Civil Law Reviewer [Part 2]

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General Provisions

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KINDS KINDS OF SUCCESSION

(1) Testamentary – that which results from the designation of an heir, made in a will executed in the form prescribed by law. [Art. 779, CC] (2) Legal or Intestate – that which takes place by operation of law in the absence of a valid will. (3) Mixed – that which is effected partly by will and partly by operation of law. [Art. 780, CC] (4) Compulsory – succession to the legitime and prevails over all other kinds of succession [Balane, 2010]

DEFINITION & TRANSMISSION Succession - a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance, of a person are transmitted through his death to another or others either by his will or by operation of law. [Art 774, CC] Decedent - person whose property is transmitted through succession, whether or not he left a will. [Art 775, CC]

KINDS OF SUCCESSORS

Testator – a decedent who left a will [Art 775, CC]

(1) Heirs – those who are called to the whole or an aliquot portion of the inheritance either by will or by operation of law [Art 782, CC] (2) Devisees – persons to whom gifts of real property are given by virtue of a will (3) Legatees – persons to whom gifts of personal property are given by virtue of a will

Inheritance includes: (a) All the property, rights and obligations of a person which are not extinguished by his death [Art 776, CC] (b) Not only the property and the transmissible rights and obligations existing at the time of his death, but also those which have accrued thereto since the opening of the succession [Art 781, CC]

Note: The distinction is significant in case of preterition and imperfect disinheritance

What are transmitted? (a) Rights and obligations which are not strictly personal (intuit personae) [Balane, 2010] (b) Money debts of the decedent are not transmitted to the heirs nor paid by them. The estate pays them. [Balane, 2010]

KINDS OF HEIRS

(1) Compulsory Heirs – those who succeed by force of law to some portion of the inheritance, in an amount predetermined by law known as the legitime, of which they cannot be deprived by the testator, except by a valid disinheritance. They succeed regardless of a will. (2) Voluntary or Testamentary Heirs – those who are instituted by the testator in his will, to succeed to the portion of the inheritance of which the testator can freely dispose. They succeed by reason of a will. (3) Legal or Intestate Heirs – those who succeed to the estate of the decedent who dies without a valid will, or to the portion of such estate not disposed of by will, or when certain grounds are met

General Rule: All property rights which have accrued to the hereditary estate since the opening of succession are transmitted to the heirs Exception: Property acquired after the making of a will shall not pass to the heirs unless it should expressly appear in the will that such was the intention of the testator. [Art 793, CC] SUCCESSION OCCURS AT THE MOMENT OF DEATH General Rule: The rights to succession are transmitted from the moment of the death of the decedent. [Art 777, CC]

Testamentary Succession

Exception: A person may be “presumed” dead for the purpose of opening his succession. In this case, succession is only of provisional character because there is always a chance that the absentee may still be alive. [Arts. 390-391, CC].

WILLS IN GENERAL

Will - an act whereby a person is permitted, with the formalities prescribed by law to control to a certain degree the disposition of his estate to take effect after his death. [Art 783, CC]

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Kinds of Wills (5) Notarial – an ordinary or attested will, which must comply with the requirements of the law [Articles 804-808, CC] (6) Holographic – a will entirely written, dated and signed by the hand of the testator [Art. 810, CC]

(b) will disinheriting a compulsory heir (11) Statutory grant – permitted only by law, not a constitutional right [Balane (2004)] Rules of Construction and Interpretation [Art. 788-795] All rules are designed to ascertain and give effect to the intention of the testator.

Characteristics of Wills (1) Purely personal – will-making is non-delegable (a) making of a will cannot be left in whole or in part of the discretion of a third person, or accomplished through the instrumentality of an agent or attorney [Art 784, CC] (b) testator may not make a testamentary disposition in such manner that another person has to determine whether or not it is to be operative [Art 787, CC] What cannot be rd delegated to 3 persons (a) designation of heirs, devisees and legatees (b) duration/efficacy of designation (c) determination of portions, when referred to by name [Art 785, CC]

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Reason: testamentary succession is preferred to intestacy. (1) Different interpretations, in case of doubt, that which would make the will operative [Art 788, CC] (2) Words to be taken in their ordinary and grammatical sense unless there is a clear intention to use them in another sense [Art 790, CC] (3) Technical words are to be taken in their technical sense unless there is a contrary intention or when testator was unacquainted with such technical sense [Art 790, CC] (4) Words must be of an interpretation to give effect to every expression. To make it operative rather than inoperative; that which will prevent intestacy [Art 791, CC] (5) Invalidity of one of several dispositions does not result in invalidity of others unless the testator would not have made such dispositions if the first invalid disposition had not been made [Art 792, CC] (6) Every devise and legacy shall convey all the interest unless it clearly appears the intention was to convey a less interest [Art 794, CC] (7) Imperfect description, no person or property exactly answers to the description, mistakes, omissions [Art 790, CC]

What may be entrusted to rd 3 persons (a) designation of person/institution falling under a class specified by testator (b) manner of distribution of property specified by testator [Art 786, CC] Note: testator must first specify the class and the amount of property for proper delegation

(2) Free and intelligent [Art 839, CC] (3) Solemn and formal - if the form is defective, the will is void (4) Revocable and ambulatory – will can be revoked at any time before the testator’s death [Art 828, CC] (5) Mortis causa - takes effect upon the testator’s death (6) Individual – prohibition against joint wills [Art. 818, CC] (7) Executed with animus testandi – intent to dispose of the property (8) Executed with testamentary capacity (9) Unilateral act - does not involve an exchange of values or depend on simultaneous offer and acceptance (10) Dispositive – disposes of property

Kinds of Ambiguities Patent or Extrinsic Ambiguity (a) one which appears upon the face of the instrument

Latent or Intrinsic Ambiguity (a) one which cannot be seen from the reading of the will but which appears only upon consideration of extrinsic circumstances

Note: There is no distinction between patent and latent ambiguities in so far as the admissibility of parol or extrinsic evidence to aid testamentary disposition is concerned.

General Rule: Wills contain disposition of the testator’s estate mortis causa.

Resolving Ambiguities: General Rule: Intrinsic or extrinsic evidence may be used to ascertain the intention of the testator

Exceptions: (non-dispositive wills) (a) will recognizing an illegitimate child

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Exception: Oral declarations of the testator as to his intention must be excluded

FORM

Governing Law Formal Validity Rules Forms and solemnities of will are governed by the law of the country in which the will was executed [Art 17, CC]

TESTAMENTARY CAPACITY AND INTENT

(a) Testamentary capacity must exist at the time of

the execution of the will (b) Supervening incapacity does not invalidate an

effective will nor is the will of an incapable validated by a supervening of capacity [Art 801, CC]

Filipino in a foreign country can make a will according to: (1) Forms established by the law of the country in which he may be (2) Form according to Philippine law [Art 815]

Requisites - (SAP) (a) Testator is of Sound mind at the time of execution [Art. 798, CC] (b) Not under 18 years of Age [Art. 797, CC] (c) Not expressly Prohibited by law to make a will [Art. 796, CC]

Alien who is abroad may make the will according to: (1) The law of the place where he resides (2) Laws observed in his country (3) According to those which the Civil Code prescribes [Art 816]

Age Requirement Art 797, CC. Persons of either sex under the age of 18 cannot make a will.

(a) Prohibited wills executed by Filipinos in a foreign country shall not be valid in the Philippines even though authorized by the laws of the country of execution. [Art 819, CC] (b) Joint wills are prohibited even though they are valid in the foreign country where the Filipino wrote his will

“Year” shall be understood to be 12 calendar months [Sec 31, Book 1, Admin Code] Soundness of Mind of the Testator Negatively Stated (a) Not necessary that the testator be in full possession of reasoning faculties (b) Not necessary that the testator’s mind be wholly unbroken, unimpaired, unshattered by disease, injury or other cause [Art 799, CC]

Governing Law as to Place of Execution of Will Place of Testator Execution of Governing Law Will Philippines Philippine Law (Art. 16, CC) Outside of (1) Law of the country the in which it is Filipino Philippines executed (Art. 17, CC); or (2) Philippine Law (Art. 815, CC) Philippines (1) Philippine Law; or (2) Law of the country of which testator is a citizen or subject (Art. 817, CC) Outside of (1) Law of the place the where the will is Philippines executed (Art. 17, Alien CC); or (2) Law of the place where the testator resides; or (3) Law of the testator’s country; or (4) Philippine Law (Art. 816, CC)

Positively Stated: It is sufficient that the testator – (NPC) (a) Knew the Nature of the estate to be disposed of; (b) The Proper objects of his bounty; (c) Character of the testamentary act [Art. 799, CC] General Rule: Soundness of mind is presumed [Art. 800, CC] Exception: When the testator, one month or less, before the execution of the will was publicly known to be insane Aspect of the Will Formal Validity Intrinsic Validity

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Governing Law Law in force at the time the will was executed [Art. 795, CC] Law of decedent’s nationality at the time of his death [Art. 16 and 2263, CC]

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physical condition and position with relation to each other at the moment of inscription of each signature. [Jaboneta vs. Gustilo (1906)]

Aspects of the Will Governed by the National Law of the Decedent (1) Order of succession; (2) Amount of successional rights; (3) Intrinsic validity of testamentary provisions; and (4) Capacity to succeed

(3) MARGINAL SIGNATURES General Rule: Testator or his representative shall write his name, and the witnesses shall sign each and every page except the last page [Art. 805, CC]

Common Requirements [Art 804, CC] (1) In writing (2) In a language or dialect known to the testator

Exceptions: (a) When the will consists of only one page (b) When the will consists of only two pages, the first of which contains all dispositions and is signed at the bottom by the testator and the witnesses, and the second page contains only the attestation clause duly signed at the bottom by the witnesses. [Abangan vs. Abangan (1919)]

Notarial Wills Special Requirements for Notarial Wills. – (1) SUBSCRIPTION: Subscribed to, at the end [Art. 805, CC] (a) By the testator himself; or (b) By the testator’s name written by a representative in his presence and under his express direction.

Matias vs. Salud (1957): the use of thumbprint was allowed Icasiano vs. Icasiano (1964): The inadvertent failure of one witness to affix his signature to one page of a testament, due to the simultaneous lifting of two pages in the course of signing, is not per se sufficient to justify denial of probate.

(2) ATTESTATION: Attested and subscribed by 3 or more credible witnesses in the presence of the testator and of one another [Art. 805, CC] Attestation

Subscription

Mental act (act of the senses) Purpose is to render available proof during probate of will, not only of the authenticity of the will but also of its due execution

Mechanical (act of the hand) Purpose of identification

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(4) PAGE NUMBERINGS - Numbered correlatively in letters placed on the upper part of each page. [Art. 805, CC] (a) i.e., Page One of Five pages (b) Mandatory part: pagination by means of a conventional system (c) Directory part: pagination in letters on the upper part of each page [Balane (2010)] (5) ACKNOWLEDGED before a notary public by the testator and the witnesses [Art. 806, CC] (a) Notary public cannot be considered a third witness. He cannot acknowledge before himself his having signed the will. To allow such would have the effect of having only two attesting witnesses to the will [Cruz v Villasor(1973)] (b) The certification of acknowledgement need not be signed by the notary in the presence of the testator and the witnesses. [Javellana v Ledesma 1955)]

The attestation clause shall state the following: (a) Number of pages; (b) The fact that the testator or his representative under his express direction signed the will and every page in the presence of instrumental witnesses (c) That the witnesses signed the will and all its pages in the presence of the testator and of one another. Cagro v Cagro (1953): The signatures of the witnesses must be at the bottom of the attestation clause

Special Rules for Handicapped Deaf Mute [Art. 807, CC] (a) Testator must personally read the will; or (b) Testator shall personally designate two persons to read the contents and communicate it to him in some practicable manner.

Cruz v Villasor (1973): The notary public cannot be counted as an attesting witness Test of presence Not whether they actually saw each other sign, but whether they might have seen each other sign had they chosen to do so considering their mental and

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Blind [Art. 808, CC] (a) The will shall be read to the testator twice - By one of the subscribing witnesses and by the notary public acknowledging the will. (b) A testator suffering from glaucoma is considered as legally blind [Garcia vs. Vasquez (1970)]

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Holographic Wills Requisites (1) In writing [Art. 804, CC] (2) In a language known to the testator [Art. 804, CC] (3) Entirely written, dated and signed in the hand of the testator himself [Art. 810, CC]

Substantial Compliance Art. 809, CC. In the absence of bad faith, forgery, or fraud, or undue and improper pressure and influence, defects and imperfections in the form of attestation or in the language used therein shall not render the will invalid if it is proved that the will was in fact executed and attested in substantial compliance with all the requirements of Article 805. Substantial compliance rule applies only in cases when such defects and imperfections can be supplied by an examination of the will itself Examples: (a) Whether all pages are consecutively numbered (b) Whether the signatures appear in each and every page (c) Whether the subscribing witnesses are three (d) Whether the will was notarized [Caneda v CA]

Advantages

Disadvantages

(a) Simple and easy to make (b) Induces foreigners in this jurisdiction to set down their last wishes (c) Guarantees the absolute secrecy of the testamentary dispositions

(a) No guarantee as to the capacity of the testator (b) No protection against violence, intimidation or undue influence (c) May not faithfully express the will of the testator due to faulty expressions (d) Can be easily falsified and concealed

Witnesses Required for Probate – [Art. 811] (a) At least one witness who knows the handwriting and signature of the testator; explicitly declare that it is the testator’s (b) If contested – at least 3 of such witnesses (c) In the absence of a competent witness, expert testimony may be resorted to

WITNESSES

Qualifications [Art. 820, CC] (1) Of sound mind (2) Aged 18 years or over (3) Not blind, deaf or dumb (4) Able to read and write

General Rule: The holographic will itself must be presented for probate [Gan v Yap (1958)]

Disqualifications [Art. 821, CC] (1) Person not domiciled in the Philippines (2) Those who have been convicted of falsification, perjury, or false testimony.

Exception: If there is a photostatic copy or xerox copy of the holographic will, it may be presented for probate [Rodelas v Aranza (1982)]

Interested witness [Art. 823, CC]

Notarial Will v. Holographic Will

General Rule Devises or legacies in favor of a spouse, parent or child who also attests to the will as a witness shall be void

Notarial Will NOTARIAL codicil ONLY

Exception If there are three other competent witnesses, the device or legacy shall be valid and the interested witness shall be treated as a mere surplusage

Holographic Will Notarial Codicil; or Holographic Codicil; or Additional dispositions below the signature, dated and signed in the hand of the testator.

Insertion, Cancellation, Erasure or Alteration – (a) Testator must authenticate by his FULL SIGNATURE (b) Full signature does not necessarily mean the testator’s full name; it rather means his usual and customary signature. [Balane (2010)]

(a) Creditors are not incompetent to be witnesses [Art. 824, CC] (b) Supervening incompetency shall not prevent the allowance of the will [Art. 822, CC]

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Effect of insertion written by another person on the validity of a holographic will When made

Effect

After the execution, without consent of testator

Insertion considered not written. Validity cannot be defeated by the malice or caprice of a third person Will is valid, insertion is void. Insertion becomes part of the will. Entire will becomes void because it is not wholly written by the testator. Will is void because it is not written entirely by the testator

After execution, with consent After execution, validated by testator’s signature Contemporaneous to the execution of the will

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Prohibition is applicable only to joint wills executed by Filipinos. CODICILS

Codicil [Arts. 825-826, CC] (1) It is a supplement or addition to a will, (2) made after the execution of a will, (3) and annexed to be taken as a part of the will, (4) by which any disposition made in the original will is explained, added to, or altered. (5) in order that it may be effective, it shall be executed as in the case of a will. INCORPORATION BY REFERENCE

Requisites [Art 827, CC] (1) The document or paper referred to in the will must be in existence at the time of the execution of the will. (2) The will must clearly describe and identify the same, stating among other things the number of pages thereof. (3) It must be identified by clear and satisfactory proof as the document or paper referred to therein; and (4) It must be signed by the testator and the witnesses on each and every page, except in case of voluminous books of account or inventories.

Joint Wills Art. 818, CC. Two or more persons cannot make a will jointly, or in the same instrument, either for their reciprocal benefit or for the benefit of a third person. Art. 819, CC Wills, prohibited by the preceding article, executed by Filipinos in a foreign country shall not be valid in the Philippines, even though authorized by the laws of the country where they may have been executed.

REVOCATION

Modes of Revocation [Art. 830, CC] (1) By implication of law; or (2) By the execution of a will, codicil or other writing executed as provided in the case of wills; or (3) By burning, tearing, canceling, or obliterating the will with the intention of revoking it, by the testator himself, or by some other person in his presence, and by his express direction.

Joint Will (1) A single testamentary instrument, (2) Which contains the wills of two or more persons, (3) Jointly executed by them, (4) Either for their reciprocal benefit or for the benefit of a third person.

Note: The act contemplating revocation must be done at any time before the death of the testator. The right of revocation cannot be waived or restricted. (Art. 828, CC)

Mutual Wills (1) Executed pursuant to an agreement between two or more persons, (2) Jointly executed by them, (3) Either for their reciprocal benefit or for the benefit of a third person.

Law Governing Revocation (Art. 829, CC) Place of Testator’s Governing Law Revocation Domicile Philippines, or Philippine Law Philippines some other country Philippines Philippine Law

Reciprocal Wills (1) Testators name each other as beneficiaries in their own wills, (2) under similar testamentary plans Note: A will that is both joint and mutual is one executed jointly by two or more persons, the provisions of which are reciprocal and which shows on its face the devises are made in consideration of each other. Such is prohibited under Art. 819, CC.

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Place of Revocation

Testator’s Domicile

Governing Law

Foreign Country Outside the Philippines

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contained in a previous one which is void as to its form [Art. 835, CC]. (1) Tolentino: Reproduction in the codicil is required only when the original will is void as to it form; in all other cases, reference to the original will suffices to republish it through the codicil. (c) If after making a will, the testator makes a second will expressly revoking the first, the revocation of the second will does not revive the first will, which can be revived only by another will or codicil. (1) PRINCIPLE OF INSTANTER: Revoking clause nd in the 2 will is NOT TESTAMENTARY in character but operates to revoke the prior will INSTANTER upon the execution of the will nd containing it. The revocation of the 2 will st does not revive the 1 will which has already become a NULLITY.

(1) Law of the place where the will was made; or (2) Law of the place in which the testator had his domicile at the time of revocation

Doctrine of Dependent Relative Revocation— The rule that where the act of destruction is connected with the making of another will so as to fairly raise the inference that the testator meant the revocation of the old to depend upon the efficacy of the new disposition intended to be substituted, the revocation will be conditional and dependent upon the efficacy of the new disposition; and if for any reason, the new will intended to be made as a substitute is inoperative, the revocation fails and the original will remain in full force. [Molo vs. Molo, 1951]

Republication vs. Revival Republication (a) Takes place by an act of the testator (b) Corrects extrinsic and intrinsic defects

The failure of the new testamentary disposition upon whose validity the revocation depends is equivalent to the non-fulfillment of a suspensive condition and hence prevents the revocation of the original will.

Revival (a) Takes place by operation of law (b) Restores a revoked will

ALLOWANCE AND DISALLOWANCE OF WILLS

Revocation vs. Nullity Revocation

Nullity

(a) By the act of the testator (b) Presupposes a valid act (c) Takes place during the lifetime of the testator (d) Testator cannot renounce the right to revoke

(a) Proceeds from law (b) Inherent in the testament, be it an intrinsic or an extrinsic defect (c) Invoked after the testator’s death by his heirs (d) Nullity of a will can be disregarded by the heirs through voluntary compliance therewith

Probate Requirement Probate –a Special Proceeding required to establish the validity of a will and in order to pass real or personal property [Art. 838, CC] Matters to be proved in probate (1) Whether the instrument which is offered for probate is the last will and testament of the decedent (2) Whether the will has been executed in accordance with the formalities prescribed by law (3) Whether the testator had testamentary capacity at the time of execution of the will Issues to be resolved in probate proceedings – [Art. 839] General Rule: the probate court cannot inquire into the intrinsic validity of testamentary provisions. Only the extrinsic validity of such wills may be examined. Exceptions: when practical considerations demand the intrinsic validity of the will be resolved (a) Acain vs Diongson (1987): When the will is intrinsically void on its face such that to rule on its formal validity would be a futile exercise

REPUBLICATION AND REVIVAL

(a) The execution of a codicil referring to a previous will has the effect of republishing the will as modified by the codicil [Art. 836, CC]. (b) The testator cannot republish without reproducing in a subsequent will, the dispositions

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(b) Valera vs. Inserto (1987): Claimants are all heirs and they consent either, expressly or impliedly, to the submission of the question of intrinsic validity to the court. (c) Pastor vs. CA (1983): Probate court may pass upon the title thereto, but such determination is provisional and not conclusive, and is subject to the final decision in a separate action to resolve title.

who are to succeed him in his property and transmissible rights and obligation [Art 840, CC] A will shall be VALID even though it (1) should not contain an institution of an heir or (2) such institution should not comprise the entire estate or (3) the person so instituted should not accept the inheritance or be incapacitated to succeed. In such cases, the testamentary dispositions made in accordance with law shall be complied with and the remainder of the estate shall pass to the legal heirs [Art. 841, CC].

Revocation v. Disallowance Revocation

Disallowance

Voluntary Act of the Testator With or Without Cause

Given by Judicial Decree

May be partial or total

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EXTENT OF GRANT [ART. 842, CC]:

Freedom of disposition depends upon the existence, kind and number of compulosry heirs. (1) No compulsory heirs  Full power of disposition (2) One with compulsory heirs cannot disregard the rights of the latter (i.e. legitime)

Must always be for a legal cause Always total, except when the ground of fraud of influence for example affects only certain portions of the will

EFFECT OF PREDECEASE OF HEIR (ART. 856, CC):

Any heir who dies before the testator or is incapacitated to succeed or renounces the inheritance transmits no rights of the testator to his own heirs. This is without prejudice to the rights of representation. [Tolentino]

Effect of Final Decree of Probate, Res Judicata on Formal Validity The probate of a will by the probate court having jurisdiction thereof is usually considered as conclusive as to its due execution and validity, and is also conclusive that the testator was of sound and disposing mind at the time when he executed the will, and was not acting under duress, menace, fraud, or undue influence, and that the will is genuine and not a forgery. [Mercado vs. Santos, 1938]

IDENTIFICATION OF HEIRS, MANNER OF INSTITUTION [ART.

843-849; 851-853]

FALSE CAUSE [ART. 850]:

The statement of a false cause for the institution of an heir shall be considered as not written unless it appears from the will that the testator would not have made such institution if he had known the falsity of such cause.

Grounds for Denying Probate (SUM IFF) (1) If the Signature of the testator was procured by fraud; (2) If it was procured by Undue and improper pressure and influence, on the part of the beneficiary or some other person; (3) If the testator acted by Mistake or did not intend that the instrument he signed should be his will at the time affixing his signature thereto; (4) If the testator was Insane or otherwise mentally incapable of making a will at the time of its execution; (5) If the Formalities required by law have not been complied with; or (6) If it was executed through Force or under duress, or the influence of fear, or threats.

PRETERITION

The preterition or omission of one, some, or all of the compulsory heirs in the direct line, whether living at the time of the execution of the will or born after the death of the testator, shall annul the institution of heir; but the devises and legacies shall be valid insofar as they are not inofficious. If the omitted compulsory heirs should die before the testator, the institution shall be effectual, without prejudice to the right of representation. [Art. 854, CC] Concept [Art. 854, CC] (a) There must be a total omission of one, some or all of the heir/s from the inheritance. [Balane citing Seangio vs Reyes (2006)] (b) The omission must be that of a compulsory heir. (c) The compulsory heir omitted must be of the direct line.

INSTITUTION OF HEIRS Institution of Heirs – an act by virtue of which the testator designates in his will the person or persons

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(d) The omitted compulsory heir must be living at the time of the testator’s death or must at least have been conceived before the testator’s death.

(1) Neri vs. Akutin (1941): When there are no devises and legacies, preterition will result in the annulment of the will and give rise to intestate succession.

COMPULSORY HEIRS IN THE DIRECT LINE

SUBSTITUTION OF HEIRS

A direct line is that constituted by the series of degrees among ascendants and descendants (ascending and descending). [Art 964 par.2]

DEFINITION

Substitution - is the appointment of another heir, so that he may enter into the inheritance in default of the heir originally instituted. [Art 857, CC]

PRETERITION V. DISPOSITION LESS THAN LEGITIME

BALANE: (a) If the heir in question is instituted in the will but the portion given to him by the will is less than his legitime – there is no preterition. [Reyes vs Barretto-Datu (1967)] (b) If the heir is given a legacy or devise – there is no preterition. [Aznar vs Duncan (1966)] (c) If the heir had received a donation inter vivos from the testator – the better view is that there is no preterition. The donation inter vivos is treated as an advance on the legitime under Articles 906, 909, 910 and 1062 (d) The remedy, if the value of inheritance, legacy or devise, or donation inter vivos is only for completion of his legitime under Articles 906 and 907

KINDS

Brief or Compendious [Art. 860, CC] (a) Brief – Two or more persons were designated by the testator to substitute for only one heir (b) Compendious – One person is designated to take the place of two or more heirs Reciprocal If the heirs instituted in unequal shares should be reciprocally substituted, the substitute shall acquire the share of the heir who dies, renounces, or is incapacitated, unless it clearly appears that the intention of the testator was otherwise. If there is more than one substitute, they shall have the same share in the substitution as the institution. Example (only 1 substitute): If two heirs are reciprocally substituted, then if one of them dies before the testator dies, renounces, or turns out to be incapacitated, the other will get his share, regardless of whether or not their shares are equal.

DISTINGUISHED FROM DISINHERITANCE

Preterition

Disinheritance

(a) Tacit deprivation of a compulsory heir of his legitime (b) May be voluntary but the presumption of law is that it is involuntary (c) Law presumes there has been merely oversight or mistake on the part of the testator (d) Omitted heir gets not only his legitime but also his share in the free portion not disposed of by way of legacies and devises

(a) Express deprivation of a compulsory heir of his legitime (b) Always voluntary (c) For some legal cause (d) If the disinheritance is valid, the compulsory heir disinheritied is totally excluded from the inheritance. In case of unlawful disinheritance, the compulsory heir is merely restored to his legitime

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Example (more than 1 substitute): A is instituted to 1/3, B to 1/6, and C to ½. If C dies before the testator, renounces or turns out to be incapacitated, then the other two will get his shares in the same proportion as in the institution. A will get twice as much as B (because his share of 1/3 in the institution is twice the size of B’s share of 1/6) Simple Substitution [Art. 859, CC]. – The testator may designate one or more persons to substitute the heir/s instituted in case the heirs should: (1) die before him (predecease), (2) should not wish to accept the inheritance (repudiation), or (3) should be incapacitated to accept the inheritance (incapacitated). [Art. 859, CC] Fideicommisary Substitution. – The testator institutes an heir with an obligation to preserve and to deliver to another the property so inherited. The heir instituted to such condition is called the First Heir or the Fiduciary Heir; the one to receive the property is the fideicommissary or the second heir. [Art 863, CC]

EFFECTS OF PRETERITION [ART. 854, CC]

(a) The institution of the heir is annulled. (b) Devises and legacies shall remain valid as long as they are not inofficious. (c) If the omitted compulsory heir should die before the testator, the institution shall be effective, without prejudice to the right of representation.

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Requisites of a Fideicommisary Substitution [Arts. 863865, CC] (1) A Fiduciary or First Heir instituted is entrusted with the obligation to preserve and to transmit to a Fideicommissary Substitute or Second Heir the whole or part of the inheritance. (2) The substitution must not go beyond one degree from the heir originally instituted. (3) The Fiduciary Heir and the Fideicommissary are living at the time of the death of the testator. (4) The fideicommissary substitution must be expressly made. (5) The fideicommissary substitution is imposed on the free portion of the estate and never on the legitime

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CONDITIONS

Basis of testator’s right to impose conditions, terms or modes: Testamentary freedom Prohibited conditions: (considered as not imposed) (1) Any charge, condition or substitution whatsoever upon the legitimes. [Art. 872] (2) Impossible and illegal conditions. [Art 873] (3) Absolute condition not to contract a first or subsequent marriage unless imposed on the widow or widower by the deceased spouse, or by the latter’s ascendants or descendants. [Art. 874] (4) Scriptura captatoria or legacy-hunting dispositions* [Art. 875] Scriptura captatoria/ Legacy-Hunting Dispositions (a) Reasons for prohibition (1) The captatoria converts the testamentary grants into contractual transactions; (2) It deprives the heirs of testamentary freedom; (3) It gives the testator the power to dispose mortis causa not only of his property but also of his heir’s. (b) Effect : Entire disposition is void

Note: (a) Palacios vs. Ramirez (1982): “Degree” refers to degree of relationship. (b) PCIB vs. Escolin (1974): In the absence of an obligation on the part of the first heir to preserve the property for the second heir, there is no fideicommissary substitution. Effects of predecease of the first heir/fiduciary or the second heir/fideicommisary (a) Legend: (1) T – Testator (2) FH – First Heir / Fiduciary (3) SH – Second Heir / Fideicommissary Substitute (b) Situation 1: If the following is the sequence of death of the three parties: FH – SH – T, who will inherit? The legal heirs. There is no fideicommissary substitution because FH and SH are not living at the time of the testator’s death. (Art 863, CC) (c) Situation 2: T – SH – FH, who will inherit? The SH and his heirs under Art. 866, CC. This is because the SH passes his rights to his own heirs when he dies before FH. (d) Situation 3: FH – T – SH, who will inherit? No specific provision in law, but SH inherits because the T intended him to inherit.

Potestative, Casual and Mixed Conditions (a) Potestative Conditions General Rule: Must be fulfilled as soon as the heir learns of the testator’s death Exception: If the condition was already complied with at the time the heir learns of the testator’s death; or if the condition is of such a nature that it cannot be fulfilled again. Constructive Compliance: deemed fulfilled (b) Casual or mixed General Rule: May be fulfilled at any time (before or after testator’s death), unless testator provides otherwise. Exception: If already fulfilled at the time of execution of will: (1) if testator unaware of the fact of fulfillment – deemed fulfilled (2) if testator aware: (a) can no longer be fulfilled again: deemed fulfilled (b) can be fulfilled again: must be fulfilled again. Constructive Compliance: (a) if casual – not applicable (b) if mixed – applicable only if dependent partly on the will of a third party not interested.

TESTAMENTARY DISPOSITIONS WITH A CONDITION, A TERM, AND A MODE 3 KINDS OF TESTAMENTARY DISPOSITIONS (1) Conditional (obliquely defined in Article 1179, par. 1) (2) Dispositions with a term (obliquely defined in Article 1193, pars. 1 and 3) (3) Dispositions with a mode/modal dispositions (obliquely defined in Article 882)

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Mode [Art. 882, CC] Definition – an obligation imposed upon the heir, without suspending, as a condition does, the effectivity of the institution (a) Must be clearly imposed as an obligation in order to be considered as one. Mere preferences or wishes expressed by the testator are not modes. (b) A mode functions similarly to a resolutory condition.

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(a) Widow or Widower / Surviving Spouse (Legitimate) (b) Illegitimate Children and Illegitimate Descendants If the testator is a LEGITIMATE CHILD: (1) LC and descendants (2) In default of No. 1, LP and ascendants (3) SS

Caución Muciana DEFINITION: A security to guarantee the return of the value of property, fruits, and interests, in case of contravention of condition, term or mode

(4) IC and descendants

If the testator is an ILLEGITIMATE CHILD: (1) LC and descendants (2) ILC and descendants (3) In default of Nos. 1-2. ILP only (4) SS

Specific Rules on Legitimes Direct Descending Line (a) Rule of Preference between lines [Art 978 and 985, CC] (1) Those in the direct descending line shall exclude those in the direct ascending and collateral lines; and (2) Those in the direct ascending line shall, in turn, exclude those in the collateral line. (3) Rule of Proximity [Art 926, CC] The relative nearest in degree excludes the farther one (b) Right or representation ad infinitum in case of predecease, incapacity, or disinheritance [Art 972 and 992, CC] (1) For decedents who are Legitimate Children, only the Legitimate Descendants are entitled to right of representation. (2) For decedents who are Illegitimate Children, both the Legitimate and the Illegitimate Descendants can represent, only with respect to the decedent’s illegitimate parents. (c) If all the Legitimate Children repudiate their legitime, the next generation of Legitimate Descendants may succeed in their own right.

Instances when it is needed: (1) Suspensive term [Art. 885] (2) Negative potestative condition - when the condition imposed upon the heir is negative, or consists in not doing or not giving something [Art 879] (3) Mode [Art 882, par 2] LEGITIME DEFINITION [ART. 886]

(a) It is that part of the testator’s property which he cannot dispose of, (b) Because the law has reserved it for his compulsory heirs. COMPULSORY HEIRS AND VARIOUS COMBINATIONS

Classes of Compulsory Heirs [Art. 887, CC] (1) Primary: Those who have precedence over and exclude other compulsory heirs: Legitimate Children and Legitimate Descendants with respect to their Legitimate Parents and Ascendants (2) Secondary: Those who succeed only in the absence of the Primary compulsory heirs: (a) Legitimate Parents and Legitimate Ascendants, with respect to their Legitimate Children and Descendants. (They will inherit only in default of legitimate children and their descendants) (b) Illegitimate Parents with respect to their Illegitimate Children. (They will inherit only in default of the illegitimate and legitimate children and their respective descendants). Note that other illegitimate ascendants are not included.

Direct Ascending Line (a) Rule of division between lines (1) The father and the mother shall inherit equally if both living. One succeeds to the entire estate of the child if the other is dead. [Art. 986, CC] (2) In default of the mother and the father, the ascendants nearest in degree will inherit. [Art. 987] (3) If there is more than one relative of the same degree but of different lines, one half will go to the paternal ascendants and the other half to the maternal ascendants. [Art. 987] (b) Rule of equal division (1) The relatives who are in the same degree shall inherit in equal shares. [Art 987]

(3) Concurring: Those who succeed together with the primary or the secondary compulsory heirs:

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Summary of Legitimes of Compulsory Heirs Surviving Relatives

Legitimate Children [LC] & Descendants

1

LC alone

2

1 LC, SS

1/2 of the estate in equal portions ½

3

LC, SS

1/2 in equal portions

4

LC, ILC

½ in equal portions

5

1 LC, SS, ILC

½

1/2 in equal portions

Surviving Spouse [SS]

Illegitimate Children [ILC]

Legitimat e Parents [LP] & Ascendant s

¼ Same portion as 1 LC

1/4 (preferred)

6

2 or more LC, SS, ILC

Same as share of 1 LC

7

LP alone

8

LP, ILC

9

LP, SS

¼

1 0 11

LP, SS, ILC

1/8

12

ILC, SS

1/3

13

SS alone

1/2

1/2 share of 1 LC (for reach ILC) 1/2 share of 1 LC (for each child) N.B. The share of the ILC may suffer reduction pro rata because spouse is given preference 1/2 share of 1 LC (for each child) 1/2 ¼ in equal portions

ILC alone

*SS alone where marriage is in articulo mortis and testator dies within 3 months from marriage – 1/3 But if they have been living together as husband and wife for more than 5 years – 1/2

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1/2 1/2

¼ 1/2 in equal portions 1/3 in equal portions

1/2

Illegitimate Parents [ILP]

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Legitimate Children [LC] & Descendants

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Surviving Spouse [SS]

14

ILP alone

15

ILP, SS

¼

16

Adopter, ILC, SS

1/3

Partial impairment Impairment by inofficious donations

Legitimat e Parents [LP] & Ascendant s

Illegitimate Parents [ILP] 1/2

Steps in Determining the Legitime of Compulsory Heirs (1) Determine the gross value of the estate at the time of the death of the testator. (2) Determine all debts and charges which are chargeable against the estate. (3) Determine the net value of the estate by deducting all the debts and charges from the gross value of the estate. (4) Collate or add the value of all donations inter vivos to the net value of the estate. (5) Determine the amount of the legitime from the total thus found. (6) Impute the value of all donations inter vivos made to strangers against the disposable free portion and restore it to the estate if the donation is inofficious. (7) Distribute the residue of the estate in accordance with the will of the testator. Remedy of a Compulsory of Legitime Extent and Nature of Impairment Total omission of a compulsory heir who is a direct descendant or ascendant (preterition) Testamentary dispositions impairing or diminishing the legitime

Illegitimate Children [ILC]

1/4 1/3

1/3 (adopter)

or a brother or sister, is obliged to reserve such property as he may have acquired by operation of law for the benefit of relatives who are within the third degree and who belong to the line from which said property came. Concept of Reserva Troncal [Art. 891, CC] (1) A descendant (prepositus) inherits or acquires property from an ascendant (origin or mediate source) by gratuitous title or from a brother or sister (2) The same property is inherited by another ascendant (reservista) or is otherwise acquired by him by operation of law from the said descendant (prepositus) (3) The said ascendant (reservista) must reserve the property for the benefit of the relatives of the deceased descendant within the third civil degree and who belong to the line from which the said property came (reservatarios).

Heir in case of Impairment

Parties: [Balane (2010)] (1) Origin or Mediate Source – either an ascendant of any degree of ascent or a brother or sister of the st Prepositus; responsible for the 1 transfer (2) Prepositus – the first transferee of the reserved property (3) Reservista – an ascendant of the Prepositus other than the Origin or Mediate Source; the one obligated to reserve the property rd (4) Reservatarios – within the 3 degree of consanguinity from the Prepositus [Cabardo v. Villanueva (1922)] belonging to the line from which the property came

Remedy Annulment of institution and reduction of legacies and devises [Art. 854, CC] Reduction of the disposition insofar as they may be inofficious or excessive [Art. 907, CC] Completion of the legitime [Art. 906, CC] Collation – reduction of donations [Arts. 771 and 911, CC]

Requisites for Reserva Troncal [Chua vs. CFI(1977)] (1) That the property was acquired by a descendant (Prepositus) from an ascendant or from a brother or sister (Origin or Mediate Source) by gratuitous title, (2) That the Prepositus died without (legitimate*) issue, (3) That the property is inherited by another ascendant (Reservista) by operation of law, and

RESERVA TRONCAL

Art. 891. The ascendant who inherits from his descendant any property which the latter may have acquired by gratuitous title from another ascendant,

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rd

(4) That there are relatives within the 3 degree (Reservatarios) belonging to the line from which said property came.

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Two Views (1) Reserva Maxima: The entire property will be considered acquired as legitime and therefore wholly reservable (2) Reserva Minima: One half is reservable, the other half is not subject to reserva troncal [Tolentino, p. 284]

Note: Only legitimate descendants will prevent the property from being inherited by the legitimate ascending line by operation of law [Balane] 3 transmissions involved: [Balane (2010)] st (a) 1 transfer – by gratuitous title, from a person to his descent, brother or sister nd (b) 2 transfer – by operation of law, from the st transferee in the 1 transfer to another ascendant. This creates the reserve. rd (c) 3 transfer – from the transferee in the second transfer to the relatives

Extinguishment of the Reserva) (LDD-RRP) (1) Loss of the reservable property (2) Death of the reservista (3) Death of all the relatives within the third degree belonging to the line from which the property came (4) Renunciation by the reservatarios (5) Registration of the reservable property under the Torrens system as free (6) Prescription, when the reservista holds the property adversely against the reservatarios, as free from reservation

Juridical Nature of Rights Nature of the reservista’s right: [Balane citing Edroso v Sablan] (a) The reservista’s right over the reserved property is one of ownership (b) The right of ownership is subject to a resolutory condition, i.e. the existence of reservatarios at the time (c) The right of ownership is alienable, but subject to the same resolutory condition. (d) The reservista’s right of ownership is registrable.

DISINHERITANCE

Definition of Disinheritance [Art. 915, CC] (1) It is the act by which the testator (2) For just cause (3) Deprives a compulsory heir of his right to the legitime. Requisites of a Valid Disinheritance (1) Heir disinherited must be designated by name or in such a manner as to leave no room for doubt as to who is intended to be disinherited. (2) It must be for a cause designated by law. (3) It must be made in a valid will. (4) It must be made expressly, stating the cause in the will itself. (5) The cause must be certain and true, and must be proved by the interested heir if the person should deny it. (6) It must be unconditional. (7) It must be total.

Nature of reservatarios’ right: [Balane citing Sienes v Esparcia] (a) The reservatarios have a right of expectancy over the property. (b) The right is subject to a suspensive condition, i.e. the expectancy ripens into ownership if the reservatarios survive the reservistas. (c) The right is alienable but subject to the same suspensive condition. (d) The right is registrable. Reserva Minima v. Reserva Maxima (1) The prepositus acquired property gratuitously from an ascendant, a brother or sister (2) In his will, he institutes as his heir his ascendant (who is also a compulsory heir) such that the ascendant receives half of the estate by operation of law as legitime and the other half by testamentary disposition

Disinheritance for cause Disinheritance of children and descendants Article 919. The following shall be sufficient causes for the disinheritance of children and descendants, legitimate as well as illegitimate: (1) When a child or descendant has been found guilty of an attempt against the life of the testator, his or her spouse, descendants, or ascendants; (2) When a child or descendant has been convicted of adultery or concubinage with the spouse of the testator; (3) When a child or descendant by fraud, violence, intimidation, or undue influence causes the

Problem: Will the property acquired gratuitiously by the prepositus from the source be treated as acquired by the ascendant-heir by operation of law (legitime) and therefore reservable or by testamentary disposition?

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testator to make a will or to change one already made; (4) A refusal without justifiable cause to support the parent or ascendant who disinherits such child or descendant; (5) Maltreatment of the testator by word or deed, by the child or descendant; (6) When a child or descendant leads a dishonorable or disgraceful life; (7) Conviction of a crime which carries with it the penalty of civil interdiction.

testator to make a will or to change one already made; (6) The loss of parental authority for causes specified in this Code; (7) The refusal to support the children or descendants without justifiable cause; (8) An attempt by one of the parents against the life of the other, unless there has been a reconciliation between them. Disinheritance of a spouse – [Article 921, CC] Article 921. The following shall be sufficient causes for disinheriting a spouse: (1) When the spouse has been convicted of an attempt against the life of the testator, his or her descendants, or ascendants; (2) When the spouse has accused the testator of a crime for which the law prescribes imprisonment of six years or more, and the accusation has been found to be false; (3) When the spouse by fraud, violence, intimidation, or undue influence cause the testator to make a will or to change one already made; (4) When the spouse has given cause for legal separation; (5) When the spouse has given grounds for the loss of parental authority; (6) Unjustifiable refusal to support the children or the other spouse.

Disinheritance of parents and ascendants Article 920. The following shall be sufficient causes for the disinheritance of parents or ascendants, whether legitimate or illegitimate: (1) When the parents have abandoned their children or induced their daughters to live a corrupt or immoral life, or attempted against their virtue; (2) When the parent or ascendant has been convicted of an attempt against the life of the testator, his or her spouse, descendants, or ascendants; (3) When the parent or ascendant has accused the testator of a crime for which the law prescribes imprisonment for six years or more, if the accusation has been found to be false; (4) When the parent or ascendant has been convicted of adultery or concubinage with the spouse of the testator; (5) When the parent or ascendant by fraud, violence, intimidation, or undue influence causes the

1

Summary of Causes of Disinheritance [CC 919] [CC 920] Grounds for Disinheritance Children & Parents & Descendants Ascendants Guilty or Convicted of Attempt Against the Life of the Testator, Spouse, Ascendant or * * Descendant

2

Accused Testator or Decedent of Crime Punishable by Imprisonment of 6 years or more, and Found Groundless or False

3

Causes testator or decedent to Make a Will or Change one by Fraud, Violence, Intimidation, or Undue Influence Unjustified Refusal to Support Testator Convicted of Adultery or Concubinage with Spouse of Testator or Decedent

4 5

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[CC 1032] Unworthiness

*

*

*

*

*

*

*

*

*

*

*

*

*

*

*

6

Maltreatment of testator by Word and Deed

*

7

Leading a Dishonorable or Disgraceful Life

*

8

Conviction of Crime which carries the penalty of Civil Interdiction

*

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[CC 921] Spouse

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Grounds for Disinheritance 9

10 11

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[CC 919] Children & Descendants

Abandonment of Children or Inducing Children to Live Corrupt and Immoral Life or Against Attempted Virtue Loss of Parental Authority Attempt by One Parent Against the Life of the Other UNLESS there is Reconciliation Between Parents

[CC 920] Parents & Ascendants *

[CC 921] Spouse

*

* *

[CC 1032] Unworthiness *

12

Spouse Has Given Cause for Legal Separation

*

13

Failure to Report Violent Death of Decedent Within One Month UNLESS Authorities Have Already Taken Action Force, Violence, Intimidation, or Undue Influence to Prevent Another from Making a Will or Revoking One Already Made or Who Supplants or Alters the Latter’s Will Falsifies or Forges Supposed Will of Decedent

*

14

15

*

*

Reconciliation – [Art. 922] Art. 922. A subsequent reconciliation between the offender and the offended person deprives the latter of the right to disinherit, and renders ineffectual any disinheritance that may have been made.

Disinheritance without cause – [Art. 918] Art. 918. Disinheritance without a specification of the cause, or for a cause the truth of which, if contradicted, is not proved, or which is not one of those set forth in this Code, shall annul the institution of heirs insofar as it may prejudice the person disinherited; but the devises and legacies and other testamentary dispositions shall be valid to such extent as will not impair the legitime.

Rights of descendants of person disinherited – [Art. 923] Art. 923. The children and descendants of the person disinherited shall take his or her place and shall preserve the rights of compulsory heirs with respect to the legitime; but the disinherited parent shall not have the usufruct or administration of the property which constitutes the legitime.

Ineffective Disinheritance – if the disinheritance lacks one or other of the requisites mentioned in this article, the heir in question gets his legitime. [Balane (2010)]

Balane: This is inconsistent with Art. 1033. In disinheritance, reconciliation is sufficient. It need not be in writing. In unworthiness, however, it needs to be in writing.

Ineffective Disinheritance

Preterition

Person disinherited may be any compulsory heir

Person omitted must be a compulsory heir in the direct line Annuls the entire institution of heirs

Revocation Modes of Revocation. – (1) Reconciliation [Art 922, CC] (2) Subsequent institution of the disinherited heir (3) Nullity of the will which contains the disinheritance.

Only annuls the institution in so far as it prejudices the person disinherited

Note: The moment that testator uses one of the acts of unworthiness as a cause for disinheritance; he thereby submits it to the rules on disinheritance. Thus, reconciliation renders the disinheritance ineffective.

Legacy

Legacies and Devisees

A gift of personal property given in a will It is bequeathed

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Devise A gift of real property given in a will It is devised

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Persons Charged With the Duty to Give Legacies and Devises in a Will (1) Compulsory heir, provided, their legitimes are not impaired (Art. 925, CC) (2) Voluntary heir (3) Legatee or devisee can be charged with the duty of giving a sub-legacy or sub-devisee but only to the extent of the value of the legacy or devise given him (Art. 925, CC) (4) The estate represented by the executor or administrator, if no one is charged with this duty to pay or deliver the legacy or devise in the will (a) If there is an administration proceeding, it constitutes a charge upon the estate. (b) If there is no administration proceeding, it is a charge upon the heirs.

Status of property given by legacy/devise

Validity and Effect of Legacy or Devise Legacy or devise of a thing belonging to another [Art. 930, CC] Status of property given by legacy/devise Testator erroneously believed that the property belonged to him The thing bequeathed afterwards becomes his by whatever title

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encumbrance or interest of another person (Art. 932, CC) Legatee or devisee subsequently alienates the thing (Art. 933,CC) After alienating the thing, the legatee or devisee subsequently reacquires it gratuitously (Art. 933, CC)

the interest or encumbrance Ineffective

Status of property given by legacy/devise After alienating the thing, the legatee or devisee acquires it by onerous title (Art. 933, CC)

Effect on the legacy/devise Legatee or devisee can demand reimbursement from the heir or estate

Effect on the legacy/devise Void

Legacy or devise of thing already belonging to the legatee or devisee Effect on the legacy/devise

The thing already belongs to the legatee or devisee at the time of the execution of the will (Art. 932, CC) The thing is subject to an

Ineffective

Different Objects of Legacies and Devises (Art. 934944, CC) (1) Legacy of a thing pledged or mortgaged to secure a debt [Art 934, CC] (2) Legacy of credit, or remission or release of a debt [Art 935 CC] (3) Legacy to the debtor of thing pledged by him [Art 936, CC] (4) Legacy or devise to a creditor if the testator orders the payment of a debt [Art 939, CC] (5) Alternative legacies and devises [Art 940, CC] (6) Legacy of generic personal property or indeterminate real property [Art 941, CC] (7) Legacy of education [Art 944, CC] (8) Legacy of support [Art 944, CC]

Effective

Status of property given by legacy/devise

Effect on the legacy/devise

Ineffective

Valid only as to

Objects of Legacy or Devise

Effect

Thing pledged or mortgaged to secure a debt Credit or remission or release of a debt

(a) Estate is obliged to pay the debt (b) Other charges pass to the legatee or devisee (a) Effective only as regards the credit or debt existing at the time of the testator’s death (b) Legacy lapses if the testator later brings action against the debtor (c) If generic, comprises all credits/debts existing at time of execution of will

Thing pledged by debtor To a creditor

Only the pledge is extinguished; the debt remains Shall not be applied to his credit unless the testator so declares

Order of payment of a debt

(a) If testator does not really owe the debt, the disposition is void

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Objects of Legacy or Devise

Alternative legacies and devises Legacy of generic personal property or indeterminate real property Legacy of education

Legacy of support

Effect (b) If the order is to pay more that the debt, the excess is not due (c) This is without prejudice to the payment of natural obligations (a) The choice is with the heir, or the executor or administrator (b) If the heir, legatee or devisee dies the right passes to their heirs (c) Once made, the choice is irrevocable (a) Legacy is valid even if there are no things of the same kind in the estate (b) Devise of indeterminate real property valid only if there are immovable property of the same kind in the estate (c) The choice belongs to the heir, legatee or devisee or the executor or administrator (a) Lasts until the legatee is of age or beyond the age of majority in order that he may finish some professional, vocational or general course provided he pursues his course diligently (b) If testator did not fix the amount, it is fixed in accordance with the social standing and circumstances of the legatee and the value of the estate (a) Lasts during lifetime of legatee (b) If the testator used to give the legatee a sum of money for support, give the same amount unless it is markedly disproportionate to the estate (c) If testator did not fix the amount, it is fixed in accordance with the social standing and circumstances of the legatee and the value of the estate

Order of Payment in Case the Estate Is Not Sufficient to Cover All the Legacies and Devises ART. 911

ART. 950 Order of Preference

LIPO (a) Legitime of compulsory heirs (b) Donations Inter vivos (c) Preferential legacies or devises (d) All Other legacies or devises pro rata

RPSESO (a) Remuneratory legacy/devise (b) Preferential legacy/devise (c) Legacy for Support (d) Legacy for Education (e) Legacy/devise of Specific, determinate thing which forms a part of the estate (f) All Others pro rata Application (a) When the reduction is necessary to preserve the (a) When there are no compulsory heirs and the entire estate legitime of compulsory heirs from impairment whether is distributed by the testator as legacies or devises; or there are donations inter vivos or not; or (b) When there are compulsory heirs but their legitime has (b) When, although, the legitime has been preserved by already been provided for by the testator and there are the testator himself there are donations inter vivos. no donations inter vivos. NOTE: Art. 911, CC governs when there is a conflict between compulsory heirs and the devisees and legatees.

Note: Art. 950, CC governs when the question of reduction is exclusively among legatees and devisees themselves.

How Legacy or Devise Delivered [Art. 951, CC] (1) The very thing bequeathed shall be delivered and not its value (2) With all its accessions and accessories (3) In the condition in which it may be upon the death of the testator (4) Legacies of money must be paid in cash

Effect of ineffective legacies or devises [Art. 956, CC] In case of repudiation, revocation or incapacity of the legatee or devisee, the legacy or devise shall bemerged with the mass of the hereditary estate, except in cases of substitution or accretion. Ground for Revocation of Legacies and Devises [Art. 957, CC] - (TALO) (1) Testator Transforms the thing such that it does not retain its original form or denomination

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(2) Testator Alienates the thing by any title or for any cause. Reacquisition of the thing by the testator does not make the legacy or devise valid, unless it is effected by right of repurchase. (3) Thing is totally Lost during the lifetime or after the death of the testator (4) Other causes: nullity of will, non-compliance with suspensive condition, sale of the thing to pay the debts of the deceased during the settlement of his estate.

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(c) The right of Accretion applies to the free portion when the requisites in Art. 1016 are present. (d) If there is no substitute, and the right of Representation or Accretion are not proper, the rules on Intestate succession shall apply. THE INTESTATE OR LEGAL HEIRS

(1) Relatives (a) Legitimate ascendants (b) Illegitimate parents (c) Legitimate children (d) Illegitimate children (e) Surviving Spouse (f) Brothers, sisters, nephews and nieces (BSNN) (g) Other collateral relatives (2) Surviving spouse (3) State (through escheat proceedings)

Legal or Intestate Succession GENERAL PROVISIONS Intestacy – that which takes place by operation of law in default of compulsory and testamentary succession. Not defined in the Civil Code.

Intestate succession is based on the presumed will of the decedent. That is, to distribute the estate in accordance with the love and affection he has for his family, and in default of these persons, the presumed desire to promote charitable and humanitarian activities [Balane].

INSTANCES WHEN LEGAL OR INTESTATE SUCCESSION OPERATES: [ART. 960, CC]

(1) If a person dies without a will, or with a void will, or one which has subsequently lost its validity (2) When the will does not institute an heir (3) Upon the expiration of term, or period of institution of heir [Balane, 426] (4) Upon fulfillment of a resolutory condition attached to the institution of heir, rendering the will ineffective [Balane, 426] (5) When the will does not dispose of all the property belonging to the testator. Legal succession shall take place only with respect to the property which the testator has not disposed (mixed succession) (6) If the suspensive condition attached to the institution of the heir does not happen or is not fulfilled (7) If the heir dies before the testator (8) If the heir repudiates the inheritance, there being no substitution, and no right of accretion takes place (9) When the heir instituted is incapable of succeeding, except in cases provided in the Civil Code (10) Preterition – Intestacy may be total or partial depending on whether or not there are legacies or devises [Balane, 426]

FUNDAMENTAL PRINCIPLES IN INTESTATE SUCCESSION:

Rule of Preference between Lines (a) Those in the direct descending line shall exclude those in the direct ascending and collateral lines; (b) Those in the direct ascending line shall, in turn, exclude those in the collateral line. Rule of Proximity The relative nearest in degree excludes the farther one. [Art. 962[1], CC], saving the right of representation when it properly takes place. Rule of Equal Division The relatives who are in the same degree shall inherit in equal shares. [Arts. 962[2], 987 and 1006, CC] Exceptions: [Balane, 427-428] (a) Rule of preference between Lines (b) Distinction between legitimate and illegitimate filiation. The ratio under present law is 2:1. [Art 983, in relation to Article 895 as amended by Article. 176, FC] (c) Rule of division by line in the ascending line [Art. 987 [2], CC] (d) Distinction between full-blood and half-blood relationship among brothers and sisters, as well as nephews and nieces. [Art. 1006 and 1008, CC] (e) Right of representation.

Note: In all cases where there has been an institution of heirs, follow the ISRAI order: (a) If the Institution fails, Substitution occurs. (b) If there is no substitute, the right of Representation applies in the direct descending line to the legitime if the vacancy is caused by predecease, incapacity, or disinheritance.

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Rule of Barrier between the legitimate family and the illegitimate family (the iron-curtain rule) The illegitimate family cannot inherit by intestate succession from the legitimate family and vice-versa. [Art. 992, CC]

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Blood relationship is either full or half-blood. [Art. 967, CC] Note: As among brothers and sisters and nephews and nieces, there is a 2:1 ratio for full-blood and halfblood relatives. Direct relatives are preferred. But this distinction does not apply with respect to other collateral relatives.

Rule of Double Share for full blood collaterals When full and half-blood brothers or sisters, nephews or nieces, survive, the full blood shall take a portion in the inheritance double that of the halfblood. [Arts. 895 and 983, CC]

INCAPACITY [ART. 968, CC]

General Rule: If there are several relatives of the same degree, and one or some of them are unwilling or incapacitated to succeed, his portion shall accrue to the others of the same degree.

Note: (1) If one of the legitimate ascendants, illegitimate parents, legitimate children or illegitimate children survives, the brother, sisters, nephews, and nieces (BSNN) are excluded. (2) If one of the legitimate ascendants, illegitimate parents, legitimate children, illegitimate children or surviving spouse survives, the other collateral relatives and the state are excluded. (3) If any of the heirs concur in legitimes, then they also concur in intestacy.

Exception: When the right of representation should take place. Note: This accretion in intestacy takes place in case of predecease, incapacity, or renunciation among heirs of the same degree. The relatives must be in the same relationship because of the Rule of Preference of Lines. REPUDIATION [ARTS. 968-969, CC]

RELATIONSHIP

(a) There is no right of representation in repudiation. If the nearest relative/s repudiates the inheritance, those of the following degree shall inherit in their own right. (b) In case of repudiation by all in the same degree, the right of succession passes on the heirs in succeeding degrees: descending line first, ascending line next, and collateral line next. [Balane]

BASIC CONCEPTS IN RELATIONSHIP

The number of generations determines the proximity of the relationship. Each generation forms one degree. [Art 963, CC] A series of degrees forms a line. This line may either by direct or collateral. [Art. 964, CC] (a) A direct line is that constituted by the series of degrees among ascendants and descendants. (b) The direct line is either ascending (brings a person with those from whom he descends) and descending (connecting the head of the family with those who descend from him). [Art. 965, CC] (c) A collateral line is that constituted by the series of degrees among persons who are not ascendants or descendants, but who come from a common ancestor.

ADOPTION [ART. 189, FC]

In adoption, the legal filiation is personal and exists only between the adopter and the adopted. The adopted is deemed a legitimate child of the adopter, but still remains as an intestate heir of his natural parents and other blood relatives. RIGHT OF REPRESENTATION Representation – right created by fiction of law, by virtue of which the representative is raised to the place and the degree of the person represented, and acquires the rights which the latter would have if he were living or if he could have inherited (Art. 970, CC)

Note: It is important to distinguish between direct and collateral as the direct has preference over the collateral. In a line, as many degrees are counted as there are generations. [Art. 966, CC] (a) In the direct line, ascent is made up to the common ancestor or progenitor. (b) In the collateral line, ascent is made to the common ancestor. Then descent to the person with whom the computation is to be made.

EFFECT OF REPRESENTATION

The representative heir acquires the rights which the represented would have if he were living or if he could have inherited.

Note: Descending line is preferred over ascending.

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A renouncer can represent, but cannot be represented. Rationale is found in Art. 971 which states that “The representative does not succeed the person represented but the one whom the person represented would have succeeded.”

must be a legal heir of both the person he is representing and the decedent. [Art. 973, CC] (b) BUT the representative need not be qualified to succeed the person represented. [Art. 971, CC] In the same manner, the person represented need not be qualified to succeed the decedent, as it is his disqualification which gives rise for representation to apply. (c) Implication: Illegitimate children can represent illegitimate parents in inheritance from illegitimate grandparents. (Rationale: Iron-curtain rule under Art. 992, CC) (d) On the other hand, a legitimate child may represent either a legitimate or illegitimate parent in the inheritance of either a legitimate or illegitimate grandparents. [Arts. 902, 989 and 990, CC]

REPRESENTATION IN THE DIRECT DESCENDING LINE

REPRESENTATION IN ADOPTION

Representation takes place ad infinitum in the direct descending line but never in the direct ascending line. [Art. 972, CC]

If the adopting parent should die before the adopted child, the latter cannot represent the former in the inheritance of the parents or ascendants of the adopter. The adopted child is not related to the deceased in that case, because filiation created by fiction of law is exclusively between the adopter and the adopted. [Tolentino, 448-449]

WHEN IT OCCURS

(a) Representation is allowed with respect to inheritance conferred by law (legitime and intestate based on Art. 923) (b) It occurs only in the following instances: (1) predecease of an heir (2) incapacity or unworthiness (3) disinheritance [Art. 923, CC] (c) There is no representation in testamentary succession. [Art 856, CC] (d) There is no representation in repudiation.

General Rule: Grandchildren inherit from the grandparents by right of representation, if proper. Exception: Whenever all the children repudiate, the grandchildren inherit in their own right because representation is not proper. [Art. 969, CC]

ORDER OF CONCURRENCE IN THE CASE OF AN ADOPTED CHILD (ART. 190, FC)

Survivors

REPRESENTATION IN COLLATERAL LINE

(a) In the collateral line, representation takes place only in favor of the children of the brothers or sisters (i.e., nephews and nieces) whether of the full or half-blood [Art. 972, CC] and only if they concur with at least one uncle or aunt. In this case, they share in the inheritance per stirpes. (b) If the children survive alone, they inherit in their own right and share in equal proportions or per capita. [Art. 975, CC] (c) Right of representation in the collateral line is only possible in INTESTATE succession. It cannot take place in testamentary succession.

LC, ILC, SS LP/ILP, or legitimate ascendants Adopter SS/ILC Adopters LP or ascendants Adopter ILC or descendants Adopters SS ILC Adopter alone Collateral blood relatives alone

PER STIRPES

(a) Inheritance per stirpes means that the representative/s shall receive only what the person represented would have received, if he were living or could inherit. [Art.975, CC] (b) If there are more than one representative in the same degree, then it shall be divided equally, without prejudice to the distinction between legitimate and illegitimate, if applicable. THE DOUBLE HEIRSHIP TEST

(a) In determining whether or not representation is proper, it is necessary that the representative

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Share As in the case of ordinary intestate succession ½ ½ ½ ½ ½ ½ 1/3 1/3 1/3 Entire estate As in the case of ordinary intestate succession

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ORDER OF INTESTATE SUCCESSION Decedent is a Legitimate Child Legitimate children or descendants (LCD) Legitimate parents or ascendants (LPA) Illegitimate children or descendants (ICD)

Decedent is an Illegitimate Child Legitimate children or descendants (LCD) Illegitimate children or descendants (LPA) Illegitimate parents (IP)

4 5

Surviving spouse (SS) Brothers and sisters, nephews, nieces (BS/NN)

Surviving spouse (SS) Illegitimate brothers and sisters, nephews, nieces (IBS/NN)

Decedent is an Adopted Child Legitimate children or descendants (LCD) Illegitimate children or descendants (ICD) Legitimate or illegitimate parents, or legitimate ascendants, adoptive parents Surviving spouse (SS) Brothers and sisters, nephews, nieces (BS/NN)

6

Legitimate collateral relatives th within the 5 degree (C5) State

State

State

1 2 3

7

RULES OF EXCLUSION AND CONCURRENCE IN INTESTATE SHARES

Intestate Heirs

Excludes

Excluded By

Concurs With

LC + LD

Ascendants, Collaterals and State ILP, Collaterals and State Collaterals and State Collaterals and State Collaterals other than siblings, nephews and nieces, State

No one

SS + ILC

No one

SS, LC, LP

LC

ILC + SS

LC and ILC

SS

No one

ILC + D LP + LA ILP SS

Siblings, Nephews Nieces th Other collaterals within 5 degree State

All other collaterals and State

LC, ILC, LP, ILP

LC, ILC, LP, ILP Siblings Nephews Nieces SS

Collateral more remote in degree and State No one

LC, ILC, LP, ILP and SS

Collaterals in the same degree

Everyone

No one

Legitimate children and surviving spouse (a) Divide entire estate equally between the legitimate children and the surviving spouse, the latter deemed as one child. The same rule holds where there is only one child. (b) “Children” as used in Art. 996 is interpreted to include a situation where there is only one child.

OUTLINE OF INTESTATE SHARES

Legitimate children only (a) Divide entire estate equally among all legitimate children [Art. 979, CC] (b) Legitimate children include an adopted child. Legitimate children and Illegitimate children Divide entire estate such that each illegitimate child gets ½ of what a legitimate child gets [Art. 983, CC and Art. 176, FC]

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Legitimate children. Surviving spouse, and Illegitimate children Divide the entire estate such that the surviving spouse is deemed one legitimate child and each illegitimate child getting ½ of what the legitimate child gets. [Art. 996, CC and Art. 176, FC]

the other relatives should be “illegitimate” because of the iron-curtain rule. [Art. 994, CC]

Legitimate parents only Divide the entire estate equally. [Art. 985, CC]

Illegitimate parents and children of any kind (whether legitimate or illegitimate child) Illegitimate parents are excluded and do not inherit; For the rule on the respective shares of the children, see numbers 1, 2 or 10, whichever is applicable.

Illegitimate parents only Entire estate goes to the illegitimate parents. [Art 993, CC]

Legitimate ascendants only (excluding parents) Divide the entire estate equally but with the observance of the rule of division by line. [Art. 987, CC]

Legitimate brothers and sisters only Divide the entire estate such that full-blood brothers/sisters gets a share double the amount of a half-blood brother or sister. [Art. 1004 and 1006, CC]

Legitimate parents and illegitimate children Legitimate parents get ½ of the estate, illegitimate children get the other ½. [Art. 991, CC]

Legitimate brothers and sisters, nephews and nieces Divide the entire estate observing the 2 is to 1 ratio for full and half-blood relationships with respect to the brothers and sisters, with the nephews and nieces inheriting by representation, if proper. [Art. 1005 & 1008, CC]

Legitimate parents and surviving spouse Legitimate parents get ½ of the estate; The surviving spouse gets the other ½. [Art. 997,CC] Legitimate parents, surviving spouse and illegitimate children Legitimate parents get ½ of the estate; surviving spouse and the illegitimate child each get ¼ each, the latter to share among themselves if more than one. [Art. 1000, CC]

Nephews and nieces only Divide the entire estate per capita, observing the 2 is to 1 ratio. [Arts. 975 and 1008, CC] Other collaterals (Arts. 1009 and 1010) (a) Divide entire estate per capita. th (b) Collateral relatives must be with the 5 degree of consanguinity.

Illegitimate children only Divide the entire estate equally. [Art. 988, CC] Illegitimate children and surviving spouse Illegitimate children get ½ of the estate; the surviving spouse gets the other ½. [Art. 998, CC]

Note: the nearer relative excludes the more remote relatives.

Surviving spouse only Entire estate goes to the surviving spouse. [Art. 994/995, CC]

State If there are no other intestate heirs, the State inherits the entire estate through escheat proceedings. [Art. 1011, CC]

Surviving spouse and illegitimate parents Illegitimate parents get ½ and the spouse gets the other ½. [by analogy with Art. 997, CC]

Provisions Common to estate and Intestate Succession

Surviving spouse and legitimate brothers and sisters, nephews and nieces Surviving spouse gets ½ of the estate, while the rest gets the other ½ with the nephews and nieces inheriting by representation if proper. [Art. 1001, CC]

RIGHT OF ACCRETION

Surviving spouse and illegitimate brothers and sisters, nephews and nieces Surviving spouse gets ½ of the estate while the rest gets the other ½ with the nephews and nieces inheriting by representation, if proper; Note that all

DEFINITION AND REQUISITES – [ARTS. 1015-1016]

Definition of Accretion [Art. 1015, CC] It is a right by virtue of which, when two or more persons are called to the same inheritance, devise or legacy, the part assigned to one who renounces or cannot receive his share or who died before the

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testator is added or incorporated to that of his coheirs, co-devisees, or co-legatees. Requisites [Tolentino p. 497-499]: (1) Unity of object and plurality of subjects (two or more persons are called to the same inheritance or same portion thereof) (2) Vacancy of share (one of the heirs dies before the testator, or renounces the inheritance, or is incapacitated) (a) Accretion happens when there is repudiation, incapacity, or predecease of an heir. (b) It is the mechanism where the share of an heir is increased by vacant shares vacated by heirs who cannot inherit for various reasons. (RATIONALE: the decedent intended to give the property to nobody but the co-heirs.) (c) There can only be accretion if there is an institution of heirs with respect to specific properties. [Art 1016, CC] (d) Among compulsory heirs, there can only be accretion with respect to the free portion. There can be no accretion with respect to the legitimes. [Arts. 1021 and 1018, CC] (e) The heirs to whom the portion goes by the right of accretion take it in the same proportion that they inherit. [Art. 1019, CC]

Testamentary Succession Legitime Free Portion Successio n n

Intestate Succession Succession

Incapacity

Represent -ation Intestate Successio n

Accretion Intestate Succession

Representa tion Intestate Succession

Disinheritan ce

Represent -ation Intestate Successio n Intestate Successio n

-

-

Accretion

Accretion

CAPACITY TO SUCCEED BY WILL OR INTESTACY PERSONS INCAPABLE OF SUCEEDING

Requisites for Capacity to Succeed by Will or by Intestacy [Art. 1024 – 1025, CC] (a) The heir, legatee or devisee must be living or in existence at the moment the succession opens; (Art 1025) and (b) He must not be incapacitated or disqualified by law to succeed. (Art 1024, par.1) PERSONS INCAPABLE OF SUCCEEDING – ARTS. 1027, 739,

1032

Based on Undue Influence or Interest [Art. 1027, CC] (PIGRAP) (a) Priest who heard the last confession of the testator during his last illness, or the minister of the gospel who extended spiritual aid to him during the same period; (b) Individuals, associations and corporations not permitted by law to inherit; (c) Guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship have been approved, even if the testator should die after the approval thereof; except if the guardian is his ascendant, descendant, brother, sister, or spouse; (d) Relatives of the priest or minister of the gospel within the fourth degree, the church, order, chapter, community, organization, or institution to which such priest or minister may belong; (e) Attesting witness to the execution of a will, the spouse, parents, or children, or any one claiming under such witness, spouse, parents, or children; (f) Physician, surgeon, nurse, health officer or druggist who took care of the testator during his last illness.

(a) The heirs to whom the inheritance accrues shall succeed to all the rights and obligations which the heir who renounced or could not receive it would have had. [Art. 1020, CC] (b) In testamentary succession, when the right of accretion does not take place, the vacant portion of the instituted heirs, if no substitute has been designated, shall pass to the legal heirs of the testator, who shall receive it with the same charges and obligations. [Art 1022, CC] (c) Accretion shall also take place among devisees, legatees and usufructuaries under the same conditions established for heirs. [Art 1023, CC] EFFECT OF PREDECEASE, INCAPACITY, DISINHERITANCE OR REPUDIATION IN TESTAMENTARY AND INTESTATE SUCCESSION

Testamentary Succession Legitime Free Portion Represent Accretion -ation Intestate Intestate Successio

Cause Of Vacancy

Repudiation

Exceptions [Balane]: (1) In testamentary succession, if the testator provides otherwise (2) If the obligation is purely personal, and hence intransmissible

Cause Of Vacancy Predecease

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Intestate Succession Representation Intestate

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testator revokes the will or the institution Unworthiness vs. Disinheritance Unworthiness renders a Disinheritance is the act person incapable of by which a testator, for succeeding to the just cause, deprives a succession, whether compulsory heir of his testate or intestate right to the legitime [Art. 815, CC]

Based on Morality or Public Policy [Arts. 739 and 1028, CC] (CAP) (1) Those made in favor of a person with whom the testator was guilty of adultery or concubinage at the time of the making of the will. (2) Those made in consideration of a crime of which both the testator and the beneficiary have been found guilty. (3) Those made in favor of a public officer or his spouse, descendants and ascendants, by reason of his public office.

Determination of Capacity [Tolentino p. 539] General Rule: At the death of the decedent [Art. 1034, CC]

Based on Acts of Unworthiness (Art. 1032, Cc)

(A3F3P2)

Exceptions: (1) Those falling under 2, 3, and 5 of Art. 1032 – when the final judgment is rendered (2) Those falling under 4 of Art. 1032 – when the month allowed for the report expired (3) If the institution is conditional – when the condition is complied with

The following are incapable of succeeding by reason of unworthiness: (1) Parents who have abandoned their children or induced their daughters to lead a corrupt or immoral life, or attempted against their virtue; (2) Any person who has been convicted of an attempt against the life of the testator, his or her spouse, descendants, or ascendants; (3) Any person who has accused the testator of a crime for which the law prescribes imprisonment for six years or more, if the accusation has been found groundless; (4) Any heir of full age who, having knowledge of the violent death of the testator, should fail to report it to an officer of the law within a month, unless the authorities have already taken action; this prohibition shall not apply to cases wherein, according to law, there is no obligation to make an accusation; (5) Any person convicted of adultery or concubinage with the spouse of the testator; (6) Any person who by fraud, violence, intimidation, or undue influence should cause the testator to make a will or to change one already made; (7) Any person who by the same means prevents another from making a will, or from revoking one already made, or who supplants, conceals, or alters the latter's will; (8) Any person who falsifies or forges a supposed will of the decedent.

ACCEPTANCE AND REPUDIATION OF THE INHERITANCE CHARACTERISTICS (VIR) (ARTS. 1041 – 1042, 1056, CC) (1) Voluntary and free [Art 1041, CC] (2) Irrevocable except if there is vitiation of consent or an unknown will appears [Art 1056, CC] (3) Retroactive [Art 1042, CC] REQUISITES (ART. 1043, CC)

(1) Certainty of death of the decedent (2) Certainty of the right to the inheritance ACCEPTANCE VS. REPUDIATION

Pardon of Acts of Unworthiness Express

Implied

Made by the execution of a document or any writing in which the decedent condones the cause of incapacity Cannot be revoked

Effected when the testator makes a will instituting the unworthy heir with knowledge of the cause of incapacity Revoked when the

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Acceptance

Repudiation

Involves the confirmation of transmission of successional rights

(a) Renders the transmission of successional rights ineffective (b) Equivalent to an act of disposition or alienation (c) Publicity requirement is necessary for the protection of other heirs and creditors

Forms of Acceptance [Arts. 1049 – 1050, CC] (1) Express Acceptance – one made in a public or private document. [Art. 1049 par. 1] (2) Tacit Acceptance – one resulting from acts by which the intention to accept is necessarily

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implied or from acts which one would have no right to do except in the capacity of an heir. (3) Implied acceptance - Within thirty days after the court has issued an order for the distribution of the estate in accordance with the Rules of Court, the heirs, devisees and legatees shall signify to the court having jurisdiction whether they accept or repudiate the inheritance; if they do not do so within that time, they are deemed to have accepted the inheritance. [Art 1057, CC]

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(b) Imputing or Charging – crediting the donation as an advance on the legitime (if the donee is a compulsory heir) or on the free portion (if the donee is a stranger). [Balane p 522] (c) Reduction – determining to what extent the donation will remain and to what extent it is excessive or inofficious. (d) Restitution – returning or the act of payment of the excess to the mass of hereditary estate. PERSONS OBLIGED TO COLLATE

Forms of Repudiation [Art. 1051, CC] (1) in a public instrument acknowledged before a notary public; or (2) in an authentic document – equivalent of an indubitable writing or a writing whose authenticity is admitted or proved; or (3) by petition presented to the court having jurisdiction over the testamentary or intestate proceeding

General Rule: Compulsory heirs Exceptions: (a) when the testator should have so expressly provided [Art. 1062, CC] (b) when the compulsory heir should have repudiated his inheritance [Art 1062, CC] Grandchildren who survive with their uncles, aunts, or first cousins and inherit by right of representation [Art 1064, CC]

Heirs in Two Capacities [Art. 1055, CC] (1) If a person is called to the same inheritance as an heir by will and by law and he repudiates the inheritance in his capacity as a testamentary heir, he will be considered to have also repudiated the inheritance as a legal heir. (2) If he repudiates it as a legal heir, without his being a testamentary heir, he may still accept it in the latter capacity.

Note: Grandchildren may inherit from their grandparents in their own right, i.e., as heirs next in degree, and not by right of representation if their parent repudiates the inheritance of the grandparent, as no living person can be represented except in cases of disinheritance and incapacity. In this case, the grandchildren are not obliged to bring to collation what their parent has received gratuitously from their grandparent.

COLLATION

Surviving spouse NOT obliged to collate.

CONCEPT OF COLLATION

(a) To collate is to bring back or to return to the hereditary mass in fact or by fiction property which came from the estate of the decedent, during his lifetime by donation or other gratuitous title but which the law considers as an advance from the inheritance. (Art 1061, CC) (b) It is the act by virtue of which, the compulsory heir who concurs with other compulsory heirs in the inheritance bring back to the common hereditary mass the property which they may have received from the testator so that a division may be effected according to law and the will of the testator. (c) In reducing inofficious donations, the last to be donated should be the first to be reduced. (d) Rationale for collation: If donations inter vivos will not be collated, then the rule on legitimes shall be circumvented or disregarded.

WHAT TO COLLATE

(a) Any property or right received by gratuitous title during the testator’s lifetime [Art 1061, CC] (b) All that they may have received from the decedent during his lifetime. [Art 1061, CC] (c) Expenses incurred by the parents in giving their children a professional, vocational or other career shall not be brought to collation unless the parents so provide, or unless they impair the legitime; but when their collation is required, the sum which the child would have spent if he had lived in the house and company of his parents shall be deducted therefrom. [Art 1068, CC] (d) Any sums paid by a parent in satisfaction of the debts of his children, election expenses, fines, and similar expenses shall be brought to collation. [Art 1069, CC] Note: Only the value of the thing donated shall be brought to collation.

OPERATIONS RELATED TO COLLATION

(a) Collation – adding to the mass of the hereditary estate the value of the donation or gratuitous disposition.

PROPERTIES NOT SUBJECT TO COLLATION

Absolutely no collation

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Expenses for support, education (only elementary and secondary), medical attendance, even in extraordinary illness, apprenticeship, ordinary equipment, or customary gifts [Art. 1067, CC]

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(a) Judicial – Partition done by Court pursuant to an Order of Distribution which may or may not be based on a project of partition. (b) Extra-judicial – partition made by the decedent himself by an act inter vivos or by will or by a third person entrusted by the decedent or by the heirs themselves. [Paras]

Generally not imputable to legitime/ cannot be collected, subject to exceptions (a) Expenses incurred by parents in giving their children professional, vocational or other career unless the parents so provide, or unless they impair the legitime. [Art. 1067, CC] (b) Wedding gifts by parents and ascendants, consisting jewelry, clothing and outfit, except when they exceed 1/10 of the sum disposable by will. [Art. 1070, CC] (c) Neither shall donations to the spouse of the child be brought to collation; but if they have been given by the parent to the spouses jointly, the child shall be obliged to bring to collation onehalf of the thing donated. [Art. 1066, CC]

PARTITION INTER VIVOS (ASKED IN ‘85)

It is one that merely allocates specific items or pieces of property on the basis of the pro-indiviso shares fixed by law or given under the will to heirs or successors. (Art. 1080, cc) Who may effect partition (1) The Decedent, during his lifetime by an act inter vivos or by will [Art.1080, CC] (2) The decedent’s heirs [Art.1083, CC] (3) A competent court [Art. 1083,CC] (4) A third person not an heir designated by the decedent [Art.1081, CC]

Note: Parents are not obliged to bring to collation in the inheritance of their ascendants any property which may have been donated by the latter to their children. [Art 1065, CC]

Who Can Demand Partition (1) Compulsory heir (2) Voluntary heir upon fulfillment of condition if any [Art 1084, CC] (3) Legatee or devisee (4) Any person who has acquired interest in the estate

PARTITION AND DISTRIBUTION OF ESTATE PARTITION

Concept (a) Separate, Divide, Assign. Partition is the separation, division and assignment of a thing held in common among those to whom it may belong. The thing itself or its value may be divided. [Art. 1079, CC] (b) Owned in common. Before partition, the whole estate of the decedent is owned in common by the heirs. [Art 1078, CC] (c) Thing or value may be divided. [Art 1079] (d) Acts deemed partition. Every act which is intended to put an end to indivision among heirs and legatees or devisees is deemed a parition, although it should purport to be a sale, an exchange, a compromise, or any other transaction. [Art 1082, CC]

When Partition Cannot Be Demanded (1) When expressly Prohibited by the testator for a period not exceeding 20 years [Art 1083, CC] (2) When the co-heirs Agreed that the estate shall not be divided for a period not exceeding 10 years, renewable for another 10 years (3) When Prohibited by law (4) When to partition the estate would render it unserviceable for the use for which it is intended Prohibition To Partition (1) The prohibition to partition for a period not exceeding 20 years can be imposed on the legitime. (2) If the prohibition to the partition is for more than 20 years, the excess is void. (3) Even if a prohibition is imposed, the heirs by mutual agreement can still make the partition.

A void partition may be valid if: (1) the will was in fact a partition (2) the beneficiaries of the void will were legal heirs The titles of acquisition or ownership of each property shall be delivered to the co-heir to whom said property has been adjudicated. [Art. 1089 CC]

Effects of Inclusion of Intruder in Partition [Art 1108, CC] (1) Between a true heir and several mistaken heirs – partition is void. (2) Between several true heirs and a mistaken heir – transmission to mistaken heir is void (3) Through error or mistake, share of true heir is allotted to mistaken heir – partition shall not be

PARTITION INTER VIVOS

Judicial v. Extrajudicial Partition

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rescinded unless there is bad faith or fraud on the part of the other persons interested, but the latter shall be proportionately obliged to pay the true heir of his share. The partition with respect to the mistaken heir is void. [Sempio-Dy]

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proportionately among the heirs. [Art. 1095 CC] End of Warranty The obligation of warranty among co-heirs shall cease in the ff. cases: (a) The testator himself has made the partition (1) Unless it appears, or it may be reasonably presumed, that his intention was otherwise, but the legitime shall always remain unimpaired. (b) When it has been so expressly stipulated in the agreement of partition (1) Unless there has been bad faith (c) When the eviction is due to a cause subsequent to the partition, or has been caused by the fault of the distributee of the property. (Art. 1096, CC)

Right of Redemption in Partition (a) Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor [Art. 1088, CC] (b) Strangers – those who are not heirs on the succession. EFFECTS OF PARTITION

Effect A partition legally made confers upon each heir the exclusive ownership of the property adjudicated to him [Art 1091, CC]

NULLIFICATION OF PARTITION

Causes for Rescission or Annulment (a) A partition may be rescinded or annulled for the same causes as contracts. [Art 1097, CC] (b) A partition, judicial or extra-judicial, may also be rescinded on account of lesion, when any one of the co-heirs received things whose value is less by at least one-fourth, than the share to which he is entitled, considering the value of the things at the time they were adjudicated [Art. 1098, CC] (1) This article applies only to cases of partition among-coheirs (2) Lesion is the injury suffered in consequence of inequality of situation by one party who does not receive the full equivalent for what she gives in a sale or any commutative contract (c) The partition made by the testator cannot be impugned on the ground of lesion, except when the legitime of the compulsory heirs is thereby prejudiced, or when it appears or may be reasonably be presumed, that the intention of the testator was otherwise. [Art. 1099, CC] (d) Preterition of a compulsory heir in the partition [Art 1104, CC]: (1) Partition shall not be rescinded unless bad faith or fraud on the part of other heirs is proved. (2) The culpable heirs shall share in the damages of the prejudiced compulsory heir proportionately. (e) A partition which includes a person believed to be an heir, but who is not, shall be void only with respect to such person. [Art. 1105 CC]

Warranty (a) After the partition has been made, the co-heirs shall be reciprocally bound to warrant the title to, and the quality of, each property adjudicated [Art. 1092 CC] (b) The reciprocal obligation of warranty referred to in the preceding article shall be proportionate to the respective hereditary shares of the co-heirs; (1) But if any one of them should be insolvent, the other co-heirs shall be liable for his part in the same proportion, deducting the part corresponding to the one who should be indemnified. (2) Those who pay for the insolvent heir shall have a right of action against him for reimbursement, should his financial condition improve [Art. 1093 CC] (c) An action to enforce the warranty among the coheirs must be brought within ten years from the date the right of action accrues. [Art. 1094 CC] (d) If a credit should be assigned as collectible, the co-heirs shall not be liable for the subsequent insolvency of the debtor of the estate, but only for his insolvency at the time the partition is made. [Art 1095, CC] (e) The warranty of the solvency of the debtor can only be enforced during the five years following the partition. (f) Co-heirs do not warrant bad debts, if so known to, and accepted by the distributee. (1) But if such debts are not assigned to a co-heir, and should be collected, in whole or in part, the amount collected shall be distributed

(a) The action for rescission on account of lesion shall prescribe after four years from the time the partition was made. [Art. 1100, CC]

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(b) The heir who is sued shall have the option of indemnifying the plaintiff for the loss, or consenting to a new partition (c) Indemnity may be made: (1) By payment in cash or (2) By the delivery of a thing of the same kind and quality as that awarded to the plaintiff. (d) If a new partition is made, it shall affect neither those who have not been prejudiced nor those who have not received more than their just share [Art. 1101, CC] (e) An heir who has alienated the whole or a considerable part of the real property adjudicated to him cannot maintain an action for rescission on the ground of lesion, but he shall have a right to be indemnified in cash [Art. 1102, CC] (f) The omission of one or more objects or securities of the inheritance shall not cause the rescission of the partition on the ground of lesion, but the partition shall be completed by the distribution of the objects or securities which have been omitted. [Art. 1103, CC] Difference of Nullity from Rescission Nullity is not the same as Rescission: (1) Nullity - the act is supposed to never have existed (2) Rescission - the act is valid at the origin though it afterwards became ineffective Important Periods in Partition 1 month or less Testator, if publicly known to be before making a insane, burden of proof is on the will one claiming validity of the will 20 years Maximum period testator can prohibit alienation of dispositions 5 years from To claim property escheated to delivery to the the State State 1 month To report knowledge of violent death of decedent lest he be considered unworthy 5 years from the Action for declaration of time disqualified incapacity & for recovery of the person took inheritance, devise or legacy possession 30 days from Must signify issuance of order acceptance/repudiation of distribution otherwise, deemed accepted 1 month form Right to repurchase hereditary written notice of rights sold to a stranger by a cosale heir 10 years To enforce warranty of title/quality of property adjudicated to co-heir from the time right of action accrues

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5 years partition

from

4 years partition

form

To enforce warranty of solvency of debtor of the estate at the time partition is made Action for rescission of partition on account of lesion

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Contract of Partnership

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Note: A partnership is dissolved by operation of law (even without judicial decree) when the business becomes unlawful.

DEFINITION By the contract of 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. Two or more persons may also form a partnership for the exercise of a profession. [Article 1767]

ASSOCIATIONS WITHOUT LEGAL PERSONALITY

Associations and societies with the following characteristics has no legal personality and is governed by the provisions of co-ownership: (1) The articles are kept secret among the members; and (2) Any one of the members may contract in his own name with third persons. [Article 1775] It may, however, be sued by third persons under the common name it uses. [Section 15, Rule 3, Rules of Court]

Article 1767 defines partnership from the viewpoint of a contract. From the contract arises the partnership relation. As a form of business organization, partnership falls between two extremes – single proprietorship and corporation. [De Leon, Comments and Cases on Partnership, Agency and Trusts (2010), hereinafter referred to as "De Leon (2010)"]

CHARACTERISTICS The contract of partnership is: (1) Consensual, because it is perfected by mere consent. (2) Nominate, because it has a specific name. (3) Bilateral or multilateral, because it is entered into between two or more persons. (4) Principal, because its existence does not depend on another contract. (5) Onerous, because money, property or industry are contributed by the parties. (6) Preparatory, because it is entered into to carry out a business or specific venture. (7) Commutative, because the undertaking of each is considered as equivalent of that of the others.

ELEMENTS There is a contract of partnership when: (1) There is a meeting of the minds; (2) To form a common fund; (3) With intention that profits and losses will be divided among the contracting parties. ESSENTIAL FEATURES A partnership contract has the following essential features: (1) There must be a valid contract. (2) The parties must have legal capacity. (3) There must be a mutual contribution of money, property, or industry to a common fund. (4) The object must be lawful. (5) The primary purpose must be to obtain profits and to divide the same among the parties. (6) The partnership has a juridical personality separate from individual partners [Article 1768]. As such, "Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name." [Article 1774]

PARTIES TO THE CONTRACT General rule: Any person capacitated to contract may enter into a contract of partnership. As such, the following persons cannot enter into a contract of partnership: (1) Those suffering from civil interdiction; (2) Minors; (3) Insane or demented persons; (4) Deaf-mutes who do not know how to write; (5) Incompetents who are under guardianship. Exceptions: The capacity of the following persons to enter into a contract of partnership, though capacitated to contract generally, are limited: (1) Those who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. [Article 1782] (2) A corporation cannot enter into a partnership in the absence of express authorization by statute or charter.

EFFECT OF UNLAWFUL OBJECT

If the partnership has an unlawful object or purpose: (1) The contract is void ab initio. [Article 1409(1)] (2) Once dissolved by judicial decree: (a) The profits shall be confiscated by favor of the State; (b) The instruments or tools and proceeds of the crime shall also be forfeited in favor of the State. [Article 1770] (c) The contributions of partners shall not be confiscated unless they are instruments or tools of the crime. [De Leon (2010)]

Ratio: Otherwise, as a result of the mutual agency between partners, a corporation would be bound by the acts of persons other than its duly appointed or authorized officers or agents. This is inconsistent

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with the policy of the law that a corporation should manage its own affairs.

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Exceptions: (1) Where immovable property or real rights are contributed: (a) The contract must appear in a public instrument; and (b) Attached to such instrument must be an inventory, signed by the parties, of the property contributed. [Articles 1771 and 1773]

Also, the arrangement would allow corporate property to be subject to risks not contemplated by the stockholders when they originally invested. [Mendiola v. CA (2006)] Although a corporation cannot enter into a partnership contract, it may, however, engage in a joint venture with others [Auerbach vs. Sanitary Wares Manufacturing Corp. (1989)].

(2) Where the capital is at least P3,000, in money or property: (a) The contract must appear in a public instrument; and (b) It must be recorded in the SEC. Failure to comply with these requirements, however, does not affect the liability of the partnership and the partners to third persons. [Articles 1768 and 1772]

There is no prohibition against a partnership being a partner in another partnership. [De Leon (2010)] OBJECT OF THE CONTRACT OBJECT OF UNIVERSAL PARTNERSHIP

DURATION OF THE CONTRACT

A universal partnership may refer to: (1) All present property: (a) The partners contribute all the property which belongs to them to a common fund, with the intention of dividing the same among themselves, as well as the profits they may acquire therewith. [Article 1778] (b) The property contributed includes all those belonging to the partners at the time of the constitution of the partnership. (c) A stipulation for the common enjoyment of any other profits may also be made. However, the property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such stipulation, except the fruits thereof. [Article 1779] (2) All the profits: (a) It comprises all that the partners may acquire by their industry or work during the existence of the partnership. (b) Only the usufruct over the property of the partners passes to the partnership. [Article 1780] When the articles of universal partnership does not specify its nature (all present property or all the profits), the partnership will be considered as one only of all the profits. [Article 1781]

COMMENCEMENT

A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. [Article 1784] TERM

As to period, a partnership may either be: (1) For a fixed term or particular undertaking; or (2) At will, the formation and dissolution of which depend on the mutual desire and consent of the parties. Any one of the partners may, at his sole pleasure, dictate the dissolution of the partnership, even in bad faith, subject to liability for damages. [Ortega v. CA (1995)] EXTENSION

A partnership term may be extended by: (1) Express renewal of the agreement; or (2) Implied renewal, when the requisites concur: (a) The partnership is for a fixed term or particular undertaking; (b) It is continued after the termination of the fixed term or particular undertaking without any express agreement. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. The effect of such continuation is that the right and duties of the partners remain the same as they were at such termination of the period, but this time, the partnership is considered to be at will. [Article 1785]

OBJECT OF PARTICULAR PARTNERSHIP

A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. [Article 1783] FORM OF THE CONTRACT General rule: The contract may be constituted in any form. [Article 1771]

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RULES TO DETERMINE EXISTENCE When the intent of the parties is clear, it shall govern. When it does not clearly appear, the following rules apply: (1) Persons who are not partners to each other are not partners as to third persons. Exception: A person not a partner may be considered a partner by estoppel. (2) Co-ownership or co-possession does not of itself establish a partnership, even when there is sharing of profits in the use of the property. (3) Sharing of gross returns does not of itself establish a partnership, even when the parties have joint or common interest in any property from which the returns are derived. (4) The receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner.

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AS TO LIABILITY OF PARTNERS

(1) General partnership, consisting of general partners only, who are liable pro rata for partnership obligations with all their after exhaustion of partnership assets; (2) Limited partnership, includes, aside from general partner/s, limited partners, who are not personally liable for partnership obligations. AS TO PUBLICITY

(1) Secret partnership, where the existence of certain persons as partners is not made known by the partners; (2) Open or notorious partnership, the existence of which is made known to the public by the partners. AS TO PURPOSE

(1) Commercial or trading partnership, for transaction of business; (2) Professional or non-trading, for exercise of a profession.

Exceptions: No such inference is drawn if the profits are received in payment: (a) As a debt by installments or otherwise; (b) As wages of an employee of rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. [Article 1769]

A profession has been defined as "a group of men pursuing a learned art as a common calling in the spirit of public service — no less a public service because it may incidentally be a means of livelihood." [In the Matter of the Petition for Authority to Continue Use of Firm name "Sycip, Salazar, etc."/"Ozaeta, Romulo, etc." (1979)]

RELATIONS CREATED (1) Among the partners themselves. (2) Between the partners and the partnership. (3) Between the partnership and third persons with whom it contracts. (4) Between the partners and such third persons.

A professional partnership partnership. [Article 1783]

is

a

particular

KINDS OF PARTNERS (1) Capitalist, whose contribution is money or property; (2) Industrial, whose contribution is only his industry; (3) General, whose liability to third persons extends to his separate property; (4) Limited, whose liability to third persons is limited to his capital contribution; (5) Managing, designated to manage the affairs or business of the partnership; (6) Liquidating, takes charge of the winding up of partnership affairs; (7) By estoppel, who is not really a partner but is liable as such for the protection of innocent third persons; (8) Continuing, who continues the business after dissolution of the partnership by admission of a new partner, or retirement, death or expulsion of existing partners. (9) Surviving, who remains a partner after dissolution by death of any partner; (10)Subpartner, who is not a member of the partnership but contracts with a partner with

KINDS OF PARTNERSHIP AS TO LEGALITY OF EXISTENCE

(1) Partnership de jure is one which has complied with all the requisites for its lawful establishment. (2) Partnership de facto is one which failed to so comply. AS TO OBJECT

(1) Universal partnership: (a) Of all present property; (b) Of profits; (2) Particular partnership. AS TO DURATION

(1) For a fixed term or particular undertaking; (2) At will.

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regard to the share of the latter in the DISTINGUISHED FROM OTHER CONTRACTS partnership; Partnership Joint Venture (11) Ostensible, who takes active part in the business of the partnership and is known by the public; Operates with firm name Operates with no firm (12)Secret, who takes active part in the business, but and legal personality name and legal is unknown to the third persons as a partner; personality (13) Silent, who does not take active part in the business, but may be known to be a partner by third persons; Generally relates to a Usually limited to a single (14)Dormant, who does not take active part in the continuing business of transaction business and is not known or held out as a various transactions of a partner; certain king (15)Original, who has been a partner since the constitution of the partnership; Corporations may not Corporations may enter (16)Incoming, who is about to be taken as a member enter into a partnership into joint ventures into an existing partnership; (17) Retiring, who is withdrawing from the It would seem therefore that under Philippine law, a partnership. joint venture is a form of partnership and should thus be governed by the laws of partnership. [Auerbach vs. Industrial Partner Capitalist Partner Sanitary Wares Manufacturing Corp. (1989)] Form of contribution Partnership Co-Ownership Industry Money or property Generally created by Generally created by law, either express or implied and may exist even Share in profits contract without a contract Just and equitable share According to agreement; Has a separate juridical Has no separate juridical if none, in proportion to personality personality contribution Generally, the purpose is The purpose is common to obtain profits enjoyment of a thing or right

Share in losses Exempted as to losses as between partners, but liable to third persons, without prejudice to reimbursement from capitalist partners

According to agreement; if none, in proportion to agreed share in the profits; if none, in proportion to contribution

Duration has no limitation An agreement to keep a thing undivided for more than 10 years is not allowed

Engaging in business Cannot engage in Cannot engage, for his business for himself, own account, in the same unless the partnership kind of business as that of expressly permits him to the partnership, unless do so; should he do so there is a stipulation to without permission, the the contrary; should he do capitalist partners (as well so, he shall bring to the as industrial partners [De common fund any profits Leon (2010)]) may (a) accruing to him from his exclude him from the firm, transactions and shall or (b) avail themselves of personally bear all the the benefits obtained in losses [Article 1808] violation of the prohibition, with right to damages in either case [Article 1789]

There is mutual agency between partners

There is no mutual representation among coowners

Death or incapacity of a partner dissolves the partnership

Death or incapacity of a co-owner does not dissolve the co-ownership

Partner cannot dispose of Co-owner can dispose of his interest so as to make his share without consent the assignee a partner, of others without consent of others

Partnership

Corporation

Has juridical personality separate and distinct from its individual members Can only act through agents

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Corporation

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Partnership

Composed of an aggregate of individuals Distributes its profits to those who contributed capital to the business Can only be organized where there is a law authorizing its organization

Has juridical personality

Has no juridical personality

Commencement date may be stipulated

Commencement is on the date of the celebration of the marriage, and any stipulation to the contrary is void

Taxable as a corporation Created by agreement

Created by law (with SEC approval)

Share in profits may be Share in profits is equal stipulated; otherwise, in proportion to contribution

Involves at least 2 persons Except for a corporation sole, requires at least 5 incorporators Personality commences Personality commences from the moment of from the issuance of execution of the contract certificate of incorporation Can exercise any power authorized by partners

Can exercise only powers granted by law or those incidental to its existence

When management is not Management is vested in agreed upon, every the board of directors of partner may act for the trustees partnership Partners are generally liable for partnership debts

Stockholders are liable only to the extent of their shares

Duration has no limitation The term is 50 years, but may be extended

Partnership

May only be dissolved with the consent of the state

Arises in case the spouses, of opposite sex, agree before marriage

Governed by agreement

Governed by law

Administration belongs to the spouses jointly, but decision of husband prevails in disagreement

Partner can dispose of Interest even without consent of others

Spouse cannot dispose of interest during marriage, even with consent

Voluntary Association

Has juridical personality

Has no juridical personality

Organized for profit

Not always organized for profit

Capital is contributed

Capital is not contributed, although fees are collected from members

Partnership is primarily liable; the partners are liable only subsidiarily

The members are liable individually for debts which they authorized or ratified

Share in profits may be Share in profits is equal stipulated; otherwise, in proportion to contribution

Conjugal Partnership of Gains

Created by voluntary agreement of 2 or more partners of either sex

Management shared by all partners, unless otherwise agreed upon

Partnership

Partner cannot dispose of Stockholder has the right his interest so as to make to transfer his shares the assignee a partner, without consent of others without consent of others

May be dissolved at any time by one or all of the partners

Conjugal Partnership of Gains

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Management shared by all partners, unless otherwise agreed upon

Administration belongs to the spouses jointly, but decision of husband prevails in disagreement

Partner can dispose of Interest even without consent of others

Spouse cannot dispose of interest during marriage, even with consent

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Exception: When there is an agreement to the contrary, the contribution shall follow such agreement [Article 1790].

Rights and obligations of the partnership

DETERMINING VALUE OF CONTRIBUTION IN GOODS

To determine the value when the contribution consists, in whole or in part, of goods, their appraisal must be made: (1) In the manner prescribed in the partnership contract; (2) In the absence thereof, by experts chosen by the partners and according to current prices.

RIGHT TO CONTRIBUTION, IN GENERAL The mutual contribution to a common fund is the essence of the contract of partnership [De Leon (2010)]. As such, the partnership has a right to the contribution (or partners are obliged to contribute). The money or property thus contributed, or their use or fruits, becomes a property of the partnership.

Subsequent changes in the price will be for the benefit or will be suffered by the partnership [Article 1787].

To complement this right of the partnership and as an incident of its separate and distinct juridical personality, it is allowed by law to acquire any immovable property or an interest therein. Title so acquired can be conveyed only in the partnership name [Article 1774].

ADDITIONAL CAPITAL CONTRIBUTION

In case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners, unless there is an agreement to the contrary [Article 1791].

OBLIGATION OF PARTNERS TO THE PARTNERSHIP WITH RESPECT TO CONTRIBUTION OF MONEY OR PROPERTY With respect to contribution of property, a partner is obliged to: (1) To contribute, at the beginning of the partnership or at the stipulated time, the money, property or industry which he undertook to contribute; (2) In case a specific and determinate thing is to be contributed: (a) To warrant against eviction in the same manner as a vendor; and (b) To deliver to the partnership the fruits of the property promised to be contributed, from the time they should have been delivered, without need of demand [Article 1786]; (3) In case a sum of money is to be contributed, or in case he took any amount from the partnership coffers, to indemnify the partnership for: (a) Interest; and (b) Damages, from the time he should have complied with his obligation, or from the time he converted the amount to his own use, respectively [Article 1788].

Requisites: (1) There is an imminent loss of the business of the partnership; (2) The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business; (3) The capitalist partner refuses deliberately (not because of financial inability) to contribute an additional share to the capital; and (4) There is no agreement that even in case of imminent loss of the business, the partners are not obliged to contribute. PROHIBITION AGAINST ENGAGING IN BUSINESS

General rule: A capitalist partner cannot engage for his own account in any operation which is of the kind of business in which the partnership is engaged. Should he do so, he shall bring to the common fund any profit accruing to him from his transactions, while personally bearing all the losses. Exception: The rule does not apply when there is a stipulation to the contrary [Article 1808].

Article 1788 is an exception to the general rule that in obligations consisting in the payment of a sum of money, the indemnity for damages consists only in the payment of interest [Article 2209].

RISK OF LOSS OF THINGS CONTRIBUTED

In case the contribution consists in the use and fruits of specific and determinate things, which are not fungible, the risk of loss shall be borne by the partner who owns them. The partnership bears the risk if the things: (1) Are fungible; (2) Cannot be kept without deterioration;

AMOUNT OF CONTRIBUTION

General rule: The partners are obliged to contribute equal shares to the capital of the partnership.

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(3) Were contributed to be sold; or (4) Were brought and appraised in the inventory. In the last case, the claim is limited to the appraised value of the things [Article 1795].

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Exceptions: (1) In case the receipt was issued for the account of the partnership credit only, however, the sum shall be applied to the partnership credit alone. (2) When the debtor declares, pursuant to Article 1252, at the time of making the payment, to which debt the sum must be applied, it shall be so applied [Article 1792].

REMEDY IN CASE OF NON-COMPLIANCE

A partner is guilty of estafa if he misappropriates partnership money or property received by him for a specific purpose of the partnership [Liwanag v. CA (1997)].

The law, through this rule, safeguards the interests of the partnership by preventing the possibility of their being subordinated by the managing partner to his own interest, by intentionally failing to collect partnership credits to collect his own, to the prejudice of the other partners. This possibility does not exist in case the partner is not authorized to manage [De Leon (2010)].

However, mere failure on the part of an industrial partner to return to the capitalist partner the capital brought by him into the partnership is not an act constituting estafa. The action that may be brought to recover the money is a civil one [US v. Clarin (1910)]. OBLIGATION OF PARTNERS TO THE PARTNERSHIP WITH RESPECT TO CONTRIBUTION OF INDUSTRY With respect to contribution of industry, a partner is also obliged to contribute it at the stipulated time.

RIGHT TO RETURN OF CREDIT RECEIVED A partner, who is authorized to manage or not, is obliged to bring to the partnership capital what he received when: (1) He has received, in whole or in part, his share of the partnership credit; (2) The other partners have not collected their shares; and (3) The partnership debtor has become insolvent. This obligation exists even when he issued a receipt for his share only. [Article 1793]

PROHIBITION AGAINST ENGAGING IN BUSINESS

General rule: An industrial partner cannot engage in business for himself. Should he do so, the capitalist partners, as well as industrial partners [De Leon (2010)], may either: (1) Exclude him from the firm; or (2) Avail themselves of the benefit which he may have obtained.

Ratio: In this case, the debt becomes a bad debt. It would be unfair for the partner who already collected not to share in the loss of the other partners.

Exception: He may engage in business for himself when the partnership expressly permits him to do so. [Article 1789]

RIGHT TO INDEMNITY FOR DAMAGES Every partner is responsible to the partnership for damages suffered by it through his fault.

RIGHT TO APPLY PAYMENT TO PARTNERSHIP CREDIT General rule: A partner authorized to manage, who collects a demandable sum owed to him in his own name from a person who also owes the partnership a demandable sum, is obliged to apply the sum collected to both credits pro rata, even if he issued a receipt for his own credit only.

COMPENSATION OF LIABILITY

General rule: The liability for damages cannot be setoff or compensated by profits or benefits which the partner may have earned for the partnership by his industry. Ratio: The partner has the obligation to secure the benefits for the partnership. As such, the requirement for compensation, that the partner be both a creditor and a debtor of the partnership at the same time, is not complied with [Article 1278; De Leon (2010)].

Requisites: (1) There exist at least two debts, one where the collecting partner is creditor, and the other, where the partnership is the creditor; (2) Both debts are demandable; and (3) The partner who collects is authorized to manage and actually manages the partnership.

Exception: The court may equitably lessen the liability if, through his extraordinary efforts in other activities of the partnership, unusual profits were realized [Article 1794]. Note, however, that there is still no compensation.

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Without such agreement, they shall be kept at the principal place of business of the partnership.

SUIT FOR DAMAGES

Before a partner may sue another for alleged fraudulent management and resultant damages, liquidation must first be effected to determine the extent of the damage. Without liquidation of partnership affairs, a partner cannot claim damages [Soncuya v. De Luna (1939)].

Every partner shall, at any reasonable hour, have access to and may inspect and copy any of them. [Article 1805] BASIS OF RIGHT

RESPONSIBILITY OF THE PARTNERSHIP TO PARTNERS In the absence of any stipulation to the contrary, every partner is an agent of the partnership for the purpose of its business. As such, it is responsible to every partner: (1) For amounts, and the corresponding interest from the time the expenses were made, which he may have disbursed on behalf of the partnership; (2) For obligations he may have contracted in good faith in the interest of the partnership business; and (3) For risks in consequence of the management of the partnership. [Article 1796]

Since a partner is a co-owner of partnership properties, which include the books, and has a right to participate in the management of its affairs, the books should not be in the exclusive custody or control of any one partner [De Leon (2010)]. REASONABLE HOUR

"Any reasonable hour" has been interpreted to mean reasonable hours on business days throughout the year, not merely during some arbitrary period of a few days chosen by the managing partner [Pardo v. Lumber Co., (1925)]. RIGHT TO A FORMAL ACCOUNT Any partner shall have the right to a formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or possession of its property by his copartners; (2) If the right exists under the terms of any agreement; (3) If, without his consent, a partner has derived profits from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use of partnership property; (4) Whenever other circumstances render it just and reasonable [Article 1809].

Rights and obligations of partners inter se RIGHT TO ASSOCIATE ANOTHER IN SHARE Every partner may associate another person with him in his share. The admission of the associate to the partnership, however, requires the consent of all the other partners, even if the partner having an associate is a managing partner [Article 1804].

ACCRUAL OF RIGHT

General rule: The right to a formal account of partnership affairs accrues only when the partnership is dissolved. Ample protection is already provided.

SUBPARTNERSHIP

The arrangement refers to a contract of subpartnership, which is a partnership within a partnership, distinct and separate from the main partnership [De Leon (2010)]. The associate is sometimes referred to as a subpartner.

Exceptions: In special and unusual cases under Article 1809, formal accounting may be demanded even before dissolution.

Since admission of the subpartner as a new partner in the main partnership amounts to a modification of the original contract, it requires the unanimous consent of the partners.

PERSON OBLIGED

RIGHT TO ACCESS PARTNERSHIP BOOKS The partnership books shall be kept at the place agreed upon by the partners.

PRESCRIPTION OF ACTION

The obligation to account rests on the managing or active partner (or, after dissolution, in the liquidating or surviving partner). The right, on the part of the other partners, to demand an accounting exists while the partnership exists. The prescriptive period begins to run only

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upon the dissolution when the final accounting is done [Fue Leung v. IAC (1989)].

(b) Dissolution by judicial decree [Article 1831]. (2) A partner's right in such property is not assignable, except when all the partners assign their rights in the same property. (3) The right is not subject to attachment or execution, except on claim against the partnership. Also, in case of such attachment, the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws; (4) The right is also not subject to legal support under Article 291 [Article 1811].

NATURE OF ACTION

The action for accounting is an action in personam, regardless of the incidental fact that some of the assets of the partnership are real property [Emnace v. CA (2001)]. PROPERTY RIGHTS OF PARTNERS IN GENERAL

The property rights of a partner are: (1) Rights in specific partnership property; (2) Interest in the partnership; and (3) Right to participate in the management [Article 1810].

A partner's right in specific property cannot be separately assigned, since it is impossible to determine the extent of his beneficial interest in the property until after the liquidation of partnership affairs.

PARTNERSHIP PROPERTY AND PARTNERSHIP CAPITAL

Capital With constant value

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Property

It is also not subject to support precisely because it is a property of the partnership and not of the individual partners.

Value varies with market conditions

Includes only actually Includes the contributions contributed and promised and property acquired by capital the partnership

INTEREST IN THE PARTNERSHIP

OWNERSHIP OF CERTAIN PROPERTY

RIGHTS OF ASSIGNEE

A partner's interest in the partnership is his share of the profits and surplus [Article 1812]. This interest is subject to support and may be assigned. Assignment by a partner of his whole interest in the partnership does not, of itself: (1) Dissolve the partnership; or (2) Entitle the assignee to: (a) Interfere in the management or administration of the partnership business or affairs; (b) Require information or account of partnership; or (c) Inspect the partnership books.

(1) The ownership of property used by the partnership depends on the intention of the parties, which may be drawn from an express agreement or their conduct. (a) A partner may allow the property to be used by the partnership without transfer of ownership, contributing only the use or enjoyment thereof. (b) He may also hold title to partnership property, without acquiring ownership thereof [Article 1819]. (2) Property acquired by a partner with partnership funds is presumed to be partnership property. (3) The same presumption also arises when the property is indicated in the partnership books as partnership asset. (4) Other factors may be considered to determine ownership of the property.

It merely entitles the assignee to: (1) Receive the profits to which the assigning partner was entitled; (2) In case of fraud in management, avail himself of the usual remedies; (3) In case of dissolution: (a) Receive his assignor's interest; and (b) Require an accounting from the date only of the last account agreed to by all the partners [Article 1813].

RIGHTS IN SPECIFIC PROPERTY

The partners are co-owners of specific partnership property. As such: (1) A partner has an equal right with his partners to possess such property for partnership purposes. For other purposes, the consent of his partners is necessary. If the partner is excluded, he may ask for: (a) Formal accounting [Article 1809]; or

CHARGING OF PARTNERSHIP INTEREST BY PERSONAL CREDITOR OF PARTNERS

Partnership creditors are preferred over the personal creditors of the partners as regards partnership property [Article 1827].

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(d) The industrial partner, who did not contribute capital, is not liable for losses [Article 1797].

However, on due application by any judgment creditor of a partner, a competent court may: (1) Charge the interest of the partner for the satisfaction of the judgment debt; (2) Appoint a receiver of the share of the profits and of any other money due or to fall due to the partner; and (3) Make all other orders, directions, accounts and inquiries, which the debtor partner might have made, or which the circumstances may require.

DESIGNATION OF SHARE BY THIRD PERSONS

The designation of the share of each one in the profits and losses can be delegated to a third person, in which case, it cannot be impugned: (a) Unless it is manifestly inequitable; (b) The partner impugning it has begun to execute the designation; or (c) The partner has not impugned it within 3 months from the time he had knowledge thereof.

The interest charged may be redeemed before foreclosure or, in case of sale directed by the court, may be purchased without causing dissolution: (1) With separate property, by one or more of the partners; or (2) With partnership property, by one or more of the partners, will consent of all, except the debtor partner.

The designation cannot be delegated to one of the partners [Article 1798]. EXCLUSION OF PARTNER FROM SHARE

A stipulation excluding one or more partners from any share in the profits or losses is void [Article 1799]. With reference to the industrial partner, since the law itself excludes him from losses, a stipulation exempting him from the losses is naturally valid since if the partnership fails to realize profits, he can no longer withdraw his work or labor. He cannot but share in the loss.

The partner debtor is not deprived of his right under exemption laws. [Article 1814] CHARGING ORDER

A charging order subjects the interest in the partnership of the debtor partner with the payment of an unsatisfied amount of a judgment debt against him, with the least interference with the partnership business and the rights of the partners. By virtue of the order, any amount or portion thereof which the partnership would otherwise pay to the debtor partner is instead given to the judgment creditor [De Leon (2010)].

OBLIGATION TO RENDER INFORMATION Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability [Article 1806]. BASIS OF OBLIGATION

This obligation arises from the mutual trust and confidence among partners. Thus, there must be no concealment between them in all matters affecting the partnership [De Leon (2010].

RIGHT TO PROFITS AND OBLIGATION FOR LOSSES RULES FOR DISTRIBUTION OF PROFITS AND LOSSES

The distribution of profits and losses shall be in accordance with the following rules (1) They shall be distributed in conformity with the agreement. (2) If only the share in profits has been stipulated, the share in the losses shall be in the same proportion. (3) In the absence of any stipulation: (a) The share in the profits of the capitalist partners shall be in proportion to their contributions. (b) The losses shall be borne by the capitalist partners, also in proportion to the contributions; (c) The share of the industrial partners in the profits is that share as may be just and equitable. If he also contributed capital, he will receive a share of the profits in proportion to his contribution; and

OBLIGATION TO ACCOUNT AND ACT AS TRUSTEE Every partner must account to the partnership for any benefit, and hold as a trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property [Article 1807]. BASIS OF OBLIGATION

This obligation also arises from the fiduciary nature of the partnership relation, and operates to prevent a partner from making a secret profit out of the partnership. Note that the obligation extends from the formation to the liquidation of the partnership.

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Operation of the Partnership MANAGEMENT BY TWO OR MORE PARTNERS

FIRM NAME Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.

When there are two or more managing partners appointed, without specification of their duties or without a stipulation on how each one will act: (1) Each one may separately execute all acts of administration. (2) If any of them opposes the acts of the others, the decision of the majority prevails. (3) In case of a tie, the partners owning the controlling interest will decide [Article 1801].

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner [Article 1815]. RIGHT TO CHOOSE FIRM NAME

General rule: The partners may adopt any firm name desired. Exceptions: (1) They cannot use a name that is "identical or deceptively or confusingly similar to an existing [partnership] or corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws" [Section 18, Corporation Code]. (2) Use of names of deceased partner in law firms is "permissible provided that the firm indicates in all its communications that said partner is deceased" [Rule 3.02, Code of Professional Responsibility].

Requisites: (1) Two or more partners have been appointed as managers; (2) There is no specification of their respective duties; and (3) There is no stipulation that one of them shall not act without the consent of all the others. STIPULATION ON UNANIMITY OF MANAGING PARTNERS

In case there is a stipulation that none of the managing partners shall act without the consent of others, the concurrence of all is necessary for the validity of the acts. The absence or disability of one cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. [Article 1802]

MANAGEMENT OF THE PARTNERSHIP Management of the partnership is primarily governed by the agreement of the partners in the articles of partnership. It may be managed by: (1) All the partners; or (2) A number of partners appointed as managers, which may be appointed: (a) In the articles of partnership; or (b) After constitution of the partnership.

MANAGEMENT WHEN MANNER NOT AGREED UPON

When there is no agreement as to the manner of management, the following rules apply: (1) All the partners are considered agents (mutual agency). Whatever any one does alone binds the partnership, unless there is a timely opposition to the act, under Article 1801. (2) Any important alteration in the immovable property of the partnership, even if useful to the partnership, requires unanimity. If the alteration is necessary for the preservation of the property, however, consent of the others is not required [De Leon (2010)].

POWERS OF A MANAGING PARTNER

General rule: The partner designated as manager in the articles may execute all acts of administration despite opposition by the other partners. Exception: He cannot do so when he acts in bad faith. REVOCATION OF POWER OF MANAGING PARTNER

If the refusal is manifestly prejudicial to the partnership, court intervention may be sought [Article 1803].

The powers of the managing partner may be revoked: (1) If appointed in the articles of partnership, when: (a) There is just or lawful cause for revocation; and (b) The partners representing the controlling interest revoke such power. (2) If appointed after the constitution of the partnership, at any time and for any cause [Article 1800].

INSTANCES OF MUTUAL AGENCY

(1) Partners can dispose of partnership property even when in partnership name [Article 1819]. (2) An admission or representation made by any partner concerning partnership affairs is evidence against the partnership [Article 1820]. (3) Notice to any partner of any matter relating to partnership affairs is notice to the partnership [Article 1821].

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(4) Wrongful act or omission of any partner acting for partnership affairs makes the partnership liable [Article 1822]. (5) Partnership is bound to make good losses for wrongful acts or misapplications of partners [Article 1823].

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(2) A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission, except that his liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. LIABILITY OF INDUSTRIAL PARTNER

An industrial partner, who is not liable for losses, is not exempt from this liability. However, he can recover the amount he has paid from the capitalist partners, unless there is a stipulation to the contrary.

Obligations of partnership/ partners to third persons

[Cia. Maritima v. Muñoz (1907)].

LIABILITY OF PARTNERS FOR PARTNERSHIP CONTRACTS The partnership is primarily liable for contracts entered into in its name and for its account, under its signature and by a person authorized to act for it.

STIPULATION AGAINST INDIVIDUAL LIABILITY

Any stipulation against this liability is void and does not affect third persons. The stipulation, however, is valid only as among the partners [Article 1817]. LIABILITY OF PARTNERS FOR PARTNERSHIP CONTRACTS

Upon exhaustion of its assets, all partners are liable pro rata with all their property.

ACTS APPARENTLY FOR THE CARRYING ON OF USUAL BUSINESS

Any partner may enter into a separate obligation to perform a partnership contract [Article 1816].

General rule: Every partner is an agent of the partnership for the purpose of its business and any act of a partner which is apparently for the carrying on of the usual business of the partnership binds the latter, including the execution of any instrument in the partnership name [1st par., Article 1818].

NATURE OF INDIVIDUAL LIABILITY

The pro-rating should be understood to mean equally or jointly, not proportionally [De Leon (2010), citing Article 1839(4); note, however, that this conclusion does not find textual support in Article 1816].

Exception: The partnership is not bound when: (1) The partner has in fact no authority to act; AND (2) The person with whom he deals has knowledge of such fact.

The fact that a partner has left the country and the payment of his share of the liability cannot be enforced [Co-Pitco v. Yulo (1907)] or his liability is condoned by the creditor [Island Sales v. United Pioneers (1975)] cannot increase the liability of the other partners.

ACTS NOT APPARENTLY FOR CARRYING ON OF THE USUAL BUSINESS

General rule: Acts of a partner which is not apparently for carrying on of the usual business does not bind the partnership.

The liability is subsidiary or secondary. It only arises upon exhaustion of partnership assets. However, they may be joined as party defendants in the action against the partnership, subject to their right to prior exhaustion of partnership assets [Cia. Maritima v.

Exception: The partnership is bound if the other partners authorized him to do the act. ACTS OF STRICT DOMINION

Muñoz (1907)].

General rule: One or some of the partners have no authority to do the following acts of strict dominion: (a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; (b) Dispose of the goodwill of the business; (c) Do any other act which makes it impossible to carry on the ordinary business of the partnership; (d) Confess a judgment; (e) Enter into a compromise concerning a partnership claim or liability;

General rule: The partners are liable pro-rata and subsidiarily, with all their property. Exceptions: (1) A third person who transacted with the partnership can hold the partners solidarily liable for the whole obligation if the case falls under Articles 1822 or 1823 [Muñasque v. CA (1985)].

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(f) Submit a partnership claim or liability to arbitration; (g) Renounce a claim of the partnership.

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LIABILITY OF PARTNERSHIP FOR ADMISSION BY PARTNER An admission or representation by any partner concerning partnership affairs within the scope of his authority may be used as evidence against the partnership [Article 1820].

Exception: They may do so if: (1) Authorized by all the partners; OR (2) The other partners have abandoned the business.

LIABILITY OF PARTNERSHIP FOR WRONGFUL ACTS OF PARTNER The partnership is solidarily liable with the partner who causes loss or injury, or incurs any penalty through any wrongful act or omission: (1) In the ordinary course of the business of the partnership; or (2) Not in such ordinary course of business, but with the authority of his co-partners [Article 1822].

ACTS IN CONTRAVENTION OF RESTRICTION

Any act of a partner in contravention of a restriction on authority does not bind the partnership to persons having knowledge of the restriction [Article 1818]. CONVEYANCE OF REAL PROPERTY OF PARTNERSHIP TITLE IN THE PARTNERSHIP NAME

Any partner may convey the property in the name of the partnership.

LIABILITY OF THE PARTNERSHIP FOR MISAPPLICATION OF MONEY OR PROPERTY RECEIVED The partnership is liable for losses suffered by a third person whose money or property was: (1) Received by a partner, acting within the scope of his apparent authority, who also misapplied it; or (2) Received by the partnership, in the course of its business, but is misapplied by any partner while it is in the custody of the partnership [Article 1823].

The partnership can recover it, except when: (1) The act of the partner binds the partnership under 1st par., Article 1818 (i.e., for the carrying on of the usual business of the partnership); or (2) If not so authorized, the property has been conveyed by the grantee, or a person claiming under him, to a holder for value and without knowledge that the partner exceeded his authority.

LIABILITY OF OTHER PARTNERS FOR WRONGFUL ACTS OR MISAPPLICATION All partners are solidarily liable with the partnership for its liabilities under Articles 1822 and 1823 [Article 1824].

TITLE IN THE PARTNERSHIP NAME

A partner, authorized to act under 1st par., Article 1818, may convey, in his own name, the equitable interest of the partnership. TITLE IN THE NAME OF ONE OR MORE (NOT ALL) OF THE PARTNERS AND THE RECORD DOES NOT DISCLOSE THE RIGHT OF THE PARTNERSHIP

This is without prejudice to the guilty partner being liable to the other partners. However, as far as third persons are concerned, the partnership is answerable.

The partners having title may convey title. The partnership may recover it if the act does not bind it under 1st par., Article 1818, unless the purchaser or his assignee is: (1) A holder for value; AND (2) Without knowledge that the act exceeded authority.

LIABILITY IN CASE OF PARTNERSHIP BY ESTOPPEL PARTNER BY ESTOPPEL

A person, not a partner, may become a partner by estoppel, and be liable as a partner, when, by words, spoken or written, or conduct, he: (1) Directly represents himself to anyone as a partner in an existing or non-existing partnership; or (2) Indirectly represents himself by consenting to another representing him as such partner. [Article 1825]

TITLE IN THE NAME OF ONE OR MORE OR ALL THE PARTNERS, OR IN A THIRD PERSON IN TRUST FOR THE PARTNERSHIP

A partner may convey equitable title in the partnership name or in his own name, when the act is authorized under 1st par., Article 1818.

LIABILITY OF PARTNER BY ESTOPPEL

A partner by estoppel is liable: (1) To any person who extended credit to the partnership, actual or apparent, relying on his representation; and

TITLE IN THE NAMES OF ALL THE PARTNERS

The conveyance must be executed by all of them to pass all their rights in the property [Article 1819].

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(2) In case the representation was made publicly, to any person, who extended such credit, whether or not the communication to said creditor was made with the knowledge of the partner.

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the plaintiff might have learned of the truth or untruth of the representations. Persons who knowingly assume to act as a corporation without authority to do so are liable as general partners for all debts, liabilities and damages incurred. [Section 21, Corporation Code] A partnership de facto is created.

NATURE OF LIABILITY

He is liable in the following manner: (1) When there is an existing partnership and all the partners consented to the representation, a partnership liability results, and the partner by estoppel is liable as though he were a partner; (2) When there is an existing partnership and not all the partners consented, or when there is no existing partnership and all those represented as partners consented to the representation, he is liable jointly and pro rata with those who consented to the representation; (3) When there is an existing partnership but none of the partners consented, or when there is no existing partnership and not all of those represented as partners consented to the representation, he is liable separately.

LIABILITY OF INCOMING PARTNER A person admitted as a partner is liable as the other partners for obligations subsequent to his admission. He is also liable for obligations incurred before his admission, but will be satisfied only out of the partnership property, unless otherwise stipulated. (Article 1826) Ratio: (1) The new partner partakes of the benefits of the partnership property and an already established business. (2) He has every means of obtaining full knowledge of the debts of the partnership and remedies that amply protect his interest [De Leon (2010)].

EFFECTS OF ACTS OF PARTNER BY ESTOPPEL

The acts of a partner by estoppel have the following effects: (1) A person, thus representing himself as a partner of other persons, becomes an agent of the latter, in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. (2) When all the members of the existing partnership consent to the representation, a partnership act or obligation results. (3) In all other cases, only a joint act or obligation results. [Article 1825]

However, an incoming partner may fully assume the obligations of a retiring partner. NOTICE TO OR KNOWLEDGE OF THE PARTNERSHIP The following operate as notice to or knowledge of the partnership: (1) Notice to any partner of any matter relating to partnership affairs; (2) Knowledge of the partner acting in the particular matter acquired while a partner; (3) Knowledge of the partner acting in the particular matter then present to his mind; and (4) Knowledge of any other partner who reasonably could and should have communicated it to the acting partner.

No real partnership is created by estoppel. It is only with respect to third persons that partnership by estoppel is recognized. ESTABLISHING LIABILITY

The basic elements in connection with establishment of liability as a partner if based on the doctrine of estoppel must encompass: (1) Proof by plaintiff that he was individually aware of the defendant's representations as to his being a partner or that such representations were made by others and not denied or refuted by the defendant; (2) Reliance on such representations by the plaintiff; and (3) Lack of any denial or refutation of the statements by the defendant; such denial need not precede plaintiff's acting therein if the denial was forthcoming promptly upon hearing of the representations, and if, by prudence and diligence

These do not apply in case of fraud on the partnership committed by or with the consent of the partner [Article 1821]. PREFERENCE OF PARTNERSHIP CREDITORS Partnership creditors are preferred over personal creditors of the partners with respect to partnership property. However, personal creditors may ask the attachment and public sale of the share of the partner debtor in the partnership assets. [Article 1827]

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Ratio: The partnership, as a legal entity distinct from its members, should apply its property to the payment of its debts in preference to the claim of any partner or his individual creditors.

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or after the termination of any specified term or particular undertaking; (4) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners. If, after the expiration of the definite term or particular undertaking, the partners continue the partnership without making a new agreement, the firm becomes a partnership at will. [Article 1785]

Dissolution and winding up CONCEPTS Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. It is different from the winding-up of the business [Article 1828].

Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. [Ortega v. CA (1995)]

Winding up is the actual process of settling the partnership business or affairs after dissolution. It involves collection and distribution of partnership assets, payment of debts, and determination of the value of the interest of the partners in the partnership.

Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. [Ortega v. CA (1995)]

Termination is the point in time when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life.

IN CONTRAVENTION OF THE AGREEMENT

In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time.

EFFECT OF DISSOLUTION ON EXISTENCE OF PARTNERSHIP Dissolution does not terminate the existence of the partnership, which continues until the winding up of partnership affairs is completed. [Article 1829].

[E]ven if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. [Rojas v. Maglana (1990)]

The dissolution of a partnership must not be understood in the absolute and strict sense so that at the termination of the object for which it was created the partnership is extinguished, pending the winding up of some incidents and obligations of the partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved [Testate Estate of Mota v. Serra (1926)].

BY OPERATION OF LAW

(1) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (2) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof; (3) By the death of any partner;

CAUSES OF DISSOLUTION WITHOUT VIOLATION OF THE AGREEMENT

Without violation of the partnership agreement between the partners: (1) By the termination of the definite term or particular undertaking specified in the agreement; (2) By the express will of any partner, who must act in good faith, when no definite term or particular is specified; (3) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before

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(4) By the insolvency of any partner or of the partnership; (5) By the civil interdiction of any partner;

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WITH RESPECT TO PARTNERS

The authority of partners to act for the partnership is terminated, with respect to partners: (1) When the dissolution is not by the act, insolvency or death of a partner; or (2) When the dissolution is by such act, insolvency or death, when the partner acting for the partnership has knowledge or notice of the cause. Otherwise, each co-partner is still liable for his share in the liability created by the partner acting for the partnership, as if there was no dissolution. [Article 1832]

BY DECREE OF COURT

(1) A partner may apply in court for dissolution when: (a) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind; (b) A partner becomes in any other way incapable of performing his part of the partnership contract; (c) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (d) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; (e) The business of the partnership can only be carried on at a loss; (f) Other circumstances render a dissolution equitable. (2) A person who acquires the interest of a partner may likewise apply: (a) After the termination of the specified term or particular undertaking; (b) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. [Articles 1830 and 1831]

WITH RESPECT TO THIRD PERSONS

With respect to persons not partners: (1) After dissolution, a partner can bind the partnership by any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution. (2) He can also bind it by any transaction which would bind the partnership as if dissolution had not taken place, provided the other party to the transaction: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice thereof; or (b) Had not so extended credit, but had known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.

Judicial determination as to dissolution may be resorted to when the facts which may cause such dissolution are open to dispute.

Note the character of notice required. As to persons who extended credit to the partnership prior to dissolution, notice must be actual. As to persons who merely knew of the existence of the partnership, publication in a newspaper of general circulation in the place of business of the partnership is sufficient.

OTHER CAUSES

(1) When a new partner is admitted into an existing partnership; (2) When any partner retires; (3) When the other partners assign their rights to the sole remaining partner; (4) When all the partners assign their rights in the partnership property to third persons. [Article 1840]

LIABILITY OF DISSOLUTION

PARTNERS

IN

TRANSACTIONS

AFTER

General rule: The liability of a partner, in general, is the same as in ordinary contracts (pro rata and subsidiary). Exceptions: In the following cases, however, the liability shall be satisfied out of the partnership assets alone: (1) When the partner had been, prior to the dissolution, unknown as a partner to the person with whom the contract is made; (2) When the partner had been, prior to the dissolution, so far unknown or inactive in partnership affairs that the business reputation of the partnership could not be said to have been in

The statutory enumeration of the causes of dissolution is exclusive. [De Leon (2010)] EFFECT OF DISSOLUTION ON AUTHORITY OF PARTNERS Upon dissolution, the authority of the partners to represent the partnership is confined only to acts necessary to wind up partnership affairs or to complete transactions begun but not then finished.

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any degree due to his connection with it. [Article 1834]

(3) The person or partnership continuing the business.

CASES WHERE PARTNERSHIP IS NOT BOUND Any act of a partner after dissolution in no case binds the partnership in the following cases: (1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; (2) Where the partner has become insolvent; or (3) Where the partner has no authority to wind up partnership affairs, except by a transaction with one who: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised.

Such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business. In case of dissolution by death, the individual property of a deceased partner is liable for obligations of the partnership incurred while he was a partner, after payment of his separate debts. [Article 1835] WINDING UP PARTNERS WHO MAY WIND UP

The following partners have the right to wind up the partnership affairs: (1) Those designated in an agreement; (2) Those who have not wrongfully dissolved the partnership; or (3) The legal representative of the last surviving partner, who was not insolvent.

PARTNERSHIP BY ESTOPPEL AFTER DISSOLUTION

Article 1834 does not affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying on business [Article 1834].

However, any partner or his legal representative or assignee may obtain winding up by the court, upon cause shown. [Article 1836]

CONTRACTS AFTER DISSOLUTION BY SPECIFIC CAUSES General rule: A contract entered into by a partner acting for the partnership after dissolution by act, death or insolvency of a partner binds the other partners.

MANNER OF WINDING UP

Thus, winding up of partnership affairs may be done: (1) Extrajudicially, by the partners themselves; or (2) Judicially, under the control and direction of the proper court. NATURE OF JUDICIAL LIQUIDATION

Exceptions: (1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or (2) The dissolution being by death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency. [Article 1833]

The action for liquidation of the partnership is personal. The fact that sale of assets, including real property, is involved does not change its character, such sale being merely a necessary incident of the liquidation of the partnership, which should precede and/or is part of its process of dissolution. [Claridades v. Mercader (1966)] POWERS OF WINDING UP PARTNER

The general rule assumes that the partner acting for the partnership has no knowledge or notice of the specific cause of dissolution.

In general, the liquidating partner may perform acts appropriate for the winding up of partnership affairs.

EFFECT OF DISSOLUTION ON EXISTING LIABILITY OF PARTNERS General rule: Dissolution does not of itself discharge the existing liability of any partner.

DISSOLUTION WITHOUT VIOLATION OF THE AGREEMENT

RIGHTS OF PARTNERS IN CASE OF DISSOLUTION Unless otherwise agreed, when dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all partners claiming through them in respect of their interests in the partnership, may have the partnership property applied to discharge the partnership liabilities, and the surplus applied in cash to the net amount owing to the respective

Exception: A partner may be so relieved when there is an agreement to that effect between: (1) Himself; (2) The partnership creditor; and

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partners [referred to as the right under 1st par., Article 1837].

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Where a partnership contract is rescinded on such grounds, the party entitled to rescind, without prejudice to any other right, is entitled: (1) After satisfying partnership liabilities to third persons, to a lien on, or right of retention of, to the surplus of the partnership property: (a) For any sum of money paid by him for the purchase of an interest in the partnership; and (b) For any capital or advances contributed by him. (2) After satisfying partnership liabilities to third persons, to stand in the place of partnership creditors for any payments made by him in respect of the partnership liabilities; and (3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. [Article 1838]

In case of dissolution by bona fide expulsion of a partner, and the expelled partner is discharged from all partnership liabilities, either by payment or agreement to that effect (Article 1835), he shall receive only the net amount due him from the partnership. DISSOLUTION IN CONTRAVENTION OF THE AGREEMENT

Rights of partner who has not caused the dissolution wrongfully: (a) To demand the right under 1st par., Article 1837; (b) To be indemnified for damages for breach of the agreement against the partner who caused the dissolution wrongfully; (c) To continue the business in the same name, by themselves or jointly with others, during the agreed term for the partnership and for that purpose may possess the partnership property provided they: (i) Secure the payment by bond approved by the court; or (ii) Pay any partner who has caused the dissolution wrongfully the value of his interest in the partnership, less any damages recoverable, and indemnity against all present or future partnership liabilities.

SETTLING OF ACCOUNTS BETWEEN PARTNERS Subject to any agreement to the contrary, the following rules shall be observed in settling accounts between partners after dissolution. COMPOSITION OF PARTNERSHIP ASSETS

The assets of the partnership are: (1) The partnership property; and (2) The contributions of the partners necessary for the payment of all the liabilities.

Rights of partner who has caused the dissolution wrongfully: (a) If the business is not continued, all the rights 1st par., Article 1837, subject to liability for damages; (b) If the business is continued, the right, as against his co-partners and all claiming through them, to: (i) Ascertainment, without considering the value of the goodwill of the business, and payment to him in cash the value of his partnership interest, less any damage, or have the payment secured by a bond approved by the court; and (ii) Be released from all existing liabilities of the partnership. [Article 1837]

In accordance with the subsidiary liability of the partners, the partnership property shall be applied first to satisfy any liability of the partnership. AMOUNT OF CONTRIBUTION FOR LIABILITIES

The rules on distribution of losses [Article 1979] shall determine the contributions of the partners. As such: (1) The contribution shall be in conformity with the agreement. (2) If only the share in profits has been stipulated, the contribution shall be in the same proportion. (3) In the absence of any stipulation, the contribution shall be in proportion to the capital contribution. ENFORCEMENT OF CONTRIBUTION

The goodwill of a business may be defined to be the advantage which it has from its establishment or from the patronage of its customers, over and above the mere value of its property and capital. The goodwill (which includes the firm name) is part of the partnership assets and may be subject of sale. [De Leon (2010)]

The following persons have the right to enforce the contributions: (1) An assignee for the benefit of creditors; (2) Any person appointed by the court; or (3) To the extent of the amount which he has paid in excess of his share of the partnership liability, any partner or his legal representative.

RIGHTS OF PARTNERS IN CASE OF RESCISSION A partner, induced by fraud or misrepresentation to become a partner, may rescind the contract.

The individual property of a deceased partner shall be liable for the contributions.

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with the consent of the retired partner or the representative of the deceased partner, without assignment of their rights to partnership property. (3) When the cause of dissolution is the assignment by all the partners or their representatives of their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the partnership.

ORDER OF APPLICATION OF ASSETS

The partnership liabilities shall rank, in order of payment, as follows: (a) Those owing to creditors other than partners; (b) Those owing to partners other than for capital and profits; (c) Those owing to partners in respect of capital; (d) Those owing to partners in respect of profits. DOCTRINE OF MARSHALING OF ASSETS

When partnership property and the individual properties of the partners are in possession of a court for distribution: (1) Partnership creditors shall have priority on partnership property; and (2) Separate creditors on individual property, saving the rights of lien of secured creditors. (3) Anything left from either shall be applied to satisfy the other.

LIABILITY OF A NEW PARTNER

The liability to the creditors of the dissolved partnership of a new partner in the partnership continuing the business shall be satisfied out of the partnership property alone. However, he may, through agreement, assume individual liability. PRIORITY OF CREDITORS OF DISSOLVED PARTNERSHIP

The creditors of dissolved partnership have prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business.

DISTRIBUTION OF PROPERTY OF INSOLVENT PARTNER

Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (1) Those owing to separate creditors; (2) Those owing to partnership creditors; (3) Those owing to partners by way of contribution. [Article 1839]

Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. EFFECT OF CONTINUING USE OF PARTNERSHIP NAME

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. [Article 1840]

RIGHTS OF CREDITORS OF DISSOLVED PARTNERSHIP CREDITORS OF DISSOLVED PARTNERSHIP AS CREDITORS OF NEW PARTNERSHIP

In the following cases, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1) When the business is continued without liquidation, and the cause of dissolution is: (a) Admission of a new partner into the existing partnership; (b) Retirement or death of any partner, and his rights to partnership property are assigned to: (i) Two or more of the partners; or (ii) One or more of the partners and one or more third persons. (c) Retirement of all but one partner, and their rights to partnership property are assigned to the remaining partner, who continues the business, either alone or with others; (d) Wrongful dissolution by any partner, and the remaining partners continue the business, either alone or with others; (e) Expulsion of a partner, and the remaining partners continue the business, either alone or with others. (2) When the cause of dissolution is the retirement or death of any partner, and business is continued

RETIRED OR REPRESENTATIVE OF DECEASED PARTNER Unless otherwise agreed upon, when any partner retires or dies, and the business is continued without any settlement of accounts as between him or his estate and the person or partnership continuing the business, he or his legal representative as against such person or partnership, subject to the prior rights of creditors of the dissolved partnership: (1) May have the value of his interest at the date of dissolution ascertained; and (2) Shall receive as an ordinary creditor: (a) An amount equal to the value of his interest in the dissolved partnership with interest; or (b) At his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership. [Article 1841] RIGHT TO AN ACCOUNT The right to an account of his interest shall accrue to any partner, or his legal representative, at the date of

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dissolution, in the absence of any agreement to the contrary, as against: (1) The winding up partners; (2) The surviving partners; or (3) The person or partnership continuing the business [Article 1842].

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ADVANTAGES OF LIMITED PARTNERSHIP (1) For general partners, to secure capital from others while retaining control and supervision for the business; (2) For limited partners, to have a share in the profits without risk of personal liability.

EXISTENCE OF RIGHT

[T]he right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done. [Fue Leung v. IAC (1989)]

GENERAL AND LIMITED PARTNER DISTINGUISHED

NEED FOR LIQUIDATION

Personally, but subsidiarily, liable for obligations of the partnership

General Partner

Limited Partner

Extent of liability

The profits of the business cannot be determined by taking into account the result of one particular transaction instead of all the transactions had. Hence, the need for a general liquidation before a member of a partnership may claim a specific sum as his share of the profits. [Sison v. McQuaid (1953)]

Only to the extent of his capital contributions

Right to participate in management Unless otherwise agreed No right to participate in upon, all general partners management have an equal right to manage the partnership

However, no liquidation is necessary when there is already a settlement or an agreement as to what he shall receive [De Leon (2010)].

Nature of contribution Cash, property or industry Cash or property only, not industry

Limited partnership

Property party in proceedings by or against partnership

DEFINITION A limited partnership is 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 limited partners. The limited partners as such shall not be bound by the obligations of the partnership. [Article 1843]

Proper party

CHARACTERISTICS (1) A limited partnership is formed by compliance with the statutory requirements [Article 1844]. (2) The business is controlled or managed by one or more general partners, who are personally liable to creditors [Articles 1848 and 1850]. (3) One or more limited partners contribute to the capital and share in the profits but do not manage the business and are not personally liable for partnership obligations beyond their capital contributions [Articles 1845, 1848 and 1856]. (4) Obligations or debts are paid out of the partnership assets and the individual property of the general partners. (5) The limited partners may have their contributions back subject to conditions prescribed by law [Articles 1844 and 1957].

Not proper party, unless: (1) He is also a general partner; or (2) Where the object of the proceedings is to enforce his right against or liability to the partnership Name in firm name

Name may appear in the Name must not appear in firm name the firm name Prohibition to engage in other business Prohibited (qualified)

Not prohibited

Effect of retirement, death, insanity or insolvency Dissolves partnership

Does not dissolve; rights transferred to executor or administrator for selling his estate

Assignability of interest

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General Partner

A limited partnership is formed if there has been substantial compliance in good faith with the requirements.

Limited Partner

Not assignable

Assignable

A partnership cannot become a limited partner. A general partnership may be changed into a limited one. A partner in the former general partnership may become a limited partner in the limited partnership formed [De Leon (2010)].

GENERAL AND LIMITED PARTNERSHIP DISTINGUISHED General Partnership

Limited Partnership

Creation

PURPOSE OF FILING

The purpose of the requirement of filing the certificate is to give actual or constructive notice to potential creditors or persons dealing with the partnership to acquaint them with its essential features, including the limited liability of limited partners.

May be constituted in any Partners must: form, with exceptions (1) Sign and swear to a certificate in compliance with Article 1844; and (2) File the certificate for record in the SEC

NO SUBSTANTIAL COMPLIANCE

Composition Only general partners

When there is failure to substantially comply with the requirements: (1) In relation to third persons, the partnership is general, unless they recognized that the firm as a limited partnership; (2) As between the partners, the partnership remains limited, since they are bound by their agreement [De Leon (2010)].

One or more general, and one or more limited partners

Firm name Must contain the word Must include the word "Company" (SEC Memo "Limited" (SEC Memo Circ Circ No. 14-00), except for No. 14-00) professional partnerships

FIRM NAME

The surname of a limited partner shall not appear in the partnership name unless: (1) It is also the surname of a general partner; or (2) Prior to the time when the limited partner became such, the business had been carried on under a name in which his surname appeared.

May or may not include Must not include name of the name of one or more limited partners, unless: of the partners (1) It is also the surname of a general partner; or (2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared.

A limited partner whose surname appears in a partnership name contrary to this prohibition is liable as a general partner to partnership creditors who extend credit without actual knowledge that he is not a general partner.

Rules governing dissolution and winding up Articles 1828-1842

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FALSE STATEMENT IN THE CERTIFICATE

If the certificate contains a false statement, one who suffers loss by reliance thereon may hold liable any party to the certificate who knew the statement to be false: (1) At the time he signed the certificate; or (2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment.

Articles 1860-1863

FORMATION OF LIMITED PARTNERSHIP Two or more persons desiring to form a limited partnership shall: (1) Sign and swear to a certificate stating the items in Article 1844; and (2) File for record the certificate in the Office of the Securities and Exchange Commission.

Requisites: (1) The partner knew the statement to be false at the time he signed the certificate, or subsequently, but having sufficient time to cancel or amend it,

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or file a petition for its cancellation or amendment, and he failed to do so; (2) The person seeking to enforce liability has relied upon the false statement in transacting business with the partnership; and (3) The person suffered loss as a result of reliance upon such false statement.

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Thus, a general partner is vested with the entire control of the business. It is in consideration of his unlimited personal liability for the obligation of the partnership that he is granted the general authority to manage. Qualification: Written consent or ratification of the specific act by all the limited partners is necessary to authorize the general partners to: (1) Do any act in contravention of the certificate; (2) Do any act which would make it impossible to carry on the ordinary business of the partnership; (3) Confess a judgment against the partnership; (4) Possess partnership property, or assign their rights in specific property, for other than a partnership purpose; (5) Admit a person as a general partner; (6) Admit a person as a limited partner, unless the right to do so is given in the certificate; (7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the certificate. [Article 1851]

ADMISSION OF ADDITIONAL LIMITED PARTNERS

After the formation of a limited partnership, additional limited partners may be admitted upon filing an amendment to the original certificate. GENERAL AND LIMITED PARTNER AT THE SAME TIME

A person may be a general and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate. A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner. [Article 1853] MANAGEMENT OF LIMITED PARTNERSHIP A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business [Article 1848].

The acts enumerated are acts of strict dominion. OBLIGATIONS OF A LIMITED PARTNER OBLIGATIONS RELATED TO CONTRIBUTION

The contributions of a limited partner may be cash or property, but not services [Article 1845].

MANAGEMENT BY GENERAL PARTNERS

Only the general partners have the right to manage the partnership. The limited partners are not so entitled.

A limited partner is liable for partnership obligations when he contributes services instead of only money or property to the partnership [De Leon (2010)].

LIABILITY OF LIMITED PARTNER FOR PARTICIPATING IN CONTROL

A limited partner is liable to the partnership: (1) For the difference between his actual contribution and that stated in the certificate as having been made; (2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate. [1st par., Article 1858]

A limited partner is liable as a general partner (i.e., subsidiarily liable) for the obligations of the partnership if he takes part in the control of the business. The control contemplated is active participation in the management of the business. It does not contemplate mere giving of advice to general partners which may be followed or not.

He holds as trustee for the partnership: (1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned; and (2) Money or other property wrongfully paid or conveyed to him on account of his contribution. [2nd par., Article 1858]

The abstinence of the limited partner from participation in the transaction of the business of the firm is essential to his exemption from personal liability. [De Leon (2010)]. POWERS OF GENERAL PARTNER

General rule: A general partner shall have the rights and powers and be subject to all restrictions and liabilities of a partner in a partnership without limited partners.

The liabilities under Article 1858 can be waived or compromised only by the consent of all members.

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Such waiver or compromise, however, shall not affect the right to enforce said liabilities of a creditor: (1) Who extended credit, or (2) Whose claim arose, after the filing or before a cancellation or amendment of the certificate, to enforce such liabilities.

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Note: In a general partnership, the interest may be redeemed with partnership property with the consent of all the partners whose interests are not charged [Article 1814]. RIGHTS OF A LIMITED PARTNER RIGHTS OF LIMITED PARTNER, IN GENERAL A limited partner shall have the same rights as a general partner to: (1) Require that the partnership books be kept at the principal place of business of the partnership; (2) To inspect and copy any of them at a reasonable hour; (3) To demand true and full information of all things affecting the partnership; (4) To demand a formal account of partnership affairs whenever circumstances render it just and reasonable; and (5) To ask for dissolution and winding up by decree of court; (6) To receive a share of the profits or other compensation by way of income; and (7) To receive the return of his contribution provided the partnership assets are in excess of all its liabilities.

Even after a limited partner has rightfully received the return in whole or in part of his capital contribution, he is still liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors: (1) Who extended credit, or (2) Whose claims arose, before such return. [Article 1858] A person who has contributed capital to a partnership, erroneously believing that he has become a limited partner, but his name appears in the certificate as a general partner or he is not designated as a limited partner, is not personally liable as a general partner by reason of his exercise of the rights of a limited partner, provided: (1) On ascertaining the mistake, he promptly renounces his interest in the profits of the business or other compensation by way of income [Article 1852]; (2) He does not participate in the management of the business [Article 1848]; and (3) His surname does not appear in the partnership name [Article 1846].

RIGHT TO TRANSACT BUSINESS WITH PARTNERSHIP

A limited partner may: (1) Loan money to the partnership; (2) Transact other business with the partnership; and (3) Receive a pro rata share of the partnership assets with general creditors if he is not also a general partner.

LIABILITY TO PARTNERSHIP CREDITORS

General rule: A limited partner is not liable as a general partner. His liability is limited to the extent of his contributions.

Limitations: A limited partner, with respect to his transactions with the partnership, cannot: (1) Receive or hold as collateral security any partnership property; or (2) Receive any payment, conveyance, or release from liability if it will prejudice the right of third persons.

Exceptions: The limited partner is liable as a general partner when: (1) His surname appears in the partnership name, with certain exceptions. (2) He takes part in the control of the business.

Violation of the prohibition is considered a fraud on the creditors of the partnership. [Article 1854]

LIABILITY TO SEPARATE CREDITORS

On due application to a court of competent jurisdiction by any separate creditor of a limited partner, the court may: (1) Charge his interest with payment of the unsatisfied amount of such claim; (2) Appoint a receiver; and (3) Make all other orders, directions and inquiries which the circumstances of the case may require.

RIGHT TO SHARE IN PROFITS

A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate. This right is subject to the condition that partnership assets will still be in excess of partnership liabilities after such payment.

The interest so charged may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property. [Article 1862]

Ratio: Otherwise, he will receive a share to the prejudice of third-party creditors.

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RIGHT TO ASSIGN INTEREST

In determining the partnership liabilities, the liabilities to the limited partners (for their contributions) and to general partners (whether for contributions or not) are not included.

The interest of a limited partner is assignable. The assignee may become: (1) A substituted limited partner; or (2) A mere assignee.

RIGHT TO RETURN OF CONTRIBUTION

A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership. He has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities which: (1) The assignee was ignorant of; and (2) Cannot be ascertained from the certificate.

A limited partner may have his contributions withdrawn or reduced when: (1) All the liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them; (2) The consent of all members is had, unless the return may be demanded as a matter of right; and (3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.

An assignee is only entitled to receive the share of the profits or other compensation by way of income, or the return of contribution, to which the assignor would otherwise be entitled. He has no right: (1) To require any information or account of the partnership transactions; (2) To inspect the partnership books.

The return of his contributions may be demanded, as a matter of right (even when not all the other partners consent), the return of his contribution when (1) and (2) above are complied with: (1) On the dissolution of the partnership; (2) Upon the arrival of the date specified in the certificate for the return; or (3) After the expiration of a 6-month notice in writing given by him to the other partners, if no time is fixed in the certificate for: (a) the return of the contribution; or (b) the dissolution of the partnership.

An assignee has the right to become a substituted limited partner if: (1) All the partners consent thereto; (2) The assignor, being empowered to do so by the certificate, gives him that right. An assignee becomes a substituted limited partner when the certificate is appropriately amended. [Article 1859]

General rule: A limited partner, irrespective of the nature of his contribution has only the right to demand and receive cash in return for his contribution.

RIGHT TO ASK FOR DISSOLUTION

A limited partner may have the partnership dissolved and its affairs wound up: (1) When his demand for the return of his contribution is denied although he has a right to such return; (2) When he has such right, but his contribution is not paid because the partnership property is insufficient to pay its liabilities. [Article 1857]

Exceptions: He may receive his contribution in a form other than cash when: (1) There is a statement in the certificate to the contrary; or (2) All the members of the partnership consent.

CAUSES OF DISSOLUTION OF LIMITED PARTNERSHIP A limited partnership is dissolved in much the same way and causes as an ordinary partnership [De Leon (2010)].

PREFERENCE OF LIMITED PARTNERS

General rule: The limited partners stand on equal footing as to their: (1) Compensation by way of income; (2) Return of contribution; or (3) Any other matter.

General rule: The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership.

Exception: By an agreement of all the partners (general and limited) in the certificate, priority or preference may be given to some limited partners over others with respect to the matters enumerated. [Article 1855]

Exception: It is not so dissolved when the business is continued by the remaining general partners: (1) Under a right to do so stated in the certificate; or (2) With the consent of all members. [Article 1860]

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On the death of a limited partner, his executor or administrator shall have: (1) All the rights of a limited partner for the purpose of settling his estate; and (2) The power to constitute an assignee as a substituted limited partner, if the deceased was so empowered in the certificate.

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(3) An additional limited partner is admitted; (4) A person is admitted as a general partner; (5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued; (6) There is a change in the character of the business of the partnership; (7) There is a false or erroneous statement in the certificate; (8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution; (9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate; or (10) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.

The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner. [Article 1861] SETTLEMENT OF ACCOUNTS ORDER OF PAYMENT

In settling accounts after dissolution, the liabilities of the partnership shall be entitled to payment in the following order: (1) Those to creditors, including limited partners except those on account of their contributions, in the order of priority as provided by law; (2) Those to limited partners in respect to their share of the profits and other compensation by way of income in their contributions; (3) Those to limited partners in respect to the capital of their contributions; (4) Those to general partners other than for capital and profits; (5) Those to general partners in respect to profits; (6) Those to general partners in respect to capital.

REQUIREMENTS FOR AMENDMENT OR CANCELLATION

To amend or cancel a certificate: (1) The amendment or cancellation must be in writing; (2) It must be signed and sworn to by all the members including the new members, and the assigning limited partner in case of substitution or addition of a limited or general partner; and (3) The writing to amend (with the certificate, as amended) or to cancel must be filed for record in the SEC.

Note: In settling accounts of a general partnership, those owing to partners in respect to capital enjoy preference over those in respect to profits.

From the moment the amended certificate/writing or a certified copy of a court order granting the petition for amendment has been filed, such amended certificate shall thereafter be the certificate of partnership. [Article 1865]

SHARE IN THE PARTNERSHIP ASSETS

The share of limited partners in respect to their claims for capital, profits, or for compensation by way of income, is in proportion of their contribution, unless: (1) There is a statement in the certificate as to their share in the profits; or (2) There is a subsequent agreement fixing their share. [Article 1863]

Contract of agency DEFINITION By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter [Article 1868].

AMENDMENT OR CANCELLATION OF CERTIFICATE WHEN CERTIFICATE IS CANCELLED

The certificate shall be cancelled when: (1) The partnership is dissolved; or (2) All limited partners cease to be such.

Agency may refer to both a contract, as defined in the provision, and the representative relation created.

WHEN CERTIFICATE IS AMENDED

As a relation, agency is fiduciary (based on trust and confidence), which implies a power in an agent to contract with a third person on behalf of a principal.

A certificate shall be amended when: (1) There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner; (2) A person is substituted as a limited partner;

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The basis of agency is representation [Victorias Milling v. CA (2000)].

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Ratio: One who acts through an agent in law does the act himself. As such, the capacity to act by an agent depends in general on the capacity of the principal to do the act himself as if he were present.

In an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way, be compelled by law or by any court. [Orient Air v. CA (1991)]

INTENTION OF PARTIES

On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on the part of the agent, there must be an intention to accept the appointment and act on it. [Victorias Milling v. CA (2000)]

CHARACTERISTICS The contract of agency is: (1) Consensual, perfected by mere consent; (2) Nominate, has its own name; (3) Preparatory, entered into as a means to enter into other contracts; (4) Principal, does not depend on another contract for existence and validity; (5) Bilateral, if for compensation, giving rise to reciprocal rights and obligations, but unilateral, if gratuitous, creating obligations only for the agent.

General rule: In the absence of such intent, there is generally no agency.

CONSTITUTION OF AGENCY

As to the principal, the appointment of an agent may be express, or implied: (1) From his acts; (2) From his silence or lack of action; or (3) From his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

Exceptions: (1) Agency by estoppel; and (2) Agency by operation of law. CONSENT OF PARTIES

An agency is either express or implied. This is true on the part of the principal as well as on the part of the agent. It does not require express appointment and acceptance.

ESSENTIAL ELEMENTS

(1) There is consent, express or implied, of the parties to establish the relationship; (2) The object is the execution of a juridical act in relation to third persons; (3) The agent acts as a representative and not for himself; and (4) The agent acts within the scope of his authority. [Rallos v. Felix Go Chan (1978)]

The appointment may be oral, unless the law requires a specific form. [Article 1869] As to the agent, acceptance may also be express, or implied. (1) From his acts which carry out the agency; (2) From his silence or inaction according to the circumstances [Article 1870]; (3) Both the principal and the agent being present if: (a) The principal delivers his power of attorney to the agent; and (b) The agent receives it without any objection [Article 1871]; (4) Both the principal and the agent being absent, when: (a) The principal transmits his power of attorney to the agent, who receives it without any objection; or (b) When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram.

PARTIES

(1) Principal, one whom the agent represents and from whom he derives his authority; and (2) Agent, who acts for and represents the principal, having derivative authority in carrying out the business of the latter. Juridical persons such as corporations and partnerships can be principals and agents [Article 1919(4)]. CAPACITY OF PARTIES

(1) A principal must have legal capacity to enter into contract in his own right. (2) An agent must have legal capacity to enter into the contract of agency, although he may not have capacity to enter into the particular contract subject of agency.

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PRESUMPTION OF EXISTENCE

In other cases between persons who are absent, acceptance cannot be implied from the silence of the agent. [Article 1872] POWER OF ATTORNEY

General rule: It [agency] must exist as a fact. The law makes no presumption thereof. The person alleging it has the burden of proof to show, not only the fact of its existence, but also its nature and extent. [People v. Yabut (1977)]

A power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts of kinds of acts on his behalf. The written authorization itself is the power of attorney. It has also been called a "letter of attorney."

Exceptions: A presumption of agency may arise: (1) Where an agency may arise by operation of law (e.g., all the partners being considered agents of the partnership when the manner of management has not been agreed upon); or (2) To prevent unjust enrichment. [De Leon (2010)]

Its primary purpose is not to define the authority of the agent, but to evidence the authority of the agent to third parties with whom the agent deals. The person holding the power of attorney is designated as an "attorney-in-fact."

COMMUNICATION OF EXISTENCE OF AGENCY

There are two ways of giving notice of agency (that a person has given a power of attorney to a third person), with different effects: (1) If a person specially informs another (e.g., by letter), the person appointed as agent is considered such with respect to the person specially informed; (2) If a person states by public advertisement, the person appointed as agent is considered such with regard to any person.

FORM OF CONTRACT

General rule: There are no formal requirements governing the appointment of an agent. Exceptions: (1) When the law requires a specific form [2nd par., Article 1869]; (2) When a sale of piece of land or any interest therein is through an agent, in which case the authority shall be in writing; otherwise the sale is void [Article 1874]; (3) When the law requires a special power of attorney [Article 1878].

In either case, the power of the agent continues in full force until the notice is rescinded in the same manner in which it was given. [Article 1873] DUTY OF THIRD PERSON

The person dealing with the agent must act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. [Keeler Electric v. Rodriguez (1922)]

DESIGNATION BY THE PARTIES

The manner in which the parties designate the relationship is not controlling. The use of this term ("agent") in one clause of the contract cannot dominate the real nature of the agreement as revealed in other clauses, no less than in the caption ["agency agreement"] of the agreement itself. [Albadejo y Cia v. Phil. Refining (1923)]

EFFECT EXTENSION OF PERSONALITY

It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. [Litonjua v. Eternit Corp. (2006)]

ACTS DELEGATED

General rule: What a person may do in person, he may do through another. Exceptions: (1) Personal acts, which the law or public policy requires to be performed personally (e.g., to vote, make a will, make statements under oath, or attend board meetings as director or trustee of a corporation); (2) Criminal acts; (3) Acts not allowed by law to be done by the principal.

THEORY OF IMPUTED KNOWLEDGE

An important implication of this extension of personality is the general rule that knowledge of the agent is imputed to the principal even though the agent never communicated such knowledge to the principal. Requisites: (1) Actual notice to the agent;

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(2) Notice must pertain to a matter of fact and not of law; (3) The fact must be within the scope of the agent's authority.

Agency

Independent Contractor Control

An agent acts under the An independent control and instruction of contractor is not subject to the principal control, except insofar as the result of the work is concerned

Thus, it is only logical that the agent is required to notify the principal of all matters that came to his attention that are material to the subject matter of the agency.

Liability for tort

Exceptions: (1) Where the agent's interests are adverse to those of the principal; (2) Where the agent's duty is not to disclose the information (e.g., he is informed by way of confidential information); (3) Where the person claiming the benefit of the rule colludes with the agent to defraud the principal.

Principal is liable for torts Employer is not liable for committed by the agent torts committed by the with the scope of his independent contractor authority Sub-agents Agents of the agent is still Employees of subject to the control of independent contractor the principal are not subject to control of his employer

DISTINGUISHED FROM OTHER CONTRACTS Agency

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Partnership Representation

Agency

An agent acts only for the A partner acts for the principal other partners, the partnership and himself

Lease of Service Basis

Representation

Control

Employment Purpose

An agent's power to bind A partner's power to bind the principal is subject to his co-partners is not the latter's control subject to their control

Execution of juridical acts Execution of piece of work in relation to third persons or rendition of service

Personal liability

Authorized acts

An agent does not assume personal liability, if he acts within the scope of his authority

A partner is personally liable with all his property, after exhaustion of the partnership properties

Juridical acts (creation, Material acts only modification, extinction of relations with third parties)

Share in profits

Discretion

An agent is not entitled to A partner is entitled to a profits, only compensation share in the profits of the partnership

An agent is authorized to Ordinarily, lessor performs exercise discretion only ministerial functions Parties Three parties are involved Two parties are involved

One factor which most clearly distinguishes agency from other legal concepts is control; one person – the agent – agrees to act under the control or direction of another – the principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. [Victorias Milling v. CA (2000)]

Agency

Lease of Property Control

An agent acts under the A lessee is not subject to control and instruction of the control of the lessor the principal

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Agency

Lease of Property

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Agency

Things involved

Person represented

Agency may involve things Lease of property involves other than property property only

An agent represents a capacitated person

Binding power An agent can bind the principal

Guardianship

A guardian represents an incapacitated person

Source of authority

Lessee cannot bind the lessor

An agent is appointed by A guardian is appointed the principal by the court Control

Agency to Sell

An agent is subject to the A guardian is not subject control of the principal to the control of the ward

Sale

Ownership of goods Principal retains ownership

Binding power

Buyer acquires ownership

An agent can make the A guardian has no power principal principally liable to impose personal liability on the ward

Payment An agent delivers the A buyer pays the purchase proceeds of the sale to the price principal

Agency

Return of goods Generally, an agent can return goods unsold

Title and control of property

Generally, a buyer cannot return the goods bought

Title passes to the trustee Title retained by principal Control

Dealing with the goods An agent deals with the goods according to the instructions of the principal

An agent is subject to the A trustee is only subject to control of the principal the stipulated guidance of the cestui

A buyer, being the owner, can deal with the goods as he pleases

Agency to Buy

Trust

Termination In general, an agency may In general, a trust may be be revoked at any time terminated only when its purpose is fulfilled

Sale

Ownership of goods Ownership is acquired in Ownership is transferred behalf of the principal to the buyer

Kinds of agency

Changes in price

KINDS OF AGENCY, IN GENERAL

Generally, any change in A buyer cannot adjust the the price is borne by the price already agreed upon principal

AS TO MANNER OF ITS CREATION

(1) Express; (2) Implied.

Payment Price is paid in behalf of the principal

AS TO CAUSE OR CONSIDERATION

Price is paid by the buyer

(1) Gratuitous; or (2) Compensated or onerous. Agency is presumed to be for a compensation, unless there is proof to the contrary [Article 1875].

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AS TO EXTENT OF BUSINESS COVERED

GENERAL AGENCY

(1) Universal; (2) General; or (3) Special.

General agency comprises all the business of the principal. SPECIAL AGENCY

Special agency comprises one or more specific transactions.

AS TO AUTHORITY CONFERRED

(1) Couched in general terms; or (2) Couched in specific terms.

General Agency

AS TO ITS NATURE AND EFFECTS

(1) Ostensible or representative, where the agent acts in the name and representation of the principal [Article 1868]; (2) Simple or commission, where the agent acts in his own name but for the account of the principal.

Special Agency

Scope of authority All acts connected with the business or employment in which agent is engaged

AS TO KINDS OF PRINCIPAL

Only specific authorized acts or those necessarily implied

Nature of service authorized

(1) With a disclosed principal, where, at the time the transaction was contracted by the agent, the other party thereto has known: (a) that the agent is acting for a principal; and (b) the principal's identity; (2) Partially disclosed, where the other party knows or has reason to know that the agent is or may be acting for a principal but is unaware of the principal's identity; or (3) Undisclosed, where the party has no notice of the fact that the agent is acting as such for a principal.

Involves continuous service

Usually involves a single transaction

Extent to which agent may bind principal Acts within the scope of Acts beyond authority authority, even in conflict given cannot bind with special instructions, principal may bind principal Termination of authority Notice to third persons required to terminate apparent authority

KINDS OF AGENCY AS TO MANNER OF CREATION EXPRESS AGENCY

An express agency is one where the agent has been actually authorized by the principal, either: (a) Orally; or (b) In writing. [Article 1869]

No notice required, since third parties are required to inquire as to authority

Construction of instructions Notice to third persons required

IMPLIED AGENCY

The creation of implied agency is implied: (1) As to the appointment of an agent by the principal: (a) From his acts; (b) From his silence or lack of action; or (c) From his failure to repudiate the agency knowing that another person is acting on his behalf without authority. [Article 1869] (2) As to the acceptance of the agency by the agent: (a) From his acts which carry out the agency; (b) From his silence or inaction according to the circumstances (i.e., presence or absence of the parties) [Articles 1870, 1871 and 1872]

The instructions, in so far as they grant authority, are strictly construed

KINDS OF AGENCY AS TO AUTHORITY CONFERRED COUCHED IN GENERAL TERMS

An agency couched in general terms is one created in general terms and is deemed to comprise only acts of administration, even if: (1) The principal should state that he withholds no power; (2) He should state that the agent may execute such acts as he may consider appropriate; or (3) Even though the agency should authorize a general and unlimited management [Article 1877].

KINDS OF AGENCY AS TO EXTENT OF BUSINESS COVERED

COUCHED IN SPECIFIC TERMS

An agency couched in specific terms authorizes only the performance of specific acts [Article 1878]. Certain specific acts, however, require special powers of attorney.

UNIVERSAL AGENCY

Universal agency comprises all acts which the principal can lawfully delegate to an agent;

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(3) A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell [Article 1879]. (4) A special power to compromise does not authorize submission to arbitration [Article 1880]. (5) The power to "exact the payment" of sums of money "by legal means" include the power to institute suits for their recovery [Germann & Co., v. Donaldson, Sim & Co. (1901)]. (6) A power of attorney “to loan and borrow money” and to mortgage the principal’s property does not carry with it or imply that that the agent has a legal right to make the principal liable for the personal debts of the agent [BPI v. De Coster (1925)]. (7) Unless the contrary appears, the authority of an agent must be presumed to include all the necessary and usual means of carrying the agency into effect [Macke v. Camps (1907)].

A special power of attorney is an instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to perform certain specified acts or kinds of acts on behalf of the principal. The following acts of strict dominion require special powers of attorney: (1) To make such payments as are not usually considered as acts of administration; (2) To effect novations which put an end to obligations already in existence at the time the agency was constituted; (3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired; (4) To waive any obligation gratuitously; (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration; (6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent; (7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; (8) To lease any real property to another person for more than one year; (9) To bind the principal to render some service without compensation; (10)To bind the principal in a contract of partnership; (11) To obligate the principal as a guarantor or surety; (12)To create or convey real rights over immovable property; (13)To accept or repudiate an inheritance; (14)To ratify or recognize obligations contracted before the agency; (15)Any other act of strict dominion. [Article 1878]

However, although the Civil Code expressly requires a special power of attorney in order that one may compromise an interest of another, it is neither accurate nor correct to conclude that its absence renders the compromise agreement void. In such a case, the compromise is merely unenforceable. [Duñgo v. Lopena (1962)] SPECIAL KINDS OF AGENCY AGENCY BY ESTOPPEL

Through estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon [Article 1431]. Ratification

Notes: (1) The requirement of special power of attorney in Article 1878 refers to the nature of the authorization, not to its form. Even if a document is titled as a general power of attorney, the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the performance of the act [Bravo-Guerrero v. Bravo (2005)]. (2) A special power of attorney can be included in the general power when it is specified therein the act or transaction for which the special power is required [Veloso v. CA (1996)].

Estoppel

Rests on intention

Rests on prejudice

Retroacts as if originally authorized

Affects only relevant parts of the transaction

Substance is confirmation Substance is the of unauthorized acts after principal's inducement for it has been done third party to act to his prejudice For an agency by estoppel to exist, the following must be established: (1) The principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority; (2) The third person, in good faith, relied upon such representation; (3) Relying upon such representation, such third person has changed his position to his detriment.

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An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance. [Litonjua v. Eternit Corp. (2006)] Implied Agency Principal is liable

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Qualification: The exception only applies if the agent contracts with the properties of the principal within the scope of his authority [PNB v. Agudelo (1933)]. AGENCY BY OPERATION OF LAW

An agency may exist by operation of law, such as in the following cases: (1) Every partner is an agent of the partnership for the purpose of its business [Article 1818]; (2) When the principal's actions would reasonably lead a third person to conclude that an agency exists, an agency by estoppel is created by operation law [Black's Law Dictionary (9th)]; (3) In case of certain necessity or emergency, an agency by necessity may arise.

Agency by Estoppel Person who is in bad faith is liable

One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith.

IRREVOCABLE AGENCY

Article 1927 (on agency coupled with an interest) mentions three instances where the sole will of the principal cannot terminate (revoke) an agency: (1) A bilateral contract depends upon it; (2) It is the means of fulfilling an obligation already contracted; or (3) A partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.

Note: Article 1911 states that: "Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers." In this case, there is a duly formed agency and estoppel only applies to the excess of authority. This is an application of the doctrine of apparent authority Under the doctrine of apparent authority, the question in every case 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. [Professional Services v. Agana (2008)]

Qualifications: (1) Coupled with interest or not, the authority certainly can be revoked for a just cause, such as when the attorney-in-fact betrays the interest of the principal, xxx. It is not open to serious doubt that the irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds against the principal. [Coleongco v. Claparols (1964)]

In agency by estoppel, there is no agency. The alleged agent seemed to have apparent or ostensible authority, but not real authority to represent another. AGENCY WITH UNDISCLOSED PRINCIPAL

(2) A mere statement in the power of attorney that it is coupled with an interest is not enough. In what does such interest consist must be stated in the power of attorney. [Del Rosario v. Abad (1958)]

General rule: If an agent acts in his own name (the principal is undisclosed), the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own.

(3) An agency couple with an interest cannot affect third persons. They are obligatory only on the principal who executed the agency. [New Manila Lumber v. Republic (1960)]

Ratio: There is no representation of the principal when the agent acts in his own name. The third person cannot allege that he was misled by any representation since he did not know of the existence of the undisclosed principal.

KINDS OF AGENTS AS TO NATURE AND EXTENT OF AUTHORITY

Exception: The principal is bound when the contract involves things belonging to him [Article 1883]. In this case, the contract is considered as one between the principal and the third person.

According to the nature and extent of their authority, agents have been classified into: (1) Universal agents are authorized to do all acts for his principal which can lawfully be delegated to an agent. So far as such a condition is possible,

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Powers of the agent

such an agent may be said to have universal authority. (2) General agents are authorized to do all acts pertaining to a business of a certain kind or at a particular place, or all acts pertaining to a business of a particular class or series. He has usually authority either expressly conferred in general terms or in effect made general by the usages, customs or nature of the business which he is authorized to transact. An agent, therefore, who is empowered to transact all the business of his principal of a particular kind or in a particular place, would, for this reason, be ordinarily deemed a general agent. (3) Special agents are authorized to do some particular act or to act upon some particular occasion (i.e., acts usually in accordance with specific instructions or under limitations necessarily implied from the nature of the act to be done). [Siasat v. IAC (1985)]

AUTHORITY OF AN AGENT Authority is the power of the agent to affect the legal relations of his principal by acts done in accordance with the principal’s manifestations of consent. An agent can make the principal legally responsible only when he is authorized by the principal to act the way he did. KINDS OF AUTHORITY (1) Actual, when it is actually granted, and it may be express or implied. It is the authority that the agent does, in fact, have. It results from what the principal indicates to the agent; (2) Express, when it is directly conferred by words; (3) Implied, when it is incidental to the transaction or reasonably necessary to accomplish the main purpose of the agency; (4) Apparent or ostensible, when it arises by the acts or conduct of the principal giving rise to an appearance of authority. It makes the principal responsible to third persons for certain actions of the agent that were not really authorized; (5) General, when it refers to all the business of the principal; (6) Special, when it is limited only to one or more specific transactions; and (7) By necessity or by operation of law, when it is demanded by necessity or by virtue of the existence of an emergency. The agency terminates when the emergency passes.

SPECIAL TYPES OF AGENTS

(1) Attorney-at-law is one whose business is to represent clients in legal proceedings; (2) Auctioneer is one whose business is to sell property for others to the highest bidder at a public sale; (3) Broker is one whose business is to act as intermediary between two other parties such as insurance broker and real estate broker; (4) Factor or commission merchant is one whose business is to receive and sell goods for a commission, being entrusted with the possession of the goods involved in the transaction. (5) Cashier in bank is one whose business is to represent a banking institution in its financial transactions; and (5) Attorney-in-fact is one who is given authority by his principal to do a particular act not of a legal character. In its strict legal sense, it means an agent having a special authority.

SCOPE OF AUTHORITY General rule: The scope of the authority of the agent is what appears in the terms of the power of attorney [Siredy Enterprises v. CA (2002)]. Exceptions: An agent is considered acting within the scope of his authority when: (1) He performs acts which are conducive to the accomplishment of the purpose of the agency [Article 1881]; (2) He performed the agency in a manner more advantageous to the principal than that specified by said principal [Article 1881]; (3) The principal ratifies the act, expressly or tacitly [Article 1910].

Attorneys have authority to bind their clients in any case by any agreement in relation thereto made in writing, and in taking appeals, and in all matters of ordinary judicial procedure. But they cannot, without special authority, compromise their client's litigation, or receive anything in discharge of a client's claim but the full amount in cash. [Section 23, Rule 138, Rules of Court]

So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority

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according to an understanding between the principal and the agent. [Article 1901]

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demands that the agent look out for the best interests of the principal as against his own or those of third parties. [See Article 1889]

While third persons are bound to inquire into the extent or scope of the agent’s authority, they are not required to go beyond the terms of the written power of attorney. Third persons cannot be adversely affected by an understanding between the principal and his agent as to the limits of the latter’s authority. In the same way, third persons need not concern themselves with instructions given by the principal to his agent outside of the written power of attorney. [Siredy Enterprises v. CA (2002)]

Thus, an act of the agent which tends to violate his fiduciary duty is not only invalid as to the principal, but is also against public policy. Presumption: Until proven otherwise, however, the presumption arises that an agent has performed his duty in good faith, and the principal, until notice is received of a breach of relational duties, may rely upon his agent's faithfulness.

POWER TO BIND THE PRINCIPAL Requisites: (1) The agent must act within the scope of his authority; and (2) The agent must act in behalf of the principal.

Exception: The presumption does not arise when there is no relation of trust or confidence between the parties (e.g., the agent is bound merely as an instrument/servant, or there is no agency relationship). [De Leon (2010)]

Even when the agent acts in his own name, however, the principal is still bound, when the contract involves things belonging to the principal [Article 1883] or when the principal ratifies the contract, expressly or tacitly [Article 1910].

OBEDIENCE TO PRINCIPAL'S INSTRUCTIONS

General rule: An agent must obey all lawful orders and instructions of the principal within the scope of the agency. If he fails to do so, he becomes liable for any loss the principal incurs even though he can show that he acted in good faith or exercised reasonableness. [See Article 1887]

EFFECTS OF ACTS OF AN AGENT In summary, when the agent acts: (1) With authority of the principal: (a) If done in the name of the principal, the principal is bound to comply with the obligations contracted [Article 1910] and the agent is not personally liable to the party with whom he contracts [Article 1897]; (b) If done in the name of the agent, the agent is the one directly bound in favor of the person with whom he has contracted, except when the contract involves things belonging to the principal; (2) Without authority or beyond the authority granted by the principal: (a) If done in the name of the principal, it is unenforceable against him, unless he ratifies it expressly or tacitly [Article 1910]. (b) If done in the name of the agent, he is personally liable.

EXERCISE OF REASONABLE CARE

By accepting an employment whose requirements he knows, without stipulating otherwise, the agent impliedly undertakes that he possesses a degree of skill reasonably and ordinarily competent for the performance of the service, and that in performing his undertaking, he will exercise reasonable care, skill and diligence. [De Leon (2010)] The specific obligations of the parties to each other are merely specific applications of the general fiduciary obligation [De Leon (2010)]. OBLIGATION TO CARRY OUT AGENCY General rule: The agent is: (1) Bound by his acceptance to carry out the agency; (2) Liable for damages, which the principal may suffer, in case of non-performance; (3) Bound to finish the business already begun on the death of the principal should delay entail danger. [Article 1884]

Obligations of the agent

Exception: An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal [Article 1888].

OBLIGATIONS, IN GENERAL GOOD FAITH AND LOYALTY TO HIS TRUST

The duty of good faith is also called the fiduciary duty, which imposes upon the agent the obligation of faithful service. The duty to be loyal to the principal

OBLIGATION IN CASE HE DECLINES AGENCY In case a person declines an agency, he is bound to observe the diligence of a good father of a family in

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the custody and preservation of the goods forwarded to him.

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Authority

Instructions

Relates to the transaction Refers to the manner or or business with which the mode of agent's action agent is empowered to act with respect to matters within the permitted scope of authority

The obligation lasts until the owner, as soon as practicable: (1) Appoints an agent; or (2) Takes charge of the goods. [Article 1886] The case treated in this provision is different from withdrawal. In this case, no agency was formed. Withdrawal presupposes an existing agency.

Binds third parties

The obligation of the agent, in case of withdrawal, is to continue to act as such agent until the principal has had reasonable opportunity to take the necessary steps to meet the situation. [Article 1929]

OBLIGATION TO PREFER INTEREST OF PRINCIPAL General rule: The agent shall be liable for damages if, there being a conflict between his interest and those of the principal, he should prefer his own [Article 1889].

OBLIGATION TO ADVANCE NECESSARY FUNDS General rule: The agent is not bound to advance the necessary funds. The principal is obliged to advance to the agent, should the latter so request, the sums necessary for the execution of the agency.

Exceptions: The agent is not liable for giving preference to his own when: (1) The principal waives the benefit of this rule, with full knowledge of the facts; or (2) When the interest of the agent is superior.

Exception: He shall be bound to do so should there be a stipulation to that effect, subject to the obligation of the principal to reimburse the agent.

An example of the latter is where the agent has security interest in goods of the principal in his possession, he may protect his interest even if in doing so, he disobeys the principal's orders or injures his interest [De Leon (2010)].

Exception to the exception: He is not bound to do so, even when there is a stipulation, when the principal is insolvent. [Article 1886] Note: Insolvency of the principal is also a ground for extinguishment.

BASIS OF THE RULE

The underlying basis of the rule, which precludes an agent from engaging in self-dealing, is to shut the door against temptation and keep the agent's eye single to the rights and welfare of the principal.

OBLIGATION TO ACT IN ACCORDANCE WITH INSTRUCTIONS In the execution of the agency, the agent shall act in accordance with the instructions of the principal.

APPLICATION

(1) A specific application of this subordination of interests is found in Article 1890: If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal. (2) An agent authorized to sell merchandise cannot bind the principal by selling to himself directly or indirectly, unless the principal consented or ratified the purchase.

In the absence of such instructions, he shall do all that a good father of a family would do, as required by the nature of the business. [Article 1887] Note: The limits of the agent's authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him [Article 1882]. Authority

Does not bind third parties

Instructions

Sum total of the powers Private rule of guidance to committed or permitted to the agent the agent

OBLIGATION TO ACCOUNT AND TO DELIVER THINGS RECEIVED Every agent is bound to: (1) Render an account of his transactions; and (2) Deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

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The agent is a principal with respect to the subagent.

WHAT TO DELIVER

What has to be delivered include all money and property which may have come into his hands or in that of a sub-agent. This includes gifts from third parties in connection with the agency.

POWER TO APPOINT

General rule: The agent may appoint a sub-agent. Ratio: The law allows such substitution for reasons of convenience and practicality.

It is immaterial whether such money or property is the result of the performance or violation of the agent's duty, if it be the fruit of the agency.

Exceptions: (1) The appointment is prohibited by the principal [Article 1892]; (2) The work entrusted to the agent requires special knowledge, skill, or competence, unless authorized to do so by the principal [De Leon (2010)].

LIABILITY FOR CONVERSION

If the agent fails to deliver and instead converts or appropriates for his own use the money or property belonging to the principal, he is liable for estafa. EXEMPTING STIPULATION

Every stipulation exempting the agent to render an account shall be void. [Article 1891]

RELATIONS AMONG THE PARTIES

(1) When the sub-agent has been employed for own account of the agent, to assist him, the sub-agent is a stranger to the principal. (2) When the appointment was authorized by the principal, a fiduciary relationship is created between and among the principal, agent, and sub-agent, such that neither the agent nor the substitute can be held personally liable so long as they act within the scope of their authority [Macias & Co. v. Warner, Barnes & Co. (1922)].

WHEN OBLIGATION NOT APPLICABLE

(1) If the agent or broker acted only as a middleman with the task of merely bringing together the vendor and the vendee [Domingo v. Domingo (1971)]. (2) If the agent had informed the principal of the gift or bonus or profit he received from the purchaser and the principal did not object thereto; (3) When a right of lien exists in favor of the agent.

EFFECTS OF SUBSTITUTION

RESPONSIBILITY FOR ACTS OF SUBSTITUTE The agent may appoint a substitute if the principal has not prohibited him from doing so.

(1) When substitution was prohibited by the principal, appointment by the agent is an act in excess of the limits of his authority. All acts of the substitute are void [Article 1892]. (2) When substitution was authorized, the agent is only liable when he appointed one who is notoriously incompetent or insolvent, unless the person was designated by the principal. (3) When substitution was not authorized, but also not prohibited, the appointment is valid, but the agent is liable for damage caused by the substitution to the principal. (4) When substitution was authorized and the subagent was designated by the principal, the agent is released from any liability for the acts of the sub-agent.

The agent is responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power, but: (a) Without designating the person; and (b) The person appointed was notoriously incompetent or insolvent. All acts of the substitute appointed against the prohibition of the principal shall be void. [Article 1892] The principal may bring an action against the substitute with respect to the obligations which the latter contracted under the substitution [Article 1893].

RESPONSIBILITY OF TWO OR MORE AGENTS General rule: The responsibility of two or more agents is not solidary, even though they have been appointed simultaneously. They are liable jointly.

SUB-AGENCY

A sub-agent or substitute is a person employed or appointed by an agent as his agent, to assist him in the performance of an act for the principal, which the agent has been empowered to perform.

Exception: They are solidarily liable if solidarity has been expressly stipulated [Article 1894]. If solidarity has been thus agreed upon, each of the agents is responsible for:

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(1) The non-fulfillment of agency, even when the fellow agents acted beyond the scope of their authority; and (2) The fault or negligence of his fellow agents, except when the fellow agents acted beyond their authority.

(4) The party with whom the agent contracted is aware of the limits of the powers granted by the principal.

OBLIGATION FOR SUMS APPLIED TO HIS OWN USE The agent owes interest: (1) On the sums applied to his own use from the day on which he did so; and (2) On the sums which he still owes after the agency is extinguished. [Article 1896]

PRESENTATION OF POWER OF ATTORNEY

The agent, however, is liable if he undertook to secure the principal's ratification. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them. [Article 1902]

The liability of the agent for interest for sums converted to his own use is without prejudice to a criminal action that may be brought against him [De Leon (2010)]. The sums referred to as still owing to the principal after extinguishment of the agency are those which were not misapplied by the agent, but were found to be owing to the principal after such extinguishment.

So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. [Article 1900]

OBLIGATIONS TO THIRD PERSONS

RATIFICATION BY PRINCIPAL

LIABILITY OF AGENT FOR OBLIGATIONS CONTRACTED

A third person, who contracts with the agent (thereby recognizing the authority of the agent), cannot later disaffirm his contract based on the fact that the agent has exceeded his powers, if the principal has: (1) Ratified the acts of the agent; or (2) Signified his willingness to ratify said acts. [Article 1901]

General rule: The agent who acts as such is not personally liable to the party with whom he contracts. The principal is responsible for such acts done within the scope of the authority granted to the agent, and should bear any damage caused to third persons. [Article 1910]

Thus, the third person can be compelled to abide by the contract in this case.

Exceptions: He is personally liable when: (1) He acts in his own name [Article 1883]; (2) He expressly binds himself; or (3) He exceeds the limits of his authority without giving such party sufficient notice of his powers. [Article 1897]

The ratification has retroactive effect, relating back to the time of the act or contract ratified and is equivalent to original authority [Board of Liquidators v. Kalaw].

Note: If the agent acts in his own name, he is directly bound in favor of the person with whom he contracted, as if the transaction were his own, except when the contract involves things belonging to the principal.

A principal may not accept the benefits of a transaction and repudiate its burdens. Thus, a principal who seeks to enforce a sale made by the agent cannot ordinarily allege that the agent exceeded his authority.

VOID CONTRACTS

Before ratification, however, the third person may repudiate the contract.

The contract entered into by an agent on behalf of the principal shall be void when: (1) The agent contracts in the name of the principal; (2) He exceeded the scope of his authority; (3) The principal does not ratify the contract; and

IGNORANCE OF AGENT

If a duly authorized agent acts in accordance with the orders of the principal, said principal cannot set up the ignorance of the agent as to circumstances

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whereof he himself was, or ought to have been, aware. [Article 1899]

SALE OF GOODS ON CREDIT WITHOUT AUTHORITY

General rule: The commission agent cannot sell on credit. Should he do so, the principal may: (1) Demand from him payment in cash, in which case the commission agent shall be entitled to any interest or benefit, which may result from such sale [Article 1905]; or (2) Ratify the sale on credit, in which case the principal will have all the risks and advantages to him [De Leon (2010)].

Thus, if the principal appoints an agent who is ignorant, the fault is his alone. He is bound by the acts of the agent. The agent is not liable to third persons in this case. OBLIGATIONS OF COMMISSION AGENT FACTOR OR COMMISSION AGENT

A factor or commission agent is one whose business is to receive and sell goods for a commission (also called factorage) and who is entrusted by the principal with the possession of goods to be sold, and usually selling in his own name.

Exception: The commission agent can sell on credit with the express or implied consent of the principal. SALE OF GOODS ON CREDIT WITH AUTHORITY

If the commission agent was authorized to sell on credit and should he so sell on credit, he shall inform the principal of such sale, with a statement of the names of the buyers.

He may act in his own name or in that of the principal. An ordinary agent need not have possession of the goods of the principal, while the commission agent must be in possession. [De Leon (2010)] Ordinary Agent Acts for and in behalf of the principal

Should he fail to inform the principal, the sale is deemed to have been made for cash as far as the principal is concerned. [Article 1906] As such, as to the buyer, the sale may be on credit, but the principal may demand the payment in cash from the agent.

Commission Agent Acts in his own name or that of his principal

Should the commission agent receive a guarantee commission (del credere commission) on a sale, in addition to the ordinary commission, he shall: (1) Bear the risk of collection; and (2) Pay the principal the proceeds of the sale on the terms agreed upon with the purchaser.

Need not have possession Must have possession of of the goods the goods

Broker

Commission Agent

In case of a sale on credit, the commission agent is obliged to collect the credits of his principal when they become due and demandable.

Has no custody of the Has custody or possession thing to be disposed of, of the things to be sold only acts as intermediary between seller and buyer Maintains no relations with things to be sold/bought

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General rule: Failing to so collect, the agent shall be liable for damages

Maintains relations with the thing, the buyer and the seller

Exception: He is not liable if he proves that he exercised due diligence for that purpose. RESPONSIBILITY FOR FRAUD AND NEGLIGENCE In the fulfillment of his obligation, the agent is responsible for: (1) Fraud; and (2) Negligence

RESPONSIBILITY FOR GOODS RECEIVED

(1) The commission agent shall be responsible for goods received by him in the terms and conditions and as described in the consignment, unless upon receiving them he should make a written statement of the damage and deterioration suffered by the same [Article 1903]. (2) The commission agent who handles goods of the same kind and mark, which belong to different owners, shall distinguish them by countermarks, and designate the merchandise respectively belonging to each principal [Article 1904].

The circumstance that the agency is or is not gratuitous will be considered by the courts in fixing the liability for negligence only. The liability may be to the principal or to third persons.

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The principal is solidarily liable if quasi-delict was committed by the agent while performing his duties in furtherance of the principal's business.

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The effects of ratification are: (1) With respect to the agent, it relieves him of liability. He may thus recover compensation from the principal. (2) With respect to the principal, he assumes responsibility for the unauthorized act as fully as if the agent had acted under an original authority. But he is not liable for acts outside the authority affirmed by his ratification. (3) With respect to third persons, they are bound by the ratification and cannot set up the fact that the agent has exceeded his powers [Article 1901].

Obligations of the principal OBLIGATIONS, IN GENERAL In addition to his duties specified under the contract itself, the principal is under obligation to deal fairly and in good faith with his agent, who owes the same to his principal.

SEPARATE CONTRACTS WITH PRINCIPAL AND AGENT

When two persons contract with regard to the same thing, one of them with the agent and the other with the principal, and the two contracts are incompatible with each other, that of prior date shall be preferred, subject to the rules on double sales [Article 1916].

OBLIGATION TO COMPLY WITH OBLIGATIONS CONTRACTED General rule: The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation where in the agent has exceeded his power, the principal is not bound.

The rules on double sales (Article 1544) provide: (1) If the same movable property is sold to different persons, ownership is transferred to whoever first took possession in good faith. (2) If it be immovable: (a) Ownership belongs to the person who in good faith first recorded it in the Registry of Property. (b) If there is no inscription, ownership shall belong to the person who, in good faith was first in possession; and in the absence of such, to the one who presents the oldest title, provided there is good faith.

Exceptions: The principal is: (1) Bound by the obligation entered into by the agent in excess of his power, when he ratifies it expressly or tacitly [Article 1910]; (2) Solidarily liable with the agent if the principal allowed the agent to act as though he had full powers [Article 1911]. Note: If the agent acts in his own name, but the contract involves things belonging to the principal, the contract must be considered as entered into between the principal and the third person [Sy-Juco and Viardo v. Sy-Juco (1920)].

The liability for damages suffered by the third person whose contract must be rejected shall be borne by: (1) The principal, if the agent acted in good faith; or (2) The agent, if he acted in bad faith. [Article 1918]

RATIFICATION

Ratification is the adoption or affirmance by a person of a prior act which did not bind him, but which was done or professed to be done on his account, thus giving effect to the acts as if originally authorized.

WHEN PRINCIPAL NOT LIABLE, IN SUMMARY

(1) Void or inexistent contracts [Article 1409]; (2) Sale of a piece of land or any interest therein when the authority of the agent is not in writing [Article 1874]; (3) Acts of the substitute appointed against the prohibition of the principal [Article 1892]; (4) Acts done in excess of the scope of the agent's authority [Articles 1898 and 1910]; (5) When the agent acts in his own name, except when the contract involves things belonging to the principal [Article 1883]; (6) Unenforceable contracts [Article 1403].

Aside from the intent to ratify, the following conditions must be fulfilled for ratification to be effective: (1) The principal must have the capacity and power to ratify; (2) He must have had knowledge or had reason to know of material or essential facts about the transaction; (3) He must ratify the acts entirely; (4) The act must be capable of ratification; and (5) The act must be done in behalf of the principal. [De Leon (2010)]

OBLIGATION FOR COMPENSATION OF AGENT Agency is presumed to be for a compensation, unless there is proof to the contrary [Article 1875].

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(b) Provided that the agent is free from all fault. [Article 1912]

AMOUNT OF COMPENSATION

The principal must pay the agent the compensation agreed upon, or the reasonable value of the agent's services if no compensation was specified.

The reimbursement shall include the interest on the sums advanced from the day the advances were made.

This obligation presupposes that the agent complied with his obligation to the principal.

WHEN PRINCIPAL NOT LIABLE FOR EXPENSES

The principal is not liable for the expenses incurred by the agent in the following cases: (1) If the agent acted in contravention of the principal's instructions, unless the latter should wish to avail himself of the benefits derived from the contract; (2) When the expenses were due to the fault of the agent; (3) When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof; (4) When it was stipulated that: (a) The expenses would be borne by the agent; or (b) That the latter would be allowed only a certain sum. [Article 1918]

COMPENSATION OF BROKER

A broker is entitled to the usual commissions whenever he brings to his principal a party who is able and willing to take the property and enter into a valid contract upon the terms named by the principal, although the terms may be arranged and the matter negotiated and consummated between the principal and the purchaser directly. A broker is never entitled to commission for unsuccessful efforts. The governing rule is that the agent must prove that he was the procuring cause of the transaction. Otherwise, he is not entitled to the stipulated broker's commission [Inland Realty v. CA (1997)].

DAMAGES

Procuring cause refers to a cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime objective

The principal must also indemnify the agent for all the damages which the execution of the agency may have caused the latter, without fault or negligence or his part. [Article 1913]

of the employment of the broker – producing a purchaser ready, willing and able to buy on the owner's terms.

RIGHT OF RETENTION BY AGENT

The agent may retain in pledge the things which are the object of the agency until the principal effects: (1) Reimbursement of necessary funds advanced; and (2) Payment of indemnity for damages. [Article 1914]

Since the broker’s only job is to bring together the parties to a transaction, it follows that if the broker does not succeed in bringing the mind of the purchaser and the vendor to an agreement with reference to the terms of a sale, he is not entitled to a commission [Rocha v. Prats (1922)].

This is a case of legal pledge. However, the agent is not entitled to the excess in case the things are sold to satisfy his claims.

If the principal breaks off from negotiations with a buyer brought by the agent in order to deliberately deal later with the buyer personally, this is evident bad faith. In such case, justice demands compensation for the agent. [Infante v. Cunanan (1953)]

MULTIPLE PRINCIPALS

If there are two or more principals who appointed the agent for a common transaction or undertaking, they shall be solidarily liable for all the consequences of the agency [Article 1915]. Requisites: (1) There are two or more principals; (2) The principals have all concurred in the appointment of the same agent; and (3) The agent is appointed for a common transaction or undertaking.

LIABILITY FOR EXPENSES AND DAMAGES NECESSARY FUNDS

(1) The principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency. (2) In case the agent already advanced them, the principal must reimburse him therefor: (a) Even if the business or undertaking was not successful;

LIABILITY FOR QUASI-DELICT BY AGENT

The principal is solidarily liable to third persons for torts of an agent committed:

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(1) At the principal's direction; or (2) In the course and within the scope of the agent's employment.

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Exception: Agency cannot be revoked if it is coupled with an interest, such that: (1) A bilateral contract depends upon it; (2) It is the means of fulfilling an obligation already contracted; or (3) A partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable.

Extinguishment of agency MODES OF EXTINGUISHING AGENCY, IN GENERAL Agency is extinguished: (1) By its revocation; (2) By the withdrawal of the agent; (3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent; (4) By the dissolution of the firm or corporation which entrusted or accepted the agency; (5) By the accomplishment of the object or purpose of the agency; (6) By the expiration of the period for which the agency was constituted. [Article 1919]

MULTIPLE PRINCIPALS

When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke the same without the consent of the others. [Article 1925] MANNER OF REVOCATION

Revocation may be express or implied. There is express revocation when the principal clearly and directly makes a cancellation of the authority of the agent orally or in writing. There is implied revocation in the following cases: (1) The appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent, without prejudice to the requirement of notice to third persons [Article 1923]. (2) The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons [Article 1924]. (3) A general power of attorney is revoked by a special one granted to another agent, as regards the special matter involved in the latter [Article 1926].

The provision enumerates only those which are peculiar to agency and is, therefore, not exclusive. Agency may also be extinguished by the modes of extinguishment of obligations in general. The modes of extinguishment may be classified into three: (1) By agreement (Nos. 5 and 6); (2) By subsequent acts of the parties: (a) By the act of both parties or by mutual consent; or (b) By the unilateral act of one of them (Nos. 1 and 2) (3) By operation of law (Nos. 3 and 4)

There is implied revocation only where the new appointment is incompatible with the previous one.

In the absence of anything to show its termination, the agency relation will be presumed to have continued. The burden of proving termination is on the party asserting it.

EFFECT OF REVOCATION IN RELATION TO THIRD PARTIES

If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof [Article 1921].

REVOCATION BY PRINCIPAL General rule: The principal may: (1) Revoke the agency at will; and (2) Compel the agent to return the document evidencing the agency.

If the agent had general powers, revocation of the agency does not prejudice third persons who acted: (1) In good faith; and (2) Without knowledge of the revocation.

Qualifications: The right of the principal to terminate the authority of his agent is absolute and unrestricted, except that he is liable for damages in case: (1) He revokes the agency in bad faith [Danon v. Brimo (1921)]; or (2) He revokes the agency before the expiration of the period stipulated in the agency contract.

Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. [Article 1922]

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WITHDRAWAL BY AGENT The agent may withdraw from the agency by giving due notice to the principal.

accomplished, the agency continues indefinitely for as long as the intent to continue is manifested through words or actions of the parties.

LIABILITY FOR DAMAGES

DISSOLUTION OF FIRM OR CORPORATION The dissolution of a partnership or corporation which entrusted (principal) or accepted (agent) the agency extinguishes its juridical existence, except for the purpose of winding up its affairs. It is equivalent to its death.

General rule: If the principal should suffer any damage by reason of the withdrawal, the agent must indemnify him therefor. Exception: The agent is not liable for damages if he should base his withdrawal upon the impossibility of continuing the performance of the agency without grave detriment to himself. [Article 1928]

EXPIRATION OF TERM If created for fixed period, expiration of the period extinguishes agency even if the purpose was not accomplished.

OBLIGATION TO CONTINUE AGENCY

The agent, even if he should withdraw from the agency for a valid reason, must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation [Article 1929].

If no time is specified, the courts may fix the period as under the circumstances have been probably contemplated by the parties [Article 1197]. Otherwise, the agency terminates at the end of a reasonable period of time. Either party can terminate the relationship at will by giving notice to the other. [De Leon (2010)]

DEATH, CIVIL INTERDICTION, INSANITY OR INSOLVENCY DEATH OF PRINCIPAL

General rule: Death extinguishes agency.

Period may be implied from terms of agreement, purpose of agency, and the circumstances of the parties.

Exceptions: (1) The agency remains in full force and effect even after the death of the principal, if it has been constituted: (a) In the common interest of the principal and agent; or (b) In the interest of a third person who has accepted the stipulation in his favor. [Article 1930] (2) Anything done by the agent, without knowledge of 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 [Article 1931]. (3) The agent must finish business already begun on the death of the principal, should delay entail any danger [Article 1884]. DEATH OF AGENT

If the agent dies, his heirs must: (1) Notify the principal thereof; and (2) In the meantime adopt such measures as the circumstances may demand in the interest of the latter. [Article 1932] ACCOMPLISHMENT OF OBJECT OR PURPOSE Between principal and agent, the fulfillment of the purpose for which agency was created ipso facto terminates agency, even though it was expressly made irrevocable. If the purpose has not been

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Credit Transactions

Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. [Garcia v. Thio, G.R. No. 154878]

MEANING AND SCOPE OF CREDIT TRANSACTIONS Credit transactions include all transactions involving the purchase or loan of goods, services, or money in the present with a promise to pay or deliver in the future. TWO TYPES OF CREDIT TRANSACTIONS/CONTRACTS OF SECURITY (1) Secured transactions or contracts of real security – supported by a collateral or an encumbrance of property (2) Unsecured transactions or contracts of personal security – fulfillment by the debtor is supported only by a promise to pay or the personal commitment of another Examples of credit transactions (1) Bailment contracts (2) Contracts of guaranty and suretyship (3) Mortgage (4) Antichresis (5) Concurrence and preference of credits

Loan [A] contract by which 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, in which case the contract is called commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is called a simple loan or mutuum. [Art.1933] CHARACTERISTICS OF A LOAN (1) Real contract (a) Delivery is essential for perfection of the contract of loan. (b) An accepted promise to loan, is nevertheless binding on the parties, it being a consensual contract.

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COMMODATUM V. MUTUUM

Commodatum

Mutuum

Ordinarily involves something not consumable* (Art.1936)

Involves money or other consumable thing

Ownership of the thing loaned is retained by lender (Art.1933) Essentially gratuitous (Art.1933)

Ownership is transferred to the borrower

Borrower must return the same thing loaned (Art.1933) May involve real or personal property (Art.1937) Loan for use or temporary possession (Art.1935) Bailor may demand the return of the thing loaned before the expiration of the term in case of urgent need (Art.1946) Bailor suffers the loss of the subject matter since he is the owner (Art.1942; Art.1174) Purely personal in character (Art 1939)

May be gratuitous or onerous, i.e. with stipulated interest Borrower need only pay an equal amount of the same kind and quality (Art. 1953) Refers only to personal property Loan for consumption Lender may not demand its return before the lapse of the term agreed upon

Borrower suffers the loss even if caused exclusively by a fortuitous event and he is not, therefore, discharged from his duty to pay Not purely personal in character

If consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum. [Producers Bank v. CA, Feb. 19, 2003]

(2) Unilateral contract (a) creates obligations on only one party, i.e., the borrower

OBLIGATIONS OF BAILOR AND BAILEE WHO MAY BE A BAILOR IN COMMODATUM? (a) Anyone. The bailor in commodatum need not be the owner of the thing loaned. [Art.1938] (b) But the bailee himself may not lend nor lease the thing loaned to him to a third person [Art 1939(2)]

In a contract of loan, the cause is, as to the borrower, the acquisition of the thing, and as to the lender, the right to demand its return or its equivalent. [Monte de Piedad v. Javier]

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(4) To pay damages to bailee for known hidden flaws in the thing loaned [Art. 1951]

WHAT ARE THE TWO (2) KINDS OF COMMODATUM?

(a) Ordinary commodatum [Art. 1933] (b) Precarium - bailor may demand the thing loaned at will [Art. 1947]

(NOTE: Bailor has no right of abandonment; he cannot exempt himself from payment of expenses or damages to the bailee by abandoning the thing to the latter. [Art. 1952]) OBLIGATIONS OF A BAILEE IN COMMODATUM (1) Obligation to pay for the ordinary expenses for the use and preservation of the thing loaned [Art. 1941] (2) Obligation to take good care of the thing with the diligence of a good father of a family [Art. 1163] (3) Liability for loss, even if loss through fortuitous event, under certain circumstances [Art. 1942] (4) Liability for deterioration of thing loaned, except under certain circumstances [Art. 1943] (5) Obligation to return the thing upon expiration of term or upon demand in case of urgent need [Art. 1946] (6) Solidary obligation where there are 2 or more bailees to whom a thing was loaned in the same contract [Art.1945]

OBLIGATIONS OF A BAILOR IN COMMODATUM (1) To allow the bailee the use of the thing loaned for the duration of period stipulated or until the accomplishment of the purpose for which commodatum was constituted. Exceptions: (a) Urgent need of the thing, during which time he may demand its return or temporary use (Art.1946) (b) Precarium (Art.1947) (i) If duration of the contract has not been stipulated (ii) If use or purpose of the thing has not been stipulated (iii) If use of thing is merely tolerated by the bailor (c) Bailee commits an act of ingratitude specified in Art. 765 [Art. 1948]: (1) Commission of offenses against the person, the honor, or the property of the bailor, or of his wife or children under his parental authority (2) Imputing to the bailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the bailee himself, his wife, or children under his authority (3) Undue refusal to give the bailor support when the bailee is legally or morally bound to do so

General Rule: Bailee is not liable for loss or damage due to a fortuitous event [Art. 1174], since the bailor retains ownership of the thing Exception: Bailee is liable for loss even if due to a fortuitous event when: [Art. 1942] (1) He devotes the thing to any purpose different from that for which it was loaned (2) He keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted (3) The thing loaned has been delivered with appraisal of its value, unless there is stipulation exempting the bailee from responsibility in case of a fortuitous event (4) He lends or leases the thing to a third person who is a not a member of his household (5) Being able to save either the thing borrowed or his own thing, he chose to save the latter.

(NOTE: Article 765 is applicable, because like donation, commodatum is essentially gratuitous. [Art.1933, par.2] (2) To refund extraordinary expenses for the preservation of the thing loaned provided bailor is notified before the expenses were incurred. [Art. 1949] (a) Exception: Urgent need such that reply to the notification cannot be awaited without danger, hence no notice is necessary.

General Rule [1]: Bailee is liable for deterioration of thing loaned. Exception [1]: The deterioration of the thing is due only to the use thereof and without his fault [Art. 1943] General Rule [2]: Bailee has no right of retention of the thing loaned, on the ground that the bailor owes him something. [Art. 1944]

(3) To bear 50% of the extraordinary expenses arising from actual use of bailee of the thing loaned [Art. 1949] (a) Exception: Contrary stipulation

Exception [2]: Bailee has a right of retention for damages for known hidden flaws mentioned in Art

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1951. [Art. 1944]

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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 Art.1169.

INTEREST AND SUSPENSION OF USURY LAW Interest – is the compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods or credits KINDS OF INTEREST

(1) Simple interest – Paid for the principal at a certain rate fixed or stipulated by the parties. (2) Compound Interest – that which is imposed upon interest due and unpaid. (3) Legal Interest – that which the law directs to be charged in the absence of any agreement as to the rate between the parties. (4) Lawful Interest – that which the laws allow or do not prohibit (5) Unlawful or Usurious Interest – paid or stipulated to be paid beyond the maximum fixed by law. However, by virtue of CB Circular 905, usury has become “legally inexistent.”

(2) When an 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) 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 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 finally adjudged.

WHEN IS COMPOUND INTEREST ALLOWED?

(1) When there is an express written stipulation to that effect [Art. 1956] (2) Upon judicial demand. HOWEVER, debtor is not liable to pay compound interest even after judicial demand when there is no stipulation for payment of interest. [Art. 2212] REQUISITES FOR INTEREST TO BE CHARGEABLE

(1) Must be expressly stipulated [Art 1956] (2) Agreement must be in writing [Art.1956] (3) Must be lawful

(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.

While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. [Integrated Realty Corporation v. Philippine National Bank, 174 SCRA 295]

Forbearance is defined, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable (Bataan Seedling v. Republic, 383 SCRA 590)

EXCEPTIONS TO REQUISITE OF EXPRESS STIPULATION

(1) The debtor in delay is liable to pay legal interest (6% or 12% per annum) as indemnity for damages [Art. 2209] (2) Interest accruing from unpaid interest – Interest demanded shall earn interest from the time it is judicially demanded [Art. 2212] or where there is an express stipulation [Art. 1959]

THE USURY LAW (Act No.2566) is an act fixing rates of interests upon loans and declaring the effect of receiving or taking usurious rates and for other purposes. (Arevalo v. Dimayuga, 49 Phil 894) CB Circular No. 905 – abolished interest rate ceilings. With the promulgation of such circular, usury has become “legally inexistent” as the parties can now legally agree on any interest that may be charged on the loan.

RULES FOR AWARD OF INTEREST IN THE CONCEPT OF ACTUAL AND COMPENSATORY DAMAGES (Eastern

Shipping Lines v. CA, 234 SCRA 78) (1) When the obligation breached consists in the payment of a sum of money, i.e., a loan or

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OBLIGATIONS OF DEPOSITOR (1) Depositor is obliged to reimburse the depositary for expenses incurred for preservation – if deposit is gratuitous. [Art. 1992] (2) Depositor is obliged to pay losses incurred due to character of thing deposited. [Art. 1993]

ELEMENTS OF USURY

(1) A loan or forbearance of money (2) An understanding between parties that the loan shall and may be returned (3) An unlawful intent to take more than the legal rate for the use of money or its equivalent (4) The taking or agreeing to take for the use of the loan of something in excess of what is allowed by law.

General Rule: The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited [Art. 1993]

A usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. (Carpo v. Chua, G.R. Nos. 150773 and 153599)

Exceptions (1) Depositor was not aware of the danger; (2) Depositor was not expected to know the dangerous character of the thing; (3) Depositor notified the depositary of such dangerous character; (4) Depositary was aware of the danger without advice from the depositor.

Deposit Deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. [Art.1962]

EXTINGUISHMENT OF DEPOSIT A DEPOSIT IS EXTINGUISHED: (1) Upon the loss or deterioration of the thing deposited; (2) Upon the death of either the depositor or the depositary, ONLY in gratuitous deposits; (3) By other modes provided in the Civil Code, e.g. novation, merger, etc. [See Art. 1231]

CHARACTERISTICS (1) Real Contract because it is perfected by the delivery of the subject matter. (2) Principal purpose of the contract of deposit is the safekeeping of the thing delivered. (3) If gratuitous, it is unilateral because only the depository has an obligation. If onerous, it is bilateral.

EFFECT OF DEATH OF DEPOSITOR OR DEPOSITARY [Art. 1995] (1) Where deposit gratuitous – death of either of the depositor or depositary extinguishes the deposit (personal in nature). By the word “extinguished,” the law really means that the depositary is not obliged to continue with the contract of deposit. (2) Where deposit for compensation – not extinguished by the death of either party.

The principal purpose is safekeeping of the thing delivered, so that if it is only an accessory or secondary obligation, deposit is not constituted but some other contract.

KINDS OF DEPOSIT (1) Judicial (2) Extrajudicial (a) Voluntary (b) Necessary

CONTRACT OF DEPOSIT IS GENERALLY GRATUITOUS [Art. 1965], subject to the following exceptions: (1) There is a contrary stipulation (2) Depository is in the business of storing goods (3) Property saved from destruction during calamity without owner’s knowledge; just compensation should be given to the depository. [Art. 1996(2) and Art. 1997, par.2]

VOLUNTARY DEPOSIT Voluntary Deposit - delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited [Art. 1968]

ONLY MOVABLE THINGS MAY BE THE OBJECT OF A DEPOSIT [Art. 1966] if the deposit is either voluntary [Art. 1968] or necessary [Art. 1996]. HOWEVER, a judicial deposit may cover movable as well an immovable property, its purpose being to protect the rights of parties to the suit [Art. 2006].

NECESSARY DEPOSIT Necessary Deposit - made in compliance with a legal obligation, or on the occasion of any calamity, or by travelers in hotels and inns [Arts. 1996-2004] or by travelers with common carriers [Arts. 1734-1735]

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KINDS OF NECESSARY DEPOSITS

(1) It is made in compliance with a legal obligation, in which case it is governed by the law establishing it, and in case of deficiency, the rules on voluntary deposit e.g. Arts. 538, 586 and 2104 (2) It takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events. There must be a causal relation between the calamity and the constitution of the deposit. In this case the deposit is governed by the rules on voluntary deposit and Art. 2168 (3) Made by passengers with common carriers. [Art. 1754] (4) Made by travelers in hotels or inns. [Art. 1998]

(Note: 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. Such kind of stipulation shall be VOID. [Art. 2003]) Triple-V Food Services v. Filipino Merchants Insurance Company: Regarding the legal deposit of a vehicle that was stolen while parked with Saisaki restaurant, “the depositary may not exempt itself from responsibility for loss or damage of the thing deposited with it, by exclusionary stipulation. Such stipulations are void for being contrary to law.” HOTEL-KEEPER’S RIGHT TO RETENTION

(1) The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of (a) lodging, and (b) supplies usually furnished to hotel guests (Art. 2004) (2) NOTE: The right of retention recognized in this article is in the nature of a pledge created by operation of law.

DEPOSITS BY TRAVELERS IN HOTELS AND INNS

Before keepers of hotels or inns may be held responsible as depositaries with regard to the effects of their guests, the following must concur: (1) They have been previously informed about the effects brought by the guests; and (2) The latter have taken the precautions prescribed regarding their safekeeping. EXTENT OF LIABILITY UNDER ART.1998

JUDICIAL DEPOSIT Judicial Deposit – takes place when an attachment or seizure of property in litigation is ordered [Arts. 2005-2009]

(1) Those in hotel rooms which come under the term “baggage” or articles such as clothing as are ordinarily used by travelers (2) Include those lost or damaged in hotel annexes such as vehicles in the hotel’s garage.

NATURE AND PURPOSE

It is auxiliary to a case pending in court. The purpose is to maintain the status quo during pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment.

WHEN HOTEL-KEEPER LIABLE

Regardless of the amount of care exercised: (1) The loss or injury to personal property is caused by his servants or employees as well as by strangers [Art. 2000]. (2) The loss is caused by the act of a thief or robber done without the use of arms and irresistible force. [Art. 2001]

DEPOSITARY OF SEQUESTERED PROPERTY

A person is appointed by the court [Art. 2007] with the obligations: (1) To take care of the property with the diligence of a good father of the family. [Art. 2008] (2) To continue in his responsibility until the controversy which give rise thereto is ended unless the court so orders. [Art. 2007]

WHEN HOTEL-KEEPER NOT LIABLE

(1) The loss or injury is caused by force majeure, like flood, fire, [Art. 2000] theft or robbery by a stranger - not the hotel-keeper’s servant or employee with the use of firearms or irresistible force [Art. 2001]

APPLICABLE LAW

(1) The law on judicial deposit is remedial or procedural in nature. (2) Rules of Court shall govern matters not provided for in the Civil Code. [Art. 2009]

Exception: Hotel-keeper is guilty of fault or negligence in failing to provide against the loss or injury from his cause. [Arts. 1170 and 1174] (2) The loss is due to the acts of the guests, his family, servants, visitors [Art.2002]

Guaranty and Suretyship

(3) The loss arises from the character of the things brought into the hotel (Ibid.)

Guaranty is a contract whereby a person, called the guarantor, binds himself to the creditor to fulfill the

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obligation of the principal debtor in case the latter should fail to do so. [Art. 2047]

(a) Presence of cause which supports principal obligation: Cause of the contract is the same cause which supports the obligation as to the principal debtor. The consideration which supports the obligation as to the principal debtor is a sufficient consideration to support the obligation of a guarantor or surety. (b) Absence of direct consideration or benefit to guarantor: Guaranty or surety agreement is regarded valid despite the absence of any direct consideration received by the guarantor or surety, such consideration need not pass directly to the guarantor or surety; a consideration moving to the principal will suffice.

While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal cannot pay [See benefit of excussion, Art. 2058]. Suretyship is a relation which exists where one person (principal) has undertaken an obligation and another person (surety) is also under a direct and primary obligation or other duty to a third person (oblige), who is entitled to but one performance, and as between the two who are bound, the one rather than the other should perform. If a person binds himself solidarily with the principal debtor, the contract is called suretyship and the guarantor is called a surety.

(3) A married woman who is a guarantor binds only her separate property, generally [2049]

GUARANTY DISTINGUISHED FROM SURETYSHIP Guaranty

Suretyship

Guarantor’s liability depends upon an independent agreement to pay the obligation Guarantor’s engagement is a collateral undertaking Guarantor is subsidiarily liable i.e. only obliged to pay if the principal cannot pay Guarantor not bound to take notice of default of his principal Guarantor often discharged by the mere indulgence of the creditor and is usually not liable unless notified of the principal’s default

Surety assumes liability as a regular party to the undertaking

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Exceptions (a) With her husband’s consent, bind the community or conjugal partnership property (b) Without husband’s consent, in cases provided by law, such as when the guaranty has redounded to the benefit of the family. (4) A guaranty need not be undertaken with the knowledge of the debtor [2050] (a) Guaranty is unilateral – exists for the benefit of the creditor and not for the benefit of the principal debtor (b) Creditor has every right to take all possible measures to secure payment of his credit – guaranty can be constituted even against the will of the principal debtor

Surety is an original promissory Surety is primarily liable i.e. bound to pay if the principal does not pay Surety ordinarily held to know every default of his principal Surety not discharged either by the mere indulgence of the creditor or by want of notice of default of the principal

However, as regards payment made by a third person: (a) Payment without the knowledge or against the will of the debtor: (i) Guarantor can recover only insofar as the payment has been beneficial to the debtor [Art. 1236] (ii) Guarantor cannot compel the creditor to subrogate him in his rights [Art. 1237] (b) Payment with knowledge or consent of the debtor: Subrogated to all the rights which the creditor had against the debtor

NATURE AND EXTENT OF GUARANTY NATURE AND EXTENT OF GUARANTY

(1) A guaranty is generally gratuitous [2048] (a) General Rule: Guaranty is gratuitous (b) Exception: When there is a stipulation to the contrary

(5) The guaranty must be founded on a valid principal obligation [2052(1)]

(2) On the cause of a guaranty contract A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. [Severino v. Severino]

Guaranty is an accessory contract: It is an indispensable condition for its existence that there must be a principal obligation. Hence, if the principal obligation is void, it is also void.

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condition precedent are valid and binding before the occurrence of the condition precedent.

(6) A guaranty may secure the performance of a voidable, unenforceable, and natural obligation [2052(2)] A guaranty may secure the performance of a: (a) Voidable contract – such contract is binding, unless it is annulled by a proper court action (b) Unenforceable contract – because such contract is not void (c) Natural obligation – the creditor may proceed against the guarantor although he has no right of action against the principal debtor for the reason that the latter’s obligation is not civilly enforceable. When the debtor himself offers a guaranty for his natural obligation, he impliedly recognizes his liability, thereby transforming the obligation from a natural into a civil one.

A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. A continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved.

(7) A guaranty may secure a future debt [2053] Continuing Guaranty or Suretyship: (a) Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. [Diño v. CA] (b) Future debts, even if the amount is not yet known, may be guaranteed but there can be no claim against the guarantor until the amount of the debt is ascertained or fixed and demandable

Where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one.” (8) A guaranty may secure the performance of a conditional obligation [2053] (a) Principal obligation subject to a suspensive condition – the guarantor is liable only after the fulfillment of the condition. (b) Principal obligation subject to a resolutory condition – the happening of the condition extinguishes both the principal obligation and the guaranty

Rationale: A contract of guaranty is subsidiary. (a) To secure the payment of a loan at maturity – surety binds himself to guarantee the punctual payment of a loan at maturity and all other obligations of indebtedness which may become due or owing to the principal by the borrower. (b) To secure payment of any debt to be subsequently incurred – a guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. (c) To secure existing unliquidated debts – refers to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown and not to debts not yet incurred and existing at that time. (d) The surety agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, just like obligations which are subject to a

(9) A guarantor’s liability cannot exceed the principal obligation [2054] General Rule: Guaranty is a subsidiary and accessory contract – guarantor cannot bind himself for more than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. But the guarantor may bind himself for less than that of the principal. Exceptions (a) Interest, judicial costs, and attorney’s fees as part of damages may be recovered – creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the legal rate, judicial costs, and attorney’s

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fees when appropriate, even without stipulation and even if the surety would thereby become liable to pay more than the total amount stipulated in the bond.

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NATURE AND EXTENT OF SURETYSHIP (1) Liability is contractual and accessory but direct (2) Liability is limited by the terms of the contract (3) Liability arises only if principal debtor is held liable (a) In the absence of collusion, the surety is bound by a judgment against the principal even though he was not a party to the proceedings; (b) The creditor may sue, separately or together, the principal debtor and the surety; (c) A demand or notice of default is not required to fix the surety’s liability Exception: Where required by the provisions of the contract of suretyship (d) A surety bond is void where there is no principal debtor because such an undertaking presupposes that the obligation is to be enforceable against someone else besides the surety, and the latter can always claim that it was never his intention to be the sole person obligated thereby.

Interest runs from: (1) Filing of the complaint (upon judicial demand); or (2) The time demand was made upon the surety until the principal obligation is fully paid (upon extra-judicial demand) Rationale: Surety is made to pay, not by reason of the contract, but by reason of his failure to pay when demanded and for having compelled the creditor to resort to the courts to obtain payment. (b) Penalty may be provided – a surety may be held liable for the penalty provided for in a bond for violation of the condition therein.

Note: Surety is not entitled to exhaustion

Principal’s liability may exceed guarantor’s obligations The amount specified in a surety bond as the surety’s obligation does not limit the extent of the damages that may be recovered from the principal, the latter’s liability being governed by the obligations he assumed under his contract

(1) The undertaking is to the creditor, not the debtor The surety makes no covenant or agreement with the principal that it will fulfill the obligation guaranteed for the benefit of the principal. The surety’s undertaking is that the principal shall fulfill his obligation and that the surety shall be relieved of liability when the obligation secured is performed.

(10) The existence of a guaranty is not presumed [2055] Guaranty requires the expression of consent on the part of the guarantor to be bound. It cannot be presumed because of the existence of a contract or principal obligation.

Exception: Unless otherwise expressly provided. (2) Prior demand by the creditor upon principal not required. Surety is not exonerated by neglect of creditor to sue principal.

Rationale: (a) There be assurance that the guarantor had the true intention to bind himself; (b) To make certain that on making it, the guarantor proceeded with consciousness of what he was doing.

Strictissimi juris rule applicable only to accommodation surety Reason: An accommodation surety acts without motive of pecuniary gain and hence, should be protected against unjust pecuniary impoverishment by imposing on the principal, duties akin to those of a fiduciary. This rule will apply only after it has been definitely ascertained that the contract is one of suretyship or guaranty.

(11) Contract of guaranty is covered by the Statute of Frauds [See Art. 1403(2)(b)] Guaranty must not only be expressed but must so be reduced into writing. Hence, it 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. However, it need not appear in a public document

Strictissimi juris rule NOT applicable to compensated sureties Reasons: (1) Compensated corporate sureties are business associations organized for the purpose of assuming classified risks in large numbers, for profit and on an impersonal basis. (2) They are secured from all possible loss by

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adequate counter-bonds agreements.

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or

indemnity

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the satisfaction of the obligation – If such judicial action including execution would not satisfy the obligation, the guarantor can no longer require the creditor to resort to all such remedies against the debtor as the same would be but a useless formality. It is not necessary that the debtor be judicially declared insolvent.

Such corporations are in fact insurers and in determining their rights and liabilities, the rules peculiar to suretyship do not apply. The stipulation in the indemnity agreement allowing the surety to recover even before it paid the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even before paying the creditors. [Mercantile Insurance Company v. Ysmael, 169 SCRA 66]

Southern Motors, Inc. v. Barbosa: “The right of guarantors…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.”

EFFECT OF GUARANTY EFFECTS OF GUARANTY BETWEEN THE GUARANTOR AND THE CREDITOR

(1) The guarantor has the right to benefit from excussion/ exhaustion [2058]

Luzon Steel Corp. v. Sia: “The surety in the present case bound itself "jointly and severally" (in solidum) with the defendant; and excussion (previous exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound himself solidarily with the debtor".

The guarantor cannot be compelled to pay the creditor unless the latter has: (a) Exhausted all of the property of the debtor; and (b) Resorted to all the legal remedies against the debtor.

(b) In order that the guarantor may make use of the benefit of excussion, he must: (i) Set it up against the creditor upon the latter’s demand for payment from him; (ii) Point out to the creditor: (a) Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. (b) Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. (c) Sufficient to cover the amount of the debt (c) If he is a judicial bondsman and sub- surety (2084) (d) Where a pledge or mortgage has been given by him as a special security (e) If he fails to interpose it as a defense before judgment is rendered against him.

Exceptions to the benefit of excussion (2059) (a) As provided in Art. 2059: (i) If the guarantor has expressly renounced it. (ii) If he has bound himself solidarily with the debtor. Here, the liability assumed is that of a surety. The guarantor becomes primarily liable as a solidary co- debtor. In effect, he renounces in the contract itself the benefit of exhaustion. (iii) In case of insolvency of the debtor – guarantor guarantees the solvency of the debtor. If the debtor becomes insolvent, the liability of the guarantor arises as the debtor cannot fulfill his obligation (iv) When the debtor has absconded, or cannot be sued within the Philippines – the creditor is not required to go after a debtor who is hiding or cannot be sued in our courts, and to incur the delays and expenses incident thereto. Exception: When the debtor has left a manager or representative (v) If it may be presumed that an execution on the property of the principal debtor would not result in

(2) The creditor has the right to secure a judgment against the guarantor prior to the excussion General Rule: An ordinary personal guarantor (NOT a pledgor or mortgagor), may demand exhaustion of all the property of the debtor

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before he can be compelled to pay. Exception: The creditor may, prior thereto, secure a judgment against the 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 latter’s obligation.

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(8) Co-guarantors are entitled to the benefit of division [2065] The benefit of division applies only when there are several guarantors and one debtor for a single debt. Except when solidarity has been stipulated, a co-guarantor is liable only to the extent of his share in the obligation as divided among all the co-guarantors.

(3) The creditor has the duty to make prior demand for payment from the guarantor 2060) (a) The demand is to be made only after judgment on the debt (b) Joining the guarantor in the suit against the principal debtor is not the demand intended by law. Actual demand has to be made.

EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR

(1) The guarantor who pays has the right to be subrogated to the rights of the creditor [2067] A guarantor who pays the debt is entitled to every remedy which the creditor has against the principal debtor, to enforce every security and all means of payments; to stand in the place of the creditor not only through the medium of the contract, but even by means of the securities entered into w/out the knowledge of the surety; having the right to have those securities transferred to him though there was no stipulation for it, and to avail himself of all securities against the debtor

(4) The guarantor has the duty to set up the benefit of excussion [2060] As soon as he is required to pay, guarantor must also point out to the creditor available property (not in litigation or encumbered) of the debtor within the Philippines. (5) The creditor has the duty to resort to all legal remedies [2058, 2061] After the guarantor has fulfilled the conditions required for making use of the benefit of excussion, it becomes the duty of the creditor to: (a) Exhaust all the property of the debtor pointed out by the guarantor; (b) If he fails to do so, he shall suffer the loss for the insolvency of the debtor, but only to the extent of the value of the said property

The need to enforce the provisions on indemnity in Article 2066 forms the basis for the subrogation clause of Article 2067. The assumption, however, is that the guarantor who is subrogated to the rights of the creditor, has the right to be reimbursed for his answering for the obligation of the debtor. Absent this right of reimbursement, subrogation will not be proper.

(6) The creditor has the duty to notify the guarantor in the action against the debtor [2062] Notice to the guarantor is mandatory in the action against the principal debtor. The guarantor, however, is not duty bound to appear in the case, and his non- appearance shall not constitute default, w/ its consequential effects.

(2) The guarantor has the duty to notify the debtor before paying the creditor [2068]. Should payment be made without notification, and supposing the debtor has already made a prior payment, the debtor would be justified in setting up the defense that the obligation has already been extinguished by the time the guarantor made the payment. The guarantor will then lose the right of reimbursement and consequently the right of subrogation.

Rationale: To give the guarantor the opportunity to allege and substantiate whatever defenses he may have against the principal obligation, and chances to set up such defenses as are afforded him by law

(3) The guarantor cannot demand reimbursement for payment made by him before the obligation has become due [2069].

(7) A compromise shall not prejudice the person not party to it [2063] (a) A compromise between creditor and principal debtor benefits the guarantor but does not prejudice him. (b) A compromise between guarantor and the creditor benefits but does not prejudice the principal debtor.

General Rule: Since a contract of guaranty is only subsidiary, the guarantor cannot be liable for the obligation before the period on which the debtor’s Liability will accrue. Any payment made by the guarantor before the obligation is due cannot be indemnified by the debtor.

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Exception: Prior consent ratification by the debtor

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or

subsequent

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(b) By judicial demand (3) The paying guarantor seeks to be indemnified only to the extent of his proportionate share in the total obligation.

(4) The guarantor may proceed against the debtor even before payment has been made [2071] General Rule: Guarantor has no cause of action against the debtor until after the former has paid the obligation.

EXTINGUISHMENT OF GUARANTY (1) Once the obligation of the debtor is extinguished in any manner provided in the Civil Code, the obligation of the guarantor is also extinguished [2076]. However, there may be instances when, after the extinguishment of the guarantor’s obligation (as in the case of a release from the guaranty), the obligation of the debtor still subsists. (2) Although the guarantor generally has to make payment in money, any other thing of value, if accepted by the creditor, is valid payment and therefore releases the guarantor [dacion en pago] [2077]. (3) If one guarantor is released without the consent of the others, the release would benefit the coguarantors to the extent of the proportionate share of the guarantor released [2078]. (4) A guarantor is released if the creditor, without the guarantor’s consent, extends the time within which the debtor may perform his obligation [2079]. This is to protect the interest of the guarantor should the debtor be insolvent during the period of extension and deprive the guarantor of his right to reimbursement. (5) The guarantors are released if by some act of the creditor they cannot be subrogated to the rights, mortgages and preferences of the latter. [2080]

Exceptions (Art. 2071) (a) When he is sued for the payment; (b) In case of insolvency of the principal debtor; (c) When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired; (d) When the debt has become demandable, by reason of the expiration of the period for payment; (e) After the lapse of 10 years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than 10 years; (f) If there are reasonable grounds to fear that the principal debtor intends to abscond; (g) If the principal debtor is in imminent danger of becoming insolvent. Rationale: To enable the guarantor to take measures for the protection of his interest in view of the probability that he would be called upon to pay the debt. As such, he may, in the alternative, obtain release from the guaranty; or demand security that shall protect him from any proceeding by the creditor, and against the insolvency of the debtor.

In order to constitute an extension discharging the surety, it should appear that the extension was for (1) a definite period, (2) pursuant to an enforceable agreement between the principal and the creditor, and (3) that it was made without the consent of the surety or with a reservation of rights with respect to him. (Filipinas Textile Mills v. CA, November 12, 2003)

EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS

When there are two or more guarantors, one debtor and one debt: (a) The one who pays may demand from each of the others the share proportionally owing to him (b) If any of the guarantors is insolvent, his share shall be borne by the others, including the payer, in the same proportion [Art. 2073]

LEGAL AND JUDICIAL BONDS Bond – an undertaking that is sufficiently secured, and not cash or currency.

For purposes of proportionate reimbursement, the other guarantors may interpose such defenses against the paying guarantor as are available to the debtor against the creditor, except those that are personal to the debtor [Art. 2074]

Bondsman – a surety offered in virtue of a provision of law or a judicial order. QUALIFICATIONS OF PERSONAL BONDSMAN RELATION TO ART. 2056]

[2082 IN

(1) He possesses integrity; (2) He has capacity to bind himself; (3) He has sufficient property to answer for the obligation which he guarantees.

Requisites for the applicability of Art. 2073: (1) Payment has been made by one guarantor; (2) The payment was made because (a) Of the insolvency of the debtor, or

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PLEDGE OR MORTGAGE IN LIEU OF BOND [2083]

(6) Creditor has the right to retain the thing in his possession or in that of a third person to whom it has been delivered, until the debt is paid [2098]. (7) Special Laws apply to pawnshops and establishments engaged in making loans secured by pledges. Provisions of the Civil Code shall apply subsidiarily to them.

BONDSMAN NOT ENTITLED TO EXCUSSION [2084]

In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests. (Manila Banking Corp. v. Teodoro, 169 SCRA 95)

(a) Guaranty or suretyship is a personal security. (b) Pledge or mortgage is a property or real security. If the person required to give a legal or judicial bond should not be able to do so, a pledge or mortgage sufficient to cover the obligation shall be admitted in lieu thereof. A judicial bondsman and the sub-surety are not entitled to the benefit of excussion. (a) Reason: They are not mere guarantors, but sureties whose liability is primary and solidary. (b) Effect of negligence of creditor: Mere negligence on the part of the creditor in collecting from the debtor will not relieve the surety from liability.

KINDS (1) Voluntary or conventional – Created by agreement of parties. (2) Legal – Created by operation of law.

Pledge

ESSENTIAL REQUIREMENTS ESSENTIAL REQUISITES COMMON TO PLEDGE AND MORTGAGE [ART. 2085]

DEFINITION Pledge is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable or document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. [Art.2085 in relation to 2093]

(1) Constituted to secure the fulfillment of a principal obligation. (2) Pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged. (3) The persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. (4) Cannot exist without a valid obligation. (5) Debtor retains the ownership of the thing given as a security. (6) When the principal obligation becomes due, the thing pledged or mortgaged may be alienated for the payment to the creditor. [Art. 2087]

PROVISIONS APPLICABLE ONLY TO PLEDGE (1) Transfer of possession to the creditor or to third person by common agreement is essential [2093]. (a) Actual delivery is important. (b) Constructive or symbolic delivery of the key to the warehouse is sufficient to show that the depositary appointed by common consent of the parties was legally placed in possession. (2) All movables within the commerce of man may be pledged as long as they are susceptible of possession [2094]. (3) Incorporeal rights may be pledged. The instruments representing the pledged rights shall be delivered to the creditor; if negotiable, they must be indorsed [2095]. (4) Pledge shall take effect against 3rd persons only if the following appear in a public instrument: (a) Description of the thing pledged. (b) Date of the pledge [2096]. (5) The thing pledged may be alienated by the pledgor or owner only with the consent of the pledgee. Ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledgee consents to the alienation, but the latter shall continue to have possession [2097].

OBLIGATION OF PLEDGEE (1) The pledgee cannot deposit the thing pledged with a 3rd person, unless there is a contrary stipulation [2100]. (2) Is responsible for the acts of his agents or employees with respect to the thing pledged [2100]. (3) Has no right to use the thing or to appropriate its fruits without authority from the owner [2104] (4) May cause the public sale of the thing pledged if, without fault on his part, there is danger of destruction, impairment or dimunition in value of the thing. The proceeds of the auction shall be a security for the principal obligation [2108]. RIGHTS OF PLEDGOR (1) Takes responsibility for the flaws of the thing pledged [2101 in relation to Art. 1951]. (2) Cannot ask for the return of the thing against the will of the creditor, unless and until he has paid

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the debt and its interest, with expenses in a proper case [2105].

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EFFECT OF THE SALE OF THE THING PLEDGED [Art 2115]

(1) Extinguishes the principal obligation, whether the proceeds of the sale is more or less than the amount due. (2) If the price of sale is more than amount due, the debtor is not entitled to the excess unless the contrary is provided. (3) If the price of sale is less, the creditor is not entitled to recover the deficiency. A contrary stipulation is void.

Yuliongsiu vs. PNB: There is authority supporting the proposition that the pledgee can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the pledgee. The type of delivery will depend upon the nature and the peculiar circumstances of each case.

PLEDGE BY OPERATION OF LAW – ART. 2121-

2122

PNB vs. Atendido: according to law, a pledgee cannot become the owner of, nor appropriate to himself, the thing given in pledge. If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be borne by the pledgor.

LEGAL PLEDGES/PLEDGE BY OPERATION OF LAW

[Art. 2121] (1) Necessary expenses shall be refunded to every possessor, but only a possessor in good faith may retain the thing until he has been reimbursed. (a) Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired and by reason thereof [Art. 546] (2) He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. This is called the mechanic’s lien. [Art. 1731] (3) The agent may retain the things which are the objects of agency until the principal effects the reimbursement and pays the indemnity. This is called the agent’s lien. [Art. 1914] (4) The laborer’s wages shall be a lien on the goods manufactured or the work done. [Art. 1707]

(3) Subject to the right of the pledgee under article 2108, pledgor is allowed to substitute the thing which is in danger of destruction or impairment without any fault on the part of the pledgee with another thing of the same kind and quality [2107]. (4) May require that the thing be deposited with a 3rd person, if through the negligence or willful act of the pledgee the thing is in danger of being lost or impaired [2106]. PERFECTION – ARTS. 2093, 2096 REQUISITES FOR PERFECTION

(1) The thing pledged is placed in the possession of the creditor or a third person [2093] (2) For the pledge to take effect as against third persons, a description of the thing pledged and the date of the pledge should appear in a public instrument [2096]

Note: (1) In legal pledges, the remainder of the price of the sale shall be delivered to the obligor. (2) Public auction of legal pledges may only be executed after demand of the amount for which the thing is retained. It shall take place within one month after the demand, otherwise the pledgor may demand the return of the thing pledged, provided s/he is able to show that the creditor did not cause the public sale without justifiable grounds. [Article 2122]

FORECLOSURE ARTS. 2112, 2115 REQUIREMENTS IN SALE OF THE THING PLEDGED BY A CREDITOR, IF CREDIT IS NOT PAID ON TIME (ART 2112)

(1) Debt is due and unpaid. (2) Sale must be at a public auction. (3) Notice to the pledgor and owner, stating the amount due. (4) Sale must be made with the intervention of a notary public. (5) If at the first auction the thing is not sold, a second one with the same formalities shall be held. (6) If at the second auction, there is no sale either, the creditor may appropriate the thing pledged but he shall give an acquittance (release) for his entire claim.

DISTINGUISHED FROM CHATTEL MORTGAGE – ARTS. 2140, 1484 Chattel Mortgager

Pledge

Delivery of Personal Property Not required

Delivery is required for the validity of the pledge

Registration in the Chattel Mortgage Register

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Chattel Mortgager

property, but ownership of the property is not parted with. It merely restricts the mortgagor’s jus disponendi over the property. The mortgagor may still sell the property, and any stipulation to the contrary is void [Art. 2130] (4) Mortgage extends to the natural accessions, to the improvements of growing fruits and the rents or income NOT YET RECEIVED when the obligation becomes DUE, including indemnity from insurance, and/or amount received from expropriation for public use [Art. 2127] (a) Applies only when the accessions and accessories subsequently introduced belongs to the mortgagor. (b) To exclude them, there must be an express stipulation, or the fruits must be collected before the obligation becomes due. (c) Third persons who introduce improvements upon the mortgaged property may remove them at any time

Pledge

Necessary for validity of Not necessary; the CM against third Public document is persons enough to bind third persons Right to Excess of Proceeds of Sale The excess goes to the The excess goes to the debtor/ mortgagor pledgee/creditor, unless otherwise stipulated Right to Recover Deficiency Creditor/ mortgagee can recover from the debtor/ mortgagor, except if covered by Recto Law

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Creditor/ mortgagee is not entitled to recover any deficiency after the property is sold, notwithstanding contrary stipulation

Note: The provisions of the Civil Code on pledge, insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to chattel mortgages [Art. 2141]

The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract. [Central Bank v. CA, 139 SCRA 46] KINDS

Real Mortgage

(1) Voluntary – constituted by the will of the owner of the property on which it is created

DEFINITION AND CHARACTERISTICS Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, immediately making immovable property or real rights answerable to the principal obligation in case it is not complied with at the time stipulated.

(2) Legal – required by law to be executed in favor of certain persons: (a) Persons in whose favor the law establishes a mortgage have no other right than to demand the execution and recording of the document in which the mortgage is formalized [Article 2125] (b) The bondsman who is to be offered in virtue of a provision of law or of a judicial order shall have the qualifications prescribed in Art 2056 (integrity, capacity to bind himself, and sufficient property to answer for the obligation), and in other laws [Article 2082] (c) If the person bound to give a bond should not be able to do so, a pledge or mortgage considered sufficient to recover his obligation shall be admitted in lieu thereof [Article 2083]

OBJECTS OF REAL MORTGAGE [Art. 2124]

(1) Immovables (2) Alienable real rights over immovables. (a) Future property cannot be an object of mortgage; however, a stipulation subjecting to the mortgage improvements which the mortgagor may subsequently acquire, install or use in connection with real property already mortgaged belonging to the mortgagor is valid. CHARACTERISTICS

(3) Equitable – One which, although lacking the proper formalities of a mortgage, shows the intention of the parties to make the property a security for the debt. (a) lien created through equitable mortgage ought not to be defeated by requiring compliance with formalities necessary to the validity of a voluntary real estate mortgage. Ex.: Pacto de retro (b) provisions governing equitable mortgage:

(1) As a general rule, the mortgagor retains possession of the property. He may deliver said property to the mortgagee without altering the nature of the contract of mortgage. (2) It is not an essential requisite that the principal of the credit bears interest, or that the interest as compensation for the use of the principal and the enjoyment of its fruits be in the form of a certain percentage thereof. (3) Mortgage creates an encumbrance over the

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Arts. 1365, 1450, 1454, 1602, 1603, 1604 and 1607.

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(4) Cannot exist without a valid obligation. (5) Debtor retains the ownership of the thing given

as a security.

(6) When the principal obligation becomes due, the PRINCIPLE OF INDIVISIBILITY OF PLEDGE/MORTGAGE [ART. 2089 TO 2090]

thing pledged or mortgaged may be alienated for the payment to the creditor. [Art. 2087] (7) Must be recorded in the Registry of Property in order to be validly constituted. Note: The mortgage would still be binding between the parties even if the instrument is not recorded.

(a) Dayrit v. CA: A mortgage directly and immediately subjects the property upon which it is imposed. It is indivisible even though the debt may be divided, and such indivisibility is likewise unaffected by the fact that the debtors are not solidarity liable. (b) Central Bank v. CA: Where only a portion of the loan is released, the mortgage becomes enforceable only as to the proportionate value of the loan

FORECLOSURE FORECLOSURE OF MORTGAGE

It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation secured by the mortgage. (a) In General: An action for foreclosure of a mortgage is limited to the amount mentioned in the mortgage, EXCEPT when the mortgage contract intends to secure future loans or advancements (b) BLANKET mortgage/DRAGNET– mortgage that subsumes all debts of past or future origin (c) Mortgage may be used as a “continuing security” which secures future advancements and is not discharged by the repayment of the amount in the mortgage (d) Alienation or assignment of mortgage credit is valid even if it is not registered

Indivisibility applies only as to pledgors/mortgagors who are themselves debtors in the principal obligation, and not to accommodation pledgors/ mortgagors "When several things are pledged or mortgaged, each thing for a determinate portion of the debt, the pledges or mortgage, are considered separate from each other. But when the several things are given to secure the same debt in its entirety, all of them are liable for the debt, and the creditor does not have to divide his action by distributing the debt among the various things pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are still liable for such balance." [Tolentino]

Acceleration Clause, or the stipulation stating that on the occasion of the mortgagor’s default, the whole sum remaining unpaid automatically becomes due and demandable, is ALLOWED

The question is whether or not the written instrument in controversy was a mortgage OR a conditional sale. The correct test, where it can be applied, is the continued existence of a debt or liability between the parties. If such exists, the conveyance may be held to be merely a security for the debt or an indemnity against the liability. (Reyes v. Sierra, 93 SCRA 473)

KINDS OF FORECLOSURE

(1) Judicial Foreclosure (2) Extrajudicial Foreclosure JUDICIAL FORECLOSURE

Rule 68, ROC: (a) May be availed of by bringing an action in the proper court which has jurisdiction over the area wherein the real or personal (in case of chattel mortgage) property involved or a portion thereof is situated. (b) If the court finds the complaint to be wellfounded, it shall order the mortgagor to pay the amount due with interest and other charges within a period of not less than 90 days nor more than 120 days from the entry of judgment. If the mortgagor fails to pay at the time directed, the court, upon motion, shall order the property to be sold to the highest bidder at a public auction. (c) Upon confirmation of the sale by the court, it

ESSENTIAL REQUISITES ESSENTIAL REQUISITES COMMON TO PLEDGE AND MORTGAGE

(1) Constituted to secure the fulfillment of a principal

obligation. (2) Pledgor or mortgagor must be the absolute

owner of the thing pledged or mortgaged.

(3) The persons constituting the pledge or mortgage

have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. Note: Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. [Art. 2085]

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shall operate to divest the rights of all parties to the action and to vest their rights to the purchaser subject to such rights of redemption as may be allowed by law. (d) Before the confirmation, the court retains control of the proceedings (e) Execution of judgment subject to APPEAL but not annulment (f) The foreclosure of the property is completed only when the sheriff’s certificate is executed, acknowledged and recorded

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to the buyer, which is similar to the equity of redemption. The TCT must be registered within THREE MONTHS after the foreclosure. (b) The mortgagor can only legally transfer the right to redeem and the use of the property during the period of redemption. (7) Remedy of party aggrieved by foreclosure is a petition to set aside sale and the cancellation of writ of possession. However, if the mortgagee is a bank, the mortgagor is required to post a bond equal to the value of the mortgagee’s claim. (8) Republication of the notice of sale is necessary for the validity of the postponed extrajudicial sale (9) In foreclosure of real estate mortgage under Act 3135, the buyer at auction may petition the land registration court for a writ of possession pending the one-year period of redemption of the foreclosed property.

The Proceeds of the Sale shall be applied to the Payment of the: (a) Costs of the sale; (b) Amount due the mortgagee; (c) Claims of junior encumbrancers or persons holding subsequent mortgages in the order of their priority; and (d) Balance, if any shall be paid to the mortgagor.

Nature of Power of Foreclosure by Extrajudicial Sale (1) Conferred for mortgagee’s protection. (2) An ancillary stipulation. (3) A prerogative of the mortgagee.

Nature of Judicial Foreclosure Proceedings (1) Quasi in rem action. Hence, jurisdiction may be acquired through publication. (2) Foreclosure is only the result or incident of the failure to pay debt. (3) Survives death of mortgagor.

Note: (a) Both should be distinguished from execution sale governed by Rule 39, ROC. (b) Foreclosure retroacts to the date of registration of mortgage. (c) A stipulation of upset price, or the minimum price at which the property shall be sold to become operative in the event of a foreclosure sale at public auction, is null and void.

EXTRAJUDICIAL FORECLOSURE [ACT NO. 3135]

(1) Applies to mortgages where the authority to foreclose is granted to the mortgagee. (2) Authority is not extinguished by death of mortgagor or mortgagee. This is an agency coupled with interest. (3) Public sale should be made after proper notice to the public, otherwise it is a jurisdictional defect which could render the sale voidable. (4) There is no need to notify the mortgagor, where there is no contractual stipulation therefor.

Right of mortgagee to recover deficiency (1) Mortgagee is entitled to recover deficiency. (2) If the deficiency is embodied in a judgment, it is referred to as deficiency judgment. (3) Action for recovery of deficiency may be filed even during redemption period. (4) Action to recover prescribes after 10 years from the time the right of action accrues.

Proper notice consists of: (a) posting notice in three public places and/or (b) publication in newspaper of general circulation

Effect of inadequacy of price in foreclosure sale (1) Where there is right to redeem, inadequacy of price is immaterial because the judgment debtor may redeem the property. (a) Exception: Where the price is so inadequate as to shock the conscience of the court, taking into consideration the peculiar circumstances. (2) Property may be sold for less than its fair market value, upon the theory that the lesser the price the easier it is for the owner to redeem. (3) The value of the mortgaged property has no bearing on the bid price at the public auction, provided that the public auction was regularly and honestly conducted.

Purpose of notice is to obtain the best bid for the foreclosed property (5) Surplus proceeds of foreclosure sale belong to the mortgagor. (6) Debtor (who must be a NATURAL PERSON) has the right to redeem the property sold within 1 year from and after the date of sale. (a) If the mortgagee is a bank and the debtor is a juridical person, then there is no right of redemption. However, it may redeem the property BEFORE the registration of the TCT

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Antichresis

A suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage contract. [Caltex v. IAC, 176 SCRA 741]

DEFINITION AND CHARACTERISTICS Antichresis is a contract whereby the creditor acquires the right to receive the fruits of an immovable of the debtor, with the obligation to apply then to the payment of the interest, if owing, and thereafter to the principal of the credit [Art 2132]

Waiver of security by creditor (1) Mortgagee may waive the right to foreclose his mortgage and maintain a personal action for recovery of the indebtedness. (2) Mortgagee cannot have both remedies. This is because he only has one cause of action, the nonpayment of the mortgage debt.

CHARACTERISTICS

(1) Accessory contract – it secures the performance of a principal obligation (2) Formal contract – it must be in a specified form to be valid [Art. 2134]

Redemption (1) It is a transaction by which the mortgagor reacquires the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created (2) Kinds: (a) Equity of redemption: in judicial foreclosure of real estate mortgage under the ROC, it is the right of the mortgagor to redeem the mortgaged property by paying the secured debt within the 120 day period from entry of judgment or after the foreclosure sale, but before the sale of the mortgaged property or confirmation of sale (i) formal offer to redeem preserves the right of redemption, e.g., by filing an action to enforce the right to redeem (b) Right of redemption: in extrajudicial foreclosure of real estate mortgage, the right of the mortgagor to redeem the property within a certain period after it was sold for the satisfaction of the debt. (ii) For natural persons – one year from the registration of the TCT (iii) For juridical persons – three months from the foreclosure (iv) Formal offer to redeem must be with tender of redemption price to preserve right of redemption

SPECIAL REQUISITES:

(1) It can cover only the fruits of an immovable property (2) Delivery of the immovable is necessary for the creditor to receive the fruits, not to make the contract binding (3) Amount of principal and interest must be specified in writing [Art. 2134] (4) Express agreement that debtor will give possession of the property to creditor and that the latter will apply the fruits to the interest, if any, then to the principal of his credit NOTE: The obligation to pay interest is not the essence of the contract of antichresis; there being nothing in the Code to show that antichresis is only applicable to securing the payment of interestbearing loans. On the contrary, antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional OBLIGATIONS OF ANTICHRETIC CREDITOR (1) To pay taxes and charges on the estate, including necessary expenses [Art. 2135]. Creditor may avoid said obligation by: (a) compelling the debtor to reacquire enjoyment of the property (b) by stipulation to the contrary (2) To apply all the fruits, after receiving them, to the payment of interest, if owing, and thereafter to the principal (3) To render an account of the fruits to the debtor (4) To bear the expenses necessary for its preservation and repair

Note: There is no right of redemption in pledge and chattel mortgage. Medida v. CA: The rule up to now is that the right of a purchaser at a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. The title to land sold under mortgage foreclosure remains, in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master's deed

REMEDIES OF CREDITOR IN CASE OF NON-PAYMENT OF DEBT

(1) Action for specific performance (2) Petition for the sale of the real property as in a foreclosure of mortgage under Rule 68 of the

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Rules of Court [Art. 2137] (a) The parties, however, may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge [Tavera v. El Hogar Filipino, Inc. 68 Phil 712] (b) A stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt within the agreed period is void [Art. 2088]

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REGISTRATION OF ASSIGNMENT OF MORTGAGE NOT REQUIRED

(a) A chattel mortgage may be alienated or assigned to a third person (b) The debtor is protected if he pays his creditor without actual knowledge that the debt has been assigned (c) Affidavit of good faith is required. AFFIDAVIT OF GOOD FAITH is an oath in a contract of chattel mortgage wherein the parties “severally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud.”

Chattel Mortgage DEFINITION AND CHARACTERISTICS Chattel Mortgage is a conditional sale of personal property as security for the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. If the condition is performed according to its terms, the mortgage and sale immediately become void, and the mortgagee is thereby divested of his title. [Section 3, Act 1508]

Effect of Absence: Mortgage is vitiated only as against third persons without notice. VENUE OF REGISTRATION

(a) If he resides in the Philippines, in the office of the register of deeds of the province in which the mortgagor resides at the time of the making of the chattel mortgage (b) If he does not reside in the Philippines, in the province in which the property is situated (c) If the property is situated in a province different from that in which the mortgagor resides, the mortgage shall be recorded in both provinces. [Sec. 4, Act 1508]

CHARACTERISTICS

(1) It is an accessory contract because it secures performance of a principal obligation (2) It is a formal contract because it requires registration in the Chattel Mortgage Register for its validity (but only as against third persons) (3) It is a unilateral contract because it produces only obligations on the part of the creditor to free the thing from the encumbrance on fulfillment of the obligation. (4) The excess of the proceeds of the sale goes to the debtor/mortgagor (5) Creditor/mortgagee can recover deficiency from the debtor/mortgagor, except if covered by the Recto Law

When a corporation is a party to a chattel mortgage, the affidavit may be made and subscribed by a director, trustee, cashier, treasurer, or manager thereof, or by a person authorized to make or receive such mortgage. When a partnership is a party, the affidavit may be made and subscribed by one member thereof. VALIDITY OF CHATTEL MORTGAGE Chattel mortgage shall not be valid against any person except the mortgagor, his executors or administrators unless: (1) The possession of the property is delivered to and retained by the mortgagee or (2) The mortgage is recorded. (Sec. 4, Act 1508)

REGISTRATION PERIOD WITHIN WHICH REGISTRATION SHOULD BE MADE

The law is substantially and sufficiently complied with where the registration is made by the mortgagee before the mortgagor has complied with his principal obligation and no right of innocent third persons is prejudiced.

FORMAL REQUISITES (a) It should substantially comply with the form prescribed by law (b) It should be signed by the person/s executing the same in the presence of two witnesses who shall sign the mortgage as witnesses to the execution thereof and

EFFECT OF REGISTRATION

(1) Creates real rights (2) Adds nothing to mortgage

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(c) Each mortgagor and mortgagee or, in the absence of the mortgagee, his agent or attorney, shall make and subscribe an affidavit in the form prescribed by law, which affidavit, signed by the parties to the mortgage and the two witnesses and the certificate of the oath signed by the person authorized to administer an oath shall be appended to such mortgage and recorded therewith. [Sec. 5, Act 1508]

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does not within ten days after being requested thereto by any person entitled to redeem, discharge the mortgage in the manner provided by law, the person entitled to redeem may recover of the person whose duty it is to discharge the same, twenty pesos for his neglect and all damages occasioned thereby in an action in any court having jurisdiction of the subject-matter thereof. [Sec. 8] When the condition of the chattel mortgage is broken, a mortgagor or person holding a subsequent mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the sale thereof. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it Foreclosure The mortgagee, his executor, administrator or assign may cause the mortgaged property or any part thereof to be sold at a public auction by a public officer: (1) After 30 days from the time of condition broken (2) At a public place in the municipality where the mortgagor resides, or where the property is situated (3) Provided at least 10 day-notice of the time, place, and purpose of such sale has been posted at 2 or more public places in such municipality, and (4) The mortgagee, his executor, administrator, or assign shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale at least 10 days previous to the sale: (a) either by notice in writing directed to him or left at his abode, if within the municipality, or (b) sent by mail if he does not reside in such municipality

DESCRIPTION OF PROPERTY

The mortgaged property should be described such as to enable the parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same. Large cattle as chattel mortgage The description in the mortgage shall contain the brands, class, sex, age, knots of radiated hair commonly known as remolinos or cowlicks, and other marks of ownership as described and set forth in the certificate of ownership of said animal/s, together with the number and place of issue of such certificates of ownership. Growing crops as chattel mortgage The mortgage may contain an agreement stipulating that the mortgagor binds himself properly to tend, care for and protect the crop while growing, and faithfully and without delay to harvest the same, and that in default of the performance of such duties, the mortgagee may enter upon the premises, take all the necessary measures for the protection of said crop, and retain possession thereof and sell the same, and from the proceeds of such sale pay all expenses incurred in caring for, harvesting, and selling the crop and the amount of the indebtedness or obligation secured by the mortgage, and the surplus, if any, shall be paid to the mortgagor or those entitled to the same. PROPERTY COVERED BY CM

It is deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. [Sec. 8, Act 1508]

DISPOSITION OF PROCEEDS The proceeds of the sale shall be applied to the payment: (1) first, to the costs and expenses of mortgage (2) the residue shall be paid to persons holding subsequent mortgages in their order (3) the balance, after paying the mortgages, shall be paid to the mortgagor or person holding under him on demand

Breaches Failure of mortgagee to discharge the mortgage If the mortgagee, assign, administrator, executor, or either of them, (1) after performance of the condition before or after the breach thereof, or (2) after tender of the performance of the condition, at or after the time fixed for the performance,

Quasi-Contracts A quasi-contract is that juridical relation resulting

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from a lawful, voluntary and unilateral act, and which has for its purpose the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another [Art. 2142]

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(5) Be personally liable for contracts which he entered into with third persons, even though he acted in the name of the owner, and there shall be no right of action between the owner and third persons.

NEGOTIORUM GESTIO

(UNAUTHORIZED MANAGEMENT) This takes place when a person voluntarily takes charge of another’s abandoned business or property without the owner’s authority [Art. 2144]. Reimbursement must be made to the gestor (i.e. one who carried out the business) for necessary and useful expenses, as a rule.

The gestor shall not be personally liable for such contracts, provided: (a) The owner has expressly or tacitly ratified the management, or (b) When the contract refers to things pertaining to the owner of the business. [Art. 2152] Note: The responsibility of two or more gestors shall be solidary, unless the management was assumed to save the thing or business from imminent danger.

THE OBLIGATION DOES NOT ARISE:

(1) When the property or business is not neglected or abandoned; (2) If in fact the manager has been tacitly authorized by the owner.

OBLIGATIONS OF THE OWNER OF THE PROPERTY OR BUSINESS

In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern.

Although the management was not expressly ratified, the owner who enjoys the advantages of the same shall: (a) Be liable for the obligations incurred in his interest (b) Reimburse the gestor for the necessary and useful expenses and for the damages the latter may have suffered in the performance of his duties

In the second case, the rules on agency in Title X of this Book shall be applicable. [Art. 2144] OBLIGATIONS OF A GESTOR

(1) Perform his duties with all the diligence of a good father of a family (2) Pay the damages which through his fault and negligence may be suffered by the owner of the property/business under his management [Art. 2145] (3) Be liable for the acts of the persons to whom he delegated all or some of his duties. This is without prejudice to the direct obligation of the delegate to the owner of the business. [Art. 2146] (4) Be liable for any fortuitous event under the following conditions: (a) If he undertakes risky operations which the owner was not accustomed to embark upon (b) If he has preferred his own interest to that of the owner (c) If he fails to return the property or business after demand of the owner (d) If he assumed management in bad faith [Art. 2147] (e) If he is manifestly unfit to carry on the management (f) If by his intervention he prevented a more competent person from taking up the management. [Art. 2148]

The above obligations shall be incumbent upon the owner if the management had for its purpose the prevention of an imminent and manifest loss, although no benefit may have been derived. [Art. 2150] If the owner did not derive any benefit and there was no imminent and manifest danger to the property or business, the owner would still be liable for the abovementioned obligations and expenses, provided: (a) The gestor has acted in good faith; AND (b) The property or business is intact, ready to be returned to the owner. [Art. 2151] EFFECT OF RATIFICATION

The ratification of the management by the owner of the business produces the effects of an express agency, even if the business may not have been successful. [Art. 2149] EXTINGUISHMENT OF MANAGEMENT

(1) When the owner repudiates or puts an end thereto (2) When the gestor withdraws from the management, subject to [Art. 2144]

Note: The gestor shall not be liable for “e” and “f” if the management was assumed to save the property or business from imminent danger.

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(3) By the death, civil interdiction, insanity or insolvency of the owner or the gestor. [Art. 2153]

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(2) For the return of the price or assign the action to collect the sum if he has alienated the same. [Art. 2160]

SOLUTIO INDEBITI (UNDUE PAYMENT)

This takes place when something is received when there is no right to demand it, and it was unduly delivered through mistake. The recipient has the duty to return it [Art. 2154].

EXEMPTION FROM THE OBLIGATION TO RESTORE THE PAYMENT UNDULY MADE

A person who, believing in good faith that the payment was being made of a legitimate and subsisting claim, (1) destroyed the document, or (2) allowed the action to prescribe, or (3) gave up the pledges, or (4) cancelled the guaranties for his right shall be exempt from the obligation to restore.

This situation covers payment by reason of a mistake in the construction or application of a doubtful or difficult question of law [Art. 2155] WHEN DEBT NOT YET DUE

If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due. [Art. 2156]

The person who paid unduly may proceed only against the true debtor or the guarantors with regard to whom the action is still effective. [Art. 2162]

RESPONSIBILITY OF TWO OR MORE PAYEES

When there has been payment of what is not due, their responsibility is solidary.

PRESUMPTION OF PAYMENT BY MISTAKE, DEFENSE

The presumption arises if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause.

WHEN MONEY OR THING DELIVERED IS OWNED BY THIRD PERSON

The payee cannot demand that the payor prove his ownership of the thing delivered. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter.

OTHER QUASI-CONTRACTS (1) When, without the knowledge of the person obliged to give support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid. [Art. 2164] (2) When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement. [Art. 2165] (3) When the person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him. [Art. 2166] (4) When through an accident or other cause a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity. [Art. 2167] (5) When during a fire, flood, storm, or other calamity, property is saved from destruction by

If the owner, in spite of such information, does not claim it within the period of one month, the payee shall be relieved of all responsibility by returning the thing deposited to the payor. If the payee has reasonable grounds to believe that the thing has not been lawfully acquired by the payor, the former may return the same. [Art. 2158] LIABILITY OF PAYEE

If in bad faith, he shall be liable: (1) For legal interest if a sum of money is involved, or (2) For the fruits received or which should have been received if the thing produces fruits AND (3) For any loss or impairment of the thing for any cause, and (4) For damages to the person who delivered the thing, until it is recovered. [Art. 2159] If in good faith, he shall be liable: (1) For the impairment or loss of the thing certain and determinable or its accessories and accessions insofar as he has thereby been benefited.

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another person without the knowledge of the owner, the latter is bound to pay the former just compensation. [Art. 2168] (6) When the government, upon the failure of any person to comply with health or safety regulations concerning property, undertakes to do the necessary work, even over his objection, he shall be liable to pay the expenses. [Art. 2169] (7) When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable. [Art. 2170] (8) The rights and obligations of the finder of lost personal property shall be governed by Articles 719 and 720. [Art. 2171] (9) The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by Article 546. [Art. 2172] (10) When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed by Articles 1236 and 1237. [Art. 2173] (11) When in a small community a nationality of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses. [Art. 2174] (12) Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. [Art. 2175]

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(2) Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them; (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; (5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed; (6) Claims for laborers' wages, on the goods manufactured or the work done; (7) For expenses of salvage, upon the goods salvaged;

Concurrence and Preference of Credits

(8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest;

MEANING OF CONCURRENCE AND PREFERENCE Concurrence of Credit implies possession by two or more creditors of equal right or privileges over the same property or all of the property of a debtor.

(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter;

Preference of Credit is the right held by a creditor to be preferred in the payment of his claim above others out of the debtor’s assets.

(10) Credits for lodging and supplies usually furnished to travelers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests;

PREFERRED CREDITS ON SPECIFIC MOVABLES [ART. 2241] With reference to specific movable property of the debtor, the following claims or liens shall be preferred:

(11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested;

(1) Duties, taxes and fees due thereon to the State or any subdivision thereof;

(12) Credits for rent for one year, upon the personal property of the lessee existing on the immovable

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leased and on the fruits of the same, but not on money or instruments of credit;

(9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;

(13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale.

(10) Credits of insurers, upon the property insured, for the insurance premium for two years.

In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. PREFERRED CREDITS ON SPECIFIC IMMOVABLES AND REAL RIGHTS [ART. 2242] With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:

PREFERRED CREDITS ON OTHER PROPERTY, REAL AND PERSONAL [ART. 2244] With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the order named: i.

Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own, when approved by the court;

ii.

Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency;

iii.

Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if they have no property of their own;

iv.

Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident, or illness resulting from the nature of the employment;

v.

Credits and advancements made to the debtor for support of himself or herself, and family, during the last year preceding the insolvency;

vi.

Support during the insolvency proceedings, and for three months thereafter;

vii.

Fines and civil indemnification arising from a criminal offense;

viii.

Legal expenses, and expenses incurred in the administration of the insolvent's estate for the common interest of the creditors, when properly authorized and approved by the court;

ix.

Taxes and assessments due the national government, other than those mentioned in Articles 2241, No. 1, and 2242, No. 1;

x.

Taxes and assessments due any province, other than those referred to in Articles 2241, No. 1, and 2242, No. 1;

(1) Taxes due upon the land or building; (2) For the unpaid price of real property sold, upon the immovable sold; (3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works; (4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works; (5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged; (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved; (7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits; (8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;

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xi.

Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1, and 2242, No. 1;

xii.

Damages for death or personal injuries caused by a quasi-delict;

xiii.

Gifts due to public and private institutions of charity or beneficence;

xiv.

Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively.

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thereof [Art. 2247] (3) 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 [Art. 2248]. (4) If there are 2 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 assessment of the taxes and assessments upon the immovable property or real right [Art. 2249]. (5) 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 other credits [Art. 2250]. (6) 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: (a) Order established by Art 2244 (b) Common credits referred to in Art 2245 shall be paid pro rata regardless of dates [Art. 2251].

EXEMPT PROPERTY (1) Present property: (a) Family home. [Arts. 152, 153 and 155, CC] (b) Right to receive support, as well as money or property obtained by such support, shall not be levied upon on attachment or execution. [Art. 205, CC] (c) Sec. 13, Rule 39, ROC. (d) Sec 118, Public Land Act. [CA 141, as amended] (2) Future property: A debtor who obtains a discharge from his debts on account of insolvency, is not liable for the unsatisfied claims of his creditors with said property. [Sec. 68 and 69, Insolvency Law, Act 1956] (3) Property in custodia legis and of public dominion. CLASSIFICATION OF CREDITS (1) Special preferred credits. [Art. 2241 and 2242, CC] (a) Considered as mortgages or pledges of real or personal property or liens within the purview of legal provisions governing insolvency. (b) Taxes due to the State shall first be satisfied. (2) Ordinary preferred credits [Art. 2244] – Preferred in the order given by law. (3) Common credits [Art. 2245] – Credits of any other kind or class, or by any other right or title not comprised in Arts. 2241- 2244 shall enjoy no preference. ORDER OF PREFERENCE OF CREDITS (1) 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 [Art. 2246]. (2) If there are 2 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

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Torrens System

with the delay, uncertainty, and expense of the old conveyancing system.

THE TORRENS SYSTEM: A system for registration of land under which, upon landowner’s application, the court may, after appropriate proceedings, direct the issuance of a certificate of title. (Black’s Law Dictionary)

By "Torrens" system generally are meant those systems of registration of transactions with interest in land whose declared object… is, under governmental authority, to establish and certify to the ownership of an absolute and indefeasible title to realty, and to simplify its transfer. (Grey-Alba v. Dela Cruz, GR No. L-524)

The underlying principle of the Torrens system is security with facility in dealing with land. This is made possible by defining the absolute status of a given property in a certificate of title with a governmental and universal guaranty. This certificate of title should better be known as certificate of title and encumbrances. In the words of torrens himself the main objects are “to simplify, quicken, and cheapen the transfer of real estate and to render title safe and indefeasible.” (The Philippine Torrens System by Florencio Ponce 1964)

CERTIFICATE OF TITLE ORIGINAL CERTIFICATE OF TITLE OR OCT

It is the first certificate of title issued in the name of a registered owner by the Register of Deeds covering a parcel of land which had been registered under the Torrens System, by virtue of judicial or administrative proceedings. TRANSFER CERTIFICATE OF TITLE OR TCT

PURPOSE:

The subsequent certificate of title pursuant to any deed of transfer or conveyance to another person. The Register of Deeds shall make a new certificate of title and given him an owner’s duplicate certificate. The previous certificate (need not be an OCT) shall be stamped “cancelled”.

The real purpose of that system is to quiet title to land; to put a stop forever to any question of the legality of the title, except claims which were noted at the time of registration, in the certificate, or which may arise subsequent thereto. (Legarda v Saleeby, GR No. 8936) Avoid possible conflicts of title in and to real property

PATENTS

PD 1529, Sec. 103. Certificates of title pursuant to patents. Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree.

ADVANTAGES:

(a) Secures title (b) Protection against fraud (c) Simplified dealings (d) Restoration of the estates to its just value, whose depreciation is cause by some blur, technical defect (e) Barred the recurrence of faults in the title (See Legarda v. Saleeby)

It shall be the duty of the official issuing the instrument of alienation, grant, patent or conveyance in behalf of the Government to cause such instrument to be filed with the Register of Deeds of the province or city where the land lies, and to be there registered like other deeds and conveyance, whereupon a certificate of title shall be entered as in other cases of registered land, and an owner's duplicate issued to the grantee.

BACKGROUND:

The boldest effort to grapple with the problem of simplification of title to land was made by Mr. (afterwards Sir Robert) Torrens, a layman, in South Australia in 1857. . . . In the Torrens system title by registration takes the place of "title by deeds" of the system under the "general" law. A sale of land, for example, is effected by a registered transfer, upon which a certificate of title is issued. The certificate is guaranteed by statute, and, with certain exceptions, constitutes indefeasible title to the land mentioned therein. Under the old system the same sale would be effected by a conveyance, depending for its validity, apart from intrinsic flaws, on the correctness of a long series of prior deeds, wills, etc. . . . The object of the Torrens system, them, is to do away

The deed, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land but shall operate only as a contract between the Government and the grantee and as evidence of authority to the Register of Deeds to make registration. It is the act of registration that shall be the operative act to affect and convey the land, and in all cases under this Decree, registration shall be made in the office of the Register of Deeds of the province or city where the land lies. The fees for registration shall be

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paid by the grantee. After due registration and issuance of the certificate of title, such land shall be deemed to be registered land to all intents and purposes under this Decree.

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been held prior the Spanish conquest and never to have been public land. EFFECTS All lands of public domain belong to the state, and that the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony (Republic v IAC, GR No. 71285)

Note: (a) Patents only involve public lands which are alienated by the Government, pursuant to the Public Land Act. (b) The patent (even if denominated as deed of conveyance) is not really a conveyance but a contract between the grantee and the Government and evidence of authority to the Register of Deeds to make registration. (c) The act of registration is the operative act to affect and convey the land.

Any applicant for judicial confirmation of an imperfect title has the burden of proving, by incontrovertible evidence, that the (a) land applied for is alienable and disposable public land; and, (b) the applicant, by himself or through his predecessors-in-interest had occupied and possessed the land, in the concept of owner, openly, continuously, exclusively, and adversely since June 12, 1945, or earlier. (Pelbel Manufacturing Corp. v. CA, GR No. 141325)

General Rule: A Torrens Certificate of Title is valid and enforceable against the whole world. A Torrens title, once registered, cannot be defeated, even by adverse, open and notorious possession. A registered title under the Torrens system cannot be defeated by prescription. The title, once registered, is notice to the whole world. All persons must take notice. No one can plead ignorance of the registration. (Egao vs. CA, 1989)

CONCEPT OF NATIVE TITLE, TIME IMMEMORIAL POSSESSION A recognized exception to the theory of jura regalia, the ruling in Carino v Insular Government institutionalized the recognition of the existence of native title to land, or ownership of land by Filipinos by virtue of possession under a claim of ownership since time immemorial and independent of any grant from the Spanish Crown (Agcaoli)

Regalian Doctrine

Lands under native title are not part of public domain, “lands possessed by an occupant and his predecessors since time immemorial, such possession would justify the presumption that the land had never been part of the public domain or that it had been private property even before the Spanish conquest (Republic v CA, GR No. 130174)

A western legal concept that was first introduced by the Spaniards into the country through the laws of the Indies and the Royal Cedulas. Whereby the Philippines passed to Spain by virtue of “discovery” and conquest. Consequently, all lands became the exclusive patrimony and dominion of the Spanish Crown. (Agcaoli)

Citizenship Doctrine

Enshrined in the Constitution (Art 12, Sec 2 & 3), it states that all lands of public domain belong to the state, thus private title to land must be traced to some grant, express or implied, from the state, i.e. The Spanish Crown or its successors, the American Colonial government and thereafter the Philippine Republic

INDIVIDUALS AND CORPORATIONS CONSTITUTIONAL REQUIREMENTS AND LIMITATIONS

Only Filipino citizens (Art. XII, Sec. 3, 1987 Constitution)

It does not negate native title to lands held in private ownership since time immemorial (Cruz vs. Sec. of Environment and Natural Resources)

KRIVENKO DOCTRINE

The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of public domain. Private land may be transferred or conveyed only to individuals or entities ‘qualified to acquire lands of public domain’ (II Bernas)

It recognized ownership of land by Filipinos independent of any grant from the Spanish crown on the basis of possession since time immemorial (cf: Carino v Insular Government), it is presumed to have

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The 1935 Constitution reserved the right xxx for Filipino citizens or corporations at least sixty percent of the capital of which was owned by Filipinos. Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence they have also been disqualified from acquiring private lands. (Krivenko v ROD, GR No. L-630: Ong Ching Po v CA, GR. No. 113427)

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Where the land is Owned in common, all the co-owners shall file the application jointly. Where the land has been sold under Pacto de retro, the vendor a retro may file an application for the original registration of the land, provided, however, that should the period for redemption expire during the pendency of the registration proceedings and ownership to the property consolidated in the vendee a retro, the latter shall be substituted for the applicant and may continue the proceedings.

Non-Filipinos cannot acquire or hold title to private lands of public domain, except only by way of legal succession (Halili v CA, GR No. 113539); BASIS Sec 2, 5 Art XII Constitution

A trustee on behalf of his principal may apply for original registration of any land held in trust by him, unless prohibited by the instrument creating the trust. (PD 1529, Sec. 14)

Exceptions: (a) Aliens by way of hereditary succession (b) Natural born citizens who have lost their citizenship- limited to 5,000 sq. m. for urban land and 3 hectares for rural land (RA No. 7042 as amended by RA No. 8179) Aliens, although disqualified to acquire lands of public domain, may lease private land for a reasonable period provided, that such lease does not amount to a virtual transfer of ownership. They may also be given an option to buy property on the condition that he is granted Philippine citizenship. (Llantino v Co liong Chong, GR No. 29663)

A corporation sole may acquire and register private agricultural land (RC Apostolic Administrator of Davao v LRC GR No. L-8415): A corporation sole, which consists of one person only, is vested with the right to purchase and hold real estate and register the same in trust for the faithful or members of the religious society or church for which the corporation was organized

Private corporations may not hold alienable lands of the public domain except by lease for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. (1987 Constitution, Art. XII, Sec. 3)

Lands acquired by an American citizen prior the proclamation of Philippine Independence on July 4, 1946 but after the passage of the 1935 Constitution may be registered, based on the ordinance appended to the 1935 Constitution (See: Moss v Director of Lands, GR No. L-27170)

Private lands may be owned for as long as the corporation is at least 60% Filipino: (a) Provided that at the time the corporation acquired the land, it is under private ownership. (b) Additional Requirements: (OCEN-PAAL) (1) Those who by themselves or through their predecessors-in-interest have been in Open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by Prescription under the provision of existing laws. (3) Those who have acquired ownership of private lands or abandoned river beds by right of Accession or accretion under the existing laws. (4) Those who have acquired ownership of land in any other manner provided for by Law.

Land sold to an alien which is now in the hands of a naturalized citizen can no longer be annulled (De Castro v Tan, GR No. L-31956). The litigated property is now in the hands of a naturalized Filipino. It is no longer owned by a disqualified vendee. The purpose of the prohibition ceases to be applicable. (Barsobia v Cuenco, GR No. L-33048)

Original Registration WHO MAY APPLY under pd 1529 The following persons may file an application for registration of title to land: (1) Those who by themselves or through their predecessors-in-interest have been in open,

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continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier.

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slope of eighteen percent (18%) or more, are hereby classified as alienable and disposable agricultural lands. The option granted under this Section shall be exercised within twenty (20) years from the approval of this Act.

(2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.

Sec. 51. Delineation and Recognition of Ancestral Domains. Self-delineation shall be the guiding principle in the identification and delineation of ancestral domains. As such, the ICCs/IPs concerned shall have a decisive role in all the activities pertinent thereto. The Sworn Statement of the Elders as to the Scope of the territories and agreements/pacts made with neighboring ICCs/IPs, if any, will be essential to the determination of these traditional territories. The Government shall take the necessary steps to identify lands which the ICCs/IPs concerned traditionally occupy and guarantee effective protection of their rights of ownership and possession thereto. Measures shall be taken in appropriate cases to safeguard the rights of the ICCs/IPs concerned to land which may no longer be exclusively occupied by them, but to which they have traditionally had access for their subsistence and traditional activities, particularly of ICCs/IPs who are still nomadic and/or shifting cultivators.

(3) Those who have acquired ownership of private lands or abandoned river beds by right of accession or accretion under the existing laws. (4) Those who have acquired ownership of land in any other manner provided for by law. UNDER CA 141

Sec. 12. Any citizen of the Philippines over the age of eighteen years, or the head of a family, who does not own more than twenty-four hectares of land in the Philippines or has not had the benefit of any gratuitous allotment of more than twenty-four hectares of land since the occupation of the Philippines by the United States, may enter a homestead of not exceeding twenty-four hectares of agricultural land of the public domain. UNDER RA 8371

Sec. 11. Recognition of Ancestral Domain Rights. The rights of ICCs/IPs to their ancestral domains by virtue of Native Title shall be recognized and respected. Formal recognition, when solicited by ICCs/IPs concerned, shall be embodied in a Certificate of Ancestral Domain Title (CADT), which shall recognize the title of the concerned ICCs/IPs over the territories identified and delineated.

Sec. 52. Delineation Process.- The identification and delineation of ancestral domains shall be done in accordance with the following procedures: (a) Ancestral Domains Delineated Prior to this Act The provisions hereunder shall not apply to ancestral domains/lands already delineated according to DENR Administrative Order No. 2, series of 1993, nor to ancestral lands and domains delineated under any other community/ancestral domain program prior to the enactment of his law. ICCs/IPs enactment of this law shall have the right to apply for the issuance of a Certificate of Ancestral Domain Title (CADT) over the area without going through the process outlined hereunder; (b) Petition for Delineation - The process of delineating a specific perimeter may be initiated by the NCIP with the consent of the ICC/IP concerned, or through a Petition for Delineation filed with the NCIP, by a majority of the members of the ICCs/IPs; (c) Delineation Paper - The official delineation of ancestral domain boundaries including census of all community members therein, shall be immediately undertaken by the Ancestral Domains Office upon filing of the application by the ICCs/IPs concerned. Delineation will be

Sec. 12. Option to Secure Certificate of Title under Commonwealth Act 141, as amended, or the Land Registration Act 496. Individual members of cultural communities, with respect to individually-owned ancestral lands who, by themselves or through their predecessors-in -interest, have been in continuous possession and occupation of the same in the concept of owner since time immemorial or for a period of not less than thirty (30) years immediately preceding the approval of this Act and uncontested by the members of the same ICCs/IPs shall have the option to secure title to their ancestral lands under the provisions of Commonwealth Act 141, as amended, or the Land Registration Act 496. For this purpose, said individually-owned ancestral lands, which are agricultural in character and actually used for agricultural, residential, pasture, and tree farming purposes, including those with a

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(d)

(e)

(f)

(g)

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done in coordination with the community concerned and shall at all times include genuine involvement and participation by the members of the communities concerned; Proof required - Proof of Ancestral Domain Claims shall include the testimony of elders or community under oath, and other documents directly or indirectly attesting to the possession or occupation of the area since time immemorial by such ICCs/IPs in the concept of owners which shall be any one (1) of the following authentic documents: (1) Written accounts of the ICCs/IPs customs and traditions; (2) Written accounts of the ICCs/IPs political structure and institution; (3) Pictures showing long term occupation such as those of old improvements, burial grounds, sacred places and old villages; (4) Historical accounts, including pacts and agreements concerning boundaries entered into by the ICCs/IPs concerned with other ICCs/IPs; (5) Survey plans and sketch maps; (6) Anthropological data; (7) Genealogical surveys; (8) Pictures and descriptive histories of traditional communal forests and hunting grounds; (9) Pictures and descriptive histories of traditional landmarks such as mountains, rivers, creeks, ridges, hills, terraces and the like; and (10) Write-ups of names and places derived from the native dialect of the community. Preparation of Maps - On the basis of such investigation and the findings of fact based thereon, the Ancestral Domains Office of the NCIP shall prepare a perimeter map, complete with technical descriptions, and a description of the natural features and landmarks embraced therein; Report of Investigation and Other Documents - A complete copy of the preliminary census and a report of investigation, shall be prepared by the Ancestral Domains Office of the NCIP; Notice and Publication - A copy of each document, including a translation in the native language of the ICCs/IPs concerned shall be posted in a prominent place therein for at least fifteen (15) days. A copy of the document shall also be posted at the local, provincial and regional offices of the NCIP, and shall be published in a newspaper of general circulation once a week for two (2) consecutive weeks to allow other claimants to file opposition thereto within fifteen (15) days from the date of such

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publication: Provided, That in areas where no such newspaper exists, broadcasting in a radio station will be a valid substitute: Provided, further, That mere posting shall be deemed sufficient if both newspaper and radio station are not available; (h) Endorsement to NCIP - Within fifteen (15) days from publication, and of the inspection process, the Ancestral Domains Office shall prepare a report to the NCIP endorsing a favorable action upon a claim that is deemed to have sufficient proof. However, if the proof is deemed insufficient, the Ancestral Domains Office shall require the submission of additional evidence: Provided, That the Ancestral Domains Office shall reject any claim that is deemed patently false or fraudulent after inspection and verification: Provided, further, That in case of rejection, the Ancestral Domains Office shall give the applicant due notice, copy furnished all concerned, containing the grounds for denial. The denial shall be appealable to the NCIP: Provided, furthermore, That in cases where there are conflicting claims, the Ancestral Domains Office shall cause the contending parties to meet and assist them in coming up with a preliminary resolution of the conflict, without prejudice to its full adjudication according to the selection below. (i) Turnover of Areas Within Ancestral Domains Managed by Other Government Agencies - The Chairperson of the NCIP shall certify that the area covered is an ancestral domain. The secretaries of the Department of Agrarian Reform, Department of Environment and Natural Resources, Department of the Interior and Local Government, and Department of Justice, the Commissioner of the National Development Corporation, and any other government agency claiming jurisdiction over the area shall be notified thereof. Such notification shall terminate any legal basis for the jurisdiction previously claimed; (j) Issuance of CADT - ICCs/IPs whose ancestral domains have been officially delineated and determined by the NCIP shall be issued a CADT in the name of the community concerned, containing a list of all those identified in the census; and (k) Registration of CADTs - The NCIP shall register issued certificates of ancestral domain titles and certificates of ancestral lands titles before the Register of Deeds in the place where the property is situated. Sec. 53. Identification, Delineation and Certification of Ancestral Lands.

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meritorious, shall cause a parcellary survey of the area being claimed. The Ancestral Domains office shall reject any claim that is deemed patently false or fraudulent after inspection and verification. In case of rejection, the Ancestral Domains office shall give the applicant due notice, copy furnished all concerned, containing the grounds for denial. The denial shall be appealable to the NCIP. In case of conflicting claims among individual or indigenous corporate claimants, the Ancestral domains Office shall cause the contending parties to meet and assist them in coming up with a preliminary resolution of the conflict, without prejudice to its full adjudication according to Sec. 62 of this Act. In all proceedings for the identification or delineation of the ancestral domains as herein provided, the Director of Lands shall represent the interest of the Republic of the Philippines; and

(a) The allocation of lands within any ancestral domain to individual or indigenous corporate (family or clan) claimants shall be left to the ICCs/IPs concerned to decide in accordance with customs and traditions; (b) Individual and indigenous corporate claimants of ancestral lands which are not within ancestral domains, may have their claims officially established by filing applications for the identification and delineation of their claims with the Ancestral Domains Office. An individual or recognized head of a family or clan may file such application in his behalf or in behalf of his family or clan, respectively; (c) Proofs of such claims shall accompany the application form which shall include the testimony under oath of elders of the community and other documents directly or indirectly attesting to the possession or occupation of the areas since time immemorial by the individual or corporate claimants in the concept of owners which shall be any of the authentic documents enumerated under Sec. 52 (d) of this act, including tax declarations and proofs of payment of taxes;

(g) The Ancestral Domains Office shall prepare and submit a report on each and every application surveyed and delineated to the NCIP, which shall, in turn, evaluate or corporate (family or clan) claimant over ancestral lands. Sec. 54. Fraudulent Claims.- The Ancestral Domains Office may, upon written request from the ICCs/IPs, review existing claims which have been fraudulently acquired by any person or community. Any claim found to be fraudulently acquired by, and issued to, any person or community may be cancelled by the NCIP after due notice and hearing of all parties concerned.

(d) The Ancestral Domains Office may require from each ancestral claimant the submission of such other documents, Sworn Statements and the like, which in its opinion, may shed light on the veracity of the contents of the application/claim; (e) Upon receipt of the applications for delineation and recognition of ancestral land claims, the Ancestral Domains Office shall cause the publication of the application and a copy of each document submitted including a translation in the native language of the ICCs/IPs concerned in a prominent place therein for at least fifteen (15) days. A copy of the document shall also be posted at the local, provincial, and regional offices of the NCIP and shall be published in a newspaper of general circulation once a week for two (2) consecutive weeks to allow other claimants to file opposition thereto within fifteen (15) days from the date of such publication: Provided, That in areas where no such newspaper exists, broadcasting in a radio station will be a valid substitute: Provided, further, That mere posting shall be deemed sufficient if both newspapers and radio station are not available.

Sec. 55. Communal Rights.- Subject to Section 56 hereof, areas within the ancestral domains, whether delineated or not, shall be presumed to be communally held: Provide, That communal rights under this Act shall not be construed as coownership as provided in Republic Act. No. 386, otherwise known as the New Civil Code. REGISTRATION PROCESS AND REQUIREMENTS (1) (2) (3) (4) (5) (6) (7) (8)

(f) Fifteen (15) days after such publication, the Ancestral Domains Office shall investigate and inspect each application, and if found to be

Survey Application Initial Hearing Publication Opposition Hearing Judgment Issuance of Decree

WHAT LANDS ARE REGISTRABLE:

(a) Private Lands

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(b) Agricultural Lands

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factual proof of possession are unavailing. The deeds in its favor only proved possession of its predecessors-in-interest as early as 1948. (The law now stands that a mere showing of possession for 30 years is not sufficient. OCEN possession must be shown to have stated on June 12, 1945 or earlier.)

If in the public domain, the land must be classified as alienable and disposable. It must be classified as such at the time of filing the application for registration. (Republic vs. CA and Naguit, 2005) SURVEY

The survey may be done by a public or private surveyor. When done by a private surveyor it has to be approved by the Land Management Bureau. PD 239 withdrew the authority of the Land Registration Authority to approve original survey plans.

INITIAL HEARING

APPLICATION

PUBLICATION

The application for land registration shall be: (a) in writing (b) signed and sworn to by the applicant/duly authorized person, and if more than one applicant, it shall be signed and sworn to by and in behalf of each

The public shall be given notice of the initial hearing of the application for land registration by means of (1) publication; (2) mailing; and (3) posting. (PD 1529, Sec. 23)

The court shall issue an order setting the date and hour of the initial hearing within five days from filing of the application. The initial hearing shall be 45-90 days from the date of the order. (Sec. 23, PD 1529)

By publication The Commissioner of Land Registration shall cause it to be published: once in the Official Gazette (sufficient to confer jurisdiction) and once in a newspaper of general circulation in the Philippines

It shall contain: (a) a description of the land (b) citizenship and civil status of the applicant (c) if married, the name of the wife or husband (d) if the marriage has been legally dissolved, when and how (e) full names and addresses of all occupants and those of the adjoining owners, if known (f) if not known, it shall state the extent of the search made to find them. (Sec. 15, PD 1529)

The notice is addressed to: (a) all persons appearing to have an interest in the land the adjoining owners so far as known "to all whom it may concern" By mailing Within 7 days from publication in the OG, the Commissioner of Land Registration (CLR) shall mail a copy of the notice to: (a) Every person named in the notice whose address is known. (b) the Secretary of Public Highways, to the Provincial Governor, and to the Mayor of the municipality or city, in which the land lies, if the applicant requests to have the line of a public way or road determined (c) Secretary of Agrarian Reform, the Solicitor General, the Director of Lands, the Director of Mines and/or the Director of Fisheries and Aquatic Resources, (as appropriate) if the land borders on a river, navigable stream or shore, or on an arm of the sea where a river or harbor line has been established, or on a lake, or if it otherwise appears from the application or the proceedings that a tenant-farmer or the national government may have a claim adverse to that of the applicant

Note: It must be accompanied by the original tracing cloth plan, white or blue copies thereof, the original and copies of the technical description and geodetic engineer’s certification. Special Cases: (a) If the land bounded by a road, the applicant must state in his application if he claims any portion of the land within the limits of the road, or if he likes to have the boundaries determined. (Sec. 20, PD 1529) (b) If the applicant is a non-resident, he shall appoint an agent or representative who is a Philippine resident. (Sec. 16, PD 1529) (c) Intestate Estate of Don Mariano San Pedro vs. CA (1996): A person claiming ownership of real property must clearly identify the land claimed by him. (d) In re: Application for Land Registration vs. Republic (2008, Nachura): An applicant in a land registration case must prove the facts and circumstances evidencing the alleged ownership of the land applied for. General statements which are mere conclusions of law and not

By posting CLR shall cause the sheriff or his deputy to post the notice at least 14 days before the hearing: in a

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conspicuous place on each parcel of land included in the application and in a conspicuous place on the bulletin board of the municipal building of the municipality or city in which the land or portion thereof is situated.

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Forms of Judgment Writ of possession Vencilao vs. Vano, (1990): The writ may be issued not only against the person defeated in the registration case but also against any one adversely occupying the land during the proceedings.

The court may also cause notice to be served to such other persons and in such manner as it may deem proper.

Bernas vs. Nuevo, (1984): The writ does not lie against a person who entered the land after the issuance of the decree and who was not a party in the case. He can only be proceeded against in a separate action for ejectment or reinvindicatory action.

OPPOSITION

Who may file? Any person claiming an interest, whether named in the notice or not

Writ of demolition Gawaran vs. IAC, (1988): This writ is a complement of the writ of possession.

When to file? On or before the date of initial hearing, or within such further time as may be allowed by the court.

ISSUANCE OF DECREE

Preparation of the Decree (1) Court directs the Land Registration Authority to issue a decree of registration and certificate of Title within 15 days from entry of judgment. (a) Appeal reckoned from the Solicitor General’s receipt of the decision (b) Becomes final 15 days from receipt (2) Commissioner signs the decree (3) Decree is entered and filed with the LRC (4) OCT and owner’s duplicate certificate are sent to the Register of Deeds where property is situated. (5) Register of Deeds enters the information in his registration book. (6) Register of Deeds sends notice by mail to owner that his duplicate is ready for delivery upon payment of legal fees.

What shall it contain? It shall state all the objections and the interest claimed by the party the remedy desired. How shall it be made? It shall be signed and sworn to by him or by some other duly authorized person. Note: (a) If no one appears/files an answer, upon motion, the court shall order a default to be recorded. (b) By the description in the notice "To all Whom It May Concern", all the world are made parties defendant and shall be concluded by the default order. (c) Where an appearance has been entered and an answer filed, a default order shall be entered against persons who did not appear and answer. (d) Director of Lands vs. Agustin, (1921): Absence of opposition does not justify outright registration.

Gomez vs. CA (1988): Court retains jurisdiction over the case until after the expiration of 1 year from the issuance of the decree of registration.

HEARING

REMEDIES

Proof of ownership Municipality of Santiago vs. CA (1983): Tax declaration and receipts are not conclusive but have strong probative value when accompanied by proof of actual possession.

GROUND FOR REOPENING AND REVIEWING THE DECREE OF REGISTRATION: actual fraud PERIODS:

Must be reopened not later than 1 year from and after the date of the entry of such decree. Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. The only remedy left is an action for damages.

Republic vs. Tayag (1984): Payment in one lump sum to cover all past taxes is “irregular” and affects the validity of the applicant’s claim of ownership Spanish titles are no longer admissible.

PROHIBITIONS:

JUDGMENT

(a) Cannot be reopened because of absence, minority, or other disability of any person adversely affected thereby (b) Cannot be reopened where an innocent purchaser for value may be prejudiced (includes

Judgment becomes final upon expiration of 30 days from receipt of notice of judgment

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an innocent lessee, mortgagee, encumbrancer for value.)

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or

other

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not among the grounds for forcible entry and unlawful detainer, or when possession has been lost for more than one year and can no longer be maintained under Rule 70 of the Rules of Court.

Arguelles vs. Timbancaya (1976): The rule on the incontrovertible nature of a certificate of title applies when what is involved is the validity of the OCT, not when it concerns that of the TCT.

The objective of the plaintiffs in accion publiciana is to recover possession only, not ownership. The Velascos were able to establish lawful possession of the land when the Padillas occupied the property. The OCT was issued to the original owners who then sold the land to Artemio.

IMPRESCRIPTIBLE PD 1529, Sec 47. Registered land not subject to prescriptions. No title to registered land in derogation of the title of the registered owner shall be acquired by prescription or adverse possession.

From then on, he was in continuous possession of the land until his death. It was only in 1987, when the Padillas occupied the property. The argument that the lots are one and the same is a collateral attack on the title over the property which is registered in the name of Artemio, which cannot be countenanced.

Barcelona vs. Barcelona (1956): Prescription is unavailing not only against the registered owner but also against his hereditary successors because the latter merely step into the shoes of the decedent by operation of law and are merely the continuation of the personality of their predecessor-in-interest.

Remedies of the Aggrieved Party Motion for New 15 days from notice of judgment Trial Grounds: (a) Fraud, accident, mistake, excusable negligence (b) Newly discovered evidence (c) Awarded excessive damages, or insufficiency of evidence, or that the decision is against law Appeal (d) 15 days from notice (e) appealable to the CA or to the SC in the same manner as in ordinary actions Relief from (f) 60 days after petitioner Judgment learns of judgment, but not more than 6 months after judgment was entered (g) Grounds: Fraud, accident, mistake, excusable negligence Petition for Requisites: (Walstrom vs. Mapa, Review 1990) (h) petitioner must have an estate or interest in the land (i) he must show actual fraud (j) petition must be filed within one year form the issuance of the decree by LRA (k) property has not yet passed to an innocent purchaser for value. Grounds: (l) extrinsic fraud, (m)void decision for want of due process (n) lack of jurisdiction

NOT SUBJECT TO COLLATERAL ATTACK PD 1529, Sec 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or canceled except in a direct proceeding in accordance with law. Spouses Padilla vs. Velasco, et. al, G.R. No. 169956 (2009, Nachura) Facts: Velasco et al (respondents) are the heirs of Artemio who died, leaving a parcel of land. He acquired it by virtue of a deed of sale in his favor. The Padilla sps (petitioners) entered the land as trustees by virtue of a deed of sale executed by a bank in favor of the Solomon sps. Velascos demanded that the Padillas vacate the property. Padillas cut trees, built a house and harvested crops. Velascos filed a complaint for accion publiciana before the RTC. Velascos presented deed of sale in favor of Artemio, while Padillas presented deed of sale between bank and Solomons. The Padillas also argue that the Solomon sps acquired the land in good faith and for value and that they argue that Lot 2161 (the one they are occupying) and Lot 76-pt (the lot the Solomon spouses bought) are one and the same. Held: The Velascos have a better right to the land. The instant case is for accion publiciana, or for recovery of the right to possess. Accion publiciana is also used to refer to an ejectment suit where the cause of dispossession is

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Calalang vs. Register of Deeds, 1992: Under the Torrens system of registration, the Torrens still becomes indefeasible and incontrovertible one year from the issuance of the final decree and is generally conclusive evidence of the ownership

Action for Reconveyance

Damages

Action for Compensation from the 1 Assurance Fund

And is barred from bringing an action for recovery of the land. The action has not prescribed. It must be instituted within 6 years from the time the right to bring such action first occurred--> date of issue of the certificate of title

Iglesia ni Cristo vs. CFI, 1983: This applies as well to title acquired through homestead or free patents (o) before issuance of decree, or within/after 1 year from entry (p) if based on implied trust, 10 years; (q) if based on expressed trust and void contract, imprescriptible (r) if based on fraud, 4 years from the discovery (s) not available if the property has already been transferred to an innocent purchaser for value. Esconde vs. Barlongay, 1987: It does not reopen proceedings but a mere transfer of the land from registered owner to the rightful owner Huang vs. CA,1994: It is available in case of fraud thereby creating a constructive trust between parties Ching vs. CA, 1990: It can be availed of when reconveyance is no longer possible as when the land has been transferred to an innocent purchaser for value Requisites: A person sustains loss or damage or is deprived by any estate or interest in land

Against whom filed: against the Register of Deeds and the National Treasurer if FEMOM is caused by court personnel, Register of Deeds, his deputy or other employees of the Registry

Annulment Judgment

of

If other than those above mentioned: the Register of Deeds, the National Treasurer and other person or persons, as co-defendants. Grounds: extrinsic fraud and lack of jurisdiction. Galicia vs. Marquez (2007): Ordinary remedies of appeal, motion for new trial etc should no longer be available. If based on extrinsic fraud, file 4 within years from discovery.

Reversion

Criminal Action

On account of bringing of land under the Torrens system

If based on lack of jurisdiction, before it is barred by laches or estoppel Instituted by the government, thru Solgen in all cases where lands of public domain are held in violation of the Constitution or were fraudulently conveyed. Indefeasibility of title, prescription, laches, and estoppel do not bar reversion suits. Perjury, Forgery, Others involving fraud

JUDICIAL CONFIRMATION OF IMPERFECT OR INCOMPLETE TITLES

Through (FEMOM) fraud, error, mistake, omission, or misdescription in the certificate of entry in the registration book Without negligence on his part

General Rule No title or right to, or equity in, any lands of the public domain may be acquired by prescription or by adverse possession or occupancy except as expressly provided by law. (CA 141, Sec 57) The Public Land Act recognizes the concept of ownership under the civil law. This ownership is based on adverse possession and the right of acquisition is governed

Upon registration, there shall be paid to the Register of Deeds ¼ of 1% of the assessed value of the real estate on the basis of the last assessment for taxation purposes, as contribution to the Assurance Fund. 1

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by the Chapter on judicial confirmation of imperfect or incomplete titles.

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CADASTRAL REGISTRATION Unlike other kinds of registration, this is compulsory as it is initiated by the government.

This applies only to alienable and disposable agricultural lands of the public domain. Under Sec. 6 of CA 141, the classification of public lands into alienable and disposable forest lands, or mineral lands is the prerogative of the Executive Department.

PD 1529, Sec 35. Cadastral Survey preparatory to filing of petition. (a) When in the opinion of the President of the Philippines public interest so requires that title to any unregistered lands be settled and adjudicated, he may to this end direct and order the Director of Lands to cause to be made a cadastral survey of the lands involved and the plans and technical description thereof prepared in due form.

Bracewell vs. CA, (2000): The rule on confirmation of imperfect title does not apply unless and until the land classified as, say, forest land, is released in an official proclamation to that effect so that if may form part of the disposable agricultural lands of the public domain. Period of filing RA No. 9176 extended the period to file an application for judicial confirmation of imperfect or incomplete title to December 31, 2020. It further limited the area applied for to 12 hectares.

(b) Thereupon, the Director of Lands shall give notice to persons claiming any interest in the lands as well as to the general public, of the day on which such survey will begin, giving as fully and accurately as possible the description of the lands to be surveyed. Such notice shall be punished once in the Official Gazette, and a copy of the notice in English or the national language shall be posted in a conspicuous place on the bulletin board of the municipal building of the municipality in which the lands or any portion thereof is situated. A copy of the notice shall also be sent to the mayor of such municipality as well as to the barangay captain and likewise to the Sangguniang Panlalawigan and the Sangguniang Bayan concerned.

Requisites (a) Filipino citizen (b) He must have, by himself, or thru his predecessors – in - interest, possessed and occupied an alienable and disposable agricultural portion of the public domain (c) Such possession and occupation must have been OCEN and in the concept of owner since June 12, 1945 (d) Application filed with proper court Private corporations Where at the time the corporation acquired the land, its predecessor-in-interest had been in possession and occupation thereof in the manner and for the period prescribed by law as to entitle him to registration in his name, then the proscription against corporation acquiring alienable lands of the public domain does not apply for the land was no longer public land but private property. Since the land is private, the corporation can institute confirmation proceedings. (Director of Lands vs. IAC and Acme Plywood and Veneer Co., 1986)

(c) The Geodetic Engineers or other employees of the Bureau of Lands in charge of the survey shall give notice reasonably in advance of the date on which the survey of any portion of such lands is to begin, which notice shall be posted in the bulletin board of the municipal building of the municipality or barrio in which the lands are situated, and shall mark the boundaries of the lands by monuments set up in proper places thereon. It shall be lawful for such Geodetic Engineers and other employees to enter upon the lands whenever necessary for the purposes of such survey or the placing of monuments.

NOTE: (a) MAXIMUM LAND THAT CAN BE APPLIED FOR: 144 hectares (b) In case of foreigner, it sufficient that he is already Filipino citizen at the time of his application. (c) Corporation which has less than 60% Filipino ownership cannot apply confirmation of imperfect title; can only lease (d) PERSONS COMPETENT TO QUESTION LAND GRANT: Persons who obtained title from State or thru persons who obtained title from State.

(d) It shall be the duty of every person claiming an interest in the lands to be surveyed, or in any parcel thereof, to communicate with the Geodetic Engineer upon his request therefor all information possessed by such person concerning the boundary lines of any lands to which he claims title or in which he claims any interest. (e) Any person who shall willfully obstruct the making of any survey undertaken by the Bureau of

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Lands or by a licensed Geodetic Engineer duly authorized to conduct the survey under this Section, or shall maliciously interfere with the placing of any monument or remove such monument, or shall destroy or remove any notice of survey posted on the land pursuant to law, shall be punished by a fine of not more than one thousand pesos or by imprisonment for not more than one year, or both.

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STEPS IN CADASTRAL REGION PROCEEDINGS

(1) Determination of the President that public interest requires title to unregistered lands be settled (2) Director of lands shall make a cadastral survey (3) Director of Lands gives notice to interested persons (4) Publication of notice (5) A copy of the notice shall also be sent to the mayor and the sanggunian (6) Geodetic engineers/ Bureau of Land employees shall notify (re: survey) by posting at the municipal building (7) Interested persons should communicate with the geodetic engineer if he requests for any information about the land (8) Actual survey/ plotting of the land (9) Director of Lands represented by Solicitor General shall institute original registration proceedings (10) Publication, mailing posting (11) Hearing (12) Decision (13) Issuance of the decree and certificate of title

PD 1529, Sec 36. Petition for registration. When the lands have been surveyed or plotted, the Director of Lands, represented by the Solicitor General, shall institute original registration proceedings by filing the necessary petition in the Court of First Instance of the place where the land is situated against the holders, claimants, possessors, or occupants of such lands or any part thereof, stating in substance that public interest requires that the title to such lands be settled and adjudicated and praying that such titles be so settled and adjudicated: The petition shall contain a description of the lands and shall be accompanied by a plan thereof, and may contain such other data as may serve to furnish full notice to the occupants of the lands and to all persons who may claim any right or interest therein.

Note: In voluntary registration proceedings, there is no res judicata when the applicant fails to prove his title. In cadastral registration, if the applicant cannot prove that he is entitled to the land, the land becomes public land. There is res judicata.

Where the land consists of two or more parcels held or occupied by different persons, the plan shall indicate the boundaries or limits of the various parcels as accurately as possible. The parcels shall be known as "lots" and shall on the plan filed in the case be given separate numbers by the Director of Lands, which numbers shall be known as "cadastral lot numbers".

Subsequent Registration TWO TYPES OF DEALINGS VOLUNTARY DEALINGS

The lots situated within each municipality shall, as far as practicable, be numbered consecutively beginning with number "one", and only one series of numbers shall be used for that purpose in each municipality. However in cities or townsites, a designation of the landholdings by blocks and lot numbers may be employed instead of the designation by cadastral lot numbers.

Deeds, instruments, documents which are the results of free and voluntary acts of parties thereto. INVOLUNTARY DEALINGS

Writ, order, or process issued by the court of record affecting registered land, also other instruments which are not willful acts of the registered owner, executed without his knowledge or consent.

The cadastral number of a lot shall not be changed after final decision has been entered decreasing the registration thereof, except by order of court. Future subdivisions of any lot shall be designated by a letter or letters of the alphabet added to the cadastral number of the lot to which the respective subdivisions pertain. The letter with which a subdivision is designated shall be known as its "cadastral letter": Provided, however, that the subdivisions of cities or townsites may be designated by blocks and lot numbers.

NECESSITY AND EFFECTS OF REGISTRATION PD 1529, Sec 51. Conveyance and other dealings by registered owner. An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a

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conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration.

Voluntary Dealings deed of sale and the same is entered in the day book and at the same time he surrenders or presents the owner’s duplicate certificate of title covering the land sold and pays the registration fees. Villasor vs. Camon, (1951): It is necessary to register the deed or instrument in the entry book and a memorandum thereof shall also be made in the owner’s duplicate certificate and its original Spouses Labayen vs. Leonardo Serafica, (2008, Nachura): At the time of the filing of the petition for cancellation of encumbrance, the lease contract already lost its efficacy. Thus, there is no basis to save its annotation on defendant’s title. The fact that the cancellation of the lease contract was forged is of no moment, for there was no violation of a right.

The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. Note: The deed, mortgage, lease, or other voluntary instrument, except a will shall ONLY operate as: (1) A contract between the parties and (2) Evidence of authority to the Register of Deeds to make registration. (a) The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned. (b) A forged deed is an absolute nullity and conveys no title. (c) EXCEPTION: If there is good faith, a TCT has already been issued to the purchaser, the latter being an innocent purchaser for value according to Sec. 39, PD 1529, then the title is good. PD 1529, Sec 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing or entering. Voluntary Dealings

Involuntary Dealings

Sale, mortgage, lease, patent, powers of attorney, trusts

Attachment, injunction, mandamus, levy on execution, notice of lis pendens Entry in the day book is sufficient notice to all persons

Presentation of the owner’s duplicate certificate of title is required to notify; mere entry insufficient An innocent purchaser for value of registered land becomes the registered owner the moment he presents and files a duly notarized and valid

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Involuntary Dealings

Dir. Of Lands vs. Reyes, (1976): Entry in the day book is sufficient notice to all persons of an adverse claim without the same being annotated at the back of the certificate of title AFP Mutual Benefit Association vs. Santiago, (2008, Nachura): Entry of the attachment in the books is sufficient notice to all persons. Hence, the fact that the deed of sale was already annotated is of no moment with regard to third persons. The preference created by the levy on attachment is not diminished by the subsequent registration of the deed of sale.

General Rule: (a) Campillo vs. PNB, 1969: A person dealing with registered property need not go beyond, but only has to rely on, the title. (b) He is charged with notice only of such burdens and claims which are annotated on the title, for registration is the operative act that binds the property.

Lenin vs. Bass, (1952): Entry thereof in the day book of the ROD is sufficient notice to all persons even if the owner’s duplicate certificate of title is not presented to the ROD.

WHEN SHOULD A PURCHASER INVESTIGATE? (c) Banks are required to exercise more care and prudence in dealing with registered lands for their business is one affected with public interest. The general rule does not apply.

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(d) Leung Yee vs. Strong Machinery, (1918): When party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make inquiry. (e) Jamoc vs. CA, (1991): When purchaser is in bad faith; e.g. he had full knowledge of a previous sale. (f) Quiniano vs. CA, (1971): When a person buys land from one whose rights over the land is evidenced only by a deed of sale and an annotation in the certificate of title but no TCT.

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whether such person resides within or without the Philippines, but the court may, in its discretion, require further or other notice to be given in any case, if in its opinion the interest of justice so requires. PD 1529, Sec 56. Primary Entry Book; fees; certified copies. Each Register of Deeds shall keep a primary entry book in which, upon payment of the entry fee, he shall enter, in the order of their reception, all instruments including copies of writs and processes filed with him relating to registered land.

VOLUNTARY DEALINGS REGISTRATION OF VOLUNTARY INSTRUMENTS IN GENERAL

He shall, as a preliminary process in registration, note in such book the date, hour and minute of reception of all instruments, in the order in which they were received. They shall be regarded as registered from the time so noted, and the memorandum of each instrument, when made on the certificate of title to which it refers, shall bear the same date:

PD 1529, Sec 54. Dealings less than ownership, how registered. No new certificate shall be entered or issued pursuant to any instrument which does not divest the ownership or title from the owner or from the transferee of the registered owners. All interests in registered land less than ownership shall be registered by filing with the Register of Deeds the instrument which creates or transfers or claims such interests and by a brief memorandum thereof made by the Register of Deeds upon the certificate of title, and signed by him.

Provided, that the national government as well as the provincial and city governments shall be exempt from the payment of such fees in advance in order to be entitled to entry and registration.

A similar memorandum shall also be made on the owner's duplicate. The cancellation or extinguishment of such interests shall be registered in the same manner.

Every deed or other instrument, whether voluntary or involuntary, so filed with the Register of Deeds shall be numbered and indexed and endorsed with a reference to the proper certificate of title. All records and papers relative to registered land in the office of the Register of Deeds shall be open to the public in the same manner as court records, subject to such reasonable regulations as the Register of Deeds, under the direction of the Commissioner of Land Registration, may prescribe.

PD 1529, Sec 55. Grantee's name, nationality, etc., to be stated. Every deed or other voluntary instrument presented for registration shall contain or have endorsed upon it the full name, nationality, residence and postal address of the grantee or other person acquiring or claiming an interest under such instrument, and every deed shall also state whether the grantee is married or unmarried, and if married, the name in full of the husband or wife.

All deeds and voluntary instruments shall be presented with their respective copies and shall be attested and sealed by the Register of Deeds, endorsed with the file number, and copies may be delivered to the person presenting them.

If the grantee is a corporation or association, the instrument must contain a recital to show that such corporation or association is legally qualified to acquire private lands. Any change in the residence or postal address of such person shall be endorsed by the Register of Deeds on the original copy of the corresponding certificate of title, upon receiving a sworn statement of such change. All names and addresses shall also be entered on all certificates.

Certified copies of all instruments filed and registered may also be obtained from the Register of Deeds upon payment of the prescribed fees. Process of registration (1) File instrument creating or transferring interest and certificate of title with Register of Deeds together with: (a) Owner’s duplicate (b) Payment of fees & documentary stamp tax (c) Evidence of full payment of real estate tax (d) Document of transfer – 1 copy additional for city/provincial assessor

Notices and processed issued in relation to registered land in pursuance of this Decree may be served upon any person in interest by mailing the same to the addresses given, and shall be binding,

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(2) Register of Deeds shall make a memorandum on the certificate of title, signed by him (3) TCT shall then be issued

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If there are subsisting encumbrances and annotations They shall be carried over in the new certificate or certificates; except when they have been simultaneously discharged.

Note: (a) If the grantee is a corporation or association, it must show that it is qualified to acquire private lands. (b) PNB vs. Fernandez (1935): The issuance of a new transfer certificate without presentation of an owner’s duplicate is unwarranted and confers no right on the purchaser (c) RA 456 prohibits registration of documents affecting real property which is delinquent in the payment of real estate taxes. Further, if evidence of such payment is not presented with 15 days from the date of entry of said document in the primary entry book of the register of deeds the entry shall be deemed cancelled. (d) Pay fees and DST (government is exempt) (e) The instruments are regarded as registered from the time ROD enters them in his book.

MORTGAGES AND LEASES

PD 1529, Sec 60. Mortgage or lease of registered land. Mortgage and leases shall be registered in the manner provided in Section 54 of this Decree. The owner of registered land may mortgage or lease it by executing the deed in a form sufficient in law. Such deed of mortgage or lease and all instruments which assign, extend, discharge or otherwise deal with the mortgage or lease shall be registered, and shall take effect upon the title only from time of registration. No mortgagee's or lessee's duplicate certificate of title shall hereafter be issued by the Registers of Deeds, and those issued prior to the effectivity of this Decree are hereby deemed canceled and the holders thereof shall immediately surrender the same to the Register of Deeds concerned.

REGISTRATION OF DEEDS OF SALE AND TRANSFERS

If entire property is subject (PD 1529, Sec 57) (a) Owner executes and registers the deed which must be sufficient in form. (b) A new certificate of title is issued and Register of Deeds prepares and delivers to grantee his owner's duplicate certificate (c) Register of Deeds notes upon the OCT and the duplicate certificate the date of transfer, the volume and page of the registration book where the new certificate is registered (d) The original and the owner's duplicate of the grantor's certificate shall be stamped "canceled". (e) The deed of conveyance shall be filed and indorsed with the number and the place of registration of the certificate of title of the land conveyed.

PD 1529, Sec 61. Registration. Upon presentation for registration of the deed of mortgage or lease together with the owner's duplicate, the Register of Deeds shall enter upon the original of the certificate of title and also upon the owner's duplicate certificate a memorandum thereof, the date and time of filing and the file number assigned to the deed, and shall sign the said memorandum. He shall also note on the deed the date and time of filing and a reference to the volume and page of the registration book in which it is registered. Mortgage and leases shall be registered in the manner provided for in Section 54. When a deed of mortgage or lease is presented, ROD will enter upon the OCT and upon the owner’s duplicate a memorandum thereof and shall sign.

If only a portion of property is subject (PD 1529, Sec 58) (a) Include a plan which shows all the portions already subdivided with verified and approved technical description. (b) That plan with the certified copy of the technical descriptions shall be filed with the Register of Deeds for annotation in the TCT. (c) Register of Deeds shall issue a TCT and cancel the grantor's certificate partially OR it may be canceled totally and a new one issued describing therein the remaining portion

POWERS OF ATTORNEY; TRUSTS

PD 1529, Sec 64. Power of attorney. Any person may, by power of attorney, convey or otherwise deal with registered land and the same shall be registered with the Register of Deeds of the province or city where the land lies. Any instrument revoking such power of attorney shall be registered in like manner. PD 1529, Sec 65. Trusts in registered land. If a deed or other instrument is filed in order to transfer registered land in trust, or upon any equitable condition or limitation expressed therein, or to create

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or declare a trust or other equitable interests in such land without transfer, the particulars of the trust, condition, limitation or other equitable interest shall not be entered on the certificate; but only a memorandum thereof shall be entered by the words "in trust", or "upon condition", or other apt words, and by a reference by number to the instrument authorizing or creating the same.

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claim doesn’t affect the title of a purchaser for value and in good faith before its registration. INVOLUNTARY DEALINGS ATTACHMENT

A writ issued at the institution or during progress of an action commanding the sheriff to attach the property, rights, credits or effects of the defendant to satisfy demands of the plaintiff

A similar memorandum shall be made upon the original instrument creating or declaring the trust or other equitable interest with a reference by number to the certificate of title to which it relates and to the volume and page in the registration book in which it is registered.

Kinds (a) Preliminary (b) Garnishment (c) Levy on execution Registration of attachment/other liens (a) Copy of writ in order to preserve any lien, right or attachment upon registered land shall be filed with the Register of Deeds where the land lies, containing number of certificate of title of land to be affected or description of land (PD 1529, Sec 69) (b) Register of Deeds to index attachment in names of both plaintiff & defendant or name of person whom property is held or in whose name stands in the records (c) If duplicate of certificate of title is not presented: (1) Register of Deeds shall within 36 hours send notice to registered owner by mail stating that there has been registration & requesting him to produce duplicate so that memorandum be made (2) If owner neglects or refuses – Register of Deeds shall report matter to court. (3) Court after notice shall enter an order to owner to surrender certificate at time & place to be named therein. (d) Although notice of attachment is not noted in duplicate, notation in book of entry of Register of Deeds produces effect of registration already

PD 1529, Sec 66. Trust with power of sale, etc., how expressed. If the instrument creating or declaring a trust or other equitable interest contains an express power to sell, mortgage or deal with the land in any manner, such power shall be stated in the certificate of title by the words "with power to sell", or "power to mortgage", or by apt words of description in case of other powers. No instrument which transfers, mortgages or in any way deals with registered land in trust shall be registered, unless the enabling power thereto is expressly conferred in the trust instrument, or unless a final judgment or order of a court of competent jurisdiction has construed the instrument in favor of the power, in which case a certified copy of such judgment or order may be registered. PD 1529, Sec 68. Implied, trusts, how established. Whoever claims an interest in registered land by reason of any implied or constructive trust shall file for registration with the Register of Deeds a sworn statement thereof containing a description of the land, the name of the registered owner and a reference to the number of the certificate of title. Such claim shall not affect the title of a purchaser for value and in good faith before its registration.

Effect of registration of attachment (a) Creates real right (b) Has priority over execution sale (c) But between 2 attachments – one that is earlier in registration is preferred

(a) Powers of attorney and revocations shall be registered with the Register of Deeds of the province or city where the land lies. (b) To transfer registered land in trust without transfer, the particulars of the trust shall not be entered on the certificate. Only a memorandum shall be entered by the words "in trust", or "upon condition". (c) Power must be expressly conferred in the trust instrument. (d) If implied or constructive trust, person claiming such must execute a sworn statement. But such

Duty of Register of Deeds Ministerial but may refuse registration in the following circumstances: (1) Title to land is not in the name of defendant (2) No evidence is submitted to show that he has present or possible future interest in land Exception: If petitioner is an heir

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sale) is made: cancellation of title & issuance of a new one (e) Before cancellation, notice shall be sent to registered owner: to surrender title & show cause why it shall not be cancelled

EXECUTION AND TAX DELINQUENCY SALES

Execution sale (a) To enforce a lien of any description on registered land, any execution or affidavit to enforce such lien shall be filed with Register of Deeds where the land lies (b) Register in the registration book & memorandum upon proper certificate of title as adverse claim or as an encumbrance (c) To determine preferential rights between 2 liens: priority of registration of attachment

NOTE: Actual knowledge is equivalent to registration. NOTICE OF LIS PENDENS

PD 1529, Sec. 76. Notice of lis pendens. No action to recover possession of real estate, or to quiet title thereto, or to remove clouds upon the title thereof, or for partition, or other proceedings of any kind in court directly affecting the title to land or the use or occupation thereof or the buildings thereon, and no judgment, and no proceeding to vacate or reverse any judgment, shall have any effect upon registered land as against persons other than the parties thereto, unless a memorandum or notice stating the institution of such action or proceeding and the court wherein the same is pending, as well as the date of the institution thereof, together with a reference to the number of the certificate of title, and an adequate description of the land affected and the registered owner thereof, shall have been filed and registered.

Tax sale (a) Sale of land for collection of delinquent taxes and penalties due the Government (b) In personam (all persons interested shall be notified so that they are given opportunity to be heard) (c) Notice to be given to delinquent tax payer at last known address (d) Publication of notice must also be made in English, Spanish & local dialect & posted in a public & conspicuous place in place wherein property is situated & at the main entrance of the provincial building (e) Sale cannot affect rights of other lien holders unless they are given the right to defend their rights: due process must be strictly observed (f) Tax lien superior to attachment (g) No need to register tax lien because it is automatically registered once the tax accrues (h) But sale of registered land to foreclose a tax lien need to be registered.

Purpose To keep the subject matter within the power of the court until the entry of final judgment. It therefore creates merely a contingency & not a lien. Effect of registration (a) Impossibility of alienating the property in dispute during the pendency of the suit – may be alienated but purchaser is subject to final outcome of pending suit (b) Register of Deeds is duty bound to carry over notice of lis pendens on all new titles to be issued

PD 1529, Sec 74. Enforcement of liens on registered land. Whenever registered land is solved on execution, or taken or sold for taxes or for any assessment or to enforce a lien of any character, or for any costs and charges incident to such liens, any execution or copy of execution, any officer's return, or any deed, demand, certificate, or affidavit, or other instrument made in the course of the proceedings to enforce such liens and required by law to be recorded, shall be filed with the Register of Deeds of the province or city where the land lies and registered in the registration book, and a memorandum made upon the proper certificate of title in each case as lien or encumbrance.

Cancellation of lis pendens (PD 1529, Sec. 77) (a) Before final judgment – court may order cancellation after showing that notice is only for the purpose of molesting an adverse party or it is not necessary to protect the rights of the party who caused it to be registered (b) Register of Deeds may also cancel upon verified petition of the party who caused such registration (c) Deemed cancelled when certificate of clerk of court stating manner of disposal of proceeding is registered

Procedure of registration of tax sale (a) Officer’s return shall be submitted to Register of Deeds together with duplicate title (b) Register in the registration book (c) Memorandum shall be entered in the certificate as an adverse claim or encumbrance (d) After the period of redemption has expired & no redemption (2 years from registration of auction

Other parties who need to register Assignee in involuntary proceeding for insolvency (a) Duty of the officer serving notice to file a copy of the notice to the Register of Deeds where the property of debtor lies

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(b) Assignee elected or appointed by court shall be entitled to entry of new certificate of registered land upon presentment of copy of assignment with bankrupt’s certificate of title (duplicate) (c) New certificate shall note that it is entered to him as assignee or trustee in insolvency proceedings

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thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. When is a claim adverse? When a person claims any part or interest in registered land adverse to the registered owner, after date of the original registration

Government in eminent domain (a) Copy of judgment shall be filed in the Register of Deeds which states description of property, certificate number, interest expropriated, nature of public use (b) Memorandum shall be made or new certificate of title shall be issued

Duration of an adverse claim 30 days from the date of registration. After that the annotation of adverse claim may be cancelled upon filing of a verified petition by the party in interest. When cancelled, no second adverse claim based on the same ground may be registered by the same claimant.

ADVERSE CLAIM

Sec. 70. Adverse claim. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed.

Requisites The adverse claimant must give a statement, signed and sworn before a notary public, of the following in writing: (a) his alleged right or interest (b) how and under whom such alleged right or interest is acquired (c) the description of the land in which the right or interest is claimed and (d) the number of the certificate of title (e) his residence or the place to which all notices may be served upon him.

The statement shall be signed and sworn to, and shall state the adverse claimant's residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be canceled upon filing of a verified petition therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.

NOTE: Non-compliance with the above requisites renders the adverse claim non-registrable and ineffective.

Non-registrable Properties NON-REGISTRABLE LANDS 1987 Constitution, Art. XII, Sec. 2 All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. xxx

Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered canceled.

Civil Code, Art. 420 The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth.

If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of

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The following lands cannot be registered: (a) Forest or timberlands (b) Lands for public use: roads, ports and bridges, etc. (c) Lands which are owned by the State for public service or development of national wealth

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the duplicate of the instrument, with appropriate annotation, certifying that he has recorded the instrument after reserving one copy thereof to be furnished the provincial or city assessor as required by existing law. (d) Tax sale, attachment and levy, notice of lis pendens, adverse claim and other instruments in the nature of involuntary dealings with respect to unregistered lands, if made in the form sufficient in law, shall likewise be admissible to record under this section.

Dealings with Unregistered Lands

(e) For the services to be rendered by the Register of Deeds under this section, he shall collect the same amount of fees prescribed for similar services for the registration of deeds or instruments concerning registered lands.

PD 1529, Sec 113. Recording of instruments relating to unregistered lands. No deed, conveyance, mortgage, lease, or other voluntary instrument affecting land not registered under the Torrens system shall be valid, except as between the parties thereto, unless such instrument shall have been recorded in the manner herein prescribed in the office of the Register of Deeds for the province or city where the land lies.

Key points (1) The system of registration for unregistered land is under the Torrens system. (2) Before: covers voluntary dealings, now includes involuntary dealings (3) Effect if prospective; binds 3rd persons after registration but yields to better rights of 3rd person prior to registration (limited effect to 3rd parties) reason: no strict investigation involved (4) Subsequent dealings – also valid if recorded (5) Register of deeds keeps day book & a register; index system is also kept

(a) The Register of Deeds for each province or city shall keep a Primary Entry Book and a Registration Book. The Primary Entry Book shall contain, among other particulars, the entry number, the names of the parties, the nature of the document, the date, hour and minute it was presented and received. The recording of the deed and other instruments relating to unregistered lands shall be effected by any of annotation on the space provided therefor in the Registration Book, after the same shall have been entered in the Primary Entry Book.

Procedure (1) Presentment of instrument dealing in unregistered land (2) If found in order – registered (3) If found defective – registration is refused writing his reason for refusal

(b) If, on the face of the instrument, it appears that it is sufficient in law, the Register of Deeds shall forthwith record the instrument in the manner provided herein. In case the Register of Deeds refuses its administration to record, said official shall advise the party in interest in writing of the ground or grounds for his refusal, and the latter may appeal the matter to the Commissioner of Land Registration in accordance with the provisions of Section 117 of this Decree. It shall be understood that any recording made under this section shall be without prejudice to a third party with a better right. (c) After recording on the Record Book, the Register of Deeds shall endorse among other things, upon the original of the recorded instruments, the file number and the date as well as the hour and minute when the document was received for recording as shown in the Primary Entry Book, returning to the registrant or person in interest

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The provision is intended to provide a remedy in cases where the law declares an act illegal but fails to provide for a relief to the party injured. (Jarencio)

ABUSE OF RIGHT Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

NCC 20 does not distinguish, and the act may be done wilfully or negligently. REQUISITES

(1) The act must be wilful or negligent; (2) It must be contrary to law; (3) Damages must be suffered by the injured party.

Generally, the exercise of any right must be in accordance with the purpose for which it was established. It must not be excessive or unduly harsh; there must be no intention to injure another.

ACTS CONTRARY TO MORALS Art. 21. Any person who wilfully 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.

There is abuse of right when: (a) The right is exercised for the only purpose of prejudicing or injuring another (b) The objective of the act is illegitimate (c) There is an absence of good faith

This article is designed to fill in the “countless gaps” in the statutes which would otherwise leave victims of moral wrongs helpless.

ELEMENTS:

(1) There is a legal right or duty; (2) Which is exercised in bad faith; (3) For the sole intent of prejudicing or injuring another.

ELEMENTS:

(1) Legal action; (2) Contrary to morals, public policy, good customs; (3) Intent to injure.

Velayo vs. Shell (1959): The standards in NCC 19 are implemented by NCC 21.

EXAMPLES: BREACH OF PROMISE TO MARRY, SEDUCTION AND SEXUAL ASSAULT

Globe vs. CA (1989): When a right is exercised in a manner which does not conform with the norms in NCC 19, and results in damage to another, a legal wrong is thereby committed.

Wassmer vs. Velez (1964): Mere breach of promise to marry is not an actionable wrong. But to formally set a wedding and go through all the above-described preparation and publicity, only to walk out of it when the matrimony is about to be solemnized, is quite different. This is palpably and unjustifiably contrary to good customs xxx.

University of the East vs. Jader (2000): The conscious indifference of a person to the rights or welfare of the others who may be affected by his act or omission can support a claim for damages.

Baksh vs. CA (1993): Where a man's promise to marry is in fact the proximate cause of the acceptance of his love by a woman and his representation to fulfill that promise thereafter becomes the proximate cause of the giving of herself unto him in a sexual congress, proof that he had, in reality, no intention of marrying her and that the promise was only a subtle scheme or deceptive device to entice or inveigle her to accept him and to obtain her consent to the sexual act, could justify the award of damages pursuant to Article 21 not because of such promise to marry but because of the fraud and deceit behind it and the willful injury to her honor and reputation. It is essential, however, that such injury should have been committed in a manner contrary to morals, good customs or public policy.

Nikko Hotel Manila Garden vs. Reyes (2005): Article 19, known to contain what is commonly referred to as the principle of abuse of rights, is not a panacea for all human hurts and social grievances. The object of this article is to set certain standards which must be observed not only in the exercise of one’s rights but also in the performance of one’s duties. ACTS CONTRARY TO LAW Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for the same.

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negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited.

Tanjanco v. CA (1966): However, when for one whole year, the plaintiff, a woman of legal age, maintained sexual relations with the defendant, with repeated acts of intercourse, there is here voluntariness. No case under Article 21 is made.

Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasicontract to the end that no one shall be unjustly enriched or benefited at the expense of another.

MALICIOUS PROSECUTION

Malicious prosecution is the institution of any action or proceeding, either civil or criminal, maliciously and without probable cause.

Art. 2143. The provisions for quasi contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article.

ELEMENTS:

(1) The fact of the prosecution and that the defendant was himself the prosecutor, and that the action was finally terminated with an acquittal (2) The prosecutor acted without probable cause (3) The prosecutor was impelled by legal malice.

One person should not be permitted to unjustly enrich himself at the expense of another, but should be required to make restitution of, or for property or benefits received, retained, or appropriated where it is just and equitable that such restitution be made, and where much action involves no violation or frustration of law or opposition to public policy, either directly or indirectly.

Que vs. IAC (1989): To constitute malicious prosecution, there must be proof that the prosecution was prompted by a sinister design to vex and humiliate a person and that it was initiated deliberately by the defendant knowing that his charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution does not make one liable for malicious prosecution.

While neither Art. 22 nor Art. 23 expressly provides for the effects of unjust enrichment, the Chapter on Quasi-Contracts (Articles 2159-2163), which complements or supplements and should be so considered in appropriate cases, does. Enrichment at the expense of another is not per se forbidden. It is such enrichment without just or legal cause that is contemplated here.

PUBLIC HUMILIATION

Grand Union vs. Espino: It is against morals, good customs and public policy to humiliate, embarrass and degrade the dignity of a person. Everyone must respect the dignity, personality, privacy and peace of mind of his neighbors and other persons (Article 26, Civil Code).

Just and legal cause is always presumed, and the plaintiff has the burden of proving its absence. The restitution must cover the loss suffered by the plaintiff but it can never exceed the amount of unjust enrichment of the defendant if it is less than the loss of the plaintiff.

UNJUSTIFIED DISMISSAL

The right of an employer to dismiss an employee is not to be confused with the manner in which this right is to be exercised.

Requisites: (1) That the defendant has been enriched; (2) That the plaintiff has suffered a loss; (3) That the enrichment of the defendant is without just or legal ground; and (4) That the plaintiff has no other action based on contract, crime or quasi-delict

When the manner in which the company exercised its right to dismiss was abusive, oppressive and malicious, it is liable for damages. UNJUST ENRICHMENT Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

LIABILITY WITHOUT FAULT

Art. 23. Even when an act or event causing damage to another’s party was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited.

Art. 23. Even when an act or event causing damage to another’s property was not due to the fault or

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The Tortfeasor

BASIS OF LIABILITY

Equity. An involuntary act, because of its character, cannot generally create an obligation; but when by such act its author has been enriched, it is only just that he should indemnify for the damages caused to the extent of this enrichment.

Worcester vs. Ocampo (1958): Tortfeasor refers to all persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.

SCOPE OF LIABILITY

The indemnity does not include unrealized profits of the injured party, because the defendant’s enrichment is the limit of his liability.

THE DIRECT TORTFEASOR Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.

Classification of Torts

The tortfeasor may be a natural or juridical person. PERSONS MADE LIABLE FOR OTHERS Art. 2180 (1). The 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.

ACCORDING TO MANNER OF COMMISSION (1) Negligent Tort – consists in the failure to act according to the standard of diligence required under the attendant circumstances. It is a voluntary act or omission which results in injury to others, without intending to cause the same.

PRINCIPLE OF VICARIOUS LIABILITY; DEFINITION

A person who has not committed the act or omission which caused damage or injury to another may nevertheless be held civilly liable to the latter either directly or subsidiarily under certain circumstances.

(2) Intentional Tort – perpetrated by one who intends to do that which the law has declared to be wrong. It is conduct where the actor desires to cause the consequences of the act, or that he believes that the consequences are substantially certain to result therefrom.

This is also known as the “doctrine of imputed negligence.”

Note: Article 2176 where it refers to “fault or negligence” covers not only acts “not punishable by law” but also acts criminal in character, whether intentional and voluntary or negligent. (Elcano vs Hill (1977))

Art. 2180, par. 8. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. General Rule: proper defense is the exercise of the diligence of a good father of a family (bonus paterfamilias)

(3) Strict Liability – one is liable independent of fault or negligence. It only requires proof of a certain set of facts. Liability here is based on the breach of an absolute duty to make something safe. It most often applies to ultra-hazardous activities or in product liability cases. It is also known as “absolute liability” or liability without fault.” Strict liability is imposed by articles 1314, 1711, 1712, 1723, 2183, 2187, 2189, 2190, 2191, 2192, 2193.

Exception: common carriers, and all others subject to extraordinary diligence. BASIS OF VICARIOUS LIABILITY

The basis of vicarious liability is NOT respondeat superior; rather, it is the principle of pater familias.

ACCORDING TO SCOPE GENERAL

Respondeat superior

Tort liability is based on any of the three categories: intentional, negligent, strict liability SPECIFIC

Includes trespass, assault, battery, negligence, products liability, and intentional infliction of emotional distress

Under American jurisprudence, it means that the negligence of the servant is conclusively the negligence of the master.

Bonus pater Under the principle of pater familias, familias the basis of the “master’s” liability is the negligence in the supervision of his subordinates. The “master” will be

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(1) School (2) Administrators (3) Teachers (4) Individual, entity, or institution engaged in child care

freed from liability if he can prove that he had observed all the diligence of a good father of the family to prevent the damage.

PARENTS AND ADOPTERS

LIABILITY OF THE ACTUAL TORTFEASOR

The author of the act is not exempted from personal liability. He may be sued alone or with the person responsible for him.

BASIS OF LIABILITY

It is based on the presumption of failure on their part to properly exercise their parental authority for the good education of their children and exert adequate vigilance over them.

2 REQUISITES ACCORDING TO CHIRONI (1) The duty of supervision (2) The possibility of making such supervision effective

It is imposed only when children are living with the parents.

PRESUMPTION OF NEGLIGENCE ON PERSONS INDIRECTLY RESPONSIBLE

If there is just cause for separation, the responsibility ceases.

Liability arises by virtue of a presumption juris tantum of negligence on the part of the persons made responsible under the article, derived from their failure to exercise due care and vigilance over the acts of the subordinates to prevent them from causing damage.

Note: The responsibility of the father and mother is not simultaneous but alternate. WHEN RESPONSIBILITY CEASES

When parent is not in the position to exercise authority and supervision over the child

The non-performance of certain duties of precaution and prudence imposed upon the persons who become responsible by civil bond uniting the actor to them.

MEANING OF “MINORITY”

Par. 2 and 3 of Art. 2180 speak of minors. Minors here refer to those who are below 21 years of age, NOT below 18 years. The law reducing the majority age from 21 to 18 years old did not amend these pars.

Tamargo v. CA (1992): The basis of this vicarious, although primary, liability is, as in Article 2176, fault or negligence, which is presumed from that which accompanied the causative act or omission. The presumption is merely prima facie and may therefore be rebutted.

Art. 236, par. 3 of the FC, as amended by RA 6809, provides: “Nothing in this Code shall be construed to derogate from the duty or responsibility of parents and guardians for children and wards below 21 years of age mentioned in the second and third paragraphs of 2180 of the Civil Code.”

NATURE OF LIABILITY

The liability of the vicarious obligor is PRIMARY and DIRECT (solidarily liable with the tortfesor), not subsidiary. His responsibility is not conditioned upon the insolvency of or prior recourse against the negligent tortfeasor.

ADOPTED CHILDREN

Judicially adopted children are considered legitimate children of their adopting parents. Thus, adopters are civilly liable for their tortious/ criminal acts if the children live with them and are below 21 years of age.

PERSONS VICARIOUSLY LIABLE (ART. 2180) WHO ARE LIABLE FOR MINORS? (a) Parents (the father, and in case of his death or incapacity, the mother) (b) Adopters (c) Court-appointed guardians (d) Substitute Parental Authorities (1) Grandparents (2) Oldest qualified sibling over 21 years old (3) Child’s actual custodian, provided he is qualified and over 21 years old. (e) Special Parental Authorities

ILLEGITIMATE CHILDREN

Responsibility is with the mother whom the law vests parental authority. REASON FOR VICARIOUS LIABILITY

Exconde vs. Capuno (1957): The civil liability which the law

imposes upon the father and, in case of his death or incapacity, the mother, for any damages that may be

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caused by the minor children who live with them, is obvious. This is a necessary consequence of the parental authority they exercise over them which imposes upon the parents the 'duty of supporting them, keeping them in their company, educating them in proportion to their means', while, on the other hand, gives them the 'right to correct and punish them in moderation.'

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PARENTAL AUTHORITY OVER FOUNDLINGS, ABANDONED, NEGLECTED OR ABUSED AND OTHER SIMILARLY SITUATED CHILDREN

In case of foundlings, abandoned, neglected or abused children and other children similarly situated, parental authority shall be entrusted in summary judicial proceedings to heads of children's homes, orphanages and similar institutions duly accredited by the proper government agency. (FC Art. 217)

Tamargo vs. CA (1992): The basis of parental authority for the torts of a minor child is the relationship existing between the parents and the minor child living with them and over whom, the law presumes, the parents exercise supervision and control. To hold that parental authority had been retroactively lodged in the adoptive parents so as to burden them with the liability for a tortious act that they could not have foreseen and prevented would be unfair.

GUARDIANS LIABILITY OF GUARDIANS

Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company. [Art. 2180, par. 3] (a) The liability of guardians with respect to their wards is governed by the same rule as in the liability of parents with respect to their children below 21 years and who live with them (b) “Incompetent” includes (1) those suffering the penalty of civil interdiction, or (2) prodigals, (3) deaf and dumb who are unable to read and write (4) unsound mind, even though they have lucid intervals (5) being of sound mind, but by reason of age, disease, weak mind, and other similar causes, cannot take care of themselves or manage their property [Rule 92, ROC]

Parental liability is, in other words, anchored upon parental authority coupled with presumed parental dereliction in the discharge of the duties accompanying such authority. The parental dereliction is, of course, only presumed and the presumption can be overturned under Article 2180 of the Civil Code by proof that the parents had exercised all the diligence of a good father of a family to prevent the damage (NOTE: Art 2180, par 2 of the Civil Code which holds the father liable for damages has been modified by the Family Code and PD 603. Art. 211 of the FC declares joint parental authority of the mother and father over common children. The parent(s) exercising parental authority are liable for the torts of their children.

Liability of minor or insane tortfeasor without a parent or guardian He shall be answerable with his own property in an action against him where a guardian ad litem shall be appointed. [Art. 2182]

Libi vs. IAC (1992): The parent's liability under 2180 should be primary and not subsidiary. If it were subsidiary, the parents cannot invoke due diligence as a defense. Such interpretation reconciles 2180 with 2194 which calls for solidary liability of joint tortfeasors.

SCHOOL, TEACHERS AND ADMINISTRATORS Teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. [Art. 2180, par. 7]

REQUISITES FOR LIABILITY TO ATTACH

Who are liable

(1) The child is below 21 years old (2) The child is under the parental authority of the parents The child is living in the company of the parents

Teacher-incharge (the one designated to exercise supervision over students) Head of establishment

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Requisite for Liability to Attach and Pupils and students remain in teacher’s custody regardless of the age Custody regardless of

For whose Acts Pupils students

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For whose Acts

conducted. Recess by its nature does not include dismissal.

Requisite for Liability to Attach the age

If the tortfeasor is a Must student of the below 18 school (Art 218 FC) If the tortfeasor is a teacher/ employee of the school, it is liable as employer under 2180 (5) of CC (St. Francis vs. CA)  If the tortfeasor is a stranger, it is liable for breach of contract. (PSBA vs. CA)

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Mere fact of being enrolled or being in the premises of a school without more does not constitute “attending school” or being in the “protective and supervisory custody” of the school, as concemplated by law.

be

Ylarde vs. Aquino (1988): The principal of the school cannot be held liable for the reason that the school he leads is an academic school and not a school of arts and trades. OWNERS AND MANAGERS OF ESTABLISHMENTS AND ENTERPRISES The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. (Art. 2180, par. 4)

Parental Authority of Special Parental Authorities may only be exercised while under their supervision, instruction, or custody. This attaches to all authorized activities, whether inside or outside the school, entity, or institution.

For whose acts Owners and Their managers of an employees establishment or enterprise Who are liable

Palisoc v. Brillantes: “Custody” means the protective and supervisory custody that the school, its head and teachers exercise over the pupils, for as long as they are in attendance in school, which includes recess time. There is nothing in the law that requires that for such liability to attach, the pupil or student who commits the tortious act must live and board in the school, as erroneously held by the lower court, and in the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to have been set aside by this decision.

Requisites for liability to attach The damage was caused in the service of the branches in which the employees are employed -ORThe damage was caused on the occasion of their functions

Philippine Rabbit vs. Philam Forwarders (1975): “Owners and managers of an establishment or enterprise” does not include a manager of a corporation. (Spanish term “directores” connotes “employer.” But manager of a corporation is not an employer, but rather merely an employee of the owner.)

Amadora v. CA: As long as it is shown that the student is in the school premises pursuant to a legitimate student objective, in the exercise of a legitimate right, or the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the student continues.

EMPLOYERS (in general) 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. (Art 2180, par. 5)

Salvosa v. IAC (1988): A student not “at attendance in the school” cannot be in “recess” thereat. A “recess,” as the concept is embraced in the phrase “at attendance in the school,” contemplates a situation of temporary adjournment of school activities where the student still remains within call of his mentor and is not permitted to leave the school premises, or the area within which the school activity is

MEANING OF EMPLOYER:

Art. 97 (b) (Labor Code). "Employer" includes any person acting directly or indirectly in the interest of an employer in relation to an employee and shall include the government and all its branches,

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subdivisions and instrumentalities, all governmentowned or controlled corporations and institutions, as well as non-profit private institutions, or organizations.

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Basis of liability Employer’s negligence in (1) The selection of their employees (culpa in eligiendo) (2) The supervision over their employees (culpa in vigilando)

Professional Services vs. CA and Agana (2010): This Court still employs the "control test" to determine the existence of an employer-employee relationship between hospital and doctor. Under the "control test", an employment relationship exists between a physician and a hospital if the hospital controls both the means and the details of the process by which the physician is to accomplish his task.

Cuison vs. Norton & Harrison (1930): Basis for civil liability of employers is pater familias. Presumption of Negligence The presentation of proof of the negligence of its employee gives rise to the presumption that the defendant employer did not exercise the diligence of a good father of a family in the selection and supervision of its employees.

INDEPENDENT CONTRACTOR

General Rule: Master not generally liable for the fault or negligence of an independent contractor performing some work for him

Ramos vs. C.O.L. Realty Corp. (2009): For the employer to avoid the solidary liability for a tort committed by his employee, an employer must rebut the presumption by presenting adequate and convincing proof that in the selection and supervision of his employee, he or she exercised the care and diligence of a good father of a family. Employers must submit concrete proof, including documentary evidence, that they complied with everything that was incumbent on them.

Exception: One who hires an independent contractor, but controls the latter’s work is also responsible for the independent contractor’s negligence. The existence of the employer-employee relationship must first be established before an employer may be made vicariously liable under Art. 2180, CC. REQUISITES:

(1) Employee chosen by employer or through another (2) Services rendered in accordance with orders which employer has authority to give (3) Illicit act of employee was on the occasion or by reason of the functions entrusted to him (4) Presumption of negligence

Necessity of presumption of negligence It is difficult for any person injured to prove the employer’s negligence as they would be proving negative facts. EMPLOYER NEED NOT BE ENGAGED IN BUSINESS OR INDUSTRY

Castilex Industrial Corp. vs. Vasquez (1999): The phrase "even though the former are not engaged in any business or industry" found in the fifth paragraph should be interpreted to mean that it is not necessary for the employer to be engaged in any business or industry to be liable for the negligence of his employee who is acting within the scope of his assigned task.

To make the employer liable, it must be established that the injurious or tortious act was committed at the time that the employee was performing his functions. Filamer vs. IAC (1992): “Within the scope of their assigned task” in Art. 2180 includes any act done by an employee in furtherance of the interests, or for the account of the employer at the time of the infliction of the injury or damage.

A distinction must be made between the two provisions to determine what is applicable. Both provisions apply to employers: the fourth paragraph, to owners and managers of an establishment or enterprise; and the fifth paragraph, to employers in general, whether or not engaged in any business or industry. The fourth paragraph covers negligent acts of employees committed either in the service of the branches or on the occasion of their functions, while the fifth paragraph encompasses negligent acts of employees acting within the scope of their assigned task. The latter is an expansion of the former in both employer coverage and acts included. Negligent acts

De Leon Brokerage vs. CA (1962): Employer need not be riding in the vehicle to become liable for a driver’s negligence. Article 2184 mandating that the owner is only held solidarily liable if he is riding in the vehicle at the time of the mishap, only applies to those owners of vehicles, who do not come within the ambit of Article 2180 (as owners of an establishment or enterprise.)

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of employees, whether or not the employer is engaged in a business or industry, are covered so long as they were acting within the scope of their assigned task, even though committed neither in the service of the branches nor on the occasion of their functions. For, admittedly, employees oftentimes wear different hats. They perform functions which are beyond their office, title or designation but which, nevertheless, are still within the call of duty.

applicant for employment as to his qualifications, his experience and record of service. Metro Manila Transit vs. CA (1998): The responsibility of employers for the negligence of their employees in the performance of their duties is primary, that is, the injured party may recover from the employers directly, regardless of the solvency of their employees. The rationale for the rule on vicarious liability of the employer for the torts of the employees is that this is a required cost of doing business. They are placed upon the employer because, having engaged in the enterprise, which will on the basis of all past experience involve harm to others through the tort of employees, and sought to profit by it, it is just that he, rather than the innocent plaintiff, should bear them; and because he is better able to absorb them, through prices, rates or liability or insurance, and so to shift them to society, to the community at large.

Under the fifth paragraph of Article 2180, whether or not engaged in any business or industry, an employer is liable for the torts committed by employees within the scope of his assigned tasks. But it is necessary to establish the employeremployee relationship; once this is done, the plaintiff must show, to hold the employer liable, that the employee was acting within the scope of his assigned task when the tort complained of was committed. It is only then that the employer may find it necessary to interpose the defense of due diligence in the selection and supervision of the employee. th

Nature of Employer’s Liability The employer is PRIMARILY and SOLIDARILY liable for the tortious act of the employee. The employer may recover from the employee, the amount it will have to pay the offended party’s claim.

th

Distinction between 4 and 5 paragraph of 2180 4th paragraph

5th paragraph

Liable persons Owners and managers of an establishment or an enterprise

Employers in general, whether or not engaged in business or industry

Covered acts

Negligent acts of employees acting within the scope of their assigned task

Negligent acts of employees committed either in the service of the branches or on the occasion of their functions

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Such recovery, however, is NOT for the entire amount. To allow such would be as if to say that the employer was not negligent. Philtranco vs. CA (1997): The liability of the registered owner and driver is solidary, primary and direct. Criminal Negligence Fernando v. Franco: The vicarious liability of the employer for criminal negligence of his employee is governed by RPC 103. Conviction of the employee conclusively binds the employer. Defense of due diligence in the selection and supervision of the employee is NOT available. The employer cannot appeal the conviction.

DEFENSE OF DILIGENCE IN SELECTION AND SUPERVISION

Metro Manila Transit vs. CA (1993): Due diligence in the SUPERVISION of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his or her employees and the imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure performance of acts as indispensable to the business of and beneficial to their employee.

Soliman v. Tuazon (1992): Liability for illegal or harmful acts committed by security guards attaches to the employer agency, not to the clients or customers of such agency. Registered Owner Rule (1) The registered owner of the vehicle is primarily responsible to the public for whatever damage or injury the vehicle may have caused, even if he had already sold the same to someone else. The policy is the easy identification of the owner who can be held responsible so as not to

Due diligence in the SELECTION of employees require that the employer carefully examined the

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inconvenience or prejudice the third party injured. (Cadiente v. Macas, 2008)

private corporation or individual. (Mendoza vs. De Leon, 1916)

(2) This rule applies even if the vehicle is leased to third persons.

The State agencies or subdivisions, in the pursuance of proprietary functions, are akin to any other private corporation. They may be sued for: (1) Torts committed by them (Art. 2176) or (2) Torts committed by their employees (art 2180).

Remedy of the registered owner His liability is subject to his right of recourse against the transferee or buyer.

As long as it is performing proprietary functions, it can be held liable for the acts of its employees, both regular and special.

THE STATE The State may not be sued without its consent. (Sec 3, Art XVI, 1987 Constitution)

Notes: (a) As a governmental entity: Liable only for acts of its special agents (b) As a corporate entity: May be held liable just as any other employer for the acts of its employees (c) Special Agent: One duly empowered by a definite order or commission to perform some act or one charged with some definite purpose which give rise to the claim; if he is a government employee or official, he must be acting under a definite and fixed order or commission, foreign to the exercise of the duties of his office

The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. (Art 2180, par. 6) Merritt vs. Government of the Philippine Islands (1960): A special agent is one who receives a definite and fixed order or commission, foreign to the exercise of the duties of his office if he is a special official.

JOINT TORTFEASORS The responsibility of two or more persons who are liable for quasi-delict is solidary. (Art. 2194)

This concept does not apply to any executive agent who is an employee of the active administration and who on his own responsibility performs the functions which are inherent in and naturally pertain to his office.

DEFINITION OF “JOINT TORTFEASORS”

The responsibility of the state is limited to that which it contracts through a special agent, duly empowered by a definite order or commission to perform some act or charged with some definite purpose which gives rise to the claim.

Filipinas Broadcasting Network vs. AMEC-BCCM (2005): They are all persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet in the commission of a tort, or who approve of it after it is done, if done for their benefit.

General Rule: The State cannot be sued.

APPLICABILITY OF THE PROVISION

Exceptions: (1) There is express legislative consent (2) The State filed the case (because here, it is deemed to have waived its immunity.)

The injury must be indivisible.

The provision applies when there are 2 or more persons who have participated in the commission of a single quasi-delict.

NATURE OF LIABILITY

INSTANCES WHERE THE STATE GIVES ITS CONSENT TO BE SUED

Solidary – The person injured may sue all of them, or any number less than all, and they are all together solidarily liable for the whole damage.

(1) Art. 2180 (6) is an example of an express legislative consent. Here, the State assumes a limited liability for the acts of its special agents. (2) Art. 2189 provides for state liability for damages caused by defective condition of public works. (3) Local Government Code provides for the liability of local government units for wrongful exercise of its proprietary (as opposed to its governmental) functions. The latter is the same as that of a

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Acts of Omission and its Modalities

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Quezon City vs. Dacara (2005): Proximate cause is determined from the facts of each case, upon a combined consideration of logic, common sense, policy or precedent.

Human conduct can be described alternatively as acts or omission. In relation to the existence of a legal duty, conduct may be described in terms of action or inaction, or “misfeasance” or “nonfeasance.”

DIFFERENTIATED FROM: REMOTE CAUSE

Manila Electric v. Remonquillo: A prior and remote cause cannot be made the basis of an action if such remote cause did nothing more than furnish the condition or give rise to the occasion by which the injury was made possible, if there intervened between such prior or remote cause and the injury a distinct, successive, unrelated, and efficient cause of the injury, even though such injury would not have happened but for such condition or occasion. Concurrent Cause – Several causes producing the injury, and each is an efficient cause without which the injury would not have happened. The injury is attributed to any or all the causes, and recovery may be had against any or all of those responsible.

Manresa; “liability for personal acts or omission is founded on that indisputable principle of justice recognized by all legislators that when a person by his act or omission causes damage or prejudice to another, a juridical relation is created by virtue of which the injured person acquires a right to be indemnified and the person causing the damage is charged with the corresponding duty of repairing the damage. The reason for this is found in the obvious truth that man should subordinate his acts to the precepts of prudence and if he fails to observe them and cause damage to another, he must repair the damage.”

Far Eastern Shipping v. CA: Where the concurrent or successive negligent acts or omissions of two or more persons, although acting independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are solidarily liable for the resulting damage.

Proximate Cause CONCEPT OF PROXIMATE CAUSE In order that civil liability for negligence may arise, there must be a direct causal connection between the damage suffered by the plaintiff and the act or omission of the defendant. In other words, the act or omission of the defendant must be the proximate cause of the loss or damage of the plaintiff.

INTERVENING CAUSE

DEFINITION Bataclan v. Medina: PROXIMATE CAUSE: that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.

Phoenix Construction v. IAC: If the intervening cause is one which in ordinary human experience is reasonably to be anticipated, or one which the defendant has reason to anticipate under the particular circumstances. The defendant may be negligent, among other reasons, because of failure to guard against it.

PROXIMATE LEGAL CAUSE:

that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom

There is an intervening cause combining with the defendant’s conduct to produce the result, and the defendant’s negligence consists in failure to protect the plaintiff against that very risk. Foreseeable intervening forces are within the scope of the original risk, and hence of the defendant’s negligence.

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unusual nature of the act resulting in injury to plaintiff that is the test of foreseeability, but whether the result of the act is within the ambit of the hazards covered by the duty imposed upon the defendant.

EFFICIENT INTERVENING CAUSE

Teague vs. Fernandez (1973): The test is not in the number of intervening causes, but in their character and in the natural and probable connection between the wrong done and the injurious consequence.

CAUSE V. CONDITION Many courts have sought to distinguish between the active “cause” of the harm and the existing “conditions” upon which that cause operated. If the defendant has created only a passive, static condition which made the damage possible, he is said not to be liable.

TESTS TO DETERMINE PROXIMATE CAUSE CAUSE IN FACT: The first step is to determine whether the defendant’s conduct, in point of fact, was a factor in causing plaintiff’s damage. EFFECTIVENESS OF THE CAUSE; “BUT FOR” RULE: whether

such negligent conduct is a cause without which the injury would not have taken place (sine qua non rule) or is the efficient cause which set in motion the chain of circumstances leading to the injury. (Bataclan v. Medina)

Phoenix Construction vs. IAC (1987): The distinction between cause and condition has already been almost entirely discredited. Prosser and Keeton: So far as the fact of causation is concerned, in the sense of necessary antecedents which could have played an important part in producing the result, it is quite impossible to distinguish between active forces and passive situations, particularly since the latter are the result of other active forces which have gone before. (NOTE: active force is the cause while the passive situation is the condition)

SUBSTANTIAL FACTOR TEST:

If the actor’s conduct is a substantial factor in bringing about harm to another, the fact that the actor neither foresees nor should have foreseen the harm or the manner in which it occurred, does not prevent him from being liable. (Philippine Rabit v. IAC) FORESEEABILITY TEST: Anticipation of consequence is a

necessary element in determining not only whether a particular act or omission was negligent, but also whether the injury complained of was proximately caused by such act or omission.

It is not the distinction which is important but the nature of the risk and the character of the intervening cause.

NATURAL AND PROBABLE CONSEQUENCE TEST:

A natural consequence of an act is the consequence which ordinarily follows it. A probable consequence is one that is more likely to follow than fail to follow its supposed cause but it need not be one which necessarily follows such cause.

NATURAL AND PROBABLE CONSEQUENCES

ORDINARY AND NATURAL OR DIRECT CONSEQUENCE TEST:

FORESEEABILITY

LEGAL CAUSE A natural consequence of an act is the consequence which ordinarily follows it. A probable consequence is one that is more likely to follow than fail to follow its supposed cause but it need not be one which necessarily follows such cause.

If negligence is a cause in fact of the injury, the liability of the wrongdoer extends to all the injurious consequences.

Anticipation of consequence is a necessary element in determining not only whether a particular act or omission was negligent, but also whether the injury complained of was proximately caused by such act or omission.

HINDSIGHT TEST:

A party guilty of negligence or omission of duty is responsible for all the consequences which a prudent and experienced party, fully acquainted with all the circumstances which in fact exist, whether they could have been ascertained by reasonable diligence, or not, would have thought at the time of the negligent act as reasonably possible to follow, if they had been suggested to his mind.

Jarencio: Where the particular harm sustained was reasonably foreseeable at the time of the defendant’s misconduct, his act or omission is the legal cause thereof. Foreseeability is the fundamental basis of the law of negligence. To be negligent, the defendant must have acted or failed to act in such a way that an ordinary reasonable man would have realized that certain interests of certain persons were reasonably subjected to a general but definite class of risks.

ORBIT OF THE RISK TEST:

If the foreseeable risk to plaintiff created a duty which the defendant breached, liability is imposed for any resulting injury within the orbit or scope of such injury. It is not the

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DOCTRINE OF LAST CLEAR CHANCE Also known as: "doctrine of discovered peril” or “doctrine of supervening negligence” or “humanitarian doctrine”

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Note: (a) If plaintiff is the proximate cause: NO RECOVERY can be made. (b) If plaintiff is NOT the proximate cause: Recovery can be made but such will be mitigated. (c) If negligence of parties is equal in degree, then each bears his own loss.)

The negligence of the plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant by exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s (own) negligence. (Sangco, Torts and Damages.)

Pantranco vs. Baesa (1989): Last clear chance applies only if the person who allegedly had the last opportunity to avert the accident was aware of the existence of peril or should, with exercise of due care, have been aware of it.

Consolidated Bank v. CA: The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. The antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence.

Ong vs. Metropolitan (1958): Last clear chance does not apply where the party charged is required to act instantaneously, and if the injury cannot be avoided by the application of all means at hand after the peril is or should have been discovered. Bustamante vs. CA (1991): The doctrine of last clear chance, as enunciated in Anuran v. Buno, applies in a suit between the owners and drivers of colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual obligations. It will be inequitable to exempt the negligent driver of the jeepney and its owners on the ground that the other driver was likewise guilty of negligence.

Picart v. Smith: If both parties are found to be negligent; but, their negligence are not contemporaneous, the person who has the last fair chance 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 vs. IAC (1987): Doctrine of last clear chance does not seem to have a role 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 2179 of CC.

ELEMENTS:

(1) Plaintiff’s own negligence puts himself in a dangerous situation; (2) Defendant saw or discovered, by exercising reasonable care, the perilous position of plaintiff; (3) In due time to avoid injuring him (4) Despite notice and imminent peril, defendant failed to employ care to avoid injury; and (5) Injury of plaintiff resulted.

CONTRIBUTORY NEGLIGENCE Valenzuela v. CA: Conduct on the part of the injured party, which contributed as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.

COVERS SUCCESSIVE ACTS OF NEGLIGENCE

Primary negligence of the defendant  contributory negligence of the plaintiff  subsequent negligence of the defendant in failing to avoid the injury to the plaintiff

MH Rakes v. Atlantic: Contributory negligence – does not defeat an action if it can be shown that the defendant might, by the exercise of reasonable care and prudence, have avoided the consequences of the injured party's negligence. Petitioner’s negligence contributed only to his own injury and not to the principal occurrence — it was merely an element to the damage caused upon him.

INAPPLICABLE TO JOINT TORTFEASORS

However, the doctrine cannot be extended into the field of joint tortfeasors as a test of whether only one of them should be held liable to the injured person by reason of his discovery of the latter’s peril, and it cannot be invoked as between defendants concurrently negligent.

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WHEN IS IT A BAR TO RECOVERY?

CLASSES OF INJURY

Only when the proximate cause is on the part of the plaintiff. Where the plaintiff contributes to the principal occurrence, as one of its determining factors, he cannot recover. Where, in conjunction with the occurrence, he contributes only to his own injury, he may recover the amount that the defendant responsible for the event should pay for such injury, less a sum deemed a suitable equivalent for his own imprudence.

INJURY TO PERSONS

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Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another shall indemnify the latter for the same.

Injury is the illegal invasion of a legal right.

Art. 21. 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.

Legal Right – A legal claim enforced by sanctions

INJURY TO PROPERTY

Legal Injury

Art. 23. Even when an act or event causing damage to another’s property was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited.

Legal Duty – That which the law requires to be done to a determinate person ELEMENTS: (1) Legal right in favor of a person (2) Correlative legal duty on the part of another (3) Wrong in the form of an act or omission or violation of said legal right and duty with consequent injury or damage

INJURY TO RELATIONS

Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief; (1) Prying into the privacy of another’s residence; (2) Meddling with or disturbing the private life or family relations of another; (3) Intriguing to cause another to be alienated from his friends; (4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or other personal condition.

Custodio vs. CA (1996): To warrant recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. The law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong. The act must not only be hurtful, but wrongful (damnum et injuria). Amonoy vs. Gutierrez (2001): The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to the prejudice of others. The mask of a right without the spirit of justice which gives it life, is repugnant to the modern concept of social law. It cannot be said that a person exercises a right when he unnecessarily prejudices another xxx. Over and above the specific precepts of positive law are the supreme norms of justice; and he who violates them violates the law. For this reason it is not permissible to abuse our rights to prejudice others.

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.

Intentional Torts CONCEPT Under Article 2176, a person is also held liable for intentional and malicious acts. The liability is

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founded on the indisputable principle of justice recognized by all legislations that when a person, by his act or omission, causes damage or prejudice to another, a juridical relation is created by virtue of which the injured person acquires a right to be indemnified and the person causing the damage is charged with the corresponding duty of repairing the damage.

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ASSAULT (GRAVE THREAT)

An intentional, unlawful offer of physical injury to another by force unlawfully directed toward the person of another, under such circumstances as to create a well-founded fear of imminent peril, coupled with the apparent present ability to effectuate the attempt if not prevented. The wrong is committed when unreasonable fear is inspired in the plaintiff by threatening gestures, especially when these are connected with unlawful, sinister, and wicked conduct on the part of the defendant.

PNB v. CA, 1978: (NCC 21-36) serve as catch all provisions or dragnet clauses. They cover any imaginable tort action, because these articles were intended to expand the concept of torts in out jurisdiction. It grants adequate legal remedies for the (otherwise) untold number of moral wrongs, which is impossible for human foresight to provide in our statutes.

FALSE IMPRISONMENT (ILLEGAL DETENTION)

Art. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: (1) Freedom from arbitrary or illegal detention xxx

VIOLATIONS OF A PERSON’S SECURITY AND PHYSICAL INJURIES (NCC 33) BATTERY (PHYSICAL INJURY) The actual infliction of any unlawful or unauthorized violence on the person of another, irrespective of its degree.

INTERFERENCE WITH PERSONAL PROPERTY

The least touching of another in anger, or in any manner which amounts to an unlawful setting upon his person,” may subject one to an action for battery.

TRESPASS TO LAND

Any intentional use of another’s real property, without authorization and without a privilege by law to do so, is actionable as a trespass without regard to harm. (Prosser and Keeton, p. 70)

INTERESTS PROTECTED BY LAW:

(1) Interest of the individual in freedom from bodily harm or any impairment whatever of the physical integrity of the body (2) Interest in freedom from offensive bodily touching although no actual harm is done.

Elements An invasion (1) which interfered with the right of exclusive possession of the land, and (2) which was a direct result of some act committed by the defendant. (Prosser and Keeton, p. 67)

Carandang vs. Santiago and Valenton (1955): Defamation and fraud (in Art. 33) are used in their ordinary sense because there are no specific provisions in the Revised Penal Code using these terms as names of offenses defined therein, so that these two terms defamation and fraud must have been used not to impart to them any technical meaning in the laws of the Philippines, but in their generic sense. With these apparent circumstances in mind, it is evident that the term “physical injuries” could not have been used in its specific sense as a crime defined in the Revised Penal Code, for it is difficult to believe that the Code Commission would have used terms in same article—some in this general and others in its technical sense. In other words, the term “physical injuries” should be understood to mean bodily injury, not the crime of physical injuries, because the terms used with the latter are general terms.

TRESPASS TO CHATTELS

Any direct and immediate intentional interference with a chattel in the possession of another. (Prosser and Keeton, p. 85) CONVERSION

Major interferences with the chattel, or with the plaintiff’s rights in it, which are so serious, and so important, as to justify the forced judicial sale to the defendant. (Prosser and Keeton, p. 90) INTENTIONAL NON-PHYSICAL HARMS

Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief;

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In intentional infliction of mental distress, the gravamen of the tort is not the injury to plaintiff's reputation, but the harm to plaintiff's mental and emotional state. In libel, the gist of the action is the injury to plaintiff's reputation. Reputation is the community's opinion of what a person is. In intentional infliction of mental distress, the opinion of the community is immaterial to the existence of the action although the court can consider it in awarding damages. What is material is the disturbance on the mental or emotional state of the plaintiff who is entitled to peace of mind.

(1) Prying into the privacy of another’s residence; (2) Meddling with or disturbing the private life or family relations of another; (3) Intriguing to cause another to be alienated from his friends; (4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or other personal condition. The principal rights protected under this provision are the following: (1) The right to personal dignity (2) The right to personal security (3) The right to family relations (4) The right to social intercourse (5) The right to privacy (6) The right to peace of mind

VIOLATION OF PRIVACY

It is the right to be let alone, or to be free from unwarranted publicity, or to live without unwarranted interference by the public in matters in which the public is not necessarily concerned. Reasonableness of Expectation of Privacy (The 2-prong test) (1) Whether by one’s conduct, the individual has exhibited an expectation of privacy (2) Whether this expectation is one that society recognizes and accepts as reasonable

VIOLATION OF PERSONAL DIGNITY

In order to be actionable it is not necessary that the act constitutes a criminal offense. The remedy afforded by the law is not only the recovery of damages. “Prevention and other relief” is also available. In other words, injunction and other appropriate reliefs may also be obtained by the aggrieved party.

Note: Coverage of Art. 26 is not limited to those enumerated therein, the enumeration being merely examples of acts violative of a person’s rights to dignity, personality, privacy and peace of mind. Other “similar acts” are also covered within the scope of the article.

St. Louis Realty Corporation vs. CA (Illustration of a “similar act”): The acts and omissions of the firm fall under Article 26. Persons who know the residence of Doctor Aramil were confused by the distorted, lingering impression that he was renting his residence from Arcadio or that Arcadio had leased it from him. Either way, his private life was mistakenly and unnecessarily exposed.

Persons who can invoke privacy General Rule: The right to privacy may only be invoked by natural persons. Juridical persons cannot invoke this because the basis to this right is an injury to the feelings and sensibilities of the injured party, and a corporation has none of those

INFLICTION OF EMOTIONAL DISTRESS

MVRS Publications vs. Islamic Da'wah Council (2003): Article 26 specifically applies to intentional acts which fall short of being criminal offenses. It itself expressly refers to tortious conduct which "may not constitute criminal offenses." The purpose is precisely to fill a gap or lacuna in the law where a person who suffers injury because of a wrongful act not constituting a crime is left without any redress. Under Article 26, the person responsible for such act becomes liable for "damages, prevention and other relief." In short, to preserve peace and harmony in the family and in the community, Article 26 seeks to eliminate cases of damnum absque injuria in human relations.

Exception: The right to privacy may be invoked along with the right against unreasonable searches and seizures. General Rule: The right to privacy is purely personal in nature: (1) It can be invoked only by the person actually injured (2) It is subject to a proper waiver (3) It ceases upon death Exception: The privilege may be given to the heirs of a deceased to protect his memory, but this privilege exists for the benefit of the living. It enables the protection of their feelings, and prevents the

Consequently, the elements that qualify the same acts as criminal offenses do not apply in determining responsibility for tortious conduct under Article 26.

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violation of their own rights regarding the character and memory of the deceased.

DISTURBANCE OF PEACE OF MIND

The disturbance of the mental and emotional tranquility of the plaintiff by the defendant is a legal injury in itself and, therefore, a sufficient cause of action for damages, injunction, and other relief.

Invasion of Privacy Types: (1) Publication of embarrassing private facts – The interest here is the right to be free from unwarranted publicity, wrongful publicizing of private affairs and activities, as these are outside the ambit of legitimate public concern.

A person, however, cannot be held liable for damages for the mental or emotional disturbance of the plaintiff which was due to the latter’s susceptibility to such disturbance, where the defendant had no knowledge of such peculiar susceptibility. The tendency of the law is to secure an interest in mental comfort only to the extent of the ordinary sensibilities of men.

Ayer v. Capulong (1988): Public figures enjoy a limited right to privacy as compared to ordinary individuals. (2) Intrusion upon plaintiff’s private affairs – This is not limited to situations where the wrongdoer physically trespasses into one’s property. (a) Generally, there is no invasion of privacy when journalists report something that occurs in the public realm, except when the acts of the journalist are to an extent that it constitutes harassment. (b) RA 4200: it is illegal for any person not authorized by both parties to any private communication to secretly record such communication. (c) Limitations to Right to Information v. Right to Privacy: (i) Must be of public interest (ii) Must not be excluded by law

MALICIOUS PROSECUTION

Art. 2219. Moral damages may be recovered in the following and analogous cases: xxx (8) Malicious prosecution Art. 21. Any person who wilfully causes loss or injury to another in manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. Malicious prosecution is the institution of any action or proceeding either civil or criminal against another, maliciously and without probable cause. Elements: (1) That the defendant was himself the prosecutor or that he instigated its commencement (2) That the action was finally terminated with an acquittal (3) That in bringing the action, the prosecutor acted without probable cause (4) That he was actuated or impelled by legal malice, that is, by improper and sinister motives. (Lao v. CA)

(3) Publicity which puts one in a false light in the public eye – To protect the interest of one in not being made or forced to appear before the public in an objectionable false light or position. Tort of putting in false light

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Defamation

The embarrassment of a Concerns the reputational person being portrayed harm to a person as something he is not

Drilon vs. CA (1997): Malicious Prosecution defined: 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 herein. The gist of the action is the putting of legal process in force, regularly, for the mere purpose of vexation or injury.

Statement should be Publication is satisfied actually made in public even if communicated to only one specific third person (4) Commercial appropriation of likeness of image It consists of appropriation, for the defendant’s benefit or advantage (ex. It was used in the defendant’s advertisement), of the plaintiff’s name or likeness (picture or portrait).

Buenaventura vs. Domingo and Ignacio (1958): The provisions of the Civil Code in taking reference to malicious prosecutions must necessarily imply that the person to be held liable to pay moral damages should have acted deliberately and with knowledge

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that his accusation of the person subject to such malicious prosecution, was false and groundless.

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FRAUD OR MISREPRESENTATION (FORMERLY DECEIT)

Salta vs. De Veyra (1982): Independent civil actions are permitted to be filed separately regardless of the result of the criminal action.

xxx Proof and motive that the prosecution or institution of the action was prompted by a sinister design to vex and humiliate a person and to cast dishonor and disgrace must be clearly and preponderantly established to entitle the victims to damages and other rights granted by law; otherwise, there would always be a civil action for damages after every prosecution's failure to prove its cause resulting in the consequent, acquittal of the accused therein.

Samson vs. Daway (2004): Unfair competition under the Intellectual Property Code and fraud under Art. 33 are independent actions. Art. 33 does not operate as a prejudicial question to justify the suspension of the criminal cases at bar. SEDUCTION

Sangco: Seduction is sexual intercourse with an unmarried woman of chaste character whose consent was obtained through abuse of confidence or through deceit.

DEFAMATION, FRAUD AND PHYSICAL INJURIES Art. 33. In case of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence.

Seduction under the RPC (criminal seduction) is different from seduction under the NCC (civil seduction, Art. 21) (a) In criminal seduction, either qualified or simple, the offended woman must be less than 18 years of age. (b) In civil seduction, the offended woman may be over 18 years of age.

DEFAMATION

Cojuangco vs. CA (1991): Separate civil action may be consolidated with the criminal action.

Tanjanco vs. CA (1966): The essential feature is seduction, that in law is more than mere sexual intercourse, or a breach of a promise of marriage; it connotes essentially the idea of deceit, enticement, superior power or abuse of confidence on the part of the seducer to which the woman has yielded.

MVRS vs. Islamic Da'wah (2003): Defamation is that which tends to injure reputation or diminish esteem, respect, good will, or confidence of the plaintiff, or excite derogatory feelings about him. It must be personal. (What is definitive is not the level of hurt, but the effect of the statement on the reputation or standing of the person.)

To constitute seduction there must in all cases be some sufficient promise or inducement and the woman must yield because of the promise or other inducement. If she consents merely from carnal lust and the intercourse is from mutual desire, there is no seduction.

Arafiles vs. Philippine Journalists (2004): In actions for damages for libel, it is axiomatic that the published work alleged to contain libelous material must be examined and viewed as a whole.

UNJUST DISMISSAL

The article must be construed in its entirety including the headlines, as they may enlarge, explain, or restrict or be enlarged, explained or strengthened or restricted by the context. Whether or not it is libelous, depends upon the scope, spirit and motive of the publication taken in its entirety.

The employer’s right to dismiss his employee differs from, and should not be confused with the manner in which the right is exercised. When the manner in which the company exercised its right to dismiss was abusive, oppressive or malicious, it is liable for damages.

A publication claimed to be defamatory must be read and construed in the sense in which the readers to whom it is addressed would ordinarily understand it.

Quisaba vs. Sta. Ines-Melale Veneer & Plywood (1974): Although the acts complained of seemingly appear to constitute "matters involving employee-employer relations" as Quisaba's dismissal was the severance of a pre-existing employee-employer relation, his complaint is grounded not on his dismissal per se as in fact he does not ask for reinstatement or

DEFENSES:

(1) Absence of elements (2) Privilege

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backwages, but on the manner of his dismissal and the consequent effects of such dismissal.

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and not by reason of the wrongful conduct of the defendant, there is no liability on the defendant. However, if the defendant interferes and by his wrongful conduct prevents a reconciliation between the spouses, or destroys the possibility thereof, the defendant is liable for alienation of affection.

The case at bar is intrinsically concerned with a civil (not a labor) dispute; it has to do with an alleged violation of Quisaba's rights as a member of society, and does not involve an existing employee-employer relation within the meaning of section 2(1) of Presidential Decree No. 21. The complaint is thus properly and exclusively cognizable by the regular courts of justice, not by the National Labor Relations Commission.

(2) Loss of affection or consortium Note: Complete absence of affection between the spouses is not a defense. (3) Causal connection between such conduct and loss

Note: The foregoing decision thus states that where the employee does not seek reinstatement or expressly or impliedly accepts the employer’s right to terminate the contract of employment but questions the manner in which said right was exercised and predicates thereon his claim for moral and exemplary damages, the claim is one for tort under the Civil Code and not one arising from employeremployee relation under the Labor Code even if he also demands in the action therefor payment of termination pay which unquestionably derives from their prior employer-employee relation.

Tenchavez vs. Escaño (1965): There is no evidence that the parents of Vicenta, out of improper motives, aided and abetted her original suit for annulment, or her subsequent divorce; she appears to have acted independently, and being of age, she was entitled to judge what was best for her and ask that her decisions be respected. Her parents, in so doing, certainly cannot be charged with alienation of affections in the absence of malice or unworthy motives, which have not been shown, good faith being always presumed until the contrary is proved.

INTERFERENCE WITH RELATIONS An interference with the continuance of unimpaired interests founded upon the relation in which the plaintiff stands toward one or more third persons. (Prosser and Keeton, p. 915)

LIABILITY OF PARENTS, GUARDIANS OR KIN

The law distinguishes between the right of a parent to interest himself in the marital affairs of his child and the absence of rights in a stranger to intermeddle in such affairs. However, such distinction between the liability of parents and that of strangers is only in regard to what will justify interference. A parent is liable for alienation of affections resulting from his own malicious conduct, as where he wrongfully entices his son or daughter to leave his or her spouse, but he is not liable unless he acts maliciously, without justification and from unworthy motives. He is not liable where he acts and advises his child in good faith with respect to his child's marital relations in the interest of his child as he sees it, the marriage of his child not terminating his right and liberty to interest himself in, and be extremely solicitous for, his child's welfare and happiness even where his conduct and advice suggest or result in the separation of the spouses or the obtaining of a divorce or annulment, or where he acts under mistake or misinformation, or where his advice or interference are indiscreet or unfortunate, although it has been held that the parent is liable for consequences resulting from recklessness. He may in good faith take his child into his home and afford him or her protection and support, so long as he has not maliciously enticed his child away, or does not maliciously entice or cause him or her to stay away,

KINDS

(1) Family relations (2) Social relations (3) Economic relations (4) Political relations FAMILY RELATIONS The three causes of action enumerated below are offenses against marital relations. ALIENATION OF AFFECTION

This is a cause of action in favor of a husband against one who wrongfully alienates the affection of his wife, depriving him of his conjugal rights to her consortium, that is, her society, affection, and assistance. Elements: (1) Wrongful conduct of the defendant: intentional and malicious enticing of a spouse away from the other spouse Note: Where the alienation or separation of the spouses is caused by the plaintiff’s own conduct

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from his or her spouse. This rule has more frequently been applied in the case of advice given to a married daughter, but it is equally applicable in the case of advice given to a son.

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who seeks to collect indemnity for damages resulting from deprivation of her domestic services must prove such services. Furthermore, inasmuch as a wife's domestic assistance and conjugal companionship are purely personal and voluntary acts which neither of the spouses may be compelled to render, it is necessary for the party claiming indemnity for the loss of such services to prove that the person obliged to render them had done so before he was injured and that he would be willing to continue rendering them had he not been prevented from so doing.

LOSS OF CONSORTIUM

Lilius vs. Manila Railroad Company (1934): The plaintiff Aleko E. Lilius also seeks to recover the sum of P2,500 for the loss of what is called Anglo-Saxon common law "consortium" of his wife, that is, "her services, society and conjugal companionship", as a result of personal injuries which she had received from the accident now under consideration. In the case of Goitia vs. Campos Rueda, this court, interpreting the provisions of the Civil Marriage Law of 1870, in force in these Islands with reference to the mutual rights and obligations of the spouses, contained in articles 44-48 thereof, said as follows:

CRIMINAL CONVERSATION (ADULTERY)

Interference with the marital relations by committing adultery with one of the spouses. This is obvious enough in the case of rape but also applies where the adulterous spouse consented to or initiated the intercourse. (Prosser and Keeton, p. 917)

The above quoted provisions of the Law of Civil Marriage and the Civil Code fix the duties and obligations of the spouses. The spouses must be faithful to, assist, and support each other. The husband must live with and protect his wife. The wife must obey and live with her husband and follow him when he changes his domicile or residence, except when he removes to a foreign country. . . .

SOCIAL RELATIONS MEDDLING WITH OR DISTURBING FAMILY RELATIONS

Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief; xxx 2) Meddling with or disturbing the private life or family relations of another;

Therefore, under the law and the doctrine of this court, one of the husband's rights is to count on his wife's assistance. This assistance comprises the management of the home and the performance of household duties, including the care and education of the children and attention to the husband upon whom primarily devolves the duty of supporting the family of which he is the head. When the wife's mission was circumscribed to the home, it was not difficult to assume, by virtue of the marriage alone, that she performed all the said tasks and her physical incapacity always redounded to the husband's prejudice inasmuch as it deprived him of her assistance. However, nowadays when women, in their desire to be more useful to society and to the nation, are demanding greater civil rights and are aspiring to become man's equal in all the activities of life, commercial and industrial, professional and political, many of them spending their time outside the home, engaged in their businesses, industry, profession and within a short time, in politics, and entrusting the care of their home to a housekeeper, and their children, if not to a nursemaid, to public or private institutions which take charge of young children while their mothers are at work, marriage has ceased to create the presumption that a woman complies with the duties to her husband and children, which the law imposes upon her, and he

Developed as an offshoot of the action for enticing away a servant and depriving the master of the proprietary interest in [the servant’s] services until there has been a gradual shift of emphasis away from “services” and toward a recognition of more intangible elements in the domestic relations, such as companionship and affection. (Prosser and Keeton, p. 916) INTRIGUING TO CAUSE ANOTHER TO BE ALIENATED FROM HIS FRIENDS

A person who committed affirmative acts intended to alienate the existing friendship of one with his friends is liable for damages. A man is a social being and for being so, he needs friends to socialize with and to depend upon in case of need. To alienate him wrongfully or with malice from his friends is to cause him suffering for which he is entitled to damages.

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Permissible competition There is a privilege to interfere with prospects of advantageous economic relations of others when: (1) The defendant’s purpose is justifiable, and (2) He employs no means which may be regarded as unfair.

INTERFERENCE WITH CONTRACTUAL RELATIONS

Art 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

Prohibited competition In order to qualify as “unfair,” it must have 2 characteristics: (1) It must involve an injury to a trade or rival (2) It must involve acts which are characterized as “contrary to good conscience,” or “shocking to judicial sensibilities,” or otherwise unlawful

Gilchrist vs. Cuddy (1915): Everyone has a right to enjoy the fruits of his enterprise. He has no right to be protected from competition, but he has the right to be free from malicious and wanton interference. If the injury is a result of competition, it is a case of damnum absque injuria, unless superior right by contract is interfered with.

Note: Jarencio: Unfair competition dealt with in Art. 28 is different from the unfair competition under Sec. 29 of RA 166. Unfair competition under Sec. 29 of Rep. Act 166 consists in giving the same general appearance to the goods manufactured or dealt in or the services rendered by one person as the goods or services of another who has already acquired a public goodwill for such goods or services. Unfair competition under Art. 28 of the Civil Code refers to unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high- handed method. Unfair competition under the Civil Code covers a broader area than Rep. Act 166.

Injunction is the proper remedy to prevent wrongful interference with contracts by strangers, where other legal remedies are insufficient and the resulting injury is irreparable. So Ping Bun vs. CA (1999): Bad faith/Malice is required to make the defendant liable for DAMAGES in cases of tortuous interference. Elements of Interference (1) Existence of a valid contract; (2) Knowledge of the third person of the existence of such contract; and (3) Interference without legal justification or excuse. Lagon vs. CA (2005): If there is no bad faith, there is no tortious interference; Actual knowledge of the contract is not required so long as there are facts leading one to investigate.

POLITICAL RELATIONS VIOLATION OF RIGHT TO SUFFRAGE (NCC, ART. 32)

Art 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: (1) Freedom of religion (2) Freedom of speech (3) Freedom to write for the press or to maintain a periodical publication (4) Freedom from arbitrary or illegal detention (5) Freedom of suffrage (6) The right against deprivation of property without due process of law (7) The right to just compensation when property is taken for public use (8) The right to equal protection of the laws (9) The right to be secure in one’s person, house, papers and effects against unreasonable searches and seizures (10) The liberty of abode and of changing the same

Proper business interest provides a legal justification to negate the presence of the third element. UNFAIR COMPETITION

Art. 28. Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. Free competition in agricultural, commercial or industrial enterprises and in labor is essential in a democracy and should be encouraged. Monopolies, generally speaking, are prejudicial to public interest. However, the right of free competition is not unlimited.

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required. If the violation of the civil or political rights constitutes a crime and a criminal action is instituted the civil action is also deemed instituted with the criminal action unless the same is reserved.

(11) The right to privacy of communication and correspondence (12) The right to become a member of associations and societies for purposes not contrary to law (13) The right to take part in a peaceable assembly and petition the government for redress of grievances (14) The right to be free from involuntary servitude in any form (15) The right of the accused against excessive bail (16) The right of the accused to be heard by himself and counsel, to be informed of the nature and the cause of the accusation against him, to have a speedy and public trial, to meet the witnesses face to face, to have compulsory process to secure the attendance of witnesses on is behalf; (17) Freedom form being compelled to be a witness against one’s self, or from being forced to confess his guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State witness. (18) Freedom from excessive fines, or cruel and unusual punishment, unless the same is imposed or inflicted in accordance with a statute which has not been judicially declared unconstitutional; (19) Freedom of access to the courts

Cojuangco vs. CA (1999): The purpose of article 32 is to remind us that basic rights are immutable. Thus, absence of bad faith or malice is not a defense. Vinzons-Chato vs. Fortune (2007): A public officer may be sued under Art. 32 even if his acts were not so tainted with malice, as long as there is a violation of a constitutional right. Its precise object is to put an end to official abuse, done on the plea of good faith.

Negligence Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

In any of the cases referred to in this article, whether or not the defendant’s act or omission constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted) and may be proved by a preponderance of evidence.

ELEMENTS (1) Legal duty (2) Breach (3) Causation (4) Damages

The indemnity shall include moral damages. Exemplary damages may also be adjudicated.

Layugan vs. IAC (1988): Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent and reasonable man would not do.

The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal code or any other penal statute.

TEST OF NEGLIGENCE Philippine National Railways vs. Brunty (2006): Did defendant, in doing the alleged negligent act, use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, the person is guilty of negligence. The law, in effect, adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater familias of the Roman law.

VIOLATION OF OTHER POLITICAL RIGHTS (FREEDOM OF SPEECH, PRESS, ASSEMBLY AND PETITION, ETC.)

Jarencio: Article 32 of the Civil Code holds any public officer, employee or private individual civilly liable for the violation of civil liberties, political liberties and other basic rights under the Constitution. The aggrieved party may recover actual, moral and exemplary damages and other relief. The civil action is separate and distinct and shall proceed independently of a criminal prosecution if one is instituted. Only a preponderance of evidence is

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embarrassment if not financial loss and perhaps even civil and criminal litigation.

GOOD FATHER OF A FAMILY (BONUS PATER FAMILIAS) A standard man does not mean an ideal or perfect man, but an ordinary member of the community. He is usually spoken of as an ordinarily reasonable, careful, and prudent man.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

WHAT CONSTITUTES THE CONDUCT OF A PRUDENT MAN IN A GIVEN SITUATION?

STANDARD OF CARE OF CHILDREN

Picart vs. Smith (1918): Conduct determined in the light of human experience and in view of the facts involved in the particular case. Abstract speculations cannot be of much value here; instead, reasonable men govern their conduct by the circumstances which are known before them. They are not supposed to be omniscient of the future.

Taylor vs. Manila Railroad (1910): Children must be expected to act upon childlike instincts and impulses and others chargeable with a duty of care and caution toward them must take precautions accordingly. If they leave exposed to the observation of children anything which would be tempting to them, and which they in their immature judgment might naturally suppose they were at liberty to play with, they should expect that liberty to be taken. (But the child in this case was still negligent because of his experience).

STANDARD OF CARE Picart vs. Smith (1918): Test: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent man would have used in the same situation? If not, then he is negligent. Negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him, but is determined in the light of human experience and the facts involved in the particular case.

Jarco v. CA (1999): The rule, therefore, is that a child under nine years of age must be conclusively presumed incapable of contributory negligence as a matter of law. The presumption of lack of discernment or incapacity for negligence in the case of a child over nine but under fifteen years of age is a rebuttable one.

Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to warrant his foregoing the conduct or guarding against its consequences.

Ylarde vs. Aquino (1988): The degree of care required to be exercised must vary with the capacity of the person endangered to care for himself. A minor should not be held to the same degree of care as an adult, but his conduct should be judged according to the average conduct of persons of his age and experience: that degree of care ordinarily exercised by children of the same age, capacity, discretion, knowledge and experience under the same or similar circumstances.

Note: Only the KIND of injury needs to be foreseen, NOT the actual specific injury. STANDARD OF CARE REQUIRED OF BANKS

Philippine Bank of Commerce vs. CA (1997): In the case of banks, however, the degree of diligence required is more than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts of their clients with the highest degree of care.

STANDARD OF CARE OF EXPERTS/PROFESSIONALS

Culion vs. Philippine (1930): When a person holds himself out as being competent to do things requiring professional skill, he will be held liable for negligence if he fails to exhibit the care and skill of one ordinarily skilled in the particular work which he attempts to do.

Simex International (Manila), Inc. v. CA: In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. xxx A blunder on the part of the bank, such as the failure to duly credit him his deposits as soon as they are made, can cause the depositor not a little

Cruz vs. CA (1997): Whether or not a physician has committed an "inexcusable lack of precaution" in the treatment of his patient is to be determined according to the standard of care observed by other members of the profession in good standing under similar circumstances bearing in mind the advanced

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state of the profession at the time of treatment or the present state of medical science.

selection or supervision of the plaintiff’s fellowworker.

IN CASE OF INSANE PERSONS

Amedo vs. Rio (1954): By jumping into the sea, the employee failed to exercise even slight care and diligence and displayed a reckless disregard of the safety of his person. His death was caused by his notorious negligence. Notorious negligence has been held to be tantamount to gross negligence which is want of even slight care and diligence.

Art. 2180. …Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their company… Art. 2182. If the minor or insane person causing damage has no parents or guardian, the minor or insane person shall be answerable with his own property in an action against him where a guardian ad litem shall be appointed.

EVIDENCE QUANTUM OF PROOF IN QUASI-DELICT VS. QUANTUM OF PROOF IN BREACH OF CONTRACT

Calalas vs. CA: In quasi-delict, the negligence or fault should be clearly established because it is the basis of action, whereas in breach of contract, the action can be prosecuted merely by proving the existence of a contract and the fact that the obligor, in this case a common carrier, failed to transport his passenger safely to his destination.

US vs. Baggay (1911): A lunatic or insane person who, in spite of his irresponsibility on account of the deplorable condition of his deranged mind, is still reasonably and justly liable with his property for the consequences of his acts. EMERGENCY RULE OR SUDDEN PERIL DOCTRINE

Valenzuela vs. CA (1996): 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.

PRESUMPTION OF NEGLIGENCE Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of due diligence, prevented the misfortune. It is disputable presumed that the driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months.

UNREASONABLE RISK OR HARM

Art 1711. Owners of enterprises and other employers are obliged to pay compensation for the death of or injuries to their laborers, workmen, mechanics or other employees even though the event may have been purely accidental or entirely due to fortuitous cause, if the death or personal injury arose out of and in the course of employment. The employer is also liable for compensation if the employee contracts any illness or disease caused by such employment or as a result of the nature of the employment. If the mishap was due to the employee’s own notorious negligence, or voluntary act, or drunkenness, the employer shall not be liable for compensation. When the employee’s lack of due care contributed to his death or injury, the compensation shall be equitably reduced

Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation. Art. 2188. There is prima facie presumption of negligence if the death or injury results from his possession of dangerous weapons or substances, such as firearms and poison, except when the use or possession thereof is indispensable in his occupation or business. Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article (calamity, act of public enemy in war, act of owner of the goods, character of the goods, order of competent public authority), if the goods are lost destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required under Art. 1733.

Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be solidarily liable for compensation. If a fellow-worker’s intentional or malicious act is the only cause of the death or injury, the employer shall not be answerable, unless it should be shown that the latter did not exercise due diligence in the

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accident or has the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to rely upon the proof of the happening of the accident in order to establish negligence.

PRESUMED NEGLIGENCE OR NEGLIGENCE PER SE

Teague vs. Fernandez (1973): Violation of a statute or ordinance constitutes negligence as a matter of law or negligence per se because non-observance of what the law provides as a suitable precaution is failure to observe that care which an ordinarily prudent man would observe.

Note: For the res ipsa loquitur doctrine to apply, it must appear that the injured party had no knowledge as to the cause of the accident, or that the party to be charged with negligence has superior knowledge or opportunity for explanation of the accident.

When the standard of care is fixed by law, failure conform to such standard is negligence, negligence per se or negligence in and of itself, in the absence of a legal excuse. RES IPSA LOQUITUR

The doctrine of res ipsa loquitur (“the thing speaks for itself”) is a rule of evidence (not of substantive law) peculiar to the law of negligence.

DEFENSES DUE DILIGENCE

Art. 2180. The 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. xxx Par. 8. The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

3 conditions for applicability: F.F. Cruz vs. CA (1988): Res ipsa loquitur is applicable when: (1) The thing causing the injury is under the control of the defendant or his servant; (2) In the ordinary cause of things, the accident does not happen if those who have control used proper care; (3) In the absence of explanation from the defendant, a presumption of negligence results.

Ramos vs. PEPSI (1967): The presumption of negligence on the part of the master or employer, either in the selection of servant/employee or in the supervision, when an injury is caused by the negligence of a servant/employee may be rebutted if the employer shows to the satisfaction of the court that in the selection and supervision, he has exercised the care and diligence of a good father of a family

Layugan vs. IAC 1988): Where the thing which causes injury is shown to be under the management of the defendant, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of an explanation by the defendant, that the accident arose from want of care.

Metro Manila vs. CA (1993): The defense of due diligence is plausible when defendant has presented enough evidence to overcome the presumption of negligence. It is not enough that it is alleged.

Ramos vs. CA (1999): The injury itself, taken together with the circumstances, raises the presumption of negligence that the defendant must meet with an explanation.

ACTS OF PUBLIC OFFICERS

Vinzons-Chato vs. Fortune (2008): When what is involved is a duty owing to the public in general, an individual cannot have a cause of action against the public officer although he may have been injured by the action or inaction of the officer, except when the individual suffers a particular or special injury.

Elements (1) The accident is such that it would not have happened in the ordinary course of events without the negligence of someone; (2) The defendant exercises control and management. (3) There is no contributory negligence on the part of the plaintiff.

ACCIDENT OR FORTUITOUS EVENT

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be seen

DM Consunji vs. CA (2001): The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the

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responsible for those events which, could not foreseen, or which, though foreseen, were inevitable.

injury, the damage is regarded as damnum absque injuria.

Elements Juntilla vs. Fontanar (1985): The elements of caso fortuito are: (1) The cause of the unforeseen and unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) It must be impossible to foresee the event or if it can be foreseen, it must be impossible to avoid; (3) The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (4) The obligor must be free from any participation in the aggravation of the injury resulting to the creditor.

AUTHORITY OF LAW

Art. 5. Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity. Art. 11. (RPC) The following do not incur any criminal liability: (5) Any person who acts in the fulfillment of a duty or in the lawful exercise of a right or office (8) Any person who acts in obedience to an order issued by a superior for some lawful purpose ASSUMPTION OF RISK (VOLENTI NON FIT INJURA)

General rule: One who voluntarily assumed the risk of injury from a known danger is debarred from recovery. A plaintiff who, by his conduct, brought himself within the operation of the maxim, “volenti non fit injuria” (that to which a person assents is not presumed in law an injury), cannot recover on the basis of the defendant’s negligence.

Hernandez vs. COA (1984): The robbery that happened to him cannot be said to be the result of his imprudence and negligence. This was undoubtedly a fortuitous event covered by the said provisions, something that could not have been reasonably foreseen although it could have happened.

One who knows, appreciates, and deliberately exposes himself to a danger assumes the risk thereof.

DAMNUM ABSQUE INJURIA

Custodio vs. CA (1996): Right to recover damages does not arise from the mere fact that the plaintiff suffered losses. To warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not constitute a cause of action, since damages are merely part of the remedy allowed for the injury caused by a breach or wrong. Injury

Damage

Where the defense of assumption of risk is based on this principle, it negates negligence or liability on the part of the defendant, even though his conduct would otherwise have constituted actionable negligence, and without regard to the fact that the plaintiff may have acted with due care. The defense bars recovery without regard to whether the plaintiff’s conduct was reasonable, because, in theory, the plaintiff’s acceptance of the risk has wiped out the defendant’s duty, and as to the plaintiff the defendant’s negligence is not a legal wrong.

Damages

Illegal Loss, hurt, harm Recompense invasion of a resulting from compensation legal right the injury awarded

or

Afialda vs. Hisole (1958): It is the caretaker's business to try to prevent the animal from causing injury or damage to anyone, including himself. It was a risk he voluntarily assumed.

Damnum absque injuria. There can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty.

Requisites (1) That the plaintiff had actual knowledge of the danger; (2) That he understood and appreciated the risk from the danger (3) That he voluntarily exposed himself to such risk

In order that the law will give redress for an act causing damage, that act must be not only hurtful, but wrongful. There must be damnum et injuria. If, as may happen in many cases, a person sustains actual damage, that is, harm or loss to his person or property, without sustaining any legal injury, that is, an act or omission which the law does not deem an

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Exception: Ilocos Norte vs. CA (1989): A person is excused from the force of the rule (volenti non fit injuria), that when he voluntarily assents to a known danger he must abide by the consequences, if an emergency is found to exist or if the life or property of another is in peril or when he seeks to rescue his endangered property.

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Martial Law including the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1) year. Art. 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought.

LAST CLEAR CHANCE

Prescription periods: (a) years for QD (b) 1 year for defamation

The doctrine is also known as: (1) The doctrine of discovered peril; (2) The doctrine of supervening negligence; (3) Humanitarian doctrine

Kramer vs. CA (1989): It is clear that the prescriptive period must be counted from the time of the commission of an act or omission violative of the right of the plaintiff, which is the time when the cause of action arises.

A negligent defendant is liable to a negligent plaintiff, or even to a plaintiff who has been grossly negligent in placing himself in peril, if the defendant, aware of the plaintiff’s peril, had in fact a later opportunity than the plaintiff to avoid the accident.

Allied Banking vs. CA (1989): Relations Back Doctrine (footnote 17 of Allied Banking case): That principle of law by which an act done at one time is considered by a fiction of law to have been done at some antecedent period.

Picart vs. Smith (1918): The person who has the last fair chance 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. Bustamante vs. CA (1991): Negligence of the plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s negligence.

WAIVER

Art. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs or prejudicial to a third person with a right recognized by law.

Consolidated Bank vs. CA (2003): This is a case of culpa contractual where neither contributory negligence nor last clear chance will exonerate defendant from liability. (NOTE: This means that Last Clear Chance is not a defense in culpa contractual.)

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. DOUBLE RECOVERY – NCC ART. 2177

Art. 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant.

PRESCRIPTION – NCC, ART. 1144, 1146, AND 1150

Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment.

Art. 100 (RPC). Civil liability of a person guilty of felony. - Every person criminally liable for a felony is also civilly liable.

Art. 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict;

Art. 2177 distinguishes 2 kinds of negligence: (1) Civil and (2) Criminal. The same negligence causing damage may produce liability arising from crime, if the act or omission is punished by the RPC, or may create an action for quasi-delict under the NCC.

However, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of powers or authority arising from

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Question As a result of a collision between a taxicab owned by A and another taxicab owned by B, X, a passenger of the first taxicab, was seriously injured. X later filed a criminal action against both drivers.

ACTIONS AVAILABLE TO VICTIMS OF NEGLIGENCE

(1) An action to enforce the civil liability arising from culpa criminal under Art. 100 of the RPC (2) An action for quasi-delict under Art. 2176-2194 of the NCC. The only limitation is that the injured party cannot recover twice for the same act or omission.

(a) Is it necessary for X to reserve his right to institute a civil action for damages against both taxicab owners before he can file a civil action for damages against them? Why?

EFFECT OF ACQUITTAL OF THE ACCUSED ON HIS CIVIL LIABILITY

(b) May both taxicab owners raise the defense of due diligence in the selection and supervision of their drivers to be absolved from liability for damages to X? Reason.

Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious.

Suggested Answer: It depends. If the separate civil action is to recover damages arising from the criminal act, reservation is necessary. If the civil action against the taxicab owners is based on culpa contractual or on quasidelict, there is no need for reservation.

The acquittal of the accused in the criminal case will not necessarily exonerate him from civil liability.

It depends. If the civil action is based on quasi-delict, the taxicab owners may raise the defense of diligence of a good father of a family in the selection and supervision of the driver; if the action against them is based on culpa contractual or civil liability arising from a crime, they cannot raise the defense.

The judgment of acquittal does not necessarily extinguish the civil liability of the accused EXCEPT: (1) When it declares that the facts from which the civil liability might arise did not exist; (2) When it declares that the accused is not the author of the crime; (3) When the judgment expressly declares that the liability is only civil in nature; (4) Where the civil liability is not derived or based on the criminal act of which the accused was acquitted; (5) Where the acquittal is based on reasonable doubt; (6) Where the civil action has prescribed.

Alternative Answer: No such reservation is necessary. Under Section 1 Rule 111 of the 2000 Rules on Criminal Procedure, what is “deemed instituted” with the criminal action is only the action to recover civil liability arising from the crime or ex delicto. All the other civil actions under Articles 32, 33, 34, 2176 of the New Civil Code are no longer “deemed instituted,” and may be filed separately and prosecuted independently even without any reservation in the criminal action (Section 3, Rule 111, 2000 Rules on Criminal Procedure). The failure to make a reservation of the criminal action is not a waiver of the right to file a separate and independent civil action based on these articles of the New Civil Code (Casupanan vs. Laroya, G.R. No. 145391, August 26, 2002)

NO RESERVATION IS REQUIRED IN THE CRIMINAL CASE FOR THE FILING OF CIVIL ACTION ARISING FROM QUASI-DELICT

Rule 111, Sec. 3, ROC. When civil action may proceeded independently. — In the cases provided for in Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines, the independent civil action may be brought by the offended party. It shall proceed independently of the criminal action and shall require only a preponderance of evidence. In no case, however, may the offended party recover damages twice for the same act or omission charged in the criminal action.

Special Liability in Particular Cases In some cases tort law imposes liability on defendants who are neither negligent nor guilty of intentional wrongdoing. Known as Strict Liability, or liability without fault, this branch of torts seeks to

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regulate those activities that are useful and necessary but that create abnormally dangerous risks to society.

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(n) "Consumer" means a natural person who is a purchaser, lessee, recipient or prospective purchaser, lessor or recipient of consumer products, services or credit.

PRODUCTS LIABILITY Art. 2187. Manufacturers and processors of foodstuffs, drinks, toilet articles and similar goods shall be liable for death or injuries caused by any noxious or harmful substances used, although no contractual relation exists between them and the consumers.

(as) "Manufacturer" means any person who manufactures, assembles or processes consumer products, except that if the goods are manufactured, assembled or processed for another person who attaches his own brand name to the consumer products, the latter shall be deemed the manufacturer. In case of imported products, the manufacturer's representatives or, in his absence, the importer, shall be deemed the manufacturer.

Under the foregoing provision, liability is not made to depend upon fault or negligence of the manufacturer or processor. The provision likewise dispensed with any contractual relation between the manufacturer and the consumer, thereby clearly implying that liability is imposed by law as a matter of PUBLIC POLICY.

Article 92. Exemptions. – If the concerned department finds that for good or sufficient reasons, full compliance with the labeling requirements otherwise applicable under this Act is impracticable or is not necessary for the adequate protection of public health and safety, it shall promulgate regulations exempting such substances from these requirements to the extent it deems consistent with the objective of adequately safeguarding public health and safety, and any hazardous substance which does not bear a label in accordance with such regulations shall be deemed mislabeled hazardous substance.

Proof of negligence under this provision is not necessary; as such, traditional contract and warranty defenses as (1) lack of privity; (2) lack of reliance on a warranty; (3) lack of notice to the defendant of the breach of warranty; and (4) disclaimer of implied warranties are INAPPLICABLE. REQUISITES OF LIABILITY

(1) Defendant is a manufacturer or possessor of foodstuff, drinks, toilet articles and similar goods; (2) He used noxious or harmful substances in the manufacture or processing of the foodstuff, drinks or toilet articles consumed or used by the plaintiff; (3) Plaintiff’s death or injury was caused by the product so consumed or used; and (4) The damages sustained and claimed by the plaintiff and the amount thereof.

Article 93. Grounds for Seizure and Condemnation of Mislabeled Hazardous Substances. – (a) Any mislabeled hazardous substance when introduced into commerce or while held for sale shall be liable to be proceeded against and condemned upon order of the concerned department in accordance with existing procedure for seizure and condemnation of articles in commerce: Provided, That this Article shall not apply to a hazardous substance intended for export to any foreign country if: (1) it is in a package labeled in accordance with the specifications of the foreign purchaser; (2) it is labeled in accordance with the laws of the foreign country; (3) it is labeled on the outside of the shipping package to show that it is intended for export; and (4) it is so exported,

BURDEN OF PROOF

The burden of proof that the product was in a defective condition at the time it left the hands of the manufacturer and particular seller is upon the INJURED PLAINTIFF. WHO MAY RECOVER

Although the article used the term “consumer”, such term includes a “user” and “purchaser” of the injuriously defective food product or toilet article. The person who may recover NEED NOT BE THE PURCHASER of the foodstuff or toilet article.

(b) any hazardous substance condemned under this Article shall after entry of order of condemnation be disposed of by destruction or sale as the concerned department may direct, and the proceeds thereof, if sold, less the legal cost and charges, shall be paid into the treasury of the Philippines; but such hazardous substance shall not be sold under any order which is contrary to

CONSUMER ACT –RA 7394, SECS. 92-107 (CH. 1)

Consumer Act Provisions Article 4. Definition of Terms.

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the provisions of this Act; Provided, That, after entry of the order and upon the payment of the costs of such proceedings and the execution of a good and sufficient bond conditioned that such hazardous substance shall not be sold or disposed of contrary to the provisions of this Act, the concerned department may direct that such hazardous substance be delivered to or retained by the owner thereof for destruction or for alteration to comply with the provisions of this Act under the supervision of an officer or employee duly designated by the concerned department. The expenses for such supervision shall be paid by the person obtaining release of the hazardous substance under bond.

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(b) Any person who violates the provisions of Article 81 to 83 for the first time shall be subject to a fine of not less than Two hundred pesos (P200.00) but not more than Five thousand pesos (P5,000.00) or by imprisonment of not less than one (1) month but not more than six (6) months or both, at the discretion of the court. A second conviction under this paragraph shall also carry with it the penalty of revocation of business permit and license. Article 96. Implementing Agency. – The Department of Trade and Industry shall enforce the provisions of this Chapter and its implementing rules and regulations.

(c) all expenses in connection with the destruction provided for in paragraphs (a) and (b) of this Article and all expenses in connection with the storage and labor with respect to such hazardous substance shall be paid by the owner or consignee, and default in such payment shall constitute a lien against any importation by such owner or consignee.

Article 97. Liability for the Defective Products. – Any Filipino or foreign manufacturer, producer, and any importer, shall be liable for redress, independently of fault, for damages caused to consumers by defects resulting from design, manufacture, construction, assembly and erection, formulas and handling and making up, presentation or packing of their products, as well as for the insufficient or inadequate information on the use and hazards thereof.

Article 94. Labeling Requirements of Cigarettes. – All cigarettes for sale or distribution within the country shall be contained in a package which shall bear the following statement or its equivalent in Filipino: "Warning" Cigarette Smoking is Dangerous to Your Health". Such statement shall be located in conspicuous place on every cigarette package and shall appear in conspicuous and legible type in contrast by typography, layout or color with other printed matter on the package. Any advertisement of cigarette shall contain the name warning as indicated in the label.

A product is defective when it does not offer the safety rightfully expected of it, taking relevant circumstances into consideration, including but not limited to: (a) presentation of product (b) use and hazards reasonably expected of it; (c) the time it was put into circulation. A product is not considered defective because another better quality product has been placed in the market. The manufacturer, builder, producer or importer shall not be held liable when it evidences: (a) that it did not place the product on the market; (b) that although it did place the product on the market such product has no defect; (c) that the consumer or a third party is solely at fault.

Article 95. Penalties. – (a) Any person who shall violate the provisions of Title III, Chapter IV of this Act, or its implementing rules and regulations, except Articles 81 to 83 of the same Chapter, shall be subject to a fine of not less than Five hundred pesos (P500.00) but not more than Twenty thousand pesos (P20,000.00) or imprisonment of not less than three (3) months but not more than two (2) years or both, at the discretion of the court: Provided, That, if the consumer product is one which is not a food, cosmetic, drug, device or hazardous substance, the penalty shall be a fine of not less than Two hundred pesos (P200.00) but not more than Five thousand pesos (P5,000.00) or imprisonment of not less than one (1) month but not more than one (1) year or both, at the discretion of the court.

Article 98. Liability of Tradesman or Seller. – The tradesman/seller is likewise liable, pursuant to the preceding article when: (a) it is not possible to identify the manufacturer, builder, producer or importer; (b) the product is supplied, without clear identification of the manufacturer, producer, builder or importer; (c) he does not adequately preserve perishable goods. The party making payment to the damaged party may exercise the right to recover a part of the whole of the payment made

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against the other responsible parties, in accordance with their part or responsibility in the cause of the damage effected.

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The consumer may make immediate use of the alternatives under the second paragraph of this Article when by virtue of the extent of the imperfection, the replacement of the imperfect parts may jeopardize the product quality or characteristics, thus decreasing its value.

Article 99. Liability for Defective Services. – The service supplier is liable for redress, independently of fault, for damages caused to consumers by defects relating to the rendering of the services, as well as for insufficient or inadequate information on the fruition and hazards thereof.

If the consumer opts for the alternative under subparagraph (a) of the second paragraph of this Article, and replacement of the product is not possible, it may be replaced by another of a different kind, mark or model: Provided, That any difference in price may result thereof shall be supplemented or reimbursed by the party which caused the damage, without prejudice to the provisions of the second, third and fourth paragraphs of this Article.

The service is defective when it does not provide the safety the consumer may rightfully expect of it, taking the relevant circumstances into consideration, including but not limited to: (a) the manner in which it is provided; (b) the result of hazards which may reasonably be expected of it; (c) the time when it was provided.

Article 101. Liability for Product Quantity Imperfection. – Suppliers are jointly liable for imperfections in the quantity of the product when, in due regard for variations inherent thereto, their net content is less than that indicated on the container, packaging, labeling or advertisement, the consumer having powers to demand, alternatively, at his own option: a) the proportionate price b) the supplementing of weight or measure differential; c) the replacement of the product by another of the same kind, mark or model, without said imperfections; d) the immediate reimbursement of the amount paid, with monetary updating without prejudice to losses and damages if any.

A service is not considered defective because of the use or introduction of new techniques. The supplier of the services shall not be held liable when it is proven: (a) that there is no defect in the service rendered; (b) that the consumer or third party is solely at fault. Article 100. Liability for Product and Service Imperfection. – The suppliers of durable or nondurable consumer products are jointly liable for imperfections in quality that render the products unfit or inadequate for consumption for which they are designed or decrease their value, and for those resulting from inconsistency with the information provided on the container, packaging, labels or publicity messages/advertisement, with due regard to the variations resulting from their nature, the consumer being able to demand replacement to the imperfect parts.

The provisions of the fifth paragraph of Article 99 shall apply to this Article. The immediate supplier shall be liable if the instrument used for weighing or measuring is not gauged in accordance with official standards.

If the imperfection is not corrected within thirty (30) days, the consumer may alternatively demand at his option: a) the replacement of the product by another of the same kind, in a perfect state of use; b) the immediate reimbursement of the amount paid, with monetary updating, without prejudice to any losses and damages; c) a proportionate price reduction.

Article 102. Liability for Service Quality Imperfection. – The service supplier is liable for any quality imperfections that render the services improper for consumption or decrease their value, and for those resulting from inconsistency with the information contained in the offer or advertisement, the consumer being entitled to demand alternatively at his option: a) the performance of the services, without any additional cost and when applicable; b) the immediate reimbursement of the amount paid, with monetary updating without prejudice to losses and damages, if any; c) a proportionate price reduction.

The parties may agree to reduce or increase the term specified in the immediately preceding paragraph; but such shall not be less than seven (7) nor more than one hundred and eighty (180) days.

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NUISANCE Art. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property.

Reperformance of services may be entrusted to duly qualified third parties, at the supplier's risk and cost. Improper services are those which prove to be inadequate for purposes reasonably expected of them and those that fail to meet the provisions of this Act regulating service rendering. Article 103. Repair Service Obligation. – When services are provided for the repair of any product, the supplier shall be considered implicitly bound to use adequate, new, original replacement parts, or those that maintain the manufacturer's technical specifications unless, otherwise authorized, as regards to the latter by the consumer.

Art. 696. Every successive owner or possessor of property who fails or refuses to abate a nuisance in that property started by a former owner or possessor is liable therefor in the same manner as the one who created it.

Article 104. Ignorance of Quality Imperfection. – The supplier's ignorance of the quality imperfections due to inadequacy of the products and services does not exempt him from any liability.

Art. 697. The abatement of a nuisance does not preclude the right of any person injured to recover damages for its past existence.

Article 105. Legal Guarantee of Adequacy. – The legal guarantee of product or service adequacy does not require an express instrument or contractual exoneration of the supplier being forbidden.

Art. 698. Lapse of time cannot legalize any nuisance, whether public or private.

Article 106. Prohibition in Contractual Stipulation. – The stipulation in a contract of a clause preventing, exonerating or reducing the obligation to indemnify for damages effected, as provided for in this and in the preceding Articles, is hereby prohibited, if there is more than one person responsible for the cause of the damage, they shall be jointly liable for the redress established in the pertinent provisions of this Act. However, if the damage is caused by a component or part incorporated in the product or service, its manufacturer, builder or importer and the person who incorporated the component or part are jointly liable. Article 107. Penalties. – Any person who shall violate any provision of this Chapter or its implementing rules and regulations with respect to any consumer product which is not food, cosmetic, or hazardous substance shall upon conviction, be subject to a fine of not less than Five thousand pesos (P5,000.00) and by imprisonment of not more than one (1) year or both upon the discretion of the court.

LIABILITY FOR NEGLIGENCE VS. LIABILITY FOR NUISANCE

Negligence

Nuisance Basis Liability is based on lack Liability attaches of proper care and regardless of the skill diligence exercised to avoid the injury Condition of the Act Act complained of is There is continuing harm already done which being suffered by the caused injury to the aggrieved party by the plaintiff maintenance of the act or thing which constitutes the nuisance Remedy Action for damages Abatement NUISANCE PER SE

It is recognized as a nuisance under any and all circumstances because it constitutes a direct menace to public health and safety and, for that reason, may be abated summarily under the undefined law of necessity.

In case of juridical persons, the penalty shall be imposed upon its president, manager or head. If the offender is an alien, he shall, after payment of fine and service of sentence, be deported without further deportation proceedings.

To become a nuisance per se, the thing must, of itself, because of its inherent qualities, without complement, be productive of injury, or, by reason of

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the matter of its use or exposure, threaten or be dangerous to life or property.

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It becomes a nuisance depending upon certain conditions and circumstances, and its existence being a question of fact, it cannot be abated without due hearing thereon in a tribunal authorized to decide whether such a thing does in law constitute a nuisance.

breach of the peace, or doing unnecessary injury. But it is necessary: (1) That demand be first made upon the owner or possessor of the property to abate the nuisance; (2) That such demand has been rejected; (3) That the abatement be approved by the district health officer and executed with the assistance of the local police; and (4) That the value of the destruction does not exceed three thousand pesos.

PUBLIC NUISANCE

PRIVATE NUISANCE

Art. 695. Nuisance is either public or private. A public nuisance affects a community or neighborhood or any considerable number of persons, although the extent of the annoyance, danger or damage upon individuals may be unequal. A private nuisance is one that is not included in the foregoing definition.

It is one which violates only private rights and produces damage to but one or a few persons, and cannot be said to be public.

NUISANCE PER ACCIDENCE

Art. 705. The remedies against a private nuisance are: (1) A civil action; or (2) Abatement, without judicial proceedings.

A public nuisance is the doing of or the failure to do something that injuriously affects safety, health, or morals of the public, or works some substantial annoyance, inconvenience or injury to the public. It causes hurt, inconvenience, or damage to the public generally, or such part of the public as necessarily comes in contact with it in the exercise of a public or common right.

Art. 706. Any person injured by a private nuisance may abate it by removing, or if necessary, by destroying the thing which constitutes the nuisance, without committing a breach of the peace or doing unnecessary injury. However, it is indispensable that the procedure for extrajudicial abatement of a public nuisance by a private person be followed.

Art. 699. The remedies against a public nuisance are: (1) A prosecution under the Penal Code or any local ordinance: or (2) A civil action; or (3) Abatement, without judicial proceedings.

Art. 707. A private person or a public official extrajudicially abating a nuisance shall be liable for damages: (1) If he causes unnecessary injury; or (2) If an alleged nuisance is later declared by the courts to be not a real nuisance.

Art. 700. The district health officer shall take care that one or all of the remedies against a public nuisance are availed of.

ATTRACTIVE NUISANCE

Contributory negligence of a minor does not bar recovery, where his immaturity and natural curiosity impelled him to act to his injury; but discretion shown by the child is the decisive factor.

Art. 701. If a civil action is brought by reason of the maintenance of a public nuisance, such action shall be commenced by the city or municipal mayor.

Del Rosario vs. Manila Electric Co. (1932): It is doubtful whether contributory negligence can properly be imputed to the deceased, owing to his immature years and the natural curiosity which a child would feel to do something out of the ordinary, and the mere fact that the deceased ignored the caution of a companion of the age of 8 years does not, in our opinion, alter the case.

Art. 702. The district health officer shall determine whether or not abatement, without judicial proceedings, is the best remedy against a public nuisance. Art. 703. A private person may file an action on account of a public nuisance, if it is specially injurious to himself.

Hidalgo Enterprises vs. Balandan (1952): One who maintains on his premises dangerous instrumentalities or appliances of a character likely to attract children in play, and who fails to exercise ordinary care to prevent children from playing

Art. 704. Any private person may abate a public nuisance which is specially injurious to him by removing, or if necessary, by destroying the thing which constitutes the same, without committing a

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therewith or resorting thereto, is liable to a child of tender years who is injured thereby, even if the child is technically a trespasser in the premises.

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(18) Freedom from excessive fines, or cruel and unusual punishment, unless the same is imposed or inflicted in accordance with a statute which has not been judicially declared unconstitutional; (19) Freedom of access to the courts

The principle reason for the doctrine is that the condition or appliance in question although its danger is apparent to those of age, is so enticing or alluring to children of tender years as to induce them to approach, get on or use it, and this attractiveness is an implied invitation to such children

In any of the cases referred to in this article, whether or not the defendant’s act or omission constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted) and may be proved by a preponderance of evidence.

VIOLATION OF CONSTITUTIONAL RIGHTS VIOLATION OF CIVIL LIBERTIES

Art 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: (1) Freedom of religion (2) Freedom of speech (3) Freedom to write for the press or to maintain a periodical publication (4) Freedom from arbitrary or illegal detention (5) Freedom of suffrage (6) The right against deprivation of property without due process of law (7) The right to just compensation when property is taken for public use (8) The right to equal protection of the laws (9) The right to be secure in one’s person, house, papers and effects against unreasonable searches and seizures (10) The liberty of abode and of changing the same (11) The right to privacy of communication and correspondence (12) The right to become a member of associations and societies for purposes not contrary to law (13) The right to take part in a peaceable assembly and petition the government for redress of grievances (14) The right to be free from involuntary servitude in any form (15) The right of the accused against excessive bail (16) The right of the accused to be heard by himself and counsel, to be informed of the nature and the cause of the accusation against him, to have a speedy and public trial, to meet the witnesses face to face, to have compulsory process to secure the attendance of witnesses on is behalf; (17) Freedom form being compelled to be a witness against one’s self, or from being forced to confess his guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State witness.

The indemnity shall include moral damages. Exemplary damages may also be adjudicated. The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal code or any other penal statute. Aberca, et al. vs. Ver, et al. (1988): It is obvious that the purpose of the above codal provision (Art. 32) is to provide a sanction to the deeply cherished rights and freedoms enshrined in the Constitution. Its message is clear; no man may seek to violate those sacred rights with impunity. In times of great upheaval or of social and political stress, when the temptation is strongest to yield — borrowing the words of Chief Justice Claudio Teehankee — to the law of force rather than the force of law, it is necessary to remind ourselves that certain basic rights and liberties are immutable and cannot be sacrificed to the transient needs or imperious demands of the ruling power. The rule of law must prevail, or else liberty will perish. VIOLATIONS OF RIGHTS COMMITTED BY PUBLIC OFFICERS

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken. Art. 32, supra. Dereliction of Duty Amaro vs. Samanguit: Requisites: (1) Defendant is a public officer charged with a performance of a duty in favor of the plaintiff; (2) He refused or neglected without just cause to perform the duty;

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(3) Plaintiff sustained material or moral loss as a consequence of such non-performance; (4) The amount of such damages, if material.

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defective roads or streets belong to the province, city or municipality. What said article requires is that the province, city or municipality have either "control or supervision" over said street or road.

Coverage Applies only to acts of nonfeasance or the nonperformance of some acts which a person is obliged or has responsibility to perform.

OWNERS OF MOTOR VEHICLES

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months.

The duty of the public servant must be ministerial in character. If the duty is discretionary, he is not liable unless he acted in a notoriously arbitrary manner. Defense of Good Faith is not available The reason of its unavailability is that an officer is under constant obligation to discharge the duties of his office, and it is not necessary to show that his failure to act was due to malice or willfulness.

If the owner was not in the motor vehicle, the provisions of article 2180 are applicable. Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.

Art. 34. When a member of a city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages, and the city or municipality shall be subsidiarily responsible therefor. The civil action herein recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such action.

Art. 2186. Every owner of a motor vehicle shall file with the proper government office a bond executed by a government-controlled corporation or office, to answer for damages to third persons. The amount of the bond and other terms shall be fixed by the competent public official.

Art. 34 covers a situation where: (a) There is danger to the life or property of person; (b) A member of a city or municipal police force who is present in the scene refused or failed to render aid or protection to the person; and (c) Damages are caused wither to the person and/or property of the victim.

The owner is SOLIDARILY liable with the driver for motor vehicle mishaps when: (1) The owner was IN the vehicle at the time, AND (2) The owner could have, by the use of due diligence, prevented the misfortune. Owner of the vehicle “Owner” shall mean the actual legal owner of the motor vehicle, in whose name such vehicle is duly registered with the LTO.

Nature of liability (1) Of the police officer – Primary (2) City or municipality - Susidiary The defense of having observed the diligence of a good father of a family to prevent the damage is not available to the city/municipality.

Registration of motor vehicles is required not because it is the operative act which transfers ownership in vehicles, but because it is the means by which the owner can be identified so that if any accident occurs, or damage or injury is caused in the operation of the vehicle, responsibility can be fixed.

PROVINCES, CITIES, AND MUNICIPALITIES

Art. 2189. Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by, any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision.

As held in Vargas vs. Langcay, “the registered owner/operator of a passenger vehicle is jointly and severally liable with the driver for damages incurred by passengers or third persons as a consequence of injuries or death sustained in the operation of said vehicles. Regardless of who the actual owner of a vehicle is, the operator of record continues to be the operator of the vehicle as regards the public and

Ownership of Roads, etc. is not required City of Manila vs. Teotico (1968): It is not necessary for the liability therein established to attach that the

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third persons and as such is directly and primarily responsible for the consequences incident to its operation, so that in contemplation of law, such owner/operator of record is the employer of the driver, the actual operator and employer being considered merely as his agent.”

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accident. And as far as perception is concerned, absent a minimum level imposed by law, a maneuver that appears to be fraught with danger to one passenger may appear to be entirely safe and commonplace to another. Were the law to require a uniform standard of perceptiveness, employment of professional drivers by car owners who, by their very inadequacies, have real need of drivers' services, would be effectively proscribed.

The registered owner of a motor vehicle is primarily liable for the damage or injury caused to another, but he has a right to be indemnified by the real owner of the amount he was required to pay (Tamayo vs, Aquino) This rule applies both to private and to common carriers with respect to their passengers.

Duavit vs. CA (1989): An owner of a vehicle cannot be held liable for an accident involving the said vehicle if the same was driven without his consent or knowledge and by a person not employed by him.

Note: If the owner was NOT inside the vehicle, Art. 2180 applies.

PROPRIETOR OF BUILDING OR STRUCTURE

Art. 2190. The proprietor of a building or structure is responsible for the damages resulting from its total or partial collapse, if it should be due to the lack of necessary repairs.

The presumption is AGAINST the owner of the motor vehicle. He has the burden of proving due diligence. Thus, once a driver is proven negligent in causing damage, the law presumes the vehicle owner equally negligent and imposes upon the latter the burden of proving proper selection of employee as a defense.

Art. 2191. Proprietors shall also be responsible for damages caused: (1) By the explosion of machinery which has not been taken care of with due diligence, and the inflammation of explosive substances which have not been kept in a safe and adequate place; (2) By excessive smoke, which may be harmful to persons or property; (3) By the falling of trees situated at or near highways or lanes, if not caused by force majeure; (4) By emanations from tubes, canals, sewers or deposits of infectious matter, constructed without precautions suitable to the place.

Summary: Owner PRESENT in the Owner NOT PRESENT in Vehicle the Vehicle Owner is liable if he could Owner may be held have prevented the liable under Art. 2180, mishap by the exercise of par. 5. due diligence. Caedo vs. Yu Khe Tai (1968): 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 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.

Art. 2192. If damage referred to in the two preceding articles should be the result of any defect in the construction mentioned in article 1723, the third person suffering damages may proceed only against the engineer or architect or contractor in accordance with said article, within the period therein fixed. Ownership of a building imposes on the proprietor thereof the duty to maintain it in good condition at all times to the end that it may not collapse either totally or partially as to cause damage or injury to another’s person or property.

The law does not require that a person must possess a certain measure of skill or proficiency either in the mechanics of driving or in the observance of traffic rules before he may own a motor vehicle. The test of his negligence, within the meaning of Article 2184, is his omission to do that which the evidence of his own senses tells him he should do in order to avoid the

This duty obtains whether the building is leased or held in usufruct. Considering, however, that the lessee or usufructuary has direct and immediate control of the building, the law imposes on him the duty to notify the proprietor

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of such urgent or extra-ordinary repairs AND where the proprietor’s failure to make the necessary repairs was due to the failure of the lessee or usufructuary to notify him, the proprietor is entitled to indemnification for damages he may have been required to pay to the parties.

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based on the negligence or on the presumed lack of vigilance of the possessor or user of the animal causing damage. It is based on natural equity and on the principle of social interest that he who possesses animals for his utility, pleasure, or service, must answer for any damage which such animal may cause.

Gotesco Investment Corp. vs. Chatto (1992): The owner or proprietor of a place of public amusement impliedly warrants that the premises, appliances and amusement devices are safe for the purpose for which they are designed, the doctrine being subject to no other exception or qualification than that he does not contract against unknown defects not discoverable by ordinary or reasonable means.

POSSIBLE DEFENSES AGAINST THIS LIABILITY

(1) Force Majeure (2) Fault of person suffering damage (3) Act of third persons SCOPE OF PROVISION

Contention that the defendant could not be expected to exercise remote control of the animal is not acceptable. In fact, Art. 2183 holds the possessor liable even if the animal should “escape or be lost” and so be removed from his control.

HEAD OF FAMILY

Art 2193. The head of a family that lives in a building or a part thereof, is responsible for damages caused by things thrown or falling from the same.

It is likewise immaterial that the animal was tame and was merely provoked by the victim. The law does not speak only of vicious animals but covers even tame ones as long as they cause injury.

Purpose of the law To relieve the injured party of the difficulty of determining and proving who threw the thing or what caused it to fall, or that either was due to the fault or negligence of any particular individual. Dingcong vs. Kanaan (1941): Lessee is considered as the head of the family. It is enough that he lives in and has control over it.

NUISANCE Sangco: A person who creates or maintains a nuisance is liable for the resulting injury to others regardless of the degree of care or skill exercised to avoid the injury. The creation or maintenance of a nuisance is a violation of an absolute duty.

Strict Liability

Nuisance is a condition and not an act or failure to act, so that if a wrongful condition exists, the person responsible for its existence is responsible for the resulting damages to others.

POSSESSOR AND USER OF AN ANIMAL Art. 2183. The possessor of an animal or whoever may make use of the same is responsible for the damage which it may cause, although it may escape or be lost. This responsibility shall cease only in case the damage should come from force majeure or from the fault of the person who has suffered damage.

CLASSES

(1) Nuisance per se; Nuisance per accidence (2) Public nuisance; private nuisance Iloilo Ice and Cold Storage Co. vs. Municipal Council (1913): A nuisance is, according to Blackstone, "Any thing that worketh hurt, inconvenience, or damages." They arise from pursuing particular trades or industries in populous neighborhoods; from acts of public indecency, keeping disorderly houses, and houses of ill fame, gambling houses, etc. Nuisances have been divided into two classes: Nuisances per se, and nuisances per accidens. To the first belong those which are unquestionably and under all circumstances nuisances, such as gambling houses, houses of ill fame, etc. The number of such nuisances is necessarily limited, and by far the greater number of nuisances are such because of particular facts and circumstances surrounding the otherwise harmless cause of the nuisance. For this

APPLICABILITY OF PROVISION

Since the law makes no distinction, this is applicable to both wild (in case the wild animal is kept) and domestic animals. It is enough that defendant is the possessor, owner, or user of the animal at the time it caused the damage complained of, to hold him liable therefor. BASIS

Vestil vs. IAC (1989): Possession of the animal, not ownership, is determinative of liability under Art. 2183. The obligation imposed by said article is not

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reason, it will readily be seen that whether a particular thing is a nuisance is generally a question of fact, to be determined in the first instance before the term nuisance can be applied to it.

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There can be no doubt that commercial and industrial activities which are lawful in themselves may become nuisances if they are so offensive to the senses that they render the enjoyment of life and property uncomfortable. It is no defense that skill and care have been exercised and the most improved methods and appliances employed to prevent such result.

Salao and Lucas vs. Santos (1939): Nuisances are of two kinds: nuisance per se and nuisance per accidens. The first is recognized as a nuisance under any and all circumstances because it constitutes a direct menace to public health or safety and, for that reason, may ‘be abated summarily under the undefined law of necessity. The second is that which depends upon certain conditions and circumstances, and its existence being a question of fact, it cannot be abated without due hearing thereon in a tribunal authorized to decide whether such a thing does in law constitute a nuisance.

PRODUCTS LIABILITY (SUPRA) Art 2187. Manufacturers and processors of foodstuffs, drinks, toilet articles and similar goods shall be liable for death or injuries caused by any noxious or harmful substances used, although no contractual relation exists between them and the consumers. CONSUMER ACT Consumer Act Provisions (supra)

EASEMENT AGAINST NUISANCE

Art. 682. Every building or piece of land is subject to the easement which prohibits the proprietor or possessor from committing nuisance through noise, jarring, offensive odor, smoke, heat, dust, water, glare and other causes.

Coca-Cola v. CA (1993): While it may be true that the pre-existing contract between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability may itself be deemed to arise from quasi-delict if the act which breaks the contract is also a quasi-delict.

Art. 683. Subject to zoning, health, police and other laws and regulations, factories and shops may be maintained provided the least possible annoyance is caused to the neighborhood.

Summary: Person Strictly Liable Possessor of an animal or whoever makes use of them even if the animal is lost or escaped Owner of Motor Vehicle

The provisions impose a prohibition upon owners of buildings of land from committing therein a nuisance or using such buildings or lands in a manner as will constitute a nuisance. It is based on the maxim sic utere tuo ut alienum non laedas (so use your own as not to injure another’s property). Velasco vs. Manila Electric Co. (1971): The general rule is that everyone is bound to bear the habitual or customary inconveniences that result from the proximity of others, and so long as this level is not surpassed, he may not complain against them. But if the prejudice exceeds the inconveniences that such proximity habitually brings, the neighbor who causes such disturbances is held responsible for the resulting damage, being guilty of causing nuisance.

Manufacturers and Processors of foodstuffs, drinks, toilet articles and similar goods (FDTAS) Defendant in possession of dangerous

While no previous adjudications on the specific issue have been made in the Philippines, our law of nuisances is of American origin, and a review of authorities clearly indicates the rule to be that the causing or maintenance of disturbing noise or sound may constitute an actionable nuisance.

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For What For the damage it may cause

Motor vehicle mishaps

Death and injuries caused by any noxious or harmful substances used Death or injury results from such possession

Defenses or Exceptions Force majeure Fault of the person who suffered damage Solidary liability only if the owner was in the vehicle and if he could have prevented it thru due diligence If not in vehicle 2180 Absence on contractual relation NOT a defense

possession or use thereof is indispensable in

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Person Strictly For What Liable weapons/ substances such as firearms and poison Provinces, Cities The death or and injuries suffered Municipalities by any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works Proprietor ofa) Total or partial building/ collapse of structure building or structure if due to lack of necessary repair s b) Explosion of machinery which has not been taken cared of with due diligence, and the inflammation of explosive substances which have not been kept in a safe and adequate place c) By excessive smoke, which may be harmful to persons or property d) By falling of trees situated at or near highways or lanes, if not caused by force majeure e) By emanations from tubes, canals, sewers or deposits of infectious matter, constructed

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Defenses or Exceptions his occupation or business

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Person Strictly Liable

Public works must be under their supervisions

Engineer, Architect Contractor

Responsibility for collapse should be due to the lack of necessary repairs

or

Head of the Family that lives in a building or any part thereof

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For What without precautions suitable to the place if damage of building or structure is caused by defect in construction which happens within 15 years from construction; action must be brought within 10 years from collapse Liable for damages caused by things thrown or falling from the same

Defenses or Exceptions

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Damages

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foundation of liability, and include those which follow as a conclusion of law from the statement of the facts of the injury.

DEFINITION People vs. Ballesteros: Damages may be defined as the pecuniary compensation, recompense, or satisfaction for an injury sustained, or as otherwise expressed, the pecuniary consequences which the law imposes for the breach of some duty or the violation of some right.

Special damages Damages that arise from the special circumstance of the case, which, if properly pleaded, may be added to the general damages which the law presumes or implies from the mere invasion of the plaintiff’s rights. Special damages are the natural, but NOT the necessary result of an injury. These are not implied by law.

DAMAGES VS. INJURY Custodio v. CA (1996): Injury is the illegal invasion of a legal right. Damage is the loss, hurt, or harm which results from the injury. Damages are the recompense or compensation awarded for the damage suffered.

Actual and Compensatory Damages

Ocena vs. Icamina: The obligation to repair the damages exists whether done intentionally or negligently and whether or not punishable by law.

Compensatory damages are damages in satisfaction of, or in recompense for, loss or injury sustained. The phrase “actual damages” is sometimes used as synonymous with compensatory damages.

ELEMENTS FOR RECOVERY OF DAMAGES (1) Right of action (2) For a wrong inflicted by the defendant (3) Damage resulting to the plaintiff

REQUISITES Asilio, Jr. v. People and Sps. Bombasi (2011): To seek recovery of actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable.

CLASSIFICATION Art. 2197. Damages may be: (1) Actual or compensatory; (2) Moral; (3) Nominal; (4) Temperate or moderate; (5) Liquidated; or (6) Exemplary or corrective.

WHEN IS A PERSON ENTITLED? (1) When there is a pecuniary loss suffered by him; (2) When he has alleged and prayed for such relief (Manchester Dev’t Corp vs. CA); (3) When he has duly proved it; (4) When provided by law or by stipulation.

ACCORDING TO PURPOSE

(1) For adequate reparation of the injury a) Compensatory (reparation of pecuniary losses) b) Moral (reparation for non-pecuniary losses: injury to feelings; physical suffering, etc.) (2) For vindication of the right violated: Nominal (3) For less than adequate reparation: Moderate (4) For deterring future violations: Exemplary or corrective

No proof of pecuniary loss is necessary for: moral, nominal, temperate, liquidated or exemplary damages. The assessment of such damages is discretionary upon the court, except liquidated ones. (Art. 2216) ALLEGED AND PROVED WITH CERTAINTY Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages.

ACCORDING TO MANNER OF DETERMINATION

(1) Conventional (or liquidated) (2) Non-conventional, which may either be: (a) Statutory (fixed by law, as in moratory interest) (b) Judicial (determined by the courts)

THE DAMAGES MUST BE PROVEN BY COMPETENT EVIDENCE (ADMISSIBLE OR PROBATIVE) Integrated Packaging Corp. vs. CA; Fuentes vs. CA: It is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on

SPECIAL AND ORDINARY

General damages Those which are the natural and necessary result of the wrongful act or omission asserted as the

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the best evidence obtainable by the injured party, the actual amount of loss.

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VALUE OF LOSS; UNREALIZED PROFIT Art. 2200. Indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain.

Damages must be proved and cannot be presumed. It must be established by clear evidence. Valencia vs. Tantoco (1956): Damages must be proved with reasonable accuracy, even when not denied.

In other words, indemnification for damages is not limited to damnum emergens (actual loss) but extends to lucrum cessans (a cession of gain or amount of profit lost).

DEGREE OF CERTAINTY REQUIRED AS TO: FACT, CAUSE AND AMOUNT OF DAMAGES Damages are not rendered uncertain just because they cannot be calculated with absolute exactness or because the consequences of the wrong are not precisely definite in pecuniary amount.

ATTORNEY’S FEES AND EXPENSES OF LITIGATION Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen's compensation and employer's liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

The principle which will disallow recovery of damages when their existence rests solely on speculation applies both to the fact and cause of damages. (1) The requirement of certainty does not prevent the drawing of reasonable inferences from the fact and circumstance in evidence. (2) Events which occur after the wrong complained of may serve to render the damage sufficiently certain. (3) The damages must be susceptible of ascertainment in some manner other than by mere speculation, conjecture or surmise and by reference to some fairly definite standard, such as market value, established experience or direct inference from known circumstances. Talisay-Silay vs. Associacion: Where, however, it is reasonably certain that injury consisting of failure to realize otherwise reasonably expected profits had been incurred, uncertainty as to the precise amount of such unrealized profits will not prevent recovery or the award of damages.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

NOT SPECULATIVE Actual damages to be compensable must be proved by clear evidence, a court cannot rely on speculation, conjectures or guesswork as to the fact and amount of damages, but must depend on actual proof that damages has been suffered and on evidence of the actual amount.

General Rule Attorney’s fees and costs of litigation are recoverable IF stipulated. Exceptions If there is no stipulation, they are recoverable only in the following cases: (1) By reason of malice or bad faith (a) When exemplary damages are awarded (b) In case of a clearly unfounded civil action (c) Where defendant acted in gross and evident bad faith

COMPONENTS Actual damage covers the following: (1) Value of loss; unrealized profit (2) Attorney’s fees and expenses of litigation (3) Interest

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(d) When at least double judicial costs are awarded (2) By reason of plaintiff’s indigence in (a) Actions for legal support (b) Actions for recovery of wages of laborers, etc. (c) Actions for workmen’s compensation (3) By reason of crimes in (a) Criminal cases of malicious prosecution (b) Separate actions to recover civil liability arising from crime (4) By reason of equity (a) Where the defendant’s act compelled plaintiff to litigate with third persons (b) Where the Court deems it just and equitable

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No interest may be recovered on unliquidated (not fixed in amount) claims or damages, except when the demand can be established with reasonable certainty at the Court’s discretion. COMPOUNDING OF INTEREST

Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on the point. Note that interest due can earn only at 6%, whether the rate of interest of the principal is greater than 6%. DETERMINATION OF LEGAL INTEREST

(1) When an obligation, regardless of its source (i.e., law, contracts, quasi-contracts, delicts or quasidelicts) is breached, the contravenor can be held liable for damages. (2) 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 (Eastern Shipping Lines vs. CA, 1994):

Note: In all cases, attorney’s fees and costs of litigation must be reasonable. Even if expressly stipulated, attorney’s fees are subject to control by the Courts. INTEREST Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum.

Base (a) 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

Rate

(a) That which may have been stipulated in writing. b) In the absence of stipulation, the rate of interest shall be 12% per annum (legal interest) (b) Furthermore, legal interest the INTEREST DUE shall itself earn (c) When an at the rate of obligation, NOT 6% per constituting a annum. loan or forbearance of money, is breached, an interest on the AMOUNT OF DAMAGES awarded may be imposed at

Art. 2210. Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. Art. 2211. In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court. Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty. INTEREST ACCRUES WHEN:

(1) The obligation consists in the payment of a sum of money (2) Debtor incurs in delay (3) There being no stipulation to the contrary

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Accrual 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.

from the time it is JUDICIALLY demanded. If claim or damages are LIQUIDATED, from default, i.e., from judicial or extrajudicial demand. (Art. 1169, Civil Code) If UNLIQUIDATED, from the time the demand can be

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Base

DAMAGES

Rate

Accrual

the rate of legal interest, whether the case falls under a,b, or c, above, shall be 12% per annum

established with reasonable certainty. Hence, the interest shall begin to run only FROM THE DATE THE JUDGMENT OF THE COURT IS MADE (at which time the quantification of damages may be deemed to have been reasonably ascertained). from FINALITY UNTIL ITS SATISFACTION, this period being deemed to be an equivalent to a forbearance of credit.

the discretion of the court. The actual base for the computation of legal interest shall be on the amount finally adjudged.

(d) When the JUDGMENT of the court awarding a sum of money becomes final and executory,

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IN CONTRACTS AND QUASI-CONTRACTS Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonably foreseen at the time the obligation was constituted. In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the nonperformance of the obligation. Art. 2214. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover. Art. 2215. In contracts, quasi-contracts, and quasidelicts, the court may equitably mitigate the damages under circumstances other than the case referred to in the preceding article, as in the following instances: (1) That the plaintiff himself has contravened the terms of the contract; (2) That the plaintiff has derived some benefit as a result of the contract; (3) In cases where exemplary damages are to be awarded, that the defendant acted upon the advice of counsel; (4) That the loss would have resulted in any event; (5) That since the filing of the action, the defendant has done his best to lessen the plaintiff's loss or injury.

START OF DELAY (1) Extrajudicial: demand letter (2) Judicial: Filing of complaint (3) Award EXTENT OR SCOPE OF ACTUAL DAMAGES Art. Liability extends Note: 2201 to those: Liability (1) natural and extends to probable all damages consequences which may of the breach be (2) those that reasonably have been attributed to Contracts foreseen the nonand quasi (3) those that performance contracts could have of the been obligation in reasonably case of foreseen fraud, bad Provided: obligor faith, malice in good faith or wanton attitude (FBM-WA). Art. Liability extends Note: 2202 Crimes to all damages WON and which are the damage is quasinatural and foreseen is delicts probable irrelevant consequence

(a) The obligor IN GOOD FAITH is liable for such damages (1) That are the natural and probable consequences of the breach of the obligation; and (2) That the parties have foreseen (or could have reasonably foreseen) such damages at the time the obligation was constituted “Natural and probable” consequence requires: (1) Causality: That the damage would not have resulted without fault or negligence of the defendant (but for rule) (2) Adequacy: That the fault of the obligor would normally (ordinarily) result in the damage suffered by the obligee (b) In case of FRAUD, BAD FAITH, MALICE OR WANT OF ATTITUDE, the obligor answers for

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(1) All damages which may be reasonably attributed to the non-performance of the obligation, whether foreseen or not (2) Exemplary or corrective damages

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damages were foreseen, or reasonably foreseeable by the defendant. Algarra vs. Sandejas: Actual damages for a negligent act or omission are confined to those which "were foreseen or might have been foreseen," or those which were "the natural and probable consequences" or "the direct and immediate consequences" of the act or omission.

Note: Interest may be allowed on damages awarded, in the discretion of the court. Daywalt vs. Recoletos et al.: The damages recoverable upon breach of contract are, primarily, the ordinary, natural and in a sense the necessary damages resulting from the breach. Other damages, known as special damages, are recoverable where it appears that the particular conditions which made such damages a probable consequence of the breach were known to the delinquent party at the time the contract was made.

Note: Damages are to be increased or decreased (in case of crimes only) according to aggravating or mitigating circumstances present. Interest, as part of damages, may be adjudicated in a proper case, in the Court’s discretion. Contributory negligence of the plaintiff, in case of quasi-delicts, shall reduce the damages to which he may be entitled.

IN CRIMES AND QUASI-DELICTS Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of. It is not necessary that such damages have been foreseen or could have reasonably been foreseen by the defendant.

Note: In crimes, no mitigation for contributory negligence.

Moral Damages

Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.

Art. 2217. Moral damages include 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 for omission. Art. 2218. In the adjudication of moral damages, the sentimental value of property, real or personal, may be considered. Visayan Sawmill vs. CA: Moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. Bagumbayan Corp. vs. IAC (1984): Mental suffering means distress or serious pain as distinguished from annoyance, regret or vexation.

Defendant is liable for all damages which are the natural and probable consequences of the act or omission complained of; it is not necessary that such

Mental anguish is intense mental suffering. Generally, damages for mental anguish are limited to cases in which there has been a personal physical injury or where the defendant willfully, wantonly,

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recklessly, or intentionally caused the mental anguish.

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contracts when breached by tort. (5) In culpa criminal, moral damages could be lawfully due when the accused is found guilty of physical injuries, lascivious acts, adultery or concubinage, illegal or arbitrary detention, illegal arrest, illegal search, or defamation.

WHEN AWARDED Awarded when injury consists of: (PBMF-MWSSS) (a) Physical suffering (b) Besmirched reputation (c) Mental anguish (d) Fright (e) Moral shock (f) Wounded feelings (g) Social humiliation (h) Serious anxiety (i) Similar injury

(6) Malicious prosecution can also give rise to a claim for moral damages. The term "analogous cases," referred to in Article 2219, following the ejusdem generis rule, must be held similar to those expressly enumerated by the law. (7) Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages. (Expertravel& Tours vs. CA, 1 to 7)

(1) Though incapable of pecuniary computation (2) If such is the proximate result of defendant’s act or omission. REQUISITES FOR AWARDING MORAL DAMAGES Villanueva vs. Salvador: Requisites for awarding moral damages: (1) there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant must be the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in ART. 2219 NCC.

(8) The burden rests on the person claiming moral damages to show convincing evidence for good faith is presumed. In a case involving simple negligence, moral damages cannot be recovered. (Villanueva vs. Salvador) (9) Failure to use the precise legal terms or "sacramental phrases" of "mental anguish, fright, serious anxiety, wounded feelings or moral shock" does not justify the denial of the claim for damages. It is sufficient that these exact terms have been pleaded in the complaint and evidence has been adduced (MirandaRibaya vs. Bautista)

GENERAL PRINCIPLES OF RECOVERY: (1) Moral damages must somehow be proportional to the suffering inflicted.

(10) Even if the allegations regarding the amount of damages in the complaint are not specifically denied in the answer, such damages are not deemed admitted. (Raagas, et al. vs. Traya et al).

(2) In culpa contractual or breach of contract, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of his contractual obligation and, exceptionally, when the act of breach of contract itself is constitutive of tort resulting in physical injuries.

(11) An appeal in a criminal case opens the whole case for review and this 'includes the review of the penalty, indemnity and damages. Even if the offended party had not appealed from said award, and the only party who sought a review of the decision of said court was the accused, the court can increase damages awarded. (Sumalpong vs. CA)

(3) By special rule in Article 1764, in relation to Article 2206, moral damages may also be awarded in case the death of a passenger results from a breach of carriage.

(12) It can only be awarded to natural persons.

(4) In culpa aquiliana or quasi-delict, (a) when an act or omission causes physical injuries, or (b) where the defendant is guilty of intentional tort, moral damages may aptly be recovered. This rule also applies to

ABS-CBN vs. CA: The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience

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physical suffering and mental anguish, which can be experienced only by one having a nervous system. The statement in People vs. Manero and Mambulao Lumber Co. vs. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum.

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(1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in article 309; (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

NAPOCOR vs. Philipp Brothers: While it is true that besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish.

The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may also recover moral damages. The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9 of this article, in the order named.

Question Ortillo contracts Fabricato, Inc. to supply and install tile materials in a building he is donating to his province. Ortillo pays 50% of the contract price as per agreement. It is also agreed that the balance would be payable periodically after every 10% performance until completed. After performing about 93% of the contract, for which it has been paid an additional 40% as per agreement, Fabricato, Inc. did not complete the project due to its sudden cessation of operations. Instead, Fabricato, Inc. demands payment of the last 10% of the contract despite its non-completion of the project. Ortillo refuses to pay, invoking the stipulation that payment of the last amount of 10% shall be upon completion. Fabricato, Inc. brings suit for the entire 10% plus damages. Ortillo counters with claims for (a) moral damages for Fabricato, Inc.’s unfounded suit which has damaged his reputation as a philanthropist and respected businessman in his community, and (b) attorney’s fees.

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. IN SEDUCTION, ABDUCTION, RAPE AND OTHER LASCIVIOUS ACTS

People vs. Calongui: Anent the award of damages, civil indemnity ex delicto is mandatory upon finding of the fact of rape while moral damages is awarded upon such finding without need of further proof because it is assumed that a rape victim has actually suffered moral injuries entitling the victim to such award. If without factual and legal bases, no award of exemplary damages should be allowed.

(a) Does Ortillo have a legal basis for his claim for moral damages? (b) How about his claim for attorney’s fees, having hired a lawyer to defend him?

Note: Recovery may be had by the offended party and also by her parents. IN ACTS REFERRED TO IN ARTS. 21, 26, 27, 28, 29, 32, 34 &35, NCC

Suggested Answer: (a) There is no legal basis to Ortillo’s claim for moral damages. It does not fall under the coverage of Article 2219 of the New Civil Code. (b) Ortillo is entitled to attorney’s fees because Fabricato’s complaint is a case of malicious prosecution or a clearly unfounded civil action (Art. 2208 [4] and [11], NCC).

Art. 21. Any person who wilfully 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. Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief:

WHEN RECOVERABLE Art. 2219. Moral damages may be recovered in the following and analogous cases:

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(1) Prying into the privacy of another's residence: (2) Meddling with or disturbing the private life or family relations of another; (3) Intriguing to cause another to be alienated from his friends; (4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or other personal condition.

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(7) The right to a just compensation when private property is taken for public use; (8) The right to the equal protection of the laws; (9) The right to be secure in one's person, house, papers, and effects against unreasonable searches and seizures; (10) The liberty of abode and of changing the same; (11) The privacy of communication and correspondence; (12) The right to become a member of associations or societies for purposes not contrary to law; (13) The right to take part in a peaceable assembly to petition the government for redress of grievances; (14) The right to be free from involuntary servitude in any form; (15) The right of the accused against excessive bail; (16) The right of the accused to be heard by himself and counsel, to be informed of the nature and cause of the accusation against him, to have a speedy and public trial, to meet the witnesses face to face, and to have compulsory process to secure the attendance of witness in his behalf; (17) Freedom from being compelled to be a witness against one's self, or from being forced to confess guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State witness; (18) Freedom from excessive fines, or cruel and unusual punishment, unless the same is imposed or inflicted in accordance with a statute which has not been judicially declared unconstitutional; and (19) Freedom of access to the courts.

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against he latter, without prejudice to any disciplinary administrative action that may be taken. Art. 28. Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action requires only a preponderance of evidence. Upon motion of the defendant, the court may require the plaintiff to file a bond to answer for damages in case the complaint should be found to be malicious. If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal is due to that ground.

In any of the cases referred to in this article, whether or not the defendant's act or omission constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted), and mat be proved by a preponderance of evidence.

Art. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: (1) Freedom of religion; (2) Freedom of speech; (3) Freedom to write for the press or to maintain a periodical publication; (4) Freedom from arbitrary or illegal detention; (5) Freedom of suffrage; (6) The right against deprivation of property without due process of law;

The indemnity shall include moral damages. Exemplary damages may also be adjudicated. The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal Code or other penal statute. Art. 34. When a member of a city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages, and the city or municipality shall be subsidiarily responsible therefor. The civil action herein

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recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such action.

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Art. 2221. 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.

Art. 35. When a person, claiming to be injured by a criminal offense, charges another with the same, for which no independent civil action is granted in this Code or any special law, but the justice of the peace finds no reasonable grounds to believe that a crime has been committed, or the prosecuting attorney refuses or fails to institute criminal proceedings, the complaint may bring a civil action for damages against the alleged offender. Such civil action may be supported by a preponderance of evidence. Upon the defendant's motion, the court may require the plaintiff to file a bond to indemnify the defendant in case the complaint should be found to be malicious.

Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article 1157, or in every case where any property right has been invaded. Art. 2223. The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions, as between the parties to the suit, or their respective heirs and assigns. General Rule: One does not ask for nominal damages, and it is in lieu of the actual, moral, temperate, or liquidated damages.

If during the pendency of the civil action, an information should be presented by the prosecuting attorney, the civil action shall be suspended until the termination of the criminal proceedings.

Nominal damages are incompatible with: actual, temperate and exemplary damages.

Please refer to previous discussions on the provisions.

Armovit vs. CA: Nominal damages cannot co-exist with actual or compensatory damages.

IN CASES OF MALICIOUS PROSECUTION

Mijares vs. CA: Moral damages cannot be recovered from a person who has filed a complaint against another in good faith, or without malice or bad faith. If damage results from the filing of the complaint, it is damnum absque injuria.

Francisco v. Ferrer: No moral or exemplary damages was awarded. Nevertheless, when confronted with their failure to deliver on the wedding day the wedding cake ordered and paid for, petitioners gave the lame excuse that delivery was probably delayed because of the traffic, when in truth, no cake could be delivered because the order slip got lost. For such prevarication, petitioners must be held liable for nominal damages for insensitivity, inadvertence or inattention to their customer's anxiety and need of the hour.

Castillo vs. Castillo: The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously.

Temperate Damages Nominal Damages

Art. 2224. Temperate or moderate damages, which are 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 provided with certainty.

Nominal damages consist in damages awarded, not for purposes of indemnifying the plaintiff for any loss suffered, but for the vindication or recognition of a right violated by the defendant. REQUISITES AND CHARACTERISTICS (1) Invasion or violation of any legal or property right. (2) No proof of loss is required. (3) The award is to vindicate the right violated. WHEN AWARDED

Art. 2225. Temperate damages must be reasonable under the circumstances.

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These damages are awarded for pecuniary loss, in an amount that, from the nature of the case, cannot be proved with certainty.

Liquidated damages are those damages agreed upon by the parties to a contract to be paid in case of breach thereof.

REQUISITES (1) Actual existence of pecuniary loss (2) The nature and circumstances of the loss prevents proof of the exact amount (3) They are more than nominal and less than compensatory. (4) Causal connection between the loss and the defendant’s act or omission. (5) Amount must be reasonable.

It differs from a penal clause in that in the latter case the amount agreed to be paid may bear no relation to the probable damages resulting from the breach. Basically, a penalty is “ad terrorem,” while liquidated damages are “ad reparationem.” REQUISITES AND CHARACTERISTICS (1) Liquidated damages must be validly stipulated. (2) There is no need to prove the amount of actual damages. (3) Breach of the principal contract must be proved.

In cases where the resulting injury might be continuing and possible future complications directly arising from the injury, while certain to occur are difficult to predict, temperate damages can and should be awarded on top of actual or compensatory damages; in such cases there is no incompatibility between actual and temperate damages.

RULES GOVERNING BREACH OF CONTRACT Art. 2228. When the breach of the contract committed by the defendant is not the one contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the measure of damages, and not the stipulation.

Citytrust Bank vs. IAC: Temperate damages are incompatible with nominal damages hence, cannot be granted concurrently.

(a) These damages are agreed upon in a contract in case of breach thereof. (b) There is no need to prove the amount, only the fact of the breach. (c) The amount can be reduced if: (1) unconscionable as determined by the court (2) partial or irregular performance.

Pleno vs. CA: Temperate damages are included within the context of compensatory damages (RCPI vs. CA). There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms of money. (NOTE: In this case actual and temperate damages were awarded. It is postulated that the actual damages is for the car while the temperate damages is for the lost actual income not sufficiently proved.)

General Rule: The penalty shall substitute the indemnity for damages and the payment of the interests in case or breach. Exceptions (1) When there is a stipulation to the contrary. (2) When the obligor is sued for refusal to pay the agreed penalty. (3) When the obligor is guilty of fraud.

Exemplary Or Corrective Damages

Liquidated Damages Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

In common law, these damages were termed “punitive.”

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PNB vs. CA: However, the award of P1,000,000 exemplary damages is also far too excessive and should likewise be reduced to an equitable level. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.

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plaintiff must show that he would be entitled to moral, temperate or compensatory damages were it not for the stipulation for liquidated damages. Art. 2235. A stipulation whereby exemplary damages are renounced in advance shall be null and void. Requisites to recover exemplary damages and liquidated damages agreed upon The plaintiff must show that he/she is entitled to moral, temperate or compensatory damages:

WHEN RECOVERABLE IN CRIMINAL OFFENSES; NCC ART. 2230

When exemplary damages are granted the crime was committed with an Crimes aggravating circumstance/s defendant acted with Quasi-delicts gross negligence defendant acted in a wanton, fraudulent, Contracts and reckless, oppressive, or Quasi- contracts malevolent manner (WFROMM) If arising from

Art. 2230. In criminal offenses, exemplary damages as a part of the civil liability may be imposed when the crime was committed with one or more aggravating circumstances. Such damages are separate and distinct from fines and shall be paid to the offended party.

Art. 2230 Art. 2231

Award of exemplary damages is part of the civil liability, not of the penalty.

Art. 2232

Damages are paid to the offended party separately from the fines.

General Principles (1) Exemplary damages cannot be awarded alone: they must be awarded IN ADDITION to moral, temperate, liquidated or compensatory damages. (2) The purpose of the award is to deter the defendant (and others in a similar condition) from a repetition of the acts for which exemplary damages were awarded; hence, they are not recoverable as a matter of right. (3) The defendant must be guilty of other malice or else negligence above the ordinary. (4) Plaintiff is not required to prove the amount of exemplary damages. a. But plaintiff must show that he is entitled to moral, temperate, or compensatory damage; that is, substantial damages, not purely nominal ones. This requirement applies even if the contract stipulates liquidated damages. b. The amount of exemplary damage need not be pleaded in the complaint because the same cannot be proved. It is merely incidental or dependent upon what the court may award as compensatory damages.

IN QUASI-DELICTS; NCC ART. 2231

Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. IN CONTRACTS AND QUASI-CONTRACTS; NCC ART. 2232

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. REQUISITES ARTS. 2233, 2234

Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated. Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff 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. In case liquidated damages have been agreed upon, although no proof of loss is necessary in order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting exemplary in addition to the liquidated damages, the

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(4) As exemplary damages, when the crime is attended by one or more aggravating circumstances, — an amount to be fixed in the discretion of the court, the same to be considered separate from fines. (5) As attorney's fees and expresses of litigation, — the actual amount thereof, (but only when a separate civil action to recover civil liability has been filed or when exemplary damages are awarded). (6) Interests in the proper cases. (7) It must be emphasized that the indemnities for loss of earning capacity of the deceased and for moral damages are recoverable separately from and in addition to the fixed sum of P12,000.00 corresponding to the indemnity for the sole fact of death, and that these damages may, however, be respectively increased or lessened according to the mitigating or aggravating circumstances, except items 1 and 4 above, for obvious reasons.

DAMAGES IN CASE OF DEATH RE. CRIMES AND QUASI-DELICTS

Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand pesos, even though there may have been mitigating circumstances. In addition: (1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by the court, unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of his death; (2) If the deceased was obliged to give support according to the provisions of article 291, the recipient who is not an heir called to the decedent's inheritance by the law of testate or intestate succession, may demand support from the person causing the death, for a period not exceeding five years, the exact duration to be fixed by the court; (3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.

Formula for the net earning capacity People vs. Aringue (1997): Net earning capacity = Life expectancy * (Gross annual income – Reasonable living expenses) Where: Life expectancy = 2/3 * (80 – age of victim at the time of death) Tan, et al. vs. OMC Carriers, Inc. (2011): As a rule, documentary evidence should be presented to substantiate the claim for loss of earning capacity.

In death caused by breach of conduct by a common crime Heirs of Raymundo Castro vs. Bustos (1969): when death occurs as a result of a crime, the heirs of the deceased are entitled to the following items of damages: (1) As indemnity for the death of the victim of the offense — P12,000.00, without the need of any evidence or proof of damages, and even though there may have been mitigating circumstances attending the commission of the offense. (2) As indemnity for loss of earning capacity of the deceased — an amount to be fixed by the Court according to the circumstances of the deceased related to his actual income at the time of death and his probable life expectancy, the said indemnity to be assessed and awarded by the court as a matter of duty, unless the deceased had no earning capacity at said time on account of permanent disability not caused by the accused. If the deceased was obliged to give support, under Art. 291, Civil Code, the recipient who is not an heir, may demand support from the accused for not more than five years, the exact duration to be fixed by the court. (3) As moral damages for mental anguish, — an amount to be fixed by the court. This may be recovered even by the illegitimate descendants and ascendants of the deceased.

By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is selfemployed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased's line of work, no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws.

Graduation of Damages DUTY OF THE INJURED PARTY Art. 2203. The party suffering loss or injury must exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. Lim and Gunnaban vs. CA (2002): Article 2203 of the Civil Code exhorts parties suffering from loss or injury

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to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission in question. One who is injured then by the wrongful or negligent act of another should exercise reasonable care and diligence to minimize the resulting damage. Anyway, he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured and for injuries incurred in attempting to prevent damage to it.

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Cangco vs. Manila Railroad Co. (1918): In determining the question of contributory negligence in performing such act — that is to say, whether the passenger acted prudently or recklessly — the age, sex, and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger, and should be considered. PLAINTIFF’S NEGLIGENCE

Manila Electric vs. Remonquillo (1956): Even if Manila Electric is negligent, in order that it may be held liable, its negligence must be the proximate and direct cause of the accident.

BURDEN OF PROOF The DEFENDANT has the burden of proof to establish that the victim, by the exercise of the diligence of a good father of a family, could have mitigated the damages. In the absence of such proof, the amount of damages cannot be reduced.

Bernardo vs. Legaspi (1914): Both of the parties contributed to the proximate cause; hence, they cannot recover from one another.

Note: The victim is required only to take such steps as an ordinary prudent man would reasonably adopt for his own interest.

IN CONTRACTS, QUASI-CONTRACTS AND QUASI-DELICTS

Art. 2215 In contracts, quasi-contracts, and quasidelicts, the court may equitably mitigate the damages under circumstances other than the case referred to in the preceding article, as in the following instances: (1) That the plaintiff himself has contravened the terms of the contract; (2) That the plaintiff has derived some benefit as a result of the contract; (3) In cases where exemplary damages are to be awarded, that the defendant acted upon the advice of counsel; (4) That the loss would have resulted in any event; (5) That since the filing of the action, the defendant has done his best to lessen the plaintiff's loss or injury.

RULES IN CRIMES

Art. 2204. In crimes, the damages to be adjudicated may be respectively increased or lessened according to the aggravating or mitigating circumstances. IN QUASI-DELICTS

Art. 2214. In quasi-delicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover. CONTRIBUTORY NEGLIGENCE

INSTANCES OF GROUNDS FOR MITIGATION OF DAMAGES

Genobiagon vs. CA (1989): The alleged contributory negligence of the victim, if any, does not exonerate the accused in criminal cases committed through reckless imprudence, since one cannot allege the negligence of another to evade the effects of his own negligence.

(a) For Contracts: (1) Violation of terms of the contract by the plaintiff himself; (2) Obtention or enjoyment of benefit under the contract by the plaintiff himself; (3) Defendant acted upon advice of counsel in cases where exemplary damages are to be awarded such as under Articles 2230, 2231, and 2232; (4) Defendant has done his best to lessen the plaintiff’s injury or loss.

Rakes vs. Atlantic (1907): If so, the disobedience of the plaintiff in placing himself in danger contributed in some degree to the injury as a proximate, although not as its primary cause. (Supreme Court in this case cited numerous foreign precedents, mostly leaning towards the doctrine that contributory negligence on the part of the plaintiff did not exonerate defendant from liability, but it led to the reduction of damages awarded to the plantiff.)

(b) For Quasi-Contracts: (1) In cases where exemplary damages are to be awarded such as in Art. 2232; (2) Defendant has done his best to lessen the plaintiff’s injury or loss. (c) For Quasi-Delicts:

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Miscellaneous Rules

(1) That the loss would have resulted in any event because of the negligence or omission of another, and where such negligence or omission is the immediate and proximate cause of the damage or injury; (2) Defendant has done his best to lessen the plaintiff’s injury or loss.

DAMAGES THAT CANNOT CO-EXIST NOMINAL WITH OTHER DAMAGES

Art. 2223. The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions, as between the parties to the suit, or their respective heirs and assigns.

RULE WHEN CONTRACTING PARTIES ARE IN PARI DELICTO

Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault." In pari delicto is "a universal doctrine which holds that 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; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other."

Vda. De Medina vs. Cresencia (1956): The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record that the award of P10,000 by way of nominal damages is untenable as a matter of law, since nominal damages cannot co-exist with compensatory damages. The purpose of nominal damages is to vindicate or recognize a right that has been violated, in order to preclude further contest thereon; “and not for the purpose of indemnifying the Plaintiff for any loss suffered by him” (Articles 2221, 2223, new Civil Code.) Since the court below has already awarded compensatory and exemplary damages that are in themselves a judicial recognition that Plaintiff’s right was violated, the award of nominal damages is unnecessary and improper. Anyway, ten thousand pesos cannot, in common sense, be deemed “nominal”.

This rule, however, is subject to exceptions that permit the return of that which may have been given under a void contract to: (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. 1415, 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).

ACTUAL AND LIQUIDATED

Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof. DAMAGES THAT MUST CO-EXIST EXEMPLARY WITH MORAL, TEMPERATE, LIQUIDATED OR COMPENSATORY

Francisco vs. GSIS (1963): There is no basis for awarding exemplary damages either, because this species of damages is only allowed in addition to moral, temperate, liquidated, or compensatory damages, none of which have been allowed in this case, for reasons herein before discussed.

LIQUIDATED DAMAGES Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

Scott Consultants & Resource Development Corp. vs. CA (1995): There was, therefore, no legal basis for the award of exemplary damages since the private respondent was not entitled to moral, temperate, or compensatory damages and there was no agreement on stipulated damages.

COMPROMISE Art. 2031. The courts may mitigate the damages to be paid by the losing party who has shown a sincere desire for a compromise.

DAMAGES THAT MUST STAND ALONE

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NOMINAL DAMAGES

Art. 2223. The adjudication of nominal damages shall preclude further contest upon the right involved and all accessory questions, as between the parties to the suit, or their respective heirs and assigns.

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