Professional Documents
Culture Documents
TITLE V. – PRESCRIPTION
CHAPTER 1
GENERAL PROVISIONS
WHAT IS PRESCRIPTION?
Prescription is a mode of acquiring (or losing) ownership and other real rights
thru the lapse of time in the manner and under the conditions laid down by law (Article
1106).
Laches is unreasonable delay in the bringing of a cause of action before the courts
of justice.
The principle of laches is a creation of equity. It is applied, not really to penalize neglect
or sleeping upon one’s right, but rather to avoid recognizing a right when to do so
would result in a clearly inequitable situation.
a. Persons who can acquire property rights through the other modes of
acquiring ownership.
Persons who are disqualified from administering their property have a right to
claim damages from their legal representatives whose negligence has been the cause of
prescription.
MAY PRESCRIPTION RUN BETWEEN HUSBAND AND WIFE OR BETWEEN PARENTS
AND CHILDREN OR BETWEEN GUARDIAN AND WARD?
Prescription does not run between husband and wife, even though there be a
separation of property agreed upon in the marriage settlements or by judicial decree.
Neither does prescription run between parents and children, during the minority
or insanity of the latter, and between guardian and ward during the continuance of the
guardianship (Article 1109).
Note that the prescription contemplated here is acquisitive and not extinctive. Thus, in
the filing of actions against each other, extinctive prescription is applicable.
EXAMPLES:
Legal separation must be filed within five (5) years from the occurrence of the
ground for legal separation (Article 57, FC);
Generally, action for annulment of marriage by a spouse against the other must be filed
within five (5) years (Article 47, FC);
Alienation made by the husband without the wife’s consent provided that the marriage
was celebrated under the Civil Code (Article 173, CC).
Prescription does not run against co-owners except when a co-owner made a
definite repudiation of the co-ownership disclosed to the other co-owners (Article 494).
All things which are within the commerce of men are susceptible of prescription,
unless otherwise provided. Property of the State or any of its subdivisions not
patrimonial in character shall not be the object of prescription (Article 1113).
EXAMPLES OF EXCEPTION:
WHAT ARE THE RIGHTS OF CREDITORS AND ALL OTHER PERSONS INTERESTED IN
MAKING THE PRESCRIPTION EFFECTIVE?
Creditors and all other persons interested in making the prescription effective
may avail themselves thereof notwithstanding the express or tacit renunciation by the
debtor or proprietor (Article 1114).
Thus, specific provisions on prescription separately found in the Code and in special
laws shall prevail over the general provisions on prescription provided under Title V of
the Code.
Prescription already running before the effectivity of this Code shall be governed
by laws previously in force; but if since the time this Code took effect the entire period
herein required for prescription should elapse, the present Code shall be applicable,
even though by the former laws a longer period might be required (Article 1116).
Thus:
a. If the period for prescription began and ended under the old laws, said old
laws govern.
b. If the period for prescription began under the new Civil Code, the new Civil
Code governs.
c. If the period began under the old law, and continues under the new Civil
Code, the old law applies.
EXCEPTION:
In this third rule, it is the new Civil Code that will apply, provided two
conditions are present:
NOTE: It is more than fifty years since the new Civil Code became effective. The
transitional rules may no longer find application today, although the same were applied
before in several cases.
CHAPTER 2
PRESCRIPTION OF OWNERSHIP AND OTHER REAL RIGHTS
Prescription may arise even if the possessor is in bad faith. However, when the
possessor is in bad faith, the period required for the actual possession is much longer to
the case of a possessor in good faith.
The related Articles which must be considered in the determination of good faith
in prescription of ownership are the following:
a. Article 526 -- He is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it.
b. Article 527 -- Good faith is always presumed, and upon him who alleges bad
faith on the part of a possessor rests the burden of proof.
c. Article 528 -- Possession acquired in good faith does not lose this character
except in the case and from the moment facts exist which show that the
possessor is not unaware that he possesses the thing improperly or
wrongfully.
d. Article 529 -- It is presumed that possession continues to be enjoyed in the
same character in which it was acquired, until the contrary is proved.
Just title means that the possessor obtained the possession of the property
through one of the modes recognized by law for acquiring ownership (as enumerated
under Article 712) but the transferor or grantor was not the owner of the property or he
has no power to transmit the right (Article 1129). The just title is intended to transmit
ownership and could have actually transmitted ownership had the transferor or grantor
been the true owner of the property. This kind of possession arising from a just title can
ripen into ownership if the other elements of prescription are present.
a) If it should be
void for lack of
legal solemnities;
b) If the plaintiff
should desist
from the
complaint or
should allow the
proceedings to
lapse;
c) If the possessor
should be
absolved from the
complaint (Article
1124).
c. Any express or tacit recognition which the possessor
may make of the owner's right also interrupts
possession (Article 1125).
As to lands registered under the Land Registration Act, the provisions of that
special law shall govern (Article 1126).
a. Ownership and other real rights over immovable property are acquired by
ordinary prescription through possession of TEN YEARS (Article 1134).
b. Ownership and other real rights over immovables also prescribe through
uninterrupted adverse possession thereof for THIRTY YEARS, without need of
title or of good faith (Article 1137).
WHAT IS THE RULE WHEN THERE IS DISCREPANCY IN THE AREA POSSESSED AND IN
THE AREA EXPRESSED IN THE TITLE?
In case the adverse claimant possesses by mistake an area greater, or less, than that
expressed in his title, prescription shall be based on the possession (Article 1135).
Possession in wartime, when the civil courts are not open, shall not be counted in
favor of the adverse claimant (Article 1136).
In the computation of time necessary for prescription the following rules shall be
observed:
(1) When the possession of the present possessor is just a continuation of the
possession of the predecessor in interest - The present possessor may complete the
period necessary for prescription by tacking his possession to that of his grantor or
predecessor in interest;
(2) When the character of the possession of the possessor has changed from good
faith to bad faith - It is presumed that the present possessor who was also the possessor
at a previous time, has continued to be in possession during the intervening time, unless
there is proof to the contrary;
(3) The first day shall be excluded and the last day included (Article 1138).
The condition for the tacking of possession is that privity must exist between the
present possessor and the predecessor in interest. In brief, the present possessor got his
possession from the predecessor in interest. Consequently, a mere usurper cannot
invoke the possession of the previous possessor.
There is no privity of interest where the present possessor came into possession
of the disputed land by virtue of a void and fictitious sale (Ruiz vs. CA, 79 SCRA 525).
Tacking is not allowed if the predecessor in interest has not satisfied the
requirements of prescription. Otherwise, there can be no continuity in the nature of the
possession.
The law does not provide any solution to such kind of contingency. Thus, sound
judgment must be resorted to, thus:
a. If the predecessor was in good faith but the successor is in bad faith, should
there be any tacking of possession?
There are different views. Some writers say there must be no tacking. Others say,
the good faith of the predecessor should not be set at naught. The second is the better
view. The computation of the periods to be tacked should be proportionate, that is, in
the proportion of what the period of possession in good faith bears to the period of
extraordinary prescription. So it is in the proportion of 2:1 as regards movables and 3:1
for immovables.
b. If the possession of the predecessor was in bad faith and the possession of the
successor is in good faith, should there be tacking of possession?
Possession of the predecessor in bad faith cannot be counted and added to that of
the present possessor. Here, the possession of the predecessor cannot be considered
ordinary prescription because such requires good faith all throughout the period fixed
by law.
However, for purposes of extraordinary prescription, the possession in bad faith of the
predecessor can be tacked to the possession in bad faith of the successor. There is no
prohibition to this.
CHAPTER 3
PRESCRIPTION OF ACTIONS
Actions prescribe by the mere lapse of time fixed by law (Article 1139).
Actions to recover movables shall prescribe EIGHT YEARS from the time
the possession thereof is lost, unless the possessor has acquired the ownership by
prescription for a less period, according to Articles 1132, and without prejudice
to the provisions of articles 559, 1505, and 1133 (Article 1140), thus:
3. MORTGAGE ACTION:
They must be brought within TEN YEARS from the time the right of action
accrues (Article 1144).
6. ACTIONS UPON AN INJURY TO THE RIGHTS OF THE PLAINTIFF; ACTIONS UPON A QUASI-
DELICT:
However, when the action arises from or out of any act, activity, or
conduct of any public officer involving the exercise of powers or authority
arising from Martial Law including the arrest, detention and/or trial of the
plaintiff, the same must be brought within ONE (1) YEAR. (Article 1146 as amended
by PD No. 1755, Dec. 24, 1980.)
NOTE: The limitations of action mentioned in Articles 1140 to 1142, and 1144 to
1147 are without prejudice to those specified in other parts of this Code, in the Code of
Commerce, and in special laws (Article 1148).
The phrase “without prejudice” means that, in proper cases, the prescriptive
period in this chapter may be availed of notwithstanding other special provisions in
other parts of the Civil Code, in the Code of Commerce and in special laws. Thus, even
though the claim falls under the prescriptive period provided for in the Labor Code
because of illegal and unlawful dismissal, the case may still fall within the ambit of
“injury to the rights of the plaintiff (Virgilio Callanta vs. Carnation Phi., Inc., G.R. No. L-
70615, October 28, 1986, 145 SCRA 286).
WHAT RIGHTS ARE NOT EXTINGUISHED BY PRESCRIPTION?
The following rights, among others specified elsewhere in this Code, are not
extinguished by prescription:
OTHERS:
WHAT IS THE PRESCRIPTIVE PERIOD FOR FILING ACTIONS WHOSE PERIODS ARE
NOT FIXED BY THE CIVIL CODE AND OTHER LAWS?
All other actions whose periods are not fixed in this Code or in other laws must
be brought within five years from the time the right of action accrues (Article1149).
EXAMPLES:
a. Action to impugn the recognition of a natural child (Article 296 Civil Code);
b. Action to impugn the legitimation of a child (Article 275, Civil Code);
c. Action to reduce inofficious donations (to be counted from the death of the
donor) (Vide Article 772, Civil Code).
BOOK IV
OBLIGATIONS AND CONTRACTS
TITLE I
OBLIGATIONS
OVERVIEW OF LAW
I. SOURCES OF LAW
A. Constitution
B. Legislative Enactment
C. Executive Issuance
D. International Law
E. Supreme Court Decisions
While law may provide for the date of its effectivity, the
requirement of publication may not be dispensed with. (Tanada vs.
Tuvera)
ARTICLE 14. Penal laws and those of public security and safety
shall be obligatory upon all who live or sojourn in Philippine territory, subject to the
principles of international law and treaty stipulations.
B. INTERPRETATION
A. PENAL
B. Civil
Those which govern relations between persons.
C. COMMERCIAL
D. REMEDIAL
A. NATURAL PERSONS
ARTICLE 41. For all civil purposes, the foetus is considered born
if it is alive at the time it is completely delivered from the mother’s womb. However, if the
foetus had an intra-uterine life of less than seven months, it is not deemed born if it dies
within twenty-four hours after its complete delivery from the maternal womb.
V. CAPACITY
A. JURIDICAL CAPACITY
B. CAPACITY TO ACT
ARTICLE 19. Every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.
CHAPTER 1
GENERAL PROVISIONS
WHAT IS AN OBLIGATION?
RULES :
• Obligations derived from law are not presumed. Only those expressly
determined in this Code or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes them; and as to what
has not been foreseen, by the provisions of this Book (Article 1158).
• Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith (Article 1159).
• Obligations derived from quasi-contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book (Article 1160).
• Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating
damages (Article 1161).
• Obligations derived from quasi-delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special laws (Article 1162).
CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties requires
another standard of care (Article 1163).
Notes:
The diligence needed is that which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. This is
diligence of a good father of a family. If the law or contract does not state the diligence
which is to be observed in the performance, that which is expected of a good father of a
family shall be required (Article 1173).
However, if the law or contract provides for a different standard of care, said law
or stipulation must prevail (Article 1163) provided that it should not be one
contemplating a relinquishment or waiver of the most ordinary diligence
The creditor has a right to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real right over it until the same has been
delivered to him (Article 1164).
Thus, we must distinguish between the time when the creditor acquires a
personal right to the thing and the fruits thereof, and the time when he acquires a real
right thereto.
After the right to deliver the object of the prestation has arisen in favor of the
creditor but prior to the delivery of the same, there is no real right enforceable or
binding against the whole world over the object and its fruits in favor of the person to
whom the same should be given. The acquisition of a real right means that such right
can be enforceable against the whole world and will prejudice anybody claiming the
same object of the prestation. The real right only occurs when the thing or object of the
prestation is delivered to the creditor.
In obligations arising from contracts, the obligation to deliver arises from the
moment of the perfection of the contract, unless there is a stipulation to the contrary.
From this it is clear that before the delivery of the thing and the fruits thereof, the
creditor has merely a personal right against the debtor – a right to ask for the delivery of
the thing and the fruits. Once the thing and the fruits are delivered, then he acquires a
real right over them, a right which is enforceable against the whole world.
EXAMPLE:
If, however, X sells the fruits on March 20, 2005 to B who does not know the
previous sale to A and who immediately takes possession of the fruits, B shall have a
better right over the said fruits. Considering that there is no delivery of the property to
A on March 20, 2005, A has no real right over the said property at that time binding
upon the whole world. A’s remedy is to seek damages from X in connection with the
fruits.
If however, the mango orchard has already been delivered, A has a real right
binding upon the whole world. If X sells to B the fruits after the delivery to A, A can
recover from B who in turn can seek damages from X.
We must distinguish between the rights which are available to the creditor when
the obligation is determinate and those which are available to him when the obligation is
indeterminate or generic.
1. When what is to be delivered is a determinate thing (in the sense that the
object thereof is particularly designated or physically segregated from all
others of the same class), the rights of the creditor are:
If the obligor delays, or has promised to deliver the same thing to two or more
persons who do not have the same interest, he shall be responsible for any fortuitous
event until he has effected the delivery (Article 1165).
In obligation to give, what are the different duties or obligations which are imposed
upon the debtor or obligor?
a. If the obligation is determinate, the duties which are imposed upon the
debtor are the following:
1. In obligations to do:
a) If a person obliged to do something fails to do it, the same shall be executed at his
cost.
b) This same rule shall be observed if he does it in contravention of the tenor of the
obligation.
c) Furthermore, it may be decreed that what has been poorly done be undone (Article
1167).
a. When the obligation consists in not doing, and the obligor does what has
been forbidden him, it shall also be undone at his expense (Article 1168).
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation
However, the demand by the creditor shall not be necessary in order that delay
may exist:
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other begins
(Article 1169 par. 1).
Note that Article 1169 is applicable only when the obligation is to do something
other than the payment of money. In obligations for the payment of money, Article 2209
shall apply which provides that:
“If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per annum.”
Hence, in obligation for the payment of sum of money, the interest replaces the
damages.
Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for
damages (Article 1170).
WHAT DOES THE PHRASE “IN ANY MANNER CONTRAVENE THE TENOR” OF THE
OBLIGATION AS STATED UNDER ARTICLE 1170 COVER?
It includes any illicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance (Arrieta vs. National
Rice and Corn Corp., 10 SCRA 79; Magat vs. Medialdea, L-37120, April 20, 1983)).
Fraud or dolo consists in the conscious and intentional proposition to evade the
normal fulfillment of an obligation. It is bad faith in the performance of an obligation
oftentimes referred as malice. In contracts it is deceit which if substantial (dolo causante)
may result in annulment of contract.
If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required
(Article 1173).
Did the defendant in doing the alleged negligent act use the reasonable care and
caution which an ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence. The law here in effect adopts the standard supposed
to be supplied by the imaginary conduct of the discreet pater familias of the Roman law.
The existence of negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The law considers what
would be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that (Picart vs. Smith, 37 Phil. 809).
No person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable (Article 1174).
EXCEPTIONS:
Ordinarily, the terms “fortuitous event” and “force majeure” are used
interchangeably. There is, however, a technical difference. “Force majeure” is a term that
is applicable only to those fortuitous events which are dependent upon human
intervention, such as wars, strikes, riots, etc., while “fortuitous event” is the general term
that is applicable regardless of whether the event is independent of or dependent upon
human intervention.
NOTE that when the object of the prestation is generic (like payment of a sum of
money as a consequence of a loan contract), the debtor cannot avail of the benefit of a
fortuitous event.
The receipt of the principal by the creditor, without reservation with respect to
the interest, shall give rise to the presumption that said interest has been paid (Article
1176, par. 1).
There is a presumption that the June 2004 installment has already been paid. The
receipt of a later installment of a debt without reservation as to prior installments, shall
likewise raise the presumption that such installments have been paid (Article 1176).
NOTE that the presumption here is only prima facie. The presumption can be
rebutted by strong evidence to the contrary. The burden of proof to show that the
interest/installment has not been paid shifts to the creditor.
WHAT ARE THE RIGHTS AND REMEDIES WHICH ARE AVAILABLE TO THE CREDITOR
IN ORDER TO PROTECT HIS RIGHTS AGAINST THE DEBTOR?
a) Exact payment;
b) Pursue the property in possession of the debtor to satisfy their claims (generally
through levying by attachments and execution upon all the property of the debtor,
except such as are exempt by law from execution),
c) Exercise all the rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person (accion subrogatoria);
d) Impugn the acts which the debtor may have done to defraud them (accion pauliana)
(Article 1177).
NOTES:
The third and the fourth remedies are merely subsidiary to the second.
The above-cited rights are not absolute as the creditor cannot bring those
which are inherent in the person of the obligor.
Article1381 (1) which provides that a contract entered into by the debtor
is rescissible if it were made in fraud of creditors when the latter cannot in any manner
collect the claim due is another remedy.
Exceptions:
a) If there has been no stipulation to the contrary.
b) If the law provides otherwise.
c) If the obligation is purely personal.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
SECTION 1
PURE AND CONDITIONAL OBLIGATIONS
The following is the primary classification of obligations under the Civil Code:
a) Pure, conditional, and with a term (Articles 1179; 1179 – 1192; 1193 - 1198);
b) Alternative and facultative (Articles 1199 – 1206);
c) Joint and solidary (Articles 1207 – 1222);
d) Divisible and indivisible (Articles 1223 – 1225); and
e) With and without a penal clause (Articles 1226 – 1230).
Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable,
without prejudice to the effects of the happening of the event (Article 1179).
What characterizes a conditional obligation is the fact that its efficacy or obligatory force
is subordinated to the happening of a future or uncertain event.
That which necessarily must come whether the parties know when it will happen
or not.
When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of article
1197 (Article 1180).
According to Article 1197, if the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was intended, the courts
may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them.
Article 1182 provides that when the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in conformity
with the provisions of this Code.
a) If the condition is potestative in the sense that fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation shall be void (Article
1182). This happens when the birth of the contract depends upon the sole will of the
debtor. Hence, according to Article 1308, this is likewise prohibited and may make
the whole contract invalid. However, if the potestative condition is imposed not on
the birth of the obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.
b) If the condition is potestative in the sense that its fulfillment depends upon the will
of the creditor, the conditional obligation shall be valid. This is because the provision
of the first sentence of Article 1182 extends only to conditions which are potestative
to the obligor or debtor. Besides, the creditor is naturally interested in the fulfillment
of the condition since it is only such fulfillment that the obligation arises or becomes
effective.
c) If the condition is casual in the sense that its fulfillment depends partly upon chance
or upon the will of a third person, the obligation shall take effect (Article 1182).
d) If the condition is mixed in the sense that its fulfillment depends partly upon the will
of a party to the obligation and partly upon chance and/or will of a third person, the
obligation shall be valid.
IN THE EVENT THAT THE CONDITION IS DECLARED VOID BUT THE OBLIGATION IS
STILL VALID, SHOULD THE OBLIGATION BE DECLARED PURE AND UNCONDITIONAL?
Suppose that the debtor executed a promissory note promissing to pay his obligation
to the creditor as soon as he has received funds from the sale of his property in a
certain place, is the condition potestative or mixed?
The condition is mixed because its fulfillment depends not only upon the will of
the debtor but also upon the concurrence of other factors, such as the acceptability of the
price and other conditions of the sale as well as the presence of the buyer, ready, able
and willing to purchase the property.
SUPPOSE THAT IN THE ABOVE PROBLEM, THE DEBTOR PROMISED TO PAY HIS
OBLIGATION AS SOON AS HE HAS RECEIVED THE FUNDS DERIVED FROM THE SALE OF THE
PROPERTY IF HE FINALLY DECIDES TO SELL IT, WILL THAT MAKE ANY DIFFERENCE IN YOUR
ANSWER?
Yes, in such case, the condition is potestative with respect to the debtor because
its fulfillment would then depend upon his will. Consequently, the condition is void.
The validity of the obligation is, of course, not affected, because the rule stated in Article
1182 to the effect that when the fulfillment of the condition depends upon the sole will of
the debtor, the conditional obligation itself shall be void, is applicable only when the
obligation shall depend for its perfection upon the fulfillment of the condition and not
when the obligation is a pre-existing one.
SUMMARY:
Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the obligation
is divisible, that part thereof which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing shall be considered as not having
been agreed upon (Article 1183).
NOTE: It is very clear from the law that it is not only the condition which is
annulled but the whole obligation itself. Thus, an obligation to give money as a loan
only if it snows in the Philippines destroys the efficacy of the prestation. The condition
annuls the prestation. This is also true if the condition is against good customs, public
policy or is prohibited by law.
Also, an impossible thing can never be done. Hence, to make as a condition the doing of
an impossible thing is a useless stipulation which should not be considered as not
having been agreed upon. The whole obligation which involves an impossible condition
can be annulled.
SUMMARY:
The condition that some event happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has become indubitable that the event will
not take place (Article 1184).
If the period is not fixed in the contract, the court, considering the parties’
intentions, should determine what period was really intended (Vide Article 1185, par. 2).
IN OBLIGATIONS WITH NEGATIVE CONDITIONS, WHEN DOES THE OBLIGATION
DEEMED EFFECTIVE?
The condition that some event will not happen at a determinate time shall render
the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as
may have probably been contemplated, bearing in mind the nature of the obligation
(Article 1185).
What is the effect when the debtor voluntarily prevents the fulfillment of the
condition?
The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment (Article 1186).
The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. This rule is
applicable only to suspensive conditions because the efficacy of the obligation is merely
suspended or held in abeyance until the condition is fulfilled. This is not applicable to
resolutory conditions because the fulfillment of the event extinguishes the obligation;
hence, retroactivity is not relevant.
WHAT ARRE THE RULES IF THE OBLIGATION (1) IMPOSES RECIPROCAL OBLIGATIONS;
(2) IF THE OBLIGATION IS UNILATERAL; (3) IN OBLIGATIONS TO DO AND NOT TO DO?
a) When the obligation imposes reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be deemed to have been
mutually compensated.
b) If the obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it should be
inferred that the intention of the person constituting the same was different.
c) In obligations to do and not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with (Article 1187).
Fruits here refer to natural, industrial, and civil fruits (like rent) (Vide Article 442).
What is the right of the creditor before the fulfillment of the conditions?
The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right (Article 1188, par. 1).
“Appropriate action” here means to sue in court. Other appropriate actions that
may be undertaken by the creditor:
Note that the law says “preservation”, not preference over the creditor.
The debtor may recover what during the same time he has paid by mistake in
case of a suspensive condition (Article 1188, par. 2).
When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of
improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in either
case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary (Article 1189).
NOTES:
a) This article applies only if the suspensive condition is fulfilled and the object is
specific (generic).
b) The option (rescission or demand fulfillment) is given to the creditor, regardless of
the degree of deterioration caused by the debtor.
c) Improvement belongs to the creditor because once the condition is fulfilled, the
effects of the conditional obligation shall retroact to the day of the constitution of the
obligation.
d) Improvement at the expense of the debtor, right of creditor like a usufructuary – A
usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance unless the title constituting it or the law provides
otherwise (Article 562).
It is understood that the thing is lost when it perishes, or goes out of commerce,
or disappears in such a way that its existence is unknown or it cannot be recovered
(Article 1189, par. 2).
Yes, Article 1190 provides that in case of the loss, deterioration or improvement
of the thing, the provisions which, with respect to the debtor, are laid down in the
preceding article (Article 1189) shall be applied to the party who is bound to return.
Thus, while the resolutory condition has not yet been fulfilled and the (thing) prestation
is destroyed with the fault of the obligor, the obligation to return is extinguished. If the
thing is lost through the fault of the debtor, he shall be liable for damages. If the thing
deteriorates without the fault of the obligor, the impairment is to be borne by the
creditor. If the thing deteriorates through the fault of the obligor, the creditor may
choose between the rescission of the obligation and its fulfillment, with indemnity for
damages in either case. If the thing is improved by nature, or by time, the improvement
shall inure to the benefit of the creditor. Lastly, if the thing improves at the expense of
the debtor, he shall have no other right than that granted to the usufructuary.
However, in applying these rules, the “debtor” is the person obliged to return
the object of the obligation in case of fulfillment of the condition, while the “creditor” is
the person to whom the thing or object must be returned.
Reciprocal obligations are those which are created or established at the same time, out if
the same cause, and which result in mutual relationship of creditor and debtor between
the parties.
Reciprocal obligations are those which arise from the same cause and in which
each party is both a debtor and a creditor of the other, such that the obligation one is
dependent upon the other (Areola vs. CA, 236 SCRA 643).
WHAT IS THE EFFECT IF ONE OF THE OBLIGORS IN RECIPROCAL OBLIGATIONS
SHOULD NOT COMPLY WITH WHAT IS INCUMBENT UPON HIM?
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period (Article 1191). This means that the implied power to
rescind can only be enforced through court action, in the absence of stipulation to the
contrary. The decision of the court is the revocatory act of rescission.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible (Article 1191).
The options are alternative and not conjunctive.
4. The right to rescind needs judicial approval in certain cases as when there has
already been delivery of the object;
5. The right to rescind is implied (presumed) to exist and, therefore, need not be
expressly stipulated upon;
6. The right to rescind may be waived.
NOTES:
a) The article entitles the injured party to payment of damages, regardless of whether
he demands fulfillment or rescission of the obligation (Areola vs. CA, 236 SCRA 643).
b) In case a valid rescission is made, it creates an obligation to return the things which
were the object of the contract. Thus, rescission can only be made when the one who
demands rescission can return whatever he or she may be obliged to restore.
SUPPOSE THAT THERE IS A RESERVATION OF THE RIGHT TO RESCIND IN CASE OF
BREACH OF THE OBLIGATIONS, IS THERE A NEED TO ASK FOR JUDICIAL INTERVENTION IN
THE RECISSION OF THE CONTRACT?
No, judicial intervention is not necessary for the purpose of obtaining a judicial
declaration rescinding a contract where there is a reserved right to rescind (Luna vs.
Abrigo, January 18, 1990).
In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined which
of the parties first violated the contract, the same shall be deemed extinguished, and
each shall bear his own damages (Article 1192).
This means that if the violation can be traced to the parties and both of them
committed the beach, the article penalizes the first violator only, if in fact or by evidence,
such first violator can be determined. The subsequent violator will not be held liable.
However, the liability of the first violator shall be equitably tempered by the court as the
injury to the other party-violator might not have been so great had it not for the
subsequent infraction of such other party-violator. The law however states that if it
cannot be determined which of the parties first violated the contract, the obligation shall
be deemed extinguished, and each shall bear his own damages.
SECTION 2
OBLIGATIONS WITH A PERIOD
a. Futurity;
b. Certainty;
c. Physical and legal possibility.
DISTINGUISH TERM OR PERIOD FROM CONDITION.
Term and condition may be distinguished form each other in the following ways:
1. SUSPENSIVE OR RESOLUTORY
The period of prescription commences from the time the term in the obligation
arises, for it is only from that date that it is due and demandable.
It depends – If the event will necessarily come, although the date or time when it
will come may be uncertain, the event constitutes a day certain; hence, the obligation is
with a term (Article 1193, par. 3). However, if the uncertainty consists in whether the day
will come or not, the event constitutes a condition; hence, the obligation is conditional
(Article 1193, par. 4).
In case of loss, deterioration or improvement of the thing before the arrival of the
day certain, the rules in Article 1189 shall be observed (Article 1194).
Thus:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in either
case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary (Article 1189).
WHAT IS THE REMEDY OF THE DEBTOR WHO PAID OR DELIVERED BEFORE THE
ARRIVAL OF THE PERIOD?
Anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with the fruits and interests (Article 1195).
IN OBLIGATIONS WITH A TERM OR PERIOD, FOR WHOSE BENEFIT IS THE TERM OR
PERIOD?
This rule, however, is not absolute. If it can be proved either that the tenor of the
obligation or from other circumstances that the period has been established for the
benefit of either the creditor or the debtor, the general rule is no longer applicable.
However, the benefit of the period may be waived by the person in whose favor it was
constituted.
If the contract does not provided for a period, can the creditor demand its fulfillment?
No, because an action for the court to fix the period has yet to be filed. In the
meantime, no one can ask for the fulfillment of the obligation after the court has fixed
the period for its compliance (Vda de Ungson vs. Lopez, L-10180, March 10, 1954).
Within what period should the action to fix the period be filed?
It must be filed within ten (10) years, otherwise, it would prescribe (Gonzalez vs.
Jose, 66 Phil. 369).
WHAT ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHERE THE
COURTS ARE EMPOWERED TO FIX THE DURATION OF A TERM OR PERIOD?
a. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof (Article 1197, par. 1).
b. The courts shall also fix the duration of the period when it depends upon the
will of the debtor (Article 1197, par. 2).
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them (Article 1197, par. 3).
c. If the debtor binds himself to pay when his means permit him to do so
(Article 1180). Strictly speaking, however, this case properly falls within the
purview of the second, because in such a case the power to determine when
the obligation will be fulfilled is in effect left exclusively to the will of the
debtor.
NOTE: Article 1197 involves a two-step process. The court must first determine
that the obligation does not fix a period (or that the period is made to depend upon the
will of the debtor), but from the nature and the circumstances it can be inferred that a
period was intended. This preliminary point settled, the court must then proceed to the
second step, and decide what period was probably contemplated by the parties. So that,
ultimately, the court cannot fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended (Gregorio
Araneta, Inc. vs. Phil. Sugar Estates Development Co., Ltd., 20 SCRA 330).
WHAT ARE THE DIFFERENT INSTANCES UNDER THE CIVIL CODE WHEN THE
DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE TERM OR PERIOD?
The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt; [Insolvency here need not be judicially
declared.]
(2) When he does not furnish to the creditor the guaranties or securities which he
has promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory; [Note that the debtor loses the benefit
of a period even if the loss is through a fortuitous event.]
(4) When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period;
(5) When the debtor attempts to abscond (Article 1198).
If months are designated by their name, they shall be computed by the number of
days which they respectively have.
In computing a period, the first day shall be excluded, and the last day included
(Article 13).
SECTION 3
ALTERNATIVE OBLIGATIONS
Facultative obligations refer to those juridical relations where only one object or
prestation has been agreed upon by the parties to the obligation, but the obligor may
deliver or render another in substitution.
NOTES:
• Under the Civil Code, there are only three prestations namely, (1) to give; (2)
to do; and (3) not to do. Strictly speaking therefore, when the Code speaks of
different prestations, it refers only to these three prestations. Hence,
technically speaking, a person who is bound to give either a house, a car or a
truck has only one prestation which is “to give”. But a person who is obliged
to either deliver a house or to paint a picture has two prestations, namely, “to
give” and “to do”. It appears however that the phrase “different prestations”
in the law refers to both the strict sense and the looses sense of the word
“prestation”.
The creditor cannot be compelled to receive part of one and part of the other
undertaking (Article 1199).
In alternative obligations, who has the right to choose or select the object to be
delivered or the prestation to be performed among those which are alternatively due?
EXCEPTIONS:
a) When the right has been expressly granted to the creditor (Article 1200); and
b) When it has been expressly granted to a third person.
The right of choice belongs to the debtor because he is the passive subject in an
obligation. He, not the creditor, is the only obliged to give, to do or not to do.
Any doubt as to whom the choice was given must always be interpreted in favor of the
debtor. Only an express grant of choice can a creditor have the right to choose which
prestation is to be performed.
WHAT IS THE LIMITATION ON DEBTOR’S CHOICE (IF THE RIGHT OF CHOICE HAS
BEEN GRANTED TO HIM)?
The debtor shall have no right to choose those prestations which are impossible,
unlawful or which could not have been the object of the obligation (Article 1200).
The choice shall produce no effect except from the time it has been
communicated (Article 1201). Thus the parties are bound by the choice or selection from
the very moment that it has been communicated by the party who has the right to make
it to the other party.
The debtor shall lose the right of choice when among the prestations whereby he
is alternatively bound, only one is practicable (Article 1202).
Note that the law uses the word “practicable”. Practicable means capable of
being done, or simply feasible (The New Lexicon Webster’s Dictionary of the English
Language, 1987 Edition, Page 787). However, prestations that are not “practicable may
also include lawful and possible prestations but, because of some special attendant
circumstances which do not necessarily make them unlawful or impossible, they can be
done. [Hence, if the debtor has the following alternatives: to kiss a highly contagious
leper, to sing a song, or not to pay taxes, it is clear that the last alternative is not only
impracticable but also unlawful. The first alternative, although not unlawful and not
impossible, is nevertheless practicable. In this case therefore, the debtor loses his right of
choice because only one prestation is practicable which is to sing.]
WHAT IS THE RULE WHEN THE DEBTOR CANNOT CHOOSE BECAUSE OF THE
CREDITOR’S ACTS?
If through the creditor's acts the debtor cannot make a choice according to the
terms of the obligation, the latter may rescind the contract with damages (Article 1203).
IN OBLIGATIONS WHERE THERE ARE THREE OR MORE OBJECTS WHICH ARE
ALTERNATIVELY DUE, IF ONE, OR MORE, OR ALL OF THE OBJECTS ARE LOST OR DESTROYED,
WHAT ARE THE EFFECTS OF SUCH LOSS OR DESTRUCTION UPON THE OBLIGATION AS UPON
THE LIABILITY OF THE DEBTOR?
It depends:
In all these cases, the debtor cannot be held liable for damages,
applying the provisions of Articles 1174, 1262 and 1266.
• If the loss is due to a fortuitous event, the effects are the same as where the
right belongs to the debtor.
NOTES:
• Note that the debtor will not be liable in any way for reducing the
alternatives from three to two alternatives, provided what remains are
lawful, practicable, possible or consistent with the object of the obligation.
• Likewise, the debtor will not be liable for converting his alternative
obligation to a simple one where there is only one lawful and possible
prestation. The debtor may even cause the loss of one of the things, or render
one of the services impossible.
• But when the debtor is responsible for losing or rendering impossible all his
alternative prestations, the creditor is entitled to damages.
• If the loss or destruction took place BEFORE the substitution could be effected,
it is believed that the debtor cannot be held liable. It does not affect the
principal obligation and hence the debtor will not be liable.
SECTION 4
JOINT AND SOLIDARY OBLIGATIONS
As a general rule, the obligation is JOINT. Article 1207 provides that: The
concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestation.
If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear –
a) The credit or debt shall be presumed to be divided into as many shares as there are
creditors or debtors,
b) The credits or debts being considered distinct from one another, subject to the Rules
of Court governing the multiplicity of suits (Article 1208).
WHEN IS AN OBLIGATION SOLIDARY?
1. If two or more heirs take possession of the estate, they shall be solidarily
liable for the loss or destruction of a thing devised or bequeathed, even
though only one of them should have been negligent (Article 927).
2. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823 (Article 1824).
3. Even when the agent has exceeded his authority, the principal is solidarily
liable with the agent if the former allowed the latter to act as though he had
full powers (Article 1911).
4. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency (Article 1915).
5. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily (1945).
6. The responsibility of two or more officious managers shall be solidary, unless
the management was assumed to save the thing or business from imminent
danger (Article 2146, par. 2).
7. The responsibility of two or more payees, when there has been payment of
what is not due, is solidary (Article 2157).
8. The responsibility of two or more persons who are liable for quasi-delict is
solidary (Article 2194).
9. Several and subsidiary liability of principals, accomplices and accessories of a
felony.
1. Each creditor can demand only for the payment of his proportionate share of
the credit, while each of the debtor can be held liable only for the payment of
his proportionate share of the debt (Articles 1207; 1208).
2. A joint creditor cannot act in representation of the other creditors, while a
joint debtor cannot be compelled to answer for the acts or liability of the
other debtors.
3. The demand for the fulfillment made by the creditor upon one of the debtors
does not place the other debtors in default.
4. The interruption of the prescriptive period with respect to one debtor does
not affect the rights of others.
5. The defense of one debtor is not a valid defense of the others.
It is an obligation in which the object is indivisible but the tie between the parties
is joint who are merely proportionately liable.
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility (Article 1210).
STATE THE RULES IN AN INDIVISIBLE JOINT OBLIGATION.
1. The right of the creditors may be prejudiced only by their collective acts,
2. The debt can be enforced only by proceeding against all the debtors (demand
must be made on all of them),
3. If one of the latter should be insolvent, the others shall not be liable for his
share (Article 1209).
4. If there be joint creditors, delivery must be made to all, unless one is
specifically authorized by the others.
5. Each joint creditor is allowed to renounce his proportionate credit.
1. If there are two or more debtors, compliance with the obligation requires the
concurrence of all of them, although each for his own share. Consequently,
the obligation can be enforced only be proceeding against all of the debtors
(Article 1209).
2. If there are two or more creditors, the concurrence of all of them, although
each for his own share, is also necessary for the enforcement of the obligation.
This is because the obligation is joint, and therefore, a creditor cannot act in
representation of the others, and it is also indivisible, and therefore, not
susceptible of partial fulfillment.
CAN SOLIDARITY EXIST ALTHOUGH THE CREDITORS AND DEBTORS MAY NOT BE
BOUND IN THE SAME MANNER AND BY THE SAME PERIODS AND CONDITIONS?
Solidarity may exist although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions (Article 1211).
a) Each one of the solidary creditors may do whatever may be useful to the others, but
not anything which may be prejudicial to the latter (Article 1212).
b) A solidary creditor cannot assign his rights without the consent of the others (Article
1213).
The debtor may pay any one of the solidary creditors; but if any demand, judicial
or extrajudicial, has been made by one of them, payment should be made to him (Article
1214).
The creditor who may have executed any of these acts, as well as he who collects
the debt, shall be liable to the others for the share in the obligation corresponding to
them (Article 1215).
Payment made by one of the solidary debtors extinguishes the obligation. If two
or more solidary debtors offer to pay, the creditor may choose which offer to accept
(Article 1217).
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded
(Article 1217, par. 2).
STATE THE RULE IF ONE OF THE SOLIDARY DEBTORS CANNOT PAY HIS SHARE TO
THE DEBTOR WHO PAID.
When one of the solidary debtors cannot, because of his insolvency, reimburse
his share to the debtor paying the obligation, such share shall be borne by all his co-
debtors, in proportion to the debt of each (Article 1217, par. 3).
HOWEVER:
Payment by a solidary debtor shall not entitle him to reimbursement from his co-
debtors if such payment is made after the obligation has prescribed or become illegal
(Article 1218).
If the thing has been lost or if the prestation has become impossible without the fault of
the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the
creditor, for the price and the payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding
paragraph shall apply (Article 1221).
What are the defenses which are available to a solidary debtor if the creditor proceeds
against him alone for the payment of the entire obligation?
A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the debt
for which the latter are responsible (Article 1222).
SECTION 5
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
Divisible obligations are those which have as their object a prestation which is
susceptible of partial performance without the essence of the obligation being changed.
Indivisible obligations are those which have as their object a prestation which is
not susceptible of partial performance, because otherwise the essence of the obligation
will be changed.
A thing is divisible when, if separated into parts, its essence is not changed or its
value is not decreased disproportionately, because each of the parts into which it is
divided are homogeneous and analogous to each other as well as to the thing itself.
A thing is indivisible when, if separated into parts, its essence is changed or its
value is decreased disproportionately.
SOLIDARITY INDIVISIBILITY
1. Refers to the tie between the parties. 1. Refers to the nature of the obligation.
2. Needs at least two debtors or creditors. 2. May exist even if there is only one debtor and
only one creditor.
3. The fault of one is the fault of the bothers. 3. The fault if one is not the fault of the others.
If the thing which constitutes the object of an obligation to give is by its nature
divisible, the general rule is that the obligation is also divisible since it is evidently
susceptible of partial compliance.
If the thing which constitutes the object of the obligation to give is by its very
nature indivisible, the obligation is also indivisible since it is evident that it is not
susceptible of partial compliance. This rule is absolute in character.
The nature and effect of obligations are very much different from and do not
affect the divisibility or indivisibility of the things that are the object of obligations in
which there is only one debtor and only one creditor (Article 1223).
It is an obligation where the object or prestation is indivisible but the parties are
bound jointly. Example: A and B are jointly bound to give a specific car to C.
A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may
have been ready to fulfill their promises shall not contribute to the indemnity beyond
the corresponding portion of the price of the thing or of the value of the service in which
the obligation consists (Article 1224).
WHAT OBLIGATIONS ARE DEEMED INDIVISIBLE?
In case of a divisible contract, if the illegal terms can be separated from the legal
ones, the latter may be enforced (Article 1420).
SECTION 6
OBLIGATIONS WITH A PENAL CLAUSE
As a general rule, in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of noncompliance
(Article 1226, par. 1). In such a case, proof of actual damages suffered by the creditor is
not necessary in order that the penalty may be demanded (Article 1228).
There are three EXCEPTIONS to the rule that a penalty clause shall not be a
substitute for the payment of interest and damages:
In all of these cases, it is evident that the purpose of the penalty is to punish the
obligor. Consequently, the obligee can recover from him not only the penalty, but also
the damages resulting from the breach of the principal obligation.
The second is compensatory, while the third is punitive in character; the first, on
the other hand, is the general purpose regardless of whether the penalty is
compensatory or punitive.
a. AS TO ORIGIN:
B. AS TO PURPOSE:
C. AS TO EFFECT:
As a general rule, there is none. In other words, the penalty in its compensatory
aspect is exactly the same as the liquidated damages defined in Article 2226 of the Civil
Code. In both cases, proof of actual damages suffered by the creditor is unnecessary.
However, the penalty in its punitive aspect is different from liquidated damages. Thus,
when there is a stipulation that the creditor can recover damages in addition to the
penalty, or when the debtor is sued for refusal to pay the penalty, or when the debtor is
guilty of fraud, it is clear that in such cases the creditor can recover not only the agreed
penalty but also damages suffered by him.
CAN THE DEBTOR SUBSTITUTE THE PENALTY FOR THE PRINCIPAL OBLIGATION?
No. The debtor cannot exempt himself from the performance of the obligation by
paying the penalty. He can only do so if the right has been expressly reserved for him
(Article 1227).
This is so because the payment of the penalty is merely an accessory obligation. It is not
the principal obligation.
CAN THE CREDITOR DEMAND BOTH FULFILLMENT AND THE PENALTY AT THE SAME
TIME?
No. The creditor cannot demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time. He can only do so if the right has been
clearly granted him. However, if after the creditor has decided to require the fulfillment
of the obligation, the performance thereof should become impossible without his fault,
the penalty may be enforced (Article 1227).
What are the different cases under the civil Code where courts may reduce the penalty
which is attached to an obligation?
1. When the principal obligation has been partly complied with by the debtor.
2. When the principal obligation has been irregularly complied with by the
debtor.
3. When the penalty is iniquitous or unconscionable, even if there has been no
performance (Article 1229).
WHAT ARE THE RULES IN CASE THE PRINCIPAL OBLIGATION OR THE PENAL CLAUSE
IS VOID?
1. The nullity of the penal clause does not carry with it that of the principal
obligation.
2. The nullity of the principal obligation carries with it that of the penal clause
(Article 1230).
The penal clause, being merely an accessory obligation, does not invalidate the
principal obligation in the event that such penalty clause is void or without effect. Being
merely accessory to enforce the main obligation, such penal clause could never exist if
the main obligation does not exist. Hence, the nullity of the principal obligation carries
with it that of the penal clause.
1. The penalty shall substitute the indemnity for damages and the payment of
interests in case of noncompliance (Article 1226, par. 1), EXCEPT if there is no
stipulation to the contrary; when the obligor is sued for refusal to pay the
agreed penalty; and when the obligor is guilty of fraud in the fulfillment of
the obligation (Article 1226, par. 1).
2. The debtor cannot exempt himself from the performance of the obligation by paying
the penalty, save in the case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation and the satisfaction
of the penalty at the same time, unless this right has been clearly granted him.
However, if after the creditor has decided to require the fulfillment of the obligation,
the performance thereof should become impossible without his fault, the penalty may
be enforced (Article 1227).
3. Proof of actual damages suffered by the creditor is not necessary in order that
the penalty may be demanded (Article 1228).
CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
General Provisions
ORDINARILY BY:
a) Payment of performance
b) Loss of the thing due
c) Condonation or remission of the debt or waiver
d) Confusion or merger of the rights of creditor and debtor
e) Compensation
f) Novation (Article 1231)
a) Annulment
b) Rescission
c) Fulfillment of resolutory condition
d) Prescription
SECTION 1
PAYMENT OR PERFORMANCE
DEFINE PAYMENT.
IF A THIRD PERSON PAYS AN OBLIGATION, WHAT ARE THE RIGHTS WHICH ARE
AVAILABLE TO HIM?
If a third person pays the obligation with the knowledge and consent of the
debtor, there are two rights which are available to him:
a. He can recover from the debtor the entire amount which he has paid (Article
1236, par. 2);
b. He is subrogated to all of the rights of the creditor (Article 1302, No. 2).
However, if the payment is made without the knowledge or against the will of
the debtor, there is only one right which is available to him:
a. He can recover only insofar as the payment has been beneficial to the said
debtor (Article 1236, par. 2).
A debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case
may be (Article 1233).
WHAT IS THE EFFECT OF SUBSTANTIAL PERFORMANCE IN GOOD FAITH?
If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee (Article 1234).
Rescission is impliedly waived. Failure to exercise the right of rescission after the
debtor defaulted constitutes a waiver of such right. The continued acceptance of
payments after the default places the debtor in estoppel.
No, as a general rule because there is no privity of contract between the third
person and a party to a contract. This rule is, however subject to the following
exceptions:
Whoever pays on behalf of the debtor without the knowledge or against the will
of the latter, cannot compel the creditor to subrogate him in his rights, such as those
arising from a mortgage, guaranty, or penalty (Article 1237).
WHAT IS SUBROGATION?
Subrogation means the act of putting somebody into the shoes of the creditor,
hence, enabling the former to exercise all the rights and actions that could have been
exercised by the latter.
Subrogation transfers to the person subrogated the credit with all the rights
thereto appertaining, either against the debtor or against third persons, be they
guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation (Article 1303).
Payment made by a third person who does not intend to be reimbursed by the
debtor is deemed to be a donation, which requires the debtor's consent. But the payment
is in any case valid as to the creditor who has accepted it (Article 1238).
In obligations to give, payment made by one who does not have the free disposal
of the thing due and capacity to alienate it shall not be valid, without prejudice to the
provisions of article 1427 under the Title on "Natural Obligations" (Article 1239); thus:
When a minor below eighteen and twenty-one years of age, who has entered into
a contract without the consent of the parents or guardian voluntarily pays a sum of
money or delivers a fungible thing in fulfillment of the obligation, there shall be no right
to recover the same from the obligee who has spent or consumed it in good faith.
Payment made to a third person shall be valid insofar as it has redounded to the
benefit of the creditor (Article 1241, par 2).
MUST THE BENEFIT TO THE CREDITOR BE PROVEN?
Such benefit to the creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment (Article 1241).
WHAT IS THE EFFECT OF PAYMENT MADE TO THE CREDITOR BY THE DEBTOR AFTER
THE LATTER HAS BEEN JUDICIALLY ORDERED TO RETAIN THE DEBT?
Payment made to the creditor by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid (Article 1243).
The judicial order in this case may have been prompted by an order of attachment,
injunction or garnishment
The debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable than that which is due (Article 1244, par. 1).
a) When the obligation is a facultative obligation. Here, one prestation has been
agreed upon; but the obligor may render another in substitution of the same
(Article 1206).
b) When there is another contract entered into between the parties resulting in
dacion en pago or novation;
c) When there is a waiver made by the creditor as when he accepted a thing
other than what was agreed upon. This constitutes estoppel.
The extrajudicial expenses required by the payment shall be for the account of the debtor.
With regard to judicial costs, the Rules of Court shall govern.
The creditor cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial payments
(Article 1248).
EXCEPTIONS:
Legal tender, within the meaning of Article 1249, refers to such currency which
may be used for the payment of all debts, whether public or private.
It is that which a debtor may compel a creditor to accept in payment of the debt
whether private or public.
RA 529 has in turn been amended by RA 4100, which took effect on June 1964
which provides that in import-export and other international banking, financial
investment and industrial transactions, the parties’ agreement a to currency in which an
obligation will be paid is binding.
In the meantime, the action derived from the original obligation shall be held in
abeyance (Article 1249, par. 2).
A check, even a manager’s check, is not a legal tender, therefore the creditor
cannot be compelled to accept payment through this means.
Note that this article has no more application today. The article speaks of the
inflation or deflation of the currency stipulated, meaning the currency other than
Philippine legal tender as allowed by Article 1249. But since today, no foreign currency
can be stipulated under RA 529, it follows that literally construed, Article 1250 cannot be
made used of for the present. By analogy or extension, it may be possible to include the
extraordinary inflation or deflation of the Philippine currency.
WHERE MUST PAYMENT BE MADE?
RULES:
SUBSECTION 1
Application of Payments
WHAT ARE THE SPECIAL FORMS OF PAYMENT?
Application of payment is the designation of the debt to which the payment must
be applied when the debtor has several obligation of the same kind in favor of the same
creditor.
It is the phrase applied to show which debt, out of two or more debts owing the
same creditor, is being paid.
The case of a solidary debtor who may have obligations other than the solidary
obligation in favor of the creditor to whom payment is made is sometimes given as an
exception. Although there is no question that such a debtor can designate the debt to
which the payment must be applied, yet, this doe not constitute an exception because of
the principle of mutual agency existing among the solidary debtors.
A real exception is the one given in Article 1792. Under this article, if a debtor is
indebted to a partnership and also to the managing partner at the same time and both
debts are already demandable, such debtor, if he pays, may apply the payment to his
debt to the managing partner, provided that such debt is more onerous to him. Here,
actually there are two creditors since the personality of the partnership is separate and
distinct from that of the partners.
The rule on application of payment by the debtor must conform to the general
rules on payment provided for from Articles 1232 up to 1251. Thus if the debtor makes a
declaration as to the particular debt (from among a number of debts) to which his
payment is to be applied, the creditor can validly refuse such declaration or application
if the payment is to be applied to a debt which will only partially pay the particular
indebtedness. This is so because according to Article 1233, payment must, as a general
rule, be always completely delivered or rendered, and, according to Article 1248, the
creditor cannot be compelled partially to receive the prestation in which the obligation
consists. The debtor must apply the payment to an indebtedness which, through such
application, shall be completely extinguished.
If the debts are not yet due, may there be application of payment?
WHAT IS THE RULE IF THE DEBTOR ACCEPTS FROM THE CREDITOR A RECEIPT IN
WHICH AN APPLICATION OF PAYMENT IS MADE?
The law provides that if the debtor accepts from the creditor a receipt in which
an application of payment is made, the former cannot complain of the same, unless there
is a cause for invalidating the contract (Article 1252, par. 2).
It must be noted that the debtor must not only merely receive the receipt but he
must accept the receipt. Thus, if A is indebted to B for P1, 000, P2, 000 and P900, and A
pays B P500 without mentioning as to which debt the P500 will be applied and if B is
agreeable to any partial payment, and issues a receipt indicating that the P500 shall be
applied to the P1, 000 debt, and A readily accepts the said receipt, A cannot later
complain that the P500 should have been applied to the P2, 000 debt unless there exists a
cause to invalidate the contract in connection with the indebtedness in the amount of P1,
000. This is based on the doctrine of estoppel. However, if the indebtedness has been
obtained through fraud or intimidation which is a cause to annul the contract, the debtor
is not estopped from questioning the application.
No, unless both parties agree. Even if both parties agree, however, still the
revocation or change in the application will not be allowed if third persons would be
prejudiced.
If the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered (Article 1253).
This article is merely directory, and not mandatory. Although interest attaches to
the principal, the payment of both principal and interest, in effect, constitutes two
payment by the debtor. In fact according to the law, the receipt of the principal by the
creditor without reservation with respect to the interest, shall give rise to the
presumption that the interest has been paid (Article 1176).
a. The debt which is most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
b. If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately (Article 1254).
EXAMPLES:
a. Where there are various debts which are due and they were incurred at
different dates, the oldest are more onerous.
b. When one bears interest and the other does not, the former is more onerous.
c. Where one is secured and the other is not, the former is more onerous.
d. Where the debtor is bound as principal in one and as guarantor or surety in
another, the former is more onerous.
e. Where the debtor is bound as a solidary debtor in one and as the sole debtor
in another, the former is more onerous.
SUBSECTION 2
Payment by Cession
WHAT IS PAYMENT BY CESSION?
The debtor may cede or assign his property to his creditors in payment of his
debts. This cession, unless there is stipulation to the contrary, shall only release the
debtor from responsibility for the net proceeds of the thing assigned. The agreements
which, on the effect of the cession, are made between the debtor and his creditors shall
be governed by special laws.
In order that the debtor can avail himself of this form of payment, it is essential
that:
OTHER DISTINCTIONS:
SUBSECTION 3
Tender of Payment and Consignation
In order that consignation shall produce the effects of payment, it is not only
essential that it must conform with all of the requisites of payment, but it is also essential
that certain special requirements prescribed by law must be complied with. The debtor
must show:
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of
payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost (Article 1256).
Under the law, after the consignation has been made, it is required that the
debtor shall notify the creditor and all of the persons interested in the fulfillment of the
obligation of such fact (Article 1258). It is at this stage that three possible situations may
arise:
1. The creditor may accept the ting or amount deposited. In such a case, the
question of payment is settled altogether. The question as to whether the
consignation is valid or not becomes moot.
2. The creditor may refuse to accept the thing or amount deposited. In such as
case, the debtor shall then bring an action against him in order to compel him
to accept said thing or amount. In order that such action shall prosper, all of
the requisites of a valid and effective consignation must be proved.
3. The creditor may neither accept nor impugn the consignation because he is
not interested, or he is not known, or he is absent. In such a case, the debtor
shall then file a motion in court asking for the cancellation of the obligation
(Article 1260). In order that such motion shall be granted, all of the requisites
of a valid and effective consignation must be proved.
The expenses of consignation, when properly made, shall be charged against the
creditor (Article 1259).
1. Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation (Article 1260).
2. The running of interest is suspended.
Before the creditor has accepted the consignation, or before a judicial declaration
that the consignation has been properly made, the debtor may withdraw the thing or the
sum deposited, allowing the obligation to remain in force (Article 1260).
As a matter of privilege:
If, the consignation having been made, the creditor should authorize the debtor
to withdraw the same, he shall lose every preference which he may have over the thing.
The co-debtors, guarantors and sureties shall be released (Article 1261).
SECTION 2
Loss of the Thing Due
In its strict sense, “loss of the thing due” means that the thing which constitutes
the object of the obligation perishes or goes out of commerce of man, or disappears in
such a way that its existence is unknown or it cannot be recovered (Article 1189, par. 2).
The courts shall determine whether, under the circumstances, the partial loss of
the object of the obligation is so important as to extinguish the obligation (Article 1264).
1. When by law, the obligor is liable for fortuitous events, (Article 1262, par. 2).
2. When by stipulation, the obligor is liable for fortuitous events, (Article 1262,
par. 2).
3. When the nature of the obligation requires the assumption of risk (Article
1262, par. 2 & 1174).
4. When the loss of the thing is due to the fault of the debtor (Article 1262, par.1)
5. When the loss of the thing occurs after the debtor has incurred in delay
(Article 1262, par. 1 & Article 1165, par. 3).
6. When the debtor promised to deliver the same thing to two or more persons
who do not have the same interest (Article 1165, par. 3).
7. When the obligation is generic (Article 1263); except when the generic thing is
delimited, or when the generic thing has already been segregated or set
aside..
8. When the debt of a certain and determinate thing proceeds from a criminal
offense, unless the thing having been offered by him to the person who
should receive it, the latter refused without justification to accept it. (Article
1268).
Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm or
other natural calamity (Article 1265).
The debtor in obligations to do shall also be released when the prestation becomes legally
or physically impossible without the fault of the obligor (Article 1266); provided that such
impossibility was not due to his fault and that it took place before he has incurred in
delay.
In rare or exceptional cases, the same rule applies to obligations not to do, such
as when the obligor is compelled to do that which he had obligated himself to refrain
from performing or doing. In such cases, his obligation is extinguished applying the
same principle invoked in Article 1266.
WHAT IS THE RIGHT OF THE CREDITOR WHEN THE OBLIGATION HAS BEEN
EXTINGUISHED BECAUSE OF THE LOSS OF THE THING?
The obligation having been extinguished by the loss of the thing, the creditor shall have
all the rights of action which the debtor may have against third persons by reason of the loss
(Article 1269).
SECTION 3
Condonation or Remission of the Debt
In order that there will be a remission or condonation which will result in the
total or partial extinguishment of the obligation, it is essential that the following
requisites must concur:
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of donation.
(Article 1270)
2. Whenever the private document in which the debt appears is found in the
possession of the debtor, it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (Article 1272)
The renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force. (Article 1273)
SECTION 4
Confusion or Merger of Rights
DEFINE CONFUSION.
Confusion may be defined as the merger of the characters of creditor and debtor
in the same person by virtue of which the obligation is extinguished (Article 1275). It is
the meeting in the same person of the qualities of creditor and debtor with respect to one
and the same obligation.
In order that there will be a confusion of rights which will result in the
extinguishment of the obligation, it is essential that the following requisites must concur:
1. The merger of the characters of creditor and debtor must be in the same
person (Article 1275);
2. It must be placed in the person of either the principal creditor or the principal
debtor (Article 1276); and
3. It must be complete or definite.
The requisite that the merger of rights of creditor and debtor must be complete
and definite does not mean that the extinguishment of the obligation should be complete
or total in character; it merely means that whether the merger refers to the entire
obligation or only a part thereof, it must be of such a character that there will be a
complete and definite meeting of all the qualities of creditor and debtor in the obligation
or in the part or aspect thereof which is affected by the merger.
Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
obligation. (Article 1276)
Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (Article 1277)
SECTION 5
Compensation
DEFINE COMPENSATION.
1. LEGAL – when it takes effect by operation of law from the moment all of the
requisites prescribed by law are present. This is the fixed type which is
regulated by Articles 1278 and 1279.
2. VOLUNTARY – when the parties who are mutually creditors and debtors agree
to compensate their respective obligations, even though all of the requisites
for compensation may not then be present.
3. JUDICIAL – when it takes effect by judicial decree. This occurs, for instance,
where one of the parties to a suit over an obligation has a claim for damages
against the other and the former sets it off by proving his right to said
damages and the amount thereof (Article 1283).
AS TO EFFECT:
1. The requisites prescribed by law for compensation are different from those
prescribed by law for payment,
2. Compensation takes effect by operation of law, whereas payment takes effect
by act of the parties.
3. Capacity to give and acquire is not necessary in compensation, but it is
essential in payment.
4. Compensation is, as a rule, partial, whereas payment is, as a rule, complete
and indivisible.
Notwithstanding the provisions of the preceding article, the guarantor may set
up compensation as regards what the creditor may owe the principal debtor (Article
1280). This is an exception to Article 1279, par. 1, because a guarantor is subsidiarily
liable, nor principally bound.
When the parties may agree upon the compensation of debts which are not yet due
(Article 1282). Here the requisites mentioned in Article 1279 do not apply.
If one of the parties to a suit over an obligation has a claim for damages against the other,
the former may set it off by proving his right to said damages and the amount thereof. (Article
1283)
Pleading and proof of the counter-claim must be made. All the requisites
mentioned in Article 1279 must be present except that at the time of pleading, the claim
need not yet be liquidated. The liquidation (or fixing of the proper sum) must be made
in the proceedings.
When one or both debts are rescissible or voidable, they may be compensated against
each other before they are judicially rescinded or avoided (Article 1284). This is so because these
debts are valid until rescinded or voided, hence compensation is allowed.
1. The debtor who has consented to the assignment of rights made by a creditor
in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the
assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
2. If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to
the cession, but not of subsequent ones.
3. If the assignment is made without the knowledge of the debtor, he may set
up the compensation of all credits prior to the same and also later ones until
he had knowledge of the assignment. (Article 1285)
Compensation takes place by operation of law, even though the debts may be payable at
different places, but there shall be an indemnity for expenses of exchange or transportation to the
place of payment. (Article 1286)
This takes place when all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation. (Article 1290)
If a person should have against him several debts which are susceptible of compensation,
the rules on the application of payments shall apply to the order of the compensation. (Article
1289)
SECTION 6
Novation
DEFINE NOVATION.
It is one of the modes of extinguishing obligations through the creation of a new one
effected by the change or substitution of an obligatory relation by another with the
intention of substantially extinguishing or modifying the same.
In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other. (Article 1292)
The test of incompatibility between the old and the new obligations is to
determine whether or not both of them can stand together, each having its own
independent existence. If they can stand together, there is no incompatibility;
consequently, there is no novation. If they cannot stand together, there is
incompatibility; consequently, there is novation (Borja vs. Mariano, 66 Phil. 93; Guerrero
vs. Court of Appeals, 29 SCRA 791; Millar vs. Court of appeals, 38 SCRA 642).
There is no novation. It is clear that the first contract and the second contract can
stand together; and consequently, there can be no incompatibility between them (Ramos
vs. Gibbon, 67 Phil. 371; Padilla vs. Levy Hermanos, Inc., 69 Phil. 681; Pablo vs. Sapungan, 71
Phil. 145; Magdalena Estate, Inc. vs. Rodriguez, 18 SCRA 967; Millar vs. Court of Appeals,
supra).
There is no novation. It is clear that the two contracts can stand together; and
consequently, there can be no incompatibility between them (Zapanta vs. De Rotaeche, 21
Phil. 154; Bank of the P.I. vs. Herridge, 47 Phil. 57; Millar vs. Court of Appeals, supra).
SUPPOSE THAT IN A SECOND AND NEW CONTRACT, A SURETY BOND IS FILED, OR A
THIRD PERSON ASSUMES PAYMENT OF THE OBLIGATION AND THE CREDITOR ACCEPTS
PARTIAL PAYMENTS FORM SUCH THIRD PERSON, IS THERE A NOVATION?
There is no novation so long as there is no agreement that the first debtor shall be
released from responsibility. This is so even when a surety bond is filed, for the simple
reason that such bond is not a new and separate contract but merely an accessory of the
original contract. In such a case, the third person who has assumed payment of the
obligation merely becomes a co-debtor or surety. If there is no agreement as to
solidarity, the first and second debtors are considered obligated jointly (Dungo vs.
Lopena, 6 SCRA 1007; Magdalena Estate, Inc. vs. Rodriguez, supra).
REQUISITES OF EXPROMISION:
a. The initiative for the substitution must emanate from the new debtor; and
b. There must be consent of the creditor to the substitution.
REQUISITES OF DELEGACION:
a) The initiative for the substitution must emanate from the old debtor;
b) Consent of the debtor; and
c) Acceptance by the creditor.
a) If the substitution was effected with the knowledge and consent of the
original debtor; and consequently, payment is made by the new debtor with
or without the knowledge and consent of the original debtor, the new debtor
cannot demand reimbursement form the original debtor the entire amount
which he has paid and, at the same time, be subrogated to all the rights of the
creditor (Article 1236, 1237, 1302, 1303)
b) If the substitution was effected without the knowledge and consent of the
original debtor, and consequently, payment is made by the new debtor again
without the knowledge and consent of the original debtor; the new debtor
can demand reimbursement from the original debtor only insofar as the
payment has been beneficial to such debtor; but he cannot be subrogated to
the rights of the creditor. However, if payment is made with the knowledge
and consent of the original debtor, although the substitution had been
effected without his knowledge and consent, the new debtor can still demand
reimbursement from the original debtor of the entire amount which he has
paid and, at the same time, be subrogated to all the rights of the creditor
(Articles 1236, 1237, 1302, 1303).
According to Article 1293, payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. Consequently, since the substitution was effected
with the consent of all the parties, the new debtor (delegado) can demand reimbursement
from the original debtor (delegante) of the entire amount which he has paid (Article 1236)
as well as compel the creditor (delegatorio) to subrogate him in all of his rights (Articles
1302 and 1303).
According to Article 1294, if the substitution was effected without the knowledge
or against the will of the original debtor, the new debtor’s insolvency or non-fulfillment
of the obligation shall not revive the original debtor’s liability to the creditor. Thus, if the
substitution was effected with the knowledge and consent of the original debtor, the
new debtor’s insolvency or non-fulfillment of the obligation shall revive the original
debtor’s liability to the creditor.
a) When the insolvency of the new debtor (delegado) was already existing and of
public knowledge at the time when the original debtor (delegante) delegated
his debt;
b) When such insolvency was already existing and known to the original debtor
(delegante) when he delegated his debt.
The purpose of the two exceptions is to prevent the commission of fraud. With
regard to the first exception, the condition of the insolvency of the delegado was of public
knowledge and should exist at the time the delegation was made, because if it were
otherwise, the delegante cannot then be held responsible since he himself was not aware
of it.
WHAT IS THE EFFECT OF NOVATION IF (1) THE NEW OBLIGATION IS VOID OR (2) IF
THE OLD OBLIGATION WAS VOID, OR (3) IF THE ORIGINAL OBLIGATION WAS
CONDITIONAL?
a) If the new obligation is void, the original one shall subsist, unless the parties
intended that the former relation should be extinguished in any may be
agreed upon. (Article 1297)
b) The novation is void if the original obligation was void, except when
annulment may be claimed only by the debtor, or when ratification
validates acts which are voidable. (Article 1298)
c) If the original obligation was subject to a suspensive or resolutory condition,
the new obligation shall be under the same condition, unless it is otherwise
stipulated. (Article 1299)
DEFINE SUBROGATION.
Subrogation (extinctive and subjective novation by change of the creditor) is the
transfer to a third person of all the rights appertaining to the creditor, including the right
to proceed against guarantors, or possessors of mortgages, subject to any legal provision
or any modification that may be agreed upon.
WHAT ARE THE DIFFERENT EXCEPTIONS TO THE RULE THAT LEGAL SUBROGATION
CANNOT BE PRESUMED?
a) When a creditor pays another creditor who is preferred even without the
debtor’s knowledge;
b) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor; and
c) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter’s share (Article 1302)
If the subrogation is partial, the same rule is applicable, but the creditor to whom
partial payment has been made may exercise his right for the remainder. In other words,
both the right of the subrogee and the right of the creditor shall co-exist. In case of
conflict between the 2, however, the right of the latter shall be preferred (Article 1304).
TITLE II
Contracts
CHAPTER 1
General Provisions
Define contracts.
Contract is the cause, whereas obligation is the effect. There are five sources of
obligations, one of which is contract. Consequently, there can be an obligation without a
contract, but there can be no contract without a resultant obligation.
b. NATURAL - The natural elements are those which are derived from the nature
of the contract and ordinarily accompany the same. They are presumed by
law, although they can be excluded by the contracting parties if they so
desire. Thus, warranty against eviction is implied in a contract of sale,
although the contracting parties may increase, diminish or even suppress it.
c. ACCIDENTAL – The accidental elements are those which exist only when the
parties expressly provided for them for the purpose of limiting or modifying
the normal effects of the contract. They are called accidental because they
may be present or absent, depending upon whether or not the parties have
agreed upon them. Examples of these are conditions, terms and modes.
a) Personal
b) Impersonal
WHAT ARE THE LIMITATIONS UPON THE RIGHT OF THE CONTRACTING PARTIES TO
ESTABLISH SUCH STIPULATIONS, CLAUSES, TERMS, AND CONDITIOS AS THEY MAY DEEM
CONVENIENT?
The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy (Article 1306).
It is a rule that only laws existing at the time of the execution of a contract are
applicable thereto and that later statutes do not govern contracts unless the latter is
specifically intended to have a retroactive effect. A later law which enlarges, abridges or
in any manner changes the intent of the parties to the contract necessarily impairs the
contract itself and cannot be given retroactive effect without violating the constitutional
prohibition against impairment of contracts. However, non-impairment of contracts or
vested rights clauses will have to yield to the superior and legitimate exercise by the
State of police power.
WHAT ARE THE KINDS OF INNOMINATE CONTRACTS AND HOW ARE THEY
REGULATED?
The mutuality of contracts refers to the position of essential equality which must
be occupied by both of the contracting parties in relation of the contract.
The contract must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them (Article 1308).
The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances (Article 1310).
Relativity of contracts refers to the principle of the civil law that a contract can
only bind the parties who had entered into it or their successors who have assumed their
personality or their judicial position, and that, as a consequence, such contract can
neither favor or prejudice a third person, in conformity with the axiom res inter alios acta
aliis nocet prodest (the act, declaration, or omission of another, cannot affect another,
except as otherwise provided by law or agreement) [Vide Section 25, Rule 130, Rules of
Evidence]. Thus Article 1311 declares that “contracts take effect only between the
parties, their assigns and heirs.”
WHAT ARE THE EXCEPTIONS TO THE PRINCIPLE OF RELATIVITY (WHERE A
CONTRACT MAY EITHER FAVOR OR PREJUDICE A THIRD PERSON)?
a) Where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. The
heir is not liable beyond the value of the property he received from the
decedent (Article 1311).
b) Stipulation Pour Autrui – where a contract contains a beneficial stipulation in
favor of a third person provided he communicated his acceptance to the
obligor before its revocation. (Article 1311, par. 2).
c) In contracts creating real rights where third persons come into possession of
the object of the contract, subject to the provisions of the Mortgage Law and
the Land Registration Laws (Article 1312).
d) Where the contract is entered into in order to defraud a third person, in
which case, creditors are protected in cases of contracts intended to defraud
them (Article 1313).
e) Where the third person induces a contracting party to violate his contract.
The third person who induces another to violate his contract shall be liable
for damages to the other contracting party (Article 1314). This is called TORT
INTERFERENCE.
f) Where, in some cases, third persons may be adversely affected by a contract
where they did not participate (Articles 2150, 2151).
g) Where the law authorizes the creditor to sue on a contract entered into by his debtor
(Accion Directa).
It is not, however necessary that such third person be always named in the
contract.
What are the requisites for tort interference?
Distinguish:
Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law (Article 1315).
MAY A PERSON CONTRACT IN THE NAME OF ANOTHER? WHAT ARE THE EFFECTS?
1. He has been
authorized or
2. Unless he has by
law a right to
represent him, or
3. Unless it is
ratified, expressly
or impliedly, by
the person on
whose behalf it
has been
executed, before it
is revoked by the
other contracting
party (Article
1317).
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be unenforceable (Article
1317, par 2.).
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
General Provisions
When the law uses the word “concur”, it means that all the three (3) requisites
must be present. The absence of one requisite negates the existence of a contract.
SECTION 1
Consent
As applied to contracts, consent signifies the concurrence of the wills of the contracting
parties with respect to the object and the cause which shall constitute the contract.
It is the concurrence of the will of the offerer and the acceptor as to the thing and
the cause which constitute a contract. An offer is a manifestation of a willingness to enter
into a bargain so made as to justify another person in understanding that his assent to
that bargain is invited and will conclude it.
It is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract (Article 1319).
The first is expressly stated in the Code; the second and third are implied.
“X SENT A LETTER TO Y AND OFFERED HIS HOUSE AND LOT FOR SALE. TWO DAYS
AFTER RECEIPT, Y SENT X A LETTER ACCEPTING THE OFFER, BUT WHEN THE LETTER OF
ACCEPTANCE REACHED X’S RESIDENCE, HE WAS ALREADY DEAD. WAS THERE A MEETING
OF THE MINDS?”
None. Acceptance made by a letter does not bind the offerer except from the time
it came to his knowledge (Article 1319). Since X was already dead when the letter of
acceptance reached his residence, he could not have known the said acceptance.
“SUPPOSE THE ACCEPTANCE WAS COMMUNICATED TO THE AGENT OF X WHO WAS ALIVE
AT THE TIME HIS AGENT CAME TO KNOW OF SUCH ACCEPTANCE, IS THERE A BINDING
CONTRACT?”
Yes, because the act of the agent or knowledge acquired by the agent duly
authorized is also the act of the principal, provided tat he acted within the scope of his
authority.
None, because an offer must be clear and definite while an acceptance must be
unconditional in order that their concurrence can give rise to a perfected contract. If
there are conditions imposed, there is no meeting of the minds, as the same is a mere
counter-offer.
The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with (Article 1321).
An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed (Article 1323)
The phrase “before acceptance is conveyed” means before acceptance has come
to the actual knowledge of the offeror.
WHAT IS THE NATURE AND CONCEPT OF A CONTRACT OF ADHESION?
A contract of adhesion is one where its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion thereto. Such
contracts are not void in themselves. They are binding as ordinary contracts. However,
contracts of adhesion are construed against the party preparing such contracts.
WHAT IS AN OPTION?
It is a contract granting a person the privilege to buy or not to buy certain objects
at anytime within the agreed period at a fixed price. The contract of option is a separate
and distinct contract from the contract which the parties may enter into upon the
consummation of the contract. Therefore, an option must have its own cause or
consideration, a cause distinct from the selling price itself.
a) Unemancipated minors;
b) Insane or demented persons, and deaf-mutes who do not know how to write
(Article 1327) ;
c) Deaf-mutes who do not know how to write;
d) Married women of age in cases specified by law;
e) Persons suffering from civil interdiction; and
f) Incompetents under guardianship (Rules 93-94, Rules of Court).
The incapacity declared in article 1327 is subject to the modifications determined by law,
and is understood to be without prejudice to special disqualifications established in the laws
(Article 1329).
Under the Family Code, emancipation takes place by the attainment of the age of
majority and, unless otherwise provided, majority commences at the age of eighteen
years.
WHAT ARE THE EXCEPTIONS TO THE RULE THAT A CONTRACT ENTERED INTO BY
AN UNEMANCIAPTED MINOR WITHOUT THE CONSENT OF HIS PARENTS OR GUARDIAN IS
VOIDABLE?
a) Where the contract is entered into by a minor who misrepresents his age,
applying the doctrine of estoppel;
b) Where the contract involves the sale and delivery of necessaries to the minor
(Article 1489, par. 2);
c) Where it involves a natural obligation and such obligation is voluntarily
fulfilled by the minor (Articles 1426 and 1427);
Contracts entered into during a lucid interval are valid. Contracts agreed to in a
state of drunkenness or during a hypnotic spell are voidable (Article 1328).
Lucid interval is that period of time when an insane person acts with reasonable
understanding, comprehension and discernment with respect to what he is doing.
WHAT ARE THE REQUISITES IN ORDER THAT MISTAKE MAY INVALIDATE CONSENT?
There is mistake of fact when one or both of the contracting parties believe that a
fact exists when in reality it does not, or that such fact does not exist when in reality it
does. On the other hand, there is a mistake of law when one or both of the contracting
parties arrive at an erroneous conclusion regarding the interpretation of a question of
law or the legal effects of a certain act or transaction.
As a general rule, it is only a mistake of fact which will vitiate consent, thus
rendering the contract voidable; a mistake of law, on the other hand, does not render the
contract voidable because of the well-known principle that ignorance of the law does not
excuse anyone from compliance therewith.
a) MISTAKE AS TO THE OBJECT OF THE CONTRACT (Error in re) – This may refer to:
B) MISTAKE AS TO PERSON:
When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former (Article 1332).
There is no mistake if the party alleging it knew the doubt, contingency or risk
affecting the object of the contract (Article 1333). It does not therefore vitiate consent.
IS THERE ANY EXCEPTION TO THE RULE THAT A MISTAKE OF LAW CANNOT VITIATE
CONSENT RENDERING THE CONTRACT VOIDABLE?
Mistake of law as a rule will not vitiate consent? There is however an exception
to this rule. According to Article 1334, mutual error as to the legal effect of an agreement
when the real purpose of the parties is frustrated, may vitiate consent.
a) The mistake or error must be with respect to the legal effect of an agreement;
b) The mistake or error must be mutual; and
c) The real purpose of the parties must be frustrated.
A threat to enforce one's claim through competent authority, if the claim is just or
legal, does not vitiate consent (Article 1335).
a) The force employed to wrest consent must be serious and irresistible; and
b) It must be the determining cause for the party upon whom it is employed in
entering into the contract.
Violence or intimidation shall annul the obligation, although it may have been
employed by a third person who did not take part in the contract (Article 1336).
WHAT IS MEANT BY UNDUE INFLUENCE?
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice.
a. the confidential, family, spiritual and other relations between the parties, or
b. the fact that the person alleged to have been unduly influenced was suffering
from mental weakness, or was ignorant or in financial distress (Article 1337).
a) Improper advantage
b) Power of the will of another
c) Deprivation of the latter’s will of a reasonable freedom of choice
WHAT ARE THE REQUISITES OF FRAUD [DOLO CAUSANTE] WHICH WILL RENDER A
CONTRACT VOIDABLE?
a) The first refers to a fraud which is serious in character, whereas the second is
not serious;
b) The first is the cause which induces the party upon whom it is employed in
entering into the contract, whereas the second is not the cause;
c) The effect of the first is to render the contract voidable, whereas the effect of
the second is to render the party who employed it liable for damages.
Failure to disclose facts, when there is a duty to reveal them, as when the parties
are bound by confidential relations, constitutes fraud (Article 1339).
The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent (Article 1340).
A mere expression of an opinion does not signify fraud, unless made by an expert and the
other party has relied on the former's special knowledge (Article 1341).
Misrepresentation made in good faith is not fraudulent but may constitute error (Article
1343).
This refers to causal fraud. If the fraud is merely incidental fraud, it only obliges
the person employing it to pay damages.
SECTION 2
Object of Contracts
The object of a contract may be defined as the thing, right or service which is the
subject matter of the obligation which is created or established.
As a general rule, all things, rights or services may be the object of contracts. It is
however, essential that the following requisites must concur:
a) The object should be within the commerce of men; in other words, it should
be susceptible of appropriation and transmissible from one person to
another;
b) The object should be real and possible; in other words, it should exist at the
moment of the celebration of the contract, or at least, it can exist subsequently
or in the future;
c) The object should be licit; in other words, it should not be contrary to law,
morals, good customs, public order or public policy;
d) The object must be transmissible;
e) The object should be determinate, or at least, possible of determination, as to
its kind. The fact that the quantity is not determinate shall not be an obstacle
to the existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties (Article 1349).
a) Things which are outside the commerce of men, including future things;
b) Rights which are intransmissible;
c) Future inheritance except in cases expressly authorized by law;
d) Services which are contrary to law, morals, good customs, public order or
public policy (Article 1347);
e) Impossible things or services (Article 1348);
f) Objects which are not determinate as to their kind (Article 1349).
If the parties enter into a contract with respect to the above contracts, the contract
is void or inexistent.
SECTION 3
Cause of Contracts
In general, cause is the why of the contract or the essential reason which moves
the contracting parties to enter into the contract. In other words, it is the immediate,
direct or proximate reason which explains and justifies the creation of an obligation
through the will of the contracting parties.
In particular:
a) In onerous contracts the cause is understood to be, for each contracting party,
the prestation or promise of a thing or service by the other;
b) In remuneratory ones, the service or benefit which is remunerated; and
c) In contracts of pure beneficence, the mere liberality of the benefactor (Article
1350).
In this jurisdiction, cause and consideration are used interchangeably. After all,
causa is merely the civil law term, while consideration is the common law term.
However, causa in civil law jurisdictions is broader in scope than consideration in Anglo-
American jurisdictions. Many agreements which cannot be supported in Anglo-
American law for want of consideration can be enforced under the broader doctrine of
causa.
In onerous contracts, however, there is a tendency to confuse one with the other.
Nevertheless, it is clear that the cause, for each contracting party, is the prestation or
promise of a thing or service by the other, while the object of the contract, on the other
hand, is the thing or service itself.
Thus, in a contract of sale, the cause as far as the vendor is concerned is the
acquisition of the purchase price, and as far as the vendee is concerned, it is the
acquisition of the thing, or stated in a different way, the cause of the obligation of the
vendor is the obligation of the vendee and the cause of the obligation of the vendee is
the obligation of the vendor, while the object of the contract, on the other hand, is the
thing which is sold and the price which is paid [Castan’s and Manresa’s view].
The particular motives of the parties in entering into a contract are different from the
cause thereof (Article 1351).
a) Whereas the cause is the direct or most proximate reason of the contract, the
motives are the indirect or remote reasons;
b) Whereas the cause is the objective or juridical reason of a contract, the
motives are the psychological or purely personal reasons;
c) Whereas the cause is always the same, the motives may differ for each
contracting party.
d) The motive may be unknown to the other, the cause is always known.
e) The presence of motive cannot cure absence of cause.
IS THERE ANY EXCEPTION TO THE RULE THAT THE PARTICULAR MOTIVES OF THE
PARTIES IN ENTERING INTO A CONTRACT ARE DIFFERENT FROM THE CAUSE THEREOF?
There is an exception to the rule and that is when the contract is conditioned
upon the attainment of the motive of either contracting parties. In other words, the
motive may be regarded as causa when it predetermines the purpose of the contract.
In order that there will be a sufficient cause upon which a contract may be
founded, it is essential that the following requisites must concur:
Although the cause is not stated in the contract, it is presumed that it exists and
is lawful, unless the debtor proves the contrary (Article 1354).
WHAT IS LESION?
a) When together with lesion, there is fraud, mistake or undue influence (Article
1355).
b) In cases expressly provided for by law (Articles 1381 and 1098)
CHAPTER 3
FORM OF CONTRACTS
Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present (Article 1356).
We have therefore retained the “spiritual system” of the Spanish Civil Code by
virtue of which the law looks more at the spirit rather than at the form of contracts.
Hence, under our legal system, the form in which a contract is executed has no effect, as
a general rule, upon its obligatory force, provided all of the essential requisites for its
validity are present.
When Article 1356 speaks of contracts as being obligatory regardless of the form
in which they may have been entered into, it does not include those contracts for which
the law prescribes form either for validity or for enforceability. There are therefore
exceptions to the general rule:
1. When the law requires that a contract be in some form in order that it may be
valid or enforceable, or
2. That a contract be proved in certain way.
In such instances, the requirement is absolute and indispensable and the right of
the parties stated in the following article cannot be exercised (Article 1356).
Article 1358 enumerates certain kinds of contracts which must appear either in a
public instrument or in a private document. The purpose of the requirement, however,
is not to validate or to enforce the contract, but to insure its efficacy; in other words, the
form required is neither for validity or enforceability but for CONVENIENCE of the
contracting parties. Hence, the forms required by law for the execution of certain
contracts may be divided into:
If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action upon the contract (Article 1357).
This article is applicable only when form is needed only for CONVENIENCE, not
for validity or enforceability. In other words, before the contracting parties may be
compelled to execute the needed form, it is essential that the contract be PERFECTED
(valid) (Article 1357) and ENFORCEABLE under the Statute of Frauds (Article 1356).
The right to compel under Article 1357 cannot be exercised if the law requires
that a contract be in some form in order that it may be VALID and ENFORCEABLE, because
Article 1356 provides that that requirement is ABSOLUTE and INDISPENSABLE.
WHAT ARE THE FORMALITIES WHICH ARE MERELY FOR THE CONVENIENCE OF THE
CONTRACTING PARTIES?
(1) Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the
conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its object an
act appearing or which should appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act appearing in a public
document (Article 1358).
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in action are
governed by articles 1403, No. 2 and 1405 (Article 1358).
Note that the necessity for the public document in the contracts enumerated
above is only for CONVENIECE, not for VALIDITY or ENFORCEABILITY. Formal requirements
are for the benefit or third parties. Noncompliance therewith does not adversely affect
the validity of the contract or the contractual rights and obligations of the parties
thereunder (Fule vs. CA, G.R. No. 112212, March 2, 1998)
What are the formalities which are necessary for the validity of contracts?
CHAPTER 4
Reformation of Instruments (n)
When the true intention is not expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct or accident, one of the parties may
ask for the reformation of the instrument to the end that such true intention may be expressed
(Article 1359).
1. Whereas the first presupposes a perfectly valid contract in which there has
already been a meeting of the minds of the contracting parties, the second is
based on a defective contract in which there has been no meeting of the
minds because the consent of one of the contracting parties has been vitiated.
2. Reformation does not invalidate a contract; annulment invalidates a contract.
WHAT IS THE RULE IN CASE OF CONFLICT BETWEEN THE CIVIL CODE AND THE
PRINCIPLES OF GENERAL LAW ON REFORMATION?
The principles of the general law on the reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions of this Code (Article 1360).
1. When a mutual mistake of the parties causes the failure of the instrument to
disclose their real agreement, said instrument may be reformed (Article 1361).
2. If one party was mistaken and the other acted fraudulently or inequitably in
such a way that the instrument does not show their true intention, the former
may ask for the reformation of the instrument (Article 1362).
3. When one party was mistaken and the other knew or believed that the instrument did
not state their real agreement, but concealed that fact from the former, the instrument
may be reformed (Article 1363).
4. When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not
express the true intention of the parties, the courts may order that the instrument be
reformed (Article 1364).
5. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold absolutely or
with a right of repurchase, reformation of the instrument is proper (Article
1365).
WHAT INSTRUMENTS CANNOT BE REFORMED?
When one of the parties has brought an action to enforce the instrument, he
cannot subsequently ask for its reformation (Article 1367).
WHO ARE THE PERSONS WHO MAY ASK FOR REFORMATION OF INSTRUMENT?
CHAPTER 5
Interpretation of Contracts
RULES:
1. If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control. If
the words appear to be contrary to the evident intention of the parties, the
latter shall prevail over the former (Article 1370).
2. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered (Article
1371).
3. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon
which the parties intended to agree (Article 1372).
4. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual
(Article 1373).
5. The various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of them
taken jointly (Article 1374).
6. Words which may have different significations shall be understood in that
which is most in keeping with the nature and object of the contract (Article
1375).
7. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are
ordinarily established (Article 1376).
8. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity (Article 1377).
9. When it is absolutely impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail.
If the contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests. If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and void (Article
1378).
10. The principles of interpretation stated in Rule 123 of the Rules of Court shall
likewise be observed in the construction of contracts (Article 1379).
DEFECTIVE CONTRACTS
The contracts provided above are in the decreasing order as to their effectiveness.
CHAPTER 6
Rescissible Contracts
DEFINE RESCISSION.
(1) Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission. (Article
1381)
(6) Payments made in a state of insolvency for obligations to whose fulfillment the
debtor could not be compelled at the time they were effected, are also rescissible.
(Article 1382)
WHAT REQUISITES MUST CONCUR BEFORE A CONTRACT MAY BE RESCINDED ON
THE GROUND OF LESION?
Before a contract can be rescinded on the ground that it has been entered into in
fraud of creditors, it is indispensable that the following requisites must concur:
WHO ARE THE PERSONS WHO MAY INSTITUTE AN ACTION FOR THE RESCISSION OF
A RESCISSIBLE CONTRACT?
Such fraud or the intent to defraud may be either presumed in accordance with
Article 1387 or duly proved in accordance with the ordinary rules of evidence.
The law presumes that there is fraud of creditors in the following cases:
Rescission shall be only to the extent necessary to cover the damages caused. (Article
1384)
Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be
obliged to restore. (Article 1385)
WHAT IS THE LIABLITY OF ONE WHO ACQUIRES IN BAD FAITH THE THINGS
ALIENATED IN FRAUD OF CREDITORS?
Whoever acquires in bad faith the things alienated in fraud of creditors, shall
indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so
on successively. (Article 1388)
For persons under guardianship and for absentees, the period of four years shall
not begin until the termination of the former's incapacity, or until the domicile of the
latter is known. (Article 1389)
CHAPTER 7
Voidable Contracts
Voidable contracts are those in which all of the essential elements for validity are
present, but the element of consent is vitiated either by lack of legal capacity of one of
the contracting parties, or by mistake, violence, intimidation, undue influence, or fraud.
Voidable and rescissible contracts may be distinguished from each other in the
following ways:
The following contracts are voidable or annullable, even though there may have
been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. (Article 1390)
The action for annulment shall be brought within four years. (Article 1391)
a. In cases of intimidation, violence or undue influence, from the time the defect
of the consent ceases.
b. In case of mistake or fraud, from the time of the discovery of the same.
c. And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.
There is an express ratification if, with knowledge of the reason which renders
the contract voidable and such reason having ceased, the person who has a right to
invoke it should expressly declare his renunciation of his right to annul the contract.
On the other hand, there is a tacit ratification if, with knowledge of the reason
which renders the contract voidable and such reason having ceased, the person who has
a right to invoke it should execute an act which necessarily implies an intention to waive
his right. (Article 1393)
Ratification does not require the conformity of the contracting party who has no
right to bring the action for annulment. (Article 1395)
a. Ratification cleanses the contract from all its defects from the moment it was
constituted. (Article 1396) There is retroactive effect of ratification, thus,
once ratification has taken place, annulment based on the original defects
cannot prosper.
b. The action to annul is extinguished (Article 1392), thus the contract becomes
a completely valid one.
The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted; nor can those who exerted
intimidation, violence, or undue influence, or employed fraud, or caused mistake base
their action upon these flaws of the contract. (Article 1397)
There are therefore 2 different requisites in order that a person may institute the
action for the annulment of a voidable contract:
a. If the contract has not yet been complied with, the parties are
excused from their obligation.
b. If the contract has already been performed, the contracting
parties shall restore to each other the things which have been
the subject matter of the contract, with their fruits, and the
price with its interest, except in cases provided by law.
c. In obligations to render service, the value thereof shall be the
basis for damages. (Article 1398)
When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited
by the thing or price received by him. (1399)
Whenever the person obliged by the decree of annulment to return the thing can
not do so because it has been lost through his fault, he shall return the fruits received
and the value of the thing at the time of the loss, with interest from the same date.
(Article 1400)
WHAT IS THE EFFECT ON THE RIGHT TO ANNUL IF THE THING WHICH IS THE
OBJECT OF THE CONTRACT IS LOST?
The action for annulment of contracts shall be extinguished when the thing
which is the object thereof is lost through the fraud or fault of the person who has a right
to institute the proceedings.
If the right of action is based upon the incapacity of any one of the contracting
parties, the loss of the thing shall not be an obstacle to the success of the action, unless
said loss took place through the fraud or fault of the plaintiff. (Article 1401)
As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him. (Article 1402)
CHAPTER 8
Unenforceable Contracts (n)
(1) Those entered into in the name of another person by one who has been given no
authority or legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number.
In the following cases an agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the
making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein;
(f) A representation as to the credit of a third person.
a. by the failure to object to the presentation of oral evidence to prove the same,
or
b. by the acceptance of benefits under them (Article 1405).
Under the new Civil Code, all three terms are now uniformly called
RATIFICATION.
When a contract is enforceable under the Statute of Frauds, and a public document is
necessary for its registration in the Registry of Deeds, the parties may avail themselves of the
right under Article 1357 (Article 1406).
WHAT IS THE EFFECT IF BOTH PARTIES ARE INCAPACITATED, AND THE GUARDIAN
OF ONE OF THEM RATIFIES THE CONTRACT?
In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall
give the contract the same effect as if only one of them were incapacitated (Article 1407).
If ratification is made by the parents or guardians, as the case may be, of both
contracting parties, the contract shall be validated from the inception (Article 1407, par.
2).
CHAPTER 9
Void or Inexistent Contracts
In general, void and inexistent contracts may be defined as those which lack
absolutely either in fact or in law one or some or all of those elements which are essential
for its validity.
In particular, void contracts are contracts where all of the requisites prescribed
by law for contracts are present, but the cause, object or purpose is contrary to law,
morals, good customs, public order or public policy, or they are prohibited by law, or
they are decalred by law to be void.
Inexistent contracts, on the other hand, are those contracts which lack absolutely one or
some or all of thoser requisites which are essential for validity.
Void and inexistent contracts may be distinguished from each other in the
following ways :
a) Void contracts refer to those where all of the the requisites of a contract are
present but the cause, object or purpose is contrary to law, morals, good
customs, public order or public policy, or the contract itself is prohibited or
declared by law to be void ; inexistent contracts, on the other hand, refer to
those where one or some or all of those requisites which are essential for
validity are absolutely lacking (Liguez vs. Court of Appeals, 102 Phil. 577).
b) The principle of in paru delicto is applicable in the first, but not in the second.
Consequently, the first may produce effects (Articles 1411, 1412), but the
second does not produce any effect whatsoever.
a. The right to set up the defense of illegality cannot be waived (Article 1409),
and may be considered on appeal even if not raised in the trial court.
b. The action or defense for their declaration as inexistent does not prescribe
(Article 1410)
c. The defense of illegality of contracts is not available to third persos whose
interests are not directly affected (Article 1412)
d. Cannot give rise to a contract ; thus ‘a contract which is the direct result of a
previous illegal contract is also void and inexistent (Article 1422)
e. Generally produces no effect.
f. They cannot be ratified (Article 1409).
The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law. (Article 1409)
These contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived.
a. Those which are direct results of previous illegal contract (Article 1422);
b. Those where there is no concurrence between offer and acceptance with
regard to the object and the cause of the contract; and
c. Those which do not comply with the required form where such form is
essential for validity.
When the defect of a void contract consists in the illegality of the cause or object
of the contract, and both parties are at fault or in pari delicto, the law refuses them every
remedy and leaves them where they are. This rule, which is embodied in Articles 1411
and 1412, is what is commonly known as the principle of in pari delicto. It is a rule which
is expressed in the maxims: “Ex dolo malo non oritur action” and “In pari delicto potior est
condition defendentis”. The law will not aid either party to an illegal agreement; it leaves
then where they are.
When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties being in pari delicto:
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with his
promise. (Article 1411)
a. Payment of usurious interest. In such a case, the law allows the debtor to
recover the interest paid in excess of that allowed by the usury laws, with
interest thereon from the date of payment (Article 1413).
b. Payment of money or delivery of property for an illegal purpose, where the
party who paid or delivered repudiates the contract before the purpose has
been accomplished, or before any damage has been caused to a third person.
In such a case, the courts may allow such party to recover what he ahs paid
or delivered, if the public interest will thus be subserved (Article 1414).
c. Payment of money or delivery of property by an incapacitated person. In
such a care, the courts may allow such person to recover what he ahs paid or
delivered, if the interest of justice so demands (Article 1415).
d. Agreement or contract which is not illegal per se but is merely prohibited by
law, and the prohibition is designed to the protection of the plaintiff. In such
a case, such plaintiff, if public policy is thereby enhanced, may recover what
he has paid or delivered (Article 1416).
e. Payment of any amount in excess of the maximum price of any article or
commodity fixed by law. In such a case, the buyer may recover the excess
(Article 1417).
f. Contract whereby a laborer undertakes to work longer than the maximum
number of hours fixed by law. In such a case, the laborer may demand for
overtime pay (Article 1418).
g. Contract whereby a laborer accepts a wage lower than the minimum wage
fixed by law. In such case, the laborer may demand for the deficiency (Article
1419).
WHAT IS THE RULE IF THE ACT IN WHICH THE UNLAWFUL OR FORBIDDEN CAUSE
CONSISTS DOES NOT CONSTITUTE A CRIMINAL OFFENSE?
If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the other's
undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been promised
him. The other, who is not at fault, may demand the return of what he has given without
any obligation to comply his promise. (Article 1412)
WHAT IS THE RULE IF THE CONTRACT IS DIVISIBLE AND THE ILLEGAL TERMS CAN
BE SEPARATED FROM THE LEGAL ONES?
In case of a divisible contract, if the illegal terms can be separated from the legal ones,
the latter may be enforced (Article 1420).
The defense of illegality of contract is not available to third persons whose interests are
not directly affected (Article 1421).
TITLE III
Natural Obligations
Voluntary fulfillment means that the debtor complied with the same even if he
knew that he could not have been legally forced to do so. In the case of partial voluntary
fulfillment, the balance cannot be recovered, since on said balance, there has not been
created a legal obligation.
If a debt that has prescribed is paid not knowing it has prescribed, the payor can
recover on the ground of undue payment. But if it is paid knowing that it has prescribed
already, the payor cannot recover for this would be a case of a natural obligation.
TITLE IV
Estoppel (n)
WHAT IS ESTOPPEL?
a) by conduct or
acceptance of
benefits;
b) by representation or
concealment;
c) by silence;
d) by omission;
e) by laches.
a. Estoppel in pais or by conduct is that which arises when one by his acts,
representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe that
certain facts to exist and such other rightfully relies and acts on such belief, as
a consequence of which he would be prejudiced if the former is permitted to
deny the existence of such facts.
b. Estoppel by deed is a type of technical estoppel by virtue of which a party to
a deed and his privies are precluded from asserting as against the other party
and his privies any right or title in derogation of the deed, or from denying
any material fact asserted therein. On the other hand, estopel by record is a
type of technical estoppel by virtue of which a party and his privies are
precluded from denying the truth of matters set forth in a record, whether
judicial or legislative.
c. Laches, in general sense, is failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to assert
a right within reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it (Tijam vs.
Sibonghanoy, supra; Heirs of Lacamen vs. Heirs of Laruan, 65 SCRA 605). It is
therefore, a type of equitable estoppel which arises when a party, knowing
his rights as against another, takes no step or delays in enforcing them until
the condition of the latter, who has no knowledge or notive that the former
would assert such rights, has become so changed that he cannot, without
injury or prejudice, be restored to his former state.
a) Prescription is concerned with the fact of delay, whereas laches is concerned with the
effect of delay.
b) Prescription is a matter of time; laches is principally a question of inequity of
permitting a claim to be enforced, this inequity being founded on some change in the
condition of the property or the relation of the parties.
c) Prescription is statutory; laches is not.
d) Laches applies in equity; whereas prescription applies at law.
e) Prescription is based on fixed time, laches is not.
f) While prescription is unavailing against a holder of a valid certificate of title, the
equitable doctrine of laches may be applied against the plaintiffs for failure to assert
their ownership for such an unreasonable length of time against its occupant.
One who has allowed another to assume apparent ownership of personal property for the
purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been
constituted, set up his own title to defeat the pledge of the property, made by the other to a
pledgee who received the same in good faith and for value. (Article 1438)
This type of estoppel must not be confused with res judicata. Estoppel by
judgment bars the parties from raising any question that might have been put in issue
and decided in a previous litigation, whereas res judicata makes a judgment conclusive
between the same parties as to the matter directly adjudged (Phil. Nat’l. Bank vs. Barreto,
52 Phil. 818; NAMARCO vs. Macadaeg, 52 Off. Gaz. 182).
WHAT IS THE EFFECT IF A PERSON WHO IS NOT THE OWNER OF A THING SELLS OR
ALIENATES AND DELIVERS IT AND LATER THE SELLER OR GRANTOR ACQUIRES TITLE
THERETO?
When a person who is not the owner of a thing sells or alienates and delivers it, and later
the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or
grantee (Article 1434).
TITLE V
Trusts (n)
CHAPTER 1
General Provisions
DEFINE TRUST.
Trust may be defined as the legal relationship between one person having an
equitable ownership over a certain property and another having the legal title thereto.
A person who establishes a trust is called the trustor (or settler); one in whom
confidence is reposed as regards the property for the benefit of another person is known
as the trustee (he holds the property in trust for the benefit of another); and the person
for whose benefit the trust has been created is referred to as the beneficiary or cestui que
trust (Article 1440). The trustor may at the same time be the beneficiary.
EXPRESS TRUSTS are created by the intention of the trustor or of the parties.
IMPLIED TRUSTS come into being by operation of law (Article 1441). They are
those which, without being expressed, are deducible from the nature of the transaction
as matters of intent, or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. They are
ordinarily subdivided into resulting and constructive trusts.
A RESULTING TRUST (bare or passive trust), in its more restricted sense, is a trust
raised by implication of law and presumed always to have been contemplated by the
parties, the intention as to which is to be found in the nature of the transaction, but not
expressed in the deed or instrument of conveyance.
A CONSTRUCTIVE TRUST, in its more restricted sense, as contradistinguished from
a resulting trust, is a trust not created by words, either expressly or impliedly evincing a
direct intention to create a trust, but by the construction of equity in order to satisfy the
demands of justice. If a person obtains legal title to property by fraud or concealment,
courts of equity will impress upon the title a so-called constructive trust in favor of the
defrauded party (Ramos vs. Ramos, 61 SCRA 284). A constructive trust is not, therefore, a
trust in the technical sense (Article 1456).
Express trust and implied trust may be distinguished from each other in the
following ways:
a) Express trust is one created by the intention of the trustor or of the parties, while an
implied trust is one that comes into being by operation of law.
b) Express trusts are those created by the direct and positive acts of the parties, by some
writing, or deed, or will, or by words evidencing an intention to create a trust. On
the other hand, implied trusts are those which, without being expressed, are
deducible from the nature of the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.
c) Thus, if intent to establish a trust is clear, the trust is express; if the intent to establish
a trust is to be taken from the circumstances or other matters indicative of such
intent, then the trust is implied (Cuaycong vs. Cuaycong, 21 SCRA 1192).
d) No express trust concerning an immovable or any interest therein may be proved by
parol evidence (Article 1443), while the existence of an implied trust may be proved
by parol evidence.
e) Laches and prescription do not constitute a bar to enforce an express trust, at least
while the trustee does not openly repudiate the trust, and make known such
repudiation to the beneficiary, while laches and prescription may constitute a bar to
enforce an implied trust, and no repudiation is required unless there is a
concealment of the facts giving rise to the trust (Fabian vs. Fabian, 21 SCRA 213).
a. It is a fiduciary relationship.
b. It is created by law or by agreement.
c. It is one where the legal title is held by one, and the equitable title or
beneficial title is held by another.
CHAPTER 2
Express Trusts
a. The requirement that the express trust be in writing is only for enforceability,
not for validity between the parties. Hence, this Article may by analogy be
included under the Statute of Frauds.
b. By implication, for a trust over personal property, an oral agreement is valid
and enforceable between the parties.
c. Regarding third persons, the trust must be in a public instrument and
registered in the Registry of Property, if it concerns real property.
No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended (Article 1444). An express trust is therefore
created:
a. By conveyance to the trustee by an act inter vivos or mortis causa (as in a will).
b. By admission of the trustee that he holds the property only as trustee.
WHAT IS THE EFFECT OF THE EXPRESS TRUST IF THE TRUSTEE APPOINTED DECLINES
THE DESIGNATION?
No trust shall fail because the trustee appointed declines the designation, unless the
contrary should appear in the instrument constituting the trust. (Article 1445)
CHAPTER 3
Implied Trusts
a. If the price of a sale of property is loaned or paid by one person for the
benefit of another and the conveyance is made to the lender or payor to
secure the payment of the debt, a trust arises by operation of law in favor of
the person to whom the money is loaned or for whom it is paid. The latter
may redeem the property and compel a conveyance thereof to him. (Article
1450)
b. If an absolute conveyance of property is made in order to secure the
performance of an obligation of the grantor toward the grantee, a trust by
virtue of law is established. If the fulfillment of the obligation is offered by
the grantor when it becomes due, he may demand the reconveyance of the
property to him. (Article 1454)
c. When any trustee, guardian or other person holding a fiduciary relationship
uses trust funds for the purchase of property and causes the conveyance to be
made to him or to a third person, a trust is established by operation of law in
favor of the person to whom the funds belong. (Article 1455)
d. If property is acquired through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied trust for the benefit of the
person from whom the property comes. (Article 1456)
It depends:
a) If the action for reconveyance involves the annulment of a voidable contract which
became the basis for the fraudulent registration of the subject property, then the
period of prescription is 4 years from the discovery of the fraud. This finds codal support
in Article 1391, par. 4 of the Civil Code (Gerona vs. De Guzman, 11 SCRA 153; Fabian
vs. Fabian, 22 SCRA 231; Carantes vs. Court of Appeals, 76 SCRA 514; Alarcon vs. Bidin,
120 SCRA 390).
b) If the action does not involve the annulment of a contract, but there was fraud in the
registration of the subject property, then the period of prescription is 10 years from the
discovery of the fraud. This finds codal support in Article 1144, No. 2 (Bueno vs. Reyes,
27 SCRA 1179; Varsity Hills, Inc. vs. Navarro, 43 SCRA 503; Escay vs. Court of Appeals,
61 SCRA 360; Jaramil vs. Court of Appeals, 78 SCRA 420; Vda. De Nacalaban vs. Court of
Appeals, 80 SCRA 428; Duque vs. Domingo, 80 SCRA 654).
c) If the action involves the declaration of nullity or inexistence of a void or inexistent
contract which became the basis for the fraudulent registration of the subject
property, then the action is imprescriptible. This finds codal support in Article 1410
(Article Tongoy vs. Court of Appeals, 123 SCRA 718).
d) If the action for reconveyance is in reality an action to quiet title and the legitimate
owner of the subject property which was fraudulently registered in the name of
another had always been in possession thereof so that the constructive notice rule
cannot be applied, then the action is imprescriptible (Caragay-Lagno vs. Court of
Appeals, 133 SCRA 718).
Whether the trust is express or implied, as a general rule, the trustee cannot
acquire absolute ownership over the trust by acquisitive prescription.
However, if (1) he repudiates the right of the beneficiary; and (2) such act of
repudiation is brought to the knowledge of the beneficiary, and (3) the evidence thereon
is clear and conclusive, he may be able to acquire absolute ownership over the trust but
only (4) after the lapse of the period fixed by law.
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