OBLIGATIONS
– Juridical necessity to give, to do, or not to do.
ELEMENTS OF OBLIGATION:
 Active Subject – Creditor/Obligee
 Passive Subject – Debtor/Obligor
 Prestation – Object/Subject Matter
 Efficient Cause – Legal/Juridical Tie
SOURCES:
1. Law – there should be a law, can’t be
presumed.
2. Contracts –
Meeting of minds > Offer > Accepted
3. Quasi-Contracts – no meeting of minds
a. Solutio Indebiti – undue payment.
b. Negotiorum Gestio – unauthorized
management.
4. Delicts (Crimes) - acts or omissions
punishable by law, if accused:
a. Convicted – civil & criminal
obligation.
b. Acquitted – civil obligation only.
 Did not commit act, no civil obligation.
5.
Quasi-delicts – tort, culpa, negligence.
Start
Result
Quasi-Contracts
Lawful
Benefit
Quasi-Delicts
Lawful
Injury/Damages
Delicts
Unlawful
Injury/Damages
TIME Obligation to Deliver Arises:
 With Suspensive Condition – from the time
the condition is fulfilled.
 With Period; with suspensive effect – when
period arises.
 Without period and condition – upon
perfection of the contract (meeting of
minds).
DELIVERY:
CONSTRUCTIVE:
 Traditio Symbolica

agreement.

TO DO: (POSITIVE, PERSONAL)
 Specific performance by court NOT allowed
in case of refusal, ONLY damages are
allowed because of breach of contract.
NOT TO DO: (NEGATIVE, PERSONAL)
 Anything done shall be undone at the
Debtor’s expense.
FRUITS:
 Determinate thing: right belongs to Creditor
from the time the obligation to deliver
arises.
Traditio Brevi Manu – objects is already in
the hands of the debtor.

Traditio Constitutum Posesorium – vendor
continues in possession.

Quasi-Traditio – with documents.
DAMAGES – harm done and the sum of money that
can be recovered.
SOURCES:
1. FRAUD (DOLO)
a. Causal Fraud (Causante) – voidable
b. Incidental Fraud (Incidente) – valid
2.
TO GIVE: (POSITIVE, REAL)
 Whether specific or generic, you can’t go to
the court for specific performance in case of
refusal.
 Specific – CAN’T be extinguished through
other parties.
 Generic – CAN be extinguished through
other parties.
Traditio Longa Manu – mere consent or
NEGLIGENCE (CULPA)
a. Contractual – with existing contract.
b. Aquiliana – without existing contract.
c. Criminal – with or without existing
contract.
DILIGENCE:
 As required by law
 As stipulated by parties
 Absence of 1 & 2, diligence of a good father
of a family.
DEGREE OF DILIGENCE
Stipulated by
parties
Increase
Decrease
Valid
Void
Common
Carrier
Stipulated: GFF
Required by Law: utmost care
Void
Extraordinary
Agency
Req. by Law: extraordinary
Stipulated: GFF
Valid
Diligence GFF
GENERAL RULE: “No one is liable in
fortuitous events.”
Except:
 When law so provides
Page 1 of 21


When parties stipulate
Nature of the obligation requires
assumption of risks. (Example:
Insurance)
RIGHTS OF CREDITOR:
1.
2.

Res perit Domino
“The thing perishes with the owner”
3.
3.
DELAY (MORA)
a. Solvendi (Debtor)
 Ex re – real obligation, to give.
 Ex persona – personal obligation, to
do.
b. Accipiendi (Creditor)
c. Compensatio Morae – both debtor and
creditor.
d. Contravention of Tenor – violation of
terms.
GENERAL RULE: “No demand. No delay”
Except:
 When law so provides
 Contract stipulates
 Time is of the essence
 Demand would be useless
 Reciprocal obligation
E – Exemplar

N – Nominal

T – Temperate

A – Actual/Compensatory

L – Liquidated
Liab./Responsibility
Donates (gratuitous)
Donee:
To rescind:
BF (√)
GF (√)
Sells (Onerous)
Buyer:
BF (√)
GF (×)
KINDS OF OBLIGATION:
1. Demandable at once
 Pure/Simple – no period/condition
 Resolutory – with condition.
 With Resolutory Effect – with
period.
2. With a period
 Benefit of both creditor & debtor.
 Cannot be demanded before due
date, court can ONLY fix period.
3. With Condition
4. With Condition and period
“WILL IT HAPPEN?”
Fulfillment of Obligation
Demandable
Court-Reduce
Fraud
√
×
Negligence
√
√
DEBT:
MAYBE (not sure):
condition
 Suspensive
 Resolutory
Before
After
No obligation
Obligation
arises
Obligation arises
Obligation end
(ext.)
YES (sure): Period
Oral
Written


ACTS OF DEBTOR:
EXCEPT: If there are remedies.
KINDS: (MENTAL)
 M – Moral

4.
Exact fulfillment/to demand payment =
court.
Exhaust the properties of debtor. EXCEPT:
from the execution
Writ attachment → Public Sale → Proceeds
Accion Pauliana – to rescind. To impugn
(question/challenge) the acts of the debtor.
 Designed to defraud creditor.
 Creditor deprived right to enforce
claim.
Accion Subrogatoria – to exercise rights of
the Debtor.
Principal (√)
Principal (√)
Interest (×)
Interest (√)
“No delay. No penalty.”
The creditor can’t be compelled to accept
partial payment. EXCEPT: If there is a
stipulation.
 Prima Facie – “Disputable/Assumption”
VOID
 Condition must not be impossible and not
contrary to law, morals, public policy, public
order, and good customs.
FULFILLMENT OF CONDITION:
1. Potestative – depends on sole will of one of
the parties.
If Debtor:
If Creditor:
Suspensive: VOID
Suspensive: VALID
Resolutory: VALID
Resolutory: VALID
Page 2 of 21
2.
3.
Casual – depends on chance (valid) or third
party (valid).
Mixed – depends on:
 Will of one of the parties & third
party (VALID).
 Will of one of the parties & chance
(VALID).
 DEEMED FULFILLED PRINCIPLE: “When the
debtor voluntarily prevented the fulfillment
of the condition, the condition is deemed
fulfilled.”
2 OR MORE DEBTOR OR CREDITOR:
1.
2.
MODE OF EXTINGUISHMENT OF OBLIGATION:
1.
PAYMENT OR PERFORMANCE
 By Whom:
 Debtor, representative/agent,
estate (executor/admin.)
 Third Person (interested in
fulfillment of obligation liable
if principal debtor can’t pay)
 To Whom:
 CR., representative/agent,
estate (executor/admin.)
 Third Person (redounded to
the benefit of the Creditor)
Pending fulfillment; rights
Resolutory
Suspensive
Principal
Fruits
CR
DR
DR
CR
SUBJECT MATTER: (Before Fulfillment)
LOST
Fortuitous Event: EXTINGUISHED
Fault of DR: LIABLE (Value + Damages)
IMPAIRED
Fortuitous Event: CR BEARS LOSS
Fault of DR: LIABLE (Spec.Per. + Damages)
By Nature: CR BEARS IMPROVEMENT
Efforts of DR: DR given right to usufruct
IMPROVED
DEBTOR DEPRIVED OF PERIOD: (IGIVA)
 I – Debtor INSOLVENT (total or partial).
 G – Fails to GIVE (guaranty or security).
 I – guaranty or security: IMPAIRED (fault
DR) or lost (FE/fault of DR).
 V – DR VIOLATES undertaking.
 A – DR attempts to ABSCOND.
Prestation
“Choice”
Alternative Obligation
2 or more
Facultative Obligation
1 (with
substitute)
2 or more
DR. unless
stipulated
Debtor if
stipulated
Fulfillment:
ALL
Conjoint Obligation
Obligation with a
penal clause
ALTERNATIVE
VS.
FACULTATIVE
Obligation
Exting.?
Liable:
Damages?
FE:
(×)
(×)
Fault-DR
(×)
(×)
FE:
(√)
(×)
Fault-DR
(×)
(√)
JOINT – “to each his own”
 If silent, presumed joint.
SOLIDARY – “all for one, one for all”
 When the law so provides
or stipulated.
 Presumed Benefit:
CR/DOUBT: burden of proof = DR
Except: Ratification, Subrogation, Estoppel

When:
Principal/ Recovery?
Paid before maturity:
 DR “aware” of
period
 DR “not aware” of
period
On or After Maturity
(not aware)

(×) – waiver of right to
period
(√) + Interest + Fruits
(×) Only Interest + fruits
Where:
To give specific thing:

With stipulation
Place as stipulated

Without stipulation
Where object is located
@perfection of contract
To give generic thing or to pay money:
 With stipulation
Place as stipulated
Without stipulation


Where debtor resides
How:
To pay (money):
 With
stipulation
 Without
stipulation
Currency as stipulated
Legal Tender
Page 3 of 21
To give:
(TRAIT)
 Specific
As stipulated, no substitute
o
 Generic
As stipulated, neither
inferior/superior
o
 As stipulated
 If poorly done: undo @the
expense of the debtor.
o
o
To do:
 SPECIAL FORMS OF PAYMENT:
A. Application of payment
 Gives DR privilege (right to
choose)
 2 or more obligation is due
 If silent: apply proportionately
(<CR apply to most onerous)
B. Dation en payment
 Payment in kind, ONLY 1 CR,
DR solvent.
C. Payment by Cession
 DR insolvent, 2 or more CR,
obligation partially
extinguished.
D. Tender of payment and Consignation
 CR refuses, money is
deposited in court with notice
to the CR. If approved,
obligation extinguished.

Consignation allowed w/o prior
T.O.P.:
o

DR pays: incapacitated:
obligation extinguished. If CR
benefitted or money was kept.
2.
LOSS OF THE THING DUE
 Applicable if: determinable/specific
 Not applicable: generic (genus
nunguam perit)
 LOST – perishes, goes out of
commerce, disappears
(existence unknown/ cannot
be recovered).
3.
CONDONATION/REMISSION
 Essentially gratuitous, nature:
donation.
 Requirements:
Essential
 Capacity of Donor (CR) & Donee (DR)
 Donative Intent
 Acceptance (DR)
 Personal Property: P5000 up (writing)
 Real Property: Public Instrument
A.o.P
Payment
by
Cession
Dation in
Payment
T.O.P. &
Consignation
Formal
- Multiple
obligation
s are ALL
due and
demandable.
Debtor is
insolvent
Debtor
need not
be
insolvent
T.O.P.
– Act of the DR of
offering to his CR
what is due to him.
4.
All
properties
are given
up to
satisfy the
needs of
creditors
(2 or more)
Does not
affect all
the
debtor’s
properties
. Plurality
of the
creditors
is not
required.
CONSIGNATION –
CR refuses to
accept payment,
deposit thing due
to the judicial
authority.
No transfer
of
ownership
Transfer
of
property
Partial
extinguishment of
debt
Extinguish
- Payment
not
enough.
T – 2 or more persons claiming
right.
R – CR refuses to issue
RECEIPT w/o just cause.
A – Creditor ABSENT
I – CR becomes
INCAPACITATED to
receive payment.
T – TITLE is lost.
COMPENSATION
 2 persons, CR & DR of each other.
a. Conventional - by
agreement
b. Legal – by operation of
law
 Requirements:
 Principally bound DRs & CRs.
 Both debts: payable in money,
in kind/quality or both.
 Both obligation: due
 Both obligation: liquidated
& demandable

NO: controversy or retention
by third person.
c.
d.
Facultative – one party
can claim compensation,
the other cannot.
Judicial – decree by court,
in case where there is
counterclaim.
Page 4 of 21
CONTRACTS

Compensation NOT allowed: when
one of the obligation arose from:
 Deposit
 Bailee in Commodatum
 Obligation to give gratuitous
support (present/future)
 Obligation arising from
commission on penal offenses:
civil liability.
5.
CONFUSION/ MERGER
 CR & DR, one person.
6.
NOVATION
 Changing the object (real) or
condition (real)
 SUBSTITUTION – Debtor
 Delegacion – personal
novation. Original DR
must be discharged.
(Initiative: Original DR)
 Expromission – personal
(Initiative: New DR or
third person)
 SUBROGATION – CR. (Personal)
a. Conventional - by agreement
b. Legal – by operation of law
 When a CR pays another
CR who is preferred even
without consent of DR.

When a third person who
is interested in the
fulfillment of the
obligation pays even
without the consent of
the DR.
 “First in time, First in right”
 If new DR fails to pay, can CR
collect original DR?
KINDS:

 YES
Time of delegacion;
 NO
After of delegacion
I give that you may give.
 Do ut facias
 Facio ut des
 Facio ut facias
I give that you may do.
I do that you may give.
I do that you may do.

PRINCIPAL Vs. ACCESSESORY

CONSENSUAL Vs. REAL Vs. FORMAL
(COC Vs. COC + DEL. Vs. COC + DOC.)

GRATUITOUS Vs. ONEROUS: Liberality

UNILATERAL Vs. BILATERAL

COMMUTATIVE: Exchange of values

ALEATORY: based on chance

AUTOMATIC

ADHESION
ELEMENTS:
 ESSENTIAL – without them, there is no
contract- Cause, Object, Consent (COC)

 NO
Time of expromission
New DR insolvent
 YES
Time of expromission
Orig.DR aware & didn’t
object to expromission
 YES
Time of expromission
Orig.DR’s insolvency is
known to the public.
After of expromission

NATURAL – deemed included except if
stipulated not to include.
New DR insolvent
Expromission:
NOMINATE Vs. INNOMINATE
 Do ut des

Delegacion:
 NO
CHARACTERISTICS: (MACRO)
 M – Mutuality: bind both contracting
parties. Validity: can’t be left with
will of one of them.
 A – Autonomy: liberty/freedom to
stipulate.
 C – Consensuality: perfected by mere
Consent.
 R – Relativity of contracts: take effect
to parties.
 O - Obligatoriness & compliance in
good faith.
ACCIDENTAL – included if stipulated.
 An offer becomes INEFFECTIVE “BEFORE”
acceptance: (DICI)
 D - Death
 I - Insolvency
 C – Civil Interdiction
 I – Insanity
Mixed Novation:
Must be REAL + PERSONAL
Page 5 of 21

PERIOD TO DECIDE
Can offer
or sell?
Liable
(damages)
 Without consideration
(option money)
 Without consideration
√
√
√
×
 With earnest pay
(down payment)
√
√
INCAPACITATED: (CHIPUD)

Unemancipated Minors – incapacitated to
give consent (below 18 y/o).

Insane/Demented Person – except: lucid
Deaf-Mute

Civil Interdiction – as if dead.
 Mortis Causa
(√)
 Inter-vivos
CAUSE OF CONTRACTS:
 Lawful
 If inadequate (lesion)
 Fictitious/Simulated
 Absolute (void)
 Relative (effect True Agreement)
 False : (VOID)
 Motive – not an essential element (with or
without: VALID)
interval.


Inheritance – only present inheritance (√);
future (×).
Right – Transmissible (√); Intransmissible
(×).
FORMS OF CONTRACT – any form (oral, written, P.I.)
(×)
EXCEPT:

Hospitalized Lepers

For validity – failure: VOID

Prodigals/Spend Thrills

For enforceability – Statute of fraud.

For convenience
VICES OF CONSENT: (VIMFU)
 V – Violence (physical pain)
 Serious/ irresistible force
 I – Intimidation (mental pain)
 Well-grounded fear, imminent
danger, must be unlawful.
 M – Mistake (Error)
 If serious: Annulment
 If NOT: Reformation
 F – Fraud
 Insidious words, machination
 U – Undue Influence
 Professional Relationship
(Ex. Lawyer-client)
 Consanguinity/Affinity
(Ex. Aunt, uncle)
 Religious Affiliation
(Ex. Priest, Parishioners)
NO FRAUD:
 Concealment – failure to disclose acts
without duty to disclose.
Except: with duty to disclose (fraud).
 Mere exaggerations in trade – ads
 Dealer’s talk: Caveat Emptor –
“buyer beware”
 Mere expression of Opinion –
Except: Opinion of an Expert.
OBJECTS OF CONTRACTS:
 Things – existing/future
 Should come to existence.
 Retroactive (emtio rae speratae)
 Hope – with hope (√); vain hope (×)
INTERPRETATION: to give effect – “true intention”
 Words – clear & unambiguous: literal
meaning.
 Provision: written prevail over
printed.
 Amount: words prevail over
figures.
 2 or more: “I” – solidary; “We” –
joint.
 Acts – contemporaneous, subsequent.
 Customs and usages
F – Fraud / A – Accident / M – Mistake / I – Inequitable Conduct
Before meeting of minds:
After meeting of minds:
Remedy:
Annulment
Reformation
OPTION:
 Reformation or specific performance
 Specific Performance to Reformation
(×)
 Rescission to specific performance
 Specific Performance to Rescission(√)
REFORMATION NOT ALLOWED:

Wills – except by the testator

Simple donation Inter-vivo – if no condition
imposed.

Real Obligation
Page 6 of 21
DEFECTIVE CONTRACTS:
1.
-
RESCISSIBLE – least defective.
Do not comply with statute of fraud.
(SALSAR)

Defect: lesion (damage) (GACTS)

S – SPECIAL PROMISE – to answer
debt, default, miscarriage of
G – made by GUARDIAN
 Lesion: more than ¼ value.
another.

 Rescind: within 4 years from
A – AGREEMENT not to be
the time incapacity ceases.

performed within 1 year from the
making thereof.
A – made by representative of

ABSENTEES = property
L – LEASING: period longer than 1
 Lesion: more than ¼ value.
year. Sale of real property or any
 Rescind: within 4 years from
interest therein.

the time his (absentee).
S – SALE of goods, chattels or
Whereabouts are known,
things in action @least P500.

EXCEPT: within 2 years, if:

A – AGREEMENT made in
o
Boarded airplane
consideration of mortgage other
o
Boarded Vessel
than mutual promise to marry,
o
Sent to war
enforceable even if oral ONLY.

C – made to defraud CREDITORS.
R – REPRESENTATION as to the
(Accion Pauliana)

credit of a third person.
T – THINGS in litigation made
without consent of litigant or
Sale of Real Property
Enforceable?
court.

S – SPECIFICALLY declared by law
to be rescissible.
NO
DOWNPAYMENT
DELIVERY
 ORAL
WITH
2.
VOIDABLE – valid until annulled.
Defect: consent.


-
W/
NO
(×)
(×)
(√)
DOWNPAYMENT
DELIVERY
DOWNPAYMENT
DELIVERY
DOWNPAYMENT
DELIVERY
INST.
(√)
(×)
(√)
(√)
W/
4.

Vitiated by VIMFU

One of the contracting parties
RATIFICATION – retroacts on the day the
VOID/INEXISTENT – most defective.
Defect: without effect cannot be
Except: marriage- 5 years
ratified/period to question. (
ICAD)

O – OBJECT/CP: contrary to law, morals…

O – OBJECT: outside the commerce of men.

O – OBJECT: did not exist at the time of
transaction.
contract was made. Cleans defect.

3.
(×)
To annul within 4 years’ time MF-discovery
incapacitated.
-
 PUBLIC
Consent – vitiated (VIMFU)
/ VIU – cease.
-
Third
Person
NO
 WRITING
One of the contracting parties –
incapacitated.
Seller &
Buyer
I – INTENTION of the parties relative to the
principal object: cannot be ascertained.
UNENFORCEABLE – validable.
Defect: without effect unless ratified.

C – CONTEMPLATE an impossible service.
-
Both contracting parties are incapacitated.

A – ABSOLUTELY simulated or fictitious.
-
Made without authority.

D – DECLARED void by law.
Page 7 of 21
SALES
VENDOR’S LIABILITY IN CASE OF EVICTION: (VICED)
SALES VS. BARTER:
1. Manifestation: (Ex. B sells his car to C)
 Cash:
P1M (Sale)
 Trade-in:
Cash-600 / TI-400 (sale)
Cash-400 / TI-600 (sale)
2. Absence of Manifestation: (Ex. B transfers
his car to C)
 Cash:
P1M (Sale)
 Kind:

I – Income or fruits

C – Cost of suit which cause the eviction

E – Expenses of the contract

D – Damages and Interest
 If vendor acted in good faith
IF VENDOR ACTED IN GOOD FAITH:
1. Value of the thing sold only
*waiver consciente (without knowledge of
eviction)
SALES VS. CPW (Contract for a Piece of Work):
 MASSACHUSETTS: Object: Same with New York Rule
 Available/Regular Stock (Sale)
 Specially/Manufactured (CPW)
English Rule:
Materials > Labor = Sale
Labor > Materials = CPW
OBLIGATIONS OF THE VENDOR (SELLER):
To effect DELIVERY
To TRANSFER OWNERSHIP (TITLE) to buyer
 VOID: Stolen
To WARRANT
 EXPRESS: As stipulated
 IMPLIED:
o Against Eviction: Except if waived.
 Buyer deprived of object:
 Right: existing @ the time sale
 Seller: given opportunity to
defend title.
o Against Hidden Defects:
 Defects NOT Hidden – caveat
emptor (buyer beware)
 Defects Hidden – caveat
venditor (seller beware)
Seller:
Defect
“If waived”
Aware
(√)
(√)
VOID
VALID
Not Aware
2. No liability
*waiver intencionada (with knowledge of
eviction)
TYPES OF WAIVER
1. Waiver Intentionada – seller not liable.
2. Waiver Consiente – seller liable up to
FMV @ the time of eviction.
ANIMALS:
 VOIDABLE: Can annul if third party is in
bad faith.
3.
V – Value of the thing
P1M (Barter)
 Cash-600 / Kind-400 (Sale)
 Cash-400 / Kind-600 (Barter)
 Cash-500 / Kind-500 (Sale)
1.
2.

 Defects: If Seller: Good Faith –
NOT liable for damages.
1. Disease:
 Contagious – VOID
 NOT Contagious – VALID, VOID IF
dies within 3 Days from the date of
purchase and existed at that time.
2. Defects: if hidden: BUYERS’ option:
within 40 days.
 Accion Redhibitoria – to annul,
because object is unfit for the use
intended.
 Accion Quanti Minoris – to reduce
price
 NO WARRANTY: Caveat Emptor

Fairs, public auction,
livestock sold as
condemned.
o Merchantability: within the commerce of
man.
o Fit for the purpose:
Seller Liable
General:
Specific, if stipulated:
(√)
(√)
Page 8 of 21
interest can sell his undivided interest.
RIGHTS OF THE UNPAID VENDOR (SELLER):
1. Stoppage in transit
2. Possessory lien
3. Resale
4. Cancel

OBLIGATIONS OF THE VENDEE (BUYER):
1. To ACCEPT delivery
2. To PAY – terms
TERMS:
A. On TRIAL or Satisfaction
On SALE or Return
Ownership
AFTER
delivery
Risk of loss
on FE
Seller
Seller (RPD)
Buyer
Buyer (RPD)
B. LUMPSUM – no increase or decrease in price.
 Discrepancy (Estimate < Actual): Should not
exceed ¼.
 If seller insists delivery of excess between
actual and estimate: Buyer’s Option:
 Rescind/Cancel contract +
Damages
 Agree – Specific performance
C. INSTALLMENT
 PERSONAL PROPERTY – RECTO LAW
 DR default installment:
 1 or more – Seller – to exact
fulfillment.
 2 or more – Altern. Remedies
I. Exact fulfillment – S demands payment;
Seller – Ordinary CR – NO right to foreclose
 Public Sale: proceeds:
 Higher than debt: excess belong to
buyer.
 Lower than debt: deficiency –
Buyer pays.
II. Cancel Sale: B returns object/ Seller
returns payment.
III. Foreclose the Chattel Mortgage
- deficiency: no recovery, stip. – VOID
- excess: belongs to seller, stip. (B) –
VALID
 REAL PROPERTY (Realty Installment Buyer
Protection Act)
 RIBPA (MACEDA LAW)
 NOT applicable to:
 Sale or Financing – Industrial
Lots
 Sale or financing – Commercial
Buildings
 Sale to tenants – Land Reform
Code
 Applicable to: Residential Lots
DR default installment: Without
additional interest/penalty.
Grace Period:
 Payment: <2 years (60 days)
⪰ 2 years (1 mo. /yr.)
 Available once every 5 years
 Condominium: Residential,
Commercial, Industrial:
 SELLER: cancels – refund:
 50% amount paid
 + 5% per year after 5 yrs.
D. REDEMPTION
 CONVENTIONAL – based on stipulation
 Repossession Period:
 With Stipulation – max. of 10 yrs.
 Without Stipulation – 4 years
 Pacto de retro sale (death of seller), can heir
repurchase? – NO. The owner of the undivided
LEGAL

Co-owners: (e.g. W, X, Y, Z > W, X –
absolute sale to Buyer can):
Proportionate:
 Y & Z repurchase what
(√)
W & X sold?
 Y rep. what W & X sold?
(√)
 Z rep. what W & X sold?
(√)
 Adjacent/Ad joint Landowners
 RURAL: (Agricultural)
 Not > 1 hectare, &
 Buyer – already owns a rural
land
 Can A/AJLO repossess? (√)
 URBAN (City)
 So situated – majority part: no
practical use. EXCEPT: if
there is a right to be exercised.
 Acquired for speculation.
COURT - least injury to give
access.
 Right of Pre-emption – if not given: Right of
Redemption – 2 or more – most beneficial.
PRESUMTION OF EQUITABLE MORTGAGE NOT FOR
SALE:
 When place with right to repurchase is usually
inadequate.
 When buyer retains part = PP
 Buyer extends period of redemption.
 Seller retains possession
 Seller pays taxes
 Real intention – mortgage






Traditio longa manu - mere pointing object.
Traditio brevi manu - already in possession
of the vendee (buyer) at the time of sale.
Delivery, no longer required.
Traditio constitutum possessiorium –
vendor (seller) continuous to have
possession of the thing not as owner but as
tenant or lessee.
Emtio spei – hope, present thing, uncertain.
Emtio re separate – future thing expected
to come in existence, certain.
Absolutely Simulated Sale – VOID.
SALE OF REAL ESTATE:
(a) Actual < Stated Area
 Reduction of price if actual area <
1/10 of Stated
(b)
 Rescind the sale if actual area > 1/10
of stated
Actual Area > Stated Area
 Accept and pay contract rate.
(c)
 Accept the stated area and reject the
excess.
Actual Area is not of the quality specified
Page 9 of 21
 Reduction of price if the inferior
value not exceed 1/10 of the
price/rate agreed upon.
 Rescind if inferior value exceed 1/10
of the price/rate agreed upon.
DOUBLE SALE:
1. PERSONAL PROPERTY
 1 Possession in good faith
ST
 In public instrument (construction
delivery) – public instrument is
preferred over private instrument
(same rule with real property)
2.
REAL PROPERTY
 1 register in good faith
st
 1 possession in good faith
st
 Present the oldest title
PERSONS NOT LIABLE FOR BREACH OF WARRANTY:
(SAMPO)

S – Sheriff

A – Auctioner

M – Mortgagee

P – Pledgee

O – Other persons  to sell by virtue of
authority in fact/ in law.
AGENCY
- founded upon Trust and Confidence.



By Operation of Law
Express
Implied
 Principal & Agent both present –
receipt of Power of Atty. Is without
objection.

 Principal & Agent both NOT present:
o Acknowledgement of receipt of
the Power of Atty.
o Failure to reply: (Acceptance)
 If required is to do act: the
agent: habitually engaged.
Parties:
 Principal – capacitated party.
 Agent – presumed w/ compensation.

2 or More:
 Principal – solidary.
 Agents – joint. EXCEPT: stipulated –
solidary. EXCEPT: acts of dominion
which needs Special Power of Atty.
NOTICE OF AGENCY’S APPOINTMENT:
 Newspaper (published) or Notice Letter –
another agent.
 Del Credere Agent – agent & surety at the
same time.
NOTICE OF REVOCATION:
rd
 Newspaper, to bind 3 parties: must be
done the same manner as Notice of
Appointment EXCEPT: if the parties to be
notified have actual knowledge.
OBLIGATIONS OF an AGENT:
1.
2.
3.
To observe instruction of the Principal –
deemed not have exceeded authority.
To give everything to P, even if not owing
P.
To make accounting of transactions,
stipulation to the contrary: VOID
 If A exceeds authority, still binding to P,
object belongs to A = authorized to sell
 P’s option: Consider – A fulfilled his
authority or ratify.
4.
To advance funds: (×)
EXCEPT: If stipulated: (√), except: if P
insolvent (×)
AGENT – if authorized:




To sell → to mortgage (×)
To mortgage → to sell (×)
To lend money → to be borrower(×)
To borrow money → to be lender int. = current
rate (√)

To sell on credit → obligation to make list = of
ALL buyers on credit otherwise: ALL CASH
TO APPOINT SUB-AGENT:
1. With Stipulation: (√) & (P designates Agent)
or
2. If not prohibited:
 1&2: notorially, incompetent, insolvent.
If Prohibited, ALL actions of Sub-Agent is VOID.
Page 10 of 21


EXTINGUISHMENT OF AGENCY: (EDWARD)

BAILEE – leases to others.
If object delivered – with appraisal
E – Expiration of term

D – Death of P or A: to sell goods = heirs
 Take care (GFF) & give notice to P
 Agency by operation of law
(necessity).
Death – EXCEPT: constituted for the benefit of P or
rd
A, or 3 person (stip pour autrui), Insolvency, Civil
Interdiction, and Insanity.

W – Withdrawal by agent

A – Accomplishment of purpose.

R – Revocation of agency – (P) @ will, with
or without cause.
EXCEPT: Valid Reason – must be with cause.

D – Dissolution of the firm which
established the agency.
SECURITY: collateral (Sangla) – things:
Objects
Possession

Pledge

Antichresis
Movable
Immovable
CR/pledgee
CR/
antichretic CR

Mortgage
 Chattel
 Real Estate
Movable
Immovable
DR/ mortgagor
DR/ mortgagor
1.
 Quasi Traditio – execution of Public
Instrument.
PLEDGE:
 Similar to Recto Law

Foreclosure then Public Sale → with
notice:
→ Deficiency or excess: belongs/ suffered
by CR.

Pledge (CR) – use object = NO, EXCEPT:
If stipulated or necessary to preserve
value.

Bidders:
CREDIT TRANSACTIONS
Ownership
A.
B.
MUTUUM – simple
loan
COMMODATUM
DR
Bailor (CR)
Only 1
To consume
More than 2
To use
Tie (bet. DR &
3rd person)
Object
Obligation
Contracts
Exp.
MM
Money
Fungible
To pay
To replace
Onerous
Gratuitous
DR
CM
Nonfungible
If fungible
To return
Essentially
Gratuitous
Ord.
(bailee)
Ex-Ord.
Actual use
(50%
bailee/
50% bailor)
(display/exhibi
tion)
Highest Bidder(s)?
Purpose
2.

Pledge is indivisible (on > 1 object)
applicable even to heirs.

Accessory follows Principal.
CHATTEL MORTGAGE (Movable)

Foreclosure: from loan:
→Deficiency: DR pays
→Excess: Mortgagor (DR) owns

Guaranty – insurer of debt, subsidiary
liable, with benefit of excussion,
EXCEPT if waived.

Surety – insurer of prompt payment,
solidarily liable, no benefit of
excussion.

Deposit – safe keeping.
 Judicial – movable or
immovable.
 Extra-judicial – movable,
agreement.
LOSS WHO SUFFERS?
1.
2.
In mutuum: Res Perit Domino = DR
In Commodatum: RPD = Bailor EXCEPT:
 BAILEE – guilty of delay
 BAILEE – uses object of CM:
purpose – different from what was
agreed upon.
 BAILEE – guilty of ingratitude –
able to save.
 BAILEE – allows others to use,
EXCEPT: members of household if
not prohibited.
nd
(×) EXCEPT: after 2 notice
(√)
(√) DR
Page 11 of 21

Necessary – in compliance
with law. (e.g. guest-hotels,
passengers-common carrier)
Real Estate
Mortgage
Antichresis
 Fruits/Income
DR
DR
 Taxes/expenses
DR
CR/pledgee
CR-to be applied
DR’s obligation.
CR-to be charged
to DR
 Possession
3.
 2 or more persons bind to contribute money,
property or industry to a common fund with
intention of earning profit.
 2 or more persons – exercise same profession
(GPP)
NO PRESUMPTION OF PARTNERSHIP:
2.
3.
4.
rd
3 persons – not partners to each other,
rd
nor parties to 3 person, EXCEPT: estoppel:
 In pais – silence, declarations, made
others believe.
 By Deed – with documents.
 By Laches – by passage of time.
Co-ownership/Co-possession
→Purpose: enjoyment/preservation
Sharing of gross returns
Prima Facie presumption – sharing of net
returns, EXCEPT: (GAWID)
 G – Payment of Goodwill
 A – Annuity (widow or representative)
of a partner.
 W – Wage: employee or Rent: landlord
 I – Interest to loan.
 D – Debt by installment.
By Estoppel
Life
 At will – if partners agree → continue
 Fixed Term – dissolved, if partnership
continues, it will be converted into
partnership at will.
LIABILITY:
1.
Unlimited – General: ALL partners.
 Original – up to separate property.
REAL ESTATE MORTGAGE
 Accessory contract, mortgagor can sell
the object even without consent of the
mortgagee.
PARTNERSHIP
1.
3.
4.
2.
 Newly Admitted:
 Existing at the time of
admission – up to Contributed
Cap. EXCEPT: stipulation.
 Arising after admission – up to
separate property.
Limited – at least 1 general partner; at least
1 limited partner.
 Limited Partner – up to Contri.Cap.,
EXCEPT: Liable up to Separate Prop. If:
 Participate in management
 Allow your partnership to use
your name in the Partnership’s
firm name, EXCEPT:
o Such name is also name of
the general partner.
o Name is already used when
he joined the partnership.
SHARE IN THE CONTRIBUTION: (As to Object)
 Universal – not allowed to husband & wife
→ guilty of concubinage/adultery.
1. Universal Partnership of Present
Property (UP-PP) – contributed to the
partnership.
 Fruits – accessory follows the
principal – partnership.
 Future Property:
→without stipulation – partners
→with stipulation – ownership:
Partnership (Others) = VALID,
EXCEPT: Inheritance, Legacy,
Donation, EXCEPT: fruits = VALID
PERSONALITY:
1.
De jure – exist in fact and in law, contract:
 P3000 or more – P.I. & reg. SEC,
otherwise: De Facto
2.
 Immovable – description, signed by
parties, P.I., registered to SEC,
otherwise: VOID
De Facto – exist in fact, not in law
2.
Universal Partnership of Profits (UP-P)
Highest Bidder(s)?
Contribution
Future Property
Ownership: Partner
Right to Use: Partnership
Ownership: Partnership
Gratuitous: Partner
*if through industry, FP will go to
partnership
Page 12 of 21
 Particular (General Partnership) – allowed
to husband & wife
LOSS due to FORTUITOUS EVENT – “Res Perit Domino”
LOSS borne by PARTNERSHIP:
1. If the thing contributed is fungible.
2. Contributed for the purpose of selling.
3. If the thing can’t be kept without
deterioration.
 Preference:
→ Partnership CRs – partnership’s assets.
→Separate CRs – separate assets
 Receipt of payment (partner and
partnership creditors):
APPLICATION OF PAYMENT

If DR assigns application of
payment.

If DR waives AOP, if partner:
 Managing partner
 Partnership Credit (√)
 Proportionate (√)
 Not managing partner
 Partnership Credit (√)
 Own Credit (√)
 Proportionate (√)
CLASSIFICATIONS OF PARTNERS:
1.
Contribution

To effect delivery; day agreed upon/
without need-demand.

To warrant the thing – against eviction.

Make additional contribution –
imminent loss or/& contribution
necessary to save partnership.
 Capitalist: YES, EXCEPT:
stipulation or insolvent.
Otherwise – can be compelled
to sell his interest.
 Industrial: NO, EXCEPT:
stipulation.

2.
Make Alterations – Immovable
 Minor (not important) –
administration – YES
 Major (important) – NO, even
beneficially, EXCEPT: stip.
EXCEPT:
1.
2.
Capitalist
→ Not similar: YES
→similar: NO EXCEPT: stipulated.
Otherwise: – profit: partnership
– Loss: partner
rd
Liability – 3 person, RULE: Joint ; EXCEPT
(SOLIDARY):
Partner: course of business, receive
money = misappropriation

Partnership: course of business,
receive money = misappropriation

Commit torts: Quasi-delict
rd
 In the eyes of the 3 persons, partners are
equally liable (joint)
Due to Partnership is not yet due.

Partner when received payment
not a managing partner.
To specific partnership profit.
Interest – surplus – profit/loss:

Industrial
→similar or not: NO EXCEPT: stipulated
Otherwise: Partner’s option:
(Expulsion or profit=Partnership) + Damages


 If with stipulation:
→ if VALID as stipulated:
(a) Share in P/L
(b) Share in profit – stipulation.
→ALL Partners (√)
→ Share in loss – w/out stipulation
(c) Exempting – partner:
→ Profit (×)
→ Loss (×)
→ EXCEPT: industrial

3.
Onerous due to Partners.
PROPERTY RIGHTS:
To engage in another business


3.
If without stipulation:
 Capitalist: Capital Contribution
 Industrial
→ Profit – interest or just equitable
share (JES)
→ Loss – exempt
→ if silent: Share of Capital – Partner
with least Capital Contribution.
 Capitalist-Industrial Partner – 2
different rights in the share.
To participate in management – Who will
be managing partners?
(d) One – appointment
* Article of Partnership – power is
irrevocable without just cause.
Page 13 of 21
→ can EXECUTE ALL acts of admin. = GOOD
FAITH, despite objection of other partners
* Not Article of Partnership – power is
revocable.
(e) 2 or more
* With stipulation –should act as 1, can’t be
alleged. EXCEPT: grave/ irreparable injury to
partnership.
* Without stipulation – should act as 1,
anyone can act, EXCEPT:
o If managing partner objects –
majority of partners, if tie.
o Controlling interest, if tie.
o Majority of ALL partners if tie.
o Controlling interest.
 Direct Attack – office of the Solicitor
General
 Collateral Attack - (×)
4.
Legislative Act – if Congress possess a law
which makes business of partnership illegal.
5.
Loss of the thing
 To be contributed – RPD = LOSS
→UP-PP: (√)
→UP-P: (√)
 Contributed only usufructuary, LOSS =
Partner, EXCEPT:
o Fungible
o To be sold
o Can’t be kept without
deterioration
→UP-PP: (×)
→UP-P: (√)
→ No one Appointed – Mutual Agency
RULE:
 Every partner/ agent/ partnership,
anyone can act EXCEPT:

A partner objects – majority
of all partners, tie – C.I.

Unusual Acts: Acts of
Dominion, requires consent
of ALL partners, EXCEPT:
 A partner has been
authorized.
 Bus. Of Partnership was
abandon.
UNUSUAL ACTS: must be presented to ALL partners
(SACRED.D)


S – Submit partnership claims/
liability to arbitration.
A – Assign partnership property –
trust = CRs

C – Confess judgment

R – Renounce / Abandon
partnership claims.

E – Enter into compromise.

D – Dispose goodwill.

D – Do any act = impossible=
partnership continue business.
6.
D – Death, I – Insolvency, C – Civil
Interdiction, I – Insanity, J Judicial (DICI-J)
LIQUIDATION:
Winding Up?
(a) With Stipulation – as stipulated
(b) Without Stipulation – not guilty. All deadlegal rep of last surviving partner.
General
Limited
*Outside CR
*Outside CR
*Inside CR
*Limited
-obligation
-share in profits, if any
-return on contri. cap.
*Return on
Contributed Cap.
*General
-obligation
-share in profits, if any
-return on contri. cap.
*Share in Profit, if any
DISSOLUTION:
CORPORATION
1.
Without Violation of partnership
agreement.
 Term expires
 artificial being created by operation of law
 Fulfillment – purpose
with the right of succession and powers (express,
implied, incidental), attributes and properties
expressly authorized by law incidental to its
existence.
2.
With Violation – partnership agreement
Artificial being = person = citizenship = THEORIES:
3.
Quo Warranto – de facto
 By will – one, some, or all partners
 Expulsion – a partner
Page 14 of 21



Incorporation – laws observed in
companies
 Philippine Laws = Domestic
 Foreign Laws
 Resident: E.T.B.
 Non-resident: N.E.T.B.
Control test – citizenship of owners.
Domiciliary – principal office.
KINDS of CORPORATION:
1. Public
2. Quasl-public: “as if”
3. Private
NOT ALLOWED to HAVE NO PAR: (BITPuB)

B – Banks

I – Insurance companies

T – Trust companies

Pu – Public institutions

B – Buildings and loan associations
TO VOTE: with or without voting rights, they can
vote in: (A-ASIIMID)

A – Amendment/Adoption: by laws;
EXCEPT: power to amend by laws is
already delegated to the B.O.D by 2/3
votes of Sh. /M.
INCORPORATORS:
1.
2.
3.
Of legal age
At least 5 but not more than 15 (natural
person)
Majority: Resident of the Philippines

ARTICLES OF INCORPORATION:
2.
3.
4.
5.
6.
Name: neither similar, nor confusingly
similar to existing corps
Purpose: principal and secondary
Principal office
Incorporators: names, nationality and
residence
Capital: Profit = stocks/shares
Board of Directors: Names, Nationality &
Residence.
KINDS OF SHARES:
1.
2.
3.
4.
5.
6.
Capital shares
Founder’s share – exclusive right
Redeemable shares (Callable Shares) –
with or without RE, provided such
redemption will not result to:
 Insolvency of the corporation
 Difficulty in paying maturing
obligations
Preferred shares
 Dividends – CP, C/NP, NC/P, NC/NP
 Assets
Common shares (Gambler’s Shares) –
below par (x)
Promoter share
MAJORITY of B.O.D & 2/3 Sh./M:
A – Amendment of articles in Incorporation
S – SLEMP of all or substantially all of
corporate profits property.
I – Incurring/creating/increasing bonded
indebtedness.
I – Increase/decrease of capital stock
M – Merger or consolidation
I – Investment to another company
D – Dissolution
Primary Franchise: right to organize a corporation.
1.
MAJORITY of B.O.D & MAJORITY of Sh./M;
S – Sales / B – Lease / E – Exchange / M – Mortgage / P – Pledge

Of all or substantially all corporate
property.
 Treasurer’s Affidavit: at least 25% of:
 Authorized Cap. Stock = par /
ACS = no par
 Subs. Paid = money/property
(@FMV)
SECURITY of EXCHANGE and COMMISSION:

REJECTS:
1. Purpose: unconstitutional, illegal/
immoral, contrary to gov’t.
2. Treasury’s Affidavit: False
3. Failure to meet minimum Filipino
ownership.
4. Failure to observe form
prescribed.
5. Failure to submit: favourable
recommendation from the
appropriate gov’t agency in charge
of the activity you are proposing.
Page 15 of 21

 to exercise such power as may be
delegated by B.O.D
ACCEPTS: (Approved)
 Then issue “Certificate of
Incorporation” (birth of Corp.)
 Exercise Secondary franchise
 To commence operation within 2
years; otherwise automatically
dissolve.
EXCEPT:
 Acts that require shareholders’
approval
 Amend by laws
 Distribute cash dividends (Impliedly
include stock dividends)
 Fill up vacant seat in the B.O.D
COMMENCE OPERATIONS:
ELECTION:
1.
 Trustees – non-stock (Cumulative(x))
 Not convicted by final judgment =
imprisoned: more than 6 years
 Not violated corporate code within 5
years
 Must be a member of the corp.
2.
VACANCIES: Grounds:
BOARD:
 Directors – by stockholders
(Cumulative or straight (√))
 Not convicted by final judgment =
imprisoned: more than 6 years
 Not violated corporate code within 5
years prior to election.
 Must own at least 1 share, EXCEPT:
 by-laws require greater or other
number otherwise.



4.
 Incompatible OFFICE: one person:
P&S / P&T
BOARD OF DIRECTORS:
QUORUM – as required by laws
 Absence: ½ + 1 (Majority)
2.
COMPENSATION – reasonable (per diem &
allowances)
 if given – max 10% of NI before IT of
preceding year
3.
To Create EXECUTIVE COMMITTEE
 If allowed – by laws
 at least majority: B.O.D
Amend acts previously approved by the
B.O.D.
 B.O.D declares cash dividends while stock
dividends needs 2/3 of shareholder’s
approval.
OFFICERS:
 President – member of B.O.D
 Presides meeting of
shareholders & B.O.D Except: if
in the By-Laws.
 Secretary – resident citizen of the
Philippines.
 Treasurer – no requirement.
1.
Removal, expiration of terms,
increase in # of BOD = SHs
Others: remaining members of
BOD:
 With quorum = BOD
 Without quorum = SHs
To ENTER CONTRACTS:
 Regular/Ordinary:
rd
 With 3 person:
 with quorum = BOD
 without quorum = SHs
 With own Directors:
 Fair and reasonable
 Presence of such Director
not necessary to
constitute quorum
 Vote of such D does not
necessary or approval
Otherwise: needs SHs
approval – 2/3
 Management:
1. Managing
2. Managed;
 Majority of BOD and majority of SHs:
EXCEPT:
 Interlocking Directors
 Shareholders:
o Substantial = 20% of
outstanding Sh.
o 1/3 Outstanding Sh.
 Max of 5 years, EXCEPT: natural resources.
5.
To ACQUIRE OWN SHARES:
 Provided corporation has RE, EXCEPT:
redeemable.
Page 16 of 21
 To remove DELIQUENT subscription:
Subscriber:
 Not delinquent: rights
o vote (√)
o dividends (√)
 Delinquent: rights
o vote (x)
o dividends (√)
 Cash – to be applied to
unpaid subscription.
 Stock – to be withheld
until full payment of
subscription.
To qualify as BIDDER, pay:
 unpaid subscription, unpaid
expenses, interest
 HIGHEST bidder – least # of shares
 NO bidders – corporation
 To remove FRACTIONAL shares
 To pay DISSENTING shares
 Appraisal right – payment = FV
of shares
o Options:
 To accept will = 1/3
 To exercise appraisal right,
EXCEPT:
* Act=abandoned by corp.
/ rejected-SEC

Underlying Doctrines:
 Trust Fund Doctrine: capital
stock = separated by assets
 Do not issue shares until
fully paid.
 to be not liable on
watered shares:
 object in writing – send
to secretary

Piercing the Veil of Corporate
Functions: SH’s CRs – can’t
collect from corp. EXCEPT:
using corp. to commit fraud.

Special Circumstances
Doctrine – Duty of Disclosure
to SHs what’s happening to
the Corporation.

Doctrine of Bus. / Corp.
Opportunity – related to
loyalty to the Corporation.

Doctrine of Limited Capacity –
all acts must be within:
(express, implied, incidental) =
intra-vires
6.
7.
o
APPRAISAL COMMITTEE – 3 members,
Chosen BY:
 (1) By SHs (Dissenting)
 (1) By Corp.
 (1) By rep. of both Corp and SHs
o
Who bears expense of Committee?
- recorded amount:
 1M = SHs
 more than 1M = Corporation
To ISSUE NEW SHARES – from unissued
shares.
 SHs given PRE-EMPTIVE right, EXCEPT:
 In compliance with law  required
public offering of shares.
 To acquire property needed by
corporation.
 To pay creditors.
To OBSERVE:
 Threefold duties: (OLD)
 O – Obedience to by laws
 L – Loyalty to the Corporation
 D – Diligence

outside = ultra-vires
(a) Legal
 executed – can be
ratified by
stockholder
 executory – should
be abandoned
(b) Illegal – cannot be ratified
 those involved;
liable (members of
BOD)
SUITS: (Corporation can sue and can be sued)



rd
Corporation (de jure) vs. 3 person or SHs
SHs:
 Derivative: SHs vs. Board
 Individual: SHs vs. Corp
 Representative: SHs vs. Corp
rd
3 party vs. Corporation
 2 or more – same class = class suit
MEETINGS:
1.
BOARD:
 Regular – once a month
 Special – as need arises
Page 17 of 21


Place – anywhere
Attendance – personal (√) proxy (x)
NEGOTIABLE INSTRUMENT
2.
SHAREHOLDERS:
 Regular – once a year, as fixed in by
laws, if silent, any day in April
 Special – as need arises
 Place – within city / municipality of
Principal Office
 If practicable: Principal Office
 Attendance – personal (√), proxy (√)
Foreign
Corporations
1. Sue?
2. Be sued?
With
License
Without
License
(√)
(x), EXCEPT:
Violation of
property rights
(√)
(√)
Intellectual property rights:



PURPOSE:




PARTIES:

Primary Liable

Secondary
Liable
2.
Grounds:
 Non-use
 Failure to resume operation within
5 years from Stoppage of
Operation.
 Legislative Enactment
 Quo-Warranto – Office of the Solicitor
General/ direct attack.
 Amendment of Aol – shortening life of
corporation.
 Judicial – by order of the court.
LIQUIDATION:


winding up = 3 years
ALL actions for/against Corporation – be filed
After 3 years - pending actions – receiver
 To reserve enough funds to meet pending
act, EXCESS: Shareholders.
Bill of Exchange
Maker
Indorser
Acceptor
Drawer
1.
In writing & signed by maker or drawer.
 True Name: complete/
abbreviation/ misspelled
 Assumed Name: trade/ business/
alias
 Symbols/signature
2.
Contain unconditional promise or order to
pay sum certain in money.
Trade Name/Mark
Copyright
Patent
Automatic:
 Expiration of term as fixed in the
Articles of Incorporation
 Max. term = 50 years EXCEPT: if
intended, max of 50 years per
extension.
 Non-use
 failure to commence within 2
years from issuance of Certificate
of Incorporation
Promissory Note
REQUISITES:
DISSOLUTION:
1.
Facilitate exchange
Substitute money
Accommodation of Secondary Contracts
Increase credit circulation


3.
Subsequent events does not cure
non-negotiability of Nonnegotiable Instrument.
Sum Certain:
 With interest
 Installment: stated, with
acceleration clause
 If silent: choice: holder
(N) / DR (NN)
 With dollar exchange rate
whether fixed or current
 With cost of collection or
Atty.’s Fee
Payable to:
 Order - of a specific person
- Specific person or order
 PAYEE:
- (√) B
- (√) B & C (both should
indorse)
- (√) B or C (either can
indorse)
 INDORSEE:
- (√) L / L 60.00 (×) / L
40.00 remaining unpaid
- (√) L & M
Page 18 of 21






- (×) L 50.00 & M 50.00
- (√) L or M

Bearer
- so expressed bearer
- Specified person or
bearer.
- Order of fictitious
person.
- Does not purport to
name any person.
- Only or last
indorsement: Blank
4.
5.
Payable on:
 Demand – expressed, no date,
overdue
 Fixed Date
 Determinable Future time – time
certain to come.
 Time
KNOWN:
before/at/upon/after
UNKOWN: at/after
Bill of Exchange (B.of.E)
- Drawee must be named or indicated with
reasonable certainty.
DRAWEE:
-
(√) W
(√) W and Y
(×) W or Y (alternative)
(×) W, in his absence Y (succession)

AGENT: to be not liable:
 Sign within scope of authority
 Disclose-principal
 Indicate in what capacity

Agent with limited authority:
 Sgd. Name: Per Procuration / Per Proc.
/ P.P. / p.p.
2.
Incomplete but delivered
Complete but Undelivered
Absence or failure of Consideration
Illegal Consideration
Fraud Inducement
Insertion of wrong date/ discharge by
payment before maturity.
Real Defense – can be used against any
holder (HIDC/HFV)

Incomplete and undelivered

Minority or other form of incapacity

Forgery

Fraud in Factum or in Esse Contractus

Discharge at or after maturity

Illegality of contract

Material Alteration (if silent: Personal)
TO NEGOTIATE:

Order – indorsement + delivery

Bearer – delivery
 A person who negotiated through
delivery is only liable to the party
whom he presented the note.
INDORSEMENT:
1.
2.
3.
4.
Special
Pay to C (B)
Qualified Pay to C, w/o recourse (@ your own risk) (B)
Blank
__________ (B)
Conditional
Pay to C, If….. (B)
Pending fulfilment of the condition:
 Maker – option to disregard condition
and pays:
 Obligation extinguished
 Without incurring any liability
 C holds money in trust of B
until C fulfills condition
 Maker – may honor/respect condition
 Maker can refuse to pay, such refusal
is not a dishonor, C has no recourse.
DEFENSES:
1.
Personal Defense
(a) Can be used against:
 HFV whose title did not come
from a HIDC
 HFV whose title come from a
HIDC, but he is party to the
defect.
(b) Cannot be used against:
 HIDC
 HFV whose title came from a
HIDC not a party to the defect.
5.
Facultative
Pay to C, notice of Dishonor waived, (B)
 WAIVER:
(a) face of instrument: binds all parties
(b) indorsement: binds indorser
 Waiver of protest/presentment/notice
of dishonor/ Protest
6.
Restrictive
 Prohibits further negotiation of
Instrument:
Pay to C only (B)
Page 19 of 21
 Constitute Indorsee as mere Agent:
WARRANTIES (Liabilities)
Pay to C for collection (B)
 Vest title to the Indorsee in trust for
Another:
Pay to C in trust for D (B)
INTERVENING PARTIES: (there is Compensation)
 Discharged = compensation
 Can be revived (negotiation):
(√) new party
(√) prior party
(×) intervening party – in order to
avoid multiplicity of suits
STRIKE OUT (INDORSERS):
- Only allowed if:
(a) No prior parties (new parties only)
 Never strike out the PAYEE
 Only if the last indorsement is blank.
EXCEPTION: Renegotiation
(b) Prior parties
 Intervening parties not liable
anymore.
 A party primary liable can collect from a
party secondarily liable if he is an
accommodation party.
Indorsers








MAKER – admits:
 Existence & Capacity of the Payee
 I will pay according to the tenor of
the instrument.
(√)
(√)
(√)
(√)
(√)
(√)
(√)
-
-
(√)
-
(√)
PRESENTMENT FOR ACCEPTANCE (B.of.E)
-
Unless stipulated.
(a) Payable elsewhere other than the
usual place/business of Drawee
(b) Fix maturity – payable after sight.
KINDS OF ACCEPTANCE:
(a) Absolute
(b) Qualified – accepted
 Payable @: place
 Payable if: condition
DISHONORED BY NON-ACCEPTANCE:
1.
DRAWEE/ACCEPTOR – admits:
 Existence & Capacity of the Payee
 Existence, Capacity, and Authority of
the Drawer
 Signature of the drawer genuine
 “I will pay according to tenor of
acceptance.”
DRAWER – admits:
 Evidence and Capacity of the Payee.
 If Presented Accepted  Paid:
If Dishonored  Necessary
Procedures Observed  “I will pay.”
General
(Special)
Indorsement is genuine
in all aspect it purports
to be
Good title
Capacity of primary
parties
No
knowledge/defect/value
less
Instrument is valid &
subsisting
If presented  accepted
 paid  if dishonored
– “I will pay.”
ADMISSION:

Qualified
To give Notice of Dishonor by N.A. to PSL
within 24 hours;
EXCEPT: N.O.D. not required
On due date: PFP (×) / collect from PSL (√)


2.
PFP  accepted  due date:
o PFP (×)
o Collect from PSL (√)
Dishonored by Nonpayment:
o Collect from PSL (×)
o Give N.O.D. by NP to PSL (√)
To protest
a. Notary Public (NP)
b. Absence of NP – rep. & 2 witnesses
BILLS IN SET – 2 or more parts  bill
-
Every part accepted in the hands of a
HIDC is considered bill.
Page 20 of 21
PRESENTMENT FOR PAYMENT
PRESENTMENT OF CHECK
PRESENTMENT OF BILL OF EXCHANGE
NOT COVERED BY NEGOTIABLE INSTRUMENTS LAW
(NIL):
(a) Warehouse receipt: not sum certain in
money. (delivery of goods)
(b) Bill of Lading: goods not money
(c) Letter of Credit: Payable to specified
person.
(d) Postal Money Order: Payable to specified
person.
(e) Certificate of Stock: not sum certain in
money with condition # of Shares.
(f) Quedan: sweet
(g) Treasury Warrant: Subject to Condition.
DISCHARGE OF NEGOTIABLE INSTRUMENT:
1.
Instrument (PP-IPO)
 Payment in due course by/on
behalf of Principal DR.
 Payment in due course by
accommodated party.
 Intentional Cancellation of the
Instrument.
 Principal DR becomes the holder
@/after maturity
 Other means: discharge-simple
obligation
2.
Person secondary liable (DD-IVER)
 Discharge of instrument
 Discharge of Prior Party/ Payment
made by prior party
 By a valid tender of payment –
prior party
 Intentional cancellation of his
signature
 Release of the Principal DR
 By extension of the time payment.
-NRBF
Page 21 of 21