CIVIL LAW
2022 BAR EXAMINATION REVIEWER
This reviewer was created to serve as my study material for the 2022 Bar Examination. This is not intended
to be a secret reviewer; anyone is free to utilize it. Please use at your own risk.
In God’s Perfect Time
© BOOKS OF SEBASTIAN, PINEDA, JURADO, DE LEON | BALANE NOTES
“When the time is right, I, the Lord, will make it happen.”
The topics discussed in this reviewer are the following:
1. Obligations and Contracts
2. Sales and Lease
3. Partnership, Agency, and Trust
4. Credit Transactions
5. Torts and Damages
6. Land Titles and Deeds
The order of these topics in this reviewer is in accordance with the 2022 Bar syllabus.
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“When the time is right, I, the Lord, will make it happen.”
PART 1
SOURCES OF OBLIGATIONS
Art. 1157. Obligations arise from: [exclusive]
IV. OBLIGATIONS AND CONTRACTS
A. Obligations
1. General provisions
Art. 1156. An obligation is a juridical necessity to give, to
do or not to do.
➔ Many commentators say that this provision is
incomplete because the “obligation” is only from the
point of view of the debtor. To make it complete, it
must cover the points of view of both the debtor and
creditor. Obligations are bilateral. It should include
what can be required, the remedy and the means by
which the creditor can take to pursue the remedy.
An obligation is a legal relationship between two or more
persons where one of them, called the creditor or
obligee, may demand of the other, called the debtor or
obligor, the fulfillment of a prestation.
Arias Ramos – An obligation is a juridical relation
whereby a person (called a creditor) may demand from
another (called the debtor) the observance of a
determinate conduct, and, in case of breach, may obtain
satisfaction from the assets of the latter.
Obligation is a juridical necessity because in case of
non-compliance, the courts of justice may be called upon
to enforce its fulfillment or, in default thereof, the
economic value that it represents.
ESSENTIAL REQUISITES OF OBLIGATIONS
1. A juridical or legal tie (vinculum juris), which binds
the parties to the obligation, and which may arise
from either bilateral or unilateral acts of persons;
2. An active subject known as the obligee or creditor,
who can demand the fulfillment of the obligation;
3. A passive subject known as the obligor or debtor,
against whom the obligation is juridically
demandable; and
4. The fact, prestation or service which constitutes
the object of the obligation.
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Art. 1158. Obligations derived from law are not
presumed. Only those expressly determined in this Code
or in special laws are demandable, and shall be regulated
by the precepts of the law which establishes them; and as
to what has not been foreseen, by the provisions of this
Book.
Obligations arising from law, are without exception,
expressed. There can be no implied obligation arising
from the law. (OSG v. Ayala Land)
Unless such obligations are expressly provided by law,
they are not demandable and enforceable. As such they
cannot be presumed to exist.
Art. 1159. Obligations arising from contracts have the
force of law between the contracting parties and should
be complied with in good faith.
Unlike other kinds of obligations, those arising from
contracts are governed primarily by the agreement of the
contracting parties. “Compliance in good faith’’ means
performance in accordance with the stipulations,
clauses, terms and conditions of the contract.
Consequently, the Code recognizes the right of such
contracting parties to establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.
Art. 1160. Obligations derived from quasi-contracts shall
be subject to the provisions of Chapter 1, Title XVII, of this
Book.
Quasi-contracts are those juridical relations arising from
lawful, voluntary and unilateral acts, by virtue of which
the parties become bound to each other, based on the
principle that no one shall be unjustly enriched or
benefited at the expense of another. (Article 2142)
In the case of Perez vs. Palomar, it was significantly noted
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that in a quasi contract where no express consent is
given by the other party, the consent needed in a
contract is provided by law through presumption
(presumptive consent). Presumptive consent gives rise to
multiple juridical relations resulting in obligations for
delivery of the thing and rendering of service.
Art. 1161. Civil obligations arising from criminal offenses
shall be governed by the penal laws, subject to the
provisions of article 2177, and of the pertinent provisions
of Chapter 2, Preliminary Title, on Human Relations, and
of Title XVIII of this Book, regulating damages.
A delict is a criminal offense. An obligation arising from a
delict refers to the civil liability resulting from a criminal
offense. Every person criminally liable for a felony is also
civilly liable. The reason for the civil liability is to repair the
material damage caused by the offender to the offended
party, if any.
class.
2. Generic or indeterminate – It is generic or
indeterminate when the object is designated
merely by its class or genus without any
particular designation or physical segregation
from all others of the same class.
Accessory obligations of a debtor in a
prestation to give
Art. 1163
Prior to the delivery of the thing due,
the debtor is obliged to preserve the
thing with the diligence of a good
father of the family, unless the law or
the stipulation between the debtor
and creditor requires a different
standard of care.
Art. 1164
From the time the obligation to
deliver arises, the debtor is obliged
to deliver to the creditor the fruits of
the thing that is due.
Art. 1166
The debtor is obliged to deliver to the
creditor
the
accessions
and
accessories of the thing that is due,
even though they may not have been
mentioned.
Art. 1162. Obligations derived from quasi-delicts shall be
governed by the provisions of Chapter 2, Title XVII of this
Book, and by special laws.
In quasi-delict, the obligation arises only when there is a
violation. Without violation, there is no obligation. It is the
breach itself which gives rise to the obligation.
2. Nature and effect
Three types of prestation
To give
Requires the debtor to deliver to the
creditor either a specific or
determinate thing or right, or an
indeterminate or generic thing
To do
Requires the debtor to render service
to the creditor
Not to do
Requires the debtor to refrain from
doing something for the benefit of the
creditor
OBLIGATIONS TO GIVE
An obligation to give a thing may be either determinate or
generic:
1. Specific or determinate – It is determinate
when the object is particularly designated or
physically segregated from all others of the same
1. After constitution of the obligation and before
delivery, to take care of it with the proper diligence of
a good father of the family (Article 1163)
➔ This is not applicable to a generic thing.
2. To account and deliver to the creditor the fruits if
the thing bears fruits upon the time the obligation to
deliver it arises (Article 1164)
➔ Ownership is transferred only by delivery. Hence,
the creditor's right over the fruits is merely
personal.
➔ Example: A sold B a mango plantation to be
delivered on January 1. Come January 1, A did
not deliver. A instead sold the fruits to C, a buyer
in good faith. B sues A for specific performance.
Q: Court awards the plantation to B. Does B have
a right to the fruits?
A: Yes, as against A. No, as against C, because
B’s right over the fruits is only personal. B’s
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remedy is to go against A for the value of the
fruits.
Rights/Remedies of creditor in obligations to
give a specific thing
Specific
performance
(Article 1165)
This is an action to compel the
debtor to make delivery. If the
thing due is specific, it cannot be
substituted by another thing
without the creditor’s consent.
Damages
(Article 1170)
The creditor has also the right to
recover damages from the debtor
in case of breach of the obligation
through delay, fraud, negligence
or contravention of the tenor
thereof.
Rescission
(Article 1191)
This is an action to terminate the
obligation by reason of a breach
thereof. The remedy of rescission
is the opposite of the remedy of
specific performance.
Rescission does not merely terminate the contract and
release the parties from further obligations to each other,
but abrogates the contract from its inception and
restores the parties to their original positions as if no
contract has been made.
The rescission referred to in Article 1191 is different from
that which is referred to in Article 1380 and Article 1381.
Articles 1380 and 1381 speak of cancellation anchored
on injurious effects to the economic interests on the part
of the plaintiff. Rather, Article 1191 makes reference to
mere breach of contract or breach of trust, such breach
which violates the reciprocity of obligations between the
contracting parties.
Rights/Remedies of creditor in obligations to
give a generic thing
Specific
performance
(Article 1165)
The creditor can only ask for the
delivery of a thing or object
belonging to the class or genus
stipulated which must be neither
of superior nor inferior quality.
Substitute
performance
If the debtor refuses or is unable
to comply with his obligation, the
creditor can ask that the
obligation be complied with by
someone else at the expense of
such debtor.
Damages
(Article 1170)
In case of failure of the debtor to
comply with his obligation, or in
case of breach by reason of
fraud, negligence, delay or
contravention of the tenor of the
obligation, the creditor can
demand for indemnification for
damages.
RESCISSION UNDER ARTICLE 1191
Article 1191. The power to rescind the obligation is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
The general rule is that rescission of a contract will not
be permitted for a slight or causal breach, but only for
such substantial and fundamental breach as would
defeat the very object of the parties in executing the
agreement. The question of whether a breach of contract
is
substantial
depends
upon
the
attendant
circumstances.
NOTE: If the obligor delays, or has promised to deliver
the same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the delivery. (Article
1165 [3])
OBLIGATIONS TO DO
In obligation to do (positive personal obligations), if the
obligor fails to do that which he has obligated himself to
do, the obligee can have the obligation performed or
executed at the expense of the former (Article 1167), and,
at the same time, demand for damages by reason of the
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breach. (Article 1170)
Unlike obligations to give, in obligations to do the obligee
does not possess the power to compel the obligor to
comply with his obligation. In this type of obligation the
law recognizes the individual’s freedom or liberty to
choose between doing what he has promised to do and
not doing it. It falls within a personal act (acto
personalisimo), of which courts may not compel
compliance as it is considered an act of violence to do
so.
Remedies of creditor in obligations TO DO
If the debtor
fails to render
the service
a)
b) To recover damages.
a)
When only the
debtor can do
the service
In such case, there is no other
remedy of the obligee except to
proceed against the obligor for
damages under Art. 1170.
Remedies of creditor in obligations NOT TO DO
To have it undone at the expense of the obligor in
accordance with Art. 1168 and to ask for damages
in accordance with Art. 1170.
➔ Specific performance is the performance of the
prestation itself.
To
have
the
obligation
performed or executed at the
expense of the obligor;
➔ In obligations to do or not to do, specific
performance is not available since it will go against
the constitutional prohibition against involuntary
servitude.
b) To ask that what has been
poorly done be undone; and
c)
It must be noted that in obligations not to do, delay or
mora is not possible because in negative obligations, the
obligation is either fulfilled or not fulfilled.
If it is not possible to undo what was done, either
physically or legally, or because of the rights
acquired by third persons who acted in good faith,
or for some other reason, the only remedy available
to the obligee is to proceed against the obligor for
damages. (Art. 1170)
To
have
the
obligation
performed by the creditor
himself or by a third person but
at the expense of the debtor;
and
If the debtor
renders the
service, but in
contravention
of the tenor
his obligation
In obligations not to do (negative personal obligations),
the object of the obligation is fulfilled or realized so long
as that which is forbidden is not done by the obligor.
To recover damages because
of breach of the obligation.
➔ Substitute performance is when someone else
performs or something else is performed at the
expense of the debtor.
➔ Damages may be obtained exclusively or in addition
to the other remedies available.
OBLIGATIONS NOT TO DO
SUMMARY OF THE RULES REGARDING REMEDIES AVAILABLE TO THE CREDITOR IN
OBLIGATIONS TO GIVE, TO DO, AND NOT TO DO
Obligation
Specific performance
Damages
Substitute Performance
a. Specific/Determinate thing
✔
✔
✘
b. Generic/Indeterminate thing
✔
✔
✔
To give
To do
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a. Only the obligor can do
✘
✔
✘
b. Anyone else can do it
✘
✔
✔
✘
✔
✔
Not to do
b) Debtor delays performance either because of
dolo or culpa;
IRREGULARITY IN PERFORMANCE ATTRIBUTABLE
TO THE DEBTOR
Article 1170 provides that those who in the performance
of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the
tenor thereof, are liable for damages.
Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
c)
General Rule: Delay begins from the time the obligee
judicially or extrajudicially DEMANDS from the obligor the
performance of the obligation.
Demand is necessary in order for the debtor to incur in
delay. “No demand, no play”
Exceptions: Demand is not necessary to render the
obligor in default: (SSS v. Moonwalk)
a)
(1) When the obligation or the law expressly so declare;
or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay
by the other begins.
DELAY OR MORA
c)
The obligation is demandable and liquidated;
■
Mere setting of the due date is not
enough. This does not constitute
automatic delay.
■
There must be an express stipulation to
the following effect: “Non-performance
on that day is delay without need of
demand.” (Dela Rosa vs. BPI)
When demand would be useless, when obligor
has rendered it beyond his power to perform.
EFFECTS OF MORA SOLVENDI:
1. Mora Solvendi — Delay in performance incurred by
the debtor.
a)
When the obligation or the law expressly so
declares.
b) When it appears from the nature and
circumstances of the obligation that time was a
controlling motive for the establishment of the
contract.
a)
REQUISITES:
The creditor demands the performance either
judicially or extrajudicially.
When the obligation is to deliver a determinate
thing, the risk is placed on the part of the debtor
(Article 1165)
b) Damages (Article 1170)
c)
Rescission/ Resolution (Article 1191)
2. Mora Accipiendi — The delay on the part of the
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creditor; creditor incurs in delay when debtor tenders
payment or performance, but the creditor refuses to
accept it without just cause.
REQUISITES:
a)
An offer of performance by the debtor who has
the required capacity
b) The offer must be to comply with the prestation
as it should be performed
c)
The creditor refuses the performance without
just cause.
EFFECTS OF MORA ACCIPIENDI:
a)
Responsibility of the debtor for the thing is
limited to fraud and gross negligence.
b) Debtor is exempted from the risk of loss of thing
which automatically pass to the creditor.
c)
Expenses incurred by debtor for preservation of
thing after the delay shall be chargeable to the
creditor.
d) If the obligation has interest, debtor shall not
have obligation to pay the same from the time of
the delay.
e)
Creditor becomes liable for damages.
f)
Debtor may relieve himself by consignation of the
thing in court.
3. Compensatio Morae — bilateral default on the part
of both parties in reciprocal obligations.
The delay of the obligor cancels out the effects of the
delay of the obligee and vice versa. The net result is that
there is no actionable default on the part of both parties,
such that as if neither one is guilty of delay
FRAUD
Fraud under Article
1170 (Malice)
Fraud under Article
1338 (Deceit)
fraud or dolo in the
performance
of
an
obligation
fraud or dolo in the
constitution
or
establishment
of an
obligation.
present only during the
performance
of
a
preexisting obligation
present only at the time
of the birth of the
obligation.
employed
for
the
purpose of evading the
normal fulfillment of an
obligation
employed
for
the
purpose of securing the
consent of the other
party to enter into the
contract.
gives rise to a right of the
creditor or obligee to
recover damages from
the debtor or obligor
Gives rise to a right of the
innocent party to ask for
the annulment of the
contract if the fraud is
causal or to recover
damages if it is incidental
A and B entered into a
contract. B will deliver
furniture made of narra
but B delivered one
made of plywood. Fraud
here is malice. It will not
affect the validity of the
contract.
A and B entered into a
contract of sale of a
diamond
necklace.
However, the necklace
was really made of glass.
Fraud here is deceit.
There was vitiation of
consent so the contract
is voidable.
EFFECTS OF FRAUD
a)
Creditor may insist on proper substitute or
specific performance (Article 1233); or
b) Rescission/Resolution (Article 1191)
c)
Damages in either case (Article 1170)
NEGLIGENCE
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages.
It is any voluntary act or omission, there being no malice,
which prevents the normal fulfillment of an obligation.
Art. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action
for future fraud is void.
The negligence of a contracting party in the performance
of an obligation refers to the lack of due care which
results in the non-performance of the obligation.
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Negligence is the lack of diligence that is required by the
nature of the obligation that “corresponds with the
circumstances of the persons, of the time and of the
place.”
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.
EFFECTS OF NEGLIGENCE
a)
Creditor may insist on proper substitute or
specific performance (Article 1233); or
b) Rescission/Resolution (Article 1191)
c)
Damages in either case (Article 1170)
IRREGULARITY IN PERFORMANCE NOT
ATTRIBUTABLE TO DEBTOR
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 responsible for those events which
could not be foreseen, or which, though foreseen, were
inevitable.
A. FORTUITOUS EVENT
loss or damage, the obligor cannot escape liability.
(Nakpil & Sons v. Court of Appeals)
General Rule: When a debtor is unable to fulfill his
obligation because of a fortuitous event or force majeure,
he cannot be held liable for damages or nonperformance.
Exceptions:
1. When the law so provides
2. When there is express stipulation
3. When the nature of the obligation requires the
assumption of risk
Art. 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the actions
of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them.
REMEDIES OF CREDITOR
1. Levy and execution of the debtor’s non-exempt
properties
2. Accion subrogatoria
3. Accion pauliana
4. Accion directa
REQUISITES:
ACCION SUBROGATORIA
To exempt the debtor from liability for non-performance
of obligation due to a fortuitous event, the following
requisites must be present:
Subrogatory action premised on the theory that “the
debtor of my debtor is my debtor.”
1) the cause of the breach of the obligation must be
independent of the will of the debtor;
If the execution of judgment fails to fully satisfy the
creditor’s claim, the creditor may exercise all the rights
and bring all the actions pertaining to the debtor, for the
same purpose of satisfying the creditor’s judgment claim.
2) the event must be either unforeseeable or
unavoidable;
REQUISITES:
3) the event must be such as to render it impossible
for the debtor to fulfill his obligation in a normal
manner; and
4) the debtor must be free from any participation in,
or aggravation of the injury to the creditor.
(Tanguilig v. CA)
If a fortuitous event or an act of God coincides with a
corresponding fraud, negligence, delay, or breach or
contravention in any way of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, resulting in
1) Creditor has a right of credit against the debtor.
2) Credit is due and demandable.
3) Failure of debtor to collect his own credit from a
third person either through malice or negligence.
4) Insufficiency of assets of the debtor to satisfy the
creditor’s credit
5) Right (of account) is not intuitu personae
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shall also be demandable, without prejudice to the effects
of the happening of the event.
ACCION PAULIANA
Right of creditors to rescind alienations by debtors which
are prejudicial to them to the extent of the prejudice.
The judgment creditor may institute such actions to set
aside or otherwise to revoke certain acts made by the
judgment debtor which may have defrauded the
judgment creditor.
REQUISITES:
1) There is a credit in favor of the plaintiff
Art. 1180. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall be
deemed to be one with a period, subject to the provisions
of Article 1197.
A. PURE OBLIGATION
One which has neither a condition nor a term attached to
it. It is one which is subject to no contingency. A pure
obligation is demandable at once.
2) The debtor has performed an act subsequent to
the contract, giving advantage to other persons.
B. CONDITIONAL OBLIGATION
3) The creditor is prejudiced by the debtor’s act
which are in favor of third parties and rescission
will benefit the creditor.
One whose effectivity or termination is contingent upon
the happening or nonhappening of a future event which
is uncertain to happen, or upon a past event that is
unknown to the parties.
4) The creditor has no other legal remedy.
5) The debtor’s acts are fraudulent.
ACCION DIRECTA
A direct (not subrogatory) action by the creditor against
his debtor’s debtor, a remedy which gives the creditor
the prerogative to act in his own name.
This is an exception to the relativity of contracts.
Examples:
■
Actions of the lessor against the sublessee
(Article 1652)
■
Actions of the laborer of an independent
contractor against the owner (Article 1729)
■
Actions of the principal against the sub-agent
(Article 1893)
■
Actions of the vendor-a-retro against the
transferee of the vendee (Article 1608)
3. Kinds
Art. 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition
Article 1179 mentions the term “past event unknown to
the parties”. The condition in a past event unknown to
the parties is knowledge by the parties of the past event.
The more accurate way is to designate the phrase as a
basis of a contract rather than a condition since one of
the elements of the latter is uncertainty and there is no
uncertainty in a past event. What is material is the proof
that such event occurred. If in fact the past event has
happened, then a pure obligation immediately exists. On
the other hand, if it does not happen, then there would
be no obligation to speak of.
The demandability of an obligation contingent upon the
happening of a past event unknown to the parties is
subject to the future knowledge or proof of the past
event.
In conditional obligation, the happening of the condition
determines its birth or death. In term, the happening of
the term determines its demandability.
TYPES OF CONDITIONS
1. SUSPENSIVE
One wherein the happening of the condition gives rise to
the obligation. The demandability of the obligation is
suspended until the happening of a future and uncertain
event which constitutes the condition.
When a contract is subject to a suspensive condition, its
birth or effectivity can take place only if and when the
event which constitutes the condition happens or is
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fulfilled. If the suspensive condition does not take place,
the parties would stand as if the conditional obligation
had never existed. (Javier v. CA)
The moment the suspensive condition happens, the
obligation becomes effective and enforceable. However,
the effects of the obligation retroact to the moment when
such obligation was constituted or created. By the
principle of retroactivity, therefore, a fiction is created
whereby the binding tie of the conditional obligation is
produced from the time of its perfection, and not from the
happening of the condition (Article 1187).
The law does not require the delivery or payment of the
fruits or interests accruing before the happening of the
suspensive condition. The right to the fruits of the thing
is not within the principle of retroactivity of conditional
obligations (Article 1187).
2. RESOLUTORY
The fulfillment of the resolutory condition results in the
extinguishments of rights arising out of the obligation.
If the resolutory condition is fulfilled, the obligation is
treated as if it did not exist. Thus, each party is bound to
return to the other whatever he has received, so that they
may be returned to their original condition before the
creation of the obligation. (Article 1190)
SUSPENSIVE
CONDITION
RESOLUTORY
CONDITION
If
the
suspensive
condition is fulfilled, the
obligation arises.
If the resolutory condition
that is fulfilled, the
obligation
is
extinguished.
The acquisition of rights
shall depend upon the
happening or fulfillment of
the condition.
Rights arising out of the
obligation are acquired
immediately and vested in
the creditor.
3. POTESTATIVE
A condition suspensive in nature and the fulfillment of
which depends upon the sole will of one of the
contracting parties.
Where the potestative condition depends solely upon the
will of the debtor, the conditional obligation shall be void
because its validity and compliance is left to the will of
the debtor and it cannot, therefore, be legally demanded.
Examples:
1) “I will pay you if I want.”
2) “I will pay you upon the sale of the house in
which I live.”
3) “I will pay you after I recover what D owes
me.”
4) “I will pay you after I receive a loan from a
bank.”
If the condition depends exclusively upon the will of the
creditor, the obligation is valid.
Example:
“I will pay you my indebtedness upon your
demand.”
The precept contained in the first sentence of Art. 1182
is applicable only to a suspensive condition. Hence, if the
condition is resolutory and, at the same time, potestative,
the obligation, as well as the condition, is valid even
though the fulfillment of the condition is made to depend
upon the sole will of the obligor or debtor.
4. CASUAL
A condition the fulfillment of which is purely dependent
on chance or luck, or other factors (i.e., upon the will of a
third person), and not upon the will of either parties.
Examples:
1) Where X binds himself to sell his land to S if he
wins a case which is pending before the
Supreme Court.
2) I will give you my house if the Philippines
renounces its foreign debt in 5 years.
5. MIXED
The fulfillment of the condition and the effectivity of the
obligation depends (a) partly upon chance or will of a
third person, and (b) partly upon the will of one of the
contracting parties.
Examples:
1) I will give you my house if you marry him within 3
years.
2) where the debtor undertakes to pay his creditors
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“When the time is right, I, the Lord, will make it happen.”
as soon as he receives funds from the sale of his
house.
DOCTRINE OF CONSTRUCTIVE COMPLIANCE OR
CONSTRUCTIVE FULFILLMENT (Article 1186)
It states that the condition shall be deemed fulfilled when
the obligor voluntarily prevents its fulfillment. Hence, a
party to a contract may not be excused from performing
his promise by the non-occurrence of an event which he
himself prevented.
REQUISITES:
1) Intent of the debtor to prevent fulfillment of the
obligation; and
2) Actual prevention of compliance.
The doctrine of constructive compliance applies to
potestative and mixed conditions.
6. IMPOSSIBLE
1) if A obligates himself to pay B P10,000 if
the latter can contract the inhabitants of
Mars, the obligation is a nullity because
the condition is impossible.
2) If C promises to give to D a parcel of land
if the latter secures a divorce from his
wife, the obligation is also a nullity
because the condition is contrary to law,
good customs and public policy.
However, if the obligation is divisible and that part of the
obligation is not unaffected by the impossible condition,
then the obligation is valid. (Article 1183)
Example:
1) “I will give you P10,000.00 if you sell my
land, and a car, if you kill Pedro.”
The obligation to give P10,000.00 is valid
but the obligation to give a car is void
because it is dependent upon an
impossible condition.
A condition is impossible when it is not capable of
realization according to nature, law, public policy or good
customs.
C. OBLIGATION WITH A TERM
Time of impossibility
An obligation whose demandability or extinguishment is
contingent upon the happening or the nonhappening of
a future event which is certain to happen.
➔ In order to annul an obligation, the impossibility
of the condition must exist at the time of the
constitution of the obligation. Even if the
condition subsequently becomes possible, the
nullity of the obligation is not cured.
➔ If the obligation was possible at the time of the
constitution of the obligation, the parties are
deemed to have intended to be bound to the
obligation. Thus, the subsequent impossibility of
the condition does not affect the juridical tie
between the contracting parties. However, the
conditional obligation is extinguished pursuant to
Article 1266 due to the impossibility of
performance.
According to Art. 1183 of the Civil Code, impossible
conditions as well as those which are contrary to good
customs or public policy and those which are prohibited
by law shall annul the obligation which depends upon
them.
Examples:
A term is a future and certain event (i.e. death)
When the debtor binds himself to pay when his means
permit him to do so, the obligation is one with a term.
(Article 1180)
SUSPENSIVE TERM
(ex die)
RESOLUTORY TERM
(in diem)
From a day certain;
To a day certain;
The period is suspensive
when the obligation
becomes demandable
only upon the arrival of
the period.
The period is resolutory
when the performance
must terminate upon the
arrival of the period.
It is certain that it will
happen; just uncertain
as to when it will happen.
It is certain that it will
terminate at a future
time.
D. ALTERNATIVE OBLIGATION
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“When the time is right, I, the Lord, will make it happen.”
Obligations where the debtor binds himself to the
performance of more than one prestation. However, the
debtor’s fulfillment of one of the specified prestations is
sufficient to discharge the obligation.
Example: Andres promises to deliver either 500 kgs of
rice or 1000 liters of gas. The obligation is alternative. The
debtor cannot perform the obligation by giving 250 kgs
of rice and 500 liters of gas unless the creditor agrees. In
which case there is a novation.
General Rule: The right of choice belongs to the debtor.
Exceptions:
1. When it is expressly granted to the creditor;
2. When it is agreed upon by the parties that a third
person shall make the choice.
Once the person to whom the right of choice is given
exercises such right, it is his duty to inform the other party
of his choice. No special form is required for the
communication or notification. Hence, any form may be
employed provided that the other party is properly
notified of the selection.
Consent or concurrence of the creditor to the choice or
selection made by the debtor (and vice versa) is not
necessary before the choice or selection can produce
effect. To hold otherwise would destroy the very nature
of the right to select and the alternative character of the
obligation for that matter.
Once the choice is communicated, the obligation ceases
to be alternative and is converted to a pure obligation.
Choice Belongs to the Debtor
1) When through a fortuitous event or through the
debtor’s acts, there is only 1 prestation left, the
obligation ceases to be alternative. (Article 1202)
2) When the choice of the debtor is limited through
the creditor’s own acts, then the debtor has the
remedy of resolution (Article 1191) plus damages
(Article 1203)
3) When all the things are lost due to the debtor’s
fault, the creditor can sue for damages (Article
1204)
4) When some things are lost due to the debtor’s
fault but there are still some things remaining,
then the debtor can choose from what’s left.
5) When all the things are lost due to a fortuitous
event, the obligation is extinguished.
6) When all but 1 of the things are lost due to a
fortuitous event and the last object is lost through
the debtor’s fault, then the creditor can sue for
damages.
7) When all but 1 of the things are lost through the
debtor’s own acts and the last object is lost
through a fortuitous event, the obligation is
extinguished.
Choice Belongs to the Creditor
1) When 1 or some of the objects are lost through
fortuitous events, then the creditor chooses from
the remainder.
2) When 1 or some of the objects are lost due to the
debtor’s fault, the creditor may choose from the
remainder or get the value of any of the objects
lost plus damages in either case.
3) When all of the things are lost due to the debtor’s
fault, the creditor can get the value of any of the
objects lost plus damages.
4) When some are lost through the debtor’s fault,
the creditor chooses from the remainder.
5) When all the objects are lost due to a fortuitous
event, then the obligation is extinguished.
6) When all the objects are lost due to the creditor’s
fault, the obligation is extinguished.
E. FACULTATIVE OBLIGATION
An obligation where the debtor binds himself to the
performance of a specific prestation, but by agreement
of the parties, the debtor is permitted to perform another
prestation in substitution of the prestation originally
agreed upon.
ALTERNATIVE
FACULTATIVE
several objects are due
but compliance with one
is sufficient
only one prestation is
due although the debtor
is allowed to substitute
another
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“When the time is right, I, the Lord, will make it happen.”
right of choice may
pertain even to the
creditor or to a third
person
the right to make the
substitution is given only
to the debtor
The nullity of one of the
prestations does not
affect the others. The
loss of one of the
prestations does not
extinguish the obligation.
The
nullity
or
impossibility
of
the
principal
prestation
extinguishes
the
obligation.
There is no question that the only one who is empowered
to make the substitution is the debtor. In order that the
creditor will be bound by the substitution, however, it is
necessary that he must communicate such fact to the
said creditor. Once the latter has been notified of the
substitution, then the obligation ceases to be facultative;
it is finally converted into a simple obligation to deliver
the thing or to perform the prestation which has been
substituted.
Effect of loss of substitute
Before the substitution is made by the obligor, the loss or
deterioration of the thing intended as a substitute,
whatever may be the cause, such loss or deterioration
shall not render the debtor liable.
On the other hand, once the substitution has been made,
however, the debtor shall be liable for the loss or
deterioration of the substitute on account of his delay,
negligence or fraud.
F. JOINT OBLIGATION
An obligation is joint when each of the debtors is liable
only for a proportional part of the debt, and each creditor
is entitled only to a partial part of the credit.
A joint obligation is also called mancomunada, pro rata,
mancomunada simple.
Types of Joint Obligations
1) Active Joint — there are multiple creditors.
2) Passive joint — there are multiple debtors.
affect the other debts.
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3) Mixed joint — there are multiple creditors and
debtors.
General Rule: Pursuant to Article 1207, when there is a
concurrence of several creditors or of several debtors or
of several creditors and debtors in one and the same
obligation, there is a presumption that the obligation is
joint and not solidary.
Exception: There is solidary liability only when:
1. the obligation expressly so states; or
2. the law requires solidarity; or
3. The nature of the obligation requires solidarity.
In all of these cases, each creditor is entitled to demand
for the payment of the entire credit, while each debtor
can be compelled to pay for the entire debt.
G. SOLIDARY OBLIGATION
An obligation is solidary when any of the debtors can be
held liable for the entire obligation, and any of the
creditors is entitled to demand the entire obligation.
A solidary obligation is also called joint and several, joint
and individual, and in solidum.
Where an instrument containing the words "I promise to
pay" is signed by two or more persons, they are deemed
to be jointly and severally liable thereon. An instrument
which begins with "I”, “We”, or "Either of us" promise to
pay, when signed by two or more persons, makes them
solidarily liable. The use of the singular pronoun shows
that the promise is individual as to each other, implying
that each of the co-signers has made an independent
singular promise to pay the notes in full. (Republic
Planters Bank v. CA)
Types of Solidary Obligations
1) Active Solidary — there are multiple creditors.
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The demand of 1 creditor on 1 debtor will
not constitute a demand on the others.
■
The prescription of 1 of the debts will not
The insolvency of 1 of the debtors will
not affect the burden of the other
debtors.
The debtor may pay any of the creditors, but
if any demand, judicial or extrajudicial is
made on him, he must pay only to the one
demanding payment (Article 1214)
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“When the time is right, I, the Lord, will make it happen.”
○
For example, if A writes Y demanding
the performance of the obligation and
A takes no further action, B and C
cannot demand from Y.
○
Suppose A, B, and C are creditors of X.
A demands the payment of the loan
worth P9,000. X instead pays to B. The
payment to B will be treated as a
payment to a 3rd person. Therefore, X
must still pay A the amount of the loan
minus the share of B. So, X has to pay
P6,000 to A.
2) Passive Solidary — there are multiple debtors.
■
Each debtor may be required to pay the
entire obligation but after payment, he can
recover from his co-debtors their respective
shares.
3) Mixed Solidary — there are multiple creditors
and debtors.
Q: Is there a conflict between Article 1212 and Article
1215?
➔ A: Article 1212 provides that each of the solidary
creditors may do whatever may be useful to the
others, but not anything which may be prejudicial
to the latter. But Article 1215 allows novation,
compensation, confusion or remission on the
part of the solidary creditor.
One way of reconciling is that under Article 1215,
any creditor can remit or condone the obligation.
But because the obligation is extinguished, the
condoning creditor must be liable for the other
creditor’s share. Here, there is no prejudice.
Art. 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release
the latter from his responsibility towards the codebtors,
in case the debt had been totally paid by anyone of them
before the remission was effected.
Q: A is the creditor of W, X, Y, and Z. They owe A P6,000.
The obligation is solidary. A remits Y’s share of P1,500.
Can A go after X?
➔ A: Yes, A can go after X but for only P4,500. Since
remission affects only the share of one debtor, the
other debtors are still liable for the balance of the
obligation. Any of the solidary debtors can be
required to pay the balance, but after the payment,
he can recover from the co-debtors their respective
shares. At the outset, the remission benefits X
because he only has to pay P4,500 instead of 6,000.
X can seek reimbursement from W and Z. X can
collect P1,500 each (or a total of P3,000) from W
and Z.
Q: A is the creditor of W, X, Y, and Z. They owe A P6,000.
The obligation is solidary. A remits Y’s share of P1,500.
Can A go after Y for the balance?
➔ A: Yes. Y remains a solidary debtor for the balance,
thus, A can go after Y for the balance. If not, the
effect of remission would be extended. Moreover,
any of the solidary debtors can be required to pay
the balance, but after the payment, he can recover
from the co-debtors their respective shares. Thus,
Y can seek a reimbursement of P1,500 each (or a
total of P4,500) from W, X, and Z.
H. DIVISIBLE AND INDIVISIBLE
Divisible — An obligation which is capable of partial
performance because the parties so stipulated.
Indivisible — Those which have as their object a
prestation which is not susceptible of partial
performance.
★ The test of divisibility of an obligation is whether
or not it is susceptible of partial performance.
Example: if X is supposed to deliver 1000 kilos of
sugar, this does not mean that X can deliver the
sugar in installments.
General Rule: Obligations are indivisible.
Exceptions: The following are the exceptions to the rule
of indivisibility of the object of an obligation:
1) When the parties provide otherwise.
2) When the nature of the obligation necessarily
entails the performance of the obligation in
parts.
For instance, when the obligation has for its
object the execution of a certain number of days
of work, the accomplishment of work by metrical
units, or analogous things, which by their nature
are susceptible of partial performance, it shall be
divisible.
3) When the law provides otherwise.
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“When the time is right, I, the Lord, will make it happen.”
I. OBLIGATIONS WITH A PENAL CLAUSE
Art. 1231. Obligations are extinguished:
An obligation with a penal clause is one to which an
accessory undertaking is attached for the purpose of
ensuring its performance by virtue of which the obligor is
bound to pay a stipulated indemnity or perform a
stipulated prestation in case of breach.
1) By payment or performance:
A penal clause is an accessory undertaking attached to
an obligation to assume greater liability on the part of the
obligor in case of breach of the obligation. Penal clauses
may be reduced by the courts if unconscionable.
If the principal obligation is void, it necessarily follows
that the penal clause shall also be void. However, if the
penal clause is void, the validity of the principal obligation
is not affected, since the efficacy of such obligation is not
dependent upon the efficacy of the penal clause. (Article
1230)
CHARACTERISTICS OF A PENAL CLAUSE
A. Subsidiary or alternative (Article 1227)
General Rule: Upon breach of the obligation, the creditor
has to choose whether to demand the principal or the
penalty.
Exception: The principal obligation and the penalty can
be demanded when the penal clause is joint or
cumulative. The creditor can only demand both when it
is clearly granted to him. Article 1227 provides that
unless the creditor has been clearly granted this right,
he/she cannot seek both the fulfillment of the obligation
and the payment of the penalty at the same time. The
right can either be expressed or implied. The implied
right must be one that may be deduced from the
obligation's nature.
2) By the loss of the thing due:
3) By the condonation or remission of the debt;
4) By the confusion or merger of the rights of creditor
and debtor;
5) By compensation;
6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code.
1. PAYMENT OR PERFORMANCE
Payment refers to obligations to give while performance
refers to obligations to do.
I.
Integrity of payment
In order that payment may extinguish an obligation, it is
essential that the prestation be completely delivered or
rendered.
Exceptions to the rule of integrity:
1. Substantial compliance in good faith (Article
1234)
2. Waiver (Article 1235)
General Rule: The penalty clause takes the place of other
damages.
It is founded on the principle of estoppel.
When the obligee accepts the
performance,
knowing
its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed fully
complied with.
Exceptions: Both the penalty and actual damages may
be recovered in the following:
3. In application of payments if the debts are
equally onerous (Art. 1254, par. 2)
■
B. Exclusive (Article 1226)
1. Express stipulation
2. Refusal by the debtor to pay the penalty
3. The debtor is guilty of fraud (malice) in the
performance of the obligation.
4. Extinguishment
II.
Identity of payment
The performance of an obligation must correspond to the
very first prestation.
Example: if the obligation is to give a car, one cannot
fulfill the obligation by giving a house.
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“When the time is right, I, the Lord, will make it happen.”
Specific prestation
Generic prestation
Debtor must give or
deliver the thing agreed
upon.
Debtor must give or
deliver the thing of the
quality intended by the
parties,
taking
into
consideration the purpose
of the obligation and other
considerations.
General Rule: No delivery
or payment of a different
thing even though the
thing being offered as a
substitute is worth more
than the very thing agreed
to be delivered.
General
Rule:
The
creditor cannot demand a
thing of superior quality,
nor can the debtor give a
thing of inferior quality.
Exception:
Upon
agreement
or
consent of the creditor,
the debtor may deliver a
different thing or perform
a different prestation in
lieu of that stipulated. In
such case there may be
dacion en pago or
novation.
Exception:
The benefit of Art. 1246
can be waived by either
the creditor or the debtor.
Thus, the creditor may
require or accept a thing
of inferior quality, and the
debtor may deliver an
object of superior quality,
unless the price to be paid
in the latter case is
dependent
upon
the
quality.
The defects of the thing
delivered can be waived
by the creditor if he
expressly so declares, or
if with knowledge thereof,
he accepts the thing
without
protest
or
disposes
of
it
or
consumes it.
1) When they have been honored and cashed; or
2) When through the fault of the creditor, they have
been impaired.
The clause of Art. 1249 relative to the impairment of the
negotiable character of the commercial paper by the
fault of the creditor, is applicable only to instruments
executed by third persons and delivered by the debtor to
the creditor, and does not apply to instruments executed
by the debtor himself and delivered to the creditor.
(NAMARCO v. Federation of United Namarco
Distributors, Inc.)
Exceptions to the rule of identity:
1. Dación en pago (Article 1245)
2. Novation (Article 1291)
III.
Indivisibility of payment
Indivisibility means that the obligor must perform the
prestation in one act and not in installments (Article
1248). The creditor may accept but he cannot be
compelled to accept partial payment or performance.
Exceptions to the requirement of indivisibility:
1. If there is an express stipulation (Article 1248)
2. If the debt is part liquidated and in part
unliquidated (Article 1248), such that the debtor
may pay the creditor the part liquidated on due
date, without waiting for the liquidation of the
unliquidated part.
3. When the prestation necessarily entails partial
performance (Article 1225, par. 2)
4. In joint divisible obligations (Article 1208)
The payment of debts in money shall be made in the
currency stipulated, and if it not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines (Article 1249)
Negotiable papers and other commercial documents can
be refused by the creditor unless there is stipulation to
the contrary. However, if the negotiable papers and other
commercial documents are accepted by the creditor, it
only has a provisional effect.
Under Art. 1249 of the Civil Code, there are two cases
when the use of a negotiable instrument to pay an
obligation will produce the effect of payment:
5. When the solidary debtors are bound under
different terms and conditions (Article 1211)
6. If the work is to be delivered partially and the
price or compensation for each part have been
fixed (Article 1720)
7. When there is a balance left in compensation
(Article 1290)
8. If there are several guarantors demanding for
their right of division (Article 2065)
9. When a single performance would be extremely
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“When the time is right, I, the Lord, will make it happen.”
difficult or impossible.
payment refers not only to a person
authorized by the creditor, but also to a
person authorized by law to do so, such
as a guardian, executor or administrator
of the estate of a deceased, and
assignee or liquidator of a partnership or
corporation as well as any other person
who may be authorized to do so by law.
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial to
the debtor.
WHO MAY BE THE PAYOR
Without the consent of the creditor:
a)
b)
c)
d)
The debtor;
The debtor’s heirs or assigns;
The debtor’s agent;
Any person who has an interest in the obligation
(like a guarantor).
With the consent of the creditor:
a)
Anyone can pay if the creditor consents
PAYMENT BY A THIRD PERSON
1) Payment was with the Debtor’s Consent
When payment is made to the wrong party, the obligation
is not extinguished as to the creditor who is without fault
or negligence even if the debtor acted in utmost good
faith and by mistake as to the person of the creditor or
through error induced by fraud of a third person.
General Rule: If the payment is made to a person other
than those enumerated in Art. 1240, it shall not be valid.
Exceptions:
1. Payment made to a third person, provided that it
has redounded to the benefit of the creditor;
2. Payment made to the possessor of the credit,
provided that it was made in good faith.
Art. 1241. Payment to a person who is incapacitated to
administer his property shall be valid if he has kept the
thing delivered, or insofar as the payment has been
beneficial to him.
General Rule: The payor shall have the rights of
reimbursement and subrogation, that is, to recover what
he has paid (not necessarily the amount of the debt) and
to acquire all the rights of the creditor.
Payment made to a third person shall also be valid insofar
as it has redounded to the benefit of the creditor. Such
benefit to the creditor need not be proved in the following
cases:
Exception: No subrogation if payment was intended to
be a donation.
(1) If after the payment, the third person acquires the
creditor’s rights;
2) Payment was without the Debtor’s Consent
(2) If the creditor ratifies the payment to the third person;
The payor can recover from the debtor only insofar as the
payment has been beneficial to the latter. In other words,
the recovery is only up to the extent or amount of the debt
at the time of payment. Furthermore, the third person is
not subrogated to the rights of the creditor.
(3) If by the creditor’s conduct, the debtor has been led to
believe that the third person had authority to receive the
payment.
WHO MAY BE THE PAYEE
a)
b)
c)
d)
The creditor himself
The creditor’s successor or transferee
The creditor’s agent
Any person authorized to receive it.
■
the person authorized to receive the
Art. 1243. Payment made to the creditor by the debtor
after the latter has been judicially ordered to retain the
debt shall not be valid.
Consequently, after the debtor has received the notice of
attachment or garnishment, payment can no longer be
made to the creditor whose credit has been attached to
satisfy a judgment in favor of another person. Such
payment must be made to the proper officer of the court
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“When the time is right, I, the Lord, will make it happen.”
issuing the writ of attachment or garnishment in
conformity with the provisions of the Rules of Court.
General Rule: Even if the payment is due, demand is still
necessary.
Exceptions: Demand is not necessary:
1. when there is an express stipulation to that
effect;
2. where the law so provides;
3. when the period is the controlling motive or the
principal inducement for the creation of the
obligation; and
silence – consider the thing as equivalent to the
obligation, in which case the obligation is totally
extinguished.
Dacion en pago will take place only if the parties consent.
Dation in payment requires the delivery and transmission
of ownership of a thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. Where the
possession of the thing was merely to secure the
payment of the debtor’s loan obligation and not for the
purpose of transferring ownership thereof to the creditor
in satisfaction said loan, no dacion en pago is
accomplished.
4. where demand would be useless.
Where Payment Should be Made
■
Primary Rule: Place agreed by the parties
■
Secondary Rule: Place where the thing was at
the time the obligation was constituted if the
obligation is to deliver a determinate thing
■
Tertiary Rule: Debtor’s domicile (not residence)
II.
APPLICATION OF PAYMENTS
Application payment is the designation of the debt which
is being paid by a debtor who has several obligations of
the same kind in favor of the creditor to whom payment
is made.
The situation in application of payments is that a debtor
owes his creditor. There are several debts due, but the
debtor cannot pay all of the debts due.
Requisites:
SPECIAL FORMS OF PAYMENT
I.
a)
DACIÓN EN PAGO (ARTICLE 1245)
b) There must be two or more debts;
The act of extinguishing the obligation by the substitution
of payment. It is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an
accepted performance/payment of an obligation.
c)
The debts must be of the same kind;
d) The debts to which payment made by the debtor
has been applied must be due; and
A debt in money is satisfied, not by payment of money,
but by the transmission of ownership of a thing by the
debtor to the creditor.
There is dation in payment when property is alienated to
the creditor in satisfaction of a debt in money. Here, the
debtor delivers and transmits to the creditor the former’s
ownership over a thing as an accepted equivalent of the
payment or performance of an outstanding debt. In such
cases, Article 1245 provides that the law on sales shall
apply, since the undertaking really partakes –in one
sense of the nature of sale; that is, the creditor is really
buying the thing or property of the debtor, the payment
for which is to be charged against the debtor’s obligation.
Dation in payment extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the
parties by agreement – express or implied, or by their
There must be one debtor and one creditor;
e)
The payment made must not be sufficient to
cover all the debts.
Rules in Application of Payment
■
1st Rule: Apply in accordance with the agreement.
■
2nd Rule: If there is no agreement, the debtor has
the first choice; he must indicate at the time of
making payment, and not afterwards, which
particular debt is being paid.
■
3rd Rule: If the debtor does not apply payment, the
creditor has the subsidiary right to make the
designation.
■
4th Rule: In case no application of payment has been
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“When the time is right, I, the Lord, will make it happen.”
made by the debtor and the creditor, then the
payment shall be applied to the most onerous debt.
Rules to Determine Which is the More Onerous
Obligation
■
i.
An interest bearing obligation is more
onerous than a non-interest bearing
obligation.
ii.
An older debt is more onerous than a
recent debt
iii.
An obligation where the party is bound
as a principal is more onerous than an
obligation is bound as a surety.
iv.
An obligation which is secured is more
onerous than an obligation which is
unsecured
v.
An obligation with a penal clause is more
onerous than an obligation without a
penal clause.
5th Rule: If the debts are of the same nature and
burden, apply proportionately.
III.
PAYMENT BY CESSION (ARTICLE 1255)
The situation contemplated here is that the debtor has
several creditors and several debts. He turns over his
property to his creditors who are given the authority to
sell the property and to apply the proceeds to his debt.
Unless there is a stipulation to the contrary, the
assignment does not make the creditors the owners of
the property of the debtor and the debtor is released from
his obligation only up to the net proceeds of the sale of
the property assigned. (Art. 1255.) In other words, the
debtor is still liable if there is a balance.
Requisites:
1. plurality of debts
2. partial or relative insolvency of the debtor
3. acceptance of the cession by the creditors
Payment by Cession
Dacion en Pago
The debtor cedes all his
properties (other than
those
exempt
from
execution)
to
his
The
debtor
cedes
specific property or
properties to his creditor
creditors.
Debtor is necessarily in a
state of insolvency
Debtor is not necessarily
in a state of insolvency.
There is no transfer of
ownership. The creditors
simply acquire the right
to sell the properties of
the debtor and apply the
proceeds of the sale to
the satisfaction of their
credit.
There is a transfer of
ownership
from
the
debtor to the creditor.
The effect is merely to
release the debtor for the
net proceeds of the
things
ceded
or
assigned, unless there is
a contrary intention.
The delivery of the
debtor’s property to the
creditor extinguished the
money debt, except if
the debtor and the
creditor agreed that the
dacion is only in partial
payment of the debt.
IV.
TENDER OF PAYMENT AND CONSIGNATION
Tender of payment is the act, on the part of the debtor,
of offering to the creditor the thing or amount due.
Consignation is the act of depositing the thing due with
the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it
generally requires a prior tender of payment.
Consignation is an option on the part of the debtor
because consignation assumes that the creditor was in
mora accipiendi when the creditor without just cause,
refuses to accept payment.
Requisites:
1) There was a debt due.
2) The consignation has been made either because
the creditor to whom tender of payment was
made refused to accept the payment without just
cause, or because any of the causes stated by
law for effective consignation without previous
tender of payment exists. (Art. 1256)
3) Upon the creditor's refusal to accept payment,
the debtor must notify the creditor [first notice]
that he will consign the thing to the court. (Art.
1257)
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“When the time is right, I, the Lord, will make it happen.”
4) The thing or amount due had been placed at the
disposal of the court. [consignation proper]
(Art. 1258)
5) After the consignation had been made, the
debtor must give a second notice to the creditor
informing the latter of the judicial consignation.
(Art. 1258)
Failure to comply with the requirements of consignation
shall render such ineffective and the consignation as a
payment shall be void. (Soco v. Militante)
When tender of payment not required before the
debtor can consign the thing due with the court:
1. The creditor was absent or unknown, or does not
appear at the place of payment;
2. The creditor was incapacitated to receive the
payment at the time it is due ;
3. When, without just cause, the creditor refuses to
give a receipt;
4. Two or more persons claim to be entitled to
receive the amount due;
5. The title of the obligation has been lost.
Art. 1260. Once the consignation has been duly made, the
debtor may ask the judge to order the cancellation of the
obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain
in force.
Art. 1261. If the consignation having been made, the
creditor should authorize the debtor to withdraw the
same, he shall lose every preference which he may have
over the thing. The co-debtors, guarantors and sureties
shall be released.
2. LOSS OF THE THING DUE
The term loss embraces all causes which may render
impossible the performance of the prestations.
Requisites:
1) The thing which is lost must be specific;
2) The loss must occur without fault or negligence
on the part of the debtor;
3) The loss of the thing due must occur before the
debtor incurs in delay; and
4) The extinguishment of an obligation due to the
loss of the thing due must be occasioned by
impossibility of performance subsequent to the
establishment of the obligation.
OBLIGATION TO GIVE A DETERMINATE THING
An obligation consisting in the delivery of a specified
thing, shall be extinguished when the said thing is lost or
destroyed without the fault of the obligor and before he
is in default.
The happening of a fortuitous event in itself does not
necessarily extinguish an obligation to deliver a
determinate thing. When by law or stipulation, the obligor
is liable even for fortuitous events, the loss of the thing
does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when
the nature of the obligation requires the assumption of
risk.
Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his
fault, unless there is proof to the contrary, and without
prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood,
storm or other natural calamity (Article 1265)
Effect of partial loss of a specific thing (Art. 1264)
There is partial loss when only a portion of the thing is
lost or destroyed or when it suffers depreciation or
deterioration.
In case of partial loss, the court is given the discretion, in
case of disagreement between the parties, to determine
whether the partial loss is such as to be equivalent to a
complete or total loss.
OBLIGATION TO GIVE A GENERIC THING
The happening of a fortuitous event does not extinguish
the obligation to deliver a generic thing Genus nunquam
perit – “genus never perishes.”
The debtor can still be compelled to deliver a thing of the
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“When the time is right, I, the Lord, will make it happen.”
same kind. The creditor, however, cannot demand a
thing of superior quality and neither can the debtor
deliver a thing of inferior quality.
What is not covered by this rule is an obligation to deliver
a limited generic.
OBLIGATION TO DO
The debtor in obligations to do shall also be released
when the prestation becomes legally or physically
impossible without the fault of the obligor (Article 1266).
The impossibility here must be supervening. If it is
original, then the contract is void.
Supervening Impossibility — The impossibility of
performance must be subsequent to the execution of the
contract in order to extinguish the obligation.
Art. 1267. When the service has become so difficult as to
be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in
part.
According to Sen. Arturo M. Tolentino, Art. 1267 states in
our law the doctrine of unforeseen events. This is said to
be based on the discredited theory of “rebus sic
stantibus’’ in public international law.
While the court is authorized to release the debtor from
the obligation in whole or in part, the law does not
authorize the court to change the contract.
Article 1267 does not apply to contracts which are to be
fulfilled immediately because the parties would have
already known the circumstances under which they
entered into the contract. It also does not apply to
aleatory contracts which essentially require one or both
parties to take a risk, or to contracts which are purely
speculative.
Article 1267 applies only to obligations to render service;
it has no application to other prestations especially to the
obligation to give.
REBUS SIC STANTIBUS
The performance must be extremely difficult in order for
rebus sic stantibus to apply.
Requisites:
foreseen at the time of the execution of the
contract.
2) The event or change makes the performance
extremely difficult but not impossible.
3) The event must not be due to an act of either
party.
4) The contract is for a future prestation.
Art. 1269. The obligation having been extinguished by the
loss of the thing, the creditor shall have all the rights of
action which the debtor may have against the third
persons by reason of the loss.
There is no need for an assignment by the debtor. The
rights of action of the debtor are transferred to the
creditor from the moment the obligation is extinguished,
by operation of law to protect the interest of the latter by
reason of the loss.
3. CONDONATION OR REMISSION OF THE DEBT
Condonation or remission is an act of liberality by virtue
of which, without receiving any equivalent, the creditor
renounces enforcement of an obligation which is
extinguished in whole or in part.
Requisites:
1) The debt must be existing and demandable at
the time of the condonation;
2) The renunciation must be gratuitous;
3) There must be acceptance by the debtor;
4) The parties must have capacity.
KINDS OF CONDONATION
As to form
Express —when it is made either
verbally or in writing. If the
renunciation is express, then it is a
donation. The form of donation must
be observed.
Implied — when it can only be
inferred from conduct. If the
renunciation is implied, then it is
tantamount to a waiver.
Total — when the entire obligation
is extinguished.
1) The event or change could not have been
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“When the time is right, I, the Lord, will make it happen.”
As to extent
As to
constitution
Partial — when only a part of the
obligation is condoned.
Inter vivos — when it will take effect
during the lifetime of the donor. It is
essentially a donation.
Mortis causa — when it will
become effective upon the death of
the donor. It must comply with the
formalities of a will.
Whether express or implied, the extent of the remission
or condonation shall be governed by the rules regarding
inofficious donations.
Art. 1271. The delivery of a private document evidencing
a credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former
had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt.
Art. 1272. Whenever the private document in which the
debt appears is found in the possession of the debtor, it
shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved.
Articles 1271 and 1272 refer to a kind of implied
renunciation when the creditor divests himself of the
proof credit.
Article 1271 enunciates the rule that if the creditor
voluntarily delivers the private document evidencing the
credit to the debtor, a presumption arises that his
intention is to condone the obligation; this is because he
relinquishes the document that will prove his claim.
Article 1271 speaks of a private document. The legal
presumption of remission does not apply in the case of a
public document because it is easy to obtain a copy of
the same, being a public record.
According to Art. 1272, if a private document is found in
the possession of the debtor, then it is presumed that the
creditor voluntarily delivered it to him. Since the creditor
voluntarily delivered the private document, then there is
a presumption of remission.
EFFECTS OF PARTIAL REMISSION
1) The renunciation of the principal debt shall
extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force
(Article 1273);
2) The obligation of the guarantor is extinguished at
the same time as that of the debtor, and for the
same causes as all other obligations (Article
2076);
3) The guarantors, even though they be solidary,
are released from their obligation whenever by
some act of the creditor they cannot be
subrogated to the rights, mortgages, and
preferences of the latter (Article 2080); and
4) It is presumed that the accessory obligation of
pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found
in the possession of the debtor, or of a third
person who owns the thing (Article 1274).
Q: If a condonation is made effective inter vivos, do
you think it will be subject to collation?
➔ A: YES. A condonation inter vivos is subject to
collation. Condonation inter vivos is essentially a
donation. Article 1270 describes condonation as
a gratuitous act of the creditor. Hence,
acceptance by the debtor is required and such
condonation is subject to the rules of inofficious
donations.
4. CONFUSION OR MERGER OF RIGHTS
Confusion or merger is the meeting in one person of the
qualities of creditor and debtor with respect to the same
obligation.
Confusion or merger of rights extinguishes the obligation
because the creditor becomes his own debtor.
Requisites:
1) The merger must take place between the creditor
and the principal debtor.
2) The very same obligation must be involved.
3) It must be complete and definite.
Merger in the person of the principal debtor or creditor
extinguishes the obligation. Hence, the accessory
obligation of guaranty is also extinguished in accordance
with the principle that the accessory follows the principal.
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“When the time is right, I, the Lord, will make it happen.”
On the other hand, the extinguishment of the accessory
obligation does not carry with it that of the principal
obligation. Consequently, merger which takes place in
the person of the guarantor, while it extinguishes the
guaranty, leaves the principal obligation in force. (Article
1276)
Confusion in a joint obligation will extinguish only the
share corresponding to the creditor or debtor in whom
the two characters concur. Whereas, merger in the
person of one of the solidary debtors shall extinguish the
entire obligation because it is also a merger in the other
solidary debtors.
operation of law once all the requisites under Article 1279
are present.
Requisites:
1) There must be two parties, who, in their own
right, are principal creditors and principal
debtors of each other;
■
5. COMPENSATION
Compensation is a mode of extinguishing, to the
concurrent amount, the obligations of those persons who
in their own right are reciprocally debtors and creditors
of each other.
CONFUSION
there are two persons
involved, each of whom
is a debtor and a creditor
of the other
there is only one person
who is a creditor and
debtor of himself
there are two obligations
there
is
obligation
3) Both debts must be due;
■
Demandable means that the debts are
enforceable in court, there being no
apparent defenses inherent in them. The
obligations must be civil obligations,
excluding those that are purely natural.
■
Liquidated debts are those the amount
of which may be determined by a simple
arithmetical operation. A debt is
liquidated when its existence and
amount are determined.
one
COMPENSATION
PAYMENT
takes effect by operation
of law
takes effect by act of the
parties
Capacity to give and to
acquire is not necessary
the parties must have
the free disposal of the
thing due and capacity
to alienate it and to
receive payment as the
case may be
the law permits partial
extinguishment of the
obligation
2) Both debts must consist in money, or if the
things due are fungibles (consumables), they
must be of the same kind and quality;
4) Both debts must be liquidated and demandable;
COMPENSATION
but
There can be no compensation if 1 party
occupies only a representative capacity
(i.e. agent). Likewise, there can be no
compensation if in one obligation, a
party is a principal obligor and in another
obligation, he is a guarantor.
it is necessary that it be
complete and indivisible.
KINDS OF COMPENSATION
A. Legal
Legal compensation takes place automatically by
5) There must be no retention or controversy,
commenced
by
third
persons
and
communicated in due time to the debtor, over
either of the debts.;
6) Compensation must not be prohibited by law.
B. Facultative
Facultative
compensation
takes
place
when
compensation is claimable by only one of the parties but
not of the other.
Compensation is facultative if it can be claimed only by
one of the parties, or one of the parties has a right to
object to compensation proposed by the other.
C. Conventional or voluntary (Article 1282)
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“When the time is right, I, the Lord, will make it happen.”
Voluntary or conventional compensation includes any
compensation which takes place by agreement of the
parties even if all the requisites for legal compensation
are not present.
deposit is made or a commodatum is
given on the basis of confidence in the
depositary or the borrower. It is
therefore, a matter of morality, that the
depositary or the borrower should in fact
perform his obligation; otherwise, the
trust or confidence of the depositor or
lender would be violated.
D. Judicial (Article 1283)
Judicial compensation is compensation decreed by the
court in a case where there is a counterclaim. A party may
set off his claim for damages against his obligation to the
other party by proving his right to said damages and the
amount thereof.
2) A debt arising from a liability to provide support
gratuitously (Art. 1287, par. 2)
■
Effect of Assignment of Rights (Article 1285)
Article 1285 speaks of three cases of compensation
which take place after an assignment of rights made by
the creditor:
1) Assignment with the consent of debtor
■
Debtor cannot set up against the
assignee the compensation. However, if
the debtor notified the assignor, at the
time he gave his consent, that he is
reserving his right to the compensation,
he can still set up the defense of
compensation against the assignee.
2) Assignment with the knowledge but without the
consent of debtor
■
The debtor can set up compensation
with a credit already existing at the time
of the assignment, but not of subsequent
ones.
3) Assignment without the knowledge of the debtor
■
The debtor may set up the defense of
compensation of all credits which he
may have against the assignor and
which may have become demandable,
before he was notified of the
assignment.
WHEN IS COMPENSATION PROHIBITED
1) A debt that arose from a contract of depositum
or commodatum (Art. 1287, par. 1)
■
The prohibition of compensation when
one of the debts arises from a depositum
or commodatum is based on justice. A
With respect to future support, to allow
its extinguishments by compensation
would defeat its exemption from
attachment and execution and may
expose the recipient to misery and
starvation. However, support in arrears
can be compensated.
3) A debt which arose from the civil liability for a
criminal offense (Art. 1288)
■
The person who has the civil liability
arising from the crime cannot set up
compensation. However, the offended
party is entitled to set up compensation.
4) Debts owing to the government.
6. NOVATION
Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent
one which extinguishes or modifies the first, either by
changing the object of principal conditions, or by
substituting the person of the debtor, or by subrogating
a third person in the rights of the creditor. (Article 1291)
The distinctive feature or characteristic of novation is that
although it extinguishes the obligation, it also gives birth
to another obligation.
It has, therefore, a two-fold purpose — that of
extinguishing the old obligation, and that of giving birth
to a new obligation to take the place of the old.
The other modes of extinguishing an obligation are
absolute in the sense that the extinguishment of the
obligation is total. Novation, on the other hand, is a
relative mode of extinguishing an obligation.
KINDS OF NOVATION
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“When the time is right, I, the Lord, will make it happen.”
A. Subjective or Personal Novation
a)
It refers to the substitution of the person of the debtor or
to the subrogation of a third person in the rights of the
creditor.
Passive — there is a substitution of the person of
the debtor.
b) Active — there is a subrogation in the rights of
the creditor
TYPES OF PASSIVE SUBJECTIVE
EXPROMISSION (Article 1293)
As to who
initiates the
change of debtor
As to whose
consent is
required
DELEGACIÓN (Article 1295)
The changing of the debtor is not upon the old
debtor's initiative. It could be upon the initiative
of the creditor or of the new debtor.
The change is at the debtor’s initiative.
The consent of the following are required:
The consent of the following are required:
1. creditor since the changing of the
debtor may prejudice him.
2. new debtor since he is the one who will
pay.
1. old debtor
2. new debtor,
3. creditor
The consent of the old debtor is not required.
As to liability of
the old debtor in
case of new
debtor’s
insolvency
The new debtor’s insolvency or nonfulfillment
of the obligation will not revive the action of the
creditor against the original debtor whose
obligation is extinguished by the assumption of
the debt by the new debtor. (Art. 1294)
The release of the old debtor is not absolute.
The creditor’s claim against the original
debtor is revived in the following cases:
a. If the new debtor was already insolvent
at the time of the delegacion; and
b. Such insolvency was either known to the
old debtor or of public knowledge. (Art.
1295)
As to effect of
payment by new
debtor
a. If the substitution was effected with the
knowledge and consent of the original
debtor, and payment is made by the new
debtor, the new debtor can demand
reimbursement from the original debtor of
the entire amount which he has paid, and,
at the same time, be subrogated in all of
the rights of the creditor. (Art. 1236; Article
1300)
Since the substitution was effected with the
consent of all the parties, the new debtor
can demand reimbursement from the
original debtor of the entire amount which he
has paid as well as compel the creditor to
subrogate him in all of his rights. (Art. 1236;
Art. 1300)
b. If the substitution was effected without the
knowledge and consent of the original
debtor, and payment is made by the new
debtor without the knowledge and consent
of the original debtor, the new debtor can
demand reimbursement from the original
debtor only insofar as the payment has
been beneficial to such debtor, but he
cannot be subrogated in the rights of the
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“When the time is right, I, the Lord, will make it happen.”
creditor. (Art. 1237)
■
B. Objective or Real Novation
It refers to the change either in the cause, object or
principal conditions of the obligations.
C. Mixed Novation
Mixed is a combination of both subjective and objective
novation.
REQUISITES OF NOVATION
1) There must be a valid and existing first
obligation;
■
The novation is void if the original
obligation was void, except when
annulment may be claimed only by the
debtor, or when ratification validates
acts which are voidable (Article 1298)
2) All the parties must agree on the second
obligation which will replace the first;
■
If the original obligation was subject to a
suspensive or resolutory condition, the
new obligation shall be under the same
condition, unless it is otherwise
stipulated. (Article 1299) Simply put, the
conditions attached to the old obligation
are also considered attached to the new
obligation.
3) The second obligation must extinguish the first;
■
In order that an obligation may be
extinguished
by
another
which
substitutes the same, it is imperative that
it be so declared in unequivocal terms,
or that the old and the new obligations
be on every point incompatible with each
other. (Article 1292)
4) The second obligation must be valid.
■
If the new obligation is void, the original
one shall subsist, unless the parties
intended that the former relation should
be extinguished in any event. (Article
1297)
If the new obligation is only voidable,
novation can take place. However, if the
voidable new obligation was judicially
annulled, the effect of such annulment
would retroact to the date of its
constitution. Therefore, it is as if there
was
no
new
obligation
which
extinguished the original obligation.
Consequently, the first obligation is
deemed not to have been extinguished
at all.
Q: Is a judicial compromise a novation?
➔ A: A judicial compromise is a novation. The
principle of novation supports the validity of a
compromise after final judgment. For an
obligation to be extinguished by another, the law
requires either of these two conditions: a) the
substitution is unequivocally declared; or b) the
old and the new obligations are incompatible on
every point.
A compromise of a final judgment operates as a
novation of the judgment, upon compliance with
either requisite. (Magbanua v. Uy)
Q: Can an unenforceable obligation be novated?
➔ A: YES. An unenforceable obligation may be
novated. One of the requisites of novation is that
there must be a previous valid obligation. An
unenforceable contract is valid although it
produces no legal effect. Thus, it may be
novated.
Q: Can a voidable obligation be novated?
➔ A: YES. A voidable original obligation may be
novated. A voidable obligation is binding until it
is annulled by a competent court. Until then, the
existence of the voidable obligation is
recognized by law, and it can be extinguished
through novation. (Article 1298)
EFFECTS OF NOVATION
General Rule: Since novation extinguishes the first
obligation, the accessories to the extinguished obligation
must be discharged.
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“When the time is right, I, the Lord, will make it happen.”
Exception: If the obligation that was novated granted a
benefit, such as stipulation pour autrui, to a third party,
and the third party beneficiary did not consent to the
novation, the accessory obligation will not be discharged.
(Article 1296)
Q: Is there a conflict between Article 1303 (where
accessory obligations are not extinguished) and
Article 1296 (where accessory obligations are
extinguished)?
➔ A: NO. There is no conflict between the two
provisions since Article 1303 serves as an
exception to Article 1296.
Article 1296 provides that when the principal
obligation is extinguished in consequence of a
novation, accessory obligations may subsist only
insofar as they may benefit third persons who
did not give their consent. Meanwhile, Article
1303 states that subrogation transfers to the
person subrogated the credit with all the rights
thereto appertaining, either against the debtor or
against third persons, be they guarantors or
possessors of mortgages, subject to stipulation
in a conventional subrogation.
The general rule is that accessory obligations are
extinguished, as provided in Article 1296, while
Article 1303 explicitly states accessory
obligations are not extinguished. Hence, there is
no conflict between the two provisions since
Article 1303 is considered as an exception to the
general rule.
SUBROGATION
Art. 1300. Subrogation of a third person in the rights of
the creditor is either legal or conventional. The former is
not presumed, except in cases expressly mentioned in this
Code; the latter must be clearly established in order that
it may take effect.
Art. 1301. Conventional subrogation of a third person
requires the consent of the original parties and of the third
person.
Art. 1302. It is presumed that there is legal subrogation:
1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
2) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
3) When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as
to the latter's share.
TOTAL SUBROGATION
PARTIAL SUBROGATION
Subrogation transfers to
the
third
person
subrogated the credit with
all of the rights which the
original
creditor
had
against the debtor or
against third persons.
The creditor to whom
partial payment has been
made by the new creditor
remains a creditor to the
extent of the balance of
the debt. In case of
insolvency of the debtor,
he is given a preferential
right under the above
article to recover the
remainder as against the
new creditor. (Article 1304)
The application of this rule
is absolute with respect to
legal
subrogations;
however, with respect to
conventional
subrogations,
such
accessory obligations may
be increased or reduced
depending
upon
the
agreement of the parties.
(Article 1303)
Summary of jurisprudence on novation
➔ If the amount of the debt is decreased, there is no
novation. The decrease of the amount can be
considered as a partial remission. (Sandico vs.
Piguing)
➔ Mere reduction of the amount due does not
constitute novation. The reduced indebtedness is
considered merely as partial remission. (Millar vs. CA)
➔ There is no novation if the term or period is increased,
such as when the date of payment is postponed or
the period of payment is extended because there is
no clear case of incompatibility between the two
obligations; nor is there a change in the obligatory
relation between the parties which will alter the
essence of the obligation. (Inchausti v. Yulo)
➔ If there is a reduction or decrease of the duration of
the term or period, there is certainly a novation, not
only because there is a clear case of incompatibility
between the two obligations, but there is also a
change or alteration of the principal condition of the
old obligation. (Castan)
➔ An extension of the term or period of the maturity
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“When the time is right, I, the Lord, will make it happen.”
date does not result in novation. (Heirs of Franco vs.
Gonzalez) The mere extension of time is not a
novation because the period affects only the
performance and not the creation of the obligation.
➔ Execution of a memorandum of agreement does not
necessarily novate the original contract (Phil. Charter
v. Petroleum).
➔ Mere acceptance by a creditor of payments from a
third person for the benefit of the debtor, sans any
agreement that the original debtor will also be
released from his obligation, does not result in
novation but merely the addition of debtors (Food
Fest Land, Inc. vs. Siapno).
➔ Where there is a clear case of incompatibility
between the two contracts in the sense that they
cannot stand together, such as where there is a
change, not only of the parties but also of the amount
due as well as of the date of maturity, it is clear that
there is a novation. A mere change in the amount or
mode of payment if taken singly is not a novation,
but, taken together, there might be a novation. (Fua
vs. Yap)
B. Contracts
1. General provisions
Art. 1305. A contract is a meeting of the minds between
two persons whereby one binds himself, with respect to
the other, to give something or to render some service.
The definition in Article 1305 is inaccurate. The term
“persons” should be replaced with the term “parties”.
Also, contracts may be multilateral — there can be more
than 2 parties involved (i.e. partnership)
CHARACTERISTICS OF CONTRACTS
a)
b)
c)
d)
Obligatory force or character of contracts
Autonomy of contracts
Mutuality of contracts
Relativity of contracts
A. Obligatory force of contracts
It refers to the rule so fundamental in all contracts, that
once the contract is perfected, it shall be of obligatory
force upon both of the contracting parties. Consequently,
such contracting parties are bound, not only to the
fulfillment of what has been expressly stipulated, but also
to all of the consequences thereof. (Article 1315)
– the principle of consensuality (Article 1315)
Exception: Real contracts, such as deposit, pledge, and
commodatum, are not perfected until the delivery of the
object of the obligation. (Article 1316)
B. Autonomy of contracts
The contracting parties may establish such agreements
as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or
public policy. (Article 1306)
C. Mutuality of contracts
This principle refers to the position of essential equality
that is occupied by both contracting parties in relation to
the contract. The contract must be binding upon both of
the parties. Consequently, its validity or compliance
cannot be left to the will of one of them. (Article 1308)
D. Relativity of contracts
Contracts take effect only between the parties, their
assigns and heirs, except in cases where the rights and
obligations arising from the contract are not
transmissible by their nature, or by stipulation, or by
provision of law. (Article 1311)
Q: Are the heirs of a deceased contracting party
strangers to the contract? What is their liability?
➔ A: No. The heirs of the deceased contracting
party are not strangers to the contract. The heirs
have an interest in the contract based on Articles
776 and 777 of the Civil Code which basically
provides that from the moment of death, the
heirs automatically become the absolute owners
of the decedent’s property, rights and
obligations. Thus, rights and obligations arising
from a contract that survive the contracting party
are acquired by his heirs through succession.
However, if the contract is purely personal or
where transmission is prohibited by law or by
stipulation of parties thereto, then the contract
will not bind the heirs. Nevertheless, as stated in
Article 1311, while the heirs of a deceased
person are charged with the duty to perform the
obligations, the liability of the heirs cannot
exceed the value of the inheritance.
General Rule: Contracts can take effect only between
the parties, their assigns and heirs.
General Rule: Contracts are perfected by mere consent
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“When the time is right, I, the Lord, will make it happen.”
Exceptions to the rule of relativity of contracts
1) Stipulation pour autrui (Art. 1311)
2) Contracts creating real rights (Art. 1312)
3) Contracts entered into in fraud of creditors (Art.
1313)
4) Unlawful third party interference (Art. 1314)
STIPULATION POUR AUTRUI – stipulation in favor of a
third person.
Art. 1311, ¶2. If a contract should contain some
stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to
the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person.
Requisites:
1) The stipulation in favor of a third person must be
a part, but not the whole, of the contact between
the parties.
2) The third person must accept the benefit of the
stipulation.
3) The third party must have not given any
consideration for the benefit conferred upon him
by stipulation.
4) Neither of the contracting parties represents, or
is an agent of the third person.
Art. 1318. There is no contract unless the following
requisites concur:
1) Consent of the contracting parties;
2) Object certain which is the subject matter of the
contract;
3) Cause of the obligation which is established.
The essential elements are those without which there can
be no contract.
I.
CONSENT
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered
into in the place where the offer was made.
Concurrence of offer and acceptance
It is the meeting of minds, i.e., the concurrence of offer
and acceptance between the parties, which expresses
their intent in entering into the contract respecting the
subject matter and the cause or consideration thereof.
Offer is a proposal made by one party (offerer) to another
to enter into a contract.
Requisites of a valid offer
STAGES OF A CONTRACT
1)
Preparation, conception, or generation
■
2)
Perfection or birth
■
3)
the period of negotiation and bargaining,
ending at the moment of agreement of
the parties.
The moment when the parties come to
agree on the terms of the contract
Consummation or death
■
The fulfillment or performance of the
terms agreed upon in the contract.
2. Essential requisites
a) Definite — The offer must be definite, so that
upon acceptance, an agreement can be reached
on the whole contract.
b) Complete — The offer must be complete,
indicating with sufficient clearness the kind of
contract intended and definitely stating the
essential conditions of the proposed contract as
well as the non-essential ones desired by the
offeror.
c) Intentional — An offer without seriousness,
made in such manner that the other party would
not fail to notice such lack of seriousness, is
absolutely without juridical effects and cannot
give rise to a contract (i.e. must not be made in
jest, or a prank)
2022 Bar Reviewer by J.K.R. Gamboa | 30
“When the time is right, I, the Lord, will make it happen.”
Acceptance is the manifestation by the offeree of his
assent to the terms of the offer. Without acceptance,
there can be no meeting of the minds between the
parties.
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Requisites of a valid acceptance
OPTION CONTRACT
a)
A preparatory contract giving a person, for a
consideration, a certain period and under specified
conditions within which to accept the offer of the offerer.
It is separate and distinct from the projected main
agreement or principal contract itself (subject matter of
the option) which the parties may enter into upon the
consummation of the option or which will be perfected
upon the acceptance of the offer.
Absolute
b) Unconditional
c)
Unqualified
■
If the acceptance is qualified, as when it
is subject to a condition, or modifies or
varies the terms of the offer, it merely
constitutes a counter-offer or a new
proposal which, in law, is considered a
rejection of the original offer and an
attempt by the parties to enter into a
contract on a different basis.
Acceptance by silence or inaction
As a rule, silence cannot be construed as acceptance.
The acceptance must be affirmatively and clearly made
and evidenced by words or some acts or conduct
communicated to the offeror.
Cognition Theory
Offer and acceptance takes effect only from the time
knowledge is acquired by the person to whom it is
directed. If during intervening time, the offer or
acceptance is extinguished by death/insanity, such offer
or acceptance has no more effect. (Article 1319, par. 2)
Example: Offeror gave offer on March 1. The
offer reached the offeree on March 5. From the
point of view of the offeror, offer is counted from
March 5. He can still countermand before March
5.
Both the offer and acceptance may be revoked before
the contract is perfected which takes place from the time
the acceptance comes to the offerer’s knowledge.
Art. 1322. An offer made through an agent is accepted
from the time acceptance is communicated to him.
Art. 1323. An offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
Art. 1324. When the offerer has allowed the offeree a
Option money is the money paid or promised to be paid
as a distinct consideration for an option contract.
Q: A offers to sell his car to B for P500,000.00. B needs
to think about it and asks for 30 days. B does not pay A
for the time, but A promises to give B 30 days.
➔ A: There is no option contract between A and B. A
only made an offer to sell to B. However, pursuant
to the case of Sanchez v. Rigos, A must still
communicate the withdrawal of the offer to B.
Failure to communicate such withdrawal is
tantamount to a continuing offer.
Q: A offers to sell a car to B for P500,000.00. B needs to
think about it, so he asks for 30 days, and pays A
P5,000.00. B decides to buy the car before the 30-day
period ends. However, before B is able to buy the car, A
sells the car to X.
➔ A: There is an option contract between A and B.
Here, B paid A 5,000 as option money. Hence, A has
the obligation to not to enter into the principal
contract involving the subject property with any
other person during the 30-day period. Since A
sells the car to X before B can purchase it, B can sue
A for damages but he cannot sue A for specific
performance because the car has been sold to an
innocent purchaser for value.
RIGHT OF FIRST REFUSAL
A statement by a person to another that if the former
decides to sell the object, the latter will have the first
offer. Here, the object is determinable. But the exercise
of the right to buy is conditioned on the seller’s decision
to sell on terms which are not yet certain.
OPTION CONTRACT
RIGHT OF FIRST
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“When the time is right, I, the Lord, will make it happen.”
REFUSAL
limits the promissor’s
power to revoke an offer.
the right to have the first
opportunity to purchase
or the right to meet any
other offer.
Principal contract
Accessory contract
Needs
consideration
separate
Does not need separate
consideration
Subject matter and price
must be valid
There must be subject
but price is not important
Not conditional
Conditional
There is no offer to sell,
but only an opportunity
for the buyer to enter into
a contract of sale.
There is an offer to sell.
Not subject to specific
performance
Subject
to
performance
intention to sell the car.
his car to Y since the
creditors will just resort to
accion pauliana. So, X
antedates a contract of
sale, selling his car to Y,
except that X’s intention
is to donate his car to Y.
Absolutely simulated or
fictitious contract is void.
When
it
does
not
prejudice a third person
and is not intended for
any purpose contrary to
law,
morals,
good
customs, public order or
public policy, it binds the
parties to their real
agreement.
II.
specific
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers,
but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears.
Most advertisements are simply invitations to make an
offer and are not offers in themselves since not all the
necessary terms can fit in the advertisement. Even if the
ads had all the necessary terms, it is still an invitation to
make an offer since there is no definite person to whom
the offer is being made (public offer).
OBJECT
The object of a contract is the prestation.
Requisites:
a)
The object must be within the commerce of man,
either already existing or in potency (Article 1347)
■
It should be susceptible of appropriation
and transmissible from one person to
another.
b) The object must licit. (Article 1347)
■
c)
It should not be contrary to law, morals,
good customs, public order or public
policy.
The object must be real or possible (Article 1348)
■
SIMULATED CONTRACTS
It should exist at the moment of the
celebration of the contract, or at least, it
can exist subsequently or in the future.
d) It must be determinate or determinable without
the need of a new contract between the parties.
(Article 1349)
ABSOLUTELY
SIMULATED
RELATIVELY
SIMULATED
Takes place when the
parties do not intend to
be bound at all.
When the parties conceal
their true agreement.
III.
X pretends to sell his car
to avoid tax liability.
However X has no real
X has many creditors,
and they are going after
X’s car. X cannot donate
The cause of a contract is the “why of the contract,” the
immediate and most proximate purpose of the contract,
the essential reason which impels the contracting parties
to enter into it and which explains and justifies the
CAUSE
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“When the time is right, I, the Lord, will make it happen.”
creation of the obligation through such contract.
In China Bank vs Lichauco, the
Court held that as a mortgage is
an accessory contract, its cause
or consideration is the very cause
or consideration of the principal
contract, from which it receives
its life, and without which it
cannot exist as an independent
contract.
The cause is different from consideration. Consideration
in the Anglo-American sense must always be valuable or
capable of pecuniary estimation. Cause, on the other
hand, need not be material at all, and may consist in a
moral satisfaction for the promissor.
Requisites:
a)
The cause should be in existence at the time of
the celebration of the contract;
Remuneratory
Contracts
b) The cause should be licit or lawful; and
c)
A remuneratory contract is one
where a party gives something to
another because of some service
or benefit given or rendered by
the latter to the former, where
such service or benefit was not
due as a legal obligation.
The cause should be true.
If there is no cause or the cause is illegal, then the
contract is void.
Cause is different from motive. Cause is the proximate
why while motive is the ultimate why. In other words,
cause is the essential reason which moves the
contracting parties to enter into it and justifies the
creation of an obligation through their will. Whereas,
motive is the particular reason of a contracting party
which does not affect the other party. (Uy vs. Court of
Appeals)
Example: A wants to sell his house for P60 M
because A is moving to Canada. B is willing to
buy the house for P60 M. In this case, the cause
for A is the P60 M while the cause for B is the
house. A’s motive is to dispose of the house
which he does not need since A is going to
Canada.
Gratuitous
Contracts
CLASSIFICATION OF CONTRACTS
According to
Degree of
Dependence
Preparatory — one which has for
its object the establishment of a
condition in law which is necessary
as a preliminary step towards the
celebration of another subsequent
contract (i.e. partnership, agency)
Principal — one which can subsist
independently from other contracts
and whose purpose can be fulfilled
by themselves (i.e. sales, lease)
Exceptions: Motive affects the contract when:
1. The motive becomes a suspensive condition; or
Accessory — one which can exist
only as a consequence of, or in
relation with, another prior contract
(i.e. pledge, mortgage)
2. The realization of the motive is the cause for the
contract and there is an intervening serious
mistake of fact.
The cause is the prestation or
promise of a thing or service by
the other party.
The cause is the mere liberality of
the benefactor.
For real contracts — there must
be delivery.
For formal contracts — the form
must be followed.
General Rule: The motive or particular purpose of a party
in entering into a contract does not affect the validity nor
existence of the contract.
Onerous
Contracts
The cause is the service or
benefit which is remunerated.
According to
Perfection
Consensual — one which is
perfected by mere agreement of
the parties (i.e. sales, lease)
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“When the time is right, I, the Lord, will make it happen.”
Real — one which requires not only
the consent of the parties for their
perfection, but also the delivery of
the object by 1 party to the other
(i.e. commodatum, deposit, pledge)
According to
their Form
Common or informal — one which
does not require some particular
form (i.e. loan, lease)
Special or formal — one which
requires some particular form (i.e.
donation, chattel mortgage)
According to
Purpose
Transfer of ownership (i.e. sale)
Conveyance
commodatum)
of
use
(i.e.
Rendition of service (i.e. agency)
According to
Subject
Matter
Things (i.e. sale, deposit)
According to
the Nature of
the
Obligation
Bilateral — one which gives rise to
reciprocal obligations for both
parties (i.e. sale, lease)
According to
Cause
Onerous — one in which each of
the parties aspires to procure for
himself a benefit through the giving
of an equivalent or compensation
(i.e. sale)
Services (i.e. agency, lease of
services)
Unilateral — one which gives rise
to an obligation for only 1 of the
parties
(i.e.
commodatum,
gratuitous deposit)
Gratuitous — one in which one of
the parties proposes to give to the
other a benefit without any
equivalent or compensation (i.e.
commodatum)
According to
Risk
Commutative
—
when
the
undertaking of one party is
considered the equivalent of that of
the other (i.e. lease)
Aleatory — when it depends upon
an uncertain event or contingency
both as to benefit or Loss. (i.e.
insurance)
According to
Name
Nominate — one which has a
name and is regulated by special
provisions of law (i.e. sale, lease)
Innominate — one that does not
have a name and is not regulated
by special provisions of law.
NOTE: A contract is not void just because it has no name.
It is not a requisite for validity. A contract may have no
name but it can be valid provided it has all the elements
of a contract and all the restrictions are respected.
FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form
they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or
that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following articles
cannot be exercised.
Art. 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each
other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously
with the action upon the contract.
Art. 1358. The following must appear in a public
document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real
property or of an interest therein a governed by articles
1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
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“When the time is right, I, the Lord, will make it happen.”
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds
five hundred pesos must appear in writing, even a private
one. But sales of goods, chattels or things in action are
governed by Articles 1403, No. 2 and 1405.
General Rule: There is no need for a specific form, but
there must still be some manifestation of consent.
Exceptions:
1. when the law requires that the contract must be
in a certain form in order to be valid; and
2. when the law requires that the contract must be
in a certain form in order to be enforceable.
Contracts enumerated in Article 1358 are valid as
between the contracting parties even when they have not
been reduced to public or private writings.
Except in certain cases where public instruments and
registration are required for the validity of the contract
itself, the legalization of a contract by means of a public
writing and its entry in the register are not essential
solemnities or requisites for the validity of the contract as
between the contracting parties, but are required for the
purposes of making it effective as against third persons.
agreement must be due to mistake, fraud,
inequitable conduct or accident.
■
Mistake must be of fact; it must be
mutual or common to both parties; and
the proof of mistake must be clear and
convincing.
Art. 1361. When a mutual mistake of the parties causes
the failure of the instrument to disclose their real
agreement, said instrument may be reformed.
Art. 1362. If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the
instrument does not show their true intention, the former
may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other
knew or believed that the instrument did not state their
real agreement, but concealed that fact from the former,
the instrument may be reformed.
Art. 1365. If two parties agree upon the mortgage or
pledge or real or personal property, but the instrument
states that the property is sold absolutely or with a right
of repurchase, reformation of the instrument is proper.
REFORMATION
ANNULMENT
presupposes a valid,
existing
contract,
in
which there had been a
meeting of the minds of
the parties but the
instrument drawn up and
signed by them does not
correctly express the
terms of their agreement.
presupposes a defective
contract in which the
minds of the parties did
not meet, or the consent
of one was vitiated.
Upon reformation of an instrument, the general rule is
that it relates back to, and takes effect from the time of
its original execution, especially as between the parties.
gives life to a contract
upon certain corrections
involves
a
nullification
contract
Requisites:
S sold his land to B. It was
agreed that the sale will
include
all
the
improvements. However,
the contract as signed by
the parties, states that the
land is being sold,
excluding
the
improvements thereon.
If S was selling his land
“excluding”
the
improvements and B was
buying
the
land
“including”
the
improvements, then there
has been no meeting of
the minds and the
remedy, therefore, is
3. Reformation of instruments
There are instances however, where in reducing their
agreements to writing, the true intention of the
contracting parties are not correctly expressed in the
document, either by reason of mistake, fraud, inequitable
conduct or accident. It is in such cases that reformation
of instruments is proper.
1) There must have been a meeting of the minds
upon the contract
2) The instrument or document evidencing the
contract does not express the true agreement
between the parties
3) The failure of the instrument to express the
complete
of
the
2022 Bar Reviewer by J.K.R. Gamboa | 35
“When the time is right, I, the Lord, will make it happen.”
The
remedy
is
reformation
because
there has been a meeting
of the minds.
contents of the writing, unless it is alleged and
proved that the intention of the parties is otherwise.
annulment.
The mistake of one party must refer to the contents of the
instrument and not the subject matter or the principal
conditions of the agreement. In the latter case, an action
for annulment is the proper remedy.
Art. 1366. There shall be no reformation in the following
cases:
1) Simple donations inter vivos wherein no condition is
imposed;
2) Wills;
3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action
to enforce the instrument, he cannot subsequently ask for
its reformation.
Art. 1368. Reformation may be ordered at the instance of
either party or his successors in interest, if the mistake
was mutual; otherwise, upon petition of the injured party,
or his heirs and assigns.
4. Interpretation of contracts
➔ Where the parties have reduced their contract into
writing, the contents of the writing constitutes the
sole repository of the terms of the agreement
between the parties. Whatever is not found in the
writing must be understood as waived and
abandoned. Generally, therefore, there can be no
evidence of the terms of the contract other than the
Definition
➔ When the terms of the agreement are so clear and
explicit that they do not justify an attempt to read into
it any alleged intention of the parties, the terms are
to be understood literally just as they appear on the
face of the contract.
➔ When the true intent and agreement of the parties is
established, it must be given effect and prevail over
the bare words of the written agreement.
➔ Where the instrument is susceptible of two
interpretations, one which will make it invalid and
illegal, and another which will make it valid and legal,
the latter interpretation should be adopted.
➔ In the construction of an instrument where there are
several provisions or particulars, such a construction
is, if possible, to be adopted as will give effect to all.
➔ When there is doubt as to the meaning of any
particular language, it should be determined by a
consideration of the general scope and purpose of
the instrument in which it occurs.
➔ An instrument may be construed according to usage
in order to determine its true character.
➔ The party who draws up a contract in which obscure
terms or clauses appear, is the one responsible for
the obscurity or ambiguity; they must therefore be
construed against him.
➔ When a general and a particular provision are
inconsistent, the particular provision will control.
RESCISSIBLE
CONTRACTS
VOIDABLE
CONTRACTS
UNENFORCEABLE
CONTRACTS
VOID/INEXISTENT
CONTRACTS
Rescissible contract
is a contract which is
valid
because
it
contains
all
the
essential
requisites
prescribed by law, but
which is defective
because of injury or
damage to either of
the
contracting
parties or to third
Voidable contract is a
contract in which all of
the essential elements
for
validity
are
present,
but
the
element of consent is
vitiated either by lack
of legal capacity of
one of the contracting
parties or by mistake,
violence, intimidation,
An
unenforceable
contract is a contract
which
cannot
be
enforced by a proper
action in court, unless
they
are
ratified,
because either they
are
entered
into
without or in excess of
authority or they do
not comply with the
A void or inexistent
contract is one which
lacks absolutely either
in fact or in law one or
some of the elements
which are essential for
its validity, or even if
there is a cause and
an object, if such is
contrary
to
law,
morals,
good
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“When the time is right, I, the Lord, will make it happen.”
persons,
as
a
consequence
of
which it may be
rescinded by means
of a proper action for
rescission.
undue influence, or
fraud.
Statute of Frauds or
both the contracting
parties
do
not
possess the required
legal capacity.
customs, public order
or public policy, or if
the
contract
is
expressly prohibited
or declared by law to
be void, the contract
is void or inexistent.
Defect
there is damage or
injury either to one of
the contracting
parties or to third
persons
there is vitiation of
consent or legal
incapacity of one of
the contracting
parties
contract is entered
into in excess or
without any authority,
or does not comply
with the Statute of
Frauds, or both
contracting parties
are legally
incapacitated
one or some of the
essential requisites of
a valid contract are
lacking either in fact
or in law
Effect
considered valid and
enforceable until they
are rescinded
considered valid and
enforceable until they
are annulled
cannot be enforced
by a proper action in
court
do not, as a general
rule, produce any
legal effect
Prescriptibility
of action or
defense
action for rescission
may prescribe
action for annulment
or the defense of
annulability may
prescribe
the corresponding
action for recovery, if
there was total or
partial performance of
the unenforceable
contract under No. 1
or No. 3 of Art. 1403,
may prescribe.
the action for
declaration of nullity
or inexistence or the
defense of nullity or
inexistence does not
prescribed
Susceptibility
of ratification
not susceptible
susceptible
susceptible
not susceptible
Who may
assail
contracts
A contracting party or
a third person who is
prejudiced or
damaged by the
contract
only a contracting
party
only a contracting
party
A contracting party or
a third person whose
interest is directly
affected.
How may be
assailed
directly only
directly or collaterally
directly or collaterally
directly or collaterally
5. Rescissible contracts
A rescissible contract is a contract which is valid because
it contains all the essential requisites prescribed by law,
but which is defective because of injury or damage to
either of the contracting parties or to third persons, as a
consequence of which it may be rescinded by means of
a proper action for rescission.
Rescission is a remedy granted by law to the contracting
parties, and even to third persons, to secure the
reparation of damages caused to them by a contract,
even if the same should be valid, by means of the
restoration of things to their condition prior to the
celebration of the contract.
RESCISSION (ARTICLE
1380)
RESOLUTION (ARTICLE
1191)
The action may be
instituted not only by a
The action may be
instituted only by a party
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“When the time is right, I, the Lord, will make it happen.”
party to the contract but
even by a third person.
to the contract.
There are several causes
or grounds such as lesion,
fraud
and
others
expressly specified by
law.
The only ground is failure
of one of the parties to
comply with what is
incumbent upon him.
There is no power of the
courts
to
grant
an
extension of time for
performance
of
the
obligation so long as there
is a ground for rescission.
The
law
expressly
declares that courts shall
have
a
discretionary
power
to
grant
an
extension
for
performance
provided
that there is a just cause.
Any contract, whether
unilateral or reciprocal,
may be rescinded.
Only reciprocal contracts
may be resolved.
Requisites for rescission:
1) The contact must be a rescissible contract under
Article 1381 or Article 1382;
2) The person asking for rescission must have no
other legal means to obtain reparation for the
damages suffered by him (Article 1383);
3) The person demanding rescission must be able
to return whatever he may be obliged to restore
if rescission is granted (Article 1385, ¶1);
■
■
This requisite is only applicable if the one
who suffers the lesion is a party to the
contract.
This requisite does not apply when a
defrauded creditor resorts to accion
pauliana.
4) The things which are the object of the contract
must not have passed legally to the possession
of a third person acting in good faith (Article
1385, ¶2);
■
The purchaser in bad faith, who acquired
the object of the contract alienated in
fraud of creditors, must return the same
if the sale is rescinded and should it be
impossible for him to return it due to any
cause, he must indemnify the former.
Should there be two or more alienations,
the first acquirer shall be liable first, and
so on successively. (Article 1388)
5) The action for rescission must be brought within
the prescriptive period of 4 years (Article 1389).
■
For wards and absentees, the 4-year
period is counted from the time capacity
was gained or regained, and from the
time of reappearance, as the case may
be.
■
Where the action for rescission is based
on fraud (Articles 1381 [3, 4] & 1382), it
must be counted from the time of the
discovery of the fraud.
Art. 1381. The following contracts are rescissible:
1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are
the object thereof;
2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
3) Those undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due
them;
4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
5) All other contracts specially declared by law to be
subject to rescission.
1. Contracts entered into in behalf of wards
As a rule, when a guardian enters into a contract involving
the disposition of the ward’s property, the guardian must
secure the approval of the guardianship court. A guardian
is only authorized to manage the estate of the ward. A
guardian has no power to dispose of any portion of the
estate without approval of the court. If more than acts of
mere administration are involved, judicial approval is
necessary.
If the contract involves the sale or encumbrance of real
property,
judicial
approval
is
indispensable.
Consequently, if a guardian sells, mortgages or otherwise
2022 Bar Reviewer by J.K.R. Gamboa | 38
“When the time is right, I, the Lord, will make it happen.”
encumbers real property belonging to his ward without
judicial approval, the contract is unenforceable, and not
rescissible even if the latter suffers lesion or damage of
more than one-fourth of the value of the property.
Article 1381 (1) is limited to contracts which constitute
mere acts of administration (i.e. the purchase of
equipment for the cultivation of lands, purchase of
materials for repair of buildings, etc.)
2. Contracts agreed upon in representation of
absentees
As a rule, when the legal representative of an absentee
enters into a contract involving the disposition of the
absentee’s property, he must secure the approval of the
court. A legal representative is only authorized to manage
the estate of the absentee. He has no power to dispose
of any portion of the estate without approval of the court.
If more than acts of mere administration are involved,
judicial approval is necessary.
In case of sale, mortgage, or other encumbrance of any
portion of the estate which does not have judicial
approval is an unenforceable contract.
Therefore, Article 1381 (2) is limited to contracts which
constitute mere acts of administration.
3. Contracts undertaken in fraud of creditors
The action to rescind in fraud of creditors is known as
accion pauliana.
Requisites:
1) There must be an existing credit prior to the
contract to be rescinded, although it is not yet
due or demandable later;
2) The subsequent contract made by the debtor
conveys a patrimonial benefit to a third person;
3) There must be fraud on the part of the debtor
which may be presumed or proved;
4) The creditor has no other legal remedy to satisfy
his claim, that is, he cannot recover his credit in
any other manner, it not being required that the
debtor be insolvent.
In determining whether or not a certain conveyance is
fraudulent, the question in every case is whether the
conveyance was a bona fide transaction or trick and
contrivance to defeat creditors, or whether it conserves
to the debtor a special right.
All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been
entered into in order to defraud creditors, when the donor
did not reserve sufficient property to pay all debts
contracted before the donation (Article 1387, ¶1).
Alienations by onerous title are also presumed fraudulent
when made by persons against whom some judgment
has been rendered in any instance or some writ of
attachment has been issued. The decision or attachment
need not refer to the property alienated, and need not
have been obtained by the party seeking the rescission
(Article 1387, ¶2)
BADGES OF FRAUD
1) The fact that the consideration
conveyance is inadequate.
of
the
2) A transfer made by a debtor after suit has begun
and while it is pending against him.
3) A sale upon credit by an insolvent debtor.
4) Evidence of large indebtedness or complete
insolvency.
5) The transfer of all or nearly all of his property by
a debtor, especially when he is insolvent or
greatly embarrassed financially.
6) The fact that the transfer is made between father
and son when there are present any of the above
circumstances.
7) The failure of the vendee to take exclusive
possession of all the property.
4. Contracts which refer to things under litigation
Article 1381 (4) refers to a contract executed by the
defendant in a suit involving the ownership or possession
of a thing, when such contract is made without the
knowledge and approval of the plaintiff or court.
In No. (3), the purpose of the remedy is to secure the
payment of an existing credit of a third person against a
party to a contract sought to be rescinded. Here, the
purpose is to make effective the claim of a party litigant
over a thing under litigation which was the object of a
contract entered into by the other party with another
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“When the time is right, I, the Lord, will make it happen.”
person.
were entered into without authority.
As in the case of a contract in fraud of creditors, the
remedy of rescission in this case is given to a third person
who is not a party to the contract. The purpose is to
protect the plaintiff.
However, under the present Code, there is no more
distinction between confirmation and ratification, the
latter being also the term used for the former.
Confirmation
and
ratification
may
be
used
interchangeably in curing the defect of a voidable
contract.
5. All other contracts specially declared by law to be
the subject of rescission
The following provisions in sales are examples of
rescissible contracts declared by law – Arts 1526, 1534,
1538, 1539, 1540, 1556, 1560, 1567, 1659.
Under Art. 1382, payments made in a state of insolvency
for obligations to whose fulfillment the debtor could not
be compelled at the time they were effected, are also
rescissible.
6. Voidable contracts
A voidable contract is a contract in which all of the
essential elements for validity are present, but the
element of consent is vitiated either by lack of legal
capacity of one of the contracting parties or by mistake,
violence, intimidation, undue influence, or fraud.
The most essential feature of a voidable contract is that
it is binding until it is annulled by a competent court.
Consequently, once it is executed there are only two
possible alternatives left to the party who may invoke its
voidable character — to attack its validity or to
convalidate it either by ratification or by prescription.
Ratification cleanses the contract from all its defects from
the moment it was constituted. (Art. 1396.) The contract
thus becomes valid. (Art. 1390.) Hence, the action to
annul is extinguished. (Art. 1392)
Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which
necessarily implies an intention to waive his right. (Article
1393)
Requisites:
1) That the contract is a voidable or annullable
contract;
2) That the ratification is made with knowledge of
the cause for nullity;
3) That at the time the ratification is made, the
cause of nullity has already ceased to exist.
Who may ratify/confirm
Art. 1390. The following contracts are voidable or
annullable, even though there may have been no damage
to the contracting parties:
Voidable contracts can be confirmed only by the party
whose consent was vitiated.
1) Those where one of the parties is incapable of giving
consent to a contract;
Confirmation may be effected by the guardian of the
incapacitated person (Article 1394)
2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
Confirmation does not require the conformity of the
contracting party who has no right to bring the action for
annulment (Article 1395)
These contracts are binding, unless they are annulled by
a proper action in court. They are susceptible of
ratification.
ACTION TO ANNUL A CONTRACT
RATIFICATION/CONFIRMATION
There is a difference between confirmation and
ratification. Confirmation is the process of curing the
defect of a voidable contract. Ratification is the process
of curing contracts which are defective because they
Art. 1397. The action for the annulment of contracts may
be instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or
undue influence, or employed fraud, or caused mistake
base their action upon these flaws of the contract.
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“When the time is right, I, the Lord, will make it happen.”
Party entitled to bring an action to annul
Requisites:
1) The plaintiff must have an interest in the contract;
and
2) The victim and not the party responsible for the
vice or defect must be the person who must
assert the same.
The successors-in-interest of a party to a voidable
contract may sue for the annulment of the contract.
Strangers, even the creditors of the victim or aggrieved
party, are without right or personality to bring the action
for they are not obliged by the contract, principally or
subsidiarily, unless they are prejudiced in their rights with
respect to one of the contracting parties, and can show
detriment which would positively result to them from the
contract in which they had no intervention. Thus, the
creditors of the aggrieved party may bring an action for
rescission of the contract if the latter has no other
property.
Prescriptive period for annulment
The action for annulment shall be brought within 4 years.
This period shall begin:
1. Intimidation — from the time the defect of the
consent ceases.
2. Violence — from the time the defect of the
consent ceases.
3. Undue influence — from the time the defect of
the consent ceases.
4. Mistake — from the time of the discovery of the
mistake.
5. Fraud — from the time of the discovery of the
fraud.
6. Contracts entered into by minors or other
incapacitated persons — from the time the
guardianship ceases.
The action for annulment will not prosper in the
following:
1) If the contract has been confirmed (Article 1392)
2) If the action to annul has prescribed (Article
1391)
3) When the thing which is the object of the
contract is lost through the fault or fraud of the
person who has a right to institute the
proceedings (Article 1401, 1st ¶)
MUTUAL RESTITUTION
Upon the annulment of the contract, if the prestation
thereof consisted in obligations to give, the parties shall
restore to each other the things which have been the
subject matter of the contract, with their fruits, and the
price with its interest, except in cases provided by law.
(Article 1398, ¶1)
If, on the other hand, the prestation consisted in
obligations to do or not to do, there will have to be an
apportionment of damages based on the value of such
prestation with corresponding interests. (Article 1398, ¶2)
In other words, upon annulment the contracting parties
should be restored to their original position by mutual
restitution.
When the defect of the contract consists in the incapacity
of one of the contracting parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him. (Article 1399)
EFFECT OF LOSS OF THING TO BE RETURNED
1) Where loss is due to fault of defendant —
when the person obliged by the decree of
annulment to return the thing cannot do so
because it has been lost through his fault, he
shall return the fruits received and the value of
the thing at the time of the loss, with interest from
the same date.
2) Where loss is due to the fault of the plaintiff —
the action for annulment shall be extinguished.
3) Where loss is due to fortuitous event
a)
If the person obliged by the decree of
annulment to return the thing cannot do
so because it has been lost through a
fortuitous event, the contract can still be
annulled, but the defendant can be held
liable only for the value of the thing at the
time of the loss, but without interest
thereon.
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“When the time is right, I, the Lord, will make it happen.”
b) If it is the plaintiff who cannot return the
thing because it has been lost through a
fortuitous event, the contract may still be
annulled, but he must pay to the
defendant the value of the thing at the
time of the loss, but without interest
thereon.
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract.
7. Unenforceable contracts
An unenforceable contract is a contract which cannot be
enforced by a proper action in court, unless they are
ratified, because either they are entered into without or in
excess of authority or they do not comply with the Statute
of Frauds or both the contracting parties do not possess
the required legal capacity.
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, of such
things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person
on whose account the sale is made, it is a sufficient
memorandum;
Under Article 1403,
unenforceable:
the
following
contracts
are
1) Those entered into in the name of another by one
without or acting in excess of authority;
2) Those that do not comply with the Statute of
Frauds; and
3) Those where both parties are incapable of giving
consent.
1. Contracts Without or in Excess of Authority
When a person enters into a contract for and in the name
of another, without authority to do so, the contract does
not bind the latter, unless he ratifies the same.
Example: In a sale, Y claimed that he was an agent of X,
even if not. The contract cannot be enforced against X.
Another example is when the agent is authorized to lease
the property but the agent instead sells the property. The
principal is not bound.
Q: On the occasion of the 7th birthday of Panjib’s
daughter, Janpab, the latter’s paternal grandmother
donated to Janpab as a birthday gift a flat screen TV set
worth PhP40,000.00. Panjib has 4 TV sets in her house,
so she thought that a 5th set would be unnecessary. On
behalf of her daughter, Panjib sold the TV set to Sanjeer
for PhP28,000.00. The TV set was delivered to Sanjeer
who paid the purchase price. Panjib deposited the
money in her daughter’s bank account. Janpab’s
grandmother was furious and sought your advice. What
advice will you give her?
➔ A: I will advice Janpab’s grandmother that the sale
of the TV set is unenforceable. Under the Civil Code,
a guardian is only authorized to manage the estate
of the ward. She has no power to dispose of any
portion of the estate without approval of the court.
If more than acts of mere administration are
involved, judicial approval is necessary. Here,
Panjib sold the TV set which is not a mere act of
administration. Therefore, in the absence of
judicial approval, the sale is unenforceable.
2022 Bar Reviewer by J.K.R. Gamboa | 42
“When the time is right, I, the Lord, will make it happen.”
2. Contracts Infringing Statute of Frauds
than a mutual promise to marry.
Under the Statute of Frauds, the only formality required
is that the contract or agreement must be in writing and
subscribed by the party charged or by his agent.
■
In case of noncompliance with the Statute of Frauds, the
contract or agreement is unenforceable by action. What
is, therefore, affected by the defect of the contract or
agreement is not its validity, but its enforceability.
d) An agreement for the sale of goods, chattels
or things in action, at a price not less than Five
hundred pesos.
■
The requirement of a written instrument or a
memorandum for sales of personal property
for a price not less than P500, covers both
tangible and intangible personal property. It
also covers the assignment of choses in
action.
■
Where a contract for the sale of goods at a
price not less than P500 is oral, and there is
neither partial payment or delivery, receipt,
and acceptance of the goods, the contract is
unenforceable, and cannot be the basis of an
action for the recovery of the purchase price,
or as the basis of an action for damages for
breach of the agreement.
■
Where there is a purchase of a number of
articles which taken separately does not
have a price of P500 each, but taken
together, the price exceeds P500, the
operation of the statute of frauds depends
upon whether there is a single inseparable
contract or a several one. If the contract is
entire or inseparable, and the total price
exceeds P500, the statute applies. But if the
contract is separable, then each article is
taken separately.
A contract exists and is valid even though it is not clothed
with the necessary form. Consequently, the effect of noncompliance with the requirement of the statute is simply
that no action can be enforced unless the requirement is
complied with.
The Statute of Frauds applies only to executory contracts
and not to those which have been executed in whole or
in part.
a) Agreement not to be performed within one
year from the making thereof.
■
It is well-settled that this refers only to
agreements which by their terms are not to
be performed on either side within a year
from the execution thereof. Hence, those
which are to be fully performed on one side
within a year are taken out of the operation
of the statute.
b) Promise to answer for the debt, default, or
miscarriage of another.
■
It is well-settled that a promise in order to fall
under the statute must be collateral, not
independent or original.
■
“The true test as to whether a promise is
within the statute has been said to lie in the
answer to the question whether the promise
is an original or a collateral one. If the
promise is an original or an independent one,
that is, if the promisor becomes thereby
primarily liable for the payment of the debt,
the promise is not within the statute. But, on
the other hand, if the promise is collateral to
the agreement of another and the promisor
becomes thereby merely a surety, the
promise must be in writing.” (Reiss v.
Memije)
c) Agreement in consideration of marriage other
Marriage settlements and donations by
reason of marriage, according to the Code,
shall be regulated by the Statute of Frauds.
e) An agreement for the leasing of real property
for a longer period than one year, or for the
sale of real property or an interest therein.
f)
■
As long as there is a sale of real property, the
sale must be in writing. There is no minimum.
■
An agreement creating an easement of right
of way is not covered by the Statute since it
is not a sale of real property or of an interest
therein.
A representation as to the credit of a third
person.
Modes of ratification under the Statute
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“When the time is right, I, the Lord, will make it happen.”
1. By failure to object to the presentation of oral
evidence to prove the contract. The failure to so
object amounts to a waiver and makes the
contract as binding as if it had been reduced to
writing.
2. By acceptance of benefits under the contract. In
this case, the contract is no longer executory
and, therefore, the Statute does not apply. It is
also an indication of a party’s consent to the
contract as when he accepts partial payment or
delivery of the thing sold thereby precluding him
from rejecting its binding effect.
3. Contracts Where Both Parties Are Incapacitated
If only one of the parties is incapacitated, the contract is
voidable.
Neither party or his representative can enforce the
contract unless it has been previously ratified. The
ratification by one party, however, converts the contract
into a voidable contract – voidable at the option of the
party who has not ratified; the latter, therefore, can
enforce the contract against the party who has ratified.
Or, instead of enforcing the contract, the party who has
not ratified it may ask for annulment on the ground of his
incapacity.
Art. 1408. Unenforceable contracts cannot be assailed by
third persons.
law, morals, good customs, public order or public
policy;
2) Those which are absolutely simulated or fictitious;
3) Those whose cause or object did not exist at the time
of the transaction;
4) Those whose object is outside the commerce of men;
5) Those which contemplate an impossible service;
6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived.
CHARACTERISTICS OF VOID CONTRACTS
1. As a general rule, they produce no legal effects
whatsoever in accordance with the principle
“quod nullum est nullum producit effectum.’’
2. A judgment of nullity would be merely
declaratory. There is no action for annulment
necessary as such is ipso jure.
■
Even when the contract is void or
inexistent, an action is necessary to
declare its inexistence, when it has
already been fulfilled. Nobody can take
the law into his own hands.
■
The intervention of a competent court is
necessary to declare the absolute nullity
of the contract and to decree the
restitution of what has been given under
it.
■
The judgment of nullity will retroact to the
very day when the contract was entered
into.
8. Void or inexistent contracts
A void or inexistent contract may be defined as one which
lacks absolutely either in fact or in law one or some of the
elements which are essential for its validity. Thus, if there
is absolutely no consent, object or cause, or if the
formalities which are essential for validity are not
complied with, or even if there is a cause and an object,
if such cause or object is contrary to law, morals, good
customs, public order or public policy, or if the contract
is expressly prohibited or declared by law to be void, the
contract is void or inexistent.
A void contract produces no effect whatsoever either
against or in favor of anyone. It vests no rights and
creates no obligations; hence, it does not create, modify,
or extinguish the juridical relation to which it refers.
Art. 1409. The following contracts are inexistent and void
from the beginning:
1) Those whose cause, object or purpose is contrary to
3. They are not susceptible of ratification.
4. If it has been performed, the restoration of what
has been given is in order, except if pari delicto
will apply.
5. The right to set up the defense of inexistence or
absolute nullity cannot be waived or renounced.
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“When the time is right, I, the Lord, will make it happen.”
6. The action or defense for the declaration of their
inexistence or absolute nullity is imprescriptible.
7. The inexistence or absolute nullity of a contract
cannot be invoked by a person whose interests
are not directly affected.
PRINCIPLE OF IN PARI DELICTO
When the defect of a void contract consists in the
illegality of the cause or object of the contract, and both
of the parties are at fault or in pari delicto, the law refuses
them every remedy and leaves them where they are.
(Articles 1411 & 1412)
The pari delicto rule applies only to contracts which are
void for illegality of subject matter. Thus, if the contract
is void for simulation, the pari delicto rule does not apply
so a party can claim the object back through
reconveyance.
Rules where contract is illegal and the act constitutes
a criminal offense (Article 1411)
1) Where both parties are in pari delicto
a)
The parties shall have no action against each
other;
b) Both shall be prosecuted; and
c)
The things or the price of the contract, as the
effects or instruments of the crime, shall be
confiscated in favor of the government.
2) Where only one party is guilty
a)
No action for specific performance can
prosper on either side;
b) An action for restitution will be allowed only
if the innocent party demands. The guilty
party is not entitled to restitution.
Rules where contract is unlawful or forbidden but act
not a criminal offense (Article 1412)
1) Where both parties in pari delicto
a)
Neither party may recover what he has given
by virtue of the contract; and
b) Neither party may demand the performance
of the other’s undertaking.
2) Where only one party is guilty
a)
The guilty party loses what he has given by
reason of the contract;
b) The guilty party cannot ask for the fulfillment
of the other’s undertaking;
c)
The innocent party may demand the return of
what he has given; and
d) The innocent party cannot be compelled to
comply with his promise.
EXCEPTIONS TO PARI DELICTO RULE
1. Payment of usurious interest. In such case, the
law allows the debtor to recover the interest paid
in excess of that allowed by the usury laws, with
interest thereon from the date of payment.
(Article 1413)
2. Payment of money or delivery of property for an
illegal purpose, where the party who paid or
delivered repudiates the contract before the
purpose has been accomplished, or before any
damage has been caused to a third person.In
such case, the courts may, if the public interest
will thus be subserved, allow the party
repudiating the contract to recover the money or
property (Article 1414).
3. Payment of money or delivery of property by an
incapacitated person. In such case, the courts
may allow such person to recover what he has
paid or delivered, if the interest of justice so
demands. (Article 1415).
4. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by law is
designed for the protection of the plaintiff, he
may, if public policy is enhanced, recover what
he has paid or delivered (Article 1416).
5. Payment of any amount in excess of the
maximum price of any article or commodity fixed
by law. In such case, the buyer may recover the
excess. (Article 1417).
6. Contract whereby a laborer undertakes to work
longer than the maximum number of hours fixed
by law. In such case, the laborer may demand for
overtime pay. (Article 1418).
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“When the time is right, I, the Lord, will make it happen.”
7. Contract whereby a laborer accepts a wage
lower than the minimum wage fixed by law. In
such case, the laborer may demand for the
deficiency. (Article 1419)
CONTRACT OF ADHESION
One in which one of the parties imposes a ready made
form of contract, which the other party may accept or
reject, but which the latter cannot modify. (PCIB vs. CA)
A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto.
A contract of adhesion is just as binding as ordinary
contracts. It is true that we have, on occasion, struck
down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining
party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to
bargain on equal footing. Nevertheless, contracts of
adhesion are not invalid per se; they are not entirely
prohibited. The one who adheres to the contract is in
reality free to reject it entirely; if he adheres, he gives his
consent. (DBP v. Perez)
C. Natural obligations
Art. 1423. Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant
a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in
the following articles.
Natural obligations are those based on equity and natural
law, which do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor,
authorize the retention of what has been delivered or
rendered by reason thereof.
In other words, they refer to those “obligations without a
sanction, susceptible of voluntary performance, but not
through compulsion by legal means.”
Natural obligations are not cognizable by the courts
unless there has been voluntary fulfillment in which case,
the court may order the retention of what has been
delivered or rendered by reason thereof. Fulfillment or
performance is voluntary when the obligor knew that the
obligation cannot legally be enforced.
Art. 1424. When a right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered.
Problem: A borrowed from B P1,000 which amount B
failed to collect. After the debt has prescribed, A
voluntarily paid B who accepted the payment. After a
few months, being in need of money, A demanded the
return of the P1,000 on the ground that there was a
wrong payment, the debt having already prescribed, B
refused to return the amount paid. May A succeed in
collecting if he sues B in court? Reason out your answer.
(1970 Bar problem)
Answer — A will not succeed in collecting the P1,000 if
he sues B in court. The case is expressly covered by Art.
1424 of the Civil Code which declares that when a right
to sue upon a civil obligation has lapsed by extinctive
prescription, the obligor who voluntarily performs the
contract cannot recover what he has delivered or the
value of the service he has rendered.
Because of extinction prescriptive, the obligation of A to
pay his debt of P1,000 to B became a natural obligation.
While it is true that a natural obligation cannot be
enforced by court action, nevertheless, after voluntary
fulfillment by the obligor, under the law, the obligee is
authorized to retain what has been paid by reason
thereof.
Art. 1425. When without the knowledge or against the
will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action
thereon has prescribed but the debtor later voluntarily
reimburses the third person, the obligor cannot recover
what he has paid.
Art. 1426. When a minor between eighteen and
twentyone years of age who has entered into a contract
without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact that he
has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and
twentyone years of age, who has entered into a contract
without the consent of the parent or guardian, voluntarily
pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to
recover the same from the obligee who has spent or
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“When the time is right, I, the Lord, will make it happen.”
consumed it in good faith.
Art. 1428. When, after an action to enforce a civil
obligation has failed, the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.
Art. 1429. When a testate or intestate heir voluntarily pays
a debt of the decedent exceeding the value of the property
which he received by will or by the law of intestacy from
the estate of the deceased, the payment is valid and
cannot be rescinded by the payer.
Art. 1430. When a will is declared void because it has not
been executed in accordance with the formalities required
by law, but one of the intestate heirs, after the settlement
of the debts of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment is effective
and irrevocable.
D. Estoppel
ART. 1431. 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.
Generally speaking, estoppel is a bar which precludes a
person from denying or asserting anything to the contrary
of that which has, in contemplation of law, been
established as the truth, either by the acts of judicial or
legislative officers, or by his acts, representations, or
admissions, either express or implied.
KINDS OF ESTOPPEL
Sibonghanoy)
(enunciated
in
Tijam
v.
1) Estoppel in pais
■
Estoppel in pais or by conduct is that which
arises when one by his acts, representations, or
admissions, or by his silence when he ought to
speak out, intentionally or through culpable
negligence, induces another to believe certain
facts to exist and such other rightfully relies and
acts on such belief, as a consequence of which
he would be prejudiced if the former is permitted
to deny the existence of such facts.
2) Estoppel by deed or by record
■
Estoppel by deed is a type of technical estoppel
by virtue of which a party to a deed and his
privies are precluded from asserting as against
the other party and his privies any right or title in
derogation of the deed, or from denying any
material fact asserted therein.
■
Estoppel by record is a type or technical
estoppel by virtue of which a party and his privies
are precluded from denying the truth of matters
set forth in a record whether judicial or legislative.
3) Estoppel by laches
■
A type of equitable estoppel which arises when a
party, knowing his rights as against another,
takes no step or delays in enforcing them until
the condition of the latter, who has no knowledge
or notice that the former would assert such
rights, has become so changed that he cannot
without injury or prejudice, be restored to his
former state.
The doctrine of estoppel does not apply against the
government suing in its capacity as sovereign or
asserting government rights. The State or government is
never estopped by the mistakes or errors, negligence or
omission on the part of its officials or agents.
Art. 1434. When a person who is not the owner of a thing
sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.
Art. 1435. If a person in representation of another sells or
alienates a thing, the former cannot subsequently set up
his own title as against the buyer or grantee.
Art. 1436. A lessee or a bailee is estopped from asserting
title to the thing leased or received, as against the lessor
or bailor.
Art. 1437. When in a contract between third persons
concerning immovable property, one of them is misled by
a person with respect to the ownership or real right over
the real estate, the latter is precluded from asserting his
legal title or interest therein, provided all these requisites
are present:
(1) There must be fraudulent representation or wrongful
concealment of facts known to the party estopped;
(2) The party precluded must intend that the other should
act upon the facts as misrepresented;
(3) The party misled must have been unaware of the true
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“When the time is right, I, the Lord, will make it happen.”
facts; and
(4) The party defrauded must have acted in accordance
with the misrepresentation.
Art. 1438. One who has allowed another to assume
apparent ownership of personal property for the purpose
of making any transfer of it, cannot, if he received the sum
for which a pledge has been constituted, set up his own
title to defeat the pledge of the property, made by the
other to a pledgee who received the same in good faith
and for value.
Art. 1439. Estoppel is effective only as between the parties
thereto or their successors in interest.
E. Trusts
Trust is the legal relationship between one person having
an equitable ownership in a certain property and another
person owning the legal title to such property.
Parties to a Trust
a) Trustor — the person who establishes the Trust;
b) Trustee — the one in whom confidence is
reposed as regards property for the benefit of
another person; and
c) Beneficiary — the person for whose benefit the
trust has been created.
The object of the trust is known as the trust res. The trust
res must consist of property, actually in existence, in
which the trustor has a transferable interest or title,
although as a rule, it consists of any kind of transferable
property, either realty or personalty, including undivided,
future, or contingent interest therein.
Trustees cannot donate the property entrusted to them.
the person for whose benefit the trust has been created
is referred to as the beneficiary" (Art. 1440, Civil Code).
There is a fiduciary relation between the trustee and the
cestui que trust as regards certain property, real,
personal, money or choses in action.
No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly
intended. Express trusts are those which are created by
the direct and positive acts of the parties, by some writing
or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust.
Implied trusts are those which, without being expressed,
are deducible from the nature of the transaction as
matters of intent, or which are superinduced on the
transaction by operation of law as matter of equity,
independently of the particular intention of the parties.
They are ordinarily subdivided into resulting and
constructive trusts.
A resulting trust is broadly defined as a trust which is
raised or created by the act or construction of law, but in
its more restricted sense it is a trust raised by implication
of law and presumed to have been contemplated by the
parties, the intention as to which is to be found in the
nature of their transaction, but not expressed in the deed
or instrument of conveyance
On the other hand, a constructive trust is a trust "raised
by construction of law, or arising by operation of law". In
a more restricted sense and as contra-distinguished from
a resulting trust, a constructive trust is "a trust not
created by any words, either expressly or impliedly
evincing a direct intention to create a trust, but by the
construction of equity in order to satisfy the demands of
justice." It does not arise "by agreement or intention, but
by operation of law."
Ramos v. Ramos (1974)
"In its technical legal sense, a trust is defined as the right,
enforceable solely in equity, to the beneficial enjoyment
of property, the legal title to which is vested in another,
but the word 'trust' is frequently employed to indicate
duties, relations, and responsibilities which are not
strictly technical trusts"
There is a rule that a trustee cannot acquire by
prescription the ownership of property entrusted to him,
or that an action to compel a trustee to convey property
registered in his name in trust for the benefit of the cestui
qui trust does not prescribed, or that the defense of
prescription cannot be set up in an action to recover
property held by a person in trust for the benefit of
another, or that property held in trust can be recovered
by the beneficiary regardless of the lapse of time.
A person who establishes a trust is called the trustor; one
in whom confidence is reposed as regards property for
the benefit of another person is known as the trustee; and
That rule applies squarely to express trusts. The basis of
the rule is that the possession of a trustee is not adverse.
Not being adverse, he does not acquire by prescription
Salao v. Salao (1976)
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“When the time is right, I, the Lord, will make it happen.”
the property held in trust.
The rule of imprescriptibility of the action to recover
property held in trust may possibly apply to resulting
trusts as long as the trustee has not repudiated the trust.
Acquisitive prescription may bar the action of the
beneficiary against the trustee in an express trust for the
recovery of the property held in trust where (a) the trustee
has performed unequivocal acts of repudiation
amounting to an ouster of the cestui qui trust; (b) such
positive acts of repudiation have been made known to
the cestui qui trust and(c) the evidence thereon is clear
and conclusive.
With respect to constructive trusts, the rule is different.
The prescriptibility of an action for reconveyance based
on constructive trust is now settled. Prescription may
supervene in an implied trust. And whether the trust is
resulting or constructive, its enforcement may be barred
by laches.
RESULTING TRUST
CONSTRUCTIVE TRUST
Arise from the nature or
circumstances of
the
consideration involved in
a transaction whereby
one person becomes
invested with legal title
but is obligated in equity
to hold his title for the
benefit of another.
Come about in the main by
operation of law and not by
agreement or intention; they
arise not by any word or
phrase, either expressly or
impliedly, evincing a direct
intention to create a trust,
but one which arises in order
to satisfy the demands of
justice.
Based on the equitable
doctrine that valuable
consideration and not
legal
title
is
determinative
of
equitable title or interest
and
is
always
presumed to have been
contemplated by the
parties.
Also known as trusts ex
maleficio, trusts ex delicto
and trusts de son tort,
they are construed against
one who by actual or
constructive fraud, duress,
abuse of
confidence,
commission of a wrong or
any
form
of
unconscionable
conduct,
artifice,
concealment of
questionable means, or who
in any way against equity
and good conscience has
obtained or holds the legal
right to property which he
ought not, in equity and
good conscience, hold and
enjoy.
Describable
as
"intention-enforcing
trusts” because intent
is presumed as it is not
expressed
in
the
instrument or deed of
conveyance and is to be
found in the nature of
their transaction
Aptly
characterized
as
"fraud-rectifying
trust,"
imposed by equity to
satisfy the demands of
justice and to defeat or
prevent the wrongful act of
one of the parties.
Specific examples of
resulting trusts may be
found in the Civil Code,
particularly
Articles
1448, 1449, 1451, 1452
and 1453.
Constructive
trusts
are
illustrated in Articles 1450,
1454, 1455 and 1456.
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“When the time is right, I, the Lord, will make it happen.”
a fictitious contract where the signature of one
V. SALES
of the parties was forged.
� Additional sources: Book of Villanueva; Most of the Q&As are from
Uribe Notes
○
A. Nature and form
1. Essential requisites
Article 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Sale – a contract whereby one of the contracting parties
(Seller) obligates himself to transfer the ownership, and
to deliver the possession, of a determinate thing; and the
other party (Buyer) obligates himself to pay therefor a
price certain in money or its equivalent.
■
If consent was given → It does not necessarily
mean that the COS is valid. The consent may
be given by an incapacitated person or one with
capacity to give consent. If given by an
incapacitated person, consider the nature of the
NATURE OF OBLIGATIONS CREATED IN A SALE
Both sets of obligations, are real obligations or
obligations “to give”
Simulated – parties to this contract
actually would have participation. They
would voluntarily sign in the deed of sale.
However, they do not intend to be bound
at all (Absolute) or they may intend to be
bound to another contract but they
executed a deed of sale (Relative).
Thus, the law would ratify these
contracts considering there is a
simulated sale.
incapacity (absolute or relative).
■
If both parties are incapacitated → not only
voidable but unenforceable.
Obligations of the Seller
○
➔ Transfer the Ownership
➔ Deliver the Possession, of the SUBJECT
MATTER
Sale of Necessaries → In sale of
necessaries such as food, clothing and
medicine to a minor, the minor has to pay
a reasonable price. This contract is not
Obligation for the Buyer
voidable. The sale of necessaries will
➔ Pay the PRICE
bind the minor and he will be compelled
to pay not really the contract price but
ELEMENTS OF SALE
only to reasonable price.
A. Essential elements of a contract of sale.
■
1. Consent or meeting of the minds. → This refers to
is vitiated → voidable.
the consent on the part of the seller to transfer and
deliver and on the part of the buyer to pay. The parties
must have legal capacity to give consent and to
Even if consent was given by one with
capacity to give consent but if the consent
■
If the party gave such consent in the name
of another without authority of that person
obligate themselves. The essence of consent is the
or no authority of law → unenforceable. Take
conformity of the parties on the terms of the contract,
note it may be authorized by the person or by
the acceptance by one of the offer made by the other.
law.
■
No consent of one or both of the parties →
the contract is void. Under the law on sales, it is
■
Consent reluctantly given → There is no
difference in law where a person gives his
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consent reluctantly and even against his good
because they intended it to be a donation →
sense and judgment as when he acts voluntarily
void.
and freely. (Acasio vs. Corp. de los PP.
Dominicos de Filipinas)
■
The price agreed upon was 1M yen. Is it
valid? YES. The only requirement of the law is
“in money”. Even Japanese yen is in money.
The law states that it may not even be in
money, it may be “equivalent” like promissory
notes whether or not negotiable or letters of
credit.
■
Can there be a valid payment in P10,000 - P1
coins? Can you compel the seller to accept?
Yes valid, but the seller cannot be compelled to
accept because under the Philippine law, P1
will have legal tender power only up to P1,000.
■
The agreement of the parties was for one of
them to fix the price. Is the sale perfected?
YES. However, it may be perfected only if the
price fixed by the party who was asked to fix
the price was accepted by the other party. If not
accepted, there was no meeting of the minds.
■
A and B agreed that X will fix the price, may
the sale be void? YES, the sale may be void if
the third person does not want to fix the price
or is unable to fix the price. Hence, there was
no meeting of the minds.
■
The third person fixed the price but it was
too high or too low or there was fraud
committed by the 3rd person or he was in
connivance with one of the parties, may the
sale be void? NO, because the remedy of the
other party is to go to court for the court to fix
the price.
■
When Price is Simulated → if there was no
2. Object or subject matter. → This refers to the
determinate thing which is the object of the contract.
The thing must be determinate or at least capable of
being made determinate because if the seller and the
buyer differ in regard to the thing sold, there is no
meeting of the minds; therefore, there is no sale. The
subject matter may be personal or real property.
■
Emptio Rei Speratae (sale of an expected
thing) → VALID. It is sale of a thing not yet in
existence subject to the condition that the thing
will exist and on failure of the condition, the
contract becomes ineffective and hence, the
buyer has no obligation to pay the price.
■
Emptio Spei (Sale of hope or expectancy) →
VOID. It is the sale of the hope itself that the
thing will come into existence, where it is agreed
that the buyer will pay the price even if the thing
does not eventually exist. Ex: Sale of lotto ticket
Note: In case of doubt, the presumption is in
favor of Emptio Rei Speratae.
3. Price certain in money or its equivalent → this is
the cause or consideration. The price need not be in
money.
■
■
intent by the parties at the time of perfection to
Mere inadequacy of price does not invalidate
the sale but may be a badge of vitiated
consent.
pay and to receive the price stipulated, then it is
If there is gross inadequacy, it may be because
they actually intended another contract and
that would make the sale a simulated sale and
therefore the sale is void.
If the price is simulated, regardless whether
Example: The value of the property is P1M
but only P10,000 was written in the contract
a wholly simulated price, and the underlying
contract of sale is void for lack of consideration.
absolute or relative, then the sale is void.
B. Natural Elements — those which are inherent in the
contract, and which in the absence of any contrary
provision, are deemed to exist in the contract.
➔ warranty against eviction
➔ warranty against hidden defects
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C. Accidental elements — those which may be present
or absent in the stipulation, such as the place or time of
payment, or the presence of conditions.
Form of contract → Generally, a contract of sale is
2. Perfection
Statute of Frauds or of any other applicable statute which
Article 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts.
A contract of sale is perfected from the moment the
parties have agreed upon a determinate thing, the object
of the contract, and a certain price therefor, whether in
money or its equivalent, even if neither is delivered.
As a consensual contract, a contract of sale becomes a
binding and valid contract upon the meeting of the minds
of the parties as to the price, despite the manner of
payment, or even the breach of that manner of payment.
It is not the act of payment of price that determines the
validity of a contract of sale. However, where the parties
still have to meet and agree on how and when the down
payment and installment payments are to be made, it
cannot be said that a contract of sale has been perfected.
The perfection of the contract gives to the vendee a right
to compel the vendor to deliver the thing but he acquires
no real right over it until the delivery is made.
binding regardless of its form. However, in case the
contract of sale should fall within the provisions of the
requires a certain form for its enforceability or validity,
then that form must be complied with.
Q: With a perfected COS, does it mean it is already
enforceable?
➔ A: Not necessarily. Note that upon perfection,
the parties may compel the other party to
perform their respective obligations. But the
perfection is subject to the formalities prescribed
by law for that contract. Therefore, even under
1475, the perfection of the contract is subject to
the provisions of law on the formalities of COS
like the statute of frauds. There may be a meeting
of the minds but if it is not in the form prescribed
by law, it may be unenforceable.
CONSUMMATION [DELIVERY]
General rule: ownership of the thing sold passes on to
the vendee upon delivery thereof. This is true even if the
purchase has been made on credit. Payment of the
purchase price is not essential to the transfer of
ownership, as long as the property sold has been
delivered.
Non-performance does not void the contract.
The contract is consummated by the delivery of the thing
sold and of the purchase money.
Failure to pay the consideration of a contract is different
from lack of consideration; the former results in a right to
demand fulfillment or cancellation of the obligation under
an existing valid contract, while the latter prevents the
existence of a valid contract. (Montecillo vs. Reyes)
In all forms of delivery, it is necessary that the act of
delivery, whether actual or constructive, should be
coupled with the intention of delivering the thing sold.
The act without the intention is insufficient; there is no
tradition.
Non-payment of the price does not render void nor
reverse the effects of the perfection of the contract of
sale. (Balatbat v. CA)
Alfredo v. Borras, held that it is not necessary that the
seller himself delivers title of the property to the buyer
because the thing sold is understood as delivered when
it is placed in the control and possession of the buyer.
The seller need not own the subject at the time of the
perfection of the contract but ownership by the seller
must exist at the time of consummation or when the thing
is delivered.
Even when there is a meeting of minds as to the subject
matter and the price, there is deemed to be no perfected
sale, if the sale is subject to a suspensive condition.
Article 1479. A promise to buy and sell a determinate
thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration
distinct from the price.
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“When the time is right, I, the Lord, will make it happen.”
Par. 1 → bilateral contract
Par. 2 → unilateral contract; a privilege as to acceptance
Option money is the money paid or promised to be paid
as a distinct consideration for an option contract.
When Option Is Without Separate Consideration →
Article 1324 applies to contracts in general. While Article
1479 applies specifically to sales.
Without a consideration separate from the purchase price,
UNILATERAL PROMISE
still constitute a valid offer; so that if the option is
Once a unilateral promise is accepted, and supported by
a separate consideration distinct from the price, it
becomes an option contract which is a preliminary
contract to the contract of sale.
A unilateral promise to buy or sell is a mere offer, which
is not converted into a contract except at the moment it
is accepted. Upon acceptance, a bilateral contract to sell
and to buy is created and the offeree ipso facto assumes
the obligations of the buyer and the offeror would be
liable for damages if he fails to deliver the thing he had
offered for sale.
A unilateral promise to buy or sell, even if accepted, is
only binding if supported by a consideration. The option,
even if accepted, can still be withdrawn if not supported
by any consideration.
Policitacion → A unilateral promise or offer to sell or to
an option contract would be void as a contract, but would
exercised prior to its withdrawal, that is equivalent to an
offer being accepted prior to withdrawal and would give
rise to a valid and binding sale. (Sanchez v. Rigos)
Q: Can the parties themselves agree that there would
be a perfected COS and then the OM would be treated
as part of the price?
➔ A: The SC said that this is binding between the
parties. Though it is an OM, it can be considered
as part of the price as long as it is stipulated.
Without stipulation, the OM cannot be
considered as partial payment because it is a
consideration for the option and therefore not
part of the price.
Option Contract v. Contract of Sale
■
The most important distinction with sale, is that
the subject matter of an option contract is
actually not the subject matter of the sought sale,
but rather the option to purchase such subject
matter, essentially an intangible subject matter or
a right. More pointedly, the subject matter of an
option contract is the accepted promise to sell or
accepted promise to buy. Consequently, unlike
in a sale, the main issue on the subject matter of
a valid option contract is whether the option or
right secured is on an obligation “to do” or an
obligation “to give”.
■
The distinction between an ‘option’ and a
contract of sale is that an option is an
unaccepted offer: It states the terms and
conditions on which the owner is willing to sell
his land, if the holder elects to accept them within
the time limited. If the holder does so elect, he
must give notice to the other party, and the
accepted offer thereupon becomes a valid and
binding contract. If an acceptance is not made
within the time fixed, the owner is no longer
bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes
definitely the relative rights and obligations of
buy a thing which is not accepted. It is a mere offer. It
creates no juridical effect or legal bond.
Remedy for Breach → In the event of breach, the injured
party cannot sue for the delivery of the thing or the
payment of the price because the obligations arising from
the contract are not obligations to give but to do. Thus,
the obligation, ipon breach, is converted into one for
indemnity for damages.
Option → an option is not of itself a purchase, but merely
secures the privilege to buy; it is not a sale of property,
but a sale of the right to purchase.
Requisites of Option
a) There must be an agreed time/period;
b) There must be price certain; and
c) There must be a separate consideration for the
option. (Most important!)
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“When the time is right, I, the Lord, will make it happen.”
both parties at the time of its execution, and
leaves no choice to either party whether to
withdraw or to proceed with the contract. The
offer and the acceptance are concurrent, since
the minds of the contracting parties meet in the
terms of the agreement.” (Adelfa Properties vs
Court of Appeals)
EARNEST MONEY (Article 1482)
It is something of value given by the buyer to the seller to
show that the buyer is really in earnest, and to bind the
bargain. It is actually a partial payment of the purchase
price and is considered as proof of the perfection of the
contract.
Whenever earnest money is given in a sale, it shall be
considered as part of the price and as proof of the
perfection of the contract. Since earnest money
constitutes an advance payment, it must be deducted
from the total price.
Option Money v. Earnest Money (Adelfa Properties, Inc.
v. Court of Appeals)
said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full
payment of the purchase price. (Coronel v. Court of
Appeals)
Q: In a Contract to Sell, upon the happening of the
condition/s imposed by the seller, would ownership
automatically pass to the buyer?
➔ A: No. While a CTS is considered a special kind
of conditional sale, it is a peculiar kind of sale
because despite the happening of the condition
and actual delivery, the buyer does not
automatically acquire ownership. In CTS, if
condition/s happen, the right of the buyer is to
compel the seller to execute a final deed of sale.
So ownership does not automatically pass.
Distinguished from a conditional contract of sale
(CS):
➔ In a conditional contract of sale, conditions are
imposed by the seller before ownership will pass.
Normally, the condition is the full payment of the
price. In CS, ownership automatically passes to
the buyer from the moment the condition
happens. There is no need for another contract
to be entered into.
OPTION MONEY
EARNEST MONEY
money given as a distinct
consideration
for
an
option contract
part of the purchase price
applies to a sale not yet
perfected
given only where there is
already a sale
Absent any stipulation in the deed or in the meeting of
minds reserving title over the property to the seller until
full payment of the purchase price and giving the seller
the right to unilaterally rescind the contract is case of
non-payment, makes the contract one of sale rather than
a contract to sell. (Dignos v. CA)
When earnest money is
given, the buyer is bound
to pay the balance
Where the stipulation of the parties is that the deed of
sale and corresponding certificate of sale would be
issued only after full payment of the purchase price, the
contract entered into is a contract to sell and not a
contract of sale. (David vs. Tiongson)
when the would-be buyer
gives option money, he is
not required to buy, but
may even forfeit it
depending on the terms of
the option
3. Contract of sale v. contract to sell
CONTRACT TO SELL
Contract to sell is a bilateral contract whereby the
prospective seller, while expressly reserving the
ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the
CONTRACT OF SALE
Title
passes
delivery.
upon
CONTRACT TO SELL
It has a stipulation that
title remains with the
seller until full payment of
the price;
OR, there is a stipulation
that upon payment of full
price, the seller executes
a deed of sale in favor of
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the buyer;
OR, Specific right granted
to the seller to extrajudicially
rescind
the
contract in case of
default.
Non-payment
is
substantial breach.
a
Payment of the full
purchase price is a
suspensive condition.
Need to rescind the
contract
to
recover
ownership.
Ownership is retained by
the seller so the contract
is
automatically
extinguished.
There can be forfeiture of
payments already made
by the buyer to the seller
as long as it is provided
for in the contract and it is
not unconscionable.
i. Only action is for
recovery of possession.
ii. Return payments made
* But there can be a
decision based on equity
if there were sufficient
payments already made.
CORONEL v. COURT OF APPEALS (1996)
The essential elements of a contract of sale are the
following:
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the
prospective seller explicity reserves the transfer of title to
the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership
of the property subject of the contract to sell until the
happening of an event, which for present purposes we
shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his
promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other
words the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without
further remedies by the prospective buyer.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
the prospective seller's obligation to sell the subject
property by entering into a contract of sale with the
prospective buyer becomes demandable.
A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even
be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of
the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element
of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated.
However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there
had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law
without any further act having to be performed by the
seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer
although the property may have been previously
delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract
of absolute sale.
In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer
cannot seek the relief of reconveyance of the property.
There is no double sale in such case. Title to the property
will transfer to the buyer after registration because there
is no defect in the owner-seller's title per se, but the
latter, of course, may be used for damages by the
intending buyer.
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“When the time is right, I, the Lord, will make it happen.”
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller's title
thereto. In fact, if there had been previous delivery of the
subject property, the seller's ownership or title to the
property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to
any third person. Applying Article 1544 of the Civil Code,
such second buyer of the property who may have had
actual or constructive knowledge of such defect in the
seller's title, or at least was charged with the obligation
to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of
the sale.
According to the Supreme Court, the receipt of the down
payment document manifests a clear intent of the
Coronel’s to transfer the title to the buyer, but since the
title is still in the name of petitioner's father, they could
not fully effect the transfer even though the buyers are
able and willing to immediately pay the purchase price.
The agreement as well could not have been a contract to
sell because the seller or the Coronel’s made no express
reservation of ownership or the title of the land.
Furthermore, the circumstance which prevented the
parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title
was not in their names) and not the full payment of the
purchase price. Under the established facts and
circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of
petitioners-sellers at that time, there would have been no
reason why an absolute contract of sale could not have
been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the
case at bar did not merely promise to sell the properly to
private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell
the subject property, they undertook to have the
certificate of title changed to their names and
immediately thereafter, to execute the written deed of
absolute sale.
What may be perceived from the respective undertakings
of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited
from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the
documents were then in order. It just happened,
however, that the transfer certificate of title was then still
in the name of their father. It was more expedient to first
effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the
issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount
of P50,000.00. As soon as the new certificate of title is
issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then
will the obligation of the buyer to pay the remainder of the
purchase price arise.
When the “Receipt of Down Payment” document was
prepared and signed by Romulo Coronel, the parties had
agreed to a conditional contract of sale, the
consummation of the contract is subject only to the
successful transfer of the certificate of Title.
Diego v. Diego (2013)
The remedy of rescission is not available in contracts
to sell. As explained in Spouses Santos v. Court of
Appeals:
In view of our finding in the present case that the
agreement between the parties is a contract to sell, it
follows that the appellate court erred when it decreed
that a judicial rescission of said agreement was
necessary. This is because there was no rescission to
speak of in the first place. As we earlier pointed out, in a
contract to sell, title remains with the vendor and does
not pass on to the vendee until the purchase price is paid
in full. Thus, in a contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure
to pay the price agreed upon is not a mere breach, casual
or serious, but a situation that prevents the obligation of
the vendor to convey title from acquiring an obligatory
force. This is entirely different from the situation in a
contract of sale, where non-payment of the price is a
negative resolutory condition. The effects in law are not
identical. In a contract of sale, the vendor has lost
ownership of the thing sold and cannot recover it, unless
the contract of sale is rescinded and set aside. In a
contract to sell, however, the vendor remains the owner
for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not
rescinding it. When the petitioners in the instant case
repossessed the disputed house and lot for failure of
private respondents to pay the purchase price in full, they
were merely enforcing the contract and not rescinding it.
As petitioners correctly point out, the Court of Appeals
erred when it ruled that petitioners should have judicially
rescinded the contract pursuant to Articles 1592 and
1191 of the Civil Code. Article 1592 speaks of non2022 Bar Reviewer by J.K.R. Gamboa | 56
“When the time is right, I, the Lord, will make it happen.”
payment of the purchase price as a resolutory condition.
It does not apply to a contract to sell. As to Article 1191,
it is subordinated to the provisions of Article 1592 when
applied to sales of immovable property. Neither provision
is applicable in the present case.
Agustin v. De Vera (2019; En Banc; J. Caguioa)
Jurisprudence has then established that the hallmark of
a contract to sell is the existence of a clear agreement by
the parties that the transfer of ownership is conditioned
upon the full payment of the purchase price, such that,
by agreement of the parties, ownership is reserved to the
seller until the purchase price has been fully paid. The
nomenclature of the subject contract as a "Contract to
Purchase and Sale" is of no moment, considering that
"[t]he Court looks beyond the title of said document,
since the denomination or title given by the parties in their
contract is not conclusive of the nature of its contents."
It is not disputed that there is absolutely no stipulation in
the Contract to Purchase and Sale to the effect that
ownership over the subject property is reserved in favor
of Gregorio pending the complete payment of the
purchase price by Hipolito. Neither is there a provision
granting Gregorio the unilateral right to rescind the
Contract to Purchase and Sale in case of non-payment.
Therefore, bearing in mind the foregoing, the Contract to
Purchase and Sale is a contract of sale, and not a
contract to sell.
B. Capacity to buy or sell
General Rule: Any person who has “capacity to act,” or
“the power to do acts with legal effects,” or more
specifically with the power to obligate himself, may enter
into a contract of sale, whether as seller or as buyer.
ABSOLUTE INCAPACITY
It exists with respect to minors, demented persons,
imbeciles, deaf and dumb persons, prodigals and those
subject to civil interdiction.
RELATIVE INCAPACITY (ARTICLES 1490 AND 1491)
1) Sale between spouses – it is void except:
a)
The spouses executed a marriage
settlement and in the marriage
settlement they agreed for a complete
separation of property regime. Then they
can sell to each other.
b) If no marriage settlement, they may have
obtained
judicial
declaration
of
separation of property. After that, they
can sell to each other.
This prohibition likewise applies to common-law
spouses. (Calimlim-Canullas v. Fortun)
2) Those mentioned in Article 1491
a)
A guardian cannot buy the property of
the ward. The guardian is not actually
prohibited from entering into any and all
contracts. It is just that he cannot be the
buyer of a property of his ward.
b) An agent cannot buy without the consent
of the principal a property which he was
supposed to sell or administer.
c)
The executors and administrators of the
estate cannot buy a property which is
part of the estate.
d) Public officers, judges, their staff, clerk
of court, stenographers and lawyers are
prohibited from buying those properties
which are the subject of litigation during
the pendency of the case.
These contracts are void because these persons
are prohibited from entering into these contracts.
Under Article 1409, if the contract is prohibited,
it is void. Resultantly, there can be no ratification.
Nonetheless, guardians, agents, and executors
can enter into a new contract; whereas public
officers, officers of the court, and lawyers cannot
“ratify” by entering into a new contract. The
effect of the second contract will not retroact to
the first contract. It will only be valid from the time
the second contract was entered into. Thus,
since it does not retroact to the first, the first
contract is void.
C. Effects of the contract when the thing sold has
been lost
Article 1493. If at the time the contract of sale is perfected,
the thing which is the object of the contract has been
entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only, the
vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its
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price in proportion to the total sum agreed upon.
■
■
■
■
The loss or injury referred to in this article is one
which has taken place before or at the time the
contract of sale is perfected.
The thing is lost when it perishes or goes out of
commerce or disappears in such a way that its
existence is unknown or it cannot be recovered.
Thing entirely lost (par. 1) — Example: S sold
his car to B. Unknown to both of them, the car
had been totally destroyed before they agreed on
the sale. In this case, there is no valid contract of
sale for lack of object. S, as owner, bears the loss
and B does not have to pay for the price.
Thing only partially lost (par. 2) — Example: If
the car sold is only partially destroyed, there still
remains of the object. However, since it is not of
the character or in the condition contemplated by
the parties, the buyer may withdraw from the
contract or demand the delivery of the car,
paying its proportionate price.
Article 1494. In sale of specific goods, and without the
knowledge of the seller, the goods have perished in part
or have wholly or materially deteriorated in quality as to
be substantially changed in character, the buyer may treat
the sale as either avoided, or as valid in all of the existing
goods or in so much thereof as have not deteriorated, and
as binding the buyer to pay the agreed price for the goods
in which the ownership will pass, if the sale was divisible.
FOUR RULES REGARDING RISK OF LOSS: (Article
1480)
1) If the thing is lost before perfection, the seller
and not the one who intends to purchase it bears
the loss in accordance with the principle that the
thing perishes with the owner (res perit domino);
■
such loss, deterioration, fruits and
improvements shall pertain to the
purported seller, since he owns the
thing. Notwithstanding the extent of the
negotiations that have taken place, prior
to perfection, the purported subject
matter bears no legal or even equitable
relationship to the purported buyer, and
therefore no assumption of risk of loss or
deterioration can be ascribed to the
latter.
2) If the thing is lost at the time of perfection, the
contract is void or inexistent. The legal effect is
the same as when the object is lost before the
perfection of the contract of sale;
3) If the thing is lost after perfection but before its
delivery, the following rules shall be observed:
a)
If the loss and deterioration is due to the
fault of the vendor, the vendor shall bear
the injury
b) If the loss or deterioration id due to the
fault of the vendee, the vendee shall bear
the loss or deterioration.
c)
If the obligation consists in the delivery
of a determinate thing, the seller shall
bear the loss or deterioration if 1) he was
in delay; 2) he assumed the loss or
deterioration by stipulation; 3) he
promised to deliver the same thing to
two or more persons who do not have
the same interest over the thing.
4) If the thing is lost after delivery, the buyer bears
the risk of loss following the general rule of res
perit domino.
Effect of Fortuitous Event
a. After Delivery: If there is no stipulation as to who
will bear the loss or deterioration, the vendee
shall bear the loss under the principle of res perit
domino. The vendee is considered the owner
already after delivery even if he has not made the
payment yet.
b. Before Delivery: the vendor shall bear the loss.
D. Obligations of vendor
PRINCIPAL OBLIGATIONS OF THE VENDOR
1. to transfer the ownership of the determinate
thing sold;
2. to deliver the thing, with its accessions and
accessories, if any, in the condition in which they
were upon the perfection of the contract
3. to warrant the thing
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“When the time is right, I, the Lord, will make it happen.”
OBLIGATION TO TRANSFER OWNERSHIP AND
DELIVER
■
■
■
■
■
■
■
a)
Where the manner and time of delivery have
been specified, the vendor must deliver
according to the agreement.
document; must involve or cover the
subject matter, and cannot take a form
The delivery of the thing constitutes an
indispensable requisite for the purpose of
acquiring ownership. Our law does not admit the
doctrine of transfer of ownership of property by
mere consent. Before the ownership has been
transferred, the risk is on the vendor who is still
the owner thereof. But if the vendee is in default,
then he bears the risk.
relating to the payment of the purchase
price.
The presumptive delivery by the
execution of a public document is
negated by the failure of the vendee to
take actual possession of the land sold.
The vendor need not be the owner of the thing at
the time of perfection of the contract; it is
sufficient that he has “a right to transfer the
ownership thereof at the time it is delivered.” The
obligation to transfer ownership and to deliver is
really implied in every contract of sale.
b) Traditio Longa Manu (Art. 1499) → This is
made by the vendor pointing out to the
vendee the things which are being
transferred, and which at the time must
be in sight.
The transfer of ownership and the delivery of the
thing sold are not essential to the perfection of
the contract. But if the seller does not deliver at
the time stipulated, the buyer may ask for the
rescission of the contract or fulfillment with the
right to damages in either case. (Art. 1191.)
c)
Traditio Brevi Manu (Art. 1499) → Takes
place when before the sale, the would-be
buyer was already in possession of the
would-be subject matter of the sale, say
as a lessee, and pursuant to sale, he
There can be no transfer of ownership without
delivery. But there are kinds of sale where
despite delivery the buyer does not acquire
ownership upon delivery, such as conditional
sale and sale on trial.
would now hold possession in the
concept of an owner.
d) Constitutum Possessorium (Art. 1500) →
takes effect when at the time of the
Ways of effecting delivery — The ownership of
the thing sold shall be transferred to the vendee
upon the delivery thereof which may be effected
in any of the following ways or modes:
The critical factor in all the different modes of
effecting delivery which gives legal effect to the
act is the actual intention of the vendor to deliver,
and its acceptance by the vendee. The act,
without the intention, is insufficient. There is no
tradition. (Norkis Distributors, Inc. vs. CA)
Symbolic Delivery (Art. 1498) → takes
place by the execution of a public
perfection of the sale, the seller held
possession of the subject matter in the
concept of owner, and pursuant to the
contract, the seller continues to hold
1) by actual or real delivery
2) by constructive or legal delivery; or
3) by delivery in any other manner
signifying an agreement that the
possession is transferred to the vendee.
■
Types of Constructive Delivery:
physical possession thereof no longer in
the concept of an owner, but as a lessee
or any other form of possession other
than in the concept of owner.
■
Delivery of Incorporeal Property (QuasiTradition) — Delivery can only be effected
through: (a) execution of public document, (b)
when the titles of ownership are placed in the
control of the vendee, or (c) when the vendee
makes use if his rights with the consent of the
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vendor.
■
Sale or return. — It is a contract by which
property is sold but the buyer, who becomes the
owner of the property on delivery, has the option
to return the same to the seller instead of paying
the price.
○
■
Under this contract, the option to
purchase or return the goods rests
entirely on the buyer without reference to
the quality of the goods. The buyer may
revest the ownership in the seller by
returning or tendering the goods within
the time fixed in the contract, or, if no
time has been fixed, within a reasonable
time; otherwise, the sale becomes
absolute and the buyer is liable for the
price. The seller cannot, in this type of
sale, prevent the revesting of title by
refusing to accept the return of the
property.
Sale on trial or approval. — It is a contract in
the nature of an option to purchase if the goods
prove satisfactory, the approval of the buyer
being a condition precedent.
○
The title shall continue in the seller until
the sale has become absolute either by
the buyer’s approval of the goods, or by
his failing to comply with the express or
implied conditions of the contract.
Sale or Return
Ownership immediately passes to the
buyer on delivery and subsequent
return revests ownership in the seller.
Depends on the will of the buyer
Note: Article 1505 does not say that the sale of goods by
a non-owner renders the contract void; it describes the
consequences when delivery under a sale is effected
when the seller is not the owner of the thing delivered.
Exceptions: (When the buyer can acquire a better title
than what the seller had. Even if the seller does not have
the right to sell, the buyer may acquire ownership over
the thing sold because the law so provides and not
because the seller was able to transfer ownership to the
buyer.)
1. When the owner is, by his conduct, precluded
from denying the seller’s authority to sell.
(Estoppel)
2. Where the law enables the apparent owner to
dispose of the goods as if he were the true owner
thereof.
3. Where the sale is sanctioned by statutory or
judicial authority.
4. Where the sale is made at merchant’s stores,
fairs or markets.
5. Where the seller has a voidable title which has
not been avoided at the time of the sale.
6. Where the seller subsequently acquires title.
Rules on Effects of Delivery for Movables
Article 1522. Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the buyer
Sale on Approval
may reject them, but if the buyer accepts or retains the
goods so delivered, knowing that the seller is not going
Ownership does not pass upon
to perform the contract in full, he must pay for them at
delivery remaining with the seller until
the contract rate. If, however, the buyer has used or
the buyer signifies his approval.
disposed of the goods delivered before he knows that the
seller
is not going
Depends on the character
or quality
of to perform his contract in full, the buyer
shall
not
be
liable for more than the fair value to him of
goods
the goods so received.
Subject to a resolutory condition
Subject to a suspensive condition
Where the seller delivers to the buyer a quantity of goods
larger
than he contracted to sell, the buyer may accept the
Risk of loss remains with the buyer
Risk of loss remains with
the seller
goods included in the contract and reject the rest. If the
buyer accepts the whole of the goods so delivered he
SALE BY A PERSON NOT THE OWNER (Article 1505)
must pay for them at the contract rate.
Article 1505 of the Civil Code provides that when goods
are sold by a person who is not the owner thereof, and
who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title
to the goods than the seller had.
Where the seller delivers to the buyer the goods he
contracted to sell mixed with goods of a different
description not included in the contract, the buyer may
accept the goods which are in accordance with the
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contract and reject the rest.
Where Immovables Sold Per Unit or Number
Article 1539. The obligation to deliver the thing sold
includes that of placing in the control of the vendee all
that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement
of its area, at the rate of a certain price for a unit of
measure or number, the vendor shall be obliged to deliver
to the vendee, if the latter should demand it, all that may
have been stated in the contract; but, should this be not
possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract,
provided that, in the latter case, the lack in the area be not
less than one-tenth of that stated.
The same shall be done, even when the area is the same,
if any part of the immovable is not of the quality specified
in the contract.
The rescission, in this case, shall only take place at the will
of the vendee, when the inferior value of the thing sold
exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the
immovable had he known of its smaller area of inferior
quality, he may rescind the sale.
Article 1540. If there is a greater area or number in the
immovable than that stated in the contract, the vendee
may accept the area included in the contract and reject the
rest. If he accepts the whole area, he must pay for the
same at the contract rate.
Where Immovables Sold for a Lump Sum
Article 1542. In the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease
of the price, although there be a greater or less area or
number than that stated in the contract.
The same rule shall be applied when two or more
immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in
every conveyance of real estate, its area or number should
be designated in the contract, the vendor shall be bound
to deliver all that is included within said boundaries, even
when it exceeds the area or number specified in the
contract; and, should he not be able to do so, he shall
suffer a reduction in the price, in proportion to what is
lacking in the area or number, unless the contract is
rescinded because the vendee does not accede to the
failure to deliver what has been stipulated.
DOUBLE SALE
Essential elements of Double Sale
Whether the subject matter of double sales be movable
or immovable, jurisprudence has confirmed that for the
provisions of Article 1544 to apply, the following
requisites must concur:
a)
The two (or more) sales transactions must
constitute valid sales;
b) The two (or more) sales transactions must pertain
to exactly the same subject matter;
c)
The two (or more) buyers at odds over the rightful
ownership of the subject matter must each
represent conflicting interests; and
d) The two (or more) buyers at odds over the rightful
ownership of the subject matter must each have
bought from the very same seller.
Who has a better right
Article 1544 of the Civil Code provides that if the same
thing should have been sold to different buyers, the
ownership shall be given:
■
When subject matter is movable, to the buyer
who may have first taken possession thereof in
good faith;
■
When subject matter is immovable, to the buyer:
○
The first who has registered the property
in good faith will be preferred as the
owner.
○
The first who has possession of the
property in good faith will be preferred.
○
If there is no registration and possession
in good faith. Then the one who can
present the oldest title will be preferred
as the owner.
Purchaser in Good Faith—A person in good faith is one
who has no knowledge of any interest by another person
in the subject matter subject to sale and who has fully
paid the purchase price.
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“When the time is right, I, the Lord, will make it happen.”
Primus tempore, potior jure (first in time, first in right)
Knowledge gained by the first buyer of the second sale
cannot defeat the first buyer’s rights, except where the
second buyer registers in good faith the second sale
ahead of the first. Such knowledge of the first buyer does
not bar him from availing his rights under the law, among
them to register first his purchase as against the second
buyer. However, knowledge gained by the second buyer
of the first sale defeats his rights even if he is first to
register the second sale., since such knowledge taints his
prior registration with bad faith. it is thus essential, to
merit the protection of Art. 1544, par. 2, that the second
realty buyer must act in good faith in registering his deed
of sale. (Fudot v. Cattleya Land Inc.)
Bar Q: If a thing is sold to 2 or more persons, what would
be the effect of:
(a) The first buyer who registered the sale with
knowledge of the 2nd sale.
(b) The second buyer who first registered the sale with
knowledge of the prior sale. Who would have a better
right?
➔ SA: (a) In the first scenario – the first buyer who
registered the sale with knowledge of the second
sale, would that make him a registrant in bad faith?
No. Yung knowledge would pertain to the
knowledge of the prior sale in order for him to be a
bad faith registrant. Eh una naman siyang buyer eh
so even if he registered, it would not make him a
bad faith registrant.
The first buyer had a private deed of sale which was
never registered, but he took possession of the land;
whereas, the second buyer was the highest bidder in the
public auction of the same land, and the sale to him was
registered under Act No. 3344.
SC ruled that the provisions of Article 1544 granting
priority to the buyer who registers in good faith over the
other buyer who takes possession in good faith are
inapplicable to unregistered land because “the
purchaser of unregistered land at a sheriff’s execution
sale only steps into the shoes of the judgment debtor,
and merely acquires the latter’s interest in the property
sold as of the time the property was levied upon.”
CONDITIONS AND WARRANTIES
When is a condition considered a warranty?
If the parties promise that a condition will definitely
happen that condition will become a warranty. Non
fulfillment of that condition is nonfulfillment of a warranty
therefore resulting in breach of contract which would
entitle the aggrieved party for damages.
OBLIGATION TO WARRANT THE THING
1. Express Warranties → any affirmation of fact or any
promise by the seller relating to the thing, the natural
tendency is to induce to purchase the thing.
■
(b) In the second scenario – the buyer there is in
bad faith. He has knowledge of the prior sale.
Hence, he has no right.
Q: If a person bought a thing without knowledge of
the prior sale, does that mean he is a registrant in
good faith?
➔ A: Not necessarily because from the sale he may
have acquired knowledge prior to the
registration. What is required by law is not being
a buyer in good faith but a registrant in good
faith. Pwedeng at the time of the sale xxx the
buyer had no knowledge na nagkabentahan na
pala nung una but after 2 months nung
magpaparegister na, the buyer had the
knowledge of the prior sale and therefore he will
be a registrant in bad faith.
Carumba v. Court of Appeals (1970)
Requisites:
a. There is an affirmation of fact
b. The fact must pertain to the thing either to
the quality, character or title of the thing
■
A mere expression of opinion, no matter how
positively asserted, does not import a warranty
unless the seller is an expert and his opinion was
relied upon by the buyer.
2. Implied Warranties → those which by law constitute
part of every contract of sale, whether or not the
parties were aware of them, and whether or not the
parties intended them.
a. Warranty as to seller’s title/that seller has
right to sell
b. Warranty against non-apparent servitude
c. Warranty against eviction
d. Warranty against hidden defects
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e. Warranty of Quality (in sale of goods)
A) Warranty as to seller’s title
■
■
In a contract of sale, unless a contrary intention
appears, there is an implied warranty on the part
of the seller that he has a right to sell the thing at
the time when the ownership is to pass. Since
warranty goes into the issue of performance of
obligation, the warranty of the seller “that he has
a right to sell” refers only to the transfer of
ownership at the point of consummation, and not
to any representation as to ownership and the
capacity to transfer the same at the point of
perfection.
the burden or servitude.
C) Warranty against Eviction
■
The seller’s implied warranty against eviction
only applies (i.e., there has been a breach of
warranty) when the following conditions are
present:
1) Purchaser has been deprived of or
evicted from the whole or part of the
thing sold;
2) Eviction is by a final judgment;
3) The judgment is based on a right prior to
the sale or an act imputable to the
vendor; and
Waiver—The buyer cannot waive the obligation
of the law for the seller to transfer the ownership.
Otherwise it defeats the primary purpose of a
contract of sale. This is the only warranty which
is not waivable.
4) The vendor was summoned in the suit
for eviction at the instance of the vendee;
Note: For the seller to be liable, he must
have been notified of this case against
the buyer. In fact, he should be
impleaded as a co-defendant in the
action.
B) Warranty against non-apparent servitude
■
The warranty shall apply only when the following
conditions are present:
1) The immovable sold is encumbered with
any non-apparent burden or servitude,
not mentioned in the agreement; and
2) The nature of such non-apparent burden
or servitude is such that it must be
presumed that the buyer would not have
acquired it had he been aware thereof.
■
The warranty does not apply:
5) There is no waiver on the part of the
vendee.
■
This warranty against eviction would include the
warranty that when the ownership is to pass, the
buyer shall from that time have and enjoy the
legal and peaceful possession of the thing.
■
Mere trespass in fact does not give rise to the
application of the doctrine of eviction. The
disturbance referred to in the case of eviction is
a disturbance in law which requires that a person
go to the courts of justice claiming the thing sold,
or part thereof, and invoking reasons. If final
judgment is rendered depriving the vendee of the
thing sold or any part thereof, the doctrine of
eviction becomes applicable.
■
Waiver — the effect of waiver depends on the
nature of such waiver, whether it is general or
specific waiver, and whether done in good faith
or bad faith on the part of the seller.
1) If the servitude is mentioned in the
agreement;
2) If the non-apparent burden or servitude
is recorded in the Registry of Deeds,
unless there is an express warranty that
the thing is free from all burdens and
encumbrances.
■
Remedies — The buyer may either bring an
action for rescission or sue for damages only if
he does so within one (1) year computed from the
execution of the deed. If such one year period
has lapsed, the buyer may only bring an action
for damages within an equal period, to be
counted from the date on which he discovered
✔
If the seller acted in bad faith then any
stipulation exempting the seller from the
obligation to answer for eviction shall be
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void.
✔
✔
✔
■
■
If the buyer merely renounces the
warranty in general terms, without
knowledge of a particular risk, and
eviction should take place, the seller
shall only pay the value which the thing
sold had at the time of the eviction.
2) Income or fruits, if buyer has been
ordered to deliver them to the party who
won the suit against him;
3) Costs of the suit which caused the
eviction, and, in a proper case, those of
the suit brought against the seller for the
warranty;
Should the buyer have made the waiver
with knowledge of the risks of eviction
and assumed its consequences, the
seller shall not be liable.
If the waiver is specific, meaning there is
only waiver as to specific cause of
eviction, if eviction was caused by other
causes, then the seller is liable. But if the
cause of the eviction is exactly the cause
to be waived, then the seller is not liable.
If the seller was aware of the defect of his title
at the time of the sale, hence, he is a seller in
bad faith? Not necessarily. He may be aware but
he informed the buyer of such defect in the title
and hence he cannot be considered a bad faith
vendor; or even if he did not inform the buyer but
the buyer was already aware of the defect.
4) Expenses of the contract, if the buyer
has paid them; and
5) Damages and interests and ornamental
expenses, if the sale was made in bad
faith.
D) Warranty against hidden defects
■
2) If the waiver is intentionada – when the
vendee executed the waiver with
knowledge of the defect of the title of the
seller, hence, he knew of the possibility
of being evicted and nonetheless bought
the thing the vendee cannot hold the
vendor liable.
In case eviction occurs, the buyer shall have the
right to demand of the seller:
1) Return of the value which the thing sold
had at the time of the eviction, be it
The seller shall be responsible for warranty
against “hidden defect” only when:
1) The nature of the hidden defect is such
that it should render the subject matter
unfit for the use for which it is intended;
or
If there is such a waiver and assuming the
vendor acted in good faith, can the vendor be
held liable for breach of warranty? It depends
on the kind of waiver.
1) If waiver consciente – the buyer
executed a waiver without knowledge of
the defect in the title of the seller. Also,
the vendor does not know of the defect.
The only liability of the vendor for breach
of warranty against eviction is the value
of the thing at the time of eviction.
■
greater or lesser than the price of the
sale;
2) Should diminish its fitness for such use
to such an extent that, had the buyer
been aware thereof, he would not have
acquired it or would have given a lower
price for it.
■
The seller is not answerable for patent defects or
those which are visible, or even for those which
are not visible if the buyer is an expert who, by
reason of his trade or profession, should have
known them.
■
The requisites to recover on account of hidden
defects are as follows:
1) Defect must be hidden;
2) Defect must exist at the time the sale
was made;
Note: If the defect started after the sale
there can be no such liability.
3) Defect must result in the thing being unfit
for the purpose of the buyer or at least it
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diminish the fitness of the thing such that
the buyer would not have bought it at the
price had he known of such defect;
4) Action must be instituted within the
statute of limitations.
5) There must be no waiver of warranty on
the part of the vendee.
■
Waiver — Actions on warranties against hidden
defects shall be barred after six (6) months from
the delivery of the thing sold. The effect of waiver
will
depend
whether
the
seller
has
knowledge/aware of the hidden defect:
1) If the seller was not aware of the hidden
defects, the loss of the thing by virtue of
such defect will not make the seller liable
at all to the buyer; or
2) If the seller was fully aware of such
defect, such waiver is in bad faith, and
the seller would still be liable for the
warranty.
E) Warranty of Quality
■
Recourse of the buyer in case of breach of warranty
against hidden defects and warranty of quality
1) to withdraw from
redhibitoria], or
A warranty that the goods are suitable
for the special purpose of the buyer
which will not be satisfied by mere
fitness for general purposes.
■
When the buyer, expressly or impliedly,
informed the seller of the particular
purpose for which the thing is to be use
and the seller manifested that the thing
would be fit for the purpose and the
buyer relied on such representation of
the seller, there is an implied warranty
that the goods shall be reasonably fit for
such purpose and the seller may be held
liable.
■
Note: If the thing is sold under the trade
name there can be no warranty of fitness
for a particular purpose.
2. Warranty of Merchantability
■
A warranty that goods are reasonably fit
for the general purpose for which they
are sold.
the
contract
[accion
2) demand a proportionate reduction of the price,
with a right to damages in either case [accion
quanti minoris]
The remedies are alternative as they are incompatible
with each other.
The same right is given to the vendee in the sale of
animals with redhibitory defects.
SALE OF ANIMALS WITH DEFECTS
■
The defect is a redhibitory defect – it is such
kind of defect that even by examination of
experts it cannot be discovered.
■
If one of the animals has a redhibitory defect,
can the buyer rescind the entire contract
pertaining to all the animals? Generally NO. He
can only rescind the contract pertaining to the
animal with a redhibitory defect. He cannot
rescind the entire contract pertaining to all
animals. Exception is if he can prove that he
would not have bought the others had he known
the defect of one then he can rescind the entire
contract.
1. Warranty of Fitness for a particular purpose
■
If the thing was sold by description or by
sample, the seller impliedly warrants that
the goods are of merchantable quality.
○
■
The law under certain circumstances
would provide for this presumption that
it is presumed that he would not have
bought the others had he known of the
defect of one. Examples: He bought the
animals in teams or in pairs then the
presumption arises.
If the animal which was bought died of a
disease within 10 days, the disease existing at
the time of the sale, may he still have a
remedy under the law? Yes, if the disease
turned out to be a contagious disease. In fact,
under the law, the sale is void. If he has already
paid, he can recover what he paid because the
sale is void. If the disease is not contagious,
under the law he would only have a remedy if the
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animal died within 3 days.
BUYER’S OPTION
WARRANTY
IN
CASE
OF
BREACH
OF
Under Article 1599 of the Civil Code, where there is a
breach of warranty by the seller in the sale of goods, the
buyer may, at his election, avail of the following remedies:
1) Accept or keep the goods and set up against the
seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
2) Accept or keep the goods and maintain an action
against the seller for damages;
3) Refuse to accept the goods, and maintain an
action against the seller for damages;
4) Rescind the contract of sale and refuse to
receive the goods or if the goods have already
been received, return them or offer to return them
to the seller and recover the price or any part
thereof which has been paid.
Instances whether there would be no warranty
against hidden defects and therefore caveat emptor
(let the buyer beware) may be invoked:
1) Execution sales — the sheriff does not warrant
the title to the property sold by him, and it is not
incumbent on him to place the purchaser in
possession of the property.
2) Sales of animals under Article 1574
3) Sale of second hand items [Uribe]
4) Sale which is an “as is where is” sale — you get
everything that comes with a property, at its
present condition, good or bad, when you buy it.
xxx bahala ka sa buhay mo if you want to buy
the thing and you cannot later on claim that there
were hidden defects. [Uribe]
Q: In sale by authority of law or in execution sale, can
there be breach of warranty against eviction?
➔ A: Yes. The judgment debtor and not the sheriff
shall be liable.
The law would specifically exempt certain
persons from liability for breach of warranty like
sheriff, auctioneer, mortgagee, pledge and other
persons who sell by virtues of an authority of law
like notary public because they are not really
selling for themselves, they are selling on behalf
of another person.
E. Obligations of vendee
OBLIGATIONS OF THE VENDEE
1. Obligation to accept the thing delivered.
2. Obligation to pay the price (if warranted, with
interest)
OBLIGATION TO PAY THE PRICE
Buyer is obliged to pay for the price at the time and place
stipulated in the contract. Mere sending of a letter by the
buyer expressing his intention to pay without the
accompanying payment is not considered a valid tender
of payment. Unless the parties have agreed to the
payment of the price to any other party, then its payment
to be effective must be made to the seller.
Generally in a sale, payment of the price is a “resolutory
condition” and the remedy of the seller is to exact
fulfillment or, in case of a substantial breach, to rescind
the contract under Article 1191 of the Civil Code.
OBLIGATION TO PAY THE INTEREST, IF ANY
Buyer is also obliged to pay interest for the period
between delivery of the subject matter and the payment
of the price when:
a) The same has been stipulated;
b) If the thing delivered produces fruits or income;
or
c) Even if there are no fruits, he may be liable for
interest if he is in delay. This delay would start
from the time there is judicial or extrajudicial
demand.
■
In order for the buyer to be considered in
delay there must be judicial or
extrajudicial demand. This should be
construed to mean that there was a
period fixed for the payment of the price.
Nakalagay sa agreement “today ang sale,
after 1 year payment”. Upon the
expiration of the 1 year period, there has
to be judicial or extrajudicial demand
which is different from Art. 1169 when
the SC interpreted to mean that the
obligation
is
already
due
and
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demandable at the time of the perfection
of the contract. Hence, no need for
demand anymore.
OBLIGATION TO ACCEPT DELIVERY OF THING
BOUGHT
The buyer is bound to accept delivery of the thing bought
at the time and place stipulated in the contract. If the time
and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the
thing sold.
Q: If the buyer received the goods delivered, does it
mean that he already accepted?
➔ A: No because receiving is preliminary to
accepting. In fact, this is consistent with the right
provided by law to the buyer which is the right of
inspection or the right of examination. Thereafter,
he may reject the goods if defective.
domino rule.
Right to Inspect or Examine
This right may not be present in all COS because you can
waive the right of inspection. Upon delivery and receiving
the goods, if you agree that you are deemed to have
accepted – no more right to inspect.
In C.O.D. arrangement, the delivery will not be made until
payment has already been made by the buyer so in that
scenario, he has to pay first even before delivery. This is
a sale transaction where the buyer would have no right of
examination prior to acceptance.
F. Breach of contract
Anticipation of Breach on the part of the Seller
■
When will he be considered to have accepted?
1) When he intimated his acceptance to the seller.
2) Even if he did not intimate his acceptance or
rejection, he will be deemed to have accepted if
he did an act which is inconsistent with the
ownership of the seller. Again, if he pledged the
thing to another that is an act of ownership or if
he sold or donated the thing.
3) If he did not do anything by mere lapse of a
reasonable time, he will be deemed to have
accepted the thing. What is reasonable time
would depend on the circumstances surrounding
the sale.
Q: What if after an examination or before the
examination, the buyer refused to accept and
informed the seller but the goods are already in his
place? What if the goods were lost or destroyed in the
possession of the buyer even due to a fortuitous
event, who will bear the loss?
➔ A: It will depend on the reason for the rejection.
If there is a just cause for the rejection, then the
seller will have to bear the loss because there will
be no transfer of ownership and he cannot be
compelled to pay the price. However, if the
reason for the rejection is unjustified, ownership
passes to the buyer by operation of law then he
will have to bear the loss under the res perit
Under Article 1590 of the Civil Code, should the
buyer be disturbed in the possession or
ownership of the thing acquired, or should he
have reasonable grounds to fear such
disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the
payment of the price until the seller has caused
the disturbance or danger to cease, unless the
latter gives security for the return of the price in
a proper case, or it has been stipulated that,
notwithstanding any such contingency, the
buyer shall be bound to make the payment.
Anticipatory Breach on the part of the Buyer
■
Under Article 1591 of the Civil Code, if the seller
has reasonable grounds to fear the loss of the
immovable property sold and its price, he may
immediately sue for the rescission of the sale.
■
Should such ground not exist, the provisions of
Article 1191 of the Civil Code on rescission shall
be observed, which means that upon substantial
breach by the buyer for failure to comply with his
obligation to pay the price when due, the seller
may sue for rescission of the sale.
1. Remedies
In general, the actions available for breach of the contract
of sale of goods are the following:
1) action by the seller for payment of the price (Art.
1595.);
2) action by the seller for damages for non2022 Bar Reviewer by J.K.R. Gamboa | 67
“When the time is right, I, the Lord, will make it happen.”
acceptance of the goods (Art. 1596.);
already been received, return them or
offer to return them to the seller and
recover the price or any part thereof
which has been paid.
3) action by the seller for rescission of the contract
for breach thereof (Art. 1597.);
4) action by the buyer for specific performance (Art.
1598.); and
■
The above remedies are alternative. Once a
remedy has been granted to the buyer, no
other remedy can thereafter be exercised or
granted.
■
The only exception is when after the buyer
has chosen fulfillment, it should become
impossible, in which case he may also sue
for rescission.
5) action by the buyer for rescission or damages for
breach of warranty. (Art. 1599)
REMEDIES OF A BUYER
1) Buyer’s right to specific performance (Art.
1598)
■
Where the seller has broken a contract to
deliver specific or ascertained goods, the
buyer may seek action for specific
performance to direct that the contract shall
be performed specifically, without giving the
seller the option of retaining the goods on
payment of damages.
■
Applies only where the goods to be delivered
are specific or ascertained.
■
In reciprocal obligations, it is the injured
party who has a right to choose between
fulfillment and rescission, with the payment
of damages in either case. The right of the
injured
party
to
demand
specific
performance cannot be defeated by the
guilty party’s choice to rescind the contract.
ORDINARY REMEDIES OF A SELLER
1) Seller’s right of action for the price (Art. 1595)
■
Grounds:
i)
when the ownership of the goods
has passed to the buyer and he
wrongfully neglects or refuses to pay
for the price
ii)
when the price is payable on a
certain day and the buyer wrongfully
neglects or refuses to pay such
price, irrespective of delivery or of
transfer of the title
iii)
when the goods cannot readily be
resold for a reasonable price and the
buyer wrongfully refuses to accept
them even before the ownership in
the goods has passed
2) Action for breach of warranty (Art. 1599)
Where there is a breach of warranty by the seller
in the sale of goods, the buyer may, at his
election, avail of the following remedies:
■
1) Accept or keep the goods and set up
against the seller, the breach of warranty
by way of recoupment in diminution or
extinction of the price;
2) Accept or keep the goods and maintain
an action against the seller for damages;
3) Refuse to accept the goods, and
maintain an action against the seller for
damages;
4) Rescind the contract of sale and refuse
to receive the goods or if the goods have
Where ownership in goods has not passed —
the seller cannot maintain an action for the
price if the ownership in the goods has not
passed to the buyer, (1) unless the price is
payable on a certain day or (2) unless the
goods cannot readily be resold for a certain
price and the provisions of Article 1596, 4th
paragraph are not applicable.
2) Seller’s right of action for damages (Art. 1596)
■
Grounds:
i)
buyer without lawful cause neglects
or refuses to accept and pay for the
goods he agreed to buy
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“When the time is right, I, the Lord, will make it happen.”
ii)
In an executory contract, where the
ownership in the goods has not
passed and the seller cannot
maintain an action to recover the
price.
iii)
If the goods are not yet identified at
the time of the contract or
subsequently, the seller’s right is
necessarily confined to an action for
damages.
3) Seller’s right of rescission before delivery (Art.
1597)
■
Grounds:
i)
when the buyer has repudiated the
contract of sale
ii)
when the buyer has manifested his
inability to perform his obligations
thereunder
iii)
when the buyer has committed a
breach of the contract of sale
■
The seller is required to give notice of his
election to seek rescission.
■
The right of the seller to rescind the sale for
non-performance on the part of the buyer is
not absolute. It is subordinate to the rights of
third persons who are legally in the
possession of the object of the contract and
to whom bad faith is not imputable.
■
Except as provided in Article 1597, and in the
absence of express stipulation authorizing
the seller to extrajudicially rescind a contract
of sale, the seller cannot unilaterally and
extrajudicially rescind the contract.
SPECIAL REMEDIES OF “UNPAID SELLER” OF
GOODS
1)
2)
3)
4)
Possessory lien;
Stoppage in transitu;
Special right of resale; and
Special right to rescind.
Q: In unpaid seller, are his remedies alternative?
➔ A: Not necessarily, because in fact by express
provision of the law, the right of resale and the
right to rescind may only be exercised if the seller
has possessory lien. Pag wala na syang lien, he
can no longer exercise the right of resale or right
to rescind so cumulative to that extent. But if
there are 2 remedies that alternative and cannot
exist at the same time, these are the right of
stoppage in transitu and possessory lien
because a requisite in order for the seller to have
a right of stoppage in transitu is that the seller
must have already parted possession over the
goods.
1. RIGHT TO RETAIN THE THING IN HIS
POSSESSION (POSSESSORY LIEN / WITHHOLD
DELIVERY)
If the seller is an unpaid seller as defined by law,
notwithstanding that the ownership in the goods may
have passed to the buyer, the unpaid seller still has a lien
on the goods or right to retain them for the price while he
is in possession of them.
The possessory lien entitles the seller to retain
possession of the goods as security for the purchase
price. Where the goods are in the possession of the
buyer, the seller has no more possessory lien but his
claim for the unpaid price is a preferred claim or lien.
Simply stated, upon delivery, the seller’s possessory lien
on the goods is lost, but his lien on the price remains.
While the thing is in the possession of the buyer there is
such a lien but that is not the lien under Art. 1526. Again,
Art. 1526 is the right to retain the goods in his possession
– the possessory lien.
The possessory lien of the unpaid seller is exercisable
only in the following instances:
1) Where the goods have been sold without any
stipulation as to credit;
2) Where the goods have been sold on credit, but
the term of credit has expired;
3) Where the buyer becomes insolvent.
Note: The seller may exercise his right of lien
notwithstanding that he is in possession of the goods as
agent or bailee for the buyer. The unpaid seller’s right of
lien is not affected by any sale, or other disposition of the
goods which the buyer may have made, unless the seller
assented thereto.
When would the Seller be Considered to have Lost his
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“When the time is right, I, the Lord, will make it happen.”
Lien
1) If he waives his right
2) If the buyer lawfully obtained possession over the
goods
3) When the thing is delivered to a common carrier
and the seller did not prefer his ownership and
possession over the goods.
■
The rule here is delivery to the common
carrier is delivery to the buyer and
therefore when the seller delivers the
goods to a common carrier as a rule he
loses his lien over the goods. The premise
of that is that he did not preserve his
possession over the goods.
Q: If the seller opted to file an action to compel the
buyer to pay the price and the court decided in favor
of the seller. The court ordered the buyer to pay the
price. Can the buyer tell the seller to deliver the goods
so that he will pay the price? Can the seller now be
compelled to deliver because there was a final
judgment in his favor?
➔ A: No, the very specific provision of the law – just
because there is a final judgment in favor of the
plaintiff, that would not mean he will lose his lien
over the goods.
2. RIGHT OF STOPPAGE IN TRANSITU / RIGHT TO
RESUME POSSESSION OF THE GOODS
Under Article 1530 of the Civil Code, when the buyer of
goods is or becomes insolvent, the unpaid seller who has
parted with the possession of the goods has the right of
stopping them in transitu, that is to say, he may resume
possession of the goods at any time while they are in
transit, and he will then become entitled to the same
rights in regard to the goods as he would have had if he
had never parted with the possession.
The unpaid seller’s right of stoppage in transitu is not
affected by any sale or other disposition of the goods
which the buyer may have made, unless the seller
assented thereto.
When Goods Are Deemed “In Transit”
a)
From the time they are delivered to a carrier by
land, water, or air, or other bailee for the purpose
of transmission to the buyer, until the buyer, or
his agent in that behalf, takes delivery of them
from such carrier or other bailee; or
b) If the goods are rejected by the buyer, and the
carrier or other bailee continues in possession of
them, even if the seller has refused to receive
them back.
When Goods Are Deemed No Longer In Transit
a)
The buyer or his agent obtains delivery of the
goods before their arrival at the appointed
destination;
b) After the arrival of the goods at the appointed
destination, the carrier or other bailee
acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his
agent (and it is immaterial that further destination
for the goods may have been indicated by the
buyer);
c)
The carrier or other bailee wrongfully refuses to
deliver the goods to the buyer or his agent.
When Part Delivery Already Made — If part delivery of
the goods has been made to the buyer, or his agent in
that behalf, the remainder of the goods may be stopped
in transitu, unless such part delivery has been under such
circumstances as to show an agreement with the buyer
to give up possession of the whole of the goods.
The unpaid seller may exercise his right of stoppage
in transit either by:
a) Obtaining actual possession of the goods; or
b) Giving notice of his claim to the carrier or other
bailee in whose possession the goods are.
Q: If such notice was sent to the common carrier but
the common carrier refused to deliver the goods back
to the seller, is the common carrier liable?
➔ A: Not necessarily, if the goods are covered by a
negotiable document of title, the common carrier
can be compelled to deliver the goods pursuant
to the exercise of the right of stoppage in transitu
back to the seller only if after the negotiable
document of title is surrendered to the common
carrier. It should be a negotiable document of
title. This is a protection to the common carrier.
Kasi if not negotiable, pwede yun i-negotiate sa
3rd person who may purchase the goods in good
faith and for value. That 3rd person would have a
better right kaysa sa owner or seller.
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“When the time is right, I, the Lord, will make it happen.”
Q: If the seller validly exercised the right of stoppage
in transitu, what is the effect?
➔ A: He will be considered to have regained his
possessory lien.
Q: In a scenario where the seller still has possessory
lien, he may have invoked the right of stoppage in
transitu so he regained possessory lien, in the
meantime, the buyer sold the same goods to another
person, so tatlo na – the seller, the buyer and the 3rd
person. Can this 2nd buyer compel the seller to
deliver the goods to him as the 2nd buyer?
➔ A: As a rule no because the seller’s lien over the
goods will not be affected by the disposition
made by the buyer of the goods to a 3rd person.
He will retain his possessory lien. Two
exceptions:
1. If the seller assented to the disposition
2. Even if he did not give his consent to the
sale, he will lose his possessory lien if:
a. the goods are covered by a
negotiable document of title
b. The negotiable document of title
was properly negotiated to a 3rd
person in good faith and for
value. It was not a negotiation to
a donee.
3. SPECIAL RIGHT OF RESALE
The special right of resale can be made only when the
unpaid seller has previously exercised either his right of
possessory lien or stoppage in transitu, and under any of
the following conditions:
a)
The goods are of perishable nature;
b) The seller has expressly reserved the right to do
so in case the buyer should make default; or
c)
Where the buyer has been in default in the
payment of the price for an unreasonable time.
When the unpaid seller has exercised his right of resale,
he shall not thereafter be liable to the original buyer upon
the sale or for any profit made by such resale, but may
recover from the buyer damages for any loss occasioned
by the breach of the sale.
Where a resale is made by the unpaid seller, the buyer
acquires a good title as against the original buyer.
This is the special feature of the right of the unpaid seller
to resell: not only is he able to destroy or obliterate the
ownership over the goods in the original buyer, he is also
able to transfer ownership to the subsequent buyer, even
if at the time of tradition, he no longer had ownership over
the goods. Ordinarily, the destruction or taking away of
ownership in one person and placing it in another person
in such manner can only be done through court action.
But in the case of an unpaid seller, he can effect these,
even without judicial action.
Notice to Defaulting Buyer — It is not essential to the
validity of a resale that notice of an intention to resell the
goods be given by the seller to the original buyer. It is
also not essential to the validity of a resale that notice of
the time and place of such resale should be given by the
seller to the original buyer.
■
So what is the relevance of these notices?
First, the notice of the intention to resell will only
be relevant if the ground relied upon by the seller
is that the buyer has been in default for an
unreasonable time. Kasi from the notice makikita
how long the buyer has been in default. Second,
as to the notice of the date, time and place of
resale, this may be relevant in determining
whether the sale was a good faith sale. This is
relevant as a consequence of resale, if there is
still a balance. For example, the total contract
price is P100,000. The buyer did not pay a single
centavo. Out of the resale, ang proceeds lang
P60,000. So may balance pang P40,000, can the
buyer be compelled to pay the deficiency? Yes, but
if the sale is not a good faith sale, he may not be
required to pay the balance. Why? What has the
letter got to do with good faith? Because if a letter
was sent, then the buyer could have been present
and could have determined for himself whether in
fact an actual sale was conducted and there were
actual bidders in that sale. Kasi pwedeng gawa
gawa lang ng seller na kunwari may bumili.
Take note under the law, the resale may be a private sale.
The only limitation here is that the seller cannot buy
directly or indirectly.
Q: What if there was an excess? Example – out of the
100k price the buyer paid 20k. Balance 80k. What if in
the exercise of the right of resale, the seller was able to
sell it at 130k? May the buyer be able to recover at least
the amount that he paid?
➔ A: No, because under the law, the seller will not be
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“When the time is right, I, the Lord, will make it happen.”
responsible for any profit that will derive from the
resale. (Article 1533) there would be no unjust
enrichment because it was precisely the fault of the
buyer — his failure to pay — that the seller
exercised the right of resale.
RECTO LAW: SALES OF MOVABLES ON
INSTALLMENTS
■
The Court held that the provisions of the Recto
Law cannot apply to a sale where there is an
initial payment, and the balance payable in the
future, because the same is not a sale on
installment but actually a “straight sale.” Since
such a sale is not covered by the Recto Law, the
barring effects of the law cannot be made to
apply, and the seller may recover the unpaid
balance of the purchase price against the buyer
even when the latter shall have lost by
foreclosure the subject matter of the sale.
■
The Court held that when there is only one
payment to be paid in the future, there is no basis
to apply the Recto Law.
■
Contracts to Sell Movables Not Covered —
When the contract governing the sale of
movables is a contract to sell, then the rules on
rescission and substantial breach are not
applicable, since when the suspensive condition
upon which the contract is based fails to
materialize, it would extinguish the contract, and
consequently there is no contract to rescind.
4. SPECIAL RIGHT TO RESCIND
An unpaid seller having the right of lien or having stopped
the goods in transitu, may rescind the transfer of title and
resume the ownership in the goods, where:
a)
The seller has expressly reserved the right to do
so in case the buyer should make default; or
b) The buyer has been in default in the payment of
the price for an unreasonable time.
Note: In resale, SC said that if the ownership of the thing
has already been transferred to the buyer, in order for the
seller to exercise the right of resale, the seller need not
first rescind the contract. He can immediately sell the
goods because the effect of the resale is to terminate the
ownership of the 1st buyer and that ownership would be
vested upon the 2nd buyer by operation of law, hindi na
kailangan mag-rescind.
Song Fo vs Hawaiian
Facts: The buyer failed to pay around 20 days from the
time the obligation to pay become due.
Held: The SC said that it is not a serious breach of his
obligation to pay which would entitle the seller the right
to rescind the contract. The number of days would
depend on the circumstances surrounding the sale. In
Song Fo, the sale pertains to molasses/ sugar.
Note that rescission cannot be exercised for casual
breach.
Notice to Defaulting Buyer — It is necessary to notify
the buyer of such rescission because that notice will be
the mark of the rescission. Meaning you cannot consider
to be rescinded yet unless notice is given to the buyer.
Notice is not necessarily required in a specific form. It
could either be written or verbal or it can also be an overt
act. Meaning, an exercise of the right of ownership over
the property subject of the sale, such overt act or notice
will be sufficient evidence to prove the contract has
already been rescinded by way of this special right to
rescind.
2. Recto Law and Maceda Law
Under Article 1484 of the New Civil Code, in a sale of
personal property the price of which is payable in
installments, the seller may exercise any of the
following remedies:
a) Exact fulfillment of the obligation, should the
buyer fail to pay any installment;
b) Rescind the sale, should the buyer’s failure to
pay cover two or more installments;
c) Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the buyer’s
failure to pay cover two or more installments.
●
If the seller should foreclose on the
mortgage constituted on the thing sold,
he shall have no further action against
the purchaser to recover “any unpaid
balance of the price” and any agreement
to the contrary shall be void.
The remedies under Article 1484 have been recognized
as alternative, not cumulative, in that the exercise of one
would bar the exercise of the others. The remedies
cannot also be pursued simultaneously, as when a
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“When the time is right, I, the Lord, will make it happen.”
complaint is filed to exact fulfillment of the obligation, to
seize the property purchased and to foreclose the
mortgage executed thereof.
he sends a notice of rescission, or takes possession of
the subject matter of the sale, or when he files an action
for rescission.
Q: Assuming this is a sale of a diamond ring for 1M
payable in 10 equal annuals. 100k each year payable
Jan 1 each year. The buyer was able to pay 1st and 2nd
installment. He failed to pay the 3rd installment.
Despite demand, the buyer failed to pay. Can the seller
cancel the sale?
Q: [same facts] This time, 3rd installment default sya.
After a few months he was able to pay the 3rd
installment. Nakabayad sya ng 4th, 6th. On the 7th he
defaulted again. Would cancellation now be a remedy?
➔ A: No, under the Recto Law, cancellation of the sale
and the foreclosure of mortgage may only be
invoked if the buyer has failed to pay 2 or more
installments. If the buyer failed to pay only 1
installment the only remedy available to the seller
is exact fulfillment meaning specific performance.
Q: If after 2 months (despite demand the buyer failed to
pay) the seller filed an action to recover a sum of
money, how much shall be recovered by the seller?
Take note under the facts he only paid 2 installments
and hence the balance 800k. Can the seller recover the
800k?
➔ A: As a rule none because in a sale in installments,
this is actually an obligation to pay with a period.
Every time the period would arrive only then the
obligation would become due and demandable.
Ang nagiging due and demandable lang yung 3rd
installment. The 4th installment will be due only
another year and so on. What he can recover is only
100k which became due on the third installment.
That is the general rule. By way of exception he may
be able to recover 800k or all if there is a clause
known as acceleration clause wherein that would
make the entire balance due and demandable and
therefore he can be compelled to pay the entire
800k. Kung sa Maceda Law void ang acceleration
clause, sa Recto Law valid.
REMEDY OF RESCISSION
When a seller chooses the remedy of rescission, then
generally he is under obligation to make restitution, which
would include the return of any amount of the purchase
price that the buyer may have paid. However, a
stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as
the same may not be unconscionable under the
circumstances.
The general rule is that the seller is deemed to have
chosen the remedy of rescission, and can no longer avail
of the other two (2) remedies under Article 1484, when he
has clearly indicated to end the contract, such as when
➔ A: No, under the Recto Law he should have failed to
pay 2 or more installments meaning 2 consecutive
installments. Hindi sinabi ng batas - ”failed to pay
twice”.
Q: If he failed to pay the 3rd and 4th installment then
cancellation would now be a remedy. So what if the
seller opted to cancel the sale (this is rescission di ba?)
and the effect of cancellation diba is mutual restitution
and hence the buyer should return the thing delivered
to him and the seller should return the amount he
received as payment. Would the seller really be obliged
to return the entire 200k (1st and 2nd installment)?
➔ A: No, under the law, he is allowed to retain a
reasonable sum which may be considered as a form
of rental or for the deterioration. Example kung
yung car ang binili, 2 years na nyang ginagamit,
hence laspag na yun.
Q: Despite the cancellation of sale which normally
results in mutual restitution, may the seller this time be
able to retain everything which he received?
➔ A: Yes, if there is a forfeiture clause except if
retaining everything would be unconscionable.
What is unconscionable would depend again on the
circumstances surrounding the sale. Example 200k
is not unconscionable for Danding Cojuanco. But if
the sale is a sale of machinery where the buyer is a
poor farmer- 200k is unconscionable.
In sales of personal property by installments or leases of
personal property with option to buy, the parties may
stipulate that the installments or rents paid are not to be
returned. Such a stipulation is valid “insofar as the same
may not be unconscionable under the circumstances’’;
otherwise, the court has the power to order the return of
a portion of the total amount paid in installments or rents.
FORECLOSURE
OF
CHATTEL
MORTGAGE
CONSTITUTED ON SUBJECT PROPERTY
When the seller shall have chosen to foreclose on the
mortgage constituted on the subject matter of the sale,
he can seek neither the remedies of specific performance
nor rescission.
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“When the time is right, I, the Lord, will make it happen.”
The Court held that the point by which the seller is
deemed to have chosen the remedy of foreclosure is only
at the time of actual sale of the subject property at public
auction pursuant to the foreclosure proceedings
commenced.
foreclosure of the mortgage; hence, the seller creditor is
entitled to deficiency judgment.
It is the foreclosure and actual sale at public action of the
mortgaged chattel that shall bar further recovery by the
seller of any balance on the purchaser’s outstanding
obligation not satisfied by the sale; prior to that point in
time, the seller has every right to receive payments on the
unpaid balance of the price from the buyer.
➔ A: YES because that is separate from the
foreclosure as a remedy under this provision.
When you ask for specific performance and
when a judgment is given in your favor, you have
all the rights under the law to enforce it which
includes the right to foreclose whatever is
available for foreclosure including the object
itself.
Q: Buyer bought a car and to secure the payment of the
price, he mortgaged his diamond ring. The buyer failed
to pay 2 or more installments (3rd and 4th
installments). If the seller foreclosed the mortgage and
it turned out there was still a deficiency, if the payable
amount is 500k and in the foreclosure sale the proceeds
was only 300k. May an action for the recovery of
balance prosper?
➔ A: Yes, because under the facts what was bought
was not the one mortgaged. For Recto Law to apply
where there can be no recovery of the deficiency of
the foreclosure, the thing bought must be the same
thing mortgaged.
Bar Q: Buyer bought a car to secure the fulfillment of the
obligation he mortgaged the car but the buyer gave
another security. He asked his brother to mortgage his
brother’s house and lot. The seller agreed. The buyer
failed to pay 2 or more installments. The seller
foreclosed the mortgage but there is a deficiency. So the
seller filed an action for the judicial foreclosure of the
REM. May that action prosper?
➔ A: No, the foreclosure of the 2nd mortgage is in fact
a deficiency judgment. The only purpose of the
foreclosure is to recover the deficiency and that is
prohibited under the Recto Law.
Recovery of Unpaid Balance
Macondray & Co., Inc. v. Eustaquio — The words “any
unpaid balance” should be interpreted as having
reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged
chattel is sold at public auction, the proceeds obtained
therefrom are insufficient to cover the full amount of the
secured obligation.
Southern Motors, Inc. vs. Moscoso — Where the action
instituted is for specific performance and the mortgaged
property is subsequently attached and sold by virtue of
an execution, the sale thereof does not amount to a
Q: If you availed the specific performance, can you
foreclose?
Q: Now, are you entitled to deficiency payment?
➔ A: YES because again, here deficiency is a
consequence of the deed of execution. It would
have been a different story if what was availed of
is the third remedy, because you will then be
restricted by the restrictions of deficiency there.
Lease with Option to Purchase
Leases of personal property with option to buy on the
part of the lessee who takes possession or enjoyment of
the property leased are really sales of personalty payable
in installments. Accordingly, the rules provided in Article
1484 are equally applicable to the so-called leases of
personal property.
In PCI Leasing and Finance, Inc. v. Giraffe-X Creative
Imaging, Inc., the Court held that when the lessor in a
lease with option to purchase, in choosing, through
replevin, to deprive the lessee of possession of the
leased equipment, waived its right to bring an action to
recover unpaid rentals, since the remedies provided for
in Article 1484 are alternative, not cumulative — the
exercise of one bar the exercise of the others.
MACEDA LAW: SALES OF REAL ESTATE ON
INSTALLMENTS
■
It should be noted that the Maceda Law does not
cover all sales of realty on installments, but
primarily residential real estate.
■
Unlike Recto Law, Maceda Law covers not only
“sales” on installments of real estate, but also
“financing” of such acquisitions. It expressly
covers “all transactions or contracts involving the
sale or financing of real estate on installment
payments, including residential condominium
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“When the time is right, I, the Lord, will make it happen.”
apartments.”
■
succeeding installments:
Maceda Law Covers Contracts to Sell —
Maceda Law clearly includes in its provisions
both contracts of sale and contracts to sell.
a)
Transactions Excluded from Coverage
The following transactions, although involving sales on
installments, are expressly excluded from the coverage
of the Law, thus:
b) If the contract is cancelled, the seller
shall refund to the buyer the cash
surrender value of the payments on the
property equivalent to 50% of the total
payments made and, after five (5) years
of installments, an additional 5% every
year but not to exceed 90% of the total
payments made.
1) Sales covering industrial lots;
2) Sales covering commercial buildings (and
commercial lots by implication); and
3) Sales to tenants under agrarian reform laws
The enumeration of the transactions not covered by the
Maceda Law is not exclusive.
The right to make use of the grace period can be
exercised by the buyer only once in every five (5)
years of the life of the contract and its
extensions, if any.
Q: Is a condominium unit covered?
➔ A: It is covered by the Maceda Law as long as it
is residential in character.
Down payments, deposits or options on the
contract shall be included in the computation of
the total number of installments made.
Q: “Sale on credit” — does it mean that the sale will
be covered by the Maceda Law?
The actual cancellation of the contract shall take
place after thirty (30) days from receipt by the
buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to
the buyer.
➔ A: No. There is such a sale on credit which is on
a straight term basis.
Example 1: 1M – down payment of 500,000 today and the
balance to be paid at the end of the year → not covered
by Maceda Law.
Example 2: 300,000 today, the balance of 700,000 to be
paid on 10 equal monthly installments → covered by the
Maceda Law.
Q: Is it correct to say that in this law, the buyer cannot
invoke this law if he has not yet paid for at least 2
years?
➔ A: No. Even if he has only paid for a month, there
will be rights already of such buyer under the
Maceda Law. If he has paid at least 2 years, he
would have better rights.
I)
At Least Two (2) Years Installments Paid—
Where the buyer has paid at least two (2) years
of installments, he is entitled to the following
rights in case he defaults in the payments of
To pay, without additional interest, the
unpaid installments due within the total
grace period earned by him, which is
fixed at the rate of one (1) month grace
period for every one (1) year of
installment payments;
II)
Less Than Two (2) Years Installments Paid—
In case where less than two (2) years of
installments were paid, the buyer shall still be
entitled to a grace period of sixty (60) days from
the date the installment became due.
During the 60-day grace period, he can sell his
rights under the contract, he can assign his
rights, he can update his account, he can pay the
balance.
If the buyer fails to pay the installments due at
the expiration of the grace period, the seller may
cancel the contract after thirty (30) days from
receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by a
notarial act.
AUTOMATIC CANCELLATION CLAUSE
The automatic cancellation clause is void under Section
2022 Bar Reviewer by J.K.R. Gamboa | 75
“When the time is right, I, the Lord, will make it happen.”
7 in relation to Section 4 of R.A. 6552. Under Section 4
of RA 6552, the cancellation of the contract is a two-step
process. First, the seller should extend the buyer a grace
period of at least 60 days from the due date of the
installment. Second, at the end of the grace period, the
seller shall furnish the buyer a notice of cancellation or
demand for rescission through a notarial act, effective 30
days from the buyer’s receipt thereof. (Fabrigas v. San
Francisco del Monte, 475 SCRA 247 (2005))
The same grounds by which obligations in general are
extinguished also apply to the extinguishment of the
obligations arising from contracts of sale. They include
payment of the price or performance (i.e., delivery of
subject matter), loss of the subject matter, condonation
or remission, confusion or merger of the rights of creditor
and debtor, compensation, novation, annulment,
rescission, fulfillment of a resolutory condition, and
prescription.
Bar Q: Ayce bought a condo unit for 10M. 3M
downpayment. The balance of 7M payable in 60 equal
monthly payments. Ayce religiously paid until the 46th
installment. On the 49th installment, she offered to
update her account. The seller Gerard said “I have
already cancelled the sale”. Is this cancellation valid?
Payment or performance only extinguishes the
obligations to which they pertain to in a contract of sale,
but not necessarily the contract itself, since the
relationship between buyer and seller remains after
performance or payment, such as the continuing
enforceability of the warranties of the seller.
➔ A: No. Under the Maceda Law, if you have paid a
minimum of 2 years, you are entitled to 30 days for
every year of payment. Under the facts, she has
paid 3 years. Hence, she is entitled to 90 days grace
period. Nung nag default sya nung 47th, magstart
pa lang yung grace period. On the 48th installment
– she was only 30 days in default. 49th installment
– 60 days in default. She was very much within the
90-day grace period when she decided to update
her account.
Q: What if the installment period is for 15 years. The
buyer defaulted on the 3rd year. Under the law, she is
entitled to a minimum grace period of 60 days.
Thereafter, she was able to update. But on the 5th year,
she defaulted again. How many days is her grace
period?
➔ A: None. The default must be once for every 5-year
lifetime of the contract.
Q: “Upon failure to pay 1 or more installments without
need of notice, the seller would have the right to cancel
the sale” – is this automatic cancellation clause valid?
➔ A: Void. There has to be notice to the buyer but
more than that if the buyer is already entitled to the
CSV, the cancellation will take effect only upon full
payment of the CSV.
Q: Are the remedies under the Maceda Law
alternative? Can the buyer be able to exercise 2 or
more remedies all at the same time?
➔ A: Yes, remedies under the Maceda Law are
cumulative.
G. Extinguishment
1. In general
Under Article 1600 of the Civil Code, sales are also
extinguished by conventional or legal redemption.
Redemption as a mode of extinguishment is therefore
unique to contracts of sale.
2. Pacto de retro sale
CONVENTIONAL REDEMPTION
Conventional redemption shall take place when the seller
reserved for himself the right to repurchase the thing
sold, with the obligation to: (a) return the price of the sale,
(b) the expenses of the contract, (c) any other legitimate
payments made by reason of the sale, (d) and the
necessary and useful expenses made on the thing sold.
Even when a sale is one with a right of repurchase, the
buyer would still be subrogated to the seller’s rights and
actions even during the period when redemption can be
made by the seller. In other words, the redemption
feature of sale does not prevent its full consummation.
Unlike a debt which a third party may satisfy even against
the debtor’s will, the right of repurchase may be
exercised only by the seller in whom the right is
recognized by a contract, or by any person to whom the
right may have been transferred, or in the case of legal
redemption, by the person so entitled by law.
What is important in conventional redemption, however,
is the timing when the reservation of the right to
repurchase is made. The law requires that it must be
made at the time of perfection of the original contract and
done in the same instrument.
Q: In the exercise of this right, how much would have
to be offered by the seller in order to redeem the
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“When the time is right, I, the Lord, will make it happen.”
property? Would the price paid by the buyer be
sufficient in order to repurchase the same?
➔ A: Not necessarily, under the law, the amount
which has to be offered by the seller a retro in the
exercise of the right of redemption are: (1) price
paid; (2) the expenses incurred by the vendee for
the execution of the contract; (3) necessary and
useful expenses incurred by the buyer.
Q: In a mango plantation, there may be fruits at the time
of redemption. The value of the fruits is 100k. Can the
seller be compelled to pay for the value of the fruits?
➔ A: The answer will depend on whether there are
fruits at the time of the sale. If there were fruits at
the time of the sale, the seller will only be obliged
to pay for the fruits at the time of redemption if at
the time of the sale, the buyer paid for the price of
the value of the fruits.
So again, there were fruits at the time of
redemption, whether or not the seller would have
to pay for the fruits at the time of redemption
would depend on whether or not there were fruits
at the time of the sale. Take note that the sale may
have been 2 years before that or 3 years before that
but if at the time of the sale there were fruits and
the buyer paid for the value of these fruits, it is
reasonable that the seller would also have to pay
for the value of the fruits at the time of repurchase.
But if at the time of the sale, there were fruits but
the buyer did not pay for the value of the fruits then
the seller should not likewise be compelled to pay
for the value of the fruits at the time of redemption.
Q: If a COS was entered into in 2001 and there were no
fruits at the time of the sale. However, at the time of
redemption April 1, 2005 there were fruits. The value
of which is 100k. How much can the seller be compelled
to pay for these fruits?
➔ A: Under the law, the seller can be compelled to pay
for the value of the fruits in proportion to the
period in which the buyer was in counted from the
anniversary date of this contract. Yung anniversary
date ay every Jan 1. Yung anniversary date this year
Jan 1, 2005, from Jan 1, 2005 up to April 1, 2005 the buyer would be in possession for 3 months out
of 12 months is ¼ of the entire year. Therefore,
how much can the seller be compelled to pay?
25,000 – ¼ of the value. The longer the buyer is in
possession of the goods, the bigger the amount
which has to be paid by the seller.
Right to Redeem vs Option to Purchase
An option to buy is different and distinct from the right of
repurchase which must be reserved by the vendor by
stipulation to that effect in the contract of sale.
Villarica v. Court of Appeals (1968)
It is clear from Article 1601 of the Civil Code that “the
right of repurchase must be reserved by the vendor, by
stipulation to that effect, in the contract of sale.” It held
that “[T]he right of repurchase is not a right granted [to]
the vendor by the vendee in a subsequent instrument, but
is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once
the instrument of absolute sale is executed, the vendor
can no longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a
separate instrument cannot be a right of repurchase but
some other right like the option to buy in the instant
case.”
Misterio v. Cebu State College of Science and
Technology (2005)
The essence of a pacto de retro sale is that title and
ownership of the property sold is immediately vested in
the vendee a retro, subject to the restrictive condition of
repurchase by the vendor a retro within the redemption
period.
Nool v. Court of Appeals (1997)
The valid existence of a stipulated right of repurchase is
premised upon the fact that the underlying contract of
sale is valid and there has been performance (i.e.,
delivery of the subject matter and transfer of ownership
to the buyer), upon which the right to repurchase can be
exercised later on.
The differences between a right of redemption from an
option right may be summarized as follows:
a)
A right to redeem is not a separate contract, but
merely part of a main contract of sale, and in fact
cannot exist unless reserved at the time of the
perfection of the contract of sale; whereas, an
option to purchase is generally a principal, albeit
preparatory, contract and may be created
independent of another contract;
b) A right to redeem must be imbedded in a
contract of sale upon the latter’s perfection;
whereas, an option right may exist prior to or
after the perfection of the sale, or be imbedded
in another contract, like a lease, upon that
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“When the time is right, I, the Lord, will make it happen.”
contract’s perfection;
c)
The right to redeem does not need a separate
consideration in order to be valid and effective;
whereas, an option to purchase in order to be
valid must have a consideration separate and
distinct from the purchase price;
d) For a right to redeem, the redemption period
cannot exceed ten (10) years; whereas, the
period for an option right may exceed ten (10)
years;
e)
f)
The exercise of a right of redemption requires
notice to be accompanied by a tender of
payment, including consignment when tender of
payment cannot be made effectively on the
buyer; whereas, the exercise of a option to
purchase requires only a notice of such exercise
be given to the optioner; and
The exercise of a right of redemption
extinguishes an existing contract of sale;
whereas, the valid exercise of an option right
results in the perfection of a contract of sale.
Period of Redemption (Article 1606)
In case of stipulated right to redeem, in the absence of
an express agreement as to the period when the right can
be exercised, it shall last four (4) years from the date of
the contract.
Should there be an agreement as to the period of
redemption, the period cannot exceed 10 years; if the
stipulated period exceeds 10 years, the agreement is
valid only for the first 10 years. The excess period will be
void.
Catangcatang v. Legayada, held that the non-payment of
the purchase price by itself would not serve to suspend
the period of redemption.
Grant of 30-day Redemption Right in Case of
Litigation — Under the last paragraph of Article 1606 of
the Civil Code, “the vendor may still exercise the right to
repurchase within thirty-days from the time final
judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase.”
When the period of redemption has expired, then ipso
jure the right to redeem has been extinguished. However,
even when the right to redeem has expired, and there has
been a previous suit on the nature of the contract, the
seller may still exercise the right to repurchase within 30
days from the time final judgment was rendered in a civil
action on the basis that the contract was a true sale with
right to repurchase.
Article 1606, paragraph 3 is not applicable where the
contract is found to be an absolute deed of sale, pure
and simple. There could not even be a period of
redemption. It refers to cases involving a transaction
where the seller contests or denies that the true
agreement is one of sale with right to repurchase and
claims that the real intention was a loan with equitable
mortgage, but the court decides otherwise.
Neither is said provision applicable where the sale is
admittedly one with pacto de retro.
Cebu State College of Science and Technology v.
Misterio (2015)
In the present case, the Deed of Sale executed by the
parties provide for a right to repurchase the subject
property upon the occurrence of either of two suspensive
conditions, particularly: (1) the cessation of existence of
SAHS; or (2) the transfer of SAHS to another school site.
In cases of conventional redemption when the vendor a
retro reserves the right to repurchase the property sold,
the parties to the sale must observe the parameters set
forth by Article 1606 of the New Civil Code. Article 1606
expressly provides that in the absence of an agreement
as to the period within which the vendor a retro may
exercise his right to repurchase, the same must be done
within four years from the execution of the contract. In
the event the contract specifies a period, the same
cannot exceed ten years. Thus, depending on whether
the parties have agreed upon a specific period within
which the vendor a retro may exercise his right to
repurchase, the property subject of the sale may be
redeemed only within the limits prescribed by the
aforesaid provision.
The Court deemed it necessary to keep within the tenyear period those instances where parties agree to
suspend the right until the occurrence of a certain time,
event, or condition, insofar as the application of the fouryear period in the first paragraph of Article 1606 Civil
Code would prolong the exercise of the right beyond ten
years. In cases where the four-year period would extend
the life of the contract beyond ten years, the vendor a
retro will only have the remainder of the said ten-year
period to redeem the property. The period of redemption
agreed upon by the parties may be extended after the
four-year period so long as the total period does not
exceed ten years from the date of the contract.
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“When the time is right, I, the Lord, will make it happen.”
Therefore, it would be ludicrous to allow respondents to
repurchase the subject property upon the occurrence of
the second suspensive condition, specifically the
relocation of SAHS on October 3, 1997, the time when
petitioner ceded the property to the Province of Cebu,
which is nearly forty-one (41) years after the execution of
the Deed of Sale on December 31, 1956.
Bar Q: Ariel sold a land to Jessica for 10k with a right to
repurchase expressly agreed upon between the parties.
Because they were friends, they did not provide for a
period within which the seller may exercise the right to
repurchase. But again, there was a reservation of the
right to repurchase only that the parties failed to fix the
period.
a. When should the seller-a-retro exercise the right to
repurchase?
b. If the seller failed to repurchase within the period
agreed upon or the period prescribed by law, what will
be your advice to the buyer in order to protect the
buyer more?
➔ A: (a) The period is 4 years. Under the law, if there
is a right of redemption but the parties failed to
provide for such a period, the law itself says that
right may be exercised only within 4 years.
However, if the parties stipulated as to the period
within which the right may be exercised like 20
years, the law provides, it cannot exceed 10 years
and hence the 20-year period will be reduced.
Hindi naman void yung 20 years totally, it will just
be reduced to 10 years because the law provides
that it should not exceed 10 years.
(b) To file an action for the consolidation of the
title.
Possession of subject matter during period of
redemption
In a sale a retro, the buyer has a right to the immediate
possession of the property sold, unless otherwise agreed
upon. It is basic that in a pacto de retro sale, the title and
ownership of the property sold are immediately vested in
the buyer a retro, subject only to the resolutory condition
of repurchase by the seller a retro within the stipulated
period.
Q: In a sale with a right to repurchase, ownership
passes when? Upon the expiration of the period to
repurchase?
➔ A: No, it follows the general rule in sale that
ownership passes to the buyer upon the delivery
as a rule.
Q: So what will be the effect of the expiration of the
period for repurchase without the seller exercising
such a right? Or even if he did exercise, it was not a
valid exercise of a right, like for example: a total
amount which should have been offered is 500k. He
only offered to pay 300k. Hence, the buyer can refuse
and therefore the right to repurchase was not validly
exercised. Thus, assuming there was no exercise of
the right to repurchase what is the effect on the
ownership of the buyer?
➔ A: Buyer’s right or ownership over the thing
becomes absolute. During the period for
repurchase, he has ownership but his ownership
is subject to a resolutory condition which is the
valid exercise of the right to repurchase. If the
right to repurchase is exercised, his ownership
will be terminated.
Q: Would this be correct - that upon the lapse of the
period without the seller having exercised the right to
repurchase the ownership of the buyer becomes
absolute? Is this true also in sale of immovable? Or
true only in sale of movable?
➔ A: It does not matter whether it is immovable or
movable, it is true in every COS with a right to
repurchase. From the moment that the seller was
not able to exercise the right to repurchase within
the period provided by law, the ownership of the
buyer becomes absolute.
How Redemption Exercised
Redemption is effected not by mere notice to redeem but
by the payment of the price, the expenses of the
contract, any legitimate payments, necessary and useful
expenses. All expenses attached to the property when
redeemed should be paid, otherwise the redemption is
not complete.
The law says that if the seller does not pay the necessary
and useful expenses yet then the buyer remains to have
the right to retain the property. Right of redemption is
available until full payment is made by the seller to
complete the redemption. Actual payment is required in
order to complete redemption. Complete payment must
be made and the law terms it as tendering of payment. In
order to complete redemption, it is sufficient that the
seller tenders payment to the buyer, meaning actually
pay the property.
2022 Bar Reviewer by J.K.R. Gamboa | 79
“When the time is right, I, the Lord, will make it happen.”
If the buyer’s location cannot be known or his
whereabouts are unknown, then it is no longer necessary
for the seller to tender payment and he can directly
consign the amount in court and the redemption is
completed.
3. Equitable mortgage
An equitable mortgage is one which lacks the proper
formalities, form or words, or other requisites prescribed
by law for a mortgage, but shows the intention of the
parties to make the property subject of the contract as
security for a debt and contains nothing impossible or
contrary to law.
When contract with right to repurchase presumed an
equitable mortgage
For a presumption of an equitable mortgage to arise,
there are two (2) requisites, namely:
1) that the parties entered into a contract
denominated as a contract of sale with a right of
repurchase or purporting to be an absolute sale;
and
2) that their intention was to secure an existing debt
by way of mortgage.
In case of doubt, a contract purporting to be a sale with
right of repurchase shall be construed as an equitable
mortgage.
According to Article 1602, the contract of sale with right
to repurchase (sale a retro) shall be presumed to be an
equitable mortgage, in any of the following cases:
2) Vendor remains in possession.
redemption
is
extended
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on the
thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.
In any of the foregoing cases, any money, fruits or other
benefits to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to
the usury laws.
Nonetheless, it should be noted that the presumption of
equitable mortgage created in Article 1602 is not
conclusive — it may be rebutted by competent and
satisfactory proof to the contrary.
Uribe: Presumptions under 1602 would arise regardless
of whether the sale is denominated as a sale with a right
to repurchase or a DOS. It does not matter. Even if it is a
DOS, if there is doubt as to whether or not it is an
equitable mortgage, it has to be resolved as an equitable
mortgage.
Spouses Sy v. De Vera-Navarro (2019; En Banc; J.
Caguioa)
1) Price of the sale is unusually inadequate.
3) Period of
expiration.
equitable mortgage, in any of the following cases:
after
4) Purchaser retains part of the price
5) Vendor binds himself to pay taxes on the thing
sold
6) The parties really intended an equitable
mortgage instead of a sale, i.e., that the
transaction shall secure the payment of a debt or
the performance of any other obligations.
Article 1602. The contract shall be presumed to be an
Jurisprudence consistently shows that the presence of
even one of the circumstances enumerated in Article
1602 suffices to convert a purported contract of sale into
an equitable mortgage. The existence of any of the
circumstances defined in Article 1602 of the New Civil
Code, not the concurrence nor an overwhelming number
of such circumstances, is sufficient for a contract of sale
to be presumed an equitable mortgage.
In fact, the Court has previously ruled that when in doubt,
courts are generally inclined to construe a transaction
purporting to be a sale as an equitable mortgage, which
involves a lesser transmission of rights and interests over
the property in controversy.
2022 Bar Reviewer by J.K.R. Gamboa | 80
“When the time is right, I, the Lord, will make it happen.”
First, it is not disputed by any party that the supposed
vendor of the subject property, petitioner John, remains
to be in possession of the subject property despite
purportedly selling the latter to respondent De VeraNavarro. Second, the purchase price of the purported
sale indicated in the undated Deed of Absolute Sale is
inadequate. The RTC took judicial notice of the public
knowledge that similar establishments located at the
commercial center of Zamboanga City have a value of
around P20,000,000.00. Thus, the P5,000,000.00
purchase price supposedly agreed upon by the parties is
grossly inadequate. Third, the evidence on record shows
that respondent De Vera-Navarro retained for herself the
supposed purchase price. Fourth, from the evidence
presented by petitioners Sps. Sy, it is established that the
real intention of the parties is for the purported contract
of sale to merely secure the payment of their debt owing
to respondent De Vera Navarro.
persons is not present unless it appears in a
public instrument, or the instrument is recorded
in the Registry of Property in case the
assignment involves real rights.
■
Without the public instrument, the assignment
would still be valid, but it is enforceable only as
between the assignor and the assignee, and their
successors-in-interest.
■
In Leonido v. Capitol Dev. Corp., it was held that
the notarization of the Assignment of Credit,
converted it into a public document, thereby
complying with the mandate of Article 1625 of
the Civil Code and making it enforceable even as
against third person.
■
When the assignment involves a document of
title, the assignment does not bind the bailee
unless specific notice of the transfer of the
covering document of title is given by the
transferor or transferee to the bailee.
■
The debtor’s consent is not necessary in order
that assignment may fully produce legal effects,
and hence, the duty to pay to the assigned does
not depend on the consent of the debtor.
■
The assignment of credit, although constituting
novation, does not result in extinguishing the
debtor’s liability, even when the assignment is
effected without his consent.
■
When the subject matter of an assignment is a
credit, if the debtor pays his creditor without
knowledge of the assignment, his payment shall
produce the effect of payment to release him
from further obligations. On the other hand, if the
debtor has consented to the assignment, he
cannot set up against the assignee such
compensation, unless the assignor was notified
by the debtor at the time he gave his consent,
that he reserved his right to the compensation. If
the creditor communicated the assignment to
him but the debtor did not consent thereto the
debtor may still set up the compensation of
debts previous to the assignment, but not the
subsequent ones.
Remedy of seller a retro
If there is dispute as to whether or not it is an equitable
mortgage or not, the seller may ask for :
1. Reformation of the contract;
2. Declaration of nullity; or
3. Specific performance in case of breach.
Pactum Commissorium
The stipulation for the automatic vesting of title over the
property in the name of the creditor in case of the
debtor’s default. This is against public policy. Pactum
commissorium is a stipulation in mortgage agreements
which provides that, the moment the debtor becomes in
default in the payment of his obligation, the property will
be automatically adjudicated in favor of the creditor.
H. Assignment of credits
Assignment of credit
■
It is the process of transferring the right of the
assignor to the assignee who would then be
allowed to proceed against the debtor for the
enforcement or satisfaction of the credit to the
same extent as the assignor could.
■
The assignment involves no transfer of
ownership but merely effects the transfer of
rights which the assignor has at the time to the
assignee.
■
The “binding effect” of an assignment as to third
Project Builders, Inc. v. Court of Appeals (2001)
An assignment of credit is an act of transferring, either
onerously or gratuitously, the right of an assignor to an
assignee, who shall proceed against the debtor for
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“When the time is right, I, the Lord, will make it happen.”
enforcement of the credit. Upon perfection of the
contract, the transfer of rights takes place and the
assignee acquires ownership thereof together with the
accessory rights. Said assignment binds the debtor only
upon acquiring knowledge of the assignment but he is
entitled, even then, to raise against the assignee the
same defenses he could set up against the assignor. It
must be noted that the law merely requires a notice to
the debtor in order to inform him or her that from the date
of the assignment, payment should be made to the
assignee and not the original creditor; and that the
debtor’s consent is not essential for the perfection of the
assignment of credit. Hence, the duty to pay does not
depend on the debtor’s consent.
of credit is not the
consent of the debtor but
merely notice to him as
the assignment takes
effect only from the time
he
has
knowledge
thereof. (Rodriguez v.
Court
of
Appeals;
Article 1626)
creditor. It is a new
contractual
relation
based on the mutual
agreement among all the
necessary
parties.
(Article 1301; Licaros v.
Gatmaitan)
Defect and vices in the
old obligation are not
cured
Defects and vices in the
old obligations are cured
Where the assignment is on account of pure liberality on
the part of the assignor, the rules on donation would
apply; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or
purchase. Upon an assignment of a contract to sell, the
assignee is effectively subrogated in place of the
assignor and in a position to enforce the contract to sell
to the same extent as the assignor could.
ASSIGNMENT OF
CREDITS
CONVENTIONAL
SUBROGATION
An assignment of credit is
the
process
of
transferring the right of
the assignor to the
assignee who would then
have the right to proceed
against the debtor.
Conventional
subrogation
is
the
transfer of all the rights of
the creditor to a third
person, who substitutes
him in all his rights. It
takes place by agreement
of parties.
Creditor merely assigns
his rights and interests in
the agreement to a third
person (Art. 1178)
A form of novation:
substitution of a third
person in the rights of the
creditor
(Art. 1301,1303)
Original
agreement
remains in force
Old
obligation
extinguished and a new
contract takes its place
In an assignment of
credit, the consent of the
debtor is not necessary in
order that the assignment
may fully produce legal
effects. What the law
requires in an assignment
Consent of the debtor is
necessary. Conventional
subrogation requires an
agreement among the
three parties concerned
— the original creditor,
the debtor, and the new
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“When the time is right, I, the Lord, will make it happen.”
the thing in usufruct or he may lease it to another
but the lease contract shall terminate upon the
expiration of the usufruct.
VI. LEASE
Note: articles discussed are the frequently asked topics based on
Pareto Notes; additional source: Golden Notes 2021
However, an easement cannot be leased
independently of the estate to which it actively or
passively belongs as it is inseparable therefrom,
being an accessory thing whose very existence
depends upon the principal thing.
A. General provisions
Article 1642. The contract of lease may be of things, or of
work and service.
Even the lessee himself may lease the property
to another; in such case, a sublease results.
LEASE
The contract of lease is an agreement whereby one
person (lessor) binds himself to grant temporarily the
enjoyment or use of a thing or to render some work or
service to another (lessee) who undertakes to pay rent,
compensation or price therefor.
Lease is only a personal right. It is a real right only by
exception as in the case of lease of real estate recorded
in the Registry of Property which makes it binding upon
third persons, like a purchaser.
A lease contract is not essentially personal in character
in the sense that the rights and obligations therein are
transmissible to the heirs. The death of a party does not
excuse non-performance of a contract, which involves a
property right, and the rights and obligations thereunder
pass to the successors or representatives of the
deceased.
Article 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing
for a price certain, and for a period which may be definite
or indefinite. However, no lease for more than ninetynine years shall be valid.
■
■
The essence or essential purpose of the lease of
things is the transmission of the temporary
enjoyment or use by the lessee of a thing for a
certain period in consideration of the undertaking
to pay rent therefor. Hence, the object of the
lease must be within the commerce of man;
otherwise, it is void. Thus, a lease of property
belonging to the public domain such as a road or
a public plaza is void ab initio.
The lessor need not be the owner of the thing
leased as long as he can transmit its enjoyment
or use to the lessee since ownership is not being
transferred.
Example: the usufructuary may personally enjoy
■
Estoppel against lessee — A lessee is stopped
from asserting title to the thing leased as against
the lessor, or to deny the lessor’s title, or to
assert a better title not only in himself, but also in
some third person, including the State while he
remains in possession of the leased property and
until he surrenders possession to the lessor.
■
Service as driver under the boundary system
— Under the boundary system, the relation
between the driver and the jeepney owner is that
of employer and employee, not lessor and
lessee.
Q: If a party binds himself to give another the
enjoyment or use of thing, does that make the
contract one of lease of things?
➔ A: No. To be a lease, it must be for a price
certain, otherwise if there is no valuable
consideration for the use or enjoyment of the
thing, it will be commodatum.
Article 1644. In the lease of work or service, one of the
parties binds himself to execute a piece of work or to
render to the other some service for a price certain, but
the relation of principal and agent does not exist between
them.
■
In a lease of work, the object is the execution of
a piece work for an employer by an independent
contractor (Art. 1713.), while in a lease of service,
it is the performance of some service for an
employer by a house helper (Art. 1689.) or laborer
(Art. 1700.) or for a passenger or owner of goods
by a common carrier. (Art. 1732.)
■
Distinctions between agency and lease of
services. — In both agency and lease of services
one of the parties binds himself to render some
service to the other party. Agency, however, is
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“When the time is right, I, the Lord, will make it happen.”
distinguished from lease of work or services in
that the basis of agency is representation, while
in the lease of work or services the basis is
employment. The lessor of services does not
represent his employer, while the agent
represents his principal.
1) Delivery of the property. — The thing leased
must be delivered in order that the lessee may
enjoy or use the same. Delivery, may, of course,
be actual or constructive.
Q: If in the agreement one of the parties binds himself
to render service, for price certain would that be a
lease of service?
2) Making of necessary repairs. — Article 1654
speaks of necessary repairs to keep the thing
leased suitable for the use to which it has been
devoted unless there is a stipulation to the
contrary.
➔ A: Not necessarily, because it may also be a
contract of agency, where a person binds himself
to render service for another person it may be a
contract of agency, thus under 1644, in order for
the contract to be considered as lease of service,
there must be no relation of principal and agent
existing between the parties.
3) Keeping lessee in peaceful and adequate
enjoyment. — The warranty of the lessor is that
the lessee shall not be disturbed in his legal, not
physical possession. Hence, the lessor is not
liable for physical trespass, but is liable when his
non-payment of the real estate tax results in the
eviction of the lessee.
Article 1645. Consumable goods cannot be the subject
matter of a contract of lease, except when they are merely
to be exhibited or when they are accessory to an industrial
establishment.
Generally, consumable goods may not be a subject
matter of contract of lease because the essence of lease
is the enjoyment or use of the property with the duty on
the part of the lessee to return the same upon the lease's
expiration. Thus, goods that cannot be used without
being consumed cannot be leased.
However, when the use of the things is only for exhibition,
or when they are accessory to an industrial establishment
then consumable goods may be a subject of lease.
B. Rights and obligations of the lessor
Article 1654. The lessor is obliged:
(1) To deliver the thing which is the object of the contract
in such a condition as to render it fit for the use intended;
(2) To make on the same during the lease all the necessary
repairs in order to keep it suitable for the use to which it
has been devoted, unless there is a stipulation to the
contrary;
Gonzales vs. Mateo
This involved a contract of lease over a cockpit. It was
stipulated in the contract that “ang lahat ng kailangang
gawin sa bahay sabungan ay ipagagawang lahat ni
Ginoong Gonzales (lessee) sa kanyang sariling ukol, na
ang samahan ay walang sinasagot”. In other words, the
lessee is bound to do the necessary repairs, so when the
cockpit collapsed the lessee was held liable, even if the
lessor under the law has the obligation to make the
necessary repairs it is still subject to stipulation of the
parties.
Article 1655. If the thing leased is totally destroyed by a
fortuitous event, the lease is extinguished. If the
destruction is partial, the lessee may choose between a
proportional reduction of the rent and a rescission of the
lease.
Total destruction
■
Partial destruction
■
In this case, the lessee is given the option to
choose between a proportionate reduction of the
rent and rescission of the lease. Once the choice
of the lessee has been communicated to the
lessor, the former cannot change it.
■
If reduction of rent is chosen, the same shall be
retroactive to the date the partial destruction
(3) To maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the
contract.
Article 1654 enumerates
obligations of the lessor:
the
three
(3)
principal
In this case, the lease is extinguished, because
of the absence of the object of the contract.
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“When the time is right, I, the Lord, will make it happen.”
occurred. In case of rescission, the general rule
is that it will not be granted for slight or trivial
causes. The partial destruction, under the
circumstances, should be important or
substantial as to defeat the purpose of the lessee
in entering into the contract of lease.
demand to vacate.
■
Possession of land by tolerance becomes an
unlawful detainer, from the time a demand to
vacate is made.
■
A notice giving the lessee the alternative either to
pay the increased rental or otherwise to vacate
the leased premises is not the demand
contemplated in an unlawful detainer case. The
demand to vacate must be definite, subject to no
condition; otherwise, the lessor cannot bring the
action of unlawful detainer.
■
A lessor’s letter to the lessee demanding
payment of back rentals, and that if the latter
failed to pay, an ejectment suit would be filed
against him is a sufficient notice. The omission of
the word “vacate’’ in the notice is immaterial.
■
It is not a valid defense in ejectment cases that
the lessor refused to receive the rent. The lessee
must consign in court the rent due from him.
Article 1673. The lessor may judicially eject the lessee for
any of the following causes:
(1) When the period agreed upon, or that which is fixed
for the duration of lease under Articles 1682 and 1687, has
expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed upon in the
contract;
(4) When the lessee devotes the thing leased to any use or
service not stipulated which causes the deterioration
thereof; or if he does not observe the requirement in No.
2 of Article 1657, as regards the use thereof.
The ejectment of tenants of agricultural lands is governed
by special laws.
2. Lack of payment of stipulated rental
■
Article 1673 must be read in conjunction with Section 2,
Rule 70 of the Rules of Court, which provides that a
demand to pay or to comply with the conditions of the
lease and to vacate the premises is a condition precedent
for the institution of an ejectment suit against the lessee.
Section 2, Rule 70 is applicable only where there is a
lessor-lessee relationship under a contract of lease and
only in instances where the grounds relied upon for
ejectment is non-payment of rentals or violation of any of
the conditions of the lease. In such situations, notice to
vacate is crucial. A demand is a prerequisite to an action
for unlawful detainer where the action is based on either
ground but not where the action is to terminate the lease
because of the expiration of its term. (Lanuza vs. Muñoz)
1. Expiration of the period
■
■
Ejectment lies without the need of a demand,
when the period of the lease has expired. The
notice of the lessor is immaterial. He is free to
dispose of the leased property to another lessee.
The lessee must restore possession of the leased
property after the expiration of the stipulated
period. The unlawful holding or deprivation of
possession is to be counted from the date of the
Mere failure to pay rents, or a breach of contract
to pay rents, does not render the possession of
the lessee per se unlawful, nor may the action for
his ejectment from the land accrue upon such
failure or breach. The right to bring the action of
ejectment or unlawful detainer must be counted
from the time the defendant has failed to pay
rents as agreed upon in a contract, but it is the
failure to pay the rents after a demand therefor is
made that entitles the lessor to bring an action of
unlawful detainer.
3. Violation of any condition agreed upon
■
A demand is a prerequisite in an action of
unlawful detainer when it is for failure to comply
with any of the conditions of the lease, but not
when that action is to terminate the lease
because of the expiration of the term.
C. Rights and obligations of the lessee
Article 1657. The lessee is obliged:
(1) To pay the price of the lease according to the terms
stipulated;
(2) To use the thing leased as a diligent father of a family,
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“When the time is right, I, the Lord, will make it happen.”
devoting it to the use stipulated; and in the absence of
stipulation, to that which may be inferred from the nature
of the thing leased, according to the custom of the place;
improvements, even though the principal thing may
suffer damage thereby. He shall not, however, cause any
more impairment upon the property leased than is
necessary.
(3) To pay the expenses for the deed of lease.
1. Payment of agreed price of lease
■
■
The obligation of the lessee to pay the rent
agreed upon arises only when the thing leased
has been delivered to the lessee for the purposes
stipulated in the contract. Thus, where the
agreement to lease a vessel was never
consummated for the reason that the defendant
did not accept delivery of the same because it
was not what it was represented to him, the
lessee was not liable for rent.
Only the lessor has the right to fix the rents. The
court cannot determine the rent and compel the
lessor to conform thereto and allow the lessee to
enjoy the premises on the basis of the rents fixed
by it.
2. Proper use of the thing leased
■
■
The lessee must exercise the diligence of a good
father of a family. He must devote the thing to the
use stipulated, and if none was stipulated, to that
which may be inferred from the nature of the
thing leased according to the custom of the
place. The use of the thing for an illegal purpose
entitles the lessor to terminate the contract.
When a thing by its nature is susceptible to
various uses, the lessee may use it for any of the
purposes for which it may be suitable. The lessee
needs to limit himself to the use to which the
thing was devoted at the time of the lease.
3. Payment of expenses for deed of lease
■
In lease, the law imposes the obligation to pay
expenses for the deed of lease on the lessee. By
agreement, the obligation may be assumed by
the lessor.
With regard to ornamental expenses, the lessee shall not
be entitled to any reimbursement, but he may remove the
ornamental objects, provided no damage is caused to the
principal thing, and the lessor does not choose to retain
them by paying their value at the time the lease is
extinguished.
Rights of the lessee who introduced improvements
Introduction of valuable improvement on the leased
premises does not give the lessee the right of retention
and reimbursement which rightfully belongs to the
builder in good faith. Otherwise, such a situation would
allow the lessee to easily “improve” the lessor out of its
property.
The lessor shall pay the lessee one-half of the value of
the improvements computed at the time of the
termination of the lease if the following conditions are
fulfilled:
1. That the lessee should have made the useful
improvements in good faith;
2. The improvements are suitable to the purpose or
use for which the lease is intended; and
3. That the form and substance of the thing leased
are not altered or modified.
It is the lessor who has the option to appropriate the
useful improvements and reimburse the lessee therefor.
It is discretionary with the lessor to retain the useful
improvements by paying one-half of their value. The
lessee cannot compel the lessor to appropriate and
reimburse him for the improvements.
A lessee who builds on the property leased is not a
possessor in good faith, thus, he has no right of retention
until reimbursed for the value of the improvement.
Ornamental Expenses
Art. 1678. If the lessee makes, in good faith, useful
improvements which are suitable to the use for which the
lease is intended, without altering the form or substance
of the property leased, the lessor upon the termination of
the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to
reimburse said amount, the lessee may remove the
The lessee has no right of reimbursement for ornamental
expenses. He may remove them provided he does not
cause any damage to the thing leased. The lessor, if he
so desires, may retain them after paying their value to the
lessee at the time the lease is extinguished.
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“When the time is right, I, the Lord, will make it happen.”
Art. 1659. If the lessor or the lessee should not comply
with the obligations set forth in Articles 1654 and 1657,
the aggrieved party may ask for the rescission of the
contract and indemnification for damages, or only the
latter, allowing the contract to remain in force.
Article 1659 follows the general rule in obligations
contained in Article 1191 with the difference that while
the courts are granted by said article the discretion to
grant an obligor additional time for performance (par. 3
thereof.), under Article 1659, there is no such discretion
granted to courts. (Mina vs. Rodriguez)
Rescission of the lease necessarily requires the return of
the thing to the lessor. Hence, the judgment granting
rescission of the contract should also order the lessee to
vacate and return the leased premises to the lessor.
SUMMARY OF RIGHTS AND OBLIGATIONS OF LESSOR AND LESSEE
Primary
Obligations
Use
Necessary Repairs
Urgent Repairs
LESSOR
LESSEE
Deliver the thing in such a condition as to
render it fit for the use intended. (Art.
1654, par. 1)
Pay the price of the lease according to
the terms stipulated (Arts. 1657,1679)
The lessor may judicially eject the lessee
for lack of payment of the price stipulated
(Art. 1673, par. 2)
Pay the expenses for the deed of lease
The lessor may judicially eject the lessee
when the lessee devotes the thing leased
to any use or service not stipulated, which
causes the deterioration thereof (Art. 1673,
par. 4)
Use the thing leased as a diligent father of
a family, devoting it to the use stipulated
or as may be inferred from the nature of
the thing leased, or be liable for
damages (Art. 1657, par. 2)
Maintain the lessee in the peaceful and
adequate enjoyment of the lease for the
entire duration of the contract. (Art. 1654,
par. 3)
Lessee is obliged to bring to the
knowledge of the proprietor, within the
shortest possible time, every usurpation
or untoward act which any third person
may have committed or may be openly
preparing to carry out upon the thing
leased or be liable for damages (Art.
1663)
During the lease, the lessor must make the
necessary repairs to keep the thing leased
suitable for the use to which it has been
devoted. (Art.1654, par. 2)
The lessee is obliged to advise the
owner of the need for all necessary
repairs or be liable for damages. (Art.
1663)
Tolerate the work on urgent repairs. (Art.
1662)
The lessee is responsible for the
deterioration or loss of the thing leased,
unless he proves that it took place
without his fault. (Art.1667)
Deterioration or
Loss
The lessee is liable for any deterioration
caused by members of his household
and by guests and visitors. (Art. 1668)
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“When the time is right, I, the Lord, will make it happen.”
If the thing leased is totally destroyed
by a fortuitous event, the lease is
extinguished. (Art. 1665)
Upon Termination
Duty to return (Arts. 1665, 1666)
●
Right to eject (Art. 1673)
●
Duty to reimburse (Art. 1678)
●
Useful improvements: By paying the
lessee ½ of the value
of
the
improvements at that time
●
Ornamental
improvements:
if
he
chooses to retain them by paying their
value at the time of the lease
occupation or enjoyment inherent in a contract of lease.
IMPLIED NEW LEASE
REQUISITES FOR AN IMPLIED RENEWAL OF LEASE
Art. 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with
the acquiescence of the lessor, and unless a notice to the
contrary by either party has previously been given, it is
understood that there is an implied new lease, not for the
period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of
the original contract shall be revived.
a)
An implied new lease (tacita reconduccion) arises when
the lessee, with the acquiescence of the lessor, holds
over after the expiration of the contract of lease, under
the same terms and conditions except that instead of the
original period, the period of the new lease will be
according to the character of the property and mode of
payment of the rent, i.e., that established in Article 1682
(rural lease) whose period extends to one (1) year or
period necessary to gather the fruits or in Article 1687
(urban lease) whose period depends upon the periods of
payment. Thus, where the rent for a 10-year period lease
which has expired was paid monthly, the implied new
lease must be deemed from month to month and may be
terminated after each month.
d) The lessor or lessee has not previously given a
notice to vacate.
The original terms of the original contract which are
revived are only those which are germane to the lessee’s
right of continued enjoyment of the property leased or
related to such possession, such as the amount of rental,
the date when it must be paid, the care of the property,
the responsibility for repairs, etc. No such presumption
may be indulged in with respect to special agreements
(e.g., preferential right given to lessee to purchase leased
property) which by their nature are foreign to the right of
The term of the original contract of lease is
expired;
b) The lessee continues enjoying the thing leased
for at least 15 days;
c)
The continuation of the occupation by the lessee
is with the acquiescence of the lessor; and
Bar Q: This pertains to a contract of lease entered into
for a period of 3 years — Jan 1, 1981 up to 1984. Rentals
were paid on a monthly basis. It was stipulated that the
lessee has the option to buy property at a certain price
within a certain period (option to buy). Despite the
lapse of the 3 year period, the lessee did not exercise
the option, but continued to be in possession of the
property and paying the monthly rentals and the lessor
accepting the same. This continued until June 1984
when the lessee stated that he would now buy the
property in accordance with the option to buy. The
lessor refused, claiming there was no more option. Was
the lessor correct?
➔ A: Yes.
Was it correct to say that there was extension of the
lease under the facts?
➔ A: Yes, there was an extension known as implied
new lease. However, in the implied new lease, it
does not mean that all the terms and conditions of
the contract in the original lease will continue also.
2022 Bar Reviewer by J.K.R. Gamboa | 88
“When the time is right, I, the Lord, will make it happen.”
First as to the term, under the law, the term of the
renewed lease would not be the term agreed upon
but only be of a period depending on the manner
the rentals are paid. If the payment is on an annual
basis, the renewal would only be for a year and if
monthly payment of rental is made, the implied
new lease would only last for 30 days.
As to the option, SC held, in an implied new lease,
only those terms and conditions which are
germane in a contract of lease are deemed
renewed.
ASSIGNMENT OF LEASE
Art. 1649. The lessee cannot assign the lease without the
consent of the lessor, unless there is a stipulation to the
contrary.
Lessee cannot assign the lease contract without the
consent of the lessor, unless there is a stipulation to the
contrary. (Art. 1649)
In an assignment of lease, the personality of the lessee
(assignor/debtor) disappears. The lessee makes an
absolute transfer of his lease, involving not only his rights
but also obligations as such lessee and thus, dissociates
himself from the original contract of lease. There arises
the new juridical relation between the lessor and the
assignee who is converted into a new lessee. There is in
effect, a novation by substituting the person of the debtor
[NCC, Art. 1291 (2)], and novation cannot take place
without the consent of the creditor. (NCC, Art. 1293)
Hence, the lessee cannot assign the lease without the
consent of the lessor (creditor), unless there is a
stipulation granting him that right.
SUBLEASE
Art. 1650. When in the contract of lease of things there is
no express prohibition, the lessee may sublet the thing
leased, in whole or in part, without prejudice to his
responsibility for the performance of the contract toward
the lessor.
Sublease is a separate and distinct contract of lease
wherein the original lessee becomes a sublessor to a
sublessee of the thing, in whole or in part, without
prejudice to his responsibility for the performance of the
contract toward the lessor.
assignment of the lease contract is a novation where the
personality of the lessee disappears. In sublease, on the
other hand, the lessee remains to be a party to the lease
contract and he remains liable to the lessor.
Although the sublessee is not a party to the contract of
lease, the sublessee is still directly liable to the lessor for
acts appertaining to the use and preservation of the
property.
The question in the Bar may be as simple as may a
lessee sublease the property without the consent of
the lessor and what are the respective liabilities of the
lessee and sublessee?
➔ A: Articles 1649 and 1650 would tell us that a
lessee may not assign his right on the lease
without the consent of the lessor however he
may sublease the property in whole or in part
even without the knowledge of the lessor as long
as he was not prohibited from subleasing the
premises.
Q: Alfonso was the owner of a building being leased to
Beatriz. The contract allowed subleasing of the
building, thus, Beatriz subleased it to Charlie. Charlie
directly paid his rent to Alfonso after the lease expired.
Was Charlie correct?
➔ A: NO. There are two (2) distinct leases involved,
the principal lease and the sublease. In such
agreement, the personality of the lessee does not
pass on to or is acquired by the sublessee. Thus, the
payment to the lessor was not payment to the
sublessor. Alfonso was a stranger to the sublease
agreement. (Blas v. CA)
Bar Q: In the contract the lessee was prohibited from
assigning the lease in one (1) floor of the building but
what the lessee did is sublease the property, would that
sublease bind the lessor?
➔ A: Yes. He was only prohibited from assigning the
lease but was not prohibited from subleasing the
premises. In fact the lessor need not prohibit the
lessee from assigning because under the law he is
prohibited from assigning his interest as a lessee
without the consent of the lessor. There must first
be a stipulation in the contract about the
prohibition to sublease the premises in order to
bind the lessee.
The reason why assignment is generally prohibited while
subleasing is generally allowed is because the
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“When the time is right, I, the Lord, will make it happen.”
VII. PARTNERSHIP
A. General provisions
ARTICLE 1767. 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.
6) Principal, because it does not depend for its
existence or validity upon some other contracts;
and
7) Preparatory, because it is entered into as a
means to an end, i.e., to engage in business or
specific venture for the realization of profits with
the view of dividing them among the contracting
parties.
ESSENTIAL FEATURES OF PARTNERSHIP
1) There must be a valid contract;
General professional partnership
Paragraph 2 relates to the exercise of a profession.
Strictly speaking, the practice of a profession is not a
business or an enterprise for profit. However, the law
allows the joint pursuit thereof by two or more persons
as partners.
In such case, it is the individual partners, and not the
partnership, who engage in the practice of the profession
and are responsible for their own acts as such.
■
There is no such thing as a partnership
created by law or by operation or
implication of law alone.
■
Since partnership is fundamentally
contractual, all the essentials of a valid
contract must be present — Consent,
Object, and Cause.
■
As in other cases of contracts, in order
to make an agreement for a partnership
valid, there must be a valid consideration
existing as between the partners. Each
partner surrenders to the partnership an
interest in his property, labor, skill, or
energy, in accordance with the express
or implied stipulations of their mutual
agreement.
■
Among partners, mutual agency arises
and the doctrine of delectus personae
allows them to have the power, although
not necessarily the right, to dissolve the
partnership.
■
A partnership may be created without
any definite intention to create it. It is the
substance and not the name of the
arrangement, which determines the legal
relationship.
■
In case there is no written agreement
between the parties, the existence or
non-existence of a partnership must be
determined from the conduct of the
parties, any documentary evidence
bearing thereon, and the testimony of
the parties.
Q: What if two or more persons agreed to put up a
partnership but they never intended to divide the
profits among themselves, would that still be
considered a valid partnership contract?
➔ A: Yes, under the second paragraph of the
article, two or more persons can form a
partnership for the exercise of a profession.
CHARACTERISTIC ELEMENTS OF PARTNERSHIP
1) Consensual, because it is perfected by mere
consent, that is, upon the express or implied
agreement of two or more persons;
2) Nominate, because it has a special name or
designation in our law;
3) Bilateral, because it is entered into by two or
more persons and the rights and obligations
arising therefrom are always reciprocal;
4) Onerous, because each of the parties aspires to
procure for himself a benefit through the giving
of something;
5) Commutative, because the undertaking of each
of the partners is considered as the equivalent of
that of the others;
2) The parties (two or more persons) must have
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“When the time is right, I, the Lord, will make it happen.”
legal capacity to enter into the contract;
■
Any person who cannot give consent to
a contract cannot be a partner.
■
Under Article 1782, persons who are
prohibited from giving each other any
donation or advantage cannot enter into
a universal partnership.
■
Unless authorized by statute or by its
charter, a corporation is without capacity
or power to enter into a contract of
partnership. A corporation, however,
may enter into joint venture partnership
with another where the nature of the
venture is in line with the business
authorized by its charter.
3) There must be a mutual contribution of money,
property, or industry to a common fund;
■
■
Without the element of mutual
contribution to a common fund there can
be no partnership, although its presence
is not necessarily a conclusive evidence
of the existence of partnership.
A partnership may, therefore, exist even
if it is shown that the partners have not
contributed any capital of their own to a
“common fund’’ for the contribution may
be in the form of credit or industry not
necessarily cash or fixed assets. (Lim
Tong Lim vs. Philippine Fishing Gear
Industries, Inc.)
4) The object must be lawful; and
■
Instances of unlawful object are: to
create
illegal
monopolies
or
combinations in restraint of trade; to
carry on gambling; to engage in
smuggling;
to
lease
furnished
apartments to prostitutes; to prevent
competition in bidding for government
contracts; to control the price of a
commodity in the interest of its
members, etc.
5) The primary purpose must be to obtain profits
and to divide the same among the parties.
■
One without any right to participate in
the profits, cannot be deemed as partner
since the essence of partnership is that
the partners share in the profits and
losses.
■
Since the partnership is engaged for the
common benefit or interest of the
partners, it is necessary that there be an
intention to divide the profits among the
members, although not necessarily in
equal shares.
■
Without this sharing of profits, it cannot
be said that an agreement of partnership
has been entered into, and exists.
■
It is not necessary for the parties to
agree upon a system of sharing losses,
for the obligation is implied from the
partnership relation but if only the share
of each partner in the profits has been
agreed upon, the share of each in the
losses shall be in the same proportion.
Fortis v. Gutierrez
Although the articles of partnership between defendants
provided that the profits should be divided among the
partners named in a certain proportion, the contract
made between Fortis and the then manager of the
defendant partnership did not in any way vary or modify
this provision of the articles of partnership. It was made
for the purpose of fixing the basis upon which his
compensation should be determined.
Fortis, in the case at bar, had no voice nor vote in the
management of the affairs of the company. The fact that
the compensation received by him was to be determined
with reference to the profits made by the Gutierrez
Hermanos in their business did not in any sense make
Fortis a partner therein. The contribution of Fortis in the
industry and his share in the profit based on the net
income, which are among the elements of partnership are
indeed present. However, it cannot be said that the
partnership exists. There is still no partnership. It is just
that the compensation given to him is merely based on
the profit of the property. It was just for the sake of fixing
the basis upon which his compensation is to be
determined. They are not sharing the profit.. Also, there
is no communality of interest.
Lim Tong Lim v. Philippine Fishing Gear Industries
The term "common fund" under Article 1767 refers to the
contribution to such fund which need not be cash or fixed
assets; it could be an intangible asset like credit or
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“When the time is right, I, the Lord, will make it happen.”
industry. Chua, Yao and Lim had decided to engage in a
fishing business, which they started by buying boats,
financed by a loan secured from Jesus Lim who was
petitioner's brother. These boats, the purchase and the
repair of which were financed with borrowed money, fell
under the term "common fund."
Yulo v. Yang Chiao Seng
The contract between the parties is one of lease and not
of partnership when:
●
One of the parties to a contract does not contribute
the capital he is supposed to contribute to a common
fund;
●
Does not furnish any help or intervention in the
management of the business subject of a contract;
●
Does not demand from the other party an accounting
of the expenses and earnings of the business; and
●
Is absolutely silent with respect to any of the acts that
a partner should have done, but, on the other hand,
receives a fixed monthly sum from the other party
Aurbach v. Sanitary Wares Corp.
The main distinction between the partnership and joint
venture is that in partnership it contemplates a general
business with some degree of continuity, while the joint
venture is formed for the execution of a single
transaction, and is thus of a temporary nature.
ART. 1768. The partnership has a juridical personality
separate and distinct from that of each of the partners
even in case of failure to comply with the requirements of
Article 1772, first paragraph.
A partnership duly formed under the law is a juridical
person to which the law grants a juridical personality
separate and distinct from that of each of the partners.
As an independent juridical person, a partnership may
enter into contracts, acquire and possess property of all
kinds in its name, as well as incur obligations and bring
civil or criminal actions in conformity with the laws and
regulations of its organizations.
Example: In the partnership X & Co., in which A and B are
the partners, there are three distinct persons, namely, the
partnership X & Co., A, and B. As a consequence of the
distinct legal personality possessed by X & Co.:
not. (Campos Rueda
Commercial & Co.)
&
Co.
vs.
Pacific
➔ It may enter into contracts and may sue and be
sued, it being sufficient that service of summons
or other process be served on any partner
(Vargas & Co. vs. Chan)
➔ The death of either A or B is not a ground for the
dismissal of a pending suit against X & Co. (Ngo
Tian Tek vs. Phil. Education Co)
➔ Neither A nor B may sue on a cause of action
belonging to X & Co., in his own name and for his
own benefit. X & Co. may sue and be sued in its
firm name or by its duly authorized
representative. (Tai Tong Chuache & Co. vs.
Insurance Commission)
In view of the separate juridical personality possessed by
a partnership, the partners cannot be held liable for the
obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being
used for a fraudulent, unfair, or illegal purpose.
ART. 1769. In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by article 1825, persons who are
not partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or
copossessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself establish
a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of
a deceased partner;
➔ It may be declared insolvent even if A and B are
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“When the time is right, I, the Lord, will make it happen.”
(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 lays down the rules for determining whether
or not an association is one of partnership. In general, to
establish the existence of a partnership, all of its
essential features or characteristics must be shown as
being present.
1. Persons not partners as to each other
Persons who are partners as between themselves are
partners as to third persons. Generally, the converse is
true, to wit: if they are not partners as between
themselves, they cannot be partners as to third persons.
Partnership by estoppel — A partnership can never
exist as to third persons if no contract of partnership,
express or implied, has been entered into between the
parties themselves. The exception refers to partnership
by estoppel. Thus, where persons by their acts, consent,
or representations have misled third persons or parties
into believing that the former are partners in a nonexisting partnership, such persons become subject to
liabilities of partners to all who, in good faith, deal with
them in their apparent relations. This liability is predicated
on the doctrine of estoppel provided for in Article 1825.
Example: If A and B are not partners as to each other,
neither will they be partners with respect to C, a third
person. But if A, with the consent of B, represents to C
that they are partners, then A and B will be considered
partners as to C even if they are not really partners.
2. Co-ownership or co-possession
Co-ownership of property does not of itself establish the
existence of a partnership, although “co-ownership” is an
essential element of partnership.
Two or more persons may become co-owners without a
contract (e.g., by inheritance or by law) but they cannot
be partners in the absence of contract. This is true even
though the co-owners share in the profits derived
incident to the joint ownership.
Pascual v. CIR
In order to constitute a partnership inter se there must be:
(a) An intent to form the same; (b) generally participating
in both profits and losses; (c) and such a community of
interest, as far as third persons are concerned as enables
each party to make contract, manage the business, and
dispose of the whole property.
The common ownership of property does not itself create
a partnership between the owners, though they may use
it for the purpose of making gains; and they may, without
becoming partners, agree among themselves as to the
management and use of such property and the
application of the proceeds therefrom.
The sharing of returns does not in itself establish a
partnership whether or not the persons sharing therein
have a joint or common right of interest in the property.
There must be clear intent to form a partnership, the
existence of a juridical personality different from the
individual partners, and the freedom of each party to
transfer or assign the whole property.
Thus, the two isolated transactions whereby two persons
purchased two (2) parcels of land and then another three
(3) parcels of land and sold the same a few years
thereafter, did not thereby make them partners. There
must be a clear intent to form a partnership.
Ona v. CIR
Here, the heirs are co-owners of inherited properties.
They agreed to use the said common properties and the
income derived therefrom as a common fund with the
intention to produce profits for them in proportion to their
respective shares in the inheritance as determined in a
project of partition.
The Court held that the co-ownership is automatically
converted into a partnership. From the moment of
partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for
each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and,
accordingly he becomes liable individually for all taxes in
connection therewith.
If after such partition, the heir allows his share to be held
in common with his co-heirs under a single management
to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even
if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered
partnership is formed.
Gatchalian v. CIR
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“When the time is right, I, the Lord, will make it happen.”
Here, the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact
in the amount of P50,000. Jose Gatchalian personally
appeared in the PCSO, in his capacity as co-partner. The
office issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said partner, collected
the said check. All these circumstances repel the idea
that the plaintiffs organized and formed a community of
property only.
3. Sharing of gross returns
The mere sharing of gross returns alone does not indicate
a partnership, since in a partnership, the partners share
net profits after satisfying all of the partnership’s
liabilities.
Where, however, there is further evidence of mutual
management and control, a partnership may result, even
though the agreement calls for a portion of “gross
returns.”
4. Receipt of share in the profits
An agreement to share both profits and losses tends
strongly to establish the existence of a partnership, and
conversely, the lack of such an agreement tends strongly
to negate the existence of a partnership. But the mere
fact of a right under the contract to participate in both
profits and losses of a business does not of itself have
the effect of establishing a partnership between those
engaged therein.
While a right to share of the profits is essential to
constitute a person as a partner, this test may be
controlled by other considerations. Thus, under
paragraph 4 of Article 1769, sharing of profits by a person
is not a prima facie evidence that he is a partner in the
business in the cases enumerated under sub-paragraphs
(a), (b), (c), (d), and (e). In all of the said cases, the profits
in the business are not shared as profits of a partner as a
partner but in some other respects or for some other
purpose.
INCIDENTS OF PARTNERSHIP
1) The partners share in profits and losses. (Arts.
1767, 1797, 1798)
2) They have equal rights in the management and
conduct of the partnership business (Art. 1803)
3) Every partner is an agent of the partnership, and
entitled to bind the other partners by his acts, for
the purpose of its business. (Art. 1818)
4) All partners are personally liable for the debts of
the partnership with their separate property (Arts.
1816, 1822-1824) except that limited partners
are not bound beyond the amount of their
investment (Art. 1843)
5) A fiduciary relation exists between the partners
(Art. 1807)
6) On dissolution, the partnership is not terminated,
but continues until the winding up of partnership
is completed. (Art. 1828)
ART. 1771. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
ART. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to the public instrument.
FORM OF PARTNERSHIP CONTRACT
As a general rule, no special form is required for the
validity or existence of the contract of partnership. The
contract may be made orally or in writing regardless of
the value of the contributions.
Partnership with contribution of immovable property
Where immovable property, regardless of its value, is
contributed, the failure to comply with the following
requirements will render the partnership contract void in
so far as the contracting parties are concerned:
a)
The contract must be in a public instrument (Art.
1771); and
b) An inventory of the property contributed must be
made, signed by the parties, and attached to the
public instrument.
The absence of either formality renders the contract void.
Although Article 1771 does not expressly state that
without the public instrument the contract is void, Article
1773 is very clear that the contract is void if the
formalities specifically provided therein are not observed,
implying that compliance therewith is absolute and
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“When the time is right, I, the Lord, will make it happen.”
indispensable for validity.
ART. 1776. As to its object, a partnership is either
universal or particular.
As regards the liability of the partners, a partnership may
be general or limited.
UNIVERSAL PARTNERSHIP
One which refers to all the present property or to all
profits.
Kinds of universal partnership:
1) Universal partnership of all present property.
■
■
■
A partnership of all present property is
that in which the partners contribute all
the property which actually belongs to
them to a common fund, with the
intention of dividing the same among
themselves, as well as all the profits they
may acquire therewith. (Art. 1778)
In this kind of partnership, the following
become the common property of all the
partners:
i)
Property which belonged to
each of them at the time of the
constitution of the partnership;
and
ii)
Profits which they may acquire
from the property contributed.
Future properties cannot be contributed.
Thus, property subsequently acquired
by (1) inheritance, (2) legacy, or (3)
donation cannot be included by
stipulation except the fruits thereof.
Hence,
any
stipulation
including
property so acquired is void.
2) Universal partnership of profits.
■
A universal partnership of profits is one
which comprises all that the partners
may acquire by their industry or work
during the existence of the partnership
and the usufruct of movable or
immovable property which each of the
partners may possess at the time of the
celebration of the contract. (Art. 1780)
■
In this class of partnership, the partners
retain their ownership over their present
and future property. What passes to the
partnership are the profits or income and
the use or usufruct of the same.
NOTE: Where the articles of partnership do not specify
the nature of the partnership, whether it is one of “present
property” or of “profits” only, it will be presumed that the
parties intended merely a partnership of profits.
ART. 1782. Persons who are prohibited from giving each
other any donation or advantage cannot enter into a
universal partnership.
Persons who are prohibited by law to give donations
cannot enter into a universal partnership for the reason
that each of the partners virtually makes a donation.
A husband and his wife, however, may enter into a
particular partnership or be members thereof.
B. Obligations of the partners
ART. 1785. When a partnership for a fixed term or
particular undertaking is continued after the termination
of such term or particular undertaking without any
express agreement, the rights and duties of the partners
remain the same as they were at such termination, so far
as is consistent with a partnership at will.
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.
Continuation of partnership beyond fixed term
The partnership may be extended or renewed by the
partners by express agreement, written or oral, or
impliedly, by the mere continuation of the business after
the termination of such term or particular undertaking
without any settlement or liquidation. In such case, the
rights and duties of the partners remain the same as they
were at such termination but only insofar as is consistent
with a partnership at will.
With such continuation, the partnership for a fixed term
or particular undertaking is dissolved and a new one, a
partnership at will, is created by implied agreement the
continued existence of which will depend upon the
mutual desire and consent of the partners.
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“When the time is right, I, the Lord, will make it happen.”
Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of a 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 can result in a liability for damages to the other
partners.
Ortega v. CA
The birth and life of a partnership at will is predicated on
the mutual desire and consent of the partners. The right
to choose with whom a person wishes to associate
himself is the very foundation and essence of that
partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve,
along with each partner’s capability to give it, and the
absence of a cause for dissolution provided by the law
itself. 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.
Neither would the presence of a period for its specific
duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an
act or will of a partner. Among partners, mutual agency
arises and the doctrine of delectus personae allows them
to have the power, although not necessarily the right, to
dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
Q: If the partners failed to fix a period, does it mean
that the partners agreed a partnership at will and may
be dissolved at any time without any liability so long
as they acted in good faith?
➔ A: No, because a partnership may be a
partnership for a particular undertaking even if no
period was fixed by the parties.
In one case, a partner, dissolved a partnership,
claiming it to be a partnership at will, the
partnership being involved in a bowling business.
The SC ruled that even if the partners failed to fix
a period, the partnership cannot be considered
as a partnership at will because there was a
stipulation in the partnership agreement that the
debt of the partnership shall paid out of the
profits that will be obtained by the bowling
business. Thus, after all, it cannot be dissolved
at will, for the debts will have to be paid.
Therefore, the SC ruled that the said partnership
is a partnership for a particular undertaking.
OBLIGATIONS OF PARTNERS AMONG THEMSELVES
WITH RESPECT TO CONTRIBUTION OF PROPERTY
1) To contribute at the beginning of the partnership
or at the stipulated time the money, property, or
industry which he may have promised to
contribute;
2) To answer for eviction in case the partnership is
deprived
of
the
determinate
property
contributed; and
3) To answer to the partnership for the fruits of the
property the contribution of which he delayed,
from the date they should have been contributed
up to the time of actual delivery.
4) To preserve said property with the diligence of a
good father of a family pending delivery to the
partnership (Art. 1163.); and
5) To indemnify the partnership for any damage
caused to it by the retention of the same or by
the delay in its contribution. (Arts. 1788, 1170.)
Lozana v. Depakakibo
The money or property contributed by a partner becomes
the property of the partnership. It necessarily follows that
the same cannot be withdrawn or disposed of by the
contributing partner without the consent or approval of
the partnership or ofthe other partners.
OBLIGATIONS OF THE PARTNERS WITH RESPECT
TO THE PARTNERSHIP CAPITAL UNDER ARTICLE
1788
1) To contribute on the date due the amount he has
undertaken to contribute to the partnership;
2) To reimburse any amount he may have taken
from the partnership coffers and converted to his
own use;
3) To pay the agreed or legal interest, if he fails to
pay his contribution on time or in case he takes
any amount from the common fund and converts
it to his own use; and
4) To indemnify the partnership for the damages
caused to it by the delay in the contribution or
the conversion of any sum for his personal
benefit.
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“When the time is right, I, the Lord, will make it happen.”
Uy v. Puzon
A partner who failed to stand by his commitment to the
partnership will be ordered to reimburse to his co-partner
whatever the latter invested and spent for the projects of
the venture.
Had Puzon not been remiss in his obligations as he was
bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that
the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the
partnership would have earned much more than the
P334,255.6. The award, therefore, made by the trial court
of the amount of P200,000.00, as compensatory
damages, is not speculative, but based on a reasonable
estimate.
Moran v. CA
Being a contract of partnership, each partner must share
in the profits and losses of the venture. And even with an
assurance made by one of the partners that they would
earn a huge amount of profits, in the absence of fraud,
the other partner cannot claim a right to recover the
highly speculative profits. It is a rare business venture
guaranteed to give 100% profits.
There is no evidence whatsoever that the partnership
between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure
doomed from the start. There is therefore no basis for the
award of speculative damages in favor of the private
respondent.
In this case, there was mutual breach. Private respondent
failed to give his entire contribution in the amount of
P15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters. Instead,
he printed only 2,000 copies.
COMPARE UY CASE and MORAN CASE with regard
to the award by the court of compensatory damages.
Kay Uy, realizable yung loss, the partnership should have
earned were it not for Puzon’s fault. Pero si Moran,
compensatory damages cannot be awarded kasi risk
involved sa business operation yung nangyari. Wala na
paghahabulan since wala talagang funds.
INDUSTRIAL PARTNER
ART. 1789. An industrial partner cannot engage in
business for himself unless the partnership expressly
permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in
either case.
An industrial partner is one who contributes his
industry, labor, or services to the partnership. He is
considered the owner of his services, which is his
contribution to the common fund.
Unless the contrary is stipulated, he becomes a debtor of
the partnership for his work or services from the moment
the partnership relation begins. In effect, the partnership
acquires an exclusive right to avail itself of his industry.
Consequently, if he engages in business for himself, such
act is considered prejudicial to the interest of the other
partners.
Prohibition against engaging in business
Industrial Partner
Capitalist Partner
The
prohibition
is
absolute and applies
whether the industrial
partner is to engage in the
same business in which
the
partnership
is
engaged or in any kind of
business.
The prohibition extends
only to any operation
which is of the same kind
of business in which the
partnership is engaged
unless
there
is
a
stipulation to the contrary.
Remedies where industrial partner engages in
business
1. Exclude him from the firm; or
2. To avail themselves of the benefits which he may
have obtained.
In either case, the capitalist partners have a right
to damages.
ART. 1791. If there is no agreement to the contrary, 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.
Obligation of capitalist
additional capital
partner
to
contribute
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“When the time is right, I, the Lord, will make it happen.”
As a general rule, a capitalist partner is not bound to
contribute to the partnership more than what he agreed
to contribute but in case of an imminent loss of the
business, and there is no agreement to the contrary, he
is under obligation to contribute an additional share to
save the venture.
If he refuses to contribute, he shall be obliged to sell his
interest to the other partners.
ART. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in
the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial
partner shall receive such share as may be just and
equitable under the circumstances. If besides his services
he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.
NOTE: A stipulation which excludes one or more partners
from any share in the profits or losses is void.
Nonetheless, the partnership subsists.
Rules for distribution of profits
1) The partners share the profits according to their
agreement.
2) If there is no such agreement:
a)
The share of each capitalist partner shall
be in proportion to his capital
contribution.
b) The industrial partner shall receive such
share, which must be satisfied first
before the capitalist partners shall divide
the profits, as may be just and equitable
under the circumstances.
Rules for distribution of profits
1) The losses shall be distributed according to their
agreement.
2) If there is no such agreement, but the contract
provides for the share of the partners in the
profits, the share of each in the losses shall be in
accordance with the profit-sharing ratio.
★ The industrial partner shall not be liable
for losses.
3) If there is also no profit-sharing stipulated in the
contract, then losses shall be borne by the
partners in proportion to their capital
contributions.
★ But the purely industrial partner shall not
be liable for the losses.
MANAGING PARTNER
ART. 1800. The partner who has been appointed manager
in the articles of partnership may execute all acts of
administration despite the opposition of his partners,
unless he should act in bad faith; and his power is
irrevocable without just or lawful cause. The vote of the
partners representing the controlling interest shall be
necessary for such revocation of power.
A power granted after the partnership has been
constituted may be revoked at any time.
Appointment
partnership
as
manager
in
the
articles
of
The partner appointed by common agreement in the
articles of partnership may execute all acts of
administration (not those of strict ownership)
notwithstanding the opposition of the other partners,
unless he should act in bad faith. His power is revocable
only upon just and lawful cause and upon the vote of the
partners representing the controlling interest.
Appointment as manager after the constitution of the
partnership
The management granted by the partners after the
partnership has been constituted independently of the
articles of partnership may be revoked at any time for any
cause whatsoever.
As a rule, a partner is not entitled to compensation for his
services other than his share of the profits.
SCOPE OF POWER OF A MANAGING PARTNER
General Rule: a partner appointed as manager has all the
powers of a general agent as well as all the incidental
powers necessary to carry out the object of the
partnership in the transaction of its business.
Exception: When the powers of the manager are
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“When the time is right, I, the Lord, will make it happen.”
specifically restricted.
Tai Tong Chuache & Co. vs. Insurance Commission
Chua as the managing partner of the partnership may
execute all acts of administration including the right to
sue debtors of the partnership in case of their failure to
pay their obligations when it became due and
demandable.
COMPENSATION FOR SERVICES RENDERED
General Rule: A partner is not, in the absence of a
contract, express or implied, entitled to compensation
beyond his share of the profits for services rendered by
him to the partnership business.
c)
■
Each one may
administration.
■
If one or more of the managing partners shall oppose
the acts of the others, then the decision of the
majority (per head) of the managing partners shall
prevail.
■
In case of tie, the matter shall have to be decided by
the vote of the partners owning the controlling
interest, that is, more than 50% of the capital
investment.
■
When the articles of partnership do not specify the
respective duties of the partners and the limitations
of management, one partner has no more powers
than the others in the conduct and management of
the firm’s business.
■
If there is a specification of the respective duties of
the managing partners, the decision of the partner
concerned shall prevail subject only to the limitation
that he should act in good faith.
Exceptions: Some instances where the law may imply a
contract for compensation:
1) A partner engaged by his co-partners to perform
services not required of him in fulfillment of the
duties which the partnership relation imposes
and in a capacity other than that of a partner
(e.g., to perform clerical services in carrying on
the business of the firm) is entitled to receive the
compensation agreed upon therefor.
There is no stipulation that one of them shall
not act without the consent of all the others.
separately
perform
acts
of
2) Partners exempted by the terms of partnership
from rendering services to the firm may demand
pay for services rendered.
ART. 1808. The capitalist partners cannot engage for their
own account in any operation which is of the kind of
business in which the partnership is engaged, unless
there is a stipulation to the contrary.
3) One partner may employ his co-partner to do
work for him outside of and independent of the
co-partnership, and become personally liable
therefor.
Any capitalist partner violating this prohibition shall
bring to the common funds any profits accruing to him
from his transactions, and shall personally bear all the
losses.
ART. 1801. If two or more partners have been entrusted
with the management of the partnership without
specification of their respective duties, or without
stipulation that one of them shall not act without the
consent of all the others, each one may separately execute
all acts of administration, but if any of them should
oppose the acts of the others, the decision of the majority
shall prevail. In case of tie, the matter shall be decided by
the partners owning the controlling interest.
Requisites for the application of the article
a)
Two or more partners have been appointed
as managers;
b) There is no specification of their respective
duties; and
Prohibition against partner engaging in business
The capitalist partner is only prohibited from engaging for
his own account in any operation which is the same as or
similar to the business in which the partnership is
engaged and which is competitive with said business.
Any capitalist partner violating this prohibition shall be
under obligation to bring to the common fund any profits
derived by him from his transactions and, in case of
losses, he shall bear them alone. The partners, however,
by stipulation may permit the capitalist partner to engage
in the same kind of business.
ART. 1809. Any partner shall have the right to a formal
account as to partnership affairs:
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“When the time is right, I, the Lord, will make it happen.”
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his copartners;
(3) As provided by Article 1807;
(3) A partner’s right in specific partnership property is not
subject to attachment or execution, except on a claim
against the partnership. When partnership property is
attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner, cannot
claim any right under the homestead or exemption laws;
(4) Whenever other circumstances render it just and
reasonable.
(4) A partner’s right in specific partnership property is not
subject to legal support under article 291.
Right of partner to a formal account
■
In general, during the existence of the partnership, a
partner is not entitled to a formal account of partnership
affairs. However, in the special and unusual situations
enumerated under Article 1809, the justification for a
formal accounting even before dissolution of the
partnership cannot be doubted.
None of the partners can possess and use the
specific partnership property other than for
“partnership purposes” (e.g., for his own individual
purpose) without the consent of the other partners.
■
On the death of a partner, his right in specific
partnership property vests in the surviving partners,
not in the legal representative of the deceased
partner.
■
A partner’s right in specific partnership property is
not assignable because it is impossible to determine
the extent of his beneficial interest in the property
until after the liquidation of partnership affairs. As
property of the partnership, the same could not be
disposed of or mortgaged even by the partner who
contributed the same without the consent or
approval of the partnership or of the other partners.
(Clemente vs. Galvan)
(2) If the right exists under the terms of any agreement;
Articles 1806, 1807, and 1809 show that the right to
demand accounting exists as long as the partnership
lasts. Prescription begins to run only upon the dissolution
of the partnership when the final accounting is done. (Fue
Leung vs. Intermediate Appellate Court)
Emnace v. CA
The partnership, although dissolved, continues to exist
and its legal personality is retained, at which time it
completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets
to the partners. For as long as the partnership exists, any
of the partners may demand an accounting of the
partnership’s business. Prescription of the said right
starts to run only upon the dissolution of the partnership
when the final accounting is done.
ART. 1811. A partner is co-owner with his partners of
specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to
any agreement between the partners, has an equal right
with his partners to possess specific partnership property
for partnership purposes; but he has no right to possess
such property for any other purpose without the consent
of his partners;
(2) A partner’s right in specific partnership property is not
assignable except in connection with the assignment of
rights of all the partners in the same property;
ART. 1813. A conveyance by a partner of his whole
interest in the partnership does not of itself dissolve the
partnership, or, against the other partners in the absence
of agreement, entitle the assignee, during the continuance
of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to
require any information or account of partnership
transactions, or to inspect the partnership books; but it
merely entitles the assignee to receive in accordance with
his contract the profits to which the assigning partner
would otherwise be entitled. However, in case of fraud in
the management of the partnership, the assignee may
avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is
entitled to receive his assignor’s interest and may require
an account from the date only of the last account agreed
to by all the partners.
ASSIGNMENT OF PARTNER’S WHOLE INTEREST IN
PARTNERSHIP
A partner’s right in specific partnership property is not
assignable but he may assign his interest in the
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“When the time is right, I, the Lord, will make it happen.”
partnership to any of his co-partners or to a third person
without the consent of the other partners, in the absence
of agreement to the contrary.
partner.” (In the Matter of the Petition for authority to
continue use of the firm name “SyCip, Salazar,
etc.”/“Ozaeta, Romulo, etc.”)
However, such assignment does not grant the assignee
the right:
ART. 1816. All partners, including industrial ones, shall
be liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the
account of the partnership, under its signature and by a
person authorized to act for the partnership. However,
any partner may enter into a separate obligation to
perform a partnership contract.
a. To interfere in the management;
b. To require any information or account; or
c. To inspect any of the partnership books.
Rights of assignee of partner’s interest
1) To receive in accordance with his contract the
profits accruing to the assigning partner;
2) To avail himself of the usual remedies provided
by law in the event of fraud in the management;
3) To receive the assignor’s interest in case of
dissolution; and
4) To require an account of partnership affairs, but
only in case the partnership is dissolved, and
such account shall cover the period from the
date only of the last account agreed to by all the
partners.
OBLIGATIONS OF THE PARTNERS WITH REGARD
TO THIRD PERSONS
1) Every partnership shall operate under a firm
name;
2) All partners, including industrial ones, shall be
liable on the basis of their contribution with all
their property and after all the partnership assets
have been exhausted, for the contracts which
may be entered into in the name and for the
account of the partnership, under its signature
and by a person authorized to act for the
partnership.
Use of names of deceased partners
The Supreme Court has ruled that a partnership cannot
continue to use in its firm name, the names of deceased
partners for such use “will run counter to Article 1815. It
is clearly tacit in the above provision that names in a firm
name of a partnership must either be those of living
partners and, in the case of non-partners, should be living
persons who can be subjected to liability. In fact, Article
1825 prohibits a third person from including his name in
the firm name under pain of assuming the liability of a
INDIVIDUAL LIABILITY OF PARTNERS
Article 1816 lays down the rule that the partners,
including the industrial partner, are liable to creditors of
the partnership for the obligations contracted by a
partner in the name and for the account of the
partnership. The debts and obligations of the partnership
are, in substance, also the debts and obligations of each
individual member of the firm. Their individual liability to
creditors is pro rata and subsidiary.
NOTE: The individual liability of partners is subsidiary or
secondary because the partners become personally
liable only after all the partnership assets have been
exhausted.
Liability of industrial partner
Even the industrial partner who, ordinarily, is not liable for
losses would have to pay but, of course, he can recover
the amount he has paid from the capitalist partners
unless there is an agreement to the contrary.
The exemption of the industrial partner to pay losses
relates exclusively to the settlement of the partnership
affairs among the partners themselves and has nothing
to do with the liabilities of the partners to third persons.
An industrial partner is not exempted from liability to third
persons for the debts of the partnership. (Compania
Maritima vs. Muñoz)
Pacific Commercial Co. vs. Aboitiz & Martinez
The partnership’s reliance to Article 141 (now Art. 1797)
is misplaced. It relates merely to the distribution of losses
among the partners themselves in the settlement of the
partnership affairs and has no reference to partnership
obligations to third parties The language of Article 127
(now Art. 1816) is clear and specific that all the members
of a general co- partnership are liable with all their
property for the results of the duly authorized
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“When the time is right, I, the Lord, will make it happen.”
transactions made in the name and for the account of the
partnership.
ART. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every
partner, including the execution in the partnership name
of any instrument, for apparently carrying on in the usual
way the business of the partnership of which he is a
member binds the partnership, unless the partner so
acting has in fact no authority to act for the partnership in
the particular matter, and the person with whom he is
dealing has knowledge of the fact that he has no such
authority.
has in fact no authority unless the third person
has knowledge of such lack of authority.
b) Acts of strict dominion or ownership (pars. 2 and
3.) — For acts which are not apparently for
carrying on in the usual way the business of the
partnership, the partnership is not bound, unless
authorized by all the other partners or unless they
have abandoned the business. The general rule
is that powers not specifically delegated in a
partnership agreement are presumed to be
withheld.
The instances of acts which are generally outside
the implied power of a partner are enumerated in
the third paragraph. They constitute limitations to
the authority granted to the partners to bind the
partnership.
An act of a partner which is not apparently for the
carrying on of the business of the partnership in the usual
way does not bind the partnership unless authorized by
the other partners.
Whatever acts are done by any partner in regard
to partnership property or contracts beyond the
scope and objects of the partnership, must, in
general, to bind the partnership, be derived from
such further authority, express or implied,
conferred upon such partner, beyond that
resulting from his character as partner.
Except when authorized by the other partners or unless
they have abandoned the business, one or more but less
than all the partners have no authority to:
(1) Assign the partnership property in trust for
creditors or on the assignee’s promise to pay the debts of
the partnership;
c)
(2) Dispose of the goodwill of the business;
(3) Do any other act which would make it
impossible to carry on the ordinary business of a
partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a
partnership claim or liability;
(6) Submit a partnership claim or liability to
arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having
knowledge of the restriction.
LIABILITY OF
PARTNERS
a)
PARTNERSHIP
FOR
ACTS
OF
Acts for apparently carrying on in the usual way
the business of the partnership (par. 1.) — Every
partner is an agent and may execute such acts
with binding effect on the partnership even if he
Acts in contravention of a restriction on authority
(par. 4.) — The partnership is not liable to third
persons having actual or presumptive knowledge
of the restrictions, whether or not the acts are for
apparently carrying on in the usual way the
business of the partnership.
Liability of partner acting without authority
As a general rule, the particular partner who undertakes
to bind his co-partners by a contract without authority is
himself personally liable on such contract.
Such partner binds himself no matter what name he
contracts. The fact that he attempts to bind his copartners and does not succeed does not avoid his own
act. He cannot be admitted to say that he was not
authorized to make a contract, as he is estopped to deny
its effect or validity.
ART. 1822. Where, by any wrongful act or omission of
any partner acting in the ordinary course of the business
of the partnership or with the authority of his co-partners,
loss or injury is caused to any person, not being a partner
in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the
partner so acting or omitting to act. (n)
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“When the time is right, I, the Lord, will make it happen.”
ART. 1823. The partnership is bound to make good the
loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership. (n)
ART. 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under articles 1822 and 1823.
Liability arising from partner’s wrongful act or
omission or breach of trust
■
■
■
■
■
Articles 1822, 1823, and 1824 provide for the
solidary liability of the partners and also the
partnership to third persons.
This liability of the partners under the said articles is
different from their liability for contractual obligations
as defined in Article 1816. Here, it is solidary, while in
Article 1816, it is joint and subsidiary. Furthermore,
while the liability in Article 1816 refers to partnership
obligations, Article 1822 covers the liability of the
partnership arising from the wrongful acts or
omissions of any partner.
The partnership is not liable if the partner acted on
his own and not for the benefit of the partnership in
the course of some transaction not connected with
the partnership business, even though he was in a
position to commit the act (e.g., fraud) only because
of his being a partner in the business. Neither is the
partnership liable if the wrongful act or omission was
committed after its dissolution and the same was not
connected with the winding up of partnership affairs.
Partnership liability under Article 1822 does not
extend to criminal liability, such as embezzlement,
where the wrongdoing is regarded as individual in
character.
Under Article 1823, the partnership is liable for any
losses suffered by a third person whose money or
property is misappropriated by a partner who
received it within the scope of his authority or by any
other partner after it was received by the partnership
in the ordinary course of business while in its
custody.
C. Dissolution and winding up
ART. 1829. On dissolution the partnership is not
terminated, but continues until the winding up of
partnership affairs is completed.
What is the effect of the dissolution?
It will not result in the termination, it will only start the
winding up process, effectively, this will terminate the
authority of all partners to bind the partnership, EXCEPT,
if that act is necessary for the winding up of the
partnership or necessary to complete a business which
was started but was not yet finished at the time of the
dissolution of the partnership.
EXTRAJUDICIAL DISSOLUTION
ART. 1830. Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the definite term or
particular undertaking specified in the agreement;
(b) By the express will of any partner, who must
act in good faith, when no definite term or particular
undertaking is specified;
(c) 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 or after the
termination of any specified term or particular
undertaking;
(d) By the expulsion of any partner from the
business bona fide in accordance with such a power
conferred by the agreement between the partners;
(2) 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;
(3) 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;
(4) When a specific thing, 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
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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;
faith, the dissolution is wrongful.
c. by the express will of all partner
■
must be unanimous
■
the consent of the partners who have
assigned their interests or suffered them
to be charged for their separate debts is
not required to effect dissolution without
breach of the partnership agreement.
They are not given the right to have a
voice or vote in the dissolution of the
partnership.
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.
Under Article 1830, extrajudicial dissolution may be
caused without violation of the agreement between the
partners (No. 1) or in contravention of said agreement.
(No. 2) It may be voluntary when caused by the will of one
or more or all of the partners (Nos. 1 and 2) or involuntary
when brought about independently of the will of the
partners or by operation of law. (Nos. 3, 4, 5, 6, 7, and 8)
The voluntary dissolution of partnership may be effected
extrajudicially (Nos. 1 to 7) or judicially, that is, by decree
of court. (No. 8, in relation to Art. 1831)
d. by expulsion of any partner
■
2. Dissolution effected
partnership agreement
■
It will be observed that the causes provided in Article
1830 result in the automatic dissolution of the
partnership. There is no automatic dissolution under
Article 1831 which enumerates the grounds for the
judicial dissolution of the partnership.
1. Dissolution effected
partnership agreement
without
violation
■
After the expiration of the term or
particular undertaking, the partnership is
automatically dissolved without the
partners extending the said term or
continuing the undertaking. If after said
expiration the partners continue the
partnership without making a new
agreement, the firm becomes a
partnership at will.
b. by the express will of any partner
■
a partnership at will may be dissolved at
any time by any partner without the
consent of his co-partners without
breach of contract, provided, the said
partner acts in good faith. If there is bad
in
contravention
of
dissolution may be for any cause or reason.
○
of
a. termination of the definite term or particular
undertaking
must be made in good faith, and strictly
in accordance with the power conferred
by the agreement between the partners.
any partner may cause the dissolution at
any time without the consent of his
copartners for any reason which he
deems
sufficient
by
expressly
withdrawing therefrom even though the
partnership was entered into for a
definite term or particular undertaking.
Such dissolution is a contravention of
the agreement.
3. Business becomes unlawful
■
dissolution may be caused involuntarily when a
supervening event makes the business itself of
the partnership unlawful or makes it unlawful for
the partners to carry it on together.
4. Loss of specific thing
a. loss before delivery – the partnership is dissolved
because there is no contribution inasmuch as the
thing to be contributed cannot be substituted
with another
b. loss after delivery – the partnership assumes the
mist of the thing having acquired ownership
thereof. The partners may contribute additional
capital to save the venture
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“When the time is right, I, the Lord, will make it happen.”
c. loss where only use or enjoyment contributed –
if only the use or enjoyment of the thing is
contributed, its loss before or after delivery
dissolves the partnership because in either case,
the partner cannot fulfill his undertaking.
○
the partner bears the loss
5. Death of any partner
■
■
■
■
The deceased partner ceases to be associated in
the carrying of the business; hence, the ipso
facto dissolution of the partnership by his death
by operation of law. The surviving partners have
no authority to continue the business except so
far as is necessary to wind up except as provided
in Article 1833.
(2) A partner becomes in any other way incapable
of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of the
business;
(4) A partner wilfully 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;
(5) The business of the partnership can only be
carried on at a loss;
A clause in the articles of co-partnership
providing for the continuation of the firm
notwithstanding the death of one of the partners
is legal.
On the application of the purchaser of a partner's interest
under Article 1813 or 1814:
Goquiolay v. Sycip — By seeking authority to
manage partnership property, Tan Sin An’s
widow showed that she desired to be considered
a general partner. By authorizing the widow to
manage partnership property (which a limited
partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in
estoppel to deny her position as a general
partner, with authority to administer and alienate
partnership property.
The insolvency of the partner or of the
partnership must be adjudged by a court.
7. Civil interdiction of any partner
■
(1) A partner has been declared insane in any
judicial proceeding or is shown to be of unsound mind;
The liquidation of its affairs is by law entrusted to
the surviving partners, or to liquidators appointed
by them and not to the administrator or executor
of the deceased partner.
6. Insolvency of any partner or of the partnership
■
shall decree a dissolution whenever:
Civil interdiction deprives the offender during the
time of his sentence of the right to manage his
property and dispose of such property. One who
is without capacity to manage his own property
should not be allowed to manage partnership
property.
JUDICIAL DISSOLUTION
Art. 1831. On application by or for a partner the court
(6) Other circumstances render a dissolution
equitable.
(1) After the termination of the specified term or
particular undertaking;
(2) At any time if the partnership was a
partnership at will when the interest was assigned or
when the charging order was issued.
Dissolution by decree of court - On application by a
partner:
1) Insanity — The partner may have been previously
declared insane in a judicial proceeding;
otherwise, the fact of his being of unsound mind
must be duly proved. The insanity must
materially affect the capacity of the partner to
perform his contractual duties as a partner.
2) Incapacity — it is not the mere fact of the
existence of insanity, infirmity, or other disability
supervening that will justify a court to decree a
dissolution. The incapacity contemplated by law
is incapacity which is lasting, from which the
prospect of recovery is remote.
3) Misconduct and persistent breach of partnership
agreement — conduct prejudicial to the carrying
on of the business (e.g., inveterate drunkenness)
and persistent breach of the partnership
agreement (e.g., keeping and rendering false
accounts, misuse or misappropriation of
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partnership funds) are grounds for judicial
dissolution, for they defeat and materially affect
and obstruct the purpose of the partnership.
4) Business can be carried on only at a loss — It
may be dissolved by decree of court when it
becomes apparent that it is unprofitable with no
reasonable prospects of success.
5) Other
circumstances
—
Examples
of
circumstances which render a dissolution
equitable are abandonment of the business,
fraud in the management of the business, refusal
without justifiable cause to render accounting of
partnership affairs, etc.
ART. 1833. Where the dissolution is caused by the act,
death or insolvency of a partner, each partner is liable to
his co-partners for his share of any liability created by any
partner acting for the partnership as if the partnership
had not been dissolved unless:
(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 the death or insolvency of a
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency.
Authority of partners inter se to act for the
partnership
The authority of a partner as it affects his co-partners (not
third persons) is not deemed terminated except in two
instances, namely:
1) The cause of the dissolution is the act of a
partner and the acting partner had knowledge of
such dissolution; and
■
designed to protect the remaining
partner or partners who might continue
to act for the partnership as a going
concern, not having actual knowledge of
the dissolution.
2) The cause of the dissolution is the death or
insolvency of a partner and the acting partner
had knowledge or notice of the death or
insolvency.
■
discards the fiction that everybody is
presumed to have knowledge of death or
insolvency.
EFFECT OF DISSOLUTION ON PARTNER’S EXISTING
LIABILITY
The dissolution of a partnership does not of itself
discharge the existing liability of a partner. A partner may
be relieved from all existing liabilities upon dissolution
only by an agreement to that effect between himself, the
partnership creditor, and the other partners.
Liability of estate of deceased partner
The individual property of a deceased partner shall be
liable for all obligations of the partnership incurred while
he was a partner. Note that the individual creditors of the
deceased partner are to be preferred over partnership
creditors with respect to the separate property of said
deceased partner.
RULES IN SETTLING ACCOUNTS
PARTNERS AFTER DISSOLUTION
BETWEEN
The partnership assets shall be applied to the satisfaction
of the liabilities of the partnership in the following order:
a)
First, those owing to partnership creditors;
b) Second, those owing to partners other than for
capital and profits such as loans given by the
partners or advances for business expenses;
c)
Third, those owing for the return of the capital
contributed by the partners; and
d) Finally, if any partnership assets remain, they are
distributed as profits to the partners in the
proportion in which profits are to be shared.
Q: What if, in their agreement, Partner A contributed
100,000; Partner B, 50,000; Partner C, industrial
partner. The total assets of the partnership is 1 Million
at the time of dissolution, however, there were
partnership creditors obligation of which amounted to
900,000. Would the industrial partner have a share in
that 1 Million asset?
➔ A: No. Since the amount of the obligation is
Php900,000, the remaining Php100,000 should be
given back to the capitalist partners for their
capital contribution.
Distribution of property of insolvent partner
If a partner is insolvent, his individual property shall be
distributed as follows:
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a)
First, to those owing to separate creditors;
b) Then, to those owing to partnership creditors;
and
c)
Lastly, to those owing to partners by way of
contribution.
RIGHTS OF RETIRING, OR OF ESTATE OF
DECEASED, PARTNER WHEN BUSINESS IS
CONTINUED
When the dissolution is caused by the retirement or death
of a partner and the business is continued without
settlement of accounts, the retiring partner or the legal
representative of the deceased partner shall have the
right:
1) To have the value of the interest of the retiring
partner or deceased partner in the partnership
ascertained as of the date of dissolution (i.e.,
date of retirement or death); and
2) To receive thereafter, as an ordinary creditor, an
amount equal to the value of his share in the
dissolved partnership with interest, or, at his
option, in lieu of interest, the profits attributable
to the use of his right.
(Arts. 1848, 1850);
3) One or more limited partners contribute to the
capital and share in the profits but do not
participate in the management of the business
and are not personally liable for partnership
obligations beyond the amount of their capital
contributions (Arts. 1845, 1848, 1856);
4) The limited partners may ask for the return of
their capital contributions under the conditions
prescribed by law (Arts. 1844[h], 1857); and
5) The partnership debts are paid out of the
common fund and the individual properties of the
general partners.
GENERAL PARTNER
LIMITED PARTNER
personally
liable
for
partnership obligations
liability extends only to his
capital contribution
When the manner of
management has not
been agreed upon, all of
the general partners have
an equal right in the
management
of
the
business
a limited partner has no
share in the management
of a limited partnership,
his rights being limited to
those enumerated in
Article 1851, such that he
renders himself liable to
creditors as a general
partner if he takes part in
the control of the business
May contribute money,
property, or industry to
the partnership
must contribute cash or
property to partnership
but not services
A
general
partner’s
interest in the partnership
may not be assigned as to
make the assignee a new
partner
without
the
consent of the other
partners although he may
associate a third person
with him in his share
a limited partner’s interest
is freely assignable, with
the assignee acquiring all
the rights of the limited
partner subject to certain
qualifications
The name of a general
partner may appear in the
firm name
The surname of a limited
partner shall not appear in
the partnership name
unless it is also the
surname of a general
partner or prior to the
time when the limited
As provided in Article 1840, the creditors of a dissolved
partnership have a prior right as against the separate
creditors of the retired or deceased partner.
D. Limited partnership
Limited partnership or one formed by two or more
persons having as members one or more general
partners and one or more limited partners, the latter not
being personally liable for the obligations of the
partnership. (Art. 1843)
It is so called because the liability to third persons of one
or more of its members referred to as limited (or special)
partners is limited to a fixed amount, their capital
contributions or the amount they have invested in the
partnership. This limited liability is the key characteristic
of the limited partnership.
Characteristics of limited partnership
1) A limited partnership is formed by compliance
with the statutory requirements (Art. 1844);
2) One or more general partners control the
business and are personally liable to creditors
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partner became such, the
business had been carried
on under a name in which
his surname appeared
A prime requisite to the formation of a limited partnership,
under Article 1844, is the execution of the prescribed
certificate. This document, as a rule, must contain the
matters enumerated in said article. Thus, a limited
partnership cannot be constituted orally.
A general partner is
prohibited from engaging
in a business which is of
the kind of business in
which the partnership is
engaged, if he is a
capitalist partner, or in any
business for himself if he
is an industrial partner.
no such prohibition in the
case of a limited partner
who is considered as a
mere contributor to the
partnership
ART. 1848. 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.
The retirement, death,
insanity, or insolvency of a
general partner dissolves
the partnership
the retirement, etc. of a
limited partner does not
have the same effect, for
his
executor
or
administrator shall have
the rights of a limited
partner for the purpose of
selling his estate.
Liability of limited partner for participating in
management of partnership
LIMITED PARTNERSHIP NOT CREATED BY MERE
VOLUNTARY AGREEMENT
The creation of a limited partnership is a formal
proceeding and is not a mere voluntary agreement, as in
the case of a general partnership. Accordingly, the
requirements of the statute must be followed so that
public notice may be given to all who desire to know the
essential features of the partnership.
A limited partner is liable as a general partner for the
firm’s obligations if he takes part or interferes in the
management of the firm’s business. His abstinence from
participation in fact in the transaction of the business of
the firm is essential to his exemption from liability for the
debts of the firm. Whether the limited partner has
participated in the management is to be determined by
whether he has exercised a controlling power in the firm’s
transactions.
The limited partner takes part in the management of
the business and is liable generally for the firm’s
obligations where:
1) The business of the partnership is in fact carried
on by a board of directors chosen by the limited
partners;
2) By the terms of the contract between the parties,
an appointee of the limited partner becomes the
directing manager of the firm;
A limited partnership is formed if there has been
substantial compliance in good faith with the
requirements set forth in Article 1844; otherwise, the
liability of the limited partners becomes the same as that
of general partners.
3) The limited partner purchases the entire property
of the partnership, taking title in himself and then
carries on the business in his own name and for
his own exclusive benefit; or
Under Article 1844, there are two essential
requirements for the formation of a limited
partnership:
4) He makes or is a party to a contract with
creditors of an insolvent firm with respect to the
disposal of the firm’s assets in payment of the
firm’s debts.
1) The certificate or articles of the limited
partnership
which
states
the
matters
enumerated in the article, must be signed and
sworn to; and
2) Such certificate must be filed for record in the
Office of the Securities and Exchange
Commission.
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“When the time is right, I, the Lord, will make it happen.”
VIII. AGENCY
A. Nature, form and kinds
ARTICLE 1868. 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.
The definition, which is very broad enough to include all
situations in which one person is employed to render
service for another, excludes, however, from its concept
the relationship of employer and employee (Art. 1700.), of
master and servant (Art. 1680.), and of employer and
independent contractor. (Art. 1713.)
Agency is a fiduciary relationship which implies a power
in an agent to contract with a third person on behalf of a
principal. It is this power to effect the principal’s
contractual relations with third persons that differentiates
the agent from the employee, the servant, and the
independent contractor.
Q: If you’ve been a proxy in a wedding ceremony or
baptismal ceremony, and actually accepted the request
of the real ninong or ninang then does it mean an
agency relationship is created between you and the
actual ninong or ninang? Or if you have accepted the
request of the politician for you to deliver the speech in
a gathering would that result in an agency relationship?
A: In both instances, no. It may appear under the definition
of agency under 1868, that there is such an agency
relationship because as defined, a contract of agency at first
bind himself to render some service or to do something in
representation or on behalf another with the consent or
authority of the latter. So, kung proxy ka that would fall
under 1868 di ba but the definition has been criticized by
some authors, one of them is Justice Reyes, that the
definition of a contract of agency under 1868 does not
contemplate social and political representation, hindi
kasama ang social representation, political representation
in order to have a contract of agency under the New Civil
Code, the purpose of the agency must be the execution of
the juridical act, the agent must ask or bind himself to
execute a juridical act, meaning the act that will be executed
by the agent on behalf of the principal and should either
create, modify or extinguish a legal relationship between
the principal and a third person.
Concretely if the agent was authorized to buy, the act - the
contract entered into by the agent with the third person
would create a legal relationship between the principal and
the third person, that would be a seller-buyer relationship,
so it is a juridical act.
On the other hand, if the agent is authorized to pay an
indebtedness of the principal to a certain person or to a
bank and he in fact paid the said amount, the result of the
act is the extinguishment of the existing legal relationship,
the legal relationship would be the debtor-creditor
relationship between the principal and third person, which
would be extinguished by the act of the agent known as
payment.
Again therefore for a contract of agency to arise the subject
matter or the object of the contract must be the execution of
the juridical act, mere social or political representation
would not result in a contract of agency.
CHARACTERISTICS OF A CONTRACT OF AGENCY
1) consensual, because it is based on the
agreement of the parties which is perfected by
mere consent;
2) principal, because it can stand by itself without
need of another contract;
3) nominate, because it has its own name;
4) unilateral, if it is gratuitous because it creates
obligations for only one of the parties, i.e., the
agent; or bilateral, if it is for compensation
because it gives rise to reciprocal rights and
obligations; and
5) preparatory, because it is entered into as a
means to an end, i.e., the creation of other
transactions or contracts.
★ A feature of agency which is peculiar is representation.
No representative in a contract - he cannot be considered
as an agent.
★ Another very important feature of Agency is the manner
of termination. In Agency, it can be terminated at the will
of one party — by the principal or agent, maski sino. If
the termination was made by the principal, it is called
revocation. If made by the agent, it is called withdrawal.
ESSENTIAL ELEMENTS OF AGENCY
a)
There is consent, express or implied, of the
parties to establish the relationship;
b) The object is the execution of a juridical act in
relation to third persons;
c)
The agent acts as a representative and not for
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himself;
d) The agent acts within the scope of his authority.
(Rallos v. Go Chan)
KINDS OF AGENCY (manner of its creation)
1) Express Agency — one where the agent has
been actually authorized by the principal, either
orally or in writing.
2) Implied Agency — one which is implied from the
acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency
knowing that another person is acting on his
behalf without authority, or from the acts of the
agent which carry out the agency, or from his
silence or inaction according to the
circumstances.
The ultimate basis in order to determine implied
agency is the intention and conduct of the
parties. Further, implied agency may arise from
the acts, silence, or inaction of the principal. In
case the principal supports the actions of the
agent without the principal’s expressed
command or grant of authority creates an implied
agency between them. (Gonzales-Saldana v.
Sps. Niamatali)
Litonjua v. Eternit Corp (2006)
By the contract of agency, a person binds himself to
render some service or to do something in representation
on behalf of another, with the consent or authority of the
latter. Consent of both principal and agent is necessary
to create an agency. The principal must intend that the
agent shall act for him; the agent must intend to accept
the authority and act on it, and the intention of the parties
must find expression either in words or conduct between
them.
An agency may be expressed or implied from the act of
the principal, from his silence or lack of action, or his
failure to repudiate the agency knowing that another
person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied
from his acts which carry out the agency, or from his
silence or inaction according to the circumstances.
Agency may be oral unless the law requires a specific
form. However, to create or convey real rights over
immovable property, a special power of attorney is
necessary. Thus, when a sale of a piece of land or any
portion thereof is through an agent, the authority of the
latter shall be in writing, otherwise, the sale shall be void.
ARTICLE 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.
SALE OF LAND THROUGH AGENT
As a general rule, the agent’s authority may be oral or
written. It is valid and enforceable in whatever form it may
be entered into.
Under Art. 1874, the sale of a piece of land (not any other
real estate) or any interest thereon, like usufruct,
mortgage, etc., through an agent is void unless the
authority of the agent to sell is in writing. (Cosmic Lumber
Corp. vs. Court of Appeals)
Article 1874 provides that the contract of agency must be
in writing for the sale of a piece of land of any interest to
be valid, otherwise, it shall be void. In relation to this is
Article 1878 which provides that in order to convey real
rights over immovable properties, it is necessary for one
to acquire special powers of attorney. (Yoshizaki v. Joy
Training Center of Aurora)
ARTICLE 1877. An agency couched in general terms
comprises only acts of administration, even if the
principal should state that he withholds no power or that
the agent may execute such acts as he may consider
appropriate, or even though the agency should authorize
a general and unlimited management.
As to the extent of the power conferred, agency may be
couched in general terms (Art. 1877) or couched in
specific terms. (Art. 1878)
AGENCY COUCHED IN GENERAL TERMS
An agency couched in general terms may be a general
agency or a special agency. It includes only acts of
administration and an express power is necessary to
perform any act of strict ownership, even if the principal
states that (1) he withholds no power, or that (2) the agent
may execute such acts as he may consider appropriate,
or that (3) he authorizes a general or unlimited
management.
Whether the instrument be denominated as “general
power of attorney” or “special power of attorney,” what
matters is the extent of the power or powers conferred
upon the agent or attorney-in-fact. If the power is
couched in general terms, then only acts of
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“When the time is right, I, the Lord, will make it happen.”
administration may be deemed granted although the
instrument may be captioned as “special power of
attorney”; but where the power, for example, to sell or
mortgage, is specified, there can be no doubt that the
agent may execute the act, although the instrument is
denominated as a general power of attorney. (Veloso vs.
Court of Appeals)
ARTICLE 1878. Special powers of attorney are necessary
in the following cases:
(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 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;
(15) Any other act of strict dominion.
Acts of strict dominion
The fifteen cases enumerated are general acts of strict
dominion or ownership as distinguished from acts of
administration. Hence, a special power of attorney is
necessary for their execution through an agent.
Authority in the cases enumerated in Article 1878 must
be couched in clear and unmistakable language.
Article 1878 refers to the nature of the authorization, not
its form.
NOTE: The special power of attorney can be included in
a general power of attorney (hence, there is no need to
execute a separate and special power) when it specifies
therein the act or transaction (e.g., special power to sell)
for which the special power is required. The requirement
of a special power of attorney is met if there is a clear
mandate from the principal specifically authorizing the
performance of act.
1. To make payment
■
It is an act of ownership because it involves the
conveyance of ownership of money or property.
■
But when payment is made in the ordinary
course of management, it is considered a mere
act of administration. It is included in an agency
couched in general terms and hence, no special
power of attorney is needed.
2. To effect novation
■
3. To compromise, etc.
■
The grant of special power regarding one of the
acts mentioned in No. 3 of Article 1878 is not
enough to authorize the others. A special power
to compromise does not authorize submission to
arbitration. (Art. 1880)
■
Compromise is a contract whereby the parties,
by making reciprocal concessions, avoid a
litigation or put an end to one already
commenced. Arbitration is where the parties
submit their controversies to one or more
arbitrators for decision.
(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;
Obligations must already be in existence at the
time the agency was constituted.
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A special power of attorney is also necessary
with respect to the authority of the agent to
waive: the right to appeal from a judgment;
objections to the venue of an action; and a
prescription already acquired.
4. To waive an obligation gratuitously
■
This is condonation or remission. The agent
cannot waive a right belonging to the principal
without valuable consideration or even for a
nominal consideration. He cannot bind the
principal who is the obligee unless especially
authorized to do so.
5. To convey or acquire immovable
6. To make gifts
■
But the making of customary gifts for charity, or
those made to employees in the business
managed by the agent, are considered acts of
administration.
7. To loan or borrow money
■
This refers only to money and not to other
fungible things.
■
The power to borrow any amount of money
which the agent deems necessary cannot be
interpreted as also authorizing him to use the
money as he pleases.
■
The authority to borrow money for the principal
is not to be implied from the special power of
attorney to mortgage real estate.
8. To lease realty for more than one year
■
■
The requirement of special power of attorney
extends to renewal or extension of lease of real
property to another.
■
11. To obligate principal as guarantor or surety
■
10. To bind the principal in a contract of partnership
A power of attorney to loan money does not
authorize the agent to make the principal liable
as a surety for the payment of the debt of a third
person.
12. To create or convey real rights over immovable
property
13. To accept or repudiate an inheritance
14. To ratify obligations contracted before the agency
15. Any other act of strict dominion
■
a sale or purchase of personal property is an act
of strict dominion. Hence, a special power is
necessary in order that the act shall be binding
on the principal.
■
Example: the agent was authorized to sell a car
and his authority is not in writing, what is the
status of the sale? Would that be valid and
enforceable against the principal?
A: No, it is unenforceable under 1878. It falls under
the last paragraph of 1878 - any other act of strict
dominion would require special power of attorney.
So 1878 enumerates cases, acts, or contracts where
the law requires the authority of the agent in
writing, it should have a Special Power of Attorney,
otherwise the contract entered into by the agent is
unenforceable against the Principal.
ARTICLE 1879. A special power to sell excludes the
power to mortgage; and a special power to mortgage does
not include the power to sell.
■
A mere authority to a real estate agent “to sell”
property at a certain price and for a certain
commission does not carry with it the implied
power to make a contract of sale at such price in
behalf of the principal but as merely authorizing
the agent to find a purchaser and submit his offer
to the principal for acceptance. (Raquiza vs.
Lilles)
■
Unless otherwise agreed, authority to buy or sell
does not include authority to rescind or modify
the terms of the sale after its completion, nor to
An agreement for the leasing of real property for
a longer period than one year is unenforceable
unless made in writing. It follows that even if the
agent is especially authorized, the lease is not
enforceable against the principal if it is not in
writing.
9. To bind the principal to render service gratuitously
The contract of partnership creates obligations
the fulfillment of which requires an act of strict
ownership
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act further with reference to the subject matter
except to undo fraud or to correct mistakes.
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“When the time is right, I, the Lord, will make it happen.”
AUTHORITY OF AN AGENT AND THE CONSEQUENT RIGHTS AND LIABILITIES
SCOPE OF
AUTHORITY OF AN AGENT
RIGHTS
General Authority
Comprise only of acts of
administration.
Special Authority
Authorized only to perform a
specific act or acts.
LIABILITIES
GR: The agent has no personal liability if he acts
within the scope of his authority (Art. 1897).
XPNs:
1. The agent expressly binds himself
2. The agent exceeds authority (Art. 1897)
Should the agent exceeds the scope of his
authority:
1. The principal may ratify expressly or
tacitly (Art. 1910).
2. If the principal does not ratify, the contract
is unenforceable as against principal (Art.
1910).
3. If the party whom the agent contracted
did not know the extent of the agent’s
powers, the contract is not binding
between the agent and the third party
(Art. 1898).
4.
If the party whom the agent contracted
was aware that the agent exceeded his
powers, the contract is unenforceable
even between the agent and the third
person (Art. 1898).
5. 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 to them
(Art. 1902)
B. Obligations of the agent
The principal obligations of an agent are:
1) To carry out the agency in accordance with its
terms [Article 1884];
2) To answer for the damages which through his
non-performance the principal may suffer [Article
1884];
3) To act in accordance with the instructions of the
principal [Article 1887];
4) Not to carry out the agency if its execution would
manifestly result in loss or damage to the
principal [Article 1888];
5) To answer for damages should he prefer, in case
of conflict, his own interests to those of the
principal [Article 1889];
6) To render an account of his transactions and to
deliver to the principal whatever he may have
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received by virtue of the agency [Article 1891];
7) To be responsible for the goods received by him,
to sell on credit only with the consent of the
principal and to collect with due diligence the
credits of the principal [Articles 1903-1908]; and
8) To answer for his fraud or negligence. [Article
1909]
SUB-AGENT
ARTICLE 1892. The agent may appoint a substitute if the
principal has not prohibited him from doing so; but he
shall be 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 without
designating the person, and the person appointed was
notoriously incompetent or insolvent.
All acts of the substitute appointed against the
prohibition of the principal shall be void.
2) Sub-agent appointed by agent with authority
from principal — Any act done by the substitute
or sub-agent in behalf of the principal is deemed
an act of the principal. Consequently, neither the
agent nor the substitute can be held personally
liable so long as they act within the scope of their
authority.
Effect of death of principal/agent
a)
If the authority of the sub-agent proceeds from
the principal, the death of the agent who
appointed him does not affect his authority.
b) But where the sub-agent is a substitute for the
agent and acts under authority from him and to
whom he is accountable, the death of the agent
terminates his authority even though the power
of substitution is given in the original power.
Effects of substitution
a)
Substitution prohibited
■
A sub-agent 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.
Unless prohibited by the principal, the agent may appoint
a sub-agent or substitute. The agent in this situation is a
principal with respect to the substitute.
b) Substitution authorized
■
If in the contract of agency, the agent is
given the power to appoint a substitute
and the principal did not designate any
particular person to be appointed, the
substitution has the effect of releasing
the agent from his responsibility unless
the person appointed is notoriously
incompetent or insolvent. The principal
may proceed against both the agent and
the substitute for damages he may have
suffered.
■
But if the substitute is the person
designated by the principal, the
consequence is the absolute exemption
of the agent.
An agent may not delegate to a subagent where the work
entrusted to him by the principal to carry out requires
special knowledge, skill, or competence unless he has
been authorized to do so by the principal.
The principal need not fear prejudice as he has a right of
action not only against the agent but also against the
substitute with respect to the obligations which the latter
has contracted under the substitution. (Art. 1893) This
right of action against the substitute is an exception to
the general rule that contracts are binding only between
the contracting parties, their assigns and heirs.
Relation among the principal, agent, and sub-agent
1) Sub-agent appointed by agent on latter’s sole
account — The principal will not be liable to third
parties for the sub-agent’s acts but the agent will
be liable to the principal or third parties if the subagent acts wrongfully.
When the substitute is appointed by the
agent against the express prohibition of
the principal, the agent exceeds the
limits of his authority. All acts of the
substitute in such a case shall be void.
c)
Substitution not authorized, but not prohibited
■
If the agent appoints a substitute when
he was not given the power to appoint
one, the law recognizes the validity of the
substitution if the same is beneficial to
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“When the time is right, I, the Lord, will make it happen.”
the principal because the agency has
thus been executed in fulfillment of its
object.
■
If the substitution has caused damage to
the principal, the agent shall be primarily
responsible for the acts of the substitute
as if he himself executed them. The
principal has also a right of action
against the substitute.
Sps. Villaluz v. Land Bank (2017)
The law creates a presumption that an agent has the
power to appoint a substitute. The consequence of the
presumption is that, upon valid appointment of a
substitute by the agent, there ipso jure arises an agency
relationship between the principal and the substitute, i.e.,
the substitute becomes the agent of the principal. As a
result, the principal is bound by the acts of the substitute
as if these acts had been performed by the principal's
appointed agent. Concomitantly, the substitute assumes
an agent's obligations to act within the scope of
authority, to act in accordance with the principal's
instructions, and to carry out the agency, among others.
In order to make the presumption inoperative and relieve
himself from its effects, it is incumbent upon the principal
to prohibit the agent from appointing a substitute.
Although the law presumes that the agent is authorized
to appoint a substitute, it also imposes an obligation
upon the agent to exercise this power conscientiously.
To protect the principal, Article 1892 allocates
responsibility to the agent for the acts of the substitute
when the agent was not expressly authorized by the
principal to appoint a substitute; and, if so authorized but
a specific person is not designated, the agent appoints a
substitute who is notoriously incompetent or insolvent. In
these instances, the principal has a right of action against
both the agent and the substitute if the latter commits
acts prejudicial to the principal.
LIABILITIES OF 2 OR MORE AGENTS
ART. 1894. The responsibility of two or more agents, even
though they have been appointed simultaneously, is not
solidary, if solidarity has not been expressly stipulated.
ART. 1895. If solidarity has been agreed upon, each of the
agents is responsible for the non-fulfillment of the agency,
and for the fault or negligence of his fellow agents, except
in the latter case when the fellow agents acted beyond the
scope of their authority.
SCOPE OF AGENT’S AUTHORITY AS TO THIRD
PERSONS
ART. 1900. 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.
Scope of agent’s authority includes not only the actual
authorization conferred upon the agent by his principal,
but also that which has apparently or impliedly been
delegated to him.
Where authority not in writing
Every person dealing with an assumed agent is put upon
an inquiry and must discover upon his peril, if he would
hold the principal liable, not only the fact of the agency
but the nature and extent of authority of the agent. If he
does not make such an inquiry, he is chargeable with
knowledge of the agent’s authority, and his ignorance of
that authority will not be an excuse.
Where authority in writing
Nevertheless, if the authority of the agent is in writing,
such person is not required to inquire further than the
terms of the written power of attorney. As far as he is
concerned, an act of the agent within the terms of the
power of attorney as written is within the scope of the
agent’s authority, although the agent has in fact
exceeded the limits of his actual authority. In such a case,
the principal is estopped from claiming that the agent
exceeded his authority.
COMMISSION AGENT
A commission agent is one whose measures employed
and efforts exerted result in a sale. Hence, a commission
agent must be the procuring cause of the sale. In other
words, an agent receives his commission only upon the
successful conclusion of a sale (Sanchez vs. Medicard).
The following are the obligations of the commission
agent:
1) The commission agent shall be responsible for
the 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 (Art. 1903);
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“When the time is right, I, the Lord, will make it happen.”
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 (Art. 1904);
3) Should the commission agent, with authority of
the principal, sell on credit, he shall so inform the
principal, with a statement of the names of the
buyers. Should he fail to do so, the sale shall be
deemed to have been made for cash insofar as
the principal is concerned (Art. 1906);
4) The commission agent shall bear the risk of
collection and shall pay the principal the
proceeds of the sale on the same terms agreed
upon with the purchaser, should the commission
agent receive on a sale, in addition to the
ordinary commission (Art. 1907);
5) The commission agent who does not collect the
credits of his principal at the time when they
become due and demandable shall be liable for
damages, unless he proves that he exercised
due diligence for that purpose (Art. 1908); and
6) The agent is responsible not only for fraud, but
also for negligence, which shall be judged with
more or less rigor by the courts, according to
whether the agency was or
was not for
compensation (Art. 1909)
C. Obligations of the principal
In the absence of contractual stipulations to the contrary,
the following are the obligations of the principal:
1) To comply with all the obligations which the
agent may have contracted within the scope of
his authority [Articles 1868 & 1883];
2) To advance to the agent, should the latter so
request, the sums necessary for the execution of
the agency [Article 1912];
3) To reimburse the agent for all advances made by
him provided the agent is free from fault [Ibid];
4) To indemnify the agent for all damages which the
execution of the agency may have caused the
later without fault or negligence on his part
[Article 1913]; and
5) To pay the agent the compensation agreed upon,
or if no compensation was specified, the
reasonable value of the agent’s services.
[Articles 1875 and 1306]
ARTICLE 1910. The principal must comply with all the
obligations which the agent may have contracted within
the scope of his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies
it expressly or tacitly.
Liability of principal to third persons
■
It may be stated as a general rule that where the
relation of agency legally exists, the principal will
be liable to third persons for all acts committed
by the agent and obligations contracted by him
in the principal’s behalf in the course and within
the actual (express or implied) or apparent scope
of his authority, and should bear the damage
caused to third persons.
■
The principal becomes liable to the third party
when he ratifies an authorized act of his agent.
■
A principal is liable for the acts of his agent within
his express authority because the act of such
agent is the act of the principal.
■
The principal is bound by the act of his agent
when he has placed the agent in such position
that persons of ordinary prudence are thereby
led to believe and assume that the agent is
possessed of certain authority, and to deal with
him in reliance on such assumption.
ART. 1911. 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.
AGENCY BY ESTOPPEL
When a person, who is not really an agent, represents
himself or is represented as such. There is really no
agency at all, but the alleged agent seemed to have
apparent or ostensible, although no real authority to
represent another.
For an agency by estoppel to exist, the following must
be established:
1) The principal manifested a representation of the
agents authority or knowingly allowed the agent
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to assume such authority;
2) The third person, in good faith, relied upon such
representation; and
3) Relying upon such representation, such third
person has changed his position to his detriment.
APPARENT
AUTHORITY
AUTHORITY BY
ESTOPPEL
That which though not
actually granted, the
principal
knowingly
permits the agent to
exercise or holds him
out as possessing.
Arises in those cases
where the principal, by his
culpable
negligence,
permits his agent to
exercise
powers
not
granted to him, even
though the principal may
have
no
notice
or
knowledge of the conduct
of the agent.
Apparent authority is
not
founded
in
negligence
of
the
principal but in the
conscious permission
of acts beyond the
powers granted.
Rule of estoppel has its
basis in the negligence of
the principal in failing
properly to supervise the
affairs of the agent,
allowing him to exercise
powers not granted to
him, and so justifies
others in believing he
possesses the requisite
authority.
IMPLIED AGENCY
AGENCY BY ESTOPPEL
There is an actual
agency. The principal
alone is liable.
The authority of the agent
is not real but only
apparent:
(a) If estoppel is caused
by the principal, he is
liable to any third person
who
relied
on
the
misrepresentation.
(b) If estoppel is caused
by the agent, then only
the agent is liable.
Hontanosas v. Quinain (2012)
In a contract of agency, a person, the agent, binds
himself to represent another, the principal, with the
latter’s consent or authority. Hence, agency is based on
representation, where the agent acts for and in behalf of
the principal on matters within the scope of the authority
conferred upon him. Such acts have the same legal effect
as if they were personally done by the principal. By this
legal fiction of representation, the actual or legal absence
of the principal is converted into his legal or juridical
presence.
Under Articles 1898 and 1910, an agent’s act, even if
done beyond the scope of his authority, may bind the
principal if he ratifies them, whether expressly or tacitly.
It must be stressed though that only the principal, and
not the agent, can ratify the unauthorized acts, which the
principal must have knowledge of. Furthermore, Article
1911 provides that the principal is solidarily liable with the
agent even when the latter has exceeded his authority, if
the principal allowed him to act as though he had full
powers. However, 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; and (3) Relying upon such representation,
such third person has changed his position to his
detriment.
Persons dealing with an assumed agent are bound at
their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature
and extent of authority, and in case either is controverted,
the burden of proof is upon them to prove it.
Republic v. Banez (2015)
In an agency by estoppel or apparent authority, the
principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the agent
to assume, or which he holds the agent out to the public
as possessing.
In such cases, the principal is now estopped to question
the authority given to the agent when they failed to
repudiate the latter’s acts especially if it clearly misled
other parties into believing that such agent has the
authority to do so.
Conditions for ratification
In addition to an intent to ratify, the following conditions
must be fulfilled for ratification to be effective:
1) The principal must have the capacity and power
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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 in its entirety;
4) The act must be capable of ratification; and
5) The act must be done in behalf of the principal.
Forms of ratification
a)
Express ratification — where the principal simply
informs the agent, the third party, or someone
else of his intention to honor the agent’s
unauthorized dealings
b) Implied ratification —
The principal can
nevertheless be deemed to have impliedly
communicated his intent to ratify by words or
conduct that had amounted to ratification or
even by silence or inaction where under the
circumstances a reasonable person would have
expressed objections to what the agent’s had
done.
For an act of the principal to be considered as an
implied ratification of an unauthorized act of an
agent, such act must be inconsistent with any
other hypothesis than that he approved and
intended to adopt what had been done in his
name.
NOTE: The act must be ratified in its entirety or not at all.
A person cannot ratify that portion which is beneficial or
advantageous to him and repudiate that portion which is
burdensome or disadvantageous. In other words, the
principal cannot accept the benefits of a transaction and
refuse to accept the obligations (e.g., warranties in a
contract of sale) that are part of it.
D. Modes of extinguishment
MODES OF EXTINGUISHMENT OF AGENCY
ART. 1919. 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.
THERE IS REVOCATION OF AN AGENCY WHEN:
1) The principal revokes the agency, expressly or
impliedly, at will and compels the agent to return
the document evidencing the agency (Art. 1920)
2) The agency has been entrusted for the purpose
of contracting with specified persons –
revocation will not prejudice specified persons if
they were not notified. (Art. 1921)
3) The agent had general powers – revocation does
not prejudice third persons who acted in good
faith and without knowledge of the revocation.
Notice of revocation in a newspaper of general
circulation is a sufficient warning. (Art. 1922)
4) The appointment of a new agent for the same
business or transaction revokes the previous
agency from the day on which notice was given
to the former agent. (Art. 1923)
5) The principal directly manages the business
entrusted to the agent, dealing directly with third
persons (Art. 1924)
6) 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. (Art. 1925)
7) A general power of attorney is revoked by a
special one granted to another agent, as regards
the special matter involved in the latter. (Art.
1926)
8) The power shall continue to be in full force until
the notice is rescinded in the same manner as it
was constituted. (Art. 1873). However,
constitution by Special Information may be
revoked by notice in a daily newspaper, provided
it can be proven that 3rd persons in question
read the revocation (Art. 1922)
ARTICLE 1920. The principal may revoke the agency at
will, and compel the agent to return the document
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“When the time is right, I, the Lord, will make it happen.”
evidencing the agency. Such revocation may be express
or implied.
REVOCATION OF AGENCY BY PRINCIPAL
Subject only to the exceptions provided in Article 1927,
the principal may revoke the agency at will — at any time,
at his mere option, with or without reason — since an
agency relationship is voluntary. This is true even though
there was an agreement previous to the revocation that
the agency should continue longer. Even a statement in
the agreement that the agency cannot be terminated
cannot affect the principal’s ability or power to terminate
it. This is an exception to the rule that the validity or
compliance of a contract cannot be left to the will of one
of the parties.
Implied revocation
1. An example of implied revocation is when the
principal appoints a new agent for the same
business or transaction (Art. 1923.)
2. When the principal directly manages the
business entrusted to the agent. (Art. 1924.)
3. When the principal, after granting a general
power of attorney to an agent, grants a special
one to another agent, there is implied revocation
of the former as regards the special matter
involved in the latter. (Art. 1926.)
4. The agent’s authority may also be revoked
impliedly in the same manner as in the case of
appointment of an agent. (see Art. 1869.)
ART. 1927. An agency cannot be revoked if a bilateral
contract depends upon it, or if it is the means of fulfilling
an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of
partnership and his removal from the management is
unjustifiable.
AGENCY COUPLED WITH AN INTEREST
The general rule is that the principal may revoke an
agency at will. This rule, however, has exceptions and
they are:
interest of both the principal and the agent.
In either case, the agency is deemed as one coupled with
an interest. It becomes part of another obligation or
agreement. It is evident that the agency cannot be
revoked by the sole will of the principal as long as the
interest of the agent or of a third person subsists because
it is not solely the rights of the principal which are
affected.
Lim v. Saban (2004)
An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership
and his removal from the management is unjustifiable.
Thus, an agency is deemed as one coupled with an
interest where it is established for the mutual benefit of
the principal and of the agent, or for the interest of the
principal and of third persons, and it cannot be revoked
by the principal so long as the interest of the agent or of
a third person subsists. In an agency coupled with an
interest, the agent’s interest must be in the subject matter
of the power conferred and not merely an interest in the
exercise of the power because it entitles him to
compensation. When an agent’s interest is confined to
earning his agreed compensation, the agency is not one
coupled with an interest, since an agent’s interest in
obtaining his compensation as such agent is an ordinary
incident of the agency relationship.
EFFECT OF DEATH OR PRINCIPAL
ART. 1930. The agency shall remain in full force and
effect even after the death of the principal, if it has been
constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without
knowledge 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.
1. when the agency is created not only for the
interest of the principal but also for the interest of
third persons; and
Agency is terminated instantly by the death of the
principal. (Art. 1919[3].) However, there are exceptions to
this rule. In the following cases, the agency remains in full
force and effect even after the death of the principal:
2. when the agency is created for the mutual
1. if the agency has been constituted in the
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“When the time is right, I, the Lord, will make it happen.”
common interest of the principal and the agent
(see Art. 1927.); and
2. if it has been constituted in the interest of a third
person who has accepted the stipulation in his
favor.
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“When the time is right, I, the Lord, will make it happen.”
entitled to the fruits.
IX. CREDIT TRANSACTIONS
A. Loan
Art. 1933. By the contract of loan, one of the parties
delivers to another, either something not consumable so
that the latter may use the same for a certain time and
return it, in which case the contract is called a
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 simply called a loan or mutuum.
■
It is an essential feature of the contract of
commodatum that the use of the property of
another shall be “for a certain time.”
■
GR: The subject matter of a commodatum is
generally non-consumable things, whether real
or personal, because the bailee cannot return the
identical thing were it to be consumed by its use.
XPN: However, if the purpose is merely for
exhibition, a consumable thing may be made the
subject of a commodatum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest.
In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to
the borrower.
Kinds of loan:
1) Commodatum — Where the bailor (lender) gives
to the bailee (borrower) a non-consumable thing
so that the latter may use it for a certain time and
return the identical thing.
2) Simple loan or Mutuum — Where the lender
delivers to the borrower money or other
consumable thing upon the condition that the
borrower shall pay the same amount of the same
kind and quality.
COMMODATUM
■
The purpose of the contract of commodatum is
the temporary use of the thing loaned. If the
bailee is not entitled to the use of the thing, the
contract may be a deposit and not a
commodatum.
■
Commodatum is essentially gratuitous, the
contract ceases to be a commodatum if any
compensation is to be paid by the borrower who
acquires the use. In such a case, there arises a
lease contract.
■
The bailee’s right to use is limited to the thing
loaned but not to its fruits unless there is a
stipulation to the contrary (Art. 1940). The bailor,
as the owner of the thing loaned, is naturally
■
The bailor need not be the owner of the thing
loaned since by the loan, ownership does not
pass to the borrower.
It is sufficient if the bailor has such possessory
interest in the subject matter or right to its use
which he may assert against the bailee and the
third persons although not against the rightful
owner.
Producers Bank v. CA
There are some instances where a commodatum may
have for its object a consumable thing. Article 1936 of the
Civil Code provides: Consumable goods may be the
subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely
for exhibition. Thus, 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. The
rule is that the intention of the parties thereto shall be
accorded primordial consideration in determining the
actual character of a contract.
Pajuyo v. CA
In a contract of commodatum, one of the parties delivers
to another something not consumable so that the latter
may use the same for a certain time and return it. An
essential feature of commodatum is that it is gratuitous.
Another feature of commodatum is that the use of the
thing belonging to another is for a certain period. Thus,
the bailor cannot demand the return of the thing loaned
until after expiration of the period stipulated, or after
accomplishment of the use for which the commodatum
is constituted.
If the bailor should have urgent need of the thing, he may
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demand its return for temporary use. If the use of the
thing is merely tolerated by the bailor, he can demand the
return of the thing at will, in which case the contractual
relation is called a precarium. Under the Civil Code,
precarium is a kind of commodatum.
COMMODATUM
IS
CONTRACT (Art. 1939)
A
PURELY
PERSONAL
Commodatum is a purely personal contract, the lender
having in view the character, credit, and conduct of the
borrower. Hence, the death of either party terminates the
contract unless by stipulation, the commodatum is
transmitted to the heirs of either or both parties.
If there are two or more borrowers, the death of one does
not extinguish the contract in the absence of stipulation
to the contrary.
Art. 1939 constitutes an exception to the general rule that
all rights acquired in virtue of an obligation are
transmissible.
Generally, the bailee can neither lend nor lease the object
of the contract to a third person, in the absence of some
understanding or agreement to that effect.
However, members of the bailee’s household may make
use of the thing loaned except: if there is a stipulation to
the contrary, or if the nature of the thing forbids it.
appraisal of its value (because the parties are
presumed to have intended that the borrower be
liable in any case, and this is the reason why they
had the subject appraised first), unless there is a
stipulation
exempting
the
bailee
from
responsibility in case of a fortuitous event;
4) If he lends or leases the thing to a third person,
who is not a member of his household (because
commodatum is purely personal);
5) If he being able to save either the thing borrowed
or his own thing, he chose to save the latter
(because this shows ingratitude).
OBLIGATION
TO
REFUND
EXPENSES (Art. 1949)
The bailor shall refund the extraordinary expenses during
the contract for the preservation of the thing loaned,
provided the bailee brings the same to the knowledge of
the bailor before incurring them, except when they are so
urgent that the reply to the notification cannot be awaited
without danger.
If the extraordinary expenses arise on the occasion of the
actual use of the thing by the bailee, even though he
acted without fault, they shall be borne equally by both
the bailor and the bailee, unless there is a stipulation to
the contrary.
LIABILITY FOR ORDINARY EXPENSES (Art. 1941)
The bailee is obliged to pay for ordinary expenses (for the
use and preservation of the thing loaned.)
MUTUUM
■
A simple loan involves the payment of the
equivalent and not the identical thing because
the bailee acquires ownership of the thing
loaned.
■
Obligation of the debtor is to pay:
LIABILITY FOR FORTUITOUS EVENTS (Art. 1942)
The bailee is not liable for the loss or damage due to a
fortuitous event (Art. 1174) since the bailor retains the
ownership of the thing loaned.
1. This includes the accessory duty to pay
interest
Exceptions:
2. Involves the return of the equivalent only
and not the identical thing because the
bailee acquires ownership.
1) If the bailee devotes the thing to any purpose
different from that which it had been loaned
(because here there is bad faith);
2) If the bailee keeps it longer that the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted (delay);
3) If the thing loaned has been delivered with an
EXTRAORDINARY
3. Such promise of the bailee to pay is the
consideration of the bailor to furnish the
loan.
■
No criminal liability for estafa for failure to pay
— There is no criminal liability for failure to pay a
simple loan because the bailee acquires
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“When the time is right, I, the Lord, will make it happen.”
ownership of the thing. Since ownership is
transferred, the bailee can dispose of the thing
borrowed and his act will not be considered
misappropriation thereof.
Osmeña-Jalandoni v. Encomienda
A simple loan or mutuum exists when a person receives
a loan of money or any other fungible thing and acquires
its
ownership.
The
absence
of
handwritten
acknowledgment or a promissory note for the purpose of
granting a loan is immaterial. In fact, in the case of loans
between friends and relatives, the absence of
acknowledgement receipts or promissory notes is more
natural and real. Contracts are binding between the
parties, whether oral or written. In this case, Encomienda
immediately offered a helping hand when a friend asked
for it. But this does not mean that she had already waived
her right to collect in the future. The "display of Christian
help" is not inconsistent with the existence of a loan.
Art. 1956. No interest shall be due unless it has been
expressly stipulated in writing.
Requisites in order that interest may be chargeable:
1. Interest must be expressly stipulated
2. Agreement must be in writing
3. Interest must be lawful (must
unconscionable)
not
be
discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can
be established with reasonable certainty.
Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made,
the interest shall begin to run only from the date 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.
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 6% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.
Abella v. Abella
Nacar v. Gallery Frames
With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have
been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 6%
per annum to be computed from default, i.e., from judicial
or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When 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
It should be noted that the new rate could only be applied
prospectively and not retroactively. Consequently, the
twelve percent (12%) per annum legal interest shall apply
only until June 30, 2013. Come July 1, 2013 the new rate
of six percent (6%) per annum shall be the prevailing rate
of interest when applicable.
Lara’s Gifts & Decors v. Midtown Industrial Sales
The 24% per annum interest agreed upon between the
parties is valid and binding, and is not considered
excessive nor unconscionable. As a rule, when the
obligation is breached, and it consists in the payment of
a sum of money, the interest due should be that which
may have been stipulated in writing.
The guidelines laid down in Nacar vs Gallery Frames do
not apply in this case as there was an express stipulation
agreed upon, and such respondent was not at a
disadvantage at the time of acceptance. The stipulated
interest is the law between the parties, and should be
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“When the time is right, I, the Lord, will make it happen.”
applied until full payment of the obligation.
Bulatao v. Estonactoc
Article 2212 of the New Civil Code provides the rule on
compound interest - where interest is subject to an
interest as well. As a rule, an interest due shall also earn
legal interest upon its judicial demand, although the
obligation may be silent as regards such point. In other
words, the interest due on a principal amount accruing
upon its judicial demand shall also independently earn a
separate interest from time of judicial demand of the
same until full payment at the rate prescribed by the
Bangko Sentral ng Pilipinas.
■
The main difference between voluntary and
necessary deposit is that in voluntary deposit,
the depositor is free to choose the depositary. In
necessary deposit, the depositor lacks the
freedom to choose the depositary as it is made
in compliance with a legal obligation, or on the
occasion of any calamity, or by travelers in hotels
and inns, or by travelers with common carriers.
Art. 1979. The depositary is liable for the loss of the thing
through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
What is an “escalation clause”?
It is a clause which authorizes the automatic increase in
interest rate. It is valid when it is accompanied by a deescalation clause. A de-escalation clause is a clause
which provides that the rate of interest agreed upon will
also be automatically reduced based on the same
formula as its increase. Meaning, the important thing is
that there must be a specified formula for arriving at the
automatically adjusted interest rate, over which neither
party has any discretion.
B. Deposit
DEPOSIT
■
It is a contract whereby a person (depositor)
delivers a thing to another (depositary), for the
principal purpose of safekeeping it, with the
obligation of returning it when demanded.
(3) If he delays its return;
(4) If he allows others to use it, even though he himself
may have been authorized to use the same.
Art. 1980. Fixed, savings, and current deposits of money
in banks and similar institutions shall be governed by the
provisions concerning simple loan.
RELATION BETWEEN BANK AND DEPOSITOR
Deposits of money in banks are really loans to a bank
because the bank can use the same for its ordinary
transactions and for the banking business in which it is
engaged.
Bank deposits are in the nature of irregular deposits; they
are really loans because they earn interest. Hence, such
deposits are governed by the provisions on mutuum or
simple loan. While the bank has the obligation to return
the amount deposited, it has, however, no obligation to
return or deliver the same money that was deposited.
■
It is essential that the depositary is not the owner
of the property deposited.
■
A contract of deposit is constituted from the
moment a person receives a thing belonging to
another, with the obligation of safely keeping it
and returning the same upon demand.
Thus, the nature of the relation between a depositor and
bank is that of a creditor and debtor.
Depositor need not be the owner of the thing
— Generally, the depositor should be the owner
of the thing to be deposited, but it is not an
essential element. The depositor need not be the
owner of the thing deposited because the
purpose of the contract is safekeeping and not
transfer of ownership. The depositary cannot
even require the depositor to prove that he is the
owner of the thing.
This is an example of a pledge created by operation of
law. The thing retained serves as security for the payment
of what may be due to the depositary by reason of the
deposit.
■
RIGHT OF RETENTION BY DEPOSITARY
RIGHTS AND OBLIGATIONS OF A HOTEL-KEEPER
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 lodging, and supplies
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usually furnished to hotel guests. (Article 2004,
NCC)
2. The keepers of hotels or inns shall be responsible
for loss of thing in case of deposit, provided that
they have been previously informed by the guest
about the effects the latter brought in, and the
guest has taken precautions prescribed for their
safekeeping. (Article 1998, NCC)
3. The hotel-keeper is liable for the vehicles,
animals and articles which have been introduced
or placed in the annexes of the hotel. (Article
1999, NCC)
4. The hotel-keeper is liable regardless of the
degree of care exercised, if:
a. Loss or injury is caused by his
employees or even by strangers (Article
2000, NCC);
b. Loss is caused by an act of thief or
robber when there is no use of arms or
irresistible force. (Article 2001, NCC)
5. The hotel-keeper is not liable when:
a. Loss is caused by force majeure or
theft/robbery attended by irresistible
force;
b. Loss is due to the acts of the guest, his
family, servants or visitors;
c.
Loss is due to the character of the things
brought into the hotel. (Article 2002,
NCC)
C. Guaranty and Suretyship
Article 2047. By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title 1 of
this Book shall be observed. In such case the contract is
called a suretyship.
GUARANTY
It is a contract whereby the guarantor binds himself to the
creditor to fulfill the obligation of the principal debtor in
case the latter should fail to do so.
Characteristics of Guaranty
1) Accessory - it is dependent for its existence
upon the principal obligation guaranteed by it.
2) Subsidiary and Conditional - it takes effect only
when the principal debtor fails in his obligation
subject to limitation.
3) Unilateral - it gives rise to obligations on the part
of the guarantor in relation to the creditor and not
vice-versa. (Although after its fulfillment, the
principal debtor should indemnify the guarantor,
but this obligation is only incidental).
It may be entered into even without the
intervention of the principal debtor.
4) Distinct Person - it requires that the person of
the guarantor must be distinct from the person of
the principal debtor (you cannot guaranty your
own debt). However, in a real guaranty, a person
may guarantee his own obligation with his own
properties.
SURETYSHIP
If a person binds himself solidarily with the principal
debtor, it is a contract of SURETYSHIP. The guarantor is
called a surety. Suretyship is governed by Arts. 1207 to
1222 of the Civil Code on solidary obligations. Suretyship
dispenses with certain legal requirements or conditions
precedent for proceeding against a guarantor.
What is the difference between passive solidarity
(solidarity among debtors) and suretyship?
The creditor cannot go after the surety right away. There
has to be default on the part of the principal debtor before
the surety becomes liable. If it were mere solidarity
among debtors, the creditor can go after any of the
solidary debtors on the due date.
Nature of Surety’s Undertaking
1) Contractual and Accessory but Direct - the
contractual obligation of the surety is merely an
accessory or collateral to the obligation
contracted by the principal. But, his liability to the
creditor is direct, primary and absolute.
2) Liability is limited by the terms of the contract
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“When the time is right, I, the Lord, will make it happen.”
- The extent of a surety’s liability is determined
only by the terms of the contract and cannot be
extended by implication.
3) Liability arises only if the principal debtor is
held liable - If the principal debtor and the surety
are held liable, their liability to pay the creditor
would be solidary. But, the surety does not incur
liability unless and until the principal debtor is
held liable.
4) Surety is not entitled to exhaustion - a surety
is not entitled to the exhaustion of the properties
of the principal debtor since the surety assumes
a solidary liability for the fulfillment of the
principal obligation. (A guarantor, on the other
hand, is entitled to exhaustion).
5) The undertaking is to the creditor, not the
principal debtor - the debtor cannot claim that
the surety breached its obligation to pay for the
principal obligation because there is no
obligation as between the surety and the debtor.
If the surety does not pay, the principal debtor is
still not relieved of his obligation.
Palmares v. CA
A surety is considered an insurer of the debt of the
debtor, with an undertaking that the debt shall be paid. A
surety also binds himself to pay or perform if the debtor
is in default, regardless of his ability to fulfill the
obligation. In a suretyship, a creditor’s right to proceed
against the surety is independent to that against the
principal. This is because a surety is bound equally and
absolutely with the principal debtor. Moreover, in a
suretyship, there is only one contract, and the surety is
bound by the same contract.
It is not necessary for the creditor to proceed against a
principal in order to hold the surety liable if by the terms
of the contract, the obligation of the surety is the same
as that of the principal. Thus, as soon as the principal is
in default, the surety is likewise in default, and the surety
may be sued immediately and before any proceedings
are had against the principal. In the absence of statute or
agreement otherwise, a surety is primarily liable. It cannot
expect the creditor to exhaust his remedies against the
principal before proceeding against the surety, especially
where both the principal and the surety are equally
obligated.
Ayala Investment & Development Corp. v. CA
If the spouse acted only as a surety or guarantor, that
contract cannot, on its own, be characterized as falling
within the context of "obligations for the benefit of the
conjugal partnership." The contract of loan or services is
clearly for the benefit of the principal debtor and not for
the surety or his family. No presumption can be inferred
that, when a spouse enters into a contract of surety or
accommodation agreement, it is “for the benefit of the
conjugal partnership.” Proof must be presented to
establish benefit redounding to the conjugal partnership.
GUARANTY
SURETY
Guarantor is subsidiarily
liable
Surety is primarily liable
Entitled to
excussion
of
Not entitled to benefit of
excussion
Guarantor binds himself
to pay only when the
principal cannot pay - a
collateral undertaking
Surety assumes liability
as a regular party to the
undertaking
and
promises to pay if the
principal does not pay
- an original undertaking
Guarantor is an insurer
of debtor’s insolvency
Surety is an insurer of the
debt
Usually embodied in a
separate
agreement
before or after the
principal obligation
Usually embodied in the
same instrument as the
principal obligation; thus,
the surety is a party to
the contract
Not bound to take notice
of non-performance of
debtor
Held to notice of debtor’s
default
General rule
Never presumed
benefit
In a contract of guaranty, the guarantor insures the
solvency of the debtor. The obligation of the guarantor is
subsidiary. It is only after the creditor has proceeded
against the properties of the principal and the debt
remains unsatisfied that a guarantor can be liable to
answer for any unpaid amount. On the other hand, in a
suretyship contract, the surety is an insurer of the debt
itself. The surety is principally liable for the payment of
the debt. A creditor can go directly against the surety
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“When the time is right, I, the Lord, will make it happen.”
although the principal debtor is solvent and is able to pay,
and even though no prior demand is made on the
principal debtor. (Sps. Alfredo v. PCIB)
GUARANTY
IS
ENTERED
KNOWLEDGE OF DEBTOR
INTO
WITHOUT
If the contract of guaranty is entered into without the
knowledge or consent or against the will of the principal
debtor, the effect is like payment by a third person.
➔ The guarantor can only recover insofar as the
payment has been beneficial to the debtor
➔ The guarantor cannot compel the creditor to
subrogate him in the creditor’s rights such as
those arising from a mortgage, guaranty or
penalty.
If the guaranty was entered into with the consent of the
principal debtor, the guarantor is subrogated to the rights
which the creditor had against the debtor once he pays
for the obligation.
BENEFIT OF EXCUSSION
The benefit of excussion contemplates that the
guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against
the debtor. (Article 2058, NCC)
The exceptions to the benefit of excussion are laid
down in Article 2059, to wit:
1) If the guarantor has expressly renounced it;
2) If he has bound himself solidarily with the debtor;
3) In case of insolvency of the debtor;
4) When he has absconded, or cannot be sued
within the Philippines unless he has left a
manager or a representative; and
5) If it may be presumed that an execution on the
property of the principal debtor would not result
in the satisfaction of the obligation.
D. Quasi-Contracts
Quasi-contracts are those juridical relations arising from
lawful, voluntary and unilateral acts, by virtue of which
the parties become bound to each other, based on the
principle that no one shall be unjustly enriched or
benefited at the expense of another. (Article 2142)
In a quasi-contract, there is no consent but the same is
supplied by fiction of law. In other words, the law
considers the parties as having entered into a contract,
irrespective of their intention, to prevent injustice.
In the case of Perez vs. Palomar, it was significantly noted
that in a quasi contract where no express consent is
given by the other party, the consent needed in a
contract is provided by law through presumption
(presumptive consent). Presumptive consent gives rise to
multiple juridical relations resulting in obligations for
delivery of the thing and rendering of service.
NEGOTIORUM GESTIO (ART. 2144)
It is the juridical relation which arises whenever a person
voluntarily takes charge of the agency or management of
the business or property of another without any power or
authority from the latter.
In this type of quasi-contract, once the gestor or officious
manager has assumed the agency or management of the
business or property, he shall be obliged to continue
such agency or management until the termination of the
affair and its incidents, exercising such rights and
complying with such obligations as provided for in the
Code.
Art. 2144. Whoever voluntarily takes charge of the agency
or management of the business or property of another,
without any power from the latter, is obliged to continue
the same until the termination of the affair and its
incidents, or to require the person concerned to substitute
him, if the owner is in a position to do so. This juridical
relation does not arise in either of these instances:
(1) When the property or business is not neglected or
abandoned;
(2) If in fact the manager has been tacitly authorized by
the owner. xxx
Art. 2145. The officious manager shall perform his duties
with all the diligence of a good father of a family, and pay
the damages which through his fault or negligence may
be suffered by the owner of the property or business
under management.
The courts may, however, increase or moderate the
indemnity according to the circumstances of each case.
Art. 2147. The officious manager shall be liable for any
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fortuitous event:
(1) If he undertakes risky operations which the owner was
not accustomed to embark upon;
(2) If he has preferred his own interest to that of the
owner;
(3) If he fails to return the property or business after
demand by the owner;
(4) If he assumed the management in bad faith.
Art. 2149. 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. 2150. Although the officious management may not
have been expressly ratified, the owner of the property or
business who enjoys the advantages of the same shall be
liable for obligations incurred in his interest, and shall
reimburse the officious manager for the necessary and
useful expenses and for the damages which the latter may
have suffered in the performance of his duties.
The same obligation shall be incumbent upon him when
the management had for its purpose the prevention of an
imminent and manifest loss, although no benefit may
have been derived.
Lim Siok Huey v. Lapiz
Negotiorum gestio cannot be invoked for the purpose of
filing a civil complaint on behalf of the plaintiffs because
under the Rules of Court, an express authority is required
before one may file a case in representation of another.
There is no such requirement of an express authority in a
negotiorum gestio, hence, the same cannot be applied to
justify the filing of a case without the express authority of
the plaintiff.
SOLUTIO INDEBITI (ART. 2154)
It is the juridical relation which arises whenever a person
unduly delivers a thing through mistake to another who
has no right to demand it.
In this type of quasi-contract, once the delivery has been
made, the person to whom the delivery is unduly made
shall have the obligation to return the property delivered
or the money paid.
Solutio indebiti applies where:
a)
Payment is made when there exists no binding
relation between the payor, who has no duty to
pay, and the person who received the payment;
and
b) The payment is made through mistake and not
through liberality or some other cause.
Domestic Petroleum Retailer Corp. v. Manila
International Airport Authority (En Banc; J. Caguioa)
In order to establish the application of solutio indebiti in
a given situation, two conditions must concur: (1) a
payment is made when there exists no binding relation
between the payor who has no duty to pay, and the
person who received the payment, and (2) the payment
is made through mistake, and not through liberality or
some other cause. In the instant case, the Court finds
that the essential requisites of solutio indebiti are not
present.
First, there exists a binding relation between petitioner
DPRC and respondent MIAA. It is undisputed by all
parties that respondent MIAA and petitioner DPRC are
mutually bound to each other under a Contract of Lease.
The Court finds that the cause of action of petitioner
DPRC is based on the violation of a contractual
stipulation in the parties' Contract of Lease, and not due
to the existence of a quasi-contract.
Second, for the concept of solutio indebiti to apply, the
undue payment must have been made by reason of either
an essential mistake of fact or a mistake in the
construction or application of a doubtful or difficult
question of law. Mistake entails an error, misconception,
or misunderstanding. In the instant case, petitioner
DPRC made the overpayments in monthly rentals from
December 11, 1998 to December 5, 2005 not due to any
mistake, error, or omission as to any factual matter
surrounding the payment of rentals. Nor did petitioner
DPRC make the overpayments due to any mistaken
construction or application of a doubtful question of law.
Instead, petitioner DPRC deliberately made the
payments in accordance with respondent MIAA's
Resolution No. 98-30, albeit under protest.
Yon Mitori International Industries v. Union Bank
As provided under Article 2154 of the Civil Code, t]he
indispensable requisites of the juridical relation known as
solutio indebiti, are: (a) that he who paid was not under
obligation to do so; and (b) that the payment was made
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by reason of an essential mistake of fact. Gross
negligence can never be equated with a mere mistake of
fact, which must be something excusable and which
requires the exercise of prudence. No recovery is due if
the mistake done is one of gross negligence.
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“When the time is right, I, the Lord, will make it happen.”
■
X. TORTS AND DAMAGES
A. Torts
1. Elements
What is a tort?
➔ an unlawful violation of private right, not created
by contract, and which gives rise to an action for
damages.
➔ It is a wrong independent of a contract, which
arises from an act or omission of a person which
causes some injury or damage directly or
indirectly to another person.
2) When the fault or negligence is punished by law
as a crime. Article 100 of RPC shall be
applicable.
3) If the action for quasi-delict is instituted after four
years, it is deemed prescribed.
4) When the injury suffered by a person is the result
of a fortuitous event without human intervention.
5) If there is no damage or injury caused to another.
WHEN NOT LIABLE FOR QUASI-DELICT
QUASI DELICT
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties,
is called a quasi-delict and is governed by the provisions
of this Chapter.
ELEMENTS/REQUISITES OF QUASI-DELICT
1) an act or
negligence;
However, if the act that breaches the
contract is tortuous, the pre-existing
contractual relation will not bar the
recovery of damages.
omission
constituting
fault
or
2) damage caused by the said act or omission;
3) the causal relation between the damage and the
act or omission.
★ The causal relation or connection means that the
fault or negligence of the defendant must have
been the immediate and proximate cause of the
damage experienced by the plaintiff.
The Supreme Court added a fourth requisite in some
cases, that is, the absence of contractual relation
between the plaintiff and the defendant.
➔ It is no longer being cited because it is now wellsettled that an action based on quasi-delict can
be maintained even if there is an existing
contractual relation between the parties.
WHEN IS QUASI-DELICT NOT APPLICABLE?
1) When there was a pre-existing contract while
relation, otherwise, what results is a breach of
contract.
1) The plaintiff's own negligence was the immediate
and proximate cause of his injury.
2) A fortuitous event is the proximate and only
cause of the loss.
3) There is assumption of risk on the part of the
plaintiff.
4) The action is barred by prescription which is 4
years from the time of the commission of the act
or omission constituting the last element of the
cause of action.
5) Complete involuntariness of the action.
Can there be a tort or quasi-delict in breach of
contract?
➔ Generally, no. However, the existence of
contract does not bar the commission of a tort
by one against the other and the consequent
recovery of damages. Where the act that breaks
the contract may also be a tort, the contractual
relations the parties does not bar the recovery of
damages.
2. Culpa aquiliana v. culpa contractual
v. culpa criminal
CULPA
CONTRACTUAL
Foundation of the liability of the
defendant is the contract. The
obligation to answer for the
damage that the plaintiff has
suffered arises from breach of
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the contract by reason of
defendant’s failure to exercise
due care in its performance.
CULPA
AQUILIANA
A separate source of obligation
independent of contract.
It is a private wrong or injury. It
is an infringement of the private
or civil rights of another, thus,
pursued
by
the
private
individual.
CRIME
an offense against the public
being a punishable act and is
pursued by the Sovereign
Authority.
It
seeks
the
curtailment of the liberty or
imprisonment of the offender
with possible civil liability.
A single act or omission may give rise to two or more
causes of action. The obligation based on one is separate
and distinct from the other. That is, an act or omission
may give rise to an action based on delict, quasi-delict
and even contract.
The limitation imposed by law is the proscription against
double recovery provided for under Article 2177 of the
Civil Code. Although an act or omission may give rise to
two causes of action, the plaintiff cannot recover twice
for the same act or omission of the defendant.
3. Vicarious liability
Article 2180. The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions, but
also for those persons for whom one is responsible.
The father and, in case of his death or incapacity, the
mother, are responsible for the damages caused by the
minor children who live in their company.
Guardians are liable for damages caused by the minors or
incapacitated persons who are under their authority and
live in their company.
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.
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.
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.
Lastly, 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.
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.
PRINCIPLE OF THE VICARIOUS OR IMPUTED
LIABILITY
A person is not only liable for torts committed by himself,
but also for torts committed by others with whom he has
a certain relationship and for whom he is responsible.
The minor, ward, employee, special agent, pupil,
students and apprentices who actually committed the
delictual acts are not exempted by the law from personal
liability. They may be sued and made liable alone when
the person responsible for them or vicarious obligor
proves that he exercised the diligence of a good father of
a family, or when the minor or insane person has no
parents or guardians.
The liability of vicarious obligor is primary and direct and
not subsidiary. He is solidarity liable with the tortfeasor.
His obligation is not conditioned upon the insolvency of
or prior recourse against the negligent tortfeasor.
A. LIABILITY FOR ACTS OF MINORS.
■
The basis of liability of parents for the acts or
omissions of their minor children is the parental
authority that they exercise over them. Their
liability is a necessary consequence of the
parental authority which imposes upon them the
duty of supporting their children, keeping them in
their company and educating them in proportion
to their means. At the same time, parental
authority gives them the right to correct and
punish their children in moderation.
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➔ Liability based on parental authority is not limited
to parents; the same is also imposed on those
exercising substitute parental authority and
special parental authority. Parents and other
persons exercising parental authority shall be
civilly liable for the injuries and damages caused
by the acts or omissions of their unemancipated
children living in their company and under their
parental authority.
➔ Judicially adopted children are considered
legitimate children of their adopting parents,
hence the adopters are civilly liable for their
tortious or criminal acts if the children live with
them and are below 21 years old.
➔ The obligation of the parents is alternative — the
father shall be primarily liable and the mother
shall be liable in case of death or incapacity of
the father.
➔ The liability is present only if the child is living in
their company. Thus, the parents are not liable if
their child is presently living with a relative under
an informal adoption arrangement.
➔ Parents and other persons exercising parental
authority can escape liability by proving that they
observed all the diligence of a good father of a
family to prevent damage.
Requisites for Vicarious Liability of Parents
1) The child is below 21 years old.
2) The child committed a tortious act to the damage
and prejudice of another person.
3) The child lives in the company of the parent
concerned whether single or married.
B. LIABILITY OF GUARDIANS
■
A guardian is a person in whom the law has
entrusted the custody and control of the person
or estate or both of an infant, insane, or other
persons incapable of managing his own affair.
■
Guardianship involves not only custody, that is
immediate care and control, but those of one in
loco parentis as well.
■
Hence, even if their ward is already of age,
guardians have the same liability as persons
exercising parental authority.
C. LIABILITY OF OWNERS/MANAGERS UNDER PAR.
4
■
It refers to owners and managers of
establishments and enterprises and who have
employees under them. In effect, the managers
are employers if they are also the owners of their
establishments or enterprises.
■
A mere manager, who does not own the business
is not to be considered an employer because as
manager, he is just a high-class employee.
■
However, a manager who is not an owner, but
who assumes the responsibility of supervision
over the employees of the owner may be held
liable for the acts of the employees.
■
The liability under paragraph 4 applies to all who,
by their industry or profession or other
enterprise, have other persons in their service or
under their supervision.
Requisites of Employer’s Liability under Par. 4
1) That the employee was chosen by the employer
personally or through another.
2) That the services to be rendered in accordance
with orders which the employer has the authority
to give at all times.
3) That the illicit act of the employee was on the
occasion or by reason of the functions entrusted
to him.
D. LIABILITY OF EMPLOYERS UNDER PAR. 5
■
This provision covers tortious acts of household
helpers, family cooks, gardeners, yayas,
servants, etc.
■
Employers referred to in this paragraph need not
be engaged in business or industry as
contradistinguished from paragraph 4.
■
To make the employer liable, it must be
established that the injurious or tortious act was
committed at the time the employee was
performing his functions. An employer incurs no
liability when an employee’s conduct, act or
omission is beyond the range or employment.
◆ In the absence of some special benefits
to the employer other than the mere
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performance of the services available by
the place where he is needed, the
employee is not acting within the scope
of his employment, even though he uses
his employer's motor vehicle.
■
When an injury is caused by the negligence of an
employee, there instantly arises a presumption
that there was negligence on the part of the
employer, either in the selection of his employee
or in the supervision over him after such
selection.
Covers negligent acts of
employees
committed
either in the service of the
branches or in the
occasion
of
their
functions.
E. STATE’S IMPUTED LIABILITY
■
Nature of Employer’s Liability under this Article
The liability of the employer under this article is
primary, direct and immediate as it is not conditioned
on a prior recourse against the negligent employee
or a prior showing of insolvency of such employee. It
is also joint and solidary with the employee although
the former can recover from the latter whatever it
pays to the plaintiff.
Primary Liability and Subsidiary
employers; Options on Remedies
Liability
of
1) If he chooses to file a civil action for damages
based on quasi delict under article 2180 and
succeeds in proving the negligence of the
employee, the liability of the employer's primary
direct and solidarity, it is not conditioned on the
insolvency of the employee.
2) If it chooses to file a criminal case against the
offender and the offender was found guilty
beyond reasonable doubt, the civil liability of the
employer is subsidiary. The employer cannot use
as defense the exercise of diligence of a good
father of a family.
OWNERS/MANAGERS
(Par 4, Art. 2180)
EMPLOYERS
(Par 5, Art. 2180)
Requires engagement in
business on the part of the
employers as the law
speaks of “establishment
or enterprise.”
The employers need not
be engaged in business
or industry.
The State is only liable for the negligent acts of
its officers, agents and employees when they are
acting as special agents. The State has
voluntarily assumed liability for acts done
through special agents.
◆ Special Agent – receives a definite and
fixed order of Commission foreign to the
exercise of ordinary duties of his office.
◆ An employee who, on his own
responsibility, performs the functions
inherent in this office and naturally
pertaining thereto, is not a special agent.
Proof of Employer-employee relationship
In an action against an employer under Article 2180, it is
imperative that the presence of employer-employee
relationship be established.
Covers negligent acts of
employees acting within
the scope of their
assigned tasks.
Aspects of State’s Liability
1) Public or governmental - liable only for the
tortious acts of his special agents.
2) Private or non-governmental - state is engaged
in private business or enterprises, it becomes
liable as an ordinary employer.
2 situations covered by paragraph 6
1) When the state acts through special agent
■
The state is subject to the liability for
damages caused by special agent
2) When the act is performed by an official upon
whom previously devolved the duty of doing the
act performed
■
It is the official, not the State, who is
liable for damages caused by the act he
performed
F. IMPUTED LIABILITY OF TEACHERS AND HEADS
OF SCHOOLS
■
Application of Article 2180 is not limited to pupils,
students and apprentices who are minors. Its
force extends to acts or omissions of students
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■
who are already beyond the majority age.
DEFENSE IN ARTICLE 2180
The basis of the teacher’s vicarious liability is the
teachers and heads, to a certain extent, in locus
parentis to their pupils and students.
The parent, guardian, employer, state, teacher and the
like shall be exempted from liability if they can prove that
they have exercised all the diligence of a good father of
the family to prevent damage.
When are teachers and heads of school liable?
GR: The teacher-in-charge, is liable for the acts of his
students, where the school is academic rather than
technical or vocational in nature.
XPN: In case of establishments of arts and trades, it is
the head thereof, and only he, who shall be liable.
TAKE NOTE: There is no substantial distinction between
the academic and non-academic schools insofar as torts
committed by their students are concerned. The same
vigilance is expected from the teacher over the students
under his control and supervision, whatever nature of the
school where he is teaching.
Limitation to Liability of Teachers and Heads of
Schools
The teachers or heads of school are only liable if the
students remain in schools. If they are no longer in
school, their responsibility should attach no more. Their
parents become responsible for them.
What do you mean by “so long as the students remain
in their custody”?
The student is in custody of the school authorities as long
as he is under the control and influence of the school and
within its premises, whether the semester has not ended
or has ended or has not yet begun.
As long as it can be shown that the student is in the
school premises in pursuance of a legitimate student
objective, in the exercise of a legitimate student right, and
even in the enjoyment of a legitimate student right, and
even in the enjoyment of a legitimate student privilege,
the responsibility of the school authorities over the
student continues. Indeed, even if the student should be
doing nothing more than relaxing in the campus in the
company of his classmates and friends and enjoying the
ambience and atmosphere of the school, he is still within
the custody and subject to the discipline of the school
authorities under the provisions of Article 2180. (Amadora
v. CA)
It is not necessary at the time of the injury that the teacher
be physically present and at the position to prevent it.
Maria Teresa Cuadra vs. Alfonso Monfort
In the present case there is nothing from which it may be
inferred that the defendant could have prevented the
damage by the observance of due care, or that he was in
any way remiss in the exercise of his parental authority in
failing to foresee such damage, or the act which caused
it. On the contrary, his child was at school, where it was
his duty to send her and where she was, as he had the
right to expect her to be, under the care and supervision
of the teacher. And as far as the act which caused the
injury was concerned, it was an innocent prank not
unusual among children at play and which no parent,
however careful, would have any special reason to
anticipate much less guard against. Nor did it reveal any
mischievous propensity, or indeed any trait in the child's
character which would reflect unfavorably on her
upbringing and for which the blame could be attributed
to her parents.
Cresencio Libi et al, vs IAC et al
The SC held that petitioners were gravely remiss in their
duties as parents in not diligently supervising the
activities of their son. Both parents were wanting in their
duty and responsibility in monitoring and knowing the
activities of their son. The petitioners utterly failed to
exercise all the diligence of a good father of a family in
preventing their son from committing the crime by means
of the gun which was freely accessible to Wendell Libi
because they have not regularly checked whether the
gun was still under lock, but learned that it was missing
from the safety deposit box only after the crime had been
committed. The civil liability of parents for quasi-delicts
of their minor children, as contemplated in Article 2180,
is primary and not subsidiary.
Macario Tamargo et al, vs CA
In the case at bar, parental authority over Adelberto was
still lodged with the natural parents at the time the
shooting incident happened. It follows that the natural
parents are the indispensable parties to the suit for
damages.
Supreme Court held that parental authority had not been
retroactively transferred to and vested in the adopting
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parents, at the time the shooting happened. It does not
consider that retroactive effect may be given to the
decree of the adoption so as to impose a liability upon
the adopting parents accruing at the time when adopting
parents had no actual custody over the adopted child.
Retroactive effect may be essential if it permits the
accrual of some benefit or advantage in favor of the
adopted child.
In the instant case, however, to hold that parental
authority had been retroactively lodged in the Rapisura
spouses so as to burden them with liability for a tortious
act that they could not have foreseen and which they
could not have prevented would be unfair and
unconscionable. No presumption of parental dereliction
on the part of the adopting parents, the Rapisura
spouses, could have arisen since Adelberto was not in
fact subject to their control at the time the tort was
committed.
Philippine Rabbit Bus Lines Inc vs. Philam Forwarders
Inc
Whether the terms “employer” and “owners and
managers of establishment or enterprises” used in article
2180 of the Civil Code embrace the manager of a
corporation owning a truck, the reckless operation of
which allegedly resulted in the vehicular accident from
which the damage arose.
Sc held that no, it does not. We are of the opinion that
those terms do not include the manager of a corporation.
It may be gathered from the context of article 2180 that
the term "manager" is used in the sense of "employer".
Hence, under the allegations of the complaint, no tortious
or quasi-delictual liability can be fastened on Balingit as
manager of Phil-American Forwarders, Inc., in
connection with the vehicular accident already
mentioned because he himself may be regarded as an
employee or dependiente of his employer, Phil-American
Forwarders, Inc.
Duavit vs. Court of Appeals
An owner of a vehicle cannot be held liable for an
accident involving a vehicle if the same was driven
without his consent or knowledge and by a person not
employed by him.
To hold the petitioner liable for the accident caused by
the negligence of Sabiniano who was neither his driver
nor employee would be absurd as it would be like holding
the owner of a stolen vehicle liable for an accident caused
by the person who stole such vehicle.
Jose E. Genson vs. Eduardo Adarle et al
Petitioner's identification as the Highway District
Engineer in the complaint filed by the private respondent
did not result in the said complaint's becoming a suit
against the government or state. In Belizar v. Brazas, we
ruled that "the fact that the duties and positions of the
defendants are indicated does not mean that they are
being sued in their official capacities, especially as the
present action is not one against the Government."
Furthermore, the accident in the case at bar happened
on a non-working day and there was no showing that the
work performed on that day was authorized by the
government. While the equipment used belongs to the
Government, the work was private in nature, for the
benefit of a purchaser of junk. Therefore, the defense of
the petitioner that he cannot be made liable under the
principle of non-suability of the state cannot be
sustained.
Filamer Christian Institute vs. IAC
The act of Funtecha in taking over the steering wheel was
one done for and in behalf of his employer for which act
the petitioner school cannot deny any responsibility by
arguing that it was done beyond the scope of his janitorial
duties. The clause "within the scope of their assigned
tasks" for purposes of raising the presumption of liability
of an employer, includes any act done by an employee,
in furtherance of the interests of the employer or for the
account of the employer at the time of the infliction of the
injury or damage.
Funtecha is an employee of petitioner Filamer. He need
not have an official appointment for a driver's position in
order that the petitioner may be held responsible for his
grossly negligent act, it being sufficient that the act of
driving at the time of the incident was for the benefit of
the petitioner. Hence, the fact that Funtecha was not the
school driver or was not acting within the scope of his
janitorial duties does not relieve the petitioner of the
burden of rebutting the presumption juris tantum that
there was negligence on its part either in the selection of
a servant or employee, or in the supervision over him.
Dulay vs. Court of Appeals, et al
Under Article 2180 of the New Civil Code, when an injury
is caused by the negligence of the employee, there
instantly arises a presumption of law that there was
negligence on the part of the master or employer either
in the selection of the servant or employee, or in
supervision over him after selection or both. The liability
of the employer under Article 2180 is direct and
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immediate; it is not conditioned upon prior recourse
against the negligent employee and a prior showing of
the insolvency of such employee.
Therefore, it is incumbent upon the private respondents
to prove that they exercised the diligence of a good father
of a family in the selection and supervision of their
employee.
Castilex Industrial Corporation vs. Vicente Vasquez
ABAD's working day had ended; his overtime work had
already been completed. His being at a place which, as
petitioner put it, was known as a "haven for prostitutes,
pimps, and drug pushers and addicts," had no
connection to petitioner's business; neither had it any
relation to his duties as a manager. Rather, using his
service vehicle even for personal purposes was a form of
a fringe benefit or one of the perks attached to his
position.
Since there is paucity of evidence that ABAD was acting
within the scope of the functions entrusted to him,
petitioner CASTILEX had no duty to show that it
exercised the diligence of a good father of a family in
providing ABAD with a service vehicle. Thus, justice and
equity require that petitioner be relieved of vicarious
liability for the consequences of the negligence of ABAD
in driving its vehicle.
Cadiente vs. Macas
Petitioner is liable because the registered owner of any
vehicle, even if he had already sold it to someone else, is
primarily responsible to the public for whatever damage
or injury the vehicle may cause. Since the Ford Fiera was
still registered in the petitioner's name at the time when
the misfortune took place, the petitioner cannot escape
liability for the permanent injury it caused the respondent.
Nograles v. Capitol Medical Center
In general, a hospital is not liable for the negligence of an
independent contractor-physician. There is, however, an
exception to this principle. The hospital may be liable if
the physician is the “ostensible” agent of the hospital.
This exception is also known as the “doctrine of apparent
authority.”
The doctrine of apparent authority essentially involves
two factors to determine the liability of an independentcontractor physician. The first factor focuses on the
hospital’s manifestations and is sometimes described as
an inquiry whether the hospital acted in a manner which
would lead a reasonable person to conclude that the
individual who was alleged to be negligent was an
employee or agent of the hospital. In this regard, the
hospital need not make express representations to the
patient that the treating physician is an employee of the
hospital; rather a representation may be general and
implied. The second factor focuses on the patient’s
reliance. It is sometimes characterized as an inquiry on
whether the plaintiff acted in reliance upon the conduct
of the hospital or its agent, consistent with ordinary care
and prudence.
In the instant case, CMC impliedly held out Dr. Estrada
as a member of its medical staff. Through CMC’s acts,
CMC clothed Dr. Estrada with apparent authority thereby
leading the Spouses Nogales to believe that Dr. Estrada
was an employee or agent of CMC. CMC cannot now
repudiate such authority. The records show that the
Spouses Nogales relied upon a perceived employment
relationship with CMC in accepting Dr. Estrada’s
services. Rogelio testified that he and his wife specifically
chose Dr. Estrada to handle Corazon’s delivery not only
because of their friend’s recommendation, but more
importantly because of Dr. Estrada’s “connection with a
reputable hospital, the [CMC].” In other words, Dr.
Estrada’s relationship with CMC played a significant role
in the Spouses Nogales’ decision in accepting Dr.
Estrada’s services as the obstetrician-gynecologist for
Corazon’s delivery. Moreover, as earlier stated, there is
no showing that before and during Corazon’s
confinement at CMC, the Spouses Nogales knew or
should have known that Dr. Estrada was not an employee
of CMC. The Court finds respondent Capitol Medical
Center vicariously liable for the negligence of Dr. Oscar
Estrada.
Professional Services Inc. v. Agana
If there is an employment relationship, the hospital may
be held vicariously liable in accordance with Section
2176 in connection with Section 2180 of the Civil Code
or the principle of respondeat superior. The hospital may
still be vicariously liable under Article 2176 in relation to
Article 1431 and Article 1869 of the Civil Code or the
principle of apparent authority even when no
employment relationship exists, but it is shown that the
hospital holds out to the patient that the doctor is its
agent. In addition, regardless of its relationship with the
doctor, the hospital may be held directly liable to the
patient for its own negligence or failure to abide by the
established standard of conduct to which it should
conform as a corporation.
4. Res ipsa loquitur
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RES IPSA LOQUITUR
The thing speaks for itself. Rebuttable presumption or
inference that defendant was negligent, which arises
upon proof that instrumentality causing injury was in
defendant’s exclusive control, and that the accident was
one which ordinarily does not happen in absence of
negligence (Black’s Law Dictionary, 2004).
However, res ipsa loquitur is not a rule of substantive law
and, as such, does not create nor constitute an
independent or separate ground of liability. Instead, it is
considered as merely evidentiary or in the nature of a
procedural rule (Professional Services v. Agana, 2007)
The rule states that where the thing which causes injury
is shown to be under the management of the defendant
(or his servants), and the accident is such as in the
ordinary course of things does not happen if those who
have the management (or control) used proper care, it
affords reasonable evidence, in the absence of an
explanation by the defendant, that the accident arose
from (or was caused by the defendants) want of care.
Elements:
1) The accident is of a kind which ordinarily does
not occur in the absence of someone’s
negligence;
2) It is caused by an instrumentality within the
exclusive control of the defendant or defendants;
and
3) The possibility of contributing conduct, which
would make the plaintiff responsible, is
eliminated.
★ In the above requisites, the fundamental element
is the “control of the instrumentality” which
caused the damage. Such element of control
must be shown to be within the dominion of the
defendant. In order to have the benefit of the rule,
a plaintiff, in addition to proving injury or damage;
must show a situation where it is applicable, and
must establish that the essential elements of the
doctrine were present in a particular incident.
Effect of the Rule
The fact of the occurrence of an injury, taken with the
surrounding circumstances, raise a presumption of
negligence, or make out a plaintiff’s prima facie case, and
present a question of fact for defendant to meet with an
explanation.
The rule does not dispense with the requirement of proof
of negligence but simply a step in the process of such
proof. [Ramos v CA, supra]
Res Ipsa Loquitur vs. Expert Testimony in Medical
Negligence Cases
It is apparent that medical negligence cases are best
proved by opinions of expert witnesses belonging in the
same general neighborhood and in the same general line
of practice as defendant physician or surgeon [Lucas v.
Tuaño, 2009].
When the doctrine of res ipsa loquitur is availed by the
plaintiff, the need for expert medical testimony is
dispensed with because the injury itself provides the
proof of negligence. The reason is that the general rule
on the necessity of expert testimony applies only to such
matters clearly within the domain of medical science, and
not to matters that are within the common knowledge of
mankind which may be testified to by anyone familiar
with the facts [Ramos v. CA, supra]
Some cases where doctrine was held inapplicable:
1) Where there is direct proof of absence or
presence of negligence;
2) Where other causes, including the conduct of the
plaintiff and third persons, are not sufficiently
eliminated by the evidence; and
3) When one or more requisites are absent.
(Aquino, 2005)
Africa vs. Caltex (Phil) Inc.
Gasoline is a highly combustible material, in the storage
and sale of which extreme care must be taken. On the
other hand, fire is not considered a fortuitous event, as it
arises almost invariably from some act of man.
In the case at bar, the gasoline station, with all its
appliances, equipment and employees, was under the
control of respondents. A fire occurred therein and
spread to and burned the neighboring houses. The
persons who knew or could have known how the fire
started were respondents and their employees, but they
gave no explanation thereof whatsoever. It is a fair and
reasonable inference that the incident happened
because of want of care. The negligence of the
employees was the proximate cause of the fire, which in
the ordinary course of things does not happen.
Therefore, the petitioners are entitled to the award for
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damages.
Even then the fire possibly would not have spread to the
neighboring houses were it not for another negligent
omission on the part of defendants, namely, their failure
to provide a concrete wall high enough to prevent the
flames from leaping over it. As it was the concrete wall
was only 2-1/2 meters high, and beyond that height it
consisted merely of galvanized iron sheets, which would
predictably crumple and melt when subjected to intense
heat.
Republic vs. Luzon Stevedoring Corp
Considering that the Nagtahan bridge was an immovable
and stationary object and uncontrovertibly provided with
adequate openings for the passage of water craft,
including barges like of NSC’s, it is undeniable that the
unusual event that the barge, exclusively controlled by
appellant, rammed the bridge supports raises a
presumption of negligence on the part of appellant or its
employees manning the barge or the tugs that towed it.
For in the ordinary course of events, such a thing does
not happen if proper case is used. Res ipsa loquitur.
Luzon Stevedoring knew the perils posed by the swollen
stream and its swift current, and voluntarily entered into
a situation involving obvious danger; it therefore assured
the risk, and cannot shed responsibility merely because
the precautions it adopted turned out to be insufficient. It
is thus liable for damages.
2) Breach — The breach referred to in medical
malpractice cases is the breach of the standard
of care expected of other similarly trained
medical professionals acting under the same
circumstances. An example of this would be a
doctor that applies treatment without consulting
the patient’s history. It is a standard operating
procedure for all doctors to apprise themselves
about the medical history of a person before they
decide on taking him/her as a patient. This
process is necessary so that the doctor can
gauge whether he/she is capable of successfully
helping the patient and also for the doctor to
make the proper preparations and decisions with
respect to how to treat said patient.
3) Injury — The presence of the third element
arises where injury, liability or even death arises
as a consequence of a negligent medical
treatment or procedure.
4) Proximate causation — There is a causation
between the breach and the injury. The act or
omission complained of is the proximate cause
of the injury suffered. The proximate cause of an
injury is that cause that, in the natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and
without which the result would not have
occurred.
Dr. Victoria L. Batiquin vs. Court of Appeals
MEDICAL MALPRACTICE
What is medical malpractice?
It is a particular form of negligence which consists in the
failure of the physician or surgeon to apply to his practice
of medicine that degree of care and skill which is
ordinarily employed by the profession generally, under
similar conditions, and in like surrounding circumstances.
Elements:
1) Duty — Duty means that there is a professional
relationship between the doctor and the patient.
This relationship is created when the patient
engages the services of the doctor and the
doctor agrees to provide care to the patient. By
accepting a case, the doctor or hospital
commenced the duty to render medical service
in favor of the patient in accordance with the
expected training and skill of a medical
practitioner.
The rule of res ipsa loquitur comes to force. Under this
doctrine, "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 in 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. In the instant case, all
the requisites for recourse to the doctrine are present.
First, the entire proceedings of the caesarean section
were under the exclusive control of Dr. Batiquin. In this
light, the private respondents were bereft of direct
evidence as to the actual culprit or the exact cause of the
foreign object finding its way into private respondent
Villegas's body, which, needless to say, does not occur
unless through the intersection of negligence. Second,
since aside from the caesarean section, private
respondent Villegas underwent no other operation which
could have caused the offending piece of rubber to
appear in her uterus, it stands to reason that such could
only have been a by-product of the caesarean section
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“When the time is right, I, the Lord, will make it happen.”
performed by Dr. Batiquin. The petitioners, in this regard,
failed to overcome the presumption of negligence arising
from resort to the doctrine of res ipsa loquitur. Dr.
Batiquin is therefore liable for negligently leaving behind
a piece of rubber in private respondent Villegas's
abdomen and for all the adverse effects thereof.
Lucas, et al. vs. Ma. C. Tuano
It seems basic that what constitutes proper medical
treatment is a medical question that should have been
presented to experts. If no standard is established
through expert medical witnesses, then courts have no
standard by which to gauge the basic issue of breach
thereof by the physician or surgeon. The RTC and Court
of Appeals, and even this Court, could not be expected
to determine on its own what medical technique should
have been utilized for a certain disease or injury. Absent
expert medical opinion, the courts would be dangerously
engaging in speculations.
There is breach of duty of care, skill and diligence, or the
improper performance of such duty, by the attending
physician when the patient is injured in body or in health
and this constitutes the actionable malpractice. Proof of
such breach must likewise rest upon the testimony of an
expert witness that the treatment accorded to the patient
failed to meet the standard level of care, skill and
diligence which physicians in the same general
neighborhood and in the same general line of practice
ordinarily possess and exercise in like cases.
Reyes vs. Sisters of Mercy Hospital
There is no showing that the attending physician in this
case deviated from the usual course of treatment with
respect to typhoid fever. Jorge was given antibiotic
choloromycetin and some dose of triglobe after
compatibility test was made by the doctor and found that
no adverse reactions manifested which would
necessitate replacement of the medicines. Indeed, the
standard contemplated is not what is actually the
average merit among all known practitioners from the
best to the worst and from the most to the least
experienced, but the reasonable average merit among
the ordinarily good physicians. Here, the doctors did not
depart from the reasonable standard recommended by
the experts as they in fact observed the due care required
under the circumstances.
Cereno vs. Court of Appeals
In medical negligence cases, it is settled that the
complainant has the burden of establishing breach of
duty on the part of the doctors or surgeons. It must be
proven that such breach of duty has a causal connection
to the resulting death of the patient. A verdict in
malpractice action cannot be based on speculation or
conjecture. Causation must be proven within a
reasonable medical probability based upon competent
expert testimony.
The parents of Raymond failed in this respect. Aside from
their failure to prove negligence on the part of the
petitioners, they also failed to prove that it was
petitioners’ fault that caused the injury. Their cause
stands on the mere assumption that Raymond’s life
would have been saved had petitioner surgeons
immediately operated on him; had the blood been crossmatched immediately and had the blood been transfused
immediately. There was, however, no proof presented
that Raymond’s life would have been saved had those
things been done. Those are mere assumptions and
cannot guarantee their desired result.
Solidum vs. People
The doctrine of res ipsa loquitur is generally restricted to
situations in malpractice cases where a layman is able to
say, as a matter of common knowledge and observation,
that the consequences of professional care were not as
such as would ordinarily have followed if due care had
been exercised.
Although the second and third elements were present,
considering that the anesthetic agent and the
instruments were exclusively within the control of Dr.
Solidum, and that the patient, being then unconscious
during the operation has no contributory negligence, the
first element is wanting. Indeed, the patient experienced
bradycardia during the operation, but such fact alone did
not prove that the negligence of any of his attending
physicians, including the anesthesiologists, had caused
the injury.
Cruz vs. Court of Appeals
In litigations involving medical negligence, the plaintiff
has the burden of establishing appellant’s negligence
and for a reasonable conclusion of negligence, there
must be proof of breach of duty on the part of the
surgeon as well as causal connection of such breach and
the resulting death of his patient.
In order that there may be recovery for an injury, however,
it must be shown that the injury for which recovery is
sought must be legitimate consequence of the wrong
done; the connection between the negligence and the
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“When the time is right, I, the Lord, will make it happen.”
injury must be a direct and natural reference of events,
unbroken by intervening efficient causes. In other words,
the negligence must be the proximate cause of the injury.
as it was unlikely for doctors like petitioner who were
dealing with grave conditions such as cancer to have
falsely assured patients of chemotherapy's success rate.
Mendoza vs. Casumpang
Professional Services, Inc. vs. Agana
An operation requiring the placing of sponges in the
incision is not complete until the sponges are properly
removed, and it is settled that the leaving of sponges or
other foreign substances in the wound after the incision
has been closed is at least prima facie negligence by the
operating surgeon. To put it simply, such act is
considered so inconsistent with due care as to raise an
inference of negligence.
Dr. Ampil, as the lead surgeon, had the duty to remove
all foreign objects, such as gauzes, from Natividad’s
body before closure of the incision. When he failed to do
so, it was his duty to inform Natividad about it. Dr. Ampil
breached both duties. Such breach caused injury to
Natividad, necessitating her further examination by
American doctors and another surgery. That Dr. Ampil’s
negligence is the proximate cause of Natividad’s injury
could be traced from his act of closing the incision
despite the information given by the attending nurses
that 2 pieces of gauze were still missing. That they were
later on extracted from Natividad’s vagina established
the causal link between Dr. Ampil’s negligence and the
injury. And what further aggravated such injury was his
deliberate concealment of these missing gauzes from the
knowledge of Natividad and her family.
A surgical operation is the responsibility of the surgeon
performing it. He must personally ascertain that the
counts of instruments and materials used before the
surgery and prior to sewing the patient up have been
correctly done.
Dr. Rubi Li vs. Spouses Soliman
The gravamen in an informed consent case requires the
plaintiff to "point to significant undisclosed information
relating to the treatment which would have altered her
decision to undergo it.
Examining the evidence on record, we hold that there
was adequate disclosure of material risks inherent in the
chemotherapy procedure performed with the consent of
Angelica's parents. Respondents could not have been
unaware in the course of initial treatment and amputation
of Angelica's lower extremity, that her immune system
was already weak on account of the malignant tumor in
her knee. When petitioner informed the respondents
beforehand of the side effects of chemotherapy which
includes lowered counts of white and red blood cells,
decrease in blood platelets, possible kidney or heart
damage and skin darkening, there is reasonable
expectation on the part of the doctor that the
respondents understood very well that the severity of
these side effects will not be the same for all patients
undergoing the procedure. In other words, by the nature
of the disease itself, each patients reaction to the
chemical agents even with pre-treatment laboratory tests
cannot be precisely determined by the physician.
As a physician, petitioner can reasonably expect the
respondents to have considered the variables in the
recommended treatment for their daughter afflicted with
a life-threatening illness. On the other hand, it is difficult
to give credence to respondents' claim that petitioner
told them of 95% chance of recovery for their daughter,
In this case, PSI publicly displays in the lobby of the
Hospital the names and specializations of the physicians
associated or accredited by it, including those of Dr.
Ampil and Dr. Fuentes. It is now estopped from passing
all the blame to the physicians whose names it proudly
paraded in the public directory leading the public to
believe that it vouched for their skill and competence.
PSI’s act is tantamount to holding out to the public that
Medical City Hospital, through its accredited physicians,
offers quality health care services.
Under the doctrine of corporate negligence or corporate
responsibility, PSI as owner, operator and manager of
Medical City Hospital, did not perform the necessary
supervision nor exercise diligent efforts in the supervision
of Drs. Ampil and Fuentes and its nursing staff, resident
doctors, and medical interns who assisted Drs. Ampil
and Fuentes in the performance of their duties as
surgeons. Premised on the doctrine of corporate
negligence, the trial court held that PSI is directly liable
for such breach of duty.
Rogelio Ramos et al., vs. Court of Appeals
We find the doctrine of res ipsa loquitur appropriate in the
case at bar.
In the present case, Erlinda submitted herself for
cholecystectomy and expected a routine general surgery
to be performed on her gall bladder. On that fateful day
she delivered her person over to the care, custody and
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“When the time is right, I, the Lord, will make it happen.”
control of private respondents who exercised complete
and exclusive control over her. At the time of submission,
Erlinda was neurologically sound and, except for a few
minor discomforts, was likewise physically fit in mind and
body.
However, during the administration of anesthesia and
prior to the performance of cholecystectomy she
suffered irreparable damage to her brain. Thus, without
undergoing surgery, she went out of the operating room
already decerebrate and totally incapacitated.
Obviously, brain damage, which Erlinda sustained, is an
injury which does not normally occur in the process of a
gallbladder operation. In fact, this kind of situation does
not happen in the absence of negligence of someone in
the administration of anesthesia and in the use of
endotracheal tube.
Normally, a person being put under anesthesia is not
rendered decerebrate as a consequence of administering
such anesthesia if the proper procedure was followed.
Furthermore, the instruments used in the administration
of anesthesia, including the endotracheal tube, were all
under the exclusive control of private respondents, who
are the physicians-in-charge. Likewise, petitioner Erlinda
could not have been guilty of contributory negligence
because she was under the influence of anesthetics
which rendered her unconscious.
■
For this principle to apply, there must be
negligence on the part of both parties.
■
To allow recovery, it is necessary that there be a
time sequence that is an interval in which the
plaintiff's act of negligence is complete and in
which the defendant, by the exercise of
reasonable care, has had an opportunity to avert
disaster.
Elements of doctrine of last clear chance
1) Plaintiff is placed in danger by his own negligent
acts and he is unable to get out from such
situation by any means.
2) Defendant knows that the plaintiff is in danger
and knows or should have known, that the
plaintiff was unable to extricate himself
therefrom.
3) Defendant had the last clear chance or
opportunity to avoid the accident through the
exercise of ordinary care, but failed to do so, and
accident occurred as a proximate result of such
failure.
Instances when doctrine not applicable
a)
5. Last clear chance
DOCTRINE OF LAST CLEAR CHANCE
■
■
■
The negligence of the claimant does not preclude
a recovery for the negligence of the defendant
where it appears that the latter, by exercising
reasonable care and prudence, might have
avoided injurious consequences to the claimant,
notwithstanding his negligence.
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.
This allows recovery to plaintiff who happen to
have been negligent also, provided the
defendant has the last opportunity to avoid the
accident but failed to do so.
When the injury or accident cannot be avoided
by the application of all means at hand after the
peril has been discovered;
b) If the defendant’s negligence is a concurrent
cause and which was still in operation up to the
time the injury was inflicted;
c)
Where the plaintiff, a passenger, filed an action
against a carrier based on contract;
d) If the actor, though negligent, was not aware of
the danger or risk brought about by the prior
fraud or negligent act;
e)
In case of a collapse of a building or structure;
f)
Where both parties are negligent;
g) In case of collision, it applies in a suit between
the owners and drivers of colliding vehicles and
not where a passenger demands responsibility
from the carrier to enforce its contractual
obligations.
Consolidated Bank v. CA
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“When the time is right, I, the Lord, will make it happen.”
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.
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.
Esteria Garciano vs. CA
Petitioner's discontinuance from teaching was her own
choice. While the respondents admittedly wanted her
service terminated, they actually did nothing to physically
prevent her from reassuming her post.
The letter of termination sent had no legal effect and did
not effectively prevent her from reporting from work. It
was even subsequently repudiated by the Board which
directed her from work. No evidence had been presented
to show that defendants-appellants prevented her from
reporting for work. Consequently, whatever loss she may
have incurred in the form of lost earnings was selfinflicted.
Bataclan vs. Medina
The Court agrees with the trial court that the case
involves a breach of contract of transportation for hire,
the Medina Transportation having undertaken to carry
Bataclan safely to his destination, Pasay City and that
there was negligence on the part of the defendant,
through his agent, the driver Saylon. However, regarding
the question as to what degree are plaintiffs are entitled,
the Court disagrees with the opinion of the trial court that
the proximate cause of the death of Bataclan was not the
overturning of the bus, but rather, the fire that burned the
bus.
6. Damnum absque injuria
Principle of Damnum Absque Injuria
It means damage without injury. One who merely
exercises one’s rights does no actionable injury and
cannot be held liable for damages. (Amonoy v. Gutierrez)
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.
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.
Liability without Fault is different from Damnum
Absque Injuria
Liability without Fault includes:
a)
Strict Liability – there is strict liability if one is
made independent of fault, negligence or intent
after establishing certain facts specified by law.
It includes liability for conversion and for injuries
caused by animals, ultra-hazardous activities
and nuisance.
b) Product Liability – is the law which governs the
liability of manufacturers and sellers for damages
resulting from defective products (Aquino, 2005).
The Orchard Golf & Country Club, Inc., et al. v. Yu and
Yuhico, 2016
The proper exercise of a lawful right cannot constitute a
legal wrong for which an action will lie, although the act
may result in damage to another, for no legal right has
been invaded. One may use any lawful means to
accomplish a lawful purpose and though the means
adopted may cause damage to another, no cause of
action arises in the latter’s favor. Any injury or damage
occasioned thereby is damnum absque injuria. The
courts can give no redress for hardship to an individual
resulting from action reasonably calculated to achieve a
lawful end by lawful means.
B. Proximate cause
Article 2179. When the plaintiff's own negligence was the
immediate and proximate cause of his injury, he cannot
recover damages. But if his negligence was only
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“When the time is right, I, the Lord, will make it happen.”
contributory, the immediate and proximate cause of the
injury being the defendant's lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the
damages to be awarded.
PROXIMATE CAUSE
It is the adequate and efficient cause as in natural order
of events, and under the particular circumstances
surrounding the case, would necessarily produce the
event.
It is 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.
The proximate cause is not necessarily the immediate
cause. It is not necessarily the nearest time, distance or
space.
Application of proximate cause
The doctrine of proximate cause is applicable only in
actions for quasi-delict, not in actions involving breach of
contract.
The doctrine is a device for imputing liability to a person
where there is no relation between him and another party.
In such a case, the obligation is created by law itself. But,
where there is a pre-existing contractual relation between
the parties, it is the parties themselves who create the
obligation, and the function of the law is merely to
regulate the relation thus created (Calalas v. CA, G.R. No.
122039. May 31, 2000)
EFFICIENT INTERVENING CAUSE (NOVUS ACTUS
INTERVIENS)
An efficient intervening cause is one which destroys the
causal connection between the negligent act and the
injury and thereby negatives liability.
CONTRIBUTORY NEGLIGENCE
It is the conduct on the part of the injured party,
contributing 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.
It may be an omission of diligence by which the injured
party contributed to the cause, which gives rise to the
injury, or it may be the failure to take the caution to avoid
or minimize such injury.
The underlying precept on contributory negligence is that
a plaintiff who is partly responsible for his own injury
should not be entitled to recover damages in full but must
bear the consequences of his own negligence. The
defendant must thus be held liable only for the damages
actually caused by his negligence. The determination of
the mitigation of the defendant's liability varies
depending on the circumstances of each case.
Are children below 9
contributory negligence?
years
old
capable
of
No. A child under nine years of age is conclusively
presumed incapable of contributory negligence as a
matter of law.
EFFECTS
OF
NEGLIGENCE
PLAINTIFF’S
CONTRIBUTORY
1) If the proximate cause of the injury is the
contributory negligence of the plaintiff, there can
be no recovery for damages.
2) A plaintiff is barred from recovering the damages
for loss or injury caused by the negligence of
defendant only when plaintiff's negligence is the
sole legal cause of the damage or the negligence
of the plaintiff and some person or persons other
than the defendant or defendants was the sole
cause of the damage.
3) If the proximate cause of the injuries is still the
negligence of the defendant despite the
contributory negligence of the plaintiff, the latter
can still recover damages from the former.
However, damages will be reduced due to the
contributory negligence of the plaintiff. (Doctrine
of Comparative Negligence)
The principle of contributory negligence cannot be used
as defense in criminal cases through reckless
imprudence because one cannot allege the negligence of
another to evade the effects of his own negligence. It
may, however, mitigate the civil liability of the defendant,
but cannot affect his criminal liability.
The doctrine of proximate cause is applicable only for
actions of quasi-delict, not in actions involving breach of
contract.
C. Negligence
Art. 1173. The fault or negligence of the obligor consists
in the omission of that diligence which is required by the
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“When the time is right, I, the Lord, will make it happen.”
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.
NEGLIGENCE
It 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 diligence with which the law requires the individual
to at all times govern his conduct varies with the nature
of the situation in which he is placed and the importance
of the act which he is to perform.
To determine whether there has been negligence by the
defendant, this 2-step analysis may be used:
a)
Determine the diligence required of the actor
under the circumstances, and
b) Determine whether the actor has performed the
diligence required. Failing the second step would
lead to the conclusion that the defendant has
been negligent.
Test of negligence
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. 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 (Picart v. Smith,
1918).
NOTE: The determination of negligence is a question of
foresight on the part of the actor (Phil. Hawk Corp. v.
Vivian Tan Lee)
PNR, et al. vs. CA, 2007
Evidence likewise unveils the inadequate precautions
taken by petitioner PNR to forewarn the public of the
impending danger. Aside from not having any crossing
bar, no flagman or guard to man the intersection at all
times was posted on the day of the incident. A reliable
signaling device in good condition, not just a dilapidated
"Stop, Look and Listen" signage because of many years
of neglect, is needed to give notice to the public. It is the
responsibility of the railroad company to use reasonable
care to keep the signal devices in working order. Failure
to do so would be an indication of negligence.
The failure of the PNR to put a cross bar, or signal light,
flagman or switchman, or semaphore is evidence of
negligence and disregard of the safety of the public, even
if there is no law or ordinance requiring it, because public
safety demands that said device or equipment be
installed.
E.M. Wright vs. Manila Electric R.R. and Light Co.
The conclusion that if he had been sober he would not
have been injured is not warranted by the facts as found.
It is impossible to say that a sober man would not have
fallen from the vehicle under the conditions described.
Mere intoxication establish a want of ordinary care. It is
but a circumstance to be considered with the other
evidence tending to prove negligence. It is the general
rule that it is immaterial whether a man is drunk or sober
if no want of ordinary care or prudence can be imputed
to him, and no greater degree of care is required than by
a sober one. If one's conduct is characterized by a proper
degree of care and prudence, it is immaterial whether he
is drunk or sober.
La Mallorca and Pampanga Bus Company vs.
Valentin De Jesus
In the present case, the cause of the blow-out was
known. The inner tube of the left front tire, according to
petitioner's own evidence and as found by the Court of
Appeals "was pressed between the inner circle of the left
wheel and the rim which had slipped out of the wheel."
This was a mechanical defect of the conveyance or a fault
in its equipment which was easily discoverable if the bus
had been subjected to a more thorough, or rigid checkup before it took to the road that morning. Thus, the plea
of caso fortuito cannot be entertained.
Equitable Bank vs. Tan, 2010
The diligence required of banks, therefore, is more than
that of a good father of a family. In every case, the
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“When the time is right, I, the Lord, will make it happen.”
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. The bank must record
every single transaction accurately, down to the last
centavo, and as promptly as possible.
Furthermore , the bank on which the check is drawn ,
known as the drawing bank, is under strict liability to pay
to the order of the payee in accordance with the drawer’s
instructions as reflected on the face and by the terms of
the check. Thus, payment made before the date
specified by the drawer is clearly against the drawee
bank’s duty to its client. As such, the Court finds that
PCIB’s negligence is the proximate cause of Tan’s loss.
PNB vs. Chowking Food Corp,
The diligence required of banks is more than that of a
Roman pater familias or a good father of a family. The
highest degree of diligence is expected. The General
Banking Law of 2000 requires banks the highest
standards of integrity and performance. Needless to say,
a bank is "under obligation to treat the accounts of its
depositors with meticulous care." The fiduciary nature of
the relationship between the bank and the depositors
must always be of paramount concern.
Consolidated Bank v. CA
Calapre had left his passbook with Solidbank. When
Calapre left Solidbank, the passbook was still in the
hands of Solidbank employees who were processing the
deposit. When the passbook is in the hands of Solidbank
tellers during withdrawals, the law requires Solidbank
and its tellers to exercise an even higher degree of
diligence in safeguarding the passbook. Solidbank’s
tellers must exercise a high degree of diligence in
insuring that they return the passbook only to the
depositor or his authorized representative. For failing to
return the passbook to Calapre, L.C. Diaz's authorized
agent, Solidbank, and Teller No. 6 are presumed to have
failed to exercise high degree of diligence in securing the
passbook and ensuring its return to the party authorized
to receive it.
In culpa contractual, once the plaintiff proves a breach of
contract, there is a presumption that the defendant was
at fault or negligent. The burden is on the defendant to
prove that he was not at fault or negligent. In contrast, in
culpa aquiliana the plaintiff has the burden of proving that
the defendant was negligent. Here, LC Diaz has shown
that Solidbank failed to fulfill its contractual obligation to
return the passbook only to LC Diaz's authorized
representative. Thus, Solidbank is presumed to be at
fault, and its teller was negligent in not returning the
passbook to Calapre. Solidbank had the burden of
proving that neither it nor its employees were negligent.
But Solidbank failed to discharge its burden.
1. Standard of care
STANDARD OF CONDUCT: GOOD FATHER OF A
FAMILY
The concept of bonos pater familia is taken from Roman
law. Ordinarily, the father, not the mother, is the head of
the family. As head, the father voluntarily performs his
duties to provide support and protection to his family. He
occupies a place of honor and leadership in the family. A
good father is a person possessed of no less ordinary or
average diligence. He is a person who can always be
depended upon.
The general standard of test is Bonus Pater Familias or
that of a good father of a family.
If the law or contract does not state the diligence which
is to be observed in the performance, that which is
expected of a good father of a family shall be required
[Art. 1173 (2)]
The law requires a man to possess ordinary capacity to
avoid harming his neighbors unless a clear and manifest
incapacity is shown; but it does not generally hold him
liable for unintentional injury unless, possessing such
capacity, he might ought to have foreseen the danger.
STANDARD OF CONDUCT or DEGREE OF CARE
REQUIRED
In General
If the law or contract does not state the diligence which
is to be observed in the performance, that which is
expected of a good father of a family shall be required
[Article 1173(2)].
NOTE: Diligence of a good father of a family - bonus
pater familias - A reasonable man is deemed to have
knowledge of the facts that a man should be expected
to know based on ordinary human experience (PNR v.
IAC, G.R. No. 7054, January 22, 1993).
Persons who have Physical Disability
GR: A weak or accident-prone person must come up
to the standard of a reasonable man, otherwise, he will
be considered as negligent.
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“When the time is right, I, the Lord, will make it happen.”
employees.
XPN: If the defect amounts to a real disability, the
standard of conduct is that of a reasonable person
under like disability.
Experts and Professionals
GR: They should exhibit the case and skill of one who
is ordinarily skilled in the particular field that he is in.
NOTE: This rule does not apply solely or exclusively to
professionals who have undergone formal education.
XPN: When the activity, by its very nature, requires the
exercise of a higher degree of diligence e.g. Banks;
Common carriers
Insane Persons
The insanity of a person does not excuse him or his
guardian from liability based on quasi-delict (NCC,
Arts. 2180 & 2182). This means that the act or omission
of the person suffering from mental defect will be
judged using the standard test of a reasonable man.
NOTE: Failure of the employer to comply with
mandatory provisions may be considered negligence
per se.
Employees
Employees are bound to exercise due care in the
performance of their functions for the employers.
Liability may be based on negligence committed while
in the performance of the duties of the employee
(Araneta v. De Joya, G.R. No. L-25172, May 24, 1974).
NOTE: The existence of the contract constitutes no bar
to the commission of torts by one against the other and
the consequent recovery of damages.
Owners, Proprietors and Possessors of Property
GR: The owner has no duty to take reasonable care
towards a trespasser for his protection or even to
protect him from concealed danger.
XPNs:
The bases for holding a permanently insane person
liable for his torts are as follows:
1) Where one of two innocent person must suffer
a loss it should be borne by the one who
occasioned it;
2) To induce those interested in the estate of the
insane person (if he has one) to restrain and
control him; and
3) The fear that an insanity defense would lead to
false claims of insanity to avoid liability
(Bruenig v. American Family Insurance Co.,
173 N.W. 2d 619, February 3, 1970).
NOTE: Under the RPC, an insane person is exempt
from criminal liability. However, by express provision of
law, there may be civil liability even when the actor is
exempt from criminal liability. An insane person is still
liable with his property for the consequences of his
acts, though they performed unwittingly (US v.
Baggay, Jr. G.R. No. 6659, September 1, 1911).
Employers
Employers are required to exercise that degree of care
as mandated by the Labor Code or other mandatory
provisions for proper maintenance of the workplace or
adequate facilities to ensure the safety of the
1) Visitors – Owners of buildings or premises owe
a duty of care to visitors.
2) Tolerated Possession - Owner is still liable if
the plaintiff is inside his property by tolerance
or by implied permission. However, common
carriers may be held liable for negligence to
persons who stay in their premises even if they
are not passengers.
3) Doctrine of Attractive Nuisance- 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 them from
playing therefrom is liable to a child of tender
years who is injured thereby, even if the child
is a trespasser.
4) State of Necessity – A situation of present
danger to legally protected interests, in which
there is no other remedy than the injuring of
another’s also legally protected interest.
Doctors
If a General Practitioner – Ordinary care and diligence
in the application of his knowledge and skill in the
practice of his profession.
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“When the time is right, I, the Lord, will make it happen.”
If a Specialist – The legal duty to the patient is
generally considered to be that of an average physician
Lawyers
An attorney is bound to exercise only a reasonable
degree of care and skill, having reference to the
business he undertakes to do (Adarne v. Aldaba, A.M.
No. 801, June 27, 1978)
2. Presumptions
IN MOTOR VEHICLE MISHAPS
1. Liability of the car owner
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. xxx
If the owner was not in the motor vehicle, the provisions
of Article 2180 are applicable.
This article makes the employer solidarily liable with the
employee and not merely subsidiarily liable like in Article
2180. This means that they owe the injured party in equal,
50-50. Thus, the employer can only reimburse the share
of the employee and not the entire amount, unlike in
article 2180.
1) If present in the car – he is liable if he could have
prevented the mishap by exercise of due
diligence but did not do so. (solidary liability)
2) If not present in the car – the party may still sue
the car owner under Article 2180 for imputed
liability. (subsidiary liability)
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. The presumption is
not conclusive, but only rebuttable.
Even if the employer can prove diligence in the selection
and supervision of the employee, if he ratifies the
wrongful acts or takes no step to avert further damage,
the employer will still be liable.
Manlangit vs. Urgel
It has been held in Chapman v. Underwood (G.R. No.
9010, March 28, 1914, 27 Phil 374.) that "An owner who
sits in his automobile and permits his driver to continue
in a violation of the law by the performance of negligent
acts, after he has had reasonable opportunity to observe
them and to direct that the driver cease therefrom,
becomes himself responsible for such acts. On the other
hand, if the driver, by a sudden act of negligence, and
without the owner having reasonable opportunity to
prevent the act or its continuance, injures a person or
violates the criminal law, the owner of the automobile,
although present therein at the time the act was
committed, is not responsible, either criminally or civilly,
therefor. The act complained of must be continued in the
presence of the owner for such a length of time that the
owner, by his acquiescence, makes his driver's acts his
own."
In the case at bar, nowhere does it show that
complainant participated in abetting or even approved
the negligent and reckless manner in which his driver
maneuvered the vehicle on that blind curve. Hence, the
warrant of arrest issued by respondent judge was
erroneous.
2. Liability of the driver
Art. 2184. xxx 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.
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. 2184 establishes a presumption of negligence on the
part of the driver based on previous violations of traffic
regulations.
Art. 2185 establishes a presumption of negligence on the
basis of simultaneous violations.
Under Article 2185, a legal presumption of negligence
arises if at the time of the mishap, a person was violating
any traffic regulation. However, a causal connection must
exist between the injury received and the violation of the
traffic regulation. It must be proven that the violation of
the traffic regulation was the proximate or legal cause of
the injury or that it substantially contributed thereto [Tison
v. Sps. Tomasin (2011)].
Despite the presumption of negligence arising from the
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“When the time is right, I, the Lord, will make it happen.”
traffic regulation violation, the claimant must still prove
that such negligence was the proximate cause in order to
successfully claim for damages [Sanitary Steam v. CA
(1998)].
POSSESSION OF
SUBSTANCES
DANGEROUS
WEAPONS
OR
Art. 2188. There is prima facie presumption of negligence
on the part of the defendant if the death or injury results
from his possession of dangerous weapons or substances,
such as firearms and poison, except when the possession
or use thereof is indispensable in his occupation or
business.
CAPTAIN OF THE SHIP DOCTRINE
A surgeon is likened to a captain of the ship, such that it
is his duty to control everything going on in the operating
room. The surgeon in charge of an operation is liable for
the negligence of his assistants during the time when
those assistants are under the surgeon’s control. (Cantre
v. Go, 2007)
COMMON CARRIER
Art. 1734. Common carriers are responsible for the loss,
destruction, or deterioration of the goods, unless the same
is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural
disaster or calamity;
(2) Act of the public enemy in war, whether international
or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or
in the containers;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos.
1, 2, 3, 4, and 5 of the preceding article, 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 in Article 1733.
Art. 1756. In case of death of or injuries to passengers,
common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they
observed extraordinary diligence as prescribed in Articles
1733 and 1755.
PRINCIPLE OF STRICT 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.
➔ Torts in which there was no fault or negligence
on the part of the defendant, but nevertheless
held liable for damage or injury.
➔ Imposition of liability on a party without finding a
fault. The claimant need only prove that the tort
occurred and that the defendant was
responsible. Proof of negligence is not
necessary.
➔ Fault or negligence is immaterial to liability. It
applies even if the defendant, manufacturer or
processor has exercised all the possible care in
the preparation and sale of his product.
➔ Contractual relationship between manufacturers
or processors and consumers is not necessary.
The rule of strict liability is justified because the
manufacturers or processors have assumed
responsibility to the consuming public that their
products are safe and not harmful or injurious.
If there is a contractual relation between the parties, the
plaintiff is not precluded from filing a suit based on the
breach of warranty. The principle of strict liability still
applies.
The consumer's cause of action does not depend upon
the validity of his contract with the person from whom he
acquires the product, and it is not affected by any
disclaimer or other agreement whether it be between the
seller and immediate buyer, or attached to an
accompanying product into the consumer's hands.
REQUISITES OF STRICT LIABILITY
1) Defendant is the manufacturer or processor.
2) Defendant used noxious or harmful substances
in the manufacture or processing of the
foodstuff, drink or toilet articles and similar
goods.
3) Plaintiff used or consumed such product
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“When the time is right, I, the Lord, will make it happen.”
unaware of the injurious condition of the product.
4) Plaintiff’s injury or death was caused by the
product used or consumed.
5) The forms or kinds of damages suffered and the
amount thereof must be established.
The plaintiff has the burden of proof that at the time the
product left the hands of the defendant, the product was
in a defective or injurious condition. Otherwise, his case
will fall.
The plaintiff has 4 options if he desires to file a
complaint against the manufacturer/processor under
Article 2187:
1)
2)
3)
4)
Theory of strict liability in torts
Fault or negligence
Breach of warranty
Crime anchored on violation of Food and drugs
Act wherein the enforcement of which the
doctrine of absolute criminal liability may be
applied.
D. Damages
1. General provisions
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.
The obligation to repair the damages exists whether done
intentionally or negligently and whether or not punishable
by law.
Elements for recovery of damages
1) Right of action
2) For a wrong inflicted by the defendant
3) Damage resulting to the plaintiff
SPECIAL AND ORDINARY DAMAGES
1. General damages
Those which are the natural and necessary result of the
wrongful act or omission asserted as the foundation of
liability, and include those which follow as a conclusion
of law from the statement of the facts of the injury.
2. 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.
2. Kinds of damages
Kinds of damages (MENTAL)
1.
2.
3.
4.
5.
6.
Moral
Exemplary or corrective
Nominal
Temperate or moderate
Actual or compensatory
Liquidated
ACTUAL OR COMPENSATORY DAMAGES
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.
Article 2199 of the Civil Code states that actual or
compensatory damages are those awarded in
satisfaction of, or in recompense for, loss or injury
sustained. They proceed from a sense of natural justice
and are designed to repair the wrong that has been done,
to compensate for the injury inflicted and not to impose
a penalty. In actions based on torts or quasi-delicts,
actual damages include all the natural and probable
consequences of the act or omission complained of.
(Filipinas Synthetic Fiber Corp. v. De Los Santos)
To be entitled to an award of actual damages, it is
necessary to prove the precise amount of the loss with a
reasonable degree of certainty, premised upon
competent proof and on the best evidence obtainable by
the injured party to justify such award. The award of
actual damages cannot be simply based on the mere
allegation of a witness without any tangible claim, such
as receipts or other documentary proofs to support such
claim. (G.Q Garments v. Miranda)
LOSS OF EARNING CAPACITY
Under Art. 2206 [1], loss of earning capacity is a form of
actual or compensatory damages. The law allows
recovery of actual damages for loss of earning capacity
in consideration of the heirs of the deceased or those
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who are legally entitled to support from the deceased.
The damages do not pertain to the full amount of
foregone earnings, but of the support they received or
would have received from the deceased had he not died
in consequence of the negligence or fault of the
tortfeasor or the accused (Villa Rey Transit v. Court of
Appeals).
GR: Documentary evidence should be presented to
substantiate the claim for damages for loss of earning
capacity.
XPN: By way of exception, damages therefore may be
awarded despite the absence of documentary evidence,
provided that there is testimony that the victim was
either:
1) self-employed earning less than the minimum
wage under current labor laws, and judicial
notice may be taken of the fact that in the
victim's line of work no documentary evidence is
available; or
2) employed as a daily-wage worker earning less
than the minimum wage under current labor
laws. (People v. Caraig)
Nonetheless, failure to present documentary evidence to
support a claim for loss of earning capacity of the
deceased need not be fatal to its cause. Testimonial
evidence suffices to establish a basis for which the court
can make a fair and reasonable estimate of the loss of
earning capacity. (Pleyto v. Lomboy)
ATTORNEY’S FEES
Two concepts of Attorney’s fees
a)
Ordinary – reasonable compensation paid to a
lawyer by this client for the legal services he has
rendered to the latter.
b) Extraordinary – awarded by the court to the
successful litigant to be paid by the losing party
as indemnity for damages. They are actual
damages due to the plaintiff.
Recovery of attorney’s fees as actual damages
1) Stipulation between parties;
2) Recovery of Wages of household helpers,
laborers and skilled workers;
3) Actions for Indemnity under workmen's
compensation and employer liability laws;
4) Legal Support actions;
5) Separate civil action to recover civil liability
arising from crime;
6) Malicious prosecution;
7) Clearly Unfounded civil action or proceeding
against plaintiff;
8) When Double judicial costs are awarded;
9) When Exemplary damages are awarded;
10) Defendant acted in gross & evident bad faith in
Refusing to satisfy plaintiff's just & demandable
claim; and
11) When defendant's act or omission Compelled
plaintiff to litigate with third persons or incur
expenses to protect his interest.
It is a settled rule that the award of attorney’s fees is the
exception rather than the general rule; counsel’s fees are
not awarded every time a party prevails in a suit because
of the policy that no premium should be placed on the
right to litigate. Attorney’s fees, as part of damages, are
not necessarily equated to the amount paid by a litigant
to a lawyer. In the ordinary sense, attorney’s fees
represent the reasonable compensation paid to a lawyer
by his client for the legal services he has rendered to the
latter; while in its extraordinary concept, they may be
awarded by the court as indemnity for damages to be
paid by the losing party to the prevailing party.
Attorney’s fees as part of damages are awarded only in
the instances specified in Article 2208 of the Civil Code.
Hence, it is necessary for the court to make findings of
fact and law that would bring the case within the ambit of
these enumerated instances to justify the grant of such
award, and in all cases it must be reasonable. (PNCC v.
APAC Marketing)
GR: Attorney’s fees cannot be recovered as part of
damages because of the policy that no premium should
be placed on the right to litigate.
GR: Attorney’s fees and costs of litigation are
recoverable IF stipulated.
XPNs: Article 2208 (SWISS-MUD-ERC)
XPNS: If there is no stipulation, they are recoverable only
in the following cases:
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“When the time is right, I, the Lord, will make it happen.”
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
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.
MORAL DAMAGES
Article 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.
Article 2219. Moral damages may be recovered in the
following and analogous cases:
(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;
(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.
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.
Article 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.
Article 2217 of the Civil Code defines what are included
in moral damages while Article 2219 enumerates the
cases where they may be recovered. Moral damages are
in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a
penalty on the wrongdoer. The person claiming moral
damages must prove the existence of bad faith by clear
and convincing evidence for the law always presumes
good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, serious anxiety as the
result of the actuations of the other party. Invariably such
action must be shown to have been willfully done in bad
faith or with ill motive. (Sps. Valenzuela v. Sps. Mano)
In prayers for moral damages, however, recovery is more
an exception rather than the rule. Moral damages are not
meant to be punitive but are designed to compensate
and alleviate the physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar
harm unjustly caused to a person. To be entitled to such
an award, the claimant must satisfactorily prove that he
has suffered damages and that the injury causing it has
sprung from any of the cases listed in Articles 2219 and
2220 of the Civil Code. Moreover, the damages must be
shown to be the proximate result of a wrongful act or
omission. The claimant must thus establish the factual
basis of the damages and its causal tie with the acts of
the defendant.
Requisites for recovery — In fine, an award of moral
damages calls for the presentation of:
(7) Libel, slander or any other form of defamation;
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“When the time is right, I, the Lord, will make it happen.”
1) evidence of besmirched reputation or physical,
mental or psychological suffering sustained by
the claimant;
2) a culpable act or omission factually established;
3) proof that the wrongful act or omission of the
defendant is the proximate cause of the
damages sustained by the claimant; and
4) the proof that the act is predicated on any of the
instances expressed or envisioned by Article
2219 and Article 2220 of the Civil Code. (Regala
v. Carin)
Considering the personal nature of a claim for moral
damages, the claimant must testify as to the mental
anguish, serious anxiety, wounded feelings, and other
emotional and mental suffering he purportedly
experienced. To warrant the recovery of damages, there
has to be a right of action for a legal wrong inflicted by
the defendant, and a resulting damage suffered by the
plaintiff. (General Milling Corp. v. Constantino et al.)
A case of simple negligence does not justify an award of
moral damages. Such is proper only in cases of gross
negligence amounting to bad faith. (Villanueva v.
Salvador)
Award of moral damages to a corporation
GR: 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
cannot experience physical suffering or such sentiments
as wounded feelings, serious anxiety, mental anguish, or
moral shock which are the causes of moral damages
under the Civil Code.
XPN: However, it may acquire goodwill or reputation of
its own and the same if besmirched, the corporation may
recover moral damages.
1) A juridical person such as a corporation can
validly complain for libel or any other form of
defamation and claim for moral damages.
(Filipinas Broadcasting Network, Inc. vs. AGO
Medical and Educational Center-Bicol Christian
College of Medicine)
2) Moral damages may also be awarded in case of
tortious acts against the corporation. A
corporation whose checks were dishonored by
the drawee bank despite the availability of funds
and because of the negligence of the bank
employees can recover moral damages for
besmirched reputation. The standing of the
corporation was reduced in the business
community because of the bank’s negligence
(Simex International Incorporated vs. Court of
Appeals)
While the Court may allow the grant of moral damages to
a corporation, it is not automatically granted; there must
still be proof of the existence of the factual basis of the
damage and its causal relation to the defendant’s acts.
(Manila Electric Company vs. T.E.A.M. Electronics
Corporation)
To recapitulate, a corporation may be entitled to moral
damages if it is the victim of libel, slander or defamation,
or when a tortious act is committed against it, provided
that there is a reasonable connection between the
tortious act and the injury caused by such tortious act to
be the goodwill or reputation of the corporation.
MORAL DAMAGES MAY BE RECOVERED IN THE
FOLLOWING AND ANALOGOUS CASES
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; and
10) Actions referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34, and 35
NOTE: Parents of the victim seduced, abducted, raped,
or abused, may also recover moral damages. (Art. 2219)
The prevailing jurisprudence is that the award of moral
damages should be granted jointly to both the victim and
her parents. Stated differently, the parents are not
entitled to a separate award of moral damages. (People
v. Delen)
NOMINAL DAMAGES
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“When the time is right, I, the Lord, will make it happen.”
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.
Can nominal damages co-exist with actual damages
or any other kind of damages for that matter?
NO. Nominal damages cannot co-exist with
compensatory or actual damages. Nominal damages are
adjudged in order that a right of the plaintiff, which has
been violated or invaded by the defendant, which
however produced no actual loss of any kind or where
there has been a breach of contract and no substantial
injury or actual damages can be shown.
Nominal and temperate damages cannot also be
awarded concurrently since nominal damages are given
in order that a right of plaintiff which has been violated or
invaded by the defendant, may be vindicated, or
recognized. While temperate damages may be awarded
when the court finds that some pecuniary loss has been
suffered but its amount cannot be proved.
TEMPERATE DAMAGES
Temperate damages are those damages, which are more
than nominal but less than compensatory, and may be
recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot be proved with
certainty. (Art. 2224)
Temperate damages may be awarded in the following
cases:
1. In lieu of actual damages; or
2. In lieu of loss of earning capacity.
Tan v. OMC Carriers
Despite the failure to submit proof of actual damages, a
party still has the option of claiming temperate damages,
which may be allowed in cases where, from the nature of
the case, definite proof of pecuniary loss cannot be
adduced although the court is convinced that the
aggrieved party suffered some pecuniary loss. The
petitioners in this case submitted photographs as
evidence to show the extent of damage done to the
house, the tailoring shop, and the petitioners' appliances
and equipment. The petitioner's loss or damage is
directly attributed to the truck ramming her house and
tailoring shop, as well as the driver's gross negligence in
handling the truck. The photographs, however, are
insufficient to determine the amount with certainty.
Based on the attendant circumstances and given the
property destroyed, the Supreme Court concluded that
the award of P200,000.00 was a fair and appropriate
amount for temperate damages.
For loss of earning capacity, temperate damages may be
awarded in lieu of actual damages where earning
capacity is plainly established but no evidence was
presented to support the allegation of the injured party’s
actual income.The income-earning capacity of the
deceased was never contested in this case. His five
minor children were entirely reliant on their father's
earnings in his tailoring activities for their food and
maintenance. Under these circumstances, and in light of
the deceased's undisputed annual earnings, the Court
finds that the petitioners are entitled to temperate
damages in the amount of P300,000.00 [approximately
the gross income for 2 years] to compensate for the loss
of earning capacity of the deceased.
LIQUIDATED DAMAGES
Liquidated damages are those that the parties agree to
be paid in case of a breach. Under Philippine laws, they
are in the nature of penalties. They are attached to the
obligation in order to ensure performance. As a
precondition to such award, however, there must be
proof of the fact of delay in the performance of the
obligation. (Suatengco v. Reyes)
A stipulation on liquidated damages is a penalty clause
where the obligor assumes a greater liability in case of
breach of an obligation. The obligor is bound to pay the
stipulated amount without need for proof on the
existence and on the measure of damages caused by the
breach. (Titan v. Uni-Field)
EXEMPLARY OR CORRECTIVE DAMAGES
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.
GR: Exemplary damages cannot be recovered as a
matter of right. (Art. 2233)
XPN: They can be imposed in the following cases:
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1) Criminal offense – when the crime was
committed with one or more aggravating
circumstances (Art. 2230);
incidental or dependent upon what the
court may award as compensatory
damages.
2) Quasi-delicts – when the defendant acted with
gross negligence (Art. 2231);
3) Contracts and Quasi-contracts – when the
defendant acted in wanton, fraudulent, reckless,
oppressive, or malevolent manner. (Art. 2232)
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 plaintiff must
show that he would be entitled to moral, temperate or
compensatory damages were it not for the stipulation for
liquidated damages. (Art. 2234)
Remember:
■
■
Exemplary damages cannot be awarded alone:
they must be awarded IN ADDITION to moral,
temperate,
liquidated
or
compensatory
damages.
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.
■
The defendant must be guilty of other malice or
else negligence above the ordinary.
■
Plaintiff is not required to prove the amount of
exemplary damages.
○
○
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.
The amount of exemplary damage need
not be pleaded in the complaint because
the same cannot be proved. It is merely
3. In case of death
Damages that can be recovered in case of death
(MEA-I3)
1.
2.
3.
4.
5.
6.
Moral damages
Exemplary damages
Attorney's fees and expenses for litigation
Indemnity for death
Indemnity for loss of earning capacity
Interest in proper cases
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.
NOTE: Under Art. 2206, the amount of damages for
death caused by a crime or quasi-delict is P3,000.00. At
present, however, civil indemnity for death has been
increased to P75,000. The same amount is awarded as
moral damages and exemplary damages, regardless of
the number of qualifying aggravating circumstances
present. (People v. Roa, 2017)
Article 2206 only imposes a minimum amount for awards
of civil indemnity. The law did not provide for a ceiling.
Thus, although the minimum amount for the award
cannot be changed, increasing the amount awarded as
civil indemnity can be validly modified and increased
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when the present circumstance warrants it. (People vs.
Jugueta, 2016)
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ACTUAL OR
COMPENSATORY
MORAL
NOMINAL
TEMPERATE
LIQUIDATED
EXEMPLARY OR
CORRECTIVE
Liquidated
damages are
frequently agreed
upon by the
parties, either by
way of penalty or
in order to avoid
controversy on
the amount of
damages.
Exemplary or
corrective
damages are
intended to serve
as a deterrent to
serious wrong
doings, and as a
vindication of
undue sufferings
and wanton
invasion of the
rights of an
injured party or a
punishment for
those guilty of
outrageous
conduct. (People v.
Orilla)
No proof of
pecuniary loss is
necessary. If
intended as a
penalty in
obligations with a
penal clause,
proof of actual
damages suffered
by the creditor is
not necessary in
order that the
penalty may be
demanded.
No proof of
pecuniary loss is
necessary.
According to purpose
Actual or
compensatory
damages simply
make good or
replace the loss
caused by the
wrong.
Awarded only to
enable the injured
party to obtain
means, diversion
or amusement
that will alleviate
the moral
suffering he has
undergone, by
reason of
defendants’
culpable action.
(Philippine Airlines
v. CA)
Vindicating or
recognizing the
injured party’s
right to a property
that has been
violated or
invaded. (Tan v.
Bantegui)
Temperate
damages may be
recovered when
the court finds
that some
pecuniary loss has
been suffered but
its amount cannot,
from the nature of
the case, be
proved with
certainty.
(Imperial v. Heirs
of Bayaban)
According to manner of determination
Claimant must
produce
competent proof
or the best
evidence
obtainable such as
receipts to justify
an award
therefore. Actual
or compensatory
damages cannot
be presumed but
must be proved
with reasonable
certainty.
GR: Actual
damages must be
substantiated by
documentary
evidence, such as
receipts, in order
to prove expenses
incurred as a
result of the death
of the victim or
the physical
injuries sustained
by the victim.
No proof of
pecuniary loss is
necessary. The
assessment is left
to the discretion
of the court
according to the
circumstances of
each case.
However, there
must
be proof that the
defendant caused
physical suffering,
mental anguish,
moral shock, etc.
GR: Factual basis
must be alleged.
Aside from the
need for the
claimant to
satisfactorily
prove the
existence of the
factual basis of the
damages, it is also
necessary to
prove its causal
No proof of
pecuniary loss is
necessary. Proof
that a legal right
has been violated
is what is only
required. Usually
awarded in the
absence of proof
of actual damages.
No proof of
pecuniary loss is
necessary. When
the court is
convinced that
there has been a
pecuniary loss, the
judge is
empowered to
calculate
moderate
damages rather
than let the
complainant
suffer without
redress.
Must be
reasonable under
the circumstances.
1.
That the
claimant is
entitled to
moral,
temperate or
compensatory
damages; and
2.
That the
crime was
committed
with one or
more
aggravating
circumstance,
or the quasidelict was
committed
with gross
negligence, or
in contracts
and quasicontracts the
act must be
accompanied
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XPN: 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.
relation to the
defendant’s act.
by bad faith
or done in
wanton,
fraudulent,
oppressive or
malevolent
manner.
XPN: Criminal
cases. Moral
damages may be
awarded to the
victim in criminal
proceedings in
such amount as
the court deems
just without need
for pleading or
proof of the basis
thereof. The
amount of
P50,000 is usually
awarded by the
Court in case of
the occurrence of
death.
Special or Ordinary
Ordinary
Special
Special
Special
Special
Special
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PART 2
II. CREDIT TRANSACTIONS
A. Personal Property Securities (RA No. 11057)
(check separate table)
B. Real Estate Mortgage
Art. 2124. Only the following property may be the object
of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws,
imposed upon immovables.
Nevertheless, movables may be the object of a chattel
mortgage.
Real mortgage (Real estate mortgage) is a contract
whereby the debtor secures to the creditor the fulfillment
of a principal obligation, specially subjecting to such
security immovable property or real rights over
immovable property which obligation shall be satisfied
with the proceeds of the sale of said property or rights in
case the said obligation is not complied with at the time
stipulated.
Possession remains with the mortgagor
In a contract of mortgage, the mortgagor-debtor, as a
general rule, retains possession of the property
mortgaged as security for the payment of the sum
borrowed from the mortgagee-creditor.
The mortgagor-debtor merely subjects the property to a
lien but ownership thereof is not parted with. One’s
status as a mortgagee cannot be the basis of possession.
Future property cannot be the object of mortgage
A stipulation whereby the mortgagor constitutes a
mortgage on those properties he might acquire in the
future is not a valid mortgage, because one cannot legally
mortgage any property he did not yet own.
However, a stipulation subjecting the mortgage lien,
properties (improvements) which the mortgagor may
subsequently acquire, install, or use in connection with
real property already mortgaged belonging to the
mortgagor is valid.
Art. 2125. In addition to the requisites stated in Article
2085, it is indispensable, in order that a mortgage may be
validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument
is not recorded, the mortgage is nevertheless binding
between the parties.
The persons in whose favor the law establishes a
mortgage have no other right than to demand the
execution and the recording of the document in which the
mortgage is formalized.
Essential requirements of a mortgage based on Art.
2085
1) Constituted to secure the fulfillment of a valid
principal obligation.
2) Mortgagor is the absolute owner of the thing
pledged or mortgaged.
3) They must have the free disposal of their
property, and in the absence thereof, that they
be legally authorized for the purpose.
4) The debtor retains the ownership of the thing
given as security
5) When the principal obligation becomes due and
no payment is made by the debtor, the things in
which the pledge or mortgage consists may be
alienated for the payment.
Mortgage must appear in a public instrument duly
recorded in the Registry of Property
In addition to the requisites stated above, it is
indispensable in order that a mortgage may be validly
constituted that it appears in a public document duly
recorded in the Registry of Property.
When the mortgage is in a private document, the creditor
has the right to compel the debtor to execute a contract
of mortgage in a public instrument. No valid mortgage is
constituted where the alleged deed of mortgage is a mere
private document and not registered.
When a mortgage is not recorded in the Registry of
Property, the mortgage is nevertheless binding between
the parties. In other words, registration only operates as
notice of the mortgage to others. Thus, an order for
foreclosure cannot be refused on the ground that the
mortgage is not registered provided no innocent third
parties are involved.
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“When the time is right, I, the Lord, will make it happen.”
The mortgagee is entitled to the registration of the
mortgage as a matter of right.
The registration is not a declaration by the state that such
an instrument is valid and subsisting interest in land. It is
merely a declaration that the record of the title appears
to be burdened with the mortgage inscribed.
A registered mortgage over property previously sold is
inferior to the buyer’s unregistered right. The unrecorded
sale is preferred since if the original owner had already
parted with his ownership he can no longer mortgage it.
Art. 2128. The mortgage credit may be alienated or
assigned to a third person, in whole or in part, with the
formalities required by law.
Art. 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the
part of the credit secured by the property which said third
person possesses, in the terms and with the formalities
which the law establishes.
Art. 2130. A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
■
■
■
Alienation or assignment of mortgage credit
— Mortgage credit may be alienated or assigned
to third persons by the mortgagee who is the
owner of the said right. Such alienation or
assignment is valid even if it is not registered. In
the event of non-payment, the assignee may
foreclose the mortgage.
Right of the mortgagee-creditor against the
transferee of mortgaged property — The fact
that the mortgagor-debtor has transferred the
mortgaged property to a third person does not
relieve him from his obligation to pay the debt to
the mortgagee-creditor in the absence of
novation. The mortgage on the property may still
be foreclosed despite the transfer.
Stipulation
forbidding
alienation
of
mortgaged property — The mortgagor may sell
the mortgaged property even without the
consent of the mortgagee. However, the
buyer/transferee of the property is bound to
respect the encumbrance because being a real
right, the property remains subject to the
fulfillment of the obligation for whose guaranty it
was constituted.
III. LAND TITLES AND DEEDS
A. Torrens System; general principles
Torrens System is a system for registration of land under
which, upon the landowner’s application, the court may,
after appropriate proceedings, direct the issuance of a
certificate of title.
The dominant principle of the Torrens system of land
registration is that the titles registered thereunder are
indefeasible or as nearly so as it is possible to make
them.
Torrens system aims to decree land titles that shall be
final, irrevocable, and indisputable, and to relieve the land
of the burden of known as well as unknown claims. If
there exists known and just claims against the title of the
applicant for the registration of his land under the Torrens
systems, he gains nothing in effect by his registration,
except in the simplicity of subsequent transfers of his
title. The registration either relieves the land of all known
as well as unknown claims absolutely, or it compels the
claimants to come into court and to make there a record,
so that thereafter there may be no uncertainty concerning
either the character or the extent of such claims.
The main purpose of the Torrens system is to avoid
possible conflicts of title to real estate and to facilitate
transactions relative thereto by giving the public the right
to rely upon the face of a Torrens certificate of title and
to dispense with the need of inquiring further, except
when the party concerned has actual knowledge of facts
and circumstances that should impel a reasonably
cautious man to make such further inquiry.
Registration is not a mode of acquiring ownership
Registration does not vest title. It is merely evidence of
such title over a particular property. Our land registration
laws do not give the holder any better title than what he
actually has. Registration is not a mode of acquiring
ownership but is merely a procedure to establish
evidence of title over realty.
Registration of land under Act No. 496 or PD No. 1529
does not vest in the registrant private or public ownership
of the land. Registration is not a mode of acquiring
ownership but is merely evidence of ownership
previously conferred by any of the recognized modes of
acquiring ownership. Registration does not give the
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registrant a better right than what the registrant had prior
to the registration. The registration of lands of the public
domain under the Torrens system, by itself, cannot
convert public lands into private lands.
Registration under
proceeding in rem
the
Torrens
system
is
a
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.
■
The main principle of registration is to make registered
titles indefeasible. Upon the presentation in court of an
application for the registration of the title to lands, the
theory under the Torrens system is that all occupants,
adjoining owners, adverse claimants, and other
interested persons are notified of the proceedings, and
have a right to appear in opposition to such application.
In other words, the proceeding is against the whole
world.
B. Regalian Doctrine
All lands of whatever classification and other natural
resources not otherwise appearing to be clearly within
private ownership are presumed to belong to the State
which is the source of any asserted right to ownership of
land. (Republic v. Sin, 2014)
Jura regalia means that the State is the original
proprietor of all lands and the general source of all private
titles. All claims of private title to land, save those
acquired from native title, must be traced from some
grant, whether express or implied, from the State. Absent
a clear showing that the land had been into private
ownership through the State’s imprimatur, such land is
presumed to belong to the State. (Republic v. Santos,
2012)
Exception to the Regalian Doctrine
The Regalian Doctrine does not negate native title to
lands held in private ownership since time immemorial.
(Cruz v. Secretary of Environment and Natural
Resources, 2000)
C. Original Registration
1. Ordinary registration
a. Who may apply
Section 14 of the Property Registration Decree provides
that the following persons may file in the proper Regional
Trial Court an application for registration of title to land,
whether personally or through their duly authorized
representatives:
It merely requires the property sought to
be registered as already alienable and
disposable at the time the application for
registration of title is filed. If the State, at
the time the application is made, has not
yet deemed it proper to release the
property for alienation or disposition, the
presumption is that the government is
still reserving the right to utilize the
property; hence, the need to preserve its
ownership in the State irrespective of the
length of adverse possession even if in
good faith. However, if the property has
already been classified as alienable and
disposable, as it is in this case, then
there is already an intention on the part
of the State to abdicate its exclusive
prerogative over the property. (Republic
v. CA, 2005)
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.
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.
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.
1) Those who by themselves or through their
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b. Decree of registration
Section 31. Decree of registration. Every decree of
registration issued by the Commissioner shall bear the
date, hour and minute of its entry, and shall be signed by
him. It shall state whether the owner is married or
unmarried, and if married, the name of the husband or
wife: Provided, however, that if the land adjudicated by
the court is conjugal property, the decree shall be issued
in the name of both spouses. If the owner is under
disability, it shall state the nature of disability, and if a
minor, his age. It shall contain a description of the land as
finally determined by the court, and shall set forth the
estate of the owner, and also, in such manner as to show
their relative priorities, all particular estates, mortgages,
easements, liens, attachments, and other encumbrances,
including rights of tenant-farmers, if any, to which the
land or owner's estate is subject, as well as any other
matters properly to be determined in pursuance of this
Decree.
The decree of registration shall bind the land and quiet
title thereto, subject only to such exceptions or liens as
may be provided by law. It shall be conclusive upon and
against all persons, including the National Government
and all branches thereof, whether mentioned by name in
the application or notice, the same being included in the
general description "To all whom it may concern".
The decree of registration binds the land, quiets title
thereto, subject only to such exceptions or liens as may
be provided by law. It is conclusive upon all persons,
including the national Government, whether named or
mentioned in the application for registration or notice.
And such conclusiveness does not cease to exist when
the title is transferred to a successor. The decree likewise
bars the re-litigation of the question of ownership in the
same proceedings. Thus, a subsequent petition in the
case filed, after the lapse of one year after entry of the
decree, to allow heirs, oppositors, substituted parties, or
even other persons who have not filed opposition to the
original application for registration, to present evidence
tending to prove that the registered owners of the
property are not the owners of certain portions of the land
involved therein, cannot be granted by the court.5 The
decree, after the lapse of one year from date of its
issuance, becomes incontrovertible.
Duty of Administrator of LRA to issue decree
The duty of the land registration officials to issue the
decree of registration is ministerial in the sense that they
act under the orders of the court and the decree must be
in conformity with court judgment and with the data
found in the record. In this respect, they have no
discretion. However, if they are in doubt upon any point
in relation to the preparation and issuance of the decree,
they are duty bound to refer the matter to the court. They
act, in this respect, as court officials and not as
administrative officials. Their act then is the act of the
Court.
The Administrator is thus not legally obligated to issue
the decree where, upon his verification, he finds that
subject land has already been decreed and titled in
another’s name. And he could not be compelled through
mandamus because the issuance of a decree is part of
the judicial function of courts and not a mere ministered
act.
c. Review of decree of registration; innocent
purchaser for value
Section 32. Review of decree of registration; Innocent
purchaser for value. The decree of registration shall not
be reopened or revised by reason of absence, minority, or
other disability of any person adversely affected thereby,
nor by any proceeding in any court for reversing
judgments, subject, however, to the right of any person,
including the government and the branches thereof,
deprived of land or of any estate or interest therein by
such adjudication or confirmation of title obtained by
actual fraud, to file in the proper Court of First Instance a
petition for reopening and review of the decree of
registration not later than one year from and after the date
of the entry of such decree of registration, but in no case
shall such petition be entertained by the court where an
innocent purchaser for value has acquired the land or an
interest therein, whose rights may be prejudiced.
Whenever the phrase "innocent purchaser for value" or an
equivalent phrase occurs in this Decree, it shall be
deemed to include an innocent lessee, mortgagee, or other
encumbrancer for value.
Upon the expiration of said period of one year, the decree
of registration and the certificate of title issued shall
become incontrovertible. Any person aggrieved by such
decree of registration in any case may pursue his remedy
by action for damages against the applicant or any other
persons responsible for the fraud.
PURCHASER IN GOOD FAITH AND FOR VALUE
A purchaser in good faith and for value is one who buys
property of another, without notice that some other
person has a right to, or interest in, such property, and
pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claim or interest
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of some other person in the property. Good faith is the
opposite of fraud and of bad faith, and its non-existence
must be established by competent proof. Sans such
proof, a buyer is deemed to be in good faith and his
interest in the subject property will not be disturbed.
conclusive as to the holder’s true ownership of all the
property described therein.
A purchaser of a registered property can rely on the
guarantee afforded by pertinent laws on registration that
he can take and hold it free from any and all prior liens
and claims except those set forth in or preserved against
the certificate of title.
1) Free from liens and encumbrances, with certain
exceptions;
Attributes of, and limitations on, certificates of title
and registered lands
2) Incontrovertible and indefeasible
■
It has been held that a purchaser in good faith is one
who buys the property of another without notice that
some other person has a right to or interest on such
property and pays a full and fair price for the same at the
time of such purchase or before he has notice of the
claim or interest of some other person in the property.
D. Certificate of title
The original certificate of title shall be a true copy of the
decree of registration and like the decree shall also be
signed by the Administrator of the LRA. Such certificate
of title is therefore the transcription of the decree. The
original of the original certificate of title together with the
owner’s duplicate certificate are thereafter sent to the
Register of Deeds of the city or province where the
property is situated for entry in his registration book. Said
certificate takes effect upon the date of entry thereof, and
the land covered thereby becomes registered land on
that date.
The certificate, once issued, is the evidence of the title
which the owner has. What appears on the face of the
title is controlling on questions of ownership since the
certificate of title is an absolute and indefeasible
evidence of ownership of the property in favor of the
person whose name appears therein.
Probative value of a certificate of title
A certificate of title serves as an indefeasible title to the
property in favor of the person whose name appears
therein, and is conclusive as to the identity of the land
and also its location. The title becomes indefeasible and
incontrovertible one year from its final decree. It is
generally conclusive evidence of the ownership of the
land referred to therein. A strong presumption exists that
the title was validly and regularly issued. The validity of
the certificate of title can be threshed out only in a direct
proceeding filed for the purpose.
But the indefeasibility of title could be
claimed only if a previous valid title to the
same land does not exist. Nor does this
incontestable character of a Torrens
certificate apply when the land covered
thereby is not capable of registration.
The certificate of title likewise loses its
indefeasibility when it is established that
fraud attended its acquisition.
3) Registered land not subject to prescription
■
Thus, even adverse, notorious and
continuous possession under a claim of
ownership for the period fixed by law is
ineffective against a Torrens title.
4) Torrens certificate presumed valid and devoid of
flaws
■
The Torrens certificate of title is
presumed to have been regularly issued,
valid and without defects. The related
presumption is that the buyer or
transferee of registered land is not aware
of any defect in the title of the property
he purchased or acquired. He has the
right to rely upon the face of the Torrens
title and to dispense with the trouble of
inquiring further, except when he has
actual knowledge of facts and
circumstances that would impel a
reasonably cautious man to make
inquiry.
Certificate of title not subject to collateral attack
Section 48 of P.D. 1529 provides that “a certificate of title
shall not be subject to collateral attack. It cannot be
altered, modified, or cancelled except in a direct
proceeding in accordance with law.” (Doctrine of Noncollateral Attack)
But mere possession of a certificate of title is not
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“When the time is right, I, the Lord, will make it happen.”
The judicial action required to challenge the validity of
title is a direct attack, not a collateral one.
COLLATERAL ATTACK
DIRECT ATTACK
When, in an action to
obtain a different relief, an
attack on the judgment or
proceeding
is
nevertheless made as an
incident thereof.
The attack is direct when
the objective is to annul or
set aside such judgment,
or enjoin its enforcement.
A collateral attack is one
where the action is not
instituted for the purpose
of attacking the title, but
the nullity of the title is
raised as a defense in a
different action.
A direct attack on a title is
one where the action filed
is precisely for the
purpose of pointing out
the defects in the title with
a prayer that it be
declared void.
A “direct attack” on the title may be made in a
counter-claim or third-party complaint
An action is a direct attack on a title if its object is to
nullify the same, and thus challenge the proceeding
pursuant to which the title was issued. A direct attack on
a title may be in an original action or in a counter- claim
assailing it as void. A counterclaim is considered a new
suit and is to be tested by the same rules as if it were an
independent action. (Leyson v. Bontuyan)
If the object of the third-party complaint is to nullify the
title of the third-party defendant, the third-party
complaint constitutes a direct attack on the title because
the same is in the nature of an original complaint for
cancellation of title.
Filipinas Eslon Manufacturing Corp. v. Heirs Of
Basilio Llanes (En Banc, J. Caguioa)
Raising the invalidity of a certificate of title in an action
for quieting of title is NOT a collateral attack because it is
central, imperative, and essential in such an action that
the complainant shows the invalidity of the deed which
casts cloud on his title. In other words, at the heart of the
Complaint for Quieting of Title instituted by petitioner
FEMCO is the nullification of OCT No. 0- 1040 in order to
remove the cloud besetting its own title. This is manifestly
a direct attack.
E. Subsequent registration
VOLUNTARY
DEALINGS
INVOLUNTARY
DEALINGS
Refer
to
deeds,
instruments
or
documents which are
the results of the free
and voluntary acts of
the parties thereto.
Refer to such writ, order
or process issued by a
court of record affecting
registered land which by
law should be registered
to be effective, and also
to
such
instruments
which are not the willful
acts of the registered
owner and which may
have been executed even
without his knowledge or
against his consent.
Examples are sales,
conveyances
or
transfers of ownership
over the titled property;
mortgages and leases;
powers of attorney; and
trusts.
Examples are writs of
attachment, injunction, or
mandamus,
sale
on
execution of judgment or
sale for taxes, adverse
claims, and notice of lis
pendens.
1. Voluntary dealings; general provisions
Section 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 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.
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.
Section 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
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“When the time is right, I, the Lord, will make it happen.”
persons from the time of such registering, filing or
entering.
Where there is nothing on the certificate of title to indicate
any cloud or vice in the ownership of the property, or any
encumbrance thereon, the purchaser is NOT required to
explore further than what the Torrens title upon its face
indicates in quest for any hidden defect or inchoate right
that may defeat his right thereto.
Even if a decree in a registration proceedings is infected
with nullity, still, an innocent purchaser for value relying
on a Torrens title issued in pursuance thereof is
protected.
Although generally a forged or fraudulent deed is a nullity
and conveys no title, however, there are instances where
such a fraudulent document may become the root of a
valid title to an innocent purchaser
Mirror Doctrine — A purchaser CANNOT close his eyes
to facts which should put a reasonable man upon his
guard and then claim that he acted in GF under the belief
that there was no defect in the title of the vendor. (Lucena
v. CA)
Section 53. Presentation of owner's duplicate upon
entry of new certificate. No voluntary instrument shall
be registered by the Register of Deeds, unless the owner's
duplicate certificate is presented with such instrument,
except in cases expressly provided for in this Decree or
upon order of the court, for cause shown.
The production of the owner's duplicate certificate,
whenever any voluntary instrument is presented for
registration, shall be conclusive authority from the
registered owner to the Register of Deeds to enter a new
certificate or to make a memorandum of registration in
accordance with such instrument, and the new certificate
or memorandum shall be binding upon the registered
owner and upon all persons claiming under him, in favor
of every purchaser for value and in good faith.
In all cases of registration procured by fraud, the owner
may pursue all his legal and equitable remedies against
the parties to such fraud without prejudice, however, to
the rights of any innocent holder for value of a certificate
of title. After the entry of the decree of registration on the
original petition or application, any subsequent
registration procured by the presentation of a forged
duplicate certificate of title, or a forged deed or other
instrument, shall be null and void.
Section 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. 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.
Section 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. 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.
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, 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.
Section 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. 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: 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
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“When the time is right, I, the Lord, will make it happen.”
registration.
to administer oath; and
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.
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.
Certified copies of all instruments filed and registered
may also be obtained from the Register of Deeds upon
payment of the prescribed fees.
3) The claimant shall state his residence or place to
which all notices may be served upon him.
The non-compliance with said formal requisites, such as
the failure of the claimants to state how and under whom
they acquired their alleged right or interest, renders such
adverse claim non-registrable and ineffective.
Purpose of registering adverse claim
The purpose of annotating adverse claim on the
certificate of title is to apprise third persons that there is
a controversy over the ownership of the land covered
thereby and to preserve and protect the right of the
adverse claimant during the pendency of the
controversy. It is a notice to third persons that any
transaction regarding the disputed land is subject to the
outcome of the dispute.
Period of effectivity; when cancelled
2. Involuntary dealings
a. Adverse claim
ADVERSE CLAIM
A claim or interest may be registered as an adverse claim
when (1) the claimant’ s right or interest in registered land
is adverse to the registered owner; (2) such right or
interest arose subsequent to the date of original
registration; and (3) no other provision is made in the
Decree for the registration of such right or claim.
A mere money claim cannot be registered as an adverse
claim.
Formal requisites of an adverse claim for the purpose
of registration are as follows:
1) The adverse claimant must state 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 certificate of title number.
2) Such statement must be signed and sworn to
before a notary public or other officer authorized
The adverse claim shall be effective for a period of thirty
(30) days from the date of registration, and it may be
cancelled:
a)
After the lapse of said 30 days, upon the filing by
the party in interest of a verified petition for such
purpose. No second adverse claim based on the
same ground may thereafter be registered by the
same claimant.
b) Before the lapse of said 30 days, upon the filing
by the claimant of a sworn petition withdrawing
his adverse claim.
c)
Before the lapse of the 30-day period, when a
party in interest files a petition in the proper
Regional Trial court for the cancellation of the
adverse claim and, after notice and hearing, the
court finds that the claim is invalid.
Although an adverse claim could subsist concurrently
with a subsequent annotation of a notice of lis pendens
involving the same right or interest covered by the
adverse claim, the said claim may be validly cancelled
after the registration of such notice, since the notice of lis
pendens also serves the purposes of the adverse claim.
b. Notice of lis pendens
The notice of lis pendens — i.e., that real property is
involved in an action — is ordinarily recorded without the
intervention of the court where the action is pending. The
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“When the time is right, I, the Lord, will make it happen.”
notice is but an incident in an action, an extrajudicial one,
to be sure. It does not affect the merits thereof. It is
intended merely to constructively advise, or warn, all
people who deal with the property that they so deal with
it at their own risk, and whatever rights they may acquire
in the property in any voluntary transaction are subject to
the results of the action, and may well be inferior and
subordinate to those which may be finally determined
and laid down therein.
Cases where notice of lis pendens is proper
A notice of lis pendens is proper in an action —
a)
to recover possession of real estate;
b) to quiet title thereto;
c)
to remove clouds upon the title thereof; d) for
partition;
d) to establish a right, an equitable estate, or
interest in, a specific real property;
e)
to enforce a lien, a charge or an encumbrance
against it; and
f)
any other proceeding of any kind in court directly
affecting the title to the land or the use or
occupation thereof or the building thereon.
It is not therefore proper where the action is a purely
personal action, as where the suit was a simple collection
suit, though the title or right of possession to the property
be incidentally affected.
When it may be cancelled
The notice of lis pendens may be cancelled before final
judgment upon order of the court in the following cases.
a)
when it is shown that the notice is for the purpose
of molesting the adverse party;
b) when it is shown that it is not necessary to
protect the right of the party who caused the
registration thereof;
c)
where the evidence so far presented by the
plaintiff does not bear out the main allegations of
the complaint; and
d) where the continuances of the trial, for which the
plaintiff is responsible, are unnecessarily
delaying the determination of the case to the
prejudice of the defendant.
The notice may also be cancelled upon verified petition
of the party who caused the registration thereof.
The notice cannot, however, be cancelled upon the mere
filing of sufficient bond, in fact regardless of the amount,
by the party on whose title the said notice is annotated.
The notice of lis pendens shall be deemed cancelled after
final judgment in favor of defendant, or other disposition
of the action such as to terminate all rights of the plaintiff
to property involved. The notice loses its efficacy when
the adverse right fails in the litigation.
E. Non-registrable properties
The properties which cannot be registered are as
follows:
1) Under Art. 420 of the Civil Code:
a)
Those intended for public use, such as
roads, rivers, torrents, ports and bridges
constructed by the State, banks, shores,
roadsteads, and others of similar
character.
b) 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.
2) Rivers and their natural beds and other natural
waters found on both public and private land (Art.
5 and 6 of the Water Code)
3) Fishponds — can only be leased from the
government
4) Forest or timberland, public forest, forest
reserves
a)
Mangrove swamps or mangroves should
be understood as comprised within the
public forests of the Philippines.
5) Foreshore Land — that which lies between high
and low water marks, and that is alternately wet
and dry according to the flow of the tide
F. Dealings with unregistered land
Section 113. Recording of instruments relating to
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“When the time is right, I, the Lord, will make it happen.”
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.
(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.
(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 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.
(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.
G. Assurance Fund
1. Action of compensation from funds
PD 1529 provides for a protection to individuals who rely
on a property’s certificate of title as evidence of
ownership. That is the Assurance Fund, which is part of
our property registration system.
The law allows a person to claim damages that may be
incurred due to the unlawful or erroneous issuance of a
certificate of title against the Assurance Fund. However,
a claim from the fund must meet the strict requirements
of Presidential Decree No. 1529, to wit:
“SEC. 95. Action for compensation from funds. — A
person who, without negligence on his part, sustains loss
or damage, or is deprived of land or any estate or interest
therein in consequence of the bringing of the land under
the operation of the Torrens system of arising after
original registration of land, through fraud or in
consequence of any error, omission, mistake or
misdescription in any certificate of title or in any entry or
memorandum in the registration book, and who by the
provisions of this Decree is barred or otherwise precluded
under the provision of any law from bringing an action
for the recovery of such land or the estate or interest
therein, may bring an action in any court of competent
jurisdiction for the recovery of damages to be paid out of
the Assurance Fund.”
In an action against the Assurance Fund, the plaintiff
cannot recover as compensation more than the fair
market value of the land at the time he suffered the loss,
damage, or deprivation.
The requisites for recovery from the Assurance Fund
are:
a)
that a person sustains loss or damage, or is
deprived of any estate or interest in land,
b) on account of the bringing of land under the
operation of the Torrens system arising after
original registration,
c)
through fraud, error, omission, mistake or
misdescription in any certificate of title or in any
entry or memorandum in the registration book,
d) without negligence on his part, and
e)
is barred or precluded from bringing an action for
the recovery of such land or estate or interest
therein.
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“When the time is right, I, the Lord, will make it happen.”
Claims will not be allowed when the claimant is
negligent
It is necessary that there be no negligence on the part of
the party sustaining any loss or damage or being
deprived of any land or interest therein by the operation
of the Torrens system after original registration. Thus,
where plaintiff is solely responsible for the plight in which
he finds himself, the Director of Lands and the National
Treasurer of the Philippines are exempt from any liability.
The government initiates a cadastral case, compelling all
claimants in a municipality to litigate against one another
regarding their respective claims of ownership. By this
plan, all the private lands in a town are registered in one
single collective proceeding. Thus, the piecemeal and
isolated registration of lands, so inadequate in more ways
than one, is avoided. The principal aim is to settle as
much as possible all disputes over land and to remove all
clouds over land titles, as far as practicable, in a
community.
Also, under Section 101 of PD 1529, the Assurance Fund
shall not be liable for any loss, damage or deprivation
caused or occasioned by a breach of trust, whether
express, implied or constructive or by any mistake in the
resurveyed or subdivision of registered land resulting in
the expansion of area in the certificate of title.
The object of a cadastral petition is that the title to the
various lots embraced in the survey may be settled and
adjudicated. It is in the nature of a proceeding in rem,
promoted by the Director of Lands, somewhat akin to a
judicial inquiry and investigation leading to a judicial
decree.
Requirement of good faith
Actions taken in a cadastral proceeding
It is a condition sine qua non that the person who brings
an action for damages against the Assurance Fund be
the registered owner, and, as to holders of transfer
certificates of title, that they be innocent purchasers in
good faith and for value.
After trial in a cadastral case, three actions are taken:
2. Limitation of action
Any action for compensation against the Assurance Fund
by reason of any loss, damage or deprivation of land or
any interest therein shall be instituted within a period of
six years from the time the right to bring such action first
occurred: Provided, That the right of action herein
provided shall survive to the legal representative of the
person sustaining loss or damage, unless barred in his
lifetime; and Provided, further, That if at the time such
right of action first accrued the person entitled to bring
such action was a minor or insane or imprisoned, or
otherwise under legal disability, such person or anyone
claiming from, by or under him may bring the proper
action at any time within two years after such disability
has been removed, notwithstanding the expiration of the
original period of six years first above provided.
H. Cadastral System of Registration (Act No. 2259,
as amended)
Under the cadastral system, pursuant to initiative on the
part of the government, titles for all the land within a
stated area are adjudicated whether or not the people
living within the area desire to have titles issued. The
purpose, as stated in Section 35(a), is to serve the public
interest by requiring that the titles to any unregistered
lands “be settled and adjudicated.”
1) The first adjudicates ownership in favor of one of
the claimants. This constitutes the decision —
the judgment — the decree of the court, and
speaks in a judicial manner.
2) The second action is the declaration by the court
that the decree is final and its order for the
issuance of the certificates of title by the
Administrator of the Land Registration Authority.
Such order is made if within fifteen days from the
date of receipt of a copy of the decision no
appeal is taken from the decision. This again is
judicial action, although to a less degree than the
first.
3) The third and last action devolves upon the Land
Registration Authority. This office has been
instituted “in order to have a more efficient
execution of the laws relative to the registration
of lands” and to “issue decrees of registration
pursuant to final judgments of the courts in land
registration proceedings.”
Only “unregistered lands” may be the subject of a
cadastral survey
This appears to be reasonable considering that the
object of cadastral proceedings is to “settle and
adjudicate” lands. Private lands are obviously not
contemplated since ownership thereof had already been
finally determined and adjudicated.
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“When the time is right, I, the Lord, will make it happen.”
Lands already titled cannot be the subject of
cadastral proceedings
Illustrative of the rule is the case of Addison v. Payatas
Estate Improvement Co., where defendants are the
owners of a parcel of land described in their OCT No. 333
which was issued through land registration proceedings.
Subsequently, in cadastral proceedings, plaintiff claimed
to be the owner of a large tract of land, a part of which
was claimed to have been included in the title of
defendants.
after observing the procedure prescribed by law, in the
same form they were when the loss or destruction
occurred.
What are the modes of reconstitution of a lost or
destroyed Certificate of Title?
Reconstitution may be done judicially or administratively.
1) Section 110 of P.D. No. 1529 allows the
JUDICIAL reconstitution of lost or destroyed
title. The special procedure is provided for in R.A.
No. 26.
Can land which had been duly registered and for which
Torrens certificate of title had been issued be given to
another in a cadastral proceeding?
2) On the other hand, ADMINISTRATIVE
reconstitution is provided for under R.A. No.
6732. Administrative reconstitution may be
availed of only when the following requisites
concur:
The Court held that the defendants, as titled owners,
cannot be divested of their title by subsequent cadastral
proceedings.
A registration court has no jurisdiction to decree again
the registration of land already decreed in an earlier land
registration case and a second decree for the same land
is null and void. This is so because when once decreed
by a court of competent jurisdiction, the title to the land
thus determined is already res judicata, and binding on
the whole world, the proceeding being in rem. The court
has no power in a subsequent proceeding (not based on
fraud and within the statutory period) to adjudicate the
same title in favor of another person. Furthermore, the
registration of the property in the name of the first
registered owner in the registration book is a standing
notice to the world that said property is already
registered in his name. Hence, the latter applicant is
chargeable with notice that the land he applied for is
already covered by a title so that he has no right
whatsoever to apply for it. To declare the later title valid
would defeat the very purpose of the Torrens system
which is to quiet title to the property and guarantee its
indefeasibility. It would undermine the faith and
confidence of the people in the efficacy of the registration
law.
I. Registration through Administrative Proceedings
(C.A. 141, as amended)
J. Reconstitution of Titles
a. there is substantial loss or destruction of
land titles due to fire, flood or other force
majeure as determined by the
Administrator of the Land Registration
Authority;
b. the number of certificates of titles lost or
damaged should be at least 10% of the
total number in the possession of the
Office of the Register of Deeds; and
c. in no case shall the number of
certificates of titles lost or damaged be
less than 500.
What are the sources available on which a Petition for
Reconstitution may be anchored?
I.
For reconstitution of Original Certificate of Title
(OCT):
OCT shall be reconstituted from such of the sources
hereunder enumerated as may be available, in the
following order:
a)
The owner's duplicate of the certificate of title;
b) The co-owner's, mortgagee's,
duplicate of the certificate of title;
or
lessee's
What does reconstitution mean?
c)
Reconstitution is the restoration of the instrument or title
allegedly lost or destroyed in its original form and
condition. Its only purpose is to have the title reproduced,
d) An authenticated copy of the decree of
A certified copy of the certificate of title,
previously issued by the register of deeds or by
a legal custodian thereof;
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“When the time is right, I, the Lord, will make it happen.”
registration or patent, as the case may be,
pursuant to which the original certificate of title
was issued;
e)
f)
II.
A document, on file in the registry of deeds, by
which the property, the description of which is
given in said document, is mortgaged, leased or
encumbered, or an authenticated copy of said
document showing that its original had been
registered; and
Any other document which, in the judgment of
the court, is sufficient and proper basis for
reconstituting the lost or destroyed certificate of
title.
For reconstitution of Transfer Certificate of Title
(TCT):
TCT shall be reconstituted from such of the sources
hereunder enumerated as may be available, in the
following order:
a)
The owner's duplicate of the certificate of title;
b) The co-owner's, mortgagee's,
duplicate of the certificate of title;
c)
or
lessee's
A certified copy of the certificate of title,
previously issued by the register of deeds or by
a legal custodian thereof;
d) The deed of transfer or other document, on file in
the registry of deeds, containing the description
of the property, or an authenticated copy thereof,
showing that its original had been registered, and
pursuant to which the lost or destroyed transfer
certificate of title was issued;
e)
A document, on file in the registry of deeds, by
which the property, the description of which is
given in said document, is mortgaged, leased or
encumbered, or an authenticated copy of said
document showing that its original had been
registered; and
f)
Any other document which, in the judgment of
the court, is sufficient and proper basis for
reconstituting the lost or destroyed certificate of
title.
How is reconstitution initiated and what is the
procedure for such?
1. A petition for reconstitution shall be filed with the
proper Regional Trial Court.
2. Notice of the petition shall be published and
copy of the notice shall be sent to the concerned
parties.
3. If the court, after hearing finds the documents
and evidence sufficient and proper to warrant
reconstitution, an order of reconstitution shall be
issued.
4. Thereafter, the register of deeds shall issue the
corresponding owner's duplicate and the
additional copies of said certificates of title, if any
had been previously issued, where such owner's
duplicate and/or additional copies have been
destroyed or lost. This fact shall be noted on the
reconstituted certificate of title.
5. The register of deeds shall certify on each
certificate of title reconstituted the date of the
reconstitution, the source or sources from which
reconstitution has been accomplished, and
whether administratively or judicially.
What are the requisites to be met before the court
may order the reconstitution of a destroyed or lost
title?
Reconstitution of certificate of title partakes of a land
registration proceeding and must be granted only upon
clear proof that the title sought to be restored was indeed
issued to the petitioner.
Jurisprudence prescribed the requirements to warrant
the order of reconstitution, namely: (a) that the certificate
of title had been lost or destroyed; (b) that the documents
presented by petitioner are sufficient and proper to
warrant reconstitution of the lost or destroyed certificate
of title; (c) that the petitioner is the registered owner of
the property or had an interest therein; (d) that the
certificate of title was in force at the time it was lost or
destroyed; and (e) that the description, area and
boundaries of the property are substantially the same
and those contained in the lost or destroyed certificate of
title.
Note must be taken of the order of the sources as one
may not resort to those at the bottom of the list where the
preceding ones are available.
2022 Bar Reviewer by J.K.R. Gamboa | 171
“When the time is right, I, the Lord, will make it happen.”
2022 Bar Reviewer by J.K.R. Gamboa | 172