CIVIL LAW REVIEW 2

I. OBLIGATIONS guardian, after the annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact the he has not been
A. IN GENERAL benefited thereby, there is no right to demand the thing or price thus
returned.
1. Definition
Art. 1427. When a minor between eighteen and twenty-one years of age,
Article 1156. An obligation is a juridical necessity to give, to do or not to who has entered into a contract without the consent of the parent or
do. guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same
JURIDICAL NECESSITY: Art. 1423 provides that obligations are either from the obligee who has spent or consumed it in good faith. (1160A)
natural or civil. Art. 1156 provides the definition of civil obligations. Under
Art. 1423, civil obligations give a right of action to compel their performance NOT APPLICABLE ANYMORE: since the congress already changed the
or fulfillment. In this sense, there is juridical necessity. age of majority from 21 to 18 under RA No. 6809.

2. Kinds of Obligations as to basis and enforceability Art. 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or
Art. 1423. Obligations are civil or natural. Civil obligations give a right of by the law of intestacy from the estate of the deceased, the payment is
action to compel their performance. Natural obligations, not being based valid and cannot be rescinded by the payer.
on positive law but on equity and natural law, do not grant a right of
action to enforce their performance, but after voluntary fulfillment by the EXAMPLE: D owes C P10M. Upon the death of D, A and B, heirs of D, paid
obligor, they authorize the retention of what has been delivered or the full P10M. Later on, they discovered that the value of the estate is only
rendered by reason thereof. Some natural obligations are set forth in the P3M.
following articles.
a. Is there a natural obligation? Yes. For the P7M;
CIVIL OBLIGATIONS VS. NATURAL OBLIGATIONS: b. Can A and B compel D to return the P10M? No. voluntary obligation is
only upto P7M?
CIVIL NATURAL c. Can A and B compel D to return the P7M? Yes. The law requires
Basis Positive, man- Equity and natural law voluntary payment, which means not merely the absence of fraud,
made law violence or intimidation, but also that the payor knew that under the
Enforceability Grants a right of Does not grant a right of action for law they cannot be compelled to pay, but they paid.
action to compel fulfillment.
performance or Under. Art. 1311, last par. the heir is not liable beyond the value of
fulfillment However, it can still be enforced: the property he received from the decedent.
1. If the plaintiff required
fulfillment before a court and there In this case, payment was not voluntary, since A and B paid at the
is no objection; or time that they had no knowledge that the value of the estate was only
2. if voluntarily fulfilled, creditor P3M.
can still retain the benefits of
fulfillment. Art. 1430. When a will is declared void because it has not been executed
in accordance with the formalities required by law, but one of the intestate
EXAMPLE: If the action for the payment of a debt has already prescribed, heirs, after the settlement of the debts of the deceased, pays a legacy in
the obligation is converted from civil to natural (See Art. 1139 to 1155 for compliance with a clause in the defective will, the payment is effective and
Prescription). Note that what prescribed is the action and not the irrevocable.
obligation. If still fulfilled after the period has expired, debtor can no longer
demand the return of what has been delivered. Art. 1428 provides: CASES:

Art. 1428. When, after an action to enforce a civil obligation has failed JUAN F. VILLAROEL
the defendant voluntarily performs the obligation, he cannot demand the vs.
return of what he has delivered or the payment of the value of the service BERNARDINO ESTRADA
he has rendered. G.R. No. L-47362 December 19, 1940

RETENTION of the benefits is premised on the fulfillment being
voluntary, i.e., the debtor knew that he had no obligation to fulfill the said
obligation, but still chose to do so.
Other provisions dealing with natural obligations:
Art. 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
rendered.
Art. 1425. When without the knowledge or against the will of the debtor,
a third person pays a debt which the obligor is not legally bound to pay
because the action thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover what he has paid.
FACTS: On May 1912, Alexandra Callao, mother of Villaroel, obtained from
the Spouses Mariano Estrada and Severina a loan of P1,000 payable after 7
years. Alexandra died, leaving Villaroel as the only heir. Severina and
Mariano died as well, leaving Estrda as the only heir.
On August 30, 1930, Villaroel signed a document which states that he owed
Estrada P1,000 with an interest of 12% per year, which pertains to the
original debt. When the obligation became due, Villaroel failed to pay. An
action was brought in the CFI Laguna to collect the amount. CFI ordered
Villaroel to pay the claimed amount with interest from August 30, 1930 until
full payment.
ISSUE: WON the obligation arising from the original contract of loan,
having been prescribed, would still be demandable from the only heir of the
original debtor?

Art. 1426. When a minor between eighteen and twenty-one years of age HELD: YES. The prescribed debt of the mother of the debtor was
who has entered into a contract without the consent of the parent or held to be sufficient consideration to make valid and effective the
promise of the son to pay the same. Although the action to recover the
Cesar Nickolai F. Soriano Jr.
1 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
original debt has prescribed when the lawsuit was filed, the question that
arises in this appeal is whether, notwithstanding such prescription, the
debtor is liable to pay.
This action is based on the original obligation contracted by the mother of
Villaroel, which has prescribed, but in which the defendant assumed liability
to fulfil that obligation. Being the only heir of the debtor, that debt legally
contracted by his mother, is now a moral obligation of him which is enough
to create and make effective and enforceable his obligation which he
contracted on August 9, 1930.
A promise to perform a natural obligation is as effective as
performance itself and converts the obligation into a civil one. The
natural obligation is a valid cause for a civil obligation.
PRIMITIVO ANSAY
vs.
NATIONAL DEVELOPMENT COMPANY
G.R. No. L-13667 April 29, 1960
FACTS: On July 25, 1956, appellants filed against appellees in the CFI
Manila an action praying for a 20% Christmas Bonus for the years 1954 and
1955. CFI held that they are not entitled to such because:
(a) A bonus is an act of liberality and the court takes it that it is not within
its judicial powers to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such
bonus but that they had only ask that such bonus be given to them because
it is a moral obligation of respondents to give that but as this Court
understands, it has no power to compel a party to comply with a moral
obligation (Art. 142, New Civil Code.).
ISSUE: WON the appellees have the legal obligation to give the claimed
bonus despite the fact that the same has been granted from a moral
obligation or the natural obligation to do the same?
HELD: NO. Article 1423 of the New Civil Code classifies obligations into civil
or natural. "Civil obligations are a right of action to compel their
performance. Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize
the retention of what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it
can be cognizable by the court is voluntary fulfillment by the
obligor. Certainly retention can be ordered but only after there has been
voluntary performance. But here there has been no voluntary performance.
In fact, the court cannot order the performance.
At this point, we would like to reiterate what we said in the case of
Philippine Education Co. vs. CIR and the Union of Philippine Education Co.,
Employees:
From the legal point of view a bonus is not a demandable and
enforceable obligation. It is so when it is made a part of the wage
or salary compensation.
And while it is true that the subsequent case of H. E. Heacock vs. National
Labor Union, et al, we stated that:
Even if a bonus is not demandable for not forming part of the wage, salary
or compensation of an employee, the same may nevertheless, be granted
on equitable consideration as when it was given in the past, though
withheld in succeeding two years from low salaried employees due to salary
increases.
Still the facts in said Heacock case are not the same as in the instant one,
and hence the ruling applied in said case cannot be considered in the
present action.
DEVELOPMENT BANK OF THE PHILIPPINES
Cesar Nickolai F. Soriano Jr.
2 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
vs.
HON. ADIL and SPOUSES PATRICIO CONFESSOR
G.R. No. L-48889 May 11, 1989
FACTS: On February 10, 1940 spouses Patricio Confesor and Jovita
Villafuerte obtained an agricultural loan from the Agricultural and Industrial
Bank (AIB), now the Development of the Philippines (DBP), in the sum of
P2,000.00, as evidenced by a promissory note of said date whereby they
bound themselves jointly and severally to pay the account in ten (10) equal
yearly amortizations. As the obligation remained outstanding and unpaid
even after the lapse of the aforesaid ten-year period, Confesor, who was by
then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. The new promissory
note reads as follows
I hereby promise to pay the amount covered by my promissory note on or
before June 15, 1961. Upon my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if I can secure a
certificate of indebtedness from the government of my back pay I will be
allowed to pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP
filed a complaint against the spouses for the payment of the loan.
City Court ruled in favor of DBP, ordering the spouses to pay the loan. CFI
reversed this order. Hence, this appeal.
ISSUE: WON the validity of a promissory note which was executed in
consideration of a previous promissory note, the enforcement of which is
barred by prescription, may still be demandable?
HELD: YES. The right to prescription may be waived or renounced.
Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce
prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of the right
acquired.
There is no doubt that prescription has set in as to the first promissory note
of February 10, 1940. However, when respondent Confesor executed the
second promissory note on April 11, 1961 whereby he promised to pay the
amount covered by the previous promissory note on or before June 15,
1961, and upon failure to do so, agreed to the foreclosure of the mortgage,
said respondent thereby effectively and expressly renounced and waived his
right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that
... when a debt is already barred by prescription, it cannot be
enforced by the creditor. But a new contract recognizing and
assuming the prescribed debt would be valid and enforceable ... .
Thus, it has been held
Where, therefore, a party acknowledges the correctness of a debt and
promises to pay it after the same has prescribed and with full knowledge of
the prescription he thereby waives the benefit of prescription.
This is not a mere case of acknowledgment of a debt that has
prescribed but a new promise to pay the debt. The consideration of
the new promissory note is the pre-existing obligation under the
first promissory note. The statutory limitation bars the remedy but
does not discharge the debt.
A new express promise to pay a debt barred ... will take the case from the
operation of the statute of limitations as this proceeds upon the ground that
as a statutory limitation merely bars the remedy and does not
discharge the debt, there is something more than a mere moral
obligation to support a promise, to wit a pre-existing debt which is a
sufficient consideration for the new the new promise; upon this sufficient
consideration constitutes, in fact, a new cause of action.
... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as
reanimating the old promise, or as imparting vitality to the remedy (which
by lapse of time had become extinct) and thus enabling the creditor to
recover upon his original contract.
3. ESSENTIAL ELEMENTS OF OBLIGATION
1. Active subject (creditor) - obligee
2. Passive subject (debtor) - obligor
3. Prestation subject matter of the obligation object.
4. Vinculum (Efficient Cause) the reason why the obligation exists.
juridical tie.
IN A CONTRACT OF SALE, WHO IS THE PASSIVE SUBJECT?
Depending on which obligation youre referring to. Pay the price debtor is
the buyer. Deliver and transfer ownership seller.
OBJECT not the same as thing. As to obligations, it is the prestation
([3] above: to give, to do or not to do); sometimes, it is the purpose, which
is not necessarily the subject matter, but in obligations, it is a prestation,
not a thing, it is a conduct.
VINCULUM juridical tie, vinculum juris is that which binds the parties
to an obligation, without which, no obligation may exists (at least civil).
This is the element lacking in natural obligations.
obligation is from the root word in latin: obligacio/ obligare/obligamus
tying/binding; at least one person would be bound.
CONSIDERATION is not an element of an obligation, it is an essential
element of contracts. Obligations may arise from contracts, but they are not
contracts. Contracts are not obligations, but is a source of obligation.
BAR QUESTION: what is an obligation without agreement?
Answer: Obligations without an agreement are those which would arise
even without consent of one of the parties or both parties, which may arise
from four sources: law (pay taxes), quasi-contract, quasi-delict, acts or
omissions punished by law.
Note that only in contracts are consent of both parties are required.
What are those that bind? The sources.
B. SOURCES OF OBLIGATIONS:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
1. LAW: never presumed:
Art. 1158. Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which establishes them; and
as to what has not been foreseen, by the provisions of this Book.
2. CONTRACTS:
Art. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
Cesar Nickolai F. Soriano Jr.
3 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or
to render some service.
3. QUASI-CONTRACTS:
Art. 1160. Obligations derived from quasi-contracts shall be subject to the
provisions of Chapter 1, Title XVII, of this Book.
Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.
PROBLEM: A, resident of an island struck by a storm, found a decaying
body and buried the same without intention for it to be a gratuitous act.
Finding C, aunt of the deceased, demanded reimbursement for the cost of
burial.
Is there an obligation to reimburse? Yes. Obligation arose from Art. 2165,
which provides:
Art. 2165. When funeral expenses are borne by a third person,
without the knowledge of those relatives who were obliged to give
support to the deceased, said relatives shall reimburse the third
person, should the latter claim reimbursement.
Can A demand reimbursement from C? No. A can only demand
reimbursement from those who are obliged to give support to the deceased.
An aunt is not required to support nephew/niece. Art. 105 of the Family
Code provides:
Art. 105. Subject to the provisions of the succeeding articles, the
following are obliged to support each other to the whole extent set
forth in the preceding article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the legitimate and
illegitimate children of the latter;
(4) Parents and their illegitimate children and the legitimate and
illegitimate children of the latter; and
(5) Legitimate brothers and sisters, whether of full or half-blood.
NEGOTIORUM GESTIO
Art. 2144. Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any power
from the latter, is obliged to continue the same until the termination of the
affair and its incidents, or to require the person concerned to substitute
him, if the owner is in a position to do so. This juridical relation does not
arise in either of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404
regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be
applicable.
PROBLEM: In fear of reprisals, X left his fishpond and went to Europe. Y
seeing the fishes ready for harvest, harvested the same, and sold them to
Z. Y borrowed from W to prepare the fishpond for the next batch.
a. What is the juridical relation between X and Y? Negotiorum gestio: X is
owner. Y is gestor or negotiorum gestor.
b. Upon return of X, what are the obligations of Y or X, as regards Ys
contract with:
i. Z: contract of sale to account for the sale and remit the
proceeds
 ii. W: loan X is bound by the contract since it is a contract
which refers to the thing pertaining to the owner of the
business. (Art. 2152[2])
c. If the owner ratifies the contracts, the rules on agency would apply
under Art. 2149, which may include, among others, compensation of
the agent.
BAD EXAMPLE OF NEGOTIORUM GESTIO: members of the family went
out of town for vacation. On the very night they left the house, the house
was burned. The neighbors, however, were able to prevent the total
destruction of the house.
Why?
1. A gestor takes charge of a business or property of another. In this
case, the neighbors did not take charge of the management of the
house, only saved it from total destruction. Management may
connote repainting, repairs, etc.;
2. House was not abandoned since the family went out only for a
vacation. In the Family Code, abandonment of the father arises only
after 90 days, and thats only a disputable presumption.
3. It is not negotiorum gestin, at most, Art. 2168 of the Civil Code (i.e.,
Other Quasi Contracts):
Art. 2168. When during a fire, flood, storm, or other calamity,
property is saved from destruction by another person without the
knowledge of the owner, the latter is bound to pay the former just
compensation.
SOLUTIO INDEBITI
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.
PROBLEM: BPO asked RRA to go to a store to buy a pack of cigarettes
which costs P225, BPO gave RRA P500. Store owner gave RRA the cigarette
and P375 as change.
How is this relationship denominated?
a. Solutio indebiti - BPO received something which he does not have the
right to demand, i.e., P100. Change should have been P275 only. (Art.
2154)
b. Donation if the delivery of the excess P100 was not made through
mistake.
PROBLEM: A bus accident happened, X tried to help by carrying Z, one of
the passengers of the bus and brought her to the hospital.
X incurred costs in cleaning the car which was stained by the blood of Z.
a. Is there a quasi-contract between X and Z? Yes. Z is liable to
reimburse for the gasoline expense and cleaning of the car.
b. Can Z, when asked to pay the bill of the hospital, refuse payment on
the ground that she did not give her consent? No. Quasi-contract. If
she is not allowed to pay, she would be unjustly enriched.
OTHER QUASI-CONTRACTS: see Arts. 2164 to 2175.
CASES:
FAUSTINO CRUZ
vs.
J.M. TUASON & COMPANY, INC. vs. GREGORIO ARANETA, INC.
G.R. No. L-23749 April 29, 1977
FACTS: Faustino Cruz complaint alleged two causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who
laid claim on the land in question on the strength of an "informacion
posesoria" ) plaintiff made permanent improvements valued at P30,400.00
on said land having an area of more or less 20 quinones and for which he
Cesar Nickolai F. Soriano Jr.
4 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
also incurred expenses in the amount of P7,781.74, and since defendants-
appellees are being benefited by said improvements, he is entitled to
reimbursement from them of said amounts and
(2) that in 1952, defendants availed of plaintiff's services as an intermediary
with the Deudors to work for the amicable settlement of Civil Case No. Q-
135, then pending also in the Court of First Instance of Quezon City, and
involving 50 quinones of land, of Which the 20 quinones aforementioned
form part, and notwithstanding his having performed his services, as in fact,
a compromise agreement entered into on March 16, 1963 between the
Deudors and the defendants was approved by the court, the latter have
refused to convey to him the 3,000 square meters of land occupied by him,
(a part of the 20 quinones above) which said defendants had promised to
do "within ten years from and after date of signing of the compromise
agreement", as consideration for his services.
CFI of Quezon City dismissed the complaint on the grounds of
unenforceability, lack of cause of action, and prescription.
ISSUE: WON Faustino Cruz can claim reimbursement for the expenses and
services rendered?
HELD: No. We hold that the allegations in his complaint do not sufficiently
Appellants' reliance on Article 2142 of Civil Code is misplaced. Said article
provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another.
From the very language of this provision, it is obvious that a presumed
quasi-contract cannot emerge as against one party when the
subject matter thereof is already covered by an existing contract
with another party. Predicated on the principle that no one should be
allowed to unjustly enrich himself at the expense of another, Article 2124
creates the legal fiction of a quasi-contract precisely because of the absence
of any actual agreement between the parties concerned. Corollarily, if the
one who claims having enriched somebody has done so pursuant to a
contract with a third party, his cause of action should be against the latter,
who in turn may, if there is any ground therefor, seek relief against the
party benefited. It is essential that the act by which the defendant is
benefited must have been voluntary and unilateral on the part of the
plaintiff. As one distinguished civilian puts it, "The act is voluntary. because
the actor in quasi-contracts is not bound by any pre-existing obligation to
act. It is unilateral, because it arises from the sole will of the actor who is
not previously bound by any reciprocal or bilateral agreement. The reason
why the law creates a juridical relations and imposes certain obligation is to
prevent a situation where a person is able to benefit or take advantage of
such lawful, voluntary and unilateral acts at the expense of said actor."
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar,
since appellant has a clearer and more direct recourse against the Deudors
with whom he had entered into an agreement regarding the improvements
and expenditures made by him on the land of appellees. it Cannot be said,
in the sense contemplated in Article 2142, that appellees have been
enriched at the expense of appellant.
GUTIEREZ HERMANOS
vs.
ENGRACIO ORENSE
G.R. No. L-9188 December 4, 1914
FACTS: Engracio Orense is the owner of a parcel of land, which nephew,
Jose Duran, with the formers consent and knowledge, sold and conveyed
the same to Hermanos company for P1,500 with the reservation of the right
to repurchase it for the same price within a period of 4 years. But the same
land was not repurchased by Jose Duran due to insolvency. Despite
repeated demand upon Duran, the latter never vacated the land.
His refusal was based on allegations that he did not know of said sale and
that he remains the owner of the land.
Petitioner filed a complaint for estafa against Jose Duran. However, at the
trial of the case Engracio Orense, called as a witness, being interrogated by
the fiscal as to whether he had consented to Duran's selling the said
property under right of redemption to the firm of Gutierrez Hermanos,
replied that he had. In view of this statement by the defendant, the court
acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of
his uncle, Engacio Orense, the owner of the property, to the effect that he
had consented to his nephew Duran's selling the property under right of
repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant
praying, among other remedies, that the defendant Orense be compelled to
execute a deed for the transfer and conveyance to the plaintiff company of
all the right, title and interest with Orense had in the property sold, and to
pay to the same the rental of the property due from February 14, 1911.
ISSUE: WON Orense can be compelled to deliver the property to Hermanos
as premised above?
HELD: YES. It having been proven at the trial that he gave his consent to
the said sale, it follows that the defendant conferred verbal, or at least
implied, power of agency upon his nephew Duran, who accepted it in the
same way by selling the said property. The principal must therefore fulfill all
the obligations contracted by the agent, who acted within the scope of his
authority.
Even should it be held that the said consent was granted subsequently to
the sale, it is unquestionable that the defendant, the owner of the property,
approved the action of his nephew, who in this case acted as the manager
of his uncle's business, and Orense's ratification produced the effect of an
express authorization to make the said sale.
Article 1259 of the Civil Code prescribes: "No one can contract in the name
of another without being authorized by him or without his legal
representation according to law.
A contract executed in the name of another by one who has neither his
authorization nor legal representation shall be void, unless it should be
ratified by the person in whose name it was executed before being revoked
by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a
witness at the trial of Duran for estafa, virtually confirms and ratifies the
sale of his property effected by his nephew, Duran, and, pursuant to article
1313 of the Civil Code, remedies all defects which the contract may have
contained from the moment of its execution.
On the testimony given by Engacio Orense at the trial of Duran for estafa,
the latter was acquitted, and it would not be just that the said testimony,
expressive of his consent to the sale of his property, which determined the
acquittal of his nephew, Jose Duran, who then acted as his business
manager, and which testimony wiped out the deception that in the
beginning appeared to have been practiced by the said Duran, should not
now serve in passing upon the conduct of Engracio Orense in relation to the
firm of Gutierrez Hermanos in order to prove his consent to the sale of his
property, for, had it not been for the consent admitted by the defendant
Orense, the plaintiff would have been the victim of estafa.
If the defendant Orense acknowledged and admitted under oath that he
had consented to Jose Duran's selling the property in litigation to Gutierrez
Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said
property.
The contract of sale of the said property contained in the notarial
instrument of February 14, 1907, is alleged to be invalid, null and void
under the provisions of paragraph 5 of section 335 of the Code of Civil
Procedure, because the authority which Orense may have given to Duran to
make the said contract of sale is not shown to have been in writing and
signed by Orense, but the record discloses satisfactory and conclusive proof
that the defendant Orense gave his consent to the contract of sale executed
in a public instrument by his nephew Jose Duran. Such consent was proven
Cesar Nickolai F. Soriano Jr.
5 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
in a criminal action by the sworn testimony of the principal and presented in
this civil suit by other sworn testimony of the same principal and by other
evidence to which the defendant made no objection. Therefore the principal
is bound to abide by the consequences of his agency as though it had
actually been given in writing.
The repeated and successive statements made by the defendant Orense in
two actions, wherein he affirmed that he had given his consent to the sale
of his property, meet the requirements of the law and legally excuse the
lack of written authority, and, as they are a full ratification of the acts
executed by his nephew Jose Duran, they produce the effects of an express
power of agency.
RUSTICO ADILLE
vs.
COURT OF APPEALS, EMETRIA ASEJO, et. al.
G.R. No. L-44546 January 29, 1988
FACTS: Feliza Azul owns a parcel of land. She married twice in her lifetime:
the first, with Bernabe Adille, with whom she had a child, Rustico Adille; the
second marriage with Procopio Asejo, her children were Emetria Asejo, et.
al.
Sometime in 1939, said Felisa sold the property in pacto de retro to certain
3rd persons, period of repurchase being 3 years, but she died in 1942
without being able to redeem and after her death, but during the period of
redemption, herein defendant repurchased, by himself alone, and after that,
he executed a deed of extra-judicial partition representing himself to be the
only heir and child of his mother Felisa with the consequence that he was
able to secure title in his name alone also, so that OCT. No. 21137 in the
name of his mother was transferred to his name, that was in 1955; that was
why after some efforts of compromise had failed, his half-brothers and
sisters, herein plaintiffs, filed present case for partition with accounting on
the position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out that one of
plaintiffs, Emeteria Asejo was occupying a portion, defendant
counterclaimed for her to vacate that.
ISSUE: WON Adille can acquire exclusive ownership over the land?
HELD: NO. It is the view of the respondent Court that the petitioner, in
taking over the property, did so either on behalf of his co-heirs, in which
event, he had constituted himself a negotiorum gestor under Article 2144 of
the Civil Code, or for his exclusive benefit, in which case, he is guilty of
fraud, and must act as trustee, the private respondents being the
beneficiaries, under the Article 1456. The evidence, of course, points to the
second alternative the petitioner having asserted claims of exclusive
ownership over the property and having acted in fraud of his co-heirs. He
cannot therefore be said to have assume the mere management of the
property abandoned by his co-heirs, the situation Article 2144 of the Code
contemplates. In any case, as the respondent Court itself affirms, the result
would be the same whether it is one or the other. The petitioner would
remain liable to the Private respondents, his co-heirs.
Andres
vs.
Mantrust
G.R. No. 82670 September 15, 1989
Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti
This legal provision, which determines the quasi-contract of solution
indebiti, is one of the concrete manifestations of the ancient principle that
no one shall enrich himself unjustly at the expense of another.
FACTS: Petitioner Andres, using the business name Irenes Wearing
Apparel, transacts with Facets Funwear, Inc (Facets), one of its foreign
buyers.
In one transaction, Facets instructed the First National State Bank of New
Jersey (FNSB) to transfer to herein petitioner, via Philippine National Bank
(PNB), the amount of $10,000.00. Acting on the instruction, FNSB instructed
herein private respondent Manufacturers Hanover and Trust Corporation
(Mantrust) to effect the above-mentioned transfer through its facilities and
to charge the amount to the account of FNSB with private respondent.
However, due to communication problems, delay and unawareness that
herein petitioner already received the amount remitted, effectuated another
delivery to herein petitioner for the same amount.
Thereafter, upon discovery that herein petitioner received the same amount
twice, private respondent demanded herein petitioner the return of the
second remittance, but the latter refused to do so. As such, private
respondent filed an action against herein petitioner for the recovery of the
said amount.
The trial Court rendered its decision in favor of herein petitioner. On appeal,
respondent appellate Court reversed the decision of the trial Court, hence
this petition.
ISSUE: WON private respondent Mantrust has the right to recover the
second $10,000.00 remittance it had delivered to herein petitioner, on the
ground of Article 2154 of the Civil Code?
HELD: Yes, the Court held that herein petitioner has the right to recover
the second remittance, as provided for under Article 2154 of the Civil Code.
The resolution of this issue would hinge on the applicability of Art. 2154 of
the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which
provided that:
Art. 1895. If a thing is received when there was no right to claim it and
which, through an error, has been unduly delivered, an obligation to restore
it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr.
Justice Bocobo explained the nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore
applicable. This legal provision, which determines the quasi-contract of
solution indebiti, is one of the concrete manifestations of the ancient
principle that no one shall enrich himself unjustly at the expense of another.
In the Roman Law Digest the maxim was formulated thus: "Jure naturae
acquum est, neminem cum alterius detrimento et injuria fieri locupletiorem."
And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente
con dano de otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions. The lawmaker has
found it one of the helpful guides in framing statutes and codes. Thus, it is
unfolded in many articles scattered in the Spanish Civil Code. (See for
example, articles, 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303,
1304, 1893 and 1895, Civil Code.) This time-honored aphorism has also
been adopted by jurists in their study of the conflict of rights. It has been
accepted by the courts, which have not hesitated to apply it when the
exigencies of right and equity demanded its assertion. It is a part of that
affluent reservoir of justice upon which judicial discretion draws whenever
the statutory laws are inadequate because they do not speak or do so with
a confused voice. [at p. 632.]
For this article to apply the following requisites must concur:
"(1) that he who paid was not under obligation to do so; and
(2) that payment was made by reason of an essential mistake of fact".
It is undisputed that private respondent delivered the second $10,000.00
remittance. However, petitioner contends that the doctrine of solutio
indebiti, does not apply because its requisites are absent.
The contention is without merit.
Cesar Nickolai F. Soriano Jr.
6 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
The contract of petitioner, as regards the sale of garments and other textile
products, was with FACETS. It was the latter and not private respondent
which was indebted to petitioner. On the other hand, the contract for the
transmittal of dollars from the United States to petitioner was entered into
by private respondent with FNSB. Petitioner, although named as the payee
was not privy to the contract of remittance of dollars. Neither was private
respondent a party to the contract of sale between petitioner and FACETS.
There being no contractual relation between them, petitioner has no right to
apply the second $10,000.00 remittance delivered by mistake by private
respondent to the outstanding account of FACETS.
Petitioner invokes the equitable principle that when one of two innocent
persons must suffer by the wrongful act of a third person, the loss must be
borne by the one whose negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision
of law specifically applicable to a case [Phil. Rabbit Bus Lines, Inc. v.
Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural
Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135
SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case
of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37
SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965,
13 SCRA 486, held:
The common law principle that where one of two innocent persons must
suffer by a fraud perpetrated by another, the law imposes the loss upon the
party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express
provision of the new Civil Code, specifically Article 559. Between a common
law principle and a statutory provision, the latter must prevail in this
jurisdiction. [at p. 135.]
Puyat & Sons
vs.
City of Manila
G. R. No. L-17447 April 30, 1963
It is too well settled in this state to need the citation of authority that if
money be paid through a clear mistake of law or fact, essentially affecting
the rights of the parties, and which in law or conscience was not payable,
and should not be retained by the party receiving it, it may be recovered.
Both law and sound morality so dictate.
FACTS: Appellee Puyat & Sons requested for refund of Retail Dealers Taxes
it paid to appellant City of Manila, on the ground that it is tax exempt on the
sale of the various kinds of furniture manufactured by it pursuant to the
provisions of Sec. 18(n) of Republic Act No. 409 (Revised Charter of Manila),
as restated in Section 1 of Ordinance No.3816. However, such request was
denied by herein appellant.
Appellee filed an action for refund with the Court of First Instance, which
ruled in its favor, hence this appeal.
ISSUE: Whether or not appellee Puyat & Sons are entitled to the refund of
the taxes paid erroneosly, on the ground that it is tax exempt, pursuant to
the Revised Charter of Manila.
HELD: Yes, the Court held that appellee Puyat & Sons are entitled to the
refund of the taxes paid erroneously.
If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligationto retun it arises.
There is no gainsaying the fact that the payments made by appellee was
due to a mistake in the construction of a doubtful question of law. The
reason underlying similar provisions, as applied to illegal taxation, in the
United States, is expressed in the case of Newport v. Ringo, 37 Ky. 635,
636; 10 S.W. 2, in the following manner:
"It is too well settled in this state to need the citation of authority that if
money be paid through a clear mistake of law or fact, essentially affecting
the rights of the parties, and which in law or conscience was not payable,
and should not be retained by the party receiving it, it may be recovered.
Both law and sound morality so dictate. Especially should this be the rule as
to illegal taxation. The taxpayer has no voice in the impositionof the burden.
He has the right to presume that the taxing power has been lawfully
exercised. He should not be required to know more than those in authority
over him, nor should he suffer loss by complying with what he bona fide
believe to be his duty as a good citizen. Upon the contrary, he should be
promoted to its ready performance by refunding to him any legal exaction
paid by him in ignorance of its illegality; and, certainly, in such a case, if be
subject to a penalty for nonpayment, his compliance under belief of its
legality, and without awaitinga resort to judicial proceedings should not be
regrded in law as so far voluntary as to affect his right of recovery.".
Every person who through an act or performance by another, or any other
means, acquires or comes into possession of something at the expense of
the latter without just or legal grounds, shall return the same to him"(Art.
22, Civil Code). It would seems unedifying for the government, (here the
City of Manila), that knowing it has no right at all to collect or to receive
money for alleged taxes paid by mistake, it would be reluctant to return the
same. No one should enrich itself unjustly at the expense of another (Art.
2125, Civil Code)
4. ACTS OR OMISSIONS PUNISHABLE BY LAW; DELICT
Art. 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore, it may be decreed that what has been
poorly done be undone.
Revised Penal Code:
Art. 100. Civil liability of a person guilty of felony. Every person
criminally liable for a felony is also civilly liable
Art. 104. What is included in civil liability. The civil liability
established in Articles 100, 101, 102, and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
5. QUASI-DELICTS
Art. 1162. Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this Book, and by special laws.
Art. 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this
Chapter
QUESTION: From a single act, can there be a basis of a claim under more
than one source?
ANSWER: Yes, from delict, quasi-delict and contract.
Note that these require ifferent procedures, requirements, quantim of
evidence.
Note still, that no recovery from more than one source is allowed. Example:
Art. 2177 double recovery rule:
Art. 2177. Responsibility for fault or negligence under the preceding
article is entirely separate and distinct from the civil liability arising
from negligence under the Penal Code. But the plaintiff cannot recover
damages twice for the same act or omission of the defendant.
See case of Saludaga vs. FEU
Cesar Nickolai F. Soriano Jr.
7 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
QUESTION: If an act is punishable by law, can there be a basis of a claim
under quasi-contract?
ANSWER: NEVER. Art. 2142, quasi contract may only be from acts which are
voluntary, lawful and unilateral (all three are required to be present).
Absence of one, not a basis of a claim under quasi contract.
CASES:
Saludaga
vs.
Far Eastern University
G.R. No. 179337 April 30, 2008
When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which
both parties are bound to comply with.
It is settled that in culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief.
FACTS: Petitioner Saludaga was a sophomore student at private respondent
Far Eastern University (FEU), in which private respondent De Jesus was the
President. He was shot by Alejandro Rosete (Rosete), one of the security
guards on duty at the school premises. He was hospitalized due to the
wound he sustained.
Thereafter, herein petitioner filed a complaint for damages against private
respondents on the ground that they breached their obligation to provide
students with a safe and secure environment and an atmosphere conducive
to learning. In turn, private respondent filed a third-party complaint against
the Galaxy, the security agency of Rosete.
The trial Court rendered its decision in favor of herein petitioner. On appeal,
the appellate Court reversed the decision of the trial Court, hence this
petition.
ISSUE: Whether or not the appellate Court erred when it reversed the
decision of the trial Court and held that private respondent is not liable for
the damages on the ground that the Rosete is not a party to the contract to
which the petitioner is suing.
HELD: Yes, the Court held that the appellate Court did err when it reversed
the decision of the trial Court.
In Philippine School of Business Administration v. Court of Appeals, we held
that:
When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which
both parties are bound to comply with. For its part, the school undertakes to
provide the student with an education that would presumably suffice to
equip him with the necessary tools and skills to pursue higher education or
a profession. On the other hand, the student covenants to abide by the
school's academic requirements and observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in" obligation of
providing their students with an atmosphere that promotes or assists in
attaining its primary undertaking of imparting knowledge. Certainly, no
student can absorb the intricacies of physics or higher mathematics or
explore the realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school must
ensure that adequate steps are taken to maintain peace and order within
the campus premises and to prevent the breakdown thereof.
It is undisputed that petitioner was enrolled as a sophomore law student in
respondent FEU. As such, there was created a contractual obligation
between the two parties. On petitioner's part, he was obliged to comply
with the rules and regulations of the school. On the other hand, respondent
FEU, as a learning institution is mandated to impart knowledge and equip its
students with the necessary skills to pursue higher education or a
profession. At the same time, it is obliged to ensure and take adequate
steps to maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard who
was hired to maintain peace and secure the premises, there is a prima facie
showing that respondents failed to comply with its obligation to provide a
safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the shooting
incident was a fortuitous event because they could not have reasonably
foreseen nor avoided the accident caused by Rosete as he was not their
employee; and that they complied with their obligation to ensure a safe
learning environment for their students by having exercised due diligence in
selecting the security services of Galaxy.
After a thorough review of the records, we find that respondents failed to
discharge the burden of proving that they exercised due diligence in
providing a safe learning environment for their students. They failed to
prove that they ensured that the guards assigned in the campus met the
requirements stipulated in the Security Service Agreement. Indeed, certain
documents about Galaxy were presented during trial; however, no evidence
as to the qualifications of Rosete as a security guard for the university was
offered.
Respondents also failed to show that they undertook steps to ascertain and
confirm that the security guards assigned to them actually possess the
qualifications required in the Security Service Agreement. It was not proven
that they examined the clearances, psychiatric test results, 201 files, and
other vital documents enumerated in its contract with Galaxy. Total reliance
on the security agency about these matters or failure to check the papers
stating the qualifications of the guards is negligence on the part of
respondents. A learning institution should not be allowed to completely
relinquish or abdicate security matters in its premises to the security agency
it hired. To do so would result to contracting away its inherent obligation to
ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order for
force majeure to be considered, respondents must show that no negligence
or misconduct was committed that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One's negligence
may have concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate cause of
the damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act - the
whole occurrence is humanized and removed from the rules applicable to
acts of God.
Article 1170 of the Civil Code provides that those who are negligent in the
performance of their obligations are liable for damages. Accordingly, for
breach of contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for damages. It is
essential in the award of damages that the claimant must have satisfactorily
proven during the trial the existence of the factual basis of the damages and
its causal connection to defendant's acts.
In the instant case, it was established that petitioner spent P35,298.25 for
his hospitalization and other medical expenses. While the trial court
correctly imposed interest on said amount, however, the case at bar
involves an obligation arising from a contract and not a loan or forbearance
of money. As such, the proper rate of legal interest is six percent (6%) per
annum of the amount demanded. Such interest shall continue to run from
the filing of the complaint until the finality of this Decision. After this
Decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction.
Cesar Nickolai F. Soriano Jr.
8 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
The other expenses being claimed by petitioner, such as transportation
expenses and those incurred in hiring a personal assistant while
recuperating were however not duly supported by receipts. In the absence
thereof, no actual damages may be awarded. Nonetheless, temperate
damages under Art. 2224 of the Civil Code may be recovered where it has
been shown that the claimant suffered some pecuniary loss but the amount
thereof cannot be proved with certainty. Hence, the amount of P20,000.00
as temperate damages is awarded to petitioner.
As regards the award of moral damages, there is no hard and fast rule in
the determination of what would be a fair amount of moral damages since
each case must be governed by its own peculiar circumstances. The
testimony of petitioner about his physical suffering, mental anguish, fright,
serious anxiety, and moral shock resulting from the shooting incident justify
the award of moral damages. However, moral damages are in the category
of an award designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to
obviate the moral suffering he has undergone. It is aimed at the restoration,
within the limits of the possible, of the spiritual status quo ante, and should
be proportionate to the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should exercise balanced
restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial court. We deem it
just and reasonable under the circumstances to award petitioner moral
damages in the amount of P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount of
P50,000.00 as part of damages is reasonable in view of Article 2208 of the
Civil Code. However, the award of exemplary damages is deleted
considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable with
respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol, we held that:
[A] corporation is invested by law with a personality separate and distinct
from those of the persons composing it, such that, save for certain
exceptions, corporate officers who entered into contracts in behalf of the
corporation cannot be held personally liable for the liabilities of the latter.
Personal liability of a corporate director, trustee or officer along (although
not necessarily) with the corporation may so validly attach, as a rule, only
when - (1) he assents to a patently unlawful act of the corporation, or when
he is guilty of bad faith or gross negligence in directing its affairs, or when
there is a conflict of interest resulting in damages to the corporation, its
stockholders or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not forthwith file with
the corporate secretary his written objection thereto; (3) he agrees to hold
himself personally and solidarily liable with the corporation; or (4) he is
made by a specific provision of law personally answerable for his corporate
action.
None of the foregoing exceptions was established in the instant case;
hence, respondent De Jesus should not be held solidarily liable with
respondent FEU.
Incidentally, although the main cause of action in the instant case is the
breach of the school-student contract, petitioner, in the alternative, also
holds respondents vicariously liable under Article 2180 of the Civil Code,
which provides:
Art. 2180. The 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.
xxxx
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.
xxxx
The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good father
of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents cannot
be held liable for damages under Art. 2180 of the Civil Code because
respondents are not the employers of Rosete. The latter was employed by
Galaxy. The instructions issued by respondents' Security Consultant to
Galaxy and its security guards are ordinarily no more than requests
commonly envisaged in the contract for services entered into by a principal
and a security agency. They cannot be construed as the element of control
as to treat respondents as the employers of Rosete.
As held in Mercury Drug Corporation v. Libunao:
In Soliman, Jr. v. Tuazon, we held that where the security agency recruits,
hires and assigns the works of its watchmen or security guards to a client,
the employer of such guards or watchmen is such agency, and not the
client, since the latter has no hand in selecting the security guards. Thus,
the duty to observe the diligence of a good father of a family cannot be
demanded from the said client:
[I]t is settled in our jurisdiction that where the security agency, as here,
recruits, hires and assigns the work of its watchmen or security guards, the
agency is the employer of such guards or watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the employer
agency, and not to the clients or customers of such agency. As a general
rule, a client or customer of a security agency has no hand in selecting who
among the pool of security guards or watchmen employed by the agency
shall be assigned to it; the duty to observe the diligence of a good father of
a family in the selection of the guards cannot, in the ordinary course of
events, be demanded from the client whose premises or property are
protected by the security guards.
xxxx
The fact that a client company may give instructions or directions to the
security guards assigned to it, does not, by itself, render the client
responsible as an employer of the security guards concerned and liable for
their wrongful acts or omissions.
Sagada Orden
vs.
National Coconut Corporation
G. R. No. L-3756 June 30, 1952
Defendant-appellant is not guilty of any offense at all, because it entered
the premises and occupied it with the permission of the entity which had the
legal control and administration thereof, the Allien Property Administration
Lastly, the reservation of this action may not be considered as vesting a
new right; if no right to claim for rentals existed at the time of the
reservation, no rights can arise or accrue from such reservation alone.
FACTS: A parcel of land belong to herein appellee Sagada Orden,
registered before the war, was acquired by a Japanese Corporation during
the period of Japanese Military occupation.
After liberation, it was occupied by Copra Export Management Company
under a custodianship agreement with United States Alien Property
Custodian, and thereafter, occupied by herein appellant National Coconut
Corporation. Aside from such occupation, the property in question was also
subjected to a contract of sale, which was later on declared null.
Appellee filed an action to recover rentals in arrearage for the use and
occupation of its property by herein appellant.
Appellant contends that it occupied the property in good faith, under no
obligation whatsoever to pay rentals for the use and occupation of the
warehouse.
Cesar Nickolai F. Soriano Jr.
9 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
The trial Court rendered its decision in favor of herein appellee, hence this
appeal.
ISSUE: WON appellant National Coconut Corporation is liable for rentals in
arrearage for the use and occupation of the parcel of land.
HELD: No, the Court held that herein appellant is not liable for rentals.
We can not understand how the trial court, from the mere fact that plaintiff-
appellee was the owner of the property and the defendant-appellant the
occupant, which used for its own benefit but by the express permission of
the Alien Property Custodian of the United States, so easily jumped to the
conclusion that the occupant is liable for the value of such use and
occupation. If defendant-appellant is liable at all, its obligations, must arise
from any of the four sources of obligations, namley, law, contract or quasi-
contract, crime, or negligence. (Article 1089, Spanish Civil Code.)
Defendant-appellant is not guilty of any offense at all, because it entered
the premises and occupied it with the permission of the entity which had the
legal control and administration thereof, the Allien Property Administration.
Neither was there any negligence on its part. There was also no privity (of
contract or obligation) between the Alien Property Custodian and the
Taiwan Tekkosho, which had secured the possession of the property from
the plaintiff-appellee by the use of duress, such that the Alien Property
Custodian or its permittee (defendant-appellant) may be held responsible
for the supposed illegality of the occupation of the property by the said
Taiwan Tekkosho. The Allien Property Administration had the control and
administration of the property not as successor to the interests of the
enemy holder of the title, the Taiwan Tekkosho, but by express provision of
law (Trading with the Enemy Act of the United States, 40 Stat., 411; 50
U.S.C.A., 189). Neither is it a trustee of the former owner, the plaintiff-
appellee herein, but a trustee of then Government of the United States (32
Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of,
and against the claim or title of, the enemy owner. (Youghioheny & Ohio
Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-
283.) From August, 1946, when defendant-appellant took possession, to the
late of judgment on February 28, 1948, Allien Property Administration had
the absolute control of the property as trustee of the Government of the
United States, with power to dispose of it by sale or otherwise, as though it
were the absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925],
5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant
were liable to the Allien Property Administration for rentals, these would not
accrue to the benefit of the plaintiff-appellee, the owner, but to the United
States Government.
But there is another ground why the claim or rentals cannot be made
against defendant-appellant. There was no agreement between the Alien
Property Custodian and the defendant-appellant for the latter to pay rentals
on the property. The existence of an implied agreement to that effect is
contrary to the circumstances. The copra Export Management Company,
which preceded the defendant-appellant, in the possession and use of the
property, does not appear to have paid rentals therefor, as it occupied it by
what the parties denominated a "custodianship agreement," and there is no
provision therein for the payment of rentals or of any compensation for its
custody and or occupation and the use. The Trading with the Enemy Act, as
originally enacted, was purely a measure of conversation, hence, it is very
unlikely that rentals were demanded for the use of the property. When the
National coconut Corporation succeeded the Copra Export Management
Company in the possession and use of the property, it must have been also
free from payment of rentals, especially as it was Government corporation,
and steps where then being taken by the Philippine Government to secure
the property for the National Coconut Corporation. So that the
circumstances do not justify the finding that there was an implied
agreement that the defendant-appellant was to pay for the use and
occupation of the premises at all.
The above considerations show that plaintiff-appellee's claim for rentals
before it obtained the judgment annulling the sale of the Taiwan Tekkosho
may not be predicated on any negligence or offense of the defendant-
appellant, or any contract, express or implied, because the Allien Property
Administration was neither a trustee of plaintiff-appellee, nor a privy to the
obligations of the Taiwan Tekkosho, its title being based by legal provision
of the seizure of enemy property. We have also tried in vain to find a law or
provision thereof, or any principle in quasi contracts or equity, upon which
the claim can be supported. On the contrary, as defendant-appellant
entered into possession without any expectation of liability for such use and
occupation, it is only fair and just that it may not be held liable therefor.
And as to the rents it collected from its lessee, the same should accrue to it
as a possessor in good faith, as this Court has already expressly held.
(Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)
Lastly, the reservation of this action may not be considered as vesting a
new right; if no right to claim for rentals existed at the time of the
reservation, no rights can arise or accrue from such reservation alone.
Cangco
vs.
Manila Railroad
G.R. No. L-12191 October 14, 1918
The opinion there expressed by this Court, to the effect that in case of
extra-contractual culpa based upon negligence, it is necessary that there
shall have been some fault attributable to the defendant personally, and
that the last paragraph of article 1903 merely establishes a rebuttable
presumption
A brief review of the earlier decision of this court involving the liability of
employers for damage done by the negligent acts of their servants will show
that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action for
damages for breach of contract.
FACTS: Appellant Cango incurred injuries when he alighted from the train,
by accidentally stepping of watermelon sacks placed all over the platform.
Appellant filed a complaint against herein appellee Manila Railroad for the
damages and medical expenses for such incident. Appellant contends that
herein appellee is negligent in maintaining the safety of the train station, by
allowing sacks of watermelon to be placed over the premises.
The trial Court rendered its decision in favor of herein appellee, on the
ground that herein appellant failed to use due caution in alighting from the
train, hence this appeal.
ISSUE: WON appellant is entitled to damages due to the sustained injuries
caused by the negligence of herein appellee Manila Railroad.
HELD: Yes, the Court held that herein appellant is entitled to damages due
to the sustained injuries.
It can not be doubted that the employees of the railroad company were
guilty of negligence in piling these sacks on the platform in the manner
above stated; that their presence caused the plaintiff to fall as he alighted
from the train; and that they therefore constituted an effective legal cause
of the injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless
recovery is barred by the plaintiff's own contributory negligence. In
resolving this problem it is necessary that each of these conceptions of
liability, to-wit, the primary responsibility of the defendant company and the
contributory negligence of the plaintiff should be separately examined.
It is important to note that the foundation of the legal liability of the
defendant is the contract of carriage, and that the obligation to respond for
the damage which plaintiff has suffered arises, if at all, from the breach of
that contract by reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate, differing
essentially, in legal viewpoint from that presumptive responsibility for the
negligence of its servants, imposed by article 1903 of the Civil Code, which
can be rebutted by proof of the exercise of due care in their selection and
supervision. Article 1903 of the Civil Code is not applicable to obligations
arising ex contractu, but only to extra-contractual obligations or to use
the technical form of expression, that article relates only to culpa aquiliana
and not to culpa contractual.
Cesar Nickolai F. Soriano Jr.
10 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
In the Rakes case (supra) the decision of this court was made to rest
squarely upon the proposition that article 1903 of the Civil Code is not
applicable to acts of negligence which constitute the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil Code] are
applicable are understood to be those not growing out of pre-existing duties
of the parties to one another. But where relations already formed give rise
to duties, whether springing from contract or quasi-contract, then breaches
of those duties are subject to article 1101, 1103, and 1104 of the same
code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
his distinction is of the utmost importance. The liability, which, under the
Spanish law, is, in certain cases imposed upon employers with respect to
damages occasioned by the negligence of their employees to persons to
whom they are not bound by contract, is not based, as in the English
Common Law, upon the principle of respondeat superior if it were, the
master would be liable in every case and unconditionally but upon the
principle announced in article 1902 of the Civil Code, which imposes upon all
persons who by their fault or negligence, do injury to another, the obligation
of making good the damage caused. One who places a powerful automobile
in the hands of a servant whom he knows to be ignorant of the method of
managing such a vehicle, is himself guilty of an act of negligence which
makes him liable for all the consequences of his imprudence. The obligation
to make good the damage arises at the very instant that the unskillful
servant, while acting within the scope of his employment causes the injury.
The liability of the master is personal and direct. But, if the master has not
been guilty of any negligence whatever in the selection and direction of the
servant, he is not liable for the acts of the latter, whatever done within the
scope of his employment or not, if the damage done by the servant does
not amount to a breach of the contract between the master and the person
injured.
It is not accurate to say that proof of diligence and care in the selection and
control of the servant relieves the master from liability for the latter's acts
on the contrary, that proof shows that the responsibility has never existed.
As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual
culpa is always based upon a voluntary act or omission which, without
willful intent, but by mere negligence or inattention, has caused damage to
another. A master who exercises all possible care in the selection of his
servant, taking into consideration the qualifications they should possess for
the discharge of the duties which it is his purpose to confide to them, and
directs them with equal diligence, thereby performs his duty to third persons
to whom he is bound by no contractual ties, and he incurs no liability
whatever if, by reason of the negligence of his servants, even within the
scope of their employment, such third person suffer damage. True it is that
under article 1903 of the Civil Code the law creates a presumption that he
has been negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and diligence in this
respect.
The supreme court of Porto Rico, in interpreting identical provisions, as
found in the Porto Rico Code, has held that these articles are applicable to
cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto
Rico Reports, 215.)
This distinction was again made patent by this Court in its decision in the
case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an
action brought upon the theory of the extra-contractual liability of the
defendant to respond for the damage caused by the carelessness of his
employee while acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an injury is caused
by the negligence of a servant or employee there instantly arises a
presumption of law that there was negligence on the part of the master or
employer either in selection of the servant or employee, or in supervision
over him after the selection, or both; and (2) that that presumption is juris
tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the
court that in selection and supervision he has exercised the care and
diligence of a good father of a family, the presumption is overcome and he
is relieved from liability.
This theory bases the responsibility of the master ultimately on his own
negligence and not on that of his servant. This is the notable peculiarity of
the Spanish law of negligence. It is, of course, in striking contrast to the
American doctrine that, in relations with strangers, the negligence of the
servant in conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in case of
extra-contractual culpa based upon negligence, it is necessary that there
shall have been some fault attributable to the defendant personally, and
that the last paragraph of article 1903 merely establishes a rebuttable
presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903
is imposed by reason of the breach of the duties inherent in the special
relations of authority or superiority existing between the person called upon
to repair the damage and the one who, by his act or omission, was the
cause of it.
On the other hand, the liability of masters and employers for the negligent
acts or omissions of their servants or agents, when such acts or omissions
cause damages which amount to the breach of a contact, is not based upon
a mere presumption of the master's negligence in their selection or control,
and proof of exercise of the utmost diligence and care in this regard does
not relieve the master of his liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual.
Extra-contractual obligation has its source in the breach or omission of
those mutual duties which civilized society imposes upon it members, or
which arise from these relations, other than contractual, of certain members
of society to others, generally embraced in the concept of status. The legal
rights of each member of society constitute the measure of the
corresponding legal duties, mainly negative in character, which the
existence of those rights imposes upon all other members of society. The
breach of these general duties whether due to willful intent or to mere
inattention, if productive of injury, give rise to an obligation to indemnify the
injured party. The fundamental distinction between obligations of this
character and those which arise from contract, rests upon the fact that in
cases of non-contractual obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris, whereas in contractual
relations the vinculum exists independently of the breach of the voluntary
duty assumed by the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence,
whether of act or omission, it is competent for the legislature to elect and
our Legislature has so elected whom such an obligation is imposed is
morally culpable, or, on the contrary, for reasons of public policy, to extend
that liability, without regard to the lack of moral culpability, so as to include
responsibility for the negligence of those person who acts or mission are
imputable, by a legal fiction, to others who are in a position to exercise an
absolute or limited control over them. The legislature which adopted our
Civil Code has elected to limit extra-contractual liability with certain well-
defined exceptions to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility may consist
in having failed to exercise due care in the selection and control of one's
agents or servants, or in the control of persons who, by reason of their
status, occupy a position of dependency with respect to the person made
liable for their conduct.
As it is not necessary for the plaintiff in an action for the breach of a
contract to show that the breach was due to the negligent conduct of
defendant or of his servants, even though such be in fact the actual cause
of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the
contract would not constitute a defense to the action. If the negligence of
servants or agents could be invoked as a means of discharging the liability
arising from contract, the anomalous result would be that person acting
through the medium of agents or servants in the performance of their
contracts, would be in a better position than those acting in person. If one
delivers a valuable watch to watchmaker who contract to repair it, and the
Cesar Nickolai F. Soriano Jr.
11 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
bailee, by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his liability for the
breach of his contract, which involves the duty to exercise due care in the
preservation of the watch, if he shows that it was his servant whose
negligence caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from damages arising
from the breach of their contracts if caused by negligent acts as such
juridical persons can of necessity only act through agents or servants, and it
would no doubt be true in most instances that reasonable care had been
taken in selection and direction of such servants. If one delivers securities to
a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and
reasonable to permit the bank to relieve itself of liability for the breach of its
contract to return the collateral upon the payment of the debt by proving
that due care had been exercised in the selection and direction of the clerk?
This distinction between culpa aquiliana, as the source of an obligation, and
culpa contractual as a mere incident to the performance of a contract has
frequently been recognized by the supreme court of Spain. (Sentencias of
June 27, 1894; November 20, 1896; and December 13, 1896.) In the
decisions of November 20, 1896, it appeared that plaintiff's action arose ex
contractu, but that defendant sought to avail himself of the provisions of
article 1902 of the Civil Code as a defense. The Spanish Supreme Court
rejected defendant's contention, saying:
These are not cases of injury caused, without any pre-existing obligation, by
fault or negligence, such as those to which article 1902 of the Civil Code
relates, but of damages caused by the defendant's failure to carry out the
undertakings imposed by the contracts
A brief review of the earlier decision of this court involving the liability of
employers for damage done by the negligent acts of their servants will show
that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action for
damages for breach of contract.
As the case now before us presents itself, the only fact from which a
conclusion can be drawn to the effect that plaintiff was guilty of contributory
negligence is that he stepped off the car without being able to discern
clearly the condition of the platform and while the train was yet slowly
moving. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the
obstruction which was caused by the sacks of melons piled on the platform
existed; and as the defendant was bound by reason of its duty as a public
carrier to afford to its passengers facilities for safe egress from its trains,
the plaintiff had a right to assume, in the absence of some circumstance to
warn him to the contrary, that the platform was clear. The place, as we
have already stated, was dark, or dimly lighted, and this also is proof of a
failure upon the part of the defendant in the performance of a duty owing
by it to the plaintiff; for if it were by any possibility concede that it had right
to pile these sacks in the path of alighting passengers, the placing of them
adequately so that their presence would be revealed.
As pertinent to the question of contributory negligence on the part of the
plaintiff in this case the following circumstances are to be noted: The
company's platform was constructed upon a level higher than that of the
roadbed and the surrounding ground. The distance from the steps of the car
to the spot where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident to stepping
off. The nature of the platform, constructed as it was of cement material,
also assured to the passenger a stable and even surface on which to alight.
Furthermore, the plaintiff was possessed of the vigor and agility of young
manhood, and it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or feeble
person. In determining the question of contributory negligence in
performing such act that is to say, whether the passenger acted
prudently or recklessly the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been observed, as a
general rule are less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the free
movement of the limbs. Again, it may be noted that the place was perfectly
familiar to the plaintiff as it was his daily custom to get on and of the train
at this station. There could, therefore, be no uncertainty in his mind with
regard either to the length of the step which he was required to take or the
character of the platform where he was alighting. Our conclusion is that the
conduct of the plaintiff in undertaking to alight while the train was yet
slightly under way was not characterized by imprudence and that therefore
he was not guilty of contributory negligence.
Peoples Car Inc.
vs.
Commando Security
G.R. No. L-36840 May 22, 1973
FACTS: Appellant Peoples Car Inc. filed a complaint against herein appellee
Commando Security Agency, on the ground that the appellees security
guard while on duty at the appellants premises, without any authority or
consent, brought out of the compound a car belonging to the appellants
customer.
While driving said car, the security guard lost control, causing the same to
fall into a ditch, resulting to damages.
The trial Court rendered its decision and held, without an award for the
actual damages incurred, that herein appellee is only liable for the sum of
Php 1,000.00, pursuant to paragraph 4 of their contract, hence this appeal.
ISSUE: WON the trial Court erred when it awarded the sum of Php
1,000.00 instead of the actual damages of P8,489.10, pursuant to their
Guard Service Contract.
HELD: Yes, the trial Court did err when is merely awarded the sum of Php
1,000.00 to herein appellant.
Paragraph 4 of the contract, which limits defendant's liability for the amount
of loss or damage to any property of plaintiff to "P1,000.00 per guard post,"
is by its own terms applicable only for loss or damage 'through the
negligence of its guards ... during the watch hours" provided that the same
is duly reported by plaintiff within 24 hours of the occurrence and the
guard's negligence is verified after proper investigation with the attendance
of both contracting parties. Said paragraph is manifestly inapplicable to the
stipulated facts of record, which involve neither property of plaintiff that has
been lost or damaged at its premises nor mere negligence of defendant's
security guard on duty.
Here, instead of defendant, through its assigned security guards, complying
with its contractual undertaking 'to safeguard and protect the business
premises of (plaintiff) from theft, robbery, vandalism and all other unlawful
acts of any person or persons," defendant's own guard on duty unlawfully
and wrongfully drove out of plaintiffs premises a customer's car, lost control
of it on the highway causing it to fall into a ditch, thereby directly causing
plaintiff to incur actual damages in the total amount of P8,489.10.
Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire
damages thus incurred, since under paragraph 5 of their contract it
"assumed the responsibility for the proper performance by the guards
employed of their duties and (contracted to) be solely responsible for the
acts done during their watch hours" and "specifically released (plaintiff)
from any and all liabilities ... to the third parties arising from the acts or
omissions done by the guards during their tour of duty." As plaintiff had
duly discharged its liability to the third party, its customer, Joseph Luy, for
the undisputed damages of P8,489.10 caused said customer, due to the
wanton and unlawful act of defendant's guard, defendant in turn was clearly
liable under the terms of paragraph 5 of their contract to indemnify plaintiff
in the same amount.
The trial court's approach that "had plaintiff understood the liability of the
defendant to fall under paragraph 5, it should have told Joseph Luy, owner
of the car, that under the Guard Service Contract, it was not liable for the
damage but the defendant and had Luy insisted on the liability of the
plaintiff, the latter should have challenged him to bring the matter to court.
If Luy accepted the challenge and instituted an action against the plaintiff, it
should have filed a third-party complaint against the Commando Security
Cesar Nickolai F. Soriano Jr.
12 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Service Agency. But if Luy instituted the action against the plaintiff and the
defendant, the plaintiff should have filed a crossclaim against the latter," 9
was unduly technical and unrealistic and untenable.
Plaintiff was in law liable to its customer for the damages caused the
customer's car, which had been entrusted into its custody. Plaintiff therefore
was in law justified in making good such damages and relying in turn on
defendant to honor its contract and indemnify it for such undisputed
damages, which had been caused directly by the unlawful and wrongful acts
of defendant's security guard in breach of their contract. As ordained in
Article 1159, Civil Code, "obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good
faith."
Plaintiff in law could not tell its customer, as per the trial court's view, that
"under the Guard Service Contract it was not liable for the damage but the
defendant" since the customer could not hold defendant to account for
the damages as he had no privity of contract with defendant. Such an
approach of telling the adverse party to go to court, notwithstanding his
plainly valid claim, aside from its ethical deficiency among others, could
hardly create any goodwill for plaintiff's business, in the same way that
defendant's baseless attempt to evade fully discharging its contractual
liability to plaintiff cannot be expected to have brought it more business.
Worse, the administration of justice is prejudiced, since the court dockets
are unduly burdened with unnecessary litigation.
NARCISO GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-
appellants.
G.R. No. 34840 | September 23, 1931
FACTS: A passenger truck, driven by Velasco and Cortez, and an
automobile owned by spouses-defendants Gutierrez and was being driven at
that time by their son, Bonifacio who was 18 y/o, collided. At the time of the
collision, the father was not in the car, but the mother, together will several
other members of the Gutierrez family, seven in all, were accommodated
therein. As a result of the said incident, herein plaintiff, a passenger in the
autobus, suffered a fracture which required medical attendance, prompting
him to sue herein defendants. It was found by the trial court that both the
boy and the driver of the autobus were negligent by which neither of them
were willing to slow up and give the right of way to the other.
ISSUE: How should civil liability be imposed upon the parties in the present
case?
HELD: In the United States, it is uniformly held that the head of a house,
the owner of an automobile, who maintains it for the general use of his
family is liable for its negligent operation by one of his children, whom he
designates or permits to run it, where the car is occupied and being used at
the time of the injury for the pleasure of other members of the owner's
family than the child driving it. The theory of the law is that the running of
the machine by a child to carry other members of the family is within the
scope of the owner's business, so that he is liable for the negligence of the
child because of the relationship of master and servant.
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur
Abelardo Velasco rests on a different basis, namely, that of contract which,
we think, has been sufficiently demonstrated by the allegations of the
complaint, not controverted, and the evidence. The reason for this
conclusion reaches to the findings of the trial court concerning the position
of the truck on the bridge, the speed in operating the machine, and the lack
of care employed by the chauffeur. While these facts are not as clearly
evidenced as are those which convict the other defendant, we nevertheless
hesitate to disregard the points emphasized by the trial judge. In its broader
aspects, the case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and give the right
of way to the other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting principally of
his keeping his foot outside the truck, which occasioned his injury. In this the extinguishment or loss of those already acquired, shall depend upon
connection, it is sufficient to state that, aside from the fact that the defense the happening of the event which constitutes the condition.
of contributory negligence was not pleaded, the evidence bearing out this
theory of the case is contradictory in the extreme and leads us far afield into Art. 1190. When the conditions have for their purpose the extinguishment
speculative matters. of an obligation to give, the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
C. COMPLIANCE WITH OBLIGATIONS
In case of the loss, deterioration or improvement of the thing, the
Art. 19. Every person must, in the exercise of his rights and the provisions which, with respect to the debtor, are laid down in the
performance of his duties, act with justice, give everyone his due, and preceding article shall be applied to the party who is bound to return.
observe honesty and good faith.
As for the obligations to do and not to do, the provisions of the second
Chapter 2: Nature of Obligations: paragraph of Article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.
Art. 1163. Every person obliged to give something is also obliged to take
care of it with the proper diligence of a good father of a family, unless the Kinds of Conditions
law or the stipulation of the parties requires another standard of care
as to when the suspensive happening of which gives rise to
Art. 1164. The creditor has a right to the fruits of the thing from the time obligation should be the obligation
the obligation to deliver it arises. However, he shall acquire no real right performed resolutory happening of which extinguishes
over it until the same has been delivered to him. the rights already existing
as to whom or where potestative depends on the will of the party
Art. 1165. When what is to be delivered is a determinate thing, the it depends to the juridical relation
creditor, in addition to the right granted him by Article 1170, may compel casual depends on chance
the debtor to make the delivery. mixed partly depends on will of the
party and partly on chance
If the thing is indeterminate or generic, he may ask that the obligation be as to capacity to be divisible can be performed in parts
complied with at the expense of the debtor. performed in parts indivisible cannot be performed in parts
as to number of conjunctive all must be performed
If the obligor delays, or has promised to deliver the same thing to two or obligations are to be alternative only one must be performed
more persons who do not have the same interest, he shall be responsible performed when there
for any fortuitous event until he has effected the delivery. are several of them
as to nature positive act
Art. 1166. The obligation to give a determinate thing includes that of negative omission
delivering all its accessions and accessories, even though they may not as to how made express stated
have been mentioned. known to the other implied merely inferred
party
Art. 1244. The debtor of a thing cannot compel the creditor to receive a as to whether the possible can be fulfilled
different one, although the latter may be of the same value as, or more obligation can be impossible cannot be fulfilled either
valuable than that which is due. fulfilled physically or legally

Art. 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have not
been stated, the creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken into consideration.
Art. 1460. A thing is determinate when it is particularly designated or
physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties.
D. KINDS OF CIVIL OBLIGATIONS
Potestative Condition:
Art. 1182. When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. If it
depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this
Code
NOTE: Art. 1182 does not apply when there is a pre-existing debt.
BAR-EXAM QUESTION: Pedro promised to give his grandson his car after
the latter passed the bar. Upon passing the bar, Pedro refused to give the
car claiming that the condition is purely potestative and is thus void. Is
Pedro correct?

1. As to Perfection and Extinguishment ANSWER: No. Passing the bar is a condition not considered potestative since
it is not dependent solely upon the will of one of the parties, therefore the
PURE OBLIGATIONS obligation is not void.

Art. 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the
event.
CONDITIONAL
Likewise, Art. 1182 is not applicable, the fulfillment must be dependent
upon the sole will of the debtor in order for the obligation to be void. In this
case, the debtor is the grandfather, Pedro, and he is not the one taking the
bar exam.
When debtor prevented the happening of the condition:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.

Art. 1181. In conditional obligations, the acquisition of rights, as well as

Cesar Nickolai F. Soriano Jr.

13 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
QUESTION: In a conditional obligation and the condition was not fulfilled,
may the creditor validly demand that the debtor perform his obligation?
Answer: Generally, no.
Exception: Art. 1186. If the debtor voluntarily prevented the happening of
the condition, it is deemed fulfilled.
EXAMPLE: In a contract for a piece of work, where A hired B as contractor
to build his house where 50% of the contract price is payable as
downpayment and 50% upon completion. If A voluntarily prevented the
happening of the condition for the payment of the remaining 50%, i.e., the
completion of the house, say by preventing the workers from entering the
premises, is the condition deemed fulfilled?
Answer: Yes. Applying Art. 1186, by preventing the workers from entering
the premises, A, as debtor, prevented the happening of the condition, i.e.,
completion of the house. B is entitled to the remaining 50%.
NOTE, HOWEVER: if prevention is pursuant to a valid right, say, workers
are not following the plans, or the contractor uses inferior materials the
debtor is not compelled to pay. He can even ask for the demolition of the
work already completed at the expense of the contractor.
Impossible Conditions:
Art. 1183. Impossible conditions, those contrary to good customs or
public policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof which is
not affected by the impossible or unlawful condition shall be valid.
PROBLEM: A promised to pay P100 to B on the condition that B will go to
the sun on the same day. What is the status of the obligation?
ANSWER: annulled in accordance with Art. 1183. This is not correct,
because it would connote that the obligation was voidable. It is actually
void, thats why there are criticism with the word used in the above article.
(Uribe, 2015)
Compare with: testamentary conditions which are impossible, the condition
is deemed not written. This is because obligations are essentially onerous,
while succession is unilaterally gratuitous.
WITH A TERM OR PERIOD
Art. 1180. When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period,
subject to the provisions of Article 1197.
MEANS TO PAY valid obligation with a period, because the remedy of
the creditor is to go to court once the debtor has the means to pay.
BAR EXAM QUESTION: Manuel promised to sell to Eva, his house and lot
rented by another, if Eva passes the 1998 bar exams. Eva passed the said
bar exams.
a. Suppose it was sold to another before Eva passed the bar exams is
such sale valid? Why?
Yes. Three essential requisites are present. It can be a valid contract of
sale. can because other information not given, it may be void for
some other reason, e.g., if they are husband and wife, or Eva is a
foreigner not allowed to own land in the Philippines.
Note that in this case, the condition had not yet happened, as such,
ownership remains with Manuel and he has the right to dispose of it.
b. Assuming Eva is the one entitled to buy the house and lot, is she
entitled to the rental before she passed the bar exams?
No. because, the condition was fulfilled only in 1998, she is entitled to
the fruits after she passed the bar. defective answer.
Cesar Nickolai F. Soriano Jr.
14 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1187. The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution
of the obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been mutually
compensated. If the obligation is unilateral, the debtor shall
appropriate the fruits and interests received, unless from the nature
and circumstances of the obligation it should be inferred that the
intention of the person constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each
case, the retroactive effect of the condition that has been complied
with.
Answer: No. Under Art. 1187, the happening of the condition, in an
obligation to give, retroacts to the day of the constitution of the
obligation. However, since there are reciprocal obligations, to pay on
the part of Eva, and to deliver the house and lot on the part of Manuel,
they are deemed mutually compensated for the rent and interests on
the property and money, respectively.
As such, the seller would just deliver and the buyer would pay the
price. There will be no issue as to the amounts of rent, or interest on
the purchase price.
What if unilateral only? Manuel shall be entitled to the rent. In the
above example, if Manuel has the unilateral obligation to deliver the
house and lot upon passing of Eva of the 1998 Bar Exams. Applying
Art. 1187, Manuel, as the debtor, is entitled to the fruits (rent) of the
property.
Rules as to improvement, loss or deterioration:
Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged
to pay damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other
right than that granted to the usufructuary.
QUESTION: A promised to deliver to B when the latter passes the bar
exams. Before the happening of the condition, the A thought that the
condition will no longer be fulfilled since B continuously failed the bar
exams. As such, A had the car repainted and seat covers were changed.In
the following bar exam, B passed and demanded that A deliver the car. B
refused demanding reimbursement for the repainting and the new seat
covers. Can he validly do so?
Answer: No. Under Art. 1189, par. 6, A has no better right than a
usufructuary. Accordingly, he has no right to demand reimbursement for the
repainting and the new seat covers, he will only have the right to remove
the improvements as long as it will not cause damage to the thing. Likewise,
he does not have the right to retain the thing.
Suppose in the above question, the property was land which was increased
by alluvion, who is entitled to the improvement? The creditor. As provided
under par. 5 above, improvement of the thing by nature inures to the
benefit of the creditor.
OBLIGATIONS WITH A TERM:
*Use arrival of the term and expiration of the period.
KINDS OF TERM:
1. Definite specific date, e.g. Dec. 31, end of the year this year, within
6 months;
2. Indefinite period may arrive upon the fulfilment of a certain event
which is certain to happen. E.g., death.
or
3. Legal imposed or provided by law, e.g. filing of taxes; obligation to
give support within the first 5 days of the month.
4. Voluntary agreed upon by the parties.
5. Judicial those fixed by courts.
When may the court fix the period?
1. Under Art. 1191, par. 3:
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons
who have acquired the thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
2. Under Art. 1197:
Art. 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the courts
may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them
There are two instances when the court may fix a period as provided above:
1. The parties intended a period, but no period was fixed;
2. The period depends solely on the will of the debtor.
Rules for Applicability:
1. If the obligation is one arising from a contract, Art. 1197 applies only if
the contract was perfected.
2. No period was fixed, but it was intended.
If there was a period agreed upon by the parties, Art. 1197 would not
be applicable. (see Lim vs. People)
3. Courts should determine from the nature and circumstances whether
the parties intended a period and fix the same.
Note: sometimes, action to fix a period is concurrent with specific
performance.
Cesar Nickolai F. Soriano Jr.
15 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
a. If the period intended has not yet expired, specific performance
would be premature.
b. If period had elapsed, will specific performance prosper?
Generally, yes.
Exception: if it would be violative of the right against involuntary
servitude. (see Araneta, Inc. vs. Phil Sugar Estates)
Benefit of the period:
Art. 1196. Whenever in an obligation a period is designated, it is
presumed to have been established for the benefit of both the
creditor and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in
favor of one or of the other
PRESUMPTION: is that the period was fixed for the benefit of both
parties. EXCEPTION: when from the tenor of the obligation or other
circumstances, it was only established for one or the other.
QUESTION: Before arrival of the period:
1. Can the debtor be bound to perform?
2. Can the creditor can be bound/compelled to accept?
ANSWER: determine for whose benefit the period was fixed. If fixed for
the benefit of the debtor, then the debtor cannot be bound to perform, but
the creditor can be compelled to accept.
EXAMPLE OF EXCEPTION: use of the words on or before for the
benefit of the debtor. As such, the it can be seen from the tenor of the
condition that the benefit was for the debtor who can perform or fulfill the
obligation even prior to the expiration of the term.
PROBLEM: A borrowed money from B on Jan. 1 1983, payable Dec. 31,
1983. A pledged his car with the agreement that B can use it. Can A
compel B to accept payment before due date?
Answer: No, the presumption is that the period is established for the
benefit of both parties. In this case, the period is actually for the benefit
both, for the debtor to have time to pay, while the creditor to have time to
use the car. As such, B cannot be compelled to accept payment prior to the
arrival of the period agreed upon.
Can B be compelled to deliver the car? It depends, pledge is an accessory
contract, B accepts payment, then the principal obligation, the loan, is
extinguished, thus with it the pledge.
Debtors loss of benefit of the period:
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.
Insolvency means the debtor is unable to fulfil his obligations as they fall
due. As such, the creditor may not wait for the arrival of period because at
that time, there may be insufficient assets to cover his claim.
Exception: if debtor provides for sufficient security or guaranty.
PROBLEM: A obtained from B a loan payable in a year, secured by a
mortgage on As house. The said house was later on destroyed by fire. B
collected from A before the arrival of the period. A countered that the period
is for both their benefit and thus, he cannot be compelled to pay. Is A
correct?

Answer: No. A lost the benefit of the period when the mortgaged house
was destroyed by fire, as provided under Art. 1198 (3).
Why should A bear the loss?
1. The lender would not have lent the money if there was no security;
2. Lender likewise did not cause the loss;
3. Borrower remains the owner of the property who should bear the loss.
MULTIPLE CHOICE: On june 1, 1999, 15% loan A signed PM to pay X
P100,000 on June 30, 1999. For whose benefit was the period fixed?
a. Can X demand payment before June 30, 1999? No. Presumption is that
the benefit of both. Debtor cannot be compelled to pay.
b. On June 30, 1999, can X refuse payment? No. The debt is already due
regardless for whose benefit it is paid.
c. Can X be compelled to accept before? No. Why would creditor would
not like to accept? Because debtor may pay interest only upto time of
payment.
d. Benefit of both. correct.
No. 2: 1:05 involving multiple prestations.
CASES:
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF
RETIREMENT PLAN (HSBCL-SRP), Retirement Trust Fund, Inc.
Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
[G.R. No. 178610 | November 17, 2010 | Second Division | J. Carpio]
FACTS: Fe Gerong and Editha Broqueza are employees of HSBC, and also,
are members of HSBCL-SRP which is a retirement plan established by HSBC
through its BOT for the benefit of the employees. Broqueza was granted a
car loan and an appliance loan in the amount of P175,000 and P24,000,
respectively. Gerong was granted an emergency loan in the amount of
P35,780. These loans were paid through automatic salary deduction. As a
result of a labor dispute, Broqueza and Gerong were among those
terminated from employment by HSBC. Because of their dismissal, Gerong
and Broqueza were not able to pay the monthly amortizations of their
respective loans. HSBCL-SRP considered their accounts delinquent and
demanded the payment of their respective obligations, but they failed to
pay. HSBCL-SRP filed civil actions for recovery and collection of sums of
money against the spouses Broqueza and Gerong before the MeTC.
MeTC ruled that the nature of HSBCL-SRPs demands for payment is civil
and has no connection to the ongoing labor dispute. Gerong and Editha
Broquezas termination from employment resulted in the loss of continued
benefits under their retirement plans. Thus, the loans secured by their
future retirement benefits to which they are no longer entitled are reduced
to unsecured and pure civil obligations. As unsecured and pure obligations,
the loans are immediately demandable.
RTC affirmed the MeTCs decision in toto. On appeal, the CA reversed the
RTC.
ISSUE: WON the obligations of Broqueza and Gerong are pure obligations
which are immediately demandable?
HELD: YES In ruling for HSBCL-SRP, we apply the first paragraph of Article
1179 of the Civil Code:
Art. 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
x x x.
We affirm the findings of the MeTC and the RTC that there is no date of
payment indicated in the Promissory Notes. The RTC is correct in
ruling that since the Promissory Notes do not contain a period,
HSBCL-SRP has the right to demand immediate payment. Article
Cesar Nickolai F. Soriano Jr.
16 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
1179 of the Civil Code applies. The spouses Broquezas obligation to pay
HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with
the prior monthly check-off from Editha Broquezas salary is of no moment.
Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made
a demand to enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha
Broquezas dismissal from HSBC in December 1993, she "religiously paid the
loan amortizations, which HSBC collected through payroll check-off."1 A
definite amount is paid to HSBCL-SRP on a specific date. Editha Broqueza
authorized HSBCL-SRP to make deductions from her payroll until her loans
are fully paid. Editha Broqueza, however, defaulted in her monthly loan
payment due to her dismissal. Despite the spouses Broquezas
protestations, the payroll deduction is merely a convenient mode of
payment and not the sole source of payment for the loans. HSBCL-
SRP never agreed that the loans will be paid only through salary deductions.
Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be suspended.
HSBCL-SRP can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Moreover, the spouses
Broqueza have already incurred in default in paying the monthly
installments.
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA,
Deceased, GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
[G.R. No. L-29900 | June 28, 1974 | SECOND DIVISION | J. Fernando]
FACTS: January 30, 1952 The late Justo Palanca, together with Rosa
Gonzales Vda. De Palanca executed a promissory note undertaking to pay
the amount of P26,900 upon receipt by him of his share from a certain
estate or upon demand.
For value received from time to time since 1947, we [jointly and
severally promise to] pay to Mr. [George Pay] at his office at the China
Banking Corporation the sum of [Twenty Six Thousand Nine Hundred
Pesos] (P26,900.00), with interest thereon at the rate of 12% per
annum upon receipt by either of the undersigned of cash payment from
the Estate of the late Don Carlos Palanca or upon demand'. . . .
On August 26, 1967, George filed this action before the trial court, asking
that Segundina Chua Vda. de Palanca, surviving spouse of the late Justo
Palanca, be appointed as administratrix of a certain property in order that
George Pay, as creditor, can file his claim against the administratrix.
The lower court held that the ten-year period of limitation of actions did
apply, the note being immediately due and demandable, the creditor
admitting expressly that he was relying on the wording "upon demand."
Petitioner appealed the lower courts decision.
ISSUE: WON a creditor is barred by prescription in his attempt to collect on
a promissory note executed more than fifteen years earlier with the debtor
sued promising to pay either upon receipt by him of his share from a certain
estate or upon demand, the basis for the action being the latter alternative?
HELD: Yes. Prescribed. From the manner in which the promissory note was
executed, it would appear that petitioner was hopeful that the satisfaction
of his credit could be realized either through the debtor sued receiving cash
payment from the estate of the late Carlos Palanca presumptively as one of
the heirs, or, as expressed therein, "upon demand." There is nothing in the
record that would indicate whether or not the first alternative was fulfilled.
What is undeniable is that on August 26, 1967, more than fifteen years after
the execution of the promissory note on January 30, 1952, this petition was
filed. The defense interposed was prescription. Its merit is rather obvious.
Article 1179 of the Civil Code provides: "Every obligation whose
performance does not depend upon a future or uncertain event, or upon a
past event unknown to the parties, is demandable at once." This used to be
Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano v.
Delgado, 5 a 1908 decision, it has been applied according to its express
language. The well-known Spanish commentator, Manresa, on this point,
states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o
sea la perfeccion de este, se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la
exigibilidad immediata."
The obligation being due and demandable, it would appear that the filing of
the suit after fifteen years was much too late. For again, according to the
Civil Code, which is based on Section 43 of Act No. 190, the prescriptive
period for a written contract is that of ten years. This is another instance
where this Court has consistently adhered to the express language of the
applicable norm. There is no necessity therefore of passing upon the other
legal questions as to whether or not it did suffice for the petition to fail just
because the surviving spouse refuses to be made administratrix, or just
because the estate was left with no other property. The decision of the
lower court cannot be overturned.
SMITH, BELL & CO., LTD., plaintiff-appellant,
vs.
VICENTE SOTELO MATTI, defendant-appellant.
[G.R. No. L-16570 | March 9, 1922 | En Banc | J. Romualdez]
FACTS: On August 1918, Plaintiff corporation and defendant entered into
contracts whereby the former obligated itself to sell, and the latter to
purchase from it, two steel tanks, for the total price of P21,000, the same to
be shipped from New York and delivered at Manila "within three or four
months;" two expellers at the price of P25,000 each, which were to be
shipped from San Francisco in the month of September, 1918, or as soon as
possible; and two electric motors at the price of P2,000 each, as to the
delivery of which stipulation was made, couched in these words:
"Approximate delivery within ninety days. This is not guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the
26th of October, 1918; and the motors on the 27th of February, 1919.
The plaintiff corporation immediately notified the defendant of the arrival of
the goods, but the latter refused to receive them and to pay the prices
stipulated. Consequently, the plaintiff filed an action against the defendant.
The defendant, and the intervenor, the Manila Oil Refining and By-Products
Co., Inc. claimed that the latter suffered damages for the non-delivery of
the tanks, and on account of the expellers and the motors not having
arrived in due time.
The lower court absolved the defendants from the complaint insofar as the
tanks and the electric motors were concerned, but rendered judgment
against them and ordered them to receive and pay the plaintiff for the
expellers.
Both parties appealed to the SC.
ISSUE: WON, under the contracts entered into and the circumstances
established in the record, the plaintiff has fulfilled, in due time, its obligation
to bring the goods in question to Manila?
HELD: YES. As regards the tanks, the contracts A and B (pages 61 and 62
of the record) are similar, and in both of them we find this clause:
To be delivered within 3 or 4 months The promise or indication of
shipment carries with it absolutely no obligation on our part
Government regulations, railroad embargoes, lack of vessel space, the
exigencies of the requirement of the United States Government, or a
number of causes may act to entirely vitiate the indication of shipment
as stated. In other words, the order is accepted on the basis of
shipment at Mill's convenience, time of shipment being merely an
indication of what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the
expellers, the following stipulation appears:
The following articles, hereinbelow more particularly described, to be
shipped at San Francisco within the month of September /18, or as soon
as possible. Two Anderson oil expellers . . . .
Cesar Nickolai F. Soriano Jr.
17 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
And in the contract relative to the motors (Exhibit D, page 64, rec.) the
following appears:
Approximate delivery within ninety days. This is not guaranteed.
This sale is subject to our being able to obtain Priority Certificate,
subject to the United States Government requirements and also subject
to confirmation of manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on land
or on the sea, strikes or other causes known as "Force Majeure" entirely
beyond the control of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was
fixed for the delivery of the goods. As to the tanks, the agreement was
that the delivery was to be made "within 3 or 4 months," but that period
was subject to the contingencies referred to in a subsequent clause. With
regard to the expellers, the contract says "within the month of September,
1918," but to this is added "or as soon as possible." And with reference to
the motors, the contract contains this expression, "Approximate delivery
within ninety days," but right after this, it is noted that "this is not
guaranteed."
The oral evidence falls short of fixing such period.
From the record, it appears that these contracts were executed at the time
of the world war when there existed rigid restrictions on the export from the
United States of articles like the machinery in question, and maritime, as
well as railroad, transportation was difficult, which fact was known to the
parties; hence clauses were inserted in the contracts, regarding
"Government regulations, railroad embargoes, lack of vessel space, the
exigencies of the requirements of the United States Government," in
connection with the tanks and "Priority Certificate, subject to the United
State Government requirements," with respect to the motors. At the time of
the execution of the contracts, the parties were not unmindful of the
contingency of the United States Government not allowing the export of the
goods, nor of the fact that the other foreseen circumstances therein stated
might prevent it.
Considering these contracts in the light of the civil law, we cannot but
conclude that the term which the parties attempted to fix is so
uncertain that one cannot tell just whether, as a matter of fact,
those articles could be brought to Manila or not. If that is the case,
as we think it is, the obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been fixed
shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive,
even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day,
the obligation is conditional and shall be governed by the rules of the
next preceding section. (referring to pure and conditional obligations).
(Art. 1125, Civ. Code.)
And as the export of the machinery in question was, as stated in the
contract, contingent upon the sellers obtaining certificate of priority and
permission of the United States Government, subject to the rules and
regulations, as well as to railroad embargoes, then the delivery was
subject to a condition the fulfillment of which depended not only
upon the effort of the herein plaintiff, but upon the will of third
persons who could in no way be compelled to fulfill the condition.
In cases like this, which are not expressly provided for, but impliedly
covered, by the Civil Code, the obligor will be deemed to have
sufficiently performed his part of the obligation, if he has done all
that was in his power, even if the condition has not been fulfilled in
reality.
In such cases, the decisions prior to the Civil Code have held that the
obligee having done all that was in his power, was entitled to enforce
performance of the obligation. This performance, which is fictitious not
real is not expressly authorized by the Code, which limits itself only to
declare valid those conditions and the obligation thereby affected; but it is
neither disallowed, and the Code being thus silent, the old view can be
maintained as a doctrine. (Manresa's commentaries on the Civil Code
[1907], vol. 8, page 132.)
ROSENDO O. CHAVES, Plaintiff-Appellant,
vs.
FRUCTUOSO GONZALES, Defendant-Appellee.
[G.R. No. L-27454 | April 30, 1970. | En Banc | J. Reyes, J.B.L.]
FACTS: Plaintiff delivered to the defendant, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. Despite repeated
reminders made by the plaintiff, defendant was not able to finish the job
after some time. Later, plaintiff gave to the defendant the sum of P6 asked
by the latter for the purchase of spare parts. Exasperated due to the delay,
plaintiff asked for the return of the typewriter. Upon examination by
plaintiff, the typewriter was found to be in shambles, with the interior cover
and some parts and screws missing. Plaintiff demanded from defendant the
return of the missing parts, interior cover and the sum of P6. The defendant
returned to the plaintiff some of the missing parts, the interior cover and
the P6.
Plaintiff had his typewriter repaired by another, and the repair job cost him
a total of P89.85, including labor and materials.
Plaintiff commenced this action before the City Court of Manila, demanding
from the defendant the payment of P90 as actual and compensatory
damages, P100 for temperate damages, P500 for moral damages, and P500
as attorneys fees. Defendant claimed that the total cost of P89.95 should
be fully chargeable against him since the repair invoice showed that the
missing parts had total value of only P31.10. The court order the defendant
to pay the sum of P31.10.
Plaintiff directly appealed to the SC contending that the court a quo erred
when it did not award the whole cost of labor and materials that went into
the repair of the machine, as provided for in Article 1167 CC.
Defendant countered that he is not liable at all, not even for the sum of
P31.10, because his contract with plaintiff did not contain a period, so that
plaintiff should have first filed a petition for the court to fix the period,
under Article 1197 of the Civil Code.
ISSUE: WON defendant can invoke Article 1197 CC on the ground that his
contract with plaintiff did not contain a period?
HELD: NO. The appealed judgment states that the "plaintiff delivered to the
defendant . . . a portable typewriter for routine cleaning and servicing" ;
that the defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff" ; that the "defendant merely gave
assurances, but failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter", the plaintiff
went to the house of the defendant and asked for its return, which was
done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and
servicing a typewriter; that they intended that the defendant was
to finish it at some future time although such time was not
specified; and that such time had passed without the work having
been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time
to finish the job, or compensation for the work he had already
done. The time for compliance having evidently expired, and there being a
breach of contract by non-performance, it was academic for the plaintiff to
have first petitioned the court to fix a period for the performance of the
contract before filing his complaint in this case. Defendant cannot invoke
Article 1197 of the Civil Code for he virtually admitted non-
performance by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing.
The fixing of a period would thus be a mere formality and would
Cesar Nickolai F. Soriano Jr.
18 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co.
98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned it
"in shambles", according to the appealed decision. For such contravention,
as appellant contends, he is liable under Article 1167 of the Civil Code. jam
quot, for the cost of executing the obligation in a proper manner. The cost
of the execution of the obligation in this case should be the cost of the labor
or service expended in the repair of the typewriter, which is in the amount
of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of
the Code, for the cost of the missing parts, in the amount of P31.10, for in
his obligation to repair the typewriter he was bound, but failed or neglected,
to return it in the same condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees
were, however, correctly rejected by the trial court, for these were not
alleged in his complaint (Record on Appeal, pages 1-5).
VICENTE SINGSON ENCARNACION, plaintiff-appellee,
vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.
[G.R. No. L-264 | October 4, 1946 | EN BANC | J. Hilado]
FACTS: Plaintiff leased his house to Jacinto Baldomar, and her son, Lefrado
Fernando, upon a month-to-month basis. Subsequently, plaintiff notified
defendants to vacate the said house because plaintiff needed it for his
offices. Despite this demand, defendants insisted on continuing their
occupancy. Plaintiff filed an action before the Municipal Court of Manila
during which defendants were in arrears in the payment of the rental for
that month.
On appeal to the CFI, the defendants interposed that their lease contract
with the plaintiff authorized them to continue occupying the house
indefinitely as long as they faithfully pay their rentals. The CFI decided in
favor of the plaintiff ratiocinating that the lease had always been upon a
month-to-month basis.
ISSUE: WON the lease contract entered into by the parties is for an
indefinite period (as long as rentals are paid), or on a month-to-month
basis?
HELD: month-to-month. The defense thus set up by defendant Lefrado
Fernando would leave to the sole and exclusive will of one of the
contracting parties (defendants in this case) the validity and fulfillment of
the contract of lease, within the meaning of article 1256 of the Civil Code,
since the continuance and fulfillment of the contract would then depend
solely and exclusively upon their free and uncontrolled choice between
continuing paying the rentals or not, completely depriving the owner of all
say in the matter.
If this defense were to be 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 the aforesaid article of the Civil
Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)
DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,
vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.
G.R. No. 967 May 19, 1903
FACTS: This suit concerns the lease of a piece of land for a fixed
consideration of P25 per month and to endure at the will of the lessee, by
plaintiff-appellee to herein defendant-appellant.
As a result the plaintiff filed a case for unlawful detainer for the restitution
of the land claiming that article 1569 of the Civil Code provided that a lessor
may judicially dispossess the lessee upon the expiration of the conventional
term or of the legal term; the conventional term that is, the one agreed
upon by the parties; the legal term, in defect of the conventional, fixed for
leases by articles 1577 and 1581. The Plaintiffs argued that the duration of
the lease depends upon the will of the lessor on the basis of Art. 1581
which provides that, "When the term has not been fixed for the lease, it is
understood to be for years when an annual rental has been fixed, for
months when the rent is monthly. . . ." The second clause of the contract
provides as follows: "The rent of the said land is fixed at 25 pesos per
month."
The lower court ruled in favor of the plaintiff relying on Art. 1581.
ISSUE: WON there was an agreement as to the term, and hence, Art. 1581
is inapplicable?
HELD: Yes. The legal term cannot be applied, there being a
conventional term, this destroys the assumption that the contract
of lease was wholly terminated by the notice given by the
plaintiffs, this notice being necessary only when it becomes
necessary to have recourse to the legal term. Nor had the
plaintiffs, under the contract, any right to give such notice. It is
evident that they had no intention of stipulating that they reserved
the right to give such notice. Clause 3 begins as follows: "Mr.
Williamson, or whoever may succeed him as secretary of said club, may
terminate this lease whenever desired without other formality than that of
giving a month's notice. The owners of the land undertake to maintain the
club as tenant as long as the latter shall see fit." The right of the one and
the obligation of the others being thus placed in antithesis, there is
something more, much more, than the inclusio unius, exclusio alterius. It is
evident that the lessors did not intend to reserve to themselves the right to
rescind that which they expressly conferred upon the lessee by establishing
it exclusively in favor of the latter.
It would be the greatest absurdity to conclude that in a contract by
which the lessor has left the termination of the lease to the will of
the lessee, such a lease can or should be terminated at the will of
the lessor.
ISSUE2: WON the lease can be considered as a life tenancy?
HELD: No. It is not to be understood that we admit that the lease entered
into was stipulated as a life tenancy, and still less as a perpetual lease. The
terms of the contract express nothing to this effect. They do, whatever,
imply this idea. If the lease could last during such time as the lessee might
see fit, because it has been so stipulated by the lessor, it would last, first, as
long as the will of the lessee that is, all his life; second, during all the
time that he may have succession, inasmuch as he who contracts does so
for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question
does not fall within any of the cases in which the rights and obligations
arising from a contract cannot be transmitted to heirs, either by its nature,
by agreement, or by provision of law. Furthermore, the lessee is an English
association.
Usufruct is a right of superior degree to that which arises from a lease. It is
a real right and includes all the jus utendi and jus fruendi. Nevertheless, the
utmost period for which a usufruct can endure, if constituted in favor a
natural person, is the lifetime of the usufructuary (art. 513, sec. 1); and if in
favor of juridical person, it cannot be created for more than thirty years.
(Art. 515.) If the lease might be perpetual, in what would it be distinguished
from an emphyteusis? Why should the lessee have a greater right than the
usufructuary, as great as that of an emphyteuta, with respect to the
duration of the enjoyment of the property of another? Why did they not
contract for a usufruct or an emphyteusis? It was repeatedly stated in the
document that it was a lease, and nothing but a lease, which was agreed
upon: "Being in the full enjoyment of the necessary legal capacity to enter
into this contract of lease . . . they have agreed upon the lease of said
estate . . . They lease to Mr. Williamson, who receives it as such. . . .
The rental is fixed at 25 pesos a month. . . . The owners bind themselves to
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19 Arellano University School of Law 2011-0303
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maintain the club as tenant. . . . Upon the foregoing conditions they make
the present contract of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If
it is a lease, then it must be for a determinate period. (Art. 1543.) By its
very nature it must be temporary, just as by reason of its nature an
emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)
ISSUE3: WON the termination of the lease depends solely on the will of the
lessee?
HELD: No. The Civil Code has made provision for such a case in all kinds of
obligations. In speaking in general of obligations with a term it has supplied
the deficiency of the former law with respect to the "duration of the term
when it has been left to the will of the debtor," and provides that in this
case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is
entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting
parties are mutually creditors and debtors. Thus, in this contract of lease,
the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles
1555 and 1561. The term within which performance of the latter obligation
is due is what has been left to the will of the debtor. This term it is which
must be fixed by the courts.
The only action which can be maintained under the terms of the contract is
that by which it is sought to obtain from the judge the determination of this
period, and not the unlawful detainer action which has been brought an
action which presupposes the expiration of the term and makes it the duty
of the judge to simply decree an eviction. To maintain the latter action it is
sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the
former action it is necessary for the judge to look into the character and
conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire. In the case of a loan of
money or a commodatum of furniture, the payment or return to be made
when the borrower "can conveniently do so" does not mean that he is to be
allowed to enjoy the money or to make use of the thing indefinitely or
perpetually. The courts will fix in each case, according to the circumstances,
the time for the payment or return. This is the theory also maintained by
the defendant in his demonstration of the fifth assignment of error. "Under
article 1128 of the Civil Code," thus his proposition concludes, "contracts
whose term is left to the will of one of the contracting parties must be fixed
by the courts, . . . the conditions as to the term of this lease has a direct
legislative sanction," and he cites articles 1128. "In place of the ruthless
method of annihilating a solemn obligation, which the plaintiffs in this case
have sought to pursue, the Code has provided a legitimate and easily
available remedy. . . . The Code has provided for the proper disposition of
those covenants, and a case can hardly arise more clearly demonstrating
the usefulness of that provision than the case at bar."
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased,defendant-appellant.
G.R. No. L-17587 September 12, 1967
FACTS: Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila where two residential houses
are built one where the 2 sisters lived, and the other where Wong Heng
had been a long-time lessee paying a monthly rental of P2,620.
When Lorenzo died, Justina became the sole owner of the property, who
being close to Wong Hengs family, executed a contract of lease in favor of
Wong, covering the portion already leased to him and another portion of the
land, with a term of 50 years, although the lessee was given the right to
withdraw at any time from the agreement; the monthy rental was P3,210.
The contract was later on amended to cover the entire property, including
the portion where the house of Justina stood.
Eventually, she executed another contract giving Wong the option to buy
the leased premises (in installments) conditioned upon Wongs
naturalization which was already pending but eventually withdrawn. She
then filed a petition to adopt Wong and his children but the same was
abandoned. Later on, she executed two contracts, one extending the term
of the lease to 99 years and the other fixing the term of the option to 50
years.
In two will executed, she bade her legatees to respect the contracts she had
entered into with Wong but in a later dated codicil, she appears to have a
change of heart, directing the executor to secure annulment of the contracts
on the ground of machinations and inducements practiced by Wong.
A complaint was filed for the annulment of contracts alleging fraud,
misrepresentation, inequitable conduct, undue influence and abuse of
confidence and trust; and that the contracts were made to circumvent the
constitutional prohibition on aliens acquiring lands and Philippine
Naturalization Laws.
In the meantime, Security Bank and Trust Co, was appointed guardian of
the properties of Justina Santos, while Ephraim G. Gochangco was
appointed guardian of her person.
Except for the initial lease contract, all subsequent contracts were declared
null and void.
Among others, the plaintiff-appellant contends that the lease contract
should likewise be annulled since Paragraph 5 thereof states that "The
lessee may at any time withdraw from this agreement." It is claimed that
this stipulation offends article 1308 of the Civil Code which provides that
"the contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them."
ISSUE: WON the above-cited provision of the lease contract makes it
invalid?
HELD: No. We have had occasion to delineate the scope and application of
article 1308 in the early case of Taylor v. Uy Tieng Piao.1 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. Indeed, the cancellation
of a contract in accordance with conditions agreed upon
beforehand is fulfillment.
And so it was held in Melencio v. Dy Tiao Lay that a "provision in a lease
contract that the lessee, at any time before he erected any building on the
land, might rescind the lease, can hardly be regarded as a violation of article
1256 [now art. 1308] of the Civil Code."
The case of Singson Encarnacion v. Baldomar cannot be cited in support of
the claim of want of mutuality, because of a difference in factual setting. In
that case, the lessees argued that they could occupy the premises as long
as they paid the rent. This is of course untenable, for as this Court said, "If
this defense were to be 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." Here, in contrast, the right of the lessee to
continue the lease or to terminate it is so circumscribed by the term of the
contract that it cannot be said that the continuance of the lease depends
upon his will. At any rate, even if no term had been fixed in the
agreement, this case would at most justify the fixing of a
period but not the annulment of the contract.
Cesar Nickolai F. Soriano Jr.
20 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
ISSUE2: WON the contracts are valid despite the absence of undue
influence?
HELD: No. This is not to say, however, that the contracts are valid. For the
testimony just quoted, while dispelling doubt as to the intention of Justina
Santos, at the same time gives the clue to what we view as a scheme to
circumvent the Constitutional prohibition against the transfer of lands to
aliens. "The illicit purpose then becomes the illegal causa" rendering the
contracts void.
Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits. To be sure, 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. As this Court said in Krivenko v. Register of Deeds:
[A]liens 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. Should they desire to remain
here forever and share our fortunes and misfortunes, Filipino citizenship is
not impossible to acquire.
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,21 this to last for 50 years,
then it becomes clear that the arrangement is 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. And yet this is just
exactly what the parties in this case did within the space of one year, with
the result that Justina Santos' ownership of her property was reduced to a
hollow concept. If this can be done, then the Constitutional ban against
alien landholding in the Philippines, as announced in Krivenko v. Register of
Deeds, is indeed in grave peril.
It does not follow from what has been said, however, that because the
parties are in pari delicto they will be left where they are, without relief. For
one thing, the original parties who were guilty of a violation of the
fundamental charter have died and have since been substituted by their
administrators to whom it would be unjust to impute their guilt. For another
thing, and this is not only cogent but also important, article 1416 of the Civil
Code provides, as an exception to the rule on 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." The
Constitutional provision that "Save in cases of hereditary succession, no
private agricultural land shall be transferred or assigned except to
individuals, corporations, or associations qualified to acquire or hold lands of
the public domain in the Philippines" is an expression of public policy to
conserve lands for the Filipinos.
That policy would be defeated and its continued violation sanctioned if,
instead of setting the contracts aside and ordering the restoration of the
land to the estate of the deceased Justina Santos, this Court should apply
the general rule of pari delicto. To the extent that our ruling in this case
conflicts with that laid down in Rellosa v. Gaw Chee Hun and subsequent
similar cases, the latter must be considered as pro tanto qualified.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and
set aside; the land subject-matter of the contracts is ordered returned to
the estate of Justina Santos as represented by the Philippine Banking
Corporation; Wong Heng (as substituted by the defendant-appellant Lui
She) is ordered to pay the Philippine Banking Corporation the sum of
P56,564.35, with legal interest from the date of the filing of the amended
complaint; and the amounts consigned in court by Wong Heng shall be
applied to the payment of rental from November 15, 1959 until the premises
shall have been vacated by his heirs. Costs against the defendant-appellant.
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
G.R. No. L-34338 November 21, 1984
FACTS: Appellant and Maria Ayroso agreed that the former will sell the
latters tobacco, embodied in a document, eventually marked Exhibit A,
which reads:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de
Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to
be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred
Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it
was sold.
Appellant obtained the said tobacco leaves but paid only P240. Demands for
payment were made upon appellant by Ayroso, through the latters sister
Salud Bantug. After receiving some money orders which failed to cover the
full amount, a complaint for estafa was filed.
Peititioner was found guilty. On appeal, the CA affirmed the conviction.
ISSUE: WON Exhibit A was for a fixed period and "the obligation was
therefore, immediately demandable as soon as the tobacco was sold"?
HELD: Yes. It is clear in the agreement, Exhibit "A", that the proceeds of
the sale of the tobacco should be turned over to the complainant as soon as
the same was sold, or, that the obligation was immediately demandable as
soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil
Code, which provides that the courts may fix the duration of the obligation if
it does not fix a period, does not apply.
GREGORIO ARANETA, INC., petitioner,
vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT
LTD., respondent.
G.R. No. L-22558 May 31, 1967
FACTS: JM Tuason & Co, Inc., through Gregorio Araneta, Inc., sold a
portion of its parcel of land known as Sta. Mesa Heights Subdivision to
respondent Philippine Sugar Estates Development Co., Ltd., with a
stipulation, aside from the mortgage, that the buyer will build on the said
parcel of land the Sto. Domingo Church and Convent, while the seller will
clear the block surrounding the lot.
The buyer complied, but the seller which began constructing the streets, is
unable to finish the construction in the Northeast side because a third-party,
by the name of Manuel Abundo, who is occupying the middle part thereof,
refused to vacate the same.
Respondent filed a complaint for specific performance against petitioner. In
their answer, JM Tuason & Co., and petitioner Gregorio Araneta, Inc.
alleged that the action was premature since its obligation was without a
definite period which needs to be fixed first by ht ecourt in a proper suit.
The trial court dismissed the complaint. Upon reconsideration, the trial court
fixed the period to two years from notice.
On appeal, the CA affirmed that the fixing of the period was well within the
pleadings.
ISSUE: WON the contract between the parties did not contain a period
which justifies the trial and appellate court to fix the same?
HELD: No. Neither of the courts below seems to have noticed that, on the
hypothesis stated, what the answer put in issue was not whether the court
should fix the time of performance, but whether or not the parties agreed
that the petitioner should have reasonable time to perform its part of the
bargain. If the contract so provided, then there was a period fixed, a
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21 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
"reasonable time;" and all that the court should have done was to
determine if that reasonable time had already elapsed when suit was filed if
it had passed, then the court should declare that petitioner had breached
the contract, as averred in the complaint, and fix the resulting damages. On
the other hand, if the reasonable time had not yet elapsed, the court
perforce was bound to dismiss the action for being premature. But
in no case can it be logically held that under the plea above
quoted, the intervention of the court to fix the period for
performance was warranted, for Article 1197 is precisely
predicated on the absence of any period fixed by the parties.
Even on the assumption that the court should have found that no
reasonable time or no period at all had been fixed (and the trial court's
amended decision nowhere declared any such fact) still, the complaint not
having sought that the Court should set a period, the court could not
proceed to do so unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory that the period
for performance had already elapsed, that the contract had been breached
and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is
stated to support the conclusion that the period should be set at two years
after finality of the judgment. The list paragraph of Article 1197 is clear that
the period cannot be set arbitrarily. The law expressly prescribes that the
Court shall determine such period as may under the circumstances been
probably contemplated by the parties.
All that the trial court's amended decision (Rec. on Appeal, p. 124) says in
this respect is that "the proven facts precisely warrant the fixing of such a
period," a statement manifestly insufficient to explain how the two period
given to petitioner herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a
two-step process. The Court must first determine that "the
obligation does not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from the nature and the
CO., circumstances it can be inferred that a period was intended" (Art.
1197, pars. 1 and 2). This preliminary point settled, the Court must then
proceed to the second step, and decide what period was "probably
contemplated by the parties" (Do., par. 3). So that, ultimately, the Court
cannot fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the
two-year period set in its decision out of thin air, since no circumstances are
mentioned to support it. Plainly, this is not warranted by the Civil Code.
In this connection, it is to be borne in mind that the contract shows that the
parties were fully aware that the land described therein was occupied by
squatters, because the fact is expressly mentioned therein (Rec. on Appeal,
Petitioner's Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the
duration of the suits to be brought would not be under their control nor
could the same be determined in advance. The conclusion is thus forced
that the parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as
contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would render the
date of performance indefinite. Yet, the circumstances admit no other
reasonable view; and this very indefiniteness is what explains why the
agreement did not specify any exact periods or dates of performance.
It follows that there is no justification in law for the setting the date of
performance at any other time than that of the eviction of the squatters
occupying the land in question; and in not so holding, both the trial Court
and the Court of Appeals committed reversible error. It is not denied that
the case against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.
PACIFICA MILLARE, petitioner,
vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge,
Court of Instance of Abra, Second Judicial District, Branch I,
ANTONIO CO and ELSA CO, respondents.
G.R. No. L-55480 June 30, 1987
FACTS: On June 1975, Pacifica Millare, as lessor, entered into a contract to
lease to private respondent Elsa Co, married to Antonio Co, for P350 per
month the Peoples Restaurant, a commercial establishment in Abra. renewal contract. The second paragraph of Article 1197 is equally clearly
The present dispute arose from events which transpired during the months
of May and July in 1980. According to the Co spouses, sometime during the
last week of May 1980, the lessor informed them that they could continue
leasing the People's Restaurant so long as they were amenable to paying
creased rentals of P1,200.00 a month. In response, a counteroffer of
P700.00 a month was made by the Co spouses. At this point, the lessor
allegedly stated that the amount of monthly rentals could be resolved at a
later time since "the matter is simple among us", which alleged remark was
supposedly taken by the spouses Co to mean that the Contract of Lease had
been renewed, prompting them to continue occupying the subject premises
and to forego their search for a substitute place to rent. In contrast, the
lessor flatly denied ever having considered, much less offered, a renewal of
the Contract of Lease.
The above notwithstanding, Mrs. Millare wrote the Co spouses to vacate the
leased premises as she had no intention of renewing the contract. In reply,
the Co spouses signified their unwillingness to pay the P1,200 monthly
rentals.
The Co spouses filed a complaint seeking reneweal of the lease contract at
a rate of P700 a month. Later on, Mrs. Millare filed an ejectment case
against the Co Spouses.
The respondent judge ordered the renewal of the Contract of Lease holding
that par. 13 of the Contract already is a consummated and finished mutual
agreement of the parties to renew the contract of lease, what is left
unsettled between the parties is the amount of monthly rental.
Par. 13 reads:
13. This contract of lease is subject to the laws and regulations ofthe
goverrunent; and that this contract of lease may be renewed after a period
of five (5) years under the terms and conditions as will be mutually agreed
upon by the parties at the time of renewal; ... (Emphasis supplied.)
ISSUE: WON there was absence of period and the judge may fix the same?
HELD: No. Clearly, the respondent judge's grasp of both the law and the
Enghsh language is tenuous at best. We are otherwise unable to
comprehend how he arrived at the reading set forth above. Paragraph 13 of
the Contract of Lease can only mean that the lessor and lessee may agree
to renew the contract upon their reaching agreement on the terms and
conditions to be embodied in such renewal contract. Failure to reach
agreement on the terms and conditions of the renewal contract will of
course prevent the contract from being renewed at all. In the instant case,
the lessor and the lessee conspicuously failed to reach agreement both on
the amount of the rental to be payable during the renewal term, and on the
term of the renewed contract.
The respondent judge cited Articles 1197 and 1670 of the Civil Code to
sustain the "Judgment by Default" by which he ordered the renewal of the
lease for another term of five years and fixed monthly rentals thereunder at
P700.00 a month. Article 1197 of the Civil Code provides as follows:
If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
Cesar Nickolai F. Soriano Jr.
22 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
In every case, the courts shall determine such period as may, under the
circumstances, have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them. (Emphasis supplied.)
The first paragraph of Article 1197 is clearly inapplicable, since the Contract
of Lease did in fact fix an original period of five years, which had expired. It
is also clear from paragraph 13 of the Contract of Lease that the parties
reserved to themselves the faculty of agreeing upon the period of the
inapplicable since the duration of the renewal period was not left to the will
of the lessee alone, but rather to the will of both the lessor and the lessee.
Most importantly, Article 1197 applies only where a contract of lease clearly
exists. Here, the contract was not renewed at all, there was in fact no
contract at all the period of which could have been fixed.
Article 1670 of the Civil Code reads thus:
If at the end of the contract the lessee should continue enjoying the thing
left for 15 days with the acquiescence of the lessor and unless a notice to
the contrary by either party has previously been given. It is understood that
there is an implied new lease, not for the period of the original contract but
for the time established in Articles 1682 and 1687. The ther terms of the
original contract shall be revived. (Emphasis suplied.)
The respondents themselves, public and private, do not pretend that the
continued occupancy of the leased premises after 31 May 1980, the date of
expiration of the contract, was with the acquiescence of the lessor. Even if it
be assumed that tacite reconduccion had occurred, the implied new lease
could not possibly have a period of five years, but rather would have been a
month-to-month lease since the rentals (under the original contract) were
payable on a monthly basis. At the latest, an implied new lease (had one
arisen) would have expired as of the end of July 1980 in view of the written
demands served by the petitioner upon the private respondents to vacate
the previously leased premises.
It follows that the respondent judge's decision requiring renewal of the
lease has no basis in law or in fact. Save in the limited and exceptional
situations envisaged in Articles 1197 and 1670 of the Civil Code, which do
not obtain here, courts have no authority to prescribe the terms and
conditions of a contract for the parties.
Contractual terms and conditions created by a court for two parties are a
contradiction in terms. If they are imposed by a judge who draws upon his
own private notions of what morals, good customs, justice, equity and
public policy" demand, the resulting "agreement" cannot, by definition, be
consensual or contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties themselves.
Contracts spring from the volition of the parties. That volition cannot be
supplied by a judge and a judge who pretends to do so, acts tyrannically,
arbitrarily and in excess of his jurisdiction.
2. As to Plurality of Prestation
a. Conjunctive usually use the word and compared to alternative
obligations which use the word or.
b. Alternative
Art. 1199. A person alternatively bound by different prestations shall
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking.
Alternative Obligations: where several objects are due, the fulfillment of
one is sufficient. (Tolentino)
Art. 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation.
General Rule: the right of choice belongs to the debtor. Exceptions: (1) Uribe: no limitation in the law. Even before the obligation becomes due and
when EXPRESSLY granted to the creditor, i.e., it cannot be implied; or (2) demandable.
when the right of choice is given to a third party.
Alternative vs. Facultative Obligation:
Art. 1201. The choice shall produce no effect except from the time it has
been communicated. ALTERNATIVE FACULTATIVE
OBLIGATION OBLIGATION
Concentration: technical term of the act of making a choice in alternative As to there are various only ONE principal
obligations. contents prestations all of which prestation constitutes the
of the constitute parts of the obligation, the accessory
Choice is indivisible: the debtor cannot choose part of one prestation and obligation obligation being only a means to
part of another. facilitate payment.
As to the nullity of one prestation the nullity of the principal
Art. 1202. The debtor shall lose the right of choice when among the nullity does not invalidate the prestation invalidates the
prestations whereby he is alternatively bound, only one is practicable. obligation, which is still in obligation & the creditor
force with respect to those cannot demand the
Art. 1203. If through the creditor's acts the debtor cannot make a choice which have no vice substitute even when this is
according to the terms of the obligation, the latter may rescind the valid
contract with damages. As to the right to choose may be only the debtor can choose
choice given to the creditor the substitute prestation.
Art. 1204. The creditor shall have a right to indemnity for damages when, As to only the impossibility of all the impossibility of the
through the fault of the debtor, all the things which are alternatively the effect of the prestations due without principal prestation is
object of the obligation have been lost, or the compliance of the obligation loss fault of the debtor sufficient to extinguish the
has become impossible. extinguishes the obligation obligation, even if the
substitute is possible
The indemnity shall be fixed taking as a basis the value of the last thing
which disappeared, or that of the service which last became impossible. QUESTION: When one of the prestations become impossible to perform,
will that result in the extinguishment of the obligation?
Damages other than the value of the last thing or service may also be 1. Conjunctive: Yes.
awarded. 2. Alternative: Specific things. Depending on who has the right of choice.
a. If there had already been a communication of choice: the
Art. 1205. When the choice has been expressly given to the creditor, the obligation has already been simple. The lost of the chosen
obligation shall cease to be alternative from the day when the selection prestation extinguishes the obligation.
has been communicated to the debtor. b. Due to the fault of the debtor, if the right belongs to the debtor:
i. Perform remaining obligations;
Until then the responsibility of the debtor shall be governed by the ii. No liability for damages.
following rules: c. Due to the fault of the debtor, if the right of choice belongs to the
creditor:
(1) If one of the things is lost through a fortuitous event, he shall perform i. Demand value of thing lost plus damages;
the obligation by delivering that which the creditor should choose from ii. Choose from the remaining plus damages (according to the
among the remainder, or that which remains if only one subsists; provision, however, according to Jurado and Atty. Uribe, no
(2) If the loss of one of the things occurs through the fault of the debtor, damages, since creditor did not actually sustain any damage)
the creditor may claim any of those subsisting, or the price of that which,
through the fault of the former, has disappeared, with a right to damages; *if due to fortuitous event, the debtor may perform the obligation
(3) If all the things are lost through the fault of the debtor, the choice by as to the choice of the creditor from the remaining prestations.
the creditor shall fall upon the price of any one of them, also with
indemnity for damages. d. Due to the fault of the creditor, if the right of choice belongs to
the debtor;
The same rules shall be applied to obligations to do or not to do in case i. He may rescind the obligation (option only, not automatic)
one, some or all of the prestations should become impossible. plus damages;
ii. Perform one of the remaining prestations + damages.
c. Facultative (possible if the debtor is not the owner of the property,
owner may go against the creditor for the loss of the thing)
Art. 1206. When only one prestation has been agreed upon, but the 3. Facultative: It depends:
obligor may render another in substitution, the obligation is called a. If the loss happened BEFORE substitution, and
facultative. i. the prestation lost is the SUBSTITUTE: not extinguished;
ii. the prestation lost is the PRINCIPAL: extinguished.
The loss or deterioration of the thing intended as a substitute, through the b. If the loss happened AFTER substitution, and
negligence of the obligor, does not render him liable. But once the i. The prestation lost is SUBSTITUTE: extinguished.
substitution has been made, the obligor is liable for the loss of the ii. The prestation lost is PRINCIPAL: not extinguished.
substitute on account of his delay, negligence or fraud.
QUESTION: IF ALL things lost: if right of choice is with the:
Facultative Obligations: there are more than one prestation, but only a. Debtor: value of the last prestation lost (may be indicative of his
one is demandable, unlike in alternative where any of the prestations may choice. The value of the last prestation was intended to be the one to
be demandable. be delivered)
b. Creditor: value of any of the prestation.
Debtor: always has the right to substitute. He cannot be compelled to
make the substitution. 3. As to Rights & Obligations of Multiple Parties

When to make substitution: Professor Tolentino: if the obligation is a. Joint Obligations

already due and demandable. Professor Jurado: only if debtor is in delay.
Cesar Nickolai F. Soriano Jr.
23 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
A joint obligation is one in which each of the debtors is liable only for a
proportionate part of the debt or each creditor is entitled only to a
proportionate part of the credit. In joint OBLIGATIONS, there are as many
OBLIGATIONS as there are debtors multiplied by the number of creditors.
Other Terms: mancomunada or mancomunada simple or pro rata.
(Tolentino)
EFFECTS:
1. The demand by one creditor upon one debtor, produces the effects of
default only with respect to the creditor who demanded & the debtor
on whom the demand was made, but not with respect to the others;
2. The interruption of prescription by the judicial demand of one creditor
upon a debtor does not benefit the other creditors nor interrupt the
prescription as to other debtors. On the same principle, a partial
payment or acknowledgement made by one of several joint debtors
does not stop the running of the statute of limitations as to the others;
3. The vices of each obligation arising from the personal defect of a
particular debtor or creditor does not affect the obligation or rights of
the others;
4. The insolvency of a debtor does not increase the responsibility of his
co-debtors, nor does it authorize a creditor to demand anything from
his co-creditors;
5. In the joint divisible obligation, the defense of res judicata is not
extended from one debtor to another. (Manresa)
b. Solidary Obligation
A solidary obligation is one in which the debtor is liable for the entire
obligation or each creditor is entitled to demand the whole obligation. If
there is only one obligation, it is a solidary obligation.
Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability
only when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity. (1137a)
SOLIDRY OBLIGATION: arises when the obligation:
1. Expressly so states (stipulated);
Terms which may indicate solidarity: mancomunada solidaria or joint &
several; in solidum; juntos o separadamente; individually and
collectively.
individually and jointly
ERNESTO V. RONQUILLO, petitioner,
vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.
G.R. No. L-55138 September 28, 1984
FACTS: Petitioner Ernesto V. Ronquillo was one of four (4) defendants in
Civil Case No. 33958 filed by private respondent Antonio P. So, on July 23,
1979, for the collection of the sum of P17,498.98 plus attorney's fees and
costs. The other defendants were Offshore Catertrade Inc., Johnny Tan and
Pilar Tan, such amount representing the value of the checks issued by said
defendants in payment for foodstuffs delivered to and received by them.
The said checks were dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its Decision based on the
compromise agreement submitted by the parties, the pertinent portion of
which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95 to only
P11,000 .00 and defendants agree to acknowledge the validity of such
claim and further bind themselves to initially pay out of the total
indebtedness of P10,000.00 the amount of P55,000.00 on or before
December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of
Cesar Nickolai F. Soriano Jr.
24 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
six months from January 1980, or before June 30, 1980; (Emphasis
supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of either party to
comply with the foregoing terms and conditions, the innocent party will
be entitled to an execution of the decision based on this compromise
agreement and the defaulting party agrees and hold themselves to
reimburse the innocent party for attorney's fees, execution fees and
other fees related with the execution.
xxx xxx xxx
For failure of the defendants to make the initial payments as described
above, moved for execution, which was opposed by herein petitioner
contending that his inability to make the payment was due to private
respondents own act of making himself scarce and inaccessible. Petitioner
prayed that respondent be made to accept P13,750, as his pro-rata share in
the P55,000. Another defendant Pilar Tan, offered to pay the same amount.
Private respondent refused to accept their payments. As such, they
deposited the same with the Clerk of Court which was subsequently
withdrawn by private respondent.
The trial court then issued an order of execution against the other two
defendants who did not pay their shares. Upon reconsideration, the trial
court ruled as follows:
Regardless of whatever the compromise agreement has intended the
payment whether jointly or individually, or jointly and severally, the
fact is that only P27,500.00 has been paid. There appears to be a non-
payment in accordance with the compromise agreement of the amount
of P27,500.00 on or before December 24, 1979. The parties are
reminded that the payment is condition sine qua non to the lifting of
the preliminary attachment and the execution of an affidavit of
desistance.
A writ of execution was eventually issued against the defendants including
petitioner. Petitioner filed a petition for certiorari and prohibition which was
denied.
ISSUE: WON the petitioner is solidarily liable with the other defendants in
accordance with the compromise agreement?
HELD: Yes. Article 1207 and 1208 of the Civil Code provides
Art. 1207. The concurrence of two or more debtors in one and the
same obligation does not imply that each one of the former has a right
to demand, or that each one of the latter is bound to render, entire
compliance with the prestation. Then is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Art. 1208. If from the law,or the nature or the wording of the
obligation to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into as
many equal shares as there are creditors and debtors, the credits or
debts being considered distinct from one another, subject to the Rules
of Court governing the multiplicity of quits.
By the express term of the compromise agreement and the decision based
upon it, the defendants obligated themselves to pay their obligation
"individually and jointly".
The term "individually" has the same meaning as "collectively", "separately",
"distinctively", respectively or "severally". An agreement to be "individually
liable" undoubtedly creates a several obligation, and a "several obligation is
one by which one individual binds himself to perform the whole obligation.
In the case of Parot vs. Gemora We therein ruled that "the phrase juntos
or separadamente or in the promissory note is an express
statement making each of the persons who signed it individually
liable for the payment of the full amount of the obligation
contained therein." Likewise in Un Pak Leung vs. Negorra We held that
"in the absence of a finding of facts that the defendants made themselves
individually liable for the debt incurred they are each liable only for one-half
of said amount.
The obligation in the case at bar being described as "individually and
jointly", the same is therefore enforceable against one of the numerous
obligors.
2. When the law requires solidarity;
Succession
Art. 927. If two or more heirs take possession of the estate, they
shall be solidarily liable for the loss or destruction of a thing
devised or bequeathed, even though only one of them should have
been negligent. (n)
Partnership
Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and
1823. (n)
Agency
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers. (n)
Art. 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable
to the agent for all the consequences of the agency. (1731)
Loan
Art. 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a)
Solutio Indebiti
Art. 2157. The responsibility of two or more payees, when there
has been payment of what is not due, is solidary. (n)
Negotiorum Gestio
Art. 2146. If the officious manager delegates to another person
all or some of his duties, he shall be liable for the acts of the
delegate, without prejudice to the direct obligation of the latter
toward the owner of the business.
The responsibility of two or more officious managers shall be
solidary, unless the management was assumed to save the thing or
business from imminent danger. (1890a)
Quasi-Delict
Art. 2194. The responsibility of two or more persons who are
liable for quasi-delict is solidary. (n)
Family Code
Art. 94. The absolute community of property shall be liable for:
xxx
If the community property is insufficient to cover the foregoing
liabilities, except those falling under paragraph (9), the spouses
shall be solidarily liable for the unpaid balance with their separate
properties.
Art. 121. The conjugal partnership shall be liable for:
xxx
If the conjugal partnership is insufficient to cover the foregoing
Cesar Nickolai F. Soriano Jr.
25 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
liabilities, the spouses shall be solidarily liable for the unpaid
balance with their separate properties.
Revised Penal Code
Art. 109. Share of each person civilly liable. If there are
two or more persons civilly liable for a felony, the courts shall
determine the amount for which each must respond.
Art. 110. Several and subsidiary liability of principals,
accomplices and accessories of a felony; Preference in
payment. Notwithstanding the provisions of the next preceding
article, the principals, accomplices, and accessories, each within
their respective class, shall be liable severally (in solidum) among
themselves for their quotas, and subsidiaries for those of the other
persons liable.
The subsidiary liability shall be enforced, first against the property
of the principals; next, against that of the accomplices, and, lastly,
against that of the accessories.
Whenever the liability in solidum or the subsidiary liability has been
enforced, the person by whom payment has been made shall have
a right of action against the others for the amount of their
respective shares.
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES,
INC., Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
G.R. No. 190696 August 3, 2010
Since the cause of action against Calang arose from delict, Philtranco,
whose liability arose from quasi-delict, cannot be made solidarily liable with
Calang. Art. 2180 does not apply to civil liability arising from delict.
FACTS: As a result of the collision of Philtranco Bus driven by one Rolito
Calang to the left portion of a jeep coming from the opposite direction,
Cresencio Pinohermoso, the driver of the jeep, lost control of the vehicle
and bumped and killed Jose Mabansag, a bystander. The jeep turned turtle
three times and two of the passengers thereof, Armando Nablo and an
unidentified woman, were instantly killed, while the other passengers were
sustained serious physical injuries.
Calang was charged with multiple homicide, multiple serious physical
injuries and damage to property through reckless imprudence and was
found guilty. The RTC ordered Calang and Philtranco, jointly and severally to
pay P50,000 as death indemnity to the heirs of Armando, P50,000 death
indemnity to the heirs of Mabansag and P90,083.93 as actual damages to
private complainants.
On appeal, the CA affirmed the RTC in toto. The CA found that the RTC
correctly held Philtranco jointly and severally liable with petitioner Calang,
for failing to prove that it had exercised the diligence of a good father of the
family to prevent the accident.
The petitioners filed with this Court a petition for review on certiorari. In our
Resolution dated February 17, 2010, we denied the petition for failure to
sufficiently show any reversible error in the assailed decision to warrant the
exercise of this Courts discretionary appellate jurisdiction.
ISSUE: WON Philtranco can be held jointly and severally liable with Calang
even if it was not a party to the criminal case?
HELD: No.
Liability of Calang
We see no reason to overturn the lower courts finding on Calangs
culpability. The finding of negligence on his part by the trial court, affirmed
by the CA, is a question of fact that we cannot pass upon without going into
factual matters touching on the finding of negligence. In petitions for review
on certiorari under Rule 45 of the Revised Rules of Court, this Court is
limited to reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on record, or
the assailed judgment is based on a misapprehension of facts.
Liability of Philtranco
We, however, hold that the RTC and the CA both erred in holding Philtranco
jointly and severally liable with Calang. We emphasize that Calang was
charged criminally before the RTC. Undisputedly, Philtranco was not a direct
party in this case. Since the cause of action against Calang was
based on delict, both the RTC and the CA erred in holding
Philtranco jointly and severally liable with Calang, based on quasi-
delict under Articles 2176 and 2180 of the Civil Code. Articles 2176
and 2180 of the Civil Code pertain to the vicarious liability of an employer
for quasi-delicts that an employee has committed. Such provision of law
does not apply to civil liability arising from delict.
If at all, Philtrancos liability may only be subsidiary. Article 102 of the
Revised Penal Code states the subsidiary civil liabilities of innkeepers,
tavernkeepers and proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers,
and any other persons or corporations shall be civilly liable for crimes
committed in their establishments, in all cases where a violation of
municipal ordinances or some general or special police regulations shall
have been committed by them or their employees.
Innkeepers are also subsidiary liable for the restitution of goods taken
by robbery or theft within their houses from guests lodging therein, or
for the payment of the value thereof, provided that such guests shall
have notified in advance the innkeeper himself, or the person
representing him, of the deposit of such goods within the inn; and shall
furthermore have followed the directions which such innkeeper or his
representative may have given them with respect to the care of and
vigilance over such goods. No liability shall attach in case of robbery
with violence against or intimidation of persons unless committed by
the innkeepers employees.
The foregoing subsidiary liability applies to employers, according to Article
103 of the Revised Penal Code, which reads:
The subsidiary liability established in the next preceding article shall
also apply to employers, teachers, persons, and corporations engaged
in any kind of industry for felonies committed by their servants, pupils,
workmen, apprentices, or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability Articles
102 and 103 are deemed written into the judgments in cases to which
they are applicable. Thus, in the dispositive portion of its decision, the trial
court need not expressly pronounce the subsidiary liability of the
employer. Nonetheless, before the employers subsidiary liability is
enforced, adequate evidence must exist establishing that (1) they
are indeed the employers of the convicted employees; (2) they are
engaged in some kind of industry; (3) the crime was committed by
the employees in the discharge of their duties; and (4) the
execution against the latter has not been satisfied due to
insolvency. The determination of these conditions may be done in the
same criminal action in which the employees liability, criminal and civil, has
been pronounced, in a hearing set for that precise purpose, with due notice
to the employer, as part of the proceedings for the execution of the
judgment.
3. When the nature of the obligation requires solidarity.
Obligations arising from different sources: In Gutierrez vs. Gutierrez,
the driver of the bus, who is liable under quasi-delict, and the owner, liable
under contract was held to be solidarily liable although no explanation was
provided why their obligation was considered such.
However, in Malayan Insurance, the SC held that there is no solidarity since
the obligation arose from different sources.
Cesar Nickolai F. Soriano Jr.
26 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
MALAYAN INSURANCE CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C.
VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and
PANGASINAN TRANSPORTATION CO., INC., respondents.
G.R. No. L-36413 September 26, 1988
FACTS: Petitioner issued in favor of private respondent Sui Choy Private Car
a Comprehensive Policy coverying Willys jeep covering own damage not
to exceed P600.00 and third-party liability in the amount of P20,000.
During the effectivity of said insurance policy, the jeep, driven by Juan
Campollo, an employee of respondent San Leon Rice Mill, Inc. collided with
a passenger bus belonging to PANTRANCO causing damage to the insured
vehicle and injuries to the driver, Campollo and the respondent Martin
Vallejos, a passenger of the jeep.
Vallejos filed an action for damages against Sio Choy, Mayan Insurance and
PANTRANCO.
In their answers:
PANTRANCO claimed that the jeep of Sio Choy was then operated at
an excessive speed and bumped PANTRANCO which had moved to,
and stopped at, the shoulder of the highway to avoid the jeep; and
that it had observed the diligence of a good father of a family to
prevent damage, especially in the selection and supervision of its
employees and in the maintenance of its motor vehicles;
Sio Choy and the petitioner insurance company, in their answer, also
denied liability to the plaintiff, claiming that the fault in the accident
was solely imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-claim
against the herein petitioner wherein he alleged that he had actually
paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for
hospitalization and other expenses, and claimed reimbursement for the
damage to his motor vehicle, as well as for any liability to third persons
arising out of any accident during the effectivity of such insurance
contract.
Also later, the herein petitioner sought, and was granted, leave to file a
third-party complaint against the San Leon Rice Mill, Inc. for the
reason that the person driving the jeep of Sio Choy, at the time of the
accident, was an employee of the San Leon Rice Mill, Inc. performing
his duties within the scope of his assigned task, and not an employee
of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of
the deceased driver, Juan P. Campollo, it should be liable for the acts
of its employee, pursuant to Art. 2180 of the Civil Code.
The trial court rendered a decision in favor of the plaintiff and against Sio
Choy, Malayan Insurance and San Leon Rice Mill.
On appeal, the respondent Court of Appeals affirmed the judgment of the
trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan
Insurance Co., Inc. are jointly and severally liable for the damages awarded
to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice
Mill, Inc. has no obligation to indemnify or reimburse the petitioner
insurance company for whatever amount it has been ordered to pay on its
policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of
insurance between Sio Choy and the insurance company.
ISSUE: WON petitioner is solidarily liable with San Leon and Sio Choy?
HELD: No. We do not agree with the aforesaid ruling. We hold instead that
it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion
of the petitioner) that are solidarily liable to respondent Vallejos for the
damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said
plaintiff as owner of the ill-fated Willys jeep, pursuant to Article 2184 of
the Civil Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of due
diligence, prevented the misfortune it is disputably presumed that a driver
was negligent, if he had been found guilty of reckless driving or violating
traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent
San Leon Rice Mill, Inc. to plaintiff Vallejos, the former being the
employer of the driver of the Willys jeep at the time of the motor vehicle
mishap, is Article 2180 of the Civil Code which reads:
Art. 2180. The 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.
xxx xxx xxx
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 ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are
the principal tortfeasors who are primarily liable to respondent Vallejos.
The law states that the responsibility of two or more persons who
are liable for a quasi-delict is solidarily.
On the other hand, the basis of petitioner's liability is its insurance
contract with respondent Sio Choy. If petitioner is adjudged to pay
respondent Vallejos in the amount of not more than P20,000.00,
this is on account of its being the insurer of respondent Sio Choy
under the third party liability clause included in the private car
comprehensive policy existing between petitioner and respondent
Sio Choy at the time of the complained vehicular accident.
In Guingon vs. Del Monte, `a passenger of a jeepney had just alighted
therefrom, when he was bumped by another passenger jeepney. He died as
a result thereof. In the damage suit filed by the heirs of said passenger
against the driver and owner of the jeepney at fault as well as against the
insurance company which insured the latter jeepney against third party
liability, the trial court, affirmed by this Court, adjudged the owner and the
driver of the jeepney at fault jointly and severally liable to the heirs of the
victim in the total amount of P9,572.95 as damages and attorney's fees;
while the insurance company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the judgment
rendered against said owner and driver of the jeepney. Thus, in
said Guingon case, it was only the owner and the driver of the
jeepney at fault, not including the insurance company, who were
held solidarily liable to the heirs of the victim.
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the
other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos, but it cannot, as incorrectly held by the trial court, be made
"solidarily" liable with the two principal tortfeasors namely respondents Sio
Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were
solidarily liable with said two (2) respondents by reason of the
indemnity contract against third party liability-under which an
insurer can be directly sued by a third party this will result in a
violation of the principles underlying solidary obligation and
insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against
one of the solidary debtors. On the other hand, insurance is defined as "a
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contract whereby one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown or contingent
event."
In the case at bar, the trial court held petitioner together with respondents
Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos
for a total amount of P29,103.00, with the qualification that petitioner's
liability is only up to P20,000.00. In the context of a solidary
obligation, petitioner may be compelled by respondent Vallejos to
pay the entire obligation of P29,013.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be
obliged to pay the entire obligation when the amount stated in its
insurance policy with respondent Sio Choy for indemnity against
third party liability is only P20,000.00? Moreover, the qualification
made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a
solidary obligation. Thus, We hold that the trial court, as upheld by the
Court of Appeals, erred in holding petitioner, solidarily liable with
respondents Sio Choy and San Leon Rice Mill, Inc. to respondent Vallejos.
ISSUE2: WON petitioner can seek reimbursement from San Leon even
though it is not a party to its contract with Sio Choi?
HELD: Yes. Petitioner, upon paying respondent Vallejos the amount of riot
exceeding P20,000.00, shall become the subrogee of the insured, the
respondent Sio Choy; as such, it is subrogated to whatever rights the latter
has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil
Code gives to a solidary debtor who has paid the entire obligation the right
to be reimbursed by his co-debtors for the share which corresponds to each.
Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made.
If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to
respondent Vallejos and thereby becoming the subrogee of
solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon
Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the
amount of P29,103.00. Vallejos may enforce the entire obligation on only
one of said solidary debtors. If Sio Choy as solidary debtor is made to pay
for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy,
is compelled to pay P20,000.00 of said entire obligation, petitioner would be
entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be
reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of
P29,103.00 )
Otherwise, if none of the above are present, which would give rise
to solidarity, the obligation may be considered joint, as follows:
Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be divided into as
many shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules of
Court governing the multiplicity of suits. (1138a)
PROBLEM: Four foreign medical students rented the apartment of Thelma
for a period of one year. After one semester, three of them returned to
their home country and the fourth transferred to a boarding house. Thelma
discovered that they left unpaid telephone bills in the total amount of
P80,000.00 The lease contract provided that the lessees shall pay for the
telephone services in the leased premises. Thelma demanded that the
fourth student pay the entire amount of the unpaid telephone bills, but the
latter is willing to pay only one fourth of it. Who is correct? Why? (5%)
ANSWER: The student is correct. Since the obligation does not expressly
provide for solidarity, nor does the law (on lease) provide for solidary
liability, nor does the nature of the obligation require solidarity, the student
is correct that the obligation is joint in accordance with Art. 1208.
And since there is no designation as to their respective shares, it is
presumed to be divided equally among the debtoes. As such, the student
may only be made liable for or P20,000.
PROBLEM: A and B sold 1,000 sacks of rice to X and Y, on Xs request,
delivered them to him. X resold the rice, without turning over any part of it
or its price to Y.
May Y compel A and B deliver what he bought? If so, to what extent?
ANSWER: Y can compel A and B to deliver 250 sacks each. Since there is
no basis to hold that the obligation of A and B are solidary, i.e., it is not so
stipulated and neither does the law or the nature of the obligation so
require solidarity, the obligation of A and B are joint. As such, their delivery
to X of the 1,000 sacks did no extinguish their obligations. Under Art. 1208,
each of the credits or debits are considered distinct and separate.
Accordingly, A is liable to X and Y for 250 sacks each, and B is liable to X
and Y for 250 sacks each. There are four distinct obligations and only their
obligation to X has been extinguished by their delivery.
Moreover, nothing was turned over to Y, as such, no benefit redounded to
him so as to render the payment to a wrong party (X) to have extinguished
the obligation.
Based on the foregoing, Y can compel A to deliver 250 sacks and B to
deliver 250 sacks.
Art. 1211. Solidarity may exist although the creditors and the debtors may
not be bound in the same manner and by the same periods and conditions.
(1140)
Art. 1212. Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the latter.
(1141a)
Art. 1213. A solidary creditor cannot assign his rights without the consent
of the others. (n)
Enforcement of Solidary Obligations:
Art. 1214. The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them, payment
should be made to him. (1142a)
Art. 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of Article
1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Remission or condonation of the share of one of the debtors:
Art. 1219. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally paid by anyone of
them before the remission was effected. (1146a)
Defenses available to other debtors may be a partial defense as to
the one from whom performance is demanded:
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail
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himself of all defenses which are derived from the nature of the obligation
and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are
responsible. (1148a)
PROBLEM: Joey, Jovy and Jojo are solidary debtors under a loan obligation
of P300,000.00 which has fallen due. The creditor has, however, condoned
Jojos entire share in the debt. Since Jovy has become insolvent, the
creditor makes a demand on Joey to pay the debt.
1. How much, if any, may Joey be compelled to pay?
2. To what extent, if at all, can Jojo be compelled by Joey to contribute to
such payment?
ANSWER:
1. Since there was condonation of the part of Joey, there was partial
extinguishment of the obligation. However, only P100,000 was
condoned, reducing the obligation from P200,000. The fact that Jovy
became insolvent does not reduce the obligation further. As such, Joey
can be compelled to pay the remaining P200,000.
2. As provided under Art. 1217, when one of the solidary debtors, cannot,
because of his insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each. As such, Joey can seek reimbursement
from Jojo, half of Jovys share in the obligation, or P50,000. The fact
that Jojo was released of his obligation by virtue of the condonation
does not release him from his liability for the share of Jovy.
Insolvency of one of the debtors:
Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made.
If the payment is made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each. (1145a)
PROBLEM: A, B and C solidarily promised to pay D the amount of
P3,000.00. Unfortunately, C became insolvent.
What recourse does D have against A and B? What are the rights of A and
B as against each other?
ANSWER: D can hold either A and/or B liable for P3,000. In solidary
obligations, the insolvency of one of the debtors does not reduce the
obligation. The share of the insolvent debtors will be shouldered by the
other debtors who are not insolvent in accordance with the 3rd paragraph of
Art. 1217.
If A paid the whole obligation, he will have the right to seek reimbursement
from B the amount of P1,500 in accordance with the 2 nd paragraph of Art.
1217.
PROBLEM: A, B, C, D and E made themselves solidarily indebted to X for
the amount of P50,000.00. When X demanded payment from A the latter
refused to pay on the following grounds:
B is only 16 years old
C has already been condoned by X.
D is insolvent.
E was given by X an extension of 6 months without the consent of the
other four co-debtors.
ANSWER:
1. The minority is a defense of B. As invoked by A, it would reduce the
obligation as to his share. Since no agreement as to the share is shown
in the facts, 1/5 of the debt is annulled by Bs minority, since such
 minority is a partial defense. A can still be held liable for the remaining
P40,000.
2. A can still be made liable for P40,000;
3. The insolvency of D does not reduce the obligation. As such, A can still
be made liable for the whole P50,000;
4. The extension given to E applies to A as well. As such, A cannot be
made to pay prior to the expiration of the 6 months.
EXAMPLES OF TOTAL DEFENSE:
1. Payment by another co-debtor, as to a subsequent demand of a
creditor;
2. If the contract is void;
3. If the obligation has prescribed.
Art. 1216. The creditor may proceed against any one of the solidary
debtors or 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.
(1144a)
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO
DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA, MOISES
CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO
LEVISTE, GAVINO GONZALES, LOPE GEVANA and BONIFACIO
LAUREANA, defendants-appellees.
G.R. No. L-28046 May 16, 1983
The CFI of Manila dismissed PNBs complaint against several solidary
debtors for collection of a sum of money on the ground that one of the
defendants (Ceferino Valencia) died during the pendency of the case after
the plaintiff had presented its evidence and therefore the complaint, being a
money claim based on contract, should be prosecuted in the estate or
intestate proceeding in accordance with Sec. 6 of Rule 86 of the Rules of
Court, which provides:
SEC. 6. Solidary obligation of decedent. the obligation of the
decedent is solidary with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without prejudice
to the right of the estate to recover contribution from the other debtor.
In a joint obligation of the decedent, the claim shall be confined to the
portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse
against one, some or all of its solidary debtors under Article 1216 of the Civil
Code
ART. 1216. The creditor may proceed against any one of the solidary
debtors or 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.
ISSUE: WON the action for collection of a sum of money based on contract
against all the solidary debtors, the death of one defendant deprives the
court of jurisdiction to proceed with the case against the surviving
defendants?
HELD: No. It is now settled that the quoted Article 1216 grants the creditor
the substantive right to seek satisfaction of his credit from one, some or all
of his solidary debtors, as he deems fit or convenient for the protection of
his interests; and if, after instituting a collection suit based on contract
against some or all of them and, during its pendency, one of the defendants
dies, the court retains jurisdiction to continue the proceedings and decide
the case in respect of the surviving defendants. Thus in Manila Surety &
Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that
where two persons are bound in solidum for the same debt and one of
them dies, the whole indebtedness can be proved against the estate of
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the latter, the decedent's liability being absolute and primary; and if
the claim is not presented within the time provided by the rules, the
same will be barred as against the estate. It is evident from the
foregoing that Section 6 of Rule 87 (now Rule 86) provides the
procedure should the creditor desire to go against the
deceased debtor, but there is certainly nothing in the said
provision making compliance with such procedure a condition
precedent before an ordinary action against the surviving
solidary debtors, should the creditor choose to demand
payment from the latter, could be entertained to the extent
that failure to observe the same would deprive the court
jurisdiction to take cognizance of the action against the
surviving debtors. Upon the other hand, the Civil Code expressly
allows the creditor to proceed against any one of the solidary
debtors or some or all of them simultaneously. There is,
therefore, nothing improper in the creditor's filing of an action
against the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the estate of the
deceased debtor wherein his claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court,
speaking thru Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court
reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said
provision merely sets up the procedure in enforcing
collection in case a creditor chooses to pursue his
claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the creditor the
right to 'proceed against anyone of the solidary debtors or some or all
of them simultaneously.' The choice is undoubtedly left to the solidary,
creditor to determine against whom he will enforce collection. In case
of the death of one of the solidary debtors, he (the creditor) may, if he
so chooses, proceed against the surviving solidary debtors without
necessity of filing a claim in the estate of the deceased debtors. It is
not mandatory for him to have the case dismissed against the surviving
debtors and file its claim in the estate of the deceased solidary
debtor
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised
Rules of Court were applied literally, Article 1216 of the New Civil Code
would, in effect, be repealed since under the Rules of Court, petitioner
has no choice but to proceed against the estate of Manuel Barredo
only. Obviously, this provision diminishes the Bank's right under the
New Civil, Code to proceed against any one, some or all of the solidary
debtors. Such a construction is not sanctioned by the principle, which
is too well settled to require citation, that a substantive law cannot be
amended by a procedural rule. Otherwise stared, Section 6, Rule 86 of
the Revised Rules of Court cannot be made to prevail over Article 1216
of the New Civil Code, the former being merely procedural, while the
latter, substantive.
Art. 1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal. (n)
Art. 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
(n)
c. Disjunctive
This is not covered by New Civil Code. In this case, there are 2 or more
creditors and 2 or more debtors but they are named disjunctively as debtors
and creditors in the alternative.
The rules on solidary obligations must apply because if rules on alternative
obligations will be applied then the debtor will generally be given the choice
to whom shall he give payment.

Example: A binds himself to pay P100 either to X or Y. A or B will pay 100 to
X.
4. As to Performance of Prestation
Art. 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only
by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share. (1139)
Art. 1210. The indivisibility of an obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself imply indivisibility. (n)
In determining whether an obligation is divisible or indivisible, the question
asked should be: whether the obligation is capable of partial performance?
GENERAL RULE: the creditor cannot be compelled to accept partial
performance.
EXCEPTIONS:
1. If stipulated;
2. If the obligation is divisible;
3. If the obligation is partially liquidated and partially unliquidated, the
liquidated portion may already be performed;
4. An obligation which would require a number of days to be performed,
it may be considered divisible by operation of law.
a. Divisible
b. Indivisible
c. Joint Indivisible
Art. 1224. A joint indivisible obligation gives rise to indemnity for damages
from the time anyone of the debtors does not comply with his undertaking.
The debtors who may have been ready to fulfill their promises shall not
contribute to the indemnity beyond the corresponding portion of the price of
the thing or of the value of the service in which the obligation consists.
(1150)
d. Solidary Indivisible
Art. 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest,
without prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has
become impossible after one of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply. (1147a)
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of the obligation
and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are
responsible. (1148a)
Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does not
alter or modify the provisions of Chapter 2 of this Title. (1149)
Art. 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial performance
shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous
things which by their nature are susceptible of partial performance, it shall
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be divisible.
However, even though the object or service may be physically divisible, an
obligation is indivisible if so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by
the character of the prestation in each particular case.
5. As to the Presence of an Accessory Undertaking in case of
breach
a. With a Penal Clause
Art. 1226. In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance
with the provisions of this Code. (1152a)
GENERAL RULE: the penalty shall substitute the indemnity for damages
and payment of interests in case of non-compliance.
EXCEPTIONS:
1. If there is stipulation to the contrary;
2. If the debtor refuses to pay the penalty;
3. If the debtor is guilty of fraud in the fulfilment of the obligation.
PROBLEMT: The Betis Furniture Co. undertook to deliver to Mr.
Bagongkasal specified pieces of living room, dining room and bedroom
furniture, all mad of narra, for a price stated in the contract. The
agreement had a penal clause that any violation of the contract would
entitle the aggrieved party to damages in the amount of P100,000.00. The
furniture delivered by Betis was made, not a narra, but of inferior wood.
In a suit to recover damages, Bagongkasal was able to prove that the actual
damages he sustained amounted to P200,000.00. He demanded the
amount plus the P100,000.00 penalty or total of P300,000.00. Betis,
however, countered that if it were liable for damages at all, the maximum
award should not exceed P100,000.00 as stated in the penal clause of the
contract.
Whose claim would you sustain? Why?
ANSWER: If Betis was guilty of fraud since those delivered were made of
inferior materials, he would be liable for both the actual damages and the
penalty. The exception under Art. 1226 would apply.
*NOTE: fraud is not presumed. There should be proof that there is fraud.
The fact that those delivered were made of inferior wood does not
necessarily mean that there was fraud. There could have been mistake.
Even assuming that there was fraud, Bagongkasal is wrong. He cannot
recover both actual damages plus penalty. He can only recover damages
only in excess of penalty. It cannot exceed actual damages unless other
damages are awarded. (see Pamintuan)
THE BACHRACH MOTOR CO., INC., plaintiff-appellee,
vs.
FAUSTINO ESPIRITU, defendant-appellant.
G.R. No. L-28497 November 6, 1928
------------------------------
THE BACHRACH MOTOR CO., INC., plaintiff-appellee,
vs.
FAUSTINO ESPIRITU, defendant-appellant, and ROSARIO
ESPIRITU, intervenor-appellant.
G.R. No. L-28498 November 6, 1928
Since there was partial performance, the penalty was reduced.
FACTS: Case 28497: Defendant Espiritu purchased a two-ton White truck
paying P1,000 down and the rest to be paid within the periods agreed upon,
securing the purchase was the same truck and two others which were also
brought from petitioner and already fully paid.
Case 28498: defendant bought a one-ton White truck from the plaintiff and
paid P500 cash payment and the 12& annual interest on the unpaid
principal, secured by the same truck and two others which also secured the
earlier purchase.
In both sales it was agreed that 12 per cent interest would be paid upon the
unpaid portion of the price at the executon of the contracts, and in case of
non-payment of the total debt upon its maturity, 25 per cent thereon, as
penalty.
In addition to the mortagage deeds referred to, which the defendant
executed in favor of the plaintiff, the defendant at the same time also
signed a promissory note solidarily with his brother Rosario Espiritu for the
several sums secured by the two mortgages.
Defendant failed to pay. Thus, petitioner executed the present action.
Rosario Espiritu appeared in the two cases as intervenor alleging to be the
exclusive owner of the two trucks mortgaged by defendants.
The trial court ordered the defendants and the intervenor to pay the plaintiff
the unpaid amount plus 12% interest and 25% thereof as penalty.
Aside from the legality of the mortgage, the defendant and intervenor
assails the validity of the 25% penalty.
ISSUE: WON they are liable for the 25% penalty?
HELD: Yes. But reduced due to partial performance. It is finally contended
that the 25 per cent penalty upon the debt, in addition to the interest of 12
per cent per annum, makes the contract usurious. Such a contention is not
well founded. Article 1152 of the Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreemnet, the
penalty, as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does
not include the interest, and which may be demamded separetely.
According to this, the penalty is not to be added to the interest for
the determination of whether the interest exceeds the rate fixed
by the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed, and making
use of the power given to the court by article 1154 of the Civil
Code, this penalty is reduced to 10 per cent of the unpaid debt.
With the sole modification that instead of 25 per cent upon the sum owed,
the defendants need pay only 10 per cent thereon as penalty, the judgment
appealed from is affired in all other respects without special pronouncement
as to costs. So ordered.
ROBES-FRANCISCO REALTY & DEVELOPMENT
CORPORATION, petitioner,
vs.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and
LOLITA MILLAN, respondents.
G.R. No. L-41093 October 30, 1978
The clause providing for 4% interest liability does not purport to be a
penalty since the legal rate (6%) is even more than such. It is therefore,
inconceivable that the aforecited provision in the deed of sale is a penal
clause.
FACTS: Robes-Francisco Realty & Development Corporation, herein
petitioner, agreed to sell to private respondent Lolita Millan a parcel of land
with the obligation to execute a deed of sale and cause the issuance of the
TCT upon full payment of the purchase price.
Their contract embodied a provision, as follows:
That the VENDOR further warrants that the transfer certificate of title
of the above-described parcel of land shall be transferred in the name
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of the VENDEE within the period of six (6) months from the date of full
payment and in case the VENDOR fails to issue said transfer certificate
of title, it shall bear the obligation to refund to the VENDEE the total
amount already paid for, plus an interest at the rate of 4% per
annum. (record on appeal, p. 9)
After full payment of the purchase price, petitioner failed to comply with its
obligations. As such, respondent filed a complaint for specific performance
and damages.
The trial court decided in favor of respondent and ordered petitioner to
execute the deed and cause the issuance of the TCT, otherwise it will be
liable for total amount paid plus 4% interest until fully paid. On top of
which, the trial court awarded nominal damages of P20,000 and attorneys
fees of P5,000.
ISSUE: WON the 4% interest is a penalty?
HELD: No. Yes. We hold that the trial court did not err in awarding nominal
damages; however, the circumstances of the case warrant a reduction of
the amount of P20,000.00 granted to private respondent Millan.
There can be no dispute in this case under the pleadings and the admitted
facts that petitioner corporation was guilty of delay, amounting to
nonperformance of its obligation, in issuing the transfer certificate of title to
vendee Millan who had fully paid up her installments on the lot bought by
her. Article 1170 of the Civil Code expressly provides that those who in the
performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for
damages.
Petitioner contends that the deed of absolute sale executed between the
parties stipulates that should the vendor fail to issue the transfer certificate
of title within six months from the date of full payment, it shall refund to the
vendee the total amount paid for with interest at the rate of 4% per annum,
hence, the vendee is bound by the terms of the provision and cannot
recover more than what is agreed upon. Presumably, petitioner in invoking
Article 1226 of the Civil Code which provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no stipulation to
the contrary.
The foregoing argument of petitioner is totally devoid of merit. We would
agree with petitioner if the clause in question were to be considered as a
penal clause. Nevertheless, for very obvious reasons, said clause does
not convey any penalty, for even without it, pursuant to Article
2209 of the Civil Code, the vendee would be entitled to recover the
amount paid by her with legal rate of interest which is even more
than the 4% provided for in the clause.
It is therefore inconceivable that the aforecited provision in the
deed of sale is a penal clause which will preclude an award of
damages to the vendee Millan. In fact the clause is so worded as to
work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted her case
below without presenting evidence on the actual damages suffered by her
as a result of the nonperformance of petitioner's obligation under the deed
of sale. Nonetheless, the facts show that the right of the vendee to acquire
title to the lot bought by her was violated by petitioner and this entitles her
at the very least to nominal damages.
ISSUE2: WON respondent is entitled to nominal damages?
HELD: Yes. The pertinent provisions of our Civil Code follow:
Art. 2221. Nominal damages are adjudicated in order that a right of
the plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of indemnifying
the plaintiff for any loss suffered by him.
 Art. 2222. The court may award nominal damages in every obligation
arising from any source enumerated in article 1157, or in every case
where any property right has been invaded.
Under the foregoing provisions nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a
right violated or invaded. They are recoverable where some injury has been
done the amount of which the evidence fails to show, the assessment of
damages being left to the discretion of the court according to the
circumstances of the case.
It is true as petitioner claims that under American jurisprudence nominal
damages by their very nature are small sums fixed by the court without
regard to the extent of the harm done to the injured party.
It is generally held that a nominal damage is a substantial claim, if
based upon the violation of a legal right; in such case, the law
presumes a damage, although actual or compensatory damages are
not proven; in truth nominal damages are damages in name only and
not in fact, and are allowed, not as an equivalent of a wrong inflicted,
but simply in recogniton of the existence of a technical injury.
In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which
was an action for damages arising out of a vehicular accident, this Court
had occasion to eliminate an award of P10,000.00 imposed by way of
nominal damages, the Court stating inter alia that the amount cannot, in
common sense, be demeed "nominal".
In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L.
Cuenca, 1965, this Court, however, through then Justice Roberto
Concepcion who later became Chief Justice of this Court, sustained an
award of P20,000.00 as nominal damages in favor of respnodent Cuenca.
The Court there found special reasons for considering P20,000.00 as
"nominal". Cuenca who was the holder of a first class ticket from Manila to
Tokyo was rudely compelled by an agent of petitioner Airlines to move to
the tourist class notwithstanding its knowledge that Cuenca as
Commissioner of Public Highways of the Republic of the Philippines was
travelling in his official capacity as a delegate of the country to a conference
in Tokyo."
Actually, as explained in the Court's decision in Northwest Airlines, there is
no conflict between that case and Medina, for in the latter, the P10,000.00
award for nominal damages was eliminated principally because the
aggrieved party had already been awarded P6,000.00 as compensatory
damages, P30,000.00 as moral damages and P10,000.00 as exemplary
damages, and "nominal damages cannot coexist with compensatory
damages," while in the case of Commissioner Cuenca, no such
compensatory, moral, or exemplary damages were granted to the latter.
At any rate, the circumstances of a particular case will determine whether or
not the amount assessed as nominal damages is within the scope or intent
of the law, more particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the amount of
P20,000.00 is excessive. The admitted fact that petitioner corporation
failed to convey a transfer certificate of title to respondent Millan
because the subdivision property was mortgaged to the GSIS does
not in itself show that there was bad faith or fraud. Bad faith is not
to be presumed. Moreover, there was the expectation of the
vendor that arrangements were possible for the GSIS to make
partial releases of the subdivision lots from the overall real estate
mortgage. It was simply unfortunate that petitioner did not
succeed in that regard.
For that reason We cannot agree with respondent Millan Chat the
P20,000.00 award may be considered in the nature of exemplary damages.
In case of breach of contract, exemplary damages may be awarded if the
guilty party acted in wanton, fraudulent, reckless, oppressive or malevolent
manner. Furthermore, exemplary or corrective damages are to be imposed
by way of example or correction for the public good, only if the injured
Cesar Nickolai F. Soriano Jr.
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party has shown that he is entitled to recover moral, temperate or
compensatory damages."
Here, respondent Millan did not submit below any evidence to prove that
she suffered actual or compensatory damages.
To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by
way of nominal damages is fair and just under the following
circumstances, viz: respondent Millan bought the lot from petitioner in May,
1962, and paid in full her installments on December 22, 1971, but it was
only on March 2, 1973, that a deed of absolute sale was executed in her
favor, and notwithstanding the lapse of almost three years since she made
her last payment, petitioner still failed to convey the corresponding transfer
certificate of title to Millan who accordingly was compelled to file the instant
complaint in August of 1974.
MARIANO C. PAMINTUAN, petitioner-appellant,
vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-
appellees.
G.R. No. L-26339 December 14, 1979
In case of fraud the difference between the proven damages and the
stipulated penalty may be recovered. The proven damages supersede the
stipulated liquidated damages.
FACTS: Paminuntuan entered into an agreement to ship white flint corn to
Tokyo Menka Kaisah Ltd. of Osaka, Japan in exchange for plastic sheetings.
He contracted to sell these to Yu Ping Kun Co., Inc. (respondent company)
for P265,000. The Company undertook to open an irrevocable domestic
letter of credit for that amount in favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic sheetings to
the company at its bodegas in Manila or suburbs directly from the piers
"within one month upon arrival of" the carrying vessels. Any violation of
the contract of sale would entitle the aggreived party to collect
from the offending party liquidated damages in the sum of ten
thousand pesos (Exh. A).
The plastic sheetings arrived in Manila and were received by Pamintuan. Out
of the shipments, Pamintuan delivered to the company's warehouse only the
following quantities of plastic sheetings:
November 11, 1960 140 cases, size 48 inches by 50 yards.
November 14, 1960 258 cases out of 352 cases. November 15, 1960
11 cases out of 352 cases. November 15, 1960 10 cases out of
100 cases. November 15, 1960 30 cases out of 100 cases.
While the plastic sheetings were arriving in Manila, Pamintuan informed the
president of Yu Ping Kun Co., Inc. that he was in dire need of cash with
which to pay his obligations to the Philippine National Bank. Inasmuch as
the computation of the prices of each delivery would allegedly be a long
process, Pamintuan requested that he be paid immediately.
Consequently, Pamintuan and the president of the company, Benito Y.C.
Espiritu, agreed to fix the price of the plastic sheetings at P0.782 a yard,
regardless of the kind, quality or actual invoice value thereof.
After Pamintuan had delivered 224,150 yards of sheetings of interior quality
valued at P163,.047.87, he refused to deliver the remainder of the
shipments. As justification for his refusal, Pamintuan said that the company
failed to comply with the conditions of the contract and that it was novated
with respect to the price.
The company filed a complaint for damages against Pamintuan. The trial
court rendered judgment ordering Pamintuan to deliver certain plastic
sheetings, and if he could not do so, to pay P100,559.28 as damages with
6% interest from the date of the filing of the complaint for damages with
moral damages.
On appeal, the CA modified the trial courts decision by removing moral
damages.

ISSUE: WON Pamintuan can be made liable only for liquidated damages by
virtue of the above-cited (bold) provision and on account of the rule that the
penalty shall substitute the indemnity for damages?
HELD: No, for actual damages only. Pamintuan relies on the rule that a
penalty and liquidated damages are the same (Lambert vs. Fox 26 Phil.
588); that "in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-
compliance, if there is no stipulation to the contrary " (1st sentence of Art.
1226, Civil Code) and, it is argued, there is no such stipulation to the
contrary in this case and that "liquidated damages are those agreed upon
by the parties to a contract, to be paid in case of breach thereof" (Art. 2226,
Civil Code).
We hold that appellant's contention cannot be sustained because the
second sentence of article 1226 itself provides that I nevertheless,
damages shall be paid if the obligor ... is guilty of fraud in the
fulfillment of the obligation". "Responsibility arising from fraud is
demandable in all obligations" (Art. 1171, Civil Code). "In case of
fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for an damages which may be reasonably attributed to
the non-performance of the obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty
of fraud because he did not make a complete delivery of the plastic
sheetings and he overpriced the same. That factual finding is conclusive
upon this Court.
There is no justification for the Civil Code to make an apparent distinction
between penalty and liquidated damages because the settled rule is that
there is no difference between penalty and liquidated damages
insofar as legal results are concerned and that either may be
recovered without the necessity of proving actual damages and
both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil
Code. See observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil
Code, p. 251).
The penalty clause is strictly penal or cumulative in character and does not
partake of the nature of liquidated damages (pena sustitutiva) when the
parties agree "que el acreedor podra pedir, en el supuesto incumplimiento o
mero retardo de la obligacion principal, ademas de la pena, los danos y
perjuicios. Se habla en este caso depena cumulativa, a differencia de
aquellos otros ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as found by
Court of Appeals and the trial court, and after reflecting on the tenor of the
stipulation for liquidated damages herein, the true nature of which is
not easy to categorize, we further hold that justice would be
adequately done in this case by allowing Yu Ping Kun Co., Inc. to
recover only the actual damages proven and not to award to it the
stipulated liquidated damages of ten thousand pesos for any
breach of the contract. The proven damages supersede the
stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were
the bases of the new matter found in article 1226, not found in article 1152
of the old Civil Code) that in case of fraud the difference between the
proven damages and the stipulated penalty may be recovered (Vol.
8, part. 1, Codigo Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety
thousand five hundred fifty-nine pesos and twenty-eight centavos
(P90,559.28), with six percent interest a year from the filing of the
complaint,
Art. 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him. However, if after the
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creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the
penalty may be enforced. (1153a)
Expressly reserved: does not require that it be stipulated, it may be
inferred from the nature of the obligation.
Art. 1228. Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. (n)
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. (1154a)
Art. 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.
(1155)
E. BREACH OF OBLIGATIONS
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
Cardinal Rule: the above provision embodies the cardinal rule in
performance of obligations.
MANNER OF BREACH
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
a. Fraud
Art. 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void. (1102a)
Art. 1338. There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. (1269)
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
(1270)
Kinds of Fraud:
1. Dolo causante or fraud in obtaining consent, is applicable only to
contracts where consent is necessary and thus affects the validity of
the contract, making it voidable.
Under this kind of fraud, the party would not have entered into the
contract were it not for the fraud; annulment is the remedy of the
party whos consent was obtained through fraud;
2. Dolo incidente or fraud in the performance of the obligation and
applicable to obligations arising from any source. This kind, however,
does not affect the validity of the contract and makes the party guilty
of fraud liable for damages.
Under this kind, a party would have entered the obligation with or
without the fraud. Remedy is damages.
b. Negligence
Art. 1172. Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability may be
regulated by the courts, according to the circumstances. (1103)
Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the provisions of Articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall
be required. (1104a)
Good Definition of Negligence or Fault: consists in the omission of that
diligence which is required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of the place.
Circumstances of the persons, of the time and of the place: in the
case of Cangco vs. MRR, where Cangco alighted a still moving train and
stepped on watermelons in the platform and was injured, sued MRR for
damages. MRR countered that the act of Cangco was the cause of his injury
and thus, it should not be held liable. However, the SC ruled that it is
negligent considering the circumstances surrounding the incident, as
follows:
Person Cangco was at his prime (20s) and couldve alighted safely,
as he has done so in the past, even if the train was still moving.
Moreover, there was a passenger who alighted earlier when the train
was moving faster as compared to when Cangco alighted.
Time it was nighttime, but the platform was poorly lit;
Place Cangco was familiar with the place as it was his daily routine to
take the train going home. Moreover, the employees of MRR were
negligent when they allowed watermelons to be stacked on the
platform which caused the fall of Cangco.
Standard of Care:
1. Ordinary: that which is expected of a good father of a family (bonus
pater pamilyas);
2. Extraordinary: utmost diligence. E.g., common carriers, banks, public
utility companies (Meralco vs. Ramoy) and realty firms.
Stevedoring companies are required only to exercise ordinary
diligence: a stevedoring company which was charged with the loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted
merely as a labor provider in the case at bar. There is no specific provision
of law that imposes a higher degree of diligence than ordinary diligence for
a stevedoring company or one who is charged only with the loading and
stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to
observe a higher degree of diligence than that required of a good father of
a family. We therefore conclude that following Article 1173, Mindanao
Terminal was required to observe ordinary diligence only in loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau. (Mindanao
Terminal and Brokerage Services, Inc. vs. Phoenix)
Kinds of Negligence as to EXTENT:
1. Simple Negligence failure to comply with the diligence required;
2. Gross Negligence amounts to bad faith and may thus be the source
of moral damages. (Telefast vs. Castro)
c. Delay
Art. 1169. Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
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(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins. (1100a)
Kinds of Delay:
1. Mora Solvendi delay on the part of the debtor;
2. Mora Accipiendi delay on the part of the creditor;
3. Compensatio Morae delay on the part of both parties.
When both parties are already in delay, there is no delay. Accordingly, the
debtor is not liable for interest from the moment payment was tendered but
was not accepted by the creditor for no justifiable reason, or when the
creditor fails to fulfill his part of the obligation. This could have been the
proper basis, instead of justice and equity, in Agcaoili vs. GSIS.
When in delay? As a rule, upon demand, exceptions:
1. When stipulated e.g., credit card due dates;
2. When the law so declares examples:
Obligation to deliver a determinate thing:
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by Article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
(1096)
Art. 1786. Every partner is a debtor of the partnership for whatever
he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to
specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the
vendor is bound with respect to the vendee. He shall also be liable for
the fruits thereof from the time they should have been delivered,
without the need of any demand. (1681a)
Art. 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use. (1682)
Art. 1896. The agent owes interest on the sums he has applied to
his own use from the day on which he did so, and on those which he
still owes after the extinguishment of the agency. (1724a)
Art. 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exemption the bailee from responsibility
in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own thing,
 he chose to save the latter. (1744a and 1745)
3. When time was a controlling motive e.g., a florist for a wedding;
4. When demand would be useless.
BAR QUESTION: Kristina brought her diamond ring to a jewelry shop for
cleaning. The jewelry shop undertook to return the ring by February 1,
1999. When the said date arrived, the jewelry shop informed Kristina that
the job was not yet finished. They asked her to return five days after. On
February 6, 1999, Kristina went to the shop to claim the ring, but she was
informed that the same was stolen by a thief who entered the shop the
night before. Kristina filed an action for damages against the jewelry shop
which put up the defense of force majeure. Will the action prosper or not?
(5%)
ANSWER: Even if we consider the incident (stealing) as a fortuitous event,
the action may still prosper since at the time of the loss, the debtor is
already in delay as provided under Art. 1165.
Reciprocal Obligations: In reciprocal obligations, as in a contract of sale,
the general rule is that the fulfillment of the parties' respective obligations
should be simultaneous. Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party does not fulfill his, the
latter automatically incurs in delay. But when different dates for
performance of the obligations are fixed, the default for each obligation
must be determined by the rules given in the first paragraph of the present
article, that is, the other party would incur in delay only from the moment
the other party demands fulfillment of the former's obligation. Thus, even in
reciprocal obligations, if the period for the fulfillment of the obligation is
fixed, demand upon the obligee is still necessary before the obligor can be
considered in default and before a cause of action for rescission will accrue.
(Solar Harvest, Inc. vs. Davao Corrugated Carton Corporation)
d. Any other manner of contravention
Non-performance may fall under this category which may make the debtor
liable for damages.
In general, every debtor who fails in performance of his obligations is bound
to indemnify for the losses and damages caused thereby. The phrase "any
manner contravene the tenor" of the obligation includes any illicit act which
impairs the strict and faithful fulfillment of the obligation or every kind or
defective performance. (Arrieta vs. NARIC)
Excuse for non-performance:
1. Fortuitous Event Arts. 1174, 552,1165, 2147,2159
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)
Fortuitous events by definition are extraordinary events not foreseeable
or avoidable. It is therefore, 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 foresee the same. (Sicam vs. Jorge)
Elements: To constitute a fortuitous event, the following elements must
concur:
a. The cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent of
human will;
b. It must be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to avoid;
c. The occurrence must be such as to render it impossible for the debtor
to fulfill obligations in a normal manner; and,
d. The obligor must be free from any participation in the aggravation of
the injury or loss.
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35 Arellano University School of Law 2011-0303
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General Rule: is that no personal shall be responsible for those events
which could not be foresee, or which, though foreseen, were inevitable.
Exceptions:
1. Expressly specified by law: e.g., Art. 1165 and 1942;
2. Declared by stipulation;
3. When the nature of the obligation requires the assumption of risk: e.g.,
insurance contracts.
BAR QUESTION: Mr. Mekanico leased some automobile repair equipment
to Mr. Masipag, who was opening his auto repair shop. The lease
agreement was executed on February 15, 1985. It stipulated that the
period was one month only, at the expiration of which Masipag was to
return the equipment of Mekanico. The equipment was delivered on
February 15, 1985. On March 15, 1985 Mekanico, in a telephone call, asked
Masipag to return the leased property that same day. Because this truck
broke down, Masipag was unable to comply. Early the next morning, the
equipment was burned in an accidental fire that stated in a nearby
restaurant and gutted Masipags auto repair shop. Mekanico seeks to hold
Masipag liable for the value of the lost property plus damages on the
ground that he did not return it as agreed upon. Is Mekanicos claim
tenable? Explain.
ANSWER: No. The general rule provided under Art. 1774 is that no person
shall be responsible for those events which could not be foreseen, or though
foreseen, are inevitable. Except when the parties so stipulate, or if the law
so provides, or if the nature of the obligation requires the assumption of
risk.
In the case at bar, there was no stipulation, nor did the obligation of
Mekaniko entail assumption of risk. However, under Art. 1165, even if the
loss was due to a fortuitous event, if the debtor was already in delay, he
would be liable for damages.
However still, to be considered in delay, there must have been a prior
demand, except when stipulated, or the law so provides, or the time is the
controlling motive or demand would be useless. In the case at bar, none of
the exceptions are attendant. Accordingly, demand is necessary for the
debtor to incur delay.
The demand was made on March 15, 1985, at the time the obligation was
not yet due. As such, there was no valid demand. Accordingly, Mekaniko
would not yet be considered in delay. The general rule applies since the loss
was due to accidental fire. Mekanikos claim is tenable.
Robbery in a pawnshop business is not a fortuitous event:
pawnshops are aware that robbery is a possibility which is foreseeable and
can be anticipated, this is why pawnshops normally have security guards
and vaults. Moreover, the concurrence of negligence, such as when there
are no security measures adopted in the operation of the pawnshop, will not
excuse a pawnshop owner from liability when the thing pledged is lost
through robbery. (Sicam vs. Jorge)
Art. 552. A possessor in good faith shall not be liable for the deterioration
or loss of the thing possessed, except in cases in which it is proved that he
has acted with fraudulent intent or negligence, after the judicial summons.
A possessor in bad faith shall be liable for deterioration or loss in
every case, even if caused by a fortuitous event. (457a)
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by Article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery. (1096)
Art. 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations which the owner was not accustomed
to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)
Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal
interest if a sum of money is involved, or shall be liable for fruits received or
which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the
thing from any cause, and for damages to the person who
delivered the thing, until it is recovered. (1896a)
2. Act of creditor
Negligence, Delay or Fraud concurring with Fortuitous Event: if
upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any
manner of the tenor of the obligation as provided for in Article 1170 of the
Civil Code, which results in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and
human agencies are to be excluded from creating or entering into the cause
of the mischief. When the effect, the cause of which is to be considered, is
found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is
thereby humanized, as it was, and removed from the rules applicable to the
acts of God.
Thus, it has been held that when the negligence of a person concurs with
an act of God in producing a loss, such person is not exempt from liability
by showing that the immediate cause of the damage was the act of God. To
be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the loss or damage
may have been occasioned. (NPC vs. CA)
F. REMEDIES FOR BREACH OF OBLIGATIONS
Obligations to give:
Art. 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by Article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery. (1096)
1. Determinate thing specific performance only if it is legally and 2.
physically possible. Substitute performance is not possible.
2. Generic thing substitute performance. The creditor can have another Differences:
person to have such kind of thing be delivered at the cost of the debtor
plus damages.
Obligations to do: the remedy of the creditor: Substitute performance of even if the party has other
have somebody else perform the obligation at the debtors cost, including remedies available.
the costs of having to undo that which was poorly done.
Art. 1167. If a person obliged to do something fails to do it, the
same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed that what has
been poorly done be undone. (1098)
Cesar Nickolai F. Soriano Jr.
36 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Specific Performance: is not applicable since this would be violative of the
debtors constitutional right against involuntary servitude.
Obligations not to do: and the obligor does it, the creditor may have it
undone at the expense of the debtor.
Art. 1168. When the obligation consists in not doing, and the obligor
does what has been forbidden him, it shall also be undone at his
expense. (1099a)
BAR QUESTION: A bound himself to deliver to B a 21-inch 1983 model
TV set, and the 13 cubic feet White Westinghouse refrigerator, with Motor
No. WERT-385, which B saw in As store, and to repair Bs piano. A did
none of these things.
May the court compel A to deliver the TV set and the refrigerator and repair
the piano? Why? If not, what relief may the court grant B? Why?
ANSWER: TV set: generic. 1460: a thing is determinate only when:
physically segregated or particularly designated. Specific performance is not
a remedy. However, the creditor can have another person to have such kind
of thing delivered at the cost of the debtor plus damages - substitute
performance.
Refrigerator: determinate: physically segregated (store) and particularly
designated (by motor number). Specific performance is an available remedy
only if it is still possible (legal and physical) to have it delivered. Substitute
performance is not a remedy. Specific performance
Piano the court can never compel anyone to do anything against his will
as this would be violative of his right against involuntary servitude. The
relief the court can give is that the debtor shouldve asked somebody else
do the obligation at the cost of the debtor plus damages. substitute
performance.
RESCISSION AS A REMEDY: TWO KINDS:
1. Rescission under Art. 1191, which shouldve been properly termed as
resolution
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Rescission under Art. 1301/1303
RESOLUTION (Art. 1911) RESCISSION (Art. 1301)
Principal remedy may be availed Subsidiary remedy can only be
invoked if there is no other remedy
(Art. 1303)
Cause of action is substantial or Breach is not required.
fundamental breach
May be invoked even if both parties
already complied with their
obligation.
Cause of action is lesion or
economic injury to a party.

Rescission under Art. 1911 not necessarily judicial: since it is implied
in reciprocal obligations. However, rescission shall take effect only at the
time notice was given to the other party but without prejudice to the right
of such party to question the validity of rescission. Court action here is only
to determine the validity of the rescission, such as to determine if there was
substantial breach. However still, the rescission takes effect from notice and
not from court decision. (Magdalena Estate vs. Myrick and UP vs.
DLANDelos Angeles.
Effect of Rescission; Mutual restitution: in rescission under Art. 1301,
it shall be the duty of both parties to return the things which were the
object of the contract as provided under Art. 1385. This same article was
likewise held applicable to Rescission under Art. 1911. In Unlad vs. Dragon,
the SC held that mutual restitution is required in cases involving rescission
under Article 1191. This means bringing the parties back to their original
status prior to the inception of the contract.
Rescission has the effect of "unmaking a contract, or its undoing from the
beginning, and not merely its termination." Hence, rescission creates the
obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract void at its inception
and to put an end to it as though it never was. It is not merely to terminate
it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.
OTHER PROVISIONS:
Art. 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not have
been mentioned. (1097a)
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
Art. 1177. The creditors, after having pursued the property in possession
of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation
are transmissible, if there has been no stipulation to the contrary. (1112)
Art. 1192. In case both parties have committed a breach of the obligation,
the liability of the first infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages.
(n)
Art. 2236. The debtor is liable with all his property, present and future, for
the fulfillment of his obligations, subject to the exemptions provided by law.
(1911a)
Art. 302. Neither the right to receive legal support nor any money or
property obtained as such support or any pension or gratuity from the
government is subject to attachment or execution. (n)
Art. 1708. The laborer's wages shall not be subject to execution or
attachment, except for debts incurred for food, shelter, clothing and medical
attendance.
Arts. 153 and 155, Family Code
Art. 153. The family home is deemed constituted on a house and lot from
the time it is occupied as a family residence. From the time of its
constitution and so long as any of its beneficiaries actually resides therein,
the family home continues to be such and is exempt from execution, forced
Cesar Nickolai F. Soriano Jr.
37 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
sale or attachment except as hereinafter provided and to the extent of the
value allowed by law.(223a)
Art. 155. The family home shall be exempt from execution, forced sale or
attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution of the family home;
(3) For debts secured by mortgages on the premises before or after such
constitution; and
(4) For debts due to laborers, mechanics, architects, builders, materialmen
and others who have rendered service or furnished material for the
construction of the building. (243a)
Rule 39, Sec. 13, Rules of Court:
Section 13. Property exempt from execution. Except as otherwise
expressly provided by law, the following property, and no other, shall be
exempt from execution:
(a) The judgment obligor's family home as provided by law, or the
homestead in which he resides, and land necessarily used in connection
therewith;
(b) Ordinary tools and implements personally used by him in his trade,
employment, or livelihood;
(c) Three horses, or three cows, or three carabaos, or other beasts of
burden, such as the judgment obligor may select necessarily used by him in
his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use, excluding
jewelry;
(e) Household furniture and utensils necessary for housekeeping, and used
for that purpose by the judgment obligor and his family, such as the
judgment obligor may select, of a value not exceeding one hundred
thousand pesos;
(f) Provisions for individual or family use sufficient for four months;
(g) The professional libraries and equipment of judges, lawyers, physicians,
pharmacists, dentists, engineers, surveyors, clergymen, teachers, and other
professionals, not exceeding three hundred thousand pesos in value;
(h) One fishing boat and accessories not exceeding the total value of one
hundred thousand pesos owned by a fisherman and by the lawful use of
which he earns his livelihood;
(i) So much of the salaries, wages, or earnings of the judgment obligor for
his personal services within the four months preceding the levy as are
necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies, benefits, privileges, or annuities accruing or in any manner
growing out of any life insurance;
(l) The right to receive legal support, or money or property obtained as such
support, or any pension or gratuity from the Government;
(m) Properties specially exempted by law.
But no article or species of property mentioned in this section shall be
exempt from execution issued upon a judgment recovered for its price or
upon a judgment of foreclosure of a mortgage thereon. (12a)
1. Extra-judicial remedies
a. Expressly granted by law Art. 1786, 1788, 1526
Art. 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to
specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need of
any demand. (1681a)
Art. 1788. A partner who has undertaken to contribute a sum of money
and fails to do so becomes a debtor for the interest and damages from the
time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted
the amount to his own use. (1682)
Art. 1526. Subject to the provisions of this Title, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in
transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
b. Stipulated
2. Judicial remedies
a. Principal remedies 1191, 1170
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)
b. Subsidiary remedies 1380, 1177
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Art. 1177. The creditors, after having pursued the property in possession
of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)
c. Ancillary remedies Rules of Court
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS Art. 1231
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
1. Payment or performance
1. Provisions as to the payor
Art. 1236. The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to
Cesar Nickolai F. Soriano Jr.
38 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
the debtor. (1158a)
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or
against the will of the latter, cannot compel the creditor to subrogate him in
his rights, such as those arising from a mortgage, guaranty, or penalty.
(1159a)
Payment made by a third person:
a. Who has an interest in the fulfilment of the obligation or when the
debtor consents.
Effects:
1. The creditor can be compelled to receive payment
2. The third party payor may demand reimbursement for the full
amount
3. Results in subrogation: As such, the 3rd party payor may exercise
rights belonging to the creditor, such as going against the
guarantor or foreclosure of mortgage.
Person who has interest in the fulfillment of the obligation: include
those subsidiarily liable such as guarantors and mortgagors, and co-
debtors (including joint co-debtors).
b. One who has no interest in the fulfilment of the obligation or when the
debtor had no knowledge of or did not consent (against his will).
Effects:
1. The creditor cannot be compelled to receive payment.
2. If payment was made, 3rd party payor can only demand
reimbursement upto the extent that has been beneficial to the
debtor.
3. No subrogation. As such, the third party payor cannot go against
guarantors or foreclose the mortgage.
In both instances, the payment shall extinguish the obligation.
Subrogation: when the 3rd party payor steps in the shoes of the creditor.
There is legal subrogation when:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice to
the effects of confusion as to the latter's share. (1210a)
When creditor may be bound to accept payment from a third
person:
1. When stipulated;
2. When the 3rd party payor has an interest in the fulfilment of the
obligation
3. When the debtor gives his consent.
Art. 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case valid as to the creditor
who has accepted it. (n)
Art. 1239. In obligations to give, payment made by one who does not have
the free disposal of the thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of Article 1427 under the Title on
"Natural Obligations." (1160a)
Capacity and Free Disposal: the payor should have capacity to alienate
and the free disposal of the thing due for payment to be effective. Such that
minors (who dont have capacity) and those suffering the penalty of civil
interdiction (no free disposal) cannot make a valid payment.
c. Provisions as to the payee
Art. 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it. (1162a)
Payment may be made to:
1. Person in whose favour the obligation has been constituted not
necessarily a party to the constitution of the obligation;
2. His successor in interest who may not be creditors at the time of
constitution, but may be creditors at the time of fulfilment.
3. Any person authorized to receive it agents are creditors because they
have the right to collect, but not in their own right. (This is relevant as
to Compensation as a mode of extinguishing obligation)
Payment to a wrong party:
Art. 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor need
not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the
third person had authority to receive the payment. (1163a)
Payment to anyone not authorized as provided under Art. 1240 is
considered a void payment. As such, the debtor may be compelled to pay
again, his remedy being to run against the person he made payment to.
Except in the following circumstances:
1. It redounded to the benefit of the creditor;
2. Such benefit need not be proven if:
a. after the payment, the third person acquires the creditor's rights;
b. the creditor ratifies the payment to the third person;
c. by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment.
3. Payment made in good faith to any person in possession of the credit.
(Art. 1242)
BAR QUESTION: A owes B P20,000 which became due and payable last
October 1, 1983. On that date, A offered B P10,000 the only money he
then had, but refused to accept the payment. A thereafter met C, Bs 22-
year old son, to whom he gave the P10,000 with the request that he turn
the money over to B. The money was stolen while in Cs possession.
Was B justified in refusing to accept the payment of A? May he still recover
the full amount of his debt of P20,000? Why?
ANSWER: Yes, B was justified in refusing to accept payment because as a
rule, the creditor cannot be bound to accept partial payment.
Yes, B may still recover the full amount regardless of payment to Bs son. B
is not C. In this case there is payment to a wrong party and none of the
exceptions provided under Art. 1241, i.e., there appears to be no
assignment of right to Bs son, B did not ratify the payment, nor were there
any conduct of B that would lead A to believe that C had authority to
receive payment. Moreover, it was stated that the money was stolen, thus,
it cannot be said that the payment redounded to the benefit of B.
d. Thing to be paid or delivered
Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)
Art. 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more
valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee's
Cesar Nickolai F. Soriano Jr.
39 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
will. (1166a)
Art. 1246. When the obligation consists in the delivery of an indeterminate
or generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the
debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration.
(1167a)
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be
held in the abeyance. (1170)
Art. 1250. In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at the time
of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary. (n)
Applicable only to contracts: since the provision deals with currency
stipulated
Republic Act No. 8183
June 11, 1996
Repealing RA 529
AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE HUNDRED
TWENTY-NINE AS AMENDED, ENTITLED"AN ACT TO ASSURE THE
UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY."
Section 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties may
agree that the obligation or transaction shall be settled in any other
currency at the time of payment.
xxx
PRESIDENTIAL DECREE No. 72
November 29, 1972
AMENDING REPUBLIC ACT NUMBERED TWO HUNDRED AND
SIXTY-FIVE, ENTITLED "THE CENTRAL BANK ACT"
Section 31. Section fifty-four of the same Act is hereby amended to read
as follows:
"Sec. 54. Legal tender power. All notes and coins issued by the Central
Bank shall fully guaranteed by the Government of the Republic of the
Philippines and shall be legal tender in the Philippines for all debts, both
public and private: Provided, however, That coins shall be legal tender in
amounts not exceeding fifty pesos for denominations from ten centavos to
one peso, and in amounts not exceeding twenty pesos for denominations of
five centavos or less."
Section 32. Section sixty-three of the same Act is hereby amended to read
as follows:
"Sec. 63. Legal character. Checks representing deposit money do not have
legal tender power and their acceptance in the payment of debts, both
public and private, is at the option of the creditor: Provided, however, That
a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal
to the amount credited to his account."
Legal Tender Power:
1. P1, P5 and P10 coins shall be legal tender in amounts not exceeding
P1,000;
2. Coins below P1 legal tender not exceeding P100.
Checks: creditors cannot be compelled to receive payment through checks,
they may, however, accept the same if they want to.
Extinguishment: of the obligation through payment shall only be at the
time the check or other mercantile documents have been encashed.
Stale Checks: when the check becomes stale, this does not result in
extinguishment of the obligation, unless, by the fault of the creditor, the
checks value has been impaired.
The fact that the creditor is still in possession of the check gives rise to the
presumption that the same has not been encashed and the obligation has
not been extinguished.
BAR QUESTION: Mr. Magaling obtained a judgment against Mr. Mayaman
in the amount of P500,000.00. A writ of execution was issued pursuant to
which various personal properties of Mayaman were levied upon by the
sheriff. An auction sale was scheduled.
Before the appointed day of the auction, Mayaman delivered to the sheriff a
cashiers check of Far East Bank in the amount of P200,000.00 and enough
cash to cover the remainder of the total amount due. Magaling refused to
accept the check and asked the sheriff to proceed with the auction sale.
Did Magaling have the right to refuse the payment of part of the obligation
with a cashiers check? Explain.
ANSWER: In 1986: No. The effective ruling of the SC in New Pacific Timber
vs. Seneris is that managers check, certified check and cashiers check are
as good as cash. As such, the creditor does not have a right to refuse.
Today: Yes. The SC reverted back to earlier decisions that checks of
whatever kind do not have legal tender power. A creditor cannot be
compelled to accept payment through checks.
As to the cash component of the payment: Yes. Magaling is not compelled
to receive partial payment. Partial payment is no payment.
e. Place, date, time and manner of payment
Art. 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be. (1157)
Art. 1234. If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. (n)
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with. (n)
Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid. (1165)
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern. (1168a)
Art. 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (1169a)
Art. 1251. Payment shall be made in the place designated in the obligation.
Cesar Nickolai F. Soriano Jr.
40 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be
at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
(1171a)
SPECIAL FORMS OF PAYMENT
Is the consent of the creditor necessary?
Dation in payment absolutely, because the creditor has to accept the
thing;
Application not necessarily. As a rule, the debtor can designate to
which debt payment applies.
Payment by cession absolutely, because the creditors would accept
these properties for them to sell.
Consignation not necessarily. two ways of extinguishment through
consignation: (1) when the creditor accepts; (2) court determines the
consignation proper (here, there is no consent from the creditor)
Effect of delivery of the thing by the debtor to the creditor or the
court: transfer of ownership?
Dation in payment there has to be. Otherwise, it may be another
transaction, e.g., mortgage, pledge, etc. In Filinvest vs. Philippine
Acetyline, the SC held that after the letter was given representing the
assignment of the car, a SPA was executed authorizing creditor to sell
the thing. Thus, it is clear that there was no transfer of ownership.
Thus, no dation in payment.
Application of payment yes. Question is to which debt shall it apply.
Cession none. Creditors are merely constituted as agents to sell the
properties.
Consignation it depends. Only when the creditor accepts or the court
determines that the consignation was proper. The effect retroacts to
the date of delivery to the court.
Effect as to extinguishment:
Dation in payment total extinguishment UNLESS intention of the
parties to the contrary is clear.
Application of payments no total extinguishment precisely because
amount being paid is not sufficient to cover all the debts.
Cession to the extent of the net proceeds UNLESS the creditors
would agree otherwise.
Consignation No, if creditor made reservation that payment is only
partial.
Dation in Payment
Art. 1245. Dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money, shall be governed by the law of sales.
Dation in payment is the delivery or transmission of ownership of a thing
by the debtor to the creditor as an accepted equivalent of the performance
of the obligation.
It may consists not only of a thing but also of rights, i.e., usufruct or credit.
Nature: there has to be delivery of the thing and prior acceptance and a
consequent transfer of ownership to consider it a dation in payment. A mere
promise to deliver a thing in lieu of the originally constituted subject
amounts to a novation.
Applicability of warranties in sales: since the law of sales is applicable
as provided under Art. 1245, the warranties and the breach thereof under
Art. 1155 are applicable.
Article 1555. When the warranty has been agreed upon or nothing
has been stipulated on this point, in case eviction occurs, the vendee
shall have the right to demand of the vendor:
 (1) The return of the value which the thing sold had at the time of the
eviction, be it greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the
party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a proper
case, those of the suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses.
Hence, when the creditor is EVICTED from the thing delivered, HE may no
longer revive because the first obligation has already been extinguished.
Extent of extinguishment: General rule: to the extent of the value of the
thing delivered as agreed upon or as may be proved. Exception: if the
parties consider the thing as equivalent to the obligation through an express
or implied agreement or by silence.
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.
G.R. No. L-50449 | January 30, 1982 | Second Division | J. De Castro
FACTS: On October 30, 1971, the Philippine Acetylene (appellant)
purchased from one Alexander Lim, as evidenced by a Deed of Sale, a
motor vehicle described as Chevorlet, 1969 model with Serial No.
136699Z303652 for P55,247.80 with a down payment of P20,000.00 and
the balance of P35,247.80 payable, under the terms and conditions of the
promissory note, at a monthly installment of P1,036.70 for 34 months, due
and payable on the first day of each month starting December 1971 through
and inclusive September 1, 1974 with 12 % interest per annum on each
unpaid installment, and attorney's fees in the amount equivalent to 25% of
the total of the outstanding unpaid amount.
As security, the appellant executed a chattel mortgage over the same motor
vehicle in favor of Lim. All rights, title, and interests in the PN and CHM
were ultimately assigned to Filinvest Credit Corporation (appellee) by virtue
of a Deed of Assignment.
Since appellant defaulted in 9 successive installments, appellee sent the
former a letter demanding "that you (appellant) remit the aforesaid amount
in full in addition to stipulated interest and charges or return the mortgaged
property to my client at its office at 2133 Taft Avenue, Malate, Manila within
five (5) days from date of this letter during office hours." In reply, appellant
advised appellee of its decision to "return the mortgaged property, which
return shall be in full satisfaction of its indebtedness pursuant to Article
1484 of the New Civil Code." Accordingly, the mortgaged vehicle was
returned to the appellee together with the document "Voluntary Surrender
with Special Power of Attorney To Sell" executed by appellant on March 12,
1973 and confirmed to by appellee's vice-president.
Unable to sell the motor vehicle due to unpaid taxes, appellee offered to
deliver back the motor vehicle to the appellant but the latter refused to
accept it, so appellee instituted an action for collection of a sum of money
with damages in the CFI of Manila on September 14, 1973.
CFI ruled in favor of the appellee Hence, Philippine Acetylene filed the
instant appeal.
Appellant maintained that when it opted to return, as in fact it did return,
the mortgaged motor vehicle to the appellee, said return necessarily had
the effect of extinguishing appellant's obligation for the unpaid price to the
appellee, construing the return to and acceptance by the appellee of the
mortgaged motor vehicle as a mode of payment, specifically, dation in
payment or dacion en pago which according to appellant, virtually made
appellee the owner of the mortgaged motor vehicle by the mere delivery
thereof, citing Articles 1232, 1245, and 1497 of the Civil Code.
ISSUE: Whether the return of the mortgaged motor vehicle to the appellee
by virtue of its voluntary surrender by the appellant constituted dacion en
pago, which totally extinguished and/or cancelled its obligation to the
appellee.
Cesar Nickolai F. Soriano Jr.
41 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
HELD: NO. The mere return of the mortgaged motor vehicle by the
mortgagor, the herein appellant, to the mortgagee, the herein appellee,
does not constitute dation in payment or dacion en pago in the absence,
express or implied of the true intention of the parties. Dacion en pago,
according to Manresa, is the transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of
obligation. 4 In dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of payment
of an outstanding debt. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or property of
the debtor, payment for which is to be charged against the debtor's debt. As
such, the essential elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In its modern concept,
what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. 5 In any case,
common consent is an essential prerequisite, be it sale or innovation to
have the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee, the herein
appellee, consented, or at least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor vehicle be construed as actual
payment, more specifically dation in payment or dacion en pago. The fact
that the mortgaged motor vehicle was delivered to him does not necessarily
mean that ownership thereof, as juridically contemplated by dacion en
pago, was transferred from appellant to appellee. In the absence of clear
consent of appellee to the proferred special mode of payment, there can be
no transfer of ownership of the mortgaged motor vehicle from appellant to
appellee. If at all, only transfer of possession of the mortgaged motor
vehicle took place, for it is quite possible that appellee, as mortgagee,
merely wanted to secure possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.
A more solid basis of the true intention of the parties is furnished by the
document executed by appellant captioned "Voluntary Surrender with
Special Power of Attorney To Sell" dated March 12, 1973, attached as Annex
"C" of the appellant's answer to the complaint. An examination of the
language of the document reveals that the possession of the mortgaged
motor vehicle was voluntarily surrendered by the appellant to the appellee
authorizing the latter to look for a buyer and sell the vehicle in behalf of the
appellant who retains ownership thereof, and to apply the proceeds of the
sale to the mortgage indebtedness, with the undertaking of the appellant to
pay the difference, if any, between the selling price and the mortgage
obligation. With the stipulated conditions as stated, the appellee, in essence
was constituted as a mere agent to sell the motor vehicle which was
delivered to the appellee, not as its property, for if it were, he would have
full power of disposition of the property, not only to sell it as is the limited
authority given him in the special power of attorney. Had appellee intended
to completely release appellant of its mortgage obligation, there would be
no necessity of executing the document captioned "Voluntary Surrender
with Special Power of Attorney To Sell." Nowhere in the said document can
We find that the mere surrender of the mortgaged motor vehicle to the
appellee extinguished appellant's obligation for the unpaid price.
Appellant would also argue that by accepting the delivery of the mortgaged
motor vehicle, appellee is estopped from demanding payment of the unpaid
obligation. Estoppel would not he since, as clearly set forth above, appellee
never accepted the mortgaged motor vehicle in full satisfaction of the
mortgaged debt.
Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellant's
liability if the appellee had actually caused the foreclosure sale of the
mortgaged property when it recovered possession thereof. 6 It is worth
noting that it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar the recovery by the vendor of any balance of the
purchaser's outstanding obligation not satisfied by the sale. 7 As held by this
Court, if the vendor desisted, on his own initiative, from consummating the
auction sale, such desistance was a timely disavowal of the remedy of
foreclosure, and the vendor can still sue for specific performance. 8 This is
exactly what happened in the instant case.
CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and PASCUAL M. PEREZ, respondents.
[G.R. No. L-48958 | June 28, 1988 | Third Division | J. Gutierrez Jr.]
FACTS: On December 4, 1959, the petitioner issued 2 surety bonds CSIC
Nos. 2631 and 2632 to guarantee compliance by the principal Pascual M.
Perez Enterprises of its obligation under a "Contract of Sale of Goods"
entered into with the Singer Sewing Machine Co. In consideration of the
issuance of the aforesaid bonds, Pascual M. Perez, in his personal capacity
and as attorney-in-fact of his wife, Nicasia Sarmiento and in behalf of the
Pascual M. Perez Enterprises executed on the same date 2 indemnity
agreements wherein he obligated himself and the Enterprises to indemnify
the petitioner jointly and severally, whatever payments advances and
damage it may suffer or pay as a result of the issuance of the surety bonds.
In addition to the two indemnity agreements, Pascual M. Perez therefore
executed a deed of assignment, on the same day, December4, 1959, of his
stock of lumber with a total value of P400,000. On April 12, 1960, a second
real estate mortgage was further executed in favor of the petitioner to
guarantee the fulfillment of said obligation.
As Pascual M. Perez Enterprises failed to comply with its obligation, the
petitioner was compelled to pay, as it did pay, the fair value of the two
surety bonds in the total amount of P144,000. Except for partial payments
in the total sum of P55,600 and notwithstanding several demands, Pascual
M. Perez Enterprises failed to reimburse the petitioner for the losses it
sustained under the said surety bonds.
The petitioner filed before the CFI of Batanga a claim for sum of money
against the estate of the late Nicasia Sarmiento which was being
administered by Pascual M. Perez.
CFI of Batangas ordered the administrator Pascual M. Perez to pay the
claimant P144,000.00 with interest, minus the payments already made in
the amount of P55,600 considering that the estate of the late, Nicasia
Sarmiento is jointly and severally liable to the petitioner for the amount the
latter had paid the Singer Sewing Machine Company, Ltd.
On appeal, the CA reversed and set aside the trial courts decision; hence,
petitioner filed a petition for review before the SC.
ISSUE: WON the administrator's obligation under the surety bonds and
indemnity agreements had been extinguished by reason of the execution of
the deed of assignment?
HELD: It is the general rule that when the words of a contract are plain and
readily understandable, there is no room for construction thereof (San
Mauricio Milling Co. v. Ancheta, 105 SCRA 371). However, this is only a
general rule and it admits exceptions.
Pascual M. Perez executed an instrument denominated as "Deed of
Assignment." Pertinent portions of the deed read as follows:
I, Pascual M. Perez, Filipino, of legal age, married, with residence and
postal address at 115 D. Silang, Batangas, as the owner and operator
of a business styled "PASCUAL M. PEREZ ENTERPRISES," with office at
R-31 Madrigal Building, Escolta, Manila, hereinafter referred to as
ASSIGNOR, for and in consideration of the issuance in my behalf and
in favor of the SINGER SEWING MACHINE COMPANY, LTD., of two
Surety Bonds (CSIC) Bond Nos. 2631 and 2632 each in the amount of
SEVENTY TWO THOUSAND PESOS (P72,000.00), or with a total sum of
ONE RED FORTY-FOUR THOUSAND PESOS (Pl44,000.00), Philippine
Currency, by the CITIZENS' SURETY AND INSURANCE CO., INC., a
corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, with principal office at R-306
Samanillo Building, Escolta, Manila, Philippines, and duly represented
in the act by its Vice-President and General Manager, ARISTEO L. LAT,
hereinafter referred to as ASSIGNEE, assign by these presents, unto
said ASSIGNEE, its heirs, successors, administrators or assigns the
Cesar Nickolai F. Soriano Jr.
42 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
herein ASSIGNOR'S stock (Insured) of low grade lumber, class "No. 2
COMMON" kept and deposited at Tableria Tan Tao at Batangas,
Batangas, with a total measurement of Two Million (2,000,000.00)
board feet and valued of P0.20 per board feet or with a total value of
P400,000.00 which lumber is intended by the ASSIGNOR for
exportation under a Commodity Trade Permit, the condition being that
in the event that the herein assignor exports said lumber and as soon
as he gets the necessary export shipping and related and pertinent
documents therefor, the ASSIGNOR will turn said papers over to the
herein ASSIGNEE, conserving all of the latter's dominion, rights and
interests in said exportation.
The ASSIGNEE hereby agrees and accepts this assignment under the
conditions above-mentioned. (pp. 77-79, Record on Appeal)
On its face, the document speaks of an assignment where there seems to
be a complete conveyance of the stocks of lumber to the petitioner, as
assignee. However, in the light of the circumstances obtaining at the time of
the execution of said deed of assignment, we can not regard the transaction
as an absolute conveyance. As held in the case of Sy v. Court of Appeals,
(131 SCRA 116,124):
It is a basic and fundamental rule in the interpretation of contract that
if the terms thereof are clear and leave no doubt as to the intention of
the contracting parties, then the literal meaning of the stipulations
shall control but when the words appear contrary to the evident
intention of the parties, the latter shall prevail over the former.
(Labasan v. Lacuesta, 86 SCRA 16) In order to judge the intention of
the parties, their contemporaneous and subsequent acts shall be
principally considered. (Emphasis supplied)
The petitioner issued the two (2) surety bonds on December 4, 1959 in
behalf of the Pascual M. Perez Enterprises to guaranty fullfillment of its
obligation under the "Contract of Sale of Goods" entered into with the
Singer Sewing Machine Co. In consideration of the two surety bonds, two
indemnity agreements were executed by Pascual M. Perez followed by a
Deed of Assignment which was also executed on the same date.
In the case of Lopez v. Court of appeals (114 SCRA 673), we stated that:
The indemnity agreement and the stock assignment must be
considered together as related transactions because in order to judge
the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (Article 1371, New
Civil Code). Thus, considering that the indemnity agreement connotes
a continuing obligation of Lopez towards Philamgen, while the stock
assignment indicates a complete discharge of the same obligation, the
existence of the indemnity agreement whereby Lopez had to pay a
premium of P1,000.00 for a period of one year and agreed at all times
to indemnify Philamgen of any and all kinds of losses which the latter
might sustain by reason of it becoming a surety, is inconsistent with
the theory of an absolute sale for and in consideration of the same
undertaking of Philamgen. There would have been no necessity for the
execution of the indemnity agreement if the stock assignment was
really intended as an absolute conveyance. Hence, there are strong
and cogent reasons to conclude that the parties intended said stock
assignment to complement the indemnity agreement and thereby
sufficiently guarantee the indemnification of Philamgen should it be
required to pay Lopez" loan to Prudential Bank. (at pp. 682-683)
The respondent court stated that "by virtue of the execution of the deed of
assignment ownership of administrator-appellant's lumber materials had
been transferred to the claimant-appellant and this amounted to dation in
payment whereby the former is considered to have alienated his property in
favor of the latter in satisfaction of a monetary debt (Artide 1245). As a
consequence thereof, administrator-appellant's obligation under the surety
bonds is thereby extinguished upon the execution of the deed of
assignment." This statement is not sustained by the records.
The transaction could not be dation in payment. As pointed out in the
concurring and dissenting opinion of Justice Edgardo L. Paras and the
dissenting opinion of Justice Mariano Serrano when the deed of assignment
was executed on December 4, 1959, the obligation of the assignor to refund
the assignee had not yet arisen. In other words, there was no obligation yet
on the part of the petitioner, Citizens' Surety and Insurance Company, to
pay Singer Sewing Machine Co. There was nothing to be extinguished on
that date, hence, there could not have been a dation in payment.
In the case of Lopez v. Court of Appeals (supra) we had the occasion to
explain:
Considering the above jurisprudence, We find that the debt or
obligation at bar has not matured on June 2, 1959 when Lopez
'alienated' his 4,000 shares of stock to Philamgen. Lopez' obligation
would arise only when he would default in the payment of the principal
obligation (the loan) to the bank and Philamgen had to pay for it. Such
fact being adverse to the nature and concept of dation in payment, the
same could not have been constituted when the stock assignment was
executed. Moreover, there is no express provision in the terms of the
stock assignment between Philamgen and Lopez that the principal
obligation (which is the loan) is immediately extinguished by reason of
such assignment. (at p. 686)
The deed of assignment cannot be regarded as an absolute conveyance
whereby the obligation under the surety bonds was automatically
extinguished. The subsequent acts of the private respondent bolster the fact
that the deed of assignment was intended merely as a security for the
issuance of the two bonds. Partial payments amounting to P55,600.00 were
made after the execution of the deed of assignment to satisfy the obligation
under the two surety bonds. Since later payments were made to pay the
indebtedness, it follows that no debt was extinguished upon the execution
of the deed of assignment. Moreover, a second real estate mortgage was
executed on April 12, 1960 and eventually cancelled only on May 15, 1962.
If indeed the deed of assignment extinguished the obligation, there was no
reason for a second mortgage to still have to be executed. We agree with
the two dissenting opinions in the Court of Appeals that the only
conceivable reason for the execution of still another mortgage on April 12,
1960 was because the obligation under the indemnity bonds still existed. It
was not yet extinguished when the deed of assignment was executed on
December 4, 1959. The deed of assignment was therefore intended merely
as another collateral security for the issuance of the two surety bonds.
Application of Payments
Art. 1252. He who has various debts of the same kind in favor of one and
the same creditor, may declare at the time of making the payment, to which
of them the same must be applied. Unless the parties so stipulate, or when
the application of payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to debts which are
not yet due.
If the debtor accepts from the creditor a receipt in which an application of
the payment is made, the former cannot complain of the same, unless there
is a cause for invalidating the contract. (1172a)
Application of Payment: is the designation of the debt which is being
paid by a debtor who has several obligations of the same kind in favor of
the creditor to whom payment is made.
Requisites:
1. There is only one debtor;
2. There are several debts;
3. The debts are of the same kind;
4. There is only one and the same creditor.
Due and demandable debts: as a general rule, all the debts must be due
and demandable. EXCEPTION: when there is mutual agreement or when the
consent of the party for whose benefit the term was constituted was
obtained.
Right to apply payment: generally, the debtor has the right to apply the
payment at the time of making the payment, subject to the following
LIMITATIONS:
1. Creditor cannot be compelled to accept partial payment. (Art. 1248);
Cesar Nickolai F. Soriano Jr.
43 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in
which the obligation consists. Neither may the debtor be required to
make partial payments.
However, when the debt is in part liquidated and in part unliquidated,
the creditor may demand and the debtor may effect the payment of
the former without waiting for the liquidation of the latter. (1169a)
2. Debtor cannot apply payment to principal if interest has not been paid.
Art. 1253. If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests have been
covered. (1173)
3. The debt must be liquidated, except when the parties agree otherwise;
4. Cannot be made when the period has not arrived and such period was
constituted in favour of the creditor, except with the consent of the
creditor (Art. 1252);
5. When there is agreement as to which debt must be paid first.
Example: if A is indebted to B for P100, P50 and P25, and A pays P25, to
which shall the payment apply?
Answer: Generally, the debt which was assigned by the debtor.
What if A designates the second debt, P50? Not allowed, because a
limitation as to his right to designate is that the creditor cannot be
compelled to receive partial payment. Except if it is partly liquidated and
partly unliquidated.
What if A designates the third debt, P25? Generally allowed, except if the
same is not yet due and the benefit of the period was constituted for the
creditor.
If the debtor did not designate, to which debt shall payment
apply? That which was chosen by the creditor as reflected in the receipt
which is accepted by the debtor without protest. (Art. 1252, 2nd par.)
Art. 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other
circumstances, the debt which is most onerous to the debtor, among
those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall
be applied to all of them proportionately. (1174a)
If debtor and creditor did not designate:
1. If the debts are of different nature and burden to that debt which is
most onerous to the debtor;
2. IF the debts are of the same nature and burden applied
proportionately.
Debts which are considered more onerous:
1.
PRINCIPAL
2. ebt
where he is the SOLE DEBTOR
3.
each is more burdensome than as to every debtor
4.
5. t with
HIGHEST INTEREST RATE
6. When there is an unsecured debt with interest and a secured debt
7.
8. When there is a bond where the principal and surety are solidarily
principal, the UNSECURED PORTION of the debt is more onerous
9.
over those governed by the general rules on damages Requisites:
10. Liquidated debts over unliquidated ones 1. There is a debt due;
11. Those where the debtor is in default over those where he is not 2. There is legal cause to consign in any of the following grounds:

Payment by Cession or Assignment
Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors shall be governed
by special laws. (1175a)
Two Kinds:
1. Voluntary Art. 1255;
2. Judicial under the Insolvency Law. Remedy of the debtor if the
creditors do not accept his voluntary cession.
Advantages of judicial cession is that the court discharges the debtor of
his debts and the obligations are extinguished.
Properties exempt from Execution: are generally not covered by
cession. Except if the debtor waives such exemption.
3.
Does the debtor need to be insolvent? Authors have different opinion.
But Atty. Uribe is agreeing with Professor Sta. Maria, that the debtor need
not be insolvent, financial difficulty suffices.
Dation in payment vs. Assignment:
Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum
due.
Consignation alone shall produce the same effect in the following
cases:
(1) When the creditor is absent or unknown, or does not appear at
the place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
As a rule, tender of payment is not required prior to consignation.
There is only one instance where tender of payment is required, i.e.,
when the creditor refuses to accept without just cause.
There is previous notice to consign to the persons having interest in
the fulfilment of the obligation;
Art. 1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.

Dation in payment
both are substitute of performance of an obligation
Art 1245
Ownership of the thing is
transferred to the creditor
Obligation may be totally
extinguished
does not involve plurality of
creditors
Involves a specific thing
may be made even by a solvent
debtor; merely involves a change
of the object of the obligation by
agreement of the parties and at
the same time fulfilling the same
voluntarily
Cession or Assignment
Art 1255
No such transfer
Obligation is extinguished only
insofar as the net proceeds
(except: otherwise stipulated)
involves plurality of creditors
Involves all the properties of the
debtor unless exempt from
execution.
supposes financial difficulty on the
part of the debtor
4.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment. (1177)
Effect if there is no notice:
According to Tolentino, it does not invalidate the consignation but
merely makes the debtor liable for damages;
However, in Soco vs. Militante, it was held that without the notice
first announced to the persons interested in the fulfillment of the
obligation, the consignation as a payment is void. The purpose of
the notice is in order to give the creditor an opportunity to
reconsider his unjustified refusal and to accept payment thereby
avoiding consignation and the subsequent litigation. This previous
notice is essential to the validity of the consignation and its lack
invalidates the same. In this case, since there were 9 debts, there
should have been 18 notices, one before consignation is done to
inform those who have interest in the fulfilment of the obligation
and another one after consignation has been done.
The amount or thing due is deposited in court.

How proceeds distributed to the creditors: Art. 1258. Consignation shall be made by depositing the things due
1. Stipulation; at the disposal of judicial authority, before whom the tender of
2. Preference of credit. payment shall be proved, in a proper case, and the announcement of
the consignation in other cases.
Tender of Payment and Consignation
The consignation having been made, the interested parties shall also
Tender of Payment is the manifestation made by the debtor to the be notified thereof. (1178)
creditor of his desire to comply with his obligation, with the offer of
immediate performance. It is a PREPARATORY ACT to consignation and in Art. 1259. The expenses of consignation, when properly made, shall be
itself DOES NOT extinguish the obligation. charged against the creditor. (1178)

Consignation is the deposit of the object of the obligation in a competent Withdrawal of the Thing Deposited:
court in accordance with rules prescribed by law, AFTER the tender of
payment has been refused or because of circumstances which render direct Art. 1260. Once the consignation has been duly made, the debtor may ask
payment to the creditor impossible. It extinguishes the obligation. the judge to order the cancellation of the obligation.

Applies only to extinguish of obligation not to exercise a right: such Before the creditor has accepted the consignation, or before a judicial
that in a situation where a party would exercise his right of repurchase and declaration that the consignation has been properly made, the debtor may
the buyer refused to accept. The right to redeem is a RIGHT, not an withdraw the thing or the sum deposited, allowing the obligation to remain
obligation, therefore, there is no consignation required. (Immaculata vs. in force. (1180)
Navarro)
Cesar Nickolai F. Soriano Jr.
44 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors, guarantors and sureties
shall be released. (1181a)
Withdrawal as a matter of right: debtor withdraws before acceptance
by the creditor or before judicial declaration of propriety of consignation. In
this case, no extinguishment yet of the obligation. As such, no revival since
the obligation has not been extinguished to begin with.
Withdrawal after acceptance or declaration: obligation is revived. As
such, creditor can no longer run after the guarantor, unless the latter
consented. This is because the obligation has been extinguished. The revival
did not revive the guaranty.
INTEREST LIABILITY OF DEBTOR: A was indebted to B payable in
2003. The following transpired:
2005: tender of payment;
2009: consignation in court;
2014: promulgation of the decision finding that the consignation was
proper.
What is the liability of A as to interest? From 2003 to 2005 only. Although
the obligation was extinguished only in 2009 when the consignation in court
was made, in this case, A made a tender of payment in 2005, which B
refused. At that moment, A was already in delay for non-payment, but B
was also in delay for unjustified refusal to accept payment. As such, both of
them are already in delay starting 2005. As such, no one is in delay.
Accordingly, A should not be liable for interest from the time the tender of
payment was made.
LAURO IMMACULATA, represented by his wife AMPARO VELASCO,
as Guardian Ad Litem, petitioner,
vs.
HON. PEDRO C. NAVARRO, in his capacity as Presiding Judge of the
Court of First Instance of Rizal, Branch No. II, and HEIRS OF
JUANITO VICTORIA, namely: LOLITA, TOMAS, BENJAMIN,
VIRGINIA, BRENDA and ELVIE, all surnamed VICTORIA, and
JUANITA NAVAL, surviving widow; and the PROVINCIAL SHERIFF
OF RIZAL, respondents.
G.R. No. L-42230 | April 15, 1988 | Second Division | J. Paras
FACTS: The case involves a Motion for Reconsideration of the SCs decision
dated November 26, 1986 asking the Court to consider the matter of legal
redemption of a parcel of land previously obtained by petitioner Lauro
Immaculata thru a free patent.
ISSUE: WON consignation is required when an offer to redeem is made
within the legal redemption period?
HELD: The reconsideration of this issue is hereby GRANTED.
While res judicata may bar questions on the validity of the sale in view of
alleged insanity and intimidation (and this point is no longer pressed by
counsel for the petitioner) still the question of the right of legal redemption
has remained unresolved.
Be it noted that in an action (Civil Case No. 20968) filed on March 24, 1975
before the defunct Court of First Instance of Rizal, petitioner presented an
alternative cause of action or prayer just in case the validity of the sale
would be sustained. And this alternative cause of action or prayer is to allow
petitioner to legally redeem the property.
We hereby grant said alternative cause of action or prayer. While the sale
was originally executed sometime in December, 1969, it was only on
February 3, 1974 when, as prayed for 1 by private respondent, and as
ordered by the court a quo, a "deed of conveyance" was formally executed.
Since offer to redeem was made on March 24, 1975, this was clearly within
the five-year period of legal redemption allowed by the Public Land Act (See
Abuan v. Garcia, 14 SCRA 759, 761).
Cesar Nickolai F. Soriano Jr.
45 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
The allegation that the offer to redeem was not sincere, because there was
no consignation of the amount in Court is devoid of merit. 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; Resales 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).
The case is remanded to the court a quo for it to accept payment or
consignation 2 (in connection with the legal redemption which We are
hereby allowing the petitioner to do) by the herein petitioner of whatever he
received from respondent at the time the transaction was made.
2. Loss of the thing due or Impossibility of Performance
Loss: means when the thing goes out of commerce, perishes or disappears
in such a way that its existence is unknown or that it cannot be recovered.
Art. 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault
of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Fortuitous Event: generally, the debtor is not liable for damages if the
thing is lost due to fortuitous event, EXCEPTIONS:
1. When the law so provides;
2. When stipulation so provides;
3. When the nature of the obligation requires the assumption of risk.
For fortuitous event to be invoked, there must be no negligence on the part
of the party invoking.
Malfunction of the break system is not a fortuitous event since this
couldve been prevented by a regular maintenance of the vehicle.
Robbery and Theft: are not considered Fortuitous Event for a pawnshop
business or a bank. (Sicam vs. Jorge)
Reciprocal Obligations: the extinguishment of one partys obligation due
to loss due to a fortuitous event, likewise extinguishes the other partys
obligation based on the principle of res perit domino (the thing is lost to the
owner).
Liability even if the loss is due to a fortuitous event as provided by
law:
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it
has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless
there is a stipulation exempting the bailee from responsibility in case of a
fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of
his household;
(5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter. (1744a and 1745)
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been
authorized to use the same. (n)
Article 2147. The officious manager shall be liable for any fortuitous
event:
(1) If he undertakes risky operations which the owner was not accustomed
to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing,
until it is recovered. (1896a)
Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery. (1096)
Article 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the payment
of its price, whatever may be the cause for the loss, unless the thing having
been offered by him to the person who should receive it, the latter refused
without justification to accept it. (1185)
Art. 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation.
(n)
Genus nunquam perit: Genus does not perish.
EXCEPTIONS:
1. When the thing goes out of commerce;
2. By legal impossibility;
3. Limited Generic: In such cases where the generic thing belongs to a
particular group of thing and the loss pertains to the whole group and
NOT ONLY to the thing itself, then the obligation is extinguished. E.g.,
A promise to deliver one of his horses and ALL the horses of the A
died, the obligation is extinguished.
BAR EXAM QUESITON: For value received, Pedro promised to deliver to
Juan on or before Aug. 15, 1984 a Mercedes benz with plate number 123
which he had just brought home from Germany as well as a 1984 tv set.
Unfortunately the two were destroyed by an accidental fire. Are obligations
of Pedro extinguished?
ANSWER: CAR due to fortuitous event extinguished. This is an
obligation to deliver a determinate thing, therefore, with the loss of the
thing due to a FE, the obligation is extinguished without liability for
damages on the part of the debtor.
TV not extinguished. Generic. Loss of the thing of the same kind and
quality as that of the thing to be delivered will not extinguish the obligation
to deliver a generic thing. A genus does not perish. Genus nunquam perit.
Art. 1264. The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important as to
extinguish the obligation. (n)
Cesar Nickolai F. Soriano Jr.
46 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Partial Loss: may be determined by the court as so important to
extinguish the obligation.
In doing so, intent of the parties must necessarily be considered. E.g., A
promised to deliver a cellphone with its casing. The cellphone was stolen
but A managed to save the casing. Would A still be liable to deliver the
casing? Yes, if the primary consideration of the creditor was to obtain the
casing.
The test is whether the parties would not have entered into the obligation
without the thing that have been lost, then the obligation is extinguished.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it
shall be presumed that the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a)
Burden of proof: is generally with the creditor claiming that the loss was
due to the fault of the debtor. However, if the thing is lost while in the
possession of the debtor, a presumption arises that it was due to his fault,
thus, the burden of proof shifts to him. However still, if the thing was lost
on the occasion of a calamity, then no such presumption arises, the burden
of proof is still with the creditor.
Art. 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor. (1184a)
Loss of the thing may likewise cover impossibility of performance, e.g.,
a debtor is obliged to paint a building and the building was destroyed
(physical impossibility) or a law took effect making the obligation illegal
(legal impossibility).
When: In impossibility, the law should take effect, or the impossibility
happened DURING the existence of the obligation so as to extinguish
it. If the law took effect or the impossibility arose BEFORE the existence of
the obligation, the obligation is void.
Types of Impossibility:
1. As to nature: Physical (by reason of its nature); and Legal (through
some subsequent law);
2. As to whom impossibility refers:
a. Objective impossibility of the act or service itself without
considering the person of the debtor;
b. Subjective - impossibility refers to the fact that the act or service
can no longer be done by the debtor but may still be performed
by another person
3. As to extent: Partial or Total;
4. As to period of impossibility: Permanent or Temporary.
Not applicable to a surety company who issued a bail bond even if
the DFA provided the accused with a passport: it is still the duty of
the surety to make sure that the accused will appear before the trial and to
do everything and take all steps necessary to prevent departure. As such, it
should have informed the DFA of the pending case against the accused.
Moreover, Art. 1266 is not applicable since it pertains to the relationship of
creditor and debtor which does not exists between a surety company on
one hand, and the State on the other. (See People vs. Franklin)
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE
COMPANY, INC., bondsman-appellant.
G.R. No. L-21507 | June 7, 1971 | EN BANC | J. Dizon
FACTS: Natividad Franklin was charged before the Justice of the Peace
Court of Angeles, Pampanga with estafa. Upon a bail bond posted by the
Asian Surety & Insurance Company, Inc. in the amount of P2,000, she was
released from custody.

After preliminary investigation, the Justice of the Peace Court elevated it to
the CFI of Pampanga where the Provincial Fiscal filed the corresponding
information against the accused. As the accused failed to appear on the
date set for her arraignment, the court ordered her arrest and required the
surety company to show cause why the bail bond posted by it should not be
forfeited.
Due to the failure of the surety company to produce the accused again
notwithstanding the 60-day period granted to it, the court rendered the
judgment of forfeiture of the bail bond posted by it for the provisional
release of Natividad Franklin.
Subsequently, the trial court denied the surety companys motion for a
reduction of bail and its ensuing motion for reconsideration.
The surety company appealed before the SC.
Appellant contended that the lower court should have released it from all
liability under the bail bond posted by it because its failure to produce and
surrender the accused was due to the negligence of the Philippine
Government itself in issuing a passport to said accused, thereby enabling
her to leave the country and proceed to the United States. In support of this
contention the provisions of Article 1266 of the New Civil Code are invoked.
ISSUE: WON Article 1266 of the NCC is applicable in this case?
HELD: NO. Appellant's contention is untenable. The abovementioned
legal provision does not apply to its case, because the same speaks
of the relation between a debtor and a creditor, which does not
exist in the case of a surety upon a bail bond, on the one hand, and
the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail
bond are, in many respects, different from those of sureties on
ordinary bonds or commercial contracts. The former can
discharge themselves from liability by surrendering their
principal; the latter, as a general rule, can only be released by
payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:
By the mere fact that a person binds himself as surety for the
accused, he takes charge of, and absolutely becomes
responsible for the latter's custody, and under such
circumstances it is incumbent upon him, or rather, it is his
inevitable obligation not merely a right, to keep the accused
at all times under his surveillance, inasmuch as the authority
emanating from his character as surety is no more nor less
than the Government's authority to hold the said accused
under preventive imprisonment. In allowing the accused Eugenio
Uy Tuising to leave the jurisdiction of the Philippines, the appellee
necessarily ran the risk of violating and in fact it clearly violated the
terms of its bail bonds because it failed to produce the said accused
when on January 15, 1932, it was required to do so. Undoubtedly, the
result of the obligation assumed by the appellee to hold the accused at
all times to the orders and processes of the lower court was to prohibit
said accused from leaving the jurisdiction of the Philippines because,
otherwise, said orders and processes would be nugatory and inasmuch
as the jurisdiction of the court from which they issued does not extend
beyond that of the Philippines, they would have no binding force
outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the
legal custodian and jailer of the accused, thereby assuming the
obligation to keep the latter at all times under his surveillance, and
to produce and surrender him to the court upon the latter's
demand.
Cesar Nickolai F. Soriano Jr.
47 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
That the accused in this case was able to secure a Philippine passport which
enabled her to go to the United States was, in fact, due to the surety
company's fault because it was its duty to do everything and take all
steps necessary to prevent that departure. This could have been
accomplished by seasonably informing the Department of Foreign Affairs
and other agencies of the government of the fact that the accused for
whose provisional liberty it had posted a bail bond was facing a criminal
charge in a particular court of the country. Had the surety company done
this, there can be no doubt that no Philippine passport would have been
issued to Natividad Franklin.
Difficulty of prestation
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. (n)
Court action: when the performance of the obligation is difficult, it does
not, on its own, warrant extinguishment of the obligation. However, when it
has become so difficult beyond the contemplation of the parties, the debtor
may go to court to release him from the obligation but not to modify the
terms of the contract.
International law: the rule in international law is pacta sunt servanda, an
exception thereto similar to Art. 1267 is rebus sic stantibus. However, Art.
1267 is not an absolute application of the latin maxim since it may impair
the rights of parties to an agreement.
Rebus sic stantibus: or things thus standing is the legal doctrine allowing
for treaties to become inapplicable because of a fundamental change of
circumstances. It is essentially an "escape clause" that makes an exception
to the general rule of pacta sunt servanda (promises must be kept).
Requisites for applicability:
1. Event or change in the circumstances that could not have been
foreseen at the time of the execution of the contract;
2. Such event or change makes the performance extremely difficult but
not impossible;
3. Such event or change is not due to the act of any of the parties;
4. The contract concerns a future prestation.
Loss of protected interest: where the creditors interest which is sought
to be protected by the obligation disappears, such obligation is extinguished
Difficulty must be caused by an event not contemplated by the
parties: For Art. 1267 to apply, the difficulty must be something beyond
the contemplation of the parties, such that, increase in the prices of
construction materials would not warrant extinguishment of the obligation
as this is not a fortuitous event beyond the contemplation of the parties.
Moreover, assuming it was not foreseen, the power of the court is only to
release the debtor from his obligations and does not cover changing the
terms of the obligation. (see Occena vs. Jabson)
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First
Instance of Rizal, Branch XXVI; COURT OF APPEALS and TROPICAL
HOMES, INC., respondents.
G.R. No. L-44349 | October 29, 1976 |
FACTS: On February 25, 1975, private respondent Tropical Homes, Inc.
filed a complaint for modification of the terms and conditions of its
subdivision contract with petitioners (landowners of a 55,330 square meter
parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and the
concomitant worldwide spiralling of prices, which are not within the
control of plaintiff, of all commodities including basis raw materials
required for such development work, the cost of development has
risen to levels which are unanticipated, unimagined and not within the
remotest contemplation of the parties at the time said agreement was
 entered into and to such a degree that the conditions and factors
which formed the original basis of said contract, Annex 'A', have been
totally changed;
That further performance by the plaintiff under the contract, Annex 'S',
will result in situation where defendants would be unustly enriched at
the expense of the plaintiff; will cause an iniquitous distribution of
proceeds from the sales of subdivided lots in manifest actually result in
the unjust and intolerable exposure of plaintiff to implacable losses, all
such situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial concepts of good
faith, fairness and equity which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed (petitioners as
landowners) as the latter's fixed and sole share and participation an amount
equivalent to 40% percent of all cash receipts from the sale of the
subdivision lots."
Petitioners moved to dismiss the complaint principally for lack of cause of
action, and upon denial thereof and of reconsideration by the lower court,
elevated the matter on certiorari to the CA.
The CA dismissed the petition on the ground that under Article 1267 of the
Civil Code which provides that:
ART. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
.. a positive right is created in favor of the obligor to be released from
the performance of an obligation in full or in part when its
performance 'has become so difficult as to be manifestly beyond the
contemplation of the parties.
Hence, the petition at bar wherein petitioners insist that the worldwide
increase in prices cited by respondent does not constitute a sufficient
cause of action for modification of the subdivision contract.
ISSUE: WON the worldwide increase in prices cited by respondent
constitute a sufficient cause for modification of the subdivision contract?
HELD: NO. The Court reverses the Court of Appeals appealed resolution.
The Civil Code authorizes the release of an obligor when the service has
become so difficult as to be manifestly beyond the contemplation of the
parties but does not authorize the courts to modify or revise the
subdivision contract between the parties or fix a different sharing
ratio from that contractually stipulated with the force of law
between the parties. Private respondent's complaint for modification of
the contract manifestly has no basis in law and must therefore be dismissed
for failure to state a cause of action.
While respondent court correctly cited in its decision the Code Commission's
report giving the rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the
obligor. However, it is submitted that when the service has become so
difficult as to be manifestly beyond the contemplation of the parties,
the court should be authorized to release the obligor in whole or in
part. The intention of the parties should govern and if it appears that
the service turns out to be so difficult as have been beyond their
contemplation, it would be doing violence to that intention to hold the
obligor still responsible. ...
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with
the subdivision contract, assuming it could show at the trial that the service
undertaken contractually by it had "become so difficult as to be manifestly
beyond the contemplation of the parties", then respondent court's upholding
of respondent's complaint and dismissal of the petition would be justifiable
under the cited codal article. Without said article, respondent would remain
bound by its contract under the theretofore prevailing doctrine that
Cesar Nickolai F. Soriano Jr.
48 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
performance therewith is not excused "by the fact that the contract turns
out to be hard and improvident, unprofitable, or unexpectedly burdensome",
since in case a party desires to be excuse from performance in the event of
such contingencies arising, it is his duty to provide therefor in the contract.
But respondent's complaint seeks not release from the subdivision
contract but that the court "render judgment I modifying the
terms and Conditions of the Contract by fixing the proper shares
that should pertain to the herein parties out of the gross proceed.,
from the sales of subdivided lots of subject subdivision". The cited
article does not grant the courts this authority to remake, modify
or revise the contract or to fix the division of shares between the
parties as contractually stipulated with the force of law between
the parties, so as to substitute its own terms for those covenanted
by the parties themselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no cause of
action. Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity grant the
relief sought.
LAGUNA TAYABAS BUS COMPANY and BATANGAS
TRANSPORTATION COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Bian Transportation
Company, Insolvent, respondent.
G.R. No. L-23546 | August 29, 1974 | First Division | J. Makasiar
FACTS: On January 20, 1956, a contract was executed whereby the Bian
Transportation Company leased to the Laguna-Tayabas Bus Company at a
monthly rental of P2,500 its certificates of public convenience over the lines
known as Manila-Bian, Manila-Canlubang and Sta. Rosa-Manila, and to the
Batangas Transportation Company its certificate of public convenience over
the line known as Manila-Batangas Wharf, together with one "International"
truck, for a period of five years, renewable for another similar period, to
commence from the approval of the lease contract by the Public Service
Commission. On the same date, the Public Service Commission provisionally
approved the lease contract subject to certain conditions.
Sometime after the execution of the lease contract, Bian Transportation
Company was declared insolvent in Special Proceedings No. B-30 of the CFI
of Laguna, and Francisco C. Manabat was appointed as its assignee. The
petitioners paid the lease rentals up to December, 1957, with the exception
of the rental for August 1957, from which there was deducted the sum of
P1,836.92 without the consent of the plaintiff. This deduction was based on
the ground that the employees of the defendants on the leased lines went
on strike. The assignee of the plaintiff objected to such deduction. The
defendants neither refunded the deductions nor paid the rentals beginning
January, 1958, notwithstanding demands therefor made from time to time.
On February 18, 1958, the Batangas Transportation Company and Laguna-
Tayabas Bus Company separately filed with the Public Service Commission a
petition for authority to suspend the operation on the lines covered by the
certificates of public convenience leased to each of them by the Bian
Transportation Company.
The petitioners alleged as reasons the reduction in the amount of dollars
allowed by the Monetary Board of the Central Bank of the Philippines for the
purchase of spare parts needed in the operation of their trucks, the alleged
difficulty encountered in securing said parts, and their procurement at
exorbitant costs, thus rendering the operation of the leased lines prohibitive.
They further alleged that the high cost of operation, coupled with the lack of
passenger traffic on the leased lines resulted in financial losses.
Bians assignee opposed the petition on the ground that the Public Service
Commission had no jurisdiction to grant the relief prayed for. The latter,
however, overruled all oppositions filed by the assignee and other creditors
of the insolvent.
On May 19, 1959, plaintiff Bian Transportation Company represented by
Francisco C. Manabat, assignee, filed this action against defendants Laguna
Tayabas Bus Company and Batangas Transportation Company for the
recovery of the sum of P42,500 representing the accrued rentals for the
lease of the certificates of public convenience of the former to the latter,
corresponding to the period from January 1958, to May 1959, inclusive, plus
the sum of P1,836.92 which was deducted by the defendants from the
rentals due for August, 1957, together with all subsequent rentals from
June, 1959, that became due and payable;.
The CFI ruled in favor of the respondent.
On appeal, the CA affirmed in toto the CFI decision.
On September 21, 1964, appellants filed the present appeal before the SC
which issued a resolution dismissing said petition "for lack of merit."
On October 31, 1964, the day the SC's resolution was to become final,
petitioners filed a "Motion to Admit Amended Petition and to Give Due
Course Thereto." In said motion, petitioners explained
... The amendment includes an alternative ground relating to
petitioners' prayer for the reduction of the rentals payable by them.
This alternative petition was not included in the original one as
petitioners where genuinely convinced that they should have been
absolved from all liabilities whatever. However, in view of the apparent
position taken by this Honorable Court, as implied in its resolution on
October 12, 1964, notice of which was received on October 16, 1964,
petitioners now squarely submit their alternative position for
consideration. There is decisional authority for the reduction of rentals
payable (see Reyes v. Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
ISSUE: WON Article 1680 of the Civil Code is applicable to the case at bar?
HELD: NO. The authorities from which the petitioners draw support,
however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on
account of the sterility of the land leased, or by reason of the loss of
fruits due to ordinary fortuitous events; but he shall have such right in
case of the loss of more than one-half of the fruits through
extraordinary and unforeseen fortuitous events, save always when
there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which the contracting parties could not have
reasonably foreseen.
Article 1680, it will be observed is a special provision for leases of rural
lands. No other legal provision makes it applicable to ordinary leases. Had
theintention of the lawmakers been so, they would have placed the article
among the general provisions on lease. Nor can the article be applied
analogously to ordinary leases, for precisely because of its special character,
it was meant to apply only to a special specie of lease. It is a provision of
social justice designed to relieve poor farmers from the harsh consequences
of their contracts with rich landowners. And taken in that light, the article
provides no refuge to lessees whose financial standing or social position is
equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions
nevertheless do not extend to petitioners. One of its requisites is that
the cause of loss of the fruits of the leased property must be an
"extraordinary and unforeseen fortuitous event." The
circumstances of the instant case fail to satisfy such requisite. As
correctly ruled by the Court of Appeals, the alleged causes for the
suspension of operations on the lines leased, namely, the high
prices of spare parts and gasoline and the reduction of the dollar
allocations, "already existed when the contract of lease was
executed". The cause of petitioners' inability to operate on the
lines cannot, therefore, be ascribed to fortuitous events or
circumstances beyond their control, but to their own voluntary
desistance.
Cesar Nickolai F. Soriano Jr.
49 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
If the petitioners would predicate their plea on the basis solely of their
inability to use the certificates of public convenience, absent the requisite of
fortuitous event, the cited article would speak strongly against their plea.
Article 1680 opens with the statement: "The lessee shall have no right to
reduction of the rent on account of the sterility of the land leased ... ."
Obviously, no reduction can be sustained on the ground that the operation
of the leased lines was suspended upon the mere speculation that it would
yield no substantial profit for the lessee bus company. Petitioners' profits
may be reduced due to increase operating costs; but the volume of
passenger traffic along the leased lines not only remains same but may
even increase as the tempo of the movement of population is intensified by
the industrial development of the areas covered or connected by the leased
routes. Moreover, upon proper showing, the Public Service Commission
might have granted petitioners an increase in rates, as it has done so in
several instances, so that public interest will always be promoted by a
continuous flow of transportation facilities to service the population and the
economy. The citizenry and the economy will suffer by reason of any
disruption in the transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no
material advantage to the lessor for the period of suspension. It must be
recalled that the lease contract not only stipulated for the transfer of the
lessor's right to operate the lines covered by the contract, but also for a
forbearance on the part of the lessor to operate transportation business
along the same lines and to hold a certificate for that purpose. Thus,
even if the lessee would not actually make use of the lessor's certificates
over the leased lines, the contractual commitment of the lessor not to
operate on the lines would sufficiently insure added profit to the lessees on
account of the lease contract. In other words, the commitment alone of the
lessor under the contract would enable the lessees to reap full benefits
therefrom since the commuting public would, after all, be forced at their
inconvenience and prejudice to patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, WE refused in the Reyes case,
supra, to apply by analogy Article 1680 and consequently, WE denied the
plea of lessee therein for an equitable reduction of the stipulated rentals,
holding that:
The general rule on performance of contracts is graphically set forth in
American treatises which is also the rule, in our opinion, obtaining
under the Civil Code.
Where a person by his contract charges himself with an obligation
possible to be performed, he must perform it, unless the
performance is rendered impossible by the act of God, by the law,
or by the other party, it being the rule that in case the party
desires to be excused from the performance in the event of
contingencies arising, it is his duty to provide therefor in his
contract. Hence, performance is not excused by subsequent
inability to perform, by unforeseen difficulties, by unusual or
unexpected expenses, by danger, by inevitable accident, by
breaking of machinery, by strikes, by sickness, by failure of a party
to avail himself of the benefits to be had under the contract, by
weather conditions, by financial stringency or by stagnation of
business. Neither is performance excused by the fact that the
contract turns out to be hard and improvident, unprofitable, or
impracticable, ill-advised, or even foolish, or less profitable,
unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra,
664. Emphasis supplied).
Also expressed in said case is a ruling in American jurisprudence, which
found relevance again in the case at bar, to wit: "(S)ince, by the lease, the
lessee was to have the advantage of casual profits of the leased premises,
he should run the hazard of casual losses during the term and not lay the
whole burden upon the lessor." (Reyes vs. Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to the
petitioners is the petitioners' conduct which is not in accord with the rules of
fair play and justice. Petitioners, it must be recalled, promised to pay the
accrued rentals in due time. Later, however, when they believed they found
a convenient excuse for escaping their obligation, they reneged on their
earlier promise. Moreover, petitioners' option to suspend operation on the
leased lines appears malicious. Thus, Justice Esguerra, speaking for the
Court of Appeals, propounded the following questions: "If it were true that
thecause of the suspension was the high prices of spare parts, gasoline and
needed materials and the reduction of the dollar allocation, why was it that
only plaintiff-appellee's certificate of public convenience was sought to be
suspended? Why did not the defendants-appellants ask for a corresponding
reduction or suspension under their own certificate along the same route?
Suppose the prices of the spare parts and needed materials were cheap,
would the defendants-appellants have paid more than what is stipulated in
the lease contract? We believe not. Hence, the suspension of operation on
the leased lines was conceived as a scheme to lessen operation costs with
the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which fact militates
against their plea for equity.
Art. 1269. The obligation having been extinguished by the loss of the
thing, the creditor shall have all the rights of action which the debtor may
have against third persons by reason of the loss. (1186)
3. Condonation or remission of the debt
Art. 1270. Condonation or remission is essentially gratuitous, and requires
the acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of
donation. (1187)
Condonation/Remission is an act of liberality, by virtue of which, without
receiving any equivalent, the creditor renounces the enforcement of an
obligation, which is extinguished in its entirety or in that part or aspect of
the same to which the remission refers.
Gratuitous: If not gratuitous, it will be considered:
1. Dation in payment when the creditor receives a thing different from
that stipulated;
2. Novation when the subject or principal conditions of the obligation
should be changed;
3. Compromise when the matter renounced is in litigation or dispute
and in exchange of some concession which the creditor receives.
Kinds of Condonation:
1. As to form:
a. Express when made formally; should be in accordance with the
forms of ordinary donations.
i. Acceptance is necessary for this to become effective;
Article 745. The donee must accept the donation personally, or
through an authorized person with a special power for the
purpose, or with a general and sufficient power; otherwise, the
donation shall be void. (630)
Article 746. Acceptance must be made during the lifetime of
the donor and of the donee. (n)
ii. Movable property must comply with the form prescribed
under Art. 748:
Art. 748. The donation of a movable may be made orally or in
writing.
An oral donation requires the simultaneous delivery of the thing
or of the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be made
in writing, otherwise, the donation shall be void. (632a)
iii. Immovable property must comply with the form prescribed
under Art. 749:
Cesar Nickolai F. Soriano Jr.
50 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 749. In order that the donation of an immovable may be
valid, it must be made in a public document, specifying therein
the property donated and the value of the charges which the
donee must satisfy.
The acceptance may be made in the same deed of donation or
in a separate public document, but it shall not take effect unless
it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor
shall be notified thereof in an authentic form, and this step shall
be noted in both instruments. (633)
b. Implied when it can be inferred from the acts of the parties.
E.g., delivery of the promissory note to the debtor.
2. As to extent
a. Total
b. Partial which may be as to the amount; as to the accessory
obligation; or as to a certain amount of debt (in case of
solidarity).
3. As to manner of remission
a. Inter vivos
b. Mortis causa must be in a will.
BAR QUESTION: Arturo borrowed P500,000.00 from his father. After he
had paid P300,000.00, his father died. When the administrator of his
fathers estate requested payment of the balance of P200,000.00, Arturo
replied that the same had been condoned by his father as evidenced by a
notation at the back of his check payment for the P300,000.00 reading: In
full payment of the loan. Will this be a valid defense in an action for
collection? (3%)
ANSWER: No. The condonation in this case is express. However, the same
covering movable real property and more than P500, the law requires it to
be written and the acceptance thereof must likewise be in writing.
In this scenario, the condonation is written, however, there is nothing that
shows acceptance was made in writing neither in the instrument itself or on
a separate instrument.
Art. 1271. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the
action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the
debtor and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of the debt. (1188)
Implied/Tacit Remission may be had from:
1. Delivery of a private document evidencing a credit, voluntarily made by
the creditor to the debtor (Art. 1271);
2. Voluntary destruction or cancellation of the evidence of credit by the
creditor with intent to renounce his right
Covers private instrument only: because if what was delivered is a
public document, the fact that there remains a copy in the archive of certain
offices of such document means that there can be no renunciation if such
were the case.
Art. 1272. Whenever the private document in which the debt appears is
found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. (1189)
Art. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force. (1190)
Art. 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found
in the possession of the debtor, or of a third person who owns the thing. 5. Compensation
(1191a)
Art. 1278. Compensation shall take place when two persons, in their own
4. Confusion or Merger of Rights right, are creditors and debtors of each other. (1195)

Art. 1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person. (1192a)
Merger/Confusion: the meeting in one person of the qualities of the
creditor and debtor with respect to the same obligation.
Compensation: a mode of extinguishment to the concurrent amount, the
obligations of those persons who in their own right, are reciprocally
creditors and debtors of each other.
Compensation vs. Payment, Merger and Counterclaim

Requisites: Compensation Payment

a. Must take place between the credit and the principal debtor; capacity of party not necessary because it indispensable
b. Must involve the very same obligation; to dispose of thing takes effect by operation of
c. Must be total. law
extent of may be partial must be complete
Examples: extinguishment of
obligation
a. PNB is indebted to Allied. PNB and Allied Bank entered into a merger
agreement. In this case, the indebtedness of PNB is extinguished due Compensation Merger
to the merger. number of always 2 only one
b. H is indebted to his father T. When T dies and H is his only heir, the obligations
obligation becomes extinguished since H will inherit the credit. The parties 2 persons are mutually the the creditor and the
characters of the creditor and debtor in the said obligation are merged creditor and debtor of each debtor become one
in his person. other and the same

QUESTION: A borrowed money from B for P3B in 1998. In 2005, there was Compensation Counterclaim
merger of the credit and the debt in the person of B. In 2014, there was
need to allege need not be alleged and must be alleged and
rescission of such merger. On 2016, B filed an action against A for the proven because it takes effect proven
collection of the P3B. A put up the defense of prescription.
by operation of law
Will the action prosper?
Kinds of Compensation:
1. As to effects/extent:
ANSWER: Yes. The running of the prescriptive period is suspended during
a. Total when the two obligations are of the same amount;
the time of merger, i.e., 2005 to 2014. This is because B cannot be
expected to sue itself. As such, it has only been 9 years from the time the
Art. 1281. Compensation may be total or partial. When the two
obligation was constituted to the time the action was filed (1998-2005,
debts are of the same amount, there is a total compensation. (n)
2014-2016).
b. Partial when the amounts are not equal. This is total as to the
Art. 1276. Merger which takes place in the person of the principal debtor
debt with lower amount.
or creditor benefits the guarantors. Confusion which takes place in the
2. As to origin/cause:
person of any of the latter does not extinguish the obligation. (1193)
a. Legal takes effect by operation of law because all the requisites
are present;
Guarantors: this article is for the benefit of the guarantor. But the merger
b. Facultative can be claimed by one of the parties who, however,
of the creditor and guarantor does not affect the principal application.
has the right to object to it
Art. 1277. Confusion does not extinguish a joint obligation except as Example: when one of the obligations has a period for the benefit
regards the share corresponding to the creditor or debtor in whom the two
of one party alone and who renounces that period so as to make
characters concur. (1194) the obligation due
c. Conventional when the parties agree to compensate their
Art. 1215. Novation, compensation, confusion or remission of the debt, mutual obligations even if some of the requisite are lacking.
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of Article Art. 1282. The parties may agree upon the compensation of
1219. debts which are not yet due. (n)
The creditor who may have executed any of these acts, as well as he who
d. Judicial decreed by the court in a case where there is a
collects the debt, shall be liable to the others for the share in the obligation counterclaim.
corresponding to them. (1143)
Art. 1283. If one of the parties to a suit over an obligation has
Art. 1217. Payment made by one of the solidary debtors extinguishes the a claim for damages against the other, the former may set it off
obligation. If two or more solidary debtors offer to pay, the creditor may by proving his right to said damages and the amount thereof.
choose which offer to accept. (n)
He who made the payment may claim from his co-debtors only the share
Requisites:
which corresponds to each, with the interest for the payment already made.
If the payment is made before the debt is due, no interest for the
Art. 1279. In order that compensation may be proper, it is necessary:
intervening period may be demanded.
(1) That each one of the obligors be bound principally, and that he be at
the same time a principal creditor of the other;
When one of the solidary debtors cannot, because of his insolvency,
(2) That both debts consist in a sum of money, or if the things due are
reimburse his share to the debtor paying the obligation, such share shall be
consumable, they be of the same kind, and also of the same quality if the
borne by all his co-debtors, in proportion to the debt of each. (1145a)
latter has been stated;

Cesar Nickolai F. Soriano Jr.

51 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(1196)
Requisites:
1. Parties must be mutual principal debtors and creditors in their
own right:
BAR QUESTION: B borrowed from C P1,000.00 payable in one year.
When C was in the province, Cs 17-year old son borrowed P500.00 from
B for his school tuition. However, the son spent it instead nightclubbing.
When the debt to C fell due, B tendered only P500.00, claiming
compensation o on the P500.00 borrowed by Cs son.
a) Is there legal compensation? Why?
b) Suppose the minor son actually used the money for school tuition, would
the answer be different? Reasons.
ANSWER:
a) Based on the facts, No. B is the debtor of C, but Cs son is the debtor of
B. No mutuality. No showing that the debt of Cs son redound to the benefit
of his father.
b) Yes. This time the obligation is that of father to support his son for
education. The father would be considered as if he was the debtor in
relation to the P500.
Credit Line the existence of a credit line does not necessarily create a
debtor-creditor relationship if the debtor did not avail of said credit line. (see
PNB vs. Vda de Ong Acero)
PHILIPPINE NATIONAL BANK, petitioner,
vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO &
SOLEDAD ONG ACERO CHUA, respondents.
G.R. No. L-69255 February 27, 1987
FACTS: Savings Account No. 010-5878868-D of Isabela Wood Construction
& Development Corporation, opened with the Philippine National Bank on
March 9, 1979 in the amount of P2 million is the subject of two (2)
conflicting claims, sought to be definitively resolved in the proceedings at
bar:
One claim is asserted by the ACEROS Gloria G. Vda. de Ong Acero,
Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the
depositor (hereafter simply referred to as ISABELA) who seek to enforce
against said savings account the final and executory judgment rendered in
their favor by the Court of First Instance of Rizal QC, arising from a
garnishment thereof in the first judgment for P1.5M and the rest for the
second judgment obtained by the ACEROS.
The other claim has been put forth by the Philippine National Bank
(hereafter, simply PNB) which claims that since ISABELA was at some point
in time both its debtor and creditor-ISABELA's deposit being deemed a loan
to it (PNB)-there had occurred a mutual set-off between them, which
effectively precluded the ACEROS' recourse to that deposit, by virtue of an
agreement between ISABELA and PNB that the said deposit was collateral in
connection to the indebtedness to PNB as to which ISABELA had assumed
certain undertakings and failure to fulfill the same would empower PNB to
apply the deposit as payment of that indebtedness.
As such, PNB intervened in the execution of the judgment in favor of the
ACEROS and moved for reconsideration but was denied by the lower court.
Petitioner again moved for the reconsideration of the second judgment
where the trial court (now under Judge Solano) set aside the two judgments
and set for hearing PNBs first motion for reconsideration of the earlier
judgment which was eventually stricken down, holding that there was a
valid assignment by ISABELA to PNB which effectively placed the amounts
beyond the reach of PNB.
Cesar Nickolai F. Soriano Jr.
52 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
The shoe was now on the other foot. It was the ACEROS' turn to move for
reconsideration, which they did as regards this Order of October 1, 1982;
but by Order promulgated on December 14, 1982, the Court declined to
modify its resolution.
On appeal, the Intermediate Appellate Court rendered a decision in favor of
respondents and reinstated the earlier reversed order.
ISSUE: WON there was proper set-off between PNB and ISABELA as to
make the deposits of the latter beyond the garnishment of the respondnets?
HELD: No. PNB's main thesis is that when it opened a savings account for
ISABELA on March 9, 1979 in the amount of P 2M, it (PNB) became
indebted to ISABELA in that amount. So that when ISABELA itself
subsequently came to be indebted to it on account of ISABELA's breach of
the terms of the Credit Agreement of October 13, 1977, and therefore
ISABELA and PNB became at the same time creditors and debtors of each
other, compensation automatically took place between them, in accordance
with Article 1278 of the Civil Code. The amounts due from each other were,
in its view, applied by operation of law to satisfy and extinguish their
respective credits. More specifically, the P2M owed by PNB to ISABELA was
automatically applied in payment and extinguishment of PNB's own credit
against ISABELA. This having taken place, that amount of P2M could no
longer be levied on by any other creditor of ISABELA, as the ACEROS
attempted to do in the case at bar, in order to satisfy their judgment against
ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall
take when two persons, in their own right, are creditors and debtors of each
other. " Also true is that compensation may transpire by operation of law, as
when all the requisites therefor, set out in Article 1279, are present.
Nonetheless, these legal provisions cannot apply to PNB's advantage under
the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding
of the IAC, by which upon firmly established rules even this Court is
bound, that it has not proven by competent evidence that it is a
creditor of ISABELA. The only evidence present by PNB towards this end
consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But
as the IAC has cogently observed, these documents do not prove any
indebtedness of ISABELA to PNB. All they do prove is that a letter of credit
might have been opened for ISABELA by PNB, but not that the credit was
ever availed of (by ISABELA's foreign correspondent MAN, or that the goods
thereby covered were in fact shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most persuasive
evidence of these facts i.e., ISABELA's availment of the credit, as well as
the actual delivery of the goods covered by and shipped pursuant to the
letter of credit-assuming these facts to have occurred, would naturally and
logically have been in PNB's possession and could have been readily
submitted to the Court.
It bears stressing that PNB did not at all lack want for opportunity to
produce these documents, if it does indeed have them. Judge Solano, it
should be recalled, specifically allowed PNB to introduce evidence in relation
to its Motion for Reconsideration filed on August 26, 1980, and thus
furnished the occasion for PNB to prove, among others, ISABELA's debt to
it. PNB unaccountably failed to do so. Moreover, PNB never even attempted
to offer or exhibit such evidence, in the course of the appellate proceedings
before the IAC, which is a certain indication, in that Court's view, that PNB
does not really have these proofs at all.
For this singular omission PNB offers no explanation except that it saw no
necessity to submit the Documents in evidence, because sometime on
March 14, 1980, the ACEROS's attorney had been shown those precise
documents setting forth ISABELA's loan obligations, such as the import
bills and the sight draft covering drawings on the L/C for ISABELA's account
and after all, the ACEROS had not really put this indebtedness in
issue. The explanation cannot be taken seriously. In the picturesque but
forceful language of the Appellate Court, the explanation "is silly as you do
not prove a fact in issue by showing evidence in support thereof to the
opposing counsel; you prove it by submitting evidence to the proper court."
The fact is that the record does not disclose that the ACEROS have ever
admitted the asserted theory of ISABELA's indebtedness to PNB. At any
rate, not being privies to whatever transactions might have generated that
indebtedness, they were clearly not in a position to make any declaration on
the matter. The fact is, too, that the avowed indebtedness of ISABELA was
an essential element of PNB's claim to the former's P2 million deposit and
hence, it was incumbent on the latter to demonstrate it by competent
evidence if it wished its claim to be judicially recognized and enforced. This,
it has failed to do. The failure is fatal to its claim.
PNB has however deposited an alternative theory, which is that the P2M
deposit had been assigned to it by ISABELA as "collateral," although not by
way of pledge; that ISABELA had explicitly authorized it to apply the P2M
deposit in payment of its indebtedness; and that PNB had in fact applied the
deposit to the payment of ISABELA's debt on February 26, 1980, in concept
of voluntary compensation. This second, alternative theory, is as untenable
as the first.
In the first place, there being no indebtedness to PNB on ISABELA's
part, there is in consequence no occasion to speak of any mutual
set-off, or compensation, whether it be legal, i.e., which
automatically occurs by operation of law, or voluntary, i.e., which
can only take place by agreement of the parties.
In the second place, the documents indicated by PNB as constitutive of the
claimed assignment do not in truth make out any such transaction. While
the Credit Agreement of October 13, 1977 (Exh. 1) declares it to be
ISABELA's intention to "assign to the BANK the proceeds of its contract with
the Department of Public Works for the construction of Nagapit Suspension
Bridge (Substructure) in Cagayan," it does not appear that that intention
was adhered to, much less carried out. The letter of ISABELA's president
dated February 21, 1979 (Exh. 2) would on the contrary seem to indicate
the abandonment of that intention, in the light of the statements therein
that the amount of P2M (representing the bulk of the proceeds of its
contract referred to) "shall be placed in a savings account" and that "said
amount shall remain in the savings account until ** (ISABELA is) able to
comply with" specified commitments these being: the constitution and
registration of a mortgage in PNB's favor over its "Paranaque property," and
the obtention from the first mortgage thereof of consent for the creation of
a second lien on the property. These statements are to be sure inconsistent
with the notion of an assignment of the money. In addition, there is yet
another circumstance militating against the actuality of such an assignment-
the "most telling argument" against it, in fact, in the line of the Appellate
Court-and that is, that PNB itself, through its International Department,
deposited the whole amount of P2 million, not in its name, but in the name
of ISABELA, without any accompanying statement even remotely intimating
that it (PNB) was the owner of the deposit, or that an assignment thereof
was intended, or that some condition or lien was meant to burden it.
Even if it be assumed that such an assignment had indeed been made, and
PNB had been really authorized to apply the P2M deposit to the satisfaction
of ISABELA's indebtedness to it, nevertheless, since the record reveals
that the application was attempted to be made by PNB only on
February 26, 1980, that essayed application was ineffectual and
futile because at that time, the deposit was already in custodia
legis, notice of garnishment thereof having been served on PNB on
January 9, 1980 (pursuant to the writ of execution issued by the Court of
First Instance on December 23, 1979 for the enforcement of the partial
judgment in the ACEROS' favor rendered on November 18,1979).
One final factor precludes according validity to PNB's arguments. On the
assumption that the P2M deposit was in truth assigned as some sort of
"collateral" to PNB although as PNB insists, it was not in the form of a
pledge the agreement postulated by PNB that it had been
authorized to assume ownership of the fund upon the coming into
being of ISABELA s indebtedness is void ab initio, it being in the
nature of a pactum commisoruim proscribed as contrary to public
policy.
Liability for taxes liability for real property tax cannot be offset with the
amount due from the government arising from expropriation. The RPT is
Cesar Nickolai F. Soriano Jr.
53 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
due to the Local Government while the liability from expropriation is with
the National Government. Moreover, taxes are not in the nature of contracts
between the party and party but grow out of duty to, and are the positive
acts of the government to the making and enforcing of which, the personal
consent of individual taxpayers is not required. (See Francia vs. IAC)
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, respondents.
G.R. No. L-67649 June 28, 1988
FACTS: Engracio Francia is the registered owner of a residential lot and a
two-story house built upon it.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
Thus, on December 5, 1977, his property was sold at public auction by the
City Treasurer of Pasay City pursuant to Section 73 of the Real Property Tax
Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was
the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City
at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No.
1593-P "In re: Petition for Entry of New Certificate of Title" filed by Ho
Fernandez, seeking the cancellation of his TCT and the issuance in Hos
name of a new certificate of title. Upon verification through his lawyer,
Francia discovered that a Final Bill of Sale had been issued in favor of Ho
Fernandez by the City Treasurer on December 11, 1978. The auction sale
and the final bill of sale were both annotated at the back of TCT No. 4739
(37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. The
trial court ordered the issuance of new TCTs in favor of Ho Fernandez. On
appeal, the IAC affirmed the trial court.
ISSUE: WON the supposed tax delinquency of P2,400 may be offset with
the amount of P4,116 which the government is indebted to petitioner by
virtue of the expropriation?
HELD: No. Francia contends that his tax delinquency of P2,400.00 has been
extinguished by legal compensation. He claims that the government owed
him P4,116.00 when a portion of his land was expropriated on October 15,
1977. Hence, his tax obligation had been set-off by operation of law as of
October 15, 1977.
There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally
debtors and creditors of each other, are extinguished (Art. 1278,
Civil Code). The circumstances of the case do not satisfy the requirements
provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have
consistently ruled that there can be no off-setting of taxes against
the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of
a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court
ruled that Internal Revenue Taxes cannot be the subject of set-off
or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as
is allowed to be set-off under the statutes of set-off, which are
construed uniformly, in the light of public policy, to exclude the remedy
in an action or any indebtedness of the state or municipality to one
who is liable to the state or municipality for taxes. Neither are they a
proper subject of recoupment since they do not arise out of the
contract or transaction sued on. ... (80 C.J.S., 7374). "The general rule
based on grounds of public policy is well-settled that no set-off
admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is
based, is that taxes are not in the nature of contracts between
the party and party but grow out of duty to, and are the
positive acts of the government to the making and enforcing
of which, the personal consent of individual taxpayers is not
required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by
the collector because he has a claim against the governmental body not
included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331)
where we stated that: "... internal revenue taxes cannot be the subject of
compensation: Reason: government and taxpayer are not mutually
creditors and debtors of each other' under Article 1278 of the Civil Code
and a "claim for taxes is not such a debt, demand, contract or judgment as
is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The
tax was due to the city government while the expropriation was
effected by the national government. Moreover, the amount of
P4,116.00 paid by the national government for the 125 square meter
portion of his lot was deposited with the Philippine National Bank long
before the sale at public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his testimony that he knew
about the P4,116.00 deposited with the bank but he did not withdraw it. It
would have been an easy matter to withdraw P2,400.00 from the deposit so
that he could pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as
well be shown later, he claimed that he pocketed the notice of the auction
sale without reading it.
Petitioner, therefore, was notified about the auction sale. It was negligence
on his part when he ignored such notice. By his very own admission that he
received the notice, his now coming to court assailing the validity of the
auction sale loses its force.
They must be creditors in their own right If one of the creditors is
not a creditor in his own right, that is, his right to collect is because of a
contract of agency, compensation cannot take place between the debt of
such agent to a party who is indebted to the principal. (See Sycip vs. CA)
FRANCISCO SYCIP, petitioner,
vs.
HONORABLE COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
G.R. No. L-38711 January 31, 1985
FACTS: Jose Lapuz received from Albert Smith 2,000 shares of stock of the
Republic Flour Mills, Inc. in the name of the Dwight Dill who had left for
Honolulu. Lapuz was supposed to sell the shares at present market value
out of which he was supposed to get certain commission.
Sycip approached Lapuz and told him that he had good connections in the
Stock Exchange, assuring him that he could sell them at a good price. The
shares of stocks were given to Sycip with knowledge that the shares did not
belong to Lapuz and that the same are entrusted for sale only.
Cesar Nickolai F. Soriano Jr.
54 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
After several sales transactions on the shares of stock, the accused-
appellant later on wrote a letter to Jose K. Lapuz, dated June 1, 1961
(Exhibit "I"), confirming their conversation on that date that "500 shares out
of the 1,000 shares of the Republic Flour ... has been sold," and stating
further that "pending receipt of the payment, expected next week, we are
enclosing herewith our draft to cover the full value of 500 shares." He asked
in that letter, "Please give me the 50 shares in the name of Mr. Felix
Gonzales and the photostat of 208 shares in the name of Trans Oceanic
Factors and Company."
The accused-appellant sold and paid for the other 500 shares of stock, for
the payment of which Jose K. Lapuz issued in his favor a receipt, dated June
9, 1961 (Exhibit "H").
The draft (Exhibit "J") for P8,000.00, "the full value of the 500 shares'
mentioned in the letter of the accused-appellant (Exhibit "I"), was
dishonored by the bank, for lack of funds. Jose K. Lapuz then "discovered
from the bookkeeper that he got the money and he pocketed it already, so I
(he) started hunting for Mr. Sycip" (accused-appellant). When he found the
accused-appellant, the latter gave him a check in the amount of P5,000.00,
issued by his daughter on July 12, 1961 (Exhibit "K"). This also was
dishonored by the bank for lack of sufficient funds to cover it (Exhibits "K-l"
and "K-2").
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa
case (in the) fiscals office ... against him' unless he raise [the] balance left
eight thousand" (Exhibit "L"), the accused-appellant answered him by
sending a wire, "P5,000 remitted ask boy check Equitable (Exhibit "M"). But
"the check was never made good," so Jose K. Lapuz testified. He had to pay
Albert Smith the value of the 500 shares of stock." (Petitioner's brief, pp.
58-62)
Petitioner was then charged and convicted by the trial court of estafa.
ISSUE: WON there should have been compensation since Lapuz still owned
petitioner P5,000?
HELD: No. Compensation cannot take place in this case since the
evidence shows that Jose K. Lapuz is only an agent of Albert Smith
and/or Dr. Dwight Dill. Compensation takes place only when two
persons in their own right are creditors and debtors of each other,
and that each one of the obligors is bound principally and is at the
same time a principal creditor of the other. Moreover, as correctly
pointed out by the trial court, Lapuz did not consent to the off-setting of his
obligation with petitioner's obligation to pay for the 500 shares.
Indeed, Jose K. Lapuz demanded from petitioner the amount of P5,000.00
with a notice that in the event he (petitioner) would fail to pay the amount,
Lapuz would file an estafa case against him.
By and large, respondent Court of Appeals has not overlooked facts of
substance and value that, if considered, would alter the result of the
judgment.
2. Both debts must be due and demandable does not necessitate
that both debts are due AT THE SAME TIME; one debt may have been
due earlier. The requirement is that at the time of the compensation,
both debts are already due.
3. Debts must pertain to sums of money or if consumables, they
must be of the same kind and quality
No compensation in reciprocal obligations:
a. They must have arisen from the same cause, as such they can never
involve both sums of money or the same consumables of the same
kind and quality;
b. Otherwise, no one can be compelled to perform an obligation
Attorneys Fees may be the subject of legal compensation
MINDANAO PORTLAND CEMENT CORPORATION
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and Atty.
CASIANO P. LAQUIHON
G.R. No. L-62169 February 28, 1983
FACTS: In 1978, Atty. Laquihon, in behalf of Pacweld Steel, filed a pleading
addressed to Mindanao Portland (MPCC) entitled motion to direct payment
of attorneys fees to counsel (Laquihon), invoking that in a decision of the
court, MPCC was adjudged to pay Pacweld the sum of P10K as attorneys
fees.
MPCC opposed this, stating that said amount is set-off by a sum of 10K
which MPCC has collectible in its favor from Pacweld, also by way of
attorneys fees which MPCC recovered from CFI Manila, by virtue of a writ of
execution.
CFI ordered MPCC to pay the amount of 10K attorneys fees to Atty. Casiano
Laquihon.
Hence, MPCC appealed to the SC on pure question of law.
ISSUE: WON the set off made by MPCC was proper?
HELD: YES. It is clear from the record that both corporations, petitioner
Mindanao Portland Cement Corporation (appellant) and respondent Pacweld
Steel Corporation (appellee), were creditors and debtors of each other,
their debts to each other consisting in final and executory
judgments of the Court of First Instance in two (2) separate cases,
ordering the payment to each other of the sum of P10,000.00 by
way of attorney's fees. The two (2) obligations, therefore,
respectively offset each other, compensation having taken effect
by operation of law and extinguished both debts to the concurrent
amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279
and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of
the said Code for automatic compensation "even though the creditors and
debtors are not aware of the compensation" were duly present.
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's
motion for amendment of the judgment of September 14, 1976 against
Mindanao Portland Cement Corporation so as to make the award therein of
P10,000.00 as attorney's fees payable directly to himself as counsel of
Pacweld Steel Corporation instead of payable directly to said corporation as
provided in the judgment, which had become final and executory long
before the issuance of said "amendatory" order was a void alteration of
judgment. It was a substantial change or amendment beyond the trial
court's jurisdiction and authority and it could not defeat the compensation
or set-off of the two (2) obligations of the corporations to each other which
had already extinguished both debts by operation of law.
GAN TION, petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as
Judge of the Court of First Instance of Manila, ONG WAN SIENG
and THE SHERIFF OF MANILA, respondents.
G.R. No. L-22490 May 21, 1969
FACTS: Ong Wan Sieng was a tenant in certain premises owned by Gan
Tion. In 1961 the latter filed an ejectment case against the former, alleging
non-payment of rents for August and September of that year, at P180 a
month, or P360 altogether. The defendant denied the allegation and said
that the agreed monthly rental was only P160, which he had offered to but
was refused by the plaintiff. The plaintiff obtained a favorable judgment in
the municipal court (of Manila), but upon appeal the CFI, on July 2, 1962,
reversed the judgment and dismissed the complaint, and ordered the
plaintiff to pay the defendant the sum of P500 as attorney's fees. That
judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st, and at the
same time demanded the rents in arrears at the old rate in the aggregate
amount of P4,320.00, corresponding to a period from August 1961 to
October 1963.
Cesar Nickolai F. Soriano Jr.
55 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to
obtain a writ of execution of the judgment for attorney's fees in his favor.
Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal
compensation, claiming that Ong Wan Sieng was indebted to him in the
sum of P4,320 for unpaid rents. The appellate court accepted the petition
but eventually decided for the respondent, holding that although
"respondent Ong is indebted to the petitioner for unpaid rentals in an
amount of more than P4,000.00," the sum of P500 could not be the subject
of legal compensation, it being a "trust fund for the benefit of the lawyer,
which would have to be turned over by the client to his counsel."
In the opinion of said court, the requisites of legal compensation, namely,
that the parties must be creditors and debtors of each other in their own
right (Art. 1278, Civil Code) and that each one of them must be bound
principally and at the same time be a principal creditor of the other (Art.
1279), are not present in the instant case, since the real creditor with
respect to the sum of P500 was the defendant's counsel.
ISSUE: WON there was legal compensation between the parties as to the
accrued rentals and attorneys fees due to each other?
HELD: Yes. This is not an accurate statement of the nature of an award for
attorney's fee's. The award is made in favor of the litigant, not of his
counsel, and is justified by way of indemnity for damages recoverable by
the former in the cases enumerated in Article 2208 of the Civil Code. It is
the litigant, not his counsel, who is the judgment creditor and who
may enforce the judgment by execution. Such credit, therefore,
may properly be the subject of legal compensation. Quite obviously it
would be unjust to compel petitioner to pay his debt for P500 when
admittedly his creditor is indebted to him for more than P4,000.
WHEREFORE, the judgment of the Court of Appeals is reversed, and the
writ of execution issued by the Court of First Instance of Manila in its Civil
Case No. 49535 is set aside. Costs against respondent.
4. The claim must be clearly demandable, i.e., no controversy as
to the claim.
BAR QUESTION: Stockton is a stockholder of Core Corp. He desires to sell
his shares in Core Corp. in vies of a court suit that Core Corp. has filed
against him for damages in the amount of P10 million, plus attorneys fees
of P1 million, as a result of statements published by Stockton which are
allegedly defamatory because it was calculated to injure and damage the
corporations reputation and goodwill.
The articles of incorporation of Core Corp. provide for a right of first refusal
in favor of the corporation. Accordingly, Stockton gave written notice to the
corporation of his offer to sell his shares of P10 million. The response of
Core Corp. was an acceptance of the offer in the exercise of its rights of first
refusal, offering for the purpose payment in form of compensation or set-off
against the amount of damages it is claiming against him, exclusive of the
claim for attorneys fees. Stockton rejected the offer of the corporation,
arguing that compensation between the value of the shares and the amount
of damages demanded by the corporation cannot legally take effect. It
Stockton correct? Give reasons for your answer. (5%)
ANSWER: Yes. The Corporations claim for damages is not yet vested. For
all we know, the Corporation may lose. Compensation may not be invoked
until it wins in the suit.
CASE:
Proof of the liquidation of a claim, in order that there be compensation of
debts, is proper if such claim is disputed. But, if the claim is undisputed, as
in the case at bar, the statement is sufficient and no other proof may be
required.
REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN
ADMINISTRATION, petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, in his capacity as Judge of the
Court of First Instance of Rizal, Branch IV, Quezon City and
MARCELO STEEL CORPORATION, respondents.
G.R. No. L-30187 June 25, 1980
FACTS: the Spouses Farin obtained a loan from respondent Marcelo Steel
Corporation (MSC) in the amount of P600,000 secured by a real estate
mortgage over a parcel of land in QC covered by TCT No. 42589.
On July 24, 1965, the mortgagee foreclosed said mortgage. A petition for
prohibition was filed by the mortgagors Farins together with damages
against Benito Macrohon, as sheriff of QC and MSC.
Acting upon the petition, the herein respondent Judge Walfrido de los
Angeles, issued an order commanding the respondent Sheriff and the
respondent Corporation to desist from proceeding with the public auction
sale of the property scheduled.
While the above case was pending, Petra Farin leased portions of the "Doa
Petra Building situated on the mortgaged premises, to the Rice and Corn
Administration, (RCA, for short), for the amount of P11,500.00 per month.
Later on, the MSC invoking paragraph 5 of the mortgage contract, filed a
motion praying that an order be issued directing and/or authorizing the RCA
and another business concern holding offices at the Doa Petra Building to
channel or pay directly to it the rents for the use of the building, which was
granted by respondent judge.
RCA filed a MR to be excluded from the above for the reasons that (a) the
rents due Petra Farin had been assigned by her, with the conformity with
the RCA, to Vidal A. Tan; (b) Petra Farin has an outstanding obligation with
the RCA in the amount of P263,062.40, representing rice shortages incurred
by her as a bonded warehouse under contract with the RCA, which should
be compensated with the rents due and may be due; among others which
was denied.
On August 28, 1968, the RCA filed a motion to vacate the orders directing
the RCA to pay rentals to MSC, reiterating therein the grounds alleged in its
motion for reconsideration dated January 19, 1968, and in its second motion
for reconsideration dated April 17, 1968, which has remained unacted upon.
In said motion, the RCA emphasized that it is not a party to the case; that it
had been denied due process for lack of notice and the right to be heard;
that compensation took place by operation of law pursuant to Art.
1286 of the Civil Code without the need of a case against Petra R.
Farin, or a decision rendered against her for the payment of such
obligation; and that the provisions of the Rules of Court permitting a
judgment creditor to reach money or property in the hands of third persons
file the RCA, all purpose a final judgment, and not a mere interlocutory
order.
The motion was denied on December 19, 1968.
ISSUE: WON compensation took place between the debt of Petra Farin and
RCA which would make the latter no longer liable for rentals?
HELD: Yes. The respondent Judge erred in denying the claim of the RCA
that compensation of debts had taken place allegedly because "The records
does not show any proof that the plaintiff is indebted to the aforesaid
movant, RCA, as alleged in the said motion and assuming that the herein
plaintiff is really indebted to the RCA, the records further does not show
that a case has been filed against her, or a decision has been rendered
against her for the payment of such obligation." Proof of the liquidation
of a claim, in order that there be compensation of debts, is proper
if such claim is disputed. But, if the claim is undisputed, as in the
case at bar, the statement is sufficient and no other proof may be
required. In the instant case, the claim of the RCA that Petra R. Farin has
an outstanding obligation to the RCA in the amount of P263,062.40 which
should be compensated against the rents already due or may be due, was
raised by the RCA in its motion for the reconsideration of the order of
December 23, 1967. A copy of said motion was duly furnished counsel for
Petra R. Farin and although the said Petra R. Farin subsequently filed a
similar motion for the reconsideration of the order of December 23, 1967,
she did not dispute nor deny such claim Neither did the Marcelo Steel
Cesar Nickolai F. Soriano Jr.
56 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Corporation dispute such claim of compensation in its opposition to the
motion for the reconsideration of the order of December 23, 1967. The
silence of Petra R. Farin, order of December 23, 1967. although the
declaration is such as naturally one to call for action or comment if
not true, could be taken as an admission of the existence and
validity of such a claim. Therefore, since the claim of the RCA is
undisputed, proof of its liquidation is not necessary. At any rate, if
the record is bereft of the proof mentioned by the respondent Judge of first
instance, it is because the respondent Judge did not call for the submission
of such proof. Had the respondent Judge issued an order calling for proof,
the RCA would have presented sufficient evidence to the satisfaction of the
court.
Compensation cannot take place where one's claim against the other is still
the subject of court litigation. It is a requirement, for compensation to take
place, that the amount involved be certain and liquidated.
LORETO J. SOLINAP, petitioner,
vs.
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV,
Court of First Instance of Iloilo, SPOUSES JUANITO and HARDEVI
R. LUTERO, and THE PROVINCIAL SHERIFF OF
ILOILO, respondents.
G.R. No. L-50638 July 25, 1983
FACTS: Spouses Tiburcio Lutero and Asuncion Magalona, owners of
Hacienda Tambal, leased the said hacienda to petitioner Solinap for a period
of 10 years for a stipulated rental of P50,000 per year, and it was agreed in
the lease contract that out of the P50,000, P25,000 should be paid by
Solinap to the PNB to amortize the indebtedness of the spouses Lutero with
the said bank.
Tiburcio Lutero died and his heirs instituted the testate estate proceedings
of the deceased before the CFI of IloIlo presided by respondent judge.
Because of the mounting interest on the unpaid account of the estate, the
Judge ordered the administrator to scout who among the testamentary heirs
is financially in a position to pay all obligations, including interest, with the
right of subrogation.
Respondents Juanito (grandson of Tiburcio) and his wife Hardevi paid the
PNB P25,000 as partial settlement of the deceaseds obligation. Where upon
the respondents Lutero filed a motion in the testate court for
reimbursement from the petitioner of the amount thus paid. They argued
that the said amount should have been paid by petitioner to the PNB, as
stipulated in the lease contract he had entered into with the deceased
Tiburcio Lutero; and that such reimbursement to them was proper, they
being subrogees of the PNB.
Before the motion could be resolved, petitioner filed a separate action
against the respondent spouses for collection of the total amount of
P71,000 alleging that the defendants borrowed from him P45,000 secured
by a real estate mortgage, P3,000 evidenced by a receipt issued by them;
P23,000 for dishonored checks.
In their answer, the respondents Lutero traversed the material averments of
the complaint and set up legal and factual defenses. They further pleaded a
counterclaim against petitioners for the total sum of P 125,000.00
representing unpaid rentals on Hacienda Tambal. Basis of the counterclaim
is the allegation that they had purchased one-half [1/2] of Hacienda
Tambal, and that plaintiffs had failed to pay said rentals despite demands.
On June 14, 1978, the respondent judge issued an order in Sp. Proc. No.
1870, granting the respondent Lutero's motion for reimbursement from
petitioner of the sum of P25,000.00 plus interest.
Petitioner filed a petition for certiorari before this Court, docketed as G.R.
No. L-48776, assailing the above order. This Court, however, in a resolution
dated January 4, 1979 dismissed the petition for lack of merit.
Thereafter the respondent Luteros filed with the respondent court a "Motion
to Reiterate Motion for Execution of the Order dated June 14, 1978."
Petitioner filed a rejoinder to said motion, raising for the first time the
thesis that the amount payable to private respondents should be
compensated against the latter's indebtedness to him amounting
to P71,000.00. Petitioner attached to his rejoinder copies of the pleadings
filed in Civil Case No. 12397, then pending before Branch V of the Court of
First Instance of Iloilo. This motion was denied by respondent judge on the
ground that "the claim of Loreto Solinap against Juanito Lutero in Civil Case
No. 12397 is yet to be liquidated and determined in the said case, such that
the requirement in Article 1279 of the New Civil Code that both debts are
liquidated for compensation to take place has not been established by the
oppositor Loreto Solinap."
ISSUE: WON the obligation of petitioners to private respondents may be
compensated or set- off against the amount sought to be recovered in an
action for a sum of money filed by the former against the latter?
HELD: No. Petitioner contends that respondent judge gravely abused her
discretion in not declaring the mutual obligations of the parties extinguished
to the extent of their respective amounts. He relies on Article 1278 of the
Civil Code to the effect that compensation shall take place when two
persons, in their own right, are creditors and debtors of each other. The
argument fails to consider Article 1279 of the Civil Code which provides that
compensation can take place only if both obligations are
liquidated. In the case at bar, the petitioner's claim against the respondent
Luteros in Civil Case No. 12379 is still pending determination by the court.
While it is not for Us to pass upon the merits of the plaintiffs' cause of
action in that case, it appears that the claim asserted therein is disputed by
the Luteros on both factual and legal grounds. More, the counterclaim
interposed by them, if ultimately found to be meritorious, can defeat
petitioner's demand. Upon this premise, his claim in that case cannot be
categorized as liquidated credit which may properly be set-off against his
obligation. As this Court ruled in Mialhe vs. Halili, " compensation cannot
take place where one's claim against the other is still the subject
of court litigation. It is a requirement, for compensation to take
place, that the amount involved be certain and liquidated."
COMPANIA MARITIMA
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO.
G.R. No. L-50900 APRIL 9, 1985
FACTS: On March 7, 1947, Fernando Froilan purchased from the shipping
Administration a boat for P200K with a downpayment of P50K, secured by a
real mortgage on the vessel in favor of the Shipping Administration.
Froilan defaulted in his payments on the unpaid balance.
The GM of Shipping Administration ordered the immediate possession of the
vessel and to suspend the unloading of all cargoes. The boat was
repossessed and the title thereto was registered again in the name of the
Shipping Administration, thereby re-transferring the ownership thereof to
the government.
In 1949, Pan Oriental Shipping offered to charter said vessel for a monthly
rent of P3K. The vessel was delivered to the possession of Pan Oriental.
They entered into a bareboat charter with option to purchase filed on June
4, 1949 with the Office of the President.
Meanwhile, upon protest of Froilan, the Cabinet restored to him all his rights
in the contract of sale on condition that he would settle partially the
amounts overdue and to reimburse for repair and drydocking performed by
Pan Oriental.
Because of this, the formal bareboat charter agreement was not approved.
Pan Oriental protested the restoration of Froilans rights under the contract
of sale. Pan Oriental refused to surrender possession of the vessel despite
payment by Froilan of the required cash.
Froilan filed an action for replevin in the CFI Manila to recover possession
thereof and to have him declared as the rightful owner of the property. This
Cesar Nickolai F. Soriano Jr.
57 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
was granted by the court and ordered the seizure of the vessel from Pan
Oriental and the delivery to Froilan.
This was questioned by Pan Oriental up to the Supreme Court via certiorari,
but the same was dismissed in 1951. Pan Pacific accordingly filed its answer
in the proceedings below. The RP also intervened in the proceedings.
Subsequently, Compania Maritima, as purchaser of the vessel from Froilan,
was allowed to intervene in the lower court proceedings.
CFI Manila upheld the Compania Maritimas right to the ownership and
possession of the vessel.
This order was questioned by Pan Oriental 3 times to the SC. The case was
remanded to the lower court for the determination of necessary expenses,
interest and rentals.
The CFI Manila, this time, ruled for Pan Oriental and ordered Compania and
the Republic to pay, jointly and severally, Pan Oriental with legal interest
from the time of disbursement of legitimate expenses. CA affirmed this
judgment.
From this, Compania and the Republic appealed to the SC.
ISSUE: WON there was compensation or set-off by operation of law that
took place between the Republic and Pan-Oriental as of February 3, 1951,
the date Pan Oriental was dispossessed of the vessel?
HELD: No. REPUBLIC maintains that compensation or set-off took place
between it and PAN-ORIENTAL as of February 3, 1951, the date the latter
was dispossessed of the vessel For compensation to take place, one of the
elements necessary is that the debts be liquidated. In this case, all
the elements for Compensation to take place were not present on the date
of dispossession, or on February 3, 1951. The amount expended for
repairs and improvements had yet to be determined by the Trial
Court pursuant to the Decision of this Court promulgated on
October 31, 1964. At the time of dispossession also, PAN-ORIENTAL was
still insisting on its right to purchase the vessel. The obligation of
REPUBLIC to reimburse PAN-ORIENTAL for expenses arose only after this
Court had so ruled. Rentals for the use of the vessel by PAN- ORIENTAL
were neither due and demandable at the time of dispossession but only
after this Court had issued its Resolution of August 27, 1965.
More, the legal interest payable from February 3, 1951 on the sum of
P40,797.54, representing useful expenses incurred by PAN-ORIENTAL, is
also still unliquidated since interest does not stop accruing "until the
expenses are fully paid." Thus, we find without basis REPUBLIC's allegation
that PAN- ORIENTAL's claim in the amount of P40,797.54 was extinguished
by compensation since the rentals payable by PAN-ORIENTAL amount to
P59,500.00 while the expenses reach only P40,797.54. Deducting the latter
amount from the former, REPUBLIC claims that P18,702.46 would still be
owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the
fact that to the sum of P40,797.54 will still have to be added the legal rate
of interest "from February 3, 1951 until fully paid."
But although compensation by operation of law cannot take place as
between REPUBLIC and PAN-ORIENTAL, by specific pronouncement of this
Court in its Resolution of November 23, 1966, supra, the rentals payable by
PAN-ORIENTAL in the amount of P59,500.00 should be deducted from the
sum of useful expenses plus legal interest due, assuming that the latter
amount would still be greater. Otherwise, the corresponding adjustments
can be made depending on the totality of the respective amounts.
Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to
PAN-ORIENTAL was not extinguished by compensation, the obligation of
REPUBLIC to pay legal interest on said amount has neither become stale as
REPUBLIC contends. Of special note is the fact that payment of that interest
was the specific ruling of this Court in its Resolution of August 27, 1965,
thus:
... For this reason, Froilan and the REPUBLIC of the Philippines are declared
jointly and severally liable, not only for reimbursement to Pan Oriental, of
the legitimate necessary expenses incurred on the vessel, but also for
payment of legal interest thereon, computed from the date of the
defendant's dispossession of the property.
THE INTERNATIONAL CORPORATE BANK INC.
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO,
NATIVIDAD FAJARDO and SILVINO PASTRANA
G.R. No. L-69569 June 30, 1988
FACTS: In the early 1980, Natividad Fajardo secured from International
Corp. Banks (ICB) predecessors-in-interest the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the
amount of P50M, secured by a real estate mortgage of her properties in
Manila and Bulacan.
Only P20M was approved for release. The same amount was applied to pay
her other obligations to ICB - bank charges and fees. Thus, it is claimed by
Fajardo that she did not receive anything from the approved loan.
On September 11, 1980, Fajardo made a money market placement with
Atrium in the amount of P1M.
Meanwhile, Fajardo allegedly failed to pay her mortgaged indebtedness to
the bank so that the latter refused to pay the proceeds of the money market
placement on maturity but applied the amount instead to the deficiency in
the proceeds of the auction sale of the mortgaged properties. As Atrium was
the sole bidder, the properties were sold in its favor for only P20M. ICB
claims that Fajardo, even after deducting this amount, is still indebted to it
of P6.81M.
Fajardo filed a complaint for annulment of the sheriffs sale of her
properties, and prayed for the release of P30M loan, and recovery of P1M
money market investment.
ICB answered that it had the right to set off Fajardos money market claim.
The trial court ruled for Fajardo, ordering ICB to deliver to her the amount
covered by the money market investment (P1,046,253.77).
CA affirmed this ruling, holding that legal compensation cannot take place in
this case since the question of whether Fajardo was indebted to ICB is
vigorously disputed.
Trial court then issued a writ of execution to implement its Order and a levy
was made on ICBs personal properties consisting of 20 motor vehicles; and
ordered the four branches of ICB to pay P250K each to Fajardo.
Hence, ICB filed for a petition for review on certiorari with prayer for a TRO
and a writ of preliminary injunction.
ISSUE: WON there can be legal compensation for the proceeds of the
money market placement and deficiency from the foreclosure of the
mortgage?
HELD: No. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (Art. 1278, Civil Code).
"When all the requisites mentioned in Art. 1279 of the Civil Code are
present, compensation takes effect by operation of law, even without the
consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279
of the Civil Code requires among others, that in order that legal
compensation shall take place, "the two debts be due" and "they be
liquidated and demandable." Compensation is not proper where the claim of
the person asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from
breach of contract.
There can be no doubt that petitioner is indebted to private respondent in
the amount of P1,062,063.83 representing the proceeds of her money
market investment. This is admitted. But whether private respondent is
indebted to petitioner in the amount of P6.81 million representing
the deficiency balance after the foreclosure of the mortgage
Cesar Nickolai F. Soriano Jr.
58 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
executed to secure the loan extended to her, is vigorously
disputed. This circumstance prevents legal compensation from
taking place.
It must be noted that Civil Case No. 83-19717 is still pending consideration
at the RTC Manila, for annulment of Sheriffs sale on extra-judicial
foreclosure of private respondent's property from which the alleged
deficiency arose. Therefore, the validity of the extrajudicial
foreclosure sale and petitioner's claim for deficiency are still in
question, so much so that it is evident, that the requirement of
Article 1279 that the debts must be liquidated and demandable has
not yet been met. For this reason, legal compensation cannot take place
under Article 1290 of the Civil Code.
Art. 1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may owe
the principal debtor. (1197)
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided. (n)
Art. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his
consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous
to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set
up the compensation of all credits prior to the same and also later ones until
he had knowledge of the assignment. (1198a)
Debtor may still invoke compensation even after assignment, if:
1. Had no knowledge of or did not consent to the assignment; or
2. If with knowledge or consent, but reserved his right to the
compensation.
ILLUSTRATION: A borrowed money from B for P100,000 payable on July
31, 2016. In turn, B is indebted to A on the following amounts:
P40k due on February 1, 2016;
P30k due on August 15, 2016;
P15l due on Oct. 2, 3016
On August 5, 2016 B assigned his credit to X.
a. How much can X demand from A on June 5, 2016? None. The debt is
not yet due.
b. If demand was made on Aug. 5, 2015, how much can X collect from A?
It depends:
1. If A had knowledge of the assignment and gave his consent
thereto, and made no reservation as to his right to set-up
compensation: P100k
2. If he made a reservation: P60k, the debt that became due on
Feb. 1, 2016 is compensated.
3. If he had knowledge but did not give his consent: P60k, the debt
that became due before the assignment is compensated.
4. If he had no knowledge: P60k.
c. If demand was made on September 30, 2016, how much can X collect
from A?
1. If A had knowledge of the assignment and gave his consent
thereto, and made no reservation as to his right to set-up
compensation: P100k
2. If he made reservation: P60k, he can only set-up those debts
which were due before the assignment but not later ones.
3. If he had knowledge but did not give his consent: similar to (2).
 4. If he had no knowledge: he may set up compensation as to the
P40k and the P30k: thus, P30k only as provided under the last
par. of Art. 1285. Thus, he may set-up compensation against the
debts the assignor had prior to the assignment and subsequent
ones thereto until he had knowledge.
Art. 1286. Compensation takes place by operation of law, even though the
debts may be payable at different places, but there shall be an
indemnity for expenses of exchange or transportation to the place of
payment. (1199a)
Art. 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301. (1200a)
Art. 1288. Neither shall there be compensation if one of the debts consists
in civil liability arising from a penal offense. (n)
When compensation may not be proper:
1. Depositum as to the depositary;
2. Bail as to the bailee;
3. Support as to the one giving support, EXCEPT: support in arrears and
those contractual in nature;
4. Civil liability arising from a penal offense.
BAR QUESTION: X, who has a savings deposit with Y Bank in the sum of
P1,000,000.00, incurs a loan obligation with the said Bank in the sum of
P800,000.00 which has become due. When X tries to withdraw his deposit,
Y Bank allows only P200,000.00 to be withdrawn, less service charges,
claiming that compensation has extinguished its obligation under the
savings account to the concurrent amount of Xs debt. X contends that
compensation is improper when one of the debts, as here, arises from a
contract of deposit. Assuming that the promissory note signed by X to
evidence the loan does not provide for compensation between said loan and
his savings deposit, who is correct? (3%)
ANSWER: By opening a deposit, they did not enter a contract of deposit.
Deposits in bank are simple loans. The bank is correct.
MODIFIED: instead of opening a savings account, X instead delivered a
sum of money with the bank for safekeeping in a safety deposit box. If the
bank would invoke compensation for the debt due, can the Bank do that?
ANSWER: No. this time, one of the debts pertain to an obligation arising
from a depositum. SC would consider this a special kind of deposit,
therefore, 1287 is applicable, compensation would not be proper since one
of the contract is a depositum.
What if the Bank is the one demanding and X says that the Bank
get it from the deposit, is it proper? Yes. 1287 only legal
compensation is not allowed. Depositor can invoke compensation. The law
protects the depositor, that upon demand, the depositary should deliver. As
such, the Bank cannot refuse compensation.
CASE:
The relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil
Code may take place "when all the requisites mentioned in Article 1279 are
present.
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents
G.R. No. 136202 January 25, 2007
Cesar Nickolai F. Soriano Jr.
59 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
FACTS: AA Salazar Construction and Engineering Services filed an action for
a sum of money with damages against herein petitioner Bank, which was
later on amended to substitute Anabelle Salazar as the real party in interest,
where respondent Salazar prays for the recovery of P267,707.70 debited by
petitioner Bank from her account.
In its Answer, BPI alleged hat Julio Templonuevo, 3rd party defendant and
herein private respondent, demanded from the former payment in the said
amount representing the aggregate of 3 checks which were allegedly
payable to him but which were deposited with the account of Salazar
without his knowledge and corresponding endorsement.
BPI froze Account No. 0201-0588-48 of AA Salazar Construction and
Engineering Services, instead of Account No. 0203-1187-67 where the
checks were deposited, since the latter account was alredy closed by
respondent Salazar or had an insufficient balance.
As it appeared that Salazar was not entitled to the funds represented by the
checks, BPI decided to debit the amount from Salazars account (0201-
0588-48) and the same was paid to Templonuevo by means of a cashiers
check.
In his answer, Templonuevo admitted the payment to him by BPI and
argued that the said payment was to correct the malicious deposit made by
private respondent Salazar to her private account.
The RTC rendered a decision against petitioner and ordered to pay the
amount debited and damages.
On appeal, the CA affirmed the trial court holding that Salazar and
Templonuevo had previously agreed that the checks payable to JRT
Construction and Trading actually belonged to Salazar and would be
deposited to her account, with petitioner acquiescing to the arrangement.
ISSUE: WON petitioner Bank had the right to set-off Salazars account for
the said checks?
HELD: Yes. The right of set-off was explained in Associated Bank v. Tan:
A bank generally has a right of set-off over the deposits therein for
the payment of any withdrawals on the part of a depositor. The
right of a collecting bank to debit a client's account for the value of a
dishonored check that has previously been credited has fairly been
established by jurisprudence. To begin with, 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."
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation
under Article 1278 of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
ISSUE2: WON petitioner Bank acted properly as to its right of set-off?
HELD: No. While, however, it is conceded that petitioner had the right of
set-off over the amount it paid to Templonuevo against the deposit of
Salazar, the issue of whether it acted judiciously is an entirely different
matter. As businesses affected with public interest, and because of the
nature of their functions, banks are under obligation to treat the accounts of
their depositors with meticulous care, always having in mind the fiduciary
nature of their relationship. In this regard, petitioner was clearly remiss in
its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks.
Despite the obvious lack of indorsement thereon, petitioner permitted the
encashment of these checks three times on three separate occasions. This
negates petitioners claim that it merely made a mistake in crediting the
value of the checks to Salazars account and instead bolsters the conclusion
of the CA that petitioner recognized Salazars claim of ownership of checks
and acted deliberately in paying the same, contrary to ordinary banking
policy and practice. It must be emphasized that the law imposes a duty of
diligence on the collecting bank to scrutinize checks deposited with it, for
the purpose of determining their genuineness and regularity. The collecting
bank, being primarily engaged in banking, holds itself out to the public as
the expert on this field, and the law thus holds it to a high standard of
conduct. The taking and collection of a check without the proper
indorsement amount to a conversion of the check by the bank.
More importantly, however, solely upon the prompting of Templonuevo, and
with full knowledge of the brewing dispute between Salazar and
Templonuevo, petitioner debited the account held in the name of the sole
proprietorship of Salazar without even serving due notice upon her. This ran
contrary to petitioners assurances to private respondent Salazar that the
account would remain untouched, pending the resolution of the controversy
between her and Templonuevo.
The records further bear out the fact that respondent Salazar had issued
several checks drawn against the account of A.A. Salazar Construction and
Engineering Services prior to any notice of deduction being served. The CA
sustained private respondent Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount
of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and prejudice
particularly when she had already issued checks drawn against the said
account. As can be expected, the said checks bounced. To prove this,
plaintiff-appellee presented as exhibits photocopies of checks dated
September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits
"D", "E" and "F" respectively)
These checks, it must be emphasized, were subsequently dishonored,
thereby causing private respondent Salazar undue embarrassment and
inflicting damage to her standing in the business community. Under the
circumstances, she was clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the above amount from her
account without informing her that it had already done so.
Art. 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments
shall apply to the order of the compensation. (1201)
Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts
to the concurrent amount, even though the creditors and debtors are
not aware of the compensation. (1202a)
Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid. (1165)
Art. 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
6. Novation
Dual Function: extinguishes the obligation and creates a new one.
Requisites:
1. Previous valid obligation
Art. 1298. The novation is void if the original obligation was void,
except when annulment may be claimed only by the debtor or when
ratification validates acts which are voidable. (1208a)
2. Agreement of all parties to a new contract
3. Extinguishment of old obligation
4. Validity of the new obligation
Art. 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation should be
extinguished in any event. (n)
Relevance of determining existence of novation: examples:
1. Vitiation of consent in the previous obligation, is not carried to the
new obligation if there is no such vitiation of consent in the novation;
2. Prescription if there is no novation, the prescriptive period of the
previous obligation continues to run.

For the above reasons, the Court finds no reason to disturb the award of Death of one of the creditor: the new creditor is(are) the heir(s), no
damages granted by the CA against petitioner. This whole incident would novation. Mere change in the person of the creditor does not cause
have been avoided had petitioner adhered to the standard of diligence novation.
expected of one engaged in the banking business. A depositor has the right
to recover reasonable moral damages even if the banks negligence may not Art. 1291. Obligations may be modified by:
have been attended with malice and bad faith, if the former suffered mental (1) Changing their object or principal conditions;
anguish, serious anxiety, embarrassment and humiliation. Moral damages (2) Substituting the person of the debtor;
are not meant to enrich a complainant at the expense of defendant. It is (3) Subrogating a third person in the rights of the creditor. (1203)
only intended to alleviate the moral suffering she has undergone. The award
of exemplary damages is justified, on the other hand, when the acts of the Kinds of Novation:
bank are attended by malice, bad faith or gross negligence. The award of 1. As to nature:
reasonable attorneys fees is proper where exemplary damages are a. Subjective/Personal
awarded. It is proper where depositors are compelled to litigate to protect b. Objective/Real
their interest. c. Mixed
2. As to form:
WHEREFORE, the petition is partially GRANTED. The assailed Decision a. Express;
dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the b. Implied
Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it 3. As to extent:
ordered petitioner Bank of the Philippine Islands to return the amount of a. Total;
Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 b. Partial.
Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is
REVERSED and SET ASIDE. In all other respects, the same Subjective Novation: changing the subject:
are AFFIRMED. 1. Active if a third person is subrogated to the rights of the creditor;

How?
a. By agreement or express
Cesar Nickolai F. Soriano Jr.
60 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe

Whose consent necessary:
Art. 1300. Subrogation of a third person in the rights of the creditor
is either legal or conventional. The former is not presumed, except in
cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect. (1209a)
Art. 1301. Conventional subrogation of a third person requires the
consent of the original parties and of the third person. (n)
b. By law or implied Art. 1302
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share. (1210a)
In the above cases, Legal Subrogation is because of payment.
BAR QUESTION: JC construction bought steel bars from Matibay
Steel Industries owned by Buddy Batongbakal. JC failed to pay. JC
persuaded its client Amoroso with whom it had receivables to pay MSI.
Amoroso agreed and paid. Later on, Amoroso failed to pay. MSI
collected from JC. JC contended that the obligation has been
extinguished as to him; that MSI consented to the novation because of
acceptance of the partial payments of Amoroso. Can MSI validly
demand from JC?
ANSWER: Yes. for substitution to take place, it must be clearly
intended by the parties that this third person will be the new and only
debtor.
In this case, the acceptance of the partial payment was not a clear act
of consenting to the substitution. The creditor merely accepted
payments but the debtor JC was not released from his obligation.
Effects of subrogation:
Art. 1303. Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either against the
debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.
(1212a)
Art. 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the
person who has been subrogated in his place in virtue of the partial
payment of the same credit. (1213)
2. Passive if a third person is substituted to the person of the debtor.
In this case, it should be clear to both parties that the new debtor is in
lieu of the old debtor.
a. Expromision - without knowledge or against the will of the
original debtor
As to extent of reimbursement Arts. 1236 and 1237 shall be
applicable, as such, the new debtor can only recover only upto
the extent that the old debtor was benefited.
Art. 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the
rights mentioned in Articles 1236 and 1237. (1205a)
Cesar Nickolai F. Soriano Jr.
61 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
As to right of the creditor when the new debtor becomes insolvent
or fails to fulfil the obligation he cannot run after the old debtor.
Art. 1294. If the substitution is without the knowledge or against
the will of the debtor, the new debtor's insolvency or non-fulfillment
of the obligations shall not give rise to any liability on the part of the
original debtor. (n)
b. Delegacion - with consent or knowledge of the original debtor
but without any objection. Here, it is the debtor who offers the
change.
Parties:
Delegante the old debtor;
Delegado the new debtor
Delegatorio the creditor.
As to extent of reimbursement the whole amount paid
regardless of the extent the old debtor was benefited.
As to right of the creditor when the new debtor becomes insolvent
he can run after the old debtor, IF: the insolvency was already
existing and of public knowledge, or known to the debtor.
Otherwise, the creditor cannot run after the old debtor.
Art. 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor, shall
not revive the action of the latter against the original obligor, except
when said insolvency was already existing and of public knowledge,
or known to the debtor, when the delegated his debt. (1206a)
Creditors consent in any case, the creditors consent is necessary
for there to be a novation in the person of the debtor as provided
under Art. 1293.
BAR QUESTION: Baldomero leased his house with a telephone to
Jose. The lease contract provided that Jose shall pay for all electricity,
water and telephone services in the leased premises during the period
of the lease. Six months later, Jose surreptitiously vacated the
premises. He left behind unpaid telephone bills for overseas telephone
calls amounting to over P20,000.00. Baldomero refused to pay the
said bill on the ground that Jose had already substituted him as the
customer of the telephone company. The latter maintained that
Baldomero remained, as his customer as far as their service contract
was concerned, notwithstanding the lease contract between Baldomero
and Jose.
Who is correct, Baldomero or the telephone company? Explain.
ANSWER: Telephone Company. Because the claim of substitution is
untenable. There can never be a substitution in the person of the
debtor without the consent of the creditor.
CASE ON SUBSTITUTION OF DEBTOR:
ESTRELLA BENIPAYO RODRIGUEZ, MANUEL D. BENIPAYO, DONATO
BENIPAYO, JR., JAIME D. BENIPAYO, MAXIMA BENIPAYO MORALES,
AURORA BENIPAYO DE LEON, FRANCISCO D. BENIPAYO, ALEJANDRO D.
BENIPAYO, TERESITA BENIPAYO DE LOS SANTOS, LYDIA BENIPAYO
CLEMENTE, and JULIA C. MERCADO, petitioners,
vs.
HON. JUAN O. REYES, in his capacity as Presiding Judge of the Manila
Court of First Instance, Branch XXI, ALBERTO D. BENIPAYO, DR. JOSE N.
DUALAN and VICENTE SAYSON, JR., respondents.
G.R. No. L-22958 January 30, 1971
By buying the property with notice that it was mortgaged, respondent
Dualan only undertook either to pay or else allow the land's being sold if the
mortgage creditor could not or did no obtain payment from the principal
debtor when the debt matured. Nothing else. Certainly the buyer did not
obligate himself to replace the debtor in the principal obligation, and he
could not do so in law without the creditor's consent..
FACTS: Petitioners filed an action against their brother private respondent
Alberto Benipayo for the partition of the properties they held in common. In
the course of the proceedings, the parties agreed to sell the properties in
litigation at public auction and divide the profits among themselves.
In one of the properties subject of the public auction, herein private
respondent Dualan was the highest bidder. After the sheriff had filed his
return with the respondent judge, petitioners moved for the approval of the
sale, deducting from the total amount of P408,000.00 the sheriff's
percentage, and the expenses incurred by petitioners for the publication of
the notice of sale.
Commenting on the aforesaid motion, private respondents Benipayo and
Dualan prayed that the respondent Judge Reyes order (1) the payment of
the mortgage debt in favor of the Development Bank of the Philippines in
the amount of P37,121.96 from the proceeds of the auction sale; (2) the
issuance by the sheriff of Manila of a certificate of sale in favor of Dualan of
the property sold to him free from all liens and encumbrances; and (3) the
payment to respondent Benipayo of 1/12 of the proceeds of the sale after
deducting therefrom the payment to the Development Bank of the
Philippines.
In resolving the said motion, respondent Judge issued an order stating:
WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, and the
Quezon City Sheriff's Report dated April 6, 1964, are hereby approved,
subject to the following conditions:
1. That the vendors or the owners of the properties sold shall clear said
properties of all encumbrances that were incurred in them long before
the auction sales;
2. That since the taxes on said real estates are not encumbrances
incurred by the owners of the properties, but are proper charges
attached and against the properties themselves, the real estate taxes
shall be borne by the owner or owners of the said properties on the
date when said taxes become due for payment.
Hence, this petition.
Petitioners seek to apply the doctrine of caveat emptor to the successful
bidder Dualan, and contend that under said rule Dualan bought at his own
peril and, having purchased the property with knowledge of the
encumbrance he should assume payment of the indebtedness secured
thereby.
ISSUE: WON private respondent Dualan is liable for the payment of the
unpaid obligation of the petitioners with the DBP, on the ground of the
doctrine of caveat emptor and novation?
HELD: No. We find the stand of petitioners-appellants to be unmeritorious
and untenable. The maxim "caveat emptor" applies only to execution sales,
and this was not one such. The mere fact that the purchaser of an
immovable has notice that the required realty is encumbered with
a mortgage does not render him liable for the payment of the debt
guaranteed by the mortgage, in the absence of stipulation or
condition that he is to assume payment of the mortgage debt. The
reason is plain: the mortgage is merely an encumbrance on the property,
entitling the mortgagee to have the property foreclosed, i.e., sold, in case
the principal obligor does not pay the mortgage debt, and apply the
proceeds of the sale to the satisfaction of his credit. Mortgage is merely an
accessory undertaking for the convenience and security of the mortgage
creditor, and exists independently of the obligation to pay the debt secured
by it. The mortgagee, if he is so minded, can waive the mortgage security
and proceed to collect the principal debt by personal action against the
original mortgagor.
By buying the property with notice that it was mortgaged,
respondent Dualan only undertook either to pay or else allow the
land's being sold if the mortgage creditor could not or did no
obtain payment from the principal debtor when the debt matured.
Nothing else. Certainly the buyer did not obligate himself to
Cesar Nickolai F. Soriano Jr.
62 Arellano University School of Law 2011-0303
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replace the debtor in the principal obligation, and he could not do
so in law without the creditor's consent. Our Civil Code, Article 1293,
explicitly provides:
ART. 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even with out the knowledge
or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in
articles 1236 and 1237.
The obligation to discharge the mortgage indebtedness, therefore, remained
on the shoulders of the original debtors and their heirs, petitioners herein,
since the record is devoid of any evidence of contrary intent. This Court has
so ruled in Bank of the Philippine Islands vs. Concepcion e Hijos, Inc., 53
Phil. 806, from which We quote:
But the plaintiff argues that in American jurisprudence, the purchaser
of mortgaged property who assumes the payment of the mortgage
debt, may for that reason alone be sued for the debt by the creditor
and that that rule is applicable in this jurisdiction. Aside from the fact
we are not here dealing with a mere assumption of the debt, but with
a subrogation, it may be noted that this court has already held that the
American doctrine in this respect is not in harmony with the spirit of
our legislation and has not been adopted in this country. In the case of
E. C. McCullough & Co. vs. Veloso and Serna (46 Phil., 1), the court,
speaking through its present Chief Justice, said:
The effects of a transfer of a mortgaged property to a third
person are well determined by the Civil Code. According to article
1879 7 of this Code, the creditor may demand of the third person
in possession of the property mortgaged payment of such part of
the debt, as is secured by the property in his possession, in the
manner and form established by the law. The Mortgage Law in
force at the promulgation of the Civil Code and referred to in the
latter, exacted, among other conditions, also the circumstance
that after judicial or notarial demand, the original debtor had
failed to make payment of the debt at maturity. (Art. 135 of the
Mortgage Law of the Philippines of 1889.) According to this, the
obligation of the new possessor to pay the debt originated only
from the right of the creditor to demand payment of him, it being
necessary that a demand for payment should have previously
been made upon the debtor and the latter should have failed to
pay. And even if these requirements were complied with, still the
third possessor might abandon the property mortgaged, and in
that case it is considered to be in the possession of the debtor.
(Art. 136 of the same law.) This clearly shows that the spirit of
the Civil Code is to let the obligation of the debtor to pay the debt
stand although the property mortgaged to secure the payment of
said debt may have been transferred to a third person. While the
Mortgage Law of 1893 eliminated these provisions, it contained
nothing indicating any change in the spirit of the law in this
respect. Article 129 of this law, which provides for the
substitution of the debtor by the third person in possession of the
property, for the purposes of the giving of notice, does not show
this change and has reference to a case where the action is
directed only against the property burdened with the mortgage.
(Art. 168 of the Regulation )
Upon the other hand, the orders complained of, in so far as they require the
vendors-heirs to clear the title to the land sold to respondent Dualan, when
the latter bid for it with full knowledge that the same was subject to a valid
and subsisting mortgage, is plainly erroneous. In submitting his bid, Dualan
is presumed to know, and in fact did know, that the property was subject to
a mortgage lien; that such encumbrance would make him, as purchaser,
eventually liable to discharge mortgage by paying or settling with the
mortgage creditor, should the original mortgagors fail to satisfy the debt.
Normally, therefore, he would have taken this eventuality into account in
making his bid, and offer a lower amount for the lot than if it were not
encumbered. If he intended his bid to be understood as conditioned upon
the property being conveyed to him free from encumbrance, it was his duty
to have so stated in his bid, or at least before depositing the purchase price.
He did not do so, and the bid must be understood and taken to conform to
the normal practice of the buyer's taking the mortgaged property subject to
the mortgage. Consequently, he may not demand that the vendors should
discharge the encumbrance aforesaid.
Thus, the questioned order of the trial court ordering the vendors-heirs to
clear the property of all its encumbrances is not in accordance with law.
Objective or Real Novation
1. Change in the object
2. Change in the principal conditions of the obligation, which may either
be:
a. Express; or
b. Implied:
Art. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. (1204)
The SC has ruled that there are no hard and fast rule to determine if
there was implied novation. The TEST: is whether the old and the new
obligations are incompatible with each other.
Changes in the terms of a final and executory judgment:
There is Novation: liability under the judgment in civil case No.
42125 had been extinguished by the settlement evidenced by the
mortgage executed by them in favor of the appellee on December
16, 1933. Although said mortgage did not expressly cancel the old
obligation, this was impliedly novated by reason of incompatibly
resulting from the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for attorney's
fees, and was not secured, the new obligation is or P1,200
payable in installments, stipulated for attorney's fees, and is
secured by a mortgage. (Fua vs. Yap)
There is no Novation: Where the new obligation merely
reiterates or ratifies the old obligation, although the former effects
but minor alterations or slight modifications with respect to the
cause or object or conditions of he latter, such changes do not
effectuate any substantial incompatibility between the two
obligations Only those essential and principal changes introduced
by the new obligation producing an alteration or modification of
the essence of the old obligation result in implied novation. In the
case at bar, the mere reduction of the amount due in no sense
constitutes a sufficient indictum of incompatibility, especially in
the light of (a) the explanation by the petitioner that the reduced
indebtedness was the result of the partial payments made by the
respondent before the execution of the chattel mortgage
agreement and (b) the latter's admissions bearing thereon. (Millar
vs. CA)
CASES ON EXPRESS AND IMPLIED NOVATION:
FUA CAM LU
vs.
YAP FAUCO and YAP SINGCO
G.R. No. L-48797 July 30, 1943
FACTS: FUA obtained a favorable judgment in the CFI Manila ordering YAP
FAUCO and YAP SINGCO to pay FUA P1,538.04 with legal interest and costs.
By virtue of a writ of execution, a land belonging to YAPs in Sorsogon was
levied upon and was scheduled to be sold at public auction.
To prevent the sale, YAPs executed a mortgage in favor of FUA, wherein it
was stipulated that their obligation would be reduced to P1,200 which was
made payable in 3 installments from 1934 to 1935, secured by a Camarin
belonging to YAPs.
As a result of this agreemet, the sale did not take place.
Cesar Nickolai F. Soriano Jr.
63 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
But pursuant to an alias writ of execution issued by CFI Manila, the sheriff,
without publishing a new notice, sold said land in a public auction for
P1923.32.
A final deed of sale was executed in favor of FUA.
FUA filed an action in the CFI of Sorsogon against the YAPs for their refusal
to recognize FUAs title and to vacate the land.
YAPs interposed the defense of novation by the mortgage they executed in
favor of FUA.
CFI ruled for FUA, recognizing the latter to be the owner of the land and
ordered the YAPs to deliver the same to him.
Hence, the YAPs filed this petition.
ISSUE: WON there was novation with the changes in the terms of the final
and executor judgment?
HELD: YES, implied novation took place. We concur in the theory that
appellants liability under the judgment in civil case No. 42125 had been
extinguished by the settlement evidenced by the mortgage executed by
them in favor of the appellee on December 16, 1933. Although said
mortgage did not expressly cancel the old obligation, this was
impliedly novated by reason of incompatibly resulting from the fact
that, whereas the judgment was for P1,538.04 payable at one
time, did not provide for attorney's fees, and was not secured, the
new obligation is or P1,200 payable in installments, stipulated for
attorney's fees, and is secured by a mortgage. The appellee, however,
argues that the later agreement merely extended the time of payment and
did not take away his concurrent right to have the judgment executed. This
court not have been the purpose for execution of the mortgage, because it
was therein recited that the appellants promised to pay P1,200 to the
appellee as a settlement of the judgment in civil case No. 42125 (en forma
de transaccion de la decision . . . en el asunto civil No. 42125). Said
judgment cannot be said to have been settled, unless it was extinguished.
Moreover, the sheriff's sale in favor of the appellee is void because no
notice thereof was published other than that which appeared in the Mamera
Press regarding the sale to be held on December 12, 1933. Lack of new
publication is shown by appellee's own evidence and the issue, though not
raised in the pleadings, was thereby tried by implied consent of the parties,
emphasized by the appellants in the memorandum filed by them in the
lower court and squarely threshed out in this Court by both the appellants
and the appellee. The latter had, besides, admitted that there was no new
publication, and so much so that in his brief he merely resorted to the
argument that "section 460 of Act 190 authorized the sheriff to adjourn any
sale upon execution to any date agreed upon in writing by the parties . . .
and does not require the sheriff to publish anew the public sale which was
adjourned." The appellee has correctly stated the law but has failed to show
that it supports his side, for it is not pretended that there was any written
agreement between the parties to adjourn the sale advertised for December
12, 1933, to May 28, 1934. Neither may it be pretended that the sale in
favor of the appellee was by virtue of a mere adjournment, it appearing that
it was made pursuant to an alias writ of execution. Appellee's admission has
thus destroyed the legal presumption that official duty was regularly
performed.
SC reversed the ruling of the lower court.
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES
ASTERIO DE GUZMAN and ERLINDA CONCEPCION and
ENCARNACION OCAMPO VDA. DE CONCEPCION, petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT, HONORABLE
FLORANTE S. ABASOLO, in his capacity as Judge, Regional Trial
Court, First Judicial Region, Branch L, Villasis, Pangasinan,
GUADALUPE C. VDA. DE DEL CASTILLO and WALDO DEL CASTILLO,
respondents.
G. R. No. L-68477 October 29, 1987
FACTS: Petitioners Sps. Balila, Sps. De Guzman, Ocampo and Conception,
and Private respondents Del Castillo entered into a compromise agreement
with respect to a civil case which provides that the petitioners:
"having sold under a pacto de retro sale the parcels of land 4 described in
the complaint in the amount of P84,000.00" and
"hereby promise to pay the said amount within the period of four (4)
months but not later than May 15,1981."
On December 11, 1980, the trial Court rendered its judgment based on
compromise agreement.
On December 30, 1981, petitioners were able to redeem one of the parcels
of land described in the complaint.
On August 4, 1982, private respondent filed a motion for hearing on the
consolidation of title over the remaining parcels of land, on the ground that
the petitioners failed to comply with their obligation to pay. Petitioners
contend that they had made partial payments of their obligation through
plaintiff's attorney in fact and son, private respondent Waldo del Castillo, as
well as to the Sheriff. However, the trial Court ruled in favor of the
consolidation
On June 8, 1983, while the order of the lower Court was not yet enforced,
petitioners tendered the amount of P28,800.00, leaving a balance of
P35,200.00. Petitioners were given 45 days to comply with such obligation.
However, despite the given period of 45 days, petitioners still failed to
comply.
On certiorari, the IAC affirmed the lower court.
Petitioners contend that respondent appellate Court failed to recognize that
the decision of the trial Court was already novated by the subsequent
mutual agreement of the parties.
ISSUE: WON the decision rendered by the trial Court was novated by the
subsequent mutual agreements between the parties?
HELD: Yes. The root of all the issues raised before Us is that judgment by
compromise rendered by the lower court based on the terms of the
amicable settlement of the contending parties. Such agreement not being
contrary to law, good morals or public policy was approved by the lower
court and therefore binds the parties who are enjoined to comply therewith.
However, the records show that petitioners made partial payments
to private respondent Waldo del Castillo after May 15, 1981 or the
last day for making payments, redeeming Lot No. 52 as earlier
stated. (Annex "A," Petition).
There is no question that petitioners tendered several payments to Waldo
del Castillo even after redeeming lot No. 52. A total of these payments
reveal that petitioners fully paid the amount stated in the judgment by
compromise. The only issue is whether Waldo del Castillo was a person duly
authorized by his mother Guadalupe Vda. de del Castillo, as her attorney-in-
fact to represent her in transactions involving the properties in question. We
believe that he was so authorized in the same way that the appellate court
took cognizance of such fact as embodied in its assailed decision. reading as
follows:
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo,
represented by her attorney in fact Waldo Castillo, filed a complaint for
consolidation of ownership against the same petitioners herein before the
Court of First Instance of Pangasinan, docketed as Civil Case No. U-3650,
the allegations of which are Identical to the complaint filed in Civil Case No.
U-3501 of the same court. This case U-3650 was, however, dismissed in an
Order dated May 27, 1983, in view of the order of consolidation issued in
Civil Case No. U-350 1. (p. 37, Rollo) (Underscoring supplied)
The fact therefore remains that the amount of P84,000.00 payable on or
before May 15, 1981 decreed by the trial court in its judgment by
compromise was novated and amended by the subsequent mutual
agreements and actions of petitioners and private respondents. Petitioners
Cesar Nickolai F. Soriano Jr.
64 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
paid the aforestated amount on an installment basis and they were
given by private respondents no less than eight extensions of time
pay their obligation.
These transactions took place during the pendency of the motion
for reconsideration of the Order of the trial court dated April 26,
1983 in Civil Case No. U-3501, during the pendency of the petition
for certiorari in AC-G.R. SP-01307 before the Intermediate
Appellate Court and after the filing of the petition before us. This
answers the claim of the respondents on the failure of the petitioners to
present evidence or proofs of payment in the lower court and the appellate
court. We have touched on this issue, similarly, in the case of de los Santos
vs. Rodriguez wherein We ruled that:
As early as Molina vs. De la Riva the principle has been laid down that,
when, after judgment has become final, facts and circumstances
transpire which render its execution impossible or unjust, the
interested party may ask the court to modify or alter the judgment
to harmonize the same with justice and the facts.
For this reason, in Amor vs. Judge Jose, We used the following language:
The Court cannot refuse to issue a writ of execution upon a final and
executory judgment, or quash it, or order its stay, for, as a general rule,
parties will not be allowed, after final judgment, to object to the execution
by raising new issues of fact or of law, except when there had been a
change in the situation of the parties which makes such execution in-
equitable; or when it appears that the controversy has never been
submitted to the judgment of the court, or when it appears that the writ of
execution has been improvidently issued, or that it is defective in substance,
or issued against the wrong party or that judgment debt has been paid or
otherwise satisfied or when the writ has been issued without authority.
Likewise in the case of Dormitorio vs. Fernandez, We held:
What was done by respondent Judge in setting aside the writ of execution
in Civil Case No. 5111 finds support in the applicable authorities. There is
this relevant excerpt in Barretto v. Lopez this Court speaking through the
then Chief Justice Paras: "Allegating that the respondent judge of the
municipal court had acted in excess of her jurisdiction and with grave abuse
of discretion in issuing the writ of execution of December 15, 1947, the
petitioner has filed the present petition for certiorari and prohibition for the
purpose of having said writ of execution annulled. Said petition is
meritorious. The agreement filed by the parties in the ejectment case
created as between them new rights and obligations which naturally
superseded the judgment of the municipal court." In Santos v. Acuna, it was
contended that a lower court decision was novated by the subsequent
agreement of the parties. Implicit in this Court's ruling is that such a plea
would merit approval if indeed that was what the parties intended.
EUSEBIO S. MILLAR, petitioner,
vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL,
respondents.
G.R. No. L-29981 April 30, 1971
The defense of implied novation requires clear and convincing proof of
complete incompatibility between the two obligations. The law requires no
specific form for an effective novation by implication. The test is whether
the two obligations can stand together. If they cannot, incompatibility
arises, and the second obligation novates the first. If they can stand
together, no incompatibility results and novation does not take place.
FACTS: Petitioner Millar obtained favorable decision from the Court of First
Instance of Manila, which ordered herein private respondent Gabriel to pay
him the sum of P1,746.00 with interest amounting to 12% per annum from
the date of the filing of the complaint, the sum of P400 as attorney's fees,
and the costs of suit.
Upon motion of petitioner, a writ of execution was issued on which basis the
sheriff of Manila seized the respondent's Willy's Ford jeep.

The private respondent, however, pleaded with the petitioner to release the
jeep under an arrangement whereby the respondent, to secure the payment
of the judgement debt, agreed to mortgage the vehicle in favor of the
petitioner.
Despite such, private respondent still failed to comply with the obligation to
pay the sum of money, which constrained the petitioner to obtain an alias
writ of execution. On the fifth alias writ of execution, the sheriff levied on
certain personal properties belonging to the respondent, and then scheduled
them for execution sale.
The private respondent filed an urgent motion for suspension of the
execution sale on the ground of payment of the judgement obligation. The
lower Court resolved the motion, reiterated the execution, and held that
novation had taken place, and that the parties had executed the chattel
mortgage only "to secure or get better security for the judgment.
On appeal, respondent Court of Appeals set aside the order of execution,
and held that the subsequent agreement of the parties impliedly novated
the judgment obligation, hence this petition.
The appellate court stated that the following circumstances sufficiently
demonstrate the incompatibility between the judgment debt and the
obligation embodied in the deed of chattel mortgage, warranting a
conclusion of implied novation:
1. Whereas the judgment orders the respondent to pay the petitioner the
sum of P1,746.98 with interest at 12% per annum from the filing of
the complaint, plus the amount of P400 and the costs of suit, the deed
of chattel mortgage limits the principal obligation of the respondent to
P1,700;
2. Whereas the judgment mentions no specific mode of payment of the
amount due to the petitioner, the deed of chattel mortgage stipulates
payment of the sum of P1,700 in two equal installments;
3. Whereas the judgment makes no mention of damages, the deed of
chattel mortgage obligates the respondent to pay liquidated damages
in the amount of P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage,
which may be foreclosed extrajudicially in case of default, secured the
obligation.
ISSUE: WON respondent Court of Appeals erred when it held that the
judgment obligation was novated due to the subsequent agreement of the
parties in the deed of chattel mortgage entered into between the petitioner
and the private respondent?
HELD: Yes, the Court held that respondent Court of Appeals did err when it
held that the judgment obligation was novated.
The Court of Appeals, in arriving at the conclusion that implied novation has
taken place, took into account the four circumstances heretofore already
adverted to as indicative of the incompatibility between the judgment debt
and the principal obligation under the deed of chattel mortgage.
1. Anent the first circumstance, the petitioner argues that this does not
constitute a circumstance in implying novation of the judgment debt, stating
that in the interim from the time of the rendition of the judgment in civil
case 27116 to the time of the execution of the deed of chattel mortgage
the respondent made partial payments, necessarily resulting in the lesser
sum stated in the deed of chattel mortgage. He adds that on record appears
the admission by both parties of the partial payments made before the
execution of the deed of chattel mortgage. The erroneous conclusion
arrived at by the Court of Appeals, the petitioner argues, creates the wrong
impression that the execution of the deed of chattel mortgage provided the
consideration or the reason for the reduced judgment indebtedness.
Where the new obligation merely reiterates or ratifies the old
obligation, although the former effects but minor alterations or
Cesar Nickolai F. Soriano Jr.
65 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
slight modifications with respect to the cause or object or
conditions of the latter, such changes do not effectuate any
substantial incompatibility between the two obligations. Only
those essential and principal changes introduced by the new
obligation producing an alteration or modification of the essence of
the old obligation result in implied novation. In the case at bar, the
mere reduction of the amount due in no sense constitutes a
sufficient indictum of incompatibility, especially in the light of (a) the
explanation by the petitioner that the reduced indebtedness was the result
of the partial payments made by the respondent before the execution of the
chattel mortgage agreement and (b) the latter's admissions bearing
thereon.
At best, the deed of chattel mortgage simply specified exactly how much
the respondent still owed the petitioner by virtue of the judgment in civil
case 27116. The parties apparently in their desire to avoid any future
confusion as to the amounts already paid and as to the sum still due,
decoded to state with specificity in the deed of chattel mortgage only the
balance of the judgment debt properly collectible from the respondent. All
told, therefore, the first circumstance fails to satisfy the test of substantial
and complete incompatibility between the judgment debt and the pecuniary
liability of the respondent under the chattel mortgage agreement.
2. The petitioner also alleges that the third circumstance, considered by the
Court of Appeals as indicative of incompatibility, is directly contrary to the
admissions of the respondent and is without any factual basis. The appellate
court pointed out that while the judgment made no mention of payment of
damages, the deed of chattel mortgage stipulated the payment of liquidated
damages in the amount of P300 in case of default on the part of the
respondent.
However, the petitioner contends that the respondent himself in his brief
filed with the Court of Appeals admitted his obligation, under the deed of
chattel mortgage, to pay the amount of P300 by way of attorney's fees and
not as liquidated damages. Similarly, the judgment makes mention of the
payment of the sum of P400 as attorney's fees and omits any reference to
liquidated damages.
The discrepancy between the amount of P400 and tile sum of P300 fixed as
attorney's fees in the judgment and the deed of chattel mortgage,
respectively, is explained by the petitioner, thus: the partial payments made
by the respondent before the execution of the chattel mortgage agreement
were applied in satisfaction of part of the judgment debt and of part of the
attorney's fee fixed in the judgment, thereby reducing both amounts.
At all events, in the absence of clear and convincing proof showing
that the parties, in stipulating the payment of P300 as attorney's
fees in the deed of chattel mortgage, intended the same as an
obligation for the payment of liquidated damages in case of default
on the part of the respondent, we find it difficult to agree with the
conclusion reached by the Court of Appeals.
3. As to the second and fourth circumstances relied upon by the Court of
Appeals in holding that the montage obligation superseded, through implied
novation, the judgment debt, the petitioner points out that the appellate
court considered said circumstances in a way not in accordance with law or
accepted jurisprudence. The appellate court stated that while the judgment
specified no mode for the payment of the judgment debt, the deed of
chattel mortgage provided for the payment of the amount fixed therein in
two equal installments.
On this point, we see no substantial incompatibility between the mortgage
obligation and the judgment liability of the respondent sufficient to justify a
conclusion of implied novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel mortgage serves only to
provide an express and specific method for its extinguishment payment in
two equal installments. The chattel mortgage simply gave the
respondent a method and more time to enable him to fully satisfy
the judgment indebtedness. The chattel mortgage agreement in no
manner introduced any substantial modification or alteration of
the judgment. Instead of extinguishing the obligation of the respondent
arising from the judgment, the deed of chattel mortgage expressly ratified
and confirmed the existence of the same, amplifying only the mode and
period for compliance by the respondent.
The Court of Appeals also considered the terms of the deed of chattel
mortgage incompatible with the judgment because the chattel mortgage
secured the obligation under the deed, whereas the obligation under the
judgment was unsecured. The petitioner argues that the deed of chattel
agreement clearly shows that the parties agreed upon the chattel mortgage
solely to secure, not the payment of the reduced amount as fixed in the
aforesaid deed, but the payment of the judgment obligation and other
incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the
parties constituted the chattel mortgage purposely to secure the
satisfaction of the then existing liability of the respondent arising
from the judgment against him in civil case 27116. As a security
for the payment of the judgment obligation, the chattel mortgage
agreement effectuated no substantial alteration in the liability of
the respondent.
The defense of implied novation requires clear and convincing
proof of complete incompatibility between the two obligations. The
law requires no specific form for an effective novation by
implication. The test is whether the two obligations can stand
together. If they cannot, incompatibility arises, and the second
obligation novates the first. If they can stand together, no
incompatibility results and novation does not take place.
We do not see any substantial incompatibility between the two obligations
as to warrant a finding of an implied novation. Nor do we find satisfactory
proof showing that the parties, by explicit terms, intended the full discharge
of the respondent's liability under the judgment by the obligation assumed
under the terms of the deed of chattel mortgage so as to justify a finding of
express novation.
NATIONAL POWER CORPORATION, petitioner,
vs.
JUDGE ABELARDO M. DAYRIT, Court of First Instance of Manila,
Branch 39, and DANIEL R. ROXAS, doing business as United
Veterans Security Agency and Foreign Boats Watchmen,
respondents.
G.R. Nos. L-62845-46; November 25, 1983
It is elementary that novation is never presumed; it must be explicitly stated
or there must be manifest incompatibility between the old and the new
obligations in every aspect.
Facts: Private Respondent Roxas filed a complaint against herein petitioner
National Power Corporation (NPC) and two of its officers in Iligan City, to
compel the NPC to restore the contract of Roxas for security services which
the former had terminated.
The parties entered into a compromise agreement which provides:
The parties, DANIEL E. ROXAS, etc. and NATIONAL POWER CORPORATION,
ET AL., represented by its President Mr. Gabriel Y. Itchon with due and
proper authority under NP Board Resolution No. 81-224, assisted by their
respective counsel, to this Honorable Court respectfully submit the following
compromise agreement:
1. The defendant National Power Corporation shall pay to plaintiff the
sum of P7,277.45, representing the amount due to plaintiff for the
services of one of plaintiff's supervisors;
2. The defendant shall pay plaintiff the value of the line materials which
were stolen but recovered, by plaintiff's agency which value is to be
determined after a joint inventory by the representatives of both
parties;
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3. The parties shall continue with the contract of security services under
the same terms and conditions as the previous contract effective upon
the signing thereof;
4. The parties waive all their respective claims and counterclaims in favor
of each other;
5. The parties agree to faithfully comply with the foregoing agreement.
However, on May 14, 1982, despite the compromise agreement, NPC
refused to implement the contract with herein private respondent, and even
executed a contract with a third person, which was supposed to be for
herein private respondent.
As a result thereof, private respondent moved for the execution of the
compromise agreement, which respondent Judge Dayrit granted, hence this
petition.
NPC contends that the contract in the compromise agreement was already
novated by the contract executed with the third person.
ISSUE: WON respondent Judge Dayrit erred when it issued the writ of
execution directing herein petitioner to comply with the compromise
agreement and to execute the contract in favor of herein private
respondent.
HELD: No. We sustain the private respondent. Article I of the May 14,
1982, agreement supports his contention. Said article reads:
ARTICLE I
DOCUMENTS COMPRISING THE CONTRACT
The letter proposal dated September 5, 1981; CORPORATION'S
counter- proposal dated September 11, 1981; Board Resolution No.
81-244 dated September 28, 1981; the Compromise Agreement and
Court Decision dated October 30, 1981 in Civil Case No. 133528 CFI-
Manila; other subsequent letters and the performance bond of
AGENCY to be flied in favor of CORPORATION in the manner
hereinafter provided, are hereby expressly made integral parts of
this contract by reference. (Rollo, pp. 59-60.)
It is elementary that novation is never presumed; it must be explicitly stated
or there must be manifest incompatibility between the old and the new
obligations in every aspect. Thus the Civil Code provides:
Art. 1292. In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.
In the case at bar there is nothing in the May 14, 1982, agreement which
supports the petitioner's contention. There is neither explicit novation nor
incompatibility on every point between the "old" and the "new" agreements.
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,
vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP,
defendants-appellants.
G. R. No. L-29280 August 11, 1988
Novation takes place when the object or principal condition of an obligation
is changed or altered. It is elementary that novation is never presumed; it
must be explicitly stated or there must be manifest incompatibility between
the old and the new obligations in every aspect.
FACTS: An action for Foreclosure of Chattel Mortgage was filed by herein
appellee Peoples Bank and Trust Company against appellant Syvels Inc.,
against its stocks of goods, personal properties and other materials owned
by it and located at its stores or warehouses at No. 406, Escolta, Manila,
due to the failure of appellant corporation to pay a commercial line credit in
the amount of P900,000.00.
In order to protect the goodwill of appellant corporation, appellant Antonio
Syyap executed a real property mortgage in favor of herein appellee.
The trial Court rendered its decision in favor of herein appellee, hence this
appeal.
Appellant contend that there was novation by the subsequent execution of a
real estate mortgage as additional collateral to the obligation secured by
said chattel mortgage.
ISSUE: WON the original obligation to pay the commercial credit line was
novated through the execution of a subsequent real estate mortgage?
HELD: No. Novation takes place when the object or principal condition of
an obligation is changed or altered. It is elementary that novation is
never presumed; it must be explicitly stated or there must be
manifest incompatibility between the old and the new obligations
in every aspect.
In the case at bar, there is nothing in the Real Estate Mortgage which
supports appellants' submission. The contract on its face does not
show the existence of an explicit novation nor incompatibility on
every point between the "old and the "new" agreements as the
second contract evidently indicates that the same was executed as
new additional security to the chattel mortgage previously entered
into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed
that the chattel mortgage "shall remain in full force and shall not be
impaired by this (real estate) mortgage."
It is clear, therefore, that a novation was not intended. The real estate
mortgage was evidently taken as additional security for the performance of
the contract (Bank of P.I. v. Herrige, 47 Phil. 57).
Art. 1296. When the principal obligation is extinguished in consequence of
a novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. (1207)
Accessory obligations: General Rule: extinguished as a consequence of
novation.
Exception: insofar as pour atrui is concerned and the third person for
whose benefit the obligation was constituted did not give his consent.
Art. 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated. (n)
Art. 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of
Article 1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Case on Novation subject to a suspensive period:
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING
CONSTRUCTION, INC., petitioners,
vs.
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First
Instance of Manila, and METROPOLITAN WATERWORKS &
SEWERAGE SYSTEM, respondents.
G.R. No. L-41117 December 29, 1986
While the tenor of the subsequent letter-agreement in a sense novates the
judgment award there being a shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and
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conditional nature of the said agreement (making the novation conditional)
is expressly acknowledged and stipulated.
MWSS' failure to pay within the stipulated period removed the very cause
and reason for the agreement, rendering some ineffective. Petitioners,
therefore, were remitted to their original rights under the judgment award.
FACTS: Herein petitioners Integrated Construction Service and Engineering
Construction Inc. filed an action against private respondent Metropolitan
Waterworks and Sewerage System (MWSS) with the Court of First instance
of Manila, wherein respondent Judge Relova was the presiding Judge, for
breach of contract.
The parties entered into arbitration, which resulted to a decision-award in
favor of herein petitioners. Subsequently, however, petitioners agreed to
give MWSS some discounts in consideration of an early payment of the
award.
Upon MWSS' request, the petitioners signed their "Conforme" to the said
letter-agreement, and extended the period to pay the judgment less the
discounts aforesaid to October 31, 1972. MWSS, however, paid only on
December 22, 1972, the amount stated in the decision but less the
reductions provided for in the October 2, 1972 letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust
fund had been released and used to satisfy creditors' claims, the petitioners
filed a motion for execution in said civil case against MWSS for the balance
due under the decision-award. Respondent MWSS opposed execution
setting forth the defenses of payment and estoppel.
Respondent Judge denied the motion filed by herein petitioners on the
ground that the parties had novated the award by their subsequent letter-
agreement, hence this Petition for Mandamus.
ISSUE: Whether or not respondent Judge erred when it denied the Motion
for Execution on the ground that the parties novated the award through the
letter-agreement.
HELD: Yes, the Court held that respondent Judge did err when it denied the
Motion for Execution.
While the tenor of the subsequent letter-agreement in a sense novates the
judgment award there being a shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and
conditional nature of the said agreement (making the novation conditional)
is expressly acknowledged and stipulated in the 14th whereas clause of
MWSS' Resolution No. 132-72, (p. 23, Rollo) which states:
WHEREAS, all the foregoing benefits and advantages secured by the
MWSS out of said conferences were accepted by the Joint Venture
provided that the remaining net amount payable to the Joint Venture
will be paid by the MWSS within fifteen (15) days after the official
release of this resolution and a written CONFORME to be signed by the
Joint Venture;
MWSS' failure to pay within the stipulated period removed the very cause
and reason for the agreement, rendering some ineffective. Petitioners,
therefore, were remitted to their original rights under the judgment award.
The placing of MWSS under the control and management of the Secretary
of National Defense thru Letter of Instruction No. 2, dated September 22,
1972 was not an unforeseen supervening factor because when MWSS
forwarded the letter-agreement to the petitioners on October 2, 1972, the
MWSS was already aware of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure
MWSS officials to process the voucher is untenable. As aforestated, it is
apparent from the terms of the agreement that the 15-day period was
intended to be a suspensive condition. MWSS, admittedly, was aware of
this, as shown by the internal memorandum of a responsible MWSS official,
stating that necessary steps should be taken to effect payment within 15
days, for otherwise, MWSS would forego the advantages of the discount.

As to whether or not petitioners are now in estoppel to question the
subsequent agreement, suffice it to state that petitioners never
acknowledged full payment; on the contrary, petitioners refused MWSS'
request for a conforme or quitclaim.
7. Other Modes
II. CONTRACTS
A. IN GENERAL
1. DEFINITION Art. 1305
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service. (1254a)
Definition by Sanchez Roman: juridical convention manifested in legal
form, by virtue of which one or more person bind themselves in favor of
another or others, or reciprocally, to the fulfillment of a prestation to give,
to do, or not to do.
Agreement not necessarily a contract: if no obligation would arise from
the agreement, there is no contract. People can agree who is the best boxer
in the world, but this does not necessarily mean that they enter into a
contract.
Dation in payment is not a contract: despite the statement in Macasaet
vs. Macasaet, that dation in payment is a contract, it is not. Dation in
payment is a special form of payment, thus it extinguishes an obligation,
unlike contracts that give rise to one. The confusion comes from the
requirement of consent in dation in payment. (Uribe, 2016)
Criticisms in the definition provided under Art. 1305:
a. to give something or to render some service connotes that
obligation not to do is not covered, which is wrong. E.g., contract not
to put up a fence or not to sell products of a competitor company, or in
the case of Honda cars prohibiting conversion of the cars to taxicabs.
b. whereby one binds himself connotes that only one is obligated,
which is wrong as well. Most of the contracts are actually reciprocal or
bilateral.
c. Two persons connotes that a contract cannot be perfected if there
is only one person, which is wrong. Auto-contracts involve only one
person, although such person represent different interests.
AUTO-CONTRACTS Arts. 1491, 1646, 1890
Auto-Contracts: one person is responsible for the perfection of the
contract but this person is acting in two capacities, one in behalf of himself,
one in behalf of another.
E.g., in a contract of agency, where A authorized B to borrow money in his
behalf. If B would lend the money himself, he would be signing both as the
lender and the borrower (in behalf of A). Void? No. As long as the interest
rate is the current market rate.
Generally valid: the number of parties is not determinative of the
existence of a contract; what is important is that there be at least 2
declaration of wills.
Auto-Contracts which are void:
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be under
his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
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(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled corporation,
or institution, the administration of which has been intrusted to them; this
provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the administration
of justice, the property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which they may take part
by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Art. 1646. The persons disqualified to buy referred to in Articles 1490 and
1491, are also disqualified to become lessees of the things mentioned
therein.
Art. 1890. If the agent has been empowered to borrow money, he may
himself be the lender at the current rate of interest. If he has been
authorized to lend money at interest, he cannot borrow it without the
consent of the principal.
2. ELEMENTS OF CONTRACTS
A. Essential - those without which the contract cannot exist.
B. Natural - those which exist as part of the contract even if the
parties do not stipulate it because the law is deemed written
therein.
ct of sale
C. Accidental - those which are agreed upon by the parties and
which cannot exist without being stipulated.
Rules promulgated by administrative agencies by virtue of its quasi-
legislative power to implement statutes cannot be the source of a
contractual obligation. In this case, M.B. Resolution No. 857, as
amended, merely laid down a general policy on the utilization of the dollar
earnings of Filipino and resident American contractors undertaking projects
in U.S. military bases. It did not create an obligation on the part of the CB,
based on contract, to resell dollars at the preferred rate.
Had there been greater care therefore on the part of the plaintiff to show
why in his opinion he could assert a right in accordance not with a contract
binding on the Central Bank, because there is none, but by virtue of
compliance with rules and regulations of an administrative tribunal, then
perhaps a different outcome would have been justified. Here, there was
wrong cause of action.
GEORGE W. BATCHELDER, doing business under the name and
style of Batchelder Equipment, plaintiff-appellant,
vs.
THE CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.
G.R. No. L-25071 March 29, 1972
FACTS: On March 30, 1960, the U.S. Navy accepted the proposal of the
plaintiff of March 18, 1960 in the sum of $188,000.00 for the construction of
the Mindanao Weather Station, Bukidnon, Mindanao, Philippines, in
accordance with Bid Item 3, Yards and Docks Specifications No. 13374/59."
Defendant Central Bank issued several circulars covering the sale of foreign
exchange in the Philippines, the full decontrol of which was when it issued
Circular No. 133 on Jan. 21, 1962. Under its Memorandum to Authorized
Agent Bank ID-FM No. 11, and under Resolution No. 857 of the Monetary
Board of the Central Bank, it was specifically provided that: "For imports
against proceeds of contracts entered into prior to April 25, 1960, the
preferred buying rate shall govern, regardless of the present commodity
classifications." There was however a modification arising from Monetary
Board Resolution No. 695 of April 28, 1961, which specified that the agent
bank should, upon compliance with its terms, credit the contractor's
accounts in pesos, the buying rate being governed by the appropriate rules
and regulations.

In compliance with defendant's Monetary Board Resolutions Nos. 857 and
695, plaintiff surrendered to the Central Bank, through the latter's
authorized agents, his dollar earnings amounting to U.S. $199,966.00. The
plaintiff also appears to have applied with the defendant for license to utilize
90% of his surrendered earnings or the sum of U.S. $25,847.84 or 21.41%
of the amount applied for. The plaintiff demanded from the defendant that
it be allowed to utilize the balance of the 90% of his surrendered dollar
earnings. However, it was only on March 21, 1963, after the plaintiff had
filed the complaint in the present case and after full decontrol had been
established through Circular No. 133 dated January 21, 1962, that the
defendant informed the plaintiff, through its communication, that the latter
could utilize at the free market rate the balance of his said 90% of
surrendered earnings which had not been previously granted by the
defendant for his importations.
Plaintiff Batchelder filed a complaint to compel defendant Central Bank of
the Philippines to resell to him $170,210.60 at the preferred rate of
exchange of two Philippine pesos for one American dollar (P2:$1), more
specifically P2.00375, or, in the alternative, to pay to him the difference
between the peso cost of such amount at the market rate prevailing on the
date of the satisfaction of the judgment in his favor and the peso cost of
$170,210.60 at said preferred rate.
On the other hand, the CB was insistent on the absence of any such right
on the part of plaintiff to re-acquire from it the sum of $170,210.60 at the
preferred rate of exchange.
The lower court decided in favor of plaintiff Batchelder holding that the
defendant CB is now bound by a contract, which could be implied from its
stated policy, as enunciated in Monetary Board Resolutions Nos. 857 and
695, and the plaintiff's reliance on said resolutions,to resell in favor of the
plaintiff 90% of the U.S. dollars earned by him under his U.S. Navy Contract
aforementioned which were duly surrendered to the defendant.
ISSUE: WON the issuance of a monetary policy by it, thereafter
implemented by the appropriate resolutions, as to the rate of exchange at
which dollars after being surrendered and sold to it could be re-acquired,
creates a contractual obligation?
HELD: No. The Civil Code expressly provides that a contract is a
meeting of minds between two persons whereby one binds himself
with respect to the other to give something or render some
service. The above provision is practically a restatement, with slight
modification, of Article1254 of the Civil Code of Spain of 1889, formerly
enforced in our jurisdiction. Such an article, in the opinion of Justice J.B.L.
Reyes, speaking for the Court, in A. Magsaysay, Inc. v. Cebu Portland
Cement Co., requires that "the area of agreement must extend to all
points that the parties deem material or there is no contract." It is
noteworthy that in his Outlines on Civil Law, with Judge Ricardo Puno as co-
author, he speaks highly of Article 1321 of the Civil Code of Italy. It reads
thus: "A contract is the accord of two (or more) persons (with previously
diverging interests) for the purpose of creating, modifying or extinguishing a
juridical relation between them." Likewise all commentators on the Civil
Code have agreed that the birth or perfection of a consensual contract,
Article 1315, commences from the moment the parties come to an
agreement on a definite subject matter and valid consideration. Justice
Capistrano, who was with the Code Commission, and Senators Ambrosio
Padilla and Arturo Tolentino,all three distinguished in the field of civil law,
are substantially in agreement."
Planiol states the following: "The consent of the parties, that is to say, the
accord of wills, is the essential element of every contract. The consent, in
the matter of contracts, is composed of a double operation. (1) The
parties must commence by agreeing as to the contents the
"convention" that is to say, by making sufficiently precise the
object and the essential conditions, and discussing the particular
clauses which they desire to introduce to modify or to complete
the ordinary effects. (2) This first operation having been
terminated, the parties are in accord on the projected contract:
there is between them what Littre calls the uniformity of opinions,
which is one sense of the word "consent", but the contract is not
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included, it still exists in a projected state. There remains to give its
obligatory force by an act of will, expressing the individual adherence of
each one of the parties to the act thus prepared. When all the necessary
consents (sic) are obtained, and manifested in legal form, the contract is
formed, the lien of law is tied. It is therefore the union of these
adherences (sic) which constitute the contract and which gives
birth to the obligations which are derived from it. It is an act of
volition, while the preliminary operation of discussion of the
project is a work of the mind and reasoning.
In their Jurisprudence and Legal Philosophy, the late Professors Morris R.
Cohen and Felix R. Cohen, father and son and jurists of note, noted that the
concepts found in the Civil Code of Spain showing basic contract rules are
"equally valid in France, Chile, Columbia, Germany, Holland, Italy, Mexico,
Portugal and many other lands, and equally honored across eighteen and
more centuries." Even more impressive is their conclusion that the views of
such common law scholars as Maine, Williston, Pound, Holdsworth,
Llewellyn, and Kessler, are not dissimilar. Thus Pollock could describe the
English common law quoting whole paragraphs from a German scholar's
description of the law of ancient Rome. It is in that sense that for them the
Roman phrasing contrahitur obligation throws more light than volumes of
exegesis: One contracts an obligation as one contracts pneumonia or any
other disability. Contract is that part of our legal burdens that we bring on
ourselves."
If there be full cognizance of the implications of the controlling principles as
thus expounded, impressive for their well-nigh unanimity of approach, the
conclusion reached by the lower court certainly cannot be accepted as
correct.
As is so evident from the recital of facts made in the lower court and equally
so in the brief of plaintiff Batchelder, as appellant, what was done by the
Central Bank was merely to issue in pursuance of its rule-making
power the resolutions relied upon by plaintiff, which for him should
be impressed with a contractual character.
There is no question that the Central Bank as a public corporation could
enter into contracts. It is so provided for among the corporate powers
vested in it. Thus: "The Central Bank is hereby authorized to adopt, alter,
and use a corporate seal which shall be judicially noticed; to make
contracts; to lease or own real personal property, and to sell or otherwise
dispose of the same; to sue and be sued; and otherwise to do and perform
any and all things that may be necessary or proper to carry out the
purposes of this Act." No doubt would have arisen therefore if
defendant Central Bank, utilizing a power expressly granted, did
enter into a contract with plaintiff. It could have done so, but it did
not do so. How could it possibly be maintained then that merely
through the exercise of its regulatory power to implement
statutory provisions, a contract as known to the law was thereby
created?
Yet that is precisely what the lower court held in reaching such a conclusion.
It was not only unmindful of the controlling doctrines as to when a contract
exists, but it was equally oblivious of the competence lodged in an
administrative agency like the Central Bank. Even the most cursory perusal
of Republic Act No. 265 would yield the irresistible conclusion that the
establishment of the Central Bank was intended to attain basic objectives in
the field of currency and finance. In the language of the Act: "It shall be the
responsibility of the Central Bank of the Philippines to administer the
monetary and banking system of the Republic. It shall be the duty of the
Central Bank to use the powers granted to it under this Act to achieve the
following objectives: (a) to maintain monetary stability in the Philippines;
(b) to preserve the international value of the peso and the convertibility of
the peso into other freely convertible currencies; and (c) to promote a rising
level of production, employment and real income in the Philippines."
It would be then to set at naught fundamental concepts in administrative
law that accord due recognition to the vesting of quasi-legislative and quasi-
judicial power in administrative law for the purpose of attaining statutory
objectives, especially now that government is saddled with greater
responsibilities due to the complex situation of the modern era, if the lower
court is to be upheld. For if such be the case then, by the judiciary failing to
exercise due care in its oversight of an administrative agency, substituting
its own discretion for what usually is the more expert appraisal of such an
instrumentality, there may even be a frustration if not a nullification of the
objective of the law.
Nor is this to deal unjustly with plaintiff. Defendant Central Bank in its
motion to dismiss before the lower court was quite explicit as to why under
the circumstances, no right could be recognized as possessed by him. As set
forth in such pleading: "We contend that Monetary Board Resolution No.
857, dated June 17, 1960, as amended by Monetary Board Resolution No.
695, dated April 28, 1961, does not give right to Filipino and resident
American contractors undertaking construction projects in U.S. military
bases to reacquire at the preferred rate ninety per cent (90%) of the
foreign exchange sold or surrendered to defendant Central Bank thru the
authorized agent banks. Nor does said resolution serve as a general
authorization or license granted by the Central Bank to utilize the ninety per
cent (90%) of their dollar earnings. M.B. Resolution No. 857, as
amended, merely laid down a general policy on the utilization of
the dollar earnings of Filipino and resident American contractors
undertaking projects in U.S. military bases, ... ." Further, there is this
equally relevant portion in such motion to dismiss: "It is clear from the
aforecited provisions of said memorandum that not all imports against
proceeds of contracts entered into prior to April 25, 1960 are entitled to the
preferred buying rate of exchange. Only imports against proceeds of
contracts entered into prior to April 25, 1960, not otherwise classified as
dollar-to-dollar transactions, are entitled to the preferred rate of exchange.
It is for this reason that the contractor is required to first file an application
with defendant Central Bank (Import Department) thru the Authorized
Agent Banks, for the purpose of determining whether the imports against
proceeds of contracts entered into prior to April 25, 1960 are classified as
dollar-to-dollar transactions (which are not entitled to the preferred rate of
exchange), or not (which are entitled to the preferred rate of exchange),
and that if said imports are entitled to the preferred rate of exchange,
defendant Central Bank would issue a license to the contractor for authority
to buy foreign exchange at the preferred rate for the payment of said
imports."
Had there been greater care therefore on the part of the plaintiff to
show why in his opinion he could assert a right in accordance not
with a contract binding on the Central Bank, because there is none,
but by virtue of compliance with rules and regulations of an
administrative tribunal, then perhaps a different outcome would
have been justified.
WHEREFORE, the decision of the lower court of January 10, 1963 is
reversed and the complaint of the plaintiff dismissed, without prejudice to
his taking the appropriate action to enforce whatever rights he possesses
against defendant Central Bank in accordance with its valid and binding
rules and regulations. With costs against plaintiff.
B. FUNDAMENTAL CHARACTERISTICS/ PRINCIPLES
CONTRACTS
1. CONSENSUALITY OF CONTRACTS ARTS. 1305, 1317
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service. (1254a)
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
CONTRACT OF ADHESION - one where there is already a prepared form
containing the stipulations desired by one party whereby the latter only asks
the other party to agree to them if he wants to enter into a contract.
Cesar Nickolai F. Soriano Jr.
70 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Generally valid: because a party who does not consent to the terms and
conditions in the contract can opt not to. As such, in a case where a
passenger of PAL lost his luggage who sued for damages, and PAL
contended that its liability should not exceed P100 based on the contract,
the Supreme Court held that the provision is valid even if it was contained in
a contract of adhesion since the passenger could not have consented
thereto if he did not agree on the same.
Exceptional case: if a WAIVER is contained in a contract of adhesion, the
contract is void, not because it is contrary to public policy but because of
the fact that consent to such waiver was not freely given, the waiver being
in a contract of adhesion affects the voluntariness of the act. E.g., In
relation to a real estate mortgage, the principal debtor defaulted and the
Bank foreclosed the property and there was foreclosure sale where the Bank
is the winning bidder. The mortgagor signified his intent to redeem. The
Bank countered that their mortgage agreement contained a waiver of the
right to redeem. The Supreme Court held that the waiver is void since it is
contained in a contract of adhesion.
PAL case: As luggage was lost. He sued PAL for damages. PAL raised the
defense that it can only be made liable upto P100 as written in the contract.
SC: sustained PAL. Though this contract is a contract of carriage, and one of
adhesion, still, A gave his consent to the terms and conditions thereof. As
such, he is bound by such stipulation.
Not even the government can force someone to enter into a
contract: as such, in the case of PLDT, the SC held that it cannot compel
PLDT to enter into an interconnection with the government. However, the
government may exercise its sovereign power of eminent domain and
compel PLDT to allow the use of its facilities subject to just compensation.
In this case, the Court treated the action as one of expropriation. (See
Republic vs. PLDT)
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, defendant-
appellant.
G.R. No. L-18841 January 27, 1969
FACTS: Soon after its creation in 1947, the Bureau of Telecommunications,
a government instrumentality of plaintiff, set up its own Government
Telephone System (GTS) by utilizing its own appropriation and equipment
and by renting trunk lines of the PLDT to enable government offices to call
private parties. Its application for the use of these trunk lines was in the
usual form of applications for telephone service, containing a statement,
above the signature of the applicant, that the latter will abide by the rules
and regulations of the PLDT which are on file with the Public Service
Commission. One of the many rules prohibits the public use of the service
furnished the telephone subscriber for his private use. The Bureau has
extended its services to the general public since 1948, using the same trunk
OF lines owned by, and rented from, the PLDT, and prescribing its (the
Bureau's) own schedule of rates. Through these trunk lines, a Government
Telephone System subscriber could make a call to a PLDT subscriber in the
same way that the latter could make a call to the former.
On 5 March 1958, the plaintiff, through the Director of Telecommunications,
entered into an agreement with RCA Communications, Inc., for a joint
overseas telephone service whereby the Bureau would convey radio-
telephone overseas calls received by RCA's station to and from local
residents. Actually, they inaugurated this joint operation on 2 February
1958, under a "provisional" agreement.
The Bureau of Telecommunications had proposed to the PLDT on 8 January
1958 that both enter into an interconnecting agreement, with the
government paying (on a call basis) for all calls passing through the
interconnecting facilities from the Government Telephone System to the
PLDT. The PLDT replied that it was willing to enter into an agreement on
overseas telephone service to Europe and Asian countries provided that the
Bureau would submit to the jurisdiction and regulations of the Public Service
Commission and in consideration of 37 1/2% of the gross revenues. In its
memorandum in lieu of oral argument in this Court dated 9 February 1964,
on page 8, the defendant reduced its offer to 33 1/3 % (1/3) as its share in
the overseas telephone service. The proposals were not accepted by either
party.
On 12 April 1958, plaintiff Republic commenced suit against the defendant,
Philippine Long Distance Telephone Company, to compel PLDT to execute a
contract with plaintiff, through the Bureau, for the use of the facilities of
defendant's telephone system throughout the Philippines under such terms
and conditions as the court might consider reasonable, and for a writ of
preliminary injunction against the defendant company to restrain the
severance of the existing telephone connections and/or restore those
severed.
After trial, the lower court rendered judgment that it could not compel the
PLDT to enter into an agreement with the Bureau because the parties were
not in agreement.
ISSUE: WON PLDT may be forced to enter into an interconnection
contract?
ISSUE2: WON the Republic may exercise its eminent domain power for the
use of PLDTs facilities?
HELD: No. Yes. We agree with the court below that parties cannot be
coerced to enter into a contract where no agreement is had
between them as to the principal terms and conditions of the
contract. Freedom to stipulate such terms and conditions is of the essence
of our contractual system, and by express provision of the statute, a
contract may be annulled if tainted by violence, intimidation, or undue
influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). But the
court a quo has apparently overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it, the Republic may,
in the exercise of the sovereign power of eminent domain, require
the telephone company to permit interconnection of the
government telephone system and that of the PLDT, as the needs
of the government service may require, subject to the payment of
just compensation to be determined by the court. Nominally, of
course, the power of eminent domain results in the taking or appropriation
of title to, and possession of, the expropriated property; but no cogent
reason appears why the said power may not be availed of to impose only a
burden upon the owner of condemned property, without loss of title and
possession. It is unquestionable that real property may, through
expropriation, be subjected to an easement of right of way. The use of the
PLDT's lines and services to allow inter-service connection between both
telephone systems is not much different. In either case private property is
subjected to a burden for public use and benefit. If, under section 6, Article
XIII, of the Constitution, the State may, in the interest of national welfare,
transfer utilities to public ownership upon payment of just compensation,
there is no reason why the State may not require a public utility to render
services in the general interest, provided just compensation is paid therefor.
Ultimately, the beneficiary of the interconnecting service would be the users
of both telephone systems, so that the condemnation would be for public
use.
A perusal of the complaint shows that the Republic's cause of action is
predicated upon the radio telephonic isolation of the Bureau's facilities from
the outside world if the severance of interconnection were to be carried out
by the PLDT, thereby preventing the Bureau of Telecommunications from
properly discharging its functions, to the prejudice of the general public.
Save for the prayer to compel the PLDT to enter into a contract (and the
prayer is no essential part of the pleading), the averments make out a case
for compulsory rendering of inter-connecting services by the telephone
company upon such terms and conditions as the court may determine to be
just. And since the lower court found that both parties "are practically at
one that defendant (PLDT) is entitled to reasonable compensation from
plaintiff for the reasonable use of the former's telephone facilities"
(Decision, Record on Appeal, page 224), the lower court should have
proceeded to treat the case as one of condemnation of such services
independently of contract and proceeded to determine the just and
reasonable compensation for the same, instead of dismissing the petition.
In the ultimate analysis, the true objection of the PLDT to continue the link
between its network and that of the Government is that the latter competes
"parasitically" (sic) with its own telephone services. Considering, however,
Cesar Nickolai F. Soriano Jr.
71 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
that the PLDT franchise is non-exclusive; that it is well-known that
defendant PLDT is unable to adequately cope with the current demands for
telephone service, as shown by the number of pending applications
therefor; and that the PLDT's right to just compensation for the services
rendered to the Government telephone system and its users is herein
recognized and preserved, the objections of defendant-appellant are without
merit. To uphold the PLDT's contention is to subordinate the needs of the
general public to the right of the PLDT to derive profit from the future
expansion of its services under its non-exclusive franchise.
WHEREFORE, the decision of the Court of First Instance, now under appeal,
is affirmed, except in so far as it dismisses the petition of the Republic of
the Philippines to compel the Philippine Long Distance Telephone Company
to continue servicing the Government telephone system upon such terms,
and for a compensation, that the trial court may determine to be just,
including the period elapsed from the filing of the original complaint or
petition. And for this purpose, the records are ordered returned to the court
of origin for further hearings and other proceedings not inconsistent with
this opinion.
Implied consent from intention of the parties:
R. MARINO CORPUS, petitioner,
vs.
COURT OF APPEALS and JUAN T. DAVID, respondents
G.R. No. L-40424 June 30, 1980
FACTS: Having been close friends, aside from being membres Civil Liberties
Union, petitioner Corpus intimately calls respondent David by his nickname
"Juaning" and the latter addresses the former simply as "Marino".
In March 1958, Corpus, a director in the Central Bank, was charged
administratively and later on acquitted of said charges. However, he was
removed by Miguel Cuaderno, Sr., then Central Bank Governor on the
ground of loss of confidence.
Corpus, thru Atty. Alvarez, filed before the CFI, a petition for certiorari,
mandamus and quo warranto but the same was dismissed for failure to
exhaust administrative remedies.
It was at this state that the plaintiff entered into the case under
circumstances about which the parties herein have given divergent
versions.vLaying aside for the moment the true circumstances under which
the plaintiff David started rendering professional services to the defendant
Corpus, the undisputed evidence shows that on July 7, 1960, the plaintiff
filed a motion for reconsideration of the order of dismissal under the joint
signatures of the plaintiff and Atty. Alverez (Exhibit B). The plaintiff argued
the said motion during the hearing thereof On August 8, 1960, he file a 13-
page 'Memorandum of Authorities in support of said motion for
reconsideration (Exhibit C). A 3-page supplemental memorandum of
authorities was filed by the plaintiff on September 6, 1960 (Exhibit D)
On November 15, 1960, Judge Lantin denied the motion for reconsideration.
On November 19, 1960, the plaintiff perfected the appeal from the order of
dismissal dated June 14, 1960. For purposes of said appeal the plaintiff
prepared a 232-page brief and submitted the same before the SC on April
20, 1961, where plaintiff David is the one who orally argued. In connection
with the trip to Baguio for the said oral argument, the plaintiff used his car
which broke down and necessitated extensive repairs paid for by the
plaintiff himself.
On March 30, 1962, the Supreme Court promulgated its decision reversing
the order of dismissal and remanding the case for further proceedings. On
April 18, 1962, after the promulgation of the decision of the Supreme Court
reversing the dismissal of the case the defendant wrote the plaintiff the
following letter, Exhibit 'Q'. .
xxxxxxxxx
Dear Juaning
Will you please accept the attached check in the amount of TWO
THOUSAND P2,000.00) PESOS for legal services in the handling of L-
17860 recently decided by the Court? I wish I could give more but as
 yu know we were banking on a SC decision reinstating me and
reimburse my backstage I had been wanting to offer some token of my
appreciation of your legal fight for and in my behalf, and it was only
last week that I received something on account of a pending claim.
Looking forward to a continuation of the case in the lower court, I
remain
Sincerely yours, Illegible
xxxxxxxxx
In a reply letter dated April 25, 1962, the plaintiff returned the check,
explaining said act as follows:
April 25, 1962
My dear Marino:
Yesterday, I received your letter of April 18th with its enclosure. I wish
to thank you for your kind thoughts, however, please don't take
offense if I have to return the check. I will explain.
When I decided to render professional services in your case, I was
motivated by the value to me of the very intimate relations which you
and I have enjoyed during the past many years. It was not primarily,
for a professional fee.
Although we were not fortunate to have obtained a decision in your
case which should have put an end to it. I feel that we have reason to
be jubilant over the outcome, because, the final favorable outcome of
the case seems certain irrespective of the length of time required to
terminate the same.
Your appreciation of the efforts I have invested in your case is enough
compensation therefor, however, when you shall have obtained a
decision which would have finally resolved the case in your favor,
remembering me then will make me happy. In the meantime, you will
make me happier by just keeping the check.
Sincerely yours,
JUANING
xxxxxxxxx
When the case was remanded, the evidence was presented by Atty.
Alvarez with the cooperation of plaintiff David. Judge Lantin later on
rendered a decision in favor of defendant Carlos. Appeals were made.
Later on, the SC rendered a decision affirming the trial court.
On April 19, 1965 the plaintiffs law office made a formal command upon
the defendant for collection of 50% of the amount recovered by the
defendant as back salaries and other emoluments from the Central Bank
(Exhibit N). This letter was written after the defendant failed to appear at
an appointment with the plaintiff so that they could go together to the
Central Bank to claim the possession of the office to which the defendant
was reinstated and after a confrontation in the office of the plaintiff
wherein the plaintiff was remanding 50% of the back salaries and other
emoluments amounting to P203,000.00 recoverable by the defendant.
The defendant demurred to this demand inasmuch as he had plenty of
outstanding obligations and that his tax liability for said back salaries was
around P90,000.00, and that he expected to net only around P10,000.00
after deducting all expenses and taxes.
On the same date, April 19,1965 the plaintiff wrote the Governor for of
Central Bank requesting that the amount representing the back salaries of
the defendant be made out in two, one in favor of the defendant and the
other representing the professional fees equivalent to 50% of the said
back salaries being claimed by the plaintiff (Exhibit 8).
Failing to obtain the relief from the Governor of Central Bank, the plaintiff
instituted this action before this Court on July 20, 1965, which was
granted, ordering Corpus to pay P30,000 to David.
On appeal, the CA affirmed in toto the trial court.
ISSUE: WON private respondent Atty. Juan T. David is entitled to attorney's
fees?
Cesar Nickolai F. Soriano Jr.
72 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
HELD: Yes. Petitioner Marino Corpus contends that respondent David is not
entitled to attorney's fees because there was no contract to that effect. On
the other hand, respondent David contends that the absence of a formal
contract for the payment of the attorney's fees will not negate the payment
thereof because the contract may be express or implied, and there was an
implied understanding between the petitioner and private respondent that
the former will pay the latter attorney's fees when a final decision shall have
been rendered in favor of the petitioner reinstating him to -his former
position in the Central Bank and paying his back salaries.
WE find respondent David's position meritorious. While there was
express agreement between petitioner Corpus and respondent
David as regards attorney's fees, the facts of the case support the
position of respondent David that there was at least an implied
agreement for the payment of attorney's fees.
Respondent David's letter-reply of April 25, 1962 confirms the promise of
petitioner Corpus to pay attorney's fees upon his reinstatement and
payment of back salaries. Said reply states that respondent David decided
to be his counsel in the case because of the value to him of their intimate
relationship over the years and "not, primarily, for a professional fee." It is
patent then, that respondent David agreed to render professional services
to petitioner Corpus secondarily for a professional fee. This is stressed by
the last paragraph of said reply which states that "however, when you shall
have obtained a decision which would have finally resolved the case in your
favor, remembering me then will make me happy. In the meantime, you will
make me happier by just keeping the check." Thereafter, respondent David
continued to render legal services to petitioner Corpus, in collaboration with
Atty. Alverez until he and Atty. Alvarez secured the decision directing
petitioner's reinstatement with back salaries, which legal services were
undisputedly accepted by, and benefited petitioner.
Moreover, the payment of attorney's fees to respondent David may also be
justified by virtue of the innominate contract of facio ut des (I do and
you give) which is based on the principle that "no one shall unjustly
enrich himself at the expense of another." Innominate contracts have
been elevated to a codal provision in the New Civil Code by providing under
Article 1307 that such contracts shall be regulated by the stipulations of the
parties, by the general provisions or principles of obligations and contracts,
by the rules governing the most analogous nominate contracts, and by the
customs of the people. The rationale of this article was stated in the 1903
case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the
claim of plaintiff Perez for payment of services rendered against defendant
Pomar despite the absence of an express contract to that effect, thus:
It does not appear that any written contract was entered into between
the parties for the employment of the plaintiff as interpreter, or that
any other innominate contract was entered into but whether the
plaintiffs services were solicited or whether they were offered to the
defendant for his assistance, inasmuch as these services were
accepted and made use of by the latter, we must consider that there
was a tacit and mutual consent as to the rendition of the
services. This gives rise to the obligation upon the person
benefited by the services to make compensation therefor,
since the bilateral obligation to render service as interpreter,
on the one hand, and on the other to pay for the service
rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the
Civil Code).
xxxxxxxxx
... Whether the service was solicited or offered, the fact remains that
Perez rendered to Pomar services as interpreter. As it does not appear
that he did this gratuitously, the duty is imposed upon the defendant,
he having accepted the benefit of the service, to pay a just
compensation therefor, by virtue of the innominate contract of facio ut
des implicitly established.
xxxxxxxxx
... because it is a well-known principle of law that no one should
permitted to enrich himself to the damage of another" (emphasis
supplied; see also Tolentino, Civil Code of the Philippines, p. 388, Vol.
IV 119621, citing Estate of Reguera vs. Tandra 81 Phil. 404 [1948];
 Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil. 682
[1903]).
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion
Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez
v. Pomar, supra thus:
Where one has rendered services to another, and these
services are accepted by the latter, in the absence of proof
that the service was rendered gratuitously, it is but just that
he should pay a reasonable remuneration therefor because 'it
is a well-known principle of law, that no one should be
permitted to enrich himself to the damage of another (emphasis
supplied).
Likewise, under American law, the same rule obtains (7 CJS 1079; FL Still &
Co. v. Powell, 114 So 375).
WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO
PAY RESPONDENT ATTY. JUAN T. DAVID THE SUM OF TWENTY THOUSAND
(P20,000.00) PESOS AS ATTORNEY'S FEES.
2. AUTONOMY OF CONTRACTS ARTS. 1306, 1799, 2088, 2130
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
(1255a)
Otherwise known as the Freedom or Liberty to Contract.
Examples of void stipulations for being CONTRARY TO LAW:
a. Partnership: Pactum Leonina
Art. 1799. A stipulation which excludes one or more partners from any
share in the profits or losses is void. (1691)
b. Mortgage/Pledge: Pactum Commissorium
Art. 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary is
null and void. (1859a)
c. Mortgage/Pledge: Pactum de non aliendo
Art. 2130. A stipulation forbidding the owner from alienating the
immovable mortgaged shall be void.
ESCALATION CLAUSE: where one increases/decreases compensation of
one of the parties.
When Void: when the increase is dependent solely upon the will of one of
the parties. This is void for violation of the principle of mutuality of
contracts.
When Valid: when the increase/decrease is dependent on valid and
reasonable standards.
Contract for a piece of work: where the compensation of the contractor
may be increased on the basis of minimum wage or as to materials, based
on the consumer price index.
Contract of Lease: where the rental would be increased or decreased
based on the movement (increase or devaluation) of foreign exchange
valid. (Del Rosario vs. Shell)
BAR QUESTION: On July 1, 1998, Brian leased an office space in a
building for a period of five years at a rental rate of P1,000.00 a month.
The contract of lease contained the proviso that in case of inflation or
devaluation of the Philippine peso, the monthly rental will automatically be
increased or decreased depending on the devaluation or inflation of the
Cesar Nickolai F. Soriano Jr.
73 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
peso the dollar. Starting March 1, 2001, the lessor increased the rental to
P2,000.00 a month, on the ground of inflation proven by the fact that the
exchange rate of the Philippine peso to the dollar had increased from
P25.00=$1.00 to P50.00=$1.00. Brian refused to pay the increased rate
and an action for unlawful detainer was filed against him. Will the action
prosper? Why? (5%)
ANSWER: Yes. The action will prosper. The increase or decrease in the
rental is a valid stipulation since it is based on a valid and reasonable
standard, i.e., appreciation or devaluation of the dollar.
Note: this is different from extraordinary inflation or deflation which requires
a government pronouncement (which was the suggested answer in the UP
Law Center). Art. 1250 is not applicable in this case since the increase is not
extraordinary. Here, it is only by stipulation. Art. 1250 is by law, when there
is no stipulation as to increase or decrease.
Contract of loan: where the escalation clause as to the interest is
dependent on the Bank only void. However, if the increase is based on
reasonable standards, such as: (1) the requirement of a de-escalation
clause; (2) the clause can be invoked only once a year on the anniversary
date; (3) the remaining period of the loan must be at least 730 days. (See
Banco Filipino Savings vs. Navarro and Florendo vs. CA)
BANCO FILIPINO SAVINGS and MORTGAGE BANK, petitioner,
vs.
HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance
of Manila, Branch XXXI and FLORANTE DEL VALLE, respondents.
G.R. No. L-46591 July 28, 1987
FACTS: On May 20, 1975, respondent Florante del Valle (the BORROWER)
obtained a loan secured by a real estate mortgage (the LOAN, for short)
from petitioner BANCO FILIPINO in the sum of P41,300.00, payable and to
be amortized within fifteen (15) years at 12% interest annually. Hence, the
LOAN still had more than 730 days to run by January 2, 1976, the date
when CIRCULAR No. 494 was issued by the Central Bank.
Stamped on the promissory note evidencing the loan is an Escalation
Clause, reading as follows:
I/We hereby authorize Banco Filipino to correspondingly increase the
interest rate stipulated in this contract without advance notice to
me/us in the event law should be enacted increasing the lawful rates of
interest that may be charged on this particular kind of loan.
The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued
on January 2, 1976, the pertinent portion of which reads:
3. The maximum rate of interest, including commissions, premiums,
fees and other charges on loans with maturity of more than seven
hundred thirty (730) days, by banking institutions, including thrift
banks and rural banks, or by financial intermediaries authorized to
engage in quasi-banking functions shall be nineteen percent (19%) per
annum.
xxx xxx xxx
7. Except as provided in this Circular and Circular No. 493, loans or
renewals thereof shall continue to be governed by the Usury Law, as
amended."
On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the
BORROWER on June 30, 1976 of the increase of interest rate on the LOAN
from 12% to 17% per annum effective on March 1, 1976.
Contending that CIRCULAR No. 494 is not the law contemplated in the
Escalation Clause of the promissory note, the BORROWER filed suit against
BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying
that the Escalation Clause be declared null and void and that BANCO
FILIPINO be ordered to desist from enforcing the increased rate of interest
on the BORROWER's real estate loan.
The trial court nullified the escalation clause reasoning that P.D. No. 116
does not expressly grant the Central Bank authority to maximize interest
rates with retroactive effect and that BANCO FILIPINO cannot legally
impose a higher rate of interest before the expiration of the 15-year period
in which the loan is to be paid other than the 12% per annum in force at
the time of the execution of the loan.
ISSUE: WON the questioned escalation clause is valid?
HELD: Yes. Some contracts contain what is known as an "escalator
clause," which is defined as one in which the contract fixes a base
price but contains a provision that in the event of specified cost
increases, the seller or contractor may raise the price up to a fixed
percentage of the base. Attacks on such a clause have usually been
based on the claim that, because of the open price-provision, the contract
was too indefinite to be enforceable and did not evidence an actual meeting
of the minds of the parties, or that the arrangement left the price to be
determined arbitrarily by one party so that the contract lacked mutuality. In
most instances, however, these attacks have been unsuccessful.
The Court further finds as a matter of law that the cost of living index
adjustment, or escalator clause, is not substantively unconscionable.
Cost of living index adjustment clauses are widely used in commercial
contracts in an effort to maintain fiscal stability and to retain "real dollar"
value to the price terms of long term contracts. The provision is a common
one, and has been universally upheld and enforced. Indeed, the Federal
government has recognized the efficacy of escalator clauses in tying Social
Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension
benefits and labor contracts negotiated by most of the major labor unions
are other examples. That inflation, expected or otherwise, will cause a
particular bargain to be more costly in terms of total dollars than originally
contemplated can be of little solace to the plaintiffs.
ISSUE2: WON BANCO FILIPINO can increase the interest rate on the LOAN
from 12% to 17% per annum under the Escalation Clause?
HELD: No. The Monetary Board Circular is not the law contemplated
therein. It is clear from the stipulation between the parties that the interest
rate may be increased "in the event a law should be enacted increasing the
lawful rate of interest that may be charged on this particular kind of loan." "
The Escalation Clause was dependent on an increase of rate made by "law"
alone.
CIRCULAR No. 494, although it has the effect of law, is not a law.
"Although a circular duly issued is not strictly a statute or a law, it has,
however, the force and effect of law." (Italics supplied). "An administrative
regulation adopted pursuant to law has the force and effect of law." 7 "That
administrative rules and regulations have the force of law can no longer be
questioned.
The distinction between a law and an administrative regulation is recognized
in the Monetary Board guidelines quoted in the letter to the BORROWER of
Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for
a loan's interest to be subject to the increases provided in CIRCULAR No.
494, there must be an Escalation Clause allowing the increase "in the event
that any law or Central Bank regulation is promulgated increasing the
maximum interest rate for loans." The guidelines thus presuppose that a
Central Bank regulation is not within the term "any law."
The distinction is again recognized by P.D. No. 1684, promulgated on March
17, 1980, adding section 7-a to the Usury Law, providing that parties to an
agreement pertaining to a loan could stipulate that the rate of interest
agreed upon may be increased in the event that the applicable maximum
rate of interest is increased "by law or by the Monetary Board." To quote:
Sec. 7-a Parties to an agreement pertaining to a loan or forbearance of
money, goods or credits may stipulate that the rate of interest agreed
upon may be increased in the event that the applicable maximum rate
of interest
is increased by law or by the Monetary Board:
Provided, That such stipulation shall be valid only if there is also a
stipulation in the agreement that the rate of interest agreed upon shall
Cesar Nickolai F. Soriano Jr.
74 Arellano University School of Law 2011-0303
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be reduced in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board;
Provided, further, That the adjustment in the rate of interest agreed
upon shall take effect on or after the effectivity of the increase or
decrease in the maximum rate of interest. (Paragraphing and emphasis
supplied).
It is now clear that from March 17, 1980, escalation clauses to be valid
should specifically provide: (1) that there can be an increase in
interest if increased by law or by the Monetary Board; and (2) in
order for such stipulation to be valid, it must include a provision
for reduction of the stipulated interest "in the event that the
applicable maximum rate of interest is reduced by law or by the
Monetary Board."
While P.D. No. 1684 is not to be given retroactive effect, the absence of a
de-escalation clause in the Escalation Clause in question provides another
reason why it should not be given effect because of its one-sidedness in
favor of the lender.
WHEREFORE, the Court rules that while an escalation clause like the one in
question can ordinarily be held valid, nevertheless, petitioner Banco Filipino
cannot rely thereon to raise the interest on the borrower's loan from 12% to
17% per annum because Circular No. 494 of the Monetary Board was not
the "law" contemplated by the parties, nor should said Circular be held as
applicable to loans secured by registered real estate in the absence of any
such specific indication and in contravention of the policy behind the Usury
Law. The judgment appealed from is, therefore, hereby affirmed in so far as
it orders petitioner Banco Filipino to desist from enforcing the increased rate
of interest on petitioner's loan.
SPOUSES MARIANO and GILDA FLORENDO, petitioners,
vs.
COURT OF APPEALS and LAND BANK OF THE
PHILIPPINES, respondents.
G.R. No. 101771 December 17, 1996
FACTS: Petitioner Gilda FLorendo was an employee of respondent Ban from
May 17, 1976 to August 16, 1984. However, before her resignation, she
applied for a housing loan of P148,000, payable within 25 years from the
Banks Provident Fund. Under the Loan Agreement, a Real Estate Mortgage
and Promissory Note was executed.
On March 19, 1985, the Bank increased the interest rate on said loan from
9% to 17%, the said increase to take effect on March 19, 1985 and
petitioner was informed for said increase.
Petitioners protested the increase without any heed from the Bank. The
Bank continued to demand the increased interest or the new monthly
installments based on the increased interest rates, but petitioner
vehemently maintained that the said increase is unlawful and unjustifiable.
Because of the Banks repeated demands, the petitioner filed the instant
injunction suit and damages.
The clauses or provisions in the Housing Loan Agreement and the Real
Estate Mortgage as the basis for the escalation are:
a. Section I-F of Article VI of the Housing Loan Agreement, 3 which
provides that, for as long as the loan or any portion thereof or any sum
that may be due and payable under the said loan agreement remains
outstanding, the borrower shall
f) Comply with all the rules and regulations of the program imposed by
the LENDER and to comply with all the rules and regulations that the
Central Bank of the Philippines has imposed or will impose in connection
with the financing programs for bank officers and employees in the form
of fringe benefits.
b. Paragraph (f) of the Real Estate Mortgage which states:
 The rate of interest charged on the obligation secured by this mortgage. .
., shall be subject, during the life of this contract, to such an
increase/decrease in accordance with prevailing rules, regulations and
circulars of the Central Bank of the Philippines as the Provident Fund
Board of Trustees of the Mortgagee may prescribe for its debtors and
subject to the condition that the increase/decrease shall only take effect
on the date of effectivity of said increase/decrease and shall only apply to
the remaining balance of the loan.
c. and ManCom (Management Committee) Resolution No. 85-08, together
with PF (Provident Fund) Memorandum Circular No. 85-08, which
escalated the interest rates on outstanding housing loans of bank
employees who voluntarily "secede" (resign) from the Bank; the range of
rates varied depending upon the number of years service rendered by the
employees concerned. The rates were made applicable to those who had
previously resigned from the bank as well as those who would be
resigning in the future.
The trial court ruled in favor of respondent bank, and held that the bank
was vested with authority to increase the interest rate (and the
corresponding monthly amortizations) pursuant to said escalation provisions
in the housing loan agreement and the mortgage contract.
On appeal, the respondent court affirmed the trial court.
ISSUE: WON the escalation clause is valid?
HELD: Yes. Petitioners argue that the HLA provision covers only
administrative and other matters, and does not include interest rates per se,
since Article VI of the agreement deals with insurance on and upkeep of the
mortgaged property. As for the stipulation in the mortgage deed, they claim
that it is vague because it does not state if the "prevailing" CB rules and
regulations referred to therein are those prevailing at the time of the
execution of these contracts or at the time of the increase or decrease of
the interest rate. They insist that the bank's authority to escalate interest
rates has not been shown to be "crystal-clear as a matter of fact" and
established beyond doubt. The contracts being "contracts of adhesion," any
vagueness in their provisions should be interpreted in favor of petitioners.
We note that Section 1-F of Article VI of the HLA cannot be read as an
escalation clause as it does not make any reference to increases or
decreases in the interest rate on loans. However, paragraph (f) of the
mortgage contract is clearly and indubitably an escalation provision, and
therefore, the parties were and are bound by the said stipulation that "(t)he
rate of interest charged on the obligation secured by this mortgage . . .,
shall be subject, during the life of this contract, to such an
increase/decrease in accordance with prevailing rules, regulations and
circulars of the Central Bank of the Philippines as the Provident Fund Board
of Trustees of the Mortgagee (respondent bank) may prescribe for its
debtors . . . ." Contrary to petitioners' allegation, there is no vagueness in
the aforequoted proviso; even their own arguments (below) indicate that
this provision is quite clear to them.
In Banco Filipino Savings & Mortgage Bank vs. Navarro, this Court in
essence ruled that in general there is nothing inherently wrong with
escalation clauses. In IBAA vs. Spouses Salazar, the Court reiterated the
rule that escalation clauses are valid stipulations in commercial
contracts to maintain fiscal stability and to retain the value of
money in long term contracts.
ISSUE2: WON the Bank may validly increase the interest rate?
HELD: No. In Banco Filipino, this Court, speaking through Mme. Justice
Ameurfina M. Herrera, disallowed the bank from increasing the interest rate
on the subject loan from 12% to 17% despite an escalation clause in the
loan agreement authorizing the bank to "correspondingly increase the
interest rate stipulated in this contract without advance notice to me/us in
the event a law should be enacted increasing the lawful rates of
interest that may be charged on this particular kind of loan". In said case,
the bank had relied upon a Central Bank circular as authority to up its rates.
The Court ruled that CB Circular No. 494, although it has the effect of law,
is not a law, but an administrative regulation.
Cesar Nickolai F. Soriano Jr.
75 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
In PNB vs. Court of Appeals, this Court disallowed the increases in interest
rate imposed by the petitioner-bank therein, on the ground, among others,
that said bank relied merely on its own Board Resolution (No. 681), PNB
Circular No. 40-79-84, and PNB Circular No. 40-129-84, which were neither
laws nor resolutions of the Monetary Board.
In the case at bar, the loan was perfected on July 20, 1983. PD No. 116
became effective on January 29, 1973. CB Circular No. 416 was issued on
July 29, 1974. CB Circ. 504 was issued February 6, 1976. CB Circ. 706 was
issued December 1, 1979. CB Circ. 905, lifting any interest rate ceiling
prescribed under or pursuant to the Usury Law, as amended, was
promulgated in 1982. These and other relevant CB issuances had
already come into existence prior to the perfection of the housing
loan agreement and mortgage contract, and thus it may be said
that these regulations had been taken into consideration by the
contracting parties when they first entered into their loan contract.
In light of the CB issuances in force at that time, respondent bank was fully
aware that it could have imposed an interest rate higher than 9% per
annum rate for the housing loans of its employees, but it did not. In the
subject loan, the respondent bank knowingly agreed that the interest rate
on petitioners' loan shall remain at 9% p.a. unless a CB issuance is passed
authorizing an increase (or decrease) in the rate on such employee loans
and the Provident Fund Board of Trustees acts accordingly. Thus, as far as
the parties were concerned, all other onerous factors, such as employee
resignations, which could have been used to trigger an application of the
escalation clause were considered barred or waived. If the intention were
otherwise, they especially respondent bank should have included such
factors in their loan agreement.
ManCom Resolution No. 85-08, which is neither a rule nor a
resolution of the Monetary Board, cannot be used as basis for the
escalation in lieu of CB issuances, since paragraph (f) of the
mortgage contract very categorically specifies that any interest
rate increase be in accordance with "prevailing rules, regulations
and circulars of the Central Bank . . . as the Provident Fund Board .
. . may prescribe." The Banco Filipino and PNB doctrines are applicable
four-square in this case. As a matter of fact, the said escalation clause
further provides that the increased interest rate "shall only take effect on
the date of effectivity of (the) increase/decrease" authorized by the CB rule,
regulation or circular. Without such CB issuance, any proposed increased
rate will never become effective.
We have already mentioned (and now reiterate our holding in several cases)
that by virtue of CB Circular 905, the Usury Law has been rendered
ineffective. Thus, petitioners' contention that the escalation clause is
violative of the said law is bereft of any merit.
On the other hand, it will not be amiss to point out that the unilateral
determination and imposition of increased interest rates by the
herein respondent bank is obviously violative of the principle of
mutuality of contracts ordained in Article 1308 of the Civil Code. As
this Court held in PNB:
In order that obligations arising from contracts may have the force of
law between the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs.
Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the . . .
loan agreement between the PNB and the private respondent gave the
PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been
null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the
character of a contract of adhesion, where the parties do not bargain
on equal footing, the weaker party's (the debtor) participation being
reduced to the alternative "to take it or leave it" (Qua vs. Law Union &
Rock Insurance Co., 95 Phil 85). Such a contract is a veritable trap for
the weaker party whom the courts of justice must protect against
abuse and imposition.
The respondent bank tried to sidestep this difficulty by averring that
petitioner Gilda Florendo as a former bank employee was very
knowledgeable concerning respondent bank's lending rates and procedures,
and therefore, petitioners were "on an equal footing" with respondent bank
as far as the subject loan contract was concerned. That may have been true
insofar as entering into the original loan agreement and mortgage contract
was concerned. However, that does not hold true when it comes to the
determination and imposition of escalated rates of interest as unilaterally
provided in the ManCom Resolution, where she had no voice at all in its
preparation and application.
To allay fears that respondent bank will inordinately be prejudiced by being
stuck with this "sweetheart loan" at patently concessionary interest rates,
which according to respondent bank is the "sweetest deal" anyone could
obtain and is an act of generosity considering that in 1985 lending rates in
the banking industry were peaking well over 30% p.a., we need only point
out that the bank had the option to impose in its loan contracts the
condition that resignation of an employee-borrower would be a ground for
escalation. The fact is it did not. Hence, it must live with such omission. And
it would be totally unfair to now impose said condition, not to mention that
it would violate the principle of mutuality of consent in contracts. It goes
without saying that such escalation ground can be included in future
contracts not to agreements already validly entered into.
Let it be clear that this Court understands respondent bank's position that
the concessional interest rate was really intended as a means to remunerate
its employees and thus an escalation due to resignation would have been a
valid stipulation. But no such stipulation was in fact made, and thus the
escalation provision could not be legally applied and enforced as against
herein petitioners.
WHEREFORE, the petition is hereby GRANTED. The Court hereby REVERSES
and SETS ASIDE the challenged Decision of the Court of Appeals. The
interest rate on the subject housing loan remains at nine (9) percent per
annum and the monthly amortization at P1,248.72.
NON-INVOLVEMENT CLAUSE: prohibiting an employee, during his
employment and after separation, from engaging or be involved with any
corporation, association or entity, whether directly or indirectly, engaged in
the same business or belonging to the same industry.
This clause may be valid, provided there are limitations as to the period, the
industry or the area or location where the prohibition applies. (see Tiu vs.
Platinum Plans, Inc.)
DAISY B. TIU, Petitioner
vs.
PLATINUM PLANS PHIL., INC., Respondent.
G.R. No. 163512 February 28, 2007
FACTS: Respondent Platinum Plans Philippines, Inc. is a domestic
corporation engaged in the pre-need industry. From 1987 to 1989,
petitioner Daisy B. Tiu was its Division Marketing Director. On January 1,
1993, respondent re-hired petitioner as Senior Assistant Vice-President and
Territorial Operations Head in charge of its Hongkong and Asean operations.
The parties executed a contract of employment valid for five years.
On September 16, 1995, petitioner stopped reporting for work. In
November 1995, she became the Vice-President for Sales of Professional
Pension Plans, Inc., a corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages alleging, among
others, that petitioners employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her contract of employment, to wit:
8. NON INVOLVEMENT PROVISION The EMPLOYEE further
undertakes that during his/her engagement with EMPLOYER and in
case of separation from the Company, whether voluntary or for cause,
he/she shall not, for the next TWO (2) years thereafter, engage in or
be involved with any corporation, association or entity, whether directly
or indirectly, engaged in the same business or belonging to the same
pre-need industry as the EMPLOYER. Any breach of the foregoing
Cesar Nickolai F. Soriano Jr.
76 Arellano University School of Law 2011-0303
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provision shall render the EMPLOYEE liable to the EMPLOYER in the
amount of One Hundred Thousand Pesos (P100,000.00) for and as
liquidated damages.
In upholding the validity of the non-involvement clause, the trial court ruled
that a contract in restraint of trade is valid provided that there is a limitation
upon either time or place. In the case of the pre-need industry, the trial
court found the two-year restriction to be valid and reasonable.
On appeal, the CA affirmed the trial courts ruling holding that petitioner
entered into the contract on her own will and volition. Thus, she bound
herself to fulfill not only what was expressly stipulated in the contract, but
also all its consequences that were not against good faith, usage, and law.
The appellate court also ruled that the stipulation prohibiting non-
employment for two years was valid and enforceable considering the nature
of respondents business.
ISSUE: WON the non-involvement clause is valid?
HELD: Yes. Petitioner avers that the non-involvement clause is offensive to
public policy since the restraint imposed is much greater than what is
necessary to afford respondent a fair and reasonable protection. She adds
that since the products sold in the pre-need industry are more or less the
same, the transfer to a rival company is acceptable. Petitioner also points
out that respondent did not invest in her training or improvement. At the
time she joined respondent, she already had the knowledge and expertise
required in the pre-need industry. Finally, petitioner argues that a strict
application of the non-involvement clause would deprive her of the right to
engage in the only work she knows.
Respondent counters that the validity of a non-involvement clause has been
sustained by the Supreme Court in a long line of cases. It contends that the
inclusion of the two-year non-involvement clause in petitioners contract of
employment was reasonable and needed since her job gave her access to
the companys confidential marketing strategies. Respondent adds that the
non-involvement clause merely enjoined her from engaging in pre-need
business akin to respondents within two years from petitioners separation
from respondent. She had not been prohibited from marketing other service
plans.
As early as 1916, we already had the occasion to discuss the validity of a
non-involvement clause. In Ferrazzini v. Gsell, we said that such clause was
unreasonable restraint of trade and therefore against public policy. In
Ferrazzini, the employee was prohibited from engaging in any business or
occupation in the Philippines for a period of five years after the termination
of his employment contract and must first get the written permission of his
employer if he were to do so. The Court ruled that while the stipulation was
indeed limited as to time and space, it was not limited as to trade. Such
prohibition, in effect, forces an employee to leave the Philippines to work
should his employer refuse to give a written permission.
In G. Martini, Ltd. v. Glaiserman, we also declared a similar stipulation as
void for being an unreasonable restraint of trade. There, the employee was
prohibited from engaging in any business similar to that of his employer for
a period of one year. Since the employee was employed only in connection
with the purchase and export of abaca, among the many businesses of the
employer, the Court considered the restraint too broad since it effectively
prevented the employee from working in any other business similar to his
employer even if his employment was limited only to one of its multifarious
business activities.
However, in Del Castillo v. Richmond, we upheld a similar stipulation as
legal, reasonable, and not contrary to public policy. In the said case, the
employee was restricted from opening, owning or having any connection
with any other drugstore within a radius of four miles from the employers
place of business during the time the employer was operating his drugstore.
We said that a contract in restraint of trade is valid provided there is
a limitation upon either time or place and the restraint upon one
party is not greater than the protection the other party requires.
Finally, in Consulta v. Court of Appeals, we considered a non-involvement
clause in accordance with Article 1306 of the Civil Code. While the
complainant in that case was an independent agent and not an employee,
she was prohibited for one year from engaging directly or indirectly in
activities of other companies that compete with the business of her
principal. We noted therein that the restriction did not prohibit the agent
from engaging in any other business, or from being connected with any
other company, for as long as the business or company did not compete
with the principals business. Further, the prohibition applied only for one
year after the termination of the agents contract and was therefore a
reasonable restriction designed to prevent acts prejudicial to the employer.
Conformably then with the aforementioned pronouncements, a non-
involvement clause is not necessarily void for being in restraint of
trade as long as there are reasonable limitations as to time, trade,
and place.
In this case, the non-involvement clause has a time limit: two years from
the time petitioners employment with respondent ends. It is also limited as
to trade, since it only prohibits petitioner from engaging in any pre-need
business akin to respondents.
More significantly, since petitioner was the Senior Assistant Vice-President
and Territorial Operations Head in charge of respondents Hongkong and
Asean operations, she had been privy to confidential and highly sensitive
marketing strategies of respondents business. To allow her to engage in a
rival business soon after she leaves would make respondents trade secrets
vulnerable especially in a highly competitive marketing environment. In
sum, we find the non-involvement clause not contrary to public welfare and
not greater than is necessary to afford a fair and reasonable protection to
respondent.
In any event, Article 1306 of the Civil Code provides that parties to a
contract may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.
Article 1159 of the same Code also provides that obligations arising from
contracts have the force of law between the contracting parties and should
be complied with in good faith. Courts cannot stipulate for the parties
nor amend their agreement where the same does not contravene
law, morals, good customs, public order or public policy, for to do
so would be to alter the real intent of the parties, and would run
contrary to the function of the courts to give force and effect
thereto. Not being contrary to public policy, the non-involvement
clause, which petitioner and respondent freely agreed upon, has
the force of law between them, and thus, should be complied with
in good faith.
Thus, as held by the trial court and the Court of Appeals, petitioner is bound
to pay respondent P100,000 as liquidated damages. While we have
equitably reduced liquidated damages in certain cases, we cannot do so in
this case, since it appears that even from the start, petitioner had not
shown the least intention to fulfill the non-involvement clause in good faith.
BAR QUESTION: Alma was hired as a domestic helper in Hongkong by the
Dragon Services, Ltd., through its local agent. She executed a standard
employment contract designed by the Philippine Overseas Workers
Administration (POEA) for overseas Filipino workers. It provided for her
employment for one year at a salary of US$1,000.00 a month. It was
submitted to and approved by the POEA. However, when she arrived in
Hongkong, she was asked to sign another contract by Dragon Services, Ltd.
which reduced her salary to only US$600.00 a month. Having no other
choice, Alma signed the contact but when she returned to the Philippines,
she demanded payment of the salary differential of US$400.00 a month.
Both Dragon Services, Ltd. and its local agent claimed that the second
contract is valid under the laws of Hongkong, and therefore binding on
Alma.
Is their claim correct? Explain
ANSWER: No. Just because a contract is valid in the place where it was
celebrated, it can be enforced here in the Philippines. The Philippine
Constitution affords full protection to labor. Such stipulation reducing the
Cesar Nickolai F. Soriano Jr.
77 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
salary is contrary to such policy is void for being contrary to such public
policy.
STIPULATIONS WHICH ARE VOID FOR BEING CONTRARY TO
PUBLIC POLICY:
Refund of tuition fees during the time a student is covered by a
scholarship, if such student transfers schools. Scholarships are
granted not to attract and to keep brilliant students in school for their
propaganda mine but to reward merit or help gifted students in whom
society has an established interest or a first lien. (see Cui vs. Arellano)
Prohibiting a losing candidate in a convention to run as an independent
candidate which contrary to constitutionality protected right to be
elected in public office and the right of the electorate to choose. (see
Saura vs. Sindico)
EMETERIO CUI, plaintiff-appellant,
vs.
ARELLANO UNIVERSITY, defendant-appellee.
G.R. No. L-15127 May 30, 1961
FACTS: Emetrio Cui, plaintiff, before the school year 1948-1949 took up
preparatory law course in the defendant University. After finishing his
preparatory law course plaintiff enrolled in the College of Law of the
defendant from the school year 1948-1949. Plaintiff finished his law studies
in the defendant university up to and including the first semester of the
fourth year. During all the school years in which plaintiff was studying law in
defendant law college, Francisco R. Capistrano, uncle of Emetrio Cui, was
the dean of the College of Law and legal counsel of the defendant
university. Plaintiff enrolled for the last semester of his law studies in the
defendant university but failed to pay his tuition fees because his uncle
Dean Francisco R. Capistrano having severed his connection with defendant
and having accepted the deanship and chancellorship of the College of Law
of Abad Santos University, plaintiff left the defendant's law college and
enrolled for the last semester of his fourth year law in the college of law of
the Abad Santos University graduating from the college of law of the latter
university.
Plaintiff, during all the time he was studying law in defendant university was
awarded scholarship grants, for scholastic merit, so that his semestral
tuition fees were returned to him after the ends of semester. The whole
amount of tuition fees paid by plaintiff to defendant and refunded to him by
the latter from the first semester up to and including the first semester of
his last year in the college of law or the fourth year, is in total P1,033.87.
After graduating in law from Abad Santos University he applied to take the
bar examination. To secure permission to take the bar he needed the
transcripts of his records in defendant Arellano University. Plaintiff
petitioned the latter to issue to him the needed transcripts. The defendant
refused until after he had paid back the P1,033.87 which defendant
refunded to him as above stated. As he could not take the bar examination
without those transcripts, plaintiff paid to defendant the said sum under
protest. This is the sum which plaintiff seeks to recover from defendant in
this case.
Before defendant awarded to plaintiff the scholarship grants as above
stated, he was made to sign the following contract covenant and
agreement:
"In consideration of the scholarship granted to me by the University, I
hereby waive my right to transfer to another school without having
refunded to the University (defendant) the equivalent of my
scholarship cash.
(Sgd.) Emeterio Cui".
It is admitted that, on August 16, 1949, the Director of Private Schools
issued Memorandum No. 38, series of 1949, on the subject of "Scholarship,"
addressed to "All heads of private schools, colleges and universities,"
reading:
1. School catalogs and prospectuses submitted to this Bureau show
that some schools offer full or partial scholarships to deserving
students for excellence in scholarship or for leadership in extra-
curricular activities. Such inducements to poor but gifted students
 should be encouraged. But to stipulate the condition that such
scholarships are good only if the students concerned continue in the
same school nullifies the principle of merit in the award of these
scholarships.
2. When students are given full or partial scholarships, it is understood
that such scholarships are merited and earned. The amount in tuition
and other fees corresponding to these scholarships should not be
subsequently charged to the recipient students when they decide to
quit school or to transfer to another institution. Scholarships should not
be offered merely to attract and keep students in a school.
3. Several complaints have actually been received from students who
have enjoyed scholarships, full or partial, to the effect that they could
not transfer to other schools since their credentials would not be
released unless they would pay the fees corresponding to the period of
the scholarships. Where the Bureau believes that the right of the
student to transfer is being denied on this ground, it reserves the right
to authorize such transfer.
The plaintiff asked the Bureau of Private Schools to pass upon the issue on
his right to secure the transcript of his record in defendant University,
without being required to refund the sum of P1,033.87 and was upheld by
the Bureau. However, defendant still refused to release the transcript of
records. As above stated, plaintiff was, accordingly, constrained to pay, and
did pay under protest, said sum of P1,033.87, in order that he could take
the bar examination in 1953. Subsequently, he brought this action for the
recovery of said amount, aside from P2,000 as moral damages, P500 as
exemplary damages, P2,000 as attorney's fees, and P500 as expenses of
litigation.
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of
Private Schools, namely, that the provisions of its contract with plaintiff are
valid and binding and that the memorandum above-referred to is null and
void.
The trial court ruled in favor of defendant and upheld the validity of the
above-quoted provision.
ISSUE: WON the above-quoted provision of the contract between plaintiff
and the defendant, whereby the former waived his right to transfer to
another school without refunding to the latter the equivalent of his
scholarships in cash, is valid?
HELD: No. We are of the opinion that the stipulation in question is contrary
to public policy and, hence, null and void. The aforesaid memorandum
merely incorporates a sound principle of public policy. As the Director of
Private Schools correctly pointed, out in his letter, Exhibit B, to the
defendant,
There is one more point that merits refutation and that is whether or
not the contract entered into between Cui and Arellano University on
September 10, 1951 was void as against public policy. In the case of
Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case
127, the court said: 'In determining a public policy of the state,
courts are limited to a consideration of the Constitution, the
judicial decisions, the statutes, and the practice of
government officers.' It might take more than a government bureau
or office to lay down or establish a public policy, as alleged in your
communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the
state. It has been consistently held in America that under the
principles relating to the doctrine of public policy, as applied
to the law of contracts, courts of justice will not recognize or
uphold a transaction which its object, operation, or tendency
is calculated to be prejudicial to the public welfare, to sound
morality or to civic honesty. If Arellano University understood
clearly the real essence of scholarships and the motives which
prompted this office to issue Memorandum No. 38, s. 1949, it should
have not entered into a contract of waiver with Cui on September 10,
1951, which is a direct violation of our Memorandum and an open
challenge to the authority of the Director of Private Schools because
the contract was repugnant to sound morality and civic honesty. And
finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6,
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78 Arellano University School of Law 2011-0303
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1941, p. 67 we read: 'In order to declare a contract void as
against public policy, a court must find that the contract as to
consideration or the thing to be done, contravenes some
established interest of society, or is inconsistent with sound
policy and good morals or tends clearly to undermine the
security of individual rights. The policy enunciated in Memorandum
No. 38, s. 1949 is sound policy. Scholarships are awarded in
recognition of merit not to keep outstanding students in school to
bolster its prestige. In the understanding of that university scholarships
award is a business scheme designed to increase the business
potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. But what is
morals? Manresa has this definition. It is good customs; those
generally accepted principles of morality which have received some
kind of social and practical confirmation. The practice of awarding
scholarships to attract students and keep them in school is not good
customs nor has it received some kind of social and practical
confirmation except in some private institutions as in Arellano
University. The University of the Philippines which implements Section
5 of Article XIV of the Constitution with reference to the giving of free
scholarships to gifted children, does not require scholars to reimburse
the corresponding value of the scholarships if they transfer to other
schools. So also with the leading colleges and universities of the United
States after which our educational practices or policies are patterned.
In these institutions, scholarships are granted not to attract and to
keep brilliant students in school for their propaganda mine but to
reward merit or help gifted students in whom society has an
established interest or a first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and another
one shall be entered sentencing the defendant to pay to the plaintiff the
sum of P1,033.87, with interest thereon at the legal rate from September 1,
1954, date of the institution of this case, as well as the costs, and
dismissing defendant's counterclaim. It is so ordered.
RAMON E. SAURA, plaintiff-appellant,
vs.
ESTELA P. SINDICO, defendant-appellee.
G.R. No. L-13403 March 23, 1960
FACTS: Ramon E. Saura and Estela P. Sindico were contesting for
nomination as the official candidate of the Nacionalista Party in the fourth
district of Pangasinan in the congressional elections of November 12, 1957.
On August 23, 1957, the parties entered into a written agreement bearing
the same date, containing among other matters stated therein, a pledge
that
Each aspirant shall respect the result of the aforesaid convention, i.e.,
no one of us shall either run as a rebel or independent candidate after
losing in said convention.
In the provincial convention, Saura was elected and proclaimed the Party's
official congressional candidate for the aforesaid district of Pangasinan.
Nonetheless, Sindico, in disregard of the covenant, filed, on September 6,
1957, her certificate of candidacy for the same office with the COMELEC,
and she openly and actively campaigned for her election. Wherefore, on
October 5, 1957, plaintiff Saura commenced this suit for the recovery of
damages which was dismissed on the basis that the agreement sued upon is
null and void, in that (1) the subject matter of the contract, being a public
office, is not within the commerce of man; and (2) the "pledge" was in
curtailment of the free exercise of elective franchise and therefore against
public policy. Hence, this appeal.
ISSUE: WON the agreement in question is valid?
HELD: No. Among those that may not be the subject matter
(object) of contracts are certain rights of individuals, which the
law and public policy have deemed wise to exclude from the
commerce of man. Among them are the political rights conferred
upon citizens, including, but not limited to, one's right to vote, the
right to present one's candidacy to the people and to be voted to
public office, provided, however, that all the qualifications
prescribed by law obtain. Such rights may not, therefore, be
bargained away curtailed with impunity, for they are conferred not
for individual or private benefit or advantage but for the public
good and interest.
Constitutional and statutory provision fix the qualifications of persons who
may be eligible for certain elective public offices. Said requirements may
neither be enlarged nor reduced by mere agreements between private
parties. A voter possessing all the qualifications required to fill an office
may, by himself or through a political party or group, present his candidacy
without further limitations than those provided by law.
Every voter has a right to be a candidate for public office if he
possesses the qualifications required to fill the office. It does not
necessarily follow that he can be the candidate of a particular political
party. The statute provides when and how one may be a candidate of
a political party. If he cannot fill the requirement so as to be the
candidates of the political party of his choice, he may still be a
candidate at the general election by petition. The right of the voter to
vote at the general election for whom he pleases cannot be limited.
(Roberts vs. Cleveland, Secretary of State of State of New Mexico, 48
NM 226, 149 P (2d) 120, 153 A.L.R. 635, 637-638) (Emphasis supplied)
In common law, certain agreements in consideration of the withdrawal of
candidates for office have invariably been condemned by the courts as
being against public policy, be it a withdrawal from the race for nomination
or, after nomination, from the race for election.
In the case at hand, plaintiff complains on account of defendant's alleged
violation of the "pledge" in question by filing her own certificate o candidacy
for a seat in the Congress of the Philippines and in openly and actively
campaigning for her election. In the face of the preceding considerations,
we certainly cannot entertain plaintiff's action, which would result in limiting
the choice of the electors to only those persons selected by a small group or
by party boses.
The case of Pendleton vs. Pace, cited by the appellant, is clearly
inapplicable. The court there only sanctioned the validity of an agreement
by the opposing candidates for nomination setting aside and re-submitting
the nomination for another primary election on account of the protest or
contest filed by the losing candidate in the first primary election. To
abandon the contest proceedings, the candidates for nomination agreed to
submit again their nomination to the electors in the subsequent primary.
Appellant likewise cites and quotes a portion of our ruling in
Monsale vs. Nico, to the effect that it is not incompetent or a candidate to
withdraw or annul his certificate of candidacy. This is not in point, for while
we stated there that he may do so, there being no legal prohibition against
such a voluntary withdrawal, it does not follow, nor did we imply anywhere
in the decision, that in case there is any agreement or consideration for
such a withdrawal, said agreement or consideration should be held valid or
given effect.
We find it unnecessary to discuss the other points raised by the parties.
Wherefore, the order of dismissal appealed from is hereby affirmed.
STIPULATION WHICH IS VOID FOR BEING CONTRARY TO
MORALS: in a contract of loan, where the interest rate is 50%, is void for
being contrary to morals, the same being unconscionable, confiscatory,
exorbitant, excessive or inequitable, not because of it is usurious.
3. MUTUALITY ARTS. 1308-1310, 1182
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them. (1256a)
Validity or compliance: not extinguishment. As such, in a contract of
lease which may be terminated upon the will of the lessee by simply giving
notice to the lessor, the same is valid and does not violate the mutuality of
contracts principle. The principle pertains to validity or compliance and not
termination of contracts.
Art. 1309. The determination of the performance may be left to a third
Cesar Nickolai F. Soriano Jr.
79 Arellano University School of Law 2011-0303
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person, whose decision shall not be binding until it has been made known to
both contracting parties. (n)
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable under
the circumstances.
Art. 1182. When the fulfillment of the condition depends upon the sole will
of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code. (1115)
ACCELERATION CLAUSE and ESCALATION CLAUSE (see
Autonomy of Contracts)
4. OBLIGATORY FORCE OF CONTRACTS ARTS. 1159, 1315-
1316, 749
Art. 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith. (1091a)
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. (1258)
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are
not perfected until the delivery of the object of the obligation.
Art. 749. In order that the donation of an immovable may be valid, it must
be made in a public document, specifying therein the property donated and
the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate
public document, but it shall not take effect unless it is done during the
lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall be noted in both
instruments. (633)
5. RELATIVITY OF CONTRACTS ARTS. 1311-1314, 1177-1178,
1381(3)
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation or
by provision of law. The heir is not liable beyond the value of the property
he received from the decedent.
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. (1257a)
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation
are transmissible, if there has been no stipulation to the contrary. (1112)
PRIVITY OF CONTRACTS: means that the contract takes effect only
between the parties, their assigns and heirs which are referred to as privies.
When not transmissible:
a. When the nature of the obligation is that it is not transmissible: when
the rights are purely or strictly personal in nature, i.e., the
qualifications and skills of the person have been considered in the
constitution of the contract.
b. By stipulation: e.g. the right to sublease is granted by law, but may be
prohibited by stipulation.
c. By provision of law: e.g. heirs as to the usufruct. The law provides that
the rights of a usufructuary shall not be transmitted to the heirs, unless
the parties stipulate otherwise.
Third Parties: as a general rule do not have a cause of action to enforce
or annul a contract.
Exceptions:
a. Third person may be bound by the contract:
Art. 1312. In contracts creating real rights, third persons who come
into possession of the object of the contract are bound thereby, subject
to the provisions of the Mortgage Law and the Land Registration Laws.
(n)
Example: in a contract of mortgage where the mortgagor A sold his
property to C. C shall be bound by the contract of mortgage on the
premise that the mortgage in favor of B, the mortgagor, is registered.
This is because real rights attaches to the property. As such, under Art.
1312, any person who comes into the possession of said real property
shall be bound by the encumbrance therein, i.e., the mortgage.
The exception to the above example, is when the mortgage is not
registered. Accordingly, the buyer, C, will not be bound by it.
b. A creditor may initiate an action against the contracting
parties
Art. 1313. Creditors are protected in cases of contracts intended to
defraud them. (n)
Art. 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose, save
those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them. (1111)
Art. 1381. The following contracts are rescissible:
xxx
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
xxx
Rescission by accion pauliana. As such, the creditor has a cause of
action against the acts of the debtor and any person he contracts with,
where the contract is to defraud the creditor, i.e., the creditor will have
a right to rescind said contract.
c. Third persons may be liable under a contract
Art. 1314. Any third person who induces another to violate his contract
shall be liable for damages to the other contracting party.
Malicious interference by third persons: as the name implies, there
should be malice or a malicious inducement by the third person as a
result of which, the debtor does not comply with his obligation under
the contract, which necessarily implies that such third person has
knowledge of the existence of the contract.
How to know if there was malice: usually, the words use would
indicate malice, e.g., entice, sometimes, it may be inferred from the
circumstances, i.e., where a party entice an employee of another to
leave by offering him a better compensation package.
BAR QUESTION: Francis Albert, a citizen and resident of New Jersey
U.S.A., under whose law he was still a minor, being only 20 years of
age, was hired by ABC Corporation of Manila to serve for two years as
its chief computer programmer. But after serving for only four months,
he resigned to join XYZ Corporation, which enticed him by offering
more advantageous terms. His first employer sues him in Manila for
damages arising from the breach of his contract of employment. He
sets up his minority as a defense and asks for annulment of the
Cesar Nickolai F. Soriano Jr.
80 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
contract on that ground. The plaintiff disputes this by alleging that
since the contract was executed in the Philippines under whose law the
age of majority is 18 years, he was no longer a minor at the time of
perfection of the contract.
Suppose XYZ Corporation is impleaded as co-defendant, what would be
the basis of its liability, if any? (2%)
ANSWER: 1314. Interference by a third person. When a person
maliciously induced another.
Who is liable? Both the debtor who failed to comply and the third party
who maliciously induced such non-compliance. However, the liability of
the third party cannot be greater than that of the debtor who is guilty
of breach of contract.
BAR QUESTION: Roland, a basketball star, was under contract for
one year to play-for-play exclusively for Lady Love, Inc. However,
even before the basketball season could open, he was offered a more
attractive pay plus fringe benefits by Sweet Taste, Inc. Roland
accepted the offer and transferred to Sweet Taste. Lady Love sues
Roland and Sweet Taste for breach of contract. Defendants claim that
the restriction to play for Lady Love alone is void, hence,
unenforceable, as it constitutes an undue interference with the right of
Roland to enter into contracts and the impairment of his freedom to
play and enjoy basketball.
Can Roland be bound by the contract he entered into with Lady Love
or can he disregard the same? Is he liable at all? How about Sweet
Taste? Is it liable to Lady Love?
ANSWER: Yes. Roland is bound under Art. 1159, obligations arising
from contract have the force of law between the parties.
Yes, he is liable for breach of contract. He can be held liable with
Sweet Taste under Art. 1314, this can be considered malicious
interference to violate the contract.
d. Third persons may be benefited by a contract 2nd paragraph
of Art. 1311, otherwise known as a stipulation pour atrui.
Art. 1311. xxx
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.
Subject matter: must be secondary or incidental only, not the main
object of the contract. E.g., in a contract of loan with a stipulation that
the interests are payable to a third person.
Communication of acceptance to the obligor is required. No form is
required. It can even be implied from the acts of the third person.
Revocation: cannot be done by one party alone. The Supreme Court
has held that if this revocation is a unilateral act of one of the parties,
it is void for violation of the principle of mutuality of contracts. For a
revocation to take effect, it must be with consent of both parties
(obligor and oblige) and should be done before the communication of
acceptance to the obligor.
C. CLASSIFICATION OF CONTRACTS
1. ACCORDING TO DEGREE OF DEPENDENCE
a. PREPARATORY ARTS. 1479, 1767, 1868
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
Art. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a
profession. (1665a)
Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of another,
with the consent or authority of the latter. (1709a)
b. PRINCIPAL ARTS. 1458, 1638, 1642, 1933, 1962
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
Art. 1638. By the contract of barter or exchange one of the parties binds
himself to give one thing in consideration of the other's promise to give
another thing. (1538a)
Art. 1642. The contract of lease may be of things, or of work and service.
(1542)
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid, in which case
the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower. (1740a)
c. ACCESSORY those which cannot stand on its own and are
dependent upon other contracts for its validity. E.g., guaranty,
suretyship, mortgage and antichresis.
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, Chapter 3, Title I of this Book shall be observed. In such case
the contract is called a suretyship. (1822a)
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property. (1857)
2. ACCORDING TO PERFECTION
Cesar Nickolai F. Soriano Jr.
81 Arellano University School of Law 2011-0303
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a. CONSENSUAL are those perfected by mere consent.
Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. (1258)
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
(1450a)
b. REAL those which are perfected only upon delivery of the thing
subject of the contract. E.g., deposit, pledge, commodatum and
mutuum.
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are
not perfected until the delivery of the object of the obligation. (n)
Art. 1934. An accepted promise to deliver something by way
of commodatum or simple loan is binding upon parties, but
the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (n)
c. FORMAL those which require a certain form for its validity.
E.g., antichresis
Art. 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article cannot be exercised.
(1278a)
Article 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has
been perfected. This right may be exercised simultaneously with the action
upon the contract.
Art. 1357: does not apply where the formality is a requirement for validity.
As such, an action under Art. 1357 cannot prosper to compel the other
party to execute a formality, when it has not been complied with, in cases
where the formality is required for validity.
Art. 1357 presupposes the existence of a valid contract and cannot possibly
refer to the form required to make it valid but rather to that required to
simply to make it effective.
Form requirements as to the validity of the contract: or ad
essential/ad solemnitatem:
Negotiable instruments must be in writing;
Donations of personal property more than P5,000 must be in writing;
Donations of real property must be in a public instrument;
Interests on loan must be stipulated in writing, otherwise they are
not due;
Principal and interests in antichresis must be specified in writing,
otherwise the contract is void.
Sale and transfer of large cattle under the Cattle Registration Act, the
same must be registered and a certificate of transfer must be issued.
Chattel mortgage requires registration.
Contract of partnership where real property or real rights are
contributed must be in a public instrument with an inventory
attached.
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable
property; sales of real property or of an interest therein are governed by
articles 1403, No. 2, and 1405; 3. ACCORDING TO SOLEMNITY OR FORM ART. 1356
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains; Art. 1356. Contracts shall be obligatory, in whatever form they may have
(3) The power to administer property, or any other power which has for its been entered into, provided all the essential requisites for their validity are
object an act appearing or which should appear in a public document, or present. However, when the law requires that a contract be in some form in
should prejudice a third person; order that it may be valid or enforceable, or that a contract be proved in a
(4) The cession of actions or rights proceeding from an act appearing in a certain way, that requirement is absolute and indispensable. In such cases,
public document. the right of the parties stated in the following article cannot be exercised.
(1278a)
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or a. ANY FORM e.g. loan.
things in action are governed by articles, 1403, No. 2 and 1405. (1280a) b. SPECIAL FORM e.g. donations, mortgage of immovable
property.
Formal requirements to prove existence: STATUTE OF FRAUDS:
4. ACCORDING TO PURPOSE
Article 1403. The following contracts are unenforceable, unless they are a. TRANSFER OF OWNERSHIP Donation, Sale and Barter
ratified: (ARTS. 725, 1458, 1638)
(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 Art. 725. Donation is an act of liberality whereby a person disposes
powers; gratuitously of a thing or right in favor of another, who accepts it. (618a)
(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 Art. 1458. By the contract of sale one of the contracting parties obligates
unenforceable by action, unless the same, or some note or memorandum, himself to transfer the ownership and to deliver a determinate thing, and
thereof, be in writing, and subscribed by the party charged, or by his agent; the other to pay therefor a price certain in money or its equivalent.
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents: A contract of sale may be absolute or conditional. (1445a)
(a) An agreement that by its terms is not to be performed within a
year from the making thereof; Art. 1638. By the contract of barter or exchange one of the parties binds
(b) A special promise to answer for the debt, default, or himself to give one thing in consideration of the other's promise to give
miscarriage of another; another thing. (1538a)
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry; b. CONVEYANCE OF USE Usufruct, Lease and Loan (ARTS. 562,
(d) An agreement for the sale of goods, chattels or things in action, at a 1642, 1933)
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 Art. 562. Usufruct gives a right to enjoy the property of another with the
them, of such things in action or pay at the time some part of the obligation of preserving its form and substance, unless the title constituting
purchase money; but when a sale is made by auction and entry is made it or the law otherwise provides. (467)
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 Art. 1642. The contract of lease may be of things, or of work and service.
and person on whose account the sale is made, it is a sufficient
(1542)
memorandum;
(e) An agreement for the leasing for a longer period than one year,
Art. 1643. In the lease of things, one of the parties binds himself to give to
or for the sale of real property or of an interest therein; another the enjoyment or use of a thing for a price certain, and for a period
(f) A representation as to the credit of a third person. which may be definite or indefinite. However, no lease for more than ninety-
(3) Those where both parties are incapable of giving consent to a contract. nine years shall be valid. (1543a)
IMPORTANCE OF CLASSIFICATION AS TO PERFECTION: if the
Art. 1933. By the contract of loan, one of the parties delivers to another,
contract is consensual, it is perfected by mere consent; if real, by delivery; if
either something not consumable so that the latter may use the same for a
formal; upon compliance with the required form.
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that
BAR QUESTION: Merle offered to sell her automobile to Violy for
the same amount of the same kind and quality shall be paid, in which case
P60,000.00. After inspecting the automobile, Violy offered to buy it for
the contract is simply called a loan ormutuum.
P50,000.00. This offer was accepted by Merle. The next day, Merle offered
to deliver the automobile, but Violy being short of funds, secured
Commodatum is essentially gratuitous.
postponement of the delivery, promising to pay the price upon arrival of
the steamer, Helena. The steamer however never arrived because it was
Simple loan may be gratuitous or with a stipulation to pay interest.
wrecked by a typhoon and sank somewhere off the Coast of Samar.
In commodatum the bailor retains the ownership of the thing loaned, while
Is there a perfected contract in this case? Why?
in simple loan, ownership passes to the borrower. (1740a)
ANSWER: Yes. In this case, the contract involved is one of sale. Sale is not
c. RENDITION OF SERVICE Lease and Agency (ARTS. 1642,
a real or a formal contract which would require delivery or compliance with
1868)
a certain form for its perfection; it is a consensual contract which is
perfected at the moment there is meeting of the minds.
Art. 1642. The contract of lease may be of things, or of work and service.
(1542)
In this case, there was meeting of the minds the moment the counter-offer
or offer to buy was accepted. As such, there is a perfected contract.
Art. 1868. By the contract of agency a person binds himself to render
Note: that the condition upon arrival of the steamer Helena was only for some service or to do something in representation or on behalf of another,
performance and not for perfection. It is a condition as to the payment but with the consent or authority of the latter. (1709a)
not as to whether the contract would be perfected or not.
Cesar Nickolai F. Soriano Jr.
82 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
5. ACCORDING TO NATURE OF OBLIGATION PRODUCED
a. BILATERAL where both parties are reciprocally obligated, e.g.,
lease (where the lessor is obliged to allow the use of the thing
and the lessee is obliged to pay rent) and sale (where the buyer is
obliged to pay the price and the seller obliged to deliver the thing)
(ARTS. 1642, 1458)
Art. 1642. The contract of lease may be of things, or of work and service.
(1542)
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
b. UNILATERAL only one party is obliged. E.g., guaranty and
pledge. (ARTS. 2047, 2093)
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, Chapter 3, Title I of this Book shall be observed. In such case
the contract is called a suretyship. (1822a)
Art. 2093. In addition to the requisites prescribed in Article 2085, it is
necessary, in order to constitute the contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of a third person by
common agreement. (1863)
IMPORTANCE OF CLASSIFICATION:
As to FRUITS: in conditional obligations, who would be entitled to the fruits
before the happening of the suspensive condition?
Bilateral: the fruits are deemed mutually compensated under Art. 1187.
Unilateral: the fruits shall pertain to the debtor unless a contrary
intention is clear.
Rescission: under Art. 1191, is implied in reciprocal obligations, or in this
case, bilateral contracts where both are reciprocally obligated. But if the
contract is unilateral, logically, the creditor would not rescind, he would
either demand performance or seek damages.
Delay: in reciprocal obligations (bilateral contracts), from the moment one
of the parties had already complied and the other did not, the latter shall be
considered in delay even if there is no demand.
6. ACCORDING TO CAUSE ART. 1350
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the benefactor.
(1274)
a. ONEROUS ARTS. 1458, 1638, 1642
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
Art. 1638. By the contract of barter or exchange one of the parties binds
himself to give one thing in consideration of the other's promise to give
another thing. (1538a)
Art. 1642. The contract of lease may be of things, or of work and service.
(1542)
Cesar Nickolai F. Soriano Jr.
83 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
b. GRATUITOUS OR LUCRATIVE ARTS. 725, 1933
Art. 725. Donation is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another, who accepts it. (618a)
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid, in which case
the contract is simply called a loan ormutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower. (1740a)
c. REMUNERATORY
IMPORTANCE OF CLASSIFICATION; EXAMPLES:
Presumption that the transfer of ownership is in fraud of creditors: A sold
his only property to B. At the time of sale, he was indebted to X. In this
case, it may not necessarily be in fraud of X, since the sale may have been
precisely to have the proceeds delivered to X for payment. Would there be
such presumption? It depends:
Onerous: if there is already a judgment against A as to his liability to X
and the transfer is onerous, such as this one (a sale), there is a
presumption that the transfer of ownership is in fraud of creditors.
Gratuitous: it would depend on the remaining amount of property,
such that if A donated his property to B worth P3M, the presumption
would arise only if A did not reserve sufficient properties to cover his
debts.
Interpretation of contracts: A obliged to deliver a car to B and upon
delivery, B noticed that the car stereo was missing. B asked for the stereo
but A claims that he is the owner thereof. Who is entitled to the stereo? It
depends:
Gratuitous: such as a donation, the principle that would apply is the
least transmission of rights, such that the donor would be entitled
to the stereo.
Onerous: such as a sale, the principle that would apply is the greatest
reciprocity of interests, such that the buyer would be entitled to the
stereo.
NOTE: the above principles would be applicable only on secondary matters
of the contract. Such that if the ambiguity pertains to the principal
prestation, such as the car in this case, then the contract would be void.
7. ACCORDING TO RISK
a. CUMULATIVE
b. ALEATORY ART. 2010
Art. 2010. By an aleatory contract, one of the parties or both reciprocally
bind themselves to give or to do something in consideration of what the
other shall give or do upon the happening of an event which is uncertain, or
which is to occur at an indeterminate time. (1790)
8. ACCORDING TO NAME
a. NOMINATE
b. INNOMINATE ART. 1307
Art. 1307. Innominate contracts shall be regulated by the stipulations of
the parties, by the provisions of Titles I and II of this Book, by the rules
governing the most analogous nominate contracts, and by the customs of
the place.
9. ACCORDING TO SUBJECT MATTER
 a. THING
b. RIGHT
c. SERVICE
D. STAGES OF CONTRACTS
1. NEGOTIATION
CONTRACT OF OPTION ARTS. 1324, 1479, 1482
Art. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised.
Option Agreement: in an option agreement, as provided under Art. 1324,
the offeror may withdraw the offer before acceptance is communicated to
him, and he would not be liable for damages.
Offeror is not bound, he may withdraw anytime before acceptance is
conveyed to him.
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
Option Contract: there is already a perfected contract of option. Here,
there is a consideration distinct and separate from the price. As such, the
offeror cannot validly withdraw before the period agreed upon without being
liable for damages. This does not, however, entitle the offeree the right to
demand specific performance since there is no perfected contract of sale
yet.
Likewise, an option contract does not bind the offeror to enter into a
contract, he has the choice whether to pursue or not the contract, if he
does not pursue, he loses his right to the option money given. (What if the
the exercise of the option was at the fault of the offeree, e.g., reservation
fee paid for a car, and the color chosen for which the option payment was
given, was not available?)
Offeree accepted before withdrawal of the offer is communicated to him:
the contract of sale, being consensual, is already perfected.
Option Money:
is not necessarily money only, it can be any prestation like services
or other things.
Not necessarily paid already. Promise may also be considered as a
consideration for the option contract.
BAR QUESTION: Marvin offered to construct the house of Carlos for a very
reasonable price of P900,000.00, giving the latter 10 days within which to
accept or reject the offer. On the fifth day, before Carlos could make up his
mind, Marvin withdrew his offer.
(a) What is the effect of the withdrawal of Marvins offer? (2%)
Valid. Offeror may validly withdraw before acceptance is communicated to
him.
(b) Will your answer be the same if Carlos paid Marvin P10,000.00
as consideration for that option? Explain. (2%) No. Here there is an
option contract. Offeror cannot validly withdraw the offer. Otherwise, there
would be breach of the option contract. Remedy is action for damages.
(c) Supposing that Carlos accepted the offer before Marvin could
communicate his withdrawal thereof? Discuss the legal
consequences. (2%) There would be a perfected contract. A contract for
a piece of work is a consensual contract perfected by the meeting of the
minds of the parties. As such, the contract was already perfected when the
acceptance was communicated to Marvin before he could communicate his
withdrawal.
Cesar Nickolai F. Soriano Jr.
84 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
BAR QUESTION: Sergio is the registered owner of a parcel of land. His
friend Marcelo succeeded in convincing him to sell such land to Marcelo. On
June 2, 2012, they agreed on the price of P600,000 and a period until June
30, 2012 within which Marcel may raise the amount. Marcelo in a light tone,
usual between them, said that they should seal their agreement through a
case of Jack Daniels Black and P5,000 pulutan, which they did. On June 13,
2015, Sergio learned of a new buyer Roberto who is offering to buy the land
for P800,000 cash. Sergio withdrew his offer to Marcelo. Marcelo objected
claiming that there is an option to buy supported by a valuable
consideration. Does Marcelo have a cause of action against Sergio?
Answer: Yes. There is already a perfected contract of sale. From the facts,
succeeded in persuading Sergio to sell it to him and given the period until
June 30, 2012 is only for the performance.
The case of bourbon and P5,000 pulutan - can be considered only as to
statute of frauds that this should be in writing, but the party had already
performed. Decided to withdraw his offer is not accurate, because he did
not withdraw from the offer, but from the contract of sale.
Art. 1482. Whenever earnest money is given in a contract of sale, it shall
be considered as part of the price and as proof of the perfection of the
contract. (1454a)
Earnest Money: the above provision refers to earnest money which is
considered part of the price and proof of the perfection of the contract of
sale.
2. PERFECTION goes into the essential elements of the contract.
3. PERFORMANCE
4. CONSUMMATION
E. ESSENTIAL ELEMENTS OF CONTRACTS ART. 1318
1. CONSENT OF CONTRACTING PARTIES ARTS. 1319-1346, 37-
42, 739, 1476(4), 1490-1491, 1533(5), 1646, 1782, 1409(7),
5;
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except
from the time it came to his knowledge. The contract, in such a case, is
presumed to have been entered into in the place where the offer was made.
(1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with. (n)
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. (n)
Art. 1324. When the offerer has allowed the offeree a certain period to
accept, the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
Art. 1325. Unless it appears otherwise, business advertisements of things
for sale are not definite offers, but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the highest or lowest
bidder, unless the contrary appears. (n)
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
(n)
Art. 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without prejudice
to special disqualifications established in the laws. (1264)
Art. 1330. A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable. (1265a)
Art. 1331. In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into
the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Art. 1332. When one of the parties is unable to read, or if the contract is in
a language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have been
fully explained to the former. (n)
Art. 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract. (n)
Art. 1334. Mutual error as to the legal effect of an agreement when the
real purpose of the parties is frustrated, may vitiate consent. (n)
Art. 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.
To determine the degree of intimidation, the age, sex and condition of the
person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the claim is
just or legal, does not vitiate consent. (1267a)
Art. 1336. Violence or intimidation shall annul the obligation, although it
may have been employed by a third person who did not take part in the
contract. (1268)
Art. 1337. There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations between
the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in
financial distress. (n)
Art. 1338. There is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. (1269)
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
Cesar Nickolai F. Soriano Jr.
85 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless
made by an expert and the other party has relied on the former's special
knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same
is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
(1270)
Art. 1345. Simulation of a contract may be absolute or relative. The former
takes place when the parties do not intend to be bound at all; the latter,
when the parties conceal their true agreement. (n)
Art. 1346. An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for
any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
Art. 37. Juridical capacity, which is the fitness to be the subject of legal
relations, is inherent in every natural person and is lost only through death.
Capacity to act, which is the power to do acts with legal effect, is acquired
and may be lost. (n)
Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute,
prodigality and civil interdiction are mere restrictions on capacity to act, and
do not exempt the incapacitated person from certain obligations, as when
the latter arise from his acts or from property relations, such as
easements. (32a)
Art. 39. The following circumstances, among others, modify or limit
capacity to act: age, insanity, imbecility, the state of being a deaf-mute,
penalty, prodigality, family relations, alienage, absence, insolvency and
trusteeship. The consequences of these circumstances are governed in this
Code, other codes, the Rules of Court, and in special laws. Capacity to act is
not limited on account of religious belief or political opinion.
A married woman, twenty-one years of age or over, is qualified for all acts
of civil life, except in cases specified by law.
Art. 40. Birth determines personality; but the conceived child shall be
considered born for all purposes that are favorable to it, provided it be born
later with the conditions specified in the following article. (29a)
Art. 41. For civil purposes, the fetus is considered born if it is alive at the
time it is completely delivered from the mother's womb. However, if the
fetus had an intra-uterine life of less than seven months, it is not deemed
born if it dies within twenty-four hours after its complete delivery from the
maternal womb. (30a)
Art. 42. Civil personality is extinguished by death.
The effect of death upon the rights and obligations of the deceased is
determined by law, by contract and by will.
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense,
in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants,
by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be
brought by the spouse of the donor or donee; and the guilt of the donor
and donee may be proved by preponderance of evidence in the same
action.
Art. 1476. In the case of a sale by auction:
xxx
(4) Where notice has not been given that a sale by auction is subject to a
right to bid on behalf of the seller, it shall not be lawful for the seller to bid
himself or to employ or induce any person to bid at such sale on his behalf
or for the auctioneer, to employ or induce any person to bid at such sale on
behalf of the seller or knowingly to take any bid from the seller or any
person employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer.
Art. 1490. The husband and the wife cannot sell property to each other,
except:
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article 191.
(1458a)
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be under
his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled corporation,
or institution, the administration of which has been intrusted to them; this
provision shall apply to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the administration
of justice, the property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by
assignment and shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which they may take part
by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Art. 1646. The persons disqualified to buy referred to in Articles 1490 and
1491, are also disqualified to become lessees of the things mentioned
therein. (n)
Art. 1533. xxx
The seller is bound to exercise reasonable care and judgment in making a
resale, and subject to this requirement may make a resale either by public
or private sale. He cannot, however, directly or indirectly buy the goods.
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set up the
Cesar Nickolai F. Soriano Jr.
86 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
defense of illegality be waived.
Art. 1782. Persons who are prohibited from giving each other any donation
or advantage cannot enter into universal partnership. (1677)
ARTS. 87, 124, 234 FAMILY CODE; RA 6809;
Art. 87. Every donation or grant of gratuitous advantage, direct or indirect,
between the spouses during the marriage shall be void, except moderate
gifts which the spouses may give each other on the occasion of any family
rejoicing. The prohibition shall also apply to persons living together as
husband and wife without a valid marriage. (133a)
Art. 124. The administration and enjoyment of the conjugal partnership
shall belong to both spouses jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the court by the wife for proper
remedy, which must be availed of within five years from the date of the
contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the other spouse
may assume sole powers of administration. These powers do not include
disposition or encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such authority or consent,
the disposition or encumbrance shall be void. However, the transaction shall
be construed as a continuing offer on the part of the consenting spouse and
the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the
offer is withdrawn by either or both offerors. (165a)
Art. 234. Emancipation takes place by the attainment of majority. Unless
otherwise provided, majority commences at the age of twenty-one years.
Emancipation also takes place:
(1) By the marriage of the minor; or
(2) By the recording in the Civil Register of an agreement in a public
instrument executed by the parent exercising parental authority and the
minor at least eighteen years of age. Such emancipation shall be
irrevocable. (397a, 398a, 400a, 401a)
Republic Act No. 6809
December 13, 1989
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
Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled:
Section 1. Article 234 of Executive Order No. 209, the Family Code of the
Philippines, is hereby amended to read as follows:
"Art. 234. Emancipation takes place by the attainment of majority. Unless
otherwise provided, majority commences at the age of eighteen years."
Section 2. Articles 235 and 237 of the same Code are hereby repealed.
Section 3. Article 236 of the same Code is also hereby amended to read as
follows:
"Art. 236. Emancipation shall terminate parental authority over the person
and property of the child who shall then be qualified and responsible for all
acts of civil life, save the exceptions established by existing laws in special
cases.
"Contracting marriage shall require parental consent until the age of twenty-
one.
"Nothing in this Code shall be construed to derogate from the duty or
responsibility of parents and guardians for children and wards below
twenty-one years of age mentioned in the second and third paragraphs of
Article 2180 of the Civil Code."
Section 4. Upon the effectivity of this Act, existing wills, bequests,
donations, grants, insurance policies and similar instruments containing
references and provisions favorable to minors will not retroact to their
prejudice.
Section 5. This Act shall take effect upon completion of its publication in at
least two (2) newspapers of general circulation.
ART. XII, SEC. 7 & 8, 1987 CONSTITUTION
Section 7. Save in cases of hereditary succession, no private lands shall be
transferred or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.
Section 8. Notwithstanding the provisions of Section 7 of this Article, a
natural-born citizen of the Philippines who has lost his Philippine citizenship
may be a transferee of private lands, subject to limitations provided by law.
COGNITION THEORY contract is perfected upon receipt of the
acceptance.
MANIFESTATION THEORY contract is perfected upon manifestation of
acceptance.
Kinds of Capacity:
a. Juridical Capacity fitness to be subject to a legal relation.
Example of incapacity: a corporation without SEC Certificate of Registration.
If incapacity pertains to juridical capacity, the contract is void.
b. Capacity to Act power to do acts with legal effects. Incapacity
pertains to restrictions on the capacity to act.
Situations concerning consent of the parties:
a. No consent of one or both parties
Here the contract is void. Art. 1409 involves fictitious or simulated contracts:
Fictitious Contracts: where one of the parties did not actually gave
his consent. E.g., a partys signature in a deed of sale is forged;
Simulated Contracts: where the parties would make it appear that
they entered into a contract when in fact they did not.
i. Absolutely Simulated Contracts they did not intend to be
bound by the contract or any contract for that matter. Usually to
defraud someone.
Example: in the trial of CJ Corona, the prosecution claimed that
the sale of real properties made by the CJ to his relatives are
simulated contracts in order to avoid presenting them in the
SALN. The defense countered that these sales are supported by
notarized deeds of sale. However, the prosecution presented the
clerk of court where the supposed notary was commissioned and
testified that no such person was commissioned during the period
when the supposed sale happened.
ii. Relatively Simulated Contracts the parties intended another
contract.
Example: Sale of CJ Coronas condominium unit to her daughter
Karla worth P16M. The prosecution theorized that the sale is
either absolutely or relatively simulated in order to avoid
presenting the unit in the SALN. The prosecution presented the
Commissioner of Internal Revenue who testified that Karlas
income statement the year prior to the supposed sale, Karlas
income was only P9,000 for the whole year. As such, it was
theorized that if it was a realtively simulated sale, the intention
was actually a donation. It was made to appear as a sale in order
to avoid paying donors tax.
Proof of relatively simulated sale: capacity of the buyer to buy. If
he does not have capacity to buy, it would be proof of simulation.
Cesar Nickolai F. Soriano Jr.
87 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
b. Both parties gave their consent, but one is incapacitated
i. Absolute Incapacity the party cannot give consent in any
contract, with anyone, in whatever capacity, over anything.
ii. Relative Incapacity a person may be prohibited from entering
specific contracts or that in a contract, he may be prohibited in a
certain capacity, i.e., prohibited to be the buyer, or to specific
things, or to specific persons.
Example: an alien is prohibited under the Constitution from
acquiring private lands. EXCEPT: when acquired through (1)
succession; or (2) sale of residential land to a former natural born
Filipino citizen.
A sale in violation of the prohibition is void. As such, the seller
may recover the land. However, if at the time the action to
recover was filed, the land was already transferred to a Filipino,
the action will no longer prosper.
CASE: Common-law spouses bought land through salaries of
alien Jamrich but was registered under the name of the Filipino
wife. Jamrich used the lot to pay for his debt (purchase of yacht)
to Borromeo. Agro-Macro, the seller, filed for annulment of sale.
SC: if land is invalidly transferred to an alien who subsequently
becomes a Filipino citizen or transfers it to a Filipino, the flaw in
the original transaction is considered cured and the title of the
transferee is rendered valid. (Borromeo vs. Descallar)
c. Both parties gave their consent
Valid? It depends:
If consent is given in behalf of another without authority
unenforceable UNLESS the person acting has authority under the
law (e.g., guardians, sheriff, executor, administrator, etc.)
If there was fraud, mistake, violence, intimidation or undue
influence voidable.
Can be grouped into two:
i. Those affecting COGNITION or the awareness of certain facts:
mistake and fraud.
ii. Those affecting VOLITION or voluntariness of the act: Violence,
Intimidation or Undue Influence.
Relevance of the above grouping: If violence was employed on
the wife of the contracting party to force him to enter into a
contract, the same would be voidable. Even though Art. 1335 only
mentions intimidation on the person or property of the spouse,
ascendants or descendants, the party may still invoke vitiation of
consent due to the violence employed on the person of his
spouse. This is because they have the same effect, i.e., they
affect volition or voluntariness of giving consent. Moreover, if the
law would already consider as ground for vitiation of consent, the
intimidation, there is more reason to consider if violence is
employed.
d. Both parties gave their consent, but both of the parties
consent is vitiated or both are incapacitated unenforceable.
Art. 1403(3).
2. OBJECT CERTAIN WHICH IS THE SUBJECT MATTER OF THE
CONTRACT ARTS. 1347-1349, 1311, 1178
Art. 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are not
intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract. (1271a)
Art. 1348. Impossible things or services cannot be the object of contracts.
(1272)
OBJECT: is the subject matter of a contract which may not necessarily be a
thing, it may be rights or service.
BASIC REQUIREMENTS:
Rights must not be intransmissible;
Services not contrary to law, morals, good customs, public order or
public policy;
Things must not be outside of commerce of men, it must be licit and
not impossible. Example: internal organs of humans.
Future Inheritance: cannot be the subject matter of a valid contract as
provided under Art. 1347. This is because the seller owns no inheritance
while his predecessor lives. Public policy demands that if youre going to
sell, you have the right to do so, but not necessarily requiring that the seller
is the owner.
Art. 1349. The object of every contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties. (1273)
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
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. (1257a)
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation
are transmissible, if there has been no stipulation to the contrary. (1112)
3. CAUSE OF THE OBLIGATION ARTS. 1350-1355
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit which is remunerated;
and in contracts of pure beneficence, the mere liberality of the
benefactor. (1274)
Pledge: what is the cause?
1. Onerous the same as that of the principal contract; compensation;
2. Gratuitous liberality.
Art. 1351. The particular motives of the parties in entering into a contract
are different from the cause thereof. (n)
Question: A bought a gun to kill B and he was able to do so. Was the sale
valid? Yes. As a rule, motive does not affect the validity of a contract since
motive is different from cause and the illegality of motive does not affect
the validity of the contract.
Exception: if it predominates the purpose of the party to enter into a
contract. E.g., sale to defraud creditors.
Art. 1352. Contracts without cause, or with unlawful cause, produce no
effect whatever. The cause is unlawful if it is contrary to law, morals, good
customs, public order or public policy. (1275a)
Art. 1353. The statement of a false cause in contracts shall render them
void, if it should not be proved that they were founded upon another cause
which is true and lawful. (1276)
Cesar Nickolai F. Soriano Jr.
88 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
Example: if the deed of sale did not indicate the price or there was no
mention at all of the price, the contract may still be considered valid
because the law expressly provides that the cause is presumed to exists and
is lawful.
Rationale: ordinarily, when one enters into a contract, there is a cause.
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause
shall not invalidate a contract, unless there has been fraud, mistake or
undue influence. (n)
Example: A car with book value of P250,000 was sold for P1 in the deed of
sale. Does this affect validity? Not necessarily. As a rule, gross inadequacy
of the price does not affect the validity of contracts. There might have been
another cause, such as liberality or previously rendered service. Except: in
cases of rescissible contracts.
4. DELIVERY
5. DUE OBSERVANCE OF PRESCRIBED FORMALITIES
e. FORMS OF CONTRACT
Art. 1356. Contracts shall be obligatory, in whatever form they may have
been entered into, provided all the essential requisites for their validity are
present. However, when the law requires that a contract be in some form in
order that it may be valid or enforceable, or that a contract be proved in a
certain way, that requirement is absolute and indispensable. In such cases,
the right of the parties stated in the following article cannot be exercised.
(1278a)
Article 1357. If the law requires a document or other special form, as in
the acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has
been perfected. This right may be exercised simultaneously with the action
upon the contract.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable
property; sales of real property or of an interest therein a governed by
Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
1. GENERAL RULE: contracts are obligatory in whatever form they may
have been entered into, provided all the essential requisites are
present.
2. SPECIAL FORM:
a. VALIDITY ARTS. 748, 749, 1744, 1773, 1874, 1956,
2134
Art. 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated.

If the value of the personal property donated exceeds five thousand pesos,
the donation and the acceptance shall be made in writing, otherwise, the
donation shall be void. (632a)
Art. 749. In order that the donation of an immovable may be valid, it must
be made in a public document, specifying therein the property donated and
the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate
public document, but it shall not take effect unless it is done during the
lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall be noted in both
instruments. (633)
Art. 1744. A stipulation between the common carrier and the shipper or
owner limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence shall
be valid, provided it be:
(1) In writing, signed by the shipper or owner;
(2) Supported by a valuable consideration other than the service rendered
by the common carrier; and
(3) Reasonable, just and not contrary to public policy.
Art. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed
by the parties, and attached to the public instrument. (1668a)
Art. 1874. When a sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale
shall be void. (n)
Art. 1956. No interest shall be due unless it has been expressly stipulated
in writing. (1755a)
Art. 2134. The amount of the principal and of the interest shall be
specified in writing; otherwise, the contract of antichresis shall be void. (n)
ACT 1147: CATTLE REGISTRATION DECREE, SEC. 22
Section 22 of Act No. 1147, enacted May 3, 1904, provides that, "No
transfer of large cattle shall be valid unless registered, and a
certificate of transfer secured as herein provided.
Contract of Sale: nowhere in the Civil Code is there a requirement of a
specific form for a contract of sale. However, under special laws, such as
the one above, transfer of large cattle need to be in a public instrument,
registered and there must be a certificate of transfer.
b. ENFORCEABILITY ARTS. 1403, 1878;
Note: the contracts here are valid but cannot be enforced until ratified.
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
Cesar Nickolai F. Soriano Jr.
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Civil Law Review 2 under the class of Atty. Uribe
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 of the leasing for a longer period than one year, or
for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in existence
at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right
to appeal from a judgment, to waive objections to the venue of an action or
to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
c. GREATER EFFICACY OR CONVENIENCE ART. 1358
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable
property; sales of real property or of an interest therein a governed by
Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those
of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a
public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)
Note: the requirement that the contract appear in a public instrument is
only to bind third persons and does not affect the validity of the contract.
While conveyances of immovable are covered by Art. 1358, which includes a
sale of land, the same article would tell us that a contract of sale involving
an immovable is covered by Art. 1403. As such, it only is required to be in
writing to be valid. However, if the sale is orally made, it is unenforceable.
The requirement of a public instrument is to bind third persons.
f. REFORMATION OF CONTRACTS ARTS. 1359-1369
Art. 1359. When, there having been a meeting of the minds of the
parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of mistake,
fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention may be
expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting
of the minds of the parties, the proper remedy is not reformation of the
instrument but annulment of the contract.
Art. 1360. The principles of the general law on the reformation of
instruments are hereby adopted insofar as they are not in conflict with the
provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be
reformed.
Art. 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their true
intention, the former may ask for the reformation of the instrument.
Art. 1363. When one party was mistaken and the other knew or believed
that the instrument did not state their real agreement, but concealed that
fact from the former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad
faith on the part of the person drafting the instrument or of the clerk or
typist, the instrument does not express the true intention of the parties, the
courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge of real or
personal property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the instrument is
proper.
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
Art. 1368. Reformation may be ordered at the instance of either party or
his successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be
governed by rules of court to be promulgated by the Supreme Court.
g. INTERPRETATION OF CONTRACTS ARTS. 1370-1379
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations
shall control.
If the words appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former. (1281)
Primordial Consideration: is the intention of the parties. Such that even
if the terms of the contract are clear, but does not reflect the intention of
the parties, it is the intention which would prevail.
Art. 1371. In order to judge the intention of the contracting parties, their
Cesar Nickolai F. Soriano Jr.
90 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
contemporaneous and subsequent acts shall be principally considered.
(1282)
Contemporaneous and Subsequent Acts: may be considered to
determine if the parties intention are different from the clear words of the
agreement.
In a case where a Deed of Assignment was issued as payment for the
obligation of the debtor in an indemnity agreement by way of dacion en
pago, the debtor thereafter made subsequent installment payments and
executed a mortgage, the SC held that clearly the subsequent acts of the
debtor does not reflect his claim that the deed of assignment was by dacion
en pago. The deed of assignment was a form of security for the indemnity
agreement.
Art. 1372. However general the terms of a contract may be, they shall not
be understood to comprehend things that are distinct and cases that are
different from those upon which the parties intended to agree. (1283)
Art. 1373. If some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most
adequate to render it effectual. (1284)
Art. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from
all of them taken jointly. (1285)
Art. 1375. Words which may have different significations shall be
understood in that which is most in keeping with the nature and object of
the contract. (1286)
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established. (1287)
Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. (1288)
Art. 1378. When it is absolutely impossible to settle doubts by the rules
established in the preceding articles, and the doubts refer to incidental
circumstances of a gratuitous contract, the least transmission of rights
and interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a
way that it cannot be known what may have been the intention or will of
the parties, the contract shall be null and void. (1289)
Example: Lino entered into a contract to sell with Ramon to convey with
one of the five lots he owns without specifying which lot. Later on, the
parties cannot agree which of the five lots is the subject of the contract.
What is the status of the contract? Void under Art. 1409(6): those where
the intention of the parties relative to the principal object of the contract
cannot be ascertained.
h. KINDS OF CONTRACT AS TO VALIDITY
1. VALID AND BINDING
2. VALID BUT DEFECTIVE
a. RESCISSIBLE CONTRACTS ARTS. 1380-1389
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants or
of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
(1291a)
Contracts undertaken in fraud of creditors when the latter cannot
in any other collect the claims due them; how to prove fraud?
1. Presumptions: Examples:
a. Onerous alienation of property after judgment has been rendered
against the debtor in favour of any creditor, or after an order of
garnishment or attachment was issued by the court.
b. Gratuitous alienation of property wherein the debtor did not
reserve sufficient property to cover his debts.
2. Badges of Fraud: examples:
a. Close relationship of the parties;
b. When the debtor is the seller but is in continued possession of the
property;
c. When the price in the contract is grossly inadequate;
d. When the debtor is already insolvent and he sells his property in
credit.
CASE:
ISIDORA L. CABALIW and SOLEDAD SADORRA, petitioners,
vs.
SOTERO SADORRA, ENCARNACION SADORRA, EMILIO ANTONIO,
ESPERANZA RANJO, ANSELMO RALA, BASION VELASCO, IGNACIO
SALMAZAN, and THE HONORABLE COURT OF APPEALS,
respondents.
G.R. No. L-25650 June 11, 1975
The presumption of a fraudulent transaction which is not overcome by the
mere fact that the deeds of sale in question were in the nature of public
instruments
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need
not refer to the property alienated, and need not have been obtained by the
party seeking the rescission.
Facts: Petitioner Isidora Cabaliw was the wife of Benigno Sadorra by his
second marriage, they had a child, herein petitioner Soledad Sadorra.
During their marriage, the spouses acquired two (2) parcels of land situated
in Iniangan, Dupax, Nueva Vizcaya.
Having been abandoned by her husband, Isidora Cabaliw instituted an
action for support, which required Benigno Sadorra to pay herein petitioner
Cabaliw the amount of P75.00 a month in terms of support as of January 1,
1933, and P150.00 in concept of attorney's fees and the costs.
Due to the failure of Benigno to comply with the judgment of support,
petitioner Cabaliw filed another action which authorized her to take
possession of the conjugal property, to administer the same, and to avail
herself of the fruits thereof in payment of the monthly support in arrears.
Unknown to petitioner Cabaliw, Benigno executed two deeds of sale and
sold the subject properties to herein private respondents. Such was fact
only discovered after the judgment which authorized her to manage the
same,
Petitioners filed an action with the trial Court to recover the subject
properties, which was ruled in their favor. The trial Court held that the
deeds of sale executed by Benigno Sadorra to be simulated and fictitious.
On appeal, the CA reversed the decision of the trial Court, hence this
petition.
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91 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Petitioner contend that the Honorable Court of Appeals gravely erred in
holding that the fraud could not be presumed in the transfer of the lots in
question by the late Benigno Sadorra to his son-in-law Sotero Sadorra, even
if this transfer was done shortly after judgment was rendered against the
former and in favor of your petitioner Isidora Cabaliw.
Respondent Court of Appeals sustained the validity and efficacy of the
deeds of sale executed by Benigno Sadorra in favor of his son-in-law
(Exhibits I and I-1) on the ground that these are public documents and as
such are presumed by law to have been fair and legal; that the vendee
Sotero Sadorra, is presumed to have acted in good faith, citing Art. 44,
Spanish Civil Code, Art. 627 New Civil Code; that fraud is never presumed,
and it is settled in this jurisdiction that strong and convincing evidence is
necessary to overthrow the validity of an existing public instrument. The
appellate court continued that inasmuch as under the old Civil Code in force
at the time of the sale, the husband was empowered to dispose of the
conjugal property without the consent of the wife, the sales made by
Benigno Sadorra were valid, and the wife Isidora cannot now recover the
property from the vendee.
ISSUE: WON respondent Court of Appeals erred when it reversed the
decision of the trial Court and held that fraud cannot be presumed in the
transaction of Benigno and herein private respondents?
HELD: Yes. The facts narrated in the first portion of this Decision which are
not disputed, convincingly show or prove that the conveyances made by
Benigno Sadorra in favor of his son-in-law were fraudulent. For the heart of
the matter is that about seven months after a judgment was rendered
against him in Civil Case No. 43192 of the Court of First Instance of Manila
and without paying any part of that judgment, Benigno Sadorra sold the
only two parcels of land belonging to the conjugal partnership to his son-in-
law. Such a sale even if made for a valuable consideration is presumed to
be in fraud of the judgment creditor who in this case happens to be the
offended wife.
Article 1297 of the old Civil Code which was the law in force at the time of
the transaction provides:
Contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to be made in fraud of creditors.
Alienations by onerous title are also presumed fraudulent when made
by persons against whom some judgment has been rendered in any
instance or some writ of attachment has been issued. The decision or
attachment need not refer to the property alienated and need not have
been obtained by the party seeking rescission.
The above-quoted legal provision was totally disregarded by the appellate
court, and there lies its basic error.
We agree with petitioners that the parties here do not stand in equipoise,
for the petitioners have in their favor, by a specific provision of law, the
presumption of a fraudulent transaction which is not overcome by the mere
fact that the deeds of sale in question were in the nature of public
instruments. As well said in the dissenting opinion of Justice Magno
Gatmaitan, the principle invoked by the majority opinion that to destroy the
validity of an existing public document "strong and convincing evidence is
necessary", operates "where the action was brought by one party against
the other to impugn the contract but that rule cannot operate and does not,
where the case is one wherein the suit is not between the parties inter se
but is one instituted by a third person, not a party to the contract but
precisely the victim of it because executed to his prejudice and behind his
back; neither law, nor justice, nor reason, nor logic, should so permit,
otherwise, in such a suit, the courts would be furnishing a most effective
shield of defense to the aggressor."
Furthermore, the presumption of fraud established by the law in favor of
petitioners is bolstered by other indicia of bad faith on the part of the
vendor and vendee. Thus (1) the vendee is the son-in-law of the vendor. In
the early case of Regalado vs. Luchsinger & Co., 5 Phil. 625, this Court held
that the close relationship between the vendor and the vendee is one of the
known badges of fraud. (2) At the time of the conveyance, the vendee,
Sotero, was living with his father-in-law, the vendor, and he knew that there
was a judgment directing the latter to give a monthly support to his wife
Isidora and that his father-in-law was avoiding payment and execution of
the judgment. (3) It was known to the vendee that his father-in-law had no
properties other than those two parcels of land which were being sold to
him. The fact that a vendor transfers all of his property to a third person
when there is a judgment against him is a strong indication of a scheme to
defraud one who may have a valid interest over his properties.
Added to the above circumstances is the undisputed fact that the vendee
Sotero Sadorra secured the cancellation of the lis pendens on O.C.T. No. 1,
which was annotated in 1940 at the instance of Isidora Cabaliw, and the
issuance of a transfer certificate of title in his favor, by executing an
affidavit, Exhibit H, on June 7, 1948, wherein he referred to Isidora as "the
late Isidora Cabaliw' when he knew for a fact that she was alive, and
alleged that Civil Case 449 of the Court of First Instance of Nueva Vizcaya
was decided in his favor where in truth there was no such decision because
the proceedings in said case were interrupted by the last world war. Such
conduct of Sotero Sadorra reveals, as stated by the lower court, an "utter
lack of sincerity and truthfulness" and belies his pretensions of good faith.
On the part of the transferee, he did not present satisfactory and convincing
evidence sufficient to overthrow the presumption and evidence of a
fraudulent transaction. His is the burden of rebutting the presumption of
fraud established by law, and having failed to do so, the fraudulent nature
of the conveyance in question prevails.
The decision of the Court of Appeals makes mention of Art. 1413 of the old
Civil Code which authorizes the husband as administrator to alienate and
bind by onerous title the property of the conjugal partnership without the
consent of the wife, and by reason thereof, concludes that petitioner Isidora
Cabaliw cannot now seek annulment of the sale made by her husband. On
this point, counsel for petitioners rightly claims that the lack of consent of
the wife to the conveyances made by her husband was never invoked nor
placed in issue before the trial court. What was claimed all along by plaintiff,
Isidora Cabaliw now petitioner, was that the conveyances or deeds of sale
were executed by her husband to avoid payment of the monthly support
adjudged in her favor and to deprive her of the means to execute said
judgment. In other words, petitioner seeks relief not so much as an
aggrieved wife but more as a judgment creditor of Benigno Sadorra. Art.
1413 therefore is inapplicable; but even if it were, the result would be the
same because the very article reserves to the wife the right to seek redress
in court for alienations which prejudice her or her heirs. The undisputed
facts before Us clearly show that, the sales made by the husband were
merely a scheme to place beyond the reach of the wife the only properties
belonging to the conjugal partnership and deprive her of what rightly
belongs to her and her only daughter Soledad.
HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-
appellant,
vs.
RALPH PAULI and SPOUSES SALLY P. GARGANERA and MATEO
GARGANERA, defendants-appellees.
G. R. No. L-38303 May 30, 1988
When a transaction involves registered land, the four-year period fixed in
Article 1391 within winch to bring an action for annulment of the deed, shall
be computed from the registration of the conveyance.
The registration of the document is constructive notice of the conveyance to
the whole world
FACTS: In Civil Case No. 32799 dated June 14, 1957, appellant filed an
action against appellee Pauli, in which its trial Court rendered in its favor.
However, the writs of execution were returned unsatisfied because no
leviable assets of Pauli could be located by the sheriffs.
Unknown to herein appellant, Pauli had on January 8, 1957 purchased from
the Philippine National Bank (PNB) a sugar cane plantation known as
Hacienda Riverside. To avoid discovery of the transaction by his creditors,
he did not register the deed of Sale. Six years later, on March 1, 1963, he
fraudulently sold the hacienda to his daughter, defendant-appellee Sally
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Garganera, and her husband Mateo Garganera. The sale was registered on
March 5, 1963. Transfer Certificate of Title No. 34425 was issued to the
Garganeras.
In Civil Case No. 626, another creditor of Pauli, the sale to the Garganera
spouses was declared fictitious for being in fraud of creditors by the trial
Court.
In Civil Case No. 75319 dated January 13, 1969, having discovered the
hidden property of herein appellant filed for the revival of Civil Case No.
32799, which was granted by the trial Court.
On February 17, 1971, in Civil Case No 465, herein appellant filed another
action against appellee Pauli, praying for the annulment of Conditional Sale
as well as the Deed of Sale, of Hacienda Riverside to the Garganeras and
also for annulment of Garganera's Certificate of Title No. T-34425.
However, appellee Pauli filed a motion to dismiss on the grounds of res
judicata, prescription, waiver and abandonment of claim, which was granted
by the trial Court on the ground of prescription, hence this appeal.
ISSUE: WON the trial Court erred when it dismissed Civil Case No. 465 on
the ground of prescription?
HELD: No, the Court held that the trial Court did no err when it dismissed
Civil Case No. 465.
Has the action for annulment of the sale of Lot 693 to the Garganeras
prescribed? Did prescription of the action commence to run from the
registration of the sale, or from the discovery of the transaction by the
Bank?
When a transaction involves registered land, the four-year period fixed in
Article 1391 within winch to bring an action for annulment of the deed, shall
be computed from the registration of the conveyance (March 5, 1963) on
the familiar theory that the registration of the document is constructive
notice of the conveyance to the whole world (Armentia vs. Patriarca, 18
SCRA 1253; Avecilla vs. Yatco, 103 Phil. 666).
Plaintiff's submission that the four-year period commenced to run from the
date when the Bank obtained actual knowledge of the fraudulent sale of
Pauli's land to the Garganeras (sometime in 1969) and that hence the four-
year period for bringing an action to annul the sale had not yet expired
when it filed the action for annullment on February 17, 1971, is
unacceptable. That theory would diminish public faith in the integrity of
torrens titles and impair commercial transactions involving registered lands
for it would render uncertain the computation of the period for the
prescription of such actions.
Civil Case No. 465, the action for annulment of the Sale is not barred by res
judicata, specifically, the prior judgment in Civil Case No. 75319, for revival
of the judgment in the collection suit, Civil Case No. 32799, for the subject
matter and causes of action in the two cases are different. The three (3)
Identities required for the application of the bar by prior judgment: Identity
of parties, of subject matter and causes of action, are lacking.
Nevertheless, as the plaintiff's right of action in Civil Case No. 465 had
already prescribed, the trial court did not err in dismissing the case.
Art. 1382. Payments made in a state of insolvency for obligations to whose
fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible. (1292)
Art. 1383. The action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to
obtain reparation for the same. (1294)
Art. 1384. Rescission shall be only to the extent necessary to cover the
damages caused. (n)
Art. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with
its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss. (1295)
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not
take place with respect to contracts approved by the courts. (1296a)
Art. 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all debts
contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been issued. The decision or
attachment need not refer to the property alienated, and need not have
been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by the law of evidence. (1297a)
Art. 1388. Whoever acquires in bad faith the things alienated in fraud of
creditors, shall indemnify the latter for damages suffered by them on
account of the alienation, whenever, due to any cause, it should be
impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first,
and so on successively. (1298a)
Art. 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of four years
shall not begin until the termination of the former's incapacity, or until the
domicile of the latter is known. (1299)
b. VOIDABLE CONTRACTS ARTS. 1390-1402, 1327-1328,
1339
Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(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.
These contracts are binding, unless they are annulled by a proper action in
court. They are susceptible of ratification. (n)
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the
defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
(1309a)
Art. 1393. Ratification may be effected expressly or tacitly. It is understood
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that there is a tacit ratification if, with knowledge of the reason which
renders the contract voidable and such reason having ceased, the person
who has a right to invoke it should execute an act which necessarily implies
an intention to waive his right. (1311a)
Art. 1394. Ratification may be effected by the guardian of the
incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment. (1312)
Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted. (1313)
Art. 1397. The action for the annulment of contracts may be instituted by
all who are thereby obliged principally or subsidiarily. However, persons who
are capable cannot allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon
these flaws of the contract. (1302a)
Art. 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases
provided by law.
In obligations to render service, the value thereof shall be the basis for
damages. (1303a)
Art. 1399. When the defect of the contract consists in the incapacity of one
of the parties, the incapacitated person is not obliged to make any
restitution except insofar as he has been benefited by the thing or price
received by him. (1304)
Art. 1400. Whenever the person obliged by the decree of annulment to
return the thing can not do so because it has been lost through his fault, he
shall return the fruits received and the value of the thing at the time of the
loss, with interest from the same date. (1307a)
Art. 1401. The action for annulment of contracts shall be extinguished
when the thing which is the object thereof is lost through the fraud or fault
of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the
contracting parties, the loss of the thing shall not be an obstacle to the
success of the action, unless said loss took place through the fraud or fault
of the plaintiff. (1314a)
Art. 1402. As long as one of the contracting parties does not restore what
in virtue of the decree of annulment he is bound to return, the other cannot
be compelled to comply with what is incumbent upon him. (1308)
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
(n)
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
c. UNENFORCEABLE CONTRACTS ARTS. 1403-1408, 1317,
1878
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who has been
given no authority or legal representation, or who has acted beyond his
powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year
from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of
another;
(c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount
and kind of property sold, terms of sale, price, names of the purchasers
and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Breach of Promise to Marry: CASE:
FELIPE CABAGUE and GERONIMO CABAGUE, plaintiffs-appellants,
vs.
MATIAS AUXILIO and SOCORRO AUXILIO, defendants-appellees.
G. R. No. L-5028 November 26, 1952
For breach of that mutual promise to marry, Geronimo may sue Socorro for
damages. This is such action, and evidence of such mutual promise is
admissible. However Felipe Cabague's action may not prosper, because it is
to enforce an agreement in consideration of marriage. Evidently as to Felipe
Cabague and Matias Auxilio this action could not be maintained on the
theory of "mutual promise to marry". Neither may it be regarded as action
by Felipe against Socorro "on a mutual promise to marry."
Facts: Appellants Felipe Cabague and Geronimo Cabague filed an action
against herein appellees Matias Auxilio and Socorro Auxilio, to recover
damages resulting from the appellees refusal to carry out the previously
agreed marriage between Socorro and Geronimo.
The complaint alleged, in short: (a) that defendants promised such marriage
to plaintiffs, provided the latter would improve the defendants' house in
Basud and spend for the wedding feast and the needs of the bride; (b) that
relying upon such promises plaintiffs made the improvement and spent
P700; and (c) that without cause defendants refused to honor their pledged
word.
Herein appellees moved to dismiss the case on the ground that the contract
was oral, unenforceable under the rule of evidence hereinbefore mentioned,
which was granted by the trial Court. On appeal, the appellate Court
likewise issued an Order dismissing the case, hence this appeal.
ISSUE: Whether or not the contract of promise to marry is unenforceable,
on the ground that it is an oral contract.
HELD: No. There is no question here that the transaction was not in
writing. The only issue is whether it may be proved in court.
The understanding between the plaintiffs on one side and the defendants
on the other, really involves two kinds of agreement. One, the agreement
between Felipe Cabague and the defendants in consideration of the
marriage of Socorro and Geronimo. Another, the agreement between the
two lovers, as "a mutual promise to marry".
Cesar Nickolai F. Soriano Jr.
94 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
For breach of that mutual promise to marry, Geronimo may sue Socorro for
damages. This is such action, and evidence of such mutual promise is
admissible. However Felipe Cabague's action may not prosper, because it is
to enforce an agreement in consideration of marriage. Evidently as to Felipe
Cabague and Matias Auxilio this action could not be maintained on the
theory of "mutual promise to marry". Neither may it be regarded as action
by Felipe against Socorro "on a mutual promise to marry."
Consequently, we declare that Geronimo may continue his action against
Socorro for such damages as may have resulted from her failure to carry
out their mutual matrimonial promises.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the
principles of agency in Title X of this Book.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2
of Article 1403, are ratified by the failure to object to the presentation of
oral evidence to prove the same, or by the acceptance of benefit under
them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and
a public document is necessary for its registration in the Registry of Deeds,
the parties may avail themselves of the right under Article 1357.
Art. 1407. In a contract where both parties are incapable of giving
consent, express or implied ratification by the parent, or guardian, as the
case may be, of one of the contracting parties shall give the contract the
same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may be, of
both contracting parties, the contract shall be validated from the inception.
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in existence
at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right
to appeal from a judgment, to waive objections to the venue of an action or
to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
3. VOID OR INEXISTENT ARTS. 1409-1422, 1318, 1353, 1378,
1491, 1898
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
Art. 1410. The action or defense for the declaration of the inexistence of a
contract does not prescribe.
Art. 1411. When the nullity proceeds from the illegality of the cause or
object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no action against each other,
and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be
applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to
comply with his promise. (1305)
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 his
promise. (1306)
Art. 1413. Interest paid in excess of the interest allowed by the usury laws
may be recovered by the debtor, with interest thereon from the date of the
payment.
Art. 1414. When money is paid or property delivered for an illegal purpose,
the contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a third
person. In such case, the courts may, if the public interest will thus be
subserved, allow the party repudiating the contract to recover the money or
property.
Art. 1415. Where one of the parties to an illegal contract is incapable of
giving consent, the courts may, if the interest of justice so demands allow
recovery of money or property delivered by the incapacitated person.
Art. 1416. When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designated for the protection of
the plaintiff, he may, if public policy is thereby enhanced, recover what he
has paid or delivered.
Art. 1417. When the price of any article or commodity is determined by
statute, or by authority of law, any person paying any amount in excess of
the maximum price allowed may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing of the maximum
number of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may demand
additional compensation for service rendered beyond the time limit.
Art. 1419. When the law sets, or authorizes the setting of a minimum
Cesar Nickolai F. Soriano Jr.
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wage for laborers, and a contract is agreed upon by which a laborer accepts
a lower wage, he shall be entitled to recover the deficiency.
Art. 1420. In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.
Art. 1421. The defense of illegality of contract is not available to third
persons whose interests are not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal
contract, is also void and inexistent.
III. SPECIAL CONTRACTS
A. SALES
Title VI. - SALES
QUESTION: A and B entered into an agreement whereby A obliged himself
to deliver to A a specific thing and B will pay a certain price at the time of
delivery. Was there a contract of sale?
ANSWER: Not necessarily. Threre is no certainty as to the purpose of the
delivery. If there is transfer of ownership, it will be regarded as a sale. If for
use, lease. If for safekeeping, deposit.
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
DEFINITION: Sales is a contract whereby one of the contracting parties
obligates himself to transfer the ownership and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its
equivalent.
From the above definition:
1. Purpose: is to transfer of ownership;
2. Perfection: is by mere consent, since one of the parties obligates
himself, as such, he already bound himself, a contract is already
perfected even before delivery of the thing;
3. Subject Matter: determinate thing.
4. Cause: the contract of sale is onerous, since the other party has the
obligation to pay;
5. Bilateral Contract: since both parties have their respective
obligations;
6. Nominate Contract: not only because theres a specific designation
of the contract, but more so because there are specific rules are
provided by law to govern the rights and obligations of the parties,
after stipulations;
7. Commutative: classic commutative in the sense that there is
equivalence in the prestation of the parties. Ordinarily, price reflects
the value of the property, since the seller would not normally accept a
price below the value of the property and the buyer would not
normally pay an amount more than the value of the property.
Aleatory: there is also a sale of hope where there is no equivalence in
the value of prestations. Since the obligation of the other party is not
certain to arise. E.g., lotto.
Art. 1461. Things having a potential existence may be the object of
the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed
subject to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void. (n)
KINDS OF SALE: NATURE OF THE SUBJECT MATTER:
1. Real or Personal:
Relevant as to:
a. Application of the statute of frauds;
b. Rules on double sale;
c. Maceda law which covers only residential realty. E.g.,
condominium units, land, buildings;
d. Recto law which covers personal property only.
2. Thing (corporeal or tangible) or Rights (incorporeal or intangible)
Relevant as to mode of delivery.
KINDS OF SALE AS TO VALIDITY: valid, rescissible, voidable,
unenforceable, or void.
BAR QUESTION: State the basic difference (only in their legal effects)
(a) Between a contract to sell, on the one hand, and a contract of sale, on
the other hand;
(b) Between a conditional sale, on the one hand, and an absolute sale, on
the other hand.
ANSWER: contract to sell vs. contract of sale (both absolute and
conditional): contract to sell is a special kind of conditional sale where
ownership does not automatically pass upon fulfillment of the condition
which is usually the full payment of the purchase price. It will only give the
buyer the right to demand the execution of a deed of sale or to compel the
seller to sell and the seller is now bound to sell. Ownership transfers upon
execution of the deed of sale. The premise is that the buyer is already in
possession of the property even before execution of the deed of sale.
Whereas a conditional sale, ownership automatically transfers to the
buyer upon fulfillment of the condition, without need of a new agreement or
to execute a new contract
In absolute sale, ownership transfers upon delivery, actual or constructive,
even if no total payment yet. If no payment happened, the buyer becomes
a debtor as far as the price is concerned. The remedy for the seller is
rescission and not reconveyance of the property since the property already
belongs to the buyer.
BAR QUESTION: Arthur gave Richard a receipt which states:
Receipt
Received from Richard as down payment
for my 1995 Toyota Corolla with
plate no. XYZ-123 P50,000.00 general market, even if not at hand at the time the order is made, it is a
Balance payable: 12/30/01 P50,000.00
September 15, 2001
(Sgd.) Arturo
Does this receipt evidence a contract to sell? Why?
ANSWER: No. there is nothing in the receipt that would indicate that the
seller reserved ownership. In a contract where the seller did not reserve
ownership, it is an absolute sale. In a contract to sell, you have to impose
as a condition for the transfer of ownership, the full payment of the price.
Would action for recovery possession prosper? No. Because Richard is the
owner. The action should be rescission.
BAR QUESTION: a contract to sell is the same as a conditional sale. Do
you agree? Why?
ANSWER: I do not agree. A contract to sell is a kind of conditional contract
of sale, it is not the same as a conditional contract of sale.
BAR QUESTION: Nante, a registered owner of a parcel of land in QC sold
the property to Monica under a Deed of Sale which reads as follows: That
for and in consideration of P500,000 to be delivered to me and receipt of
which will be acknowledge by me, I hereby transfer, cede to Monica, a
parcel of land covered by TCT No. 9138
Cesar Nickolai F. Soriano Jr.
96 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
After delivery of initial payment of P100,000, Monica took possession of the
land but failed to pay the remaining balance. Nante filed an action to
recover the property alleging that the contract is one to sell which was not
perfected because of non-payment of the price in full.
Is the contention of Nante tenable?
HELD: No. This cannot be a contact to sell, because there is nothing in the
contract that he reserved ownership until a certain condition is fulfilled.
Thus, the contract is one of absolute sale. As such, upon delivery, Monica
acquired ownership of the property.
The action will not prosper because Monica is the owner and has a right to
possess the property. Remedy of Nante should be rescission since there is
substantial breach.
DISTINGUISHED FROM OTHER TRANSACTIONS::
Rationale for distinguishing: because there are similarities which may cause
confusion as to the rights and obligations of the parties.
1. Contract for a piece of work
Art. 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or procures
for the general market, whether the same is on hand at the time or not, is a
contract of sale, but if 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. (n)
Importance of Distinction: sale is covered by the statute of frauds. On
the other hand, contracts for a piece of work is covered only if to be
performed after more than one year.
E.g., customized shoes. If for more than 1 year covered by statute of
frauds. If for 6 months depends on type of contract.
SIMILARITIES: transfer of ownership; buyer pays the price.
Subject matter: sale: thing; contract for a piece of work: service.
the Massachussetts Rule: if the thing to be delivered by the obligor is
manufactured in the ordinary course of business, and being offered to the
contract of sale;
But, if the thing is to be manufactured only because of the order of the
buyer; not offered to the general market contract for a piece of work.
2. Dacion en pago:
Similarity: upon delivery, ownership passes. Although, dacion en pago,
there is always transfer of ownership.
Delivery in dacion en pago is always required.
Both governed by the law on sales.
Distinction: sale is a contract and a source of obligation. Dation in
payment is a special form of payment and a mode of extinguishment of an
obligation.
In sale, an obligation arises. In dation in payment, the obligation is
extinguished.
In sale, there is no requirement of a pre-existing obligation, in dation in
payment, as a special form of payment, there is a need for a pre-existing
obligation. If there is no obligation, there is nothing to be extinguished.
3. Barter
Art. 1468. If the consideration of the contract consists partly in money,
and partly in another thing, the transaction shall be characterized by the
manifest intention of the parties. If such intention does not clearly appear, it
shall be considered a barter if the value of the thing given as a part of the
consideration exceeds the amount of the money or its equivalent;
otherwise, it is a sale. (1446a)
In an agreement where A obliged himself to give to B a watch worth
P800,000, and B obliged himself to give to A, his car and cash P350,000.
What contract was entered into?
ANSWER: first, what is the intention? How the parties intended the
contract to be. If the intention is not clear, it will depend on the value of the
car. If the value of the car is greater than cash, it will be treated as barter.
If the value of the car is less than P350,000 it will be treated as a sale.
4. Contract of agency to sell
Art. 1466. In construing a contract containing provisions characteristic of
both the contract of sale and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered. (n)
BAR QUESTION: A granted B the exclusive right to sell his brand of
maong pants in Isabela, the price for his merchandise payable 60 days from
delivery, and promising B a commission of 20% on all sales. After the
delivery of the merchandise to B but before he could sell any of them, Bs
store in Isabela was completely burned without his fault, together with all
As pants. Must B pay A for his lost pants? Why?
ANSWER: Yes. Risk of Loss who bears the loss? The owner bears the
loss res perit domino. Under the facts, who is the owner of the loss when
the maong pants were burned? Issue what kind of contract was entered
into? Quiroga vs. Parsons. The contract seems like an agency to sell: (1)
exclusive right to sell; (2) commission. However, this is a contract of sale.
1466: if a contract has characteristics both of sale and agency, consider
essential clauses of the contract: (1) A has the obligation to deliver the
maong pants; (2) B has the obligation to pay the price within 60 days from
delivery.
The above clauses pertain to sales. pay the price within 60 days not
agency. In agency, the agent has the right to return the unsold pants and
not to pay the price within a certain period.
What kind of sale? Absolute or conditional? Absolute. Nothing in the
problem would tell us that the seller reserved ownership and here there is
delivery already. Therefore, B was the owner at the time of loss. B has the
obligation to pay for the lost pants.
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
G.R. No. L-11491 August 23, 1918
FACTS: Plaintiff and Defendant entered into a contract where plaintiff
Quiroga gave the exclusive right to sell his beds to Parsons Harware Co.s in
the Visayan Islands under the following conditions, among others:
1. Quiroga would invoice the beds on the price fixed for sales in
Manila and shall make an allowance of 25% of the invoiced prices
as commission on the sale;
2. Quiroga would order by the dozen, whether the same or different
styles;
3. Mr. Quiroga to give notice 15 days before any alteration in the
price which he may plan to make in respect to his beds;
4. Mr. Parsons binds himself not to sell any other kind except the
Quiroga beds;
Of the three causes of action alleged by the plaintiff in his complaint, only
two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those of the
Cesar Nickolai F. Soriano Jr.
97 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen
and in no other manner.
As may be seen, with the exception of the obligation on the part of the
defendant to order the beds by the dozen and in no other manner, none of
the obligations imputed to the defendant in the two causes of action are
expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. The whole
question, therefore, reduced itself to a determination as to whether the
defendant, by reason of the contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the sale of his beds.
ISSUE: WON the contract is one of agency or one of sales?
HELD: SALE. In order to classify a contract, due regard must be given to its
essential clauses. In the contract in question, what was essential, as
constituting its cause and subject matter, is that the plaintiff was to furnish
the defendant with the beds which the latter might order, at the price
stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the plaintiff
for the sale of these beds in Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so
preferred, and in these last two cases an additional discount was to be
allowed for prompt payment. These are precisely 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 the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or order to
sell whereby the mandatory or agent received 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. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay
their price within the term fixed, without any other consideration and
regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show
that it was not one made on the basis of a commission on sales, as the
plaintiff claims it was, for these contracts are incompatible with each other.
But, besides, examining the clauses of this contract, none of them is found
that substantially supports the plaintiff's contention. Not a single one of
these clauses necessarily conveys the idea of an agency. The
words commission on sales used in clause (A) of article 1 mean
nothing else, as stated in the contract itself, than a mere discount
on the invoice price. The word agency, also used in articles 2 and 3, only
expresses that the defendant was the only one that could sell the plaintiff's
beds in the Visayan Islands. With regard to the remaining clauses, the least
that can be said is that they are not incompatible with the contract of
purchase and sale.
The plaintiff also endeavored to prove that the defendant had returned beds
that it could not sell; that, without previous notice, it forwarded to the
defendant the beds that it wanted; and that the defendant received its
commission for the beds sold by the plaintiff directly to persons in Iloilo. But
all this, at the most only shows that, on the part of both of them, there was
mutual tolerance in the performance of the contract in disregard of its
terms; and it gives no right to have the contract considered, not as the
parties stipulated it, but as they performed it. Only the acts of the
contracting parties, subsequent to, and in connection with, the
execution of the contract, must be considered for the purpose of
interpreting the contract, when such interpretation is necessary,
but not when, as in the instant case, its essential agreements are
clearly set forth and plainly show that the contract belongs to a
certain kind and not to another. Furthermore, the return made was of
certain brass beds, and was not effected in exchange for the price paid for
them, but was for other beds of another kind; and for the letter Exhibit L-1,
requested the plaintiff's prior consent with respect to said beds, which
shows that it was not considered that the defendant had a right, by virtue
of the contract, to make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record that these brass beds
were precisely the ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to the so-called
commissions, we have said that they merely constituted a discount on the
invoice price, and the reason for applying this benefit to the beds sold
directly by the plaintiff to persons in Iloilo was because, as the defendant
obligated itself in the contract to incur the expenses of advertisement of the
plaintiff's beds, such sales were to be considered as a result of that
advertisement.
In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle
the plaintiff to disregard the orders which the defendant might place under
other conditions; but if the plaintiff consents to fill them, he waives his right
and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and sale, and
that the obligations the breach of which is alleged as a cause of action are
not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant.
So ordered.
ELEMENTS OF A CONTRACT OF SALE:
1. Natural those which are deemed part of the contract even if not
stipulated or even if the parties are unaware. Deemed part of the
contract by law. E.g., warranties.
2. Accidental present only because the parties so stipulated. E.g.
obligation to pay interest. E.g., in a contract of sale of a parcel of land,
obligation of the seller to cause the registration of the land in the name
of the buyer.
3. Essential required for validity.
ESSENTIAL ELEMENTS OF A CONTRACT OF SALE:
1. Consent of the contracting parties, i.e., the buyer and the seller.
No consent of one of the contracting parties: the contract is VOID.
Under the law on sales, it is a fictitious contract where the signature of one
of the parties was forged. If the signature of the seller is forged, that would
be a fictitious contract. The alleged seller will not have participation in the
execution of the contract.
Simulated Contract: parties to this contract actually would have
participation or would have given their consent by voluntarily signing.
However, they do not intend to be bound at all or they may intend to be
bound to another contract aside from the contract executed. Example, the
parties may have executed a deed of sale and voluntarily gave their consent
thereto and signed the same, but no payment of the purchase price or no
intention to pay such price, in this case, the contract intended might have
been a donation.
Gross Inadequacy of Price: as a rule, gross inadequacy of the price does
not affect a contract of sale, but may reflect a different intention of the
parties (e.g., donation). In which case, the price is simulated, it will be void
as a sale:
Art. 1471. If the price is simulated, the sale is void, but the act may be
shown to have been in reality a donation, or some other act or contract.
(n)
Why would they enter into such simulated contract?
a. To defraud creditors the seller might sell all of his assets to make it
appear as if he had no more assets left;
b. To defraud the government to make it appear that the applicant for a
resident visa has real property in the Philippines or in some other
country for purposes of such visa.
c. To minimize tax liabilities this is when the parties would normally
make it appear that they entered into a donation to minimize the tax
liabilities imposable compared to the taxes due on a regular sale.
Cesar Nickolai F. Soriano Jr.
98 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
d. To circumvent the provisions of legitimes and collation under
succession to make it appear that the asset was sold so as exclude it
from collation.
Incapacity: consent may have been given, but the one giving it is
incapacitated.
a. Absolute Incapacity the party cannot give consent to any and all
contract;
b. Relative Incapacity the party is prohibited from entering some
specific transactions with some persons and sometimes over specific
things.
1490: spouses are prohibited from selling to each other. Rationale:
possibility of undue influence. Except: when there is complete separation of
property regime or there is a decree of separation of property (not legal
separation).
Art. 1490. The husband and the wife cannot sell property to each
other, except:
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article
191. (1458a)
1491: prohibits in acquiring by purchase: (1) guardians as to the property
of his ward; (2) agents, for properties delivered to him by the principal; (3)
executors/administrators; (4) lawyers.
Art. 1491. The following persons cannot acquire by purchase, even at
a public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Art. 1492. The prohibitions in the two preceding articles are applicable to
sales in legal redemption, compromises and renunciations. (n)
Constitution: aliens are prohibited from acquiring lands in the Philippines,
except: by succession or in case of a former natural born Filipino citizen who
has lost his citizenship.
Status of Contract: VOID. Contrary to public policy. Not subject to
ratification.
Rubias vs. Batiller the SC held that 1491 cannot be ratified. There are
others who claim that these can be ratified. The execution of a second
contract does not retroact to the first contract. Ruling in Waltson vs.
Martinez, holding that sale under 1491 is voidable, has long been
abandoned even before the effectivity of the new Civil Code.
BAR QUESTION: Rica filed a petition for annulment of his marriage with
Richard. Richard hired Atty. Cruz who was paid through conveyance of a
parcel of land which he recently purchased with his lotto winnings. The
transfer documents were duly signed and Atty .Cruz took possession by
fencing the entire parameter. Richard then offered the same parcel of land
to spouses Garcia. Immediately after the sale, Sps. Garcia commenced the
construction on the land which was objected to by Atty. Cruz, who claims he
has a better right over the property. Is Atty. Cruz correct?
ANSWER: Atty. Cruz is not correct. First contract with Atty. Cruz is a dation
in payment. Second contract is a sale. Double sale applicable despite dation
since it is governed by law on sales. However, 1544 requires that both sales
are valid.
Dation in payment valid transaction? No. Void. 1491: a lawyer cannot in
anyway acquire by purchase (law on sales is applicable on dation in
payment) a thing which is the subject matter of an action. There was
annulment of marriage, the parcel of land is one of the properties which
would be considered in settlement of conjugal properties.
Property acquired through his lotto winnings, if the marriage is solemnized
under the Family Code, and no marriage settlement was entered into,
absolute community of property. As such, lotto winnings are considered
community property, consequently, the land is community property. As
such, sale of such without the consent of the wife is void.
Vitiated consent: by force, intimidation, violence, mistake or fraud the
contract is voidable.
Consent by a party given by another without authority: the contract
is unenforceable.
Minors and those without capacity to act: may enter into a valid
contract of sale of necessaries as provided under Art. 1489. Necessaries
are those which are indispensable for sustenance, dwelling, clothing and
medical attendance. (Art. 290 of the Civil Code under Support)
2. Cause as to each contracting party is the prestation or promise to
be performed by the other party.
3. Object not synonymous to thing, it is the subject matter in sales,
i.e., things and rights not service (object in contracts, in general)
since no person acquires ownership over service object as to lease
and agency.
Sale of right often called assignment. But assignment of right is not
always a contract of sale, since it can be done by donation or dacion
en pago.
Must be within the commerce of men: Examples: sale of a navigable
river is void, sale of a cadaver is void but donation of a cadaver is allowed,
sale of human organs is void, things which are not appropriated like air is
void but if appropriated it can be the object of a valid sale.
Art. 1459. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered. (n)
Thing must be licit: not contrary to law, i.e., sale of prohibited drugs, wild
flowers or wild animals.
Art. 1460. A thing is determinate when it is particularly designated or
physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties.
(n)
Must be determinate: or at least capable of being made determinate
without the requirement of a new or further agreement.
QUESTION: Sale of a car without agreement as to the features for
P1M. On the other hand, another transaction would be a sale of
Mitsubishi Lancer, 2007, GSL and color black for P1M. Are these 2
transactions, valid sale?
Cesar Nickolai F. Soriano Jr.
99 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Both would pertain to generic thing. Under the law, a thing is considered
determinate only when it is particularly designated or physically segregated
from all others of the same class. Both transactions pertain to generic so
both transactions are void?
A: No. The first transaction is void. The second transaction is valid because
Article 1460 requires that the requirement of the law that a thing should be
determinate would be sufficiently complied with if the thing which is the
object of the sale is capable of being made determinate without a need of a
new or further agreement.
Art. 1464. In the case of fungible goods, there may be a sale of an
undivided share of a specific mass, though the seller purports to sell and the
buyer to buy a definite number, weight or measure of the goods in the
mass, and though the number, weight or measure of the goods in the mass
is undetermined. By such a sale the buyer becomes owner in common of
such a share of the mass as the number, weight or measure bought bears
to the number, weight or measure of the mass. If the mass contains less
than the number, weight or measure bought, the buyer becomes the owner
of the whole mass and the seller is bound to make good the deficiency from
goods of the same kind and quality, unless a contrary intent appears. (n)
Art. 1462. The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after the perfection of the
contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency which may or may not happen. (n)
Art. 1463. The sole owner of a thing may sell an undivided interest therein.
(n)
Art. 1465. Things subject to a resolutory condition may be the object of
the contract of sale. (n)
PRICE: must be certain in money.
Art. 1469. In order that the price may be considered certain, it shall be
sufficient that it be so with reference to another thing certain, or that the
determination thereof be left to the judgment of a special person or
persons.
Should such person or persons be unable or unwilling to fix it, the contract
shall be inefficacious, unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts
may fix the price.
Where such third person or persons are prevented from fixing the price or
terms by fault of the seller or the buyer, the party not in fault may have
such remedies against the party in fault as are allowed the seller or the
buyer, as the case may be. (1447a)
Price Certain in Money: it is sufficient that it be so:
1. With reference to another thing certain; or
2. That the determination thereof be left to the judgment of a special
person or persons.
Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract. (n)
OTHER PROVISIONS ON PRICE:
Art. 1472. The price of securities, grain, liquids, and other things shall also
be considered certain, when the price fixed is that which the thing sold
would have on a definite day, or in a particular exchange or market,
or when an amount is fixed above or below the price on such day, or
in such exchange or market, provided said amount be certain. (1448)
Art. 1473. The fixing of the price can never be left to the discretion of one
of the contracting parties. However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected. (1449a)
Art. 1474. Where the price cannot be determined in accordance with
the preceding articles, or in any other manner, the contract is
inefficacious.
However, if the thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable price therefor.
What is a reasonable price is a question of fact dependent on the
circumstances of each particular case. (n)
PERFECTION:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
(1450a)
Consensual Contract: sale, being a consensual contract, is perfected by
mere consent. The above article is likewise applicable to sale of rights, when
there is a meeting of the minds as the right involved and the price.
However, ownership over the thing or rights subject of the sale, does not
transfer until delivery:
Art. 1477. The ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. (n)
Moreover, the parties may stipulate that ownership shall not pass until full
payment of the price:
Art. 1478. The parties may stipulate that ownership in the thing shall
not pass to the purchaser until he has fully paid the price. (n)
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the
subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in other customary manner. Until
such announcement is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale unless the auction has
been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller,
unless otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a
right to bid on behalf of the seller, it shall not be lawful for the seller to bid
himself or to employ or induce any person to bid at such sale on his behalf
or for the auctioneer, to employ or induce any person to bid at such sale on
behalf of the seller or knowingly to take any bid from the seller or any
person employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer. (n)
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price. (1451a)
Option Agreement: in an option agreement, as provided under Art. 1324,
the offerer may withdraw the offer before acceptance is communicated to
him, and he would not be liable for damages.
Offerer is not bound, he may withdraw anytime before acceptance is
conveyed to him.
The above rule is likewise applicable to contracts of sale.
Cesar Nickolai F. Soriano Jr.
100 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Option Contract: If there is a consideration distinct and separate from the
price, the offerer cannot validly withdraw before the period agreed upon
expires without being liable for damages. This does not, however, entitle
the offeree the right to demand specific performance since there is no
perfected contract of sale yet.
Offeree accepted before withdrawal of the offer is communicated to him:
the contract of sale, being consensual, is already perfected.
Option Money:
is not necessarily money only, it can be any prestation like services
or other things.
Not necessarily paid already. Promise may also be considered as a
consideration for the option contract.
Earnest Money: is different from option in money, since the former forms
part of the purchase price.
Art. 1482. Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection of
the contract. (1454a)
Does this mean that there is already a perfected contract of sale?
Not necessarily. Earnest money is proof of perfection of the contract. The
law does not say its presence entails perfection of the contract. Considering
that it concerns price only, which is just one element of a contract of sale.
Art. 1481. In the contract of sale of goods by description or by sample, the
contract may be rescinded if the bulk of the goods delivered do not
correspond with the description or the sample, and if the contract be by
sample as well as description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the
description.
The buyer shall have a reasonable opportunity of comparing the bulk with
the description or the sample. (n)
Art. 1483. Subject to the provisions of the Statute of Frauds and of any
other applicable statute, a contract of sale may be made in writing, or by
word of mouth, or partly in writing and partly by word of mouth, or may be
inferred from the conduct of the parties. (n)
Form: no specific form is required for the perfection of a contract of sale.
However, the same is still subject to the Statute of Frauds for its
enforceability.
BAR QUESTION: (2) X came across an advertisement in the Manila
Daily Bulletin about the rush sale of three slightly used TOYOTA cars,
Model 1989 for only P200,000 each. Finding the price to be very cheap and
in order to be sure that he gets one unit ahead of the others, X
immediately phoned the advertiser Y and placed an order for one car. Y
accepted the order and promised to deliver the ordered unit on July 15,
1989. On the said date, however, Y did not deliver the unit. X brings an
action to compel Y to deliver the unit. Will such action prosper? Give
your reasons.
ANSWER: WON the action will prosper goes into perfection, which may
also be subject to formalities required by law. Since the subject matter is a
movable, and price is more than P500, it is unenforceable since it is not
written. The action will not prosper, if there is proper objection.
BAR QUESTION: A and B entered into a verbal contract whereby A
agreed to sell to B his only parcel of land for P20,000.00, and B agreed
to buy at the aforementioned price. B went to the bank, withdrew the
necessary amount, and returned to A for the consummation of the
contract. A however, had changed his mind and refused to go through
with the sale. Is the agreement valid? Will an action by B against A for
specific performance prosper? Reason.
ANSWER: even though there was an agreement as to the object and the
price, and all the essential requisites are present and there is a valid
agreement, if there is a proper objection, it cannot be enforced, since this is
a sale of immovable, which should have been made in writing.
Can it be argued that since B wen to the bank to withdraw the money and
returned to A for consummation, there was part performance? No. The act
of B is just preliminary to performance.
CASE:
Art. 1403(2): 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
A transaction closed by a letter/telegram is perfected and is not covered by
the Statute of Frauds, the letter/telegram being a note or memorandum,
since they were signed, refer to the property sold and its area, and indicate
the price.
A sufficient memorandum may be contained in two or more documents.
CIRILO PAREDES, plaintiff-appellant,
vs.
JOSE L. ESPINO, defendant-appellee.
G.R. No. L-23351 March 13, 1968
FACTS: Appellant Cirilo Parades filed an action to compel defendant-
appellee Jose L. Espino to execute a deed of sale and to pay damages
alleging that the defendant "had entered into the sale" of a lot; that the
deal had been "closed by letter and telegram" but the actual execution of
the deed of sale and payment of the price were deferred to the arrival of
defendant at Puerto Princesa; that defendant upon arrival had refused to
execute the deed of sale although plaintiff was able and willing to pay the
price, and continued to refuse despite written demands of plaintiff; that as a
result, plaintiff had lost expected profits from a resale of the property, and
caused plaintiff mental anguish and suffering.
Defendant filed a motion to dismiss upon the ground that the complaint
stated no cause of action, and that the plaintiff's claim upon which the
action was founded was unenforceable under the Statute of Frauds which
was granted by the court on the ground that there is no written contract
between the parties.
ISSUE: WON the contract is unenforceable under the Statute of Frauds?
HELD: No. The Statute of Frauds, embodied in Article 1403 of the Civil
Code of the Philippines, does not require that the contract itself be in
writing. The plain text of Article 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.
In the case at bar, the complaint in its paragraph 3 pleads that the deal had
been closed by letter and telegram" (Record on Appeal, p. 2), and the letter
referred to was evidently the one copy of which was appended as Exhibit A
to plaintiff's opposition to the motion dismiss. This letter, together 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 as a lot in Puerto Princesa, Palawan, covered, by TCT
No. 62; give its area as 1826 square meters and the purchase price of
four (P4.00) pesos per square meter payable in cash. 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 in Berg vs. Magdalena
Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be
contained in two or more documents.
Defendant-appellee argues that the authenticity of the letters has not been
established. That is not necessary for the purpose of showing prima
facie that the contract is enforceable. For as ruled by us in Shaffer vs.
Palma, L-24115, March 1, 1968, whether the agreement is in writing or not,
is a question of evidence; and the authenticity of the writing need not be
established until the trial is held. The plaintiff having alleged that the
contract is backed by letter and telegram, and the same being a sufficient
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memorandum, his cause of action is thereby established, especially since
the defendant has not denied the letters in question. At any rate, if the
Court below entertained any doubts about the existence of the written
memorandum, it should have called for a preliminary hearing on that point,
and not dismissed the complaint
THE RECTO LAW:
Art. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
(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;
(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. (1454-A-a)
Remedies are alternative: if the seller invoked one, he is no longer
allowed to invoke any of the two remaining remedies.
If only one installment was not paid: the seller can only choose the
first remedy, since the 2nd and 3rd requires that there must be non-payment
of two or more consecutive installments. Consecutive since the law does not
state that the buyer failed to pay TWICE. (Uribe, 2016)
Restitution of payments under the 2nd option, cancellation of the
sale:
1. The cancellation would entail mutual restitution by the parties;
2. The seller may retain a reasonable amount of the purchase price
already paid as compensation for the use of the thing;
3. The seller cannot retain ALL of the purchase price, EXCEPT: if there is
a forfeiture clause, which entitles him to the purchase price already
paid at the time of cancellation. However, this clause will not apply if
the retention of ALL the purchase price would be unconscionable.
Note that under the MACEDA law, a forfeiture clause would not be
valid.
BAR QUESTION: bought a truck from B payable in installment secured by
a chattel mortgage executed by A on the truck. As additional security, As
brother, C, executed a real estate mortgage in favor of B.
A defaulted in the payment of several installments. Consequently, B
foreclosed the chattel mortgage.
Can B proceed against the other properties of A and the real estate
mortgage executed by C to recover the deficiency, if any, after the chattel
mortgage foreclosure sale? Explain.
ANSWER: No. The sale in this case is that of a personal property in
installment. As such, the Recto Law applies. As such, the remedies being
alternative under such law, since B already foreclosed the chattel mortgage,
he can no longer exact fulfillment of the obligation by foreclosing the real
estate mortgage or by proceeding against the other properties of A.
If A wouldve foreclosed the real estate mortgage, the Recto Law would not
have applied since the mortgage foreclose is not on the thing sold.
Accordingly, such foreclosure would be in line with exacting fulfillment and
he wouldve been entitled to a deficiency in the proceeds of the foreclosure
sale and the unpaid amount.
Art. 1485. The preceding article shall be applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing. (1454-A-a)
Art. 1486. In the case referred to in two preceding articles, a stipulation
that the installments or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be unconscionable under
the circumstances. (n)
THE MACEDA LAW: or the Realty Installment Buyer Act (RA No. 6552).
Object: is sale of residential realty on installments.
Realty: covers house and lot and condominium units, NOT immovales.
Installment: not on credit.
Rights of the buyer: if installments have not yet reached 2 years
equivalent:
1. Pay without interest within 60 days;
2. The buyer may sell his interest;
3. He may assign his interest (by way of donation or dacion en pago);
4. Pay the entire balance
After two years worth of installment, the buyer will have:
5. Grace period of minimum of 60 days, if the instalments already
covers AT LEAST two years, plus 1 month for every year after two
years;
6. Seller has a right to rescind, but the seller should first give the CASH
SURRENDER VALUE: minimum of 50% of all payments (including
downpayment) plus 5% after five years (55% after 7 years of
payment), and 5% for every additional year thereafter upto a
maximum of 90% (or 14 years of instalment).
Stipulations which are considered void:
1. Automatic cancellation or rescission upon default of the buyer;
2. Stipulation as to interest or damages or penalty during the grace
period.
BAR QUESTION: Pricilla purchased a condominium unit in Makati City from
the Citiland Corporation for a price of P10 Million, payable P3 Million down
and the balance with interest thereon at 14% per annum payable in sixty
(60) equal monthly installments of P198,333.33. They executed a Deed of
Conditional Sale in which it is stipulated that should the vendee fail to pay
three (3) successive installments, the sale shall be deemed automatically
rescinded without the necessity of judicial action and all payments made by
the vendee shall be forfeited in favor of the vendor by way of rental for the
use and occupancy of the unit and as liquidated damages. For 46 months,
Pricilla paid the monthly installments religiously, but on the 47th and 48th
months, she failed to pay. On the 49th month, she tried to pay the
installments due but the vendor refused to receive the payments tendered
by her. The following month, the vendor sent her a notice that it was
rescinding the Deed of Conditional Sale pursuant to the stipulation for
automatic rescission, and demanded that she vacate the premises. She
replied that the contract cannot be rescinded without judicial demand or
notarial act pursuant to Article 1592 of the Civil Code.
Can the vendor rescind the contract? (2%)
ANSWER: Sale of condominium unit and it would appear that it is a
residential unit, in installment. This is covered by the Maceda Law. The
stipulation of automatic rescission is void.
When the buyer defaulted, it was already on the 47 th month. She had
already paid 46 months or 3 years and 10 months. The grace period should
have been 90 days. Since 1 month for every year after two years. On the
47th month, she was 1 day in default, 48th month, she was already 31 days
in default, on the 49th month, 61 days. As such, the offer to pay was made
within the 90 day period. The vendor does not have the right to rescind the
contract.
What if 5th month defaulted: grace period is 60 days since the default
happened only on the first year, unless otherwise stipulated. If she was able
to pay within the 60 days, and eventually failed to pay on the 3 rd month of
the 5th year. The payment is made beyond the grace period. Under the law,
the buyer is entitled only to a grace period once in every 5 years of the
lifetime of the contract.
INJURY OR BENEFIT PENDING DELIVERY:
Art. 1480. Any injury to or benefit from the thing sold, after the contract
has been perfected, from the moment of the perfection of the contract to
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the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and
for a single price, or without consideration of their weight, number, or
measure.
Should fungible things be sold for a price fixed according to weight, number,
or measure, the risk shall not be imputed to the vendee until they have
been weighed, counted, or measured and delivered, unless the latter has
incurred in delay. (1452a)
RISK OF LOSS:
Art. 1493. If at the time the contract of sale is perfected, the thing which is
the object of the contract has been entirely lost, the contract shall be
without any effect.
But if the thing should have been lost in part only, the vendee may choose
between withdrawing from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed upon. (1460a)
Art. 1494. Where the parties purport a sale of specific goods, and the
goods without the knowledge of the seller have perished in part or have
wholly or in a material part so deteriorated in quality as to be substantially
changed in character, the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not
deteriorated, and as binding the buyer to pay the agreed price for the goods
in which the ownership will pass, if the sale was divisible. (n)
OBLIGATIONS OF THE VENDOR:
4. To take care of the thing after the contract has been perfected, prior to
delivery.
5. Obligation to pay taxes and incidents of the sale, unless otherwise
agreed upon:
Article 1487. The expenses for the execution and registration of the
sale shall be borne by the vendor, unless there is a stipulation to the
contrary. (1455a)
6. To warrant the thing;
7. To transfer ownership.
Obligation to Transfer Ownership
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale. (1461a)
Art. 1496. The ownership of the thing sold is acquired by the vendee from
the moment it is delivered to him in any of the ways specified in Articles
1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee. (n)
May a vendor sell a thing which he does not own? Yes. There are two
aspects: validity of the contract of sale and ability to transfer ownership.
VALIDITY OF THE CONTRACT: the seller need not be the owner, he may
be a liquidator, executor, administrator, sheriff, or a notary (in case of
pledge).
This is different from a pledge or mortgage which requires the pledger or
mortgagor to be the absolute owner of the thing.
TRANSFER OF OWNERSHIP: Yes. If the seller had authority to sell:
1. From the owner himself agent;
2. From the law such as those mentioned under validity of contract
above.
3. From the court in cases of judicial sale.
What if the seller had no authority to sell: Art. 1505:
Art. 1505. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the goods is by
his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other provision
of law enabling the apparent owner of goods to dispose of them as if he
were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or
under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
General Rule: the buyer acquires no better title to the goods than the
seller had. EXCEPTIONS:
1. Estoppel:
a. As to the owner: estoppel in pais - by his conduct or
representation, he led the buyer to believe that the seller had
authority to sell.
Article 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.
b. As to the seller: estoppel by deed if after the sale, he acquired
ownership, such ownership automatically passes to the buyer.
THERE MUST BE DELIVERY.
Article 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
2. Sale of an Apparent Owner, REQUISITES:
a. There is apparent ownership: usually involves a registered
piece of land.
Examples:
An old lady asked a lawyer to register her land in her name.
However, the lawyer instead registered it in his name.
A group of businessmen agreed to register the lot in the
name of the one who will manage the business.
b. Buyer in good faith and for value the buyer had no
knowledge of any defect in the sellers title at the time of full
payment (not only at the time of sale).
c. There must be a law from which apparent ownership may
be had: such as PD 1529 which provides that those dealing with
registered land need not inquire into matter beyond the title, also
known as the mirror principle, unless the buyer is required
under the law to exercise the highest degree of diligence, e.g.,
banks and public utility companies.
Other examples: (1) Factors Act (agency) so far as third
persons are concerned, they only have to rely on the power of
attorney as written, they need not inquire into limitations imposed
by the principal to the agent not written. (Art. 1900)
(2) Art. 1518 for goods covered by negotiable instruments.
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the negotiation
was a breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the document was
deprived of the possession of the same by loss, theft, fraud,
accident, mistake, duress, or conversion, if the person to whom
the document was negotiated or a person to whom the
document was subsequently negotiated paid value therefor in
good faith without notice of the breach of duty, or loss, theft,
fraud, accident, mistake, duress or conversion. (n)
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BAR QUESTION: Before migrating to Canada in 1992, the spouses
Teodoro and Anita entrusted all their legal papers and documents to
their nephew, Atty. Tan. Taking advantage of the situation, Atty. Tan
forged a deed of sale, making it appear that he had bought the
couples property in Quezon City. In 2000, he succeeded in obtaining a
TCT over the property in his name. Subsequently, Atty. Tan sold the
same property to Luis, who built an auto repair shop on the property.
In 2004, Luis registered the deed of conveyance, and title over the
property was transferred in his name.
In 2006, the spouses Teodoro and Anita came to the Philippines for a
visit and discovered what had happened to their property. They
immediately hire you as lawyer. What action or actions will you
institute in order to vindicate their rights? Explain fully. (4%)
ANSWER: Annulment or declaration of nullity of the contracts, if it can
be proven that Luis is a buyer not in good faith, since he bought it
from an apparent owner, Atty. Tan, who is the registered owner of the
land.
BAR QUESTION: (2) A is the owner of a registered land. The
Torrens Title is entrusted to B, his clerk secretary, who forged As
signature on a deed of sale of said land in his (Bs) favor. A new title is
issued in the name of B, upon registration. Does B have a valid
title over the land? If B sells the property to C, does the latter
acquire a valid title over it?
ANSWER: B does not have a valid title to the land. A forger will never
acquire any right over the object of the contract. Otherwise stated, a
forged document cannot convey any title.
However, C may acquire valid title to the land because, while a forged
deed cannot convey a valid title, it may be a root of a valid title if as a
result of the forgery, the forger was able to register the land in his
name and the land is bought by a purchaser in good faith and for
value.
CASE:
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
G.R. No. L-21489 and L-21628 May 19, 1966
FACTS: The spouses Miguel Mapalo and Candida Quiba, simple illiterate
farmers, who, out of love and affection for Maximo Mapalo a brother of
Miguel who was about to get married decided to donate the eastern half
of the land to him. The OCT was delivered. As a result, however, they were
deceived into signing a deed of absolute sale over the entire land in his
favor. Their signatures thereto were procured by fraud, that is, they were
made to believe by Maximo Mapalo and by the attorney who acted as
notary public who "translated" the document, that the same was a deed of
donation in Maximo's favor covering one-half (the eastern half) of their land.
Although the document of sale stated a consideration of Five Hundred
(P500.00) Pesos, the aforesaid spouses did not receive anything of value for
the land. The attorney's misbehaviour was the subject of an investigation
but its result does not appear on record. However we took note of the fact
that during the hearing of these cases said notary public was present but
did not take the witness stand to rebut the plaintiffs' testimony supporting
the allegation of fraud in the preparation of the document.
Following the execution of the afore-stated document, the spouses Miguel
Mapalo and Candida Quiba immediately built a fence of permanent structure
in the middle of their land segregating the eastern portion from its western
portion. Said fence still exists. The spouses have always been in continued
possession over the western half of the land up to the present.
Not known to them, meanwhile, Maximo Mapalo registered the Deed of Sale
and obtained a TCT over the entire land. 13 years later, he sold the land for
P2,500 in favor of Evaristo, Petronila, Pacifico and Miguel all surnamed
Narciso, who in turn obtained a TCT in their names.
The Narcisos took possession only of the eastern portion of the land in 1951
and on 1952 filed a suit to be declared owners of the entire land and for
possession of the western land against the Mapalo as well as against Floro
Guieb and Rosalia Mapalo Guieb who had a house on the western part of
the land with the consent of the spouses Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim seeking
cancellation of the Transfer Certificate of Title of the Narcisos as to the
western half of the land, on the grounds that their (Mapalo spouses)
signatures to the deed of sale of 1936 was procured by fraud and that the
Narcisos were buyers in bad faith. They asked for reconveyance to them of
the western portion of the land and issuance of a Transfer Certificate of
Title in their names as to said portion.
In addition, the Mapalo spouses filed their own complaint against the
aforestated Narcisos and Maximo Mapalo in the CFI of Pangasinan. They
asked that the deeds of sale of 1936 and of 1951 over the land in question
be declared null and void as to the western half of said land.
The CFI of Pangasinan rendered judgment that the transaction was a
donation only over the eastern half of the land and declaring null and void
Maximos TCT as regards the western portion and ordered the Narcisos and
the spouses Mapalo to subdivide the land.
On appeal by the Narcisos, the CA reversed the trial court declaring that the
sale was merely voidable and not void ab initio and therefore an action to
annul the same within four years had long prescribed. From said decision of
the Court of Appeals, the Mapalo spouses appealed to this Court.
ISSUE: WON the sale was void for lack of consideration?
HELD: Yes, as to the western portion. Starting with fundamentals, under
the Civil Code, either the old or the new, for a contract to exist at all, three
essential requisites must concur: (1) consent, (2) object, and (3) cause or
consideration. The Court of Appeals is right in that the element of consent is
present as to the deed of sale. For consent was admittedly given, albeit
obtained by fraud. Accordingly, said consent, although defective, did exist.
In such case, the defect in the consent would provide a ground for
annulment of a voidable contract, not a reason for nullity ab initio.
The parties are in agreement that the second element of object is likewise
present in the deed of October 15, 1936, namely, the parcel of land subject
matter of the same.
Not so, however, as to the third element of cause or consideration. And on
this point the decision of the Court of Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses are not
claiming the same, it being their stand that they have donated and freely
given said half of their land to Maximo Mapalo. And since they did not
appeal from the decision of the trial court finding that there was a valid and
effective donation of the eastern portion of their land in favor of Maximo
Mapalo, the same pronouncement has become final as to them, rendering it
no longer proper herein to examine the existence, validity efficacy of said
donation as to said eastern portion.
Now, as to the western portion, however, the fact not disputed
herein is that no donation by the Mapalo spouses obtained as to
said portion. Accordingly, we start with the fact that liberality as a
cause or consideration does not exist as regards the western
portion of the land in relation to the deed of 1936; that there was
no donation with respect to the same.
It is reduced, then, to the question whether there was an onerous
conveyance of ownership, that is, a sale, by virtue of said deed of October
15, 1936, with respect to said western portion. Specifically, was there a
cause or consideration to support the existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is that
contracts without a cause or consideration produce no effect
whatsoever. Nonetheless, under the Old Civil Code, the statement of a
false consideration renders the contract voidable, unless it is proven that it
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is supported by another real and licit consideration. And it is further
provided by the Old Civil Code that the action for annulment of a contract
on the ground of falsity of consideration shall last four years, the term to
run from the date of the consummation of the contract.
Accordingly, since the deed of sale of 1936 is governed by the Old Civil
Code, it should be asked whether its case is one wherein there is no
consideration, or one with a statement of a false consideration. If the
former, it is void and inexistent; if the latter, only voidable, under the Old
Civil Code. As observed earlier, the deed of sale of 1936 stated that it had
for its consideration Five Hundred (P500.00) Pesos. In fact, however, said
consideration was totally absent. The problem, therefore, 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, and therefore, at least under the Old Civil Code, voidable.
According to Manresa, what is meant by a contract that states a false
consideration is one that has in fact a real consideration but the
same is not the one stated in the document.
There was in fact no consideration, the statement of one in the deed will
not suffice to bring it under the rule of Article 1276 of the Old Civil Code as
stating a false consideration.
In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs.
Flores, 40 Phil. 921, is squarely applicable herein. In that case we ruled that
a contract of purchase and sale is 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 the vendor.
Needless to add, the inexistence of a contract is permanent and
incurable and cannot be the subject of prescription. In Eugenio v.
Perdido, 97 Phil. 41, 42-43, involving a sale dated 1932, this Court, speaking
through Justice Cesar Bengzon, now Chief Justice, stated:
Under the existing classification, such contract would be "inexisting"
and "the action or defense for declaration" of such inexistence "does
not prescribe". (Art. 1410, New Civil Code). While it is true that this is a
new provision of the New Civil Code, it is nevertheless a principle
recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time
cannot give efficacy to contracts that are null and void".
ISSUE2: WON the Narcisos are purchasers in good faith?
HELD: No. Anent the matter of whether the Narcisos were purchasers in
good faith, the trial court in its decision resolved this issue, thus:
With regard to the second issue, the Narcisos contend that they are
the owners of the above-described property by virtue of the deed of
sale (Exh. B, plaintiffs in 11991 and Exh. 2, defendants in U-133)
executed in their favor by Maximo Mapalo, and further claim that they
are purchasers for value and in good faith. This court, however, cannot
also give weight and credit on this theory of the Narcisos on the
following reasons: Firstly, it has been positively shown by the
undisputed testimony of Candida Quiba that Pacifico Narciso and
Evaristo Narciso stayed for some days on the western side (the portion
in question) of the above-described land until their house was removed
in 1940 by the spouses Mapalo and Quiba; secondly, Pacifica Narciso
admitted in his testimony in chief that when they bought the property,
Miguel Mapalo was still in the premises in question (western part)
which he is occupying and his house is still standing thereon; and
thirdly, said Pacifico Narciso when presented as a rebuttal and sub-
rebuttal witness categorically declared that before buying the land in
question he went to the house of Miguel Mapalo and Candida Quiba
and asked them if they will permit their elder brother Maximo to sell
the property.
Aside from the fact that all the parties in these cases are neighbors,
except Maximo Mapalo the foregoing facts are explicit enough and
sufficiently reveal that the Narcisos were aware of the nature and
extent of the interest of Maximo Mapalo their vendor, over the above-
 described land before and at the time the deed of sale in their favor
was executed.
Upon the aforestated declaration of Pacifico Narciso the following
question arises: What was the necessity, purpose and reason of
Pacifico Narciso in still going to the spouses Mapalo and asked them to
permit their brother Maximo to dispose of the above-described land?
To this question it is safe to state that this act of Pacifico Narciso is a
conclusive manifestation that they (the Narcisos) did not only have
prior knowledge of the ownership of said spouses over the western half
portion in question but that they also have recognized said ownership.
It also conclusively shows their prior knowledge of the want of
dominion on the part of their vendor Maximo Mapalo over the whole
land and also of the flaw of his title thereto. Under this situation, the
Narcisos may be considered purchasers in value but certainly not as
purchasers in good faith. ... (pp. 97-98, Record on Appeal.)
And said finding which is one of fact is found by us not a bit disturbed
by the Court of Appeals. Said the Court of Appeals:
In view of the conclusion thus reached, it becomes unnecessary to
pass on the other errors assigned.Suffice it to say that, on the merits
the appealed decision could have been upheld under Article 1332 of
the new Civil Code and the following authorities: Ayola vs. Valderrama
Lumber Manufacturers Co., Inc., 49 O.G. 980, 982; Trasporte vs.
Beltran, 51 O.G. 1434, 1435; Cortez vs. Cortez, CA-G.R. No. 18451-R,
August 8, 1961; Castillo vs. Laberinto, CA-G.R. No. 18118-R, December
20, 1961; and 13 C.J. 372-373, as well as the several facts and
circumstances appreciated by the trial court as supporting appellees'
case.
thereby in effect sustaining barring only its ruling on prescription the
judgment and findings of the trial court, including that of bad faith on the
part of the Narcisos in purchasing the land in question. We therefore see no
need to further remand this case to the Court of Appeals for a ruling on this
point, as appellees request in their brief in the event we hold the contract of
1936 to be inexistent as regards the western portion of the land.
In view of defendants' bad faith under the circumstances we deem it just
and equitable to award, in plaintiffs' favor, attorneys' fees on appeal, in the
amount of P1,000.00 as prayed for in the counterclaim.
Wherefore, the decision of the Court of Appeals is hereby reversed and set
aside, and another one is hereby rendered affirming in toto the judgment of
the Court of First Instance a quo, with attorney's fees on appeal in favor of
appellants in the amount of P1,000.00, plus the costs, both against the
private appellees. So ordered.
3. Valid Sale by Statutory or Judicial Authority such as sales
made by guardians, executors, administrators, sheriffs, etc.
4. Purchase from a Merchant Store, Market or Fair in good faith
and for value: the purpose of this exception is to facilitate
commercial transactions so as not to degrade the trust in sales made
through such stores.
ART. 1505 in relation to Art. 559:
Article 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof, may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid therefor. (464a)
BAR QUESTION: Rita owned a valuable painting which was stolen from
her house. The theft was duly reported to the authorities. A year after,
Rita saw the painting hanging in the office of Mario. When queried, Mario
said that he bought the painting in a gallery auction. The painting was
positively identified as the one stolen from the house of Rita.
Cesar Nickolai F. Soriano Jr.
105 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
a) Could Rita recover the painting? If so, would Mario be entitled to
reimbursement of the amount he paid for the painting? Explain.
b) Supposing Mario bought the painting from a friend, would your answer
be the same? Explain
ANSWER:
a) Yes. Rita has a right to recover, because she was unlawfully deprived
of the painting. Under Art. 559, if an owner was unlawfully deprived of
the thing, even if such thing is thereafter sold to somebody else, the
owner has a right to recover from such buyer (559) but has to
reimburse if: buyer bought it from a public sale, and the buyer is in
good faith.
Gallery auction is not a public sale, it is a private auction. As such,
Mario is not entitled to reimbursement.
b) Yes. Answer would be the same. If the seller is his friend, it cannot be
a public sale. Mario is not entitled to reimbursement.
BAR QUESTION: Mahinhin lost her diamond ring when the bus she was
riding was held up by a band of brigands who divested the passengers of all
their money and valuables. The ring found its way to the Pasanglaan
pawnshop, where one of the robbers had pawned it. The pawnshop, in due
time, foreclosed the pledge and sold the ring at public auction to Mayaman,
the highest bidder.
Three years after the loss, Mahinhin was able to trace the ring to Mayaman
and demanded that the latter give the ring back to her. Mayaman refused,
saying that he had acquired the ring in good faith.
Who has the better right to the ring? Explain.
ANSWER: Mayaman. Art. 559 applies. However, in the problem, Mayaman
is a buyer in good faith and for value in a public sale. As such, Mahinhin has
to reimburse Mayaman first before he can recover.
If the owner is not unlawfully deprived, can he recover? Yes. 559 is
still applicable if the thing was lost, the owner has a right to recover subject
to the right of reimbursement.
What if the thing is also not lost but bought from a seller who
doesnt have the right to sell, can the owner recover? Will he
reimburse? If the owner was NOT unlawfully deprived of the thing or lost
it, Art. 559 is no longer applicable. See Sun Brothers vs. Velasco.
SUN BROTHERS and Co.
VS.
JOSE VELASCO and CO KANG CHIU
FACTS: Sun Velasco was in the business of selling refrigerators. In this case
3 contracts of sale involving the same refrigerator occurred:
1st sale: to Lopez: conditional sale: full payment was condition for transfer
of ownership. Refrigerator was delivered.
2nd sale: Lopez sold the same the day after, misrepresenting himself as a
certain LIM, to JV Trading owned by Velasco.
3rd sale: Velasco to Co.
ISSUE: Who has a better right to the refrigerator?
HELD: Co. Art. 559 does not apply, but Art. 1505. Under Art. 1505, sale of
goods by one who is not an owner does not vest a better title to the buyer.
However, where purchases were made in a merchants store, or in fairs, or
markets, such rule does not apply.
In the case at bar, Lopez had no title because he acquired the title under a
conditional sale and he failed to give the full payment of the price to SBC.
The sale to Velasco also did not vest him any title because of his negligence.
As a merchant engaged in the business of selling refrigerators, he should
have inquired into the title of Lopez because the latter is a private person
not engaged in such business.
The real conflict is between SBC and Co. Since Co bought it from the J.V.
Trading, a merchant store, the exception in Art. 1505 applies. Co, being an
innocent purchaser in good faith and for value, acquired a better right to
the refrigerator.
Art. 559 does not apply because SBC neither lost the property nor was it
unlawfully deprived of such. The proper remedy for SBC is a claim for
indemnity against Lopez.
OBLIGATION TO DELIVER
Delivery is the mode by which ownership is transferred. This is relevant
especially in determining who bears the risk of loss.
MODES OF DELIVERY: THINGS
Art. 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee. (1462a)
Actual Delivery: The actual and physical transfer of the thing to the
buyer. Note that actual delivery entails that the control over the thing is
transferred to the transferee. As such, if a thing is delivered to a depositary,
there is no delivery, since there is no transfer of ownership.
CONSTRUCTIVE DELIVERY
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred.
With regard to movable property, its delivery may also be made by the
delivery of the keys of the place or depository where it is stored or kept.
(1463a)
Execution of Public Instrument: This mode of delivery is available to
both sale of rights and sale of things.
Art. 1499. The delivery of movable property may likewise be made by the
mere consent or agreement of the contracting parties, if the thing sold
cannot be transferred to the possession of the vendee at the time of the
sale, or if the latter already had it in his possession for any other reason.
(1463a)
Traditio Longa Manu: by mere consent of the seller, ownership transfers
to the buyer, because at the time of sale, the seller cannot transfer
possession to the buyer, e.g., the thing is leased by another.
Art. 1500. There may also be tradition constitutum possessorium. (n)
Consitutum Posessorium: at the time of sale, the seller is in possession
and remains in possession in another concept other than an owner, like that
of a lessee, depositary or borrower.
Other Modes:
Brevi Manu: or short hand delivery. When the buyer is in possession of the
thing, in a concept other than that of an owner, at the time of sale, and
remains in possession after sale, now as owner. E.g., a lessee who buys the
thing leased.
Symbolic Delivery: where the seller merely gives the key to a warehouse
where the goods are located. Note, if the object of the sale is the
warehouse, this is actual delivery, since the buyer would have possession
and control of the warehouse.
Art. 1523. Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the goods
Cesar Nickolai F. Soriano Jr.
106 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
to a carrier, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the case provided for in Article 1503, first, second and third
paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable,
having regard to the nature of the goods and the other circumstances of the
case. If the seller omit so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier
as a delivery to himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer
under circumstances in which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to the buyer as may enable
him to insure them during their transit, and, if the seller fails to do so, the
goods shall be deemed to be at his risk during such transit. (n)
Delivery to a common carrier: when the parties so agreed that the seller
will deliver to the common carrier for ultimate delivery to the buyer. In this
case, there is already delivery upon receipt of the common carrier.
Art. 1503. When there is a contract of sale of specific goods, the seller
may, by the terms of the contract, reserve the right of possession or
ownership in the goods until certain conditions have been fulfilled. The right
of possession or ownership may be thus reserved notwithstanding the
delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable
to the seller or his agent, or to the order of the seller or of his agent, the
seller thereby reserves the ownership in the goods. But, if except for the
form of the bill of lading, the ownership would have passed to the buyer on
shipment of the goods, the seller's property in the goods shall be deemed to
be only for the purpose of securing performance by the buyer of his
obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable
to order of the buyer or of his agent, but possession of the bill of lading is
retained by the seller or his agent, the seller thereby reserves a right to the
possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits
the bill of exchange and bill of lading together to the buyer to secure
acceptance or payment of the bill of exchange, the buyer is bound to return
the bill of lading if he does not honor the bill of exchange, and if he
wrongfully retains the bill of lading he acquires no added right thereby. If,
however, the bill of lading provides that the goods are deliverable to the
buyer or to the order of the buyer, or is indorsed in blank, or to the buyer
by the consignee named therein, one who purchases in good faith, for
value, the bill of lading, or goods from the buyer will obtain the ownership
in the goods, although the bill of exchange has not been honored, provided
that such purchaser has received delivery of the bill of lading indorsed by
the consignee named therein, or of the goods, without notice of the facts
making the transfer wrongful. (n)
EXCEPTIONS TO 1523:
1. Ownership is reserved by the seller such as if it is deliverable to the
seller or his agent.
2. The seller reserved possession goods are deliverable to the buyer,
but possession of the bill of lading is with the seller.
MODE OF DELIVERY: As to rights:
Art. 1501. With respect to incorporeal property, the provisions of the first
paragraph of article 1498 shall govern. In any other case wherein said
provisions are not applicable, the placing of the titles of ownership in the
possession of the vendee or the use by the vendee of his rights, with the
vendor's consent, shall be understood as a delivery. (1464)
There is delivery of rights, other than by execution of public instrument by:
1. When the title of ownership is placed in the possession of the vendee
(e.g., certificates of stock for sale of shares of stock);
2. By the use of the vendee of his rights with the vendors consent. (e.g.,
the vendee of shares where the same has not been transferred in his
name yet, with the consent of the owner, through a proxy, he may
exercise his rights as a stockholder)
SALE OR RETURN AND SALE ON APPROVAL OR ON TRIAL OR ON
SATISFACTION:
Art. 1502. When goods are delivered to the buyer "on sale or return" to
give the buyer an option to return the goods instead of paying the price, the
ownership passes to the buyer of delivery, but he may revest the
ownership in the seller by returning or tendering the goods within the time
fixed in the contract, or, if no time has been fixed, within a reasonable time.
(n)
When goods are delivered to the buyer on approval or on trial or on
satisfaction, or other similar terms, the ownership therein passes to the
buyer:
(1) When he signifies his approval or acceptance to the seller or does
any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but
retains the goods without giving notice of rejection, then if a time
has been fixed for the return of the goods, on the expiration of such time,
and, if no time has been fixed, on the expiration of a reasonable time. What
is a reasonable time is a question of fact. (n)
RISK OF LOSS: to determine who bears the risk of loss, it is important to
know what kind of sale is involved and whether there was already delivery.
Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk
until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee
for the buyer, in pursuance of the contract and the ownership in the goods
has been retained by the seller merely to secure performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the
buyer or seller the goods are at the risk of the party in fault. (n)
Res Perit Domino: as a rule, the one who bears the loss of the thing is
the owner thereof.
BAR QUESTION: D sold a second-hand car to E for P150,000.00. The
agreement between D and E was that half of the purchase price, or
P75,000.00, shall be paid upon delivery of the car to E and the balance of
P75,000.00 shall be paid in five equal monthly installments of P15,000.00
each. The car was delivered to E, and E paid the amount of P75,000.00 to
D. Less than one month thereafter, the car was stolen from Es garage with
no fault on Es part and was never recovered. Is E legally bound to pay the
said unpaid balance of P75,000.00? Explain your answer.
ANSWER: Yes. This case involves an absolute sale and there was already
delivery. As such, ownership already passed to the buyer. Applying the res
perit domino doctrine, the buyer bears the loss since he is already the
owner at the time of loss. He can be compelled to pay the unpaid balance.
BAR QUESTION: S, an American resident of Manila, about to leave on a
vacation, sold his car to B for U.S.$2,000.00, the payment to be made ten
days after delivery to X, a third party depositary agreed upon, who shall
deliver the car to B upon receipt by X of the purchase price. It was
stipulated that ownership is retained by S until delivery of the car to X.
Five days after delivery of the car to X, it was destroyed in a fire which
gutted the house of X, without the fault of either X or B.
Is buyer B still legally obligated to pay the purchase price? Explain.
Cesar Nickolai F. Soriano Jr.
107 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
ANSWER: Yes. Although there was a conditional sale, the condition, i.e.,
delivery to X was already fulfilled. As such, ownership already transferred
prior to the destruction of the car. Following res perit domino, buyer bears
the loss who is already the owner at the time of the loss.
EXCEPTIONS TO THE RES PERIT DOMINO:
1. By stipulation;
2. If ownership is retained only to secure performance by the buyer. Title
of the seller is known as SECURITY TITLE. This is whats provided
under Art. 1504(1). See Lawyers Coop vs. Tabora:
LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee,
vs.
PERFECTO A. TABORA, defendant-appellant.
G.R. No. L-21263 April 30, 1965
FACTS: Tabora bought from Lawyers Cooperative Publishing Company one
complete set of American Jurisprudence, plus one set of American
Jurisprudence, General Index. Tabora made a partial payment and the
books were duly delivered and receipted for by Tabora.
In the midnight of the same date, a fire broke out in the locality and burned
all the buildings including the law office and library of Tabora. He then
informed LCPC of the incident. As a token of goodwill, LCPC sent to Tabora,
free of charge 4 volumes of Philippine Reports.
Tabora failed to pay the monthly installments and such, LCPC commenced
an action before the CFI for recovery of the balance.
Defendant, in his answer, pleaded force majeure as a defense and argued
that the seller retained ownership of the goods. As such, he should not bear
the loss.
The trial court rendered judgment in favor of petitioner. On appeal, the case
was forwarded to the SC involving purely questions of law.
ISSUE: WON respondent may be held liable for the balance of the purchase
price?
HELD: Yes. Appellant bought from appellee one set of American
Jurisprudence, including one set of general index, payable on installment
plan. It was provided in the contract that "title to and ownership of the
books shall remain with the seller until the purchase price shall have been
fully paid. Loss or damage to the books after delivery to the buyer shall be
borne by the buyer." The total price of the books, including the cost of
freight, amounts to P1,682.40. Appellant only made a down payment of
P300.00 thereby leaving a balance of P1,382.40. This is now the import of
the present action aside from liquidated damages.
Appellants contention cannot be sustained. While as a rule the loss of
the object of the contract of sale is borne by the owner or in case
of force majeure the one under obligation to deliver the object is
exempt from liability, the application of that rule does not here
obtain because the law on the contract entered into on the matter
argues against it. It is true that in the contract entered into between the
parties the seller agreed that the ownership of the books shall remain with it
until the purchase price shall have been fully paid, but such stipulation
cannot make the seller liable in case of loss not only because such was
agreed merely to secure the performance by the buyer of his obligation but
in the very contract it was expressly agreed that the "loss or damage to the
books after delivery to the buyer shall be borne by the buyer." Any such
stipulation is sanctioned by Article 1504 of our Civil Code, which in part
provides:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery.
Neither can appellant find comfort in the claim that since the books were
destroyed by fire without any fault on his part he should be relieved from
the resultant obligation under the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event. This is
because this rule only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in
case of fortuitous event. Here these qualifications are not present. The
obligation does not refer to a determinate thing, but is pecuniary in nature,
and the obligor bound himself to assume the loss after the delivery of the
goods to him. In other words, the obligor agreed to assume any risk
concerning the goods from the time of their delivery, which is an exception
to the rule provided for in Article 1262 of our Civil Code.
3. If there was delay in delivery of the goods and thereafter the goods
are destroyed due to fortuitous event, whoever caused the delay bears
the loss.
Art. 1506. Where the seller of goods has a voidable title thereto, but his
title has not been avoided at the time of the sale, the buyer acquires a good
title to the goods, provided he buys them in good faith, for value, and
without notice of the seller's defect of title. (n)
Art. 1507. A document of title in which it is stated that the goods referred
to therein will be delivered to the bearer, or to the order of any person
named in such document is a negotiable document of title. (n)
Art. 1508 to 1521: covers negotiable documents of title, such as a
warehouse receipt.
TIME AND PLACE OF DELIVERY:
Art. 1521. Whether it is for the buyer to take possession of the goods or of
the seller to send them to the buyer is a question depending in each case
on the contract, express or implied, between the parties. Apart from any
such contract, express or implied, or usage of trade to the contrary, the
place of delivery is the seller's place of business if he has one, and if not his
residence; but in case of a contract of sale of specific goods, which to the
knowledge of the parties when the contract or the sale was made were in
some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the possession of a third person,
the seller has not fulfilled his obligation to deliver to the buyer unless and
until such third person acknowledges to the buyer that he holds the goods
on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at
a reasonable hour. What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller. (n)
Time of Delivery:
1. At the time of sale, if it is a pure obligation. However, as a rule, the
seller is not bound to deliver until the buyer pays.
Art. 1524. The vendor shall not be bound to deliver the thing sold, if
the vendee has not paid him the price, or if no period for the
payment has been fixed in the contract. (1466)
2. Period agreed upon. Except, if the buyer loses the right to make use of
the period under Art. 1198:
Art. 1536. The vendor is not bound to deliver the thing sold in case
the vendee should lose the right to make use of the terms as
provided in Article 1198. (1467a)
Place of Delivery:
1. Stipulated;
2. Place fixed by usage or trade this may be determined by the shipping
arrangements. Examples:
Cesar Nickolai F. Soriano Jr.
108 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
a. FOB free on board where the location indicated is the place of
delivery, or where ownership transfers;
b. CIF cost, insurance, freight where the port of origin is the
place of delivery. Here, the price agreed upon by the parties
already covers CIF which is paid by the buyer. Thus, at the point
of origin, ownership already transfers.
c. Others FAS (Free Along Side), X Warehouse (Warehouse agreed
upon), X Ship (where ship is located).
Place of payment as place of delivery: The above provides only for a
disputable presumption. Ultimately, the place of payment is the place of
delivery. The Supreme Court, applying Art. 1582 in the reverse, the place of
payment was considered the place of delivery. Art. 1582 provides:
Art. 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the
contract.
If the time and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the thing sold.
(1500a)
3. What kind of thing is to be delivered:
a. Specific or determinate the place where the thing was located at
the time of perfection of the contract, provided, the buyer is
aware of such place;
b. Generic the place of business of the seller, or if none, his
residence.
DELIVERY OF LESS OR MORE OF THE QUANTITY AGREED UPON:
Art. 1522. Where the seller delivers to the buyer a quantity of goods less
than he contracted to sell, the buyer may reject them, but if the buyer
accepts or retains the goods so delivered, knowing that the seller is not
going to perform the contract in full, he must pay for them at the contract
rate. If, however, the buyer has used or disposed of the goods delivered
before he knows that the seller is not going to perform his contract in full,
the buyer shall not be liable for more than the fair value to him of the goods
so received.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract
and reject the rest. If the buyer accepts the whole of the goods so delivered
he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell mixed
with goods of a different description not included in the contract, the buyer
may accept the goods which are in accordance with the contract and reject
the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the
buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties. (n)
Delivery of less than that agreed upon:
1. The buyer may reject;
2. The buyer may accept:
a. If the buyer had knowledge that the seller is not going to perform
the contract in full he must pay for them at the contract rate.
b. If the buyer had no such knowledge he is liable for the fair
value of the goods received.
Note that in a commercial sale, the fair value would normally be
less than the contract price due to the intended profit.
3. If the subject matter is indivisible the buyer may reject the whole.
Delivery in excess of that agreed upon:
1. The buyer may accept the quantity agreed upon and reject the rest;
2. The buyer may accept all and pay them at the contract price;
3. If the subject matter is indivisible the buyer may reject the whole
Art. 1539. The obligation to deliver the thing sold includes that of placing
in the control of the vendee all that is mentioned in the contract, in
conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the
rate of a certain price for a unit of measure or number, the vendor shall be
obliged to deliver to the vendee, if the latter should demand it, all that may
have been stated in the contract; but, should this be not possible, the
vendee may choose between a proportional reduction of the price and the
rescission of the contract, provided that, in the latter case, the lack in the
area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price
agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area of inferior quality, he may rescind the sale.
(1469a)
Real property: If the property turns out less than the area agreed upon:
1. The buyer may ask for specific performance only if the seller is in a
position to give the lacking area
2. Accion Quanti Minoris the buyer may ask for the proportionate
reduction in price if the sale appears to be for a certain price per unit
of measure.
3. Rescission only if the area that is lacking is not substantial or more
than 10%. Note that this remedy is available only if there was
substantial breach. However, the buyer may still ask for recission if he
can prove that he would not have bought the land if the area would be
less than that agreed upon.
Art. 1540. If, in the case of the preceding article, there is a greater area or
number in the immovable than that stated in the contract, the vendee may
accept the area included in the contract and reject the rest. If he accepts
the whole area, he must pay for the same at the contract rate. (1470a)
If the area is in EXCESS:
1. The buyer may accept the area included in the contract and reject the
rest;
2. The buyer may accept the whole area and pay the same at the
contract rate.
Art. 1541. The provisions of the two preceding articles shall apply to
judicial sales. (n)
Art. 1542. In the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or less area
or number than that stated in the contract.
The same rule shall be applied when two or more immovables as sold for a
single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number should
be designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to do so, he shall suffer
a reduction in the price, in proportion to what is lacking in the area or
number, unless the contract is rescinded because the vendee does not
accede to the failure to deliver what has been stipulated. (1471)
Lump-Sum Sale: note that accion quanti minoris is applicable only if the
sale is for a certain rate/price per unit. Otherwise, if the sale is lumpsum,
there can be no proportional reduction of the price.
More or less even if the sale is lumpsum and the area agreed upon is of the goods which the buyer may have made, unless the seller has
4,000 sqm, more or less, and the area turned out to be 14,000 sqm, the
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buyer is not entitled to the excess as provided under Art. 1542. This is
because the parties agreed to an area more or less and the difference
with the actual area cannot be considered a slight deviation which the
phrase connotes. See Sps Caballero vs. Carmen Del Prado.
Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe
in six months, counted from the day of delivery. (1472a)
UNPAID SELLER:
Art. 1525. The seller of goods is deemed to be an unpaid seller within
the meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to
whom the bill of lading has been indorsed, or a consignor or agent who has
himself paid, or is directly responsible for the price, or any other person who
is in the position of a seller. (n)
Art. 1526. Subject to the provisions of this Title, notwithstanding that
the ownership in the goods may have passed to the buyer, the
unpaid seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in
transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid
seller has, in addition to his other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer. (n)
Rights of unpaid seller:
1. Possessory lien right to retain the goods or right to withhold
delivery of the goods.
Art. 1527. Subject to the provisions of this Title, the unpaid seller of goods
who is in possession of them is entitled to retain possession of them until
payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has
expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (n)
Art. 1528. Where an unpaid seller has made part delivery of the goods, he
may exercise his right of lien on the remainder, unless such part delivery
has been made under such circumstances as to show an intent to waive the
lien or right of retention. (n)
Difference with lien of the seller under rules on concurrence and
preference of credit: possessory lien entails that the possession of the
goods is still with the seller. In concurrence and preference of credits, the
goods are already with the buyer. In the former, insolvency is not a
required, though it may be a ground. In the latter, it presupposes that the
buyer is already insolvent.
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of
lien or stoppage in transitu is not affected by any sale, or other disposition
assented thereto.

If, however, a negotiable document of title has been issued for goods, no
seller's lien or right of stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such document has been
negotiated, whether such negotiation be prior or subsequent to the
notification to the carrier, or other bailee who issued such document, of the
seller's claim to a lien or right of stoppage in transitu. (n)
While with possessory lien, buyer sells the goods to a third person,
will the seller lose possessory lien? As a rule, no. Exceptions:
1. He assented to the transfer;
2. If instead of alienated, the buyer sold the goods to the third person,
(a) who is a buyer in good faith and for value, and
(b) the goods are covered by a negotiable document of title,
(c) which is negotiated to the third person.
Loss of Possessory Lien:
Art. 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the
purpose of transmission to the buyer without reserving the ownership
in the goods or the right to the possession thereof;
(2) When the buyer or his agent lawfully obtains possession of the
goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his
lien by reason only that he has obtained judgment or decree for the
price of the goods. (n)
2. Stoppage in transit right to stop the goods while in transit.
Art. 1530. Subject to the provisions of this Title, when the buyer of goods
is or becomes insolvent, the unpaid seller who has parted with the
possession of the goods has the right of stopping them in transitu, that is to
say, he may resume possession of the goods at any time while they are in
transit, and he will then become entitled to the same rights in regard to the
goods as he would have had if he had never parted with the possession. (n)
Art. 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or
air, or other bailee for the purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of them from such carrier
or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods
before their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the carrier
or other bailee acknowledges to the buyer or his agent that he holds the
goods on his behalf and continues in possession of them as bailee for the
buyer or his agent; and it is immaterial that further destination for the
goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane
chartered by the buyer, it is a question depending on the circumstances of
the particular case, whether they are in the possession of the carrier as such
or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in
that behalf, the remainder of the goods may be stopped in transitu, unless
such part delivery has been under such circumstances as to show an
agreement with the buyer to give up possession of the whole of the goods.
(n)
Art. 1532. The unpaid seller may exercise his right of stoppage in transitu
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either by obtaining actual possession of the goods or by giving notice of his
claim to the carrier or other bailee in whose possession the goods are. Such
notice may be given either to the person in actual possession of the goods
or to his principal. In the latter case the notice, to be effectual, must be
given at such time and under such circumstances that the principal, by the
exercise of reasonable diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or
other bailee in possession of the goods, he must redeliver the goods to, or
according to the directions of, the seller. The expenses of such delivery
must be borne by the seller. If, however, a negotiable document of title
representing the goods has been issued by the carrier or other bailee, he
shall not obliged to deliver or justified in delivering the goods to the seller
unless such document is first surrendered for cancellation. (n)
Requisites:
a. The seller already parted with the possession of the goods;
b. The goods are already in transit;
c. The buyer is insolvent.
How?
a. The seller can take lawful possession of the goods from the carrier;
b. Inform the carrier as to the exercise of the right and instruct him of the
place of delivery.
What if carrier refused? Common carrier is not automatically liable. In
order for him to be bound to follow the instructions, the seller must
surrender the document of title, like a negotiable bill of lading. Considering
that a third person may have a better right (see when a seller would lose his
lien in sale of goods involving a negotiable document of title).
If the buyer sells the thing to a third person: the seller does not lose
the right to exercise stoppage in transitu, subject to the exceptions under
Art. 1535 as discussed under possessory lien.
3. Resale
Art. 1533. Where the goods are of perishable nature, or where the seller
expressly reserves the right of resale in case the buyer should make default,
or where the buyer has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien or having stopped
the goods in transitu may resell the goods. He shall not thereafter be liable
to the original buyer upon the contract of sale or for any profit made by
such resale, but may recover from the buyer damages for any loss
occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a
good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to resell
the goods be given by the seller to the original buyer. But where the right to
resell is not based on the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give such notice
shall be relevant in any issue involving the question whether the buyer had
been in default for an unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place
of such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making a
resale, and subject to this requirement may make a resale either by public
or private sale. He cannot, however, directly or indirectly buy the goods. (n)
Grounds:
a. Stipulated;
b. The buyer was in default for an unreasonable length of time;
c. The goods are perishable.
Notice Requirement:
(1) intention of the seller to resell - the first notice is relevant if the ground
of the seller is (b) above, as proof that the buyer has been in default for an
unreasonable length of time.
(2) date, time and place of resale The seller is only entitled to the
deficiency (price in resale and unpaid amount) if the resale was made in
good faith and the notice would be a manifestation since the buyer was
notified of the resale and he couldve been there.
Note that the seller is not allowed to buy the goods, directly or indirectly.
What if the sale is in excess? It is still with the seller. There is no unjust
enrichment, since the buyer is the one in default, and the seller only
exercised his rights.
Non-compliance with the notice requirement does not invalidate the resale.
Kalaw vs. CA: if ownership already transferred to the buyer, seller is not
required to rescind before he can exercise right to resell. Even if ownership
is already transferred, when the seller sells the goods to another, the
ownership of the first buyer is terminated by operation of law; and since the
seller still has possessory lien, his delivery to the second buyer transfers
ownership.
4. Rescission
Art. 1534. An unpaid seller having the right of lien or having stopped the
goods in transitu, may rescind the transfer of title and resume the
ownership in the goods, where he expressly reserved the right to do so in
case the buyer should make default, or where the buyer has been in default
in the payment of the price for an unreasonable time. The seller shall not
thereafter be liable to the buyer upon the contract of sale, but may recover
from the buyer damages for any loss occasioned by the breach of the
contract.
The transfer of title shall not be held to have been rescinded by an unpaid
seller until he has manifested by notice to the buyer or by some other overt
act an intention to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give notice to the
buyer of the intention to rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an unreasonable time
before the right of rescission was asserted. (n)
Grounds:
1. Stipulated;
2. The buyer was in default for an unreasonable length of time;
Art. 1191: rules are also applicable to rescission as a right. As such, it need
not be stipulated and are available in reciprocal obligations.
Substantial Breach: there must be substantial breach for rescission to be
a ground. A delay in payment for a small quantity for some twenty
days is not such a violation of an essential condition of the contract
was warrants rescission for non-performance. See Song Fo &
Company vs. Hawaiian Phil. Co.
Waiver of the condition of when to pay: accepting payment of the
overdue accounts and continuing with the contract.
SONG FO & COMPANY, plaintiff-appellee,
vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.
G.R. No. 23769 September 16, 1925
FACTS: Plaintiff Song Fo & Company filed a complaint for breach of
contract against defendant Hawaiian Philippine Co. alleging failure to deliver
400,000 gallons of molasses as agreed upon.
In an amended answer and cross-complaint, the defendant set up the
special defense that since the plaintiff had defaulted in the payment for the
molasses delivered to it by the defendant under the contract between the
parties, the latter was compelled to cancel and rescind the said contract.
The trial court decided in favor of plaintiff. On appeal, the defendant raises
the issue that it had sufficient cause to cancel the contract for the sale of
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molasses and that the agreed sale was for only 300,000 gallons (not
400,000).
ISSUE: WON the agreement was for only 300,000 gallons and not 400,000
as claimed by the plaintiff?
HELD: Yes. We agree with appellant that the correspondence is susceptible
of but one interpretation. The Hawaiian-Philippine Co. agreed to deliver to
Song Fo & Company 300,000 gallons of molasses. The Hawaiian-Philippine
Co. also believed it possible to accommodate Song Fo & Company by
supplying the latter company with an extra 100,000 gallons. But the
language used with reference to the additional 100,000 gallons was not a
definite promise. Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows anything, it is simply that
the defendant did not consider itself obliged to deliver to the plaintiff
molasses in any amount. On the other hand, Exhibit A, a letter written by
the manager of Song Fo & Company on October 17, 1922, expressly
mentions an understanding between the parties of a contract for P300,000
gallons of molasses.
ISSUE2: WON defendant had the right to rescind the contract?
HELD: No. Song Fo & Company was to pay the Hawaiian-Philippine Co.
upon presentation of accounts at the end of each month. Under this
hypothesis, Song Fo & Company should have paid for the molasses
delivered in December, 1922, and for which accounts were received by it on
January 5, 1923, not later than January 31 of that year. Instead, payment
was not made until February 20, 1923. All the rest of the molasses was paid
for either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time
of payment stipulated for in the contract should be treated as of
the essence of the contract. Theoretically, agreeable to certain
conditions which could easily be imagined, the Hawaiian-Philippine Co.
would have had the right to rescind the contract because of the breach of
Song Fo & Company. But actually, there is here present no outstanding fact
which would legally sanction the rescission of the contract by the Hawaiian-
Philippine Co.
The general rule is that rescission will not be permitted for a slight
or casual breach of the contract, but only for such breaches as are
so substantial and fundamental as to defeat the object of the
parties in making the agreement. A delay in payment for a small
quantity of molasses for some twenty days is not such a violation
of an essential condition of the contract was warrants rescission
for non-performance. Not only this, but the Hawaiian-Philippine Co.
waived this condition when it arose by accepting payment of the
overdue accounts and continuing with the contract. Thereafter, Song
Fo & Company was not in default in payment so that the Hawaiian-
Philippine co. had in reality no excuse for writing its letter of April 2, 1923,
cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil.,
505.)
We rule that the appellant had no legal right to rescind the contract of sale
because of the failure of Song Fo & Company to pay for the molasses within
the time agreed upon by the parties. We sustain the finding of the trial
judge in this respect.
Are the remedies of the unpaid seller alternative? No. the right to
rescind and resell would require that the seller still has possessory lien.
However, possessory lien and stoppage in transit are exclusive in the sense
that the latter requires that the seller had already delivered possession of
the goods to the seller. However still, if the seller retained possession, such
as when the goods are deliverable to the seller, the right to be invoked is
possessory lien and not stoppage in transit.
Insolvency: not a requirement, only in stoppage in transit. But insolvency
may be a ground (not required) in other remedies.
Remedies are not exclusive: seller may likewise exercise the following
remedies:
1. Specific performance;
2. Action for damages.
DELIVERY OF ACCESSORIES:
Art. 1537. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the perfection of
the contract.
All the fruits shall pertain to the vendee from the day on which the contract
was perfected. (1468a)
Right to the fruits: General rule is that the buyer is entitled to the fruits
upon perfection of the contract on the premise that the obligation is pure.
However, under Art. 1164, the creditor (the buyer in this case) is entitled to
the fruits only when the obligation to deliver arises.
LOSS, DETERIORATOIN OR IMPROVEMENT BEFORE DELIVERY:
Art. 1538. In case of loss, deterioration or improvement of the thing before
its delivery, the rules in Article 1189 shall be observed, the vendor being
considered the debtor. (n)
DOUBLE SALE:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.
(1473)
If thing sold is movable property:
1. The first to take possession in good faith;
2. If no one took possession, the person with the oldest title, who is in
good faith.
If the thing sold is immovable property:
1. The first to register in good faith;
2. The first to take possession;
3. If no one registered nor took possession, the person with the oldest
title, who is in good faith.
Good faith pertains to the Registrant not the buyer: as such, if roof: (1) Rosalio Bautista, in whose favor its ownership became consolidated
at the time of the second sale, the buyer had no knowledge of the prior
sale, but learns of it prior to registration, he may still be considered a
registrant NOT in good faith.
First buyer in bad faith: the first buyer cannot be in bad faith in relation
to the second sale. However, he may be considered in bad faith if he has
knowledge of any defect in the title of the seller or if he obtained title not
through legal means (e.g., duress or intimidation).
BAR QUESTION: On June 15, 1995, Jesus sold a parcel of registered land
to Jaime. On June 30, 1995, he sold the same land to Jose. Who has a
better right if:
a) the first sale is registered ahead of the second sale with knowledge of
the latter. Why? (3%)
b) the second sale is registered ahead of the first sale, with knowledge of
the latter? Why? (2%)
ANSWER:
a) Jaime. Even if the registration was done after the second sale, Jaime
would still have a better title. He cannot be considered a registrant in
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bad faith since there is no defect in his title. The defect of title is with
the second buyer. As such, even if Jaime registered the sale even with
knowledge of the second sale, he is still a registrant in good faith.
b) Jaime has a better title, because Jose already had knowledge of the
first sale. As such, he cannot be a registrant in good faith.
Premise of the rule:
1. The two sales are valid;
2. The land is registered.
Unregistered land: is not covered by Art. 1544. (see Carumba vs. CA)
Possession: need not be actual. Delivery by execution of a public
instrument constitutes actual possession of the buyer in the concept of an
owner, even if the property was then leased to the sellers. As such,
following the rule on double sales, the first buyer who took possession by
the execution of the public instrument has a better right over the second
buyer who took actual possession. (see Bautista vs. Sioson) Note, however,
that the first buyer must have exercised his rights as owner, like in the case
of Bautista where she leased the property to the sellers.
If a public instrument was executed for the first sale, but the buyer did not
exercise rights of ownership, and the second buyer did, such as collect
rentals on the property, the second buyer would be considered the one who
took possession in good faith. There is hierarchy of modes of delivery and
between a notarized deed and actual possession, the latter prevails.
(Viatingo vs. Bugasis)
ROSALIO BAUTISTA, plaintiff-appellee,
vs.
FRANCISCO SIOSON, ET AL., defendants.
RAYMUNDO DE LA CRUZ, appellant.
G.R. No. L-13125 February 11, 1919
FACTS: Plaintiff, through a contract of sale with repurchase, bought a
camarin or a warehouse of strong materials with an iron roof and a house of
mixed materials with a nipa roof, giving the spouses Francisco Sioson and
Lorenza de la Cruz, the right of repurchase from the date of sale, or from
Sept. 4, 1912. The same property was leased to the spouses.
The two years elapsing, the spouses not paying any rent and not exercising
their right of repurchase, and finding that defendant-appellant Raymundo
dela Cruz was in possession of the said property by virtue of a sale made by
the spouses to her within the 2 year period, she initiated a complaint which
was granted by the trial court.
The trial court declared her the owner of the two properties subject of the
case and ordered defendant to place her in possession of the same.
ISSUE: Who is the owner of the camarin of strong materials with an iron
by the lapse of the term of two years without its having been repurchased
by the vendors; or to (2) Raymundo de la Cruz, to whom Francisco Sioson
likewise sold the said camarin on August 5, 1914, one year and eleven
months after the sale of this building to the plaintiff Bautista, effected on
September 4, 1912?
HELD: Rosalio Bautista. Both alienations, effected successively by Francisco
Sioson in favor of Bautista and Cruz, are recorded in notarial instruments,
though they were not entered in the registry of property. To determine who
is the lawful owner of the camarin sold, if the provisions of said article of
the Code are to be observed, we have first to determine the contention in
regard to which of the two purchasers is in possession thereof, and if, on
the execution of the contract of lease by the first purchaser in favor of the
vendor himself, the constitutum possessorium agreement is to be
considered to have been stipulated, the conclusion must necessarily be
reached as to which of the two purchasers first took possession of
the camarin sold, and also whether the material possession of the tenant is
of a precarious nature, enjoyed in the same and representation of the
owner Bautista.
From the context of Article 1462, it is deduced that the delivery or
tradition of the thing sold may be real or actual, and feigned. The
execution of a public instrument constitutes one of the kinds of
symbolic tradition, but, in all the different manners by which the
thing sold may be delivered, it is necessary that the record bear
proof and that it may be held that such delivery or tradition was
determined by the will of the parties to deliver and receive,
respectively, the thing that is the subject of the contract.
So that by the execution of the deed of sale of September 4, 1912,
Rosalio Bautista entered into the material possession under title of
owner, of the camarin sold to him by Francisco Sioson, and, by virtue of
another instrument of lease, of the same date, the purchaser and owner of
the camarin conveyed and delivered this building to the lessee in view of
said contract. Under these perfectly legal suppositions it is unquestionable
that the purchaser Rosalio Bautista was the first person who
entered into the possession of the camarin as soon as soon as he
acquired it by virtue of said sale.
The material possession which the other defendant, Raymundo de la Cruz,
now enjoys, not only was subsequent by one year and eleven months, but
also, on the other hand, is an unlawful possession which was transmitted to
him by Francisco Sioson, who held the camarin precariously and in the
capacity of tenant, and, consequently, without any right whatever to convey
to Raymundo de la Cruz the possession under title of owner referred to in
article 1473, aforementioned of the Civil Code.
This article says: "If the same thing should have been sold to different
vendees. . .;" but it must be understood that said sale was made by its
original owner. In the instant case Francisco Sioson, on affecting the
second sale in favor of Raymundo de la Cruz, was in possession of
the camarin and occupied it, not in the capacity of owner, but in
that of lessee or tenant, and therefore absolutely had no right to
dispose of the building in the capacity of owner thereof;
consequently Sioson could not convey to the second purchaser the lawful
possession of the disputed camarin.
AMADO CARUMBA, petitioner,
vs.
THE COURT OF APPEALS, SANTIAGO BALBUENA and ANGELES
BOAQUIA as Deputy Provincial Sheriff,respondents.
G.R. No. L-27587 February 18, 1970
FACTS: On April 12, 1955, the spouses Amado Canuto and Nemesia Ibasco,
by virtue of a "Deed of Sale of Unregistered Land with Covenants of
Warranty" (Exh. A), sold a parcel of land, partly residential and partly
coconut land to the spouses Amado Carumba and Benita Canuto, for the
sum of P350.00. The referred deed of sale was never registered in the
Office of the Register of Deeds of Camarines Sur, and the Notary, Mr.
Vicente Malaya, was not then an authorized notary public in the place, as
shown by Exh. 5.
On January 21, 1957, a complaint (Exh. B) for a sum or money was filed by
Santiago Balbuena against Amado Canuto and Nemesia Ibasco which
rendered a decision in favor of the plaintiff and against the defendants. On
October 1, 1968, the ex-officio Sheriff, Justo V. Imperial, of Camarines Sur,
issued a "Definite Deed of Sale (Exh. D) of the property now in question in
favor of Santiago Balbuena, which instrument of sale was registered before
the Office of the Register of Deeds of Camarines Sur, on October 3, 1958.
The aforesaid property was declared for taxation purposes (Exh. 1) in the
name of Santiago Balbuena in 1958.
On appeal, the CFI reversed the justice of the peace. On appeal to the CA,
the CA, without altering the findings of fact made by the court of origin,
declared that there having been a double sale of the land subject of the suit
Balbuena's title was superior to that of his adversary under Article 1544 of
the Civil Code of the Philippines, since the execution sale had been properly
registered in good faith and the sale to Carumba was not recorded.
ISSUE: WON there was a double sale and Balbuena has a right to the said
property?
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Civil Law Review 2 under the class of Atty. Uribe
HELD: No. While under the invoked Article 1544 registration in good faith
prevails over possession in the event of a double sale by the vendor of the
same piece of land to different vendees, said article is of no application to
the case at bar, even if Balbuena, the later vendee, was ignorant of the
prior sale made by his judgment debtor in favor of petitioner Carumba. The
reason is that the purchaser of unregistered land at a sheriff's
execution sale only steps into the shoes of the judgment debtor,
and merely acquires the latter's interest in the property sold as of
the time the property was levied upon. This is specifically provided by
section 35 of Rule 39 of the Revised Rules of Court, the second paragraph
of said section specifically providing that:
Upon the execution and delivery of said (final) deed the purchaser,
redemptioner, or his assignee shall be substituted to and acquire all
the right, title, interest, and claim of the judgment debtor to the
property as of the time of the levy, except as against the judgment
debtor in possession, in which case the substitution shall be effective
as of the time of the deed ... (Emphasis supplied)
While the time of the levy does not clearly appear, it could not have been
made prior to 15 April 1957, when the decision against the former owners
of the land was rendered in favor of Balbuena. But the deed of sale in favor
of Canuto had been executed two years before, on 12 April 1955, and while
only embodied in a private document, the same, coupled with the fact that
the buyer (petitioner Carumba) had taken possession of the unregistered
land sold, sufficed to vest ownership on the said buyer. When the levy was
made by the Sheriff, therefore, the judgment debtor no longer had
dominical interest nor any real right over the land that could pass to the
purchaser at the execution sale. Hence, the latter must yield the land to
petitioner Carumba. The rule is different in case of lands covered by Torrens
titles, where the prior sale is neither recorded nor known to the execution
purchaser prior to the levy; but the land here in question is admittedly not
registered under Act No. 496.
CONDITIONS:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition. If
the other party has promised that the condition should happen or be
performed, such first mentioned party may also treat the nonperformance of
the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described
and as warranted expressly or by implication in the contract of sale as a
condition of the obligation of the buyer to perform his promise to accept
and pay for the thing. (n)
Conditions not fulfilled: the buyer may:
1. Cancel the sale;
2. Waive the happening of the condition and proceed with the sale;
3. Treat the non-happening of the condition as a breach of warranty and
hold the seller liable for damages.
OBLIGATION TO WARRANT
Art. 1546. 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
purchase 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. (n)
Express Warranty: is an affirmation of fact or promise by the seller
relating to the thing which would induce the buyer to buy the same.
However, those relating to opinions of the seller are not considered
warranties unless they are made by experts and the buyer relies upon them.
Implied Warranties:
Art. 1547. In a contract of sale, unless a contrary intention appears, there
is:
(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.
This Article shall not, however, be held to render liable a sheriff, auctioneer,
mortgagee, pledgee, or other person professing to sell by virtue of authority
in fact or law, for the sale of a thing in which a third person has a legal or
equitable interest. (n)
Those not covered by the implied warranties of eviction and hidden
defects:
1. Sheriff;
2. Auctioneer;
3. Mortgagee;
4. Pledgee;
5. Other person professing to sell by virtue of authority in fact or law, for
the sale of a thing in which a third person has a legal or equitable
interest.
SUBSECTION 1. - Warranty in Case of Eviction
Art. 1548. Eviction shall 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 of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said
in the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this
legal obligation of the vendor. (1475a)
Coverage: not only deprivation of ownership, but also deprivation of
possession. E.g., when there is an existing lease contract covering the thing
sold.
Second-hand items: this warranty is still applicable even on second-hand
items. Unlike the warranty against hidden defects, which may not apply.
When would the seller be liable? If the buyer is deprived of ownership
and/or possession because of:
1. .
REQUISITES:
1. There must be a final judgment;
2. The buyer was derived of the thing due to a right prior to the sale; or
3. Even if the right has arisen after sale, if the same is imputable to the
vendor;
Example: the first buyer who is deprived of the thing by the second
buyer whose right accrued after the first sale but the deprivation would
be imputable to the vendor
Art. 1549. The vendee need not appeal from the decision in order that the
vendor may become liable for eviction. (n)
Art. 1550. When adverse possession had been commenced before the sale
but the prescriptive period is completed after the transfer, the vendor shall
not be liable for eviction. (n)
Art. 1551. If the property is sold for nonpayment of taxes due and not
made known to the vendee before the sale, the vendor is liable for eviction.
(n)
Art. 1552. The judgment debtor is also responsible for eviction in judicial
sales, unless it is otherwise decreed in the judgment. (n)
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114 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Liability of the Vendor:
Art. 1554. If the vendee has renounced the right to warranty in case of
eviction, and eviction should take place, the vendor shall only pay the value
which the thing sold had at the time of the eviction. Should the vendee have
made the waiver with knowledge of the risks of eviction and assumed its
consequences, the vendor shall not be liable. (1477)
Art. 1555. When the warranty has been agreed upon or nothing has been
stipulated on this point, in case eviction occurs, the vendee shall have the
right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of the
eviction, be it greater or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the party
who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a proper case,
those of the suit brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the sale was
made in bad faith. (1478)
1. If the seller is in bad faith liable for the value of the thing at the
time of eviction, income/fruits, cost of suit, expenses of the contract
and damages and interest, whether with waiver or not.
If there is a waiver, the same is void.
Art. 1553. Any stipulation exempting the vendor from the obligation
to answer for eviction shall be void, if he acted in bad faith. (1476)
2. If the seller is in good faith:
a. With waiver:
1) Consciente the buyer is not aware of the risk, or without
knowledge of the defect in the title of the seller: seller is still
liable but only for the value of the thing at the time of
eviction;
2) Intencionada the buyer was aware of the risk of eviction or
of the defect in the title of the seller the seller is no longer
liable for anything.
b. Without waiver: seller is liable for all except damages.
Art. 1556. Should the vendee lose, by reason of the eviction, a part of the
thing sold of such importance, in relation to the whole, that he would not
have bought it without said part, he may demand the rescission of the
contract; but with the obligation to return the thing without other
encumbrances that those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor's
liability for eviction.
The same rule shall be observed when two or more things have been jointly
sold for a lump sum, or for a separate price for each of them, if it should
clearly appear that the vendee would not have purchased one without the
other. (1479a)
Art. 1557. The warranty cannot be enforced until a final judgment has
been rendered, whereby the vendee loses the thing acquired or a part
thereof. (1480)
Art. 1558. The vendor shall not be obliged to make good the proper
warranty, unless he is summoned in the suit for eviction at the instance of
the vendee. (1481a)
Art. 1559. The defendant vendee shall ask, within the time fixed in the
Rules of Court for answering the complaint, that the vendor be made a co-
defendant. (1482a)
Art. 1560. If the immovable sold should be encumbered with any non-
apparent burden or servitude, not mentioned in the agreement, of such a
nature that it must be presumed that the vendee would not have acquired it
had he been aware thereof, he may ask for the rescission of the contract,
unless he should prefer the appropriate indemnity. Neither right can be
exercised if the non-apparent burden or servitude is recorded in the Registry
of Property, unless there is an express warranty that the thing is free from
all burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the
vendee may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within
an equal period, to be counted from the date on which he discovered the
burden or servitude. (1483a)
Non-apparent encumbrances: example: a right of way. Sellers liability
shall attach only if the encumbrance was not:
1. Apparent;
2. Not declared at the time of sale; or
3. Not annotated.
Otherwise, if it should have been known to the vendee, the seller would not
be liable.
Prescription of action:
1. Rescission within 1 year from the execution of the deed;
2. Damages within 1 year from discovery.
SUBSECTION 2. - Warranty Against Hidden Defects
of or Encumbrances Upon the Thing Sold
Art. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the
use for which it is intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by reason of
his trade or profession, should have known them. (1484a)
Defects: must be physical and hidden, i.e., not obvious to the buyer even
after exercising his right of inspection. Note that the seller is NOT liable:
1. For patent defects or those which may be visible; or
2. Those which are invisible but the buyer is an expert on the thing and
by reason of his trade or profession, he should have known.
Effect of the hidden defect:
1. It would render the thing unfit for its intended use;
2. Diminish its fitness for such use to such extent that, had the vendee
ben aware thereof, he would not have acquired it or would have given
a lower price for it.
Art. 1562. In a sale of goods, there is an implied warranty or condition as
to the quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller
the particular purpose for which the goods are acquired, and it appears that
the buyer relies on the seller's skill or judgment (whether he be the grower
or manufacturer or not), there is an implied warranty that the goods shall
be reasonably fit for such purpose;
(2) Where the goods are brought by description from a seller who deals in
goods of that description (whether he be the grower or manufacturer or
not), there is an implied warranty that the goods shall be of merchantable
quality. (n)
Warranty of Quality: in this case, there is no hidden defect, its just that
the thing is unfit for the particular purpose which the buyer intended it for.
Liability attaches if:
1. The buyer expressly or impliedly made known such purpose and he
relies on the sellers skill or judgment that the thing sold would be
reasonably fit therefor;
2. Where the goods are brought by description from a seller who deals in
goods of that description.
Art. 1563. In the case of contract of sale of a specified article under its
patent or other trade name, there is no warranty as to its fitness for
Cesar Nickolai F. Soriano Jr.
115 Arellano University School of Law 2011-0303
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any particular purpose, unless there is a stipulation to the contrary. (n)
Art. 1564. An implied warranty or condition as to the quality or fitness for
a particular purpose may be annexed by the usage of trade. (n)
Art. 1565. In the case of a contract of sale by sample, if the seller is a
dealer in goods of that kind, there is an implied warranty that the goods
shall be free from any defect rendering them unmerchantable
which would not be apparent on reasonable examination of the
sample. (n)
Art. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
(1485)
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in either case. (1486a)
Remedies of the vendee:
1. Withdraw from the contract plus damages.
2. Demand a proportionate reduction of the price plus damages.
Thing with hidden defect is lost or destroyed; liability of the seller:
1. If the cause was the defect itself: return the price, expenses of the
contract, damages (if he was aware), interest (if he is not aware);
Art. 1568. If the thing sold should be lost in consequence of the
hidden faults, and the vendor was aware of them, he shall bear the
loss, and shall be obliged to return the price and refund the expenses
of the contract, with damages. If he was not aware of them, he shall
only return the price and interest thereon, and reimburse the
expenses of the contract which the vendee might have paid. (1487a)
2. If the cause is fortuitous event the price less the value at the time of
loss, plus damages (if he was aware).
Art. 1569. If the thing sold had any hidden fault at the time of the
sale, and should thereafter be lost by a fortuitous event or through
the fault of the vendee, the latter may demand of the vendor the
price which he paid, less the value which the thing had when it was
lost.
If the vendor acted in bad faith, he shall pay damages to the vendee.
(1488a)
Art. 1570. The preceding articles of this Subsection shall be applicable to
judicial sales, except that the judgment debtor shall not be liable for
damages. (1489a)
Art. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after six months, from the delivery of the thing sold. (1490)
Prescription of action: 6 months from DELIVERY.
Art. 1572. If two or more animals are sold together, whether for a lump
sum or for a separate price for each of them, the redhibitory defect of one
shall only give rise to its redhibition, and not that of the others; unless it
should appear that the vendee would not have purchased the sound animal
or animals without the defective one.
The latter case shall be presumed when a team, yoke pair, or set is bought,
even if a separate price has been fixed for each one of the animals
composing the same. (1491)
If more than one animal is bought: generally, the buyer can only cancel
the sale pertaining to the animal with the hidden defect. EXCEPT: if it can
be shown that the purchase would not have been made without the
defective one, such as purchase of a team, yoke pair, or set.
Art. 1576. If the hidden defect of animals, even in case a professional
inspection has been made, should be of such a nature that expert
knowledge is not sufficient to discover it, the defect shall be considered as
redhibitory.
But if the veterinarian, through ignorance or bad faith should fail to discover
or disclose it, he shall be liable for damages. (1495)
Hidden defects in animals: for the seller to be liable, the defect must be
redhibitory, i.e., even expert knowledge is not sufficient to detect the same.
Art. 1573. The provisions of the preceding article with respect to the sale
of animals shall in like manner be applicable to the sale of other things.
(1492)
Art. 1574. There is no warranty against hidden defects of animals sold at
fairs or at public auctions, or of live stock sold as condemned. (1493a)
Art. 1575. The sale of animals suffering from contagious diseases shall be
void.
A contract of sale of animals shall also be void if the use or service for which
they are acquired has been stated in the contract, and they are found to be
unfit therefor. (1494a)
Art. 1577. The redhibitory action, based on the faults or defects of
animals, must be brought within forty days from the date of their delivery to
the vendee.
This action can only be exercised with respect to faults and defects which
are determined by law or by local customs. (1496a)
Art. 1578. If the animal should die within three days after its purchase, the
vendor shall be liable if the disease which cause the death existed at the
time of the contract. (1497a)
QUESTION: S sold a dog to B, 2 days after the dog died. B sued. Will S be
liable?
HELD: No. whether the seller is aware or not aware of the defect is not
important, it will only be determinative of the extent and not whether he is
liable. S is not liable since the defect must be existing at the time of sale,
even if the dog died within 3 days.
Art. 1579. If the sale be rescinded, the animal shall be returned in the
condition in which it was sold and delivered, the vendee being answerable
for any injury due to his negligence, and not arising from the redhibitory
fault or defect. (1498)
Art. 1580. In the sale of animals with redhibitory defects, the vendee shall
also enjoy the right mentioned in article 1567; but he must make use
thereof within the same period which has been fixed for the exercise of the
redhibitory action. (1499)
Art. 1581. The form of sale of large cattle shall be governed by special
laws. (n)
CHAPTER 5
OBLIGATIONS OF THE VENDEE
Art. 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must be
made at the time and place of the delivery of the thing sold. (1500a)
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Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to
accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated
installments, which are to be separately paid for, and the seller makes
defective deliveries in respect of one or more instalments, or the buyer
neglects or refuses without just cause to take delivery of or pay for one
more instalments, it depends in each case on the terms of the contract and
the circumstances of the case, whether the breach of contract is so material
as to justify the injured party in refusing to proceed further and suing for
damages for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not to a right to treat
the whole contract as broken. (n)
Art. 1584. Where goods are delivered to the buyer, which he has not
previously examined, he is not deemed to have accepted them unless and
until he has had a reasonable opportunity of examining them for the
purpose of ascertaining whether they are in conformity with the contract if
there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining whether
they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an
order from or agreement with the buyer, upon the terms that the goods
shall not be delivered by the carrier to the buyer until he has paid the price,
whether such terms are indicated by marking the goods with the words
"collect on delivery," or otherwise, the buyer is not entitled to examine
the goods before the payment of the price, in the absence of
agreement or usage of trade permitting such examination. (n)
Art. 1585. The buyer is deemed to have accepted the goods when he
intimates to the seller that he has accepted them, or when the goods have
been delivered to him, and he does any act in relation to them which is
inconsistent with the ownership of the seller, or when, after the lapse of a
reasonable time, he retains the goods without intimating to the seller that
he has rejected them. (n)
When the buyer is deemed to have accepted delivery:
1. He intimates to the seller his acceptance;
2. He does any act which is inconsistent with the ownership of the seller;
3. After the lapse of reasonable time, he retains the goods without
intimating to the seller that he has rejected them.
Art. 1586. In the absence of express or implied agreement of the parties,
acceptance of the goods by the buyer shall not discharge the seller from
liability in damages or other legal remedy for breach of any promise or
warranty in the contract of sale. But, if, after acceptance of the goods, the
buyer fails to give notice to the seller of the breach in any promise of
warranty within a reasonable time after the buyer knows, or ought to know
of such breach, the seller shall not be liable therefor. (n)
Art. 1587. Unless otherwise agreed, where goods are delivered to the
buyer, and he refuses to accept them, having the right so to do, he is not
bound to return them to the seller, but it is sufficient if he notifies the seller
that he refuses to accept them. If he voluntarily constitutes himself a
depositary thereof, he shall be liable as such. (n)
OBLIGATION TO ACCEPT: Aside from paying the price, it is the obligation
of the vendee to accept delivery. If he refuses:
1. Without just cause ownership is deemed transferred to him;
2. With just cause ownership will not pass to the buyer.
Art. 1589. The vendee shall owe interest for the period between the
delivery of the thing and the payment of the price, in the following three
cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price. (1501a)
Art. 1590. Should the vendee be disturbed in the possession or ownership
of the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make
the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price. (1502a)
Suspension of payments: may be made by the vendee if he is disturbed
or have reasonable grounds to fear such disturbance upon his possession or
ownership, by a vindicatory action or a foreclosure of mortgage. EXCEPT:
1. The vendor gives security for the return of the price in a proper case;
2. It has been stipulated that there shall be no suspension of payments
even if there is such contingency.
A mere trespass shall not authorize suspension of the payment of the price.
However, if the fear of loss covers immovable property, the vendor may
immediately sue for rescission:
Art. 1591. Should the vendor have reasonable grounds to fear the
loss of immovable property sold and its price, he may immediately sue
for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191 shall be
observed. (1503)
Length of suspension: until the seller caused the disturbance or danger
to cease.
Art. 1592. In the sale of immovable property, even though it may have
been stipulated that upon 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. (1504a)
Art. 1593. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor, if the vendee, upon
the expiration of the period fixed for the delivery of the thing, should not
have appeared to receive it, or, having appeared, he should not have
tendered the price at the same time, unless a longer period has been
stipulated for its payment. (1505)
CHAPTER 6
ACTIONS FOR BREACH OF CONTRACT OF SALE OF GOODS
Art. 1594. Actions for breach of the contract of sale of goods shall be
governed particularly by the provisions of this Chapter, and as to matters
not specifically provided for herein, by other applicable provisions of this
Title. (n)
Art. 1595. Where, under a contract of sale, the ownership of the goods has
passed to the buyer and he wrongfully neglects or refuses to pay for the
goods according to the terms of the contract of sale, the seller may
maintain an action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a certain day,
irrespective of delivery or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action for
the price although the ownership in the goods has not passed. But it shall
be a defense to such an action that the seller at any time before the
judgment in such action has manifested an inability to perform the contract
of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot readily
be resold for a reasonable price, and if the provisions of article 1596, fourth
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Civil Law Review 2 under the class of Atty. Uribe
paragraph, are not applicable, the seller may offer to deliver the goods to
the buyer, and, if the buyer refuses to receive them, may notify the buyer
that the goods are thereafter held by the seller as bailee for the buyer.
Thereafter the seller may treat the goods as the buyer's and may maintain
an action for the price. (n)
Art. 1596. Where the buyer wrongfully neglects or refuses to accept and
pay for the goods, the seller may maintain an action against him for
damages for nonacceptance.
The measure of damages is the estimated loss directly and naturally
resulting in the ordinary course of events from the buyer's breach of
contract.
Where there is an available market for the goods in question, the measure
of damages is, in the absence of special circumstances showing proximate
damage of a different amount, the difference between the contract price
and the market or current price at the time or times when the goods ought
to have been accepted, or, if no time was fixed for acceptance, then at the
time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the
seller to enable him to fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller to proceed no further
therewith, the buyer shall be liable to the seller for labor performed or
expenses made before receiving notice of the buyer's repudiation or
countermand. The profit the seller would have made if the contract or the
sale had been fully performed shall be considered in awarding the damages.
(n)
Art. 1597. Where the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his inability to
perform his obligations thereunder, or has committed a breach thereof, the
seller may totally rescind the contract of sale by giving notice of his election
so to do to the buyer. (n)
Art. 1598. Where the seller has broken a contract to deliver specific or
ascertained goods, a court may, on the application of the buyer, direct that
the contract shall be performed specifically, without giving the seller the
option of retaining the goods on payment of damages. The judgment or
decree may be unconditional, or upon such terms and conditions as to
damages, payment of the price and otherwise, as the court may deem just.
(n)
Art. 1599. Where there is a breach of warranty by the seller, the buyer
may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of
warranty by way of recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for
damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for
damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the
goods have already been received, return them or offer to return them to
the seller and recover the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these
ways, no other remedy can thereafter be granted, without prejudice to the
provisions of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the
sale if he knew of the breach of warranty when he accepted the goods
without protest, or if he fails to notify the seller within a reasonable time of
the election to rescind, or if he fails to return or to offer to return the goods
to the seller in substantially as good condition as they were in at the time
the ownership was transferred to the buyer. But if deterioration or injury of
the goods is due to the breach or warranty, such deterioration or injury shall
not prevent the buyer from returning or offering to return the goods to the
seller and rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so, he shall
cease to be liable for the price upon returning or offering to return the
goods. If the price or any part thereof has already been paid, the seller shall
be liable to repay so much thereof as has been paid, concurrently with the
return of the goods, or immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the
seller refuses to accept an offer of the buyer to return the goods, the buyer
shall thereafter be deemed to hold the goods as bailee for the seller, but
subject to a lien to secure payment of any portion of the price which has
been paid, and with the remedies for the enforcement of such lien allowed
to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such loss, in the absence of
special circumstances showing proximate damage of a greater amount, is
the difference between the value of the goods at the time of delivery to the
buyer and the value they would have had if they had answered to the
warranty. (n)
CHAPTER 7
EXTINGUISHMENT OF SALE
Art. 1600. Sales are extinguished by the same causes as all other
obligations, by those stated in the preceding articles of this Title, and by
conventional or legal redemption. (1506)
SECTION 1. - Conventional Redemption
Art. 1601. 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 Article 1616 and other stipulations which may
have been agreed upon. (1507)
Right to repurchase: for a party to be exercise conventional redemption,
the contract must have been a contract of sale with right to repurchase, or
a pacto de retro sale.
Ownership: transfers to the vendee a retro upon delivery. However, this
ownership is not absolute but only conditional. This is because the seller a
retro may be able to exercise the right to repurchase and the ownership of
the buyer will be terminated.
Amount to be paid at the time the right is exercised:
1. The purchase price;
2. Useful and necessary expenses (e.g., fencing of the land)
Art. 1602. The contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase
price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or
the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws. (n)
Relevance: the parties may have intended the property as a security for a
pre-existing obligation. As such, by treating it as a mortgage, the supposed
seller may still redeem the property regardless of the expiration of the
period to repurchase agreed upon by the parties.
Remedy: of the seller is for reformation of the contract.
Art. 1605. In the cases referred to in Articles 1602 and 1604, the
Cesar Nickolai F. Soriano Jr.
118 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
apparent vendor may ask for the reformation of the instrument. (n)
Possible reason of the creditor to enter in to a sale with right of
repurchase rather than mortgage: he wants to circumvent the law on
mortgage.
1. Sale would transfer ownership upon delivery. In mortgage, ownership
remains with the mortgagor;
2. Buyer would already be entitled to the fruits and to possession. In
mortgage, these remain with the mortgagor;
3. Upon default, after the lapse of the period, buyers ownership becomes
absolute. In mortgage, there should be foreclosure and compliance
with the procedures thereto. Moreover, creditor would not always be
entitled to the property.
Why would debtor sign? beggars cant be choosers.
Burden of proof: ordinarily, seller a retro, who claims that the transaction
is an equitable mortgage. But, under Art. 1602 provides the circumstances
where the PRESUMPTION that the transaction is an equitable mortgage
would arise. As such, the creditor-buyer would have the burden of proof.
In case of doubt: equitable mortgage, under Art. 1603:
Art. 1603. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage. (n)
Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale. (n)
Art. 1606. The right referred to in Article 1601, in the absence of an
express agreement, shall last four years from the date of the
contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a civil action on the
basis that the contract was a true sale with right to repurchase. (1508a)
PERIOD TO REDEEM:
1. No period 4 years from the date of the contract;
2. Stipulation not exceeding 10 years.
BAR QUESTION: On January 2, 1980, A and B entered into a contract
whereby A sold to B a parcel of land for and in consideration of P10,000.00.
A reserving to himself the right to repurchase the same. Because they were
friends, no period was agreed upon for the repurchase of the property.
1) Until when must A exercise his right of repurchase?
2) If A fails to redeem the property within the allowable period, what
would you advise B to do for his better protection?
ANSWER:
1) Since no period was agreed upon, Art. 1606 provides that the period to
redeem shall be 4 years from the date of the contract.
What if they agreed to a period of 25 years? Can A redeem on the 15
year? No more. The law provides for a maximum period of 10 years.
The 25 year agreement was void. As such, A should have redeemed
within the 10 year period.
2) For As failure to redeem, Bs ownership from being conditional upon
the exercise to right, becomes absolute. B would be entitled to
registration. B should file an action for consolidation of title in order to
effect such registration.
Art. 1607. In case of real property, the consolidation of ownership in the
vendee by virtue of the failure of the vendor to comply with the provisions
of article 1616 shall not be recorded in the Registry of Property without a
judicial order, after the vendor has been duly heard. (n)
Art. 1608. The vendor may bring his action against every possessor whose
right is derived from the vendee, even if in the second contract no mention
should have been made of the right to repurchase, without prejudice to the
provisions of the Mortgage Law and the Land Registration Law with respect
to third persons. (1510)
Art. 1609. The vendee is subrogated to the vendor's rights and actions.
(1511)
Art. 1610. The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the
property of the vendor. (1512)
Art. 1611. In a sale with a right to repurchase, the vendee of a part of an
undivided immovable who acquires the whole thereof in the case of article
498, may compel the vendor to redeem the whole property, if the latter
wishes to make use of the right of redemption. (1513)
Art. 1612. If several persons, jointly and in the same contract, should sell
an undivided immovable with a right of repurchase, none of them may
exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has
left several heirs, in which case each of the latter may only redeem the part
which he may have acquired. (1514)
Art. 1613. In the case of the preceding article, the vendee may demand of
all the vendors or co-heirs that they come to an agreement upon the
purchase of the whole thing sold; and should they fail to do so, the vendee
cannot be compelled to consent to a partial redemption. (1515)
Art. 1614. Each one of the co-owners of an undivided immovable who may
have sold his share separately, may independently exercise the right of
repurchase as regards his own share, and the vendee cannot compel him to
redeem the whole property. (1516)
Art. 1615. If the vendee should leave several heirs, the action for
redemption cannot be brought against each of them except for his own
share, whether the thing be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the thing sold has been
awarded to one of the heirs, the action for redemption may be instituted
against him for the whole. (1517)
Art. 1616. The vendor cannot avail himself of the right of repurchase
without returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made
by reason of the sale;
(2) The necessary and useful expenses made on the thing sold. (1518)
Art. 1617. If at the time of the execution of the sale there should be on
the land, visible or growing fruits, there shall be no reimbursement for or
prorating of those existing at the time of redemption, if no indemnity was
paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale and some exist at
the time of redemption, they shall be prorated between the redemptioner
and the vendee, giving the latter the part corresponding to the time he
possessed the land in the last year, counted from the anniversary of the
date of the sale. (1519a)
Art. 1618. The vendor who recovers the thing sold shall receive it free
from all charges or mortgages constituted by the vendee, but he shall
respect the leases which the latter may have executed in good faith, and in
accordance with the custom of the place where the land is situated. (1520)
SECTION 2. - Legal Redemption
TWO GROUPS OF PERSONS WHO WOULD HAVE RIGHT OF LEGAL
REDEMPTION:
1. Co-owners when one of the co-owners alienated his interest in the
co-owned property by onerous title.
Cesar Nickolai F. Soriano Jr.
119 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
2. Owners of adjoining lands
Subject property: In co-owners, the property may either be movable or
immovable property. While owners of adjoining land refer only to lands.
Art. 1619. Legal redemption is 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. (1521a)
Onerous transfer: not only sale, although sale is the most common
transaction where right of redemption arises. Note that the law also
provides dation in payment as a possible transaction where the right may
arise. Thus, even barter may give rise to a right to redeem.
If the transfer made is not onerous (like donation), there can be no right of
redemption.
Art. 1620. A co-owner of a thing may exercise the right of redemption in
case the shares of all the other co-owners or of any of them, are sold to a
third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption,
they may only do so in proportion to the share they may respectively have
in the thing owned in common. (1522a)
BAR QUESTION: Raul, Esther and Rufo inherited a 10 hectare land from
their father. Before the land could be partitioned, Raul sold his hereditary
right to Raffy, a stranger to the family for P5M. Do Esther and Rufo have a
remedy on keeping the land within the family?
ANSWER: Yes, The moment Raul sold his share, Esther and Rufo had a
right of redemption. Within the required time, they may redeem Rauls
share by paying the P5M Raffy paid for Rauls share.
Multiple redemptioners: all co-owners may only do so in proportion to
the share they respectively have in common. Note that in owners of
adjoining lands, not all may redeem, in case there are multiple
redemptioners, the one with the smallest land area will be prioritized. If the
areas are the same, the first one to request would be prioritized. See Art.
1621, last paragraph
Amount to be paid: the amount actually paid for the share sold. Even if
the amount indicated in the deed of sale is higher, the amount actually paid
will be the redemption price. This applies if the amount that appears in the
deed is unconscionable. The redemptioner cannot be compelled to pay the
same.
Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and
Spouses RAMON DOROMAL, JR., and GAUDELIA VEGA, petitioners,
vs.
HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents.
G.R. No. L-36083 September 5, 1975
FACTS: The subject land was originally decreed to the late Justice Antonio
Horilleno, in 1916, under an OCT; but before he died, he executed a last will
and testament attesting to the fact that it was a co-ownership between
himself and his brothers and sisters, Luis, Soledad, Fe, Rosita, Carlos and
Esperanza, all surnamed Horilleno, and since Esperanza had already died,
she was succeeded by her only daughter and heir herein plaintiff, Filomena
Javellana, in the proportion of 1/7 undivided ownership each.
Even though their right had not as yet been annotated in the title, the co-
owners led by Carlos, and as to deceased Justice Antonio Horilleno, his
daughter Mary, sometime since early 1967, had wanted to sell their shares,
or if possible if Filomena Javellana were agreeable, to sell the entire
property, and they hired an acquaintance Cresencia Harder, to look for
buyers, and the latter came to interest defendants, the father and son,
named Ramon Doromal, Sr. and Jr., and in preparation for the execution of
the sale, since the brothers and sisters Horilleno were scattered in various
parts of the country, Carlos in Ilocos Sur, Mary in Baguio, Soledad and Fe, in
Mandaluyong, Rizal, and Rosita in Basilan City, they all executed various
powers of attorney in favor of their niece, Mary H. Jimenez, they also
caused preparation of a power of attorney of identical tenor for signature by
plaintiff, Filomena Javellana.
It now turns out according to Exh. 3 that as early as 22 October, 1967,
Carlos had received in check as earnest money from defendant Ramon
Doromal, Jr., the sum of P5,000.00 and the price therein agreed upon was
five (P5.00) pesos a square meter.
At any rate, plaintiff not being agreeable, did not sign the power of
attorney, and the rest of the co-owners went ahead with their sale of their
6/7.
A TCT was issued to the co-owners for the 6/7 of the property which was
then transferred to the Doromals and another TCT for the 1/7 in the name
of Javellana.
On 10 June, 1968, plaintiff Javellanas lawyer Atty. Arturo Villanueva, came
to the residence of the Doromals and made a formal offer to repurchase or
redeem the 6/7 undivided share of the other co-owners for the sum of
P30,000, which amount was tendered by the lawyer for legal redemption.
Javellana filed a case against the Doromals asserting that, as a co-owner,
she had the right to redeem the property at the price stipulated in the deed
of sale, namely P30,000.
In their answer, the defendants alleged that the plaintiff no longer had the
right to redeem because he was informed of the intended sale of the 6/7
share belonging to the Horillenos; that if she thus had the right to redeem,
she should pay P115,250 which was actually paid by the defendants to the
co-owners.
The trial court rendered judgment in favor of the Doromals. On appeal, the
CA reversed the trial court holding that although respondent Javellana was
informed of her co-owners' proposal to sell the land in question to
petitioners she was, however, "never notified ... least of all, in writing", of
the actual execution and registration of the corresponding deed of sale,
hence, said respondent's right to redeem had not yet expired at the time
she made her offer for that purpose thru her letter of June 10, 1968
delivered to petitioners on even date.
ISSUE: WON notice was given to Javellana and the 30-day period to
redeem already prescribed?
HELD: No. The letters sent by Carlos Horilleno to respondent and dated
January 18, 1968, Exhibit 7, and November 5, 1967, Exhibit 6, constituted
the required notice in writing from which the 30-day period fixed in said
provision should be computed. But to start with, there is no showing that
said letters were in fact received by respondent and when they
were actually received. Besides, petitioners do not pinpoint which of
these two letters, their dates being more than two months apart, is the
required notice. In any event, as found by the appellate court, neither of
said letters referred to a consummated sale. As may be observed, it was
Carlos Horilleno alone who signed them, and as of January 18, 1968,
powers of attorney from the various co-owners were still to be secured.
Indeed, the later letter of January 18, 1968 mentioned that the price was
P4.00 per square meter whereas in the earlier letter of November 5, 1967 it
was P5.00, as in fact, on that basis, as early as October 27, 1967, Carlos
had already received P5,000 from petitioners supposedly as earnest money,
of which, however, mention was made by him to his niece only in the later
letter of January 18, 1968, the explanation being that "at later negotiation it
was increased to P5.00 per square meter." (p. 4 of petitioners' brief as
appellees in the Court of Appeals quoting from the decision of the trial
court.) In other words, while the letters relied upon by petitioners
could convey the idea that more or less some kind of consensus
had been arrived at among the other co-owners to sell the
property in dispute to petitioners, it cannot be said definitely that
such a sale had even been actually perfected. The fact alone that in
the later letter of January 18, 1968 the price indicated was P4.00
per square meter while in that of November 5, 1967, what was
stated was P5.00 per square meter negatives the possibility that a
"price definite" had already been agreed upon. While P5,000 might
Cesar Nickolai F. Soriano Jr.
120 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
have indeed been paid to Carlos in October, 1967, there is nothing to show
that the same was in the concept of the earnest money contemplated in
Article 1482 of the Civil Code, invoked by petitioner, as signifying perfection
of the sale. Viewed in the backdrop of the factual milieu thereof extant in
the record, We are more inclined to believe that the said P5,000 were paid
in the concept of earnest money as the term was understood under the Old
Civil Code, that is, as a guarantee that the buyer would not back out,
considering that it is not clear that there was already a definite agreement
as to the price then and that petitioners were decided to buy 6/7 only of the
property should respondent Javellana refuse to agree to part with her 1/7
share.
In the light of these considerations, it cannot be said that the Court of
Appeals erred in holding that the letters aforementioned sufficed to comply
with the requirement of notice of a sale by co-owners under Article 1623 of
the Civil Code. We are of the considered opinion and so hold that for
purposes of the co-owner's right of redemption granted by Article
1620 of the Civil Code, the notice in writing which Article 1623
requires to be made to the other co-owners and from receipt of
which the 30-day period to redeem should be counted is a notice
not only of a perfected sale but of the actual execution and
delivery of the deed of sale. This is implied from the latter portion of
Article 1623 which requires that before a register of deeds can record a sale
by a co-owner, there must be presented to him, an affidavit to the effect
that the notice of the sale had been sent in writing to the other co-owners.
A sale may not be presented to the register of deeds for registration unless
it be in the form of a duly executed public instrument. Moreover, the law
prefers that all the terms and conditions of the sale should be definite and
in writing. As aptly observed by Justice Gatmaitan in the decision under
review, Article 1619 of the Civil Code bestows unto a co-owner the
right to redeem and "to be subrogated under the same terms and
conditions stipulated in the contract", and to avoid any controversy
as to the terms and conditions under which the right to redeem
may be exercised, it is best that the period therefor should not be
deemed to have commenced unless the notice of the disposition is
made after the formal deed of disposal has been duly executed.
And it being beyond dispute that respondent herein has never been notified
in writing of the execution of the deed of sale by which petitioners acquired
the subject property, it necessarily follows that her tender to redeem the
same made on June 10, 1968 was well within the period prescribed by law.
Indeed, it is immaterial when she might have actually come to know about
said deed, it appearing she has never been shown a copy thereof through a
written communication by either any of the petitioners-purchasers or any of
her co-owners-vendees. (Cornejo et al. vs.CA et al., 16 SCRA 775.)
ISSUE2: WON Javellana should only pay the P30,000 stated in the Deed of
Sale?
HELD: Yes. As stated in the decision under review, the trial court found
that "the consideration of P30,000 only was placed in the deed of
sale to minimize the payment of the registration fees, stamps and
sales tax." With this undisputed fact in mind, it is impossible for
the Supreme Court to sanction petitioners' pragmatic but immoral
posture. Being patently violative of public policy and injurious to
public interest, the seemingly wide practice of understating
considerations of transactions for the purpose of evading taxes
and fees due to the government must be condemned and all
parties guilty thereof must be made to suffer the consequences of
their ill-advised agreement to defraud the state. Verily, the trial court
fell short of its devotion and loyalty to the Republic in officially giving its
stamp of approval to the stand of petitioners and even berating respondent
Javellana as wanting to enrich herself "at the expense of her own blood
relatives who are her aunts, uncles and cousins." On the contrary, said
"blood relatives" should have been sternly told, as We here hold, that they
are in pari-delicto with petitioners in committing tax evasion and
should not receive any consideration from any court in respect to
the money paid for the sale in dispute. Their situation is similar to that
of parties to an illegal contract.
Of course, the Court of Appeals was also eminently correct in its
considerations supporting the conclusion that the redemption in controversy
should be only for the price stipulated in the deed, regardless of what might
have been actually paid by petitioners that style inimitable and all his own,
Justice Gatmaitan states those considerations thus:
1st According to Art. 1619
"Legal redemption is 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." pp.
471-472, New Civil Code, and note that redemptioner right is to be
subrogated "upon the same terms and conditions stipulated in
the contract."
and here, the stipulation in the public evidence of the contract,
made public by both vendors and vendees is that the price was
P30,000.00;
2nd According to Art. 1620,
"A co-owner of a thing may exercise the right of redemption in case
the share of all the other co-owners or any of them, are sold to a third
person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one. p. 472, New Civil Code,
from which it is seen that if the price paid is 'grossly excessive'
redemptioner is required to pay only a reasonable one; not
that actually paid by the vendee, going to show that the law
seeks to protect redemptioner and converts his position into
one not that of a contractually but of a legally subrogated
creditor as to the right of redemption, if the price is not
'grossly excessive', what the law had intended redemptioner to pay
can be read in Art. 1623.
The right of a 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. The deed of
sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written
notice thereof of all possible redemptioners.' p. 473, New Civil Code,
if that be so that affidavit must have been intended by the lawmakers
for a definite purpose, to argue that this affidavit has no purpose is
to go against all canons of statutory construction, no law
mandatory in character and worse, prohibitive should be
understood to have no purpose at all, that would be an
absurdity, that purpose could not but have been to give a clear
and unmistakable guide to redemptioner, on how much he
should pay and when he should redeem; from this must follow
that that notice must have been intended to state the truth and if
vendor and vendee should have instead, decided to state an untruth
therein, it is they who should bear the consequences of having thereby
misled the redemptioner who had the right to rely and act thereon and
on nothing else; stated otherwise, all the elements of equitable
estoppel are here since the requirement of the law is to submit the
affidavit of notice to all possible redemptioners, that affidavit to be a
condition precedent to registration of the sale therefore, the law must
have intended that it be by the parties understood that they were
there asking a solemn representation to all possible redemptioners,
who upon faith of that are thus induced to act, and here worse for the
parties to the sale, they sought to avoid compliance with the law and
certainly refusal to comply cannot be rewarded with exception and
acceptance of the plea that they cannot be now estopped by their own
representation, and this Court notes that in the trial and to this appeal,
plaintiff earnestly insisted and insists on their estoppel;
3rd If therefore, here vendors had only attempted to comply with
the law, they would have been obligated to send a copy of the deed of
sale unto Filomena Javellana and from that copy, Filomena would have
been notified that she should if she had wanted to redeem, offered no
more, no less, that P30,000.00, within 30 days, it would have been
impossible for vendors and vendees to have inserted in the affidavit
that the price was truly P97,000.00 plus P18,250.00 or a total of
P115,250.00; in other words, if defendants had only complied with the
law, they would have been obligated to accept the redemption money
of only P30,000.00;
Cesar Nickolai F. Soriano Jr.
121 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
4th If it be argued that foregoing solution would mean unjust
enrichment for plaintiff, it need only be remembered that plaintiff's
right is not contractual, but a mere legal one, the exercise of a right
granted by the law, and the law is definite that she can subrogate
herself in place of the buyer, "upon the same terms and conditions
stipulated in the contract," in the words of Art. 1619, and here the
price "stipulated in the contract" was P30,000.00, in other words, if this
be possible enrichment on the part of Filomena, it was not unjust but
just enrichment because permitted by the law; if it still be argued that
plaintiff would thus be enabled to abuse her right, the answer simply is
that what she is seeking to enforce is not an abuse but a mere exercise
of a right; if it be stated that just the same, the effect of sustaining
plaintiff would be to promote not justice but injustice, the answer
again simply is that this solution is not unjust because it only binds the
parties to make good their solemn representation to possible
redemptioners on the price of the sale, to what they had solemnly
averred in a public document required by the law to be the only basis
for that exercise of redemption; (Pp. 24-27, Record.)
WHEREFORE, the decision of the Court of Appeals is affirmed, with costs
against petitioners..
Art. 1621. The owners of adjoining lands shall also have the right of
redemption when a piece of rural land, the area of which does not exceed
one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks,
drains, ravines, roads and other apparent servitudes for the benefit of other
estates.
If two or more adjoining owners desire to exercise the right of redemption
at the same time, the owner of the adjoining land of smaller area shall be
preferred; and should both lands have the same area, the one who first
requested the redemption. (1523a)
Redemption in onerous disposal of rural lands; REQUISITES:
1. The land is not more than 1 hectare;
2. The grantee/buyer must have another rural land
3. The land of the redemptioner and the land sought to be redeeemed
must not be separated by brooks, ravines, roads (contiguous)
Multiple redemptioners:
1. The adjoining owner with the smaller area shall be preferred;
2. If the same area, the one who first requested the redemption.
Art. 1622. Whenever a piece of urban land which is so small and so
situated that a major portion thereof cannot be used for any practical
purpose within a reasonable time, having been bought merely for
speculation, is about to be re-sold, the owner of any adjoining land has a
right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have
a right of redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of
pre-emption or redemption, the owner whose intended use of the land in
question appears best justified shall be preferred. (n)
Requisites in redemption of urban land:
1. The land is an urban land.
2. The land area is so small and so situated that a major portion thereof
cannot be used for any practical purpose within a reasonable time,
having been bought merely for speculation.
Right of pre-emption: is different from the right of legal redemption. The
former may be exercised even before the sale is perfected. The latter is
exercised after the sale is perfected.
Multiple redemptioners/pre-emptioners: the one whose intended use
is best justified shall be preferred.
Art. 1623. The right of legal pre-emption or redemption shall not be
exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed
of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice
thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
(1524a)
Period of redemption: 30 days from notice. When is notice? It need not
come from the vendor himself. Notice constitutes the furnishing of the copy
of the deed to the one who has a right to redeem.
This is because Art. 1619 defines Legal redemption as the right to be
subrogated, upon the same terms and conditions stipulated in the contract.
By furnishing the redemptioner a copy of the contract or deed, he may
know what the terms and conditions are.
Period: begins to run upon giving of the written notice.
BAR QUESTION: Betty and Lydia were co-owners of a parcel of land. Last
January 1, 2001, when she paid her real estate tax, Betty discovered that
Lydia had sold her share to Emma on November 10, 2000. The following
day, Betty offered to redeem but the latter replied that her right to redeem
had already prescribed. Is Emma correct?
ANSWER: EMMA is not correct. Because the law provides 30 days from the
time notice was given to the co-owner. In this problem, the 30 days had not
even started to run because no notice was given.
BAR QUESTION: Adella and Beth are co-owners of an undivided parcel of
land. Beth sold her share to Sandro, who promptly told Adella of the sale
and furnished the latter a copy of the deed of absolute sale. When Sandro
presented the deed of absolute sale for registration, the register of deeds
also notified Adella of the said sale, enclosing a copy of the deed with the
notice. However, Adella ignored the notices. A year later, Sandro, the buyer,
filed a petition for the partition of the property. Upon receipt of the
summons, Adella immediately tendered the requisite amount for the
redemption. Sandro contends that Adella lost her right of redemption after
the expiration of 30days from her receipt of notice of sale given by him. May
Adella still exercise her right of redemption?
ANSWER: No. Even if the notice was not given by the VENDOR as stated
under Art. 1623, the provision should not be interpreted so literally. Sandro,
the buyer, already informed Adella through notice with a copy of the deed,
twice.
As interpredted by the SC in the case of DOROMAL vs. CA, the 30 day
period will begin to run from the time a COPY of the DEED of SALE is given
to the REDEMPTIONER. Not just any other writing.
CASE: There was a sale of a parcel of land, and the adjoining lot owner,
the parents of Dolores Banias, manifested their intention to redeem. But this
Amador Barcellano, did not give written notice, only oral. The parties went
to the Baranggay to solve their claims but nothing happened. More than 1
year after the sale to Barcellano, Dolores Banias expressed his intention to
exercise her right of redemption.
SC: A WRITTEN notice is required for the prescriptive period of 30 days to
begin to run.
B. BARTER OR EXCHANGE
Art. 1638. By the contract of barter or exchange one of the parties binds
himself to give one thing in consideration of the other's promise to give
another thing. (1538a)
Art. 1639. If one of the contracting parties, having received the thing
promised him in barter, should prove that it did not belong to the person
who gave it, he cannot be compelled to deliver that which he offered in
exchange, but he shall be entitled to damages. (1539a)
Cesar Nickolai F. Soriano Jr.
122 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Art. 1640. One who loses by eviction the thing received in barter may
recover that which he gave in exchange with a right to damages, or he may
only demand an indemnity for damages. However, he can only make use of
the right to recover the thing which he has delivered while the same
remains in the possession of the other party, and without prejudice to the
rights acquired in good faith in the meantime by a third person. (1540a)
Art. 1641. As to all matters not specifically provided for in this Title, barter
shall be governed by the provisions of the preceding Title relating to sales.
(1541a)
C. LEASE
Title VIII. - LEASE
CHAPTER 1
GENERAL PROVISIONS
Art. 1642. The contract of lease may be of things, or of work and service.
(1542)
KINDS OF LEASES:
1. Labor;
2. Involving household help;
3. Carriage;
4. Piece of work
Jardin vs. NLRC: the drivers of Goodman taxicab complained about the
P30 deducted from their salary purportedly for carwash of the taxicabs.
What kind of relationship does the drivers and the operator have?
SC: Lease of labor. The relationship between the drivers and the operator
under the boundary system, is that of an employer-employee following the
control test
Art. 1643. In the lease of things, one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain, and for a period
which may be definite or indefinite. However, no lease for more than ninety-
nine years shall be valid. (1543a)
One of the parties binds himself: this makes the contract consensual.
Even if the obligation involves delivery, it does not make the contract real.
To give to another the enjoyment or the use: this is the purpose of a
lease. This is likewise the purpose of commodatum. However, in lease it
involves a price certain, which means the contract is essentially onerous.
If the lease of thing is gratuitous, it is considered a commodatum.
Art. 1644. In the lease of work or service, one of the parties binds himself
to execute a piece of work or to render to the other some service for a price
certain, but the relation of principal and agent does not exist between them.
(1544a)
Essentially onerous: lease of service is essentially onerous in character. If
the services are free, it could be another contract but not lease of service.
Principal-agent relationship: in order to be classified as a lease of
service, there must NOT be a principal-agent relationship.
Art. 1645. Consumable goods cannot be the subject matter of a contract of
lease, except when they are merely to be exhibited or when they are
accessory to an industrial establishment. (1545a)
SIMILARITIES AND DISTINCTIONS FROM OTHER CONTRACTS:
1. WITH SALE: they are both principal, consensual and essentially
onerous, nominate, commutative and bilateral contracts.
But, in lease the purpose is to give to another the ENJOYMENT or the
USE, while in sales, the purpose is to TRANSFER OWNERSHIP.
 Moreover, lease can cover things, rights or services. While sale can
only cover things or rights.
2. WITH COMMODATUM: the subject matter is a thing, the purpose is
delivery of the thing for the use of the other.
However, Lease is essentially onerous, while commodatum is
essentially gratuitous.
Safety deposit boxes: a special kind of deposit since the depositor
does not have access to the box 24/7 which is usually inside the bank.
Even if during banking hours, the depositor or even the officers of the
bank will not have access to the box at any time.
3. WITH AGENCY vs. LEASE OF SERVICE: subject matter in both are
services.
The distinction lies with the concept of representation. If there is no
such right of representation, it cannot be considered an agency.
NIELSON vs. LEPANTO MINING: Lepanto claims that its contract
with Nielson is that of agency which Lepanto, as principal, can revoke
anytime. Nielson, on the other hand, claims that it is a contract for
lease of service.
SC: Nielson is correct. There is no right of representation. In the
contract, Nielson cannot even buy materials necessary for the
operation of the mine without the consent of the Board of Directors.
4. CONTRACT FOR A PIECE OF WORK vs. LEASE OF SERVICE: the
main difference lies with the control of one party over the other. In a
contract for a piece of work, the extent of control of the principal
(employer) is limited to the end results. As to the method and manner
used by the contractor, the principal or employer does not have
control. The contractor is otherwise known as Independent Contractor.
ESSENTIAL REQUISITES OF A LEASE:
1. Consent of the contracting parties;
Who are prohibited from entering into a contract of lease? Art.
1490 and 1491 likewise applies to a contract of lease. As such, a
husband and a wife which is prohibited from entering into a contract of
sale are likewise prohibited from becoming lessees of each other.
Art. 1646. The persons disqualified to buy referred to in Articles
1490 and 1491, are also disqualified to become lessees of the things
mentioned therein. (n)
2. Subject matter a thing, right or service.
In a lease of a thing, the subject matter must be NON-
FUNGIBLE: this is because there is an obligation to return the thing at
the end of the lease term. The thing cannot be replaced by any other
thing even if of the same or better quality.
Non-consumable: it follows, then, that the thing must not be
consumable in order for the lessee to be able to return it. Otherwise, if
the thing is consumable and used in accordance with its nature, then it
would be consumed and nothing will be returned.
Exception: a consumable may be the subject of a lease if it would only
be used for exhibition or display.
3. Cause essentially onerous. As to the lessor, it may be the rent, as to
the lessee the use of the thing.
FORM OF A LEASE:
A lease being a consensual contract will not require any particular form for
its validity. However, a contract of lease over a real property with a period
more than one year must be IN WRITING in order to be enforceable under
the Statute of Frauds. Subject to the exception of part performance.
Cesar Nickolai F. Soriano Jr.
123 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
BAR QUESTION: O verbally leased his house and lot to L for 2 years at a
monthly rental of P250 a month. After the first year, O demanded a rental
increase of P500 claiming that due to energy crisis, with a sudden increase
in the price of oil, which no one expected, there was also a general increase
in all of the prices. O proved an inflation rate of 100%. When L refused to
vacate the house, O brought an action for ejectment. O denied that he
agreed for the lease for 2 years.
Can the lessee testify on a verbal contract of lease?
ANSWER: Yes. Even if the contract covers real property and the period is
more than 2 years, the contract has been taken out of the operation of the
Statute of Frauds by part performance. This is because it has been more
than a year that O was receiving rentals, he cannot now claim that the
contract is unenforceable since there was already part performance.
Formal Requirements for Contract for a Piece of Work: CHANGE
ORDER OR VARIATION: Art. 1724 requires that the AUTHORIZATION for
change of order and the ADDITIONAL COMPENSATION be both in writing,
in order for the contractor to be entitled to such:
Art. 1724. The contractor who undertakes to build a structure or any
other work for a stipulated price, in conformity with plans and
specifications agreed upon with the land-owner, can neither withdraw
from the contract nor demand an increase in the price on account of
the higher cost of labor or materials, save when there has been a
change in the plans and specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been
determined in writing by both parties. (1593a)
BAR QUESTION: Lino entered into a written agreement for the repair of
his private plane, with Aero Repair Works for P500K. Additional work was
done by Aero, incurring an expense of P250K. Lino refused to pay the
additional expense, interposing as a defense the absence of a written
contract for the additional work done. Is the defense of Lino valid?
ANSWER: YES. By express provision of the law, i.e., Art. 1724, the
authorization of the additional work and the additional compensation must
be both in writing to entitle the contractor to such additional compensation.
(Chung vs. Olanday Construction)
Art. 1647. If a lease is to be recorded in the Registry of Property, the
following persons cannot constitute the same without proper authority: the
husband with respect to the wife's paraphernal real estate, the father or
guardian as to the property of the minor or ward, and the manager without
special power. (1548a)
Art. 1648. Every lease of real estate may be recorded in the Registry of
Property. Unless a lease is recorded, it shall not be binding upon
third persons. (1549a)
Registration: is not a requirement for validity but for greater efficacy, in
order to bind third persons.
Art. 1649. The lessee cannot assign the lease without the consent of the
lessor, unless there is a stipulation to the contrary. (n)
ASSIGNMENT OF THE LEASE: the right to assign a lease is prohibited by
the law but can be granted by stipulation.
Art. 1650. When in the contract of lease of things there is no express
prohibition, the lessee may sublet the thing leased, in whole or in part,
without prejudice to his responsibility for the performance of the contract
toward the lessor. (1550)
SUBLEASE: the lessee has the right to sublease, by law but this right may
be limited or removed by stipulation.
BAR QUESTION: Isaac leased the apartment of Dorotea for two years, 6
months later, Isaac subleased a portion of the apartment due to financial Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due
difficulties. Is the sublease valid? from the lessee. However, the sublessee shall not be responsible beyond
the amount of rent due from him, in accordance with the terms of the
ANSWER: Yes. It is valid. For as long as the elements of valid sublease are sublease, at the time of the extrajudicial demand by the lessor.
present.
Payments of rent in advance by the sublessee shall be deemed not to have
BAR QUESTION: In January 1993, 4 Gives Corporation leased the entire been made, so far as the lessor's claim is concerned, unless said payments
floors of the GQS Tower Complex for 10 years for a monthly rental of P3M. were effected in virtue of the custom of the place. (1552a)
It subleased 5 of the 12 floors to wholly owned subsidiaries. The lease
contract expressly prohibits the assignment of the lease contract or any Art. 1653. The provisions governing warranty, contained in the Title on
portion thereof. The rental value has increased by 40% since it was initially Sales, shall be applicable to the contract of lease.
leased. Can the building owner asked for the cancellation of the contract for
violation of the prohibition against assignment? In the cases where the return of the price is required, reduction shall be
made in proportion to the time during which the lessee enjoyed the thing.
ANSWER: No. The right to sublease is granted by law which may be limited (1553)
by stipulation. The contract did not prohibit the lessee from subleasing, only
assignment of the lease. As such, since there was no violation of the SECTION 2. - Rights and Obligations of the Lessor and the Lessee
contract, there is no ground for cancellation of the contract.
Art. 1654. The lessor is obliged:
BAR QUESTION: A leased a parcel of land to B for 2 years. The lease
contract did not contain any prohibition against assignment of the leasehold (1) To deliver the thing which is the object of the contract in such a
or sublease. B subleased the land to C. in turn, C assigned the lease to D. A condition as to render it fit for the use intended;
filed an action for rescission on the ground that B has violated the terms (2) To make on the same during the lease all the necessary repairs in
and conditions of the lease. If you were the judge, how would you decide order to keep it suitable for the use to which it has been devoted, unless
the case, particularly the validity of Bs sublease to C, and Cs assignment to there is a stipulation to the contrary;
D? (3) To maintain the lessee in the peaceful and adequate enjoyment
of the lease for the entire duration of the contract. (1554a)
ANSWER: B did not violate the terms and conditions of the contract since
there was no prohibition against sublease and assignment. As such, since To maintain the lessee in the peaceful and adequate enjoyment:
there was no prohibition, the law allows the lessee to sublease. covers only trespass in law which may arise from the defect in the title of
the lessor. This obligation does not cover trespass in fact as provided under
UP Law Center: Assignment of the sublease by C to D is not valid since the Art. 1664:
law prohibits assignment of the lease without the express consent of the
lessor, and in the problem, there was no such consent. Art. 1664. The lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing
Uribe: C did not assign the lease, he assigned a sublease. The rights of leased; but the lessee shall have a direct action against the intruder.
D are those of C. If the sublease to C is not prohibited, then the assignment
to of the sublease to D should also not be prohibited. There is a mere act of trespass when the third person claims no right
whatever. (1560a)
TEST to determine if sublease or assignment: If in the agreement,
there is an absolute transfer of rights of the lessee to the third person, sich
The remedy of the lessee is to seek the help of police officers to remove the
that the personality of the lessee would disappear dissociating himself from physical trespass. Plus, the lessee is actually obliged to inform the lessor
the lease, practically making the third person the new lessee assignment about it:
of the lease.
Art. 1663. The lessee is obliged to bring to the knowledge of the
But, if in the agreement with the third person, the lessee retains a
proprietor, within the shortest possible time, every usurpation or
reversionary inerest, no matter how small sublease.
untoward act which any third person may have committed or may be
openly preparing to carry out upon the thing leased.
Thus, if the contract of lease was to expire June 1, 1967, and the lessee in
the middle of the contract entered into an agreement with a person which
He is also obliged to advise the owner, with the same urgency, of the
will expire on May 31 of the same year. As such, upon expiration of the
need of all repairs included in No. 2 of Article 1654.
agreement, there will be left a day where the lessee would be reverted back
to the status of a lessee, there is no absolute transfer of rights, the
In both cases the lessee shall be liable for the damages which,
agreement is a sublease. (Manlapat vs. Salazar)
through his negligence, may be suffered by the proprietor.
If the lessee prohibits the sublessee from cutting down the trees in the
If the lessor fails to make urgent repairs, the lessee, in order to avoid
leased premises, the agreement is a sublease since the lessee reserved
an imminent danger, may order the repairs at the lessor's cost.
rights in the contract.
(1559a)
BAR QUESTION: A leased a condo unit to B for a period of 5 years. After 1
Failure to comply with no. 2 and 3 above: Suspension of the
year, B trasferred his rights to C, for a period of 3 years, without the
payments of rent: The remedy of the lessee is to suspend the payment of
knowledge of A. The contract between B and C is?
rent in the event that the lessor fails to make the necessary repairs or
maintain the lessee in peaceful and adequate enjoyment of the property.
ANSWER: a Sublease. This is because after the expiration of B and Cs
agreement, there will be 1 year left where B would revert to becoming a
Art. 1658. The lessee may suspend the payment of the rent in case
lessee.
the lessor fails to make the necessary repairs or to maintain the
lessee in peaceful and adequate enjoyment of the property leased.
Art. 1651. Without prejudice to his obligation toward the sublessor, the
(n)
sublessee is bound to the lessor for all acts which refer to the use and
preservation of the thing leased in the manner stipulated between the lessor
The lessee cannot seek extension of the lease period nor a reduction in the
and the lessee. (1551)
rent.
Cesar Nickolai F. Soriano Jr.
124 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe

Extension: of the term of the lease is a matter left to the parties. The
lessee can not demand an extension of the lease term even if the cause of
his inability to use the property is an extraordinary fortuitous event, such as
the Second World War. (Nielsen vs. Lepanto Mining)
Reduction of rent: Lease of Rural Lands:
Art. 1680. The lessee shall have no right to a reduction of the rent on
account of the sterility of the land leased, or by reason of the loss of fruits
due to ordinary fortuitous events; but he shall have such right in case of the
loss of more than one-half of the fruits through extraordinary and
unforeseen fortuitous events, save always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence,
unusual flood, locusts, earthquake, or others which are uncommon, and
which the contracting parties could not have reasonably foreseen. (1575)
Right to a reduced rent:
1. In case of loss of more than of the fruits;
2. The cause of the loss is extraordinary and unforesen fortuitous events.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which the contracting parties could not have
reasonably foreseen.
Note, however, that in the event of a partial loss on the thing, the lessee
has the option to continue with the lease for a reduced rent under Art.
1655. (see Termination at the end of Lease below)
Art. 1681. Neither does the lessee have any right to a reduction of the rent
if the fruits are lost after they have been separated from their stalk, root or
trunk. (1576)
Art. 1656. The lessor of a business or industrial establishment may
continue engaging in the same business or industry to which the lessee
devotes the thing leased, unless there is a stipulation to the contrary. (n)
Art. 1657. The lessee is obliged:
(1) To pay the price of the lease according to the terms stipulated;
(2) To use the thing leased as a diligent father of a family, devoting it to
the use stipulated; and in the absence of stipulation, to that which may
be inferred from the nature of the thing leased, according to the custom of
the place;
(3) To pay expenses for the deed of lease. (1555)
Art. 1659. If the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the aggrieved party may ask
for the rescission of the contract and indemnification for damages, or only
the latter, allowing the contract to remain in force. (1556)
Art. 1660. If a dwelling place or any other building intended for human
habitation is in such a condition that its use brings imminent and serious
danger to life or health, the lessee may terminate the lease at once by
notifying the lessor, even if at the time the contract was perfected the
former knew of the dangerous condition or waived the right to rescind the
lease on account of this condition. (n)
Art. 1661. The lessor cannot alter the form of the thing leased in such a
way as to impair the use to which the thing is devoted under the terms of
the lease. (1557a)
Art. 1662. If during the lease it should become necessary to make some
urgent repairs upon the thing leased, which cannot be deferred until the
termination of the lease, the lessee is obliged to tolerate the work, although
it may be very annoying to him, and although during the same, he may be
deprived of a part of the premises.
If the repairs last more than forty days the rent shall be reduced in
Cesar Nickolai F. Soriano Jr.
125 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
proportion to the time - including the first forty days - and the part of the
property of which the lessee has been deprived.
When the work is of such a nature that the portion which the lessee and his
family need for their dwelling becomes uninhabitable, he may rescind the
contract if the main purpose of the lease is to provide a dwelling place for
the lessee. (1558a)
Art. 1665. The lessee shall return the thing leased, upon the termination of
the lease, as he received it, save what has been lost or impaired by the
lapse of time, or by ordinary wear and tear, or from an inevitable cause.
(1561a)
Art. 1666. In the absence of a statement concerning the condition of the
thing at the time the lease was constituted, the law presumes that the
lessee received it in good condition, unless there is proof to the contrary.
(1562)
Art. 1667. The lessee is responsible for the deterioration or loss of the
thing leased, unless he proves that it took place without his fault. This
burden of proof on the lessee does not apply when the destruction is due to
earthquake, flood, storm or other natural calamity. (1563a)
Art. 1668. The lessee is liable for any deterioration caused by members of
his household and by guests and visitors. (1564a)
Art. 1669. If the lease was made for a determinate time, it ceases upon
the day fixed, without the need of a demand. (1565)
TACITA RECONDUCCION: IMPLIED NEW LEASE:
Art. 1670. If at the end of the contract the lessee should continue enjoying
the thing leased for fifteen days with the acquiescence of the lessor, and
unless a notice to the contrary by either party has previously been given, it
is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The
other terms of the original contract shall be revived. (1566a)
Implied new lease: requisites:
1. The lease contract already expired;
2. The lessee continues enjoying possession of the thing leased for AT
LEAST 15 days with the acquiesccence of the lessor
3. No notice for the termination of the contract coming from the lessor or
the lessee.
Period: is not the same as the original contract, but those estbalished
under Art. 1682 and 1687, for rural and urban lands, respectively:
1. Rural Lands: all the time necessary for the gathering of whole estate:
a. May yield in one year;
b. Yield once, although two or more years have to elapse
Art. 1682. The lease of a piece of rural land, when its duration has
not been fixed, is understood to have been for all the time necessary
for the gathering of the fruits which the whole estate leased may
yield in one year, or which it may yield once, although two or more
years have to elapse for the purpose. (1577a)
2. Urban Lands:
a. Annual rent year to year;
b. Monthly month to month;
c. Weekly week to week;
d. Daily day to day.
However, the courts may fix a longer period, even if the rent is paid:
a. Monthly if the lessee has rented for more than 1 year;
b. Weekly if the lessee has rented for over 6 months;
c. Daily if the lessee has rented for more than 1 month.
Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
 annual; from month to month, if it is monthly; from week to week, if
the rent is weekly; and from day to day, if the rent is to be paid daily.
However, even though a monthly rent is paid, and no period for the
lease has been set, the courts may fix a longer term for the lease
after the lessee has occupied the premises for over one year. If the
rent is weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six months. In case
of daily rent, the courts may also fix a longer period after the lessee
has stayed in the place for over one month. (1581a)
Other Terms of the Lease: the last sentence of Art. 1670 provides that
other terms of the original contract shall be revived. not to be
interpreted literally.
Despite Art. 1670, only those terms and conditions which are germane to
the contract of lease are deemed renewed in an implied new lease.
BAR QUESTION: Jan. 1, 1980, Nestor leased the fishpond of Mario for 3
years at a monthly rental of P1,000 with an option to purchase the same
during the period of the lease for an amount of P500,000. At the expiration
of the lease, Nestor was allowed by Mario to continue with the lease at the
same rate. On June 15, 1983, Nestor tendered the amount of P500,000 to
Mario and demanded that the latter execute the necessary deed of sale.
Mario refused. Nestor filed an action for specific performance. Will the
action prosper?
HELD: No. When Nestor offered to purchase the lease, it was after the
expiration of the lease contract for 3 years. Therefore, the option to buy
already expired as well.
Even if Nestor was allowed to continue with the lease, there was an implied
new lease, the option to purchase is not revived. Despite Art. 1670, only
those terms and conditions which are germane to the contract of lease are
deemed renewed in an implied new lease. An option to buy is not germane
to a contract of lease.
Art. 1671. If the lessee continues enjoying the thing after the expiration of
the contract, over the lessor's objection, the former shall be subject to the
responsibilities of a possessor in bad faith. (n)
Art. 1672. In case of an implied new lease, the obligations contracted by a
third person for the security of the principal contract shall cease with
respect to the new lease. (1567)
Art. 1673. The lessor may judicially eject the lessee for any of the
following causes:
(1) When the period agreed upon, or that which is fixed for the duration of
leases under Articles 1682 and 1687, has expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed upon in the contract;
(4) When the lessee devotes the thing leased to any use or service not
stipulated which causes the deterioration thereof; or if he does not
observe the requirement in No. 2 of Article 1657, as regards the use
thereof.
The ejectment of tenants of agricultural lands is governed by special laws.
(1569a)
Art. 1674. In ejectment cases where an appeal is taken the remedy
granted in Article 539, second paragraph, shall also apply, if the higher
court is satisfied that the lessee's appeal is frivolous or dilatory, or that the
lessor's appeal is prima facie meritorious. The period of ten days referred to
in said article shall be counted from the time the appeal is perfected. (n)
Art. 1675. Except in cases stated in Article 1673, the lessee shall have a
right to make use of the periods established in Articles 1682 and 1687.
(1570)
Art. 1676. The purchaser of a piece of land which is under a lease that is
not recorded in the Registry of Property may terminate the lease, save
when there is a stipulation to the contrary in the contract of sale, or when
Cesar Nickolai F. Soriano Jr.
126 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
the purchaser knows of the existence of the lease.
If the buyer makes use of this right, the lessee may demand that he be
allowed to gather the fruits of the harvest which corresponds to the current
agricultural year and that the vendor indemnify him for damages suffered.
If the sale is fictitious, for the purpose of extinguishing the lease, the
supposed vendee cannot make use of the right granted in the first
paragraph of this article. The sale is presumed to be fictitious if at the time
the supposed vendee demands the termination of the lease, the sale is not
recorded in the Registry of Property. (1571a)
THE BUYER IS BOUND TO RESPECT THE LEASE CONTRACT ON THE
THING SOLD:
1. If there was a STIPULATION in the contract of SALE;
2. If the lease is REGISTERED which would be notice to the buyer;
3. If the buyer had ACTUAL KNOWLEDGE of the lease contracts at the
time of sale.
Art. 1677. The purchaser in a sale with the right of redemption cannot
make use of the power to eject the lessee until the end of the period for the
redemption. (1572)
Art. 1678. If the lessee makes, in good faith, useful improvements which
are suitable to the use for which the lease is intended, without altering the
form or substance of the property leased, the lessor upon the termination of
the lease shall pay the lessee one-half of the value of the improvements at
that time. Should the lessor refuse to reimburse said amount, the lessee
may remove the improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more impairment upon
the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no
damage is caused to the principal thing, and the lessor does not choose to
retain them by paying their value at the time the lease is extinguished. (n)
Improvements; OPTION: is with the LESSOR, whether he will
appropriate the improvement to himself or not.
1. If the lessor wishes to appropriate to himself the said improvements:
a. Necessary and useful improvement pay of the value at the
time the lease is extinguished;
b. Ornamental expenses pay 100% of the value at the time the
lease is extinguished.
Note: in both cases, the value is to be reckoned at the TIME THE
LEASE IS EXTINGUISHED, not based on the cost of the improvement.
2. If the lessor does not wish to appropriate to himself the said
improvements:
a. The lessee may remove the improvement:
1) Necessary and useful improvement even if it may cause
damage to the leased property, provided no unnecessary
damage is caused;
2) Ornamental expenses if it would not cause damage to the
principal thing limited rght of removal.
b. If the lessee refuses to remove, the lessor may have it
demolished.
ART. 448 on BUILDER IN GOOD FAITH DOES NOT APPLY: a lessee is
neither a builder nor a possessor in good faith This principle of possessor
in good faith naturally cannot apply to a lessee because as such lessee
he knows that he is not the owner of the leased property. Neither
can he deny the ownership or title of his lessor. Knowing that his occupation
of the premises continues only during the life of the lease contract and that
he must vacate the property upon termination of the lease or upon the
violation by him of any of its terms, he introduces improvements on said
property at his own risk in the sense that he cannot recover their value from
the lessor, much less retain the premises until such reimbursement. Being
mere lessees, respondents knew that their right to occupy the premises
existed only for the duration of the lease. (Lopez v. Philippine & Eastern
Trading Co., Inc.)
In Cortez v. Manimbo, the Court held that if the rule were otherwise, it
would always be in the power of the tenant to improve his landlord out of
his property. Under Article 1678 of the Civil Code, the lessor has the primary
right (or the first move) to reimburse the lessee for 50% of the value of the
improvements at the end of the lease. If the lessor refuses to make the
reimbursement, the subsidiary right of the lessee to remove the
improvements, even though the principal thing suffers damage, arises.
(Cheng vs. Vittorio)
Note that under Art. 448, the BUILDER, PLANTER or SOWER as such must
be IN THE CONCEPT OF AN OWNER. Thus, the lessee cannot be
considered as such because he cannot even question the title of the lessor
under Sec. 2(b) Rule 131 of the Rules of Court:
"[o]nce a contact of lease is shown to exist between the parties, the lessee
cannot by any proof, however strong, overturn the conclusive presumption
that the lessor has a valid title to or a better right of possession to the
subject premises than the lessee
BAR QUESTION: Anselmo is a registered owner of a land and a house that
his friend Boboy occupied for a nominal rental, and on a condition that
Boboy would vacate the property on demand. With Anselmos knowledge,
Boboy introduced renovations consisting of an additional bedroom, a
covered veranda, and a concrete fence, all at his own expense. Suddenly,
Anselmo needed the property for his residence and thus asked Boboy to
vacate the property and turn it over to him. Boboy failed to vacate the
property prompting Anselmo to send him a written demand to vacate. In his
own written reply, Boboy signified that he is ready to leave but Anselmo
must first reimburse him the value of improvements on the property as he
was a builder in good faith. Anselmo refused, insisting that Boboy cannot
ask for reimbursement as he is a mere lessee. Boboy responded by
removing the improvements and leaving the building in its original state.
Resolving Boboys claim, that as a builder in good faith, he should be
reimbursed the value of improvements he introduced. Resolve Boboys
claim.
ANSWER: There is a contract of lease. Boboys claim of being a builder a
good faith is untenable because he did not make such improvements on the
property as the owner thereof. Art. 448 applies only to a builder who was
such in the concept of an owner.
However, Boboy cannot be held liable for damages. Anselmo, as the lessor,
already made a choice of NOT appropriating the improvements. As such, the
lessee would have the right to remove the necessary and useful
improvement even if it caused damage to the principal. So long as no
unnecessary damage was caused. In the problem, there wasnt even
damage to the thing leased since it was stated that the building was left in
its original state.
Art. 1679. If nothing has been stipulated concerning the place and the
time for the payment of the lease, the provisions or Article 1251 shall be
observed as regards the place; and with respect to the time, the custom of
the place shall be followed. (1574)
RIGHT OF FIRST REFUSAL: This is different with Option to Buy. In the
latter, the lessee exercises such right to buy the property leased even if the
lessor does not want to sell. In the former, the seller is already selling the
property, and the lessee must be given the right to first refuse to buy the
same.
This right is not provided for under the Civil Code, only under jurisprudence.
Conflicting court cases:
Ang Yu Asuncion vs. CA: if the lessor sold the property without the
consent, or without informing the lessee:
a. The lessee does not have the right to rescind the sale;
b. The lessee cannot compel the lessor to sell to him the property;
c. The lessee may be entitled to damages for the quasi-delictual act of
the lessor.
Cesar Nickolai F. Soriano Jr.
127 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
In this case, the lessee was not allowed to rescind the sale since the buyer
was not impleaded. Rescission of the sale would violate the buyers right to
due process.
Equatorial Realty vs. Mayfair Theater: the lessee has a right to rescind
if the buyer is in bad faith, i.e., he had knowledge of the existence of the
lease contract, and the lessee has the right to compel the lessor to sell to
him.
BAR QUESTION: Dax leased his house to Iris for a period of 2 years, at a
rate of P25K monthly, payable annually in advance. The contract stipulated
that it may be renewed for another 2 years by agreement of the parties.
The contract also granted Iris a right of first refusal to purchase the
property at anytime during the lease if Dax decided to sell the property at
the same price or the property is offered for sale to another third party. 23
months after the execution of the lease contract, Dax sold the house to his
mother for 2M. Iris claimed that the sale was a breach of her right of first
refusal but Dax said that there was no breach because the property was
sold to his mother who is not a third party. Iris filed an action to rescind the
sale and asked Dax to sell the property to her. Alternatively, she asked the
court to extend the lease for another two years for the same terms.
CAN Iris seek rescission of the sale of the property to Daxs mother?
ANSWER: No. For rescission to be a remedy of the lessee in order to
exercise his right of first refusal, there must ba showing that the buyer was
in bad faith and the lessee has the burden of proving the same.
In the problem, there is nothing that would indicate that the mother was in
bad faith. As such, the presumption of good faith stands. Accordingly, Iris
cannot seek the rescission of the sale.
BAR QUESTION: Tess leased her 1,500 sqm lot in Antipolo city to Ruth for
a period of 3 years from Jan 2010 to Feb. 2013. On March 19, 2011, Tess
sent a letter to Ruth as follows: I am offering you to buy the property you
are presently leasing at 5k per sqm of 7.5M. You can pay the installment
price for two years without interest. I will give you a period of 1 year from
the receipt of this letter to decide whether you will buy the property or not.
After the expiration of the lease contract, Tess sold the property to
her niece for a total consideration of P4M. Ruth filed a complaint for the
annulment of sale, reconveyance and damages against Tess and her niece.
Ruth alleged that the sale of the property to the niece violated her right to
buy under the right of first refusal. Is the allegation Ruth tenable?
ANSWER: No. What is involved in this problem is an option to buy, not the
right of first refusal. It appears that Ruth did not exercise her option to buy
because the lease term, which is also the period within which she can
exercise such right, already expired.
SECTION 3. - Special Provisions for Leases of Rural Lands
Art. 1683. The outgoing lessee shall allow the incoming lessee or the
lessor the use of the premises and other means necessary for the
preparatory labor for the following year; and, reciprocally, the incoming
lessee or the lessor is under obligation to permit the outgoing lessee to do
whatever may be necessary for the gathering or harvesting and utilization of
the fruits, all in accordance with the custom of the place. (1578a)
Art. 1684. Land tenancy on shares shall be governed by special laws, the
stipulations of the parties, the provisions on partnership and by the customs
of the place. (1579a)
Art. 1685. The tenant on shares cannot be ejected except in cases
specified by law. (n)
SECTION 4. - Special Provisions of the Lease of Urban Lands
Art. 1686. In default of a special stipulation, the custom of the place shall
be observed with regard to the kind of repairs on urban property for which
the lessor shall be liable. In case of doubt it is understood that the repairs
are chargeable against him. (1580a)

Art. 1688. When the lessor of a house, or part thereof, used as a dwelling
for a family, or when the lessor of a store, or industrial establishment, also
leases the furniture, the lease of the latter shall be deemed to be for the
duration of the lease of the premises. (1582)
CHAPTER 3
WORK AND LABOR
SECTION 3. - Contract for a Piece of Work
Art. 1713. By the contract for a piece of work the contractor binds himself
to execute a piece of work for the employer, in consideration of a certain
price or compensation. The contractor may either employ only his labor or
skill, or also furnish the material. (1588a)
Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title
and against hidden defects and the payment of price in a contract of sale.
(n)
Art. 1715. The contract shall execute the work in such a manner that it has
the qualities agreed upon and has no defects which destroy or lessen its
value or fitness for its ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the contractor remove the
defect or execute another work. If the contract fails or refuses to comply
with this obligation, the employer may have the defect removed or another
work executed, at the contractor's cost. (n)
Art. 1716. An agreement waiving or limiting the contractor's liability for
any defect in the work is void if the contractor acted fraudulently. (n)
Art. 1717. If the contractor bound himself to furnish the material, he shall
suffer the loss if the work should be destroyed before its delivery, save
when there has been delay in receiving it. (1589)
Art. 1718. The contractor who has undertaken to put only his work or skill,
cannot claim any compensation if the work should be destroyed before its
delivery, unless there has been delay in receiving it, or if the destruction
was caused by the poor quality of the material, provided this fact was
communicated in due time to the owner. If the material is lost through a
fortuitous event, the contract is extinguished. (1590a)
Art. 1719. Acceptance of the work by the employer relieves the contractor
of liability for any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special knowledge,
expected to recognize the same; or
(2) The employer expressly reserves his rights against the contractor by
reason of the defect. (n)
Art. 1720. The price or compensation shall be paid at the time and place of
delivery of the work, unless there is a stipulation to the contrary. If the work
is to be delivered partially, the price or compensation for each part having
been fixed, the sum shall be paid at the time and place of delivery, in the
absence if stipulation. (n)
Art. 1721. If, in the execution of the work, an act of the employer is
required, and he incurs in delay or fails to perform the act, the contractor is
entitled to a reasonable compensation.
The amount of the compensation is computed, on the one hand, by the
duration of the delay and the amount of the compensation stipulated, and
on the other hand, by what the contractor has saved in expenses by reason
of the delay or is able to earn by a different employment of his time and
industry. (n)
Art. 1722. If the work cannot be completed on account of a defect in the
material furnished by the employer, or because of orders from the
employer, without any fault on the part of the contractor, the latter has a
Cesar Nickolai F. Soriano Jr.
128 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
right to an equitable part of the compensation proportionally to the work
done, and reimbursement for proper expenses made. (n)
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years from
the completion of the structure, the same should collapse by reason of a
defect in those plans and specifications, or due to the defects in the ground.
The contractor is likewise responsible for the damages if the edifice falls,
within the same period, on account of defects in the construction or the use
of materials of inferior quality furnished by him, or due to any violation of
the terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any
of the cause of action by reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years following the collapse of the
building. (n)
BAR EXAM: O (lot owner), contracted with B (builder), to build a mall,
designed by A (architect). A was paid a fee to supervise the construction
and execution of his design. When completed, O accepted the work and
occupied the same but within one year, it collapsed in an earthquake which
destroyed only the building but not the surrounding buildings. The
construction was faulty. The building costs P3M, but reconstruction would
cost P10M.
1) What are the rights of O against A and B?
2) Could O demand reconstruction of the building?
ANSWER:
1) O can hold A and B liable for damages. Even if the collapse was due to
an earthquake, it was clear in the problem that the construction was
faulty. Moreover, only the building of O collapse and not the
surrounding buildings. As such, B, as the builder is liable for such faulty
construction.
On the other hand, A would be solidarily liable with B, since he
supervised the construction.
2) Yes. The law is clear that if the work is poorly done, the creditor has
the right to have it undone at the expense of the debtor, plus
damages. However, he cannot demand from A and B the
reconstruction if the latter does not want, otherwise it would violate
the proscription against involuntary servitude. O, however, can have
the work done by another at the expense of A and B.
Art. 1725. The owner may withdraw at will from the construction of the
work, although it may have been commenced, indemnifying the contractor
for all the latter's expenses, work, and the usefulness which the owner may
obtain therefrom, and damages. (1594a)
Art. 1726. When a piece of work has been entrusted to a person by reason
of his personal qualifications, the contract is rescinded upon his death.
In this case the proprietor shall pay the heirs of the contractor in proportion
to the price agreed upon, the value of the part of the work done, and of the
materials prepared, provided the latter yield him some benefit.
The same rule shall apply if the contractor cannot finish the work due to
circumstances beyond his control. (1595)
Art. 1727. The contractor is responsible for the work done by persons
employed by him. (1596)
Art. 1728. The contractor is liable for all the claims of laborers and others
employed by him, and of third persons for death or physical injuries during
the construction. (n)
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. However, the following shall not prejudice the laborers, employees
and furnishers of materials:
(1) Payments made by the owner to the contractor before they are due;
(2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws. (1597a)
Materialmens Lien: although there is no privity of contract between the
suppliers of labor and materials and the owner of the piece of work (since
the owner only has a contract with the contractor, and the contractor to the
suppliers), the latter may be held liable to the suppliers under the principle
of unjust enrichment, since these materials and labor are incorporated in
the piece of work.
Extent of liability; General Rule: the extent of the amount owing to the
contractor at the time of the demand, which is the total contract price
(between the contractor and the owner) less any payments already made.
This is the only amount by which the owner may be unjustly enriched if he
is not made liable to the materialmen.
Exceptions: owner may be held liable even if he no longer owe anything to
the contractor
1. If he paid the contractor when his obligation was not yet due and
demandable;
2. The owner is not liable to the contractor because the latter renounced
the amount the owner owes him;
3. No bond was executed was executed to secure the claims of the
materialmen (Performance Bond) the owner and contractor are
solidarily liable.
Art. 1730. If it is agreed that the work shall be accomplished to the
satisfaction of the proprietor, it is understood that in case of disagreement
the question shall be subject to expert judgment.
If the work is subject to the approval of a third person, his decision shall be
final, except in case of fraud or manifest error. (1598a)
Art. 1731. He who has executed work upon a movable has a right to retain
it by way of pledge until he is paid. (1600)
TERMINATION OF THE LEASE:
1. Death of the lessor or the lessee as a rule, it does not extinguish
the lease contract since this is not a purely personal contract, EXCEPT
if it was stipulated that the rights under the lease contract are
intransmissible;
2. Loss of the thing subject of the contract of lease through a
fortuitous event:
Art. 1655. If the thing leased is totally destroyed by a fortuitous event, the
lease is extinguished. If the destruction is partial, the lessee may choose
between a proportional reduction of the rent and a rescission of the lease.
(n)
BAR QUESTION: A is the owner of a lot on which he consstructed a
building with a cost of P10M, B contributed P5M, provided the building as a
whole would be leased to him for a period of 10 years at a renal of P100k.
During the effectivity of the lease, the building was destroyed through a
fortuitous event. Soon after, the workers of A collected the debris and
constructed a new building. B then served notice that he would occupy the
building being constructed for the unexpired portion of the lease since he
contributed to the construction of the first building. A rejected. Did A do
right in rejecting the demand?
ANSWER: Yes. Because the contract has been terminated upon the loss of
the thing subject of the lease, which is the building.
What if partial loss? The lessee has two options:
1. Demand for the reduction of the rent;
2. Rescind the contract if the loss is substantial consistent with the Art.
1911.
Cesar Nickolai F. Soriano Jr.
129 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
D. AGENCY
DEFINITION: by a contract of agency, a person binds himself to render
some service or to do something in representation or on behalf of another
with the consent or authority of the latter.
QUESTION: if my cousin would not be able to attend a wedding and ask
me to go to such in his behalf, was there a contract of agency?
ANSWER: No. The definition is so broad as to cover representations not
contemplated by the Code Commission. The object or the purpose of the
contract is to execution of a juridical act. As such, not all kinds of
representations would not be an agency if it would not involve a juridical
act.
A juridical act is an act which would either create, modify or extinguish a
legal relationship. Not social and political relationship.
Example of a juridical act: act of buying. Where an agent is hired to buy
something in behalf of the principal and the act of buying creates a legal
relationship between the seller and the principal (not the agent). The act of
the agent of paying for the thing sold, would extinguish the legal obligation
of the principal, the act of paying is likewise a juridical act.
with the consent or representation of the latter: redundancy because the
beginning of the definition already mentions a contract.
Consensual: perfected by mere consent and does not require delivery or a
certain form to be valid.
DISTINCTION WITH LEASE (or SALE): the cause in agency is presumed
to be onerous, but it may be gratuitous. Lease or sale is essentially onerous.
Who would have the burden of proof that an agency is gratuitous? Anyone
who would claim that it is gratuitous since the law already presumes it to be
with compensation.
Why agent? Under Art. 1909, if the agent caused damaged to the principal,
the liability may be mitigated if the agency is gratuitous.
PREPARATORY: the agency is a contract which is not an end to itself, it is
meant to enter into another contract.
BAR QUESTION: Joan asked her friend Aiza to buy some groceries for her
in the supermarket, was there a nominate contract entered into by Joan and
Aiza?
ANSWER: Yes, agency, provided Aiza agreed. Subject matter is a service,
i.e., to buy some groceries. Purpose is to buy in behalf of Joan. This cannot
be considered a lease of service, since the cause in lease of service cannot
be gratuitous and there should have been no principal-agent relationship.
DISTINCTION WITH LEASE OF SERVICE: in agency, there is right of
representation.
DISTINCTION WITH NEGOTIORUM GESTIO: there is right of
representation in both, but the manner of creation is different: in agency, it
is created by contact; in negotiorum gestio, it is created by law.
Moreover, agency is fiduciary in character while negotiorum gestio is not.
DISTINCTION WITH AGENCY TO SELL: effect of delivery of the thing
from one thing to another: if there will be tranasfer of ownership at the time
of delivery sale; if there will not be a transfer of ownership, but only
possession and right to sell agency to sell.
DISTINCTION WITH CONTRACT FOR A PIECE OF WORK: extent of
control: in a contract for a piece of work, the control aspect is only as to the
end result and does not include the manner the contractor will perform his
obligation.

AS TO TERMINATION: just like any other contract involving trust and
confidence, this may be terminated by the unilateral act of one of the
parties without prejudice to the liability of the party who caused the
termination: as to principal revocation; as to agent withdrawal.
KINDS OF AGENCY: IN GENERAL: the relevance of this classification
1. Actual: Manner of Creation:
a. express or
b. implied (by the mere silence of one of the parties, like in the case
of De la Pena vs. Hidalgo, where the principal did not repudiate
the acts of the agent after knowing of the representation that the
latter is acting as such).
When the parties are present or absent:
1) Parties are both present: one of them delivered a SPA and
the same was accepted without any objections, an agency is
created by mere silence.
2) Parties are absent: A sent an email to B for the creation of
agency, B did not reply, is there an agency? If the subject of
the contract is a business he is habitually engaged in, yes.
2. Apparent or Ostensible Art. 1873 (Rallos vs. Yangco)
Art. 1873. If a person specifi cally informs another or states by public
advertisement that he has given a power of attorney to a third person,
the latter thereby becomes a duly authorized agent, in the former case
with respect to the person who received the special information, and in
the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded
in the same manner in which it was given. (n)
PROBLEM: A company wrote a circular letter to its customers
introducing a certain X as its duly authorized agent. One customer then
dealt with the company thru X. One day, Xs authority was revoked,
but the customer continued to deal thru X since it never was informed
by circular or otherwise of the revocation. Is the Company still liable
for Xs acts even after the revocation of the agency?
ANSWER: Yes, for the customer was in good faith, not having been
informed by circular or otherwise, of the revocation. (See Compania
Gen. de Tabacos v. Diaba, 20 Phil. 321 and Rallos v. Yangco, 20 Phil.
269).
Criticism of Justice JBL Reyes: the above should not be taken
literally. The principal may not be liable if the third person (or the
customer in the above letter) had ACTUAL KNOWLEDGE, even if the
customer was not informed of the termination in the same manner as
the announcement of the agency.
3. Agency by Estoppel: a person may be held as a principal despite the
lack of proof of the existence of agency if he clothed another person as
if he had full powers as an agent, the principal would not, later on, be
allowed to deny such, to the prejudice of a third person who relied on
his conduct or representations. (Art. 1431 as discussed int eh case of
Mac vs. Cams)
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon.
SCOPE OF AUTHORITY OF AN AGENT:
1. Mere Administration
2. Act of Strict Dominion
BAR QUESTION: A, as principal, appointed B as his agent, granting him
general and unlimited management over As properties, stating that A
withholds no power from B, and that the agent may execute acts as he may
deem appropriate.
Cesar Nickolai F. Soriano Jr.
130 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Accordingly, B leased As parcel of land in Manila to C for four years at
P60,000 per year, payable annually in advance. Also, B leased As land in
Caloocan to D without a fixed term for P3,000 per month, payable manually.
All these contracts are entered into by B while A was in the hospital due to
illness in the Makati Medical Center.
Rule on the validity of the above contracts upon A, the principal.
ANSWER: Despite the stipulation that the principal withholds no power
from the agent, the agents power is limited only to acts of administration
under Art. 1877 since the contract is couched in general terms.
The lease contract to C: contract of lease involving a real property for more
than 1 year act of ownership. There being no Special Power of Attorney,
this contract of lease is not binding, it is unenforceable upon A.
The lease contract to D: contract of lease involving a real property with no
period. Since the contract did not state a term, and the subject being an
urban land (being situtated in Caloocan), the law fixes the term to be on a
month-to-month basis since the payment of the rent is monthly. As such,
the period of the lease is only one month. Therefore, it is merely an act of
administration that does not require a Special Power of Attorney. The
contract is binding upon the principal.
ESSENTIAL ELEMENTS:
1. Consent of the principal and agent;
If the agent is a minor the contract of sale (subject of the agency) was
entered into: the contract is not considered voidable, the capacity of
the principal is to be considered not that of the agent. Moreover, the
buyer cannot invoke the agents minority as a ground for annulment,
the minor is the only one who can invoke such incapacity.
2. Object: the execution of a juridical act.
3. Cause: presumed to be for compensation, but may be gratuitous.
FORM: does not pertain to the agency itself, since no particular form is
required for its VALIDITY. Under Art. 1869, a contract of agency may be
oral, UNLESS THE LAW REQUIRES A SPECIFIC FORM.
Here, the SPECIFIC FORM does not affect validity, but enforceability, if it is
not to be performed within one year, it will be covered by the Statute of
Frauds.
Contracts entered into by the agent: may require specific form to be
binding upon the principal. GENERAL RULE: no form is required. Except:
1. Art. 1874: sale of a piece of land or any interest therein: the
authority of the agent shall be IN WRITING, otherwise the contract of
sale shall be void.
Agency is not void, only the contract of sale.
Note that the above provision covers a piece or parcel of land. Not
immovable. As such, sale of condo, house or building is not covered by
the provision. Sale of such without the agents authority in writing, will
make it unenforceable upon the principal, not void.
CASE: Ana Marie Concepcion is a buyer of a parcel of land who claims
to have fully paid the amount of such land to a certain Adoracion
Losloso on the basis of a note by the seller-spouses that the payment
be given to a certain Dory, who appepars to be Adoracion Losloso.
The sellers on the other hand claim that there no full payment yet. SC:
the note is sufficient authorization to collect.
CASE: Brigida Nido sold a parcel of land representing her daughter
Srivastava. The authority of the mother was not put in writing. SC: By
express provision of the law, the agents authority to sell the land must
be in writing. As such, the sale of land is void.
BAR QUESTION: Fe, Esperanza and Caridad inherited from their
parents a 500 sqm lot which they leased to Maria for 3 years. One year
 after, Fe claiming to have the authority from her siblings Esperanza
and Caridad offered to sell the leased property to Maria which the
latter accepted. The sale was not reduced into writing, but Maria made
partial payments which Fe accepted and acknowledged. After giving
full payment, Maria demanded the execution of a Deed of Absolute
Sale which Esperanza and Caridad refused to do. Worse, Maria learned
that the siblings sold the same property to Manuel. Maria filed a
complaint for annulment of the sale with specific performance and
damages. Decide the case.
ANSWER: The sale to Maria was only valid as to Fes share. Fes
authority did not have her authority in writing to sell in behalf of her
siblings. The sale did not bind the siblings, the sale of their share being
void.
2. Art. 1878: instances requiring a Special Power of Attorney.
Art. 1878. Special power of attorney are necessary in the following
cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in
existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the
right to appeal from a judgment, to waive objections to the venue of
an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity or those made to
employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one
year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion.
OBLIGATIONS OF AN AGENT:
1. Agent must act within the scope of his authority
How to determine scope of authority:
a. The power of attorney itself: third person may demand the
presentation of the power of attorney. Failure to do so, the third
person dealing with the agent may be held negligent.
Katigbak vs. Tai Hing Company: the agent was authoried to sell
properties of the principal and was able to do so. Thereafter, the
principal does not want to recognize the transactions covering
properties acquired after constitution of the agency. SC: the power of
attorney contained a phrase which might belong. As such, the scope
of the authority of the agent covers after acquired proeprties.
sell, buy, lease, let in relation to the good administration of the land
the right to sell and buy does not pertain to the land itself since the
power of the agent is qualified by the good administration. If the
agent was authorized to sell the land itself, then there is no more land
to administer. It must be interpreted as to pertain to selling the fruits
of the land, buying the necessaries for the cultivation thereof, etc.
b. The law:
1) The power to sell does not include the power to mortgage.
(Art. 1879)
Cesar Nickolai F. Soriano Jr.
131 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
2) Acts as may be necessary conducive to the accomplishment
of the purpose of the agency. (Art. 1881)
3) Acts performed in a manner more advantageous to the
principal than that specified by him. (Art. 1882)
c. Jurisprudence:
1) Singjuco: the agent was authorized to sell parcels of land but
entered into a contract of guaranty
2) Municipal Council of IloIlo vs. Evangelista: agent was hired
to file cases to protect the interest of the principal which
included hiring a lawyer. The agent not only hired but also
paid the lawyer. Necessarily, the authority hire includes the
authority to pay.
3) Insular Drug vs. PNB: a certain Forster was authorized to
collect sums of money and checks from the clients of Insular
Drug. Forster was able to deposit these checks to his
personal account in PNB by asking his wife or secretary to
indorse the checks to him. The authority to collect does not
include the authority to indorse or encash checks. Those acts
are responsible acts which require a power of attorney.
BAR QUESTION: Prime Realty Corporation appointed Nestor as the
exclusive agent in the sale of lots of its newly developed subdivision. PRC
told Nestor that he could not receive payments from the buyers. Nestor was
able to sell 10 lots to Jesus and to collect DPs from said lots which was not
turned over to PRC. Who shall bear the loss for Nestors failure to turn over
the money? PRC or Jesus?
ANSWER: If it is clear in the power of attorney that Nestor does not have
authority to collect and Jesus did not demand for a copy of the power of
attorney, Jesus will bear the loss.
Effect, if agent did not act within the scope of his authority:
a. As to the principal: as a rule, the contract is unenforceable and will
not bind the principal, EXCEPT:
1) If the principal ratifies;
2) The principal is estopped as when he led the third person to
believe that the agent had full powers under Art. 1911, principal
and agent are solidarily liable.
3) If the limitation could not have been known by the third person. If
the authority is in writing and the third person relied on such. As
a rule, the third person is not required to inquire into the scope of
authority of the agent beyond the power of attorney as written.
(Art. 1900)
b. As to the third person: he may hold the agent liable, EXCEPT:
1) If the principal ratifies; or
2) The 3rd person is aware that the agent exceeded his authority.
However, the agent may still be held liable if he undertook to
secure the ratification of the principal. (Art. 1898)
2. Agent must act in representation of the Principal
BAR QUESTION: CX executed a special power of attorney authorizing DY
to secure a loan from any Bank and to mortgage his property covered by
the owners copy of the certificate of title. In securing a loan from M Bank,
DY did not specify that he was acting for CX in the transaction with said
bank. Can M Bank hold CX liable?
ANSWER: No. When DY did no specify that he was acting in behalf of CX,
the Bank allowed him to borrow money on his own, since the Bank had no
knowledge that he was merely acting as an agent. The agent must act not
only within his scope, but also in representation of the principal.
Under Art. 1883, if the agent did not act in representation of the principal,
the latter and the third person would have no cause of action against each
other. The transaction is deemed to be only between DY and M Bank.
Even though there was property in the problem belonging to the principal,
the same is not the object of the loan, which is the transaction entered into
by the agent. Moreover, it does not appear that the principals property was
mortgaged. Furthermore, even if the property was indeed mortgaged, DY
acting as the owner thereof, the mortgage would have been invalid not
being the absolute owner of the property. On the other hand, if he
mortgaged it as an agent, the mortgage would still not bind the principal,
because the authority of the agent is to mortgage the property to secure
the principals obligation not his own. (BPI vs. De Coster) As such, the rule
applies that CX and the Bank will have no cause of action against each
other.
BPI vs. De Coster: Mrs. De Coster authorized her husband to mortgage
her property to secure the fulfillment of her obligations to the bank.
However, the Mr. mortgaged the property to secure the obligations of his
own obligations. Mr. De Coster failed to pay his obligations to BPI and the
latter foreclosed the mortgage. Mrs. De Coster opposed. SC: mortgage did
not bind the principal since the mortgages purpose was to secure the
obligations of the wife and not of the husband. The act of the husband was
outside of his authority and as such, it did not bind the wife (principal).
BREACH OF FIDUCIARY DUTY:
Domingo vs. Domingo: the principal Domingo (defendant) authorized
plaintiff Domingo to sell a specific parcel of land. Pursuant to such, plaintiff
was able to induce Oscar de Leon to buy the land. Oscar de Leon gave the
agent as gift, which was not disclosed by the agent to the principal.
Thereafter, the principal and Oscar de Leon was not able to agree on the
price. They eventually agreed to remove the agent to save on commission,
where the principal agreed to sell at the lower price acceptable to de Leon.
The two dramatisized that the sale will not push through and the principal
revoked the authority of the agent. The agent went to the Register of Deeds
and discovered that there was a Deed of Sale where the principal sold the
land to the wife of Oscar de Leon. The agent demanded for his commission
claiming that the sale actually proceeded despite the fact that the buyer was
the wife of de leon. Is the agent entitled to his commission?
SC: No. He would have been entitled to the commission since the
revocation of his authority was made in bad faith. However, he also failed to
comply with his own obligation to deliver to the principal whatever was
received through the agency, even if it does not pertain to the principal. By
failing in his fiduciary duty, his commissions were deemed FORFEITED.
Appointment of SUBSTITUTE AGENT:
Art. 1892. The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person,
and the person appointed was notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal
shall be void
What if at the time the property is being managed by the
substitute losses were incurred by the principal. Can the principal
hold the agent or substitute liable? Even if there is no privity of
contract, Art. 1893, provides the principal a cause of action. As such, the
principal MAY hold the substitute liable, if the cause of the loss was due to
his fault. However, he may not be held liable if he acted within his scope of
authority, in good faith and diligently. This is because the agent is not the
insurer of the principals success.
Agent is liable:
1. When he appointed a substitute if prohibited;
2. When the agent was not prohibited, he shall be responsible for the
acts of the substitute if he was not given the power to appoint one
the liability attaches only when the substitute acted in bad faith,
outside the scope of his authority or was negligent;
3. When he was given the power to appoint a specific person but
appointed another one;
4. When he was given the power to appoint a substitute without
specifying the person, but the person he appointed was notoriously
incompetent or insolvent.
Cesar Nickolai F. Soriano Jr.
132 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Agent NOT liable for the acts of the substitute: if he appoints one
where he was authorized to do so, and the one appointed is the one
instructed by the principal or a person not notoriously incompetent or
insolvent.
Note however, that under Art. 1888, the agent must not carry out an
agency if its execution would manifestly result in loss or damages to the
principal. As such, if the agent knew of the notorious incompetence of the
person designated, he must at least inform the principal.
Sub-agent: When an agent appoints a sub-agent, he is still the agent, as
such he will be liable for the acts of such sub-agent. Unlike in appointment
of a substitute, the agent no longer remains as such.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article,
the principal may furthermore bring an action against the substitute with
respect to the obligations which the latter has contracted under the
substitution.
COMMISSION AGENT: DEFENSE: as long as the agent performed his
duties with the diligence required. As such, even if he was not able to
comply with his obligation, say to sell the products of the principal, he will
not be liable. Note that the agent is not the insurer of the business of the
principal.
Guaranty Commission Agent: receives a guaranty commission, and as
such, he bears the risk of collection. Accordingly, failure to collect from the
buyers, he shall be liable to the principal.
RIGHTS AND OBLIGATIONS OF THE PRINCIPAL:
1. The principal must comply with the tranasctions entered into by the
agent within the scope of his authority and in representation of the
principal;
2. To REIMBURSE expenses incurred by the agent (including interest, Art.
19120, EXCEPT:
a. Agent acted in contravention of the principals insstructions,
unless the latter should wish to avail of the benefits derived from
the contract;
b. Expenses were due to the fault of the agent;
c. Agent incurred them with knowledge that an unfavourable result
would ensue;
d. When it was stipulated that the expenses would be borne by the
agent. (Art. 1918)
3. Liable for damages to a third person whose contract is rejected when
the same thing is the subject of incompatible contracts entered into by
the agent and the principal to different persons.
Agent is likewise liable if he acted in bad faith.
MODES OF EXTINGUISHMENT: (EDWARD)
1. Expiration of the term;
2. Death, Insolvency or Insanity of either of the parties;
3. Withdrawal of the agent;
4. Accomplishmetn of the object or purpose of the agency;
5. Revocation by the principal;
6. Dissolution of the firm or corporation which entrusted or accepted the
agency.
Not exclusive: modes of extinguishment under OBLICON are likewise
applicable.
Death of Principal: ordinarily, the agency is extingsuished since death of
one of the parties extinguishes this contract under Art. 1919. Moreover, the
agency is representative in character, with the death of the principal, there
is no one the agent can represent. EXCEPT: if the agency was constituted
for the benefit of the common interest of the principal and the agent, or in
the interest of the third person who has accepted the stipulation in his
favor. In this case, the agency shall remain in full force and effect even
after the death of the principal. (Art. 1930)
Art. 1931: is not an exception to the above. The act of the agent, without
knowledge of the death of the principal, will still bind the estate of the
principal. However, the agency is still extinguished.
BAR QUESTION: In a telephone conversation, A authorized B in 1950 to
sell a parcel of land. A died in 1954. In 1956, heirs of A sold the same land
to C. In 1957 B sold the same land to D. C did not register the sale. D who
was not aware of the previous sale registered the land.
Who has a better right to the land?
ANSWER: C has a better right. Bs sale to D is void because his authority to
sell is not in writing.
With a SPA, who has a better right? Art. 1931 will be applicable. D has a
better right. B did not have knowledge of the death of A. As such, the
transaction entered into by B would still bind the principal (or in this case,
his estate). As such, his sale to D was valid.
D, registering the property first, in good faith, has a better right over C,
following the rules on double sale under Art. 1544.
Continuation of the agent: As a general rule, the agent need no longer
continue with the agency.
EXCEPTION: the agent should continue with tasks already begun and there
would be danger (to the estate of the deceased or third persons).
Death of Agent: agency is representative in character, if the agent is
dead, who will represent the principal? As such, the death of the agent
would extinguish the agency.
Loss of the Thing subject of the Agency:
BAR QUESTION: Edgar gave to Mario a pendant with diamond to be sold
or to be retruned on demand. On one evening in the 80s, Mario, wearing
the necklace was robbed and the pendant was taken. The robbers were
apprehended and during the pendency of the criminal case, Edgar initiated
a complaint to recover from Mario the value of the pendant and damages.
Mario interposed the defense of fortuitous event. Edgar contended that the
defense is untenable because (1) Mario was negligent; and (2) there must
be a prior conviction of robber before the defense can be availed of. Decide
the case.
ANSWER:
1. The criminality rate in the 80s was already high. As such, Mario is
negligent to be wearing a necklace with diamonds at night time.
2. In Austria vs. CA, the court ruled that as a fortuitous event to be a
defense, it is not required that the perpetrator be apprehended nor
much worse, convicted. It is only necessary that the event was proven
by preponderance of evidence.
REVOCATION: the principal may revoke the agency at will.
What if with period? Sta. Marina vs. Barretto: even if there was a period
agreed upon by the parties, the principal can revoke the authority of such
agent at any time because agency is based on trust and confidence.
Abuse of Rights: The revocation must be made in good faith. Otherwise,
the principal may be liable for damages to the agent. Like in the case of
Domingo vs. Domingo, where the principal revoked the agents authority for
the purpose of avoiding paying him a commission.
Exceptions (Agency coupled with interest): the principal cannot
revoke the agency at will if:
1. A bilateral contract depends upon it
CASE: Collongco vs. Claparols: Claparols is the owner of a factory and badly
needed funds for his business to survive. He tried to obtain loans from
banks, but he was rejected. Collongco offered to lend money to Claparols on
the condition that, among others, he should be appointed as agent of
Claparols to obtain the bills of lading upon shipment to buyers and to
market the products.
Cesar Nickolai F. Soriano Jr.
133 Arellano University School of Law 2011-0303
Civil Law Review 2 under the class of Atty. Uribe
Later on, Claparols revoked the authority of Collongco. The latter sued
claiming that the agency is one coupled with interest. Is there a valid
revocation?
SC: Yes. A bilateral contract (loan) was dependent upon the agency. He
would not have loaned money if the agency would not be constituted.
Although the agency was one coupled with interest, there was still valid
revocation because there was a just cause. In this case, the just cause is
because Collongco sent to the banks derogatory letters which was the cause
for the non-approval of Claparols loans. Moreover, there was testimony of
one of the employees that he was asked by Collongo to pour acid to the
machineries of the factory.
Just cause: there is no need for the principal to have a just cause to
revoke the agency, such right being available at will. However, the principal
cannot revoke the agency at will if it is coupled with interest. However still,
if the principal revoked the agency, even if coupled with interest, the
revocation may still be valid if there is just cause.
2. It is the means of fulfilling an obligation already contracted;
BAR QUESTION: Richard sold a parcel of land to Leo for P100M payable in
annual installments over a period of 10 years but title will remain with
Richard until the price is fully paid. To enable Leo to pay the price, Richard
gave him a power of attorney authorizing him to subdivide the land and sell
the lands and to deliver the proceeds as payment for the land. 5 years later,
Richard revoked the power of attorney and took over the sale of the
subdivision lots himself. Is the revocation valid?
ANSWER: No. The scenario pertains to an agency coupled with interest
because it was constituted as a means of fulfilling an obligation which have
already been contracted or previously been contracted, i.e., to pay the
price. As such, as long as the interest is still existing, the principal cannot
validly revoke the agency.
3. A parter is appointed manager of a partnership in the contract of
partnership and his removal from the management is unjustifiable.
BAR QUESTION: Joe Miguel, a well known treasure hunter in Mindanao,
executed a SPA appointing his nephew John Paul as his attorney in fact to
deal with treasure hunting activities on Joe Miguels land and to file charges
against those who may enter it without the latters authority. JM agreed to
pay 40% of the treasure that may be found on the land. Thereafter, JP filed
a case against Lilo for illegally entering JMs land. Subsequently, JP hired the
services of Atty. Audrey agreeing to give the latter 30% of JMs share in
whatever treasure may be found on the land. Dissatisfied, however, with
the strategies implemented by JP, JM revoked the SPA granted. Is the
revocation proper?
ANSWER: No. because the agency is one coupled with interest because a
bilateral contract depends upon the agency, i.e., contract involving the legal
services of Atty. Audrey. Thus, the principal cannot revoke the authority of
the agency.
E. PARTNERSHIP
F. CREDIT TRANSACTIONS