Civil Law Reviewer ObliCon

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Starr Wei gand 2013 CIVIL LAW REVIEW | DEL CASTILLO

C8LIGA1ICNS & CCN1kAC1S
1

Cb||gat|ons

What are ob||gat|ons?
An obllgaLlon ls a [urldlcal necesslLy Lo glve, do or noL Lo do.
2

What are the sources of ob||gat|ons?
CbllgaLlons arlse from Lhe ff:
3

Law Contracts De||cts uas|-Contracts uas|-de||cts
8efers Lo
speclflc
(ex. 1ax
laws) laws
whlch
creaLe
obllgalLons
(noL
lncludlng
Lhe clvll
code).
CbllgaLlons
derlved
from law
are noL
presumed.
Cnly Lhose
deLermlne
d ln Lhe
Clvll Code
or ln
speclal
laws are
demandabl
e. 1hey are
flrsL
governed
by Lhe law
whlch
creaLed
Lhem, Lhen
by Lhe
provlslons
on
obllgaLlons
and
conLracLs
ln Lhe clvll
code.
4

1hls ls Lhe
only source
whlch
requlres
consenL of
Lhe parLles.
Arlses from
Lhe
sLlpulaLlons
of Lhe
parLles.
1hey have
Lhe force
and effecL
of law
beLween
Lhe
conLracLlng
parLles and
should be
complled
wlLh ln
good
falLh.
3

1hls refers
Lo clvll
llablllLy
arlslng
form a
crlme, as
every
person
crlmlnally
llable ls
also clvllly
llable.
ll Lhe
accused ls
acqulLLed,
he ls sLlll
llable
when:
* Lhe courL
declares
LhaL he ls
only clvllly
llable
* Lhe
acqulLLal ls
based on
reasonable
doubL.
* Lhe clvll
llablllLy
does noL
arlse form
Lhe
crlmlnal
acL.
1hese are
governed
by penal
laws, and
perLlnenL
provlslons
of Lhe Clvll
Code.
6

A person
cannoL
recover
Lwlce for
Lhe same
acL.
7

1hese are noL
Lrue conLracLs,
as Lhere ls no
consenL.
1he obllgaLlon ls
sourced from a
naLural
obllgaLlon, llke
negoLorlum
gesLlo. 1hls ls
unllaLeral as lL ls
creaLed by an acL
of only one
person.
1hese are
governed by
provlslons on
exLra-conLracLual
obllgaLlons of
Lhe Clvll Code.

klnds of quasl-
conLracLs:
negoLorlum
CesLlo - one
underLakes Lo
Lake care of Lhe
properLy of
anoLher, wlLhouL
any obllgaLlon Lo
do so. 1he owner
ls obllged Lo
compensaLe
such person.
SoluLlo lndeblLl -
aymenL by
mlsLake. 1he
reclplenL ls
obllged Lo reLurn
whaL was
recelved.
1hese are
acLs and
omlsslons noL
punlshable by
law. 1he
obllgaLlon
here ls Lo pay
for damages.
8aslcally
governed by
Lhe law on
LorLs and
damages.
LlemenLs:
* AcL or
omlsslon
causlng
damage Lo
anoLher
* 1here ls
faulL/negllgen
ce
* 1here ls no
pre-exlsLlng
conLracLual
relaLlonshlp
beLween Lhe
parLles.
Any obllgaLlon noL arlslng form Lhese sources ls noL an obllgaLlon.

What are the e|ements of an ob||gat|on?
CbllgaLlons have Lhe ff. elemenLs:
1) AcLlve sub[ecL (Lhe obllgee/credlLor) - Lhe possessor of Lhe rlghL,
he ln whose favor Lhe obllgaLlon ls consLlLuLed.
2) asslve Sub[ecL (obllgor/debLor) - he who has Lhe duLy of glvlng,
dolng or noL dolng.
3) Cb[ecL or presLaLlon - Lhe sub[ecL maLLer of Lhe obllgaLlon.

1 Based on De Leon, Paras, and Dean Del reviewer of Caroline Tan, Jessamyn Uy and James Ligan.
2 Art. 1156, Civil Code.
4) LfflclenL cause (vlculum [urls) - Lhe reason why Lhe obllgaLlon
exlsLs.

What are the types of prestat|ons?
1) 8eal - CbllgaLlon Lo glve, wheLher a speclflc (seL aparL from a
class) or a generlc Lhlng (deLemlnaLe/one of a class).
2) ersonal - CbllgaLlon Lo do (poslLlve) or noL Lo do (negaLlve).

What are the dut|es of a debtor |n ob||gat|ons to g|ve spec|f|c th|ngs?
Pe has Lhe ff. duLles:
1) 1ake care of the th|ng w|th the proper d|||gence of a good
father of a fam||y
8

LxcepLlon: When Lhe law or sLlpulaLlon requlres anoLher
sLandard of care.
What |s the proper d|||gence of a good father of a fam||y?
lL refers Lo Lhe dlllgence whlch ls requlred by Lhe naLure of Lhe
obllgaLlon and corresponds Lo Lhe clrcumsLances of person,
Llme and place.
2) De||ver fru|ts of the th|ng from the t|me the ob||gat|on to
de||ver ar|ses.
9

ure ob||gat|ons - all frulLs form Lhe Llme dellvery ls requlred musL be glven.
Cond|t|ona| (Suspens|ve) ob||gat|ons, depends lf Lhe obllgaLlon ls:
8eclprocal - Lhe frulLs are deemed Lo be muLually compensaLed
unllaLeral - Lhe debLor shall approprlaLe Lhe frulLs and lnLeresLs
recelved, unless lL can be lnferred from Lhe naLure and clrcumsLances of Lhe
obllgaLlon LhaL Lhe person consLlLuLlng lL lnLended oLherwlse.
10

Cond|t|ona| (keso|utory) ob||gat|ons - dellver lmmedlaLely.
Cb||gat|ons w|th a per|od - Lhere are 2 vlews, dellver only upon arrlval of Lhe
Lerm, or dellver from day one. ln elLher case, frulLs wlll sLlll have Lo be
dellvered.
Cb||gat|ons to do]not to do - CourLs Lo deLermlned Lhe reLroacLlve effecL of
Lhe condlLlon LhaL has been complled wlLh.
11

3) De||ver a|| |ts access|ons and accessor|es, even |f not
ment|oned.
12

LxcepLlon: lf oLherwlse sLlpulaLed by Lhe parLles.
What are accessor|es?
1hose [olned Lo or lncluded wlLh Lhe prlnclpal Lhlng for lLs beLLer use,
perfecLlon, or en[oymenL (ex. keys Lo a car)

What are access|ons?
1hese are addlLlons Lo of lmprovemenLs upon Lhe Lhlng, whlch cannoL be
removed wlLhouL causlng damage Lo Lhe prlnclpal. 1hey become parL of Lhe
prlnclpal.

What are the dut|es of a debtor |n ob||gat|ons to de||ver a gener|c th|ng?
1) De||ver a th|ng of a qua||ty |ntended by the part|es Laklng lnLo
accounL Lhe purpose of Lhe obllgaLlon and Lhe oLher
clrcumsLances.
2) 1o be ||ab|e |n case of fraud, neg||gence or de|ay, ln Lhe
performance or ln Lhe conLravenLlon of Lhe Lerms of Lhe conLracL.
n8: 1he duLles ln obllgaLlons Lo dellver speclflc Lhlngs do noL apply, slnce
genus does noL perlsh.

What are the remed|es of the debtor |n case of breach of the ob||gat|on to
g|ve?
Spec|f|c th|ng Gener|c 1h|ng
May seek speclflc performance -
Lhe rlghL Lo compel Lhe obllgor Lo
dellver or perform Lhe obllgaLlon

CannoL subsLlLuLe anoLher Lhlng ln
place of LhaL agreed upon Lo be
dellvered.
May seek speclflc performance

May subsLlLuLe anoLher Lhlng ln
place of Lhe prlnclpal. Cenus never
perlshes.


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May be held llable Lo pay for
damages.

May be held llable Lo pay for
damages.

8reach of an ob||gat|on

What |s breach?
1here ls breach lf Lhe debLor does noL comply wlLh Lhe obllgaLlon ln
accordance wlLh Lhe manner and sLlpulaLlons agreed upon.

What are the sources of breach?
1he sources are Lhe ff: (Lhough Lhere ls really only 2: dolo or culpa. uelay and
conLravenLlon of Lerms ls only Lhe effecL of dolo or cupa)
1) Do|o
- Lhere ls a dellberaLe lnLenL Lo cause damage or pre[udlce
- llablllLy arlslng form dolo cannoL be mlLlgaLed or reduced by Lhe courLs
- walved of an acLlon Lo enforce llablllLy for fuLure fraud ls vold.
2) Cu|pa
- no dellberaLe lnLenL Lo cause damage.
- llablllLy due Lo negllgence may be reduced or mlLlgaLed ln cerLaln cases.
- walver of an acLlon Lo enforce llablllLy for fuLure culpa may be allowed ln
cerLaln cases.
3) Defau|t]Mora
- 1hls ls a breach or fallure Lo fulflll ln Llme, whlch requlres deLermlnaLlon of
Lhe reason for Lhe delay.
lf due Lo dolo/culpa - debLor ls llable.
lf due Lo forLulLous evenL - noL llable.
When |s there de|ay?
1here ls delay from Lhe Llme Lhe obllgee [udlclally or exLra[udlclally demands
fulflllmenL of Lhe obllgaLlon.
13

When |s demand not necessay?
uemand by Lhe credlLor ls noL necessary for delay ln Lhe ff. cases:
a. when Lhe obllgaLlon or Lhe law expressly so declares (ex. 1axes),
b. when from Lhe naLure and clrcumsLances of Lhe obllgaLlon lL appears LhaL
Lhe deslgnaLlon of Lhe Llme when Lhe obllgaLlon ls Lo be fulfllled was a
conLrolllng moLlve for Lhe esLabllshmenL of Lhe conLracL, or
c. when demand would be useless, as when Lhe obllgor has rendered lL
beyond hls power Lo perform.
d. when Lhe credlLor volunLarlly prevenLs Lhe fulflllmenL of Lhe obllgaLlon,
Lhen Lhe obllgaLlon ls exLlngulshed.
ln reclprocal obllgaLlons, nelLher parLy lncurs ln delay unLll Lhe oLher complles
or ls ready Lo comply ln a proper manner. Cnce one of Lhe parLles fulfllls hls
obllgaLlon, Lhere ls delay by Lhe oLher.
14

k|nds of mora:
Mora so|vend| - defaulL on Lhe parL of Lhe debLor.
Mora acc|p|end| - defaulL on Lhe parL of Lhe credlLor.
4) Contravent|on of the terms agreed upon
- uebLor does noL comply wlLh Lhe Lerms and condlLlons sLlpulaLed by Lhe
parLles. 1hls also requlres deLermlnaLlon of Lhe reason for Lhe non-fulflllmenL.
Do|o Cu|pa Iortu|tous Lvent
LlablllLy ls on Lhe
person mosL llable.

erson ls llable as he
ls aware of Lhe
obllgaLlon yeL he
dellberaLely falls Lo
comply.

1here ls sLlll llablllLy,
buL noL as harsh as
dolo.

erson ls llable as he
falled Lo exerclse Lhe
dlllgence requlred,
Lhough he could
have done so.

no llablllLy.
LxcepLlons:
a. When
expressly
speclfled by
law or
sLlpulaLlon,
b. 1he naLure
of Lhe
obllgaLlon
requlres
assumpLlon of
rlsk,
c. When Lhe
debLor ls ln


uebLor ln bad falLh,
Lhus he ls llable for
all Lhe damages
reasonably
aLLrlbuLed Lo Lhe
non-performance.

ln good falLh, llable
only for Lhe naLural
and probable
consequences, and
Lhose whlch could
have reasonably
foreseen aL Lhe Llme
of Lhe consLlLuLlon of
Lhe obllgaLlon.
defaulL,
d. uebLor ls
gullLy of bad
falLh such as
promlslng Lo
dellver Lhe
same Lhlng Lo
2 or more
persons wlLh
dlfferenL
lnLeresLs.
e. ln case of
concurrenL
negllgence.
f. When
credlLor gullLy
of mora
acclplendl.
g. 8ule ln
commodaLum
- ballor sLlll
llable
1hese are evenLs whlch
could noL have been
foreseen, or Lhose
foreseen buL could noL
have been avolded. 1hus,
no llablllLy.

8equlslLes:
1) lndependenL
of Lhe wlll of
Lhe debLor
2) Could noL
have been
foreseen, or
Lhough
foreseen noL
avoldable
3) 8enders Lhe
obllgaLlon
lmposslble Lo
perform
4) no
conLrlbuLory
negllgence
whlch causes
more damage.

What are the k|nds of cu|pa?
Culpa ls of Lhree klnds:
Cu|pa Contractua| Cu|pa Aqu|||ana Cu|pa Cr|m|na|
1hls ls based on Lhe
conLracL beLween Lhe
parLles.

As long as lL ls proved
LhaL Lhere was a
conLracL and lL was
noL carrled ouL, lL ls
presumed LhaL Lhe
debLor was aL faulL,
and he ls Lhus
burdened Lo prove
LhaL he was noL
negllgenL ln hls non-
performance.
1hls ls based on a
negllgenL acL.

1he ln[ured person
has Lo prove Lhe
negllgence of Lhe
defendanL, as hls
acLlon ls based on
negllgence on Lhe parL
of Lhe laLLer.

1hls ls based on clvll
llablllLy arlslng from a
crlme.

1he accused ls
presumed lnnocenL
unLll proven gullLy,
Lhus, lL ls Lhe
prosecuLlon whlch
musL prove negllgence
of Lhe accused.

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uefense of dlllgence
of a good faLher of a
famlly ln Lhe selecLlon
and supervlslon of
employees ls noL
proper.

uefense of dlllgence
of a good faLher of a
famlly ls a proper and
compleLe defense.

uefense of a good
faLher of a famlly ls
noL a good defense.

What are the ru|es |n case of breach |n ob||gat|ons to do or not to do?
CbllgaLlon Lo do - lf Lhe debLor falls Lo do lL or does lL ln conLravenLlon of Lhe
Lenor of Lhe obllgaLlon, lL shall be execuLed aL hls cosL. lL may also be decreed
LhaL whaL was poorly done be undone.
13

CbllgaLlon noL Lo do - lf Lhe obllgor does whaL was forbldden, lL shall be
undone aL hls expense.
16

What are the remed|es of the cred|tor when there |s breach?
1he credlLor can cancel or resolve Lhe conLracLs, provlded Lhere ls substant|a|
breach.
LxcepLlon: no need for subsLanLlal breach for resoluLlon/cancellaLlon of Lhe
conLracL when Llme ls of Lhe essence.

Does th|s remedy have to be st|pu|ated or agreed upon by the part|es?
lor 8eclprocal obllgaLlons - cancellaLlon as a remedy ls lmplled. 1here ls no
need for Lhe parLles Lo sLlpulaLe.
17

lor unllaLeral obllgaLlons - Lhe law ls sllenL, Lhus, Lhe parLles need Lo sLlpulaLe
for Lhls remedy Lo be avallable ln case of breach.

Is there a need for court act|on to reso|ve]cance| an ob||gat|on?
C8: no need for courL acLlon.
Powever, whlle lL ls noL necessary Lo brlng a courL acLlon lf Lhere ls a basls
LhaL Lhe breach ls noL maLerlal, Lhere ls sLlll Lhe rlsk of cancelllng an obllgaLlon
whlch a parLy ls noL enLlLled Lo cancel. lf Lhe debLor conLesLs LhaL Lhe breach
ls only sllghL and Lhe courL agrees, Lhen Lhe courL wlll nulllfy Lhe resoluLlon
made.
18

lf Lhe obllgaLlon lnvolves a conLracL Lo sell, resoluLlon/cancellaLlon ls noL a
remedy as Lhere ls noLhlng Lo cancel/resolve, as such a remedy presumes LhaL
Lhere ls already an exlsLlng obllgaLlon. lor conLracLs Lo sell, lL ls an obllgaLlon
sub[ecL Lo a suspenslve condlLlon, whlch ls paymenL of Lhe full purchase prlce,
and lf Lhere ls no paymenL, Lhere ls no obllgaLlon.

lor obllgaLlons sub[ecL Lo a resoluLory condlLlon, such a conLracL of sale, Lhere
ls already a perfecLed obllgaLlon whlch may be resolved or cancelled.

Is reso|ut|on]cance||at|on the same as resc|ss|on?
no. Lhey are noL Lhe same.
kesc|ss|on
19
keso|ut|on
20

1here has Lo be leslon or economlc
pre[udlce (or was ln fraud of
credlLors). uoes noL refer Lo breach.

1hls ls a subsldlary remedy, resorLed
Lo only when all oLher remedles fall.

MuLual resLlLuLlon ls appllcable only
ln speclflc lnsLances.
1here has Lo be subsLanLlal breach.

1hls ls a prlnclpal remedy whlch
does noL depend on exhausLlon of
oLher remedles. 8uL, once a parLy
chooses Lo cancel Lhe obllgaLlon,
Lhe cholce ls lrrevocable.
1here ls always Lhe requlremenL of
muLual resLlLuLlon.

What about usur|ous |nterest?
usury ls now legally non-exlsLenL, as Lhe usury law was suspended by Lhe
CenLral 8ank. 8uL ln case of usurlous lnLeresL, Lhe whole lnLeresL ls avolded,

18 UP v. Delos Angeles.
19 Arts. 1380-1385, Civil Code.
maklng Lhe obllgaLlon as one wlLhouL lnLeresL. 1hough Lhere ls no usury, Lhe
lnLeresL musL noL be exorblLanL, unconsclonable or !"#$%& ("#)* +"%,*.
kequ|s|tes for recovery of |nterest:
1) 1he paymenL of lnLeresL musL be expressly sLlpulaLed,
2) 1he agreemenL musL be ln wrlLlng, and
3) 1he lnLeresL musL be lawful.

Are there any presumpt|ons for payments?
?es.
1) resumpLlon of paymenL of lnLeresL: 8ecelpL of Lhe prlnclpal by
Lhe credlLor, wlLhouL reservaLlon wlLh respecL Lo Lhe lnLeresL, shall
glve rlse Lo Lhe presumpLlon LhaL sald lnLeresL has been pald.
2) resumpLlon of paymenL of prevlous lnsLallmenL: 8ecelpL of a
laLer lnsLallmenL of a debL wlLhouL reservaLlon as Lo prlor
lnsLallmenLs, shall ralse Lhe presumpLlon LhaL such prlor
lnsLallmenLs have been pald.
21

What are the r|ghts of cred|tors?
CredlLors have Lhe ff. rlghLs:
1) 1hey may exacL fulflllmenL/paymenL (speclflc performance) wlLh
rlghL Lo damages,
2) LxhausL Lhe debLor's properLy, generally by aLLachmenL (excepL
properLles exempLed y law),
3) Acclon subrogaLorla: exerclse all Lhe rlghLs and brlng all Lhe
acLlons of Lhe debLor, excepL Lhose lnherenL ln hls person, and
4) llle an acclon paullana: lmpugn or resclnd acLs or conLracLs done
by Lhe debLor Lo defraud credlLors.
22

Are r|ghts acqu|red by v|rtue of an ob||gat|on transm|ss|b|e?
C8: ?es, rlghLs acqulred by vlrLue of an obllgaLlon are Lransmlsslble.
LxcepLlon: When Lhe law provldes oLherwlse, Lhe conLracL provldes
oLherwlse, or lf Lhe obllgaLlon ls purely personal.

D|fferent k|nds of Cb||gat|ons

ure & Cond|t|ona| Cb||gat|ons

What are pure ob||gat|ons?
1hese are obllgaLlons whose performance does noL depend upon a fuLure or
uncerLaln evenL, or upon a pasL evenL unknown Lo Lhe parLles, and ls Lhus
demandable aL once.
23

What are cond|t|ona| ob||gat|ons?
CondlLlonal obllgaLlons are Lhose whose performance depend upon a
condlLlon, l.e. a fuLure or uncerLaln evenL, or a pasL evenL unknown Lo Lhe
parLles.

What are the k|nds of cond|t|ona| ob||gat|ons?
1) Suspenslve - Lhe happenlng of Lhe condlLlon glves rlse Lo Lhe
obllgaLlon (lL ls suspended unLll Lhe happenlng of Lhe evenL). Cnce
Lhe condlLlon ls fulfllled, Lhe effecLs reLroacL Lo Lhe Llme Lhe
obllgaLlon ls consLlLuLed.
2) 8esoluLory - 1he happenlng of Lhe condlLlon exLlngulshes Lhe
obllgaLlon.
- Lhese are demandable aL once.

CLher Lypes of obllgaLlons (whlch may be mlssed wlLh condlLlonal
obllgaLlons):
1) oLesLaLlve - depends upon Lhe wlll of one of Lhe parLles. May
be elLher:
a. Cn Lhe parL of Lhe debLor, buL musL noL be suspenslve, as boLh
Lhe obllgaLlon and Lhe condlLlon wlll be vold.
b. Cn Lhe parL of Lhe credlLor
2) Casual - depends upon Lhe wlll of a Lhlrd person.


- 4 -
3) Mlxed, depends parLly upon Lhe wlll of one of Lhe parLles and
parLly on Lhe wlll of a Lhlrd person.

What happens |f the cond|t|on |mposed |s |||ega|, |mmora| or |mposs|b|e?
1) oslLlve CondlLlons
C8: 8oLh Lhe condlLlon and Lhe obllgaLlon ls vold.
LxcepLlon: ln case of graLulLous condlLlon, Lhe condlLlon wlll be deemed as
noL wrlLLen, and Lhus becomes pure.
2) negaLlve CondlLlons
1he condlLlon wlll be deemed as noL havlng been agreed upon by Lhe parLles,
and ls deemed as noL wrlLLen, maklng Lhe obllgaLlon pure.

Shou|d the part|es agree on a date when the cond|t|on w||| be fu|f|||ed?
noL really. C8 ls LhaL when Lhe parLles have noL agreed Lo flx Lhe daLe as Lo
when lL should be fulfllled, Lhen Lhe parLles should walL sub[ecL Lo Lhe rule on
prescrlpLlon. 8uL slnce Lhere ls yeL no obllgaLlon, Lhen Lhere ls no prescrlpLlon.
LxcepLlon: When lL becomes obvlous LhaL Lhe condlLlon cannoL or wlll noL be
fulfllled. rescrlpLlon wlll seL ln aL 3 years.

lf no Llme ls flxed, Lhe condlLlon wlll be deemed fulfllled aL such Llme as may
have probably been conLemplaLed by Lhe parLles, bearlng ln mlnd Lhe naLure
of Lhe obllgaLlon.
24

er|od for the fu|f|||ment of the Cond|t|on (1erm for the cond|t|on)
1) oslLlve
- lL ls exLlngulshed:
a. as soon as Lhe Llme explres, or
b. lL becomes lndublLable LhaL Lhe evenL wlll noL Lake place.
- lL ls deemed fulfllled when Lhe obllgor volunLarlly prevenLs lL.
2) negaLlve
- 1he condlLlon LhaL some evenL wlll noL happen aL a deLermlnable
Llme shall render Lhe obllgaLlon effecLlve from Lhe momenL Lhe
Llme lndlcaLed elapsed or lf lL has become evldenL LhaL Lhe evenL
cannoL occur.
23

Cb||gat|ons w|th a per|od

What |s an ob||gat|on w|th a per|od?
lL ls an obllgaLlon wlLh a day cerLaln, such LhaL lLs demandablllLy ls sub[ecL Lo
Lhe arrlval of such day cerLaln.

What |s a 'day certa|n'?
lL can be any of Lhe ff:
1) A flxed daLe
2) luLure and cerLaln evenL whlch musL necessarlly come, alLhough
noL known when.
3) asL evenL whlch ls unknown Lo Lhe parLles, wlLh Lhe perlod
belng Lhe daLe of Lhe dlscovery Lhereof by Lhe parLles.
4) ayable when able, wlLh Lhe perlod belng flxed by Lhe courL,
based on Lhe lnLenLlon of Lhe parLles as shown by Lhe naLure of Lhe
obllgaLlon, and clrcumsLances of Lhe parLles.
Cther |nstances when the court may f|x the per|od:
1) When Lhere ls no perlod sLlpulaLed, buL Lhe parLles lnLended LhaL
Lhere be a perlod (based on Lhe naLure and clrcumsLances)
2) lf lL depends upon Lhe wlll of Lhe debLor.
- Cnce flxed, Lhe perlod can no longer be changed.

When may the court not f|x the per|od?
1) When no Lerm was lnLended by Lhe parLles, and ln reallLy, Lhe
obllgaLlon ls pure.
2) When payable on demand
3) Speclflc perlods are provlded for by law
4) When Lhe perlod ln Lhe conLracL has already explred
3) 8es [udlcaLa has seL ln.

24 Art. 1185, Civil Code, 2
nd
paragraph. Accdg. To Dean Del, this means that the debtor will be released
form the obligation.
25 Art. 1181, Civil Code, 1
st
par..

What are the requ|s|tes for a va||d per|od]term?
1) lL musL refer Lo Lhe fuLure,
2) lL musL be cerLaln (sure Lo come) buL can be exLended,
3) lL musL be physlcally and legally posslble.

What |s the d|fference between a per|od and a cond|t|on?
er|od Cond|t|on
An evenL whlch musL happen
sooner or laLer, aL a daLe known or
ls cerLaln Lo happen Lhough noL
known when.
8efers Lo Lhe fuLure.
llxes Lhe Llme or Lhe efflcaclousness
of an obllgaLlon.
An uncerLaln evenL.

May refer Lo a pasL evenL.
lL causes an obllgaLlon Lo arlse or
cease.

Ior whose benef|t |s the term estab||shed?
C8: lL ls esLabllshed for Lhe beneflL of boLh parLles.
8uL, lL may be sLlpulaLed LhaL lL be granLed for Lhe beneflL of:
1) Lhe debLor - ln such a case, he may compel Lhe credlLor Lo
accepL paymenL before arrlval of Lhe Lerm, buL he may noL be
compelled Lo pay before such Llme. May be losL on legal grounds
or by sLlpulaLlon (l.e. an acceleraLlon clause)
2) 1he credlLor - he ls enLlLled Lo demand paymenL before arrlval
of Lhe Lerm, buL may noL be compelled Lo accepL before such Llme.
1he perlod ls walved when Lhere ls accepLance of parLlal paymenLs
by Lhe credlLor.

What are the |ega| grounds when the debtor |oses the benef|t of the per|od?
?es. 1he debLor loses Lhe beneflL of Lhe perlod when:
1) 1he debLor becomes lnsolvenL
- unless, he glves sufflclenL guaranLles/securlLles
2) 1he debLor falled Lo furnlsh Lhe guaranLles/securlLles promlsed
3) When, by hls own acLs, he lmpalrs Lhe guaranLles/securlLles
furnlshed, and when by a forLulLous evenL Lhey dlsappear
- unless, he glves oLhers sufflclenLly saflsfacLory.
4) vlolaLlon of any underLaklng ln conslderaLlon of whlch Lhe
credlLor agreed Lo Lhe perlod
3) When Lhe debLor aLLempLs Lo abscond.
26

ketroact|ve effect:
1) When Lhe condlLlon ls fulfllled - Lhe effecLs reLroacL back Lo Lhe
Llme when Lhe obllgaLlon was creaLed.
2) 8efore Lhe condlLlon ls fulfllled - Lhe credlLor can proLecL hlmself
by requlrlng a bond, escrow, eLc.
3) lf Lhe debLor performs when Lhe obllgaLlon ls creaLed - Lhls ls
paymenL by mlsLake, and whaL has been dellvered mlsLakenly may
be recovers. unless he learns afLer Llme he dellvered Lhen he may
only recover lnLeresL. lf he knew aL Lhe Llme of dellvery, Lhen he
cannoL recover (Lhls becomes a naLural obllgaLlon from whlch once
performed, you cannoL recover).

When |s there no retroact|v|ty?
lor frulLs and lnLeresLs ln reclprocal and unllaLeral obllgaLlons.
1) unllaLeral - debLor geLs Lhe frulLs, unless Lhe parLles lnLended
oLherwlse.
2) 8eclprocal - counLed from Lhe Llme Lhe condlLlon was fulfllled.
3) lor obllgaLlons wlLh a perlod, reLroacLlvlLy does noL apply, slnce
Lhere ls already an obllgaLlon from day 1. lor frulLs, lL may eLher
be from day 1, or from Lhe arrlval of Lhe perlod.

What happens |f there |s |oss, deter|orat|on and]or |mprovement?
8eLroacLlvlLy applles here, buL ls only appllcable Lo obllgaLlons Lo dellver
speclflc Lhlngs. 1hls applles when Lhere ls a condlLlon or perlod, and loss,
deLerloraLlon or lmprovemenL happens before fulflllmenL or arrlval.


- 5 -
Loss Deter|orat|on Improvement
lor LoLal loss, lL
depends on whose
faulL lL ls:
laulL of Lhe debLor -
he pays for damages.
no speclflc
performance and no
subsLlLuLe
performance.
laulL of Lhe credlLor -
Lhe debLor ls released
and no obllgaLlon ls
creaLed.
lor forLulLous evenL -
Lhe obllgaLlon ls
exLlngulshed, and Lhe
debLor ls released.
laulL of Lhe debLor -
credlLor may seek for
speclflc performance
or resoluLlon or
cancellaLlon, wlLh
damages ln elLher
case.
laulL of Lhe credlLor -
debLor dellvers Lhe
Lhlng ln such a
condlLlon.
lorLulLous evenL -
debLor dellvers Lhe
properLy ln such
condlLlon, and Lhe
credlLor suffers Lhe
lmpalrmenL.
Caused by Lhe debLor
- he has usufrucLuary
rlghLs, and only has
Lhe rlghL Lo use before
dellvery. Pe can
remove lf lL can be
removed wlLhouL
lmpalrlng Lhe Lhlng.
Caused by Lhe credlLor
- noL enLlLled Lo
relmbursemenL for
Lhe lmprovemenL.
Caused by Lhe naLure
of Lhe Lhlng - Lhls
lnures Lo Lhe beneflL
of Lhe credlLor.

What are mu|t|p|e ob||gat|ons?
S|mp|e ob||gat|ons - only one presLaLlon or ob[ecL of obllgaLlon.
Mu|t|p|e ob||gat|ons:
1) Mu|t|p|e prestat|ons:
a. A|ternat|ve - one where ouL of 2 or more presLaLlons whlch may
be glven, only one ls due.
- credlLor cannoL be compelled Lo accepL one parL of one and one
parL of anoLher.
Who has the r|ght to determ|ne wh|ch one |s due?
Gk: 1he rlghL belongs Lo Lhe debLor.
Lxcept|on: When lL ls expressly granLed Lo Lhe credlLor, or Lhere ls a
sLlpulaLlon granLlng Lhe rlghL Lo a 3
rd
person.
ku|es on choos|ng: 1he person wlLh Lhe rlghL of cholce cannoL
choose Lhose
l. lmposslble
||. unlawful
|||. whlch could noL have been Lhe ob[ecL of Lhe obllgaLlon.
What |f the prestat|ons are |mposs|b|e to g|ve except for one?
1hen Lhere ls no more rlghL of cholce and Lhe debLor should glve LhaL whlch ls posslble.
What |f one of the prestat|ons |s |||ega|?
1hen Lhe oLhers remaln valld and Lhe obllgaLlon subslsLs.
When the person g|ven the r|ght of cho|ce has chosen, what must he
do?
1he cholce has no effecL excepL form Lhe Llme lL ls communlcaLed, and
Lhus becomes a slmple obllgaLlon. no need for consenL. lf lL was chosen
by Lhlrd person, Lhen noLlfy boLh parLles. 1hls may be done orally or ln
wrlLlng. 1here may also be lmplled/LaclL cholce.
What |f the debtor cannot make a cho|ce due to the cred|tor's acts?
1he debLor may resclnd, and seek paymenL for damages.
What are the effects of |oss?
ll Lhe cholce ls LhaL of Lhe debLor:
If one]some are |ost If a|| are |ost
uebLor's faulL

CredlLor's faulL

lorLulLous evenL
lf he desLroys one of
several presLaLlons,
Lhen Lhe debLor ls [usL
maklng hls cholce, and
he may choose from
Lhe remalnlng.

CredlLor any of Lhose
remalnlng or seek for
resoluLlon/cancellaLlon
of Lhe obllgaLlon wlLh
damages.

erson glven Lhe rlghL
may choose from
Lhose remalnlng.
CredlLor recelves
damages based on Lhe
value of Lhlng LhaL lasL
dlsappeared.

uebLor may
resolve/cancel wlLh
cholce of Lhe debLor.

CbllgaLlon ls
exLlngulshed.
If the cho|ce |s that of the cred|tor:
If one]some are |ost If a|| are |ost
uebLor's faulL

CredlLor's faulL

lorLulLous evenL
CredlLor may choose
any of Lhe remalnlng,
or seek paymenL for
value of Lhe Lhlng
chosen by Lhe
credlLor.

1he credlLor may
choose form Lhose
remalnlng.

CredlLor may choose
form Lhe remalnlng.
uebLor Lo pay
cholce of Lhe credlLor.

CbllgaLlon ls
exLlngulshed.

CbllgaLlon ls
exLlngulshed.

b. Con[unct|ve - lf all presLaLlons musL be performed.
c. Iacu|tat|ve - only one presLaLlon has been agreed upon buL Lhe
obllgor may render anoLher ln subsLlLuLlon.
(Accessory/subsLlLuLe obllgaLlons)
- 1he nulllLy of Lhe prlnclpal obllgaLlon carrles wlLh lL Lhe nulllLy of
Lhe accessory/subsLlLuLe.
- lf Lhe prlnclpal ls lmposslble, Lhe subsLlLuLe does noL have Lo be
glven, buL lf lL ls Lhe subsLlLuLe whlch ls lmposslble, Lhe prlnclpal
musL sLlll be glven.
- 1he rlghL of cholce only belongs Lo Lhe -,($"%.
* Loss of subst|tute
Gk: Loss of Lhe subsLlLuLe does noL affecL Lhe prlnclpal presLaLlon.
And Lhe debLor may sLlll dellver Lhe prlnclpal.
Lxcept|on: lf Lhe debLor has already chosen Lhe subsLlLuLe and has
communlcaLed Lhls Lo Lhe credlLor. ln such a case, Lhe credlLor ls
llable Lo Lhe debLor.
* Loss of pr|nc|pa|
If due to fortu|tous event - Lhe obllgaLlon ls exLlngulshed.
If due to the fau|t of the debtor - Lhe debLor converLs subsLlLuLe
lnLo Lhe prlnclpal obllgaLlon. Pe ls [usL maklng hls cholce.
If due to the fau|t of the cred|tor - Lhe obllgaLlon ls exLlngulshed.

now do you determ|ne |f the ob||gat|on |s facu|tat|ve or
a|ternat|ve?
Conslder lL as an alLernaLlve obllgaLlon as lL creaLes more
reclproclLy of rlghLs. ln order for lL Lo be a faculLaLlve obllgaLlon,
Lhe lnLenL Lo make lL so musL be clear.

2) Mu|t|p|e part|es - 1here are 2/more credlLors and/or 2/more
debLors.
a. Io|nt ob||gat|ons - Lach obllgor answers only for a parL of Lhe
whole llablllLy, and Lo each of Lhe credlLors belongs only a parL of
Lhe correlaLlve rlghLs. ulvlded lnLo as many equal shares as Lhere
are debLors or credlLors.
b. So||dary ob||gat|ons - 1he acLlve and passlve sub[ecLs may
demand Lhe fulLlllmenL of or musL comply wlLh Lhe whole
obllgaLlon.
now do you determ|ne |f the ob||gat|on |s [o|nt or so||dary?
Gk: lf lL cannoL be deLermlned, such LhaL Lhe obllgaLlon does noL so sLaLe, or
when from Lhe naLure or Lhe law, such cannoL be deLermlned, Lhen Lhe
obllgaLlon ls ."/#$. lndlvlslblllLy of Lhe presLaLlon does noL necessarlly mean
LhaL Lhe obllgaLlon ls solldary, nelLher does solldarlLy lmply lndlvlslblllLy.
27

Are there d|fferent k|nds of so||dar|ty?
?es. 1here ls:
1) AcLlve solldarlLy - solldarlLy on Lhe parL of Lhe credlLor.
2) asslve solldarlLy - solldarlLy on Lhe parL of Lhe debLors.


- 6 -
3) Mlxed solldarlLy - solldarlLy on Lhe parL of boLh parLles, boLh Lhe
debLors and credlLors.

Can there be so||dar|ty even |f the debtors and cred|tors are bound by
d|fferent terms and cond|t|ons?
?es. SolldarlLy may exlsL alLhough Lhe credlLors and Lhe debLors may noL be
bound ln Lhe same manner and by Lhe same perlods and condlLlons.
28
ln such
a case, Lhe credlLor may recover LhaL parL whlch ls pure and uncondlLlonal,
and leave ln suspense Lhe rlghL Lo demand fulflllmenL of Lhe remalnder unLll
explraLlon of Lhe Lerm or fulflllmenL of Lhe condlLlon. 1he whole solldary
obllgaLlon may be recovered from Lhe debLors mlnus Lhe share of Lhose wlLh
unmaLured condlLlons.

1o whom must payment be made?
Gk: 1o any one of Lhe solldary credlLors.
Lxcept|on: lf Lhere ls already a demand, Lhen paymenL musL be made Lo Lhe
credlLor who demanded paymenL, wheLher [udlclally or exLra[udlclally.

If one of the debtors d|es, can the cred|tor st||| go aga|nst the debtor who
d|ed?
?es. 1he credlLor's rlghLs are noL frusLraLed, and he may sLlll collecL from Lhe
esLaLe of Lhe deceased. Solldary credlLor may flle an acLlon agalnsL Lhe esLaLe,
or clalm form Lhe oLher solldary debLors.

What may the so||dary cred|tors do?
Lach one of Lhe solldary credlLors may do whaLever may be useful Lo Lhe
oLhers, buL noL anyLhlng whlch may be pre[udlclal Lo Lhe laLLer. 1hus, Lhey
cannL:
1) Asslgn Lhelr rlghLs Lo anoLher person wlLhouL Lhe consenL of Lhe
oLher credlLors. 8uL Lhe consenL of oLhers ls noL requlred lf Lhe
asslgnmenL ls Lo anoLher solldary credlLor.
2) 8uL, Lhey may novaLe, compensaLe, engage ln confuslon/merger,
or remlL Lhe debL whlch exLlngulshes Lhe obllgaLlon, buL Lhey are
llable Lo Lhe oLhers for Lhe laLLer's share, unless all of Lhem
consenLs. ln Lhe laLLer case, no relmbursemenL ls requlred.

ku|es on payment:
1) CredlLor may proceed agalnsL any one of Lhe solldary debLors or
some, or all of Lhem slmulLaneously, and demand agalnsL one does
noL prevenL subsequenL demands agalnsL Lhe oLhers, unless Lhe
debL has already been fully pald.
29

2) aymenL made by one solldary debLor - lf Lhere ls full paymenL,
Lhen Lhls exLlngulshes Lhe obllgaLlon.
3) lf 2/more solldary debLors offer Lo pay - credlLor may choose
from whom Lo accepL.
4) lf one of Lhe solldary debLors cannoL pay hls share due Lo
lnsolvency - Lhe share of Lhe lnsolvenL debLor wlll be borne by Lhe
oLher co-debLors, ln proporLlon Lo Lhe debL of each.
30
lnsolvency ls
never a defense. 1he lnsolvenL may be held Lo relmburse Lhe
oLhers once Lhe lnsolvency ceases.

What are the effects of ext|ngu|shment of ob||gat|ons |n so||dary
ob||gat|ons?
1. Ior act|ve so||dar|ty:
lf one of Lhe solldary credlLors novaLes, compensaLes, confuses,
or remlLs Lhe debL of Lhe debLor, Lhen Lhe obllgaLlon ls
exLlngulshed beLween credlLors and debLor. 8uL, such credlLor ls
sLlll llable Lo Lhe oLher credlLors for Lhe laLLer's share:
- as among Lhemselves, Lhe solldary credlLors are llable [olnLly.
- lf Lhe exLlngulshmenL ls due Lo a forLulLous evenL, no
relmbursemenL among Lhem ls requlred.
- lf Lhere ls no agreemenL as Lo apporLlonmenL, Lhen lL ls deemed
LhaL Lhey share equally.
2. Ior pass|ve so||dar|ty

1he obllgaLlon ls exLlngulshed as beLween Lhe debLor and
credlLor. 8uL, a new obllgaLlon ls creaLed among Lhe debLors such
LhaL Lhey musL pay Lhe debLor who pald Lhe credlLor, and such
obllgaLlon amongsL Lhemselves ls [olnL.
- Powever, Lhere ls no relmbursemenL requlre lf paymenL was
made afLer Lhe obllgaLlon has prescrlbed or became legally
lmposslble. 1he paylng credlLor shoulders Lhe whole obllgaLlon. Pe
may however recover form Lhe credlLor whaL was pald, unless he
knew of Lhe prescrlpLlon or lmposslblllLy, he can no longer recover
from Lhe credlLor.
- lf Lhere ls novaLlon, and lL ls parLlal, Lhere ls Lhe obllgaLlon Lo
relmburse Lhe debLor who obLalned Lhe novaLlon. 8uL lf Lhe
novaLlon ls LoLal, Lhere ls no obllgaLlon Lo relmburse.
- lf Lhere ls compensaLlon, confuslon or remlsslon, Lhere ls also a
rlghL of relmbursemenL, unless Lhe condonaLlon ls of Lhe whole
obllgaLlon, or when Lhe debLor ls sued for Lhe loss of Lhe Lhlng due.
lf Lhe condonaLlon ls only of one share, debLor condoned may be
compelled Lo pay Lhe remalnlng mlnus hls own share, and he Lhus
has Lhe rlghL Lo be relmbursed by Lhe oLhers for whaL was pald.

What are the effects of |oss or |mposs|b|||ty?
lf due Lo a forLulLous evenL:
- before demand, Lhen Lhe obllgaLlon ls exLlngulshed.
- AfLer demand, Lhe debLor/s sLlll llable. 1he llablllLy ls converLed
lnLo one for damages.
lf due Lo Lhe faulL of one solldary debLor - Lhey are sLlll llable.

Defenses:
1) Comp|ete defense - uerlved form Lhe naLure of Lhe obllgaLlon,
and Lhere ls no llablllLy aL all. Lx. Lack of conslderaLlon, absoluLe
slmulaLlon, lllegal conslderaLlon, exLlngulshmenL of obllgaLlon,
non-fulflllmenL of suspenslve condlLlon, sLaLue of frauds.
2) ersona| defense - compleLe defense, as a general rule.
Lxamples:
vlLaLed consenL/lncapaclLy Lo glve consenL - compleLe defense,
arlses from Lhe parLlclpaLlon ln Lhe obllgaLlon.
non-fulflllmenL of condlLlon regardlng hls share, non-arrlval of Lerm
regardlng hls share - parLlal defense, only appllcable as Lo Lhe share
lnvolved.
3) ersona| to others - arLlal defense regardlng Lhe share of Lhe
oLhers lnvolved.

What defenses may a so||dary debtor |nvoke?
A solldary debLor may, ln acLlons flled by Lhe credlLor, avall hlmself of all
defenses whlch are derlved form Lhe naLure of Lhe obllgaLlon and Lhose whlch
are personal Lo hlm, or perLaln Lo hls share. As Lo Lhose personal Lo oLher co-
debLors, he may avall hlmself Lhereof only as regards LhaL parL of Lhe debL
whlch Lhe laLLer are responslble.
31

What are the d|fferences between so||dary debtor and a surety?
So||dary debtor Surety
Pe ls a prlnclpal parLy Lo Lhe
conLracL

May be made Lo pay Lhe whole
amounL of Lhe obllgaLlon, and may
noL blnd hlmself for less.
Pe collecLs from Lhe oLher debLors
whaL he has pald, buL can collecL
only Lhe share perLalnlng Lo each,
mlnus hls share.
LxLenslon of Llme Lo pay wlll noL
release Lhe solldary debLor.
noL a prlnclpal parLy. hls llablllLy ls
merely based on an accessory
conLracL.
Can blnd hlmself for less Lhan Lhe
amounL ln Lhe prlnclpal conLracL.

CollecLs Lhe enLlre amounL agreed
upon.

LxLenslon of Llme for Lhe prlnclpal
debLor wlLhouL Lhe sureLy's consenL
wlll release hlm from Lhe conLracL.

Io|nt Ind|v|s|b|e Cb||gat|ons


- 7 -

What |s the effect of the |nd|v|s|b|||ty of the ob[ect of the ob||gat|on on the
[o|nt]so||dary nature of the ob||gat|on?
1he dlvlslblllLy or lndlvlslblllLy of Lhe Lhlngs whlch are Lhe ob[ecL of Lhe
obllgaLlon does noL alLer lLs solldary/[olnL naLure.
32

So||dar|ty Ind|v|s|b|||ty
1hls refers Lo Lhe relaLlons of Lhe
parLles.
8equlres aL leasL 2 debLors or 2
credlLors.
1he faulL of one ls Lhe faulL of Lhe
oLhers.
1hls refers Lo Lhe naLure of Lhe
ob[ecL of Lhe obllgaLlon.
1here may be only one debLor and
one credlLor.
1he faulL of one parLy ls noL Lhe
faulL of Lhe oLhers.

What |s the effect of a [o|nt |nd|v|s|b|e ob||gat|on?
A [olnL lndlvlslble obllgaLlon glves rlse Lo lndemnlLy for damages form Lhe
Llme anyone of Lhe debLors does noL comply wlLh hls underLaklng. 1he
debLors who may have been ready Lo fulflll Lhelr promlses shall noL conLrlbuLe
Lo Lhe lndemnlLy beyond Lhe correspondlng porLlon of Lhe prlce of Lhe Lhlng,
or Lhe value of Lhe servlce whlch Lhe obllgaLlon conslsLs.
33

What k|nds of ob||gat|ons are cons|dered as |nd|v|s|b|e?
1) CbllgaLlons Lo glve deflnlLe Lhlngs
2) 1hose whlch are noL suscepLlble of parLlal performance
3) 1hose so provlded by law Lo be lndlvlslble
4) 1hose lnLended by Lhe parLles Lo be lndlvlslble.
34

ln obllgaLlons Lo do, lndlvlslblllLy ls deLermlned by Lhe characLer of Lhe
presLaLlon.

What k|nds of ob||gat|ons are deemed d|v|s|b|e?
1) When Lhe ob[ecL of Lhe obllgaLlon ls Lhe execuLlon of a cerLaln
number of days work
2) AccompllshmenL of work by meLrlcal unlLs
3) 1o pay a cerLaln amounL ln lnsLallmenLs
4) 1hose suscepLlble of parLlal perfomance.
33

now do you enforce these ob||gat|ons?
1hls ls enforced agalnsL all debLors.

What |s the effect of non-comp||ance?
1he obllgaLlon ls converLed lnLo a moneLary obllgaLlon for lndemnlLy.

Cb||gat|ons w|th a pena| c|ause

What |s a pena| c|ause?
lL ls an accessory underLaklng aLLached Lo an obllgaLlon Lo assume greaLer
llablllLy ln case of breach of an obllgaLlon. 1hls ls baslcally llquldaLed damages,
and proof of acLual damages ls noL requlred Lo demand for paymenL of Lhe
penalLy.
36

What |s the purpose of a pena| c|ause?
Such ls a penalLy whlch Lakes Lhe place of lndemnlLy for damages and Lhe
paymenL of lnLeresL.
LxcepLlons:
1) When Lhere ls an express sLlpulaLlon Lo Lhe effecL LhaL damages
or lnLeresL may sLlll be recovered desplLe Lhe penalLy clause.
2) When Lhe debLor refuses Lo pay Lhe penalLy lmposed ln Lhe
obllgaLlon, Lhen Lhe penalLy wlll earn lnLeresL from Lhe daLe of
demand.
3) When Lhe debLor ls gullLy of fraud or -"0" ln Lhe fulflllmenL of
Lhe obllgaLlon.

May the pena|ty be reduced by the courts?

32 See Art. 1223, Civil Code.
?es. 1he penalLy may be reduced by Lhe courLs when:
1) Lhe obllgaLlon has been parLly complled wlLh
2) when Lhere ls lrregular performance
3) Lhe penalLy ls lnlqulLous or unconsclonable.
37

When may the pena|ty not be enforced?
lL may noL be enforce when:
1) 1he breach ls due Lo Lhe faulL of Lhe debLor.
2) lorLulLous evenL lnLervened, unless Lhe debLor expressly agreed.
3) uebLor ls noL yeL ln defaulL.

Can the pena|ty be the subst|tute of the pr|nc|pa| ob||gat|on?
no. 1he debLor cannoL exempL hlmself from Lhe performance of Lhe
obllgaLlon by paylng Lhe penalLy, unless such rlghL ls reserved for hlm. 1he
credlLor may also noL demand fulflllmenL of Lhe obllgaLlon and paymenL of
Lhe penalLy aL Lhe same Llme, unless Lhls rlghL ls expressly granLed Lo hlm. lf
afLer Lhe credlLor has declded Lo requlre Lhe fulflllmenL of Lhe obllgaLlon, Lhe
performance becomes lmposslble wlLhouL hls faulL, Lhen Lhe penalLy may be
enforced.
38

What |s the effect of nu|||ty of the pr|nc|pa| ob||gat|on]the pena|ty c|ause?
1he nulllLy of Lhe penal clause does noL carry wlLh lL LhaL of Lhe prlnclpal
obllgaLlon. 8uL, Lhe nulllLy of Lhe prlnclpal obllgaLlon carrles LhaL of Lhe
penalLy.
39

Lxt|ngu|shment of ob||gat|ons

now are ob||gat|ons ext|ngu|shed?
CbllgaLlons are exLlngulshed by Lhe ff. modes:
1) aymenL/performance
2) Loss of Lhe Lhlng due
3) CondonaLlon or remlsslon of debL
4) Confuslon or merger of Lhe rlghLs of credlLor and debLor
3) CompensaLlon
6) noLvaLlon
7) CLher modes recognlzed by law, such as annulmenL, resclsslon,
fulflllmenL of a resoluLory condlLlon, prescrlpLlon, deaLh of a parLy
ln case of personal obllgaLlons, forLulLous evenL, lmposslblllLy,
muLual deslsLance.
40

What |s payment?
aymenL means noL only Lhe dellvery of money buL also Lhe performance, ln
any oLher manner, of an obllgaLlon.
41

What are the 3 pr|nc|p|es |n payment?
1he 3 prlnclples are lnLegrlLy, ldenLlLy and lndlvlslblllLy.

What does |ntegr|ty |n payment mean?
1hls [usL means LhaL performance or paymenL be made ln accordance wlLh
Lhe Lerms and condlLlons of Lhe obllgaLlon, and cannoL be varled by any one
parLy.
Lxcept|ons:
1) Substant|a| performance - performance of an obllgaLlon musL
be accordlng Lo Lhe falr lnLenL of Lhe conLracL, wlLh an aLLempL Lo
perform. lf Lhe obllgaLlon ls almosL fully pald and was done ln good
falLh, Lhe debLor can be consldered as havlng fulfllled hls
obllgaLlon and can enforce fulflllmenL of Lhe obllgaLlon, buL he ls
sLlll llable Lo make good Lhe balance. Pe ls sLlll llable for any
amounL suffered by Lhe credlLor, buL Lhe laLLer may noL yeL sue, as
Lhe debLor may sLlll perform Lhe balance.
2) Wa|ver - when Lhere has been lmplled consenL of Lhe credlLor,
such LhaL he accepLs knowlng LhaL Lhe performance was


- 8 -
lncompleLe or lrregular, and wlLhouL expresslng any ob[ecLlon, Lhe
obllgaLlon ls deemed complled wlLh.
42

3) Imposs|b|||ty - when lL ls proven LhaL Lhe lmposslblllLy ls one
LhaL could noL have been conLemplaLed by Lhe parLles, whlch
renders Lhe obllgaLlon beyond Lhe capaclLy of Lhe debLor Lo
perform, Lhe obllgor may be released ln whole or ln parL. 1hls
refers Lo Lhe prlnclple of %,()* */! *$&#$/()*, whlch provldes LhaL
an agreemenL remalns valld only lf Lhe same condlLlons prevalllng
aL Lhe Llme of conLracLlng conLlnue Lo exlsL aL Lhe Llme of
performance.
43

What does the pr|nc|p|e of |dent|ty mean?
1hls means LhaL Lhe Lerms of Lhe conLracL remaln as Lhe law beLween Lhe
parLles and Lhe sub[ecL maLLer Lhereof cannoL be changed wlLhouL Lhe
consenL of Lhe parLles. 1he debLor of a Lhlng cannoL compel Lhe credlLor Lo
recelve a dlfferenL one, alLhough Lhe laLLer may be of Lhe same value as, or
more valuable Lhan LhaL due. ln obllgaLlons Lo do or noL Lo do, an acL or
forebearance cannoL be subsLlLuLed by anoLher acL or forebearance agalnsL
Lhe credlLor's wlll.
44

Lxcept|ons:
1. laculLaLlve obllgaLlons
2. uaLlon ln paymenL
3. novaLlon
4. Walver

Ior ob||gat|ons to de||ver |ndeterm|nate th|ngs, and the part|es do not
prov|de for the qua||ty of the th|ng to be de||vered, what shou|d be
de||vered?
lf Lhe obllgaLlon conslsLs ln Lhe dellvery of an lndeLermlnaLe Lhlng or generlc
Lhlng, Lhe credlLor cannoL demand a Lhlng of superlor quallLy. 1he debLor may
also noL dellver a Lhlng of lnferlor quallLy. 1he purpose of Lhe obllgaLlon, and
oLher clrcumsLances shall be Laken lnLo accounL.
43
lf lL sLlll cannoL be
deLermlned, [udlclal lnLerpreLaLlon may be resorLed Lo.

What does |nd|v|s|b|||ty |n payment mean?
1hls means LhaL Lhere should always be full performance of Lhe obllgaLlon,
noL [usL mere parLlal performance. A debL shall noL be undersLood Lo have
been pald unless Lhe Lhlng or servlce ls whlch Lhe obllgaLlon conslsLs has been
!"+10,$,02 dellvered or rendered.
Lxcept|ons:
1) When Lhere ls a conLrary sLlpulaLlon allowlng parLlal
performance.
2) When Lhe obllgaLlon ls covered by dlfferenL condlLlons or
dlfferenL Lerms
3) arLlal llquldaLlon
4) !olnL debLor pays hls share or Lhe credlLors demands Lhe same
3) Solldary debLor pays only Lhe parL demandable
6) ln cases of compensaLlon, when one debL ls larger Lhan Lhe
oLher, Lhe balance lefL ls yeL Lo be pald.
7) When Lhe obllgaLlon conslsLs ln work done ln parLs.

What are the ru|es when payment |s made by a 3
rd
person?
1he credlLors may noL be compelled Lo accepL paymenL by a Lhlrd person,
excepL:
1) when Lhere ls a sLlpulaLlon provldlng for Lhe conLrary, or
2) Lhe 3
rd
person has an lnLeresL ln Lhe fulflllmenL of Lhe obllgaLlon,
such as a guaranLor.
lf Lhe 3
rd
person ls noL lnLeresLed ln Lhe obllgaLlon, and Lhe credlLor does noL
accepL Lhe paymenL, Lhere ls no defaulL. lf he accepLs paymenL, Lhen Lhe
obllgaLlon ls exLlngulshed, buL Lhe debLor musL relmburse Lhe payor.

ku|es on payment by 3
rd
person:
1) lf paymenL was made wlLh knowledge and consenL of Lhe debLor
- payor ls enLlLled Lo relmbursemenL and subrogaLlon, and Lhus

may exerclse all Lhe rlghLs and acLlons LhaL could be exerclsed by
Lhe credlLor, such as Lhose arlslng from a morLgage, guaranLy or
penalLy clause.
2) lf paymenL was made agalnsL Lhe wlll of Lhe debLor - rlghL of
relmbursemenL of 3
rd
person ls only up Lo Lhe exLenL LhaL Lhe
debLor was beneflLLed.
3) lf paymenL was allowed by Lhe debLor, Lhough he dld noL
consenL LhereLo - full relmbursemenL Lo be made.
4) lf paymenL was made wlLhouL Lhe lnLenLlon of belng relmbursed
- rules on donaLlon Lo be followed. AccepLance of donee requlred,
and lf Lhere ls noL accepLance Lhere ls noL consenL, Lhus
relmbursemenL llmlLed Lo Lhe amounL by whlch Lhe debLor was
beneflLLed.

When may you recover the payment made from the cred|tor?
1) When Lhe debL has prescrlbed,
2) 1he debL had been compleLely remlLLed,
3) 1he debL has already been pald,
4) When legal compensaLlon has Laken place.

What |f payment was made by an |ncapac|tated person?
Gk: l Lhe person paylng has noL capaclLy, Lhen Lhe paymenL ls voldable lf
accepLed, and may sLlll be recovered. 1he credlLor, however cannoL be
compelled Lo accepL.
Lxcept|on: When a mlnor beLween 18 and 21, who has enLered lnLo a
conLracL wlLhouL Lhe consenL of hls parenLs or guardlan, volunLarlly pays a
sum of money or dellvers a funglble Lhlng ln fulflllmenL of Lhe obllgaLlon,
Lhere shall be no rlghL Lo recover Lhe same from Lhe credlLor who has
consumed lL ln good falLh.
46

1o whom shou|d payment be made?
aymenL may be made Lo Lhe ff:
1) 1he credlLor,
2) Pls helrs,
3) Pls asslgns (AsslgnmenL of credlL does noL need consenL of Lhe
debLor, buL requlres noLlce Lo hlm, and lf Lhere ls no such noLlce,
Lhen lL does noL blnd hlm)
4) ersons auLhorlzed Lo recelve paymenL.
Lxcept|ons: aymenL Lo Lhe above wlll be vold when:
1) 1here ls a [udlclal order for Lhe reLenLlon of debLs (ex.
CarnlshmenL)
2) A wrlL of ln[uncLlon was lssued whlch prohlblLs paymenL Lo Lhe
credlLor,
3) ln Lhe case of lnsolvenL credlLors.

What happens |f payment was made to unauthor|zed persons?
1he paymenL ls valld, buL only Lo Lhe exLenL LhaL lL beneflLs Lhe credlLor. 1he
debLor should prove LhaL Lhe paymenL beneflLLed Lhe credlLor.
Lxcept|ons:
1) lf afLer paymenL Lhe 3
rd
person acqulres Lhe credlLor's rlghL
(SubrogaLlon),
2) lf Lhe credlLor raLlfles Lhe paymenL Lo Lhe 3
rd
person,
3) lf by Lhe credlLor's acLs, Lhe debLor has been led Lo belleve LhaL
Lhe 3
rd
person had auLhorlLy Lo recelve paymenL (esLoppel).
47

What are the requ|s|tes for a va||d payment to a person |n possess|on of the
cred|t?
1) aymenL musL be made ln good falLh,
2) 1he payee musL be ln possesslon of Lhe credlL lLself, noL merely
Lhe documenL evldenclng lL.

What are the effects of payment to an |ncapac|tated person?
aymenL Lo an lncapaclLaLed person ls valld only lf:
1) 1he lncapaclLaLed person has kepL Lhe Lhlng dellvered, or
2) lnsofar as Lhe paymenL has been beneflclal Lo hlm.


- 9 -

What are the ru|es |n case of payment of monetary ob||gat|ons:
1) lL musL be ln legal Lender, or LhaL whlch a debLor may compel
Lhe credlLor Lo accepL ln paymenL of debL. 1hough Lhe parLles may
agree on whaL currency paymenL would be made.
2) aymenL ls sub[ecL Lo Lhe rules on lnflaLlon: lnflaLlon/deflaLlon
only when Lhere ls an exLraordlnary lncrease/decrease ln Lhe
purchaslng power of Lhe money. ueLermlnlng wheLher Lhere ls
exLraordlnary lnflaLlon/deflaLlon ls a [udlclal deLermlnaLlon, and he
who alleges musL prove, buL flgures form 8S are evldence whlch
may be consldered. ln case of exLraordlnary lnflaLlon/deflaLlon, Lhe
value of Lhe currency aL Lhe Llme of Lhe esLabllshmenL of Lhe
obllgaLlon ls Lo be applled, unless Lhere ls an agreemenL Lo Lhe
conLrary.
48

3) aymenL uslng colns: Colns are legal Lender buL only up Lo a
cerLaln amounL:
CenLavos - only up Lo h100.00
esos - Cnly up Lo h1,000.00
4) MercanLlle documenLs - checks are noL legal Lender, and only
has Lhe effecL of paymenL when Lhey have been encashed or when
Lhrough Lhe faulL of Lhe credlLor Lhey have been lmpalred.
49
8uL,
once accepLed, credlLor cannoL seL up Lhe defense LhaL paymenL
was noL ln legal Lender.

Where must payment be made?
aymenL ls Lo be made ln Lhe place sLlpulaLed ln Lhe conLracL. lf Lhere ls no
sLlpulaLlon, and Lhe obllgaLlon ls Lo dellver a deLermlnaLe Lhlng, paymenL ls Lo
be made where lL ls locaLed. lor lndeLermlnaLe Lhlngs, Lhe domlclle of Lhe
debLor. lf Lhe debLor changes hls domlclle ln bad falLh, or afLer he lncurs ln
delay, credlLor may charge debLor for exLra expenses lncurred ln collecLlng
Lhe paymenL.

What are the spec|a| forms of payment?
1) App||cat|on of payments
- lL ls Lhe deslgnaLlon of Lhe debL Lo whlch should be applled a
paymenL made by a debLor who owes several debLs ln favor of Lhe
same credlLor.
8equlslLes:
1) 1here musL be 2/more debLs (severallLy of debLs)
2) 1he debLs musL be of Lhe same klnd
3) Cwed by Lhe same debLor ln favor of Lhe same credlLor
4) All Lhe debLs musL be due
LxcepLlon: lf Lhere ls a sLlpulaLlon Lo conLrary, or when lL ls made
by Lhe parLy for whose beneflL Lhe Lerm ls consLlLuLed.
3) aymenL ls noL enough Lo exLlngulsh all debLs.

now |s app||cat|on made?
a) Lo whaL debL Lhe paymenL ls Lo be applled ls Lhe preferenLlal
rlghL of cholce of Lhe debLor, unless a conLrary agreemenL appears.
- Lhe debLor may noL choose Lo pay parL of Lhe prlnclpal ahead of
Lhe lnLeresL, unless Lhe credlLor consenLs.
- AppllcaLlon shall be made aL Lhe Llme of paymenL. lf noL made by
Lhe debLor, credlLor may recommend Lo whaL debL Lhe paymenL ls
Lo be applled, whlch musL be accepLed by Lhe debLor. lf noL
accepLed, Lhe debLor makes Lhe appllcaLlon.
b) CredlLor can choose lf Lhls was agreed upon, unless Lhere ls a
cause for lnvalldlLy of Lhe paymenL.
- lf Lhe obllgaLlon lLself ls vold, Lhen Lhe appllcaLlon of paymenLs ls
also vold.
- lf Lhe credlLor makes Lhe appllcaLlon wlLhouL Lhe consenL of Lhe
debLor, Lhe appllcaLlon ls noL valld.
c) lf nelLher of Lhe parLles makes Lhe appllcaLlon, or lf Lhe
appllcaLlon ls lnvalld, Lhe appllcaLlon ls made by operaLlon of law.
- 1he appllcaLlon shall flrsL be made Lo Lhe mosL onerous
obllgaLlon.

- lf all are equally onerous, Lhen appllcaLlon shall be made Lo all of
Lhem.

May the app||cat|on be revoked?
Cnce Lhe appllcaLlon ls made, lL ls lrrevocable. LxcepL when boLh parLles
agree. 8uL Lhe parLles may noL agree Lo revoke Lhe appllcaLlon lf 3
rd
parLles
wlll be pre[udlced.

2) Dac|on en ago
- lL ls Lhe mode of exLlngulshlng Lhe obllgaLlon where Lhe debLor
allenaLes properLy ln favor of Lhe credlLor for Lhe saLlsfacLlon of a
moneLary debL.
- Coverned by Lhe law on sales. And warranLles ln sales applles. lf
Lhere ls a breach of a warranLy, Lhere ls no paymenL, and Lhe
obllgaLlon remalns.
- 1he obllgaLlon may be exLlngulshed ln full or parLlally, as Lhe
parLles may agree on Lhe prlce of Lhe properLy whlch may be lower
Lhan Lhe amounL of Lhe debL.
- 8equlres Lhe consenL of Lhe credlLor.
3) Cess|on (Ass|gnment |n favor of the Cred|tor)
- lL ls a process by whlch Lhe debLor Lransfers all Lhe properLles
noL sub[ecL Lo execuLlon ln favor of hls credlLors so LhaL Lhe laLLer
may sell Lhem, and Lhus apply Lhe proceeds Lo Lhelr credlLs.
- May be legal, as when lL ls governed by Lhe lnsolvency Law, and
ma[orlLy of Lhe credlLors musL agree, or lL may be volunLary, where
all of Lhe credlLors musL agree.
kequ|s|tes:
a) 1here ls more Lhan one debL
b) 1o more Lhan one credlLor
c) 1here ls compleLe or parLlal lnsolvency of Lhe debLor
d) AbandonmenL of all of Lhe debLor's properLles noL exempL from
execuLlon ln favor of Lhe credlLors
e) AccepLance or consenL by all credlLors.

What are the effects of a cess|on?
1he credlLors do noL become Lhe owners of Lhe properLles, buL Lhey are
merely glven Lhe auLhorlLy Lo sell Lhem and apply Lhe proceeds Lhelr credlLs.
1he balance remalns collecLlble. As among Lhe credlLors, Lhey wlll collecL Lhelr
credlLors ln Lhe order of preference agreed upon by Lhem, and lf Lhere ls no
such agreemenL, Lhen by Lhe order esLabllshed by Lhe law.

What are the d|fferences between Cess|on and Dac|on en ago?
Dac|on en ago Cess|on
1hls baslcally creaLes a conLracL of
sale.
uoes noL requlre plurallLy of
credlLors.
Cnly Lhe speclflc credlLor's consenL
ls requlred.
May Lake place durlng lnsolvency of
Lhe debLor.
1ransfers ownershlp over Lhe Lhlng
Lo Lhe credlLor.
1hls ls a mere conLracL of agency Lo
sell.
8equlres plurallLy of credlLors.

8equlres consenL of all credlLors.

8equlres full or parLlal lnsolvency of
Lhe debLor.
uoes noL Lransfer ownershlp Lo Lhe
credlLor.

4) 1ender of payment and Cons|gnat|on

What |s tender of payment?
1ender of paymenL ls Lhe acL of offerlng Lo Lhe credlLor whaL ls due Lo hlm
LogeLher wlLh a demand LhaL he accepL Lhe same. 1here musL be a fuslon of
lnLenL, ablllLy, and capaclLy Lo make good Lhe offer. Cnce Lhls ls accepLed by
Lhe credlLor, Lhe obllgaLlon ls exLlngulshed. 1ender of prlnclpal musL be wlLh
Lender of Lhe lnLeresL.

What |s cons|gnat|on?
ConslgnaLlon ls Lhe acL of deposlLlng Lhe Lhlng due wlLh Lhe courL or [udlclal
auLhorlLles whenever Lhe credlLor cannoL accepL or refuses Lo accepL Lhe
paymenL, and as such, lL ls a [udlclal process, excepL ln cases falllng under Lhe

- 10 -
8enL ConLrol AcL (Lhe debLor ls allowed Lo conslgn paymenL wlLh Lhe bank
upon noLlce Lo Lhe lessor). 1hls produces Lhe effecL of paymenL.

kequ|s|tes:
1) LxlsLence of a valld debL, whlch musL be due
2) A valld prlor Lender, excepL when:
a) 1he credlLor ls absenL or does noL appear aL Lhe place of
paymenL.
b) 1he credlLor ls lncapaclLaLed aL Lhe Llme lL ls due and does noL
have a legal represenLaLlve.
c) WlLhouL [usL cause, Lhe credlLor refuses Lo glve a recelpL.
d) When 2/more persons clalm Lhe same rlghL Lo collecL (acLlon ln
lnLerpleader ls Lhe proper remedy wlLh conslgnaLlon)
e) 1lLle of Lhe obllgaLlon ls losL.
f) uebLor was prevlously noLlfled by Lhe credlLor LhaL he wlll noL
accepL any paymenL.
3) rlor noLlce of conslgnaLlon Lo all persons lnLeresLed (excepL lf
noLlce would be useless)
4) AcLual conslgnaLlon (deposlL), whlch places Lhe properLy ln
cusLodlal egls
3) SubsequenL noLlce of conslgnaLlon Lo all persons lnLeresLed.

When does cons|gnat|on produce the effect of payment?
ConslgnaLlon produces Lhe effecL of paymenL when Lhe courL approves Lhe
conslgnaLlon and orders Lhe cancellaLlon of Lhe obllgaLlon. 1he expenses of
conslgnaLlon ls generally borne by Lhe credlLor.

What are the effects of a va||d tender w|thout cons|gnat|on?
1) lL sLops Lhe runnlng of Lhe prescrlpLlve perlod, and
2) SLops Lhe runnlng of Lhe lnLeresL.
What are the effects of an |mproper cons|gnat|on?
1) 1he obllgaLlon remalns,
2) 1he debLor ls consldered ln defaulL,
3) lnLeresL conLlnues Lo run from Lhe Llme lL ls due, and
4) 1he prescrlpLlve perlod conLlnues Lo run.

May the th|ng cons|gned st||| be w|thdrawn?
lL may be wlLhdrawn as a maLLer of rlghL before Lhe credlLor accepLs Lhe
conslgnaLlon, or before Lhere ls a [udlclal declaraLlon LhaL Lhe conslgnaLlon
was proper. As a maLLer of prlvllege, lL may be wlLhdrawn, afLer conslgnaLlon
had been properly made, and Lhe credlLor auLhorlzes Lhe wlLhdrawal. ln Lhe
laLLer case, Lhe obllgaLlon remalns, Lhe credlLor loses any preference he has
over Lhe Lhlng, and Lhe guaranLors and sureLles who dld noL consenL wlll be
released.

Who bears the r|sk of |oss of the th|ng cons|gned?
Gk: Loss ls borne by Lhe credlLor:
lf due Lo a forLulLous evenL - 1he obllgaLlon ls exLlngulshed.
lf due Lo credlLor's faulL - obllgaLlon ls exLlngulshed.
uebLor's faulL - Lhe obllgaLlon remalns and he ls llable for damages.
laulL of Lhe courL/sherlff - CredlLor assumes Lhe acLlon of Lhe courL/sherlff,
and Lhe loss ls borne by hlm.

Loss of the th|ng due

Loss refers Lo obllgaLlons Lo glve, and lmposslblllLy refers Lo obllgaLlons Lo
do/noL Lo do.
- such musL arlse afLer Lhe consLlLuLlon of Lhe obllgaLlon
- lf lL ls already losL or lmposslble from Lhe sLarL Lhen Lhe
obllgaLlon ls vold.

What are the k|nds of |mposs|b|||ty?
1) Legal lmposslblllLy - such as when lL ls prohlblLed by Lhe law
2) hyslcal lmposslblllLy
3) Moral lmposslblllLy - Lhe obllgaLlon becomes so dlfflculL LhaL lL
was manlfesLly beyond Lhe conLemplaLlon of Lhe parLles.

lf whaL was losL ls a speclflc Lhlng - Lhe obllgaLlon ls exLlngulshed.
LxcepLlons:
a) When debLor ls aL faulL,
b) When Lhe debLor ls made llable for a forLulLous evenL.
- ln such cases, Lhe obllgaLlon ls converLed lnLo a moneLary
obllgaLlon for damages.
lf whaL was losL was a generlc Lhlng - Lhe obllgaLlon conLlnues Lo exlsL as
genus does noL perlsh.
LxcepLlons:
a) lf Lhe Lhlng has been dellmlLed (Lx. 30 kllos of rlce from 200 Lhe
harvesL lasL year),
b) lf Lhe Lhlng has already been segregaLed or seL aslde, and Lhus
has become speclflc.

What happens |f the cause of the |oss |s not known?
1he law provldes for a presumpLlon LhaL lL ls Lhe debLor's faulL, lf Lhe Lhlng
was ln hls possesslon, unless lL was due Lo a naLural clalamlLy.

What happens |f the |oss |s due to the fau|t of a 3
rd
person?
1he obllgaLlon ls exLlngulshed wlLhouL pre[udlce Lo Lhe credlLor's rlghL of legal
subrogaLlon, and Lhus wlll have all Lhe rlghLs of acLlon whlch Lhe debLor may
have agalnsL Lhe 3
rd
person.
LxcepLlon: lf Lhere ls colluslon beLween Lhe debLor and Lhe 3
rd
person, Lhe
debLor ls sLlll llable.

Condonat|on or kem|ss|on of Debt

What |s condonat|on]rem|ss|on of a debt?
lL ls a graLulLous abandonmenL by Lhe credlLor of hls rlghL Lo compel
performance. 1hls musL comply wlLh Lhe formallLles of donaLlons.

kequ|s|tes:
1) AccepLance by Lhe debLor (lf noL accepLed, Lhere ls no remlsslon,
and debL ls exLlngulshed by prescrlpLlon).
MorLls causa - no need Lo formally accepL. ln successlon, lf lL ls
noL repudlaLed, Lhen Lhere ls deemed Lo be an accepLance.
lnLer vlvos - accepLance should be expressed, dependlng on
whaL klnd of properLy ls lnvolved:
a) 8eal roperLy - Lhe donaLlon and Lhe accepLance musL be ln a
publlc lnsLrumenL
b) ersonal roperLy less Lhan hp3,000 - Lhere may be oral
accepLace and donaLlon, so long as Lhere ls slmulLaneous dellvery
of Lhe properLy.
c) ersonal properLy exceedlng h3,000 - uonaLlon and accepLance
musL be ln wrlLlng.
2) CapaclLy of boLh parLles
3) CraLulLous acL on Lhe parL of Lhe CredlLor
4) lormallLles requlred were followed:
a) Lxpress condonaLlon - requlres formallLles of a wlll (lf morLls
causa) or formallLles of a donaLlon (lf lnLer vlvos)
b) lmplled condonaLlon - uellvery of a prlvaLe documenL evldenclng a
credlL made volunLarlly by Lhe credlLor Lo Lhe debLor.
30
1hls
however does noL apply Lo publlc documenLs. lL musL be
dellvered by Lhe credlLor hlmself, or proof of volunLary dellvery
by Lhe credlLor. 1here ls also a presumpLlon of volunLary
dellvery, when Lhe prlvaLe documenL evldenclng Lhe debL ls
found ln Lhe possesslon of Lhe debLor.
31
lf ln Lhe possesslon of a
[olnL debLor, Lhen lL ls presumed LhaL only hls debL ls remlLLed.

May you condone the secur|ty and not the debt |tse|f?
?es. 1hls ls posslble for pledges. When Lhe Lhlng pledged ls found ln Lhe
possesslon of Lhe debLor or a 3
rd
person who owns lL, Lhen Lhere ls an lmplled
remlsslon.
32
lf Lhe accessory obllgaLlon ls remlLLed, Lhe debL becomes
unsecured, and Lhe prlnclpal obllgaLlon remalns.


- 11 -

Confus|on or Merger

What |s confus|on or merger?
Consfuslon or merger ls Lhe meeLlng ln one person of Lhe quallLles of credlLor
and debLor wlLh respecL Lo Lhe same obllgaLlon.
kequ|s|tes:
1) 1akes place beLween Lhe prlnclpal debLor and prlnclpal credlLor
2) MusL be clear and deflnlLe
3) 1he obllgaLlon musL be Lhe same or ldenLlcal.
- lf Lhe debLor acqulres cerLaln rlghLs from Lhe credlLor wlLh respecL
Lo oLher Lhlngs, Lhen Lhere ls no merger or confuslon.

What |s the effect of confus|on]merger on the guarantors and [o|nt
ob||gat|ons?
1he guaranLy ls exLlngulshed dues Lo such merger or confuslon. lor [olnL
obllgaLlons, Lhe confuslon wlll exLlngulsh only Lhe share correspondlng Lo Lhe
credlLor/debLor ln whom Lhe 2 characLers concur. lor solldary obllgaLlons, Lhe
enLlre oblgaLlon ls exLlngulshed.

Compensat|on

What |s compensat|on?
CompensaLlon Lakes place when 2 persons, ln Lhelr own rlghL, are Lhe debLors
and credlLors of each oLher.
33

What |s the d|fference between Confus|on and Compensat|on?
Confus|on Compensat|on
1here ls only 1 person, whlch
becomes boLh Lhe credlLor and
debLor.
1here can be only 1 obllgaLlon.
1here musL be 2 persons who are
muLually credlLors and debLors of
each oLher.
1here musL be 2 obllgaLlons
lnvolved.
kequ|s|tes:
1) 8oLh obllgaLlons musL be due and demandable (excepL for
faculLaLlve obllgaLlons, and Lhose agreed upon by Lhe parLles, as
Lhey may agree upon compensaLlon of Lhose noL yeL due
34
.)
2) 8oLh obllgaLlons musL be llquldaLed.
3) 8oLh parLles musL be prlnclpally bound.
4) CbllgaLlon conslsLs of a sum of money or lf Lhlngs due are funglble,
musL be of Lhe same klnd.
3) Lack of reLenLlon or conLroversy by 3
rd
persons (ex.
CarnlshmenL/aLLachmenL).
What are the k|nds of compensat|on?
CompensaLlon may be classlfled:
1) Accordlng Lo exLenL:
a) 1oLal - boLh obllgaLlons are compleLely exLlngulshed as Lhey are of
Lhe same or equal amounLs.
b) arLlal - when Lhere remalns Lo be a balance.
2) Accordlng Lo cause:
Legal - Lakes place by operaLlon of law.
volunLary or convenLlonal - due Lo Lhe agreemenL of Lhe parLles.
!udlclal - effecLlve only by an order of Lhe courL.
laculLaLlve - Cne of Lhe parLles has Lhe cholce of clalmlng Lhe
compensaLlon or of opposlng lL.

When |s compensat|on proh|b|ted by |aw?
1) When Lhe debLs arlse from a deposlLum - excepL for bank
deposlLs, unless lL ls for and credlLs ln a branch ln one counLry and
LhaL ln anoLher. 1hese enLlLles are separaLe and dlsLlncL.
2) CbllgaLlons of a deposlLary
3) CbllgaLlons of a ballee ln commodaLum
4) Clalm for fuLure supporL
3) Clvll llablllLy arlslng form a penal offense

6) uamages suffered by a parLnershlp Lhrough Lhe faulL of a parLner,
cannoL be compensaLed wlLh proflLs earned and beneflLs he may
have earned from Lhe parLnershlp
7) 1axes.
8uL, ln some cases, compensaLlon may be clalmed by Lhe parLy for whose
beneflL Lhe prohlblLlon ls lmposed (Lx. 8allor or deposlLor may clalm
compensaLlon.

What |s the effect of ass|gnment on compensat|on of debts?
uepends lf Lhe asslgnmenL ls:
1) WlLh Lhe consenL of Lhe debLor - Lhls amounLs Lo a walver of Lhe
compensaLlon, Lhus, cannoL be seL up agalnsL Lhe asslgnee. LxcepL
when Lhe rlghL Lo compensaLlon ls reserved.
2) WlLh knowledge/noLlce wlLhouL Lhe consenL of Lhe debLor -
compensaLlon can be seL up regardlng debLs prlor Lo Lhe
asslgnmenL, Lhose LhaL maLured before such asslgnmenL.
3) AsslgnmenL made wlLhouL Lhe knowledge or noLlce Lo debLor -
debLor can seL up compensaLlon as a defense for all debLs
maLurlng prlor Lo knowledge of Lhe asslgnmenL.

What |s the effect of compensat|on |n resc|ss|b|e or vo|dab|e contracts?
8esclsslble or voldable conLracLs valld unLll annulled, hence compensaLlon ls
allowed before Lhey are [udlclally resclnded or avolded.
33

Novat|on

What |s novat|on?
1here ls novaLlon when a new agreemenL ls creaLed, modlfylng Lhe old one,
and Lhereby exLlngulshlng Lhe laLLer.

What are the k|nds of novat|on?
novaLlon may be:
1) 8eal/Cb[ecLlve - changlng Lhe sub[ecL maLLer of Lhe obllgaLlon or
Lhe prlnclpal condlLlon Lhereof.
2) ersonal/Sub[ecLlve - change ln Lhe persons
a) SubsLlLuLlon of Lhe person of Lhe debLor
l. Lxpomlslon - Lhe old debLor does noL parLlclpaLe, and Lhe change
ls lnlLlaLe by a 3
rd
person. 1he new debLor and Lhe credlLor
musL consenL, and Lhe old debLor wlll noL be llable for
lnsolvency of Lhe new debLor, or lf Lhe laLLer does noL fulflll.
ll. uelegaclon - 1he lnlLlaLlve comes from Lhe debLor hlmself. All Lhe
parLles musL consenL. lf new debLor does noL pay, Lhe old
obllgaLlon ls noL revlvled. lnsolvency of new debLor does noL
make Lhe old debLor llable, unless such lnsolvency was
already exlsLlng and of publlc knowledge, or was known Lo
Lhe debLor aL Lhe Llme of Lhe delegaclon.
ayment by 3
rd
person Change of debtor
uebLor ls noL necessarlly released
from Lhe debL, he ls sLlll llable for
relmbursemenL or pay Lhe
remalnlng balance.
1here ls only one obllgaLlon.

3
rd
person has no obllgaLlon Lo pay lf
Lhe debLor ls lnsolvenL.
1he debLor ls released from Lhe
obllgaLlon.

1here are 2 obllgaLlons, one ls
exLlngulshed and a new one ls
creaLed.
new debLor has Lo pay.

b) SubrogaLlon - Lransfer Lo a Lhlrd person of all Lhe rlghLs
apperLalnlng Lo Lhe credlLor. 1here may be legal subrogaLlon, of
convenLlonal or volunLary, whlch ls agreed upon by Lhe parLles.
What |s the d|fference between ass|gnment of cred|t and convent|ona|
subrogat|on?
Ass|gnment of Cred|t Convent|ona| Subrogat|on
1ransfer of Lhe same rlghL or credlL,
buL Lhe Lransfer does noL exLlngulsh
LxLlngulshes Lhe obllgaLlon and
creaLes a new one.


- 12 -
Lhe credlL.
uoes noL requlre Lhe debLor's
consenL, and mere noLlce Lo hlm ls
sufflclenL.
1he debLor generally sLlll has Lhe
rlghL Lo presenL agalnsL Lhe new
credlLor any defense avallable
agalnsL Lhe old credlLor.

8equlres Lhe debLor's consenL.

no rlghL Lo presenL agalnsL Lhe new
credlLor any defense whlch he could
have seL up agalns Lhe old credlLor.
3) Mlxed - Change of ob[ecL and Lhe parLles.

resumpt|on of |ega| subrogat|on:
1) When Lhe credlLor pays anoLher credlLor who ls preferred, even
wlLhouL Lhe debLor's knowledge.
2) When a 3
rd
person, noL lnLeresLed ln Lhe obllgaLlon pays wlLh Lhe
express or LaclL approval of Lhe debLor.
3) When, even wlLhouL knowledge of Lhe debLor, a person lnLeresLed
ln Lhe fulflllmenL of Lhe obllgaLlon pays wlLhouL pre[udlce Lo Lhe
effecLs of confuslon as Lo Lhe laLLer's share.
36
1hls applles Lo [olnL
obllgaLlons.

What are the forms of an novat|on?
novaLlon may be:
1) Lxpress - declared ln unequlvocal Lerms.
2) lmplled - when 2 obllgaLlons are essenLlally lncompaLlble wlLh
each oLher.
What |s the extent of the effect of novat|on?
1) LxLlncLlve - Lhere ls LoLal novaLlon, and Lhe old obllgaLlon ls
compleLely exLlngulshed.
2) ModlflcaLory - old obllgaLlon ls merely modlfled, and changes only
Lhe mlnor Lerms of Lhe agreemenL. Lhls ls only parLlal novaLlon.

What are the requ|s|te for a proper novat|on?
1) 1he exlsLence of a valld old obllgaLlon (1here can be no novaLlon lf
Lhe old obllgaLlon ls vold or already exLlngulshed, as Lhere ls
noLhlng Lo novaLe). lf Lhe conLracL ls voldable, and debLor consenLs
Lo novaLe, he walves Lhe rlghL Lo annul Lhe conLracL. 8esclsslble
conLracLs may also be novaLed. lf Lhere ls already prescrlpLlon, Lhe
obllgaLlon ls converLed lnLo a naLural obllgaLlon and Lhls may be
Lhe cause of a new obllgaLlon. 1he debLor loses Lhe rlghL Lo lnvoke
prescrlpLlon as a defense.
2) lnLenL Lo exLlngulsh Lhe old obllgaLlon.
3) valldlLy of Lhe new obllgaLlon, excepL when Lhe parLles lnLended
LhaL Lhe former relaLlon should be exLlngulshed ln any evenL.

What |s the effect of novat|on on the accessory ob||gat|on?
C8: 1he exLlngulshmenL of Lhe prlnclpal obllgaLlon carrles wlLh lL Lhe
exLlngulshmenL of Lhe accessory obllgaLlon.
LxcepLlon: lor sLlpukaLlons pur auLrul, Lhe accessory obllgaLlon/sLlpulaLlon
made ln favor fo Lhe 3
rd
person remalns, unless such person also consenLs Lo
Lhe novaLlon.

Contracts

What |s a contract?
A conLracL ls Lhe meeLlng of Lhe mlnds beLween 2 persons, whereby one blnds
hlmself, wlLh respecL Lo Lhe oLher, Lo glve someLhlng or Lo render some
servlce.
37

What are the pr|nc|p|es |n contracts?
1) AuLonomy - 1he parLles may esLabllsh such sLlpulaLlons, clauses,
Lerms and condlLlons as Lhey may deem convenlenL, provlded,
Lhey are noL conLrary Lo law, morals, good cosLums, publlc order,
and publlc pollcy.
38

2) MuLuallLy - ConLracLs musL blnd boLh conLracLlng parLles, Lhelr
valldlLy or compllance cannoL be lefL Lo Lhe wlll of one of Lhem.
39

Lxcept|on: 3
rd
persons may be allowed Lo deLermlne performance.
1he declslon ls noL blndlng unLll lL ls made known Lo boLh parLles.
Such deLermlnaLlon ls noL blndlng lf lL ls evldenLly lnequlLable, and ln
such a case, Lhe courLs wlll have Lo deLermlne whaL ls equlLable.
3) 8elaLlvlLy - ConLracLs Lake effecL only beLween Lhe parLles, Lhelr
helrs or asslgns, excepL ln cases where Lhe rlghLs and obllgaLlons
arlslng form Lhe conLracL are noL Lransmlsslble by Lhelr naLure, or
by sLlpulaLlon, or by provlslon of law.
60

Cases when 3
rd
persons can be affected by a contract:
a. ConLracLs conLalnlng a sLlpulaLlon pour auLrul
b. ConLracLs conLalnlng real rlghLs - 3
rd
persons comlng lnLo
possesslon of Lhe Lhlng are bound by lL.
c. ConLracLs enLered lnLo Lo defraud credlLors - credlLor who are 3
rd

parLles may seek resclsslon (acclon paullana).
d. ConLracLs whlch have been vlolaLed due Lo LorLuous lnLerference -
3
rd
person llable for damages Lo oLher conLracLlng parLles.
e. ln conLracLs creaLlng sLaLus - ex. Marrlage whlch musL be
respecLed by sLrangers.
f. negoLorlum gesLlo - owner bound ln a proper case by conLracL =s
enLered lnLo by Lhe gesLor or person volunLarlly underLaklng Lhe
managemenL or agency of Lhe buslness of anoLher wlLhouL
auLhorlLy.
g. CollecLlve conLracLs - ma[orlLy rules mlnorlLy (Lx. C8A, suspenslon
of paymenLs, eLc)
h. Acclon subrogaLorla - laborers/furnlshers of maLerlals for work
underLaken by a conLracLor have an acLlon agalnsL Lhe owner up Lo
Lhe amounL owlng Lo Lhem form Lhe conLracLor aL Lhe Llme Lhe
clalm ls made.
4) CbllgaLory force - obllgaLlons arlslng from conLracLs have Lhe force
and effecL of law beLween Lhe conLracLlng parLles, and should be
complled wlLh ln good falLh.
61

3) ConsensuallLy of conLracLs - ConLracLs are perfecLed by mere
consenL, and from LhaL momenL Lhe parLles are bound noL only by
Lhe fulflllmenL of whaL has been expressly sLlpulaLed buL also Lo all
Lhe consequences whlch, accordlng Lo Lhelr naLure, may be ln
keeplng wlLh good falLh, usage and law.
62

What are the essent|a| reu|s|tes of a va||d contract?
1) Consent - lL ls manlfesLed by Lhe meeLlng of Lhe offer and Lhe
accepLance upon Lhe Lhlng whlch are Lo consLlLuLe Lhe conLracL.
63

Such consenL musL be upon Lhe sub[ecL maLLer, Lhe Lerms, and Lhe
cause or conslderaLlon of Lhe conLracL.
Who are those |ncapac|tated to g|ve consent to a contract?
a. M|nors - Lhey cannoL glve consenL by Lhemselves, unless properly
represenLed by guardlans. lf Lhey have no represenLaLlon and
only one paLy ls a mlnor, Lhe conLracL ls voldable. lL ls
unenforceable lf boLh parLles are mlnors wlLhouL proper
represenLaLlon.
b. Insane]demented persons - Lhe conLracLs Lhey enLer lnLo are
voldable.
c. Deaf mutes - Lhose who cannoL wrlLe.
- ln Lhese cases, Lhe conLracLs Lhey enLer lnLo are voldable, unless
expressly declared by Lhe law Lo be vold, such as conLracLs of
marrlage.

Consent must be commun|cated.
Cffer - musL be communlcaLed Lo Lhe offeree
8equlremenLs:
a. ueflnlLe, absoluLe, uncondlLlonal - Lhe Lerms musL be clear, whlch
musL sLaLe Lhe klnd of conLracL Lo be enLered lnLo, Lhe sub[ecL

61 Art. 1359, 1305, Civil Code.

- 13 -
maLLer, Lhe conslderaLlon and Lhe subsLanLlal Lerms and condlLlons
of Lhe conLracL.
b. lnLenLlonal
c. Clearly communlcaLed - need noL Lo be ln wrlLlng, so long as all Lhe
requlremenLs are presenL.
8uslness adverLlsemenLs - merely consldered as an lnvlLaLlon Lo make an
offer, unless lL appears oLherwlse.
AdverLlsemenLs 8ld - also an lnvlLaLlon Lo make an offer, and Lhe adverLlser ls
noL bound Lo accepL Lhe hlghesL or lowesL prlce, excepL lf a conLrary lnLenL
appear.
1esL for offers: can Lhe offeree [usL say yes or no. lf so, Lhen lL ls a compleLe
and valld offer.

1he offer must be accepted. What |s acceptance?
lL ls Lhe manlfesLaLlon of Lhe offeree of hls assenL Lo Lhe Lerms of Lhe offer.
1hls musL be absoluLe and uncondlLlonal, and made before Lhe offer ls
revoked. 1he offeror musL learn or know of Lhe accepLance.

What |s the effect of a qua||f|ed acceptance?
A quallfled accepLance ls baslcally a re[ecLlon of Lhe orlglnal offer, and
consLlLuLes as a counLer-offer. Such musL be accepLed before a conLracL may
arlse.

What are the ways of term|nat|ng an offer before acceptance:
1) revocaLlon by Lhe offeror before he learns of Lhe accepLance
2) deaLh of elLher parLy
3) lnsanlLy of elLher parLy
4) clvll lnLerdlcLlon of elLher parLy
3) when Lhere ls a perlod glven for accepLance, and Lhe offeror
wlLhdraws any Llme before accepLance by communlcaLlng such
wlLhdrawal, excepL lf Lhe opLlon ls founded on a pald or promlsed
conslderaLlon.

What are opt|ons?
1hese are baslcally rlghLs glven for a llmlLed perlod of Llme Lo accepL an offer.
lL ls an unaccepLed offer, whlch glves Lhe offeree Llme Lo deLermlne w/n Lo
accepL. 1hls ls noL excluslve, unless, Lhere ls a separaLe conslderaLlon glven
for Lhe opLlon.

What |s earnest money? lL ls baslcally a down paymenL whlch forms parL of
Lhe purchase prlce, and Lhere ls already a conLracL perfecLed.

What are the d|fferences between a contract of sa|e, contract to se||, and an
opt|on contract?
Contract of Sa|e Contract to Se|| Cpt|on Contract
Cwnershlp Lransfers
Lhe momenL lL ls
enLered lnLo.

1here ls breach when
Lhere ls fallure Lo pay
Lhe balance of Lhe
purchase prlce.
ln case of breach,
speclflc performance
may be soughL.
Cwnershlp ls noL
Lransferred unLll Lhere
ls full paymenL of Lhe
purchase prlce.

non-paymenL ls noL
breach, buL whaL has
been pald may be losL.

1here ls no breach,
Lhus no speclflc
performance or
resoluLlon, Lhe
remedy ls Lo sue for
damages.
1here ls no conLracL
yeL, and Lhere ls
merely Lhe opLlon
conLracL whlch glves
Lhe offeree a rlghL,
noL an obllgaLlon.
1here ls breach when
Lhe offeror enLers lnLo
a conLracL wlLh
anoLher person.
8emedy ls an acLlon
for resclsslon of Lhe
conLracL wlLh anoLher
person, as lL ls a
conLracL consldered as
ln fraud of credlLors.

What |s a r|ght of f|rst refusa|?
lL ls parL of an exlsLlng conLracL whlch ls baslcally a promlse. lL does noL arlse
unLll Lhe person decldes Lo sell Lhe properLy over whlch you have a 8Cl8.
1here ls breach when Lhe offeror sells Lhe properLy Lo anoLher person wlLhouL
offerlng lL flrsL Lo Lhe offeree, and Lhe remedy ls resclsslon of Lhe conLracL
wlLh Lhe oLher person.

What are the v|ces of consent?
1he vlces of consenL are:
1) lraud - 1here ls fraud when Lhrough lnsldlous words or
machlnaLlons of one of Lhe conLracLlng parLles, Lhe oLher ls
lnduced Lo enLer lnLo a conLracL, whlch wlLhouL Lhem, he would
noL have agreed Lo.
64
lallure Lo dlsclose facLs when Lhere ls a duLy
Lo dlsclose Lhem, as when Lhe parLles are bound by confldenLlal
relaLlons, consLlLuLed fraud.
63
1o vlLlaLe a conLracL, lL musL be
serlous and noL employed by boLh parLles. lor lncldenLal fraud, Lhe
person employlng lL ls only llable for damages.
66
usual
exaggeraLlons ln Lrade when Lhe oLher parLy had opporLunlLy Lo
know Lhe facLs ls noL ln Lhemselves fraudulenL.
67

2) MlsLake - 1hls refers Lo mlsLake of facL, whlch ls mlsLake ln Lhe
subsLance of Lhe Lhlng whlch ls Lhe sub[ecL maLLer of Lhe conLracL,
or ln any of LlLs essenLlal condlLlons. Lrror ln ldenLlLy ls noL
mlsLake, excepL lf lL lnvolves a conLracL for servlces. Slmple mlsLake
of accounL glves rlse only Lo lLs correcLlon. 1here ls no mlsLake lf
Lhe parLy alleglng lL knew of Lhe doubL or conLlngency or rlsk
affecLlng Lhe ob[ecL of Lhe conLracL. MuLual error as Lo Lhe legal
effecL of an agreemenL when Lhe real purpose of Lhe parLles ls
frusLraLed, may vlLlaLed consenL.
3) vlolence - Lhere ls vlolence when ln order Lo wresL consenL,
serlous or lrreslsLlble force ls employed.
68
May be employed by a
3
rd
person.
4) lnLlmldaLlon - Lhere ls lnLlmldaLlon when one of Lhe conLracLlng
parLles ls compelled by a reasonable and well-grounded fear of an
lmmlnenL and grave evll upon hls person or properLy, or upon Lhe
person or properLy of hls spouse, descendanLs, or ascendanLs, Lo
glve hls consenL. 1o deLermlne Lhe degree of lnLlmldaLlon Lhe age,
sex, and condlLlon of Lhe person shall be borne ln mlnd. 1hreaL Lo
enforce one's clalm Lhrough compeLenL auLhorlLy, lf Lhe clalm ls
[usL or legal, does noL vlLlaLe consenL.
69
May be employed by a 3
rd

person.
3) undue lnfluence - Lhere ls undue lnfluence when a person Lakes
advanLage of hls power over Lhe wlll of anoLher, deprlvlng Lhe
laLLer of a reasonable freedom of cholce. 1he ff. clrcumsLances
shall be consldered: Lhe confldenLlal, famlly, splrlLual and oLher
relaLlons beLween Lhe parLles, or Lhe facL LhaL Lhe person alleged
Lo have been unduly lnfluenced was sufferlng from menLal
weakness, or was lgnoranL, or ln flnanclal dlsLress.
70

S|mu|ated Contracts
1) AbsoluLely slmulaLed - Lhe parLles dld noL lnLend Lo be bound aL
all. 1hls ls vold.
71

2) 8elaLlvely slmulaLed - Lhe parLles merely conceal Lhelr Lrue
agreemenL, and Lhls ls valld and blndlng, so long as lL does noL
pre[udlce a 3
rd
person and noL lnLended for any purpose conLrary
Lo law, morals, good cusLoms, publc order, or publlc pollcy.
72

3) Cb[ect of the Contract - Lhls ls Lhe sub[ecL maLLer of Lhe conLracL.

What may be the sub[ect matter of a contract?
All Lhlng whlch are noL ouLslde Lhe commerce's of man, lncludlng fuLure
Lhlngs, may be Lhe ob[ecL of a conLracL. All rlghLs whlch are noL
lnLransmlsslble may also be Lhe ob[ecL of a conLracL. All servlces whlch are noL
conLrary Lo law, morals, good cusLoms, publlc order, or publlc pollcy may be
Lhe ob[ecL of a conLracL.
73

71 Art. 1345 and 1346, Civil Code.
72 Art. 1345 and 1346, Civil Code.

- 14 -
What may not be the ob[ect of a contract?
luLure lnherlLance, excepL ln cases allowed by law.
1hlngs whlch are ouLslde Lhe commerce of man.
lnLransmlsslble rlghLs.
Servlces conLrary Lo law, moral, publlc pollcy, or publlc order.
lmposslble Lhlngs or servlces.

kequ|rements for an ob[ect of a contract to g|ve:
1) WlLhln Lhe commerce of man - legal, llclL, noL conLraband, and noL
prohlblLed by law.
2) MusL be deLermlnaLe - may be parLlcularly deslgnaLed or
physlcally segregaLed, so long as Lhe parLles know whaL Lhe ob[ecL
ls.
3) MusL be exlsLlng or capable of comlng lnLo exlsLence - obllgee
musL be capable of Lransferrlng ownershlp. lf he acqulres
ownershlp laLer on, lL auLomaLlcally Lransfers Lo Lhe oLher person.
lor Lhlngs yeL Lo be produced, lL need only Lo be capable of comlng
lnLo exlsLence, excepL for fuLure lnherlLance, donaLlon, and
supporL.

3) Cause or Cons|derat|on of contracts - lL ls Lhe presLaLlon or promlse
of a Lhlng or servlce by Lhe oLher. lL ls Lhe proxlmaLe reason why Lhe
parLles enLered lnLo Lhe conLracL.

kequ|s|tes for cause]cons|derat|on:
1) MusL exlsL aL Lhe Llme Lhe conLracL ls enLered lnLo.
2) MusL be lawful.
3) MusL be Lrue/real.

What are the d|fferent k|nds of cause]cons|derat|on:
1) Cnerous - Lhe cause ls LhaL whlch was promlsed.
2) 8emuneraLory - Lhe cause ls pasL servlce.
3) CraLulLous - llberallLy ls Lhe cause.

What |s the d|fference between a cause and a mot|ve?
Cause Mot|ve
lL ls Lhe legal reason for enLerlng
lnLo Lhe conLracL.
lL ls Lhe personal reason for enLerlng
lnLo Lhe conLracL.
uoes noL affecL Lhe conLracL, excepL
lf Lhe moLlve ls equlvalenL Lo Lhe
cause, as when lL predeLermlnes Lhe
cause of Lhe conLracL.

What |s the effect of a fa|se cause?
A false cause, buL noL lllegal, renders Lhe conLracL vold. LxcepL when Lhere ls
anoLher lawful cause.

What |s the effect when there |s no cause?
When Lhe conLracL has no cause, Lhe conLracL ls vold and produces no effecL.

What |f the effect of an |||ega| contract? lL also renders Lhe conLracL vold.

What |s the effect of fa|||ng to state the cause |n the contract?
lL wlll noL affecL Lhe conLracL, as lL ls presumed LhaL Lhe conLracL ls for a lawful
cause. 1he burden Lo prove Lhe conLrary ls on Lhe debLor.

What |s the effect of |es|on]|nadequacy of cause?
1hls does noL lnvalldaLe Lhe conLracL, excepL lf Lhls was due Lo fraud, mlsLake
or undue lnfluence.

Is form an essent|a| e|ement of a contract?
Cenerally form ls noL an essenLlal elemenL. ConLracLs are obllgaLory ln
whaLever form Lhey are enLered lnLo, so long as Lhe essenLlal elemenLs are
presenL.
LxcepLlon:
1) When form ls necessary for valldlLy: Such as for donaLlon. ln such a
case, lf lL does noL follow Lhe proper form, Lhe conLracL ls vold.
2) When form ls necessary for enforceablllLy: Such as Lhose falllng
under Lhe sLaLuLe of frauds.
lf form ls only necessary for Lhe convenlence of Lhe parLles (such as for
reglsLraLlon), Lhe conLracL ls sLlll valld, buL elLher parLy may compel Lhe oLher
Lo execuLe Lhe conLracL ln lLs proper form.
lor real conLracLs, dellvery ls an essenLlal elemenL, such ln conLracLs of
pledge.

keformat|on

What |s reformat|on?
lL ls LhaL remedy by means of whlch a wrlLLen lnsLrumenL ls amended or
recLlfled so as Lo express or conform Lo Lhe real agreemenL or lnLenLlon of Lhe
parLles, when by reason of mlsLake, fraud, lnequlLable conducL, or accldenL,
Lhe lnsLrumenL falls Lo express such agreemenL or lnLenLlon.

kequ|s|tes for reformat|on:
1) 1here was meeLlng of Lhe mlnds beLween Lhe parLles,
2) 1he Lrue lnLenL was noL expressed,
3) uue Lo mlsLake, fraud, lnequlLable conducL, or accldenL,
4) 1he facLs consLlLuLlng Lhe basls for rellef lf puL ln lssue ln Lhe
pleadlngs, and
3) 1here ls clear and convlnclng evldence of mlsLake, fraud,
lnequlLable conducL, or accldenL.

Who may f||e an act|on for reformat|on?
1hls may be flled only by Lhe ln[ured parLy, excepL ln case of muLual mlsLake
when Lhe acLlon may be broughL by elLher.

When can there be no reformat|on?
1here can be no reformaLlon ln Lhe ff. cases:
1) ln slmple donaLlons lnLer vlvos when no condlLlon ls lmposed.
2) ln Lhe case of wllls.
3) When Lhe real agreemenL ls vold.
4) When one parLy has broughL an acLlon Lo enforce Lhe lnsLrumenL,
such parLy cannoL subsequenLly seek for reformaLlon.

Defect|ve Contracts

What are the defect|ve contracts:
1) 8esclsslble conLracLs
2) voldable conLracLs
3) unenforceable conLracLs
4) vold conLracLs

What are resc|ss|b|e contracts?
8esclsslble conLracLs are conLracLs valldly agreed upon because all Lhe
essenLlal elemenLs exlsL, and Lherefore, legally effecLlve, buL ln Lhe cases
esLabllshed by law, Lhe remedy of ersclsslon ls granLed ln Lhe lnLeresL of
equlLy.

What contracts are resc|ss|b|e?
1he ff. conLracLs are resclsslble:
1) 1hose whlch are enLered lnLo by guardlans whenever Lhelr wards
whom Lhey represenL suffer leslon or economlc pre[udlce of more
Lhan x of Lhe value of Lhe Lhlngs whlch are Lhe ob[ecL Lhereof,
2) 1hose agreed upon ln represenLaLlon of absenLees, when Lhe laLLer
suffer leslon up Lo Lhe amounL sLaLed above,
3) 1hose underLaken ln fraud of credlLors, when Lhe laLLer cannoL ln
any oLher manner collecL Lhe clalms due Lhem,
4) 1hose whlch refer Lo Lhlngs under llLlgaLlon, lf Lhey have been
enLered lnLo by Lhe defendanL wlLhouL Lhe knowledge and
approval of Lhe llLlganLs or of compeLenL [udlclal auLhorlLy,
3) All oLher conLracLs speclally declared by law Lo be sub[ecL Lo
resclsslon.
74


- 15 -
8aslcally, Lhere are 3 klnds:
1) 1hose enLered lnLo by people ln a flduclary capaclLy, such as
guardlans and represenLaLlves of absenLees, uoes noL apply Lo
conLracLs approved by Lhe courL.
73

2) 1hose enLered lnLo ln fraud of credlLors,
3) 1hose speclally declared by law Lo be resclsslble.

When can the wards]absentees br|ng th|s act|on?
WlLhln 4 years from acqulrlng capaclLy. lor lnsane, durlng a lucld lnLerval. lor
absenLees, 4 years from Lhe Llme of knowledge of hls domlclle.

What are contracts |n fraud of cred|tors?
1) 1hose underLaken ln fraud of credlLor, when Lhe laLLer cannoL ln
any oLher manner collecL Lhelr credlLs.
8equlremenLs:
a) rlor credlLor (before Lhe resclsslble LransacLlon)
b) lraud by Lhe debLor.
1hlngs Lo prove: no oLher means Lo saLlsfy Lhe credlL and Lhe
debLor acLed ln bad falLh.

lf Lhere ls no evldence of fraud, credlLor may rely on presumpLlons:
a) lf Lhe conLracL was graLulLous, lL ls presumed Lo be ln fraud of
credlLors lf Lhe debLor dld noL reserve sufflclenL properLy for
purposes of paylng hls prlor credlLors.
b) lf Lhe conLracL was onerous, Lhere a presumpLlon of fraud ls Lhe
debLor enLers lnLo Lhe LransacLlon afLer a wrlL of aLLachmenL or a
[udgmenL agalnsL hlm ls lssued ln a prlor proceedlng.
c) ln addlLlon, Lhe deslgn Lo defraud credlLors may be proved ln any
oLher manner auLhorlzed by Lhe law on evldence.
76

lf Lhe presumpLlons do noL apply, Lhere are sLlll badges of fraud,
some of whlch are:
ConslderaLlon for Lhe conveyance ls flcLlLlous or lnadequaLe,
1ransfer made by a debLor afLer sulL has been begun and whlle lL ls
pendlng agalnsL hlm,
Sale upon credlL by an lnsolvenL debLor,
1ransfer of all or nearly all of Lhe properLy by Lhe debLor, especlally
when he ls lnsolvenL or greaLly embarrassed flnanclally,
Lvldence of large lndebLedness or compleLe lnsolvency,
1ransfer ls made beLween faLher and son, when Lhere are presenL
some or any of Lhe above clrcumsLances,
lallure fo Lhe vendee Lo Lake excluslve possesslon of Lhe properLy
sold,
AL Lhe Llme of Lhe conveyance, Lhe vendee was llvlng wlLh Lhe
vendor, and Lhe former knew LhaL Lhere was a [udgmenL rendered
agalnsL Lhe laLLer.
lL was known Lo Lhe vendee LhaL Lhe vendor had no properLles
oLher Lhan LhaL sold Lo hlm.
CerLlflcaLe of LlLle LoL Lhe land remalned ln Lhe name of Lhe vendor,
who declared Lhem for Lax purposes and pald Laxes due.

2) 1hose where Lhe ob[ecLs of llLlgaLlon were sold wlLhouL Lhe
approval of Lhe courL or consenL of Lhe plalnLlff.

IS there a requ|rement of rest|tut|on |n resc|ss|on due to fraud of cred|tors?
no. lL ls Lhe credlLor who ls pre[udlced and Lhere ls noLhlng for Lhe credlLor Lo
resLlLuLe. 1hls ls also only a parLlal resclsslon, only Lo Lhe exLenL LhaL Lhe
credlLor was pre[udlced. rlnclple of un[usL enrlchmenL sLlll applles.

L|m|t to the remedy of resc|ss|on: Cnce Lhe properLy falls lnLo Lhe hands of a
person ln good falLh, Lhe rlghL Lo resclnd ls exLlngulshed, and Lhe remedy ls
only an acLlon for damages agalnsL Lhe debLor. lf no recovery can be made
from Lhe debLor, credlLor may seek for recovery from Lhe person ln bad falLh.

Vo|dab|e Contracts


What are vo|dab|e contracts?
1hese are conLracLs whlch possess all Lhe requlslLes of a valld conLracL buL
one of Lhe parLles ls lncapable of glvlng consenL or Lhe consenL was vlLlaLed by
mlsLake, vlolence lnLlmldaLlon, undue lnfluence or fraud.

When shou|d the act|on for annu|ment be f||ed?
lor cases of lnLlmldaLlon, vlolence, undue lnfluence - wlLhln 4 years form Lhe
Llme Lhe defecL ceases.
lor mlsLake or fraud - wlLhln 4 years from Lhe Llme of Lhe dlscovery of Lhe
same.
lor conLracLs enLered lnLo by Lhose lncapaclLaLed - wlLhln 4 years from Lhe
Llme Lhelr lncapaclLy or guardlanshlp ceases.

Are express|ons of op|n|ons enough to const|tute fraud?
no, unless made by an experL and Lhe oLher parLy relled on hls speclal
knowledge. Legal oplnlons are basls ln good falLh.

What |s the effect of rat|f|cat|on on a vo|dab|e contract?
8aLlflcaLlon exLlngulshes Lhe acLlon Lo annul a voldable conLracL.
77
8aLlflcaLlon
may be express or lmplled. lL ls lmplled when wlLh knowledge of Lhe reason
renderlng Lhe conLracL voldable, Lhe person havlng Lhe rlghL Lo flle Lhe acLlon
execuLes an acL whlch necessarlly lmplles an lnLenLlon Lo walve such rlghL.
78

Who may effect rat|f|cat|on?
May be by Lhe guardlan of Lhe lncapaclLaLed, or Lhe lncapaclLaLed hlmself
afLer aLLalnlng capaclLy. 1hls does noL requlre Lhe consenL of Lhe parLy who
has no rlghL Lo brlng Lhe acLlon.

What are the effects of rat|f|cat|on?
8aLlflcaLlon cleanses Lhe conLracL from all lLs defecLs from Lhe momenL lL was
consLlLuLed.
79

Who may br|ng the act|on?
1wo requlslLes musL concur:
1) 1he plalnLlff musL have an lnLeresL ln Lhe conLracL, and
2) Lhe vlcLlm and noL Lhe gullLy parLy may flle.
- ersons who are capable cannoL allege Lhe lncapaclLy of Lhose wlLh
whom Lhey conLracLed, nor can Lhose who exerLed lnLlmldaLlon,
eLc. base Lhelr acLlon upon Lhe flaws of Lhe conLracL.
80

What |s the effect of annu|||ng a contract?
An obllgaLlon havlng been annulled, Lhe conLracLlng parLles shall resLore Lo
each oLher Lhe Lhlngs whlch have been Lhe sub[ecL of Lhe conLracL, elLher Lhe
frulLs and Lhe prlce wlLh lnLeresL, excepL ln cases provlded by law. for
obllgaLlons Lo render servlce, Lhe value Lhereof shall be Lhe basls of
damages.
81

1he lncapaclLaLed person ls noL obllged Lo make any resLlLuLlon, excepL
lnsofar as he has been beneflLLed by Lhe Lhlngs or Lhe prlce he recelved.
82

lf Lhe person obllged Lo reLurn cannoL do so as Lhe Lhlng was losL due Lo hls
faulL, he should reLurn Lhe frulLs and value of Lhe Lhlng aL Lhe Llme of Lhe loss
wlLh lnLeresL.

As long as one of Lhe conLracLlng parLles does noL resLore whaL ls requlred of
hlm, Lhe oLher cannoL be compelled Lo comply wlLh whaL ls lncumbenL upon
hlm.

What |s the effect of |oss of the th|ng?
1he acLlon for annulmenL of conLracLs shall be exLlngulshed when Lhe Lhlng
whlch ls Lhe ob[ecL of Lhe conLracL ls losL Lhrough Lhe fraud or faulL of Lhe
person who has a rlghL Lo lnsLlLuLe Lhe acLlon. lf based on lncapaclLy, loss of


- 16 -
Lhe Lhlng wlll noL be an obsLacle Lo Lhe success of Lhe acLlon, unless Lhe loss
Look place Lhrough fraud or faulL of Lhe plalnLlff.
83

Unenforceab|e Contracts

What are unenforceab|e contracts?
1hese are conLracLs LhaL cannoL be enforced ln courL or sued upon by reason
of defecLs provlded by law, unLll and unless Lhey are raLlfled accordlng Lo law.
unenforceablllLy ls a defense. 1hus, Lhere ls no prescrlpLlve perlod.

What are the unenforceab|e contracts |n the C|v|| Code?
1he ff. conLracLs are unenforceable, unless Lhey are raLlfled:
1. 1hose enLered lnLo ln Lhe name of enoLher person by one who has
been glven no auLhorlLy or legal represenLaLlon or who has acLed
beyond hls powers, (1hls cannoL be enforced agalnsL Lhe person
clalmlnf Lo be a legal represenLaLlve)
2. 1hose LhaL do noL comply wlLh Lhe SLaLuLe of lrauds, unless Lhere
be some noL or memorandum ln wrlLlng, subscrlbed by Lhe parLy
charged or hls agenL (evldence of such an agreemenL cannoL be
recelved wlLhouL suchwrlLlng or secondary evldence of lLs
conLenLs) :
a. An agreemenL LhaL by lLs Lerms ls noL Lo be performed wlLhln a
year form Lhe maklng Lhereof,
b. A speclal promlse Lo answer for Lhe debL, defaulL or mlscarrlage of
anoLher,
c. An agreemenL made ln conslderaLlon of marrlage, oLher Lhan a
muLual promlse Lo marry,
d. An agreemenL for Lhe sale of goods, chaLLels or Lhlngs ln acLlon, aL
a prlce noL less Lhan 300.00
LxcepLlons:
1he buyer accepLs and recelves parL of Lhe goods, eLc., or pays aL Lhe
same Llme some parL of Lhe purchase money.
lf sale made Lhrough aucLlon: enLry by Lhe aucLloneer ln Lhe sales book aL
Lhe Llme of Lhe sale of Lhe amounL and klnd of properLy sold, Lhe Lerms of Lhe
sale, prlce name of Lhe parLles.
e. An agreemenL for lease for alonger perlod Lhan 1 year, of for Lhe
sale of real properLy or an lnLeresL Lhereln,
f. A represenLaLlon as Lo Lhe credlL of a 3rd person.
3. 1hose where boLh parLles are lncapable of glvlng consenL Lo a
conLracL.
Vo|d Contracts

What are vo|d contracts?
1hese are conLracLs whlch by vlrLue of some defecLs, generally produce no
effecL aL all. 1hey are consldered as lnexlsLenL from Lhe very beglnnlng.

What are the vo|d contracts?
1he ff. ConLracLs are vold and lnexlsLenL form Lhe beglnnlng:
1) 1hose whose cause, ob[ecL or purpose ls conLrary Lo law, morals,
good cusLoms, publlc order, or publlc pollcy,
2) 1hose absoluLely slmulaLed or flcLlLlous,
3) 1hose whose cause or ob[ecL dld noL exlsL aL Lhe Llme of Lhe
LransacLlon,
4) 1hose whose ob[ecL ls ouLslde Lhe commerce of man,
3) 1hose whlch conLemplaLe an lmposslble servlce,
6) 1hose where Lhe lnLenLlon of Lhe parLles as Lo Lhe prlnclpal ob[ecL
of Lhe conLracL cannoL be ascerLalned, and
7) 1hose expressly prohlblLed or declared vold by law.
8) A conLracL whlch ls Lhe dlrecL resulL of a prevlous lllegal conLracL, ls
also vold and lnexlsLenL.

1hese may noL be raLlfled, and Lhe rlghL Lo seL up Lhe defense of lllegallLy
cannoL be walved.

1he acLlon or defense for Lhe declaraLlon of Lhe lnexlsLence of a conLracL does
noL prescrlbe.
84


lf Lhe acL lllegallLy of Lhe cause or conslderaLlon ls also a crlmlnal offense:
8oLh parLles are ln parl dellcLo - 1hey have no acLlon agalnsL each oLher. 1hey
may boLh be prosecuLed under Lhe 8C. 1he effecLs or lnsLrumenLs of Lhe
crlme wlll be dlsposed of ln accordance wlLh Lhe 8C.
lf only one ls gullLy, buL Lhe lllegallLy also consLlLuLes a crlmlnal offense - Lhe
lnnocenL may clalm whaL he has glven, buL may noL be compelled Lp comply
wlLh hls promlse.

lf Lhe acL ls lllegal buL noL a crlmlnal offense:
When boLh are aL faulL - nelLher may recover whaL he has glven, or demand
performance of Lhe oLher's underLaklng.
lf only one aL faulL - he cannoL recover whaL he has glven or ask for
fulflllmenL of Lhe promlsed. 1he oLher noL aL faulL may demand reLurn of
whaL he gave and may noL be compelled Lo comply wlLh hls promlse.

When may the court a||ow recovery?
1) When money ls pald or properLy dellvered for an lllegal purpose,
Lhe conLracL may be repudlaLed by one of Lhe parLles before Lhe
purpose has been accompllshed, or before any damage has been
caused Lo a Lhlrd person. ln such case, Lhe courLs may, lf Lhe publlc
lnLeresL wlll Lhus be subserved, allow Lhe parLy repudlaLlng Lhe
conLracL Lo recover Lhe money or properLy.
2) Where one of Lhe parLles Lo an lllegal conLracL ls lncapable of
glvlng consenL, Lhe courLs may, lf Lhe lnLeresL of [usLlce so
demands allow recovery of money or properLy dellvered by Lhe
lncapaclLaLed person.
3) When Lhe agreemenL ls noL lllegal per se buL ls merely prohlblLed,
and Lhe prohlblLlon by Lhe law ls deslgnaLed for Lhe proLecLlon of
Lhe plalnLlff, he may, lf publlc pollcy ls Lhereby enhanced, recover
whaL he has pald or dellvered.
4) When Lhe prlce of any arLlcle or commodlLy ls deLermlned by
sLaLuLe, or by auLhorlLy of law, any person paylng any amounL ln
excess of Lhe maxlmum prlce allowed may recover such excess.
3) When Lhe law flxes, or auLhorlzes Lhe flxlng of Lhe maxlmum
number of hours of labor, and a conLracL ls enLered lnLo whereby a
laborer underLakes Lo work longer Lhan Lhe maxlmum Lhus flxed,
he may demand addlLlonal compensaLlon for servlce rendered
beyond Lhe Llme llmlL.
6) When Lhe law seLs, or auLhorlzes Lhe seLLlng of a mlnlmum wage
for laborers, and a conLracL ls agreed upon by whlch a laborer
accepLs a lower wage, he shall be enLlLled Lo recover Lhe
deflclency.

Separab|||ty of |||ega| st|pu|at|ons: ln case of a dlvlslble conLracL, lf Lhe lllegal
Lerms can be separaLed from Lhe legal ones, Lhe laLLer may be enforced.

Who may ra|se the defense of |||ega||ty? 1he defense of lllegallLy of conLracL
ls noL avallable Lo Lhlrd persons whose lnLeresLs are noL dlrecLly affecLed.

1kUS1S
- 1hese are baslcally flduclrary relaLlonshlps esLabllshed beLween 3
persons:
a. Lhe LrusLor - creaLor of Lhe LrusL
b. LLrusLee - Lhe one ln whom confldence ls reposed as regards
properLy for Lhe beneflL of anoLher person,
c. beneflclary - for whose beneflL Lhe LrusL was creaLed.

k|nds of trusts:
Lxpress - Lxpress LrusLs are creaLed by Lhe lnLenLlon of Lhe LrusLor or of Lhe
parLles.
Imp||ed - lmplled LrusLs come lnLo belng by operaLlon of law.
kesu|t|ng trust - lL was lnLended by Lhe parLles Lo be a LrusL, buL was noL
effecLlve as an express LrusL.

Lxpress 1rusts


- 17 -
C8: uoes noL prescrlbe
x: lf LrusLee repudlaLes Lhe LrusL.

ArL. 1443. no express LrusLs concernlng an lmmovable or any lnLeresL Lhereln
may be proved by parol evldence.

ArL. 1444. no parLlcular words are requlred for Lhe creaLlon of an express
LrusL, lL belng sufflclenL LhaL a LrusL ls clearly lnLended.

ArL. 1443. no LrusL shall fall because Lhe LrusLee appolnLed decllnes Lhe
deslgnaLlon, unless Lhe conLrary should appear ln Lhe lnsLrumenL consLlLuLlng
Lhe LrusL.

ArL. 1446. AccepLance by Lhe beneflclary ls necessary. neverLheless, lf Lhe
LrusL lmposes no onerous condlLlon upon Lhe beneflclary, hls accepLance shall
be presumed, lf Lhere ls no proof Lo Lhe conLrary.

Imp||ed 1rusts
rescrlbes: 10 years.

ArL. 1447. 1he enumeraLlon of Lhe followlng cases of lmplled LrusL does noL
exclude oLhers esLabllshed by Lhe general law of LrusL, buL Lhe llmlLaLlon lald
down ln ArLlcle 1442 shall be appllcable.

ArL. 1448. 1here ls an lmplled LrusL when properLy ls sold, and Lhe legal esLaLe
ls granLed Lo one parLy buL Lhe prlce ls pald by anoLher for Lhe purpose of
havlng Lhe beneflclal lnLeresL of Lhe properLy. 1he former ls Lhe LrusLee, whlle
Lhe laLLer ls Lhe beneflclary. Powever, lf Lhe person Lo whom Lhe LlLle ls
conveyed ls a chlld, leglLlmaLe or llleglLlmaLe, of Lhe one paylng Lhe prlce of
Lhe sale, no LrusL ls lmplled by law, lL belng dlspuLably presumed LhaL Lhere ls
a glfL ln favor of Lhe chlld.

ArL. 1449. 1here ls also an lmplled LrusL when a donaLlon ls made Lo a person
buL lL appears LhaL alLhough Lhe legal esLaLe ls LransmlLLed Lo Lhe donee, he
neverLheless ls elLher Lo have no beneflclal lnLeresL or only a parL Lhereof.

ArL. 1430. lf Lhe prlce of a sale of properLy ls loaned or pald by one person for
Lhe beneflL of anoLher and Lhe conveyance ls made Lo Lhe lender or payor Lo
secure Lhe paymenL of Lhe debL, a LrusL arlses by operaLlon of law ln favor of
Lhe person Lo whom Lhe money ls loaned or for whom lLs ls pald. 1he laLLer
may redeem Lhe properLy and compel a conveyance Lhereof Lo hlm.

ArL. 1431. When land passes by successlon Lo any person and he causes Lhe
legal LlLle Lo be puL ln Lhe name of anoLher, a LrusL ls esLabllshed by
lmpllcaLlon of law for Lhe beneflL of Lhe Lrue owner.

ArL. 1432. lf Lwo or more persons agree Lo purchase properLy and by common
consenL Lhe legal LlLle ls Laken ln Lhe name of one of Lhem for Lhe beneflL of
all, a LrusL ls creaLed by force of law ln favor of Lhe oLhers ln proporLlon Lo Lhe
lnLeresL of each.

ArL. 1433. When properLy ls conveyed Lo a person ln rellance upon hls
declared lnLenLlon Lo hold lL for, or Lransfer lL Lo anoLher or Lhe granLor, Lhere
ls an lmplled LrusL ln favor of Lhe person whose beneflL ls conLemplaLed.

ArL. 1434. lf an absoluLe conveyance of properLy ls made ln order Lo secure
Lhe performance of an obllgaLlon of Lhe granLor Loward Lhe granLee, a LrusL
by vlrLue of law ls esLabllshed. lf Lhe fulflllmenL of Lhe obllgaLlon ls offered by
Lhe granLor when lL becomes due, he may demand Lhe reconveyance of Lhe
properLy Lo hlm.

ArL. 1433. When any LrusLee, guardlan or oLher person holdlng a flduclary
relaLlonshlp uses LrusL funds for Lhe purchase of properLy and causes Lhe
conveyance Lo be made Lo hlm or Lo a Lhlrd person, a LrusL ls esLabllshed by
operaLlon of law ln favor of Lhe person Lo whom Lhe funds belong.

ArL. 1436. lf properLy ls acqulred Lhrough mlsLake or fraud, Lhe person
obLalnlng lL ls, by force of law, consldered a LrusLee of an lmplled LrusL for Lhe
beneflL of Lhe person from whom Lhe properLy comes.

ArL. 1437. An lmplled LrusL may be proved by oral evldence.

NA1UkAL C8LIGA1ICNS

- 1here ls a moral noL a legal duLy Lo perform or pay, buL Lhe person
performlng or paylng feels LhaL ln good consclence he should
comply wlLh hls underLaklng whlch ls based on moral grounds.
- noL compelled Lo perform, buL once performed, noL recovery can
be made.
- Lxamples ln Lhe Code are noL excluslve.

LS1CLL
- admlsslons, represenLaLlons made by a person whlch may no
longer be denled or Lake back.
- May be compelled Lo perform or make llable for penalLles or
damages.Lhe oLher parLy may rely ln good falLh on such
represenLaLlons.
k|nds:
Lstoppe| |n a|s - AcLlon or lnacLlon
- equlLable esLoppel, whereln Lhe acL or lnacLlon leadlng anoLher Lo
belleve cerLaln Lhlngs whlh are false.
- May be estoppe| by s||ence: 1here should be an obllgaLlon Lo make
a dlsclosure or make represenLaLlons, buL Lhe parLy falled Lo do so,
such as ln conLracLs of lnsurance, and securlLy laws.
- ulfferenL from Laches: uoes noL refer Lo perlod, lL refers Lo
condlLlons and slLuaLlons. Changes wlll no longer be allowed or Lhe
parLles wlll noL longer be allowed Lo reLurn Lo orlglnal condlLlon. A
loL had relled on lL and a loL wlll be pre[udlced lf change ls allowed.
1hls ls essenLlally equlLable esLoppel, sub[ecL Lo [udlclal dlscreLlon
Lhrough Lhe appreclaLlon of Lhe evldence.
Lstoppe| 8y Deed - may be by conducL or Lhrough accepLance of beneflLs.
- may resulL from a wrlLLen lnsLrumenL, res [udlcaLa, or by [udgmenL
or [udlclal record.
- ArL. 1437 Lo 1438.

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Starr Wei gand 2013 CIVIL LAW REVIEW | DEL CASTILLO

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