DIAGRAMMATICAL OUTLINE OF OBLIGATIONS Prof. Eduardo A.

Labitag

OBLIGATION
A juridical relation whereby a person (the CREDITOR) can oblige
or legally (i.e. enforceable by action) demand or compel another
DEFINITION person (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;

1
Law Contracts, Quasi-Contracts, Delicts or Quasi-Delicts)
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 2
Two parties reciprocally bound (e.g. purchase & sale; ease)
SOURCES
Art. 1157

4. Acts or Omissions Punishable by Law

Art. 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-Delicts
Art. 1162
Provisions on Quasi-Delicts, Chapter 2, Title XVII, Book IV,
Civil Code

Provisions of C.C. on Human Relations

Special Laws

3
NATURE AND EFFECTS OF OBLIGATIONS

OBLIGATION TO GIVE

DETERMINATE
OR SPECIFIC THING

CREDITOR HAS

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

b. Right to rescission or resolution

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SOURCES
Art. 1157
1. Law
Art. 1158, C.C.
Not presumed

Demandable only

If expressly determined

In Civil Code

In Special Law

Regulated

By precepts of law establishing them

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

2. Contracts
Art. 1159, C.C

Force of Law Between Contracting Parties

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

3. Quasi-Contracts
Art. 1160,C.C.
See Arts. 2142-2175

Negotiorum Gestio (Officious Management)

Solutio Indebiti (Payment not due)

5
Other Quasi Contracts: (Support given by
stranger & other “Good Samaritans”)
 c. Right to enforce obligor to take May bring appropriate actions for
care of specific thing preservation of his rights (Art. 1188, by
(Art. 1163) analogy)

Degree of Care: Proper diligence of a good father of a

family, unless the law or stipulation of parties require
another standard of care.

In either case, right to damages (Art. 1165/1170) Different Ways of Breaching

Obligation
in case of any breach of obligation
a. Failure to Perform d. Default or
delay
a. Failure to deliver b. Fraud
e. Contraven-
tion of tenor of
Legal excuse from failure to deliver/delay = Fortuitous c. Negligence obligation
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 negligence
N.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 6
g. Liability arises from a criminal act except if debtor
tenders thing & creditor unjustifiably refuses to receive
 DETERMINATE
OR 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 NOT TO DO

SPECIFIC THING GENERIC THING A. Failure / No delay

Refusal to Do
A. Failure/Refusal to A. Failure/Refusal to Undone if
Deliver the Very Same Deliver Remedy Substituted possible to
Specific Thing performance undo
No Accessory if not strictly
Obligation personal
Failure to Deliver
Accessions &
Accessories Remedy Substituted Rescission
Performance
Remedy Specific If badly Rescission,
Performance Rescission done, can plus
be
undone or
Rescission Damages in Damages
either case

Damages
B. Fraud

B. Fraud
C. No Negligence
Considered
C. Negligence

Deliver other members of

D. Default or Delay
E. Contravention of
Tenor of Obligation
genus which is not of inferior
quality
D. Default or Delay Required
Specific Performance

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E. Contravention of
Tenor
 OBLIGATION
TO
GIVE

INDETERMINATE OR If debtor fails/ refuses to deliver, creditor

GENERIC THING may:

a. Creditor may ask for specific performance

If quality and circumstances not
if debtor fails/ refuses to deliver
specified, debtor cannot give
generic thing of genus which is
Creditor may ask for compliance by 3rd person at
of inferior quality debtor’s expenses

Creditor may ask 3rd person to deliver

Creditor cannot demand generic
thing of superior quality (Art.
1246) 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) 9
OBLIGATION TO DO

Breaches of
Obligation

If debtor fails to do If debtor fails or delays in to do

Does it in contravention of tenor Creditor may ask 3rd person to

do, charge cost to debtor as
Undone at Debtor’s Cost damages

Except if act is purely personal

Execute at Debtor’s Plus damages

Undone at Debtor’s Cost If debtor does it in contravention

of tenor of obligation or does it
poorly
1. Failure To Do
Undone at debtor’s expense

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)
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Demand useless as when obligor rendered it beyond his
power to perform (Art. 1169)
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 Mora
Art. 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

Compensatio
Morae

Mutual delay in
reciprocal obligations
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Breaches of
Obligation 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

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

Effects Damages paid by guilty party.

Waiver or action for future fraud

= void (Art. 1171)
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 Breaches of
Obligation 4. Fault or Negligence

Omission of that diligence required by nature of the

Defined obligation, corresponds to circumstances of the person,
Art. 1173 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
5. Contravention of circumstances (Art. 1172)
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 CREDITORS

1. Acción subrogatoria
2. Acción Pauliana
3. Direct action – Arts. 1652; lessor vs. sub-lessee
1729 – laborers vs. owner
Art. 1608 –vendee a retro vs. vendee a retro’s transferee;
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Art. 1893 principal vs. substitute appointed by agent.
 SUBSIDIARY REMEDIES OF CREDITORS

Acción Subrogatoria Acción Pauliana Acción Directa

Who files action Creditor of insolvent debtor in place of Creditor of insolvent debtor Art .1652 – Lessor
latter Art .1608 – Vendor a Retro
Art . 1729 – Laborer of Contract
Art . 1893 – Principal of Agent

Versus whom Debtor of insolvent debtor Transferee of property Art . 1652 – Sublessee of Lessee
Creditor Art . 1608 – Transferee of Vendee a
Retro
Art . 1729 – Owner who owes
contractor
Art . 1893 – Substitute of Appointed
Agent
Purpose To collect credit which insolvent debtor To rescind contract entered into in To collect credit
neglects to collect fraud of creditors
If successful, is plaintiff preferred No, unless plaintiff- creditor garnished Yes Amount collected is owned by him if
over respondent of suit credit and only if
Should plaintiff’s credit antedate/ No need Yes
exist prior to other credit
Is action primary or subsidiary Primary, but plaintiff-creditor must Subsidiary Primary
prove negligence of insolvent debtor
to file demandable obligation

Defenses available to defendant All defenses which he could interpose Third person transferee is in good faith All defenses had it been original
against his own creditor, i.e. debtor of and for value creditor filing action
plaintiff-creditor

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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 15
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

Joint Indivisible
Perfomed In Parts
Obligation
Divisible

Indivisible (Obligation cannot be partially performed)

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With A Penal Clause
 PURE OBLIGATION CONDITIONAL OBLIGATION

An obligation NOT A CONDITION is a FUTURE and UNCERTAIN EVENT. It is an obligation

SUBJECT to a PERIOD or which effectivity is subordinated to the fulfillment or non-fulfillment of a
CONDITION. It is condition.
DEMANDABLE at ONCE ,
although a reasonable grace
period is granted for
VALIDITY OR MANNER OF CAUSE OF
performance.
LEGALITY HAPPENING HAPPENING Depends
upon a
POSITIVE POTESTATIVE party’s will
POSSIBLE
EFFECTS
(physical or legal)
Some event will happen If (positive) If resolutory and
RESOLUTORY at determinate time – suspensive and depends solely
Capable of realization
obligation extinguished depends solely on the will of
according to nature,
as soon as time expires on the will of the either party, the
law, not contrary to
Fulfillment extinguishes or event will indubitably debtor, the obligation is still
good customs, public
obligation not take place (Art. obligation is void valid (Taylor v.
order and public
1184) (Art. 1182). Uy Teng Piao 43
policy
Phil. 873 1922)
SUSPENSIVE NEGATIVE
IMPOSSIBLE Depends upon
Future and uncertain event CASUAL
Fulfillment results in the (physical or legal) chance or the
will not happen – effective
acquisition of rights will of a third
from moment time indicated
person
lapses or evidently event
cannot occur (Art. 1185) MIXED Depends upon
Before fulfillment of Before fulfillment of chance or the
Incapable of
the condition, the the condition, the will of a third
realization
creditor may bring debtor may recover In unilateral obligations, A condition not to do an person and/or
action to preserve what he has paid by an unlawful or impossible condition is the will of one
his rights mistake, but not Generally, it annuls impossible condition is considered not agreed of the parties
fruits or interests. the obligation. If considered not written, upon. Hence, the
divisible, however, and the obligation is not obligation is not
17
the part affected is annulled but considered conditional. (Art. 1183
not void (Art. 1183). unconditional (Art. 727). par. 2)
RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO GIVE

SPECIFIC THING
• Before happening of future and uncertain event, no obligation to give
SUSPENSIVE • But creditor has inchoate right
(POSITIVE) • Creditor may bring appropriate action to preserve his right (Art. 1188)
CONDITION • 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.

RESOLUTORY • Obligation The roles of debtor and creditor are

effective at once reversed. Original creditor becomes debtor
but subject to for return of specific thing (Art. 1190).
extinguishment

• No retroactive application of obligation

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

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

GENERIC THING • But creditor has inchoate right
(POSITIVE)
• Creditor may bring appropriate action to preserve his right (Art. 1188)
CONDITION • May recover what was paid by mistake
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RESOLUTORY • Article 1189 not applicable (GENUS NUNQUAM PERIT, the genus never perishes).
RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO DO • No obligation to do.

SUSPENSIVE

RESOLUTORY • Obligation is extinguished.

OBLIGATION NOT TO • No delay or default.

SUSPENSIVE
DO

RESOLUTORY • Obligation is extinguished.

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)

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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 CANNOT choose impossible

is indivisible. or unlawful prestation

CANNOT select those which could not have been

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

WHEN CHOICE PRODUCES When choice has been Consent of other party is not
EFFECT communicated to the other party. 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 1. ORALLY

SELECTION 2. IN WRITING
3. TACITLY
4. BY ANY OTHER UNEQUIVOCAL MEANS
20
ALTERNATIVE OBLIGATION

RULES IF CHOICE GIVEN TO:

DEBTOR

Prevention by Refusal of debtor Loss or Before election

the Creditor to elect impossibility

If through May be compelled OF ONE OF ALL BUT ONE OF ALL ALTERNATIVES

creditor’s acts by court action and ALTERNATIVE Obligation Debtor’s Fault: Creditor
debtor cannot court may Debtor must becomes simple. has right to damages (Art.
make a choice, authorize another choose from Debtor losses right 1204)
debtor may person to make a remaining to choose (Art. Fortuitous Event:
rescind plus choice (substituted alternatives 1202) Debtor has no liability
damages (Art. performance of
1203) prestation to do).
After election: Apply general rules on effect of loss (Whether or not through
fault or fortuitous event) and obligation becomes a simple obligation.

CREDITOR OF ALL OF ONE ALTERNATIVE

Without Debtor’s Fault: Obligation Through Fortuitous Event: Debtor delivers
Loss or impossibility is extinguished the remaining prestation chosen by creditor
Through Debtor’s Fault: Creditor Through Debtor’s Fault: Creditor may claim
chooses price of the one lost plus subsisting or value of the one lost plus
Before election damages damages

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

THIRD PERSON Loss or Before election: SAME as CREDITOR

impossibility After election: Apply general rules on effect of loss 21
(Whether or not through fault or fortuitous event)
FACULTATIVE OBLIGATION

CONCEPT When only ONE of the prestation has been agreed upon (and is DUE) but the
OBLIGOR MAY render ANOTHER in SUBSTITUTION (Art. 1206).

NO. OF Principal prestation/s

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

EFFECTIVITY OF Obligation becomes a simple obligation from the time the debtor
CHOICE communicates to the creditor that he elects to perform the substitute
prestation

RIGHT OF Only the DEBTOR,

CHOICE NEVER the creditor

EFFECT OF BEFORE DEBTOR OF SUBSTITUTE with or Debtor performs principal

LOSS OR CHOOSES without fault of debtor prestation
IMPOSSIBILITY
OF PRINCIPAL without Obligation is extinguished
debtor’s fault

OF PRINCIPAL through Debtor may deliver

debtor’s fault substitute

AFTER DEBTOR The substitute becomes the principal prestation.

22
CHOOSES
FACULTATIVE AND ALTERNATIVE
OBLIGATIONS, DISTINGUISHED

FACULTATIVE OBLIGATION ALTERNATIVE OBLIGATION

Only ONE principal SEVERAL PRESTATIONS are

CONTENTS prestation/s and substitute agreed upon but only
prestation/s DUE one/some are to be performed;
ALL prestations have same
value

NULLITY OF PRESTATION Nullity of PRINCIPAL Nullity of one prestation DOES

obligation INVALIDATES NOT INVALIDATE obligation
obligation; nullity of
SUBSTITUTE prestation does
not

RIGHT OF CHOICE ONLY DEBTOR is given right Belongs to debtor but may be
to choose substitute prestation given to creditor or debtor

EFFECT OF LOSS IMPOSSIBILITY of ONLY IMPOSSIBILITY of ALL

PRINCIPAL OBLIGATION PRESTATION
EXTINGUISHES obligation EXTINGUISHES obligation
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JOINT OBLIGATION
PRESUMPTIONS
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).
REQUISITES
EFFECTS
Plurality of objects
The demand by one creditor upon one
Determination of debtor produces the effects of default only
shares in the with respect to the creditor who demanded
demandability of and the debtor on whom demand was made,
the fulfillment of the but not with respect to others.
obligation.
The interruption of prescription by the
judicial demand of one creditor upon a
Shares may be
unequal. debtor does not benefit the other creditors
nor interrupt the prescription as to the other
debtors.
Shares are
considered
The vices of each obligation arising from the
distinct from
one another. 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 24
from one debtor to another.
JOINT INDIVISIBLE OBLIGATION
PRESUMPTION The indivisibility of an
obligation does not necessarily
give rise to solidarity. Nor does
solidarity of itself imply
indivisibility (Art. 1210).
INDIVISIBILITY JOINT INDIVISIBLE
V. SOLIDARITY 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.
Refers to the prestation which is not
capable of partial performance
EFFECTS
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).
SOLIDARY
OBLIGATIONS
Each creditor may demand the full
prestation and each debtor likewise has
the duty to comply with the entire
prestation.
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 25
value of the service in which the
obligation consists (Art. 1224).
SOLIDARY OBLIGATION

REQUISITES KINDS

Plurality of subjects of
obligation, i.e. multiple AS TO SOURCE (Art. 1208): The sources AS TO PARTIES
creditors/debtors of solidarity may be from law, from the BOUND:
nature of the obligation or the wording 1. ACTIVE: Solidarity
Unity of Prestation of the obligations. of creditors; each has
1. LEGAL: from law (e.g. RPC Art. 110 - the right to collect the
principals, accomplices and whole of the prestation
Distribution among
accessories within their respective from the common
solidary parties
classes will be solidarily liable; CC Art. debtor
1945 - bailees to whom a thing is 2. PASSIVE: Solidarity
loaned in the same contract; CC Art. of debtors; each is
Accounting among 2194 – joint tortfeasors; CC Art. 2146 liable to pay the whole
creditors for the – two officious managers; CC Art. to the common creditor
share of each 2157 – two payees in solutio indebiti; 3. MIXED: Both active
CC Art. 1915 – two principals, one and passive
common agent )
2. CONVENTIONAL: by stipulation
Contribution among
3. REAL: from the nature of obligation
debtors for the
share of each

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 26
any of the debtors or by anyone.
GENERAL EFFECTS OF ACTIVE AND
PASSIVE SOLIDARITY
ACTIVE SOLIDARITY, i.e. solidary
creditors
Mutual agency exists among them.
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 death of a solidary creditor does not transmit
the solidarity to each of his heirs but to all of them
taken together.
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 credit and its benefits are divided equally
among the creditors unless there is an agreement
among them to divide differently.
Each creditor may renounce his right and the
latter need not thereafter pay the obligation to the
former.
PASSIVE SOLIDARITY, i.e.
solidary debtors
Mutual guaranty exists among them.
Each debtor can be required to pay the entire
obligation; but after payment, he can recover from
the co-debtors their respective shares
The debtor who is required to pay may set up by
way of compensation his own claim against the
creditor.
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.
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.
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.
27
The interests due by reason of delay of one
of the debtors are borne by all of them.
EFFECTS OF SOLIDARY OBLIGATION

SOLIDARY CREDITOR IN SOLIDARY DEBTOR

RELATION TO IN RELATION TO
Solidary Co-
Debtors
Common General Rule: The debtor may pay any one of the
solidary creditors Common
Debtor In Case of Payment by a Co-Debtor
Exception: If any judicial or extrajudicial demand is Creditor • The one who made the payment may claim
made by any of the solidary creditors, payment
should be made to him (Art. 1214). from his co-debtors the share which
• Creditors may proceed against any one or some or Obligation to Perform corresponds to each. He is also entitled to
all of the debtors simultaneously. • Each one of the solidary interest for the payment already made after
• Demand against one shall not be an obstacle to debtors is bound to render the debt is due (Art. 1217 par. 1).
those which may be subsequently directed against entire compliance with the • The solidary debtor who made the payment
others as long as the debt has not been fully prestation (Art. 1207). is not entitled to reimbursement if the
collected (Art. 1216). • Payment made by one of payment is made after the obligation has
• The creditor may choose which offer to accept if the solidary debtors prescribed or becomes illegal (Art. 1218).
two or more solidary debtors offer to pay (Art. 1217 extinguishes the obligation
par. 1) (Art. 1217 par. 1) In Case of Insolvency by a Solidary Debtor
• When one of the solidary debtors becomes
In Case of Novation, Compensation, Confusion, insolvent, his share shall be borne by all his
Demand for Fulfillment of co-debtors in proportion to the debt of each
Remission by a Solidary Creditor
Prestation (Art. 1217 par. 1).
THE OBLIGATION IS EXTINGUISHED (Art. 1215
• Demand may be made
par. 1)
against any or some or all of In Case of Remission by a Creditor
the solidary debtors • If the remission is for the share of only one
Solidary Co- Collection of Debt simultaneously solidary debtor, this does not release him
• The creditor who collects the debt shall be • Demand against one shall from his responsibility to his co-debtors when
Creditors liable to the others for the share in the obligation not be an obstacle to those the debt had been totally paid by one of them
corresponding to them (Art. 1215 par. 2). which may be subsequently before the remission was effected (Art. 1219).
• Each creditor may do what is beneficial to his directed against others as • Remission of the whole obligation obtained
co-creditors (Art. 1212) long as the debt has not by one of the solidary debtors, does not
been fully collected (Art. entitle him to reimbursement from his co-
1216). debtors (Art. 1220).
Prejudicial Acts Prohibited
Assignment of
Each solidary creditor cannot do anything which
Rights In Case of Fortuitous Event
may be prejudicial to his co-creditors, except Art. In Case of Total Novation,
A solidary If the thing has been lost or has
1215 (Art. 1212). Compensation, Confusion, become impossible: 1. without the
creditor cannot
assign his rights Remission by a Solidary fault of the debtors: EXTINGUISHED;
In Case of Novation, Compensation, Debtor, 2. with fault of any of them: all shall
without the
Confusion, Remission by a Creditor THE OBLIGATION IS be responsible for the price as well as
consent of his 28
Creditor who executed the acts shall be liable to EXTINGUISHED damages and interest without
co-creditors (Art. prejudice to their action against the
the others for the share in the obligation (Art. 1215 par. 1)
1213). guilty debtor (Art. 1221).
corresponding to them (Art. 1215 par. 2).
DEFENSES OF SOLIDARY DEBTOR
AGAINST CREDITOR

TYPES (Art. 1222)

A. DEFENSES DERIVED FROM THE NATURE OF THE OBLIGATION D. DEFENSES

Constitutes a TOTAL defense PERSONAL TO
• Illicit cause or object or absolute simulation OTHER DEBTORS
• Defect in capacity or consent of all debtors • PARTIAL defense
• Unenforceability due to lack of proper proof under Statute of Frauds only for the debtor-
• Non-performance of suspensive condition or non-arrival of period defendant
affecting the entire obligation • debtor may only
• Extinguishment of obligations such as full payment and total remission avail of these only
• Other means which may invalidate the original contract from which the with regard to the part
action of the creditor against the debtor arises (res judicata, prescription, of the debt which the
etc) co-debtors are
responsible
B. DEFENSES PERSONAL TO A PARTICULAR SOLIDARY DEBTOR • Debtor may use
• Incapacity of solidary debtor upon whom a demand is made: TOTAL these even if his co-
• Vices of consent: TOTAL debtors are not joined
as defendants.

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

EFFECTS

If defense is from the NATURE of the If defense was a PERSONAL If defense pertains personally to his CO-DEBTOR:
obligation: All co-debtors will be one: Only he will benefit. (B., exempts co-debtor from payment of portions of 29
benefited. (A., above) above) the obligation corresponding to others (D., Above)
WHO CAN PAY?

In GENERAL
1. Debtor or his:
2. Authorized Agent
3. Heir
4. Successor-in- interest
3rd PERSON

Interested in obligation Not interested in obligation 3rd person (whether or not

(creditor cannot refuse (creditor may refuse to accept interested in obligation) does not
to accept valid payment) payment [1236]) intend to be reimbursed (1238)

Payment w/ or Payment with Payment without Debtor must give

w/o debtor’s debtor’s consent debtor’s knowledge consent
knowledge (express/tacit) or against the will of D

Effects: Effects: Effects: Effects:

1. Valid payment;
obligation extinguished
2. Debtor to reimburse
fully 3rd person interested
in obligation
3. 3rd person subrogated
to rights of creditor
1. 3rd person is entitled 3rd person can only be
to full reimbursement reimbursed only insofar as
2. Legal subrogation payment has been beneficial to
(novation) – 3rd person debtor(1236, 2nd. par.)
is subrogated/step into →burden of proof on 3rd person
the shoes of creditor cannot compel C to subrogate
him (1237)
1. Payment is deemed
as a donation/offer of
donation
2. Donation must be in
proper form (if above
P5Th →must be in
writing

No free disposal & no Effects: Payment is invalid → w/o prejudice to

In Obligation to Give, if capacity to alienate
PAYOR has
Minor who entered
contract w/o consent of
parent or guardian
natural obligations
Effects: No right to recover fungible
thing delivered to creditor who spent 30
or consumed it in good faith
TO WHOM PAYMENT MAY BE MADE

In GENERAL
1. Creditor /person in whose favor obligation was
constituted, or
2. His successor in interest, or
3. Any person authorized to received payment (1240)

G – NOT valid
Payment to Incapacitated
Creditor (1241)
⊗ 1) If C has kept the thing delivered
2) Insofar as payment benefited C

⊗ Exception to proof of benefit:

Payment to 3rd G VALID if 3rd .3rd person acquires C’s rights after payment
PERSON (1241, person proves .C ratifies payment
that it redounded .C’s conduct leads D to believe that 3rd
2nd par.)
to C’s benefit person had authority to receive payment
.Assignment of credit without notice to D

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

In Case of solidary creditors
ACTIVE
SOLIDARITY If any judicial/extrajudicial demand is made by any
one of the creditors who made the demand (1214) 31
TO WHOM PAYMENT MAY BE MADE

Effect: ⊗ Extinguishment if fault or

No extinguishment negligence can be imputed
If payment is made to creditor
to a WRONG
PARTY ⊗ 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 credit
Effect: D released (1242)

32
WHAT IS TO BE PAID? → IDENTITY

In GENERAL
The very prestation (thing or service due)

Give: Debtor cannot compel C

1. Specific thing itself to receive a different
Obligation to give a 2. Accessions & accessories specific thing even latter
SPECIFIC thing 3. If with loss, improvements, has same value or more
deterioration → Apply Art. valuable than that due
1189 (1244)

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

Obligation to give a stated (1246) purpose and other circumstances of
GENERIC thing obligation considered

Obligation to pay sum of money, if D alienates

property to C = DACION EN PAGO governed by
law on SALES (1245)

Identity: The very same act promised to be done

Obligation to DO or or not to be done
NOT to DO → Substitution cannot be done against C’s will 33
(1244, 2nd par.)
WHAT IS TO BE PAID → IDENTITY

1. Payment of domestic obligations in Phil.

Currency
Payment of ⊗ Exceptions under R.A. 4100; R.A. 8183 –
MONEY 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 No interest (i.e., for the use of someone’s money)

INTEREST shall be due unless expressly stipulated in writing

34
INTEREST

A. LOANS OR B. CHARGED AS A, B & MONEY

FORBEARANCE DAMAGES FOR JUDGMENT
OF MONEY, BREACH OR DEFAULT BECOMES FINAL &
GOODS OR OF OBLIGATION EXECUTORY
CREDIT (for use
of money, goods
OBLIGATION WITH A
or credit) For payment of Obligation is NOT a 12% p.a. from date PENAL CLAUSE
loan or forbearance loan or forbearance judgment becomes final
and executory until final
If no stipulation in
of money, goods or of money payment.
writing re payment of credit With stipulation re
interest: NO Interest on value of payment of interest
INTEREST (Art. If no stipulation in obligation at 6% for use of money
Final payment shall
1956) writing re payment of p.a. and rate of interest
be considered a
interest: 12% p.a. as penalty:
forbearance of
INTEREST for breach Penalty substitutes
If with written If demand can be credit. (Eastern
for indemnity for
stipulation but no established with Shipping Lines v.
damages (Art. 1226)
rate of interest: USE If with written reasonable certainty: CA 234 SCRA 781
12% INTEREST stipulation and rate of 6% from date of judicial [1994])
PER ANNUM interest: STIPULATED or extrajudicial demand
If obligor refuses to
INTEREST RATE + or due date of
pay or if he is guilty
12% p.a. for obligation; if there is no
If with written of fraud, he shall pay
BREACH/DEFAULT need of demand to
stipulation and rate interest as the
make debtor incur in If obligation
of interest: FOLLOW penalty stipulated
delay (Eastern partially liquidated
STIPULATED (Art. 1226):
Shipping Lines v. CA and partly
INTEREST RATE FROM WHEN? Rate of interest (for
234 SCRA 781 [1994]) unliquidated, 60%
From date of judicial use of money +
p.a. from date of
or extrajudicial penalty (rate) + legal
demand of
demand If demand cannot be interest on penalty
liquidated amount
established with
reasonable certainty:
6% from date of
judgment on amount 35
determined by the
court.
HOW IS PAYMENT TO BE MADE → INTEGRITY

In GENERAL ⊗ Effect if C accepts incomplete

1233 – 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
unliquidated
3. When there are several subjects/parties
are bound under different terms/conditions
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

In Case of SUBSTANTIAL D may recover as if there had been

PERFORMANCE IN complete fulfillment
GOOD FAITH (1234) - Less damages suffered by C

INTEREST – If principal amount is

received w/o reservation as to
interest → interest is presumed to
PRESUMPTIONS have been paid (1176; 1253)
in payment of
INTERESTS &
INSTALLMENTS INSTALLMENTS → If a latter
installment of a debt is received
w/o reservation to prior installments
→ Prior installments are presumed 36
paid (1176, 2nd par.)
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 GENERAL
Payment 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
37
WHERE PAYMENT IS TO BE MADE (ART. 1251)

In GENERAL
In the place designated in the obligation

If obligation is to deliver a Expenses of Making

If no place is designated
SPECIFIC thing Payment
→ Place of performance is
wherever the thing was at
the moment obligation was
In GENERAL
constituted
Extrajudicial expenses
⊗ Unless there is a required by the payment
contrary express
shall be borne by DEBTOR
stipulation

In any other case ⊗ Unless otherwise

→ Domicile of debtor stipulated

Legend:
G = General Rule If D changes his domicile
in bad faith or after he has As to JUDICIAL expenses
⊗ = Exception → Rules of Court shall
incurred in delay
C = Creditor → Additional expenses govern
D = Debtor shall be borne by D

38
COMPENSATION

It takes place when two persons are in their own right reciprocal
CONCEPT creditors and debtors of each other in separate obligations

DISTINGUISHED In compensation, the two parties are PRINCIPAL creditors and

from debtors of each other, i.e., there are TWO SEPARATE obligations
CONFUSION each arising from a different cause.

TOTAL: When both obligations are of the same amount.

KINDS
PARTIAL: When the amounts are not equal leaving a deficit to be
(Art. 1281)
paid.

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

ORIGIN 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 39
agreement of the parties.
REQUISITES OF
LEGAL
COMPENSATION
1. Both parties must be mutual creditors and debtors of each other
either through their OWN RIGHT OR AS PRINCIPALS.
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.
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.
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.

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.
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.

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).

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. 40
• 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.
REQUISITES OF • Each of the parties can dispose of the credit he seeks to
CONVENTIONAL compensate.
COMPENSATION • They agree to the mutual extinguishment of their credits

EFFECTS OF N.B. If assignment takes place AFTER both debts became due and
ASSIGNMENT OF demandable and other requisites of Art. 1279 concur, the assignment is
CREDIT (Art. 1285) 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 N.B. Compensation takes effect by operation of law thus ipso jure extinguishing
(Art. 1289 and both debts to the concurrent amount even if both parties are not aware of it
1290) 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.
41
• All accessory obligations are also extinguished.
CONDONATION OR REMISSION OF DEBT

Condonation is a way of extinguishing an obligation through which

DEFINITION the obligor’s debt is reduced or completely renounced by the
obligee. It is essentially in nature of an offer of simple DONATION .

Must be gratuitous
REQUISITES
Must be accepted by the obligor in proper forum, i.e.
acceptance in writing if debt is more than P 5,000.00

Must NOT be If so, legal heirs of creditor may

innoficious ask for revocation/reduction
KINDS 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.

As to extent Partial: Does not cover the entire obligation

Complete/Total: Covers the entire obligation

As to its Implied: Can be inferred from conduct

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

Inter Vivos: Takes effect during lifetime of the donor

As to date
of delivery Mortis Causa: Takes effect upon the death of the donor
Must comply with the formalities of wills
42
PRESUMPTIONS Private document evidencing credit
Delivery made by the creditor to
the debtor: Deemed a
renunciation/waiver of action to
collect credit (Art. 1271)
Found in the possession
of the debtor
RENUNCIATION
OF DEBT
PRINCIPAL: Accessory is also
condoned (Art. 1273)
ACCESSORY: Principal is still
outstanding (Art. 1273)
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
CREDITOR: Delivered it
voluntarily unless the contrary is
proven (Art. 1272)
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.
43
NOVATION

CONCEPT: Relative extinguishment of an obligation by the REQUISITES

substitution or change of an obligation by a subsequent 1. Previous VALID OBLIGATION
one which extinguishes or modifies the first, either by: 2. AGREEMENT of ALL parties to the
new contract
1. Changing the object or principal condition 3. EXTINGUISHMENT of the old contract
2. Substituting the person of the debtor 4. VALIDITY of the new contract
3. Subrogating a third person in the rights of the creditor (Art. 5. INTENTION to novate (animus novandi)
1291)

EFFECTS
1. 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 OBLIGATION

1. 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 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

AS TO ORIGIN 44
CONVENTIONAL: By agreement LEGAL: By law
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

45
NOVATION SUBJECTIVE or PERSONAL: Modification of the obligation by change of the
subject

KINDS

CHANGE OF DEBTOR EFFECT: Old debtor is released

(Passive Subjective Novation, Substitution of CONSENT of creditor is INDISPENSABLE
Debtor)

EXPROMISION: The initiative does not emanate from the debtor Effect of INSOLVENCY of new debtor on old debtor: If
but from a third person who assumes the obligation substitution is without knowledge of against will
Maybe without consent or against will of debtor of old debtor = Old debtor has NO LIABILITY
ANYMORE

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
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

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 LEGAL SUBROGATION: Operation of law because of the

parties’ certain acts.
(Active Subjective Novation, Subrogation of a third PRESUMED: 1. When Cr. 1 pays another Cr. 2 who is
person in the rights of the creditor) 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)
CONVENTIONAL SUBROGATION: Agreement of the
EFFECTS: Entire credit is transferred from old creditor to new
parties. It requires the consent of the old creditor, the new
creditor with all corresponding rights against debtor and
creditor and the debtor
third persons be they guarantors or third persons (Art.
EFFECTS: Entire credit is transferred from old creditor to new
1303)
creditor with all corresponding rights against debtor and third
persons (Art. 1303)
Partial subrogation resulting from partial payment: Old creditor is 46
preferred over partial subrogee (Art. 1304)
 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
47
 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 48

must be in writing (Art. 1874)
 iii) partnership to which immovables are contributed –
needs an inventory attached to the public instrument
(Art. 1773)

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)
49
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.

i) contracting parties have clearly and deliberately

conferred a favor upon third person;
Provided: 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)

i. Lessor against sub lessee (Art. 1652)

Examples 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
50
 ESSENTIAL REQUISITES OF CONTRACTS

A. Consent

1. CONCURRENCE OF OFFER must be CERTAIN

OFFER AND or DEFINITE (Art. 1319)
ACCEPTANCE
INTENTIONAL; i.e., offeror
intends to be BOUND

COMPLETE – at least as
to CAUSE and OBJECT

ACCEPTANCE must be
ABSOLUTE and If QUALIFIED, it is a
UNQUALIFIED (Art. 1319); it COUNTER-OFFER
is NOT PRESUMED (Art. 1319)

KINDS

EXPRESS IMPLIED QUALIFIED

(Art. 1320) (Art. 1320) (Art. 1319)

SILENCE is EQUIVALENT
THEORIES OF PERFECTION 1. MANIFESTATION to CONSENT ONLY when it
2. EXPEDITION MISLEADS the other party
3. RECEPTION in a manner which works to
4. COGNITION (Art. his prejudice (equivalent to
51
1319 par. 2) ESTOPPEL)
 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

52
 PROHIBITION by LAW to enter into
2. LEGAL CAPACITY OF contracts which RESTRAINS the
PARTIES ENJOYMENT of a RIGHT and if
PROHIBITION is BASED on PUBLIC
POLICY which makes them VOID (Art.
1329)

INCAPACITY to enter into contracts which

RESTRAINS the EXERCISE of a RIGHT
and RENDERS them VOIDABLE A. DONATIONS between SPOUSES: VOID
B. PURCHASE of STATE PROPERTY by
PUBLIC OFFICERS: VOID
C. PURCHASE of PROPERTY in LITIGATION by
Consent given by a MINOR (under 18 JUDGES, LAWYERS: VOID
years old), INSANE, DEAF-MUTE who D. AGENT- the property of the PRINCIPAL
cannot write: INVALID (Art. 1327) E. EXECUTOR - the property under
ADMINISTRATION (Art. 1491)

Contracts entered in a DRUNKENNESS or

HYPNOTIC SPELL: VOIDABLE (Art. 1328)

Contracts entered during a LUCID

INTERVAL: VALID (Art. 1328)

53
3. MUST BE INTELLIGENT,
FREE, SPONTANEOUS AND
REAL
CIRCUMSTANCES affecting ADVERSELY the
DETERMINATION of a party entering into a contract
VICES OF CONSENT and rendering the contract subject to annulment

DURESS (Art. 1335) 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

UNDUE INFLUENCE IMPROPER ADVANTAGE of POWER over the WILL of ANOTHER

(Art. 1337) which deprives him of a REASONABLE FREE CHOICE

MISTAKE/ERROR INADVERTENT and EXCUSABLE DISREGARD of a CIRCUMSTANCE

MATERIAL to the contract. To invalidate consent, mistake must refer to
(Art. 1331)
substantial things or conditions which moved the parties to enter into the
contract

FRAUD (Art. 1338) 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

MISREPRESENTATION
(Arts. 1342, 1343)

SIMULATION
(Arts. 1345, 1346)

54
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

55
MISTAKE/ERROR (Art. 1331)

MISTAKE of FACT The party suffering under a mistake of fact would not have
consented had he known the TRUE facts.

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

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)

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

negotio)

ERROR OF LAW
BUT, mutual error as to the legal effect of an
agreement when the real purpose is
frustrated, may VITIATE CONSENT (Art.
Ignorantia legis neminem excusat (Art. 3)
1334).

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

ENFORCING the contract must show that the terms have been fully Error of law is compatible with
EXPLAINED to the FORMER (Art. 1332). good faith when the mistake is
founded upon a doubtful or difficult
question of law (Art. 526 par. 3).
There is NO MISTAKE if the party ALLEGING it knew the DOUBT,
CONTINGENCY or RISK affecting the object of the contract (Art.
1333).
56
DURESS (Art. 1335)

VIOLENCE INTIMIDATION

SERIOUS and Consent is given due to: Reasonable and well-

IRRESISTIBLE grounded FEAR
FORCE is used to Imminent and serious
WREST INJURY to the
CONSENT Age, sex and condition THREAT must constitute person or property
must be taken into an actionable WRONG of:
account in order to (Art. 1335) 1. the party;
determine intimidation 2. spouse;
(Art. 1267, par. 3) FEAR must be 3. descendants or
determining FACTOR of ascendants,
the CONSENT (Art. 1335) legitimate or
illegitimate

Reverential fear does not No duress exists where

annul consent the party acts with
assistance of counsel
UNDUE INFLUENCE (Art. 1337)

When a person: CIRCUMSTANCES to consider:

1. Takes improper ADVANTAGE;
2. Of his power over the WILL of
ANOTHER;
3. DEPRIVE the latter of a
REASONABLE freedom of
CHOICE
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 57
REASONABLE ALTERNATIVE.
FRAUD (Art. 1338) KINDS

DOLO CAUSANTE DOLO INCIDENTE

(CAUSAL FRAUD) (INCIDENTAL FRAUD)

The party would NOT The party would have

have CONSENTED if AGREED, but under
there had been no fraud DIFFERENT TERMS
(Art. 1338). It renders the (Art. 1344 par. 2). It
contract VOIDABLE. 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).

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).

58
MISREPRESENTATION (Arts. 1342, 1343)

Misrepresentation by THIRD PERSONS does not vitiate consent,

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

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

ERROR (Art. 1343).

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

KINDS
PASSIVE DOES NOT VITIATE consent

SIMULATION (Arts. 1345, 1346)

No real transaction is
intended; FICTITIOUS EFFECT: Contract is INEXISTENT
ABSOLUTE diminishing of assets or (Art.1346, 1409 par. 2)
KINDS increasing liabilities

RELATIVE EFFECT: Apparent or ostensible

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)
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).
59
 ESSENTIAL REQUISITES OF CONTRACTS

B. Object
What may be valid What may not be valid
objects of contracts? objects of contracts?

Determinate or Determinable Future inheritance, except when

( Art. 1349) authorized by law e.g. inter vivos
partitions by decedent (Art. 1080) and
marriage settlements (Art. 84 FC)
Thing or Within the commerce of man
service or transmissible (Art. 1347)
must be:
Impossible things or services
Actual or possible of
existence , includes future
things (Art. 1347)
Right to receive future
Lawful or not contrary to law, support
morals, good customs, public
order and public policy (Art.
1347 par. 2) Past support or support in
arrears are debts of the
persons obliged to give legal
support

60
 ESSENTIAL REQUISITES OF CONTRACTS

C. Cause
Objective, intrinsic Presumption of
Motive – Different
and juridical reason from causa (Art.
existences and
for the existence of a 1351) lawfulness of
contract cause (Art. 1354)

Absence of
Requisites of a valid Kinds of cause/unlawful cause
causa causa shall render contract
inexistent and void
(Art. 1352)
Present or existent
Statement of false
Onerous – The
cause will render
prestation or promise
True, not a false causa contract void unless
founded upon another
Remuneratory – Past causa which is true
service or benefit and lawful (Art. 1353)
Lawful or licit
remunerated
i.e., not contrary to
law, morals, good
Gratuitous – Mere Lesions do not
customs, public order
liberality; Mere invalidate the cause
or public policy
generosity, unalloyed except there is fraud,
fondness violence or intimidation
(Art. 1352)
61
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 Donations of personal Stipulation limiting a common carrier’s liability for
or Solemn property with value loss, destruction or deterioration of shipped goods
Contracts) exceeding P 5,000; offer from extraordinary to ordinary diligence must be in
and acceptance must be in writing, signed by shipper, supported by other
Sale of land or interest writing (Art. 748) consideration other than service of carrier and
therein through an must be reasonable; just and not contrary to
agent: authority of public policy (Art. 1744)
Donation of an immovable;
agent must be in offer and acceptance must
writing (Art. 1874) be in a public document Constitution of partnerships is in any form, except
(Art. 749) where immovable or real rights are contributed:
Antichresis: amount of public instrument required (Art. 1771) Where
principal and interest immovable property is contributed: inventory of
must be in writing, Chattel mortgage must be
immovable, signed by the parties, must be
otherwise void (Art. in writing and must have an
attached to the public instrument (Art. 1773)
2134) affidavit of good faith (for
validity) and recorded in
the chattel mortgage Sale of large cattle requires the transfer of the
Stipulations to charge
registry to bind third certificate of registration of large cattle
interest must be in
persons (enforceability)
writing. 62
In order to be
effective against The following must
appear in a public
third persons
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.
Contracts are
unenforceable unless it
complies with STATUTE
OF FRAUDS, except if
In order to be ratified (Art. 1403 (2))
enforceable
Requirement: Written memorial or memorandum in
writing containing the essential requisites of
contracts.
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.

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; 63
7. Representation as to the credit of third person.
REFORMATION OF INSTRUMENTS

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:

MISTAKE (Art. 1361) FRAUD (Art. 1362) or ACCIDENT Ignorance, lack of skill,
INEQUITABLE CONDUCT (Art. 1364) negligence, bad faith on
(Art. 1363) the drafter of the
instrument or the clerk or
typist
WHO MAY FILE A. The injured party, namely:
(Art. 1368) 1. the person mistaken, if mistake is mutual, either
2. the person defrauded
PROCEDURAL RULE
3. victim of the inequity
The principles of the
4. victim of the accident
general law on the
5. the person whose rights are prejudiced by the
reformation of instruments
relative simulation (if contract will be given effect)
are hereby adopted insofar
B. His heirs and assigns
as they are not in conflict
with the provisions of this
EXCEPTIONS (Art. 1366, 1367) Code (Art.1360); The
procedure for the
reformation of instruments
shall be governed by the
1. Simple unconditional donations inter vivos
Rules of Court (Art. 1369).
2. Wills
3. Real agreement is void
4. An oral contract
5. Estoppel, when one of the parties has brought an action
to enforce the instrument
64
INTERPRETATION OF CONTRACTS

Is the INTENTION of the parties clear

from the contract’s LANGUAGE?

If YES, the literal If NO, the parties’ intention

meaning is controlling prevails (Art. 1370, par. 2).
(Art. 1370, par 1).

ASCERTAIN intent from:

If the DOUBTS are cast
upon the principal OBJECT
so that the intention cannot
be known, the contact is
VOID (Art. 1378).
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 Does the contract contain

DOUBTFUL CLAUSES? DOUBTFUL WORDS/TERMS?

65
 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).
What if these rules are not enough?
Determine whether the contract is
GRATUITOUS or ONEROUS.
NO If YES, seek clarity by: NO
. 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).
66
 1.Interpret according to the LEGAL MEANING it bears in
the place of its execution, unless the parties intended
If the contract is If the contract otherwise (Sec. 10).
GRATUITOUS and is ONEROUS, 2.When the contract has several particulars, it should be
construed so as to give EFFECT to ALL provisions (Sec.
the doubts refer to settle doubt in 11, similar to Art. 1373).
INCIDENTAL favor of greater 3.When a GENERAL and a particular provision are
CIRCUMSTANCES, RECIPROCITY inconsistent, the latter is PARAMOUNT to the former
the LEAST of interests (Sec. 12).
TRANSMISSION of (Art. 1378). 4.The CIRCUMSTANCES under which it was MADE,
including the situation of the subject thereof and of the
rights and interests parties to it, may be SHOWN, so that the judge may be
should prevail (Art. placed in the position of those who language he is to
1378). 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).

67
NATURAL OBLIGATIONS

Right of retention only FEATURES

After voluntary fulfillment
Equity and Natural Law
EXAMPLES/TYPES
• 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.

SUCCESSIONS
I. Heirs paying decedent’s will debt beyond what he has received (Art. 1429) 68
II. Will voided by lack of formalities, intestate heirs paying a legacy (Art. 1430)
ESTOPPEL

An ADMISSION or REPRESENTATION is rendered CONCLUSIVE upon the

DEFINITION PERSON MAKING it, and cannot be DENIED o DISPROVED (by him) as
against the PERSON RELYING thereon (Art. 1431).

ELEMENTS

IN RELATION TO PARTY IN RELATION TO PARTY

BEING ESTOPPED CLAIMING ESTOPPEL

CONDUCT amounting to false LACK of KNOWLEDGE or of

representation or concealment MEANS to the TRUTH of the
of facts facts

INTENT or EXPECTATION RELIANCE in GOOD FAITH

that conduct shall influence the upon representatives of party
other party to be estopped

KNOWLEDGE, actual or ACTION or INACTION

constructive, of the material based thereon of such
facts character as to change the
position/status of the party
claiming estoppel, to his
injury/detriment/prejudice
69
 ESTOPPEL May be in pais or Preclusion to deny the truth of
by deed (Art.1433). ESTOPPEL matters set forth in a judicial or
BY RECORD legislative record, e.g.
KINDS conclusiveness of judgment
TECHNICAL
ESTOPPEL
ESTOPPEL Bar which precludes one party
BY DEED to a deed and his privies from
EQUITABLE ESTOPPEL (Estoppel in pais) asserting as against the other
Situation where a party is denied the right to party and his privies any
plead or prove a fact because of his own act right/title in derogation of the
or omission deed.

ESTOPPEL BY ESTOPPEL BY PROMISSORY ESTOPPEL BY

LACHES or DELAY REPRESENTATION/ ESTOPPEL ACCEPTANCE OF
REQUISITES: MISREPRESENTATION: A promise to do or not to BENEFIT
1.Conduct of defendant 1.There must be do something in the future One who has allowed
giving rise to situation fraudulent usually does not result in another to assume apparent
complained of misrepresentation or estoppel unless the ownership of personal
2.Delay in asserting wrongful concealment of promise was intended to property for the purpose of
complainant’s rights, facts known to the party be relied upon, was relied making any transfer of it,
latter having knowledge estopped. upon and refusal to cannot, if he received the
of defendant’s conduct 2.The party precluded enforce it would sanction sum for which a pledge has
and an opportunity to must intend that the other fraud or injustice. been constituted, set up his
file suit should act upon the facts own title to defeat the
3.Defendant’s lack of misrepresented. ESTOPPEL BY SILENCE pledge of the property,
notice or knowledge 3.The party misled must Party estopped must have made by the other to a
that complainant would have been unaware of the a duty or obligation to pledgee who received the
assert his right true facts. speak. same in good faith and for
4.Injury or prejudice to 4.The party defrauded Element of turpitude or value (Art. 1438)
defendant unless suit is must have acted in negligence re silence by
barred accordance with the which other party was
70
misrepresentation. (Art. misled to his injury or
1437 par. 1-4) prejudice.
 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 Provided they are NOT in conflict with the
OF TRUSTS Civil Code, Code of Commerce, Rules of
Court and special laws

PARTIES

TRUSTOR (SETTLOR) Person who establishes a trust

Person in whom confidence is reposed for the benefit

TRUSTEE
of another person

BENEFICIARY (cestui
Person for whose benefit the trust has been created.
que trust)

KINDS
EXPRESS IMPLIED Created by OPERATION of LAW

Created by the INTENTION of the Imposed by law to carry out the actual or presumed
RESULTING INTENT of the parties, where the express trust fails
TRUSTOR or of the PARTIES

Established by law, regardless of intention, in

CONSTRUCTIVE order to prevent fraud, oppression or unjust 71
enrichment
 Must be in WRITING
(otherwise
unenforceable) i.e.,
EXPRESS TRUSTS may not be proved by
Re: REAL parol evidence (Art.
PROPERTY 1443)
PROOF REQUIRED
Re: PERSONAL ORAL trust sufficient
PROPERTY between the parties
FORM
BUT TO BIND Must be in a PUBLIC
THIRD PERSONS INSTRUMENT
NO particular words are required for its
creation. It is SUFFICIENT that a trust
is CLEARLY INTENDED (Art. 1444)

NO trust shall fail because the trustee appointed DECLINES the

WANT OF designation, unless the contrary should APPEAR in the
TRUSTEE INSTRUMENT constituting the trust (Art. 1445)

NECESSARY
ACCEPTANCE BY
BENEFICIARY

PRESUMED (PRIMA FACIE) If the trust IMPOSES NO

ONEROUS CONDITION upon
the BENEFICIARY (Art. 1446)

72
 IMPLIED TRUSTS
RESULTING
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. 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.
HOW ESTABLISHED
HOW PROVED
EXAMPLES (ARTS.
1448 – 1456)
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. 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. 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.
By OPERATION OF LAW
By ORAL EVIDENCE
CONSTRUCTIVE
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.
Art. 1454. If an absolute conveyance of property is made in order
to secure the performance of an obligation of the grantor toward
the 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 73
fraud is extra-contractual.
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.

74