Oblicon Diagrams - Labitag

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DIAGRAMMATICAL OUTLINE OF OBLIGATIONS

OBLIGATION

DEFINITION

A juridical relation whereby a person (the CREDITOR) can oblige

or legally (i.e. enforceable by action) demand or compel anotherperson (the DEBTOR) determinate conduct (prestation) and in

case of breach, the debtor shall be liable with all of his property (present & future) that are not exempt from execution.

TO GIVE

Specific or determinate thing

Generic or indeterminate thing

TO DO

NOT TO DO

ELEMENTS

Subject

Active Subject (Obligee-Creditor)

Passive Subject (Obligor-Debtor)

Object

Prestation (The Juridical necessity to give, to do or not to do

Efficient Cause

Vinculum Juris or Juridical Tie (i.e. Sources of Obligation;

Law Contracts, Quasi-Contracts, Delicts or Quasi-Delicts)

Prof. Eduardo A. Labitag

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KINDS

Civil

Sanctioned by law, etc.

Natural

If voluntarily performed, no right to recover payment

Moral

Based on conscience

Real

To give

Personal

To do, not to do, not to give

Positive

To give, to do

Negative

Not to give, not to do

Unilateral

One party bound to perform obligation (e.g. simple & remuneratory donation; to give support

Bilateral

Two parties reciprocally bound (e.g. purchase & sale; ease)

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SOURCES Art. 1157

4. Acts or Omissions Punishable by LawArt. 1161

Civil liability from crimes governed by Penal

Law, subject to Art. 2177, C.C. & pertinent provisions of C.C., Human Relations & on

Damages.

5. Quasi-DelictsArt. 1162

Provisions on Quasi-Delicts, Chapter 2, Title XVII, Book IV, Civil Code

Provisions of C.C. on Human Relations

Special Laws

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NATURE AND EFFECTS OF OBLIGATIONS

OBLIGATION TO GIVE

DETERMINATE OR SPECIFIC THING

a. Right to compel delivery (Art. 1165)

Includes delivering its accessions and accessories even though not

mentioned (Art. 1966)

Creditor has right to the fruits (whether natural industrial or civil fruits) from time obligation to deliver it arises (Art.1164)

No real right to the thing until delivery of

subject matter of obligation (Art. 1164)

-Personal action

against debtor

-No right against

the world

CREDITOR HAS

b. Right to rescission or resolution

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SOURCES Art. 1157

1. LawArt. 1158, C.C.

Not presumed

Demandable only

In Civil Code

If expressly determined

In Special Law

Regulated

By precepts of law establishing them

In matters not foreseen, by Book IV of the Civil Code

2. ContractsArt. 1159, C.C

Force of Law Between Contracting Parties

Should be Complied with in Good Faith (Art. 1159)

3. Quasi-ContractsArt. 1160,C.C.

See Arts. 2142-2175

Negotiorum Gestio (Officious Management)

Solutio Indebiti (Payment not due)

Other Quasi Contracts: (Support given by

stranger & other “Good Samaritans”)

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In either case, right to damages (Art. 1165/1170) in case of any breach of obligation

a. Failure to deliver

Legal excuse from failure to deliver/delay = Fortuitous

Event or Force Majeure (Art. 1174)

General rule: No one shall be responsible for Fortuitous Event (F.E.) except:-Law; e.g. possession in Bad Faith (Art. 552)

-Stipulation of parties-Nature of obligation requires assumption of risk

Requisites of F.E.

-Event unforseeable or though foreseen is inevitable-Event independent of human will, or will of debtor

-Debtor cannot perform obligation in proper or normal manner

-Debtor not guilty of concurrent negligenceN.B. F.E. – applicable to:

-Non performance, delay-Loss/Deterioration of specific thing (Art. 1189, 1190, 1994)

Debtor Answers for a Fortuitous Event:a. Expressly specified by law: 1942, 522, 2147, 2159, 1979, 1788

b. Stipulation – debtor becomes “insurer” of obligation c. Assumption of risk

d. Fraud or malice (bad faith) e.g. 1165 p.3 – promises to deliver same thing to two or more persons not having

same interest

e. Debtor in delay already, or has promised to deliver same specific thing to 2 or more persons not having same interest (Art.1165, 3rd

par.)f. Debtor guilty of concurrent negligence

g. Liability arises from a criminal act except if debtor

tenders thing & creditor unjustifiably refuses to receive

c. Right to enforce obligor to take care of specific thing

(Art. 1163)

Degree of Care: Proper diligence of a good father of a family, unless the law or stipulation of parties require

another standard of care.

May bring appropriate actions for preservation of his rights (Art. 1188, by

analogy)

Different Ways of Breaching Obligation

a. Failure to Perform

b. Fraud

c. Negligence

d. Default or delay

e. Contraven-tion of tenor of

obligation

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DETERMINATEOR SPECIFIC THING

Right to damages (Art. 1165/1170) i.e. in case of:

b. Fraud (malice or bad faith) in performance

c. Negligence in performance

d. Delay or default

e. Any manner contravene tenor of obligation (Art. 1170)

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BREACHES OF OBLIGATION

TO GIVE TO DO

SPECIFIC THING GENERIC THING

A. Failure/Refusal to

Deliver the Very Same

Specific Thing

Failure to Deliver

Accessions &

Accessories

Remedy

B. Fraud

C. Negligence

D. Default or Delay

E. Contravention of

Tenor of Obligation

Specific

Performance

Rescission

Damages

A. Failure/Refusal to

Deliver

Remedy Substituted

Performance

Rescission

Damages in either case

B. Fraud

C. No Negligence

Considered

Deliver other members of

genus which is not of inferior

quality

D. Default or Delay Required

Specific Performance

E. Contravention of

Tenor

A. Failure /

Refusal to Do

Remedy Substituted

performance

if not strictly

personal

Rescission

If badly

done, can

be

undone or

No delay

Undone if

possible to

undo

Rescission,

plus

Damages

NOT TO DO

No Accessory

Obligation

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OBLIGATION TO

GIVE

INDETERMINATE OR GENERIC THING

Creditor may ask for compliance by 3rd person at

debtor’s expenses

b. Right To Ask For Rescission Or Damages

c. In Either Case, Right To Damages

Failure to deliver

Fraud (malice or bad faith)

Negligence

Delay

Any manner contravene tenor of obligation (Art. 1170)

If debtor fails/ refuses to deliver, creditor

may:

If quality and circumstances not

specified, debtor cannot give

generic thing of genus which is

of inferior quality

Creditor cannot demand generic

thing of superior quality (Art.

1246)

a. Creditor may ask for specific performance if debtor fails/ refuses to deliver

Creditor may ask 3rd person to deliver

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OBLIGATION TO DO

Breaches of Obligation

Execute at Debtor’s

Undone at Debtor’s Cost

Plus damages

1. Failure To Do

2. Delay, Default or Mora

Meaning: Failure of obligor to fulfill obligation from

the time of judicial or extra-judicial demand

When demand not necessary for delay to start

Obligation or law expressly so declared

Nature and circumstances of obligation show that the time was a controlling motive for the establishment (time

is of the essence of obligation)

Demand useless as when obligor rendered it beyond his

power to perform (Art. 1169)

If debtor fails to do

Does it in contravention of tenor

Undone at Debtor’s Cost

If debtor fails or delays in to do

If debtor does it in contravention of tenor of obligation or does it

poorly

Undone at debtor’s expense

Creditor may ask 3rd person to do, charge cost to debtor as

damages

Except if act is purely personal

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2. Delay, Default or Mora

Reciprocal Obligations

No delay, if other party does not perform or not ready

to comply, delay begins, when one party fulfills his

obligations.Kinds of MoraArt. 1165-1170

Mora Solvendi Ex Re – To Give

Ex Persona – To Do

Delay on part of

debtor

Mora Accipiendi

Delay on the part of

the creditor

CompensatioMorae

Mutual delay in

reciprocal obligations

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3. Fraud

Defined Fraud or deceit or bad faith is the deliberate and intentional

evasion of the normal fulfillment of obligations.

Demandable in all obligations

Note: Not fraud in creation of

contract

Effects Damages paid by guilty party.

Waiver or action for future fraud

= void (Art. 1171)

Breaches of Obligation

Fraud or deceit in creation of contract are,

either (a) Dolo Causante or Causal

Fraud (i.e. party would agreed to contract

if he knew true facts = consent of party is

vitiated or contract is voidable

(b) Dolo Incidente or Incidental Fraud =

Damages

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4. Fault or Negligence

Defined Art. 1173

Omission of that diligence required by nature of the obligation, corresponds to circumstances of the person,

of the time, of the place

If law or contract does not state diligence

required = diligence of good father of family diligence; extra-ordinary diligence required –

e.g. common carriers Art. 1733 lesser than extraordinary (Art. 1744); Inn keepers, hotel keepers Art. 1998-2002

Effects

Demandable – Courts may regulate according to

circumstances (Art. 1172)5. Contravention of Tenor of Obligation

OBLIGATION NOT TO DO

If debtor does what is forbidden = Undone at

debtor’s expense & damages; if cannot be undone = damages only

SUBSIDIARY REMEDIES OF CREDITORS1. Acción subrogatoria

2. Acción Pauliana3. Direct action – Arts. 1652; lessor vs. sub-lessee

1729 – laborers vs. ownerArt. 1608 –vendee a retro vs. vendee a retro’s transferee; Art. 1893 principal vs. substitute appointed by agent.

Breaches of Obligation

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Acción Subrogatoria Acción Pauliana Acción Directa

Who files action Creditor of insolvent debtor in place of latter

Creditor of insolvent debtor Art .1652 – LessorArt .1608 – Vendor a Retro

Art . 1729 – Laborer of Contract

Art . 1893 – Principal of Agent

Versus whom Debtor of insolvent debtor

Creditor

Transferee of property Art . 1652 – Sublessee of Lessee

Art . 1608 – Transferee of Vendee a Retro

Art . 1729 – Owner who owes

contractorArt . 1893 – Substitute of Appointed

Agent

Purpose To collect credit which insolvent debtor neglects to collect

To rescind contract entered into in fraud of creditors

To collect credit

If successful, is plaintiff preferred over respondent of suit

No, unless plaintiff- creditor garnished

credit

Yes Amount collected is owned by him if

and only if

Should plaintiff’s credit antedate/ exist prior to other credit

No need Yes

Is action primary or subsidiary Primary, but plaintiff-creditor must

prove negligence of insolvent debtor to file demandable obligation

Subsidiary Primary

Defenses available to defendant All defenses which he could interpose

against his own creditor, i.e. debtor of

plaintiff-creditor

Third person transferee is in good faith

and for value

All defenses had it been original

creditor filing action

SUBSIDIARY REMEDIES OF CREDITORS

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KINDS OF CIVIL OBLIGATIONS

Pure

Not subject to any condition

Demandable at once

Conditional

Suspensive or condition precedent

Resolutory or condition subsequent

Potestative, Casual or mixed

If suspensive conditional obligation is

purely potestative on will of debtor = void

With a Period or Term

Suspensive (Ex Die or from a day certain)

Resolutory (In diem or to a day certain)

Definite Period

Indefinite Period

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KINDS OF CIVIL OBLIGATIONS

As To No. of Prestations

Simple or Individual – one prestation

Multiple – two or more prestations

Conjunctive – all prestations must be performed

Disjunctive – one or some prestations must be performed

Alternative: Debtor must perform one of

several alternatives – choice belongs to debtor unless expressly given to creditor

Facultative: One principal prestation but

one or more substitutes – choice belongs to debtor only

As To Binding Tie Among Creditors/Debtors

Joint Obligation (Obligation apportionable presumed to exist

unless law, stipulation or nature of obligation requires solidarity

Solidary or Joint and Several

As To Whether or Not Obligation Can Be Perfomed In Parts

Divisible

Indivisible (Obligation cannot be partially performed)

With A Penal Clause

Joint Indivisible

Obligation

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PURE OBLIGATION CONDITIONAL OBLIGATION

An obligation NOT

SUBJECT to a PERIOD or

CONDITION. It is

DEMANDABLE at ONCE , although a reasonable grace

period is granted for

performance.

A CONDITION is a FUTURE and UNCERTAIN EVENT. It is an obligation

which effectivity is subordinated to the fulfillment or non-fulfillment of a

condition.

EFFECTS

VALIDITY OR LEGALITY

CAUSE OF HAPPENING

MANNER OF HAPPENING

SUSPENSIVE

RESOLUTORY

Fulfillment extinguishes

obligation

Fulfillment results in the

acquisition of rights

Before fulfillment of

the condition, the

creditor may bring

action to preserve

his rights

Before fulfillment of

the condition, the

debtor may recover

what he has paid by

mistake, but not

fruits or interests.

POSSIBLE (physical or legal)

IMPOSSIBLE(physical or legal)

Capable of realization

according to nature,

law, not contrary to

good customs, public

order and public

policy

Incapable of

realization

Generally, it annuls

the obligation. If

divisible, however,

the part affected is

not void (Art. 1183).

In unilateral obligations,

an unlawful or

impossible condition is

considered not written,

and the obligation is not

annulled but considered

unconditional (Art. 727).

A condition not to do an

impossible condition is

considered not agreed

upon. Hence, the

obligation is not

conditional. (Art. 1183

par. 2)

POSITIVE

NEGATIVE

Some event will happen

at determinate time –

obligation extinguished

as soon as time expires

or event will indubitably

not take place (Art.

1184)

Future and uncertain event

will not happen – effective

from moment time indicated

lapses or evidently event

cannot occur (Art. 1185)

POTESTATIVE

CASUAL

MIXED

Depends

upon a

party’s will

Depends upon

chance or the

will of a third

person

Depends upon

chance or the

will of a third

person and/or

the will of one

of the parties

If (positive)

suspensive and

depends solely

on the will of the

debtor, the

obligation is void

(Art. 1182).

If resolutory and

depends solely

on the will of

either party, the

obligation is still

valid (Taylor v.

Uy Teng Piao 43

Phil. 873 1922)

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RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO GIVE

SUSPENSIVE

(POSITIVE)

CONDITION

• Before happening of future and uncertain event, no obligation to give

• But creditor has inchoate right

• Creditor may bring appropriate action to preserve his right (Art. 1188)

• May recover what was paid by mistake

Upon happening of condition:

• Obligation retroacts to day in which it was constituted

• Fruits produced: 1. In reciprocal obligations – deemed compensated by interest on price

2. In unilateral obligations – goes to debtor unless from nature and circumstances of

obligation and different intention is inferred (Art. 1187).

LOSS: If thing perishes, goes out of commerce of man or disappears in such a way that its existence is

unknown or cannot be recovered (Art. 1189 par. 2)

1. If through fortuitous event – obligation extinguished 2. If through debtor’s fault: liability for damages

DETERIORATION: 1. With debtor’s fault – creditor chooses between rescission and fulfillment

2. Without debtor’s fault – creditor bears impairment

IMPROVEMENT: 1. By thing’s nature or by time - inures to creditor’s benefit.

2. Through debtor’s expense - Debtor has only rights of usufructuary.

SPECIFIC THING

RESOLUTORY • Obligation

effective at once

but subject to

extinguishment

The roles of debtor and creditor are

reversed. Original creditor becomes debtor

for return of specific thing (Art. 1190).

• No retroactive application of obligation

• Rules on loss, deterioration or improvement of specific thing (Art. 1189) applied in reverse – original creditor

becomes the debtor.

GENERIC THING• Before happening of future and uncertain event, no obligation to give

• But creditor has inchoate right

• Creditor may bring appropriate action to preserve his right (Art. 1188)

• May recover what was paid by mistake

• Article 1189 not applicable (GENUS NUNQUAM PERIT, the genus never perishes).

SUSPENSIVE

(POSITIVE)

CONDITION

RESOLUTORY

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OBLIGATION TO DOSUSPENSIVE

RESOLUTORY

IN BOTH CASES, UPON HAPPENING OF THE CONDITION:

• No retroactivity • No fruits are considered

• No loss (physical), deterioration or improvement• Courts determine retroactive effect (Arts. 1187 par. 2, 1190)

• No obligation to do.

OBLIGATION NOT TO DO

• Obligation is extinguished.

SUSPENSIVE

RESOLUTORY

• No delay or default.

• Obligation is extinguished.

RULES OF FULFILLMENT OF A CONDITION

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ALTERNATIVE OBLIGATION

NATURE OF OBLIGATION It is a multiple disjunctive obligation. Several objects are due, fulfillment

of one prestation or some but not all of them is sufficient (as determined

generally by the choice of the debtor).

RIGHT OF CHOICE GENERAL RULE: Debtor (However, he cannot paralyze the obligation

by refusing to make a selection).

EXCEPTION: Unless expressly granted to creditor or third person (Art.

1200)

LIMITATIONS Right of choice

is indivisible.

CANNOT choose impossible

or unlawful prestation

CANNOT select those which could not have been

the object of the obligation (Art. 1200 par. 2)

WHEN CHOICE PRODUCES EFFECT

When choice has been

communicated to the other party.

Consent of other party is not

required

EFFECT OF NOTICE 1. Alternative obligation limited to selected prestation.

2. Obligation is converted to simple obligation

3. Once communicated, becomes irrevocable

FORM OF NOTICE OF SELECTION

1. ORALLY

2. IN WRITING

3. TACITLY

4. BY ANY OTHER UNEQUIVOCAL MEANS

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ALTERNATIVE OBLIGATION

RULES IF CHOICE GIVEN TO:

DEBTOR

CREDITOR

THIRD PERSON Loss or impossibility

Before election: SAME as CREDITOR

After election: Apply general rules on effect of loss

(Whether or not through fault or fortuitous event)

Loss or impossibility

Before election

After election

OF ONE ALTERNATIVEThrough Fortuitous Event: Debtor delivers

the remaining prestation chosen by creditor

Through Debtor’s Fault: Creditor may claim subsisting or value of the one lost plus

damages

OF ALL Without Debtor’s Fault: Obligation

is extinguished

Through Debtor’s Fault: Creditor chooses price of the one lost plus

damages

Apply general rules on effect of loss (Whether or not through fault or fortuitous event)

Prevention by the Creditor

Refusal of debtor to elect

Loss or impossibility

If through

creditor’s acts

debtor cannot

make a choice, debtor may

rescind plus

damages (Art.

1203)

May be compelled

by court action and

court may

authorize another person to make a

choice (substituted

performance of

prestation to do).

Before election

After election: Apply general rules on effect of loss (Whether or not through

fault or fortuitous event) and obligation becomes a simple obligation.

OF ONE ALTERNATIVEDebtor must

choose from remaining

alternatives

OF ALL BUT ONEObligation

becomes simple.

Debtor losses right to choose (Art.

1202)

OF ALL ALTERNATIVESDebtor’s Fault: Creditor

has right to damages (Art.

1204)Fortuitous Event:Debtor has no liability

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FACULTATIVE OBLIGATION

CONCEPT

NO. OF PRESTATIONS

EFFECTIVITY OF CHOICE

RIGHT OF CHOICE

EFFECT OF LOSS ORIMPOSSIBILITY

AFTER DEBTOR

CHOOSES

BEFORE DEBTOR

CHOOSES

Principal prestation/s

When only ONE of the prestation has been agreed upon (and is DUE) but the

OBLIGOR MAY render ANOTHER in SUBSTITUTION (Art. 1206).

Substitute prestation/s, but there is/are also multiple disjunctive obligations

Obligation becomes a simple obligation from the time the debtor

communicates to the creditor that he elects to perform the substitute

prestation

Only the DEBTOR,

NEVER the creditor

OF SUBSTITUTE with or

without fault of debtor

The substitute becomes the principal prestation.

Debtor performs principal

prestation

OF PRINCIPAL without

debtor’s fault

Obligation is extinguished

OF PRINCIPAL through

debtor’s fault

Debtor may deliver

substitute

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FACULTATIVE AND ALTERNATIVE OBLIGATIONS, DISTINGUISHED

CONTENTS

NULLITY OF PRESTATION

RIGHT OF CHOICE

EFFECT OF LOSS

FACULTATIVE OBLIGATION ALTERNATIVE OBLIGATION

Only ONE principal

prestation/s and substitute

prestation/s DUE

SEVERAL PRESTATIONS are

agreed upon but only

one/some are to be performed;

ALL prestations have same value

Nullity of PRINCIPAL

obligation INVALIDATES

obligation; nullity of

SUBSTITUTE prestation does not

Nullity of one prestation DOES

NOT INVALIDATE obligation

ONLY DEBTOR is given right

to choose substitute prestation

Belongs to debtor but may be

given to creditor or debtor

IMPOSSIBILITY of

PRINCIPAL OBLIGATION

EXTINGUISHES obligation

ONLY IMPOSSIBILITY of ALL

PRESTATION

EXTINGUISHES obligation

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JOINT OBLIGATION

PRESUMPTIONS REQUISITES

EFFECTS

The concurrence of two or more

creditors or of two or more debtors in

one and the same obligation does not

imply that each one of the former has a right to demand, or that each of the

latter is bound to render entire

compliance with the prestation. There

is solidary liability only when the obligation expressly so states, or when

the law or the nature of the obligation

requires solidarity (Art.1207).

If from the law, or the nature of the

wording of the obligations to which the

preceding article refers the contrary

does not appear, the credit or debt shall be presumed to be divided into

as many equal shares as there are

creditors or debtors, the credits or

debts being distinct from one another, subject to the Rules of Court

governing the multiplicity of suits. (Art.

1208).

Plurality of objects

Determination of

shares in the

demandability of

the fulfillment of the obligation.

Shares may be

unequal.

Shares are

considered

distinct from

one another.

The demand by one creditor upon one

debtor produces the effects of default only

with respect to the creditor who demanded

and the debtor on whom demand was made, but not with respect to others.

The interruption of prescription by the

judicial demand of one creditor upon a

debtor does not benefit the other creditors

nor interrupt the prescription as to the other debtors.

The vices of each obligation arising from the

personal defect of a particular debtor or

creditor does not affect the obligation or

rights of others.

The insolvency of a debtor does not

increase the responsibility of his co-debtors,

nor does it authorize a creditor to demand

anything from his co-creditors.

In the joint divisible obligation, the defense of res judicata is not extended

from one debtor to another.

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JOINT INDIVISIBLE OBLIGATION

PRESUMPTION

EFFECTS

INDIVISIBILITY V. SOLIDARITY

The indivisibility of an

obligation does not necessarily

give rise to solidarity. Nor does

solidarity of itself imply indivisibility (Art. 1210).

JOINT INDIVISIBLE

OBLIGATIONS

SOLIDARY

OBLIGATIONS

The legal tie that binds the multiple

parties is joint; whereas, the obligation

cannot be performed in parts.

Each creditor cannot demand more than his share.

Each creditor may demand the full

prestation and each debtor likewise has

the duty to comply with the entire

prestation.

Refers to the prestation which is not

capable of partial performance

Refers to the legal tie defining the

extent of the liability among the multiple

creditors or debtors or both.

Liability for Damages in Case of Breach: A joint divisible obligation gives rise to

indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who

may have been ready to fulfill their promises shall not contribute to the

indemnity beyond the corresponding portion of the price of the things or the

value of the service in which the obligation consists (Art. 1224).

Since the division of the prestation is impossible, the right of the creditors may be

prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of

the latter should be insolvent, the others shall not be liable for his share (Art. 1209).

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SOLIDARY OBLIGATION

REQUISITES KINDS

Plurality of subjects of

obligation, i.e. multiple

creditors/debtors

Unity of Prestation

Distribution among

solidary parties

Accounting among

creditors for the

share of each

Contribution among

debtors for the

share of each

AS TO SOURCE (Art. 1208): The sources

of solidarity may be from law, from the

nature of the obligation or the wording

of the obligations.1. LEGAL: from law (e.g. RPC Art. 110 -

principals, accomplices and

accessories within their respective

classes will be solidarily liable; CC Art. 1945 - bailees to whom a thing is

loaned in the same contract; CC Art.

2194 – joint tortfeasors; CC Art. 2146

– two officious managers; CC Art.

2157 – two payees in solutio indebiti; CC Art. 1915 – two principals, one

common agent )

2. CONVENTIONAL: by stipulation

3. REAL: from the nature of obligation

AS TO PARTIES BOUND:

1. ACTIVE: Solidarity

of creditors; each has the right to collect the

whole of the prestation

from the common

debtor2. PASSIVE: Solidarity

of debtors; each is

liable to pay the whole

to the common creditor

3. MIXED: Both active and passive

AS TO UNIFORMITY:

1. UNIFORM: With the same terms and conditions for all

2. VARIED/NON-UNIFORM: Creditors and debtors are not bound in the

same manner and by the same periods and conditions (Art. 1211)EFFECT: Only the portion due at the time of demand is collectible from

any of the debtors or by anyone.

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GENERAL EFFECTS OF ACTIVE AND PASSIVE SOLIDARITY

ACTIVE SOLIDARITY, i.e. solidarycreditors

PASSIVE SOLIDARITY, i.e. solidary debtors

Mutual agency exists among them.

The death of a solidary creditor does not transmit

the solidarity to each of his heirs but to all of them

taken together.

Each debtor can be required to pay the entire

obligation; but after payment, he can recover from

the co-debtors their respective shares

Each creditor represents the others in the act of

receiving payment, and all other acts which tend

to secure the credit or make it more

advantageous.The debtor who is required to pay may set up by

way of compensation his own claim against the

creditor.

One creditor does not represent the others in acts prejudicial

(Art. 1212). But a solidary creditor who makes a novation,

compensation and remission extinguishes the obligation but

he is liable to the others for the share in the obligation

corresponding to them (Art. 1215).

The total remission of the debt in favor of a debtor

releases all the debtors; but when this remission

affects only the share of one debtor, the other

debtors are still liable for the balance.

The credit and its benefits are divided equally

among the creditors unless there is an agreement

among them to divide differently.

All the debtors are liable for the loss of the thing

due, even if such loss is caused by the fault of

only one of them.

Each creditor may renounce his right and the

latter need not thereafter pay the obligation to the

former.

The interruption of prescription as to one debtor

affects all the others, but the renunciation by one

debtor of prescription already had does not

prejudice the others.

Mutual guaranty exists among them.

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

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EFFECTS OF SOLIDARY OBLIGATION

SOLIDARY CREDITOR IN RELATION TO

SOLIDARY DEBTOR IN RELATION TO

Common Debtor

Common Creditor

Solidary Co-Creditors

Solidary Co-Debtors

General Rule: The debtor may pay any one of the

solidary creditors Exception: If any judicial or extrajudicial demand is

made by any of the solidary creditors, payment should be made to him (Art. 1214).

• Creditors may proceed against any one or some or all of the debtors simultaneously.

• Demand against one shall not be an obstacle to

those which may be subsequently directed against others as long as the debt has not been fully

collected (Art. 1216).• The creditor may choose which offer to accept if

two or more solidary debtors offer to pay (Art. 1217

par. 1)

In Case of Novation, Compensation, Confusion,

Remission by a Solidary CreditorTHE OBLIGATION IS EXTINGUISHED (Art. 1215

par. 1)

Collection of Debt• The creditor who collects the debt shall be liable to the others for the share in the obligation

corresponding to them (Art. 1215 par. 2).• Each creditor may do what is beneficial to his

co-creditors (Art. 1212)

In Case of Novation, Compensation, Confusion, Remission by a CreditorCreditor who executed the acts shall be liable to

the others for the share in the obligation corresponding to them (Art. 1215 par. 2).

Prejudicial Acts Prohibited Each solidary creditor cannot do anything which may be prejudicial to his co-creditors, except Art.

1215 (Art. 1212).

Assignment of RightsA solidary

creditor cannot assign his rights

without the consent of his

co-creditors (Art.

1213).

Obligation to Perform• Each one of the solidarydebtors is bound to render

entire compliance with the prestation (Art. 1207).

• Payment made by one of the solidary debtors

extinguishes the obligation

(Art. 1217 par. 1)

Demand for Fulfillment of Prestation• Demand may be made

against any or some or all of the solidary debtors

simultaneously

• Demand against one shall

not be an obstacle to those

which may be subsequently

directed against others as long as the debt has not

been fully collected (Art. 1216).

In Case of Total Novation,

Compensation, Confusion, Remission by a Solidary

Debtor,THE OBLIGATION IS

EXTINGUISHED (Art. 1215 par. 1)

In Case of Payment by a Co-Debtor• The one who made the payment may claim from his co-debtors the share which

corresponds to each. He is also entitled to interest for the payment already made after

the debt is due (Art. 1217 par. 1).• The solidary debtor who made the payment

is not entitled to reimbursement if the

payment is made after the obligation has prescribed or becomes illegal (Art. 1218).

In Case of Insolvency by a Solidary Debtor• When one of the solidary debtors becomes insolvent, his share shall be borne by all his

co-debtors in proportion to the debt of each (Art. 1217 par. 1).

In Case of Remission by a Creditor• If the remission is for the share of only one solidary debtor, this does not release him

from his responsibility to his co-debtors when the debt had been totally paid by one of them

before the remission was effected (Art. 1219).• Remission of the whole obligation obtained

by one of the solidary debtors, does not

entitle him to reimbursement from his co-debtors (Art. 1220).

In Case of Fortuitous EventIf the thing has been lost or has become impossible: 1. without the fault of the debtors: EXTINGUISHED; 2. with fault of any of them: all shall

be responsible for the price as well as damages and interest without prejudice to their action against the guilty debtor (Art. 1221).

29

DEFENSES OF SOLIDARY DEBTOR AGAINST CREDITOR

EFFECTS

TYPES (Art. 1222)

A. DEFENSES DERIVED FROM THE NATURE OF THE OBLIGATION Constitutes a TOTAL defense

• Illicit cause or object or absolute simulation

• Defect in capacity or consent of all debtors• Unenforceability due to lack of proper proof under Statute of Frauds

• Non-performance of suspensive condition or non-arrival of period

affecting the entire obligation

• Extinguishment of obligations such as full payment and total remission• Other means which may invalidate the original contract from which the

action of the creditor against the debtor arises (res judicata, prescription,

etc)

B. DEFENSES PERSONAL TO A PARTICULAR SOLIDARY DEBTOR• Incapacity of solidary debtor upon whom a demand is made: TOTAL

• Vices of consent: TOTAL

C. DEFENSES PERTAINING TO SHARE OF PARTICULAR SOLIDARY DEBTOR UPON WHOM DEMAND IS MADE• e.g. His share is not yet due, i.e. subject to suspensive condition/period

• Compensation, condonation, or remission in his favor: This is a PARTIAL defense and solidary debtor can still be sued

for portions not subject to such defense

D. DEFENSESPERSONAL TO OTHER DEBTORS• PARTIAL defense only for the debtor-

defendant

• debtor may only

avail of these only with regard to the part

of the debt which the

co-debtors are

responsible

• Debtor may use these even if his co-

debtors are not joined

as defendants.

If defense is from the NATURE of the

obligation: All co-debtors will be

benefited. (A., above)

If defense was a PERSONAL

one: Only he will benefit. (B.,

above)

If defense pertains personally to his CO-DEBTOR:

exempts co-debtor from payment of portions of

the obligation corresponding to others (D., Above)

30

WHO CAN PAY?

In GENERAL 1. Debtor or his:2. Authorized Agent3. Heir4. Successor-in- interest

3rd PERSON

Interested in obligation(creditor cannot refuse

to accept valid payment)

Payment w/ or w/o debtor’s

knowledge

Effects:

1. Valid payment;

obligation extinguished

2. Debtor to reimburse fully 3rd person interested

in obligation

3. 3rd person subrogated

to rights of creditor

Not interested in obligation(creditor may refuse to accept

payment [1236])

Payment with

debtor’s consent

(express/tacit)

Payment without debtor’s knowledge

or against the will of D

Effects:

1. 3rd person is entitled

to full reimbursement

2. Legal subrogation (novation) – 3rd person

is subrogated/step into

the shoes of creditor

Effects:

3rd person can only be

reimbursed only insofar as

payment has been beneficial to debtor(1236, 2nd. par.)

→burden of proof on 3rd person cannot compel C to subrogate

him (1237)

3rd person (whether or not

interested in obligation) does not

intend to be reimbursed (1238)

Debtor must give

consent

Effects:

1. Payment is deemed

as a donation/offer of

donation2. Donation must be in

proper form (if above

P5Th →must be in writing

In Obligation to Give, if PAYOR has

No free disposal & no

capacity to alienate

Minor who entered

contract w/o consent of

parent or guardian

Effects: Payment is invalid → w/o prejudice to natural obligations

Effects: No right to recover fungible

thing delivered to creditor who spent

or consumed it in good faith

31

TO WHOM PAYMENT MAY BE MADE

In GENERAL1. Creditor /person in whose favor obligation was

constituted, or2. His successor in interest, or3. Any person authorized to received payment (1240)

Payment to IncapacitatedCreditor (1241)

G – NOT valid

⊗⊗⊗⊗ 1) If C has kept the thing delivered2) Insofar as payment benefited C

Payment to 3rd

PERSON (1241, 2nd par.)

G VALID if 3rd

person proves

that it redounded to C’s benefit

⊗⊗⊗⊗ Exception to proof of benefit:.3rd person acquires C’s rights after payment

.C ratifies payment

.C’s conduct leads D to believe that 3rd

person had authority to receive payment.Assignment of credit without notice to D

In Case of ACTIVE

SOLIDARITY

If no demand is made, D may pay to ANY of

solidary creditors

If any judicial/extrajudicial demand is made by any

one of the creditors who made the demand (1214)

32

TO WHOM PAYMENT MAY BE MADE

If payment is made to a WRONG PARTY

Effect:No extinguishment

⊗⊗⊗⊗ Extinguishment if fault or negligence can be imputed to creditor

⊗⊗⊗⊗ Payment in good faith to person in possession of credit = debtor released (1242)

If debtor pays creditor after being judicially ordered to retain debt = payment not valid (1243)

Payment made in good faith to any person in possession of creditEffect: D released (1242)

33

WHAT IS TO BE PAID? →→→→ IDENTITY

In GENERALThe very prestation (thing or service due)

Obligation to give a SPECIFIC thing

Give:1. Specific thing itself2. Accessions & accessories3. If with loss, improvements,

deterioration →→→→ Apply Art.1189

Debtor cannot compel C

to receive a different

specific thing even latter

has same value or more valuable than that due

(1244)

Obligation to give a GENERIC thing

G:C→ cannot demand a thing of superior quality; can demand inferior

D→ cannot deliver a thing of inferior quality (1246)

⊗⊗⊗⊗ Unless quality & circumstances have been stated (1246) purpose and other circumstances of

obligation considered

Obligation to pay sum of money, if D alienates property to C = DACION EN PAGO governed by

law on SALES (1245)

Obligation to DO orNOT to DO

Identity: The very same act promised to be done

or not to be done

→ Substitution cannot be done against C’s will (1244, 2nd par.)

34

WHAT IS TO BE PAID →→→→ IDENTITY

Payment of MONEY

1. Payment of domestic obligations in Phil.

Currency

⊗⊗⊗⊗ Exceptions under R.A. 4100; R.A. 8183 –Foreign currency if agreed to by parties

2. In case of extraordinary inflation/deflation, basis

of payment is value of currency at the time of

obligation was established (1250)

Payment of INTEREST

No interest (i.e., for the use of someone’s money)

shall be due unless expressly stipulated in writing

35

INTEREST

A. LOANS OR FORBEARANCE OF MONEY, GOODS OR CREDIT (for use of money, goods or credit)

B. CHARGED AS DAMAGES FOR BREACH OR DEFAULT OF OBLIGATION

OBLIGATION WITH A PENAL CLAUSE

A, B & MONEY JUDGMENT BECOMES FINAL & EXECUTORY

If no stipulation in

writing re payment of

interest: NO

INTEREST (Art.

1956)

If with written

stipulation but no

rate of interest: USE

12% INTEREST

PER ANNUM

If with written

stipulation and rate

of interest: FOLLOW

STIPULATED

INTEREST RATE

For payment of

loan or forbearance

of money, goods or

credit

Obligation is NOT a

loan or forbearance

of money

If no stipulation in

writing re payment of

interest: 12% p.a.

INTEREST for breach

If with written

stipulation and rate of

interest: STIPULATED

INTEREST RATE +

12% p.a. for

BREACH/DEFAULT

FROM WHEN?

From date of judicial

or extrajudicial

demand

Interest on value of

obligation at 6%

p.a.

If demand can be

established with

reasonable certainty:

6% from date of judicial

or extrajudicial demand

or due date of

obligation; if there is no

need of demand to

make debtor incur in

delay (Eastern

Shipping Lines v. CA

234 SCRA 781 [1994])

If demand cannot be

established with

reasonable certainty:

6% from date of

judgment on amount

determined by the

court.

12% p.a. from date

judgment becomes final

and executory until final

payment.

Final payment shall

be considered a

forbearance of

credit. (Eastern

Shipping Lines v.

CA 234 SCRA 781

[1994])

With stipulation re

payment of interest

for use of money

and rate of interest

as penalty:

Penalty substitutes

for indemnity for

damages (Art. 1226)

If obligor refuses to

pay or if he is guilty

of fraud, he shall pay

interest as the

penalty stipulated

(Art. 1226):

Rate of interest (for

use of money +

penalty (rate) + legal

interest on penalty

If obligation

partially liquidated

and partly

unliquidated, 60%

p.a. from date of

demand of

liquidated amount

36

In Case of SUBSTANTIAL PERFORMANCE IN GOOD FAITH (1234)

D may recover as if there had been

complete fulfillment

- Less damages suffered by C

PRESUMPTIONSin payment of INTERESTS &

INSTALLMENTS

INTEREST – If principal amount is

received w/o reservation as to

interest → interest is presumed to have been paid (1176; 1253)

INSTALLMENTS → If a latter installment of a debt is received

w/o reservation to prior installments

→ Prior installments are presumed paid (1176, 2nd par.)

HOW IS PAYMENT TO BE MADE →→→→ INTEGRITY

In GENERAL1233 – Complete delivery or rendering

1248 – C cannot be compelled to

received partial prestations; D cannot

be compelled to give partial payments

⊗⊗⊗⊗ Exceptions:1. Contrary stipulation

2. When debt is in part liquidated & in part

unliquidated3. When there are several subjects/parties

are bound under different terms/conditions

⊗⊗⊗⊗ Effect if C accepts incomplete performance (1235): WAIVER

-May be express or implied

If C knows the incompleteness/

irregularity of the payment, and he still accepts it w/o objection, then

obligation is deemed extinguished

(estoppel)* There must be intent to waive

⊗⊗⊗⊗ Except if C has no knowledge of the incompleteness

37

WHEN PAYMENT IS TO BE MADE?

When obligation is due and

demandable but D may pay before

due date if period is for benefit of D

In GENERALPayment to be made when the creditor

makes a demand

(judicially/extrajudicially)

⊗⊗⊗⊗ Exceptions wherein demand of creditor is not necessary for delay to exist:

1. When obligation/law expressly declares

2. Nature & circumstances of the obligation→

designation of time is controlling motive or

establishment of contract

3. When demand would be useless

WHY SHOULD PAYMENT BE MADE?

Because C may compel D to pay, and failure to pay will allow C to satisfy credit

from properties of D that are not exempt

from execution

38

WHERE PAYMENT IS TO BE MADE (ART. 1251)

In GENERALIn the place designated in the obligation

If no place is designated

If obligation is to deliver a

SPECIFIC thing

→ Place of performance is wherever the thing was at

the moment obligation was

constituted

⊗⊗⊗⊗ Unless there is a contrary express

stipulation

In any other case

→ Domicile of debtor

If D changes his domicile in bad faith or after he has

incurred in delay

→ Additional expenses shall be borne by D

Expenses of Making Payment

In GENERALExtrajudicial expenses

required by the payment

shall be borne by DEBTOR

⊗⊗⊗⊗ Unless otherwise stipulated

As to JUDICIAL expenses

→ Rules of Court shall govern

Legend:

G = General Rule

⊗⊗⊗⊗ = Exception

C = Creditor

D = Debtor

39

COMPENSATION

CONCEPTIt takes place when two persons are in their own right reciprocal

creditors and debtors of each other in separate obligations

DISTINGUISHED from

CONFUSION

In compensation, the two parties are PRINCIPAL creditors and

debtors of each other, i.e., there are TWO SEPARATE obligations

each arising from a different cause.

KINDS(Art. 1281)

TOTAL: When both obligations are of the same amount.

PARTIAL: When the amounts are not equal leaving a deficit to be

paid.

ORIGINJUDICIAL: When the defendant is the creditor of the plaintiff for an

unliquidated amount and sets up his credit as a counterclaim,

which is later on liquidated by judgment.

FACULTATIVE: When it can be claimed by one of the parties, who

has the right to object to it. This is set up by the creditor when legal

compensation cannot take place due to the lack of some legal

requisite for his benefit.

LEGAL: Takes place by operation of law when all requisites under

Art. 1279 are present. Likewise, even if debts payable at different

places as long as there be indemnity for expenses of exchange or

transportation to the place of payment.

CONVENTIONAL: When the parties agree to compensate their

mutual obligation even if some requisite is lacking (Art. 1282).

Extinguishment arises from wills, not law, and takes effect upon the

agreement of the parties.

40

REQUISITES OF LEGAL

COMPENSATION

4. Both debts are liquidated (existence and amount determined)

and demandable (enforceable in court).

5. Neither of the debts is subject to a suit between a one of the

creditors and a third party who communicated it in due time to the

other party. In this case, there is a provisional suspension of the

possible compensation.

6. The compensation is not prohibited by law, e.g. future support by gratuitous title, obligations in favor of the

government (taxes), when used by either the depositary or borrower in debts arising from depositum or commodatum

(Art. 1287); when debt consists in civil liability from a penal offense (Art. 1288).

3. Both debts must be due. But an existing debt, which has not yet

matured, does not prevent the enforcement by action of that which

is already due.

7. Compensation should not be waived.

• Compensation rests on a potestative right and may be waived unilaterally at the time the obligation is

contracted or after compensation.

• It may be done expressly or impliedly. Examples of the latter include: not setting it up in litigation or paying a debt voluntarily despite knowing that it had already been extinguished through compensation.

2. Both debts consist in a sum of money or if the things due are

“consumable” (although “fungible” would be the more appropriate

adjective), they be of the same kind and quality if so stated.

1. Both parties must be mutual creditors and debtors of each other

either through their OWN RIGHT OR AS PRINCIPALS.

EXCEPTION: When guarantor (although subsidiarily bound) may

set up compensation as regards what the creditor may owe the principal debtor (Art. 1280).

EXCEPTIONS: 1. Stipulations through conventional compensation; 2. There is no legal compensation if

the object involved is a specific thing.

EXCEPTIONS: 1. Stipulation of parties; 2. Obligations subject to

suspensive conditions cannot be set up through compensation prior to the fulfillment of the obligation. If so, retroactivity applies

pursuant to Art. 1187; 3. If one of the obligations is subject to suspensive period for the benefit of the debtor, debtor can

facultatively compensate both obligations.

EXCEPTIONS: 1. No compensation if one of the debts has prescribed before the moment the two

credits co-existed. Likewise if one of the parties is in a state of suspension of payment; 2. Period or suspensive condition has yet to occur.

EXCEPTION: 1. If the third party is adjudged the creditor, then no compensation takes place; 2. If not,

then compensation is effective.

41

REQUISITES OF CONVENTIONAL COMPENSATION

• Each of the parties can dispose of the credit he seeks to

compensate.

• They agree to the mutual extinguishment of their credits

EFFECTS OF ASSIGNMENT OF CREDIT (Art. 1285)

N.B. If assignment takes place AFTER both debts became due and

demandable and other requisites of Art. 1279 concur, the assignment is

ineffective due to extinguishment of both obligations by way of compensation.

• If the debtor consents to the assignment, his consent constitutes a waiver

unless he communicates to the assignor that he has reserved the right to claim

the compensation at the time he gives his consent.

• If it is with the knowledge but without the debtor’s consent, then he may raise

as a defense the compensation of those credits before the assignment took

place but not subsequent ones. However, the compensated debt should mature

before the assignment.

• If it is without the knowledge of the debtor, then he may raise as a defense the

compensation of those debts that are due to him before he was notified of the

assignment.

EFFECTS OF COMPENSATION

(Art. 1289 and

1290)

N.B. Compensation takes effect by operation of law thus ipso jure extinguishing

both debts to the concurrent amount even if both parties are not aware of it

provided all requisites under Art. 1279 are met. However, it must be alleged

and proved by the debtor who claims the benefits.

• Both debts are extinguished up to the concurrent amount.

• Interests stop accruing on the extinguished obligation or the part extinguished.

• Period of prescription stops with respect to the obligation or the part

extinguished.• All accessory obligations are also extinguished.

42

CONDONATION OR REMISSION OF DEBT

DEFINITIONCondonation is a way of extinguishing an obligation through which the obligor’s debt is reduced or completely renounced by the obligee. It is essentially in nature of an offer of simple DONATION .

REQUISITESMust be gratuitous

Must NOT be

innoficious

If so, legal heirs of creditor may

ask for revocation/reduction

Must be accepted by the obligor in proper forum, i.e.

acceptance in writing if debt is more than P 5,000.00

KINDS

As to extent

As to its form

As to date of delivery

Partial: Does not cover the entire obligation

Complete/Total: Covers the entire obligation

Implied: Can be inferred from conduct

Express: Complies with the forms of donation (Art. 1270 par. 2)

Inter Vivos: Takes effect during lifetime of the donor

Mortis Causa: Takes effect upon the death of the donorMust comply with the formalities of wills

If creditor made the remission when he is in a state of insolvency –

condonation is rescissible by an acción pauliana under Art. 1382 par. 3.

43

PRESUMPTIONS Private document evidencing credit

Delivery made by the creditor to the debtor: Deemed a renunciation/waiver of action to collect credit (Art. 1271)

To nullify: Prove to be

INOFFICIOUS

To uphold: Debtor and his heirs

must prove that delivery was

made in virtue of payment of the

debt

Found in the possession of the debtor

CREDITOR: Delivered it

voluntarily unless the contrary is

proven (Art. 1272)

RENUNCIATION OF DEBT

PRINCIPAL: Accessory is also

condoned (Art. 1273)

ACCESSORY: Principal is still

outstanding (Art. 1273)

ACCESSORY OBLIGATION OF

PLEDGE (Art. 1274)

If found in the hands of the debtor

or a third person who owns the things after delivery to the creditor

PRESUMPTION: Pledge has

been remitted.

44

NOVATION

CONCEPT: Relative extinguishment of an obligation by the

substitution or change of an obligation by a subsequent

one which extinguishes or modifies the first, either by:

1. Changing the object or principal condition 2. Substituting the person of the debtor

3. Subrogating a third person in the rights of the creditor (Art.

1291)

REQUISITES 1. Previous VALID OBLIGATION

2. AGREEMENT of ALL parties to the

new contract

3. EXTINGUISHMENT of the old contract

4. VALIDITY of the new contract

5. INTENTION to novate (animus novandi)

EFFECTS1. In GENERAL: The principal obligation is extinguished.

2. ACCESSORY obligation may subsist only insofar as they may benefit third persons who did not give their

CONSENT (Art. 1296)

On the STATUS of the NEW or ORIGINAL OBLIGATION1. Nullity or voidability of the original obligation = NOVATION VOID except when annulment may be claimed only by

the debtor or when ratification validates acts which are voidable (Art. 1298). 2. Nullity or voidability of new obligation = NEW OBLIGATION SUBSISTS unless the parties intended that the former

relation should be extinguished in any event (Art. 1297).

3. Suspensive or resolutory condition of original obligation = NEW OBLIGATION SHALL BE UNDER THE SAME

CONDITION unless otherwise stipulated (Art. 1299).

KINDS AS TO FORM

AS TO ORIGIN

EXPRESS: When the parties DECLARE that the old obligation is extinguished and

substituted by a new one

IMPLIED: When there is such an incompatibility that the new and old obligation

cannot stand together

LEGAL: By lawCONVENTIONAL: By agreement

45

NOVATION

KINDS

AS TO OBJECT

OBJECTIVE or REAL: Change of the obligation by SUBSTITUTING the OBJECT with another or

CHANGING the PRINCIPAL CONDITIONS

PRINCIPAL CONDITIONS are only those which ALTER the ESSENCE of the OBLIGATION

Examples of cases where there would be OBJECTIVE NOVATION

• Change of an obligation from one to pay a sum of money to one for the delivery of some property or the

rendition of some service

• Conversion of a deposit into a lease or loan• Increase in the amount of debt if it is not proved that the increase is the result of an extension of time to pay

the obligation. (BUT reduction is NOT since it can only be considered as partial remission or condonation)

SUBJECTIVE or PERSONAL: Modification of the obligation by change of the subject (see next

page)

MIXED: Combination of objective and subjective novation

46

NOVATION SUBJECTIVE or PERSONAL: Modification of the obligation by change of the

subject

KINDS

CHANGE OF DEBTOR(Passive Subjective Novation, Substitution of

Debtor)

EFFECT: Old debtor is released

CONSENT of creditor is INDISPENSABLE

EXPROMISION: The initiative does not emanate from the debtor

but from a third person who assumes the obligation

Maybe without consent or against will of debtor

DELEGACION: The debtor offers and the creditor accepts a third

person

- Requires the consent of the third person and the creditor

- PARTIES: Delegante = old debtor, Delegado = new debtor,

Delegatario = creditor

In both cases, the old debtor is released from the obligation. If old debtor is not released, there will be

TWO debtors and their LIABILITY is JOINT.

CHANGE OF CREDITOR(Active Subjective Novation, Subrogation of a third

person in the rights of the creditor)

Effect of INSOLVENCY of new debtor on old debtor: If

substitution is without knowledge of against will

of old debtor = Old debtor has NO LIABILITY

ANYMORE

Effect of INSOLVENCY of new debtor on old debtor:

Old debtor no longer liable except if insolvency

of new debtor is already existing and of public

knowledge or known to old debtor (Art. 1295) =

LIABLE

CONVENTIONAL SUBROGATION: Agreement of the

parties. It requires the consent of the old creditor, the new

creditor and the debtor

EFFECTS: Entire credit is transferred from old creditor to new

creditor with all corresponding rights against debtor and third

persons (Art. 1303)

Partial subrogation resulting from partial payment: Old creditor is

preferred over partial subrogee (Art. 1304)

LEGAL SUBROGATION: Operation of law because of the

parties’ certain acts.

PRESUMED: 1. When Cr. 1 pays another Cr. 2 who is

preferred; 2. When a third person not interested in

obligation pays (with D’s approval); 3. When a third person

with interest pays (with or without D’s approval)

EFFECTS: Entire credit is transferred from old creditor to new

creditor with all corresponding rights against debtor and

third persons be they guarantors or third persons (Art.

1303)

47

CONTRACTS

BASIC PRINCIPLES

1. Autonomy or Freedom of Contract (Art. 1306)

The contracting parties may establish such stipulations, clauses, terms and

conditions as they may deem convenient, provided they are not contrary to

a. LAW – refers to mandatory or prohibitory laws

Examples: 1. pactum leonina (lionine partnership) (Art. 1799)

2. pactum commissorium (Art. 2088; 2137)3. pactum de non-alienando (Art. 2130)

b. MORALS and GOOD CUSTOMS –refers to standards of

justice (right and wrong) and decency acknowledged by society

Example:

Carnal relation as consideration or cause of a promise to marry

c. PUBLIC ORDER – considers the public weal, peace, safety

and health of the community

48

d. PUBLIC POLICY – contract has a tendency to injure the public is

against the public good, or contravenes some established interest of

society or is inconsistent with sound policy and good morals, or tends

clearly to undermine the security of individual rights

Examples of contracts declared to be against public policy:

i) Contracts impairing the efficient and conscientious

performance of public duties;

ii) exempting a person from his own malice or gross

negligence, or that of his servant;iii) delaying, obstructing or preventing the adm. of justice

or stifling prosecution of crimes, or deny access to

courts or invade their jurisdiction;

iv) unduly restraining trade or competition

v) inducing commission of fraud, or breach of trust and confidence

2. CONSENSUALITY – Art. 1315

Contracts are perfected by mere consent (general rule) and from that

moment the parties are bound

Exceptions:

a. Solemn or formal contracts

i. donations of real estate (Art. 749)

ii. sale of land through an agent – authority

must be in writing (Art. 1874)

49

iv) stipulations limiting carrier’s liability to less than

extraordinary diligence (must be in writing) – Art. 1744

v) contracts of a antichresis wherein principal & interest

must be specified in writing (Art. 2134)

vi) stipulation to pay interest on loans in writing (Art. 1956)

vii) transfer of large cattle which requires transfer of

certificate of registration

3. MUTUALITY – Art. 1308

Contracts must bind both contracting parties; its validity cannot be left to the will of one of them.

4. OBLIGATORINESS OF CONTRACTS AND PERFORMANCE IN GOOD FAITH (Art. 1159; 1315)

Parties are bound not only to the fulfillment of what has been expressly stipulated but to all the consequences which according to their nature may be in keeping with good faith, usage and law (Art. 1315)

iii) partnership to which immovables are contributed –needs an inventory attached to the public instrument

(Art. 1773)

50

5. RELATIVITY (Art. 1311)

Contracts take effect only between the parties, their assigns and heirs

except in cases where the obligations arising from contract are not

transmissible by their nature, by stipulation or by provision of law.

Exceptions:

a. In stipulation pour autrui (stipulation in favor of a

third person.

Provided:

i) contracting parties have clearly and deliberately

conferred a favor upon third person;

ii) stipulation “pour autrui” is only a part of the contract;

iii) third person communicated his acceptance to obligor before stipulation was revoked by original parties;

iv) no agency relationship exists between any of parties

and third person.

b. Law authorizes creditor to sue on his debtor’s contract

(Acción Directa)

Examplesi. Lessor against sub lessee (Art. 1652)

II. Laborers of independent contractor against the owner (Art. 1729)

III. Principal against sub-agent (Art. 1893)

iv) Vendor a retro against transferees of vendee (Art. 1608)

c. Acción Subrogatoria

d. Acción Pauliana

51

A. Consent

1. CONCURRENCE OF OFFER AND ACCEPTANCE

OFFER must be CERTAIN

or DEFINITE (Art. 1319)

ACCEPTANCE must be

ABSOLUTE and

UNQUALIFIED (Art. 1319); it

is NOT PRESUMED

KINDS

EXPRESS

(Art. 1320)

INTENTIONAL; i.e., offeror

intends to be BOUND

COMPLETE – at least as

to CAUSE and OBJECT

IMPLIED

(Art. 1320)

QUALIFIED

(Art. 1319)

THEORIES OF PERFECTION 1. MANIFESTATION

2. EXPEDITION

3. RECEPTION

4. COGNITION (Art. 1319 par. 2)

SILENCE is EQUIVALENT to CONSENT ONLY when it

MISLEADS the other party in a manner which works to his prejudice (equivalent to

ESTOPPEL)

If QUALIFIED, it is a

COUNTER-OFFER

(Art. 1319)

ESSENTIAL REQUISITES OF CONTRACTS

52

OFFERER fixes

TIME, PLACE,

MANNER OF

ACCEPTANCE(Art. 1321)

OFFER TERMINATES when:

1. The OFFEREE REJECTS it

2. INCAPACITY of OFFERER or OFFEREE

(Art. 1323)

3. COUNTER-OFFER (Art. 1319)

4. LAPSE of the time to accept; lapse of option period except option founded upon a valuable consideration

5. REVOCATION before learning of

ACCEPTANCE (Art. 1324)

6. Supervening ILLEGALITY before

acceptance

ANNULS the offer

OFFER THRU AN

AGENT (Art. 1322)

ADVERTISEMENTS

53

2. LEGAL CAPACITY OF PARTIES

INCAPACITY to enter into contracts which

RESTRAINS the EXERCISE of a RIGHT

and RENDERS them VOIDABLE

PROHIBITION by LAW to enter into

contracts which RESTRAINS the

ENJOYMENT of a RIGHT and if

PROHIBITION is BASED on PUBLIC POLICY which makes them VOID (Art.

1329)

Consent given by a MINOR (under 18

years old), INSANE, DEAF-MUTE who

cannot write: INVALID (Art. 1327)

Contracts entered in a DRUNKENNESS or

HYPNOTIC SPELL: VOIDABLE (Art. 1328)

Contracts entered during a LUCID

INTERVAL: VALID (Art. 1328)

A. DONATIONS between SPOUSES: VOID

B. PURCHASE of STATE PROPERTY by

PUBLIC OFFICERS: VOID

C. PURCHASE of PROPERTY in LITIGATION by JUDGES, LAWYERS: VOID

D. AGENT- the property of the PRINCIPAL

E. EXECUTOR - the property under

ADMINISTRATION (Art. 1491)

54

3. MUST BE INTELLIGENT, FREE, SPONTANEOUS AND REAL

VICES OF CONSENT

DURESS (Art. 1335)

FRAUD (Art. 1338)

UNDUE INFLUENCE (Art. 1337)

MISREPRESENTATION (Arts. 1342, 1343)

SIMULATION (Arts. 1345, 1346)

VIOLENCE (Force employed to wrest consent) or INTIMIDATION

(Compulsion by a reasonable and well-grounded fear of an imminent and

grave evil upon the person or his property; the person or property of his

spouse, descendants or ascendants

INSIDIOUS words or machinations on the part of one of the parties

whereby the other is induced to execute without which he would not

have made

CIRCUMSTANCES affecting ADVERSELY the

DETERMINATION of a party entering into a contract

and rendering the contract subject to annulment

IMPROPER ADVANTAGE of POWER over the WILL of ANOTHER

which deprives him of a REASONABLE FREE CHOICE

MISTAKE/ERROR (Art. 1331)

INADVERTENT and EXCUSABLE DISREGARD of a CIRCUMSTANCE

MATERIAL to the contract. To invalidate consent, mistake must refer to

substantial things or conditions which moved the parties to enter into the

contract

55

BADGES OF FRAUD/ SIMULATION

1. Fictitious or inadequate consideration

2. Transfer of property after a suit is filed

3. Sale on credit by an insolvent debtor

4. Proof of large indebtedness

5. Transfer of all or nearly all of debtor’s property

6. Failure of transferee to take possession of property transferred

7. Gross disparity between price and value of property

8. Transfer between father and son (parent and child) plus one other badge above

56

MISTAKE/ERROR (Art. 1331)

MISTAKE of FACT

ERROR OF LAW

Substance of the object (error in substantia)

Principal qualities of the object (error in qualitate)

Quantity (error in quantitate), but not errors of accounts, which give rise to correction only

Identity of the party (error in persona)

Ignorantia legis neminem excusat (Art. 3)

BUT, mutual error as to the legal effect of an

agreement when the real purpose is

frustrated, may VITIATE CONSENT (Art.

1334).

When one of the parties is UNABLE to READ, the person

ENFORCING the contract must show that the terms have been fully

EXPLAINED to the FORMER (Art. 1332).

There is NO MISTAKE if the party ALLEGING it knew the DOUBT,

CONTINGENCY or RISK affecting the object of the contract (Art.

1333).

The party suffering under a mistake of fact would not have

consented had he known the TRUE facts.

Nature of the transaction e. g., conditional v. absolute sale (error in negotio)

Error of law is compatible with

good faith when the mistake is

founded upon a doubtful or difficult

question of law (Art. 526 par. 3).

Identity of the object of the contract (error in corpore)

57

DURESS (Art. 1335)

VIOLENCE INTIMIDATION

SERIOUS and

IRRESISTIBLE

FORCE is used to

WREST CONSENT

Consent is given due to: Reasonable and well-

grounded FEAR

Imminent and serious

INJURY to the

person or property

of: 1. the party;

2. spouse;

3. descendants or

ascendants, legitimate or

illegitimate

THREAT must constitute

an actionable WRONG

(Art. 1335)

FEAR must be

determining FACTOR of

the CONSENT (Art. 1335)

Reverential fear does not

annul consent

No duress exists where

the party acts with

assistance of counsel

Age, sex and condition

must be taken into

account in order to

determine intimidation(Art. 1267, par. 3)

UNDUE INFLUENCE (Art. 1337)

When a person:

1. Takes improper ADVANTAGE;

2. Of his power over the WILL of

ANOTHER;3. DEPRIVE the latter of a

REASONABLE freedom of

CHOICE

CIRCUMSTANCES to consider:

1. CONFIDENTIAL, SPIRITUAL, FAMILY

RELATIONS between the parties e.g.,

teacher and student;2. The person unduly influenced was suffering

from INFIRMITY or from an UNFAVORABLE

BARGAINING POSITION that leaves NO

REASONABLE ALTERNATIVE.

58

FRAUD (Art. 1338)

DOLO CAUSANTE (CAUSAL FRAUD)

DOLO INCIDENTE (INCIDENTAL FRAUD)

The party would NOT

have CONSENTED if

there had been no fraud

(Art. 1338). It renders the contract VOIDABLE.

The party would have

AGREED, but under

DIFFERENT TERMS

(Art. 1344 par. 2). It gives rise to an action for

DAMAGES ONLY.

CONCEALMENT may constitute fraud where the parties are in

CONFIDENTIAL RELATION (Art. 1339) e.g. stockholder and

directors and where there is a DUTY to DISCLOSE FACTS e.g.

principal and agent.

USUAL EXAGGERATIONS in TRADE (Dealer’s Talk) are not

FRAUDULENT as long as the party had an OPPORTUNITY to

KNOW the facts (Art. 1340).

KINDS

EXPRESSION of OPINION does not constitute fraud unless made

by an EXPERT, and the other party has relied on the expert’s

special knowledge (Art. 1341).

59

MISREPRESENTATION (Arts. 1342, 1343)

If made in GOOD faith, it is not fraudulent but may CONSTITUTE

ERROR (Art. 1343).

Misrepresentation by THIRD PERSONS does not vitiate consent,

unless it created substantial mistake and same is mutual (Art. 1342).

ACTIVE e.g., the party specifically states he is of age

PASSIVE

KINDS

VITIATES consent

DOES NOT VITIATE consent

SIMULATION (Arts. 1345, 1346)

ABSOLUTE

RELATIVE

KINDS

No real transaction is

intended; FICTITIOUS

diminishing of assets or

increasing liabilities

Real transaction is hidden;

1. Simulation of the

NATURE of the contract

2. Simulation of the CONTENT (object, price,

date, conditions)

3. Simulation of PARTIES

(interposition of person) (Arts. 743, 1031,1491)

EFFECT: Contract is INEXISTENT

(Art.1346, 1409 par. 2)

EFFECT: Apparent or ostensible contract is VOID, but the hidden

contract may be VALID if it has the necessary REQUISITES; it does NOT PREJUDICE A THIRD PERSON and

it is not intended for any purpose CONTRARY to LAW, MORALS,

GOOD CUSTOMS, PUBLIC ORDER and PUBLIC POLICY (Art. 1346).

60

ESSENTIAL REQUISITES OF CONTRACTS

B. ObjectWhat may be valid

objects of contracts?

Determinate or Determinable

( Art. 1349)

Within the commerce of man

or transmissible (Art. 1347)

Actual or possible of existence , includes future

things (Art. 1347)

Lawful or not contrary to law,

morals, good customs, public

order and public policy (Art.

1347 par. 2)

What may not be valid

objects of contracts?

Thing or service must be:

Future inheritance, except when

authorized by law e.g. inter vivos

partitions by decedent (Art. 1080) and

marriage settlements (Art. 84 FC)

Impossible things or services

Right to receive future

support

Past support or support in

arrears are debts of the

persons obliged to give legal

support

61

ESSENTIAL REQUISITES OF CONTRACTS

C. Cause

Requisites of a valid causa

Present or existent

True, not a false causa

Lawful or licit

i.e., not contrary to law, morals, good

customs, public order

or public policy

Kinds of causa

Objective, intrinsic and juridical reason for the existence of a contract

Onerous – The

prestation or promise

Remuneratory – Past

service or benefit remunerated

Gratuitous – Mere

liberality; Mere

generosity, unalloyed

fondness

Motive – Different

from causa (Art. 1351)

Presumption of existences and lawfulness of cause (Art. 1354)

Absence of

cause/unlawful cause shall render contract

inexistent and void

(Art. 1352)

Statement of false

cause will render

contract void unless

founded upon another

causa which is true and lawful (Art. 1353)

Lesions do not

invalidate the cause except there is fraud,

violence or intimidation

(Art. 1352)

62

FORMS OF CONTRACTS

General Rule: Contracts shall be obligatory in whatever form they may have been entered

into, provided all essential requisites are present (Art. 1356, 1st sentence)

Exception: When the law requires that it be proven in certain way, or that it be made in

some form for validity or enforceability (Art. 1356, 2nd sentence). Such formality is absolute and indispensable

In order to be valid (Formal or Solemn Contracts)

Donations of personal

property with value exceeding P 5,000; offer

and acceptance must be in

writing (Art. 748)

Donation of an immovable;

offer and acceptance must

be in a public document

(Art. 749)

Sale of land or interest

therein through an agent: authority of

agent must be in

writing (Art. 1874)

Stipulation limiting a common carrier’s liability for

loss, destruction or deterioration of shipped goods

from extraordinary to ordinary diligence must be in writing, signed by shipper, supported by other

consideration other than service of carrier and

must be reasonable; just and not contrary to

public policy (Art. 1744)

Antichresis: amount of

principal and interest must be in writing,

otherwise void (Art.

2134)

Constitution of partnerships is in any form, except

where immovable or real rights are contributed:

public instrument required (Art. 1771) Where

immovable property is contributed: inventory of

immovable, signed by the parties, must be attached to the public instrument (Art. 1773)

Stipulations to charge interest must be in

writing.

Chattel mortgage must be

in writing and must have an

affidavit of good faith (for validity) and recorded in

the chattel mortgage

registry to bind third

persons (enforceability)

Sale of large cattle requires the transfer of the

certificate of registration of large cattle

63

In order to be effective against third persons

In order to be enforceable

The following must appear in a public document (Art. 1358)

All other contracts involving amounts exceeding P 500 must appear in writing, but sales of goods, chattels or choses in action are governed by Arts. 1403 (2) and 1405.

1. Those whose object is the creation, transmission,

modification or

extinguishment of real

rights;

2. Cessation, repudiation, renunciation of hereditary

or conjugal partnership of

gains rights;

3. Power to administer

property, or for any act that appears in another

public document, or would

prejudice third persons;

4. Cession of actions or

rights proceedings from an act appearing in a

public document.

Contracts are unenforceable unless it complies with STATUTE OF FRAUDS, except if ratified (Art. 1403 (2))

1. Agreement not to be performed within one year;

2. Special promise to answer for debt or miscarriage of another (guarantee);3. Agreement in consideration of marriage, other than mutual promise to marry;4. Agreement for the sale of goods, chattels or choses in action priced not less than P

500,a. unless there is partial acceptance/receipt or payment by buyer;

b. except in sale by auction where the entries in auction book may be sufficient memo;

5. Agreement for lease exceeding one year;

6. Agreement for sale of real property or interest therein;7. Representation as to the credit of third person.

Requirement: Written memorial or memorandum in writing containing the essential requisites of contracts.

64

REFORMATION OF INSTRUMENTS

PROCEDURAL RULEThe principles of the

general law on the

reformation of instruments are hereby adopted insofar

as they are not in conflict

with the provisions of this

Code (Art.1360); The procedure for the

reformation of instruments

shall be governed by the

Rules of Court (Art. 1369).

There has been a meeting of the minds between

contracting parties about the object and the causa but

there is a failure to express the true intention due to:

WHO MAY FILE (Art. 1368)

FRAUD (Art. 1362) or INEQUITABLE CONDUCT (Art. 1363)

MISTAKE (Art. 1361) ACCIDENT(Art. 1364)

Ignorance, lack of skill,

negligence, bad faith on

the drafter of the

instrument or the clerk or typist

A. The injured party, namely:

1. the person mistaken, if mistake is mutual, either

2. the person defrauded

3. victim of the inequity 4. victim of the accident

5. the person whose rights are prejudiced by the

relative simulation (if contract will be given effect)

B. His heirs and assigns

EXCEPTIONS (Art. 1366, 1367)

1. Simple unconditional donations inter vivos

2. Wills

3. Real agreement is void

4. An oral contract5. Estoppel, when one of the parties has brought an action

to enforce the instrument

65

Is the INTENTION of the parties clear

from the contract’s LANGUAGE?

If YES, the literal

meaning is controlling

(Art. 1370, par 1).

If NO, the parties’ intention

prevails (Art. 1370, par. 2).

ASCERTAIN intent from:

1. The contract as a WHOLE (Art. 1374).

2. The contemporaneous or subsequent

CONDUCT of the parties (Art. 1371). 3. The USAGE or CUSTOMS of the country

(Art. 1376).

Does the contract contain

DOUBTFUL CLAUSES?

Does the contract contain

DOUBTFUL WORDS/TERMS?

If the DOUBTS are cast

upon the principal OBJECT

so that the intention cannot

be known, the contact is VOID (Art. 1378).

INTERPRETATION OF CONTRACTS

66

NO

.

If YES, deal with doubt by:

1.Interpreting according to the USAGE and

CUSTOM of the place (Art. 1376).

2.If there are several meanings, use the one which will render it MOST EFFECTIVE (Art.

1373).

3.Interpreting doubtful stipulations together

with others; construe them as parts of a WHOLE (Art. 1374).

4.Interpretation should NOT FAVOR the

party causing the OBSCURITY (Art. 1377).

If YES, seek clarity by:

1.Words having different significations

should be understood in a way that is in

KEEPING with the NATURE and OBJECT of the contract (Art. 1375).

2.BUT, if words are general, do not construe

them to include things that are distinct and

cases that are different from those intended by the parties. (Art. 1372, par. 2.)

3.Interpretation should NOT FAVOR the

party causing the OBSCURITY (Art. 1377).

Secs. 10 – 19 of Rule 130

(Interpretation of Documents, formerly

indicated as Rule 123) of the Rules of

Court shall also apply (Art. 1379).

Determine whether the contract is

GRATUITOUS or ONEROUS.

What if these rules are not enough?

NO

.

67

If the contract is

GRATUITOUS and

the doubts refer to

INCIDENTAL CIRCUMSTANCES,

the LEAST

TRANSMISSION of

rights and interests should prevail (Art.

1378).

If the contract

is ONEROUS,

settle doubt in

favor of greater RECIPROCITY

of interests

(Art. 1378).

1.Interpret according to the LEGAL MEANING it bears in

the place of its execution, unless the parties intended

otherwise (Sec. 10).

2.When the contract has several particulars, it should be

construed so as to give EFFECT to ALL provisions (Sec.

11, similar to Art. 1373).

3.When a GENERAL and a particular provision are

inconsistent, the latter is PARAMOUNT to the former

(Sec. 12).

4.The CIRCUMSTANCES under which it was MADE,

including the situation of the subject thereof and of the

parties to it, may be SHOWN, so that the judge may be

placed in the position of those who language he is to

interpret (Sec. 13).

5.Terms of a writing are PRESUMED to have been used

in their PRIMARY and general ACCEPTATION, but

evidence is admissible to show that they have a local,

technical, or otherwise peculiar signification (Sec. 14).

6.WRITTEN words CONTROL printed ones (Sec. 15).

7.EXPERTS and interpreters can be USED in explaining

certain writings (Sec. 16).

8.When the terms have been intended in a different

sense by the different parties, that sense is to prevail

against either party in which he SUPPOSED the OTHER

UNDERSTOOD it, and when different constructions of a

provision are otherwise equally proper, that is to be

taken which is the most FAVORABLE to the party in

WHOSE FAVOR the provision was MADE (Sec. 17).

9.Construction favors a NATURAL RIGHT (Sec. 18).

10.An instrument may be construed according to

USAGE, in order to determine its true character (Sec. 19,

similar to Art. 1376).

68

NATURAL OBLIGATIONS

Right of retention only

After voluntary fulfillment

Equity and Natural Law

EXAMPLES/TYPES

FEATURES• No positive law giving right of action

• No right of action to enforce performance

• Voluntary fulfillment of obligation by obligor• Authorize retention of what has been fulfilled

• No right to recover, or demand return of what has been

fulfilled on the theory of solutio indebiti

PRESCRIBED ACTION OF OBLIGEE (Art. 1424): When a right to

sue upon a civil obligation has lapsed by extinctive prescription, the

obligor who voluntary performs the contract cannot recover what

he has delivered or the value of the service he has rendered.

PRESCRIBED ACTION OF THE THIRD PERSON PAYOR WITHOUT KNOWLEDGE AND CONSENT OF DEBTOR AGAINST THE LATTER (Art. 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.

ANNULLED CONTRACT OF 1821 MINOR WITHOUT CONSENT OF PARTIES (Arts. 1426, 1427)

I. Returns whole thing or price he has received (N.B. Relate to Art. 1241, “only insofar benefited”)

II. Fulfills obligation and good faith consummation and spending of what has been delivered

FAILED ACTION TO ENFORCE CONTRACT (Arts. 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 or the

payment of the value of the service he has rendered.

SUCCESSIONSI. Heirs paying decedent’s will debt beyond what he has received (Art. 1429)

II. Will voided by lack of formalities, intestate heirs paying a legacy (Art. 1430)

69

ESTOPPEL

ELEMENTS

IN RELATION TO PARTY BEING ESTOPPED

CONDUCT amounting to false

representation or concealment

of facts

IN RELATION TO PARTY CLAIMING ESTOPPEL

INTENT or EXPECTATION

that conduct shall influence the

other party

KNOWLEDGE, actual or

constructive, of the material

facts

LACK of KNOWLEDGE or of

MEANS to the TRUTH of the

facts

RELIANCE in GOOD FAITH

upon representatives of party

to be estopped

ACTION or INACTION

based thereon of such

character as to change the

position/status of the party claiming estoppel, to his

injury/detriment/prejudice

DEFINITIONAn ADMISSION or REPRESENTATION is rendered CONCLUSIVE upon the

PERSON MAKING it, and cannot be DENIED o DISPROVED (by him) as

against the PERSON RELYING thereon (Art. 1431).

70

ESTOPPELESTOPPEL BY RECORD

ESTOPPEL BY DEED

TECHNICAL ESTOPPEL

Preclusion to deny the truth of

matters set forth in a judicial or

legislative record, e.g.

conclusiveness of judgment

Bar which precludes one party

to a deed and his privies from

asserting as against the other

party and his privies any right/title in derogation of the

deed.

KINDS

EQUITABLE ESTOPPEL (Estoppel in pais)Situation where a party is denied the right to

plead or prove a fact because of his own act

or omission

ESTOPPEL BY LACHES or DELAYREQUISITES:1.Conduct of defendant giving rise to situation

complained of

2.Delay in asserting

complainant’s rights, latter having knowledge

of defendant’s conduct

and an opportunity to

file suit

3.Defendant’s lack of notice or knowledge

that complainant would

assert his right

4.Injury or prejudice to

defendant unless suit is barred

PROMISSORY ESTOPPELA promise to do or not to

do something in the future usually does not result in

estoppel unless the

promise was intended to

be relied upon, was relied upon and refusal to

enforce it would sanction

fraud or injustice.

ESTOPPEL BY REPRESENTATION/MISREPRESENTATION:1.There must be fraudulent

misrepresentation or

wrongful concealment of

facts known to the party estopped.

2.The party precluded

must intend that the other

should act upon the facts

misrepresented.3.The party misled must

have been unaware of the

true facts.

4.The party defrauded

must have acted in accordance with the

misrepresentation. (Art.

1437 par. 1-4)

ESTOPPEL BY SILENCEParty estopped must have

a duty or obligation to

speak.Element of turpitude or

negligence re silence by

which other party was

misled to his injury or prejudice.

ESTOPPEL BY ACCEPTANCE OF BENEFITOne who has allowed another to assume apparent

ownership of personal

property for the purpose of

making any transfer of it, cannot, if he received the

sum for which a pledge has

been constituted, set up his

own title to defeat the

pledge of the property, made by the other to a

pledgee who received the

same in good faith and for

value (Art. 1438)

May be in pais or

by deed (Art.1433).

71

TRUSTS

It is a FIDUCIARY RELATIONSHIP with respect to property, subjecting the person holding the

same to the obligation of dealing with the property for the benefit of another person.

GOVERNING RULES PRICIPLES OF GENERAL LAW OF TRUSTS

Provided they are NOT in conflict with the

Civil Code, Code of Commerce, Rules of

Court and special laws

PARTIES

TRUSTOR (SETTLOR)

TRUSTEE

BENEFICIARY (cestui

que trust)

Person who establishes a trust

Person in whom confidence is reposed for the benefit

of another person

Person for whose benefit the trust has been created.

KINDS

EXPRESS IMPLIED

Created by the INTENTION of the

TRUSTOR or of the PARTIES

Created by OPERATION of LAW

RESULTING

CONSTRUCTIVE

Imposed by law to carry out the actual or presumed

INTENT of the parties, where the express trust fails

Established by law, regardless of intention, in

order to prevent fraud, oppression or unjust

enrichment

72

EXPRESS TRUSTS

PROOF REQUIRED

Re: REAL PROPERTY

Re: PERSONAL PROPERTY

BUT TO BIND THIRD PERSONS

Must be in WRITING

(otherwise

unenforceable) i.e.,

may not be proved by parol evidence (Art.

1443)

ORAL trust sufficient

between the parties

Must be in a PUBLIC

INSTRUMENT

FORM

NO particular words are required for its

creation. It is SUFFICIENT that a trust

is CLEARLY INTENDED (Art. 1444)

WANT OF TRUSTEE

NO trust shall fail because the trustee appointed DECLINES the

designation, unless the contrary should APPEAR in the

INSTRUMENT constituting the trust (Art. 1445)

ACCEPTANCE BY BENEFICIARY

NECESSARY

PRESUMED (PRIMA FACIE) If the trust IMPOSES NO

ONEROUS CONDITION upon

the BENEFICIARY (Art. 1446)

73

IMPLIED TRUSTSHOW ESTABLISHED By OPERATION OF LAW

HOW PROVED By ORAL EVIDENCE

EXAMPLES (ARTS. 1448 – 1456)

Art. 1449. When a donation is made to a

person but it appears that although the legal estate is transmitted to the donee, he

is nevertheless intended either to have no beneficial interest or only a part thereof.

RESULTING CONSTRUCTIVE

Art. 1453. When property is conveyed to

a person in reliance upon his declared intention to hold it for, or transfer it to

another or to the guarantor, there is an implied trust in favor of the person whose

benefit is contemplated.

Where property is sold and the legal

estate is granted to one party but the price is paid by another for the purpose

of having the beneficial interest of the property, the former is a trustee, the

latter a beneficiary (Art. 1448).

Exception: If the person to whom

the title is conveyed is the child, legitimate or illegitimate, of the one

paying the price, no trust is implied, a gift to the child being

disputably presumed (Art 1448) chargeable against child’s legitime

(Arts. 909, 110).

Art. 1450. If the price for a sale of

property is loaned or paid by one person for the benefit of another and the

conveyance is made to the lender of payor to secure the payment of a debt, a

trust arises by operation of law in favor of the person to whom the money is loaned

or for whom it is paid. The latter may

redeem the property and compel a conveyance thereof to him.

Art. 1454. If an absolute conveyance of property is made in order

to secure the performance of an obligation of the grantor towardthe grantee, a trust by virtue of law is established. If the fulfillment

of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.

Art. 1455. When any trustee, guardian or other person holding a

fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a

third person, a trust is established by operation of law in favor of the person to whom the funds belong. NOTE: Hence, acquisition by an agent inures to the benefit of the principal (Severino v. Severino 44 Phil. 343)

Art. 1456. If property is acquired through mistake or

fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit

of the person for whom the property comes. NOTE: This refers to a mistake by a third person and fraud is extra-contractual.

Art. 1452. If 2 or more persons agree to

purchase property and by common consent the legal title is taken in the

name of one of them for the benefit all, a trust is created by force of law in favor of

the others in proportion to the interest of each.

Art. 1451. When land passes by

succession to any person and he causes the legal title to be put in another, a trust

is established by implication of law for the benefit of the true owner.

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TRUSTS

PRESCRIPTION

If a parcel of land is registered in the name of another who is not

the true owner, the true owner may file an action for reconveyance

(after more than one year from registration) on the basis of a

constructive trust

Prescriptive period: 10 years from date of registration

If true owner is still in possession of land, he may file an action to

quiet title. Action is imprescriptible; otherwise it prescribes in 10 or

30 years.