Parties involved

Contract

Contract of Sale Vendor Vendee SESSION 7

Contract to Sell Seller Buyer

Donation Donor Donee
Mortgage Mortgagor Mortgagee
Loan Debtor - Creditor
Borrower
Testamentary Testator Compulsory Heirs
Succession
Intestate Succession Principal Compulsory Heirs
Agency Principal Agents /
Attorney-in-Fact

ART. 1156. An OBLIGATION is a JURIDICAL NECESSITY to give, to do or not to do.

▪ An obligation is a LEGAL BOND whereby constraint is laid upon a person or group of

persons to act or forbear on behalf of another person or group of persons.

▪ For every right enjoyed by any person, there is a corresponding obligation on the part of
another to respect such rights. (GR No. 109125, December 2, 1994)

▪ Obligation is a juridical necessity because in case of NON-COMPLIANCE, the Courts may

be called upon to enforce its fulfillment or, in default thereof, the economic value that it
represents.
 ▪ In a proper case, the debtor, may also be made LIABLE for damages, which represent the
sum of money given as a compensation for the injury or harm suffered by the creditor or
oblige (he who has the right to the performance of the obligation) for the violation of
rights.

▪ In other words, the debtor must COMPLY with his obligations whether he likes it or not;
otherwise, his failure will be visited with some harmful or undesirable legal
consequences.

Article 1157. Obligations arise from: 1) law, 2) contracts, 3) quasi-contracts, 4) acts or omissions
punished by law, and quasi-delicts (LCQ LQ).

▪ An obligation imposed on a person and the corresponding right granted to another must
be rooted in at least any of the following sources:

1. Law – when they are imposed by the law itself, e.g. obligation to pay taxes; obligation to
support one’s family.

2. Contracts – when they arise from the stipulation of the parties (Art. 1306),e.g., the obligation
to repay a loan by virtue of an agreement.

3. Quasi-contracts – when they arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched or benefited at the expense of
another (Art. 2142).

4. Crimes or acts or omissions punished by law – when they arise from civil liability which is
the consequence of a criminal offense (Art. 1161). e.g., the duty of a killer to indemnify the
heirs of his victim; and,
5. Quasi-delicts or torts – when they arise from damage caused to another through an act or
omission, there being fault or negligence, but no contractual relation exists between the
parties.

▪ Obligations are civil or natural. Civil obligations give a right of action to compel their
performance. Natural obligations, not being based on positive love 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.

Article 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

▪ The above article speaks of contractual obligations or obligations arising from contracts or
voluntary agreements.

▪ A contract is a meeting of minds between two persons whereby one bind himself, with
respect to the other, to give something or to render some service. It is the formal expression
by the parties of their rights and obligations they have agreed upon with respect to each other.

▪ A contract may involve mutual and reciprocal obligations and duties between and among the
parties.

▪ Obligations arising from contracts are governed primarily by the agreement of the
contracting parties. Once perfected, valid contracts have the force of law between the parties
who are bound to comply therewith in good faith, neither one may without the consent of the
other, renege therefrom. (Tiu Peck v. CA, 221 SCRA 618).

▪ In Phil. American and General Insurance Co., Inc v. Mutuc, the Court ruled that contracts
which are the private laws of the contracting parties should be fulfilled according to the
literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are obligatory, no matter what form they
may be whenever the essential requirements for their validity are present.
▪ In Romero v. CA, G.R. No. 107207, from the moment the contract is PERFECTED, the
parties are bound not only to fulfill what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and
the law.

▪ Compliance in good faith means compliance or performance in accordance with the

stipulations or terms of the contract or agreement. Good faith and fair dealing must be
observed to prevent one party from taking unfair advantage over the other. Evasion by a party
of legitimate obligations after receiving the benefits under the contract would constitute
UNJUST ENRICHMENT on his part.

⮚ To claim for unjust enrichment, the claimant must unequivocally prove that another party
knowingly received something of value to which he was not entitled and that the state of
affairs is such that it would be unjust for the person to keep the benefit.

⮚ Unjust enrichment is a term used to depict result or effect of failure to make remuneration
of or for property or benefits received under circumstances that give rise to legal or
equitable obligation to account for them; to be entitled to remuneration, one must confer
benefit by mistake, fraud, coercion, or request.

⮚ Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution (to return the object).

▪ Courts have no alternative but to enforce contracts as they were agreed upon and written
when the terms thereof are clear and leave no room for interpretation (Art. 1370).

⮚ The remedy available to the aggrieved party is to file an action for SPECIFIC
PERFORMANCE.

⮚ A compromise agreement is immediately executory and not applicable, except for vices
of consent (Art. 1330) or forgery. Upon the parties, it has the effect and the authority of
RES JUDICATA once entered into.
 ⮚ To have the force of law between the parties, it must comply with the requisites of
contracts. (Art. 1318) It may either extrajudicial (outside the court to prevent litigation)
or judicial (to end a litigation) (Magbanua v. Uy, 458 SCRA 184).

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the
right granted him by Article 1170, may COMPEL the debtor to make the delivery.

If the thing is INDETERMINATE or GENERIC, he may ask that the obligation be complied
with at the expense (damages) of the debtor.

If the obligor DELAYS, or has PROMISED to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any FORTUITOUS EVENT until
he has effected the delivery.

Remedies of creditor in REAL OBLIGATION.

▪ In a specific real obligation (obligation to deliver a determinate thing), the creditor may
exercise the following remedies or rights in case the debtor fails to comply with his
obligations:

1. DEMAND SPECIFIC PERFORMANCE or FULFILLMENT of the

obligation with a right to indemnity for damages (Demand Letter for
fulfillment with claim for damages);

2. DEMAND RECISSION or CANCELLATION of the obligation with a right to

recover damages; or

3. DEMAND PAYMENT FOR DAMAGES where it is the only feasible remedy.

▪ Only the debtor can comply with the obligation and the creditor is granted the right to compel
the debtor to make the delivery.
▪ It should be made clear that the law does not mean that the creditor can use FORCE or
VIOLENCE upon the debtor. The creditor must bring the matter to court and the court will
be the one to order the delivery.

SESSION 8

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the oblige
JUDICIALLY or EXTRA-JUDICIALLY DEMANDS from them the fulfillment of their
obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist: ENU

1. When the obligation or the law EXPRESSLY so declares; or

2. When from the NATURE and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or

3. When demand would be USELESS, as when the obligor has rendered it beyond his
power to perform;

In RECIPROCAL OBLIGATIONS, neither party (creditor & debtor) incurs in delay if the other
does not COMPLY or is not ready to comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation, delay by the other begins.

▪ Delay generally begins from the moment the oblige demands the performance of the
obligation and the obligor does not heed the demand. Demand is generally necessary even if
a period has been fixed in the obligation. Phil. Export & Foreign Loan Guarantee Corp v. V.P.
Eusebio Construction, Inc., et al., GR No. 140047, July 3, 2004

▪ DELAY is not to be understood according to its meaning in common parlance.

▪ Without such demand, judicial or extrajudicial, the effects of delay will not arise. Rose
Packing Company, Inc. v. CA, Nov. 14, 1988

Illustration:
If the extrajudicial demand is made on March 15, 2017 giving the debtor time up to March 20,
2017 to fulfill his obligation and the debtor fails to comply, the debtor is in delay on March 21,
2017.

Analysis:
▪ Demand Letter was sent on March 15, 2017
▪ Deadline of the obligation to be fulfilled on March 20, 2017
▪ Delay commenced on March 21, 2017

A. Ordinary delay is merely the failure to perform an obligation on time;

B. Legal delay or default mora is failure to perform an obligation on time which failure,
constitutes a breach of obligation.

Kinds of Delay (MORA):

1. Mora solvendi or the delay on the part of the debtor to fulfill his obligation (to give or to
do) by reason of a cause imputable to him;
2. Mora accipiendi or the delay on the part of the creditor without justifiable reason to
accept the performance of the obligation; and
3. Compensatio morae or the delay of the obligors in reciprocal obligations

REQUISITES of delay or default by the debtor:

There are three conditions that must be present before mora solvendi can exist or its effects arise:

1. Failure of the debtor to perform his obligation on the date agreed upon;
2. Demand (not mere reminder or notice) made by the creditor upon the debtor to fulfill,
perform, or comply with his obligation which demand, may be either judicial (when a
 complainant is filed in court) or extrajudicial (when made outside of court, orally or in
writing); and,
3. Failure of the debtor to comply with such demand.

▪ The above presupposes that the obligation is already due or demandable and liquidated.
There is no delay if the obligation is not yet due or demandable.

▪ A demand is only necessary in order to put an obligor in a due and demandable obligation in
delay. An extrajudicial demand is not required before a judicial demand.

▪ Delay generally begins from the moment the oblige demands the performance of the
obligation and the obligor does not heed the demand. Demand is generally necessary even if
a period has been fixed in the obligation. Phil. Export & Foreign Loan Guarantee Corp v. V.P.
Eusebio Construction, Inc., et al., GR No. 140047, July 3, 2004

▪ DELAY is not to be understood according to its meaning in common parlance.

▪ Without such demand, judicial or extrajudicial, the effects of delay will not arise. Rose
Packing Company, Inc. v. CA, Nov. 14, 1988

Illustration:

If the extrajudicial demand is made on March 15, 2017 giving the debtor time up to March 20,
2017 to fulfill his obligation and the debtor fails to comply, the debtor is in delay on March 21,
2017

Analysis:
▪ Demand Letter was sent on March 15, 2017
▪ Deadline of the obligation to be fulfilled on March 20, 2017
▪ Delay commenced on March 21, 2017
▪ A demand is only necessary in order to put an obligor in due and demandable obligation in
delay, which in turn is for the purpose of making the obligor liable for interests or damages
for the period of delay.

▪ The SC ruled that where a final demand, contained in a letter, of the creditor was received on
July 28, 1998 and where such demand gave the debtor five days from receipt to make
payment, the reckoning date of default is August 3, 1998. (Buenaventura v. MBTC, GR No.
167082, August 3, 2016)

▪ Commencement of a suit is a sufficient demand. Consequently, an obligor is liable for

damages for the delay not from the time the object of the prestation is to be delivered but
from the time of extrajudicial or judicial demand.

▪ Demand cannot be furnished prior to the maturity date of the obligation. Demand cannot also
be made by a party in order to put the other party in default if the one demanding has not yet
performed its obligation in a proper manner. (RCBC v. CA, GR No. 133107, 305 SCRA 449)

▪ Delay in the performance of the obligation, however, must be either malicious or negligent.
(GR No. 133107). If the delay was due only to inadvertence without any malice or
negligence, the obligor will not be held liable under Article 1170. Delay is the
non-performance of an obligation with respect to time (GR No. 140047).

▪ Demand cannot be furnished prior to the maturity date of the obligation (GR No. 140047).
Demand cannot also be made by a party in order to put the other party in default if the one
demanding has not yet performed its obligation in a proper manner.

▪ A demand must also be a CATEGORICAL ASSERTION for the fulfillment of an obligation

which is due and demandable. Hence, mere letters of reminders cannot be considered
demand (149734). Hence mere letters of reminders cannot be considered demand. Also, a
mere statement of a fact that failure to fulfill the obligation will cause the penalty to be
imposed is not a categorical demand (108129)
▪ GENERAL RULE: The delay begins only from the moment the creditor demand, judicially
or extrajudicially the fulfillment of the obligation. The demand for performance marks the
time when the obligor incurs mora or delay and is deemed to have violated his obligation.
Without such demand, the effect of default will not arise unless any of the EXCEPTION is
clearly provided.

1. When the obligation so provides

Illustration:

D promised to pay C the sum of P20,000.00 on or before November 30 without the need of any
demand. The agreement was made in writing. Therefore, if D fails to pay on November 30, he is
automatically in default. In this case, the parties stipulate to dispense with the demand.

▪ The mere fixing of the period is not enough. The arrival of the period merely makes the
obligation demandable. Before its arrival, the creditor cannot demand performance.

▪ The obligation must EXPRESSLY (stipulated in writing) so declare that demand is not
necessary or must use words to that effect, as for instance, “the debtor will be in default”
or “I will be liable for damages”

2. When the law so provides

▪ Under the Taxation Laws, taxes should be paid on or before a specific date; otherwise,
penalties and surcharges are imposed without the need of demand for payment by the
government, example: income tax, value added tax, real property tax, capital gains tax,
transfer tax, business tax, etc.
 ⮚ Capital gains tax on the 30th day of notarization of the deed of sale

⮚ The partner is liable for the fruits of the thing he may have promised to contribute to the
partnership from the time they should have been delivered without the need of any
demand (Arts. 1786 & 1788, New Civil Code)

3. When the time is of the essence

▪ The debtor is fully aware that the performance of the obligation after the designated time
would no longer benefit the creditor. When the time of delivery is not fixed or is stated in
general and indefinite terms, time is not of the essence of the contract. In such cases, the
delivery must be made within a reasonable time, in the absence of anything to show that
an immediate delivery was intended.

▪ When time of the essence even without express stipulation - it is not necessary, in order
not to make time of the essence of a contract, that the contract should expressly so
declare.

▪ Time may be of the essence, without express stipulation to that effect by implication from
the nature of the contract itself of the subject matter, or of the circumstances under which
the contract is made.

LEGAL INTEREST

▪ In obligation for the payment of money, Art. 2209 of the Civil Code shall apply which
provides that “if the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent (6%) per annum.

▪ In case of obligation for the payment of sum of money, the interest replaces the damages.
However, the rule is still the same in that default occurs only after judicial or extrajudicial
demand. If the contract stipulates from what time interest will be counted, said stipulated
 time controls, and, therefore interest is payable from such time and not from the date of filing
of the complaint. Firestone Tire & Rubber Co. (PI) v. Delgado, GR No. L-11162

▪ If the contract involving a sum of money does not stipulate any interest and / or the time
when it will be counted, interest will run only from the time of juridical or extrajudicial
demand.

▪ Damages or interest shall start to run only after judicial or extrajudicial demand.

Illustration:
If the obligation were due on March 1, 1998, the aggrieved party can file suit for specific
performance immediately after March 1, 1998. If, without any extrajudicial demand on the
obligor, the action or suit against the obligor was filed on April 15, 1998, damages will be
counted or reckoned not from March 1, 1998 but from April 15, 1998, which was the time when
judicial demand was made. If extrajudicial demand however was made on March 15, 1998 and
payment was to be made on that day, damages shall be counted not from March 1, 1998 but from
March 16, 1998.

Analysis:
Judicial Demand
▪ The obligation was due on March 1, 1998
▪ The judicial action or suit was due on April 15, 1998
▪ The reckoning period for the damages and / or interest will be on April 15, 1998.

OR
Extrajudicial Demand
▪ The demand letter was sent on March 15, 1998
▪ The damages and / or interest will be on March 15, 1998.

⮚ The law does not make, as a requisite, that extrajudicial demand must be made first on the
other party prior to the filing of a suit. Unless, stipulated otherwise, an extrajudicial demand
is not required before a judicial demand, i.e., filing a civil case for collection, can be resorted
to. (Palmares v. CA, GR No. 126490)
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Ground for liability:

1. FRAUD (deceit or dolo) – it is deliberate or intentional evasion of the normal fulfillment of

an obligation.

▪ As a ground for damages, it implies some kind of malice or dishonesty and it cannot
cover cases of mistake and errors of judgment made in good faith. It is synonymous to
bad faith in that it involves a design to mislead or deceive another.

▪ The fraud is employed for the purpose of evading the normal results in breach thereof
giving rise to a right by the innocent party to recover damages.

Illustration:

S obliged himself to deliver to B 20 bottles of wine, of a particular brand. S delivered 20 bottles

knowing that they contain cheaper wine. S is guilty of fraud and is liable for damages to B.

If B bought the 20 bottles of wine on the false representation of S that the wine is that as
represented by the labels, the fraud committed by S is causal fraud. Without the fraud, B would
not have given his consent to the contract. He has the right to have the contract annulled or set
aside on the ground of the fraud.

S can also be held for the crime of ESTAFA.

2. NEGLIGENCE (fault or culpa) – It is any voluntary act or omission, there being no malice,
which prevent the normal fulfillment of an obligation.
3. DELAY (Mora) – See abovementioned discussion.
4. CONTRAVENTION OF THE TERMS OF THE OBLIGATION – this is the violation of the
terms and conditions stipulated in the obligation. The contravention must not be due to a
fortuitous event or force majeure.
▪ The unilateral act of terminating a contract without legal justification by a party makes him
liable for damages suffered by the injured party. [Pacman, Inc. v. IAC, 150 SCRA 555
(1987)]

▪ BREACH OF CONTRACT is the failure without justifiable excuse to comply with the terms
of a contract. The breach may be willful or done unintentionally. It has been defined as the
failure, without legal excuse, to perform any promise which forms the whole or part of the
contract Nakpil v. Manila Towers Dev. Corp., 502 SCRA 470 (2006)

SESSION 9

Illustration:

If the obligation were due on March 1, 1998, the aggrieved party can file suit for specific
performance immediately after March 1, 1998. If, without any extrajudicial demand on the
obligor, the action or suit against the obligor was filed on April 15, 1998, damages will be
counted or reckoned not from March 1, 1998 but from April 15, 1998, which was the time when
judicial demand was made. If extrajudicial demand however was made on March 15, 1998 and
payment was to be made on that day, damages shall be counted not from March 1, 1998 but from
March 16, 1998.

Analysis:
Judicial Demand
▪ The obligation was due on March 1, 1998
▪ The judicial action or suit was due on April 15, 1998
▪ The reckoning period for the damages and / or interest will be on April 15, 1998.

OR
Extrajudicial Demand
▪ The demand letter was sent on March 15, 1998
▪ The damages and / or interest will be on March 15, 1998.

Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.

▪ FORTUITOUS EVENT is any event which cannot be foreseen, or which though

foreseen, is inevitable. In other words, it is an event which is either impossible to foresee
or impossible to avoid.

▪ The essence of a fortuitous event consists of being a happening independent of the will of
the obligor and which happening, makes the normal fulfillment of the obligation
impossible.
▪ Acts of man – fortuitous event is an event independent of the will of the obligor but not
of other human wills, e,g, war, fire, robbery, murder, insurrection

▪ Acts of god – they are those events which are totally independent of the will of every
human being, earthquake, flood, rain, shipwreck, lightning, eruption of volcano

Kinds of Fortuitous event:

1. Ordinary Fortuitous events or those events which are common and which the contracting
parties could reasonably foresee (e.g. rain)

2. Extraordinary fortuitous events or those events which are uncommon and which the
contracting parties could not have reasonably foreseen (e.g. earthquake, fire, war,
pestilence)

To constitute a fortuitous event, Nakpil v. CA, October 3, 1986, 144 SCRA 596, it is essential
that:

1. The event must be independent of the human will or at least of the obligor’s will;
2. The event could not be foreseen (unforeseeable), or if it could be foreseen, must have
been impossible to avoid (unavoildable);
3. The event must be of such a character as to render it is impossible for the obligor to
comply with his obligation in a normal manner;
 4. The obligor must be free from any participation in, or the aggravation of the injury to the
obligee / creditor.

▪ The absence of any of the above requisites (all of which must be proved) would prevent
the obligor from being exempt from liability.

▪ A person is not, as a rule, responsible for loss or damage resulting from fortuitous events.
In other words, his obligation is extinguished. The exceptions are enumerated below.

1. The debtor is guilty of fraud, negligence or delay, or contravention of the tenor of the
obligation;

2. The debtor has promised to deliver the same thing or two or more persons who do not
have the same interest for it would be impossible for the debtor to comply with his
obligation to two or more creditors even without any fortuitous event taking place;

3. The debt of a thing certain and determinate proceeds from a criminal offense, unless the
thing having been offered by the debtor to the person who should receive it, the latter
refused without justification to accept it; or

Parenthetically, the debtor is RESPONSIBLE for a fortuitous event: LSN

1. When expressly declared by LAW;

2. When expressly declared by STIPULATION or contract; and,
3. When the NATURE of the obligation requires the assumption of risk.
▪ Parties, by stipulation or contract, may EXPAND or RESTRICT the ambit of what
constitutes a fortuitous event. In certain cases decided by SC, the contract may provide for a
stipulation imposing liability even in cases of fortuitous events and the same shall be binding
upon the parties.

▪ The contracts may likewise provide for a particular procedure to be observed once an alleged
fortuitous event occurs.

Question:

Is the declaration of Covid19 Pandemic considered a fortuitous event?

Yes. Since all the elements under the Nakpil Doctrine are present, the said event can be
considered as fortuitous event, as listed hereunder.

1. The event must be independent of the human will or at least of the obligor’s will;
2. The event could not be foreseen (unforeseeable), or if it could be foreseen, must have been
impossible to avoid (unavoildable);
3. The event must be of such a character as to render it is impossible for the obligor to comply
with his obligation in a normal manner;
4. The obligor must be free from any participation in, or the aggravation of the injury to the
obligee.

Question:

Can be the debtors / obligors exempt from civil liability on the basis of this Pandemic?

No. the application of the legal concept of fortuitous event may no longer be necessary for some
contracts such as contracts of lease and loan. Republic Act No. 11469, also known as the
“Bayanihan to Heal as One,” directs all financial institutions, both public and private, to
implement a minimum of a 30-day grace period for the payment of all loans falling due within
the period of the ECQ without incurring interests, penalties, fees, or other charges. The said law
also provides for a minimum of 30-day grace period, without incurring interests, penalties, fees
and other charges, on residential rents falling due within the period of the ECQ.

SESSION 10

TERMINATION OF A CONTRACT

▪ As a rule, the method of terminating a contract is primarily determined by the

STIPULATION of the parties. The UNILATERAL TERMINATION of a contract by a party
is violative of the principle of mutuality of contracts ordained in Art. 1308. (Home
Development Mutual Fund v. CA, 288 SCRA 617)

▪ A contract may be superseded by a compromise agreement provided it is not contrary to law,

morals, good customs public order or public policy.
▪ If a party terminating the contract acted in bad faith purposely to injure or prejudice the other,
the former may be held liable for damages for ABUSE OF RIGHT under Art. 19, NCC
(Petrophil Corp. v. CA, 371 SCRA 702)

▪ Termination of a Contract need not undergo JUDICIAL INTERVENTION. The parties

themselves may exercise such option. Only upon disagreement between the parties as to how
it should be undertaken may parties resort to Courts. (Huibonhoa v CA, 320 SCRA 625).

FORM OF CONTRACTS

Art. 1356. Contracts shall be obligatory, in whatever form they have been entered into, provided
all the ESSENTIAL REQUISITES for their validity are present. HOWEVER, when the law
requires that a contract be in some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is absolute and indispensable. x x x

▪ The contract may be ORAL or in WRITING, or partly oral and partly in writing. If in
writing, it may be in a PUBLIC or a PRIVATE INSTRUMENT.

Classification of Contracts according to form:

1. INFORMAL or common contract – which may be entered into in whatever form,

provided all the essential elements (COC) for their validity are present. This refers
only to CONSENSUAL CONTRACTS. An informal contract may be oral or
written; and,

2. FORMAL or solemn contract – which is required by law for its efficacy to be in a

certain specified form.

The form is required in the following cases:

 1. When the law requires that a contract be in some form to be valid;
2. When the law requires that a contract be in some form to be enforceable or proved in a
certain way; or
3. When the law requires that a contract be in some form for convenience of the parties or
for the purpose of affecting third persons.

Documents that needed to be in private writing:

1. Authorization
2. Sale of a transaction is more than P500.00
3. Promissory Note
4. Acknowledgment Receipt
5. Agreement

Art. 1358. The following must appear in a PUBLIC DOCUMENT:

1. Acts and contracts which have for their object creation, transmission, modification or
extinguishment of real rights over IMMOVABLE PROPERTY; sales of real property or
of an interest therein are governed by Art. 1403, No. 2 and 1405;
2. Cession, repudiation or renunciation of HEREDITARY RIGHTS or of those of the
conjugal partnership of gains;
 3. The power to administer property, or any other power which has for its object an act
appearing or which should appear in a public document, should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.

Examples of transactions of real property that needed to be in public instrument:

1. Deed of Absolute Sale 7. Notarial Will
2. Deed of Donation
3. Extrajudicial Settlement with Sale
4. Contract to Sell
5. Chattel Mortgage
6. Real Estate Mortgage
SESSION 11

▪ A PUBLIC DOCUMENT or INSTRUMENT is one which is acknowledged before a notary

public or ay official authorized to administer oath, by the person who executed them.

⮚ The party making the acknowledgment formally declares that the instrument is his free act
and deed while the officer taking the formally declares that the instrument is his free act and
deed while the officer taking the same attests and certifies that such party is known to him
and that he is the same person who executed the instrument and acknowledged that the
instrument is his free act and deed.

⮚ Any other instrument is private in character.

⮚ The public document is required only for the CONVENIENCE and GREATER
PROTECTION of the parties and REGISTRATION is need only to make the contract
effective as against third persons.
⮚ FORMAL REQUIREMENTS are for the BENEFIT of third parties for the purpose of
informing as well as binding them.

PROBATIVE VALUE OF PUBLIC INSTRUMENT:

1. The effect of NOTARIZATION of a private document is to convert the said document into a
public one and render it admissible in evidence in court while further proof of its authenticity
and due execution (Nadayag v. Grageda, 237 SCRA 202);

2. Public documents are entitled to full faith and credit on their face in the absence of any clear
and convincing evidence that their execution was tainted by defects or irregularities that
would warrant a declaration of nullity;

3. Public documents enjoy the presumption of validity and regularity. It is not however, the
intention nor the function of the notary public to validate and make binding an instrument
never, in the first place, intended to have any binding legal effect upon the parties thereto.
(Santiago v. CA, 277 SCRA 98).

Question: What will happen if the sale of a real property was not made in writing?
The SC ruled that, in Tapec v. CA, GR No. 111952, the failure to put in a public or private
document or writing the transactions or matters enumerated in Art. 1358 will not render the
agreement void or invalid.

▪ A party, who desires to have his contract reduced in the particular form required by law, can
file an action to compel (specific performance) the other party to comply with such form.
(Luisito Pontigon and Leodegracia Sanchez Pontigon v. Heirs of Meliton Sanchez, et al., GR
No. 221513)

REFORMATION OF CONTRACT
▪ REFORMATION applies only to written contracts contained in an instrument or series of
instrument.
▪ It connotes a valid contract. The parties are able to have a meeting of minds but the
instrument supposed to embody the contract does not conform to such contract.
▪ Two fundamental matters must be shown before reformation can be availed: that the
instrument embodying the contract does not reveal the 1) true INTENTION of the
parties; and, 2) the existence of real and actual contract entered into by the parties.
▪ Failure to prove these two matters may lead to the creation of an entirely new contract not
within the contemplation of the parties.
▪ Reformation may be caused by mistake, fraud, inequitable conduct or accident of the
parties. However, if these factors PREVENT a meeting of the minds, ANNULMENT and
not reformation is the remedy.

INTERPRETATION OF THE CONTRACT

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the LITERAL meaning of its stipulation shall control.
 ▪ In Ramos v. PNB, the SC ruled that obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith. When the
terms of a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs.

▪ In such cases, Courts have no authority to alter the contract by construction or to make a
new contract for the parties; a court’s duty is confined to the interpretation of the contract
the parties made for themselves without regard to its wisdom or folly, as the court cannot
supply MATERIAL STIPULATIONS or read into the contract words the contract does
not contain.

SESSION 12

Article 1403. The following contracts are unenforceable, unless they are ratified:
1. Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

2. Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents; and

3. Those where both parties are incapable of giving consent to a contract.

▪ Unenforceable Contracts are those that cannot be ENFORCED in court or sued upon by
reason of DEFECTS provided by law until and unless they are RATIFIED according to law.

▪ Unauthorized contracts are those entered into in the name of another person by one who has
been given no authority or legal representation or who has acted beyond his powers.

▪ Statute of Frauds is descriptive of statutes which require certain classes of contracts to be in

writing. The effect of non-compliance is simply that no action can proved unless the
requirement is complied with.

LAW ON KATARUNGANG PAMBARANGAY (Per Local Government Code of 1991)

▪ The purpose of the BARANGAY JUSTICE SYSTEM is to discourage the indiscriminate

filing of cases in Court in order to decongest its clogged dockets and, in the process, enhance
the quality of justice dispensed by it (Quiros v. Arjona, 425 SCRA 57).

▪ The barangay justice system was established primarily as a means of easing up the
congestion of cases in the judicial courts. This could be accomplished through a proceedings
before the barangay courts which according to the one who conceived the system, the late
Chief Justice Fred Ruiz Castro, is essentially ARBITRATION in character; and to make it
truly effective, it should also be compulsory.

▪ The primordial objective of Presidential Decree (PD) No. 1508 is to reduce the number of
court litigations and prevent the deterioration of the quality of justice which has been brought
by the indiscriminate filing of cases in the Courts.
▪ PD No. 1508 was repealed by RA 7160 otherwise known as the “Local Government Code of
1991” which took effect on Jan. 1 1992. The repeal, however, did not do away with the
barangay justice system because RA 7160 provided for the same system original established
under PD No. 1529.

▪ RA 9285, otherwise known as the “Alternative Dispute Resolution Act of 2004” (ADR Act)
did not repeal, amend or modify the jurisdiction of the Lupon under the Katarungang
Pambarangay Law and, hence, the provisions of the Local Government Code thereon remain
effective.

Section 399. Lupong Tagapamayapa. -

a) There is hereby created in each barangay a lupong tagapamayapa, hereinafter referred to

as the lupon, composed of the punong barangay, as chairman and ten (10) to twenty (20)
members. The lupon shall be constituted every three (3) years in the manner provided
herein.

b) Any person actually residing or working, in the barangay, not otherwise expressly
disqualified by law, and possessing integrity, impartiality, independence of mind, sense of
fairness, and reputation for probity, may be appointed a member of the lupon.

c) A notice to constitute the lupon, which shall include the names of proposed members
who have expressed their willingness to serve, shall be prepared by the punong barangay
within the first fifteen (15) days from the start of his term of office. Such notice shall be
posted in three (3) conspicuous places in the barangay continuously for a period of not
less than three (3) weeks;

d) The punong barangay, taking into consideration any opposition to the proposed
appointment or any recommendations for appointment as may have been made within the
period of posting, shall within ten (10) days thereafter, appoint as members those whom
he determines to be suitable therefor. Appointments shall be in writing, signed by the
punong barangay, and attested to by the barangay secretary.
 e) The list of appointed members shall be posted in three (3) conspicuous places in the
barangay for the entire duration of their term of office; and

f) In barangays where majority of the inhabitants are members of indigenous cultural

communities, local systems of settling disputes through their councils of datus or elders
shall be recognized without prejudice to the applicable provisions of this Code.

Section 402. Functions of the Lupon. - The lupon shall:

a) Exercise administrative supervision over the conciliation panels provided herein;

b) Meet regularly once a month to provide a forum for exchange of ideas among its members
and the public on matters relevant to the amicable settlement of disputes, and to enable
various conciliation panel members to share with one another their observations and
experiences in effecting speedy resolution of disputes; and

c) Exercise such other powers and perform such other duties and functions as may be prescribed
by law or ordinance.

Section 404. Pangkat ng Tagapagkasundo. –

(a) There shall be constituted for each dispute brought before the lupon a conciliation panel to be
known as the pangkat ng tagapagkasundo, hereinafter referred to as the pangkat, consisting of
three (3) members who shall be chosen by the parties to the dispute from the list of members of
the lupon.
Should the parties fail to agree on the pangkat membership, the same shall be determined
by lots drawn by the lupon chairman.

(b) The three (3) members constituting the pangkat shall elect from among themselves the
chairman and the secretary. The secretary shall prepare the minutes of the pangkat proceedings
and submit a copy duly attested to by the chairman to the lupon secretary and to the proper city
or municipal court. He shall issue and cause to be served notices to the parties concerned.
The lupon secretary shall issue certified true copies of any public record in his custody
that is not by law otherwise declared confidential.

Section 407. Legal Advice on Matters Involving Questions of Law.

The provincial, city legal officer or prosecutor or the municipal legal officer SHALL RENDER
LEGAL ADVICE on matters involving QUESTIONS OF LAW to the punong barangay or any
lupon or pangkat member whenever necessary in the exercise of his functions in the
administration of the katarungang pambarangay.
SESSION 14

KATARUNGANG PAMBARANGAY

▪ No complaint, petition, action or proceeding involving ANY MATTER within the authority
of the Lupon shall be filed or instituted directly in court or any other government office for
adjudication, unless there has been a prior conciliation before the Lupon and no settlement
has been reached, or a settlement has been reached but it has been properly repudiated by the
parties. (Sec. 412, RA No. 7160)

▪ While a pre-litigation conciliation by the Lupon is mandatory, it is not jurisdictional.

(Gonzales v. CA, 151 SCRA 484).

▪ A Court will not fail to acquire or lose its jurisdiction over a dispute which falls within the
jurisdiction of the Lupon although it did not undergo the prelitigation conciliation.

▪ The conciliation process is not a jurisdictional requirement, so that non-compliance therewith

cannot affect the jurisdiction which the Court has otherwise acquired over the subject matter
or over the person of the defendant.

▪ The requirement for barangay conciliation is merely procedural technicality. (Catorce v. CA,
129 SCRA 210).
▪ The absence thereof only affects the sufficiency of the cause of action and renders the
complaint dismissible on the ground of failure to comply with a condition precedent pursuant
to Rules of Court.

▪ The institution of the action, whether civil or criminal, without complying with the
requirement merely renders the action premature for failure to exhaust all administrative
remedies. (Villador, Jr. v. Zabala, 545 SCRA 325)

FORMS of DISPUTE RESOLUTION:

1. Conciliation / Mediation – generally, the Lupon chairman or the Pangkat can conduct
conciliation or mediation leading towards an amicable settlement in order to resolve a
dispute.

▪ The Lupon Chairman or the Pangkat will not decide the dispute brought to them or render
an award thereon. They are vested only with conciliation functions. They can only
encourage the parties to voluntarily arrive at an amicable settlement.

2. Arbitration – at any stage of the proceedings, the parties may agree to undergo
arbitration by the Lupon Chairman or the Pangkat provided that the parties agree in
writing that they shall abide by the award thereon.

▪ The Lupon Chairman, acting as a sole arbitrator, or the Pangkat acting as a panel of
arbitrators, can conduct arbitration.

Arbitration
▪ The agreement to arbitrate may be repudiated within five (5) days from the date thereof. If no
repudiation of the agreement to arbitrate is made within the said period, the arbitration award
shall be made after the lapse of the said period. (Sec. 413, RA 7160).

▪ As a general rule, the Lupon chairman or the Pangkat cannot exert compulsion upon the
parties to resolve the dispute through an amicable settlement. However, if the parties have
entered into a settlement agreement, or have agreed in writing to undergo arbitration and an
arbitration award has been rendered, the Lupon chairman or the Pangkat has the authority to
compel compliance with or cause the execution of the settlement or the award.

As to dispute over REAL PROPERTY:

▪ In Torbela v. Rosario, 661 SCRA 633 (2011), the SC ruled that although venue is
generally determined by the residence of the parties, disputes involving real properties
shall be brought in the barangay where the real property or any part thereof is situated,
notwithstanding that the parties reside elsewhere in the same city/municipality.