Book IV - Obligations and Contracts

PART I PRESCRIPTION (BOOK III – TITLE V) Arts. 1106-1155 Prescription–means by which one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. -means by which rights and actions are lost. - mode of acquiring or losing ownership Under the Civil Code – “Prescription covers both acquisitive and extinctive prescription. (US vs. Serapio 23 Phil 597) Common Law – “Prescription is equivalent to acquisitive prescription,” that is acquisition of right through lapse of time. While “limitation” refers to the time within which an action may be brought or “extinctive prescription.” A.

Acquisitive Prescription– Art. 1117 1.

Requisites for Ordinary Acquisitive Prescription a. Capacity to acquire by prescription; (no prescription between husband and wife, between parent and child during minority of the latter, between guardian and ward during the continuance of guardianship, between coowners, etc.) b. The object must be susceptible of prescription; (property of the State or any of its subdivisions, except patrimonial property, movables possessed through a crime by the offender, lands under the Torrens System of registration with a torrens certificate of title, are not susceptible of prescription). c. Possession must be in the concept of owner, public, peaceful, continuous and uninterrupted (Art. 1118, NCC); d. Possession must be by virtue of a title and in good faith; “Good faith” for purposes of prescription consists in a reasonable belief that the person from whom the possessor received the thing was the owner thereof, and could transfer the ownership (Article 1127, NCC); or that it consists in the ignorance of the possessor of any flaw which would invalidate his title or mode of acquisition. (Article 526, NCC).

“Just title” for purposes of prescription exists when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. (Article 1129, NCC). e. The period of possession must be four (4) years for movable property and ten (10) years for immovable property

‘2. Requisites for Extraordinary Acquisitive Prescription a. Capacity to acquire by prescription; (no prescription between husband and wife, between parent and child during minority of the other, between guardian and ward during the continuance of guardianship, between co-owners, etc.) b. The object must be susceptible of prescription; (property of the State or any of its subdivisions, except patrimonial property, movables possessed through a crime by the offender, lands covered by the Torrens System, are not susceptible of prescription). c. Possession must be in the concept of owner, public, peaceful, continuous and uninterrupted (Art. 1118, NCC); d. Possession may be without title and in bad faith; e. The period of possession must be eight (8) years for movable property and thirty (30) years for immovable property 3.

What Cannot Be Required By Acquisitive Prescription a. Those not within the commerce of men (Art. 1113); b. Property of the State or any of its subdivisions not patrimonial in character (Art. 1113); c. Movables possessed through a crime (Art. 1133) d. Lands registered under the Torrens system (Sec. 47 of PD

1529) A.

Extinctive Prescription orPrescription of Actions/Statutes of Limitations 1. 2. 3.

Characteristics Requisites Periods Imprescriptible Actions: (1)

action to demand a right of way (Article 1143, Civil Code);

(2)

action to abate a public or private nuisance (Article. 1143, Civil Code); (3) action to declare ordinary contract void (Article 1410, Civil Code); (4) petition to declare contract of marriage void (Article 39, Family Code); (5) petition for probate of will; (6) action for partition of co-ownership so long as co-owner has not expressly repudiated co-ownership (Article 494, Civil Code); (7) action for present or future support, but no support in arrears; (8) action by beneficiary to recover property placed in trust so long as trustee has not expressly repudiated the trust; (9) action by registered owner to recover property brought under the Torrens System (Section 47, P.D. 1539); (10) action by the state to recover lands of public dominion; (11) action to recover movables possessed through a crime against the offender (Article 1133, Civil Code). (12) action for quieting of title so long as plaintiff is in possession of the property (Cabrera vs. CA 267 SCRA 339); Other Actions a. b.

To Recover Movables – Art. 1140 (8 years) To Recover Immovables – Art. 1141 (30 years)

c.

Other Actions – Arts. 1142-1149 1) Within 10 years – upon a written contract, upon an obligation created by law and upon a judgment, Mortgage (Art.1142) (Art. 1144) 2) Within 6 years – upon an oral contract; quasi-contract 3) Witihin 5 years – other actions whose periods are not fixed in the Code or other law 4) Within 4 years – upon injury to rights of plaintiff; quasi-

delict 5) Within 1 year – forcible entry and detainer; defamation B.

Distinction Between Acquisitive and Extinctive Prescription 1. As to elements: the first requires a positive fact, the possession by one who is not the owner, while the second requires a negative fact, the inaction of the owner;

2. As to purpose – the first is for the purpose of acquisition of rights, while the second is for the purpose of extinction of rights; 3. As to extent – the first is applicable only to real rights which are susceptible of possession, while the second is applicable to all kinds of rights, real or personal; 4. As to effect – the first results in the acquisition and extinction of a real right while the second merely results in the extinction of a real or personal right. 5. As to interruption – Acquisitive prescription (Arts.1120 to 1125) o Naturally (possession ceases for over 1 year) o Civilly (through summons to the possessor except for the cases provided under Art. 1124) o Express or tacit (recognition by possessor of the owner’s right) o o o

Extinctive prescription (Art. 1155) Filed in court Written extra-judicial demand by creditor Written acknowledgment by debtor Case Studies: Morales vs. CFI (97 SCRA 872) Re: Article 1106 NCC – There are two kinds of prescription provided in the Civil Code. One is acquisitive, i.e; the acquisition of ownership and other real rights by the lapse of time (Article 1109, par. 1), other names for acquisitive prescription are adverse possession and usucapcion. The other kind is extinctive prescription whereby rights and actions are lost by the lapse of time (Arts. 1106 par. 2 and 1139). Another name for extinctive prescription is limitation of action. (Note: Limitation of action or statute of limitation is one of the grounds for a Motion to Dismiss under Rule 16, Revised Rules of Court). Petitioner filed an action for recovery of possession, ownership of a parcel of land against private respondents, who in their answer, set up, among others, the affirmative defense that petitioners’ (as plaintiff) cause of action is barred by extinctive prescription or statute of limitations. During the hearing on the affirmative defense of extinctive prescription or statute of limitation, the evidence proved that the recovery action was filed after 10 years but before 30 years from the time private respondents took possession of the land. The CFI dismissed the complaint, which was reversed/set aside and the case remanded for trial to the CFI. The action has not prescribed or been barred by the statute of limitations pursuant to Article 1141, NCC which provides that real actions to recover immovables prescribe in 30 years. The law requires that one who asserts ownership by ordinary acquisitive prescription of real estate,good faith and just title are never presumed but must be proved pursuant to

Article 1131 NCC. Hence, ordinary acquisitive prescription, unlike extinctive prescription or statute of limitations, is not among the grounds for a motion to dismiss (Rule 16, Rev- Rules of Court) but the same must be threshed out and proved in full blown trial. Hrs. of Arzadon-Crisologo vs. Rañon (532 SCRA 391) Re: Article 1137 (extraordinary acquisitive prescription) and Article 1123 (civil interruption of possession). – Prescription as a mode of acquiring ownership and other real rights over immovable is concerned with the lapse of time in the manner and under the conditions laid down by law, namely: that the possession should be in the concept of owner, public, peaceful, uninterrupted and adverse. Article 1137, NCC on acquisitive prescription provides: “ownership” and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years without need of title or good faith.Notice of adverse claim does not interrupt the running of acquisitive prescription. It does not take place of judicial summons under Art. 1123. Extraordinary acquisitive prescription may bestow ownership on possessor Hrs. of Maningding vs. CA (276 SCRA 601) A donation, though void for lack of formal requisites, could be a basis for adverse possession for extraordinary acquisitive prescription. While a donation propter nuptias is void for failure to comply with formal requisites, it could still constitute a legal basis for adverse possession. Vda. De Cabrera vs. CA (267 SCRA 339) (Article 1143) – “An action for reconveyance of a parcel of land based on implied or constructive trust ordinarily prescribed in ten (10) years, the point of reference being the date of registration of the issuance of the certificates of title over the property (Article 1144); but this rule applies only when the plaintiff is not in possession of the property; however, if the person claiming to be the owner thereof is in actual possession of the property, the right to seek reconveyance which in effect seeks to quiet title to the property, does not prescribe.” Hrs. of Flores Restar vs. Hrs. of Cichon (475 SCRA 731) While an action to demand partition does not prescribe, a co-owner may acquire ownership thereof by clear repudiation of the co-ownership and the co-owners are appraised of their rights. Tenales vs. IAC (143 SCRA 223) Statute of limitations are statutes of repose, the object of which is to suppress fraudulent and stale claims from springing up at great distances of time and surprising parties and their representatives when all the proper vouchers and evidences are lost or

the facts have become obscure from the lapse of time or the defective memory or death or removal of witnesses. Suchstatutes apply with full force even to most meritorious claims. The purpose of these statutes is to protect the diligent and vigilant, not those who sleep on their rights. Nielson & Company, Inc vs. Lepanto Consolidated Mining Co. ( 18 SCRA 1040) Laches is different from prescription. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. 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. Prescription is statutory; laches is not. Laches applies in equity; whereas prescription applies at law. Prescription is based on fixed time, laches is not C.

Interruption – Art. 1155 3 Ways In Which Prescription of Action (Extinctive Prescription) Is Interrupted: a. Filed before the court b. Written extra-judicial demand c. Written acknowledgment of debt by debtor Interruption of Possession vs. Suspension of Prescription “Interruption of Possession” -all benefits acquired so far from possession ceases. When the prescription runs again, it is a new one. “Suspension of Prescription”- the past period is included after prescription is resumed. OBLIGATIONS (BOOK IV – TITLE I) Arts. 1156-1304

I.

General Provisions (Chapter 1) Arts. 1156-1162 Obligation – juridical necessity to give, to do or not to do Elements of an Obligation Sources of Obligations – Art. 1157 1. Law. (Not Presumed – Art. 1158) 2. Contracts 3. Quasi-Contracts 4. Acts or Omissions Punished By Law

5. Quasi-Delicts Case Studies: Pelayo vs. Lauron (12 Phil 453) (Re: Article 1158, Civil Code) – Medical services rendered by a physician for delivery of the child are chargeable to the husband, not to the parents-in-law of the wife, even if it was the parents-in-law who brought the daughter-in-law to the physician. Cruz vs. Northern Theatrical Enterprises (95 Phil 739) While it is to the interest of the employer to give legal help to, and defend, its employees charged criminally in court, in order to show that he was not guilty of any crime either deliberately or through negligence, because should the employee be finally held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable, such legal assistance might be regarded as a moral obligation but it does not at present count with the sanction of man-made laws. If the employer is not legally obliged to give legal assistance to its employee and provide him with a lawyer, naturally said employee may not a recover from his employer the amount he may have paid a lawyer hired by him. PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. — If despite the absence of any criminal responsibility on the part of the employee he was accused of homicide, the responsibility for the improper accusation may be laid at the door of the heirs of the deceased at whose instance the action was filed by the State through the Fiscal. This responsibility can not be transferred to his employer, who in no way intervened, much less initiated the criminal proceedings and whose only connection or relation to the whole affair was that it employed plaintiff to perform a specific duty or task, which was performed lawfully and without negligence. II.

Nature and Effect of Obligations (Chapter 2) Arts. 1163-1178 A.

Obligation To Give (Art. 1165) 1. 2.

A Determinate Or Specific Thing Individualized and can be identified or distinguished from others of its kind An Indeterminate Or Generic Thing Indicated only by its kind, without being distinguished from others of the same kind.

Case Study: Adorable vs. CA (319 SCRA 200)(“Real right” distinguished from “Personal right”)

Re: (Art. 1164)A“real right,” like rights of ownership and possession – is the power belonging to a person over a specific thing, without a passive subject individually determined against whom such right may be personally exercised; it gives a person a direct and immediate juridical power over a thing, which can be exercised not only against a determinate person, but against the whole world. A “personal right” on the other hand, – is the power belonging to one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. B. C.

Obligation To Do Or Not To Do (Arts. 1167 & 1168) Breaches Of Obligations 1. Complete Failure To Perform 2. Default, Delay Or Mora – No Default Unless Creditors Makes A Demand; Exceptions (Art. 1169) Delay, default or Mora: delay in the fulfillment of obligations; it is non-fulfillment with respect to time Different Kinds of Mora: a. Mora solvendi b. Mora accipiendi c. Compensatio morae Requisites of Default:  That the obligation be demandable and liquidated  That the debtor delays performance  That the creditor demands performance judicially or extrajudicially, subject to the exceptions provided by law. 3.

Fraud In The Performance Of Obligation a. Waiver Of Future Fraud Is Void (Art. 1171) Fraud: (Dolo) (Art. 1171) The deliberate and intentional evasion of the normal fulfillment of obligations. It implies malice or dishonesty and it cannot cover cases of mistake/error in judgment

Fraud: (Dolo) (Art. 1138) Fraud in the negotiation, perfection or consummation of the contract entitles the aggrieved party the remedy of rescission plus damages Case Study:

Sps. Tongson vs. Emergency Pawnshop Bula, Inc. (610 SCRA 150) Fraud in the negotiation, perfection or consummation of contract entitles aggrieved party to the remedy of rescission plus damages. 4.

Negligence (Culpa) In The Performance Of Obligation (Art. 1173) a. Diligence Normally Required Is Ordinary Diligence Or Diligence Of A Good Father Of A Family; Exceptions Common Carriers Requiring Extraordinary Diligence (Arts. 1998-2002) 3 Different Kinds of Negligence As Source of Obligation:  Culpa contractual  Culpa aquiliana (quasi delict)  Culpa criminal Test of Negligence - if defendant did not use ordinary care and caution which an ordinary prudent man would have used in the same situation

Case Studies: Valencia vs. RFC and CA (103 Phil. 444) (Re: Article 1186, Civil Code) – The condition to put up a bond by the winning bidder to construct a building, may be waived by the owner, and failure of winning bidder to put up a bond, will make winning bidder liable for breach of contract and damages, because of failure of winning bidder to proceed with the construction.Thus, pursuant to Article 1186, Civil Code, “the condition shall be deemed fulfilled when the obligor (the winning bidder) voluntarily prevents its fulfillment”. Picart vs. Smith (37 Phil 805) (Re: Article 1157, numbers 4 and 5, Civil Code) – The principal issue is whether or not petitioners, heirs of deceased Arsenio Virata, can prosecute a civil action for damages based on quasi-delict against both Maximo Borilla (driver employee) and Victorio Ochoa (owner-employer) that bumped Arsenio Virata, while the criminal action for homicide thru reckless imprudence was still pending against Maximo Borilla, the driver-employees. Yes, pursuant to Article 2177, Civil Code; however, the plaintiff cannot recover damages twice for the same act or omission of the defendant. 5. 6.

Contravention Of The Tenor Of Obligation Legal Excuse For Breach Of Obligation – Fortuitous Event; Requisites (Art. 1174)

Case Studies: Co vs. CA (291 SCRA 111) Under Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk." Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. Failure of repair shops to first register with the Department of Trade and Industry (DTI) and to secure an insurance policy for the "shop covering the property entrusted by its customer for repair, service or maintenance" constitutes negligence per se. Carnapping per se cannot be considered as a fortuitous event. To be considered a fortuitous event or an act of God or was done solely by third parties, neither the claimant nor the person alleged to be negligent must not have any participation. The law adopts the standard of a discreet pater familias of Roman Law – the degree of care exercised by a reasonable man under the circumstances. Nakpil & Sons vs. CA (144 SCRA 596) (Re: Article 1174 Force Majeure or Fortuitous Event) – To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an “act of God”, (force majeure/caso fortuito) the following must concur: (a) The cause of the breach of the obligation must be independent of the will of the obligor; (b) The event must either be unforeseeable or unavoidable; (c) The event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) The debtor must be free from any participation in, or aggravation of the injury to the creditor (see also Republic vs. Luzon Stevedoring Corporation). The Supreme Court, interpreted the provision of Article 1174, Civil Code, the general provision on “force majeure or fortuitous event” which states generally, x x x “no person shall be responsible for those events which could not be foreseen, or which though foreseen is inevitable”. Republic vs. Luzon Stevedoring Corp (21 SCRA 279) (Re: Article 1174, Civil Code, Caso Fortuito or Force Majeure) – For caso forfuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) by definition, are extraordinary events not foreseeable or avoidable, “events that could not be foreseen or which, though foreseen, were inevitable”. It is not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to see the same. The very measures adopted by

appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and not caso fortuito. D.

III.

Remedies Available To Creditor In Cases Of Breach 1. Specific Performance a. Substituted Performance by a third person in Obligation to deliver generic thing and in obligation to do, unless a purely personal act 2. Rescission (resolution in reciprocal obligations) 3. Damages, in any event 4. Subsidiary Remedies Of Creditors (Art. 1177) a. Accion subrogatoria b. Accion pauliana c. Accion directa (Arts. 1652–lessor’s right to sue directly sublessee, 1608- vendor’s right to sue directly assignee of vendee in pacto de retro sale, 1729-laborer’s/material supplier’s right to sue directly owner, 1893-principal’s right to sue directly sub-agent)

Kinds of Obligations (Chapter 3) Arts. 1179-1230 A.

Pure and Conditional Obligations - (Section 1)Arts. 1179-1192 Pure – Obligation without a condition or term (Arts. 1179-1180)demandable at once Conditional – Obligation with a condition (Art. 1181) 1. Classifications ofConditions:

a. i.

Potestative /Casual/Mixed

Potestative – it depends exclusively on the will of one of the parties a. Potestative on part of Debtor If also suspensive – void If also resolutory - valid b. Potestative of the part of the Creditor - valid 2 Kinds of Potestative Conditions: 

Simple Potestative (valid) – If a decide to sell my house, the first offer will be to you (the right of first refusal)

 ii. iii.

Purely Potestative (void) – I will sell my house to you if I like

Casual – its fulfillment depends upon chance or the will or a third person Mixed – its fulfillment depends upon the will of a party; the obligation upon chance or the will or a third person . b. Suspensive vs. Resolutory Suspensive Condition – happening of condition gives rise to obligation Resolutory Condition– happening of condition extinguishes obligation 1. Effect Of The Happening Of ASuspensive Condition (Art. 1187); Resolutory Condition Kind of Obligation To give

Condition Fulfilled Suspensive

To do or not to do

Suspensive

To give, to do or not to do

Resolutory

Retroactivity Retroacts to day of constitution of obligation Courts shall determine retroactive effect No retroactivity

2. Effect Of Loss Of Specific Thing Or Deterioration or improvement of specific thing before suspensive condition (Art. 1189); if this occurs in resolutory condition in obligation to do or not to do (1190, par. 3) Event Thing Lost Thing deteriorates

Thing Improves

6.

Party Responsible No fault of debtor Fault of debtor No fault of debtor Fault of debtor Due to nature/time Due to debtor

Effect On Obligation Extinguished Debtor Pays Damages Impairment borne by Creditor Creditor may choose between rescission and fulfillment with damages in either case Improvement to creditor Debtor has rights of usufructuary for the improvements

Power To Rescind In Reciprocal Obligations (Art. 1191)

Reciprocal Obligations - arise from the same cause, and in which each is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously so that the performance of one is conditioned upon the performance of the other. Art. 1191 Does Not Apply In: 

In sale of immovable property with a proviso that in case buyer fails to pay, seller can rescind. Art. 1592 applies which grants the buyer the right to pay as long as there is no judicial or notarial demand for rescission.



In contracts of lease because while Art. 1191 grants the court the power to fix a longer period for compliance, Art. 1659 (on lease) such discretionary power is not granted to the courts.



In contract to sell of immovable property; hence no judicial nor notarial demand is needed to resolve(rescind) the contract. Relate to Maceda Law (RA 6552). Failure to pay installment or balance of the full purchase price is a positive suspensive condition, the failure of which is not a breach casual or serious but simply an event which prevented the obligation of vendor to convey title . The transfer of ownership and title would occur after full payment of purchase price.

Art. 1191 Applies In: 

In a lease contract which provides that in case of non-payment of rentals, the lessor can eject without judicial proceedings, because such provision is valid as even under Art. 1191, lease contract being reciprocal contract, can be rescinded in the event of nonfulfillment (Consing vs. Jamandre 64 SCRA 1)



In a sale of movable properties in which case, no judicial approval is necessary if buyer does not pay price on date stipulated.

Case Studies: Consing vs. Jamandre (64 SCRA 1)

(Re: Article 1191, Civil Code) – The contract between sublessor and sublessee authorizing sublessor to take possession of leased premises in case of breach of contract without judicial action, is valid and binding.This stipulation is in the nature of a resolutory condition; judicial permission to cancel agreement is not necessary as judicial permission is needed only in the absence of a special provision granting the power of cancellation. The sublessee cannot complain of deprivation of rights without due process of law. Liu vs. Loy, Jr. (405 SCRA 316) Although the law allows the extra-judicial cancellation of a contract to sell upon failure of the party to comply with his obligation, notice of such cancellation must still be given to the party who is at fault. The notice of cancellation to the other party is one of the requirements for a valid cancellation of a contract to sell, aside from the existence of a lawful cause, citing the case of Lim v. Court of Appeals, G.R. No. 85733, 23 February 1990, 182 SCRA 564, 571.There was no valid cancellation of the contract to sell, not even an implied one where there was no written notice of the cancellation given to Benito Liu or Frank Liu.. The letter does not mention anything about rescinding or canceling the contract to sell. B.

Obligations With A Period - (Section 2)

Arts. 1193-1198

Suspensive Period;a suspensive period is for the benefit of both debtor and of creditor, unless given in favor of one of them. If given to debtor alone, debtor losses benefit of period in any of the 5 cases in Art. 1198 – obligation retroact to the day of its constitution 2.

Resolutory Period

3.

Definite Or Indefinite Period a.

When Courts May Fix The Period (Art. 1197)  when period depends on will of debtor  when from nature or circumstances, it can be inferred that period was intended

Case Study: Borromeo vs. CA (47 SCRA 65) The complaint by the creditor may embody the fixing of the period within which the debtor was to pay andalso the collection of the amount that until then was not paid. An action combining both features was approved by the Supreme Court. In Tiglao v. The Manila Railroad Company:(98 Phil. 181 (1956). "The duration of the term should be fixed in a separate action for that express purpose but thereare good reasons for not adhering to technicalities in its desire to do substantial justice." (Ibid, 184.) Defendant does not claim that if a separate action were instituted to fix the duration of the term of

its obligation, it could present better proofs than those already adduced in the present case. Such separate action would, therefore, be a mere formality and would serve no purpose other than to delay." (Ibid, 185.) There is no legal obstacle then to the action for collection filed by the creditor. b.

Creditor Must Ask Court To Set The Period, before he can demand payment

c.

Debtors Shall Lose Right To Make Use Of Period When:  He becomes insolvent after obligation contracted  He Does Not Furnish Guaranties/Securities promised,  Has Impaired Guaranties;  Does Not Furnish Equally Satisfactory Guaranties When Originals Lost Thru Fortuitous Event;  Violates Any Undertaking In Consideration For Which Creditor Guaranteed Period (Art. 1198)

Case Study: Song Fo vs. Oria (33 Phil 3) Re: Article 1198, paragraph 3 and Article 1504, Civil Code) – Song Fo sold to Oria a motor launch for P16,500.00 payable in quarterly installments at P1,000.00 with the motor launch as security for payment of the purchase price. The motor launch was delivered to Oria in Manila but was shipwrecked en route to Samar. Ownership of launch was transferred to Oria upon delivery in Manila (Article 1504 and 712, Civil Code) and according to the principle of “res perit domino” (things perish for or at the risk of their owner), Oria bears the loss even thru fortuitous event. Hence, all the other quarterly installments even if not due becomes demandable. (Article 1198, par. 3, Civil Code) which provides that debtor shall use the right to make use of the period when the security of the obligation disappear thru fortuitous event. C.

Alternative Obligations - (Section 3)Arts. 1199-1206

Alternative Obligation – one where out of 2 or more prestations which may be given, only one is due. Right to choice given to debtor unless expressly granted to creditor Facultative Obligation – one where only one prestation has been agreed upon but the obligor may render another in substitution. Right to choose given only to debtor Case Study: Agoncillo vs. Javier (38 Phil. 424)

(Re: Article 1200, Civil Code) – Alternative Obligations: The agreement to convey the house and lot in the event of failure to pay a debt in payment, is simply an undertaking that if the debt is not paid in money, it will be paid in another way, or a case of alternative obligations, and therefore valid. It is not “pacto commissorio”, which is prohibited under Article 2088, Civil Code, which provides: “The creditor cannot appropriate the things given by way of pledge or mortgage or dispose of them. Any stipulation to the contrary shall be void.” (Note: It is the automatic transfer of the ownership of the mortgaged property upon default that is prohibited as “pactum commissorio.”) When Choice is Given to Debtor And Loss/Impossibility Happened Before Choice Is Made Event Debtor cannot make a choice bec. Of creditor’s fault All things are lost because of fault of debtor/compliance has become impossible

Consequence Debtor may rescind contract with damages Creditor may ask for damages

When Choice is Given To Creditor and Before Creditor Communicates His Choice To Debtor: Event 1oss of the 1 thing lost thru fortuitous event Loss of 1 thing thru fault of debtor Loss of all things thru fault of debtor E.

Obligation of Debtor Deliver what creditor chooses from among remaining, or the only one remaining Deliver what creditor chooses from among remaining or the price of that which disappeared with damages Deliver the price of what creditor would have chosen with damages

Joint and Solidary Obligations - (Section 4)Arts. 1207-1225 1. Joint (Divisible) Obligation Concurrence Of Two Or More Creditors And/Or Two Or More Debtors In One And The Same Obligation a. Joint Obligation Is Presumed, unless otherwise providedby law or the nature of obligation (Art. 1207) b. Obligation Presumed To Be Divided into as many equal shares as there are creditors or debtors c. Each Credit Is Distinct From One Another, therefore a joint debtor cannot be required to pay for the share of another codebtor, although he may pay if he wants to (Art. 1209)

d.

Insolvency Of A Joint Debtor, others not liable for his share (Art. 1209)

Case Study: Oriental Commercial Corp vs. Abeto (60 Phil 723) When it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment even ifin the contract of suretyship executed by the parties, the obligation contracted by the sureties was joint and several in character. The final judgment, which superseded the action for the enforcement of said contract, declared the obligation to be merely joint, and the same cannot be executed otherwise. (De Leon vs. Nepomuceno and De Jesus, 37 Phil., 180; Sharruf vs. Tayabas Land Co. and Ginainati, 37 Phil., 655.) 2.Joint (Indivisible) Obligation a. Obligation Cannot Be Performed In Parts but debtors are bound jointly b. In Case Of Failure Of One Joint Debtor To Perform his part (share), there is default but only debtor guilty shall be liable for damages ‘3. Solidary Obligation a. Anyone Of The Solidary Creditors May Collect or demand payment of whole obligation; there is mutual agency among solidary creditors (Arts. 1214, 1215) b. Any Of The Solidary Debtor May Be Required To Pay The Whole obligation; there is mutual guaranty among solidary debtors (Arts. 1216, 1217, 1222) c. Each One Of Solidary Creditors May Do Whatever maybe useful to the others, but not anything prejudicial to them (Art. 1212); however, any novation, compensation, confusion or remission of debt executed by any solidary creditor shall extinguish the obligation without prejudice to his liability for the shares of the other solidary creditors In solidary obligations, the credits/debts are still divided among creditors/debtors but there is mutual representation (agency) among each debtor/creditor respectively. Solidarity is the vinculum that binds creditors to debtors only; among debtors and creditors themselves, once payment is made, there is no solidarity. Surety – a person who binds himself solidarily with the principal debtor Obligations In Which The Law Requires Solidarity:





If 2 or more heirs take possession of the estate, they are solidarily liable for the loss/destruction All partners are liable solidarily for everything chargeable to the partnership under Arts. 1822 (quasi-delict) and 1823 (crimes)  Principal and agent are liable solidarily to third persons if principal allowed the latter to act as though he had authority  2 or more principals are liable solidarily to a common agent for all the consequences of the agency.  2 or more bailees of the same thing are liable solidarily to the bailor.  2 or more officious managers are liable solidarily.  2 or more payees in a negotiorum gestio are solidarily liable.  2 or more joint tortfeasor are liable solidarily.  2 or more principals/accomplices/accessories in each respective class in the commission of the crime are liable solidarily. Case Studies: Stronghold Insurance vs. Republic Asahi Glass Corp (492 SCRA 179) Respondent creditor may sue, separately or together, the principal debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or nullify the substantive right of the solidary creditor. Despite the death of the principal debtor, respondent creditor may still sue petitioner alone, in accordance with the solidary nature of the latter's liability under the performance bond. As a surety, petitioner is solidarily liable with principal debtor in accordance with the Civil Code, which provides as follows: "Art. 2047.By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. "If a person binds himself solidarily with the principal debtor, the provisions of Section 4, 17 Chapter 3, Title I of this Book shall be observed. In such case the contract is called a surety. Art. 1216.The creditor may proceed against any one of the solidary debtorsor some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected." Kay Products Inc vs. CA (464 SCRA 544) In labor cases, corporate directors and officers are solidarily liable with the corporation for the termination of employment of corporate employees done with malice or in bad faith (Uichico v. National Labor Relations Commission, G.R. No. 121434, 2 June 1997, 273 SCRA 35.). The president of a corporation, who actively manages the business, falls within the meaning of an "employer" as contemplated by the Labor Code, and may be held jointly and severally liable for the obligations of the corporation to its

dismissed employees Naguiat v. NLRC (G.R. No. 116123, 13 March 1997, 269 SCRA 564.)

E.

Divisible and Indivisible Obligations - (Section 5)Arts. 1223-1225 Divisible Obligation – one capable of partial performance

F.

Obligations with a Penal Clause – (Section 6) Arts. 1226, 1228-1230

Purposes of a Penal Clause: 1. Insurance: To insure the performance of the obligation; Compensation: to liquidate the amount of damages to be awarded the injured party in case of breach of the obligation Punitive: to punish the obligor in case of breach of the principal obligation Although the same as liquidated damages (Art. 2226), a penalty in its punitive aspect is different because the creditor can recover damages in addition to the penalty when the debtor refuses to pay the penalty or when the debtor is guilty of fraud Case Study: IBAA vs. Spouses Salazar (159 SCRA 133) (Re: Penal Clause, Article 1226, Civil Code). – The Civil Code permits the agreement upon a penalty apart from the interest. The penalty does not include the interest, and as such, the two are different and distinct things which may be demanded separately. IV.

Extinguishment Of Obligations (Chapter 4) Arts. 1231-1304 A.

Payment Or Performance - (Section 1) Arts. 1232-1261

Case Studies: BPI vs. Roxas (536 SCRA 168) In International Corporate Bank v. Spouses Gueco, (404 SCRA 353 (2001), it was held that a cashier's check is really the bank's own check and may be treated as a promissory note with the bank as the maker. The check becomes the primary obligation of the bank which issues it and constitutes a written promise to pay upon demand. In New Pacific Timber & Supply Co. Inc. v. Señeris, (G.R. No. 41764, December 19, 1980, 101

SCRA 686), this Court took judicial notice of the "well-known and accepted practice in the business sector that a cashier's check is deemed as cash" because the mere issuance of a cashier's check is considered acceptance thereof. New Pacific Timber vs. Seneris (101 SCRA 686) (Re: Article 1249, Civil Code) – Article 1249 provides: The delivery of promissory notes, bills of exchange or other mercantile documents shall produce the effect of payment only when they have been encashed or when thru the fault of the debtor they have been impaired.” A cashier’s check is deemed as cash when certified by drawee bank which for all intents and purposes, the payee becomes the depositor of the drawee bank. The certification implies that the check is drawn upon sufficient funds in the hands of the drawee bank; that they have been set apart for its satisfaction and that they shall be so applied whenever the check is presented for payment.: “

Roman Catholic Bishop of Malolos Inc vs. IAC (191 SCRA 411) (Re: Article 1249, Civil Code) – A certified personal check is not legal tender; a check whether manager’s check or ordinary check, is not a legal tender and an offer of a check in payment of a debt, is not a valid tender of payment; hence, if creditor refused to accept, the subsequent consignation did not operate to discharge private respondent from his obligation to petitioner. See also R.A. 8183 An Act Repealing RA 529 (Uniform Currency Law) 1. Extraordinary Inflation Or Deflation – Art. 1250 Case Study: Citibank vs. Sabeniano (514 SCRA 441) (Re: Article 1250, Civil Code) – “Extraordinary inflation or deflation” exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.Article 1250 of the Civil Code is based on equitable considerations. But only the Bangko Sentral ng Pilipinas (BSP) and not the court ,can declare the existence of extraordinary inflation. . Comm. Of Public Highways vs. Burgos (96 SCRA 831) Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for payment of an obligation in an amount different from what has been agreed upon by the parties because of the supervention of extra-ordinary inflation or

deflation. It applies only to cases where a contract or agreement is involved and does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation. Ramos vs. CA (275 SCRA 167) (Re: Article 1250, Civil Code) But petitioner's last contention (that private respondents failed to pay increased rent despite supervening inflation or devaluation of the Philippine peso) is untenable. The provision of Art. 1250 requires for its application a declaration of inflation by the Central Bank. Without such declaration creditors cannot demand an increase of what is due them. (Mobil Oil Philippines, Inc. v. Court of Appeals, 180 SCRA 651 (1989). Filipino Pipe & Foundry Corp. vs. NAWASA (161 SCRA 32) Extraordinary inflation exists when "there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.) The price index of commodities, which is the usual evidence of the value of the currency has been rising. There is a worldwide occurrence, but this is hardly proof that the inflation is extraordinary in the sense contemplated by Article 1250 of the Civil Code, which was adopted by the Code Commission to provide "a just solution" to the 'uncertainty and confusion as a result of contracts entered into or payments made during the last war." (Report of the Code Commission, 132-133.)

2. Special Forms Of Payments a. Dacion In Payment (Dacion En Pago) Art. 1245 b. Application of Payments (Subsection 1)Arts. 1252-1254 Requisites of Application of Payments:  Two or more debts between same debtor and creditor  Debts must be of the same kind  All debts must be due  Payment must not be enough to extinguish all debts c. Payment by Cession (Subsection 2)Arts. 1255 When debtor cedes or assigns hs.is property to his creditors in payment of his debt

Kinds of Payment by Cession:  Contractual (Art. 1255);  Voluntary and Involuntary Liquidation of Individual & Corporate Debtors (RA 10142 (FRIA) LAW). d. Tender of Payment & Consignation (Subsection 3) Arts. 12561261 Tender of Payment (Extra-Judicial) –manifestation made by a debtor of his desire to comply with his obligation with the offer of immediate compliance Requisites of Consignation (Judicial):  Existence of a valid debt;  Valid prior tender of payment to creditor by debtor unless tender is excused;  Prior notice of consignation to creditor by debtor;  Actual consignation in court by debtor;  Subsequent notice of consignation to creditor by debtor. Case Study: Immaculata vs. Navarro (160 SCRA 211) The right to redeem is a RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. Capistrano, 9 Phil. 416). B.

Loss Of The Thing Due - (Section 2)Arts. 1262-1268 (broadly means legal or physical impossibility of performance) Exceptions To Rule That Loss of Determinate Thing By Fortuitous Event Extinguishes The Obligation:  When the law expressly provides  When by express stipulation the obligor is made liable even if loss is by fortuitous event  When the nature of the obligation requires the assumption of risk  When the fault/negligence of the obligor concurs with the fortuitous event  When the loss occurs after the debtor has incurred in delay (Art. 1169)  When the debtor has promised to deliver the same thing to 2 or more persons who do not have the same rights



When the obligation to deliver a determinate thing arises from a criminal act

Case Studies: Ortigas & Co vs. Feati Bank & Trust Co. (94 SCRA 533) (Re: Article 1266, Civil Code) – A contractual stipulation annotated on the title that the land purchased shall be used exclusively for residential purposes is extinguished and ceases to be binding between parties upon the enactment of an ordinance or resolution of the Municipal Council reclassifying the area as commercial. The resolution or Ordinance, under the general welfare clause, is a valid exercise of the police power of the LGU and is superior to the contractual stipulations between the parties on the use of the land even if said conditions are annotated on the title. Naga Telephone Co Inc. vs. CA (230 SCRA 351) (Re: Article 1267, Civil Code) – The term “service” in Article 1267 is understood to mean “performance” of the obligation which in the present case, is the obligation of allowing petitioners to use posts of respondent for ten (10) free telephone connections, which has become very onerous against the respondent. Article 1267, Civil Code, provides: “When the service has become so difficult has to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom in whole or in part.” This is the doctrine of unforeseen event, and is based on the discredited theory “rebus sic stantibus” in Public International Law. Under the theory, the parties stipulate in the light of certain prevailing conditions, and one of these conditions cease to exist, the contract also ceases to exist. Considering practical needs and the demands of equity and good faith, the disappearance of the basis of the contract gives right to relief in favor of the party prejudiced. C.

Condonation Or Remission Of Debt - (Section 3) Arts. 1270-1274 Condonation/Remission – the gratuitous abandonment by the creditor of his right. It is an act of liberality by virtue of which the oblige, without receiving any price or its equivalent, renounces the enforcement of the obligation as a result of which it is extinguished in its entirety or in part. 1. 2.

D.

Express – Formality of Donation – art. 1270 Implied – Arts. 1271, 1272, 1274

Confusion Or Merger of Rights - (Section 4)

Arts. 1275-1277

Confusion/Merger –the meeting in one person of the qualifies of creditor and debtor which respect to the same obligation extinguishes obligation E.

Compensation - (Section 5) Arts. 1278-1290 Compensation– takes place when 2 persons, in their own right, are creditors and debtors of each other Kinds – Arts. 1278, 1279 a. Legal Compensation – Arts. 1286-1290 b. Agreement – Art. 1282 c. Voluntary – Art. 1282 d. Judicial – Art. 1283 e. Facultative

Case Studies: Gullas vs. PNB (62 Phil 519) Gullas, who had a checking account with PNB, endorsed and encashed a check with PNB. The check was later dishonored and PNB applied the balance of the checking account of Gullas by way of “compensation” with the obligation of Gullas as endorser of the dishonored check. There can be compensation where the depositor in a bank has an indebtedness in favor of the bank. This old ruling in the Gullas case is further strengthened by Article 1980 (new) Civil Code, which provides:“Fixed, savings and current deposits of money in banks and similar institutions shall be governed by the provisions concerning “simple loan.” Bank of the Phil Islands vs. CA (232 SCRA 302) Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." In Serrano vs. Central Bank of the Philippines, (96 SCRA 96 [1980]. See also, Guingona vs. City Fiscal of Manila, 128 SCRA 577 [1984]; People vs. Ong, 204 SCRA 942 [1991]), we held that bank deposits are in the nature of “irregular deposits”; they are really loans because they earn interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under the questioned account was an ordinary bank deposit; hence, it was payable on demand of the depositor. (10 Am Jur 2d, Banks, S 356) Obligations /Debts That Are Not Compensable  Debts arising from contracts of depositum  Debts arising from contracts of commodatum  Claims for support due by gratuitous title

 

Obligations arising from criminal offenses Certain obligations in favor of the government such as taxes, fees, duties and others of similar nature

Case Studies: Garcia vs. Lim Chu Sing (59 Phil 562) (Re: Article 1279, Civil Code) – A stockholder’s shares of stock of the Mercantile Bank of China do not constitute an indebtedness of the bank to the stockholder and therefore there can be no compensation with the latter’s indebtedness to the bank. Stockholders are not creditors of the corporation. The capital stock of the corporation is a “trust fund” as security of creditors of the corporation who presumably deal with it on the credit of its capital stock. PNB vs. CA (259 SCRA 174) A local bank, while acting as local correspondent bank, does not have the right to intercept funds being coursed through it by its foreign counterpart for transmittal and deposit to the account of an individual with another local bank, and apply the said funds to certain obligations owed to it by the said individual.Petitioner bank wasnot legally justified in making the compensation or set-off against the two remittances coursed through it in favor of private respondent to recover on the double credits it erroneously made in 1980 and 1981, based on the principle of solutio indebiti. F.

Novation - (Section 6)Arts. 1291-1304 Novationis the substitution of change of an obligation by another, resulting in its extinguishment or modification, either by changing its object of principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of a creditor.  

An extension of the period of payment – no novation Agreement to shorten period of payment – novation because of incompatibility between old and new obligations

4 Essential Requisites of Novation:  A previous valid obligation  Agreement of the parties to the new obligation  Extinguishment of the old obligation  Validity of the new obligation 2

Kinds of Novation By Substitution of Debtors:



Expromision (First Kind)– substitution of debtors with the consent of creditors at the instance of new debtors . New debtor and creditor must consent. Expromision (Second Kind) –substitution of debtors without the knowledge or against the will of the old debtor. Insolvency/nonfulfillment of new debtor will not give rise to any liability on the part of old debtor. Delegacion – substitution of debtors with the consent of the creditor (delegatario) at the instance of the old debtor (delegante) with the concurrence of the new debtor (delegado). New and old debtors and creditor must consent.



Subrogation: Transfer 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 mortgage, subject to stipulations in conventional subrogation 2 Forms of Subrogation Of Creditors  

Conventional Subrogation – takes place by the agreement of the original creditor, the third person substituting the original creditor and debtor (Art. 1301) Legal Subrogation – takes place by operation of law (Art. 1302)

 When creditor pays another creditor who is preferred even without debtor’s knowledge  When a 3rd person, not interested in obligation, pays with express/tacit approval of debtor  When, even without knowledge of debtor, a person interested in the fulfillment of obligation pays, without prejudice to effect of confusion in latter’s share Conventional Subrogation governed by Arts. 1301, 1303, 1304;

Assignment of Credit governed by Arts. 1624 & 1627 extinguishes the obligation and creates a new one credit is not extinguished Requires debtor’s consent Does not require debtor’s consent Defect of old credit/right may be cured and new Defect in credit/right is not obligation becomes entirely valid cured

Case Studies:

Magdalena Estate vs. Rodriguez (18 SCRA 967);Dungo vs. Lopena (6 SCRA 1007) Re: Article 1292, Civil Code: Novation is never presumed; it must be established that the old and the new contracts are incompatible on every point, or that the will to novate appear by express agreement of the parties. There is no implied novation, if in the second contract a bond is filed or a third person assumes payment of the obligation and the creditor accepts partial payment from the third person, so long as the creditor did not agree that the first debtor shall be released from the obligation. People vs. Nery (10 SCRA 244) Re: Article 1292, Civil Code – Accused who was charged for estafa for misappropriating the proceeds of diamond rings consigned to her for sale, cannot escape criminal liability by the defense of novation. The promissory note executed by the accused in favor of complainant executed pending trial at the RTC did not convert the relationship between parties to a contract of loan from a contract of agency to sell. The novation theory may perhaps apply prior to the filing of the criminal information in court by the State Prosecutors because up to that time the original trust relation may be converted by the parties into an ordinary creditor-debtor situation, thereby placing complainant in estoppel to insist on the original trust. A crime being an offense against the State, only the latter can renounce it. Guingona vs. City Fiscal of Manila (128 SCRA 577) Time and savings deposits with the bank are contracts of simple loan or mutuum.The relationship between the depositor and bank is that of creditor and debtor. But even if bank failed to pay the time and savings deposits of depositor, violating paragraph 1(b) of Article 315 of the Revised Penal Code, there was no criminal liability. When the bank was placed under receivership by the Central Bank, petitioners Guingona and Martin assumed the obligation of the bank to depositor, thereby resulting in the novation of the original contractual obligation arising from deposit into a contract of loan and converting the original trust relation between the bank and depositor into an ordinary debtor-creditor relation between the petitioners and private respondent. Hence, the failure of the bank or petitioners Guingona and Martin to pay the deposits of depositor would not constitute a breach of trust but would merely be a failure to pay the obligation as a debtor.

For Mid-Term Examinations: …………………………. (5 weeks = 20 lecture hours) Possible Exam Date: Feb. 27, 2012 CONTRACTS (BOOK IV – TITLE II) Arts.1305-1422

I.

General Provisions (Chapter 1) Arts. 1305-1317 Perfect Promise – tends only to assure and pave the way for the celebration of the contract in the future, whereas a contract establishes and determines the obligations arising therefrom; Imperfect Promise (Policitation) – is a mere unaccepted offer Pact – a special part of the contract, merely incidental and separable from the principal agreement Stipulation – refers to the essential and dispositive part of the contract, as distinguished from the exposition of the facts and antecedents on which it is based Contract – juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of the prestation to give to do or not to do (Sanchez Roman) Stages of a Contract: 1. Preparation, Conception or Generation – period of negotiation and bargaining, ending at the moment of agreement between the parties 2. Perfection or Birth of the Contract – the moment when the parties come to agree on the terms of the contract; 3. Consummation or Death – the fulfillment or performance of the terms agreed upon in the contract (Soler vs. CA, 358 SCRA 63) Theories When Or The Moment Of Perfection Of A Contract: 1. Manifestation theory – the contract is perfected from the moment the acceptance is declared or made (Art. 54 Code of Commerce) 2. Expedition Theory – the contract is perfected from the moment the offeree transmits the letter/notification of acceptance to the offeror, as when the letter is placed in mailbox (U.S.A.) 3. Reception Theory – contract is perfected when the acceptance is in the hand of the offeror, even if the offeror has no actual knowledge of it because of absence, sickness, etc. 4. Cognition Theory – contract is perfected from the moment the acceptance comes to the knowledge of the offeror. (Art. 1319) (Note: Cognition Theory is adopted by New Civil Code) Four (4) Essential Characteristics of Contracts: 1. Obligatory force of Contracts – that is once a contract is perfected, it shall have obligatory force upon both contracting parties (Arts. 1159, 1315, 1356) 2. Autonomy or Freedom of Contracts – contracting parties are free to enter into a contract, to establish such terms, conditions, stipulations and clauses as they

may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. 3. Mutuality of Contracts – the essential equality of contracts whereby the parties are mutually bound by the contract; hence its validity or compliance cannot be left to the will of one of them (Art. 1308) 4. Relativity of Contracts – contracts take effect only between the parties, their heirs and assigns (Art. 1311) There are exceptions to the principle of relativity of contracts Case Studies: Almeda vs. CA (256 SCRA 292) The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. Floirendo vs. Metrobank (532 SCRA 43) Increases of interest rate unilaterally imposed by respondent bank without petitioner's assent are violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to time the rate of interest and/or bank charges "without advance notice" to petitioner, "in the event of change in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines," does not give respondent bank unrestrained freedom to charge any rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the contract. UCPB vs. Beluso(530 SCRA 567) The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as determined by the Branch Head" is indeed dependent solely on the will of petitioner UCPB and violates Art. 1308 of the Civil Code.Here, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head.. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts. Singson Encarnacion vs. Baldomar (77 Phil 470)

The continuance and fulfillment of the contract of lease cannot be made to depend solely and exclusively upon the free and uncontrolled choice of the lessees between continuing paying the rentals or not, completely depriving the owner of all say in the matter. If this were allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by article 1256 (now Art. 1308) of the Civil Code. Laolim vs. CA (191 SCRA 150) The disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee. Jespajo Realty Corp. vs. CA (390 SCRA 27) The contention of the petitioner that a provision in a contract that the lease period shall subsist for 'an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals' is contrary to Art. 1308 of the Civil Code is not plausible. As expounded by the Court in the case of Philippine Banking Corporation vs. Lui She (21 SCRA 52, 58 (1967)):"We have had occasion to delineate the scope and application of Article 1308 in the early case of Taylor v. Uy Tieng Piao. (43 Phil. 873 (1922). We said in that case: 'Article 1256 [now Art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. . . . .'" (Supra note 18 at p. 58.)

Allied Banking vs. CA (284 SCRA 357) The option which gives the lessee the sole option to renew the lease and which is provided in the same lease agreement, is fundamentally part of the consideration in the

contract and is no different from any other provision of the lease carrying an undertaking on the part of the lessor to act conditioned on the performance by the lessee. It is a purely executory contract and at most confers a right to obtain a renewal if there is compliance with the conditions on which the right is made to depend. The right of renewal constitutes a part of the lessee's interest in the land and forms a substantial and integral part of the agreement. The fact that such option is binding only on the lessor and can be exercised only by the lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give the option to the lessee. Garcia vs. Rita Legarda Inc. (21 SCRA 555) Where in a contract to sell subdivided lots in monthly installments, there has been a stipulation that in case of vendee's default in the payment of installments he should have a month of grace and an additional period of ninety days to pay all the amounts due otherwise the vendor should have the right to declare the contract cancelled and of no effect, such stipulation is valid and not violative of Art. 1308 of the new Civil Code. The validity or compliance thereof is not entirely left to the will of one of the contracting parties, but it merely gives the vendor the right to declare such contract cancelled and of no effect. Indeed, the power thus granted cannot be said to be immoral, much less unlawful, for it could not be arbitrarily exercised without the other party committing the breach of contract for nonpayment of the installments agreed upon. Obviously, all that said party had to do to prevent the other from exercising the power to cancel was for him to comply with his part of the contract. Case Studies (Exceptions to Principle of Relativity of Contracts): Coquia vs. Fieldmen’s Insurance Co. (26 SCRA 178)(Stipulation pour autrui) Although, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person." This is a restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. The insurance policy contains stipulations pursuant to which the insurance company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his personal representatives," and the Company "may, at its option, make indemnity payable directly to the claimants or heirs of claimants . . . in other words, third parties. This is typical of contracts pour autrui. This character being made more manifest by the

fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly commissions. Under these conditions, it is clear that the sole heirs of the deceased — have a direct cause of action against the Company (Uy Tam v. Leonard, 30 Phil. 471, 485-486; Kauffman v. Philippine National Bank, 42 Phil. 182, 187, 189), and, since they could have maintained this action by themselves, without the assistance of the insured it goes without saying that they could and did properly join the latter in filing the complaint herein (Guingon v. Capital Insurance & Surety Co., Inc., L-22042, Aug. 17, 1967).

Mandarin Villa Inc. vs. CA (257 SCRA 538)(Stipulation pour autrui) While private respondent may not be a party to the said agreement, the abovequoted stipulation conferred a favor upon the private respondent, a holder of credit card validly issued by BANKARD. This is a stipulation pour autrui and under Article 1311 of the Civil Code, private respondent may demand its fulfillment provided he communicated his acceptance to the petitioner before its revocation. In this case, private respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said stipulation but also an explicit communication of his acceptance to the obligor. Kaufman vs. PNB (42 Phil 182)(Stipulation pour autrui) A person in whose favor a bank sells telegraphic exchange on a foreign country may, in case payment is refused by the bank of destination, maintain an action against the bank selling the exchange, without regard to whether such payee was an immediate party to the purchase of the exchange or not. A stipulation in favor of a third person cannot be revoked by the obligated party alone, without the conformity of the other contracting party. II.

Essential Requisites (Chapter 2) - Arts. 1318-1354 Consent (Section 1) – Arts. 1319-1346 Option - contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price. Right of First Refusal – identity of terms and conditions offered to lessee and prospective buyers Right of First Refusal vs. Option (Arts. 1324 and 1479) In a contract of lease with 30-day exclusive option to purchase (leased premises), the proviso is valid even if there is no agreed purchase price – the consideration is the contract of lease itself. This

is not covered by Art. 1324 and 1479 which requires consideration distinct from the prucahse pri Two Kinds Of Vices of Consent:  Vices of Declaration – simulated contracts (Arts. 1345/1346)  Vices of the Will –mistake, violence, intimidation, undue influence, and fraud (Art. 1330) Classes of Fraud: 1. In general: criminal fraud and civil fraud 2. Civil fraud: b. Fraud in the performance of an existing obligation (Art. 1170) c. Fraud employed by the party to a contract in securing the consent of the other party (Art. 1338) Classifications of Fraud In Securing The Consent Of Other Party: 1. Dolo causante (causal fraud) – deceptions or misrepresentations of a serious character employed by one party without which the other party would not have entered into the contract 2. Doloincidente (incidental fraud)–incidental deceptions or misrepresentations without which the other party would still have entered into the contract

Case Studies: Vales vs. Villa (35 Phil 769) All men are presumed to be sane and normal and subject to be moved by substantially the same motives. When of age and sane, they must take care of themselves. In their relations with others in the business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In these contests men must depend upon themselves — upon their own abilities, talents, training, sense, acumen, judgment.x x x The foolish may lose all they have to the wise; but that does not mean that the law will give it back to them again. Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Courts operate not because one person has been defeated or overcome by another, but because he has been overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable judgment, and lose money by them — indeed, all they have in the world; but not for that

alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. Sanchez vs. Rigos (45 SCRA 368) X x x an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, (102 Phil 948) holding that "an option implies . . . the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts — the offer and the acceptance — could in such event generate a contract.While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain it for such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. (I Gasperi 302, 6 Planiol & Ripert 180). Sabalvaro vs. Erlanger (64 Phil 588) CONSENT IN A CONTRACT. —Plaintiff allegedly signed the document in question for fear of being dismissed from the corporation, but it does not appear that he has been intimidated by somebody. This does not prove that his consent was obtained by means of intimidation, and if he were to allege that it was for fear of incurring the displeasure of his employers that he signed the document in question, the answer would be the provision of article 1267 of the Civil Code that: "Fear of displeasing persons to whom obedience and respect are due shall not annul a contract." (Doctrine of Reverential Fear) Villegas vs. CA (499 SCRA 276) (Re: Article 1324) Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the time given for its acceptance. The offer may also be terminated when the person to whom the offer is made either rejects the offer outright or makes a counter-offer of his own. (Minneapolis & S.L. Railway v. Columbus Rolling Mill, 119 US 149, 30 L Ed. 376 (1886)) Equatorial Realty vs. Mayfair Theater Inc. (264 SCRA 483)

(Re: Article 1324) Where an action for annulment (rescission would have been proper) was granted, setting aside a contract of sale by the lessor in favor of a third person, in violation of the “Right Of First Refusal,” in the contract of lease between lessor and lessee. The court made a distinction between “option” and the “right of first refusal” in that in an “option,” an option money is necessary, but not in the right of first refusal. Tang vs. CA (90 SCRA 236) (Re: Article 1332) A deliberate concealment on the part of the insured of material facts about his physical condition and history entitles the insurer to rescind the contract.Under Article 1332, the obligation to show that the terms of the contract had been fully explained to the party who is unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves in the party seeking to enforce it. Where fraud or mistake is not alleged, and the one seeking to enforce the contract is the illiterate party, the party against whom the action is brought and who is seeking to avoid the performance of the contract is under no obligation to prove that the terms of the contracts were fully explained to the other party. In a life insurance contract, where the insurer is seeking to avoid its performance on the ground of concealment on the part of the insured, the insurer is not under obligation to prove that the terms of the contract were fully explained to the insured who was an illiterate. But even if we were to say that the insurer is the one seeking the performance of the contract by avoiding paying the claim, Article 1332 is inapplicable where there has been no imputation of mistake or fraud by the insured whose personality is represented by the beneficiary. B.

Object of Contracts (Section 2) – Arts. 1347-1349 Object vs. Cause – In a bilateral contract like sale, the object is the thing sold because it is the starting point of negotiation; the cause for the vendor is the price paid, while the cause for the vendee is the acquisition of the thing sold. May include future things and transmissible rights. 2 Exceptions To Prohibition of Contracts Of Future Inheritance: a. Art. 84 of Family Code on donations of future spouses to each other in donations propter nuptias (formalities of a will must be followed) b. Art. 1080 NCC. A person may partition intervivos his estate so long as legitime is not impaired.

C.

Cause of Contracts(Section 3) – Arts. 1350-1355 Cause of Contract – “why of the contract” – the immediate and most proximate purpose of the contract, the essential reason which impels the contracting parties to enter into it.

Distinction Between Motive and Cause (Art. 1351) Cause the direct proximate reason of a contract

Motive the indirect or remote reasons;

the objective or juridical reason of a contract cause for a certain contract is always the same

the psychological or personal reasons motives will differ or vary upon who are the parties cannot affect validity of contract

can affect the validity of a contract Case Studies: Uy vs. CA (314 SCRA 69)

The realization by the buyer of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. Under Article 1318 of the Civil Code, there is no contract unless there is consent, object certain andcause. Cause is the essential reason which moves the contracting and is the essential reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which does not affect the other party.Ordinarily, a party's motives for entering into the contract do not affect the contract. When the motive predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of Appeals, this Court, speaking through Justice J.B.L. Reyes, held: . . . It is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction and upholding the inoperativeness of the motives of the parties to determine the validity of the contract, expressly excepts from the rule, those contracts that are conditioned upon the attainment of the motives of their party. The same view is held by the Supreme Court of Spain, in its decisions of February 4, 1941, and December 4, 1946, holding that the motive may be regarded as causa when it predetermines the purpose of the contract. Hrs. of Balite vs. Lim (446 SCRA 56) (Re: Article 1345) Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the "contract". On the other hand, if the parties state a

false cause in the contract to conceal their real agreement, such a contract is relatively simulated. Here, the parties' real agreement binds them. Velez vs. Ramas (40 Phil 787) (Re: Article 1352) A promise given in consideration of a promise on the part of the obligee to refrain from instituting a criminal prosecution is void on account of the illicit character of the consideration. Mactal vs. Melegrito (1 SCRA 763) (Re: Article 1352) Where the defendant admits his indebtedness, and the dismissal of the estafa case against him merely furnished the occasion for the execution of a promissory note acknowledging said indebtedness, the consideration is the preexisting obligation and not the dismissal of the criminal case, hence the promissory note is valid and enforceable. Ong vs. Ong (139 SCRA 133) Although the cause is not stated in the contract it is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines which cannot be overcome by a simple assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration must be shown by preponderance of evidence in a proper action. (Samanilla vs. Cajucom, et al., 107 Phil. 432). Bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the contracting parties, as in the case at bar." Liguez vs. CA (102 Phil 577) (Re: Article 1350). Under Article 1274, of the Civil Code of 1889 (now Art. 1350, NCC), liberality of the donor is deemed causa only in those contracts that are of "pure" beneficience that is to say, contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor; contacts, in other words, in which the idea of self-interest is totally absent on the part of the transferor. Article 1274 (now Art. 1350, NCC) provides that in remuneratory contracts, the consideration is the service or benefit for which the remuneration is given; causa is not liberality in these cases because the contract or conveyance is not

made out of pure beneficience, but "solvendi animo".The motive of the parties may be regarded as causa when it predetermines the purpose of the contract. E. Razon Inc. vs. Phil Ports Authority (151 SCRA 233) (Re: Article 1352) The invalidity of the transfer of shares of stock springs not from vitiated consent nor absolute want of monetary consideration, but for its having had an unlawful cause — that of obtaining a government contract in violation of law. While the general rule is that the causa of the contract must not be confused with the motives of the parties, this case squarely fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the contract.(Liguez v. Court of Appeals, 102 Phil. 577). On the part of Romualdez, the motive was to be able to contract with the government which he was then prohibited by law from doing, and on petitioner Razon's part, to be able to renew his management contract.. III.

Form of Contracts (Chapter 3) Arts. 1356-1358 Kinds of Contracts A. Consensual – perfected by mere consent B. Real – perfected upon delivery C. Formal or Solemn  Donations Real Property (Art. 749) Personal Property exceeding P5T (Art. 748)  Stipulation To Charge Interest – Art. 1956  Sale Of Large Cattle  Agency To Sell Real Property Or An Interest Therein – Art. 1874  Antichresis – Art. 2134  Partnership Where Real Property Contributed – Arts. 1771, 1773  Stipulation Limiting Common Carrier’s Duty Of Extraordinary Diligence To Ordinary Diligence – Art. 1744  Chattel Mortgage

Case Studies: Tan vs. Lim (296 SCRA 455) (Re: Article 1356 in relation to Article 1403, No. 2 Statute of Frauds).There is no provision of law requiring a note or memorandum for a contract of partition to be valid. Contracts are obligatory in whatever form they may have been entered into provided all essential requirements are present. A note, transfer certificate of title, subdivision plan or memorandum are not necessary for the enforceability/validity of anoral contract of partition. A contract of partition is not one of the contracts mentioned in Article 1403 of

the Civil Code which lists the limited instances when written proof of a contract is essential for enforceability. Dauden-Hernaez vs. De Los Angeles (27 SCRA 1276) (Re: Article 1356). Form (oral and written) is irrelevant to the binding effect inter partes of a contract that possesses the three validating elements of consent, subject matter and causa, Article 1356 of the Civil Code establishes only two exceptions, to wit: (a) Contracts of which the law itself requires that they be in some particular form (writing) in order to make them valid and enforceable (the so-called solemn contracts). Of these the typical example are the donation of immovable property (Article 749) and donation of movables worth more than P5,000.00 (Article 743); contracts to pay interest on loans (mutuum) (Article 1956); and the agreements contemplated by Articles 1744, 1773, 1874 and 2134 of the present Civil Code. (b) Contracts that the law requires to be proved by some writing (memorandum) of its terms, as in those covered by the old Statute of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral testimony (unless wholly or partly executed), these contracts are exceptional in requiring a writing embodying the terms thereof for their enforceability by action in court. The contract sued upon by petitioner (compensation for services) need not be in written form. It is true that it appears included in Article 1358, last clause, providing that "all other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one." But Article 1358 nowhere provides that the absence of written form in this case will make the agreement invalid or unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are binding and enforceable by action or suit despite the absence of writing. Valencia vs. Tantoco (99 Phil 824) A recital in a public document celebrated with all the legal formalities under the safeguard of a notarial certificate is "evidence against the parties" and "a high degree of proof is necessary to overcome the legal presumption that such recital is true." The biased, interested testimony of plaintiff can not overcome the evidentiary force of the provisional contract of lease which was ratified before a notary public, and, hence, a public document. IV.

Reformation Of Instruments (Chapter 4) Arts. 1359-1369 This is the remedy if there is a meeting of minds of the parties but true intention is not expressed in the instrument because of mistake, fraud, inequitable conduct or accident Code Commission: Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed. The rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and measure of the rights and

obligations of the parties, is thus tempered, to forestall the effects of mistake, fraud or inequitable conduct. No Reformation Allowed In: o Simple donations inter vivos where no condition imposed o Wills o When the real agreement is void V.

Interpretation of Contracts (Chapter 5) – Arts. 1370 - 1379 Case Studies: Manila Electric Company vs. Board of Public Utility Commissioners (30 Phil 387) The franchise granted by the city of Manila to the Manila Electric Railroad and Light Company is a contract, and the construction placed thereon by the parties, for a long period of time, should have great weight in a controversy between them as to its scope and meaning. That a proposed statute was amended in the course of its enactment may be considered by this court; and the statute as amended may be compared with the original draft, in order to determine the proper construction of the law as finally passed. Phil. Trust Co vs. Lucio Echaus Tan Siua (52 Phil 852) In a mortgage on real property executed by the defendant in favor of the plaintiff bank to secure an indebtedness owing to the bank from a third party, the secured debt was described as bearing interest payable quarterly; but the original contract (incorporated by reference in the mortgage) showed that the interest was to be capitalized monthly. Upon comparison of the provisions of the two contracts, the intention of the parties evidently was to bind the defendant to the mode of payment expressed in the original contract. Gonzales vs. La Previsora Filipina (74 Phil 165) Articles 1281 and 1282, and 1288 old Civil Code (now Arts. 1370, 1371, 1377 NCC) should be applied in construing the contract. There should be no complete detachment from the antecedent circumstances and the conduct of the parties at the time of making the contract and subsequently thereto should not be disregarded.

VI.

Rescissible Contracts (Chapter 6) Arts. 1380-1389 Rescissible Contracts: (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) (4) (5)

Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them; 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; All other contracts specially declared by law to be subject to rescission.

Requisites for Action for Rescission: a. Plaintiff must be able to return what has been received b. The object of the contract is not in the legal possession of a third person in good faith c. There must be no other legal remedy d. The action must be brought within the prescriptive period Prescriptive Period: 4 years which shall begin in cases of persons under guardianship and for absentees until the termination of incapacity or until domicile of absentee is known. Requisites for Rescission of Contracts In Fraud of Creditors: a. Credit existing prior to celebration of contract to be rescinded b. Fraud or intent to commit fraud to prejudice creditor c. Creditor cannot in any other legal manner collect his credit d. Object of contract not with third person who acted in good good faith Tolentino – Even if debtor alienated property fraudulently, if transferee acquired property in good faith and for valuable consideration, rescission will not be allowed. However, if transfer is by gratuitous title, good faith of transferee will not be a bar to rescission, but transferee is entitled to rights of possessor in good faith Case Studies: Oria vs. McMicking (21 Phil 243) – Badges of Fraud (Re: Article 1387, par. 3 Rescissible Contracts) In determining whether or not a sale is fraudulent, the following circumstances, attending such sale, are indications of fraud: 1. The fact that the consideration of the conveyance is fictitious or is inadequate. 2. A transfer made by a debtor after suit has been begun and while it is pending against him. 3. A sale upon credit by an insolvent debtor. 4. Evidence of large indebtedness or complete insolvency. 5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially.

6. 7. property. VII.

The fact that the transfer is made between father and son, when there are present other of the above circumstances. The failure of the vendee to take exclusive possession of all of the

Voidable Contracts (Chapter 7) Arts. 1390-1402 Voidable/Annullable Contracts(binding, unless they are annulled by a proper action in court) (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. *R.A. 6809 (An Act Lowering the Age of Majority from Twenty-One to Eighteen Years, Amending for the Purpose Executive Order Numbered Two Hundred Nine, and for Other Purposes.) The validity of an annullable contract may be attacked: 1. Directly by an action for that purpose; 2. Indirectly by way of a defense; however, from the purely procedural aspect, this cannot be set up merely as an affirmative defense but by way of counterclaim, and defendant must ask for an order of mutual restitution under Art. 1398 Prescriptive Period: 4 years; counted from When there is fraud, mistake: from time of discovery when there is intimidation, violence, or undue influence, from time it ceases Confirmation – is applicable to annullable contracts, while ratification applies to unenforceable contracts or contracts where consent is totally absent. The act by which a person entitled to bring an action for annulment with knowledge of the caue for annulment and after it has ceased to exist, validates the contract, either expressly or impliedly. Ratification – is the act of approving a contract entered into by another without authority or beyond the scope of authority of the agent.

  

Requisites for Ratification/Confirmation: The contract is voidable/annulable. The confirmation is made with the knowledge of the cause of nullity. At the time of the confirmation is made, the cause of nullity has ceased to exist.

Confirmation and Ratification cures the defect of nullity, while acknowledgement remedies the deficiency of proof; thus when a contract is entered into through error is approved, there is confirmation/ratification. When an oral contract is put in writing or when a private writing is converted into a public instrument, there is acknowledgment. VIII. Unenforceable Contracts (Chapter 8) Arts. 1403-1408 Unenforceable Contracts (unless ratified) (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. (3) Those where both parties are incapable of giving consent to a contract.     

Fundamental Principles of the Statute of Frauds Applies only to executory contracts;  Cannot apply if action is neither for specific performance nor for damages because of a violation; Exclusive; May be waived; Is a personal defense; Not void but merely unenforceable;

 

Rule of exclusion Determine admissibility of evidence, not merely credibility. Case Studies: BF Corp. vs. CA (288 SCRA 267) (Re: Article 1403, No. 2 Statute of Frauds) A contract, to be enforceable under the Statute of Frauds, need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. It may be encompassed in several instruments even though every instrument it not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it. Rosencor Devt. Crop vs. Inquing (354 SCRA 119) (Re: Right of First Refusal). The term "statute of frauds" require certain classes of contracts to be in writing but does not deprive the parties of the right to contract with respect to the matters therein involved. It merely regulates the formalities of the contract necessary to render it enforceable to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. It refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein. It presupposes the existence of a perfected contract.A right of first refusal isnot among those listed as unenforceable under the statute of frauds. Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of first refusal, such as the one involved in the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold. It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be written to be enforceable and may be proven by oral evidence. Paredes vs. Espino (22 SCRA 1000) The Statute of Frauds, embodied in Article 1403, Civil Code of the Philippines, does not require that the contract itself be in writing. The plain text of Art. 1403, paragraph (2) is clear that a written note or memorandum, embodying the essentials of the contract and signed by the party charged, or his agent, suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. The letter, sent by defendant-appellee coupled with that one marked as appendix B, constitute an adequate

memorandum of the transaction. They are signed by the defendant-appellee; refer to the property sold, give its area and the purchase price . We have in them, therefore, all the essential terms of the contract, and they satisfy the requirements of the Statute of Frauds. We have ruled that a sufficient memorandum may be contained in two or more documents. (Berg vs. Magdalena Estate, Inc., 92 Phil., 110, 115). Syquia vs. CA (151 SCRA 505 ) Proof of the alleged verbal assurance of a lease renewal cannot be allowed both under the Parol Evidence Rule and the Statute of Frauds for failure to put in writing said alleged stipulation. Berg vs. Magdalena Estate (92 Phil 110) "No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-215, is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form." (37 C.J.S., 653- 654.) "The note or memorandum required by the statute of fraud need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the statute as to signature, as considered respectively infra secs. 179-200 and secs. 201-215. Western Mindanao Lumber Co. Inc. vs. Medalle (79 SCRA 703) The Statute of frauds refers to specific kinds of transactions and cannot apply to any that is not enumerated therein.an agreement creating an easement of right-of-way is not one of those contracts covered by the statute of frauds since it is not a sale of real property or of an interest therein. IX.

Void Or Inexistent Contracts (Chapter 9) Arts. 1409-1422 Void and Inexistent Contracts(cannot be ratified nor defense of illegality waived) (1) (2) (3)

Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; Those which are absolutely simulated or fictitious; Those whose cause or object did not exist at the time of the transaction;

(4) (5) (6) (7)

Those whose object is outside the commerce of men; Those which contemplate an impossible service; Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; Those expressly prohibited or declared void by law.

Prescriptive Period: Action or defense for declaration of illegality of contract does not prescribe 2 Kinds of Void Contracts: a. Inexistent Contract – when essential formalities are not complied with. Example: donation of land in a private document b. Illegal/Illicit Contract –donation based on immoral consideration, illicit sexual intercourse (Liguez vs. CA, 102 Phil 577) Case Studies: Yu Guan vs. Ong (367 SCRA 559) In Rongavilla v. Court of Appeals (294 SCRA 289, August 17, 1998), the Court declared that a deed of sale, in which the stated consideration had not in fact been paid, is null and void: "The 'problem' is whether a deed which states a consideration that in fact did not exist, is a contract, without consideration, and therefore void ab initio, or a contract with a false consideration. In Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,]we ruled that a contract of purchase and sale is null and null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to vendor." The Deed of Sale was completely simulated and, hence, void and without effect. No portion of the consideration stated in the Deed was ever paid and neither party had any intention whatsoever to pay that amount. De los Reyes vs. CA (313 SCRA 632) For want of capacity (to give consent) on the part of the seller, the oral contract of sale lacks one of the essential requisites for its validity prescribed under Article 1318, supra and is therefore null and void ab initio. In "Nool vs. Court of Appeals (276 SCRA 149), if a void contract has been performed, the restoration of what has been given is in order, seller should be ordered to refund to buyers the amount of which they have paid to and receipt of which was duly acknowledged by him. The entire controversy must be resolved in a single proceeding leaving no root or branch to bear the seeds of future litigation especially where the Court can resolve the dispute based on the records before it.

JG Summit Inc vs. CA (450 SCRA 169) This case refers to a right of first refusal over shares of stock while the Lui She case (Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967) involves an option to buy the land itself. There is a distinction between the shareholder's ownership of shares and the corporation's ownership of land arising from the separate juridical personalities of the corporation and its shareholders.No law disqualifies a person from purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign equity, what the law disqualifies is the corporation from owning land. i. Principle of Pari Delicto – 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 (Arts. 1411 & 1412) Case Studies: Hrs. of Marciana Avila vs. CA (145 SCRA 541) While it is true that Marciana Avila, their predecessor-in-interest, purchased the questioned property at a public auction conducted by the government; paid the purchase price; and was issued a final bill of sale after the expiration of the redemption period; however such purchase was prohibited under Section 579 of the Revised Administrative Code, as amended., the sale to her of Lot 594 is void.On the other hand, under Article 1409 of the Civil Code, a void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived. (Arsenal, et al. vs. The Intermediate Appellate Court, et al., G.R. No. 66696, July 14, 1986). The buyer, as a party to an illegal transaction, cannot recover what she has given by reason of the contract nor ask for the fulfillment of what has been promised her under Art. 1412. Teja Marketing vs. IAC (148 SCRA 347) The parties herein operated under a "kabit system" whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. It has been identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices. A certificate of public convenience is: (a) a special privilege conferred by the government and must not be abused; (b) is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. The court will not aid either party to enforce an illegal contract, butwill leave both where it finds themunder Article 1412 of the Civil Code.

Ramirez vs. Ramirez (485 SCRA 92)

Forging a person's signature corresponds to the felony of falsification under Section 4, Title IV of the Revised Penal Code. The act of forging Dolores's signature constitutes a criminal offense under the terms of Article 1411 of the Civil Code. Under Article 1411 of the Civil Code, it must be shown that the nullity of the contract proceeds from an illegal cause or object, and the act of executing said contract constitutes a criminal offense. The second requirement has already been discussed and is found to be present. Object and cause are two separate elements of a donation and the illegality of either element gives rise to the application of the doctrine of pari delicto.. Frenzel vs. Catito (406 SCRA 55) Petitioner, an alien, cannot feign ignorance of the constitutional proscription, nor claim that he acted in good faith, let alone assert that he is less guilty than the respondent who was his common law wife in whose name the properties were registered. Petitioner is fully aware that he was disqualified from acquiring and owning lands under Philippine law even before he purchased the properties in question; and, to skirt the constitutional prohibition, he had the deed of sale placed under the respondent's name as the sole vendee thereof. Being a party to an illegal contract, petitioner cannot come into a court of law and ask to have his illegal objective carried out because one who loses his money or property by knowingly engaging in a contract or transaction which involves his own moral turpitude may not maintain an action for his losses. To allow petitioner to recover the properties or the money used in the purchase of the parcels of land would be subversive of public policy. Acabal vs. Acabal (454 SCRA 555) Even assuming that the sale of landviolated the retention limits of Republic Act No. 6657( Comprehensive Agrarian Reform Law), he would still have no remedy under the law as he and Leonardo were in pari delicto. He is not entitled to affirmative relief — one who seeks equity and justice must come to court with clean hands. In pari delicto potior est conditio defendentis. No action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation. Where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other. The principle of pari delicto is grounded on two premises: first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. (ii)

Exceptions to Pari-Delicto – Arts. 1413- 1319

Menchavez vs. Teves (449 SCRA 380)

There are exceptions to the pari delicto rule that permit the return of that which may have been given under a void contract. (Justice Vitug cites some of these exceptions, under which recovery may be made by any of the following:"(a) The innocent party (Arts. 1411-1412, Civil Code); "(b) The debtor who pays usurious interest (Art. 1413, Civil Code); "(c) The party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code); "(d) The incapacitated party if the interest of justice so demands (Art. 1515, Civil Code); "(e) The party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code); and "(f) The party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code) and labor laws (Arts. 1418-1419, Civil Code)." Vitug, Civil Law Annotated, Vol. III (2003), pp. 159-160. One of the exceptions is found in Article 1412 of the Civil Code, which states: "Art. 1412. 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 with his promise." Angeles vs. Court of Appeals (102 Phil 1006)(Re: Art. 1416- if public policy is enhanced, pari delicto rule does not apply) Where a homestead was illegally sold in violation of the homestead law, the principle of in pari delicto is not applicable. Reason for the rule is that the policy of the law is to give land to a family for home and cultivation and the law allows the homesteader to reacquire the land even if it has been sold; hence the right may not be waived. In the case at bar, the sale of the homestead by the deceased homesteader within five years from the issuance of the patent was null and void and his heir have the right to recover the homestead illegally disposed. Philippine Banking Corp vs. Lui She (21 SCRA 52) (Re:Art. 1416, exception to pari delicto) A lease to an alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship.Aliens are not completely excluded by the Constitution from the use of lands for residential purposes. Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract which is not forbidden by the

Constitution. But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, the arrangement is now a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it (jus disponendi) — rights the sum total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. If this can be done, then the Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs. Register of Deeds (79 Phil 461), is indeed in grave peril. It does not follow that because the parties are in pari delicto they will be left where they are without relief. Article 1416 of the Civil Code provides as an exception to the rule in pari delicto that "when the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered." ‘c. Examples of Void Contracts: o Pactum Commissorium - Arts. 2088, 2130, 1390 A stipulation authorizing creditor to automatically appropriate the things mortgaged/pledged in case of default, is void. o Pactum de non Alienando– Art. 2130 A stipulation forbidding the owner from alienating the immovable mortgaged, is void. o Pactum Leonina – Art. 1799 A stipulation which excludes one or more partners from any shares in profits and losses, is void. NATURAL OBLIGATIONS – (BOOK IV- TITLE III) Arts. 1423-1430 Natural Obligations – not being based on positive law, but on equity and natural law, do not grant a right of action to enforce their performance, but voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. They are midway between civil obligations and purely moral obligations. The term “fulfillment” does not refer only to the delivery of things but also the performance of an act, the giving of security, the execution of a document, the abandonment of an act. (Art 1423) Conditions of Natural Obligations: 1. Juridical Tie between 2 persons 2. Juridical Tie as such is not given effect by law -The first condition distinguishes natural obligation from moral obligation. -The second condition distinguishes natural obligation from civil obligation.

- Juridical Tie or legal tie or Vinculum is that which binds the person to an obligation. It is also known as the efficient cause. Instances of Natural Obligations : A. The obligor who voluntarily performs the contract notwithstanding that the right to sue upon a civil obligation has lapsed by extinctive prescription, there no recovery for what he ahs delivered or service rendered ; (Art 1424) B. The obligor who reimburses a third person who pays the debt without the knowledge and against his will, cannot recover what he ahs paid ; (Art 1425) C. A minor (below 18 years)* who entered into a contract without consent of parent/guardian who: a. Voluntarily returns whole thing/price received (even if minor was not benefited) (Art. 1426) cannot demand thing/price returned b. Voluntarily pays sum of money, delivers a fungible thing in fulfillment of obligation (Art. 1427) cannot recover money/fungible thing delivered if obligee spent or consumed it in good faith . *R.A. 6809 (An Act Lowering the Age of Majority from Twenty-One to Eighteen Years, Amending for the Purpose Executive Order Numbered Two Hundred Nine, and for Other Purposes.) D. A defendant who voluntarily performs an obligation after an action to enforce a civil obligation has failed cannot demand the return of what he has delivered or payment of the service rendered ; (Art 1428) E. An heir (testate or intestate) who voluntarily pays a debt exceeding the value of property of the decedent cannot rescind payment since it is valid; (Art 1429) F. An intestate heir who pays a legacy in a defective will (Art 1430) - Refer to Art 2154 Solutio Indebiti – obligation to return arises when something is received even if there is no right to demand it or delivered by mistake ESTOPPEL –(BOOK IV – TITLE IV) Arts. 1431 - 1439 Estoppel - Through estoppel, an admission or representation is rendered conclusive upon the person making it and it cannot be denied or disproved against the person relying thereon. 3 Kinds of Estoppel: 1. Estoppel In Pais Or by Conduct – 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 certain facts to exist, and such other rightfully relies and acts upon such belief, as a consequence of which he would be prejudiced if the former is permitted to deny the existence of such facts; 2. Estoppel By Deed or By Record– technical estoppels by 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 to the deed or from denying any material fact asserted therein. 3. Laches – the failure or neglect, for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have done earlier; it is negligence or omission to assert a right within a reasonable time warranting the assumption that the party entitled to assert it, either has abandoned or declined it. Elements Of Laches: (a) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (b) delay in asserting the complainant's rights, the complainant having had knowledge or notice, of the defendant's conduct and having been afforded an opportunity to institute a suit; (c) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (d) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred (Mejia de Lucas vs. Gamponia, G.R. No. L-9335, October 31, 1956, 100 Phil 277, ;Rafols vs. Barba (119 SCRA 146) Case Studies: Cristobal vs. Melchor, (78 SCRA 175) “Laches is the 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 a reasonable time, warranting the presumption that the party entitled thereto either has abandoned it or declined to assert it.” (Tijam vs. Sibonghanoy, 23 SCRA 35). D’Oro Land. Realty Devt. Corp. vs. Claunan (516 SCRA 681) (See Mejia de Lucas vs. Gamponia above , especially ( c ) and (d). )Please note 4 the elements of laches above. The third and fourth elements of laches are not present becauserespondents, being mere squatters, cannot be said to have lacked notice that petitioner would assert its right over the lots considering that they knew from the beginning that they have no right to the same. Neither can respondents claim any injury or prejudice that would result by restoring possession of the lots to petitioner. Respondents have no possessory rights over the lots. As mere intruders, they are bound to an implied promise to surrender possession of the property to the real owner, regardless of the identity of the latter. Miguel vs. Catalino (26 SCRA 234)

(Distinction Between Laches and Prescription).The defense of laches applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. 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. Prescription is statutory; laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (citing Nielson & Co., Inc. vs. Lepanto Consolidated Mining Co., L-21601, 17 December 1966). The 1928 sale was void for lack of the governor's approval. The vendor and also his heirs after him, could have instituted an action to annul the sale from that time, but instead waited for 34 years to institute suit. The defendant was made to feel secure in the belief that no action would be filed against him by such passivity, and also because he "bought" again the land in 1949 from Grace Ventura who alone tried to question his ownership; so that the defendant will be plainly prejudiced in the event the present action is not held to be barred. Vda. De Cabrera vs. CA (267 SCRA 339) Under the Land Registration Act (now Sec. 47 of PD 1529, the Property Registration Decree), no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession. The same is not true with regard to laches. While the defendant may not be considered as having acquired title by virtue of his and his predecessor's long continued possession (37 years) the original owner's right to recover back the possession of the property and the title thereto from the defendant has, by the latter's long period of possession and by patentee's inaction and neglect, been converted into a stale demand and is barred by laches. De Vera-Cruz v. Miguel (468 SCRA 506), Although a registered landowner may lose his right to recover possession of his registered property by reason of laches, the equitable defense is unavailing to one who has not shown any color of title to the property:Having no title or document to overcome petitioners' ownership over the land in question, respondent is therefore an intruder or squatter whose occupation of the land is merely being tolerated. A squatter has no possessory rights over the land intruded upon. As such, her occupancy of the land is only at the owner's sufferance, her acts are merely tolerated and cannot affect the owner's possession. She is necessarily bound to an implied promise that she will vacate upon demand. (Id. at 523.) Estate of Yujuico vs. Republic (537 SCRA 513) While it may be true that estoppel does not operate against the state or its agents, (Manila Lodge No. 761 v. Court of Appeals, No. L-41001, September 30, 1976, 73 SCRA

166) deviations have been allowed where it was ruled: Estoppels against the public are little favored. They should not be invoked except in rare and unusual circumstances, and may not be invoked where they would operate to defeat the effective operation of a policy adopted to protect the public. They must be applied with circumspection and should be applied only in those special cases where the interests of justice clearly require it. Nevertheless, the government must not be allowed to deal dishonorably or capriciously with its citizens, and must not play an ignoble part or do a shabby thing; and subject to limitations . . ., the doctrine of equitable estoppel may be invoked against public authorities as well as against private individuals. (31 CJS 675-676; cited in Republic v. CA, G.R. No. 116111, January 21, 1999, 301 SCRA 366, 377) .Equitable estoppel may be invoked against public authorities when as in this case, the lot was already alienated to innocent buyers for value and the government did not undertake any act to contest the title for an unreasonable length of time. Tijam vs. Sibonghanoy (23 SCRA 29) A party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and, after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction. Whether the court had jurisdiction either of the subject matter of the action or of the parties was not important in such cases because the party is barred from such conduct not because the judgment or order of the court is valid and conclusive as an adjudication, but for the reason that such a practice cannot be tolerated — obviously for reasons of public policy. Jurisdiction over the subject matter is conferred upon the courts exclusively by law, and as the lack of it affects the very authority of the court to take cognizance of the case, the objection may be raised at any stage of the proceedings. However, considering the facts and circumstances of the present case, the Surety is now barred by laches from invoking this plea at this late hour for the purpose of annulling everything done heretofore in the case with its active participation. Accessories Specialists Inc. vs. Alabanza (559 SCRA 550) The principle of promissory estoppel is: (a) a recognized exception to the threeyear prescriptive period enunciated in Article 291 of the Labor Code.Promissory estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon, as in fact it was relied upon, and if a refusal to enforce it would virtually sanction the perpetration of fraud or would result in other injustice. (Ramos v. Central Bank of the Philippines, No. L-29352, October 4, 1971, 41 SCRA 565.); (b) presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the court can understand the obligation assumed and enforce the promise according to its terms. (National Power Corporation v. Hon. AlonzoLegasto, G.R. No. 148318, November 22, 2004, 443 SCRA 342, 371.) To make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise was reasonably expected to induce action or forbearance; (2) such promise did, in fact, induce such action or forbearance; and (3) the party suffered detriment as a result.(Mendoza v. Court of Appeals, 412 Phil. 14, 29 (2001).

TRUSTS – (BOOK IV –TITLE V) Arts. 1440-1457 Trust is the legal relationship between one person having equitable ownership in the property (beneficiary/cestui que trust) and another person owning the legal title thereto (trustee), the equitable ownership of the former entitling him to the performance of certain duties and he exercise of certain rights by the latter (American Jurisprudence). "A person who establishes a trust is called the trustor; one in whom confidence is reposed is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and the cestui que trust as regards certain property, real, personal, money or choses in action (Pacheco vs. Arro, 85 Phil. 505). Kinds of Trusts 1

Express Trust Arts. 1443- 1446 – created by the intention of the trustor or of the parties. - No express trusts concerning an immovable or any interest therein may be proven by oral evidence. Cestui Que Trust or Beneficiary – One who has a beneficial interest in and out of an estate, the legal title to which is vested in another Case Studies: Ramos vs. Ramos (61 SCRA 284) A trustee cannot acquire by prescription the ownership of property entrusted to him (Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey property registered in his name in trust for the benefit of the cestui qui trust does not prescribe (Manalang vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or that the defense of prescription cannot be set up in an action to recover property held by a person in trust for the benefit of another (Sevilla vs. De los Angeles, 97 Phil. 875), or that property held in trust can be recovered by the beneficiary regardless of the lapse of time (Marabilles vs. Quito, 100 Phil. 64; Bancairen vs. Diones, 98 Phil. 122, 126 Juan vs. Zuñiga, 62 O.G. 1351; 4 SCRA 1221; Jacinto vs. Jacinto, L-17957, May 31, 1962. See Tamayo vs. Callejo, 147 Phil. 31, 37). That rule applies squarely to express trusts because possession of a trustee is not adverse; hence, he does not acquire by prescription the property held in trust. Section 38

of Act 190 provides that the law of prescription does not apply "in the case of a continuing and subsisting trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266) Viloria vs. CA (309 SCRA 529) Petitioner cannot rely on the registration of the land subject of the sale and the corresponding issuance of a certificate of title in his name since the deed of sale is an express trust. A trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration. Prescriptive period for an action of reconveyance of real property based on implied or constructive trust which is counted from the date of registration of property applies when the plaintiff is not in possession of the contested property. An action to compel the trustee to convey property registered in his name for the benefit of the cestui que trust does not prescribe unless the trustee repudiates the trust. 2

Implied Trust – Arts. 1447 -1457

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 a

b

Resulting Trust - trust 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 (Arts. 1447 to 1455). The rule of imprescriptibility may apply so long as the trustee has not repudiated the trust; once the resulting trust is repudiated however, it is converted to a constructive trust, subject to prescription. Constructive Trust – a trust not created by words, either expressly or impliedly evidencing a direct intention to create a trust, but by the construction of equity in order to satisfy the demands of justice. (Art. 1456) Prescription may supervene.

Case Studies: Ramos vs. Ramos (61 SCRA 284) No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust" (89 C.J.S. 122).

"Implied trusts 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" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722). "A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed always to have been contemplated of the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance" (89 C.J.S. 725). Examples of resulting trusts are found in article 1448 to 1455 of the Civil Code. See Padilla vs. Court of Appeals, L31569, September 28, 1973, 53 SCRA 168, 179). A constructive trust is a trust "raised by construction of law, or arising by operation of law". In a more restricted sense and as contradistinguished from a resulting trust, a constructive trust is "a trust not created by any 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. It does not arise by agreement or intention but by operation of law." (89 C.J.S. 726-727). "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." A constructive trust is not a trust in the technical sense (Gayondato vs. Treasurer of the P.I., 49 Phil. 244; See Art. 1456, Civil Code).

Vda. De Cabrera vs. CA (267 SCRA 339) In Heirs of Jose Olviga vs. Court of Appeals, G.R. No. 104813, October 21, 1993, 227 SCRA 330, an action for reconveyance of a parcel of land based on implied or constructive trust prescribes in ten years, the point of reference being the date of registration of the deed or the date of the issuance of the certificate of title over the property, but this rule applies only when the plaintiff or the person enforcing the trust is not in possession of the property, since if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. One who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession. The period of prescription may start, it must be shown that (a) the trustee had performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust, (b) such positive acts of repudiation have been made known to the cestui que trust, and, (c) the evidence thereon is clear and positive.

Ramos vs. CA (232 SCRA 348) A resulting trust is an "intent-enforcing" trust, based on a finding by the court that in view of the relationship of the parties their acts express an intent to have a trust, even though they did not use language to that effect. The trust is said to result in law from the acts of the parties. However, if the purpose of the payor of the consideration in having title placed in the name of another was to evade some rule of the common or statute law, the courts: (a) will not assist the payor in achieving his improper purpose be enforcing a resulting trust for him in accordance with the "clean hands" doctrine.; (b) refuse to give aid to claims from rights arising out of an illegal transaction, such as where the payor could not lawfully take title to land in his own name and he used the grantee as a mere dummy to hold for him and enable him to evade the land laws, e.g. an alien who is ineligible to hold title to land, who pays for it and has the title put in the name of a citizen. As an exception to the law on trusts, "[a] trust or a provision in the terms of a trust is invalid if the enforcement of the trust or provision would be against public policy, even though its performance does not involve the commission of a criminal or tortious act by the trustee." The parties must necessarily be subject to the same limitations on allowable stipulations in ordinary contracts, i.e., their stipulations must not be contrary to law, morals, good customs, public order, or public policy. What the parties then cannot expressly provide in their contracts for being contrary to law and public policy, they cannot impliedly or implicitly do so in the guise of a resulting trust. O’Lao vs. Co Cho Chit (220 SCRA 656) Unlike express trusts concerning immovables or any interest therein which cannot be proved by parol evidence, implied trusts may be established by oral evidence. To establish an implied trust in real property by parol evidence, the proof: (a) should be as fully convincing as if the acts giving rise to the trust obligation were proven by an authentic document; (b). cannot be established upon vague and inconclusive proof. Art. 1448 of the New Civil Code states —There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary . . ." PNB vs. Angel Jose (63 Phil 814) Trust receipts, as contracts, in a certain manner partake of the nature of a conditional sale as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the person who has advanced payment, until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest.

PART II SALES – (BOOK IV – TITLE VI) Arts. 1458-1637 I.

Nature and Form Of The Contract (Chapter 1) Arts. 1458-1488 Contract Of Sale- one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. (Art. 1458) Sale is a title not a mode of acquiring ownership.

1. 2. 3.

Essential Requisites of a Contract of Sale consent or meeting of the minds; determinate subject matter; price certain in money or its equivalent Characteristics of a Contract of Sale  Consensual (as distinguished from real)  Bilateral reciprocal  Onerous  Commutative  Principal (as distinguished from accessory)  Nominate Case Studies: Quiroga vs. Parsons Hardware Co. (38 Phil 501) (Distinction between Contract of Sale and Agency to Sell) The cause and subject matter of the contract was that the plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated price, and that the defendant was to pay this price in the manner agreed upon. These are the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on that of the defendant, to pay their price. This is not an agency or order to sell whereby the mandatary or agent receives the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. Acap vs. CA (251 SCRA 30)

A declaration of heirship and waiver of rights is an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. In a sale of hereditary rights,a contract or deed of sale between the parties is presumed to exist.A waiver of hereditary rights is a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. A stranger to the succession of the subject estate, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document because it does not recite the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership. Naranja vs. CA (586 SCRA 31) To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present. (CIVIL CODE, Art. 1356.).The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is only a suggested form and is not a mandatory form. Delpher Trade Corp vs. CA (157 SCRA 349) The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a right of first refusal under the lease contract. .

Stages of Contract of Sale 1.Preparatory – Art. 1479 a. Offer – Art. 1475 b. Contract of Option – Arts. 1479, 1324 Right of First Refusal Mutual Promise to Buy and Sell – Art. 1479 2. Perfection – Arts. 1475, 1319, 1325, 1326

Case Study: Quijada vs. CA (299 SCRA 695)

The law requires that the seller has the right to transfer ownership at the time the thing sold is delivered and not ownership by the seller on the thing sold at the time of the perfection of the contract of sale.Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection: hence, the sale is still valid.The consummation occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller subsequently acquires ownership thereof. Such circumstance happened in this case when sellers became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to buyer respondent Mondejar and those who claim their right from him. Article 1434 of the New Civil Code supports the ruling that the seller's "title passes by operation of law to the buyer." This rule applies not only when the subject matter of the contract of sale is goods, but also to other kinds of property, including real property. Mutual Promise To Buy and Sell – a bilateral reciprocal contract whereby both parties make promises (the buyer to buy and the seller to sell).Equivalent to a perfected sale. (Art. 1479) Accepted Unilateral Promise To Either Buy Or Sell– only one party makes a promise and this promise is accepted by the other. This is binding on promissor only if the promise is supported by a consideration distinct from price. (Art. 1479) Option to Buy or Sell- a party agrees, promises and commits to sell/buy land without a consideration distinct from the price. A party may still withdraw the promise before acceptance by the other party. Earnest Money vs. Option Money Earnest Money part of the purchase price given only where there is already a sale the buyer is bound to pay the balance,

Option Money money given as a distinct consideration for an option contract applies to a sale not yet perfected; when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.

Case Studies: Eulogio vs. Apeles (576 SCRA 561) An option is: (a) a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former's property at a

fixed price within a certain time;(b) a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. (Tayag v. Lacson, G.R. No. 134971, 25 March 2004, 426 SCRA 282, 304.) An accepted unilateral promise can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee. The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract". The consideration contemplated to support an option contract need not be monetary. Actual cash need not be exchanged for the option. An option contractis an onerous contract for which the consideration must be something of value, although its kind may vary. Sanchez vs. Rigos (45 SCRA 368) In the "Option to Purchase,", the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff, but there is nothing in the contract to show that the undertaking is supported by a consideration "distinct from the price." It is not a "contract to buy and sell"but an "option" to buy.There is no distinction between Articles 1324 and 1479 of the Civil Code and the former applies where a unilateral promise to sell similar to the one sued upon was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. Serra vs. CA (229 SCRA 60) In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may then reciprocally demand performance. An optional contract is a privilege existing only in one party — the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. Contract of Sale vs. Contract To Sell

Contract of Sale

Contract To Sell (Conditional Contract Of Sale) Non-payment of price is resolutory condition Non-payment of price is suspensive condition which ends transaction and the obligation of seller to deliver never becomes effective Title to property generally passes to buyer Ownership is retained by seller regardless of upon delivery delivery and passes only upon full payment of price Seller loses ownership upon delivery and may Seller retains ownership (even if there is recover only if contract is rescinded delivery). He is merely enforcing contract if he ousts the buyer for failure to pay Case Study: Ramos vs. Heruela (473 SCRA 79) Article 1458 NCC provides that a contract of sale may be absolute or conditional.A contract of sale isabsolute: (a) when title to the property passes to the vendee upon delivery of the thing sold; (b) there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price; (c) if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee fails to pay within a fixed period. In a conditional sale (contract to sell): (a) ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price; (b)the full payment of the purchase price partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising. 3. Formalities of the Contract – Art. 1403 (d) (e) 4. Price  Meaning Of Price – Arts. 1469-1474  Requisites For A Valid Price  How Price Is Determined -with reference to another thing certain - may be left to judgment of a specified person(s) - by the courts if the 3rd persons acted in bad faith -by the innocent party if the 3rd person(s) are prevented - by the other contracting party from fixing price 

Inadequacy Of Price – Arts. 1355, 1470 Rule: Does not affect contract of sale but may indicate defect in consent or that parties intended donation

Case Studies:

Warner Barnes vs. Santos (14 Phil 446) Plaintiff brought an action to foreclose the mortgage on defendant’s property. Based on judgment by default, execution was issued and the mortgaged property duly sold.When the plaintiff filed a motion for the confirmation of the sale of said property, the defendant opposed it. Held: A judicial sale of real estate in an action to foreclose will not be set aside for inadequacy of price, unless the inadequacy be so great as to shock the conscience or unless there be additional circumstances against its fairness. De Leon vs. Salvador (36 SCRA 567) In ordinary sales, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere. This is not so when the law gives to the owner the right to redeem, as when a sale is made at public auction, because the lesser the price, the easier it is for the owner to redeem. 'When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by reason of the price obtained at the auction sale.' "   II.

When No Price Agreed – Art. 1474 Manner Of Payment Must Be Agreed Upon

Capacity To Buy Or Sell (Chapter 2) Arts. 1489-1492 A.

Capacity to Buy or Sell – Arts. 1489-1492 Rule: Contracts entered into by minors are generally voidable

B. C.

Absolute Incapacity – Arts. 1327, 1397, 1399 Relative Incapacity: (Art. 1490) Rule:Married Persons/Common Law Husbands & Wives cannot sell to each other Exceptions: 1. when there is separation of property in marriage settlement 2. when there has been judicial separation of property

Case Studies: Ching vs. Goyangko Jr. (506 SCRA 735) The proscription against sale of property between spouses applies even to common law relationships. In Calimlim-Canullas v. Hon. Fortun, etc., et al. (214 Phil. 593 (1984). It was ruled that the contract of sale was null and void for being contrary to

morals and public policy and for being violative of Articles 1352, 1409 and 1490 of the Civil Code. Calimlim-Canullas vs. Hon. Fortun (129 SCRA 675) The lot on which husband and his wife built their conjugal house became conjugal property from the time the house was first built thereon. The husband could not have alienated the house and lot to the concubine since the wife had not given her consent to said sale (Article 166, Civil Code).The contract of sale was null and void for being contrary to morals and public policy. Article 1409 of the Civil Code states:“contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and inexistent from the very beginning. Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy." The law prohibits the spouses from selling/donating property to each other to prevent: (a) the destruction of the system of conjugal partnership, a basic policy in civil law; (b) the exercise of undue influence by one spouse over the other; (c) as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union." Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties.( Buenaventura vs. Bautista (CA) 50 O.G. 3679, and cited in Matabuena vs. Cervantes, 38 SCRA 284 (1971). D.

Special Disqualifications – Arts. 1491-1492 (applies also to sales in legal redemption, compromises and renunciations)    

 

Agents (property where administration/sale entrusted to them) Executors (property under administration) Public Officers & Employees (property of State/subdivision thereof/ GOCC, etc. under their administration) Justices, judges, prosecuting attorneys, clerks of superior/inferior courts and other employees (property in litigation/levied upon in execution within their territorial jurisdiction) Lawyers (property/right in litigation where they take part) Others specially disqualified by law

Case Study: Daroy vs. Abecia (298 SCRA 239) The prohibition in Art. 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. While judges, prosecuting attorneys, and

others connected with the administration of justice are prohibited from acquiring "property or rights in litigation or levied upon in execution," the prohibition with respect to attorneys in the case extends only to "property and rights which may be the object of any litigation in which they may take part by virtue of their profession." D. Sellers Who Are Not Owners or With Voidable Titles Sale By A Person Not The Owner At Time Of Perfection Of Contract Of Sale Rule: Valid because sale may cover future goods so long as seller has right to transfer ownership at the time of delivery 2.

Sale by a Person Who Is Not Owner And Who Sells Without Authority/Consent of Owner Rule:Buyer acquires no better title than seller Exceptions: a. Owner is precluded from denying seller’s authority to sell b. Sale under statutory power of sale or under order of court of competent jurisidiction c. Sale made under recording laws (Example: PD 1529 Property Registration Decree) enabling apparent owner to dispose as if he were true owner d. Purchases made in a merchant’s store or fairs or markets Store – any place where goods are kept and sold by one engaged in buying and selling.

‘3.

III.

Sale By A Person Having A Voidable Title – Arts. 1506, 559 Rule: Buyer acquires good title provided seller’s title not avoided at time of sale, buyer acquires in good faith and for value and without notice of defect of seller’s title

Effects of The Contract When Thing Sold Has Been Lost (Chap 3)Arts. 14931494 A.

Risk of Loss 1. General Rule – Arts. 1263, 1189 Loss of Generic Thing: Does not extinguish obligation –Art. 1263 Loss of Determinate Thing: Extinguishes obligation if lost before delay and without fault of seller/debtor – Art. 1262

a.

When Total Loss Occurred At Time Of Perfection- Contract shall be without any effect– Arts. 1493 And 1494 b. When Loss Is Only Partial- vendee may choose between :  Rescission or  Specific Performance (proportional reduction in price) Rule:Risk of Loss is with seller before delivery (Art. 1504, NCC) Exception: Risk of loss is with buyer when ownership is transferred by delivery (a) Goods are at buyer’s risk when ownership was retained by seller merely to secure payment; (b) The party at fault bears risk of loss when there is delay in delivery When Ownership/Risk of Loss Transferred To Buyer Depending on Kind of Transaction (Art. 1502) Transaction “On Sale Or Return” “On Approval Or On Trial Or Satisfaction”

When Ownership Transferred To Buyer Upon delivery unless he returns within time fixed or reasonable time When buyer signifies his approval acceptance to seller or when he fails to signify his approval but retains goods beyond fixed time

Who Bears Risk of Loss Buyer - if goods lost after delivery Seller – if goods lost before buyer signifies acceptance Buyer – if goods lost after buyer signified acceptance or when buyer retains goods without giving notice of rejection (after a fixed period for return expires or after a reasonable time if no fixed period)

When Ownership/Risk of Loss Transferred To Buyer Depending On Point/Place of Delivery(Art. 1523) Rule: Delivery to carrier is delivery to buyer if it is seller’s duty to deliver FOB (Free on Board) – Example: FOB (place of shipment) – freight paid by buyer Exceptions: CIF (Cost, Insurance, Freight) – freight is paid by seller FOB (place of destination) – freight paid by seller

Example: CIF/FOB (place of destination )– goods to be delivered to Cebu. If loss occurred before goods reach Cebu, seller bears loss

IV.

Obligations of the Vendor(Chapter 4) Arts. 1495-1581 ‘A. General Provisions (Section 1) – Arts. 1495-1496 B. Delivery Of The Thing Sold (Section 2) – Arts. 1497-1544 Manner of Transfer – Arts. 1477, 1496-1501 When Delivery Does Not Transfer Title Kinds Of Delivery/Tradition

1. Real Tradition – delivery or transfer of a thing from hand to hand, if it is movable property; by certain material or possessory acts by the vendee done in the presence and with consent of vendor such as entering property, gathering fruits, taking possession, if it is immovable property Constructive Tradition – when delivery of the movable or immovable is not actual or material and is represented by other signs or acts indicative thereof such as execution of a public instrument a.

Symbolic Delivery (Art. 1498) –delivery of keys to place where goods are kept

b.

Tradicion Longa Manu (First part, Art. 1499) –mere consent/agreement of parties

‘c.

Tradicion Brevi Manu (Second part, Art. 1499) – vendee has thing sold in his possession at time of sale

‘d. Tradicion Constitutum Possesorium (Art. 1500) – vendee’s possession changes like that from owner to lessee of new purchaser Quasi-Tradition (Art. 1501) – the transfer of rights or incorporeal things by the exercise of the right by the grantee with the acquiescence of the vendor 4.

Tradition By Operation of Law – covers all other cases not already enumerated and in which delivery is effected by express provision of law Delivery Of Thing Sold

1. 2. ‘C.

Movables – (w/ all accessions & accessories at time of perfection of contract) Immovables – If contract has contract rate with a statement of area, seller must deliver all.

Documents of Title

Documents of Title To Goods – includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by delivery, goods represented by such document. (Art. 1636) Warranties Of Seller Of Documents Of Title – Art. 1516 (1) That the document is genuine; (2) That he has a legal right to negotiate or transfer it; (3) That he has knowledge of no fact which would impair the validity or worth of the document; and (4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever such warranties would have been implied if the contract of the parties had been to transfer without a document of title the goods represented thereby Negotiable Documents Of Title – in which it is stated that the goods referred therein will be delivered to the bearer (negotiated by delivery), or to the order of any person named in such document (negotiated by indorsement & delivery). (Arts. 1507-1509, 1512, 1513, 1518). Can be negotiated by indorsement or delivery. Non-Negotiable Documents Of Title Rules On Levy/Garnishment Of Goods – Arts. 1514, 1519, 1520 D.

Double Sales – Art. 1544 1. Personal Property Rule: Possessor in good faith ‘2. Real Property

Rule: (in the following order) o First Registrant in good faith o First Possessor in good faith o Person with oldest title in good faith Rule Does Not Apply: a. Double sale of land was not made by same seller or his agent b. Sale of same land to two different buyers if first deed is a forgery c. Sale of same land where one sale is absolute sale and another was a pacto de retro sale where redemption period has not yet expired d. Sale of same land where one sale was subject to suspensive condition where one condition not complied with e. Unregistered land Case Studies: Carbonell vs. CA (69 SCRA 99) Under second paragraph of Article 1544 of the New Civil Code ,the buyer of realty must act in good faith in registering his deed of sale.Under the first and third paragraphs of Article 1544, (a) preference is to the one who first takes possession in good faith of personal or real property, the second paragraph; (b) good faith must characterize prior possession. If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, prior registration in good faith is a precondition to support title.The first buyer has superior right to the land if she was not aware - and could not have been aware - of any sale to another person as there was no such sale, her prior purchase of the land being made in good faith. The first buyer’s good faith continued to exist: (a) when she recorded her adverse claim four days prior to the registration of the second buyer's deed of sale; (b) even after the seller told her of his second sale of the same lot to the second buyer. Carumba vs. CA (31 SCRA 558) Article 1544 of the Civil Code is not applicable to unregistered lands .In a double sale of the unregistered land, the first sale was made by the original owners and was unrecorded while the second was an execution sale that resulted from a complaint for a sum of money filed against the said original owners. Per Section 35, Rule 39 of the Revised Rules of Court, Article1544 of the Civil Code cannot be invoked to benefit the purchaser at the execution sale though the latter was a buyer in good faith and even if this second sale was registered since the purchaser of unregistered land at a sheriff's execution sale only steps into the shoes of the judgment debtor, and merelyacquires the latter's interest in the property sold as of the time the property was levied upon. Radiowealth Finance Company vs. Palileo (197 SCRA 245)

Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is good faith.. Section 51 of Presidential Decree No. 1529 provides that the act of registration is the operative act to convey or affect registered lands insofar as third persons are concerned. A person dealing with registered land is: (a) not required to go behind the register to determine the condition of the property; (b)is only charged with notice of the burdens on the property which are noted on the face of the register or certificate of title. A purchaser in good faith of registered land (covered by a Torrens Title) acquires a good title as against all the transferees thereof whose right is not recorded in the registry of deeds at the time of the sale. Santiago vs. CA (247 SCRA 336) If the second buyer in a double sale of real property does not: (a) insist in obtaining possession of the owner's copy of the Torrens title; (b) inspect the property in the absence of said copy to ascertain who is in possession; (c) try to have the deed of sale registered until after he learns that there was a buyer of the same lot ahead of him, his rights cannot prevail over the first buyer who did all these things.Even if first buyers had known of the second sale, they still have the superior right, if there is no prior registration in good faith by second buyer of the second sale in his favor.The principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales , 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984; 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. 95843, 02 September 1992). Registration of the second buyer under Act 3344, providing for the registration of all instruments of unregistered land, cannot improve his standing since Act 3344 itself expresses that registration thereunder would not prejudice prior rights in good faith (see Carumba vs. Court of Appeals, 31 SCRA 558). Registration, however, by the first buyer under Act 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer in good faith (see Arts. 708-709, Civil Code; see also Revilla vs. Galindez, 107 Phil. 480; Taguba vs. Peralta, 132 SCRA 700). San Lorenzo Devt. Corp. vs. CA (449 SCRA 99)

When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the owner. Registration must be coupled with good faith without knowledge of the defect or lack of title of his vendor or of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Salera vs. Rodaje (530 SCRA 432) Article 1544 of the Civil Code covers double sale or multiple sales by a single vendor. It covers a situation where a single vendor sold one and the same immovable property to two or more buyers.It cannot be invoked where the two different contracts of sale are made by two different persons, one of them not being the owner of the property sold (Consolidated Rural Bank (Cagayan Valley) Inc. v. Court of Appeals, G.R. No. 132161, January 17, 2004, 448 SCRA 347.). E.

Property Registration Decree (P.D. 957) 1. Requisites for registration of deed of sale in good faith 2. Accompanied by vendors duplicate certificate of title, payment of capital gains tax, and documentary tax, registration fees

‘F. Conditions And Warranties (Section 3) – Arts. 1545-1581 Express Warranty-Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. Implied Warranty In Contract of Sale (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; (2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer.

Prescriptive Period: 10 years 1. Warranty In Case of Eviction (Subsection 1) – Arts. 1548-1560 Eviction –take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or a part of the thing purchased. (Example: property sold for non-payment of tax not made known to buyer before sale) warranty against eviction may be waived unless seller in bad faith Requisites of Breach of Warranty in Case of Eviction: a.There is a final judgment b. Deprivation of the vendee of whole or part of the thing purchased c.Deprivation based on a right prior to the sale or an act imputable to the vendor d. Vendor must be summoned in a suit for eviction at the instance of vendee In case of eviction, seller must return: value, income, costs, expenses & damages 2. Warranty Against Hidden Defects Of Or Encumbrances Upon A Thing Sold (Subsection 1) – Arts. 1561-1581 Two Remedies In Case of Breach Of Warranty Against Hidden Defects: a. Accion Redhibitoria – action to void sale on account of vice/defect of the thing sold or diminish its fitness such that vendee would not have purchased it b. Accion Quanti Minoris – action to procure return of a part of the purchase price by reason of defect of the thing sold. Prescriptive Periods: Rule: 6 months after delivery of thing sold Redhibitory action (Defect of Animals) : 40 days from delivery Case Study: Power Comm & Ind Corp vs. CA (274 SCRA 597) The requisites of a breach of warranty against eviction are: (1) The purchaser has been deprived of the whole or part of the thing sold; (2) This eviction is by a final

judgment; (3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and (4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee. V. VI.

Obligations of the Vendee(Chapter 5) Arts. 1582-1593 Actions For Breach Of Contract Of Sale Of Goods(Chapter 6) Arts. 15941599 A.

Remedies of Contracting Parties 1.

REMEDIES OF THE BUYER a.

Sale of Movables

Delivery of Movables Which Do Not Correspond With Description Or Sample (Art. 1481) Kind of Contract Contract of Goods by Description or By Sample Contract of Goods By Description and By Description

Remedy of Buyer 1. Rescission 1. Rescission if bulk of goods do not correspond with description even if bulk of goods correspond with description

Delivery of Movables In A Quantity Not In Accordance With Contract (Art. 1522) Quantity Delivered By Seller* 1. Quantity Less Than What Seller Contracted To Sell

Buyer’s Remedy 1. May reject them 2. If accept goods knowing seller is not going to perform contract in full, pay at contract rate 3. If used goods before knowing seller is not going to perform contract in full, pay only for fair value

‘2. Quantity Larger Than What Seller Contracted To Sell

‘3. Delivered Goods With Others of Different Description

to him of goods so received 1. May reject them 2. Accept only goods included in contract & reject rest 3. Accept whole of goods delivered but pay at contract rate 1. Accept only goods included in contract & reject rest

*If Subject Matter is indivisible, buyer may reject whole of goods Loss Of Thing With Hidden Faults (Arts. 1568-1569) Prescriptive Period: 6 months counted from day of delivery of thing sold Cause of Loss Hidden Faults

Seller’s Knowledge of Hidden Loss Seller Aware Seller Not Aware

Fortuitous Event/Fault of Seller Not in Bad Faith Buyer Seller in Bad Faith

Buyer’s Remedy Seller bears loss and he shall return price and refund expenses of contract with damages to buyer Seller bears loss and he shall return price with interest and reimburse expenses of contract which were paid by buyer Seller bear loss and he shall pay price less value of thing when lost to buyer Seller bear loss and he shall pay price plus damages to buyer

‘b. Sale of Immovables – Problems In Delivery of Immovable (Art. 1539-1542 and 1560) Prescriptive Period: 6 months counted from day of delivery for Nos. 1, 2 and 3 below Area Delivered 1. Sale With Statement of Area At A Rate of Certain Price Per Unit Area is less than area stated in contract or Area is same but if any part is not of quality specified Area is greater than stated in contract

Buyer’s Remedy ‘1. Proportional reduction in price 2. Rescission if lack in area is not less than 1/10 of that stated 1. Accept only area included in contract and reject rest 2. Accept whole area but pay for same at contract rate

‘2. Sale Made For Lump Sum Area is greater/lesser than stated in contract 2 or more immovables sold for single price ‘3. Sale With Mention of Boundaries

1. No increase/decrease in the price 1. No increase/decrease in the price 1. Deliver all included within the boundaries even when it exceeds area stated in contract otherwise suffer: (a) reduction in price in proportion to what is lacking in area unless contract is rescinded ‘4. Sold With Encumbrance of Non-Apparent 1. Rescission in contract or Burden Servitude Not Mentioned In Agreement & Which is Not Recorded in Registry of Property (Unless Expressly Warranted) 2. Ask for damages Prescriptive Period (for No. 4) :1 year from execution of deed. After 1 year, only an action for damages within 1 year from date of discovery of burden or servitude 3.

REMEDIES OF THE SELLER a.

Sale of Movable Where Object*Not Delivered (Art. 1593) Requisites:  Buyer does not appear to receive after expiration of period fixed for delivery  Buyer appears but does not tender price at the time agreed unless longer period stipulated Remedy: Right to Rescind By Seller *where object is delivered, apply Art. 1191

‘b. Sale of Movables Payable In Installments (Art. 1484) Requisites Before Art. 1484 (Recto Law) May Be Applied  There must be a contract  Contract must be one of sale (not pacto de retro)  Involving personal property  The sale must be on installment plan (i.e. any part or portion of buying price, including downpayment)  Applies to leases of personal property with option to buy when lessor has deprived lessee of the possession or enjoyment of thing

Remedy Under Recto Law*: Arts. 1484-1486 (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (this requires restitution by parties) (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void." *Remedies are alternative and not cumulative. Election of one is a waiver of another Case Study: Tajanlangit vs. Southern Motors (101 Phil 606) In a contract of sale of personal property payable in installments, secured by a mortgage on the goods sold, the vendor who chooses to exact fulfillment of the obligation to pay (instead of foreclosing the chattel mortgage) is not limited to the proceeds of the sale, on execution, of the mortgaged goods. The vendor may still recover from the purchaser the unpaid balance of the price, if any. b. Sale of Immovables i. R.A. 6552 (Maceda Law):Sale of Immovables on Installment Applies To:

Sale or financing of real estate (residential lots and residential condominiums) on installment payments (excluding industrial lots and commercial buildings and sales to tenants under RA 3844)

Case Studies: Valarao vs. CA (304 SCRA 155) The Deed of Conditional Sale is a sale on installment or a contract to sell, since sellers unmistakably reserved for themselves the title to the property until full payment of the purchase price by the vendee. The stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written, there being no law or public policy against the stipulated forfeiture of payments already made." However, it must be shown that private respondent-vendee failed to perform her obligation, thereby giving petitioners-vendors the right to demand the enforcement of the contract.

Article 1592 of the Civil Code applies only to contracts of sale, and not to contracts to sell or conditional sales where title passes to the vendee only upon full payment of the purchase price. To enforce the automatic forfeiture clause in a deed of conditional sale, the vendors have the burden of proving a contractual breach on the part of the vendee.Automatic forfeiture clause, which deems any previous payments forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive monthly installments or any one year-end lump sum payment are valid. The rescission of the contract and the forfeiture of the payments already made could not be effected, because the case falls squarely under Republic Act No. 6552, otherwise known as the "Maceda Law. Olympia Housing Inc. vs. Panasiatic Travel Corp.

(395 SCRA 307)

Republic Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act,'' took effect on 16 September 1972. It is a special law governing transactions that involve, subject to certain exceptions, the sale on installment basis of real property and was enacted mainly "to protect buyers of real estate on installment payments against onerous and oppressive conditions." It recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. The Seller can go to the court to demand judicial rescission in lieu of a notarial act of rescission. A demand for rescission by notarial act would appear to be merely circuitous, with the filing by the seller of an action for annulment of contract and for recovery of damages. An action for annulment of contract is similar to rescission. The instant case before the Court is one for recovery of possession on the thesis of a prior rescission of the contract covering the property. Not only is an action for reconveyance conceptually different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period. 

Where buyer has paid at least 2 years of installments -Sec. 3 Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic

Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made.



Where buyer has paid less than 2 years of installments – Sec.4 Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Case Studies: Fabrigas vs. San Francisco del Monte, Inc. (476 SCRA 247) Petitioners defaulted in all monthly installments. They may be credited only with the equivalent to less than two (2) years' installments. The applicable legal provision on the mode of cancellation of Contract to Sell is Section 4 of R.A. 6552 which is applicable to instances where less than two years installments were paid. The cancellation of the contract under Section 4 is a two-step process. First, the seller should extend the buyer a grace period of at least sixty (60) days from the due date of the installment. Second, at the end of the grace period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act, effective

thirty (30) days from the buyer's receipt thereof. It is worth mentioning, of course, that a mere notice or letter, short of a notarial act, would not suffice. Leano vs. CA (369 SCRA 36) The transaction between the parties was a conditional sale, not an absolute sale. The intention of the parties was to reserve the ownership of the land in the seller until the buyer has paid the total purchase price.. As the land is covered by a torrens title, the act of registration of the deed of sale was the operative act that could transfer ownership over the lot. There is not even a deed that could be registered since the contract provides that the seller will execute such a deed "upon complete payment by the vendee of the total purchase price of the property" with the stipulated interest. Article 1169 of the Civil Code provides that 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. In the case at bar, seller performed his part of the obligation by allowing buyer to continue in possession and use of the property. Clearly, when buyer did not pay the monthly amortizations in accordance with the terms of the contract, she was in delay and liable for damages. Roque vs. Lapuz (96 SCRA 741) The lots subject of the sale was delivered by the seller to the buyer who took possession thereof and occupied the same and thereafter built his house thereon. But the property being registered under the Land Registration Act, it is the act of registration of the Deed of Sale which could legally effect the transfer of title of ownership to the transferee, pursuant to Section 50 of Act 496. (Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo, 28 Phil. 635; Worcester vs. Ocampo, 34 Phil. 646). The contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Art. 1191 of the New Civil Code is the applicable provision where the seller elects to rescind or cancel his obligation to deliver the ownership of the two lots in question for failure of the buyer to pay in full the purchase price on the basis of 120 monthly equal installments, promptly and punctually for a period of 10 years.Buyer is not entitled to the benefits of paragraph 3 of Art. 1191, N.C.C. Having been in default, he is not entitled to the new period of 90 days from entry of judgment within which to pay petitioner the balance with interest due on the purchase price. There is no just cause authorizing the fixing of a new period within which buyer may pay the balance of the purchase price even if buyer had constructed valuable improvements on the land and that he has built his house on the property. Otherwise, the seller at the mercy of the buyer can easily construct substantial improvements on the

land but beyond the capacity of the seller to reimburse in case seller elects to rescind the contract by reason of the buyer's default or deliberate refusal to pay or continue paying the purchase price of the land. Under this design, stratagem or scheme, the buyer can cleverly and easily "improve out" the vendor of his land. ii. Art. 1592 NCC :Sale of Immovables Not On Installment Applies To:

Sale of immovable property even if it may have been stipulated that upon failure to pay price at the time agreed upon, the rescission of the contract shall of right take place.

Requisites: 1. 2.

Sale of real property (not a contract to sell or a promise to sell) There is demand by seller for the rescission of the contract of sale, not payment of price 3. The demand may be judicial or extra-judicial (by notarial act) Steps to Cancellation of Contract of Sale Under Art. 1592:  Failure of buyer to pay within agreed period  Buyer may pay even after expiration of agreed period if no notarial demand for rescission of contract is made by the seller  Seller needs to go to court to avail of rescission under Art. 1191 NCC  Under Art. 1191, court may order rescission unless there is a just cause authorizing the fixing of a period within which buyer may pay Case Studies: Luzon Brokerage Co. vs. Maritime Bldg. Co. (43 SCRA 93)(Difference Between Contract Of Sale and Contract To Sell) The difference between contracts of sale and contracts to sell with reserved title is that the seller under contracts to sell, has the power to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, in case of failure of the buyer to complete payment. "A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334, and cases cited therein). The remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission and enforce the agreement. The act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court.

If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.The party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. Only the final judgment of the corresponding court will conclusively and finally settle whether the action taken was or was not correct in law. Thecontracting party who believes itself injured is not required to first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203)." City of Cebu vs. Hrs. of Candido Rubi (306 SCRA 408) The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code which reads:"In the sale of immovable property, even though it may have been stipulated that upon the failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term." The vendor City of Cebu did not give notice of rescission much less make a judicial or notarial demand for rescission in its Contract of Sale with Rubi. The only subsequent action taken by petitioner was to send to the respondents a "Formal Notice, ordering the latter to vacate the premises within fifteen days from receipt of notice for the reason that the occupancy of lot subject lot is presumed to be illegal as the lot is still registered in the name of the City of Cebu. This letter did not amount to a demand for rescission, as indeed there was no reference to the sale much less a declaration that the sale was being rescinded or abrogated from the beginning. It was only when the City of Cebu filed its Answer on June 15, 1989 to the instant complaint for specific performance that the city invoked "automatic rescission" and prayed for relief allowing it to rescind the contract. Iringan vs. CA (366 SCRA 41)(Distinction Between Rescission Under Art. 1381 and Rescission Under Art. 1191 and 1592) Article 1592 of the Civil Code applies in the sale of an immovable property. It requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract before a valid rescission can take place, whether or not automatic rescission has been stipulated. The law uses the phrase "even though" emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies.

Under Article 1191 of the Civil Code: (a) the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially (b)the Court shall decree the resolution demanded, unless there should be grounds which justify the allowance of a term for the performance of the obligation." This requirement has been retained in the third paragraph of Article 1191, which states that "the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period." The party entitled to rescind should apply to the court for a decree of rescission and the operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. Rescission" in Article 1381 is not akin to the term "rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article. The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144, which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues. VII. Extinguishment Of Sale(Chapter 7) Arts. 1600-1623 A. Conventional Redemption (Section 1) – Arts. 1601-1618 Conventional Redemption – shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Art. 1616 (return price of sale and reimburse expenses of contract, necessary & useful expenses on the thing sold) and other stipulations agreed upon. (Art. 1601) Equitable Mortgage – Arts. 1602-1604 Instances when a contract may be presumed to be an equitable mortgage: (Art. 1602)

Case Studies: Lumayag vs. Hrs. of Nemeno (526 SCRA 315) An equitable mortgage has been defined "as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless

reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. The existence of any one of the conditions under Article 1602, not a concurrence, nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage since the law favors the least transmission of property rights Villarica vs. CA (26 SCRA 189) The contract between the parties cannot be presumed to be an equitable mortgage since the right of repurchase was not reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to repurchase in a subsequent instrument. Any right thereafter granted the vendor by the vendee cannot be a right of repurchase but some other right like an option to buy. An instrument different from the deed of sale, evidences merely an option to buy. Consequently, the extension by one month of the period for the exercise of the option does not fall under No. 3 of Article 1602 of the Civil Code, which refers to the right of repurchase. Period Of Conventional Redemption – Art. 1606 

4 Years from the date of the contract in the absence of express agreement

 

Cannot exceed 10 years if there is an agreement 30 days from time of final judgment in a civil action on the basis that contract was a true sale with right to repurchase

Case Studies: Leonardo vs. CA (220 SCRA 254) Art. 1606 par. 3 of the New Civil Code is applicableonly in a civil action where the main issue is the true nature of the contract between the parties where the seller a retro honestly believed that the contract he had entered into was an equitable mortgage not a pacto de retro transaction, and because of such belief, he had not redeemed the property within the proper period. Thesale with assumption of real estate mortgage with right to repurchase provides that the vendor has the power to redeem the subject property within seven (7) years from the execution of the document.Vendor failed to exercise his right to repurchase one-half of the property within the agreed period. In vendor’s belated letter to vendee, he categorically admitted that he is exercising his right to repurchase the subject property and tendering for that purpose his repurchase payment for said property. It was only after vendee filed his petition for consolidation of ownership with the trial courtthat vendor denied the true nature of their agreement, by alleging in the Answer that the contract is one of equitable mortgage. Article 1606 paragraph (3) of the New Civil Code, allowing the vendor thirty (30) days from the time final judgment is rendered within which to repurchase property sold under a contract of sale with aright to repurchase, is not applicable

Abilla vs. Gobonseng (386 SCRA 429) The deed of sale, together with the option to buy executed on the same day, was meant to serve as security for the indebtedness of respondent which had become long overdue. Said obligation would have been satisfied had respondent exercised the option to buy within the stipulated period. These circumstances, peculiar to the case at bar, make this case fall squarely within the situation contemplated in the above-quoted doctrine — that there was a belief on the part of the vendor a retro, founded on facts attendant upon the execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely to give it as security for a loan or other obligation. Sincevendor a retro has maintained that transaction between him and vendee a retro was really an equitable mortgage, vendor a retro may avail of the third paragraph of Article 1606 of the Civil Code which allows him to repurchase the property within the thirty-day period counted from the date of finality of the decision declaring the transaction to be a pacto de retro sale.If the urgent motion to repurchase the lots with tender of payment which vendor a retro is filed within the 30-day period,vendees a retro should, therefore, be ordered to accept the tendered payment for the lots and to execute the necessary deed of sale conveying the same to vendor a retro. Cadungog vs. Yap (469 SCRA 561) The vendee a retro(even if he failed to consolidate his title under Art. 1607 of the New Civil Code.) had acquired absolute title and ownership over the six parcels of when the petitioner, as vendor a retro, failed to repurchase the same within the period fixed by the parties in the Deed of Sale with Right of Repurchase. A sale with pacto de retro transfers the legal title to the vendee a retro. In a pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro, subject to the resolutory condition of repurchase by a vendor a retro within the stipulated period. Failure on the part of a vendor a retro to repurchase the property within the period agreed upon by them, or, in the absence thereof, as provided for by law, vests upon the vendee a retro absolute title and ownership over the property sold by operation of law. Thus, the vendor a retro had no right to mortgage or sell the same to the based on the Latin adage goes: NEMO DAT QUOD NON HABET. Not being the owner of the parcels of land, the vendor a retro could not have lawfully sold the same to the respondent. B. Legal Redemption (Section 2) – Arts. 1619-1623 Legal Redemption – the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment or by any other transaction whereby ownership is transmitted by onerous title (Art. 1619). Redemption Who Is Preferred Property Under Only if sale is to right is in proportion to share of Co-Ownership stranger, not co- redeeming owners

Land (Rural)

Land (Urban)

owner Area does not exceed adjacent owner with smaller area 1 ha. preferred; if equal area, first one who requested redemption Resale of Area so -owner of adjoining land at a reasonable small that major area price cannot be used for 2 or more owners, the one whose practical purpose intended use is justified within reasonable period (bough merely for speculation)

Period Of Legal Redemption/Pre-emption – Art. 1623  Within 30 days from the notice in writing by the prospective vendor or by the vendor, as the case may be,

Case Studies: Sy vs. CA (172 SCRA 125) Section 78 of the General Banking Act, as amended by P.D. No. 1828, states that: . . .to redeem the property by paying the amount fixed by court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified under the mortgage and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. Said section is applicable not only to "banks and banking institutions," but also to "credit institutions." SIHI is a credit institution, i.e. financial intermediary engaged in quasi-banking functions, within the purview of Section 78, it being an entity authorized to engage in the lending of funds or purchasing of receivables or other obligations with funds obtained from the public as provided in the General Banking Act under Section 2-A (a); and, to lend, invest or place funds deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others under Section 2-D(c). Legaspi vs. CA (69 SCRA 360) The issue of who among the adjoining owners has the a better right to buy the small piece of land whereon part of the house of petitioner is standing, is to be resolved by applying paragraph 3 of Art. 1622 of the Civil Code — the intended use that appears best justified. The following circumstances prove that petitioner has the preferential right over the property in question: (a)the parcel of land involved is urban land a portion of

the house of the petitioner is standing on a portion of the lot in question(b) her possession and improvements thereon were tolerated by the adjoining owners;(c) the right of pre-emption was availed of by petitioner when she offered to buy said lot but was refused Etcuban vs. CA (148 SCRA 507) Plaintiff failed to make a valid tender of the sale price of the land paid by the defendants within the period fixed by Art. 1623 of the Civil Code which provides that the right of legal pre-emption or redemption shall not be exercised except within thirty (30) days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. Art. 1623 does not prescribe any particular form of notice, nor any distinctive method for notifying the redemptioner." So long, therefore, as the latter is informed in writing of the sale and the particulars thereof, the 30 days for redemption start running, and the redemptioner has no real cause to complain. (De Conejero et al v. Court of Appeals, et al., 16 SCRA 775). In the Conejero case, We ruled that the furnishing of a copy of the disputed deed of sale to the redemptioner, was equivalent to the giving of written notice required by law in "a more authentic manner than any other writing could have done," and that We cannot adopt a stand of having to sacrifice substance to technicality. More so in the case at bar, where the vendors or co-owners of petitioner stated under oath in the deeds of sale. Notice of sale had been given to prospective redemptioners in accordance with Art. 1623 of the Civil Code. Francisco vs. Boiser ( 332 SCRA 792) Art. 1623 of the Civil Code requires that the written notification should come from the vendor or prospective vendor, not from any other person. In the case at bar, the written notice came from the buyer or vendee and not from the vendor of the property subject of legal redemption.The receipt by petitioner of summons in Civil Case No. 15510 on August 5, 1992 amounted to actual knowledge of the sale from which the 30-day period of redemption commenced to run. Petitioner then had until September 4, 1992 within which to exercise her right of legal redemption, but in August 12, 1992 she deposited the redemption price. As petitioner's exercise of said right was timely, the same should be given effect. Butte v. Uy (4 SCRA 527), The written notice should be given by the vendor and not the vendees, conformably to a similar requirement under Article 1623. Alonzo vs. IAC (150 SCRA 259) In Article 1623, a particular method of giving notice was specified, and that notice must be deemed exclusive,. The notice given by the vendees and not the vendor would not toll the running of the 30-day period. The below is merely exception to the De Conejero and Buttle doctrines in view of the peculiar circumstances of this case.. The

purpose of the law requiring written notice is to make sure that the redemptioners are duly notified. The co-heirs in this case were undeniably informed of the sales although no notice in writing was given them. The 30-day period began and ended during the 14 years between the sales in question and the filing of the complaint for redemption in 1977, without the co-heirs exercising their right of redemption. These are the justifications for this exception. VIII.

Assignment of Credit & Other Incorporeal Rights(Chapter 8) Arts. 1624-1635 Case Study: Ledonio vs. Capitol Devt Corp (526 SCRA 379) An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause — such as sale, dation in payment or exchange or donation — and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor. (Far East Bank & Trust Company v. Diaz Realty, Inc., 416 Phil. 147, 161 (2001).On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties. (Chemphil Export & Import Corporation v. Court of Appeals, 321 Phil. 619, 642 (1995). Assignment of credit and conventional subrogation are not the same. Under our Code, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another.

IX.

General Provisions(Chapter 9) Arts. 1636-1637 EXCLUDE: Electronic Commerce Act, Public Land Law, Retail Tradeand Liberalization Act, Bulk Sales Law

BARTER OR EXCHANGE (BOOK IV – TITLE VII) Arts. 1638 - 1641 LEASE – (BOOK IV – TITLE VIII) I.

General Provisions (Chapter 1) – Arts. 1642-1645 Lease – a consensual, bilateral onerous and commutative contract by which one person binds himself to grant temporarily, the use of a thing or the

rendering of a service to another who undertakes to pay rent, compensation or price (Sanchez Roman) 3 Kinds of Leases: 1. Lease of things (real or personal property) 2. Lease of service (household service, contract of labor, common carriers) 3. Contract for a Piece of Work II.

Lease of Rural and Urban Lands (Chapter 2) --Arts. 1646 - 1688 A. B. C.

Qualified Persons – Those not disqualified under Arts. 1490 and 1491 of the NCC in relation to things mentioned therein Registration in Registry of Property to be binding upon third persons – Art. 1648 Sublease : Distinctions Assignment Sublease Lessee - Assignor ceases to be a party to Lessee remains a party to the contract the contract Assignee has direct action against lessor Sublessee has no direct action against lessor Requires lessor’s consent Does not require lessor’s consent unless expressly prohibited

Case Study: Marimperio Compaña Naviera vs. CA (156 SCRA 368) In a sub-lease, there are two leases and two distinct juridical relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438).However, there are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lessee (use and preservation of the premises under Art. 1651, and rentals under Article 1652). D.

Rights And Obligations Of Lessor And Lessee – Arts. 1654 - 1679

When Purchaser of A Thing Leased Cannot Terminate LeaseArts. 1676, 1677)

1. Lease is recorded in the Registry of Property; 2. There is a stipulation in the contract of sale; 3. Sale is fictitious. This is the presumption if sale is not registered when the vendee demands termination 4. Sale with a Right to Repurchase 5. Purchaser knows the existence of the lease. Case Studies: San Andres vs. CA (265 SCRA 368) It is thus unlikely that, in entering into the 30-year lease contract in this case, the parties contemplated imposing restrictions on private respondents' rights of ownership of the building, by prohibiting even the lease of the building constructed by the lessee. The most natural and the most logical construction of the "no sublease" provision is that it refers only to the land leased but not to the building or factory which the lessee was authorized to construct on the land. United States Lines vs. San Miguel Brewery (10 SCRA 805) A lessor of a cold storage plant warrants that the leased premises would be free from rats. Fraud or bad faith on the part of the lessor is not a necessary element. He may be held responsible for the deterioration of the foodstuffs stored in one of its cold storage rooms by a lessee thereof because said foodstuffs were gnawed by rodents which gained entrance into said cold storage rooms – the provisions governing warranty against hidden defects in the contract of sale are also applicable in a contract of lease (Art. 1653). Oro Cam Enterprises vs. CA (319 SCRA 444) A judgment in an ejectment suit is binding not only upon the defendants in the suit but also against those not made parties thereto, if they are: a) trespassers, squatters or agents of the defendant fraudulently occupying the property to frustrate the judgment; b) guests or other occupants of the premises with the permission of the defendant; c) transferees pendente lite; d) sublessees; e) co-lessee; or f) members of the family, relatives and other privies of the defendant. Consequently, the appellate court did not act with grave abuse of discretion in annulling the trial court's order granting the writ of preliminary injunction. Dizon vs. CA (396 SCRA 151) The acceptance of the amount by the lessor purportedly as partial payment of the purchase price of the land, was an act integral to the sale of the land. Respondent lessee invokes such receipt of payment as giving rise to a perfected contract of sale. The lessee’s option to purchase expired after the one-year period granted in the contract. The implied renewal of the lease did not include the option to purchase and affected only

those terms and conditions which are germane to the lessee's right of continued enjoyment of the property Chua vs. CA (301 SCRA 356) After the lease terminated without the parties thereafter reaching any agreement for its renewal, lessees became deforciants subject to ejectment from the premises. As there was no longer any lease to speak of which could be extended, the Metropolitan Trial Court was in effect making a contract for the parties which it obviously did not have the power to do. The potestative authority of the courts to fix a longer term for a lease under Art. 1687 of the Civil Code applies only to cases where there is no period fixed by the parties. LL Agro Industrial Corp vs. Chun (378 SCRA 612) The extension of a lease contract must be made before the term of the agreement expires. After the lapse of the stipulated period, the courts cannot belately extend or make a new lease for the parties; that an "option to renew" is reciprocal requiring the consent of both the lessor and the lessee; and that the parties are free to enter into contract and that courts cannot rescue the parties from the necessary consequences of their acts. The petition was granted, and respondents lessees and all persons claiming rights under them were ordered to vacate the premises, and to pay accrued rentals. Pajuyo vs. CA (430 SCRA 492) Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when necessary to resolve the issue of physical possession. The same is true when the defendant asserts the absence of title over the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an ejectment case. The only question in ejectment proceedings is — who is entitled to the physical possession of the premises, that is, to the possession de facto and not to the possession de jure. It does not even matter if a party's title to the property is questionable, or when both parties intruded into public land and their applications to own the land have yet to be approved by the proper government agency. Regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be thrown out by a strong hand, violence or terror. Neither is the unlawful withholding of property allowed. Prior possession is always respected.A party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on the property until a person with a better right lawfully ejects him. Parilla vs. Pilar (509 SCRA 420)(Re: Art. 1678, NCC)

Article 448 covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, have a claim of title thereto, but not when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary. A tenant cannot be said to be a builder in good faith as he has no pretension to be owner. The right of the lessor upon the termination of a lease contract with respect to useful improvements introduced on the leased property by a lessee is covered by Article 1678 which provides that if the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. Geminiano vs. CA (259 SCRA 344)(Re: Art. 1678, NCC) Article 448 of the Civil Code, in relation to Article 546 of the same Code, which allowed full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where one's only interest is that of a lessee under a rental contract; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his property. The right to indemnity under Article 1678 of the Civil Code arises only if the lessor opts to appropriate the improvements. Once the petitioners refused to exercise that option, the private respondents cannot compel them to reimburse the one-half value of the house and improvements. Neither can they retain the premises until reimbursement is made. The private respondents' sole right then is to remove the improvements without causing any more impairment upon the property leased than is necessary. E.

Special Rules For Lease Of Rural/Urban Lands (Sections 3 and 4) Arts. 1680 – 1688

Case Studies: Jespajo Realty Corp vs. CA (390 SCRA 27) Art. 1687 is not applicable where the lease contract between lessor and lessee is with a period subject to a resolutory condition. The wording of the agreement is unequivocal: "The lease period . . . shall continue for an indefinite period provided the lessee is up-to-date in the payment of his monthly rentals." The condition imposed in order that the contract shall remain effective is that the lessee is up-to-date in his monthly payments. It is undisputed that the lessees religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when the lessor unilaterally increased the rental payment to more than 20% month.

Laolim vs. CA (191 SCRA 150) Perpetual leases are not favored in law, nor are covenants for continued renewals tending to create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an additional term should not be held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention. (51 C.J.S. 606.) A lease will not be construed to create a right to perpetual renewals unless the language employed indicates clearly and unambiguously that it was the intention and purpose of the parties to do so. (50 Am. Jur. 2d 56.) A portion in a lease giving the lessee and his assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as not making such a provision unless it does so clearly. (50 Am. Jur. 2d 53.) Lopez vs. Umale-Cosme (580 SCRA 190) Where a contract of lease is verbal and on a monthly basis, the lease is one with a definite period which expires after the last day of any given thirty-day period. In Leo Wee v. De Castro G.R. No. 176405, August 20, 2008, pp. 11-12;) where the lease contract between the parties did not stipulate a fixed period, it was ruled:The rentals being paid monthly, the period of such lease is deemed terminated at the end of each month. Thus, respondents have every right to demand the ejectment of petitioners at the end of each month, the contract having expired by operation of law. Without a lease contract, petitioner has no right of possession to the subject property and must vacate the same. Respondents lessors, thus, should be allowed to resort to an action for ejectment before the MTC to recover possession of the subject property from petitioner lessee. Corollarily, petitioner's ejectment, in this case, is only the reasonable consequence of his unrelenting refusal to comply with the respondents-lessor's demand for the payment of rental increase agreed upon by both parties. The lessor has the right to rescind the contract of lease for non-payment of the demanded increased rental. The right of rescission is statutorily recognized in reciprocal obligations, such as contracts of lease. . . . under Article 1659 of the Civil Code, the aggrieved party may, at his option, ask for (1) the rescission of the contract; (2) rescission and indemnification for damages; or (3) only indemnification for damages, allowing the contract to remain in force. Payment of the rent is one of a lessee's statutory obligations, and, upon nonpayment by petitioners of the increased rental, the lessor acquired the right to avail of any of the three remedies outlined above. III.

Lease of Work or Services ( Chapter 3) Arts. 1689-1764 A. Household Service – (Section 1) Arts. 1689 – 1699

1. Contract Not More Than 2 Years; Renewable Upon Agreement By Parties 2. Not More Than 10 Hrs. Work Per Day 3. Under 18 Years, Employer Shall Give Opportunity for Elem Educ. 4. Indemnity for Unjust Termination; Compensation Already Earned Plus That for 15 days (see also Labor Code, Chapter III, Art. 141 to 152) B. Contract Of Labor - (Section 2) Arts. 1700-1712 1. Obligation In Case Of Death/Injury Of Laborers a. Due to Negligence of Fellow Worker – Solidary Liability of Fellow Worker and Employer b. Due to Malicious Intentional Act of Fellow Worker Employer Not Liable If He Exercised Due Diligence In Selection & Supervision of Other Workers – Art. 1712 C. Contract For A Piece of Work – ( Section 3) Arts. 1713 - 1731 . Contract for a Piece of Work Lease of Service The object is the finished or The object is the service resulting work Risk is with worker before delivery Risk is with employer unless worker is at fault or is negligent The repairer is preferred to a chattel mortgagee if repairer retains possession of the movable Case Studies: San Diego vs. Sayson (2 SCRA 1175) The provision in Article 1724 of the new Civil Code that the contractor may demand an increase in the price on account of the higher costs of labor or materials only if the change in the plans and specifications has been authorized in writing by the proprietor, was adopted not merely to prohibit admission of oral testimony against the objection of the adverse party, but as a substantive provision or a condition precedent to recovery. This can be inferred from the fact that the provision is not included among those specified in the Statute of Frauds, Article 1403 of the Civil Code. Royal Lines Inc. vs. CA (143 SCRA 608)

Article 1724 refers to a structure or any other work to be built on land by agreement between the contractor and the landowner. It cannot apply to work done upon a vessel, which is not erected on the land or owned by a landowner.The original contract of services was in writing. It does not follow, however, that all supplements of that written contract should also be written. In stipulating that "any modification, change, and/or extra work" shall be "subject of another contract," the contracting parties did not necessarily or explicitly agree that the second contract should be in writing. The second contract could be merely verbal, as in fact it was, and was binding on the parties as long as it represented a meeting of minds between them. The finding of the Court of Appeals is that representatives were sent by petitioner to the NASSCO shipyard in Mariveles while the M/V Sea Belle was being repaired and that they represented said petitioner when they requested the extra work that was subsequently done on the vessel. This second contract was not reduced to writing, but it was nonetheless as binding between the parties as the first written contract. Del Monte Phils.vs. Aragones (461 SCRA 139) ART. 1467 provides that a contract for the delivery at a certain price of an article where the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work under ART. 1729.Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. This is to protect the laborers and materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other.

Chartered Bank vs. Constantino (56 Phil 717) Article 1731 (mechanic’s lien) of the Civil Code pertaining to the right of persons to retain movables worked by way of pledge pending payment, is not applicable to salaried employees. D. Common Carriers – ( Section 4) Arts. 1732 – 1766 (Note: Part of Mercantile Law In Bar Examinations) PARTNERSHIP (BOOK IV – TITLE IX) Arts. 1767-1867

I.

General Provisions (Chapter 1) – Arts. 1767 -1783 Partnership –Two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. 2 or more persons may also form a partnership for the exercise of profession. If the object is merely for common enjoyment and not profit, it is only co-ownership. Essential Requisites Of Partnership 1. Valid Contract 2. Contribution of Property, Money Or Industry To Common Fund 3. Organized For Gain Or Profit 4. Must Have Lawful Object Or Purpose

Case Study: Litonjua vs. Litonjua Sr. (477 SCRA 576) Petitioner’s complaint for delivery and accounting of partnership property based on such void or legally non-existent actionable document is dismissible for failure to state of action. The unsigned Annex "A-1" does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code. Being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. Since real property was contributed, in which case an inventory of the contributed property duly signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of. The contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real property or real rights are initially brought into the partnership. Commissioner of Internal Revenue vs. Suter (27 SCRA 152)(Only applicable if it is not a universal partnership) William J. Suter "Marcoin" Co., Ltd. was not a universal partnership, but a particular one. The individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property of both after the marriage of the partners in 1948. The partnership: (a) has a juridical personality of its own, distinct and separate from that of its partners; (b) not a mere business conduit of the partner-spouses; (c) was organized for legitimate business purposes; (d) conducted its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the Tax Code . The partners did not enter into matrimony and thereafter buy the interests of the remaining

partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Two Kinds Of Partners In General Partnership: a. Industrial Partner, who contributes his industry, cannot engage in business for himself unless the partnership expressly permits, otherwise capitalist partners may either exclude him from firm or avail themselves of benefits, with damages b. Capitalist Partners cannot engage in any operation which is of the same kind in which partnership is engaged, unless there is a stipulation to contrary, otherwise he must bring profits to the common fund, and personally bear all the loss Distinction Between Partnership and Corporation Partnership Voluntary Private property subject to partnership liability Delectus personae

Corporation Legitimate authority or general law Private property not subject to corporate liability Valid

Partners/Incorporators’ Death or Bancruptcy Acts of Partners/ Incorporators/Stockholders

Dissolution

No effect

As agents

Not binding on corporation

Commencement

Upon execution of contract

Issuance by SEC of Articles of Incorporation

Creation Liability Transfer of Interest

Kinds of Partnership 1. 2. 3. 4. 5. C. D. E.

As to Object – Universal (Art. 1777) Vs. Particular (Art. 1783) As to Liability Of Partners – General Vs. Limited Partnership By Estoppel Partnership V. Joint Venture Professional Partnership

Rules To Determine Existence – Art. 1769 How Partnership Is Formed Partnership Term

II.

Obligations Of Partners (Chapter 2) – Arts. 1784 -1826

Obligations Of Partners Among Themselves (Sec. 1) – Art. 1784 - 1809 Principle of Delectus Personae –Inherent principle in partnership that not one can become a member of the partnership without the consent of all the other partners.

Pactum Leonina – a stipulation which excludes one or more partners from any share in the profits or losses is void (except industrial partner) Art. 1799 As among partners, the industrial partner is not liable for losses; however insofar as third persons are concerned, industrial partners are liable, like the capitalist partners, pro-rata with their property after partnership assets are exhausted (Art. 1816) Case Study: The Director of Lands vs. Catalan vs. Gatchalian (105 Phil 1270) Unreported case A partner is an agent of the partnership (Art. 1803 par. 1, new Civil Code). Furthermore, every partner becomes a trustee for his copartner (Art. 1807, new Civil Code). Consequently when a partner redeemed during the redemption period, the partnership properties in question, he became a trustee and the same in trust for his copartner, subject to his right to demand from the latter his contribution to the amount of redemption. Property Rights Of A Partner (Sec. 2) – Arts. 1810-1814 Charging Order – remedy available to the judgment creditor of the debtor partner to charge the “interest” of the latter in the partnership by means of levy or attachment . This is without prejudice to the rights of the partnership creditors (Art. 1814) Obligations Of Partners To 3rd Persons (Sec. 3) – Arts. 1815-1827 Liability for contracts: pro-rata; (Art. 1816) Liability for quasi-delicts &crimes : solidary (Arts. 1822 & 1823) Management of Partnership – Arts. 1800-1803

1. All partners shall be considered agents and whatever anyone of them may do alone shall bind the partnership (Art. 1803 No. 1). Exception (Art. 1801): However, if two or more partners have been entrusted with the management of the partnership, each one may separately execute all acts of administration and in case of conflict, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling (financial) interest (Art. 1801) 2. None of the partners may, without the consent of others, make any alteration in the immovable property of the partnership even if it may be useful to the partnership (Art. 1803 No. 2) III.

Dissolution, Winding Up and Termination (Chapter 3) – Arts. 1828 -1842 Dissolutionchange in the relation among partners by any partner ceasing to be a partner Winding Up –is the process of settling business affairs after dissolution Termination –is the point in time after all partnership affairs have been wound up.

IV.

Limited Partnership (Chapter 4) – Arts. 1843 -1867 Limited Partnership – one formed by two or more persons under the provisions of the following article having as members one or more general partners and one or more limiated partners. The limited partners shall not be bound by the obligations of the partnership. B. C.

How Limited Partnership Is Formed/Amended – Art. 1844/Arts. 1864-5 Rights And Obligations Of A Limited Partner

EXCLUDE: Questions requiring application of SEC opinions orregulations

AGENCY (BOOK IV – TITLEX) Arts. 1868-1932 I.

Nature, Form and Kinds of Agency (Chapter 1) Arts. 1868-1883 Agency–a person binds himself to render some service or to do something in representation or on behalf of antoher, with the consent or authority of the latter. (Art. 1868) Agency enables a person to increase the range of his individual and corporate activity by enabling him to be constructively present in many places and to carry on diverse activities at the same time. (Mechem) At present, there is no more commercial agency but only civil agency

because of the repeal of the Code of Commerce provisions on agency (Art. 2270). The true essence of the distinction between lease of services is that the agent enters into or is designed to enter juridical relations with or without representation of the principal (JBL Comments) Case Studies: Quiroga vs. Parsons (38 Phil 501)(Distinction Between Contract Of Sale and Agency To Sell) In the contract its cause and subject matter was that the plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated price, and that the defendant was to pay this price in the manner agreed upon. The features of a contract of purchase and sale are there was the obligation on the part of the plaintiff to supply the beds, and, on that of the defendant, to pay their price. These exclude the legal conception of an agency or order to sell whereby the mandatary or agent receives the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. Africa vs. Caltex (16 SCRA 448) (Distinction Between Contract of Agency and Independent Contractor) A fire broke out at the Caltex service station while gasoline was being hosed from a tank into the underground storage and spread to and burned several neighboring houses owned by appellants. Caltex should be held liable for the damages caused to appellants since the operator was virtually an employee of Caltex, not an independent contractor. Under the license agreement the operator: (a) would pay Caltex the purely nominal sum of P1.00 for the use of the premises and all equipment therein; (b) could sell only Caltex products; (c) could not assign or transfer his rights as license without the consent of Caltex. Caltex had: (a) control over themaintenance of the station and its equipment; (b) the right to grant termination of the contract. Forms of Agency (Art. 1869): A. Express vs. Implied Agency (Art. 1869-1872) B. Agency By Estoppel (Art. 1873) Case Study: B.H. Macke et. al. vs. Camps (7 Phil 553) One who clothes another with apparent authority as his agent and holds him out to the public as such, can not be permitted to deny the authority of such person to act as

his agent to the prejudice of innocent third parties dealing with such agent in good faith and in the honest belief that he is what he appears to be. Unless the contrary appears, the authority of an agent must be presumed to include all the necessary and usual means of carrying his agency into effect. C. Agency By Necessity – although agency can never be created by necessity, by virtue of the existence of an emergency, the authority of the agency is correspondingly enlarged to cope with the exigencies or necessities of the moment. Example: Driver may engage the services of doctors during vehicular accidents. D.

General vs. Special Agency – (Art. 1876-1877) 1. General Agency Couched In General/Special Terms 2. Special Agency Couched in General/ Special Terms a. Cases where SPA necessary (Arts. 1878) (JBL Reyes observations) 1. Acts of strict dominion 2. Gratuitous contracts 3. Contracts where personal trust & confidence is of the essence

Case Studies: Delos Reyes vs. CA (313 SCRA 632) Renato Gabriel was neither the owner of the subject property nor a duly designated agent of the registered owner (Daluyong Gabriel) authorized to sell subject property in his behalf. The registered owner did not subsequently ratify Renato's act. Under Article 1874 of the Civil Code, when the sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise the sale shall be void. For want of capacity (to give consent) on the part of Renato Gabriel, the oral contract of sale lacks one of the essential requisites for its validity prescribed under Article 1318, supra and is therefore null and void ab initio. Dizon vs. CA (396 SCRA 151) Per Art. 1874 of the Civil Code, when the sale of a piece of land or interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. There is absolutely no written proof of Alice A. Dizon's authority to bind petitioners, therefore, petitioners cannot be deemed to have received partial payment of the supposed purchase price for the land through Alice A. Dizon. Secondly, there could not have been a perfected contract of sale. (see also Estate of Lino Olaguer vs. Ongjoco (563 SCRA 373) Bicol Savings & Loan Association vs. CA (171 SCRA 630)

The sale proscribed by a special power to mortgage under Article 1879 is a voluntary and independent contract, and not an auction sale resulting from extrajudicial foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no foreclosure results. The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. That power survives the death of the mortgagor (Perez vs. PNB, supra). Right To Compensation Of An Agent – Arts. 1875 Case Study: Hahn vs. CA (266 SCRA 537) An agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.The fact that Hahn invested his own money to put up these service centers and showrooms does not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of Hahn's premises to enforce compliance with BMW standards and specifications. Powers– Art. 1877-8 A. B.

To Bind Principal – Arts. 1897-1902 Exception – Art. 1883 In Article 1874, if it involves sale of immovable and the agency is not in writing, it is void. In Articles 1317 and 1403 (no. 1), if it involves sale of movables, the unauthorized contract entered into by the agent, is unenforceable.

II.

Obligations Of The Agent (Chapter 2) Arts. 1884-1909 Fundamental Obligations Of An Agent: 1. To carry out the agency; 2. To act within the scope of his authority 3. To act on behalf of the principal Commission Agent – one who is engaged in the purchase and sale for the principal of personal property which has to be placed in his possession. He has a relation not only with the principal, and the buyers or sellers, but also with the property which is the object of the transaction.

Broker –has no relation with the thing he purchases or sells. He is an intermediary or go-between of both the seller and the buyer. He does not have the custody or possession of the thing that he disposes of. Guarantee Commission or “del credere commission” Agent – an additional commission to the agent if he assumes the risk of collection. This is applicable to both cash and credit sales. (Art. 1907). Case Studies: Domingo vs. Domingo (42 SCRA 131) The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. Articles 1891 and 1909 NCC of the demand: (a) the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent/real estate broker to his principal, the vendor; (b) full disclosure/complete account by agent to his principal of all his transactions and other material facts relevant to the agency.Any stipulation exempting the agent from such an obligation is void. The duty of an agent is the same as a trustee. An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that theagency is a gratuitous one, or that usage or custom allows it, because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. E Macias & Co. vs. Warner Barnes(43 Phil 155) A resident agent of a foreign insurance company doing business in the Philippine Islands is not liable, as principal or agent, on insurance contracts issued in the name of the company. The policies on their face show that the defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the insured plaintiff. That in the issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to compensate the insured plaintiff for the amount of the loss. The defendant company did not insure the property of the insured plaintiff, or in any manner agree to pay the insured plaintiff the amount of any loss. There is no contract of any kind, either oral or written, between the plaintiff and insured Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to insurance companies and the policies were issued by, and in the name of, the insurance companies, and on the face of the policy itself, the insured plaintiff knew that the defendant company was acting as agent for, and was representing, the respective insurance companies in the issuance and delivery of the policies. The defendant company did not contract or agree to do anything or to pay the insured plaintiff any money at any time or on any condition, either as agent or principal.

. .

US vs. Domingo Reyes (36 Phil 791) The right to a commission does not make one a joint owner with a right to money collected, but establishes the relation of principal and agent. The agent is under obligation to turn over to the principal the amount collected minus his commission. But the agent, having unlawfully retained more than his commission, is guilty of estafa. In Re:H.V. Bamberger (49 Phil 962) Lawyers are bound to promptly account for money or property received by them on behalf of their clients and failure to do so constitutes professional misconduct. The fact that a lawyer has a lien for fees on money in his hands collected for his clients does not relieve him from the duty of promptly accounting for the funds received. III.

Obligations Of The Principal (Chapter 3) Arts. 1910-1918

Obligations of Principal Comply with obligations contracted by agent within latter’s authority Advance sums necessary for execution of agency 3. Indemnify agent for damages in relation to execution of agency provided agent was not at fault or negligent IV.

Modes of Extinguishment of Agency (Chapter 4) Arts. 1919-1932 Agency Is Extinguished By: 1. its revocation by the principal Except: a. a bilateral contract depends on it b. it is a means of fulfilling an obligation already contracted c. if a partner is appointed manager of a partnership contract and his removal from management is unjustiable. d. If it is coupled with interest 2. withdrawal of agent 3. death, civil interdiction, insanity or insolvency of principal or agent Except (in cases of death of principal): ‘a. it was constituted in the common interest of principal and agent b. it was constituted in the interest of a third person who has accepted the stipulation in his favor ‘4. dissolution of firm/corporation which entrusted or accepted the agency 5. accomplishment of the object/purpose of agency ‘6. expiration of the period for which agency was constituted Agency Coupled With Interest – refers to an agency wherein the agent has acquired some interest of his own in the execution of the authority

granted him, in addition to his mere interest in the contract of employment with the resulting gains (Mechem on Agency) Case Studies: Dela Rama Steamship vs. Tan (99 Phil 1034) Where the agent had a previous option to buy the vessel and assigned that option to a steamship company on the condition that he be appointed agent of the vessel for 5 years, the agency being coupled with interest, cannot be revoked at will by the principal. Buason vs. Panuyas (105 Phil 795) The death of the principal will not nullify sale by the agentwith third persons who contracted with agent and the third person in good faith, even if sale is made after the death of the principal provided agent knew did not know of his principal's demise. (Art. 1723, Old Civil Code, 1931, New Civil Code). Philex Mining Corp vs. Commissioner of Internal Revenue (551 SCRA 428) In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. Art. 1927 provides that an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Rallos vs. Felix Go Chan (81 SCRA 251) The general rule is that death of the principal effects instantaneous and absolute revocation of the authority of the agent unless the power be coupled with an interest. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned. ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. ART. 1931. Anything done by the agent, without knowledge the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith.Under this provision, an act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal, and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third person was

not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur: the absence of one will render the act of the agent invalid unenforceable. CREDIT TRANSACTIONS LOAN (BOOK IV – TITLEXI) Arts. 1868-1961 General Provisions -Arts.1933-1961 A.

i. Commodatum (Chapter 1) Arts. 1935--1952 Nature of Commodatum (Section 1) Arts. 1953-1940 Bailment –the delivery of property by one person to another in trust for a specific purpose, with a contract express or implied, that the first shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept or until the bailor reclaims it. Bailor – the giver; Bailee – the recipient of the thing bailed. -

-

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it. It is essentially gratuitous and the bailor retains ownership of the thing. Needs the delivery of the object of the contract in order that it shall be perfected.

B.

Obligations of The Bailee (Section 2) Arts. 1941-1945 Note: Per Art. 1287, compensation cannot take place if debt arises from commodatum.

C.

Obligations of The Bailor (Section 3) Arts. 1946-1952 Praecarium – When the bailor may demand the thing at will in the following: a. Duration of the contract and use to which a thing loan should be devoted were not stipulated b. Use of the thing is merely tolerated by owner. The possession of the bailee is more secure in a “commodatum” than in a “praecarium” which depends on bailor’s will. Simple Loan or Mutuum(Chapter 2) Arts. 1953-1961

Mutuum–one of the parties delivers to another, money or other consumable (fungible) thing, upon the condition that the same amount of the same kind and quality shall be paid. It may be gratuitous or with stipulation to pay interest - It needs the delivery of the object of the contract in order to be perfected. The ownership of the thing passes to the borrower. Barter- if the ownership of a non-consummable thing is delivered to another with the obligation of the latter to give things of the same kind, quantity and quality. Credit in loans – the ability to borrow money or thing by virtue of the thing or trust reposed by the lender that the borrower will pay what he may promise. Case Studies: People vs. Venancio Concepcion (44 Phil 126) A "loan" means the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, expresses or implied, to repay the sum loaned, with or without interest. The concession of a "credit" necessarily involves the granting of "loans" up to the limit of the amount fixed in the "credit."To discount a paper is a mode of loaning money, with these distinctions: (1) In a discount, interest is deducted in advanced, while in a loan, interest is taken at the expiration of a credit; (2) a discount is always on double-name paper; a loan is generally on single name paper. Herrera vs. Petrophil Corporation (146 SCRA 385) The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury. To constitute usury, "there must be loan or forbearance; the loan must be money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." 1.

Interest And The Suspension Of Usury Law (by C.B. Circular 905)

Case Study: Bacolor vs. Banco Filipino (515 SCRA 79) At the time the parties entered into the loan transaction, the applicable law was the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of interest for the forbearance of money when secured by a mortgage upon real estate, should not be more than 6% per annum or the maximum rate prescribed by the Monetary

Board of the Central Bank of the Philippines in force at the time the loan was granted. Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on interest rates on a certain class of loan. For sometime now, usury has been legally noninexistent and that interest can now be charged as lender and borrower may agree upon. As a matter of fact, Section 1 of Central Bank Circular No. 905 states that the rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. Chua vs. Timan (562 SCRA 146) The stipulated interest rates of 7% and 5% per month imposed on respondents' loans must be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. While C.B. Circular No. 905, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets. Almeda vs. CA (256 SCRA 292) The manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law; and (3) upon agreement. While the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets..Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. Here, as clearly demonstrated above, not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored. 2. money

2 Kinds of Interests a. Monetary Interest (Art. 1956) – Compensation for use of

b.

Compensatory Interest (Art. 2209) – As damages (Reformina vs. Tomol (139 SCRA 260), CB Circular No. 416 raised the rate from 6% to 12% for loans or forbearance of money. This increase does not apply to act to actions for damages which remains at 6%.

Case Studies: Overseas Bank vs. CA (113 SCRA 778.) What enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation, x x x Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. Herrera vs. Petrophil Corp. (146 SCRA 385) The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury. To constitute usury, "there must be loan or forbearance; the loan must be money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." New Sampaguita Builders ConstructionInc. vs. Phil National Bank (435 SCRA 565) Petitioners-borrowers' accessory duty to pay interest did not give respondentcreditor unrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded at whim by only one party to the agreement.The "unilateral determination and imposition" of increased rates is "violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code." One-sided impositions do not have the force of law between the parties, because such impositions are not based on the parties' essential equality. Reformina vs. Tomol (139 SCRA 260) The Monetary Board increased the rate of legal interest from that of six (6%) percent per annum originally allowed under Section 1 of Act No. 2655 to twelve (12%) percent per annum. It will be noted that Act No. 2655 deals with interest on (1) loans; (2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments. The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which

has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank

DEPOSIT (BOOK IV – TITLEXII) Arts. 1962-2009 I.

Deposit In General And Its Different Kinds (Chapter 1) Arts. 1962-1967 Deposit –constituted from the moment a person receives a movable thing (except in judicial deposit where both movable and immovable may be the subject of the deposit) belonging to another, with the obligation of safely keeping it and of returning the same. It is perfected upon the delivery of the thing. It may be gratuitous or otherwise. Irregular Deposit – when the depositary has permission to use the thing deposited but safekeeping is still the principal purpose of the contract. Kinds of Deposit 1. Judicial Deposit (Arts. 2005-2009) – constituted by virtue of court order for attachment/seizure of property in litigation 2. Extra-Judicial Deposit a. Voluntary Deposit (Arts. 1968-1995) – effective by will of the parties; b. Necessary Deposit (Arts. 1996-2004) – compliance with legal obligation, occasion of calamity, travelers in hotels, passengers in common carriers.

II.

Voluntary Deposit (Chapter 2) Arts. 1968-1995

General Provisions (Section 1 ) – Arts. 1968 – 1971 Obligations Of The Depositary (Section 2) – Arts. 1972 – 1991 Extinguishment Of Deposit: 1. Upon loss/destruction of thing deposited; 2. Upon death of depositor or depositary in gratuitous deposits Case Studies: Delgado vs. Bonnevie (23 Phil 308) Things received on deposit or hire do not prescribe, the depositary or lessee can not claim that the ownership of the thing deposited or hired was transferred to him, but

simply the custody and use or benefit thereof, the possession of the depositary or lessee not being adverse to that of the depositor or lessor. Baron vs. David (51 Phil 1) The owner of a rice mill who, in conformity with custom prevailing in the trade, receives palay and converts it into rice, selling the product for his own benefit, must account for the palay to the owner at the price prevailing at the time demand is made.The destruction of a rice mill, with its contents, by fire after palay thus deposited has been milled and marketed does not affect the liability of the miller. Obligations Of The Depositor (Section 3) – Arts. 1992 - 1995 Depositary’s Lien – right of the depositary to retain thing in pledge until full payment of what may be due to him under the deposit. Hotelkeeper’s Lien – the hotel keeper may retain the things brought into the hotel by the guest as security for the credits on account of lodging, and supplies usually furnished hotel guests. Necessary Deposit (Chapter 3) Arts. 1996-2004

III.

-

In compliance with a legal obligation, When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck or other similar events.

Case Study: YHT Realty vs. CA (451 SCRA 638) Art. 2003 of the Civil Code provides: The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished shall be void. Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to situations such as that presented in this case. The hotel business like the common carrier's business is imbued with public interest. Catering to the public, hotel-keepers are bound to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by hotel-keepers on guests for their signature. IV.

Sequestration Or Judicial Deposit (Chapter 4) Arts. 2005-2009 Covers movable/immovable property

ALEATORY CONTRACTS (BOOK IV – TITLEXIII) Arts. 2010-2027 Aleatory Contract - where each of the parties has to his account the acquisition of equivalent prestation, but such equivalent although pecuniarily appreciable, is not yet determined, at the moment of the celebration of the contract, since it depends upon the happening of an uncertain event, thus charging the parties with the risk of loss or gain. Commutative Contract – where each of the parties acquires an equivalent prestation and such equivalent is already pecuniarily appreciable and already determined at the moment of the celebration of the contract. General Provisions (Art. 2010) Tontine Combination – where several persons contribute at regular intervals certain quotas to a common fund, which shall be distributed at the expiration of the contract among the survivors in the group; the portion corresponding to those who die before the termination of the contract do not pass to their heirs but increase the shares that would go to the survivors of the group. Case Study: Vitug vs. Court of Appeals (183 SCRA 755) Where the husband and wife deposit jointly conjugal funds with the bank with the agreement that the survivor becomes the owner of the whole amount, this is valid as an aleatory contract and is not a disposition mortis causa or inter-vivos. I. Insurance (Chapter 1) Arts. 2011-2012 -

Governed by special laws. If the beneficiary predeceases the insured, the heirs of the beneficiary and not the insured, get the insurance indemnity since the beneficiary has already acquired a vested right. Case Study: Insular Life Assurance Company vs. Ebrado (80 SCRA 181) A life insurance policy is the same as a civil donation insofar as the beneficiary is concerned. A beneficiary is like a donee, because from the premiums of the policy

which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. Article 739 NCC also operates in life insurance contractsand Article 2012 provides that any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. A common-law wife named as beneficiary in the life insurance policy of a legally married man cannot claim the proceeds thereof in case of death of the latter since it will go to the estate of the insured. II.

Gambling (Chapter 2) Arts. 2013-2020 Game of Chance – depends more on chance or hazard than on skill or ability. P.D. 483 prohibits all forms of betting including games of skill or ability including chess, basketball, boxing, et. The winner cannot maintain an action for collection of what he won in a game of chance. But loser may recover what was lost with legal interest from time he paid the amount from the winner.

III.

Life Annuity (Chapter 3) Arts. 2021-2027 Life Annuity – this aleatory contract binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. COMPROMISES & ARBITRATION (BOOK IV – TITLEXIV) Arts. 2028-2046

I.

Compromises (Chapter 1) Arts. 2028-2041 Compromise – It is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. This is deemed equivalent to an alienation (transigere et alienare) and is an act of strict ownership that goes beyond mere administration. Court Approval is necessary in compromises entered into by guardians, parents, absentees, representatives and administrators or executor’s of decedent’s estate. There can be execution in compliance with judicial compromise. No Compromiseon the Following (Art. 2035):

a. b. c. d. e. f.

The civil status of persons; Validity of a marriage or legal separation Any ground for legal separation Future support The jurisdiction of courts Future legitime

Case Studies: Kaisahan ng mga Manggagawa sa La Compania vs. Sarmiento (133 SCRA 220) Settlement or compromise of money claims of laborers made by a union or counsel needs the specific individual consent of each laborer concerned. The union to which they belong can only assist them but cannot decide for them. The Compromise Agreement allegedly entered into by and between the Union and the company is void, there being no ratification by the individual union members. Republic vs. Florendo (549 SCRA 527) A compromise agreement may cover cases pending trial, on appeal, and with final judgment. There can be a compromise agreement, notwithstanding a final judgment in which only the amount of back wages was left to be determined if there was no evidence of fraud or of any showing that the agreement was contrary to law, morals, good customs, public order, or public policy. Parties may compromise prior to the execution of a final judgment. The Court ruled that the final judgment had been novated and superseded by a compromise agreement. (Id., p. 193, citing Jesalva v. Bautista, 105 Phil. 348, 351 (1959); Palanca v. Court of Industrial Relations, 150-C Phil. 354, 359 (1972) and Gatchalian v. Arlegui, G.R. Nos. L-35615 and L-41360, 17 February 1977, 75 SCRA 234, 241. ) It does not matter that the CA decision lapsed into finality when neither party questioned it. A compromise agreement is still valid even if there is already a final and executory judgment. and parties are bound to abide by them in good faith. Since they have the force of law between the parties, no party may discard them unilaterally Diamond Builders Conglomeration vs. Country Bankers Insurance (540 SCRA 194) A compromise judgment is a decision rendered by a court sanctioning the agreement between the parties concerning the determination of the controversy at hand. Upon approval by the court, it is no longer a mere contract but becomes a judgment that is subject to execution in accordance with Rule 39 of the Rules of Court.( Martir v. Verano, supra, at 127.) It is not appealable and should not be disturbed except upon a showing of vitiated consent or forgery. When both parties enter into a compromise agreement and request that a decision be rendered approving the same, such action is an express waiver of the right to appeal against said decision. (World Machine Enterprise v. Intermediate Appellate Court, G.R. No. 72019, December 20, 1990, 192 SCRA 459, 465. )If a party fails or refuses to abide by a compromise agreement, the other party may

either enforce the compromise or regard it as rescinded and insist upon his original demand. Rivero vs. CA (458 SCRA 714) Paternity and filiation or the lack of the same is a relationship that must be judicially established, and cannot be left to the will or agreement of the parties. A compromise is a contract whereby parties, making reciprocal concerns, avoid litigation or put an end to one already commenced. It must comply with the requisite provisions in Article1318 of the New Civil Code, and the terms and conditions thereof must not be contrary to law, morals, good customs, public policy and public order. Otherwise it isnull and void and vests no rights and holds no obligation to any party.

Rodriguez vs. Alikpala (57 SCRA 455) Judgment may be directed against one who, although not a formal party in the case, has assumed or participated in the defense. Even if estoppel does not apply in this case, there is the principle of equity that jurisdiction over a person not formally or originally a party to a litigation may nevertheless be acquired, under proper conditions, thru the voluntary appearance of that person before the court. II.

Arbitrations (Chapter 2) Arts. 2042-2046 Arbitration- a voluntary dispute resolution process in which one or more arbitrators appointed in accordance with the agreement of the parties or the rules promulgated pursuant to this Act, resolve a dispute by rendering an award. (Sec. 3(d) of R.A. 9285- ADR Act) The provisions on Compromises are also applicable to Arbitation. 1.

International

2.

Domestic

Construction Arbitration 1. 2.

Domestic Foreign

1.

Voluntary

2.

Compulsory

Governed by Chapter 4 of RA 9285 adopting the Model Law on International Commercial Arbitration (per Sec. 19 of RA 9285)* Chapter 5 of RA 9285 adopting R.A. 876 (Domestic Arbitration Law as amended) (per Sec. 32 of RA 9285) Chapter 6 of RA 9285 – Construction Arbitration adopting EO 1008 Place of Arbitration Within the Philippines Where the agreed or fixed place or arbitration is in a foreign country. The enforcement of foreign arbitral award is governed by 1958 New York Convention Arbitration Agreement or Law Referral of a dispute by the parties to an impartial 3rd person pursuant to their arbitration agreement Where parties are compelled by law to submit their dispute to an impartial 3rd person for arbitration

‘* Both are forms of binding arbitration since they provide mechanisms for judicial enforcement of arbitral awards. Sec. 35 of RA 9285 – the jurisdiction of the Construction Industry Arbitration Commission (CIAC) includes those between or among parties to, or who are otherwise bound by, an arbitration agreement, directly or by reference, whether such parties are project owner, contractor, subcontractor, fabricator, project manager, design professional, consultant, quantity surveyor, bondsman or issuer of an insurance policy in a construction project. Sec. 59 of RA 9184 –

disputes with the Government arising from procurement contracts, if falling within the competence of the CIAC, shall be submitted to CIAC for arbitration.

Case Study: LM Power Engineering Corp vs. Capitol Construction Groups (399 SCRA 562) Courts should liberally construe arbitration clauses and any doubt should be resolved in favor of arbitration.

GUARANTY (BOOK IV – TITLEXV) Arts. 2047-2084 I.

Nature and Extent of Guaranty (Chapter 1) Arts. 2047-2057 Guaranty – a person called a guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, he is called a surety and this is governed by Title I (Chapter 3, Sec. 4 – Joint & Solidary Obligations). This is a consensual, nominate accessory and unilateral contract. - covered by the Statute of Frauds - strictly construed against the creditor and in favor of guarantor Kinds of Guaranty:

1.

Personal Guaranty

a.

Guaranty Case Study:

Vizconde vs. IAC (149 SCRA 226) Appellant was a mere guarantor, a solidary one to be sure, of the obligation assumed by Pilar A. Pagulayan to complainant Marylou J. Perlas for the return of the latter's ring or the delivery of its value. Whatever liability was incurred by Pagulayan for defaulting on such obligation — and this is not inquired into — that of Vizconde consequent upon such default was merely civil, not criminal. It was, therefore, error to convict her of estafa. As already stated, the Solicitor General however maintains, on the authority of People vs. Padilla, (129 SCRA 558) that the appellant should be held liable to pay the complainant the amount of P55,000.00, or whatever part of such amount remains unpaid, for the value of the ring. Again, this is a correct proposition, there being no question — as in fact admitted by her — that the appellant executed the guarantee already referred to. b. Suretyship Suretyship Passive Solidarity 1. Surety is liable for payment of 1. Passive solidary debtor is liable for payment of his obligation of another own share and that of other solidary debtors 2. Surety, upon payment, may ‘2. Passive solidary debtor may recover only recover whole amount from corresponding shares of co-debtors principal debtor 3. Extension of time without ‘3. Solidary debtor is not released with extension of time knowledge /consent of surety releases surety Case Studies: Palmares vs. CA (288 SCRA 422) In a contract where Petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note, petitioner's liability is that of a surety.A surety is: (a) an insurer of the debt,(b)an undertaking that the debt shall be paid; (c) promises to pay the principal's debt if the principal will not pay; (d)binds himself to perform if the principal does not, without regard to his ability to do so; (e)undertakes directly for the payment and is so responsible at once if the principal debtor makes default. . A guarantor is: (a) an insurer of the solvency of the debtor; (b) an undertaking that the debtor shall pay; (c) agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay; (d) does not contract that the principal debtor will pay, but simply that he is able to do so; (e) contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Villa vs. Bosque (49 Phil 126)

If a property is payable in various installments, an extension of time granted by the creditor to the debtor with respect to one installment will discharge the sureties, whether simple or solidary, from all liability as to such installment but it does not affect their liability for other installments unconnected with the extension of time. The Hongkong & Shanghai Bank vs. Aldanese (48 Phil 990) Where in a bond the debtor and surety have bound themselves solidarily, but limiting the liability of the surety to a lesser amount than that due from the principal debtor, any such payment as the latter may have made on account of such obligation must be applied first to the unsecured portion of the debt, for, as regards the principal debtor, the obligation is more onerous as to the amount not secured. The principal debtor having paid an amount on account of the debt, the surety is under obligation to pay the balance up to the amount secured by the bond executed by him. Santos and Frias vs. Hon. Mejia (94 Phil 211) A surety is not bound to execute a bond which would answer for the principal's liability that might be adjudged by the Court in the case where it was filed if the surety does not wish to execute such bond. A surety or a guarantor is not responsible beyond the terms of his undertaking.The bond filed in this case expired on 4 July 1952, the surety cannot be held liable under the bond beyond 4 July 1952, and it could cancel the bond ten days thereafter if the obligees failed to notify it of the principal's obligation under the bond. 4.

Real Guaranty ‘a..Real Property 1) Real Estate Mortgage 2) Antichresis b. Personal Property 1) Pledge 2) Chattel Mortgage II.

Effects of Guaranty (Chapter 2) Arts. 2058-2075 A. Effects of Guaranty Between The Guarantor & Creditor (Section 1) Arts. 2058-2065 Benefit of Excussion – right of the guarantor to have all properties of the debtor and all legal remedies against him first exhausted before he can be compelled to pay the creditor (Art. 2058). There can be no excussion in the following cases:

 

If guarantor has expressly renounced it If he has solidarily bound himself with the debtor;

  

In case of insolvency of the debtor; When he has absconded or cannot be sued within the Philippines unless he has left a manager or representative If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. Benefit of Division–should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all guarantors, unless solidarity has been expressly stipulated (Art. 2065). Case Studies: Southern Motors Inc vs. Barbosa (99 Phil 263) The right of guarantors, under article 2058 NCC, to demand exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has not been given as special security for the payment of the principal obligation. Guarantees, without any such pledge or mortgage, are governed by title XV of said Code, whereas pledges and mortgages fall under title XVI thereof, in which articles 2087 and 2126 of same code among others are found.Although an ordinary personal guarantor, not a mortgagor or pledgor, may demand exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him, until after the properties of the principal debtor shall have been exhausted, to satisfy the obligation involved in the case. Philippine Trust Co. vs. Echaus Tan Siua (52 Phil 852) One who mortgages his property to secure the debt of another without expressly assuming personal liability for such debt cannot be compelled to pay the deficiency remaining due after the mortgage is foreclosed. Palmares vs. Court of Appeals (288 SCRA 422) A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 NCC, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. It is not necessary for a creditor to proceed against the principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then as soon as the principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety(who is primarily liable) is the same as that of the principal, then as soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. The proper remedy is for surety to pay the debt and pursue the principal for reimbursement. Unless

permitted by statute and in the absence of any agreement limiting the application of the security the creditor or oblige, is not required to resort to and exhaust his remedies against the principal , before proceeding against the surety. B. Effects of Guaranty Between The Debtor and The Guarantor (Section 2) Arts. 2066-2074 Indemnification By Debtor To Guarantor After The Latter Has Paid Consists Of:  Total Amount of Debt  Legal interests from time payment was made known to debtor  Expenses incurred by guarantor after having notified debtor of payment  Damages, if due. C. Effects of Guaranty Between Co- Guarantors (Section 3) Arts. 2073-2075 – benefit of division except when several guarantors bound themselves solidarily with principal debtor III.

Extinguishment of Guaranty (Chapter 3) Arts. 2076-2081 Obligation of Guaranty Extinguished By:  Same causes as all other obligations  Extension granted to debtor by creditor without consent of guarantor  Release by creditor to one of guarantor without consent of other creditors benefits others to the extent of share of released guarantor

IV.

Legal and Judicial Bonds (Chapter 4) Arts. 2082-2084 Exception to Benefit of Excussion:  Judicial bondsman  Sub-surety in sofar as property of debtor or of surety. PLEDGE, MORTGAGE AND ANTI-CHRESIS (BOOK IV – TITLEXVI) Arts. 2085-2141

I.

Provisions Common To Pledge & Mortgage (Chapter 1) Arts. 2085-2092

Essential Requisites To Contracts of Pledge/Mortgage: They be constituted to secure the fulfillment of an obligation Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged 3. Persons constituting the pledge/mortgage have the free disposal of their property and in the absent thereof, that they be authorized for the purpose

4. When the principal obligation becomes due, the thing in which the pledge or mortgage consists, may be alienated for the payment to the creditor. Pactum Commissorium (Art. 2088) vs. Foreclosure – Arts. 2112 to 2115 Two Elements of Pactum Commisorium (void) a. That there should be a pledge or mortgage by way of security for the payment of the principal obligation b. That there should be a stipulation for an automatic appropriation of the thing given in pledge or mortgaged by the creditor in the event of default Case Studies: Yau Chu vs. CA (177 SCRA 793) The encashment of the deposit certificates was not a pacto commissorio, prohibited under Art. 2088 of the Civil Code, to preventan obligor, pledgor, or mortgagor frombeing overreached by his creditor who holds a pledge or mortgage over property whose value is much more than the debt. A pacto commissorio is a provision for the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. Where the security for the debt is also money deposited in a bank, the amount of which is even less than the debt, the creditor can encash the time deposit certificates to pay the debtors' overdue obligation, with the latter's consent, apply the amount thereof to the debtor’s obligation and still collect the deficiency, if any, as this does not constitute pactum commissorium. A. Francisco Realty & Devt. Corp. vs. CA (298 SCRA 349) The stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be registered, are in substance a pactum commissorium and is void. Nakpil v. Intermediate Appellate Court, (225 SCRA 456) An agreement whereby property held in trust was ceded to the trustee upon failure of the beneficiary to pay his debt to the former as secured by the said property was void for being a pactum commissorium..There was automatic appropriation of the property by creditor in the event of failure of debtor to pay the value of the advances, which is expressly prohibited by Art. 2088 of the Civil Code. All the elements of a pactum commissorium were present: there was a creditor- debtor relationship between the parties, the property was used as security for the loan; and, there was automatic appropriation by respondent creditor of the property in case of default of petitionerdebtor.The stipulation that the ownership of the property would automatically pass to the vendee in case no redemption was effected within the stipulated period, is

void for being a pactum commissorium since the mortgagee acquires ownership of the mortgaged property without need of foreclosure. Its insertion in the contract is an avowal of the intention to mortgage rather that to sell the property. Reyes v. Sierra, (93 SCRA 472 ) A mortgagee's mere act of registering the mortgaged property in his own name upon the mortgagor's failure to redeem the property amounted to the exercise of the privilege of a mortgagee in a pactum commissorium in violation of Article 2088 of the Civil Code. Applicant's predecessor-in-interest is a mere mortgagee, and ownership of the thing mortgaged is retained by the mortgagor. The mortgagee, may recover the loan, although the mortgage document evidencing the loan was nonregistrable being a purely private instrument. Failure of mortgagor to redeem the property does not automatically vest ownership of the property to the mortgagee, which would grant the latter the right to appropriate the thing mortgaged or dispose of it. DBP vs. CA (284 SCRA 14) The deed of assignment of leasehold rights was a mortgage contract- a security and not a satisfaction of indebtedness. DBP's act of appropriating debtor’s rights violates Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of debt. Under the deed of assignment, DBP cannot appropriate the leasehold rights because it did not say leasehold rights would automatically pass to DBP ifdebtorfails to pay the loans on time. It merelysays in case debtor fails to pay, DBP is the attorney-in-fact with authority to sell or otherwise dispose of the said real rights, and to apply the proceeds to the payment of the loan. The promissory notes are not novated by the assignmentsince the assignment merely complemented or supplemented the promissory notes. The obligation to pay remained, and the assignment is onlya security for the loans under the promissory notes. II.

Pledge (Chapter 2) Arts. 2093-2123

PledgeArts. 2085, 2093 and 2096. It is constituted to secure the fulfillment of an obligation; The Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged;  Persons constituting the pledge/mortgage have the free disposal of their property and in the absent thereof, that they be authorized for the purposed Thing pledged is placed in the possession of the creditor or of a third person by common agreement Description of thing pledged and the date of the pledge must appear in public instrument to affect third persons  No double pledge

Case Studies: Betita vs. Ganzon (49 Phil 87) A pledge is not effective as against third parties unless evidence of its date appears in a public instrument. The filing of a private document of pledge with the sheriff, after the levy of execution does not create a lien superior to that of the attachment. The delivery of possession referred to in article 1863 of the old Civil Code (now Art. 2093 NCC) and essential to the validity of a pledge,means actual possession of the property pledged and a mere symbolic delivery is not sufficient. Involuntary Insolvency Of.Pacific Commercial Company, et. al vs. Philippine National Bank(49 Phil 236) To make a written instrumentvalid as to third persons, which is in form and substance, a pledge of personal property, it is necessary to take the actual, physical possession of the property and to continue in such possession.Without delivery of the possession of the property therein described, a chattel mortgage is void as to third persons unless the mortgage is duly received and made a matter of record in the office of the register of deeds of the province in which the property is situated. A pledge or chattel mortgage is confined and limited to personal property, and cannot be enlarged or made a lien on real property. B. C.

Kinds Obligation and Rights of Pledgor

Case Studies: Cruz vs. Lee (54 Phil 10) Under article 1867 of the old Civil Code (Art. 2099 of the NCC), a person who takes in pledge a pawn ticket representing jewelry already held in pledge by a pawnbroker is bound, so long as he retains custody of the ticket, to keep the original contract of pledge alive by payment from time to time of the premium, or interest, required by the pawnbroker, and if he fails in this duty, he will be liable in damages to the person pledging such pawn ticket to him. DBP vs. Mirang (66 SCRA 141) When the Legislature intends to bar or occlude a creditor from suing for any deficiency after foreclosing and selling the security given for the obligation, it makes express provisions to that effect, as it did in Article 2115 of the Civil Code on pledge. Manila Surety & Fidelity Company vs. Velayo (21 SCRA 515)

Where the pieces of jewelry were delivered to a surety company "as collateral security and by way of pledge" in a contract of guaranty, and sold at a lower price than the amount of surety, the principal obligation was extinguished and the guarantor cannot recover the deficiency, because Art. 2115 of the Civil Code, in its last portion, clearly establishes that the extinction of the principal obligation supervenes by operation of imperative law that the parties cannot override: "If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary." The effect of this provision cannot be evaded. By electing to sell the articles pledged, instead of suing on the principal obligation, the creditor has waived any other remedy, and must abide by the results of the sale. Note: Although Article 2088 applies the principle of “pactum commissorium” in the contract of pledge, this principle may be negated in the foreclosure proceedings, thus: ARTICLE 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. E.

Pledge by Operation of Law – Art. 2121-2122 1. 2. 3. 3. 4. G.

III.

Art. 546 – Right to retain by possessor in good faith of necessary and useful expenses Art. 1731 – Mechanic’s lien for work on movables Art. 1914 – Right of an agent to retain Art. 1994 – Right of Depositary to retain Art. 2004 – Right of Hotelkeeper on Things Brought by Guests

Distinguished from Chattel Mortgage – Arts. 2140, 1484

Real Estate Mortgage (Chapters 1 & 3) Arts. 2124-2131 Mortgage – A contract whereby the debtor guarantees to the creditor the fulfillment of the principal obligation, subjecting thereto for the compliance therewith, real property in case of non-fulfillment of the obligation at the time stipulated. A. Definition And Characteristics B. Essential Requisites C. No Pactum De Non Aliendo

– Art. 2130 which provides that a stipulation forbidding the owner from alienating the immovable mortgaged shall be void. Case Studies: Mobil Oil vs. Diocares (29 SCRA 656) Even if the instrument were not recorded, "the mortgage is nevertheless binding between the parties.". The mere fact that there is no recording of the mortgage is not a bar to foreclosure. An exception should be made to the rule that it is indispensable for a mortgage to be validly constituted that it be recorded.. There is full acknowledgment of the binding effect of a promise, which must be lived up to, otherwise the freedom a contracting party is supposed to possess becomes meaningless. Prudential Bank vs. Alviar (464 SCRA 353) A "blanket mortgage clause," (a"dragnet clause") is specifically phrased to subsume all debts of past or future origins and should be "carefully scrutinized and strictly construed." It: (a) enables the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time; (b) avoids the expense and inconvenience of executing a new security on each new transaction; (c)operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera. Mortgages given to secure future advancements are valid and legal contracts, and the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. Where deeds absolute in form were executed to secure any and all kinds of indebtedness that might subsequently become due, a balance due on a note, after exhausting the special security given for the payment of such note, was in the absence of a special agreement to the contrary, within the protection of the mortgage, notwithstanding the giving of the special security. While the "dragnet clause" subsists, the security specifically executed for subsequent loans must first be exhausted before the mortgaged property can be resorted to. Lim Julian vs. Lutero (49 Phil 703) When a mortgage is given to secure future advancements and the money is paid to the mortgagor little by little and repayments are made from time to time, the advancements and repayments are considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage

B.H. Bertenkotter vs. Cu Unjieng (61 Phil 663)(Re: Art. 2127) The installation of a machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar central and subjects said machinery and equipment to the mortgage constituted thereon. (Article 1877, old Civil Code now Art. 2127 NCC.) C.

Foreclosure 1.

Three (3) Common Types of Forced Sale on Mortgage Debt

a.

Extrajudicial foreclosure under Act 3135

Right of Redemption – in extra-judicial foreclosure is ordinarily one year, while equity of redemption in judicial foreclosure is 90-120 days and before the Order of confirmation by the court. Case Studies: El Hogar Filipino vs. Paredes (45 Phil 178) A stipulation in a mortgage of real property authorizing the mortgagee, upon default of the mortgagor in the payment of the mortgage debt and after publication for three successive weeks in a paper of general circulation, to expose the property to public sale and allowing the mortgagee to become a bidder at such sale, is valid. Concepcion vs. CA (274 SCRA 614) The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court. Each mode, peculiarly, has its own requirements. In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135 is the law applicable. The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a newspaper of general circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties to the mortgage contract are not precluded from exacting additional requirements provided these are not contrary to law, morals, good customs, public order or public policy.

Tambunting v. Court of Appeals, (167 SCRA 16),

The republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The parties have no right to waive the publication requirement in Act No. 3135. Dayot vs. Shell Chemical Co (Phils ) Inc. (525 SCRA 535) Any property brought within the ambit of Act 3135 is foreclosed by the filing of a petition, not with any court of justice, but with the office of the sheriff of the province where the sale is to be made. A third person in possession of an extra-judicially foreclosed property, who claims a right superior to that of the original mortgagor, is thus given no opportunity to be heard in his claim. (Capital Credit Dimension, Inc. v. Chua, G.R. No. 157213, April 28, 2004, 428 SCRA 259, 263.)Such third person may not be dispossessed on the strength of a mere ex-parte possessory writ, since to do so would be tantamount to his summary ejectment, in violation of the basic tenets of due process. (PNB v. Court of Appeals, supra note 27, at 770.) Ong vs. CA (333 SCRA 189) A writ of possession may be issued under the following instances: (1) land registration proceedings under Sec. 17 of Act 496; (2) judicial foreclosure, provided the debtor is in possession of the mortgaged realty and no third person, not a party to the foreclosure suit, had intervened; and (3) extrajudicial foreclosure of a real estate mortgage under Sec. 7 of Act 3135 as amended by Act 4118.. Under Sec. 7 of Act 3135 as amended by Act 4118, a writ of possession may be issued either (1) within the one year redemption period, upon the filing of a bond, or (2) after the lapse of the redemption period, without need of a bond.As a rule, any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. The pendency of a suit for annulment of the mortgage or the foreclosure itself, will not prevent the purchaser from obtaining a writ of possession - without prejudice of course to the eventual outcome of said case. The issuance of writ of possession cannot be enjoined. Green Asia Construction & Devt. Corp vs. CA (508 SCRA 79) The purchaser at an extrajudicial foreclosure of real property merelyfiles an ex parte motion for the issuance of a writ of possession ( without need for verification and certification on non-forum shopping)and there is no need for an original action. Section 8 of Act no. 3135 provides that the debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because: (a) the mortgage was not violated; or (b) the sale was not made in accordance with the provisions hereof. Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of possession. In such cases, the debtor should file a separate and

independent action for annulment of the mortgage or the foreclosure, since the nullity of the mortgage is not covered by the remedy outlined under Section 8 of Act No. 3135. The purchaser is entitled to a writ of possession despite the pendency of a suit for annulment of the mortgage or the foreclosure itself. Hrs. of Felicidad Canque vs. CA (275 SCRA 741) In Rural Bank of Davao City vs. Court of Appeals, (217 SCRA 554, 569, January 27, 1993) this Court ruled: ". . . If the land is mortgaged to a rural bank under R. A. No. 720, as amended, the mortgagor may redeem the property within two (2) years from the date of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the property is not covered or is covered, respectively, by a Torrens title. If the mortgagor fails to exercise such right, he or his heirs may still repurchase the property within five (5) years from the expiration of the two (2) year redemption period pursuant to Sec. 119 of the Public Land Act (C.A. No. 141). If the land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he or his heirs may repurchase the property within five (5) years from the expiration of the redemption period also pursuant to Sec. 119 of the Public Land Act." DBP vs. Mirang (66 SCRA 141) Article 2115 of the Civil Code on pledge, bars a creditor from suing for any deficiency after foreclosing and selling the security given for the obligation. There is no similar provision in Act 3135, as amended, hence the creditor does not lose his right given him under the Mortgage Law and recognized in the Rules of Court, to take action for the recovery of any unpaid balance on the principal obligation, simply because he has chosen to foreclose his mortgage extrajudicially, pursuant to a special power of attorney given him by the mortgagor in the mortgage contract.In redeeming the foreclosed property, the mortgagor or debtor should pay the entire amount he owed the mortgagee Bank on the date of sale, with interest thereon at the rate agreed upon, pursuant to Section 31, Com. Act 459 which provides that mortgagor or debtor . . . shall, within one year . . . have the right to redeem the real property by paying to the mortgagee Bank all the amount he owed the latter on the date of sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date . b. c.

Judicial Foreclosure under Rule 68 (Rules of Court) Ordinary Execution under Rule 39 (Rules of Court)

Case Study: CMS Brokerage Inc. vs. C (275 SCRA 790)

Paragraph (a) of Section 29, Rule 39 provides that the real property sold on execution may be redeemed by the judgment debtor or his successors in interest, in the whole or any part of the property. The judgment debtor can redeem because of the writ of execution directed against such judgment debtor. When the property is claimed by a third person, Section 17 of the same Rule 39 provides what is to be done. When, the property is levied upon and sold, despite a claim by a third person who must vindicate then his claim in a proper action, Section 29 determines who shall have a right of redemption. The right of redemption is given to the judgment debtor and not to any third-party claimant. Judgment debtor's 12-month period to redeem is not tolled by an action to quiet title filed by a third-party claimant questioning the ownership of the property sold on execution since the issue of ownership has no bearing insofar as judgment debtor's right of redemption as judgment debtor. ‘II. Antichresis (Chapter 4) Arts. 2132-2139 Antichresis – the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit. Amount of principal and interest must be specified in writing, otherwise antichresis is void. However, principal obligation may still be valid. A. B.

C.

Definition And Characteristics Obligations Of An Antichretic Creditor  Pay taxes and charges upon estate  Bear expenses necessary for its preservation and repair Pactum Commissorium is void – Art. 2137

Case Study: Ramirez vs. CA (144 SCRA 292) The antichretic creditor cannot ordinarily acquire by prescription the land surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v. Acala, 42 Phil. 177; Barreto v. Barreto, 3 Phil. 234). The antichetic creditors are not possessors in the concept of owner but mere holders placed in possession of the land by its owners. Their possession cannot serve as a title for acquiring dominion (See Art. 540, Civil Code). Under Article 2136 of the Civil Code, the debtor cannot reacquire the enjoyment of the immovable without first having totally paid what he owes the creditor. III.

Chattel Mortgage(Chapter 5) – Arts. 2140 to 2141 (see Act Nos. 1508 and 3135 – Chattel Mortgage Law and amendments) A. B.

Definition And Characteristics Registration

1.Requisites for Registration (to be binding between the parties and on third parties) a. Registry of the province/city where mortgagor resides and where subject matter of contract is situated b. If property is a vessel, with the Collector of Customs of port of entry c. If property is a motor vehicle, in addition to (a) above, with the Land Transportation Office Case Studies: Aleman vs. De Cateca (1 SCRA 776) A chatter mortgage of motor vehicles, to be binding upon third persons, should not only be registered in the Chattel Mortgage Registry, but also recorded in the corresponding Motor Vehicles Office as required by section 5 (1) of the Revised Motor Vehicles Law. (Olaf N. Borlough vs. Fortune Enterprise, Inc. et al., 100 Phil 1063; 53 Off. Gaz. 4070). Ablaza vs. Ignacio (103 Phil 1151) Unreported case Sec. 14 ofChattel Mortgage Law with regard to the effects of the foreclosure of a chattel mortgage,is contrary to Article 2115 NCC(on pledge) which provides“plaintiff is not entitled to deficiency judgment notwithstanding defendant being declared in default for the reason that it is manifestly against the law. The amount received at the time of the sale of course, always requiring good faith and honesty in the sale, is only a payment pro tanto, and an action may be maintained for a deficiency in the debt under the Chattel Mortgage Law (Manila Trading & Supply Col vs. Tamaraw Plantation Co. 47 Phil 513). Acme Shoe Rubber & Plastic Comp.vs. CA (260 SCRA 714) In contracts of real security, such as a pledge, a mortgage or an antichresis, that fulfillment is secured by an encumbrance of property — in pledge, the placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of the corresponding deed substantially in the form prescribed by law; in real estate mortgage, by the execution of a public instrument encumbering the real property covered thereby; and in antichresis, by a written instrument granting to the creditor the right to receive the fruits of an immovable property with the obligation to apply such fruits to the payment of interest, if owing, and thereafter to the principal of his credit — conditioned that if the principal obligation becomes due and the debtor defaults, then the property encumbered can be alienated for the payment of the obligation. If the obligation is duly paid, then the contract is automatically extinguished and the contract of security becomes, ipso facto, null and void.

While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described (blanket or continuing mortgage, pledge or antichresis), a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted, as provided in the affidavit of good faith. Northern Motors vs. Coquia (66 SCRA 415) Levy made by the chattel mortgagor's unsecured judgment creditor against the property subject of the chattel mortgageecannot prevail over the chattel mortgage credit. The chattel mortgage is the primary encumbrance on the mortgaged chattel. The mortgagee is entitled to the possession of the chattel mortgage and not the mortgagor's judgment creditor.. Where the mortgaged chattels have been levied upon and sold at public auction to satisfy the judgment credit, which is inferior to the chattel mortgage, and the chattels could no longer be recovered because they had been transferred to persons whose addresses are unknown, the proceeds of the execution sale may be regarded as a partial substitute for the unrecoverable chattels, and the mortgagee is entitled to the entire proceeds without deduction of the expenses of execution. The mortgagee is not obligated to file an "independent action" to enforce his credit because such action would nullify his lien and would defeat the purpose of the chattel mortgage which is to give him preference over the mortgaged chattels for the satisfaction of his credit. (See Art. 1087, Civil Code)

EXTRA-CONTRACTUAL OBLIGATIONS (BOOK IV- TITLE XVII) Arts. 2142-2194 I. Quasi-Contracts – (Chapter 1) Arts. 2142 to 2175 A. Negotiorum Gestio (Section 1) (Arts. 2144 to 2153) Negotiorum Gestio–whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. Negotiorum Gestio 1.

2. 3.

Agency

Gestor should never have been authorized by 1. Agent has been authorized expressly or owner, expressly or impliedly, to assume impliedly by the owner agency/management by the owner of business or property Essential that business or property should be ‘2. Abandonment or neglect by owner is not abandoned or neglected by owner required Continuous as long as owner does not know that ‘3. Continuous, once owner is aware and does not gestor is acting in his behalf

repudiate. There is implied agency

B. Solutio Indebiti (Arts. 2154 to 2163) Solutio Indebiti-If something is received when there is no right to demand it, and it was unduly delivered through mistake, te obligation to return it arises. (Art. 2154) -

Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law

Case Studies: Globe Mackay Cable & Radio Corp vs. NLRC (163 SCRA 71) Absent clear administrative guidelines, payment by petitioner corporation may be said to have been made by reason of a mistake in the construction or application of a "doubtful or difficult question of law." (Article 2155, in relation to Article 2154 of the Civil Code). Since it is a past error that is being corrected, no vested right may be said to have arisen nor any diminution of benefit under Article 100 of the Labor Code may be said to have resulted by virtue of the correction. ART. 2155. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article. ART. 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. Gonzalo Puyat & Sons Inc. vs. City of Manila (7 SCRA 970) Where taxes which are not legally due are paid thru error or mistake, they may under the principle of solutio indebiti, be recovered, even if no protest was made upon their payment, particularly where such payment was due to a mistake in the construction of a doubtful or difficult question of law (Article 2155, New Civil Code). C. Other Quasi Contracts (Section 3) (Arts. 2164 to 2175)    

Support is given by a stranger (not out of piety and with intention of being repaid) without knowledge of the person obliged to give support Funeral expenses are borne by 3rd person without knowledge of relatives obliged to give support to deceased Support to needy individual given by third person when person obliged to give support unjustly refuses to give support Person (in an accident) who is not in a position to give consent, is treated/helped, is liable to pay physician or other person helping him

 

Property is saved by another person without knowledge of owner during fire, flood, storm or other calamity Government undertakes necessary work on private property of person who fails to comply with health or safety regulations concerning private property TORTS AND DAMAGES

QUASI-DELICTS– (BOOK IV-TITLE XVII) (Chapter 2)Arts. 2176 to 2194 Quasi-Delict –Whoever, by act or omission causes damage to another, there being fault or negligence, (not punishable by law), is obliged, if there is no pre-existing contractual relation between the parties, is called a quasi-delict. “D,” a taxi driver, through reckless imprudence, killed passenger “A” and pedestrian “B,” using taxi cab owned by “O.” (1) Under the Revised Penal Code: The heirs of “A” and “B” may sue both “D” and “O” or “D” alone (culpa criminal); liability of “D” is direct and primary; liability of “O” is subsidiary. (2) Under the Civil Code: (a) The heirs of “A,” the passenger, may sue “O” the employer (culpa contractual). “O” cannot avail of the defense of due diligence in the selection and supervision but may mitigate his liability. (b) The heirs of “B,” the pedestrian, may sue both “D” driver and “O” owner (culpa aquiliana); liability of both is direct and primary; “O” may invoke the defense of due diligence in the selection and supervision of employee. Case Studies: Elcano vs. Hill (77 SCRA 98) While it is true that parental authority is terminated upon emancipation of the child it is, however, also clear that pursuant to Article 399, emancipation by marriage of the minor is not really full or absolute. Now under Article 2180, "(T)he obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death or incapacity, the mother, are responsible for the damages caused by the minor children who live in their company." In the instant case, it is not controverted that Reginald, although married, was living with his father and getting subsistence from him

at the time of the occurrence in question. Factually, therefore, Reginald was still subservient to and dependent on his father, a situation which is not unusual. Safeguard Security Services vs. Tangco (511 SCRA 67) An act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e., (1) civil liability ex delicto, under Article 100 of the Revised Penal Code; and (2) independent civil liabilities, such as those (a) not arising from an act or omission complained of as a felony, e.g., culpa contractual or obligations arising from law under Article 31 of the Civil Code, intentional torts under Articles 32 and 34, and culpa aquiliana under Article 2176 of the Civil Code; or (b) where the injured party is granted a right to file an action independent and distinct from the criminal action under Article 33 of the Civil Code. Either of these liabilities may be enforced against the offender subject to the caveat under Article 2177 of the Civil Code that the offended party cannot recover damages twice for the same act or omission or under both causes. The extinction of civil liability referred to in Par. (e) of Section 3, Rule 111, refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act considered as quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case that the criminal act charged has not happened or has not been committed by the accused. Culpa aquiliana includes voluntary and negligent acts which may be punishable by law covers not only acts "not punishable by law" but also acts criminal in character, whether intentional and voluntary or negligent. National Power Corporation vs. CA (294 SCRA 209) Article 2180 of the Civil Code and not the Labor Code will determine the liability of NPC in a civil suit for damages instituted by an injured person for any negligent act of the employees of the "labor only" contractor of NPC. This is consistent with the ruling that a finding that a contractor was a "labor-only" contractor is equivalent to a finding that an employer-employee relationship existed between NPC the owner (principal contractor) and the "labor-only" contractor, including the latter's workers. With respect to the liability of NPC as the direct employer, Article 2180 of the Civil Code explicitly provides:"Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry."

Padua vs. Robles (66 SCRA 485) Civil liability coexists with criminal responsibility. In negligence cases, the offended party (or his heirs) has the option between an action for enforcement of civil liability based on culpa criminal under article 100 of the Revised Penal Code and an action for recovery of damages based on culpa aquiliana under article 2177 of the Civil

Code. The action for enforcement of civil liability based on culpa criminal section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal action, unless expressly waived or reserved for a separate application by the offended party. Article 2177 of the Civil Code, however, precludes recovery of damages twice for the same negligent act or omission. It is immaterial that the plaintiffs chose in the first instance, an action for recovery of damages based on culpa aquiliana under articles 2176, 2177 and 2180 of the Civil Code, which action proved ineffectual. There is no inconsistency between this action priorly availed of the plaintiffs and their subsequent application for enforcement of civil liability arising from the offense committed by the driver and, consequently, for exaction of the employer's subsidiary liability. Allowance of the latter application involves no violation of the prescription against double recovery of damages for the same negligent act or omission where the writ of execution issued against the driver to satisfy the amount of indemnity awarded to plaintiffs in the civil case was returned unsatisfied. What Article 2177 of the Civil Code forbids is actual double recovery of damages for the same negligent act or omission. Phil Rabbit Bus Lines Inc. vs. Hrs. of Eduardo Mangawang (458 SCRA 684) The employer becomes ipso facto subsidiarily liable upon his driver's conviction and upon proof of the latter's insolvency, in the same way that acquittal wipes out not only the employee's primary civil liability but also his employer's subsidiary liability for such criminal negligence. It is high time that the employer exercised the greatest care in selecting his employees, taking real and deep interest in their welfare; intervening in any criminal action brought against them by reason of or as a result of the performance of their duties, if only in the way of giving them the benefit of counsel; and, consequently, doing away with the practices of leaving them to their fates. If these be done, the American rule requiring notice on the part of the employer shall have been satisfied. Professional Services Inc vs. CA (544 SCRA 170) The immunity from medical malpractice traditionally accorded to hospitals has to be eroded if we are to balance the interest of the patients and hospitals.The hospital is estopped from passing the blame solely to Dr. Ampil. Its act of displaying his name and those of the other physicians in the public directory at the lobby of the hospital amounts to holding out to the public that it offers quality medical service through the listed physicians. This justifies patient’s belief that Dr. Ampil was a member of the hospital's staff.Under the doctrine of apparent authority, the question is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question (Id., citing Hudson V.C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186 A 437 (Sup. Ct. 1936).

The corporate negligence doctrine imposes several duties on a hospital: (1) to use reasonable care in the maintenance of safe and adequate facilities and equipment; (2) to select and retain only competent physicians; (3) to oversee as to patient care all persons who practice medicine within its walls; and (4) to formulate, adopt, and enforce adequate rules and policies to ensure quality care for its patients. These special tort duties arise from the special relationship existing between a hospital or nursing home and its patients, which are based on the vulnerability of the physically or mentally ill persons and their inability to provide care for themselves. 40 A Am Jur 2d 28 citing Funkhouser v. Wilson, 89 Wash. App. 644, 950 P 2d 501 (Div.1 1998), review granted, 135 Wash. 2d 1001, 959 P 2d 126 (1998). The duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. The modern hospital now tends to organize a highly-professional medical staff whose competence and performance need also to be monitored by the hospital commensurate with its inherent responsibility to provide quality medical care. Such responsibility includes the proper supervision of the members of its medical staff. The hospital has the duty to make a reasonable effort to monitor and oversee the treatment prescribed and administered by the physicians practicing in its premises TORTSI.

Principles A. B. C. D. E.

II.

Classification Of Torts A. B.

III.

Abuse of Right; Elements Unjust Enrichment Liability Without Fault Acts Contrary To Law Acts Contrary To Morals

According To Manner Of Commission: Intentional, Negligent And Strict Liability According To Scope: General Or Specific

The Tortfeasor A. B.

The Direct Tortfeasor 1. Natural Persons 2. Juridical Persons Persons Made Responsible for Others 1. In General a. Quasi-Delicts Under Article 2180, How Interpreted – Family Code, Arts. 218-219, 221 (1) Elements; definition

2.

(2) Distinguished From Culpa Contractual And Culpa Criminal b. Indirect Liability For Intentional Acts c. Presumption Of Negligence On Persons Indirectly Responsible d. Nature Of Liability; Joint Or Solidary? In Particular a. Parents b. Guardian c. Owners and Managers of Establishments and Enterprises d. Employers (1) Meaning of employers (2) Requisites (a) Employee Chosen By Employer Or Through Another (b) Services Rendered In Accordance With Orders Which Employer Has Authority To Give (c) Illicit Act Of Employee Was On The Occasion Or By Reason Of The Functions Entrusted To Him (d) Presumption Of Negligence (3)

e. f. g.

Employer Need Not Be Engaged In Business Or Industry (4) Defense Of Diligence In Selection And Supervision (5) Nature Of Employer’s Liability State Teachers And Heads Of Establishments Of Arts And Trades Local Government Units

Case Study: Caedo vs. Yu Khe Tai (26 SCRA 410) The applicable law relative to the solidary liability of the employer with the driver is Article 2184 of the Civil Code. If the causative factor was the driver's negligence the owner of the vehicle who was present is likewise held liable if he could have prevented the mishap by the exercise of the due diligence.The master's liability in civil law is not based on respondeat superior but rather the relationship of paterfamilias. Ultimately, the negligence of the servant, if known to the master and susceptible of timely correction by him, reflects his own negligence if he fails to correct

it in order to prevent injury or damage. The test of imputed negligence under Article 2184 of the Civil Code is, to a great degree, necessarily subjective. Car owners are not held to a uniform and inflexible standard of diligence as are professional drivers. In many cases they refrain from driving their own cars and instead hire other persons to drive for them precisely because they are not trained or endowed with sufficient discernment to know the rules of traffic or to appreciate the relative dangers posed by the different situations that are continually encountered on the road. What would be a negligent omission under the aforesaid Article on the part of a car owner who is in the prime of age and knows how to handle a motor vehicle is not necessarily so on the part, say, of an old and infirm person who is not similarly equipped. City of Manila vs. Teotico (22 SCRA 267) Article 2189 of the Civil Code makes provinces, cities and municipalities liable for damages for the death or injury suffered by any person by reason of the defective condition of roads, streets and other public works under the control or supervision of said municipal governments and it governs liability due to defective streets in particular. Where the issue involves a defective condition of a road,it is not necessary that defective roads or streets belong to the province, city or municipality, so long as it has control or supervision" over said street or road, it may be held liable. Guilatco vs. City of Dagupan (171 SCRA 382) It is not necessary for the defective road or street to belong to the province, city or municipality for liability to attach, so long as it exercises control or supervision over the defective road or street. (City of Manila v. Teotico, No. L-23052, January 29, 1968, 22 SCRA 267.) The express provision in the charter holding the city not liable for damages or injuries sustained by persons or property due to the failure of any city officer to enforce the provisions of the charter, can not be used to exempt the city, (R.A. 170, sec. 5.) since it only lays down general rules regulating the liability of the city, while article 2189 NCC applies in particular to the liability arising from "defective streets, public buildings and other public works. (Jimenez v. City of Manila, No. 71049, May 29, 1987, 150 SCRA 510) . C. IV.

Joint Tortfeasors (Art. 2194, Civil Code)

Act of Omission and Its Modalities A. Concept of Act

A.

V. Concept

Proximate Cause Doctrine ofProximate Cause - that cause, which in natural and continuous sequence, unbroken by any efficient intervening

event/cause, produces the injury and without which the result would not have occurred. 1. 2. 3. 4.

Test Distinguished from Immediate Cause Distinguished from Intervening Cause Distinguished from Remote and Concurrent

B.

Cause in Fact 1. But For 2. Substantial Factor Test 3. Concurrent Causes

C.

Legal Cause 1. Natural and Probable Consequences 2. Foreseeability Efficient Intervening Cause Cause vs. Condition Last Clear Chance

D. E. F.

Doctrine of Last Clear Chance – where both parties are negligent in such a way that it would be impossible to determine which negligence was the proximate cause of the accident, the part who had the last clear chance to avoid the accident by the use of proper case but failed to do so, is considered in law solely responsible for the consequences of the accident. Case Studies: Picart vs. Smith (37 Phil 809) (Doctrine of Last Clear Chance) The test for determining whether a person is negligent in doing an act whereby injury or damage results to the person or property of another is this: Would a prudent man, in the position of the person to whom negligence is attributed, foresee harm to the person injured as a reasonable consequence of the course about to be pursued. If so, the law imposes a duty on the actor to refrain from that course or to take precaution against its mischievous results, and the failure to do so constitutes negligence. Reasonable foresight of harm, followed by the ignoring of the admonition born of this prevision, is the constitutive fact in negligence.Where both parties are guilty of negligence, but the negligent act of one succeeds that of the other by an appreciable interval of time, the one who has the last reasonable opportunity to avoid the impending harm and fails to do so is chargeable with the consequences, without reference to the prior negligence of the other party. Phoenix Construction vs. IAC (148 SCRA 353)

The legal and proximate cause of the accident and of victim's injuries was the wrongful or negligent manner in which the dump truck was parked sincethere was a reasonable relationship between the truck driver’s negligence and the accident and respondent's injuriesThe collision of victim’s car with the dump truck was a natural and foreseeable consequence of the truck driver's negligence.The truck driver's negligence far from being a "passive and static condition" was rather an indispensable and efficient cause. The collision between the dump truck and the private respondent's car would in all probability not have occurred had the dump truck not been parked askew without any warning lights or reflector devices. The improper parking of the dump truck created an unreasonable risk of injury for anyone driving and for having so created this risk, the truck driver must be held responsible. In our view, victim's negligence, although later in point of time than the truck driver's negligence and therefore closer to the accident, was not an efficient intervening or independent cause..The petitioner truck driver owed a duty to the victim and others similarly situated not to impose upon them the very risk the truck driver had created. Victim's negligence was not of an independent and overpowering nature as to cut, as it were, the chain of causation in fact between the improper parking of the dump truck and the accident, nor to sever the juris vinculum of liability. The last clear chance doctrine of the common law was imported into our jurisdiction by Picart vs. Smith but it is a matter for debate whether, or to what extent, it has found its way into the Civil Code of the Philippines. The historical function of that doctrine in the common law was to mitigate the harshness of another common law doctrine or rule — that of contributory negligence.it is difficult to see what role, if any, the common law last clear chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil Code of the Philippines. VI.

Legal Injury A.

Concept Injury – the violation or legal invasion of a legal right, where as “Damage” refers to the loss or harm done to a person, his rights or property, as well as to the compensation due to such person therefore. Thus, there can be damage without injury. (damnum absque injuria)

B. C. D.

VII.

Elements of Right Violation of Right or Legal Injury Classes of Injury 1. Injury To Persons 2. Injury To Property 3. Injury To Relations Intentional Torts

A.

B.

General 1. Concept 2. Classes a. Interference With Persons And Property (1) Physical Harms (2) Non-Physical Harms b. Interference with relations Interference With Rights To Persons And Property 1. Intentional Physical Harms a. General (1) Concept (2) Kinds b. Violation of Persons Security, Physical Injuries – Art.33, Civil Code (1) Battery (Physical Injury) (2) Assault (Grave Threat) c. False Imprisonment (Illegal Detention) d. Trespass to Land (1) Concept (2) Elements e. Interference With Personal Property 1) Trespass to Chattels 2) Conversion 2. Intentional Non-Physical Harms a. General (1) Concept (2) Kinds b. Violation of Personal Dignity c. Infliction of Emotional Distress d. Violation of Privacy (1) Appropriation (2) Intrusion (3) Public disclosure of private facts (4) False light in the public eye e. Disturbance of Peace of Mind f. Malicious Prosecution

Case Study: Tiongco vs. Deguma (317 SCRA 527) Malicious Prosecution is an action for damages brought by one against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit, or other proceeding in favor of the defendant therein. It has been enumerated as one of the instances in Article 2219 of the Civil Code whereby moral damages can be recovered. To

merit an award for moral damages predicated on malicious prosecution, claimants must prove that they had been denounced or charged falsely, that complainant knew that the charge was false, that the latter acted with malice and of course, the damages they suffered. VIII. Negligence A. Concept Doctrine of Imputed Negligence – the rule whereby the negligence of a certain person in the transaction or act which gave rise to the injury complained of is imputable or chargeable against the person for whom he was acting or against his associates. The liability of person mentioned in Art. 2180, among others, is based on the doctrine of imputed negligence. B. C.

Good Father of a Family or Reasonably Prudent Man Standard of Care 1. NCC, Art. 1173 2. Emergency Rule

Case Study: Valenzuela vs. CA (253 SCRA 303) Under the "emergency rule" an individual who suddenly finds himself in a situation of danger and is required to act without much time to consider the best means that may be adopted to avoid the impending danger, is not guilty of negligence if he fails to undertake what subsequently and upon reflection may appear to be a better solution, unless the emergency was brought by his own negligence. While it applies to those cases in which reflective thought, or the opportunity to adequately weigh a threatening situation is absent, the conduct which is required of an individual in such cases is dictated, not exclusively by the suddenness of the event which absolutely negates thoughtful care, but by the over-all nature of the circumstances. A woman driving a vehicle suddenly crippled by a flat tire on a rainy night will not be faulted for stopping at a point which is both convenient for her to do so and which is not a hazard to other motorists. D. E. F.

Unreasonable Risk Of Harm Evidence Presumption of Negligence 1. Legal Provisions 2. Res ipsa loquitur

Doctrine of Res Ipsa Loquitor –“The thing speaks for itself.” when the thing is shown to be under the management of the defendant

or his servants, and the accident is such as in the ordinary course of events does not happen if those who have the management had used proper care, in the absence of explanation, the presumption is that the accident arose from want of care. Requisites: 1) Accident is of a kind which does not usually occur unless someone is negligent; 2) The cause of injury must be in the exclusive control of the person in charge; 3) Injury must not have been due to any act or participation or the person injured Case Studies: College Assurance Plan vs. Belfranlt Devt. Inc. ( 538 SCRA 27) The “doctrine of res ipsa loquitur” under which expert testimony may be dispensed with (Reyes v. Sisters of Mercy Hospital, 396 Phil. 87, 96 (2000) to sustain an allegation of negligence if the following requisites obtain: a) the accident is of a kind which does not ordinarily occur unless someone is negligent; b) the cause of the injury was under the exclusive control of the person in charge and c) the injury suffered must not have been due to any voluntary action or contribution on the part of the person injured. (DM Consunji v. Court of Appeals, G.R. No. 137873, April 20, 2001, 357 SCRA 249, 259.) The fire that damaged Belfranlt Building was the result of a human act or omission since itstarted in the petitioners’ store room which petitioners alone had possession and control of. Since petitioners alone having knowledge of the cause of the fire or the best opportunity to ascertain it, and respondent having no means to find out for itself, it is sufficient for the latter to merely allege that the cause of the fire was the negligence of the former and to rely on the occurrence of the fire as proof of such negligence. (Perla Compania de Seguros v. Sarangaya III, G.R. No. 147746, October 25, 2005, 474 SCRA 191, 199.) It was all up to petitioners to dispel such inference of negligence, but their bare denial only left the matter unanswered. Africa vs. Caltex (16 SCRA 448) THE DOCTRINE OF Res Ipsa Loquitur. — Where the thing which caused the injury complained of is shown to be under the management defendant or his servants and the PRESUMPTION OF NEGLIGENCE UNDER accident is such as in the ordinary course of things does not happen if those who have its management or control use proper care, it affords reasonable evidence, in absence of explanation by defendant, that the accident arose from want of care. (45 C. J. 768, p. 1193.)The intervention of an unforeseen and unexpected cause, is not sufficient to relieve a wrongdoer from consequences of negligence, if such negligence directly and proximately cooperates with

the independent cause in the resulting injury. (MacAfee et al., vs. Travers Gas Corp., et al., 153 S. W. 2nd 442.) Capili vs. Cardana (506 SCRA 569) The effect of the doctrine of res ipsa loquitur is to warrant a presumption that the mere falling of the branch of the dead and rotting tree which caused the death of respondents' daughter was a result of petitioner's negligence, being in charge of the school.Applying the doctrine of res ipsa loquitur, petitioner's negligence is presumed once respondents established the requisites and made out a prima facie case of all requisites. The burden shifts to petitioner to explain and present evidence and to create a disputable presumption of due care or innocence. As school principal, petitioner is expected to oversee the safety of the school's premises. When she failed to see the immediate danger posed by the dead and rotting tree, she failed to exercise the responsibility demanded by her position. Even if petitioner had assigned disposal of the tree to another teacher, she should have exercised supervision over her assignee G.

Defenses 1. Complete a. Absence Of Elements (1) Due Diligence (2) Acts Of Public Officers b. Accident Or Fortuitous Event c. Damnum Absque Injuria

Case Study: BPI Express Card Corp. vs. CA (296 SCRA 260) Injury is the illegal invasion of a legal right while damage is the loss, hurt, or harm which results from the injury. Damages are the recompense or compensation awarded for the damage suffered. There can be damage without injury (damnum absque injuria) in those instances in which the loss or harm was not the result of a violation of a legal duty. In such cases, the consequences must be borne by the injured person alone, the law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. These situations are often called damnum absque injuria. For plaintiff to maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff — a concurrence of injury to the plaintiff and legal responsibility by the person causing it. The basis for the damages is the premise that an individual was injured in contemplation of law. There must first be a breach of some duty and the imposition of liability for that breach before damages may be awarded; and the breach of such duty should be the proximate cause of the injury. In canceling the credit card of the private respondent, petitionerdid not abuse its right under the terms and conditions of the contract. The dishonor of the credit card of the private respondent by Cafe Adriatico is not due to petitioner’s willful or gross neglect

to inform the private respondent of the suspension of his credit card but due to petitioner's failure to settle his obligation which caused the suspension of his credit card and subsequent dishonor at Cafe Adriatico. He can not now pass the blame to the petitioner for not notifying him of the suspension of his card. d. e. f.

Authority Of Law Assumption Of Risk Last Clear Chance

VIII. Special Liability in Particular Activities A. General 1. Concept B. Products Liability 1. Manufacturers or Processors a. Elements b. Consumer Act – RA 7394, secs. 92-107, (Ch. 1) C. Nuisance – NCC Arts. 694-707 1. Nuisance Per Se and Nuisance Per Accidence 2. Public Nuisance and Private Nuisance 3. Attractive Nuisance D. Violation of Constitutional Rights 1. Violation of Civil Liberties E. Violation of Rights Committed by Public Officers F. Provinces, Cities and Municipalities G. Owner of Motor Vehicle H. Proprietor of Building or Structure or Thing I. Head of Family IX.

Strict Liability A. B.

C.

Animals 1. Possessor and User of an Animal Nuisance (supra) 1. Classes Per se or per accidents; Public or Private 2. Easement Against Nuisance Products Liability (supra) 1. Consumer Act of the Philippines ( R.A. 7394) DAMAGES – (BOOK IV- TITLE XVIII) Arts. 2195-2235

I.

General Considerations A. Classification 1. NCC Art. 2197

2. 3. 4.

According To Purpose According To Manner Of Determination Special And Ordinary

Case Study: People vs. Dianos (297 SCRA 191) There is a significant distinction, in the context of Book IV, Title XVIII, of the Civil Code on "Damages," between the terms "damages" and "damage." Damages refer to the sum of money which the law awards or imposes as pecuniary compensation, recompense, or satisfaction for an injury done or a wrong sustained as a consequence of either a breach of a contractual obligation or a tortuous or illegal act, while damage pertains to the actionable loss, hurt or harm which results from the unlawful act, omission or negligence of another. In fine, damages are the amounts recoverable or that which can be awarded for the damage done or sustained. An award of actual or compensatory damages requires actual proof of pecuniary loss. An exception from the rule, pursuant to Article 2206 of the Civil Code, are "damages for death caused by a crime or quasi-delict" which can be awarded forthwith to the heirs of the victim by proof alone of such fact of death. No proof of pecuniary loss is likewise necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated, and it is quite enough that proof of damage or injury is adduced. Being incapable of exact pecuniary estimation, the assessment of such damages, except for liquidated damages which the parties themselves fix, is left to the sound discretion in the court.

II.

Actual and Compensatory Damages – Arts. 2199 - 2215 A. B. C.

D.

Case Studies:

Concept Requisites 1. Alleged and Proved With Certainty 2. Not Speculative Component Elements 1. Value Of Loss; Unrealized Profit – Arts. 2200, 2205 2. Attorney’s Fees And Expenses Of Litigation – Art. 2208 3. Interest - Arts. 2209 to 2213 Extent Or Scope Of Actual Damages 1. In Contracts And Quasi-Contracts – Arts. 2201, 2209, 2210, 2215 2. In Crimes And Quasi-Delicts - Arts. 2202, 2204, 2206, 2211, 2214 and 2215

Smith Bell Dodwell Shipping Agency Corp vs. Borja (383 SCRA 341) In determining the reasonableness of the damages awarded under Article 1764 (death of passenger) in conjunction with Article 2206 (Amount of actual damages for death caused by quasi-delict or crime) of the Civil Code, the factors to be considered are: (1) life expectancy (considering the health of the victim and the mortality table which is deemed conclusive) and loss of earning capacity; (b) pecuniary loss, loss of support and service; and (c) moral and mental sufferings. The loss of earning capacity is based mainly on the number of years remaining in the person's expected life span. In turn, this number is the basis of the damages that shall be computed and the rate at which the loss sustained by the heirs shall be fixed. The formula for the computation of loss of earning capacity is as follows: Net earning capacity = Life expectancy x [Gross Annual Income — Living Expenses (50% of gross annual income)], where life expectancy = 2/3 (80 – the age of the deceased). Petitioner is correct in arguing that it is net income (or gross income less living expenses) which is to be used in the computation of the award for loss of income. Villa Rey Transit v. Court of Appeals explained that"the amount recoverable is not the loss of the entire earning, but rather the loss of that portion of the earnings which the beneficiary would have received." Davila vs. PAL (49 SCRA 497) According to Article 2206, paragraph (1), of the Civil Code, "the defendant shall be liable for the loss of the earning capacity of the deceased and indemnity shall be paid to the heirs of the latter." This article, while referring to "damages for death caused by crime or quasi-delict," is expressly made applicable by Article 1764 "to the death of a passenger caused by the breach of contract by a common carrier." People vs. Victor (292 SCRA 186) Appellant was found guilty of the crime of rape and sentenced to suffer the supreme penalty of death, as well as to pay the corresponding civil liability to the victim. Hence, starting with the case at bar, if the crime of rape is committed or effectively qualified by any of the circumstances under which the death penalty is authorized by the present amended law, the indemnity for the victim shall be in the increased amount of not less than P75,000.00, and considered as actual, and not moral, damages.

Pilipinas Bank vs. CA (225 SCRA 268) In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the judgments spoken of and referred to in Circular No. 416 are "judgments in litigation

involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not, within the ambit of the authority granted to the Central Bank."Circular No. 416, fixing the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any money, goods or credit; and (3) judgments. Circular No. 416 does not apply to judgments involving damages. Circular No. 416 applies to judgments involving the payment of unliquidated cash advances to an employee by his employer (Villarica v. Court of Appeals, 123 SCRA 259 [1983]) and the return of money paid by a buyer of a leasehold right but which contract was voided due to the fault of the seller (Buisier v. Court of Appeals, 154 SCRA 438 [1987]). Petitioner was obligated to pay Greatland as consideration for the sale of several parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by Greatland in favor of private respondent. The said obligation therefore arose from a contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of the Philippines and not the rate of 12% per annum as provided in Circular No. 416. Eastern Shipping Lines vs. CA (234 SCRA 78) With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When a obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Liga vs. Allegro Resources Corp. (575 SCRA 310) The Court deems it proper to award interest in favor of Allegro. The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon is twelve percent (12%) per annum from the time of extrajudicial demand on 15 December 2001. III.

Moral Damages A.

Concept (Arts. 2217-2218)

Moral Damages: physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate result of the defendant's wrongful act or omission. (Art. 2217) 2

Exceptions To Rule That Moral Damages Are Not Recoverable In Breach Of Contract of Carriage:’

1. Death of Passengers (Art. 1764, 2206) 2. Fraud or Bad Faith Even If Death Did Not Result (Art. 2220). Example: Downgrading from first class to tourist class is considered in bad faith so as to merit an award of moral and exemplary damages (Lopez vs. PANAM 16 SCRA 431) 1.

B. When Recoverable (Arts. 2219-2220) In criminal offense/quasi-delict resulting in physical injuries 2. In Seduction, Abduction, Rape And Other Lascivious Acts 3. In Acts Referred To In Arts. 21, 26, 27, 28, 29, 32, 34 & 35, NCC 4. In Cases Of Malicious Prosecution 5. In libel, slander, etc. Case Studies: Soberano vs. Manila Railroad Company (18 SCRA 732)

In case of physical injuries, moral damages are recoverable only by the party injured and not by his next of kin, unless there is express statutory provision to the contrary (Strebel vs. Figueras, 96 Phil. 321; Araneta, et al., vs. Arreglado, et al., 110 Phil. 529).The rule is well-settled in this jurisdiction that in case of breach of contract of carriage, moral damages are recoverable only "where the defendant has acted fraudulently or in bad faith" (Art. 2220, new Civil Code), and the terms fraud and bad faith have reference to "wanton, reckless, oppressive, malevolent conduct," or, in the very least, to negligence so gross as to amount to malice". (Fores vs. Miranda; 105 Phil. 266; Necessito, etc. vs. Paras, et al., 104 Phil. 75). Necesito vs. Paras (104 Phil 75) Under Article 2220 of the new Civil Code, in case to suits for breach of contract, moral damages are recoverable only where the defendant acted fraudulently or in bad faith, and there is none in the case at bar. In case of accident due to a carrier's negligence, the heirs of a deceased passenger may recover moral damages, even though a passenger who is injured, but manages to survive, is not entitled to them. This special rule (Arts. 1264 and 2206, No. 3) in case of death controls the general rule of Article 2220. Barons Marketing Corp. vs. CA (286 SCRA 96) Having ruled that private respondent's acts did not transgress the provisions of Article 21, petitioner cannot be entitled to moral damages or, for that matter, exemplary damages. While the amount of exemplary damages need not be proved, petitioner must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. As we have observed above, petitioner has failed to discharge this burden. Republic vs. Tuvera (516 SCRA 113) A juridical person is not entitled to moral damages under Article 2217 of the Civil Code. It may avail of moral damages under the analogous cases listed in Article 2219, such as for libel, slander or any other form of defamation. Suffice it to say that the action at bar does not involve any of the analogous cases under Article 2219, and indeed upon an intelligent reading of Article 2219, it is difficult to see how the Republic could sustain any of the injuries contemplated therein. Any lawyer for the Republic who poses a claim for moral damages in behalf of the State stands in risk of serious ridicule. Simex Intl. Inc. vs. CA (183 SCRA 360) A corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. As the Court sees it, the initial carelessness of the respondent bank,

aggravated by the lack of promptitude in repairing its error, justifies the grant of moral damages. This rather lackadaisical attitude toward the complaining depositor constituted the gross negligence, if not wanton bad faith. Moral damages are not susceptible of pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated." That is why the determination of the amount to be awarded (except liquidated damages) is left to the sound discretion of the court, according to "the circumstances of each case." Jardine Davies vs. CA (333 SCRA 684) This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient. Air France vs. Carrascoso (18 SCRA 155) Under Article 2219 (10), Civil Code, moral damages are recoverable when Carrascoso was ousted by petitioner's manager who gave his seat to a white man. The responsibility of an employer for the tortuous act of its employees-need not be essayed. It is well settled in law. (Article 2180, Civil Code.) For the willful malevolent act of petitioner's manager, petitioner's his employer, must answer. Article 21 of the Civil Code provides:. “Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." Acontract to transport passengers is quite different in kind and degree from any other contractual relation. (See Section 4, Chapter 3, Title VIII, Civil Code.) And this, because of the relation which an air-carrier sustains with the public. Its business is mainly with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action for damages.

Japan Airlines vs. Simangan (552 SCRA 341) As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated under Article 2219 of the Civil Code. (Calalas v. Court of Appeals, G.R. No. 122039, May 31, 2000, 332 SCRA 356, 365, citing Flores v. Miranda, 105 Phil. 267 (1959). As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a

passenger, as provided in Article 1764, in relation to Article 2206 (3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Article 2220. (Id., citing Philippine Rabbit Bus Lines, Inc. v. Esguerra, G.R. No. L31420, October 23, 1982, 117 SCRA 741; Sabena Belgian World Airlines v. Court of Appeals, G.R. No. 82068, March 31, 1989, 171 SCRA 620; China Airlines, Ltd. v. Intermediate Appellate Court, G.R. No. 73835, January 17, 1989, 169 SCRA 226.) The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached its contract of carriage with respondent in bad faith. JAL personnel summarily and insolently ordered respondent to disembark while the latter was already settled in his assigned seat. He was ordered out of the plane under the alleged reason that the genuineness of his travel documents should be verified. IV.

Nominal Damages – Arts. 2221 to 2223 Nominal Damages - – awarded to vindicate/recognize a right of the plaintiff, which has been violated or invaded by the defendant (Art. 2221)

Case Study: Light Rail Transit Authority vs. Navidad (397 SCRA 75) The award of nominal damages in addition to actual damages is untenable. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. It is an established rule that nominal damages cannot co-exist with compensatory damages. V. Temperate or Moderate Damages – Arts. 2224 to 2225 Temperate Damagesare more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty (Art. 2224) ‘VI. Liquidated Damages – Arts. 2226 to 2228 Liquidated Damages - agreed upon by the parties to a contract, to be paid in case of breach thereof. (Art. 2226) Rules Governing In Case Of Breach Of Contract – Art. 2228 Exemplary or Corrective Damages – Arts. 2229 to 2235 Exemplary Damages - imposed, by way of example or correction for the public good, in addition to the moral, temperate,

liquidated or compensatory damages. (Art. 2229)

When Recovered 1. In Criminal Offenses -crime was committed with one or more aggravating circumstances. 2. In Quasi-Delicts -if the defendant acted with gross negligence. 3. In Contracts And Quasi-Contracts -defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Requisites 1. Arts. 2233, 2234 Damages in Case of Death In Crimes And Quasi-Delicts Causing Death (Art. 2206) In Death Caused By Breach Of Conduct By A Common Crime (Art. 1764 in relation to Art. 2206) Graduation of Damages A. B.

Duty of Injured Party 1. Art. 2203 Rules 1. In Crimes 2. In Quasi-Delict; NCC Art. 2214 3. In Contracts, Quasi-Contracts And Quasi-Delicts; NCC Art. 2215 4. Liquidated Damages; NCC Art. 2227 5. Compromise

Miscellaneous Rules A.

Damages That Cannot Co-Exist 1. Nominal With Other Damages, Art. 2223 2. Actual and Liquidated – Art. 2226 B. Damages That Must Co-exist 1. Exemplary With Moral, Temperate, Liquidated Or Compensatory C. Damages That Must Stand Alone 1. Nominal Damages, Art. 2223 EXCLUDE: Distinction between tort and quasi-delict

CONCURRENCE AND PREFERENCEOF CREDITS (BOOK IV -TITLE XIX) ARTS. 2236-2251 I.

Meaning Of Concurrence And Preference Rule on Preference: With respect to a specific movable or immovable property, those credits enumerated in Arts. 2241 and 2242 enjoy preference to the extent of the value of the personal and real property to which the preference refers (Arts. 2246 and 2248) – to the exclusion of all other credits

  II.

Rule on ConcurrenceWhen there are 2 or more credits with respect to the same specific movable or immovable property: Pay first duties, taxes and fees to State or any subdivision Satisfy pro-rata these 2 or more credits Classification Of Credits (Arts. 2241 – 2245) A. Preferred Credits On Specific Movables (Art. 2241) (Nos. 1-13) ARTICLE 2246. Those credits which enjoy preference with respect to specific movables, exclude all others to the extent of the value of the personal property to which the preference refers. ARTICLE 2247. If there are two or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any subdivision thereof. ARTICLE 2250. The excess, if any, after the payment of the credits which enjoy preference with respect to specific property, real or personal, shall be added to the free property which the debtor may have, for the payment of the other credits. B. Preferred Credits On Specific Immovable Property (Art. 2242) (Nos. 1-10) ARTICLE 2248. Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers. ARTICLE 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata,

after the payment of the taxes and assessments upon the immovable property or real right. ARTICLE 2250. The excess, if any, after the payment of the credits which enjoy preference with respect to specific property, real or personal, shall be added to the free property which the debtor may have, for the payment of the other credits. C. Preferred Credits On Other Real/Personal Property (Art. 2244) (Nos. 1-14) ARTICLE 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules: (1) (2)

In the order established in article 2244; Common credits referred to in article 2245 shall be paid pro rata regardless of dates

Case Study: DBP vs. NLRC (186 SCRA 841) DBP, as foreclosing creditor, cannot be held liable for the unpaid wages, 13th month pay, incentive leave pay and separation pay of the employees of debtor PSC.The right to preference given to workers under Article 110 of the Labor Code (as amended by R.A. 6715) cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It is only applicable ininsolvency proceedings where such unpaid wages shall be paid in full before the `claims of the Government and other creditors' may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preference determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony." III. IV.

Exempt Property (see Rule 39, Sec. 13 of the 1997 Rules on Civil Procedure) Order Of Preference Of Credits (Arts. 2246-2251) FINANCIAL REHABILITATION AND INSOLVENCY LAW

- RA 10142 (FRIA LAW) 1.

Nature of Proceedings Section 3.

Nature of Proceedings. — The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court. The proceedings shall be conducted in a summary and nonadversarial manner consistent with the declared policies of this act and in accordance with the rules of procedure that the Supreme Court may promulgate.

2. Insolvent shall refer to the financial condition of a debtor that is (1) generally unable to pay its or his liabilities as they fall due in the ordinary course of business or (2) has liabilities that are greater than its or his assets. (Sec. 4 (p) RA 10142) 3.

Rehabilitation vs. Liquidation 4. Rehabilitation A. Court Supervised Rehabilitation (Chapter II) 1. Voluntary Proceedings (Sec. 12) 2. Involuntary Proceedings (Secs. 13-15) Commencement Order, Stay/Suspension Order Avoidance Proceedings (Secs. 16 – 18, 20, 21 ) B. Pre-Negotiated Rehabilitation (Chapter III) C. Out-Of Court Restructuring Or Rehabilitation Plans (Chapter IV) 5. Liquidation Of Insolvent Juridical Debtors (Chapter V) A. Voluntary Liquidation (Sec. 90) B. Involuntary Liquidation (Sec. 91-93) 6. Insolvency of Individual Debtors (Chapter VI) A. Suspension of Payments (Secs. 94-102) B. Voluntary Liquidation (Secs. 103-104) C. Involuntary Liquidation (Secs. 105-110) 7. RA 10142, SECTION 13. Circumstances Necessary to Initiate Involuntary Proceedings. — Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One million pesos (Php1,000,000.00) or at

least twenty-five percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if: (a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or (b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent. 8. RA 10142 SECTION 133. Concurrence and Preference of Credits. — The Liquidation Plan and its implementation shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens under Articles 2241 and 2242 thereof. 9. RA 10142 SECTION 148. Repealing Clause. — The Insolvency Law (Act No. 1956), as amended, is hereby repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any provision of this Act are hereby repealed or modified accordingly. 10. Provisions Common to Liquidation In Insolvency (Individual & Juridical Debtors) – (Chapter VII) A. Liquidation Order and Effects – (Secs. 112-113) B. Rights of Secured Creditors (Sec. 114) C. The Liquidator (Elected or Court-Appointed) – (Secs. 115-122) D. Determination of Claims (Secs. 123-126) E. Avoidance Proceedings (Secs. 127-128) F. Liquidation Plan (Secs. 129-136) 1. Liquidation Plan In Accordance With Civil Code Provisions On Concurrence & Preference of Credits & Relevant Laws 2. First Preference of Services by Employees/Laborers Under Art. 2244 Of NCC Unless Claims Constitute Legal Liens Under Article 2241 and 2242 G. Repeal of Insolvency Law (Act No. 1956) EXCLUDE: Warehouse Receipts Law, Usury Law

Case Study: PAL vs. Hrs. of Bernardin Zamora (538 SCRA 456)

The suspension of all actions for claims against a corporation embraces all phases of the suit, be it before the trial court or any tribunal or before this Court. No other action may be taken, including the rendition of judgment during the state of suspension. It must be stressed that what are automatically stayed or suspended are the proceedings of a suit and not just the payment of claims during the execution stage after the case had become final and executory. Once the process of rehabilitation, however, is completed, this Court will proceed to complete the proceedings on the suspended actions.

V.

TEXTBOOKS AND REFERENCES: Textbooks: Prescription Obligations & Contracts: Special Contracts: Related Laws:

Paras, Civil Code of the Philippines, Vol. IV Paras, Civil Code of the Philippines, Vol. V Maceda Law (RA 6552); Public Land Law (CA 141) and Property Registration Decree

References: Tolentino, Civil Code of the Philippines, Vols.IV&V Aquino, Civil Code of the Philippines, Vols.2 &3 Vitug, Civil Law, Vols. III & IV Jurado, Civil Law Reviewer Albano, Bar Review Guide in Civil Law Philippine Reports Supreme Court Reports Annotated The Lawyers Review