CIVIL LAW REVIEW 2

ATTY. DECHAVEZ
BEADLE’S NOTES (4B & 4C)

2/17/2021 - FIRST MEETING- 4C (Caryl)

1156 - The definition of this provision is incomplete in that we have to understand that an
obligation is a juridical relation. It is juridical relation as distinguished from any other kind of
obligations like for example:
John has a GF, he can replace his GF immediately in the afternoon because their
relationship does not have any juridical tie.

On the other hand, the obligation that we are talking about under 1156 is Civil Obligations. The
civil obligations referred to in 1156 is a juridical relation. Whereby, the creditor, may demand from
the other person (debtor) the performance of the prestation which is to give, to do, or not to do. In
the event of a breach committed by either of them or for instance the debtor, because of the
presence of juridical tie, the creditor has the right to seek redress from the state for the reparation.
Meaning, the creditor may pursue the assets of the debtor. The assets of the debtor, because in
civil obligation, it does not involve as a penalty the imprisonment of a person. There is a penalty,
but the penalty includes the forfeiture of assets of the one who is obliged to pay the damages.
The assets here refer to damages.

So here, the civil obligations, it simply boils down to money. Very important that we understand
that there are three elements of an obligation:

1. Subject Parties - (Active or Passive)

Active = Creditor/Obligee or the person who may demand the performance of the
obligation from the

Passive subject = Debtor/ Obligor

This distinction between the active and passive subject is through in the sense that there
is one person who can demand in the other person who has the obligation.

In a bilateral contract which creates a reciprocal obligation, the active subject is also a
passive subject (vice versa)

Example:
Contract of Sale - seller is the active subject and can demand the payment of the
price and at the same time he is the passive subject wherein the buyer may also demand
the delivery of the object.
 2. Object/ Prestation - (The conduct) to give, to do or not to do is a conduct. A conduct is a
behavior of a party in an obligation which as a result of a juridical relation, it is a kind of
conduct that must be observed by that party to the satisfaction of the obligee if the conduct
is satisfactory, then the performance of that conduct will result in the extinguishment of the
obligation. The main objective of the parties in an obligation is the extinguishment of the
obligation, not perpetuation. So the prestation in an obligation is a conduct. Because in
obligation, the juridical relation is:

In personam - It is between two identified persons.

In rem- Right enforceable against the whole world.

The right contemplated in an obligation is a PERSONAL RIGHT it is enforceable against

another person. So the obligation to give, to do or not to do is enforceable against another person.

3. Vinculum Juris/ Juridical Tie- It is the one that binds the parties in an obligation. It is the
one when there is breach, it gives basis for the party to the obligation to seek redress from
the state in order to vindicate his right.

Distinguished from Moral/Natural obligation (Civil vs. Moral/Natural)

- In a natural obligation, there is a vinculum juris except that, vinculum juris is not
enforceable before the course of law. The three elements are also present in a
natural obligation but it is not based on a positive law but simply based on an equity
and natural law. Therefore, the vinculum juris is not enforceable in the course of
law. It doesn’t mean for instance, you borrowed 10,000 and is evidenced by a
promissory note and the prescriptive period to collect the money but it has
prescribed, then the obligation which used to be a civil, will become natural
already. You cannot be sued but it doesn’t mean that you do not have an obligation
to that person. From the point of view of equity and natural law, you are obliged to
that person in the amount of 10,000 pesos. But if you voluntarily pay, the creditor
has the right to retain.

Distinguish from Natural vs. Quasi- Contract of Solutio Indebiti

- In a quasi-contract of solutio indebiti, there is payment by mistake. But in natural,
it is not a payment by mistake but a voluntary act and under the provisions of
natural obligation, he has the right to retain it. However, in solutio indebiti, the
excess payment creates an obligation on the part of the store to return that money.
Otherwise, liability for damages may arise.

1157 (important provision)

This provision is the one that we must bear in our minds whenever we encounter any problem in
civil law.
5 sources of obligations
 1. Law
2. Contracts
3. Quasi-Contract
4. Act or Omissions punished by law
5. Quasi-Delict

These have different rules. Because in 1158, obligations derived from law are not presumed. Only
if the law expressly provides for an obligation only then we can require to perform that obligation.
This code refers to the Civil Code PH and all other laws including Special Laws. If you’re looking
at 1158, Civil Code is the general law and all others are considered special law. Because we live
in a civil law country, in correlation in 429, CC as distinguished from juridical entities with respect
to corporation, the corporation is allowed only to perform those which the articles of incorporation
allows it to perform. On the other hand, with respect to human beings, you can do anything unless
there is a law that prevents you from doing it.

In the case of OSG vs. Ayala, Robinsons and SM Prime, OSG filed a case against mall owners
to require the mall owners to provide a parking slot for free. The SC stated that if the basis of
solicitor general in filing this case is the national building code, and the implementing rules and
regulations of the national building code, there is nothing in these rules that requires mall/building
owners to provide parking slots for free to anyone and its customers. While the said law provides
provisions of the said parking slots, the national building code and its officials, will require enough
parking spaces for customers. SC said, there is nothing in the National building code that prohibits
the mall owners from imposing parking fees for customers and persons using parking slots of the
mall owners including implementing rules and regulations of the national building code because
under 1158, obligations derived from law are not presumed only those that are expressly
determined in this code or in special laws.

Pelayo vs. Lauron, this is the case where her husband abandoned her in the middle of his
pregnancy to the in-laws wherein Pelayo is the Doctor who undertook the delivery of the fetus
which unfortunately died. The in-laws of the woman who delivered the baby, refused to pay the
medical expenses for the reason that the husband is primarily obliged to pay for these expenses.
SC said that the argument of the in-laws is correct because the rendering of medical assistance
in case of illness comprise among the mutual obligation between the spouses and not to the in-
laws. The suit must be filed against the husband and not against the parent in-law even if the
latter called for the physician.

1159 (Most important provision in chapter 1)

Spouses are the most common characteristics of a contract which is an obligatory force of
contracts.Obligations arising from contracts have the force of law between the contracting parties.
And should be complied with in good faith.

A contract is a source of an obligation by the law. But while the contract has the source of
obligation arising from contracts, have the force of the law, the contract is not a law because the
law applies to everyone while contract applies only to the parties of the contract, their heirs and
assigns (privies to the contract). A contract is a meeting of minds between the contracting parties
whereby one binds himself with respect to the other to give something or to render some service.
Good faith refers to an abstract or honest belief in the absence of fraud or malice to seek
advantage. If there is fraud, the party defrauded may seek damages.

People’s Car Inc. v. Commando Security Service Agency:

In the case of Price vs. PAGCOR, Price hotel is a hotel in Cagayan de Oro. PAGCOR leased one
of the floors in order to set up a casino. However, because of opposition, the City Gov. of CDO
was constrained not to give a permit for the setting up of the casino at that hotel. While the lease
contract has been entered into. The casino who was not able to push through with the said
agreement, thought of cancelling the lease with the Price Hotel. However, the contract of lease
provides that in case the lease has been cancelled for whatever reason, the provision of the
contract requires the lessee to continue paying the lease until its termination. While it may appear
to be prejudicial to PAGCOR, the latter must comply with what is stipulated in that agreement.

In the case of People’s Car Inc. v. Commando Security Service Agency, the commander
security and security agency of a dealer of kia in Davao city undertook within the security to
safeguard and to protect the business premises against unlawful acts of any persons that are
prejudicial to the interest of the people’s car to the dealer. However, while performing it’s duty,
one of the security guards drove one of the cars belonging to a customer supposedly for repair
and maintenance and brought the car outside without authorization of the dealer. As a result, the
car met with an accident. The customer complained but while the customer has no privity of
contract between the security agency, SC held that because the dealer is liable to its customer,
in turn, the dealer has the right to ask the commander security as the security agency to pay for
the losses that the dealer suffered as the result of not being able to perform its obligation to its
customer. The dealer is liable to its customer for the damages caused which have been entrusted
to its custody. The dealer must ask for indemnity to the security agency for its undisputed
damages have been caused directly by the unlawful acts of the security guard.

Santiago vs. Villar, in a sweepstakes ticket, there is a stipulation that you can only claim your
prize if you surrender the hard copy of the ticket. You are required to surrender the lotto ticket to
PCSO. You have to oblige to what has been stipulated. Otherwise, you cannot claim your prize.
The presentation of the ticket is considered condition precedent to the obligation between the
parties. The contract is a kind of aleatory contract in nature and the contracting parties established
by the terms and conditions, they are advisable, provided that it is not contrary to law, morals or
public order.

1159-> 1306 and 1308

1306- spouses also another characteristic of the contract which is the autonomy of contracts.
Parties may establish stipulations, clauses etc. as it may deem convenient provided it is not
contrary to law, morals and public order, public policy and good customs. The obligations arising
therefrom have the force of law between the contracting parties.
In relation to 1308, which is the principle of mutuality of contracts, once parties entered into a
contract, and obligations arising therefrom have the effect of the law between contracting parties,
the parties are equal before the provisions they entered into the contract. The effectiveness
cannot be left in the will of any part of them. It must be mutually agreed upon.

1160, obligations derived from quasi-contracts, as mentioned in 1158, in the event that special
laws and the code does not provide for provisions regulating relationship between the parties,
then the default provision is the provisions of book 4 consists of 19 titles. In quasi-contract, no
consent nor obligation between the parties.

2 kinds of quasi-contracts: (based on the principle that no one shall unjustly enriched at the
expense of another.)

1. Nominate
a. Solutio Indebiti - Obligation to return a mistaken payment. Obligation to return is
immediately demandable once the payment has been paid by mistake.

b. Negotiorum gestio- Gestor or the officious manager. Arises when someone took
care of the property which has been abandoned or neglected by any person then
the gestor has the obligation to take care of it with (DOAGFOAF) diligence of a
good Father of a Family. The obligation is until the neighbor arrives and recovers
it from you. If the owner arrives and allows you to continue taking care of its
property, then Negotiorum Gestio converts itself into implied agency. The gestor is
entitled to payment of compensation.

The idea of negotiorum gestio and solutio indebiti is absence of consent.

In a contract of loan, for example, there is a debt amounting to 10,000. A contract of loan
is referred to as mutuum or simple loan. The subject matter is consumable. And that, upon
receiving the money, he becomes the owner of 10,000 (promise of ownership). The debtor cannot
be charged with Estafa because it is a debt. So the remedy of the creditor is to demand to the
debtor the amount of the borrowed money. Commodatum if it’s non-consumable. In consumable,
you are just required to return the same amount but not the same money.

In a mutuum or simple loan, it is essentially gratuitous. Meaning, it is free. The only need
is to return the borrowed money, except if there is a stipulation for the payment of interest.
Because the interest is the consideration for borrowing an amount of money. It becomes onerous
if there’s an interest imposed for borrowing money. CC, is strict in making a requirement with
regard to interest. The legal rate is only 6%. Always divide it by 12 months. CC requires by simply
agreeing on the interest, it is not enforceable unless it is in writing. But it is a natural obligation
and if you pay voluntarily, he has the right to retain the money.

Example:
 The money has not been paid despite demand, then, the debtor will be liable for
damages. The damages for which the debtor would be required to pay would be the legal
rate. Even if no agreement, if the debtor defaults, the latter will be liable for 6% interest as
payment for damages.

2. Innominate- Art. 1307

1161 provides that civil obligations make a qualification on what kind of civil obligation may be
demanded for acts arising to criminal offenses shall be governed by the penal laws and other
special laws. Subject to provisions on Art. 2177 on quasi-delict provides that obligations, other
than quasi-delict, are entirely separate and distinct from the civil obligations arising from criminal
offenses subject to pertinent provisions on human relations.

Title 18 refers to kinds of damages. When you commit a crime of murder, you commit a breach
of the law of the state. But CC and RPC allows us or the injured party and its relatives for the
recovery of civil damages based on Art. 100, RPC that when a person is criminally liable shall be
also civilly liable. Information includes civil action or civil liability as impliedly included in criminal
cases. The quantum of proof in criminal cases is proof beyond reasonable doubt on moral
certainty. Civil code provides that if assuming the accused is acquitted, the injured party is also
not entitled to claim for civil liability. But the injured party may file for separate civil action based
on preponderance of evidence. Separately, the injured party with respect to civil action to claim
for civil liability for civil obligations arising from criminal offenses, may choose to reserve the filing
of the separate civil action.

But there are civil actions that do not need to reserve and they are referred to as independent civil
actions (art. 32-34 and 2176).

2176 (classic)
Culpa-Acquillana - an independent civil action. The obligations here arise from quasi-delict. In
civil obligations arising from criminal offenses, when the employee is convicted and happens to
be insolvent, the liability of the employer under culpa criminal is subsidiary. The liability of the
employee is primary. In the event that the employee is insolvent, the employer shall be liable to
pay.

Culpa Criminal vs. Culpa Acquillana

- In culpa criminal, the liability of the employer is subsidiary. The employer cannot raise the
defense of DOAGFOAF in the selection of its employee. Whereas in culpa aquiliana, the
liability of the employer is direct and primary. The employer may raise the defense of
DOAGFOAF.
In 2180 of quasi-delict, while there is a presumption of liability of negligence on the part of the
employer, that negligence may be rebutted by proof that the employer has exercised DOAGFOAF
in selection and supervision of employees.
Vicarious liability of employers, ex: the teacher has vicarious liability to his students. Based on
the principle of bonus pater familias. If respondeat superior, the liability of the employer is
conclusive. But in vicarious liability (2180), there is presumption of negligence but that
presumption may be rebutted if it has been proven that there is DOAGFOAF in selection and
supervision of employees. If proven, then, you can be absolved from liability.

Culpa-Contractual- negligence under an existing contract. Presumption is negligence.

Culpa Acquillana - No existing contract between the parties. Negligence must be proven. Not
presumed.

1162, obligations arising from quasi-delicts.

Chap 2, 2176, fault or negligence resulted in the injury of another person. Liability is culpa
acquillana (strict liability tort)

Example: Yung dog habang pinapasyal mo, nakakagat ng iba or nalaglag yung paso tas
may nataaman, the owner is liable.

Quasi-delict is also covered in Civil Law Review 2.

1162 - read the case of De Llana v. Biong

1161- Dy vs. People, Valenzuela vs. CA (1996), Orient Freight
International v. Keihin-Everett Forwarding (2017) and Carpio vs. Doroja.

____________________________________________________________________________

2/18/21-FIRST MEETING FOR SECTION 4B (Sha):

Class Notes for February 18, 2021:

Administrative Matters:
-Total Number of Students: 47
-Class is every Tuesday and Thursday (10 am to 12 nn)

-Finish oblicon prior to Midterm Exam

-Book 4 = entire coverage of Civil Law Review 2
-Four books composing the Civil Code
-Book four consists of 19 titles (last one is concurrence and preference of credits)
-Obligations and Contracts = Titles 1 and 2

-When you are trying to remember things, kailangan clear kayo palagi; everything that you say it
must be done consciously; clear yung mind natin
-Article 1156: An obligation is a juridical necessity to give, to do or not to do; this is an incomplete
definition, because the problem with this definition is that only presents one side of the coin = the
side of the creditor; the obligation here is a juridical relation, for one important reason; kung si A
may girlfriend ng umaga, pwede niya palitan sa gabi (it is not a juridical relation that would qualify
as a juridical relation under Art. 1156 due to the absence of a juridical tie)
-one of the elements of an obligation = vinculum juris; a thing that binds the parties to the
obligations; the thing that gives the party in an obligation to give the right to seek redress in order
to repair his right or repair an injury committed by the other when there is a breach of obligation
-Obligation may be classified according to strength in law; either be civil or natural obligation; it
can also be a moral obligation
-Ex.) obligation to attend the mass (if you are a Catholic) = a moral obligations for Catholics
-It is a moral obligation = pag inutusan si B na maghugas ng pinggan; her mother cannot sue B
or pursue her properties (walang magagwa ang nanay dahil moral obligation lang ito; there is no
juridical tie)
-Note: If you have to distinguish civil from natural: civil is based on positive law; natural is based
on equity, and that in civil obligation, there is a juridical tie; but that juridical tie, it is effective in
law and therefore, it may be enforced before the courts of law; in a natural obligation, there is also
a juridical tie, but it is not given effect in law; however in the provisions of natural obligations, while
it may be true that the JT is not given effect in law - but if there is voluntary performance by the
debtor; it must be distinguished from solutio indebiti (chapter 1 of title 17, extracontractual
obligations)
-Solutio Indebiti: there is payment by mistake; so that, kung umutang si A kay B tapos nagbayad

si A na may interest (payment of mistake → case of solutio indebiti); if there is an agreement -

simple loan or mutuum

-Commodatum vs. Mutuum
-Commodatum (return of a non-consumable thing)
-Mutuum (money or fungible consumable things becomes your property; you become the owner
of that money that you borrowed)
-You cannot be charged with estafa when it comes to loan; because you will only be charged with
estafa if hindi ikaw yung pera and binulsa ka (ex.) pag ahente ka and pinagtitinda ka ng alahas,
tapos binulsa mo yung pera, estafa yun)
-Kung ang uspapan is of payment of interest and it was not through a written contract (it is not
valid; but if the agreement is verbal or oral, and voluntarily paid the interest - it constitutes a natural
obligations); mutuum is either gratuitous or onerous (payment of interest); it is the consideration
for borrowing money (the nature of the interest); gratuitous = just return the exact amount without
interest
-Antichresis: the agreement with respect to the amount loaned and interest must be in writing,
otherwise it is void
*We are going to correlate provisions
*Always approach things in cold blood = do things methodically
*Do it once, do it right, never do it ever again

-There are three elements of an obligations (contract is different from obligations)

Contract (requisites)
1.) Consent
2.) Object
3.) Cause
Obligations (elements):
1.) Parties:
a.) Active (creditor): the one who can demand
b.) Passive (debtor): receiving end; the obligor; the person against whom the
performance of the obligation may be demanded
2.) The object of the obligation: (prestation); however prestation is a conduct that must be
observed (ex.) pag sinabing gumising ng umaga, that is a kind of behavior that your
parents expect from you); it is written down in 1156 (to give, to do or not to do); they are
conduct or actions expected from the debtor; if the performance will be satisfactory to the
creditor, then the conduct will result in the extinguishment of the obligation; the ultimate
objective of the conduct is the extinguishment of the obligation and not perpetuation

-Obligations may be classified in several ways:

1.) Strength and efficacy and law; civil vs. natural (voluntary performance; the creditor has
the right to retain) obligations; civil vs. moral (whether it will have an effect in law or not)
2.) Unity or diversity of relations: tinatawag na either unilateral or reciprocal or bilateral
obligations (ex.) reciprocal obligations: the creditor is at the same time a debtor; depending
on the point of view; it is like when you go to the market and you buy fruit from a fruit stand,
yung mangpruprutas is the seller (obligor - to deliver the fruits and a creditor in a sense
that there will be no fruit if there is no money in return);
a.) Unilateral: our obligation as a taxpayer to pay the taxes
b.) Reciprocal: sales → both obligations arose out of the same source; the source of

the obligation is the contract of sale and created and perfected at the same time;

creates a relationship of a creditor and debtor with each other; if it is a contract, it

is a bilateral contract (generates reciprocal obligations)

3.) Single and collective obligations:
a.) Single obligations: isang debtor and isang creditor
b.) Collective: there is a concurrence of two or more creditors and debtors; obligation
is joint unless the nature of the obligation provides that it is a solidary obligation
(ex.) payment of tuition by the parents = solidary obligations; even if it is complete
separation of property)
c.) Family Code: special parental authority; when a student is in the school while is
under the care and custody of the school and injures another person, whether
outside or inside the premises of the school, the administrator, teacher = obligation
is principal and solidary; parents are subsidiary liable
4.) Peculiarity of the prestation:
a.) Pure: obligation is not subject to any period
 b.) Conditional: suspensive or resolutory
c.) Subject to a period: ex.) negosyo of papa-utang; bayaran within a month; a relief
given to the debtor (period within which to pay the obligation; suspensive period)
(ex.) giving support until reaching the age of 24 = resolutory condition)
5.) Number of prestation:
a.) Individual
b.) Multiple: it may be conjunctive, alternative, it may be facultative
i.) Conjunctive: three prestations, all must be complied
ii.) Alternative: two prestations; one performance =extinguishment
iii.) Facultative: one presentation due but the debtor may render another
substitution (given an option to replace it); distinguished from dacion in
payment/pago; facultative from the beginning, the debtor has the discretion
to substitute it with another; on the other hand, DP is an obligation in money
and because he is not liquid, he proposes to the creditor to pay in personal
property - governed by the law on sales because it is subject to an
agreement; the creditor may choose not to accept the proposal; unlike in
facultative, the creditor cannot choose because the debtor is given the right
to choose
Qualities of object:
iv.) Positive: to give or to do
v.) Negative: not to do
vi.) Possible
vii.) Impossible: the obligation is void in this case; it contemplates two kinds of

impossibility: physical and legal impossibility → both are impossible

obligations (pagpunta sa mars and pagdeliver ng shabu); when an

obligation is dependent on such, the obligation is void; unlike in a donation

or testamentary disposition, when such is dependent upon an impossible

condition, such condition will just be disregarded; in donation, pag

gratuitous transfer of property subject to an impossible condition, it will just

be disregarded
6.) Specific or generic:
a.) Specific: you are unique; one which is particularly designated; you are given a
specific name (ex.) honda car with plate number ABC) = the object becomes
unique; and physically segregated from the set of classes/from all others
b.) Generic: replaceable (ex.) honda car, year 2000, white)
7.) Divisible or indivisible:
a.) Divisible: performance; capable of partial performance
b.) Indivisible: not susceptible of partial performance
8.) Principal or accessory:
a.) It can stand alone if principal
 b.) Accessory: depends upon some obligation in order to exist (pledge, mortgage or
a guaranty)

-1157: very important; what is the source of obligation of this problem (whenever you are
confronted of a problem)
-Five (5) sources of obligation; in the case of Makati Stock Exchange vs. Campos: an obligation
imposed on a person and corresponding on the right, must be rooted in one of the five sources;
mere assertion of a right in an initiatory pleading without identifying the basis or source is merely
a conclusion of law

-1158 → we live in a civil law country; unlike in a judicial entity like in a partnership where the

juridical entities cannot performed acts unless allowed by the articles; Article 429 of Property =
we are born free (“you can use your property for as long as it does not cause an injury to another

person”)

-Obligations derived from law are not presumed, and 1158 refers to the Civil Code of the PH; Civil
Code is considered to be a general law, and all other laws are special laws

-NCC applies suppletorily to all things pertaining to civil obligations that have not been covered;
even if it is something about the Family Code

-Case of OSG vs. Ayala Land Incorporated, Robinsons, Shangrila and SM Prime: OSG filed a
case against the mall owners requiring them to provide the parking spaces for free; according to
the SC, the national building code IRR may have required the building owners anyone
constructing a building to provide parking spaces; however, there is nothing in the NBC that
requires or that allows or that provides that the mall owners may be required to provide such
spaces for free; and therefore, the mall owners because they are not prohibited, they may charge
some kind of fee for the use of parking spaces

-Lauron Case: The husband left the wife with his parents-in-law; when the wife was about to give
birth, the parents in law called a doctor (Dr. Pelayo); the child died; the parents in law refused to
pay for the medical expenses of the wife; SC ruled that under the FC, the obligation pertains to
the husband; the rendering of medical assistance is comprised under the obligation of spouses
(mutual support)
-Santiago vs. Villar: Lotto ticket bought - there is a stipulation that you will have to physically
present the hardcopy of the ticket; if you cannot produce such, then you will not be given the prize;
the presentation of the ticket is a condition precedent of the payment; obligation arising from
contracts; force of law between the contracting parties and should be compiled with in good faith

-1159: obligatory force of contract; a contract is not a law because it is only enforceable within the
privies
-People’s Car vs. Commando Security: Security Agency that was retained by People’s Car in
Davao; the agreement was that the security agency undertook in consideration of the contract
and payment for its services, to safeguard and protect the dealer from theft; one day, the guard
drove off with a car and had an accident; dealer then had to pay damages to the customer;
Commando Security alleges that he is not a privy with the contract between the customer and
dealer; the SC stated that the dealer is liable to the customer; dealer was justified in making good
such damages and relying in Commando to honor its contract and to indemnify such due to the
unlawful acts of the security guard in breach of their contract

-Good faith: intangible and abstract; an honest belief, the absence of malice and the absence of
design to fraud (1170 of the NCC)

-Case of Pryce vs. PAGCOR: Pryce Hotel in Cagayan De Oro, and then yung Pryce Hotel entered
into a lease agreement with PAGCOR for the latter to set up a casino in one of the floors of the
hotel; however, the government were constrained to issue a permit to PAGCOR to push through
with the putting up of the casino in the said hotel; because it did not push through regardless of
the lease contract for a definite period, PAGCOR tried to cancel the lease and expecting that they
will not be required to pay the rents, lease for the remaining period of the lease; clearly it does
not have a basis because under 1159 is applicable

-1160→ extracontractual obligations = in the absence of agreement between the parties

-Quasi contracts: (isa lang ang denominator = the principle against unjust enrichment)
1.) Nominate
a.) Solutio indebiti (unjust enrichment)
b.) Negotorium Gestio (officious manager or gestio; when he takes care of a property
or a business that is neglected or abandoned; ex.) naiwan na sari sari store
abandoned - the person taking care of such is the manager; you are required to
take care of it until the owner arrives; ordinary diligence required); when the owner
arrives, you are entitled to compensation; the manager is also liable for any
damages; if the owner arrives and allows you to take care of it, then the contract
becomes an implied agency and therefore, you have become authorized (impliedly
authorized - no longer a NG)

2.) Innominate

-1161: very important; this is the only provision that the obligation is described as civil; only to
distinguish it from another kind of obligation (obligation of the accused to the State for committing
a criminal offense); when a person commits a crime, he commits a crime against the State and
also commits an injury to the private person; to the State he is liable criminally, and to the private
person, he will be liable for damages
*Pera pera lang naman itong civil law

-Art. 100 of the RPC - criminally and civilly liable (civil liability ex-delicto); acts and omissions
punishable by law
-Civil liability ex-contractu = based on contracts

-Note: merong tinatawag na civil action; ang lahat ng actions natin in order to claim civil liability is
a civil action; When a criminal action is filed, a civil action is impliedly included as well; the problem
with that, is the quantum proof required is proof beyond reasonable doubt (it requires a moral
certainty); it is difficult to prove the guilt of the person; if he is acquitted then you don’t get anything
in the civil action included in the criminal action; the good thing about civil liability arising from
criminal liability, if the accused is acquitted, the independent civil action is still alive
-The proof that you need to claim in the separate civil action is preponderance of evidence
-You may also choose to reserve the civil action
-If the civil action is based on an obligation not from the acts or omissions punishable by law; then
it is an independent civil action (#2 - violation of civil liberties; Article 32); 31, 32, 33 and 34 =
independent civil actions (does NOT HAVE to be reserved); you will only need preponderance of
evidence
-Article 33 → based on homicide, or physical injuries or libel or slander; ICA pa rin siya; may

proceed independently from the criminal case

-Article 34 → ICA as well

-1161

-1162 → tort is an Anglosaxon term; “torquere”; intentional tort, negligent and strict liability torts;

ex.) naglabas ng aso may kinagat sa kalsada = papasok sa strict liability tort (no defense at all);

ex.) nagtitinda ng fishball and tapos sira na yung fishball at nasira yung tiyan = strict liability tort;

distinguished from negligent tort

Delalano vs. Biong → nakasagasa; considered as a negligent tort (resulted to damage in the

property)

-Art. 2176 = torts/quasi delict; fault or negligence by another person; no contractual relationship
between the parties

-2177; case of Elcano vs. Hill (intentional tort)

-There is a distinction: obligations arising from contracts, from quasi delict, and acts or omissions
punishable by law

1.) Culpa contractual: (breach of contract of carriage) → extraordinary diligence is required;

negligence is presumed; in the event that you are not able to perform the obligation in the

contract, negligence is presumed; how do you know if there is negligence on the part of
 the public carrier? → the carrier is required to ensure that the passenger be brought safely

to the destination; if such is not done, negligence is presumed

2.) *Culpa Aquillana: negligence must be proven, because in culpa aquiliana, walang
relationship, walang contract and therefore, if you want to claim compensation from
another person for an alleged act or omission committed by another person, you will have
to prove that he did it and he was negligent in doing it; otherwise, it will be damnum absque
injuria
3.) Culpa criminal: pag may employer, ang liability ng employer is subsidiary; case of Dy vs.
People and the case of Carpio vs. Boroja; culpa aquiliana, the liability of the employer is
direct and independent; in culpa criminal it is subsidiary (only if the accused is insolvent,
can you make the employer pay for the civil liability that the accused was supposed to pay
you); employer’s liability is subsidiary, he does not have a defense; however if it is
acquillana, the employer can use the defense that he has exercised ordinary diligence in
supervision and selection of employees
4.) *Quasi delict (requisites):
a.) Delaliana vs. Biong → the plaintiff must prove damages meaning injury
b.) Negligent act or omission committed by the defendant; or that he is the employer
of another person for whose acts he is vicariously liable (ex.) teacher vicariously
liable sa kanyang estudyante)
c.) We should be able to prove that the injury or the act or omission committed by the
defendant was the legal and proximate cause of the injury

*Carpio vs Doroja: employer does not have to be included in the criminal case; but during the
execution of the decision for the civil liability, the employer may be made to pay if it is shown that
the accused does not have the property in order to pay for the liability

-doctrine of the last clear chance, discussion on the doctrine of bonus pater familias (it must be
distinguished from respondeat superior - 2180 under quasi delict is bonus pater familia)
-respondeat superior (command responsibility): it is conclusive in nature (this is not applicable in
article 2180)
-ex.) Kasambahay → bonus pater familias (2180); negligence of employer is merely presumed; if

you are able to prove that you have exercised ordinary diligence in the actions of your

kasambahay, then the employer may be exculpated for the actions of your employee

-Doctrine of comparative negligence: Cangco vs. Manila Railroad case → contributory negligence

ang injured person; the contributory negligence will be compared with the negligence of the

defendant (the person who caused the injury); if there was contributory negligence and it was the

legal and proximate cause of the injury, then the defendant will be exempt from liability; for as

long as you can show that the negligence of the defendant was still the proximate cause of the
injury, then the contributory negligence of the plaintiff will not result in the defendant exculpated

from liability; he will still be liable, but his liability will be tempered - it will be reduced, by the fact

that the plaintiff contributed to his negligence

-If the plaintiff contributed to his injury, but his negligence was merely contributory but not the
PROXIMATE CAUSE and such was still the the negligence of the defendant, then the defendant
will still be liable, but his liability will be reduced proportionately due to the contributory negligence
of the plaintiff

HW:
-Read the case of Orient Freight International vs. Keihin-Everett
-Next meeting: recitations will be conducted (the cases will sent through the Viber Group); before
we proceed to start with chapter two; read chapter 2 on the textbook
2/22/2021 - SECOND MEETING- 4C (Caryl)

Elements of Obligations; An obligation is a juridical relation because of juridical tie. It is one that
binds the parties to the obligation so in the event of a breach, the aggrieved party has the recourse
to the state.

Civil vs. Natural obli

Natural- The vinculum juris is not given effect in court.

Civil - Vinculum juris is given in court.

Active vs. Passive

Object or Prestation (1156)- To give , to do or not to do.

Check first what could possibly be the source of an obligation?

1158- Obligations derived from law are not presumed. Only those expressly determined by this
code or special laws.

Example: Pelayo vs. Lauron discussed

1159- Most important characteristics of contracts (obligatory force of contracts) *****

Other characteristics: Mutuality, relativity, autonomy, consensuality and obligatory force of
contracts.

Obligations arising from contracts have the force of law between the contracting parties and shall
be complied with in good faith.

If they have stipulated to the agreement, relate to 1159.

Price hotel case vs. Pagcor discussed

Example of obligations derived from law: OSG vs. Ayala, SM and Robinsons- discussed
SC cited 1158
Obligations derived from contracts: Case of San Francisco Inn vs. San Pablo water district
-San Pablo entered into MOA with a deep well operator bec the MOA has voluntarily agreed upon
and executed the obligation to pay the production fees on the part of the deep well operator.
Discussed
*INTERESTING CASE*

When two parties enter into a contract, even if the contract is not being required by law, but when
the parties agreed, that will have a force of law between the contracting parties.
Case of Macasaet vs. COA: (discussed)
- Macasaet is the architect; the professional fee must be computed in the final and actual
cost even if the orig proj cost is 100M. Entitled to adjustment when agreed upon. The
escalation will be added to project cost because that was agreed upon.

People’s Car vs. Commander security (discussed)

- This is the case of negligence of the security guard in using the car of the customer. (refer
to 1st meeting notes)

Quasi-Contracts;Solutio indebiti & negotiorum gestio (basis: principle of unjust enrichment)

RECIT:
CASE OF:

1. Locsin vs. Mekeni- Unjust for mekeni to appropriate all that Locsin had pay for the
payment of the cost of the car. Otherwise, unjust enrichment.

Principle of unjust enrichment requires 2 conditions:

a. Person is benefited without a valid basis or justification.
b. Such benefit is derived at the expense of another.

Main objective of unjust enrichment is to prevent one from enriching himself at the expense of
another without just cause or consideration.

1161- civil obli; acts or omissions punishable by law.

First, commit criminal law then put to jail. He also commits an act which causes injury to private
persons (civil obli)

Civil liability is impliedly instituted in the criminal information.

If acquitted, he will not be entitled to civil liability. Except: Art. 29 and 30 -> 1161.

Art. 29- Civil action will survive even if acquitted. (separate civ. action)

Example: Nakabangga yung taxi driver at walang pera, the responsibility of the operator would
be subsidiary.
2. Dy vs. People- the crime was non-existent ; not criminal at all. Case of a simple loan or mutum,
there is no estafa there. The debtor will become the owner of the money. Her duty is just to pay.

3. Carpio vs. Doroja- (VICARIOUS LIABILITY) SC distinguished subsidiary liability in 103 of

RPC from the liability of employers under quasi-delict.

In the Quasi-Delict of the employer, basis would be vicarious liability under 2180.
Last statement of 2180:Principle of bonus pater familias

Principle of good father of a family as distinguished from respondeat superior. There is only a
presumption of negligence but may be rebutted from proving DOAGFOAF.

VIP!!
2176->2180: Liability of employer is primary (there’s defense but subj to rebuttal)
365 RPC: Accused - primary ; employer- subsidiary (doesn’t have a defense)

Culpa contractual - Negligence committed in existing contract. Negligence is presumed.

Degree of diligence required is extraordinary diligence.

4. Dela Llana vs. Biong - Remember the requisites of quasi-delict.

5. Abgrugar- Memorize the legal and proximate cause (VIP case)

6. Valenzuela vs. CA- We will also tackle in torts & damages

7. Orient Freight - No further questions

Chapter 2
Articles 1163-1168
- Distinguish between real and personal obli
- Real pertains to give (distinguish between determinate or generic)
- Determinate: takes place where the thing or subject of the obligation is specific or
determinate. If determinate, compelled by specific performance.
- Personal pertains to do or not to do (cannot be compelled by specific performance) run
afoul to principle against involuntary servitude.
- Obligation to provide support can be compelled by court order.

When is the thing determinate or specific?

1. When it is particularly designated (given a unique name)
1163- Obligation is specific
Generic things do not get lost because replaceable (genus nunquam peruit) generic things
do not perish.
 Specific thing can be lost; 1st, always exercise the proper diligence of a good Father of a
Family. 2nd, Deliver the specific thing agreed upon. 3rd, 1166, because it is a specific
thing, deliver also the accessions and accessories.

1164- from the time the obligation has become due or has been perfected, the creditor
has the right to the fruits of the thing. He shall have no real right until it has actually been
delivered to him.

Personal and real right:

A is the seller and B is the buyer of a car, if they have agreed and the contract has been
perfected that B will buy the car of A for 100k, the right of B prior to the deliver of the car,
is merely a personal right - right to demand from A the delivery of the car including
accessions and accessories. From the moment it has actually been delivered
constructively, then there is the right of possession and ownership which is actually a real
right.

Right to possess and own PRIOR to the delivery is merely a personal right.

Example: A seller, despite the contract of sale to B and prior to delivery to B, he sold to C
the same car and delivered it. The right of B, being a personal right, has no right to recover
the car from C if C is a buyer in good faith. Personal right is a right against the person who
is definite passive subject to demand from that passive subj the performance of the
obligation which is to give, to do or not to do.

Laws on property in “real right” is a right over a thing without a definite passive subject
against whom to be enforced that’s why it is a right against the whole world.

If it is a determinate thing, you can demand a specific performance. Alternative remedy:

equivalent performance -> 1170

Specific thing agreed upon cannot be delivered, then he is liable for damages.

1165 (2nd Par.) - If the thing is determinate or generic, it may be replaced.

- Ask for performance or demand substituted performance or demand equivalent
performance.
- If there is damage, then, equivalent performance if it’s suffered damage from
accepting substituted product.
1170 is included in 1165 which is damage.
1165 (3rd par.)
- Obligor delays or has promised to deliver the same thing to two or more persons. (guilty
of fraud and liable for fortuitous event.

Fortuitous event is a universal defense. (1174)

Exception to fortuitous event
1. If the obligation is generic.
2. Obligor is guilty of fraud, delay.
3. Performed in contravention of the tenor of the obligation and it may be fully decreed what
has to be done may be undone.

Personal obligation - to do or not to do.

1167- A person obliged to do something, fails to do it, then executed at his cost.
When an obligation to do cannot be performed, you may ask another person and that is a
substituted performance.

Equivalent performance is when you ask another person to do it and you pay a higher price then
he will be liable for damages.

2. Physically segregated from the class

Next meeting:
Recap of 1163-1168
Rest of chapter 2

____________________________________________________________________________

Class Notes for February 23, 2021: (Sha)

Recap of Topics:
General Provisions of Obligations: difference of civil law obligations vs. other obligations → civil

obligations; there is a juridical relation that is created because of the element of vinculum juris or

juridical tie which binds the parties to the obligation; the event of breach, they can seek redress
to vindicate the right
-Unlike in the case of a moral obligations: ex.) jowa ng umaga, pwedeng palitan ng hapon; may
relationship but no juridical relation created
-Ex.) obligation na mag-mano sa mga magulang = merely a moral obligation; no juridical relation
created
-On the other hand, a natural obligation → there is a vinculum juris of juridical tie; however, it is

not given effect in law because natural obligation is simply based on equity and natural law
-Three elements in a natural and civil obligation are present (except that the vinculum juris in
natural law is not given effect in positive law)
-Take note: there must be voluntary performance; solutio indebiti and negotiorium gestio

(considered as quasi-contracts = not a result of the agreement between the parties) → payment

by mistake
-Solutio indebiti: nagbayad ng sobra; it creates an obligation to the person to return the excess
payment; if not, the person will be liable for damages
-Pricniple against Unjust Enrichment → solution indebiti and negotiorium gestio

-Active and passive parties → active (creditor/obligee); passive (debtor/obligor)

-Reciprocal or bilateral contract/obligation = obligations are created at the same time, and
originated from the same sources; the creditor, at the same time is also a debtor
-The seller is a creditor in a sense that he can demand the payment of the price, and at the same
time, a debtor as well (the thing sold may be demanded from him)

-The prestation or conduct: conduct is the behavior that the passive subject or debtor must
observe to the satisfaction of the creditor; ultimate objective of the obligation is to extinguish teh
obligation

-Art. 1157 (five sources of obligation) → this is very important; because every source of obligation

has different sets of rules and we will learn that in a while

-Law as a source of obligation → they are not presumed (Article 1158); suppletory in character

-Office of the SG vs. Ayala Robinsons SM Prime = when the office of the SG filed a petition

requiring the mall owners to provide parking spaces to its customers for free. The SC said that

while the NBC and its IRR requires mall owners including building owners to provide parking

spaces whenever they build their edifice; but there is nothing in the NBC that states that they shall
provide the parking spaces for free; they can therefore demand or impose parking fees for the

use of their parking spaces; Art. 1158 is applied → NBC is a special law vis-a-vis the NCC

-Case of Pelayo vs. Lauron → pagdating sa wife and health expenses; the husband will pay for

the medical bills

-Lotto tickets: actual lotto ticket must be produced; because this is the contract that you entered
into

-Art. 1159
Characteristics of a Contract:
1.) Obligatory force of a contact (Art. 1159)
2.) Principle of Autonomy (Art. 1306)
a.) People’s Car vs. Commando Security
b.) Pryce Hotel vs. PAGCOR
c.) Macasaet vs. COA
d.) San Pablo Water District Case: when the parties entered into a MOA, even if there
is no law requiring the MOA, the MOA is a separate source of obligation; it is a
contract between the parties; they entered into a MOA voluntarily and they must
comply.
i.) The architect will be entitled to a payment of a certain percentage, but then
COA disagreed because the architect’s entitlement is only based on the
approved contract cost; but according to the SC, if the parties provided and
stipulated that the professional fee of the architect is based on the total and
actual project cost, it must be saw (obligatory force of a contract)

Recitation of Cases:
-Case of Locsin: Principle of unjust enrichment:
1.) Person is benefited without a valid basis or justification
2.) That such benefit is derived at the expense of another
-If Mekeni is allowed to appropriate and keep all of the installments that were paid by Locsin, then
it will be unjustly enriching itself at the expense of Locsin
-Prevention of enriching oneself without just cause or consideration

-Article 1161: it talks about civil obligations arising from acts or omissions punishable by law; when
a person commits a crime, two kinds of obligations are created (but both are derived from law):
one is that he commits a breach of the law of the state - might go to prison; the second is, if a
person commits a crime, he injures another person (a private offended party), and such party
becomes entitled to a compensation - this latter obligation is referred to as civil obligations arising
from criminal offenses (are impliedly included whenever an information or complaint is filed before
the fiscal as a result of the crime); under article 100 of the RPC; ang civil liability in article 100 of
the RPC is NOT QUASI-DELICT AND NOT BASED ON A CONTRACT, but AROSE FROM
CRIMINAL LIABILITY
-However, it is required that before the private offended party may be able to get compensation
for the civil action that is included in the criminal case, the accused must be found guilty and in
order to find an accused guilty in a criminal case, it requires a quantum of proof beyond
reasonable doubt; if the accused is acquitted, then the private offended party will not be able to
get paid
-The good thing about this: Articles 29 and 30 of the provisions on Human Relations, if the

accused is acquitted, the civil action will survive - meaning, the private offended party may file a

civil action in order to recover compensation (it will not be a case of res judicata or double

jeopardy) → ang quantum of proof: preponderance of evidence

-Going back, if however, the accused is found guilty and he goes to prison, he will also be required
to pay a compensation to the private offended party; problem: if the accused is insolvent, then
walang makokolekta yung private offended party; except: if the accused has an employer, the
employer will be liable subsidiarily

-Case of Dy vs. People: there was no crime committed; liability is ex contractu; walang basis ang
court to adjudge the payment of a compensation or a civil action that supposedly arose from an
act or omission punished by law; in order to have a judgment on civil liability for a civil obligation
for acts and omissions arising from law, there must be a finding of guilt; if the accused is not guilty,
lalong walang dahilan mag issue ng judgment ang court for the civil liability

-Carpio case: subsidiary liability case (no defense of ordinary diligence); distinguish Article 103 of
the RPC from Art. 2180 of the NCC
-Art. 2180 → take note of the order provided for under the first paragraph (father first)
-paragraph 3: kailangan negosyante ka dito
-paragraph 4: hindi kailangan dito na negosyante ka (ex.) kasambahay na nakipag-sampalan sa
palengke ng isda)
-paragraph 5: you can sue the state if the person who committed the act happens to be a
consultant; but if the person who committed the act is a permanent or regular employee, then he
alone shall be liable under Article 2176 (hindi yung state ang magiging liable); liable lang ang
state sa mga casual and contractual
-paragraph 6: under the FC, this was qualified → the schools, administrators and teachers; ang

requirement is that the student is minor

-last paragraph: most important in 2180 → first, espouse the principle of bonus pater familia; under
this principle, sa 2180, hindi applicable yung principle of respondeat superior (pagka guilty siya,

guilty ka na rin); pero dito sa bonus pater familia, there is only a presumption of negligence, but

you can rebut it with the defense that you have exercised diligence in the selection and

supervision of the employees; in respondeat superior, hindi mo marerebut halos

-2180 (basis) is the principle of bonus pater familias

-Valenzuela vs. CA (Principle of Bonus Pater Familias)

-Dela Llana vs. Biong (whiplash injury due to a collision; proximate cause and elements of quasi-

delict) → the case laid down the three requisites in order to prove quasi-delict; what are the three

requisites?
1.) Damage to the plaintiff;
2.) Negligence brought about by the act or omission by the defendant; and
3.) Causal relation between the damage and the act or omission
-Was Dra. Dela Llana able to prove the presence of the three elements? = No.
-Note: in a quasi-delict, do not forget the three requisites:
1. ) presence of damage or injury
2.) negligence on the part of the defendant
3.) connection between negligence and the injury or damage sustained by the plaintiff
*must be able to satisfy or show that such connection is the legal and proximate cause (the
negligence of the defendant); do not skip and fail to make an analysis whenever there is a problem
pertaining to quasi-delict (start your answer by providing the three elements of quasi delict, then
after providing such elements, check the facts to see if the presence of the three elements are
there)

-Case of Orient Everett

Chapter 2:

Articles 1163- 1168: when approaching these provisions, if you will note in the textbook, it made

a distinction between a real and a personal obligation → so that it is easier to approach the

distinction
-Real Obligation: obligation to give
-Personal Obligation: obligations to do and not to do → they cannot be compelled (the performance

of these obligations) cannot be compelled by a specific performance in order to compel a person

to perform an act; so that if you hire the services of Sarah Geronimo to sing in your wedding; kung

sinabi niya hindi siya makakarating kasi may lakad siya, wala kang magagawa; your only recourse

is to ask for substituted performance or to ask for an equivalent performance (claim for damages)

-Rights and Obligations (H and W) under the FC → (except for the obligation to give); all other

obligations are obligations to do (personal obligations)

-Personal obligations → cannot be compelled by specific performance

-Real obligations on the other hand: you can file an action for a specific performance if it is an
obligation to give a specific or determinate thing
-Obligation to give is a determinate thing: demand specific performance or file an action for
specific performance
-If the obligation is determinate/specific → the number one obligation is article 1163
-A thing is determinate: when a thing is particularly designated (ex.) Model Honda Car CRV model
2021, with a plate number) belonging to the same class
Ex.) May 50 Honda Model CRV ang isang dealer = generic yung mga Honda na ito; but if you
point to one of them and you told the dealer “i am buying that car,” then you have physically
segregated such car to that class
Ex.) 10 bags of cement have been physically segregated from the bodega; then the 10 bags
become determinate or specific = Art. 1163 is applicable

-Obligation to deliver a determinate or specific thing:

1.) To take care of it (ordinary diligence)
2.) To deliver the specific thing agreed upon
3.) To deliver the accessions and accessories → ex.) the pregnant carabao along with its

‘fruits’

-If the thing is lost: you are liable for damages → article 1170 (Action for Equivalent Performance

= damages)

-Generic: obligation will be complied with at the expense of the debtor → action for substituted

performance + action for equivalent performance → you can get from another supplier; the

damage you suffer, he will have to be liable

-3rd paragraph of 1165: determinate obligation; that if the obligor delays or has promised to deliver
the same thing to two or more persons who do not share the same interest = fraud; the person
will be liable even on a fortuitous event (it is a universal defense)

-Art. 1174: fortuitous event (universal defense); pag may guilt ka ng fraud or delay, or negligence,
you cannot invoke fortuitous event; you can only invoke this if you are on time, or if you are ready
and you were prevented from making the delivery due to a fortuitous event (but you were not in
delay, not guilty of fraud)

-Personal Obligation: to do or not to do

-Obligation to do: it cannot be compelled by specific performance because it will run counter to
the Constitutional prohibition of involuntary servitude
-However, ano ang recourse if he fails to perform an obligation to do? → then you can demand
substituted performance; substituted performance + equivalent performance (pasok ito sa lahat
= 1170 = entitlement to damage if you suffer damage) as a result of negligence, fraud or

contravention; or you can ask him to fix it, or you can look for another person to fix it (but you

cannot insist that he fixes it)

-Art. 1167: same shall be executed at his cost (parehas ito sa 1165 (2)); it doesn’t have to be the
same person - it can be done by another person

HW:
-We will finish Chapter 2
-We will move to Different Kinds of Obligations Next Week
-Viber message of Sir: of the assigned cases

2/24/21- THIRD MEETING (CARYL)

Recit:
Case of Abrugar vs. Cosmos bottling corp.
- Requisites of quasi delict and claim for compensation.
- Legal and proximate cause
- Doctrine of comparative negligence
- Doctrine of contributory negligence

1169
- Delay or mora
2 kinds
Mora accipiendi

Mora solvendi

2 kinds of mora solvendi

- Obli to give
- Obli to do
- Ex-re (real) ; ex-po (personal)

Example of real obligation:

A is under contract of sale.

Example that will exemplify delay:

Failure to deliver and to comply with obligation or promise to deliver to two or more persons of
the same thing.

In case of doubt, apply the general rule. Req. of judicial demand must be complied with unless it
is clear from the facts.

Extrajudicial demand
- Complying with the obligation without any court intervention.

Example of law that will make an obligor in delay without the need of demand:
1. Case of Rivera vs. Sps. Chua
- If it’s 5% per month, how much would that be per annum? 60% per annum (usurious)
- Even if usury law was suspended, doesn’t mean that an interest may not be adjudged as
usurious. The court will still reduce if it’s excessive.

Case of Nacar vs. Gallery frames (VIP)

- When there’s delay? There's a default. When there’s default, what does it mean? There's
a breach. Why there’s breach? Delay.
- 1170: Title is breach
- Breach in money = damages are interest
- Rule with regard to interest 6% and 12%
1. When there’s a stipulation, apply the stipulation agreed by the parties.
 2. When there’s no stipulation agreed upon, the rate should be 6% per annum.

Damages referred to is 1170

1169
- Other exceptions with respect to par. 3 (doctrine of anticipatory breach)
- A sold the car to B. Then, A sold the same car to C for 100k and delivered it. A committed
anticipatory breach because the car has already been sold to B.

Reciprocal obligation
- Either party incurs in delay if the other does not comply with what is incumbent upon him.
(kaliwaan)

Case of Philippine export vs. VP Eusebio

Case of Manuel vs. CA
- What is dolo? Read 1171
- What does it mean to waiver from an action for future fraud?
Referring to suit or filing of a claim. Cannot be waived and goes against public policy.

Action from past fraud may be waived by an agreement by both parties

- It is an act of generosity.

Kinds of dolo?
1st kind of Fraud takes place in the performance of the existing obligation - 1170
2nd kind of Fraud takes place at the birth of the obligation or the contract which could either be
Causal or incidental. Fraud that will shake consent.

Contract is voidable and may be annulled if obtained without consent or fraud.

1344
- Encircle incidental fraud (*)
- Example you are selling a house then there is termite, the fraud is merely incidental. The
party guilty of fraud will be liable to payment of damages.
- Dolo incidente

1388
- Causal fraud (result to annulment of the contract)
- Dolo Causante

1169- Delay or mora

1171- Dolo or Fraud
1172- Negligence or culpa
 - Applies to all kinds of obligations.

Difference between negligence and fraud

- Negligence, there is an absence of care. In fraud, there is intentional avoidance to avoid
the performance of existing obli. There’s malice.

1173
- It provides the def. Of negligence.
- Negligence will depend on the situation (omission of that diligence which is required by
the nature of the obligation)
- Degrees of diligence
- DOAGFOAF (default)
- Extraordinary (common carriers and hotels/inns as long as declared)
- Utmost (banks; fiduciary)

If the negligence is gross, there is fraud.

Case of Servando
- Can you stipulate negligence?

Next meeting:
Yanez, Justin- Culpa contractual vs. Acquillana;
Yan, Lucas - Case of Valenzuela hardwood and the possibility of parties varying the degree of
diligence. Can you stipulate the diligence required?
Villaflor, Priscilla - Case of Philcomsat vs. Globe (fortuitous event) and Lasang vs. Smith (1994)
Santotome, Janna- Jimmy co. vs. CA (landmark case- VIP)
1177 then Chapter 3

____________________________________________________________________________

Class Notes for March 2, 2021: (Sha)

Recap:

-Nature and effect of obligations → classified obligations: real vs. personal obligations

-Real obligations: to give

-Personal obligations: to do or not to do
-Obligations to do or not to do: we said that with respect to obligations to do
-Personal obligations; cannot be compelled by specific performance
-Action for substituted performance (subject to an exception: qualification of the obligor was
not the essential condition or the obligation; otherwise, substituted performance will not be
acceptable as a remedy - it will not result to the extinguishment of the obligation; action for
equivalent performance - Art. 1170)
-When a personal obligation may not be performed by the obligor, then the only recourse will
be an action for equivalent performance
-Real obligation: determine and generic obligation
-object of the obligation is a specific thing: when it is designated or physically segregated from
all others in the same class
-Physically segregated: it is particular in nature; segregated from others
-100 bags of jasmine rice have been identified and placed in the truck, such becomes specific
because they have become physically segregated from the jasmine rice in the house or
bodega
-When the thing has been specific and obligation is determinate, then the obligor: must take
care of it in accordance with the diligence required (or it can also be the default or standard
of care expected from a person who has an obligation to perform for another person); there
are laws however, that require a higher standard of diligence (ex.) common carrier or law on
necessary deposit - the valuables we leave in hotels; the owners of the hotel are required to
observe extraordinary diligence)
-Art. 1165 (1): when what is to be delivered is a determinate thing, the creditor in addition to
the right granted in 1170, may compel the debtor to make the delivery
*Article 1170 = action for equivalent performance
-In addition, under 1166, when the thing is specific, the obligor is also required to deliver, all
its accessions and accessories, even though they may have not been mentioned (ex.)
pregnant carabao = mother carabao + offspring)

-Note: 1164 → the creditor, from the time the obligation has been entered into, the creditor

has the right to the fruits of the thing, from the time the obligation to deliver it arises (from the
perfection of the contract; or from the creation of that obligation); the right of the creditor is

merely a personal right;

-Two kinds of rights:

Personal → right against the definite passive subject; to demand a prestation (to give, to do,

or not to do, is merely a personal right)

Real → right against the whole world

-C has taken possession of the car: considered as a real right

-Right is merely personal ⇒ merely to demand from A; does not have the right against C;

unless C is a buyer in bad faith

-Right of possession of a property are real rights

-Article 1165 (3): delay is mora; dolo = fraud (if you sell the same thing to two or more persons)
-The remedy of the creditor in the case of obligation to give a determinate thing = demand a
specific performance; file an action for specific performance and damages
-Genus num quam pernuit = generic things do not perish; then the remedy of the creditor is
to demand the performance of the obligation
-If he cannot perform he cannot the obligation: if the thing is generic; ask that the obligation
be complied with, at the expense of the debtor
-If the obligation is determinate: specific performance and file an action for specific
performance; if it is not possible, then the remedy is to demand payment for damages
-If obligation is indeterminate: remedy is to demand for substituted performance and if the
creditor incurred damage (because he spent more for the substitute); the creditor may
demand payment of damages under 1170

-Obligation to do and a person is obliged to do something and fails to do something → article

1167: demand substituted performance (ex.) gardener did not arrive, the remedy is

substituted performance - you get another gardener; if it is more expensive, then equivalent

performance) (substituted + equivalent performance) → same rule shall be observed if he

does it in contravention of the obligation; what has been done been undone (substituted +

equivalent); except: if the person obligor was the essential condition of the obligation; in which

case, substituted performance will not be possible; only remedy is equivalent performance

-*meaning of fraud or dolo: conscious and intentional design to evade the normal fulfillment
of existing obligations; thus, incompatible with good faith
*Cause of an error bearing on a material part of the contract, created or continued by artifice,
with design to obtain some unjust advantage to the one party, or to cause an inconvenience
or loss to the other
-Article 1169: example of an obligation where a delay has been incurred
ex.) contract of sale
-Case of Rivera vs. Sps. Chua
*Usury Law
*Liability for interest and penalty = you will be in delay
-What is anticipatory breach?

-Art. 1169 (3); give an example → when A sold the same car to C; what will happen to the

obligation that is made? (A is guilty of anticipatory breach)

-It is impossible for him to perform it, because he sold the car to another person (guilty of
fraud and anticipatory breach; the demand would be useless - he cannot use the technicality
of demand)

-Reciprocal obligations: characteristics (3) → Created at the same time out of the same

source, and it creates a relationship creditor and debtor of each other; there is no delay,
except when one of them has already performed his obligation (kaliwaan siya; it is an

exchange; so that you cannot be said to be in delay if the other person is not yet ready to

comply with his obligation)

-Philippine Export vs. Eusebio

-Mora or delay: delay is defined as the failure to perform an obligation with respect to time,
and when delay is mora (it can be solvendi or accipiendi)
Solvendi: obligation to give (ex re or ex persona)
Accipiendi: delay on the part of the creditor
-Note: generally speaking, there is delay which is otherwise called as “legal delay”; only when
there is judicial or extra-judicial demand from the obligee

-Note: check the nature of the obligation; if reciprocal → ex.) contract of sale (bilateral contract)

-Article 1171: fraud is dolo

-What is fraud?
-When you say dolo, what does it mean?
Two kinds of dolo:
Article 1170: fraud committed in the performance of an existing obligation; obligor shall be
liable for damages

Article 1338 (fraud committed in order to trick another party to give his consent to enter into

another contract - vitiation of consent; result of the contract being voidable) and 1344 (2)

(Incidental fraud- fraud is committed at the birth of obligation or at the time of the perfection

of the contract; exception = fraud was committed but the other party will nevertheless will
enter into the obligation) → causal (1338) (contract is voidable and may be annulled) or
incidental (1344) (will not result in the annulment of the contract; but will result in the payment

of damages)

-What is culpa? (article 1172)

-1172: applies to all kinds of obligations
-There is negligence in all kinds of obligations
-Distinguish negligence (Article 1173) and fraud (there is malice); in negligence, there is no
malice; but there is absence or want of care; except: if the negligence is gross, then it will be
treated as if it was fraudulent
-Article 1173
-When negligence shows bad faith, it will be treated as if it is fraud
-1173: provides for the definition of negligence (omission of that diligence which is required
by the nature of the obligation and corresponds to the circumstance of the persons, time and
place)
-What are the types of cupla?
Contractual: negligence is committed in the performance of a contract; there is a pre-existing
contract between the contracting parties; obligor fails to perform his obligation under the
contract and therefore, the fact that he failed to perform his obligation and his negligence
therefore, is said to be presumed
Aquiliana (torts) (article 2176): person is expected to be careful in his activities in society;
generally, in acting as a human being in a community so that if he was negligent, and has
resulted in injury, then he could be liable under quasi-delict; however, because there is no
pre-existing contractual relationship between the plaintiff and the defendant, then the plaintiff
must prove the negligence of the defendant; the burden is on the plaintiff to prove the
negligence; the negligence is not presumed - negligence must be proved by the plaintiff
Culpa criminal
-How do you distinguish the three?
-Art. 2180: vicarious liability
*you are not the actor, but because you are responsible for that actor, you are the extension
of that actor and therefore you are vicariously liable (this is the basis of vicarious liability)
-Under quasi-delict in culpa aquiliana: the burden is on the part of the plaintiff to prove that
the actor has committed negligence; there is presumption of vicarious liability; but such
vicarious liability is subject of rebuttal (exercise ordinary diligence in the selection and
supervision of employees)
-Case of Valenzuela Hardwood vs. CA: the degree of diligence may be reduced or standard?
(they can stipulate?); is diligence something that parties can stipulate?
*In other words, it is possible for the parties to enter into an agreement to vary the degree of
diligence
*Note: if you board a plane or a or a sea vessel, when you buy a ticket, the ticket will contain
the stipulation limiting the liability of the carrier; the ticket will contain a stipulation stating that
“this carrier will be liable only up to 50 dollars of the value of your lost luggage”; it is allowed,
unless the stipulation will declare a higher value
*If you board on a plane, you will have to declare if there is an item inside your luggage that
is easy to break; otherwise, if it is broken, the carrier will not be liable
*There is a stipulation that the parties may agree on

*Exception: case of necessary deposit → it cannot vary the degree of diligence by putting a

warning in your room stating that it will not be liable for the articles brought by the guest in

case those articles will get lost or stolen; under the law, it is prohibited

-Common carriers: while common carriers may stipulate with respect to the liability for loss of
luggage, but with respect to passengers, the law prohibits the stipulation in the ticket or
depositing of warning inside the common carrier; it is prohibited because of the nature of
liability and degree of diligence required which is extraordinary diligence
-When the negligence is so gross, amounting to bad faith, it cannot be renounced
-Case of Abrogar vs. Cosmos
-What is legal and proximate cause?
-The negligence of Intergames, was it the proximate cause of the death of Rommel?
-The Intergames contended that Abrogar, when he participated in the marathon, he assumed
the risk; how was it resolved by the SC?
3/3/2021 Caryl

1173
- When it shows bad faith (gross negligence)

Culpa Contractual vs. Culpa Acquillana

Why DOAGFOAF is not a defense in culpa contractual?

Prado vs. Meralco

De guia vs. Meralco

Air france vs. Carascoso

Negligence is an option of the req. By law that a party must exercise the degree of diligence in
the performance of the obligation. Diligence required is DOAGFOAF.

Ordinary diligence
Extraordinary
Utmost

Ordinary negligence
Gross negligence

Valenzuala hardwood case

The degree of diligence may vary

Parties may stipulate the degree of diligence that must be observed in performing an obligation
in a contract.

1163- Allowed to stipulate the degree of diligence

Even in contract of common carriage of goods via ticket in airplane or vessel. There is a stipulation
in limiting the value of liability. Unless you declare a higher value.

By stipulation, parties may vary the degree of diligence required. Except:

1. Common carrier of passengers but not in goods & Inn keepers.
2. Gross as to amount to bad faith (1173)

1174*****
Fortuitous event definition
2 kinds:
1. Acts of God (fortuitous event proper)
2. Acts of Man (force majeure)
F.E is a defense in all obligations
1171-1174 - Applicable to culpa aquiliana.

Exceptions to FE:

Philcomsat vs. Globe telecom

- Why is the non-ratification of the treaty a FE?
- What is the effect of that lease?

Lasam vs. Smith

- Take note the defense
- Take note the pieces of evidence presented

Jimmy co vs. CA
- Exceptions to FE

Liability of criminal offense and in case of FE:

1268 and example

1177- explain

Remedies of the creditor depends on whether the obli is real or personal and if its real check if its
determinate or indeterminate.

1177- remedies in pursuing the assets of obligor.

- 2 remedies
1. Accion subrogatoria - requires to step in obligors shoes. Obligor is also the obligee.
2. Accion pauliana (rescissory action) - you may file an action to rescind the contract
entered into to recover what is due to you.
These are subsidiary remedies.
Chapter 3

Case of Plazo vs. lipat

\What is a pure obligation?

Obli subj to suspensive period
Condition vs. Period
Condition - may or may not happen
Period - Certain

2 kinds of conditions:
1. Resolutory - effective immediately but upon fulfillment, it is subject to extinguishment.
2. Suspensive - Depends upon fulfillment of condition

Garcia vs. CA - In a contract to sell, payment of the full purchase price, is a positive suspensive
condition. Once fully paid, there is an obligation to execute the Deed of Sale and to deliver the
title. If there is failure to pay the full price, there is a breach and will prevent the obligation of the
seller for the seller to execute the deed and to deliver the title. Subject to the provision of Maceda
Law.

Contract of sale and you fail to perform the obli (full payment) but the prop is transferred to you
but haven't paid the full price, the non payment is a resolutory condition which results in the
extinguishment of the sale. Non-payment is equivalent to foreclosure of property and cancels the
sale if the creditor is a bank.

Contract of sale subject to reso condition - Upon full payment of the purchase price, the obligation
will extinguish.

If positive suspensive obli - the fulfilment of the condition will give rise to the obligation.

Assignment:
Cases assigned
Chapter 3

____________________________________________________________________________

Class Notes for March 4, 2021: (Sha)

-Distinguish culpa aquillana from culpa contractual

-Culpa is negligence → culpa contractual: negligence committed by one of the parties or by the

obligor in the performance of an existing contractual obligation; there is a pre-existing contract

-On the other hand, in culpa acquillina, there is no pre-existing contractual relation, but there could

be CA, even if there is a pre-existing contractual relation (Air France vs. Carrascoso → the act of

the stewardess which ejected Mr. Carrascoso from his first class seat; this is in violation of public

policy and by itself, is a case of CA)

-CA = quasi-delict (Article 2176; extra-contractual obligation) → quasi-contract and quasi-delict

-CA = it is expected that when we do activities in the community, we are expected to exercise due
care, so that our actions will not cause an injury to another person; so that in quasi-delict, or CA,
there is no obligation yet, but because of want of care or negligence or fraud committed by one
person which resulted in injury to another person, then that negligence created the obliga tion to
pay damages (CA) (vinculum juris is the negligence committed which will render damages)
-2176: definition of quasi delict provides that there is no pre-existing contractual relation
-Note: Culpa Contractual → 1170; also applies to quasi delict; becuase there is an obligation on

every part of the person to be careful of his actions in moving within a community and has to make

sure that when he handles his property, it will not result in the injury of a person
Ex.) A person who has a car must ensure that there will be no accidents in using the car
*Sued criminally and civilly
-Pasahero ka, and nasaktan ka → culpa contractual ang pwede i-kaso (violated the obligation

under the contract of carriage)

-Culpa Contractual; law presumes negligence from the fact that the contract is not performed; if
there is an existing contract and you committed negligence, here there is no malice (it is not
intentional); but there is want of care and therefore, he was not able to perform his obligation
ex) contract of carriage; if you are injured, then therefore, the common carrier failed to bring you

safely to your destination → violation of a contract

-Negligence is presumed because you failed to perform your obligation

-CC: law presumes negligence from the fact that the contract is not performed
*Dalawa lang papatunayan: contract is not performed and you suffered damages

-CA: negligence is not presumed; the plaintiff must prove negligence (Dela llana vs. Biong → three

requisites: 1.) damages or injuries sustained by plaintiff; 2.) there was negligence committed by

the defedndant; 3.) legal and proximate cause: connection between the act of negligence and

injuries sustained by the plaintiff)

-CA: the plaintiff must prove negligence

-CC: if there is an employer; it does not talk about vicarious liability (2180)
*If there is an employer in culpa contractual → the employer cannot invoke the defense that he

exercised the ordinary diligence in selection and supervision (this defense is not present in CC)
*Bonus pater familias = present in 2180 (vicarious liability; presumption of negligence on the part
of the employer, but the employer may invoke the defense of ordinary diligence in selection and
supervision of the employees)
*2180 (last paragraph; defense)

-Note: 1173 (2) → the good father of the family is an ordinary diligence expected from a person

who is taking care of his property; that with respect to his proeprty, he exercises ordinary diligence;

it is as if he is taking care of his own property as to how he is taking care of his relationship to

other persons

-Note: 1174 → talks about fortuitous event (FE)

-FE: When there is an unforseen, or forseen but inevitable (cannot be controlled); obligor in an
obligation may invoke FE and may be excused from performing his obligation; or not able to
perform the obligation in a normal manner, he will not be liable due to FE
1.) Proper → events which are the Acts of God

2.) Force Majeure → Acts of Man; case of Philcomsat vs. Globe Telecom

-Philcomsat vs. Globe Telecom: non-ratification of the RP-US treaty with respect to the continued
existence of US bases in the PH was considered as a FE becuase it is beyond the control of the
parties; therefore, it exempted the party required to perform an obligation from performing his
obligation due to a FE

-Note: there are several exceptions to FE (regardless of a FE, the obligor may still be liable)
1.) By law: if the law provides that hte obligor will still be liable regardless of an FE
2.) Parties may also stipulate (by stipulation): obligor is still liable

-Case of Jimmy Co vs. CA (read this case)

-Note: Victorias Planters vs. Victorias Milling → SC stated that the FE, while it will exempt the

obligor, during the existence of the FE, it will not stop the running of the period as to extend the

contract period between the contracting parties

-1177: what are the remedies contemplated under 1177?

-1177: provides for subsidiary remedies → takes place only when the obligor does not have the

assets in order to pay his obligation; or the assets of the obligor has been exhausted
-Under 1165: provides for the primary remedies available to the creditor; it depends on the kind
of obligation
-1167: remedies in case of personal obligations
-1165: in case of real obligations → determinate: the remedy available action for specific

performance; not possible, then action for equivalent performance (under 1170, for damages)
-Whenever the remedy available to the creditor has become limited for action for equivalent
performance (demand for payment of damages), and in doing so, the assets of the obligor has
already been exhausted, then 1177 will be resorted to; 1177 two kinds of remedies: subrogatoria
and pauliana

-Subrogatoria: if there are intangible assets like credits, available on the obligor, if for instance
the obligor is a creditor of another person, then such credit may be pursued by the creditor of the
obligor (creditor stepping into the shoes of the debtor)

-Obligor, in order to prevent the creditor from being able to collect what is due to him (such as

damages under 1170), and the obligor has entered into contracts with 3rd persons to dispose

whatever assets he has, and because of that, the creditor is not able to collect what is due to him,

then he may resort to accion pauliana → may file an action for the rescission of the contracts

entered into which are intended to defraud him; also governed by chapter on rescissible contracts
Chapter 3:
-What is a pure obligation? → performance of an obligation that is not subject to a condition or a

period; performance of the obligation is not dependent upon a condition or a period

-Condition may be: suspensive or resolutory
-What does suspensive condition mean and how is this in comparison to resolutory condition?

-Contract to sell and contract of sale

-Contract to sell → the payment of the full purchase price; the developer will ask you to choose
whether in house financing or bank financing

-In house financing: you will be paying directly to the developer → contract to sell with the

developer

-Bank financing: the bank will pay in full the developer, and you will be paying to the bank after

entering into a contract of mortgage (you mortgage the unit to the bank) → contract of sale; CCT

will be transferred to you; contract of loan with the bank; you will be paying to the bank; the

property is already in your name

-CTS: the property is not yet transferred to you; the developer will not yet give you a deed of
absolute sale until you have fully paid the price; payment of the full purchase price of a CTS is a
suspensive condition; only after you have fully paid the price will the bank execute a deed of
absolute sale and deliver to you the title to the condo unit
-ON the other hand you are not able to pay in full the purchase price, then, the non-payment of

the full purchase price is an event that did not occur→ non fulfillment of a condition; the obligation

of the developer did not arise because the suspensive condition in an boligation will give rise to

the obligation

-Ex.) the passing in a CPA board exam = suspensive condition

-Prior to the passing of the exam, A does not have any obligation at all; but the moment B passes
the board exam, the obligation to deliver the car shall be due and demandable

-On the other hand, if it is in the latter with respect to the condo unit; you opted for a bank financing;

developer will enter into a deed of absolute sale because it will be required by the bank; the bank

will pay in full, and therefore the bank will require a copy of the CCT that is already delivered to

you; that is why in an obligation subject to a resolutory condition, it is demandable at once; the

developer is bound to deliver immediately the deed of absolute sale and the CCT, and the property

will be transffered in your name; considered as a CTS but is subject to a resolutory condition →

for you to pay your installments on the loan to the bank; and if you fail to pay the balance of the

loan then the bank may pursue a foreclosure; the sale will be cancelled

-ex.) resolutory condition: A will give B allowance on a condition that B will not get married;
allowance will cease upon the happening of the event; B will get married to C
*obligation may be subject to a condition

-Case of Plazo vs. Lipat (with respect to a contract to sell -page 139 of the book)

*Suspensive condition → payment in full of the purchase price (considered as a positive

suspensive condition) by the buyer prior to the period agreed upon; which in this case, the buyer

failed to do so

-Clemente vs. Republic

-Case of PEZA vs. Philhino Sales

-Article 1180; give an example

-How do you distinguish the effect of a period to an obligation to an effect of a condition to an

obligation
-Prior to the happening of the condition, upon the arrival of the condition and upon arrival of the
period

-1181: obligation is subject to a condition → prior to the happening of the event, there is no

obligation and once that event happened or occured, it will result in the acquisition of rights on

the part of the creditor or obligee and it will give rise to an obligation; meaning, the obligation will

come into being

-On the other hand, if the obligation is subject to a period, prior to the arrival of the period, there
is already an obligation or a right, except that the performance of the obligation is not yet
demandable; merely to suspend the emandability of an obligation
-Effect of condition to obligation: prior to the happening of the event which is the condition, there
is no obligation yet

-Note: condition may either be → postestative = depends upon the sole will of the debtor;

distinguished from 1180

-1182: no obligation (presupposed); postestative

-impossible conditions: physically or legally impossible

-Illegal condition: classified as an impossible condition
-physically impossible: impossible condition as well
-Note: civil obligations, when an obligation depends upon an impossible condition, the obligation
will be annulled (unless divisible)

-1188: if an obligation is subject to a condition, even if, prior to the happening of the event in a
condition, no right has yet been acquired; however under 1188, even if that is so, the law provides
that the creditor may before the fulfillment of condition, bring appropriate actions for the
preservation of his right (even if there is no obligation yet); recognizes the right of the creditor to
protect his interest even before the happening of the condition; he may choose to have his right
annotated at the back of the title of the property
(Wills and succession → case of reserva troncal: the relative belogning to the line where the

property came, may bring an action to protect his right in order to ensure that the property will be

returned to the family, even for the time being the property is in the name and position of the

ascendant of the child that does not have an issue)

-Art. 1189 (very important)

-First paragraph: presupposes that the obligation is subject to a condition
-Provision of 1189 with respect to what could possibly happen in the event of a loss or
deterioration of a thing
-In our example: A promised to give to B when B passes the board exam; the car is a determinate

thing; because it is a determinate thing, it can get lost. If it is lost and it is lost without her fault,

then the obligation shall be extinguished (1189(1)) → considered as a FE

-thing is lost through fault of debtor → obliged to pay damages (possibly lost due to negligence or

fraud or where there is already a delay)

-Definition of legal loss: when the thing deteriorates, goes out of commerce, existence is unknown
or cannot be recovered

-Deterioates without the fault of the debtor → obligee will have to bear the impariment; it is part of

the risk that he assumed when he bought the thing; ex.) pag bumili ka ng sasakyan, madudumihan

ang sasakyan mo

-Deteriorates through the fault of the debtor → obligee may choose the recission of the fulffilment

(Article 1191 → reciprocal obligation; power to rescind the obligation; in case one of the obligors

would not comply what is incumbent upon him)

-1191: if you are not able to perform the obligation or deliver the thing as exactly as agreed upon,
then becuase it is a determinate thing, then the creditor may not choose to accept what has been
delivered and may opt for rescission with damages; which is recognized under 1165

-Improved by its nature and time → inure to the benefit of creditor

-Article 1191 (rescission) → case of Gotesco Properties vs. sps. Fajardo

-Gotesco Properties vs. Fajardo: SC stated that once the buyer has fully paid its price, then the
seller’s obligation now is to deliver the CTC which in this case, Gotestco was not able to do so;
therefore, it breached the contract to sell and therefore the buyer may choose to rescind the
contract with damages (1191); alternative remedies available to the party:
1.) Choose to rescind the contract; obligor should not comply what is incumbent upon him
2.) Choose fulfillment of the obligation = payment for damages
3.) Even after he has chosen fulfillment, and has become impossible, may still opt for
rescission
-Republic vs. David: (page 165) SSS has awarded housing units to the employees of the SSS,
although the properties have been transferred to employee lot buyers but the contract provides
for a condition that the buyer will use the housing units as their residence, and because when the
SSS investigated and found out the some of them are not actually residing in the units awarded
to them and instead are leasing out the units to third persons, and according to the SSS, these
acts violated the terms of award to them; gave the SSS the right to rescindg the contract even if
it is already a contract of sale and even if the titles have been transferred to the buyers of a
property; under 1191, the non-compliance with the condition constituted a breach of reciprocal
obligations under the deed of sale; deed provides for the annulment and cancellation in case of
breach

-Note: 1191 → generally speaking, the decree of rescission must be sought from the Court

-However in the cse of province of Camarines Sur vs. Bodega → automatic revocation clause;

express stipulation in case of breach; the need to go to court to decree the rescission will no

longer be necessary; action of Camarines Sur when it opted to rescind the donation made to

CASTEA

-Case of Song Fo and Co. vs. Hawaiian (page 173 of the textbook) → HPC has no right to rescind

the contract; there was only a slight breach in the contract; the rule is that the recission will not be

permitted for a slight or casual breach

*only for breaches which are substantial will rescission be upheld

-Universal Foods Coproration vs. CA: SC reiterated the GR of rescission (1191) (page 175 of the
texbook)
*substantial = depends on the circumstances

-UP vs. Delos Angeles → party to a contract with an automatic rescission clause; may consider
the contract rescinded without the need of filing a court action

*Other party may contest the extrajudicial rescission (automatic revocation clause)

*Clemente vs. Republic: donation and subject to a donation of a property to the Republic through
the DPWH was subject to a condition that a hospital will be built on the proeprty, and despite the
lapse of more than 30 years, no hospital by the DPWH, the SC stated that if a contract of donation
provides for AR or reversion (non-construction of a hospital amounts to a resolutory condition;
and the failure of the part of the Republic to construct a hospital, will give the right to the donees
the right to rescind the donation
*If a contract for donation provides for an AR and the donee violates and fails to comply →

automatic reversion; no need for judicial declaration

*But if the donee denies the rescission, he may file an action in court to challenge the rescission

-Lam vs. Kodak: what is the effect of rescission in such case? → mutual restitution of the parties

-Note: in the case of Lam vs. Kodak PH, the rescission was a decision by both parties; when the
decision was reached by both parties, according to the SC, because they have agreed to rescind
the contract, they do not have to go to court
*On the other hand, if only one of them will rescind the contract, and there is no AR, one has to
go to court in order to seek the court’s decree
-If there is an AR, then the party rescinding is authorized to rescind the contract; but the other
party may contest the rescission, so that at the end of day, when one challenges the rescission,
the Court will either uphold the rescission or deny the rescission based on certain grounds (ex.)
breach is merely slight or casual)

-Where there is rescission, there is a mutual restitution (status quo ante)

-PEZA vs. Philhino → agreement between the parties with respect to damages in case of breach,

may still be demanded and awarded; because it is a stipulation agreed upon between the parties;

the mutual restitution, will not negate the contractually stipulated liquidated damages; 1191 clearly

states that the options of recission and specific performance come with it the payment of damages

in either case

HW: wrap up pure and conditional and move on obli subject to a period and alternative and the
joint and solidary obligations

-----------------------------
3/8/21 - Caryl

Reciprocal obligations meaning-

3 exceptions to the reciprocal obligations (1169- delay; exceptions)
1. Obligor may be in delay
2. Designation of the time is the essence of the obligation
3. Demand would be useless as when the obligor has rendered it beyond his power to
perform. (In the event of the anticipated breach)
- If the obligor disposed a thing that he promised to deliver to other person, there
is no way to perform the obligation ( demand will be useless)
3 characteristics of reciprocal obligations: VIP
1. Obli are created at the same time/ at the perfection of the contract. (Ex: Contract of
sale)
- Obligation to pay taxes is not reciprocal.
2. Created out of the same source.
3. Mutual relationships (both parties becomes creditor and debtor of each other)

1191- In reciprocal, the power to rescind is implied in reciprocal ones.

- Both parties are empowered to rescind the contract in case of failure to perform the
obligation.
- Not absolute

Case of Gotesco vs. Fajardo

- The SC explained that in a contract to sell, the buyer and seller stipulated that the
buyer will pay the full purchase price, this creates a reciprocal obligations between the
parties.
- Buyers obli: Pay full purchase price
- Sellers obli: Once paid, he will execute the deed of absolute sale and to handover the
TCT.
- Failure of the seller to handover the TCT, gives the buyer the right to rescind the
contract to sell and to ask for the payment of damages.

Republic vs. David

Both refer to contract to sell in conditional sale in the case of SSS. And the conditions with
respect to sps. Fajardo, the condition on the part of the buyer is to pay in full the purchase
price. In rep. vs. david, apart from the payment of the full purchase price, there are other
conditions that buyers will have to comply. The who breached here is the buyer wherein, he
leased the property to another person other than the one stated in the contract. It is a
justifiable ground to give the seller the right to cancel and to rescind the conditional sale. In
both cases, they fall under reciprocal obligations and the breach of one of the parties to
perform with respect to the obligation is to ask for the rescission plus damages.

Right to rescind is not absolute because the court may grant an extension for an obligor to
perform his obligation.

What could be the possibility in order to grant an extension?

- When a court grants an extension, it effectively denies the rescission being sought.

Case of Song Fo vs. Hawaiian case (classic case)

Province of CamSur vs. Bodega Glassware

If the contract is a bilateral contract, it will result in a reciprocal obligation.
If obligor disposed the thing promised to deliver to third person
In case of reciprocal obli, neither party is in delay when one of them does not perform
obligation. There will only be a delay when one of them performs now his obligation.
- In the event in the conditions they have agreed, there is a clause that there is an
automatic revocation clause.

1191 - obli is reciprocal, the option of the agreed party is the performance of the obli and
rescission with the payment of damages in either case.

PEZA vs. Sales Corp.

- Effect of rescission is to restore to each other the status quo-ante. They will be
restored to where they came from.
- SC also said that even if the effect of rescission is to restore the status quo-ante
because they have agreed in the penalty clause, the payment of damages may still be
granted because that is what they had agreed upon.

If rescission is just one of the options, while the rescission is not stipulated, the court may
choose between rescission and payment of damages. (effect of rescission)

Next meeting:
Art. 1191 up to obligations with a penal clause.
Pls. read part of 1191 cases and annotations and master the intricacies of 1191.

_________________________________________________________________________

Class Notes for March 9, 2021:

-Art. 1191 → the obligation is reciprocal and one of the parties failed to performed what is
incumbent upon him; the other may, according to the law may seek rescission

-the law also provides that the court may decree the rescission claimed; may opt to grant an

extension → what could be the possible ground that the court may grant an extension and

deny the rescission?

-Case of Gotesco vs. Fajardo (reciprocal obligation; deed of sale was not delivered by
Gotesco; Action for Rescission is applicable in accordance with Article 1191 of the NCC); the
defense of Gotesco is fortuitous event; meaning, it invoked the fact that there were
circumstances that prevented it from performing the obligation; beyond its control; in this
case, the court pointed out that in a contract to sell, there is a reciprocal obligation that is
created as a result of the contract; the full payment of the price in exchange for an execution
of a deed and surrender of title; failure of one to perform the obligation, which is the execution
of the deed of sale, would put Gotesco in delay
*The first time we came across reciprocal obligation → Article 1169; in delay, the general rule

with respect to delay, there should be a judicial or extrajudicial demand from the creditor in

order to put the obligor in delay; exception: when the law or stipulation so declares; time is of

the essence of the obligation; demand would be useless as when the obligor has sold the

same property to another person and delivered it to him, and there is no way to perform the
obligation because he has committed an anticipatory breach

-Reciprocal obligation → also an exception to 1169 on the rule on the requirement to put the

obligor in legal delay; in reciprocal obligation, neither party is in delay if one of them or if either

of them is not ready or is not yet ready to perform the obligation; but when one has performed

the obligation, delay begins; performance of one, would put the other in delay (Gotestco

properties)

-When spouses Fajardo were already able to complete the payment of the price for the
subdivision lot, then it puts Gotesco in delay because the obligation of Gotesco to execute
the deed and to deliver the TCT have become due and demandable

-Compare case of Gotesco to the case of Republic vs. David: in the case of RP vs. David, a
conditional sale was entered into between the parties; the SC said that a conditional sale is
akin to a contract to sell, because a conditional sale is a sale subject to a condtiion; the
conditions are the full payment of the purchase price + there are other stipulations agreed
upon for which the buyer agreed to, and which is that the housing unit must be occupied only
by the buyer and his family; upon investigation, the SSS foudn out that the property is being
leased by another person or family, which amounted to a violation of what they have agreed
upon; according to the SC, this is a ground for the rescission of a conditional sale and because
this is also a contract that created a reciprocal obligation between the pirates, and the failure
of the part of the buyer (buyer committed the breach), gave the seller a ground to cancel and
rescind the conditional sale

-Article 1191 → rescission must be declared by the court; is this an absolute rule? = No. Case

of Province of Camarines Sur (automatic revocation clause)

-Case of Province of Camarines Sur: the government, when it donated the lot to CASTEA, it
is subject to a condition; note: the condition here, is resolutory, because pag donation
kagayan ng Parks vs. Province of Tarlac (hindi pwede maging suspensive yung pagtayo ng
park, dahil hindi ito magagawa kapag subject to suspensive condition; the only plausible
situation is to have the donation immediately executory but subject to the resolutory condition
(the non-happening of the event)); donation may be cancelled if the park is not built - exactly
what happened in the case of Camarines Sur
*proper action = unlawful detainer against Bodega (donation has already been cancelled)
-Automatic revocation clause: 1306 of NCC will be applicable
-Page 166: mere notice of rescission will be insufficient as a GR; because the court must
declare; exceptions: 1.) resale or rescission by an unpaid seller; 2.) sales of personalty; 3.)
Under Art. 1592 of the NCC, in sales of realty the demand for rescission must be judicial or
notarial

-Universal Foods Corporation

-Iringan vs. CA = SC declared that in the absence of a stipulation (automatic revocation
clause) a party cannot unilaterally or extrajudicially rescind a contract

-Case of Song Fo vs. HPC; slight or casual breach vs. substantial breach of the obligation;
right to rescind the contract under Article 1191

-What is the effect of rescission: abrogation and requires mutual restitution

-Case of PEZA vs. Philhino

Section 2:
-What is a period?

-What happened in the case of Gaite (exploration of iron ores)

-What is the effect of the period on the obligation? → arrival of the period exerts demandability

of an obligation
*the obligation already exists prior to the arrival of the period, but the demandability

*Unlike in a condition, the obligation does not yet exist; happening of the condition will result
in the acquisition of rights
*Obligation subject to a period: even before the arrival of the due date, there is already an
obligation; benefit of the period is more of an act of generosity on the part of the creditor; in
the case of Gaite, dahil nag-expire yung security, the obligor in that case lost the right to the
benefit of the period; loses such benefit, then it will make the obligation demandable; the only
effect of the period to the obligation is on demandability; but existence of the obligation will
be there
ex.) utang = it is not demandable prior to the period
ex.) magbibigay ng sasakyan pag nag-top sa bar = condition ang pag top sa bar exam; prior

to topping the bar, there is no obligation → effect of a condition

-Case of Clemente vs. Republic; what period is contemplated in this case? → resolutory period

-Instances wherein the court may fix the period?

-Case of Solante vs. COA

-What are the three kinds of period? → Legal, judicial and conventional: what do these mean?

-What are the instances wherein which the courts will fix the period?

Section 3:
Alternative Obligations

-What is an alternative obligation?; give an example

-How is this distinguished from facultative obligation?
-What do you mean: if the prestation is extinguished, you will be free from performing the
obligation? = No.

-What happens if you will lose the substitute due to negligence? → the obligor is liable

-Case of Arco Pulp

-The GR, is that the debtor has the right to choose which of the several prestations that are

due, he must perform (unless there is a stipulation that the creditor is the one that is going to

choose which of the prestations which are due must be performed); there is no problem is

the debtor is the one going to choose among the several prestations, which means that for

as long as there is a prestation to deliver, he will not yet be liable even if the loss of one or

several of the prestations that are due were due to his fault or negligence, for as long as there

is still a prestation that he can perform; however, if the right of choice has been granted to

the creditor, can you give us the rule? → Article 1205 of the NCC
-Article 1205: right of choice belongs to the creditor → when confronted with an alternative

obligation, you will have to check it is the debtor or creditor who is given the choice; if the

creditor is the one given the right to choose, then you have to take into consideration that the

loss of a prestation may have repercussions on the right of the creditor to choose, and the

cause of the loss must be taken into consideration

-Note: when the choice has already been communicated (debtor or creditor); the alternative
obligation shall cease; it then now becomes a simple obligation; then the rules with respect
to simple obligation will be applicable; and the loss of the through the fault or negligence of
the obligor will make him liable for damages (it will not excuse him from liability)

-Note: when we talk of loss → make a qualification: due to a FE or negligence; requisites of

FE (case of Philcomsat vs. Globe Telecom and Lasam vs. Smith)

Joint and Solidary Obligations:

-Article 1207
-Article 1028
-What is active solidarity →

-What is passive solidarity →

-What is mutual agency? (active solidarity)
-What is mutual guarantee? (passive solidarity) = anyone of the debtors may be made to pay,
because he guarantees the payment by everyone of the obligation; that is why there is,
among them, there is a relationship of mutual guaranty; they will guarantee the payment by
everyone of the entire amount of the obligation; kung si A,B,C umutang ng 90k; if the
obligation is joint, then each one of the you will be made to pay 30k; on the other hand, if the
obligation is solidarity (signed as a co-maker) then you become a guarantor even if you did
not receive anything - but when it comes to payment, you signed as a guarantor and therefore
you may be held liable for the entire amount of the obligation: pag sinigil si A, he can be made
to pay the whole 90k; that is why there is a relationship of mutual guarantee amongst the
debtors when there is passive solidarity
-Similarly, on the part of the creditors, if they are solidary, then if for instance ang nagpautang
is si O and T, tapos si P nasa abroad, si O can demand from T or P the payment of 90k; when
he is able to collect the entire 90k, he has an obligation to make an accounting for what has
been collected
-Note: distinction between suretyship and solidary → in a surety, the surety is being made to

pay for the obligation of another person; on the other hand, in a solidary obligation, the

solidary debtor is being made to pay for his own obligation and for the obligation of another

person; ex.) A, B and C is being made to pay each 30k and A will pay on their behalf; on the

other hand, if A is merely a surety for the obligations of B and C, and in the event that B and

C will not be able to pay, then A binds himself to pay for the obligation to pay for B and C and

after he has paid the obligation of B and C, it creates a right of reimbursement of the entire

90k that he has paid; if the relationship is solidary debtors lang sila, tapos si A nagbayad ng

90k, he can only demand contribution from 30k each from B and C; in surety, A can demand

45k from B and C = A will not contribute dahil surety lang siya (form of guarantee lang siya)

*discussion of guarantee and suretyship will be thorough after MT

HW:
-Study and read the cases very well

------------------------
Caryl

Effect of period in a condition and in a term or period?

Effect of period in the obligation as against the effect on a condition?
- If it is suspensive, it suspends the demandability of the performance of the obli. If the
condition is suspensive, prior to the period, the fulfillment does not give rise to the obli.
- 1181 ( condition has an effect on the obli itself )
- A promises B to car, prior to passing the bar exam, A does not have an obli until B
passed the bar exam.
- The period merely suspends the demandability.

1198- The period is merely an act of generosity. The obli will become demandable once the
period to pay arises.

Case of Gaite vs. Fonacier

- Page 208 of the book

1196- Who will benefit the period? Creditor or Debtor?

Example: De Asis vs. Agdamag and Colmenar vs. Cosca page 195
 - Benefit of the parties (C and D) but may be disputed by stipulation or other
circumstances, the period was intended for the benefit of one of the parties.
- If you borrow money from the bank and are payable within 5 years, you cannot simply
pre-terminate the loan. It will lose the opportunity for the earning interest of the loan.
- Interest of the creditor is also protected.

Case of Solante vs. COA

- A period may either legal, conventional or judicial.
- Legal = stipulated by the law.
- Conventional = parties fixes the period.
- Judicial= the court fixes the period (ex: the period depends upon the will of the debtor)

Conjunctive
Alternative - One obli but several obligations. Several pres are due but the performance of
one of them will result to the extinguishment of the obli.

What happens after the choice has been made?

- The obli becomes simple.

Case of Arco Pulp- (218)

He cannot choose the prestation which is unlawful
Impossible prestation cannot be possibly contemplated when entered in a contract.
No form prescribed from the choice of obli.
Once the choice has been the obli, it becomes simple.

Obli to take care of the thing and delivers what has been exactly agreed upon.

1204 Debtor (***) VIP

- (all the things)

1205 - creditor (***) VIP

Distinguish alternative vs. facultative

- Alternative, there are several prestations due but the fulfillment of one of them will be
sufficient.
- In Facultative, there is only one prestation due but in case of non-fulfillment, the debtor
may perform another prestation in substitution.
- If the prestation which is due is lost, can he perform by substituting with another? YES.
The obligor is still liable. The lost of the prestation does not render the obligor free
from obligation.
Exceptions:
1. 1174 (Fortuitous event)
What if you lose the principal in facultative?
If the substitute is lost, it will not render him liable. But if the principal, it does. If you have
chosen the substitute or made a choice, the obli becomes simple. Once you lost it, the obligor
becomes liable.

In alternative, prior to communicating the choice, u have several pres to choose from. There
is still pres that you can choose from.

What if the principal prestation is lost?

- Debtor is liable

Dation in payment vs. Facultative

- DIP, he can choose (creditor) not to accept.
- Governed by law on sales

Joint and Solidary Obligation

1207-1208

Active solidarity -> mutual agency -> obligation to make an accounting

Main Characteristic:
They have a relationship of M.A - pwede i represent ng bawat isa lahat.
- A and B solidary creditors, A is in another country, B can collect the obli.
- Obligation is fiduciary (cannot replace one without the consent of the others) ; Mutual
trust.
- Demand letter binds other C.
- Loan is 90k he has an obli to acc what has been collected to other C. Duty to deliver
collectively to other creditors.

Passive solidarity-> mutual guarantee-> contribution

- Anyone of them guarantees obli of others
- Obli to contribute
- X will pay the 90k gives rise to the obli on the part of B and C to contribute in their own
shares.
- Solidarity esp passive must be dist for surety.
- A (d) obli 100k got surety to guaranty 100k, X © so the surety, he guarantees that if A
did not pay G will pay. In solidarity, if A pays entire amt of obli, then he can ask contri
of B; but if surety made to pay entire amt, then he can ask reimbursement the entire
amt plus interest pa.
- Solidarity- hati sila; may contribution between the debtors.
- Surety- entitled to reimbursement the entire amount; no obli to contribute then pay
with interest.
Joint indivisible obligation (241)
Example: Case of Agoncillo vs. Javier (Undertaking of a house)
- When there is a concurrence of several creditors or debtors in one and the same
obligation, but the prestation is indivisible, the obligation shall be joint unless the
obligation expressly so states, or when the law or the obligation requires solidarity.
- Debt can only be enforced by proceeding to all the debtors.
- No mutual guarantee here.
- Also an obli to make a contribution; it created an obli to pay immediately on the part
of the debtor.
- D liable only for their own shares.
- But in joint indivisible, the delivery will be altogether; they will have to act in concert.
- If the prestation (indivisible) cannot be delivered, the obligation will be converted to
simple obli.

Joint and solidary next meeting- obli with a penalty clause

_________________________________________________________________________

Class Notes for March 11, 2021 (Sha)

-We started talking about joint and solidary obligation, and the first thing that Sir said in this

kind of obligations → we apply the rule on joint and solidary obligation when there are several

creditors and debtors in one and the same obligation; note however, that the GR is that the

obligation is joint - if there are two creditors in one obligation, each one of them may only

demand a proportionate part of the credit; if they lent an amount of 100k, then the two

creditors are only entitled to collection 50k from the debtors in a joint obligation; because the
credit will be considered as joint in the absence of a law that requires that the obligation is

solidary, and in the absence of clear stipulation of agreement; or when the nature of the

obligation does not require solidary; so that A cannot represent B, B cannot represent A

-If however, from the law or nature of the obligation, or the wordings of the obligation, require
that it is solidary, then we have to check what kind of solidary obligation: active, passive
-Active solidary = credit is solidary; credit of creditors is under a mutual agency;
-Passive solidary = debt is solidary amongst the debtors
-Feature of an active solidary = relationship of creditors is characterized by mutual agency;
each one of them may represent the others (ex.) ABC have a credit of 90k, A may be able to
collect the entire amount of 90k due to mutual agency and A may demand for the payment of
the entire amount of the obligation)
-If the effect of mutual agency is that after one of them is able to collect, then there is an
obligation on the creditor that was able to collect the debt or any portion of the debt to account
to the other creditors what he has collected; so that, in active solidary, there is an obligation
to make an accounting
-Mutual guaranty on passive solidary = each co-debtor guarantees the payment of the entire

obligation (ex.) XYZ are solidarily liable, X may be made to pay for the entire obligation, so

that the demand to him may be sufficient; creditor does not have to send a demand letter to

XYZ and the demand may be addressed to one of them, and one of them may be liable; if

the others are insolvent, then one of them may be made to pay the entire obligation) → this is

the reason why that the banks would require that the relationship amongst the debtors would

be solidary so that when one of the debtors is insolvent or cannot be found, then the remaining

ones will be made to pay the obligation

-After one of the co-debtors paid the obligation; the other co-debtors must reimburse the
debtor who has effected payment to the creditor

-Suretyship vs. Guaranty: in a solitary obligation, if a solidary debtor pays the entire amount
of the obligation, he can only ask for contribution; whereas a surety does not contribute - once
paid, he can demand reimbursement the entire amount that he has paid (if A is the surety of
a debt incurred by XYZ, and A was required to pay because XYZ were not able to pay, then
if A paid 90k, he can recover from XYZ the entire amount of 90k; on the other hand if there is
no surety and only XYZ are solidarily liable, if X pays the entire amount of 90k, he can only
ask contribution from YZ 30k each, because X is also required to contribute the amount of
30k).

-What is a joint and indivisible obligation?

-Article 1209 and give an example → if A and B have entered an obligation with X, to deliver

a carabao; the obligation is considered to be joint (because there are several debtors - A and

B); because the GR is that when there are several debtors or creditors in one obligation, the

obligation is joint (unless: the law, stipulation or the nature of the obligation does not require

solidarity)

-what is the effect of the obligation? → debtor is only required to pay up to the extent of their

obligation
-In the family code = the obligation of the spouses to the creditors is solidary in nature; kasi
mag-asawa sila; on the other hand, pag kunyare kayo magkapatid may utang kayo, the
presumption is that it is joint because there is no law that requires that the obligation is solidary
-What is the obligation of A and B in the example? → to deliver the carabao to X

-What kind of presentation is that? → Indivisible = joint and indivisible

-what is provided under 1209? What does this mean? → if B refuses to deliver to carabao,

then C cannot deliver the carabao; if one of them refuses to deliver or is insolvent, then the

obligation cannot be performed because the prestation is not capable of partial performance;

so, both of them must act in concert - if there is a demand, the demand must be addressed

to both of them; debt can be enforced only by proceeding against all of the debtors; you have

to send to both of them a demand letter; if one of them is insolvent, the other will not be liable

for the share of that other guy who is insolvent; but the entire obligation will be converted to

an obligation for the payment of damages

-Article 1224 is to be read with 1209 → if the obligation is joint then the obligation shall divided

between the co-debtors; if the prestation is indivisible, it is impossible therefore to demand

the performance of the prestation from only one of them because the prestation is incapable

of partial performance; if you are going to demand the performance of the prestation is

indivisible, then the demand letter must be addressed to both of them because the debtors

must act in concert; if one of them would become insolvent or one of them will commit a

breach of the obligation, then the obligation under 1224 will become an obligation for the

payment of damages (you apply now 1170 - it will become an obligation for equivalent

performance); however, the obligation of the debtor who is not in delay and ready to perform

his obligation, will only be to pay the equivalent or portion of his performance (will not be liable

for the damage and interest)

-1211 and give an example → obligation to pay is subject to the condition that X will pass the

2021 bar examination (subject to a period and a condition); A and B are certain to be liable
to the creditors because the obligation with a period, while C is liable when the condition

happens (if X passes the 2021 bar examinations)

*X addressed the demand to C on January 1 = C may not be required to pay for his
portion, but C is required to pay for A and B’s portion; the portion of A and B is due
and demandable; the essence of 1211 you do not need to another debtor, you can go
back to the same debtor again and again due to the fact that the obligation is solidary
(mutual guaranty) - anyone may be made to pay
*there is solidary even if the creditors may not be bound in the same manner, periods
and conditions

-1212: give an example

*But not anything which may be prejudicial to the latter; what does this mean? → relate article

1212 to article 1215 → why should these two provisions be correlated?

-A and B may utang kay C na 10k; if C gives a demand letter, it will be useful to others;

however, A remits the entire amount of 10k; can he do that? → under 1215, it says novation,

compensation, confusion or remission of debt made by any of the solidary creditors shall

extinguish the obligation → effect of extinguishing the obligation without prejudice to 1219 →

yes it will extinguish the obligation, but insofar as his relationship with co-creditors, he has

obligation to make an accounting; he will have to account; he is required to pay his co-

creditors (he will have to pay A 5k, because he is supposed to collect the 10k but because

he remitted, that is alright, insofar as the debtor as concerned but insofar a co-creditor is

concerned, A is required to pay his co-creditors)

-Art. 1213 → what does this mean? = relationship is of mutual agency and is fiduciary in nature

-Articles 1216 and 1217 → give examples

*if B paid the entire amount of 90k, and A is insolvent, so what will happen to B? Will he be
able to get paid for the amount that he paid?
*ABC are solidary debtors of 90k to X, A happens to be insolvent; B paid the 90k; because A

is insolvent, how much can B collect from C? → applying 1217 (3), if B paid the entire 90k,

because he cannot collect from A, he can collect from C 45k; he will shoulder the half of the
portion pertaining to A and C will also shoulder the other half of 15k; so B and C will shoulder

each 45k

-Article 1221 and give an example

A and B bound themselves to deliver a carabao to X; how was it lost?

Second paragraph of 1221: if one of them is at fault, then they will still be required to perform
the obligation; the solidary character of the obligation remains; insofar as the creditor is
concerned, anyone of them is still liable to perform the obligation (hindi sila pwede magsisihan
sa harapan ng creditor; in front of the creditor, the co-debtors are solidary)

-Art. 1222 and give an example

ex.) If a minor person signs a promissory note; when the payment is due and demandable,
the minor child can use minority as a defense in order to exculpate itself from the payment of
the obligation

Obligations with a Penal Clause:

-Article 1226 and example

-Case of Lou vs. BPI

HW: please study the rest of the cases; will be reciting the cases; move on to extinguishment
of obligations (specially on payment)

-----------------------------------------------------------------------------------------
March 15, 2021 - Caryl

Joint Indivisible obligation (1209)

Example: A and B delivered Carabao to C. Carabao is indivisible. So A and B have joint
indivisible obligation.
- Prestation is incapable of partial performance.

Joint and indivisible, what is the implication?

- Cannot be subject of partial performance.
 - Cannot demand the payment more than his/her share.
- Cannot be obliged to pay more than what they owned.

The Credit or debt referring to D, the debt is divided into as many debtors in an obligation.
Under 1209, while obli is joint, the prestation is incapable of partial performance.

The debt can only be enforced by proceeding against all the debtors. The C must make a
demand to all of the D and perform the obli together.

1209-> 1224
- Since the obli in joint and solidary binds all D, If one of them is insolvent, then 1224
the obli becomes the obli for the payment of damages.
- 1165, Determinate obli, if the unique thing cannot be delivered, then the obli will
become payment for damages.
- For example, if there are 7 debtors obliged to deliver a car to the creditor, then if one
of them refused to deliver, you cannot compel the one who refused to make payment
for the contribution of the delivery of the said car. Here, your remedy will be an
obligation for the payment for damages.
- The other persons who are willing to share, they will contribute for the payment of
purchase price.
- No mutual guarantee.
- If the other person is insolvent, then the other debtor will not pay for the insolvent
debtor’s liability for damages only liable for the portion of the price.

1212 -> 1215

1212 - Principle of Mutual Agency
- Active solidarity
- Creditors each one of them may know whatever may be used for the others.
- Creditor may send a demand letter and that demand letter has the effect for all shares
demanded from them (debtors) because there is mutual agency.
- Prejudicial to the latter: A B C (creditors), X Y Z (debtors) obligations will bind them
all.
1215 (2)- Mutual Accounting
1213
1211 (*****) VIP
Example: A,B,C Obtained a loan from X,Y,Z for 100k then payable on different periods
between the debtor. Solidary obli, each creditor may demand any of the debtors for as long
as the obligations between them become due and demandable.

1217 & 1218

1216- Mutual guaranty
- Main feature of passive solidarity
 - Anyone of them will be entitled to pay.

1217 (2)
- If one of the D paid the entire obli, then he can claim contribution and demand from
another D.
- Solidarity from suretyship
- In solidarity, there are 3 D, X paid the entire amount then he can ask to other D the
portion of the amount of their respective shares.
- In surety, the surety must pay the entire amt and goes back to principal debtor and
demands the latter the reimbursement of the entire amt that he has paid plus interest
and expenses.

Take note of the 3rd paragraph of Art. 1217

- In passive solidarity, if one pays, we call it a contribution.
- In surety, we call it as reimbursement.
- One of them is insolvent, and X paid the entire 90k then Y is insolvent, how much X
may demand from Z?

1221
- Don’t forget 1217 (2); The obligation to contribute.
- 1217 (3) ; insolvency
- Example: A,B,C have an obligation to deliver the car then the car was stolen so what
happens in case of loss without the fault of the debtor then it becomes possible, the
obli shall be extinguished. (insert 1174)
- 1210-1222 - ALL SOLIDARY OBLIGATION there is a mutual guarantee.
- 1221 (3) -> 1165 (3) liable for damages even if there’s a FE and there is delay which
is due and demandable.
- 1221(2) - If one of them is at fault and all of them will be liable for the price plus
damages and interest.

1222
- Example
Case of Lam vs. Kodak
Case of Lou vs. BPI
Case of Pryce hotel vs. PAGCOR

1226 (damages part) -> 1170

- In obli with a penal clause, the penalty shall substitute for indemnity for damages and
penalty for interest.
- GR: The obligor will have to ask for payment of damages but in order to be able to get
the favorable ruling, you need to prove that the obli was breached and you suffered
damages.
 - 2 requirements:
1. Obligation was breached
2. Suffered damages

Damages 1170 + -> title 18 for (specific)

- You have to prove actual damages (main)

Interest -> 2209

- Compensatory interest
2 kinds of interest
1. Monetary - Compensation for borrowing money
- Loan or mutuum it is essentially gratuitous
- If there is no written agreement on the payment of interest, then you cannot
compel the debtor to pay the interest on the day of the payment of the loan.
Example: If the debtor said that he will add 100 pesos for his debt to the
creditor, then that’s what you called monetary interest.

2. Compensatory
- If there will be delay in the payment of the debt, then we will apply now
compensatory interest (2209) application in the payment of money if the debtor
incurs in delay.
- If there is stipulation with payment of interest like example: If the monetary
interest is 10% based on their agreement, then, the compensatory interest will
also be 10%. If there is no agreement for the payment in interest, and there is
a delay on the part of the debtor, 6% legal interest.

1226
- If there is breach, then you will have to prove two things:
1. Breach
2. Suffered damages

If there is a penalty clause, then there is a breach, the only thing that you will have to prove
is the presence of the breach. Because what you stipulated is the penalty clause.

1306
- If you agreed to pay the penalty, then you are bound to pay it whether you like it or
not.
- Example: Pryce vs. PAGCOR & Lou vs. BPI
- Usury law is suspended but if the court finds the interest usurious it will reduce the
interest rate agreed upon by the parties.

1229
 - The court may reduce the penalty if:
1. Partial performance
2. Even if there’s no performance but iniquitous and unconscionable

1228
- Obli has a penalty clause, the only item that the creditor has to prove is the fact of
breach he doesn’t have to prove that he suffered damage. Because they already
stipulated what it has to be paid in damages.

Coverage next meeting:

Extinguishment of obligations

Midterm coverage:
Obligations and Contracts
_________________________________________________________________________

Class Notes for March 16, 2021: (Sha)

-Most important is with respect to joint and solidary obligations

-Joint and solidary → the number of subjects must be checked (how many are involved)
-joint: two or more debtors/creditors in one in the same obligation; presumption is that the
obligation is joint (unless the wordings or the nature of the obligation requires solidarity)
-We also have to consider that there is such a thing as a joint and indivisible obligation →

1209 in relation to 1224; joint indivisible obligation; the obligation is joint, meaning each of the

obligors are liable only for their respective portion of the obligation; prestation is indivisible;

the debt may only be enforced against all the debtors (sending a demand letter to all of them

- all of them required to act in concert)

-1224: one of the debtors are insolvent = converted to the obligation to pay damages; in such

a case, the obligors or obligor who is ready to perform the obligation with respect to their

share and damages, they are only liable to the portion of the price pertaining to them; on the

other hand, the obligor who is insolvent/failed to perform/refuses to perform and is guilty of

breach → will be the one liable for the damages and the payment of interest

-1211: solidarity may exist even if the debtors and creditors may not be bound in the same
manner, period or condition (ex.) ABC (creditors of 90k) and XYZ and debtors of the 90k; if
this is solidary obligation, meaning each of the creditors may demand the payment of the
entire obligation and the debtors may be required to pay the entire obligation; however, it is
possible that the obligation of X, binds himself to pay the end of the year (dec. 31. 2021);
whereas Y bounds to pay when he passed the 2022 bar exam; and Z bounds himself to pay
at June 2021; if the creditor chooses to pay the obligation, X may not be required to pay the
30k which is due, but on June 2021 demand is made upon him, then he is required to pay the
30k; if by december 31, 2021 A may go to the same debtor (x) and X by December 31, 2021
may be required to pay the 30K and if Y will pass the 2022 bar exams, then the balance may
be demanded from the same solidary debtor (x))

Note: 1216 → essence of solidary obligation: anyone of the solidary creditors may demand

from anyone of the solitary debtors over and over again until the whole obligation is paid

Note: 1213 → fiduciary relationship amongst the creditors; mutual agency (correlated with

1215); any of the creditors may make the demand

Ex.) If A makes a demand on X for the payment of the entire 90k, that demand will benefit B

and C; however A will remit the entire obligation, and inform X about it; remission will benefit

all of the debtors; but remission is prejudicial to the other creditors, then A will be liable to

account (mutual accounting amongst the creditors, if one of them will be able to collect) → A

will be required to pay them; except that in his case, because he remitted his share, he will

not be able to get anything

-Article 1215:

-1210 until 1222 → all about solidary obligations

-Because of mutual guaranty, payment by one of the solidary debtors extinguishes the
obligation

-Obligation to contribute (Art. 1217)

-If there is a rate of interest agreed upon, that is to be paid; except when stipulated

-Take note of the difference between guaranty and suretyship (in relation to solidary
obligations)

-1217: if one of the debtors is insolvent → X will be able to collect from Z 45k and his share

will increase to 45k to 30k, because the share of the insolvent debtor, will be borne by each
of them; when one of the solidary debtors cannot, due to insolvency, reimburse, such share

shall be borne by his co-debtors in proportion to the debt of each

-Article 1221 (in relation to Article 1189 (1) → general rule); in relation to Article 1174

(fortuitous event)

-Among the solidary debtors, if only one of them is at fault, then he will be held liable to the
other solidary debtors not only for the price, but also for the damages and interest

-Article 1221 (3) → in relation to Article 1165 (3)

-1221 → similar to the rule on 1189 (1) (second and third paragraph)

→ 1165 (3) = falls under the exception of fortuitous event

=Article 1222: Solidary debtor may avail from defenses (derived from the nature of the

obligation) → ex.) payment (bayad na); can invoke that kind of defense; those that are

personal to him (ex.) minority)

-Case of Lam vs. Kodak → contract provides that Kodak bound itself to deliver three minilabs;

after the delivery of one minilab unit, the spouses issued a post-dated cheques, and one of

the cheques bounced, Kodak cancelled the sale; the Lam spouses contended that the

prestation is indivisible; while the three minilabs are physically divisible, the performance of

delivering such obligation is indivisible (therefore, kodak failed to perform its obligation); the
parties agreed to rescind the contract, but kodak being at fault, was made to pay damages

by the court in favor of the Lam spouses

-Note: 1226 → it talks about obligations with a penal clause; not all obligations has a penal

clause; so in obligations that do not have a penal clause, in case of breach, then we apply

Article 1170
-But under 1226, if there is a penal clause: the penalty shall substitute the indemnity for
damages
1.) Obligation was breached
 2.) That you suffered damage or injury as a result of the breach
*This is why we need a police report and have a damage appraised (at a car dealer) and
other receipts for expenses
-In order to recover compensation as a result of the breach → the obligation was breach; and

we suffered damage

-What is the interest here? → the penalty shall substitute the indemnity for damage and

payment for interest

-Article 2209 → compensatory interest

-Indemnity for damages = payment of interest agreed upon (absent of stipulation: 6% per
annum)

-Example: A umutang kay B ng 1k; in mutuum (a loan); it is a simple loan; pag umutang si A
ng 1k, if they have no agreement with respect to payment of interest; if for instance, the 1k is
payable after 30 days, then on the 30th day, when A pays the 1k, she is not required to pay
any interest; because simple loan is essentially gratuitous; the rule is, if there is no stipulation
in writing with respect to the payment of interest, then A is not required to pay any interest for
the 1k that she borrowed from B. However, if assuming, that they agreed on 10% interest, on
the 1k, then she will have to add the 10%; if they have no agreement in writing to that effect,
she is not required to pay the 10%. Assuming that they have no agreement with respect to
the payment of 10% - obligation is only to return the 1k; however, assuming that she was in
delay, if she was in delay (she is in delay and did not pay the 1k and did not return the 1k by
the end of the 30 days) - then we apply 2209 which is the compensatory interest in relation
to Article 1170 (because she was in delay, then she is liable for damages and the obligation
is the payment of the amount of money which is the debt, then she is required to pay the
interest which is compensatory)
-Monetary interest = payment for compensation for borrowing money (provided she pays on
time)
-Delay = liable for 10% damages (compensatory) (if no agreement)
-If there is no agreement on the rate: 2209, it is 6%
-Agreement on 10% → she is liable for the 10% monetary interest + 10% compensatory

interest

-If there is a penalty clause (Article 1226) → the penalty shall substitute the damages
-Basis for the penalty clause: Article 1306, in relation to Article 1159 of the NCC

-Article 1228 → proof of actual damages not necessary

-Generally speaking, when there is a breach, and demand for payment of damage, you will

have to prove two things (breach and injury); however if there is a penalty clause, no need to

prove damages; you will just have to prove breach → the parties have to follow what is

stipulated and agreed upon in the contract

-Case of Lou vs. BPI

-Ang penalty, while it is true that under 1306, if the penalty is unconscionable, it may be
reduced by the court:
1.) If the obligation has been partially and irregularly performed; or
2.) Even if there is no performance = iniquitous or unconscionable

-Usurious interest → while it is true that the usury law is suspended, and therefore the parties

are free to agree on the weight of interest; the courts, if the agreed upon rate of interest is

unconscionable, the court may still consider it usurious and may reduce the interest or the

total imposition of interest

HW: Extinguishment of obligations (good for two meetings); contracts (three

meetings)
5 more meetings before MTE

---------------------------------------------------------------------------------------------------
3/17/2021 - Caryl

Extinguishment of obligations
1232-1235
1232- It is not limited to the payment of money but also performance of the obligation.
1233- GR: talking of payment it means there is payment or performance only when the
obligation has been performed/delivered in order to resolve the extinguishment of the
obligation. (provides for the GR for the performance)

E: 1234 & 1235

1. Substantial performance (1234)
2. Irregular performance (1235)

1. 1234- When there is substantial performance, the obligor can collect less damage.
Encircle good faith. Obligor may be able to recover what is subject to collection.
 2. 1235- Basis: Waiver & Estoppel; when the obligee accepts the performance knowing
the irregularity.

1236- Who can perform the obligation?

GR: If you are the C, then someone said that the payment has been made by the third person,
The creditor is not bound to accept if the third person has no interest in the payment.

E: Stipulation to the contrary.

1236(2)- Third person

- Paid the obligation of another, creditor may or may not accept.
E: if the third person has interest or there is a stipulation to the contrary.

Third person paid the obli of another:

1. Inform the debtor that you will pay his obligation- demand reimbursement the
entire amount or subrogate his rights.

2. Simply paid without the knowledge or consent of the debtor- Limited right of
reimbursement, you cannot ask the creditor to subrogate his rights.

Two person can pay the obligation:

1. Debtor
2. Third person - If he has interest or if there is a stipulation.

1236- who shall make payment/ perform the obli -> full and limited reimbursement
1237- right of subrogation
1239- capacity to make payment
1240- payment must be made to the proper person

Case of Montecillo vs. Reynes - discussed by sir

Killer vs. Rodriguez - discussed by sir

1241- payment to incapacitated persons; payment to a third person

- Underline 2nd paragraph
E:

1244, 1245,1246:
- What must be performed

1244: Determinate obli

(2nd) to do or not to do
1246: Indeterminate obligation

Dation in payment?

Dation in payment vs. Facultative?

In facultative- there is only one prestation agreed upon, then subject for substitution in case
the prestation agreed upon cannot be delivered. Creditors are not allowed to refuse the
substituted thing because it is agreed upon by the parties.

DIP- Payment in money but the debtor proposes the delivery of a thing. There’s a right of the
creditor to refuse the delivery of the thing.

1249: Monetary obligations

Last paragraph is VIP
- If you choose to accept the check as payment, you cannot sue, you have to wait until
the check is deposited or cashed.
- Shall be held in abeyance.

Modes of payment

Requisites for application of payments (take inote)

1 debtor and several debts of the same kind in favor of 1 or several creditors; has to declare
or identify which the payment must be applied then giving him receipt to which the payment
must be applied.

Payment by cession - several creditors one debtor in this case he proposes to transfer the
possession of his properties to creditors so the latter may sell the debtors properties in order
to satisfy debt.

Under payment by cession, if the obligor assigned his properties to the several creditors;
subject to approval by the creditors if they will agree to sell the debtors’ properties. In case
there’s balance, he will remain the debtor with respect to his balance.

Among these 3 special modes of payment - tender of payment and consignation is the most
technical and complicated.

1256- (*****)
Requisites of consignation
In order to be valid, it must be deposited with the court.
1262-
Exception

Define loss

Kinds of condonation?
- 1270
- Express & implied
- Express: Rule with ordinary donation
- Implied: Mentioned in sec 3

1271-1274 = Exclusive is the implied condonation

Confusion or merger of rights

- Meaning & Example
- Merger or confusion - 1 person is the creditor and debtor himself so deemed
extinguished.
- Here, there's a merger of the character of creditor or debtor.

Condonation- There is a remission of debt.

Next meeting:
Read compensation novation
Then move on to contracts
Gen prov
Then requisites of contracts
Read the cases - lalabas sa exam

________________________________________________________________________

Class Notes for March 18, 2021 (Sha):

Extinguishment of Obligations:
-Ultimate objective of obligation is extinguishment; there are many ways in which an obligation
may be extinguished; but we will concentrate on the Sections in the Civil Code on Chapter 4

Payment or Performance:
-Article 1232 → when you say payment, it is not limited to monetary obligation; but it includes

the performance in any other manner of the obligation; when you say “payment” it refers to

performance and the delivery

-Note: 1233 → what kind of performance will result in the extinguishment of the obligation? =

answer: it must be complete, 100 percent; the obligation must be completely delivered or

rendered
-If it is not 100 percent performance = it will result in the breach of the obligation
-2 Exceptions: 1234 and 1235:
1.) There should be complete, 100 percent performance → 1234: substantial performance

in good faith; may give the obligor the right to collect as if there is strict and complete

fulfillment (ex.) if 90 percent of the project has been delivered or performed; the obligor

may still be able to collect the 1 Million, but less damages suffered by the obligee); if

you enter into a contract for the construction of the house, and the contractor became
insolvent, and for reason or as a result of a FE he was not able to complete the

performance of the obligation 100%; if the construction has been substantially

performed in good faith, then the contractor may still be able to collect as if there has

been complete performance of the obligation (ex.) if the painting of the kitchen was

unfinished; he may be able to collect the payment); the cost of the painting of what

was not completely performed will be deducted from the total amount of he will be able

to collect; as a result, the obligation will be extinguished (ultimate objective of

obligation is extinguishment)

2.) Obligee accepts the performance or irregularity → estoppel or waiver the right to

protest or right to object; obligee is estopped from protesting thereafter because he

already accepted the delivery of the project or goods; as a result, the obligor may be
able to collect as if he has fully complied with the obligation

-1236 and 1237

-Who can perform the obligation? → debtor or his representative, or a third person
*The debtor = because he entered into an obligation; and is expected to perform the obligation
*Authorized representative of the debtor
*The debtor’s agent
*Or a third person → general rule: Article 1311 of the NCC
-If a third person knocks on your door and you are the creditor, the creditor is not required to
accept the performance (because the creditor does not know the third person)
-What could be the exception? → by stipulation of the parties

-Exception: if the third person has an interest in the performance of the obligation → ex.) if he

is a guarantor (therefore if this is the case, then the creditor cannot refuse)
-Exception: if there is a stipulation between the parties; then creditor is required to accept the
performance
-What could be the effect if a third person performs the obligation of a debtor?

-If a third person pays the obligation of a debtor, and the creditor accepts the performance or

the payment, what could possibly be the effect? → Article 1236 (2)
-Under 1237 → what is subrogation?
-1236 = reimbursement; any third person who made the payment is entitled to
reimbursement; with knowledge and consent of the debtor then the third person gets the
whole payment
-In 1237 = right of subrogation; in addition to reimbursement, subrogation refers to the right
of the accessory obligations (ex.) if there are securities, guaranties, penalties = attached to
the principal obligation; or if there is a guarantor); then you step into the shoes of the creditor;
if you made the payment and the payment is with knowledge and consent of the debtor, then
the debtor agrees that all the accessory obligations that he entered into, will benefit you as
well (ex.) if a loan is subject to a mortgage, then such is also his benefit); there is a change
in the active party
-If the loan is subject to a penalty, then it is an accessory obligation (a stipulation included in
the principal obligation); if there is a mortgage to the debtor, then you can also go after the
guarantor the payment of the debt if assuming the debtor was not able to reimburse you (you
can go after the guarantor’s assets)
-1237 → change in the active party (the right to replace the creditor, so that whatever the

rights the creditor has against the debtor, then, you get all of those rights, you assume all of
those rights)

-1239: what is the contract when you enter into a sale with a 12 year old?
-Incapacity of the person who does not have a free disposal of the thing, cannot make
payment

-1240, 1241 = to whom payment must be made?

-If you handed a payment to a 12 year old, what is the status of that payment? Are there no

exceptions to these rule? → exception: sari-sari store, a 12 year old bought candy from a
vendor (sale of necessaries)
-Exceptions under 1241

-1244, 1245, and 1246

-1244: what does this refer to?
-What is dation in payment? Can you give an example of dation in payment?

-1248:
-Note: 1244 (1) → determinate obligation; second paragraph refers to personal obligation
-Dation in Payment: a special mode of payment
-1246: (generic or indeterminate obligations)

-What do you mean when it is liquidated? (1248) → the amount of the obligation may be

determined through simple mathematical computation

-1249: give an example?

-what is the effect of paying through a cheque? = no payment until it is encashed
-What does the last paragraph of 1249 mean? What happens to the interest? Will it continue
to run? = No.
-If you choose to accept the cheque as payment of the obligation; while it is true that payment
in cheque will not extinguish the obligation until the check has been encashed, however, prior
to the due date of the cheque, since you accepted the payment of the cheque, then the
obligation shall be held in abeyance (creditor cannot enforce the obligation in any other
manner, including filing a complaint or a suit in order to extract the performance of the
obligation - you have waived your right to collect because of the acceptance of the cheque;
you will have to await for the presentment and encashment for the cheque; until the action by
the drawee bank is known, then the action of the obligation shall held in abeyance)
-But if the cheque is returned, and unpaid, then, that is the time that after complying with the

requirements of NIL of notice of dishonor; then you can pursue an action to collect or exact
performance of the obligation → file a collection suit or foreclose whatever securities in order

to secure the obligation

Application of Payments:
-Distinction of dation in payment and facultative
-Facultative: obligor has the right or discretion or has been given the option to substitute the
prestation with another prestation
-DIP: proposal to replace or substitute the prestation, is subject to approval by the creditor; in
DIP there is a novation by the change of the object of the obligation

-1252: what are the requisites for the application of the payment? Can you give an example?
ex.) A is the debtor, B is the creditor; what are the debts of the debtor? How many obligations

does she have? How much are they and how much are due with respect to the three

obligations? → all of the debts must be due here

-The last requisite = the payment that he tendered is not sufficient to cover all the debts that
are due; the payment that she tendered is not sufficient to cover all debts that are due
ex.) 10, 15, and 15; and the amount she tendered is only 10k = it is not enough to cover all

of the debts → what is the first thing that will happen? = she must choose to which among the

payment shall apply; if she does not do this, what could happen next? = if she does not make

the application (to which you want the payment to be applicable) then the creditor will issue

a receipt; creditor will choose which among the debts she would want your payment to be
applied

-1254: what does this mean?

-When you say onerous debt, what does this mean? = the most burdensome; debt that has
a mortgage or a higher interest

Payment by Cession:
-1255
-What is payment by cession? Give an example?
-What are the requisites of payment by cession?
-How many creditors are there? → two or more creditors/several

-How many debtors? → only one

-How many debts? → Many debts

-What is the situation of the debtor? = debtor is insolvent

-What can the debtor do in payment by cession?
-Here, the debtor proposes to several creditors, if they will accept = it requires an agreement;
he proposes to assign his properties, all his properties; not replacing the prestation; he is
insolvent and he would like to assign all his properties to them if they will accept; if they
accept, they will gather his properties and sell his properties in a public or private sale, and
then from the proceeds of the sale (net proceeds = gross proceeds) will be deducted, the
administrative expenses in the sale; net proceeds will be the payment to the creditors
-payment by cession: the debtor is not absolved; his debts will only be paid to the extent of
the net proceeds; but will remain liable for the balance (remains to be indebted); not a sure
fire; not necessarily result in the extinguishment in the obligation, because if there is a
balance, he will still be liable (in case the net proceeds is not enough to cover the liability)
-DIP: identifies the property that he owns, and proposes to use that as payment in the
obligation if he is not liquid or partially insolvent (replacement of a prestation)

Tender of Payment and Consignation:

-1256
-Note: tender of payment and consignation → they are like coffee and sugar; they go together;

generally speaking, tender of payment alone will not result in the extinguishment of the

obligation or in order for a consignation to be done, there must be tender of payment; but
there are certain instances when some people would prefer black coffee, meaning, they will

forego sugar → similarly, in ToP and consignation, you may skip ToP in certain instances

(1256)

-When you say tender of payment, what does this mean? = it is the manifestation of the debtor
signifying his readiness to pay the obligation, and if he does that, and the creditor fails to
accept, then there is mora accipiendi (creditor is in delay); so that if he will refuse to accept
the performance, then the debtor may proceed to consignation; there are also instances
wherein tender of payment need not be done in order to effect payment and proceed
immediately to consignation
1.) Creditor is absent; does not appear at the place of payment
2.) Incapacitated to receive payment (unjustified refusal)
3.) Two or more persons are claiming the payment (consign payment in court)

-Consignation through the court → you would like the obligation to be extinguished and to

avoid the running of the interest; if the court approves the consignation = the obligation shall
be extinguished

-Note: requisites of consignation (read the book on this)

Loss of the Thing Due:

-Article 1262
-Article 1189 of the NCC should be correlated to Article 1262 (1)
1.) Delivery of the determinate thing
2.) Destroyed without fault of the debtor
3.) No delay
*If there is delay → Art. 1165 (3) shall apply
-Exceptions? → there are 8 exceptions.

-1268 → give an example?

-Note: 1266 and 1267

Condonation or Remission of the Debt:

-What are the two kinds of condonation?
-What do you mean by express? What is the formality that must be compiled with? =
formalities of donation
-Implied condonation?

-Note: implied condonation → it is limited to 1271 up to 1274; this is an exclusive list; there

are no other kinds of implied condonation

-Condonation or remission: waiver to collect the debt

-Express: comply formalities of donation → an act of generosity; enrichment on the part of the

debtor and impoverishment on the part of the creditor; it must strictly comply with the rules

on donation
-Implied: 1271 until 1274 (exclusive list)

Confusion or Merger of Rights:

-What is confusion?
-Give an example?

_________________________________________________________________________

Class Notes for March 23, 2021: Joint Class (Sha)

Compensation and Novation:

-We have to take note that in compensation there are three kinds:
1.) Legal: we are referring to the compensation that must have the requisites under 1279
of the Civil Code; referred to as legal compensation
a.) Takes effect by operation of law; the capacity of the parties is not necessary,
because it takes effect even if the parties are not aware of such compensation;
for as long as the five requisites of 1279 are present, legal compensation shall
take place
 b.) Each of the obligors must be bound principally and that he be also a principal

creditor of each other → 1st requisite; this is subject to 1280; however, under

1280, the guarantor may set up compensation as regards to what the creditor

may owe to the principal debtor; the guarantor may invoke the fact that the

creditor owes something to the principal debtor; after all, if he will pay, then he

will demand reimbursement from the principal debtor

c.) Both debts must consist in a sum of money; consumable (must be of the same
kind and quality)
d.) Both debts are due: before LC takes place, both debts must be due; meaning,
if the debt is subject to a condition, the condition has been fulfilled; if the debt
is subject to a period, the period has arrived
e.) Both debts are liquidated and demandable: already exist and determined as to
how much is payable
f.) No retention or controversy: no claim filed ahead (filed before the debt has
been due); if there is an attachment, there is a controversy (LC will be
suspended)

2.) Conventional (1282)

3.) Judicial or set-off: under 1283, takes effect by judicial decree or by judgment; takes
place when there is a suit and in the answer, there is a counterclaim
a.) Note: reason why it is judicial compensation, because it presupposes that the
claim is not yet liquidated, in the sense that it will have to go through the trial
and proof; once the claim has been proven and adjudge or a judgment has
been issued, then there is judicial compensation; in the decree by the court,
the court will make a determination how much of the claim for damages will be
paid after deducting what he is supposed to pay the other side, the court will
deduct therefrom the claim by the defendant; the plaintiff making a claim, and
the defendant making a counterclaim - in the end the court will issue a decision
deducting from the claim and counterclaim; the claims for damages; and
therefore, the compensation has taken effect, but as a result of a court
judgment; if a plaintiff is claiming for 100k and the other party is claiming that
he suffered an injury of 20k; subject to trial and proof, the court will make a
determination how much should be paid; from the POV of law, it is a
compensation, but it has taken effect as a result of a court judgment
b.) Reason: the claim of each other are not yet liquidated; meaning, they have not
yet been determined how much is due; that is why it is judicial

-Kinds of compensation: total or partial

-It does not have to be the same amount; but the extinguishment of debt will be up to the
amount that they will meet
-If any of the requisites are not present, compensation shall still take place, but the
compensation that may take place, shall be conventional compensation; meaning, if the
parties will agree, then they may compensate debts which are not yet due; nothing will prevent
them from agreeing from compensating on those debts; this is clear under 1282

Note: obligations that may not be compensated or not subject to compensation (1288)
1.) Claims for support
2.) Depositum and commodatum
3.) Claims for support due by gratuitous title
4.) Criminal offenses
5.) Obligations in favor of the government (because taxes are the lifeblood of the
government and their immediate collection is an imperious need)
a.) Francia vs. CA: a person cannot invoke compensation and refuse to pay a tax
on the ground that the gov’t. Also owes him an amount that is greater or lesser
than the tax he should pay (page 393 of the book)

Recapitulate:
1.) Legal Compensation (1279 requisites should be present; takes effect by operation of
law and extinguishes both debts to the concurrent amount; even though the creditors
and debtors are NOT aware with the compensation)
2.) Conventional (1279 requisites are NOT present; agreement between the parties)
3.) Judicial: takes effect by the issuance of a final judgment (final and executory judgment)

Novation:
-1236 and 1237
-1236: who can pay the obligation? → debtor or the third person (third person pays obligation;

creditor can refuse to accept payment; unless the third person has an interest in the payment
or fulfillment of the obligation or a stipulation to the contrary)

-There is a consequence if a third person pays the obligation → (w/o knowledge or against

the will of the old debtor) = new debtor (third person comes in); the rule is, the creditor may

choose not to accept the payment because of 1311 (relativity of the contracts = he does not

know him; not a privy of the contract); subject to exceptions

*Consequences differ as to WON the payment was with the knowledge or consent of the old
debtor or the payment was without the knowledge or against the will of the old debtor
-If payment was without knowledge or against the will of the old debtor: the 3rd person paying
the obligation of the old debtor, can only ask from the old debtor reimbursement of what he
has paid to the extent that it resulted to the benefit of the old debtor (if the obligation is 1
million, but the old debtor has only paid 100k, then new debtor can only recover 900k - cannot
recover 1 million; he has to go back to the creditor and tell him that there was a solutio indebiti)
-If the third person paid with the knowledge or consent of the old debtor = he can demand
reimbursement of the entire amount paid; so that if he paid 1 million in spite of the fact that
the balance is only 900k, he can still ask reimburse the entire 1 million
-In addition under 1237: if a third party paid the obligation of an old debtor (with knowledge
and consent) = he has the right of subrogation = steps into the shoes of the creditor; which
means, that he can run after the accessory obligations (ex.) mortgage, guaranty, penalty)

-1236 and 1236 = there is novation; because there is a substitution of the debtor (change in
the passive party)
-In novation (three types)
1.) When you change or replace the object or a principal condition of the obligation: if you

replace the object of the obligation (ex.) dation in payment → imbis na pera ibabayad,

ang ibabayad ay bagay such as a car); novation is a result of changing the object of

the obligation

a.) Change of principal condition: ex.) the promise to pay 100k is subject to the

condition that you will pass the 2021 bar examinations; but instead of that, you

agreed “wag na lang yung 2021, pwede 2022 exam?” → there is a novation

2.) When you substitute the person of the debtor then there is novation (someone will
come in to replace the debtor - expromission and delegacion); if the initiative will come
from the new debtor - expromission; initiative is from old debtor = delegacion
a.) 1236 and 1237 → if you allow your friend to pay the obligation and his payment

is accepted by the creditor; then there is a novation by substituting a person in

the person of the debtor (replacement of the debtor)

b.) Expromission: initiative is coming from the new debtor
c.) Delegacion: old debtor finds a person that will replace him (he delegates to
another person, the performance of the prestation); delegado = pinapasa niya
yung obligasyon niya na bayaran yung utang
d.) Generally speaking, because the creditor accepted him as replacement, then
the rule is, it will result in the extinguishment of the obligation of the debtor and
that obligation by the old debtor will be replaced by the obligation of the new
debtor; however, if it turns out that the new debtor is insolvent (he is a dud;
peke at wala pa lang pambayad) - the effect is different; in delegacion, it is
subject to a qualification; the initiative is from the new debtor, it will not result
 in the revival of the liability or obligation of the old debtor in expromission
(because the substitution was done without his initiative
i.) In expromission = third person ang nag-volunteer at hindi naman ang
old debtor (remember 1236 - there is limited reimbursement on the part
of the new debtor)
ii.) In delegacion = generally, it will extinguish the old obligation; however
if he turns out that new debtor turns out to be insolvent or dud, it will not
also result in the revival of the obligation, unless his insolvency is known
to him; or the insolvency of the new debtor is already of public
knowledge at the time of the substitution

3.) Subrogation: there is conventional and legal subrogation

a.) Conventional: agreement by parties (root word: convention)
b.) Legal

-When the novation has taken place with the replacement of the object or the principal
condition of the obligation = objective novation
-When the novation constitutes in the substitution of the debtor or the subrogation of the
debtor in place of the creditor (new debtor in place of the creditor) = subjective novation

Express or Implied novation

-Tacit or implied: when both obligations cannot stand; they are incompatible with each other
in every point
-Express: declares in unequivocal terms that the old obligation is extinguished

-Distinguish assignment from subrogation:

1.) Assignment: a credit is being assigned to another person; no need for the consent of
all the parties
2.) Subrogation (conventional): requires the agreement of all of the parties; the creditor
will have to agree; the other person who shall be subrogated (the new party who will
step into the shoes of the creditor, will also agree)
a.) 1237 → before subrogation, the payment by a third party must be with the

knowledge or consent of the old debtor; so that when the new debtor pays the

obligation, he is not only entitled to reimbursement, but will also be subrogated

in place of the creditor; the debtor who pays the obligation of the old debtor,

will become the new creditor (change in active party)

-Yung substitution ng debtor

-Subrogation → a stage or a phase; if a third party proposes that he would like to pay the

obligation of another person; it is a novation which takes place by substituting himself in the

person of the old debtor; but once he already paid the obligation of the old debtor, and with

the knowledge and consent of the old debtor, and his payment has been accepted by creditor;

he now becomes the creditor = then subrogation therefore comes in (from being a debtor, he

becomes a creditor - he will replace the old creditor because he paid the old creditor)
(It’s like when a junior mortgagee pays a senior mortgagee (pays the obligation); the junior
mortgagee becomes a senior mortgagee)

--------------------------------------------------------------------------------------------------------------------------

CONTRACTS:

-1305: gives the definition of contracts; in this chapter, the general provisions: we will talk
about the 5 fundamental characteristics of a contract

1.) 1159 → obligatory force of law between the parties; obligatory force of contracts

2.) 1306 → Autonomy of contracts: freedom of the parties to determine the conditions and

terms of the contract; provided they are not contrary to law, morals, customs or public policy

or order

3.) 1307 → two kinds of contracts = innominate and nominate (nominate = given a special

name or designation of law (ex.) sale, lease, commodatum) - they shall be regulated by the

special provisions of title under which they fall; in the absence of applicable provisions, by the

provisions of Title 2 of Book 4; innominate = i give that you give, i do that you give, i do that

you do; if they do not fall under the nominate contracts; therefore, they shall be regulated still

by the provisions of Titles 1 and 2 of Book 4 and by the Rules governing the most analogous

nominate contracts and customs of the place

4.) 1308 → Mutuality of contracts = the contract must bind both contracting parties; even if the

lessee is willing or is paying the rent, if the contract of lease has expired, you cannot compel

the lessor to renew the lease contract; the same manner, the bank cannot unilaterally

increase the interest of the loan without the prior consent or agreement by the borrower;

because it goes against the principle of mutuality of contracts; when you say mutuality, the

parties must in essence be equal before the contract, so that it is not right where only one

party is tied to an obligation to the contract, and the other is free to accept or not to accept a

term or obligation arising from a contract

-Note: items that must bind the contracting parties = validity; not correct to negate or deny
liability the condition in a contract, and tie the other party to it; similarly the compliance or
performance of the obligation; it must bind both contracting parties; exception: 1309 and 1310
-1309 → ex.) the determination may be assigned to a third party evaluator or auditor; such

decision must be made known to both contracting parties

-If the determination is evidently inequitable = aggrieved party may still go to court; going to
court is always an option

5.) Relativity of Contracts (1311) (root word: relative) → principle of relativity of contracts;

teaches us the principle that contracts will take effect only between the parties → if you are

an heir and your parent died, such obligation is part of estate that you inherit; you succeed to

the property, rights and obligations (will pass on to the heir); it will also pass on to an assign

- if the credit is assigned (assignee will be able to collect the credit assigned to him);if the

credit is assigned to you, not only the right is assigned, but obligations as well
-Contracts take effect not only between the contracting parties, but also to the heirs and
assigns
-Note (limitation): obligation → heir is not liable to the property

Exception to the principle of relativity:

1.) If by nature, stipulation or by provision of law, that right or obligation is not
transmissible: the right of consortium of your brother to his wife; when your brother
dies, you do not inherit that right (personal right)
a.) Right to receive support = by nature and by law, is not transmissible
2.) Nature
3.) Law
4.) Limit on the liability of the heir to be liable to the obligation of the decedent (limited
liability of the heir)
5.) Stipulation pour autrui → if a contract should contain some stipulation in favor of a third

person, the third person may demand its fulfillment provided that he communicated

his acceptance to obligor before its revocation; stipulation pour autrui = a stipulation

in favor of a third person, conferring to the 3rd person a clear and deliberate favor

upon him; in which such stipulation is merely a part of the contract entered into by the

parties
a.) A 3rd person is allowed to avail of himself a benefit; granted by the terms of
the contract; provided that the parties have made the deliberate and clear
b.) Kauffman vs. PNB = SC found that a bank’s promise to cause a payment for a
definite sum of money in favor of a payee of a check is a stipulation in favor
within the meaning 1311 (2) (page 455 of the book)
c.) Note: to be valid, the following requisites must be present:
i.) There is a stipulation in a contract between two parties in favor of a third
person (if A and B has a contract; A donated a house and Lot to B, then
in that contract of donation, they have agreed that the house may be
used by the children of C until they have finished college, then it is a
stipulation pour autrui, because the main agreement is donation, but a
stipulation is agreed upon by the parties that the house will be used also
by the children of C, while those children are still completing their
college degree, then that benefit in favor of a third person is not the main
subject of the contract, because the main subject is a contract of
donation; but there is a stipulation in favor of a third person)
ii.) Only a part and not the whole of the contract
iii.) Parties must have clearly and deliberately conferred it in favor of a third
person (not an incidental benefit)
iv.) Third person must have accepted that benefit by communicating his
acceptance before its revocation
6.) 1312 → remember when you enter into a contract of chattel mortgage (you bought a

car and you had the car financed by the bank; you are indebted to the bank and you

enter into a chattel mortgage contract); a CM creates a real right, which means in favor

of the bank, so that the bank can foreclose the car even if you sell the car to another

person, the CMC which is annotated at the dorsal portion of the COR, the car is subject

to the CMC even if the car is transferred from the original owner (who is the borrower)

to the buyer
 a.) If you buy a real property like a house and lot, and you do not only examine the
owner’s duplicate CT, but you also examine the original TCT, that is in the
possession of the RD; because you don’t know if there is an annotation if the
title is not clean based on the copy that is filed with the RD; bawat TCT or OCT
dalawang kopya (original TCT which is on file with the RD) and the owner’s
duplicate (nasa baul ng nanay ninyo) - baka may adverse claim or litis
pendencia
b.) The third person acquiring the ownership of such property shall be bound by
the contract entered into by the buyer (assignee of the property)

7.) 1313
8.) 1314

*Gilchrist vs. Cudd (29 Phil. 542) (read this case)

-1315 and 1316 → last of the 5 characteristics of a contract

-1315: principle of consensuality of contracts (root word: consent) → the moment the parties

have agreed to enter into a contract, from the moment the contract is perfected (by mere

consent); the parties are bound not only to the terms they have agreed upon, but also to those

that are implied and incidental; so that parties are bound not only with what they have

expressly stipulated, but to those that they have impliedly agreed upon and to those incidental

to the contract

-Ex.) Contract of Sale → there are express agreements but there are implied warranties;

implied warranties, are part of the agreements that they have agreed upon (even if they are

implied)
-Incidental or part of that kind of contract due to the nature of agreement that they have
entered into

Three kinds of contracts (perfection):

1.) Consensual: perfected by mere consent of parties
a.) Consent, Object and Cause
2.) 1316: real contracts → perfected by the delivery of the object of the obligation

(commodatum, depositum, pledge, mutuum or loan)

a.) Consent, Object, Cause and Delivery
b.) *Perfected contract to deposit or to get a loan from the bank, but the loan itself
is not yet perfected until the money is delivered to you by the bank
 3.) Solemn Contract: not valid until there is compliance with the formalities
a.) Consent, Object, Cause, and Form (compliance with formalities)

HW: the list of cases will be texted via Viber; start with essential requisites of contracts next
meeting

_________________________________________________________________________

Class Notes for March 25, 2021 (Sha):

Recap/review from previous meeting:

-5 fundamental characteristics of the contract:
1. 1159 → obligations arising from contracts are binding upon parties; related to 1306

(autonomy of contracts = freedom to stipulate the terms which are deemed convenient;

for as long as it is not contrary to public morals and policy; once agreed on the terms,

the terms have a force of law between the parties)

a. Note: the stipulations are not laws; because laws apply to everyone; but the
contracting parties are bound by the stipulations
2. Mutuality = the contracts must be equal insofar as the parties are concerned (1308 =
contracts must bind between the parties; validity and compliance cannot be left to the
will of one of them; it is not correct that the party is bound by the terms and the other
is free to violate them)
a. Validity and compliance: validity (if the contract is effective to the parties);
compliance (act to do by the parties)

-1309 and 1310 → determination of the performance may be left to a third person

-1311: relativity of contracts: (root word: relative); under 1311, contracts take effect only
between contracting parties, their heirs and assigns; this is subject to exceptions
*Heirs cannot be held liable for the property inherited by the decedent (which exceeds it)

Exceptions to the Relativity of Contracts (7 exceptions):

-Stipulation pour autrui → 3rd person may claim the benefit
 1.) Clear intention and deliberate intention on the parti of the parties to confer a benefit to
a third person;
2.) Such stipulation must only part of the contract; not the entirety of the contract
a.) Example: donation
-1312: contracts creating real rights → ex.) chattel mortgage contract; real right is a right over

a thing that is enforceable against the whole world (may be enforced against anyone who

may come into possession in ownership of a car) → can be enforced against a third person

-1313: this is the remedy of rescission

*Accion pauliana → collectible from the debtor; and the debtor in order to prevent you from

collecting, transferred assets to another person; contract entered into by him may be

rescinded → even if the creditor is not a party of the contract in disposing the asset of the

debtor, the creditor may file an accion pauliana (because there was an intention to defraud

him)

*Rescissible contracts → *one of the defective contracts

-1314

-1315: consensuality of the contracts → last fundamental characteristic of a contract

*Implied warranties in a contract of sale → parties are bound, even if not expressly agreed

*Bound by incidentals (those incidental to the contract) → due to the nature of the contract

-Note: distinction between consensual, real and solemn contracts (1316)

-Real contracts requires delivery (and three requisites of a contract) in order to perfect the
contract
-Solemn contracts (ex.) donation) → compliance with formalities in order to be valid

*Marriage settlement → needs to be in writing in order to be valid

Essential Requisites of a Contract:

1.) Consent of the contracting parties

2.) Object certain (subject matter)
3.) Cause of the obligation
Note: there are essential elements of obligations → subject (active and passive subject); the

prestation (object of the obligation); vinculum juris (binds the parties to the obligation)

-1319: consent is manifested by the meeting of the offer and the acceptance of the thing

which constitutes the contract → when you say ‘offer’ and ‘acceptance of the offer’; we need

the offer and the offer must be accepted, and in order to have consent in the contracting

parties; note: what are they trying to offer and accept? → the items that they should have

consent, would be the thing and the cause (consideration)

-meeting of the offer and acceptance = thing + cause → constitutes a contract

-If one is making the offer to sell you the car, the offer must be complete → he should be able

to identify which thing he is selling and how much

-consent → most important element is CAPACITY

-Capacity → first, the person must exist (must be alive); if the person is representing another

person, then that representative must be duly authorized

-If the person does not have the capacity because he does not even exist, he cannot give
consent
-Capacity is an indispensable condition for the existence of consent

-Note: distinctions between an offer that is made inter presentes (face to face) and where
the offeror and the offeree are not in face to face (or a contract inter absentees) → 2 kinds

of offer

1.) Inter presentes (face to face offer): the offer must be accepted immediately; this is
especially true if the offer did not provide for a period within which to accept; in the
absence of a period, it must be understood that the offer requires an immediate answer
2.) Inter absentees: (not face to face) offeror has given the offeree a period within which
to accept; then the offeree may accept within the period; provided that the offeree
accepts within the period, and provided that the offer was not yet withdrawn
*If however, there is an option money that is paid (there is a consideration for the period),
then within the period, the offeror cannot withdraw; if there is no consideration, then the offeror
may withdraw; however if the offeree accepts prior to withdrawal, there is a perfected contract
-Remember: we follow the mirror image rule → 1319: acceptance must be absolute; because

a qualified acceptance constitutes a counter offer (acceptance must mirror the offer); if there

is a qualification, then it is a rejection of the offer; where there is a qualified acceptance, it is

a rejection
-If the offer is rejected, then there is no more offer (offeror may not be required to go back to
you to make another offer)

-Note: the offer must be certain, complete and must have an intention and must be serious
(not in jest); acceptance is absolute
-If the offer prescribes the manner of acceptance; that manner of acceptance must be
followed; otherwise it is a qualified acceptance and a rejection

-Acceptance: unequivocal, absolute and unconditional

-If the offer is subject to a condition, and the acceptance removed the condition → qualified

acceptance (effect of rejecting the offer)

-Acceptance included a term = qualified acceptance

-Offer or acceptance by letter or telegram → acceptance comes to the knowledge of the

offeror; if the offeror dies

-1323 → before acceptance is conveyed; A wrote a letter to B offering to sell his car to B, and

B accepts but prior to A receiving the letter of acceptance from B, and then either of them

dies or either of them becomes insane or subject to civil interdiction, then the offer becomes

ineffective (will not result to the perfection of the contract) → the sale did not come into fruition

(no perfected contract of sale that we can talk about)

-Note: if either of them will die prior to the offeror learning of the acceptance of the offeree =
no perfected contract of sale
-At the moment of acceptance of the offer, both of them must be capacitated (indispensable
to consent)
-Note: where there is consent, there could be a contract even if the one giving the consent is

a minor, insane → except that the contract is voidable

-Absence of any of the essential requisites in the contract = then there is no contract (the
contract is inexistent and therefore void)
-1327→ while they cannot give consent to the contract, if they enter into a contract, the

contract is voidable (consent is vitiated by capacity)

-Note; exceptions → even if the party to a contract is a minor, if it is with respect to necessaries

for life, then the contract is valid → they are enforceable against the parents or guardians of

the minors
*necessaries for life: everything that is indispensable for sustenance (clothing, food,
education)

-Minor is guilty of active representation → (represented himself to be of majority age) →

Braganza vs. Villa-Abril

Vices of Consent?
-When you say vices of consent, they are circumstances affecting adversely the parties
entering into the contract; annulment and defectiveness of the contract
1.) Vices of cognition → they include the incapacity of a party to enter into a contract he

enters into

2.) Vices of volition (It’s about the freedom of the person to enter into a contract,

transaction or perform an act) → prevents the party from understanding or from being

fully informed

a.) Violence, intimidation or undue influence → prevents a person or party from

being free to enter into a contract

b.) Note: mistake → inadvertent and excusable disregard of a circumstance

material to a contract (substance of the thing - object; or to those conditions

which have principally moved one of the parties to enter into the contract)

i.) Mistake of identity and qualifications of the parties → only vitiated if it is

the principal cause of the contract (must be the cause or reason of the

constitution of the contract)

ii.) Distinction: mistake of law vs. mistake of fact → the mistake of fact must

not be a result of a neglect of a duty; and with respect of mistake of law,

the person has knowledge of all the facts, but comes to the erroneous
 conclusion as to the legal effect → if you know that the person who is

going to marry you is a notary public, but you erroneously thought that

he is authorized to marry you, then it is a mistake of law and it will not

excuse you; if you know that the person who is going to marry you is a

consul, but you thought erroneously that because he is a consul he is

authorized to marry you → mistake of law (because you know that he is

a consul or a notary public) → the error is with respect to the conclusion

as to the legal effect

(1) If you are inside the chamber of the judge and scheduled to be

married by the judge → the judge got sick that morning and here

comes the clerk of court (wore the robe of the judge) and

conducted the marriage → there is a mistake of fact; someone

misrepresented to be the judge (here, if there is mistake of fact,

then the person may be excused - putative marriage)

*distinguishing mistake of fact and mistake of law → (make up an example)

3.) Vices of fraud
*Consent = must be free, intelligent and spontaneous

-Please take note of 1332

-1333

-Distinction between violence and intimidation → fall under the general term ‘duress’; violence

is external and intimidation is internal; but similar as regard to the effects and the will of the

person, and the contracts that are produced (1335)

-Undue influence: when a person takes improper advantage of his power over the will of
another; deprivation of a freedom of choice; depends upon the circumstances of each case;
the elements:
1.) Person who can be influenced
2.) Improper influence was exerted
3.) Person has submitted to the overwhelming effect of such unlawful conduct
-Loyola vs. CA → a person who is of old age; not sufficient to show that the relationship was

confidential and that the latter can be influenced; to prove a confidential relationship from

which undue influence may arise; the relationship must reflect a controlling dominant

relationship over the person; undue influence is not to be inferred from age, sickness or

debility of body, if sufficient intelligence still remains

-Concept of contracts of adhesion → is generally speaking, valid; not per se an inefficacious,

or not defective; however, with respect to a contract of adhesion → while a contract of

adhesion is valid and effective and binding; if there are ambiguities in the terms of that

contract of adhesion, those ambiguities are to be construed against the party who prepared

the adhesion contract → ex.) plane ticket (take it or leave it contract) → the terms in the plane

ticket are valid and effective; however if there are ambiguities, usch can be construed against

the party who crafted or prepared the contract; if however, the stipulations therein are not

obscure but they are clear and leave no doubt of the intention of the parties, the literal

meaning of the stipulations must be held controlling and binding upon the parties

*Do not conclude that because it is a contract of adhesion, it is invalid → it is valid and
binding upon the parties per se (subject to exceptions)

-Remember, we distinguished the two kinds of fraud → fraud in obligations

1.) 1170 → the fraud committed in the performance of a pre-existing obligation; a fraud is

committed to avoid a performance of an obligation

a.) Negligence vs. fraud → negligence: there is no malice; fraud: the party guilty of

fraud intentionally or maliciously is avoiding to perform the obligation

2.) 1338 → fraud committed at the birth of the obligation or contract; fraud is committed in

order to obtain the consent of the party to a contract; insidious words or machinations

to convince you to enter into a contract (last requisite is important: which without them

he would not have agreed to → if the last requisite is NOT present, then the fraud there

is an incidental fraud and not a causal fraud)

* 1344 → a fraud was made, there was fraud; however, the party will nevertheless enter into

a contract with or without that fraud

*1717 → fraud in connection with the performance of an existing contract

-1338: fraud will result in the contract becoming voidable

-1334: contract will remain valid; but the party who applied the fraud will be liable for damages
-1717: party guilty of breach or fraud is also liable for damages

-1339 → agent and principal, solidary creditors (bound by confidential relationship)

-1340: the usual exaggerations in trade, when the other party had an opportunity to know the

facts → the seller of a condominium will tell you a lot about the condo; take note that the buyer

of the condo has a way to verify because the master deed is available for inspection (can go

and check the master deed and validate whether the facilities mentioned by the seller are

indeed included in the blueprint of the condominium)

-1341: mere expression of an opinion → if an agent who is selling to you a gold ring, will tell

you the karat of the gold ring, a mere expression of an opinion does not signify fraud, unless

he happens to be an expert and the other party relies on the former’s special knowledge

-Take note of simulation of contracts → another requirement of consent is that, the consent

must not only be intelligent, must not only be free, and spontaneous; if the consent is not
intelligent, then probably the consent is vitiated; the last element that must be present for a

consent to be valid: it must be true → if the consent was made in jest or it is simulated,
therefore, it is not true
*For a consent to be valid: intelligent, free and spontaneous, and it must be true
-if it is not true, then the consent is simulated → there is a distinction:

1.) Relatively simulated contract → the contract is valid, but parties is bound by their true

agreement; if the true agreement is donation, but they made it appear that there is a

sale, then they are bound by their true agreements which is donation; a relatively
 simulated contracts binds the contracting parties to their true agreement; except if it

will prejudice a third person or if it is intended for a purpose that is contrary to laws,

morals, public order and policy

a.) Avoid the payment of taxes = altered the consideration of the contract of sale

(there is a relative simulation -- consideration is simulated) = the parties are

bound by their true agreement which is five million; except: prejudices the

government → then, insofar as the government is concerned, the relatively

simulated contract will not be binding upon the government (cannot be

prevented from investigating in determining the true agreement of the parties;

zonal valuation ang susundin ng government)

2.) Absolutely simulated contract → the parties do not intend to be bound at all; so that,

the contract is void, because of absence of consent (when a party does not intend to

be bound at all, there is no consent) → ex.) Tanchuling vs. Cantela = the subject deed

was absolutely simulated, because it was executed merely as a front to show the

public that Tanchuling was the owner of the property in order to prevent another group

from illegally selling the same

a.) A simulation may also be relatively simulated

Object of Contracts:
-Prestation or conduct required to be observed; to give, to do or not to do
-For instance, in a contract of sale of a determinate car, the prestation is to deliver the car
and to pay the price; object of the contract is the determinate car
-The car is the object of the contract
-Pretation differs depending on which party you are talking about
-Valid: object must be transmissible and within the commerce of man (ex.) ocean, road are
not within the commerce of man)
-Object must be transmissible → must not be contrary to law, morals and public policy; it must

be possible and determinate as to its kind; the object being offered must be determinate as

to its kind (should be able to determine what is being sold)

-Future things may be a valid object of a contract → so, generally speaking, the object must

be in existence at the time of the perfection of the contract; or must be in existence in the

future (things that have yet to be manufactured) → you can actually sell a property that you

do not own, for as long as the thing can be delivered to the buyer at the time of delivery

Exception: future inheritance is not a valid object of a contract → a property of a decedent

prior to the opening of the succession; succession opens at the time of the death of the

decedent; exception → in case of absence of 10 years (estate may be settled)

-1348 → impossible things or services = you cannot sell a person

Cause of Contracts:
-Distinction between the kind of contract:
1.) Onerous = cause for each contracting party; the prestation or promise of a thing or
service by the other
2.) Remuneratory = there is a previous service that was done which does not constitute

an obligation, and thereafter, a reward was made → service is benefit which si

remunerated

3.) Pure Beneficence = (donation) → liberality of the benefactor

-Note: distinction between object and cause

-Gratuitous contract = object is the thing given in donation; cause is the pure liberality of the
benefactor (love and affection to the donnee)
-Remuneratory contract = a person who saved the life of his son, and there is no obligation

to save the life of his son, and because of the service or benefit which was not due of in an

obligation, a reward was given, by way of remuneration → the reward is the object while the

service is the cause

-Insofar as the seller is concerned, his prestation is to deliver the car; the buyer’s prestation
is to pay the price; the object of the contract is the car. On the other hand, the price is the
cause

-Cause vs. particular motives of the parties in entering into the contract
-Cause: essential reason to move the parties in a contract; immediate, direct and proximate
reason which justifies the creation of the obligation through the will of the parties
-Motive: emotional, psychological reason as to why the person enters into a contract
ex.) purchase of a land, the land itself is the consideration as regard to the vendee; the vendor
= payment of the price; motive = buyer’s motive is to use the land to construct a warehouse

-Liguez vs. CA (page 565) = while there is a distinction between the cause and the motive;

where the cause and the motive has merged, or have merged, because the cause has

predetermined the purpose of the contract → yung matandang DOM, nag donate ng 14 year

old na bata, because gusto niya maging mistress yung bata, the old man’s motive is bad; and

donation is the liberality of the benefactor, but in this case, the cause has predetermined the
purpose of the donor in entering into the contract, and the cause and motive have merged,

and considering that the motive here which became the cause is immoral, therefore, the

donation is void but even if it is void, the the DOM who died including the heirs of the DOM

cannot file an action in order to annul the contract of donation because, they are estopped

from filing the action because they are bound by the fact that the donor was the one who

caused the donation, and are bound by the action of the donor → when the motive

predetermines the cause, then the motive can be regarded as the cause

-The cause must exist in order to be valid (must also be true and legal) → Ligas vs. CA: cause

is not legal because the motive predetermines the cause (and the motive was immoral) →

therefore the cause is invalid

Forms of Contracts:
-1356: general rule → with respect to form, contracts shall be obligatory in whatever form they

may have been entered into (all requisites for validity are present) → a contract may be

entered into in any form (may be oral or in writing)

-If the law requires that a contract be in some form (ex.) deed of donation or a marriage

settlement) → that requirement is absolute and indispensable

-1403 (2) → statute of frauds = contracts mentioned therein, must be in a memorandum

-with respect to form, we should understand that generally speaking a form is not required in
order that the contract will be obligatory

-sale of a real property → it is not required to be in a public instrument in order to be valid; if

you want to register that sale, then you can demand that the sale be notarized; similarly the

sale of a car (it does not have to be notarized in order to be valid; but it requires to be in

writing in order to be enforceable) → enforceability = the limitations of the statute of frauds will

apply if the contract is merely executory (once it is executed already, then kahit oral contract

of a sale of a car, it is valid) → the problem is, if you want to register it, then you have to

demand that it be notarized (1357)

-1358: merely formalities for the purpose of making the contract efficacious (for efficacy; but
not formalities for validity and enforceability)

-Validity → contract of donation and other contracts (ex.) marriage settlement under the Family

Code)

-Form is not required for the validity of a transaction or contract → as a general rule under

1356

-1358: contracts whose formalities are merely required for purposes of efficacy but not for
validity or for enforceability
-1358 (1) → covered siya ng 1403 (2) on statute of frauds (required to be in writing); but only

applies to executory contracts = pag may binayaran na, then the statute of frauds do not apply
anymore

HW: read Chapter 4 (Reformation of Instruments)

-Administrative matters: three more classes left before MTE week: March 30th, April 6 and
8
-MTE Week: April 12 to 17 2021
April 5, 2021 - Caryl
Essential requisites of contracts

3 essential req.
- Consent
- Object
- Cause

Consent
Req.
1. Presence of 2 parties plurality
2. Giving them consent must possess the capacity
3. There should be no vice or defect in the wills of the contracting parties
4. Express consent
5. No conflict between the parties

1319
Offer must be complete and definite
He has an intention to enter in a contract must be serious.

Necessary that acceptance must be absolute. If the acceptance will vary the terms, it is a
counter-offer or a rejection of the offer.

Mirror image rule - acceptance must be identical such acceptance must be qualified.
Acceptance must not contain any variation.

If 2 installments- it is a qualified acceptance

When there is a counter offer, it will be extinguished.

Withdrawn prior to the acceptance of the offeree.

Distinction between an offer inter praesentes - it is the offeror and offeree in face to face;
must be accepted immediately.

Distinguish from contract inter absentees - offeror and offeree are in different places.
Letter by telegram does not bind the parties until it comes to the knowledge of the offeree.
April 5 the offeror makes an offer to the offeree in manila by email and the offeror sends a
letter to the offeree if offeree receives the letter on apr. 6 and the same day he writes the
letter to oferror and a receives the letter on 7th then the contract is perfected on the 7th.

Art. 1323 - we follow the cognition theory - from the moment the knowledge comes from the
offeree.

Offer becomes ineffective upon the death, incapacity, insanity or civil interdiction. Both must
have the capacity to enter in a contract.

1321 - (VIP)
- In relation to consent
- Acceptance must be absolute
- (Contract of sale) Must agree not only the price but also the manner.

If there is an agreement between the parties with respect to how much is the price of the sale,
it doesn’t mean that there is no consent but just defect as to the price.

With respect to 1324 - option

General rule is that the offer must be accepted immediately.
Exception: Option contract/period
Then that the offeree has a certain period within which he can accept the contract.

A Contract of option is a preparatory contract.

Option to sell is given without consideration, it is an offer to sell until accepted. Once accepted,
it is a binding contract of sale.

1327
1328
1329

Two kinds of vices of consent

1. Vices of cognition - something to do with intelligence (incapacity, mistake or fraud)
Mistake must be inadvertent or not intentional or reckless
2. Vices of volition - Something to do with freedom or spontaneity to perform an act.

A contract must be entered into intelligently and with freedom

Vices of consent
1. Capacity - effect: void of voidable
Void- if it is already dead
Voidable-When a minor enters in a contract, there is consent but because of the
minority, the consent is vitiated by minority or drunkenness. Not entirely void but
voidable.
E: When necessaries for life are sold and delivered to minor, minor must pay a
reasonable price of what was delivered to him.

E: If the minor misrepresented his minority, no negligence on the other party and the
other party has no way to discern the minority. The minor is bound by the contract
through estoppel (art. 1421)

Unenforceable- both parties incapacitated.

The guardian of one them will ratify the contract, it becomes voidable (valid until
annulled) then it will produce legal effect.

Active misrepresentation - he misrepresented himself actively that he is of majority or

legal age.

Passive misrepresentation - no stipulation to a contract.

Contract entered into during a lucid interval is a valid contract.

State as a vice of consent

Negligence in the performance of breaching a contract and also fraud.
Mistake will vitiate consent and fraud, incapacity.

Mistake of fact vs. mistake of law

Mistake of fact- when the marriage is celebrated with the one who does not have
authority to solemnize marriage (void); could be valid if the contracting parties believes
that he has the capacity to solemnize marriage.

Mistake of law - mistakenly thought because although he is a consul, because a consul

cannot validly celebrate the marriage in a country where he is not assigned.

When one of the parties is illiterate. (1332)

1333 (***)
Mistake must be excusable

Party knew the doubt was being sold, so there was no mistake.
Undue influence, take a look at the contract of adhesion. Example of this is a plane
ticket.

1337 - if a person is in need of money and contracted a loan and misrepresented

himself. There’s undue influence because there’s an undue use of power.

Contracts of adhesion are not illegal per se. The stipulations or the terms are not
obsque and no doubt on the intention of the parties.

If the contract has ambiguities, it shall be construed against the one who drafted the
contract.

Fraud
2 kinds of fraud
1. Fraud committed during the performance of an existing obligation (1170 &
1171) - payment of damages

2. Fraud committed at the birth of the contract (dolo causante) (dolo incidente)
(dolo causante)- 1338 (VIP)
(dolo incidente) - 1344

1344- in order to become voidable, it must be serious.

1340 - Exaggerations of salesman is not fraudulent
1341 - Expression of opinion is not fraudulent
1340-1341 (***)

Simulation of contract may be absolute or relative.

If relative - the parties wanted to conceal their true agreement.
Active - parties does not intend to be bound at all.

1345
1346
1349 - you should know that the object is determinate as to its kind, otherwise the offer
is not certain and therefore the offer is void.

1347 - future things

E: future inheritance on the grounds of public policy.

If the object is uncertain, then the absence of object will result in the contract becoming
void. Also impossible things and outside the commerce of man.
 Lesion or inadequacy of cause shall not invalidate the contract except if there is fraud,
mistake or undue influence. In such cases, the contract is merely voidable.

Form of contracts - 1356 *****

Essential requisites: Consent, object and cause

Contract of donation must comply with formalities in order to be valid.

1. Consent
2. Object
3. Cause
4. Form
A contract of donation is a solemn contract.
If donation is more than 5k, it must be in writing.

If the donation is real prop regardless of the value, the donation must be in a public instrument.

1403 (2) statute of frauds

Under unenforceable contracts
If there are partial payments, statute of frauds do not apply.

Formalities

Next: Defective contracts

_________________________________________________________________________

Class Notes for April 5, 2021: (Sha)

Administrative Matters: April 19 to 24 = MTE week

April: 6, 8, 13 and 15 = four periods left

Recap on some topics:

Essential Requisites of a contract:

1.) Consent
2.) Object (subject matter of the contract)
3.) Cause

CONSENT: (most abused part of contract)

 1.) Requisites of consent
a.) For there to be consent, there should be two parties; the reason why a quasi-
contract is a quasi-contract is because there is only one party
b.) Plurality of parties
c.) The parties must be capable of formulating a desire in a rational and

conscientious manner → importante ang capability ng tao; they must be

capacitate

d.) Juridical and capacity to act→ Juridical capacity: the fitness of the person to be

subject of a legal relation → the person is dead = NOT capacitated (contract is

void)
e.) Absence of consent = makes the contract void
-If a person’s signature is forged, the contract of party whose signature is forged is void
-If a co-owner enters into a contract on behalf of co-owners: it will not bind the co-owners due
to the absence of consent (absence of authorization from the other co-owners); there is no
consent because a party is incapable of expressing his desire

-The person must also have the capacity to act (has something to do with the capacity of the

person) → when a person is born, has the juridical capacity; but before acquiring the capacity

to act, he must reach the age of majority; there are limitations on capacity to act such as

marriage, insanity or the state of being deaf mute, intoxication, or when a person is under

hypnotic spell: then his capacity to act is restricted or limited; when a person’s capacity to act

is defective, then it vitiates the consent

-Two kinds of vices of consent:

1.) Cognition
a.) Capacity: if the person is a minor, then his capacity to act is limited or restricted;
when this is the case, then the contract is not void but voidable
b.) When the person does not have the capacity or the juridical capacity, then the
contract created is void
c.) On the other hand when the person has juridical capacity, but the
capacity to act is limited (due to minority for example), then the contract
is voidable
d.) When it is voidable, it is valid until annulled
2.) Volition
-For consent to be valid: intelligent, free and true; when you say the consent is intelligent =
the consent must not be vitiated by the vices of cognition

-Two exceptions with minority:

1.) When the contract pertains to necessaries for life and resulted in the benefit of the
minor
2.) Where there is active misrepresentation = the minor represented himself to be of

majority age, and there is no negligence of the other party (and such party is not aware

that the other party is a minor); and she stated in the contract that she is of legal age

→ by virtue of the principle of estoppel, she could not deny her liability when she

entered into the contract

*Two kinds of misrepresentation:

1.) Constructive or passive
2.) Active

-Note: while the general rule is, where for instance, the capacity to act → one of the restrictions

is marriage: but remember, if you will still remember in the Family Code, a contract entered

into by a spouse, an act of disposition or dominion, sale or encumbrance of a property

belonging to the ACP or CPG = the contract is void; generally speaking, if there is no authority,

it is like the rules of co-ownership that will apply

-However what is odd with respect to the FC: when the contract entered into by the husband
without the written signature of the wife, is void; but it will have the effect of a continuing offer
which may be ratified if later on, the wife will agree to the sale earlier entered into by the
husband (this is the only exception of a void contract which is subject to ratification)

-1319: (VIP) → mirror image rule doctrine: provides that when there is an offer, the acceptance

musst be identical so as to produce consent and meeting of the minds; the acceptance must

mirror the offer; that is the reason for 1321

-1321: (VIP) → in other words, even if the offer is to sell a car for P100k, but the acceptance

states “he accepts but would like to pay in two installments,” then it is a qualified acceptance;

if is a qualified acceptance, it is a counter offer; a counter offer is a REJECTION

-Where the acceptance is qualified, then the offer is rejected; when the offer is rejected, the

offer is extinguished → you cannot go back; there is no more offer; the offer is extinguished is

withdraw, when there is a qualified acceptance, or revoked

-Note: (General Rule): the rule is, if the offer is made inter praesentes, the acceptance must

be immediate; pag tumalikod siya at hindi mo inaccept, there is no more offer → you have to

accept it on that occasion

-Exception: when there is an option → a contract of option is a preparatory contract, which

one party grants to another for a fixed period; the power to decide whether or not a principal

contract shall be entered into

-Option period: where the offeror merely gives the offeree a period, it is an option period, but

not necessarily an option contract; for the period to become an option contract, it must be

supported by a consideration of something paid or promised; if the offer is made

interpresentes, it must be accepted immediately, unless there is a period called an option

period → giving the offeree a certain period within which to accept

-Now, what is the purpose of the period? → a time given to the offeree to decide; it is also a

time during which the offer is still available and open; but because the option period is not

supported by a consideration, it may be withdrawn anytime by the offeror by informing the

offeree of his withdrawal (he cannot abuse without simply withdrawing it without informing the

offeree)
-if the offeree accepts during the option period: results in a perfected contract (even if not
supported by a consideration); for as long as the acceptance is done prior to the expiration of
the option period
-If there is a consideration, then the power is transferred to the offeree → has the privilege of

contemplating during that period; the period may not be withdrawn prior to the expiration

-Note: the consideration is called “option money” → different form an earnest money

-Option money: consideration for the option contract → the offeror cannot withdraw that option

prior to the expiration; therefore, he cannot offer it to other persons; he has given the offeree
the exclusive right whether to accept or not to acept the offer during that option period; the

option money supporting the contract (should be distinguished from an earnest money)
-Earnest money: forms part of the price (advance payment)

-Consideration for the option: either be paid or promised → it is possible that the consideration

has not yet been hounded (the law is clear: the consideration in the contract of option, is

something paid or promised; so either the consideration could be money that is paid or

pinakape ka, or promised na babayaran ng P1k basta hold on to the option) → that is a

sufficient consideration to perfect a contract of option

-A contract entered into inter absentes: not face to face (Article 1319 (2) in relation to Article

1323) → where the offer is made inter presentes, unusual na mangyari ito (bago umoo siya,

bigla na lang siyang namatay = hindi normal na mangyayari kapag inter presentes)

-If A is in Davao and he made an offer to sell his house in Manila due to the pandemic; and

he made an offer to sell his house for P5M; and the offer was written and sent in a mail on

April 6 and received on the 7th and on the same day, B mails his acceptance; and after

mailing, B was on his way home and got into an accident and died; following day after mailing

acceptance; A received the acceptance: question → was there a perfected contract of sale?

= No. We follow the cognition theory → contract is perfected when the acceptance comes to

the knowledge of the offeror

-Prior to A’s receiving the acceptance of B, there is no perfected contract of sale; 1323, the
offer is ineffective upon the death of B → before acceptance is conveyed (both parties must

be alive and are capable of giving consent)

*Either of them will die, then there is no perfected contract of sale = at that point in time, both
of them must be alive because he died prior to the offeror learning of the acceptance of the
offeree then there is no perfected contract of sale

-Note: with respect to consent → very important (1319) for the offer to be certain, it must be

complete; it must contain the object and the cause; if the object is being sold without a price,

then the offer is not certain, then it is not possible for the offeree to be able to accept it
-similarly, under 1321: if the offeror prescribes the exclusive manner in which acceptance of
his offer shall be indicated by the offeree, the acceptance must be in accordance with the
prescribed manner as prescribed by the offeror; otherwise, there is no perfected contract;
acceptance must be unequivocal and unconditional

-In a contract of sale: the parties must agree not only as to the price, but also as to the manner
of the payment of the price; here, it is again related to consent; if the manner as to the
payment to the price is not complied with, then there is no consent and perfected contract
(due to the absence of consent)

Vices of Consent:
1.) Cognition: three vices of cognition
2.) Volition:
a.) Violence and intimidation = duress
b.) The other thing that we will have to take note: undue influence → remember in

undue influence, the idea of this is that one party taking advantage of his power

over the will of another, depriving the latter of the reasonable freedom of

choice; the consent of the party was not anymore free; where the consent is

vitiated, then the consent is not free

*Favorite dito: is the contract of adhesion

-Contract of Adhesion → ex.) airline tickets or boat tickets: one party preparing the terms of

the contract, and he has taken advantage over the will of another because when you buy an

airplane ticket, it is a take it or leave it situation

*due to this situation, the one who prepared the contract has taken advantage of the will of
another

-Contracts of adhesion are valid and binding per se; if the terms of the contract are not
obscure and are clear, then they will be given effect; if the terms of the these contracts are
clear and not obscure and leave no doubt as to the intention of the parties, then they are
binding; however if there are terms in these contracts that are ambiguous, then the rule is,
because of the nature of the contract, the ambiguities shall be construed against the person
who prepared the contract

The other two vices of cognition:

1.) Mistake
2.) Fraud
-Delay, breach, in contravention of the tenor of the obligations
-1170 and 1171 = there is fraud which is a ground; if committed will result in the breach of the
obligation
-On the other hand, when we come to the chapter on consent → one of those vice that may

possibly vitiate consent is fraud (different type of fraud ito)

-Fraud in 1171 = committed in the performance of an existing obligation, and the result is that
under 1170, the party guilty of that fraud shall be liable for damages

-On the other hand, the fraud that we are talking about which will vitiate consent: committed
at the birth of the obligation which in the case of contract (at the time of the perfection of the

contract) → committed at the birth of the obligation (perfection of the contract); this is 1338

(casual fraud)

-1338: because of that fraud, the party who agreed is induced to enter into the contract → this

is the fraud that will result in the contract becoming voidable

Two types of fraud:

-1170 and 1171
-1338 → consequence or legal effect is that the contract is voidable (causal fraud)

-Incidental fraud (1344 (2)) → fraud was committed still; it will result in the payment of

damages; it will make the party guilty and liable for damages

-1340: usual exaggerations in trade → when an agent sells a condo; we have a way of

validating and checking the master deed, whether or not the facilities are going to be included

in the condo; they are mere exaggerations in trade (is not fraudulent)

-1341: person making the opinion is not the expert (ex.) trying to sell gold) → also not

fraudulent

*Ang tunay na measurement is 1344 (1)

Mistake:
-It is a vice of cognition also, because when a person or a party entering into a contract is
mistaken; there was a mistake; then, he could not intelligently understand the true nature of
the contract that he entered into; he is operating under a mistake of fact

-When it is a mistake of fact, it might excuse him of liability → ex.) putative marriage

-Mistake of Law (your understanding of the law) → ex.) A marriage is void when there is a lack

of authority of the solemnizing officer → akala mo notario ay pwede magkasal, it is a mistake

of law; it will make the marriage void

-Remember: the mistake must refer to the object of the contract; yung tinatawag ditong
'substance of the thing’ = object
*And also remember the cause → 1319

-1331
-Mistake: either the object or the cause (principal conditions or most probably it has something
to do with the consideration or price of the contract)

-Identity or qualification = constitute mistake only if they qualify as a cause

-For a consent to be valid, the consent must not only be intelligent, but it must also be
free and be true; when you say true, it must not be simulated or in jest (if this is the
case, then there is no real consent)
-Simulated: absolute and relatively simulated
1.) Absolute: the parties do not intend to be bound at all, and the contract is void due to

lack of consent → ex.) marriage in jest (kasal-kasalan lang)

2.) Relatively simulated → the parties merely wanted to conceal their true agreement →
ex.) they put a price to the contract instead of making it appear that they really entered

into a contract of donation; when such is relatively simulated, the parties will be bound

by their true agreement (which is the deed of donation); except when the intention of

the parties is for a purpose that is contrary to morals, public order or policy

OBJECT:
-1349 = when you say determinate, what does it mean? → it must be determinate as to its

kind; you know that what you are selling is a car and there is no ambiguity; it could not be
understood as any other thing; it does not have to be the exact unique car, but
determinate up to its kind (ex.) a horse or a carabao)
*Note: This is different from a determinate obligation

-What is merely required: determinate as to its kind

-With respect to quantity: for as long as you don’t have to enter into another contract in order
to determine the quantity, then the contract is valid insofar as the object is concerned
-When it comes to object → future things may be a valid object of a contract (ex.) unborn

puppies); does not have to be in existence at the time the contract was constituted or

perfected upon the parties

-Exception: future inheritance = right of the heirs is merely inchoate (not a proper object of a
contract)

CAUSE:
-The proximate reason; justifies the creation of the will of the contracting parties
*Note: distinguish 1350, 1355
-Lesion or inadequacy of cause = there is an indication that the price does not correspond to

the value of the thing subject to the contract of sale; while the cause there is inadequate, it

will not invalidate the contract → except when the consent is vitiate (fraud, mistake or undue

influence)

-There is absence of cause → the contract is void because of lack of one of the essential

requisites of a contract; but even if the cause is not stated, the cause is presumed → when

parties enter into a contract

-One of the grounds to be rescissible is lesion → 1381 and 1382 (rescissible contracts)

FORM:
-1356: (VIP) → contracts shall be obligatory = due to 1159 (obligatory force of a contract)
-1356 in relation to 1306 (autonomy of contracts)
-The premise is contracts shall be obligatory in whatever form they are entered into between
the contracting parties (it will bind them)
-We are not talking of the other persons around them
-When we are referring to the contracting parties and their heirs and assigns (principle of
relativity of contracts)
-Subject to one condition: all the essential requisites for their validity are present: consent,
object and cause
*Form is not an essential requisite of a contract

-Exceptions: if the law requires that a contract be in some form, in order for it to be valid (ex.)

contract of donation → must comply with certain formalities and solemnities - delivery as well)
-Spouses will enter into a prenup = it must be in writing as well (or else the marriage
settlement is void)

-A form is required in order for it to be proved in a certain way (1403 (2) - statute of frauds
= applies to executory contracts and NOT TO EXECUTORY CONTRACTS)
*The form is a requirement for enforceability or validity

-1357 and 1358

-1357: when there was an oral sale of a car → obligatory between the two parties; in order for

the sale to be registered, you can demand from the seller to have it in writing and be notarized

(it is obligatory); will not fall under statute of frauds

*if there is a partial payment or delivery, statute of frauds will no longer apply
-1358: forms are required for efficacy but not for validity and enforceability → the contract is

valid, but it cannot be registered kasi kailangan panotariohan mo (ex.) waiver of inheritance

must be in a public instrument)

April 7, 2021 - Caryl

1356 contracts shall be obligatory between the contracting parties whether it is oral or written
-> conssent, object and cause are present.

Obligatory - > 1359 ; -> 1306

Laws that the contract be in some form in order to be valid like donation, statute of frauds.
Otherwise, void. (SOLEMN CONTRACTS)
Consent, Object, Cause and form.

Statute of fraud applies only to executory contracts. Not to executed contracts.

If there is a partial payment, statute of frauds do not apply.

1357 - If the law requires that form shall be complied with, you may compel the other party to
fulfill the contract for the purpose of efficacy
1357& 1358 = For efficacy (once the contract has been perfected, the party may require the
other for the purpose of efficacy)

1358- contracts for public policy or efficaciousness.

REFORMATION OF INSTRUMENTS

Requisites in reformation of instrument

1. There is a perfected contract. There is a consent/ agreement. (1359: meeting of minds
of the parties)
Problem only: the piece of paper that is supposed to contain the agreement does not
embody what they have been agreed upon.
Reformation is not the remedy but the annulment of contract.
Reformation presupposes that there is a valid contract
1366 *****
Skip interpretation of contracts

Defective contracts:
Recissible, voidable, unenforceable and void & inexistent contracts

Recissible - Premise: The contract is valid.

- Perfectly valid contract
- Subsidiary remedy
- Disturb a valid contract of we suffered an injury and lesion
- Cannot be ratified
- Right to file an action for rescission may prescribe

If the suffering is too low, we cannot invalidate a contract unless there is undue influence,
fraud or vitiated consent. (contract is voidable)

1380 - Validly agreed upon. *****

1355

1177
1380, 81,82 & 83 - Rescissible contract

1381-
1382 -
1: Minor, insane person.

1& 2 : the one who can file rescission is the party

With respect to absentee, he can when he reappears.
3: Encircle creditor - third person -> Accion Pauliana
CA & DB transferred his properties to C.

4: Plaintiff sold the property of the defendant w/o consent.

1382- Payment made in the state of insolvency.

1383- It is a subsidiary remedy;
1355 (1&2 exception to 1382)

1384- precision to only in the extent necessary to cover damages.

- Partial annulment of contract

Recission will not take place to those who acted in bad faith.
Remedy: Damages

Rescission will not take place if approved by the court.

1387 - Badges of fraud; Indication that the contract is fraudulent.

750
Donation of prop by donor may be revoked if:
- The donor after making the donation, it turns out it has a child or dead child but alive.
- If he did not reserve properties in order to pay his debts; may be revoked or reduced
or qualify as inofficious.
- Donor did not reserve sufficient property; the donation is fraudulent and may be
rescinded.
- Transfers prop after he received it and the property is subject of the litigation
- No rescission if it is in the hands of a third person who did not act in bad faith.

1389- Pres period 4 years; Reckoned depending on the kind of contract.

Creditor running after the debtor who entered into fraudulent contract, the 4 yr pres period
shall be counted from the day that C has no more other legal remedies to collect his credit.

Case of Anchor savings bank

Voidable contract (valid until annulled )

- Simple
- 2 kinds:
1. Entered into by incapacitated person.
2. Consent is vitiated by mistake, violence, intimidation or fraud.
- There is problem in consent
 - Pres period: 4 years shall be counted depending on the cause (from the time that the
consent has ceased); if fraud- from the time of the discovery of fraud and if mistake,
from the time of the discovery of mistake
- If minor: From the time he breached the age of majority.
- Susceptible of ratification

Remember 2 kinds vices of consent: Cognition & Volition

1393 - may be ratified impliedly or expressly

Tacitly if you accepted benefits if the defect has ceased; you did not refuse nor file an action;
you waived the right

May be ratified by the guardian who entered in a contract.

In rescission, could either be a party of third person.

In annulment, action may only be filed by the party in relation to the voidable contract.

Person who can file for annulment must have an interest in the contract.

Similar to rescission when the contract is annulled, there should be a restoration of what they
may have received.

Incapacitated person
1399
Exception when a contract has been entered into by a minor is voidable:
1. When the object of the contract entered into is necessary or susceptible.
2. Estoppel by active misrepresentation.
3. No negligence of the other party and has no knowledge with his minority.

1400 in relation to 1398

1398- if the contract is annulled, return to status pro-ante.

Benefited = necessaries for life

Next meeting:
Consequences of annulment of contracts (Art 1400)

_________________________________________________________________________

Class Notes for April 8, 2021: (Sha)

-1356: forms of contracts and the rule with respect to forms, is that generally speaking,
contracts shall be obligatory in whatever form it has been entered into; provided that all the
essential requisites for validity of a contract are present; obligations is under 1159 and in
relation to 1306

-However it is subject to certain exceptions:

1) Law requires that the contract shall comply with certain formalities: (ex.) solemn
contracts)
a) Donation
b) Marriage settlements
2) Unenforceable contracts → there should be some note or memorandum subscribed by

the party charged for the purpose of enforceability (to enforce a contract against a

party thereto); note: the rule on statutory of frauds only applies to executory
contracts and NOT executed contracts (ex.) sale of a car for P100k, it may be
enforceable for as long as there is a full or partial performance such as delivery and
payment = it no longer needs the application of the statute of frauds)
-1357 and 1358:
-1357: once the contract has been entered into; there is already a perfected consent, a party
thereto may compel the other to oblige; thereafter, once the contract is perfected, the buyer
who would like to register the sale of the car may compel the other to reduce the contract to
a public instrument so that the public instrument may be brought to the LTO and register; the
contract is considered to be perfectly valid
-1358 → forms are required for efficacy purposes (but not for the validity and enforceability of

the contract)

ex.) paragraph 1 of 1358 → must be in writing only

Par. 2 → the requirement, here if at all, it doesn’t have to be in writing even in oral, for as long

as it shall be obligatory between the contracting parties → the requirement here is for the

purpose of efficacy
*To be in writing requirement = for mere enforceability
*Rules on Statute of Frauds = only applies to executory contracts (VIP)

Reformation of Instruments:
-instrument: piece of paper where the contract is embodied or written; contract per se does
not have to be in writing; but in reformation, the premise is, there is a meeting of the minds
between the contracting parties (there is a valid contract), but the instrument or paper which
is supposed to embody the agreement, failed to contain what they have agreed upon, due to
a mistake (typographical error), fraud (nanloko), or due to inequitable conduct or accident; it
does not have to do anything with the validity of the contract; the contract is considered to be
valid
-If the other will refuse to amend the contract, then go to court to file an action for reformation
(correction of the instrument)
-Note: if the problem is because the consent is vitiated due to mistake, fraud, undue influence

→ remedy is not reformation, but the remedy is annulment of the contract

-Reformation: the premise is that there is a meeting of the minds between the contracting
parties; except that their true intention was not reflected in the instrument that is supposed to
embody the terms that the have agreed upon (mutual mistake or mistake of the contracting
parties; or mistake of a third person like a clerk)

-1366 (VIP) → instances wherein the real agreement is void: it will be void if one or two of the

essential requisites of a valid contract are not present or when it is illegal, or when the COP

of the contract is contrary to laws, morals, public order and policy; there is nothing you can

do about it because the the contract is void or inexistent

*Skip Interpretation of Contracts

Rescissible Contracts:
-Four kinds of defective contracts:
1.) Rescissible
2.) Voidable
3.) Unenforceable
4.) Void or inexistent

Rescissible Contracts:
-1177 → very important provision; it provides the creditor the remedies when the principal

actions have failed

-Principal and subsidiary actions
-Principal actions → 1165: the action we can pursue is to demand specific performance or if

the thing agreed upon cannot be delivered, the only recourse is to file an action for equivalent

performance (payment of damages)

-Obligation to deliver a generic thing → demand the performance of the obligation; otherwise,

the recourse is to file an action for a substituted performance; but if you suffer damages as a
result because the substitute is more expensive, you can also file an action for equivalent

performance as an alternative remedy

*Action for equivalent performance = universal action available → 1177; you are demanding

for the payment of hte money; if no cash, you run after the property; pag walang pera, then

you exhaust the assets of the debtor; if no tangible property, then you go after his intangible

properties → that is what you do when you explore the subsidiary remedy of accion

subrogatoria (1177 → you step into the shoes of the debtor, and to file an action against the

debtor’s debtors)

-Last remedy: if your debtor will transfer his properties ahead; and the transfer of those

properties were fraudulently done, then the last remedy available = subsidiary remedy (accion

pauliana) → this may be filed by a creditor, if it has been found that 1381 (3) is related to 1177

-1355: Lesion or inadequacy of cause shall not invalidate a contract; unless: there has been

fraud, mistake or undue influence → lesion or inadequacy of cause (substantially low price of

the sale of a property) would not mean that the contract is invalid or defective; because if

there is consent, object and cause, then the contract is valid; but if the cause is simply low, it

does not mean that the contract is void; exception is 1355 → if consent is vitiated by mistake,

fraud or undue influence = kasi baka nagkamali or may panloloko

-Undue influence ang vice that made the contract defective → the contract is voidable in this

case

-To be void, kailangan absent ang cause

-Voidable = dapat vitiated ang consent

-1381: lesion, particularly in paragraph 1 and 2 → lesion will make the contract rescissible;

with respect to the sale done by a guardian on behalf of his ward

-Family Code: when the H or W is absent; the acts of administration can be performed by the
other spouse
-Here under 1381 (2) → if someone is absent and the representative does something (selling

the property of the absentee, and the absentee suffers a lesion of more than ¼ of the property)

= it is rescissible

-Note: 1380 → premise is that the contract is valid; rescissible contracts are considered as

valid contract

*voidable and unenforceable contracts

-Resscisible contracts are valid contracts, but there was an injury that is suffered; due to this,
he files rescission as a subsidiary remedy (not a principal action, unlike in 1191); plaintiff must
be able to return what he has received also (status quo ante)
-The reason why the code commission considered it as defective contracts: even if they are
valid contracts, there is an injury was suffered by either the parties
-Lesion = subsidiary remedy; and not a principal action → you only resort to this, when the

principal action has already been exhausted and it did not return to the status quo ante

-1382 → payment made by the debtor in the state of insolvency = person is bankrupt and

despite his bankruptcy, if the money left has been paid to the preferred creditor, even if his

debt is not yet due (could not be compelled = it is fraudulent); purports that the payment made

is fraudulent in nature

-Lesion: injury suffered by the person who did not receive the equivalent for what he gave in
a commutative contract

-Rescission is subject to prescription = it cannot be ratified, because you cannot ratify a

perfectly valid contract; you only have a window of four 4 years (with respect to a ward, insane

person or minor) (absentee = from the time the domicile is made known; within 4 years)

(creditor = from the time the cause of action accrues; it is clear that he could not anymore

collect to what is due to him - very subjective, but it means that he pursued a principal action,

and therefore, the 4 year prescriptive period shall start to run, not from the time of the

registration of the sale that prescriptive period with respect to that, pertains to voidable

contract → where the vice that vitiated the consent is fraud)

-Note: another thing to consider → the rescission shall only be to the extent to cover the

damages caused → the entire contract is nullified, but you only get to the extent of what is

needed to pay you for the damages that is due to you; but the effect of rescission is to declare

the contract as void; the consequence also, is that it requires the applicant must be able to

return what he has received; effect of rescission is that they will have to restore each other,

as if there is no contract to begin with (status quo ante) (1385)

-Rescission is available only and it will be granted only when the plaintiff who is demanding
for rescission can return whatever he may be obliged to restore; cannot take place where the
property is already in possession of a third person who did not act in bad faith (if the property
has been transferred to a third person who is not aware or not in BF, then you cannot recover
that property; your recourse is to demand the payment of damages)

-Distinction rescission (1381) and rescission of reciprocal obligations (1191) → remember in

1191

-1191 = breach of obligation

-1318 = there is no breach; there is an injury, not due to the breach, but because in 1381, a
party or a third person suffers an injury or was not able to receive the fair equivalent of the
property, or was not able to collect what is due
*Second distinction: 1191 → the action of rescission here of a reciprocal obligation is a

principal action, due to the breach of the obligation; Note: the rescission in 1191 only applies

to reciprocal obligations; whereas in 1318, it is a rescission of contracts

-Note: 1386: contract is approved by the court, then rescission will not prosper and this

applies to contracts entered into by the guardians or by the representative on behalf of the

absentee (if the guardian can administer the properties of the ward, he does not need court

approval; but if the selling of the property is the case, then there is a need for approval of the

court) → if it is approved by the court, the contact cannot be rescinded

-1387: badges of fraud → if the contract is gratuitous (note: regarding donation); 759 =

considered as fraudulent donations); donation may be revoked or reduced in the following

cases:
1.) If after the donation, it turns out that the donor eventually has a child
2.) If he did not reserve sufficient property to support himself and those that are entitled
to support
3.) Case of 759 → did not reserve sufficient property to pay his debts that he incurred prior

to his donation (fraudulent donations)

(donation may be reduced and revoked → inofficious donations)

-1387(2) → if the debtor receives a decision or a Writ of Attachment; despite receipt of orders,

he nevertheless transfers the property even if that such decision of WoA does not specifically

refer to the property that he transferred → act of transfer is fraudulent and malicious

-Action for rescission may be extinguished due to prescription

-Family Code = prescription is normally 5 years

Voidable Contracts:
-Very simple and elementary
-It has something to do with consent; it is vitiated
-A consent is valid: intelligent, free and true; when it is not intelligent, the consent is vitiated
by vices of cognition (mistake, fraud or incapacity)
-When vitiated with fraud → contract is voidable

-The other vice of consent → vice of volition= prevents you from freely entering into a contract

(violence, intimidation and undue influence)

2 kinds of voidable contracts* (1390)

1.) Incapable of giving consent
2.) Consent is vitiated: mistake, violence, intimidation, undue influence or fraud

*undue influence = contract of adhesion

Reasons (1390)
 1.) Where one of the parties is incapable of giving consent to a contract = does not have
the capacity (ex.) minor, or insane person)
*Absence of consent is different = it makes the contract void (ex.) death)
2.) Those where the consent is vitiated by mistake, violence, intimidation, UI or fraud

-Voidable contracts are VALID contracts (even if there is a defect); simply annullable; until
they are annulled, they are valid contracts
-If the contract is voidable and later on, the property you sold is sold to another person is in
good faith, you cannot anymore recover that property (at the time you sold the property, the
earlier contract was merely voidable - valid until annulled)
-Voidable contract is susceptible of ratification
-Ratification = expressly or tacitly

-1391: may prescribe in four years (take note of the commencement of the prescription period
in each case)

-When the person reaches the age of majority, and then, later on, there is a possibility that
he may tacitly ratify the contract (especially when he accepts benefits)

-Fraud = four year prescriptive period; reckoned from the time of the registration of property
(constructive notice to the whole world)

-Ratification: confirmation by the previous act done by the party himself

-Note: guardian may ratify the act done by his ward, and once ratified, it will have an effect of
a ratification
-To constitute ratification of a voidable contract, the act relied must be performed of full

knowledge of its consequences → when you say express ratification, it must be done

expressly and direct terms of affirming the act previously done which was supposed to be

voidable
-On the other hand, tacit ratifications: there should be knowledge of the reason which renders
the contract voidable and where such reasons have ceased
-Tacit ratification: effect of waiving his right to file an action for annulment
-To be effective:
1.) Contract is voidable or annullable
2.) Ratification is made with knowledge of the defect
3.) Time of ratification, the cause of the defect has ceased
-Minor → only the minor may file an action for the annulment of the contract, with respect to a

party upon whom intimidation, violence or due influence have been applied to make him enter

into a contract (other party cannot file for an action of annulment)

-Voidable contract = susceptible of ratification and annulment, and a voidable contract may
also be extinguished by prescription

-Note: 1398 (VIP) → almost similar with 1385 (pagdating sa rescissible); the effect of

rescission and annulment is to nullify a previously valid contract;with respect of voidable

contract, it is valid until annulled contract → effect of annulment is to declare the contract void

and once it is annulled, the contracting parties must be restored status quo ante (together

with the fruits and interest) → once the contract is nullified, the parties should be able to restore
what they have received

-1399 (exception) → if the plaintiffi s an incapacitated person: he is not required to return what

he has received; two exceptions to the exception: 1.) where the thing that the minor received

was used to procure necessaries for life → kahit na voidable yung contract, the minor is

required to pay a reasonable price; 2.) if the thing he received is still in his possession (hindi

ito totally absolute exception due to unjust enrichment)

_________________________________________________________________________

CIVREV NOTES April 12, 2021: (Carl and Caryl)

Art. 1398 is same with 1385 as to effect: to declare contract void

Same situation prior to the contract.

Parties are required to mutual restitution.

If legally in possession of 3rd parties who are not in bad faith; no rescission can be made.

Art. 1402 – ASA one of the parties do not restore, the other party is not required to restore with
what is incumbent upon him.

Prior to the annulment, the title of the transferee is VALID

Art. 1400 – Defendant; person referred here in case of annulment. If it is lost through his fault,
he shall be liable to pay damages (value of the thing at the time of the loss, with interest, and the
fruits he received) – YOU ARE NOT EXCUSED

- If u did not lose it through your fault – you are not required to pay the value of the thing
lost or its interest (rule on fortuitous event applies)

Emphasis on “through his fault”

Implication is that we must make a distinction if the defendant lost it through his fault or not

Art. 1401 – Plaintiff; if the thing is lost through the fault of the plaintiff, he shall bear the loss.
Exception: if he is an incapacitated person, he can still bring an action. Exception to the exception:
even if you are an incapacitated person, if you lost it through fault or fraud, you will forfeit/be
precluded to bring an action.

Emphasis on “incapacity”

Rescissible contracts cannot be ratified, with prescriptive period.

Voidable contracts may be ratified; express or tacit

The examiner would expect to read these things on your essay.

Do not be afraid to explain your answer.

But, when u are confronted with a problem, always recall the things you have read and what we
have discussed. No need to discuss complicated matters. Start with the basis.

Only 2 grounds of voidable contracts.

Identify which vice of consent is at play and state your reason why.

Unenforceable contracts

3 kinds:
 - When a person acted on behalf of another outside/in excess/ without authority of
another person; that person will not be bound by the acts of that person; unenforceable
against him. He will not be affected and he does not have to do anything. It is
unenforceable against him.
i.e. a person claiming as your agent and contracted on your behalf is unenforceable. Assuming
he has an authority and he acted beyond the authority given to him. That is also unenforceable.
Co-owner who sold more than his share is only valid insofar as his share is concerned. It is
unenforceable insofar as the share of the other co-owners are concerned.

- When both parties are incapacitated. Where only one of them are incapacitated, it is only
voidable. When the act is ratified by the guardian, then the contract is voidable (valid
until annulled)

Statute of frauds. (1356) provided the essential requisites for their validity are present.
- Art. 1403 par. 2 (statute of frauds) for enforceability, it requires that it be in some form
or that it be proved that it be in some way, then that form is indispensable for its
enforceability.
“by action” – by case in court. Even if you bring a case against me. But because the contact
did not comply with the SOF. I can file a MTD.
Requirement: There must be some writing or memorandum subscribed (signed) by the party
charged/his agent.

EXECUTORY – because this contract has not been performed; either wholly or partially.

Par. D – sale of personal property/ movable, goods chattels or things in action – pag 500
pesos or above, there must be some writing or memorandum, otherwise, it is unenforceable.
Unless, there is a partial payment/partial delivery, then it will no longer fall under the SOF.
Emphasis on “part of such goods..”

Par. A - Emphasis with “a year”

Par. B – contract of guarantee; applies only to collateral contracts; guarantor will only pay
when the principal debtor will not be able to.
Emphasis on “guarantee”
Bigay mo materyales ako magbabayad – ordinary loan/mutuum does not fall under the
staute of frauds.
Par. C – agreement in consideration of marriage: 1. Marriage settlement 2. Donation propter
nuptias; modified under the FC
Marriage settlements must be in writing not only for enforceability BUT for validity.
Donations of present property and of future properties
Present property MUST comply w/ rule of ordinary donation
Future property MUST comply w/ formalities of a will

GR: you can only donate properties you can transfer at the time of donation
Exception: FC

In order to be valid and enforceable, before, it is enough that it comply w SOF

Now, in order to be valid, it must also comply w formalities of a donation.

Par. E. emphasis on “sale or lease” - lease more than 1 year; renewable every one year. If it
exceeds 1 year, it must comply w SOF; it also becomes a real right.

Par. F – representation as to the credit of a 3rd person. That representation MUST be in

writing. A lawyer in order to obtain a loan made in representation of his client falls under the
SOF and, therefore, MUST be in writing.

*****Art. 1405 – SOF= defense in an action; defendant may invoke this by simply moving for
dismissal for non-compliance. Title “defense in an action to enforce the contract” HOWEVER,
ALL unenforceable contracts may be ratified. It will be ratified in the event that defendant
fails to object to the presentation of evidence to prove the same or he accepts benefits under
them (he accepts partial performance).
Oral evidence ->testimony

Art. 1406 -> same with 1357

Art. 1408 -> same with voidable; 3rd persons cannot assail; rescissible may be assailed by
some; void may be assailed by anyone

Void/inexistent contracts

Art. 1409 – inexistent – does not exist as a contract because of absence of consent, or object
or cause.
- Par. 1 – has one or some of the elements; VOID for being an illegal contract BUT it exist.
 - Doctrine of in pari delicto applies only in illegal cause or object contracts

- Par. 2 – absolutely simulated/fictitious contracts; no intent to be bound; 1345&1346 –

rules on simulation; INEXISTENT
- Par. 3 – those whose C or O did not exist at the time of the Contract -INEXISTENT
- Par. 4 – those whose object is outside the commerce of man; VOID
- Par. 5 – those which contemplate an impossible service; immoral; physically or legally
impossible; VOID
- Par. 6 – those where the intention of the parties relative to the contract cannot be
ascertained; INEXISTENT
- Par. 7 – those expressly declared void or prohibited by law; VOID

CANNOT BE RATIFIED; exception – FC; continuing offer.

Right to set up grounds of illegality CANNOT BE WAIVED

***Art. 1410 – void contracts DO NOT PRESCRIBE

Art. 1411 and 1412 (Doctrine of in pari delicto/in equal fault)

1412 – DOES NOT CONSTITUTE A CRIMINAL OFFENSE

In pari delicto - equal fault If you are equally at fault If the contract entered into constitutes a
crime, both of you must be prosecuted. Shall be disposed in accordance with rpc or roc

Exceptions: 1412- does not constitute a criminal offense but just unlawful.

Liguez vs. CA - Motive is immoral because Lopez donated the property to his 16 y/o mistress. -
Void contract

Exceptions to the rule on in pari delicto

1. it does not apply to the INNOCENT PARTY. It applies when both are guilty.
2. With respect to usurious interest, when the interest is excessive, the Court may reduce the
interest. (usury law merely suspended. But court not precluded from declaring void or reduce
interest for being unconscionable.)
3. if one of the parties is incapacitated, (Liguez vs CA)
4. the party for whose protection it is intended my recover (?) masyadong mabilis hahahaha
5. if the party for whose benefit the law has intended; labor laws; allowed to recover

- 3rd person may raise the defense of illegality. BUT it is required that his interest must be
DIRECTLY AFFECTED.

Next meeting: natural obli, estoppel and trust.

______________________________________________________________________________

Class Notes for April 13, 2021: (Sha)

-Rescissible contract: contract is perfectly valid except that there is a lesion or injury suffered
by a third person as a result of a contract entered into
-Voidable: defect in the capacity or such consent is vitiated by undue intimidation; prior to the
annulment of the contract, the contract is valid

-1385: as a result of rescission or declaring the contract as void, or nullified, the parties are
required to return the things which were the object of the contract, as well as the fruits and
price, and interest (saulian of what they received previously)

-Resicssion → you cannot avail of this if the object of the contract is already in the hands of a

good faith third person (kailangan may fraud yung debtor and third person - who was the

transferee of the property)

A is the creditor and B is the debtor; B in order to prevent the collection, transferred his
property to X; in rescission, the transfer of the property to X, should have fraud and bad faith
of the transferee

-General Rule → 1398: if the obligation is annulled; the contracting parties must also restore

to each other what they have received (similar to 1385) → 1402: if you cannot return the price,

he cannot require you to return the object

*Exception = 1399 → talks of incapacitated persons; the incapacitated person cannot be

obliged to make restitution

Two exceptions:
1.) Monies used to procure necessaries for life
2.) If the incapacitated person still has in his possession the thing or the money
1400: (defendant; guilty party) → if you are the defendant and you lost, and you are supposed

to return the thing, then you will still be required to pay an indemnity for damages; you will not

be excused → what does this mean? = if you are not at fault (fault is negligence), then it means

that you will not be required to return, due to the contract being voidable (we follow 1189 (1)

= if the thing is lost, without the fault of the debtor, then the obligation is extinguished)); if the

thing is lost while the contract is not yet nullified, but if the thing is lost through his fault, then

we follow 1189 (2) = if the thing is lost through the fault of the debtor, he will be liable for

damages

1401: speaks of the plaintiff; if you are the plaintiff and you lost the thing through fraud (malice;
intentional avoidance to perform an obligation) or fault (negligence); if you file an action, it will
not prosper; you lost the thing you’re supposed to return; under 1402, as long as one of the
contracting parties does not restore is bound to return, then the other cannot be compelled
Exception; if you are an incapacitated person and you are the plaintiff; you can still file an

action; except: you will lose it through your fault and fraud → basta nawala mo through fault

or fraud, even if you are an incapacitated person, you cannot file an action for annulment

*Incapacitated person → if you lost it either through fault or fraud, action for annulment will not

prosper at all; however, If you did not lose it through fault or fraud, you can still file an action

for annulment

*Necessaries for life = *we go to the Family Code* → title under Support: indispensable for

dwelling, sustenance, education, transportation

-If you happen to still be in possession of the thing

Unenforceable Contracts:
-We should always remember as a premise 1356 → general rule: contracts shall be obligatory,

in whatever form they may have been entered into, provided that all the essential requisites

for their validity are present

Two exceptions:
1.) If the law requires that the contract be in some form in order to be valid
2.) Case of unenforceable contracts
*Rescissible contracts = 5 (Lesion: minor and incapacitated person and absentee, and
creditors - pag nagtransfer ng properties yung debor; if the property is subject of litigation is
transferred by the defendant without the permission of the court; insolvent and pays before
debt becomes due)
*Voidable contracts = 2 (incapacitated or consent is vitiated)
*Unenforceable contracts = 3 (contract entered into by one that does not have authority or

has exceeded authority → agent or another person enters into a contract on your behalf but

without your authority or has exceeded such authority, then the contract is unenforceable; but

there are some contracts that are void = FC, if the husband and wife into a contract of sale

without the written consent of the W; the contract is considered to be void; or if the contract

is entered into a co-owner with respect to the property subject of co-ownership and under a
contract of sale → it is valid insofar as the share of the co-owner selling the property = in both

cases, parehas na walang authority, but the contract is void)

1.) 1403 (1) →

2.) 1403 (3) → both parties are incapacitated; if the parent or guardian of one of the parties
will ratify, then the contract will become voidable

STATUTE OF FRAUDS:
-1403 (2) → statute of frauds
-the provision on the statute of frauds: if you do not comply with the SoF with respect to the
enumerated contracts, then the agreement shall be unenforceable by action (referring to a
civil case; not just an ordinary demand letter)
-Unless: there is a note or memorandum = must be complete by itself (it must identify the
object and cause/consideration) → it is like a contract, but a note or memorandum is sufficient

and such note or memorandum should be in writing, and must be subscribed by the party

charged → two main requisites

-Subscribed = signed
-Party charged = the signature of the one being charged or the defendant in the civil case; if
you are trying to enforce an agreement against you, you will ask where did I sign (because
that is the most important insofar as the plaintiff is concerned; he does not need to sign
because he is agreeable to the transaction, but has to show some proof that the other person
has signed it - the defendant)
-If you cannot show that document or note or memorandum in writing subscribed by the party
charged, then nothing will be acceptable before the court; you cannot call a witness to prove
that because that is the only acceptable proof which will be accepted before the Court

-What are these agreements?

1.) An agreement that by its terms is not to be performed within a year from the
making thereof: within a year (one year) → A and B orally agreed for B to create A’s

house; such agreement will not be performed within a year = such shall fall under the

SoF; the reason is memory fails - kung more than one year na yung usapan at hindi

nakasulat, baka hindi totoo yan (unassisted memory)

2.) Guaranty (collateral obligation): A and B pumunta sa hardware; A ang
mangungutang at kumuha ng materials pero ang usapan ng hardware and B; pag
hindi nakabayad si A, ako ang magbabayad = hindi siya applicable sa mutuum
(walang statute of frauds ang mutuum); therefore, the guaranty must be in writing and
must be signed by you
3.) An agreement made in consideration of marriage, other than a mutual promise
to marry:
a.) Marriage Settlement = in order to be valid, it must be in writing; otherwise it is
void; here, the requirement that the agreement must be in writing is not only for
enforceability but for validity; the FC has upgraded and made it stricter that the
marriage settlement must be in writing for enforceability and validity

b.) Donation by reason of marriage = the FC recognizes two kinds of donation:

i.) Donation of present property
ii.) Donation of future property
Under the rules on Donation or Law on Donation, you cannot donate a future property;

you can only donate a present property; in the FC however, it recognizes that persons
can be crazy when persons are so in love, that they will even donate their future

properties; they have to be stricter in order to be valid → our requirement is that it must

comply with the rules on ordinary donation; however with respect to donation of future

properties, the FC provides that it must comply with the formalities of a will (809) -

which is very difficult = it is probably to discourage men from donating future property;

dapat gagawa ka ng will if you donate future properties

When we talk of agreements made in consideration of marriage, the requirements now

are not only for enforceability but they are required in order to be valid
 4.) Goods, chattels or things in action: (sale of personal property) → if it is a sale of goods,
chattels and things in action at a price of P500 and above = there are two exceptions:
(falls outside SoF)
a.) There is partial performance
b.) Partial payment
*Then it will not anymore fall in the statute of frauds
-Earnest money is very important = mag-advance ka kaagad, as a symbol of the
agreement; pag tinanggap na yan, it is not anymore within the statutory frauds
*SoF applies to executory contracts
-Excecutory = SoF applies
-Executed = SoF does NOT APPLY

5.) Lease and sale of a real property → if it is less than a year, then it will not become a
real right; and if it is a lease over a year, because it creates a real right in favor of the
lessee; and if the lease is not over a year, then it will not fall under the SoF

6.) Two persons: the one who made the representation and the third person whose
credit worthiness he is vouching → there is a case wherein which a lawyer who

borrows money in behalf of his client and vouches that his client has the capacity to

pay (lawyer and creditor is entering into a contract of loan; and the lawyer is telling the

creditor that the client or third person has a capacity to pay; vouching for another

person’s credit worthiness) → such must be in writing and must be subscribed by him

1405: (VIP) → it refers to the SoF; those contracts that are unenforceable may be ratified, and

also including who have been entered into in excess of authority and also contracts entered

into by incapacitated persons; but with respect to SoF = it may be ratified in two ways: 1.) if

you’re stupid: failure to object the presentation of oral evidence to prove the same; if you do

not object timely (if you do not object, then you waive your right and such has an effect of

ratification; and you become a stupid lawyer); failure to object the presentation of oral

evidence, has the effect of a waiver and such will effectively ratify the contract which

supposedly is an unenforceable contract (it will become enforceable); 2.) if you accept a

benefit: such as partial delivery of goods; pag tumanggap ka at hindi ka pumirma pero
tinanggap mo nung nag deliver tapos umorder ka, at tinanggap mo; it will also have the effect

of a waiver and such waiver will ratify a contract which is supposedly unenforceable
*The ratification will prevent you from invoking the defense of statute of frauds

1406 → 1357; if the contract is enforceable but in order to register it, you need to have it

reduced to a public instrument, then you can compel the other party to have it notarized (a

formality)

1408 → unenforceable contracts; it can be assailed or attacked by a person against whom it

is enforced (third persons cannot attack by a third person)

Voidable = person against whom it is enforced
Recsission = incapacitated person, absentee or creditor

Void or Inexistent Contracts:

-1409 → 7 items that the law considers as inexistent and void from the beginning; but this is

not entirely accurate, because there are contracts which are although void, they are contracts

that fall under the doctrine of in pari delicto

-Doctrine of in pari delicto → 1411 and 1412

-Contract is inexistent: either the contract lacks one of the essential requisites of a valid

contract; pag kumpleto siya, pwede siyang void pero hindi siya inexistent (void but existing)

ex.) paragraph 1 of 1409 → considered as void but it is existing

Seven Items:
1.) Void but existing
2.) 1345 and 1346 → simulated contracts: absolutely simulated - under 1346, the parties

do not intend to be bound at all; meaning, there is absence of consent (void and

inexistent); ex.) marriage in jest

3.) Cause or Object: inexistent; lacking yung object or cause (there is no contract at all)
4.) Void because it is illegal
5.) Impossible service: “impossible” → physically or legally impossible (ex.) immoral

service) = void
6.) Void because it is illegal
 7.) Void and inexistent contracts CANNOT be ratified
*If it is a void contract it cannot be ratified; right to set up the defense of illegality cannot be
waived (you can still file a complaint)

1410: does not prescribe; the four year period will not apply in void and inexistent contracts

1411: the other side of void contracts → why is it the other side? = it talks about the doctrine

of in pari delicto (the consequence of entering into a void contract and exceptions)
-In pari delicto: equal fault
-1411: act constitutes a criminal offense
-1412: the act does not constitute a criminal offense
Ex.) Lupa binenta sa Amerikano; prohibited because foreigners cannot own land in the PHw
with exceptions
*Regarding foreigners purchasing a condominium unit: the shares do not exceed 40% of the
equity of the corporation = foreigners in buying a condominium (take note of the master deed;
the common areas should not be registered through the individual owners; the common areas
should be registered under the name of the condominium corporation) -common areas
should be owned by the condo corpo.; then 40 percent of such condo may be
owned by foreigners; if it is included in the master deed that the common areas of
the condo would be owned by the unit owners, then foreigners cannot own the unit

In pari delicto = presumption is that both parties are guilty, because you are aware that the
contract you have entered into is prohibited by law
1411 → illegal dito is cause or object; and both parties are in pari delicto; effect of such, is that

they will not have any action against each other; the buyer cannot demand the delivery of

what he bought and the seller cannot recover what he has delivered if he had made the

delivery and the buyer cannot recover what he has paid

-Theoretically, they will freeze at that point; they cannot do anything anymore; they cannot
recover; RPC will handle the disposal of the effects or instruments of the crime and the price
of the contract

Exceptions on the rule on In Pari Delicto:

1.) 1411 and 1412 → if one of the parties is an innocent party, you may claim what you

have given and shall not be bound to comply with your promise; while he cannot

recover what he may have given, the other who is not at fault, may demand the return
 and not required to pay what he promised (in pari delicto applies only to the guilty

party)

2.) Usurious interest: (usury law still exists, but the charging of the usurious interest is

suspended by the central bank) → imposition of usurious interest is illegal, but because

such act is suspended, meaning, parties may agree on interest that is beyond the legal

interest; however, in several decisions of the SC, even if the usury law is suspended,

if the interest is exorbitant or excessive, the court may nevertheless reduce it and

reasonably allow the imposition of interest that is reasonable; the imposition of

usurious interest is suspended however, if the interest is excessive or exorbitant (it is

exorbitant and excessive and not necessarily usurious) → decisions of the SC: even if

the usury law is suspended, the agreement or imposition of exorbitant or excessive

interest may still be reduced by the Court

3.) If one of the parties to the contract has repudiated the void contract before the illegal

purpose is accomplished, or before a damage is caused to a person, and if public

interest is observed → 1414 (repudiated = nagbagong loob; nagkaroon ng change of

heart)
4.) If one of the parties is incapacitated (1415) = recovery of property or money delivered
5.) 1416 = ex.) sale of a land awarded due to the Public Land Act (CA 141 → Homestead

Patent); sale shall be void; awardee may be able to recover the property or in the case

of labor laws: overtime pay recovery

6.) 1417 → nagbenta over the price ceiling: buyer may be able to recover the excess of

the price that was placed on the value of the property

7.) 1418 → in relation to 1416

Note: 1421 → void contract: it may be assailed by a third person or by anyone; but his interest

must be directly affected; ex.) H and W: the H is selling a property to the W; this is prohibited

under the law on Sales; the question is: who can assail? → no one can simply assail this

contract, except the heirs and the heirs, their right prior to the death is simply inchoate
*While there is a prohibition with regard to the sale between the H and W, the problem is, who
can assail the contract?

HW: Natural Obligations, Estoppel and Trust

_________________________________________________________________________

Class Notes for April 14, 2021: (Roseanne)

TITLE III. NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural.

1. Civil obligations give a right of action to compel their performance. There is an active subj, passive subj,
prestation, juridical tie. There is voluntary perf or payment, the creditor may retain what has been paid,
the debtor cannot recover. The creditor has knowledge that the obli has already prescribed but he
voluntarily paid.

2. 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. There is an active subj, passive subj,
prestation, juridical tie not given effect by law.

ex. 1424. PAYMENT OF PRESCRIBED OBLIGATION prescriptive period to collect has already prescribed.

Based on a Written contract- 10 years

Not written- 4 years

NATURAL OBLIGATION SOLUTIO INDEBITI MORAL OBLIGATION

there is a juridical tie, an obli payment in excess of what Obli to wash the dishes, to go to
based on equity and natural should have been paid, the church. There is no juridical tie
law. It is not given effect by law payor or debtor unwittingly
paid in excess and there is no
obli to make the payment. the
creditor or the one who
received payment has the
obligation to return. There is no
juridical tie

DBP v. ADIL (May 11, 1989)

The debtor knew that his obli has already prescribed but after learning that it has already prescribed, he
issued a new Promissory Note. The SC held that where, therefore, a party acknowledges the correctness
of a debt and promises to pay it after the same has prescribed and with full knowledge of the prescription
he thereby waives the benefit of prescription.

The promise to perform a natural obli is as effective as the performance itself and converts the Natural
obli into a civil obli. The natural obli is a valid cause for a civil obli.

You performed the obli even if you knew that you cannot be compelled to perform the obli.

MINOR- cannot be enforced anymore; Skip Article 1426. and 1427

VOLUNTARY PERFORMANCE AFTER DISMISSAL OF CASE

Article 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.

EXCESS PAYMENT BY HEIR

Article 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.

Remember in ART 1311, Relativity Principle, The heir is not liable beyond the value of the property he
received from the decedent.

VOID WILL

Article 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.

A will cannot pass the prop without being probated. A will that is void cannot pass prop to the heirs.

If the will of your parents is void because it did not comply with the formalities under ART 804-809 of the
Wills but nevertheless you complied with the testamentary disposition written by your father saying that
he is giving 5k or 10k to his neighbor who is his constant companion and you voluntarily paid that legacy
or money, that payment is effective and irrevocable as a natural obli of the heir based on the will of the
father.

TITLE IV. ESTOPPEL- a principle of equity

Article 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.

The essential elements of estoppel:

1. lack of knowledge or means of knowing the truth as to the facts in question

2. he relied in good faith upon the conduct and statement of another party

3. there is action or inaction based thereon

There are 2 parties here.

Article 1439. Estoppel is effective only as between the parties thereto or their successors in interest
(including heirs who are minors)

Article 1433. Estoppel may be

1. Estoppel in Pais - refers to conduct- Estoppel by Conduct or Equitable Estoppel- by conduct or by

silence, precluded- Estoppel by Laches may be included here

2. Estoppel by Deed- refers to a record, an instrument (Deed of Absolute Sale)- Estoppel by Judgment-
Estoppel by Record

ex. a. when you enter a contract of Lease with a lessor, you cannot later on deny the terms of that lease
and the fact that you are a lessee, cannot later on claim that you are an owner. You admitted or
represented to be a lessee. If you are a lessee, you cannot claim to be the owner and oust the owner from
his position in the prop.

b. If you are a Co-owner in the prop and you are in possession of the prop, you are estopped from claiming
that you are the exclusive owner of that prop.

The acts of a co-owner are acts of an owner. Even if he takes possession of the entire property, he cannot
present himself as the exclusive owner. A co-owner is entitled to use the entire property in the same
manner that the other co-owners may also use the entire property. You are in estoppel. The other persons
who relied thereon in your misrepresentation, you cannot assert a contrary position against them because
you are in estoppel by your action.

c. An issue in a case which have been raised or could have been raised, cannot be raised in a subsequent
case.

Estoppel by Judgement Res judicata

 The parties are similar but the cause of action is
different but you are in estoppel to raise an issue
that has already been resolved in a previous case
involving the same parties even if it is of different
cause of action
ex. You filed a claim for 100k, a claim against
another person. A and B. The claim of the
creditor was denied by the RTC but one of the
matters raised there is the filiation of a child.
Later on, you filed a case of annulment and
between the same parties, you cannot raise
anymore the filiation of the child which has
already been in the previous case even if the
cause of action is different. In the first case, the
cause of action is collection and in the second
case, it is annulment of marriage.
a. The former judgment must be final
b. Judgment must be on the merits of the case
c. The former decision is rendered by the court
having jurisdiction over the subject.
d. There is similar identity of parties, subject
matter and cause of action for both cases.
Same with that of litis pendentia and forum
shopping. This is a bar to a subsequent action for
the same cause of action.
ex. RTC QC you filed a collection suit for a credit
that you extended to another person and there is
a decision denying your claim, you cannot file
involving the same case and the same party
because there is res judicata there.

With respect to the government, the government officials will not stop the government from asserting a
claim. It will not operate as estoppel. If it is not mere negligence and they made affirmative acts (executed
a document), the government has issued a declaration recognizing your right, and you relied on the
affirmative acts, later on the govt cannot assert a different position in order to claim a right that it
previously abandoned in your favor. Estoppel may be raised.

3. Estoppel by Laches

Estoppel by Laches- the failure or neglect for an unreasonable and unexplained length of time to assert a
right to do that which is by exercising diligence or which should have been done earlier

-based on grounds of public policy which is required the peace of the society; the discouragement of stale
claims

Estoppel by Laches Prescription (Statute of Limitation)

 EFFECT of the delay- pertains on equity or FACT of the delay- pertains to the period/time;
inequity- if you will allow a person from claiming statutory/law
a right for instance 40 years, it would be
inequitable on the part of the person who will
already suffer an injury as a result your assertion
or resurrection of a claim; not statutory; person
knows its rights but takes no step to know his
right until the condition of the other person has
already change in good faith and that he relied,
that the person cannot be restored to his former
status. Delay becomes inequitable and operates
as estoppel because of negligence and
ommission.

Case cited in the book:

-Case where there is a sale in the farmland, the buyer has cultivated the property and after 40 years, the
heirs of the seller are trying to recover the property claiming that the sale executed by the Grandparents
is void because it is not approved by the Agriculture office. It will result in an injury as to the farmers and
therefore it operates as estoppel. (Case title not mentioned)

TITLE V. TRUSTS

CHAPTER 1. General Provisions

Article 1440. 3 Personalities in a Trust:

1. TRUSTOR- a person who establishes a trust

2. TRUSTEE- one in whom confidence is reposed as regards property for the benefit of another person is
known as the trustee; legal owner of the prop, must have the capacity to hold the prop

3. BENEFICIARY- the person for whose benefit the trust has been created; the acceptance is required;
must have the capacity to acquire the prop gratuitously

Ex. If the father- husband will establish a trust making his mistress as the trustee, the mistress cannot
qualify as the trustee because she does not have the capacity to hold the prop gratuitously and to transfer
the prop to the father-husband. (ART 739)

A trust is a right of prop, real or personal, held by one party for the benefit of another. It is a right
enforceable solely in equity for the beneficial enjoyment of the property the legal title to which is vested
in another. This pertains to Duties, relations and responsibilities. This is a fiduciary relationship between
the trustee and the beneficiary as regards the property real, personal or choses in action and between
the trustor.

Ex. A and B are friends and A has the money and entrusted the money to B for B to use the money to buy
a subd lot and place the title in the name of B. B is the trustee of the prop for the benefit

Article 1441. 2 KINDS OF TRUST:

1. EXPRESS- created by the intention of the trustees; if the intention is clear

2. IMPLIED- created by operation of law

a. RESULTING- A entrusted B to buy a prop and have the title registered in the name of B. The intention
to create the trust is not expressed in the deed or instrument of conveyance but it is deduced from the
nature or circumstances of the transaction. It must have been contemplated by the parties to create a
trust though not expressed in any instrument.

ex. Article 1448. There is an implied trust when property is sold, and the legal estate is granted to one
party but the price is paid by another for the purpose of having the beneficial interest of the property.

Article 1449. There is also an implied trust when a donation is made to a person but it appears that
although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial
interest or only a part thereof. (The person is made a donee the prop but the one enjoying the prop is
another person, the donee is a mere trustee. The trustee holds a legal title) ex. Yung mga nagtatago ng
pera na ninakaw nila sa gobyerno. Nakatago sa magarang bahay, nakarehistro sa kamag-anak nila. Yung
trustee is kamag-anak nila. The trustor is the govt official who hides his ownership of the property.

ex. Iba iba ang ginagamit na mamahaling sasakyan. None of those vehicles are registered in the
tagagobyerno's name. It is registered in the name of his cousins, relatives. Clearly, there is a trust created.

Art 1450.If the price of a sale of property is loaned or paid by one person for the benefit of another and
the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by
operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter
may redeem the property and compel a conveyance thereof to him.

Art 1451. When land passes by succession to any person and he causes the legal title to be put in the
name of another, a trust is established by implication of law for the benefit of the true owner.

Art 1452. If two or more persons agree to purchase property and by common consent the legal title is
taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the
others in proportion to the interest of each.

Art 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated.
b. CONSTRUCTIVE- if there is mistake or fraud. The reason why the law will interpret a transaction as
constructive trust because the law would like to avoid an injustice as a result of a person taking advantage
or using fraud to defraud of the confidence of anothe person in order to use his prop or money to buy
prop. It comes into being by operation of law or by construction of law.

ex. If A and B are partners and B by fraud took out money from the partnership and used it to buy a car
and registered it in his name.

ex. Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the person to whom the funds belong.

Article 1456. If property is acquired through MISTAKE or FRAUD, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.

The action to recover prop based on an Implied trust:

1. Resulting- for as long as the trustee recognizes the trust, the 10 year prescriptive period will not start
to run, it will only start to run the moment the trustee denies the existence of trust and tries to oust the
owner beneficiary.

2. Constructive-the 10 year prescrip period will run from the discovery of the fraud; if it is a prop
registered, it will run from the time of registration in the Registry of Property because it is a notice to the
whole world.

TITLE VI. SALES

CHAPTER 1. Nature and Form of the Contract

(Most important provision) Article 1458. By the contract of sale one of the contracting parties (the SELLER)
obligates himself

2 MAIN OBLIGATIONS:

1. to transfer the ownership of the thing to the BUYER; (IMPLIED WARRANTY AGAINST EVICTION- obli of
the seller that when he enters a contract of sale he commits that he can transfer the ownership to the
buyer) and

2. to deliver a determinate thing,

and the other (the BUYER) to pay therefor a price certain in money or its equivalent.
It is a consensual contract. The sale is perfected by mere consent. Delivery is not a part of a requirement
in entering a contract.

Essential Elements of a Contract of Sale:

1. Consent of the contracting parties

2. Object Certain

3. Price

Other Characteristics of a Contract of sale:

1. Consensual

2. Bilateral- creates reciprocal prestation; both parties are bound by obli that are dependent upon each
other. The obli of the buyer to pay is dependent upon the obli of the seller to deliver and transfer the
ownership

3. Onerous- to acquire rights, valuable consideration must be given

4. Commutative- the contract involves exchange of properties that are almost equivalent in value

Note: Aleatory Contract of Sale- the thing sold is not equivalent in value but dependent upon whether it
will become greater in the future. It will depend on a contigency. ex. When you buy a lotto ticket (P25), it
is an aleatory sale because that piece of paper might become bigger in value upon the happening of the
contingency (may or may not happen). The object of the contract of sale may include a thing which has a
potential of existence. It could be future goods, a hope or expectancy. Sale of future goods or goods to be
manufacture or fruits that have yet to be grown

Emptio Rei Speratae Emptio Spei

Sale of objects which has potential existence
with the exception of future inheritance
It is subject to the condition that the thing must
come into existence , so that if it does not , the
sale will not be effective for not having an object.
Ex. The future wool grown on a sheep.
Hope or expectancy which has a potential
existence. Note that if it is a sale of a vain hope,
there is a fraud. ex. Lotto ticket na nabola na
It is effective even if the thing hoped for does not
come into existence.
Ex. Sale of sweepstakes or raffle ticket that is yet
to be drawn.

Contract of Sale Contract of a piece of work

 The object is manufactured for the general Manufactured Upon a special order ex. Ang shoe
market ex. Ang shoe size mo is 6 kahit naubusan, size mo is 14 hindi nagmamanufacture ng ganun
when you ordered that size at dahil generally
manufactured naman to.

Sale vs Barter

Depends on the Intention of the parties- The consideration is partly in money and partly in another thing

If the intention is not clear, it is barter if the value of the thing given has exceed the monetary
consideration; otherwise, it is a sale.

Kinds of Elements of a Contract of Sale:

A. Essential Elements

1. Consent of the contracting parties

2. Object Certain

3. Price- in money or equivalent in money

B. Natural Elements - even if not mentioned in the contract, they are impliedly included in the contract
of sale

1. Warranty against eviction

2. Warranty against Hidden defects

C. Accidental Elements- may or may not be present in a contract of sale, based on the stipulation of the
parties.

1. place and time of the delivery

_____________________________________________________________________________________

Class Notes for April 15, 2021:

Natural Obligations:
-Is based on equity and natural law; whereas civil obligation is based on positive law
-Four elements of an obligation:
1.) active subject
2.) Passive subject
3.) Prestation
4.) Juridical tie
-But you will be surprised that natural obligations have the same elements and requisites as
an obligation; only distinction = juridical tie in natural obligations cannot be enforced by law;
while remember that the juridical tie is the one that binds the parties to the obligation; where
there is a breach in a civil obligation, the aggrieved party may file an action in court to seek
grievance to repair damage
-Natural obligation: while there is a juridical tie that binds parties to obligation; because it is

based on equity and natural law, that juridical tie is not given effect by law; you cannot go to

court in order to demand performance of an obligation; not being based on positive law, it is

not given effect by law; ex.) If there is a credit, and the credit is based on a written contract,

the prescriptive period to collect is 10 years - and has prescribed → it ceased to be a civil

obligation, but remains as a natural obligation; between the parties, there is still an obligation
-If the debtor in such example will voluntarily pay the obligation even after the 10 year
prescriptive period, the law authorizes the creditor to retain what has been paid; debtor cannot
demand the reimbursement or cannot recover what he has paid, because in Natural
Obligations. if there is a voluntary performance knowing that the obligation may not be
enforced, the law authorizes the retention of what has been paid

-1311: relativity of contracts = heir cannot be liable beyond the value property he received

from the decedent; we inherit not only properties, but obligations → subject to the limitation

that we can only be liable for the extent of the value of the property inherited

-Natural obligations (1429) → heir cannot recover what he has paid; it always happens to heirs

(akala nila ang utang ng mga parents nila babayaran nila hanggang wala na parents nila; but

such is not supposed to be the case)

-1430: (remember a will must be probated in order to pass the property to the heirs; however,
if the will is denied due to the noncompliance with the formalities of the will, it cannot pass
property to the heirs); however if the heir, regardless of the fact that the will is declared as
void or invalid, but voluntarily pays a legacy contained in the will, then that payment is valid
(ex.) if your father executed a will, and the will contains a testamentary disposition giving P50k
to his friend, but it turns out the will is not invalid due to noncompliance of the formalities of
the will; if the heir voluntarily pays the legacy, such is valid) - valid = it cannot be recovered

*Distinguish from solutio indebiti = payment by mistake (there is no obligation at all); therefore,
you can recover what you have paid by mistake (because there is an obligation on the part
of the person who received the payment, to return what he has received)
*Natural obligation = there is an obligation; but cannot be given or enforced by law and the
courts; however, there is an obligation and therefore, such obligation is based on equity and
natural law; if there is voluntary payment with knowledge that the obligation has prescribed
or cannot be enforced in the courts of law, then the law authorizes the retention of what has
been paid

Estoppel:
-A person’s admission or representation, is rendered conclusive upon him; upon that person
making it, and he cannot deny or disproved as against the person relying thereon
-A simple example: 1436 → estoppel by deed; deed or instrument of lease; if you sign the

deed as a lessee, a person who is the owner, you cannot later on, claim to be the owner and

deny the fact that you’re a lessee, because you have signed as a lessee; you recognize the

existence of another person as an owner; therefore, you are in estoppel

Ex.) When you have eaten everything and enjoyed the meal, you are estopped from
complaining and claim that it is not delicious

-Note: elements of estoppel:

1.) From the POV, the elements must be read from the POV who is estopped
a.) The person lacks knowledge or has no means of gaining knowledge about the
facts of the situation or about the circumstances of the situation;
b.) Does not have knowledge and not negligent
c.) No way of making himself informed
d.) Relies in good faith upon the conduct or statement of another person or party
e.) Because of this knowledge and due to reliance on another person’s
representation, he acted or did not act, which changed his position and that if
you will be allowed to assert a contrary position, it will result in injustice or injury
upon himself

-Ex.) Estoppel by laches = there is an old law, which requires that if a member of the Muslim
or ethnic cultural communities will sell a land, that sale must also be approved by the
Secretary of Agriculture and Natural Resources; where the sale was done in the 1920s and
the sale resulted in the buyer taking over the property, and the buyer has taken possession
of hte property for more than 40 years; after 50 years, here comes the heir of the seller,
claiming that the sale was void due to the non approval of DENR; SC: that heirs of the seller
is estopped by laches = when a person by his negligence or omission, for an unreasonable
length of time, he failed to assert his right where he could have, and if he would be allowed
to assert his right now, it would result to an injury, because the person who acquired right
from them, has already changed has position, which will result to his injurty and injustice upon
him
-Two (2) kinds of estoppel:
1.) Estoppel in pais: estoppel by conduct or by acts/omission/silence
2.) Estoppel by deed: referring to the contract, instrument or record (we have record by
judicial or legislative conduct)
a.) Judicial record: collateral estoppel (estoppel by judgment) → distinguished from

res judicata (barred by former judgment)

b.) Res judicata (related to litis pendentia)
c.) In res judicata = if there is a decision between the same parties, same subject
matter and cause of action; subsequent action with the same elements is
barred as to questions raised in that case or which could have been raised to
that case
d.) Res judicata vs. collateral estoppel (or aka, estoppel by judgment) → estoppel

by judgment = the parties are similar, but the cause of action is not similar
i.) Res Judicata = same parties, subject matter and cause of action; barred
from raising an issue tackled in a previous case (ex.) issue is the
legitimacy of a child in an action for support; in a subsequent action for
the annulment of marriage; the legitimacy of the child tackled in the
previous case, may not anymore be raised because the parties are in
estoppel)

-Estoppel may apply to minors

-Government → cannot be raised against the government; if only it is about the negligence

and omission against the officers; if there is an affirmative act on the government, then it

cannot be estopped (affirmative act done by its officials)

-Estoppel by deed: party to a contract → parties cannot deny what they have agreed upon in

the contract; they are already in estoppel

-Note: distinction between laches and prescription

-Laches: concerned with the effect of delay; refers to question of inequity; not statutory; equity
-Prescription: concerned with the fact of delay; refers to time; statutory; based on law

-Estoppel as a whole is a principle of equity

Trusts:
-There is a fiduciary relation between the trustee and the trustor as regards a property
entrusted by the trustor to the trustee
-The trustor: who establishes the trust; must have the capacity to transfer property
-Trustee: the person upon whom confidence is reposed as regards a property for the benefit
of another, and take note that a trustee (VIP), because he will hold a legal title over the
property; must also have the capacity to hold the property; so that if a person who is married,
would constitute his mistress as a trustee, where the FC prohibits granting direct or indirect
benefit, then she will not quality as a trustee for the benefit of their illegitimate child
-Beneficiary: the person for whose benefit the trust was created; he must also have the
capacity to acquire the property gratuitously

-A trust may either be: express or implied

-Where there is a clear intention to create a trust = it is expressed (writing or oral; if the
intention to create the trust is clearly expressed in the agreement, then the trust is express
trust)
-The other kind of trusts is implied: distinguish between resulting and constructive trust
-In the case of resulting trust: intention to create the trust is not expressed in the agreement

but it is deducible from the nature and circumstances of the agreement (ex.) A has the money,

and gives B the money to buy for them, a house and lot; and because A is an employee of

the government , and does not want the property be registered in his name; B is a trustee of

the trust for the benefit of A (because B was tasked to have the property registered under his

name (B’s name) - this is for the Benefit of A, because A does not want to be suspected for

graft and corruption) = in this case, A is the trustor and beneficiary, and B is the trustee →

Here there is a resulting trust

Ex.) A and B inherited a property from the father; A, because she was still single, she does

not want the property to be registered in her name; A wants B to have the property registered
under his name → resulting trust; there is an intention between the two of them to create a

trust (but not expressed in the agreement; pinangalan lang; they did not enter into a trust

agreement)

-In a resulting trust, the intention to create the trust is deducible from the nature of their

agreement → distinguished from a constructive trust

-Constructive trust: a trust created by operation of law in order to avoid a commission of fraud
or injustice; ex.) A and B are partners in a business, but B using the money of the partnership,
buys a house and lot, without the permission of the partnership = the law will interpret that
there is a trust between the partnership and B who bought a property using the money of the
partnership; the trust is construed, and created by operation of law in order to prevent an
injustice as a result of the fraud committed by a party in a contract of partnership

-Examples of implied trust → basta yung 1455 and 1456 = examples of constructive trust
-In 1448: a resulting trust is created because they bought a property and, the property
however is registered in the name of the trustee for a benefit of another person

-Case of 1449 → when a donation is made, in the name of a person (A) but the possession

and enjoyment of the property is by another person; therefore, the person holding the legal
title, is merely holding it as a trustee for the benefit of another person (ex.) pinapahawak lang

itong property, pero hindi talaga ako yung may-ari) = simply a trustee

--------------------------------------------------------------------------------------------------------------------------

SALES:
(CoS = Contract of Sale)
-1458: most important provision of the contract of sale; gives not only the definition of sale,
but exemplifies the concept of the contract of sale
-Reading it critically: it provides → when a person enters into a CoS, he commits to deliver

and to transfer the ownership of a determinate thing, and the other to pay for a price certain

in money or its equivalent

-A Contract of Sale, being consensual, is perfected by mere consent; does not require at the
time of the perfection of the contract, that the thing be delivered or paid; nothing needs to be
done yet; they just need to agree; it is perfected by mere consent - parties are bound not only
to the performance, but also to all consequences which are in keeping

-After they have entered into a contract of sale, then the parties are bound with respect to the

seller to transfer the ownership of the thing, and to deliver the determinate thing; that is why,

while there are three essential elements of a CoS (consent, object/determinate, price = hindi

cost but price; consideration is price); on the other hand, CoS has natural elements: they are

the implied warranties against eviction and implied warranties against hidden defects;

because, yung eviction, why is it a natural element? = because even if they are not stated or

agreed upon the CoS, and in any sale, there is an implied warranty of eviction included in the
agreement → 1458, that is your commitment as a seller which is to transfer the ownership and

to deliver the determinate thing; if you cannot transfer the ownership of the thing that you

have sold, then you violate the warranty against eviction; yung binenta mo hindi ka may-ari,

this means that the buyer will be evicted from the property - siempre, may problema; you

violate the warranty against eviction

-Warranty against hidden defects = while it is true that in economics (caveat emptor); but the

truth is in law, there is a warranty against hidden defects; caveat emptor applies only to

defects that are patents (that you can discern or can see); but defects that are hidden = if you

sell something and there is a hidden defect, you can be liable for violating implied warranties

→ considered as natural elements even if not agreed and not provided upon

*yung dalawang implied warranties kahit hindi ninyo nakita sa kontrata; because they are

implied warranties in a CoS (eviction and hidden defects) → it does not have to be agreed

upon; they are included in every CoS

-Exceptions:
1.) Sale on as is where is (second hand articles) → wala siyang warranties

Characteristics:
1.) Consensual → perfected by mere consent (distinguished from a real contract = which

is perfected upon delivery; like deposit, mutuum or pledge; or a contract of donation

(not valid until complied with formalities)

2.) Onerous → one of the elements is the price; when you say onerous, to acquire a right
and ownership, valuable consideration must be given; valuable consideration in a CoS

is the price

3.) Commutative → exchange of almost equivalent prestations; object and price are

almost equivalent
a.) Exception: aleatory contract of sale = remember in sale, a hope or expectancy
may be a proper object of CoS because in sale, objects capable of potential
existence may be a proper object; pag sinabing objects, it may either be future
goods, or it may also be hope or expectancy
 b.) Future Goods (goods that are to be manufactured; fruits that have yet to grow)

→ emptio rei espiritei

c.) Emptio spei = objects capable of potential existence (referring to hope or
expectancy) - you can buy hope or expectancy, such as a lotto ticket; such
ticket is not equivalent in value to the P25 you are paying for the ticket; but it is
an aleatory contract of sale and a hope or expectancy; that hope has the
possibility of coming into existence; that hope or expectancy is possible that
your hope of winning P250 million; there is a possibility that your P25 will turn
into a P250 million; but the law prohibits an object - it is illegal to sell a vain
hope or expectancy; and such CoS is void because when you say you are
selling vain hope or expectancy it is like selling a lotto ticket that has been
drawn (paso na kasi na-bola na) = there is no possibility of the lotto ticket of
getting a price, because it is a vain hope or expectancy
4.) Principal contract → does not depend on any contract to exist

5.) Nominate contract → given a name and designation; provisions governed under the

NCC

-In a CoS, do not forget that while in a CoS, you can sell something that does not yet exist;
but subject to a condition that at the time you deliver, that thing will exist and that you will
have the capacity to transfer ownership over that thing; unlike in a contract of donation or
wills, in wills and in donation, you cannot dispose a property that you don’t have

-Sale is not a mode of acquiring ownership → the mode of acquiring ownership in sale is

tradition or delivery; if you will note, under 1458, it is obvious that by the CoS, one of the

contracting parties shall deliver a determinate thing → it is implied and may be deduced

therefrom that generally speaking in sale, the ownership is transferred once the thing is

delivered; prior to delivery of thing, the buyer only has a personal right which is to demand

the delivery of the thing; once the thing is delivered, the buyer now acquires a real right;

becomes an owner of that thing (general rule ito) (there are exceptions under the CoS)

-Note: distinction between sale and piece of work

-Sale: the property (object of the sale) is manufactured for the general market
-Piece of a Work: is going to be made or created upon a special order (ex.) if the Marikina
factory, does not manufacture shoes which is size 15, and you will order that kind of shoes of
that size, then it is a contract for a piece of work); even if the manufacturer does not have
available in its stock a size (size 6 for example, naubos na) and you ordered size 6 for 1,000
pieces = it is still a contract of sale because it is normally being made by the manufacturer for
the general market; in comparison to the size 15 that is not mass-produced (special order)

-Distinction: sale and barter

-Where the problem provides a situation where a portion of the consideration is being paid by
or with another thing, and another portion in cash; if the consideration is totally in cash (not
barter but a CoS); if it is a barter truly or wholly, then the thing is in exchange for another
thing; if the thing is being exchanged partially with a thing and partially with price, then you
need to make a determination if the contract is a CoS or barter
-GR: to determine if it is a barter or sale → manifest intention of parties must be asserted; if

the intention is not clear, then it is a sale if the monetary consideration is greater than the

thing; if the consideration is greater than the thing, then it is a sale (otherwise, barter siya)

-Absolute or conditional: If the sale is not subject to a condition, then the sale is absolute; if
the sale is subject to a condition (ex.) pacto de retro sale = giving the seller the right to redeem
within 5 years; therefore, the sale is conditional)

-Note: Contract to Sell → the payment of the price is a positive suspensive condition; on the

other hand, there is a contract of sale subject to a resolutory condition (in a contract of sale,

the ownership is transferred, the title is transferred, but the payment of the price is a resolutory

condition; meaning, if the price is not paid in full, then the seller may demand the rescission

of the contract; without the contract being rescinded, the ownership remains with the buyer;

on the other hand, in a contract to Sell, the payment of hte price is a positive suspensive

condition, and in case the price is not paid, then the obligation of the seller to deliver the thing,

or to deliver the title, does not become effective and binding; seller will not be required to
execute a deed of absolute sale

-If you buy a condo, the developer will normally require you to sign a contract to sell; will only

execute a deed of absolute sale or transfer to you the title in your name after the full payment

of hte price; on the other hand, instead of entering into a CTS, you applied for a loan with the

bank, and with the loan that you applied in the bank is approved, the bank will pay the

developer in full; the full purchase price, the developer will execute a deed of AS, and will

transfer it in your name; you deliver the title to the bank and execute as a collateral or security
to the loan, a deed of mortgage (you will mortgage the property that you bought with the bank

and you will be paying the bank the installment) → if unable to pay the loan: bank may

foreclose the property and cancel, and sell the property by auction = this is similar to what will

happen in the event you buy a property from a friend, and the payment of the price is a

resolutory condition; your friend will have to file an action for rescission of the contract,

because you violated a principal obligation which is the payment of the price; The power to

rescind obligations is implied in reciprocal ones (due to failure to comply with the obligations

agreed upon in the contract)

-Conditional din yung sale of a property if the property is capable of potential existence →

future goods; sale is conditional in nature; subject to the condition, that the property being

sold, you will be able to manufacture or fruits that are sold, will really be there at the time you

agreed upon or at the time of the agreement

-1477 (VIP) → when we talk about delivery (ways of delivery of a contract of sale); delivery

can be actual or constructive

-1477 → actual or constructive

-Actual = 1497 (placed in the control and possession of the vendee = considered sold and
delivered)
-Constructive =1498; Generally speaking, the execution of a public instrument will have the
effect of a delivery
-Note: while the execution of a public instrument has the effect of delivery; may give way to

the reality that even if the public instrument is executed, but if the transferee could not
possession over it in reality due to someone being in adverse possession of the property →

there is no delivery subject to the CoS (traditio longa manu)

-Traditio Symbolica (delivery of the key) = delivery of personal property

-Traditio longa manu = mere consent; “pointing of the finger”

-Traditio consituto possessorium (used to be the lessee, and later on become the owner of
the property)
-Traditio brevi manu (used to be the owner and later on you transfer the ownership, but remain
in the property as the lessee)
MTE coverage: Obligations and Contracts, Natural Obligations, Estoppel and Trusts

4/19/2021- Caryl

CIVREV – SALES

1458 (2) – A contract of sale may be absolute or conditional.

When we prepare deed of sale, we specifically indicate whether or not that deed is deed of
conditional, absolute or contract to sell.

When a contract of sale is absolute, it is akin to pure obligation.

Most common is contract to sell. When we buy condo, if we do not pay the purchase price
then there will be turnover of unit.

Contract of sale vs. Contract to sell

Contract of Sale – Full payment of the purchase price is a resolutory condition.

There is transfer of ownership.

Remedy of the seller: Recission or specific performance under 1191.

Contract to sell – purchase price is a positive suspensive condition.

Non payment of the price will not give rise on the part of the seller to deliver the title.

Remedy of the seller: is to recover the property if the property has been turned over.
Otherwise, there will be no action.

1459 – licit

1461 – Things having potential existence (potential sale)

Case of future goods referring to goods to be acquired by the seller after the perfection of
the contract.

The contract of sale is subject to a condition that the goods will be available.
In the case of a lotto ticket, what you’re buying is an existing good. The ticket is an existing
good.

What is prohibited is a sale of vague hope. Example: If the lotto ticket has been drawn.

You cannot sell a future inheritance but you can sell hereditary rights because in the latter,
the rights are already vested even if the property is still undivided among the heirs.

When it comes to price, price is an element in a contract of sale. The price must be certain at
the time of the perfection in order to be valid. The price must be real and not simulated. The
price must be paid in money or its equivalent.

1355 – Lesion or inadequacy of the price, will not invalidate the contract of sale. But take note
of the ramnifications. If the price is absent, the contract of sale is void for absence of
consideration.

If the price is vitiated, the contract is merely voidable.

2 instances of lesion:

If the minor, incompetent suffers a lesion more than ¼ of the property, the contract of
recissible.

Cachola vs. CA

- Mere inadequacy of the price will not invalidate the contract of sale.

- But if the price is so low as it’s shocking to the conscience, it will not validate the
contract of sale.

Manner of the payment of the price.

Navarra vs. Planters Dev Bank, the SC said: Befrore a valid contract of sale, the agreement
and manner of payment must first be established because it affects the consent of the
contracting parties.

1473- Mutuality of contracts

1475 ***

- If the sale is unenforceable, that party charged may refuse.

- 1475 (2) = executory - statute of frauds.

1477 -> 1164

1477 - (general rule) ownership (real right upon delivery)

Before delivery, the right of the seller is personal right.

Res perit domino – the thing perishes with the owner

1478 – Exception to 1477: conditional sale or contract to sell (ownership will not
pass/transferred until fully paid)

1479 – must be read in correlation to 1458 and 1324.

1479 (1) there is perfected contract of sale. So under 1324, case of option contract.

1479 – 1324 = option contract

If the seller offers to sell, then the buyer is given notice of withdrawal. Otherwise, he will be
abussive of his right under Art. 19.

Option contract -> option period -> option money vs. earnest money

Option money is a separate consideration in an option.

If there is no option money, option period may be withdrawn anytime. Otherwise, liable under
Art. 19.

1484 ***** VIP

Capacity to buy and sell then cases sa 1484 and its variations.

1489

In case of incapacitated person under 1327, (necessaries are sold.) Not voidable

1489 (2) reasonable price

Art. 290 is now -> Art. 194 (FC)

Contract entered into by incapacitated person is voidable

If both incapacitated, unenforceable.

1491 – Special disqualification

1490 – prohibition

Anulias vs. Fortun – prohibition applies to common law spouses.

Chap 3 – Risk of loss

Who will be responsible if the object of the contract of sale is loss?

If the thing is generic, the loss or destruction, will not extinguish the obli.

What is being referred to is a determinate thing.

A determinate is one who is physically segregated belonging to the same class.

1st column: Loss before perfection. |

2nd column: Loss at the time of the perfection – void |

3rd column: The thing is lost after the perfection but prior to the delivery. – GR is the
responsibility depends on stipulation of the parties in the contract. In the absence of
stipulation, the seller bears the loss.

Remember 1458

1189 (1) – loss here is a loss through FE.

4th Column: After the ownership is already transferred, who bears the loss? Res perit domino.

1484 – recto law ; maceda law ; personal prop; real

1484 cases

Contract to sell – owner bears the risk of loss because the ownership is reserved before the
payment of the full purchase price.

________________________________________________________________________

Class Notes for April 20, 2021: (Sha)

-Under 1458 → the last time we made it clear, that a CoS is consensual; on the other hand

once the contract is perfected, it creates a reciprocal obligation; and, it is considered as a

bilateral obligation; reciprocal obligation: seller → to transfer the ownership and deliver a

determinate thing; buyer → pay a price certain in money or its equivalent

-Note: this obligations of the seller to transfer the ownership and to deliver the thing (object
of contract), is covered by the implied warranties against eviction and hidden defects (implied
- even without the agreement or CoS stipulating on them, they are included in the CoS;
subject to exceptions)

-Second paragraph of 1458: CoS may be absolute or conditional; when you absolute, you try

to recall in obligation - it is akin to a pure obligation → when it is pure, it is not subject to a

condition or a period = it is demandable at once; it may either be suspensive or resolutory

condition; period: either be suspensive or resolutory

-Note: if the obligation is subject to condition prior to the fulfillment; there is no obligation; on
the other hand, the obligation is merely subject to a period; purpose of period is to suspend
the demandability, but there is no obligation in this case

-Effect of resolutory condition: in both cases, the obligation is immediately demandable, but
once the condition is fulfilled, then it will be extinguished; the obligation is demandable
already, but upon the arrival of the period, it will also be extinguished

-Distinguish a contract to sell vs. a contract of sale?

-Contract to sell: the agreement; there is a perfected contract between the parties, but mostly
in a CoS, the obligation of the seller is subject to a positive suspensive condition; full payment
of the purchase price, so that if on the other hand, the full purchase price is not yet paid (ex.)
period of fix months) what happens to the contract to sell?

-A and B entered into a CoS for a condominium; subject to a positive suspensive condition

(full payment of purchase price within 6 months); what happens if the full purchase price is

not yet paid within the 6 month period agreed upon? → because the full payment of the PP is

a positive condition, if not fulfilled or complied or not performed by the buyer, the contract to
sell will expire; if it expires, there is nothing that the seller is required to do, because the

contract will expire functus officio

-There are situations where the seller has already delivered the possession of the property;

ex.) the condo unit is delivered by developer, upon the payment of equity, but the installment

or subsequent ones have not been paid by the buyer, and the contract to sell has expired;

then developer is not required to execute a deed of absolute sale; if the full PP is paid, then

seller, is required to execute a deed of absolute sale and to deliver the CTS; if the full PP is
not paid within the agreed period, and buyer defaulted in payment of installments, the contract

of sale will expire; remedy of seller is to recover the property by filing an ejectment suit against

the buyer; on the other hand, if it is a contract of sale, then it is immediately executory but it

is subject to a resolutory condition, that the PP is not paid, because there is a cos that is

executed, then the remedy of the seller is rescission → there is a breach of contract; on the

other hand, in a CTS, there is a breach, but the non-payment of PP would not extinguish the

obligation of the seller to execute the deed of absolute sale; 1458 → CoS (Contract of Sale)

may be absolute or conditional; either absolute or CTS (Contract to Sell); but developers are

wise enough not to execute the CoS prior to the payment of full pp; unless a loan with the

bank is done (execute a deed of mortgage of property with the bank) → obligation of seller is

to pay the bank of the installments of the loan; deed of mortgage is the remedy of the bank

in the event that the buyer fails to pay the installments agreed upon

-Remember: three essential elements of a contract → consent, determinate object and the

price (in money or in equivalent); consent = we also talk about that the manner of payment of

hte price goes into the consent of contracting parties; if the seller has specified the manner

of payment of price, it must be complied with buyer, otherwise, there is no agreement or

consent between the parties

-With object = apart from the fact that the object should be licit, the good thing about the CoS,

the object may include future goods and existing goods; when you say future goods (emptio
rei spirit) → a case of a conditional sale; because when the object is a future good, it does not

yet exist at the time of the perfection of the contract, however, it is subject to a condition that

the goods will come into existence; on the other hand, one of the characteristics of a CoS is

that it is commutative (exchange of goods or things of equivalent values): exception →

aleatory contract of sale: emptio spei → it is a sale of existing goods,but it is a sale of a hope

or expectancy (ex.) lotto ticket); what you’re buying is a change or something that upon a

happening of a contingency will become greater; empio ispei (it is a hope or sale of existing
goods; buying a lotto ticket → buying the existing good or the ticket itself; but subject to

contingency that it might win); vain hope or expectancy = not a proper object of CoS due to

presence of fraud

-Future inheritance; not a proper object of Contract of Sale; hereditary rights however, may

be a proper object of Contract of Sale; distinction of FI (Future Inheritance) and HR

(Hereditary Rights) → FI: on the grounds of public policy, may not be a proper object of CoS

(merely inchoate); HR: the rights of an heir, although his hereditary rights is still undivided,

but it is vested upon him and may already be transferred to another person (parang sale of

an undivided property)

-Price: must be certain at the time of the perfection of the contract; must be real and not
simulated; if it is simulated, and it is absolutely simulated - the CoS is void; if it is relatively
simulated, it will only bind the parties to what they have agreed upon, unless the purpose is
contrary to law
-Generally speaking, lesion or inadequacy of price = will not affect validity of contract
-However: vitiation of consent → the contract is voidable

-1381: where there is lesion suffered by an unemancipated minor, absentee, or incapacitated

where the value of the property suffered is more than 1/4th of the value of property → contract

is rescissible

-Note: Cachola vs. CA → the SC said: while it may be true that generally speaking that lesion
will not affect the validity of CoS; where the price is so low as to be shocking to the

conscience, sale may be set aside

-Note: price may be paid in money or its equivalent; on the other hand, if it is a thing in
exchange with another thing = considered as a barter

-Payment partly in money

-1477 → *The general rule with a CoS → the ownership of the property sold, will be transferred

to th buyer upon the delivery of the thing; prior to the delivery of the thing, the buyer does not
have yet a real right over it; 1164 → creditor has right to fruits of thing, but no real right over it

until the thing is delivered to him

-1478 → exception: when the CoS may be absolute or conditional; there is no transfer of

ownership until full payment of the PP; this is an exception → the parties may agree that

despite the delivery, the ownership of the unit is not yet owned until the full payment of the

purchase price

-1479: there is a perfected CoS; referred by 1458

Second paragraph of 1479 = 1324; if it is a merely unilateral promise to buy or sell, and that

unilateral promise is not yet accepted, meaning, you’re offering to buy or sell but the offer is

not accepted → considered as policitacion = it produces no juridical effect and creates no

legal bond (not perfected CoS)

-Offer interpresentes (accepted at once or immediately; offeror and offeree are in face to face)

→ generally, it must be accepted immediately; otherwise, if the offer is not accepted, then the

offer is withdrawn; exception: if the offer includes an option (giving the buyer a certain period

within which to accept the offer, then the offer remains until withdrawn by seller); however if

that option period is not supported by consideration (option money), then the offeror or seller

may withdraw it anytime, provided he gives notice to buyer; if no notice is given, then he can

still withdraw it - but the buyer may sue him under Article 19 of the NCC (abuse of rights

doctrine); the seller may withdraw it, because there is no perfected CoS; however, the law
requires that if the offer will be withdrawn, notice must be given - if not, Article 19 will be

violated

-Option period is supported by option money → gives rise to an option contract (option period

or money) → period is supported by option money (consideration of something paid or

promised, 1324 → gives rise to a separate contract which is option contract); effect: seller

cannot withdraw until the period agreed upon in the option contract has expired; effect is that

the buyer is given the exclusive right during the existence of the period whether or not to
accept the offer; the rule is that acceptance must be absolute (if it is a qualified acceptance,

then it will be a rejection of offer - therefore extinguished offer)

-Note: option money is not synonymous with earnest money (forms part of purchase price);
OM is just a reservation fee; gives you a period and an exclusive right to have a limited time
to decide; if you will decide within 30 days for example, then you will have to bring your
earnest money or downpayment o paunang bayad sa equity; but that is an earnest money
because it forms part of the purchase price; reservation fee is an OM, does not form part of
the PP; but it is a separate consideration in a separate contract, called an option contract

-1482: earnest money vs. option money (1479 (2))

-1484, 1485, and 1486 (VIP) → already amended by Recto Law (sales of personal property

by installment → pinsan nito is the Maceda Law - Realty Buyer’s Installment Act)

Requisites of 1484:
1.) Object is personal property (Amended by Recto Law)
2.) Installment: pag bumili tayo ng washing machine sa SM, the usual question of the

saleslady “ano po yung mode of payment? Cash, installment, or straight sale?” → pag

cash, ayaw nila, gusto nila gumagamit ka ng card; pag installment it means: ang bayad

mo, for example, 6 equal tranches; pag magdown ka ngayon or ang balance mo after

6 months = hindi ito installment

a.) Ang covered ng 1484: 12 mos. To pay or 6 equal installments
3.) 3 options on the part of the seller when confronted with a situation when the buyer is
not able to pay the purchase price:
a.) Kahit isang installment na hindi ka pa nagbayad, pwede ka mag-demand ng
performance of the obligation; on the other hand, (2 and 3), before you can
cancel and foreclose, kailangan default siya in paying two or more installments
b.) On the other hand (the three are alternative options) → they are exclusive and

not cumulative; if you choose one, you forego the others; they are alternative

remedies

c.) Paragraph 3: if you buy a car, and you are not able to pay 2 or more

installments, and the bank for instance, foreclosed the chattel mortgage on the

thing, then he shall have no further action against the purchaser; pag finorclose
 mo na yung car, wala ka nang utang (ibigay mo na) → this is the Recto Law;

hindi pwedeng that the mortgage has been foreclose and you still have a

balance and you are liable (hindi na: hindi ka na liable; no further action against

the purchaser against the balance)

-1485: applicable din ito sa lease with option to buy; yung umuupa ka tapos yung upa mo will
form part of the PP (it is like an installment or akin to installment siya); to avoid the scurting,
the prohibition of Recto Law

-1486: yung paragraph 2 ng 1484 → cancellation of sale; nagkaroon ng rescission; give rise

of the obligation of the parties to return to each other what they have received (restoration
under status quo)

-Generally speaking: if you cancel, magsosoli din siya ng binayad mo; ibabalik mo rin yung

washing machine then the sales person will return the money; but subject to the exception of

1486 → stipulate na hindi dapat nagsosoli ng bayad, regarding forfeiture (installments or rents

paid shall not be returned and shall be valid; for as long as it is not unconscionable)

*Compare this to Maceda Law (Realty Buyer’s Installments Protection Act):

-Applies to sale of real property including sale of residential condominium
-Exception: it does not apply to three kinds of properties:
1.) Kapag nagbenta ka sa tenant mo under land reform
2.) Kapag industrial lot
3.) or commercial building
-Includes sale of real property by installment; including residential condo; it does not include
commercial condos (papasok sa commercial building)
-Maceda Law is very simple; sabi dito → if the installments the buyer has been paying for

more than 2 years, then he is entitled (if defaulted) to a grace period of 30 days for him to be

able to pay his due (the installments that are due); he can pay within 30 days; kasi kapag less

than 2 years, ang grace period is 60 days; pag nakabayad ka na, you are given an addition

of 30 days
-If seller will cancel due to non payment within the 60 and 30 day period; kapag nag
installment ka ng 2 years, then you will be entitled to a refund up to 50 percent; kapag
nakapag bayad ka na ng installment for more than 2 years (50% refund of what you have
paid)
-If you have been paying the installments for more than 5 years, every year you will be entitled
to an additional 5% but not to exceed 90% refund of the installments (entire installments) that
you have paid
-If you have paid only of less than 2 years of installment, the grace period is only 60 days; if
more than 2 years of payment = additional of 30 days
-Now if the seller is going to cancel the sale because you are in default, then the cancellation
will happen only 30 days after you are issued on notice by a notarized notice of cancellation
(must be notarized by a notary public) and cancellation will take effect 30 days thereafter;
meaning, you have the 30 day period again to pay in full the installments become due
*Read Maceda Law

Chapter 2:
-1489 = 194 of the Family Code (definition of support); when a party enters into a CoS he
must be capacitated
-Unde the section of voidable contract: effect is if the party is incapacitated, the contract is

merely voidable (valid until annulled) → exception: necessaries are the subject of sale; then

this sale is not voidable, because here, the buyer cannot ask for the annulment of contract of

sale, because the object is necessaries for life and falls under the exception
-Even if the goods are sold to minor or other person without capacity to act, necessaries are
part of the exception

-1490: H and W cannot really sell to each other property (as a general rule)
-Case of Calimlim Canulias vs. Fortun → it applies to common law spouses; the prohibition

applies to common law spouses; exception: when the spouses entered into a marriage

settlement where the property relation is governed by complete separation or during the

marriage, they were able to obtain a judicial separation of property (involuntary or voluntary;
for as long as it is approved by the court)

-They cannot donate to each other properties → applies to mistresses also

-1491: (special disqualification)

Chapter 3
(Risk of Loss due to fortuitous event; who will be liable and responsible in case the
object of the sale is lost)

Object of the sale is lost prior to the
perfection of the contract
The object is lost at the time of the
perfection of the contract
The thing is lost after the perfection but
prior to the delivery
Who will bear the risk of lost
-The owner (seller)
-Res perit domino (the thing perishes with
the owner)
-If the thing is lost prior to the perfection of
the contract: seller is still the owner of the
thing or object
Who will bear the risk of lost:
-The contract of sale is void; it is void
because of absence of an object which is
an element of CoS
Who will bear the risk of lost:
-After the perfection of the contract, the
seller has the obligation to transfer
ownership and deliver the determinate
thing; meron siyang obligation to take care
of the thing (1156) and deliver the
accessions and accessories
-The main obligation of seller: deliver +
transfer + take care
-obligation of the buyer to pay the price is
extinguished
-The seller is also excused due to the FE
-If the seller, lost the thing due to his fault
(1189 paragraph 2), he shall be liable for
damages
-Under 1189: merely partial loss or
deterioration; buyer’s option not to proceed
and demand payment of damages
-Note: if the thing is lost after the
perfection but before the delivery: the
responsibility will depend upon the
stipulation of the parties; in the absence
of stipulation, then you apply res perit
domino (which means that because the
ownership is not yet transferred prior to
delivery of thing, then the seller bears
the risk of loss)
 If after the ownership is transferred, the Then the buyer will bear the risk lost
thing is lost (ownership is already transferred)

*Kapag bibili ng bahay or condo: part of the CoS, or when the house is mortgaged → kasama

ang pag aaply ng mortgage redemption insurance; so that if the property has been raised by

fire, instance has been, then the insurance will pay the balance of the loan subject of the

mortgage
*kasama sa premium yung payment of insurance

-CoS and is subject to a resolutory condition, the payment of the PP; not able to pay in full

the PP: remedy → performance to pay the PP + interest + damages or demand for rescission

(1191) (you failed to perform the reciprocal prestation)

-perfection of CoS will give rise to the reciprocal presentation of the seller and buyer to
perform their respective obligations

-Obligation of the buyer: to pay in full the PP

-Obligation of seller: transfer, delivery, warranties, to take care of property
-Maceda Law and Recto Law (take note of the personal and real property purchases; and
also the applicability of 1484)
-Note: 1486

4/21/2021 - Caryl

Recto Law- 1484-86 *****

The Recto Law amended these provisions. The Recto Law applies to:
1. Contract of Sale
1485 - Also applies to contract of lease with option to buy.
2. Contract of Lease
It applies to personal property. The price is payable on installments. The sale is payable in straight
terms wherein there is initial payment and the balance is payable on a future date.
Under 1484, there are 3 paragraphs and as referred to remedies of the seller.
(Alternative remedies) - If you choose 1, you forego the others.
1. A failure to pay 1 installment, would already give the seller the right the exact fulfillment
of the obli
2. - 3 . two or more installments of failure to pay.

1484- If you choose to foreclose, you shall have no further actions to recover any unpaid balance
of the purchase price.
If the bank get your car, they cannot anymore collect the unpaid balance.
Foreclosure on chattel mortgage (1484-86) vs. Replevin
Recto law does not apply to a contract to sell ; it must be contract of sale.
Should the vendees fail to pay two or more ins. When a contract is rescinded, the contract
will become void. The parties will return what they have received.

1486 - It applies to 1484 & 1485

- Penalty clause
- If the seller will choose to cancel, the seller will not be required to return what you have
paid. They will be forfeited.

In Recto Law, if the seller will opt to cancel, there will be no requirement that the cancellation
must be in notarial act. But in Maceda law, it must be in notarial act with respect to the
cancellation. With respect to Maceda law, it applies to transaction involving the sale of real
property or financing of real estate including residential condominium. But it does not include
sale to tenants under the Agrarian reform laws. 2nd, commercial bldgs, lots and industrial lots
also not included. Under the Maceda law (realty buyer’s protective act), if the buyer has been
paying the price on installments for less than 2 yrs, he is not entitled for refund if he cancelled it
but will be given a grace period of 60 days but no refund. It is like a penalty clause. If the buyer
pays for more than 2 yrs, he will be entitled to an additional 30 days. The seller will forfeit 10%
of what he paid.

CHAPTER 4
Talks about the obligations of the vendor
1495 - The obligations of the vendor
1. To transfer ownership
2. To deliver
3. To warrant - encircle
The obligation of the vendor to warrant is a natural element and may be waived. The buyer may
waive the so called implied warranties imposed by law.

1166 - to deliver the accessions and accessories.

1163 - to take care with DOAGFOAF.
Under 1496 in relation to 1477 and 1478 contract to sell
1496 -> 1477
1478 - Contract to sell
Notwithstanding the delivery, the seller will not transfer the ownership because they agreed to
full payment of purchase price.

1497- Manner of the delivery (actual or real delivery) -> mode of acquiring ownership is tradition.

1498- 1501 = legal or constructive delivery (fictitious tradition)

1498 - execution of public instrument
1st par. - pertains to immovable property (the execution of the public instrument plus
registration will have the effect of delivery and transfer of ownership) it is required that the seller
must have the control of the property. Under the control of an adverse party, the fiction will have
to give way to the reality. If you see an indication that a seller is selling the property, if the
property is in the hands of a third person, there is no delivery and the third party may cancel the
sale.

Mere consent - Tradicio longa manu

Possession - Tradicio brevi manu
Seller after selling the property has the possession in another capacity

1501- Quasi tradition

- Incorporeal properties/ Intangible properties

GR: Delivery has an effect of transfer of ownership

Exceptions:
1. 1478 - contract to sell
2. 1502 - sale of delivery or subject to return
3. Sale on acceptance/trial
4. 1503 - implied reservation of ownership (bill of lading)
5. 1505 - Sale by a non-owner (you cannot sell a property that you do not own)
Implied warranties against eviction - seller should transfer ownership at the time of
delivery.
 - If the seller is a thief, subject to anti-fencing law. Possession of movables if unlawfully
deprived, the owner should be able to recover it without paying.

559 - Acquires no better title if he does not have any right with respect to the property.
Exceptions:
1. Sale made by a registered or apparent owner in accordance with registration laws.
2. Sale sanctioned by judicial authority (auction)
3. If you buy it from the merchant stores (SM/Lazada) actually selling
4. 1596 - if the seller has a voidable title (if he is not aware of the defect of the title; without
notice)

Document of title (skip)

Several kinds:
1. Bill of lading
2. Warehouse receipt
3. Quedan
Specific application on every law but if they are not applicable, we apply NCC.

1544 - Double sale

With respect to immovable property - requires registration. If he was the second buyer but first
registered the prop, then he acquires better title. If none, the one who can present oldest title
but it must be in good faith. The both sales must be valid and it will apply only and covered under
torrens title.

Double sale must be same seller. In the same manner it must have conflicting interest.

With respect to personal property - It is raised to possession because in 559 possession alone is
equivalent of transfer of ownership.

Warranties and Conditions-

What happens if a condition to a contract of sale is not fulfilled? The obligation will not be given
effect.
If the condition is in the nature of a promise of commitment, it may be treated as a breach of
warranty and the aggrieved party may demand damages.

2 kinds of warranties
 1. Express - If it is included in the agreement between the parties; natural tendency is to
induce. Warranties is akin to fraud if not truthful.

2. Implied - Is imposed by law. Law provides for these warranties even if the seller was silent
about it.
Kinds:
a. Warranty as to the seller’s title (eviction)
- The seller must be the owner and has the capacity to transfer ownership
to you. Will give you the title over property.
- 1557
- 1549 = you will be evicted as a result of a final judgment
- 1558
- 1571 **** 6 months prescriptive period against hidden defects
- 1577

b. Warranty against Hidden defects or encumbrances

c. Warranty as to the fitness or merchantable quality of goods

Warranty is a representation or statement with respect to character or quality of the goods. The
person selling must make a representation of the quality of the product.

Next meeting
Remedies of unpaid seller, redemption like pacto de retro.
Syllabus - wait for cases

Class Notes for April 22, 2021: (Sha)

Obligations of the Vendor (Chapter 4):

-1495 and compare it with 1458, under 1458 it provides that in a contract of sale, one of the

parties binds himself to transfer and deliver the determinate thing; 1495 → bound to transfer

the ownership and to deliver as well as to warrant (three obligations under 1495)
-If we correlate the obligations of the vendor with the obligations of an obligor in general;
should also include the delivery of the fruits, the accessions and accessories (even if they are
not mentioned); ex.) if you sell a car, you have to deliver the car itself along with its wheels,
stereo, etc.
-1166 → the obligations of the obligor/debtor includes the obligation to deliver the fruits,

accessions and accessories

-Obligation of debtor or vendor in a CoS, is to deliver a determinate thing; if it is to deliver
such, hindi siya generic; which means, the vendor is also obliged to take care of it with a
diligence of a good father of a family; will be liable for loss and impairment of thing
-Note: 1495 → the obligation of vendor includes the obligation to warrant, meaning, itong

warranties → implied warranties (because they are included in the CoS even if the seller was

silent with respect to that)

-Express warranty = representation from the seller, that has the natural tendency of inducing
the buyer to make the purchase; the buyer relied on the representation to make the decision
to purchase
-Implied warranty = one that did not come from the seller; it is imposed by law; that is why,
while on the other hand, yung implied warranty is not an essential element in the CoS;
considered as a natural element because it is there; unless, it is waived, and except in certain
instances (ex.) sale of second hand article - walang warranty such as hidden defects; as is
what is - walang warranty din - indication that you are waiving the warranty)
1.) Implied warranty against eviction: it is a warranty that the seller is making a guarantee
that when he delivers the thing, he has the right to transfer the title over the thing; if
you are ousted or evicted after that as a result of a cause that has been there prior to
the sale, then you can invoke such warranty and make the seller liable for damages

-Generally speaking: ownership over the thing or the object of CoS, is transferred to the buyer,
upon the delivery of the thing; there are several ways to which delivery may be made (delivery
1497 to 1501: they are the ways in which delivery may be made = tradition is a way of
transferring ownership

-1497: actual or real delivery = there is actual transfer of possession or control

-1498: execution of a public instrument = refers to an immovable property; if it is registered,

then coupled with registration + public instrument

-Second paragraph of 1498: traditio symbolica

-1499: by mere consent or agreement = traditio longa manu (by mere consent or by mere
pointing at it)
-Second paragraph: traditio brevi manu → lessee turns into an owner

-1500: owner then becomes lessee

-1501: quasi-traditio

-1477 and 1478 → GR is under 1477 (ownership is transferred when the thing is delivered by

the seller to the buyer)

-Exceptions:
1.) 1478 = there is a condition that despite delivery, the ownership will not be transferred
until the full payment of the price; it happens in a contract to sell or a reservation of
ownership despite delivery
2.) 1502 = sale or return → pwedeng isuoli yung floor polisher kahit dineliver; or delivery

on approval, trial or on satisfaction (no transfer of ownership); sale or return there is

transfer of of ownership, but the ownership will vest on the seller if the buyer will decide

not to push through with the purchase of the thing - part of the marketing strategy (may

delivery pero pwede naman ibalik - ex.) within 20 days you try the product); benta then

the buyer may re-vest the ownership from the seller after a certain period of time
a.) Approval, trial or satisfaction: only a transfer of temporary possession: pag
nagustuhan, then within a certain period tapos hindi sinauli, babayaran na yan

1503 - the delivery to shipper is delivery to buyer (general rule); unless, there is an implied
reservation of ownership (implied - because it is not expressed in the bill of lading)
-Bill of Lading → only one of the variations nung tinatawag nating document of title
-Document of Title: (nothing but a proof of possession or control of the goods); yung may
hawak ng document of title, it shows that he has control or possession over the goods referred
in the DoT; it is a negotiable document of title, if based on the DoT, the goods are deliverable
to the bearer or to the person named in the bill
1.) Negotiable → the goods therein may be delivered to the bearer (kung sino may hawak
ng DoT, the goods may be delivered to that person; or to the order of the person

named in the negotiable document of title); that DoT, may be negotiated either by

deliver of that title, or by indorsing (pirma) + delivery of the document

2.) Non-Negotiable → deliverable to the depositor; and not to the bearer; the goods

represented by that non negotiable document of title, must be delivered to the

depositor or to the person mentioned in such title (hindi pwedeng magpa-lipat lipat)
3.) Other forms: warehouse receipts, quedan
-Negotiation: negotiated through deliver of the document of title or by endorsing that
document of title + delivery of the document of title

We will just read this over (through a reviewer); just know the concept of the Document of
Title

Remedies of the Unpaid Seller:

-1524: this is the general rule → CoS generates reciprocal prestation; pag tanga ka, mag-

deliver ka kahit walang bayad

-If you are the vendor, you are not supposed to just make a delivery, unless you are paid of
the price
-If there is an agreement with respect to when the person is going to make the payment

-1525: (what constitutes an unpaid seller) → hindi pa nababayaran ng buo (when the whole

of the price not paid or tendered) - kung partial pa lang natanggap mo, you are an unpaid

seller; or when the check you presented was dishonored; but if you accept the check, prior to

the due date of the check (there is an implied waiver that you will not do anything until the

due date of the check and until the check is presented, paid or dishonored; there is nothing

that you can do; any action in the check shall be held in abeyance - clear under the rules on

payment, under 1249 (3) - suspended ang lahat ng pwedeng gawin once you accept the

check; you have to wait until the due date of that check or has been dishonored; in the

meantime, any action derived from the original obligation shall be held in abeyance, dahil

tumanggap ka ng cheke)- there is a danger when you accept a check and you fail to present

the check to the drawee bank within the 6 month period, you presented it thereafter, then the
debtor can claim that it is because of your fault that the check has been dishonored, and so

far as he is concerned he has paid the obligation

-What are the remedies of the unpaid seller? → 1526; which means, if generally speaking, if

you are not paid, you have the right not to make a delivery; even if the ownership is

transferred, if you are not yet paid in full, as the unpaid seller, you have these rights under

1526
1.) Right of lien
 2.) Right to rescind the sale
3.) Right to resale
4.) Right of stoppage of intransit

-1527: Right of Lien → when the law says this, you have the right to retain; not required to

make the delivery; what are those instances?

1.) Ang usapan ninyo is cash, pero hindi pa nagbabayad ng cash, walang usapan ng
utang; then you can retain
2.) Usapan kayo na utang yan, but the term has expired and is supposed to pay the seller
3.) Kapag nabalitaan mo na tumalbog yung cheke niya (insolvency)

-1528: part delivery; and there are indications that you should not proceed with the delivery
of the rest, then you may choose not to deliver the rest of the goods

-1529: instances when the unpaid seller loses his right of lien; if he loses his right of lien, then
he loses his right to retain

-1530: right of stoppage in transitu; grounds for exercising the rights in transitu = if the buyer

becomes insolvent (kahit pinatakbo mo na siya sa lalamove, pwede mo pang tawagan yung

lalamove and give notice not to hand the goods to the buyer → the goods are still in transit,

prior to the goods being handed to the buyer)

-Normally, the goods are in transit: when they are in the possession of the carrier, for the
purpose of delivering to the buyer
-How do you exercise stoppage in transitu? = you take actual possession of the goods (ex.
Kung nasa pier pa siya, bawiin mo), or you give notice to the claim to carrier

-Third remedy: right of resale → 1533; you can exercise this right (two instances):
1.) You have a lien on the goods (you still have possession of the goods)
2.) If you have exercised stoppage in transit, then you have possession and control of the
goods; and therefore you can exercise this right
a.) If the goods are perishable → kailangan i-resale (1533)
b.) Where that right of resale is agreed upon
c.) Right is expressly reserved on the agreement (for re-sale)
*if the item is not yet with the carrier, you cannot exercise stoppage in transit because you
still can avail the right of lien (because you have the item under your possession)
-Right to Rescind: the power to rescind obligations (1191; general rule → the power to rescind

obligations is implied in reciprocal once; a CoS creates reciprocal obligations); 1191, applies

to a CoS; however under 1191, the decree of rescission will have to be issued by the Court

(you go to court if you want to rescind); unless, there is an automatic revocation clause

(expressly provided in the agreement, that in case one of the parties will fail to comply with

the performance of his prestation, then the other may automatically rescind); however, in sale,

in a CoS, (1534)

-1534: requisites to rescind:

1.) The unpaid seller has the right of lien or has exercised the stoppage in transit (in
control of the goods) → most important requirement (before you can rescind and

resale)
2.) Rescission; right to rescind = exercised in two instances:
a.) Automatic revocation clause (similar to 1191)
b.) Wala sa 1191, but available in a contract of sale; where the buyer has been in
default for the payment of price, for an unreasonable time (1534)
*For you to be able to say that the buyer has been in default that the buyer has been in default
for an unreasonable time = seller must give notice to buyer in default; then saka lang you give
notice to the right to rescind

Double Sale (1544):

-When you are confronted with this, when you are going to give the rule, please do not forget
to make qualifications: you will have to put a signal that if it is personal property, the rule
under 1544, the ownership is given to the person who has first taken possession of the
property in good faith (ito ang rule pag personal property = first taken possession in good
faith)
-Remember: personal property → may rule tayo under 559 (rules on Property); in relation to

1505
-1505: in relation to 559 and 719
-559: seller who is a non-owner
-You cannot have a better title that the seller has; if the seller is a thief, baka magka kaso k
pa ng anti fencing
-559 (general rule) → possession of movable property acquired in good faith is equivalent to

a title; however if the property is lost or the owner has been unlawfully deprived, he should

be able to recover it
-In line with 1505, if you are the seller and non-owner, then the buyer cannot have a better

title than you have → premise taken into consideration in applying double sale

-Exceptions under 1505:

1.) If the sale is by the registered owner of by apparent owner in accordance with the
property registration decree (land registration laws natin); even if he is not the owner,
but you are buying from the one whose name is in the TCT, and purchase for good
faith and for value ka, then it may be a root of a valid title; if a property is covered with
a Torren’s Title, the sale can be a root of a valid title
2.) If sale is in pursuance to the authority and order of court
3.) Pag binili mo kay lazada or SM (merchant store or fairs) → the true owner will not be

able to recover it (ganun din ang 559 → two exceptions: if it is a result of a public sle

(you will have to reimburse the seller of the price and expenses);but under 1505 (3) →

then you will never be able to recover it; kasi doon mo siya binili sa nagbebenta ng

ganung bagay)

-719: rules tungkol sa lost and found → pag may napulot ka, kailangan isurrender sa proper

authority, dumaan sa publication, then pag hindi sumipot yung may-ari then that’s the only

time you’ll be able to acquire the ownership of the thing

Double Sale:
-Real property or estate → then remember, the first rule is the first registrant (person who

registers it first in good faith), acquires the title over the others; if no one has made
registration, then the first who acquired possession will acquire ownership or title over the

others who are not in possession of the property; if no one is in possession, the first one who

presents the oldest title → all cases: person claiming ownership, must have done these things

in good faith; otherwise, even if you are the first to register the sale, but when you registered

it you are aware that there was a prior sale, then knowledge of prior sale is equivalent to

registration, and therefore because you registered it after you have been aware of a prior

sale, then that person where the sale you have acquired knowledge ahead of registration →

will have a better title

-Don’t talk about a DS, unless seller is the same person (the seller should be the same
person, not two persons making the sale); two buyers must have bought the property from
the same seller
-Both sales must be valid
-Note: the rule in 1544 does not apply when the property is not registered under the Torrens
System of Registration; Registration is under Act no. 3344 (walang epekto iyan; not effectively
a registration that will give the buyer a title over the property; hindi siya yung first registrant)

Warranties and Conditions (Section 3):

-Condition → it is similar to the condition to an obligation; in an obligation (may be pure or
subject to a condition or a period); either suspensive or resolutory
-Sale is subject to condition; generally speaking, the seller may choose not to proceed with

the sale (if the condition is not fulfilled) → fulfillment of condition will give rise or birth to the

obligation and will make it demandable (similar to CoS → parties may choose not to proceed

with the sale or choose to waive the condition and proceed with the sale)

-If the condition is in the nature of a promise: then the buyer for instance, may treat the
condition as a warranty and sue the seller for breach of warranty

-Warranty: express or implied

1.) Express: statement or representation by the seller, with the natural tendency of
inducing the buyer to make the purchase, and the buyer relies upon the representation
to make the purchase
a.) Note: warranty must relate to the transaction or must relate to object of
transaction or to the party to the contract
b.) Kailangan related siya doon sa contract of sale
2.) Implied: it is imposed by law; may be waived by the contracting parties
a.) Imposed by law and derived from the nature of the transaction or
circumstances of the parties, irrespective of the intention of seller
b.) Three implied warranties in a CoS:
i.) Eviction →

ii.) Hidden Defects → generally speaking: file for an action of breach of

warranty within 6 months from the time of delivery; kapag animals binili

mo, you need to file within 40 days for a breach of warranty

iii.) Merchantability or Fitness of Goods → the goods being sold are

merchantable are fit for the particular purpose

-1549, 1557 and 1558 (VIP) (under warranties against eviction) → 1548 (kapag nag double

sale si vendor, he can be sued for violating the warranty against eviction; kapag binenta sayo

na nabenta na or naunang nag-register yung second buyer = then you are ousted from the

property, and due to this, you can sue the seller for the breach of warranty against eviction)
-Before invoking the warranty against eviction: you must be ousted through final judgment;
no need to appeal; just need to lapse the appeal and the judgment is final and executory; and
kailangan nasama yung seller sa suit; kailangan maka receive ng summons ang vendor of
the suit that ousted you from the property

-1571 and 1577 (40 days and 6 months rule) (VIP) → for hidden defects

HW: cases pertaining to 1544; tatapusin na ang sales (wrap up); pacto, conventional, legal
redemption, extinguishment of sale (equitable redemption or equitable mortgage, different
kinds of legal redemption) also cover lease.

------------------------------------------------------------------------------------------------------------------

4-26 (Caryl)

Remedies of unpaid seller

1525 (2) -> 1249 (2 &3)
It will have an effect of payment when it has been cashed. Estopped when claiming.
When you accept a check as a payment, until it has been cashed, you cannot file an action.
To accept the check is to waive your right until the due date has arrived.

The reason why the seller is an unpaid seller:

1. Has not been paid in full
2. The check has not been paid/encashed

1526*****
Remedies of unpaid seller
1. Even if the ownership has been passed, the seller may still exercise these rights.

The right of lien: (1527)

Meaning: Right to retain; you simply retain the possession.
Par. 1 - If the payment is in cash without stipulation as to credit.
Par. 2 - While the goods sold in credit the period has already expired.
Par. 3 - Buyer becomes insolvent.
- The seller should be wise enough not to give goods
1528- You can choose not to deliver the rest even if there is already partial delivery.
1529
(1) -> 1503 = talks about exceptions to the rule of delivery to the carrier will not have the
effect of delivery to the buyer.

1530 - insolvent
2 ways:
1. Retake possession
2. Send notice to the carrier

If he proceeds with the delivery, he will be in the situation that the seller will not be paid.

1531-
Bailee-Depositary
Pier - Arrastre operator
Until you have not paid the goods in the arraste op, you cannot claim it.
Bailee is not necessarily the consignee.

1532- The unpaid seller may exercise his right of stoppage in transitu; giving notice of his
claim to the carrier or other in whose possession the goods are.
1; right of lien
2; In transitu
3; sale
You have retaken the possession of the goods;
Goods are perishable, right of resale is reserved expressly by the contract of seller, buyer does
not pay for unreasonable time.

1534- Right to rescind (correlate to 1191)

Req: Seller has exercised his right of lien or in stoppage in transitu.
1191 - applies to reciprocal obligations
Power to rescind obli is implied in reciprocal ones when one of the contracting parties does not
comply with what is incumbent upon him.
Contract of sale - the payment of the price is a resolutory condition.
Contract to sell - payment of the price is a positive suspensive condition.

If there is an unpaid seller in the problem, look for its remedies.

Before you can rescind, you must have exercised your right of lien and in transitu.
1st ground: Right to rescind is impliedly rescinded; except if there is an automatic revocation
clause.
Must be substantial not casual breach.
2nd ground: When the seller gives grace period but unpaid, you can exercise your right to rescind.

Extinguishment
Conventional redemption and legal redemption and conventional subrogation
Conventional - resulted from an agreement.

1600 - Modes of extinguishing obli are similar to extinguishment of sales

1601- Pacto de Retro sale
Conventional redemption is included in the contract of sale.
There is an agreement that he can redeem. The right of redemption must be distinguished to
option to buy. Is included in the contract of sale when perfected. Does not need a separate
consideration. Right of redemption is a collateral agreement; option to buy requires separate
consideration and not part of the contract of sale.

Conventional redemption must be expressly stipulated. It is an express condition. It is a

resolutory condition. Contract of sale with right of redemption.

1602- Equitable mortgage

How is 1602 related to 1601? Because of prohibition against pactum commissorium.
Pactum commissorium - in the event that the debtor will not be able to pay, the ownership will
be transferred back to the seller.

2. When the vendor remains in possession.

1603 *****
Pactum commisorium prohibits automatic transfer of ownership as a payment of an obligation.
Dacion en Pago, there is a transfer of ownership. The borrower is the one proposing.
Facultative obligation, the obligor has a choice whether to substitute it with another substitution.

Pacto de retro sale- 1606 ******

If the parties entered in a contract of pacto de retro sale, the law gives the vendor 4 years, if
there is agreement, 10 years, if there is a question of filing in court, you can still exercise the right
of redemption within 30 days.

1616- ****
The price of the sale
The expenses of the contract which is necessary and useful expenses that were introduced by
the buyer
Go over legal redemption- it is imposed by law.
Next meeting : Lease
______________________________________________________________________________

Class Notes for April 27, 2021: (Sha)

MTE schedule: May 5, 2021; 3:30 to 5:30 pm

-Use LMS/Blackboard
-After MTE: we will start with lease

Extinguishment of Sale:
-1600: simply says that; remember we have taken up most of the modes of extinguishing
obligations (payment, remission, compensation, confusion, fulfillment of resolutory condition);
if you will note in sales, we have this so-called conventional or legal redemption

-1601: can you give me an example of a sale that has a conventional redemption included?;
conventional = the redemption is a result of a voluntary agreement between the parties; vs.
legal redemption = right is provided by law; in conventional redemption however, you will have
to distinguish it with option to buy

-What is an option to buy?

-Technical distinction: option to buy vs. conventional redemption

-Option contract → generally speaking, when the seller and the buyer are in face to face, then

the prospective buyer will have to decide if he is buying it; otherwise, the offer will expire

-On the other hand, if the seller includes an option to the buyer within which to decide, it is an
option (buyer is given the exclusive right to decide whether or not to buy the property or not);

under the Civil Code, a simple option without a consideration will not result in a contract

(option must be supported by a consideration; the seller in this case cannot withdraw the

offer, until the expiration of the period given to the prospective buyer to decided WoN to

purchase the property) → vs. conventional redemption = otherwise referred to as “pacto de

retro sale” → sale with conventional redemption; in the same contract of sale, an agreement

which is known as conventional redemption (collateral agreement) is included

-Sale with conventional redemption → included in one and in the same agreement

-Simple option contract → it must have a consideration separate and distinct from the

purchase price
-Conventional redemption: there is a prescriptive period within which the seller or the vendor
may redeem the property; if there is no express term, the period under the law is four years;
while if there is an agreement with the period of redemption; the law provides that it could not
exceed 10 years

-1602: you will be surprised that 1601 and 1602 are directly related; pacto de retro sale is

normally used as a subterfuge or a disguise to hide an agreement between for instance, a

rich man will lend to a farmer, and if the farmer keeps on borrowing money from the rich man,
the rich man will not be contented with a promise; instead will require the farmer will sign a

pacto de retro sale; the farmer who keeps on borrowing would want that he continues to farm

on his land; one of the indication of an equitable mortgage under 1602(2) when the vendor

remains in possession as lessee or otherwise → selling the property to someone; the buyer

will not be contented unless he takes possession of the property

-Pacto de retro sale used as a disguise to hide the true agreement (which is the equitable

mortgage) → required to sign a pacto de retro sale; the truth is, the reason why the farmer is

required to sign the pacto de retro sale, this agreement is to avoid the prohibition against

pactum commissorium

-Pactum commissorium → where there is the mortgage, and failure to pay of the mortgagor,

the mortgagee automatically becomes the owner of the property; this is prohibited; you cannot

do this is mortgage and pledge (law requires that when the mortgagor is in default of his loan

or obligation, then he has to follow the procedure - which is to foreclose the mortgage and

conduct a public auction to get the payment of the proceedings); otherwise, becoming an

automatic owner of the property amounts to pactum commissorium, which is illegal

-Distinguish: pactum commissorium vs. dacion en pago (1245) → remember in dation in

payment (1245), the borrower, when the debt becomes due, he does not have the money to
pay his monetary obligation offers to sell his property and as payment for his monetary

obligation - not a pactum commissorium, because here there is no automatic transfer of

ownership; borrower offers to sell his property with the loan as the consideration; normally

the situation with respect to central bank or the PDIC and the smaller banks like rural banks

(while they borrow money from bigger banks and when they could not pay their obligations,

they offer to transfer property by way of dacion en pago) - not a mortgage (no prior REM

entered into); in pledge, it is prohibited that in case of default, will become automatically the

owner of the property; dacion en pago not an automatic transfer of property

-Facultative obligation ;where the obligor has the discretion to substitute an original prestation
with another prestation it is also not a PC because there, the obligor has the discretion on the
other hand, in the case of PC, the mortgagee will automatically become the owner of the
property without going through the process of foreclosure and auction

-1602 (1) → indication that it is an equitable mortgage; case of a loan with a mortgage

-(2) → explained earlier

-(3) → very unusual for the buyer, if the buyer will keep on extending or entering into a new

agreement after the seller has defaulted

-(4)
-(5) → again it is unusual; buyer of the property will be the one responsible or liable to pay for

the real property tax; in the case of equitable mortgage, where the seller did not transfer

ownership but was merely used to simulate the equitable mortgage making it appear that

there was a sale, then the real intention of the parties is to hide their true agreement

*Equitable mortgage → although it lacks some formality, form of words or other requisites

prescribed by statute, it shows the true intention; security of a debt which is actually their true

agreement

-Case of Pacto De Retro Sale, the buyer gives the seller or vendor a certain period within
which to redeem the property; in case he fails to redeem within the period agreed upon, then
the buyer automatically becomes owner of the property
-Sale of conventional redemption → an obligation subject to a resolutory condition; period

expires without fulfillment of resolutory condition, then the right of vendor is forever precluded

from exercising the right to redeem the property

-1603 (VIP)

-Remedy under 1605 → so reformation of instrument is one of the remedies available to the

vendor,because in this case, the parties have agreed but the instrument did not reflect the

true agreement between them

-1606 (three situations contemplated):

1.) The situation where the sale with right to repurchase does not provide expressly the
period within which to exercise the right to repurchase
2.) If there is an agreement as to period within which to exercise RoR, there is a limit as
to how long will that right be exercised: 10 years
3.) If there is a case or action/question whereby the court has determined WoN the
agreement entered into is a genuine Pacto DR or equitable mortgage and it turns out
that after trial and earing that tat such is PDR; no matter how the time has lapsed for
the court to decide the case, after the decision reached finality, the vendor is still given
30 days within which to exercise right of redemption
→ law made a distinction: if the object of the PDS is a personal property, upon the expiration

upon which to exercise the RoR the ownership of the buyer will be consolidated
-1607- if the object of sale is real property; then order to consolidate ownership then buyer
will have to file an action to consolidate property; whereby, the vendor will be given an
opportunity to be heard

-1616 (VIP) (three items that will have to be returned by vendor)

1.) The price of the sale
2.) The expenses of contract (taxes paid included)
3.) The necessary and useful expenses → referred to under 546 to 548 on the laws of

property; presumed that buyer is in possessor in good faith and entitled to be

reimbursed of this items with right of retention

Legal Redemption:
- 1619 → so, legal redemption is provided by law
-1620 → co-owners; if there are three siblings in the family and they inherited property from

parents, and the three siblings are the undivided co owner of property; if one of them will sell

his undivided portion/ownership, the others may exercise the right of redemption; the two of

them will decide to exercise, then they will have their right to redeem will only be proportionate

to their own shares; if they own ⅓ each, and ⅓ will sell, then they are all entitled to ½ right of

the ⅓ that was sold of the undivided property that was sold by one of their siblings
-Note: here, they can only exercise the right of legal redemption if the buyer is a stranger;
when the portion is sold to another co-owner, the right of legal redemption does not arise
because it is not a new owner (he is not a stranger); if the buyer is one of the three siblings,
then the right of legal redemption may not be exercised (no right of legal redemption)

-1621: so 1621 pertains to rural lands

-1088: what we are talking about in this article is hereditary rights (distinguished from future
inheritance - not a proper object of a contract of sale); the other heirs may exercise the right
of legal redemption in HR

-1622: urban land

-1623: pre-emption (exercised before the sale; and there is no rescission of sale because no
sale exists; action is directed against prospective seller; effect is to prevent the birth or
perfection of the contract)
-Note: in order to be valid, or to bind the co-owner with the right of redemption or pre-emption,
the notice must come from the vendor or prospective vendor and not from the buyer; if it
comes from the buyer, then it will not bind the co-owner with the right of legal redemption;
cannot come from the register of deeds; must come from the vendor or prospective vendor
_________________________________________________________________________

Class Notes for May 11, 2021: (Sha)

When you are writing an essay, you are writing to someone; stop being self-centered; think
that you are trying to explain to another person. Do not assume that the person knows what
you are talking about; when you are trying to explain something, you are explaining something
to a high school student. Just because you mentioned a case that is probably similar, you are
already okay - you are not. I would not advise you to cite any case just to convince Sir what
we are talking about.

A lot of the answers do not contain an analysis. It is what you should do: you follow the formula
(CRAC) - conclusion or rule, A means analysis and the last is conclusion.
When you are writing an essay; first statement should be your answer.

You divided your answers into several small paragraphs; when you divide your answers in
several divisions, it is easier and better to appreciate instead of one paragraph answer for the
entire answer to the problem:

The first part of the answer would be your conclusion (referring to your decision or answer).
Ex.) In number one of your examination, it is about covina → compromise agreement (is a

contract entered into); penalty is like a liquidated damage agreed upon. Despite the fact that

he entered into a compromise agreement, when he was not able to pay the entire amount of

compensation and was being asked to pay the penalty of P2k, he refuses to pay the penalty,
which prompted Covina to go to court.

Remember: when the obligation involves the payment of sum of money, the damages that

may be demanded or that should be paid would be in the form of interest. Here the obligation

is the payment of a sum of money; damages will be in the form of interest → WoN the

argument of Pulong is Correct? → answer: correct, incorrect; valid or invalid; tenable or

untenable.

If our answer is “Pulong’s argument is invalid” → this is the conclusion that you have arrived

in this case. You end it with a period. Then follow it with the rule → the rule is either

jurisprudence or a principle of law or a law or a definition or a provision of law.

Assuming we use a provision of law: “according to the New Civil Code”

The penalty substitutes the indemnity or damages or the payment of interest in case of non-
compliance (if there is an obligation and obligor fails to perform the obligation; then, because
of that breach, the obligor will be liable for a penalty; the penalty will substitute the indemnity
for damages and payment of interest; generally when there is a breach of an obligation then
under Article 1170, then the obligee will demand for the payment of damages and usually in
order to be entitled to damages, the obligee will have to prove the breach and amount of
damage he suffered as a result of breach; but where the obli. Is with a penal clause, the
penalty will substitute the indemnity for damages and payment of interest; however, we can
add, as a third sentence, if the obligor is guilty of fraud or refuses to pay the penalty, then he
will still be liable for damages)
Second paragraph: contains the analysis → if you do not have this, then you did not make an

analysis → no analysis, no perfect credit. Conclusive pagka walang basis. Explain the facts

of the law.

Pulong in this case refuses to pay the penalty → Analysis

Conclusion → Therefore, Pulong’s argument is invalid because of his refusal to pay the

penalty and accordingly, he will be liable for interest; for the balance and penalty that he

refused to pay by way of damages.

We have to make sure that we explain and gather and recapitulate the facts → apply to the

law. (synthesis of the facts of the case and the law)

Midterm Question Review:

***Remember in the examination there is a question regarding Mang Inciong and Mr. Garcia?

The question is what are the possible liabilities and source of obligation of Mr. Garcia and

Mang Inciong: According to Article 1157, it provides the sources of obligations → because

Mang Inciong is the person who committed the act, he may be liable criminally and he may

be sued criminally, and if he is criminally liable, he is also civilly liable under the NCC; he will

have to pay for the damages suffered by the victim’s family and will not be able to pay if he is

insolvent; then Dr. Garcia shall be subsidiarily liable → regardless of the fact that Mang inciong

is liable, both may be liable under quasi-delict or Article 2176 (no pre-existing contract

between mang inciong and rosa); in culpa aquiliana, the negligence must be proved; if

proved, the following the principle of bonus pater familias, then Dr. Garcia is negligent → but

can rebut this presumption this negligence by proving that he exercised due diligence in the

selection and supervision of employee

*While under 2177 is distinct from the liability of the NCC → cannot recover for the same

action twice; family of Rosa can choose (cannot recover twice); but she may sue them not

only criminally but also under article 2176

**must be distinguished from culpa-contractual → common carrier (contract of carriage); if the

owner of the bus or PUV will not be able to bring his passengers safely, then he is presumed

to be negligence; contract of carriage = standard of diligence is extraordinary diligence, but

here, remember pag nasagasaan sa kalsada, dalawa pwede panagutan: criminally, then

employer can also be sued and liable subsidiarily; you may also be sued in the independent

civil action (under article 2176); the negligence in culpa aquiliana must be proved

LEASE:
-1643 → remember usufruct in civil law review one?; how do you distinguish, if you can recall,

how can you distinguish usufruct from lease?

-Remember easement? → what makes lease different from easement?
-In easement, the dominant estate does not have possession over the property or the portion
of the property subject of the easement; whereas lease, the lessee has possession over the
property subject of lease; lease has a right to limited use of property; whereas easement has
a right to a particular use of property but without possession

-In lease the lessee, only has a personal right; what does personal right mean? → there is a

definite passive party or subject

-Real right → right over a thing (enforceable against the whole world)

-Why did she mention that the lessee and lease when entering into a contract of lease, she
was saying that what the lessee has
-Lease only creates a personal right; lessee acquires a right only against the the lessor to
demand from the lessor to allow him to possess the property owned by the lessor; which
means that because the lessee only has a personal right, that right cannot be enforced by
the lessee against a third person or others unlike when it is a real right, where grants a person
possessing the real right the right over the thing enforceable against the whole world

-Is there an instance where a lease will become a real right? → Yes. When the lease is

registered, it shall become a real right

-Two instances wherein the personal right becomes a real right of lessee:
1.) If the lease is for a period of more than one year, then the lease partakes the nature
of a real right;
2.) Even if it is less than one year, if the lease is recorded, or registered, regardless of the
duration of the lease, the lease becomes a real right; which means, it is enforceable
 against third persons; it is enforceable even against those who is not parties to such
contract of lease

-The reason why lease is referred to a personal right → because, the leasehold right of the

lessee is enforceable only against the lessor; and vice versa. The rights generated in the

contract of lease is enforceable only between the contracting parties

-Real right → enforceable against the whole world (ex.) chattel mortgage → enforceable

against anyone who will become the owner of the property; example, if you borrow money

from the bank in order to purchase a car, and the bank will require you to sign not only the

loan agreement, but also to sign a chattel mortgage agreement; and once the chattel is

registered with the registry, then it creates a real right in favor of the bank; if even if you sell

the car to a third person, the bank can always enforce its right to foreclose the chattel

mortgage on the car; no matter how you transfer the car to another or third person, the right

of the bank may be enforced against the third person who subsequently became the owner

or is now the new owner of the car due to the fact that the chattem mortgage created a real

right or favor of bank → apply to lease: if lessee has registered his lease, in the registry of

property, now even if the lessor will sell the apartment, then the new owner will be bound by

the lease that you entered into because what you have is a real right which is enforceable

against the whole world; it is a right over the thing, subject of the lease)

-There is such a thing as sub-lease

-1649 and 1650

-Do you know what is accion directa?

-Can the lessor sue the sub-lessee? → if the lessee will sublease the property subject of his

lease; question is, can the lessor sue the sub-lessee? → Generally no, because there is no

privity of contract

-The lessor cannot go directly to sub-lessee → not a privity to the contract

-1651 and 1652 → 1651: there are two instances when the lessor may sue the sub-lessee;

what are these instances? → use and preservation of the thing leased (directly sue the sub -

lessee)

-With respect on matters pertaining to use and preservation of thing leased → the lessor may

file an action directly against the sub-lessee; 1651 → a person who is not privy into a contract

may sue a party to such contract; the lessor does not have to pass through the lessee,but

can go to the sub-lessee and make him liable in the manner in which he is using and

preserving the subject lease

-What is subsidiary liability? → in case of insolvency, or failure to pay the rental by the lessee,

then the lessor may demand from the sub-lessee the payment of the rental to which he is

supposed to pay the lessee; to the extent only of the amount to which he is liable

-What is the second paragraph of 1652? What does it mean?

-1654 → that is the reason why under 1654 it provides for the obligations of the lessor; related

to 1653, whereby it provides that the lessor is liable also for the warranties similar to the

implied warranties in a contract of sale; so if you will relate those warranties with 1654;

remember in sales, there is the warranty whereby the seller warrants that at the time he

delivers the property, he can transfer ownership; in a contract of lease, the lessor also

warrants that he can transfer possession of property → 1654: lessor has the obligation to
ensure that he maintains the lessee in peaceful possession of the lease (similar to warranty

against eviction; lessee may sue lessor for violating this warranty against eviction in the

contract of lease; also a warranty against hidden defects under a contract of lease; item one

of paragraph of of 1654 → obligation to deliver the thing; in a contract of sale, there is a

warranty against hidden defects and as to merchantability subject to a contract of lease)

-Note: 1657 → obligations of the lessee; the lessee has the obligation to pay the expenses for

the contract, for the notary fees, registration if the deed of lease will have to be registered
-Question: If the lessor finds it necessary to undertake a repair subject of lease; can the

lessee refuse and tell the lessor and if repair will have to be done, then the lessor will have to

provide another place for the lessee? → Article 1662; if the repair is urgent, then the lessee

cannot refuse the lessor to undertake the repair; the lessee will have to tolerate the work to

be done on the property. Except if it would fall under the second paragraph (if it is more than

40 days, then in such instance, there should be proportionment reduction in the rent);under

the 3rd paragraph, if the leased place is uninhabitable, then the lessee has the option to

rescind the contract. But in all these instances, the lessor may undertake that repair, if such

repair is urgent

-1663 and 1664 → how do you distinguish these two provisions?

------------------------------------------------------------------------------------------------
May 12, 2021 - Caryl

Art. 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 ninety-nine years shall be valid.

Characteristics of a contract of lease:

 1. Consensual
2. Principal
3. Nominate
4. Purpose is to allow enjoyment or use of a thing
5. Purpose to which the thing is devoted should not be immoral
6. Period is temporary
7. Period is either definite or indefinite
8. Lessor need not be owner

In some instances, in a contract of lease, it creates a personal right and in some instances, it
creates a real right. What does this mean?

GR: Personal right because there is a definite passive party or subject.

However, it becomes real right when:

1. If the lease is for a period of more than one year, then the lease partakes the nature
of a real right;
2. Even if it is less than one year, if the lease is recorded, or registered, regardless of the
duration of the lease, the lease becomes a real right; which means, it is enforceable
against third persons; it is enforceable even against those who is not parties to such
contract of lease

Example of personal right: Binding only between the parties. Lessor and Lessee entered into
a contract of lease and the lessor leased the property to the third person. The lessor cannot
execute the contract with the third party because it is a personal right as against the lessor
and the lessee.

When the lease is a personal right, it is binding only between the parties and their heirs and
assigns. So if the lessor will use the property by way of mortgage, and the bank forecloses
the mortgage and sells it in public auction, the buyer of the property can eject the lessee
because it cannot be enforced on a third person who bought the property. On the other hand,
when the buyer is aware of the existing lease, and the property or info amounts to registration,
then the said property binds the lessee. Because registration of the contract of lease becomes
a real right which binds the whole world.

What are the instances that a contract of lease becomes a real right?

1. If the lease is for a period of more than one year, then the lease partakes the nature
of a real right;
2. Even if it is less than one year, if the lease is recorded, or registered, regardless of the
duration of the lease, the lease becomes a real right; which means, it is enforceable
 against third persons; it is enforceable even against those who is not parties to such
contract of lease

What is a real right?

- Enforceable against the whole world.

Once the contract of lease has been perfected, it creates a personal right among the parties.
On the part of the lessee to demand to the lessor the delivery of possession of the subject
property with exchange of full payment of rental.

Article 1649. The lessee cannot assign the lease without the consent of the lessor, unless
there is a stipulation to the contrary. (n) (ASSIGNMENT)

Article 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. (1550) (SUB-LEASE)

Difference between 1649 & 1650?

- In 1649, when the lessee assigned the lease, the lessor would give prior consent to
the lessor. Under 1650, if the lessee would sublease the property, it does not mean to
get the prior approval of the lessor.
- Exception: Express prohibition

What is Accion Directa?

- It is the right of the lessor to go directly against the sublessee for unpaid rents of the
lessee.

Article 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the
lessee. However, the sublessee shall not be responsible beyond the amount of rent due from
him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by
the lessor.

Payments of rent in advance by the sublessee shall be deemed not to have been made, so
far as the lessor's claim is concerned, unless said payments were affected in virtue of the
custom of the place. (1552a)

What is a subsidiary liability? the lessor may demand from the sub-lessee the payment of the
rental to which he is supposed to pay the lessee; to the extent only of the amount to which
he is liable.
Who declares insolvency?

- Lessor

Article 1653. The provisions governing warranty, contained in the Title on Sales, shall be
applicable to the contract of lease.

In the cases where the return of the price is required, reduction shall be made in proportion
to the time during which the lessee enjoyed the thing.

Explain 1653

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;

(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract.

1654 relates to the right of the lessee against eviction.

Article 1662. If during the lease it should become necessary to make some urgent repairs
upon the thing leased, which cannot be deferred until the termination of the lease, the lessee
is obliged to tolerate the work, although it may be very annoying to him, and although during
the same, he may be deprived of a part of the premises.

If the repairs last more than forty days the rent shall be reduced in proportion to the time -
including the first forty days - and the part of the property of which the lessee has been
deprived.

When the work is of such a nature that the portion which the lessee and his family need for
their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the
lease is to provide a dwelling place for the lessee.

May the lessee refuse to allow the lessor repair the property subject of lease?

1. If repairs last for NOT MORE THAN 40days

Lessee is obligated to tolerate the work, although it may be annoying to him and although
during the same time he may be deprived of a part of the premise.

2. If repairs last for 40 DAYS OR MORE

Lessee can ask for reduction of the rent in

proportion to the time (including the 1st 40 days and the part of the property of which he is
deprived).

If the lessor is introducing an improvement, can he refuse?

Can the lessor inspect if he wants to? Can the lessee refuse? So he can choose not to open
his door to the lessor?

- Ans here is Art. 1662

1663 & 1664

Article 1663. The 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.

He is also obliged to advise the owner, with the same urgency, of the need of all repairs
included in No. 2 of article 1654.

In both cases the lessee shall be liable for the damages which, through his negligence, may
be suffered by the proprietor.

If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger,
may order the repairs at the lessor's cost. (1559a)

Article 1664. The lessor is not obliged to answer for a mere act of trespass which a third
person may cause on the use of the thing leased; but the lessee shall have a direct action
against the intruder.

There is a mere act of trespass when the third person claims no right whatever.

Difference between usurpation & act of trespass

In 1663, the lessee should advise the lessor.

In 1664, the lessee was to have a direct action against the intruder.

Article 1665. The lessee shall return the thing leased, upon the termination of the lease, as
he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear
and tear, or from an inevitable cause.

If the period of the lease has expired, is the lessor required to send a notice of demand before
the lessee may be required to leave the property?

No, if the contract of lease is determinate time, no need to demand.

What is an unlawful detainer?

For purposes of an action for unlawful detainer on the ground of the lessee’s failure to pay
rents or violation of the terms of the lease, Rule 70 (Rules of Court) requires that demand be
made upon the lessee giving him 5 days (in case of buildings) and 15 days (in case of land),
within which to pay the unpaid rentals and to vacate the premises.

The demand to vacate must be definite and must not provide an alternative.

The demand required under Rule 70 is only a procedural requirement and does not, if not
complied with, change the fact that the lease contract has ended upon the termination of the
period fixed for its existence.

Is the lessor required to send a notice to vacate to lessee after the expiration of lease before
the filing of the case in court?

Yes, it is a jurisdictional requirement. (R70, ROC)

Article 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.

Example of 1670 - Implied lease

What are the requisites of implied new lease?

1671

Article 1671. If the lessee continues enjoying the thing after the expiration of the contract,
over the lessor's objection, the former shall be subject to the responsibilities of a possessor
in bad faith.

In property, we learned about the builder in good faith, possessor in good faith, builder in bad
faith and possessor in bad faith.

GR: Bad faith possession/builder

The premise is that the person who is in possession or building something in a property, must
be in possession of the property under the claim of ownership. Otherwise, if you are there not
in the concept of an owner, immediately you do not apply these rules.

For instance if you are lessee, then the law applicable here is the provisions under the title of
lease and stipulations agreed to between the lessor on the terms of the lease.
1671 provides that if the lessee has detained the property after the expiration of the lease
over the lessor’s objection, 1670 does not apply to him. Here, the lessee will be considered
as possessor in bad faith. Anything he puts on the property will be forfeited in favor of the
lessor so that if he will introduce improvements, then those improvements will be also forfeited
in favor of the lessor.

Here in lease, there is a provision that allows the lessee to be reimbursed of the improvements
made by the lessee. Correlate 1671 with this provision.

Article 1672. In case of an implied new lease, the obligations contracted by a third person
for the security of the principal contract shall cease with respect to the new lease.

Meaning of 1671

- This provision talks about security made by a third person. What does it refer to?

The lessee puts up a bond to secure his payment to the lessor. That surety of guarantee will
be released. It will not be renewed together with the implied new lease. While the implied new
lease provides that all the terms in the contract will be reinstated. But security agreements
with the third persons will not be affected.

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 leases 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.

1673- Judicially eject

Article 1676. The purchaser of a piece of land which is under a lease that is not recorded in
the Registry of Property may terminate the lease, save when there is a stipulation to the
contrary in the contract of sale, or when the purchaser knows of the existence of the lease.

If the buyer makes use of this right, the lessee may demand that he be allowed to gather the
fruits of the harvest which corresponds to the current agricultural year and that the vendor
indemnify him for damages suffered.
If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot
make use of the right granted in the first paragraph of this article. The sale is presumed to be
fictitious if at the time the supposed vendee demands the termination of the lease, the sale is
not recorded in the Registry of Property.

1676- Effect of lease creates only a personal right. If the lease creates a personal right, the
buyer of the property sold can eject the lessee anytime. That is why a lot of lessors do not let
it become a real right save for instance if it's recorded in the registry of property or if he is
aware of the existence of the lease.

Exception: Rural land

He can stay at the property until the end of the agricultural year or season.

Article 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 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.

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.

When you say good faith, what does it mean?

Lessee is in good faith at the time when the improvements do not cause any harm.

1678 IS VIP - Useful improvements that must be refunded or reimbursed.

1678 (2) - Ornamental expenses

If it is the useful improvement and the lessor has two options:

1. He may reimburse ½ of the value of the improvements.

2. Allow the lessee to remove those improvements provided if they will not cause damage
to the principal thing.

If it is an ornamental expenses introduced to the prop, the lessee is not entitled to be

reimbursed of the value or cause those introducing the value of the ornamental expenses.
But the lessee may remove them. Provided, it will not result in destruction or damage to the
principal thing.
Next meeting:

Therese- Report the status of the Rental Law if we still have rental law and who is now the
office/department in charge of that (Department of Housing and Human Settlement)

Theresa- Give the salient provisions of Rental Law. When do we apply the Civil Law & the
Rental Law?

Assignment - Art. 1679 -> Contract of a Piece of Work -> The Common Carriers -> Safety of
the Passengers up to Art. 1766

2 recits needed for the Final round.

May 17, 2021 - Caryl

Rental Control Act 2009

Office and the Department

- Against unreasonable increase of Rent.

- Status of the Rent Control Act in the Philippines
When you say Residential unit, what does it mean? Including dormitories, bed spaces except
hotel rooms.

Rent Control Act of 2009 (RA 9653)

Purpose

- protects housing tenants (especially in the lower-income class) against

unreasonable rent increases

- encouraging the development of affordable housing for the lower income brackets
and other beneficiaries

Coverage/Scope

- covers housing units with a monthly rent of up to PHP 10,000 in Metro Manila and
other highly urbanized cities nationwide not exceeding P5000

- Apartments

- Boarding houses, bedspaces, dormitories, and rooms for rent

- Houses and/or land

Not covered

- motels, motel rooms, hotels, hotel rooms

- Rent-to-own schemes

Office/Department in charge

- RA 9653 authorizes the Housing and Urban Development Coordinating Council

(HUDCC), now the Department of Human Settlements and Urban Development
(DHSUD), to continue the regulation of the rental of certain residential units, determine
the period of regulation and its subsequent extensions if warranted, determine the
residential units covered, and adjust the allowable limit on rental increases per annum

- Department of Human Settlements and Urban Development (DHSUD) or Kagawaran

ng Pananahanang Pantao at Pagpapaunlad ng Kalunsuran is the central government
authority on the management of Housing, Human Settlements and Urban
Development
 - DHSUD is created through RA 11201 in February 14, 2019

- DHSUD performs the consolidated functions of the defunct Housing and Urban
Development Coordinating Council (HUDCC) and Housing and Land Use Regulatory
Board (HLURB), except adjudication

- DHSUD primarily focuses on providing access to decent, affordable, resilient and

sustainable housing communities to all Filipinos, particularly the underprivileged and
those in the low-income bracket

- Secretary Eduardo D. Del Rosario currently leads and is the first ever head of the
DHSUD

History of extension of RA 9653

- RA 9653 was approved on July 14, 2009 and expired on December 31, 2013

- HUDCC issued Resolution No. 2 in December 2013 extending the Rent Control
Act for another two (2) years (January 1, 2014 – December 31, 2015) at status quo
rates of not more than seven percent (7%) per annum for:

Ø Renters in Metro Manila and highly urbanized areas whose monthly

rates are P10,000 and below; and

Ø Renters in other areas whose monthly rental rates are P5,000 and
below

As long as the unit is occupied by the same lessee

- HUDCC issued Resolution No. 1 in June 2015 which extended the Rent Control
Act for a period of another two (2) years (January 1, 2016 – December 31, 2017), that
the rent of any residential unit shall be increased by not more than:

Ø Four percent (4%) annually for those paying a monthly rent/ ranging
from Php1.0 to Php3,999 per month; and

Ø Seven percent (7%) for those paying a monthly rent of Php4,000 up

to Php1O, OOO per month

For as long as the unit is occupied by the same lessee

 - HUDCC issued Resolution No. 1 which extended the Rent Control Act for a period
of three (3) years (January 1, 2018 – December 31, 2020), that the rent of any
residential unit shall not be increased by:

Ø More than two percent (2%) annually for those paying a monthly
rent/ranging from Php1.0 to Php3,999 per month; and

Ø More than seven percent (7%) for those paying a monthly rent of
Php5,000 up to Php8,999 for as long as the unit is occupied by the
same lessee; and

Ø More than eleven percent (11%) for those paying a monthly rent of
Php9,000 to Php10,000 for as long as the unit is occupied by the
same lessee

- (STATUS NOW) National Human Settlement Board issued Resolution No.

2020-04 that extends and continues the rental regulation for one (1) year (January
1,2021 to December 31, 2021), under the same terms and conditions provided under
HUDCC Resolution No. 01, Series of 2017, that for as long as the unit is occupied by
the same lessee, the rent of any residential unit shall not be increased by:

Ø More than two percent (2%) annually for those paying a monthly rent
ranging from P 1.00 to P 4,999.00;

Ø More than seven percent (7%) for those paying a monthly rent ranging
from P 5,000.00 to P 8,999.00; and

Ø More than eleven percent (11%) for those paying a monthly rent
ranging from P 9,000.00 to P 10,000.00

Note: There are 3 tiers now compared to RA 9653(which originally provided a 7% limit on
increase of rent per annum regardless of amount of rent being paid monthly, as long as
it is P10,000 and below) to provide lower rates of increase to low income renters.

The 3 tiers were based on study and research conducted in 2017, the HUDCC then
engaged the Philippine Statistical Research and Training Institute (PSRTI) to undertake
a technical rental study based on the 2015 Census of Population, which yielded the
following findings:

1. A total of 1,752,801 renter families in 2015 representing 7.7% of the total 22,730,410
families; and
2. Of the 1.7 million renting families in the country, a total of 1,434,348 or 81.38% of the
total renters are paying a rent of less than P4,000 a month; 278,791 or 15.91% of the total
renters are renting P4,000 to P9,999 per month; and 38,656 or 2.26% are paying rent of
P10,000 or more per month.

Sources:

https://dhsud.gov.ph/about-us/

https://hudcc.gov.ph/QandA

https://hudcc.gov.ph/sites/default/files/styles/large/public/document/HUDCC%20Resolut
ion%20No.%201%20Series%20of%202015.pdf

https://hudcc.gov.ph/sites/default/files/styles/large/public/document/HUDCC%20Resolut
ion%20No%201%20-%20Extending%20the%20Rent%20Control%20Act.pdf

https://dhsud.gov.ph/wp-content/uploads/2021/02/NHSB_Reso_No._2020-
04_Extension_of_Rent_Control.pdf

https://www.moneymax.ph/personal-finance/articles/rental-law-philippines

https://www.pinoymoneytalk.com/rent-control-in-the-philippines/

Salient Provisions of Rental Control Act 2009

Salient provisions of the rental law - RA 9653 - AN ACT ESTABLISHING REFORMS IN THE
REGULATION OF RENT OF CERTAIN RESIDENTIAL UNITS PROVIDING THE
MECHANISMS THEREFOR AND FOR OTHER PURPOSES

section 4 - limit on increase of rent, - > status now is different

- National Human Settlement Board issued Resolution No. 2020-04 that extends and
continues the rental regulation for one (1) year (January 1,2021 to December 31, 2021),
under the same terms and conditions provided under HUDCC Resolution No. 01, Series
of 2017, that for as long as the unit is occupied by the same lessee, the rent of any
residential unit shall not be increased by:

➢ More than two percent (2%) annually for those paying a monthly rent
ranging from P 1.00 to P 4,999.00;

➢ More than seven percent (7%) for those paying a monthly rent ranging from
P 5,000.00 to P 8,999.00; and
 ➢ More than eleven percent (11%) for those paying a monthly rent ranging
from P 9,000.00 to P 10,000.00

Note: There are 3 tiers now compared to RA 9653 to provide lower rates of increase to low income
renters

- Limit on Increases in Rent. – For a period of one (1) year from its effectivity, no
increase shall be imposed upon the rent of any residential unit covered by this Act: Provided,
That after such period until December 31, 2013, the rent of any residential unit covered by
this Act shall not be increased by more than seven percent (7%) annually as long as the unit
is occupied by the same lessee: Provided, further, That when the residential unit becomes
vacant, the lessor may set the initial rent for the next lessee: Provided, however, That in the
case of boarding houses, dormitories, rooms and bedspaces offered for rent to students, no
increase in rental more than once per year shall be allowed.

Section 6 - authority to continue rental regulation

- Authority to Continue Rental Regulation. – Notwithstanding the lapse of

the period provided in Section 4 of this Act. the Housing and Urban Development
Coordinating Council (HUDCC) is hereby granted the authority to continue the regulation of
the rental of certain residential units, to determine the period of regulation and its subsequent
extensions if warranted, to determine the residential units covered and to adjust the allowable
limit on rental increases per annum, taking into consideration, among others, National
Statistics Office (NSO) census on rental units, prevailing rental rates, the monthly inflation
rate on rentals of the immediately preceding year, and rental price index.

Section 7. Rent and Requirement of Bank Deposit. – Rent shall be paid in advance within the
first five (5) days of every current month or the beginning of the lease agreement unless the
contract of lease provides for a later date of payment. The lessor cannot demand more than one
(1) month advance rent. Neither can he/she demand more than two (2) months deposit which
shall be kept in a bank under the lessor’s account name during the entire duration of the lease
agreement. Any and all interest that shall accrue therein shall be returned to the lessee at the
expiration of the lease contract.

In the event however, that the lessee fails to settle rent, electric, telephone, water or such other
utility bills or destroys any house components and accessories, the deposits and interests therein
shall be forfeited in favor of the latter in the amount commensurate to the pecuniary damage done
by the former.

Section 8. Assignment of Lease or Subleasing. – Assignment of lease or subleasing of the

whole or any portion of the residential unit, including the acceptance of boarders or bedspacers,
without the written consent of the owner/lessor is prohibited.

Section 9. Grounds for Judicial Ejectment. – Ejectment shall be allowed on the following
grounds:
Assignment of lease or subleasing of residential units in whole or in part, including the acceptance
of boarders or bedspaces, without the written consent of the owner/lessor;

Arrears in payment of rent for a total of three (3) months: Provided, That in the case of refusal by
the lessor to accept payment of the rent agreed upon, the lessee may either deposit, by way of
consignation, the amount in court, or with the city or municipal treasurer, as the case may be, or
barangay chairman, or in a bank in the name of and with notice to the lessor, within one (1) month
after the refusal of the lessor to accept payment.

The lessee shall thereafter deposit the rent within ten (10) days of every current month. Failure to
deposit the rent for three (3) months shall constitute a ground for ejectment.

The lessor, upon authority of the court in case of consignation or upon joint affidavit by him and
the lessee to be submitted to the city or municipal treasurer or barangay chairman and to the bank
where deposit was made, shall be allowed to withdraw the deposits;

Legitimate need of the owner/lessor to repossess his or her property for his or her own use or for
the use of an immediate member of his or her family as a residential unit: Provided, however,
That the lease for a definite period has expired: Provided, further, That the lessor has given the
lessee the formal notice three (3) months in advance of the lessor’s intention to repossess the
property and: Provided, finally, That the owner/lessor is prohibited from leasing the residential unit
or allowing its use by a third party for a period of at least one (1) year from the time of
repossession;

Need of the lessor to make necessary repairs of the leased premises which is the subject of an
existing order of condemnation by appropriate authorities concerned in order to make the said
premises safe and habitable: Provided, That after said repair, the lessee ejected shall have the
first preference to lease the same premises: Provided, further, That the new rent shall be
reasonably commensurate with the expenses incurred for the repair of the said residential unit
and: Provided, finally, That if the residential unit is condemned or completely demolished, the
lease of the new building will no longer be subject to the aforementioned first preference rule in
this subsection; and

Expiration of the period of the lease contract.

Section 11. Rent-to-Own Scheme. – At the option of the lessor, he or she may engage the
lessee in a written rent-to-own agreement that will result in the transfer of ownership of the
particular dwelling in favor of the latter. Such an agreement shall be exempt from the coverage of
Section 5 of this Act.

WHEN TO APPLY CIVIL CODE AND THE RENTAL LAW

Section 12. Application of the Civil Code and Rules of Court of the Philippines. – Except
when the lease is for a definite period, the provision of paragraph (1) of Article 1673 of the Civil
Code of the Philippines, insofar as they refer to residential units covered by this Act, shall be
suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules
of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall
apply.

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 leases under
articles 1682 and 1687, has expired;
(1682 - . The lease of a piece of rural land, when its duration has not been fixed, is understood to
have been for all the time necessary for the gathering of the fruits which the whole estate leased
may yield in one year, or which it may yield once, although two or more years have to elapse for
the purpose.

1687 - If the period for the lease has not been fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent
is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly
rent is paid, and no period for the lease has been set, the courts may fix a longer term for the
lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts
may likewise determine a longer period after the lessee has been in possession for over six
months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed
in the place for over one month.)

Section 13. Penalties. – A fine of not less than Twenty-five thousand pesos (P25,000.00) nor
more than Fifty thousand pesos (P50,000.00) or imprisonment of not less than one (1) month and
one (1) day to not more than six (6) months, or both, shall be imposed on any person, natural or
judicial, found guilty of violating any provision of this Act.

Sec. 6 - Authority to continue the Rental regulation

Sec. 7 - Rent shall be paid in advance for 1 month

Requiring the deposit is okay provided it shall not exceed 2 months.

The deposit must be deposited in a separate bank account.

When the lease expired, the interest and the deposit must be returned to the lessee.

What is the deposit for? Used for maintenance or unpaid utility bills or may be forfeited in
favor of the lessor in case there is damage.

Assignment of Lease or Subleasing is generally prohibited.

E: With consent

Sec. 9 of the Rental Law

Under the rules on consignation, the only way to be valid, must be made before the court. But
in rental law, it must be deposited in court, treasurer, brgy. Chairman and the bank.
In the name of the lessor and with notice to the lessor.Non payment within 3 months, is a
ground to eject the tenants.

1682 & 1687

1682 - Applies to Rural lands; the duration has not been fixed.

1687 - Applies to the rule on implied new lease or if the period for the lease has not been
fixed. Applies the instance wherein there is a fixed period but the period has not been expired.
In relation to 1670.

Court may fix a longer period, taking into consideration that the tenant is in property.

In lease, when there is a need to file an unlawful detainer, then the issuance of the notice to
vacate is jurisdictional or mandatory.

When there is a lease period and it has expired, no need to issue a demand to vacate if you
will not file a case for unlawful detainer.

Skip working labor

Contract for a Piece of Work and Carriage

In contract for a piece of work, the focus is the result of the work. The distinction between a
contract of labor and a contract of sale.

If the product is currently being kept in stock even if not available at the time, it is a contract
of sale.

If the shoes you’re looking for are not regularly manufactured by the company, and you
ordered those shoes, then that is a contract for the piece of work. (Art 1717)

Meaning of Art. 1717

1174

Laborer assumes the risk of loss prior to delivery.

1718 & 1717 - In 1717, the contractor is the one who is going to furnish the materials. In 1718,
the owner was going to furnish the materials. In both cases, they will both assume the risk of
loss prior to delivery.

1723 - Who are liable under this provision?

1. Engr.
2. Arch.
3. Contractor
When there is a contract for the piece of work, there is assumption of risk. 1717 - 1718 is an
exception to fortuitous event.

Another exception: 1719

GR: Acceptance extinguishes the liability

E: Hidden defects

Or exception to the stipulation to the contrary

1723: Even though it is accepted, they will wait for 15 yrs to avoid liability. Then additional 10
yrs before the action may be filed against them.

1724: If the contractor enters into the contract to build a bldg, he cannot withdraw from the
contract of demand increase once he agreed. Except when it is authorized by the owner or
agreement by the parties.

1726: *** exception in obligation to do. It cannot be passed on to another person. If he dies,
automatically rescinded.

1728 & 1727: The proprietor will include an affidavit at the time he submitted a bill. It’s a usual
requirement in a contract,

1731 *** - Mechanics lien ; he cannot be compelled to release. It is a legal pledge. If you fail
to pay, he can auction your property without violating the prohibition against pactum
commissorium.

Common Carriers consists of 2:

Vigilance over goods and safety of passengers = extraordinary diligence

Ordinary standard of care = DOAGFOAF

1733- *** Extraordinary Diligence - if the common carrier fails to deliver the goods to its
destination safely, presumption is the common carrier is negligent or liable.

1734 -

1. Acts of God
2. Force Majeure
3. If there is negligence of the shipper. Proximate cause of the loss, is the act or omission
of the shipper.
4. Character of the goods or defects.
5. Competent public authority

1735: 1,2,3,4,5 (1734) VIP!!

Unless they can prove that there is extraordinary diligence.

1737: Stoppage in transitu ; because if the seller is unpaid or there is an indication that the
buyer is insolvent.

1738: Arrastre operator ; the extraordinary diligence of the common carrier will still continue
so long as it is in the warehouse

Assignment next meeting: Common carrier 1739 and PAT up to 1867

________________________________________________________________________

Class Notes for May 18, 2021: (Sha)

-1664

-Does it mean that if the lease expired after one year, it will automatically be renewed?

-1670 → -What is the implied new lease?

Requisites of Implied New Lease under Article 1670:
1.) The term of the original contract of lease are:
a.) The lessee continues enjoying the thing leased for at least 15 days;
b.) The continuation of the occupation by the lessee is with the acquiescence of
the lessor; and
c.) The lessor or lessee has not previously given a notice to vacate
*The notice required under Article 1670 is the one given after the expiration of the lease period
for the purpose of aborting an implied renewal of lease. The notice to vacate constitutes an
express act on the part of the lessor that he no longer consents to the continued occupation
by the lessee of the leased property.

*The last sentence → what does this mean? (1670)

-If the existing contract of lease includes a right of first refusal by the property; and the lease
has expired, but the lessee continues to occupy the property, without the objection of the
lessor and with the acquiescence of the lessor; under 1670, it provides that the other terms
of the original contract shall be revived; would that include the right of first refusal?

-1671: what does this mean?

-1669: does this mean that the lessor can eject the lessee without the need of giving the
lessee a notice to vacate? - Yes.
*Note: while it may be true that when the period of the lease is fixed, and upon expiration, the
lease ceases automatically without need of demand; but if there is a need to file an action for
unlawful detainer, there is a need is a notice to vacate (such is a jurisdictional requirement;
time of the receipt of the last notice to vacate when the one year prescriptive period to file an
action for unlawful detainer shall be counted); two notices to vacate to send upon the lessee,
the one year prescriptive period shall be counted from the last of the two notice to vacate
ex.) first notice was dated or received on june 1 and the second one is october 1, 2021 → the

one year prescriptive period to file for an action for unlawful detainer shall be counted from

october 1, 2021

-Remember that the case of unlawful detainer (similar to forcible entry) → there is a

prescriptive period of one year; except that in forcible entry is counted from the time of entry

(violence or intimidation) or discovery (is through stilt or strategy)

-Accion publiciana → action to claim a better right of a possession of a property (real right of

possession); ito yung recourse

*Lose an opportunity of a summary proceedings
-1672: what does this mean? (guaranty) → hindi mo kilala yung lessee; yung kaibigan mo

yung-nagrefer sa akin, so make your friend the guarantor so that he will be subsidiarily liable

in case you are not able to pay

*This one is the contract of guaranty → will take effect during the period of the lease; once

expired, the guaranty ceases to be in effect; marerelease yung guaranty sa implied new lease
-similar to the right of first refusal (not related to a lease agreement); it is not revived
-with respect to a guaranty; the guarantor will be released because it is not covered by the
guaranty (the implied new lease is not covered by guaranty)

-1676: give an example of this one

-1678: when you say good faith, what does this mean?

-1682: leased has not been fixed

-1687: it applies to urban lands (apartments)

Contract for a Piece of Work:

-What is a contract for a piece of work? How is this distinguished from a contract of sale? Can
you give an example?
-1717:
-Distinguish 1717 and 1718
-What happens if the thing is lost because of a fortuitous event? Like a typhoon or flood? →

obligation is extinguished due to a fortuitous event (in accordance with Article 1174, in relation

to the last sentence of Article 1718)

-So if the thing you ordered is lost due to a fortuitous event, what happens to the obligation?
Is the obligor released due to the extinguishment of the obligation?
-Assumption of risk: the obligor is still liable (exception to 1174); the obligation will not be
extinguished and it shall remain due to the nature of the obligation
-1717 → the contractor here bound himself that he will suffer the loss; if the work is destroyed

prior to the delivery. Because the nature of the obligation requires the assumption of risk
-In the following instances, the obligation, the obligor will be liable; kahit may fortuitous event,
liable siya; exception dito: kung may delay on the part of the proprietor or the owner, or under
1719 (1 and 2) kung may hidden defects; or kung walang hidden defects, if it is expressly
stipulated in the contract that the worker will still be liable because of a defect, regardless of
the nature of the defect
-Yung contract for a piece of work is a kind of obligation where the worker assumes the risk
of loss prior to the delivery; so the one who ordered the work to be done, can simply await for
the delivery of the work; the focus is on the result; this is distinguished from a contract of
labor, where the focus is on the labor being performed. Sa sale, it is different; because the
item subject of the sale is on stock or even if it is not on stock, it is regularly being
manufactured; here the work is not regularly being manufactured

-1723 (liability for collapse of building): who will be liable under this article? What makes this
article different from 1717 and 1718?
-The reason here is collapse of the building or edifice(and not any other cause)
-Note: 1717 and 1718 = once accepted, the liability will cease, except if there is a hidden
defect or if there is an express stipulation on the part of the proprietor, that the contractor will
remain liable due to a defect
-1723 = acceptance will not exculpate the architect, engineer or contractor for the next 15
years; if the building collapses within 15 years, there will be a 10-year prescription period
-2 periods: 10 and 15 period
-15th year nag collapse yung building → may 10 year prescription period to file an action
-10 year period naman talaga = if based on a written contract (10 year period yung contractor)
-The problem with contracts like these, if you read 1724 → the contractor who entered into a

contract to build a building with the owner; once he enters into the contract, he cannot

withdraw from that contract or demand an increase in the price; you cannot say na tumaas
yung presyo yung bilihin ng materyales; that is why when you enter into a contract, you have

to come up with a very good estimate to cover fluctuations in the prices of the materials

because you cannot anymore ask for an increase or withdraw from the contract (you are

bound) → kung ang usapan ay 200 million pesos, kahit nagkamali ka or tumaas yung price

ng bakal, wala ka nang magagawa; the only option is to plead to the owner and if he will

agree in writing or if both of you will agree for an increase in price and it must be in writing;

otherwise, later on, once the building is done, you cannot ask or bill for a higher price -

kailangan papirmahin mo siya na pumapayag siya na magbabago yung price; that is why a

contract with respect to building is the hardest contract

-1726: what do you understand by this one?

-What is the general rule in an obligation to do?
-1726: (Article 1167) considered to be an exception; the personal qualification is the cause
(the reason as to why the contract was entered into)

-1731: (VIP) Mechanic’s Lien; can you give an example? - that is why if you go to a watch
repair shop, or gumagawa ng TV or electric fan; makikita mo andami nilang nagawa doon;
ang mekaniko andaming nakasabit na gumagana na relo - hindi ito binebenta and may-ari
neto; kahit balik-balikan mo andon pa rin - until he is paid of the price of the repair, he will
hold onto it because it is a case of a legal pledge; effectively once nakapag repair ka ng isang
bagay, wala siyang obligation na irelease sayo hangga’t hindi mo mabayaran; the law gives
him the right to hold onto it; if after a certain period na hindi mo siya nabayaran, he can
conduct an auction (how many times the pledgee will conduct an auction for him to become
an owner kapag wala talagang benta - it will not anymore violate the act of pactum
commissorium)
*Hindi matubos yung na-repair = it is like a pledge (a security for the loan that is created as a
result of the contract for a piece of work that you entered into)

Common Carriers:
-Remember: in a contract with a common carrier, dalawang klaseng contracta ang covered
neto:
1.) Contract over vigilance or carriage of goods
2.) Contract over carriage of passengers → requirement: safety of the passengers

-The main obligation of the common carrier, is to carry or transport passengers or goods
(either by land, water or air) for compensation, and transporting them to their destination
safely
-1733: with respect to the contract of carriage, eto yung pinaka mabilis na example (culpa-
contractual = there is a contract)
-When you ride the bus, or a jeepney, there is a contract that there is entered into between
you and the owner or operator of the common carrier; because there is a contract, if there is
failure on the part of the common carriage to bring you to your destination safely, then there
is breach; and the breach (1170); the main obligation of common carriage is to transport you
to your destination safely or to carry your goods to the destination safely and without incurring
any damage to the goods
-In both cases (goods or passengers) the standard of care is extraordinary diligence;
generally under 1163 is ordinary diligence. But in this case, because of the nature of their
business and for reasons of public policy, standard of diligence imposed is extraordinary
diligence
-Nature of business: public utility siya holding itself out to the public for compensation (meron
siyang franchise)

-If you move on to 1734:

1.) Fortuitous event is proper
2.) Force majeure
3.) If the proximate cause is because of the intentional or negligent act of the owner
himself (shipper or owner); generally ang mananagot ang isang tao because of
proximate cause; here, the proximate cause of the loss is not because of the act of
common carriage, but because of the act or omission (negligence) of the owner itself
4.) If it is because of the character of the goods or defects in the packing or in the container
(kung alam mo ang bitbit is fragile, and you did not declare the good to be fragile, hindi
pwede sisihin yung airplane company)
5.) Another kind of force majeure event
*In these cases; exclusive itong list na ito; ang pang anim: if you apply 1735
-In the case of culpa contractual, or in case of breach of contract, the negligence is presumed

by the mere fact that the contract is not performed; what should be performed? - the main

obligation is to transport the goods to the destination, and to take care of the goods (wala

dapat damage kapag dineliver yung goods); if the goods is lost or damaged, upon reaching

the destination, then there is breach of contract → the negligence is presumed (this is different

in case of culpa aquiliana = there is no pre-existing contractual relationship or previous

agreement -- ang requirement lang is kailangan mag-ingat in moving around in this world);

but in culpa contractual, there is a contract entered into and such entered into specifically

requires you as a common carrier to bring the goods, to take care of the goods and to ensure
that the goods are not damaged when it reaches destination (immediately, and presumption

is negligent ka; and the only excuse is if it falls under 1734 (1, 2, 3, 4, 5, and 6 (if you are able

to show that you have exercised extraordinary diligence under 1735 = otherwise, you are

liable)

-Walang pakialam yung empleyadong salbahe → ang kakontrata is yung may-ari ng bus

-Culpa aquiliana = negligence is NOT PRESUMED; you have to prove the negligence of the

actor; if you are able to prove the negligence → papasok yung bonus pater familias (unless

ordinary diligence was exercised in the selection and supervision)

(solidary liability → pagdating sa torts and damages)

-Subsidiary liability = civil liability arising from criminal offense

--------------------------------------------------------------------------------------------------------

May 19, 2021 – Caryl

Art. 1739

- The common carrier must be free from any act of negligence.

- 1734 (force majeure) Necessary for the common carrier to be free from any liability.

- The CC must exercise due diligence to prevent or minimize loss. Before, during or
after.

- Must be the only proximate cause of the loss.

- It must not also be guilty of delay (1740)

- Applies to 1734 (1 & 2)

- 1734 (3) -> 1741

What is contributory negligence?

- The failure of a person who has been exposed to injury by the fault or negligence of
another, to use such degree of care for his safety and protection an ordinarily prudent man
would use under the circumstances (Martin, 1989, citing Rakes v. Atlantic Gulf Co., G.R. No.
1719, January 23, 1907).

- Liability for loss = the act or negligence of persons or entity must be the proximate
cause of the loss.

1734 = if there is a loss of the goods, the common carrier was negligent unless there’s an
extraordinary diligence.

Exception: 1734

If the proximate cause is attributable to the act or omission of the shipper, the liability will shift
from the common carrier to the shipper. In 1741, is in the middle. The proximate cause is still
in the negligence of the common carrier but there is contributory negligence on the part of the
shipper. If the negligence of the shipper merely contributed to the loss, then it will not totally
exculpate the common carrier but will merely reduce his liability.

Contributory negligence = comparative negligence

Case: Rakes vs. Atlantic Gulf

If the proximate cause of the loss is still in the negligence of the common carrier, even if the
shipper or owner is also guilty of contributory negligence, the contributory negligence will only
reduce proportionately the liability.

1734 is the proximate cause of the loss is the cause of the act of the shipper or the owner.
Totally, the common carrier will be exempted similar when the proximate cause of the loss is
the fortuitous event.

But in 1741, contributory negligence. (Jose Cangco vs. Manila Railroad & Rakes vs. Atlantic
Gulf)

If the shipper or owner merely contributed to the loss, destruction, the common carrier may
still be liable to the negligence for damages. However, the liability will be equitably reduced.

Art. 1742 & give an example

- Related to 1734 (4) – Character of the goods

- 1741 = contributory negligence

- 1740 = delay

Art. 1743 -> 1734 (5) = Order of public authority

Art. 1744

Art. 1745 public policy

The shipper or owner and common carrier can agree to lower the standard of care that the
common carrier may be liable. (it could be ordinary diligence but cannot be below
DOAGFOAF)

There is a lease or agreement what could be agreed upon.

Art. 1744 – requisites

Can the common carrier agree to lower the standard of care? Yes, provided the ff
requirements are present. And under 1745, cannot be stipulated upon bec they are contrary
to public policy.

Art. 1746 – contract of adhesion

Art. 1749

Art. 1750 - very common to common carriers.

Contracts of Adhesion, while is it valid and binding, when there is provision that is difficult to
understand, it will be taken against the common carrier who drafted the contract.

Common carrier offers itself indiscriminately the services to the public for compensation is
not a common carrier or if its available only to portion of the population.

Art. 1754*** – understanding of this provision

2 kinds of baggage:

1. The baggage which is not in passenger’s personal custody or the one entrusted to the
common carrier

2. The baggage that remains in passenger’s possession.

The one that is entrusted to the common carrier’s employees, they shall be governed by the
rules of common carriers with respect to vigilance over the goods.

With respect to the baggage that remains in his custody of the passenger, they be considered
as bailee of necessary deposit.

Safety of passengers

Art. 1755 – If there is a passenger of a bus, if the passenger is injured, who will be liable?
The common carrier or the bus owner.
What is the source of obligation? Culpa contractual

In culpa aquillana, there is no presumption of negligence. In culpa contractual, there is

presumption of negligence.

In the event that the common carrier fails to bring you to the destination, there is a
presumption of negligence unless there is extraordinary diligence.

In culpa acquillana, there is no presumption of negligence because there is no existence

contractual relation between the parties.

2180, if can show that there is diligence in the supervision and selection of the employee.

Art. 1756 presumed to have been at fault or acted negligently ***** the obli of CC is to carry
the passengers safely.

Art. 1757 – compare with respect to carriage of goods. In carriage of goods can be stipulated
but here cannot be agreed upon.

Give an example 1757

Art. 1758 – Example: Students’ fare discount

If it is gratuitous, the extraordinary diligence, may be reduced but the CC will not be excused
of the liability.

1759***VIP - What makes this different from culpa acquillana? In culpa acquillana, the
employer may invoke the defense that he exercised due diligence in selection of employees
but in contractual, it does not.

The liability of the CC does not cease. It will not be removed or excused even if the CC
exercised due diligence in the selection and supervision of the employees.

Art. 1762 – explain

Art. 1763 – example

If the injury is caused by the willful acts of the negligence of employees, liable ang CC.

It is because of the standard of care required in the CC which is extraordinary diligence.

PARTNERSHIP

Art. 1767 – Distinguish Partnership vs. Co-Ownership

Take note the ff characteristics of Partnership

1. Created solely by agreement of the partners which gives rise to a distinct personality.

2. The agreement is intended for the purpose of conducting business transaction. Each
of the partners are agents of the partnership.

- In ACP of the Fam Code, It is stated there that the rules of co-ownership must be
applied suppletory. In CPG, exclusive prop at the time of the marriage, and the fruits of income
of their separate prop shall govern.

Co – ownership does not of itself establish even if the share profits of the use of the property.

In partnership, the most important is agreement, when there is no contract, there is no

partnership.

Several causes of partnership

Formalities required in order to form a partnership

Arts. 1771,1772 & 1773

Partnership in any form. Oral or in writing as long as there is an agreement

If it is not registered with SEC, what is the status? Valid.

If an immovable prop is contributed and not registered with SEC, what happens?

If real prop or interest in real prop is contributed, there are 2 additional req

1. Public Ins

2. Inventory

Take note Art. 1775

Classify Partnership? Art. 1776

Universal Partnership of Present property – includes the present prop of the partners
including future prop except inheritance. With respect to inheritance, the fruits will go to the
partnership but not the prop itself.

vs.

Universal Partnership of Profits – if a partner has contri a prop, what he actually contributed
is only usufruct of the property.
Why husband and wife cannot enter the universal partnership? Because they cannot donate
to each other; they will circumvent this prohibition if they will give each other a donation.

The law of partnership provides that every partner is a debtor of the partnership with respect
to the property he promised to contribute to the partnership. What does it mean?

- Every partner is a debtor of the partnership

Correlate to 1169 where the demand is necessary except there is a law or stipulation
providing that demand is not necessary in order for the delay to happen.

Art. 1786 ***VIP obligations of the partners without the need of any demand.

Art. 1788 – by express prov of the law, he is in delay when he fails to contribute to the
partnership on the time agreed upon in their partnership or the obli has become due.

What is the reason for this? Bec. When the partner fails to deliver what has promised, then
he deprived the partnership on the earnings as well as fruits and use by reason of his
supposedly contribution/property. Liable for interest and damages.

________________________________________________________________________

Class Notes for May 20, 2021: (Sha)

PARTNERSHIP:
-What is partnership of present property?
-In order to form a partnership, do you need to comply with certain requirements? Any
exceptions?
-Immovable property contributed to the partnership; inventory attached to a public instrument
creating the partnership; otherwise partnership is void; if an IP is contributed or for instance
the partnership will fall under the agreement or statute of frauds, then it must be in writing;
while generally, to form a partnership it may be oral or in writing; but if it falls under SOF (ex.)
partnership for a period beyond one year - falls in SOF); if a IP will be contributed, then it falls
under SOF; under the NCC, if an IP is contributed, then there should be an inventory which
must be attached to a public instrument (not simply a written instrument, but a public
instrument (must be notarized))

-Is a Joint Venture a form of partnership?

-Is a secret partnership valid? → Article 1775

-If a partnership stipulates terms to keep the purpose of the partnership a secret, is that valid?
-If a partnership is limited (partners), is that valid? (Article 1776 → yes. There is a limited

partnership)

-Limited partner is only required to pay the obligations of the partnership, to the extent of what

he may have contributed to the partnership; if the contribution is only 100k but liability is

1million, he cannot be made liable beyond 100k; the law does not allow that → who will be

made liable, to the extent of the liabilities of the partnership?; if you are a general partner,

after the assets of partnership have been exhausted, then the general partner may be held

liable beyond that, to the extent of what they own; that is why partnership is not a good form

of juridical entity, because you may be bankrupt, including what your family owns, if you are

a general partner → in corporations, all the members or shareholders are akin to a limited

partner - to the extent of their assets of the corporation;a partnership is supposed to be a

juridical entity with a personality distinct that of each partner (similar to a corporation); if a

general partner like the present set-up under the law, will be held liable beyond, then that is

no distinction between a personality of a general partner and a partnership (the general

partner will be held liable to the extent of his own personal property)

-The law says: husband and wife, they cannot form a universal partnership or cannot enter
into a universal partnership - is this true?

-Agreement is that partners will be transferring their properties to serve as a common fund of

partnership: basically they will be donating these properties; persons who are prohibited from
donating each other (such as husband and wife) → prohibited from entering into a universal

partnership (either UP of present property or profits) → why? = UPPP lahat ng properties nila

will be contributed to form part of the common fund; only exception sa common fund are

future property like inheritance, meaning those that they will inherit they will receive by

gratuitous title (such as ACP and CPG = yung matatanggap mo by inheritance will not form

part of these regimes, and remain as your separate property); similarly in UPPP, your present
property will become part of the common fund, with the exception of future property, except

of the fruits of the inheritance - will go to the common fund

-UPP of Profits = present property will not form of the common fund; what will form part will
be the usufruct; H and W are not allowed to give direct and indirect benefits; usufruct is
interest in real property; H and W cannot form Universal Partnership of Present Property, or
UPP of Profits

-What is a partnership by estoppel? = one which in reality is not a partnership, but is

considered a partnership only in relation to those who, by their conduct or admission, are
precluded to deny or disprove its existence

-Contract of agency → each of the partners are agents of the partnership; they can represent

the partnership, with respect to the ordinary business of the partnership. It is also possible

that, a partnership may have a managing partner and there are two kinds of such: a managing

partner that is appointed as such, meaning appointed as managing partner in the articles of

partnership (from the start, he is appointed as such in the articles of partnership itself) or he

could be a managing partner appointed as managing partner AFTER the articles of

partnership has been registered or agreed upon - he is appointed thereafter; if he is appointed

as managing partner in the articles of partnership, his power is absolute with respect to the

acts of administration - he does not need the consent of any other partners when it comes to

managing the business of the partnership, appointing employees; if he is a managing partner,

appointed as such, in the article of partnership, his power is irrevocable meaning his acts are

irrevocable, except for a just and lawful cause (may execute all acts of administration,

regardless of the refusal of other partners)

-if however he is appointed thereafter: his power is revocable anytime, and he can be
removed anytime; on the other hand if he is the former, you cannot just be removed as the
managing partner, except for a just or lawful cause; on the other hand, if he is a managing
partner thereafter, he can be removed anytime

-Who is an industrial partner? What is the benefit of being an industrial partner?

*An industrial partner is one whose contribution is industry, his managerial skills, his
technological skills; so he is an industrial partner; his contribution is other than property or
money; you mentioned about the loss, and industrial partner, it is true that he is exempted as
to losses. But only as between the partners; among themselves, the other partners will
reimburse him in the event that he is required to contribute to the payment of the debts of the
partnership because an industrial partner, is a general partner insofar as strangers and
creditors are concerned; meaning, while the industrial partner among the other partners; the
other partners, their agreement is if there are losses you are not going to be liable - but, after
the assets of the partnership have been exhausted, remember, all the general partners,
because he is not a limited partner (a limited partner is announced to the whole world as a
limited partner) - the whole world knows that the industrial partner is a general partner,
therefore he can be held liable for more than what he has contributed (ordinary partner in the
eyes of third persons), and may be held to pay for all debts of partnership - kapag pinagbayad
siya, then he can ask the other partners to reimburse him because the other partners agreed
that he will not be liable for any loss that the partnership will suffer
*General and limited partner (two types)
*So far as liabilities are concerned → dalawang klase din ang partners, pagdating sa

contribution ---> capitalist partners and industrial partners (ito, the capitalists promised him to

be liable for the losses of partnership)

-Who is a partner by estoppel? Why is he a partner by estoppel?

-Partner by estoppel → two considerations: not a partner, but allows his name to be included

in the partnership and subjects himself to the liabilities of a partner.

-Note: an industrial partner cannot engage in any kind of business for himself; unless the

partnership gives him permission → because an industrial partner is required to work full time

in the partnership; required to be full time in the pursuit of the partnership business

-On the other hand, it must be distinguished from a capitalist partner → contribution is money

or property; not required to work for them full time, therefore, he can engage in other kinds of
business, provided it is not in conflict with the business of the partnership; otherwise the

partnership may require him to bring the profits that he may earn from that business

-A limited partner, can he be held liable to pay for the obligations of the partnership beyond

his contribution? → two instances wherein a LP can be held liable: 1.) if he allows his name

to be included in the partnership name, even if he is a limited partner (general partner by

estoppel); 2.) if he takes part in the control of the business, even if he is a limited partner,

then he will be liable as a general partner

-The partner is a debtor of the partnership, is this true? What is the repercussion of this one?
(1786 and 1788); what does it mean when the law said that he shall be liable for the interest
of damages?

-The law says: in case of imminent loss, the general partners are required to contribute more

-A partner may assign his interest to a third person?

-Can he require an account of partnership affairs?

-Principle of delectus personae? (1804)

-1813: does not necessarily dissolve partnership; does not give assignee the right to
participate in the management and administration; it merely entitles the assignee to receive
the profits to which the assigning partner would otherwise be entitled; only in the case of
dissolution can he demand or require an account of the last account agreed to by all of the
partners

-Article 1816 (VIP) → all partners including industrial partners shall be liable pro rata; with all

their property and after the partnership assets have been exhausted; liable pro rata = joint

obligation (to the extent of their share in the partnership; if the liability is proportionate to what

they have contributed, after the partnership assets have been exhausted); proportionate to

their contribution
-With respect to industrial partner = can ask for reimbursement from capitalist partners

-1818 (VIP) → talks about the fact that, a partnership agreement is at the same time a contract
of agency; generally, an agency authorizing every partner to form acts of administration - that

is why, doon sa listahan ng 1818, they are considered as acts of strict dominion = they are

not acts of administration; meaning, they need a special authority from the other partners

before they can perform those acts

-1825 (estoppel) → a partner by estoppel

Next meeting: finish partnership with dissolution and limited partnership; then we
move on to agency
--------------------------------------------------------------------------------------------------------------------------
May 24, 2021 - Caryl

Capitalist partner – this does not include industrial partners.

1789

An industrial partner cannot engage in any kind of business unless the partnership expressly
permits him to do so.

Otherwise, partnership can exclude you as an industrial partner.

You will get a share of profits from the contribution of capitalist partners

Contract of partnership is akin to Contract of Agency.

2 kinds of managers that may be appointed to manage the partnership

2 kinds of managing partner:

1. Managing Partner appointed in the articles of partnership – absolute to execute acts

of management like making decision despite the opposition of other partners. Except If
you acted in bad faith.

2. Managing partner appointed after he iissuance of the articles of partnership – the

managing partner may be removed with or without cause.

All partners are liable for the debts of the partnership (pro-rata) of their properties.

The only one who is not liable is the limited partner

Liable jointly to the extent of contribution. Partners may also be sued beyond what they have
contributed even if there is an industrial partner.

The liability becomes solidary when: (this will come only if their properties have been
exhausted)

1. Wrongful acts to a third person (tort)

2. There is conversion or misappropriation on the funds of a third person.

With respect to industrial partner, he is also liable to creditors but he is not liable to the losses.
A partner by estoppel is not member of the partnership, except if he includes his name in the
firm name, he becomes liableas a partner.

If not all the partners have given their consent, only estoppel by partners and partners who
gave their consent will be liable.

With respect to debts prior to his admission, will not be included for the creditors of the new
partners

Distinguish dissolution, termination and winding up of partnership.

How is the partnership dissolved?

- Takes away the rights of the partners to represent the partnership and to bind the
partnership

- Effect is to terminate the partners to act in the partnership.

- Cannot be anymore to act by the acts in the partnership.

What is limited partnership?

1843

The limited partners shall not be bound by the obligations of the partnership.

Limited partner may leave the partnership anytime or assign interest without having the
partnership being dissolved.

The only condition is that the limited partner cannot simply withdraw his capital from the
partnership until the creditor’s claim.

The creditor’s right is preferred over the limited partner.

Limited partners are only liable to partners not to the creditors. Except to the extent of their
obli, they are not individually liable with their separate properties.

Can a limited partner contribute services to the partnership?

- A limited partner may contribute cash on partnership but not services.

When can a limited partner be liable as a general partner?

When is the partnership considered limited?

All partners ncluding industrial, are all liable pro-rata with their individual properties after
partnership assets have been exhausted

What is agency?

1868 -> 1317 – > 1403

E: negotiorum gestio

- When a person takes care of an abandoned business of another, even if the owner
does not give authority, the law gives it.

- If the owner arrives, the owner is required to compensate you.

GR : Agency is consensual.

Authority of the agent must be in writing

E: 1869

Example of an implied agency

Distinguish manager from employee

Distinguish agency from lease of service

In agency, there is a juridical acts includes creation or distinction of relations with third parties.

In lease of service, an employee when employed by employer, performs only material acts.

A president appointed as agent of the corporation.

In lease of service, he performs only material acts.

Fiduciary relationship between the agency and principal, what does it mean?

An agent cannot claim to be an owner. The fiduciary rel of the agent or principal as a result
of the contract of agency.

1874 -written but does not need to be authorized.

What is an agency by estoppel?

In partnership by estoppel, if the person includes his name in the partnership, then he
becomes a partner by estoppel. He becomes liable as partner together with partners who
have given consent.
In agency by estoppel, if A informs B, or advertised (informed or advertised to everyone) that
X is his agent. And X acts upon him (becomes agent) then there is agency by estoppel with
respect to B who has been informed that X is his agent or with respect to public at large so
that agency cannot be simply be revoked anymore except revocation.

They usually hire marketing agents in order to market their products.

The company is estopped from denying to the person for appointing him as your agent
especially if there is a calling card given to that agent.

What is a general agency?

1876

What is a general power of attorney?

1878 – SPA

Agncy ay either be general or special

G: Comprises ALL (acts of administration)

S: Comprises one or more specific transaction (perform acts of strict dominion)

Next meeting: 1878-the rest of agency

_________________________________________________________________________

Class Notes for May 25, 2021: (Sha)

Basics of Partnership:
-when you say general partner; the liability extends to his own private properties; but the
liability (creditors) will go after the private properties of the general partner, only after the
properties of the partnership have been exhausted; liabilities of GP with respect to his
individual private properties is pro rata or joint with the other GPs, subject to two exceptions
(in which a GP may be held liable not pro rata, but solidarily with other partners):
1.) for wrongful acts or omissions causing loss to a non partner or third person;
2.) one of the partners is guilty of conversion or misappropriation of the funds of a stranger

-GP → the GP which includes industrial partners, because partnership may be classified either

GP or limited partner insofar as liabilities to creditors or third persons, so that, the industrial

partner is classified under GP when it comes to liabilities to 3rd persons or creditors; so they

are liable to creditors or third persons insofar as the debts of the partnership, to the extent of
their individual properties after the properties of the partnership have been exhausted

(meaning, their liability is subsidiary; the partnership is liable primarily, and the GPs including

the industrial partners will be liable subsidiarily once the properties of the partnership have

been exhausted)
-GR: liable pro rata (proportionate to their respective contribution) : ex.) 20% each
contribution; only made to pay 20% because that is their proportionate share to their
indebtedness (liability is joint pro rata)
-Two exceptions: (solidarily liable)
1.) Wrongful acts and omissions causing loss to a non-partner
2.) Conversion or misappropriation of funds of a stranger
(The nature of liability is solidary in this case)

-Notice to the world that there is a partner there, when there is an addition to the name “Ltd.”
meaning it announces to the world that there is a partner, and the partner’s liability is limited
(or one of the partners is a limited partner)

-Insofar as contribution, a partner may either be: capitalist (who contributes money or
property); or industrial partner who contributes services

-We also have what is referred to as “a partner by estoppel” → a partner, who allows his name

to be included in the firm name or in the name of the partnership and therefore, he is liable

as a partner; provided that, the other partners have consented; if not all partners have

consented, then he will be liable together with the other partners who have given their consent

to allow him to include his name in the partnership (1825);

- if a capitalist partner, has committed or promise to contribute a property to the partnership

(either property or money) the effect of that is that he becomes a debtor of the partnership;
second, he is bound by warranty in case of eviction (with respect to specific or determinate
thing he promised to contribute)
-He is liable for the fruits on the property or money that he contributed, without the need of
demand; reason for liability: because, he deprives the partnership which is a separate juridical
entity the opportunity to make profit, and deprives the partnership the opportunity to use the
property or the money to further the business of the partnership

-If a partner is obliged to contribute, and it has contributed, in case of imminent loss of
partnership, he may be required to give additional contribution or capital to the partnership
(with the exception of an industrial partner); if he refuses to contribute as required he must
sell his interest
-Industrial partner: an industrial partner cannot engage in any kind of business; whether it is
related to the business of partnership; who committed to contribute his services is required to
devote his full time to the partnership; otherwise, the capitalist partners may exclude him from
the partnership and demand payment of damages or avail themselves of the benefits
obtained by him in his separate business, with right to damages

-If a partner is a capitalist partner: he cannot engage in any operation of the same kind, as
that of the partnership (cannot engage in the business similar to the business engaged by the
partnership) otherwise, he is required to bring the profits that he may derive from that
business to the common fund, and on the other hand if his separate business will suffer a
loss, he will bear the loss alone

-Contract of partnership is akin to a contract of agency → when there is no specification as to

management of partnership, all the partners are agents and acts of anyone of the partners

will bind the partnership; exception: while every partner or all partners are agents of the

partnership, they cannot perform acts that will result in the alteration of the immovable

property of the partnership even if those acts are useful, because when it comes to acts of

dominion or alteration, they need the consent of all

-If the management of the partnership is entrusted to a specified partner/s who are called as
“managing partner”, there are two kinds of managing partner:
1.) MP conferred in the articles of partnerships: meaning, the managing partner is
appointed in the articles of partnership when the partners have executed the articles
of partnership and registered the same with the SEC; if you are a MP appointed under
this nature, then, you may execute all acts of administration despite the opposition of
other partners unless you acted in bad faith (practically the power of the managing
partner in this nature, is absolute - he can hire and fire people; presumed to be regular
acts and done in good faith); so that the power of such is irrevocable, without just or
lawful cause; if there is a just and lawful cause to remove him, the vote of the
controlling partners is necessary for such revocation or for his termination or removal
2.) MP appointed after the issuance of the articles of partnership: it may be revoked at
any time and with or without just cause

-If a partnership is created, and a new partner is admitted after the creation of the partnership
and after the partnership has started doing business, the partnership may admit new partners;
but, the new partner, will be liable as a general rule, to obligations of the partnership arising
even before his admission to the partnership as a new partner; if you are a partner admitted
today, you are already liable for the indebtedness of the partnership that is already in
existence or debts incurred prior to your admission; however, the liability of that new partner
is limited to the property that he contributed; which means, that the new partner cannot be
held liable with his individual property;

-Industrial partner → liable to third party creditors with his individual property; however, among

them the partners (the capitalist and industrial) the capitalist will be required to reimburse the

industrial partner for losses suffered by the industrial partner (because the industrial partner

will not be liable for the losses); he can demand reimbursement of what he has paid to the

third persons or creditors; insofar as creditors are concerned, the IP will be liable like a general
partner

Dissolution, Winding up and Termination:

-Distinguish dissolution, winding up and termination
-Does dissolution terminate the partnership? - No. the partnership is not terminated, even if
the partnership is dissolved; but continuesto exist until the winding up is completed but it does
not mean that the partnership can keep contracting obligations in the usual course of
business; its life is limited to winding up of its affairs; so, the effects of dissolution of the
partnership is generally, the effects of dissolution of the partnership generally, is that the
dissolution takes away all the rights of the partners to represent the partnership and to bind
the partnership, so long as they know of the dissolution and as to third persons, who have
knowledge and who are not acting in good faith; in other words, there are three instances in
which a partnership could cause dissolution:
1.) Voluntary
2.) Involuntary
3.) Judicial Dissolution
When a partnership is dissolved, the effect of dissolution is to take away the rights of the
partners, to represent the partnership and to bind it; otherwise, if this will not be the case,
then considering that partners are agents, then anyone will keep on doing business even if
the partnership has been dissolved (ex.) agreed and signed to dissolve - that will signal the
cessation of the right of partners to represent the partnership and cease to have authority to
bind)
-Except as necessary for winding up: dissolution terminates all authority of partners to act
and represent the partnership; authority to bind the partnership will cease the moment the
partnership is dissolved

-When partnership or partner may still bind the partnership after dissolution: if the act
performed by a partner is appropriate to winding up the business of the partnership; or any
transaction would bind the partnership, provided that the third person is in GF and without
notice of dissolution

Limited Partnership:
-What is a limited partnership?
-Question: is a limited partner liable for the obligations of the partnership?
-A limited partner is liable with respect to his contribution; but not liable for the obligations of
the partnership; the partnership shall be liable for its obligations and after the exhaustion of
partnership property; GPs including IPs shall be liable with their individual properties
-A limited partner shall not be bound by the obligations of the partnership; a limited partner
however, is liable to the partnership, for the amount that he promised to contribute;
-The partnership, being a separate entity, will be liable for the obligations of the partnership;
and to the extent of the properties of partnership; if the properties of the partnership have
been exhausted, they shall be liable pro rata with their individual properties (GPs and IPs)
-Subsidiary, Joint and Solidary: subsidiary (liable only after the partnership properties have
been exhausted; liability of an employer in the civil liability arising from criminal liability); under
torts, the nature of the liability of employer is solidary with his employee
-Acts and omissions punishable by law = nature of liability of employer is subsidiary; if the
accused was found guilty, is found to be insolvent; on the other hand, in quasi delicts = the
negligence of employee must be proved; if the employee is found to be negligent, there is a
presumption under 2180 that the employer is also negligent (there is a presumption of
negligence under bonus pater familias - doctrine of imputed negligence; which the employer
may rebut by proving bonus pater familias; this defense is not available in culpa contractual
and acts in omissions punishable by law due to the nature of the liability)

-A limited partner may be liable as a general partner in certain instances? → Yes. When he

takes part in the control of the business (Article 1848) and when his surname appears in the

name of the partnership

-A limited partner’s name or surname should not appear in the partnership name, except if
there is another partner who has the same surname; if he participate in the management of
the business or his name appears in the partnership, then he will be liable like a general
partner
-Must not intervene in the management or control of the business; note: in a Ltd partnership,
there must always be one general partner; what is the reason for this? - this is because in
case the partnership will no longer afford to pay off the creditors and all of their properties
have been exhausted, then the general partner shall be held liable up to the extent of their
personal property; the reason is that the general partner will protect the creditors of the
partnership; remember that the Ltd. Partner is not really a partner, but only a contributor to
the partnership, and can loan money and transact business with partnership, provided that
he does not accept partnership property as security to the prejudice of the creditors; because
the creditors will still be given preference over a limited partner to withdraw what he
contributed to the ltd. partnership; cannot waive liability of a limited partner - only a contributor
to the partnership, he cannot withdraw what he contributed anytime, because the creditor’s
right to the assets of the partnership will still be preferred over the right of the limited partner

-Ltd. Partners are not bound for the obligations of the partnership, except to the contribution
they give; they are not individually liable with their separate properties; so their obligation is
merely to comply with what they have promised to contribute to the partnership

-Note: substitution, withdrawal of a Ltd. partner or addition of another Ltd. partner, will not
have the effect of dissolving the partnership; unlike the withdrawal of a general partner from
the partnership
-The ltd. partner can withdraw its capital but only after the creditors are paid of their credits

Agency:
-What is agency?
-Read 1317 → related to 1868 and 1317 is also related to 1403 (1) on unenforceable contracts;

one of the unenforceable contracts is when an agent or a person acts for someone without

authority, or acted outside his authority given to him; the contract is unenforceable against

htep principle
-Question: agency is consensual right?
-1874 (VIP) → becomes a formal or a solemn contract (need not be notarized); even an

assignment of lease, then that authority must be in writing, because it is an interest in an

immovable property; otherwise, the authority is void; the agency then is void, unless the

authority is in writing; the GR is an agency is perfected by mere consent (consensual) except

under article 1874

-1869 → remember that i explained that, in relation to 1317, if a person will represent

someone, and act for someone, he must be authorized by that person or by the principal; or

if he is not authorized, then his authority must be ratified; because, the good thing about

unenforceable contracts is that they may be ratified; void contracts cannot be ratified as well

as rescissible contracts; but when it comes to lack of authority may be ratified; exception:

quasi contract - negotiorum gestio

1.) Quasi-contract → three kinds: solutio indebiti, negotiorum gestio, innominate quasi
contracts
 a.) Negotiorum gestio: the gestor or officious manager, takes care of an

abandoned or neglected property or business of another person, without the

knowledge of the owner; and therefore, without the authority of the owner. But,

even if the action of the gestor or the officious manager in these cases are not

authorized and without the knowledge of the owner; teh contracts entered into

by the gestor will bind the owner; because, negotiorum gestio is sanctioned by

law; when a person takes care or attends to a business or property which is

abandoned by the owner, the law gives him the authority to continue taking

care of it until the owner arrives; and the owner is required to compensate him

for his acts, or for his services; what is very important in NG is that the contracts

entered into by the gestor with third persons, are binding upon the owner of the

properties; and the gestor is also required to continue taking care of it; he

cannot take care of it initially and later on, forget about it or neglect them (he

will be liable for damages; and required to exercise standard diligence in taking

care of the business of the property of the owner); if the owner arrives, in

relation to 1869, and the owner sees that the gestor is taking care of his

property well and satisfied and allows him to continue what he is doing, then

the NG becomes an implied agency under 1869; the NG is transformed from a

quasi-contract into a contract of agency; it becomes an implied agency

because the owner becomes aware that someone is taking care of his property
and allows him to continue taking care of it (1869 → agency may be expressed

or implied from the acts of the principal, his silence or lack of action or failure

to repudiate the agency knowing that another person is acting on his behalf

without authority); vIP that you realize that by mere inaction or failure to

repudiate the act of someone who is representing you, will make you liable as

the principal for the acts committed by your agent

2.) Quasi-Delict
-What is agency by estoppel? → Article 1873; there are two situations; the person here is the

principal (either especially informs another person; that other person is third person) ex.)A

informs B that C is her agent, then that is binding on C; then A is estopped from denying it to

B, unless she also informs B in the same manner

-Second situation: if that person who is the principal advertised in a newspaper that he is
appointed as the manager or president of the company, then he has the duly authorized agent
to represent the company; or if the company hires 100 marketing agents and procures calling
cards for them, then the company is bound by the acts of the 100 marketing agents and if 10
of them will resign, then the company will be required to place an advertisement in the
newspaper that they are no longer bound by the company - if the company does not do this,
then the company is still bound by the 10 resigned employees (power of estoppel continues
until the power is rescinded); the power is in full force, until notice is rescinded in the same
manner it was given
-To advertise in the newspaper → it does not mean that the person has committed a crime;

this is just necessary to comply with 1873 on the law on Agency

-An Agency may be oral, unless there is a requirement for a specific form

-How do you distinguish agency from the lease of service? → when you say agency, an agent

is destined to execute juridical acts; whereas an employee, contemplates only the

performance of material acts, so that with respect to a teller; the teller in a bank - the teller in

the bank is an employee, because she performs material acts, and if she for instance, takes

some of the bills and PUTS THEM in her pocket, then she could be guilty only of qualified

theft; on the other hand, if you happen to be the president of the bank and you misappropriate
or steal money from the company and encash the check, then you will be liable for estafa and

not for qualified theft - because the key with respect ot estafa, is that the person who is liable

for estafa performs juridical acts; juridical acts includes acts that will result in the creation,

modification, or extinction of relations with third persons or third parties; for instance, if you

have been authorized to represent the owner in order to enter into a lease contract with

lesses, remember that a lease will result in the creation of a juridical title in favor of a lessee;

juridical acts = we came across this the first time when we started talking about obligations

(one of the elements of an obligation); where there is juridical tie, when it will result in the
creation of an obligation; so juridical acts, includes creation, modification and extinction of

relations with third persons or third parties; on the other hand, janitors, clerks, ordinary

employees of companies, their acts in the office are material acts - will not result in juridical

acts

------------------------------------------------------------------------------------------------------------------
MAY 26, 2021 - CARYL

1876 – General vs. Special agency

General power of attorney - 1877

Special power of attorney – 1878

1883 – example

Is the contract of agency irrevocable?

GR: Agency is revocable at will by the principal (NCC, Art. 1919).

XPNs: An agency is irrevocable:

1. If a bilateral contract depends upon it.

2. If it is the means of fulfilling an obligation

already contracted.

3. If partner is appointed manager and his

removal from the management is unjustifiable

(NCC, Art 1927); (2010 BAR)

4. If it has been constituted in the common

interest of the principal and the agent, or in the interest of a third person who has accepted
the stipulation in his favor (NCC, Art. 1930).

5. Stipulation pour atrui (NCC, Art. 1311).

What is a commission agent?

May a commission agent sell on credit without the consent of the principal? What is the effect?

May an agent appoint substitute?

Can the sub-agent act on behalf of the principal?

1892 ***** – the agent will if he is not given the power to appoint a substitute without authority
given by his princiipal, all acts of the substitute, shall inure to the liabily of the agent alone.
Contract entered into by the sub-agent (void)

Acts of the sub-agent can be ratified. (take note 1892 – difficult provision)

1403 –

If the agent converts the money of the principal, what is the effect?

1896 **** – one of the exceptions to the GR that a demand is necessary that the obligor may
incur in delay.

- The agent appropriates a money that he owes to the principal, there is no need for
demand. He is liable to the interest.

1898 –

1911 – SOLIDARY LIABILITY

1919 – may an agency be revoked by an appointment of a new agent?

Instances of an implied revocation

1926 –

1922 –

When you revoke an agency with respect to phases of revocation

1. Separate your relationship to the principal

2. Third persons (agency is a preparatory contract)

2 things that must be considered by the principal

1. Cut the relationship by the agent.

2. Notice of the revocation

Inform also tird persons that authority of the agent has been revoked.
1928 – title: withdrawal/ resignation

The agent may terminate/ withdraw his relation to his principal.

1929 –

1885 – there is an appointment given by the princiipal but the agent declined such
appointment.

1930 – agent is the extension of the personality of the principal.

Provides exception thet even after the death of the principal, the agent will continue.

1931 – what is the effect if the agent is not aware…

1933

Credit

Two kinds of loan:

Commodatum vs. Mutuum

Commodatum – borrowed and the same thing must be return.

Mutuum – loan on consumption ; if you borrow money, you will become the owner of the
money.

Is a commodatum or mutuum consensual contract?

What is the object of commodatum?

Is there a right to enjoy fruits in commodatum?

An accepted promise to deliver a thing by way of commodatum or mutuum is perfected

contract by mere consent.

You may enter a contract with a bank in exchange to secure by way of contract of mortgage.

What are the obli of a borrower?

1947***** - Precarium

What are the instances that bailee in commodatum may be held liable for fortuitous events?
1942

In commodatum there is a presumption that the borrower is known to the lender.

If those instances when the borrower allow the 3rd person who is not the member of the same
household, it is equivalent to violation of the trust.

1942 – fortuitous event

Addition to the exception in 1174

Next meeting:

Mutuum with cases

Deposit

_____________________________________________________________________

Class Notes for May 27, 2021: (Sha)

-What is general agency and special agency?

-Note: 1876 in this regard, and what is a general power of attorney?

-Is it possible for a special agency and a GPA to exist at the same time in one agent? Or who

represents the same principal? → Yes.

-1877: GPA and 1878 is SPA

-Distinction: 1878 → acts of strict dominion

-May an agent appoint a substitute? → Yes.; If he violates that provision, what shall happen?

→ liable to damages against the principal

-Duty of an agent who declines the agency? → proper diligence of a good father of a family in

cases of the property held in his custody

-If the agent appoints a substitute, can the principal sue the substitute? → 1893

-In lease, there is what we refer to accion directa: the lessor may directly sue the sub-lessee
but only on certain instances; with respect to the use and the other is with respect to
preservation of thing subject to lease; and only if the lessee has not paid his rent and in this
regard, the lessor may directly sue also the sub-lessee to collect the rent owing to the lessor
from the lessee, and the lessor may collect the rentals which the sub-lessee owes the lessee,
to cover for the rentals not paid by lessee; on the other hand, or similarly in 1893 and 1892
in those instances when the agent appoints a substitute, when he was not given the power
to appoint one, and even in the instance he was given the power to appoint but turns out that
the substitute was notoriously incompetent or insolvent, in these cases the law gave authority
even if there is no contract between the substitute and the principal because the contract here
is between the agent and substitute pursuant to law, the law authorized the principal the right
to have an action against the substitute with respect to obligations which the substitute has
entered into under the substitution (another case of accion directa - notwithstanding the
absence of a contract)

-In agency by estoppel, how can the principal effect revocation of the agency? → by

publication

-There are certain instances wherein an agency is irrevocable? → Yes. Article 1927 (agency

is irrevocable at these instances)

-May an agency be revoked impliedly?

-1924 → implied revocation #1

-1926 → implied revocation #2

-when a special power of attorney is issued as well → considered as implied revocation; it will

revoke in part the GPA with respect to the special matter involved in the SPA

-1922; what does this mean? (2) Agent authorized to contract with public in general. — In
case the agent has general powers (as when the agent has been appointed to manage a
business), innocent third persons dealing with the agent will not be prejudiced by the
revocation before they had knowledge thereof. In this case, however, the fact that the
revocation was advertised in a newspaper of general circulation would be suffi cient warning
to third persons (Art. 1922; see Rammani vs. Court of Appeals, 196 SCRA 731 [1991].), for
the publication constitutes notice upon everybody and this is true whether or not such third
persons have read the newspaper concerned.

*Why is publication necessary?

-Remember that agency is preparatory contract; not a principal contract; entered into for the
purpose of granting the agent to enter into another contract; not an end result; when an
agency is issued an authority, the intention of the principal is to give authority to agent to deal
on behalf of the principal on contracts that the principal could have entered into with third
persons; capacity of agent is not so important with respect to contract entered to by the agent
on behalf of the principal; capacity will only matter with respect to the contract of agency; but
when an agent, even if he does not capacity, because merely an extension of principal - not
important with respect of the validity of the contract entered on behalf of the principal; when
an agency is appointed as the agent, then he is expected to deal with 3rd persons; in 1919
and 1920, it gives us a list of the ways by which an agency may be extinguished; but if you
will notice, in the subsequent provisions, even if you look at 1931, even if the principal has
died, it is possible that the agent and the third person who have no notice of his death (the
principal’s death) will still be effective (the contract)

-1930 → agency shall remain in full force and effect even after the death of the principal

-1931

-1873 → introduced to the concept of agency by estoppel; that if the principal sepcifially

informed a third person or announces a public instrument, then he is going to be estopped

from denying; unless he goes to rewinding the process and publishing an advertisement in

the newspaper, that his relationship with that agent is already terminated; two phases in the

revocation of an agency because of the fact that an agency is apreparatory contract: 1.) you

revoke it and; after revoking - relationship with agent has been terminated, but the other

phase is you need to inform the public that such agency is terminated; otherwise, the

termination cannot be said to be effective; it must be effective = to be effective, you must

revoke the agency and inform all of those who have possibly come into knowledge about the

appointment of such agent and the authority of the agent to deal with third persons; otherwise,

a third person who is in GF without notice of revocation, the contract entered into by him with
the agent, will bind the principal insofar as the third person is concerned; the principal may

sue the agent and the substitute, but the principal will be bound by the contract entered into

by the agent or the substitute with third persons; the recourse of hte prpcinpla is to sue the

agent or the substitute; third person is without notice of revocation, the principal will be liable

CREDIT TRANSACTIONS:

-Article 1933
-The law says that commodatum is essentially gratuitous; what does that mean? → there is a

consideration; contract of beneficence (liberality of benefactor); generosity in this case is the

consideration (distinguished from an onerous contract → a valuable consideration must be

given in this case); in commodatum, it is essentially gratuitous because in order to borrow or

to lend a thing to you, it is out of one’s generosity of the lender

-In commodatum, what is the object? → non-consumable; real or personal property

-A real contract (commodatum) what does this mean? → Article 1315 and 1316 (delivery of

the object of the obligation); what is this distinguished from a consensual contract

*Generally, contracts are perfected by mere consent; but there are contracts for instance,

while agency is a consensual contract; exception to this is 1874 - it becomes a formal contract

because if the agency is for the sale or interest of a land, it requires that the authority of agent

must be in writing, otherwise, the agency is void (it is a formal contract → formality or solemnity

is a requirement for the perfection and validity of a contract); in commodatum, commodatum

is not a consensual contract because it is not perfected by mere consent - apart from consent,

it required delivery: there is consent, object and consideration (which is gratuitous) - in

addition to that, for it to be perfected, the contract requires the delivery of the thing borrowed

*Referred to as consensual contract of an accepted promise to deliver a thing by

commodatum → enter into an agreement with your sister, that your sister is going to let you
borrow her sneakers; this is a consensual contract (1934)

-1934→ first part: a consensual contract (accepted promise to deliver something by way of

commodatum - they both apply to commodatum and mutuum (very important ang mutuum));

it is like a contract to sell (a contract entered between you and the seller, but this is apart form

the absolute deed of sale that the seller will be required to execute once full price has been

paid; but the CoS is a consensual and separate contract and if you have fully paid the price,
you can demand from the seller to execute the absolute deed of sale and to deliver the

property and titles; otherwise you may be held liable for damages)

ex.) you have entered into a contract; the bank and you as borrower, have entered into and
there is an agreement to give you a credit line of P1 million, it is a consensual contract but
there is no real contract of mutuum until the money has been actually delivered to you; but,
in the meantime there is a consensual contract which is demandable upon becoming due;
you can demand specific performance

-Commodatum and mutuum; they are unilateral contracts; what does this mean? → loan

produces obligations only for the borrower (to return the thing borrowed); remember,

commodatum and mutuum, they are real contracts; so they are not perfected until the lender
has actually delivered the thing being borrowed; in other words, there is no perfected contract

until the person has delivered the object that the bailee is borrowing; it is a real contract =

there is no contract of commodatum yet until the thing you are borrowing has actually been

delivered; in a contract of pledge, walang kontrata hangga’t hindi mo binibitawan yung

sinasangla mo na cellphone

-It is unilateral in the sense that, both mutuum and commodatum, it involves the obligations
on the part of the borrower or the bailee; the bailee has the obligation principally, and is
focused on the obligation of the borrower to return the thing borrowed in case of
commodatum; in mutuum, the contract is focused on the obligation of borrower to pay the
amount of money he borrowed; any other obligations are incidentals; that is why it is
unilateral; as distinguished from a bilateral contract, it creates reciprocal obligations such as
in the contract of sale (palitan); in commodatum and mutuum, it will not in fact exist without
the delivery or giving up the possession of property; so, the contract presupposes that the
lender has given up the possession of the property to you (pinahiram na ng lender sayo yung
golf set or yung book); once the contract is perfected - now, the contract is unilateral because,
it is practically all about the duty of the borrower to return what he borrowed in case of
commodatum and to pay, the money that he borrowed in case of simple loan; any other
obligations such as payment of interest (pagdating sa simple loan) or yung obligation na hindi
mo dapat ipahiram sa ibang tao yung hiniram na damit, then those are incidental terms; but
the main contract pertains essentially to the obligation of the borrower to return what he
borrowed

COMMODATUM VS. MUTUUM

Commodatum:
-object of contract is a non-consumable thing; borrower is required to return the same thing
he borrowed (if hindi binalik, liable for estafa)

-Essentially gratuitous; if any compensation shall be paid, then the contract ceases to be a
commodatum

-Ownership of thing borrowed is retained by owner

-Case of Catholic Vicar vs. CA → a long time ago, the church of catholics, may nagpahiram

ng bahay because after the church and convent were destroyed, they were allowed to use

the house for free (the house of the bailor); page 8 of Sir’s book

*if you are a borrower, you do not have a just title (just like in lease, you can never become
an owner; someone with a superior right); when you are merely a borrower, you are not in
possession of a thing in the concept of an owner; hindi just title ang borrower- only a juridical
title; that is why, a borrower in commodatum may be liable for estafa, because you are
required to return the same thing - you did not become the owner of that property (you merely
borrowed the property); you can never be its owner, because you recognize that your right is
subordinate to the true owner of the property

-If you borrow something in commodatum, you cannot sell it; it will result to misappropriation
subject to the case of estafa

-Bailor does not have to be owner of the thing

-1939 (VIP) → essentially gratuitous = purely personal in character (commodatum)

Mutuum:

-subject matter is money or other consumable things; in mutuum, the borrower is only
required to pay the equivalent amount; does not have to return exactly the bills he borrow;
only needs to return an equivalent amount (it is to pay the money that you borrowed)

-Gratuitous or onerous; when you say onerous (the consideration; there is a valuable
consideration) and the consideration in a contract of simple loan is referred to as monetary
interest

-Ownership of money or other fungible things borrowed is transferred to borrower (bailee

becomes the owner of the money that he or she borrowed)

-Ownership passes to borrower; the borrower is not under any obligation to return the exact
bills received by lender; the borrower can disposed of the thing borrowed; not a case of
misappropriation (consumable thing)
-Yong Chan Kim vs. People (page 10 of Sir’s book)

Exception with regard to a Consumable Good:

-Producer’s Bank of the PH vs. CA → although the object of the loan is money, the SC

recognized an exception that where the purpose of the money (even if it is consumable) if the

purpose is merely for exhibition, then it is considered as a non-consumable item and must be

returned to the bailor

-If the consumable goods are loaned only for the purposes of exhibition; the loan is a
commodatum and not a mutuum

-1937: the object may be real or personal property (commodatum)

-1942 (related to article 1939) → an additional exception to 1174 on fortuitous event (1174

talks about a concept that when a thing is lost due to a FE, the obligation shall be extinguished

and the debtor shall not be liable for the performance of the obligation; several exceptions to

1174, and 1942 is an additional exception to 1174)

1.) ex.) Bridal gown = pinahiram sa iba; it is clearly a violation of the bailor and bailee’s
agreement

June 2, 2021 - Caryl

The object of commodatum –

Is a consumable thing an object of commodatum?

What is the main obligation of the borrower in commodatum?

If there is a fixed period? What will the bailor do?

1944 – Meaning and example

Instances when a bailor may demand for the return of the thing?
Commodatum vs. Mutuum (1933)

In mutuum, the borrower becomes the owner of the thing borrowed. Give a legal effect
pertaining thereto.

In the case of Rep vs. Sandiganbayan, in mutuum he becomes the borrower, he cannot be
liable because he can appropriate it or dispose of it and cannot be liable for estafa. The only
liability is to pay the loan and pay the interest.

1956 – what do you call this interest?

1956 is a monetary interest

2209 – what do you call the interest in 2209? Compensatory interest ; it is a form of damage.

If you borrowed money from J (10,000) payable in 1 year,you borrowed June 2, 2021. When
is the 10,000 due?

Ans: One year (June 2, 2022)

Are you required to pay him more than 10,000?

Ans: Art. 1169

If, assuming, that when you borrow 10k, you agreed to pay an interest of 6% per annum, and
you paid on June 2, 2022. How much are you going to pay?

Take note 1956 and 2209 (*****)

2 requirements under 1956 before a borrower may be required to pay interest:

1. Stipulated in writing

2. Must be due

Loan in discounting, the interest is deducted in advance. The lender deducts a certain amount
from the amount deducted from the loan. He doesn’t get the exact amount because there is
a loan and discount at the same time.

In ordinary loan with interest, the payment of interest shall be done after the loan amount
became due or as stipulated in writing.

Can you compute the 6% of 10,000?

How much is that every month?

6% per annum, what is the interest per month?

We divide the 6% per annum by 12 in order to arrive at a rate per month.

If it is payable one time per annum, multiply the total amount of interest agreed upon.

How about if the parties did not agree to pay the interest? 6% legal rate by BSP.

If you are in delay, what happens?

How much are you going to pay if you are delayed?

What if you are 6 months delayed?

2209 – interest that was agreed upon

2 kinds of interest

1. Monetary- express stipulation in writing.

2. Compensatory – If you are in delay, 2209. Liable not only to principal as well as
monetary, if there is no monetary, then, legal rate.

Assuming that Iris borrowed 10k from Jonathan, there is no agreement in writing in monetary
interest. Simple loan is either gratuitous or compensatory.

You can still pay interest even if there is no agreement subject to delay.

In guarantee, the guarantor cannot be liable beyond the loan except when there is obligation
to pay damages.

What is compounded interest?

2212

What is the rule in1959?

Generally speaking, it is prohibited (compounding of interest)

Interest

1. If there is an agreement that the interest due will be capitalized.

The borrower is given a grace period to pay the interest by the bank but there is always an
accrued interest. The interest will form part of the principal debt.

2212 The second exception (form of damage)

Once there is a complaint filed the interest will run from the time of demand

But if you still did not pay, summons will be served, then court will compute interest on the
interest by 2212.

Guidelines in the case of Nacar vs gallery frames which modified the decision of the Eastern
shipping lines.

2209 applies when the obligation is breached.

What is the status of usury law?

If it is 20% per annum, is it usurious?

Rate of interest that may be stipulated by the parties.

The SC in several cases has declared an interest that is excessive or unconscionable which
is illegal.

The court has the ultimate authority of determining whether the interest is excessive or
unconscionable.

Under the usury law, the monetary board has stipulated a fixed amount rate of interest which
shall be imposed upon the parties.

The Central bank did not appeal in the case of Bangko Central. According to SC, banko
central, the usury law has been rendered ineffective.

Th Central bank merely suspended the usury law. Lifted the interest ceiling but does not
authorize stipulation that is excessive and renders it illegal, immoral and unjust.

Because it is immoral, therefore it is illegal, then it may be struck down. Even if the interest is
void, it doesn’t mean that the court cannot fix the interest. The borrower may still be required
to pay an amount of interest fixed by the court this time.

In such an instance, it is the court that determines the validity of the interest stipulated agreed
upon by the parties.

- You may tell your client not to pay the interest and litigate to let the court decide.
Next meeting: Deposit, hanggang antichresis, pledge guaranty mortgage

Deposit – basic prov and necessary deposits (take note)

_________________________________________________________________________

Class Notes for June 3, 2021: (Sha)

Commodatum:
-Can you give the instances wherein the lender in commodatum may demand the return of the

thing he lent to the bailee? → Answers: precarium (exception to stipulation of period; in

precarium, no period is stipulated) (Article 1947); when the period of borrowing the said item
has already expired; when the purpose stipulated has been accomplished; Article 1948 (acts
of ingratitude: the bailor may demand the immediate return of the thing, if the bailee commits
any act of ingratitude specified in Article 765)

-What is a precarium? → it's like a tenancy at will; the lender may demand the return of the

thing borrowed, at will, and especially in instances where there is no fixed period for the loan;

also, if the thing is merely tolerated (the use of which)

-Other instances where the lender may demand return of thing borrowed: instances where

the borrower is guilty of acts of ingratitude; also in case of urgent need; reason is that the

nature of commodatum is personal - theer is a personal relationship between the lender and

the borrower (bailor and bailee) - Article 1939 - this is also the reason why the commodatum

is gratuitous, and that if the thing is being lent for compensation, then it ceases to be
commodatum; what will it become in this case? → Answer: it can be a contract of lease

-Distinguish commodatum from mutuum: gratuitous vs. onerous; transfer of ownership and
possession; the object of the contract (consumable, non-consumable, fungible and non-
fungible); commodatum = both real and personal property; mutuum = only personal property
(such as money or banknotes); in mutuum, because ownership and possession is transferred
to the borrower, the borrower cannot be charged with misappropriation or estafa. The only
liability is to pay the loan and the interest

-If it is for exhibit, then it is commodatum; if the thing borrowed will be the exact thing that

must be returned - it is not mutuum; because mutuum a loan of a thing for consumption (its
like you borrow rice, sugar or money); but if the sugar is for exhibition, then the exact sugar

is the one that you must return, then it is not mutuum (it is commodatum); why? What is the

reason why? → because in mutuum, the borrower becomes the owner of the thing he borrows;

so if you borrow money, you become the owner of the money and you can use it for any

purpose you want to; your only obligation is to pay (not return) the money you borrowed

-The perfect example: case of Catholic Vicar vs. CA → in such case, the respondents in this

case, native of Mountain Province, allowed the use of their house to the Catholic Vicar, to the

Monsignor assigned in the mountain province; when the church was destroyed, and the

convent was destroyed; the respondents allowed his house to be used by the catholic church;

and, because of the goodness of the heart of the respondents, the respondents did not

demand the return and, because the catholic church had been using the property for so long,

the catholic church applied title to the property, on the ground that it has occupied the property

and has acquired ownership by prescription (basis of ownership to register the title under the

Land Registration Law, Property Registration Decree and Public Land Act); But the SC denied

the application of the roman catholic vicar of mountain province = as per the SC, you never

had title over the property, because you were simply in possession of that property as a

borrower by way of commodatum - so the borrower of the property by way of commodatum

will never acquire title over it by prescription; in order to acquire title over property by

prescription, you must have been in possession of property by prescription, and you must
have a just title; if what you have is a juridical title, then you are similar to a lessee in a contract

of lease → the bailee in a contract of commodatum, is similar in nature (the possession) to a

lessee (can never acquire title of property subject of its lease by prescription, because he is

not in possession of the property in the concept of the owner); no matter how long a time, a

lessee, a bailee, or squatter stay on property of a person, he will never acquire ownership by

prescription
-Case of Yong Chang Kin vs. People → in the case of mutuum: the money that a person

borrows, becomes his property; because it becomes his property, he cannot be made liable

for estafa or for misappropriating that money, because he becomes the owner of it; if you are

simply a borrower of the money, you cannot be charged of misappropriating it; on the other

hand, if you are in possession of a property by way of commodatum, then if you

misappropriate it (if you sell it) then you can be charged of estafa - because it is not your

property and you pretended to be an owner of it and sold it to another person, and

appropriated it for your benefit; on the other hand, if you borrow money from your friend the

10k, you are not required to account for it - the only obligation is to pay the 10k

-Loan is unilateral; what does this mean? What is a unilateral contract? (this is with respect

to commodatum) → in commodatum: it is unilateral, because the contract of loan produces

obligations only for the borrower, which is to return the thing borrowed; if there are obligations

to be performed by lender, they are simply incidental to the ownership or consequences of

borrower’s rights and duties; for instance the obligation of the bailor to refund the

extraordinary expenses during the contract for the preservation of the thing loaned, there is

an obligation on the part of the bailor to refund extraordinary expenses - but there is a

requirement on the part of the bailee to inform him about it, but the obligation of the bailee to

inform him of extraordinary expenses may be dispensed with, if the need to undertake the

repair is urgent

-In mutuum, the obligation is bilateral in nature → because the lender in mutuum delivers the

money borrowed by the borrower, in consideration of the promise of the borrower to pay

-The bailee in commodatum is not entitled to the fruits, what does it mean?

-How do you distinguish commodatum from lease? (lease is a consensual contract and
commodatum is a real contract - one important distinction)

*Note: master the distinctions between and amongst the contracts

-How do you distinguish mutuum from commodatum?

-Commodatum is a real contract right? Which means that? → this means that it is perfected

by the delivery of the thing borrowed; in addition to consent, there is an additional requirement

which is the delivery

-But there is also such a thing as a consensual contract to lend a thing to another person;
what is that? What do you call this consensual contract?

-The so-called perfected contract to deliver a thing to another person; can you give an
example?

Mutuum (Simple Loan):

-1953; can you explain this?

-1955

-In the case of Republic vs. Sandiganbayan → in a contract of loan or mutuum, the debtor can

appropriate the thing loaned without any responsibility or duty to his creditor to return the very

thing that was loan, or to even report to the proceeds used; he is not compelled to return the

fruits and proceeds loaned for there is nothing under our laws to compel the debtor to do so;

as the owner of the money he borrowed, the debtor can dispose of it, and his act will not be

considered as misappropriation of money - only liability is to pay the loan along with interest

that is either stipulated or provided under existing laws

-In a contract of loan or mutuum: the only liability on the part of the debtor, is to pay the loan,
together with the interest; which is either stipulated or provided under existing laws

Two sources of interest here:

1.) Stipulated
2.) Provided under existing laws
(What do you understand with these?)

-Monetary vs. Compensatory interest; difference between the two

1. Monetary- express stipulation in writing (for the forbearance of money)

2. Compensatory – If you are in delay, 2209. Liable not only to principal as well as
monetary, if there is no monetary, then, legal rate; such interest may be imposed even in
 the absence of express stipulation, verbal or written (this cannot be charged as a
compensation for the use or forbearance of money)

-Is the monetary interest an obligation of the debtor, even if he paid his loan on time? →

Yes. Provided that it is stipulated in writing.

-If it is stipulated in writing, then it must be paid even if the debtor pays his loan on the
due date, and even if he is in delay (monetary interest)

-VIP: 1956 → monetary interest: which requires before it could be demanded, that there

should be an agreement; and the agreement must be in writing; it doesn’t have to be notarized
but it must be in writing

-Does this mean that the interest, the payment of monetary interest, falls under the statute of

frauds? → No.

-If the interest does not comply with Article 1956, what is the status of the interest? → it shall

be considered as a void stipulation, if the payment of interest is not stipulated in writing

-So, what happens if there is an agreement but the agreement was not in writing? → the

provisions that may control are the provisions on solutio indebiti and natural obligations

*If solutio indebiti controls, the lender would be required to pay back the interest which was
paid back by the borrower

-What is the requirement if it is solutio indebiti? → loaner has no right to receive interest (there
is no right to receive interest, because the interest is supposed to be stipulated in writing. In

such case, there was no agreement made in writing that there would be interest paid) →

therefore natural obligations will apply: borrower will voluntarily pay interest; even if it was not

stated in writing, it constitutes a voluntary obligation on the borrower’s part, and the lender

will be entitled to interest (voluntary payment)

-It was agreed upon, but it was not stated in writing; therefore, the provisions on natural
obligations will apply; and therefore, there is a defect in the stipulation of interest - it may not
be demanded as a civil obligation, but if there was voluntary payment then payment may be
retained (lender may retain the payment)

-Monetary interest → so if for instance, A borrows 100k from B, payable in one (1) year and

she borrowed today; when is it payable? → It will be due on June 3, 2022

-If there is no stipulation as to interest, how much is A going to pay B? → liable only to pay

100k as agreed

-If A agrees to pay B 12% interest per annum; then on June 3, 2022, how much is A going to

pay B? → 112k; because they agreed in writing the 12% interest

-But if the loan is payable in 6 months, how much is A going to pay when the obligation

becomes due after 6 months with the interest of 12% per annum → A will be liable to pay

106k, because the interest is computed per annum; and, the loan agreement is only for half

a year → divide 12 percent by 12 months and since the loan is only for 6 months, so the

interest is 6%

-Assuming that there is an agreement and it was in writing, that A shall pay B on the due date

after 6 months the entire amount of P100k but they did not agree on the rate of interest; how

much is A going to pay to B after 6 months? → legal interest shall apply which is 6% per

annum; at this rate, A shall be liable to pay 103k which is half of the 6% per annum; interest

that shall apply is 6% per loan; 6% is divided to 12 and multiplied by 6

-The legal interest rate imposed by law is 6% → By the Monetary Board

-There is another interest; what is this other interest? → compensatory interest

-What is compensatory interest?

-2209 → compensatory interest: a form of damage, and in order to qualify thereunder, the

obligation is an obligation is a loan or forbearance of money; meaning, it is a loan of money;

a simple loan or mutuum; and the second qualification to fall under compensatory damage is
that there should be delay; 2209 is related to what is referred to equivalent performance, but

limited to loan or forbearance of money; so it is also related Article 1170, where in case the

obligor is guilty of breach as a result of delay, or there is mora under 1169, then that is the

time when the obligor is liable for compensatory interest

-Is this separate and distinct from monetary interest? → Yes. Compensatory interest is

different from monetary interest

-In compensatory interest, what is that interest that should be paid?

-Compensatory Interest Problem: The loan of A from B (the 100k) payable in 6 months;

and they agreed in writing between them, as monetary interest, was 6%; the money that

should be returned after 6 months is 103k, because the agreed rate was 6%; assuming that

the stipulated interest was 12%, then it should be 106k that must be returned because we

should divide the 12% per annum by the 12 month period - so 1% interest per month; then if

it is 6 months, 1% is 1k; for a 6 month period, it will be 6k; if A pays on the due date, she will

pay 106k; assuming that A incurred delay and she incurred in delay for another 6 months

(she was only able to pay on the end of the 12th month despite the demand); assuming may

demand or i-waive yung demand, it falls under the exception → Will A be liable to pay

compensatory interest on the end of the 12 month period when A paid the loan obligation?

And how much?; instead of paying at the end of the 6th month, A paid at the end of the 12th

month; Article 2209; what is the interest rate that must be followed? = the 12% interest paid
that was agreed upon = 112k is the payment of A (additional 6k due to the 6 months delayed);

the monetary interest is 6k and compensatory interest is another 6k, so the total interest is

12k; The monetary interest is 6k; Compensatory interest is another 6k → 2209 (when A will

be able to pay, it should be 112k already)

-Read 1959

-What is the current status of the Usury Law? → considered to be legally inexistent; merely

suspended; the effectivity of the Usury Law has been suspended by Central Bank Circular
No. 905, series of 1982, effective January 1, 1983; under Section 1-a of the Usury Law, the
Monetary Board is authorized to prescribe the maximum rate(s) of interest for the loan or
renewal thereof or the forbearance of any money, goods or credits and to change such rate(s)
whenever warranted by prevailing economic and social conditions; The Central bank merely
suspended the usury law. Lifted the interest ceiling but does not authorize stipulation
that is excessive and renders it illegal, immoral and unjust; with the promulgation of
the circular, the usury has become legally inexistent

*Effectivity of Usury Law, is at present, suspended; while the BSP provides for what is the
legal rate, the purpose of the legal rate is only to provide for a rate of interest, if the parties
fail to provide for a rate although they have agreed to the payment of interest or in the case
of compensatory interest, in the event that there is no agreed rate, then under 2209, the
interest will be imposed will be the legal rate and the one provided by the BSP

*Due to the suspension of the effectivity Usury Law, the parties are allowed to stipulate higher
rates of interest; higher rates than what is provided by the BSP; so that, even if the legal
interest prevailing now is 6%, there is nothing that will prevent the parties, pursuant to the
autonomy of contracts, or the freedom of the parties to enter into a contract under 1306 to
stipulate on any interest that may deem would be to the interest of the parties in loan or
forbearance of money

*****Guidelines in the case of Nacar vs gallery frames which modified the decision of
the Eastern shipping lines.

1.) When an obligation, regardless of its source is breached, the contravenor can
be held liable for damages. The provisions on Damages of the NCC govern in
determining the measure of recoverable damages
2.) With regard 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:
a.) When the obligation is breached, and it consists in the payment of a sum
of money (i.e. a loan or forbearance of money), the interest due should
be 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 (judicial or extrajudicial demand)
- in accordance with Article 1169 of the NCC
b.) When an obligation, not constituting a loan or forbearance of money, is
breached: an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate 6% per annum.
i.) No interest shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with
reasonable certainty
 ii.) 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)
iii.) When such certainty cannot be so reasonably established at the
time the demand is made: interest shall begin to run only from the
date the judgment of the court is made (at which time the
qualification of damages may be deemed to have been reasonably
ascertained)
c.) Actual base for the computation of legal interest shall, 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 two (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

-VIP: 1959 → what do you call this interest? = it is called compounded interest

-What is the general rule with respect to compounded interest? → it presupposes that there

is interest; so if there is a stipulated interest in writing, what is the next rule that we must

follow? Does that mean that it may be compounded?

1.) There should be a monetary interest

2.) There should be a delay
3.) 2212

-How do you relate 2212 to 2209?

-Is it correct to say that 2209 applies to the debt itself, whereas 2212 applies to the interest
on the debt?

-2212 = compounded → the general rule under 1959 with respect to compounding of interest,

if you read the case of Mambolao Lumber = generally speaking, interest shall not earn

interest; when it is imposed on the debt, it will not earn interest; in other words, it is prohibited

under our law for interest to earn interest; except in two instances mentioned in 1959: 1.)
If there is an agreement or stipulation, to capitalize the interest; this happens when a
businessman borrows money from the bank to be used for a project and the bank would
normally give the businessman a grace period within which during that period he will not start
paying any installment on the loan; but it does not mean the bank being a wise institution, it
does not mean, that the obligation will not earn an interest; the bank will propose to the
businessman that you will not pay any installment you will not also pay any interest - but the
loan will earn interest, and at the end of the grace period (for instance, 2 years), when you
are already expected to start earning, or getting revenue from your business, then we will
capitalize the interest = meaning, the interest that has accrued, it is referred to as “accrued
interest,” will be added to the principal and it will be capitalized; by the end of that grace
period, the interest will be computed based on the debt plus the interest that has been
capitalized; so that if the principal debt was 400k and after the two year period, there is an
additional interest of 12k that has been added, then, the monetary interest will be computed
on the 112k and not on the 100k; the interest has been compounded; 2.) under 2212 = the
interest on the interest here, is another form of damage; but it will be computed and reckoned
from the time the payment of the obligation has been judicially demanded - the payment of
an obligation, before the obligor will be considered in delay, there should be a demand which
is either extrajudicial or judicial (unless if falls under the exceptions); so from the time of the
receipt of the extrajudicial demand, then the obligor will start to pay compensatory interest;
but, if despite the extrajudicial demand the obligor refuses to heed and pay his obligation,
which constrained the obligee to file a collection case, then he will be liable in addition to that
compensatory interest, an interest on the interest which is a form of damage from the time
the obligor receives summons from the court - that is the time to reckon the judicial demand

-VIP: 2212 → from the time it is judicially demanded (you don’t compute an interest on the

interest as a compensatory damage until there is a judicial demand); so the compensatory

interest is supposed to be imposable on the principal obligation or debt based on 2209;

however, when the obligee is compelled to file a case in order to collect indebtedness, then

from the time of the receipt of summons, it is judicial demand and the obligor will be liable in

addition to the compensatory interest - liable to pay interest on interest; so that if the interest

is computed as 6k, then you will have to compute an interest on that interest - this is different
form the capitalized (ito, pag sinabing capitalized, inadd mo yung interest on the principal

debt, before you compute the monetary interest or before your compute the compensatory

interest if assuming in the latter case, there was delay)

-Note: Even if the usury law is suspended, and the parties to a contract may stipulate on the
rate of interest higher than the legal rate posted by the BSP, there is what is referred to as
interest that the court may declare as illegal, because is is unconscionable, excessive and
iniquitous; the reason for the court is while it is not usurious, if it is excessive and
unconscionable and iniquitous, the court will not hesitate to declare such interest as illegal
because the reason cited by the SC: if the interest is excessive and unconscionable, it is
contrary to moral and therefore unjust; and because it is declared as contrary to moral and

unjust, it will be declared as illegal; however, even if it will be declared as illegal, it will not

enable the obligor to be free to pay any interest at all (case of Spouses Andal vs. CA → even

if the interest is declared as illegal for being excessive and unconscionable, the obligor will

still be required to pay interest but, the rate will be the legal rate which is 6% per annum; but

it does not mean that the obligor will be exempt from his obligation to pay interest, if there is

a stipulation for the payment of interest although that agreed rate is considered as excessive,

unconscionable and iniquitous and therefore it is illegal

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June 7, 2021 - Caryl (Transcribed with permitted recording for this session only)

USURY

Last time we ended up in the matter of interest being excessive. And it also mentioned that
Usury law is effectively suspended by the BSP and that the legal rate of interest provided by
the BSP will not limit the parties in the contract to fix the rate of interest that they will deemed
convenient and protecting their respective interest, which means that when the legal rate of
interest is 6% parties may fix a higher rate of interest. Note, however, that if there is a fixed
rate of interest by the parties, that rate of interest will generally speaking, be followed in
computing the monetary interest including the compensatory interest. It is only when there is
no interest agreed upon by the parties, will the legal rate of interest be applicable. Take note
that even if the Usury law is suspended, so technically speaking, an interest may not be said
usurious, however, the court ultimately has a discretion of making a determination as to
whether or not an interest will be considered as excessive, unconscionable and iniquitous or
it is illegal.

An interest may be declared excessive and unconscionable on the ground citing as reason
that if it is excessive, then it is immoral and unjust and therefore, the court may declare that
the interest is illegal. Note, however, that in the case of Sps. Andal vs. Philippine National
Bank, where the parties agreed that an interest shall be imposed on the loan obligation. If, in
the situation where the court found that the computed interest is found to be excessive, it
doesn’t mean that the borrower, will not anymore be required to pay the interest. According
to the Supreme Court, the stipulation requiring the borrower to pay interest on his loan,
remains valid and binding. And because the computed interest declared illegal, because it is
excessive and unconscionable, the borrower will be liable to pay the interest from the time he
defaulted on payment, until the loan is fully paid, based on the legal rate which is 6%.
DEPOSIT

Art. 1968 - A voluntary deposit is that wherein the delivery is made by the will of the
depositor. A deposit may also be made by two or more persons each of whom believes
himself entitled to the thing deposited with a third person, who shall deliver it in a
proper case to the one to whom it belongs.

Take note the most important characteristic of a deposit is the fact that the principal purpose
of the contract is for safekeeping if the safekeeping is not the principal purpose of the contract,
there is no deposit but other contract.

For instance in commodatum, the principal purpose is the gratuitous and temporary use of
the thing by the borrower. In lease of things, it is a consensual contract whereby, the lessee
is given the temporary enjoyment of the property, in exchange for the payment of a rent or a
price. In the case of agency, the agent of a thing for sale is given the custody or possession
of the property and the agent is given the authority to represent the principal and to perform
juridical acts on behalf of the principal. Generally speaking, agency is onerous or for
compensation.

In the case of Mamaril vs. Boy Scouts of the Philippines, the owners of Jeepneys, had an
arrangement with the security agency that he is taking care of the security of the Boy Scouts
of the Philippines Compound and allowed 6 jeepneys to be parked at the end of the day for
a monthly fee. According to the Supreme Court, the relationship between the lessor and the
lessee here, is a lease and not deposit.

In the case of the OSG vs. Ayala, with respect to the arrangement between the owner of cars
that are being parked in the malls. According to the Supreme Court, it could either be lease
or deposit but it is lease in the sense that the owner of the car continuous to have the control
of the car in the sense that he brings the key with him and it is a lease of a parking space.
But where the owner of the car, leaves the car with parking attended together with his key,
the parking attendant chooses where to bring the car, where to park the car, where to safely
keep the car, then it is deposit for compensation. This is a deposit for compensation.

In the case of People of the Philippines vs. Montemayor, the deposit of students in school,
in to answer for broken materials for the equipment of the laboratory, according to the
Supreme Court, it is not a contract of deposit but it is a deposit of money, it is consumable, it
is termed as deposit but is actually a loan and not a deposit which means the school becomes
the owner of the money that is deposited.

Take note also under the Rent Control Act, there are two deposits mentioned in the Rent
Control Act, the first one is:
 1. The deposit under section 7, 2 months deposit is the maximum amount that the lessor
may require the lessee to deposit and the principal purpose is not for safekeeping, but to
answer for unpaid utilities and to answer for unpaid rents.

2. There is also a deposit mentioned in section 8 or 9 of the Rent Control Act, pertaining
to the rent in arrears, which may be paid by the lessee by depositing the rent in arrears
with either way of consignation with the court with the Barangay or with a Bank.

Again, this is not a deposit because the principal purpose is not for safekeeping but in order
to pay to serve as payment or the rent that have accrued and unpaid. Always remember that
in deposit, the principal purpose must be for safekeeping. If the principal purpose is not for
safekeeping, then it is not for deposit and could it be any other kind of contract although it is
called as deposit.

So when we attack, or when we analyze whether or not it is deposit, check what is the
principal purpose of the relationship. If the principal purpose is deposit or rather for
safekeeping, then it may qualify as a deposit.

Also, the deposit that the prospective buyer of a condo or a house and lot pays to the
developer or to the seller of a condo or the house and lot in order to reserve the identified
condo unit that he prefers to buy, it is not a deposit, it may qualify as an option money in an
option contract or if it forms part of a purchase price then it is an earnest money and it is an
evidence of a perfection contract.

San Miguel Properties vs. Sps. Juan, the 1M peso money given by the prospective buyer
of a property, is not a deposit but only to serve as a guarantee to ensure that the prospective
buyer will not backout from the sale. If it is given prior to the perfection of the contract, then it
is an option money if it serves as an evidence of a perfection contract then it is an earnest
money and will form part of the purchase price.

BPI vs. IAC, the action star Rizaldy entrusted to contrast which eventually was acquired by
the BPI 3,000USD for safekeeping. Based on the agreement executed between Garcia as an
officer of the bank/ Rizaldy that 3,000 pesos is the document which embodies the contract
states that the USD 3,000 pesos was received by the bank for safekeeping. And the
subsequent acts that the parties show that the intent by the parties was to safely keep the
dollars and to return it to Zshornack at a later time.

A contract of deposit is a real contract, therefore it is perfected upon the delivery of the thing
deposited although there is an agreement to constitute a deposit which is a consensual
contract; an agreement to constitute a deposit is a consensual contract and it is binding
between the parties. However, the contract of deposit will not be perfected until the delivery
of the thing deposit.
In other words, pwede kayo magkaroon ng usapan na mag de deposito ka, and it is a binding
consensual contract of deposit. However, the contract of deposit is not perfected until the
thing deposited is delivered by the depositor to the depositary.

CA – Agro Industrial Corporation vs. CA, the issue is the contractual relation between a
commercial bank and in other party of the contract of rent in a safety deposit box with respect
to the content of the deposit box placed by the latter, one of bailor and bailee or one of lessor
and lessee. The question is, when you apply and if you are renting a safety deposit box in the
bank, what is your relationship with the bank, is it a contract of deposit or a contract of lease?

We are referring to the contents of the safety deposit box.

The arrangement when one rents a safety deposit box, every safety deposit box in the bank,
has two kinds of keys:

1. Given to the Depositor

2. Retained by the bank

So that if you would like to put in something in the safety deposit box, you will have to go to
the officer of the bank and tell him that you would like to open your safety deposit box,
because you cannot open your safety deposit box without the officer of the bank getting his
key and using it in order to open the safety deposit box at the same time you also key in your
key which is also necessary to open your box. So there are two keys that must be keep in the
safety deposit box in order to open it and for you to be able to place anything in the safety
deposit box. Now what happens in case the safety deposit box is loss or destroyed? Will the
bank be liable as the depositary or what is the liability of the bank as a depositary or as a
lessor?

According to the Supreme Court, the contract of rent for safety deposit box is not an ordinary
contract of lease. It is not also a contract of deposit it is a special kind of deposit; it cannot be
characterized as a contract of lease because the full and absolute possession and control of
the deposit box was not given to the joint renters or was not given to the renter. Meaning, the
renter or the lessee does not have the full and absolute possession and control over the
safety deposit box. The guard key of the box remains with the bank. Without this key, the
renter could not open the box. Similarly, the bank could not also open the box without the
renter’s key. However, it is a special kind of deposit, because the primary function of the
safety deposit box is still for the safekeeping of the valuable objects placed inside the safety
deposit box by the renter. Because it is a special kind of deposit, the depositary would be
liable if in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. In the absence of any stipulation prescribing the
degree of diligence required, that which is expected that good father of the family is to be
observed, so that any stipulation which was provided in the contract of deposit that the bank
normally would make the renter sign. Any stipulation exempting depository from any liability
arising from the loss of the thing deposited on the account of fraud, negligence or delay, would
be void for being contrary to law and public policy. In this case, the bank made the renter sign
a contract of lease but which is actually a contract of deposit exempting the bank from liability
arising from its negligence and the contract obtained a waiver stating the bank is not a
depositary of the contents of the same and has neither the possession nor control of the
same. The bank has no interest whatsoever in said contents except herein expressly provided
and it assumes absolutely no liability in connection therewith. According to the Supreme
Court, this stipulation is contrary to public policy and therefor, it is void. So to recapitulate, the
relationship between the bank and the renter of the safety deposit box is special kind of
deposit. It is not strictly speaking a deposit. It is a special kind of deposit and it is not a contract
of lease and because it is a special kind of deposit, the depository is required to observe the
diligence of the good father of a family in ensuring that the contents of the safety deposit box
although it requires another key from the renter is protected and the primary function of the
safety deposit box is still for the safekeeping of the valuable inside. A contract of deposit may
be entered into orally or in writing. But the contract of deposit is not perfected until the delivery
of a thing deposited.

In the case of Triple V food services vs. Filipino Merchants Insurance, the Supreme Court
held that in a contract of deposit, a person receives an object belonging to another with the
obligation of safekeeping it and returning the same. A deposit may be constituted even
without any consideration. It is not necessary that a depositary receives a fee before it
becomes obligated to keep the items for safekeeping and to return it later to the depositor.
So in the case of Triple V, when the owner of the car entrusted his car to the Triple V
restaurant to a valet attendant while eating at the Kamayan restaurant, the owner of the car
has a customer expected that the car will be returned to him safely at the end of her meal. So
that the Triple V, as the owner of Kamayan restaurant, was constituted as the depositary of
the said car. So that the Triple V, the Kamayan restaurant cannot avail the liability by arguing
that neither a contract of deposit nor that insurance, guaranty or surety for the loss of the car
was constituted when the owner as customer, availed of its free valet parking service. In other
words, the obligation of the depository of safely keeping the car with the diligence of a good
father of the family, stands notwithstanding that the deposit made gratuitously whether it may
be it is gratuitous or for compensation. The obligation of the depository is to take care of the
thing deposited with the diligence of a good father of the Family. Here, the parking claim stub
embodying the terms and conditions of the parking, including the stipulation relieving the
Triple V or the Kamayan restaurant for any loss or damage to the car, is essentially a contract
of adhesion which is drafted or perfected as it is by the Triple V Kamayan with no participation
whatsoever on the part of their customers who merely adheres for the printed stipulation
therein which appears the claim stub. While contracts of adhesion is not void per se, courts
will not hesitate to ruled out blind adherence thereto which they proved to be one-sided under
the facts and under the attended facts and circumstances. So it appears here that the valet
parking, free parking service being provided by the restaurant, is a way in order to entice its
customers. So a safe parking space is an added attraction to the restaurant business because
customers are thereby somehow assured that their vehicles are safely kept rather than
parking it elsewhere at their own risk having entrusted the car to the valet attendant of triple
V, the owner of the car as the customer of the restaurant, fully expects the security of the car
while of the premises of the restaurant expects the same return at the end of the visit to the
restaurant.

Article 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit
the thing with a third person. If deposit with a third person is allowed, the depositary
is liable for the loss if he deposited the thing with a person who is manifestly careless
or unfit. The depositary is responsible for the negligence of his employees.

The reason is ilagay natin sa ibabaw ng 1973, a contract of deposit is a contract of confidence.
Note that the depositary is liable for his employees negligence. Take note that if it is the case
of culpa-contractual, the principle applicable is the principle on the rule on Respondeat
Superior. Which means, If in the case of Respondeat Superior, (always remember this)
applies in culpa contractual. In culpa contractual, the obligor is liable for negligence in case
there is breach of obligation or if there is breach of a contract. For instance in this case, when
there is a breach of a contract when the depositary is liable and the negligence of the
depositary is presumed because there is negligence in the performance of the contract. It is
presumed that the contract is not performed. Once the contract is not performed, then
negligence is presumed. On the other hand in quasi-delict when someone is injured,
negligence is not presumed, negligence must be proved. There is no presumption of
negligence because there is no pre-existing contract of relationship. On the other hand, in the
case of a breach of contract, negligence is presumed by the fact that the contract was
breached. In other words, because of the agreement between the parties whereby the obligor,
commits to perform his obligation in the contract. For instance, in the case of deposit, there
is a contract of the depositor and the depositary, and the depositary commits that he will
safely keep the thing deposited to them. In case the thing deposited is lost or damaged, then
he fails to perform his obligation in the contract and is liable for breach of contract and his
negligence is presumed.

Where does the rule of Respondeat Superior comes in? The rule of respondeat superior will
come in if there is vicarious liability. In other words, where there is employer- employee
relationship. Wherein the employee was the one who committed negligence where the
employee committed the negligence and as the result of the negligence of the employee, the
contract was breached. Then the rule on Respondeat Superior arise when the negligence of
the employee will be considered as the negligence of the employer. And under the Rule on
Respondeat Superior, the employer cannot invoke the defense that he exercise the diligence
in the selection and supervision of the employee. That is irrelevant.

Article 1977. The depositary cannot make use of the thing deposited without the
express permission of the depositor.
Otherwise, he shall be liable for damages.

However, when the preservation of the thing deposited requires its use, it must be
used but only for that purpose.

Article 1978. When the depositary has permission to use the thing deposited, the
contract loses the concept of a deposit and becomes a loan or commodatum, except
where safekeeping is still the principal purpose of the contract.

The permission shall not be presumed, and its existence must be proved.

This is 1977 and 1978 refers to irregular deposit. Take note that under 1978, when the
depositary has been given the use of the thing deposited, then the contract losses the contract
of deposit and beomes a commodatum except where safekeeping is still the principal
purpose. Where the principal purpose is still the safekeeping then it remains the contract of
deposit.

Underline the except where safekeeping is still the principal purpose of the contract.

Article 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;

(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.

Take note, again, put an asterisk in 1979, this is again an exception to 1174, this would qualify
as an exception whereby here, the depositary shall be liable for loss of the thing even if it is
through a fortuitous even. So if it is stipulated, if he uses the thing without the depositor’s
permission, if he delays his return and allows others to use it.

Article 1980. Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.

So take note the relationship between the depositor of the money and the bank and the bank
is a contract of simple loan and contract of deposit. The fiduciary nature of a bank-depositor
relationship does not convert between the bank and its depositors from simple loan to a trust
agreement whether express or implied. So the failure of the bank to pay the depositor is a
failure to pay a loan and not a breach of trust. The lost on the other hand, imposes upon the
bank a higher standard of integrity and performance in complying in its obligation under the
contract of loan beyond those non-bank debtors in the contract of simple loan. It is simply
because of importance of banking industry in our society so that, the banks’ banks are
required to exercise utmost diligence in taking case of the money deposited by the depositor
with the bank but the relationship between the depositor of the money of the bank is still a
contract of simple loan.

Article 1996. A deposit is necessary:

(1) When it is made in compliance with a legal obligation;

(2) When it takes place on the occasion of any calamity, such as fire, storm, flood,
pillage, shipwreck, or other similar events.

Article 1994. The depositary may retain the thing in pledge until the full payment of
what may be due him by reason of the deposit.

This is a case of legal pledge. Remember we talked about the mechanics lien last time
whereby the mechanic may hold the thing, the key repaired as a pledge and he may not be
required to return the appliance until the fee for which he is entitled is paid and he may under
2121.

Article 2121. Pledges created by operation of law, such as those referred to in articles
546, 1731, and 1994, are governed by the foregoing articles on the possession, care
and sale of the thing as well as on the termination of the pledge. However, after
payment of the debt and expenses, the remainder of the price of the sale shall be
delivered to the obligor.

In other words, the pledge here is created by operation of law. Which means that the thing
deposited on his own, in accordance with the procedure of a devotion of thing subject of
pledge. The proceeds thereof under 2121 shall be used in order to pay the unpaid obligation
to depositary and the expenses for the same.

Article 1997. The deposit referred to in No. 1 of the preceding article shall be governed
by the provisions of the law establishing it, and in case of its deficiency, by the rules
on voluntary deposit.

The deposit mentioned in No. 2 of the preceding article shall be regulated by the
provisions concerning voluntary deposit and by article 2168.

Article 1998. The deposit of effects made by travellers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or inns shall be responsible for them as
depositaries, provided that notice was given to them, or to their employees, of the
effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the care
and vigilance of their effects.

Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have
been introduced or placed in the annexes of the hotel.

1998 as necessary. In other words, number 3 to 1996.

Underline annexes of the hotel which includes the parking lot. So there are 3 instances that
would qualify as necessary deposit:

1. When there is a compliance with the legal obligation.

2. Takes place on the occasion of the calamity such as fire, storm flood and other similar
events.

3. When travellers deposit their effects in hotels.

An example of item number one is in pledge. Under the law on pledge, under 2104, when the
creditor, uses the thing pledged without the authority of the owner, the owner or the pledgor
may ask that it may be judicially and extrajudicially deposited. So, the deposit here is made
in compliance of the law. Therefore, it will fall under the necessary deposit. When during the
fire, storm or other calamity and a property is saved by the person without the knowledge of
the owner, an obligation is created from quasi-contract. In other words, when thing is
abandoned in the calamity, then the quasi-contract of negotiorum gestio is created. Likewise
the person who has come into the possession of the thing belonging to another, as a result
of the calamity is constituted as depositary and therefore obliged to safely keep the thing and
to return the same to the owner.

There are two possible contracts created during a calamity:

1. Quasi-contract of negotiorum gestio – When the gestio or officious manager takes

care of the property which is abandoned or neglected. Also, during a calamity by express
provision of law, a person who has come into possession of a thing belonging to another
during the calamity is constituted as depositary and thus he is obliged to take care of it.
With respect to hotel keepers, there is the hotels or inns are constituted as depositaries
of things or valuables that you bring inside the hotels or inns. Provided, the following
requisites are complied with:

1. Notice was given to the hotel or its employees of the effects that are brought by the
guest. That notice is given to the hotel or its employees that the fact certain valuables
have brought by the guest inside the hotel.

2. That the guest takes the precautions which the hotel keepers that the substitute
advised them relative to the care and vigilance of their effects. In other words if there are
 instructions, for instance, the instructions provides that if you have brought inside the hotel
the jewelries, then you must use the vault provided in the hotel room. Therefore, that
would constitute precaution or additional instruction given by the hotel.

Note that a restaurant where meals are only furnished is not an inn or tavern. An inn must be
distinguished from a private boarding house because in the inn, the hotel-keeper does not
have the discretion of choosing his guest. On the other hand, in a private boarding house, the
keeper of the boarding house is at liberty to choose his guest.

Take note in the case of YHT vs. CA, the Supreme Court declared that the actual delivery of
goods to the inn-keepers or their employees, is not necessary before liability would attach to
the hotel keepers.

Remember we mentioned that the law requires that before the liability of the hotel keeper will
attach, certain requisites must be complied with:

1. Notice must be given to the hotel keeper or its employees;

2. That the guest must follow the precautions or instructions by the hotel keepers with
respect to the safekeeping of the guests valuables or materials brought in the hotel.

In the case of YHT Realty Corporation, it is not necessary that the guest actually delivers the
valuables to the hotel or its employees. It is not therefore necessary that these valuables are
actually turned over to the hotel before they can be held liable.

In fact, in the case of Sulpicio Lines vs. Sessante, the rule on necessary deposit applies
to passengers of common carriers. It states that the law is required as the hotel keeper. This
what we discussed last time that the passenger of a common carrier would bring with him:

1. The baggage that he turns over to the common carrier for safekeeping;

2. The hand carried luggage of the passenger that he retains with him and which he
does not turn over to the common carrier.

The former is governed by the common carriers with respect to the safekeeping of goods; the
latter is governed by the rule on necessary deposits. The latter refers to hand carried luggage
referring to passengers.

Similarly, both the hand carried luggage of the passenger and the valuables that guest would
bring in the hotels, they are not actually the turn over of these items are not necessary. Both
in the case of YHT Realty and in the case of Sulpicio Lines vs. Sessante.

In the case of Durban Apartments Corporation vs. Pioneer Insurance, the ponente of this
case is Justice Nachura. The records reveal that upon arrival in the City Garden Hotel in
Makati, the owner of the car who is a customer in the hotel, gave notice to the doorman and
parking attendant of the said hotel about his Suzuki Vitara when he entrusted his ignition key
to the latter. So the employee of the hotel issued a valet parking customer claim stub and the
employee of the hotel brought the car to a parking area near the hotel not exactly in the annex
of the hotel. However, the parking area is the parking area of equitable PCI Bank which
became the annex of the City Garden Hotel when the management of the bank allowed the
parking of the vehicles of the hotel guests in the evening after the banking hours. In other
words, the parking area does not have to be owned by the hotel for as long as there is a
permission by the owner of the parking area being used by the hotel as a parking area or
additional parking area of the hotel. Later, the owner of the car was informed that his car was
being carnapped while parked at the said parking area based on the facts as found by the
lower court, the Supreme Court affirmed that the claim stub issued by the City Garden Hotel,
served as a contract of deposit and that contract of deposit was perfected between the City
Garden Hotel and the owner of the car upon the delivery of the car to the hotel parking valet
attendant of the car. And, meaning the delivery of the key and the car and therefore the
depositary, the City Garden Hotel is bound to observe the diligence of a good Father of the
Family of safely keeping it and therefore, when then car was carnapped, the City Garden
Hotel is liable for the loss of the owner of the car.

Article 2000. The responsibility referred to in the two preceding articles shall include
the loss of, or injury to the personal property of the guests caused by the servants or
employees of the keepers of hotels or inns as well as strangers; but not that which
may proceed from any force majeure. The fact that travellers are constrained to rely
on the vigilance of the keeper of the hotels or inns shall be considered in determining
the degree of care required of him.

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force.

In other words the hotel keeper shall be liable if the loss or injury to the personal property
caused by the servants or employers or the keepers of the hotels or inns as well as strangers.
So this is more than the case of respondeat superior because in the respondeat superior the
employer is liable for the negligence of his employees. Here, the hotel keeper is liable not
only for the negligence of its employees, but also by strangers. So underline “as well as
strangers” because this is unusual. The exception is in case of force majeure.

The fact that the personal property of the guest was stolen, it would fall under acts and another
exception is if the cause of loss.

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the
acts of the guest, his family, servants or visitors, or if the loss arises from the character
of the things brought into the hotel.

Exceptions:
 1. Force Majeure subject to 2001;

2. If it is due to the act of the guest himself or his Family or servants or visitors;

3. If it arises from the character of the things in the hotel.

In order words, kung ang dala mo ay nabubulok, the hotel cannot be made answerable for
that. So, the rule is, the hotel keeper or inn shall be liable for the loss of or injury of the
personal property of the guest even if it is caused by the servants or the employees of the
hotel, or even if it is caused by strangers; except:

1. Force Majeure

2. Acts of the guest or the guest himself;

3. The family of the guest or visitors or servants or

4. Arises from the character of the things of the hotel.

Article 2003. The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of the
former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void.

Take note in this necessary deposit, you have to give this to this Chapter more importance –
the necessary deposit. Also with respect to 2004,

Article 2004. 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 usually
furnished to hotel guests.

2004 is to retain. Again, this is a kind of pledge by operation of law. 2003 is an exculpatory
notices and conditions will not exempt the hotel from liability. Take note that under 2004, in
order for the hotel to exercise his so-called right of retention, 2004 lagay sa ibabaw right of
retention. Note that in order for the hotel keeper to exercise his right of retention, it is not
necessary that the hotel keeper has acquired physical or constructive possession of the
things brought into the premises of the hotel or inn. It is enough that these things are brought
in the hotel. It is not necessary that the hotel keeper is able to take physical possession pr
constructive possession of the things brought in the premises of the hotel. It is enough that it
is brought into the hotel.

On the matter of judicial deposit or sequestration, read the case of Superlines

Transportation vs. PNCC, that according to the Supreme Court in this case, if in this case
the car or the bus was involved in an accident and therefor subject to investigation. The SC
in this case found that the act of the police of impounding the car, has being violative of the
constitutional provision of unreasonable search and seizures which means that before a thing
may desist, there should be a warrant of seizure issued by the judge after showing probable
cause that a crime has been committed. However, in this case, while the act of impounding
the bus by a patrolman conducting an investigation of the accident was not valid. However,
SC said that the act of patrolman in turning over the bus with the PNCC storage area is a
contract of deposit. So the police authorities to patrolman having turned over the bus to the
PNCC to safety, the contract of deposit was perfected between them and the respondents.

Next meeting, we will take up contract of securities. 2 kinds of contract of securities:

We have personal securities which are guarantees and sureties and the second kind will be
real securities including pledge, chattel mortgage, real estate mortgage and antichresis.

_________________________________________________________________________

Class Notes for June 8, 2021: (Sha)

DEPOSIT:

-1962: focus on the fact that the contract of deposit is intended for the purpose of safekeeping
of the thing delivered by the depositor to the depositary

-Note: remember in commodatum, the principal purpose of the contract is the gratuitous and
temporary use of the property lent by the lender to the borrower; in the case of lease, it is a
consensual contract, whereby the lessor binds himself to allow the lessee the temporary use
of his property in exchange for a price called the rent; take note also that in agency, if you
distinguish agency from deposit, the agent of a thing entrusted to the agent for sale, the agent
is given the custody of the thing and the agent is given the authority by the principal, in order
to represent and for the agent to act on behalf of the principal, to perform juridical acts;

-Mamaril vs. Boy Scouts of the PH → owners of six jeepneys entered into a relationship with

the BSPH to allow its jeepnesy to be parked at the end of the day for the monthly rent of P300

per unit; the owner of the jeepney would take the keys home (they would bring the keys home

and would not leave the keys to the security); according to the SC the contract entered, is a

contract of lease of a parking space; similarly in the case OSG vs. Ayala Land, the SC said

that in the case of vehicles parked in the mall parking areas, the contract entered into would

either be a deposit or a lease; it is a deposit in the case of valet parking relationship whereby
the owner of the vehicle would entrust the vehicle plus the key to the attendant, in exchange

for compensation because deposit although it is essentially gratuitous, can also be a

business; in OSG vs. Ayala, the SC said it is a lease if the owner of the vehicle would leave

the vehicles in the parking areas of the mall taking with them the key in that instance, the

owner of the vehicle is simply leasing a parking space from the mall

-PH vs. Montemayor → the students who are being required to make a deposit by teh school

for a sum of money as security or guaranty for the equipment that may be broken in the
laboratory of the school; the SC said it is a contract of loan ,because the university acquires

ownership of the money and apply the same to the cost that will be incurred by the university

for broken equipment and materials of the university

-Rental Control Act → two instances where the term deposit was mentioned

1.) Section 7: the lessor may be allowed to in addition for asking for advance rental;
allowed to ask from the lessee a deposit not exceeding two months; the principal
purpose of the deposit under this act, is not for the safekeeping of the money but to
serve as a security in the event that the lessee fails to settle the rent, electric, etc. bills
or if any components or accessories will be destroyed during the occasion of the lease
2.) “Deposit” → that the lessee may consign, may deposit by way of consignment, rent in

arrears and the deposit or consignment may be made either with the court, barangay

chairman, or with the bank → here, the principal purpose is not for safekeeping, but for

the payment of the rent in arrears

-Case of San Miguel vs. Sps. Juang → the SC said that the deposit given by a prospective

buyer of a property (condo or house and lot) to developer or seller of condo or house or the

subdivision developer, although termed as deposit, but the principal purpose is option money;

the deposit was given in order to guarantee that the buyer will not back out of the sale and

eventually the 1 million given as deposit will serve as earnest money → note: option money is

a consideration in a option contract when the buyer is given the option within which to decide,

and the seller will hold the option in favor of the buyer during the period and that the seller
will not offer the property to other individuals; on the other hand, here it is an option money it

is a money deposited prior to perfection; earnest money if it is paid at the time for the

consideration - downpayment and forms part of the purchase price of the sale

-BPI vs. IAC → Bobby Rizaldy (a movie actor), entered into a contract with commercial bank

and trust (acquired by BPI), and he deposited with commercial bank an amount of three

thousand USD and it is for safekeeping; according to SC: the subsequent acts of the parties

show that the intent of the parties was to safekeep the dollars and to return it at a later time;
so that the acts of the bank and not being able to return when demanded, would constitute in

a case of misappropriation of money considering that in deposit, the act of the depositary in

appropriating the thing deposited, will amount to estafa; while in loan or in simple loan, or

mutuum, the borrower becomes the owner of the property and only obligation is to pay the

money borrowed

-A deposit is a real contract which means that it is perfected upon the delivery of the thing
deposited; there is a however also, although the contract of deposit requires the delivery of
the object, parties may nevertheless enter into an agreement to deposit something in
the future; prospective depositor binds himself to deposit something in the future;
here, there is a consensual contract that is perfected to deposit in the future; it is
binding upon the parties, and may result in the parties who failed to perform his
obligation to be liable for damages

-Deposit is a gratuitous contract, unless the depository is engaged in the business of storing
goods

-Types of deposit:

1.) Voluntary
2.) Necessary
3.) Judicial or sequestration
4.) Irregular deposit

-1968: when two persons are contending to ownership of thing and agree to deposit it with
third person within the meantime = action for interpleader; they file an action for interpleader;
they place the thing with a third person, so that after the action has been decided or in the
event that they will agree to compromise, then that is the only time that the depository may
be required to deliver to the party that the favorable decision is with - to recover the thing
deposited

-Case of CA-Agro Industrial vs. CA → question: is the contractual relation between a

commercial bank and another party in the contract of rent of a safety deposit box, with respect

to the contents, one of bailor or bailee, or one of lessor or lessee ( whenever we rent a safety

deposit box; what is the contract we enter with the bank?)

In this case, the renter entered into or was asked by the bank to sign a contract of lease,
which provides that among others, 1.) bank is not a depositary of the contents of the safe -
not a contract of deposit; and it neither has possession or control of the safety deposit box;
2.) bank has no interest in said contents of the safety deposit box, expect as provided and it
assumes no liability in connection therewith; the intention of the bank is to agree with the
renter that the contract entered into between them is lease;

-Note: when we rent a safety deposit box: there are two keys → given to the renter and the

other one is kept by the bank (not for the same hole, but for different holes but they must be

used if both keys must be available if the renter would like to open and put something in the

SDB); you need to ask permission of the bank officer and will send someone with you to lead

you to the SDB and will key in the key apart from the renter’s key →

- in this case, the renter has placed inside the SDB certificates of title; after some time the
certificates of titles were lost while inside the SDB; question: if it is a deposit, then we will
apply the rules on deposit; if it is a lease, then the lessor will not be liable for the lessor of the
thing (the possession of the property subject of the lease is with the lessee during the period
of the lease)

-According to SC: the contract for the rent of SDB is not an ordinary contract of lease - the

SC also said that it is not also strictly speaking a contract of deposit; it is not a contract of

lease because the full and absolute possession and control of the SDB was not given to the

renter - the guard key remained with the bank (without the guard key, the renter could not

open the box) on the other hand, the bank could not also open the box without the renter’s

key; note: in this case, the primary function as found by the SC still falls within the parameters

within the contract of deposit (receiving objects for safekeeping); the renting out the SDB is

not independent but related to the function of safekeeping; according to the SC, the SC tilted
its decision in favor of a contract of deposit and not of lease - in addition, the SC said being

the depositary, the bank is required to observe standard diligence in ensuring that the objects

deposited in it will be kept safely and protected; besides, the SDB remained in the custody of

the bank except that the renter has a key; but overall, it is a contract of deposit and the

depositary, if he commits a breach of his obligation as a depositary (delay, fraud, negligence)

he shall be liable for damages; in the absence of any stipulation for the degree of diligence,

standard diligence is observed - stipulations that the bank made the renter sign exempting

the depository from liability arising from the loss of the thing on account of fraud, etc. → they

are void for being contrary to law and public policy; it is not correct to assert that the bank has

neither the control or the possession of the SDB, because the SDB is within the premises of

the bank (the renter cannot just simply open the SDB without the bank’s guard key)

-1972:

-1973: contract of deposit is a contract of confidence

-1977:

-Triple V food services vs. PH Merchants → Triple V is the owner of Kamayan Restaurant,

and that sometime in 1997 a customer went to Triple V and the Kamayan Restaurant provided

a valet parking service, whereby the customer of Kamayan would leave its vehicle together

with the key to the valet parking attendant, so that it would be convenient for a customer who

will just simply get inside and have his meal, and when he gets out, the car would be returned
to him when he gets out of the restaurant of the front door of the restaurant (it is an enticement

to the customers) → the problem with the case of this customer; after her meal, it was found

that her vehicle was carnapped and was never recovered; according to the SC, when the

customer entrusted the car to the valet parking attendant, the customer expected the car’s

safe return; so the restaurant was constituted as a depositary of the said car; and the business

cannot evade liability by arguing that the contract of deposit which is the parking claim stub

that it issued to the customer, contained a stipulation exempting the restaurant from liability

and that the customer waives any claim to indemnity for the loss or damage of vehicle; the
parking claim stub according to the SC, is essentially a contract of adhesion (customer merely

adheres to the stipulation) → while contracts of adhesion are not void per se, the SC however

will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the

attendant facts and circumstances; so according to the SC, the business must not be allowed

to use the parking claim stubs as a shield from any responsibility or liability; the SC also noted

that the valet parking fee services of the business or was part of the enticement for customers;

a safe parking space served as an added attraction to Kamayan’s restaurant

-The distinction between culpa contractual and quasi-delict

-Rule of respondeat superior vs. bonus pater familias → rule of respondeat superior is the

principle being adhered to in culpa contractual; the reason why the rule of respondeat

superior is applicable, because in culpa contractual where there is negligence on the part of

the obligor in the performance of his contract, there is a presumption of negligence; the

negligence is presumed. Unlike in the case of torts, where the negligence must be proved

and not presumed; so that, in the case of a depositary, if an employee meaning if the obligor

uses an employee as the actor (the employee committed negligence), the presumption is,

the negligence of the employee will also be the negligence of the employer; in the case of

quasi-delict, if the employee is also negligent, employer is also presumed to be negligent

-Culpa contractual → employer cannot assert the defense of a good father of a family in the

selection and supervision of employees

-2180 = employer may invoke defense; can be exempted from liability if he is able to
prove that he is able to exercise the diligence of a good father of a family

-Deposit → employer cannot exercise the defense of bonus pater familias under Article 2180;

because the rule applicable to deposit is the respondeat superior (Article 1973); however,

bonus pater familias will only reduce liability but not exempt him

-Huang vs. PH Hoteliers Inc. → in breach of contract, negligence is presumed so long as it

can be proved that there was a breach of contract and the burden is on the defendant (obligor)
to prove that there was no negligence in carrying out the terms of contract; rule of respondeat

superior is followed; liability involved derived from breach of obligation - irrelevant for the

employer to prove that it had exercised due care in the selection and instruction of the

employee; once employee is negligent, conclusively, the employer is negligent

-2180 = employee is negligent, the employer IS ONLY PRESUMED TO BE NEGLIGENT;

the employer may still be exempted from liability if he can show that he exercised
diligence in the selection and supervision of employees (applicable lang ito sa quasi-
delict)

-contract of deposit → negligence of the obligor will fall under the rule of respondeat superior

-1977 and 1978 → refers to irregular deposit; meaning, generally speaking the depositary

cannot use the thing deposited without the express permission of the depositor; otherwise

liable for damages; when the preservation of the thing deposited requires its use, it must be

used but only for that purpose (ex.) car or machine that must be checked operated upon once

in a while, then the use is authorized but only for that purpose)

-Under 1978: when the depository has permission (irregular deposit) → becomes a loan or

commodatum; except when safekeeping is still the principal purpose of contract

-1979: (similar to the case of commodatum) → where the borrower may be liable for fortuitous

event; the depositary may also be liable regardless of the fortuitous event (additional

exceptions to 1174)

-1980: deposits in the bank; relationship is simple loan

-1994: (case of pledge constituted by operation of law) → we talked about the mechanic’s lien;

this is another situation when a legal pledge is constituted in favor of the depositary (1994);

here, the depositary may retain the thing in pledge until the full payment what may be due to

him by reason of deposit by operation of law (retain the thing as form of security); even if the

contract of deposit is gratuitous but expenses for preservation for thing deposited will be
charged against depositor; so if the depositor will not reimburse, for that reason the depositary

may retain thing by way of pledge

Necessary Deposit:

-1996:

-1997:

-1998:

-1999:

-Necessary deposit vs. voluntary deposit → the first situation is, when the deposit is made in

compliance with a legal obligation; an example would be in the case of pledge, when the

pledgee is using the thing pledged, then the pledgor may ask that the thing pledged, will be

placed in extrajudicially deposited in order to protect the thing pledged; so it is in compliance

with a legal obligation; second: when it takes place in a calamity → a property is saved from

destruction by another person, without the knowledge of the owner, a obligation created in

the source of which is quasi-contract (in quasi contract of negotiorum gestio = abandoned

business is taken care of by an officious manager; the manager is required to observe

ordinary diligence in taking care of the property that is placed in his custody)

-In addition, under the chapter 2 on necessary deposit: the person who has taken the custody

of a property which was saved from a calamity, he is constituted as a depository → he is also

required to exercise due diligence in the safekeeping of the property that was placed in his

custody, whether voluntarily or accidentally for as long as he has come into possession of the

thing in the occasion of the calamity, he is required to keep the thing safely until the owner

arrives

1.) Voluntary = quasi contract (negotiorum gestio)

2.) Necessary = the deposit is necessary when it takes place in the occasion of any
calamity (fire, storm, etc)
*in both cases, the officious manager are required to exercise ordinary diligence in the
safekeeping of the property

3.) Hotel keepers → if a valuable thing is brought inside the hotel guest in the premises of

the hotel, it is not necessary that the valuable is turned over to the hotel or to the hotel

employees; it is enough that the thing is brought inside the premises of the hotel; once

brought inside, the hotelkeepers shall be liable for loss or damage or that thing,

provided these two requisites are compiled by the guest:

a.) 1.) the guest has given notice to the hotelkeeper or its employees of the effects
that are brought inside the hotel; (no need to turn over to hotel; may remain in
the room)
b.) 2.) that the guest has taken precautions which the hotelkeepers have advised
them relative to the care and vigilance to their effects

Example of second requisite: The hotel will advise you that if you have jewelries, please place
them in the vault; if you do not comply with the precaution, then you failed to comply with one
of the requisites for the hotel keeper to be liable for the loss and damages brought inside the
hotel

-YHT Realty Corp. → the actual delivery to the goods to innkeepers or employees is not

necessary before liability could attach in the event of loss of personal belongings of guests;

-Sulpicio Lines vs. Sesante → when we discuss 1754 on common carriers, that there are two

kinds of luggages that are brought by the passenger of common carrier: 1.) actually turned

over and placed in the cabin of the ship or plane; 2.) hand carried luggage that are not turned

over to the plane or ship = the first kind of luggage will be covered by the common carrier’s
responsibility to ensure the safety of the goods and to ensure that the goods are brought to

the destination safely; second kind of luggage: governed by the rule on necessary deposit in

the case of valuables brought inside the hotel premises; common carrier in this case is

constituted as a depositary with respect to the personal luggages and that remain in the

passenger’s possession → notification was not necessary to render the common carrier liable

for the loss of personal belongings by allow him to board in the same manner that a guest

was allowed to check in the hotel, by allowing a passenger to board the vessel with his
belongings without any protest, the vessel became sufficiently notified with regard to the

belongings; for as long as the belongings are brought inside the vessel, the owner of the

vessel is therefore informed and must ensure the safety of the belongings during the voyage

-Durban Apartments vs. Pioneer Insurance → (Justice Nachura): one evening, a hotel guest,

checked in City Garden Hotel in Makati; and turned over to the valet parking or to the valet

parking attendant a Suzuki Vitara upon whom he also entrusted the key; the hotel parking

attendant gave the customer a customer claim stub; brought the vehicle and parked the same
in the parking area of Equitable PCI Bank near or beside the City Garden Hotel; it turns out

that the City Garden Hotel (there was an arrangement between the bank and CGH = in the

evening is being allowed by the bank to use its parking area when the bank is closed); the

car was carnapped and was never returned to the customer of the hotel → according to the

SC, there was a contract of deposit; the PCI bank parking area operated as an annex of the

hotel, and therefore the responsibility of the hotel extended to the parking area to ensure that

the parked vehicles of its hotel guests will be kept safely and returned to hotel guests when

needed and when he checks out from the hotel; clearly, the SC said that the CGH is liable for

the loss of the hotel guest vehicle

-2000

-2001

-2002

-2003

-The rule is clear that the hotel keeper is liable for the loss or damage or injury to the personal

property of the guest which includes vehicles; and, it is liable even if it is caused by the

servants or employees of the hotel; it is also liable even if it is caused by strangers (additional

responsibility); the same is true with respect to common carriers (even if caused by

employees or strangers; if by the exercise of diligence, it could have prevented the injury) →

similarly, there is no exempting circumstance except force majeure; in fact, the notices will
not exempt the hotelkeeper from liability (it is still liable for the loss or injury of personal

property of the guests; not exempt even if it is caused by employees, strangers, exculpatory

notices placed in the hotels) → only exempting circumstances: 1.) case of force majeure (not

a case of force majeure if it is an act of a thief or robber = considered as a stranger; unless

used firearms or through irresistible force); 2.) if under 2002, the loss is due to the acts of

hotel guests himself, family, servants or visitors; 3.) if the loss is due or arose from the

character of the thing brought inside of the hotel

-2004 (VIP) → right of retention is a nature of a pledge and therefore under article 2121 and

2122 (similar to the case of commodatum and depositum) the hotel keeper may undertake

an auction of the personal property of the hotel guests in case the hotel guests fails to settle

his bills and he needs to pay to stay; note: not necessary to exercise the right of retention
that the hotel has acquired physical or constructive possession of the things brought
in the premises of the hotel before it can exercise the right of retention; enough that
these belongings are brought inside the premises of the hotel

-Matter of sequestration and deposit → superlines transport. Vs. PNCC = a bus was involved

in an accident and while it was being investigated, it was impounded by the police; according

to the SC: the right of the police to impound a vehicle is governed by the provisions of the

Constitution on unreasonable searches and seizure (before one could search or seize a

vehicle or property, then generally speaking, there should be a warrant issued by the court

after finding probable cause); in this case, the patrol man who conducted the investigation,
impounded the vehicle and turned over the vehicle to the PNCC storage area; SC: while it

may be true that seizure when the policeman who seized the bus was probably without a

warrant, and illegal → however, when he turned over the same to the PNCC, a contract of

deposit was entered into, and it is presumed to be valid; PNCC storage had legal basis to

hold onto the bus until the expenses in the safekeeping of the bus are settled

________________________________________________________________________

June 9 , 2021 - Caryl

2047

Guaranty is an accessory contract/ accessory obligation.

2 kinds of security

1. Personal

2. Real

Guaranty is personal

Whereas, pledge, mortgage, CM are real securities because there is a property identified or
delivered to the in case of pledge, delivered to the pledgee. In CM, an instrument off CM is
executed or registered in a Chattel Mortgage Registry.

Because it is an accessory contract, it depends upon the existence of principal obligation and
the same is both for both the guaranty and suretyship.

It is subsidiary and conditional because the guarantor is liable only on the inexistence of the
principal contract. The guarantor is entitled to the benefit of excussion.

The guarantor may only be required to pay if the writ of execution against the principal creditor
is returned unsatisfied. It means that the guarantor is entitled to benefit of excussion. That is
why it is subsidiary and conditional.

The contract of guarantor is consensual. It is perfected by mere consent. Guaranty is

enforceable only if it is in writing. In statute of frauds, stated the special promise to answer
the default of the debt of the other.

Obligation of the guarantee became effective only if the principal debtor cannot pay the loan
subject of the obligation.

Under 2047 (2nd par) , referring to solidary obligations, in such a case called contract of
suretyship. In suretyship, a person binds himself solidarily liable with the principal debtor. The
creditor may proceed to any solidary debtors all or simultaneously. The suretyship is also
covered by statute of frauds. Surety is also an accessory contract of a collateral of the
principal obligation. However, his liability to the creditor is direct and/or equally bound to the
obligation to the principal creditor. However, before the law, looks at surety as being the same
party as the debtor himself. A surety is not entitled to the benefit of excussion. The liability of
the surety is joint and several with the principal debtor.

When the surety pays the principal obligation , he is entitled to the entire amount of the debt.
Whereas, a solidary debtor is only entitled to his share in the obligation. He can only demand
his proportionate pay.
A performance bond is a kind of surety agreement that will faithfully comply in case of the
contractors failure to perform.

Surety is liable to the debtor without the benefit of excussion. After he sued and there is a
judgment, the debtor has to be notified of the suit.

In the case of the surety, the moment the debtor fails to pay, you may demand the surety of
the payment.

Both the guarantor and surety are accessory obligations. Both as principal debtor. If you go
to the guarantee, the latter may raise the benefit of excussion and needs judgment before
you can go after him.

2 things:

1. Make a demand from the guarantor

2. Final judgment that the debtor is insolvent

On surety and guaranty, both are collateral and conditional. In fact, with respect to the surety,
the creditor is not required to send a notice of default; the filing of a suit is sufficient notice;
the creditor can always go after directly to the surety. The surety has a direct contract to pay
the creditor. Liable without any demand. Considered a debtor from the very beginning.
Considered to know the default of the principal.

How do we distinguish a solidary guarantor and solidary debtor?

Both are guaranteed. The surety binds himself solidarity with the principal debtor. A surety
promises to pay the debt directly. In guarantee, if the principal debtor is unable to pay, the
solidary guarantor will be released from his obligation if the creditor extends his credit to the
principal debtor without the knowledge of the guarantor.

A guaranty may be conventional.May be entered into even without the knowledge of the
debtor; the guaranty may be legal if required by law; judicial if by court; indefinite if it covers
principal obligations and after it is used to pay. Limited to the amount fixed on the agreement
of the guaranty. He may be liable to damages if there is delay. Remember 2209. This does
not violate the contract of guaranty.

2054 – meaning the guarantor cannot be made to pay more than the amount agreed upon to
pay. An exception is that if he is in delay or refuses to pay, the interest or damages.

2053 – Continuing guaranty – A guaranty may be entered into today but may also cover the
debts incurred in the future. You can only be made to pay for the amounts liquidated.
2049 – Take note that a guaranty is a personal security. With respect to ACP/CPG, the
spouses cannot enter into a contract of dominion or sale. Husband and wife may enter into a
contract of guarantee but they cannot bind the properties in acp/cpg unles redounded to the
benefit of the family.

With respect to the exclusive prop of the other spouse, either of them may dispose without
getting the consent of the other.

2050 – Rule on 1236 & 1237 on payment. He can only demand payment if the debtor is
entitled to the benefit.

What are the qualifications of the guarantor? Art. 2056

3 req. for a guarantor to qualify as such:

1. Must be capable of entering into a contract.

2. Sufficient property to answer the guaranty.

3. Must possess integrity

Not that the guaranty cannot exist without the principal obligation. Voidable or
unenforceable may be an object of guaranty.

The rule is, the guarantor can bind himself for less but not more than he can bind the
debtor. If he is required to bind more, it will simply be reduced but not more. It is illegal if
he guarantees a larger amount. The guarantor cannot be also made to pay off the prior
obligations.

2 privilege of guarantor

1. Excussion

2. Division

Benefit of ecussion prvides that no execution until the writ of execution has not been satisfied.
The writ must be returned unsatisfied. The guarantor must interpose it as soon as the debtor
be required to pay. Properties must be in the PH. If the creditor neglects the property, then
the C is liable for the value of the property. The benefit of excussion may be waived or if he
is solidarily bound or declared insolved. Cannot be sued because the guarantor absconded;
or would not resolve to the satisfaction. When the guarantor interposed the benefit of
excussion.

Benefit of division is present when there are several guarantors with respect to one or the
same debts. He can claim because there are several uarantors, each of them shall be liable
jointly. If there are 5 guarantors of the same debt then it must be divided into 5. The creditor
may claim only the proportionate share of the debt unless they bound themselves liable
solidarily. Once the guarantor paid the debt, he is entitled to be indemnified even if without
informing the debtor of the total amount, the legal interest and expenses, including lossess
and damanges. He is also entitled to be indemnified of the legal interest plus expenses
incurred by the guarantor plus damages. Entitled to be subrogated to all the rights of the
creditor. Subrogation takes effect by operation of law (legal subrogation).

There is also counter guarantee or co- guarantee and they may claim the benefit of division.
Sub-guarantee is entitled to the benefit of excussion before the creditor may go after the sub
guarantor.

Modes by which a guarantee may be extinguished:

1. When a creditor is negligent in exhausting the properties available

2. Impossibility of subrogation

3. Where there is extension of payment which deprives the debtor to sue, then the
guarantee is released. Only without the consent of the guarantor.

4. Proposes a dation of payment. Even if the debtor is evicted from the property. The
only recourse is to run after the principal debtor. But the guarantor will be released.

5. In case thee creditor has condoned thee debt

6. Remission is condoned without the permission of other guarantors

No benefit of excussion in judicial guaranty.

2073 - Benefit of contribution; co-guarantors shall be liable in their proportionate shares.

Pledge

Common characteristics of pledge

They are constituted to secure fulfillment of the obligations as accessory obligation. The only
need is the validity of the obli. May be future like continuing guarantee. The pledgor or the
mortgagor must be the absolute owner of the thing pledge otherwise void. Also required that
the person making the mortgage must have free disposal or authority to do so.

The things pledged or mortgage may be sold at the instance of the creditor. Not allowed if the
pledge is in pactum commissoum. Allowed for the debtor to propose a dation in payment that
the property will replace the payment that will have to be respected by the debtor. A pactum
commissorium is a pledge or contract that the pledgee will automatically acquire the property
upon insolvency. In dation, the proposal must first be made. No stipulation of automatic
ownership.

2088 – is pactum commissorium

The creditor must apply the fruits to the interest for the principal of the debt. Pledge and
mortgage are indivisible. Partial payment does not entitle discharge except the property
subject of the pledge specifically pertains to the determinate portion of the credit.

A pledge is an accessory contract; it is a real contract; unilateral contract.

Only movables may be subject of the pledge. A pledgor is like a guarantor. In guaranty, once
the guarantor has paid the principal debtor, he is entitled to be subrogated of all the rights of
the debtor Similarly, the pledgor, has the rights of the guarantor. Pledgor is entitled to
reimbursement and subrogation. Movable properties may be subject of pledge. Documents
may be subject of a pledge.

****2112 – rule on the second auction.

Pledgor or the owner must be given notice and should participate in the bid. Pledgee may
also bid, but his offer shall not be valid if he is the only bidder.

*****2115 – not entitled to the excess ; if there is deficiency, the pledgee is not entitled to
recover.

2102 – Fruits and animals will also be subject of the pledge if the thing is pledge also its
accessories.

The pledgee has the right of retention until the debt is paid.

Note the rights of the pledgor. If you are the owner of the thing pledged, you are entitled to
his right.

2097 –

2096 – The possession of the thing subject of the pledge remains with the pledgee. Entitled
to preference at the foreclosure sale. He may also demand either judicially or extrajudicially.
Lastly, he may substitute if endangered without the fault of the pledgee.

2107 – Right of substitution

2104 – Deposit
Mortgage, chattel and rem the gen pri and antichresis and extra contractual quasi c and delict
damages

________________________________________________________________________

Class Notes for June 10, 2021: (Sha)

GUARANTY:

-What are the contracts of security?

-So contracts of security → either personal or real

-Personal; guaranty or suretyship → so the faithful performance by the debtor of his obligation is

secured simply by personal commitment of another person referring to guarantor or surety

-Real security → we have pledge, mortgage and antichresis; the fulfillment of the obligation is

secured by an encumbrance of property (there is a property that is identified and used as a

guaranty for the faithful performance by the principal debtor of his obligation to creditor)
-Ex.) In pledge, if the moveable property is placed in the possession of creditor = the moveable
property is delivered to the possession of creditor; pledge is also a kind of real contract, because
in pledge the contract is perfected only when the thing is actually delivered in the possession of
the creditor
-In chattel mortgage: it requires the execution of chattel mortgage contact → registered in the

chattel mortgage registry (there is a registry book provided by law for CM contracts; it is in the

office of the Register of Deeds)

-Real estate → public instrument that encumbers are real property (unlike in a CM where the

properly encumbered is movable)

-Antichresis → a written instrument is required; does not need to be notarized, but requires a
written instrument granting the creditor the rights to enforce the fruits of the immovable property

(apply fruits to payment of interest) and thereafter to the principal

-If in a antichresis, in the absence of written instrument specifying the amount of principal of loan
= contract is not valid

-2047 → a guarantee is an accessory contract; why?

-The obligation of a guarantor is subsidiary; what does this mean?
-Guaranty is an accessory obligation → existence depends upon a principal obligation; if the

principal obligation is extinguished, guaranty is extinguished too

-Guaranty does not need a separate consideration = guarantee and debt shares the same
consideration
-It is a subsidiary and at the same time conditional → guaranty is conditional together with

suretyship, because its obligation to pay the debt would only become effective if the principal

debtor fails to perform its obligation; so it is a positive suspensive condition; becomes its obligation

(arises) in the event that the principal debtor fails to perform obligation

-Guaranty → subsidiary = because of the benefit of excussion; when debtor demands the payment

of obligation, it may interpose as a defense the benefit of excussion (to require the creditor to

exhaust properties of the debtor before it can be proceeded upon); when the guarantor interposes

the benefit of excussion it should also be able to point out properties leviable properties within the

jurisdiction of the RP → if you guaranty for someone of a loan, then the creditor demands from

you the payment of the obligation (if it claims that the debtor is unable to pay) you should be able

to interpose or invoke the benefit of excussion but at the same time, point out available properties

sufficient in value that may be levied upon by the creditor; otherwise, you cannot impose the

benefit of excussion if the debtor is insolvent = this is when the guarantor cannot interpose the

benefit of excussion

-Obligation is simply subsidiary = you can guaranty the obligation of your friends, for as long as

you know your friends have the capacity to pay the obligation; the scary thing is if you put up a

surety bond in favor of your friend then this is a different story → surety: liable solidarily with the

principal debtor

-Guaranty → unilateral contract: derives obligations on the part of guarantor in relation to creditor;

although, the fulfillment gives rise to obligations of guarantor with respect to debt; takes place

without intervention of debt; it is unilateral because if the obligation is only on the part of the

guarantor, then there is what is referred to as right to claim for indemnity (subrogation), but mainly,

guarantee is unilateral because it is one sided (guarantor alone, who commits that in the event

that the principal debtor will not pay, he will pay → even if the debtor is not aware; you’re parents

would normally do this if they will indorse you to a friend to borrow if you have a project, and your

parents will say “don’t worry pautangin mo sila and i will guarantee”); the guarantor does not need
to secure the consent of the debtor → a guarantee may even exist even when the debtor is not

aware of it; even if the creditor will not accept it

-1236 and 1237 → the implications differ if the payment is with the knowledge or consent of debtor;

but the third person may pay the obligation of another person provided that if he pays without the

knowledge or against the will of debtor → limited reimbursement (no subrogation in the rights of

creditor)

-VIP → take into consideration; guaranty is consensual but it is an unenforceable unless in writing;
because a guaranty falls under the ambit of statute of frauds (1403 (2)); a special promise to

answer the debt default or miscarriage of another person; this item under 1403 is a guaranty → it

is a conditional promise, it will not arise unless and until the principal debtor fails to perform his

obligation

-What is a surety? → also a special kind of guaranty = guaranty and suretyship falls under the

generic term “guarantee”; except that it is called a suretyship if the guarantor (the person - also a

guarantor) is now called a surety; under the contract suretyship → the surety or the obligor binds

himself solidarily with the principal debtor, and because he binds himself solidarily then the

provisions on solidary obligations (section 4, Chapter 3) applies to him; the creditor may proceed

against him without joining the principal debtor; and, because he is solidarily liable, he is not

entitled to the benefit of excussion

-Simply: the guarantor is liable if the principal debtor is unable to pay his obligation or insolvent;
on the other hand, the surety is liable if the principal debtor fails to pay or rather, even if he simply
decides not to pay = no need of proof that he does not have property or he is insolvent; on the
other hand, in guaranty, the guarantor is liable only if the principal debtor is unable (does not pay
and could not pay); surety is liable if the principal debtor does not pay his obligation (even if he is
solvent)

-The guarantor may only be proceeded against by the creditor, after a judgment is obtained with

finality against the debtor and a writ of execution is issued and returned and satisfied; when is the

guarantor liable to the creditor? → only after there is a final judgment rendered against principal
debtor and writ of execution is returned and satisfied = meaning, only if it is shown that he could

not or unable to pay his obligation

-In suretyship: surety becomes liable to creditor without the benefit of excussion; he may be sued
independently; an insurer of the debt (assumed or undertaken a responsibility greater or more
onerous than that of a guarantor, who is merely an insurer of the insolvency of the debtor)

-In fact with respect to surety, the demand or notice of default on the part of the principal debtor

is not required → Prior to filing an action against surety to claim payment of debt, the creditor is

not required to give the surety a notice of default or a demand; because he is a principal debtor

himself (liable solidarily); presumed to be aware with what is happening to the affairs of the

principal debtor → he is as liable as a principal debtor

-Note: a surety may be released from obligation → material alteration of the contract in connection

with the surety bond; for instance if there is a change which imposes new obligation on the surety

changing the legal effect of the contract and not merely a form

-Surety assumes liability as a regular party to the undertaking; liability of guarantor on the other

hand, is subsidiary and it depends on the primary debtor’s ability to pay the obligation → so the

obligation of the surety is primary while the obligation of the guarantor is merely secondary; so

the surety being a primary obligor, he is held to know or presumed to know every default or the

fact of the default of the principal; guarantor is not bound to take notice of the non performance

of the principal

-2049: except in case provided by law → phrase in the FC, that a spouse generally speaking

without the consent of the other, cannot bind the property of the ACP or CPG, without the written

consent of the other; except if it has redounded to the benefit of the family; remember with respect

to administration, the H and W shall jointly administer the ACP or CPG of the family, with respect

to performing acts of dominion (requires the written consent of the other); with respect to entering

into any contract, they can enter into any contract, but cannot obligate the property belonging to

the ACP because it is an act of dominion without written consent of the other; simply a contract

of guaranty (personal commitment and no property encumbered) = the H and W (no distinction
under the FC), then it will only result in the ACP or CPG being bound if the contract redounds to

the benefit of the family; otherwise, it is charged against the H or W’s exclusive or paraphernal

property → the rule is, they can enter into a contract of guaranty, provided that it will bind the

property of the ACP or CPG for as long as the contract shall redound to the benefit of the family

(charges in the ACP)

-2050 → in relation to 1236 and 1237 = limited reimbursement; recovery to the extended to the

benefit of the debtor; if consent is there = entitled to full reimbursement (indemnification +

subrogation of the rights of the creditor, including accessory obligations attached)

-2052: guaranty is merely an accessory contract → cannot exist without a principal obligation; on

the other hand, if it is a voidable contract (entered into a minor) can be subject to a guarantee

(valid until annulled); unenforceable contract = perfectly valid (but cannot be enforced before the

court); natural obligation = voluntary performance (creditor may retain what has been delivered

or paid)

-2053: guaranty given to secure future debts → secures all transactions including the future;

description and contemplation of the contract of guaranty until the expiration or termination of

guaranty; not limited to a single transaction; in modern business scenario, continuing guarantee

is usually being availed of by a businessman if they are getting supply from another company

(manufacturing company) → everytime the retailer would get supply from the manufacturing

company or dealer, then he cannot be issuing a guaranty every time he will do that, so instead,

he chooses to put up a continuing guaranty → not limited to a single transaction - contemplates

future dealings, covering a series of transactions; prospective in operation and provides security

for obligations arising in the future; future = amounts are not known, provided that there can be

no claim against the guaranty, unless the amount is certain and demandable (amount is liquidated

and amount is due)

-2054: (VIP) → guaranty is an accessory contract; it cannot rise higher than the source; the rule

under 2054 is that it is a general rule that the guarantor cannot be made to pay for more than the

amount of the principal debt, and its obligation cannot be more burdensome than the debt itself
that he is committing to perform in the event that the principal debtor is unable to perform; it will

be made to pay for more; does not mean that the guarantee is void → simply not required to pay

more than the amount of the debt

*Exception: if we apply 2209 and 2212 → forms of damages; in the event that the guarantee or

the guarantor has delayed in performing its obligation to pay the debt of the principal debtor, then

he will be liable for compensatory damages → the liability of the guarantor may exceed the amount

of the debt that he has guaranteed; the excess pertains to damages and interest that he will have

to also cover because they were incurred by the creditor due to his refusal → if a surety or

guarantor upon demand, fails to pay, he can be held liable for interest even if in paying these

interests the total amount of liability of the guarantor or surety becomes more than that of the

principal → not because of the contract, but due to necessity of judicial collection and default

-Note about Interest: runs from time the complaint is filed, not from the time the debt becomes
due and demandable

-A surety or guaranty may be held liable for the penalty; provided in the contract of guaranty if
there is a penalty provided there for violation of the condition even if its value has exceeded the
amount of principal debt

-2055: a contract of guaranty or suretyship cannot extend beyond its specified limits; not given

retroactive effect as to make the surety or guarantor liable for default of the principal debtor prior

to the contract being entered into → idea: the guaranty must be expressed and cannot be

presumed; obligation is limited to what he has stipulated - it will agree to commit; a guaranty must

be expressed + writing (falls under the statute of frauds)

-2056: Qualifications of guarantors → three requirements for a guarantor to qualify that he must

possess:
1.) He must have the capacity to bind himself: meaning he should have the authority to enter
into the contract; capacity of a married person is subject to the limit provided in 2049 for a
married person;
2.) He must have the integrity: if he is convicted of a crime involving moral turpitude or
dishonesty, estafa, BP 22, then he does not have the integrity;
 3.) Must have sufficient property to answer for the obligation he guarantees → if he becomes

insolvent later, then the creditor may demand for his replacement unless of course, the

guarantor that was appointed was pre-selected by the creditor in the first place

-Estate of Hemady vs. Luzon Surety → the contract of guaranty or suretyship is intransmissible by

the debt of guarantor; even if the guarantor dies, the guarantor’s liability will continue and shall be

passed upon his heirs, even if one of the requisites of guaranty is integrity - in that case, the

contention of the guarantor is that because of the debt of guarantor and because the guarantor

should possess integrity then the guaranty terminates upon death of guarantor; as per SC, it is

not correct and declared that the guarantor’s obligation is transmissible to his heirs

-2058 and 2059

-2058: benefit of excussion → under a contract of guaranty; binds himself to fulfill the obligation of

the principal debtor; guarantor who pays for a debtor in turn must be indemnified by the latter;

cannot be compelled to pay the creditor, due to benefit of excussion and all legal remedies against

debtor
1.) Must exhausts all properties of debtor
2.) Must have resorted all the legal remedies against debtor
*That in order for the guarantor to be liable, the creditor must show that there is a final judgment

obtained against the principal debtor and writ of execution against the properties of the principal

debtor, has been issued and returned UNSATISFIED; this is otherwise known as the benefit of

excussion → clear that excussion invoked after all legal remedies against principal debtor had

been expanded; creditor must first obtain a judgment before assuming to run after the guarantor
*you need a judgment before you can attach and sell properties of debtor; without a judgment,
there is nothing you can do to run after properties of the principal debtor; in order that the
guarantor may make use of the benefit of excussion, he must set it up

-2060: two requirements→ not automatic; guarantor must set if up and point out to the creditor

available properties within the jurisdiction of the RP;

-What is the repercussion on the part of the creditor if he does not run after the properties? →

2061; if you have pointed out properties and the creditor fails to run after such properties, he will
suffer the loss to the extent of the value (it will be taken away from the liability of the guarantor =

already paid; cannot be made to pay for the portion equivalent to the value of the property)

-2062: when the creditor files a case against the principal debtor; guarantor does not need to be
included but must be notified

-2059: (instances when excussion cannot take place)

1.) Waiver
2.) Surety
3.) Insolvency
4.) Absconded; cannot be sued because he cannot be found and served summons → useless

so it will frustrate the creditor; no way that the creditor can be expected to get a final

judgment if he cannot serve summons to the guarantor

5.) Another case of insolvency → if the properties will not be enough to cover the amount of

obligation

-2065: several guarantors → 1207 (concurrence of several debtors or creditors in one and the

same obligation, the presumption is that it is joint; solidary only when stipulated by parties or the

law or the nature of the obligation) = here, where there are several guarantors in the same debt,

the obligation or liability shall be divided among them; creditor cannot demand from one of them

the payment of the entirety of the debt; unless solidarity has been stipulated; similar to benefit of

excussion

-2066: (right to indemnity)

-2067: (right to subrogation)

-2068: (related to 1236 and 1237) → if guarantor pays without informing the debtor, 1236 and

1237 will apply =debtor may set up against him all the defenses that may be available to the

creditor (like a third person who pays without the knowledge or against the will of the debtor)

-2073: (benefit of contribution) if there are several debtors and the amount of the debt that they

guaranteed is P120k and one of them paid the full amount, then he can demand from his co-

guarantors contribution, like in the case of a solidary debtor (contribution proportionate to the
debt) → 120k will be divided amongst the three of them (if A makes the payment of the full amount,

he can demand contribution from B and C 40k each) → benefit of contribution

-2077: unusual case of dacion in payment → guarantor is supposed to pay to creditor (to pay in

money supposedly - a loan); but if he proposes and delivers a property and gets accepted by

creditor, then it is a case of dation in payment and under dation in payment in 1245, if a property

is alienated to a creditor for the satisfaction of debt; the guarantor proposes to pay an immovable

property or any other property then the creditor accepted it - when accepted, then the losses

under 1277, later on the creditor is evicted from the property, the guarantor is released; only

remedy is go after the debtor (can be claimed that he is not paid) - there is a novation and

accepted it - he suffers the loss for taking the risk in accepting the payment by the guarantor in

the form of a property

-2079: the last of the important provision in guaranty → so, there are two situations in this article:

for instance there is a loan in savings association in your office, and you have an officemate who

borrowed 100k and you signed as a guarantor; under 2079 if the loan and savings association

granted your officemate an extension of time, and you were not informed about it, and your

consent was not obtained; then you are released from the obligation as a guarantor -- cannot be

proceeded against; because, the creditor chooses not to enforce the original agreement so, under

2079, if the creditor grants an extension to creditor, without consent to guarantor = guaranty is

extinguished

Second situation: the mere failure on the part of the creditor to demand payment after debt
becomes due, does not mean an extension of time → if it is an extension of time, there should be

an express extension extending the due date of the loan and not the failure to demand on the due

date

PLEDGE:
-2085: the pledgor or mortgagor does not have to be the borrower; can be a third person; but
must be owner of the property being mortgaged or pledged
-A pledge or mortgage may secure all kinds of obligations (pure or conditional obligation)
-Principal obligation may be in the future → it could be a continuing guaranty; to cover future

obligations
-May only be constituted by the absolute owner of the thing; but the pledgor or mortgagor do not
have to be parties to the principal obligation; should also have the free disposal of the property or
legally authorized for such purpose

Difference between pactum commissorium and dation in payment:

-2088: pactum commissorium → the term “appropriate” is also mentioned; it is prohibited due to

the policy of the law prohibiting PC, the creditor cannot automatically appropriation in the event

of the default of the borrower; it will not give the creditor the right to appropriate or to become the

owner of the property subject of the pledge or mortgage; must be an public action; exception:

dation in payment; there is a stipulation that in the event of the default of the borrower, the creditor

will become the owner of the property - prohibited (from the beginning it is stipulated or agreed

upon in the contract that such creditor will automatically become the owner of the property once

the debtor fails to pay his obligation)

*2145: dation in payment → the dation in payment is not pre-agreed in the contract of mortgage

or pledge; in the event that the debtor will not be able to pay his loan obligation, he proposes to

creditor that he will sell to him his property the price is the loan the unpaid amount of the obligation

→ separate contract they will enter into after the debtor is in default

-2087: the word “alienated” is mentioned; it may be sold which based on the provisions here, it
will be sold through public auction

-2089: indivisible → there is a thing mortgaged, and the value of such thing is P1 million, and the

loan obligation is for instance, 500k, and half of the 500k or 250k has been paid, the mortgagor

cannot demand the release of the ½ of the portion of the property mortgaged; subject of pledge

or mortgage = if a portion of the loan has been paid, it does not give the debtor or mortgagor the

right to demand the release of the sum of the things that have been pledged or mortgaged

-Pledge is a real contract → perfected upon the delivery of the thing and only movables or

incorporeal rights evidenced by documents (like title or negotiable instruments) may be subject of
a pledge
-2096: requires that the pledge must appear in a public instrument to create a real right; in 2097,
even if the property is sold which is the subject of the pledge, the pledgee retains possession to
the property and remains to be subject of pledge; but in the event that the pledge or wishes to sell
such property, then he must obtain the consent of the pledgee

-2097:
*always being used by examiners as a trick question

-2102: (VIP) → pledge extends to accessions and accessories = if the thing pledge is an animal,

the offspring shall be subject to the pledge (historical background: before, it may be traced to

slavery; because before, when the father is the slave, the mother is the slave, the children will

remain to be slaves and shall be owned - they will not be free and be part and parcel of the

properties of the owner); similarly if a thing is subject of a pledge, the interest, fruits and things

shall be subject to pledge; the pledgor cannot claim them until the debt is extinguished or fully

paid

-2112: (highlight of a pledge); applicable to legal pledge (mechanic’s lien; right of retention of

deposit) → extrajudicial foreclosure done by the notary public; double auction = two auctions that

must be done; the pledgor may participate and given preference in case his bid is equal to the

highest bid - the pledgee may also bid but his bid shall not be valid if he is the only bidder (his

offer will not be valid if he is the only bidder); the concept of double auction is that, it is again an

exception to pactum commissorium, because there are two auctions that must be conducted and

if such results in failure, then the creditor may be able to appropriate the thing pledged and 2115
(VIP)

-2115 (VIP): the rule in this, is once the thing pledge is sold, it will extinguish the obligation; if
there is an excess (price is more than the amount of debt), the creditor gets it and benefits; if there
is a deficiency, the creditor suffers the loss

Next meeting: take up mortgage, antichresis and torts

____________________________________________________________________________

June 14, 2021 - Caryl

Real Estate Mortgage

Mortgages. They are indivisible. Which means that if there are several properties encumbered in
order to secure the principal obligation, all of them are liable.

Debtor, pledgor or mortgagor, cannot demand the release of the mortgage without sufficient
payment.

REM must be constituted in a public instrument otherwise, void. Meaning, notarized. In order to
have an effect on the 3rd person, it must be registered in order to be valid.

The mortgagee may demand its registration. The creditor may demand to recover the loan in lieu
of the absence of a security.

When a REM is entered into, it creates a real right in favor of the mortgagee. There is a right
encumbered on the property in favor of the mortgagee.

2130 **** Pactum de non aliendo must be distinguished to pactum commissorium. Even if the
prop is alienated to 3rd p. The mortgagee’s right over the thing, remains the right.

Whoever is in possession of the property, may be required to fulfill the obligation, otherwise may
be subject to foreclosure.

Take note of the doctrine of mortgagee in good faith. If the mortgagee is in good faith, they simply
rely on the certificate of registration that a transferee covered by Torrens title may rely on GF and
in the absence of any suspicion, he doesn’t need to conduct investigation. Is like money in
possession which doesn’t need to look beyond it. The doctrine of mortgagee in GF may rely on
the certificate of title but does not apply to banking institutions. Because banks should diligently
conduct investigations of lands. Will not be entitled to protection under the law.

Similar to pledge, the mortgage extends the accessions of the property.

Mortgage includes fruits of the land including compensation or improvement of the land.

Properties under 415 which have become immobilized either by manner or intention or because
of the fact that it is the improvement of the property.

In the mortgage contract, there are stipulations that are acknowledged by the law like after –
acquired property. That concept and principle Is being adopted in modern business transactions.
So that they can stipulate that if there are improvements, those improvements will be included in
the mortgage. With respect to obli, it may include obli called dragnet clause/mortgage.

1. Stipulations includes after- acquired prop

2. Obligations stipulated by parties (dragnet clause) similar to continuing guarantee.

Pactum commissorium is prohibited. Stipulation requiring mortgagor to ask consent to the

mortgagee is allowed.
Exceptions to Pactum Comm:

1. Granting the mortgagee, the right to appropriate the property subject of the pledge.

A contract of mortgage, may contain stipulation in case of default. This is not automatic transfer
of ownership in case of default.

In case of default, the effect of the mortgage is to give notice either judicially or extra-judicially.

Extra- judicial, it requires that Real estate contract authorizing the mortgagee to sell by public
auction before foreclosing the property.

If it is judicial, filing of the foreclosure must be in the proper court exercising quasi-judicial function.
Will have the effect of creating lien.

Judicial vs. Extrajudicial

The guidelines in judicial law are the rules of court and require a decision by the court to confirm
the result of the sale. The losing party may file an appeal. Includes SPA granting the mortgagee
to sell the property by public auction.

If it is extra judicial, it does not need court interventions but has to submit the req by the court.
File this before the exec judge of the rtc to conduct the foreclosure or may be done by the notary
public.

Judicial, appealable; Extrajudicial , immediately executory.

Redemption:

Judicial- the redemption available is equitable redemption which must be exercised within 90-120
days after receipt of the notice of foreclosure.

In the equity of redemption, it is the right of the mortgagor, to extinguish the mortgage by paying
the mortgage. Provided it is done prior to the confirmation of the sale.

In the case of extra-judicial foreclosure, the redemption available is the right of redemption. The
right of redemption is the period from the date of registration of the certificate of sale. 1 year period
to redeem the property subject of the mortgage.

If the mortgagor fails to redeem, then the sale will be consolidated. And will have the effect of
possession of the property.

The purchaser of the property in the auction sale may sell the property in the auction sale.
Whoever the transferee, the interest of the previous possessor must give up any interest to the
prop.
In extrajudicial foreclosure, what is important is the compliance with the publication req. which is
the essence of publication.

Law mandates the posting of the notice of the sale in 3 public places in the newspaper of general
circulation in the prov. Where the prop is located.

Chattel Mortgage

Important here is the doctrine of mortgagee in good faith. The mortgagee may rely on the face of
the certificate of the title. Once it is executed in the public ins, it creates a real right in favor of the
mortgagee to bind against the whole world. Registration is required to extend to 3 rd per.

CM , the prop subject of the lien is a personal prop or immovable. Governed by 1508 and by the
CC.

In tangible, may be shares of stocks, machineries, motor vehicles and vessels. A house on a
rented land is an immovable property. Provided it is a house of immovable materials.

If it is a house that is going to be demolished then it will be a proper chattel mortgage of a contract.
Act. No. 1508, the registration in Chattel Mortgage Registry is a mandatory requirement for a CM
to be valid. While in REM, it is sufficient to be in a public instrument. Registration will have the
effect on the 3rd parties. Minimum req. in CM, is reg in CM registry.

In C.M contract, when parties enter into, they enter in conditional sale of the prop. In REM, if the
mortgagee elects to foreclose the prop subj of mortgage, he may still file an action to recover if
there is deficiency. If there is excess, the excess shall be paid to the mortgagor. If there is surplus
money, the mortgagor is entitled to him. With respect to CM, if there is an excess after the sale,
the excess goes to the debtor.

If there is a deficiency in CM, generally, the debtor is entitled to go after the creditor , except if it
falls under Recto Law (1484).

Amendment of 1484, as amended by Recto Law, in sale of personal prop by installment, then the
debtor is not entitled to collect to the creditor the deficiency.

Affidavit in good faith. The affiants there are the parties both the mortgagor and the mortgagee
swear under oath. For the purpose of securing the conditions of the same or just or valid
obligations in order to avoid fraud.

What is this purpose? What happens if there is no affidavit in good faith.

Antichresis

If the property subject of the security is immovable, it must be delivered in order to bind the parties
in the contract. Gives symbolic possession over the properties subject of the mortgage.
Both are immovable in REM. The distinction is that, in REM, it must be in public instrument. In
antichresis, it must be delivered in possession of an antichretic creditor. The formal requirement
must be in writing specifying the principal amount. If it is not in writing, the antichresis shall be
void.

Pledge, mortgage and antichresis, the possession of the mortgagee creditor and the antichretic
creditor, only acquires juridical title over the prop. Does not possess the same in any other nature
in the concept of an owner.

In fact if the mortgagee sends the prop to another person, he will be liable for estafa.

If, assuming the property is subject of antichresis and in possession of another person and you
subjected it for antichresis without declaring its encumbrance, you will also be liable to estafa.

In antichresis, 2137 & 2137 – In antichresis, the antichretic creditor is liable for the taxes of the
property. The rule is, the debtor cannot reacquire unless he has fully paid the indebtedness.

The fruits of the prop will still be subject of the obli will be used to the principal interest of the obli.

2137 is a provision against pactum commissorium – the non-payment of the debt will not
automatically be acquired by the creditor without foreclosure.

Concurrence and preferences of credit, there are several creditors who have equal rights of the
property claimed.

Must be distinguished to payment of cession. Here, in payment of cession, there is an agreement

between the debtor and the several creditors. If there is a deficiency, the debtor will still be liable.
Will only be released up to the net proceeds subject to the sale.

In concurrence, there are formal insolvency proceedings under FRIA. The result of the sale from
the proceeds of the sale, the creditors may be satisfied depending on their order of preference.

Preference of credit is not a lien unlike in a case of mortgage or pledge. In case of pledge or
mortgage, that lien is preferred to all other creditors.

Read Concurrence and preference of credit and fria

Then move on to extra contractual, quasi contract, delict and damages.

____________________________________________________________________________

Class Notes for June 15, 2021: (Sha)

MORTGAGE:
-Remember: all contracts of security; they are indivisible → which means that, even if a portion of

the loan has been settled or paid, the mortgagor cannot demand release of a portion or if several

properties have been given a security or identified as securities, the mortgagor cannot demand

the release of one or two of them

-There are certain stipulations that they cannot include in a contract of mortgage; for instance,

they cannot include (2130) → which means that - this means pactum de non aliendo = prohibiting

the alienation of the property given as security, even if the property is subject of a mortgage or a

pledge; the parties cannot stipulate prohibiting the mortgagor from alienating the property - they

can agree that before alienation be made, the consent be secured from the mortgagee - Note:

even if the property subject of mortgage is alienated by mortgagor, the mortgage considering that

it creates a real right, in favor of the creditor-mortgagee, kahit ibenta mo yung property, the

mortgage right of the mortgagee shall remain on the property (real right = has no definite passive

subject; enforceable against the whole world); the mortgage remains on the property and

mortgagee may even require the subsequent transfer to fulfill the obligation of the debtor (may

elect to foreclosure the property → also true in CM, antichresis, pledge, and REM)

-The most popular stipulation that the parties cannot include in the contract of REM, pledge, and
antichresis is pactum commissorium (2088 in relation to 2137)
-What is prohibited is automatic transfer of ownership; so that if for instance, that is the reason
why dacion en pago is not a case of pactum commissorium or a cession of property agreement
to cede the property after the default of the debtor, would not amount to a PC; there are many
faces of PC; the classic disguise of PC is Pacto De Retro Sale (which does not appear to be a
mortgage, but an equitable mortgage, but under the guise of a sale; because it is disguised as a
sale, it will grant the buyer the ownership of the property)

-REM: must be contained in a public instrument; it must appear in a public instrument and it must
be notarized
-Hechanova vs. Adeal → SC said that no valid mortgage is constituted if the REM does not appear

in a public instrument; if there is no valid mortgage, the SC said that the creditor may therefore

recover the loan in view of the absence of security as agreed upon, and the creditor may demand

the execution of a REM in a public instrument; a REM must be recorded in the registry of property

(annotated at the back of the title of the property) to bind third persons - not necessary for the
validity of the contract → what is necessary for the validity of the contract = executed in a public

instrument; requirement of registration is necessary to bind third persons

-Remember that under 1357, if the contract is valid, the parties may avail of the remedies provided
under 1357 and 1358 = anyone may demand the compliance with the form, for purpose of efficacy

-Remember in guaranty = continuing guaranty → it may be constituted to cover future

indebtedness or obligations; only requirement = guaranty will not become due until the loan is due

and the guarantor will not be liable until loan is liquidated (amount is determined)
-Similarly, in REM, it may also be constituted to cover future obligations = referred to as blanke t
or dragnet clause; constituted to cover past and future debts; termed as “dragnet” clause in
modern business transactions
-On the part of the mortgagee, it may cover past obligations and future obligations, or future debts;

stipulations may also be included by parties to cover insofar as the mortgagor is concerned, after

acquired properties = improvements placed on the property subject of an initial mortgage may be

covered → Building constructed on property may be covered

-Note: just like a pledge, a REM may extend to accessions, growing fruits, payment for
expropriations, indemnity to insurers of property (insurance constituted on the property and the
insurer has paid by way of indemnity, it is subject to mortgage)
*amounts of indemnities = amounts paid to the mortgagor of the property (included in the
mortgage)

-REM must be distinguished from antichresis (AC) → REM and antichresis, the object of

encumbrance are immovable properties; distinction: REM = immovable property remains with the

mortgagor (possession); on the other hand, an antichresis = possession of immovable property

must be delivered to antichretic creditor (sistema ng pagsasangla sa province)
*In antichresis, the payment will be taken from the fruits of the property; the antichretic creditor
will be given the right not only to the possession of property, but to use the property and to gather
the fruits from the property, and will be taken the payment for the interest on the loan and
secondarily, if there is still excess, the same must pertain to payment of principal
-AC is not valid unless in writing (will be void if not in writing); specifying the amount of the principal
of the loan and the amount of interest, otherwise the AC contract is void

-REM → if you execute a REM, the rule on mortgagee in good faith (akin to a buyer in good faith)

under Property Registration Decree (pinaka concept ng Torrens System of Registration); anyone

who deals with the property does not need to go beyond the face of the title of the property; the
principle provides that a mortgagee has the right to rely on good faith on the CTC of the mortgagor

of the property given as security , and in the absence of any sign that may arouse suspicion, he

does not have any obligation to take any further investigation

*Principle = a mortgagee of the property, has the right to rely in good faith on the TCT of the
mortgagor given as security; in the absence of any indication or sign that might give rise to
suspicion, he has no obligation to undertake further investigation; does not need to conduct further
investigation

-however, this doctrine or principle of MIGF, does not apply to a banking institution = required to
exercise utmost diligence in the performance of his services or obligation to its customer
-In case of mortgage in favor of the bank = bank is required to conduct due diligence and it must
exercise prudence; general rule that a purchaser or mortgagee of the land is not required to
undertake further investigation, other than what appears on the TCT does not apply to banks and
financing institutions, because it is their business and job (providing loan and getting security from
the borrower)
-Remember that monies that it lends to borrowers come from its depositors; so the bank is
required to exercise utmost diligence and prudence in making sure and to ensure that these
monies are taken care of

-Remember that in pledge: if the debtor fails to pay his obligation, the pledgee may foreclose by
conducting an auction; sa pledge may tinatawag na double auction; so, that double auction after
such, the pledgee may appropriate the property that is not sold after the second auction
-After the sale =debt is extinguished (once the thing pledge is sold); if there is an excess of
payment and price (price for sale is higher than balance of indebtedness) it benefits the pledgee;
if there is deficiency, the deficiency = pledgee suffers the loss

-Case of REM = if the mortgagee elects to foreclose, he may still file an independent civil action
for the recovery of whatever deficiency may remain; and, if there is a surplus money or an excess;
the excess pertains to mortgagor-debtor

-If the mortgagee elects to foreclose, there are two ways by which foreclosure may be done:
1.) Judicially → An action must be filed in court under Rule 68 of the rules of court (judicial

foreclosure); and such foreclosure will be undertaken under the supervision of the court
a.) Because it is an action (a case that will be filed in court); similar in the case of AC
(pag hindi nakabayad yung AC, ang way to foreclose is judicial foreclosure); it may
be appealed (until matapos yung kaso, the debtor remains to be in possession of
property)
b.) Equitable redemption → must be exercised within 90 to 120 days from the time
that the mortgagor receives the notice of foreclosure or until the CoS is
issued
 2.) Extrajudicially → if the REM contract that they have executed contains an authorization or

a special power of attorney granting the creditor the authority to sell the property via public

auction
a.) Absence of stipulation giving the mortgagee the SPA in the contract of REM, in
case of default, the mortgagee may only pursue the sale via judicial foreclosure
b.) What is most important in extrajudicial foreclosure = notice of the sale by
publication (done once a week, for three consecutive weeks; general circulation,
in the city or municipality where the property is situated) - must be compiled with
to the letter
c.) Good thing about EJF: unlike in the case of judicial foreclosure, where it is subject
to an appeal, the sale in EJF is final and executory; and once a certificate of sale
is issued and registered, that certificate of sale will be registered in the RD; only
remedy of debtor is right of redemption → one year from the time the CoS is
registered and not from the time of the issuance of the CoS - with the RD (yun
yung notice to the whole world)

***Remedy of mortgagor depends on the kind of foreclosure = extrajudicial foreclosure (exercise

right of redemption; done one year from the time of the registration of the CoS); if done judicially

= then the mortgagor may exercise equity of redemption; within the period of 90 to 120 days from

the date of the service (date that he receives) the order of foreclosure (iniissue ng court kapag

proper yung fi-nile na action then magconnect ng sale) and until (or even thereafter) his receipt

of the service of foreclosure, but before the order of confirmation of the sale = mag file ka muna

ng action to foreclose property, then the court will examine whether the complaint that you filed is

in order, then the court will issue a summons to the mortgagor debtor, and then the court will
require the mortgagor to pay; if mortgagor does not pay, then the court will issue an order of

foreclosure, then the court will conduct a sale → time of service of order of foreclosure, you have

a period of 90 to 120 days to redeem the property or even afterwards, until or before the order

confirming the sale is issued (dalawa yung order: from the time of the service of order of

foreclosure until the order confirming the sale is issued = shorter than EJF)

CHATTEL MORTGAGE:
-CM must be distinguished from pledge = similarity: property encumbered is a movable property;
it could be tangible or intangible (an interest in business which is an intangible movable property
or shares of stock, may be a proper object subject of a CM); vehicles, machineries may be proper
object of a CM; or a house intended to be demolished (proper object)
-A house built on a rented land, and it is built using strong materials, that house is an immovable
property; and, a CM constituted over that property is void insofar as third persons are concerned;
it is valid between the contracting parties simply due to the principal of estoppel (they are estopped
from denying)
*House built using strong materials, may be subject of a transaction separate from the land on

which it is situated → a house has a separate tax declaration from the land to which it is situated

-If it is a house using light materials = not an immovable property

-House built using strong materials (rented or owned land) = immovable property, and therefore,
if a CM constituted using such house as a security, it is only valid between the parties, because
of estoppel (but it does not mean that it ceases to be an immovable property - third persons = CM
is not valid and it could not prejudice their right)

-A CM must be registered under Act No. 1508 (CM Registry) to bind third persons; but between
the parties, the CM not registered will remain to be valid

-A CM = the movable is not delivered or transferred; the possession of the movable is not
transferred; that is why the registration of the CM is required, because by the registration of the
contract, the mortgagee is given the symbolic possession and will bind third persons; gives the
mortgagee the real right which means that even if the property is subsequently transferred to a
third person, the mortgagee’s real right’s subject of the property remains, and the creditor may
run after the property (not after the debtor) to enforce or to require the performance of the
obligation

-CM is also indivisible

-Remember in pledge, we talked about excess and deficiency (the pledgee suffers the loss due
to deficiency)
-In CM: excess = goes to the debtor (kung nabenta siya ng mas mahal, then the creditor gets only
the portion of the price that is sufficient to pay the obligation; excess goes to debtor); if there is a
deficiency = generally speaking, the creditor may still recover the deficiency from the debtor;
exception: the Recto Law (1484 of the NCC - amended by Recto Law; prohibits the creditor from
recovering any deficiency if the CM is foreclosed)

***In a CM, under Act No. 1508 → Affidavit of Good Faith = an oath, that must be executed
together with the CM contract; kasi yung CM contract appears like a sale of a property but the
sale will be considered extinguished or void once the loan obligation is paid; in the CM contract,
the parties are also required to execute an AGF (an oath in the CM wherein the parties severally
swear - both of them - that the mortgage is made for the purpose of securing an obligation and
for no other purposes and that it was not entered into for the purpose of fraud; that it is entered
into for the purpose of securing an obligation and for no other purpose)
-What happens if an AGF is not included in a CM contract? → nothing. The AGF is only required

for the purpose of transforming an already valid mortgage into a preferred mortgage; not

necessary for the validity of the CM but only to give it a preferred status; pero under the FRIA

wala namang may preferred kahit na subject siya sa mortgage or pledge, pwede siya kunin ng

liquidator at ibenta under FRIA

-Bawal din sa CM yung pactum commissorium (2141 of the NCC); provision of pledge referring
to 2088 will also apply to CM

-1508 = the mortgagee may after 30 days from the time the mortgagor the borrower, fails to pay
his obligation or violates the condition of the CM, may pursue the foreclosure of the mortgage
and sell the mortgage by public auction by a public officer or by a notary public

ANTICHRESIS:
-2132:
-2134: considered as a formal contract
-What is bad to the creditor is 2135 → in antichresis, the contract of AC takes place by the creditor

acquiring the possession of the property which was given as a security for the loan, and from

there, the creditor acquires the right to the fruits, and shall be applied to the interest and principal

of the obligation
-The antichretic creditor = is in possession of the property; he will be liable for the taxes that are
imposed on the property and he will also be responsible for the expenses in the preservation of
the property; the cost may be deducted by him from the fruits; the fruits of the property will be
used to pay for the taxes, preservation and thereafter, it will be used and applied to compensate
the interest and the principal
*Under 2136 = Generally, the debtor cannot recover the possession of the property until the loan
is paid; it is the discretion of the creditor whether to return the possession or not prior to the debt
being fully paid; but the creditor has the option of returning the possession of the property - does
not mean that debtor is released of his obligation; only reason that the creditor may return
possession, because if he does not want to shoulder the responsibility of the costs of taxes and
preservation of property

-2137 = in case the debt remains unpaid, then the antichretic creditor may foreclose the property
- file an action in court for its judicial foreclosure (under Rule 68 of the RoC)

Note: (modes of foreclosures)

*2112 =legal pledge foreclosure
*REM foreclosure = either R68 or EJF under ACT No. 3135 or pursuant to Banking Acts
(special laws)
*CM = 1508 (EJF)
*AC = judicial foreclosure under Rule 68 of the RoC

CONCURRENCE AND PREFERENCE OF CREDITS:

-So-called: concurrence and preference of credits
-2236 and 2237 → under 2237, it mentions insolvency governed by special laws (presently, it is

referred to as the FRIA)

-Distinguish insolvency under the special law, which is the requirement to apply the concurrence

and preference of credits from insolvency as a premise for payment by cession; remember in

obligations, we have a special mode of payment called payment by cession → in application of

payments, if a debtor has several debts to another or to a creditor, then at the time he makes the

payment if his payment is not sufficient to cover debts, then declare to which of the debts the

payment must be applied; otherwise, the creditor may issue him a receipt identifying to which

debts he applied the payment; so in the absence of -if no such application has been made, then

the payment shall be applied to the most onerous debts; second, we have what we call payment

by cession = one debtor and several creditors, and the debtor is insolvent in the sense that he

does not have sufficient properties to pay all obligations that are due; therefore, he is insolvent

(mas mataas yung liability kesa doon sa assets → when a person is insolvent = it means that he

cannot pay his obligations when due) - but you are not insolvent pursuant to the FRIA;
insolvency referred to payment by cession is not the same with the concurrence and
payment of credits
-Payment by cession = the debtor will enter into a contract with several creditors; if the latter
agrees to accept his proposal that he will cede all his properties in their favor and the creditors
will joint to sell the properties, and from the sale they will get paid
-Difference: payment by cession; after the sale of the properties that have been ceded in favor of

the creditors, the debtor is released only from his indebtedness to the extent of the net proceeds;

will not be released from his indebtedness (not become a new man); remain to be indebted to

creditors (can continue to run after him) → unlike in the case of insolvency when declared by the

court

-Concurrence of credits = it presupposes that there are two or more creditors who have equal
rights and privileges over the sam property; they concur; and the property = specific movable or
specific immovable or with respect to general property (the entire patrimony of the debtor)
-When does preference arise therefore? → where the total value of the properties of the debtor is

sufficient to pay all his indebtedness then concurrence and preference of credit is of no relevance

(pwede bayaran lahat); Preference or priority arises = excess of concurring credits over the value

of the property (law determines which should be paid ahead of others; taxes are given preference)

- if the assets are not enough and they have been liquidated, the first in line are taxes due to

government

-Note: there are properties that are exempted; like, the Family Home to the extent of the value
allowed under the law

Next meeting: finish our coverage next meeting on concurrence and preference, extracon,
quasicon, delict (concentrate sa quasi = contributory, damnum absque injuria, and doctrine of the
last clear chance; attractive nuisance as exceptions to the doctrine of contributory negligence -
yung abuse of right doctrine as exceptions to the principle of damnum absque injuria)
*60 items yung MCQ = limang choices for each question; by exclusion pag sumasagot ng MCQ
*Essay = IRAC method (ayusin yung presentation -form is as important as the substance)

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June 16, 2021 – Caryl

3 sources of obligation , could either be quasi – delict or culpa aquiliana

2176

Main provision on quasi – delict

Culpa contractual, arises from contract.

Culpa aquiliana – Arises from damages from delict

Criminal negligence then the person responsible is prosecuted criminally.

Culpa – Acquillana-the driver is first sued, then if insolvent, the owner of the bus will be
subsidiarily liable; Preponderance of evidence.

Ordinary diligence is the standard of the diligence required by the driver.

Rule of Respondeat Superior

Requisites of quasi – delict (2176)

 1. Fault or negligence

2. Proximate cause must be shown (Causal connection between the negligence and the
damages)

2177 – Recognizes the fact even if the crime resulted in violation of criminal act, a civil action
is included under art 100.

2177, he may also be charged under quasi delict. The two actions may exist independently
with each other. Limitation is that the injured party cannot recover damages twice for the
same act or omission by the act.

Art. 33 – Criminal action arising from similar offense. The basis is fault or negligence or
negligence of the defendant.

1173 – Quasi delict , a person has the obligation to exercise care and there is no pre-existing
contractual obligation between the parties.

1173 is a general definition of negligence. (applies to all kinds of obli when there is a breach
in case of failure to exercise diligence.

Proximate cause definition.

In quasi – delict, negligence is not presumed which means that the plaintiff must prove the
injury suffered by the defendant. The plaintiff must prove the causal connection by the injury
from the negligence.

Under Quasi – Delict negligence is not presumed. But, there are instances when negli is
presumed in res ipsa loquitur – Africa vs. Caltex – A fire resulted in the Caltex station the SC
applied Res Ipsa Loquitur when the effect is shown to be under the control of the management
of the defendant as will not happen if the defendant used proper care. Absence of
explanation, the accident will arise from want of care

In this case- Doctor left inside the uterus of the woman who delivered CS, it was shown that
some materials were left behind while the operation is being done; presumption of negligence

Breach of contract of carriage, the employees of CC committed negligence, the employer is

presumed to be negligent because of the rule of Respondeat Superior. In case of death, CC
are presumed to have been at fault through the negligence or willful acts although such
authorities have acted beyond the scope of authority.

2184 – driver is presumed negligent if within 2 months, he was recklessly driving twice.

2185 – driver if at the time of the accident he was violating a traffic regulation.
In these two articles, there is presumption of negligence in the case of violation of traffic rules
when there is presumption of negligence.

2188 – Presumption of negligence

Exceptions to GR that in quasi delict, negligence is not presumed. E: if the debt or injury
comes possession like firearms and except if it is in relation to his duty.

The defense of the defendant is indispensable in his occupation or business.What are the
defenses available or may be used in quasi- delict esp if presumed?

1. Contributory negligence – 2179

2179 – 2 cases:

1. The proximate cause was the negligence of the plaintiff himself. Damage, fault
or negligence or proximate cause causal connection.

If the defendant can show that the immediate cause was from the plaintiff, then the
defendant will be exempt from liability.

And if the plaintiff contributed to negligence, the defendant is still liable, the liability
shall be mitigated by the court.

The case of Rakes vs. Atlantic Gulf – carrying iron rails from the barge using a railroad hand
card, broke his leg. It appears that Atlantic knew and did not do any part to repair it. There is
presumed negligence of Atlantic Gulf.

Another defense by defendant in q. delict is assumption of risk.

1174 – Action to which one consents in the injury suffered. Co vs. CA – where Co entrusted
his Nissan pickup, the car was carnapped when the car was tested. The repair shop, they
invoked FE. 1174 attaches even if the FE is present if nature requires assumption of risk.

Doctrine of the last clear chance is another defense by the defendant. Negligent acts by the
3rd person is solely responsible. There is prior negligence on the part of the plaintiff.

Do not apply contributory negligence when the last clear chance applies.

1146 – Another defense in q. delict is prescription.

The prescrptive period in q. delict is 4 years from the time of the accident.
Discovery rule – if the injury is discovered after 4 yr period, the 4 yr period is the date from
which the discovery occurred.

Consumer act of the PH, The consumer may sue the one whom the product was
manufactured or made; f the defect if apparent – 4 yrs. ; if the defect is hidden, 2 yrs from the
discovery of the hidden defect. There Should be no concurrent part of the party.

Negligence must be proved, and even in those cases, the defendant may exempt himself
from liability if he exercised diligence.

2180 (last par) - - defense : proof of diligence

We can also use as a defense, mistake or waiver – 1331

Other defenses available: “Damnum absque injuria'' Even if a person suffers a damage or
injury, the person who caused the injury or damage, will not be liable if the person was
exercising a legal right.

In the absence of proof that the prosecutor was guilty of bad faith, he was exercising a right
pursuant to an authority granted to him by law.

However, even if the acts will legally justify the outset of its continuation, may constitute an
abuse of the right esp when there is a prejudice of other rights.

Art. 19 – Does not mean when a person exercising a legal right, will not incur a liability. Abuse
of the right of doctrine.

Vicarious liability –

Solidary liability –

Both in quasi- delict.

2180 – Vicarious liability

2181 –

First par. Is demandable by one’s own ats or omission, the phrase those who are responsible
–

234 of FC as amended by RA

236 of FC - > 2180, it appears that the responsibility of the parent applies even if the minor
reaches the age of majority.
With respect to the 3rd one, the owner and manager, the negligent one here is an employee.
3rd par. Employers will be liable if the negligent act of the employee is done within the scope
of his assigned tasks.

3rd – must be engaged in the scope of assigned tasks.

4th – not acting within his assigned tasks

Teachers are liable provided that it is under the provision and the school is liable when it is
under its institution.

With the state, the state cannot be sued without its consent.

Except:

1. Proprietary

2. Private person

3. Acts through a special agent but not when act is by an employee duly appointed.

2183 – Primary liability when the damage was caused by the animal.

2184 – Solidary liability between the driver and the owner of the vehicle. Encircle solidary
liability.

2187 – primary liability;

2189 – primary liability

2193

2192 & 93 – strict liability. Primary liability of engineers and contractors.

2194 – The responsibility is solidary;

Solidary vs. Vicarious Liability

Chattel Mortgage - The registration of the CM is a requirement for validity and under Sec. 5
of 1508, The CM even if it is not registered, it is still valid between the parties. The requirement
of the registration is a requirement in order for it to be binding against 3rd per. Pursuant to
1357, the mortgagee in a CM may demand the registration of the CM, the same way in REM,
the requirement of the public instrument for the validity but pursuant to 1357, the annotation
of the REM at the back of the title and the registry of the property is a requirement in order to
bind the 3rd persons.
Exam:

2 types ; 60 items of MCQ and 40% essay

Concentrate more on MCQ

30 MCQ was allocated to Obligations and Contracts and the remaining 30 was allocated to
Special Contracts.

Platform: LMS

30 MCQ + 2 essays will come from Atty. Dechavez and then 30 from Dean Delson + 2 essays.

_________________________________________________________________________

Class Notes for June 17, 2021: (Sha)

Quasi-Delict (Torts): it is easy to come up with MCQ on Torts, so we need to talk about it;
there are 60 MCQs (Sir submitted 30 MCQs yesterday and including the essay question,
and divided it equally - the coverage (between Sir and Dean Delson); coverage will start
from oblicon, until where we are now)

-The first time we learned about or came across quasi-delict was when we started looking into
the sources of obligations; one of the sources of obligations is quasi-delict, and on the other hand

when we talk about quasi-delict, there are several kinds while quasi delict is referred to as one of

the sources of obligations, tort has many kinds: we have the so-called negligent tort, which is the

one referred to as one of the sources of obligations; we realized that when we studied torts, we

have strict liability tort, and we also have intentional tort → when we talk about tort and when we

talk about quasi-delict, we cannot simply limit tort to the quasi-delict referred to in 2176

-2176: quasi delict - aka: culpa aquiliana (culpa = negligent); differentiate culpa aquiliana vs. culpa
criminal
-Based on the negligence committed (which resulted into an injury or damage to a person); when
we talk of damage = refer to two things: injury suffered or compensation paid for the loss or injury
sustained by a person, as a result of the fault or negligence of another

-Culpa contractual = we talk about violation of contract of common carriage; we discussed this
last time

-Culpa criminal = (criminal negligence); which is an injury that resulted from an act or omission
punished by law

-remember that a single act may give rise to various liabilities and may result to different causes
of action;the action that may be filed if the injury is caused by 2176 = quasi-delict

-Teh action that will be filed as a result of negligence + performance of obligation in a contract =
breach of contract with damages; contract of carriage = fault on the common carrier to bring the
passenger safely to its destination

-Culpa criminal → criminal liability of the accused (result to imprisonment) + civil liability arising

from criminal liability; which is included in the criminal offense (pursuant to Art. 100 of the RTC)

-Quantum of evidence = preponderance (torts and contractual)

-Quantum of evidence = proof beyond reasonable doubt (criminal liability + civil = Article 100 of
RPC)

-Civil action that is included in the criminal Offense; accused is acquitted due to lack of proof or
failure to prove (lack of quantum of proof) - separate civil action may be filed; with respect to civil
action, if it is prosecuted separately, the quantum of evidence is preponderance of evidence

-The filing of the criminal information will include the filing of the civil action; for the civil liability
arising from criminal liability (Article 100 of the RPC)

-Note: 2177 → the reason why a single act may give rise to various causes of action and to various

liabilities; 2177 itself recognizes that; a single act may give rise to a criminal prosecution and also

to an action for quasi delict; because there is a criminal prosecution and quasi delict and shall

include civil liability, it is possible that the plaintiff in the QD and the private complainant in the civil

action in Art. 100 of the RPC, will be awarded damages

-limit in 2177 → even if we recognize a single act may give rise to different causes of action and

possible to double award; plaintiff cannot recover damages twice for the same act; hindi pwedeng
kapag may nasagasaan ka (reckless imprudence with serious physical injury) = you cannot

recover both→ you can only choose the higher of the two awards (bawal double recovery)

-Defenses → in culpa aquiliana, take note that in such, if there is a drive that caused an accident

to someone; if the driver is proven negligent, and he has an employer (nagpapasahod sa kanya);

it does not mean that the employer is conclusively negligent; the employer is merely presumed

negligent

*Remember that in quasi delict, the negligence must be proved; the negligence is nOT presumed;
due to the absence of the pre-existing contractual relation between the parties; the only obligation

that will give rise to liability of quasi-delict (taga-salo siya ng lahat yung quasi-delict kung hindi

mapupunta sa ibang sources of obligation yung offense) → ito yung buon univers = but, it is not

as easy as it appears to be; in QD, you have to prove the negligence of the defendant (patunayan

mo na negligent siya); the obligations of QD that will give rise to it, is the obligation of every person

to exercise due care when moving around in the community; you cannot wantonly or carelessly

move around and cause an injury and you claim that it falls under damnum absque injuria = it will

give rise to liability under QD in the absence of a pre-existing contractual relation

*Existence of a contract does not preclude the liability under quasi-delict

*Case of Air France vs. Carrascoso → the fact that the action of the crew of the airplane (promised

a first class seat and that he bought that seat and you bumped him off while aboard); that amounts

to a violation to public policy; considered a tort even if there is a pre existing contractual relation
between the parties

-Elements of QD based on negligence → 1.) there must be an injury (may nasaktan); 2.) someone

was negligent; you have to prove negligence; 3.) you will have to prove proximate cause (causal

connection between negligent act and injury); generally speaking, when you are talking of QD

based on negligence, the burden of proving that the defendant was negligent is on the plaintiff,

subject to exceptions
-If there is a driver who has an employer, and injured someone, and the drive is negligent, under
2180, the employer is presumed to be negligent = vicarious liability (hindi lang empleyado pwede
pagbayarin; employer is also responsible for the injury done by employee)

-QD may tinatawag na vicarious liability, solidary liability (employer ay nakasakay sa sasakyan
and pwede mapigilan yung bangga) - 2184 = if the employer is inside the vehicle and could have
prevented the accident with use of diligence (solidary liability on the employer)

-Primary liability = naglakad ka ng aso mo, tapos nakakagat aso mo, then pasok siya sa strict
liability tort (unless may force majeure or yung nakagat niya ay siya nagpa-kagat ng kusa)

-Manufacturers and processors = pag nakalason sila, papasok sa strict liability tort (primary
liability)

-Difference between solidary and vicarious = if the employer pays, he can reimburse 100
percent (vicarious liability - parang surety or guaranty ito); solidary = solidary debtor pays
entire amount of obligation, under the chapter of solidary obligation, he can only recover
a proportionate share of his credit (ex.) marerecover mo lang is 50k out of 100k)

-Subsidiary liability (only applies under Article 100 of the RPC) = do not talk about this
pagdating sa QD; we talk about this during civil action arising from criminal offense

-Negligence → kahit saan, kailangan siksikan mo siya ng proximate cause; you do not talk about

this, and not talk about proximate cause; kailangan may proximate cause lagi;

*Definition of proximate cause (remember) → three elements to prove negligence is quasi delict:

1.) injury suffered plaintiff

1.) Caused by negligence of defendant

2.) Negligence of defendant was the proximate cause of the injury (causal connection
between the negligence and injury)

-In QD, negligence must be proved; in breach of contract of carriage (culpa contractual -

negligence is presumed because there is a predetermined result expected when you enter into a

contract; when you enter into a contract, from the beginning you know what you expect to get,

and if you don’t expect to get it, then somewhere somehow, someone committed breach; and if

the obligor fails to perform the obligation in the contract, then possibly he committed negligence

or fraud (mamimili ka)) - how do you define negligence? → Article 1173

-2176 → fault of negligence neto, relate it to 1173 (definition of negligence)

-In CC, negligence is presumed, because in breach of contract of carriage, because of the
existence of a contract, the obligee expected the result; pag sumakay ka ng bus, inaasahan mo
na makakarating ka ng buhay

-Even if under the breach of contract of carriage (extraordinary diligence); unless the bus
company is able to prove that it exercised extraordinary diligence (standard of care required)

-Certain instances where negligence is presumed: (exceptions)

1.) Res Ipsa Loquitur = the thing speaks for itself; the thing which caused the injury to the

person is under the exclusive control of the defendant; ordinarily, such even will not

happen unless there is negligence; the first requisite is, that the thing which caused the

injury is under the exclusive control of defendant; 2.) ordinarily, injury will not happen

unless there is negligence; 3.) defendant fails to give explanation for the happening of the

event → the case of Africa vs. Caltex (yung Caltex dito sa Manila, na naglilipat ng gasolina,

biglang nag spark and caused a fire; and someone was injured = res ipsa loquitur; it does

not normally happen and the equipment was under the exclusive control of defendant);

and Batiquin vs. CA = cesarean operation; may gloves na naiwan sa uterus

2.) Respondeat Superior = sa breach of contract of carriage, the employer cannot invoke
the defense that he exercised diligence in the supervision of the employees; what is being
followed is the principle of respondeat superior (command responsibility); employer +
employee = both negligent; HINDI ITO QD!; if the negligence of employee has been
proved, no need to prove the negligence of employer = the employer is already negligent
in the hiring and supervision of employee; applies to common carriers
a.) Compared to 2180 = merely presumed to be negligent ang employer dito
b.) 2180 = negligence is merely presumed; it will cease if he can prove otherwise
c.) What is being applied in 2180 (vicarious liability) = NOT respondeat superior, but
bonus pater familias
3.) Violation of Traffic Rules (Articles 2184 - 2185): there are two paragraphs in 2184; the
first paragraph, the owner was inside the vehicle; second paragraph: owner is not inside
the vehicle ;and if the owner is inside the vehicle, the owner is solidarily liable; on the other
hand, if the owner is not inside the vehicle, you apply 2180 which means that the owner
is vicariously liable (2180= vicarious liability lang) - the law made a distinction, because
the vicarious liability must be distinguished from solidary liability (in terms of getting the
payment back or not)
a.) 2184: presumption of negligence; if the driver two months prior to the accident, has
committed a violation or was recklessly driving = then presumed negligent siya
 b.) 2185: ganon din; but in this case, presumed din ang negligent ng drive if at the
very time of the accident, you crossed or beat the red light, you violated a traffic
rule (mishap (someone was negligent) = baka mamisinterpret pag sinabing
accident)
4.) 2188 (Possession of Dangerous Weapons and Substances) = there is a presumption of
negligence here

-Generally in QD, negligence is not merely presumed; except for the four exceptions (mentioned
above in the enumeration)

-In QD, what are the defenses available to defendant? → defenses available to the defendant:

1.) Contributory Negligence (2179) → 2179 talks of two situations: 1.) the defendant can

show or was able to show that the immediate and proximate cause of injury was the

negligence of plaintiff himself; in this case, the defendant is totally exempt from liability -

this is the first situation; 2.) if the defendant can show that although the proximate cause

(you always discuss proximate cause when you are discussing negligence), the defendant

was able to prove that although the proximate cause of the injury was his lack of due care,

the plaintiff also contributed to injury with his own negligence; contributory negligence on

the part of the plaintiff - defendant is liable, but his liability will be mitigated or will be

reduced by the court → case of Rakes vs. Atlantic Gulf = Rakes was also at fault, because

he did not follow the guidelines; and negligence of Atlantic Gulf na hindi pinarepair yung

rails = equally negligent; and Cangco vs. Manila Railroad = MRR was negligent dahil bakit

walang ilaw doon sa lugar, and may naiwan na sack of watermelons doon sa pavement;

there was contributory negligence, but the proximate cause was caused by the negligence

of the MRR (defendant)

2.) Assumption of Risk (1174): involves an action to which one consents; when the plaintiff
assumes the risk with the possibility of meeting an accident (ex.) there was an ongoing
strike or riot in the street and proceeded to do his act, then suffered an injury - he cannot
claim that someone was negligent); also a defense available to defendant; Austria vs. CA
= there is an assumption of risk in this case - nagdala ng alahas pauwi in the middle of the
night
3.) Last Clear Chance: this principal provides that a person who has the last clear chance of
avoiding an accident, regardless of the negligent act of another who is imputed, is
considered by law, solely responsible for the consequences of the accident - case: anak
ni Lydia De Vega - nasagasaan yung anak niya = negligence on the part of the mother
(hindi binantayan); the three year old was attracted to going out of the street - who had
 the last clear chance of avoiding the accident? = if you apply the doctrine of the last clear
chance, there is prior negligence on the part of the plaintiff (on the part of Lydia); in this
case, the person who had the last clear chance of avoiding the accident was still the drive
of the jeepney - the application of LCC: 1.) there is prior negligence on the part of plaintiff;
2.) defendant was aware of the existence of plaintiff (defendant saw that there was a child
on the street); 3.) defendant had the LCC to avoid the peril, but failed to do so; 4.) accident
occurs due to negligence of defendant
4.) 1146 Prescription: 4 years - 4 year prescriptive period is counted from the date the
tortious act is committed; exception: discovery rule = if the injury is discovered after the 4
year period; date of the discovery will be taken into consideration; if X worked in an
asbestos factory, and 10 years after his continuous exposure to asbestos, he showed
signs of asbestosis caused by the chemicals; can he still file an action? - Yes. due to the
discovery rule

*Consumer Act of PH: sue Manufacturer + importers or sellers; prescriptive period is counted if
the defect is apparent (4 years from purchase); defect = 2 years from the discovery of the defect

5.) Fortuitous Event: no person may be held liable for a FE; the elements of FE; another

defense that may be used by defendant is QD is diligence (under 2180 → the responsibility

treated in this article shall cease, if they have observed the diligence of a good father of a

family to prevent the damage)

*2180 = talks about vicarious liability; certain persons that if they commit negligence and that

negligence resulted in injury, then persons that are responsible for them will also be liable;

precisely the provision of 2180 states that the obligation imposed by article 2176 is demandable

not only for one’s owns acts, but also for those persons for whom one is responsible → if the father

is responsible for taking care of his child, then if the child commits an act of negligence that
resulted to injury to another person, then the father, or the mother is responsible for the damages

caused by the children (same is true with guardians; liable for damages caused by minors or

incapacitated persons)

1.) Father and mother → liability (first one liable is the father)
a.) 21 and below: father will still be responsible (2180); yung minor dito (under 236)
b.) Kailangan yung bata must be in their company
2.) Third and fourth = two types of employers; first employer must be engaged in an industry
or enterprise; kailangan may tunay na negosyo = the owners or managers here, must be
owners of establishment (includes branch office or enterprise); while in the fourth
paragraph, the employer hear, there is no distinction (hindi kailangan may negosyo - ex.)
 may driver);so, the second distinction is, in the third paragraph, the employee that
committed an act of negligence, it does not required that he has committed it within the
scope of his assigned task, for as long as he did it on the occasion of his function; with
respect to the fourth paragraph (yung kasambahay na nakipag sampalan sa palengke) -
it is necessary that he committed it within the scope of his assigned task
3.) The state = generally speaking the state may not be sued without its consent; exception;
if it performs proprietary functions; second, if it enters into a contract with a private person;
and lastly, if it acts through a special agent -dito, he will be liable; not if the one who
committed the negligent act was a regular employee of the government; dito kailangan
through a special agent (contractual or casual na empleyado)
4.) Teachers of academic institutions and heads of establishments of arts and trades, for as
long as the student is under the custody, instruction of the school

*Primary liability → instances wherein the person is primarily liable for damages under QD:

1.) 2183 = whether or not the dog is on leash, or he strayed or got lost, or may hinabol sa
kalsada; then the possessor of the animal- pwedeng managot (kahit yung dog handler -
primarily liable)
2.) Owner of vehicles (under 2184) = so we discussed this; solidary liable - but both are
primarily liable (liability of owner is similar to the driver = primary and solidarily liable)
3.) 2187: (strict liability) = in other words, when you eat in a restaurant and drank soda, and
it turns out na may ipis sa loob - kahit na hindi ikaw ang nagbayad or walang contractual
relation with the processors of the drinks, they will be liable to you; you can sue them
pursuant to this provision (ex.) coca-cola can be held liable for having ipis inside the coke
can)
4.) 2189: provinces, cities and municipalities (defective conditions of roads, etc. - under their
control or supervision) = kapag bumaha and nahulog yung tao sa imbornal = liable yung
LGU - HINDI BARANGAY yung liable
5.) 2190 and 2091: if you own something and you do not take care of it (it could be any

property and could even be a tree, and you don’t trim it and someone passed under it and

someone was injured, then you can be liable for it → primary liability on the part of the

proprietor)
6.) 2193: walang defense dito; anything that falls from your house or thrown from the same
(strict liability tort ito)
*may special torts under human relations → general rule ang damnum absque injuria: if someone

suffers an injury and even if it is painful to that person; if you acted within your legal right, then

you will not be liable (classic example: breach of mutual promise to marry is not actionable

generally speaking); there is injury, but you cannot claim for liability → not an absolute rule:

exceptions → under Article 19, 20 and 21 (abuse of rights doctrine); if you abuse your right, you

can be held liable for damages

*Fraud, or you took advantage of the kindness of your girlfriend and pinaasa mo siya = exceptions
to the breach of promise to marry

*Special Torts under Human Relations = Articles 19, 20 and 21