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
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.

DEFINITION

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)

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)

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

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

4

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)
Other Quasi Contracts: (Support given by
stranger & other Good Samaritans)

c. Right to enforce obligor to take

care of specific thing
(Art. 1163)

May bring appropriate actions for

preservation of his rights (Art. 1188, by
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)

in case of any breach of obligation

Different Ways of Breaching

Obligation
a. Failure to Perform

a. Failure to deliver

b. Fraud

Legal excuse from failure to deliver/delay = Fortuitous

Event or Force Majeure (Art. 1174)

c. Negligence

d. Default or
delay
e. Contravention of tenor of
obligation

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
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)

BREACHES OF OBLIGATION
TO GIVE
SPECIFIC THING
A. Failure/Refusal to
Deliver the Very Same
Specific Thing
Failure to Deliver
Accessions &
Accessories
Remedy

NOT TO DO

TO DO
GENERIC THING
A. Failure/Refusal to
Deliver

Remedy

C. Negligence
D. Default or Delay
E. Contravention of
Tenor of Obligation

Damages in
either case

No delay

Substituted
performance
if not strictly
personal

Undone if
possible to
undo

Rescission

Substituted
Performance
Rescission

Rescission

B. Fraud

Remedy

No Accessory
Obligation

Specific
Performance

Damages

A. Failure /
Refusal to Do

If badly
done, can
be
undone or

Rescission,
plus
Damages

B. Fraud
C. No Negligence
Considered
Deliver other members of
genus which is not of inferior
quality
D. Default or Delay Required
Specific Performance
8
E. Contravention of
Tenor

OBLIGATION
TO
GIVE
INDETERMINATE OR
GENERIC THING
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)

If debtor fails/ refuses to deliver, creditor

may:

a. Creditor may ask for specific performance

if debtor fails/ refuses to deliver
Creditor may ask for compliance by 3rd person at
debtors expenses
Creditor may ask 3rd person to deliver

b. Right To Ask For Rescission Or Damages

c. In Either
Damages

Case,

Right

To

Failure to deliver
Fraud (malice or bad faith)
Negligence
Delay
Any manner contravene tenor of
obligation (Art. 1170)

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
damages

Undone at Debtors Cost

Execute at Debtors

Except if act is purely personal

Plus damages

Undone at Debtors Cost

If debtor does it in contravention

of tenor of obligation or does it
poorly

1. Failure To Do
Undone at debtors 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)
10

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

11

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)
12

Breaches of
Obligation

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

5. Contravention of
Tenor of Obligation

Demandable Courts may

regulate according to
circumstances (Art. 1172)

OBLIGATION NOT TO DO
If debtor does what is forbidden = Undone at
debtors expense & damages; if cannot be
undone = damages only
SUBSIDIARY REMEDIES OF CREDITORS
1. Accin subrogatoria
2. Accin Pauliana
3. Direct action Arts. 1652; lessor vs. sub-lessee
1729 laborers vs. owner
Art. 1608 vendee a retro vs. vendee a retros transferee;
Art. 1893 principal vs. substitute appointed by agent.

13

SUBSIDIARY REMEDIES OF CREDITORS

Accin Subrogatoria

Accin Pauliana

Accin Directa

Who files action

Creditor of insolvent debtor in place of

latter

Creditor of insolvent debtor

Art .1652 Lessor

Art .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
contractor
Art . 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 plaintiffs 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

14

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
Creditors/Debtors

Tie

Among

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

Joint Indivisible
Obligation

Divisible
Indivisible (Obligation cannot be partially performed)
16

With A Penal Clause

PURE OBLIGATION
An obligation NOT
SUBJECT to a PERIOD or
CONDITION. It is
DEMANDABLE at ONCE ,
although a reasonable grace
period is granted for
performance.

CONDITIONAL OBLIGATION
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.

VALIDITY OR
LEGALITY
POSSIBLE

EFFECTS

CAUSE OF
HAPPENING

Depends
upon a
partys will

POSITIVE

POTESTATIVE

Some event will happen

at determinate time
obligation extinguished
as soon as time expires
or event will indubitably
not take place (Art.
1184)

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)

CASUAL

Depends upon
chance or the
will of a third
person

(physical or legal)

RESOLUTORY
Fulfillment extinguishes
obligation

Capable of realization
according to nature,
law, not contrary to
good customs, public
order and public
policy

SUSPENSIVE

NEGATIVE
IMPOSSIBLE

Fulfillment results in the

acquisition of rights

Before fulfillment of
the condition, the
creditor may bring
action to preserve
his rights

MANNER OF
HAPPENING

Before fulfillment of
the condition, the
debtor may recover
what he has paid by
mistake, but not
fruits or interests.

(physical or legal)

Incapable of
realization
Generally, it annuls
the obligation. If
divisible, however,
the part affected is
not void (Art. 1183).

Future and uncertain event

will not happen effective
from moment time indicated
lapses or evidently event
cannot occur (Art. 1185)

In unilateral obligations,
an unlawful or
impossible condition is
considered not written,
and the obligation is not
annulled but considered
unconditional (Art. 727).

MIXED
A condition not to do an
impossible condition is
considered not agreed
upon. Hence, the
obligation is not
conditional. (Art. 1183
par. 2)

Depends upon
chance or the
will of a third
person and/or
the will of one
of the parties
17

RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO GIVE
SPECIFIC THING
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 debtors fault: liability for damages
DETERIORATION: 1. With debtors fault creditor chooses between rescission and fulfillment
2. Without debtors fault creditor bears impairment
IMPROVEMENT: 1. By things nature or by time - inures to creditors benefit.
2. Through debtors expense - Debtor has only rights of usufructuary.

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

RESOLUTORY

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

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

18

RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO DO

OBLIGATION NOT TO
DO

SUSPENSIVE

No obligation to do.

RESOLUTORY

Obligation is extinguished.

SUSPENSIVE

No delay or default.

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)

19

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.

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

Consent of other party is not

required

20

ALTERNATIVE OBLIGATION
RULES IF CHOICE GIVEN TO:

DEBTOR
Prevention by
the Creditor

Refusal of debtor
to elect

If through
creditors 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).

CREDITOR

Loss or
impossibility

Before election

OF ONE
ALTERNATIVE
Debtor must
choose from
remaining
alternatives

OF ALL BUT ONE

Obligation
becomes simple.
Debtor losses right
to choose (Art.
1202)

OF ALL ALTERNATIVES
Debtors Fault: Creditor
has right to damages (Art.
1204)
Fortuitous Event:
Debtor has no liability

After election: Apply general rules on effect of loss (Whether or not through
fault or fortuitous event) and obligation becomes a simple obligation.

Before election

OF ALL
Without Debtors Fault: Obligation
is extinguished
Through Debtors Fault: Creditor
chooses price of the one lost plus
damages

After election

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

Loss or impossibility

THIRD PERSON

Loss or
impossibility

OF ONE ALTERNATIVE
Through Fortuitous Event: Debtor delivers
the remaining prestation chosen by creditor
Through Debtors Fault: Creditor may claim
subsisting or value of the one lost plus
damages

Before election: SAME as CREDITOR

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

21

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
PRESTATIONS

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

EFFECTIVITY OF
CHOICE

Obligation becomes a simple obligation from the time the debtor

communicates to the creditor that he elects to perform the substitute
prestation

RIGHT OF
CHOICE

Only the DEBTOR,

NEVER the creditor

EFFECT OF
LOSS OR
IMPOSSIBILITY

BEFORE DEBTOR
CHOOSES

AFTER DEBTOR
CHOOSES

OF SUBSTITUTE with or
without fault of debtor

Debtor performs principal

prestation

OF PRINCIPAL without
debtors fault

Obligation is extinguished

OF PRINCIPAL through
debtors fault

Debtor may deliver

substitute

The substitute becomes the principal prestation.

22

FACULTATIVE AND ALTERNATIVE

OBLIGATIONS, DISTINGUISHED
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 PRESTATION

Nullity of PRINCIPAL
obligation INVALIDATES
obligation; nullity of
SUBSTITUTE prestation does
not

Nullity of one prestation DOES

NOT INVALIDATE obligation

RIGHT OF CHOICE

ONLY DEBTOR is given right

to choose substitute prestation

Belongs to debtor but may be

given to creditor or debtor

EFFECT OF LOSS

IMPOSSIBILITY of
PRINCIPAL OBLIGATION
EXTINGUISHES obligation

ONLY IMPOSSIBILITY of ALL

PRESTATION
EXTINGUISHES obligation

CONTENTS

23

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.

24

JOINT INDIVISIBLE OBLIGATION

PRESUMPTION

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.

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).

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).

25

SOLIDARY OBLIGATION

REQUISITES

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

KINDS

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
debtor
2. 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.

26

GENERAL EFFECTS OF ACTIVE AND

PASSIVE SOLIDARITY
ACTIVE SOLIDARITY, i.e. solidary
creditors

PASSIVE SOLIDARITY, i.e.

solidary debtors

Mutual agency exists among them.

Mutual guaranty 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.

Each debtor can be required to pay the entire

obligation; but after payment, he can recover from
the co-debtors their respective shares

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.

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

27

EFFECTS OF SOLIDARY OBLIGATION

SOLIDARY CREDITOR IN
RELATION TO
Common
Debtor

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 Creditor
THE OBLIGATION IS EXTINGUISHED (Art. 1215
par. 1)

Solidary CoCreditors

Assignment of
Rights
A solidary
creditor cannot
assign his rights
without the
consent of his
co-creditors (Art.
1213).

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)
Prejudicial Acts Prohibited
Each solidary creditor cannot do anything which
may be prejudicial to his co-creditors, except Art.
1215 (Art. 1212).
In Case of Novation, Compensation,
Confusion, Remission by a Creditor
Creditor who executed the acts shall be liable to
the others for the share in the obligation
corresponding to them (Art. 1215 par. 2).

SOLIDARY DEBTOR
IN RELATION TO
Common
Creditor
Obligation to Perform
Each one of the solidary
debtors 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)

Solidary CoDebtors
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 codebtors (Art. 1220).
In Case of Fortuitous Event
If 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).

28

DEFENSES OF SOLIDARY DEBTOR

AGAINST CREDITOR
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

D. DEFENSES
PERSONAL TO
OTHER DEBTORS
PARTIAL defense
only for the debtordefendant
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 codebtors 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
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)

29

WHO CAN PAY?

1.
2.
3.
4.

In GENERAL
Debtor or his:
Authorized Agent
Heir
Successor-in- interest

3rd PERSON
Interested in obligation
(creditor cannot refuse
to accept valid payment)
Payment w/ or
w/o debtors
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

In Obligation to Give, if
PAYOR has

Not interested in obligation

(creditor may refuse to accept
payment [1236])

Payment with
debtors consent
(express/tacit)
Effects:
1. 3rd person is entitled
to full reimbursement
2. Legal subrogation
(novation) 3rd person
is subrogated/step into
the shoes of creditor

3rd person (whether or not

interested in obligation) does not
intend to be reimbursed (1238)

Payment without
debtors knowledge
or against the will of D
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)

Debtor must give

consent

Effects:
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

capacity to alienate

Effects: Payment is invalid w/o prejudice to

natural obligations

Minor who entered

contract w/o consent of
parent or guardian

Effects: No right to recover fungible

thing delivered to creditor who spent
or consumed it in good faith

30

TO WHOM PAYMENT MAY BE MADE

1.
2.
3.

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

G NOT valid

Payment to Incapacitated
Creditor (1241)

Payment to 3rd
PERSON (1241,
2nd par.)

In Case of
ACTIVE
SOLIDARITY

1) If C has kept the thing delivered

2) Insofar as payment benefited C

3rd

G VALID if
person proves
that it redounded
to Cs benefit

Exception to proof of benefit:

.3rd person acquires Cs rights after payment
.C ratifies payment
.Cs conduct leads D to believe that 3rd
person had authority to receive payment
.Assignment of credit without notice to D

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)

31

TO WHOM PAYMENT MAY BE MADE

Effect:
No extinguishment
If payment is made
to a WRONG
PARTY

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 credit
Effect: D released (1242)

32

WHAT IS TO BE PAID? IDENTITY

In GENERAL
The very prestation (thing or service due)

Obligation to give a
SPECIFIC thing

Give:
1. Specific thing itself
2. Accessions & accessories
3. 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)

G:
C cannot demand a thing of superior quality;
can demand inferior
D cannot deliver a thing of inferior quality (1246)

Obligation to give a
GENERIC thing

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 or
NOT to DO

Identity: The very same act promised to be done

or not to be done
Substitution cannot be done against Cs will
(1244, 2nd par.)

33

WHAT IS TO BE PAID IDENTITY

Payment of
MONEY

Payment of
INTEREST

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)

No interest (i.e., for the use of someones money)

shall be due unless expressly stipulated in writing

34

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

B. CHARGED AS
DAMAGES FOR
BREACH OR DEFAULT
OF OBLIGATION

For payment of
loan or forbearance
of money, goods or
credit
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

Obligation is NOT a
loan or forbearance
of money

A, B & MONEY
JUDGMENT
BECOMES FINAL &
EXECUTORY

12% p.a. from date

judgment becomes final
and executory until final
payment.

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.

Final payment shall

be considered a
forbearance of
credit. (Eastern
Shipping Lines v.
CA 234 SCRA 781
[1994])

If obligation
partially liquidated
and partly
unliquidated, 60%
p.a. from date of
demand of
liquidated amount

OBLIGATION WITH A
PENAL CLAUSE

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

35

HOW IS PAYMENT TO BE MADE INTEGRITY

In GENERAL
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

In Case of SUBSTANTIAL
PERFORMANCE IN
GOOD FAITH (1234)

PRESUMPTIONS
in payment of
INTERESTS &
INSTALLMENTS

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

D may recover as if there had been

complete fulfillment
- Less damages suffered by C

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.)

36

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 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

Expenses of Making
Payment
In GENERAL
Extrajudicial expenses
required by the payment
shall be borne by DEBTOR

Unless otherwise
stipulated

Legend:
G = General Rule
= Exception
C = Creditor
D = Debtor

If D changes his domicile

in bad faith or after he has
incurred in delay
Additional expenses
shall be borne by D

As to JUDICIAL expenses
Rules of Court shall
govern

38

COMPENSATION
CONCEPT

It 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.

ORIGIN

JUDICIAL: 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.

39

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.
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.

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.

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.
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.

40

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 debtors 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.

41

CONDONATION OR REMISSION OF DEBT

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

DEFINITION

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
innoficious

KINDS

If so, legal heirs of creditor may

ask for revocation/reduction

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

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

As to extent

Partial: Does not cover the entire obligation

Complete/Total: Covers the entire obligation

As to
form

its

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

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

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)

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.

43

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)

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
(Passive Subjective Novation, Substitution of
Debtor)

EFFECT: Old debtor is released

CONSENT of creditor is INDISPENSABLE

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

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

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
(Active Subjective Novation, Subrogation of a third
person in the rights of the creditor)
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 Ds approval); 3. When a third person
with interest pays (with or without Ds 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)
46

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

must be in writing (Art. 1874)

48

iii) partnership to which immovables are contributed

needs an inventory attached to the public instrument
(Art. 1773)
iv) stipulations limiting carriers 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.

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 debtors contract

(Accin Directa)

Examples

i.
II.
III.
iv)

Lessor against sub lessee (Art. 1652)

Laborers of independent contractor against the owner (Art. 1729)
Principal against sub-agent (Art. 1893)
Vendor a retro against transferees of vendee (Art. 1608)

c. Accin Subrogatoria

d. Accin Pauliana

50

ESSENTIAL REQUISITES OF CONTRACTS

A. Consent
1. CONCURRENCE OF
OFFER AND
ACCEPTANCE

OFFER must be CERTAIN

or DEFINITE (Art. 1319)
INTENTIONAL; i.e., offeror
intends to be BOUND
COMPLETE at least as
to CAUSE and OBJECT

ACCEPTANCE must be
ABSOLUTE and
UNQUALIFIED (Art. 1319); it
is NOT PRESUMED

If QUALIFIED, it is a
COUNTER-OFFER
(Art. 1319)

KINDS

EXPRESS
(Art. 1320)

IMPLIED
(Art. 1320)

THEORIES OF PERFECTION

QUALIFIED
(Art. 1319)

1.
2.
3.
4.

MANIFESTATION
EXPEDITION
RECEPTION
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)

51

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

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)

A.
B.
C.

Consent given by a MINOR (under 18

years old), INSANE, DEAF-MUTE who
cannot write: INVALID (Art. 1327)

D.
E.

DONATIONS between SPOUSES: VOID

PURCHASE of STATE PROPERTY by
PUBLIC OFFICERS: VOID
PURCHASE of PROPERTY in LITIGATION by
JUDGES, LAWYERS: VOID
AGENT- the property of the PRINCIPAL
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

VICES OF CONSENT

CIRCUMSTANCES affecting ADVERSELY the

DETERMINATION of a party entering into a contract
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
(Art. 1337)

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

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 debtors 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

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).

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).

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
SERIOUS and
IRRESISTIBLE
FORCE is used to
WREST
CONSENT

INTIMIDATION
Consent is given due to:

Age, sex and condition

must be taken into
account in order to
determine intimidation
(Art. 1267, par. 3)

Reverential fear does not

annul consent

Reasonable and wellgrounded FEAR

THREAT must constitute

an actionable WRONG
(Art. 1335)
FEAR must be
determining FACTOR of
the CONSENT (Art. 1335)

Imminent and serious

INJURY to the
person or property
of:
1. the party;
2. spouse;
3. descendants or
ascendants,
legitimate or
illegitimate

No duress exists where

the party acts with
assistance of counsel

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.

57

FRAUD (Art. 1338)

KINDS

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 (Dealers 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 experts
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)

ABSOLUTE
KINDS
RELATIVE

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).
59

ESSENTIAL REQUISITES OF CONTRACTS

B. Object
What may be valid
objects of contracts?

Determinate or Determinable
( Art. 1349)
Thing or
service
must be:

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?
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

60

ESSENTIAL REQUISITES OF CONTRACTS

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

Requisites
causa

of

valid

Kinds
causa

Motive Different
from causa (Art.
1351)

of

Presumption
of
existences
and
lawfulness
of
cause (Art. 1354)
Absence of
cause/unlawful cause
shall render contract
inexistent and void
(Art. 1352)

Present or existent
Onerous The
prestation or promise
True, not a false causa

Lawful or licit
i.e., not contrary to
law, morals, good
customs, public order
or public policy

Remuneratory Past
service or benefit
remunerated
Gratuitous Mere
liberality; Mere
generosity, unalloyed
fondness

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)
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
or Solemn
Contracts)
Sale of land or interest
therein through an
agent: authority of
agent must be in
writing (Art. 1874)
Antichresis: amount of
principal and interest
must be in writing,
otherwise void (Art.
2134)
Stipulations to charge
interest must be in
writing.

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)
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)

Stipulation limiting a common carriers 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)
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)
Sale of large cattle requires the transfer of the
certificate of registration of large cattle
62

In order to be
effective against
third persons

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.

In order to be
enforceable

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

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.

Requirement: Written memorial or memorandum in

writing containing the essential requisites of
contracts.
1.
2.
3.
4.

Agreement not to be performed within one year;

Special promise to answer for debt or miscarriage of another (guarantee);
Agreement in consideration of marriage, other than mutual promise to marry;
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.

63

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)

WHO MAY FILE

(Art. 1368)

FRAUD (Art. 1362) or

INEQUITABLE CONDUCT
(Art. 1363)

ACCIDENT
(Art. 1364)

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.
2.
3.
4.
5.

Simple unconditional donations inter vivos

Wills
Real agreement is void
An oral contract
Estoppel, when one of the parties has brought an action
to enforce the instrument

Ignorance, lack of skill,

negligence, bad faith on
the drafter of the
instrument or the clerk or
typist

PROCEDURAL RULE
The 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).

64

INTERPRETATION OF CONTRACTS

Is the INTENTION of the parties clear

from the contracts LANGUAGE?

If YES, the literal

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

If the DOUBTS are cast

upon the principal OBJECT
so that the intention cannot
be known, the contact is
VOID (Art. 1378).

Does the contract contain

DOUBTFUL CLAUSES?

If NO, the parties intention

prevails (Art. 1370, par. 2).

1.
2.
3.

ASCERTAIN intent from:

The contract as a WHOLE (Art. 1374).
The contemporaneous or subsequent
CONDUCT of the parties (Art. 1371).
The USAGE or CUSTOMS of the country
(Art. 1376).

Does the contract contain

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).

NO
.

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).

NO
.

What if these rules are not enough?

Determine whether the contract is

GRATUITOUS or ONEROUS.

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

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).

67

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

68

ESTOPPEL
DEFINITION

An 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).

ELEMENTS

IN RELATION TO PARTY
BEING ESTOPPED

IN RELATION TO PARTY
CLAIMING ESTOPPEL

CONDUCT amounting to false

representation or concealment
of facts

LACK of KNOWLEDGE or of
MEANS to the TRUTH of the
facts

INTENT or EXPECTATION
that conduct shall influence the
other party

RELIANCE in GOOD FAITH

upon representatives of party
to be estopped

KNOWLEDGE, actual or
constructive, of the material
facts

ACTION or INACTION
based thereon of such
character as to change the
position/status of the party
claiming estoppel, to his
injury/detriment/prejudice

69

ESTOPPEL
KINDS

May be in pais or
by deed (Art.1433).
TECHNICAL
ESTOPPEL

ESTOPPEL
BY RECORD

ESTOPPEL
BY DEED

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 DELAY
REQUISITES:
1.Conduct of defendant
giving rise to situation
complained of
2.Delay in asserting
complainants rights,
latter having knowledge
of defendants conduct
and an opportunity to
file suit
3.Defendants lack of
notice or knowledge
that complainant would
assert his right
4.Injury or prejudice to
defendant unless suit is
barred

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)

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.

PROMISSORY
ESTOPPEL
A 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 SILENCE
Party 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
BENEFIT
One 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)
70

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)

Person who establishes a trust

TRUSTEE

Person in whom confidence is reposed for the benefit

of another person

BENEFICIARY (cestui
que trust)

Person for whose benefit the trust has been created.

KINDS
EXPRESS

Created by the INTENTION of the

TRUSTOR or of the PARTIES

IMPLIED

RESULTING

CONSTRUCTIVE

Created by OPERATION of LAW

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

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Re: REAL
PROPERTY

Must be in WRITING
(otherwise
unenforceable) i.e.,
may not be proved by
parol evidence (Art.
1443)

Re: PERSONAL
PROPERTY

ORAL trust sufficient

between the parties

BUT TO BIND
THIRD PERSONS

Must be in a PUBLIC
INSTRUMENT

EXPRESS TRUSTS
PROOF REQUIRED

FORM

NO particular words are required for its

creation. It is SUFFICIENT that a trust
is CLEARLY INTENDED (Art. 1444)

WANT OF
TRUSTEE

ACCEPTANCE BY
BENEFICIARY

NO trust shall fail because the trustee appointed DECLINES the

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

NECESSARY

PRESUMED (PRIMA FACIE)

If the trust IMPOSES NO

ONEROUS CONDITION upon
the BENEFICIARY (Art. 1446)

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IMPLIED TRUSTS
HOW ESTABLISHED

By OPERATION OF LAW

HOW PROVED

By ORAL EVIDENCE

EXAMPLES (ARTS.
1448 1456)
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 childs 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.

CONSTRUCTIVE
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.

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
fraud is extra-contractual.

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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.

74