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Civil Law Review 2 - Obligation 1

Q: If there is an obligation and an action is filed, will that action prosper?

A: Not necessarily, because it depends on what type of obligation is being enforced. A natural obligation, as opposed to
a civil obligation, does not grant a right to enforce performance.

Q: Distinguish a civil obligation and a natural obligation?


A: Civil – give a right of action to compel their performance
Natural – 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.
Article 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.
Article 1425.When without the knowledge or against the will of the debtor, a third person pays a debt
which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor
later voluntarily reimburses the third person, the obligor cannot recover what he has paid.
Article 1426.When a minor between eighteen and twenty-one years of age who has entered into a
contract without the consent of the parent or guardian, after the annulment of the contract voluntarily
returns the whole thing or price received, notwithstanding the fact that he has not been benefited
thereby, there is no right to demand the thing or price thus returned.
Article 1427.When a minor between eighteen and twenty-one years of age, who has entered into a
contract without 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 from the
obligee who has spent or consumed it in good faith. (1160A)
Article 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.
Article 1429.When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the
value of the property which he received by will or by the law of intestacy from the estate of the
deceased, the payment is valid and cannot be rescinded by the payer.
Article 1430.When a will is declared void because it has not been executed in accordance with 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 with a clause in the defective will, the payment is effective and
irrevocable.

Q: If A executed a promissory note dated January 1, 1995, “I promise to pay B the amount of P1M.” (sgd.) A.
Will an action to enforce payment prosper?
No, the action to compel performance has already prescribed. (Prescription of action)

Q: What kind of obligation is the previous number?


A: Natural obligation.

Q: Is the obligation in the note pure or subject to a period?


On its face, the obligation is pure, not subject to a period. No contrary intention appears on the instrument.

Note: If it is a loan – period; sale – pure.


Ex. Civil obligation may still be valid even after 10 years (ordinary prescription) in the case of a loan.
Prescriptive period starts when the loan becomes due.

Q: When will the note be a civil obligation if the premise is that the note pertains an obligation with a period?

Q: On the premise that the note pertains a pure obligation, is it correct to say that note is a natural obligation?
Not necessarily. If demand has been made in writing within the prescriptive period.
Civil Law Review 2 - Obligation 2

Q: Any other example of a natural obligation?

Q: How many of the 7 enumerated may still arise today?


RA 6809 has set the age of majority to 18.

Q: X died, he was survived by 3 legitimate children, no other heirs, he died with a debt of P10M to Y. 3 days
after the death of X, he demanded from A, B and C and they paid. But 6 months later it was found that the
estate was only P3M. In this scenario, is there a natural obligation in this problem?
The obligation to pay P7M because its in excess of the value of the property the heirs received from the estate
of the decedent.

Q: But may the P7 be retained by the creditor?


No, payment must have been made voluntarily.

Q: 1156 defines obligation. This definition pertains to what kind of obligation as to the basis of enforceability?
Civil obligation, because there is a juridical necessity.

Q: This definition has been critized as being unitary. Should the word obligation refer to the credit side?
No. An obligation is similar to duty. Does duty include the credit side. The “right” is not included.

Q: Consent is an essential requisite of one of the sources of obligations, contract. But is consent essential in
obligations?
No. Of the 5 sources of obligation, there are sources that do not require consent. Only contract requires
consent.

Q: What are obligations without an agreement? Give 5 situations?

Q: What are the essential elements of obligations?


Active subject, passive subject, prestation, legal tie/juridical tie/vinculum/efficient cause.

Q: Why is the debtor the passive subject?


An obligee/creditor is the active subject. In the case of the debtor, there will be no delay if there’s no demand
from the creditor.

Q: What are the sides of an Obligation?


- Credit (right)
- Debt

Q: In the contract of lease, who is the passive subject?


Lessor or lessee depending on the obligation.
Obligation to pay rent -> lessee

Q: Is prestation a thing?
No. Prestation is the activity or conduct to be performed.

Q: Should there not be a prestation “not to give?”


No. “Not to do” includes “not to give.”

Q: When will there be juridical tie? How do you determine its existence?
When there is a source of obligation.

Q: 1157 enumerates 5 sources, is there any other source of obligation under the NCC?
Sagrada case.
Civil Law Review 2 - Obligation 3

Q: Ultimately what is the source of obligations?


The law.

Q: Is there anything good with the enumeration?


Yes. The classification is helpful.

Q: Can a unilateral offer or promise be a source of obligation.


No. Once the offer is accepted, the obligation arises from contract.

Q: Who has the obligation of proving the existence of an obligation arising from law.
It is the creditor always. 1158, obligations arising from law are not presumed.

Q: A few weeks ago was the anniversary of Princess of the Stars. Bodies were scattered. What if a resident of
an island found a body and buried it. P800 in cost was incurred. He then met the uncle of the deceased and
claimed reimbursement. Can it be demanded? Is there an obligation arising from this incident?
There is a quasi-contract. But the demand is improper because the obligation to reimburse devolves only upon
those obligated to give support.

Q: In sagrada, was Nacoco required to pay for a certain period?


No.

Q: How come there was no obligation arising from contract in that case?

There was no privity of contracts.

Q: How come there was no privity?

Q: How come there can be no liability under quasi-delict?

Q: How many kinds of quasi-contracts are there?

Q: Is the list of quasi-contracts under C exclusive?

No. As long as you can invoke the principle that no one shall be unjustly enriched at the expense of another,
there is a quasi-contractual obligation.

Q: When will this juridical relationship arise?

Q: Cruz vs. Tuazon.

Q: Adille.

Q: X and his family left his house for a vacation, however on the night they left the house, the house was
burned. The neighbors were able to save items. The author stated it as negotiorum gestio. Do you agree?

No. It is not reasonable to conclude that the house is neglected or abandoned.

Q: But assuming that there was neglect or abandonment, will there be negotiorum gestio?

No. There was no management of property.

Q: Can there be a quasi contractual relationship of negotiourum gestio even if there was no one unjustly
enriched? What is the obligation of the owner?
2151
Civil Law Review 2 - Obligation 4

Q: A went to a grocery store a bought a pack of cigarettes. The cost was P175. P500 was given, P375 was given
back. What is the juridical relationship created?

Solutio indebiti.

Q: Andres vs. Mantrust

Q: What are the last 2 sources of obligations.

Q: Would felonies be a good substitute for acts or omissions punishable by law?

No.

Q: Pagod na ko, ikaw?

Q: This author recommended in his book that the title of torts and damages should be replaced with quasi-delict and
damages. Comment.

Q: Can there be a liability under quasi-delict even if there is a contract between the parties.
Civil Law Review 2 - Obligation 5

Cases:

VILLARROEL VS. ESTRADA, 71 Phil. 140, No. 47362 December 19, 1940
GR No. L-47362 December 19, 1940

JOHN F. VILLARROEL, appellant-appellant,


vs.. BERNARDINO ESTRADA, turned-appellee.
D. Felipe Agoncillo in representation of the appellant-appelante.
D. Crispin Oben in representation of the defendant-appellee.

AVANCEÑA, Pres :
On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1, 000 payable after seven years (Exhibito A). Alejandra died, leaving as sole heir to
the defendant. Spouses Mariano Estrada and Severina also died, leaving as sole heir to the plaintiff Bernardino
Estrada. On August 9, 1930, the defendant signed a document (Exhibito B) by which the applicant must declare in the
amount of P1, 000, with an interest of 12 percent per year. This action relates to the recovery of this amount.
The Court of First Instance of Laguna, which was filed in this action, condemn the defendant to pay the claimed
amount of P1, 000 with legal interest of 12 percent per year since the August 9, 1930 until full pay. He appealed the
sentence.
It will be noted that the parties in the present case are, respectively, the only heirs and creditors of the original debtor.
This action is brought under the defendant's liability as the only son of the original debtor in favor of the plaintiff
contracted, sole heir of primitive loa creditors. It is recognized that the amount of P1, 000 to which contracts this
obligation is the same debt of the mother's parents sued the plaintiff.
Although the action to recover the original debt has prescribed and when the lawsuit was filed in this case, the
question raised in this appeal is primarily whether, notwithstanding such requirement, the action taken is
appropriate. However, this action is based on the original obligation contracted by the mother of the defendant, who
has already prescribed, but in which the defendant contracted the August 9, 1930 (Exhibito B) by assuming the
fulfillment of that obligation, as prescribed. Being the only defendant in the original herdero debtor eligible successor
into his inheritance, that debt brought by his mother in law, although it lost its effectiveness by prescription, is now,
however, for a moral obligation, that is consideration enough to create and make effective and enforceable obligation
voluntarily contracted its August 9, 1930 in Exhibito B.
The rule that a new promise to pay a debt prrescrita must be made by the same person obligated or otherwise legally
authorized by it, is not applicable to the present case is not required in compliance with the mandatory obligation
orignalmente but which would give it voluntarily assumed this obligation.
It confirms the judgment appealed from, with costs against the appellant. IT IS SO ORDERED.
Imperial, Diaz, Laurel, and Horrilleno, MM., Concur.

ANSAY VS NATIONAL DEVELOPMENT COMPANY G.R No. L-13667 April 29, 1960

FACTS:

On July 25, 1956, Primitivo Ansay et al filed against the Board of Directors of the National Development Company in
the Court of First Instance of Manila a complaint praying for a 20% Christmas bonus for the years 1954 and 1955.

Appellants contend that there exists a cause of action in their complaint because their claim rests on moral grounds or
what in brief is defined by law as a natural obligation.

ISSUE: Whether or not the Christmas bonus is demandable.

HELD: No, it is not demandable. Appellants admit that appellees are not under legal obligation to give such claimed
bonus and such grant only arises from a moral obligation or natural obligation. However, natural obligation is only
Civil Law Review 2 - Obligation 6

enforceable with the presence of the element of voluntary fulfillment by the obligor. In the case at bar, there has been
no voluntary performance on the part of the appellees. Hence, the bonus is not demandable.

DBP VS CONFESOR G.R. No. 48889 May 11, 1988

FACTS:

On February 10, 1940, spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from Agricultural
and Industrial Bank, now Development Bank of the Philippines, in the sum of P2,000, as evidenced by a promissory
note of said date whereby they bound themselves jointly and severally to pay the amount in ten equal yearly
amortizations.

As the obligation remained unpaid even after the lapse if the ten-year period, Confesor, who was then a member of the
Congress of the Philippines, executed a second promissory note on April 11, 1961, expressly acknowledging the said
loan and promising to pay the same on or before June 15, 1961.

The spouses still failed to pay the obligation on the specified date. As a result, the DBP filed a complaint on September
11, 1970 in the City Court of Iloilo City. The city court ordered payment from spouses. The CFI of Iloilo reversed the
decision. Hence, this petition.

ISSUE: Whether or not a promissory which was executed in consideration of a previous promissory note which has
already been barred by prescription is valid.

HELD: Yes, the second promissory note is valid because the said promissory note is not a mere acknowledgement of
the debt that has prescribed already. Rather, it is a new promise to pay the debt. A new promise is a new cause of
action. Although a debt barred by prescription is enforceable, a new contract recognizing and assuming the prescribed
debt would be valid and enforceable.

Sources of Civil Obligations

SAGRADA ORDEN VS NACOCO G.R. NO. L-3756 JUNE 30, 1952

FACTS:

The land in question belongs to plaintiff Sagrada Orden in whose name the title was registered before the war

On January 4, 1943, during the Japanese military occupation, the land was acquired by a Japanese corporation by the
name of Taiwan Tekkosho

After liberation on April 4, 1946, the Alien Property Custodian of the United States of America took possession,
control, and custody of the property pursuant to the Trading with the Enemy Act

The property was occupied by the Copra Export Management Company under a custodian agreement with US Alien
Property Custodian. When it vacated the property, it was occupied by defendant National Coconut Corporation

The plaintiff made claim to the said property before the Alien Property Custodian. Alien Property Custodian denied
such claim

It bought an action in court which resulted to the cancellation of the title issued in the name of Taiwan Tekkosho
which was executed under threats, duress, and intimidation; reissuance of the title in favor of the plaintiff; cancellation
of the claims, rights, title, interest of the Alien property Custodian; and occupant National Coconut Corporation’s
Civil Law Review 2 - Obligation 7

ejection from the property. A right was also vested to the plaintiff to recover from the defendants rentals for its
occupation of the land from the date it vacated.

Defendant contests the rental claims on the defense that it occupied the property in good faith and under no obligation
to pay rentals.

ISSUE: Whether or not the defendant is obliged to pay rentals to the plaintiff

HELD: No. Nacoco is not liable to pay rentals prior the judgment. If defendant-appellant is liable at all, its obligations,
must arise from any of the four sources of obligations, namley, law, contract or quasi-contract, crime, or negligence.
(Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all, because it entered the
premises and occupied it with the permission of the entity which had the legal control and administration thereof, the
Allien Property Administration. Neither was there any negligence on its part.

METROPOLITAN BANK AND TRUST COMPANY VS ROSALES


THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs ANA GRACE ROSALES AND YO YUK TO,
Respondents.
G.R. No. 183204 January 13, 2014

PONENTE: Del Castillo


FACTS:
Petitioner Metrobank is a domestic banking corporation duly organized and existing under the laws of the Philippines.
Respondent Rosales is the owner of a travel agency while Yo Yuk To is her mother. In 2000, respondents opened a
Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree􀀀s
visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioner􀀀s branch in Escolta to open a savings
account. Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.
On March 3, 2003, respondents opened with petitioner􀀀s Pritil-Tondo Branch a Joint Dollar Account with an initial
deposit of US$14,000.00. On July 31, 2003, petitioner issued a 􀀀Hold Out􀀀 order against respondents􀀀 accounts.
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the
Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and
Use of Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar
account of Liu Chiu Fang. On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause. On September 10, 2004, respondents filed before the RTC of
Manila a complaint forBreach of Obligation and Contract with Damages.

ISSUE:
Whether Metrobank breached its contract with respondents.
HELD:
YES. The Court held that Metrobank’s reliance on the 􀀀Hold Out􀀀 clause in the Application and Agreement for Deposit
Account is misplaced.
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon demand by the depositor.
The “Hold Out” clause applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict.
In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not
enough reason for petitioner to issue a 􀀀Hold Out􀀀 order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales.
In fact, it is significant to note that at the time petitioner issued the 􀀀Hold Out􀀀 order, the criminal complaint had not
yet been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation, there
was no legal basis for petitioner to issue the 􀀀Hold Out􀀀 order. Accordingly, we agree with the findings of the RTC and
the CA that the 􀀀Hold Out􀀀 clause does not apply in the instant case.
Civil Law Review 2 - Obligation 8

In view of the foregoing, the Court found that petitioner is guilty of breach of contract when it unjustifiably refused to
release respondents􀀀 deposit despite demand. Having breached its contract with respondents, petitioner
is liable for damages.
FALLO:
WHEREFORE, the Petition is hereby DENIED. The assailed April 2,2008 Decision and the May 30, 2008 Resolution of
the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED.

PEOPLE’S CAR VS COMMANDO SECURITY G.R. L-36840 MAY 22, 1973

FACTS:

People’s Car entered into a contract with Commando Security to safeguard and protect the business premises of the
plaintiff from theft, pilferage, robbery, vandalism, and all other unlawful acts of any person/s prejudicial to the
interest of the plaintiff.

On April 5, 1970, around 1:00am, defendant’s security guard on duty at plaintiff’s premises, without any authority,
consent, approval, or orders of the plaintiff and/or defendant brought out the compound of the plaintiff a car
belonging to its customer and drove said car to a place or places unknown, abandoning his post and while driving the
car lost control of it causing it to fall into a ditch.

As a result, the car of plaintiff’s customer, which had been left with plaintiff for servicing and maintenance, suffered
extensive damage besides the car rental value for a car that plaintiff had to rent and make available to its customer,
Joseph Luy, to enable him to pursue his business and occupation.

Plaintiff instituted a claim against defendant for the actual damages it incurred due to the unlawful act of defendant’s
personnel citing paragraph 5 of the contract wherein defendant accepts sole responsibility for the acts done during
their watch hours.

Defendant claimed that they may be liable but its liability is limited under paragraph 4 of the contract which provides
that its liability shall not exceed P1,000 per guard post for loss or damage through the negligence of its guards during
the watch hours provided that it is reported within 24 hours of the incident.
[if !supportLists]· [endif]
ISSUE: Whether or not the defendant is obliged to indemnify the plaintiff for the entire costs as result of the incident

HELD: Yes. Plaintiff was in law liable to its customer for the damages caused the customer’s car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and relying in turn on
defendant to honor its contract and indemnify it for such undisputed damages, which had been caused directly by the
unlawful and wrongful acts of defendant’s security guard in breach of their contract.

Plaintiff in law could not tell its customer that under the Guard Service Contract it was not liable for the damage but
the defendant since the customer could not hold defendant to account for the damages as he had no privity of contract
with defendant.

CRUZ vs TUASON & CO. G.R. No. L-23749 April 29, 1977

FACTS:

As requested by the Deudors, the family of Telesforo Deudor who laid claim in question on the strength of an
informacion posesoria, Cruz made permanent improvements on the said land having an area of more or less 20
quinones.
Civil Law Review 2 - Obligation 9

The improvements were valued at P30,400 and for which he incurred expenses amounting to P7,781.74

In 1952, Tuason & Co. availed of Cruz’ services as an intermediary with the Deudors, to work for the amicable
settlement in a civil case. The said case involved 50 quiones of land, of which the 20 quiones of land mentioned formed
part.

A compromise agreement between the Deudors and Tuason & Co. was entered into on 1963 which was approved by
court.

Cruz alleged that Tuason & Co. promised to convey him the 3,000 sq. meters of land occupied by him which was part of
the 20 quiones of land within 10 years from the date of signing of the compromise agreement between the Deudors
and the latter as consideration of his services. The said land was not conveyed to him by Tuason & Co.

Cruz further alleged that Tuason & Co. was unjustly enriched at his expense since they enjoyed the benefits of the
improvements he made on the land acquired by the latter.

The trial court dismissed the case on the ground that there was no cause of action. Hence, this appeal.

ISSUE: Whether or not a presumed quasi-contract be emerged as against one part when the subject matter thereof is
already covered by a contract with another party.

HELD: From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as
against one party when the subject mater thereof is already covered by an existing contract with another party.
Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of another, Article
2124 creates the legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the
parties concerned. Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract
with a third party, his cause of action should be against the latter, who in turn may, if there is any ground therefor,
seek relief against the party benefited. It is essential that the act by which the defendant is benefited must have been
voluntary and unilateral on the part of the plaintiff. As one distinguished civilian puts it, "The act is voluntary. because
the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it arises from the
sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The reason why the law
creates a juridical relations and imposes certain obligation is to prevent a situation where a person is able to benefit or
take advantage of such lawful, voluntary and unilateral acts at the expense of said actor." In the case at bar, since
appellant has a clearer and more direct recourse against the Deudors with whom he had entered into an agreement
regarding the improvements and expenditures made by him on the land of appellees. It Cannot be said, in the sense
contemplated in Article 2142, that appellees have been enriched at the expense of appellant.

GUTIERREZ HERMANOS vs ORENSE G.R. No. 9188 December 4, 1914

FACTS:

On and before Februaru 14, 1907, Engracio Orense had been the owner of a parcel of land in Guinobatan, Albay.

On February 14, 1907, Jose Duran, a nephew of Orense, sold the property for P1,500 to Gutierrez Hermanos, with
Orense’s knowledge and consent, executed before a notary a public instrument. The said public instrument contained
a provision giving Duran the right to repurchase it for the same price within a period of four years from the date of the
said instrument.

Orense continued occupying the land by virtue of a contract of lease.

After the lapse of four years, Gutierrez asked Orense to deliver the property to the company and to pay rentals for the
use of the property.
Civil Law Review 2 - Obligation 10

Orense refused to do so. He claimed that the sale was void because it was done without his authority and that he did
not authorize his nephew to enter into such contract.

During trial, Orense was presented as witness of the defense. He states that the sale was done with his knowledge and
consent. Because of such testimony, it was ascertained that he did give his nephew, Duran, authority to convey the
land. Duran was acquitted of criminal charges and the company demanded that Orense execute the proper deed of
conveyance of the property.

ISSUE: Whether or not Orense is bound by Duran’s act of selling the former’s property

HELD: Yes. It was proven during trial that he gave his consent to the sale. Such act of Orense impliedly conferred to
Duran the power of agency. The principal must therefore fulfill all the obligations contracted by the agent, who acted
within the scope of his jurisdiction.

Adille vs CA G.R. No. L-44546 January 29, 1988

FACTS:

The property in dispute was originally owned by Felisa Alzul who got married twice. Her child in the first marriage
was petitioner Rustico Adile and her children in the second marriage were respondents Emetria Asejo et al.

During her lifetime, Felisa Alzul sodl the property in pacto de retro with a three-year repurchase period.

Felisa died before she could repurchase the property.

During the redemption period, Rustico Adille repurchased the property by himself alone at his own expense, and after
that, he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother
Felisa. Consequently, he was able to secure title in his name alone.

His half-siblings, herein respondents, filed a case for partition and accounting claiming that Rustico was only a trustee
on an implied trust when he redeemed the property, and thus, he cannot claim exclusive ownership of the entire
property.

ISSUE:
Whether or not a co-owner may acquire exclusive ownership over the property held in common.
Whether or nor Rustico had constituted himself a negotiorum gestor

HELD: No. The right to repurchase may be exercised by a co-owner with respect to his share alone. Although Rustico
Adille redeemed the property in its entirety, shouldering the expenses did not make him the owner of all of it.

Yes. The petitioner, in taking over the property, did so on behalf of his co-heirs, in which event, he had constituted
himself a negotiorum gestor under Art 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of
fraud, and must act as trustee, the respondents being the beneficiaries, pursuant to Art 1456.

ANDRES VS MANTRUST G.R. NO. 82670 SEPTEMBER 15, 1989

FACTS:
Andres, using the business name “Irene’s Wearing Apparel” was engaged in the manufacture of ladies garments,
children’s wear, men’s apparel and linens for local and foreign buyers. Among its foreign buyers was Facts of the
United States.
Civil Law Review 2 - Obligation 11

Sometime in August 1980, Facts instructed the First National State Bank (FNSB) of New Jersey to transfer $10,000 to
Irene’s Wearing Apparel via Philippine National Bank (PNB) Sta. Cruz, Manila branch. FNSB instructed Manufacturers
Hanover and Trust Corporation (Mantrust) to effect the transfer by charging the amount to the account of FNSB with
private respondent.

After Mantrust effected the transfer, the payment was not effected immediately because the payee designated in the
telex was only “Wearing Apparel.” Private respondent sent PNB another telex stating that the payment was to be made
to “Irene’s Wearing Apparel.”

On August 28, 1980, petitioner received the remittance of $10,000.

After learning about the delay, Facets informed FNSB about the situation. Facts, unaware that petitioner had already
received the remittance, informed private respondent and amended its instruction y asking it to effect the payment to
Philippine Commercial and Industrial Bank (PCIB) instead of PNB.

Private respondent, also unaware that petitioner had already received the remittance, instructed PCIB to pay $10,000
to petitioner. Hence, petitioner received another $10,000 which was charged again to the account of Facets with FNSB.

FNSB discovered that private respondent had made a duplication of remittance. Private respondent asked petitioner
to return the second remittance of $10,000 but the latter refused to do so contending that the doctrine of solution
indebiti does not apply because there was negligence on the part of the respondents and that they were not unjustly
enriched since Facets still has a balance of $49,324.

ISSUE: Whether or not the private respondent has the right to recover the second $10,000 remittance it had delivered
to petitioner

HELD: Yes. Art 2154 of the New Civil Code is applicable. For this article to apply, the following requisites must concur:
1) that he who paid was not under obligation to do so; and 2) that payment was made by reason of an essential
mistake of fact.

There was a mistake, not negligence, in the second remittance. It was evident by the fact that both remittances have
the same reference invoice number.

PUYAT & SONS INC vs CITY OF MANILA G.R. No. L-17447 April 30, 1963

FACTS:

Plaintiff Gonzalo Puyat & Sons Inc is engaged in the business of manufacturing and selling all kinds of furniture.

Acting pursuant to an ordinance, the defendant City Treasurer of Manila assessed from plaintiff retail dealer’s tax the
sales of furniture manufactured and sold by it and its factory site.

All assessments were paid by plaintiff without protest in the erroneous belief that it was liable thereof not knowing
that pursuant to an ordinance, it is exempt from the payment of taxes being a manufacturer of various kinds of
furniture.

After learning about the ordinance, plaintiff filed with defendant City Treasurer of Manila a formal request for refund
of the retail dealer’s taxes unduly paid.

The City Treasurer, however, denied the said request for refund.

ISSUE: Whether or not the defendant is obliged to refund the amount which the plaintiff paid
Civil Law Review 2 - Obligation 12

HELD: Yes. The plaintiff was actually exempted from paying the tax assessed, hence, it was clearly an error or mistake
which makes it fall under Art 2154 of solution indebiti. Art 2154 provides that if something is received when there is
no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

Alongside with this, Art 2156 is also applicable which states that if the payer was in doubt whether the debt was due,
he may recover if he proves that it was not due. Plaintiff had duly proved that taxes were not lawfully due. Therefore,
there is no doubt that the provisions of solution indebiti apply in this case.

CANGCO VS MANILA RAILROAD COMPANY G.R. L-12191 OCTOBER 14, 1918

FACTS:

On January 20, 1915, Jose Cangco was riding the train of Manila Railroad Company where he was an employee. As the
train drew near to his destination, he arose from his seat. When he was about to alight from the train, Cangco
accidentally stepped on a sack of watermelons which he failed to notice because it was already 7:00pm and it was dim
when it happened. As a result, he slipped and fell violently on the platform. His right arm was badly crushed and
lacerated which was eventually amputated.

Cangco sued Manila Railroad Company on the ground of negligence of its employees placing the sacks of melons upon
the platform and in leaving them so placed as to be a menace to the security of passenger alighting from the company’s
trains.

The company’s defense was that granting that its employees were negligent in placing an obstruction upon the
platform, the direct and proximate cause of the injury suffered by plaintiff was his own contributing negligence.

ISSUE: Whether or not there was a contributing negligence on the part of the plaintiff.

HELD: In determining the question of contributory negligence in performing such act – that is to say, whether the
passenger acted prudently or recklessly – the age, sex, and physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should be considered.

The place was perfectly familiar to the plaintiff as it was his daily custom to get on and off the train at the station.
There could, therefore, be no uncertainty in his mind with regard either to the length of the step which he was
required to take or the character of the platform where he was alighting. The Supreme Court’s conclusion was that the
conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by
imprudence and that therefore he was not guilty of contributory negligence.

GUTIERREZ VS GUTIERREZ G.R. NO. 34840 SEPTEMBER 23, 1931

FACTS:

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass
each other on a bridge. The truck was driven by the chauffeur Abelardo Velasco, and was owned by saturnine Cortez.
The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio’s father
and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the mother,
together with several other members of the Gutierrez family were accommodated therein.

The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured right leg which
required medical attendance for a considerable period of time.

ISSUE: Whether or not both the driver of the truck and automobile are liable for damages and indemnification due to
their negligence. What are the legal obligations of the defendants?
Civil Law Review 2 - Obligation 13

HELD: Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand, Saturnino Cortez’s and his
chauffeur Abelardo Velasco’s obligation rise from culpa contractual.

The youth Bonifacio was na incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on
approaching the bridge and the truck, he lost his head and so contributed by his negligence to the accident. The
guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father
responsible for the acts of his son. Based on these facts, pursuant to the provisions of Art. 1903 of the Civil Code, the
father alone and not the minor or the mother would be liable for the damages caused by the minor.

The liability of Saturnino Cortez, the owner of the truck, and his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract.
Civil Law Review 2 - Obligation 14

Recitation:

1. A filed an action against B for a recovery of sum of money. May there be an issue in that case whether the
obligation is joint or solidary? Yes.
a. Who would claim that the obligation is solidary? A.
2. 2001 Bar, No. 7: Four foreign medical students rented the apartment of Thelma for a period of 1 year. After one
semester, 3 of them returned to their home country and the 4th transferred to a boarding house. Thelma
discovered that they left unpaid telephone bills in the amount of P80,000.00. The lease contract provided that
the lessees shall pay for the telephone services in the leased premises. Thelma demanded that the 4 th student
pay the entire amount of the unpaid telephone bills, but the latter is willing to pay only ¼ of it. Who is correct?
Why? (Note: If you use the disputable presumption that the obligation is joint, you should point out that
the facts were not able to counter such presumption.)
3. Give an example of an obligation which by its nature is solidary?
4. Give an example of an obligation which by law is solidary?
5. Give an example of an obligation which by its terms is solidary?
6. Ronquillo v. CA?
7. Malayan Insurance v. CA?
a. Who were held liable?
b. San Leon was held under what principle?
c. As far as Sio Choy was held liable under what principle?
i. Is Art. 2184 really applicable? No. 1st, he was not in the vehicle. 2nd, 2180 will still not be liable
since Sio Choy is not the employer of the driver.
8. PNB v. Independent Planters Association, Inc?
a. Did the SC hold that the subject Rule is contrary to law?
9. A and B creditors while X, Y and Z are debtors. 360K. A filed an action as against X. The action was dismissed
on the ground of prescription. After the decision attained finality, B filed a case against X. Will the case
prosper?
a. Assuming the obligation is joint and the debtors are subjected to the same terms and conditions, will
the suit of B suffer the same fate?
b. Assuming the obligation is joint, A demanded the whole P360,000.00 from X which the latter paid, can
B compel X to pay? No.
i. Is there an exception? To the extent that B benefited from the payment.
c. In a solidary obligation, X paid A the entire P360,000 last year. Today, X claimed reimbursement from
Y? P120,000.
i. Can Y be liable for interest? Depends upon whether the debt was before or after maturity.
d. Solidary obligation, A demanded payment from X. Then B demanded from X. X paid B. May A still hold X
liable?
10. 1984 Bar, No. 11: A, B and C solidarily promised to pay D the amount of P3,000.00. Unfortunately, C became
insolvent.
a. What recourse does D have against A and B? He can demand fulfillment from one or both of them.
b. What are the rights of A and B as against each other? To contribute
11. 1998 Bar, No. 15: Joey, Jovy and Jojo are solidary debtors under a loan obligation of P300,000.00 which has
fallen due. The creditor has, however condoned Jojo’s entire share in the debt. Since Jovy has become
insolvent, the creditor makes a demand on Joey to pay the debt.
a. How much, if any, may Joey be compelled to pay? P50,000.00.
b. To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment?
12. A and B creditors while X, Y and Z are debtors in the amount of P360,000.00:
a. What if the action of A against X was dismissed. A then filed an action against Y, would the action
prosper? The answer would depend on why the action against X was dismissed.
13. 2003 Bar, No. 14: A, B, C, D and E made themselves solidarily indebted to X for the amount of P50,000.00.
When X demanded payment from A, the latter refused to pay on the following grounds:
a. B is only 16 years old.
b. C has already been condoned by X.
c. D is insolvent.
Civil Law Review 2 - Obligation 15

d. E was given by X an extension of 6 months without the consent of the other four co-debtors. (Tricky-
dicky)
State the effect of each of the above defenses put up by A on his obligation to pay X, if such defenses are found
to be true.
14. Is minority a total or partial defense? It depends on who the minor is. Also consider whether the obligation is
solidary or joint.
15. X promised to pay P100,000.00 to A OR B. A demanded payment from X. Latter on B demanded payment from
X. X paid B. Can A still validly demand payment from X? It would depend on the intention of the parties as to
whether who has the right to choose upon whom payment should be made. However, the view of Tolentino on
this question is not in accordance with law. It would be a better position to apply the rules on alternative
obligations.
16. An obligation to deliver 1000 sacks of rice, is it divisible or indivisible? It depends on whether the parties
agreed on the partial fulfillment of the prestation.
17. Are there obligations which are divisible by their nature as the law would actually recognize even without
stipulation.

Cases:

Ronquillo vs CA
Posted on January 30, 2009
G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner, 
vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.
This is a case of solidary liability. Ronquillo was one of four debtors for the sum of P117, 498.98 from Antonio So. The
amount represents the checks signed by the debtors in exchange for foodstuffs delivered by So.
When they failed to pay, So filed a civil case for collection before the Court of First Instance of Rizal. Ronquillo and his
co-debtors negotiated with So, who agreed to reduce the debt to P110,000, with the payment to be done in two
installments of P55,000 each. The compromise agreement stated that the debtors agreed to pay “individually and
jointly” before June 1980 and that in case of failure to comply with the terms of the agreement, the innocent party will
be entitled to an execution of the decision based on this compromise agreement and the defaulting party agrees and
hold themselves to reimburse the innocent party for attorney’s fees, execution fees and other fees related with the
execution.
So filed a motion for execution when the debtors failed to pay the first tranche in December 1979, but Ronquillo said
they could not find So on the December 24, the last date for payment. Ronquillo and his co-debtor, Pilar Tan, later
deposited half of the P55,000 with the clerk of court because So at first wanted the full amount paid, but So later
withdrew the deposited amount.
The lower court however issued a motion for execution against the two other co-debtors, for the remaining half of the
initial payment. So moved for the execution of the order “against all defendants, jointly and severally.” Ronquillo
opposed this, saying that the lower court’s order did not declare the defendants’ liability to be solidary.
The court however noted that only one-fourth of the debt had been paid, and ordered a writ of execution for the
remaining P82,500. The sheriff issued a notice of sale for certain appliances and furnitures in Ronquillo’s residence to
satisfy the debt.
Ronquillo filed an appeal with the Court of Appeals, which was then denied. The issue was elevated to the Supreme
Court, which noted that Ronquillo and his co-debtors individually and jointly agreed to pay the debt.
“Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants
obligated themselves to pay their obligation “individually and jointly”.
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, 14 and a “several obligation is one
by which one individual binds himself to perform the whole obligation.”
“The obligation in the case at bar being described as “individually and jointly”, the same is therefore enforceable
against one of the numerous obligors.”

12/02/09
Civil Law Review 2 - Obligation 16

Remedies

The first thing that should be in your mind as to whether or not an action will prosper is whether the plaintiff is the
aggrieved party. Remedies are only granted to the aggrieved party.

You can classify remedies into:


1. extra-judicial; and
2. Judicial.

Extra-judicial remedies.

Among those expressly recognized by law are the remedies of the unpaid seller:
1. the right to retain;
2. stoppage in transitu; and
3. resale, among others.

The favorite remedy is rescission.

There is this misconception that recession is a judicial remedy. This is both judicial and extra-judicial under 1191.
1191 is in relation to reciprocal obligations.

As a principal remedy as distinguished from a subsidiary remedy.

Rescission under 1191 is just a result of an erroneous translation. It should have been called resolution. Under 1191,
this power to rescind is given because there is a substantial breech. If there is only a slight breach only an action for
damages. 1381 is based on economic prejudice that is why the right to rescind is given. So in a decision of Natura, an
action for rescission was filed after 4 years from contract. It will depend on which it depends. If (1191), 4 years. But in
that case the action was based on breach of obligation so 10 years.

Rescission under 1191 is a principal remedy. It may be invoked even if other remedies are present. 1381 is only a
subsidiary remedy. It can only be invoked when there is no other legal remedies.

URC v. CA – The main issue in the case is whether the action for rescission is proper? Basically 3 defenses of UFC:
1. Magdalo Francisco has not performed his obligation. – If the plaintiff himself has not complied with his
obligation, he has no cause of action. He must be an aggrieved party. However, according to SC, he had no
obligation. Sir may not agree. Read two paragraphs, all the rights would be transferred, including ownership. Also
there is a condition of reverting back. But at any rate it is just a matter of fact. But on law he agrees.
2. Is there substantial breach? – Yes. Magdalo Francisco was to be appointed chief chemist of the company. He
was terminated from that position.
3. Rescission will not prosper because Magdalo has not exhausted his available remedies. – Read opinion of JBL
Reyes. 1191 is a primary remedy. Magdalo filed under 1191. In 1381, there need not be breach, only an
economic damage is necessary.

UP v. de los Angeles – The question is if rescission may be invoked extra-judicially, why the need to file an
action?
There would be a need to file an action if the aggrieved party is praying for the return of what was delivered. If that is
the case you cannot do extra-judicial rescission. But the extra-judicial rescission is subject to the question of the other
party of the act.

When does extra-judicial rescission take effect? From the time notice is given to the other party. Even if it is
questioned but it is upheld, it is dated to notice.

If fulfillment is resorted to as a remedy, may the aggrieved party still rescind? If fulfillment should become
impossible due to the fault of the offending party, rescission is still a remedy.
Civil Law Review 2 - Obligation 17

If a party asks for rescission, can he later on ask for fulfillment? Read Magdalena case. Rescission extinguishes the
obligation. There is nothing more to be fulfilled. But look at 1181, although rescission is a remedy, the court may not
grant it and fixes a judicial period.

As far as judicial remedies are concerned, Bar Exam Question, possible judicial remedies are (1) specific performance
or (1) for the aggrieved party to ask another person to perform the obligation or (3) damages. But the first two may be
with damages.

A obliged himself to deliver a 2009 29 inch Sony Bravia and a 9 cubic feet refrigerator with motor number ABC123
and to repair the piano of A. None of these were complied with. Can A be compelled to perform them? What are the
remedies?

Classify the obligations first as to give to do or not to do.

Obligation to repair the piano – (answer questions in seriatim, huwag labo labo, in order dapat, this is only for
conveniece) – this an obligation to do. It may not be compelled otherwise it is involuntary servitude.

Deliver Sony TV and refrigerator – determine whether the thing is generic or determite. The TV is generic. The
remedy therefore is to ask somebody to deliver such. Specific performance is not a remedy because it may be
performed by anybody. Plus damages.

With regard to the refrigerator – it is a determinate thing, the remedy is to demand fulfillment or specific
performance with damages. It may only be performed by the debtor. It will be proper for so long as it is possible for
him to perform.

With obligations to do – what is the remedy? As to the repair of the piano, the personal qualifications of the
debtor may not have been considered. Others are available, so the remedy is to have it repaired at the expense
of the debtor.

But if the personal qualifications have been taken into consideration, e.g. singing of Regine, substitute performance
cannot be made. So determine if personal qualifications have been taken into consideration.

Subsidiary Remedies.

1177, the law itself recognizes two subsidiary remedies:


1. Bring all the rights of the debtors against 3rd persons – accion subrogatoria
 There are 3 persons involved, the creditor, the debtor and the debtor of the debtor. Take note that the court
clearly provides that rights which are inherent in his person cannot be exercised.
 If the debtor is an agent of a 3rd person, can the creditor exercise the rights of the debtor? It depends. If in
agency, the right of the agent is just to be compensated, it can be exercised by the creditor.
 Legal support cannot be the subject of a subrogatory action. Otherwise Ok lang.
 Syet, di ko nakuha.
2. Accion pauliana (also recognized in rescissible contracts)

To what extent may a debtor be held liable?

Present and future?

Present property. The law is clear, it is only subject to exemptions provided by law.

The most common is the family home. Take note in FC, a family home is not exempt in certain situations. Taxes on the
property, debts prior to institution, etc. Also when the family home is in excess of a certain amount.

Rules of court – madami dito. Example 2 carrbaos. It depends. Is he a farmer.


Civil Law Review 2 - Obligation 18

Future property. As a rule they are, subject to exemptions. If there was a judicial declaration of insolvency, and the
obligation is discharged by the courts, there can be no liability.

Modes of extinguishment.

Are the modes of extinguishment exclusive? No. Note that insolvency in itself does not extinguish.

1231 mentions 10.

Annulment, rescission, fulfillment of a resolutory condition, and prescription.

Bear that in mind when we discuss loss of the thing and prescription.

There are many other modes. Fulfillment of a resolutory period.

Is death a mode of extinguishing obligation? Tolentino says yes. Sir agrees only in so far as contracts are concerned.
For example, if it arises from law it depends upon the law. Exception is the obligation is purely personal in character.

The unilateral act of one of the parties? In contracts no. It would violate the mutuality of contracts. As a rule
contracts bind the parties subject to exceptions. But the law may grant the right to revoke. Ex. agency. Any of them
may terminate the agency. Partnership also is subject to unilateral act.

Compromise? Is this mode of extinguishment other than those enumerated? No. It would fall under condonation up
to a certain extent. (Ronquillo v. CA) However, there are those which cannot be classified as condonation because it is
different. Example, delivery of a specific horse. Then it was changed into a car. The obligation is extinguished but it
falls under novation.

Renunciation by the creditor? This is not independent. The civil code recognizes gratuitous and onerous
renunciation. Condonation and novation. Divah? Chos!

Happening of an unforeseen event? SC, it is not a mode of extinguishment. Under the law, the mode of
extinguishment is the effect of the unforeseen event. Example loss. Note that if the obligation is to deliver an
indeterminate thing, a fortuitous event shall not extinguish the obligation. Also, in delivering a determinate car, it
might not have been affected by the fortuitous event.

Nullity of contracts? If the contract is null and void, no obligation will arise. Therefore there is nothing to extinguish.

Change in civil status? Yes. Obligation to support may be terminated by nullity of marriage.

Sara v. DBP – pertains to a mode of extinguishment which is the mutual desistance of the parties. The rationale is if a
contract may be created by the agreement of the parties it may be terminated by the disagreement of the parties.

Payment.

May this mode of extinguishment be invoked in all kinds of obligations? Yes. Payment is considered synonymous
to performance or fulfillment of the obligation.

Is this a good coverage to include all other kinds of obligations? Yes. It has basis in our culture. It is translated to
“Bayad na ko sa iyo.” It is not limited to monetary obligations.

Classify the rules into four.


1. To the person who pays.
2. In relation to the person to whom payment is made.
3. The prestation to be performed or thing to be delivered.
Civil Law Review 2 - Obligation 19

4. Date, time, place and manner of payment.

All of these rules must be considered in order to determine whether the payment is valid.

1. To the person who pays (not necessarily the debtor).


a. Free disposal - If the person who paid is suffering civil interdiction, there is a right to recover, payment
is not valid.
b. Capacity to alienate - Payment by a 12 year old kid (only a voidable contract, may also arise from quasi-
delicts) is not valid.

If A is indebted to B secured by a mortgage executed by X, X offered to pay, would the obligation be


extinguished? It depends on whether B accepted the offer. Tender is not a mode, it is only preliminary to
payment. Note that as a rule a creditor cannot be compelled to accept performance from a 3rd person. Of
course there are exceptions. (1) stipulation of the parties; (2) the 3rd person has an interest in the
performance of the obligation (ex. guarantor).

What if A and X are joint creditors? Does a co-debtor have an interest in the fulfillment of the entire
obligation. SC, yes. X may not be compelled to perform the entire obligation but his reputation is at stake.

What ifX paid B and B accepted payment? The payment extinguishes the obligation. Consent and interest in
the performance would only be important only between the 3rd person and the debtor. If there is interest,
subrogation. If no interest, depends.

If without knowledge or against the will (no consent), X can only demand reimbursement to the extent that
the original debtor was benefited (A might have already made partial payments). What is upon demand of
A cannot give anything, can X foreclose? No, no subrogation.

If X paid with the consent of A, X can recover the entire amount paid. He consented. He can also foreclose
the mortgage. It is a misconception to consider that the mortgage was constituted in favor of B or that the
obligation was extingiusihed. You must consider the effects of subrogation. X will be able to exercise all the
rights that B would have been able to exercise.

The other rules here are not that important.

Example, donation. By express provision of the law, even if the donation was without consent, B can still
retain. What is the effect of the void donation? It will depend upon the rules of succession. If inofficious, it
can be recovered from A.

2. In relation to the person to whom payment is made (not necessarily the creditor).

Example, A is indebted to B. Payment was made to a 3rd person.

1240 enumerates that for payment to be valid it should be made: to a person in whose favor the obligation was
constituted (not necessarily a party to the contract). If not to this person, to the successors in interest of that
person (these may be the heirs or assignees). Finally, payment was made to a person authorized to receive
payment (the authority need not come from the creditor; the law may grant the authority; e.g. sheriff, agents,
executors, administrators).

If payment is given to person not in 1240, it is an invalid payment. As a rule it does not extinguish the
obligation. But there are exceptions to that rule. Under the law you can classify it into 3:

a. The payment redounded to the benefit of the creditor (burden of the payor or creditor to prove
benefit) But there are instances when benefit need not be proven, it is conclusive:

i. Ratification
Civil Law Review 2 - Obligation 20

ii. By the conduct of the creditor he led the debtor to believe that a 3rd person has authority to
receive (estoppel)
iii. The 3rd person acquired the rights of the creditor after the payment. (Even the rights were
acquired before payment, it is not payment under this rule but payment to a successor in
interest)

b. The payment was made in good faith to a person in possession of the credit.

Ex. A indebted to B. A executed and delivered a promissory note to B. The note was negotiated to X. On
due date, X was paid. The premise is that X is wrong party. Possession of credits is different from
possession of the evidence of credit. For example, possession of a bearer instrument is title. But
possession of an order instrument without indorsement is not title.

c. Assignment of credit. Payment was made to the assignor. If there was no knowledge of the assignment,
the payment is valid. Otherwise it is payment to a 3rd person.

3. The prestation to be performed or thing to be delivered.

A very important rule in payment is that partial payment is non-payment. As a rule the creditor cannot be
compelled subject to exceptions. Ex. Stipulation; the debt is partly liquidated;

1234 and 1235


1234 – substantial performance in good faith.

A obligated himself to deliver 100 sacks of rice to B for P1000 per sack. A delivered 65 sacks of rice. B may or
may not accept. He accepted. But the remaining sacks could not be delivered. Could B have the right to rescind?
Yes. The right to rescind can only be withheld when there has been substantial performance.

Read the cases.

75% is substantial performance.

What is the effect if the performance was substantial?

The aggrieved party has no right to rescind. But he is entitled to damages. So pano na? Deduct the amount of
damages from what would have been paid.

Take note of failure to object to partial payment. The right to question it might be waived.

Payment of debts in money; monetary obligations.

May there be a valid obligation where the currency agreed upon is not Ph currency? Yes. A good example
is in the law on sales. Note, Ponce was decided prior to allowing the payment of obligations in foreign
currency. RA 8183.

Can a creditor be compelled in checks?

New Pacific Timber case – SC, if it is a certified, manager’s check it is deemed as cash. But in latter cases, SC
said that checks have no legal tender power. Sir thinks that this is a good development. Payment through check
cannot be compelled but it can be accepted.

But may a check produce an effect of payment? Yes, when it is encashed.


What if the check becomes stale? Can the creditor ask for another check. No, unless it became stale due to
debtor. The check can be used as an evidence of the indebtedness. But it is only a rebuttable presumption.
Civil Law Review 2 - Obligation 21

1250 – the scenario is the debt may have been due already as early as 1968. (Commissioner v. Burgos) In
1998 the Court decided in favor of the plaintiff. But a prayer was made to reflect the amount of the debt from
the time it was due. Should the motion be granted? (Phil Foundry). 1250 cannot be invoked for the
adjustment because there was no extra-ordinary inflation or deflation.

1250 was included to address scenarios similar to WWII. But even assuming that there is such a scenario,
should the motion be granted? Not necessarily. Only applied to obligations arising from contract. 1250 says
currency is STIPULATED. In Burgos, the obligation arose from law, not contract.

Read del Rosario v. Shell.

4. Date, time, place and manner of payment.

It is subject to stipulation.

For delivery of thing:


If determinate – where it was located at the constitution of the obligation.
If indeterminate – domicile of the debtor.

Special forms of payment.

Madalas objective ang questions.

Is consent of the parities required for an obligation to be extinguished by the special forms of payment? The problem
pertains to the consent of the creditors.

In dation in payment, yes.


In consignation, consent is not necessary.
Application of payments? Consent is not required as a rule. The debtor is given the right to apply.
Payment by cession? Consent of the creditors is necessary. The creditors will only be constituted as agents to sell the
properties and apply the proceeds to the debts.

Whether or not there will be transfer of ownership?


Dation – yes.
Application – yes.
Cession – no.
Consignation – not necessarily, the consignation may be void. But if the consignation is valid because it was upheld by
the court or accepted by the creditor, it retroacts to the date of consignation.

Extent of extinguishment.
Application of payments. It is always partial payments.
In cession – the rule is clear, it extinguishes to the extent of the proceeds except when it is agreed upon that there is to
total extinguishment.
Consignation – rules are applicable. Ex, if what is consigned is not full payment, there is no payment. But if
consignation is held valid it extinguishes the debt.
Dation – for Sir. payment only up to the extent of the value of the property unless there is an agreement that the
obligation is totally extinguished.

Individual rules.

Dation

Shall it be governed by the law on sales? 1245, only if the debt is in money. Otherwise it will not be governed by the
law on sales.
Civil Law Review 2 - Obligation 22

Citizen’s surety case.


Dation requires a pre-existing debt.

Application of payments:
There is practically only one question – to what debt should payment be applied? The premise is that debtor has two
or more debts of the same kind. The creditor may be 1 or more. The important thing to note is the multiplicity of debts.

1. As a rule the debtor has the right of application. But there are limitations: (Ex. 100, 50, 30 debt; payment of 30)
a. Rules on partial payment are applicable.
b. Rules on debts not yet due where the period is for the benefit of the creditor.
c. Cannot be applied to the principal prior to interest.
d. Cannot vary agreements as to where to apply first.
2. Creditor may designate. But is consent of debtor needed? Yes. The creditor will issue a receipt and only when
such receipt is accepted that there is a valid application.
3. What if there was no designation by the parties? Apply to onerous? Wrong! First look at whether all the debts
are of the same nature or burden, if so, pro rata. If not of the same nature, apply to most onerous. (There is no
hard and fast rule to determine which is more onerous.)

Ex.

Debt 1: Sole debtor (more onerous)


Debt 2: Solidary

Debt 1: interest bearing (more onerous)


Debt 2: no interest

Debt 1: secured (more onerous)


Debt 2: unsecured

Debt 1: Principally bound (more onerous) (but note, the premise the guarantor is already liable. Not that he is
secondarily liable. It becomes more onerous because the person subsidiarily bound has a recourse against the person
primarily liable)
Debt 2: Subsidiarily bound

With regard to older or newer debts, there can be no basis to say which one is more onerous.

Payment by Cession

A property which is exempt may be ceded but in case of a family home, the consent of all beneficiaries are needed.

Is insolvency needed? No. This is an agreement of the parties. Insolvency is not important.

Financial difficulty is the normal scenario but it is not required.

What if the debtor is willing to abandon his property to his creditors but the creditors refuse? What is the next
best remedy? File a petition for declaration of insolvency.

Note that cession does not extinguish the entire obligations but in judicial declaration, obligations may be
extinguished.

Tender of payment and consignation

Tender of payment is not a mode of extinguishing obligations. It is a mere offer to pay.


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Is tender of payment required as a rule prior to consignation? Look at 1256. There are 6 grounds. But in 5 of them,
tender is not required. Tender of payment is required only when the creditor refuses to accept without just cause.

Soto case – SC, tender of payment maybe extra-judicial. So it may be judicial. But this is wrong. By its very nature
tender of payment is extra-judicial. It is made prior to the case for consignation.

If the debtor wrote 3 letters to the debtor that he is willing to pay, is it a valid tender? No. There must be an actual
offering of payment.

Dimculata v. Navarro. Note that consignation requires the existence of an obligation to be extinguished. Otherwise,
there is no need for consignation.

Grounds:
1. When the creditor is unknown – note that there may be an agent.
2. Without just cause refuses to issue a receipt – receipt does not extinguish, but a receipt is a proof of payment,
so to protect the debtor, consignation is granted.
3. 2 or more persons claim the same right – Note that the debtor should first determine who has the right. The
mere claim of multiple parties is not sufficient.

Another issue is notice, notice before and after is needed. Is it required that the debtor himself sends them? Only the
first notice should be given by the debtor. The second notice may be in the form of a summons.

What if there are multiple debts like lease? SC – still give the notices to the creditor for every obligation or
installment.
Sir agrees with Tolentino that lack of notice gives rise to damages, but still take note of the case.

Effect of withdrawal – can the debtor withdraw as a matter of right? Yes, if the creditor has not yet accepted AND the
court has not yet declared the consignation is valid. Afterwards, withdrawal can be made, but not as a matter of right.
It must be done with consent.

Ex. debt secured by mortgage.


If withdrawn as a matter of right – the obligation exists, mortgage subsists.
If withdrawn not as a matter of right – the obligation is revived, but not the mortgage.

The obligation to pay interest:

A is indebted to B.
Due on 1/1/01.
Tender of payment of 1/2/01.
Consignation on 1/1/04.
Court rendered a decision on 1/1/09.

If the court declared the consignation to be void, the obligation has interest IF the debtor is in delay.
If the court declared the consignation to be valid:
the intervening period from consignation up to judgment, no interest.
The intervening period from due date to tender – yes if there is delay.
During tender to consignation – SC, justice and equity, no interest; View of Sir, Compensatio morae. Both
parties are in delay from the time of tender. If both are in delay, there is no delay.
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Civ 2: 1/05/10

Loss

Q: May Loss be invoked in relation to extinguishment of obligations to do?

A: Yes. Even if the law says “loss of the thing due.” A better name for this mode is impossibility of performance.

Q: May an obligation to give a generic thing be extinguished by loss?

A: Yes.

Q: How? When?

A: The law may render the performance illegal. Ex, obligation to deliver carabaos was prohibited by a law which
prohibited the transfer of carrabaos.

Q: How else (other than law)?

A: As when the thing went out of commerce.

Q: In relation to obligations to deliver determinate things, will the loss of the thing extinguish the obligation?

A: 1262.

Q: If the thing is lost due to the fault of the debtor, is the obligation extinguished?

A: Yes. The obligation to give is converted to a monetary obligation.

Q: Is prescription a mode of extinguishment?

A: Yes.

Q: What is the effect in relation to performance of obligations?

A: Converts a civil obligation to a natural obligation. When there is a conversion, there is an extinguishment. The same
should be the effect of the conversion of an obligation due to the loss of the thing due to the fault of the debtor.

Q: In a case filed by A against B for damages, based on the loss of the determinate thing to be delivered, what is
the better question (other than whether the

A: Whether he can be held liable for the loss.

Q: Who has the burden of proof?

A: The burden is on the creditor. However, when the thing is in possession of the debtor at the time of the loss, the
burden shifts to the debtor. However, when loss occurs ON THE OCCASION of a calamity, the presumption does not
apply. Art. 1265.

Q: Even if the loss is due to a fortuitous event, the debtor may still be liable. Give an example.

A: 1165.

Q: What is this concept?


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A: Delay.

Q: Any other case?

A: Promise of the thing to 2 or more persons with different interests.

Q: If the performance of the obligation becomes so difficult, is the obligation extinguished?

A: Note that difficulty is not the same as impossibility.

Q: Occena vs. Jabson.

A:

Q: If the prayer in the case was for release, would it prosper?

A: No. Just like in Laguna case.

Q: A obliged himself to deliver a house and lot to B. What contract could have been entered into?

A: Sale.

Q: Before the delivery, the house was burned. Can B still compel A to deliver the land.

A: It depends on the intention of the parties.

Q: Condonation is also known as?

A: Remission or donation of credit.

Q: A was the son of B. A was indebted to his father in the amount of 500k. He paid a check in 300k. The
executor demanded the payment of 200k. The son claimed that the 200k obligation was extinguished as seen
on the annotation on the back of the check that it is in full payment of the debt?

A: Note that there is no condonation. If it is implied, no form is required. If it is express, there must be a form. Sir
believes that this is not an implied condonation. It is express.

There is one basic factual circumstance needed to answer the question. Who wrote the annotation on the check. No
showing of acceptance on the check. The condonation is thus not valid.

Q: A borrowed money from B. A issued a PN in favor of B. However, 5 days after the delivery of the PN, it was
found in possession of A.

A: Determine first whether or not the PN is public instrument or not. If it is private, there is a presumption of a
voluntary delivery of the creditor.

Q: Since there is a presumption, is it right to say that the obligation is condoned?

A: No. It might have been extinguished by payment or condonation.

Q: A borrowed from B. A watch was delivered as a security. Thereafter, the watch was found in possession of X.
Was the obligation extinguished?

A: If X is the owner of the watch, the accessory obligation will be presumed extinguished. Only then.
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Merger

Q: Can merger happen by contract?

A: Yes.

Q: What is this contract?

A: Merger agreement.

Q: Can this happen by operation of law?

A:

Q: Confusion results in the total extinguishment of the obligation. True or false?

A: Not always. In a joint obligation, there is no total extinguishment.

Q: A is indebted to B. X executed a mortgage to secure fulfillment. X and B merged. Was any obligation
extinguished?

A: The accessory contract.

Q: A indebted to B in the amount of PB in 1992. In 1999, there was a merger. In 2008 there was a rescission of
the merger. In 2010, B sued for the amount. Will the action prosper?

A: Yes. The action has not yet prescribed.

Compensation

Q: A deposited P1M with B in a savings account. Thereafter, A obtained a loan of P800k from B. Thereafter, A
wanted to withdraw the P1M. B claimed that he cannot because of compensation. A claimed it was a contract
of deposit. Was he correct?

A: No. The contract was a simple loan.

Q: A delivered to B P1M to be placed in a safety deposit box. Same facts. A wanted to get the P1M. B refused to
give the entire amount because of compensation.

A: A is correct. There can be no compensation.

Q: B wanted to get the P800k. A claimed compensation.

A: A is correct, facultative compensation.

Q: Support, another facultative compensation scenario. Can there never be compensation?

A: Only support in arrears and contractual support may be compensated.

Q: Another scenario of facultative compensation?

A: Obligations arising from crimes.

Q: Who can invoke?


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A: The offended party.

Q: May there be legal compensation involving reciprocal obligations?

A: No. It is absurd.

Q: The law expressly recognizes two kinds of compensation as to extent.

A: Partial and total.

Q: In partial compensation, will there be at least one debt which will be totally extinguished.

A: Yes.

Q: Can there be 100 debts extinguished?

A: Yes. As many as needed.

Q: In legal compensation, what is the most important requirement?

A: Mutual debtors and creditors. (Don’t add “of each other.”) (Also, the parties are not “reciprocally” obliged.)

Q: Francia case.

A:

Q: PNB case.

A:

Q: A is a debtor of B. G is a guarantor. B is indebted to G.

A: Is there compensation. No, unless and until G becomes the principal debtor of B.

Q: A told B to sell shares. B told C to sell. C sold them. B demanded payment. C invoked compensation because
of B’s indebtedness to C. Correct?

A: No. Sycip vs. CA.

Q: For legal compensation to take place, the debts must arise from contracts. True or false?

A: False. Cia Maritima. Attorney’s fees. Also Mindanao Portland case.

Q: Not all monetary obligations can be the subject of legal compensation. Which ones?

A: Taxes, customs duties, etc. Francia case.

Q: For legal compensation to take place, both debts must become due on the same time. True or false?

A: False. One of the debts can be due last year while the other debt only now.

Q: In that case, when will compensation take place?

A: Today.
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Q: Intenational Corporate Bank vs. IAC.

A:

Q: A was indebted to B. This became due on 1993. P100k. B was also indebted to A which became due on 2001.
P100k. Today, A filed an action against B. What possible defense could B invoke?

A: Compensation.

Q: What possible argument could A have against compensation?

A: Prescription.

Q: What if one of the debts is interest bearing. After compensation, would there still be an obligation to pay
interest.

A: It depends on whether there is total or partial compensation. In total compensation, there will be no obligation to
pay interest. If it were partial compensation, it depends on which debt is extinguished. If the bigger debt was the
interest bearing debt, there is still interest. Otherwise, there is no interest.

Q: A indebted to B P100k. B indebted to A P40k/30k/10k. B assigned his credit to X. How much can X demand?

A: It depends on whether at the time of assignment, compensation already took place. Assuming compensation already
took place, X can only demand P20k.

Q: Assuming the due date of P100k is June 30, 2009; P40k June 30, 2009; P30k is July 30, 2009; P10 is one Dec
30, 2009. Assigned on May 1, 2009 and immediately demanded payment. Can he demand?

A: No. No debt is due.

Q: May 1, 2009 the debt was assigned. Demand was made July 15, 2009. How much could be claimed?

A:

Q: When could P100k be claimed?

A: A had knowledge of the assignment, consented and did not reserve the right to compensate.

Q: What if A had knowledge and consented but reserved compensation, how much could X demand?

A: P60k.

Novation

Q: What is interesting about it?

A: It has a dual function of extinguishing an obligation and creating a new one.

Q: What are the kinds of novation as to the effect of novation according to one author?

A: Modificatory and extinctive.

Q: Is this correct?
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A: No. It is misleading. Modification does not always result in novation.

Q: What is the better classification?

A:

I. Subjective/personal.
a. Active.
b. Passive.
II. Objective/Real.
a. Change in the object of the obligation.
b. Change in the principal condition of the obligation.
III. Mixed.

Q: Is there another?

A: Express and implied.

Q: If A was indebted to B in 1995. B died in 2003. Today the heirs of B sued A, will the action prosper?

A: No. Prescription.

Q: Was there no novation from the change of the creditor?

A: No. A mere change will not result in novation. There must be subrogation. If there was an express agreement to
subrogation, there is an active subjective novation.

Q: If there was novation, would the action prosper?

A: Yes.

Q: In 1302, what are the instances of novation?

A:

Q: A was the owner of an apartment unit which he would lease to persons. He applied for a telephone line with
PLDT. But when A entered into a lease contract with B, it was stipulated that B would pay for the utilities.
Thereafter, B surreptitiously left the premises. There was a debt to PLDT in the amount of P20k. Can A be
compelled to pay?

A:

Q: X and B had an agreement that X will pay the debt of A to B. Was there a novation?

A: No. X was not a substitute to A. He only promised to pay. X only acted as a co-debtor.

Q: Assuming there is a substitution. X paid. Can X validly demand reimbursement from A? If the obligation is
secured, can X go after the security?

A: Determine whether or not expromission or delegacion.

Q: Assuming there was substitution and X did not pay. Can B still demand from A?

A:
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Q: Fua vs. Yap case.

A: