CIVIL LAW REVIEW 2: Obligations

Atty Tizon
Lecture 2: 24 January 2014

III. KINDS OF OBLIGATIONS

A. According to Demandability (1179-1192)
1. PURE OBLIGATIONS
2. CONDITIONAL OBLIGATIONS
1.

The debtor has the right to introduce improvements at his expense,

whether for pleasure or necessary improvements. However, he does
not have the right to be reimbursed. Although he could remove the
improvements without causing damage to the property.

2. Condition that will imposed, either resolutory or suspensive, it has

to be not against the law, morals, publig policy and customs.
Otherwise, it will be deemed as not imposed. Again you have to
make a distinction.
a.

If the condition is imposed on the obligation itself coming

into effect, the entire obligation will be voided.

b. On the other hand if it is just a condition relating to the

fulfillment of the obligation, that is the time it will be
deemed not imposed.
i. Example: I will give you P2,000 if you kill X.
apparently it is contrary to law. It is imposed on the
obligation to do itself. The agreement is totally
avoided.
ii. On the other hand, if it is in the fulfillment of an
obligation, like for example, you give me a sack of
rice and I will pay you P2000. But as an additional
condition to you is you have to kill X. I still have to
pay you P2000, but the condition to kill X is
deemed not imposed.
3. As provided in Article 1184-1185, in case of a suspensive condition,
since it is in the future, like for example, you have a definite period:
end of this month. If one boat will sink, and then nothing happens
during the specified period, it is deemed as if fulfilled.

4. Your friend told you, I will give you my MacBook if you pass the
bar. Meantime, somebody stole the macbook. You have the right of
action because you have an inchoate right to that object, although
the condition has not happened yet. You have a cause of action. Just
in case the eventuality happens, the corresponding obligation is
preserved.
a.

If your friend thought I already gave you my macbook.

Akala ko pumasa ka nang bar yun pala tinitignan ko lang
pala yung list of applications. It was a payment by
mistake. Your friend can recover, the undue payment he
made. This is in the civil code.

5. Gaite v Fonancier (1961)

a.

FACTS: Fonacier owned an iron lode mineral claims. He

authorized Gaite to explore. Gaite was able to extract 24K
metric tons of ore, which was eventually assigned to
Fonacier. The condition was the remaining balance of P65K
will be paid out of the letter of credit covering the first
shipment of iron ore or the proceeds derived from the local
sale of iron ore. As a security, Gaite asked for a surety bond
i. Fonacier did not sell the iron ore. Gaite filed a
collection case against Fonacier. Fonaciers defense
was: hindi pa nabebenta yung iron ore, so it is not
yet due and demandable.

b. SC: the shipment or sale of iron ore is not a conditional

obligation, but an obligation with a suspensive period.
i. The sale to Fonacier was a sale on credit and not an
aleatory contract, where Gaite would assume the
risk of not being paid at all. shipment or sale of
iron ore was intended merely to fix the future date
of payment.
ii. Based on the circumstances, it would be ridiculous
to regard as if Gaite is not interest in being paid.
Gaite has be paid, otherwise it is unjust
enrichment, although the court did not say that
before.
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Lecture 2: 24 January 2014

iii. It is more logical to say that the condition here is

with a period. Under Art 1198 (2 and 3), the period
provided would no longer apply because Fonacier
failed to renew the security bond when it was
impaired. The obligation thus became due and
demandable.

ii. Resolution is under Article 1191

TYPES OF CONDITIONS
a) As to effect on obligation
1. Suspensive (condition precedent)

6. Distinction with a period and with a condition: uncertainty,

although both refers to future.
a.

In conditional obligation, it can be a past unknown event,

not necessary future event.

b. Example: we do not know if someone survived the

shipwreck. It would be a condition such that it was a past
event. It happened in the past but we do not know yet.

8. Coronel v CA (1996)
a.

7. Gonzales v Heirs of Thomas (1999)

a.

i. Coronel et al contracted with Alcaraz for the sale of

a property still in the name of their deceased
father. The Coronel agree to transfer the title into
their name upon payment of the down payment by
Alcaraz.

FACTS: Paula Cruz, Heirs of Thomas entered into a

contract of lease and sale with Gonzales pertaining a
portion of a parcel of land. The contract was labeled
contract of lease/purchase. It provided that the lessors
Cruz and heirs of Thomas committed to transfer the title
from their deceased fathers name to theirs within a
reasonable period not to exceed 4 years. The land was still
subject of an extrajudicial estate proceeding.

ii. Mother of Alcaraz paid the down payment in behalf

of her daughter. The title was transfer in the name
of the Coronels. Instead of transferring the
property to Alcaraz, Coronels sold the property to
Mabanag.

i. 1 year after, respondents and Cruz compelled

Gonzales to pay for the purchase price of the land.
Cruz died during the pendency of the case.
b. SC: Respondents cannot compel Gonzales to pay the
purchase price. They have not succeeded yet in getting the
TCT in their name.
i. The suspensive condition not having been fulfilled,
respondents have no cause of action yet. It is not
yet due and demandable against Gonzales to
purchase the land.
c.

Resolution and rescission

i. Rescission pertains to provisions under contracts

FACTS: The case is a contract of sale subject to a

suspensive condition in which consummation is subject
only to the successful transfer of the certificate of title from
the name of petitioners' father, to their names.

iii. Alcaraz filed a case for specific performance. She

wanted that Coronels be compelled to transfer to
the property.
b. SC: there was a perfected contract 0f sale. The contract of
sale became obligatory. Since the suspensive condition has
been complied with, Coronels are left without a choice but
to execute the transfer as they have obligated themselves to
do.
9. EFFECTS: Difference
condition as to effect
a.

of

resolutory

and

suspensive

Resolutory: Obligation takes place meantime, subject to

happening of the resolutory condition
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Lecture 2: 24 January 2014

b. Suspensive: There is no obligation yet until the

happening of the suspensive condition.

ii. It is not the fact that Cirero and Hill sold the
property to Parks that is a violation of the contract.
it is the fact that a public school and a park was not
built on the property as originally agreed upon by
the parties. It should have been done within 6
months from the time of donation.

i. In a contract to sell, the non-happening of the

suspensive condition prevented the obligation to
arise.
ii. During the period in suspense, art 1189, with
respect to improvement, loss and deteriorarion,
applies. It also applies to obligations with a
period.

iii. The court did not grant the action fro revocation of
the donation.
11. Central Philippine University v CA (2005)
a.

2. Resolutory (condition
subsequent)
10. Parks v Province of Tarlac
a.

FACTS: Cirer and Hill obligated themselves to donate to

the Municipality of Tarlac, later on was converted to
Province of Tarlac, a parcel of land. It was in 1910. The
condition imposed was that a public school and public park
will be built on the land within 6 months from the time of
donation.
i. the building of public school and park did not
happen. In 1921, Cirer and Hill sold the parcel of
land to George Parks.
ii. The heirs of Cirer and Hill wanted the donation
revoked on the ground that the condition was not
complied with.

b. SC: The action having been filed after more than 10 years,
the heirs were already barred by prescription. After 6
months from the time of donation, the condition was not
complied with, they should have already demanded the
revocation of the donation.
i. Instead of doing that, the heirs let it pass for 10
years.

FACTS: (Similar to Parks v Province of Tarlac) Don

Ramon Lopez donated a land to Central Phil university on
the conditions that (1) the land shall be used exclusively for
the establishment of a med school, (2) it shall not be sold to
a third party, (3) land shall be called Ramon Lopez
Campus.
i. CPU failed to comply with the obligations. 50 years
after, heirs of Ramon Lopez sought for the
revocation of the donation.
ii. One of the defense raised by CPU was prescription,
because it has been a long time since the execution
of the deed of donation.

b. SC: The obligation never became due and demandable.

There was no period stipulated in the donation.
This is opposed to the case of Parks v Province of
Tarlac, which has a period within which the obligation
must be complied with.
i. The remedy in case of an absence of a period is to
ask the court to fix a period under Article 1197.
ii. It was noted that this general rule could not be
applied because 50 years has been too long. It is
beyond reasonable time. Setting a period would be
a mere technicality and formality. It would serve no
purpose than to delay or load to unnecessary and
expensive multiplication of suits.
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iii. CPU has slept on its obligation for an unreasonable

length of time. Thus, the court revoked the
donation and returned the property to the heirs of
Lopez.
12. Quijada v CA (1998)
a.

FACTS: This case highlights the difference between a

suspensive and resolutory condition. In 1956, Trinidad
Quijada and her sister donated to the Municipality of
Talacogon a parcel of land, on the condition that the
municipality shall build a provincial high school on it.
i. Donors remained in possession of the property.
Trinidad Quijada sold the land to Respondent
Mondejar.
ii. In 1987, Municipality reverted the land back to the
donors saying that the condition can no longer be
complied with.
iii. The heirs of Quijada filed an action for quieting of
title against respondent Mondejar.

b. SC: the court discussed that, at the time Trinidad sold the
property, the donation was still in effect. The ownership of
the property is with the municipality. What Quijada could
have sold was her inchoate interest in the eventuality that
the condition is not complied with. However, what was sold
was the land itself.
i. Court applied the rules on sales, in such that, seller
sells a property which he does not own at the time
of sale but eventually acquires full ownership over
the property, the title passes to the buyer. This is
under Art 1434 of the civil code.
ii. Ownership was granted to Mondejar.
iii. The important aspect of this case is the explanation
how resolutory condition works. The effect is
restitution you give back what you received
from the contract.

b) As to effect on obligation
13. ORIGIN: Potestative, casual and mixed (Art 1182)
a. Potestative dependent on the will of the debtor/creditor
i. Depending on the debtor condition is void.
1. If the condition relates to the contract
being effective itself, the contract all
together is voided (see #2(a), p 1).
2. If the condition only related to the
fulfillment of the obligation, and there
is a pre-existing contractual relation
between parties, (meaning, the other party
has already delivered, and payment is
subject to the sole will of the payor), it is
deemed as if not imposed (see #2
(b), p 1)..
a. The effects are different.
b. If the obligation to pay depends
when the means of the debtor
permits him to fulfill his
obligation, it is deemed one with a
period. The court would have to fix
the period in such case (Art
1180).
ii. Depending on the creditor valid
b. Casual purely upon chance or upon the will of a third
person
i. Happening of the condition is beyond the control of
the parties.
c. Mixed Partly based on the will of the party and partly on
chance or will of a third person

CIVIL LAW REVIEW 2: Obligations

Atty Tizon
Lecture 2: 24 January 2014

1. Potestative
14. Lim v CA (1990): Potestative suspensive condition
a. FACTS: Respondent (lessee) and petitioner (lessor)
entered into a contract of lease to be renewed every 3 years.
The contract was renewed twice. When the lessee
manifested his intention to renew the contract for another
year, the lessor replied that he no longer wants to renew the
contract.
i. Lessee refused to vacate the premises, thus lessor
filed for an ejectment suit. Lessee counters that the
contract was a continuous one. The period of which
depended upon lessees need for the premises and
the their ability to pay.
b. SC: the condition is purely potestative condition because it
leaves the effectivity and enjoyment of leasehold right of he
sole and exclusive will of the lessee
i. The very reason that those kinds of stipulations are
not allowed, a renewal is actually a new contract in
itself. If it is dependent only on the sole will of the
lessee, it goes against the principle of
mutuality of contract.
ii. Case is similar to Encarnacio v Baldomar
15. Silos v PNB (2014) potestative suspensive condition

b.

SC: The court explained that the effect of the lifting of the
ceiling in the usury law does not give the parties unbridled
right to stipulate on very high interest to the point which
are already unconscionable, if not contrary to law.
i. more importantly, in this case, it was potestative on
the part of the bank. There is no consent of the
other party.
ii. Yes, you can agree on whatever interest. However,
this presupposes that both of the parties consented
to it. Without consent, the bank cannot unilaterally
impose upon the other party a new interest rate.
iii. Silos had several promissory note. He asked for an
accounting. SC said that only the interest in the
first set of promissory notes is valid. the other
promissory notes subject to the questioned
provision they are rendered void for lack of
consent. In default, the legal interest was applied.

2. Casual
16. NATELCO v CA (1994) Casual condition
a. FACTS: this is a case for rebus sic stantibus under 1267.
One of the defenses raise by NATELCO was the provision in
their contract which provides that the term or period for
the contract shall be as long as the NATELCO needs the
light post.

a. FACTS: in question was a default stipulation not only used

by PNB but also by other banks. There were several citation
of cases of PNB. The court reprimanded PNB because this
is not the first time the issue came up to the supreme court.

i. NATELCO was to use the electric post of

CASURECO. In return, NATELCO was so install,
free of charge, 10 telephone connections for
NATELCO.

i. The loan agreement provided that the PNB may

modify the interest rate in the loan, depending on
whatever policy that they may have in the future,
subject to the ceiling provided by law.

ii. After 10 years, CASURECO filed an petition for

reformation of the contract on the ground that it is
too one-sided in favor of NATELCO, who have used
319 posts of CASURECO.

ii. As we may know, there is no ceiling anymore.

b. SC: The condition is not purely potestative. It is valid. If we

are only going to look at that portion of the provision, then
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it would be a potestative condition. But there is a

qualification.
i. More important than that, it is qualified by the fact
that the contract may be terminated when for
any reason whatsoever, CASURECO (electricity
provider) ceases (forced to stop, abandoned) its
operation and it becomes necessary to remove the
electric lightpost.
1. These are eventualities not solely
dependent on the will of either party.
2. There is nothing wrong with that
stipulation as regards how long the
contract would subsist.
ii. The court did not annul the contract. parties had to
continue with the contract because of public
interest.

3. Mixed
17. Osmena v Rama (1909)
a. FACTS: Rama, the debtor, admitted her indebtedness to
Dona Osmena, which credit was later on transferred to
Respondent. Rama promised respondent that she will pay
her debt if the house of strong materials in which I live in
Pagina is sold.
b. SC: the condition is void as it depended upon her exclusive
will (Art 1115).
i. This case is discussed in some commentaries
because the court made a passing remark that that
condition is potestative thus void. However, if you
look at the decisions, it is more of a hypothetical
statement an obiter dictum.
ii. The condition of if her house is sold, it is not
purely dependent upon her. Even if she offers it for
sale, if there is no willing buyer, then the condition

would still not happen. Thus it is not purely

dependent upon her will. This is actually a
mixed condition.
iii. Of course it can be argued that it is still dependent
upon her will because if she does not put it up for
sale, then the condition dependent on chance will
not happen. She has the power to prevent it from
happening. In which case, under the civil code, if
the debtor herself prevents the happening of the
condition, it is deemed complied (art 1186). In
this case, it would still be possible to say that would
be unfair for the other party.
18. Smith, Bell v Sotelo Matti (1992)
a. FACTS: Plaintiff Smith, Bell & Co and the defendant Mr.
Vicente Sotel entered into a contract. Plaintiff has to deliver
(1) two steel tanks shipped from New York to Manila
within three or four months, (2) two expellers shipped
from SanFrancisco in the month of September 1918 or as
soon as possible, and (3) two electric motors with
approximate delivery within ninety days. This is not
guaranteed.
i. There is another stipulation in the contract saying
that the seller does not guarantee any fortuitous
event or delay in bringing in the goods due to
failure to secure certificate/documents
ii. The deliverables arrived but defendant refused to
receive and pay for them on the ground that
plaintiff was in delay on the delivery of goods.
b. SC: the obligation must be regarded as conditional (not
period) and plaintiff was able to comply with its obligation.
i. Given the circumstances that the event happened
during the war, there was difficulty in bringing in
equipment from the US, the parties could not have
contemplated for period. There was even a
disclaimer.
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ii. The condition was for the seller to bring in the

equipment to the Philippines. Having exerted all
efforts necessary on its part, seller was able to
import the deliverables.
iii. Sotello should pay for the equipment.
19. Rustan Pulp v IAC (1992)
a.

FACTS: Rustan pulp entered into a contract with

Respondent Lluch (supplier) for the supply of pulp woods.
The contract states that Rustan Pulp can receive supplies
from other suppliers. Rustan may notify and stop the
delivery of the supplier when there is already over supply.
i. Rustan pulp notified Lluch and other suppliers to
stop supplying. Despite the notification, Rustan did
not stop accepting deliveries form other suppliers.
ii. Lluch filed a case for breach of contract. one of the
contention of Rustan Pulp was the provision in
their agreement that it can stop the supply through
notification. Rustan admitted that the stoppage
was only temporary. They would still resume later
and it is within its right to stop the delivery.

b. SC: the condition is purely potestative thus must be

obliterated from the face of the contract without affecting
the rest of the stipulations since the condition relates to
fulfillment of an already existing obligation an not to its
inception.
i. Rustan pulp should pay damage because Rustan
breached the contract.
ii. The condition was dependent on the will of Rustan.
It can control whether there would be over or
under supply because Rustan simply get supply
from other suppliers.
20. Romero v CA (1995)
a.

however occupied the property. Parties executed a deed of

conditional sale. Seller asked for a down payment of
P50,000 to be used to eject the squatters in an ejectment
suit. It was agreed that after ejectment, the land shall be
sold to Romero. MTC granted the ejectment suit. There was
already a writ.
i. A few days after they got the writ of execution, the
spouses notified Romero that they were not longer
selling the property.
ii. Counsel of Romero said that his client is willing to
do the actual eviction himself. However, the
expenses for such shall be deductible from the
purchase price.
iii. Spouses said that the 60 day period when they can
eject the squatters had already lapsed. Since the
suspensive condition did not happen, there is
contract.
iv. Spouses sought for resolution of the agreement.
b. SC: The undertaking of the spouse did not characterize as a
condition within the 60 period is not a potestative period.
The court explained that it is not solely dependent on the
spouses whether to eject the squatters or not. It also
depends on the squatters. Furthermore, there was an
interruption were an agency that asked them to postpone
the ejectment.
i. It is not a potestative condition which might be
void.
ii. On the other hand, with respect to he 60 day
period, remember that the period was given to the
spouses. Failing to comply with that, the injured
party is Romero. Thus the court told the spouses,
why are they invoking for rescission of the contract.
It should have been Romero who is entitled to such
remedy.

FACTS: Romero wanted to establish a warehouse in

Manila. Spouse Flores offered their land. Squatters
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Lecture 2: 24 January 2014

iii. Romero opted for specific performance. It is within

his right. Court ordered the spouses to continue the
sale with Romero.

b. Negative that it will not happen

i. Ex. If the supreme court will not move the schedule

e) As to expression

c) As to possibility
21. CONDITIONS AS TO POSSIBILITY
a.

Possible

b. Impossible it is as if not imposed.

22. Roman catholic v CA (1991)
a.

FACTS: Spouses de Castro donated a parcel of land to

Roman Catholic Archbishop of Manila, on the condition
that the land shall not be disposed within 100 years from
the time of execution of the deed of donation.
i. Still within the prohibitive period, Roman catholic
sold the property to petitioner Ignao.

b. SC: the prohibition is illegal (Art 494 and 870) and an

impossible condition. 20 years is the allowable period to
restrict someones right of ownership over a property.
Consequently, the condition is considered not
imposed.
i. Prohibition against alienation, in order to be valid
must not be perpetual or for an unreasonable
period of time.
ii. The donation remains effective.

d) As to Mode

24. CONDITION AS TO EXPRESSION

a.

Express

b. Implied
25. DIVISIBLE AND INDIVISIBLE
a.

Divisible conditions that are capable of partial

realization.

b. Indivisible one time event only

26. CONJUNCTIVE AND ALTERNATIVE
a.

Conjunctive: There are several conditions, all of those

conditions must happen
i. Ex: I will give you a car, provided that (1) you pass
the bar, (2) you go to a lawfirm, and (3) you
become a senior associate in 3 years. If the
agreement says that you should fulfill all conditions
before I give you the car, the conditions are
conjunctive.

b. Alternative
i. Ex: If it says, I will give you a car, provided that (1)
you pass the bar, or (2) you go to a lawfirm, or (3)
you become a senior associate in 3 years.
Happening of one of the conditions is sufficient.

23. Conditions as to mode

a.

Positive event will happen

i. Ex. If the supreme court will move the schedule of
the bar exams

3. OBLIGATIONS WITH A TERM (1193-1198)

TYPES OF PERIOD/TERMS
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a) As to effect on obligation

27. The main difference between with a term and with a condition is
certainty.

30. The period is presumed for the benefit of both parties, unless
from the tenor of the period or other circumstances it should
appear that the period was established in favor of one of the parties
(Art 1196).
a.

28. Potestative condition dependent on the sole will of the debtor is

void. But a potestative period dependent on the will of the debtor
is valid.
POTESTATIVE
Condition
Dependent on
Dependent on
the sole will of
the sole will of
debtor
creditor
VOID (1182)

a.

Valid

Period
Dependent on
Dependent on
the sole will of
the sole will of
debtor
creditor
Court shall
fix the period
Valid
(1197)

If it is a condition, it is void if the happening of the

condition solely depends on the will of the debtor. In
relation to Silos v PNB(see #15), it is not the condition but
the terms of the contract we are talking about. What was
violated in this case is mutuality of contract, not the
potestative condition being void. It is the terms of the
agreement not the condition to the agreement that was the
issue.

29. Same as that in a condition, those that were paid by mistake can
also be recovered (Art 1195).
a.

This is important for practical considerations. In

case of payment of money, My loan will be due next year
but I paid at the end of this month. I paid one year earlier. I
can recover next month what I already paid, meantime,
because the obligation is not yet due.

b. Use of money has value. That is why when you borrow

money, there is always a stipulated interest because the
creditor could have invested the money in some other
things. Thus, remember this provision. See 1195.

That is why banks also have pre-termination clause. The

borrower has to pay a penalty. Not all pre-payment is good
for the bank because it will have a problem as to where to
invest the money.

b. Ex. You borrowed P20M from a bank, payable in 10 years.

On the 5th year, you want to pay the debt in full. The bank
has a pre-termination clause which imposes penalty of
around 5% of the total amount due because they would be
suffering inconvenience. Instead of them being able to
account for their income for the entire 10 years, payment in
full disrupted it. Bank has to look for another form of
investment. Besides, interest changes. At the time of the
loan, 12% was a good rate for the bank. Later on the rates
for lending was down to 8%. Nalugi pa si bank because of
pre-payment.
31. The court clarified how Art 1197 works. not just because a period is
not expressly stipulated, the court automatically fixes a period. the
application of this article involves 2 steps:
a.

Primordial consideration

b. Intention of parties did the parties really intend to fix a

period. If there is no intention, then the court has no
business intervening
32. 1197 also covers cases where the period is left to the sole will of the
debtor. the court will have to fix the period (see table under #28).
a.

This is the difference between a period and an obligation.

i. If condition = void
ii. If period = period to be fixed by the court

33. 1198 gives you the enumeration of the instances when a debtor
would lose its right to the period. the obligation becomes
immediately due and demandable.
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a.

As discussed under Gaite v Fonacier (see #5), when the

debtor failed to furnish the creditor with security and when
he failed to give security equally satisfactory when the
security given has been impaired by his own acts.

they would defer the construction of the road until

the squatters have been evicted.
36. Central Philippine University v CA (1995)
a.

b) As to effect on obligation

b. 50 years had lapsed. The court said that the general rule is
that the court would fix a period if there is no period
provided, subject to the intention of parties.

34. SOURCE:
a. Legal - These are the ones provided by law
i. Ex: reply to letters, you have a specific period based
on provisions
b. Voluntary these are the conventional, based on contracts
c. Judicial under 1197, the one fixed by court

c.

50 years is beyond reasonable period of time.

d. There is no need to fix a period when such procedure would

be a mere technicality and formality and would serve no
purpose than to delay or load to unnecessary and expensive
multiplication of suits.

35. Araneta v Phil Sugar Estate (1967)

c) As to expression

a. FACTS: Araneta agreed to sell to Tuazon a parcel of land.

It was stipulated that Tuazon has to build a church the land
while the seller Araneta undertakes to construct the street
within the reasonable time on.
i. Araneta was not able to complete the construction
of the street because informal settlers occupied the
northeast side of the land.
ii. The lower court fixed the period of two years for
Araneta to build the streets.
b. SC: 1197 involves two step process. It is not just because
the court thinks it is reasonable to fix a period. they have to
look at the intention of the party if they really intended to
set a period.
i. Based on the circumstances,
contemplated to fix a period.

See #11

the

parties

ii. Both parties were aware that the land was occupied
by the squatters. The court said that is precisely the
reason why they did not stipulate a specific period.
the understanding would have probably been that

37. EXPRESSION
a.

Express

b. Implied

d) As to expression
38. DEFINITENESS
a.

Definite specific date was specified

i. Ex: December 1, 2018

b. Indefinite it is sure to happen but the exact date is

unknown
i. Ex: death it is a period although one does not
know when it will happen.
39. Demandability
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a.

Pure

b. Conditional
c.

With a period
i. Take note of the distinctions
ii. In the interim period, same rules apply to
conditional and with a period (1189).

B. According to Plurality of Object (11991206)

ii. Even if the choice is given with the debtor, and

debtor is given 2 choices, one moral and the other
immoral, debtor cannot say that he will perform
the illegal. Debtor cannot opt to perform the illegal.
He is limited to those legal. This is consistent with
severability of contract. if you have several
prestations and some are void, those which are not
affected remains.
b. Facultative - The choice to render substitute is left to the
debtor.
Simple alternative
Choice is reserved to debtor, but it
can also be given to creditor (1200)

Facultative
Choice to render substitute is given
to the debtor

42. LOSS/IMPOSSIBILITY

40. KIND
a. Simple alternative
i. The debtor is given several alternative obligations.
Complete fulfillment of one of those would
suffice to extinguish the obligation. Partial
fulfillment is not allowed
1.

Ex: the obligations are (1) finish law

school, (2) get a job. Finishing lawschool
half way and then looking for a job would
not suffice.

b. Facultative - There is just one prestation. The debtor can

just render other substitute.
41. RIGHT TO CHOOSE
a. Alternative
i. General rule: the right of choice belongs to the
debtor, unless it is expressly reserved for the
creditor. It is important because the liability and
effects in case of loss would differ depending on
who has the choice.

a. Alternative
i. 1204 provides for rules in case of loss, the
valuation of the damage that has to be paid.
ii. The creditor shall have a right to indemnity
damages when, through fault of the debtor, all
things which are alternatively the object of
obligation have been lost, or the compliance of
obligation has become impossible.

for
the
the
the

iii. If everything was lost, the value of the last

obligation lost shall be the basis for
damages.
b. Facultative
i. Once the debtor has already made the substitution
and the item is lost, debtor would be liable.
ii. If debtor has not made the substitution yet and the
substitute is lost, debtor has no liability to the
creditor.
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C. According to Plurality of Subjects (12071222)

43. PLURALITY OF SUBJECTS
a.

Single

i. Solidary any one of the creditors may demand

the entire obligation against the debtor.
c.

Joint - a creditor can only demand his actual share in the

credit.

SOLIDARY

b. Joint
c.

b. Creditors

49. There can be a case of joint creditors and solidary debtors, and vice
versa. Look at the relation of debtors/creditors

Solidary

44. You can have a contract among 2 debtors and 3 creditors, or one
creditor and 3 debtors.
45. The obligation of the debtor/s or right to collect of the creditor/s
can be joint or solidary.

50. If it is demand from on of the solidary debtors, the debtor who paid
may seek for reimbursement from his co-debtors. That is an
internal arrangement already. But the creditor can go against any of
the debtors for the entire debt.
51. In case of insolvency

46. It does not follow that there are several subjects that there is
solidary. The presumption is joint.

a.

47. the difference between solidary and joint

b. When the debtor who pay for the entire loan collects from
his co-debtors, everyone will share in the portion of the
insolvent debtor.

a.

Solidarity can be among debtors and/or creditors. This is

same case with joint.

If one of the co-debtor becomes insolvent, the other codebtors are liable in proportion.

b. The main difference is the enforceability.

48. Solidary and joint
a. Debtors
i. Solidary - creditor can demand the entire
obligation from any of the debtors.
ii. Joint creditor can only demand the
proportionate share of the debtor from the debt.
1.

In the absence of stipulation, law does not

provide, and nature of obligation does not
require solidarity, share is presumed equal
(1208) and joint (1207).

Solidary
debtor
creditor
can
demand
the
entire obligation
from any of the
debtors.
With right of
reimbursement

Joint debtor
creditor can only
demand
the
proportionate
share of the
debtor from the
debt.

Solidary
creditor
any one of the
creditors
may
demand
the
entire obligation
against
the
debtor.

Joint creditor
a creditor can
only demand his
actual share in
the credit.

52. In case of remission

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a.

In a case of solidary debtors, creditor condoned the

obligation and communicated such remission to one of the
debtors. Can the debtor who the creditor communicated
with collect from his co-debtors?
i. NO. it was out of liberality. The debtor did not pay
for anything. It is expressly provided in the civil
code. Furthermore, it is unjust enrichment.

b. SC: on necessary joinder of parties, the court said that the

counter claim against Lim and Mariano are compulsory
counterclaim because it relates to the main complaint. If
the main complaint is found baseless, the counterclaim
would have to be dealt with. If they are later on found to be
guilty of malice or bad faith against Lafarge, they can be
held liable.

ii. What they can do instead, is to pay the loan to

creditor and the creditor will donate the payment
to one of the debtors. If the creditor goes straight in
condoning
it,
debtor
cannot
seek
for
reimbursement from his co-debtors.

c. Yes, Continental Cement can invoke the defenses available

to Lim and Mariano because the liability in case of tort is
solidary. In such case, as provided in article 1222, the
co-debtor in a solidary relationship among the
debtors, a co-debtor can invoke defenses, even
those personal to his co-debtors.

53. 1221 provides that in case of loss, if it is without any fault on the
part of the debtor, the obligation is extinguished. But if there is fault
on the part of either of them, the obligation stands subject to
liability of the one at fault.

i. Nonetheless, Continental cannot act on behalf of

Lim and Mariano in filing the case. They have
different personalities. Without authorization from
Lim and Mariano, Continental cannot do that.

54. Lafarge cement v Continental Cement (2004)

a.

FACTS: Lafarge agreed to purchase the business of

continental. At that time, Continental Cement was having
an issue with ATP, thus in the purchase price they reserved
an amount to be placed in an interest bearing deposit which
shall be used in case Continental becomes liable to ATP.
i. Later on, SC held Continental liable. Lafarge
refused to apply the sum to the payment to ATP
despite repeated demands from Continental.
ii. Continental had to file a case against Lafarge for
specific performance to pay the amount to ATP.
iii. Lafarge filed a counter claim including the
president Lim and corporate secretary Mariano. It
alleged that the suit was baseless.
iv. Continental filed an MTD the counterclaim against
Lim and Mariano because they are mere agents of
Continentals in filing the case.

D. According to performance
55. According to performance:
a.

Divisible it can be divided into several segments.

i. Ex: Hourly work, certain number of days of work

b. Indivisible one act. It has to be performed in its entirety.

56. Just because it is divisible, it does not follow that the performance
is joint. Just because it is indivisible, it does not follow that the
performance is solidary. It can be divisible and still solidary;
indivisible and joint.
a. Determine the nature of the obligation in terms of
the thing (divisible/indivisible) and nature of the
obligation in terms of the relationship between
parties (joint/solidary).
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57. Just because the objects are physical divisible, it does not follow
that the obligation is divisible.
a.

Ex: the obligation is indivisible such that I asked you to

deliver to me a house and car as a package deal. Although
the house and car are two separate things, the obligation is
indivisible because the obligation is to deliver both divisible
object.

58. Divisibility and indivisibility of obligation is dependent on the

intention of the parties.

E. According to Sanctions of Breach

59. In terms of sanctions of breach of contract, general rule is you can
ask for damages. There is also such thing as penalty (penalty clause)
in place of damages.
60. 1226 provides that obligation with a penal clause, the stipulated
damages would substitute the indemnity for damages and payment
of interest in case of non compliance.
61. General rule: Penal clause in the contract applies. No more
damages.
a.

Exception:
i. If there is a stipulation to the contrary or
ii. The party who should be liable for the penalty
refuse to pay the penalty or
iii. If he acted in bad faith.
1.

In such case, provisions on damages will

apply. If there is

62. Purpose of penal clause is to ensure compliance with the obligation

and to liquate damage. Actual damages must be proven. Other than
that if it is too obvious to the court, it may award temperate
damages. But if you have already provided a stipulation, there is no

need to prove damage. It also serves as punitive as it applies in case

of breach or irregular performance.
63. Court can reduce the amount of penalty if it is excessive or
iniquitous. That is expressly provided in 1229. Or in case of partial
or substantial compliance, the court can also mitigate the amount of
penalty. We have a provision in the civil code with provides that it
may be deemed complied with if there is substantial compliance. It
is a case to case damage. It is either the penalty will be lessen or
obligation shall be deemed complied with in case of substantial
compliance.
64. Since penalty clause is just an accessory to a principal obligation,
the extinguishment of the principal also extinguishes the penalty.
a. In SSS v Moonwalk, the loan has already been
extinguished. The court said that the penalty can no longer
be recovered from the fact that there was no demand made.
b. On the other hand, and extinguishment of an accessory
does not extinguish the principal obligation. For example,
you paid the penalty and have not paid the loan (late
payment).
65. Rivelisa Realty v First Sta. Clara (2014)
a. FACTS: Rivelisa and First Sta. Clara entered into a joint
venture. FSC will do development work. Rivelisa initially
spent P10M. FSC is supposed to spend P10M. it is only after
FSC spends P10M can it ask for an advance from Rivelisa.
During the course of the contract, FSC experienced putting
up the amount. It had to seek advances from Rivelisa.
Rivelisa agreed.
i. FSC backed out from the contract without
completing its obligation. FSC asked Rivelisa for
payment of the amount (P3M) FSC spent on the
development.
ii. The defense of Rivelisa was the fact that FSC
did not comply with its obligation under the
agreement so they refuse to pay.
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b. SC: There was a mutual dissent. Rivelisa acknowledge the

P3M and consented to the termination of the agreement.
There was no penal clause. The court ordered Rivelisa to
pay FSC P3M, the value of the work already done by FSC.
The basis is quantum meruit.
i. It would have been different, I suppose, if they
stipulated on a particular penal clause. Say, if
party fails to comply with its obligation, xxx in
such case, Rivelisa does not have to pay FSC.
ii. But there was no stipulation. Besides damage was
not proven. Rivelisa assented to the termination of
the agreement, thus he has to pay.
66. You will also see provisions re penal clause under damages. It is
similar to the liquidated damages provided under art 2226 2228.
Basically the essence of liquidated damages, it has already been
agreed by parties. There is no more need for damages. Unlike actual
damages that needs to be proven to be allowed by court.
a. It is reiterated that the court may reduce the amount of
liquidated damages, which can be in a form of penalty or
indemnity.
b. Penalty clause is deemed as compensation for the damages,
except for certain circumstances (see #61). You will find a
parallel provision under liquidated damages.
67. Lambert v Fox (1914)
a. FACTS: Both Lambert and fox were creditors of the
stationary company, John R Edgar, Co. they agreed to
takeover the operations. Since they become the major
stockholders, they agreed that they will not dispose their
shares within 1 year. Before the expiration of 1 year, Fox
already sold his share to the main competition of John R.
Edgar, Co.
i. Lower court ruled that the parties contemplated
that the period was until the company is already
stable.

b. SC: why do you have to go to interpretation when the

contract is clear. Whatever might have been the reason of
the party for providing 1 year, the fact is they provided for
the period. no need to second guess the parties.
i. Having sold his shares in the company within the
prohibited period, Fox is deemed to have violated
the obligation. That stipulation of payment of P1K
as penalty is valid. I do not know the equivalent of
P1K then.
ii. Fox sold the shares to the main competitor. I do
not know if the penalty was enough to cover for his
bad faith. Although it was mentioned that Fox
offered the shares to Lambert at the same price at it
was sold to the competitor. But Lambert refused to
buy the shared. Maybe on that ground P1K was
enough.
68. SSS v Moonwalk, we discussed it earlier. Penal clause is okay
(see #64(1)).
69. Robes Francisco v CFI (1978)
a. FACTS: RF agreed to sell to Milan on installment a 276
sqm parcel of land in Caloocan. Milan was already fully
paid. After repeated demands, RF executed a deed of sale.
Under the agreement, TCT shall be transferred in the name
of Milan within 6 months from time of full payment. Period
has lapsed, title was still not transferred to Milan.
i. The failure to transfer title was due to the fact that
the land was mortgaged to GSIS to secure a P10M
loan.
ii. Milan filed a case against RF. Trial court awarded
nominal damages and attys fees. RF appealed
questioning the award of nominal damages of
P20M because the contract provides for a penalty
clause of 4% interest per annum. RF contended
that the 4% is already sufficient.
b. SC: The parties could not have contemplated the 4% as the
penal clause. In the first place, the legal interest is at 6%.
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4% is lower than that. furthermore, rights of Milan to the

title after full title was clearly violated.
i. Remember the case of vertex, 2 years had passed
before they were able to transfer the certificate. In
this case, vertex wanted to rescind the contract.
there was restitution. There was no damages
because vertex was not able to prove actual
damages. There was no mention of nominal
damages either.
ii. In this case, the court recognized the violation of
the right. Nominal damages was intended to
vindicate a violation of a right. Court had to reduce
it however as P20K was excessive.

70. In case of penal clause, the debtor cannot opt to just pay the penalty
and forego with the compliance to the obligation. It happens when
there is best effort. Under provisions in human relations, one has to
exercise good faith in all ones dealings. Again, penal clause kicks in
when having tried, one cannot comply with the obligation. Obligor
cannot go straight to paying the penalty. The creditor can file a case
for specific performance or damages (actual and others, if there is
bad faith). See Art 1227
a. If the obligation is personal, a person cannot be compelled
to perform the obligation.

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