PART I

PRESCRIPTION (BOOK III TITLE V)

Arts. 1106-1155
Prescriptionmeans by which one acquires ownership and other real rights through the
lapse of time in the manner and under the conditions laid down by law.
-means by which rights and actions are lost.
- mode of acquiring or losing ownership
Under the Civil Code Prescription covers both acquisitive and extinctive
prescription.
(US vs. Serapio 23 Phil 597)
Common Law Prescription is equivalent to acquisitive prescription, that is
acquisition of right through lapse of time. While limitation
refers to the time within which an action may be brought or
extinctive prescription.
A.

Acquisitive Prescription Art. 1117

1.

Requisites for Ordinary Acquisitive Prescription

a. Capacity to acquire by prescription;
(no prescription between husband and wife, between parent
and child during minority of the latter, between guardian and
ward during the continuance of guardianship, between coowners, etc.)
b. The object must be susceptible of prescription;
(property of the State or any of its subdivisions, except
patrimonial property, movables possessed through a crime by
the offender, lands under the Torrens System of registration
with a torrens certificate of title, are not susceptible of
prescription).
c. Possession must be in the concept of owner, public, peaceful,
continuous and uninterrupted (Art. 1118, NCC);
d. Possession must be by virtue of a title and in good faith;
Good faith for purposes of prescription consists in a
reasonable belief that the person from whom the
possessor received the thing was the owner thereof, and
could transfer the ownership (Article 1127, NCC); or
that it consists in the ignorance of the possessor of any
flaw which would invalidate his title or mode of
acquisition. (Article 526, NCC).

Just title for purposes of prescription exists when the

adverse claimant came into possession of the property
through one of the modes recognized by law for the
acquisition of ownership or other real rights, but the
grantor was not the owner or could not transmit any
right. (Article 1129, NCC).
e. The period of possession must be four (4) years for movable
property and ten (10) years for immovable property

2. Requisites for Extraordinary Acquisitive Prescription

a. Capacity to acquire by prescription;
(no prescription between husband and wife, between parent and
child during minority of the other, between guardian and ward
during the continuance of guardianship, between co-owners, etc.)
b. The object must be susceptible of prescription;
(property of the State or any of its subdivisions, except
patrimonial property, movables possessed through a crime by the
offender, lands covered by the Torrens System, are not
susceptible of prescription).
c. Possession must be in the concept of owner, public, peaceful,
continuous and uninterrupted (Art. 1118, NCC);
d. Possession may be without title and in bad faith;
e. The period of possession must be eight (8) years for movable
property and thirty (30) years for immovable property
3.

What Cannot Be Required By Acquisitive Prescription

a.
Those not within the commerce of men (Art. 1113);
b.
Property of the State or any of its subdivisions not
patrimonial in character (Art. 1113);
c.
Movables possessed through a crime (Art. 1133)
d.
Lands registered under the Torrens system (Sec. 47 of PD

1529)
A.

Extinctive Prescription orPrescription of Actions/Statutes of Limitations

1.
2.
3.

Characteristics
Requisites
Periods
Imprescriptible Actions:
(1)

action to demand a right of way (Article 1143, Civil Code);

(2)

action to abate a public or private nuisance (Article. 1143,

Civil Code);
(3) action to declare ordinary contract void (Article 1410, Civil
Code);
(4) petition to declare contract of marriage void (Article 39,
Family Code);
(5) petition for probate of will;
(6) action for partition of co-ownership so long as co-owner has
not expressly repudiated co-ownership (Article 494, Civil
Code);
(7) action for present or future support, but no support in
arrears;
(8) action by beneficiary to recover property placed in trust so
long as trustee has not expressly repudiated the trust;
(9) action by registered owner to recover property brought
under the Torrens System (Section 47, P.D. 1539);
(10) action by the state to recover lands of public dominion;
(11) action to recover movables possessed through a crime
against the offender (Article 1133, Civil Code).
(12) action for quieting of title so long as plaintiff is in
possession of the property (Cabrera vs. CA 267 SCRA 339);
Other Actions
a.
b.

To Recover Movables Art. 1140 (8 years)

To Recover Immovables Art. 1141 (30 years)

c.

Other Actions Arts. 1142-1149

1) Within 10 years upon a written contract, upon an
obligation created by law and upon a
judgment, Mortgage (Art.1142) (Art.
1144)
2) Within 6 years upon an oral contract; quasi-contract
3) Witihin 5 years other actions whose periods are not
fixed in the Code or other law
4) Within 4 years upon injury to rights of plaintiff; quasi-

delict
5) Within 1 year forcible entry and detainer; defamation
B.

Distinction Between Acquisitive and Extinctive Prescription

1. As to elements: the first requires a positive fact, the possession by one
who is not the owner, while the second requires a negative fact, the
inaction of the owner;

2. As to purpose the first is for the purpose of acquisition of rights,

while the second is for the purpose of extinction of rights;
3. As to extent the first is applicable only to real rights which are
susceptible of possession, while the second is applicable to all kinds of
rights, real or personal;
4. As to effect the first results in the acquisition and extinction of a real
right while the second merely results in the extinction of a real or
personal right.
5. As to interruption
Acquisitive prescription (Arts.1120 to 1125)
o Naturally (possession ceases for over 1 year)
o Civilly (through summons to the possessor except for the
cases provided under Art. 1124)
o Express or tacit (recognition by possessor of the owners
right)
o
o
o

Extinctive prescription (Art. 1155)

Filed in court
Written extra-judicial demand by creditor
Written acknowledgment by debtor
Case Studies:
Morales vs. CFI (97 SCRA 872)
Re: Article 1106 NCC There are two kinds of prescription provided in the Civil
Code. One is acquisitive, i.e; the acquisition of ownership and other real rights by the
lapse of time (Article 1109, par. 1), other names for acquisitive prescription are adverse
possession and usucapcion. The other kind is extinctive prescription whereby rights and
actions are lost by the lapse of time (Arts. 1106 par. 2 and 1139). Another name for
extinctive prescription is limitation of action.
(Note: Limitation of action or statute of limitation is one of the grounds for a
Motion to Dismiss under Rule 16, Revised Rules of Court). Petitioner filed an action for
recovery of possession, ownership of a parcel of land against private respondents, who in
their answer, set up, among others, the affirmative defense that petitioners (as plaintiff)
cause of action is barred by extinctive prescription or statute of limitations. During the
hearing on the affirmative defense of extinctive prescription or statute of limitation, the
evidence proved that the recovery action was filed after 10 years but before 30 years
from the time private respondents took possession of the land. The CFI dismissed the
complaint, which was reversed/set aside and the case remanded for trial to the CFI. The
action has not prescribed or been barred by the statute of limitations pursuant to Article
1141, NCC which provides that real actions to recover immovables prescribe in 30 years.
The law requires that one who asserts ownership by ordinary acquisitive prescription of
real estate,good faith and just title are never presumed but must be proved pursuant to

Article 1131 NCC. Hence, ordinary acquisitive prescription, unlike extinctive

prescription or statute of limitations, is not among the grounds for a motion to dismiss
(Rule 16, Rev- Rules of Court) but the same must be threshed out and proved in full
blown trial.
Hrs. of Arzadon-Crisologo vs. Raon (532 SCRA 391)
Re: Article 1137 (extraordinary acquisitive prescription) and Article 1123 (civil
interruption of possession). Prescription as a mode of acquiring ownership and other
real rights over immovable is concerned with the lapse of time in the manner and under
the conditions laid down by law, namely: that the possession should be in the concept of
owner, public, peaceful, uninterrupted and adverse. Article 1137, NCC
on acquisitive
prescription provides: ownership and other real rights over immovables also prescribe
through uninterrupted adverse possession thereof for thirty years without need of title or
good faith.Notice of adverse claim does not interrupt the running of acquisitive
prescription. It does not take place of judicial summons under Art. 1123. Extraordinary
acquisitive prescription may bestow ownership on possessor
Hrs. of Maningding vs. CA (276 SCRA 601)
A donation, though void for lack of formal requisites, could be a basis for adverse
possession for extraordinary acquisitive prescription. While a donation propter nuptias
is void for failure to comply with formal requisites, it could still constitute a legal basis
for adverse possession.
Vda. De Cabrera vs. CA (267 SCRA 339)
(Article 1143) An action for reconveyance of a parcel of land based on implied
or constructive trust ordinarily prescribed in ten (10) years, the point of reference being
the date of registration of the issuance of the certificates of title over the property (Article
1144); but this rule applies only when the plaintiff is not in possession of the property;
however, if the person claiming to be the owner thereof is in actual possession of the
property, the right to seek reconveyance which in effect seeks to quiet title to the property,
does not prescribe.
Hrs. of Flores Restar vs. Hrs. of Cichon (475 SCRA 731)
While an action to demand partition does not prescribe, a co-owner may acquire
ownership thereof by clear repudiation of the co-ownership and the co-owners are
appraised of their rights.
Tenales vs. IAC (143 SCRA 223)
Statute of limitations are statutes of repose, the object of which is to suppress
fraudulent and stale claims from springing up at great distances of time and surprising
parties and their representatives when all the proper vouchers and evidences are lost or

the facts have become obscure from the lapse of time or the defective memory or death or
removal of witnesses. Suchstatutes apply with full force even to most meritorious claims.
The purpose of these statutes is to protect the diligent and vigilant, not those who sleep
on their rights.
Nielson & Company, Inc vs. Lepanto Consolidated Mining Co. ( 18 SCRA 1040)
Laches is different from prescription. Prescription is concerned with the fact of
delay, whereas laches is concerned with the effect of delay. Prescription is a matter of
time; laches is principally a question of inequity of permitting a claim to be enforced, this
inequity being founded on some change in the condition of the property or the relation of
the parties. Prescription is statutory; laches is not. Laches applies in equity; whereas
prescription applies at law. Prescription is based on fixed time, laches is not
C.

Interruption Art. 1155

3 Ways In Which Prescription of Action (Extinctive Prescription) Is
Interrupted:
a. Filed before the court
b. Written extra-judicial demand
c. Written acknowledgment of debt by debtor
Interruption of Possession vs. Suspension of Prescription
Interruption of Possession -all benefits acquired so far from possession
ceases. When the prescription runs again, it
is a new one.
Suspension of Prescription- the past period is included after
prescription is resumed.
OBLIGATIONS (BOOK IV TITLE I)
Arts. 1156-1304

I.

General Provisions (Chapter 1) Arts. 1156-1162

Obligation juridical necessity to give, to do or not to do
Elements of an Obligation
Sources of Obligations Art. 1157
1. Law. (Not Presumed Art. 1158)
2. Contracts
3. Quasi-Contracts
4. Acts or Omissions Punished By Law

5. Quasi-Delicts
Case Studies:
Pelayo vs. Lauron (12 Phil 453)
(Re: Article 1158, Civil Code) Medical services rendered by a physician for
delivery of the child are chargeable to the husband, not to the parents-in-law of the wife,
even if it was the parents-in-law who brought the daughter-in-law to the physician.
Cruz vs. Northern Theatrical Enterprises (95 Phil 739)
While it is to the interest of the employer to give legal help to, and defend, its
employees charged criminally in court, in order to show that he was not guilty of any
crime either deliberately or through negligence, because should the employee be finally
held criminally liable and he is found to be insolvent, the employer would be subsidiarily
liable, such legal assistance might be regarded as a moral obligation but it does not at
present count with the sanction of man-made laws. If the employer is not legally obliged
to give legal assistance to its employee and provide him with a lawyer, naturally said
employee may not a recover from his employer the amount he may have paid a lawyer
hired by him.
PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. If despite
the absence of any criminal responsibility on the part of the employee he was accused of
homicide, the responsibility for the improper accusation may be laid at the door of the
heirs of the deceased at whose instance the action was filed by the State through the
Fiscal. This responsibility can not be transferred to his employer, who in no way
intervened, much less initiated the criminal proceedings and whose only connection or
relation to the whole affair was that it employed plaintiff to perform a specific duty or
task, which was performed lawfully and without negligence.
II.

Nature and Effect of Obligations (Chapter 2) Arts. 1163-1178

A.

Obligation To Give (Art. 1165)

1.
2.

A Determinate Or Specific Thing

Individualized and can be identified or distinguished from
others of its kind
An Indeterminate Or Generic Thing
Indicated only by its kind, without being distinguished
from others of the same kind.

Case Study:
Adorable vs. CA (319 SCRA 200)(Real right distinguished from Personal right)

Re: (Art. 1164)Areal right, like rights of ownership and possession is the
power belonging to a person over a specific thing, without a passive subject individually
determined against whom such right may be personally exercised; it gives a person a
direct and immediate juridical power over a thing, which can be exercised not only
against a determinate person, but against the whole world. A personal right on the
other hand, is the power belonging to one person to demand of another, as a definite
passive subject, the fulfillment of a prestation to give, to do, or not to do.
B.
C.

Obligation To Do Or Not To Do (Arts. 1167 & 1168)

Breaches Of Obligations
1.
Complete Failure To Perform
2.
Default, Delay Or Mora No Default Unless Creditors Makes A
Demand;
Exceptions (Art. 1169)
Delay, default or Mora: delay in the fulfillment of obligations; it is
non-fulfillment with respect to time
Different Kinds of Mora:
a.
Mora solvendi
b.
Mora accipiendi
c.
Compensatio morae
Requisites of Default:
That the obligation be demandable and liquidated
That the debtor delays performance
That the creditor demands performance judicially or
extrajudicially, subject to the exceptions provided by law.
3.

Fraud In The Performance Of Obligation

a.
Waiver Of Future Fraud Is Void (Art. 1171)
Fraud: (Dolo) (Art. 1171)
The deliberate and intentional evasion of the normal
fulfillment of obligations. It implies malice or dishonesty
and it cannot cover cases of mistake/error in judgment

Fraud: (Dolo) (Art. 1138)

Fraud in the negotiation, perfection or consummation of the
contract entitles the aggrieved party the remedy of
rescission plus damages
Case Study:

Sps. Tongson vs. Emergency Pawnshop Bula, Inc. (610 SCRA 150)
Fraud in the negotiation, perfection or consummation of contract entitles
aggrieved party to the remedy of rescission plus damages.
4.

Negligence (Culpa) In The Performance Of Obligation (Art. 1173)

a.
Diligence Normally Required Is Ordinary Diligence Or
Diligence Of A Good Father Of A Family; Exceptions
Common Carriers Requiring Extraordinary Diligence
(Arts. 1998-2002)
3 Different Kinds of Negligence As Source of Obligation:
Culpa contractual
Culpa aquiliana (quasi delict)
Culpa criminal
Test of Negligence - if defendant did not use ordinary care and
caution which an ordinary prudent man would have used
in the same situation

Case Studies:
Valencia vs. RFC and CA (103 Phil. 444)
(Re: Article 1186, Civil Code) The condition to put up a bond by the winning
bidder to construct a building, may be waived by the owner, and failure of winning
bidder to put up a bond, will make winning bidder liable for breach of contract and
damages, because of failure of winning bidder to proceed with the construction.Thus,
pursuant to Article 1186, Civil Code, the condition shall be deemed fulfilled when the
obligor (the winning bidder) voluntarily prevents its fulfillment.
Picart vs. Smith (37 Phil 805)
(Re: Article 1157, numbers 4 and 5, Civil Code) The principal issue is whether
or not petitioners, heirs of deceased Arsenio Virata, can prosecute a civil action for
damages based on quasi-delict against both Maximo Borilla (driver employee) and
Victorio Ochoa (owner-employer) that bumped Arsenio Virata, while the criminal action
for homicide thru reckless imprudence was still pending against Maximo Borilla, the
driver-employees. Yes, pursuant to Article 2177, Civil Code; however, the plaintiff cannot
recover damages twice for the same act or omission of the defendant.
5.
6.

Contravention Of The Tenor Of Obligation

Legal Excuse For Breach Of Obligation Fortuitous Event;
Requisites
(Art. 1174)

Case Studies:
Co vs. CA (291 SCRA 111)
Under Articles 1174 and 1262 of the New Civil Code, liability attaches even if the
loss was due to a fortuitous event if "the nature of the obligation requires the assumption
of risk." Carnapping is a normal business risk for those engaged in the repair of motor
vehicles. For just as the owner is exposed to that risk so is the repair shop since the car
was entrusted to it. Failure of repair shops to first register with the Department of Trade
and Industry (DTI) and to secure an insurance policy for the "shop covering the property
entrusted by its customer for repair, service or maintenance" constitutes negligence per
se. Carnapping per se cannot be considered as a fortuitous event. To be considered a
fortuitous event or an act of God or was done solely by third parties, neither the claimant
nor the person alleged to be negligent must not have any participation. The law adopts
the standard of a discreet pater familias of Roman Law the degree of care exercised by
a reasonable man under the circumstances.
Nakpil & Sons vs. CA (144 SCRA 596)
(Re: Article 1174 Force Majeure or Fortuitous Event) To exempt the obligor from
liability under Article 1174 of the Civil Code, for a breach of an obligation due to an
act of God, (force majeure/caso fortuito) the following must concur:
(a) The cause of the breach of the obligation must be independent of the will of
the obligor;
(b) The event must either be unforeseeable or unavoidable;
(c) The event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
(d) The debtor must be free from any participation in, or aggravation of the
injury to the creditor (see also Republic vs. Luzon Stevedoring Corporation).
The Supreme Court, interpreted the provision of Article 1174, Civil Code, the general
provision on force majeure or fortuitous event which states generally, x x x no person
shall be responsible for those events which could not be foreseen, or which though
foreseen is inevitable.
Republic vs. Luzon Stevedoring Corp (21 SCRA 279)
(Re: Article 1174, Civil Code, Caso Fortuito or Force Majeure) For caso
forfuito or force majeure (which in law are identical insofar as they exempt an obligor
from liability) by definition, are extraordinary events not foreseeable or avoidable,
events that could not be foreseen or which, though foreseen, were inevitable. It is not
enough that the event should not have been foreseen or anticipated, as is commonly
believed, but it must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to see the same. The very measures adopted by

appellant prove that the possibility of danger was not only foreseeable, but actually
foreseen, and not caso fortuito.
D.

III.

Remedies Available To Creditor In Cases Of Breach

1.
Specific Performance
a.
Substituted Performance by a third person in Obligation to
deliver generic thing and in obligation to do, unless a
purely personal act
2.
Rescission (resolution in reciprocal obligations)
3.
Damages, in any event
4.
Subsidiary Remedies Of Creditors (Art. 1177)
a.
Accion subrogatoria
b.
Accion pauliana
c.
Accion directa (Arts. 1652lessors right to sue directly sublessee,
1608- vendors right to sue directly assignee of vendee in pacto de retro sale,
1729-laborers/material suppliers right to sue directly owner,
1893-principals right to sue directly sub-agent)

Kinds of Obligations (Chapter 3) Arts. 1179-1230

A.

Pure and Conditional Obligations - (Section 1)Arts. 1179-1192

Pure Obligation without a condition or term (Arts. 1179-1180)demandable at once
Conditional Obligation with a condition (Art. 1181)
1. Classifications ofConditions:

a.
i.

Potestative /Casual/Mixed

Potestative it depends exclusively on the will of one of the parties

a. Potestative on part of Debtor
If also suspensive void
If also resolutory - valid
b. Potestative of the part of the Creditor - valid
2 Kinds of Potestative Conditions:

Simple Potestative (valid) If a decide to sell my house,

the first offer will be to you (the right of first refusal)


ii.
iii.

Purely Potestative (void) I will sell my house to you if I

like

Casual its fulfillment depends upon chance or the will or a third person
Mixed its fulfillment depends upon the will of a party; the obligation upon chance or
the will or a third person
.
b. Suspensive vs. Resolutory
Suspensive Condition happening of condition gives rise to
obligation
Resolutory Condition happening of condition extinguishes
obligation
1. Effect Of The Happening Of ASuspensive Condition (Art. 1187);
Resolutory Condition
Kind of Obligation
To give

Condition Fulfilled
Suspensive

To do or not to do

Suspensive

To give, to do or not to do

Resolutory

Retroactivity
Retroacts to day of
constitution of obligation
Courts shall determine
retroactive effect
No retroactivity

2. Effect Of Loss Of Specific Thing Or Deterioration or improvement of

specific thing before suspensive condition (Art. 1189); if this occurs in
resolutory condition in obligation to do or not to do (1190, par. 3)
Event
Thing Lost
Thing deteriorates

Thing Improves

6.

Party
Responsible
No fault of debtor
Fault of debtor
No fault of debtor
Fault of debtor
Due to nature/time
Due to debtor

Effect On Obligation
Extinguished
Debtor Pays Damages
Impairment borne by Creditor
Creditor may choose between
rescission and fulfillment with
damages in either case
Improvement to creditor
Debtor has rights of usufructuary for
the improvements

Power To Rescind In Reciprocal Obligations (Art. 1191)

Reciprocal Obligations - arise from the same cause, and in which

each is a debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. They are to be
performed simultaneously so that the performance of one is
conditioned upon the performance of the other.
Art. 1191 Does Not Apply In:

In sale of immovable property with a proviso that in case buyer

fails to pay, seller can rescind. Art. 1592 applies which grants the
buyer the right to pay as long as there is no judicial or notarial
demand for rescission.

In contracts of lease because while Art. 1191 grants the court the
power to fix a longer period for compliance, Art. 1659 (on lease)
such discretionary power is not granted to the courts.

In contract to sell of immovable property; hence no judicial nor

notarial demand is needed to resolve(rescind) the contract. Relate
to Maceda Law (RA 6552). Failure to pay installment or balance of
the full purchase price is a positive suspensive condition, the
failure of which is not a breach casual or serious but simply an
event which prevented the obligation of vendor to convey title .
The transfer of ownership and title would occur after full payment
of purchase price.

Art. 1191 Applies In:

In a lease contract which provides that in case of non-payment of

rentals, the lessor can eject without judicial proceedings, because
such provision is valid as even under Art. 1191, lease contract
being reciprocal contract, can be rescinded in the event of nonfulfillment (Consing vs. Jamandre 64 SCRA 1)

In a sale of movable properties in which case, no judicial approval

is necessary if buyer does not pay price on date stipulated.

Case Studies:
Consing vs. Jamandre (64 SCRA 1)

(Re: Article 1191, Civil Code) The contract between sublessor and sublessee
authorizing sublessor to take possession of leased premises in case of breach of contract
without judicial action, is valid and binding.This stipulation is in the nature of a
resolutory condition; judicial permission to cancel agreement is not necessary as judicial
permission is needed only in the absence of a special provision granting the power of
cancellation. The sublessee cannot complain of deprivation of rights without due process
of law.
Liu vs. Loy, Jr. (405 SCRA 316)
Although the law allows the extra-judicial cancellation of a contract to sell upon
failure of the party to comply with his obligation, notice of such cancellation must still be
given to the party who is at fault. The notice of cancellation to the other party is one of
the requirements for a valid cancellation of a contract to sell, aside from the existence of
a lawful cause, citing the case of Lim v. Court of Appeals, G.R. No. 85733, 23 February
1990, 182 SCRA 564, 571.There was no valid cancellation of the contract to sell, not
even an implied one where there was no written notice of the cancellation given to Benito
Liu or Frank Liu.. The letter does not mention anything about rescinding or canceling the
contract to sell.
B.

Obligations With A Period - (Section 2)

Arts. 1193-1198

Suspensive Period;a suspensive period is for the benefit of both debtor and of creditor,
unless given in favor of one of them. If given to debtor alone, debtor losses benefit of
period in any of the 5 cases in Art. 1198 obligation retroact to the day of its constitution
2.

Resolutory Period

3.

Definite Or Indefinite Period

a.

When Courts May Fix The Period (Art. 1197)

when period depends on will of debtor
when from nature or circumstances, it can be inferred that
period was intended

Case Study:
Borromeo vs. CA (47 SCRA 65)
The complaint by the creditor may embody the fixing of the period within which
the debtor was to pay andalso the collection of the amount that until then was not paid.
An action combining both features was approved by the Supreme Court. In Tiglao v.
The Manila Railroad Company:(98 Phil. 181 (1956). "The duration of the term should
be fixed in a separate action for that express purpose but thereare good reasons for not
adhering to technicalities in its desire to do substantial justice." (Ibid, 184.) Defendant
does not claim that if a separate action were instituted to fix the duration of the term of

its obligation, it could present better proofs than those already adduced in the present
case. Such separate action would, therefore, be a mere formality and would serve no
purpose other than to delay." (Ibid, 185.) There is no legal obstacle then to the action
for collection filed by the creditor.
b.

Creditor Must Ask Court To Set The Period, before he can

demand payment

c.

Debtors Shall Lose Right To Make Use Of Period When:

He becomes insolvent after obligation contracted
He Does Not Furnish Guaranties/Securities
promised,
Has Impaired Guaranties;
Does Not Furnish Equally Satisfactory Guaranties
When Originals Lost Thru Fortuitous Event;
Violates Any Undertaking In Consideration For
Which Creditor Guaranteed Period (Art. 1198)

Case Study:
Song Fo vs. Oria (33 Phil 3)
Re: Article 1198, paragraph 3 and Article 1504, Civil Code) Song Fo sold to
Oria a motor launch for P16,500.00 payable in quarterly installments at P1,000.00 with
the motor launch as security for payment of the purchase price. The motor launch was
delivered to Oria in Manila but was shipwrecked en route to Samar. Ownership of launch
was transferred to Oria upon delivery in Manila (Article 1504 and 712, Civil Code) and
according to the principle of res perit domino (things perish for or at the risk of their
owner), Oria bears the loss even thru fortuitous event. Hence, all the other quarterly
installments even if not due becomes demandable. (Article 1198, par. 3, Civil Code)
which provides that debtor shall use the right to make use of the period when the security
of the obligation disappear thru fortuitous event.
C.

Alternative Obligations - (Section 3)Arts. 1199-1206

Alternative Obligation one where out of 2 or more prestations which may be

given, only one is due. Right to choice given to
debtor unless expressly granted to creditor
Facultative Obligation one where only one prestation has been agreed
upon but the obligor may render another in
substitution. Right to choose given only to debtor
Case Study:
Agoncillo vs. Javier (38 Phil. 424)

(Re: Article 1200, Civil Code) Alternative Obligations: The agreement to

convey the house and lot in the event of failure to pay a debt in payment, is simply an
undertaking that if the debt is not paid in money, it will be paid in another way, or a case
of alternative obligations, and therefore valid. It is not pacto commissorio, which is
prohibited under Article 2088, Civil Code, which provides:
The creditor cannot
appropriate the things given by way of pledge or mortgage or dispose of them. Any
stipulation to the contrary shall be void. (Note: It is the automatic transfer of the
ownership of the mortgaged property upon default that is prohibited as pactum
commissorio.)
When Choice is Given to Debtor And Loss/Impossibility Happened Before Choice Is
Made
Event
Debtor cannot make a choice bec. Of
creditors fault
All things are lost because of fault of
debtor/compliance has become impossible

Consequence
Debtor may rescind contract with damages
Creditor may ask for damages

When Choice is Given To Creditor and Before Creditor Communicates His Choice
To Debtor:
Event
1oss of the 1 thing lost thru fortuitous event
Loss of 1 thing thru fault of debtor
Loss of all things thru fault of debtor
E.

Obligation of Debtor
Deliver what creditor chooses from among
remaining, or the only one remaining
Deliver what creditor chooses from among
remaining or the price of that which disappeared
with damages
Deliver the price of what creditor would have
chosen with damages

Joint and Solidary Obligations - (Section 4)Arts. 1207-1225

1. Joint (Divisible) Obligation Concurrence Of Two Or More Creditors And/Or Two Or More Debtors In
One And The Same Obligation
a.
Joint Obligation Is Presumed, unless otherwise providedby
law or the nature of obligation (Art. 1207)
b.
Obligation Presumed To Be Divided into as many equal
shares as there are creditors or debtors
c.
Each Credit Is Distinct From One Another, therefore a joint
debtor cannot be required to pay for the share of another codebtor, although he may pay if he wants to (Art. 1209)

d.

Insolvency Of A Joint Debtor, others not liable for his share

(Art. 1209)

Case Study:
Oriental Commercial Corp vs. Abeto (60 Phil 723)
When it is not provided in a judgment that the defendants are liable to pay jointly
and severally a certain sum of money, none of them may be compelled to satisfy in full
said judgment even ifin the contract of suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in character. The final judgment, which
superseded the action for the enforcement of said contract, declared the obligation to be
merely joint, and the same cannot be executed otherwise. (De Leon vs. Nepomuceno and
De Jesus, 37 Phil., 180; Sharruf vs. Tayabas Land Co. and Ginainati, 37 Phil., 655.)
2.Joint (Indivisible) Obligation
a. Obligation Cannot Be Performed In Parts but debtors are bound
jointly
b. In Case Of Failure Of One Joint Debtor To Perform his part (share),
there is default but only debtor guilty shall be liable for damages
3. Solidary Obligation
a. Anyone Of The Solidary Creditors May Collect or demand
payment of whole obligation; there is mutual agency among
solidary creditors (Arts. 1214, 1215)
b. Any Of The Solidary Debtor May Be Required To Pay The Whole
obligation; there is mutual guaranty among solidary debtors (Arts.
1216, 1217, 1222)
c. Each One Of Solidary Creditors May Do Whatever maybe useful
to the others, but not anything prejudicial to them (Art. 1212);
however, any novation, compensation, confusion or remission of
debt executed by any solidary creditor shall extinguish the
obligation without prejudice to his liability for the shares of the
other solidary creditors
In solidary obligations, the credits/debts are still divided among
creditors/debtors but there is mutual representation
(agency) among each debtor/creditor respectively.
Solidarity is the vinculum that binds creditors to debtors
only; among debtors and creditors themselves, once
payment is made, there is no solidarity.
Surety a person who binds himself solidarily with the principal
debtor
Obligations In Which The Law Requires Solidarity:

If 2 or more heirs take possession of the estate, they are solidarily

liable for the loss/destruction
All partners are liable solidarily for everything chargeable to the partnership under Arts.
1822 (quasi-delict) and 1823 (crimes)
Principal and agent are liable solidarily to third persons if principal
allowed the latter to act as though he had authority
2 or more principals are liable solidarily to a common agent for all
the consequences of the agency.
2 or more bailees of the same thing are liable solidarily to the
bailor.
2 or more officious managers are liable solidarily.
2 or more payees in a negotiorum gestio are solidarily liable.
2 or more joint tortfeasor are liable solidarily.
2 or more principals/accomplices/accessories in each respective
class in the commission of the crime are liable solidarily.
Case Studies:
Stronghold Insurance vs. Republic Asahi Glass Corp (492 SCRA 179)
Respondent creditor may sue, separately or together, the principal debtor and the
petitioner herein, in view of the solidary nature of their liability. The death of the
principal debtor will not work to convert, decrease or nullify the substantive right of the
solidary creditor. Despite the death of the principal debtor, respondent creditor may still
sue petitioner alone, in accordance with the solidary nature of the latter's liability under
the performance bond. As a surety, petitioner is solidarily liable with principal debtor in
accordance with the Civil Code, which provides as follows: "Art. 2047.By guaranty a
person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. "If a person binds himself
solidarily with the principal debtor, the provisions of Section 4, 17 Chapter 3, Title I of
this Book shall be observed. In such case the contract is called a surety. Art. 1216.The
creditor may proceed against any one of the solidary debtorsor some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt has not been
fully collected."
Kay Products Inc vs. CA (464 SCRA 544)
In labor cases, corporate directors and officers are solidarily liable with the
corporation for the termination of employment of corporate employees done with malice
or in bad faith (Uichico v. National Labor Relations Commission, G.R. No. 121434, 2
June 1997, 273 SCRA 35.). The president of a corporation, who actively manages the
business, falls within the meaning of an "employer" as contemplated by the Labor Code,
and may be held jointly and severally liable for the obligations of the corporation to its

dismissed employees Naguiat v. NLRC (G.R. No. 116123, 13 March 1997, 269 SCRA
564.)

E.

Divisible and Indivisible Obligations - (Section 5)Arts. 1223-1225

Divisible Obligation one capable of partial performance

F.

Obligations with a Penal Clause (Section 6) Arts. 1226, 1228-1230

Purposes of a Penal Clause:

1. Insurance: To insure the performance of the obligation;
Compensation: to liquidate the amount of damages to be awarded the injured party in
case of breach of the obligation
Punitive: to punish the obligor in case of breach of the principal obligation
Although the same as liquidated damages (Art. 2226), a penalty
in its punitive aspect is different because the creditor can recover
damages in addition to the penalty when the debtor refuses to pay
the penalty or when the debtor is guilty of fraud
Case Study:
IBAA vs. Spouses Salazar (159 SCRA 133)
(Re: Penal Clause, Article 1226, Civil Code). The Civil Code permits the
agreement upon a penalty apart from the interest. The penalty does not include the
interest, and as such, the two are different and distinct things which may be demanded
separately.
IV.

Extinguishment Of Obligations (Chapter 4) Arts. 1231-1304

A.

Payment Or Performance - (Section 1)

Arts. 1232-1261

Case Studies:
BPI vs. Roxas (536 SCRA 168)
In International Corporate Bank v. Spouses Gueco, (404 SCRA 353 (2001), it
was held that a cashier's check is really the bank's own check and may be treated as a
promissory note with the bank as the maker. The check becomes the primary obligation of
the bank which issues it and constitutes a written promise to pay upon demand. In New
Pacific Timber & Supply Co. Inc. v. Seeris, (G.R. No. 41764, December 19, 1980, 101

SCRA 686), this Court took judicial notice of the "well-known and accepted practice in
the business sector that a cashier's check is deemed as cash" because the mere issuance
of a cashier's check is considered acceptance thereof.
New Pacific Timber vs. Seneris (101 SCRA 686)
(Re: Article 1249, Civil Code) Article 1249 provides: The delivery of
promissory notes, bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been encashed or when thru the fault of the debtor
they have been impaired. A cashiers check is deemed as cash when certified by drawee
bank which for all intents and purposes, the payee becomes the depositor of the drawee
bank. The certification implies that the check is drawn upon sufficient funds in the hands
of the drawee bank; that they have been set apart for its satisfaction and that they shall
be so applied whenever the check is presented for payment.:

Roman Catholic Bishop of Malolos Inc vs. IAC (191 SCRA 411)
(Re: Article 1249, Civil Code) A certified personal check is not legal tender; a
check whether managers check or ordinary check, is not a legal tender and an offer of a
check in payment of a debt, is not a valid tender of payment; hence, if creditor refused to
accept, the subsequent consignation did not operate to discharge private respondent from
his obligation to petitioner.
See also R.A. 8183 An Act Repealing RA 529 (Uniform Currency Law)
1. Extraordinary Inflation Or Deflation Art. 1250
Case Study:
Citibank vs. Sabeniano (514 SCRA 441)
(Re: Article 1250, Civil Code) Extraordinary inflation or deflation exists
when there is a decrease or increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the value of said currency, and
such increase or decrease could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the
obligation.Article 1250 of the Civil Code is based on equitable considerations. But only
the Bangko Sentral ng Pilipinas (BSP) and not the court ,can declare the existence of
extraordinary inflation. .
Comm. Of Public Highways vs. Burgos (96 SCRA 831)
Article 1250 of the New Civil Code seems to be the only provision in our statutes
which provides for payment of an obligation in an amount different from what has been
agreed upon by the parties because of the supervention of extra-ordinary inflation or

deflation. It applies only to cases where a contract or agreement is involved and does not
apply where the obligation to pay arises from law, independent of contract. The taking of
private property by the Government in the exercise of its power of eminent domain does
not give rise to a contractual obligation.
Ramos vs. CA (275 SCRA 167)
(Re: Article 1250, Civil Code) But petitioner's last contention (that private
respondents failed to pay increased rent despite supervening inflation or devaluation of
the Philippine peso) is untenable. The provision of Art. 1250 requires for its application a
declaration of inflation by the Central Bank. Without such declaration creditors cannot
demand an increase of what is due them. (Mobil Oil Philippines, Inc. v. Court of Appeals,
180 SCRA 651 (1989).
Filipino Pipe & Foundry Corp. vs. NAWASA (161 SCRA 32)
Extraordinary inflation exists when "there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such decrease or increase could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation. (Tolentino Commentaries and
Jurisprudence on the Civil Code Vol. IV, p. 284.) The price index of commodities, which
is the usual evidence of the value of the currency has been rising. There is a worldwide
occurrence, but this is hardly proof that the inflation is extraordinary in the sense
contemplated by Article 1250 of the Civil Code, which was adopted by the Code
Commission to provide "a just solution" to the 'uncertainty and confusion as a result of
contracts entered into or payments made during the last war." (Report of the Code
Commission, 132-133.)

2. Special Forms Of Payments

a. Dacion In Payment (Dacion En Pago) Art. 1245
b. Application of Payments (Subsection 1)Arts. 1252-1254
Requisites of Application of Payments:
Two or more debts between same debtor and
creditor
Debts must be of the same kind
All debts must be due
Payment must not be enough to extinguish all debts
c. Payment by Cession (Subsection 2)Arts. 1255
When debtor cedes or assigns hs.is property to his creditors in
payment of his debt

Kinds of Payment by Cession:

Contractual (Art. 1255);
Voluntary and Involuntary Liquidation of Individual &
Corporate
Debtors (RA 10142 (FRIA) LAW).
d. Tender of Payment & Consignation (Subsection 3) Arts. 12561261
Tender of Payment (Extra-Judicial) manifestation made by a debtor of
his desire to comply with his obligation with the
offer of immediate compliance
Requisites of Consignation (Judicial):
Existence of a valid debt;
Valid prior tender of payment to creditor by debtor unless tender is
excused;
Prior notice of consignation to creditor by debtor;
Actual consignation in court by debtor;
Subsequent notice of consignation to creditor by debtor.
Case Study:
Immaculata vs. Navarro (160 SCRA 211)
The right to redeem is a RIGHT, not an obligation, therefore, there is no
consignation required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil.
495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem
(Villegas v. Capistrano, 9 Phil. 416).
B.

Loss Of The Thing Due - (Section 2)Arts. 1262-1268 (broadly means

legal or physical impossibility of performance)
Exceptions To Rule That Loss of Determinate Thing By Fortuitous
Event Extinguishes The Obligation:
When the law expressly provides
When by express stipulation the obligor is made liable even if loss is
by fortuitous event
When the nature of the obligation requires the assumption of risk
When the fault/negligence of the obligor concurs with the fortuitous
event
When the loss occurs after the debtor has incurred in delay (Art.
1169)
When the debtor has promised to deliver the same thing to 2 or more
persons who do not have the same rights

When the obligation to deliver a determinate thing arises from a

criminal act

Case Studies:
Ortigas & Co vs. Feati Bank & Trust Co. (94 SCRA 533)
(Re: Article 1266, Civil Code) A contractual stipulation annotated on the title
that the land purchased shall be used exclusively for residential purposes is extinguished
and ceases to be binding between parties upon the enactment of an ordinance or
resolution of the Municipal Council reclassifying the area as commercial. The resolution
or Ordinance, under the general welfare clause, is a valid exercise of the police power of
the LGU and is superior to the contractual stipulations between the parties on the use of
the land even if said conditions are annotated on the title.
Naga Telephone Co Inc. vs. CA (230 SCRA 351)
(Re: Article 1267, Civil Code) The term service in Article 1267 is understood
to mean performance of the obligation which in the present case, is the obligation of
allowing petitioners to use posts of respondent for ten (10) free telephone connections,
which has become very onerous against the respondent. Article 1267, Civil Code,
provides: When the service has become so difficult has to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom in whole or in
part. This is the doctrine of unforeseen event, and is based on the discredited theory
rebus sic stantibus in Public International Law. Under the theory, the parties stipulate
in the light of certain prevailing conditions, and one of these conditions cease to exist,
the contract also ceases to exist. Considering practical needs and the demands of equity
and good faith, the disappearance of the basis of the contract gives right to relief in favor
of the party prejudiced.
C.

Condonation Or Remission Of Debt - (Section 3)

Arts. 1270-1274
Condonation/Remission the gratuitous abandonment by the creditor of his
right. It is an act of liberality by virtue of which
the oblige, without receiving any price or its
equivalent, renounces the enforcement of the
obligation as a result of which it is extinguished
in its entirety or in part.
1.
2.

D.

Express Formality of Donation art. 1270

Implied Arts. 1271, 1272, 1274

Confusion Or Merger of Rights - (Section 4)

Arts. 1275-1277

Confusion/Merger the meeting in one person of the qualifies of creditor

and debtor which respect to the same obligation
extinguishes obligation
E.

Compensation - (Section 5) Arts. 1278-1290

Compensation takes place when 2 persons, in their own right, are
creditors and debtors of each other
Kinds Arts. 1278, 1279
a.
Legal Compensation Arts. 1286-1290
b.
Agreement Art. 1282
c.
Voluntary Art. 1282
d.
Judicial Art. 1283
e.
Facultative

Case Studies:
Gullas vs. PNB (62 Phil 519)
Gullas, who had a checking account with PNB, endorsed and encashed a check
with PNB. The check was later dishonored and PNB applied the balance of the checking
account of Gullas by way of compensation with the obligation of Gullas as endorser of
the dishonored check. There can be compensation where the depositor in a bank has an
indebtedness in favor of the bank. This old ruling in the Gullas case is further
strengthened by Article 1980 (new) Civil Code, which provides:Fixed, savings and
current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan.
Bank of the Phil Islands vs. CA (232 SCRA 302)
Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan." In Serrano vs. Central Bank of the Philippines, (96 SCRA 96
[1980]. See also, Guingona vs. City Fiscal of Manila, 128 SCRA 577 [1984]; People vs.
Ong, 204 SCRA 942 [1991]), we held that bank deposits are in the nature of irregular
deposits; they are really loans because they earn interest. The relationship then between
a depositor and a bank is one of creditor and debtor. The deposit under the questioned
account was an ordinary bank deposit; hence, it was payable on demand of the depositor.
(10 Am Jur 2d, Banks, S 356)
Obligations /Debts That Are Not Compensable
Debts arising from contracts of depositum
Debts arising from contracts of commodatum
Claims for support due by gratuitous title

Obligations arising from criminal offenses

Certain obligations in favor of the government such as taxes,
fees, duties and others of similar nature

Case Studies:
Garcia vs. Lim Chu Sing (59 Phil 562)
(Re: Article 1279, Civil Code) A stockholders shares of stock of the Mercantile
Bank of China do not constitute an indebtedness of the bank to the stockholder and
therefore there can be no compensation with the latters indebtedness to the bank.
Stockholders are not creditors of the corporation. The capital stock of the corporation is
a trust fund as security of creditors of the corporation who presumably deal with it on
the credit of its capital stock.
PNB vs. CA (259 SCRA 174)
A local bank, while acting as local correspondent bank, does not have the right to
intercept funds being coursed through it by its foreign counterpart for transmittal and
deposit to the account of an individual with another local bank, and apply the said funds
to certain obligations owed to it by the said individual.Petitioner bank wasnot legally
justified in making the compensation or set-off against the two remittances coursed
through it in favor of private respondent to recover on the double credits it erroneously
made in 1980 and 1981, based on the principle of solutio indebiti.
F.

Novation - (Section 6)Arts. 1291-1304

Novationis the substitution of change of an obligation by another,
resulting in its extinguishment or modification, either by
changing its object of principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the
rights of a creditor.

An extension of the period of payment no novation

Agreement to shorten period of payment novation because of
incompatibility between old and new obligations

4 Essential Requisites of Novation:

A previous valid obligation
Agreement of the parties to the new obligation
Extinguishment of the old obligation
Validity of the new obligation
2

Kinds of Novation By Substitution of Debtors:

Expromision (First Kind) substitution of debtors with the consent

of creditors at the instance of new debtors . New debtor and
creditor must consent.
Expromision (Second Kind) substitution of debtors without the
knowledge or against the will of the old debtor. Insolvency/nonfulfillment of new debtor will not give rise to any liability on the
part of old debtor.
Delegacion substitution of debtors with the consent of the
creditor (delegatario) at the instance of the old debtor (delegante)
with the concurrence of the new debtor (delegado). New and old
debtors and creditor must consent.

Subrogation: Transfer to the person subrogated the credit with all the rights
thereto appertaining, either against the debtor or against
third persons, be they guarantors or possessors of mortgage,
subject to stipulations in conventional subrogation
2 Forms of Subrogation Of Creditors

Conventional Subrogation takes place by the agreement of the

original creditor, the third person substituting the original
creditor and debtor (Art. 1301)
Legal Subrogation takes place by operation of law (Art. 1302)

When creditor pays another creditor who is preferred even

without debtors knowledge
When a 3rd person, not interested in obligation, pays with
express/tacit approval of debtor
When, even without knowledge of debtor, a person interested in
the fulfillment of obligation pays, without prejudice to effect of
confusion in latters share
Conventional Subrogation
governed by Arts. 1301, 1303, 1304;

Assignment of Credit
governed by Arts. 1624 &
1627
extinguishes the obligation and creates a new one
credit is not extinguished
Requires debtors consent
Does not require debtors
consent
Defect of old credit/right may be cured and new Defect in credit/right is not
obligation becomes entirely valid
cured

Case Studies:

Magdalena Estate vs. Rodriguez (18 SCRA 967);Dungo vs. Lopena (6 SCRA 1007)
Re: Article 1292, Civil Code:
Novation is never presumed; it must be established that the old and the new
contracts are incompatible on every point, or that the will to novate appear by express
agreement of the parties. There is no implied novation, if in the second contract a bond is
filed or a third person assumes payment of the obligation and the creditor accepts partial
payment from the third person, so long as the creditor did not agree that the first debtor
shall be released from the obligation.
People vs. Nery (10 SCRA 244)
Re: Article 1292, Civil Code Accused who was charged for estafa for
misappropriating the proceeds of diamond rings consigned to her for sale, cannot escape
criminal liability by the defense of novation. The promissory note executed by the
accused in favor of complainant executed pending trial at the RTC did not convert the
relationship between parties to a contract of loan from a contract of agency to sell. The
novation theory may perhaps apply prior to the filing of the criminal information in court
by the State Prosecutors because up to that time the original trust relation may be
converted by the parties into an ordinary creditor-debtor situation, thereby placing
complainant in estoppel to insist on the original trust. A crime being an offense against
the State, only the latter can renounce it.
Guingona vs. City Fiscal of Manila (128 SCRA 577)
Time and savings deposits with the bank are contracts of simple loan or
mutuum.The relationship between the depositor and bank is that of creditor and debtor.
But even if bank failed to pay the time and savings deposits of depositor, violating
paragraph 1(b) of Article 315 of the Revised Penal Code, there was no criminal liability.
When the bank was placed under receivership by the Central Bank, petitioners Guingona
and Martin assumed the obligation of the bank to depositor, thereby resulting in the
novation of the original contractual obligation arising from deposit into a contract of
loan and converting the original trust relation between the bank and depositor into an
ordinary debtor-creditor relation between the petitioners and private respondent. Hence,
the failure of the bank or petitioners Guingona and Martin to pay the deposits of
depositor would not constitute a breach of trust but would merely be a failure to pay the
obligation as a debtor.

For Mid-Term Examinations: .

(5 weeks = 20 lecture hours)
Possible Exam Date: Feb. 27, 2012
CONTRACTS (BOOK IV TITLE II)
Arts.1305-1422

I.

General Provisions (Chapter 1) Arts. 1305-1317

Perfect Promise tends only to assure and pave the way for the celebration of the
contract in the future, whereas a contract establishes and determines the
obligations arising therefrom;
Imperfect Promise (Policitation) is a mere unaccepted offer
Pact a special part of the contract, merely incidental and separable from the
principal agreement
Stipulation refers to the essential and dispositive part of the contract, as
distinguished from the exposition of the facts and antecedents on which it
is based
Contract juridical convention manifested in legal form, by virtue of which one
or more persons bind themselves in favor of another or others, or
reciprocally, to the fulfillment of the prestation to give to do or not to do
(Sanchez Roman)
Stages of a Contract:
1. Preparation, Conception or Generation period of negotiation and
bargaining, ending at the moment of agreement between the parties
2. Perfection or Birth of the Contract the moment when the parties come to
agree on the terms of the contract;
3. Consummation or Death the fulfillment or performance of the terms
agreed upon in the contract (Soler vs. CA, 358 SCRA 63)
Theories When Or The Moment Of Perfection Of A Contract:
1. Manifestation theory the contract is perfected from the moment the
acceptance is declared or made (Art. 54 Code of Commerce)
2. Expedition Theory the contract is perfected from the moment the offeree
transmits the letter/notification of acceptance to the offeror, as when the letter
is placed in mailbox (U.S.A.)
3. Reception Theory contract is perfected when the acceptance is in the hand of
the offeror, even if the offeror has no actual knowledge of it because of
absence, sickness, etc.
4. Cognition Theory contract is perfected from the moment the acceptance
comes to the knowledge of the offeror. (Art. 1319) (Note: Cognition Theory is
adopted by New Civil Code)
Four (4) Essential Characteristics of Contracts:
1. Obligatory force of Contracts that is once a contract is perfected, it shall
have obligatory force upon both contracting parties (Arts. 1159, 1315, 1356)
2. Autonomy or Freedom of Contracts contracting parties are free to enter into
a contract, to establish such terms, conditions, stipulations and clauses as they

may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy.
3. Mutuality of Contracts the essential equality of contracts whereby the
parties are mutually bound by the contract; hence its validity or compliance
cannot be left to the will of one of them (Art. 1308)
4. Relativity of Contracts contracts take effect only between the parties, their
heirs and assigns (Art. 1311) There are exceptions to the principle of relativity
of contracts
Case Studies:
Almeda vs. CA (256 SCRA 292)
The binding effect of any agreement between parties to a contract is premised on
two settled principles: (1) that any obligation arising from contract has the force of law
between the parties; and (2) that there must be mutuality between the parties based on
their essential equality. Any contract which appears to be heavily weighed in favor of one
of the parties so as to lead to an unconscionable result is void. Any stipulation regarding
the validity or compliance of the contract which is left solely to the will of one of the
parties, is likewise, invalid.
Floirendo vs. Metrobank (532 SCRA 43)
Increases of interest rate unilaterally imposed by respondent bank without
petitioner's assent are violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code.The provision in the promissory note authorizing
respondent bank to increase, decrease or otherwise change from time to time the rate of
interest and/or bank charges "without advance notice" to petitioner, "in the event of
change in the interest rate prescribed by law or the Monetary Board of the Central Bank
of the Philippines," does not give respondent bank unrestrained freedom to charge any
rate other than that which was agreed upon. Here, the monthly upward/downward
adjustment of interest rate is left to the will of respondent bank alone. It violates the
essence of mutuality of the contract.
UCPB vs. Beluso(530 SCRA 567)
The provision stating that the interest shall be at the "rate indicative of DBD
retail rate or as determined by the Branch Head" is indeed dependent solely on the will
of petitioner UCPB and violates Art. 1308 of the Civil Code.Here, petitioner UCPB has
two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head.. If either of these two choices
presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such
an option, thus making the entire interest rate provision violative of the principle of
mutuality of contracts.
Singson Encarnacion vs. Baldomar (77 Phil 470)

The continuance and fulfillment of the contract of lease cannot be made to

depend solely and exclusively upon the free and uncontrolled choice of the lessees
between continuing paying the rentals or not, completely depriving the owner of all say
in the matter. If this were allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue, the lessees could
effectively thwart his purpose if they should prefer to terminate the contract by the simple
expedient of stopping payment of the rentals. This, of course, is prohibited by article
1256 (now Art. 1308) of the Civil Code.
Laolim vs. CA (191 SCRA 150)
The disputed stipulation "for as long as the defendant needed the premises and
can meet and pay said increases" is a purely potestative condition because it leaves the
effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.
The continuance, effectivity and fulfillment of a contract of lease cannot be made to
depend exclusively upon the free and uncontrolled choice of the lessee between
continuing the payment of the rentals or not, completely depriving the owner of any say
in the matter. Mutuality does not obtain in such a contract of lease and no equality exists
between the lessor and the lessee since the life of the contract is dictated solely by the
lessee.
Jespajo Realty Corp. vs. CA (390 SCRA 27)
The contention of the petitioner that a provision in a contract that the lease
period shall subsist for 'an indefinite period provided the lessee is up-to-date in the
payment of his monthly rentals' is contrary to Art. 1308 of the Civil Code is not plausible.
As expounded by the Court in the case of Philippine Banking Corporation vs. Lui She (21
SCRA 52, 58 (1967)):"We have had occasion to delineate the scope and application of
Article 1308 in the early case of Taylor v. Uy Tieng Piao. (43 Phil. 873 (1922). We said in
that case: 'Article 1256 [now Art. 1308] of the Civil Code in our opinion creates no
impediment to the insertion in a contract for personal service of a resolutory condition
permitting the cancellation of the contract by one of the parties. Such a stipulation, as
can be readily seen, does not make either the validity or the fulfillment of the contract
dependent upon the will of the party to whom is conceded the privilege of cancellation;
for where the contracting parties have agreed that such option shall exist, the exercise of
the option is as much in the fulfillment of the contract as any other act which may have
been the subject of agreement. . . . .'" (Supra note 18 at p. 58.)

Allied Banking vs. CA (284 SCRA 357)

The option which gives the lessee the sole option to renew the lease and which is
provided in the same lease agreement, is fundamentally part of the consideration in the

contract and is no different from any other provision of the lease carrying an undertaking
on the part of the lessor to act conditioned on the performance by the lessee. It is a
purely executory contract and at most confers a right to obtain a renewal if there is
compliance with the conditions on which the right is made to depend. The right of
renewal constitutes a part of the lessee's interest in the land and forms a substantial and
integral part of the agreement. The fact that such option is binding only on the lessor and
can be exercised only by the lessee does not render it void for lack of mutuality. After all,
the lessor is free to give or not to give the option to the lessee.
Garcia vs. Rita Legarda Inc. (21 SCRA 555)
Where in a contract to sell subdivided lots in monthly installments, there has been
a stipulation that in case of vendee's default in the payment of installments he should
have a month of grace and an additional period of ninety days to pay all the amounts due
otherwise the vendor should have the right to declare the contract cancelled and of no
effect, such stipulation is valid and not violative of Art. 1308 of the new Civil Code. The
validity or compliance thereof is not entirely left to the will of one of the contracting
parties, but it merely gives the vendor the right to declare such contract cancelled and of
no effect. Indeed, the power thus granted cannot be said to be immoral, much less
unlawful, for it could not be arbitrarily exercised without the other party committing the
breach of contract for nonpayment of the installments agreed upon. Obviously, all that
said party had to do to prevent the other from exercising the power to cancel was for him
to comply with his part of the contract.
Case Studies (Exceptions to Principle of Relativity of Contracts):
Coquia vs. Fieldmens Insurance Co. (26 SCRA 178)(Stipulation pour autrui)
Although, in general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in the second paragraph
of Article 1311 of the Civil Code of the Philippines, reading: "If a contract should
contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person." This is a
restatement of a well-known principle concerning contracts pour autrui, the enforcement
of which may be demanded by a third party for whose benefit it was made, although not a
party to the contract, before the stipulation in his favor has been revoked by the
contracting parties.
The insurance policy contains stipulations pursuant to which the insurance
company "will indemnify any authorized Driver who is driving the Motor Vehicle" of the
Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify
his personal representatives," and the Company "may, at its option, make indemnity
payable directly to the claimants or heirs of claimants . . . in other words, third parties.
This is typical of contracts pour autrui. This character being made more manifest by the

fact that the deceased driver paid fifty percent (50%) of the corresponding premiums,
which were deducted from his weekly commissions. Under these conditions, it is clear
that the sole heirs of the deceased have a direct cause of action against the Company
(Uy Tam v. Leonard, 30 Phil. 471, 485-486; Kauffman v. Philippine National Bank, 42
Phil. 182, 187, 189), and, since they could have maintained this action by themselves,
without the assistance of the insured it goes without saying that they could and did
properly join the latter in filing the complaint herein (Guingon v. Capital Insurance &
Surety Co., Inc., L-22042, Aug. 17, 1967).

Mandarin Villa Inc. vs. CA (257 SCRA 538)(Stipulation pour autrui)

While private respondent may not be a party to the said agreement, the abovequoted stipulation conferred a favor upon the private respondent, a holder of credit card
validly issued by BANKARD. This is a stipulation pour autrui and under Article 1311 of
the Civil Code, private respondent may demand its fulfillment provided he communicated
his acceptance to the petitioner before its revocation. In this case, private respondent's
offer to pay by means of his BANKARD credit card constitutes not only an acceptance of
the said stipulation but also an explicit communication of his acceptance to the obligor.
Kaufman vs. PNB (42 Phil 182)(Stipulation pour autrui)
A person in whose favor a bank sells telegraphic exchange on a foreign country
may, in case payment is refused by the bank of destination, maintain an action against
the bank selling the exchange, without regard to whether such payee was an immediate
party to the purchase of the exchange or not. A stipulation in favor of a third person
cannot be revoked by the obligated party alone, without the conformity of the other
contracting party.
II.

Essential Requisites (Chapter 2) - Arts. 1318-1354

Consent (Section 1) Arts. 1319-1346
Option - contract granting a person the privilege to buy or not to buy
certain objects at any time within the agreed period at a fixed
price.
Right of First Refusal identity of terms and conditions offered to lessee
and prospective buyers
Right of First Refusal vs. Option (Arts. 1324 and 1479)
In a contract of lease with 30-day exclusive option to purchase
(leased premises), the proviso is valid even if there is no agreed
purchase price the consideration is the contract of lease itself. This

is not covered by Art. 1324 and 1479 which requires consideration

distinct from the prucahse pri
Two Kinds Of Vices of Consent:
Vices of Declaration simulated contracts (Arts. 1345/1346)
Vices of the Will mistake, violence, intimidation, undue
influence, and fraud (Art. 1330)
Classes of Fraud:
1. In general: criminal fraud and civil fraud
2. Civil fraud:
b. Fraud in the performance of an existing obligation (Art.
1170)
c. Fraud employed by the party to a contract in securing the
consent of the other party (Art. 1338)
Classifications of Fraud In Securing The Consent Of Other Party:
1. Dolo
causante
(causal
fraud)

deceptions
or
misrepresentations of a serious character employed by one
party without which the other party would not have entered
into the contract
2. Doloincidente (incidental fraud)incidental deceptions or
misrepresentations without which the other party would still
have entered into the contract

Case Studies:
Vales vs. Villa (35 Phil 769)
All men are presumed to be sane and normal and subject to be moved by
substantially the same motives. When of age and sane, they must take care of themselves.
In their relations with others in the business of life, wits, sense, intelligence, training,
ability and judgment meet and clash and contest, sometimes with gain and advantage to
all, sometimes to a few only, with loss and injury to others. In these contests men must
depend upon themselves upon their own abilities, talents, training, sense, acumen,
judgment.x x x The foolish may lose all they have to the wise; but that does not mean that
the law will give it back to them again. Courts cannot follow one every step of his life
and extricate him from bad bargains, protect him from unwise investments, relieve him
from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally incompetent. Courts operate not
because one person has been defeated or overcome by another, but because he has been
overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by them indeed, all they have in the world; but not for that

alone can the law intervene and restore. There must be, in addition, a violation of law,
the commission of what the law knows as an actionable wrong, before the courts are
authorized to lay hold of the situation and remedy it.
Sanchez vs. Rigos (45 SCRA 368)
X x x an option to sell can still be withdrawn, even if accepted, if the same is not
supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll &
Co., Inc. vs. Cua Hian Tek, (102 Phil 948) holding that "an option implies . . . the legal
obligation to keep the offer (to sell) open for the time specified;" that it could be
withdrawn before acceptance, if there was no consideration for the option, but once the
"offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree
ipso facto assumes the obligations of a purchaser In other words, if the option is given
without a consideration, it is a mere offer to sell, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitutes a binding contract of
sale. The concurrence of both acts the offer and the acceptance could in such event
generate a contract.While the law permits the offeror to withdraw the offer at any time
before acceptance even before the period has expired, some writers hold the view, that
the offeror can not exercise this right in an arbitrary or capricious manner. This is upon
the principle that an offer implies an obligation on the part of the offeror to maintain it
for such length of time as to permit the offeree to decide whether to accept or not, and
therefore cannot arbitrarily revoke the offer without being liable for damages which the
offeree may suffer. A contrary view would remove the stability and security of business
transactions. (I Gasperi 302, 6 Planiol & Ripert 180).
Sabalvaro vs. Erlanger (64 Phil 588)
CONSENT IN A CONTRACT. Plaintiff allegedly signed the document in
question for fear of being dismissed from the corporation, but it does not appear that he
has been intimidated by somebody. This does not prove that his consent was obtained by
means of intimidation, and if he were to allege that it was for fear of incurring the
displeasure of his employers that he signed the document in question, the answer would
be the provision of article 1267 of the Civil Code that: "Fear of displeasing persons to
whom obedience and respect are due shall not annul a contract." (Doctrine of
Reverential Fear)
Villegas vs. CA (499 SCRA 276)
(Re: Article 1324) Where a time is stated in an offer for its acceptance, the offer
is terminated at the expiration of the time given for its acceptance. The offer may also be
terminated when the person to whom the offer is made either rejects the offer outright or
makes a counter-offer of his own. (Minneapolis & S.L. Railway v. Columbus Rolling Mill,
119 US 149, 30 L Ed. 376 (1886))
Equatorial Realty vs. Mayfair Theater Inc. (264 SCRA 483)

(Re: Article 1324) Where an action for annulment (rescission would have been
proper) was granted, setting aside a contract of sale by the lessor in favor of a third
person, in violation of the Right Of First Refusal, in the contract of lease between
lessor and lessee. The court made a distinction between option and the right of first
refusal in that in an option, an option money is necessary, but not in the right of first
refusal.
Tang vs. CA (90 SCRA 236)
(Re: Article 1332) A deliberate concealment on the part of the insured of material
facts about his physical condition and history entitles the insurer to rescind the
contract.Under Article 1332, the obligation to show that the terms of the contract had
been fully explained to the party who is unable to read or understand the language of the
contract, when fraud or mistake is alleged, devolves in the party seeking to enforce it.
Where fraud or mistake is not alleged, and the one seeking to enforce the contract is the
illiterate party, the party against whom the action is brought and who is seeking to avoid
the performance of the contract is under no obligation to prove that the terms of the
contracts were fully explained to the other party. In a life insurance contract, where the
insurer is seeking to avoid its performance on the ground of concealment on the part of
the insured, the insurer is not under obligation to prove that the terms of the contract
were fully explained to the insured who was an illiterate. But even if we were to say that
the insurer is the one seeking the performance of the contract by avoiding paying the
claim, Article 1332 is inapplicable where there has been no imputation of mistake or
fraud by the insured whose personality is represented by the beneficiary.
B.

Object of Contracts (Section 2) Arts. 1347-1349

Object vs. Cause In a bilateral contract like sale, the object is the thing
sold because it is the starting point of negotiation; the cause for
the vendor is the price paid, while the cause for the vendee is the
acquisition of the thing sold.
May include future things and transmissible rights.
2 Exceptions To Prohibition of Contracts Of Future Inheritance:
a. Art. 84 of Family Code on donations of future spouses to each other in
donations propter nuptias (formalities of a will must be followed)
b. Art. 1080 NCC. A person may partition intervivos his estate so long as
legitime is not impaired.

C.

Cause of Contracts(Section 3) Arts. 1350-1355

Cause of Contract why of the contract the immediate and most
proximate purpose of the contract, the essential reason which
impels the contracting parties to enter into it.

Distinction Between Motive and Cause (Art. 1351)

Cause
the direct proximate reason of a contract

Motive
the indirect or remote reasons;

the objective or juridical reason of a contract

cause for a certain contract is always the same

the psychological or personal reasons

motives will differ or vary upon who
are the parties
cannot affect validity of contract

can affect the validity of a contract

Case Studies:
Uy vs. CA (314 SCRA 69)

The realization by the buyer of the mistake as regards the quality of the land
resulted in the negation of the motive/cause thus rendering the contract inexistent. Under
Article 1318 of the Civil Code, there is no contract unless there is consent, object certain
andcause. Cause is the essential reason which moves the contracting and is the essential
reason for the contract, should be distinguished from motive, which is the particular
reason of a contracting party which does not affect the other party.Ordinarily, a party's
motives for entering into the contract do not affect the contract. When the motive
predetermines the cause, the motive may be regarded as the cause. In Liguez vs. Court of
Appeals, this Court, speaking through Justice J.B.L. Reyes, held: . . . It is well to note,
however, that Manresa himself (Vol. 8, pp. 641-642), while maintaining the distinction
and upholding the inoperativeness of the motives of the parties to determine the validity
of the contract, expressly excepts from the rule, those contracts that are conditioned upon
the attainment of the motives of their party. The same view is held by the Supreme Court
of Spain, in its decisions of February 4, 1941, and December 4, 1946, holding that the
motive may be regarded as causa when it predetermines the purpose of the contract.
Hrs. of Balite vs. Lim (446 SCRA 56)
(Re: Article 1345) Article 1345 of the Civil Code provides that the simulation of a
contract may either be absolute or relative. In absolute simulation, there is a colorable
contract but without any substance, because the parties have no intention to be bound by
it. An absolutely simulated contract is void, and the parties may recover from each other
what they may have given under the "contract". On the other hand, if the parties state a

false cause in the contract to conceal their real agreement, such a contract is relatively
simulated. Here, the parties' real agreement binds them.
Velez vs. Ramas (40 Phil 787)
(Re: Article 1352) A promise given in consideration of a promise on the part of
the obligee to refrain from instituting a criminal prosecution is void on account of the
illicit character of the consideration.
Mactal vs. Melegrito (1 SCRA 763)
(Re: Article 1352) Where the defendant admits his indebtedness, and the
dismissal of the estafa case against him merely furnished the occasion for the execution
of a promissory note acknowledging said indebtedness, the consideration is the preexisting obligation and not the dismissal of the criminal case, hence the promissory note
is valid and enforceable.
Ong vs. Ong (139 SCRA 133)
Although the cause is not stated in the contract it is presumed that it is existing
unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the
disputable presumptions is that there is a sufficient cause of the contract (Section 5, (r),
Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration
supporting a contract even if such cause is not stated therein (Article 1354, New Civil
Code of the Philippines which cannot be overcome by a simple assertion of lack of
consideration especially when the contract itself states that consideration was given, and
the same has been reduced into a public instrument with all due formalities and
solemnities. To overcome the presumption of consideration the alleged lack of
consideration must be shown by preponderance of evidence in a proper action.
(Samanilla vs. Cajucom, et al., 107 Phil. 432). Bad faith and inadequacy of the monetary
consideration do not render a conveyance inexistent, for the assignor's liberality may be
sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad
faith may render either rescissible or voidable, although valid until annulled, a contract
concerning an object certain entered into with a cause and with the consent of the
contracting parties, as in the case at bar."
Liguez vs. CA (102 Phil 577)
(Re: Article 1350). Under Article 1274, of the Civil Code of 1889 (now Art. 1350,
NCC), liberality of the donor is deemed causa only in those contracts that are of "pure"
beneficience that is to say, contracts designed solely and exclusively to procure the
welfare of the beneficiary, without any intent of producing any satisfaction for the
donor; contacts, in other words, in which the idea of self-interest is totally absent on the
part of the transferor. Article 1274 (now Art. 1350, NCC) provides that in remuneratory
contracts, the consideration is the service or benefit for which the remuneration is
given; causa is not liberality in these cases because the contract or conveyance is not

made out of pure beneficience, but "solvendi animo".The motive of the parties may be
regarded as causa when it predetermines the purpose of the contract.
E. Razon Inc. vs. Phil Ports Authority (151 SCRA 233)
(Re: Article 1352) The invalidity of the transfer of shares of stock springs not
from vitiated consent nor absolute want of monetary consideration, but for its having
had an unlawful cause that of obtaining a government contract in violation of law.
While the general rule is that the causa of the contract must not be confused with the
motives of the parties, this case squarely fits into the exception that the motive may be
regarded as causa when it predetermines the purpose of the contract.(Liguez v. Court of
Appeals, 102 Phil. 577). On the part of Romualdez, the motive was to be able to
contract with the government which he was then prohibited by law from doing, and on
petitioner Razon's part, to be able to renew his management contract..
III.

Form of Contracts (Chapter 3) Arts. 1356-1358

Kinds of Contracts
A.
Consensual perfected by mere consent
B.
Real perfected upon delivery
C.
Formal or Solemn
Donations Real Property (Art. 749) Personal Property exceeding
P5T (Art. 748)
Stipulation To Charge Interest Art. 1956
Sale Of Large Cattle
Agency To Sell Real Property Or An Interest Therein Art. 1874
Antichresis Art. 2134
Partnership Where Real Property Contributed Arts. 1771, 1773
Stipulation Limiting Common Carriers Duty Of Extraordinary
Diligence To Ordinary Diligence Art. 1744
Chattel Mortgage

Case Studies:
Tan vs. Lim (296 SCRA 455)
(Re: Article 1356 in relation to Article 1403, No. 2 Statute of Frauds).There is no
provision of law requiring a note or memorandum for a contract of partition to be valid.
Contracts are obligatory in whatever form they may have been entered into provided all
essential requirements are present. A note, transfer certificate of title, subdivision plan or
memorandum are not necessary for the enforceability/validity of anoral contract of
partition. A contract of partition is not one of the contracts mentioned in Article 1403 of

the Civil Code which lists the limited instances when written proof of a contract is
essential for enforceability.
Dauden-Hernaez vs. De Los Angeles (27 SCRA 1276)
(Re: Article 1356). Form (oral and written) is irrelevant to the binding effect inter
partes of a contract that possesses the three validating elements of consent, subject
matter and causa, Article 1356 of the Civil Code establishes only two exceptions, to wit:
(a) Contracts of which the law itself requires that they be in some particular form
(writing) in order to make them valid and enforceable (the so-called solemn contracts).
Of these the typical example are the donation of immovable property (Article 749) and
donation of movables worth more than P5,000.00 (Article 743); contracts to pay interest
on loans (mutuum) (Article 1956); and the agreements contemplated by Articles 1744,
1773, 1874 and 2134 of the present Civil Code. (b) Contracts that the law requires to be
proved by some writing (memorandum) of its terms, as in those covered by the old Statute
of Frauds, now Article 1403(2) of the Civil Code. Their existence not being provable by
mere oral testimony (unless wholly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in
court. The contract sued upon by petitioner (compensation for services) need not be in
written form. It is true that it appears included in Article 1358, last clause, providing that
"all other contracts where the amount involved exceeds five hundred pesos must appear
in writing, even a private one." But Article 1358 nowhere provides that the absence of
written form in this case will make the agreement invalid or unenforceable. On the
contrary, Article 1357 clearly indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the absence of writing.
Valencia vs. Tantoco (99 Phil 824)
A recital in a public document celebrated with all the legal formalities under the
safeguard of a notarial certificate is "evidence against the parties" and "a high degree of
proof is necessary to overcome the legal presumption that such recital is true." The
biased, interested testimony of plaintiff can not overcome the evidentiary force of the
provisional contract of lease which was ratified before a notary public, and, hence, a
public document.
IV.

Reformation Of Instruments (Chapter 4) Arts. 1359-1369

This is the remedy if there is a meeting of minds of the parties but true intention is
not expressed in the instrument because of mistake, fraud, inequitable conduct or
accident
Code Commission: Equity dictates the reformation of an instrument in order that
the true intention of the contracting parties may be expressed.
The rigor of the legalistic rule that a written instrument should be
the final and inflexible criterion and measure of the rights and

obligations of the parties, is thus tempered, to forestall the effects

of mistake, fraud or inequitable conduct.
No Reformation Allowed In:
o Simple donations inter vivos where no condition imposed
o Wills
o When the real agreement is void
V.

Interpretation of Contracts (Chapter 5) Arts. 1370 - 1379

Case Studies:
Manila Electric Company vs. Board of Public Utility Commissioners (30 Phil 387)
The franchise granted by the city of Manila to the Manila Electric Railroad and
Light Company is a contract, and the construction placed thereon by the parties, for a
long period of time, should have great weight in a controversy between them as to its
scope and meaning. That a proposed statute was amended in the course of its enactment
may be considered by this court; and the statute as amended may be compared with the
original draft, in order to determine the proper construction of the law as finally passed.
Phil. Trust Co vs. Lucio Echaus Tan Siua (52 Phil 852)
In a mortgage on real property executed by the defendant in favor of the plaintiff
bank to secure an indebtedness owing to the bank from a third party, the secured debt
was described as bearing interest payable quarterly; but the original contract
(incorporated by reference in the mortgage) showed that the interest was to be
capitalized monthly. Upon comparison of the provisions of the two contracts, the
intention of the parties evidently was to bind the defendant to the mode of payment
expressed in the original contract.
Gonzales vs. La Previsora Filipina (74 Phil 165)
Articles 1281 and 1282, and 1288 old Civil Code (now Arts. 1370, 1371, 1377
NCC) should be applied in construing the contract. There should be no complete
detachment from the antecedent circumstances and the conduct of the parties at the time
of making the contract and subsequently thereto should not be disregarded.

VI.

Rescissible Contracts (Chapter 6) Arts. 1380-1389

Rescissible Contracts:
(1)
Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one-fourth of the value of the things
which are the object thereof;
(2)
Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;

(3)
(4)
(5)

Those undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them;
Those which refer to things under litigation if they have been entered into
by the defendant without the knowledge and approval of the litigants or of
competent judicial authority;
All other contracts specially declared by law to be subject to rescission.

Requisites for Action for Rescission:

a. Plaintiff must be able to return what has been received
b. The object of the contract is not in the legal possession of a third
person in good faith
c. There must be no other legal remedy
d. The action must be brought within the prescriptive period
Prescriptive Period: 4 years which shall begin in cases of persons under
guardianship and for absentees until the termination of
incapacity or until domicile of absentee is known.
Requisites for Rescission of Contracts In Fraud of Creditors:
a. Credit existing prior to celebration of contract to be rescinded
b. Fraud or intent to commit fraud to prejudice creditor
c. Creditor cannot in any other legal manner collect his credit
d. Object of contract not with third person who acted in good good faith
Tolentino Even if debtor alienated property fraudulently, if transferee acquired
property in good faith and for valuable consideration, rescission will not
be allowed. However, if transfer is by gratuitous title, good faith of
transferee will not be a bar to rescission, but transferee is entitled to rights
of possessor in good faith
Case Studies:
Oria vs. McMicking (21 Phil 243) Badges of Fraud
(Re: Article 1387, par. 3 Rescissible Contracts) In determining whether or not a
sale is fraudulent, the following circumstances, attending such sale, are indications of
fraud:
1.
The fact that the consideration of the conveyance is fictitious or is
inadequate.
2.
A transfer made by a debtor after suit has been begun and while it is
pending against him.
3.
A sale upon credit by an insolvent debtor.
4.
Evidence of large indebtedness or complete insolvency.
5.
The transfer of all or nearly all of his property by a debtor, especially
when he is insolvent or greatly embarrassed financially.

6.
7.
property.
VII.

The fact that the transfer is made between father and son, when there are
present other of the above circumstances.
The failure of the vendee to take exclusive possession of all of the

Voidable Contracts (Chapter 7) Arts. 1390-1402

Voidable/Annullable Contracts(binding, unless they are annulled by a proper
action in court)
(1)
Those where one of the parties is incapable of giving consent* to a
contract;
(2)
Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
*R.A. 6809 (An Act Lowering the Age of Majority from Twenty-One to Eighteen
Years, Amending for the Purpose Executive Order Numbered Two Hundred Nine,
and for Other Purposes.)
The validity of an annullable contract may be attacked:
1. Directly by an action for that purpose;
2. Indirectly by way of a defense; however, from the purely procedural aspect,
this cannot be set up merely as an affirmative defense but by way of
counterclaim, and defendant must ask for an order of mutual restitution
under Art. 1398
Prescriptive Period: 4 years; counted from
When there is fraud, mistake: from time of discovery
when there is intimidation, violence, or undue influence,
from time it ceases
Confirmation is applicable to annullable contracts, while ratification applies to
unenforceable contracts or contracts where consent is totally absent. The
act by which a person entitled to bring an action for annulment with
knowledge of the caue for annulment and after it has ceased to exist,
validates the contract, either expressly or impliedly.
Ratification is the act of approving a contract entered into by another without
authority or beyond the scope of authority of the agent.

Requisites for Ratification/Confirmation:

The contract is voidable/annulable.
The confirmation is made with the knowledge of the cause of nullity.
At the time of the confirmation is made, the cause of nullity has ceased to exist.

Confirmation and Ratification cures the defect of nullity, while

acknowledgement remedies the deficiency of proof; thus when a contract
is entered into through error is approved, there is confirmation/ratification.
When an oral contract is put in writing or when a private writing is
converted into a public instrument, there is acknowledgment.
VIII. Unenforceable Contracts (Chapter 8) Arts. 1403-1408
Unenforceable Contracts (unless ratified)
(1)
Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
(2)
Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
(a)
An agreement that by its terms is not to be performed within a year
from the making thereof;
(b)
A special promise to answer for the debt, default, or miscarriage of
another;
(c)
An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d)
An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them, of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
(e)
An agreement for the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f)
A representation as to the credit of a third person.
(3)
Those where both parties are incapable of giving consent to a contract.

Fundamental Principles of the Statute of Frauds

Applies only to executory contracts;
Cannot apply if action is neither for specific performance nor for damages
because of a violation;
Exclusive;
May be waived;
Is a personal defense;
Not void but merely unenforceable;

Rule of exclusion
Determine admissibility of evidence, not merely credibility.
Case Studies:
BF Corp. vs. CA (288 SCRA 267)
(Re: Article 1403, No. 2 Statute of Frauds) A contract, to be enforceable under
the Statute of Frauds, need not be contained in a single writing. It may be collected from
several different writings which do not conflict with each other and which, when
connected, show the parties, subject matter, terms and consideration, as in contracts
entered into by correspondence. It may be encompassed in several instruments even
though every instrument it not signed by the parties, since it is sufficient if the unsigned
instruments are clearly identified or referred to and made part of the signed instrument
or instruments. Similarly, a written agreement of which there are two copies, one signed
by each of the parties, is binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it.
Rosencor Devt. Crop vs. Inquing (354 SCRA 119)
(Re: Right of First Refusal). The term "statute of frauds" require certain classes
of contracts to be in writing but does not deprive the parties of the right to contract with
respect to the matters therein involved. It merely regulates the formalities of the contract
necessary to render it enforceable to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged. It refers to specific kinds of transactions and cannot
apply to any other transaction that is not enumerated therein. It presupposes the
existence of a perfected contract.A right of first refusal isnot among those listed as
unenforceable under the statute of frauds. Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten, contract of sale. A right of first
refusal, such as the one involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant, not of the sale of the
real property involved, but of the right of first refusal over the property sought to be sold.
It is thus evident that the statute of frauds does not contemplate cases involving a right of
first refusal. As such, a right of first refusal need not be written to be enforceable and
may be proven by oral evidence.
Paredes vs. Espino (22 SCRA 1000)
The Statute of Frauds, embodied in Article 1403, Civil Code of the Philippines,
does not require that the contract itself be in writing. The plain text of Art. 1403,
paragraph (2) is clear that a written note or memorandum, embodying the essentials of
the contract and signed by the party charged, or his agent, suffices to make the verbal
agreement enforceable, taking it out of the operation of the statute. The letter, sent by
defendant-appellee coupled with that one marked as appendix B, constitute an adequate

memorandum of the transaction. They are signed by the defendant-appellee; refer to the
property sold, give its area and the purchase price . We have in them, therefore, all the
essential terms of the contract, and they satisfy the requirements of the Statute of Frauds.
We have ruled that a sufficient memorandum may be contained in two or more
documents. (Berg vs. Magdalena Estate, Inc., 92 Phil., 110, 115).
Syquia vs. CA (151 SCRA 505 )
Proof of the alleged verbal assurance of a lease renewal cannot be allowed both
under the Parol Evidence Rule and the Statute of Frauds for failure to put in writing said
alleged stipulation.
Berg vs. Magdalena Estate (92 Phil 110)
"No particular form of language or instrument is necessary to constitute a
memorandum or note in writing under the statute of frauds; any document or writing,
formal or informal, written either for the purpose of furnishing evidence of the contract
or for another purpose, which satisfies all the requirements of the statute as to contents
and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-215, is a
sufficient memorandum or note. A memorandum may be written as well with lead pencil
as with pen and ink. It may also be filled in on a printed form." (37 C.J.S., 653- 654.)
"The note or memorandum required by the statute of fraud need not be contained
in a single document, nor, when contained in two or more papers, need each paper be
sufficient as to contents and signature to satisfy the statute. Two or more writings
properly connected may be considered together, matters missing or uncertain in one may
be supplied or rendered certain by another, and their sufficiency will depend on whether,
taken together, they meet the requirements of the statute as to contents and the
requirements of the statute as to signature, as considered respectively infra secs. 179-200
and secs. 201-215.
Western Mindanao Lumber Co. Inc. vs. Medalle (79 SCRA 703)
The Statute of frauds refers to specific kinds of transactions and cannot apply to
any that is not enumerated therein.an agreement creating an easement of right-of-way is
not one of those contracts covered by the statute of frauds since it is not a sale of real
property or of an interest therein.
IX.

Void Or Inexistent Contracts (Chapter 9) Arts. 1409-1422

Void and Inexistent Contracts(cannot be ratified nor defense of illegality waived)
(1)
(2)
(3)

Those whose cause, object or purpose is contrary to law, morals, good

customs, public order or public policy;
Those which are absolutely simulated or fictitious;
Those whose cause or object did not exist at the time of the transaction;

(4)
(5)
(6)
(7)

Those whose object is outside the commerce of men;

Those which contemplate an impossible service;
Those where the intention of the parties relative to the principal object of
the contract cannot be ascertained;
Those expressly prohibited or declared void by law.

Prescriptive Period: Action or defense for declaration of illegality of contract

does not prescribe
2 Kinds of Void Contracts:
a. Inexistent Contract when essential formalities are not
complied with. Example: donation of land in a private
document
b. Illegal/Illicit Contract donation based on immoral
consideration, illicit sexual intercourse (Liguez vs.
CA, 102 Phil 577)
Case Studies:
Yu Guan vs. Ong (367 SCRA 559)
In Rongavilla v. Court of Appeals (294 SCRA 289, August 17, 1998), the Court
declared that a deed of sale, in which the stated consideration had not in fact been paid,
is null and void: "The 'problem' is whether a deed which states a consideration that in
fact did not exist, is a contract, without consideration, and therefore void ab initio, or a
contract with a false consideration. In Ocejo, Perez & Co. vs. Flores, 40 Phil. 921[,]we
ruled that a contract of purchase and sale is null and null and void and produces no
effect whatsoever where the same is without cause or consideration in that the purchase
price which appears thereon as paid has in fact never been paid by the purchaser to
vendor." The Deed of Sale was completely simulated and, hence, void and without effect.
No portion of the consideration stated in the Deed was ever paid and neither party had
any intention whatsoever to pay that amount.
De los Reyes vs. CA (313 SCRA 632)
For want of capacity (to give consent) on the part of the seller, the oral contract
of sale lacks one of the essential requisites for its validity prescribed under Article 1318,
supra and is therefore null and void ab initio. In "Nool vs. Court of Appeals (276 SCRA
149), if a void contract has been performed, the restoration of what has been given is in
order, seller should be ordered to refund to buyers the amount of which they have paid to
and receipt of which was duly acknowledged by him. The entire controversy must be
resolved in a single proceeding leaving no root or branch to bear the seeds of future
litigation especially where the Court can resolve the dispute based on the records before
it.

JG Summit Inc vs. CA (450 SCRA 169)

This case refers to a right of first refusal over shares of stock while the Lui She
case (Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967) involves an option
to buy the land itself. There is a distinction between the shareholder's ownership of
shares and the corporation's ownership of land arising from the separate juridical
personalities of the corporation and its shareholders.No law disqualifies a person from
purchasing shares in a landholding corporation even if the latter will exceed the allowed
foreign equity, what the law disqualifies is the corporation from owning land.
i. Principle of Pari Delicto the defect of a void contract
consists in the illegality of the cause or object of the contract
and both parties are at fault or in pari delicto, the law refuses
them every remedy and leaves them where they are (Arts. 1411
& 1412)
Case Studies:
Hrs. of Marciana Avila vs. CA (145 SCRA 541)
While it is true that Marciana Avila, their predecessor-in-interest, purchased the
questioned property at a public auction conducted by the government; paid the purchase
price; and was issued a final bill of sale after the expiration of the redemption period;
however such purchase was prohibited under Section 579 of the Revised Administrative
Code, as amended., the sale to her of Lot 594 is void.On the other hand, under Article
1409 of the Civil Code, a void contract is inexistent from the beginning. It cannot be
ratified neither can the right to set up the defense of its illegality be waived. (Arsenal, et
al. vs. The Intermediate Appellate Court, et al., G.R. No. 66696, July 14, 1986). The
buyer, as a party to an illegal transaction, cannot recover what she has given by reason
of the contract nor ask for the fulfillment of what has been promised her under Art. 1412.
Teja Marketing vs. IAC (148 SCRA 347)
The parties herein operated under a "kabit system" whereby a person who has
been granted a certificate of public convenience allows another person who owns motor
vehicles to operate under such franchise for a fee. It has been identified as one of the root
causes of the prevalence of graft and corruption in the government transportation offices.
A certificate of public convenience is: (a) a special privilege conferred by the government
and must not be abused; (b) is invariably recognized as being contrary to public policy
and, therefore, void and inexistent under Article 1409 of the Civil Code. The court will
not aid either party to enforce an illegal contract, butwill leave both where it finds
themunder Article 1412 of the Civil Code.

Ramirez vs. Ramirez (485 SCRA 92)

Forging a person's signature corresponds to the felony of falsification under

Section 4, Title IV of the Revised Penal Code. The act of forging Dolores's signature
constitutes a criminal offense under the terms of Article 1411 of the Civil Code. Under
Article 1411 of the Civil Code, it must be shown that the nullity of the contract proceeds
from an illegal cause or object, and the act of executing said contract constitutes a
criminal offense. The second requirement has already been discussed and is found to be
present. Object and cause are two separate elements of a donation and the illegality of
either element gives rise to the application of the doctrine of pari delicto..
Frenzel vs. Catito (406 SCRA 55)
Petitioner, an alien, cannot feign ignorance of the constitutional proscription, nor
claim that he acted in good faith, let alone assert that he is less guilty than the
respondent who was his common law wife in whose name the properties were registered.
Petitioner is fully aware that he was disqualified from acquiring and owning lands under
Philippine law even before he purchased the properties in question; and, to skirt the
constitutional prohibition, he had the deed of sale placed under the respondent's name as
the sole vendee thereof. Being a party to an illegal contract, petitioner cannot come into
a court of law and ask to have his illegal objective carried out because one who loses his
money or property by knowingly engaging in a contract or transaction which involves his
own moral turpitude may not maintain an action for his losses. To allow petitioner to
recover the properties or the money used in the purchase of the parcels of land would be
subversive of public policy.
Acabal vs. Acabal (454 SCRA 555)
Even assuming that the sale of landviolated the retention limits of Republic Act
No. 6657( Comprehensive Agrarian Reform Law), he would still have no remedy under
the law as he and Leonardo were in pari delicto. He is not entitled to affirmative relief
one who seeks equity and justice must come to court with clean hands. In pari delicto
potior est conditio defendentis. No action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid, or damages for
its violation. Where the parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other. The principle of pari delicto is grounded on two premises:
first, that courts should not lend their good offices to mediating disputes among
wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an
effective means of deterring illegality. No court will lend its aid to a man who founds his
cause of action upon an immoral or an illegal act.
(ii)

Exceptions to Pari-Delicto Arts. 1413- 1319

Menchavez vs. Teves (449 SCRA 380)

There are exceptions to the pari delicto rule that permit the return of that which
may have been given under a void contract. (Justice Vitug cites some of these exceptions,
under which recovery may be made by any of the following:"(a) The innocent party (Arts.
1411-1412, Civil Code); "(b) The debtor who pays usurious interest (Art. 1413, Civil
Code); "(c) The party repudiating the void contract before the illegal purpose is
accomplished or before damage is caused to a third person and if public interest is
subserved by allowing recovery (Art. 1414, Civil Code);
"(d) The incapacitated party
if the interest of justice so demands (Art. 1515, Civil Code); "(e) The party for whose
protection the prohibition by law is intended if the agreement is not illegal per se but
merely prohibited and if public policy would be enhanced by permitting recovery (Art.
1416, Civil Code); and
"(f) The party for whose benefit the law has been intended
such as in price ceiling laws (Art. 1417, Civil Code) and labor laws (Arts. 1418-1419,
Civil Code)." Vitug, Civil Law Annotated, Vol. III (2003), pp. 159-160.
One of the exceptions is found in Article 1412 of the Civil Code, which states:
"Art. 1412.
If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
"(1) When the fault is on the part of both contracting parties, neither may
recover what he has given by virtue of the contract, or demand the performance of the
other's undertaking;
"(2) When only one of the contracting parties is at fault, he cannot recover
what he has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he has given
without any obligation to comply with his promise."
Angeles vs. Court of Appeals (102 Phil 1006)(Re: Art. 1416- if public policy is
enhanced, pari delicto rule does not
apply)
Where a homestead was illegally sold in violation of the homestead law, the
principle of in pari delicto is not applicable. Reason for the rule is that the policy of the
law is to give land to a family for home and cultivation and the law allows the
homesteader to reacquire the land even if it has been sold; hence the right may not be
waived. In the case at bar, the sale of the homestead by the deceased homesteader within
five years from the issuance of the patent was null and void and his heir have the right to
recover the homestead illegally disposed.
Philippine Banking Corp vs. Lui She (21 SCRA 52) (Re:Art. 1416, exception to pari
delicto)
A lease to an alien for a reasonable period is valid. So is an option giving an
alien the right to buy real property on condition that he is granted Philippine
citizenship.Aliens are not completely excluded by the Constitution from the use of lands
for residential purposes. Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract which is not forbidden by the

Constitution. But if an alien is given not only a lease of, but also an option to buy, a piece
of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, the arrangement is now a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to enjoy the land (jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it
(jus disponendi) rights the sum total of which make up ownership. It is just as if today
the possession is transferred, tomorrow, the use, the next day, the disposition, and so on,
until ultimately all the rights of which ownership is made up are consolidated in an alien.
If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register of Deeds (79 Phil 461), is indeed in
grave peril. It does not follow that because the parties are in pari delicto they will be left
where they are without relief. Article 1416 of the Civil Code provides as an exception to
the rule in pari delicto that "when the agreement is not illegal per se but is merely
prohibited, and the prohibition by law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover what he has paid or delivered."
c. Examples of Void Contracts:
o Pactum Commissorium - Arts. 2088, 2130, 1390
A stipulation authorizing creditor to automatically appropriate the things
mortgaged/pledged in case of default, is void.
o Pactum de non Alienando Art. 2130
A stipulation forbidding the owner from alienating the immovable
mortgaged, is void.
o Pactum Leonina Art. 1799
A stipulation which excludes one or more partners from any shares in
profits and losses, is void.
NATURAL OBLIGATIONS (BOOK IV- TITLE III)
Arts. 1423-1430
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 voluntary
fulfillment by the obligor, they authorize the retention of what has
been delivered or rendered by reason thereof. They are midway
between civil obligations and purely moral obligations. The term
fulfillment does not refer only to the delivery of things but also the
performance of an act, the giving of security, the execution of a
document, the abandonment of an act. (Art 1423)
Conditions of Natural Obligations:
1. Juridical Tie between 2 persons
2. Juridical Tie as such is not given effect by law
-The first condition distinguishes natural obligation from moral obligation.
-The second condition distinguishes natural obligation from civil obligation.

- Juridical Tie or legal tie or Vinculum is that which binds the person to an obligation. It
is also known as the efficient cause.
Instances of Natural Obligations :
A. The obligor who voluntarily performs the contract notwithstanding that the right
to sue upon a civil obligation has lapsed by extinctive prescription, there no
recovery for what he ahs delivered or service rendered ; (Art 1424)
B. The obligor who reimburses a third person who pays the debt without the
knowledge and against his will, cannot recover what he ahs paid ; (Art 1425)
C. A minor (below 18 years)* who entered into a contract without consent of
parent/guardian who:
a. Voluntarily returns whole thing/price received (even if minor was not
benefited) (Art. 1426) cannot demand thing/price returned
b. Voluntarily pays sum of money, delivers a fungible thing in fulfillment of
obligation (Art. 1427) cannot recover money/fungible thing delivered if
obligee spent or consumed it in good faith .
*R.A. 6809 (An Act Lowering the Age of Majority from Twenty-One to Eighteen
Years, Amending for the Purpose Executive Order Numbered Two Hundred Nine,
and for Other Purposes.)
D. A defendant who voluntarily performs an obligation after an action to enforce a
civil obligation has failed cannot demand the return of what he has delivered or
payment of the service rendered ; (Art 1428)
E. An heir (testate or intestate) who voluntarily pays a debt exceeding the value of
property of the decedent cannot rescind payment since it is valid; (Art 1429)
F. An intestate heir who pays a legacy in a defective will (Art 1430)
- Refer to Art 2154 Solutio Indebiti obligation to return arises when something is
received even if there is no right to demand it or delivered by mistake
ESTOPPEL (BOOK IV TITLE IV)
Arts. 1431 - 1439
Estoppel - Through estoppel, an admission or representation is rendered conclusive upon
the person making it and it cannot be denied or disproved against the person
relying thereon.
3 Kinds of Estoppel:
1. Estoppel In Pais Or by Conduct arises when one, by his acts, representations, or
admissions, or by his silence when he ought to speak out, intentionally or through
culpable negligence, induces another to believe certain facts to exist, and such
other rightfully relies and acts upon such belief, as a consequence of which he
would be prejudiced if the former is permitted to deny the existence of such facts;
2. Estoppel By Deed or By Record technical estoppels by which a party to a deed
and his privies are precluded from asserting as against the other party and his

privies any right or title in derogation to the deed or from denying any material
fact asserted therein.
3. Laches the failure or neglect, for an unreasonable and unexplained length of
time to do that which, by exercising due diligence, could or should have done
earlier; it is negligence or omission to assert a right within a reasonable time
warranting the assumption that the party entitled to assert it, either has
abandoned or declined it.
Elements Of Laches:
(a) conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation of which complaint is made and for which the complaint
seeks a remedy;
(b) delay in asserting the complainant's rights, the complainant having had
knowledge or notice, of the defendant's conduct and having been afforded an
opportunity to institute a suit;
(c) lack of knowledge or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and
(d) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held to be barred
(Mejia de Lucas vs. Gamponia, G.R. No. L-9335, October 31, 1956, 100 Phil
277, ;Rafols vs. Barba (119 SCRA 146)
Case Studies:
Cristobal vs. Melchor, (78 SCRA 175)
Laches is the failure or neglect for an unreasonable and unexplained length of
time to do that which, by exercising due diligence, could or should have been done
earlier; it is negligence or omission to assert a right within a reasonable time,
warranting the presumption that the party entitled thereto either has abandoned it or
declined to assert it. (Tijam vs. Sibonghanoy, 23 SCRA 35).
DOro Land. Realty Devt. Corp. vs. Claunan (516 SCRA 681)
(See Mejia de Lucas vs. Gamponia above , especially ( c ) and (d). )Please note 4
the elements of laches above. The third and fourth elements of laches are not present
becauserespondents, being mere squatters, cannot be said to have lacked notice that
petitioner would assert its right over the lots considering that they knew from the
beginning that they have no right to the same. Neither can respondents claim any injury
or prejudice that would result by restoring possession of the lots to petitioner.
Respondents have no possessory rights over the lots. As mere intruders, they are bound to
an implied promise to surrender possession of the property to the real owner, regardless
of the identity of the latter.
Miguel vs. Catalino (26 SCRA 234)

(Distinction Between Laches and Prescription).The defense of laches applies

independently of prescription. Laches is different from the statute of limitations.
Prescription is concerned with the fact of delay, whereas laches is concerned with the
effect of delay. Prescription is a matter of time; laches is principally a question of
inequity of permitting a claim to be enforced, this inequity being founded on some change
in the condition of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at law. Prescription
is based on fixed time, laches is not. (citing Nielson & Co., Inc. vs. Lepanto Consolidated
Mining Co., L-21601, 17 December 1966).
The 1928 sale was void for lack of the governor's approval. The vendor and also
his heirs after him, could have instituted an action to annul the sale from that time, but
instead waited for 34 years to institute suit. The defendant was made to feel secure in the
belief that no action would be filed against him by such passivity, and also because he
"bought" again the land in 1949 from Grace Ventura who alone tried to question his
ownership; so that the defendant will be plainly prejudiced in the event the present action
is not held to be barred.
Vda. De Cabrera vs. CA (267 SCRA 339)
Under the Land Registration Act (now Sec. 47 of PD 1529, the Property
Registration Decree), no title to registered land in derogation to that of the registered
owner shall be acquired by prescription or adverse possession. The same is not true with
regard to laches. While the defendant may not be considered as having acquired title by
virtue of his and his predecessor's long continued possession (37 years) the original
owner's right to recover back the possession of the property and the title thereto from the
defendant has, by the latter's long period of possession and by patentee's inaction and
neglect, been converted into a stale demand and is barred by laches.
De Vera-Cruz v. Miguel (468 SCRA 506),
Although a registered landowner may lose his right to recover possession of his
registered property by reason of laches, the equitable defense is unavailing to one who
has not shown any color of title to the property:Having no title or document to overcome
petitioners' ownership over the land in question, respondent is therefore an intruder or
squatter whose occupation of the land is merely being tolerated. A squatter has no
possessory rights over the land intruded upon. As such, her occupancy of the land is only
at the owner's sufferance, her acts are merely tolerated and cannot affect the owner's
possession. She is necessarily bound to an implied promise that she will vacate upon
demand. (Id. at 523.)
Estate of Yujuico vs. Republic (537 SCRA 513)
While it may be true that estoppel does not operate against the state or its agents,
(Manila Lodge No. 761 v. Court of Appeals, No. L-41001, September 30, 1976, 73 SCRA

166) deviations have been allowed where it was ruled: Estoppels against the public are
little favored. They should not be invoked except in rare and unusual circumstances, and
may not be invoked where they would operate to defeat the effective operation of a policy
adopted to protect the public. They must be applied with circumspection and should be
applied only in those special cases where the interests of justice clearly require it.
Nevertheless, the government must not be allowed to deal dishonorably or capriciously
with its citizens, and must not play an ignoble part or do a shabby thing; and subject to
limitations . . ., the doctrine of equitable estoppel may be invoked against public
authorities as well as against private individuals. (31 CJS 675-676; cited in Republic v.
CA, G.R. No. 116111, January 21, 1999, 301 SCRA 366, 377) .Equitable estoppel may be
invoked against public authorities when as in this case, the lot was already alienated to
innocent buyers for value and the government did not undertake any act to contest the
title for an unreasonable length of time.
Tijam vs. Sibonghanoy (23 SCRA 29)
A party cannot invoke the jurisdiction of a court to secure affirmative relief
against his opponent and, after obtaining or failing to obtain such relief, repudiate or
question that same jurisdiction. Whether the court had jurisdiction either of the subject
matter of the action or of the parties was not important in such cases because the party is
barred from such conduct not because the judgment or order of the court is valid and
conclusive as an adjudication, but for the reason that such a practice cannot be tolerated
obviously for reasons of public policy. Jurisdiction over the subject matter is conferred
upon the courts exclusively by law, and as the lack of it affects the very authority of the
court to take cognizance of the case, the objection may be raised at any stage of the
proceedings. However, considering the facts and circumstances of the present case, the
Surety is now barred by laches from invoking this plea at this late hour for the purpose of
annulling everything done heretofore in the case with its active participation.
Accessories Specialists Inc. vs. Alabanza (559 SCRA 550)
The principle of promissory estoppel is: (a) a recognized exception to the threeyear prescriptive period enunciated in Article 291 of the Labor Code.Promissory
estoppel may arise from the making of a promise, even though without consideration, if it
was intended that the promise should be relied upon, as in fact it was relied upon, and if
a refusal to enforce it would virtually sanction the perpetration of fraud or would result
in other injustice. (Ramos v. Central Bank of the Philippines, No. L-29352, October 4,
1971, 41 SCRA 565.); (b) presupposes the existence of a promise on the part of one
against whom estoppel is claimed. The promise must be plain and unambiguous and
sufficiently specific so that the court can understand the obligation assumed and enforce
the promise according to its terms. (National Power Corporation v. Hon. AlonzoLegasto, G.R. No. 148318, November 22, 2004, 443 SCRA 342, 371.) To make out a
claim of promissory estoppel, a party bears the burden of establishing the following
elements: (1) a promise was reasonably expected to induce action or forbearance; (2)
such promise did, in fact, induce such action or forbearance; and (3) the party suffered
detriment as a result.(Mendoza v. Court of Appeals, 412 Phil. 14, 29 (2001).

TRUSTS (BOOK IV TITLE V)

Arts. 1440-1457
Trust is the legal relationship between one person having equitable ownership in the
property (beneficiary/cestui que trust) and another person owning the legal title
thereto (trustee), the equitable ownership of the former entitling him to the
performance of certain duties and he exercise of certain rights by the latter
(American Jurisprudence).
"A person who establishes a trust is called the trustor; one in whom
confidence is reposed is known as the trustee; and the person for whose benefit
the trust has been created is referred to as the beneficiary" (Art. 1440, Civil
Code). There is a fiduciary relation between the trustee and the cestui que trust as
regards certain property, real, personal, money or choses in action (Pacheco vs.
Arro, 85 Phil. 505).
Kinds of Trusts
1

Express Trust Arts. 1443- 1446

created by the intention of the trustor or of the parties.
- No express trusts concerning an immovable or any interest therein may
be proven by oral evidence.
Cestui Que Trust or Beneficiary One who has a beneficial interest in and
out of an estate, the legal title to which is vested in
another
Case Studies:
Ramos vs. Ramos (61 SCRA 284)
A trustee cannot acquire by prescription the ownership of property entrusted to
him (Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey
property registered in his name in trust for the benefit of the cestui qui trust does not
prescribe (Manalang vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or
that the defense of prescription cannot be set up in an action to recover property held by
a person in trust for the benefit of another (Sevilla vs. De los Angeles, 97 Phil. 875), or
that property held in trust can be recovered by the beneficiary regardless of the lapse of
time (Marabilles vs. Quito, 100 Phil. 64; Bancairen vs. Diones, 98 Phil. 122, 126 Juan
vs. Zuiga, 62 O.G. 1351; 4 SCRA 1221; Jacinto vs. Jacinto, L-17957, May 31, 1962.
See Tamayo vs. Callejo, 147 Phil. 31, 37).
That rule applies squarely to express trusts because possession of a trustee is not
adverse; hence, he does not acquire by prescription the property held in trust. Section 38

of Act 190 provides that the law of prescription does not apply "in the case of a
continuing and subsisting trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266)
Viloria vs. CA (309 SCRA 529)
Petitioner cannot rely on the registration of the land subject of the sale and the
corresponding issuance of a certificate of title in his name since the deed of sale is an
express trust. A trustee who obtains a Torrens title over property held in trust by him for
another cannot repudiate the trust by relying on the registration. Prescriptive period for
an action of reconveyance of real property based on implied or constructive trust which
is counted from the date of registration of property applies when the plaintiff is not in
possession of the contested property. An action to compel the trustee to convey property
registered in his name for the benefit of the cestui que trust does not prescribe unless the
trustee repudiates the trust.
2

Implied Trust Arts. 1447 -1457

those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or which are superinduced on the
transaction by operation of law as matters of equity independently of the
particular intention of the parties
a

Resulting Trust - trust by implication of law and presumed

always to have been contemplated by the parties, the intention as
to which is to be found in the nature of the transaction but not
expressed in the deed or instrument of conveyance (Arts. 1447 to
1455). The rule of imprescriptibility may apply so long as the
trustee has not repudiated the trust; once the resulting trust is
repudiated however, it is converted to a constructive trust,
subject to prescription.
Constructive Trust a trust not created by words, either
expressly or impliedly evidencing a direct intention to create a
trust, but by the construction of equity in order to satisfy the
demands of justice. (Art. 1456) Prescription may supervene.

Case Studies:
Ramos vs. Ramos (61 SCRA 284)
No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag,
96 Phil. 981; Julio vs. Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546).
"Express trusts are those which are created by the direct and positive acts of the parties,
by some writing or deed, or will, or by words either expressly or impliedly evincing an
intention to create a trust" (89 C.J.S. 122).

"Implied trusts are those which, without being expressed, are deducible from the
nature of the transaction as matters of intent, or which are superinduced on the
transaction by operation of law as matters of equity, independently of the particular
intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting
and constructive trusts (89 C.J.S. 722).
"A resulting trust is broadly defined as a trust which is raised or created by the
act or construction of law, but in its more restricted sense it is a trust raised by
implication of law and presumed always to have been contemplated of the parties, the
intention as to which is to be found in the nature of their transaction, but not expressed in
the deed or instrument of conveyance" (89 C.J.S. 725). Examples of resulting trusts are
found in article 1448 to 1455 of the Civil Code. See Padilla vs. Court of Appeals, L31569, September 28, 1973, 53 SCRA 168, 179).
A constructive trust is a trust "raised by construction of law, or arising by
operation of law". In a more restricted sense and as contradistinguished from a
resulting trust, a constructive trust is "a trust not created by any words, either expressly
or impliedly evincing a direct intention to create a trust, but by the construction of
equity in order to satisfy the demands of justice. It does not arise by agreement or
intention but by operation of law." (89 C.J.S. 726-727). "If a person obtains legal title to
property by fraud or concealment, courts of equity will impress upon the title a so-called
constructive trust in favor of the defrauded party." A constructive trust is not a trust in
the technical sense (Gayondato vs. Treasurer of the P.I., 49 Phil. 244; See Art. 1456,
Civil Code).

Vda. De Cabrera vs. CA (267 SCRA 339)

In Heirs of Jose Olviga vs. Court of Appeals, G.R. No. 104813, October 21, 1993,
227 SCRA 330, an action for reconveyance of a parcel of land based on implied or
constructive trust prescribes in ten years, the point of reference being the date of
registration of the deed or the date of the issuance of the certificate of title over the
property, but this rule applies only when the plaintiff or the person enforcing the trust is
not in possession of the property, since if a person claiming to be the owner thereof is in
actual possession of the property, as the defendants are in the instant case, the right to
seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe.
One who is in actual possession of a piece of land claiming to be the owner thereof may
wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right, the reason for the rule being, that his undisturbed possession gives
him a continuing right to seek the aid of a court of equity to ascertain and determine the
nature of the adverse claim of a third party and its effect on his own title, which right can
be claimed only by one who is in possession. The period of prescription may start, it must
be shown that (a) the trustee had performed unequivocal acts of repudiation amounting
to an ouster of the cestui que trust, (b) such positive acts of repudiation have been made
known to the cestui que trust, and, (c) the evidence thereon is clear and positive.

Ramos vs. CA (232 SCRA 348)

A resulting trust is an "intent-enforcing" trust, based on a finding by the court
that in view of the relationship of the parties their acts express an intent to have a trust,
even though they did not use language to that effect. The trust is said to result in law from
the acts of the parties. However, if the purpose of the payor of the consideration in
having title placed in the name of another was to evade some rule of the common or
statute law, the courts: (a) will not assist the payor in achieving his improper purpose be
enforcing a resulting trust for him in accordance with the "clean hands" doctrine.; (b)
refuse to give aid to claims from rights arising out of an illegal transaction, such as
where the payor could not lawfully take title to land in his own name and he used the
grantee as a mere dummy to hold for him and enable him to evade the land laws, e.g. an
alien who is ineligible to hold title to land, who pays for it and has the title put in the
name of a citizen. As an exception to the law on trusts, "[a] trust or a provision in the
terms of a trust is invalid if the enforcement of the trust or provision would be against
public policy, even though its performance does not involve the commission of a criminal
or tortious act by the trustee." The parties must necessarily be subject to the same
limitations on allowable stipulations in ordinary contracts, i.e., their stipulations must
not be contrary to law, morals, good customs, public order, or public policy. What the
parties then cannot expressly provide in their contracts for being contrary to law and
public policy, they cannot impliedly or implicitly do so in the guise of a resulting trust.
OLao vs. Co Cho Chit (220 SCRA 656)
Unlike express trusts concerning immovables or any interest therein which cannot
be proved by parol evidence, implied trusts may be established by oral evidence. To
establish an implied trust in real property by parol evidence, the proof: (a) should be as
fully convincing as if the acts giving rise to the trust obligation were proven by an
authentic document; (b). cannot be established upon vague and inconclusive proof. Art.
1448 of the New Civil Code states 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. The former is the trustee, while the latter is
the beneficiary . . ."
PNB vs. Angel Jose (63 Phil 814)
Trust receipts, as contracts, in a certain manner partake of the nature of a
conditional sale as provided by the Chattel Mortgage Law, that is, the importer becomes
absolute owner of the imported merchandise as soon as he has paid its price. The
ownership of the merchandise continues to be vested in the owner thereof or in the
person who has advanced payment, until he has been paid in full, or if the merchandise
has already been sold, the proceeds of the sale should be turned over to him by the
importer or by his representative or successor in interest.

PART II
SALES (BOOK IV TITLE VI)
Arts. 1458-1637
I.

Nature and Form Of The Contract (Chapter 1) Arts. 1458-1488

Contract Of Sale- one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its equivalent.
(Art. 1458)
Sale is a title not a mode of acquiring ownership.

1.
2.
3.

Essential Requisites of a Contract of Sale

consent or meeting of the minds;
determinate subject matter;
price certain in money or its equivalent
Characteristics of a Contract of Sale
Consensual (as distinguished from real)
Bilateral reciprocal
Onerous
Commutative
Principal (as distinguished from accessory)
Nominate
Case Studies:
Quiroga vs. Parsons Hardware Co. (38 Phil 501) (Distinction between Contract of Sale
and Agency to Sell)
The cause and subject matter of the contract was that the plaintiff was to furnish
the defendant with the beds which the latter might order, at the stipulated price, and that
the defendant was to pay this price in the manner agreed upon. These are the essential
features of a contract of purchase and sale. There was the obligation on the part of the
plaintiff to supply the beds, and, on that of the defendant, to pay their price. This is not an
agency or order to sell whereby the mandatary or agent receives the thing to sell it, and
does not pay its price, but delivers to the principal the price he obtains from the sale of
the thing to a third person, and if he does not succeed in selling it, he returns it.
Acap vs. CA (251 SCRA 30)

A declaration of heirship and waiver of rights is an extrajudicial settlement

between the heirs under Rule 74 of the Rules of Court. In a sale of hereditary rights,a
contract or deed of sale between the parties is presumed to exist.A waiver of hereditary
rights is a mode of extinction of ownership where there is an abdication or intentional
relinquishment of a known right with knowledge of its existence and intention to
relinquish it, in favor of other persons who are co-heirs in the succession. A stranger to
the succession of the subject estate, cannot conclusively claim ownership over the
subject lot on the sole basis of the waiver document because it does not recite the
elements of either a sale, or a donation, or any other derivative mode of acquiring
ownership.
Naranja vs. CA (586 SCRA 31)
To be valid, a contract of sale need not contain a technical description of the
subject property. Contracts of sale of real property have no prescribed form for their
validity; they follow the general rule on contracts that they may be entered into in
whatever form, provided all the essential requisites for their validity are present. (CIVIL
CODE, Art. 1356.).The failure of the parties to specify with absolute clarity the object of
a contract by including its technical description is of no moment. What is important is
that there is, in fact, an object that is determinate or at least determinable, as subject of
the contract of sale. The form of a deed of sale provided in Section 127 of Act No. 496 is
only a suggested form and is not a mandatory form.
Delpher Trade Corp vs. CA (157 SCRA 349)
The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely changed
their ownership from one form to another. The ownership remained in the same hands.
Hence, the private respondent has no basis for its claim of a right of first refusal under
the lease contract.
.

Stages of Contract of Sale

1.Preparatory Art. 1479
a. Offer Art. 1475
b. Contract of Option Arts. 1479, 1324
Right of First Refusal
Mutual Promise to Buy and Sell Art. 1479
2. Perfection Arts. 1475, 1319, 1325, 1326

Case Study:
Quijada vs. CA (299 SCRA 695)

The law requires that the seller has the right to transfer ownership at the time the
thing sold is delivered and not ownership by the seller on the thing sold at the time of the
perfection of the contract of sale.Perfection per se does not transfer ownership which
occurs upon the actual or constructive delivery of the thing sold. A perfected contract of
sale cannot be challenged on the ground of non-ownership on the part of the seller at the
time of its perfection: hence, the sale is still valid.The consummation occurs upon the
constructive or actual delivery of the subject matter to the buyer when the seller
subsequently acquires ownership thereof. Such circumstance happened in this case when
sellers became the owners of the subject property upon the reversion of the ownership of
the land to them. Consequently, ownership is transferred to buyer respondent Mondejar
and those who claim their right from him. Article 1434 of the New Civil Code supports
the ruling that the seller's "title passes by operation of law to the buyer." This rule
applies not only when the subject matter of the contract of sale is goods, but also to other
kinds of property, including real property.
Mutual Promise To Buy and Sell a bilateral reciprocal contract whereby both
parties make promises (the buyer to buy and the
seller to sell).Equivalent to a perfected sale. (Art.
1479)
Accepted Unilateral Promise To Either Buy Or Sell only one party makes a
promise and this promise is accepted by the other. This is binding on
promissor only if the promise is supported by a consideration distinct from
price. (Art. 1479)
Option to Buy or Sell- a party agrees, promises and commits to sell/buy land
without a consideration distinct from the price. A party
may still withdraw the promise before acceptance by the
other party.
Earnest Money vs. Option Money
Earnest Money
part of the purchase price
given only where there is already a sale
the buyer is bound to pay the balance,

Option Money
money given as a distinct consideration for an
option contract
applies to a sale not yet perfected;
when the would-be buyer gives option money,
he is not required to buy, but may even forfeit it
depending on the terms of the option.

Case Studies:
Eulogio vs. Apeles (576 SCRA 561)
An option is: (a) a contract by which the owner of the property agrees with
another person that the latter shall have the right to buy the former's property at a

fixed price within a certain time;(b) a condition offered or contract by which the owner
stipulates with another that the latter shall have the right to buy the property at a fixed
price within a certain time, or under, or in compliance with certain terms and
conditions; or which gives to the owner of the property the right to sell or demand a
sale. (Tayag v. Lacson, G.R. No. 134971, 25 March 2004, 426 SCRA 282, 304.)
An accepted unilateral promise can only have a binding effect if supported by a
consideration, which means that the option can still be withdrawn, even if accepted, if
the same is not supported by any consideration. Without consideration that is separate
and distinct from the purchase price, an option contract cannot be enforced; that holds
true even if the unilateral promise is already accepted by the optionee. The consideration
is "the why of the contracts, the essential reason which moves the contracting parties to
enter into the contract". The consideration contemplated to support an option contract
need not be monetary. Actual cash need not be exchanged for the option. An option
contractis an onerous contract for which the consideration must be something of value,
although its kind may vary.
Sanchez vs. Rigos (45 SCRA 368)
In the "Option to Purchase,", the defendant "agreed, promised and committed"
herself to sell the land therein described to the plaintiff, but there is nothing in the
contract to show that the undertaking is supported by a consideration "distinct from the
price." It is not a "contract to buy and sell"but an "option" to buy.There is no distinction
between Articles 1324 and 1479 of the Civil Code and the former applies where a
unilateral promise to sell similar to the one sued upon was involved, treating such
promise as an option which, although not binding as a contract in itself for lack of a
separate consideration, nevertheless generated a bilateral contract of purchase and sale
upon acceptance. Since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly withdraw it. Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer
to sell which, if accepted, results in a perfected contract of sale.
Serra vs. CA (229 SCRA 60)
In a unilateral promise to sell, where the debtor fails to withdraw the promise
before the acceptance by the creditor, the transaction becomes a bilateral contract to sell
and to buy, because upon acceptance by the creditor of the offer to sell by the debtor,
there is already a meeting of the minds of the parties as to the thing which is determinate
and the price which is certain. In which case, the parties may then reciprocally demand
performance. An optional contract is a privilege existing only in one party the buyer.
For a separate consideration paid, he is given the right to decide to purchase or not, a
certain merchandise or property, at any time within the agreed period, at a fixed price.
This being his prerogative, he may not be compelled to exercise the option to buy before
the time expires.
Contract of Sale vs. Contract To Sell

Contract of Sale

Contract To Sell (Conditional Contract Of

Sale)
Non-payment of price is resolutory condition Non-payment of price is suspensive condition
which ends transaction
and the obligation of seller to deliver never
becomes effective
Title to property generally passes to buyer
Ownership is retained by seller regardless of
upon delivery
delivery and passes only upon full payment of
price
Seller loses ownership upon delivery and may Seller retains ownership (even if there is
recover only if contract is rescinded
delivery). He is merely enforcing contract if
he ousts the buyer for failure to pay
Case Study:
Ramos vs. Heruela (473 SCRA 79)
Article 1458 NCC provides that a contract of sale may be absolute or
conditional.A contract of sale isabsolute: (a) when title to the property passes to the
vendee upon delivery of the thing sold; (b) there is no stipulation in the contract that title
to the property remains with the seller until full payment of the purchase price; (c) if
there is no stipulation giving the vendor the right to cancel unilaterally the contract the
moment the vendee fails to pay within a fixed period. In a conditional sale (contract to
sell): (a) ownership remains with the vendor and does not pass to the vendee until full
payment of the purchase price; (b)the full payment of the purchase price partakes of a
suspensive condition, and non-fulfillment of the condition prevents the obligation to sell
from arising.
3. Formalities of the Contract Art. 1403 (d) (e)
4. Price
Meaning Of Price Arts. 1469-1474
Requisites For A Valid Price
How Price Is Determined
-with reference to another thing certain
- may be left to judgment of a specified person(s)
- by the courts if the 3rd persons acted in bad faith
-by the innocent party if the 3rd person(s) are prevented
- by the other contracting party from fixing price

Inadequacy Of Price Arts. 1355, 1470

Rule: Does not affect contract of sale but may indicate defect in
consent or that parties intended donation

Case Studies:

Warner Barnes vs. Santos (14 Phil 446)

Plaintiff brought an action to foreclose the mortgage on defendants property.
Based on judgment by default, execution was issued and the mortgaged property duly
sold.When the plaintiff filed a motion for the confirmation of the sale of said property, the
defendant opposed it.
Held: A judicial sale of real estate in an action to foreclose will not be set aside for
inadequacy of price, unless the inadequacy be so great as to shock the conscience or
unless there be additional circumstances against its fairness.
De Leon vs. Salvador (36 SCRA 567)
In ordinary sales, a transaction may be invalidated on the ground of inadequacy
of price, or when such inadequacy shocks one's conscience as to justify the courts to
interfere. This is not so when the law gives to the owner the right to redeem, as when a
sale is made at public auction, because the lesser the price, the easier it is for the owner
to redeem. 'When there is the right to redeem, inadequacy of price should not be
material, because the judgment debtor may reacquire the property or also sell his right
to redeem and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale.' "

II.

When No Price Agreed Art. 1474

Manner Of Payment Must Be Agreed Upon

Capacity To Buy Or Sell (Chapter 2) Arts. 1489-1492

A.

Capacity to Buy or Sell Arts. 1489-1492

Rule: Contracts entered into by minors are generally voidable

B.
C.

Absolute Incapacity Arts. 1327, 1397, 1399

Relative Incapacity: (Art. 1490)
Rule:Married Persons/Common Law Husbands & Wives cannot sell to
each other
Exceptions:
1. when there is separation of property in marriage settlement
2. when there has been judicial separation of property

Case Studies:
Ching vs. Goyangko Jr. (506 SCRA 735)
The proscription against sale of property between spouses applies even to
common law relationships. In Calimlim-Canullas v. Hon. Fortun, etc., et al. (214 Phil.
593 (1984). It was ruled that the contract of sale was null and void for being contrary to

morals and public policy and for being violative of Articles 1352, 1409 and 1490 of the
Civil Code.
Calimlim-Canullas vs. Hon. Fortun (129 SCRA 675)
The lot on which husband and his wife built their conjugal house became
conjugal property from the time the house was first built thereon. The husband could not
have alienated the house and lot to the concubine since the wife had not given her
consent to said sale (Article 166, Civil Code).The contract of sale was null and void for
being contrary to morals and public policy. Article 1409 of the Civil Code
states:contracts whose cause, object, or purpose is contrary to law, morals, good
customs, public order, or public policy are void and inexistent from the very beginning.
Article 1352 also provides that: "Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good
customs, public order, or public policy."
The law prohibits the spouses from selling/donating property to each other to
prevent: (a) the destruction of the system of conjugal partnership, a basic policy in civil
law; (b) the exercise of undue influence by one spouse over the other; (c) as well as to
protect the institution of marriage, which is the cornerstone of family law. The
prohibitions apply to a couple living as husband and wife without benefit of marriage,
otherwise, "the condition of those who incurred guilt would turn out to be better than
those in legal union." Those provisions are dictated by public interest and their criterion
must be imposed upon the will of the parties.( Buenaventura vs. Bautista (CA) 50 O.G.
3679, and cited in Matabuena vs. Cervantes, 38 SCRA 284 (1971).
D.

Special Disqualifications Arts. 1491-1492

(applies also to sales in legal redemption, compromises and renunciations)

Agents (property where administration/sale entrusted to them)

Executors (property under administration)
Public Officers & Employees (property of State/subdivision
thereof/ GOCC, etc. under their administration)
Justices, judges, prosecuting attorneys, clerks of superior/inferior
courts and other employees (property in litigation/levied upon in
execution within their territorial jurisdiction)
Lawyers (property/right in litigation where they take part)
Others specially disqualified by law

Case Study:
Daroy vs. Abecia (298 SCRA 239)
The prohibition in Art. 1491 does not apply to the sale of a parcel of land,
acquired by a client to satisfy a judgment in his favor, to his attorney as long as the
property was not the subject of the litigation. While judges, prosecuting attorneys, and

others connected with the administration of justice are prohibited from acquiring
"property or rights in litigation or levied upon in execution," the prohibition with
respect to attorneys in the case extends only to "property and rights which may be the
object of any litigation in which they may take part by virtue of their profession."
D. Sellers Who Are Not Owners or With Voidable Titles
Sale By A Person Not The Owner At Time Of Perfection Of Contract Of Sale
Rule: Valid because sale may cover future goods so long as seller has
right to transfer ownership at the time of delivery
2.

Sale by a Person Who Is Not Owner And Who Sells Without

Authority/Consent of Owner
Rule:Buyer acquires no better title than seller
Exceptions:
a. Owner is precluded from denying sellers authority to sell
b. Sale under statutory power of sale or under order of court of
competent jurisidiction
c. Sale made under recording laws (Example: PD 1529 Property
Registration Decree) enabling apparent owner to dispose as if
he were true owner
d. Purchases made in a merchants store or fairs or markets
Store any place where goods are kept and sold by one engaged in
buying and selling.

3.

III.

Sale By A Person Having A Voidable Title Arts. 1506, 559

Rule: Buyer acquires good title provided sellers title not avoided at
time of sale, buyer acquires in good faith and for value and
without notice of defect of sellers title

Effects of The Contract When Thing Sold Has Been Lost (Chap 3)Arts. 14931494
A.

Risk of Loss
1. General Rule Arts. 1263, 1189
Loss of Generic Thing: Does not extinguish obligation Art. 1263
Loss of Determinate Thing: Extinguishes obligation if lost before
delay and without fault of seller/debtor Art. 1262

a.

When Total Loss Occurred At Time Of Perfection- Contract shall be without any effect
Arts. 1493 And 1494
b. When Loss Is Only Partial- vendee may choose between :
Rescission or
Specific Performance (proportional reduction in price)
Rule:Risk of Loss is with seller before delivery (Art. 1504, NCC)
Exception: Risk of loss is with buyer when ownership is transferred by
delivery
(a) Goods are at buyers risk when ownership was retained by
seller merely to secure payment;
(b) The party at fault bears risk of loss when there is delay in
delivery
When Ownership/Risk of Loss Transferred To Buyer Depending on Kind of
Transaction
(Art. 1502)
Transaction
On Sale Or Return
On Approval Or On Trial Or
Satisfaction

When Ownership
Transferred To Buyer
Upon delivery unless he
returns within time fixed or
reasonable time
When buyer signifies his
approval acceptance to seller
or when he fails to signify
his approval but retains
goods beyond fixed time

Who Bears Risk of Loss

Buyer - if goods lost after
delivery
Seller if goods lost before
buyer signifies acceptance
Buyer if goods lost after
buyer signified acceptance or
when buyer retains goods
without giving notice of
rejection (after a fixed period
for return expires or after a
reasonable time if no fixed
period)

When Ownership/Risk of Loss Transferred To Buyer Depending On Point/Place of

Delivery(Art. 1523)
Rule: Delivery to carrier is delivery to buyer if it is sellers duty to deliver
FOB (Free on Board)
Example: FOB (place of shipment) freight paid by buyer
Exceptions:
CIF (Cost, Insurance, Freight) freight is paid by seller
FOB (place of destination) freight paid by seller

Example: CIF/FOB (place of destination ) goods to be delivered to Cebu. If loss

occurred before goods reach Cebu, seller bears loss

IV.

Obligations of the Vendor(Chapter 4) Arts. 1495-1581

A. General Provisions (Section 1) Arts. 1495-1496
B. Delivery Of The Thing Sold (Section 2) Arts. 1497-1544
Manner of Transfer Arts. 1477, 1496-1501
When Delivery Does Not Transfer Title
Kinds Of Delivery/Tradition

1. Real Tradition delivery or transfer of a thing from hand

to hand, if it is movable property; by certain material or
possessory acts by the vendee done in the presence and
with consent of vendor such as entering property,
gathering fruits, taking possession, if it is immovable
property
Constructive Tradition when delivery of the movable or immovable is not actual or
material and is represented by other signs or acts indicative thereof such as execution of a
public instrument
a.

Symbolic Delivery (Art. 1498) delivery of keys to place where

goods are kept

b.

Tradicion Longa Manu (First part, Art. 1499) mere

consent/agreement of parties

c.

Tradicion Brevi Manu (Second part, Art. 1499) vendee has thing
sold in his possession at time of sale

d. Tradicion Constitutum Possesorium (Art. 1500) vendees possession

changes like that from owner to lessee of new purchaser
Quasi-Tradition (Art. 1501) the transfer of rights or incorporeal things by the exercise
of the right by the grantee with the acquiescence of the vendor
4.

Tradition By Operation of Law covers all other cases not already

enumerated and in which delivery is effected by express provision of law
Delivery Of Thing Sold

1.
2.
C.

Movables (w/ all accessions & accessories at time of perfection

of contract)
Immovables If contract has contract rate with a statement of area,
seller must deliver all.

Documents of Title

Documents of Title To Goods includes any bill of lading, dock warrant, quedan,
or warehouse receipt or order for the delivery of goods, or
any other document used in the ordinary course of business
in the sale or transfer of goods or any other document used
in the ordinary course of business in the sale or transfer of
goods, as proof of the possession or control of the goods or
authorizing or purporting to authorize the possessor of the
document to transfer or receive, either by endorsement or
by delivery, goods represented by such document. (Art.
1636)
Warranties Of Seller Of Documents Of Title Art. 1516
(1)
That the document is genuine;
(2)
That he has a legal right to negotiate or transfer it;
(3)
That he has knowledge of no fact which would impair the validity
or worth of the document; and
(4)
That he has a right to transfer the title to the goods and that the
goods are merchantable or fit for a particular purpose, whenever
such warranties would have been implied if the contract of the
parties had been to transfer without a document of title the goods
represented thereby
Negotiable Documents Of Title in which it is stated that the goods
referred therein will be delivered to the bearer
(negotiated by delivery), or to the order of any person
named in such document (negotiated by indorsement &
delivery). (Arts. 1507-1509, 1512, 1513, 1518). Can be
negotiated by indorsement or delivery.
Non-Negotiable Documents Of Title
Rules On Levy/Garnishment Of Goods Arts. 1514, 1519, 1520
D.

Double Sales Art. 1544

1. Personal Property
Rule: Possessor in good faith
2. Real Property

Rule: (in the following order)

o First Registrant in good faith
o First Possessor in good faith
o Person with oldest title in good faith
Rule Does Not Apply:
a. Double sale of land was not made by same seller or his agent
b. Sale of same land to two different buyers if first deed is a
forgery
c. Sale of same land where one sale is absolute sale and another
was a pacto de retro sale where redemption period has not yet
expired
d. Sale of same land where one sale was subject to suspensive
condition where one condition not complied with
e. Unregistered land
Case Studies:
Carbonell vs. CA (69 SCRA 99)
Under second paragraph of Article 1544 of the New Civil Code ,the buyer of
realty must act in good faith in registering his deed of sale.Under the first and third
paragraphs of Article 1544, (a) preference is to the one who first takes possession in
good faith of personal or real property, the second paragraph; (b) good faith must
characterize prior possession. If there is no inscription, what is decisive is prior
possession in good faith. If there is inscription, prior registration in good faith is a precondition to support title.The first buyer has superior right to the land if she was not
aware - and could not have been aware - of any sale to another person as there was no
such sale, her prior purchase of the land being made in good faith. The first buyers
good faith continued to exist: (a) when she recorded her adverse claim four days prior to
the registration of the second buyer's deed of sale; (b) even after the seller told her of his
second sale of the same lot to the second buyer.
Carumba vs. CA (31 SCRA 558)
Article 1544 of the Civil Code is not applicable to unregistered lands .In a
double sale of the unregistered land, the first sale was made by the original owners and
was unrecorded while the second was an execution sale that resulted from a complaint
for a sum of money filed against the said original owners. Per Section 35, Rule 39 of the
Revised Rules of Court, Article1544 of the Civil Code cannot be invoked to benefit the
purchaser at the execution sale though the latter was a buyer in good faith and even if
this second sale was registered since the purchaser of unregistered land at a sheriff's
execution sale only steps into the shoes of the judgment debtor, and merelyacquires the
latter's interest in the property sold as of the time the property was levied upon.
Radiowealth Finance Company vs. Palileo (197 SCRA 245)

Article 1544 of the Civil Code provides that in case of double sale of an
immovable property, ownership shall be transferred: (1) to the person acquiring it who in
good faith first recorded it in the Registry of Property; (2) in default thereof, to the
person who in good faith was first in possession; and (3) in default thereof, to the person
who presents the oldest title, provided there is good faith.. Section 51 of Presidential
Decree No. 1529 provides that the act of registration is the operative act to convey or
affect registered lands insofar as third persons are concerned. A person dealing with
registered land is: (a) not required to go behind the register to determine the condition of
the property; (b)is only charged with notice of the burdens on the property which are
noted on the face of the register or certificate of title. A purchaser in good faith of
registered land (covered by a Torrens Title) acquires a good title as against all the
transferees thereof whose right is not recorded in the registry of deeds at the time of the
sale.
Santiago vs. CA (247 SCRA 336)
If the second buyer in a double sale of real property does not: (a) insist in
obtaining possession of the owner's copy of the Torrens title; (b) inspect the property in
the absence of said copy to ascertain who is in possession; (c) try to have the deed of sale
registered until after he learns that there was a buyer of the same lot ahead of him, his
rights cannot prevail over the first buyer who did all these things.Even if first buyers had
known of the second sale, they still have the superior right, if there is no prior
registration in good faith by second buyer of the second sale in his favor.The principle is
prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer
of the second sale cannot defeat the first buyer's rights except when the second buyer first
registers in good faith the second sale (Olivares vs. Gonzales , 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the first sale defeats his rights even
if he is first to register, since such knowledge taints his registration with bad faith (see
also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984).
In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984; 129 SCRA 656), it was held
that it is essential, to merit the protection of Art. 1544, second paragraph, that the second
realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs.
Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. 95843, 02 September 1992).
Registration of the second buyer under Act 3344, providing for the registration of all
instruments of unregistered land, cannot improve his standing since Act 3344 itself
expresses that registration thereunder would not prejudice prior rights in good faith (see
Carumba vs. Court of Appeals, 31 SCRA 558). Registration, however, by the first buyer
under Act 3344 can have the effect of constructive notice to the second buyer that can
defeat his right as such buyer in good faith (see Arts. 708-709, Civil Code; see also
Revilla vs. Galindez, 107 Phil. 480; Taguba vs. Peralta, 132 SCRA 700).
San Lorenzo Devt. Corp. vs. CA (449 SCRA 99)

When the thing sold twice is an immovable, the one who acquires it and first
records it in the Registry of Property, both made in good faith, shall be deemed the
owner. Registration must be coupled with good faith without knowledge of the defect or
lack of title of his vendor or of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor. The first criterion is priority of entry in the registry of property; there being no
priority of such entry, the second is priority of possession; and, in the absence of the two
priorities, the third priority is of the date of title, with good faith as the common critical
element.
Salera vs. Rodaje (530 SCRA 432)
Article 1544 of the Civil Code covers double sale or multiple sales by a single
vendor. It covers a situation where a single vendor sold one and the same immovable
property to two or more buyers.It cannot be invoked where the two different contracts of
sale are made by two different persons, one of them not being the owner of the property
sold (Consolidated Rural Bank (Cagayan Valley) Inc. v. Court of Appeals, G.R. No.
132161, January 17, 2004, 448 SCRA 347.).
E.

Property Registration Decree (P.D. 957)

1.
Requisites for registration of deed of sale in good faith
2.
Accompanied by vendors duplicate certificate of title, payment of
capital gains tax, and documentary tax, registration fees

F. Conditions And Warranties (Section 3) Arts. 1545-1581

Express Warranty-Any affirmation of fact or any promise by the seller
relating to the thing is an express warranty if the natural
tendency of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer purchases
the thing relying thereon. No affirmation of the value of
the thing, nor any statement purporting to be a statement
of the seller's opinion only, shall be construed as a
warranty, unless the seller made such affirmation or
statement as an expert and it was relied upon by the
buyer.
Implied Warranty In Contract of Sale
(1)
An implied warranty on the part of the seller that he has a right to
sell the thing at the time when the ownership is to pass, and that
the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing;
(2)
An implied warranty that the thing shall be free from any hidden
faults or defects, or any charge or encumbrance not declared or
known to the buyer.

Prescriptive Period: 10 years

1. Warranty In Case of Eviction (Subsection 1) Arts. 1548-1560
Eviction take place whenever by a final judgment based on a right prior
to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or a part of the thing purchased.
(Example: property sold for non-payment of tax not made
known to buyer before sale)
warranty against eviction may be waived unless seller in bad
faith
Requisites of Breach of Warranty in Case of Eviction:
a.There is a final judgment
b.
Deprivation of the vendee of whole or part of the thing
purchased
c.Deprivation based on a right prior to the sale or an act imputable to
the vendor
d.
Vendor must be summoned in a suit for eviction at the
instance of vendee
In case of eviction, seller must return: value, income, costs, expenses &
damages
2. Warranty Against Hidden Defects Of Or Encumbrances Upon A Thing
Sold (Subsection 1) Arts. 1561-1581
Two Remedies In Case of Breach Of Warranty Against Hidden Defects:
a. Accion Redhibitoria action to void sale on account of vice/defect of
the thing sold or diminish its fitness such that vendee would not have
purchased it
b. Accion Quanti Minoris action to procure return of a part of the
purchase price by reason of defect of the thing sold.
Prescriptive Periods:
Rule: 6 months after delivery of thing sold
Redhibitory action (Defect of Animals) : 40 days from delivery
Case Study:
Power Comm & Ind Corp vs. CA (274 SCRA 597)
The requisites of a breach of warranty against eviction are: (1) The purchaser has
been deprived of the whole or part of the thing sold; (2) This eviction is by a final

judgment; (3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and (4) The vendor has been summoned and made co-defendant in the suit for
eviction at the instance of the vendee.
V.
VI.

Obligations of the Vendee(Chapter 5) Arts. 1582-1593

Actions For Breach Of Contract Of Sale Of Goods(Chapter 6) Arts. 15941599
A.

Remedies of Contracting Parties

1.

REMEDIES OF THE BUYER

a.

Sale of Movables

Delivery of Movables Which Do Not Correspond With Description Or Sample (Art.

1481)
Kind of Contract
Contract of Goods by Description or By
Sample
Contract of Goods By Description and By
Description

Remedy of Buyer
1. Rescission
1. Rescission if bulk of goods do not
correspond with description even if bulk
of goods correspond with description

Delivery of Movables In A Quantity Not In Accordance With Contract (Art. 1522)

Quantity Delivered By Seller*
1. Quantity Less Than What Seller
Contracted To Sell

Buyers Remedy
1. May reject them
2. If accept goods knowing seller is not going to
perform contract in full, pay at contract rate
3. If used goods before knowing seller is not going
to perform contract in full, pay only for fair value

2. Quantity Larger Than What Seller

Contracted To Sell

3.
Delivered Goods With Others of
Different Description

to him of goods so received

1. May reject them
2. Accept only goods included in contract & reject
rest
3. Accept whole of goods delivered but pay at
contract rate
1. Accept only goods included in contract &
reject rest

*If Subject Matter is indivisible, buyer may reject whole of goods

Loss Of Thing With Hidden Faults (Arts. 1568-1569)
Prescriptive Period: 6 months counted from day of delivery of thing sold
Cause of Loss
Hidden Faults

Sellers Knowledge of
Hidden Loss
Seller Aware
Seller Not Aware

Fortuitous Event/Fault of Seller Not in Bad Faith

Buyer
Seller in Bad Faith

Buyers Remedy
Seller bears loss and he shall return price
and refund expenses of contract with
damages to buyer
Seller bears loss and he shall return price
with interest and reimburse expenses of
contract which were paid by buyer
Seller bear loss and he shall pay price less
value of thing when lost to buyer
Seller bear loss and he shall pay price plus
damages to buyer

b. Sale of Immovables
Problems In Delivery of Immovable (Art. 1539-1542 and 1560)
Prescriptive Period: 6 months counted from day of delivery for Nos. 1, 2 and 3 below
Area Delivered
1. Sale With Statement of Area At A Rate of
Certain Price Per Unit
Area is less than area stated in contract or Area is
same but if any part is not of quality specified
Area is greater than stated in contract

Buyers Remedy
1. Proportional reduction in price
2. Rescission if lack in area is not less
than 1/10 of that stated
1. Accept only area included in contract
and reject rest
2. Accept whole area but pay for same at
contract rate

2. Sale Made For Lump Sum

Area is greater/lesser than stated in contract
2 or more immovables sold for single price
3. Sale With Mention of Boundaries

1. No increase/decrease in the price

1. No increase/decrease in the price
1. Deliver all included within the
boundaries even when it exceeds area
stated in contract otherwise suffer: (a)
reduction in price in proportion to what
is lacking in area unless contract is
rescinded
4. Sold With Encumbrance of Non-Apparent
1. Rescission in contract or
Burden Servitude Not Mentioned In Agreement
& Which is Not Recorded in Registry of Property
(Unless Expressly Warranted)
2. Ask for damages
Prescriptive Period (for No. 4) :1 year from
execution of deed. After 1 year, only an action for
damages within 1 year from date of discovery of
burden or servitude
3.

REMEDIES OF THE SELLER

a.

Sale of Movable Where Object*Not Delivered (Art. 1593)

Requisites:
Buyer does not appear to receive after expiration of period fixed
for delivery
Buyer appears but does not tender price at the time agreed
unless longer period stipulated
Remedy: Right to Rescind By Seller
*where object is delivered, apply Art. 1191

b. Sale of Movables Payable In Installments (Art. 1484)

Requisites Before Art. 1484 (Recto Law) May Be Applied
There must be a contract
Contract must be one of sale (not pacto de retro)
Involving personal property
The sale must be on installment plan (i.e. any part or portion
of buying price, including downpayment)
Applies to leases of personal property with option to buy
when lessor has deprived lessee of the possession or
enjoyment of thing

Remedy Under Recto Law*: Arts. 1484-1486

(1) Exact fulfillment of the obligation, should the vendee fail to
pay;
(2) Cancel the sale, should the vendee's failure to pay cover two
or more installments; (this requires restitution by parties)
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be
void."
*Remedies are alternative and not cumulative. Election of one is a
waiver of another
Case Study:
Tajanlangit vs. Southern Motors (101 Phil 606)
In a contract of sale of personal property payable in installments, secured by a
mortgage on the goods sold, the vendor who chooses to exact fulfillment of the obligation
to pay (instead of foreclosing the chattel mortgage) is not limited to the proceeds of the
sale, on execution, of the mortgaged goods. The vendor may still recover from the
purchaser the unpaid balance of the price, if any.
b. Sale of Immovables
i. R.A. 6552 (Maceda Law):Sale of Immovables on Installment
Applies To:

Sale or financing of real estate (residential lots and residential

condominiums) on installment payments (excluding industrial lots
and commercial buildings and sales to tenants under RA 3844)

Case Studies:
Valarao vs. CA (304 SCRA 155)
The Deed of Conditional Sale is a sale on installment or a contract to sell, since
sellers unmistakably reserved for themselves the title to the property until full payment
of the purchase price by the vendee. The stipulations of the contract being the law
between the parties, courts have no alternative but to enforce them as they were agreed
[upon] and written, there being no law or public policy against the stipulated forfeiture
of payments already made." However, it must be shown that private respondent-vendee
failed to perform her obligation, thereby giving petitioners-vendors the right to demand
the enforcement of the contract.

Article 1592 of the Civil Code applies only to contracts of sale, and not to
contracts to sell or conditional sales where title passes to the vendee only upon full
payment of the purchase price. To enforce the automatic forfeiture clause in a deed of
conditional sale, the vendors have the burden of proving a contractual breach on the
part of the vendee.Automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the vendee to pay
three successive monthly installments or any one year-end lump sum payment are valid.
The rescission of the contract and the forfeiture of the payments already made could not
be effected, because the case falls squarely under Republic Act No. 6552, otherwise
known as the "Maceda Law.
Olympia Housing Inc. vs. Panasiatic Travel Corp.

(395 SCRA 307)

Republic Act No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act,'' took effect on 16 September 1972. It is a special law governing
transactions that involve, subject to certain exceptions, the sale on installment basis of
real property and was enacted mainly "to protect buyers of real estate on installment
payments against onerous and oppressive conditions." It recognizes the right of the
seller to cancel the contract but any such cancellation must be done in conformity with
the requirements therein prescribed. In addition to the notarial act of rescission, the
seller is required to refund to the buyer the cash surrender value of the payments on the
property. The actual cancellation of the contract can only be deemed to take place upon
the expiry of a 30-day period following the receipt by the buyer of the notice of
cancellation or demand for rescission by a notarial act and the full payment of the cash
surrender value.
The Seller can go to the court to demand judicial rescission in lieu of a notarial
act of rescission. A demand for rescission by notarial act would appear to be merely
circuitous, with the filing by the seller of an action for annulment of contract and for
recovery of damages. An action for annulment of contract is similar to rescission. The
instant case before the Court is one for recovery of possession on the thesis of a prior
rescission of the contract covering the property. Not only is an action for reconveyance
conceptually different from an action for rescission but that, also, the effects that flow
from an affirmative judgment in either case would be materially dissimilar in various
respects. The judicial resolution of a contract gives rise to mutual restitution which is
not necessarily the situation that can arise in an action for reconveyance. Additionally,
in an action for rescission (also often termed as resolution), unlike in an action for
reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the
Court, instead of decreeing rescission, may authorize for a just cause the fixing of a
period.

Where buyer has paid at least 2 years of installments -Sec. 3

Sec. 3. In all transactions or contracts involving the sale
or financing of real estate on installment payments, including
residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic

Act Numbered Thirty-eight hundred forty-four as amended by

Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is
entitled to the following rights in case he defaults in the payment
of succeeding installments:
(a)
To pay, without additional interest, the unpaid
installments due within the total grace period earned by him,
which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That
this right shall be exercised by the buyer only once in every five
years of the life of the contract and its extensions, if any.
(b)
If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total payments
made and, after five years of installments, an additional five per
cent every year but not to exceed ninety per cent of the total
payments made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act and upon full payment of the
cash surrender value to the buyer.Down payments, deposits or
options on the contract shall be included in the computation of
the total number of installments made.

Where buyer has paid less than 2 years of installments Sec.4

Sec. 4. In case where less than two years of installments
were paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due. If the
buyer fails to pay the installments due at the expiration of the
grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.

Case Studies:
Fabrigas vs. San Francisco del Monte, Inc. (476 SCRA 247)
Petitioners defaulted in all monthly installments. They may be credited only with
the equivalent to less than two (2) years' installments. The applicable legal provision on
the mode of cancellation of Contract to Sell is Section 4 of R.A. 6552 which is
applicable to instances where less than two years installments were paid. The
cancellation of the contract under Section 4 is a two-step process. First, the seller
should extend the buyer a grace period of at least sixty (60) days from the due date of
the installment. Second, at the end of the grace period, the seller shall furnish the buyer
with a notice of cancellation or demand for rescission through a notarial act, effective

thirty (30) days from the buyer's receipt thereof. It is worth mentioning, of course, that a
mere notice or letter, short of a notarial act, would not suffice.
Leano vs. CA (369 SCRA 36)
The transaction between the parties was a conditional sale, not an absolute sale.
The intention of the parties was to reserve the ownership of the land in the seller until
the buyer has paid the total purchase price.. As the land is covered by a torrens title, the
act of registration of the deed of sale was the operative act that could transfer
ownership over the lot. There is not even a deed that could be registered since the
contract provides that the seller will execute such a deed "upon complete payment by
the vendee of the total purchase price of the property" with the stipulated interest.
Article 1169 of the Civil Code provides that in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins. In the case at bar, seller performed his part of
the obligation by allowing buyer to continue in possession and use of the property.
Clearly, when buyer did not pay the monthly amortizations in accordance with the terms
of the contract, she was in delay and liable for damages.
Roque vs. Lapuz (96 SCRA 741)
The lots subject of the sale was delivered by the seller to the buyer who took
possession thereof and occupied the same and thereafter built his house thereon. But the
property being registered under the Land Registration Act, it is the act of registration of
the Deed of Sale which could legally effect the transfer of title of ownership to the
transferee, pursuant to Section 50 of Act 496. (Manuel vs. Rodriguez, et al., 109 Phil. 1;
Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo, 28 Phil. 635; Worcester vs.
Ocampo, 34 Phil. 646). The contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force.
Art. 1191 of the New Civil Code is the applicable provision where the seller elects
to rescind or cancel his obligation to deliver the ownership of the two lots in question
for failure of the buyer to pay in full the purchase price on the basis of 120 monthly
equal installments, promptly and punctually for a period of 10 years.Buyer is not
entitled to the benefits of paragraph 3 of Art. 1191, N.C.C. Having been in default, he is
not entitled to the new period of 90 days from entry of judgment within which to pay
petitioner the balance with interest due on the purchase price.
There is no just cause authorizing the fixing of a new period within which buyer
may pay the balance of the purchase price even if buyer had constructed valuable
improvements on the land and that he has built his house on the property. Otherwise, the
seller at the mercy of the buyer can easily construct substantial improvements on the

land but beyond the capacity of the seller to reimburse in case seller elects to rescind the
contract by reason of the buyer's default or deliberate refusal to pay or continue paying
the purchase price of the land. Under this design, stratagem or scheme, the buyer can
cleverly and easily "improve out" the vendor of his land.
ii. Art. 1592 NCC :Sale of Immovables Not On Installment
Applies To:

Sale of immovable property even if it may have been stipulated

that upon failure to pay price at the time agreed upon, the
rescission of the contract shall of right take place.

Requisites:
1.
2.

Sale of real property (not a contract to sell or a promise to sell)

There is demand by seller for the rescission of the contract of sale,
not payment of price
3.
The demand may be judicial or extra-judicial (by notarial act)
Steps to Cancellation of Contract of Sale Under Art. 1592:
Failure of buyer to pay within agreed period
Buyer may pay even after expiration of agreed period if no notarial demand for
rescission of contract is made by the seller
Seller needs to go to court to avail of rescission under Art. 1191 NCC
Under Art. 1191, court may order rescission unless there is a just cause
authorizing the fixing of a period within which buyer may pay
Case Studies:
Luzon Brokerage Co. vs. Maritime Bldg. Co. (43 SCRA 93)(Difference Between
Contract Of Sale and Contract
To Sell)
The difference between contracts of sale and contracts to sell with reserved title is
that the seller under contracts to sell, has the power to extrajudicially terminate the
operation of the contract, refuse conveyance and retain the sums or installments already
received, in case of failure of the buyer to complete payment.
"A judicial action for the rescission of a contract is not necessary where the
contract provides that it may be revoked and cancelled for violation of any of its terms
and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37
SCRA 327, 334, and cases cited therein). The remedy of the party opposing the rescission
for any reason being to file the corresponding action to question the rescission and
enforce the agreement. The act of a party in treating a contract as cancelled or resolved
on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court.

If the other party denies that rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court. Should the court, after due
hearing, decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be affirmed,
and the consequent indemnity awarded to the party prejudiced.The party who deems the
contract violated may consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. Only the final judgment of the
corresponding court will conclusively and finally settle whether the action taken was or
was not correct in law. Thecontracting party who believes itself injured is not required to
first file suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise due diligence
to minimize its own damages (Civil Code, Article 2203)."
City of Cebu vs. Hrs. of Candido Rubi (306 SCRA 408)
The rescission of a sale of an immovable property is specifically governed by
Article 1592 of the New Civil Code which reads:"In the sale of immovable property, even
though it may have been stipulated that upon the failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay,
even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand,
the court may not grant him a new term."
The vendor City of Cebu did not give notice of rescission much less make a
judicial or notarial demand for rescission in its Contract of Sale with Rubi. The only
subsequent action taken by petitioner was to send to the respondents a "Formal Notice,
ordering the latter to vacate the premises within fifteen days from receipt of notice for the
reason that the occupancy of lot subject lot is presumed to be illegal as the lot is still
registered in the name of the City of Cebu. This letter did not amount to a demand for
rescission, as indeed there was no reference to the sale much less a declaration that the
sale was being rescinded or abrogated from the beginning. It was only when the City of
Cebu filed its Answer on June 15, 1989 to the instant complaint for specific performance
that the city invoked "automatic rescission" and prayed for relief allowing it to rescind
the contract.
Iringan vs. CA (366 SCRA 41)(Distinction Between Rescission Under Art. 1381 and
Rescission Under Art. 1191 and 1592)
Article 1592 of the Civil Code applies in the sale of an immovable property. It
requires the rescinding party to serve judicial or notarial notice of his intent to resolve
the contract before a valid rescission can take place, whether or not automatic
rescission has been stipulated. The law uses the phrase "even though" emphasizing that
when no stipulation is found on automatic rescission, the judicial or notarial
requirement still applies.

Under Article 1191 of the Civil Code: (a) the right to resolve reciprocal
obligations, is deemed implied in case one of the obligors shall fail to comply with what
is incumbent upon him. But that right must be invoked judicially (b)the Court shall
decree the resolution demanded, unless there should be grounds which justify the
allowance of a term for the performance of the obligation." This requirement has been
retained in the third paragraph of Article 1191, which states that "the court shall decree
the rescission claimed, unless there be just cause authorizing the fixing of a period." The
party entitled to rescind should apply to the court for a decree of rescission and the
operative act which produces the resolution of the contract is the decree of the court and
not the mere act of the vendor. Since a judicial or notarial act is required by law for a
valid rescission to take place, the letter written by respondent declaring his intention to
rescind did not operate to validly rescind the contract.
Rescission" in Article 1381 is not akin to the term "rescission" in Article 1191 and
Article 1592. In Articles 1191 and 1592, the rescission is a principal action which seeks
the resolution or cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as enumerated in said article. The
prescriptive period applicable to rescission under Articles 1191 and 1592, is found in
Article 1144, which provides that the action upon a written contract should be brought
within ten years from the time the right of action accrues.
VII. Extinguishment Of Sale(Chapter 7) Arts. 1600-1623
A. Conventional Redemption (Section 1) Arts. 1601-1618
Conventional Redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the
provisions of Art. 1616 (return price of sale and reimburse expenses of
contract, necessary & useful expenses on the thing sold) and other
stipulations agreed upon. (Art. 1601)
Equitable Mortgage Arts. 1602-1604
Instances when a contract may be presumed to be an equitable mortgage:
(Art. 1602)

Case Studies:
Lumayag vs. Hrs. of Nemeno (526 SCRA 315)
An equitable mortgage has been defined "as one which although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless

reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law. The existence of any one of the
conditions under Article 1602, not a concurrence, nor an overwhelming number of such
circumstances, suffices to give rise to the presumption that the contract is an equitable
mortgage since the law favors the least transmission of property rights
Villarica vs. CA (26 SCRA 189)
The contract between the parties cannot be presumed to be an equitable mortgage
since the right of repurchase was not reserved by the vendor in the same instrument of
sale as one of the stipulations of the contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to repurchase in a subsequent
instrument. Any right thereafter granted the vendor by the vendee cannot be a right of
repurchase but some other right like an option to buy. An instrument different from the
deed of sale, evidences merely an option to buy. Consequently, the extension by one
month of the period for the exercise of the option does not fall under No. 3 of Article
1602 of the Civil Code, which refers to the right of repurchase.
Period Of Conventional Redemption Art. 1606

4 Years from the date of the contract in the absence of express

agreement

Cannot exceed 10 years if there is an agreement

30 days from time of final judgment in a civil action on the basis that
contract was a true sale with right to repurchase

Case Studies:
Leonardo vs. CA (220 SCRA 254)
Art. 1606 par. 3 of the New Civil Code is applicableonly in a civil action where
the main issue is the true nature of the contract between the parties where the seller a
retro honestly believed that the contract he had entered into was an equitable mortgage
not a pacto de retro transaction, and because of such belief, he had not redeemed the
property within the proper period. Thesale with assumption of real estate mortgage with
right to repurchase provides that the vendor has the power to redeem the subject property
within seven (7) years from the execution of the document.Vendor failed to exercise his
right to repurchase one-half of the property within the agreed period. In vendors belated
letter to vendee, he categorically admitted that he is exercising his right to repurchase the
subject property and tendering for that purpose his repurchase payment for said
property. It was only after vendee filed his petition for consolidation of ownership with
the trial courtthat vendor denied the true nature of their agreement, by alleging in the
Answer that the contract is one of equitable mortgage. Article 1606 paragraph (3) of the
New Civil Code, allowing the vendor thirty (30) days from the time final judgment is
rendered within which to repurchase property sold under a contract of sale with aright to
repurchase, is not applicable

Abilla vs. Gobonseng (386 SCRA 429)

The deed of sale, together with the option to buy executed on the same day, was
meant to serve as security for the indebtedness of respondent which had become long
overdue. Said obligation would have been satisfied had respondent exercised the option
to buy within the stipulated period. These circumstances, peculiar to the case at bar,
make this case fall squarely within the situation contemplated in the above-quoted
doctrine that there was a belief on the part of the vendor a retro, founded on facts
attendant upon the execution of the sale with pacto de retro, honestly and sincerely
entertained, that the agreement was in reality a mortgage, one not intended to affect the
title to the property ostensibly sold, but merely to give it as security for a loan or other
obligation. Sincevendor a retro has maintained that transaction between him and vendee
a retro was really an equitable mortgage, vendor a retro may avail of the third paragraph
of Article 1606 of the Civil Code which allows him to repurchase the property within the
thirty-day period counted from the date of finality of the decision declaring the
transaction to be a pacto de retro sale.If the urgent motion to repurchase the lots with
tender of payment which vendor a retro is filed within the 30-day period,vendees a retro
should, therefore, be ordered to accept the tendered payment for the lots and to execute
the necessary deed of sale conveying the same to vendor a retro.
Cadungog vs. Yap (469 SCRA 561)
The vendee a retro(even if he failed to consolidate his title under Art. 1607 of the
New Civil Code.) had acquired absolute title and ownership over the six parcels of when
the petitioner, as vendor a retro, failed to repurchase the same within the period fixed by
the parties in the Deed of Sale with Right of Repurchase. A sale with pacto de retro
transfers the legal title to the vendee a retro. In a pacto de retro sale, the title and
ownership of the property sold are immediately vested in the vendee a retro, subject to
the resolutory condition of repurchase by a vendor a retro within the stipulated period.
Failure on the part of a vendor a retro to repurchase the property within the period
agreed upon by them, or, in the absence thereof, as provided for by law, vests upon the
vendee a retro absolute title and ownership over the property sold by operation of law.
Thus, the vendor a retro had no right to mortgage or sell the same to the based on the
Latin adage goes: NEMO DAT QUOD NON HABET. Not being the owner of the parcels
of land, the vendor a retro could not have lawfully sold the same to the respondent.
B. Legal Redemption (Section 2) Arts. 1619-1623
Legal Redemption the right to be subrogated, upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing
by purchase or dation in payment or by any other transaction whereby
ownership is transmitted by onerous title (Art. 1619).
Redemption
Who Is Preferred
Property Under Only if sale is to right is in proportion to share of
Co-Ownership stranger, not co- redeeming owners

Land (Rural)

Land (Urban)

owner
Area does not exceed adjacent owner with smaller area
1 ha.
preferred;
if equal area, first one who requested
redemption
Resale of Area so
-owner of adjoining land at a reasonable
small that major area price
cannot be used for
2 or more owners, the one whose
practical purpose
intended use is justified
within reasonable
period (bough merely
for speculation)

Period Of Legal Redemption/Pre-emption Art. 1623

Within 30 days from the notice in writing by the prospective
vendor or by the vendor, as the case may be,

Case Studies:
Sy vs. CA (172 SCRA 125)
Section 78 of the General Banking Act, as amended by P.D. No. 1828, states
that: . . .to redeem the property by paying the amount fixed by court in the order of
execution, or the amount due under the mortgage deed, as the case may be, with interest
thereon at the rate specified under the mortgage and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by reason of the execution and
sale and as a result of the custody of said property less the income received from the
property. Said section is applicable not only to "banks and banking institutions," but also
to "credit institutions." SIHI is a credit institution, i.e. financial intermediary engaged in
quasi-banking functions, within the purview of Section 78, it being an entity authorized to
engage in the lending of funds or purchasing of receivables or other obligations with
funds obtained from the public as provided in the General Banking Act under Section 2-A
(a); and, to lend, invest or place funds deposited with them, acquired by them or
otherwise coursed through them, either for their own account or for the account of others
under Section 2-D(c).
Legaspi vs. CA (69 SCRA 360)
The issue of who among the adjoining owners has the a better right to buy the
small piece of land whereon part of the house of petitioner is standing, is to be resolved
by applying paragraph 3 of Art. 1622 of the Civil Code the intended use that appears
best justified. The following circumstances prove that petitioner has the preferential right
over the property in question: (a)the parcel of land involved is urban land a portion of

the house of the petitioner is standing on a portion of the lot in question(b) her
possession and improvements thereon were tolerated by the adjoining owners;(c) the
right of pre-emption was availed of by petitioner when she offered to buy said lot but was
refused
Etcuban vs. CA (148 SCRA 507)
Plaintiff failed to make a valid tender of the sale price of the land paid by the
defendants within the period fixed by Art. 1623 of the Civil Code which provides that the
right of legal pre-emption or redemption shall not be exercised except within thirty (30)
days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. Art. 1623 does not prescribe any particular form of notice, nor any distinctive
method for notifying the redemptioner." So long, therefore, as the latter is informed in
writing of the sale and the particulars thereof, the 30 days for redemption start running,
and the redemptioner has no real cause to complain. (De Conejero et al v. Court of
Appeals, et al., 16 SCRA 775). In the Conejero case, We ruled that the furnishing of a
copy of the disputed deed of sale to the redemptioner, was equivalent to the giving of
written notice required by law in "a more authentic manner than any other writing could
have done," and that We cannot adopt a stand of having to sacrifice substance to
technicality. More so in the case at bar, where the vendors or co-owners of petitioner
stated under oath in the deeds of sale. Notice of sale had been given to prospective
redemptioners in accordance with Art. 1623 of the Civil Code.
Francisco vs. Boiser ( 332 SCRA 792)
Art. 1623 of the Civil Code requires that the written notification should come
from the vendor or prospective vendor, not from any other person. In the case at bar, the
written notice came from the buyer or vendee and not from the vendor of the property
subject of legal redemption.The receipt by petitioner of summons in Civil Case No. 15510
on August 5, 1992 amounted to actual knowledge of the sale from which the 30-day
period of redemption commenced to run. Petitioner then had until September 4, 1992
within which to exercise her right of legal redemption, but in August 12, 1992 she
deposited the redemption price. As petitioner's exercise of said right was timely, the same
should be given effect.
Butte v. Uy (4 SCRA 527),
The written notice should be given by the vendor and not the vendees,
conformably to a similar requirement under Article 1623.
Alonzo vs. IAC (150 SCRA 259)
In Article 1623, a particular method of giving notice was specified, and that
notice must be deemed exclusive,. The notice given by the vendees and not the vendor
would not toll the running of the 30-day period. The below is merely exception to the De
Conejero and Buttle doctrines in view of the peculiar circumstances of this case.. The

purpose of the law requiring written notice is to make sure that the redemptioners are
duly notified. The co-heirs in this case were undeniably informed of the sales although
no notice in writing was given them. The 30-day period began and ended during the 14
years between the sales in question and the filing of the complaint for redemption in
1977, without the co-heirs exercising their right of redemption. These are the
justifications for this exception.
VIII.

Assignment of Credit & Other Incorporeal Rights(Chapter 8) Arts. 1624-1635

Case Study:
Ledonio vs. Capitol Devt Corp (526 SCRA 379)
An assignment of credit has been defined as an agreement by virtue of which the
owner of a credit (known as the assignor), by a legal cause such as sale, dation in
payment or exchange or donation and without need of the debtor's consent, transfers
that credit and its accessory rights to another (known as the assignee), who acquires the
power to enforce it, to the same extent as the assignor could have enforced it against the
debtor. (Far East Bank & Trust Company v. Diaz Realty, Inc., 416 Phil. 147, 161
(2001).On the other hand, subrogation, by definition, is the transfer of all the rights of
the creditor to a third person, who substitutes him in all his rights. It may either be legal
or conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts. Conventional subrogation is that which takes
place by agreement of parties. (Chemphil Export & Import Corporation v. Court of
Appeals, 321 Phil. 619, 642 (1995). Assignment of credit and conventional subrogation
are not the same. Under our Code, conventional subrogation is not identical to
assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is
not required. Subrogation extinguishes an obligation and gives rise to a new one;
assignment refers to the same right which passes from one person to another. The nullity
of an old obligation may be cured by subrogation, such that the new obligation will be
perfectly valid; but the nullity of an obligation is not remedied by the assignment of the
creditor's right to another.

IX.

General Provisions(Chapter 9) Arts. 1636-1637

EXCLUDE: Electronic Commerce Act, Public Land Law, Retail Tradeand Liberalization Act, Bulk
Sales Law

BARTER OR EXCHANGE (BOOK IV TITLE VII)

Arts. 1638 - 1641
LEASE (BOOK IV TITLE VIII)
I.

General Provisions (Chapter 1) Arts. 1642-1645

Lease a consensual, bilateral onerous and commutative contract by which one
person binds himself to grant temporarily, the use of a thing or the

rendering of a service to another who undertakes to pay rent,

compensation or price (Sanchez Roman)
3 Kinds of Leases:
1. Lease of things (real or personal property)
2. Lease of service (household service, contract of labor, common carriers)
3. Contract for a Piece of Work
II.

Lease of Rural and Urban Lands (Chapter 2) --Arts. 1646 - 1688

A.
B.
C.

Qualified Persons Those not disqualified under Arts. 1490 and 1491 of
the NCC in relation to things mentioned therein
Registration in Registry of Property to be binding upon third persons Art.
1648
Sublease : Distinctions
Assignment
Sublease
Lessee - Assignor ceases to be a party to
Lessee remains a party to the contract
the contract
Assignee has direct action against lessor Sublessee has no direct action against
lessor
Requires lessors consent
Does not require lessors consent
unless expressly prohibited

Case Study:
Marimperio Compaa Naviera vs. CA (156 SCRA 368)
In a sub-lease, there are two leases and two distinct juridical relations although
intimately connected and related to each other, unlike in a case of assignment of lease,
where the lessee transmits absolutely his right, and his personality disappears; there only
remains in the juridical relation two persons, the lessor and the assignee who is
converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In a
contract of sub-lease, the personality of the lessee does not disappear; he does not
transmit absolutely his rights and obligations to the sub-lessee; and the sub-lessee
generally does not have any direct action against the owner of the premises as lessor, to
require the compliance of the obligations contracted with the plaintiff as lessee, or vice
versa (10 Manresa, Spanish Civil Code, 438).However, there are at least two instances in
the Civil Code which allow the lessor to bring an action directly (accion directa) against
the sub-lessee (use and preservation of the premises under Art. 1651, and rentals under
Article 1652).
D.

Rights And Obligations Of Lessor And Lessee Arts. 1654 - 1679

When Purchaser of A Thing Leased Cannot Terminate LeaseArts. 1676, 1677)

1. Lease is recorded in the Registry of Property;

2. There is a stipulation in the contract of sale;
3. Sale is fictitious. This is the presumption if sale is not registered when
the vendee demands termination
4. Sale with a Right to Repurchase
5. Purchaser knows the existence of the lease.
Case Studies:
San Andres vs. CA (265 SCRA 368)
It is thus unlikely that, in entering into the 30-year lease contract in this case, the
parties contemplated imposing restrictions on private respondents' rights of ownership of
the building, by prohibiting even the lease of the building constructed by the lessee. The
most natural and the most logical construction of the "no sublease" provision is that it
refers only to the land leased but not to the building or factory which the lessee was
authorized to construct on the land.
United States Lines vs. San Miguel Brewery (10 SCRA 805)
A lessor of a cold storage plant warrants that the leased premises would be free
from rats. Fraud or bad faith on the part of the lessor is not a necessary element. He
may be held responsible for the deterioration of the foodstuffs stored in one of its cold
storage rooms by a lessee thereof because said foodstuffs were gnawed by rodents
which gained entrance into said cold storage rooms the provisions governing
warranty against hidden defects in the contract of sale are also applicable in a contract
of lease (Art. 1653).
Oro Cam Enterprises vs. CA (319 SCRA 444)
A judgment in an ejectment suit is binding not only upon the defendants in the
suit but also against those not made parties thereto, if they are: a) trespassers, squatters
or agents of the defendant fraudulently occupying the property to frustrate the judgment;
b) guests or other occupants of the premises with the permission of the defendant; c)
transferees pendente lite; d) sublessees; e) co-lessee; or f) members of the family,
relatives and other privies of the defendant. Consequently, the appellate court did not act
with grave abuse of discretion in annulling the trial court's order granting the writ of
preliminary injunction.
Dizon vs. CA (396 SCRA 151)
The acceptance of the amount by the lessor purportedly as partial payment of the
purchase price of the land, was an act integral to the sale of the land. Respondent lessee
invokes such receipt of payment as giving rise to a perfected contract of sale. The
lessees option to purchase expired after the one-year period granted in the contract. The
implied renewal of the lease did not include the option to purchase and affected only

those terms and conditions which are germane to the lessee's right of continued
enjoyment of the property
Chua vs. CA (301 SCRA 356)
After the lease terminated without the parties thereafter reaching any agreement
for its renewal, lessees became deforciants subject to ejectment from the premises. As
there was no longer any lease to speak of which could be extended, the Metropolitan
Trial Court was in effect making a contract for the parties which it obviously did not
have the power to do. The potestative authority of the courts to fix a longer term for a
lease under Art. 1687 of the Civil Code applies only to cases where there is no period
fixed by the parties.
LL Agro Industrial Corp vs. Chun (378 SCRA 612)
The extension of a lease contract must be made before the term of the agreement
expires. After the lapse of the stipulated period, the courts cannot belately extend or
make a new lease for the parties; that an "option to renew" is reciprocal requiring the
consent of both the lessor and the lessee; and that the parties are free to enter into
contract and that courts cannot rescue the parties from the necessary consequences of
their acts. The petition was granted, and respondents lessees and all persons claiming
rights under them were ordered to vacate the premises, and to pay accrued rentals.
Pajuyo vs. CA (430 SCRA 492)
Ownership or the right to possess arising from ownership is not at issue in an
action for recovery of possession. The parties cannot present evidence to prove
ownership or right to legal possession except to prove the nature of the possession when
necessary to resolve the issue of physical possession. The same is true when the
defendant asserts the absence of title over the property. The absence of title over the
contested lot is not a ground for the courts to withhold relief from the parties in an
ejectment case. The only question in ejectment proceedings is who is entitled to the
physical possession of the premises, that is, to the possession de facto and not to the
possession de jure. It does not even matter if a party's title to the property is
questionable, or when both parties intruded into public land and their applications to
own the land have yet to be approved by the proper government agency. Regardless of
the actual condition of the title to the property, the party in peaceable quiet possession
shall not be thrown out by a strong hand, violence or terror. Neither is the unlawful
withholding of property allowed. Prior possession is always respected.A party who can
prove prior possession can recover such possession even against the owner himself.
Whatever may be the character of his possession, if he has in his favor prior possession
in time, he has the security that entitles him to remain on the property until a person with
a better right lawfully ejects him.
Parilla vs. Pilar (509 SCRA 420)(Re: Art. 1678, NCC)

Article 448 covers only cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, have a claim of title thereto, but not when
the interest is merely that of a holder, such as a mere tenant, agent or usufructuary. A
tenant cannot be said to be a builder in good faith as he has no pretension to be owner.
The right of the lessor upon the termination of a lease contract with respect to useful
improvements introduced on the leased property by a lessee is covered by Article 1678
which provides that 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.
Geminiano vs. CA (259 SCRA 344)(Re: Art. 1678, NCC)
Article 448 of the Civil Code, in relation to Article 546 of the same Code, which
allowed full reimbursement of useful improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on
land with the belief that he is the owner thereof. It does not apply where one's only
interest is that of a lessee under a rental contract; otherwise, it would always be in the
power of the tenant to "improve" his landlord out of his property. The right to indemnity
under Article 1678 of the Civil Code arises only if the lessor opts to appropriate the
improvements. Once the petitioners refused to exercise that option, the private
respondents cannot compel them to reimburse the one-half value of the house and
improvements. Neither can they retain the premises until reimbursement is made. The
private respondents' sole right then is to remove the improvements without causing any
more impairment upon the property leased than is necessary.
E.

Special Rules For Lease Of Rural/Urban Lands (Sections 3 and 4)

Arts. 1680 1688

Case Studies:
Jespajo Realty Corp vs. CA (390 SCRA 27)
Art. 1687 is not applicable where the lease contract between lessor and lessee is
with a period subject to a resolutory condition. The wording of the agreement is
unequivocal: "The lease period . . . shall continue for an indefinite period provided the
lessee is up-to-date in the payment of his monthly rentals." The condition imposed in
order that the contract shall remain effective is that the lessee is up-to-date in his
monthly payments. It is undisputed that the lessees religiously paid their rent at the
increasing rate of 20% annually. The agreement between the lessor and the lessees are
therefore still subsisting, with the original terms and conditions agreed upon, when the
lessor unilaterally increased the rental payment to more than 20% month.

Laolim vs. CA (191 SCRA 150)

Perpetual leases are not favored in law, nor are covenants for continued renewals
tending to create a perpetuity, and the rule of construction is well settled that a covenant
for renewal or for an additional term should not be held to create a right to repeated
grants in perpetuity, unless by plain and unambiguous terms the parties have expressed
such intention. (51 C.J.S. 606.) A lease will not be construed to create a right to
perpetual renewals unless the language employed indicates clearly and unambiguously
that it was the intention and purpose of the parties to do so. (50 Am. Jur. 2d 56.) A
portion in a lease giving the lessee and his assignee the right to perpetual renewals is not
favored by the courts, and a lease will be construed as not making such a provision
unless it does so clearly. (50 Am. Jur. 2d 53.)
Lopez vs. Umale-Cosme (580 SCRA 190)
Where a contract of lease is verbal and on a monthly basis, the lease is one with a
definite period which expires after the last day of any given thirty-day period. In Leo Wee
v. De Castro G.R. No. 176405, August 20, 2008, pp. 11-12;) where the lease contract
between the parties did not stipulate a fixed period, it was ruled:The rentals being paid
monthly, the period of such lease is deemed terminated at the end of each month. Thus,
respondents have every right to demand the ejectment of petitioners at the end of each
month, the contract having expired by operation of law. Without a lease contract,
petitioner has no right of possession to the subject property and must vacate the same.
Respondents lessors, thus, should be allowed to resort to an action for ejectment before
the MTC to recover possession of the subject property from petitioner lessee.
Corollarily, petitioner's ejectment, in this case, is only the reasonable consequence of his
unrelenting refusal to comply with the respondents-lessor's demand for the payment of
rental increase agreed upon by both parties. The lessor has the right to rescind the
contract of lease for non-payment of the demanded increased rental.
The right of rescission is statutorily recognized in reciprocal obligations, such as
contracts of lease. . . . under Article 1659 of the Civil Code, the aggrieved party may, at
his option, ask for (1) the rescission of the contract; (2) rescission and indemnification
for damages; or (3) only indemnification for damages, allowing the contract to remain in
force. Payment of the rent is one of a lessee's statutory obligations, and, upon nonpayment by petitioners of the increased rental, the lessor acquired the right to avail of
any of the three remedies outlined above.
III.

Lease of Work or Services ( Chapter 3) Arts. 1689-1764

A. Household Service (Section 1)
Arts. 1689 1699

1. Contract Not More Than 2 Years; Renewable Upon Agreement By

Parties
2. Not More Than 10 Hrs. Work Per Day
3. Under 18 Years, Employer Shall Give Opportunity for Elem Educ.
4. Indemnity for Unjust Termination; Compensation Already Earned Plus
That for 15 days
(see also Labor Code, Chapter III, Art. 141 to 152)
B. Contract Of Labor - (Section 2)
Arts. 1700-1712
1. Obligation In Case Of Death/Injury Of Laborers
a. Due to Negligence of Fellow Worker Solidary Liability of
Fellow Worker and Employer
b. Due to Malicious Intentional Act of Fellow Worker
Employer Not Liable If He Exercised Due Diligence In Selection
& Supervision of Other Workers Art. 1712
C. Contract For A Piece of Work ( Section 3)
Arts. 1713 - 1731
.
Contract for a Piece of Work
Lease of Service
The object is the finished or The object is the service
resulting work
Risk is with worker before delivery
Risk is with employer unless
worker is at fault or is negligent
The repairer is preferred to a chattel mortgagee if repairer retains
possession of the movable
Case Studies:
San Diego vs. Sayson (2 SCRA 1175)
The provision in Article 1724 of the new Civil Code that the contractor may
demand an increase in the price on account of the higher costs of labor or materials only
if the change in the plans and specifications has been authorized in writing by the
proprietor, was adopted not merely to prohibit admission of oral testimony against the
objection of the adverse party, but as a substantive provision or a condition precedent to
recovery. This can be inferred from the fact that the provision is not included among
those specified in the Statute of Frauds, Article 1403 of the Civil Code.
Royal Lines Inc. vs. CA (143 SCRA 608)

Article 1724 refers to a structure or any other work to be built on land by

agreement between the contractor and the landowner. It cannot apply to work done upon
a vessel, which is not erected on the land or owned by a landowner.The original contract
of services was in writing. It does not follow, however, that all supplements of that written
contract should also be written. In stipulating that "any modification, change, and/or
extra work" shall be "subject of another contract," the contracting parties did not
necessarily or explicitly agree that the second contract should be in writing. The second
contract could be merely verbal, as in fact it was, and was binding on the parties as long
as it represented a meeting of minds between them. The finding of the Court of Appeals is
that representatives were sent by petitioner to the NASSCO shipyard in Mariveles while
the M/V Sea Belle was being repaired and that they represented said petitioner when they
requested the extra work that was subsequently done on the vessel. This second contract
was not reduced to writing, but it was nonetheless as binding between the parties as the
first written contract.
Del Monte Phils.vs. Aragones (461 SCRA 139)
ART. 1467 provides that a contract for the delivery at a certain price of an article
where the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is a contract for a piece of work under ART.
1729.Those who put their labor upon or furnish materials for a piece of work undertaken
by the contractor have an action against the owner up to the amount owing from the
latter to the contractor at the time the claim is made. This is to protect the laborers and
materialmen from being taken advantage of by unscrupulous contractors and from
possible connivance between owners and contractors. Thus, a constructive vinculum or
contractual privity is created by this provision, by way of exception to the principle
underlying Article 1311 between the owner, on the one hand, and those who furnish labor
and/or materials, on the other.

Chartered Bank vs. Constantino (56 Phil 717)

Article 1731 (mechanics lien) of the Civil Code pertaining to the right of persons
to retain movables worked by way of pledge pending payment, is not applicable to
salaried employees.
D. Common Carriers ( Section 4)
Arts. 1732 1766
(Note: Part of Mercantile Law In Bar Examinations)
PARTNERSHIP (BOOK IV TITLE IX)
Arts. 1767-1867

I.

General Provisions (Chapter 1) Arts. 1767 -1783

Partnership Two or more persons bind themselves to contribute money, property
or industry to a common fund, with the intention of dividing the profits among
themselves. 2 or more persons may also form a partnership for the exercise of
profession. If the object is merely for common enjoyment and not profit, it is only
co-ownership.
Essential Requisites Of Partnership
1. Valid Contract
2. Contribution of Property, Money Or Industry To Common Fund
3. Organized For Gain Or Profit
4. Must Have Lawful Object Or Purpose

Case Study:
Litonjua vs. Litonjua Sr. (477 SCRA 576)
Petitioners complaint for delivery and accounting of partnership property based
on such void or legally non-existent actionable document is dismissible for failure to
state of action. The unsigned Annex "A-1" does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property, Annex
"A-1" cannot be presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772 of the Code. Since
real property was contributed, in which case an inventory of the contributed property
duly signed by the parties should be attached to the public instrument, else there is
legally no partnership to speak of. The contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership.
Commissioner of Internal Revenue vs. Suter (27 SCRA 152)(Only applicable if it is
not a universal
partnership)
William J. Suter "Marcoin" Co., Ltd. was not a universal partnership, but a
particular one. The individual interest of each consort in William J. Suter "Morcoin" Co.,
Ltd. did not become common property of both after the marriage of the partners in 1948.
The partnership: (a) has a juridical personality of its own, distinct and separate from
that of its partners; (b) not a mere business conduit of the partner-spouses; (c) was
organized for legitimate business purposes; (d) conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income tax returns as
such independent entity. The change in its membership, brought about by the marriage of
the partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the Tax Code . The
partners did not enter into matrimony and thereafter buy the interests of the remaining

partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws.
Two Kinds Of Partners In General Partnership:
a. Industrial Partner, who contributes his industry, cannot engage in business
for himself unless the partnership expressly permits, otherwise capitalist
partners may either exclude him from firm or avail themselves of benefits,
with damages
b. Capitalist Partners cannot engage in any operation which is of the same
kind in which partnership is engaged, unless there is a stipulation to
contrary, otherwise he must bring profits to the common fund, and
personally bear all the loss
Distinction Between Partnership and Corporation
Partnership
Voluntary
Private property
subject to partnership
liability
Delectus personae

Corporation
Legitimate authority
or general law
Private property not
subject to corporate
liability
Valid

Partners/Incorporators
Death or Bancruptcy
Acts of Partners/
Incorporators/Stockholders

Dissolution

No effect

As agents

Not binding on
corporation

Commencement

Upon execution of
contract

Issuance by SEC of
Articles of
Incorporation

Creation
Liability
Transfer of Interest

Kinds of Partnership
1.
2.
3.
4.
5.
C.
D.
E.

As to Object Universal (Art. 1777) Vs. Particular (Art. 1783)

As to Liability Of Partners General Vs. Limited
Partnership By Estoppel
Partnership V. Joint Venture
Professional Partnership

Rules To Determine Existence Art. 1769

How Partnership Is Formed
Partnership Term

II.

Obligations Of Partners (Chapter 2) Arts. 1784 -1826

Obligations Of Partners Among Themselves (Sec. 1) Art. 1784 - 1809

Principle of Delectus Personae Inherent principle in partnership that not
one can become a member of the partnership without the consent of all the
other partners.

Pactum Leonina a stipulation which excludes one or more partners from

any share in the profits or losses is void (except industrial partner) Art.
1799
As among partners, the industrial partner is not liable for losses;
however insofar as third persons are concerned, industrial partners are
liable, like the capitalist partners, pro-rata with their property after
partnership assets are exhausted (Art. 1816)
Case Study:
The Director of Lands vs. Catalan vs. Gatchalian (105 Phil 1270)
Unreported case
A partner is an agent of the partnership (Art. 1803 par. 1, new Civil Code).
Furthermore, every partner becomes a trustee for his copartner (Art. 1807, new Civil
Code). Consequently when a partner redeemed during the redemption period, the
partnership properties in question, he became a trustee and the same in trust for his
copartner, subject to his right to demand from the latter his contribution to the amount of
redemption.
Property Rights Of A Partner (Sec. 2) Arts. 1810-1814
Charging Order remedy available to the judgment creditor of the debtor
partner to charge the interest of the latter in the partnership by means of
levy or attachment . This is without prejudice to the rights of the
partnership creditors (Art. 1814)
Obligations Of Partners To 3rd Persons (Sec. 3) Arts. 1815-1827
Liability for contracts: pro-rata; (Art. 1816)
Liability for quasi-delicts &crimes : solidary (Arts. 1822 & 1823)
Management of Partnership Arts. 1800-1803

1. All partners shall be considered agents and whatever anyone of them

may do alone shall bind the partnership (Art. 1803 No. 1). Exception
(Art. 1801):
However, if two or more partners have been entrusted with the
management of the partnership, each one may separately execute all
acts of administration and in case of conflict, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by
the partners owning the controlling (financial) interest (Art. 1801)
2. None of the partners may, without the consent of others, make any
alteration in the immovable property of the partnership even if it may
be useful to the partnership (Art. 1803 No. 2)
III.

Dissolution, Winding Up and Termination (Chapter 3) Arts. 1828 -1842

Dissolutionchange in the relation among partners by any partner ceasing to be a
partner
Winding Up is the process of settling business affairs after dissolution
Termination is the point in time after all partnership affairs have been wound up.

IV.

Limited Partnership (Chapter 4) Arts. 1843 -1867

Limited Partnership one formed by two or more persons under the provisions
of the following article having as members one or more general partners and one
or more limiated partners. The limited partners shall not be bound by the
obligations of the partnership.
B.
C.

How Limited Partnership Is Formed/Amended Art. 1844/Arts. 1864-5

Rights And Obligations Of A Limited Partner

EXCLUDE: Questions requiring application of SEC opinions orregulations

AGENCY (BOOK IV TITLEX)

Arts. 1868-1932
I.

Nature, Form and Kinds of Agency (Chapter 1) Arts. 1868-1883

Agencya person binds himself to render some service or to do something in
representation or on behalf of antoher, with the consent or authority of
the latter. (Art. 1868)
Agency enables a person to increase the range of his individual and
corporate activity by enabling him to be constructively present in many
places and to carry on diverse activities at the same time. (Mechem) At
present, there is no more commercial agency but only civil agency

because of the repeal of the Code of Commerce provisions on agency

(Art. 2270).
The true essence of the distinction between lease of services is that the
agent enters into or is designed to enter juridical relations with or
without representation of the principal (JBL Comments)
Case Studies:
Quiroga vs. Parsons (38 Phil 501)(Distinction Between Contract Of Sale and Agency To
Sell)
In the contract its cause and subject matter was that the plaintiff was to furnish
the defendant with the beds which the latter might order, at the stipulated price, and that
the defendant was to pay this price in the manner agreed upon. The features of a contract
of purchase and sale are there was the obligation on the part of the plaintiff to supply the
beds, and, on that of the defendant, to pay their price. These exclude the legal conception
of an agency or order to sell whereby the mandatary or agent receives the thing to sell it,
and does not pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he returns it.
Africa vs. Caltex (16 SCRA 448) (Distinction Between Contract of Agency and
Independent Contractor)
A fire broke out at the Caltex service station while gasoline was being hosed from
a tank into the underground storage and spread to and burned several neighboring
houses owned by appellants. Caltex should be held liable for the damages caused to
appellants since the operator was virtually an employee of Caltex, not an independent
contractor. Under the license agreement the operator: (a) would pay Caltex the purely
nominal sum of P1.00 for the use of the premises and all equipment therein; (b) could sell
only Caltex products; (c) could not assign or transfer his rights as license without the
consent of Caltex. Caltex had: (a) control over themaintenance of the station and its
equipment; (b) the right to grant termination of the contract.
Forms of Agency (Art. 1869):
A. Express vs. Implied Agency (Art. 1869-1872)
B. Agency By Estoppel (Art. 1873)
Case Study:
B.H. Macke et. al. vs. Camps (7 Phil 553)
One who clothes another with apparent authority as his agent and holds him out
to the public as such, can not be permitted to deny the authority of such person to act as

his agent to the prejudice of innocent third parties dealing with such agent in good faith
and in the honest belief that he is what he appears to be. Unless the contrary appears, the
authority of an agent must be presumed to include all the necessary and usual means of
carrying his agency into effect.
C. Agency By Necessity although agency can never be created by necessity,
by virtue of the existence of an emergency, the authority of the agency is
correspondingly enlarged to cope with the exigencies or necessities of the
moment. Example: Driver may engage the services of doctors during
vehicular accidents.
D.

General vs. Special Agency (Art. 1876-1877)

1. General Agency Couched In General/Special Terms
2. Special Agency Couched in General/ Special Terms
a. Cases where SPA necessary (Arts. 1878) (JBL Reyes observations)
1. Acts of strict dominion
2. Gratuitous contracts
3. Contracts where personal trust & confidence is of the
essence

Case Studies:
Delos Reyes vs. CA (313 SCRA 632)
Renato Gabriel was neither the owner of the subject property nor a duly
designated agent of the registered owner (Daluyong Gabriel) authorized to sell subject
property in his behalf. The registered owner did not subsequently ratify Renato's act.
Under Article 1874 of the Civil Code, when the sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be in writing; otherwise the
sale shall be void. For want of capacity (to give consent) on the part of Renato Gabriel,
the oral contract of sale lacks one of the essential requisites for its validity prescribed
under Article 1318, supra and is therefore null and void ab initio.
Dizon vs. CA (396 SCRA 151)
Per Art. 1874 of the Civil Code, when the sale of a piece of land or interest
therein is through an agent, the authority of the latter shall be in writing; otherwise, the
sale shall be void. There is absolutely no written proof of Alice A. Dizon's authority to
bind petitioners, therefore, petitioners cannot be deemed to have received partial
payment of the supposed purchase price for the land through Alice A. Dizon. Secondly,
there could not have been a perfected contract of sale. (see also Estate of Lino Olaguer
vs. Ongjoco (563 SCRA 373)
Bicol Savings & Loan Association vs. CA (171 SCRA 630)

The sale proscribed by a special power to mortgage under Article 1879 is a

voluntary and independent contract, and not an auction sale resulting from extrajudicial
foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no
foreclosure results. The power to foreclose is not an ordinary agency that contemplates
exclusively the representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own protection. That power survives the
death of the mortgagor (Perez vs. PNB, supra).
Right To Compensation Of An Agent Arts. 1875
Case Study:
Hahn vs. CA (266 SCRA 537)
An agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller together,
even if no sale is eventually made.The fact that Hahn invested his own money to put up
these service centers and showrooms does not necessarily prove that he is not an agent of
BMW. For as already noted, there are facts in the record which suggest that BMW
exercised control over Hahn's activities as a dealer and made regular inspections of
Hahn's premises to enforce compliance with BMW standards and specifications.
Powers Art. 1877-8
A.
B.

To Bind Principal Arts. 1897-1902

Exception Art. 1883
In Article 1874, if it involves sale of immovable and the agency is
not in writing, it is void. In Articles 1317 and 1403 (no. 1), if it involves
sale of movables, the unauthorized contract entered into by the agent, is
unenforceable.

II.

Obligations Of The Agent (Chapter 2) Arts. 1884-1909

Fundamental Obligations Of An Agent:
1. To carry out the agency;
2. To act within the scope of his authority
3. To act on behalf of the principal
Commission Agent one who is engaged in the purchase and sale for the principal
of personal property which has to be placed in his possession.
He has a relation not only with the principal, and the buyers or
sellers, but also with the property which is the object of the
transaction.

Broker has no relation with the thing he purchases or sells. He is an intermediary

or go-between of both the seller and the buyer. He does not have the
custody or possession of the thing that he disposes of.
Guarantee Commission or del credere commission Agent an additional
commission to the agent if he assumes the risk of collection. This is
applicable to both cash and credit sales. (Art. 1907).
Case Studies:
Domingo vs. Domingo (42 SCRA 131)
The duties and liabilities of a broker to his employer are essentially those which
an agent owes to his principal. Articles 1891 and 1909 NCC of the demand: (a) the
utmost good faith, fidelity, honesty, candor and fairness on the part of the agent/real
estate broker to his principal, the vendor; (b) full disclosure/complete account by agent
to his principal of all his transactions and other material facts relevant to the agency.Any
stipulation exempting the agent from such an obligation is void. The duty of an agent is
the same as a trustee. An agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee, without revealing the same to his principal,
the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to
collect the commission from his principal, even if the principal does not suffer any injury
by reason of such breach of fidelity, or that he obtained better results or that theagency is
a gratuitous one, or that usage or custom allows it, because the rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage.
E Macias & Co. vs. Warner Barnes(43 Phil 155)
A resident agent of a foreign insurance company doing business in the Philippine
Islands is not liable, as principal or agent, on insurance contracts issued in the name of
the company. The policies on their face show that the defendant was the agent of the
respective companies, and that it was acting as such agent in dealing with the insured
plaintiff. That in the issuance and delivery of the policies, the defendant was doing
business in the name of, acting for, and representing, the respective insurance companies.
The different policies expressly recite that, in the event of a loss, the respective companies
agree to compensate the insured plaintiff for the amount of the loss. The defendant
company did not insure the property of the insured plaintiff, or in any manner agree to
pay the insured plaintiff the amount of any loss. There is no contract of any kind, either
oral or written, between the plaintiff and insured Warner, Barnes & Co. Plaintiff's
contracts are with the insurance companies, and are in writing, and the premiums were
paid to insurance companies and the policies were issued by, and in the name of, the
insurance companies, and on the face of the policy itself, the insured plaintiff knew that
the defendant company was acting as agent for, and was representing, the respective
insurance companies in the issuance and delivery of the policies. The defendant company
did not contract or agree to do anything or to pay the insured plaintiff any money at any
time or on any condition, either as agent or principal.

.
.

US vs. Domingo Reyes (36 Phil 791)

The right to a commission does not make one a joint owner with a right to money
collected, but establishes the relation of principal and agent. The agent is under
obligation to turn over to the principal the amount collected minus his commission. But
the agent, having unlawfully retained more than his commission, is guilty of estafa.
In Re:H.V. Bamberger (49 Phil 962)
Lawyers are bound to promptly account for money or property received by them on
behalf of their clients and failure to do so constitutes professional misconduct. The fact
that a lawyer has a lien for fees on money in his hands collected for his clients does not
relieve him from the duty of promptly accounting for the funds received.
III.

Obligations Of The Principal (Chapter 3) Arts. 1910-1918

Obligations of Principal
Comply with obligations contracted by agent within latters authority
Advance sums necessary for execution of agency
3. Indemnify agent for damages in relation to execution of agency provided
agent was not at fault or negligent
IV.

Modes of Extinguishment of Agency (Chapter 4) Arts. 1919-1932

Agency Is Extinguished By:
1. its revocation by the principal
Except:
a. a bilateral contract depends on it
b. it is a means of fulfilling an obligation already contracted
c. if a partner is appointed manager of a partnership contract and his removal
from management is unjustiable.
d. If it is coupled with interest
2. withdrawal of agent
3. death, civil interdiction, insanity or insolvency of principal or agent
Except (in cases of death of principal):
a. it was constituted in the common interest of principal and agent
b. it was constituted in the interest of a third person who has accepted the
stipulation in his favor
4. dissolution of firm/corporation which entrusted or accepted the agency
5. accomplishment of the object/purpose of agency
6. expiration of the period for which agency was constituted
Agency Coupled With Interest refers to an agency wherein the agent has
acquired some interest of his own in the execution of the authority

granted him, in addition to his mere interest in the contract of

employment with the resulting gains (Mechem on Agency)
Case Studies:
Dela Rama Steamship vs. Tan (99 Phil 1034)
Where the agent had a previous option to buy the vessel and assigned that option
to a steamship company on the condition that he be appointed agent of the vessel for 5
years, the agency being coupled with interest, cannot be revoked at will by the principal.
Buason vs. Panuyas (105 Phil 795)
The death of the principal will not nullify sale by the agentwith third persons who
contracted with agent and the third person in good faith, even if sale is made after the
death of the principal provided agent knew did not know of his principal's demise. (Art.
1723, Old Civil Code, 1931, New Civil Code).
Philex Mining Corp vs. Commissioner of Internal Revenue (551 SCRA 428)
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon it, or the
mutual interest of both principal and agent. Art. 1927 provides that an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management is unjustifiable.
Rallos vs. Felix Go Chan (81 SCRA 251)
The general rule is that death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the power be coupled with an interest.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
aforementioned.
ART. 1930.
The agency shall remain in full force and effect even after the
death of the principal, if it has been constituted in the common interest of the latter and
of the agent, or in the interest of a third person who has accepted the stipulation in his
favor.
ART. 1931.
Anything done by the agent, without knowledge the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be fully
effective with respect to third persons who may have contracted with him in good
faith.Under this provision, an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal, and (2) that the third person who contracted with
the agent himself acted in good faith. Good faith here means that the third person was

not aware of the death of the principal at the time he contracted with said agent. These
two requisites must concur: the absence of one will render the act of the agent invalid
unenforceable.
CREDIT TRANSACTIONS
LOAN (BOOK IV TITLEXI)
Arts. 1868-1961
General Provisions -Arts.1933-1961
A.

i. Commodatum (Chapter 1) Arts. 1935--1952

Nature of Commodatum (Section 1) Arts. 1953-1940
Bailment the delivery of property by one person to another in trust for a specific
purpose, with a contract express or implied, that the first shall be
faithfully executed and the property returned or duly accounted for
when the special purpose is accomplished or kept or until the
bailor reclaims it. Bailor the giver; Bailee the recipient of the
thing bailed.
-

By the contract of loan, one of the parties delivers to another,

either something not consumable so that the latter may use the
same for a certain time and return it. It is essentially gratuitous and
the bailor retains ownership of the thing.
Needs the delivery of the object of the contract in order that it shall
be perfected.

B.

Obligations of The Bailee (Section 2) Arts. 1941-1945

Note: Per Art. 1287, compensation cannot take place if debt arises from
commodatum.

C.

Obligations of The Bailor (Section 3) Arts. 1946-1952

Praecarium When the bailor may demand the thing at will in the following:
a. Duration of the contract and use to which a thing loan should
be devoted were not stipulated
b. Use of the thing is merely tolerated by owner.
The possession of the bailee is more secure in a commodatum
than in a praecarium which depends on bailors
will.
Simple Loan or Mutuum(Chapter 2) Arts. 1953-1961

Mutuumone of the parties delivers to another, money or other consumable

(fungible) thing, upon the condition that the same amount of the
same kind and quality shall be paid. It may be gratuitous or with
stipulation to pay interest
- It needs the delivery of the object of the contract in order to be
perfected. The ownership of the thing passes to the borrower.
Barter- if the ownership of a non-consummable thing is delivered to another with
the obligation of the latter to give things of the same kind, quantity and
quality.
Credit in loans the ability to borrow money or thing by virtue of the thing or
trust reposed by the lender that the borrower will pay what he
may promise.
Case Studies:
People vs. Venancio Concepcion (44 Phil 126)
A "loan" means the delivery by one party and the receipt by the other party of a
given sum of money, upon an agreement, expresses or implied, to repay the sum loaned,
with or without interest. The concession of a "credit" necessarily involves the granting
of "loans" up to the limit of the amount fixed in the "credit."To discount a paper is a
mode of loaning money, with these distinctions: (1) In a discount, interest is deducted in
advanced, while in a loan, interest is taken at the expiration of a credit; (2) a discount is
always on double-name paper; a loan is generally on single name paper.
Herrera vs. Petrophil Corporation (146 SCRA 385)
The difference between a discount and a loan or forbearance is that the former
does not have to be repaid. The loan or forbearance is subject to repayment and is
therefore governed by the laws on usury. To constitute usury, "there must be loan or
forbearance; the loan must be money or something circulating as money; it must be
repayable absolutely and in all events; and something must be exacted for the use of the
money in excess of and in addition to interest allowed by law."
1.

Interest And The Suspension Of Usury Law (by C.B. Circular 905)

Case Study:
Bacolor vs. Banco Filipino (515 SCRA 79)
At the time the parties entered into the loan transaction, the applicable law was
the Usury Law (Act 2655), as amended by P.D. No. 166, which provides that the rate of
interest for the forbearance of money when secured by a mortgage upon real estate,
should not be more than 6% per annum or the maximum rate prescribed by the Monetary

Board of the Central Bank of the Philippines in force at the time the loan was granted.
Central Bank Circular No. 783, which took effect on July 1, 1981, removed the ceiling on
interest rates on a certain class of loan. For sometime now, usury has been legally noninexistent and that interest can now be charged as lender and borrower may agree upon.
As a matter of fact, Section 1 of Central Bank Circular No. 905 states that the rate of
interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and whether secured
or unsecured, that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended.
Chua vs. Timan (562 SCRA 146)
The stipulated interest rates of 7% and 5% per month imposed on respondents'
loans must be equitably reduced to 1% per month or 12% per annum. We need not
unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant.
Such stipulations are void for being contrary to morals, if not against the law. While
C.B. Circular No. 905, which took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either enslave their borrowers or
lead to a hemorrhaging of their assets.
Almeda vs. CA (256 SCRA 292)
The manner of agreement is itself explicitly stipulated by the Civil Code when it
provides, in Article 1956 that "No interest shall be due unless it has been expressly
stipulated in writing." What has been "stipulated in writing" from a perusal of interest
rate provision of the credit agreement signed between the parties is that petitioners were
bound merely to pay 21% interest, subject to a possible escalation or de-escalation,
when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits
allowed by law; and (3) upon agreement. While the Usury Law ceiling on interest rates
was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as
granting respondent bank carte blanche authority to raise interest rates to levels which
would either enslave its borrowers or lead to a hemorrhaging of their assets..Escalation
clauses are not basically wrong or legally objectionable so long as they are not solely
potestative but based on reasonable and valid grounds. Here, as clearly demonstrated
above, not only the increases of the interest rates on the basis of the escalation clause
patently unreasonable and unconscionable, but also there are no valid and reasonable
standards upon which the increases are anchored.
2.
money

2 Kinds of Interests
a.
Monetary Interest (Art. 1956) Compensation for use of

b.

Compensatory Interest (Art. 2209) As damages

(Reformina vs. Tomol (139 SCRA 260), CB Circular No.
416 raised the rate from 6% to 12% for loans or
forbearance of money. This increase does not apply to act
to actions for damages which remains at 6%.

Case Studies:
Overseas Bank vs. CA (113 SCRA 778.)
What enables a bank to pay stipulated interest on money deposited with it is that
thru the other aspects of its operation, x x x Consequently, it should be deemed read
into every contract of deposit with a bank that the obligation to pay interest on the
deposit ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank.
Herrera vs. Petrophil Corp. (146 SCRA 385)
The difference between a discount and a loan or forbearance is that the former
does not have to be repaid. The loan or forbearance is subject to repayment and is
therefore governed by the laws on usury. To constitute usury, "there must be loan or
forbearance; the loan must be money or something circulating as money; it must be
repayable absolutely and in all events; and something must be exacted for the use of the
money in excess of and in addition to interest allowed by law."
New Sampaguita Builders ConstructionInc. vs. Phil National Bank (435 SCRA
565)
Petitioners-borrowers' accessory duty to pay interest did not give respondentcreditor unrestrained freedom to charge any rate other than that which was agreed
upon. No interest shall be due, unless expressly stipulated in writing. It would be the
zenith of farcicality to specify and agree upon rates that could be subsequently upgraded
at whim by only one party to the agreement.The "unilateral determination and
imposition" of increased rates is "violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code." One-sided impositions do not have the
force of law between the parties, because such impositions are not based on the parties'
essential equality.
Reformina vs. Tomol (139 SCRA 260)
The Monetary Board increased the rate of legal interest from that of six (6%)
percent per annum originally allowed under Section 1 of Act No. 2655 to twelve (12%)
percent per annum. It will be noted that Act No. 2655 deals with interest on (1) loans;
(2) forbearances of any money, goods, or credits; and (3) rate allowed in judgments.
The judgments spoken of and referred to are judgments in litigations involving loans or
forbearance of any money, goods or credits. Any other kind of monetary judgment which

has nothing to do with, nor involving loans or forbearance of any money, goods or
credits does not fall within the coverage of the said law for it is not within the ambit of
the authority granted to the Central Bank

DEPOSIT (BOOK IV TITLEXII)

Arts. 1962-2009
I.

Deposit In General And Its Different Kinds (Chapter 1) Arts. 1962-1967

Deposit constituted from the moment a person receives a movable thing (except
in judicial deposit where both movable and immovable may be the subject
of the deposit) belonging to another, with the obligation of safely keeping
it and of returning the same. It is perfected upon the delivery of the thing.
It may be gratuitous or otherwise.
Irregular Deposit when the depositary has permission to use the thing deposited
but safekeeping is still the principal purpose of the contract.
Kinds of Deposit
1.
Judicial Deposit (Arts. 2005-2009) constituted by virtue of court order
for attachment/seizure of property in litigation
2.
Extra-Judicial Deposit
a. Voluntary Deposit (Arts. 1968-1995) effective by will of the parties;
b. Necessary Deposit (Arts. 1996-2004) compliance with legal
obligation, occasion of calamity, travelers in hotels, passengers in
common carriers.

II.

Voluntary Deposit (Chapter 2) Arts. 1968-1995

General Provisions (Section 1 ) Arts. 1968 1971

Obligations Of The Depositary (Section 2) Arts. 1972 1991
Extinguishment Of Deposit:
1. Upon loss/destruction of thing deposited;
2. Upon death of depositor or depositary in gratuitous deposits
Case Studies:
Delgado vs. Bonnevie (23 Phil 308)
Things received on deposit or hire do not prescribe, the depositary or lessee can
not claim that the ownership of the thing deposited or hired was transferred to him, but

simply the custody and use or benefit thereof, the possession of the depositary or lessee
not being adverse to that of the depositor or lessor.
Baron vs. David (51 Phil 1)
The owner of a rice mill who, in conformity with custom prevailing in the trade,
receives palay and converts it into rice, selling the product for his own benefit, must
account for the palay to the owner at the price prevailing at the time demand is made.The
destruction of a rice mill, with its contents, by fire after palay thus deposited has been
milled and marketed does not affect the liability of the miller.
Obligations Of The Depositor (Section 3) Arts. 1992 - 1995
Depositarys Lien right of the depositary to retain thing in pledge until full
payment of what may be due to him under the deposit.
Hotelkeepers Lien the hotel keeper may retain the things brought into the hotel
by the guest as security for the credits on account of
lodging, and supplies usually furnished hotel guests.
Necessary Deposit (Chapter 3) Arts. 1996-2004

III.

In compliance with a legal obligation,

When it takes place on the occasion of any calamity, such as fire, storm, flood,
pillage, shipwreck or other similar events.

Case Study:
YHT Realty vs. CA (451 SCRA 638)
Art. 2003 of the Civil Code provides: 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. Article 2003 was incorporated in the New Civil Code as an
expression of public policy precisely to apply to situations such as that presented in this
case. The hotel business like the common carrier's business is imbued with public
interest. Catering to the public, hotel-keepers are bound to provide not only lodging for
hotel guests and security to their persons and belongings. The twin duty constitutes the
essence of the business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called "undertakings" that
ordinarily appear in prepared forms imposed by hotel-keepers on guests for their
signature.
IV.

Sequestration Or Judicial Deposit (Chapter 4) Arts. 2005-2009

Covers movable/immovable property

ALEATORY CONTRACTS (BOOK IV TITLEXIII)

Arts. 2010-2027
Aleatory Contract - where each of the parties has to his account the acquisition of
equivalent prestation, but such equivalent although pecuniarily
appreciable, is not yet determined, at the moment of the
celebration of the contract, since it depends upon the happening of
an uncertain event, thus charging the parties with the risk of loss
or gain.
Commutative Contract where each of the parties acquires an equivalent
prestation and such equivalent is already pecuniarily appreciable
and already determined at the moment of the celebration of the
contract.
General Provisions (Art. 2010)
Tontine Combination where several persons contribute at regular intervals
certain quotas to a common fund, which shall be
distributed at the expiration of the contract among the
survivors in the group; the portion corresponding to
those who die before the termination of the contract do
not pass to their heirs but increase the shares that would
go to the survivors of the group.
Case Study:
Vitug vs. Court of Appeals (183 SCRA 755)
Where the husband and wife deposit jointly conjugal funds with the bank with the
agreement that the survivor becomes the owner of the whole amount, this is valid as an
aleatory contract and is not a disposition mortis causa or inter-vivos.
I.
Insurance (Chapter 1) Arts. 2011-2012
-

Governed by special laws.

If the beneficiary predeceases the insured, the heirs of the beneficiary and not the insured,
get the insurance indemnity since the beneficiary has already acquired a vested right.
Case Study:
Insular Life Assurance Company vs. Ebrado (80 SCRA 181)
A life insurance policy is the same as a civil donation insofar as the beneficiary
is concerned. A beneficiary is like a donee, because from the premiums of the policy

which the insured pays out of liberality, the beneficiary will receive the proceeds or
profits of said insurance. Article 739 NCC also operates in life insurance contractsand
Article 2012 provides that any person who cannot receive a donation cannot be named
as beneficiary in the life insurance policy of the person who cannot make the donation. A
common-law wife named as beneficiary in the life insurance policy of a legally married
man cannot claim the proceeds thereof in case of death of the latter since it will go to the
estate of the insured.
II.

Gambling (Chapter 2) Arts. 2013-2020

Game of Chance depends more on chance or hazard than on skill or ability.
P.D. 483 prohibits all forms of betting including games of skill or ability
including chess, basketball, boxing, et.
The winner cannot maintain an action for collection of what he won in a game of
chance. But loser may recover what was lost with legal interest from time he paid
the amount from the winner.

III.

Life Annuity (Chapter 3) Arts. 2021-2027

Life Annuity this aleatory contract binds the debtor to pay an annual pension or
income during the life of one or more determinate persons in
consideration of a capital consisting of money or other property,
whose ownership is transferred to him at once with the burden of
the income.
COMPROMISES & ARBITRATION (BOOK IV TITLEXIV)
Arts. 2028-2046

I.

Compromises (Chapter 1) Arts. 2028-2041

Compromise It is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already
commenced. This is deemed equivalent to an alienation (transigere
et alienare) and is an act of strict ownership that goes beyond mere
administration.
Court Approval is necessary in compromises entered into by guardians, parents,
absentees, representatives and administrators or executors of
decedents estate. There can be execution in compliance with
judicial compromise.
No Compromiseon the Following (Art. 2035):

a.
b.
c.
d.
e.
f.

The civil status of persons;

Validity of a marriage or legal separation
Any ground for legal separation
Future support
The jurisdiction of courts
Future legitime

Case Studies:
Kaisahan ng mga Manggagawa sa La Compania vs. Sarmiento (133 SCRA 220)
Settlement or compromise of money claims of laborers made by a union or
counsel needs the specific individual consent of each laborer concerned. The union to
which they belong can only assist them but cannot decide for them. The Compromise
Agreement allegedly entered into by and between the Union and the company is void,
there being no ratification by the individual union members.
Republic vs. Florendo (549 SCRA 527)
A compromise agreement may cover cases pending trial, on appeal, and with final
judgment. There can be a compromise agreement, notwithstanding a final judgment in
which only the amount of back wages was left to be determined if there was no evidence
of fraud or of any showing that the agreement was contrary to law, morals, good
customs, public order, or public policy. Parties may compromise prior to the execution
of a final judgment. The Court ruled that the final judgment had been novated and
superseded by a compromise agreement. (Id., p. 193, citing Jesalva v. Bautista, 105 Phil.
348, 351 (1959); Palanca v. Court of Industrial Relations, 150-C Phil. 354, 359 (1972)
and Gatchalian v. Arlegui, G.R. Nos. L-35615 and L-41360, 17 February 1977, 75 SCRA
234, 241. ) It does not matter that the CA decision lapsed into finality when neither party
questioned it. A compromise agreement is still valid even if there is already a final and
executory judgment. and parties are bound to abide by them in good faith. Since they
have the force of law between the parties, no party may discard them unilaterally
Diamond Builders Conglomeration vs. Country Bankers Insurance (540 SCRA 194)
A compromise judgment is a decision rendered by a court sanctioning the
agreement between the parties concerning the determination of the controversy at hand.
Upon approval by the court, it is no longer a mere contract but becomes a judgment that
is subject to execution in accordance with Rule 39 of the Rules of Court.( Martir v.
Verano, supra, at 127.) It is not appealable and should not be disturbed except upon a
showing of vitiated consent or forgery. When both parties enter into a compromise
agreement and request that a decision be rendered approving the same, such action is an
express waiver of the right to appeal against said decision. (World Machine Enterprise v.
Intermediate Appellate Court, G.R. No. 72019, December 20, 1990, 192 SCRA 459,
465. )If a party fails or refuses to abide by a compromise agreement, the other party may

either enforce the compromise or regard it as rescinded and insist upon his original
demand.
Rivero vs. CA (458 SCRA 714)
Paternity and filiation or the lack of the same is a relationship that must be
judicially established, and cannot be left to the will or agreement of the parties. A
compromise is a contract whereby parties, making reciprocal concerns, avoid litigation
or put an end to one already commenced. It must comply with the requisite provisions in
Article1318 of the New Civil Code, and the terms and conditions thereof must not be
contrary to law, morals, good customs, public policy and public order. Otherwise it isnull
and void and vests no rights and holds no obligation to any party.

Rodriguez vs. Alikpala (57 SCRA 455)

Judgment may be directed against one who, although not a formal party in the
case, has assumed or participated in the defense. Even if estoppel does not apply in this
case, there is the principle of equity that jurisdiction over a person not formally or
originally a party to a litigation may nevertheless be acquired, under proper conditions,
thru the voluntary appearance of that person before the court.
II.

Arbitrations (Chapter 2) Arts. 2042-2046

Arbitration- a voluntary dispute resolution process in which one or more
arbitrators appointed in accordance with the agreement of the
parties or the rules promulgated pursuant to this Act, resolve a
dispute by rendering an award. (Sec. 3(d) of R.A. 9285- ADR Act)
The provisions on Compromises are also applicable to Arbitation.
1.

International

2.

Domestic

Construction Arbitration
1.
2.

Domestic
Foreign

1.

Voluntary

2.

Compulsory

Governed by
Chapter 4 of RA 9285 adopting the Model Law on International Commercial
Arbitration (per Sec. 19 of RA 9285)*
Chapter 5 of RA 9285 adopting R.A. 876 (Domestic Arbitration Law as
amended) (per Sec. 32 of RA 9285)
Chapter 6 of RA 9285 Construction Arbitration adopting EO 1008
Place of Arbitration
Within the Philippines
Where the agreed or fixed place or arbitration is in a foreign country. The
enforcement of foreign arbitral award is governed by 1958 New York
Convention
Arbitration Agreement or Law
Referral of a dispute by the parties to an impartial 3rd person pursuant to their
arbitration agreement
Where parties are compelled by law to submit their dispute to an impartial 3rd
person for arbitration

* Both are forms of binding arbitration since they provide mechanisms for
judicial enforcement of arbitral awards.
Sec. 35 of RA 9285 the jurisdiction of the Construction Industry Arbitration
Commission (CIAC) includes those between or among parties
to, or who are otherwise bound by, an arbitration agreement,
directly or by reference, whether such parties are project
owner, contractor, subcontractor, fabricator, project manager,
design professional, consultant, quantity surveyor, bondsman
or issuer of an insurance policy in a construction project.
Sec. 59 of RA 9184

disputes with the Government arising from procurement

contracts, if falling within the competence of the CIAC, shall be
submitted to CIAC for arbitration.

Case Study:
LM Power Engineering Corp vs. Capitol Construction Groups (399 SCRA 562)
Courts should liberally construe arbitration clauses and any doubt should be
resolved in favor of arbitration.

GUARANTY (BOOK IV TITLEXV)

Arts. 2047-2084
I.

Nature and Extent of Guaranty (Chapter 1) Arts. 2047-2057

Guaranty a person called a guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do
so. If a person binds himself solidarily with the principal debtor, he
is called a surety and this is governed by Title I (Chapter 3, Sec. 4
Joint & Solidary Obligations). This is a consensual, nominate
accessory and unilateral contract.
- covered by the Statute of Frauds
- strictly construed against the creditor and in favor of guarantor
Kinds of Guaranty:

1.

Personal Guaranty

a.

Guaranty
Case Study:

Vizconde vs. IAC (149 SCRA 226)

Appellant was a mere guarantor, a solidary one to be sure, of the obligation
assumed by Pilar A. Pagulayan to complainant Marylou J. Perlas for the return of the
latter's ring or the delivery of its value. Whatever liability was incurred by Pagulayan for
defaulting on such obligation and this is not inquired into that of Vizconde
consequent upon such default was merely civil, not criminal. It was, therefore, error to
convict her of estafa. As already stated, the Solicitor General however maintains, on the
authority of People vs. Padilla, (129 SCRA 558) that the appellant should be held liable
to pay the complainant the amount of P55,000.00, or whatever part of such amount
remains unpaid, for the value of the ring. Again, this is a correct proposition, there being
no question as in fact admitted by her that the appellant executed the guarantee
already referred to.
b. Suretyship
Suretyship
Passive Solidarity
1. Surety is liable for payment of 1. Passive solidary debtor is liable for payment of his
obligation of another
own share and that of other solidary debtors
2. Surety, upon payment, may 2. Passive solidary debtor may recover only
recover whole amount from corresponding shares of co-debtors
principal debtor
3. Extension of time without 3. Solidary debtor is not released with extension of time
knowledge /consent of surety
releases surety
Case Studies:
Palmares vs. CA (288 SCRA 422)
In a contract where Petitioner expressly bound herself to be jointly and severally
or solidarily liable with the principal maker of the note, petitioner's liability is that of a
surety.A surety is: (a) an insurer of the debt,(b)an undertaking that the debt shall be paid;
(c) promises to pay the principal's debt if the principal will not pay; (d)binds himself to
perform if the principal does not, without regard to his ability to do so; (e)undertakes
directly for the payment and is so responsible at once if the principal debtor makes
default. . A guarantor is: (a) an insurer of the solvency of the debtor; (b)
an
undertaking that the debtor shall pay; (c) agrees that the creditor, after proceeding
against the principal, may proceed against the guarantor if the principal is unable to
pay; (d) does not contract that the principal debtor will pay, but simply that he is able to
do so; (e) contracts to pay if, by the use of due diligence, the debt cannot be made out of
the principal debtor.
Villa vs. Bosque (49 Phil 126)

If a property is payable in various installments, an extension of time granted by

the creditor to the debtor with respect to one installment will discharge the sureties,
whether simple or solidary, from all liability as to such installment but it does not affect
their liability for other installments unconnected with the extension of time.
The Hongkong & Shanghai Bank vs. Aldanese (48 Phil 990)
Where in a bond the debtor and surety have bound themselves solidarily, but
limiting the liability of the surety to a lesser amount than that due from the principal
debtor, any such payment as the latter may have made on account of such obligation
must be applied first to the unsecured portion of the debt, for, as regards the principal
debtor, the obligation is more onerous as to the amount not secured. The principal debtor
having paid an amount on account of the debt, the surety is under obligation to pay the
balance up to the amount secured by the bond executed by him.
Santos and Frias vs. Hon. Mejia (94 Phil 211)
A surety is not bound to execute a bond which would answer for the principal's
liability that might be adjudged by the Court in the case where it was filed if the surety
does not wish to execute such bond. A surety or a guarantor is not responsible beyond the
terms of his undertaking.The bond filed in this case expired on 4 July 1952, the surety
cannot be held liable under the bond beyond 4 July 1952, and it could cancel the bond
ten days thereafter if the obligees failed to notify it of the principal's obligation under the
bond.
4.

Real Guaranty
a..Real Property
1) Real Estate Mortgage
2) Antichresis
b. Personal Property
1) Pledge
2) Chattel Mortgage
II.

Effects of Guaranty (Chapter 2) Arts. 2058-2075

A. Effects of Guaranty Between The Guarantor & Creditor (Section 1)
Arts. 2058-2065
Benefit of Excussion right of the guarantor to have all properties of the debtor
and all legal remedies against him first exhausted before he can be
compelled to pay the creditor (Art. 2058). There can be no excussion
in the following cases:

If guarantor has expressly renounced it

If he has solidarily bound himself with the debtor;

In case of insolvency of the debtor;

When he has absconded or cannot be sued within the Philippines unless he has left a
manager or representative
If it may be presumed that an execution on the property of the principal debtor would not
result in the satisfaction of the obligation.
Benefit of Divisionshould there be several guarantors of only one debtor and for
the same debt, the obligation to answer for the same is
divided among all guarantors, unless solidarity has been
expressly stipulated (Art. 2065).
Case Studies:
Southern Motors Inc vs. Barbosa (99 Phil 263)
The right of guarantors, under article 2058 NCC, to demand exhaustion of the
property of the principal debtor, exists only when a pledge or a mortgage has not been
given as special security for the payment of the principal obligation. Guarantees, without
any such pledge or mortgage, are governed by title XV of said Code, whereas pledges
and mortgages fall under title XVI thereof, in which articles 2087 and 2126 of same code
among others are found.Although an ordinary personal guarantor, not a mortgagor or
pledgor, may demand exhaustion, the creditor may, prior thereto, secure a judgment
against said guarantor, who shall be entitled, however, to a deferment of the execution of
said judgment against him, until after the properties of the principal debtor shall have
been exhausted, to satisfy the obligation involved in the case.
Philippine Trust Co. vs. Echaus Tan Siua (52 Phil 852)
One who mortgages his property to secure the debt of another without expressly
assuming personal liability for such debt cannot be compelled to pay the deficiency
remaining due after the mortgage is foreclosed.
Palmares vs. Court of Appeals (288 SCRA 422)
A creditor's right to proceed against the surety exists independently of his right to
proceed against the principal. Under Article 1216 NCC, the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously. The rule,
therefore, is that if the obligation is joint and several, the creditor has the right to
proceed even against the surety alone. It is not necessary for a creditor to proceed
against the principal in order to hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same as that of the principal, then as soon as
the principal in order to hold the surety liable, where, by the terms of the contract, the
obligation of the surety(who is primarily liable) is the same as that of the principal, then
as soon as the principal is in default, the surety is likewise in default, and may be sued
immediately and before any proceedings are had against the principal. The proper
remedy is for surety to pay the debt and pursue the principal for reimbursement. Unless

permitted by statute and in the absence of any agreement limiting the application of the
security the creditor or oblige, is not required to resort to and exhaust his remedies
against the principal , before proceeding against the surety.
B. Effects of Guaranty Between The Debtor and The Guarantor (Section 2)
Arts. 2066-2074
Indemnification By Debtor To Guarantor After The Latter Has Paid
Consists Of:
Total Amount of Debt
Legal interests from time payment was made known to debtor
Expenses incurred by guarantor after having notified debtor of
payment
Damages, if due.
C. Effects of Guaranty Between Co- Guarantors (Section 3)
Arts. 2073-2075 benefit of division except when several guarantors bound
themselves solidarily with principal debtor
III.

Extinguishment of Guaranty (Chapter 3) Arts. 2076-2081

Obligation of Guaranty Extinguished By:
Same causes as all other obligations
Extension granted to debtor by creditor without consent of guarantor
Release by creditor to one of guarantor without consent of other creditors
benefits others to the extent of share of released guarantor

IV.

Legal and Judicial Bonds (Chapter 4) Arts. 2082-2084

Exception to Benefit of Excussion:
Judicial bondsman
Sub-surety in sofar as property of debtor or of surety.
PLEDGE, MORTGAGE AND ANTI-CHRESIS (BOOK IV TITLEXVI)
Arts. 2085-2141

I.

Provisions Common To Pledge & Mortgage (Chapter 1) Arts. 2085-2092

Essential Requisites To Contracts of Pledge/Mortgage:

They be constituted to secure the fulfillment of an obligation
Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged
3. Persons constituting the pledge/mortgage have the free disposal of their
property and in the absent thereof, that they be authorized for the purpose

4. When the principal obligation becomes due, the thing in which the pledge
or mortgage consists, may be alienated for the payment to the creditor.
Pactum Commissorium (Art. 2088) vs. Foreclosure Arts. 2112 to 2115
Two Elements of Pactum Commisorium (void)
a.
That there should be a pledge or mortgage by way of security for the
payment of the principal obligation
b.
That there should be a stipulation for an automatic appropriation of the
thing given in pledge or mortgaged by the creditor in the event of default
Case Studies:
Yau Chu vs. CA (177 SCRA 793)
The encashment of the deposit certificates was not a pacto commissorio,
prohibited under Art. 2088 of the Civil Code, to preventan obligor, pledgor, or mortgagor
frombeing overreached by his creditor who holds a pledge or mortgage over property
whose value is much more than the debt. A pacto commissorio is a provision for the
automatic appropriation of the pledged or mortgaged property by the creditor in payment
of the loan upon its maturity. Where the security for the debt is also money deposited in a
bank, the amount of which is even less than the debt, the creditor can encash the time
deposit certificates to pay the debtors' overdue obligation, with the latter's consent, apply
the amount thereof to the debtors obligation and still collect the deficiency, if any, as this
does not constitute pactum commissorium.
A. Francisco Realty & Devt. Corp. vs. CA (298 SCRA 349)
The stipulations in the promissory notes providing that, upon failure of
respondent spouses to pay interest, ownership of the property would be automatically
transferred to petitioner A. Francisco Realty and the deed of sale in its favor would be
registered, are in substance a pactum commissorium and is void.
Nakpil v. Intermediate Appellate Court, (225 SCRA 456)
An agreement whereby property held in trust was ceded to the trustee upon failure
of the beneficiary to pay his debt to the former as secured by the said property was void
for being a pactum commissorium..There was automatic appropriation of the property
by creditor in the event of failure of debtor to pay the value of the advances, which is
expressly prohibited by Art. 2088 of the Civil Code. All the elements of a pactum
commissorium were present: there was a creditor- debtor relationship between the
parties, the property was used as security for the loan; and, there was automatic
appropriation by respondent creditor of the property in case of default of
petitionerdebtor.The stipulation that the ownership of the property would automatically
pass to the vendee in case no redemption was effected within the stipulated period, is

void for being a pactum commissorium since the mortgagee acquires ownership of the
mortgaged property without need of foreclosure. Its insertion in the contract is an avowal
of the intention to mortgage rather that to sell the property.
Reyes v. Sierra, (93 SCRA 472 )
A mortgagee's mere act of registering the mortgaged property in his own name
upon the mortgagor's failure to redeem the property amounted to the exercise of the
privilege of a mortgagee in a pactum commissorium in violation of Article 2088 of the
Civil Code. Applicant's predecessor-in-interest is a mere mortgagee, and ownership of
the thing mortgaged is retained by the mortgagor. The mortgagee, may recover the loan,
although the mortgage document evidencing the loan was nonregistrable being a purely
private instrument. Failure of mortgagor to redeem the property does not automatically
vest ownership of the property to the mortgagee, which would grant the latter the right to
appropriate the thing mortgaged or dispose of it.
DBP vs. CA (284 SCRA 14)
The deed of assignment of leasehold rights was a mortgage contract- a security
and not a satisfaction of indebtedness. DBP's act of appropriating debtors rights violates
Article 2088 of the Civil Code, which forbids a creditor from appropriating, or disposing
of, the thing given as security for the payment of debt. Under the deed of assignment,
DBP cannot appropriate the leasehold rights because it did not say leasehold rights
would automatically pass to DBP ifdebtorfails to pay the loans on time. It merelysays in
case debtor fails to pay, DBP is the attorney-in-fact with authority to sell or otherwise
dispose of the said real rights, and to apply the proceeds to the payment of the loan. The
promissory notes are not novated by the assignmentsince the assignment merely
complemented or supplemented the promissory notes. The obligation to pay remained,
and the assignment is onlya security for the loans under the promissory notes.
II.

Pledge (Chapter 2) Arts. 2093-2123

PledgeArts. 2085, 2093 and 2096.

It is constituted to secure the fulfillment of an obligation;
The Pledgor/Mortgagor be the absolute owner of the thing pledged/mortgaged;
Persons constituting the pledge/mortgage have the free disposal of their
property and in the absent thereof, that they be authorized for the purposed
Thing pledged is placed in the possession of the creditor or of a third
person by common agreement
Description of thing pledged and the date of the pledge must appear in
public instrument to affect third persons
No double pledge

Case Studies:
Betita vs. Ganzon (49 Phil 87)
A pledge is not effective as against third parties unless evidence of its date
appears in a public instrument. The filing of a private document of pledge with the
sheriff, after the levy of execution does not create a lien superior to that of the
attachment. The delivery of possession referred to in article 1863 of the old Civil Code
(now Art. 2093 NCC) and essential to the validity of a pledge,means actual possession of
the property pledged and a mere symbolic delivery is not sufficient.
Involuntary Insolvency Of.Pacific Commercial Company, et. al vs.
Philippine National Bank(49 Phil 236)
To make a written instrumentvalid as to third persons, which is in form and
substance, a pledge of personal property, it is necessary to take the actual, physical
possession of the property and to continue in such possession.Without delivery of the
possession of the property therein described, a chattel mortgage is void as to third
persons unless the mortgage is duly received and made a matter of record in the office of
the register of deeds of the province in which the property is situated. A pledge or chattel
mortgage is confined and limited to personal property, and cannot be enlarged or made a
lien on real property.
B.
C.

Kinds
Obligation and Rights of Pledgor

Case Studies:
Cruz vs. Lee (54 Phil 10)
Under article 1867 of the old Civil Code (Art. 2099 of the NCC), a person who
takes in pledge a pawn ticket representing jewelry already held in pledge by a
pawnbroker is bound, so long as he retains custody of the ticket, to keep the original
contract of pledge alive by payment from time to time of the premium, or interest,
required by the pawnbroker, and if he fails in this duty, he will be liable in damages to the
person pledging such pawn ticket to him.
DBP vs. Mirang (66 SCRA 141)
When the Legislature intends to bar or occlude a creditor from suing for any
deficiency after foreclosing and selling the security given for the obligation, it makes
express provisions to that effect, as it did in Article 2115 of the Civil Code on pledge.
Manila Surety & Fidelity Company vs. Velayo (21 SCRA 515)

Where the pieces of jewelry were delivered to a surety company "as collateral
security and by way of pledge" in a contract of guaranty, and sold at a lower price than
the amount of surety, the principal obligation was extinguished and the guarantor cannot
recover the deficiency, because Art. 2115 of the Civil Code, in its last portion, clearly
establishes that the extinction of the principal obligation supervenes by operation of
imperative law that the parties cannot override: "If the price of the sale is less, neither
shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to
the contrary." The effect of this provision cannot be evaded. By electing to sell the
articles pledged, instead of suing on the principal obligation, the creditor has waived any
other remedy, and must abide by the results of the sale.
Note: Although Article 2088 applies the principle of pactum commissorium in the
contract of pledge, this principle may be negated in the foreclosure proceedings,
thus:
ARTICLE 2115.
The sale of the thing pledged shall extinguish
the principal obligation, whether or not the proceeds of the sale are equal to
the amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall not
be entitled to the excess, unless it is otherwise agreed. If the price of the
sale is less, neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary.
E.

Pledge by Operation of Law Art. 2121-2122

1.
2.
3.
3.
4.
G.

III.

Art. 546 Right to retain by possessor in good faith of necessary

and useful expenses
Art. 1731 Mechanics lien for work on movables
Art. 1914 Right of an agent to retain
Art. 1994 Right of Depositary to retain
Art. 2004 Right of Hotelkeeper on Things Brought by Guests

Distinguished from Chattel Mortgage Arts. 2140, 1484

Real Estate Mortgage (Chapters 1 & 3) Arts. 2124-2131

Mortgage A contract whereby the debtor guarantees to the creditor the
fulfillment of the principal obligation, subjecting thereto for the
compliance therewith, real property in case of non-fulfillment of the
obligation at the time stipulated.
A. Definition And Characteristics
B.
Essential Requisites
C.
No Pactum De Non Aliendo

 Art. 2130 which provides that a stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
Case Studies:
Mobil Oil vs. Diocares (29 SCRA 656)
Even if the instrument were not recorded, "the mortgage is nevertheless binding
between the parties.". The mere fact that there is no recording of the mortgage is not a
bar to foreclosure. An exception should be made to the rule that it is indispensable for a
mortgage to be validly constituted that it be recorded.. There is full acknowledgment of
the binding effect of a promise, which must be lived up to, otherwise the freedom a
contracting party is supposed to possess becomes meaningless.
Prudential Bank vs. Alviar (464 SCRA 353)
A "blanket mortgage clause," (a"dragnet clause") is specifically phrased to
subsume all debts of past or future origins and should be "carefully scrutinized and
strictly construed." It: (a) enables the parties to provide continuous dealings, the nature
or extent of which may not be known or anticipated at the time; (b) avoids the expense
and inconvenience of executing a new security on each new transaction; (c)operates as a
convenience and accommodation to the borrowers as it makes available additional funds
without their having to execute additional security documents, thereby saving time,
travel, loan closing costs, costs of extra legal services, recording fees, et cetera.
Mortgages given to secure future advancements are valid and legal contracts, and the
amounts named as consideration in said contracts do not limit the amount for which the
mortgage may stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered.
Where deeds absolute in form were executed to secure any and all kinds of
indebtedness that might subsequently become due, a balance due on a note, after
exhausting the special security given for the payment of such note, was in the absence of
a special agreement to the contrary, within the protection of the mortgage,
notwithstanding the giving of the special security. While the "dragnet clause" subsists,
the security specifically executed for subsequent loans must first be exhausted before the
mortgaged property can be resorted to.
Lim Julian vs. Lutero (49 Phil 703)
When a mortgage is given to secure future advancements and the money is paid to
the mortgagor little by little and repayments are made from time to time, the
advancements and repayments are considered together for the purpose of ascertaining
the amount due upon the mortgage at maturity. Courts of equity will not permit the
consideration of the repayments only for the purpose of determining the balance due
upon the mortgage

B.H. Bertenkotter vs. Cu Unjieng (61 Phil 663)(Re: Art. 2127)

The installation of a machinery and equipment in a mortgaged sugar central, in
lieu of another of less capacity, for the purpose of carrying out the industrial functions of
the latter and increasing production, constitutes a permanent improvement on said sugar
central and subjects said machinery and equipment to the mortgage constituted thereon.
(Article 1877, old Civil Code now Art. 2127 NCC.)
C.

Foreclosure
1.

Three (3) Common Types of Forced Sale on Mortgage Debt

a.

Extrajudicial foreclosure under Act 3135

Right of Redemption in extra-judicial foreclosure is ordinarily one year, while

equity of redemption in judicial foreclosure is 90-120 days
and before the Order of confirmation by the court.
Case Studies:
El Hogar Filipino vs. Paredes (45 Phil 178)
A stipulation in a mortgage of real property authorizing the mortgagee, upon
default of the mortgagor in the payment of the mortgage debt and after publication for
three successive weeks in a paper of general circulation, to expose the property to public
sale and allowing the mortgagee to become a bidder at such sale, is valid.
Concepcion vs. CA (274 SCRA 614)
The three common types of forced sales arising from a failure to pay a mortgage
debt include (a) an extrajudicial foreclosure sale, governed by Act No. 3135; (b) a
judicial foreclosure sale, regulated by Rule 68 of the Rules of Court; and (c) an ordinary
execution sale, covered by Rule 39 of the Rules of Court. Each mode, peculiarly, has its
own requirements. In an extrajudicial foreclosure, such as here, Section 3 of Act No.
3135 is the law applicable. The Act only requires (1) the posting of notices of sale in
three public places, and (2) the publication of the same in a newspaper of general
circulation. Personal notice to the mortgagor is not necessary. Nevertheless, the parties
to the mortgage contract are not precluded from exacting additional requirements
provided these are not contrary to law, morals, good customs, public order or public
policy.

Tambunting v. Court of Appeals, (167 SCRA 16),

The republication in the manner prescribed by Act No. 3135 is necessary for the
validity of a postponed extrajudicial foreclosure sale. Another publication is required in
case the auction sale is rescheduled, and the absence of such republication invalidates
the foreclosure sale. The parties have no right to waive the publication requirement in
Act No. 3135.
Dayot vs. Shell Chemical Co (Phils ) Inc. (525 SCRA 535)
Any property brought within the ambit of Act 3135 is foreclosed by the filing of a
petition, not with any court of justice, but with the office of the sheriff of the province
where the sale is to be made. A third person in possession of an extra-judicially
foreclosed property, who claims a right superior to that of the original mortgagor, is thus
given no opportunity to be heard in his claim. (Capital Credit Dimension, Inc. v. Chua,
G.R. No. 157213, April 28, 2004, 428 SCRA 259, 263.)Such third person may not be
dispossessed on the strength of a mere ex-parte possessory writ, since to do so would be
tantamount to his summary ejectment, in violation of the basic tenets of due process.
(PNB v. Court of Appeals, supra note 27, at 770.)
Ong vs. CA (333 SCRA 189)
A writ of possession may be issued under the following instances: (1) land
registration proceedings under Sec. 17 of Act 496; (2) judicial foreclosure, provided the
debtor is in possession of the mortgaged realty and no third person, not a party to the
foreclosure suit, had intervened; and (3) extrajudicial foreclosure of a real estate
mortgage under Sec. 7 of Act 3135 as amended by Act 4118.. Under Sec. 7 of Act 3135 as
amended by Act 4118, a writ of possession may be issued either (1) within the one year
redemption period, upon the filing of a bond, or (2) after the lapse of the redemption
period, without need of a bond.As a rule, any question regarding the validity of the
mortgage or its foreclosure cannot be a legal ground for refusing the issuance of a writ of
possession. The pendency of a suit for annulment of the mortgage or the foreclosure
itself, will not prevent the purchaser from obtaining a writ of possession - without
prejudice of course to the eventual outcome of said case. The issuance of writ of
possession cannot be enjoined.
Green Asia Construction & Devt. Corp vs. CA (508 SCRA 79)
The purchaser at an extrajudicial foreclosure of real property merelyfiles an ex
parte motion for the issuance of a writ of possession ( without need for verification and
certification on non-forum shopping)and there is no need for an original action. Section
8 of Act no. 3135 provides that the debtor may, in the proceedings in which possession
was requested, but not later than thirty days after the purchaser was given possession,
petition that the sale be set aside and the writ of possession cancelled, specifying the
damages suffered by him, because: (a) the mortgage was not violated; or (b) the sale
was not made in accordance with the provisions hereof. Any question regarding the
validity of the mortgage or its foreclosure cannot be a legal ground for refusing the
issuance of a writ of possession. In such cases, the debtor should file a separate and

independent action for annulment of the mortgage or the foreclosure, since the nullity of
the mortgage is not covered by the remedy outlined under Section 8 of Act No. 3135. The
purchaser is entitled to a writ of possession despite the pendency of a suit for annulment
of the mortgage or the foreclosure itself.
Hrs. of Felicidad Canque vs. CA (275 SCRA 741)
In Rural Bank of Davao City vs. Court of Appeals, (217 SCRA 554, 569, January
27, 1993) this Court ruled: ". . . If the land is mortgaged to a rural bank under R. A. No.
720, as amended, the mortgagor may redeem the property within two (2) years from the
date of foreclosure or from the registration of the sheriff's certificate of sale at such
foreclosure if the property is not covered or is covered, respectively, by a Torrens title. If
the mortgagor fails to exercise such right, he or his heirs may still repurchase the
property within five (5) years from the expiration of the two (2) year redemption period
pursuant to Sec. 119 of the Public Land Act (C.A. No. 141). If the land is mortgaged to
parties other than rural banks, the mortgagor may redeem the property within one (1)
year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to
do so, he or his heirs may repurchase the property within five (5) years from the
expiration of the redemption period also pursuant to Sec. 119 of the Public Land Act."
DBP vs. Mirang (66 SCRA 141)
Article 2115 of the Civil Code on pledge, bars a creditor from suing for any
deficiency after foreclosing and selling the security given for the obligation. There is no
similar provision in Act 3135, as amended, hence the creditor does not lose his right
given him under the Mortgage Law and recognized in the Rules of Court, to take action
for the recovery of any unpaid balance on the principal obligation, simply because he
has chosen to foreclose his mortgage extrajudicially, pursuant to a special power of
attorney given him by the mortgagor in the mortgage contract.In redeeming the
foreclosed property, the mortgagor or debtor should pay the entire amount he owed the
mortgagee Bank on the date of sale, with interest thereon at the rate agreed upon,
pursuant to Section 31, Com. Act 459 which provides that mortgagor or debtor . . . shall,
within one year . . . have the right to redeem the real property by paying to the mortgagee
Bank all the amount he owed the latter on the date of sale, with interest on the total
indebtedness at the rate agreed upon in the obligation from said date .
b.
c.

Judicial Foreclosure under Rule 68 (Rules of Court)

Ordinary Execution under Rule 39 (Rules of Court)

Case Study:
CMS Brokerage Inc. vs. C (275 SCRA 790)

Paragraph (a) of Section 29, Rule 39 provides that the real property sold on
execution may be redeemed by the judgment debtor or his successors in interest, in the
whole or any part of the property. The judgment debtor can redeem because of the writ of
execution directed against such judgment debtor. When the property is claimed by a third
person, Section 17 of the same Rule 39 provides what is to be done. When, the property
is levied upon and sold, despite a claim by a third person who must vindicate then his
claim in a proper action, Section 29 determines who shall have a right of redemption.
The right of redemption is given to the judgment debtor and not to any third-party
claimant. Judgment debtor's 12-month period to redeem is not tolled by an action to
quiet title filed by a third-party claimant questioning the ownership of the property sold
on execution since the issue of ownership has no bearing insofar as judgment debtor's
right of redemption as judgment debtor.
II. Antichresis (Chapter 4) Arts. 2132-2139
Antichresis the creditor acquires the right to receive the fruits of an immovable
of his debtor, with the obligation to apply them to the payment of
the interest, if owing, and thereafter to the principal of his credit.
Amount of principal and interest must be specified in writing,
otherwise antichresis is void. However, principal obligation may
still be valid.
A.
B.

C.

Definition And Characteristics

Obligations Of An Antichretic Creditor
Pay taxes and charges upon estate
Bear expenses necessary for its preservation and repair
Pactum Commissorium is void Art. 2137

Case Study:
Ramirez vs. CA (144 SCRA 292)
The antichretic creditor cannot ordinarily acquire by prescription the land
surrendered to him by the debtor (Trillana v. Manansala, et al., 96 Phil. 865; Valencia v.
Acala, 42 Phil. 177; Barreto v. Barreto, 3 Phil. 234). The antichetic creditors are not
possessors in the concept of owner but mere holders placed in possession of the land by
its owners. Their possession cannot serve as a title for acquiring dominion (See Art. 540,
Civil Code). Under Article 2136 of the Civil Code, the debtor cannot reacquire the
enjoyment of the immovable without first having totally paid what he owes the creditor.
III.

Chattel Mortgage(Chapter 5) Arts. 2140 to 2141

(see Act Nos. 1508 and 3135 Chattel Mortgage Law and amendments)
A.
B.

Definition And Characteristics

Registration

1.Requisites for Registration (to be binding between the parties and on

third parties)
a.
Registry of the province/city where mortgagor resides and
where subject matter of contract is situated
b.
If property is a vessel, with the Collector of Customs of
port of entry
c.
If property is a motor vehicle, in addition to (a) above, with
the Land Transportation Office
Case Studies:
Aleman vs. De Cateca (1 SCRA 776)
A chatter mortgage of motor vehicles, to be binding upon third persons, should
not only be registered in the Chattel Mortgage Registry, but also recorded in the
corresponding Motor Vehicles Office as required by section 5 (1) of the Revised Motor
Vehicles Law. (Olaf N. Borlough vs. Fortune Enterprise, Inc. et al., 100 Phil 1063; 53
Off. Gaz. 4070).
Ablaza vs. Ignacio (103 Phil 1151)
Unreported case
Sec. 14 ofChattel Mortgage Law with regard to the effects of the foreclosure of a
chattel mortgage,is contrary to Article 2115 NCC(on pledge) which providesplaintiff is
not entitled to deficiency judgment notwithstanding defendant being declared in default
for the reason that it is manifestly against the law. The amount received at the time of the
sale of course, always requiring good faith and honesty in the sale, is only a payment pro
tanto, and an action may be maintained for a deficiency in the debt under the Chattel
Mortgage Law (Manila Trading & Supply Col vs. Tamaraw Plantation Co. 47 Phil 513).
Acme Shoe Rubber & Plastic Comp.vs. CA (260 SCRA 714)
In contracts of real security, such as a pledge, a mortgage or an antichresis, that
fulfillment is secured by an encumbrance of property in pledge, the placing of movable
property in the possession of the creditor; in chattel mortgage, by the execution of the
corresponding deed substantially in the form prescribed by law; in real estate mortgage,
by the execution of a public instrument encumbering the real property covered thereby;
and in antichresis, by a written instrument granting to the creditor the right to receive the
fruits of an immovable property with the obligation to apply such fruits to the payment of
interest, if owing, and thereafter to the principal of his credit conditioned that if the
principal obligation becomes due and the debtor defaults, then the property encumbered
can be alienated for the payment of the obligation. If the obligation is duly paid, then the
contract is automatically extinguished and the contract of security becomes, ipso facto,
null and void.

While a pledge, real estate mortgage, or antichresis may exceptionally secure

after-incurred obligations so long as these future debts are accurately described (blanket
or continuing mortgage, pledge or antichresis), a chattel mortgage, however, can only
cover obligations existing at the time the mortgage is constituted, as provided in the
affidavit of good faith.
Northern Motors vs. Coquia (66 SCRA 415)
Levy made by the chattel mortgagor's unsecured judgment creditor against the
property subject of the chattel mortgageecannot prevail over the chattel mortgage credit.
The chattel mortgage is the primary encumbrance on the mortgaged chattel. The
mortgagee is entitled to the possession of the chattel mortgage and not the mortgagor's
judgment creditor.. Where the mortgaged chattels have been levied upon and sold at
public auction to satisfy the judgment credit, which is inferior to the chattel mortgage,
and the chattels could no longer be recovered because they had been transferred to
persons whose addresses are unknown, the proceeds of the execution sale may be
regarded as a partial substitute for the unrecoverable chattels, and the mortgagee is
entitled to the entire proceeds without deduction of the expenses of execution. The
mortgagee is not obligated to file an "independent action" to enforce his credit because
such action would nullify his lien and would defeat the purpose of the chattel mortgage
which is to give him preference over the mortgaged chattels for the satisfaction of his
credit. (See Art. 1087, Civil Code)

EXTRA-CONTRACTUAL OBLIGATIONS (BOOK IV- TITLE XVII)

Arts. 2142-2194
I. Quasi-Contracts (Chapter 1) Arts. 2142 to 2175
A. Negotiorum Gestio (Section 1) (Arts. 2144 to 2153)
Negotiorum Gestiowhoever voluntarily takes charge of the agency or
management of the business or property of another, without
any power from the latter, is obliged to continue the same
until the termination of the affair and its incidents, or to
require the person concerned to substitute him, if the owner is
in a position to do so.
Negotiorum Gestio
1.

2.
3.

Agency

Gestor should never have been authorized by 1. Agent has been authorized expressly or
owner, expressly or impliedly, to assume
impliedly by the owner
agency/management by the owner of business or
property
Essential that business or property should be
2. Abandonment or neglect by owner is not
abandoned or neglected by owner
required
Continuous as long as owner does not know that 3. Continuous, once owner is aware and does not
gestor is acting in his behalf

repudiate. There is implied agency

B. Solutio Indebiti (Arts. 2154 to 2163)

Solutio Indebiti-If something is received when there is no right to demand it, and
it was unduly delivered through mistake, te obligation to return
it arises. (Art. 2154)
-

Payment by reason of a mistake in the construction or application

of a doubtful or difficult question of law

Case Studies:
Globe Mackay Cable & Radio Corp vs. NLRC (163 SCRA 71)
Absent clear administrative guidelines, payment by petitioner corporation may be
said to have been made by reason of a mistake in the construction or application of a
"doubtful or difficult question of law." (Article 2155, in relation to Article 2154 of the
Civil Code). Since it is a past error that is being corrected, no vested right may be said to
have arisen nor any diminution of benefit under Article 100 of the Labor Code may be
said to have resulted by virtue of the correction.
ART. 2155. Payment by reason of a mistake in the construction or application of a
doubtful or difficult question of law may come within the scope of the
preceding article.
ART. 2154.
If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
Gonzalo Puyat & Sons Inc. vs. City of Manila (7 SCRA 970)
Where taxes which are not legally due are paid thru error or mistake, they may
under the principle of solutio indebiti, be recovered, even if no protest was made upon
their payment, particularly where such payment was due to a mistake in the construction
of a doubtful or difficult question of law (Article 2155, New Civil Code).
C. Other Quasi Contracts (Section 3) (Arts. 2164 to 2175)

Support is given by a stranger (not out of piety and with intention

of being repaid) without knowledge of the person obliged to give
support
Funeral expenses are borne by 3rd person without knowledge of
relatives obliged to give support to deceased
Support to needy individual given by third person when person
obliged to give support unjustly refuses to give support
Person (in an accident) who is not in a position to give consent, is
treated/helped, is liable to pay physician or other person helping
him

Property is saved by another person without knowledge of owner

during fire, flood, storm or other calamity
Government undertakes necessary work on private property of
person who fails to comply with health or safety regulations
concerning private property
TORTS AND DAMAGES

QUASI-DELICTS (BOOK IV-TITLE XVII) (Chapter 2)Arts. 2176 to 2194

Quasi-Delict Whoever, by act or omission causes damage to another, there being
fault or negligence, (not punishable by law), is obliged, if there is
no pre-existing contractual relation between the parties, is called
a quasi-delict.
D, a taxi driver, through reckless imprudence, killed passenger A and
pedestrian B, using taxi cab owned by O.
(1) Under the Revised Penal Code: The heirs of A and B may sue both D
and O or D alone (culpa criminal); liability of D is direct and primary;
liability of O is subsidiary.
(2) Under the Civil Code:
(a) The heirs of A, the passenger, may sue O the employer (culpa
contractual). O cannot avail of the defense of due diligence in the
selection and supervision but may mitigate his liability.
(b) The heirs of B, the pedestrian, may sue both D driver and O owner
(culpa aquiliana); liability of both is direct and primary; O may invoke
the defense of due diligence in the selection and supervision of employee.
Case Studies:
Elcano vs. Hill (77 SCRA 98)
While it is true that parental authority is terminated upon emancipation of the
child it is, however, also clear that pursuant to Article 399, emancipation by marriage of
the minor is not really full or absolute. Now under Article 2180, "(T)he obligation
imposed by article 2176 is demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible. The father and, in case of his
death or incapacity, the mother, are responsible for the damages caused by the minor
children who live in their company." In the instant case, it is not controverted that
Reginald, although married, was living with his father and getting subsistence from him

at the time of the occurrence in question. Factually, therefore, Reginald was still
subservient to and dependent on his father, a situation which is not unusual.
Safeguard Security Services vs. Tangco (511 SCRA 67)
An act or omission causing damage to another may give rise to two separate civil
liabilities on the part of the offender, i.e., (1) civil liability ex delicto, under Article 100
of the Revised Penal Code; and (2) independent civil liabilities, such as those (a) not
arising from an act or omission complained of as a felony, e.g., culpa contractual or
obligations arising from law under Article 31 of the Civil Code, intentional torts under
Articles 32 and 34, and culpa aquiliana under Article 2176 of the Civil Code; or (b)
where the injured party is granted a right to file an action independent and distinct from
the criminal action under Article 33 of the Civil Code. Either of these liabilities may be
enforced against the offender subject to the caveat under Article 2177 of the Civil Code
that the offended party cannot recover damages twice for the same act or omission or
under both causes. The extinction of civil liability referred to in Par. (e) of Section 3,
Rule 111, refers exclusively to civil liability founded on Article 100 of the Revised Penal
Code, whereas the civil liability for the same act considered as quasi-delict only and not
as a crime is not extinguished even by a declaration in the criminal case that the
criminal act charged has not happened or has not been committed by the accused.
Culpa aquiliana includes voluntary and negligent acts which may be punishable by law
covers not only acts "not punishable by law" but also acts criminal in character,
whether intentional and voluntary or negligent.
National Power Corporation vs. CA (294 SCRA 209)
Article 2180 of the Civil Code and not the Labor Code will determine the liability
of NPC in a civil suit for damages instituted by an injured person for any negligent act
of the employees of the "labor only" contractor of NPC. This is consistent with the
ruling that a finding that a contractor was a "labor-only" contractor is equivalent to a
finding that an employer-employee relationship existed between NPC the owner
(principal contractor) and the "labor-only" contractor, including the latter's workers.
With respect to the liability of NPC as the direct employer, Article 2180 of the Civil
Code explicitly provides:"Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry."

Padua vs. Robles (66 SCRA 485)

Civil liability coexists with criminal responsibility. In negligence cases, the
offended party (or his heirs) has the option between an action for enforcement of civil
liability based on culpa criminal under article 100 of the Revised Penal Code and an
action for recovery of damages based on culpa aquiliana under article 2177 of the Civil

Code. The action for enforcement of civil liability based on culpa criminal section 1 of
Rule 111 of the Rules of Court is deemed simultaneously instituted with the criminal
action, unless expressly waived or reserved for a separate application by the offended
party. Article 2177 of the Civil Code, however, precludes recovery of damages twice for
the same negligent act or omission.
It is immaterial that the plaintiffs chose in the first instance, an action for
recovery of damages based on culpa aquiliana under articles 2176, 2177 and 2180 of
the Civil Code, which action proved ineffectual. There is no inconsistency between this
action priorly availed of the plaintiffs and their subsequent application for enforcement
of civil liability arising from the offense committed by the driver and, consequently, for
exaction of the employer's subsidiary liability. Allowance of the latter application
involves no violation of the prescription against double recovery of damages for the
same negligent act or omission where the writ of execution issued against the driver to
satisfy the amount of indemnity awarded to plaintiffs in the civil case was returned
unsatisfied. What Article 2177 of the Civil Code forbids is actual double recovery of
damages for the same negligent act or omission.
Phil Rabbit Bus Lines Inc. vs. Hrs. of Eduardo Mangawang (458 SCRA 684)
The employer becomes ipso facto subsidiarily liable upon his driver's conviction
and upon proof of the latter's insolvency, in the same way that acquittal wipes out not
only the employee's primary civil liability but also his employer's subsidiary liability for
such criminal negligence. It is high time that the employer exercised the greatest care in
selecting his employees, taking real and deep interest in their welfare; intervening in
any criminal action brought against them by reason of or as a result of the performance
of their duties, if only in the way of giving them the benefit of counsel; and,
consequently, doing away with the practices of leaving them to their fates. If these be
done, the American rule requiring notice on the part of the employer shall have been
satisfied.
Professional Services Inc vs. CA (544 SCRA 170)
The immunity from medical malpractice traditionally accorded to hospitals has to
be eroded if we are to balance the interest of the patients and hospitals.The hospital is
estopped from passing the blame solely to Dr. Ampil. Its act of displaying his name and
those of the other physicians in the public directory at the lobby of the hospital amounts
to holding out to the public that it offers quality medical service through the listed
physicians. This justifies patients belief that Dr. Ampil was a member of the hospital's
staff.Under the doctrine of apparent authority, the question is whether the principal has
by his voluntary act placed the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the nature of the particular business, is
justified in presuming that such agent has authority to perform the particular act in
question (Id., citing Hudson V.C., Loan Assn., Inc. v. Horowytz, 116 N.J.L. 605, 608, 186
A 437 (Sup. Ct. 1936).

The corporate negligence doctrine imposes several duties on a hospital: (1) to

use reasonable care in the maintenance of safe and adequate facilities and equipment;
(2) to select and retain only competent physicians; (3) to oversee as to patient care all
persons who practice medicine within its walls; and (4) to formulate, adopt, and enforce
adequate rules and policies to ensure quality care for its patients. These special tort
duties arise from the special relationship existing between a hospital or nursing home
and its patients, which are based on the vulnerability of the physically or mentally ill
persons and their inability to provide care for themselves. 40 A Am Jur 2d 28 citing
Funkhouser v. Wilson, 89 Wash. App. 644, 950 P 2d 501 (Div.1 1998), review granted,
135 Wash. 2d 1001, 959 P 2d 126 (1998). The duty of providing quality medical service
is no longer the sole prerogative and responsibility of the physician. The modern
hospital now tends to organize a highly-professional medical staff whose competence
and performance need also to be monitored by the hospital commensurate with its
inherent responsibility to provide quality medical care. Such responsibility includes the
proper supervision of the members of its medical staff. The hospital has the duty to make
a reasonable effort to monitor and oversee the treatment prescribed and administered by
the physicians practicing in its premises
TORTSI.

Principles
A.
B.
C.
D.
E.

II.

Classification Of Torts
A.
B.

III.

Abuse of Right; Elements

Unjust Enrichment
Liability Without Fault
Acts Contrary To Law
Acts Contrary To Morals

According To Manner Of Commission: Intentional, Negligent

And Strict Liability
According To Scope: General Or Specific

The Tortfeasor
A.
B.

The Direct Tortfeasor

1.
Natural Persons
2.
Juridical Persons
Persons Made Responsible for Others
1.
In General
a.
Quasi-Delicts Under Article 2180, How Interpreted

Family Code, Arts. 218-219, 221

(1)
Elements; definition

2.

(2)
Distinguished From Culpa Contractual And
Culpa
Criminal
b.
Indirect Liability For Intentional Acts
c.
Presumption Of Negligence On Persons Indirectly
Responsible
d.
Nature Of Liability; Joint Or Solidary?
In Particular
a.
Parents
b.
Guardian
c.
Owners and Managers of Establishments and
Enterprises
d.
Employers
(1)
Meaning of employers
(2)
Requisites
(a)
Employee Chosen By Employer Or
Through Another
(b)
Services Rendered In Accordance
With Orders Which Employer Has
Authority To Give
(c)
Illicit Act Of Employee Was On The
Occasion Or By Reason Of The
Functions Entrusted To Him
(d)
Presumption Of Negligence
(3)

e.
f.
g.

Employer Need Not Be Engaged In

Business Or Industry
(4)
Defense Of Diligence In Selection And
Supervision
(5)
Nature Of Employers Liability
State
Teachers And Heads Of Establishments Of Arts And
Trades
Local Government Units

Case Study:
Caedo vs. Yu Khe Tai (26 SCRA 410)
The applicable law relative to the solidary liability of the employer with the
driver is Article 2184 of the Civil Code. If the causative factor was the driver's
negligence the owner of the vehicle who was present is likewise held liable if he could
have prevented the mishap by the exercise of the due diligence.The master's liability in
civil law is not based on respondeat superior but rather the relationship of
paterfamilias. Ultimately, the negligence of the servant, if known to the master and
susceptible of timely correction by him, reflects his own negligence if he fails to correct

it in order to prevent injury or damage. The test of imputed negligence under Article
2184 of the Civil Code is, to a great degree, necessarily subjective. Car owners are not
held to a uniform and inflexible standard of diligence as are professional drivers. In
many cases they refrain from driving their own cars and instead hire other persons to
drive for them precisely because they are not trained or endowed with sufficient
discernment to know the rules of traffic or to appreciate the relative dangers posed by
the different situations that are continually encountered on the road. What would be a
negligent omission under the aforesaid Article on the part of a car owner who is in the
prime of age and knows how to handle a motor vehicle is not necessarily so on the part,
say, of an old and infirm person who is not similarly equipped.
City of Manila vs. Teotico (22 SCRA 267)
Article 2189 of the Civil Code makes provinces, cities and municipalities liable
for damages for the death or injury suffered by any person by reason of the defective
condition of roads, streets and other public works under the control or supervision of
said municipal governments and it governs liability due to defective streets in particular.
Where the issue involves a defective condition of a road,it is not necessary that defective
roads or streets belong to the province, city or municipality, so long as it has control or
supervision" over said street or road, it may be held liable.
Guilatco vs. City of Dagupan (171 SCRA 382)
It is not necessary for the defective road or street to belong to the province, city or
municipality for liability to attach, so long as it exercises control or supervision over the
defective road or street. (City of Manila v. Teotico, No. L-23052, January 29, 1968, 22
SCRA 267.) The express provision in the charter holding the city not liable for damages
or injuries sustained by persons or property due to the failure of any city officer to
enforce the provisions of the charter, can not be used to exempt the city, (R.A. 170, sec.
5.) since it only lays down general rules regulating the liability of the city, while article
2189 NCC applies in particular to the liability arising from "defective streets, public
buildings and other public works. (Jimenez v. City of Manila, No. 71049, May 29, 1987,
150 SCRA 510) .
C.
IV.

Joint Tortfeasors (Art. 2194, Civil Code)

Act of Omission and Its Modalities

A. Concept of Act

A.

V.
Concept

Proximate Cause
Doctrine ofProximate Cause - that cause, which in natural and
continuous sequence, unbroken by any efficient intervening

event/cause, produces the injury and without which the

result would not have occurred.
1.
2.
3.
4.

Test
Distinguished from Immediate Cause
Distinguished from Intervening Cause
Distinguished from Remote and Concurrent

B.

Cause in Fact
1.
But For
2.
Substantial Factor Test
3.
Concurrent Causes

C.

Legal Cause
1.
Natural and Probable Consequences
2.
Foreseeability
Efficient Intervening Cause
Cause vs. Condition
Last Clear Chance

D.
E.
F.

Doctrine of Last Clear Chance where both parties are negligent in such
a way that it would be impossible to determine which
negligence was the proximate cause of the accident, the part
who had the last clear chance to avoid the accident by the use
of proper case but failed to do so, is considered in law solely
responsible for the consequences of the accident.
Case Studies:
Picart vs. Smith (37 Phil 809) (Doctrine of Last Clear Chance)
The test for determining whether a person is negligent in doing an act whereby
injury or damage results to the person or property of another is this: Would a prudent
man, in the position of the person to whom negligence is attributed, foresee harm to the
person injured as a reasonable consequence of the course about to be pursued. If so, the
law imposes a duty on the actor to refrain from that course or to take precaution against
its mischievous results, and the failure to do so constitutes negligence. Reasonable
foresight of harm, followed by the ignoring of the admonition born of this prevision, is
the constitutive fact in negligence.Where both parties are guilty of negligence, but the
negligent act of one succeeds that of the other by an appreciable interval of time, the one
who has the last reasonable opportunity to avoid the impending harm and fails to do so is
chargeable with the consequences, without reference to the prior negligence of the other
party.
Phoenix Construction vs. IAC (148 SCRA 353)

The legal and proximate cause of the accident and of victim's injuries was the
wrongful or negligent manner in which the dump truck was parked sincethere was a
reasonable relationship between the truck drivers negligence and the accident and
respondent's injuriesThe collision of victims car with the dump truck was a natural and
foreseeable consequence of the truck driver's negligence.The truck driver's negligence
far from being a "passive and static condition" was rather an indispensable and efficient
cause. The collision between the dump truck and the private respondent's car would in
all probability not have occurred had the dump truck not been parked askew without any
warning lights or reflector devices. The improper parking of the dump truck created an
unreasonable risk of injury for anyone driving and for having so created this risk, the
truck driver must be held responsible. In our view, victim's negligence, although later in
point of time than the truck driver's negligence and therefore closer to the accident, was
not an efficient intervening or independent cause..The petitioner truck driver owed a duty
to the victim and others similarly situated not to impose upon them the very risk the truck
driver had created. Victim's negligence was not of an independent and overpowering
nature as to cut, as it were, the chain of causation in fact between the improper parking
of the dump truck and the accident, nor to sever the juris vinculum of liability.
The last clear chance doctrine of the common law was imported into our
jurisdiction by Picart vs. Smith but it is a matter for debate whether, or to what extent, it
has found its way into the Civil Code of the Philippines. The historical function of that
doctrine in the common law was to mitigate the harshness of another common law
doctrine or rule that of contributory negligence.it is difficult to see what role, if any,
the common law last clear chance doctrine has to play in a jurisdiction where the
common law concept of contributory negligence as an absolute bar to recovery by the
plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil Code of the
Philippines.
VI.

Legal Injury
A.

Concept
Injury the violation or legal invasion of a legal right, where as
Damage refers to the loss or harm done to a person, his
rights or property, as well as to the compensation due to
such person therefore. Thus, there can be damage without
injury. (damnum absque injuria)

B.
C.
D.

VII.

Elements of Right
Violation of Right or Legal Injury
Classes of Injury
1.
Injury To Persons
2.
Injury To Property
3.
Injury To Relations
Intentional Torts

A.

B.

General
1.
Concept
2.
Classes
a.
Interference With Persons And Property
(1)
Physical Harms
(2)
Non-Physical Harms
b. Interference with relations
Interference With Rights To Persons And Property
1.
Intentional Physical Harms
a.
General
(1)
Concept
(2)
Kinds
b.
Violation of Persons Security, Physical Injuries
Art.33, Civil Code
(1)
Battery (Physical Injury)
(2)
Assault (Grave Threat)
c.
False Imprisonment (Illegal Detention)
d.
Trespass to Land
(1)
Concept
(2)
Elements
e.
Interference With Personal Property
1)
Trespass to Chattels
2)
Conversion
2.
Intentional Non-Physical Harms
a.
General
(1)
Concept
(2)
Kinds
b.
Violation of Personal Dignity
c.
Infliction of Emotional Distress
d.
Violation of Privacy
(1)
Appropriation
(2)
Intrusion
(3)
Public disclosure of private facts
(4)
False light in the public eye
e.
Disturbance of Peace of Mind
f.
Malicious Prosecution

Case Study:
Tiongco vs. Deguma (317 SCRA 527)
Malicious Prosecution is an action for damages brought by one against whom a
criminal prosecution, civil suit, or other legal proceeding has been instituted maliciously
and without probable cause, after the termination of such prosecution, suit, or other
proceeding in favor of the defendant therein. It has been enumerated as one of the
instances in Article 2219 of the Civil Code whereby moral damages can be recovered. To

merit an award for moral damages predicated on malicious prosecution, claimants must
prove that they had been denounced or charged falsely, that complainant knew that the
charge was false, that the latter acted with malice and of course, the damages they
suffered.
VIII. Negligence
A.
Concept
Doctrine of Imputed Negligence the rule whereby the negligence of a
certain person in the transaction or act which gave rise to the
injury complained of is imputable or chargeable against the
person for whom he was acting or against his associates.
The liability of person mentioned in Art. 2180, among
others, is based on the doctrine of imputed negligence.
B.
C.

Good Father of a Family or Reasonably Prudent Man

Standard of Care
1.
NCC, Art. 1173
2.
Emergency Rule

Case Study:
Valenzuela vs. CA (253 SCRA 303)
Under the "emergency rule" an individual who suddenly finds himself in a
situation of danger and is required to act without much time to consider the best means
that may be adopted to avoid the impending danger, is not guilty of negligence if he fails
to undertake what subsequently and upon reflection may appear to be a better solution,
unless the emergency was brought by his own negligence. While it applies to those cases
in which reflective thought, or the opportunity to adequately weigh a threatening
situation is absent, the conduct which is required of an individual in such cases is
dictated, not exclusively by the suddenness of the event which absolutely negates
thoughtful care, but by the over-all nature of the circumstances. A woman driving a
vehicle suddenly crippled by a flat tire on a rainy night will not be faulted for stopping at
a point which is both convenient for her to do so and which is not a hazard to other
motorists.
D.
E.
F.

Unreasonable Risk Of Harm

Evidence
Presumption of Negligence
1.
Legal Provisions
2.
Res ipsa loquitur

Doctrine of Res Ipsa Loquitor The thing speaks for itself. when the
thing is shown to be under the management of the defendant

or his servants, and the accident is such as in the ordinary

course of events does not happen if those who have the
management had used proper care, in the absence of
explanation, the presumption is that the accident arose from
want of care.
Requisites:
1)
Accident is of a kind which does not usually occur unless
someone is negligent;
2)
The cause of injury must be in the exclusive control of the
person in charge;
3)
Injury must not have been due to any act or participation or
the person injured
Case Studies:
College Assurance Plan vs. Belfranlt Devt. Inc. ( 538 SCRA 27)
The doctrine of res ipsa loquitur under which expert testimony may be
dispensed with (Reyes v. Sisters of Mercy Hospital, 396 Phil. 87, 96 (2000) to sustain an
allegation of negligence if the following requisites obtain: a) the accident is of a kind
which does not ordinarily occur unless someone is negligent; b) the cause of the injury
was under the exclusive control of the person in charge and c) the injury suffered must
not have been due to any voluntary action or contribution on the part of the person
injured. (DM Consunji v. Court of Appeals, G.R. No. 137873, April 20, 2001, 357 SCRA
249, 259.) The fire that damaged Belfranlt Building was the result of a human act or
omission since itstarted in the petitioners store room which petitioners alone had
possession and control of. Since petitioners alone having knowledge of the cause of the
fire or the best opportunity to ascertain it, and respondent having no means to find out
for itself, it is sufficient for the latter to merely allege that the cause of the fire was the
negligence of the former and to rely on the occurrence of the fire as proof of such
negligence. (Perla Compania de Seguros v. Sarangaya III, G.R. No. 147746, October
25, 2005, 474 SCRA 191, 199.) It was all up to petitioners to dispel such inference of
negligence, but their bare denial only left the matter unanswered.
Africa vs. Caltex (16 SCRA 448)
THE DOCTRINE OF Res Ipsa Loquitur. Where the thing which caused the
injury complained of is shown to be under the management defendant or his servants
and the PRESUMPTION OF NEGLIGENCE UNDER accident is such as in the
ordinary course of things does not happen if those who have its management or control
use proper care, it affords reasonable evidence, in absence of explanation by defendant,
that the accident arose from want of care. (45 C. J. 768, p. 1193.)The intervention of an
unforeseen and unexpected cause, is not sufficient to relieve a wrongdoer from
consequences of negligence, if such negligence directly and proximately cooperates with

the independent cause in the resulting injury. (MacAfee et al., vs. Travers Gas Corp., et
al., 153 S. W. 2nd 442.)
Capili vs. Cardana (506 SCRA 569)
The effect of the doctrine of res ipsa loquitur is to warrant a presumption that the
mere falling of the branch of the dead and rotting tree which caused the death of
respondents' daughter was a result of petitioner's negligence, being in charge of the
school.Applying the doctrine of res ipsa loquitur, petitioner's negligence is presumed
once respondents established the requisites and made out a prima facie case of all
requisites. The burden shifts to petitioner to explain and present evidence and to create a
disputable presumption of due care or innocence. As school principal, petitioner is
expected to oversee the safety of the school's premises. When she failed to see the
immediate danger posed by the dead and rotting tree, she failed to exercise the
responsibility demanded by her position. Even if petitioner had assigned disposal of the
tree to another teacher, she should have exercised supervision over her assignee
G.

Defenses
1.
Complete
a.
Absence Of Elements
(1)
Due Diligence
(2)
Acts Of Public Officers
b.
Accident Or Fortuitous Event
c.
Damnum Absque Injuria

Case Study:
BPI Express Card Corp. vs. CA (296 SCRA 260)
Injury is the illegal invasion of a legal right while damage is the loss, hurt, or
harm which results from the injury. Damages are the recompense or compensation
awarded for the damage suffered. There can be damage without injury (damnum absque
injuria) in those instances in which the loss or harm was not the result of a violation of a
legal duty. In such cases, the consequences must be borne by the injured person alone,
the law affords no remedy for damages resulting from an act which does not amount to a
legal injury or wrong. These situations are often called damnum absque injuria. For
plaintiff to maintain an action for the injuries of which he complains, he must establish
that such injuries resulted from a breach of duty which the defendant owed to the plaintiff
a concurrence of injury to the plaintiff and legal responsibility by the person causing
it. The basis for the damages is the premise that an individual was injured in
contemplation of law. There must first be a breach of some duty and the imposition of
liability for that breach before damages may be awarded; and the breach of such duty
should be the proximate cause of the injury.
In canceling the credit card of the private respondent, petitionerdid not abuse its
right under the terms and conditions of the contract. The dishonor of the credit card of
the private respondent by Cafe Adriatico is not due to petitioners willful or gross neglect

to inform the private respondent of the suspension of his credit card but due to
petitioner's failure to settle his obligation which caused the suspension of his credit card
and subsequent dishonor at Cafe Adriatico. He can not now pass the blame to the
petitioner for not notifying him of the suspension of his card.
d.
e.
f.

Authority Of Law
Assumption Of Risk
Last Clear Chance

VIII. Special Liability in Particular Activities

A.
General
1.
Concept
B.
Products Liability
1.
Manufacturers or Processors
a. Elements
b. Consumer Act RA 7394, secs. 92-107, (Ch. 1)
C.
Nuisance NCC Arts. 694-707
1.
Nuisance Per Se and Nuisance Per Accidence
2.
Public Nuisance and Private Nuisance
3.
Attractive Nuisance
D.
Violation of Constitutional Rights
1.
Violation of Civil Liberties
E.
Violation of Rights Committed by Public Officers
F.
Provinces, Cities and Municipalities
G.
Owner of Motor Vehicle
H.
Proprietor of Building or Structure or Thing
I.
Head of Family
IX.

Strict Liability
A.
B.

C.

Animals
1.
Possessor and User of an Animal
Nuisance (supra)
1.
Classes
Per se or per accidents; Public or Private
2.
Easement Against Nuisance
Products Liability (supra)
1.
Consumer Act of the Philippines ( R.A. 7394)
DAMAGES (BOOK IV- TITLE XVIII)
Arts. 2195-2235

I.

General Considerations
A.
Classification
1.
NCC Art. 2197

2.
3.
4.

According To Purpose
According To Manner Of Determination
Special And Ordinary

Case Study:
People vs. Dianos (297 SCRA 191)
There is a significant distinction, in the context of Book IV, Title XVIII, of the Civil
Code on "Damages," between the terms "damages" and "damage." Damages refer to the
sum of money which the law awards or imposes as pecuniary compensation, recompense,
or satisfaction for an injury done or a wrong sustained as a consequence of either a
breach of a contractual obligation or a tortuous or illegal act, while damage pertains to
the actionable loss, hurt or harm which results from the unlawful act, omission or
negligence of another. In fine, damages are the amounts recoverable or that which can be
awarded for the damage done or sustained.
An award of actual or compensatory damages requires actual proof of pecuniary
loss. An exception from the rule, pursuant to Article 2206 of the Civil Code, are
"damages for death caused by a crime or quasi-delict" which can be awarded forthwith
to the heirs of the victim by proof alone of such fact of death. No proof of pecuniary loss
is likewise necessary in order that moral, nominal, temperate, liquidated or exemplary
damages may be adjudicated, and it is quite enough that proof of damage or injury is
adduced. Being incapable of exact pecuniary estimation, the assessment of such
damages, except for liquidated damages which the parties themselves fix, is left to the
sound discretion in the court.

II.

Actual and Compensatory Damages Arts. 2199 - 2215

A.
B.
C.

D.

Case Studies:

Concept
Requisites
1.
Alleged and Proved With Certainty
2.
Not Speculative
Component Elements
1.
Value Of Loss; Unrealized Profit Arts. 2200, 2205
2.
Attorneys Fees And Expenses Of Litigation Art. 2208
3.
Interest - Arts. 2209 to 2213
Extent Or Scope Of Actual Damages 1.
In Contracts And Quasi-Contracts Arts. 2201, 2209, 2210,
2215
2.
In Crimes And Quasi-Delicts - Arts. 2202, 2204, 2206,
2211, 2214 and 2215

Smith Bell Dodwell Shipping Agency Corp vs. Borja (383 SCRA 341)
In determining the reasonableness of the damages awarded under Article 1764
(death of passenger) in conjunction with Article 2206 (Amount of actual damages for
death caused by quasi-delict or crime) of the Civil Code, the factors to be considered
are: (1) life expectancy (considering the health of the victim and the mortality table
which is deemed conclusive) and loss of earning capacity; (b) pecuniary loss, loss of
support and service; and (c) moral and mental sufferings. The loss of earning capacity is
based mainly on the number of years remaining in the person's expected life span. In
turn, this number is the basis of the damages that shall be computed and the rate at
which the loss sustained by the heirs shall be fixed.
The formula for the computation of loss of earning capacity is as follows: Net
earning capacity = Life expectancy x [Gross Annual Income Living Expenses (50% of
gross annual income)], where life expectancy = 2/3 (80 the age of the deceased).
Petitioner is correct in arguing that it is net income (or gross income less living
expenses) which is to be used in the computation of the award for loss of income. Villa
Rey Transit v. Court of Appeals explained that"the amount recoverable is not the loss of
the entire earning, but rather the loss of that portion of the earnings which the
beneficiary would have received."
Davila vs. PAL (49 SCRA 497)
According to Article 2206, paragraph (1), of the Civil Code, "the defendant shall
be liable for the loss of the earning capacity of the deceased and indemnity shall be paid
to the heirs of the latter." This article, while referring to "damages for death caused by
crime or quasi-delict," is expressly made applicable by Article 1764 "to the death of a
passenger caused by the breach of contract by a common carrier."
People vs. Victor (292 SCRA 186)
Appellant was found guilty of the crime of rape and sentenced to suffer the
supreme penalty of death, as well as to pay the corresponding civil liability to the victim.
Hence, starting with the case at bar, if the crime of rape is committed or effectively
qualified by any of the circumstances under which the death penalty is authorized by the
present amended law, the indemnity for the victim shall be in the increased amount of not
less than P75,000.00, and considered as actual, and not moral, damages.

Pilipinas Bank vs. CA (225 SCRA 268)

In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held that the
judgments spoken of and referred to in Circular No. 416 are "judgments in litigation

involving loans or forbearance of any money, goods or credits. Any other kind of
monetary judgment which has nothing to do with nor involving loans or forbearance of
any money, goods or credits does not fall within the coverage of the said law for it is not,
within the ambit of the authority granted to the Central Bank."Circular No. 416, fixing
the rate of interest at 12% per annum, deals with (1) loans; (2) forbearance of any
money, goods or credit; and (3) judgments. Circular No. 416 does not apply to
judgments involving damages. Circular No. 416 applies to judgments involving the
payment of unliquidated cash advances to an employee by his employer (Villarica v.
Court of Appeals, 123 SCRA 259 [1983]) and the return of money paid by a buyer of a
leasehold right but which contract was voided due to the fault of the seller (Buisier v.
Court of Appeals, 154 SCRA 438 [1987]).
Petitioner was obligated to pay Greatland as consideration for the sale of several
parcels of land by Greatland to petitioner. The amount of P2,300,000.00 was assigned by
Greatland in favor of private respondent. The said obligation therefore arose from a
contract of purchase and sale and not from a contract of loan or mutuum. Hence, what is
applicable is the rate of 6% per annum as provided in Article 2209 of the Civil Code of
the Philippines and not the rate of 12% per annum as provided in Circular No. 416.
Eastern Shipping Lines vs. CA (234 SCRA 78)
With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When a obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date of the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount of finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or

paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Liga vs. Allegro Resources Corp. (575 SCRA 310)
The Court deems it proper to award interest in favor of Allegro. The back rentals
in this case being equivalent to a loan or forbearance of money, the interest due thereon
is twelve percent (12%) per annum from the time of extrajudicial demand on 15
December 2001.
III.

Moral Damages
A.

Concept (Arts. 2217-2218)

Moral Damages: physical suffering, mental anguish, fright, serious

anxiety, besmirched reputation, wounded feelings, moral
shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages
may be recovered if they are the proximate result of the
defendant's wrongful act or omission. (Art. 2217)
2

Exceptions To Rule That Moral Damages Are Not

Recoverable In Breach Of Contract of Carriage:

1. Death of Passengers (Art. 1764, 2206)

2. Fraud or Bad Faith Even If Death Did Not Result (Art. 2220).
Example:
Downgrading from first class to tourist class is considered in bad
faith so as to merit an award of moral and exemplary damages
(Lopez vs. PANAM 16 SCRA 431)
1.

B.
When Recoverable (Arts. 2219-2220)
In criminal offense/quasi-delict resulting in physical injuries
2.
In Seduction, Abduction, Rape And Other Lascivious Acts
3.
In Acts Referred To In Arts. 21, 26, 27, 28, 29, 32, 34 & 35,
NCC
4.
In Cases Of Malicious Prosecution
5.
In libel, slander, etc.
Case Studies:
Soberano vs. Manila Railroad Company (18 SCRA 732)

In case of physical injuries, moral damages are recoverable only by the party
injured and not by his next of kin, unless there is express statutory provision to the
contrary (Strebel vs. Figueras, 96 Phil. 321; Araneta, et al., vs. Arreglado, et al., 110
Phil. 529).The rule is well-settled in this jurisdiction that in case of breach of contract of
carriage, moral damages are recoverable only "where the defendant has acted
fraudulently or in bad faith" (Art. 2220, new Civil Code), and the terms fraud and bad
faith have reference to "wanton, reckless, oppressive, malevolent conduct," or, in the very
least, to negligence so gross as to amount to malice". (Fores vs. Miranda; 105 Phil. 266;
Necessito, etc. vs. Paras, et al., 104 Phil. 75).
Necesito vs. Paras (104 Phil 75)
Under Article 2220 of the new Civil Code, in case to suits for breach of contract,
moral damages are recoverable only where the defendant acted fraudulently or in bad
faith, and there is none in the case at bar. In case of accident due to a carrier's
negligence, the heirs of a deceased passenger may recover moral damages, even though
a passenger who is injured, but manages to survive, is not entitled to them. This special
rule (Arts. 1264 and 2206, No. 3) in case of death controls the general rule of Article
2220.
Barons Marketing Corp. vs. CA (286 SCRA 96)
Having ruled that private respondent's acts did not transgress the provisions of
Article 21, petitioner cannot be entitled to moral damages or, for that matter, exemplary
damages. While the amount of exemplary damages need not be proved, petitioner must
show that he is entitled to moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary damages should be awarded. As
we have observed above, petitioner has failed to discharge this burden.
Republic vs. Tuvera (516 SCRA 113)
A juridical person is not entitled to moral damages under Article 2217 of the Civil
Code. It may avail of moral damages under the analogous cases listed in Article 2219,
such as for libel, slander or any other form of defamation. Suffice it to say that the action
at bar does not involve any of the analogous cases under Article 2219, and indeed upon
an intelligent reading of Article 2219, it is difficult to see how the Republic could sustain
any of the injuries contemplated therein. Any lawyer for the Republic who poses a claim
for moral damages in behalf of the State stands in risk of serious ridicule.
Simex Intl. Inc. vs. CA (183 SCRA 360)
A corporation is not as a rule entitled to moral damages because, not being a
natural person, it cannot experience physical suffering or such sentiments as wounded
feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule
is where the corporation has a good reputation that is debased, resulting in its social
humiliation. As the Court sees it, the initial carelessness of the respondent bank,

aggravated by the lack of promptitude in repairing its error, justifies the grant of moral
damages. This rather lackadaisical attitude toward the complaining depositor constituted
the gross negligence, if not wanton bad faith. Moral damages are not susceptible of
pecuniary estimation. Article 2216 of the Civil Code specifically provides that "no proof
of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated." That is why the determination of the amount to
be awarded (except liquidated damages) is left to the sound discretion of the court,
according to "the circumstances of each case."
Jardine Davies vs. CA (333 SCRA 684)
This Court has awarded in the past moral damages to a corporation whose
reputation has been besmirched. In the instant case, respondent FEMSCO has
sufficiently shown that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the project, only to be canceled
later. We thus sustain respondent appellate court's award of moral damages. We however
reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never
intended to enrich the recipient.
Air France vs. Carrascoso (18 SCRA 155)
Under Article 2219 (10), Civil Code, moral damages are recoverable when
Carrascoso was ousted by petitioner's manager who gave his seat to a white man. The
responsibility of an employer for the tortuous act of its employees-need not be essayed. It
is well settled in law. (Article 2180, Civil Code.) For the willful malevolent act of
petitioner's manager, petitioner's his employer, must answer. Article 21 of the Civil Code
provides:.
Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for
the damage." Acontract to transport passengers is quite different in kind and degree
from any other contractual relation. (See Section 4, Chapter 3, Title VIII, Civil Code.)
And this, because of the relation which an air-carrier sustains with the public. Its
business is mainly with the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a relation attended
with a public duty. Neglect or malfeasance of the carrier's employees, naturally, could
give ground for an action for damages.

Japan Airlines vs. Simangan (552 SCRA 341)

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated under Article
2219 of the Civil Code. (Calalas v. Court of Appeals, G.R. No. 122039, May 31, 2000,
332 SCRA 356, 365, citing Flores v. Miranda, 105 Phil. 267 (1959). As an exception,
such damages are recoverable: (1) in cases in which the mishap results in the death of a

passenger, as provided in Article 1764, in relation to Article 2206 (3) of the Civil Code;
and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in
Article 2220. (Id., citing Philippine Rabbit Bus Lines, Inc. v. Esguerra, G.R. No. L31420, October 23, 1982, 117 SCRA 741; Sabena Belgian World Airlines v. Court of
Appeals, G.R. No. 82068, March 31, 1989, 171 SCRA 620; China Airlines, Ltd. v.
Intermediate Appellate Court, G.R. No. 73835, January 17, 1989, 169 SCRA 226.) The
acts committed by JAL against respondent amounts to bad faith. As found by the RTC,
JAL breached its contract of carriage with respondent in bad faith. JAL personnel
summarily and insolently ordered respondent to disembark while the latter was already
settled in his assigned seat. He was ordered out of the plane under the alleged reason
that the genuineness of his travel documents should be verified.
IV.

Nominal Damages Arts. 2221 to 2223

Nominal Damages - awarded to vindicate/recognize a right of the
plaintiff, which has been violated or invaded by the
defendant (Art. 2221)

Case Study:
Light Rail Transit Authority vs. Navidad (397 SCRA 75)
The award of nominal damages in addition to actual damages is untenable.
Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. It is an established rule
that nominal damages cannot co-exist with compensatory damages.
V. Temperate or Moderate Damages Arts. 2224 to 2225
Temperate Damagesare more than nominal but less than compensatory
damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with
certainty (Art. 2224)
VI. Liquidated Damages Arts. 2226 to 2228
Liquidated Damages - agreed upon by the parties to a contract, to be paid
in case of breach thereof. (Art. 2226)
Rules Governing In Case Of Breach Of Contract Art. 2228
Exemplary or Corrective Damages Arts. 2229 to 2235
Exemplary Damages - imposed, by way of example or correction for the
public good, in addition to the moral, temperate,

liquidated or compensatory damages. (Art. 2229)

When Recovered
1. In Criminal Offenses -crime was committed with one or more
aggravating circumstances.
2. In Quasi-Delicts -if the defendant acted with gross negligence.
3. In Contracts And Quasi-Contracts -defendant acted in a wanton,
fraudulent, reckless, oppressive, or
malevolent manner.
Requisites
1. Arts. 2233, 2234
Damages in Case of Death
In Crimes And Quasi-Delicts Causing Death (Art. 2206)
In Death Caused By Breach Of Conduct By A Common Crime (Art. 1764
in relation to Art. 2206)
Graduation of Damages
A.
B.

Duty of Injured Party

1.
Art. 2203
Rules
1.
In Crimes
2.
In Quasi-Delict; NCC Art. 2214
3.
In Contracts, Quasi-Contracts And Quasi-Delicts; NCC Art.
2215
4.
Liquidated Damages; NCC Art. 2227
5.
Compromise

Miscellaneous Rules
A.

Damages That Cannot Co-Exist

1.
Nominal With Other Damages, Art. 2223
2.
Actual and Liquidated Art. 2226
B.
Damages That Must Co-exist
1.
Exemplary With Moral, Temperate, Liquidated Or
Compensatory
C.
Damages That Must Stand Alone
1.
Nominal Damages, Art. 2223
EXCLUDE: Distinction between tort and quasi-delict

CONCURRENCE AND PREFERENCEOF CREDITS

(BOOK IV -TITLE XIX)
ARTS. 2236-2251
I.

Meaning Of Concurrence And Preference

Rule on Preference: With respect to a specific movable or immovable property,
those credits enumerated in Arts. 2241 and 2242 enjoy
preference to the extent of the value of the personal and
real property to which the preference refers (Arts. 2246 and
2248) to the exclusion of all other credits

II.

Rule on ConcurrenceWhen there are 2 or more credits with respect to the same
specific movable or immovable property:
Pay first duties, taxes and fees to State or any subdivision
Satisfy pro-rata these 2 or more credits
Classification Of Credits (Arts. 2241 2245)
A. Preferred Credits On Specific Movables (Art. 2241)
(Nos. 1-13)
ARTICLE 2246.
Those credits which enjoy preference with respect
to specific movables, exclude all others to the extent of the value of the
personal property to which the preference refers.
ARTICLE 2247.
If there are two or more credits with respect to the
same specific movable property, they shall be satisfied pro rata, after the
payment of duties, taxes and fees due the State or any subdivision
thereof.
ARTICLE 2250.
The excess, if any, after the payment of the credits
which enjoy preference with respect to specific property, real or personal,
shall be added to the free property which the debtor may have, for the
payment of the other credits.
B. Preferred Credits On Specific Immovable Property (Art. 2242)
(Nos. 1-10)
ARTICLE 2248.
Those credits which enjoy preference in relation to
specific real property or real rights, exclude all others to the extent of the
value of the immovable or real right to which the preference refers.
ARTICLE 2249.
If there are two or more credits with respect to the
same specific real property or real rights, they shall be satisfied pro rata,

after the payment of the taxes and assessments upon the immovable
property or real right.
ARTICLE 2250.
The excess, if any, after the payment of the credits
which enjoy preference with respect to specific property, real or personal,
shall be added to the free property which the debtor may have, for the
payment of the other credits.
C. Preferred Credits On Other Real/Personal Property (Art. 2244)
(Nos. 1-14)
ARTICLE 2251.
Those credits which do not enjoy any preference
with respect to specific property, and those which enjoy preference, as to
the amount not paid, shall be satisfied according to the following rules:
(1)
(2)

In the order established in article 2244;

Common credits referred to in article 2245 shall be paid pro rata
regardless of dates

Case Study:
DBP vs. NLRC (186 SCRA 841)
DBP, as foreclosing creditor, cannot be held liable for the unpaid wages, 13th
month pay, incentive leave pay and separation pay of the employees of debtor PSC.The
right to preference given to workers under Article 110 of the Labor Code (as amended by
R.A. 6715) cannot exist in any effective way prior to the time of its presentation in
distribution proceedings. It is only applicable ininsolvency proceedings where such
unpaid wages shall be paid in full before the `claims of the Government and other
creditors' may be paid. But, for an orderly settlement of a debtor's assets, all creditors
must be convened, their claims ascertained and inventoried, and thereafter the preference
determined in the course of judicial proceedings which have for their object the
subjection of the property of the debtor to the payment of his debts or other lawful
obligations. Thereby, an orderly determination of preference of creditors' claims is
assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA
476); the adjudication made will be binding on all parties-in-interest, since those
proceedings are proceedings in rem; and the legal scheme of classification, concurrence
and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is
preserved in harmony."
III.
IV.

Exempt Property (see Rule 39, Sec. 13 of the 1997 Rules on Civil Procedure)
Order Of Preference Of Credits (Arts. 2246-2251)
FINANCIAL REHABILITATION AND INSOLVENCY LAW

- RA 10142 (FRIA LAW)

1.

Nature of Proceedings
Section 3.

Nature of Proceedings. The proceedings under this Act shall be

in rem. Jurisdiction over all persons affected by the proceedings
shall be considered as acquired upon publication of the notice of the
commencement of the proceedings in any newspaper of general
circulation in the Philippines in the manner prescribed by the rules
of procedure to be promulgated by the Supreme Court.
The proceedings shall be conducted in a summary and nonadversarial manner consistent with the declared policies of this act
and in accordance with the rules of procedure that the Supreme
Court may promulgate.

2. Insolvent shall refer to the financial condition of a debtor that is (1)

generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or (2) has liabilities that are greater than
its or his assets. (Sec. 4 (p) RA 10142)
3.

Rehabilitation vs. Liquidation

4. Rehabilitation
A. Court Supervised Rehabilitation (Chapter II)
1. Voluntary Proceedings (Sec. 12)
2. Involuntary Proceedings (Secs. 13-15)
Commencement Order, Stay/Suspension Order
Avoidance Proceedings (Secs. 16 18, 20, 21 )
B. Pre-Negotiated Rehabilitation (Chapter III)
C. Out-Of Court Restructuring Or Rehabilitation Plans (Chapter IV)
5. Liquidation Of Insolvent Juridical Debtors (Chapter V)
A. Voluntary Liquidation (Sec. 90)
B. Involuntary Liquidation (Sec. 91-93)
6. Insolvency of Individual Debtors (Chapter VI)
A. Suspension of Payments (Secs. 94-102)
B. Voluntary Liquidation (Secs. 103-104)
C. Involuntary Liquidation (Secs. 105-110)
7. RA 10142, SECTION 13.
Circumstances Necessary to Initiate Involuntary
Proceedings. Any creditor or group of creditors with a claim of, or the
aggregate of whose claims is, at least One million pesos (Php1,000,000.00) or at

least twenty-five percent (25%) of the subscribed capital stock or partners'

contributions, whichever is higher, may initiate involuntary proceedings against the
debtor by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s,
and that the due and demandable payments thereon have not been made for at
least sixty (60) days or that the debtor has failed generally to meet its
liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as they
become due or will render it insolvent.
8. RA 10142 SECTION 133. Concurrence and Preference of Credits. The
Liquidation Plan and its implementation shall ensure that the concurrence and
preference of credits as enumerated in the Civil Code of the Philippines and other
relevant laws shall be observed, unless a preferred creditor voluntarily waives his
preferred right. For purposes of this chapter, credits for services rendered by
employees or laborers to the debtor shall enjoy first preference under Article 2244
of the Civil Code, unless the claims constitute legal liens under Articles 2241 and
2242 thereof.
9. RA 10142 SECTION 148.
Repealing Clause. The Insolvency Law (Act
No. 1956), as amended, is hereby repealed. All other laws, orders, rules and
regulations or parts thereof inconsistent with any provision of this Act are hereby
repealed or modified accordingly.
10. Provisions Common to Liquidation In Insolvency (Individual & Juridical
Debtors) (Chapter VII)
A. Liquidation Order and Effects (Secs. 112-113)
B. Rights of Secured Creditors (Sec. 114)
C. The Liquidator (Elected or Court-Appointed) (Secs. 115-122)
D. Determination of Claims (Secs. 123-126)
E. Avoidance Proceedings (Secs. 127-128)
F. Liquidation Plan (Secs. 129-136)
1. Liquidation Plan In Accordance With Civil Code Provisions On
Concurrence & Preference of Credits & Relevant Laws
2. First Preference of Services by Employees/Laborers Under Art. 2244
Of NCC Unless Claims Constitute Legal Liens Under Article 2241 and
2242
G. Repeal of Insolvency Law (Act No. 1956)
EXCLUDE: Warehouse Receipts Law, Usury Law

Case Study:
PAL vs. Hrs. of Bernardin Zamora (538 SCRA 456)

The suspension of all actions for claims against a corporation embraces all
phases of the suit, be it before the trial court or any tribunal or before this Court. No
other action may be taken, including the rendition of judgment during the state of
suspension. It must be stressed that what are automatically stayed or suspended are the
proceedings of a suit and not just the payment of claims during the execution stage after
the case had become final and executory. Once the process of rehabilitation, however, is
completed, this Court will proceed to complete the proceedings on the suspended actions.

V.

TEXTBOOKS AND REFERENCES:

Textbooks:
Prescription Obligations
& Contracts:
Special Contracts:
Related Laws:

Paras, Civil Code of the Philippines, Vol. IV

Paras, Civil Code of the Philippines, Vol. V
Maceda Law (RA 6552); Public Land Law
(CA 141) and Property Registration Decree

References:
Tolentino, Civil Code of the Philippines, Vols.IV&V
Aquino, Civil Code of the Philippines, Vols.2 &3
Vitug, Civil Law, Vols. III & IV
Jurado, Civil Law Reviewer
Albano, Bar Review Guide in Civil Law
Philippine Reports
Supreme Court Reports Annotated
The Lawyers Review