F.

REMEDIES FOR BREACH OF OBLIGATIONS

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 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. (1096)

Art. 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. (1097a)

Art. 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. (1098)

Art. 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. (1099a)

Art. 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. (1101)

Art. 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. (1111)

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to
the contrary. (1112)

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.
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. (1124)

*Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their
fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)

*Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages
suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)

Art. 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. (n)

Art. 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. (1911a)

Art. 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. (n)

Art. 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter,
clothing and medical attendance.

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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. (223a)

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
(4) For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished
material for the construction of the building. (243a)

RULES OF COURT, RULE 39

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

(a) The judgment obligor's family home as provided by law, or the homestead in which he resides, and land
necessarily used in connection therewith;
(b) Ordinary tools and implements personally used by him in hs trade, employment, or livelihood;
(c) 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;
(d) His necessary clothing and articles for ordinary personal use, excluding jewelry;
(e) 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;
(f) Provisions for individual or family use sufficient for four months;
(g) 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;
(h) 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;
(i) So much of the salaries, wages, or earnings of the judgment obligor of his personal services within the four
months preceding the levy as are necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities accruing or in any manner growing out of any life insurance;
(l) The right to receive legal support, or money or property obtained as such support, or any pension or gratuity from
the Government;
(m) Properties specially exempt by law.

But no article or species of property mentioned in his section shall be exempt from executio issued upon a judgment recovered
for its price or upon a judgment of foreclosure of a mortgage thereon.

F.1. EXTRAJUDICIAL REMEDIES

F.1.a. Expressly granted by law

Art. 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.
(1681a)

Art. 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.
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. (1682)
Art. 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;

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(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. (n)

F.1.b stipulated

F.2. JUDICIAL REMEDIES

F.2.a. principal remedies

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.
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. (1124)

Art. 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. (1101)

F.2.b. subsidiary remedies

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
Art. 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. (1111)

F.2.c. ancillary remedies Rules of Court

Unlad Resources Development vs. Dragon, GR No. 149338, July 28, 2008
Facts:

Issue:

Held:

Universal Food Corp. v. CA, 33 SCRA

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 agreement.
Article 1385 of the New Civil Code provides that rescission creates the obligation to return the things which were the object of
the contract. But as it may, it is logical inference from the appellate courts decision that what was meant to be returned to the
respondent patentee is not the formula itself, but only its use and the right to such use. Thus, the respondents in their complaint
and particularly pray, among others, that the petitioner corporation be adjudged as without any right to use said trademark and
formula.

Magdalena Estate v. Myrick, 71 Phil. 344

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 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.
Under Article 1104 of the Civil Code however, he may choose between demanding the fulfillment of the contract or its resolution.
These remedies are alternative and not commulative, and the petitioner in this case, having elected to cancel the contract
cannot avail himself of the other remedy of exacting performance.

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UP v. de los Angeles, 35 SCRA 102

The parties who deem 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 what will conclusively and
finally settle whether the action taken 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 others breach will have 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 it own damages.
The Supreme Court of Spain, in construing the effect of Article 1191 (Art. 1124 of the Spanish Code) of our civil code, has
repeatedly held that a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully
impugned in court.

Zulueta v. Mariano, 111 SCRA 206

Under those circumstances, proof of violatin, is a condition precedent to resolution or rescission. It is only when the violation has
been established that the contract can be declared resolved or rescinded. Upon such rescission, in turn, hinges a
pronouncement that the possession of the realty has become unlawful.
A violation by a party of any of the stipulations of contract on agreement to sell real property would entitle the other party to
resolve or rescind it. An allegation of such violatin in a detainer suit may be proved by 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 to do so.

Palay, Inc. v. Clave, 124 SCRA 638

The party who deems the contract violated may consider it resolved or rescinded, and act accordingly, wihout previous cour
taction, but it proceeds at its risk. For it is only the 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 a suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the others 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. (Art. 2203, CC)
Resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns the
declaration, it shall be subject to judicial determination.

Angeles v. Calasanz, 135 SCRA 323

The right to rescind the contract for nonperformance of one of its stipulations, therefore, is not absolute.
The general rule 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 contract is substantial depends upon the attendant circumstances.
The breach of the contracts adverted to by the defendant-appellants is so slight and casual when we consider that apart from
payment of initial down payment, the plaintiff-appellees had already paid monthly installments for a period of 9 years. In other
words, in only a short time, the entire obligation would have been paid.

Boysaw v. Interphil Promotions, 148 SCRA 635

The power to rescind a contract 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, he is not entitled to insist upon the performance of the contract
by the defendant or recover damages by reason of its own breach.
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.
Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by anotehr, the
aggrieved creditor is not bound to deal with a substitute.

Pilipinas Bank v. IAC, 151 SCRA 546

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 many extensions granted private respondents by the petitioner. In all these extensions,
the petitioner never called attention to the proviso on automatic rescission.

Central Bank v. CA, 139 SCRA 46

In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other and when one party has
performed or its ready and wiling to perform his part of the contract, the other party who has not performed or it is not ready and
willing to perform incurs delay. (Art. 1169, CC)
Since both parties were in default in the performance of their respective obligaitons, that is, the Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with its obligation to apy his
P17,000 debt within the 3 years stipulated, they are both liable.
Article 1192 of the CC 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 Courts.

G. MODES OF EXTINGUISHMENT OF OBLIGATIONS ---Art. 1231

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Art. 1231. Obligations are extinguished:

(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (1156a)

Saura v. DBP, 44 SCRA 445

Facts: Plaintiff Saura, inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion to DBP, for an
industrial loan of P500,000 to used as follows: P250,000 for the construction of a factory building (for manufacture of jute
sacks); P240,900 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100 as additional
working capital. The jute mill machinery had already been purchased by Saura on the strength of a letter of credit by Prudentioal
Bank and Trust Co. RFC approved the loan secured by a first mortgage on the factory building to 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
Engrs LTd had again agreed to act as co-signer for the loan. When the RFC Board later decided to decrease the loan from 00K
to 300K, China Eng signified to withdraw as a co-maker. Thus, when Saura requested for the release of the 500K loan, the RFC
signified that the Loan Agreement has been cancelled. Later, Saura requested RFC to cancel the motgage 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, In had up to December 31 of the same yr w/in w/c to pay its obligation
on the trust receipt heretofore mentioned. For its failure to pay, PBTC sued Saura.
Nine years 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 favored plaintiff.
Issue: WON the obligation of RFC to Saura in the perfected loan contract subsists
Held: When RFC turned down the request of Saura, the negotiations w/c had been going on for the implementation of the loan
agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFCs conditions. So instead of doing
so and insisting that the loan be released as agreed upon, Saura Inc. asked that the mortgage be cancelled, w/c was done by
RFC. The action thus taken by bothe 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.
The subsequent conduct of Saura, Inc confirms this desistance. It did not protest against any alleged breach of contract by RFC
or even point out that the latters stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation
of whatever rights it believed it might have against RFC for the latters non-compliance. It was nine years after the loan
agreement had been cancelled at its own request that Saura Inc brought this action for damages. All these circumstances
demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the
plaintiff-appellee itself.

G.1. Payment or Performance

Arts. 1232-1244, 1246-1251, 1302; RA 529, RA 8183; PD 72, Secs 31-32

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

Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be. (1157)

Art. 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. (n)

Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with. (n)

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 from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a)

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Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation,
which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. (n)

Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of Article 1427 under the Title on "Natural Obligations." (1160a)

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. (1162a)

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 person 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. (1163a)

Art. 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164)
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. (1165)

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 which 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. (1166a)

Art. 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. (1167a)

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. (1168a)

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the
payment of the former without waiting for the liquidation of the latter. (1169a)

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.
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 the abeyance. (1170)

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. (n)

Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and 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.
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 without prejudice to venue under the Rules of Court. (1171a)

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;

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(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. (1210a)
Land Bank of the Philippines v. Alfredo Ong, G.R. No. 190755, Nov. 24, 2010
FACTS: On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount
of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan
agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of PhP 10
million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an acceleration
clause wherein any default in payment of amortizations or other charges would accelerate the maturity of the loan.
Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three (3) of
their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with
Assumption of Mortgage. Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and
assumption of mortgage and was told to comply with the requirements. In compliance thereto, Alfredo issued a check for PhP
750,000 and personally gave it to Atty. Hingco two weeks later and submitted other documents. Alfredo later found out that his
application for assumption of mortgage was not approved by Land Bank. The bank learned from its credit investigation report
that the Ongs had a real estate mortgage in the amount of PhP 18,300,000 with another bank that was past due. Land Bank
foreclosed the mortgage after several months. Alfredos other counsel, Atty. Madrilejos, subsequently talked to Land Banks
lawyer and was told that the PhP 750,000 he paid would be returned to him. Alfredo initiated an action for recovery of sum of
money with damages against Land Bank upon its failure to return the same. The RTC ruled that under the principle of equity
and justice, the bank should return the amount Alfredo had paid with interest at 12% per annum computed from the filing of the
complaint. On appeal, the CA affirmed the RTCs decision. Upon CAs denial of its MR, Land Bank appealed to the SC.
ISSUE: Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there is
no novation.
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the
Spouses Sy instead of Land Bank. Art. 1236 provides: 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 from the debtor what he has paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the debtor.
HELD: (1) Yes, Land Bank was not bound to accept Alfredos payment, since as far as the former was concerned, he did not
have an interest in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph,
Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that
Land Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that the
certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor.
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since his
interest hinged on Land Banks approval of his application, which was denied. The circumstances of the instant case show that
the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the
Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from the debtors,
the Spouses Sy, what he has paid.
(2) Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of debtors
was made without its consent; thus, it was not bound to recognize the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation[14] provides the following
discussion:
cra

chanroblesvirtuallawlibrary

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a
new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible
with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode,
novation would have dual functions - one to extinguish an existing obligation, the other to substitute a new one in its place - requiring a conflux
of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment
of the old obligation; and (4) the birth of a valid new obligation. x x x
In order that an obligation may be 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. The test of incompatibility is whether or not the
two obligations can stand together, each one having its independent existence. x x x (Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

chanroblesvirtuallawlibrary

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. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the elements
of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the
parties to novate the old agreement.[15] Land Bank is thus correct when it argues that there was no novation in the
following:
cra

chanroblesvirtuallawlibrary

[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of Spouses Sy, he may
still pay the obligation for the reason that even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors was
already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of Mortgage executed by
them on December 9, 1996. And since the substitution of debtors was made without the consent of Land Bank a requirement which is
indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors . Land Bank did not
intervene in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution.
Petition is denied since the bank was negligent in handling Alfredos transaction. By accepting Alfredos payment and keeping silent on the status of
Alfredos application, Land Bank misled Alfredo to believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy.

18
Iris Torrente
Civ2 Uribe