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MLREGALA edit | 1
When it is silent as to who is given the right to 8. Divisible Obligations – capable of partial
choose, if all of the objects were lost due to fulfillment
fault of debtor:
The right to choose belongs to the debtor. 9. Indivisible Obligations – not capable of partial
Damages will be the value of the last thing lost fulfillment/performance
(in a case where all of the objects were lost
or destroyed) 10. Obligations with a Penal Clause
Purpose: Insure the performance of an
If right to choose belongs to the creditor and obligation and to substitute for damages and the
all of the objects are destroyed by debtor: payment of interest in case of non-compliance.
Creditor can choose to demand payment for the [Reparation and punishment]
value of any of the objects.
Demand of Creditor when debtor fails to comply
RIGHT OF CHOICE BELONGS TO with his obligation:
DEBTOR (in cases of loss) Creditor can demand specific performance of
Fortuitous obligation
If all objects lost – obligation is Demand rescission or cancellation
extinguished Demand damages
One or some – debtor may choose among
the remainder Significance as to when demand is made:
Fault/Negligence of Debtor - Interest will run starting on the day of demand
If all objects lost (not when the amount was due)
- Obligation not extinguished - If a case was filed with demand, demand will
- Obligation is converted to a monetary start for computation of interest
value (of the last thing lost) including - If a case was filed without demand, interest
damages computation will start during the filing of case in
One or some – choose among remainder court.
- No demand, no delay.
RIGHT OF CHOICE BELONGS TO - Demand should be judicial or extra-judicial.
DEBTOR (in cases of loss)
Fortuitous G.R.: Loss of a specific thing due extinguishes the
If all objects lost – obligation is obligation if the loss is without the fault of the
extinguished debtor.
One or some – creditor may choose from
the remainder Exc (Loss of specific thing is without the fault of
Fault/Negligence of Debtor the debtor but he can still be held for
If all objects lost – demand of value of any damages):
object chosen plus damages No one can be held liable for fortuitous events.
One or some – Choose from remainder or Exc: when loss happened when he was already in
demand value of lost plus damages default; or when he has promised to deliver the
same thing to different persons not having the
7. Facultative Obligations – comprehends only same interest.
one object but may be complied with by
delivering of another (substitute)
- The debtor has the right to choose
Alternative Facultative
Several things are due Only one thing is
principally due
If one of the prestations is If principal obligation is
illegal, others may be valid void, there is no necessity
and obligation remains of giving the substitute.
If it is impossible all If it is impossible to give
except one, that last one the principal, substitute
must be given need not be given. If it is
impossible to give the
substitute, the principal
must still be given.
The right to choose may Right of choice is given
be given either to debtor or only to the debtor.
creditor
MLREGALA edit | 2
Chapter 4: MODES OF EXTINGUISHING Application of Payment (a debtor has several
OBLIGATIONS obligations in favor of the same creditor and
payment is not sufficient to cover all debt due):
PA – Payment/Performance 1. Debtor
LO – Loss of the thing due 2. Without application, creditor, by issuing a receipt
RE – Remission/Condonation specifying which obligation has been paid.
ME – Merger/Confusion 3. Payment shall be applied to the most onerous
CO - Compensation 4. If the same burden, applied proportionately to the
NO - Novation obligations.
ARFP – Annulment, Rescission, Fulfillment of
condition, Prescription Dation in payment – transfer or conveyance of
ownership of a thing as an accepted equivalent
1. PA – Payment/Performance of performance
Payment by cession – debtor transfers all the
Delivery of sum of money properties not subject to execution in favor of
Performance (in a case of personal obligation) his creditors so that the latter may sell them, and
thus apply proceeds to the credits.
To whom shall payment be made?
- Creditor Donation, with debtor’s consent.
- Successor-in-interest - No one shall be compelled to accept the
- Any person authorized to receive it generosity of another
- This is for cases where the paying third person
Can the creditor refuse payment from a person does not intend to be reimbursed, which
who is not the debtor? makes the payment donation. To be valid, it
Yes. A person cannot be compelled to accept requires the debtor’s consent
payment from a third person who does not have Cession Dation
an interest in the obligation. As to Affects all Does not affect all
properties properties of the the properties
If such person is not a party-in-interest to the debtor
obligation. (A guarantor may compel creditor to No. of Requires more than Does not require
accept) Creditors 1 creditor plurality of
creditors
Consent of Require consent Only specific or
What would be the effect if a third person pays Creditors from all concerned
creditors’ consent
the obligation and the creditor accepts the is required
payment? Transfer of Does not transfer Transfers
With the knowledge and Consent of the debtor – ownership ownership ownership
As to Requires full or May take place
BENEFICIAL REIMBURSMENT and solvency partial insolvency during debtor’s
SUBROGATION to such rights. solvency
Novation Not an act of An act of novation
Without the debtor’s knowledge or against his will – novation
payor is not entitled to subrogation, only
BENEFICIAL REIMBURSMENT.
[The law makes no distinction as to the right of 2. LO – Loss of the thing due
recovery in case payment by a stranger was
made either without the knowledge or against 3. RE – Remission/Condonation
the consent of the debtor. In both cases, the Remission – point-of-view of the creditor
paying stranger “can recover only insofar as Condonation – point-of-view of the debtor
the payment has been beneficial to the
debtor.”] - It is gratuitous in nature, requiring consent of
the debtor.
Payment to an incapacitated person: - Creditor abandons his claim
Valid only when: - There should be acceptance by the creditor. It is
- The incapacitated has kept the thing required by law that there by acceptance for it to
delivered be valid.
- Insofar as the payment has been beneficial
to him 4. ME – Merger/Confusion
The characters of a debtor and a creditor are merged
in one and the same person resulting to
extinguishment of obligation.
MLREGALA edit | 3
5. CO - Compensation II. CONTRACT – an agreement or meeting of the
There is compensation when two persons are debtors minds between two persons, whereby one binds
and creditors of each other. himself to give something or to render some service.
4. Consensuality of Contracts
GR: Contracts are perfected by mere consent.
Contracts requiring more than consent:
Real Contract – delivery is required
Solemn Contract – requires form to be valid
MLREGALA edit | 4
Essential Elements of a Contract: o Must be an unjust act or an actionable
1. Consent of the contracting parties wrong
Contract is voidable – if only one of the contracting v. Undue Influence
parties is incapacitated to give his consent. - Improper advantage of his power over the will
Contract is unenforceable – if both parties are of another, depriving the latter of a reasonable
incapacitated to give consent. freedom of choice.
MLREGALA edit | 5
If contract does not reflect true intention of the parties: DEFECTIVE CONTRACTS
REFORMATION (conforming to the real intention 1. Rescissible Contracts
when there is mistake or error) 2. Voidable Contracts
3. Unenforceable Contracts
Who can file action for reformation? 4. Void Contracts
- If reason is by mutual mistake, any of the
parties/heirs may file 1. RESCISSIBLE CONTRACTS
- If reason is because one committed fraud, There can be no ratification, but may be
innocent party may file. prescribed.
These contracts are valid, but legally defective.
Reformation Annulment (valid at the beginning)
There has been a meeting There is no meeting of There is injury or damage to either parties or to a
of the minds; the minds third person (not a party to a contract).
There is mistake, fraud, There is vitiated Consent Injury or damage – refers to the cause or
inequitable conduct or
consideration.
accident in the contract
as written Mere inadequacy of consideration does not affect the
Does not invalidate the Invalidates a contract validity of the contract. Bad bargain does not
contract affect a contract’s validity (except in cases
provided by law)
INTERPRETATION of CONTRACTS: It should be directly attacked, not collaterally.
GR: If literal is clear, literal provision shall apply. Nature – subsidiary. This should be the remedy of
In the presence of ambiguity, apply rules on last resort.
interpretation.
In case of conflict of terms as to intention of parties, Badges of Fraud: circumstances indicative of the
intention shall prevail. (The will of the parties fraudulent intent of a debtor. This is basis for
has the force of law between them.) action of rescission because this will be proof of
In interpreting contracts, interpret it in its entirety rescissible contract is entered into in fraud of a
(interpret it as a whole). debtor.
In contracts of adhesion, in cases of ambiguity,
interpret against the one who drafted the contract. Rescissible Contracts:
a. Those entered into by the guardians whenever
the wards they represent suffer lesion by more
than ¼ of the value of things which are objects
thereof. (inadequacy of consideration entered by
wards of less than ¼)
MLREGALA edit | 6
2. VOIDABLE CONTRACTS Rescission Annulment
- This is in relation to consent (an essential The basis is lesion (damage) The basis is vitiated consent
requisite for contracts) or incapacity to consent.
The defect is external or The defect is intrinsic (the
- Defect is as to consent where: intrinsic. meeting of the minds)
o Consent was given by an incapacitated The action is subsidiary The action is principal
person (entered into by a minor or an insane This is a remedy This is a sanction
person) Private interest governs Public Interest governs
Equity predominates Law predominates
o Consent has been vitiated (there is violence,
Plaintiff may be a party or a Plaintiff must be a party to
intimidation, undue influence, fraud or third person the contract. (whether
mistake) subsidiarily or principally
- Voidable contracts are valid and binding until bound)
There must be damage to the Damage to the plaintiff is
annulled by the court.
plaintiff immaterial.
- Prescriptive period: four (4) years If plaintiff is indemnified, Indemnity is no bar to the
o If voidable because of vitiated consent, it rescission cannot prosper. prosecution of the action
depends on which vice: Compatible with the perfect A defect is presupposed
validity of the contract
Violence, intimidation or undue
To prevent rescission, To prevent annulment,
influence: from time it has ceased. If ratification is not required ratification is required.
not stipulated as to when viu has
ceased, it may be construed that it has
ceased upon execution 3. UNENFORCEABLE CONTRACTS
Mistake or fraud: from the time of the
discovery of the mistake or fraud Kinds of unenforceable contracts:
o If incapacitated: prescription starts to run 1. Unauthorized Contracts
when guardianship ceases: 2. Those that fail to comply with the Statute of
Minor reaching age of majority (while Frauds
still a minor, guardian may ratify) 3. Those where both parties are incapable of
Insane – from the time he regains giving consent
sanity
- May be expressly or impliedly ratified. UNAUTHORIZED CONTRACTS: those entered
- Person responsible for vitiated consent can’t file into the name of another person by one who has
action for annulment (He who comes to court been given no authority or legal representation,
must come with clean hands.) or who has acted beyond his powers.
- Person of legal age can’t file an action for Those that fail to comply with the STATUE OF
annulment. FRAUDS: This is to prevent fraud, not
- Rule as to what extent is the liability of the encourage the same.
incapacitated as to obligation to return:
o GR: Parties to an annulled contract has to Fundamental Principles:
return what they have received. i. SOF applies only to executory contracts
o EXC: Incapacitated person is not obliged to ii. Cannot apply if the action is neither for
restitution more than the extent of enrichment damages because of violation of an agreement
(the extent that he has benefited) nor the specific performance of said
- If party can’t return: (his fault) return fruits agreement.
received and the value of the thing at time of iii. SOF is exclusive
loss plus interest from time of loss to the time he iv. Defense of SOF may be waived.
can pay. - Failure to timely object presentation of
oral evidence
- Acceptance of benefits
v. SOF is a personal defense
- Only parties to the contract of sale may
raise issue of enforceability
vi. Contracts infringing SOF are merely
unenforceable
vii. SOF is a Rule of Exclusion
viii. SOF concerns itself with the admissibility of
evidence, not to its credibility or weight.
ix. SOF does not apply if it is claimed that
contract does not express true agreement of
the parties.
MLREGALA edit | 7
The following contracts shall be in writing. vi. Intention of parties can’t be ascertained
a. That by its terms is not to be performed vii. Expressly prohibited/declared void by law
within a year from the making thereof
b. A special promise to answer for the debt, Characteristics of void contracts:
default or miscarriage of another. a. The right to set up the defense of illegality
Special promise – subsidiary or collateral cannot be waived.
promise to pay, like a contract of guaranty b. The action or defense for their declaration as
c. Agreement made in consideration of inexistent does not prescribe.
marriage (other than mutual promise to c. The defense of illegality of contracts is not
marry) available to 3rd persons whose interests are
d. An agreement for the sale of goods, chattels not directly affected.
or things in action, at a price not less than d. Cannot give rise to a contract. A contract
five hundred pesos which is the direct result of a previous illegal
“Things in action”: intangible or incorporated contract is also void and inexistent.
personal property. e. Generally produces no effect.
“Sale”, not other contracts. f. No action to declare void is needed. They are
If price is exactly P500, the contract must be in inexistent ab initio.
writing to be enforceable. (For pusposes of convenience, or to avoid taking
Partial payment takes the contract away from the the law into our own hands, there is nothing
Statute, exc if said part payment corresponds wrong in having a void contract declared really
to the party delivered. void.
e. An agreement for the leasing for a longer g. They cannot be ratified.
period than one year, or for the sale of real
property or of an interest Two kinds of illegal Contracts:
If exactly one year, may be oral, and still a. Those where there is a criminal offense.
enforceable. i. When BOTH are equally guilty (in pari
f. A representation as to the credit of a third delicto)
person Effects:
No action against each other
Defenses of the Attorney of the Defendant: Both shall be prosecuted
i. File a motion to dismiss. Effects or instruments shall be
ii. Plead Statute of Frauds as an affirmative defnse. confiscated.
iii. Make a timely objection in the course of the trial. ii. Only one is guilty and the other is innocent
Effects:
Duty of the Attorney for the Plaintiff: Guilty party will be prosecuted.
i. Present the written agreement or contract. Instrument of the crime will be
ii. If cannot be done because of the loss of contract, confiscated
present a memorandum or note in writing where Innocent one may claim what he has
the important details of the contract are set forth given or she shall not be bound to
like the description of the property. comply with his promise
iii. Present secondary evidence of the written b. Those where there is no criminal offense.
agreement. It may be proved by oral testimony. i. When BOTH are equally guilty (in pari
It is not an oral contract that is being proven. A delicto)
written contract now lost or destroyed, is being Effect: Neither may recover what he has
proved orally. given by virtue of the contract or demand
the performance of the other’s undertaking.
4. VOID CONTRACTS ii. Only one is guilty and the other is innocent
Effects:
i. Cause, object purpose: contrary to law, The guilty party cannot recover what
morals, good customs, public order, or he has given by reason of the contract,
public policy or ask for the fulfillment of what had
ii. Consent is Simulated or Fictitious been promised him
If absolutely simulated, the contract is void
The party not at fault may demand the
for utter lack of consent
return of what he has given, without
If relatively simulated, the hidden or
any obligation to comply with his
intended contract is generally binding.
promise.
iii. Cause or object is inexistent
iv. Object is outside the commerce of man
v. Impossibility of service
MLREGALA edit | 8
Voidable Void TITLE IV – ESTOPPEL
May be ratified Cannot be ratified
Produces effects until Generally, effects are not Estoppel – an admission or representation is rendered
annulled produced at all
Defect is due to incapacity or The defect is that ordinarily, conclusive upon the person making it, and cannot be
vitiated consent public policy is militated denied or disproved as against the person relying
against thereon.
Valid until annulled Void from the beginning, so - It is effective only as between the parties or their
generally no action is
required to set it aside, unless successors-in-interest
the contract has already been
performed Kinds of Estoppel:
May be cured by prescription Cannot be cured by 1. Estoppel IN PAIS
prescription
Defense may be invoked only Defense may be availed of by
by the parties (those anybody, whether he is a i. By conduct or by acceptance of benefits
principally or subsidiarily party to the contract or not, as ii. By representation or concealment
liable), or their successors in long as his interest is directly iii. By silence
interest and privies affected
Referred to as relative or Referred to as absolute nullity iv. By omission
conditional nullity v. By laches (failure or neglect for unreasonable
or unexplained time)
- Omission to assert a right in a reasonable
Unenforceable Void time, or party has declined to assert it (had
May be ratified Cannot be ratified
There is a contract but it No contract at all
the right and opportunity to assert right)
cannot be enforced by a court - How to construe inaction? It is presumed,
action by failure to assert right, he knows his
Cannot be assailed by third Can be assailed by anybody right but decided to abandon right or
parties directly affected.
decline to assert.
- Mere fact of delay = laches
TITLE III – NATURAL OBLIGATION - Stale demand: estoppel by standing
- Elements:
Natural Obligations – based on equity o Conduct on the part of defendant
- Can no longer be enforced to court action but giving rise to a situation where a
because of the voluntary fulfiment, person can complainant claiming remedy
no longer pay what he has paid. o Unreasonable delay in asserting
- When an action has prescribed, defendant can no complainant’s right, who was aware
longer be compelled to performance. But, of right and had the opportunity to
despite prescription, he performs, he can no assert such right
longer get back what he has already paid. o Lack of knowledge or notice of
- Payment of debt of the debt of the deceased defendant will assert such right
decedent exceeding the estate that heir has (defendant did not know)
received, heir can no longer get back the o There will be injury or injustice to
payment defendant if relief is given to
complainant
Civil Obligation – can be compelled or enforced
through court action. 2. Estoppel BY DEED
Sources of Civil Obligation: Must be in a written instrument
Law
Contracts 3. Estoppel Concerning immovable property
Quasi-Contracts Requisites:
Crime a. There is fraudulent representation
Quasi-delict b. The party precluded intend that the other should
Natural Civil act upon the facts as misrepresented
Based on equity and Based on positive law c. The party misled must have been unaware of the
natural law (fairness) true facts
Not enforceable by court Enforceable by court d. Party defrauded must have acted in accordance
action action with the misrepresentation
There is a juridical tie (you No juridical tie
can no longer claim what
you paid)
Produces legal effect Does not have legal effect
MLREGALA edit | 9
TITLE V – TRUSTS express trusts do NOT prescribe (implied trust-
confusing)
Trust – right to the beneficial enjoyment of property Trust may be proved by ORAL EVIDENCE
- a fiduciary relationship concerning property implied trust: a distinction must be made
which obliges the person holding it to deal
with the property for the benefit of another. Resulting Trusts Constructive Trusts
Those presumed to have Justified merely by equity
Parties to a “trust” been contemplated by the to satisfy the demands of
a. Trustor or settler – establishes the trust parties, but not so justice, and therefore not
expressed in the trusts in the technical sense
b. Trustee – holds the property in trust for the benefit of
instrument of conveyance
another Do not prescribe Do prescribe
c. Beneficiary or cestui que trust – the person for Exc: recovery from the
whose benefit the trust has been cereated. trustee may prescribe if the
trustee has expressly
Characteristics of Trust: repudiated the trust.
a. It is a fiduciary relationship
b. Created by law or by agreement
c. Where the legal title is held by one, and the equitable
title or the beneficial title is held
Classifications of Trust:
a. Express trust – created by the parties, or by the
intention of the trustor
- immovable or any interest trust (express) can’t be
proved by parol evidence
- no particular words needed. It just needs that the
nature of agreement that trust is created.
- if trustee declines it, trust will not fail. Only assign
another trustee.
- acceptance of beneficiary is required. Without
onerous condition on beneficiary, acceptance is
presumed. (One accorded with benefit will not
refuse it.)
Kinds:
i. Resulting Trust – there is an intent to create a
trust but it is not effective as an express trust.
ii. Constructive Trust – no intention to create a
trust is present, but a trust is nevertheless created
by law to prevent unjust enrichment or
oppression.
MLREGALA edit | 10