om which the creditor waives payment of interest.
1253. INTEREST  SINCE THE DOUBT IN PRESENT CASE PERTAINS TO APPLICATION
OF DAILY PAYMENTS, 1253 SHALL APPLY.
If the debt produces interest, payment of the principal shall not be deemed to o Only when there is a waiver that 1176 becomes relevant.
have been made until the interests have been covered. (1173)
 No waiver of interest.
PAYMENT OF INTEREST  Interest of default arises because of non-performance by the
 Merely directory and not mandatory. debtor.
 Payment of both the principal and interest constitute two payments by the debtor.  No proof that respondent accepted the payment of principal.
 No presumption of waiver if no evidence that the respondent
APPLICATION OF 1176 AND 1253 accepted the daily installments as payments for the principal.
NUNELEON MARQUEZ v. ELISAN CREDIT CORPORATION  RIGHT TO PAYMENT TO THE INTEREST FIRST MAY BE WAIVED.
 Petitioner obtained a first loan from respondent, payable in 180 days. o It is the duty of the creditor to inform the debtor of the amount of interest
 Petitioner then signed a promissory note which provided that it is payable in that falls due and that he is applying the installment payments to cover
weekly installments and subject to 26% annual interest. said interest.
 To further secure payment, petitioner has executed a chattel mortgage over a
motor vehicle. NATURE OF PROVISION
 Both parties acknowledged the full payment of first loan.  OBLIGATORY FOR DEBTOR
o Creditor can oppose an application of payment made by the debtor
 Petitioner then obtained another loan (second loan) evidenced by a promissory
note and cash voucher. contrary to this rule.
 Promissory note contains the same terms and conditions.  DISCRETIONARY FOR CREDITOR
o Creditor can choose where to apply.
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o Issued receipts as capital repayment if the obligation to pay was still CESSION
subsisting.  Another way of extinguishing a debt,
o He has the power to apply PMT to principal rather to interest.  Presupposes financial difficulties on the part of the debtor
o OPTIONS TO CHOOSE  Refers to a situation where the debtor owes two or more creditors.
 Choose to apply the payment TO INTEREST.  All properties of debtor which are susceptible of an not exempted from being
 Apply principal plus waiver of right to INTEREST. (1176, no alienated (family home)
reservation).  The creditors must agree to the cession.
 Applying just 1253: creditor can still apply it to the principal by  They must also agree to which debt will be paid first/proportion.
making a reservation that he will still collect the interest. o No agreement, preference of credit will apply.
 One cession is made, the obligation of the debtor is extinguished up to the extent
MAGDALENA v. RODRIGUEZ that the proceeds are able to satisfy the claims of creditors.
 Surety bound himself solidary liable to the extent of 5000.  In case of deficiency, creditors can still demand payment for such.
 Creditor still claimed interest from the debtor.
 SC: Interest may be claimed from the debtor.
o Liability of the surety does not extend beyond the terms of agreement. YULIM INTERNATIONAL v. INTERNATIONAL EXCHANGE BANK
1254. MOST ONEROUS DEBT.  Debtor and creditor signed a Deed of Assignment providing that once the condo
unit was named in the name of debtor, the deed of real estate mortgage shall be
When the payment cannot be applied in accordance with the preceding rules, or if
executed to secure the debt.
application can not be inferred from other circumstances, the debt which is most
 SC: NO CESSION. Deed of assignment did not involve two or more creditors
onerous to the debtor, among those due, shall be deemed to have been satisfied.
and all properties of the debtor.
If the debts due are of the same nature and burden, the payment shall be applied to
all of them proportionately. (1174a)
APPLICATION TO THE MOST ONEROUS DEBT. PAYMENT OR PERFORMANCE
 Most onerous- indebtedness that exacts the heavier burden from among many. Tender of Payment and Consignation
 Debt with interest > simple debt
 Debt with acceleration clause> debt payable in installment w/o acceleration clause.
 Debt secured by mortgage> debt not secured. 1256. CONSIGNATION
APPLICATION TO DEBTS DUE WITH THE SAME NATURE AND BURDEN If the creditor to whom tender of payment has been made refuses without just
 Payment shall be applied proportionately. cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due.
PAYMENT OR PERFORMANCE Consignation alone shall produce the same effect in the following cases:
Payment by Cession (1) When the creditor is absent or unknown, or does not appear at the place of
1255. CESSION payment;
The debtor may cede or assign his property to his creditors in payment of his (2) When he is incapacitated to receive the payment at the time it is due;
debts. This cession, unless there is stipulation to the contrary, shall only release
the debtor from responsibility for the net proceeds of the thing assigned. The (3) When, without just cause, he refuses to give a receipt;
agreements which, on the effect of the cession, are made between the debtor and
his creditors shall be governed by special laws. (1175a) (4) When two or more persons claim the same right to collect;
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(5) When the title of the obligation has been lost. (1176a)  REQUISITES
o There was a debt due
1257.
o Consignation was made because the creditor refused to accept
In order that the consignation of the thing due may release the obligor, it must payment/was absent/incapacitated/several person claim to be entitled to
first be announced to the persons interested in the fulfillment of the obligation. the same amount.
o Previous notice of consignation was given
The consignation shall be ineffectual if it is not made strictly in consonance with o Amount due was placed at the disposal of the court
the provisions which regulate payment. (1177) o After consignation, the person interested was notified thereof.
1258.  Absence of any requisite will render the consignation ineffective.
Consignation shall be made by depositing the things due at the disposal of judicial TENDER OF PAYMENT v. CONSIGNATION
authority, before whom the tender of payment shall be proved, in a proper case,  Tender of payment- antecedent of consignation.
and the announcement of the consignation in other cases. o Act preparatory to consignation.
o May be extrajudicial.
The consignation having been made, the interested parties shall also be notified
thereof. (1178)  Consignation
o Necessarily judicial.
VALID TENDER OF PAYMENT
 Mere sending of letter expressing intention to pay, without payment, is not a valid IMPORTANCE OF GIVING FIRST AND SECOND NOTICE
tender of payment.  1st notice: reconsider unjust refusal/accept payment to avoid consignation and
 Mere tender of payment is not sufficient to compel private respondents to deliver subsequent litigation.
the property and execute the deed of sale.  2nd notice: Enable the creditor to withdraw the goods or money deposited.
o Consignation which is essential to extinguish petitioner’s obligation to
pay. PNB v. LILIBETH CHAN
 Need fusion of intent, ability and capability to make a good offer.  PNB merely opened a non-drawing savings account
o One who accepts a fully-funded check is estopped from denouncing  SC: no consignation:
such. o Consignation is essentially judicial
JAIME BIANA v. GEORGE JIMENEZ
 Significance of tender of check DE MESA v. CA
 Tender of check is sufficient to compel redemption but it is not payment that  Debtor filed a motion to allow to just consign all future quarterly installments
relieves redemptioner from liability to pay. without need of formal tender of payment and service of notices who was duly
VDA DE QUIRINO v. PALARCA notified of such motion.
 Consignation cannot apply to a right of option because it only applies to an  Granting of motion can be considered as substantial compliance with the
obligation to pay. requirement of notice.
BADAYOS v. CA
 In the exercise of right of redemption, consignation is not necessary for the reason INSTANCES WHERE CONSIGNATION ALONE SHALL PRODUCE THE SAME
that the nature of relationship is not of a creditor-debtor. EFFECT
1. Creditor is absent/unknown/does not appear at place of payment
CONSIGNATION 2. Creditor is incapacitated to receive the payment at the time it is due.
 Act of depositing the thing due with the court or with judicial authorities 3. Without just cause, the creditor refuses to give a receipt.
whenever the creditor cannot accept or refuses to accept payment. 4. When two or more persons claim the same right to collect.
 Requires prior tender of payment. 5. Title of obligation has been lost.
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o SC: VALID WITHDRAWAL.
 The depositor has the right to withdraw the amount deposited at
1259. EXPENSES OF CONSIGNATION any time before the creditor accepts it.
 Creditor may accept the consignation unconditionally or with reservations.
The expenses of consignation, when properly made, shall be charged against the
o RIESENBECK v. CA
creditor. (1178)
 Creditor accepted the consigned amount with reservation of his
CREDITOR’S RESPONSIBILITY right to claim the balance.
 The creditor shall be responsible for the expenses of consignation for it is because  Reservation is valid and did not extinguished the obligation.
of his failure to accept payment that lead to consignation.  No reservations, the creditor is waiving his other claims under the contract.
 MIRANDA v. REYES
o Debtor tendered payment of the price for redeeming the property to the
creditor-defendant.
o Creditor immediately accepted the tender and sent his letter of 1261. CREDITOR’S DUTY TO OBTAIN THE CONSIGNED THING.
acceptance by mail.
o Obligee filed a case for consignation. If, the consignation having been made, the creditor should authorize the debtor to
o SC: There was valid consignation. Letter of acceptance was not withdraw the same, he shall lose every preference which he may have over the
thing. The co-debtors, guarantors and sureties shall be released. (1181a)
received by the debtors and they did the most prudent thing by filing thr
action and depositing the redemption money in court. INCUMBENT UPON THE CREDITOR TO OBTAIN FROM THE COURT MONEY
THAT HAS BEEN DEPOSITED.
1260. EFFECT OF CONSIGNATION
 Extinguishment of obligation + withdrawal of debtor with creditor’s consent =
Once the consignation has been duly made, the debtor may ask the judge to order creditor can obtain nothing from the court; revive the indebtedness.
the cancellation of the obligation.  Because of consent to withdraw, the creditor shall lose preference to the thing
Before the creditor has accepted the consignation, or before a judicial declaration previously deposited.
that the consignation has been properly made, the debtor may withdraw the thing o Anyone who has an interest in it can go after it.
or the sum deposited, allowing the obligation to remain in force. (1180)  Solidary debtors, guarantors or sureties shall be released from the extinguishment
of obligation and the debtor cannot unilaterally revive the obligation without their
EFFECT OF CONSIGNATION consent.
 Once there is already a finding that the consignation is proper, the debtor should
be released from the obligation
 It has a retroactive effect.
o Payment is deemed to have been made at the time of the deposit of moment in EXTINGUISHMENT OF OBLIGATION
court/placed at disposal of judicial authority. Loss of Thing Due
WITHDRAWAL OF CONSIGNATION 1262. Extinguishment: Loss of thing due.

 GAMBOA v. TAN An obligation which consists in the delivery of a determinate thing shall be
o Debtor filed a case for consignation and deposited the amount of money. extinguished if it should be lost or destroyed without the fault of the debtor, and
o Court granted the withdrawal of the amount deposited at the motion of before he has incurred in delay.
the debtor.
o Creditor answered that the money was not enough but he was willing to When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible for
accept it as a partial payment and sought the nullification of withdrawal.
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damages. The same rule applies when the nature of the obligation requires the  i.e. bound to deliver a special particular computer with special monitor and
assumption of risk. (1182a) keyboard.
o Said screen is lost through fortuitous event
LIABILITY FOR LOSS. o Debtor can go to the court and ask it to declare that the partial loss has
 GENERAL RULE: A person bound to deliver a determinate thing which is lost extinguished the obligation.
without his fault shall be excused from fulfilling such obligation.
 EXCEPTIONS: If he is at FAULT; he incurred DELAY. = damages. 1265. PRESUMPTION OF LIABILITY
o FEDERATION OF UNITED NAMARCO v. NAMARCO Whenever the thing is lost in the possession of the debtor, it shall be presumed
 Debtor-appellant refused to deliver the goods after due demand that the loss was due to his fault, unless there is proof to the contrary, and without
and as a result, some of the good were destroyed. prejudice to the provisions of article 1165. This presumption does not apply in
 SC: Debtor-appellant has to bear the risk of loss. case of earthquake, flood, storm, or other natural calamity. (1183a)
 It is also under the stipulation of the parties that FEDERATION
has to bear the price of handling and storage charges.
 However, the price of storage from the refusal to deliver LIABILITY FOR LOSS
cannot be charged against the Federation.  GENERAL RULE: The loss of the thing is due to the fault of the debtor who
 With respect to fortuitous event/nature of obligation requires assumption of risk, possesses it.
damages can be obtained from the debtor.  Burden of proof is on the debtor to show that the loss was not due to his fault or it
has been caused by a fortuitous event.
1263. LOSS OF GENERIC THING o STILL LIABLE IF: provided by law; nature of obligation;
contemplation by the parties; delays; promised the same thing to two ot
In an obligation to deliver a generic thing, the loss or destruction of anything of more person who do not have the same interest.
the same kind does not extinguish the obligation. (n)
1266. IMPOSSIBLE PRESTATIONS
LOSS OF GENERIC THING The debtor in obligations to do shall also be released when the prestation becomes
 Not determinate; no specifications; object of the same kind. legally or physically impossible without the fault of the obligor. (1184a)
 It cannot be lost nor destroyed, unless the whole class of same thing is destroyed.
 i.e. ball. If the ball is lost and it has no specification, then the obligation is not LEGALLY AND PHYSICIALLY IMPOSSIBLE PRESTATIONS
extinguished. One has to buy another ball.  APPLICABLE ONLY TO PRESTATIONS TO DO.
o PHILIPPINE NATIONAL v. CA
1264. PARTIAL LOSS  Lessee in the lease contract sought its release from paying the
The courts shall determine whether, under the circumstances, the partial loss of rentals invoking the changes in the political climate during
the object of the obligation is so important as to extinguish the obligation. (n) EDSA.
 SC: 1266 only applies to prestations to do and not to give.
PARTIAL LOSS a. To give- delivery of a movable/immovable thing.
 A loss may be complete or partial. b. To pay rent is a prestation to give.
 If loss is complete, 1262 and 1263 shall apply.  If prestation has become LEGALLY OR PHYSICALLY IMPOSSIBLE,
 If the loss is partial and circumstances so warrant, the court may consider it without fault, it shall be considered as a loss which will extinguish the obligation.
as a complete loss. o LEGAL: Obligor is bound to create a fence in a particular property
 CONTEMPLATES A SITUATION WHEREIN THE PARTIAL LOSS IS SO  Such property was expropriated.
IMPORTANT SO AS TO TOALLY AFFECT THE WHOLE OBJECT OF o PHYSICAL: Debtor is bound to perform a concert at a particular hall.
THE OBLIGATION.  Such hall was destroyed by fire.
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1267. SUBJECTIVE IMPOSSIBLITY o They entered the contract with open eyes to the deteriorating
When the service has become so difficult as to be manifestly beyond the conditions.
contemplation of the parties, the obligor may also be released therefrom, in whole
or in part. (n) SPOUSES POON v. PRIME SAVINGS BANK
 Lessee bank has various unsafe banking practices that were subject of cease and
SUBJECTIVE IMPOSSIBILITY desist orders by the Bangko Sentral.
 Contemplates a situation wherein the obligation is not totally impossible but  Closure of the business was a concern for the lessors during the negotiation of
extremely difficult to fulfill that will put the other party at a great disadvantage. lease.
 GENERAL RULE: Impossibility of performance releases the obligor.  SC: 1266 would not apply (impossible prestations)
 Exception: Service has become so difficult it is beyond the contemplation of the o Performance is extremely difficult + it is for a future prestation.
parties, the courts is authorized to release the obligor in whole or in part. o First and third requisite are lacking
 REQUISITES- must exist together.  Closure was foreseen; event was not independent of bank’s will
o Prestation has become so difficult to render TAGAYATAY v. GACUTAN
o It has become manifestly beyond the contemplation of the parties.  Contractor suspended the construction to save cost.
 i.e. transport services to deliver a certain product for a certain period of time.  In doing so, it was not driven by any extreme difficult situation that would put it
o Route it usually transverses had been suddenly closed. into a disadvantage but by its desire to benefit from cost-savings.
o The available route will likely cause damages to vessel that will entail  SC: Mere inconvenience, unexpected impediments or increased expenses would
unreasonable and additional cost. not relieve the debtor of his duty to fulfill his obligation.
NAGA TELEPHONE v. CA
REBUS SIC STANTIBUS  Contract
 “things standing thus” – parties stipulate in light of certain prevailing conditions o Petitioner shall use the electrical posts of respondent free of charge
and the theory can be made apply when these conditions cease to exist. o Contract can be terminated if respondent is forced to stop its business.
o NEED ABSOLUTELY EXCEPTIONA CHANGES. o Petitioner agreed to install free of charge 10 telephone connections to
o Not an absolute application of rebus sic stantibus. the respondent.
o Parties to the contract are presumed to have assumed the risks of o Posts were to be used in Naga City only.
unfavorable developments.  After 11 years, the contract became too burdensome to the petitioner.
 REQUISITES o Telephone cables became heavier/linemen bore holes/posts were broken
o Event or change in the circumstance could not have been foreseen at the during typhoons.
time of execution of contract o Increased use of the posts, no corresponding increase in the telephone
o Makes the performance of contract extremely difficult connections to the respondent.
o Must not due to the act of any of the parties o Petitioners used the posts outside Naga.
o Contract is for future prestation.  SC: 1267 applies to prevent unjust enrichment.
PHILIPPINE NATIONAL v. CA OCENA v. JABSON
 Lessee in the lease contract sought its release from paying the rentals invoking the  Article 1267 speaks of service which has become difficult. “to do”
changes in the political climate during EDSA.  Practical needs of equity and good faith, the disappearance of the basis of a
 SC: Application of rebus sic stantibus is not absolute in doctrine of contract gives rise to a right to relief f the party prejudiced.
unforeseen events.  Private respondent in this case prayed for a modification of the terms and
o Facts of the case would show that the petitioner entered into a contract conditions of the contract.
after the assassination of Sen. Aquino which resulted to political  ARTICLE 1267 DOES NOT GRANT THE COURTS THE AUTHORITY TO
upheavals etc. REMAKE/MODIFY/REVISE THE CONTRACT/FIX DIVISION
BETWEEN PARTIES.
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MAGAT v. CA  Connotes that there is a previous demandable obligation but the creditor decides
 Respondent ordered certain radio transceivers through the petitioner. not to enforce the prestation anymore.
 It was agreed that it will be delivered within 60-90 days.  It requires IMPLIED/EXPRESS CONSENT of the creditor.
 The government, because of martial law, denied the application for permit to  Partakes the nature of a donation.
import. o Governed by the rules on inofficious donation.
 SC: No breach of contract. o Inofficious- Thing/amount donated encroaches/infringes on the
o Guerrero’s inability to secure a letter of credit and to comply with his legitimate/successional rights of the heirs.
obligation is a direct consequence of the denial of permit to import. o i.e. Donation of 50, 000
 Had a child but properties are only 10,000.
1268. LOSS ARISING FROM DELICTS  Over-all estate including remitted debt: 60,000.
When the debt of a thing certain and determinate proceeds from a criminal  Legitime of child: 1/2 of the estate: 30,000.
offense, the debtor shall not be exempted from the payment of its price, whatever  Donation is inofficious and debtor must pay 20,000.
may be the cause for the loss, unless the thing having been offered by him to the o Rules on inofficious donations
person who should receive it, the latter refused without justification to accept it.  Reduction does not prevent the donation from taking effect
(1185)  Nor it bar the donee from appropriating the fruits.
1269. CREDITOR’S PROTECTION  Heirs and successors-in-interest may ask for reduction of
The obligation having been extinguished by the loss of the thing, the creditor inofficious donations.
shall have all the rights of action which the debtor may have against third persons  More recent date if there are two or more debts.
by reason of the loss. (1186) a. Should have children, even posthumous.
b. Child believed to be dead turned out to be alive.
PROTECTION FOR THE CREDITOR c. Adopt
 If A buys a house from G and the house is already insured when it was burned by  Action for revocation shall prescribe 4 years.
a fortuitous event prior to delivery to A. o Rules on express condonation
 Obligation of G to deliver the house to A is extinguished.  Oral donation- simultaneous delivery.
 However, if A already paid the price of house, HE CAN SEEK  Exceeds 5,000- donation and acceptance must be in writing
REIMBURSEMENT OF THE INSURANCE PROCEEDS due from the insurance  Immovable- must be in a public document.
company.
1271. POSSESSION OF DOCUMENT EVIDENCING CREDIT.
The delivery of a private document evidencing a credit, made voluntarily by the
EXTINGUISHMENT OF OBLIGATION creditor to the debtor, implies the renunciation of the action which the former had
Condonation or Remission of Debt against the latter.
1270. CONDONATION; IN GENERAL. If in order to nullify this waiver it should be claimed to be inofficious, the debtor
Condonation or remission is essentially gratuitous, and requires the acceptance by and his heirs may uphold it by proving that the delivery of the document was
the obligor. It may be made expressly or impliedly. made in virtue of payment of the debt. (1188)
One and the other kind shall be subject to the rules which govern inofficious IMPLIED RENUNCIATION
donations. Express condonation shall, furthermore, comply with the forms of  Promissory note: most common private document evidencing a credit.
donation. (1187)  In the hands of creditor: proof of indebtedness.
 Voluntary delivery to debtor implies that creditor is no longer interested in the
CONDONATION debt. = RENUNCIATION.
 Act of liberality.
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 If claimed to be void for being inofficious, heirs of A can set up the defense that
possession of A of the promissory note was by VIRTUE OF PAYMENT, not
RENUNCIATION.
1272. PRESUMPTION OF VOLUNTARY DELIVERY
Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
PRESUMPTION OF VOLUNTARY DELIVERY

 Can be overturned by clear evidence to the contrary.
1273. EFFECT OF RENUNCIATION TO ACCESSORY OBLIGATIONS EXTINGUISHMENT OF OBLIGATION

The renunciation of the principal debt shall extinguish the accessory obligations; Confusion or Merger of Rights
but the waiver of the latter shall leave the former in force. (1190)
1275. CONFUSION/MERGER OF RIGHTS
ACCESSORY OBLIGATION The obligation is extinguished from the time the characters of creditor and debtor
are merged in the same person. (1192a)
 Existence of accessory obligation is dependent on the obligation but the existence
of the latter does not depend on the former.
CONFUSION OR MERGER OF RIGHTS
 PRINCIPAL OBLIGATION EXTINGUISHED- accessory obligations too.
 Creditor cannot collect from himself.
o If A is indebted to B and the indebtedness is guaranteed by X
 If debtor and creditor are merged as one person, obligation is extinguished.
o B told X that he will not anymore claim on X’s guarantee.
 Son has a debt to his father. Father died and the son became the heir.
o X is released but the principal obligation of A still subsists.
 CHITTICK v. CA
o IF B RENOUNCES INDEBTEDNESS OF A
o Former wife filed a complaint against the father for support in arrears
 He cannot go against X because his guaranty is an accessory
o Wife died and was substituted by the children.
obligation that is extinguished together with the obligation.
o SC: DISMISSED THE COMPLAINT.
1274. PLEDGE  Children are heirs of both parties. (merger of persons)
It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the 1276. Merger which takes place in the person of the principal debtor or creditor benefits
debtor, or of a third person who owns the thing. (1191a) the guarantors. Confusion which takes place in the person of any of the latter does not
extinguish the obligation. (1193)
PLEDGE
 Movable property constituted by the owner of such property who has free disposal IMPLICATIONS OF CONFUSION/MERGER.
to secure the fulfillment of principal obligation.  Merger of debtor and creditor: debt by debtor that is guaranteed by 3rd person is
 It is an accessory contract. EXTINGUISHED.
o Extinguishment of principal includes accessory.
 Creditor must be in possession- proof of indebtedness.
 If found to be in the possession of debtor/3rd person= waiver of accessory  Merger of guarantor and creditor/ debtor and guarantor: extinguishes only the
obligation. ACCESSORY OBLIGATION.
 This is a refutable presumption.
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1277. JOINT DEBTORS
Confusion does not extinguish a joint obligation except as regards the share REQUISITES.
corresponding to the creditor or debtor in whom the two characters concur. (1194) 1. Each one of obligors be bound principally and that they are the same time
creditors of each other
JOINT DEBTORS  Parties must be mutual creditors and debtors of each other.
 Owe the creditor only their share in the whole indebtedness and creditor can only  SORIANO v. COMPANA GENERAL
collect his share. o No compensation. Sugar was not sold for the account of the
 A, B, C jointly owe X 3,000 plaintiff but for the defendant. NO MUTUAL DEBTOR-
o Merger of character of creditor + one of co-debtor. CREDITOR RELATIONSHIP.
o Only the liability of C will be extinguished.  REPUBLIC v. MAMBULAO
 If solidary liable, o Reforestation charges collected may compensate for its unpaid
o Merger of one co-debtor and creditor will extinguish the obligation. forest charges
o If A already paid before the merger, A can still collect from C and B. o SC: Reforestation charges were in the nature of taxes and can
EXTINGUISHMENT OF OBLIGATION never be refunded.
o Claim for taxes is not such a debt, demand, contract, judgment.
Compensation
o NO SET-OFF IS ADMISSIBLE AGAINST DEMANDS
1278. FOR TAXES LEVIED BY GOVERNMENT.
Compensation shall take place when two persons, in their own right, are creditors 2. That both debts consist in a sum of money, or if the things due are consumable,
and debtors of each other. (1195) they be of the same kind, and also of the same quality if the latter has been
1279. stated;
In order that compensation may be proper, it is necessary:  No compensation if one involves delivery of money and the other a
(1) That each one of the obligors be bound principally, and that he be at delivery of a particular thing.
the same time a principal creditor of the other;  “Consumable”- fungible; subject of substitution.
(2) That both debts consist in a sum of money, or if the things due are  ONG v. CA
consumable, they be of the same kind, and also of the same quality if the latter has o Compensation is sought for an obligation of a debtor to
been stated; deliver a sum of money to a creditor and another obligation
(3) That the two debts be due; of the latter to deliver zippers.
(4) That they be liquidated and demandable; o SC: No compensation.
(5) That over neither of them there be any retention or controversy,  INSULAR INVESTMENT v. CAPITAL ONE EQUITIES
commenced by third persons and communicated in due time to the debtor. (1196) o Treasury bills can be subject to compensation.
o Both COEC T-Bills and ITTC T-Bills are both government
COMPENSATION securities.
 Mode of an extinguishment of obligation. o SC: There can be compensation.
 Parties are mutually debtors and creditors of each other and they owe each
other exactly the same amount. 3. That the two debts be due;
 NO LEGAL DEBTOR CREDITOR  A debt cannot be demanded if it is not yet due.
LEGAL COMPENSATION  Parties may agree that compensation shall apply even to debts which
MATURITY DATE October 4 Assigned on are not yet due.
October 11 September 9  PEREZ v. CA
o Finance company
COMPENSATION: Parties do not have to hand money or things due to each
other as the extinguishment will be BY OPERATION OF LAW.
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 PNB v. UY Compensation may be total or partial. When the two debts are of the same
o One of the debts was payable upon demand. amount, there is a total compensation. (n)
o No demand was made
o NO COMPENSATION. TOTAL COMPENSATION
 UNION BANK v. DBP  Total compensation: mutual debts of the party to each other are equal.
o Parties are mutual debtors and creditors  Partial compensation: Debts are not equal and the debts are extinguished as to the
o DBP’s obligation was not yet due because it contingent concurrent amount.
upon the prior payment of another company. o A owes Z 2000 and Z owes A 500.
o Compensation can take place.
4. That they be liquidated and demandable; o Z’s indebtedness will be extinguished.
 Debt must be determine and certain. o A’s debt will subsist: 1500.
 COMPANIA v. CA
PETITIONER’S DEBT RESPONDENT’S DEBT
125, 040.01 1,973,154.73  MONDRAGON v. VICTORIANO SOLA
o Legal interest is also unliquidated since interest does not
stop accruing “until the expenses are fully paid.”
 MIALHE v. HALILI
o The case was still on appeal and the award is still under o All elements of legal compensation, partial, are present.
litigation, hence it is not yet certain. o No basis for rescission.
5. That over neither of them there be any retention or controversy, commenced by 1282. CONTRACTUAL COMPENSATION
3rd person and communicated in due time. The parties may agree upon the compensation of debts which are not yet due. (n)
 DUE TIME: Period before the legal compensation takes place.
 A controversy communicated after the compensation-no effect. DEBTS NOT YET DUE
 GENERAL RULE: Compensation can only occur when the debts are due and
1280. GUARANTOR demandable.
Notwithstanding the provisions of the preceding article, the guarantor may set up o EXCEPTION: Parties may stipulate otherwise.
compensation as regards what the creditor may owe the principal debtor. (1197)
GUARANTOR 1283. JUDICIAL SET-OFF
 Guarantor: person who promises to pay the creditor in the event that the principal If one of the parties to a suit over an obligation has a claim for damages against
debtor fails to pay the indebtedness. the other, the former may set it off by proving his right to said damages and the
o Creditor must exhaust all possible ways first to collect the debt from amount thereof. (n)
debtor.
 If creditor goes against guarantor, he can resist payment by invoking JUDICIAL SET-OFF
compensation between the principal debtor and the creditor.  If A files a collection case against B in the amount for 1000, B can file a
 “Notwithstanding the provisions of the preceding article” counterclaim in the same amount claiming damages and request the court to just
o Even though the guarantor and the principal creditor are not mutual set-off the damages.
debtor and creditor of one another, the obligation of the guarantor can be  ONG v. CA
extinguished by invoking compensation. o For judicial set-off to apply, the amount of damages. claim sought to be
compensated must be duly proven.
1281. TOTAL COMPENSATION
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1284. VOIDABLE DEBTS Example:
When one or both debts are rescissible or voidable, they may be compensated 1. X owes Y 1000 due on April 12 and Y owes X in same amount due on May 6.
against each other before they are judicially rescinded or avoided. (n) a. April 14, Y assigned his credit to O.
i. No reservation: X cannot resist payment by invoking
RESCISSIBLE/VOIDABLE DEBT compensation.
 Valid up until to the time it is annulled. ii. With reservation: Obligation is extinguished through
 If all the requirements for a valid compensation is present before the contact is compensation.
rescinded/annulled, the compensation can still occur by operation of law. b. PEREZ v. CA
i. Finance company issued two promissory notes to mature on
August 6 and 13, respectively which was rolled over to October
4, and October 11.
ii. Same finance company was a creditor to mature on August 5
and their credits were assigned on September 9.
1285. CESSION iii. SC: Debtor cannot claim that he had no knowledge of the
The debtor who has consented to the assignment of rights made by a creditor in assignment in view of the special nature of money market
favor of a third person, cannot set up against the assignee the compensation which transactions.
would pertain to him against the assignor, unless the assignor was notified by the 1. Issuer of a commercial paper in the money market
debtor at the time he gave his consent, that he reserved his right to the necessarily knows in advance that it would be
compensation. expeditiously transacted without need of notice.
If the creditor communicated the cession to him but the debtor did not consent 2. X owes Y 1000 due on April 12 and another 2000 due on May 10. Y is
thereto, the latter may set up the compensation of debts previous to the cession, indebted to X in the amount of 1000 due on May 6 and 2000 due on May 9.
but not of subsequent ones. a. On May 7, Y assigned all his credits to O.
i. No consent: X can resist payment of the 1000. (prior to cession).
If the assignment is made without the knowledge of the debtor, he may set up the ii. Cannot set up compensation after the cession.
compensation of all credits prior to the same and also later ones until he had
knowledge of the assignment. (1198a) 3. X owes Y 1000 due on April 12 and another 2000 due on May 10. Y is
indebted to X in the amount of 1000 due on May 6 and 2000 due on May 9.
CESSION- Assignment of rights to third person a. X WAS ONLY INFORMED ON MAY 15.
i. X can invoke that all the obligations have been extinguished.
KNOWLEDGE CONSENT RESERVATION EFFECT b. SEBRENO v. CA
1   x No i. Philfinance was indebted to Delta and the latter is also indebted.
compensation ii. Philfinance assigned its credit against Delta to Sesbreno.
   Compensation iii. Delta was notified only after the assignment of such
2  x X Compensation indebtedness.
of debts prior to iv. Both debts were already due; hence should be extinguished.
the cession. v. SC: Sesbreno can no longer collect from Delta since he notified
3 x x X Compensation Delta of his rights as assignee after compensation.
of all credits
until he has 1286. COMPENSATION BY OPERATION OF LAW
knowledge. Compensation takes place by operation of law, even though the debts may be
payable at different places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment. (1199a)
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AUTOMATIC COMPENSATION 1289. MOST ONEROUS DEBT

 Compensation takes place by operation of law. If a person should have against him several debts which are susceptible of
o Parties need not notify each other. compensation, the rules on the application of payments shall apply to the order of
o Indemnity for expenses of exchange/transportation can only arise in the compensation. (1201)
PARTIAL COMPENSATION.
o Extrajudicial expenses required for payment shall be for the account of 1290. AUTOMATIC COMPENSATION
the debtor, unless it is otherwise stipulated. When all the requisites mentioned in Article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation. (1202a)
1287. EXCEPTION TO COMPENSATION EXTINGUISHMENT OF OBLIGATION
Compensation shall not be proper when one of the debts arises from a depositum Novation
or from the obligations of a depositary or of a bailee in commodatum.
1291. NOVATION
Neither can compensation be set up against a creditor who has a claim for support Obligations may be modified by:
due by gratuitous title, without prejudice to the provisions of paragraph 2 of (1) Changing their object or principal conditions;
Article 301. (1200a) (2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
1288.
Neither shall there be compensation if one of the debts consists in civil liability NOVATION
arising from a penal offense. (n)  Extinctive novation and not modificatory.
 Objective Novation- change of the object or principal conditions
COMPENSATION WILL NOT OCCUR IN THE FOLLOWING SITUATIONS o Need for an express declaration that the obligation is extinguished
1. Debts arising from a depositum/obligations of a depository o Or that the new obligation is be on every point incompatible with the
a. Deposit is constituted from the moment a person receives a thing new one.
belonging to another. only for safekeeping.  Subjective novation- Change of either the person of the debtor/creditor.
2. Debts arising from the obligations of a bailee in commodatum o Need for an express declaration that the old debtor be released from the
a. Bailee in commodatum acquires the use of the thing loaned but not its obligation and the third person/new debtor assumes his place.
fruits. It is obliged to pay ordinary expenses for the use and preservation o No presumption. It must be clear and expressed.
of the thing loaned.  No novation without such release as the 3rd person who has
b. He cannot retain the thing loaned on the ground that the bailor owes him. assumed the debtor’s obligation: merely a co-debtor/surety.
3. Debts arising from duty to support
 Mixed Novation- Change of person + change of object at the same time.
a. A father who is required to support his son cannot claim that he need not
give the money for support since his son owes him the same amount of
AJAX MARKETING v. CA
money.
 Petitioners’ three debts were consolidated into one debt with the original debtors
4. Debts consisting of a civil liability from a penal offense
incorporating themselves into a corporation.
a. A criminal violation of the Trust Receipt Law which makes the obligor
 SC: No novation.
financially and civilly liable to the contracting bank to the extent
o Nothing that will show the unequivocal intent to novate the 3 loans.
indicated in the Trust Receipt.
b. Accused claims compensation invoking his deposit in the same bank. o No indication of extinguishment/ incompatibility.
c. NO COMPENSATION even if under the law, a person who opens a o No change in the object of their prior obligations.
deposit account is technically a creditor of that bank.
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o No release of mortgage because the annotations at the back of the title  Implied- New contract is completely incompatible with the old one.
remains uncancelled. o No specific form required.
o No change/substitution in the person of creditor/debtor. o Irreconcilable incompatibility
 Conversion from a partnership to corporation, without sufficient o TEST: W/N the two obligations can stand together, each one having its
evidence will not tantamount to novation. own independent existence.
 Changes must be essential in nature and not merely accidental.
NO FORM NECESSARY  It must take place in any of the essential elements (object,
General rule: No form of words/or writing is necessary to give effect to a novation. cause, principal conditions)
Ex. an oral lease agreement can validly novate a contract to sell provided that NOTES:
 Intent to novate was present &  Obligation to pay a sum of money is not novated in a new instrument by changing
 Terms are truly incompatible in every respect the term of payment and adding other obligations that are not incompatible.
CLASS DISCUSSION  DACION EN PAGO is a FORM OF NOVATION.
NO NOVATION REQUISITIES FOR NOVATION

Lump-sum to mortgage a. Previous valid obligation
Mortgage to pledge (mere accessories) b. Agreement of all parties to the contract
Changing a penalty clause (accessory) c. Extinguishment of the old contract
Granting extension to original lease – old d. Validity of the new one
contract was already expired
Grace period- extension LESSON: No novation when a new agreement is executed between the creditor and 1 of
Changing the terms of payment the solidary debtors regarding the payment of a solidary debt.
GUERRERO v. CA
1292. REQUISITES OF NOVATION  Petitioner with two other persons executed an agreement of counter-guaranty in
In order that an obligation may be extinguished by another which substitute the favor of a surety corporation binding themselves solidarily for whatever claim.
same, it is imperative that it be so declared in unequivocal terms, or that the old  Surety corporation obtained a favorable judgment directing the sued solidary
and the new obligations be on every point incompatible with each other. (1204) debtor to pay the whole obligation.
 Surety corporation filed a case for collection against petitioner.
2 DISTINCT, SUCCESSIVE CONTRACTS.  Petitioner resist payment that the previous judgment in the civil case against one
 There must be unequivocal consent or incompatibility. of the solidary debtors novated the contract of indemnity.
 ALL PARTIES MUST CONSENT.  SC: NO NOVATION
 No novation if modifications are introduced before a bargain becomes obligatory. o Release of obligation must be proved by clear and convincing evidence.
 Extinguishment of the old novation is an essential element. o No incompatibility.
 NOVATION IS NEVER PRESUMED. o The fact that ALTO chose to first realize the credit from Robles did not
imply a waiver of right to proceed against other debtors.
KINDS OF NOVATION
 Express- clearly stipulated in the terms. LESSON: Presumption by implication is not favored.
o Parties incontrovertibly disclose that their object in extinguishing the MAGDALENA ESTATE v. RODRIGUEZ
new contract is to extinguish the old one.  Appellants in buying the property from the appellee, issued a promissory note
o If a contract to sell of a condo unit was executed after the lessor & lessee with interest.
executed their lease contract, the former does NOT NECESSARILY  They also procured a bond from surety company for the payment of the principal.
novate the latter absent the INTENTION OF PARTIES TO NOVATE.
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 Appellees accepted, without reservation, the agreement set forth in the surety SECURITY BANK v. CUENCA
bond which is silent on the interest  Some indicators of incompatibility between the 1989 Loan Agreement and 1980
 Appellant contends that the surety bond novated his obligation with respect to the Credit Accommodation.
interest o Explicit provision to liquidate the principal (1st) and interest (2nd)
 SC: NO NOVATION. Surety bond is not a new but merely an accessory of the o Amounts provided and the periods for payment were also different.
promissory note. o Later contract contained positive and negative covenants not present in
o Obligation to pay a sum of money is not novated in a new instrument the older one.
wherein the old is ratified only by changing the terms of payment and
adding other obligations not incompatible with existing ones.
o Or wherein the old contract is merely supplemented by a new one.
o The mere fact that the creditor receives a guaranty or accepts the
payment of the third person will not constitute novation ABSENT ANY
AGREEMENT THAT THE FIRST ONE SHALL BE RELEASED 1293. SUBJECTIVE NOVATION/CHANGE IN DEBTOR
FROM ANY RESPONSIBILITY. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but
LESSON: EXPRESS RECOGNITION OF CONTINUING EXISTENCE AND VALIDITY not without the consent of the creditor. Payment by the new debtor gives him the
OF AN OLD DEBT IS TANTAMOUNT TO NEGATING THE LAPSE OF OLD ONE. rights mentioned in Articles 1236 and 1237. (1205a)
COCHINGYAN v. R & B SURETY
 In trust agreement, the trustor bound itself to pay to the creditor-beneficiary CHANGE OF DEBTOR
whatever amount the debtors have to pay the creditor-beneficiary. BANGAYAN v. CA
 Principal loan was previously secured by a bond.  Assignment of a lease contract by lessee must get the consent of the lessor
 SC: TRUST AGREEMENT DID NOT NOVATE THE SURETY because such agreement would involve the transfer, not only of rights but also of
AGREEMENT. obligations.
o The trust agreement expressly provided for the continued subsistence of
the old obligation. GAW v. IAC
o When the parties expressly negated the lapsing of the old obligation,  Petitioner entered into an exclusive dealership agreement with a certain company
there can be no novation. to sell their product.
o In surety/guarantee, the legal effect is to increase the number of people  Petitioner entered into a co-terminus agreement with another person for the latter
liable to the obligee and not the extinguishment of the liability of the first to market the product and for the purpose of obtaining funds to fulfill the deposit
debtor. required by the company.
FORTUNE MOTORS v. CA  Deposit was refused by the company for the fear that it might violate the exclusive
 Financing agreement merely detailed the obligations of one the parties without dealership agreement with the petitioner.
changing the nature of the previous agreement.  SC: Co-terminus marketing agreement did not novate the dealership
 NO NOVATION = NO INCOMPATIBILITY. agreement.
o Surety undertaking: absolutely, unconditionally and solidarily o No proof that PWCC knew about the so-called substitution.
guaranteeing the full performance and discharge of all obligations of o The fact that two agreements are co-terminous with each other does
Fortune. not imply that a new obligation had arisen when the marketing
o No qualifications, conditions, reservations in the surety undertaking. agreement was signed.
o Financing agreement merely detailed the obligations.
FOR A CHANGE IN DEBTOR TO OCCUR, THE CHANGE MUST CLEARLY
LESSON: ORIGINAL LOAN AGREEMENT WAS NOVATED BY A NEW ONE. RELEASE THE OLD DEBTOR FROM THE OBLIGATION.
NYMPHA ODIAMAR v. LINDA VALENCIA
61
 Petitioner had agreed to settle her late parents’ debt. o If indebtedness is secured by mortgage on the house of X and O pays the
 No evidence that the estates of her deceased parents were released from liability. debt of X, O cannot compel X to subrogate him in his rights
 Intent to novate was not proven satisfactorily.  If X fails to pay O, O cannot use the mortgage
o If there is novation and O becomes insolvent, Y cannot go against the
1294. NOVATION WITHOUT CONSENT. original debtor anymore.
If the substitution is without the knowledge or against the will of the debtor, the
new debtor's insolvency or non-fulfillment of the obligations shall not give rise to
any liability on the part of the original debtor. (n)
NOVATION THROUGH DEBTOR 1295. INSOLVENCY OF NEW DEBTOR (DELEGACION)

 Novation, through the replacement of old debtor by a new debtor may be The insolvency of the new debtor, who has been proposed by the original debtor
with/without the initiative of the old debtor. and accepted by the creditor, shall not revive the action of the latter against the
o Delegacion- old debtor suggests to the creditor that he be substituted. original obligor, except when said insolvency was already existing and of public
o Expromission- old debtor is substituted without knowledge/consent of the knowledge, or known to the debtor, when the delegated his debt. (1206a)
old debtor.
 IN BOTH CASES, CONSENT OF THE CREDITOR IS INSOLVENCY OF NEW DEBTOR
INDISPENSABLE.  When there is delegacion, the obligation of the old debtor to make the payment is
 It involves a waiver of right of the creditor to go extinguished.
against the old debtor. o If new debtor is insolvent, the creditor cannot go against the old debtor to
 Consent may be by deeds as by words. collect the debt.
 Consent need not be given simultaneously with consent  EXCEPT:
of the debtor to substitution. o Insolvency has already been existing and of public knowledge at the time
EVER ELECTRICAL v. PHILIPPINE BANK of the delegacion of the old debtor.
 Vicente committed to pay the indebtedness of Ever in favor of Philippine Bank o When the insolvency of the new debtor is known to the old debtor when
based on a contractual stipulation that “he has offered to assume full liability…” he delegated his debt.
 No novation. Nothing to be construed that the debtor is released from its
obligation 1296 ACCESSORY OBLIGATION.
When the principal obligation is extinguished in consequence of a novation,
ILLUSTRATIVE EXAMPLE accessory obligations may subsist only insofar as they may benefit third persons
 X IS INDEBTED TO Y IN THE AMOUNT OF 1000 who did not give their consent. (1207)
o Without knowledge of X, O commits to pay
 Should it become due, Y can still claim from X because there is ACCESSORY OBLIGATION
no novation.  It always follows the principal.
 No showing that the commitment of O intends to release X from  GENERAL RULE: When principal obligation is extinguished, the accessory
his obligation. O became additional debtor. obligations are also extinguished.
o If Y agrees that the obligation of X is to be extinguished upon O’s  HOWEVER, accessory obligation may subsist only in so far as they may
commitment to pay, there is novation. BENEFIT THIRD PERSONS WHO DO NOT GIVE THEIR CONSENT.
 If O makes a partial payment of 500, Y cannot go against X for o X BORROWS 100,000 FROM Y TO BE PAID AFTER 12
the balance since liability of X is already extinguished by MONTHS.
novation.  Said obligation is secured by a real estate mortgage effective for
 O can demand reimbursement from X- 500 (amount that 12 months.
benefited him/her pursuant to Art. 1236 par. 2)
62
 Z agrees to be paid by X the amount of 1000 for as long as the Subrogation of a third person in the rights of the creditor is either legal or conventional.
loan secured by mortgage exists. The former is not presumed, except in cases expressly mentioned in this Code; the latter
 Instead of paying Z the said amount, X will just apply the must be clearly established in order that it may take effect. (1209a)
amount of 1000 to the 12,000 indebtedness of Z in his favor.
 On the 11th month, X and Y decided to consolidate. SUBROGRATION
 Z did not consent for it would prejudice him. Z’s mortgage may  Transfer of all the rights of the creditor to a 3rd person who substitutes him in all
subsist for the remaining month attached to principal new his rights.
obligation.
 X still needs to accept the mortgage of Z as payment of 1000 to TYPES
extinguish Z’s obligation. o Legal subrogation: take effect by mandate of the law.
 Law as the basis for subrogation
1297. VOID NEW OBLIGATION o Conventional: Clearly established in equivocal terms or by the evident
If the new obligation is void, the original one shall subsist, unless the parties incompatibility of the new and old obligation.
intended that the former relation should be extinguished in any event. (n)
1301. CONVENTIONAL SUBROGATION
EFFECT OF VOID NEW OBLIGATION Conventional subrogation of a third person requires the consent of the original
 Subsequent void obligation intended to novate an old one has no effect. parties and of the third person. (n)
o Future inheritance cannot be a subject of a obligation.
 Original obligation shall subsist. CONVENTIONAL SUBROGATION
 However, if the parties agree that the new obligation shall in any event extinguish  It must be agreed upon by the debtor, new debtor and old creditor.
the old obligation, then the latter won’t be revived.  Contractual
 All parties must agree.
1298. ANNULLABLE OBLIGATION  If the debtor does not agree, the third party who previously paid can demand
The novation is void if the original obligation was void, except when annulment payment from the debtor up to the extent the latter has been benefited but he
may be claimed only by the debtor or when ratification validates acts which are cannot compel the creditor to subrogate him.
voidable. (1208a)
Art. 1302 LEGAL SUBROGATION.
ANNULLABLE OBLIGATIONS It is presumed that there is legal subrogation:
 Valid up to the time it is annulled/ratified.
 Can be subject of novation before such annulment. (1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
1299. SUSPENSIVE AND RESOLUTORY CONDITION (2) When a third person, not interested in the obligation, pays with the express or
If the original obligation was subject to a suspensive or resolutory condition, the tacit approval of the debtor;
new obligation shall be under the same condition, unless it is otherwise stipulated. (3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as
SUSPENSIVE AND RESOLUTORY CONDITIONS to the latter's share. (1210a)
 GENERAL RULE: Conditions in the old contract will apply to the new one.
 EXCEPTION: Express statement to that effect in the new obligation as THREE CASES
novated. a. Creditor pays another creditor who is preferred, even without the debtor's
knowledge
1300. SUBROGATION a. Claims for the unpaid price of movables sold, on said movables, so long
as they are in the possession of the debtor up to the value of the same.
63
b. Third person, not interested in the obligation, pays with the express or tacit o In conventional subrogation, parties may stipulate nature, limits, extent
approval of the debtor and scope of subrogation provided that they are not contrary to law,
a. Debtor agrees, hence there exists something similar to conventional morals, good customs, public order, public policy.
subrogation.
b. CHEMPIL v. CA
i. Petitioner claimed that he was subrogated to the rights of the FLORITA LIAM v. UNITED COCONUT
creditor when it paid its indebtedness to the bank  Developer transferred to a bank its receivables or payables due from a
ii. The money used for payment belonged to the debtor. condominium buyer to pay off the former’s indebtedness to the bank.
iii. No subrogation.  Buyer sued both the developer and the bank for them to honor the contract-to-sell.
c. Even without the knowledge of the debtor, a person interested in the fulfillment of  Developer contended that buyer has no cause of action since he agreed to
the obligation pays, without prejudice to the effects of confusion as to the latter's substitution.
share.  SC: Bank should not be impleaded
a. A person interested is the one that will be affected by payment of the o No subrogation but an assignment of credit.
debtor o Assignment of credit consent of debtor is not necessary to produce legal
b. i.e. guarantor, surety, solidary debtor.
effects. (mere notice is enough)
i. A is indebted to M and was secured by a real estate mortgage
o Subrogation requires an agreement between all parties.
constituted by X on his own property.
o Liam’s consent was not secured. – assignment of credit.
ii. If X pays M, legal subrogation will arise even though A did not
consent
c. JENNIFER FIGUERA v. MARIA REMEDIOS ANG 1304. PREFERRED CREDITOR
i. Assignee of the sole-proprietorship business paid the necessary A creditor, to whom partial payment has been made, may exercise his right for the
utility bills of the assignor remainder, and he shall be preferred to the person who has been subrogated in his
ii. Not doing so will result to the cutting off the utilities and the place in virtue of the partial payment of the same credit. (1213)
business will not proceed.
iii. Assignee contended that the amount she paid should be PREFERRED CREDITOR
deducted from the amount still payable to assignor.  Contemplates a situation where a debt has been partially paid by a third person,
iv. Assignor contended the payment was done without her consent. with the consent of the debtor.
v. SC: 1302 is applicable. SC allowed the set-off/legal o No consent- right is to be reimbursed of the amount he partially paid.
compensation.  In the event the partial payment is made by 3 rd person which extinguishes the
debtor’s obligation to pay the creditor up to the extent of said partial payment, the
1303. EFFECT OF SUBROGATION creditor can still demand from the debtor the balance of the obligation.
Subrogation transfers to the persons subrogated the credit with all the rights o 3rd party can demand what he has paid to the creditor.
thereto appertaining, either against the debtor or against third person, be they o Creditor and 3rd party demands at the same time, creditor is preferred.
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation. (1212a)
EFFECT OF SUBROGATION
 3rd person “steps into the shoes” of the creditor and becomes the new creditor.
64
NOVATION
Extinctive, not modificatory
OBJECTIVE SUBJECTIVE
OBJECT
PRINCIPAL CREDITOR DEBTOR
CONDITION
LEGAL CONVENTIONAL
EXPRESS expromi
IMPLIED SUBROGATION SUBROGATION
ssion delegacion
YOU CAN Creditor
READ IT INCOMPATIBLE IN Suspensive/Res who is
FROM THE EVERY POINT olutory preferred unequivocal change of old debtor
TEXT condition terms + evident debtor recommends a new
deemed incompatibility without one; creditor
OBJEC CONSE included in the consent/k accepts
CAUSE nwoledge
T NT new contract Convention
3rd party uninterest Assignment
pays the debt w/ al
of credit
consent subrogation
consent consent There must be

a release of Insovlency except:
interest party not of all a. old debtor has
needed person first debtor;
pays w/o otherwise knwoledhe of the
approval additional. insolvency
b. Insolvency
PRESUMED already exists
NOVATION. before delegatcion
65

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OBLIGATIONS AND CONTRACTS MIDTERMS Serapio NOTES Block c DEAN MEL STA.

1. TAGAYTAY REALTY CO. v. GACUTAN 1107. ACQUISITION BY CAPABLE PERSONS/MINORS.

1113: SUBJECT OF PRESCRIPTION MORE SPECIFIC SHALL PREVAIL.

1114: EFFECTIVITY OF PRESCRIPTION DESPITE EXPRESS/TACIT

1118: CONCEPT OF OWNERSHIP 1120: INTERRUPTION

1124. EXCEPTION TO CIVIL INTERRUPTION 1126: TITLES

1129: JUST TITLE Movables Good faith, uninterrupted 4 years

1134. IMMOVABLE PROPERTY MOVABLE 4 years Good faith,

MOST IMPORTANT SOURCE OF OBLIGATION 1160. SOURCE OF OBLIGATION: QUASI CONTRACTS

DAMAGES 1173. OMMISSION OF DILIGENCE REQUIRED OF A GOOD FATHER,

IMPLIED POWER TO RESCIND SANTOS V.CA

DIFFERENT KINDS OF OBLIGATIONS

1193. OBLIGATION WITH A PERIOD

SIGNIFICANCE OF NOTIFICATION OF CHOICE TO CREDITOR CREDITOR’S RIGHT

LOSS OF CHOICE 1205. CREDITOR’S CHOICE

1220. NO REIMBURSEMENT IN REMISSION

1225. DIVISIBLE AND INDIVISIBLE OBLIGATIONS

However, even though the object or service may be physically divisible, an

In obligations not to do, divisibility or indivisibility shall be determined by the

LESSON: IF THE PRINCIPAL OBLIGATION HAS BEEN COMPLIED WITH, THE

1230. NULLITY OF PENAL CLAUSE LIABILITY FOR CRIMES

1239. INVALID PAYMENTS BPI v. CA

WITHDRAWAL OF CONSIGNATION 1262. Extinguishment: Loss of thing due.

1272. PRESUMPTION OF VOLUNTARY DELIVERY

PRESUMPTION OF VOLUNTARY DELIVERY

1273. EFFECT OF RENUNCIATION TO ACCESSORY OBLIGATIONS EXTINGUISHMENT OF OBLIGATION

AUTOMATIC COMPENSATION 1289. MOST ONEROUS DEBT

NO NOVATION REQUISITIES FOR NOVATION

NOVATION THROUGH DEBTOR 1295. INSOLVENCY OF NEW DEBTOR (DELEGACION)

consent consent There must be

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