oblicon diagrams - labitag
TRANSCRIPT
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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.