DIAGRAMMATICAL OUTLINE OF OBLIGATIONS

OBLIGATION
DEFINITION

Prof. Eduardo A. Labitag

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.

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)
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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)

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

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SOURCES Art. 1157

1. Law Art. 1158, C.C.
Not presumed Demandable only If expressly determined In Civil Code In Special Law Regulated By precepts of law establishing them In matters not foreseen, by Book IV of the Civil Code

2. Contracts Art. 1159, C.C

Force of Law Between Contracting Parties Should be Complied with in Good Faith (Art. 1159)

3. Quasi-Contracts Art. 1160,C.C.

See Arts. 2142-2175 Negotiorum Gestio (Officious Management) Solutio Indebiti (Payment not due) Other Quasi Contracts: (Support given by stranger & other Good Samaritans)
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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 a. Failure to deliver

Different Ways of Breaching Obligation a. Failure to Perform b. Fraud c. Negligence d. Default or delay e. Contravention of tenor of obligation

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 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 Specific Performance Rescission Damages B. Fraud C. Negligence D. Default or Delay E. Contravention of Tenor of Obligation

TO DO
GENERIC THING
A. Failure/Refusal to Deliver No Accessory Obligation Remedy Substituted Performance Rescission
Damages in either case

NOT TO DO
No delay Undone if possible to undo

A. Failure / Refusal to Do Remedy Substituted performance if not strictly personal Rescission 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 Does it in contravention of tenor Undone at Debtors Cost Execute at Debtors Undone at Debtors Cost Plus damages If debtor fails or delays in to do
Creditor may ask 3rd person to do, charge cost to debtor as damages Except if act is purely personal

If debtor does it in contravention of tenor of obligation or does it poorly Undone at debtors expense

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

2. Delay, Default or Mora

Reciprocal Obligations No delay, if other party does not perform or not ready to comply, delay begins, when one party fulfills his obligations.

Kinds of Mora Art. 1165-1170

Mora Solvendi

Ex Re To Give Ex Persona To Do

Delay on part of debtor Mora Accipiendi Delay on the part of the creditor Compensatio Morae Mutual delay in reciprocal obligations

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Breaches of Obligation

3. Fraud

Defined

Fraud or deceit or bad faith is the deliberate and intentional evasion of the normal fulfillment of obligations. Demandable in all obligations Note: Not fraud in creation of contract
Fraud or deceit in creation of contract are, either (a) Dolo Causante or Causal Fraud (i.e. party would agreed to contract if he knew true facts = consent of party is vitiated or contract is voidable

(b) Dolo Incidente or Incidental Fraud = Damages

Effects

Damages paid by guilty party.

Waiver or action for future fraud = void (Art. 1171)

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Breaches of Obligation

4. Fault or Negligence
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 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.

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SUBSIDIARY REMEDIES OF CREDITORS

Accin Subrogatoria
Who files action Creditor of insolvent debtor in place of latter

Accin Pauliana
Creditor of insolvent debtor

Accin Directa
Art .1652 Lessor Art .1608 Vendor a Retro Art . 1729 Laborer of Contract Art . 1893 Principal of Agent Art . 1652 Sublessee of Lessee Art . 1608 Transferee of Vendee a Retro Art . 1729 Owner who owes contractor Art . 1893 Substitute of Appointed Agent To collect credit Amount collected is owned by him if and only if

Versus whom

Debtor of insolvent debtor Creditor

Transferee of property

Purpose If successful, is plaintiff preferred over respondent of suit Should plaintiffs credit antedate/ exist prior to other credit Is action primary or subsidiary

To collect credit which insolvent debtor neglects to collect No, unless plaintiff- creditor garnished credit No need Primary, but plaintiff-creditor must prove negligence of insolvent debtor to file demandable obligation All defenses which he could interpose against his own creditor, i.e. debtor of plaintiff-creditor

To rescind contract entered into in fraud of creditors Yes Yes Subsidiary

Primary

Defenses available to defendant

Third person transferee is in good faith and for value

All defenses had it been original creditor filing action

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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 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

Divisible

Joint Indivisible Obligation

Indivisible (Obligation cannot be partially performed)

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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

(physical or legal) Capable of realization according to nature, law, not contrary to good customs, public order and public policy

MANNER OF HAPPENING POSITIVE

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

CAUSE OF HAPPENING POTESTATIVE

If (positive) suspensive and depends solely on the will of the debtor, the obligation is void (Art. 1182).

Depends upon a partys will

EFFECTS RESOLUTORY
Fulfillment extinguishes obligation

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)

SUSPENSIVE IMPOSSIBLE
Fulfillment results in the acquisition of rights (physical or legal)

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

CASUAL

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 17

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

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.

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).

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

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

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RESOLUTORY

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

RULES OF FULFILLMENT OF A CONDITION

OBLIGATION TO DO

SUSPENSIVE RESOLUTORY

No obligation to do.

Obligation is extinguished.

OBLIGATION NOT TO DO

SUSPENSIVE RESOLUTORY

No delay or default.

Obligation is extinguished.

IN BOTH CASES, UPON HAPPENING OF THE CONDITION: No retroactivity No fruits are considered No loss (physical), deterioration or improvement Courts determine retroactive effect (Arts. 1187 par. 2, 1190)

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ALTERNATIVE OBLIGATION
NATURE OF OBLIGATION It is a multiple disjunctive obligation. Several objects are due, fulfillment of one prestation or some but not all of them is sufficient (as determined generally by the choice of the debtor). 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

RIGHT OF CHOICE

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 Prevention by the Creditor If through creditors acts debtor cannot make a choice, debtor may rescind plus damages (Art. 1203) Refusal of debtor to elect May be compelled by court action and court may authorize another person to make a choice (substituted performance of prestation to do). Loss or impossibility OF ONE ALTERNATIVE Debtor must choose from remaining alternatives Before election

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. 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

CREDITOR Loss or impossibility Before election After election THIRD PERSON

OF ALL Without Debtors Fault: Obligation is extinguished Through Debtors 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) 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)

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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 EFFECT OF LOSS OR IMPOSSIBILITY

Only the DEBTOR, NEVER the creditor BEFORE DEBTOR CHOOSES OF SUBSTITUTE with or without fault of debtor OF PRINCIPAL without debtors fault OF PRINCIPAL through debtors fault AFTER DEBTOR CHOOSES Debtor performs principal prestation Obligation is extinguished

Debtor may deliver substitute

The substitute becomes the principal prestation.

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FACULTATIVE AND ALTERNATIVE OBLIGATIONS, DISTINGUISHED

FACULTATIVE OBLIGATION ALTERNATIVE OBLIGATION

CONTENTS

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 ONLY DEBTOR is given right to choose substitute prestation

Nullity of one prestation DOES NOT INVALIDATE obligation

RIGHT OF CHOICE

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

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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 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.

Determination of shares in the demandability of the fulfillment of the obligation. Shares may be unequal. Shares are considered distinct from one another.

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JOINT INDIVISIBLE OBLIGATION

PRESUMPTION The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility (Art. 1210).

INDIVISIBILITY V. SOLIDARITY

JOINT INDIVISIBLE OBLIGATIONS The legal tie that binds the multiple parties is joint; whereas, the obligation cannot be performed in parts. Each creditor cannot demand more than his share. Refers to the prestation which is not capable of partial performance

SOLIDARY OBLIGATIONS Each creditor may demand the full prestation and each debtor likewise has the duty to comply with the entire prestation.

Refers to the legal tie defining the extent of the liability among the multiple creditors or debtors or both.

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).

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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 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.

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GENERAL EFFECTS OF ACTIVE AND PASSIVE SOLIDARITY

ACTIVE SOLIDARITY, i.e. solidary creditors Mutual agency exists among them. Each creditor represents the others in the act of receiving payment, and all other acts which tend to secure the credit or make it more advantageous. The death of a solidary creditor does not transmit the solidarity to each of his heirs but to all of them taken together.
One creditor does not represent the others in acts prejudicial (Art. 1212). But a solidary creditor who makes a novation, compensation and remission extinguishes the obligation but he is liable to the others for the share in the obligation corresponding to them (Art. 1215).

PASSIVE SOLIDARITY, i.e. solidary debtors Mutual guaranty exists among them. Each debtor can be required to pay the entire obligation; but after payment, he can recover from the co-debtors their respective shares The debtor who is required to pay may set up by way of compensation his own claim against the creditor. The total remission of the debt in favor of a debtor releases all the debtors; but when this remission affects only the share of one debtor, the other debtors are still liable for the balance. All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of only one of them. The interruption of prescription as to one debtor affects all the others, but the renunciation by one debtor of prescription already had does not prejudice the others.
The interests due by reason of delay of one of the debtors are borne by all of them.
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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.

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 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).

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).

Solidary CoCreditors

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).

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

In Case of Total Novation, Compensation, Confusion, Remission by a Solidary Debtor, THE OBLIGATION IS EXTINGUISHED (Art. 1215 par. 1)

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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)

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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 Not interested in obligation (creditor may refuse to accept payment [1236]) 3rd person (whether or not interested in obligation) does not intend to be reimbursed (1238)

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

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

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
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)

Payment to Incapacitated Creditor (1241)

G NOT valid 1) If C has kept the thing delivered 2) Insofar as payment benefited C

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

G VALID if person proves that it redounded to Cs benefit

3rd

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

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)

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) Give: 1. Specific thing itself 2. Accessions & accessories 3. If with loss, improvements, deterioration Apply Art. 1189

Obligation to give a SPECIFIC thing

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) 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) Identity: The very same act promised to be done or not to be done Substitution cannot be done against Cs will (1244, 2nd par.)

Obligation to give a GENERIC thing

Obligation to DO or NOT to DO

33

WHAT IS TO BE PAID IDENTITY

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 MONEY

Payment of INTEREST

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

A, B & MONEY JUDGMENT BECOMES FINAL & EXECUTORY OBLIGATION WITH A PENAL CLAUSE

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

Obligation is NOT a loan or forbearance of money

Interest on value of obligation at 6% p.a.

12% p.a. from date judgment becomes final and executory until final payment.

FROM WHEN? From date of judicial or extrajudicial demand

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])

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

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 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

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)

D may recover as if there had been complete fulfillment - Less damages suffered by C

PRESUMPTIONS in 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.)

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

Expenses of Making Payment

In GENERAL Extrajudicial expenses required by the payment shall be borne by DEBTOR

In any other case Domicile of debtor 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

Unless otherwise stipulated

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 KINDS (Art. 1281)

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. TOTAL: When both obligations are of the same amount. PARTIAL: When the amounts are not equal leaving a deficit to be paid. 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.

ORIGIN

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).

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.

5. Neither of the debts is subject to a suit between a one of the creditors and a third party who communicated it in due time to the other party. In this case, there is a provisional suspension of the possible compensation.

EXCEPTIONS: 1. No compensation if one of the debts has prescribed before the moment the two credits co-existed. Likewise if one of the parties is in a state of suspension of payment; 2. Period or suspensive condition has yet to occur. EXCEPTION: 1. If the third party is adjudged the creditor, then no compensation takes place; 2. If not, then compensation is effective.

6. The compensation is not prohibited by law, e.g. future support by gratuitous title, obligations in favor of the government (taxes), when used by either the depositary or borrower in debts arising from depositum or commodatum (Art. 1287); when debt consists in civil liability from a penal offense (Art. 1288). 7. Compensation should not be waived. Compensation rests on a potestative right and may be waived unilaterally at the time the obligation is contracted or after compensation. 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 EFFECTS OF ASSIGNMENT OF CREDIT (Art. 1285)

Each of the parties can dispose of the credit he seeks to compensate. They agree to the mutual extinguishment of their credits 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 . Must be gratuitous 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 If so, legal heirs of creditor may ask for revocation/reduction

DEFINITION

REQUISITES

KINDS

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 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

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

CREDITOR: Delivered it voluntarily unless the contrary is proven (Art. 1272)

RENUNCIATION OF DEBT
PRINCIPAL: Accessory is also condoned (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.

ACCESSORY: Principal is still outstanding (Art. 1273)

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 CONVENTIONAL: By agreement LEGAL: By law
44

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
KINDS

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

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

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

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) 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. 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.

Provided:

b. Law authorizes creditor to sue on his debtors contract (Accin Directa) 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)

Examples

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)

QUALIFIED (Art. 1319)

SILENCE is EQUIVALENT to CONSENT ONLY when it MISLEADS the other party in a manner which works to his prejudice (equivalent to ESTOPPEL)

THEORIES OF PERFECTION

1. 2. 3. 4.

MANIFESTATION EXPEDITION RECEPTION COGNITION (Art. 1319 par. 2)

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

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)

INCAPACITY to enter into contracts which RESTRAINS the EXERCISE of a RIGHT and RENDERS them VOIDABLE

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 CIRCUMSTANCES affecting ADVERSELY the DETERMINATION of a party entering into a contract and rendering the contract subject to annulment 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 IMPROPER ADVANTAGE of POWER over the WILL of ANOTHER which deprives him of a REASONABLE FREE CHOICE 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 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

VICES OF CONSENT DURESS (Art. 1335)

UNDUE INFLUENCE (Art. 1337) MISTAKE/ERROR (Art. 1331)

FRAUD (Art. 1338)

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: Reasonable and wellgrounded FEAR Imminent and serious INJURY to the person or property of: 1. the party; 2. spouse; 3. descendants or ascendants, legitimate or illegitimate

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

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

Reverential fear does not annul consent UNDUE INFLUENCE (Art. 1337)

No duress exists where the party acts with assistance of counsel

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 KINDS PASSIVE SIMULATION (Arts. 1345, 1346) 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) DOES NOT VITIATE consent VITIATES consent

ABSOLUTE KINDS RELATIVE

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? 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)

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)

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

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ESSENTIAL REQUISITES OF CONTRACTS

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

of

valid

Kinds causa

of

Present or existent Onerous The prestation or promise True, not a false causa Remuneratory Past service or benefit remunerated Gratuitous Mere liberality; Mere generosity, unalloyed fondness

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

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
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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.
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. 1. 2. 3. 4.

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REFORMATION OF INSTRUMENTS
There has been a meeting of the minds between contracting parties about the object and the causa but there is a failure to express the true intention due to:

MISTAKE (Art. 1361)

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

ACCIDENT (Art. 1364)

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

WHO MAY FILE (Art. 1368)

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

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).

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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 NO, the parties intention prevails (Art. 1370, par. 2).

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

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 CLAUSES?

Does the contract contain DOUBTFUL WORDS/TERMS?

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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).

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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).

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NATURAL OBLIGATIONS
Right of retention only After voluntary fulfillment Equity and Natural Law 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

EXAMPLES/TYPES

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)

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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

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ESTOPPEL
KINDS

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

ESTOPPEL BY RECORD

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.

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)

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)
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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 Person in whom confidence is reposed for the benefit of another person Person for whose benefit the trust has been created.

TRUSTEE

BENEFICIARY (cestui que trust) KINDS EXPRESS IMPLIED

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

Created by the INTENTION of the TRUSTOR or of the PARTIES

RESULTING

CONSTRUCTIVE

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EXPRESS TRUSTS
Re: REAL PROPERTY PROOF REQUIRED Re: PERSONAL PROPERTY FORM BUT TO BIND THIRD PERSONS NO particular words are required for its creation. It is SUFFICIENT that a trust is CLEARLY INTENDED (Art. 1444)

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

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)

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IMPLIED TRUSTS
HOW ESTABLISHED HOW PROVED 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. 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.

By OPERATION OF LAW By ORAL EVIDENCE

CONSTRUCTIVE
Art. 1451. When land passes by succession to any person and he causes the legal title to be put in another, a trust is established by implication of law for the benefit of the true owner. Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. Art. 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. NOTE: Hence, acquisition by an agent inures to the benefit of the principal (Severino v. Severino 44 Phil. 343)

Art. 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.

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. 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.

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