CIVIL LAW REVIEW 2 NOTES

economic equivalent obtained fr. the debtor's patrimony.

CIVIL LAW REVIEW 2 Notes [Cecille V. Balondo] [ATTY. CRISOSTOMO A. URIBE]

Essential Elements of an Obligation:

I. OBLIGATIONS

(1) Active Subject – This refers to the creditor or the obligee.  A creditor generally used in an obligation to give  while obligee is used in an obligation to do

[June 18, 2008] A. IN GENERAL: 1. DEFINITION: Article 1156. an obligation is a juridical necessity to give, to do or not to do. • Defines CIVIL Ø; “JURID. NECESSITY” makes it enforceable by court action;

(2) Passive Subject – This refers to the debtor or the obligor.  debtor is used in an obligation to give  while obligor is used in an obligation to do The first two elements must be determinate or determinable. The following are possible combinations:

Balane: Book IV starts w/ an inaccuracy. It gives the impression that obligations & contracts are of the same status, w/c they are not. A contract is only one of the sources of obligations. Book IV should have been simply titled "Obligations." Etymology – two Latin words, ligare, meaning "to bind" & ob w/c is a proposition used to intensify a verb. Literally obligare means "to bind securely."

 Both parties are determined at the time of the execution of the obligation.  one party is determined at the constitution of the obligation & the other to be determined subsequently in accordance w/ a criteria that is previously established.  the subject is determined in accordance w/ his relation to a thing & therefor it changes where the thing passes fr. one person to another. This is a propertylinked obligation.

Tolentino: the juridical tie between two or more persons, by virtue of which one of them, the creditor or oblige, has the right to demand of the other, the debtor or obligor, a definite prestation.

(3) Object of the obligation - the conduct or activity that must be observed by the debtor, this is always an activity or conduct, the prestation.

Manresa: legal relation established between one party and another whereby the latter is bound to the fulfillment of a prestation which the former may demand of him.

Requisites of an object:  It must be licit.  It must be possible.  It must be determinate or determinable.  It must have pecuniary value so that if not performed it is converted into damages.

Arias Ramos: [more complete definition, accdg to T, whch gives the element of responsibility essential to an Ø]

(4) Vinculum juris - the legal tie, whereby upon default or refusal of the debtor to perform, the creditor can go to court.  When a person says "I promise to pay you when I like to," there is no obligation here bec. there is no vinculum juris.

An Ø is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinate conduct, and in case of breach, may obtain satisfaction from the assets of the latter. 

Where there is a right or power to demand, there is a correlative Ø or an imposition upon a person of a definite conduct.



Juridical tie, the efficient cause established by the various sources of Ø’s > by virtue of which the debtor is bound in favor of the creditor to perform the prestation. Efficient cause / vinculum  may either be relation established by: 1. Law (e.g. marital relation giving rise to Ø for support; 2. Bilateral acts (e.g. contracts give rise to the Øs stipulated therein) 3. Unilateral acts (e.g. crimes and quasi-delicts)

Balane: A better definition would be, An obligation is a juridical relation (bec. there are 2 parties) whereby a person should engage or refrain fr. engaging in a certain activity for the satisfaction of the private interests of another, who in case of non-fulfillment of such duty may obtain fr. the patrimony of the former through proper judicial proceedings the very prestation due or in default thereof, the economic equivalent (damages) that it represents. (Diaz Piero.)

** All the above 3/4 elements are agreed upon by commentators as essential elements. The following two are being debated.

Obligation (Ø) – is a juridical relation whereby a person (called the creditor) may demand from another (debtor) the observance of determinate conduct, and in case of breach, may obtain satisfaction from the assets of the latter.

(i) Causa debendi/ obligationes (Castan) – This is what makes the obligation demandable. This is the proximate why of an obligation.

Characteristics of an Obligation:   

(ii) Form - This is controversial. This is acceptable only if form means some manifestation of the intent of the parties.

It represents an exclusively private interest It creates ties that are by nature transitory It involves the power to make the juridical tie effective in case of non-fulfillment through an

[TOLENTINO: Ø “to give”  prestation consists in the delivery of a movable or an immovable thing in order to create a

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real right, orfor the use of the recipient, or for possession, or to return to its owner; e.g. Ø to deliver the thing in a © of sale, deposit, lease, antichresis, pledge and donation.

enforced by point of view law Examples of natural Ø’s: • Support of a natural child • Indemnification of a woman seduced • Support of relatives, by consanguinity or affinity

Ø “to do”  incl. all kinds of work or services. E.g. © of employment or professional services. Ø “not to do”  consists in abstaining from some act, e.g. duty not to create a nuisance; Requisites of a prestation: 1. it must be possible, physically and juridically 2. it must be determinate, or atleast determinable; and 3. it must have a positive equivalent in money. (susceptible of pecuniary appreciation) Positive Law – valid legal laws enacted by the legislative department;

do not grant the right of action to enforce their performance but after voluntary fulfillment by their obligor, they authorize the retention of what has been delivered or rendered by reason thereof (Art. 1423);

Voluntary fulfillment – may be understood as spontaneous, free from fraud or coercion or it may be understood as meaning without knowledge or free from error; - w/knowledge that he cannot be compelled to pay Ø; RATIO: “reputation” (clan)

Basis of existence of Ø Enforceability

Within the domain of law True Ø but for certain causes cannot be

moral duty is inexistent in the juridical

of

an agreement is not necessary in order that a party may demand from another the fulfillment of an Ø arising from the application of a law in the circumstances;

Balane: Law as a source of obligation – It is my opinion that there is an overlap in the enumeration bec. all obligations arise fr. law. Law is the only source of obligation, in the ultimate sense. But, as a proximate source, there are five sources of obligations. Law is both the ultimate & a proximate source of obligations.

an Ø w/o a sanction, susceptible of voluntary performance, but not thru compulsion by legal means.

Moral Ø none act of pure liberality which springs from blood, affection or benevolence entirely domain of morals

cannot be compelled by court action but depends upon good conscience of the debtor



Requisites of Natural Ø: 1. there is a juridical tie between two persons 2. the tie is not given effect by law

Juridical tie Performance by debtor

Enforceability

can be enforced by court action or the coercive power of public authority

SOURCES OF Ø’s: 1. LAW: Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book.

Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. (Arts. 1423 – 1430  not exclusive enumeration; some others…)

Moral Ø: Natural Ø Exists legal fulfillment an Ø

from equity and natural justice

Article 1157. Obligations arise from: (1) Law; (Ø’s ex lege) (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.

(a) NATURAL OBLIGATIONS

Natural Ø vs.

From positive law

(b) CIVIL OBLIGATIONS:

2. KINDS OF OBLIGATIONS AS TO BASIS & ENFORCEABILITY

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NATURAL Ø’s

Illicit Ø’s  Ø’s which are contrary to morals and good customs do not constitute natural Ø’s, whatver is paid under such Ø’s can be recovered, (apply Art. 1414, 1411, 1412.)

Natural Ø – not sanctioned by any action but have a relative juridical effect;



CIVIL Ø’s Source of binding force & effect

Sources of Obligations according to Sanchez Roman.-- Law & Acts. The latter are further classified, as follows: (1) licit acts created by concurrence of wills (contracts); (2) licit acts either voluntary or involuntary w/o concurrence of wills (quasi-contract); (3) illicit acts of civil character w/c are not punishable, voluntary or involuntary (torts & all damages arising fr. delay); (4) illicit acts w/c are voluntary & are punishable by law (crimes) Baviera: When the source of the obligation is Law, there is no need for an act or omission for the obligation to arise. CASE: SAGRADA ORDEN VS. NACOCO [91 P 503]

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Plaintiff owned disputed property in Pandacan, Mla whc was acquired during the Japanese occupation by Taiwan Tekkosho with TCT. When RP was ceded to USA, the same was entrusted to Alien Property Custodian, APC by the US govt. APC took possession, control and custody under the Trading with the Enemy Act. APC allowed Copra Export Management Co. to occupy the property for a fee. RP later made representation with APC to use the same property with warehouse. The warehouse was repaired by NACOCO and was leased to Dioscoro Sarile. The latter failed to pay rentals on the property. In an action to recover possession of the property, the court nullified the sale to T.Tekkosho and cancelled its TCT and ordered reversion of title to plaintiff, and right of recovery from NACOCO of rentals to the property.

skin allergy as a result of using Tide in taking a bath. The question is: Does P & G have any obligation to Carale. If we look at Art. 1157, this situation does not fall in any of the five sources. So, we know have a problem. The German Civil Code (BGB) covers this situation. The BGB has a sixth source of obligation, the Auslobung, w/c means a unilateral offer. 2. CONTRACTS: © Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

ISSUE: WON NACOCO is liable to pay back rentals? HELD: If def.-appellant (NaCoCo) is liable at all, its obligations must arise fr. any of the 4 sources of obligations, namely, law, contract or quasi contract, crime, or negligence. (Art. 1089, OCC.)

Negotiation of © is initiated by an OFFER; Autonomy of Will  supposing the contract is valid and enforceable, the terms of © not contrary to law, morals, GC, PP or PO, the stipulations therewith shd be given effect. (one of fundamental principles of ©’s)

As to crimes: Def.-appellant is not guilty of any offense at all, bec. it entered into the premises & occupied it w/ the permission of the entity w/c had the legal control & admin. thereof, the Alien Prop. Admin. (APA)

Balane: There are two parts in Art. 1159.

 obligations derived fr. contract has the

As to QD: Neither was there any negligence on its part.

force of law bet. the contracting parties (jus civili )  there must be compliance in good faith (jus gentium.)

As to Contract: There was also no privity (of contract or obligation) bet. the APA & Taiwan Tekkosho, w/c had secured the possession of the prop. fr. the pltff-appellee by the use of duress, such that the Alien Prop. Custodian or its permittee (def.-appellant) may be held responsible for the supposed illegality of the occupation of the prop. by said Tekkosho.

CASE: PEOPLE'S CAR VS. COMMANDO SECURITY SCRA 40]

Pltff. (People's Car) was in law liable to its customers for the damages caused the customer's car, w/c had been entrusted into its custody. Pltff. therefore was in law justified in making good such damages & relying in turn on def.(Commando Security) to honor its contract & indemnify it for such undisputed damages, w/c had been caused directly by the unlawful & wrongful acts of def.'s security guard in breach of their contract. WON commando security is liable to damages in accordance w/ provisions of ©/ whc provision/

The APA had the control & admin. of the prop. not as successor to the interests of the enemy holder of the title, the T. Tekkosho, but by express provision of law. Neither is it a trustee of the former owner, the pltffappellee herein, but a trustee of the US Govt., in its own right, to the exclusion of, & against the claim or title of, the enemy owner. From Aug. 1946, when def.-appellant took possession, to the date of the judgment on 2/28/48, the APA had the absolute control of the prop. as trustee of the US Govt., w/ power to dispose of it by sale or otherwise, as though it were the absolute owner.

3. QUASI-CONTRACTS: Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.

Therefore, even if def. were liable to the APA for rentals, these would not accrue to the benefit of the pltff., the old owner, but the US Govt. Balane: Is the enumeration exclusive or merely illustrative?

in

Art.

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QUASI-CONTRACT is a juridical relation which arises from certain unlawful, voluntary and unilateral acts, to the end that no one may be unjustly enriched or benefited at the expense of another.

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Doctrine: The sense that the case of Sagrada Orden tells us is that the enumeration is exclusive. In resolving the issue of whether the def. should be liable to pay rentals, the SC used the process of exclusion. For there to be an obligation to pay rentals, that obligation must arise fr. either of the five (5) sources of obligations. If it does not, then there is no obligation. The clear implication of this ruling is that, these five (5) are the only sources of obligations.

The act must be: (1) Lawful – thus different from delict which is unlawful; (2) Voluntary – thus different from quasidelict which is based on fault or negligence or lack of foresight; (3) Unilateral – thus different from contract, in which parties agree. e.g. in negotiorum gestio:  Benefits Conferred Voluntarily  For preservation of Property or Business

The problem w/ Art. 1157 is that it might not cover all situations. For example: Carale uses Dove as his soap. He then hears an advertisement fr. Proctor & Gamble that it is offering a nice tumbler for those who can collect 30 wrappers of Tide before Feb. 29, 1996. So, Carale stopped using Dove & started using Tide. He was able to consume all 30 wrappers on Feb. 29, 1996. He then went to Proctor & Gamble (P & G) to exchange the 30 Tide wrappers for a tumbler. But P & G told Carale that their tumblers run out of stock. Carale contracted a

EXTRA-CONTRACTUAL OBLIGATIONS (Øs without an agreement / based in IMPLIED CONSENT)

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Q: HOW MANY? A: In NCC, 2 nominate and “some” innominate QC’s

one, as an offense against the state, & two as an offense against the victim. It is in the latter case that civil liability is recoverable. 

a. Quasi-contracts Article 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another.

Performance at debtor’s cost  non-compliance with Ø to do, creditor may do it himself or get a 3rd person at the expense of the debtor; 

Article 2143. The provisions for quasicontracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article.

Article 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so.

TITLE V - Civil Liability, RPC: CHAPTER ONE - Persons Civilly Liable for Felonies Article 100. Civil liability of a person guilty of felony. - Every person criminally liable for a felony is also civilly liable.

This juridical relation does not arise in either of these instances: ELEMENTS – (1) When the property or business is not neglected or abandoned; (2) If in fact the manager has been tacitly authorized by the owner.

[CHAPTER 2, RPC: Includes]

In the second case, the rules on agency in Title X of this Book shall be applicable. NEGOTIORUM GESTIO – juridical relation which arises whenever a person voluntarily takes charge of an agency or management of the business or property of another without any power or authority from the latter.

Baviera: Requisites of enforcing the subsidiary obligation of the employer under the RPC: criminal case was filed against the EE the act or negligence arose during or in connection w/ the performance of the latter’s employment the EE is found guilty of criminal negligence a writ of execution has been returned unsatisfied, i.e. EE has been found to be insolvent.

c. Solutio indebiti



What Civil Liability

Article 104. What is included in civil liability. – The civil liability established in articles 100, 101, 102, and 103 of this Code includes: 1. Restitution; 2. Reparation of the damage caused; 3. Indemnification for consequential damages.

In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern.

Article 2154. when there is it was unduly the obligation

when Ø to do can only be performed by debtor he cannot compelled to do so by force, the only remedy is damages; Article 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant.

b. Negotiorum Gestio



As far as crime is concerned, civil law is not concerned w/ the penal liability but only w/ the civil liability.

If something is received no right to demand it, and delivered through mistake, to return it arises.

There is no res judicata as regards the ER as there is a difference in the COA. Quasi-delict (QD) differs fr. an action based on delict on the following grounds: QUASI DELICT DELICT it is subsidiary (imputed) ER’s liability is primary in RPC Diligence of good father of In RPC, such defense of the family may be set up GFF is not available by the ER as a defense

SOLUTIO INDEBITI – juridical relation which arise whenever person unduly delivers a thing through or by mistake of another who has no right to demand it.

4. ACTS OR OMISSIONS PUNISHED BY LAW (DELICT or CRIMES  but not Felony whc is ltd. To those punished under RPC ):

A person while not criminally liable may still be civilly liable  Failure of the plaintiff to reserve in the criminal case his right to file a separate civil action is not fatal to the civil action after the acquittal of the accused.

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.



Balane: Crime as a source of obligation – There are many crimes fr. w/c, civil liability arises in their commission, in addition to the criminal penalty attached to them. This underlines the two aspects in a crime:

When the acquittal is based on ground that the guilt of the accused has not been proved beyond reasonable doubt, plaintiff has the right to institute a civil action for damages (culpa aquiliana).

Q: Is it possible that even if there is a contract bet. the parties, a quasi-delict can still be

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committed by one against the other regarding the area covered by the contract?



A: Yes, according to the case of Araneta v. de Joya, 57 SCRA 59. The same act can give rise to obligations arising fr. different sources.



For example, Alinea is the owner of a bus co., the Alinea Bus Co., Molina is a driver of one of the buses of Alinea Bus Co. Lagdameo rode the bus being driven by Molina. As a result of the reckless driving of Molina, Lagdameo suffered injuries. In this case, Lagdameo has a choice-he can sue on either contract, quasi-delict or on crime. If he decided to sue on the breach of the contract of carriage, all he has to prove is the (existence of the contract) & that it was not performed. In this case, he can sue the common carrier but not the driver bec. he has no contract w/ the driver. If he sues on quasi-delict, he can sue both the common carrier & the driver. The defense of the driver would be diligence in driving (or fortuitous event.) The defense of the common carrier would be diligence in the selection & supervision of employees. If he sues under crime, he has to sue the driver. In case the driver is convicted & has been sentenced to pay civil liability, the employer (Alinea Bus Co.) is subsidiarily liable. If Molina is insolvent, Alinea Bus Co. will pay. 



TEST OF NEGLIGENCE: Would a prudent man, in the position of the person on who negligence is attributed, foresee harm to the person injured as a reasonable consequence of the course about to be pursued?



KINDS OF NEGLIGENCE: (1) Culpa aquiliana, also known as culpa extra-contractual, or negligence as a source of Ø, QUASI-DELICT;  Governed by Arts. 2176-2194  NO contractual relation at all

Notice that the choice of cause of action will determine three things: the theory of the plaintiff, the defense of the def. & the question of whom to sue.

(2)

 Again, remember that in this case, the victim

has a choice. Provided that he is consistent w/ his theory & provided, further, that he cannot recover damages twice for the same injury.

/

PERSONS LIABLE: LIABILITY, 2180) 1. father / mother 2. guardians 3. owners/managers 4. employers 5. the State 6. teachers



The responsibility shall cease if they can prove that they have observed diligence of good father of the family to prevent damage;

Balane: The Code Commission did not choose to use tort. This is bec. tort does not exactly have the same meaning as quasi-delict. Tort [BROADER] covers intentional torts w/c in quasi-delict is considered as civil liability arising fr. acts or omissions punishable by law. There are some QD w/c are not covered by tort. Dean Bocobo suggested the ancient term culpa aquiliana. But this did not merit the approval of the Code Commission.

Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. * Torts is seldom used by SC in juris., it is broader term for actionable wrong whc may not be negligence, may be malicious tortuous act whc is not anymore QD. QUASI-DELICTS – the fault or negligence of a person who, by his act or omission connected or not with, but independent from any contractual relation, causes damage to another person;



The omission to do something which ordinarily reasonable men guided by those considerations whch ordinarily regulate the conduct of human affairs, would do; or doing something which prudent and reasonable men would not do.

(IMPUTED/vicarious

REQUISITES OF LIABILITY (IMPUTED): 1. the fault of negligence of the defendant 2. the damage suffered or incurred by the plaintiff 3. the relation of the fault or negligence and damage incurred by the plaintiff

Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (memorize!)

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Culpa contractual, or negligence in the performance of a contractual Ø.  Governed by Art. 1179 (common carrier), & all on contracts

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Baviera: The terms of the contract cannot be against mandatory & prohibitive laws. And if the contract is valid, it shall have the force of law between the contracting parties. 5. QUASI-DELICTS: (culpa aquiliana negligence / torts*) [NCC, CHAPTER 2 - Quasi-delicts]

Liability on QD is based on Equity, man is responsible not only for acts conscious and intentional acts but also for his lack of foresight, care and diligence which may cause harm to another. ELEMENTS: (1) A duty on the part of the defendant to protect the plaintiff from the injury of which the latter complains; (2) A failure to perform that duty, and (3) An injury to the plaintiff through such failure.

A TORT is a civil wrong (an actionable wrong) consisting of a violation of a right or a breach of duty for which the law grants a remedy in damages or other relief. The right is created by law in favor of a person called a creditor to compel another called a debtor to observe duty or a prestation either to render what is due him or to refrain from causing him injury. Classes of Torts According to Manner of Commission 1. Intentional Torts a. tortfeasor desires to cause the consequences of his act, or

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b.

2.

3.

tortfeasor believes that the consequences are substantially certain to result from it c. ex. Art. 26, 32 & 33 (CC) Negligent Torts: d. tortfeasor’s conduct merely creates a forseeable risk of harm which may or may not occur e. Art. 2176 (CC) Strict Liability Torts: f. ex. Art. 2183 & 2187 (CC)

tantum, rebuttable). Imputed liability in NCC is not applicable to obligations arising ex contractu, but only to extra-contractual obligations, or to use the technical form of expression, that article relates only to culpa aquiliana and not to culpa contractual. Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in the breach or omission of those mutual duties which civilized society imposes upon it members, or which arise from these relations, other than contractual, of certain members of society to others, generally embraced in the concept of status.

Q: If there is a contract bet. the parties, can there be a quasi-delict committed by one against the other regarding the area covered by the contract?

The fundamental distinction between obligations of this character and those which arise from contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation.

A: If you look at Art. 2176, you get the impression that if there is a contract bet. the parties, they cannot be liable for quasi-delict on an area covered by the contract. The case of Cangco has not really resolve this controversy. Case: CANGCO VS. MANILA RAILROAD CO. [38 P 768] Balane: There are two important principles that we learn fr. this case:

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to provide safe means of entering and leaving its trains (contract of carriage). That duty, being contractual, was direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant's servants.

The difference in concept bet. contract & quasi-delict is that in a contract, there is a pre-existing juridical tie bet. the parties. Violation of the contract gives rise to liability but not to the juridical tie. Juridical tie is not borne by a violation. In quasi-delict, it is precisely the wrongful act w/c gives rise to the juridical tie. Liability & juridical tie are simultaneous.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting (Doctrine of comparative negligence, Rakes doctrine). If the accident was caused by plaintiff's own negligence, no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

Contracts & quasi-delicts create two concentric circles w/ quasi-delict as the bigger circle. [Note: There is a little mistake in Cangco. The SC said that the driver can be sued under culpa contractual. This is wrong. The driver cannot be sued as he has no privity of contract w/ the passenger.] FACTS: Cangco was an EE of MRR Co. He takes the train going home from work. That day he alighted from the train while it was still slightly in motion. He landed on the elevated platform on top of some sacks of watermelon which made him fall violently, rolled away from the platform under the moving train where he badly crashed and lacerated his right arm. It happened at night bet 7-8pm and d station was poorly lit. Cangco’s arm was amputated twice. The seriousness of his injury made him file a case for damages vs MRR Co.

The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

HELD: It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its servants, [RESPONDEAT SUPERIOR], which can be rebutted by proof of the exercise of due care in their selection and supervision. (presumption juris

RULING: …that the train was barely moving when plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from trains under these conditions every day of the year, and sustain no injury where the company has kept its platform free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been

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for defendant's negligent failure to perform its duty to provide a safe alighting place.

(1) Wrongful act or omission imputable to the defendant by reason of his fault or negligence; (2) Damage or injury proven by the person claiming recovery; (3) A direct causal connection between the negligent act and the injury.

CASE: Where there could still be QD even when there is contract of carriage – GUTIERREZ VS. GUTIERREZ [56 P 177] FACTS: A truck and a car collided on a narrow bridge. A passenger of the truck was injured and filed a case. The owner of the truck was made defendant although his driver was driving the truck at that time and he was not a passenger of the truck. The owner of the car was also made defendant although the driver of the car at the time of the collision was his son, 18 yrs. of age, w/ other members of the family accommodated therein, but not the car owner. HELD: The court found both drivers negligent. The owner of the truck was made liable for culpa contractual, under the contract of carriage. The owner of the car was made liable under Art. 2180, imputed liability for culpa aquiliana.

Nature of Act

Gives rise to Ø





As to nature of Right violat ed Is a Wrong agains t Crimin al Intent Legal Basis for liabilit y Liabili ty for Dama ges Form of Redre ss Quant um of Eviden ce Compr omise

FRAUD dolo involves willfulness or deliberate intent to cause damage or injury to another the act itself

DOCTRINE OF PROXIMATE CAUSE  is that which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces injury and without which the result would not have occurred. The exemplification by the Court in one case is simple and explicit; viz: "(T)he proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately affecting the injury as a natural and probable result of the cause which first acted under such circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom."

NEGLIGENCE Culpa mere want of care or diligence, not voluntary act or omission

the want or care or diligence A single act may be a crime and a QD at the same time; (Art. 100, RPC) Injured party cannot recover damages twice for the same act or omission of defendant; (must choose 1 Rem.)

C. COMPLIANCE WITH OBLIGATIONS: Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

CRIME public right

Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care.

the individual

the State

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him.

not needed

Necessary

Broad

penal necessary

QUASI-DELICT private right

every QD gives rise to liability for damages

there are without liability

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery.

law

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.

crimes civil

reparation for injury suffered/indemnificatio n/compensation

punishment/fine/i mprisonment

preponderance

beyond reasonable doubt

can be compromised

criminal liability can never be compromised

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. Balane: Three types of obligations.-- (1) obligation to give; (2) obligation to do; & (3) obligation not to do.

REQUISITES FOR LIABILITY: (onus)

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I. Obligation to give A. Specific thing B. Generic thing II. To do

C. Obligation not to do 1. substitute performance 2. equivalent performance.

III. Not to do (this includes all negative obligations like obligation not to give.)

 In all these cases, the creditor has the option of resolution or rescission under Art. 1191. In addition, he can also claim damages.

Kinds of performance.-1. specific performance - performance by the debtor himself ( applies only to Ø to give )

Article 1244. 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 is due.

2. substitute performance -

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.

3. equivalent performance - grant of

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales.

performance at the expense of the debtor damages

Articles 1163 - 1166 cover obligation to give.

Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.

Three Accessory Obligations: 1. Art. 1163.-- To take care of the thing w/ the diligence of a good father of a family until actual delivery. 2. Art. 1164.-- To deliver the fruits to the creditor (fruits produced after obligation to deliver arises.) 3. Art. 1166.-accessories.

Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same class.

To deliver accessions &

Balane:

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties

 From the time the obligation arises, the creditor has a personal right against the debtor as to the fruits. But he has no real right over them until actual delivery.

Article 442. Natural fruits are the spontaneous products of the soil, and the young and other products of animals.

 Real

right is a right w/c is enforceable against the whole world. He has only the personal right against the debtor w/ regard to the undelivered fruits.

Industrial fruits are those produced by lands of any kind through cultivation or labor.

 This is bec. of the principle Non nudis

pactis, sed traditione, dominia rerum transferentur (It is not by mere agreement, but by delivery, is ownership transferred.)

Civil fruits are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income

 Personal right arises fr. the time the obligation to deliver arises whereas the real right does not arise until actual delivery.

NATURE AND EFFECTS OF Ø’s OBJECT OF THE Ø: 1. to give  real Ø  determinate (specific) or indeterminate (generic) 2. to do 

Articles 1165 - 1167.-- Remedies Available to the Creditor (specific performance, substitute performance, equivalent performance.) A. In obligations to give

3.

1. A determinate thing a. Specific performance b. Equivalent performance

not to do  personal Ø  positive (to do) or negative (not to

do) REAL Ø: a. DETERMINATE Ø – particularly designated from a particular class; PRINCIPAL Ø – to give (to deliver) a determinate thing; ACCESSORY Ø – exists even when not expressly stipulated; (1) Art. 1163 – to take care of the thing with proper diligence of a good father of the family;

2. A generic thing, all remedies are available

B. In an obligation to do, make a distinction: In obligation to do, w/c is purely personal  only equivalent performance is available

(2) Art. 1164 – to deliver the fruits; (441)  natural / industrial / civil  the Ø to deliver arises only if the creditor is entitled;

In an obligation to do w/c is not personal: a. substitute performance b. equivalent performance Note: In obligations to do, specific performance is not available.  The reason for this is that specific performance will give rise to involuntary servitude.

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(3) Art. 1166 – delivery of the accessions and of the accessories (Art 440); b. GENERIC THING  is one that is indicated only by its kinds, without being distinguished from others of the same kind. (indeterminate)  In an Ø to deliver a generic thing, the object is determinable; when delivered it becomes determinate.

was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

DELIMITED GENERIC  not totally generic nor specific; oblig. To deliver one of SEVERAL things; does not have designation nor physical segregation; Rule re Fortuitous Events still apply.



DETERMINATION OF DILIGENCE REQUIRED: (1) LAW  e.g. extra ordinary diligence required in Common carriers (2) Stipulation of Parties (3) Presumed: diligence of a Good father of the Family if none is specified/expressed by law or agreement.

CASE: re Art. 1179, par. 2 PAY V. PALANCA [57 SCRA 618] From the manner in w/c the P/N was executed, it would appear that petitioner was hopeful that the satisfaction of his credit could be realized either through the debtor sued receiving cash payment fr. the estate of the late Carlos Palanca presumptively as one of the heirs, or, as expressed therein, "upon demand." (ALTERNATIVE Ø)

REAL RIGHT  is the power by a person over a specific thing, susceptible of being exercised against the whole world.

There is nothing in the record that would indicate whether or not the first alternative was fulfilled. What is undeniable is that on 8/26/67, more than 15 yrs. after the execution of the P/N on 1/30/52, this petition was filed. The defense interposed was prescription. Its merit is rather obvious. Art. 1179, par. 1 says so. xxx

PERSONAL RIGHT  belongs to a person who may demand from another, as a definite passive subject, the fulfillment of a prestation. 



A pure obligation is one w/c is not subject to a condition or a term.

From the moment the Ø to deliver a determinate thing arises, the creditors earns a personal right over the thing and its fruits, but only delivery or tradition transfers ownership that is a real right over the thing against the whole world. For failure to deliver, the creditor’s remedy is not reivindicacion but specific performance.

The obligation being due & demandable (bec. Of the phrase “upon demand”), it would appear that the filing of the suit after 15 yrs. was much too late. PURE Ø  demandable at once  running of Rx.pd. starts immediately upon creation of the Ø; Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

[CHAPTER 2: Right of Accession – GENERAL PROVISIONS] Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.

Q: Does the happening of a condition give rise to the Ø? A: Not necessarily, only if suspensive condi.; if resolutory condi, the happening exctinguishes the Ø;

Kinds of Fruits; 1) CIVIL – derived by virtue of juridical relation 2) Natural – spontaneous products of the soil and the young and other products of animals; 3) Industrial – produced by lands of any kind through cultivation or labor or by reason of human labor.

Q: In an Ø with a TERM will the answer above be the same? A:

D. KINDS OF CIVIL OBLIGATIONS: b. CONDITIONAL

1. AS TO PERFECTION & EXTINGUISHMENT:

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

a. PURE – (CHAPTER 3) Different Kinds of Obligations SECTION 1 - Pure and Conditional Obligations Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once.

Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event.

Balane:  We are talking here of a suspensive condition.

Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period

First sentence of Art. 1182.- The condition must be suspensive, potestative & depends on the sole will of the debtor.

9

of the essencereasonable time.

EXAMPLE: "I promise to sell you my car for P1.00 whenever I like."

Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

Potestative Condition  is one w/c depends solely on the will of either one party. EXAMPLE: " I will give you my plantation in Davao provided you reside in Davao permanently."

The condition not to do an impossible thing shall be considered as not having been agreed upon.

Casual Condition  is one where the condition is made to depend upon a third person or upon chance. EXAMPLE: "I will give you my land in Floridablanca if Mt. Pinatubo erupts this year."

Balane: This refers to a suspensive condition.

Mixed Condition  is one w/c depends partly upon the will of one of the parties & partly on either chance or the will of a third person.

There are 2 classes of impossible conditions: 1. Impossible in fact EXAMPLE: "I promise to sell my car to Mr. M for P2 if he can swim across the Pacific Ocean for 2 hours."

Q: What if the condition is suspensive, potestative & depends solely on the will of the creditor, is the conditional obligation valid? A: Yes. In fact, the obligation is not even a condition obligation. It is a pure obligation, binding at once.

2. Impossible in law  or one w/c attaches an illegal condition EXAMPLE: "I promise to sell my car to Mr. M for P2 on condition that he burns the College of Law."

CASE: the term whc parties attempted to fix were so uncertain it must be regarded as condition SMITH BELL V. SOTELO MATTI [44 P 874]

Effect of Impossible Condition  It annuls the obligation w/c depends upon them.  The entire juridical tie is tainted by the impossible condition. Correlate this w/ Articles 727 & 873.

Where the fulfillment of the condition does not depend on the will of the obligor, but on that of a 3rd person who can, in no way be compelled to carry it out, the obligor's part of the contract is complied w/, if he does all that is in his power, & it then becomes incumbent upon the other contracting party to comply w/ the terms of the contract.

Art. 727. Illegal or impossible conditions in simple & remuneratory donations shall be considered as not imposed. Art. 873. Impossible conditions & those contrary to law or good customs shall be considered as not imposed & shall in no manner prejudice the heir, even if the testator should otherwise provide.

FACTS: Øs in ©s entered bet. Plaintiff Corp. as seller and defendant as buyer: © constituted on August 1918: 2 steel tanks 21K to be shipped fr NY delivered to Mla “w/in 3 or 4 mos.” (Delivered; April 27, 1919) Two expellers or 26. 1918)

must be made w/in a

Record shows that plaintiff did all w/in its power to have machinery arrive in Mla. ASAP, and notified defendant of such arrival STAT, court considered such as reasonable time. Plaintiff was ordered to pay.

Q: Why does it make the obligation void? A: Bec. such an obligation lacks one of the essential elements of an obligation, the vinculum juris, the binding force-- the means by w/c it is enforceable in court. In this case, there is no binding force. There is no obligation. It is a joke.



delivery

Tolentino:  In contracts, an impossible condition annuls the contract.  In gratuitous dispositions, the impossible condition is simply disregarded.

25Kea to be shipped fr SF in Sept.1918 ASAP (Delivered:Oct.

Balane: The first statement is inaccurate bec. donation is a contract & in a donation, the impossible condition does not annul the contract. It is simply disregarded. The proper way to say it is that:  In an onerous transaction, an impossible condition annuls the condition obligation.  In a gratuitous disposition, as in a donation or testamentary disposition, an impossible condition attached to the disposition is simply considered as not imposed.

2 electric motors 2K ea “Approx.delivery w/in 90days – This is not guaranteed.” (Feb. 27, 1919)  defendant refused to accept and pay deliveries b/c of delay HELD: At the constitution of the ©, the 1st W.War was still ongoing and the US govt was rigid on exportation of machinery such as the subjects of this ©; the term whc parties attempted to fix were so uncertain it must be regarded as condition, their fulfillment depended not only upon the effort of plaintiff Co. but upon that of the US govt, or 3rd person who could in no way be compelled to issue certificate of priority and permission. Thus the obligor will be deemed to have sufficiently fulfilled his part of the Ø if he has done all that is in his power even if condi.,in reality was not fulfilled. And when time of delivery is not fixed, stated in general terms or is indefinite, time is not

Q: Why is there a difference? A: Bec. in a donation as well as in a testamentary disposition, the causa or consideration is the liberality of the donor or testator, as the case may be. Even if you take away the impossible condition, there is still a reason for the disposition to exist-- liberality. They (donation & testamentary disposition) have both their underpinnings, liberality. But in an onerous transaction, since an onerous prestation w/c is reciprocal requires concomitant performances, that impossible condition becomes part

10

of the causa. Therefore, if the condition is impossible, there is failure of causa. In no causa, there is also no contract.

interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different.

Paras:



 Positive suspensive condition to do an impossible/ illegal thing  The obligation is void (Art. 1183, par. 1.)

 A

negative condition (not to do an impossible thing)  Just disregard the condition (Art. 1183, par. 2.)

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

Balane: This article refers to suspensive condition. This article sets forth the rule of retroactivity in an obligation to give. This rule is logical but impractical. Many modern Civil Codes have discarded it.

 A condition not to do an illegal thing (negative)  This is not expressly provided for in the provision but is implied. The obligation is valid.

No Retroactivity as to the Fruits  Notice that there is no retroactivity w/ respect to the fruits. The fruits are deemed to cancel out each other. If only one of the thing produces fruits, there is no obligation to deliver the fruits.

EXAMPLE: "I will sell you a piece of land provided you do not plant marijuana on it." Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place.

Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.

Balane: This article refers to suspensive conditions. If the condition is resolutory, the effect is the opposite.

Balane: This article refers to suspensive conditions.

Article 1185. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation.

Bring the appropriate actions  According to JBL Reyes, the phrase "may xxx bring the appropriate actions" is inaccurate. To bring action is to file a suit. But the creditor is not restricted to filing a suit. The proper verb is not "bring" but "take." For example, in a sale of land subject to suspensive condition, the creditor should have the suspensive condition annotated on the title of the land. This is not bringing an appropriate action but taking an appropriate action.

Balane: This article refers to a suspensive condition. Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

The principle in this article is: Vigilantibus et non dormientibus jura subveniunt  w/c means that the laws aid those who are vigilant, not those who sleep upon their rights.

Balane: This article refers to a suspensive condition.

Q: Why does Art. 1188 give the creditor a recourse although technically the creditor still have no right? A: Bec. as a matter of fact, although technically the creditor still have no right, he is already expecting a right. You cannot let the creditor sit & fold his arms & wait for his right of expectancy to be rendered illusory.

Doctrine of Constructive Compliance  There are three requisites in order that this article may apply: 1. Intent on the part of the obligor to prevent fulfillment of the condition. The intent does not have to be malicious. 2. Actual prevention of compliance (by the obligor) 3. Constructive compliance can have application only if the condition is potestative. It can also apply to Mixed condition as to that part w/c the obligor should perform.

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation

Kinds of Conditional Obligations: a. Suspensive Condition (Condition precedent) Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and

11

and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) (b) Resolutory Condition (Condition subsequent) Balane: Art. 1190 refers to resolutory conditions. This is just the opposite of Art. 1189. Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for the obligations to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the effect of the extinguishment of the obligation. Balane: A condition is a future & uncertain event upon w/c an obligation or provision is made to depend. Tolentino: xxx Futurity & uncertainty must concur as characteristics of the event. A past thing can never be a condition. A condition is always future & uncertain.



Past event unknown to the parties  It is really the knowledge of the event w/c constitutes the future. It is the knowledge w/c is future & uncertain. EXAMPLE: " I will treat you for lunch if you get the highest score in the Civil Law Final Exams (on the assumption that Prof. Balane has already finished checking the papers.)" Here, the event (getting the highest score) is already a past event, yet the knowledge is future & uncertain. Condition compared to a term  As to element of futurity in the aspect of certainty

Condition Same, may be past event unknown to parties uncertain

Term Same, future

always

certain

Conditions can either be:

1. Suspensive

condition (condition precedent) wherein the happening of the event gives birth to an obligation

2. Resolutory

condition (condition subsequent) wherein the happening of the event will extinguish the obligation.

12

c. WITH A TERM OR PERIOD: Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of article 1197.

As to influence on the obligation

a condition gives rise to an obligation or extinguishes one already existing

Effect

May have retroactive effect

Tolentino: Period must be (1) future (2) certain and (3) possible.

As to time

A term can either be: 1. suspensive term (ex die -- fr. the day) or one the arrival of w/c will make the obligation demandable;

As to will of debtor

may refer to a past event unknown to the parties a condition w/c depends exclusively on the will of the debtor annuls the obligation

Balane: A term is a future and certain event upon w/c the demandability (or extinguishment) of an obligation depends.

2. resolutory term (in die -- into the day) or one the arrival of w/c will extinguish the obligation. The period after which the performance must terminate.

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed.

voluntary, stipulated by parties judicial, fixed/allowed by courts

May also be,

(a) express, specified (b) tacit, e.g. stipulated to do some work whc may only be done at a particular season. Or, 1. original period 2. grace period, extension fixed by parties

Balane: There are three requisites in order for Art. 1189 to apply-1. There is loss, deterioration or delay 2. There is an obligation to deliver a determinate thing (on the part of the debtor)

Or

a. definite, fixed known date or time, b. indefinite, event will happen but not known when

3. There is loss, deterioration or improvement before the happening of the condition.

Effect of Period: Ø with term are demandable only when day fixed for performance arrive; Rt. Of Axn arises only when date fixed arrives;

4. The condition happens. Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests.

Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.

•

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

1195 applies only in Ø to give;

Balane: Mistaken Premature Delivery  This article assumes 2 things: (1) the delivery was by mistake; (2) the mistake was discovered bef. the term arrives.

A day certain is understood to be that which must necessarily come, although it may not be known when.



If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding Section.

Both the things & the fruits can be recovered.

If the term has already arrived, the question is moot & academic. But can he recover the fruits produced during the meantime? It depends on what school of thought you follow: Tolentino : According to one school of thought, the debtor is entitled to the fruits produced in the meantime.

MANRESA: A term or period is an interval of time, w/c, exerting an influence on an obligation as a consequence of a juridical act, either suspends its demandability or produces its extinguishment. Distinguished fr. Condition: CONDITION As to uncertain event fulfillment

a period left to the debtor's will merely empowers the court to fix such period

Balane: In a (suspensive) term, the obligation has already arisen except that it is not yet demandable.

Terms classified accdg to source; 1. Legal, period fixed by law

2. 3.

a time w/c cannot be predetermined has no effect upon the existence of obligations, but only their demandability or performance NO retroactive effect, except when there is a special agreement always refer to the future

Caguioa : According to another school of thought, all the fruits received during the pendency of the term belong to the creditor.

TERM / PERIOD an event that must necessarily come, whether on a date known before hand or at

When fruits & interests cannot be recovered notw/standing premature delivery:

13

1. When the obligation is reciprocal & there has been premature performance (by both parties); 2. When the obligation is a loan in w/c the debtor is bound to pay interest; 3. When the period is for the creditor's exclusive benefit; 4. When the debtor is aware of the period & pays anyway. (Knowledge, tacit waiver of benefit of term)

necessary for the gathering of the fruits w/c the whole estate leased may yield in one year, or w/c it may yield once, although two or more years may have to elapse for the purpose. Article 1687. If the period for the lease has not been fixed, it is understood to be fr. year to year, if the rent agreed upon is annual; fr. month to month, if it is monthly; fr. week to week, if the rent is weekly; & fr. day to day, if the rent is to be paid daily. xxx

2. Presumed for whose benefit: BOTH Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other.

Art. 1606 in pacto de retro sale where the period is not specified by the parties Art. 1606. The right referred to in article 1601 (the right of conventional redemption on the part of the vendor a retro), in the absence of an express agreement, shall last four years fr. the date of the contract. XXX

Balane: General rule: If a period is attached in an obligation, the presumption is that it is for the benefit of both parties. 



The consequence is that the creditor cannot compel the performance before the arrival of the term; the debtor cannot compel acceptance bef. the arrival of the term.

Art. 1197. Xxx The courts shall also fix the duration of the period when it depends upon the will of the debtor.

If the term is for the benefit of the creditor  The creditor can demand performance anytime; but the debtor cannot insist on payment bef. the period.

Art. 1191. Xxx the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. Art. 1687. xxx However, even though a monthly rent is paid, & no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month.

If the term is for the benefit of the debtor  The creditor cannot demand performance anytime; but the debtor can insist on performance anytime. EXAMPLE: "I promise to pay w/in 60 days." This is a term for the benefit of the debtor. "I promise to pay Clara the sum of P100,000 on or before Oct. 31, 1996." This is a term for the benefit of the debtor. In © of Loan, without interest, term is usually for benefit of debtor, thus he may pay in advance; If there is stipulation as to interest, period is generally for both parties, debtor cannot pay in advance vs. will of creditor; unless he also pays interest in full.

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one w/ a period, subject to the provisions of article 1197.

3. When NO period is fixed

CASE: Where obligation does not fix a period; When fixing a period is mere formality —

Balane: Cases where the Courts may fix a period 

CHAVEZ V. GONZALES [32 SCRA 547] Def. virtually admitted non-performance by returning the typewriter he was obliged to repair in a non-working condition, w/ essential parts, missing. Plaintiff had the thing fixed by another and later demanded fr. Def. payment of actual, compensatory, temperate and moral damages.

1. Art. 1197, par. 1 Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

ISSUE: WON Def. may not be held liable b/c © did not contain a period. HELD: He cannot invoke Art. 1197 of the NCC. The time for compliance having evidently expired, & there being a breach of contract by non-performance, it was academic for the pltff. to have first petitioned the court to fix a period for the performance of the contract before filing his complaint in this case. The fixing of a period would thus be a mere formality & would serve no purpose than to delay.

The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. Exceptions:

contract of services for an indefinite term (bec. fixing of a period by the courts may amount to involuntary servitude)

ENCARNACION V. BALDOMAR [77 P 470] Plaintiff was owner of a house in Legarda, Manila leased to defendant on month-to-month basis with rental of P35. After the was plainitiff demanded def. to vacate b/c he needed it d/t destruction of his office.

(a) Art. 1682

Article 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been made for all the time

14

WON:def may continue to occupy indefinitely as long as he pays rentals HELD: The continuance & fulfillment of the contract of lease cannot be made to depend solely & exclusively upon the free & uncontrolled choice of the lessees bet. continuing paying the rentals or not, completely depriving the owner of all say in the matter. For if this were allowed, so long as defs. elected to continue the lease by continuing the payment of the rentals the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by Art. 1256, NCC.

courts may fix the duration of the obligation if it does not fix a period, does not apply. LIM proposed to sell Ayroso’s tobacco for her at a price, in consideration that the markup would be hers. They agreed that proceeds of the tobacco sale shd be turned over as soon as sold, or demandable immediately after all the tobacco was disposed of. For failure to remit all the sales, lower court convicted Lim of estafa. ISSUE: WON court may fix period of Ø under Art. 1197 HELD: 1197 does not apply in this case. The agreement bet. Them was one of agency with the Ø to return the unsold tobacco and the proceeds of the sale demandable stat. MILLARE V. HERNANDO [151 SCRA 484] FACTS: Pacifica Millare, lessor and spouses Co lessee in a 5-yr © of lease of People’s Resto; at d last wk of d 5yr period, lessor offered to extend d lease if spouses Co will agree to increase rental from P350 to P1200 a mo.; spouses counter-offered p700; d discussion was set aside; later a demand letter was issued by lessor to vacate premises w/o renewal of expired ©; lessor disagreed and filed an ejectment case; spouses Co filed a separate case for the court to order renewal of © and fix rental at p700 a mo. Spouses deposited monthly rental in court; plaintiff filed M2D for lack of ju’s &no COA; M2D denied; ISSUE: WON spouses Co have valid COA in claiming renewal of lease © HELD: YES. There was implied renewal of lease © but only on a month-2-mo. Basis, not for another 5yrs; Par. 1 of Art. 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of 5 yrs., w/c had expired. It is also clear fr. par. 13 of the contract that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract. The 2nd par. of Art. 1197 is equally inapplicable since the duration of the renewal period was not left to the will of the lessee alone, but rather to the will of both the lessor & the lessee. Most importantly, Art. 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of w/c could have been fixed. SC granted TRO and injunction.

ELEIZEUI V. LAWN TENNIS CLUB [2 P309] DOCTRINE: The term of a lease whose termination is expressly left to the will of the lessee must be fixed by the courts according to the character & conditions of the mutual undertakings, in an action brought for that purpose xxx. The herein Contract of Lease was made to endure at the will of the lessee who is expressedly authorized to make improvements upon the subject land by erecting buildings therein, perm or temp, making fills, lay pipes, make such other improvements at his own convenience. No period was fixed for the existence of the ©. HELD: It is evident that the lessors did not intend to reserve to themselves the right to rescind that which they have expressly conferred to lessee whc is exclusively in favor of the latter. PHILBANKING V. LUI SHE [21 SCRA 53] DOCTRINE: A lease to an alien for a reasonable period is valid. on November 15, 1957, the parties entered into the lease contract for 50 years: that ten days after, that is on November 25, they amended the contract so as to make it cover the entire property of Justina Santos; that on December 21, less than a month after, they entered into another contract giving Wong Heng the option to buy the leased premises should his pending petition for naturalization be granted; that on November 18, 1958, after failing to secure naturalization and after finding that adoption does not confer the citizenship of the adopting parent on the adopted, the parties entered into two other contracts extending the lease to 99 years and fixing the period of the option to buy at 50 years.

Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one w/ a period, subject to the provisions of article 1197.

4. When debtor loses the benefit of period Article 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond.

which indubitably demonstrate that each of the contracts in question was designed to carry out Justina Santos' expressed wish to give the land to Wong and thereby in effect place its ownership in alien hands,1 about which we shall have something more to say toward the end of this resolution. We concluded that "as the lease contract was part of a scheme to violate the Constitution it suffers from the same infirmity that renders the other contracts void and can no more be saved from illegality than the rest of the contracts." LIM V. PEOPLE [133 SCRA 333] - It is clear in the agreement that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Art. 1197 of the NCC, w/c provides that the

(6) Art. 2109 - If the creditor is deceived on the substance or quality of the thing pledged, he may either claim another thing in its stead, or demand

15

immediate payment of the principal obligation. (The sixth ground was added by Prof. Balane.)

[1544] Retroactive effect Art. 1188 – preserve his interest

Effects of Loss of Term (1198): • Ø becomes immediately due & demandb even if period has not yet expired. • Ø is converted to a pure Ø • Insolvency of DEBTOR – need not be judicially declared; state of financial difficulty is enough.

PROTECT HIS EXPECTANCY 1. Register with the Registry of Property 2. witness 3. possession in good faith 4. Injunction  if the sell was not consummated or not for sale

Balane: In number one, factual insolvency is enough. A judicial declaration of insolvency is not required.

RESOLUTORY CONDITION Art. 1190 – no exception, walang matitira

[THUS, AGAIN! ] DIFFERENT KINDS OF Øs: PURE AND CONDITIONAL Øs – when the Ø contains no terms or conditions;

SUSPENSIVE CONDI – upon the happening of the condi., the Ø exists (“existence of Ø is affected) CLASSIFICATION OF CONDITION: 1. POTESTATIVE – when the fulfillment of the condi. depends upon the will of the party to the Ø; 2. CAUSAL – depends upon chance 2nd or 3rd person 3. MIXED – depends partly upon the will of the party & partly upon chance or a 3rd person

CONDITIONAL Øs – one which is subject to condition; CONDITION – every future and uncertain event upon which an Ø or provision is made to depend; FUTURE & UNCERTAIN EVENT – the acquisition or resolution of the rights is made to depend by those who execute the juridical act;

Art. 1182: Potestative – sole will of the debtor  Potestative suspensive is VOID. Ex. A will give 5% commission to B, but it depends on the will of A, void;  All other potestative conditions, valid.

CLASSIFICATION OF CONDITIONS: 1. SUSPENSIVE – the happening of the former gives rise to an Ø; 2. RESOLUTORY – the happening of the latter extinguishes rights already existing. PAST BUT UNKNOWN – a condition may refer to past event unknown to the parties; IMPOSSIBLE CONDITION: 1. PHYSICALLY IMPOSSIBLE – when it is contrary to law of nature; 2. JUDICIALLY IMPOSSIBLE – when contrary to law, morals, good customs and public safety PURE Øs  when it is not subject to a term, period and no condition; - demandable at once - its immediate demandability, give time for debtor to comply PERIOD = is an event that is future but certain (just a matter of time); e.g. passing this class (oblicon)

Art. 1183 – impossible condition 1. physical impossibility 2. legal impossibility Art. 873 – impossible testamentary conditions  disregard Ex. Art. 727 – donation CONDITION 1. future&uncertain event 2. suspensive condition 3. resolutory condition

PERIOD / TERM 1. future&certain 2.suspensive period/“demandability” 3. resolutory period

SUSPENSIVE PERIOD – prior to the period, there is already an Ø, but it is suspensive by the period;

PAST EVENT – cannot be future event, cannot be considered uncertain;

Art. 1164 - the Ø to deliver arises upon the perfection of the contract if subject to suspensive period & not suspensive condi.

SUSPENSIVE CONDITION: * rights are acquired, upon the happening of a condi.

RESOLUTORY PERIOD – “terminated” but the effects that accrued in the past will remain;

Art. 1181 – Ø created upon the happening of a condition

RESOLUTORY CONDITION – “extinguishes” as if nothing happens; retroactive effect of Ø;

RESOLUTORY - extinguished, or loss of existing rts, upon the happening of a condi.

EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM: - the contract shall be deemed suspended but the F.E. shall not stop the running of the term or period agreed upon;

* Thus a contract may demandability suspended.

be

perfected

but

its

Art. 1186 – deemed constructively fulfilled; applied only to suspensive not to resolutory condi. Art. 1187 – effects of conditional Ø to give; Ex. A sold a house&lot to B, 1M Condition: if B will pass the bar exam Term: effect retroacts after the passing is announced on April; Jan.2004 perfection

Sept. 2004

Oct.04 (w/o condi./ Pure)

Apr.05 condi.

Art. 1195 – advanced payment Art. 1196 – Presumption – if the period is designated, the benefit is for both the creditor & debtor Exception: the tenor of the same or other circumstances, it should appear that the period has been established in favor of one or the other; Art. 1197 – 3 reasons why the court will fix the period: 1. if the Ø does not fix a period, but from its nature & circumstances it can be inferred that a period was intended by the parties;

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2. 3.

in the duration of the time depends upon the will of the debtor if the debtor binds himself to pay when his means permit him to do so

Art. 1199. A person alternatively bound by different prestations shall completely perform one of them.

Art. 1198 – memorize!

The creditor cannot be compelled to receive part of one & part of the other undertaking.

Article 1198. The debtor shall lose every right to make use of the period WHEN: (1) after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) he does not furnish to the creditor the guaranties or securities which he has promised; (3) by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) the debtor attempts to abscond.

Tolentino: The characteristic of alternative obligations is that, several objects being due, the fulfillment of one is sufficient xxx. Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations w/c are impossible, unlawful or w/c could not have been the object of the obligation. Balane: Q: To whom does the right of choice belong? A: General rule: To the debtor (Art. 1200.) Exception: When expressly granted to the creditor (cannot be implied)

Q: How cud there be guaranty when debtor is insolvent? A: 3rd person (surety)

* There is a third possibility where the choice may be made by a third person upon agreement of the parties. (expressed)

Q: when is Ø due&demandb even if period has expired? A: if debtor has lost rt. to make use of such period (1198)

Q: What is the technical term of the act of making a choice in alternative obligations? A: Concentration.

D. (2) Obligations according to plurality of objects:

•

A. Simple

•

B. Multiple

Art. 1201. The choice shall produce no effect except fr. the time it has been communicated.

C. Conjunctive  where the debtor must perform more than one prestation

Balane: Requirement of Communication of choice  If the choice belongs to the creditor, of course, he has to communicate his choice to the debtor. The debtor is not a prophet.

Q: A promised to deliver to B his carabao, dog & goat. What kind of Ø is this? A: conjunctive D. Alternative Obligations  where the debtor must perform any of several prestations

No required form  may be ORAL, IN WRITING, TACITLY, OR OTHER UNEQUIVOCAL MEANS.

when several objects due, the fulfillment of one is sufficient, generally the debtor chooses which one.

Q: If the choice belongs to the debtor, why require communication before performance if the choice belongs to him anyway? A: To give the creditor an opportunity to consent to the choice or impugn it. (Ong v. Sempio-Dy, 46 P 592.)

E. Facultative  where only one thing is due but the debtor has reserved the right to substitute it w/ another (Art. 1206) • election creditor

here

is

never

granted

The right to choose is indivisible  debtor cant choose part of one prestation and part of another; Here, plaintiff’s action must be in alternative form;

BUT how can the creditor impugn it if the choice belongs to the debtor. The better reason would be to give the creditor a chance to prepare for the performance.

to

Q: In conjunctive, right to choose is always with debtor? A: NO. No right to choose b/c all must be performed.

Not CONSENT: only declaration of choice made, communicated to the other party, unilateral decal.of will;

Q: in Alternative, rt. To choose can be given to 3rd person? A: YES. (Art. 1000) as long as it is not contrary to law, morals, PO, PP, etc.

Articles 1202 to 1205 talk of the loss of some of the prestations before performance.

Q: In an agreement where there is no stipulation as to who has rt. to choose? A: It depends. If Alternative, generally debtor chooses; if facultative, only with debtor 1. If the choice is debtor's

Q: What if debtor has rt. to choose and he delays? A: rt. is not lost by mere delay; (before creditor files his action)

a. When only one prestation is left (whether or not the rest of the prestations have been lost through fortuitous event or through the fault of the debtor), the debtor may perform the one that is left.-- Art. 1202.

(b) Alternative Obligations

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a. If one or some are lost through fortuitous event, the creditor may choose fr. those remaining.-- Art. 1205 (1)

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable.

b. If one or some are lost through the debtor's fault, the creditor has choice fr. the remainder or the value of the things lost plus damages.-- Art. 1205 (2), supra.

b. If the choice is limited through the creditor's own acts, the debtor can ask for resolution plus damages.--

c. If all are lost through the debtor's fault, the choice of the creditor shall fall upon the price of any of them, w/ indemnity for damages.-- Art. 1205 (3), supra.

Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract w/ damages.

d. If some are lost through the creditor's fault, the creditor may choose fr. the remainder.

c. If everything is lost through the debtor's fault, the latter is liable to indemnify the creditor for damages.--

e. If all are lost through fortuitous event, the obligation is extinguished. f. If all are lost through the creditor's fault, the obligation is extinguished.

Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things w/c are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing w/c disappeared, or that of the service w/c last became impossible. Damages other than the value of the last thing or service may also be awarded.

Distinguished fr. Facultative obligations: Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud.

d. If some things are lost through the debtor's fault, the debtor can still choose fr. those remaining. e. If all are lost through fortuitous event, the obligation is extinguished.

Tolentino: Facultative vs. Alternative -

f. If all prestations but one are lost through fortuitous event, & the remaining prestation was lost through the debtor's fault, the latter is liable to indemnify the creditor for damages.

As to contents of the obligation

g. If all but one are lost through the fault of the debtor & the last one was lost through fortuitous event, the obligation is extinguished.

Alternative Ø there are various prestations all of w/c constitute parts of the obligation

2. Choice is the creditor's Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative fr. the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules:

As to nullity

the nullity of one prestation does not invalidate the obligation, w/c is still in force w/ respect to those w/c have no vice

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that w/c the creditor should choose fr. among the remainder, or that w/c remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that w/c, through the fault of the former, has disappeared, w/ a right to damages;

As to choice

the right to choose may be given to the creditor only the impossibility of all the prestations due w/o fault of the debtor extinguishes the obligation

As to effect of loss

(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also w/ indemnity for damages.

Facultative Ø only ONE principal prestation constitutes the obligation, the accessory being only a means to facilitate payment. the nullity of the principal prestation invalidates the obligation & the creditor cannot demand the substitute even when this is valid only the debtor can choose the substitute prestation. the impossibility of the principal prestation is sufficient to extinguish the obligation, even if the substitute is possible

Balane: 

Facultative obligations choice by the debtor. •

The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible.

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In theory, facultative one. But distinguish find out intended.

always

involve

it is easy to distinguish a obligation fr. an alternative in practice, it is difficult to the two. You just have to what the parties really

•

•

•

Only One prestation is DUE and enforceable by the creditor at the time of choice; if the substitute becomes impossible d/t fault of debtor the Ø is not affected, thus no damages; If after choosing the substitute and choice is communicated to creditor, the principal prestation becomes impossible, Ø is not extinguished but has become a simple Ø that must be performed; and he will be liable for damages in delay, neglect or bad faith. If principal Ø becomes impossible by fault or negligence of creditor, debtor cannot be compelled to perform the substitute (no more substitute, becomes simple) – extinguished.

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[JULY 3, 2008 CLASS] Disjunctive Ø: not covered by NCC; there are 2 or more creditors and 2 or more debtors but they are named disjunctively as debtors and creditors in the alternative. * rules on solidary Øs must apply  b/c if rules on alternative Øs will be applied then the debtor will generally be given the choice to whom shall he give payment.

3. AS TO RIGHTS & Ø’s OF MULTIPLE PARTIES: [Joint & Solidary Obligations, Arts. 1207-1222] a. Joint Obligations Balane: A joint obligation is one in w/c each of the debtors is liable only for a proportionate part of the debt or each creditor is entitled only to a proportionate part of the credit.

Example: A binds himself to pay P100 either to X or Y  A or B will pay 100 to X.

In joint obligations, there are as many obligations as there are debtors multiplied by the number of creditors.

b. Indivisible Obligations Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, & the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the other shall not be liable for his share.

There are three kinds of joint obligations: 1) Active joint  where the obligation is joint on the creditor's side; 2) Passive joint  where the obligation is joint on the debtor's side; & 3) Multiple Joint  where there are multiple parties on each side of a joint obligation.

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.

Tolentino: The joint obligation has been variously termed mancomunada or mancomunada simple or pro rata;

 the Ø here is joint even if the performance is indivisible;

In P/N the phrase "We promise to pay," used by 2 or more signers, creates a pro rata liability (JOINT);

Joint Indivisible Ø: there are several debtors or creditors but the prestation is indivisible  Ex. Delivery of a house or a determinate thing;  fulfillment requires the concurrence of ALL debtors, although they are each for his part; and on side of creditors, collective action required for acts whc may be prejudicial;  Consent required, must still communicate choice after consensus

While “I promise to pay” followed by signatures of 2 or more persons – solidary; individually and collectively; individually and jointly. JOINT character is PRESUMED: WHEN no stipulation as to liability of several debtors, presumption is joint, and each is liable only for his proportionate part of the Ø; J/FO of court as to several defendants when solidarity has not been specified, the liability of the defendants in joint; court cannot amend.

INDIVISIBILITY

SOLIDARITY

Refers to the prestation, whc is not capable of partial performance

Refers to the legal tie or vinculum defining the extent of liability

Effects to Joint creditors

Each cannot demand more than his share

Each may demand the full prestation

Effects to joint debtors

Each is not liable for more than his share

Each has the duty to comply with entire prestation

Effects of Joint Liability: 1.

The demand by one creditor upon one debtor, produces the effects of default only w/ respect to the creditor who demanded & the debtor on whom the demand was made, but not w/ respect to the others; 2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does not benefit the other creditors nor interrupt the prescription as to other debtors. On the same principle, a partial payment or acknowledgement made by one of several joint debtors does not stop the running of the statute of limitations as to the others; 3. The vices of each obligation arising fr. the personal defect of a particular debtor or creditor does not affect the obligation or rights of the others; 4. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand anything fr. his co-creditors; 5. In the joint divisible obligation, the defense of res judicata is not extended fr. one debtor to another. (Manresa)

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages fr. the time anyone of the debtors does not comply w/ his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in w/c the obligation consists. If there is plurality of creditors to only one debtor, (GR) the Ø can be performed by delivery of the object to all the creditors jointly; • Delivery to only one creditor makes the debtor liable for damages to the other debtors for nonperformance, unless they have authorized this one creditor to collect in their behalf; • If only one or some, not all creditors demand fulfillment the debtor may refuse to deliver and insist that all the creditors together receive the

Art. 1208. If fr. the law, or the nature or the wording of the obligations to w/c the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct fr. one another, subject to the Rules of Court governing the multiplicity of suits.

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(3) when the law requires  crimes,

thing, if not consignation to the court may be had;

•

conspiracy, act or 1 is act of all; in torts – joint tortfeasors • The liability of joint tortfeasors, w/c include all persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it, after it is done, if done for their benefit. (Tolentino)

In non-performance, debtor is liable for damages  here w/respect to damages, the prestation becomes divisible, each creditor may recover proportionately.

Q: Is an Ø-not do divisible or not? No (Tolentino) A: Ø-not do when there are several debtors, is a joint indivisible Ø. c. Solidary obligations

(4) nature of the obligation requires

Balane: A solidary obligation is one in w/c the debtor is liable for the entire obligation or each creditor is entitled to demand the whole obligation. If there is only one obligation, it is a solidary obligation.

solidarity – Art. 19-22, NCC;  a moral wrong cannot be divided into parts, thus must be solidary; akin to QD/QC (2183 & 2187)

There are three kinds of solidarity: (1) Active solidarity where there are several creditors w/ one debtor in a solidary obligation; (2) Passive solidarity where there is one creditor w/ several debtors solidary bound; (3) Mixed Solidarity where there are several creditors & several debtors in a solidary obligation. Tolentino: • Solidary obligations may also be referred to as mancomunada solidaria or joint & several or in solidum. • It has also been held that the terms "juntos o separadamente" in a promissory note creates a solidary responsibility; • Where there are no words used to indicate the character of a liability, the phrase "I promise to pay," followed by the signatures of 2 or more persons, gives rise to an individual or solidary responsibility. • The words "individually & collectively" also create a solidary liability. So does an agreement to be "individually liable" or "individually & jointly liable."

•

Liability may arise fr. the provisions of articles 19 to 22 of the NCC. If 2 or more persons acting jointly become liable under these provisions, their liability should be solidary bec. of the nature of the obligation. xxx The acts giving rise to liability under these articles have a common element-they are morally wrong.

•

Art. 10, RPC; Art. 2194, & Art. 2157, NCC

(5) imposed by final judgment upon several defendants – must expressed in the JFO, cannot amended after finality.

Characteristics of Active creditors): (Tolentino)

Solidarity

be be

(solidary

ESSENCE  mutual agency, or mutual representation, whc consists in the authority of ea creditor to claim & enforce the rts. Of all, w/d resulting Ø to pay ea one what belongs to him.

1. Since it is a reciprocal agency, the death of a

c.1. Active Solidarity

solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together; • (Similar to Art. 1005 where bros.&sisters of decedent inherit in their own rt. per capita while nephews & nieces, per stirpes by rt. of representation.)

Art. 1211. Solidarity may exist although the creditors & the debtors may not be bound in the same manner & by the same periods & conditions. Art. 1207. The concurrence of two or more creditors or of two or more debtors in one & the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance w/ the prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

2. Each creditor represents others in the act of

requiring payment, & in all other acts w/c tend to secure the credit or make it more advantageous. Hence, if he receives only a partial payment, he must divide it among the other creditors. He can interrupt the period of prescription or render the debtor in default, for the benefit of all other creditors; 3. A credit once paid is shared equally among the creditors unless a different intention appears;

Balane: Q: When is an obligation w/ several parties on either side Joint or Solidary? A: The presumption is that an obligation is joint bec. a joint obligation is less onerous that a solidary one.

4. Debtor may pay any of the creditors but if any

demand, judicial or extrajudicial is made on him, he must pay only to the one demanding payment (Art. 1214);

5. One creditor does not represent the others in

such acts as novation, compensation & remission (even if the credit becomes more advantageous). In these cases, even if the debtor is released, the other creditors can still enforce their rights against the creditor who made the novation, compensation or remission;

There is solidary obligation in the ff.: (1) when the obligation expressly so states – stipulation by parties;

(2) when a will expressly makes charging

6.

or a condition in solidum;

21

Each creditor may renounce his right even against the will of the debtor, & the latter need not thereafter pay the obligation to the former.

Characteristics debtors):

of

Passive

Solidarity

RONQUILLO V. CA [132 S 274, Sept. 28, 1983] FACTS: 1 creditor (Antonio So) and 4 debtors (Ronquillo, et.al.) Collection for sum of money

(solidary

ESSENCE  ea debtor can be made to answer for the others, w/resulting right to the debtor-payor to recover fr others their respective shares, akin to mutual guaranty (Manresa):

In an compromise agreement approved by the court, the defendants obligated themselves to pay "individually & jointly."

1. Each debtor may be required to pay the entire

Ronquillo and Tan were already trying to pay their share of the Ø, in accord w/d compromise agreement, but the creditor refused, asking for full payment;

obligation but after payment, he can recover fr. the co-debtors their respective shares (this is something similar to subrogation);

HELD: Clearly then, by the express term of the compromise agreement & the decision based upon it, the defs. obligated themselves to pay their obligation "individually & jointly."

2. Interruption of prescription as to one debtor affects all the others; but the renunciation by one debtor of prescription already had does not prejudice the others, bec. the extinguishment of the obligation by prescription extinguishes also the mutual representation among the solidary debtors.

3.

The debtor who is required to pay may set up by way of compensation his own claim against the creditor, in this case, the effect is the same as that of payment;

4.

The total remission of the debt in favor of a debtor releases all the debtors; but when this remission affects only the share of one debtor, the other debtors are still liable for the balance of the obligation.

5.

All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of only one of them, or by fortuitous event after one of the debtors has incurred in delay;

6.

The term "individually" has the same meaning as "collectively," "separately," "distinctively," "respectively" or "severally." An agreement to be "individually liable" undoubtedly creates a several obligation, & a "several obligation" is one by w/c one individual binds himself to perform the whole obligation. xxx [T]he phrase juntos or separadamente used in the P/N is an express statement making each of the persons who signed it individually liable for the payment of the full amount of the obligation contained therein. xxx In the absence of a finding of facts that the defendants made themselves individually liable for the debts incurred, they are each liable only for 1/2 of said amount. The obligation in the case at bar being described as "individually & jointly," the same is therefore enforceable against one of the numerous obligors.

The interests due by reason of the delay of one of the debtors are borne by all of them.

Uniform  when debtors are bound by same conditions and clauses;

CASE DOCTRINE: The direct liability of the insurer under indemnity contracts against TPL does not mean that the insurer can be held solidarily liable w/ the insured &/ or the other parties found at fault.

Varied  where obligors, although liable for the same prestation, are nevertheless not subject to same terms and conditions; before fulfillment of such condition or arrival of such term, an action may be brought vs.such debtor or any other solidary debtor for recovery of the entire Ø, minus the portion corresponding to the debtor affected by the varied condition or term; upon happening however, this portion may be claimed by creditor from any of the debtors.

MALAYAN INSURANCE V. CA [165 S 536] FACTS: Collision of a Jeep and a Pantranco Passenger BUS JEEP: driver – Campollo is an EE of San Leon Rice Mill, Inc. Owner of jeep is Sio Choy Insurer of jeep (TPL) is Malayan BUS: passenger VALLEJOS was injured and sues for damages

 when one of solidary debtors is bound by varied terms and conditions, for instance a suspensive condition or a suspensive period, creditors may still demand for fulfillment of the whole prestation prior to the happening of the condition or arrival of the term, minus the share of this debtor bound by varied condition/term. This latter portion may be demanded from anyone of the debtors soon as the term arrives or condition happens.  EX. Is sureties who are solidarily liable w/other debtors but binds themselves to varied conditions distinct fr the principal debtors; BUT, the Ø of surety may not be greater than that of ea principal debtor, nor more burdensome.

HELD: While it is true that where the insurance contract provide for indemnity against liability to 3rd persons, such 3rd persons can directly sue the insurer, however, the direct liability of the insurer under the indemnity contracts against TPL does not mean that the insurer can be held solidarily liable w/ the insured &/ or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort.

Legal Bonds in solidarity may be uniform or varied:

Liability of Malayan – culpa contractual (liability is direct but not solidary) Liability of Jeep Driver  QD; and his vicarious (2 principal tortfeasors)

 An Ø to pay sum of money is not novated in a new instrument wherein the old is ratified, by changing only the terms of payment and adding other Øs not incompatible w/the old one. [Inchausti & Co. v. Yulo, 34 Phil 978, 1908]

ER,

For if petitioner-insurer were solidarily liable w/ said 2 respondents by reason of the indemnity contract, against 3rd party liability-- under w/c an insurer can be directly sued by a 3rd party-- this will result in a violation of the principles underlying solidary obligations & insurance contracts.

CASE: An agreement to be “individually liable” or “individually and jointly” liable denotes a solidary obligation, not a joint liability.

22

Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything w/c may be prejudicial to the latter.

•

Acts beneficial: each solidary debtor may, interrupt prescription, constitute a debtor in default, bring suit so that Ø may produce interest

Extra-judicial Demand  same as above; demand by several creditors separately, debtor shd pay the one who notified him 1st ; if they demand at d same time, or collectively, debtor may choose to whom to pay. Other Instances: Debtor upon whom demand was made pays to a creditor other than the one who made the demand in violation of Art. 1214  This is considered payment to a third person (Art. 1241, par. 2) & the debtor can still be made to pay the debt. The only concession given to the debtor is that he is allowed to deduct the share of the receiving creditor fr. the total amount due even if he paid the entire amount due to that creditor.

Acts prejudicial: solidary creditor cannot do anything prejudicial to the others, like remission, novation, compensation, merger or confusion  but such provision in 1212 conflicts w/ 1215; Tolentino: Harmonize 1212 & 1215 by  such acts of extinguishment, whc is prejudicial to co-creditors, will be valid so as to extinguish the claim vs. debtors, but not w/respect to the rts.of co-creditors whc subsists and may be enforced vs such creditor who performed the act alone.

Creditor A makes demand on debtor Y  Does it mean that he cannot pay the share pertaining to creditor B? A: According to commentators he can. But this is dangerous bec. there may already be an agreement on the part of the creditors.

Balane: There is an apparent conflict bet. Art. 1212 & 1215. Art. 1212 states that the agency extends only to things w/c will benefit all co-creditors. But not anything w/c is prejudicial to the latter. In Art. 1215, he can do an acts prejudicial to the other creditors, like remission for instance.

Tolentino warns that to make the debtors pay for the whole amount to the demanding creditor even if partial payment has already been made to another creditor might amount to unjust enrichment. This rule/restriction has already been scrapped in some modern civil codes allowing freedom of choice to the debtor even after demand.

Art. 1213. A solidary creditor cannot assign his rights w/o the consent of the others. Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.

Q: There are three creditors A, B & C & there are three debtors X, Y & Z. A makes a demand on Y. X pays B. A: This is not covered by Art. 1214.

Tolentino: Mutual agency whc is the essence of active solidarity, implies mutual confidence, thus one creditor cannot assign/transfer his rts to another w/o consent of the others.

Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or w/ any of the solidary debtors, shall extinguish the obligation, w/o prejudice to the provisions of article 1219.

Effects of Unauthorized Transfer: no effect, no rts. transferred; assignee does not become solidary creditor, co-creditors and debtor/s not bound by such transfer; • payment made by this assignee will not extinguish Ø; suit filed by him may not interrupt Rx. • EXCEPT, if the assignee is also one of the cocreditors, b/c mutual confidence is incumbent.

The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them.

Justice JBL REYES: Art. 1213 places unjustifiable and unnecessary burden on the rts of solidary creditors upon his own share. The article shd have read as: • A solidary creditor who assigns his rts w/o the consent of his co-creditors shall answer subsidiarily for any prejudice caused by the assignee in connection w/ d credit assigned. • Liability was compared to agent&principal;

Art. 1219. The remission made by the creditor of the share w/c affects one of the solidary debtors does not release the latter fr. his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

Balane: General Rule  A debtor may pay any of the solidary creditors.

Tolentino: Novation  A solidary debtor binds himself alone, assumes the debt, releases the other debtors. But this debtor cannot bind himself to a new debt w/o the consent of others.

Exception  If demand is made by one creditor upon the debtor, in w/c case the latter must pay the demanding creditor only. Tolentino: Judicial Demand  when such is made by one of solidary creditors, tacit mutual representation is deemed revoked.

•

plaintiff-creditor merely consolidates in himself the representation of all the others, but the essence of solidarity of creditors shd not be nullified;

If creditor makes the novation w/one debtor and does not secure consent of other debtors, the latter is released. The new contract binds only the debtor who secured the novation.

Defendant-debtor shd pay to d plaintiff-creditor to effect extinguishment; payment to any of other creditors who did not sue would be deemed payment to a 3rd person.

Mere extension of time given by creditor to a solidary debtor does not release others from the Ø  no novation here.

23

the charge as against the surviving defendants. (1216)

Dation in payment by one debtor extinguishes as in payment if made immediately, otherwise if promised only, this is a novation.

PNB V. INDEPENDENT PLANTERS [122 SCRA 113] FACTS: PNB’s complaint vs.several solidary debtors for collection of sum of money; one of defendants (Ceferino Valencia) died during the pendency of the caase after plaintiff had presented its evidence;

When merger & compensation is total there is extinguishment of the Øs; only reimbursements remain; if partial tho, applic. Of payments shd govern; A surety who is bound in solidum will be released by any material alteration in the principal contract made w/o knowledge & consent of surety, e.g. extension of time, unless surety’s liability is varied, as in installment payments.

Defs. Move to dismiss the money claim in accord w/ Rule 86 ROC, sec.6 Solidary Ø of decedent – where directs that the claim shd be filed vs the estate of the decedent-debtor w/o prejudice to rt. of d estate to go vs the other debtors for reimbursement.

When 1 creditor makes a remission, the extent of that particular Ø is extinguish, this creditor is liable to cocreditors for their shares.

ISSUE: WON death of one solidary debtor-defendant deprives the court of ju’s to proceed w/d case vs. d surviving defs., being a money-claim based on ©?

When remission favors only one debtor, in full share, this debtor is released fr solidary Ø, if partial, he retains the solidary Ø & becomes a surety of the whole Ø;

Held: It is crystal clear that Art. 1216 is the applicable provision in this matter. Said provision gives the creditor the SUBSTANTIVE right to proceed against anyone of the solidary debtors or some or all of them simultaneously. The choice is undoubtedly left to the solidary creditor to determine against whom he will enforce collection. In case of the death of the solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary debtors w/o necessity of filing a claim in the estate of the deceased debtors. It is not mandatory for him to have the case dismissed against the surviving debtors & file its claim in the estate of the deceased solidary debtor.

Factors to consider in Effects of Acts under 1215: 1. the relation bet. Creditors and that of debtors; 2. the relation among co-debtors themselves. Baviera: •

•

Principals are always liable solidarily; Agents are not liable solidarily unless expressly stipulated (res inter alios acta)

b. Passive Solidarity Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those w/c may subsequently be directed against the others, so long as the debt has not been fully collected.

Rules of Procedure cannot prevail over substantive law.-- If Sec. 6, Rule 86, ROC were applied literally, Art. 1216 would, in effect, be repealed since under the ROC, petitioner has no choice but to proceed against the estate of Manuel Barredo only. Obviously, this provision diminishes the Bank's right under the NCC to proceed against any one, some or all of the solidary debtors. Such a construction is not sanctioned by the principle xxx that a substantive law cannot be amended by a procedural law. Otherwise stated, Sec. 6 of Rule 86 cannot be made to prevail over Art. 1216, the former being merely procedural, while the latter, substantive.

Q: If a judgment made in an action brought by a solidary cretditor vs a solidary debtor will it be res judicata vs the co-debtors? A: A favorable judgment that inures to the benefit of the co-creditors will be res judicata as to the latter; An adverse judgment would have the same effect if the action of the plaintiff-creditor is not founded on a cause personal to him, but actually consolidates in him all the rts.as well of his co-creditors. (Tolentino)  similarly translated as to co-debtors; • •

Similarity:

Since in solidarity, there is unity of legal tie, notwithstanding plurality of subjects; A judgment that declares the Ø does not exist extinguished the Ø the defendant-debtor, and such decision inures to the benefit of codebtors, unless the cause is personal to the defdebtor. PASSIVE SOLIDARITY Solidary debtors

Extent Liability

Tolentino: Passive Solidarity vs. Suretyship –

of

whole Ø

Liability Effects of Extension of time granted by creditor

Primary solidary remains

Ø

•

(1) both stands for some other person; (2) both may require reimbursement

If surety binds itself in solidum, creditor may go vs. anyone of them.

Distinctions

Passive Solidarity Solidary debtor is liable for his own Ø & that of his co-debtors’ Primary liability

SURETY solidary guaranty only to the extent of contract stipulations/as expressed Subsidiary releases the surety

Extension Time given creditor

of by

does not release a solidary debtor (novation)

Suretyship liable only as to his own Ø Subsidiary liability releases a solidary guarantor or surety (extinguishment)

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose w/c offer to accept. He who made the payment may claim fr. his codebtors only the share w/c corresponds to each, w/ the interest for the payment already made. If the payment is made before the debt is due, no

CASE: If one of the alleged solidary debtor dies during the pendency of the collection case, the court where said case is pending retains jurisdiction to continue hearing

24

interest for demanded.

the

intervening

period

may

be Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement fr. his co-debtors.

When one of the solidary debtors cannot, bec. of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.

Art. 1221. If the thing has been lost or if the prestation has become impossible w/o the fault of the solidary debtors, the obligation shall be extinguished.

Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement fr. his co-debtors if such payment is made after the obligation has prescribed or become illegal.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price & the payment of damages & interest, w/o prejudice to their action against the guilty or negligent debtor.

Art. 1219. The remission made by the creditor of the share w/c affects one of the solidary debtors does not release the latter fr. his responsibility towards the co-debtors, in case the debt has been totally paid by anyone of them before the remission was effected.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply.

Tolentino: Payment by one solidary debtor in whole – extinguishes the Ø and releases the credit  gives rise to a new Ø for reimbursement by the other debtors to this one debtor who paid (JOINT Ø); plaintiff creditor may be properly substituted by the debtor who paid;

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the nonfulfillment of the agency, & for the fault or negligence of his fellow agents, except in the latter case when the fellow agents acted beyond the scope of their authority.

EXCEPT: If payment was made after the Ø prescribed or become illegal (mistake or not). (1218) • After the Ø has prescribed or becomes illegal, it is no longer due & demandable. None of the solidary debtors can be compelled by the creditors to pay. • Thus, if one debtor pays, he cannot reimburse fr his co-debtors b/c his action will not revive the inexistent Ø;

•

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses w/c are derived fr. the nature of the obligation & of those w/c are personal to him, or pertain to his own share. With respect to those w/c personally belong to the others, he may avail himself thereof only as regards that part of the debt for w/c the latter are responsible.

Generally, neither could he recover fr the creditor to whom he paid (Art. 1424); except perhaps under solutio indebiti.

Effects of 1221 limited to non-performance b/c of loss of d thing or impossibility of prestation that’s due  if such is d/t FE, w/o fault or delay on any debtor, then Ø is extinguished; no debtor is liable.

Balane: Effect of Remission.-- Problem: Solidary debtors W, X, Y & Z are indebted to A for P12,000. A remits the share of Y (P3,000) Q: Can Y be sued? A: Yes, for the P9,000 (P12,000 less P3,000 share of Y) his share was remitted but not the solidary Ø

•

Q: Supposing X is insolvent? A: Y can still be made to contribute. Remission will benefit Y only in so far as his share is concerned. His liability in case of insolvency of one co-creditor is not affected.

•

•

Q: Can A demand the P9,000 fr. Y? A: Yes. But he can recover the same fr. W, X & Z.

•

Q: If W paid the whole debt before A remits Y’s share, may W still demand reimbursement of Y’s share? A: Yes, Art. 1219, Y will not be released from his solidary Ø. Upon W’s full payment the entire Ø was extinguished, there’s nothing more to remit in Y’s favor. Q: After A remits share of Y, W pays in full the remaining 12,000. X then becomes insolvent. May Y be compelled to contribute to the share of X? A: Yes (Manresa and Tolentino), gratuitous acts shd be construed restrictively as to permit the least transmission of rts (Art.1378). Thus, if W paid 9,000 and X and Z were suppose to reimburse him 3000 ea, Y could be compelled to contribute 1000 as to the insolvency of X.

If debtor is at fault on the loss/impossibility; Or if in delay even b4 d loss/impossibility  the Ø is converted to indemnification (of the price, damages & interests). If guilty debtor is made to pay by demand of creditor, he cannot recover fr his co-debtors (if there was loss/imp), he will shoulder the whole amount of the loss thing + indemnity; If another co-debtor pays the whole amount he could recover fr his co-debtors; In case of non-performance without loss of the thing/has not become impossible: but there is delay, fraud, fault or negligence, or some other breach of Ø, creditor may also recover damages; here, if guilty debtor pays, he will not shoulder the whole amount, his codebtors will pay him their equivalent share in the original Ø. Guilty debtor shoulders the amount of damages though.

Balane: Three Defenses of Solidary Debtor:

1. Those

derived fr. the nature of the obligation is a total defense; e.g., prescription, illegality of obligation (illicit object); vitiated consent; unenforceability under the Statute of Frauds; non-happening of condition; arrival of resolutory period; extinguished Ø d/t payment, remission;

25

2. Those defenses personal to the debtordefendant; e.g., insanity  If it involves vitiation of consent, total defense. If it involves a special term or a condition, a partial defense.

3. Those defenses personal to other codebtors; e.g., defense as to the share corresponding to other debtors is a partial defense, i.e. suspensive condition or period as to the Ø of one co-debtor.

•

Divisibility of object is not the same as divisibility of obligation.

•

But the reverse is not the same. Indivisibility of object means an indivisible obligation.

a. Divisible Obligations

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages fr. the time anyone of the debtors does not comply w/ his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the piece of the thing or of the value of the service in w/c the obligation consists.

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in w/c there is only one debtor & only one creditor does not alter or modify the provisions of Chapter 2 of this Title (Nature & Effect of Obligations).

Art. 1225. For the purposes of the preceding articles, obligations to give definite things & those w/c are not susceptible of partial performance shall be deemed to be indivisible.

4. AS TO PERFORMANCE OF PRESTATION

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 w/c by their nature are susceptible of partial performance, it shall be divisible.

Balane: • This kind of obligations has something to do w/ the performance of the prestation, & not to the thing. • The thing may be divisible but the Ø may still be indivisible, e.g. Ø to deliver 100 sacks of jasmine rice found in Warehouse of specific address on a fixed date (determinate Ø); • Or thing is indivisible but performance is divisible, i.e. stage-by-stage construction of a public road where obligor may deliver every 15% of work done and collect its proportionate cost from govt agency concerned, performance bonds here may also be termed as such. Divisible obligation is one susceptible of partial performance. An indivisible obligation is one that must be performed in one act.

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. TOLENTINO: To enforce a Joint Indivisible Ø, Art. 1209 has established the necessity of COLLECTIVE FULFILLMENT and the action must be against all the debtors.

Test of Divisibility: WON it is susceptible of partial performance.

 in case of non-performance by any of the debtors, the Ø is converted into liability for losses & damages = DIVISIBLE.  THUS, if one debtor is insolvent, or fails to pay his share, the other debtors will no longer be liable for his share. The entire liability for all damages is shouldered by the defaulting debtor. Solidarity vs. Indivisibility:

General rule: Obligation is indivisible w/c means that it has to be performed in one act singly. Why? Bec. the law provides so: Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in w/c the obligation consists. Neither may the debtor be required to make partial payments. xxx (Art. 1248, par. 1.) Tolentino: • When division would diminish the value of the whole • QUALITATIVE, when the thing is not really homogeneous, i.e. inheritance; • QUANTITATIVE, when the thing divided is homogeneous and may be separated into parts if movable, or limits may be set if immovable; • IDEAL, when parts are not separated materially, but assigned to several persons, as in proindiviso co-owners;

Solidarity Refers to vinculum, and principally to the subjects of Ø Requires plurality of subjects Solidarity remains even in case of breach of one, they all remain liable for indemnity

Three Exceptions to the Rule on Indivisibility: 1. When the parties so provide. (Art. 1248, par. 1.)

Death of debtor terminates solidarity

2.

When the nature of the obligation necessarily entails performance in parts.

3.

Where the law provides otherwise.

Indivisibility refers to the prestation or the object of the Ø plurality not req’d when Ø is converted to liability for damages, the indivisibility ceases to exist, each debtor becomes liable for his part of indemnity indivisibility affects the heirs of a decedent debtor, they remain to be bound to perform the same prestation

Factors to Determine Whether Ø is Divisible or not:

Divisibility of Obligation distinguished fr. divisibility of object: • Divisibility of obligation or prestation does not necessarily mean a divisible obligation.

1. 2. 3.

26

will or intention of the parties, whc may be expressed or presumed; objective or purpose of stipulated prestation; nature of the thing;

4.

provisions of law affecting the prestation

•

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor.

In Øs to give, indivisibility is presumed; except: 1. when work is agreed to be by units of time or measure; 2. or otherwise susceptible of partial performance = divisible

Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

 In indivisible Ø, partial performance is equal to non-performance. Thus, partial payment based on quantum meruit is not availed. (Arts. 1233 and 1248 forbids partial fulfillment) “Work half done is worst than work undone!” Exceptions: (1) Ø has been substantially performed in good faith  debtor may recover as if there had been complete performance, minus the damages suffered by creditor; (2) Creditor accepts, despite partial performance, with knowledge of incompleteness, without protest  Ø is deemed fully performed. Consideration

ENTIRE © single

Prestation/s When a part is illegal One void undertaking

whole © unenforceable void ©

Viz. Statute of Frauds

must be in writing

Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid. From these provisions, it is expected the case in w/c, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit. The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for w/c each thing is specially answerable is satisfied.

SEVERABLE © apportioned (expressly/implie d) several, distinct, separate items partly enforceable if not illegal, then valid covenants may be enforced if separate chattels may be sold below limits set by Statute of Frauds, even when the sumtotal exceeds, © not affected

Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable. Art. 1612. If several persons, jointly & in the same contract, should sell an undivided immovable w/ a right of repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs, in w/c case each of the latter may only redeem the part w/c he may have acquired. Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or coheirs that they come to an agreement upon the repurchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption.

b. Indivisible Obligations Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, & the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in w/c the obligation consists. Neither may the debtor be required to make partial payments.

Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.

However, when the debt is in part liquidated & in part unliquidated, the creditor may demand & the debtor may effect the payment of the former w/o waiting for the liquidation of the latter.

Examples of Indivisible Obligations: (1) By virtue of its object

Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.

Art. 618. Easements are indivisible. If the servient estate is divided between two or more persons, the easement is not modified, & each of them must bear it on the part w/c corresponds to him. If it is the dominant estate that is divided between two or more persons, each of them may use the easement in its entirety, w/o changing the place of its use, or making it more burdensome in any other way.

Where there is a contract of sale of goods to be delivered by stated installments, w/c are to be separately paid for, & the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses w/o just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract & the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing

(2) Express provision of law

27

to proceed further & suing for damages breach of the entire contract, or whether breach is severable, giving rise to a claim compensation but not to a right to treat whole contract as broken.

for the for the



Balane: The SC considered the 4% interest as not a penal clause bec. it does not strengthen the coercive force of the obligation. ROBES-FRANCISCO V. CFI [86 S 59] FACTS: In May 1962, Petitioner Realty Corp. sold to Lolita Millan a parcel of land in Camarin, Caloocan on installment basis. Millan complied w/her side of the Ø and finished paying in full on Dec. 1971, incl. interests and expenses for registration of title. Thus, Millan demanded from the Corp. execution of final deed of sale and issuance of her TCT. Deed of sale was executed in Mar. 1973, wherein VENDOR warrants that it shall issue TCT w/in 6 mos.,, should the vendor fail to issue the TCT w/in 6 mos. fr. the date of full payment, it shall refund to the vendee the total amount paid for w/ interest at the rate of 4% p.a.

(3) Express agreement Art. 1714. If the contractor agrees to produce the work fr. material furnished by him, he shall deliver the thing produced to the employer & transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title & against hidden defects & the payment of price in a contract of sale.

Failing to do so, Millan filed a case of specific performance and damages vs. Robes in CFI. On trial it was found that Corp. failed to deliver the TCT b/c such was mortgaged w/GSIS. Corp. was found guilty of delay amounting to non-performance of Ø, thus Art. 1170 was applied.

5. AS TO THE PRESENCE OF AN ACCESSORY UNDERTAKING IN CASE OF BREACH: a. Obligations w/ a Penal Clause Art. 1226. In obligations w/ a penal clause, the penalty shall substitute the indemnity for damages & the payment of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

Petitioner here invokes Art. 1226, that in lieu of the contract Millan shd be allowed to recover damages more than what was agreed upon. ISSUE: WON award by CFI of nominal damages of P20K improper. HELD: The foregoing argument of petitioner is totally devoid of merit. We would agree w/ petitioner if the clause in question were to be considered as a penal clause. Nevertheless, for very obvious reasons, said clause does not convey any penalty, for even w/o it, pursuant to Art. 2209 of the NCC, the vendee would be entitled to recover the amount paid by her w/ legal rate of interest w/c is even more than the 4% provided for in the clause.

The penalty may be enforced only when it is demandable in accordance w/ the provisions of this Code. Balane: Articles 1226 to 1230 on obligation w/ a penal clause is the same as liquidated damages found in Articles 2226 to 2228 by authority of Lambert v. Fox, 26 Phil. 588.

Vendee failing to present evidence of actual damages, she is atleast entitled to nominal damages, whc is not indemnification but recognition of a right violated (Art. 2221/2222)

(Tolentino) Penal Clause.-- A penal clause is an accessory undertaking to assume greater liability in case of breach. The purpose is to strengthen the coercive force of the obligation. When a penal clause is present, damages do not have to be proved.

CASE DOCTRINES: The theory that penal and liquidated damages are the same cannot be sustained where obligor is guilty of fraud in fulfillment of Ø; • The penalty clause does not partake of the nature of liquidated damages. • Party to a contract whc was breached by the other, may be given the rt. to recover actual damages instead of stipulated liquidated damages. • A creditor, in case of fraud by the obligor is entitled to stipulated penalty plus the difference bet.the proven damages & such stipulated penalty.

Thus, DUAL FUNCTION OF PENAL CLAUSE: (1) To provide for liquidated damages (2) To strengthen the coercive force of the Ø by threat of greater resp.in case of breach. Characteristics of Penal Clause: 1. Subsidiary (also called alternative)  upon nonperformance, only the penalty may be demanded. Exception: Where penalty is joint (cumulative) where both the principal undertaking & penalty may be demanded -Art. 1227, second sentence: "xxx unless this right has been clearly granted him."

PAMINTUAN V. CA [94 S 556] FACTS: RE: Recovery of compensatory damages for breach of © of sale in addition to liquidated damages. In 1960, MARIANO C. PAMINTUAN, w/his barter license, was authorized to export to Japan 1000 m.Tons of white flint corn valued @USD 47K, in exchange for collateral importation of plastic sheetings of equal value. As such he entered into © w/ TOKYO MENKA KAISHA, LTD. Of OSAKA, JAPAN. He also ©’s TO SELL the plastic sheetings to YU PING KUN, CO., INC. for Php 265K, thus the latter undertook to open an irrevocable domestic letter of credit in favor of Pamintuan.

Notice the word clearly (not explicitly) w/c means that the right can be clearly granted by implication. 2. Exclusive  penal clause is for reparation. takes the place of damages.

If the obligor is guilty of fraud in the fulfillment of his obligation.

It

Exception: When it is for punishment  in w/c case both penalty & damages may be demanded, namely- If there is a stipulation that both penalty & damages are recoverable in case of breach  If the obligor refuses to pay the penalty

Further agreed that Pamintuan would deliver the PS to bodegas of Yu Ping in Manila and suburbs “within 1month upon arrival of carrying vessels”; &that upon

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breach, aggrieved party damages of php 10K.

may

collect

liquidated

In FEB. 1925 def. also purchased another 1-ton white truck fr same plaintiff corp. w/downpd, balance on installment basis also, placing this truck on mortgage for security and incl the 2 above mortgaged trucks also. Again, def. failed to pay this debt.

Pamintuan made incomplete deliveries, asked the president of the Co. for cash payment and adjustments in price, which the co.agreed to. When Pamintuan refused to complete his deliveries, he invoked that the © was novated and Co. failed to comply thereto.

In both sales, a 12% p/a/ interest was agreed upon the unpaid portion of the ©s, and upon maturity, when due, non-payment of total remaining debt would give rise to 25% penalty; aside fr mortgage deed, there was a PN, co-signed by def.brother solidarily. Thus, Rosario appeared as intervenor in the collection suits alleging to be the sole owner of the two other trucks mortgaged. He alleged that he did not sign the mortgage and did not consent to the inclusion of his two trucks therein.

Co. filed for damages vs. Pamintuan. Lower court awarded actual damages, liquidated damages as stipulated, and moral damages. Pamintuan appealed. CA found Pamintuan guilty of fraud, and sustained the LC.

While the cases were pending in lower court, the trucks were sold by virtue of the mortgage and brought in a net sum not enough to settle the debts due; Lower court directed payments of all the sums due and in both two cases ordered the payment of 12% interest p.a. until fully paid and a penalty of 25% in addition as appearing in the contracts. To these matters the defs. Alleged that these amounts to usury.

ISSUE:WON the Co. is entitled only to liquidated damages as appearing in the contract of sale? We hold that appellant's contention cannot be sustained bec. the second sentence of Art. 1226 itself provides that "nevertheless, damages shall be paid if the obligor xxx is guilty of fraud in the fulfillment of the obligation." xxx The trial court & the CA found that Pamintuan was guilty of fraud bec. he did not make a complete delivery of the plastic sheeting & he overpriced the same. xxx

ISSUE: WON the 12% interest p.a. plus additional penalty of 25% makes the contract usurious? HELD: Art. 1152 of the OCC permits the agreement upon a penalty apart fr. the interest. Should there be such an agreement, the penalty xxx does not include the interest, & as such the two are different & distinct things w/c may be demanded separately. The penalty is not to be added to the interest for the determination of whether the interest exceeds the rate fixed by law, since said rate was fixed only for the interest.

Penalty & Liquidated damages: • There is no justification for the NCC to make an apparent distinction bet. penalty & liquidated damages bec. the settled rule is that there is no difference bet. penalty & liquidated damages insofar as legal results are concerned & either may be recovered w/o the necessity of proving actual damages & both may be reduced when proper. Xxx

•

•

BUT, considering partial performance, SC reduced penalty to 10% in accord with Art. 1154. (Art. 1229, NCC)

We further hold that justice would be adequately done in this case by allowing Yu Ping Kun Co., Inc. to recover only the actual damages proven, & not to award to it the stipulated liquidated damages of P10,000 for any breach of the contract. The proven damages supersede the stipulated liquidated damages.

Art. 1227. The debtor cannot exempt himself fr. the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation & the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible w/o his fault, the penalty may be enforced.

This view finds support in the opinion of Manresa that in cases of fraud the difference bet. the proven damages & the stipulated penalty may be recovered.

Legality of Penal clause: not contrary lo law, morals, public order (e.g. usurious, immoral, unjust, merciless) How construed: strictly construed, in accord w/stipulation, (effecting minimal rts)

 GR: Debtor cannot avoid performance by paying the penalty; except when expressly granted to debtor.

When there could be damages aside from Penalty: (1) Express provision: ex. “legal interest of 12% p.a. aside fr penalty may be had, plus attorney’s fees of 20%”

 GR as to creditor: may not demand both fulfillment and payment of penalty at the same time; except if such rt. is granted clearly.  as to the last sentence, when it becomes impossible w/o creditor’s fault  will happen only if thru debtor’s fault or delay, for penalty to become enforceable; b/c if thru FE w/o credotor’s nor debtor’s fault, principal Ø would be extinguished and so will the penal clause. Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.

(2) Debtor refused to pay penalty (3) There’s fraud in debtor’s non-performance • Non-performance gives rise to presumption of fault, debtor has burden of proof: defenses may be force majeure, or act of creditor himself; CASE: BACHRACH V. ESPIRITU [52 P 346] RE: Chattel Mortgage with PENAL CLAUSE FACTS: Faustino Espiritu purchased from Bachrach Motor in JULY,1925, a 2-ton white-truck on installment basis. This truck was mortgaged, incl. two other white trucks owned by defendant whc are fully paid for, to secure the loan.

Baviera: terms

Courts enforce contracts according to their

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied w/ by the debtor. Even if there has been no performance, the

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penalty may also be reduced by the courts if it is iniquitous or unconscionable.

once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud.

Art. 1230. The nullity of the penal clause does not carry w/ it that of the principal obligation. The nullity of the principal obligation carries w/ it that of the penal clause.

Art. 1227. The debtor cannot exempt himself fr. the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation & the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible w/o his fault, the penalty may be enforced.

Partial Performance  refers to extent or quantity of fulfillment Irregular Performance  refers to the form

•

•

Doctrine of Strict Construction will apply as against the enforcement of the penalty in its entirety, when the clause is clearly punitive, not when it is impliedly intended as liquidated damages; Thus penalty is mitigated in: 1. partial or irregular performance 2. iniquitous or unconscionable penalty

1. Distinguished fr. Ø with suspensive condition: • Happening of the condition gives rise to the Ø; in penal there is already a principal Ø • The principal Ø itself is dependent upon a future and uncertain event; in penal, only the accessory Ø (the penalty) depends upon nonperformance or breach. 2. Distinguished fr. alternative obligations Art. 1227. The debtor cannot exempt himself fr. the performance of the obligation by paying the penalty, save in the case where his right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation & the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible w/o his fault, the penalty may be enforced.

X obliged to deliver a horse to Y or pay him P500

GUARANTY Is a © by whc virtue, a 3rd person (guarantor) obliged himself to fulfill prestation in lieu of debtor’s nonperformance Intended to insure performance of principal Ø Accessory & subsidiary Ø Principal debtor cannot be guarantor Subsists even when principal Ø is voidable or unenforceable

Ø w/ PENAL CLAUSE Ø to pay penalty is different fr the principal Ø, but also paid in lieu of debtor’s non-performance Intended to insure performance of principal Ø Accessory & subsidiary Ø both Øs can be assumed by one person penalty is extinguished in such case, unless assumed by 3rd person

1. For Reciprocal simultaneous obligations  by the readiness of one of the parties to perform & his letting the other party know; & the other party is not ready to comply in a proper manner w/ what is incumbent upon him.

The debtor shall have no right to choose those prestations w/c are impossible, unlawful or w/c could not have been the object of the obligation.

Impossibility of one of Øs, the other/s subsists Debtor can choose whc prestation to fulfill

Ø w/ PENAL CLAUSE GR, none; except when expressed such right to demand both may be given

Q: When does delay set in? A: Delay sets-in in the following manner:

Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.

ALTERNATIVE Ø 2 or more Øs are due but performance of 1 is enough

FACULTATIVE Ø Debtor has power to make substitution Creditor cannot demand both prestations

2. For Reciprocal obligations w/c are not simultaneous  Gen. Rule: Demand is necessary (Art. 1169, par. (1) This is called mora solvendi ex persona. Exception: When demand is not necessary (the exceptions are found in Art. 11 69, par. 2.) This is called mora solvendi ex re

Ø W/PENAL CLAUSE there’s only 1 principal Ø, only in case of nonperformance shall the penal clause be enforceable impossibility of principal Ø, penal clause extinguished debtor cannot choose to pay penalty to avoid performance, unless expressed X obliged to deliver a horse to Y. if he fails he will pay him P500

Q: What kind of demand is necessary? A: Judicial or extra-judicial Exceptions: When the obligation or the law expressly so declare.-- when the contract says that w/o the necessity of demand, default sets in upon the failure of the obligor to perform on due date. There must be something in the contract w/c explicitly states that the demand is not necessary in order that delay may set in. When fr. the nature & the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract.

2. Distinguished fr. Facultative obligations Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor does not render him liable. But

Illustration: Bong Baylon is getting married in Valentines '96. Inno Sotto was supposed to make Ella's (the bride) wedding gown. Feb. 14 comes , no gown was delivered. Ella gets married in blue jeans & T-shirt. Finally, on Feb. 15, Inno delivers the gown. xxx Ella sues Inno for breach. Inno says

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there was no demand. In this case, demand is not necessary in order that delay may exist. When demand would be useless, as when the obligor has rendered it beyond his power to perform.-- Example is the case of Chavez v. Gonzales, infra.

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•

July 9, 2008 E. BREACH OF OBLIGATIONS (ART. 1170)

•

Art. 1170. Those who in the performance of their obligation are guilty of fraud, negligence or delay, & those who in any manner contravene the tenor thereof, are liable for damages.

Fraud as used in Art. 1170 is different fr. fraud as a cause for vitiation of consent in contracts (more properly called deceit w/c prevents the contract fr. arising; this is found in Art. 1380, et seq.)

Irregularity of Performance [Articles 1169 - 1174]

 fraud as referred here is the deliberate and intentional evasion of normal fulfillment of Øs; thus, as ground for damages fr this article, implies some kind of malice or dishonesty, whc does not cover mistake, erros of judgment made in GF.

Art. 1169. Those obliged to deliver or to do something incur in delay fr. the time the obligee judicially or extrajudicially demands fr. them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: When the obligation or the law expressly so declare; When fr. the nature & the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner w/ what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. Balane: Two Performance:

Classes

of

Irregularity

The fraud referred to in Art. 1170 is the deliberate & intentional evasion of the normal fulfillment of obligation; It is distinguished fr. negligence by the presence of deliberate intent, w/c is lacking in the latter.

 Evasion of a legit.Ø for benefits admittedly received constitutes unjust enrichment.

Q: What is a synonym for fraud as used in Art. 1170? A: Malice. Effects of Fraud: 1. Creditor may insist on performance, specific or substitute (Art. 1233.) 2. Creditor may resolve/ rescind (Art. 1191.) 3. Damages in either case (Art. 1170.) (2) Negligence Art. 1171. Responsibility arising fr. fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Art. 1172. Responsibility arising fr. negligence in the performance of every kind of obligation is also demandable, but such liability shall may be regulated by the courts, according to the circumstances. Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence w/c is required by the nature of the obligation & corresponds w/ the circumstances of the persons, of the time & of the place. When negligence shows bad faith, the provisions of articles 1171 & 2201, paragraph 2, shall apply.

of

1. Attributable to the debtor A. Fraud B. Negligence C. Delay 2. Not attributable to the debtor A. Fortuitous event. (1) Fraud Art. 1171. Responsibility arising fr. fraud is demandable in all obligations. Any waiver of an action for future fraud is void.

•

Article 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.

Negligence is the absence of something that should be there  due diligence.

Measure of Due Diligence.-- There are two guides: 1.

Diligence demanded by circumstances of person, place & time 2. Care required of a good father of a family (fictional bonus pater familias who was the embodiment of care, caution & protection in Roman law.)

Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.

In common law, the degree of care required is the diligence of a prudent businessman. This is actually the same as the diligence of a good father of a family.

Incidental fraud only obliges the person employing it to pay damages. Balane: Is it correct to say that fraud in Art. 1170 means deceit or insidious machinations? No.

Effects of Negligence: 1. Creditor may insist on performance, specific or substitute (Art. 1233.) 2. Creditor may resolve/ rescind (Art. 1191.) 3. Damages in either case (Art. 1170.)

LEGASPI OIL VS. CA [224 S 213] - Definition of Fraud.-• In general, fraud may be defined as the voluntary execution of a wrongful act, or willful omission, knowing & intending the effects w/c naturally & necessarily arise fr. such act or omission;

 From 1173 = culpa contractual  from 2176 = culpa aquiliana or extra-contractual ** In both cases, for liability to attach, such negligence must be the proximate cause of the injury to plaintiff.

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3. Compensation Morae -- mutual delay (3) Delay  See Art. 1169. = default / mora, in the fulfillment of Øs;

Art. 2201. xxx (2) In contracts & quasi-contracts, the damages for w/c the obligor who acted in good faith is liable shall be those that are the natural & probable consequences of the breach of the obligation, & w/c the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages w/c may be reasonably attributed to the non-performance of the obligation.

REQUISITES to be In Default: Ø is demandable and liquidated debtor delays performance creditor requires performance, jud or extrajud demand Art. 1165. xxx. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

(4) ANY OTHER MANNER OF CONTRAVENTION:  includes any illicit acts which impair the strict and faithful fulfillment of Ø, or every kind of defective performance; CASE: contract”

“in any manner contravene the tenor of

AGCAOILI VS. GSIS [165 S 1] FACTS: GSIS approved applic. Of Artemio Agcaoili for purchase of H&L in Marikina, subjc.to condition that latter shd forthwith occupy the house: “If you fail to occupy the same w/in 3 days fr receipt of this notice, ur applic. Will be considered automatically disapprovd & said H&L will be awarded to another.” There was then a perfected contract of sale bet. the parties; there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house & lot in the GSIS Housing Project at Nangka, Marikina, Rizal, at a definite price payable in amortizations at P31.56 per mo., & fr. the moment the parties acquired the right to reciprocally demand performance. It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated, in other words, to deliver the house subject of the contract in a reasonably livable state. This it failed to do. Agcaoili could not stay in the haus whc was only a shell, It did not have a ceiling, stairs, double walling, lights, water, CR, drainage. He asked a homeless friend instead to stay and watch over the property. After paying 1st installment &other fees, refused to make further payments until GSIS wud make d haus habitable. Instead, GSIS cancelled the © and demanded Agcaoili to vacate. Agcaoili filed w/CFI case for specific performance and won. Thus GSIS’ appeal must fail. xxx Since GSIS did not fulfill that obligation, & was not willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of amortization as cause to cancel the contract bet. them. It is axiomatic that "(i)n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner w/ what is incumbent upon him. WON Agcaoili breached the © by failing to occupy the house w/in 3 days as stipulated? NO, argument of GSIS devoid of merit.

The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency. Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any purpose different from that for which it has been loaned; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; (4) If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (OBLIGATIONS OF THE BAILEE)

There being a perfected © of sale, it was the duty of GSIS as seller to deliver the thing sold in a condition suitable for enjoyment by the buyer for the purpose contemplated.

Delay is the non-fulfillment of the obligation w/ respect to time. Kinds of Delay: 1. Mora Solvendi -- delay in the performance (on the part of the debtor);

CASE DOCTRINE: One who assumes a contractual obligation & fails to perform the same on account of his inability to meet certain bank requirements w/c inability he knew & was aware of when he entered into the

2. Mora Accipiendi -- delay in the acceptance (on the part of the creditor);

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contract, should be held liable in damages for breach of contract.

despite performance by said pvt. resp. of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent & is thus liable for damages.

ARRIETA VS. NARIC [10 S 79] FACTS: (Paz Arrieta vs. National Rice & Corn Corp.) On May 1952, Arrieta took part in public bidding by NARIC to supply 20K m.Tons of Burmese rice, being the lowest bidder she was awarded the contract. In the © of sale, Arrieta’s Ø was to deliver the rice at d price of her bid, while NARIC’s Ø was to pay her in LOC, irrevocable, confirmed and assignable, in USD in favor of Arrieta or supplier in Burma, “immediately.”

ISSUE;WON there was here breach of contract, and WON only actual damages are due? YES, Art. 1170, ALSO Art. 2176 applied. This liability is not limited to actual or quantified damages. To sustain petitioner’s contention and award actual damages only would be iniquitous such that he would be liable only for the cost of that telegram paid for 30 yrs ago.

NARIC knew that it did not have enough deposit in PNB to cover the Ø, thus it wrote a letter of request to accom. the applic for LOC despite such fact in lieu of this © w/Arrieta. This applic. Was made by PNB on July 30, 1952, a month after it entered in the © w/Arrieta and promised to open the LOC “immediately.” By this time Arrieta has made a 5% tender to her supplier in Burma, whc will be confiscated if the required LOC will not be received before August 4, 1952. Such fact was apprised by Arrieta to NARIC in a letter thru counsel.

EXCUSE FOR NON-PERFORMANCE: 1. Loss due to Fortuitous Events Art. 1174. Except in cases expressly specified by law, or when it otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events w/c could not be foreseen, or w/c ,though foreseen, were inevitable.

PNB required NARIC to make a marginal deposit of 50% of the amount of LOC before such will be released in favor of Arrieta’s supplier in Burma. Such condition NARIC is not in any financial position to meet. PNB conseq. Approved &released the LOC 2mos. In delay. The Burmese supplier has cancelled the order on Aug. 20, 1952, and forfeited the 5% tender of Arrieta amounting to P200K. NARIC and PNB did not even make the 15-day grace period given by the supplier. Arrieta endeavored to restore to no avail. It offered to substitute w/Thailand rice, NARIC rejected.

To constitute a caso fortuito that will exempt a person fr. responsibility, it is necessary that: [Austria vs. Abad,June 10, 1971] 1. the event must be independent of human will; 2. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; 3. that the obligor must be free of participation in, or aggravation of, the injury to the creditor.

Thus, Arrieta demanded for payment of damages of USD 286K representing unrealized profits. Again rejected. Thus, this case. WON NARIC was in breach of contract?

Balane: General Rule: The happening of a fortuitous event exonerates the debtor fr. liability.

YES> NARIC’s culpability arises from its willful and deliberate assumption of ©’al Øs even as it was well aware of its own financial incapacity to undertake the prestation.

EXEMPTIONS FROM APPLICATION OF G.R. ON F.E.: 1.

Under Art. 1170, not only debtors guilty of fraud, negligence or default but also every debtor, in general, who fails the performance of his obligation is bound to indemnify for the losses & damages caused thereby.

2. 3.

When the law so specifies.-- e.g., if the debtor is already in delay (Art. 1165, par. 3.) When the parties so agree When the nature of the obligation requires the assumption of risk, e.g., an insurance contract.

EXAMPLES OF BY Express Provision of Law:

Meaning of phrase "in any manner contravene the tenor" of the obligation in Art. 1170  The phrase includes any illicit task w/c impairs the strict & faithful fulfillment of the obligation, or every kind of defective performance.

•

IN Depositary Art. 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing w/o the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been authorized to use the same.

Balane: This phrase is a catch-all provision. At worst, it is a superfluity. At best, there is a safety net just in case there is a culpable irregularity of performance w/c is not covered by fraud, negligence or delay. In this case, the SC was apparently not sure as to what category the breach fell. This phrase is not really an independent ground. “ TIME IS OF THE ESSENCE”

Q: What if a depositor was in the premises of the bank & was robbed of his money w/c he was about to deposit? A: Bank cannot be held liable for fortuitous event (robbery) esp in CAB where the money has not yet been actually deposited.

TELEFAST VS. CASTRO [158 s 445] FACTS: Sofia’s mother died while they were here in RP visiting..her father siblings were all abroad. Thus, that same day she sent a telegram to her father in the USA via TELEFAST. Her mother was interred w/o her father nor siblings in attendance. When Sofia went back to the USA she learned that her telegram never reached her father.

Art. 1979 provides for instances wherein depositary is still liable even in cases of fortuitous event.

HELD: Petitioner & private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do,

Q: What kind of diligence is required of a depositary?

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A: Ordinary Diligence. *Safety Deposit Box: If the jewelry inside a SDB was stolen, rules on deposit will not apply bec. the contract governing the transaction is LEASE of safety deposit box.

Independent Contractor Art. 1727. The contractor is responsible for the work done by persons employed by him. Art. 1728. The contractor is liable for all the claims of laborers & others employed by him, & of third persons for death or physical injuries during the construction.

Bailee in Commodatum Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any purpose different fr. that for w/c it has been loaned; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for w/c the commodatum has been constituted; If the thing loaned has been delivered w/ appraisal of its value, unless there is a stipulation exempting the bailee fr. responsibility in case of a fortuitous event; If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chooses to save the latter.

Common Carrier Art. 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission. (2) “when it is otherwise declared by stipulation” (1174) Express agreement Art. 1306. The contracting parties may establish such stipulations, clauses, terms & conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

In Negotiorum Gestio Art. 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations w/c the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith.

(3) “when the nature of the Ø requires the assumption of risks” Aleatory Contract Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event w/c is uncertain, or w/c is to occur at an indeterminate time. Art. 1175. Usurious transactions shall be governed by special laws. Tolentino: Usury.-Usury is the contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance or money, goods or chattels. Special law on usury.-- The Usury Law was Act No. 2655. This law was repealed during the period of martial law, leaving parties free to stipulate higher rates.

Art. 2148. Except when the management was assumed to save the property or business fr. imminent danger, the officious manager shall be liable for fortuitous events: (1) If he is manifestly unfit to carry on the management; (2) If by his intervention he prevented a more competent person fr. taking up the management. Payee in Solutio Indebiti Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or w/c should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing fr. any cause, & for damages to the person who delivered the thing, until it is recovered.

_________________________________________________________ CASES: Balane: Some of the elements were present in this case. What was absent was the last element. NPC VS. CA [161 S 334] - NPC cannot escape liability bec. its negligence was the proximate cause of the loss & damage even though the typhoon was an act of God. FACTS: Typhoon “Welming” Plaintiff ECI (Engr.Constrx,Inc) entered © w/NAWASA on Aug.1964, to construct ipo-Bicti Tunnel in Norza.,Bul. w/in 800 days; It has finished 1st stage of the excavation works and was already on the Ipo site phase when typhoon “Welming” came in Sept. 1967. it was predicted that Welming wud pass through NPC’s Angat Hydroelectric Project and Dam at Ipo. Consequent to the heavy downpour, the dam reached danger height of 212 m. above sea level causing the NPC to decide to open spillway gates at that point. Thus, the extraordinary large volume of water rushed out of the gates and hit the installations and constx worx of ECI at Ipo Site w/terrific impact washing away and/or destroying supplies and equipment of ECI.

Lessee Art. 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons. Art. 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a possessor in bad faith. Art. 552. xxx. A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.

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It is clear fr. the appellate court's decision that based on its findings of fact & that of the trial court's, petitioner NPC was undoubtedly negligent bec. it opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened the same gradually & earlier, as it was also undeniable that NPC knew of the coming of the typhoon at least 4 days bef. it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability bec. its negligence was the proximate cause of the loss & damage. As we have said in Juan Nakpil & Sons vs. CA, 144 SCRA 596,

iron grills to hasten the flow of water, there is no showing that such practice has ever been prohibited, much less penalized by the City of Mla. Neither was it shown that any sign had been placed thereabouts to warn passers-by of the impending danger. For liability under Art. 2189 NCC to attach, it is not necessary that the defective public works belong to the LGU concerned. What is req’d is “control or supervision.” CASE: Requisites for exemption fr. liability due to an "act of God."

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Art. 1170, w/c results in a loss or damage, the obligor cannot escape liability. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature & human agencies are to be excluded fr. creating or entering into the cause of the mischief. When the effect, the cause of w/c is to be considered, is found to be in part the result of the participation of man, whether it be fr. active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, & removed fr. the rules applicable to the acts of God. Thus, it has been held that when the negligence of a person concurs w/ an act of God in producing a loss, such person is not exempt fr. liability by showing that the immediate cause of the damage was the act of God. To be exempt fr. liability for loss bec. of an act of God, he must be free fr. any previous negligence or misconduct by w/c the loss or damage may have been occasioned.

Juan F. NAKPIL & SONS vs. CA October 3, 1986

[144 S 596]

-

To exempt the obligor fr. liability under Art. 1174, for a breach of an obligation due to an "act of God," the following must concur: 1. the cause of the breach of the obligation must be independent of the will of the debtor; 2. the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; & 3. the debtor must be fee fr. any participation in, or aggravation of the injury to the creditor.

FACTS: Construction of the office building of Plaintiff Phil. Bar Assoc. (PBA) in Intramuros was undertaken by United Constrx. Inc. on an “administration” basis on suggestion of United Pres. Juan Carlos. Such was approved by PBA Board, & Pres. Roman Ozaeta. Plans and specs were done by Juan f. Nakpil & Sons. Bldg. was completed June 1966.

(2) ACT OF CREDITOR CASE: City of Mla. failed to exercise the diligence of a good father of a family w/c is a defense in quasi-delict.

August 1968 an unusually strong earthquake hit Manila. The PBA bldg.sustained major damage, tenants had to vacate. Temp. rem. Worx done by United cost P13K+

JIMENEZ vs. CITY OF MANILA [150 S 510] FACTS: Bernardino Jimenez went to Sta. Ana Public market to buy “bagoong” when his left foot fell in an open hole that was hidden by muddy rainwater in the flooded market. His left leg was stuck by a rusty 4-in nail. His leg later on swelled and he was brought for treatment to Veteran’s MH. He walked around w/crutches for 15 days, unable to work, forced to hire a temp.driver for his sch.bus biz.. Thus, he sued the City of Mla. For damages, and the Asiatic Integ. Corp. (AIC) who had the managing and operating © to that market. Lower court dismissed his complaint for insuff. Of evid. The appellate court found in his favor and placed sole liability on AIC. ISSUE: WON the City of Manila shd be held solidarily liable w/ Asiatic integ. Corp. for injuries suffered by petitioner? HELD: As a defense against liability on the basis of quasidelict, one must have exercised the diligence of a good father of a family. (Art. 1173, NCC) There is no argument that it is the duty of the City of Mla. to exercise reasonable care to keep the public market reasonably safe for people frequenting the place for their marketing needs. While it may be conceded that the fulfillment of such duties is extremely difficult during storms & floods, it must, however, be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life & limb under those difficult circumstances. For instance, the drainage hole could have been placed under the stalls instead of on the passage ways. Even more important is the fact, that the City should have seen to it that the openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already uncovered, & 5 mos. after the incident happened, the opening was still uncovered. Moreover, while there are findings that during floods the vendors remove the

Nov. 1968 PBA filed action to recover damages vs. United, &Juan Carlos, as def, alleging that the damage to the bldg. was due to breach by def. of the terms of © and failure to follow the plan&specs. Def. filed 3rd party complaint vs.the architects, petitioner herein. JFN&sons stipulated in writing that it not be impleaded by amendment of complaint. That in case court finds it liable, it would be as if it was duly impleaded therein. April 30, 1979, bldg. disputed was authorized to be demolished at expense of plaintiff, after further earthquakes caused further damage to the bldg; ISSUE: WON AN ACT OF GOD WHC CAUSED DAMAGE TO THIS BLDG, EXEMPTS FR LIABILITY, PARTIES WHO ARE OTHERWISE LIABLE B/C OF NEGLIGENCE? ART. 1723 To exempt obligor fr liability under Art. 1174, FE; or for a breach of Ø d/t an act of God, the ff. must concur: 1. cause of the breach of Ø must be independent of the will of the debtor; 2. the event must be either unforeseeable or unavoidable 3. the event must be such as to render it impossible for debtor to fulfill Ø in normal manner; 4. debtor must be free from any participation in, or aggravation of the injury to the creditor. Thus, if upon the happening of a FE or an AOG, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the Ø as provided in Art. 1170, whc results in loss or damage, the obligor cannot escape liability.

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although the typhoon w/c preceded the flooding could be considered as a force majeure.

To be an AOG, the event must be occasioned exclusively by violence of nature and all human agencies are excluded from creating or entering into the cause of mischief. With participation of man, whether active or neglect or failure to act, the occurrence is humanized, and removed from the doctrine’s application. Findings of lower court and IAC were both beyond dispute that United and JFNakpil &Sons were both liable. The defects in the plans&specs were proximate cause, the deviations of United fr the specs and failure to observe required workmanship & degree of supervision on both makes them liable. CASE DOCTRINE: "One who negligently creates a dangerous condition cannot escape liability for the natural & probable consequences thereof, although the act of a third person, or an act of God for w/c he is not responsible, intervenes to precipitate the loss." (citing Tucker v. Milan, 49 OG 4379, 4380.)

F. REMEDIES FOR BREECH OF OBLIGATIONS: Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

NAKPIL & SONS VS. CA [160 S 334] - APRIL 15, 1988 FACTS: M.R. on the above decision ISSUES RAISED ON THIS MR: (1) That the building did not collapse on d earthquake of 4/2/68, thus the premise of the LC findings is negated, Art. 1173 cannot apply  HELD: it is not the fact of collapse that was the premise on applying Art. 1173 but on who shd be responsible for the extreme damage to the bldg. whc inevitably led to its collapse, or demolition. Trial court correctly found defs. Liable; (2) That court failed to impute liability on PBA or on Ozaeta for failure to provide legal duty to supervise, as owner  HELD: no legal nor contractual basis. PBA sought technical expertise of both United & JFN&sons for such costs on this purpose. It was even JFN who suggested administration basis. (3) That findings of bad faith had no factual anchor  HELD: Wanton negligence of both United & JFN&sons in effecting plans, specs, & constrx designs is equivalent to BF in performance of their resp. duties; (4) Award of 5M had no basis, Commissioner’s report est.only 1.1M  such initial report was based on the partial collapse only, after d 4/2/68 EQ, for repairs; but after total collapse almost 20 yrs later, unrealized rentals and major reconstrx makes even 5M a very conservative est. (5) As to award of attys fees & damages  was court discretion (6) 12% interest p.a. accdg to CB Circular 416 (PD 116) applies only to (1) loans; (2) forbearance of money, goods or credit; (3) rate allowed in JFO’s involving 1 & 2.  HELD: True, but, 12% is imposable only when there is delay in payment of judgment after its finality. (penalty, not really interest)

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

NPC VS. CA [222 S 415]  Petitioners cannot be heard to invoke the act of God or force majeure to escape liability for the loss or damage sustained by the pvt. respondents since they, the petitioners, were guilty of negligence. The event then was not occasioned exclusively by an act of God or force majeure; a human factor-- negligence or imprudence-- had intervened. The effect then of the force majeure in question may be deemed to have, even if only partly, resulted fr. the participation of man. Thus, the whole occurrence was thereby humanized, as it were, & removed fr. the rules applicable to acts of God. NPC VS. CA [223 S 649]  Petitioners have raised the same issues & defenses as in the 2 other decided cases therein mentioned. Predictably therefore, this petition must perforce be dismissed bec. the losses & damages sustained by the private resp.'s had been proximately caused by the negligence of the petitioners,

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Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law. (Concurrence & Preference of Credits) Article 302. Neither the right to receive legal support nor any money or property obtained as such support or any pension or gratuity from the government is subject to attachment or execution. (Support) Article 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and medical attendance. (Contract Labor)

•

Three horses, or three cows, or three carabaos, or other beasts of burden, such as the judgment obligor may select necessarily used by him in his ordinary occupation;

•

His necessary clothing and articles for ordinary personal use, excluding jewelry;

•

Household furniture and utensils necessary for housekeeping, and used for that purpose by the judgment obligor and his family, such as the judgment obligor may select, of a value not exceeding one hundred thousand pesos;

•

•

So much of the salaries, wages, or earnings of the judgment obligor for his personal services within the four months preceding the levy as are necessary for the support of his family;

•

Lettered gravestones;

•

Monies, benefits, privileges, or annuities accruing or in any manner growing out of any life insurance;

•

The right to receive legal support, or money or property obtained as such support, or any pension or gratuity from the Government;

RE 1167  Performance of Ø by another at creditor’s choice a& at debtor’s cost – court may not by discretion merely award damages to Cr. When the Ø may be done in spite of debtor’s refusal to do so;

Section 13. Property exempt from execution. ? Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution:

Ordinary tools and implements personally used by him in his trade, employment, or livelihood;

One fishing boat and accessories not exceeding the total value of one hundred thousand pesos owned by a fisherman and by the lawful use of which he earns his livelihood;

 Constitutional prohibition vs. imprisonment for debt applies, except in subsidiary imprisonment when civil liability arising from crime is not paid; or in contempt;  Exception to exception on the GR re FE: Debtor in default may still prove that he is not liable for FE bcoz even if he had not performed, the loss wud still have occurred in the same manner.

For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. R.O.C. RULE 39, SEC. 13:

•

•

Tolentino: RE 1165  REMEDIES OF CREDITOR: For failure of debtor to comply, 1. SPECIFIC PERFORMANCE, to obtain compliance of the prestations, whether determinate or generic; this action implies a contractual relation; 2. TO RESCIND OR RESOLVE THE Ø 3. AN ACTION FOR DAMAGES exclusively or in addition to 1 & 2.

(4)

The judgment obligor's family home as provided by law, or the homestead in which he resides, and land necessarily used in connection therewith;

The professional libraries and equipment of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen, teachers, and other professionals, not exceeding three hundred thousand pesos in value;

• Properties specially exempted by law. But no article or species of property mentioned in this section shall be exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon.

FAMILY CODE: Art. 153. The family home is deemed constituted on a house and lot from the time it is occupied as a family residence. From the time of its constitution and so long as any of its beneficiaries actually resides therein, the family home continues to be such and is exempt from execution, forced sale or attachment except as hereinafter provided and to the extent of the value allowed by law. Art. 155. The family home shall be exempt from execution, forced sale or attachment except: (1) For nonpayment of taxes; (2) For debts incurred prior to the constitution of the family home; (3) For debts secured by mortgages on the premises before or after such constitution; and

•

•

But, law may not compel or force debtor to comply w/ Ø, if to do, would amount to invol. Serv., if debt, no imprisonment. If Ø can only be done by debtor, then only rem is damages. RE 1168 Ø NOT TO DO was done  may compel debtor to UNDO; but if impossible to undo, rem is damages. RE 1170  RECOVERABLE DAMAGES = when the Ø is to do something other than the payment of money; If Ø is payment of money, 2209 is the rule re damages  when debtors incurs in delay, is payment of interest if w/o stipulation to the contrary, as agreed upon, if if no agreement, the legal interest. RE 1177  RIGHTS OF CREDITORS: 1. To levy by attachment & execution upon all the property of debtor except if exempt by law; 2. to exercise all the rights and actions of the debtor, except those inherently personal to

Provisions for individual or family use sufficient for four months;

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him; accion subrogatoria; prior court approval is not required. This shd concur w/d ff. requisites: a. Cr. Has interest in the rt. or axn. Not only bcoz of his credit but d/t insolvency of debtor; b. Malicious or negligent inaction of debtor at level whc endanger claim of Cr; c. Debtor’s rt. vs. 3rd person must be patrimonial, or susceptible of being transformed to patrim.value.

3.

from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (In Delivery of the Thing Sold) Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer.

ask for rescission of ©s made by debtor in fraud of Cr.’s rts.

Balane: Q: Against what performance?

can

the

obligee

demand

A: Against non-exempt properties of the debtor.-- The debtor is liable w/ all his property, present & future, for the fulfillment of his obligations, subject to the exemptions provided by law. (Art. 2236.) If number one is not enough, the creditor goes to any claims w/c the debtor may have against third persons. This is called accion subrogatoria, wherein the creditor is subrogated in the rights of the debtor. Personal rts. Of debtor: 1. Rt. to subsistence, support he receives exempt 2. Public rts; 3. Rts. Pertaining to honor 4. Rt. to use remaining powers available to him, e.g. SPA of agency or deposit; administrator; to accept a © 5. Non-patrimonial rts – estab. Status, legit or illegit child; annulment of marriage, legal sep., those arising fr, PFR; 6. Personal rts. Arising fr. Patrimonial source, e.g. to revoke a donation d/t ingratitude, to demand exclusion of an unworthy heir;

(2) JUDICIAL REMEDIES: (a) PRINCIPAL REMEDY  1191 / 1170 (b) SUBSIDIARY REM  1380 /1177 (c) ANCILLARY REM  The Rules of Court (a) PRINCIPAL REMEDY  1191 / 1170 Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. Notes on 1191: Two remedies are alternative & not cumulative, subject to the exception in par. 2 where he may also seek rescission even after he has chosen fulfillment if the latter should become impossible

Accion pauliana (Articles 1380-89).-- This is the right of creditors to set aside fraudulent transfers w/c the debtor made so much of it as is necessary to pay the debts.  pertains to acts whc debtor may have done in fraud of Cr. E.g. alienation of property, renunciation of inheritance or rt. of usufruct, assgnmnt of credit, remission of debts. (1) EXTRAJUDICIAL REMEDIES: (a) EXPRESSLY GRANTED BY LAW (b) STIPULATED BY THE PARTIES (a) EXPRESSLY GRANTED BY LAW, extrajudicial rem. (In Obligations of the Partners) Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages

Art. 1170. Those who in the performance of their obligation are guilty of fraud, negligence or delay, & those who in any manner contravene the tenor thereof, are liable for damages. (b) SUBSIDIARY REM  1380 /1177 Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (Rescissible Contracts) Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they

39

may also impugn the acts which the debtor may have done to defraud them.

Badges of fraud, & Art. 1387: Presumptions. May be rebutted by satisfactory & convincing evidence.

--Rescission in reciprocal Ø in Art. 1191 is not identical to Rescission of ©s in Art. 1380+.

Art. 1388: Cr. With axn only v. subsequence transferees only when an axn lies v. 1st transferee. If 1st Tfee in GF, no liability. If 1st Tfee in BF, the rescissible char. Of 2nd alienation depends upon how 2nd Tfee acquired the thing. Art. 1191. The power to rescind obs. Is implied in reciprocal ones, in case on of the obligors should not comply w/ what is incumbent upon him. The injured party may choose between the fulfillment & the rescission of the ds., w/ 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 ct. shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be w/o prejudice to the rts of third persons who have acquired the thing, in accordance w/ Arts. 1385 & 1388 & the Mortgage Law.

Requisites of Rsn of a K (1380): a rescissible K, ex. under Art. 1381 & 1382 no other legal means to obtain reparation for damages (Art. 1383) person demanding Rsn must be able to return whatever he may be obliged to restore if Rsn granted (Art. 1385) objects of K must not have passed legally to poss’n of 3rd p. in GF (Art. 1385) Axn for Rsn brought w/in 4 years (Art. 1389)  Rescindable Ks are valid until voided & can’t be attacked collaterally as in a land registration proceeding. Direct proceeding necessary.  Rsn only for legal cause, as those in Art. 1381 & 1382 “Lesion” under Art. 1381 par. 1 & 2, to give rise to Rsn, must be known or could have been known at the time of making the K, & not due to circs subseq thereto or unknown to the parties.

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the 1st infractor shall be equally tempered bye the cts. If it cannot be det. Which of the parties 1st violated the ©, the same shall be deemed extinguished, & each shall bear his own damages.

Accion Pauliana: Axn to set aside Ks in fraud of Crs. (Art. 1381 par. 3) Requisites for Accion Pauliana: 1. Pff. Asking for Rsn has a credit prior to alienation, though demandable later 2. Dbt has made a subsequent K conveying a patrimonial benefit to 3rd p. 3. Cr-Pff has no other legal remedy to satisfy his claim 4. Act being impugned is fraudulent 5. 3rd p. who received prop., if by onerous title, is accomplice in the fraud

Tolentino: Similarities between Rsn under Art. 1191 & Art. 1380+: (1) both presuppose ©s validly entered into & existing, & (2) both require mutual restitution when declared proper.

Rsn. is a subsidiary axn, w/c presupposes that the Cr has exhausted the prop. of the Db. Fraudulent conveyance must be shown.

Differences: (1) Rsn under 1191 may be demanded only by party to the ©, under 1380+ by 3rd p. prejudiced by the ©; (2) Rsn under 1191 may be denied when there is sufficient reason to justify extension of time to perform, under 1380+ such reason does NOT affect rt. to ask for Rsn; (3) Non-perf. is the only grd. for Rsn under 1191, while there are various reasons of equity as grds. under 1191 applies only to recip. ds. where one party has not performed, while under 1380(+) Ø may be unilateral or reciprocal & even when © has been fulfilled.

Test: WON conveyance by dbtor a bona fide transxn Badges/ Signs of Fraud: 1. consideration of conveyance is inadequate 2. transfer made by Db after suit has begun & while pending v. him 3. a sale upon credit by insolvent Db 4. evidence of large indebtedness or complete insolvency 5. transfer of all or nearly all of prop of Db who is insolvent or greatly embarrassed financially 6. transfer is made between father & son 7. failure of vendee to take exclusive poss’n of prop 8. If alienation is gratuitous, GF of transferee does NOT protect him O.W. Unjust enrichment 9. If alienation is by onerous title, transferee must be a party to the fraud, to have Rsn

CENTRAL BANK VS. CA (1985) Facts: Islands Savings Bank approved the loan application of Tolentino for P80,000. To secure the loan, Tolentino executed a real estate mortgage on his 100hectare land. Only P17,000 was released by the Bank, for w/c Tolentino executed a promissory note payable w/in 3 years. The balance was not released. In 1965, the Monetary Board of the Central Bank issued Resolution No. 1049 prohibiting the Bank fr. doing business in the Philippines. The Bank filed an application for extrajudicial foreclosure of the real estate mortgage of Tolentino for non-payment of the promissory note for P17,000. In turn, Tolentino filed an action for injunction, specific performance or rescission, alleging that the Bank failed to fulfill its obligation to lend the balance of P63,000.

As a rule, Rsn benefits only Cr who obtained Rsn. And the extent of revocation is only to the amount of prejudice suffered by Cr. As to the excess, the alienation is maintained Axn for Rsn may be brought by: (1) the person injured by the Rescue K, (2) heirs of this person, & (3) their Crs by virtue of rt granted under Art. 1177.

Issues: W/N Tolentino can compel specific performance. W/N Tolentino’s liability to pay the P17,000 covered by the promissory note subsists.

Rt. of transferee to retain prop. depends upon the nature of the transfer & upon the complicity of the former in the fraud. When K can’t be rescinded bec. 3rd p. is in GF, the party who caused the loss is liable for the damages

Held: NO. The agreement is a loan agreement, w/c is a reciprocal obligation. In reciprocal obligations, the

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obligation or promise of each party is the consideration for that of the other; & when one party has performed or is ready & willing to perform his part of the contract, the other party who has not performed or is not ready & willing to perform incurs in delay. The promise of Tolentino to pay was the consideration for the obligation of the Bank to furnish the P80,000. When Tolentino executed a real estate mortgage, he signified his willingness to pay the loan. From such date, the obligation of the Bank to furnish the P80,000 accrued. The Bank’s delay started in 1965, lasted for 3 years or when the Monetary Board issued Resolution No. 967 in 1968, w/c prohibited the Bank fr. doing further business. Resolution No. 1049 cannot interrupt the default of the Bank in releasing the P63,000 bec. said resolution merely prohibited the Bank fr. making new loans. Since the Bank was in default in fulfilling its reciprocal obligation under the loan agreement, Tolentino may choose between specific performance or rescission w/ damages in either case. But since the Bank is now prohibited fr. doing further business, the Court cannot grant specific performance. Rescission is the only alternative remedy left. However, rescission is only for the P63,000 balance, bec. the bank is in default only insofar as such amount is concerned.

secrecy and monopoly of the formula by the patentee; etc.. ISSUE: WON the rescission of the Bill of Assignment by the CA is proper? In this connection, we quote for ready reference the following articles of the new Civil Code governing rescission of contracts: ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

The promissory note gave rise to Tolentino’s reciprocal obligation to pay the P17,000 loan when it falls due. Art. 1192 provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the Court. The liability of the Bank for damages in not furnishing the entire loan is offset by the liability of Tolentino for damages, in the form of penalties & surcharges for not paying his overdue P17,000 debt.

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 of the Mortgage Law. ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.

--CASES: UNIVERSAL FOOD CORP. vs. CA: (1970)

ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused.

FACTS: Magdalo V. Francisco, Sr. PATENTEE or owner and author of the formula for MAFRAN SAUCE, manufactured and distributed by UFC, filed with the CFI-Manila, an action for rescission of a contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any right to the use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to order UFC to pay Magdalo his unpaid salary from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit.

HELD: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and rescission of the obligation, with payment of damages in either case.

Petitioner UFC contends that the CA erred in granting above prayers of plaintiff, holding that right to specific performance is not conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law.

In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances. The petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent patentee ceded and transferred to the petitioner the formula for Mafran sauce. However, a perceptive analysis of the entire instrument and the language employed therein would lead one to the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce formula. This was the precise intention of the parties: (1) 2% ROYALTY; provisions to preserve utmost

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However, in this case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or negligence on his part. Thus, apart from the legal principle that the option to demand performance or ask for rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product  all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest.

subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not, apply to cases under Article 1191. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. 1 But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action. MAGDALENA ESTATES VS. LOUIS MYRICK (1941) FACTS: Magdalena Estate, Inc., sold to Louis J. Myrick Parcel of lots in San Juan Subdivision, San Juan Rizal, with contract of sale providing for the price which shall be payable in 120 equal monthly installments of each on the 2nd day of ea.mo. fr. the date of execution of the agreement. Simultaneously, the vendee executed and delivered to the vendor a PN for the whole purchase price. Myrick made several installment payments the last being Oct. 1930, but was in default as to May payment. Thus, vendor notified the vendee that, in view of his inability to comply with the terms of their contract, said agreement had been cancelled as of that date, thereby relieving him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor of the vendor, who assumes the absolute right over the lots in question. To this communication, the vendee did not reply, and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price.

Separate Opinion: REYES, J.B.L., J., concurring: I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco, should be denied because under Article 1383, NCC rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq.

Myrick, respondent herein, commenced the present action in CFI-Albay, against MEI for the sum of P2,596.08 with legal interest thereon from the filing of the complaint until its payment, and for costs of the suit. Lower court granted, CA affirmed w/modif. That legal interest shd be computed fr d date of the cancellation of the ©. Thus this petition.

(rescission for breach of contract under Article 1191 )  The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is in principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary.

ISSUE: WON petitioner’s contention is correct, that a bilateral contract may be resolved or cancelled only by the prior mutual agreement of the parties, which is approved by the judgment of the proper court; and that the letter of MEI was not assented to by the respondent, and therefore, cannot be deemed to have produced a cancellation, even if it ever was intended. HELD: Where the terms of a writing are clear, positive and unambiguous, the intention of the parties should be gleaned from the language therein employed, which is conclusive in the absence of mistake. The letter said “cancelled” and it was unequivocal. The fact that the contracting parties herein did not provide for resolution is now of no moment, for the reason that the obligations arising from the contract of sale being reciprocal, such obligations are governed by article 1124 of the Civil Code which declares that the power to resolve, in the event that one of the obligors should not perform his part, is implied.

(Rescission by reason of lesion or economic prejudice, under Article 1381, et seq. )  On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is

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Upon the other hand, where, as in this case, the petitioner cancelled the contract, advised the respondent that he has been relieved of his obligations thereunder, and led said respondent to believe it so and act upon such belief, the petitioner may not be allowed, in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), in any litigation the course of litigation or in dealings in nais, be permitted to repudiate his representations, or occupy inconsistent positions, or, in the letter of the Scotch law, to "approbate and reprobate."

Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966. ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court. Thus, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding & for preliminary injunction. Respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party. UP received the TRO after it had concluded its contract with Sta. Clara, and said company had started logging operations. On motion, ALUMCO and one Jose Rico, the court, declared petitioner UP in contempt of court and Sta. Clara Lumber to refrain from exercising logging rights or conducting logging operations in the concession.

U.P. VS. DELOS ANGELES (1970) In the provincesof Laguna & Quezon, Land Grants were segregated from the public domain and given as an endowment to UP, to be operated and developed for the purpose of raising additional income for its support, pursuant to Act 3608;

UP’s MR was denied.

In 1960, UP and ALUMCO (Assoc. Lumber Manuf. Co) entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay. After it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP, and which stipulated the following:

ISSUE: whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. In the first place, UP and ALUMCO had expressly stipulated that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement as rescinded without the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276: there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract.

3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30, 1965;

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged. Thus, UP informed ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960; and UP filed a complaint vs. ALUMCO, at CFI-Rizal, for the collection or payment of sums of money w/ prayer for injunction. But before pre.injunction may be issued, UP had taken steps to have another concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta.

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We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, 1 since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.

True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however, where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and' determination. But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal, he erred in assuming original jurisdiction, in the face of the objection interposed by petitioner. Section 11, Rule 40, leaves no room for doubt on this point:

ZULUETA VS. MARIANO FACTS: Petitioner Jose C. Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision, Pasig, Rizal. On November 6, 1964, petitioner Zulueta and private respondent Lamberto Avellana, a movie director, entered into a "Contract to Sell" the aforementioned property for P75,000.00 payable in twenty years with respondent buyer assuming to pay a down payment of P5,000.00 and a monthly installment of P630.00 payable in advance before the 5th day of the corresponding month, starting with December, 1964 – WITH FURTHER SPECIFIC STIPULATIONS IN CASE OF BREACH OF SUCH ©.

Section 11. Lack of jurisdiction ?A case tried by an inferior court without jurisdiction over the subject matter shall be dismiss on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance may try the case on the merits, if the parties therein file their pleadings and go to trial without any objection to such jurisdiction. There was no other recourse left for respondent Judge, therefore, except to dismiss the appeal.

Avellana occupied the property but title remained with petitioner Zulueta. Upon the allegation that respondent had failed to comply with the monthly amortizations stipulated in the contract, despite demands to pay and to vacate the premises, and that thereby the contract was converted into one of lease, petitioner, commenced an Ejectment suit against respondent before the MTC-Pasig. Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract; and made some affirmative defenses and counterclaim. Lower court found in favor of plaintiff, asked def. to vacate & pay back rentals,etc. CA reversed & ruled vs. ju’s of muni.court finding the case as one of interpretation & rescission of © b/c d © to sell was converted to © of lease. MR denied.

If an inferior court tries a case without jurisdiction over the subject-matter on appeal, the only authority of the CFI is to declare the inferior court to have acted without jurisdiction and dismiss the case, unless the parties agree to the exercise by the CFI of its original jurisdiction to try the case on the merits. 4 The foregoing premises considered, petitioner's prayer for a Writ of Execution of the judgment of the Municipal Court of Pasig must perforce be denied. PALAY, INC. vs. CLAVE (1983) FACTS: Petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subd. in Antipolo, Rizal, owned by said corporation. The sale price was P23,300.00 with 9% interest p.a., payable with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967. Almost six (6) years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying petitioners informed respondent that his Contract to Sell had long been rescinded and the lot had already been resold.

ISSUE: WON the original © to sell was rescinded d/t the automatic resc.clause in the ©, thus the case was unlawful detainer cognizable by the MTC or one of judicial rescission of © cognizable by then CFI? HELD: Thus, the basic issue is not possession but one of rescission or annulment of a contract, which is beyond the jurisdiction of the Municipal Court to hear and determine. A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or rescind it. An allegation of such violation in a detainer suit may be proved by competent evidence. And if proved a justice of the peace court might make a finding to that effect, but it certainly cannot declare and hold that the contract is resolved or rescinded. It is beyond its power so to do. And as the illegality of the possession of realty by a party to a contract to sell is premised upon the resolution of the contract, it follows that an allegation and proof of such violation, a condition precedent to such resolution or rescission, to render unlawful the possession of the land or building erected thereon by the party who has violated the contract, cannot be taken cognizance of by a justice of the peace court. ...

Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund. NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto

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Onstott, jointly and severally, to refund immediately to Dumpit the amount of P13,722.50 with 12% interest from the filing of the complaint. Petitioners' MR was denied. Appeal to the OP was also denied.

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances.

HELD: Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions.

The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid.

However, even in the cited cases, there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los Angeles the act of a party in treating a contract as cancelled should be made known to the other.

Article 1234  If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

ANGELES VS CALASANZ FACTS: Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

We agree with the observation of the lower court to the effect that:

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffsappellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendantsappellants accepted and received delayed installment payments from the plaintiffs-appellees. On December 7, 1966, the defendants-appellants wrote the plaintiffsappellees a letter requesting the remittance of past due accounts. On January 28, 1967, the defendantsappellants cancelled the said contract because the plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.

Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis.

The plaintiffs-appellees filed with CFI-Rizal to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land.

The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers."

The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the said contract.

BOYSAW VS INTERPHIL FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions, Inc. Ketchum on his own behalf assigned to J. Amado Araneta the managerial rights over Solomon Boysaw, presumably in preparation for his engagement with Elorde. Then, Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over Boysaw. The next day,

The lower court rendered judgment in favor of the plaintiffs-appellees. MR denied. ISSUE: WON the contract to sell has been automatically and validly cancelled by the defendantsappellants HELD: The right to rescind the contract for nonperformance of one of its stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that?

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Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the Philippines. Yulo, Jr. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of May 1, 1961. On the same date, on behalf of Interphil, Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw, of which he had not been formally notified, and requesting that Boysaw be called to an inquiry to clarify the situation. The GAB called a series of conferences & changed the schedule the Elorde-Boysaw fight. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB. Yulo, Jr. refused to accept the change in the fight date. The fight never materialized. Thus, Boysaw and Yulo, Jr. sued Interphil, Sarreal, & Nieto in CFI-Rizal for damages. The power to rescind obligations is implied, in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. [Part 1, Art. 1191, Civil Code]. There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino] The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581]. Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the original contract which, to be valid, should have been consented to by Interphil. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. [Art. 1293] Creditor not bound to deal w/unilaterally substituted debtor - Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute. The consent of the creditor to the change of debtors, whether in expromision or delegacion is an, indispensable requirement . . . Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the creditor should agree to accept the substitution in order that it may be binding on him. Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under which he transfers to z all his rights under the first contract, together with the obligations thereunder, but such transfer is not consented to or approved by x, there is no novation. X can still bring his action against

y for performance of their contract or damages in case of breach. [Tolentino] From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable. We uphold the appellees' contention that since all the rights on the matter rested with the appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had earlier agreed to abide by the GAB ruling. PILIPINAS BANK VS. I.A.C. FACTS: Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and private respondents, Jose W. Diokno and Carmen I. Diokno, as vendees executed a Contract to Sell over a parcel of land in Victoria Valley Subdivision in Antipolo, Rizal, subject to terms and conditions as stipulated. At vendees’ failure to pay, vendor sent several demands for the former to settle arrearages, requests for extensions were give, further demand was again given several times, until a Notice of rescission was given to Carmen Diokno after she informed the Corp that she wanted an audience with the Pres. b/c she had a prospective buyer of the property. Thus, private respondents filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in their favor, and to deliver to them the title of the lot in question. Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees, claiming that Contract to Sell has been automatically rescinded or cancelled by virtue of private respondents' failure to pay the installments due in the contract under the automatic rescission clause. After trial, the lower court rendered a decision in private respondents' favor, holding that petitioner could not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967, and by sending letters advising private respondents of the balances due, thus, looking forward to receiving payments thereon; (b) in any event, until May 18, 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire area contracted for, so, neither could private respondents be liable in default, citing Art. 1189, NCC. CA affirmed. ISSUE: WON the Contract to Sell was rescinded or cancelled, under the automatic rescission clause contained therein. HELD: We find the petition meritless. While it is true that a contractual provision allowing "automatic rescission" (without prior need of judicial rescission, resolution or cancellation) is VALID, the remedy of one who feels aggrieved being to go to Court for the cancellation of the rescission itself, in case the rescission is found unjustified under the circumstances, still in the instant case there is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private respondents by the petitioner. In all these extensions, the petitioner

46

never called attention to the proviso on "automatic rescission." CENTRAL BANK VS. CA (1985) Facts: Islands Savings Bank approved the loan application of Tolentino for P80,000. To secure the loan, Tolentino executed a REM on his 100-hectare land. Only P17,000 was released by the Bank, for w/c Tolentino executed a PN payable w/in 3 years. The balance was not released. In 1965, the Monetary Board of the Central Bank issued Reso.No. 1049 prohibiting the Bank fr. doing business in RP. The Bank filed an application for extrajudicial FREM vs. Tolentino for non-payment of the PN. In turn, Tolentino filed an action for injunction, specific performance or rescission, alleging that the Bank failed to fulfill its obligation to lend the balance of P63,000. Issues: W/N Tolentino can compel specific performance. WON Tolentino is entitled to rescission. Held: NO. The agreement is a loan agreement, w/c is a reciprocal obligation. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other; & when one party has performed or is ready & willing to perform his part of the contract, the other party who has not performed or is not ready & willing to perform incurs in delay. The promise of Tolentino to pay was the consideration for the obligation of the Bank to furnish the P80,000. When Tolentino executed a real estate mortgage, he signified his willingness to pay the loan. From such date, the obligation of the Bank to furnish the P80,000 accrued. The Bank’s delay started in 1965, lasted for 3 years or when the Monetary Board issued Resolution No. 967 in 1968, w/c prohibited the Bank fr. doing further business. Resolution No. 1049 cannot interrupt the default of the Bank in releasing the P63,000 bec. said resolution merely prohibited the Bank fr. making new loans. Since the Bank was in default in fulfilling its reciprocal obligation under the loan agreement, Tolentino may choose between specific performance or rescission w/ damages in either case. But since the Bank is now prohibited fr. doing further business, the Court cannot grant specific performance. Rescission is the only alternative remedy left. However, rescission is only for the P63,000 balance, bec. the bank is in default only insofar as such amount is concerned. The promissory note gave rise to Tolentino’s reciprocal obligation to pay the P17,000 loan when it falls due. Art. 1192 provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the Court. The liability of the Bank for damages in not furnishing the entire loan is offset by the liability of Tolentino for damages, in the form of penalties & surcharges for not paying his overdue P17,000 debt.

47

FOR JULY 16, 2008: G. MODES OBLIGATIONS

OF

EXTINGUISHMENT

bec. of the stipulation in the contract he signed w/ Carale. Suppose, however, Carale, closes down his restaurant & engages in a totally different business, a construction business, for example, Molina can apply for work at Mildo's even before the lapse of the five year prohibitive period.

OF

Art. 1231. Obligations are extinguished BY: (1) Payment or Performance; (2) Loss of the thing due; (3) Condonation or Remission of the debt; (4) Confusion or Merger of the rights of creditor & debtor; (5) Compensation; (6) Novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, & prescription are governed elsewhere in this Code.

In this case, Molina can make out a case of extinguishment of obligation on the ground of want of interest. The obvious purpose of the stipulation is to prevent unfair competition.

CASE:

Balane: Art. 1231 gives us ten modes of extinguishing an obligation. One of the modes mentioned is rescission.

SAURA IMPORT & EXPORT BANK VS. DBP [44 S 445] FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. The jute mill machinery had already been purchased by Saura on the strength of a LOC by PBTC. RFC approved the loan secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed, and the loan to be released at the discretion of RFC, subject to availability of funds, &as the construction of the factory buildings progresses, to be certified to by an appraiser of RFC. China Engineers, Ltd. had again agreed to act as co-signer for the loan. When the RFC Board later decided to decrease the loan fr. 500K to 300K, China Eng signified to withdraw as comaker. Thus, when Saura requested for the release of the 500K loan, RFC signified that the Loan Agreement has been cancelled. Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials, a Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets, draperies; out of 100% local raw materials. When negotiations came to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to cancel the mortgage which RFC did. It appears that the cancellation was requested to make way for the registration of a mortgage contract, executed over the same property in favor of PBTC, under which contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust receipt heretofore mentioned. It appears further that for failure to pay the said obligation PBTC sued Saura. NINE YRS LATER, Saura commenced the present suit for damages, alleging failure of RFC /DBP to comply with its obligation to release the proceeds of the loan applied for and approved, thereby preventing the plaintiff from completing or paying contractual commitments it had entered into, in connection with its jute mill project. The trial court rendered judgment for the plaintiff.

But it does not tell us whether this is rescission Art. 1191 (resolution) or rescission under Art. 1380, et. seq. If it means both, then we have eleven modes of extinguishing an obligation under Art. 1231. (Similar to Tolentino’s) under

•

This enumeration is not exclusive.

Other modes of extinguishing an obligation are the following:

1. Death  particularly where the obligation is

purely personal, e.g., death of one partner dissolves the partnership/agency;

2.

Renunciation by the creditor

3.

Compromise

4. Arrival of Resolutory Term / fulfillment of reso.condi.

5. Mutual Desistance or mutuo disenso (Saura v. DBP)

6. In some cases, Unilateral Withdrawal, e.g., in partnership, any partner can w/draw any time fr. the partnership.

7.

In some cases, change of civil status, e.g., if marriage is annulled, it extinguishes obligations like the obligation to give support, among others.

8. Unforeseen Events  (rebus sic stantibus) (Art. 1267.)

9. Want of Interest  GR: No, but there are certain cases:

•

if it is equitable to deem the Ø extinguished d/t want of interest of Cr in the fulfillment of such Ø.

10. Abandonment of the thing  as in Art. 662, partywall;

Or aband.of a vessel under Code of Comm. 11. Insolvency of debtor judicially declared & discharged. Illustration: Carale owns a restaurant. He hires Molina as a chef. In the contract of employment, there was a stipulation that if Molina resigns fr. Carale's restaurant, he cannot seek employment fr. another restaurant for a period of five years. Subsequently, Molina resigns fr. Carale's restaurant & wants to apply to Mildo's House of Chicken. In this case, Molina cannot work w/ Mildo's

ISSUE: WON the Ø of RFC to Saura in the perfected loan © subsists

48

When RFC turned down the request of Saura, the negotiations which had been going on for the implementation of the loan agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done by RFC. The action thus taken by both parties was in the nature of mutual desistance - what Manresa terms as "mutuo disenso" which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

(1)

If after the payment, the third persons acquires the creditor's rights;

(2)

If the creditor ratifies the payment to the third person;

(3)

If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment.

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. Art. 1244. 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 w/c is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality & circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation & other circumstances shall be taken into consideration.

Extinguishment of Øs by mutual desistance  Where after approval of his loan, the borrower, instead of insisting for its release, asked that the mortgage given as security be cancelled & the creditor acceded thereto, the action taken by both parties was in the nature of mutual desistance - what Manresa terms "mutuo disenso" - w/c is a mode of extinguishing obligations. It is a concept that derives fr. the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in w/c the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated & in part unliquidated, the creditor may demand & the debtor may effect the payment of the former w/o waiting for the liquidation of the latter. Art. 1249. The payment of debts in money shall be made in the currency stipulated, & if it is not possible to deliver such currency, then in the currency w/c is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived fr. the original obligation shall be held in abeyance.

A. Payment or Performance

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

PERTINENT PROVISIONS/ reading matters:

Art. 1251. Payment shall be made in the place designated in the obligation.

Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.

There being no express stipulation & if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted.

Art. 1233. A debt shall not be understood to have been paid unless the thing or service in w/c the obligation consists has been completely delivered or rendered, as the case may be.

In any other case the place of payment shall be the domicile of the debtor.

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict & complete fulfillment, less damages suffered by the obligee.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, & w/o expressing any protest or objection, the obligation is deemed fully complied w/.

Court.

These provisions are w/o prejudice to venue under the Rules of Article 1302. It is presumed that there is legal subrogation:

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

1)

When a creditor pays another creditor who is preferred, even without the debtor's knowledge;

Whoever pays for another may demand fr. the debtor what he has paid, except that if he paid w/o the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

2)

When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

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 to the latter's share

Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or against the will of the latter cannot compel the creditor to subrogate him in his rights, such as those arising fr. a mortgage, guaranty, or penalty. Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, w/c requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it.

Republic Act No. 529, as amended by R.A. No. 4100, provides: SECTION 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred.

Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due & capacity to alienate it shall not be valid, w/o prejudice to the provisions of article 1427 under the Title on "Natural Obligations." Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.

The above prohibition shall not apply to (a) transactions where the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial banking institutions so long as the funds are identifiable, as having emanated from the sources enumerated above;

Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases:

49

4.

(b) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds;

the manner, time and place of payment, etc.

 payment shd be made by the debtor to the creditor at the right time and place. KINDS:

(c) forward exchange transactions entered into between banks or between banks and individuals or juridical persons;

1. NORMAL  when Db voluntarily performs 2. ABNORMAL  when Db is forced by judicial proceeding

(d) import-export and other international banking, financial investment and industrial transactions.

Balane: Payment or Performance are used interchangeably. technically, Payment  in obligations to give, Performance  in obligations to do.

With the exception of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provision, in which cases the terms of the parties’ agreement shall apply, every other domestic obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.

But

Payment/ performance is the paradigmatic mode of extinguishment of an obligation. • It is the only normal way of extinguishing an obligation.

Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency, measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.

Art. 1233. A debt shall not be understood to have been paid unless the thing or service in w/c the obligation consists has been completely delivered or rendered, as the case may be.

Pertinent portion of Republic Act No. 8183 states:

Tolentino: This art. States Two requisites for Payment:

SECTION 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.

(1) Identity, of the prestation, &  the very thing or service due must be delivered or released; (2) its integrity  prestation must be fulfilled completely

SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the Uniform Value of Philippine Coin and Currency" is hereby repealed. (Approved on June 11, 1996) •

For BALANE: Art. 1233 states these requisites of payment – I. Re: The prestation 1. Identity 2. Integrity 3. Indivisibility

The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the stipulation of currency other than Philippine currency, such that obligations or transactions may now be paid in the currency agreed upon by the parties.

II. •

Just like R.A. No. 529, however, the new law does not provide for the applicable rate of exchange for the conversion of foreign currency  incurred obligations in their peso equivalent.

•

It follows, therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains applicable. Thus, in Asia World Recruitment, Inc. v. National Labor Relations Commission,13 the Court, applying R.A. No. 8183, sustained the ruling of the NLRC that obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the time of payment.

1. Payor/ obligor/ debtor 2. Payee/ obligee/ creditor III.

Re: Time & place

Discussion: I. With respect to prestation: 1. Identity • If specific prestation, this requisite means that the very thing or service must be delivered. (Art. 1244.)

CONCEPT OF PAYMENT

•

Art. 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.

If generic, the requisite requires the delivery of something of neither inferior nor superior quality (Art. 1246). It must be something in the middle. In case of money, there are special rules:

Governing rule: RA 529 as amended by RA 4100

 it is the fulfillment of the prestation due whc extinguishes the Ø by the realization of the purposes for whc it was constituted.

•

 it is a juridical act whc is voluntary, licit and made with the intent to exting. d Ø;

In case of money debts, you will have to pay in legal tender in the Philippines. This law supersedes Art. 1249. •

 it is made not only by 1 who owes money but also by 1 bound to do something or to refrain fr doing •

Re: The parties

Thus, Payment is identical w/ Fulfillment.

Requisites of Payment or Performance: [TOLENTINO] 1. the person who pays  must have requisite capacity 2. the person to whom payment is made  “ 3. the thing to be paid  in accordance w/ the Ø

If the parties stipulate that payment will be made in foreign currency, the obligation to pay is valid but the obligation to pay in foreign currency is void. Payment will be made in Phil. currency.

LEGAL TENDER – means such currency whc in a given ju’s can be used for payment of debts public & priv, &whc cannot be refused by Cr. In the RP the ff are legal tender: (sec. 54, RA 265)

50

1. RP silver peso & half peso for debts of any amount, RP subsidiary silver coins 20 ¢& 10 ¢ for up to P20 debts, and RP minor nickel &copper coins for up to P2.00 debts; 2. RP Treasury certs., new Victory series (EO 25, s. 1944, already w/drawn fr circ) 3. All notes and coins issued by CB.

1. 2. 3. 4. 5.

Q: How do you convert? A: In case of an obligation w/c is not a loan in foreign currency, if incurred bef. RA 529, conversion must be as of the time the obligation was incurred.

6.

If incurred after RA 529 became effective, the conversion must be as of the time the obligation was incurred (Kalalo v. Luz)

8.

7.

9. If the loan is in foreign currency, the conversion is as of the time of payment. (RA 529.)

II. With respect to the parties There are two parties involved: 1. Payor/ obligor/ debtor 2. Payee/ obligee/ creditor

Payment in negotiable paper  This may be refused by the creditor. Payment in manager's check or certified check is not payment in legal tender. The ruling in Seneris has been reversed in the case of Bishop of Malolos. The Malolos ruling is better. I found it hard to accept that manager's check or certified check is good as legal tender. There are always risks to w/c cashier's checks are subject. What if after having issued a cashier's check, the drawee-bank closes, what happens to your cashier's check?

Requirements: 1. Art. 1226 - 1238. Who should the payor be: a. Without need of the creditor's consent 1. The debtor himself 2. His heirs or assigns 3. His agent 4. Anyone interested in the fulfillment of the obligation, e.g., a guarantor

 In any event, payment by check can be refused by the creditor. And even if payment by check is accepted by the creditor, the acceptance is only a provisional payment until the check is (a) encashed or (b) when through the fault of the creditor they have been impaired.

b. With the creditor's consent -- Anyone.  This is a departure fr. the rule in the Old Civil Code w/c did not require consent on the part of the creditor.

The case of Namarco v. Federation, 49 SCRA 238, interprets the phrase "when through the fault of the creditor, they have been impaired" as to apply only to a check used in payment if issued by a person other than the debtor.

c. Effect of payment by a third person: 1. If the payment was w/ the debtor's consent, he becomes the agent of the debtor. The effect is subrogation (Articles 1236-1237.) Exception: If the person paying intended it to be a donation. (Art. 1238.)

Why? Bec. if the check was issued by the debtor himself, all that the debtor have to do is to issue another check. Revaluation in case of extraordinary inflation or deflation (Art. 1250)

2. If payment was w/o the debtor's consent, the third person may demand repayment to the extent that the debtor has been benefited. (Art. 1236, par. 2.)

 This rule has never been used. It was only during the Japanese occupation that there was a recognition of extraordinary inflation in this country.

2. Who may be the payee? 1. 2. 3. 4.

Exceptions to the requirement of identity (i) Dacion en pago (Art. 1245.) (ii) Novation In both cases, there is a voluntary change in the object. 2. Integrity  There must be delivery of the entire prestation due. (Art. 1233) or completely fulfilled;

to

(Art.

 In all these five (5) cases, it is required that the debt should not have been garnished. (Art. 1243.) III. With respect to the time & place of payment: 1. When payment to be made: When due 2. Place (Art. 1251.)

3. Indivisibility  This means that the obligor must perform the prestation in one act & not in parts. (Art. 1248.) exceptions

The obligee proper (Articles 1240, 1626.) His successor or transferee (Art. 1240.) His agent (ibid.) Any third person subject to the following qualifications: a. provided it redounded to the obligee's benefit & only to the extent of such benefit. (Art. 1241, par. 2.) b. If it falls under Art. 1241, par. 2 nos. 1, 2 & 3, benefit is deemed to be total.

5. Anyone in possession of the credit. 1242.)

The exceptions to the requirement of integrity are: 1. In case of substantial performance in good faith (Art. 1234.) This is an equity rule. 2. In case of waiver of obligee/ creditor (Art. 1235.) 3. In case of application of payments if several debts are equally onerous (Art. 1254, par. 2.)

There are several requirement:

In case or express stipulation. (Art. 1248.) In case of prestations w/c necessarily entail partial performance. (Art. 1225, par. 2) If the debt is liquidated in part & unliquidated in part. (Art. 1248.) In case of joint divisible obligations (Art. 1208.) In solidary obligations when the debtors are bound under different terms & conditions. (Art. 1211.) In compensation when a balance is left. (Art. 1290.) If the work is to be delivered partially, the price or compensation for each part having been fixed. (Art. 1720.) In case of several guarantors who demand the right of division. (Art. 2065.) In case of impossibility or extreme difficulty of single performance.

Primary rule: As stipulated

this

51

Secondary rule: Place where the thing was at the time the obligation was constituted if the obligation is to deliver a determinate thing.

applicable to the present case, RE Substantial performance of © Ø in GF, Art. 1234. FACTS: Contract to Sell bet. Plaintiff vendee, Felipe Saldana and Def.vendor, Legarda Hermanos, subdivision-owner, on 2 written ©’s, payable for 10yrs, 120 equal monthly installments w/ 10% interst p.a., fr. May 1948  resp. Saldana faithfully pd. For 8-yrs about 95mos.instalmnts out of 120; he stopped paying fr. Filing of this case w/CFI-Manila in 1961; after his 1st 5yrs of paying, resp. called attention of vendors that he wanted to build a house on his lot but they have to start improvements on d subd, e.g. roads. Instead, he was informed of cancellation of © for failure to pay as stipulated, the 120installments and his payments were to be treated as rents. > LC dismissed resp.’s complaint, upheld the cancellation of the ©. Appellate court reversed, and ordered the conveyance of one of the 2 lots to defs. At the latter’s choice. It was found that the lots cud not be delivered bcoz they were still submerged in water and there were no roads in the subdv. (for equity and justice)

Tertiary rule: At the debtor's domicile Balane: ** Payment or Performance interchangeably.

are

used

 But technically, payment is used in obligations to give whereas performance is used in obligations to do. Payment/performance is the paradigmatic mode of extinguishment of an obligation. It is the only normal way of extinguishing an obligation. Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict & complete fulfillment, less damages suffered by the obligee.

Substantial Performance: 1. an attempt in GF to perform, w/o any willful or intentional departure fr it 2. deviation fr perf. of Ø must be slight, & omission or defect must be so technical & unimpt, & must not pervade the whole, must not be so material to the achievement of the very purpose of the parties; 3. party claiming substantial perf. must show attempt in GF

ISSUE: WON cancellation here was proper? HELD: NO. Applying Doctrine in JM Tuazon v. Javier

AZCONA V. JAMANDRE [151 S 317] CASES on Payment:

FACTS: GUILLERMO AZCONA leased 80 Ha. Out of his 150 Ha pro-indiviso share in hacienda Sta. fe in Escalante, Negros Occ. To CIRILO JAMANDRE, decedent rep.by Administrator to his Estate; > Yearly rental agreed: P7,200 for 3-agri.years fr. 1960, extendible to 1965 at lessee’s option. 1st annual rental due on Mar. 1960; but resp. did not pay for failure of Pet. To deliver possn of the prop. To him until he pd in Oct. 1960 of P7000; > In April 1961, Pet. Notified Resp. that © is deemed cancelled for failure to comply w/conditions therein; > resp. filed complaint, def. filed counterclaim; both were dismissed by TC for pari de licto;

J.M. TUASON V. JAVIER [31 S 829] - In the interest of justice & equity, court may grant the vendee a new term where he substantially performed in good faith according to Art. 1234, regardless of Art. 1592 of the same Code. FACTS: Contract to Sell bet. Plaintiff JM Tuazon and def. Ligaya Javier on a parcel of land in Sta. Msa Hts. Subd. On installment w/ down & interest of 10% p.a. Def. took poss’n of prop. After payment of 1st installment on execution of © in Sept. 1954 & pd. Mo.installmts until Jan. 1962. After subseq. Default by def. of monthly inst. Plaintf informed her that © has been rescinded. But def. refused to vacate. Thus, pltff filed case w/CFI-Rizal for judicial rescission of © and payment of arrears. Based on Art. 1592, CFI found in favor of def. but made the latter pay arrears w/in 60 days, plus interests, attys fees, and that title shd be transferred after such payment w/costs at the expense of def. Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Thus pltff appealed for erroneous applic of 1592 b/c this is a © TO Sell not OF Sale.

ISSUE: WON the payment of P7000, lacking of 200 fr the agreed annual rental of 7200, amounts to delay and ground for rescission HELD: No. the receipt showed full payment as per contract; no mention of the short of 200; whc means that rental was reduced, perhaps b/c of the reduction of the 80Ha. By 16Ha. Used by Pet. As grazing land. But the rest of the © subsists. xxx If the petitioner is fussy enough to invoke it now, it stands to reason that he would have fussed it too in the receipt he willingly signed after accepting, w/o reservation & apparently w/o protest only P7,000. Art. 1235 is applicable. Petitioner says that he could not demand payment of the balance of P200 on 10/26/60, date of receipt bec. the rental for the crop year 1961-1962 was due on or before 1/30/61. But this would not have prevented him fr. reserving in the receipt his right to collect the balance when it fell due. Moreover, there is evidence in the record that when the due date arrived, he made any demand, written or verbal, for the payment of that amount.

ISSUE: WON CFI erred in NOT declaring herewith © rescinded. HELD: NO. What applies here is Art. 1234:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, & w/o expressing any protest or objection, the obligation is deemed fully complied w/.

Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict & complete fulfillment, less damages suffered by the obligee. LEGARDA HERMANOS V. SALDANA [55 S 324] The Court's doctrine in J.M. Tuason v. Javier is fully

1. To whom payment should be made

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Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it.

In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money & unless the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his debt. Consequently, Unless authorized by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. [PAL V. CA (181 S 557)]

ARAÑAS V. TUTAAN [127 S 828] Payment by judgment debtor to the wrong party does not extinguish judgment debt. FACTS: CFI-Rizal,Quezon declared petitioner-plaintiff sps. Arañas as owner of 400 shares of stocks in Universal Textile Mills, Inc. UTEX, whc the Corpdefendant issued to co-def. Gene Manuel and BR Castaneda, incl. stock dividends whc accrued to said shares. This court a quo rendered decision in August 1971. UTEX made a motion for clarification and such was answered in 1972 clearly directing UTEX to pay sps.petitioners as rightful owners of all accruing dividends from their stocks fr after the judgment by the court, and for the transfer of the disputed shares of stocks to the names of petitioner-sps. In lieu of the appeal filed by Manuel and Castaneda, UTEX failed to transfer the names of the shares and pay the dividends to petitioners. Thus, sps-pet asked for a writ of execution fr court a quo for payment of cash dividends fr 1972-1979 w/interest and to effect the transfer of the shares to them. Lower court granted such order but absolved UTEX of payment of cash dividends whc they have already paid to Manuel and Castaneda on the ground of equity.

Tolentino: Authority to receive: LEGAL or CONVENTIONAL Legal: conferred by law, such as authority of guardian to inc. creditor (Cr), or the adm’r of estate Conventional: autho. Fr. Cr himself, as when agent is appted. To collect fr. Debtor (Dr)

ISSUE: WON UTEX shd be made to pay sps.Arañas the cash dividends fr 1972-1979 w/interests, after it has already paid the same to Manuel and Castañeda, despite knowledge of the court’s decision otherwise. HELD: The burden of recovering the supposed payments of the cash dividends made by UTEX to the wrong parties Castaneda & Manuel squarely falls upon itself by its own action & cannot be passed by it to petitioners as innocent parties.

•

Deposit by Db in bank, in the name of & to the credit of Cr, w/o latter’s autho. Does NOT constitute payment; but when the Cr cannot be found in the place of payment, such deposit may be a valid excuse for not holding the Db in default

Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third persons acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment.

A payment in order to be effective to discharge an obligation must be made to the proper parties.--

In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt.

Baviera: Number three is Estoppel in Pais

Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will, therefore satisfy the debt.



Payment to wrong party does NOT extinguish oblig to Cr, if there is no fault or negligence w/c can be imputed to the latter, even when Db acted in utmost GF & by mistake as to the person of his Cr, or thru error induced by fraud of 3P, EXCEPT AS PROV. IN ART. 1241

GR: Consignation in ct. of thing or amt. due, when properly made will ext. oblig.

*** It is elementary that payment made by a judgment debtor to a wrong party cannot extinguish the judgment obligation of such debtor to its creditor. xxx



•

Tolentino:

1. When Cr is incapacitated, payment must be

made to his legal rep. or deliver the thing to ct. for consignation ff. Art. 1256

xxx The theory is where a payment is made to a person authorized & recognized by the creditor, the payment to such a person so authorized is deemed payment to the creditor. xxx Unless authorized by law or by consent of the obligee, a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed.

2. Paymt. to Incap. Cr

shall be valid only insofar as it accrued to his benefit. Absence of benefit, Db may be made to pay again by Cr when he attains capacity, or his legal rep during the inc.

3.

Same principles are applicable to paymt made to 3P, but person who paid has right to recover fr. 3P

4. In ff. Cases, paymt. To 3P releases Db:

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(a) when w/o notice to assngmt. of credit, he pays to original Cr [Art. 1626] &

•

(b) when in GF he pays to one in poss’n of credit [Art. 1242]

Art. 1244. 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 w/c is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.

5. If mistake of Db due to fault of Cr, then Cr cannot demand anew

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (Assignment of Credits & Other Incorporeal Rights) Art. 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released fr. the obligation.

Tolentino: 

2. Who shall make payment Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand fr. the debtor what he has paid, except that if he paid w/o the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising fr. a mortgage, guaranty, or penalty. Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, w/c requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. Art. 2173. When a third person, w/o the knowledge of the debtor, pays the debt, the rights of the former are governed by articles 1236 & 1237. (Other QuasiContracts) Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due & capacity to alienate it shall not be valid, w/o prejudice to the provisions of article 1427 under the Title on "Natural Obligations." Art. 1427. When a minor between eighteen & twenty-one years of age, who has entered into a contract w/o the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same fr. the obligee who has spent or consumed it in good faith.

•

Db can therefor be made to pay again to the party who secured the attachtmt or garnishmt, but he can recover the same to the extent of what he has pd to his Cr

Defects of the thing delivered may be waived by the Cr, if he expressly so declares, or if, w/ knowledge thereof, he accepts the thing w/o protest or disposes of it or consumes it

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality & circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation & other circumstances shall be taken into consideration. Tolentino: • Cr or Db may waive the benefit of this Art. • Cr may require a thing of inferior qlty & Db may deliver a thing of superior qlty, unless the price to be pd in the latter case is dependent upon the qlty Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in w/c the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated & in part unliquidated, the creditor may demand & the debtor may effect the payment of the former w/o waiting for the liquidation of the latter. BALANE CASE: Art. 1249. The payment of debts in money shall be made in the currency stipulated, & if it is not possible to deliver such currency, then in the currency w/c is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived fr. the original obligation shall be held in abeyance.

NOTE: age of majority is now 18.

Tolentino: • Where the person paying has no capacity to make the pymt, the Cr cannot be compelled to accept it. Consign’n will not be proper. • In case Cr accepts, the pymt will not be valid, except in the case provided in A 1427. Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.

TIBAJIA V. CA (1993)

Tolentino: • Pmt to Cr after the credit has been attached or garnished is void as to the party who obtained the attachmt or garnishmt, to the extent of the amt of jdgmt in his favor;

Facts: In a suit for collection of a sum of money, Eden Tan obtained judgment against Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia. The decision having become final, Eden Tan filed motion for execution and the garnished funds which by then were on deposit with the cashier of the RTC-Pasig were levied upon.

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currency the same shall be discharged in Phil. currency measured at the prevailing rate of exchange at the time the obligation was incurred. RA 529 does not provide for the rate of exchange for the payment of the obligation incurred after the enactment of said Act. The logical conclusion is that the rate of exchange should be that prevailing at the time of payment for such contracts.

Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in Cashier's Check P262,750.00, and in Cash 135,733.70 = Total P398,483.70. Tan, refused to accept such payment and instead insisted that the garnished funds deposited with RTC-Pasig be withdrawn to satisfy the judgment obligation. Defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. Trial court denied on the ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other than the defendant. MR was denied. CA affirmed, holding that payment by cashier's check is not payment in legal tender as required by RA No. 529. MR denied again.

FACTS: Octavio KALALO, a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement with Alfredo LUZ, a licensed architect, doing business under firm name of A. J. Luz and Associates, whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. The services included design computation and sketches, contract drawing and technical specifications of all engineering phases of the project designed by O. A. Kalalo and Associates bill of quantities and cost estimate, and consultation and advice during construction relative to the work. The fees agreed upon were percentages of the architect's fee. Kalalo in his complaint against Luz alleged that for services rendered in connection with the different projects there was due him fees in US$, excluding interests, of which some were paid, thus leaving unpaid the balance plus prayer for consequential and moral damages, as well as moral damages, attorney's fees and expenses of litigation; and actual damages.

ISSUE: whether or not payment by means of check (even by cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No. 529, and the Central Bank Act. The provisions of law applicable to the case at bar are the following: a. Article 1249 of the Civil Code which provides: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

Luz admitted that appellee rendered engineering services, as alleged, but averred that some were not in accordance with the agreement and such claims were not justified by the services actually rendered, and that the aggregate amount actually due was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. Luz denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and fourth causes of action. Appellant also set up affirmative and special defenses, alleging that appellee had no cause of action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project was premature because appellant had not yet been paid for said project, and that appellee's services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a counterclaim for actual and moral damages for such amount as the court may deem fair to assess, and for attorney's fees.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.; b. Section 1 of Republic Act No. 529, as amended, which provides: Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts.

TC authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was US$28K as his fee in the IRRI Project, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant. The Commissioner also recommended the payment to appellee of the sum of P5,000.00 as attorney's fees. Both had no objection to the findings of fact of the Commissioner contained in the Report

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

ISSUE: WON the recommendation in the Report that the payment of the amount due to the plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid in pesos.

Sec. 63. Legal character ? Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.

HELD: Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of $28,000.00. Appellee, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides as follows:

From the aforequoted provisions of law, it is clear that this petition must fail.

SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation heretofore or here after incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That, ( a) if the obligation was incurred prior to the enactment of this Act and

A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.

KALALO V. LUZ [34 S 337] - Under RA 529, if the obligation was incurred prior to the enactment in a particular kind of coin or currency other than the Phil.

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required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred, (b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.

, to pay petitioners, jointly and severally, the sum of P814,868.42, plus 12% interest per annum from July 31, 1969 until full payment, and a sum equivalent to 10% of the total amount due as attorney's fees and costs. From said Decision, by respondent Afable appealed to the Court of Appeals. She argued that the contract under consideration involved the payment of US dollars and was, therefore, illegal; and that under the in pari delicto rule, since both parties are guilty of violating the law, neither one can recover. It is to be noted that said defense was not raised in her Answer.

Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred.

CA affirmed TC. MR denied. CA’s holding: the agreement is null and void and of no effect under Republic Act No. 529. Under the doctrine of pari delicto, no recovery can be made in favor of the plaintiffs for being themselves guilty of violating the law. ISSUE: WON the subject matter is illegal and against public policy, thus, doctrine of pari delicto applies.

As we have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before us the obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of Republic Act 529. It follows that the provision of Republic Act 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied.

HELD: WE DISAGREE. It is to be noted that while an agreement to pay in dollars is declared as null and void and of no effect, what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor's claim for payment, as it specifically provides that "every other domestic obligation ... whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts." A contrary rule would allow a person to profit or enrich himself inequitably at another's expense.

Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment.

Section 1 of Republic Act No. 529, which was enacted on June 16, 1950:

This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This is also the ruling of American court as follows:

Section 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null and void and of no effect and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) transactions were the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial and banking institutions so long as the funds are Identifiable, as having emanated from the sources enumerated above; (b) transactions affecting high priority economic projects for agricultural industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; (c) forward exchange transactions entered into between banks or between banks and individuals or juridical persons; (d) import-export and other international banking financial investment and industrial transactions. With the exception of the cases enumerated in items (a) (b), (c) and (d) in the foregoing provision, in, which cases the terms of the parties' agreement shall apply, every other domestic obligation heretofore or hereafter incurred whether or not any such provision as to payment is contained therein or made withrespect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharge in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in foreign currency stipulated to be payable in the currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail All coin and currency, including Central Bank notes, heretofore and hereafter issued and d by the Government of the Philippines shall be legal tender for all debts, public and private. (As amended by RA 4100, Section 1, approved June 19, 1964)

The value in domestic money of a payment made in foreign money is fixed with respect to the rate of exchange at the time of payment.

PONCE V. CA [90 S 533] - It is to be noted that while an agreement to pay in dollars is declared as null & void & of no effect, what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor's claim for payment, as it specifically provides that "every other domestic obligation xxx whether or not any such provision as to payment is contained therein or made w/ respect thereto, shall be discharged upon payment in any coin or currency w/c at the time of payment is legal tender for public & pvt. use." A contrary rule would allow a person to profit or enrich himself inequitably at another's expense. FACTS: On June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L. Mendoza and Ma. Aurora C. Diño executed a promissory note in favor of petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency, payable, without interest, on or before July 31, 1969. It was further provided therein that should the indebtedness be not paid at maturity, it shall draw interest at 12% per annum, without demand; that should it be necessary to bring suit to enforce pay ment of the note, the debtors shall pay a sum equivalent to 10% of the total amount due for attorney's fees; and, in the event of failure to pay the indebtedness plus interest in accordance with its terms, the debtors shall execute a first mortgage in favor of the creditor over their properties or of the Carmen Planas Memorial, Inc.

NEW PACIFIC TIMBER V. SENERIS [101 S 686] FACTS: Upon a compromise judgment against petitioner, and for the latter’s failure to comply, CFI-Zambo issued a writ of exec. Sheriff levied on personal properties or pet. And set such for auction sale. Prior to whc date of auction, pet. Deposited w/clerk of court, ex-officio sheriff, the payment of the judgment Ø consisting of cash and checks. Priv. resp., Ricardo TONG refused to accept and requested the auction to proceed. Tong was the highest bidder in the auction, for total amount short of the judg.debt.

For failure to comply w/Ø, a Complaint was filed by PONCE at CFI-Manila for the recovery of the principal sum of P814,868.42, plus interest and damages. Trial Court rendered judgment ordering respondent Afable and her co-debtors, Felisa L. Mendoza and Ma. Aurora C. Diño

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ISSUE: WON judge erred in not issuing a cert. of satisfaction of judgment after priv.resp. refused to accept payment in checks and cash. HELD: It is to be emphasized that the check deposited by the petitioner in the amount of P50,000 is not an ordinary check but a Cashier's check of the Equitable Banking Corp., a bank of good standing & reputation. It was even a certified crossed check. It is well known & accepted practice in the business sector that a Cashier's check is deemed as cash.

check, whether a manager's check or ordinary check, is not legal tender, & an offer of a check in payment of a debt is not a valid tender of payment & may be refused receipt by the obligee or creditor.

Tolentino:

Moreover, since the said check has been certified by the drawee bank, by the certification, the funds represented by the check are transferred fr. the credit of the maker to that of the payee or holder, & for all intents & purposes, the latter becomes the depositor of the drawee bank, w/ rights & duties of one in such situation. Where a check is certified by the bank on w/c it is drawn, the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart fort its satisfaction, & that they shall be so applied whenever the check is presented for payment. It is an understanding that the check is good then, & shall continue to be good, & this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money." When the holder procures the check to be certified, "the check operates as an assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Sec. 63 of the CB Act shall apply in this case: Sec. 63. Legal Character – Checks representing deposit do not have legal tender power and their acceptance in payment of debts, both pub & priv, is at the option of the Cr. Provided, however that a check w/c has been cleared & credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account.

•

Legal tender: such currency w/c in a given jurisdiction can be used for the pmts of debts, public & private, & w/c cannot be refused by the Cr

•

Since pmt must be in money that is legal tender, pmt in check even when good may be validly refused by Cr

•

Pymt by Check: WON MgrC or ordinary is NOT a valid tender of pmt

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. Baviera: This article applies to contracts only. EXTRAORDINARY means unusual or beyond the common fluctuation, not foreseen Tolentino: Does NOT apply where oblig to pay arises fr law, independent of Ks, like the taking of private prop by the govt in the exercise of its pwr of emt domain FIL. PIPE & FOUNDRY CORP. V. NAWASA Facts: In ’61 NWS entered © w/FPFC for d supply of cast iron pressure pipes for the constrxn of the Waterworx Msbate & Samar. NWS paid in installments. Leaving a bal. + unpd.interests. thus, fpfc filed a collexn case vs NWS in CFI-Mla In ’67, CFI ordered NAWASA to pay FPFC the balance IN NWS negotiable bonds,redeemable in 10yrs w/6%p.a. int..NWS failed to pay, neither delivered bonds. In ’71, FPFC filed another complaint seeking an adjustment of the unpaid balance d/t change in value of judgment in peso in ’67 to ‘71. TC dismissed the complaint holding that the inflation was a worldwide occurrence & that there was no proof of extraord inflation in the sense contemplated by Art. 1250.

BISHOP OF MALOLOS V. IAC [191 S 411] FACTS: Petitioner is vendor of parcels of land in Bulacan to vendee Robes-Francisco Realty Corp. w/ downpym of 20K+ and bal of 100K payable w/in 4yrs w/12% int. p.a. fr exec. Of © on July 7, 1975, w/forfeiture clause in case vendee fails to pay in 4yrs. On July 17, 1975, vendee wrote a letter requesting for extension and allowance to pay in installment w/in 6mos w/interests. Petitioner denied, granted only 5 days grace period. Request for 30-days grace on the 4th day was also denied by pet. Priv. resp. later purports tender of payment (in check) on 5th day was refused by pet. TC favored pet. IAC reversed after finding that resp. had sufficient funds at the time of tender of check payment to pet. On the 5th day of the grace period, and concluded that there was valid tender of paymnt.

Issue: WON there was extraord inflation to apply Art 1250 Held: None. Extraord. inflation exists when there is a decrease or increase in the purchasing pwr of the Phil currency w/c is unusual or beyond the common fluctuation value of the said currency, & such dec or inc cud not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the estab of the obligation. The decline of the purchasing pwr of the currency cannot be considered extraord. It was due to oil embargo crisis the effect of w/c was worldwide.

ISSUE: WON offer of check is vaid tender of pymnt of Ø under a © whc stipulates that consid. Of sale is in Phil. Currency? HELD:

VELASCO V. MERALCO [42 S 556] FACTS: Velasco’s MR; SC decision incorrectly reduced amt of damages due him based only his BIR assessed income not consid his undeclared source of income whc he did not disclose. He now urges that damages awarded him was inadeq consid present hi cost of living, applying Art 1250.

Finding of suff.avail.funds by CA does not constitute proof of tender of pymnt. (non sequitur) Tender of Payment involves a positive & uncondi. Act by the obligor of offering legal tender currency as payment to oblige for the Ø & demanding that the latter accept the same.

HELD: From the employment of the words "extraordinary inflation or deflation of the currency stipulated" in Art. 1250, it can be seen that the same envisages contractual obligations where a specific

Since a negotiable instrument is only a substitute for money & not money, the delivery of such an instrument does not, by itself, operate as payment. A

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If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are w/o prejudice to venue under the Rules of Court.

currency is selected by the parties as the medium of payment; hence it is inapplicable to obligations arising fr. tort & not fr. contract. Besides, there is no showing that the factual assumption of said article has come into existence. COMMISSIONER OF BURGOS [96 S 831] FACTS:

PUBLIC

HIGHWAYS

V.

Victoria Amigable is the owner of parcel of land in Cebu whc the Government took for road-right-of-way purpose in 1924. The land had since become streets known as Mango Avenue and Gorordo Avenue. In 1959, Amigable filed in CFI-Cebu a complaint, to recover ownership and possession of the land, and for damages in the sum of P50,000.00 for the alleged illegal occupation of the land by the Government, moral damages in the sum of P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs of suit. In its answer, the Republic alleged, among others, that the land was either donated or sold by its owners to the province of Cebu to enhance its value, and that in any case, the right of the owner, if any, to recover the value of said property was already barred by estoppel and the statute of limitations, defendants also invoking the non-suability of the Government. Plaintiff's complaint was dismissed on the grounds relied upon by the defendants therein. SC reversed, and the case was remanded to the court of origin for the determination of the compensation to be paid the plaintiff-appellant as owner of the land, including attorney's fees, also directed the determination of just compensation on the basis of the price or value thereof at the time of the taking. ISSUE: WON Article 1250 applicable in determining JUST compensation payable to Amigable fr taking in 1924.

Art. 1250 does applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises fr. law, independent of contracts. The taking of private property by the govt in the exercise of its power of eminent domain does not give rise to a contractual obligation. DEL ROSARIO V. SHELL [164 S 556] FACTS: DR leased to Shell his land in Ligao, Albay at 250/mo. w/stipulation on currency adjustment accdg to inflation. An EO was promulgated by Pres D. Macapagal prompting DR to demand for increase in rental fr Shell whc the latter refused to pay. Thus DR filed w/CFI-Mla whc was dismissed. ISSUE: WON the effect of EO 195 is official devaluation of peso as contemplated in the Lease Contract HELD: In the case at bar, while no express reference has been made to metallic content, there nonetheless is a reduction in par value or in the purchasing power of Phil. currency. Even assuming there has been no official devaluation as the term is technically understood, the fact is that there has been a diminution or lessening in the purchasing power of the peso, thus there has been a "depreciation" (opposite of "appreciation.") Moreover, when laymen unskilled in the semantics of economics use the terms "devaluation" or "depreciation" they certainly mean them in their ordinary signification-- decrease in value. Hence, as contemplated by the parties herein in their lease agreement, the term "devaluation" may be regarded as synonymous w/ "depreciation," for certainly both refer to a decrease in the value of the currency. The rentals should therefore, by their agreement, be proportionately increased. Art. 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation & if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor.

58

Four Special Kinds of Payments: FILINVEST V. PHIL. ACETYLENE [111 S 421] FACTS: Phil. Acetylene Co. purchased fr Alexander LIM w/Deed of Sale, a Chevrolet 1969 model w/downpd, and balance payable for 34 mos. w/12% int.p.a. reflected in a PN, w/chattel mortgage as security in Lim’s favor. Lim assigned to Filinvest Finance Corp. his interests in the PN and Chattel m. After defaulting in 9 installments, Filinvest sent demand letter to PAC, to pay or return the vehicle. PAC returned the car but Filinvest cannot sell the car d/t unpaid taxes thereon incurred by PAC. Fil offered to deliver back the car to Pac, the latter refused. Fil thus filed a complaint for collection of money w/damages in CFI-Mla. PAC averred that Fil has no COA vs PAC b/c when the car was returned after the demand letter, the Ø was extinguished.

1. Dacion en pago (Art. 1245.) 2. Application of payments (Subsection 1.) 3. Payment by cession (Subsection 2.) 4. Consignation (Subsection 3.) Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. [Tolentino] Dation in payment is the delivery & transmission of ownership of a thing by the Db to the Cr as an accepted equivalent of perf. of Ø;

ISSUE: WON the return of mortgaged vehicle to appellee by voluntary surrender by appellant totally extinguished the Ø, as in dacion en pago?

 It may be a thing or a real rt (i.e. usufruct), or of a credit vs a 3P; EX: assgmnt by an heir-Db of his interests in Sx to the Cr, made after d death of decedent, extinguishes d Ø.

HELD: We find appellant's contention devoid of persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment in the absence, express or implied of the true intention of the parties. The demand for return merely showed appellee’s interest to secure the value of the vehicle and prevent loss, damage, destruction or fraudulent transfer to 3P, as shown in the doc, “Vol. Surr. w/SPA To Sell” whc never said that such return is in full satisfaction of the mortgaged debt. The conveyance was as to rts only, ownership never left the mortgagor, as such burdens on the property shd still be shouldered by him.

Effect on Ø  extinguished to the extent of the value of thng delivered  Db does not have to be insolvent, agreement only betw d parties makes dation possible. When personal prop is delivered it is PLEDGE, not dation, unless parties clearly stipulate, but in doubt, the presumption is pledge, w/lesser transmission of rts. Warranties of Db  Dation is an onerous transmission or © of alienation, provision in Sales Re warranty vs eviction & vs hidden defects of d thing applies, Db is vendor, Cr is vendee; • If Cr is evcted, original Ø is not revived, but Cr is entitled to recover fr breach of warranty in Art. 1555. [Balane] • Dacion en pago, in Roman law, called "datio in solutum", in French, "dation en paiement," in Spanish, "dacion en pago.") • Dation in payment is possible only if there is a debt in money. Instead of money, a thing is delivered in satisfaction of the debt in money. (Dation en pago is explained in the case of Filinvest v. Phil Acetylene).

Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of an obligation. • In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. Dacion en pago in the nature of sale.-The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for w/c is to be charged against the debtor's debt. • As such, the essential elements of a contract of sale, namely, consent, object certain, & cause or consideration must be present.

There are two ways at looking at dacion en pago: 1. Classical way  where dacion en pago is treated as a sale.

Dacion en pago in its modern concept.-- In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.

2. Modern concept  w/c treats dacion en pago as a novation.

Castan has another view  Both are wrong. * A dacion en pago is not a sale bec. there is no intention to enter into a contract of sale. * It is not also a novation bec. in novation, the old obligation is extinguished & a new obligation takes its place. ** But here, the old obligation is extinguished. What takes its place? Nothing. So what is it? It is a special form of payment w/c resembles a sale.

CITIZENS SURETY V. CA [162 S 738] RATIO: There is no dation in payment when there is no obligation to be extinguished FACTS: Pet. Issued 2 surety bonds to Pascual Perez to guarantee his compliance in a Contract of Sale of Goods he entered w/Singer Sawing Machine Co. Perez in turn executed a deed of assignment of its stock of lumber to pet. And a 2nd REM to guaranty reimbursement of whatever liability it will be made to pay in the future on Perez’s liabilities. Perez failed to comply. Singer made pet. Pay Perez’s Øs. Pascual failed to reimburse pet. Thus pet. Filed a claim vs the estate of Nicasia Sarmiento whc was being

There are two more things to remember in the cases of Filinvest v. Phil. Acetylene, supra. & Lopez v. CA, 114 SCRA 671:

•

Dacion en pago can take place only if both parties consent.

Q: To what extent is the obligation extinguished? Answer: Up to the value of the thing given (the thing must be appraised) unless the parties agree on a total extinguishment. (Lopez. v. CA, supra.)

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Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. Art. 1254. When the payment cannot be applied in accordance w/ the preceding rules, or if application can not be inferred fr. other circumstances, the debt w/c is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature & burden, the payment shall be applied to all of them proportionately.

administered by Perez. Perez averred that his liability to the surety has been extinguished by the deed of assgnmnt of the lumber. TC held Perez and the estate of Sarmiento solidarily liable to Citizens Surety. CA reversed and dismissed Citizens’ claim vs the estate of Sarmiento. ISSUE: WON CA erred in concluding there was dation in payment by the execution of the Deed of Assgment? HELD: The transaction could not be dation in payment. xxx [W]hen the deed of assignment was executed on 12/4/59, the obligation of the assignor to refund the assignee had not yet arisen. In other words, there was no obligation yet on the part of the petitioner, Citizens' to pay Singer Sewing Machine Co. There was nothing to be extinguished on that date, hence, there could not have been a dation in payment. 2ND SPECIAL KIND OF PAYMENT: Payment

[Baviera] The ff. Are the rules for applic’n of pmts: 1 - The first choice belongs to the Db 2 - If the Db did not choose, the Cr may choose, w/c he will manifest in a receipt. 3 - If neither specified the applic’n, pmt shall be made to the most onerous debt.

Application of 3rd SPECIAL FORM OF Payment – by Cession

[Balane] Application of payment (Imputacion in Spanish) is the designation of a debt w/c is being paid by the debtor who has several obligations of the same kind in favor of the creditor to whom the payment is made. Rules where the amount sent by the debtor to the creditor is less than all that is due: No.1:

[Balane] • Property is turned over by the debtor to the creditor who acquires the right to sell it & divide the net proceeds among themselves. Q: Why is payment by cession a special form of payment?-A: Bec. there is no completeness of performance (re: integrity.) In most cases, there will be a balance due.

Apply in accordance w/ the agreement.

No.2: Debtor may apply the amount (an obvious limitation bec. of the principles of indivisibility & integrity) where there would be partial payment.

Q: Difference between payment by cession:

No.3:

In dacion en pago, there is a transfer of ownership fr. the debtor to the creditor.

Creditor can make the application.

No.4: Apply to the most onerous debt. (Art. 1252, par. 1.) Q; What are the rules to determine w/c is the most onerous debt? A: (1252) 1. If one is interest paying & the other is not, the debt w/c is interest paying is more onerous.

dacion

en

pago

&

In payment by cession, there is no transfer of ownership. The creditors simply acquire the right to sell the properties of the debtor & apply the proceeds of the sale to the satisfaction of their credit. Q: Does payment by cession terminate all debts due?A: Generally, NO, only to the extent of the net proceeds. The extinguishment of the obligation is pro tanto. • Exc. In Legal cession where the extinguishment of the obligation is total. Legal cession is governed by the Insolvency Law.

2. If one is a secured debt & the other is not, the secured debt is more onerous

3. If both are interest free, one is older than the

first, the newer one is more onerous bec. prescription will take longer w/ respect to the newer debt.

Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor fr. responsibility for the net proceeds of the thing assigned. The agreements w/c, on the effect of the cession, are made between the debtor & his creditors shall be governed by special laws.

th

5 Rule: Proportional application if the debts are equally onerous. Art. 1252. He who has various debts of the same kind in favor of one & the same creditor, may declare at the time of making the payment, to w/c of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts w/c are not yet due. If the debtor accepts fr. the creditor a receipt in w/c an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.

4th SPECIAL FORM OF PAYMENT: Tender of Payment & Consignation Art. 1256. If the creditor to whom tender of payment has been made refuses w/o just cause to accept it, the debtor shall be released fr. responsibility by the consignation of the thing or sum due. Consignation alone shall produce the same effect in the following cases: 1. When the creditor is absent or unknown, or does not appear at the place of payment; 2. When he is incapacitated to receive the payment at the time it is due; 3. When, w/o just cause, he refuses to give a receipt;

[Tolentino] • Necessary that Øs must all be due • Only in case of mutual agreement, or upon consent of the party in whose favor the term was estab, that pmts may be applied to Øs w/c have not yet matured

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4. 5.

When two or more persons claim the same right to collect; When the title of the obligation has been lost.

essentially done in order that consignation shall be valid and effectual.

[Balane] “Subsection 3.-- Tender of Payment & Consignation” The title of the subsection is wrong. It should have been Consignation only bec. that is the special mode of payment & not the tender of payment. • It is a special mode of payment bec. payment is made not to the creditor but to the court.

•

Consignation Defined: • Consignation is the act of depositing the thing due w/ the court or judicial authorities whenever the creditor (1) cannot accept or (2) refuses to accept payment, & it generally requires a prior tender of payment. Requisites of Valid Consignation:

Consignation is an option on the part of the debtor bec. consignation assumes that the creditor was in mora accipiendi (when the creditor w/o just cause, refuses to accept payment.)

In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show

Consequence when the creditor w/o just cause, refuses to accept payment  The debtor may just delay payment. But something still hangs above his head. He is therefore, given the option to consign. Distinguish this fr. BGB (German Civil Code) w/c states that mora accipiendi extinguishes the obligation. [Tolentino]  Tender of pmt b4 consig’n is required by the present Art only in case where the Cr refuses to accept it w/o just cause Effect on INTEREST: When tender is made in a form that Cr cld have immdtly realized pymt (cash), followed by a prompt attempt of the Db to make consign’n., the accrual of interest will be suspended fr. the date of such tender. But when tender is not accompanied by means of pmt, & the Db did not take any immdte step to consign, then interest is not suspended fr. the time of such tender.

1.

that there was a debt due;

2.

that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176,NCC);

3.

that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177,NCC);

4.

that the amount due was placed at the disposal of the court (Art. 1178,NCC); and

5.

that after the consignation had been made the person interested was notified thereof (Art. 1178,NCC).

•

Failure in any of these requirements is enough ground to render a consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil. 311).

CASES:

•

SOCO V. MILITANTE [123 S 160] - Requiremts of consign’n

•

FACTS: Disputed here is decision of lower court in an UD case filed by lessor SOLEDAD SOCO vs. private resp. REGINO FRANCISCO JR. lessee of a building owned by Soco, whose payments of rentals were considered valid and effective, dismissed the UD case and made lessor pay moral & exemp. Damages, attys fees, holding there was substantial compliance in the w/d requisites of consignation.

•

Francisco and Soco entered into a Contract of Lease for a monthly rental of P 800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. Francisco subleased the bldg for a rental of 3,000/month. Knowing this, Soco apparently stopped accepting rental payments of Francisco and later demanded him to vacate the bldg. and filed for rescission/annulment of Lease Contract w/CFI-Cebu.

• •

Without prior notice, a consignation is void as payment. (Limkako vs. Teodoro, 74 Phil 313) In order to be valid, the tender of payment must be made in lawful currency. While payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) The fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. Vda. de Mortera, supra). Tender of payment must be distinguished from consignation – Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain.

ISSUE: WON the provisions in Arts. 1256-1261, NCC re rquisites of Consignation must be complied w/fully & strictly, mandatorily / did the lower ct. err in ruling substantial compliance thereto?

•

HELD: We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be

Tender of payment is extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8 Manresa 325).

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance w/ the provisions w/c regulate payment. Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority,

61

before whom the tender of payment shall be proved, in a proper case, & the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof.

Q: Db consigns. Hearing…B4 the ct cld approve, the City Hall burned + money. Shld Db pay again? A: No. When money is consigned, it is no longer generic. It becomes specific. Cr bears the loss bec. although it was due to a fortuitous event, there was delay on his part when he refused to accept pymt.

[Tolentino] • Notice: The reqmt is fulfilled by the service of summons upon the Def together w/ copy of complaint

Q: K of Sale w/ pacto de retro. The vendor tendered pmt w/in the 3-yr pd but vendee refused to accept. Axn for spec perf by Vr. Accdg to Ve, since money was not consigned, Vr cannot claim rt of repurchase. Tenable argument?

Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor.

A: No. As long as there was tender, no need to consign. But in one case of a co-owner wanting to redeem at reasonable price (was exorbitant), the court held that reasonable price is det accdg to the circums. So if you want to redeem, consign the full amt in ct & ask it to fix the reasonable compensation.

[ Tolentino] Proper when  1. Cr accepts consign’n after deposit w/o protest though Db failed to comply w/ reqs. Or

IMMACULATA V. NAVARRO [160 S 211] - We hereby grant said alternative cause of action or prayer. While the sale was originally executed in Dec. 1969, it was only on Feb. 3, 1974 when, as prayed for by prvt. res, & as ordered by the court a quo, a deed of conveyance was formally executed. Since the offer to redeem was made on 3/24/75, this was clearly w/in the 5-yr. period of legal redemption allowed by the Public Land Act.

2. Ct. declares consig’n as validly made Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may w/draw the thing or the sum deposited, allowing the obligation to remain in force.

FACTS: A previous complaint, for annulment of judgment and deed of sale with reconveyance of real property alleged that Juanito Victoria, with the cooperation of defendant Juanita Naval and others succeeded in causing plaintiff Lauro Immaculata, petitioner herein, to execute a Deed of Absolute Sale in favor of Juanito Victoria, by unduly taking advantage of the mental illness and/or weakness of petitioner and thru deceit and fraudulent means, purportedly disposed of by way of absolute sale, a 5,000sq.m.parcel of land w/TCT, for P 58K, which petitioner supposedly received, but in truth and in fact did not; Jus of the court over the person of the defendant was also questioned but such was upheld thru valid service of summons to the guardian ad litem and also later thru voluntary appearance in lieu of pleadings asking for exercise of jus by the same court. Accordingly, respondent Court directed the respondent Sheriff to execute the deed of conveyance prayed for by Juanito Victoria, by reason of which, without the knowledge and consent of petitioner, a new TCT was issued in favor of Juanito Victoria; that the said TCT is null and void having been based on void proceedings;

[Tolentino] Effects of Consignation:

1. Db is released in the same manner as if he had performed the oblig

2.

Accrual of INTEREST is suspended

3. Deterioration or loss of thing or amt consigned w/o fault of Db must be borne by Cr

*** that, in the alternative, petitioner prays that he be allowed to repurchase the property within five (5) years from the time judgment is rendered by the respondent court upholding the validity of the proceedings and the sale since the land in question was originally covered by a Free Patent title;

4. Any increment or increase in value of thing inures to the benefit of Cr

SC:

•

When money is deposited in ct under the provs of the law on consig’n, it is in custodia legis & therefore exempt fr. Attachmt & execution (Manejero v. Lampa)

Respondent Court dismissed the complaint on the ground of res judicata. In this present MR, the pet. Merely asks of this Court to consider a point inadvertently missed – the matter of LEGAL REDEMPTION, whc has remained unresolved. The bar of res jud is as to questions on the validity of the sale.

Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to w/draw the same, he shall lose every preference w/c he may have over the thing. The co-debtors, guarantors & sureties shall be released.

An offer to redeem was made clearly within the 5-yr-period allowed by law, Public Land Act. (Sec. 119, CA No. 141) ISSUE: WON offer to redeem was insincere in the absence of consignation of such amount in Court?

[Baviera] Q: When is there a need to tender pmt? A: (a) upon demand & (b) when debt is due

HELD: NO. The right to redeem is a RIGHT NOT AN Ø, thus no consignation is required. •

Q: There are 2 or more claims. What will Db do after consignation? A: File INTERPLEADER. Q: Why tender first? A: ‘Coz no need to consign if Cr accept pymt. We can only know this through tender. (EXHAUSTION OF EXTRAJUDICIAL MEANS)

To preserve the right to redeem, consignation is not required. But to actually redeem, there must of course be payment or consignation (deposit) itself.

(2nd MODE OF EXTINGUISHEMENT) LOSS OF THE THING DUE OR IMPOSSIBILITY OF PERFORMANCE

Q: B4 & after consign’n, there is a need to notify the Cr. Why is this? A: So that the Cr can get the money fr. the Clerk of ct & avoid costs of litigation.

Art. 1262. An obligation w/c consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed w/o the fault of the debtor, & before he has incurred in delay.

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When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, & he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk.

PEOPLE V. FRANKLIN [39 S 363] FACTS: Appellant, ASIAN SURETY & INS.CO.INC. contends that the CFI-PAMPANGA erred in forfeiting its bail bond for the provisional release of NATIVIDAD FRANKLIN, it contends that lower court should have released it fr. all liability under the bail bond bec. its failure to produce & surrender the accused was due to the negligence of the Phil. Govt itself in issuing a passport to said accused, thereby enabling her to leave the country. In support of this contention, the provisions of Art. 1266 are invoked.

Balane: Art. 1262 is the same as fortuitous event in Art. 1174. The effect is the same:  The Ø is extinguished if the Ø is to deliver a determinate thing. If the Ø is to deliver a generic thing, the Ø is not extinguished.

ISSUE: WON Surety shd be held liable?

[GR] Genus nunquam perit ("Genus never perishes." )

HELD: Art. 1266, NCC does not apply to a surety upon a bail bond

But what is not covered by this rule is an Ø to deliver a limited generic – something in bet. specific & generic thing, e.g., "For P3,000, I promise to deliver to you one of my watches." This Ø does not really fall under either Art. 1262 or Art. 1263. But this Ø really falls under Art. 1262. In this case, the Ø may be extinguished by the loss of all the thing through FE.

Art. 1266 does not apply to a surety upon a bail bond, as said Art. speaks of a relation bet. a debtor & creditor, w/c does not exist in the case of a surety upon a bail bond, on one hand, & the State, on the other. For while sureties upon a bail bond (or recognizance) can discharge themselves fr. liability by surrendering their principal, sureties on ordinary bonds or commercial contracts, as a general rule, can only be released by payment of the debt or performance of the act stipulated.

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Art. 1264. The courts shall determine, whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, & w/o prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied w/ at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, & those who in any manner contravene the tenor thereof are liable for damages. Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible w/o the fault of the obligor.

It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused, thereby assuming the obligation to keep the latter at all times under his surveillance, and to produce and surrender him to the court upon the latter's demand. That the accused in this case was able to secure a Philippine passport which enabled her to go to the United States was, in fact, due to the surety company's fault because it was its duty to do everything and take all steps necessary to prevent that departure. This could have been accomplished by seasonably informing the Department of Foreign Affairs and other agencies of the government of the fact that the accused for whose provisional liberty it had posted a bail bond was facing a criminal charge in a particular court of the country. Had the surety company done this, there can be no doubt that no Philippine passport would have been issued to Natividad Franklin.

NOTES: • Liability of Sureties on a bail bond is conditioned upon appearance of accused t time set for arraignment or trial or any other time as fixed by court, the bondsman being the jailer of the accused and absolutey responsible for his custody, w/duty at all times to keep him under surveillance. • Surety will be exonerated where the perf. of condi. Of bail bond is rendered impossible by act of God (e.g. death of accused), of the obligee (arrested by govt), or the law (law punishing him is repealed). Or also under Rule 114, sec. 16.

[Balane] Objective & Subjective Impossibility:  In objective impossibility, the act cannot be done by anyone. The effect of objective impossibility is to extinguish the Ø.  In subjective impossibility, the Ø becomes impossible only w/ respect to the obligor.

Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefr., in whole or in part.

There are 3 views as to the effect of a subjective impossibility: 1. One view holds that the Ø is not extinguished. The obligor should ask another to do the Ø. 2. Another view holds that the Ø is extinguished. 3. A third view distinguishes one prestation w/c is very personal & one w/c are not personal such that subjective impossibility is a cause for extinguishes a very personal Ø, but not an Ø w/c is not very personal.

[Baviera] Ordinarily, on a K for a piece of work, an increase in prices will not relieve the K’or bec. such circum. was already considered by the parties when they entered into the K. BAR Q: What if the prices rose so high as to be beyond the contemplation of the parties due to the oil crisis? Answer: Released. Balane: Rebus sic stantibus.-- Literally means "things as they stand."

CASES:

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It is short for clausula rebus sic stantibus ("agreement of things as they stand.")

*** Performance is not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by the breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be had under the contract, by weather conditions, by financial stringency, or by stagnation of business. Neither is performance excused by the fact that the contract turns out to be hard & improvident, unprofitable or impracticable, illadvised or even foolish, or less profitable, or unexpectedly burdensome.

This is a principle of international law w/c holds that when 2 countries enter into a treaty, they enter taking into account the circumstances at the time it was entered into & should the circumstances change as to make the fulfillment of the treaty very difficult, one may ask for a termination of the treaty. This principle of international law has spilled over into Civil law. This doctrine is also called the doctrine of extreme difficulty & frustration of commercial object. It has four (4) requisites:

OCCENA V. JABSON [73 S 637] FACTS: Tropical HOMES INC, filed complaint for modification of Terms & Condi of subdv. © w/pet. Occena, landowners of disputed lands in Davao, citing Art. 1267, and the worldwide increases in prices. The NCC authorizes the release of an obligor when the service has become so difficult as to be manifestly beyond the contemplation of the parties.

1. The event or change could not have been

foreseen at the time of the execution of the contract; 2. The event or change makes the performance extremely difficult but not impossible; 3. The event must not be due to an act of either party; 4. The contract is for a future prestation. If the contract is of immediate fulfillment, the gross inequality of the reciprocal prestation may involve lesion or want of cause.

ISSUE: WON the above art. Gives the court the authority to consequently modify the contents of the contract

In the case of Naga, the court did not consider the 4th element as an element.

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HELD: Respondent's complaint seeks not release fr. the subdivision contract but that the court "render judgment modifying the terms & conditions of the contract... by fixing the proper shares that should pertain to the herein parties out of the gross proceeds fr. the sales of subdivided lots of subject subdivision."

The attitude of the courts on this doctrine is very strict. This principle has always been strictly applied. To give it a liberal application is to undermine the binding force of an obligation. Every obligation is difficult. The performance must be extremely difficult in order for rebus sic stantibus to apply.

 Art. 1267 does not grant the courts this authority to remake, modify, or revise the contract or to fix the division of shares bet. the parties as contractually stipulated w/ the force of law bet. the parties, so as to substitute its own terms for those covenanted by the parties themselves.

CASES: LAGUNA V. MANABAT [59 S 650] FACTS: LEASE © was executed betw. BTC and LTB, w/monthly rental of Php 2500 of CPC,(cert. of public conv.) provisionally approved by the PSC, public service comm. Later, BTC was declared insolvent and FRANCISCO MANABAT was appointed as assignee. Rentals were still paid, until strikes by EEs of BTC caused them some further losses. Thus they asked for permission of PSC to suspend operation of the CPC also in lieu of low passenger trafc on these lines and high cost of operation. Manabat opposed the ju’s of PSC to suspend the lease © being an impairment of Ø. PSC contended that it had the power to suspend, as it did so, as a consequence of its power to issue the same CPC, and not as an interpretation of the prov. Of the Lease ©,whc is a fxn of reg.courts.

Balane: In this case the interpretation of the court is too literal. According to the court, it can release a debtor fr. the obligation but it cannot make the obligation lighter. But if you look at Art. 1267, partial release is permitted. NAGA TELEPHONE V. CA [230 S 351] - The term "service" should be understood as referring to the "performance" of the obligation.-- Art. 1267 speaks of "service" w/c has become so difficult. Taking into consideration the rationale behind this provision, the term "service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of prvt. resp. consists in allowing petitioners to use its posts in Naga City, w/c is the service contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service w/ future unusual change. Accdg. to Tolentino, Art. 1267 states in our law the doctrine of unforeseen events. This is said to be based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of certain prevailing conditions, & once these conditions cease to exist the contract also ceases to exist. Considering practical needs & the demands of equity & good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party prejudiced.

ISSUE: WON petitioners may ask PSC for reduction of rentals in lieu of such suspension and decl. of insolvency of the corp. citing Art. 1680. HELD: Art. 1680, it will be observed is a special provision for leases of rural lands. No other legal provision makes it applicable to ordinary leases. xxx Even if the cited article were a general rule on lease, its provisions nevertheless do not extend to petitioners. One of the requisites is that the cause of the loss of the fruits of the leased prop. must be an "extraordinary & unforeseen fortuitous event." The circumstances of the case fail to satisfy such requisite. xxx [T]he alleged causes for the suspension of operations on the lines leased, namely, the high prices of spare parts & gasoline & the reduction of the dollar allocations (by the CB Monetary B), "already existed when the contract of lease was executed." The cause of petitioners' inability to operate on the lines cannot, therefore, be ascribed to FE or circumstances beyond their control, but to their own voluntary desistance.

Balane: The Court went too far in this case. It even went to the extent of stipulating for the parties in the name of equity. Art. 1268. When the debt of a thing certain & determinate proceeds fr. a criminal offense, the debtor shall not be exempted fr. the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused w/o justification to accept it.

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Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action w/c the debtor may have against third persons by reason of the loss.

1.

If he devotes the thing to any purpose different fr. that for w/c it has been loaned; 2. If he keeps it longer than the period stipulated, or after the accomplishment of the use for w/c the commodatum has been constituted; 3. If the thing loaned has been delivered w/ appraisal of its value, unless there is a stipulation exempting the bailee fr. responsibility in case of a fortuitous event; 4. If he lends or leases the thing to a third person, who is not a member of his household; 5. If, being able to save either the thing borrowed or his own thing, he chooses to save the latter. Art. 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing w/o the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been authorized to use the same.

[Tolentino] When Db tenders pmt & Cr refuses to accept w/o just cause, Db has 2 alternatives: (1) to consign or (2) to just keep the thing in his poss’n, w/ the oblig to use due diligence, subj to the gen rules of Øs, but no longer to the spec liab under Article 1268. ART. 1189, 1174, 1165, 1268, 1942, 1979, 2159: Art. 1189. When the conditions have been imposed w/ the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition. 1. If the thing is lost w/o the fault of the debtor, the obligation shall be extinguished; 2. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; 3. When the thing deteriorates w/o the fault of the debtor, the impairment is to be borne by the creditor; 4. If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation & its fulfillment, w/ indemnity for damages in either case: 5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; 6. If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. [Balane] There are three requisites in order for Art. 1189 to apply-1. There is loss, deterioration or improvement before the happening of the condition. 2. There is an obligation to deliver a determinate thing (on the part of the debtor) 3. The condition happens.

Q: What if a depositor was in the premises of the bank & was robbed of his money w/c he was about to deposit? A: Bank cannot be held liable for fortuitous event (robbery) esp in CAB where the money has not yet been actually deposited.

•

Art. 1979 provides for instances wherein depositary is still liable even in cases of fortuitous event.

Q: What kind of diligence is required of a depositary? A: Ordinary Diligence. *Safety Deposit Box: If the jewelry inside a SDB was stolen, rules on deposit will not apply bec. the contract governing the transaction is LEASE of safety deposit box. In Negotiorum Gestio Art. 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations w/c the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith.

Art. 1174. Except in cases expressly specified by law, or when it otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events w/c could not be foreseen, or w/c ,though foreseen, were inevitable. Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied w/ at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Art. 1268. When the debt of a thing certain & determinate proceeds fr. a criminal offense, the debtor shall not be exempted fr. the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused w/o justification to accept it. Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

Payee in Solutio Indebiti Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or w/c should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing fr. any cause, & for damages to the person who delivered the thing, until it is recovered.

3rd MODE OF EXTINGUISHMENT OF Ø: CONDONATION OF REMISSION OF THE DEBT [Balane] • Condonation or remission is an act of liberality by virtue of w/c, w/o receiving any equivalent, the creditor renounces enforcement of an obligation w/c is extinguished in whole or in part.

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This has four (4) requisites: 1. Debt that is existing. You can remit a debt even before it is due. 2. Renunciation must be gratuitous. If renunciation is for a consideration, the mode of extinguishment may be something else. It may be novation, compromise of dacion en pago. 3. Acceptance by the debtor 4. Capacity of the parties.

reservation, the donation shall be reduced on petition of any person affected. Art. 748. The donation of a movable may be made orally or in writing. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated. If the value of the personal property donated exceeds five thousand pesos, the donation & the acceptance shall be made in writing. Otherwise, the donation shall be void.

The form of donation must be observed. If the condonation involves movables, apply Art. 748. If it involves immovables, apply Art. 749. But note that the creditor may just refuse to collect (w/o observing any form.) In this case, the Ø will be extinguished not by virtue of condonation but by waiver under Art. 6.

FORMS of Condonation:

Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated & the value of the charges w/c the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, & this step shall be noted in both instruments.

a. By a Will

Presumption IN Condonation:

Art. 935. The legacy of a credit against a third person or of the remission or release of a debt of the legatee shall be effective only as regards that part of the credit or debt existing at the time of the death of the testator. In the first case, the estate shall comply w/ the legacy by assigning to the legatee all rights of action it may have against the debtor. In the second case, by giving the legatee an acquittance, should he request one. In both cases, the legacy shall comprise all interests on the credit or debt w/c may be due the testator at the time of his death. Art. 936. The legacy referred to in the preceding article shall lapse if the testator, after having made it, should bring an action against the debtor for payment of his debt, even if such payment should not have been effected at the time of his death. The legacy to the debtor of the thing pledged by him is understood to discharge only the right of pledge.

Art. 1271. The delivery of a private document, evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action w/c the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor & his heirs may uphold it by providing that the delivery of the document was made in virtue of payment of the debt. [Balane:] Articles 1271 & 1272 refer to a kind of implied renunciation when the creditor divests himself of the proof credit. According to De Diego, this provision is absurd & immoral in that it authorizes the debtor & his heirs to prove that they paid the debt, when the provision itself assumes that there has been a remission, w/c is gratuitous. [Tolentino]

Art. 1270. Condonation or remission is essentially gratuitous, & requires the acceptance by the obligor. It may be made expressly or impliedly. One & the other kind shall be subject to the rules w/c govern inofficious donations. Express condonation shall, furthermore, comply w/ the forms of donation.

This is Limited to Private Document  Art. 1271 has no application to public documents bec. there is always a copy in the archives w/c can be used to prove the credit.  Private document refers to the original in order for Art. 1271 to apply. (Trans-Pacific. v. CA, supra.)

b. By Agreement

CASE:

Art. 1270. Condonation or remission is essentially gratuitous, & requires the acceptance by the obligor. It may be made expressly or impliedly. One & the other kind shall be subject to the rules w/c govern inofficious donations. Express condonation shall, furthermore, comply w/ the forms of donation.

TRANS-PACIFIC V. CA [234 S 494] HELD: It may not be amiss to add that Art. 1271 raises a presumption, not of payment, but of the renunciation of the credit where more convincing evidence would be required than what normally would be called for to prove payment. The rationale for allowing the presumption of renunciation in the delivery of a private instrument is that, unlike that of a public instrument, there could be just one copy of the evidence of credit.

Art. 746. Acceptance must be made during the lifetime of the donor & of the donee. Art. 752. The provision of article 750 notw/standing, no person may give or receive, by way of donation, more than he may give or receive by will. The donation shall be inofficious in all that it may exceed this limitation.

Where several originals are made out of a private document, the intendment of the law would thus be to refer to the delivery only of the original rather than to the original duplicate of w/c the debtor would normally retain a copy. It would thus be absurd if Art. 1271 were to be applied differently.

Art. 750. The donation may comprehend all the present property of the donor, or part thereof, provided he reserves, in full ownership or in usufruct, sufficient means for the support of himself, & of all relatives who, at the time of the acceptance of the donation are by law entitled to be supported by the donor. Without such

Art. 1272. Whenever the private document in w/c 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.

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Rule 131, Sec. 5 (b), (j), (k), Rules of Court, Disputable presumptions.-The following presumptions are satisfactory if uncontradicted, but may be contradicted & overcome by other evidence: xxx (b) That an unlawful act was done w/ an unlawful intent; xxx (j) That a person found in possession of a thing taken in the doing of a wrongful act is the taker & doer of the whole act; otherwise, that things w/c a person possesses, or exercises acts of ownership over, are owned by him; (k) That a person in possession of an order on himself for the payment of money, or the delivery of anything, has paid the money or delivered the thing accordingly; xxx

Effect of Partial Remission: Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. Art. 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, & for the same causes as all other obligations. Art. 2080. The guarantors, even though they be solidary, are released fr. their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, & preferences of the latter. (Provisions Common to Pledge & Mortgage) Art. 2085. The following requisites are essential to the contracts of pledge & mortgage: (1) That they be constituted to secure the fulfillment of a principal obligation; xxx Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.

Under the 1985 Rules of Court, as amended: Rule 131, Sec. 3. Disputable presumptions.-- The following presumptions are satisfactory if uncontradicted, but may be contradicted & overcome by other evidence: xxx (c) That a person intends the ordinary consequences of his voluntary act; xxx (f) That money paid by one to another was due to the latter; (g) That a thing delivered by one to another belonged to the latter; (h) That an obligation delivered up to the debtor has been paid; (i) That prior rents or installments had been paid when a receipt for the later ones is produced; (k) That a person in possession of an order on himself for the payment of they money, or the delivery of anything, has paid the money or delivered the thing accordingly; xxx

[Balane] The accesory obligation of pledge is extinguished bec. pledge is a possessory lien. • The presumption in this case is that the pledgee has surrendered the thing pledged to the pledgor. This is not a conclusive presumption according to Art. 2110, par. 2. Art. 2093. In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless & until he has paid the debt & its interest, w/ expenses in a proper case.

VELASCO V. MASA Facts: Velasco filed a complaint for the recovery of a sum of money he gave to Masa as a loan, as contained in a private doc. V claims that while he was imprisoned during the Jap occupation, M coerced & tricked V’s wife into surrendering the doc to M. V filed a crim case b4 v. M w/c was dismissed for lack of juris. M contends that doc was voluntarily delivered to him through Osmena. TC dismissed the axn.

4TH MODE OF EXTINGUISHMENT: Confusion or Merger of Rights Art. 1275. The obligation is extinguished fr. the time the characters of creditor & debtor are merged in the same person.

Issue: WON there was condonation

[Balane] • Confusion is the meeting in one person of the qualities of the creditor & debtor w/ respect to the same obligation.

Held: Yes. No satisfactory proof as to allegation of coercion & trickery on V’s wife. It is an unquestionable fact that the instru proving the debt now claimed passed to the possession of the Dr. For this reason, unless the contrary is proven, it must be presumed that in accdance w/ the provisions of the law, that delivery was voluntarily made. This fact implies a renunciation of the axn w/c Cr had for the recovery of his credit. It shld be noted that the doc is of a private nature, the only case subj to the provs of Articles 1187 to 1189 OCC, so that a tacit renunciation of the debt may be presumed, in the absence of proof that the doc was delivered for some other reason than the gratuitous waiver of the debt & the complete extinction of the oblig to pay.

There are two (2) requisites: 1. It must take place between the creditor & the principle debtor (Art. 1276.) 2. The very same obligation must be involved. Rationale  You become your own creditor or you become your own debtor. So how can you sue yourself. What may cause a merger or confusion? (1) Succession, whether compulsory, testamentary or intestate; (2) Donation; (3) Negotiation of a negotiable instrument.

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be directed against the others, so long as the debt has not been fully collected. Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose w/c offer to accept. He who made the payment may claim fr. his codebtors only the share w/c corresponds to each, w/ the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, bec. of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his codebtors, in proportion to the debt of each.

Because of its nature, confusion/ merger may overlap w/ other causes of extinguishment.

For example, I owe Ms. Olores P100,000. She bequeath to me that credit. And then she died. In this case, there is extinguishment both by merger. But in this case, merger could overlap w/ payment. Art. 1276 ( below) is perfectly in consonance w/ Art. 1275.

e. Indivisible Obligations Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, & the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. Art. 1224. A joint indivisible gives rise to indemnity for damages fr. the time anyone of the debtors does no comply w/ his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in w/c the obligation consists.

a. Principal Parties Art. 1276. Merger w/c takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion w/c takes place in the person of any of the latter does not extinguish the obligation. [Tolentino] • Extinguishment of the principal oblig through confusion releases the guarantors, whose oblig is merely accessory • When merger takes place in the person of the guarantor, oblig is NOT extinguished.

5TH MODE OF EXTINGUISHMENT: Compensation

b. Among guarantors (Effects of Guaranty as Between Co-Guarantors) Art. 2073. When there are two or more guarantors of the same debtor & for the same debt, the one among them who has paid may demand of each of the others the share w/c is proportionally owing fr. him. If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same proportion. The provisions of this article shall not be applicable, unless the payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent.

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors & debtors of each other. [Balane] • Compensation is a mode of extinguishing, to the concurrent amount, the obligations of those persons who in their own right are reciprocally debtors & creditors of each other. [Castan] •

Perhaps, next to payment, compensation is the most common mode of extinguishing an obligation.

Distinguished fr. Confusion  In compensation, there are 2 parties & 2 debts, whereas in confusion, there are 2 debts & only 1 party.

c. Joint Obligations Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur.

CASES: GAN TION vs. CA [28 S 235, 1969] – Award of atty’s fees is proper subject of legal compensation. FACTS: Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. Gan filed ejectment case vs. Ong in 1961 for non-payment of rents for 2 mos. Total of P360. Ong denied and said that agreed rental was not 180 but 160 whc he offered but was refused by Gan. Trial court favored plaintiff. Appellate ct reversed & ordered plaintiff to pay Atty’s fees of P500. This became final.

d. Solidary Obligations Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or w/ any of the solidary debtors, shall extinguish the obligation, w/o prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. Article 1219. The remission made by the creditor of the share w/c affects one of the solidary debtors does not release the latter fr. his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. Art. 1216. The creditor may proceed against any of one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those w/c may subsequently

When Ong obtained writ of exec, Gan Tion went to the appellate ct. and pleaded legal compensation averring that Ong owed him more than P4K in rentals fr Aug ’61 to Oct. ’63. Appel. Ct said that atty’s fees may not be legally compensated b/c such constitute trust fund for benefit of lawyer. And the requisites of Art. 1278 not complied with. ISSUE: WON there was legal compensation bet. Pet Gan Tion and resp. Ong Wan Sieng.

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HELD: Yes. The award of atty’s fees is in favor of litigant not of his counsel, thus litigant is judgment Cr who may enforce judgment by execution. Such is credit therefore whc can be proper subject of legal compensation.

not mutually creditors & debtors of each other under Art. 1278 & a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment.

PNB V. ONG ACERO [148 S 166, 1987] RATIO: There is no compensation where the parties are not creditors & debtors of each other. FACTS: Savings account of ISABELA Constrx & Devt Corp with the PNB of P2M is subject of 2 conflicting claims – that of the Aceros, judgment Cr of ISABELA and of PNB as Cr of the depositor d/t a loan or credit agreement by ISABELA w/PNB the deposit being the collateral. IAC decided vs PNB.

A. Different Kinds of Compensation: Legal Compensation (Articles 1279, 1290) w/c takes place automatically by operation of law once all the requisites are present. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, & that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, & also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated & demandable; (5) That over neither of them there by any retention or controversy, commenced by third persons & communicated in due time to the debtor. [Balane] Requisites under Art. 1279:

ISSUE: WON by operation of Art. 1278, where PNB and ISABELA has become here debtors and creditors of each other HELD: The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence presented by PNB towards this end consists of 2 documents marked in its behalf. But as the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of [by ISABELA's foreign correspondent (MAN)], or that the goods thereby covered were in fact shipped, & received by ISABELA. FRANCIA V. IAC [162 S 753] RATIO: [T]here can be no off-setting of taxes against the claims that the taxpayer may have against the govt. FACTS: ENGRACIO FRANCIA is regd owner of lot & 2storey house in Pasay City, a portion of whc lot was subject of exprop by RP, w/ just comp computed at assessed value. Fr 1963, to 1977 Francia has not paid RETs on the prop. Thus, such was sold on public auction by the City Treas of Pasay City pursuant to sec. 73 PD 464 Real Prop.Tax Code to satisfy his delinquency. Ho Fernandez was the highest bidder. In ’79 Francia received notice that Ho wants TCT transferred to him after a Final Bill of Sale was issued to him. Francia filed a complaint to annul the auction sale. He was in Iligan at that time, but such was dismissed & court ordered RD to effect the transfer of title, and for him to pay Ho atty’s fees. IAC affirmed.

1. Mutual Debtors & Creditors  The parties

must be mutually debtors & creditors (1) in their own right, & (2) as principals. There can be no compensation if 1 party occupies only a representative capacity. Likewise, there can be no compensation if in one obligation, a party is a principal obligor & in another obligation, he is a guarantor. 2. Fungible Things Due  The word consumable is wrong. Under Art. 418, consumable things are those w/c cannot be used in a manner appropriate to their nature w/o their being consumed. In a reciprocal obligation to deliver horses, the things due are not consumable; yet there can be compensation. (Tolentino.) The proper terminology is "fungible" w/c refers to things of the same kind w/c in payment can be substituted for another. 3. Maturity of Debts  Both debts must be due to permit compensation. 4. Demandable & Liquidated Debts  Tolentino: Demandable means that the debts are enforceable in court, there being no apparent defenses inherent in them. The obligations must be civil obligations, excluding those that are purely natural. xxx Before a judicial decree of rescission or annulment, a rescissible or voidable debt is valid & demandable; hence, it can be compensated.

ISSUE: WON Francia’s tax delinquency of 2400 has been set-off by the govt’s indebtedness to him of 4116 after apportion of his lot was expropriated. HELD: NO. Circumstances do not satisfy requirements of Art. 1279. A person cannot refuse to pay a tax on the ground that the govt owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the govt. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off xxx The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental purposes.  The reason on w/c the gen. rule is based, is that taxes are not in the nature of contracts bet. the party & party but grow out of duty to, & are the positive acts of the govt to the making & enforcing of w/c, the personal consent of individual taxpayers is not required. xxx (Republic v. Mambulao Lumber.)

A debt is liquidated when its existence & amount are determined. xxx And a debt is considered liquidated, not only when it is expressed already in definite figures w/c do not require verification, but also when the determination of the exact amount depends only on a simple arithmetical operation. xxx

•

In Cordero v. Gonda, we held that: "xxx internal revenue taxes can not be the subject of compensation: Reason: govt & taxpayer 'are

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The debt must not have been garnished. (additional requirement)

Compensation is not prohibited by any provision of law like Articles 1287, 1288 & 1794.

administrator, who allegedly owed Solinap P71K w/REM as security. In this case sps Lutero setup a counterclaim of P125K in unpaid rentals of pet.on Hacienda Tambal.

Art. 1287. Compensation shall not be proper when one of the debts arises fr. a depositum or fr. the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, w/o prejudice to the provisions of paragraph 2 of article 301. Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising fr. a penal offense. Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, & he cannot compensate them w/ the profits & benefits w/c he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.

ISSUE: WON TC erred in not holding that legal compensation has taken place in these cases by operation of Art. 1278. HELD: Petitioner contends that respondent judge gravely abused her discretion in not declaring the mutual obligations of the parties extinguished to the extent of their respective amounts. He relies on Art. 1278 to the effect that compensation shall take place when 2 persons, in their own right, are creditors & debtors of each other. The argument fails to consider Art. 1279 w/c provides that compensation can take place only if both obligations are liquidated. In the case at bar, the petitioner's claim against the resp. Luteros is still pending determination by the court. While it is not for Us to pass upon the merits of the pltff's cause of action in that case, it appears that the claim asserted therein is disputed by the Luteros on both factual & legal grounds. More, the counterclaim interposed by them, if ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized as liquidated credit w/c may properly be set-off against his obligation. Compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount involved be certain & liquidated.

CASES: REPUBLIC V. DE LOS ANGELES [98 S 103] RATIO: Compensation of debts arising even w/o proof of liquidation of claim is allowable where the claim is undisputed. FACTS: Sps FARIN got a loan fr MARCELO STEEL CORP of p600k & did a REM of their lot in QC as security in favor of MARCELO STEEL. A yr later MARCELO STEEL asked sheriff assist in extrajud FREM of such lot. Sps Farin filed for injunction and succeeded. Thus, MARCELO STEEL invoked par. 5 in the mortgage © and asked the court instead to compel the lessees of “Dona Petra Bldg” situated on the mortgaged lot, incl the Rice & Corn Admin (RCA), to direct their rental payments to MARCELO STEEL. Such an order was issued by the court. RCA filed an MR praying to be excluded fr such order b/c sps Farin has a standing Ø w/RCA whc shd be setoff w/ their rental Øs, thus rents of RCA has been previously assigned by sps Farin to Vidal Tan. Sps Farin also filed MR asking court to exclude lessees of the bldg fr such order as they are not parties to the case. TC denied both MRs. TC granted motion of sps. Farin for RCA to release rentals incurred for repair of the bldg. TC ratiocinated that RCA never presented any proof of Farin’s indebtedness whc it wants to offset w/its rentals.

SYCIP V . CA [134 S 317] RATIO: Compensation cannot take place where, w/ respect to the money involved in the estafa case, the complainant was merely acting as agent of another. In set-off the two persons must in their own right be creditor & debtor of each other FACTS: JOSE LAPUZ received fr ALBERT SMITH 2000 shares of stock of REPUBLIC FLOUR MILLS in the name of Dwight Dill who left for Honolulu. Jose was suppose to sell his shares at market value fr whc he wud get commission. Accdg to Jose, Sycip approached him and volunteered to sell the shares. SPA was granted by Dill to Lapuz, the latter transacted w/Sycip. Series of their transactions were duly paid for and transferred. But the later payments were pocketed by Sycip.

ISSUE: WON resp. Judge erred in denying claim of RCA that compensation of debts has taken place b/c records showed no proof of plaintiffs’ indebtedness to RCA.

ISSUE: WON CA erred in not applying Art. 1278-79 despite evidence showing Lapuz’ indebtedness to pet. Sycip.

HELD: YES. Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient & no other proof may be required. xxx

HELD: Petitioner contends that resp. CA erred in not applying the provisions on compensation or setting-off debts under Art. 1278 & 1279, despite evidence showing that Jose Lapuz still owed him an amount of more than P5,000 & in not dismissing the appeal considering that the latter is not legally the aggrieved party.

SOLINAP V. DEL ROSARIO [123 S 640] RATIO: Compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount involved be certain & liquidated.

This contention is untenable. Compensation cannot take place in this case since the evidence shows that Jose Lapuz is only an agent of Albert Smith &/ or Dr. Dwight Dill. Compensation takes place only when two persons in their own right are creditors & debtors of each other, & that each one of the obligors is bound principally & is at the same time a principal creditor of the other. Moreover, xxx Lapuz did not consent to the off-setting of his obligation w/ petitioner's obligation to pay for the 500 shares.

FACTS: SPS TIBURCIO LUTERO & ASUNCION MAGALONA, owners of Hacienda Tambal, leased such to LOTERO SOLINAP for 10yrs w/ rental of P50K/yr, further agreed that half of annual rental would be paid by Solinap to PNB as amort.on indebtedness of sps.Lutero. When Tiburcio died, testate est. proceedings was instituted at CFI-Iloilo whc authorized the administrator of est., Judge Nicolas Lutero, grandson of decedent, to take fr the heirs and pay rising Øs of the est.w/PNB w/ rts of subrogation. After compliance, the heirs who paid subjugated to the PNBs claim vs lessee Solinap for payment of rentals. Solinap instituted separate action vs. sps. Lutero, the

COMPANIA MARITIMA v. CA [135 S 593]

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RATIO: Compensation cannot take place where one of the debts is not liquidated as when there is a running interest still to be paid thereon.

levied upon, and upon motion by plaintiff, its branches were ordered to pay. Petitioner contends that after foreclosing the mortgage, there is still due fr. prvt. resps as deficiency the amount of P6.81 million against w/c it has the right to apply or set off prvt. respondent's money market claim of P1,062,063.83.

FACTS: FERNANDO FROILAN purchased fr SHIPPING ADMIN a boat for 200K, pd down of 50K, constituted a mortgage on the vessel for the unpaid balance. RP Pres. Approved the contract. Froilan defaulted in payment of the balance and interests as well as insurance premiums on the vessel whc was paid for by the SH.ADMIN. Thus, Sh.AD. took imme.possn of the vessel as well as its cargoes, w/claim that the vessel is not repossessed but its ownership is retransferred to the Sh.Ad./govt. PAN ORIENTAL offered to charter the same vessel w/monthly rental of 3K, govt agreed w/further stipulation that charterer will pay cost of labor, drydocking and repairs, incl spareparts needed. Froilan protested to the Pres this charter agreement. Before formal bareboat charter was to be approved by GM of Sh.Ad. a Cabinet resolution was issued revoking the cancellation of the © of Sale to Froilan, restored him to all his rts., on condition he will pay at least 10K to settle partially his outstanding accounts, reimburse Pan Oriental of its expenses incurred, and file a bond to cover the rest of his undertaking w/govt. After posting his bond, court ordered to restore Froilan’s poss’n of the vessel. Pan Oriental resisted. COMPANIA MARITIMA as purchaser of the vessel fr Froilan was allowed to be intervenor.

ISSUE: WON there was legal compensation in this case, that after Pet. Foreclosed the mortgage, upon the deficiency amount, it has the right to setoff plaintiff’s money-market investments proceeds. HELD: The argument is w/o merit. Compensation shall take place when two persons, in their own right are creditors & debtors of each other. When all the requisites mentioned in Art. 1279 are present, compensation takes effect by operation of law, even w/o the consent or knowledge of the debtors. (Art. 1290.) Art. 1279 requires among others, that in order that legal compensation shall take place, 'the two debts be due' & 'they be liquidated & demandable.' Compensation is not proper where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim arising fr. breach of contract. There can be no doubt that petitioner is indebted to prvt resp. in the amount of P1,062,063.83 representing the proceeds of her money market investment. This is admitted. But whether prvt. resp is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance prevents legal compensation fr. taking place.

ISSUE: WON the Court erred in holding that Froilan, Compania and rp shd pay pan oriental reimbursements of its legitimate expenses w/legal int. from the time of disbursement, instead of fr. The date of dispossession, failing to consider legal compensation betwn. RP and Pan O. HELD: More, the legal interest payable fr. 2/3/51 on the sum of P40,797.54, representing useful expenses incurred by PAN-ORIENTAL, is also still unliquidated since interest does not stop accruing "until the expenses are fully paid." Thus, we find w/o basis REPUBLIC's allegation that PAN-ORIENTAL'S claim in the amount of P40,797.54 was extinguished by compensation since the rentals payable by PANORIENTAL amount to P59,500 while the expenses reach only P40,797.54. Deducting the latter amount fr. the former, REPUBLIC claims that P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the fact that to the sum of P40,797.54 will still have to be added the legal rate of interest "fr. Feb. 3, 1951 until fully paid."

Art. 1280. Notw/standing the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages & the amount thereof.

Effect of Legal Compensation: Art. 1289. If a person should have against him several debts w/c are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. Art. 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, & extinguishes both debts to the concurrent amount, even though the creditors & debtors are not aware of the compensation. Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, & that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, & also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated & demandable; (5) That over neither of them there by any retention or controversy, commenced by third persons & communicated in due time to the debtor.

INTERNATIONAL CORPORATE BANK V. IAC [163 S 296] Requisite of legal compensation under Art. 1279.-FACTS: NATIVIDAD PAJARDO secured from Investment Underwiriting and ATRIUM Capital, predecessors of ICB, a loan of P50M, whc she secured w/REM of her properties in Quiapo & Bulacan w/total market value of 110M. Only 20M of the loan was approved for release. Whc same amount went to pay her standing Øs w/d same bank, thus she did not receive the same amt. She also made a money-market placement w/ATRIUM of more than P1M @17% int.p.a. for 32 days. At maturity, proceeds of such was not released to her but instead allegedly applied to her mortgaged indebtedness whc she failed to pay. Her properties were auctioned and Atrium being the sole bidder, acquired them only at 20M in all. At the end she is still indebted in the amt of P6.81M. She thus filed a complaint w/TC for annulment of the sheriff’s sale of her mortgaged properties the debt not yet being due & demandable, the release of the balance of her loan of P30M, and recovery of the proceeds of her money-market investments. The IAC ordered ICB to pay plaintiff Pajardo the proceeds of her money-market investments. CA affirmed. On execution, ICB’s 20 motor vehicles were

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• MINDANAO PORTLAND CEMENT V. CA [120 S 930] FACTS: Atty. Laquihon, in behalf of 3P def. Pacweld Steel Corp filed a Motion to direct payment of atty’s fees to counsel” invoking the fact that Pet.MPCC was adjudged to pay Pacweld 10K in atty’s fees. MPCC opposed this motion stating that such amt is compensated w/ an equal amt it is entitled fr Pacweld after the latter is also adjudged by same CFI-Mla in another case to pay to MPCC. Court issued the motion of Atty. Laquihon. Denied MR of MPCC.

The oblig of the depositary to return a spec thing cannot be compensated or substituted by delivery of a thing of the same kind.

Q: If there is an oblig of the depositary to the depositor for damages(already liquidated & demandable) in case of negligence & if the depositor owes the depositary a sum of money, can there be set-off? A: No since it arose out of a deposit. Not allowed by law. Cld be a way of Cr to collect a bad debt. Art. 1794. Every partner is responsible to the partnership for damaged suffered by it through his fault, & he cannot compensate them w/ the profits & benefits w/c he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits have been realized.

ISSUE: WON TC erred in not holding the 2 judgment debts of the 2 corps. vs ea other mutually compensated HELD: It is clear fr. the record that both corporations, petitioner Mindanao Portland Cement Corp. (appellant) & resp. Pacweld Steel Corp. (appellee), were creditors & debtors of each other, their debts to each other consisting in final & executory judgements of the CFI in 2 separate cases, ordering the payment to each other of the sum of P10T by way of attorney's fees. The 2 obligations, therefore, respectively offset each other, compensation having taken effect by operation of law & extinguished both debts to the concurrent amount of P10T, pursuant to the provisions of Art. 1278, 1279 & 1290, since all the requisites provided in Art. 1279 for automatic compensation "even though the creditors & debtors are not aware of the compensation" were duly present.

Contractual/ Conventional compensation w/c takes place when parties agree to set-off even if the requisites of legal compensation are not present, e.g., Art. 1282. ( Baviera OL: F. Comp 1. Kinds a. Voluntary) Art. 1282. The parties may agree compensation of debts w/c are not yet due.

upon

the

[Tolentino] 1. Voluntary Compensation is not limited to obligations w/c are not yet due. The parties may compensate by agreement any obligations, in w/c the objective requisites provided for legal compensation are not present. xx

Automatic compensation, requisites of, present  Extinguishment of two debts arising fr. final & executory judgments due to compensation by operation of law.

2. Judicial Compensation when decreed by the

court in a case where there is a counterclaim, such as that provided in Art. 1283. (Baviera OL: F. Comp 1. Kinds b. Judicial)

Facultative Compensation w/c takes place when compensation is claimable by only one of the parties but not of the other, e.g., Articles 1287, 1288.

Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages & the amount thereof.

Art. 1287. Compensation shall not be proper when one of the debts arises fr. a depositum or fr. the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, w/o prejudice to the provisions of paragraph 2 of article 301. Art. 301. The right to receive support cannot be renounced; nor can it be transmitted to a third person. Neither can it be compensated w/ what the recipient owes the obligor. However, support in arrears may be compensated & renounced, & the right to demand the same may be transmitted by onerous or gratuitous title.

[Baviera} What is the idea behind legal comp? • To facilitate collxn of money. For expediency. Effect of Assignment of Credit: Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation w/c would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made w/o the knowledge of the debtor, he may set up the compensation of all credits prior to the same & also later ones until he had knowledge of the assignment.

[Baviera] Note that Art. 301 of the NCC is not found in FC. • Future support cannot be compensated. Thus, a father who paid damages for son’s q-delict cannot claim comp by not giving support to his son. However under 301, support IN ARREARS may be compensated & renounced & the rt to demand the same may be transmitted by onerous or gratuitous title. [Balane] • The depositary cannot set up compensation w/ respect to the things deposited to him. • But the depositor can set up the compensation.

[Balane] There are 3 situations covered in this article: 1. 2.

Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising fr. a penal offense. [Baviera]

3. Rules:

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Assignment w/ the debtor's consent; Assignment w/ the debtor's knowledge but w/o his consent; & Assignment w/o the debtor's knowledge (& obviously w/o his consent.)

Requisites of Novation:

Assignment w/ the debtor's consent  Debtor cannot set up compensation at all unless the right is reserved.

1. 2.

Assignment w/ the debtor's knowledge but w/o his consent  The debtor can set up compensation w/ a credit already existing at the time of the assignment.

3. 4.

Assignment w/o the debtor's knowledge  Debtor can set up as compensation any credit existing at the time he acquired knowledge even if it arose after the actual assignment.

5.

Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided.

There must be a previous valid obligation; Agreement of the parties to create the new obligation; Extinguishment of the old obligation. (I would consider this an effect, rather than a requisite of novation-- Balane); Validity of the new obligation. (Tiu Siuco v. Habana, 45 P 707.) There must be CONSENT of all the parties to the substitution, resulting in the extinction of the old obligation & the creation of a valid one.

Art. 1292. In order that an obligation may be extinguished by another w/c substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old & the new obligations be on every point incompatible w/ each other.

6TH MODE OF EXTINGUISHMENT: Novation

[TOLENTINO] • Novation is NEVER presumed.

Art. 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor.

It must be established that  1. the old & the new contracts are incompatible in all points, 2. or that the will to novate appear by express agreement of the parties 3. or in acts of equivalent import.

[TOLENTINO] • Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one w/c extinguishes or modifies the first, either by changing the object of principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. (Manresa.)

IMPLIED NOVATION  There is no specific form required for an implied novation. All that is required is INCOMPATIBILITY between the original & the subsequent contracts. •

 Novation is the most unusual mode of extinguishing an obligation.

A mere extension of the term of payment does not result in novation, for the period affects only the performance, not the creation of the obligation

CASES:

 It is the only mode whereby an obligation is extinguished & a new obligation is created to take its place.

MILLAR VS. COURT OF APPEALS FACTS: Millar obtained a judgment against Gabriel. A writ of execution was issued, on the basis of w/c G’s Willy’s Ford Jeep was seized. Subsequently, G pleaded w/ M to release the jeep under an agreement whereby G would mortgage the jeep in favor of M to secure the payment of the judgment debt. The chattel mortgage reduced the amount to be paid by G. The TC said there was no novation bec. the mortgage was executed only to secure the judgment.

The other modes of extinguishing an obligation are absolute in the sense that the extinguishment of the obligation is total (w/ the exception of compromise.) Novation, on the other hand, is a relative mode of extinguishing an obligation. Classification of Novation:

ISSUE: debt.

1. Subjective (Personal) or novation by a change of subject

WON the mortgage K novated the judgment

HELD: Where the new obligation merely reiterates or ratifies the old Ø, although the former effects but minor alterations or slight modifications w/ respect to the cause or object or conditions of the latter, such changes do not effectuate any substantial incompatibility bet. the 2 Ø s. Only those essential & principal changes introduced by the new Ø producing an alteration or modification of the essence of the old Ø result in implied novation. In the case at bar, the mere reduction of the amount due in no sense constitutes a sufficient indicium of incompatibility, especially in the light of (a) the explanation by the petitioner that the reduced indebtedness was the result of the partial payments made by the resp. before the execution of the chattel mortgage agreement, & (b) the latter's admissions bearing thereon.

2. Active subjective or a change of creditor; also known as subrogation.

3. Passive subjective or a change of debtor 4. Objective (Real) or novation by change in the

object or in the principal conditions. • Novation by a change in the principal conditions is the most problematic kind of novation bec. you have to determine whether or not the change in the conditions is principal or merely incidental. • For example, a change fr. straight terms to installment terms & a change fr. noninterest bearing obligation to an interest bearing one are changes in the principal conditions.

5. Mixed novation w/c is a combination of both subjective & objective novation.

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conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation through a change of the object or principal conditions of an existing obligation is referred to as objective (or real) novation. Novation by the change of either the person of the debtor or of the creditor is described as subjective (or personal) novation. Novation may also be both objective & subjective (mixed) at the same time. In both objective & subjective novation, a dual purpose is achieved  an obligation is extinguished & a new one is created in lieu thereof.

INTEGRATED CONSTRUCTION VS. RELOVA, [146 SC 360] Novation; While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a shortening of the period within which to pay, the failure of the party to comply w/d suspensive & conditional nature of d agreement, remitted the parties to their original rights under the judgment award. FACTS: Pets., 2 constrx co.’s, Integrated, and Eng’rg, sued the MWSS, formerly NAWASA, at CFI-Mla. The Arbitration Board rendered decision-award whc became final & exec, ordered MWSS t pay pets. Pets. Subseq. Agreed to give MWSS some discounts, T&C f whc was approved by MWSS Board. Failing therefrom, pets. Moved for Execution of judgment vs MWSS, the court denied d/t novation.

Novation is never presumed.-- If objective novation is to take place, it is imperative that the new obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every point incompatible w/ the old one. Novation is never presumed; it must be established either by the discharge of the old debt by the express terms of the new agreement, or by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new one must be clearly discernible.

HELD: While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a shortening of the period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said agreement (making the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause of MWSS' Resolution. MWSS' failure to pay within the stipulated period removed the very cause and reason for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment award.

If old debtor is not released, no novation occurs & the third person who assumed the obligation becomes a co-debtor or surety or a cosurety.  Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical relation bet. the parties to the original contract is extended to a third person. It is essential that the old debtor be released fr. the obligation, & the third person or new debtor take the place in the new relation. IF the old debtor is not released, no novation occurs & the third person who has assumed the obligation of the debtor becomes merely a co-debtor or surety or a co-surety.

As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS' request for a conforme or quitclaim. (p. 125, Rollo)

Novation is not implied when the parties to the new obligation expressly negated the lapsing of the old obligation.  Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of extinguishment of a pre-existing obligation, a showing of complete incompatibility bet. the old & the new obligation (& nothing else) would sustain a finding of novation by implication. But where, as in this case, the parties to the new obligation expressly recognize the continuing existence & validity of the old one, where, in other words, the parties expressly negated the lapsing of the old obligation, there can be no novation. The issue of implied n ovation is not reached at all.

Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of right any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the Rules of Court.

COCHINGYAN VS. R & B SURETY [151 S 339] Novation defined. FACTS: PAGRICO (P) submitted a surety bond issued by R & B surety in favor of PNB. Under the bond, PNB had the right to proceed directly against R&B w/o going after P. In turn, 2 indemnity agreements were entered into w/ R&B by CCM & Joseph Cochingyan in his capacity as CCM prexy & in his personal capacity; & by P, PACOCO, Jose Villanueva as P’s manager & in his personal capacity, Liu Tua Beth, as PACOCO prexy, & in his personal capacity. 2 years after the execution of these documents, a TRUST AGREEMENT was entered into bet. Jose & Susana Cochingyan, Tomas Besa, a PNB officer, as trustee; & PNB was the beneficiary. The trust agreement expressly provided that it shall not, in any manner release R&B fr. their respective liabilities under the bond. When P failed to pay, PNB demanded payment fr. R%B. R&B in turn demanded reimbursement fr. Joseph Cochingyan & Jose V. who refused to pay on the ground that the trust agreement had extinguished their oblig under the Indemnity Agreements.

FUA VS. YAP [74 P 287] NOVATION BY SUBSEQUENT AGREEMENT FACTS: Fua Cam Lu, judgment-Cr of Yap Fauco and Yap Singco, agreed subsequently to execution of a mortgage in his favor by the Yaps of a camarin plus reduction of debt to 1,200 payable in 4 installments; that in case of default they wud pay balance plus the discounted amount and 10% attys fees. HELD: The Yap’s liability under the judgment has been extinguished by the new agreement. Although the mortgage did not expressly cancel the old obligation, this was impliedly novated by reason of incompatibility resulting fr. the fact that, whereas the judgment was for P1,538.04 payable at one time, did not provide for attorney's fees, & was not secured, the new obligation is for P1200 payable in installments, stipulates for attorney's fees & is secured by a mortgage. The later

HELD: Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one w/c terminates it, either by changing its object or principal

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agreement did not merely extend the time to pay the judgment, bec. it was therein recited that appellants promised to pay P1,200 to appellee as a settlement of the said judgment. Said judgment cannot be said to have been settled, unless it was extinguished. ** Foreclosure of such new mortgage under the judgment in the old Ø was VOID.

HELD: It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. Thus the Civil Code provides: Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. In the case at bar, there is nothing in the May 14, 1982 agreement w/c supports the petitioner's contention. There is neither explicit novation nor incompatibility on every point bet. the "old" & the "new" agreements…said contract was executed precisely to implement the compromise agreement for which reason there was no novation.

SANDICO VS. PIGUING [42 S 322] FACTS: Sps. Sandico and Timbol as rep of Est of Sixta Paras obtained judgment in their favor against Desiderio Paras for the recog of easement and payment of damages; the judgment debt was later on agreed by them to be reduced and was subseq paid by def. When the sps demanded for performance of the part of d judgment abt the recof of d easement, they demanded that def rebuild & reconstruct the irrigation canal in its original dimensions. When def,refused, sps.asked d court a quo in a motion for exec 2compel them or hold them in contempt.Alias writ of exec was issued whc was later on appeal was ordered quashed by the CA bec. The parties “novated by subseq. Agreement” the judgment in question, thus there is nothing more to be executed.

BALILA V. IAC [155 S 262] RATIO: Subsequent mutual agreements & actions of petitioners & private respondents allowing the former extension of time to pay their obligations & in installments novated & amended the period of payment decreed by the trial court in its judgement by compromise. FACTS: Amicable settlement of this dispute was arrived at and made basis of decision of TC. Defendants admitted "having sold under a pacto de retro sale the parcels of land 4 described in the complaint in the amount of P84,000.00" and that they "hereby promise to pay the said amount within the period of four (4) months but not later than May 15,1981. Subseq, priv.resp.Guadalupe Vda. de del Castillo, rep.by her son Waldo del Castillo as for attorney-in-fact, accepted payments from petitioners and gave petitioners several extensions of time to pay their remaining Øs.

ISSUE: WON CA erred in quashing the alias writ of exec d/t its interpret. That the subseq agreement extingusihd d def’s Ø on d judgment of court a quo HELD: NO. CA was not in grave abuse of disc. Novation results in 2 stipulations  (1) to extinguish an existing obligation, and (2) to substitute a new one in its place. Fundamental it is that novation effects a substitution or modification of an obligation by another or an extinguishment of one obligation by the creation of another. In the case at hand, we fail to see what new or modified obligation arose out of the payment by the resp. of the reduced amount of P4,000 & substituted the monetary liability for P6,000 of the said resp. under the appellate court's judgment. Additionally, to sustain novation necessitates that the same be so declared in unequivocal terms  clearly & unmistakably shown by the express agreement of the parties or by acts of equivalent import  or that there is complete & substantial incompatibility bet. the 2 obligations. Record showed that def attempted to rebuild the irrigation canal but not in the original dimensions, whc was not disputed by both parties. Such partial recons does not constitute substantial compliance. Thus SC remanded d case to TC for ocular on the job done & if def refuses to complete to ask another to do the work at the expense of def.

ISSUE: WON decision of trial court in its judgment by compromise was novated and amended by the subsequent mutual agreements and actions of petitioners and private respondents HELD: The fact therefore remains that the amount of P84,000 payable on or before May 15, 1981 decreed by the trial court in its judgment by compromise was novated & amended by the subsequent mutual agreements & actions of petitioners & prvt. resps. Petitioners paid the aforestated amount on an installment basis & they were given by prvt. resps no less than 8 extensions of time to pay their obligation. These transactions took place during the pendency of the motion for recon. of the order of the trial court dated 4/26/83, during the pendency of the petition for certiorari before the IAC & after the filing of the petition bef. Us. This answers the claim of the resps. on the failure of the petitioners to present evidences or proofs of payment in the lower court & the appellate court.

NPC VS. DAYRIT [125 S 849] RATIO: Novation is never presumed but must be explicitly stated; No novation in the absence of explicit novation or incompatibility on every point between the old & the new agreements of the parties. FACTS: DANIEL E. ROXAS, doing business under the name and style of United Veterans Security Agency and Foreign Boats Watchmen, sued the NATIONAL POWER CORPORATION (NPC) and two of its officers in Iligan City. The purpose of the suit was to compel the NPC to restore the contract of Roxas for security services which the former had terminated. The parties drafted a Compromise Agreement which the TC approved. The agreement consisted of NPC paying plaintiff sum of money, plaintiff will pay or return materials lost & found by his agency, the © for security services w/NPC will remain, and they both waive other claims & counter-c w/ea other. NPC subseq. Contracted another security agency. Thus, plntf asked court a quo for writ of exec whc was granted. NPC appealed claiming that d judgment was novated thus extinguished,nothing more to exec.

PEOPLE'S BANK VS. SYVEL'S [164 S 247] RATIO: When does novation take place; Novation is never presumed. Absence of existence of an explicit novation nor incompatibility between the old & the new agreements. Novation was not intended in the case at bar as the REM was taken as additional security for the performance of the contract. If objective novation is to take place, it is essential that the new obligation expressly declare that the old obligation is to be extinguished or that the new obligation be on every point incompatible w/ the old one. xxx FACTS: Action for foreclosure of chattel mortgage executed in favor of the plaintiff by the def. Syvel's Inc. on its stocks of goods, personal properties and other materials owned by it and located at its stores or warehouses. This chattel mortgage was duly

ISSUE: WON novation of judgment by subseq agreement of parties extinguished d Ø of NPC to sustain the security © w/plantff

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person or partnership continuing the business; & such agreement may be inferred fr. the course of dealing between the creditor having knowledge of the dissolution & the person or partnership continuing the business.

registered in RD of Manila and Pasay City, in connection with a credit commercial line in the amount of P900K granted to Syvel’s; defendants Antonio & Angel V. Syyap guaranteed absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness to be incurred on account of the said credit line. > failure of Syvels’ to pay in accord w/terms and conditions of the Commercial Credit Agreement, bank started to foreclose extrajudicially the chattel mortgage but was not pushed thru after Syvel’s attempted to settle. As no payment was made, this case was filed in Court. During its pendency, Syyap proposed to have the case settled amicably and to that end a conference was held in which Mr. Antonio de las Alas, Jr., VP of the Bank, plaintiff, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case because he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a REM on his property in Bacoor. Mr. De las Alas consented, and so the REM.

PNB VS. MALLARI FACTS: Def borrowed fr. PNB & this loan was secured by a chattel mortgage on his standing crop. Mallari defaulted so the sacks of rice deposited in a warehouse were attached. Guanzon, defendant’s Er, offered to pay the obli of the latter. This was accepted by PNB so the attachment was later lifted. Guanzon defaulted in his payment so PNB sued the def on the same obligation. The LC dismissed the comp on the ground that there was novation brought about by the alteration of the principal conditions of the original obli & the substitution of a news debtor. HELD: The acceptance of PNB of the offer of G to pay under the terms specified by him constituted not only a substitution of the debtor but an alteration or modification of the terms & conditions of the original K.

ISSUE: WON on the ground that by the execution of said real estate mortgage, the obligation secured by the chattel mortgage subject of this case was novated, and therefore, appellee's cause of action thereon was extinguished.

Effect of insolvency of new debtor--

HELD: Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility bet. the old & the new obligations in every aspect.

Article 1294. If the substitution is w/o the knowledge or against the will of the debtor, the debtor’s insolvency or non-fulfillment of the obligation shall not give rise to any liability on the part of the original debtor. Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor & accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing & of public knowledge, or known to the debtor, when he delegated his debt.

In the case at bar, there is nothing in the REM w/c supports appellants' submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point bet. the old & the new agreements as the second contract evidently indicates that the same was executed as new additional security to the CM previously entered into by the parties.

2. Change of Principal Condition or Object

Records show that in the real estate mortgage, appellants agreed that the chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as additional security for the performance of the contract

3. Subrogation/Subjective Novation a. novation

In case of active subjective

Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in or order that it may take effect.

b. FORMS OF NOVATION: Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (Classmates, I think there was a typo error in Ma’am Bubbles’ outline. I think this should have been Art. 1291, reproduced below)

Legal (Art. 1302)  In all cases of Art. 1302, subrogation takes place by operation of law. Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even w/o the debtor's knowledge; (2) When a third person, not interested in the obligation, pays w/ the express or tacit approval of the debtor; (3) When, even w/o the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, w/o prejudice to the effects of confusion as to the latter's share;

1. Substitution of debtor-Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand fr. the debtor what he has paid, except that if he paid w/o the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising fr. a mortgage, guaranty, or penalty. Art. 1835 second paragraph A partner is discharged fr. any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor & the

Conventional/ Contractual (Art. 1301)  Consent of the 3 parties (old creditor, debtor & new creditor) are required. Art. 1301. Conventional subrogation of a third person requires the consent of the original parties & of the third person. Q: Is it possible for a creditor to transfer his credit w/o consent of the debtor?

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he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. Art. 1303. Subrogation transfers to the person subrogated the credit w/ all the rights thereto appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation.

A: Yes. But this is not novation but an assignment of rights under Art. 1624. •

Assignment is also a novation but much simpler. But is not subrogation.

KINDS OF NOVATION: a. Legal

b. Passive Subjective Novation (Substitution of the debtor)

Art. 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even w/o the debtor's knowledge; (2) When a third person, not interested in the obligation, pays w/ the express or tacit approval of the debtor; (3) When, even w/o the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, w/o prejudice to the effects of confusion as to the latter's share;

Art. 1293. Novation w/c consists in substituting a new debtor in the place of the original one, may be made even w/o the knowledge or against the will of the latter, but not w/o the consent of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 & 1237. Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand fr. the debtor what he has paid, except that if he paid w/o the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Art. 1237. Whoever pays on behalf of the debtor w/o the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising fr. a mortgage, guaranty or penalty.

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights & bring all the actions of the latter for the same purpose, save those w/c are inherent in his person; they may also impugn the acts w/c the debtor may have done to defraud them. (Conventional Redemption) Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor. Art. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing fr. the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees & furnishers of materials: (1) Payments made by the owner to the contractor before they are due; (2) Renunciation by the contractor of any amount due him fr. the owner.

RODRIGUEZ V. REYES HELD: By buying the property covered by TCT No. 48979 w/ notice that it was mortgaged, resp. Dualan only undertook either to pay or else allow the land's being sold if the mortgage creditor could not or did not obtain payment fr. the principal debtor when the debt matured. Nothing else. Certainly, the buyer did not obligated himself to replace the debtor in the principal obligation, & he could not do so in law w/o the creditor's consent. (Art. 1293) The obligation to discharge the mortgage indebtedness therefore, remained on the shoulders of the original debtors & their heirs, petitioners herein, since the record is devoid of any evidence of contrary intent. xxx

This article is subject to the provisions of special laws: (Assignment of Credits & Other Incorporeal Rights) Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, & the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, fr. the time of the assignment if the period had already expired. If the credit should be payable w/in a term or period w/c has not yet expired, the liability shall cease one year after the maturity. Art. 2207. If the plaintiff's property has been insured, & he has received indemnity fr. the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency fr. the person causing the loss or injury.

Art. 1835. xxx A partnership is discharged fr. any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor & the person or partnership continuing the business; & such agreement may be inferred fr. the course of dealing between the creditor having knowledge of the dissolution & the person or partnership continuing the business. [Balane] Passive Subjective Novation-1293 & 1295

2. Effect: Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, &

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Articles

•

Art. 1293 talks of expromission (not upon the old debtor's initiative. It could be upon the initiative of the creditor or of the new debtor.)

•

Art. 1295 talks of delegacion (change at the old debtor's initiative.)

•

In expromission, the change in the person of the debtor is not upon the initiative of the old debtor, whether or not he gave his consent. As soon as a new debtor & creditor agree, novation takes place.

•

What is the difference in expromission & delegacion?

•

•

performance. Natural obligations, not being based on positive law but on equity & natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.

In both cases, the intent of the parties must be to release the old debtor. effect

between

In expromission, the release of the old debtor is absolute (even if it turns out that the new debtor is insolvent.)

Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered.

In delegacion, the release of the old debtor is not absolute. He may be held liable (1) if the new debtor was already insolvent at the time of the delegacion; & (2) such insolvency was either known to the old debtor or of public knowledge.

Art. 1425. When w/o the knowledge or against the will of the debtor, a third person pays a debt w/c the obligor is not legally bound to pay bec. the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.

Cases of expromission are quite rare. Effect of Novation Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. [Balane] • Effect of novation as to accessory obligations Accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent, e.g., stipulation pour atrui

Art. 1428. When, after an action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. Art. 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property w/c he received by will or by the law of intestacy fr. the estate of the deceased, the payment is valid & cannot be rescinded by the payer.

General rule: In a novation, the accesory obligation is extinguished. Exception: In an active subjective novation, the guarantors, pledgors, mortgagors are not released.

Art. 1430. When a will is declared void bec. it has not been executed in accordance w/ the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance w/ a clause in the defective will, the payment is effective & irrevocable.

Look at Art. 1303, accessory obligations are not extinguished. So there is a conflict. How do you resolve? According to commentators, Art. 1303 is an exception to Art. 1296. Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. Art. 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor, or when ratification validates acts w/c are voidable. Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated.

Art. 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

VILLAROEL v. ESTRADA

ANSAY v. NDC

H. NATURAL OBLIGATIONS – ARTS. 1423-1430. 1155 Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their

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DBP v. CONFESSOR:

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