Bar Q and A Oblicon

OBLIGATIONS AND
CONTRACTS
Table of Contents
I. Bar Questions and Suggested Answers 6

Fortuitous event; liability of the debtor (1932 BAR)............................7
Joint obligation (1971 BAR).................................................................7
Obligations with a period; “When his means permit him to do so”
(1973 BAR) ..........................................................................................8
Novation; Expromision (1975 BAR)....................................................8
Novation; delegacion (1975 BAR) ......................................................9
Obligations; conditional obligations (1975 BAR) ...............................9
Sources of obligation (1977 BAR)........................................................9
Reciprocal obligations; implicit resolutory condition; damages (1977
BAR)...................................................................................................10
Contracts; stipulation pour autrui (1977 BAR)...................................11
Resolutory condition; right of usurfruct (1979 BAR) ........................11
Contracts; voidable contracts (1979 BAR) ........................................12
Obligation with a period; courts fixing the period (1980 BAR).........12
Relativity of contracts; exception (1980 BAR) ..................................13
Contracts; consent; invitation to bid (1980 BAR)..............................14
Solidary liability (1981 BAR) ............................................................14
Fortuitous event; Depositary or bailee; Tender of payment (1981
BAR)...................................................................................................15
Compensation; principal creditor and debtor of each other (1981 BAR)
...............................................................................................................16
Contracts; forms of contracts (1982 BAR) .........................................17
Obligations with a period; Court fixing the period (1982 BAR)..........17
Application of payment (1982 BAR)....................................................18
Obligations; extinguishment; payment (1983 BAR) ..........................18
Fortuitous events; circumstances when liability still exists (1983 BAR)
...............................................................................................................19
Fortuitous events; Liability of obligor (1983 BAR).............................19
Obligations; extinguishment; payment (1983 BAR)............................20
Obligations; extinguishment; payment; consignation, when applicable
(1984 BAR)...........................................................................................20
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Contracts; perfection of contracts; obligations with a period (1988
BAR).....................................................................................................21
Obligations; extinguishment; novation (1988 BAR)............................22
Contracts; voidable contracts (1990 BAR)...........................................23
Nature of Contracts; Obligatoriness (1991 BAR) ................................23
Period; Suspensive Period (1991 BAR) ...............................................24
Extinguishment; Loss; Impossible Service (1993 BAR)......................25
Contracts; annulment of contracts; capacity to sue (1996 BAR) ........25
Nature of Contracts; Privity of Contract (1996 BAR)..........................27
Rescission of Contracts; Proper Party (1996 BAR) .............................27
Conditional Obligations; Promise (1997 BAR)....................................28
Consensual vs. Real Contracts; Kinds of Real Contracts (1998 BAR)
...............................................................................................................28
Extinguishment; Compensation vs. Payment (1998 BAR) ..................29
Extinguishment; Compensation/Set-Off; Banks (1998 BAR) .............29
................................Conditional Obligations; Resolutory Condition (1999 BAR)
............................................................................................................................30
Conditional Obligations (2000 BAR)...................................................31
Extinguishment; Condonation (2000 BAR) .........................................31
Extinguishment; Extraordinary Inflation or Deflation (2001 BAR) ....32
Obligations; joint/ solidary liability; joint (2001 BAR)........................32
Nature of Contracts; Relativity of Contracts (2002 BAR)....................33
..................................Obligations; joint/ solidary liability; solidary (2003 BAR)
............................................................................................................................34
.............................Liability; Solidary Obligation; Mutual Guaranty (2003 BAR)
............................................................................................................................34
.....................................................................Conditional Obligations (2003 BAR)
............................................................................................................................35
.................................Inexistent Contracts vs. Annullable Contracts (2004 BAR)
............................................................................................................................36
I. Bar Reviewer 38
PART I - OBLIGATION ..............................................................................39
KINDS OF OBLIGATION .........................................................................39
A) From the viewpoint of sanction: ........................................................39
B) From the viewpoint of subject matter:................................................39
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C) From the affirmativeness and negativeness of the obligation.............39
D. From the viewpoint of persons obliged: .............................................40
ELEMENTS OF OBLIGATION ................................................................40
SOURCES OF OBLIGATION....................................................................41
EFFECTS OF OBLIGATION ...................................................................43
ACCESSORY OBLIGATIONS:.................................................................43
FAILURE TO COMPLY WITH PERFORMANCE/REMEDIES..............43
IRREGULARITY OF PERFORMANCE / BREACH................................44
A. CAUSES ATTRIBUTABLE TO DEBTOR 44
B. CAUSES NOT ATTRIBUTABLE TO DEBTOR 46
REMEDIES OF CREDITORS .................................................................47
KINDS OF OBLIGATIONS .....................................................................48
Pure ....................................................................................................48
Conditional..........................................................................................48
With a period.......................................................................................50
Facultative...........................................................................................50
Alternative...........................................................................................50
Joint.....................................................................................................52
Solidary...............................................................................................52
Divisible...................................................................................................53
Indivisible.................................................................................................53
With penal clause.....................................................................................53
EXTINGUISHMENT OF OBLIGATIONS................................................54
PAYMENT OR PERFORMANCE.........................................................54
REQUISITES FOR VALID PAYMENT/PERFORMANCE .............54
PAYMENT MADE TO AN INCAPACITATED PERSON , VALID
IF..........................................................................................................55
PAYMENT TO A 3RD PARTY NOT AUTHORIZED, VALID IF
PROVED & ONLY TO THE EXTENT OF BENEFIT; PRESUMED
IF..........................................................................................................55
PAYMENT MADE IN GOOD FAITH TO A PERSON IN
POSSESSION OF CREDIT SHALL RELEASE DEBTOR, Requisites
..............................................................................................................55
SPECIAL RULES/FORMS OF PAYMENT - Special Forms: ..........56
Application of Payments ..............................................................56
Dacion en Pago ............................................................................57
Cession/Assignment in Favor of creditors ....................................57
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Consignation ................................................................................58
LOSS OF THE THING DUE..................................................................59
REBUS SIC STANTIBUS ...........................................................60
CONDONATION/REMISSION OF THE DEBT...................................60
CONFUSION OR MERGER OF RIGHTS.............................................61
COMPENSATION..................................................................................61
NOVATION.............................................................................................63
PART II - CONTRACTS...................................................................................65
PRINCIPAL CHARACTERISTICS............................................................65
KINDS OF CONTRACTS...........................................................................66
ESSENTIAL ELEMENTS OF CONTRACTS............................................66
CONSENT...............................................................................................66
OBJECT...................................................................................................69
CAUSA....................................................................................................69
FORM......................................................................................................70
KINDS OF DEFECTIVE CONTRACTS ...................................................72
RESCISSIBLE CONTRACTS................................................................73
VOIDABLE CONTRACTS.....................................................................74
UNENFORCEABLE CONTRACT.........................................................75
VOID OR INEXISTENT.........................................................................76
Special Laws......................................................................................................80
Republic Act No. 9653 ................................................................................81
REPUBLIC ACT NO. 7652.........................................................................86
Republic Act No. 9507.................................................................................89
REPUBLIC ACT NO. 10642.......................................................................93
ACT No. 3952............................................................................................100
Republic Act No. 133.................................................................................103
REPUBLIC ACT NO. 4381.......................................................................104
ACT NO. 3135...........................................................................................105
ACT NO. 1508...........................................................................................107
Examples of Contracts....................................................................111
Lease Contract .................................................................................................112

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Real Estate Mortgage.......................................................................................115
Deed of Chattel Mortgage................................................................................116
Deed of Sale with Mortgage.............................................................................118
Deed of Sale of Condominium Unit.................................................................120
Loan Agreement...............................................................................................122
Deed of Absolute Sale of a Motor Vehicle......................................................124
Construction Contract.......................................................................................129
Articles of Partnership......................................................................................134
Articles of Incorporation..................................................................................136
Easement of Right of Way...............................................................................142
References.......................................................................................................144
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Bar Questions
and
Suggested Answers
6
1. Fortuitous event; liability of the debtor (1932 BAR)
A executed in favor of B a promissory note for P10,000, payable after

two years, secured by a mortgage on a certain building valued at P20,000. One
year after the execution of the note, the mortgaged building was totally
destroyed by a fire of accidental origin. Can B demand from A the payment of
the value of the note immediately after the burning without waiting for the
expiration of the term? Reasons.
 Suggested answer:
Yes, B can demand from A the payment of the value of the note
immediately after the burning without waiting for the expiration of the term,
unless A immediately gives another security or guaranty which is equally
satisfactory. This is clear from the provision of No. 3 of Art. 1198 of the Civil
Code which declares that when by his own acts the debtor has impaired the
guaranty or security, or when through a fortuitous event the guaranty or security
disappears, the debtor shall lose the benefit of the term or period. It must be
observed that there is a difference between the effect of impairment and the
effect of disappearance as applied to the security or guaranty. The rules may be
restated as follows:
(1) If the guaranty or security is impaired through the fault of the
debtor, he shall lose his right to the benefit of the period; however, if it is
impaired without his fault, he shall retain his right.
(2) If the guaranty or security disappears through any cause, even
without any fault of the debtor, he shall lose his right to the benefit of
the period. In either case, however, the debtor shall not lose his right to
the benefit of the period if he gives a new guaranty or security.
2. Joint obligation (1971 BAR)

X, Y and Z owe A and B P12,000 in a joint obligation. How many
obligations exist in this case, who are the parties in each obligation and for how
much? Why?
 Suggested Answer:
There are six obligations in the above case. The parties and the amount of
each obligation are:
(1) X as debtor for P2,000 in favor of A as creditor;
(2) X as debtor for P2,000 in favor of B as creditor;
(3) Y as debtor for P2,000 in favor of A as creditor;
(4) Y as debtor for P2,000 in favor of B as creditor;
(5) Z as debtor for P2,000 in favor of A as creditor;
(6) Z as debtor for P2,000 in favor of B as creditor.
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The above answers are clearly deducible from Art. 1208 of the Civil
Code which declares that if the obligation is joint, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors or
debtors, the credits or debts being considered as distinct from one another,
subject to the Rules of Court governing the multiplicity of suits. Take the credit
of P12, 000 for instance. Since there are two creditors there will also be two
credits of P6, 000 for each creditor. In the case of the debt of P12, 000, since
there are three debtors there will also be three debts of P4,000 against each
debtor. Now, as far as A, the first creditor, is concerned, if he wants to collect
his credit of P6, 000, he must proceed against all the debtors. Thus he will be
able to collect P2, 000.00 from X, P2, 000 from Y, another P2, 000 from Z. The
same is true in the case of B, the second creditor.
3. Obligations with a period; “When his means permit him to do so” (1973
BAR)
D borrowed P2, 000.00 from C in 1958. The debt is evidenced by a
promissory note executed by D wherein he promised to pay as soon as he has
money or as soon as possible. C has made repeated demands upon D for
payment, but up to now no payment has been made. Suppose that C will bring
an action against D for payment of the debt, will the action prosper?
No, the action will not prosper. In similar cases decided by the Supreme
Court (Gonzales vs. Jose, 66 Phil. 369; Patente vs. Omega, 49 OG 4846) it was
held, that where the debtor promises to pay his obligation as soon as he has
money or as soon as possible, the duration of the term or period depends
exclusively upon the will of the debtor; consequently, the only remedy of the
creditor is to bring an action against the debtor in accordance with Art. 1197 of
the Civil Code for the purpose of asking the court to fix the duration of the term
or period. It is only after the duration of the term or period has been fixed by the
court that any other action involving the fulfilment or performance of the
obligation can be maintained. This has always been the consistent doctrine in
this jurisdiction.
4. Novation; Expromision (1975 BAR)

A owed B a certain sum of money. C wrote B a letter stating that he
would be the one to take care of A’s debt as soon as A had made a shipment of
logs to Japan. A never made such shipment. C did not pay B. Is C liable to B?
Explain.
C is not liable to B. In the first place, in order that C may be held liable to
B, there should have been a substitution of debtor through expromision within
the meaning of Art. 1291, No. 2, and Art. 1293 of the Civil Code resulting in
novation of the obligation. Here, there was none. C merely wrote a letter to the
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creditor B stating that he would take care of A’s debt. The problem does not
even say that B gave his assent or consent to C’s statement. In the second
place, even assuming that there was a substitution of debtor, C’s liability
depends upon a suspensive condition, that he would take care of A’s debt as
soon as A had made a shipment of logs to Japan. A never made such shipment.
Therefore, C’s liability never became effective (Villanueva vs. Girged, 110
Phil. 478).
5. Novation; delegacion (1975 BAR)

A borrowed from B the sum of P3, 000.00. Three days after, A in a letter
authorized the Philippine National Bank to pay his debt to B out of whatever
crop loan might be granted to him by said Bank. On the same day, the Bank
agreed but the Bank paid B only P2, 000.00. On the date of maturity, B sued
the Bank and A for the remaining P1, 000.00. Is the Bank liable to B?
The Bank is not liable to B for the remaining P1,000.00. Even assuming
that B gave his consent to A’s proposal that the Bank shall pay his indebtedness
of P3, 000.00, in reality, there was no substitution of debtor by delegacion
within the meaning of Arts. 1291, No. 2, and 1293 of the Civil Code resulting in
a novation of the obligation. The Bank never assumed payment of the
obligation. There was merely an authorization, which was accepted by the
Bank, that the latter shall pay A’s debt out of whatever crop loan would be
granted to him by the Bank. As it turned out, the Bank agreed to lend A only
P2, 000.00, and said amount was paid directly to B in accordance with the
Bank’s promise. Beyond that amount, the Bank cannot be held liable. (Hodges
vs. Rey, 111 Phil. 219).
6. Obligations; conditional obligations (1975 BAR)

A owed B a certain sum of money. C wrote B a letter stating that he
would be the one to take care of A's debt as soon as A had made a shipment of
logs to Japan. A never made such shipment, C did not pay B. Is C liable to B?
Explain.
 Suggested Answer
No, C is not liable to B. C did not assume the obligation of A. C merely
stated that he will “take care” of A’s debt. Moreover, even if C assumed
liability, the suspensive condition—namely, the shipment by A of logs to
Japan, was never fulfilled. C’s obligation never arose. Under Article 1181
of the Civil Code, in conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. (Villanueva v.
Girged, 110 Phil. 478)
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7. Sources of obligation (1977 BAR)
Taxi driver D, driving recklessly, killed pedestrian P and his passenger Y.
Discuss the source of the obligation of D and of his employer to P and to Y, and
the defense available to the employer.
There are three overlapping sources of the obligation of D and of his
employer. They are:
(1) Under the Revised Penal Code: The heirs of P and Y may proceed
against D and his employer under the Penal Code. In this case, the source of the
liability of D and of his employer is the crime committed by D (culpa criminal).
The liability of D is direct and primary (Art. 100, RPC); the liability of his
employer is subsidiary (Art. 103, RPC). The latter cannot relieve himself of
liability by proving due diligence of a good father of a family. This is so
because of the very nature of his obligation.
(2) Under the Civil Code:
(a) Heirs of P: The heirs of pedestrian P may proceed against both D and
his employer, or against the latter only. In this case, the source of the
liability of D and his employer is the quasi-delict (culpa aquiliana)
committed by D (Arts. 2176, 2180, CC). The liability of both is direct
and primary. D’s employer can relieve himself of liability by proving due
diligence of a good father of a family in the selection and supervision of
his drivers (Art. 2180, CC).
(b) Heirs of Y: On the other hand, the heirs of Y may proceed against D’s
employer only. The source of the liability of D’s employer, in this case, is
the breach of his contract of carriage with Y (culpa contractual). His
liability is direct and primary. He cannot relieve himself of liability by
proving due diligence of a good father of a family (Art. 1759, CC). This
is so because under our law on common carriers, we do not adhere to the
principle of respondent superior; we adhere to the principle that there is
always an implied duty of a common carrier to carry the passenger safely
to his place of destination. However, although not available as a defense,
such proof of due diligence may serve to mitigate the employer’s
liability.
8. Reciprocal obligations; implicit resolutory condition; damages (1977

BAR)
L leased a house to J. The contract stipulates that in case of non-payment
of the rent, L can eject L without court action. J defaulted for two months. As a
result, L ejected him. Can J claim damages because the renunciation of his day
in court as stipulated in the contract is void?
10
J cannot claim damages because the renunciation of his day in court as
stipulated in the contract is void. True, under the NCC, in reciprocal obligations
there is always a tacit resolutory condition that if one party is unable to comply
with what is incumbent upon him, the injured party has the power to rescind the
obligation (Art. 1191). This is reiterated in the law on lease (Art. 1659). True
also, it is a well-settled rule that the injured party must invoke judicial aid. But
then, this rule can be applied only to a case where the obligation is silent with
respect to the power to rescind. The right to rescind is implied only if not
expressly granted; no right can be said to be implied if expressly recognized.
This is also well-settled. In the instant case, the right of L to eject J without a
court action in case of non-payment of the rent was expressly recognized in the
contract itself. What L did was merely to enforce what was agreed upon.
9. Contracts; stipulation pour autrui (1977 BAR)

What is a stipulation pour autrui and what are its essential requisites? Give an
example.
A stipulation pour autrui is a stipulation in a contract, clearly and
deliberately conferred by the contracting parties as a favor upon a third
person, who must communicate his acceptance to the obligor before it is
revoked. Before such a stipulation may be enforced, it is necessary that
the following requisites must concur: (1) that it must be for the benefit or
interest of the third person; (2) that such benefit or Interest must not be
merely incidental; (3) that the contracting parties should have clearly and
deliberately conferred such benefit or interest upon the third person; and (4) that
the third person should have communicated his acceptance of the benefit or
interest to the obligor before its revocation. (Art. 1311, par. 2, Civil
Code.)
Example: In a contract with X Co., the Philippine National Bank,
for a valuable consideration, agreed to cause a sum of money to be paid
to A in New York City. If A communicates his acceptance of the benefit to X
Co. before it could be revoked by the latter, we have what is commonly
known as a stipulation pour autrui.
10. Resolutory condition; right of usurfruct (1979 BAR)

On June 5, 1960, DP delivered possession of his house and lot in the
Poblacion of Polo, Bulacan to AB who in turn delivered to the former
possession of his 2-hectare rice land. Both properties were unregistered. They
executed a document entitled “Barter’’ which, among others, provided that both
parties shall enjoy the material possession of their respective properties: that
neither party shall encumber, alienate or dispose of their respective properties
as bartered without the consent of the other; and that DP shall be obliged to
return the property to AB when the latter’s son shall attain majority and decide
to return DP’s property. After AB’s death and his son S attained majority in
11
1977, the latter demanded for the return of the 2 hectares of rice land which had
then increased tremendously in value. DP refused and so S fi led an action for
recovery of the land. Will the action prosper? Why?
Yes, the action will prosper. The stipulations in the barter agreement are
clear. All that the parties intended was to transfer the material possession and
use of the subject properties to the other. There was, therefore, no conveyance
of their right of ownership. In fact, the parties retained their rights to alienate
their right of ownership, a right which is one element of ownership. What was,
therefore, transferred was merely their right of usufruct. But then, the document
also says that DP shall be obliged to return the property to AB when the latter’s
son shall attain majority and decide to return DP’s property. The mutual
agreement, therefore, was subject to a resolutory condition the happening of
which would extinguish or terminate their right of usufruct over the subject
properties. The facts are clear. Said condition has already been fulfilled.
(Baluran vs. Navarro, 79 SCRA 309).
11. Contracts; voidable contracts (1979 BAR)

Mrs. S borrowed P20,000 from PG, She and her 19-year old son,
Mario, signed the promissory note for the loan, which note did not say
anything- about the capacity of the signers. Mrs. S made partial payments little
by little. After seven (7) years she died leaving a balance of P10,000.00 on
the note. PG demanded payment from Mario who refused to pay. When sued
for the amount, Mario raised the defense: that when he signed the note he was
still a minor. Should the defense be sustained? Why?
The defense should be sustained. Mario cannot be bound by his signature
in the promissory note. It must be observed that the promissory note does
not say anything about the capacity of the signers. In other words, there is no
active fraud or misrepresentation; there is merely silence or constructive fraud
or misrepresentation. It would have been different if the note says that Mario is
of age. The principle of estoppel would then apply. Mario would not be allowed
to invoke the defense of minority. The promissory note would then have all
of the effects of a perfectly valid note. Hence, as far as Mario's share in
the obligation is concerned, the promissory note is voidable because of
minority or non-age. He cannot, however, be absolved entirely from monetary
responsibility. Under the Civil Code, even if his written contract is voidable
because of minority he shall make restitution to the extent that he may have
been benefited by the money received by him (Art. 1399, Civil Code).
(Braganza vs. Villa Abrille, L-12471, April 13, 1959).
12. Obligation with a period; courts fixing the period (1980 BAR)
12
M and N were very good friends. N borrowed P10, 000.00 from M.
Because of their close relationship, the promissory note executed by N provided
that he would pay the loan “whenever his means permit.” Subsequently, M and
N quarrelled. M now asks you to collect the loan because he is in dire need of
money. What legal action, if any, would you take in behalf of M?
“M” must bring an action against “N’’ for the purpose of asking the court
to fix the duration of the term or period for payment. According to the Civil
Code, 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 Art. 1197. In other words, it shall be subject to those provisions of
the Code with respect to obligations with a term or period which must be
judiciary fixed. Thus, in the instant case, the court shall determine such period
as may under the circumstances have been probably contemplated by the
parties. Once determined or fixed, it becomes a part of the covenant of the two
contracting parties. It can no longer be changed by them. If the debtor defaults
in the payment of the obligation after the expiration of the period fixed by the
court, the creditor can then bring an action against him for collection. Any
action for collection brought before that would be premature. This is well-
settled.
(Note: The above answer is based on Arts. 1180 and 1197 of the Civil Code and
on Gonzales vs. Jose, 66 Phil. 369; Concepcion vs. People of the Phil. 74 Phil.
62; Pages vs. Basilan, 104 Phil. 882, and others).
 Alternative Answer:
Normally, before an action for collection may be maintained by “M”
against “N,’’ the former must fi rst bring an action against the latter asking the
court to fi x the duration of the term or period of payment. However, an action
combining such action with that of an action for collection may be allowed if it
can be shown that a separate action for collection would be a mere formality
because no additional proofs other than the admitted facts will be presented and
would serve no purpose other than to delay. Here, there is no legal obstacle to
such course of action.
(Note: The above alternative answer is based on Borromeo vs. Court of
Appeals, 47 SCRA 65. Probably, if we combine the two answers given above,
the result would be a much more impressive answer).
13. Relativity of contracts; exception (1980 BAR)

O, a very popular movie star, was under contract with P Movie
Productions to star exclusively in the latter’s films for two years. O was
prohibited by the contract to star in any fi lm produced by another producer. X
Film Co. induced O to break her contract with P Movie Productions by giving
her twice her salary. P Movie Productions sued X Film Co. for damages. X
Film Co. contended that it had a right to compete for the services of O and that
13
her contract with P Movie Productions was in restraint of trade and a restriction
on her freedom of contract. Whose contention would you sustain?
The contention of P Movie Productions should be sustained. According
to the Civil Code, any third person who induces another to violate his contract
shall be liable for damages to the other contracting party. In the law of torts, we
call this “interference with contractual relation.’’ However, in order that it will
be actionable, it is necessary that the following requisites must concur: (a) the
existence of a valid contract; (b) knowledge on the part of the third person of
the existence of such contract; and (c) interference by the third person without
legal justification or excuse. All of these requisites are present in the case at bar.
The contention of X Film Co. that O’s contract with P Movie
Productions was in restraint of trade and a restriction of her freedom to contract,
on the other hand, cannot be sustained. Well-established is the rule that in order
to determine whether or not an agreement of this nature constitutes an undue
restraint of trade, and therefore, is contrary to public policy, two tests are
always applied. They are first, is there a limitation as to time or place? And
second, is the prohibition or restraint reasonably necessary for the protection of
the contracting parties? If the answer to both of these questions is in the
affirmative, then the prohibition or restraint is not contrary to public policy. It is
crystal clear that the agreement between O and P Movie Productions passes
both tests.
(Note: The first paragraph of the above answer is based on Art. 1314 of the
Civil Code and on Daywalt vs. AgustinosRecoletos, 39 Phil. 587. The second
paragraph, on the other hand, is based on Art. 1306 of the Civil Code and on
several cases, the most notable of which is Del Castillo vs. Richmond, 46 Phil.
697).
14. Contracts; consent; invitation to bid (1980 BAR)

"K" & Co. published in the newspaper an "Invitation To Bid"
inviting proposals to supply labor and materials for a construction project
described in the invitation. "L", "M", and "N" submitted bids. When the bids
were opened, it appeared that "L" submitted the lowest bid. However, "K" &
Co. awarded the contract "N", the highest bidder, on the ground that he was
the most experienced and responsible bidder. "L" brought an action
against "K" & Co, to compel the award to him and to recover damages.
Is "L's" position meritorious?
"L's” position is not meritorious. According to the Civil Code,
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 (Art. 1326). It is clear that the general rule applies in the
instant case. In its advertisements, "K" & Co., for instance, did not state that it
14
will award the contract to the lowest bidder. Therefore, in awarding the
contract to “N", the defendant company acted in accordance with its rights.
15. Solidary liability (1981 BAR)

O, lot owner, contracted with B, builder, to build a multi-storey
building 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 building, but within one year, it collapsed in an
earthquake that destroyed only the building and not the surrounding buildings.
Construction was faulty. The building cost P3,000,000.00, but reconstruction
cost would reach P10,000,000.00.
(a) What are the rights of O against A and B? Explain briefly.
(b) Could “O’’ demand reconstruction of the building? On what ground?
Amplify.
(a) O can hold A and B solidarily liable for damages. This is clear from the
Civil Code, which declares that the contractor is liable for damages if
within fifteen years from the completion of the edifice or structure, the
same should collapse on account of defects in the construction. lf the
engineer or architect who drew up the plans and specifications of the
building supervises the construction, he shall be solidarily liable with the
contractor. Acceptance of the building, after completion, does not imply
waiver of the cause of action. However, the action must be brought
within ten years following the collapse of the building.
(Note: The above answer is based on Art. 1723 of the Civil Code).
(b) O can demand reconstruction of the building. The obligation of both A

and B is an obligation to do. Consequently, Art. 1167 of the Civil Code is
applicable. According to this article, if a person obliged to do something
does it in contravention of the tenor of the obligation, the same shall be
executed at his cost. It is obvious that the builder B and the architect A
performed their jobs in contravention of the tenor of the obligation. As a
matter of fact, had the building not collapsed, under the same article, it
may even be decreed that what has been poorly done be undone.
Consequently, C can now demand for the reconstruction of the building
by A and B or by another at their cost.
(Note: The above answer is based on Art. 1167 of the Civil Code and on
Manresa, vol. 8, pp. 116-117).
16. Fortuitous event; Depositary or bailee; Tender of payment (1981 BAR)

S, an American resident of Manila, about to leave on a vacation, sold his
car to B for US$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
15
of 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.
(a) Is buyer B still legally obligated to pay the purchase price? Explain.
(b) May seller S demand payment in U.S. dollars? Why?
(a) Yes, buyer B is still legally obligated to pay the purchase price. It must
be observed that S had already delivered the car to X, the third party
depositary or bailee. It was agreed that ownership is retained by S until
delivery to X. Therefore, there was already a transfer of the right of
ownership over the car to B. Consequently, B shall assume the fortuitous
loss of the car. As a matter of fact, even if it was agreed that S shall retain
the ownership of the car until the purchase price has been paid by B, the
end result will still be the same. Since, evidently, the purpose is to secure
performance by the buyer of his obligation to pay the purchase price, by
express mandate of the law, the fortuitous loss of the car shall be
assumed by B.
(Note: The above answer is based on Art. 1504 of the Civil Code).
(b) The seller “S’’ cannot demand payment in U.S. dollars. According to
the law, an agreement that payment shall be made in currency other than
Philippine currency is void because it is contrary to public policy. That
does not mean, however, that “S” cannot demand payment from “B.” He
can demand payment, but not in American dollars. Otherwise, there
would be unjust enrichment at the expense of another. Payment,
therefore, should be made in Philippine currency.
(Note: The above answer is based on R.A. No. 529 and on Ponce vs.
Court of Appeals, 90 SCRA 533).
17. Compensation; principal creditor and debtor of each other (1981 BAR)
B borrowed from C P1,000.00 payable in one year. When C was in the
province, C’s 17-year-old son borrowed P500.00 from B for his school tuition.
However, the son spent it instead night-clubbing. When the debt to C fell due, B
tendered only P500.00, claiming compensation on the P500.00 borrowed by C’s
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.
(a) There is no legal compensation. Under the Civil Code, in order that
there will be a valid and effective compensation, it is essential that
there must be two parties, who in their own right, are principal
creditors and principal debtors of each other. In the instant case, C
16
cannot be considered as a party to the act of his 17-year-old son in
borrowing P500.00 from B. Consequently, he did not become a
principal debtor of B; neither did B become a principal creditor of C.
Therefore, there can be no partial compensation of the P1,000.00
borrowed by B from C.
(Note: The above answer is based on Arts. 1278 and 1279, No. 1, of
the Civil Code and on decided cases).
(b) There would be no difference in my answer. There will still be no
legal compensation. The fact that C’s son actually used the P500.00
for his school tuition did not make C a party to the contract between
his son and B. Therefore, C is not the principal debtor of B with
respect to said amount.
(Note: The above answer is based on Arts. 1278 and 1279, 1, Civil
Code).
18. Contracts; forms of contracts (1982 BAR)
"A" and "B" entered into a verbal contract whereby "A" agreed to
sell to "B" his only parcel of land for P20,000, 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.
It must be observed that there are two questions in the case at bar. They are:
(1) Is the agreement valid? The answer is yes. It is a time-honored rule
that even a verbal agreement to sell land is valid so long as there
is already an agreement with respect to the object and the purchase
price.
(2) Will an action by "B" against "A" for specific performance prosper?
The answer is no, unless it is ratified. The reason is obvious. The
agreement, being an agreement of sale of real property, is covered
by the Statute of Frauds It cannot, therefore, be enforced by a court
action because it is not evidenced by any note or memorandum or
writing properly subscribed by the party charged.
(Note: The above answer is based on No. 2 of Art. 1203 of the Civil
Code and on decided cases.)
19. Obligations with a period; Court fixing the period (1982 BAR)
A Corporation, engaged in the sale of subdivision residential lots, sold to
B a lot of 1,000 square meters. The contract provides that the corporation
should put up an artesian well with tank, within a reasonable time from the date
thereof and sufficient for the needs of the buyers. Five years thereafter, and no
well and tank have been put up by the corporation, B sued the corporation for
17
specific performance. The corporation set up a defense that no period having
been fixed, the court should fi x the period. Decide with reason.
The action for specific performance should be dismissed on the ground
that it is premature. It is clear that the instant case falls within the purview of
obligations with a term or period which must be judicially fixed. Thus, B
instead of bringing an action for specific performance, should bring an action
asking the court to determine the period within which A Corporation shall put
up the artesian well with tank. Once the court has fixed the period, then such
period as fixed by the court will become a part of the covenant between the
contracting parties. It can no longer be changed by them. If the Corporation
does not put up the artesian well with tank within the period fixed by the court,
“B” can then bring an action for specific performance.
Normally, before an action for specific performance may be maintained
by B against A Corporation, the former must first bring an action against the
latter asking the court to fix the duration of the term or period to install the
artesian well with tank. However, an action combining such action with that of
an action for specific performance may be allowed if it can be shown that a
separate action for specific performance would be a mere formality because no
additional proofs other than the admitted facts will be presented and would
serve no purpose other than to delay. Here, there is no obstacle to such cause of
action.
(Note: The above answers are based on Art. 1197 of the Civil Code and on
decided cases. Either answer should be considered correct.)
20. Application of payment (1982 BAR)

The debtor owes his creditor several debts, all of them due, to wit: (1) an
unsecured debt; (2) a debt secured with a mortgage of the debtor’s property; (3)
a debt bearing interest; (4) a debt in which the debtor is solidarily liable with
another. Partial payment was made by the debtor. Assuming that the debtor had
not specified the debts to which the payment should be applied and, on the other
hand, the creditor had not specified in the receipt he issued the application of
payment, state the order in which the payment should be applied and your
reasons therefore.
In this case, according to the Civil Code, the debt, which is most onerous
to the debtor, among those due, shall be deemed satisfied. Analyzing the four
debts stated in the problem, the most onerous is No. 4, the second most onerous
18
is No. 2, the third most onerous is No. 3, and the least onerous is No. 1.
Consequently, the payment should be applied in that order.
(Note: The above answer is based on Art. 1254 of the Civil Code, and on
decided cases and commentaries of recognized commentators.)
21. Obligations; extinguishment; payment (1983 BAR)

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 B refused to
accept the payment. A thereafter met C, B's 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 C's 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?
Yes, the creditor cannot be compelled to receive partial payments
of the obligation due him, there being no stipulation to the contrary. B may still
demand full payment of the sum due him. The payment to his son, who does not
appear to have been authorized to receive it, is invalid, the creditor not having
received any benefit therefrom.
22. Fortuitous events; circumstances when liability still exists (1983 BAR)
Cite three instances where a person is made civilly liable for failure to
comply with his obligations although he was prevented from doing so by a
fortuitous event.
In the following instances, a person is still civilly liable for failure to
comply with his obligation although he was prevented from doing so by a
fortuitous event:
(1) When by law, the debtor is liable even for fortuitous events;
(2) When by stipulation of the parties, the debtor is liable even for
fortuitous events;
(3) When the nature of the obligation requires the assumption of risk;
(4) When the object of the obligation is lost and the loss is due partly to
the fault of the debtor;
(5) When the object of the obligation is lost and the loss occurs after the
debtor has incurred in delay;
(6) When the debtor promised to deliver the same thing to two or more
persons who do not have the same interest;
(7) When the obligation to deliver arises from a criminal offense; and
(8) When the obligation is generic.
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(Note: Any 3 of the 8 should be a correct answer. Nos. 1, 2 and 3 are based on
Arts. 1174 and 1262, NCC; Nos. 4, 5, and 6 are based on Arts. 1165 and 1262,
NCC; while Nos. 7 and 8 are based on Arts. 1268 and 1263, NCC.)
23. Fortuitous events; Liability of obligor (1983 BAR)

A bound himself to deliver to B a 21-inch 1983i model TV set, and the
13 cubic feet White Westinghouse refrigerator, with Motor No. WERT-385,
which B saw in A’s store, and to repair B’s piano. A did none of these things.
May the court compel A to deliver the TV set and the refrigerator and
repair the piano?
B cannot compel A to deliver the 21-inch 1983 model TV set. The reason
is obvious. The obligation is to give a generic object because the object is
designated merely by its class or genus without any particular designation or
physical segregation from others of the same class. An action for specific
performance is, therefore, legally and physically impossible. Consequently, the
remedy of B is to ask for the delivery of a 21-inch 1983 model TV set which
must be neither of superior nor inferior quality. This is explicitly recognized by
the New Civil Code. As a matter of fact, he can even ask that the obligation be
complied with at the expense of the debtor. These remedies are also explicitly
recognized by the New Civil Code.
In the case of the refrigerator, the situation is different. The court may
compel A to comply with the obligation specifically. The obligation is
determinate. Under the New Civil Code, if the debtor or obligor is refuses or is
unable to comply with his obligation, assuming that the obligation is a
determinate obligation to give, the remedy of the creditor or obligee is to bring
an action against the debtor or obligor for specific performance. Additionally,
he can recover damages.
On the other hand, the court cannot compel A to repair the piano. The
reason is obvious. The obligation of A is an obligation to do. In this type of
obligaton, the law recognizes the individual’s freedom to choose between doing
that which he has promised to do and not doing it. It falls within what
commentators call a personal act, of which courts may not compel compliance
as it is an act of violence to do so. The remedy, therefore, of B is to have the
obligation executed at the expense of A. Additionally, he can recover damages
from A.
(Note: The above answer is based on Arts. 1165, par. 1, 1167 and 1170, New
Civil Code.)
24. Obligations; extinguishment; payment (1983 BAR)
20
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 B refused to
accept the payment. A thereafter met C, B's 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 C's 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?
Yes, the creditor cannot be compelled to receive partial payments
of the obligation due him, there being no stipulation to the contrary. B may still
demand full payment of the sum due him. The payment to his son, who does not
appear to have been authorized to receive it, is invalid, the creditor not having
received any benefit therefrom.
25. Obligations; extinguishment; payment; consignation, when applicable

(1984 BAR)
A sold to B a parcel of land with the right to repurchase the same within
three years. A tendered the repurchase of price to B within the prescribed
period, but B refused to accept it. A then brought an action in court for specific
performance. B contends that since A did not deposit the money in court
within the stipulated period for repurchase and the period has now lapsed,
A can no longer repurchase the property. Is this contention correct? Explain.
A. Furnished by Office of Justice Palma
No. Consignation is not necessary to compel B to make the resale
if he refused to accept the repurchase price tendered. The provisions of
consignation refer only to obligations. They are not applicable to the right of
repurchase which is not an obligation but a right exercisable purely at the option
of A.
26. Contracts; perfection of contracts; obligations with a period (1988 BAR)

Merle offered to sell her automobile to Violy for P60,000.00. After
inspecting the automobile, Violy offered to buy it for 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 postponement of the
delivery, promising to pay the price "upon arrival of the steamer, Helena".
The steamer however never arrived because it was wrecked by a typhoon and
sank somewhere off the Coast of Samar.
(1) Is there a perfected contract in this case? Why?
(2) Is the promise to pay made by Violy conditional or with a term?
Why?
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(3) Can Merle compel Violy to pay the purchase price and to
accept the automobile? Why?
(1) Yes, there is a perfected contract because there is already a
concurrence between the offer and the acceptance with respect to
the object and the cause which shall constitute the contract. Such
concurrence is manifested by the acceptance made by Merle of the offer
made by Violy.
(2) I submit that the promise to pay made by Violy is not conditional,
but with a term. The promise is to pay the P50,000 upon arrival in
this port of the steamer, Helena, not if the steamer Helena shall
arrive in this port. Hence, the promise is with regard to the date of
arrival and not with regard to the fact of arrival.
(3) Yes, Merle can compel Violy to pay the purchase price and to accept
the automobile. She will, however, have to wait for the date when the
steamer, Helena, would have arrived were it not for the shipwreck. After
all, there is already a perfected contract.
(2) The promise to pay is subject to a term. When there is a pre-existing
obligation and the "condition" affects only the time of payment such
"condition" can be considered as a period. In other words, the parties
must be deemed to have contemplated a period,
(3) Yes Merle can compel Violy to pay the purchase price and to accept
the automobile but only after the parties would have fixed the period.
Failing in that, the courts may be asked to fix the period. Article 1180
provides that: "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."
27. Obligations; extinguishment; novation (1988 BAR)

Suppose that under an obligation imposed by a final judgment, the
liability of the judgment debtor is to pay the amount of P6,000.00 but
both the judgment debtor and the judgment creditor subsequently entered into
a contract reducing the liability of the former to only P4,000.00, is there
an implied novation which will have the effect of extinguishing the
judgment obligation and creating a modified obligatory relation? Reasons.
There is no implied novation in this case. We see no valid objection to
the judgment debtor and the judgment creditor in entering into an agreement
regarding the monetary obligation of the former under the judgment referred to.
The payment by the judgment debtor of the lesser amount of P4,000,
22
accepted by the creditor without any protest or objection and acknowledged
by the latter as in full satisfaction of the money judgment, completely
extinguished the judgment debt and released the debtor from his pecuniary
liability.
Novation results in two stipulations—one to extinguish an existing
obligation, the other to substitute a new one in its place. Fundamental it is that
novation effects a substitution or modification of an obligation by another or an
extinguishment of one obligation by the creation of another. In the case at hand,
we fail to see what new or modified obligation arose out of the payment by
judgment debtor of the reduced amount of P4,000 to the creditor.
Additionally, to sustain novation necessitates that the same be so declared in
unequivocal terms clearly and unmistakably shown by the express
agreement of the parties or by acts of equivalent import—or that there is
complete and substantial incompatibility between the two obligations.
(Sandico vs. Piguing, 42 SCRA322.)
 Alternative Answers:
(1) There remains an obligation on the basis of the facts given. There is
no showing in the facts that the P4,000 has been paid so it
created a modified obligatory obligation no longer based on the
judgment but based on the novatory agreement.
(2) There is no implied novation. Instead there has been a partial
remission in the amount of P2,000 leaving P4,000 still enforceable under
the judgment.
(3) It can amount to a compromise. A final judgment which has not yet
been fully satisfied may be the subject of a compromise. The
compromise partakes the nature of a novation. Article 204; provides
that: "If one of the parties fails or refuses to abide by the
compromise, the other party may either enforce the compromise or
regard it as rescinded and insist upon his original demand."
(Gatchalianvs, Arlegui 75 SCRA 234; Dormitorio vs. Fernandez 72
SCRA 388).
28. Contracts; voidable contracts (1990 BAR)

X was the owner of a 10,000 square meter property. X married Y and out
of their union. A, B and C were born. After the death of Y, X married Z and
they begot as children, D, E and F. After the death of X, the children of
the first and second marriages executed an extrajudicial partition of the
aforestated property on May 1, 1970. D, E and F were given a one thousand
square meter portion of the property. They were minors at the time of the
execution of the document. D was 17 years old, E was 14and F was 12; and
they were made to believe by A, B and C that unless they sign the
document they will not get any share. Z was not present then. In January
1974, D,E and F filed an action in court to nullify the suit alleging they
discovered the fraud only in 1973.
23
(a) Can the minority of D, E and F be a basis to nullify the partition?
Explain your answer.
(b) How about fraud? Explain your answer.
(a) Yes, minority can be a basis to nullify the partition because D,
E and F were not properly represented by their parents or guardians
at the time they contracted the extra-judicial partition. (Articles 1327
and 1391, Civil Code).
(b) In the case of fraud, when through Insidious words or machinations of
one party the other is induced to enter into the contract without which he
would not have agreed to, the action still prosper because under Art, 1391
of the Civil Code, in case of fraud, the action for annulment may be
brought within four years from the discovery of the fraud.
29. Nature of Contracts; Obligatoriness (1991 BAR)

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 fringes 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 any payment at all.
Printado has also a standing contract 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?
Roland is bound by the contract he entered into with Lady Love and he
cannot disregard the same, under the principles of obligatoriness of contracts.
Obligations arising from contracts have the force of law between the parties.
Yes, Roland is liable under the contract as far as Lady Love is concerned.
He is liable for damages under Article 1170 of the Civil Code since he
contravened the tenor of his obligation. Not being a contracting party, Sweet
Taste is not bound by the contract but it can be held liable under Art. 1314. The
basis of its liability is not prescribed by contract but is founded on quasi-delict,
assuming that Sweet Taste knew of the contract. Article 1314 of the Civil Code
provides that any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
24
It is assumed that Lady Love knew of the contract. Neither Roland nor
Sweet Taste would be liable, because the restriction in the contract is violative
of Article 1306 as being contrary to law morals, good customs, public order or
public policy.
30. Period; Suspensive Period (1991 BAR)

In a deed of sale of a realty, it was stipulated that the buyer would
construct a commercial building on the lot while the seller would construct a
private passageway bordering the lot.The building was eventually finished but
the seller failed to complete the passageway as some of the squatters, who were
already known to be there at the time they entered into the contract, refused to
vacate the premises. In fact, prior to its execution, the seller filed ejectment
cases against the squatters. The buyer now sues the seller for specific
performance with damages. The defense is that the obligation to construct the
passageway should be with a period which, incidentally, had not been fixed by
them, hence, the need for fixing a judicial period. Will the action for specific
performance of the buyer against the seller prosper?
No, the action for specific performance filed by the buyer is premature under
Art. 1197 of the Civil Code. If a period has not been fixed although
contemplated by the parties, the parties themselves should fix that period,
failing in which, the Court maybe asked to fix it taking into consideration the
probable contemplation of the parties. Before the period is fixed, an action for
specific performance is premature.
 Alternative Answers:
1. It has been held in Borromeo vs. CA (47 SCRA 69), that the Supreme
Court allowed the simultaneous filing of action to fix the probable
contemplated period of the parties where none is fixed in the agreement if
this would avoid multiplicity of suits. In addition, technicalities must be
subordinated to substantial justice.
2. The action for specific performance will not prosper. The filing of the
ejectment suit by the seller was precisely in compliance with his
obligations and should not, therefore, be faulted if no decision has yet
been reached by the Court on the matter.
31. Extinguishment; Loss; Impossible Service (1993 BAR)

In 1971, Able Construction, Inc. entered into a contract has been
extinguished by the novation or extinction of the with Tropical Home
Developers, Inc. whereby the former would build for the latter the houses
within its subdivision. The cost of each house, labor and materials included,
was P100,000.00. Four hundred units were to be constructed within five years.
In 1973, Able found that it could no longer continue with the job due to the
increase in the price of oil and its derivatives and the concomitant worldwide
25
spiraling of prices of all commodities, including basic raw materials required
for the construction of the houses. The cost of development had risen to
unanticipated levels and to such a degree that the conditions and factors which
formed the original basis of the contract had been totally changed. Able brought
suit against Tropical Homes praying that the Court relieve it of its obligation. Is
Able Construction entitled to the relief sought?
Yes, the Able Construction. Inc. is entitled to the relief sought under Article
1267, Civil Code. The law provides: "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."
32. Contracts; annulment of contracts; capacity to sue (1996 BAR)

Sometime in 1955, Tomas donated a parcel of land to his stepdaughter
Irene, subject to the condition that she may not sell, transfer or cede the same
for twenty years. Shortly thereafter, he died. In 1965, because she needed
money for medical expenses, Nene sold the land to Conrado. The following
year, Irene died, leaving as her sole heir a son by the name of Armando. When
Armando learned that the land which he expected to inherit had been sold
by Irene to Conrado. he filed an action against the latter for annulment of
the sale, on the ground that it violated the restriction imposed by Tomas.
Conrado filed a motion to dismiss, on the ground that Armando did not have the
legal capacity to sue. If you were the Judge, how will you rule on this motion to
dismiss? Explain.
As a judge, I will grant the motion to dismiss. Armando has no
personality to bring the action for annulment of the sale to Conrado. Only an
aggrieved party to the contract may bring the action for annulment thereof (Art.
1397,NCC). While Armando is heir and successor-in-interest of his
mother (Art. 1311, NCC), he [standing in place of his mother] has no
personality to annul the contract. Both are not aggrieved parties on
account of their own violation of the condition of, or restriction on, their
ownership Imposed by the donation. Only the donor or his heirs would have the
personality to bring an action to revoke a donation for violation of a condition
thereof or a restriction thereon. (Garridou. CA, 236 SCRA 450).
Consequently, while the donor or his heirs were not parties to the
sale, they have the right to annul the contract of sale because their rights are
prejudiced by one of the contracting parties thereof [DBP v. CA, 96 SCRA
342; Teves vs. PHHC. 23 SCRA 1141.]. Since Armando is neither the
donor nor heir of the donor, he has no personality to bring the action for
annulment.
As a judge, I will grant the motion to dismiss. Compliance with a
condition imposed by a donor gives rise to an action to revoke the
26
donation under Art. 764, NCC. However, the right of action belongs to the
donor. Is transmissible to his heirs, and may be exercised against the donee’s
heirs. Since Armando is an heir of the donee, not of the donor, he has no legal
capacity to sue for revocation of the donation. Although he is not seeking
such revocation but an annulment of the sale which his mother, the donee,
had executed in violation of the condition imposed by the donor, an action for
annulment of a contract may be brought only by those who are principally or
subsidiarily obliged thereby (Art. 1397, NCC). As an exception to the
rule, it has been held that a person not so obliged may nevertheless ask
for annulment if he is prejudiced in his rights regarding one of the
contracting parties (DBP us. CA. 96 SCRA 342 and other cases) and can
show the detriment which would result to him from the contract in which
he had no intervention, (Teves vs. PHHC, 23 SCRA 1141).
Such detriment or prejudice cannot be shown by Armando. As a forced
heir, Armando's interest In the property was, at best, a mere expectancy. The
sale of the land by his mother did not impair any vested right. The fact
remains that the premature sale made by his mother (premature because
only half of the period of the ban had elapsed) was not voidable at all, none
of the vices of consent under Art. 139 of the NCC being present. Hence, the
motion to dismiss should be granted.
33. Nature of Contracts; Privity of Contract (1996 BAR)

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 bills 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.
The telephone company is correct because as far as it is concerned, the
only person it contracted with was Baldomero. The telephone company has no
contract with Jose. Baldomero cannot substitute Jose in his stead without the
consent of the telephone company (Art. 1293, NCC). Baldomero is, therefore,
liable under the contract.
34. Rescission of Contracts; Proper Party (1996 BAR)
27
In December 1985, Salvador and the Star Semiconductor Company
(SSC) executed a Deed of Conditional Sale wherein the former agreed to sell
his 2,000 square meter lot in Cainta, Rizal, to the latter for the price of
P1,000,000.00, payable P100,000.00 down, and the balance 60 days after the
squatters in the property have been removed. If the squatters are not removed
within six months, the P100,000.00 down payment shall be returned by the
vendor to the vendee, Salvador filed ejectment suits against the squatters, but in
spite of the decisions in his favor, the squatters still would not leave. In August,
1986, Salvador offered to return the P100,000.00 down payment to the vendee,
on the ground that he is unable to remove the squatters on the property. SSC
refused to accept the money and demanded that Salvador execute a deed of
absolute sale of the property in its favor, at which time it will pay the balance of
the price. Incidentally, the value of the land had doubled by that time. Salvador
consigned the P 100,000.00 in court, and filed an action for rescission of the
deed of conditional sale, plus damages. Will the action prosper? Explain.
No, the action will not prosper. The action for rescission may be brought
only by the aggrieved party to the contract. Since it was Salvador who failed to
comply with his conditional obligation, he is not the aggrieved party who may
file the action for rescission but the Star Semiconductor Company. The
company, however, is not opting to rescind the contract but has chosen to waive
Salvador's compliance with the condition which it can do under Art. 1545,
NCC.
The action for rescission will not prosper. The buyer has not committed
any breach, let alone a substantial or serious one, to warrant the
rescission/resolution sought by the vendor. On the contrary, it is the vendor who
appears to have failed to comply with the condition imposed by the contract the
fulfillment of which would have rendered the obligation to pay the balance of
the purchase price demandable. Further, far from being unable to comply with
what is incumbent upon it, ie., pay the balance of the price ¬the buyer has
offered to pay it even without the vendor having complied with the suspensive
condition attached to the payment of the price, thus waiving such condition as
well as the 60-day term in its favor The stipulation that the P100,000.00 down
payment shall be returned by the vendor to the vendee if the squatters are not
removed within six months, is also a covenant for the benefit of the vendee,
which the latter has validly waived by implication when it offered to pay the
balance of the purchase price upon the execution of a deed of absolute sale by
the vendor. (Art. 1545, NCC)
35. Conditional Obligations; Promise (1997 BAR)

In two separate documents signed by him, Juan Valentino "obligated"
himself each to Maria and to Perla, thus - 'To Maria, my true love, I obligate
28
myself to give you my one and only horse when I feel like It." - and - "To
Perla, my true sweetheart, I obligate myself to pay you the P500.00 I owe you
when I feel like it." Months passed but Juan never bothered to make good his
promises. Maria and Perla came to consult you on whether or not they could
recover on the basis of the foregoing settings. What would your legal advice
be?
I would advise Maria not to bother running after Juan for the latter to
make good his promise. [This is because a promise is not an actionable wrong
that allows a party to recover especially when she has not suffered damages
resulting from such promise. A promise does not create an obligation on the
part of Juan because it is not something which arises from a contract, law,
quasi-contracts or quasi¬delicts (Art, 1157)]. Under Art. 1182, Juan's promise
to Maria is void because a conditional obligation depends upon the sole will of
the obligor.
As regards Perla, the document is an express acknowledgment of a debt,
and the promise to pay what he owes her when he feels like it is equivalent to a
promise to pay when his means permits him to do so, and is deemed to be one
with an indefinite period under Art. 1180. Hence the amount is recoverable
after Perla asks the court to set the period as provided by Art. 1197, par. 2.
36. Consensual vs. Real Contracts; Kinds of Real Contracts (1998 BAR)
Distinguish consensual from real contracts and name at least four (4)
kinds of real contracts under the present law.
Consensual contracts are those which are perfected by mere consent (Art.
1315. Civil Code). Real contracts are those which are perfected by the delivery
of the object of the obligation. (Art. 1316, Civil Code) Examples of real
contracts are deposit, pledge, commodatum and simple loan (mutuum).
37. Extinguishment; Compensation vs. Payment (1998 BAR)

Define compensation as a mode of extinguishing an obligation, and
distinguish it from payment. [2%]
Compensation is a mode of extinguishing to the concurrent amount, the
obligations of those persons who in their own right are reciprocally debtors and
creditors of each other (Tolentino, 1991 ed., p. 365, citing 2 Castan 560 and
Francia vs. IAC. 162 SCRA 753).It involves the simultaneous balancing of two
obligations in order to extinguish them to the extent in which the amount of one
29
is covered by that of the other. (De Leon, 1992 ed., p. 221, citing 8 Manresa
401).
Payment means not only delivery of money but also performance of an
obligation (Article 1232, Civil Code). In payment, capacity to dispose of the
thing paid and capacity to receive payment are required for debtor and creditor
Respectively, in compensation, such capacity is not necessary, because
the compensation operates by law and not by the act of the parties. In payment,
the performance must be complete; while in compensation there may be partial
extinguishment of an obligation (Tolentino, supra).
38. Extinguishment; Compensation/Set-Off; Banks (1998 BAR)

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 X's 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?
Y bank is correct. Art. 1287, Civil Code, does not apply. All the
requisites of Art. 1279, Civil Code are present. In the case of Gullas vs. PNB
[62 Phil. 519), the Supreme Court held: "The Civil Code contains provisions
regarding compensation (set off) and deposit. These portions of Philippine law
provide that compensation shall take place when two persons are reciprocally
creditor and debtor of each other. In this connection, it has been held that the
relation existing between a depositor and a bank is that of creditor and debtor, x
xx As a general rule, a bank has a right of set off of the deposits in its hands for
the payment of any indebtedness to it on the part of a depositor." Hence,
compensation took place between the mutual obligations of X and Y bank.
39. Conditional Obligations; Resolutory Condition (1999 BAR)

In 1997, Manuel bound himself to sell Eva a house and lot which is being
rented by another person, if Eva passes the 1998 bar examinations. Luckily for
Eva, she passed said examinations.
(a) Suppose Manuel had sold the same house and lot to another before Eva
passed the 1998 bar examinations, is such sale valid? Why?
(b) Assuming that it is Eva who is entitled to buy said house and lot, is she
entitled to the rentals collected by Manuel before she passed the 1998 bar
examinations? Why?
30
(a) Yes, the sale to the other person is valid as a sale with a resolutory condition
because what operates as a suspensive condition for Eva operates a resolutory
condition for the buyer.
 First Alternative Answer:
Yes, the sale to the other person is valid. However, the buyer acquired the
property subject to a resolutory condition of Eva passing the 1998 Bar
Examinations. Hence, upon Eva's passing the Bar, the rights of the other buyer
terminated and Eva acquired ownership of the property.
 Second Alternative Answer:
The sale to another person before Eva could buy it from Manuel is valid, as the
contract between Manuel and Eva is a mere promise to sell and Eva has not
acquired a real right over the land assuming that there is a price stipulated in the
contract for the contract to be considered a sale and there was delivery or
tradition of the thing sold.
(b) No, she is not entitled to the rentals collected by Manuel because at the time
they accrued and were collected, Eva was not yet the owner of the property.
 First Alternative Answer:
Assuming that Eva is the one entitled to buy the house and lot, she is not
entitled to the rentals collected by Manuel before she passed the bar
examinations. Whether it is a contract of sale or a contract to sell, reciprocal
prestations are deemed imposed A for the seller to deliver the object sold and
for the buyer to pay the price. Before the happening of the condition, the fruits
of the thing and the interests on the money are deemed to have been mutually
compensated under Article 1187.
 Second Alternative Answer:

Under Art. 1164, there is no obligation on the part of Manuel to deliver the
fruits (rentals) of the thing until the obligation to deliver the thing arises. As the
suspensive condition has not been fulfilled, the obligation to sell does not arise.
40. Conditional Obligations (2000 BAR)

Pedro promised to give his grandson a car if the latter will pass the bar
examinations. When his grandson passed the said examinations, Pedro refused
to give the car on the ground that the condition was a purely potestative one. Is
he correct or not?
No, he is not correct. First of all, the condition is not purely potestative,
because it does not depend on the sole will of one of the parties. Secondly, even
31
if it were, it would be valid because it depends on the sole will of the creditor
(the donee) and not of the debtor (the donor).
41. Extinguishment; Condonation (2000 BAR)

Arturo borrowed P500,000.00 from his father. After he had paid
P300,000.00, his father died. When the administrator of his father's 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 The action
will not prosper. The existence of inflation or 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%)
It depends. If the notation "in full payment of the loan" was written by
Arturo's father, there was an implied condonation of the balance that discharges
the obligation. In such case, the notation is an act of the father from which
condonation may be inferred. The condonation being implied, it need not
comply with the formalities of a donation to be effective. The defense of full
payment will, therefore, be valid.
When, however, the notation was written by Arturo himself. It merely
proves his intention in making that payment but in no way does it bind his
father (Yam v. CA, G.R No. 104726. 11 February 1999). In such case, the
notation was not the act of his father from which condonation may be inferred.
There being no condonation at all the defense of full payment will not be valid.
If the notation was written by Arturo's father, it amounted to an express
condonation of the balance which must comply with the formalities of a
donation to be valid under the 2 nd paragraph of Article 1270 of the New Civil
Code. Since the amount of the balance is more than 5,000 pesos, the acceptance
by Arturo of the condonation must also be in writing under Article 748. There
being no acceptance in writing by Arturo, the condonation is void and the
obligation to pay the balance subsists. The defense of full payment is, therefore,
not valid. In case the notation was not written by Arturo's father, the answer is
the same as the answers above.
42. Extinguishment; Extraordinary Inflation or Deflation (2001 BAR)

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 peso to the dollar." Starting March 1, 2001, the
lessor increased the rental to P2,000 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
32
increased rate and an action for unlawful detainer was filed against him. Will
the action prosper? Why?
The unlawful detainer action will not prosper. Extraordinary inflation or
deflation is defined as the sharp decrease in the purchasing power of the peso. It
does not necessarily refer to the exchange rate of the peso to the dollar. Whether
or not there exists an extraordinary inflation or deflation is for the courts to
decide. There being no showing that the purchasing power of the peso had been
reduced tremendously, there could be no inflation that would justify the
increase in the amount of rental to be paid. Hence, Brian could refuse to pay the
increased rate.
The action will not prosper. The existence of inflation or deflation
requires an official declaration by the BangkoSentralngPilipinas.
The unlawful detainer action will prosper. It is a given fact in the
problem, that there was inflation, which caused the exchange rate to double.
Since the contract itself authorizes the increase in rental in the event of an
inflation or devaluation of the Philippine peso, the doubling of the monthly rent
is reasonable and is therefore a valid act under the very terms of the contract.
Brian's refusal to pay is thus a ground for ejectment.
43. Obligations; joint/ solidary liability; joint (2001 BAR)

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%)
The fourth students are correct. His liability is only joint, hence, pro rata.
There is solidary liability only when the obligation expressly so states or
when the law or nature of the obligation requires solidarity (Art. 1207,
NCC). The contract of lease in the problem does not, in any way, stipulate
solidarity.
44. Nature of Contracts; Relativity of Contracts (2002 BAR)

Printado is engaged in the printing business. Suplico supplies printing
paper to Printado pursuant to an order agreement under which Suplico binds
33
himself to deliver the same volume of paper every month for a period of 18
months, with Printado in turn agreeing to pay within 60 days after each
delivery. Suplico has been faithfully delivering under the order agreement for
10 months but thereafter stopped doing so, because Printado has not made any
payment at all. Printado has also a standing contract with publisher Publico for
the printing of 10,000 volumes of school textbooks. Suplico was aware of said
printing contract. After printing 1,000 volumes, Printado also fails to perform
under its printing contract with Publico. Suplico sues Printado for the value of
the unpaid deliveries under their order agreement. At the same time Publico
sues Printado for damages for breach of contract with respect to their own
printing agreement. In the suit filed by Suplico, Printado counters that: (a)
Suplico cannot demand payment for deliveries made under their order
agreement until Suplico has completed performance under said contract; (b)
Suplico should pay damages for breach of contract; and (c) with Publico should
be liable for Printado’s breach of his contract with Publico because the order
agreement between Suplico and Printado was for the benefit of Publico. Are the
contentions of Printado tenable? Explain your answers as to each contention.
No, the contentions of Printado are untenable. Printado having failed to
pay for the printing paper covered by the delivery invoices on time, Suplico has
the right to cease making further delivery. And the latter did not violate the
order agreement (Integrated Packaging Corporation v. Court of Appeals, (333
SCRA 170, G.R. No. 115117, June 8, [2000]).
Suplico cannot be held liable for damages, for breach of contract, as it
was not he who violated the order agreement, but Printado. Suplico cannot be
held liable for Printado’s breach of contract with Publico. He is not a party to
the agreement entered into by and between Printado and Publico. Theirs is not a
stipulation pour atrui. [Aforesaid] Such contracts do could not affect third
persons like Suplico because of the basic civil law principle of relativity of
contracts which provides that contracts can only bind the parties who entered
into it, and it cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof. (Integrated Packaging
Corporation v. CA, supra.)
45. Obligations; joint/ solidary liability; solidary (2003 BAR)

A,B,C,D, and E made themselves solidarity 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.
(a) B is only 16 years old.
(b) C has already been condoned by X
(c) D is insolvent.
(d) E was given by X an extension of 6 months without the consent of
the other four co-debtors.
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State the effect of each of the above defenses put up by A on his
obligation to pay X, if such defenses are found to be true.
(a) A may avail the minority of B as a defense, but only for B’s share of
P 10, 000.00. A solidary debtor may avail himself of any defense
which personally belongs to a solidary co-debtor, but only as to the share
of that co-debtor.
(b) A may avail of the condonation by X of C’s share of P 10,
000.00. 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 others, he may
avail himself thereof only as regards that part of the debt for
which the latter are responsible. (Article 1222, NCC).
(c) A may not interpose the defense of insolvency of D as a
defense. Applying the principle of mutual guaranty among solidary
debtors, A guaranteed the payment of D’s share and of all the other
co-debtors. Hence, A cannot avail of the defense of D’s insolvency.
(d) The extension of six (6) months given by X to E may be availed of
by A as a partial defense but only for the share of E. there is no novation
of the obligation but only an act of liberality granted to E alone.
46. Liability; Solidary Obligation; Mutual Guaranty (2003 BAR)

A,B,C,D, and E made themselves solidarity 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. a) B is only 16 years old. b) C has already been
condoned by X c) D is insolvent. d) E was given by X an extension of 6 months
without the consent of the other four co-debtors. State the effect of each of the
above defenses put up by A on his obligation to pay X, if such defenses are
found to be true.
 Suggested Answers:
(a) A may avail the minority of B as a defense, but only for B’s share of
P 10,000.00. A solidary debtor may avail himself of any defense which
personally belongs to a solidary co-debtor, but only as to the share of that
co-debtor.
(b) A may avail of the condonation by X of C’s share of P 10, 000.00. 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 others, he may avail himself thereof
only as regards that part of the debt for which the latter are responsible.
(Article 1222, NCC).
35
(c) A may not interpose the defense of insolvency of D as a defense.
Applying the principle of mutual guaranty among solidary debtors, A
guaranteed the payment of D’s share and of all the other co-debtors.
Hence, A cannot avail of the defense of D’s insolvency.
(d) The extension of six (6) months given by X to E may be availed of by
A as a partial defense but only for the share of E, there is no novation of
the obligation but only an act of liberality granted to E alone.
47. Conditional Obligations (2003 BAR)

Are the following obligations valid, why, and if they are valid, when is
the obligation demandable in each case? a) If the debtor promises to pay as
soon as he has the means to pay; b) If the debtor promises to pay when he likes;
c) If the debtor promises to pay when he becomes a lawyer; d) If the debtor
promises to pay if his son, who is sick with cancer, does not die within one
year.
(a) The obligation is valid. It is an obligation subject to an indefinite period
because the debtor binds himself to pay when his means permit him to
do so (Article 1180, NCC). When the creditor knows that the debtor
already has the means to pay, he must file an action in court to fix the
period, and when the definite period as set by the court arrives, the
obligation to pay becomes demandable 9Article 1197, NCC).
(b) The obligation “to pay when he likes” is a suspensive condition the
fulfilment of which is subject to the sole will of the debtor and, therefore
the conditional obligation is void. (Article 1182, NCC).
(c) The obligation is valid. It is subject to a suspensive condition, i.e. the
future and uncertain event of his becoming a lawyer. The performance of
this obligation does not depend solely on the will of the debtor but also
on other factors outside the debtor’s control.
(d) The obligation is valid. The death of the son of cancer within one year is
made a negative suspensive condition to his making the payment. The
obligation is demandable if the son does not die within one year (Article
1185, NCC).
48. Inexistent Contracts vs. Annullable Contracts (2004 BAR)

Distinguish briefly but clearly between Inexistent contracts and annullable
contracts.
Inexistent contracts are considered as not having been entered into and,
therefore, void ab initio. They do not create any obligation and cannot be
ratified or validated, as there is no agreement to ratify or validate. On the other
hand, annullable or voidable contracts are valid until invalidated by the court
36
but may be ratified. In inexistent contracts, one or more requisites of a valid
contract are absent. In annullable contracts, all the elements of a contract are
present except that the consent of one of the contracting parties was vitiated or
one of them has no capacity to give consent.
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Bar Reviewer
38
OBLIGATIONS AND CONTRACTS REVIEWER
PART I - OBLIGATION
- An obligation is a juridical necessity to give, to do or not to do.
KINDS OF OBLIGATION
A) From the viewpoint of sanction:
(a) CIVIL OBLIGATION

– that defined in Article 1156; an obligation, if not fulfilled when it
becomes due and demandable, may be enforced in court through action; based
on law; the sanction is judicial due process
(b)NATURAL OBLIGATION
– defined in Article 1423; a special kind of obligation which cannot be
enforced in court but which authorizes the retention of the voluntary payment or
performance made by the debtor; based on equity and natural law. (i.e. when
there is prescription of duty to pay, still, the obligor paid his dues to the obligee
– the obligor cannot recover his payment even there is prescription) the sanction
is the law, but only conscience had originally motivated the payment.
(c) MORAL OBLIGATION

– The sanction is conscience or morality, or the law of the church.
(Note: If a Catholic promises to hear mass for 10 consecutive Sundays in order
to receive P1,000, this obligation becomes a civil one.)
B) From the viewpoint of subject matter:
(a) REAL OBLIGATION

– The obligation to give.
(b)PERSONAL OBLIGATION
– The obligation to do or not to do (e.g. the duty to paint a house, or to
refrain from committing a nuisance).
C) From the affirmativeness and negativeness of the obligation:
(a) POSITIVE OR AFFIRMATIVE OBLIGATION

– The obligation to give or to do.
39
(b)NEGATIVE OBLIGATION
– The obligation not to do (which naturally includes not to give).
D. From the viewpoint of persons obliged:
(a) UNILATERAL
– Where only one of the parties is bound
(e.g. Plato owes Socrates P1,000. Plato must pay Socrates.)
(b)BILATERAL
– Where both parties are bound
(e.g. In a contract of sale, the buyer is obliged to deliver)
- may be:
(b.1) reciprocal
(b.2) non-reciprocal – where performance by one is non-dependent upon
performance by the other
ELEMENTS OF OBLIGATION
1. Active subject ( obligee/creditor )

– The one in whose favor the obligation is constituted
2. Passive subject ( obligor/debtor )

– The one who has the duty of giving, doing or not doing
3. Object
– Prestation; the conduct which has to be observed by the debtor/obligor
Requisites of Object:
a. licit - if illicit, it is void
b. possible - if impossible, it is void
c. determinate or determinable - or else, void
d. pecuniary value
4. Vinculum Juris
– Juridical/legal tie
40
5. Causa (causadebendi/causaobligationes)
- Why obligation exists
SOURCES OF OBLIGATION:
1. LAW (OBLIGATION EX LEGE ) - Must be expressly or impliedly set

forth and cannot be presumed
2. CONTRACT( OBLIGATION EX CONTRACTU ) - Must be complied

with in good faith because it is the “law” between parties; neither party may
unilaterally evade his obligation in the contract, unless:
a) contract authorizes it
b) other party assents
Parties may freely enter into any stipulations, provided they are not
contrary to law, morals, good customs, public order or public policy
3. QUASI-CONTRACT ( OBLIGATION EX QUASI-CONTRACTU ) -

That juridical relation resulting from a lawful, voluntary and unilateral act,
and which has for its purpose, the payment of indemnity to the end that no
one shall be unjustly enriched or benefited at the expense of another
2 kinds:
a. Negotiorumgestio - unauthorized management; This takes place
when a person voluntarily takes charge of another’s abandoned
business or property without the owner’s authority
b. Solutioindebiti - undue payment ; This takes place when something
is received when there is no right to demand it, and it was unduly
delivered thru mistake
4. DELICTS ( OBLIGATION EX MALEFICIO OR EX DELICTO )

Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject to Art
2177 Civil Code
 Art 100, RPC – Every person criminally liable for a felony is also
civilly liable
2. Chapter 2, Preliminary title, on Human Relations ( Civil Code )
3. Title 18 of Book IV of the Civil Code – on damages
What civil liability arising from a crime includes:
41
a. restitution
b. reparation of damage caused
c. indemnity for consequential damages
Effect of acquittal in criminal case:

 when acquittal is due to reasonable doubt – no civil liability
 when acquittal is due to exempting circumstances – there is civil
liability
 when there is preponderance of evidence – there is civil liability
5. QUASI-DELICT/TORTS ( OBLIGATION EX QUASI-DELICTO or

EX QUASI MALEFICIO ) - It is a fault or act of negligence ( or omission
of care ) which causes damage to another, there being no pre-existing
contractual relations between the parties
Elements:
a) There must be fault or negligence attributable to the person charged
b) There must be damage or injury
c) There must be a direct relation of cause and effect between the fault or
negligence on the one hand and the damage or injury on the other
hand ( proximate cause )
Requisites:
a) Omission
b) Negligence
c) Damage caused to the plaintiff
d) Direct relation of omission, being the cause, and the damage, being the
effect
e) No pre-existing contractual relations between parties
Note:
 The SC in Sagrada v. Naccoco implied that the sources of obligation in Art
1157 is exclusive. Many commentators believe, however that it should not
be. At present, there is one more possible source of obligations - PUBLIC
OFFER (Public Offer is in fact a source of obligation in the German Civil
Code)
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EFFECTS OF OBLIGATION
1. Obligation to give
- Obligation to deliver the thing agreed upon
2. Obligation to do/not to do
- Obligation to do/not to do the service agreed upon
ACCESSORY OBLIGATIONS:
1. Exercise diligence / Preserve the thing

 standard of care: that of a good father of a family – unless the law or
stipulation requires another standard of care
2. Delivery of fruits
 When does the right begin to exist : from the time to deliver arises
a) when there is no term/condition – from the perfection of the contract
b) when there is a term/condition – from the moment the term or
condition arises
3. Delivery of accessories & accessions ( obligation to deliver determinate

thing, even if the stipulation does not mention delivery of accessories &
accessions)
 Accessories - those joined to or included with the principal for the latter’s
better use, perfection or enjoyment
 Accessions – additions to or improvements upon a thing
 When does right to fruits arise? – from the time the obligation to deliver
arises
a) Conditional – from the moment the condition happens
b) With a term/period – upon the expiration of the term/period
c) Simple – from the perfection of the contract
FAILURE TO COMPLY WITH PERFORMANCE/REMEDIES:

3 kinds of Performance:
1. SPECIFIC PERFORMANCE
- Performance of the prestation itself
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2. SUBSTITUTE PERFORMANCE
- Someone else performs or something else is performed at the expense of
debtor
3. EQUIVALENT PERFORMANCE
- damages
Obligation to Obligations to do
Remedies give
(Personal Obligation)
(Real Obligation)
Specific Generic To do Not to do
SPECIFIC undo the things
PERFORMANC already done
X X X
E
EQUIVALENT Can only be
PERFORMANC demanded if
X X X
E obligation is not very
personal
SUBSTITUTE Undo the things
PERFORMANC already done at
X X
E debtor's expense
RESCISSION/
CANCELLATIO X X X
N
IRREGULARITY OF PERFORMANCE / BREACH
A. CAUSES ATTRIBUTABLE TO DEBTOR
1. Contravention of tenor
2. Delay/ Mora - Non performance with respect to time

Mora solvendi – default on the part of the debtor; 2 kinds:
(1) Mora Solvendi Ex re – default in real obligations
(2) Mora Solvendi Ex persona – default in personal obligations
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Elements:
(1) The obligation must be due, enforceable and already liquidated
or determinate in amount
(2) There must be non-performance
(3) There must be a demand, unless demand is not required
When demand is not necessary:

(1) When law declares
(2) When obligation expressly declares
(3) When designation of time of delivery or rendering the service
was a controlling motive
(4) When demand would be useless as when debtor has rendered it
beyond his powers to perform
Effects:
a. if determinate thing - debtor bears risk of loss (even when there is
fortuitous event)
b. debtor liable for damages/interest
c. resolution (art 1170, in proper cases)
3. Fraud / Dolo – Voluntary execution of a wrongful act or willful

omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission
a. Causante ( causal ) - makes contract voidable
b. incidente – ( incidental ) - fraud in performance of obligation; does
not affect validity of obligations
Remedies of Person in fraud under obligations are:

a. insist on specific performance (art 1233)
b. resolve contract (art 1191)
c. claim damages, in either case
4. Negligence /Culpa - absence of due diligence
Elements:
a) Omission of diligence required
b) Diligence required – per nature of obligation, circumstances of
persons, time and place
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FRAUD DISTINGUISHED FROM NEGLIGENCE
FRAUD NEGLIGENCE
There is deliberate intention to cause There is no deliberate intention to
damage. cause damage.
Liability cannot be mitigated. Liability may be mitigated.
Waiver for future fraud is void. Waiver for future negligence may be
allowed in certain cases:
a) gross – can never be excused in
advance; against public policy
b) simple – may be excused in certain
cases
B. CAUSES NOT ATTRIBUTABLE TO DEBTOR
1. Delay/ Mora - non fulfillment with respect to time

Mora accepiendi – default on part of creditor; Creditor is guilty of
default when he unjustifiably refuses to accept payment or performance
at the time payment/performance can be done
Effects:
(1) responsibility of debtor is reduced to fraud and gross negligence
(2) debtor is exempted from risk of loss of thing / creditor bears
risk of loss
(3) expenses by debtor for preservation of thing after delay is
chargeable to creditor
(4) if obligation bears interest, debtor does not have to pay from
time of delay
(5) creditor liable for damages
(6) debtor may relieve himself of obligation by consigning the
thing
Compensatiomorae – both parties are in default (in reciprocal

obligations); the effect: is as if there is no default
2. Fortuitous Events - event which could not be foreseen, or which though

foreseen, were inevitable
REQUIREMENTS (Nakpil& Sons vs. CA):

1. The cause of the breach of the obligation must be independent of the
will of the debtor
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2. The event must be either unforeseeable or unavoidable
3. The event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner
4. The debtor must be free from any participation in, or aggravation of
injury to the creditor
Rule on Fortuitous Event:

1. General Rule – no liability for fortuitous event
2. Exemption –
a) when expressly declared by law ( bad faith, subject matter is
generic, debtor is in delay )
b) when expressly declared by stipulation or contract
c) when nature of obligation requires assumption of risk
• An indeterminate thing cannot be object of destruction by a fortuitous event

because genus never perishes.
REMEDIES OF CREDITORS
***Generally transmissible (except: law, stipulation, personal obligation):
1. Exact performance - specific, substitute, equivalent
2. Attach and execute debtor's property which is not exempt (art 2236)
3. Accionsubrogatoria (art 1171)

Requisites:
a. Creditor must have right of return against debtor
b. The debt is due and demandable
c. There is a failure of the debtor to collect his own debt from 3rd
persons either through malice or negligence
d. Debtor's assets are insufficient
e. The right of account is not purely personal
4. Acciondirecta (arts 1729 & 1652)
5. Accionpauliana
Requisites:
a. There is a credit in favor of plaintiff
b. The debtor has performed an act subsequent to the contract,
giving advantage to other persons
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c. The creditor is prejudiced by the debtor's act which are in favor
of 3rd parties and rescission will benefit the creditor
d. The creditor has no other legal remedy
e. The debtor's acts are fraudulent
KINDS OF OBLIGATIONS
CATEGORIES:
a. Demandability - pure, conditional or with a term
b. Plurality of object - simple, alternative or facultative
c. Plurality of subject - simple, joint or solidary
d. Performance - divisible or indivisible
e. Sanctions for breach - with or without a penal clause
(1) Pure – demandable at once, no term, no condition
(2) Conditional - A condition is a future and an uncertain event or a past event

unknown to the parties
Kinds:
i. Suspensive – happening of condition gives rise to obligation
Effects:
1. effectivity is retroactive
2. no retroactivity with reference to fruits or interest & prescription
3. creditor may preserve rights
4. debtor – recovery of payment by mistake or even w/o mistake
Rules on loss, impairment, improvement of the subject matter pending the happening of
suspensive condition/ term
Loss/ Impairment Improvement
w/ fault or at expense Indemnity & damages specific performance

of obligor/
rescission &
usufructuary
damages
If it improved at the
expense of the debtor, he
shall have no other right
than that granted to the
usufructuary. (art 1189)
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w/o fault or not at Extinguished Creditor to bear damages
expense of obligor
Creditor gets it
REQUISITES FOR THE AFOREMENTIONED RULE:

1. There is a suspensive condition
2. There is an obligation to deliver a determinate thing
3. There is loss, deterioration or improvement before the happening of
the condition
4. The condition happens
ii. Resolutory – happening of condition extinguishes obligation

Effects:
1. no retroactive effect
2. obligation extinguished
3. restore to each other what was received plus interest/fruits
iii. Potestative – dependent on sole will of 1 party; if on part of debtor

&suspensive – void
iv. Casual – dependent on chance or hazard
v. Mixed – chance, or any of parties
vi. With term -

a) Positive – extinguished if time expires or indubitable of
condition to
happen
b) Negative – effective from moment of time elapsed or evident it
can't
Happen
vii. Impossible and illegal –

(1) To do - both the condition and the obligation are void
(2) Not to do –disregard the condition, the obligation is still valid
Impossible condition – physically not feasible

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Illegal condition – prohibited by law, good custom, public policy
and morals
(3) With a period – future & certain, past & uncertain, payable when
able
When stipulation says “payable when able “ – it is with a period, remedy:

a) agreement among parties
b) court shall fix period of payment when parties unable to agree
Kinds:
a. Resolutory ( in diem ) – takes effect at once but terminate upon
arrival of the day certain; Day certain – that which must necessarily
come, although it may not be known when
b. Suspensive ( ex die ) – takes effect on the day stipulated
WHEN COURTS MAY FIX PERIOD:

a) art 1197
b) art 1197, 2nd paragraph
c) art 1191, 3rd paragraph
d) art 1687, 2nd, 3rd, 4th sentence
e) art 1180
WHEN DEBTOR LOSES RIGHT TO PERIOD:

a. insolvency of debtor, unless security provided
b. did not deliver security
c. impaired security- thru fault or fortuitous event
d. violate undertaking in consideration of extension of period
e. attempts to abscond
(4). Facultative – only one prestation has been agreed upon but another may be
given in substitution
Effect of loss or deterioration thru negligence, delay or fraud of

obligor:
a) of thing intended as substitute - no liability
b) of the substitute after substitution is made – with liability
(5). Alternative – bound by different prestations but only one is due

Right of choice: General rule: right of choice belongs to debtor
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a. the choice is with debtor
(1) If only 1 is left either because of fortuitous events or due to debtor's
acts, perform what is left. The effect is that the debtor loses the right
of choice
(2) if the choice is limited because of the creditor's acts, the debtor has
the right of resolution and damages
(3) if all are lost due to debtor, the creditor is entitled to damages
(4) if some are lost, the debtor can choose from the remaining
b. the choice is with creditor

(1) if one or some are lost due to fortuitous event, the creditor chooses the
remainder
(2) if one or some is lost because of the fault of debtor, the creditor may
choose either the remainder or the value of any which disappeared,
and damages in either case
(3) if all is lost due to the debtor's fault, the creditor may choose the value
of any if some is lost due to debtor's fault, the creditor chooses the
remainder
(4) if all is lost due to fortuitous event, obligation is extinguished
(5) if all is lost due to creditor's fault, the obligation is extinguished
Requisites for making the choice:

a) Made properly so that creditor or his agent will actually know
b) Made with full knowledge that a selection is indeed being made
c) Made voluntarily and freely
d) Made in due time – before or upon maturity
e) Made to all proper persons
f) Made w/o conditions unless agreed by the creditor
g) May be waived, expressly or impliedly
DISTINCTIONS BETWEEN ALTERNATIVE AND FACULTATIVE OBLIGATIONS
ALTERNATIVE FACULTATIVE
a) Various things are due but the a) Only one thing is due but a substitute
giving principally of one is may be given to render payment/fulfillment
sufficient easy
b) If one of prestations is illegal, b) If principal obligations is void and there
others may be valid but is no necessity of giving the substitute;
obligation remains nullity of P carries with it nullity of S
c) If it is impossible to give all c) If it is impossible to give the principal,

except one, the last one must still the substitute does not have to be given;
be given if it is impossible to give the substitute,
the principal must still be given
d) Right to choose may be given d) The right of choice is given only to the
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either to debtor or creditor debtor
(6) Joint – presumption when 2 or more creditors or 2 or more debtors concur

in one and the same obligation
Effects:
a. Demand on one produces delay only with respect to the debt
b. Interruption in payment by one does not benefit or prejudice the other
c. Vices of one debtor to creditor has no effect on the others
d. Insolvency of one debtor does not affect other debtors
(7) Solidary – must be expressed in stipulation or provided by law or by nature

of obligation
a. Active – on the part of creditor or obligee
Effects:
1. Death of 1 solidary creditor transmits share to heirs (but collectively)
2. Each creditor represents the other in the act of recovery of payment
3. Credit is divided equally between creditors as among themselves
4. Debtor may pay any of the solidary creditors
b. Passive – on the part of debtors or obligors
Effects:
1. Each debtor may be requested to pay whole obligation with right to
recover from co-debtors
2. Interruption of prescription to one creditor affects all
3. Interest from delay on 1 debtor is borne by all
c. Mixed – on the part of the obligors and obligees, or the part of the
debtors and the creditors
d. Conventional – agreed upon by the parties
e. Legal – imposed by law
Instances where law imposes solidary obligation:

1. obligations arising from tort
2. obligations arising from quasi-contracts
3. legal provisions regrading obligation of devisees and legatees
4. liability of principals, accomplices, and accessories of a felony
5. bailees in commodatum
Effects:
52
a. payment made before debt is due, no interest can be charged, otherwise –
interest can be charged
b. insolvency of one – others are liable for share pro-rata
c. if different terms & conditions – collect only what is due, later on collect
from any
d. no reimbursement if payment is made after prescription or became illegal
e. remission made after payment is made – co-debtor still entitled to
reimbursement
f. effect of insolvency or death of co-debtor – still liable for whole amount
g. fault of any debtor – every one is responsible – price, damage & interest
h. complete/ personal defense – total or partial ( up to amount of share
only ) if not personal to him
Effect of loss or impossibility of the prestation:

a. if without fault – no liability
b. if with fault – there is liability (also for damage and interest)
c. loss due to fortuitous event after default – there is liability (because of
default)
(8) Divisible – obligation that is capable of partial performance

a. execution of certain no of days work
b. expressed by metrical units
c. nature of obligation – susceptible of partial fulfillment
(9) Indivisible – one not capable of partial performance

a. to give definite things
b. not susceptible of partial performance
c. provided by law
d. intention of parties
(10) With penal clause - an accessory undertaking to assume greater

liability in case of breach;
CHARACTERISTICS OF PENAL CLAUSES

1. Subsidiary - As a general rule, only penalty can be demanded,
principal cannot be demanded, except: Penalty is joint or cumulative
2. Exclusive - takes place of damage, damage can only be demanded in
the ff. cases:
a. Stipulation – granting right
b. refusal to pay penalty
c. with dolo ( not of creditor )
53
Causes for reduction of penalty:
a. partial/irregular performance
b. penalty provided is iniquitous/unconscionable
EXTINGUISHMENT OF OBLIGATIONS
Modes of Extinguishment of Obligation:

1. Payment or performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of resolutory condition
1. PAYMENT OR PERFORMANCE – delivery of money and performance,

in any other manner of the obligation
REQUISITES FOR VALID PAYMENT/PERFORMANCE

A. With respect to prestation itself:
(1) identity
(2) integrity or completeness
(3) indivisibility
B. With respect to parties - must be made by proper party to proper party

(1) Payor
(a) Payor - the one performing, he can be the debtor himself or his
heirs or assigns or his agent, or anyone interested in the fulfillment
of the obligation; can be anyone as long as it is with the creditor's
consent
(b) 3RD person pays/performs - only the creditor's consent; If
performance is done also with debtor's consent - he takes the place
of the debtor. There is subrogation except if the 3 rd person intended
it to be a donation
(c) 3rd person pays/performs with consent of creditor but not with
debtor's consent, the repayment is only to the extent that the
payment has been beneficial to debtor
(2) Payee
(a) payee - creditor or obligee or successor in interest of transferee, or
agent
(b) 3rd person - if any of the ff. concur:
54
i. it must have redounded to the obligee's benefit and only to the
extent of such benefit
ii. it falls under art 1241, par 1,2,3 - the benefit is total so,
performance is total
(c) anyone in possession of the credit - but will apply only if debt has
not been previously garnished
PAYMENT MADE TO AN INCAPACITATED PERSON, VALID

IF:
1. Incapacitated person kept the thing delivered, or
2. Insofar as the payment has been beneficial to him
PAYMENT TO A 3RD PARTY NOT AUTHORIZED, VALID IF

PROVED & ONLY TO THE EXTENT OF BENEFIT; PRESUMED
IF:
1. After payment, 3rd person acquires the creditor’s rights
2. Creditor ratifies payment to 3rd person
3. By creditor’s conduct, debtor has been led to make the payment
(estoppel)
PAYMENT MADE IN GOOD FAITH TO A PERSON IN

POSSESSION OF CREDIT SHALL RELEASE DEBTOR,
Requisites:
1. Payment by debtor must be made in good faith
2. Creditor must be in possession of the credit & not merely the evidence
of indebtedness
C. With respect to time and place of payment - must be according to the

obligation
Where payment should be made:

1. In the place designated in the obligation
2. If there is no express stipulation and the undertaking is to deliver a
specific thing – at the place where the thing might be at the moment
the obligation was constituted
3. In other case – in the place of the domicile of the debtor
Time of payment - time stipulated
Effect of payment – extinguish obligation

Except: order to retain debt
55
SUBSTANTIAL PERFORMANCE
1. Attempt in Good Faith to perform without willful or intentional
departure
2. Deviation is slight
3. Omission/Defect is technical or unimportant
4. Must not be so material that intention of parties is not attained
Effect of Substantial performance in good faith

1. Obligor may recover as though there has been strict and complete
fulfillment, less damages suffered by the obligee
2. Right to rescind cannot be used for slight breach
SPECIAL RULES/FORMS OF PAYMENT - Special Forms:

a. Application of Payments
– The designation of the debt which payment shall be made, out of 2
or more debts owing the same creditor: stipulation or application of party
given benefit of period – OK; to be valid: must be debtor’s choice or w/
consent of debtor
Requisites for the Application of payment:

1. Various debts of the same kind
2. Same debtor
3. Same creditor
4. All debts must be due
Exception: there may be application of payment even if all
debts are not yet due if:
a) parties so stipulate
b) when application of payment is made by the party for whose
benefit the term has been constituted
5. Payment is not enough to extinguish all debts
HOW APPLICATION IS MADE:

1. Debtor makes the designation
2. If not, creditor makes it by so stating in the receipt that he issues –
unless there is cause for invalidating the contract
3. If neither the debtor nor creditor has made the application or if the
application is not valid, then application, is made by operation of
law
56
WHO MAKES APPLICATION:
General Rule: Debtor
Exception: Creditor –
a) Debtor without protest accepts receipt in which creditor specified
expressly and unmistakably the obligation to which such payment
was to be applied – debtor in this case renounced the right of
choice
b) When monthly statements were made by the bank specifying the
application and the debtor signed said statements approving the
status of her account as thus sent to her monthly by the bank
IN CASE NO APPLICATION HAS BEEN MADE

1. Apply payment to the most onerous
2. If debts are of the same nature and burden, application shall be
made to all proportionately
b. Dacion en Pago
– mode of extinguishing an obligation whereby the debtor alienates in
favor of the creditor property for the satisfaction of monetary debt;
extinguish up to amount of property unless w/ contrary stipulation; A
special form of payment because 1 element of payment is missing:
IDENTITY
 Governed by law on sales
 Conditions for a valid dacion:
1) If creditor consents, for a sale presupposes the consent of both
parties
2) If dacion will not prejudice the other creditors
3) If debtor is not judicially declared insolvent
c. Cession/Assignment in Favor of creditors

– the process by which debtor transfer all the properties not subject to
execution in favor of creditors is that the latter may sell them and thus,
apply the proceeds to their credits; extinguish up to amount of net
proceeds ( unless w/ contrary stipulation )
Kinds:
1. Legal – governed by the insolvency law
2. Voluntary – agreement of creditors
REQUISITES FOR VOLUNTARY ASSIGNMENT

a) More than 1 debt
b) More than 1 creditor
57
c) Complete or partial insolvency of debtor
d) Abandonment of all debtor’s property not exempt from
execution
e) Acceptance or consent on the part of the creditors
EFFECTS:
a) Creditors do not become the owner; they are merely assignees
with authority to sell
b) Debtor is released up to the amount of the net proceeds of the
sale, unless there is a stipulation to the contrary
c) Creditors will collect credits in the order of preference agreed
upon, or in default of agreement, in the order ordinarily
established by law
d. Consignation
Tender -the act of offering the creditor what is due him together with
a demand that the creditor accept the same (When creditor refuses w/o
just cause to accept payment, he becomes in moraaccepiendi& debtor
is released from responsibility if he consigns the thing or sum due)
Consignation – the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to
accept payment; generally requires prior tender of payment
REQUISITES OF VALID CONSIGNATION:

(1) Existence of valid debt
(2) Consignation was made because of some legal cause - previous
valid tender was unjustly refused or circumstances making
previous tender exempt
(3) Prior Notice of Consignation had been given to the person
interested in performance of obligation (1st notice)
(4) actual deposit/Consignation with proper judicial authorities
(5) subsequent notice of Consignation (2nd notice)
Effects: Extinguishment of obligation

(1) Debtor may ask judge to order cancellation of obligation
(2) Running of interest is suspended
(3) Before creditor accepts or before judge declares consignation has
been properly made, obligation remains ( debtor bears risk of loss
at the meantime, after acceptance by creditor or after judge
declares that consignation has been properly made – risk of loss is
shifted to creditor)
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Consignation w/o prior tender – allowed in:
1. creditor absent or unknown/ does not appear at the place of
payment
2. incapacitated to receive payment at the time it is due
3. refuses to issue receipt w/o just cause
4. 2 or more creditor claiming the same right to collect
5. title of obligation has been lost
e) LOSS OF THE THING DUE

– Partial or total/ includes impossibility of performance
WHEN IS THERE A LOSS:

1) When the object perishes (physically)
2) When it goes out of commerce
3) When it disappears in such a way that: its existence is unknown or it
cannot be recovered
WHEN IS THERE IMPOSSIBILITY OF PERFORMANCE

1) Physical impossibility
2) Legal impossibility :
(a) Directly – caused as when prohibited by law
(b) Indirectly – caused as when debtor is required to enter a military
draft
OBLIGATION TO DELIVER A SPECIFIC THING

General Rule: Extinguished
Exceptions:
a) Debtor is at fault
b) Debtor is made liable for fortuitous event because of a provision of law,
contractual stipulation or the nature of the obligation requires assumption
of risk on part of debtor
OBLIGATION TO DELIVER A GENERIC THING

General Rule: Not extinguished
Exceptions:
a) if the generic thing is delimited
b) if the generic thing has already been segregated
c) monetary obligation
59
OBLIGATION TO DO
General Rule: Debtor is released when prestation becomes legally or
physically impossible without fault on part of debtor
EFFECT OF PARTIAL LOSS – ( judicial determination of extent is

necessary)
a) when loss is significant – may be enough to extinguish obligation
b) when loss insignificant – not enough to extinguish obligation
WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR

Presumption: Loss due to debtor’s fault ( disputable )
Exception: natural calamity, earthquake, flood, storm
f) REBUS SIC STANTIBUS

- Agreement is valid only if the same conditions prevailing at time of
contracting continue to exist at the time of performance
EFFECT OF DIFFICULTY BEYOND PARTIES’

CONTEMPLATION
Rule: Obligor may be released in whole or in part
REQUISITES:
(a) The event or change could not have been forseen at the time of the
execution of the contract
(b) The performance is extremely difficult, but not impossible (because if
it is impossible, it is extinguished by impossibility)
(c) The event was not due to the act of any of the parties
(d) The contract is for a future prestation
g.) CONDONATION/REMISSION OF THE DEBT

– Gratuitous abandonment of debt; right to claim; donation; rules of
donation applies; express or implied
REQUISITES:
a. There must be an agreement
b. There must be a subject matter (object of the remission, otherwise there
would be nothing to condone)
c. Cause of consideration must be liberality (Essentially gratuitous, an act
of liberality )
60
d. Parties must be capacitated and must consent; requires acceptance by
obligor; implied in mortis causa& expressed inter vivos
e. Formalities of a donation are required in the case of an express remission
f. Revocable – subject to rule on inofficious donation ( excessive, legitime
is impaired ) & ingratitude & condition not followed
g. Obligation remitted must have been demandable at the time of remission
h. Waivers or remission are not to be presumed generally
Forms: Extent: Kinds:

a. Express – a. total a. Principal – accessory also condoned
formalities of
donation
b. Implied – conduct b. partial b. accessory – principal still outstanding
is sufficient
c. accessory oblig. Of pledge – condoned;
presumption only, rebuttable
Requisites of Implied:
1. voluntary delivery – presumption; when evidence of indebtedness is w/
debtor – presumed voluntarily delivery by creditor; rebuttable
2. effect of delivery of evidence of indebtedness is conclusion that debt is
condoned – already conclusion; voluntary delivery of private document
a. if in hands of joint debtor – only his share is condoned
b. if in hands of solidary debtor - whole debt is condoned
c. Tacit – voluntary destruction of instrument by creditor; made to
prescribe w/o demanding
h.) CONFUSION OR MERGER OF RIGHTS

– Character of debtor & creditor is merged in same person with respect to
same obligation
REQUISITES:
a. It must take place between principal debtor & principal creditor only
b. Merger must be clear & definite
c. The obligation involved must be same & identical – one obligation
only
d. Revocable, if reason for confusion ceases, the obligation is revived
i) COMPENSATION
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– Set off; it is a mode of extinguishment to the concurrent amount the
obligation of persons who are in their own right reciprocally debtors or
creditors
REQUISITES:
a. Both parties must be mutually creditors and debtors - in their own
right and as principals
b. Both debts must consist in sum of money or if consumable , of the
same kind or quality
c. Both debts are due
d. Both debts are liquidated & demandable (determined)
e. Neither debt must be retained in a controversy commenced by 3 rd
person & communicated w/ debtor (neither debt is garnished)
Kinds:
a. legal – by operation of law; as long as 5 requisites concur- even if
unknown to parties & if payable in diff places; indemnity for expense
of exchanges; even if not equal debts – only up to concurring amount
b. conventional – agreement of parties is enough, forget other
requirement as long as both consented
c. facultative – one party has choice of claiming/opposing – one who has
benefit of period may choose to compensate
- not all requisites are present
- depositum; commodatum; criminal offense; claim for future
support; taxes
d. judicial – set off; upon order of the court; needs pleading & proof; all
requirements must concur except liquidation
e. total – when 2 debts are of the same amount
f. partial – when 2 debts are not of the same amount
Effect of assignment of credit to 3 rd person; can there still be

compensation
a. if made after compensation took place – no effect; compensation
already perfected
b. if made before compensation took place – depends
1. with consent of debtor – debtor is estopped unless he reserves his
right & gave notice to assignee
2. with knowledge but w/o consent of debtor – compensation may be
set up as to debts maturing prior to assignment
3. w/o knowledge – compensation may be set-up on all debts prior to
his knowledge
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j.) NOVATION
– Extinguishment of obligation by creating/ substituting a new one in its
place
a. changing object or principal conditions
b. substituting person of debtor
c. subrogating 3rd person in right of creditor
REQUISITES:
a. valid obligation
b. intent to extinguish old obligation – expressed or implied:
completely/substantially incompatible old and new obligation on every
point
c. capacity & consent of parties to the new obligation
d. valid new obligation
EFFECT OF NOVATION:
a. extinguishment of principal carries accessory, except:
- stipulation to contrary
- stipulation pour autri unless beneficiary consents
- modificatory novation only; obliged to w/c is less onerous
- old obligation is void
b. old obligation subsists if:
- new obligation is void or voidable but annulled already ( except:
intention of parties )
c. if old obligation has condition
- if Resolutory& it occurred –old obligation already extinguished; no
new obligation since nothing to novate
- if suspensive& it never occurred –as if no obligation; also nothing to
novate
d. if old obligation has condition, must be compatible with the new
obligation; if new is w/o condition – deemed attached to new
e. if new obligation has condition
- if resolutory: valid
- if suspensive& did not materialize: old obligation is enforced
KINDS:
a. REAL/OBJECTIVE – change object, cause/consideration or principal
condition
b. PERSONAL/SUBJECTIVE
1. substituting person of debtor ( passive )
EXPROMISION; initiative is from 3rd person or new debtor; new

debtor & creditor to consent; old debtor released from obligation;
subject to full reimbursement & subrogation if made w/ consent of old
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debtor; if w/o consent or against will , only beneficial reimbursement;
if new debtor is insolvent, not responsible since w/o his consent
DELEGACION; initiative of old debtor; all parties to consent; full

reimbursement; if insolvent new debtor – not responsible old debtor
because obligation extinguished by valid novation unless: insolvency
already existing & of public knowledge or know to him at time of
delegacion
a. Delegante – old debtor
b. Delegatario - creditor
c. Delegado – new debtor
2. subrogating 3rd person to rights of creditor ( active )

a. conventional- agreement & consent of all parties; clearly
established
b. legal- takes place by operation of law; no need for consent; not
presumed except as provided for in law:
Presumed when-
1. creditor pays another preferred creditor even w/o debtor’s
knowledge
2. 3rd person not interested in obligation pays w/ approval of
debtor
3. person interested in fulfillment of obligation pays debt even w/o
knowledge of debtor
Difference from payment by 3rd person Change of debtor

1. debtor is not nec. Released from 1. debtor is released
debt
2. can be done w/o consent of creditor 2. needs consent of creditor
– express or implied
3. 1 obligation 3. 2 obligations; 1 is extinguished & new
one created
4. 3rd person has no oblig. to pay if 4. new debtor is obliged to pay
insolvent
PART II - CONTRACTS
-meeting of minds between two parties whereby one binds himself with
respect to other to give something or render some service
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PRINCIPAL CHARACTERISTICS:
1. Autonomy of wills – parties may stipulate anything as long as not illegal,
immoral, etc. (Article1306, NCC)
2. Mutuality – performance or validity binds both parties; not left to will of

one of parties (Article 1308, NCC)
3. Obligatory Force – parties are bound from perfection of contract: (Article

1315, NCC)
a. fulfill what has been expressly stipulated
b. all consequences w/c may be in keeping with good faith, usage & law
4. Relativity – binding only between the parties, their assigns, heirs; strangers
cannot demand enforcement (Article1311, NCC )
EXCEPTION TO RELATIVITY:
a. Accionpauliana
b. Acciondirecta
c. Stipulation pour autrui
REQUISITES OF STIPULATION POUR AUTRUI

(1) Parties must have clearly and deliberately conferred a favor upon a 3 rd
person
(2) The stipulation in favor of a 3rd person should be a part of, not the
whole contract
(3) That the favorable stipulation should not be conditioned or
compensated by any kind of obligation whatsoever
(4) Neither of the contracting parties bears the legal representation or
authorization of 3rd party
(5) The third person communicates his acceptance before revocation by
the original parties
d. Art 1312
e. Art 1314
REQUISITES OF ART 1312:

(1) Existence of a valid contract
(2) Knowledge of the contract by a 3rd person
(3) Interference by the 3rd person
KINDS OF CONTRACTS:
As to perfection or formation:
1. consensual – perfected by agreement of parties
2. real – perfected by delivery ( commodatum, pledge, deposit )
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3. formal/solemn – perfected by conformity to essential formalities ( donation )
As to cause
1. Onerous – with valuable consideration
2. Gratuitous – founded on liberality
3. Remunerative – prestation is given for service previously rendered not as
obligation
As to importance or dependence of one upon another

1. principal – contract may stand alone
2. accessory – depends on another contract for its existence; may not exist on
its own
3. Preparatory – not an end by itself; a means through which future contracts
may be made
As to parties obliged:
1. Unilateral – only one of the parties has an obligation
2. Bilateral – both parties are required to render reciprocal prestations
As to name or designation:
1. Nominate
2. Innominate
a) Do ut des – I give that you may give
b) Do utfacias – I give that you may do
c) Faciout des – I do that you may give
d) Facioutfacias – I do that you may do
STAGES IN A CONTRACT:
1. Preparation - negotiation
2. perfection/birth
3. consummation – performance
ESSENTIAL ELEMENTS OF CONTRACTS:

1. Consent
– Meeting of minds between parties on subject matter & cause of contract;
concurrence of offer & acceptance
Requirements:
a. Plurality of subject
b. Capacity
c. Intelligence and free will
d. Manifestation of intent of parties
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e. Cognition by the other party
f. Conformity of manifestation and cognition
Note: We follow the theory of cognition and not the theory of manifestation.
Under our civil law, the offer and acceptance concur only when the offeror
comes to know, and not when the offeree merely manifests his acceptance
ELEMENTS OF VALID OFFER ELEMENTS OF VALID

ACCEPTANCE
a. definite a. unequivocal
b. complete b. unconditional
c. intentional
WHEN OFFER BECOMES INEFFECTIVE:

1. death, civil interdiction, insanity or insolvency of either party before
acceptance is conveyed
2. express or implied revocation of the offer by the offeree
3. qualified or conditional acceptance of the offer
4. subject matter becomes illegal or impossible before acceptance is
communicated
PERIOD FOR ACCEPTANCE

1. stated fixed period in the offer
2. no stated fixed period
a) offer is made to a person present – acceptance must be made
immediately
b) offer is made to a person absent – acceptance may be made within
such time that, under normal circumstances, an answer can be
received from him
OPTION - option may be withdrawn anytime before acceptance is
communicated but not when supported by a consideration other than
purchase price: option money
Note: Ang Yu v. CA (1994) states that a unilateral promise to buy or sell, if

not supported by a distinct consideration, may be withdrawn but may not be
done whimsically or arbitrarily; the right of the grantee here is damages
and not specific performance; Equatorial v. Mayfair(264 SCRA 483) held
that an option clause in order to be valid and enforceable must indicate the
definite price at which the person granting the option is willing to sell,
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contract can be enforced and not only damages; Paranaque Kings V CA
(1997) states that right of first refusal may be enforced by specific
performance.
PERSONS WHO CANNOT GIVE CONSENT TO A CONTRACT:

1. Minors
2. Insane or demented persons
3. Illiterates/ deaf-mutes who do not know how to write
4. Intoxicated and under hypnotic spell
5. Art 1331 - person under mistake; mistake may deprive intelligence
6. Art 1338 - person induced by fraud (dolocausante)
Note: Dolus bonus (usual exaggerations in trade) are not in themselves
fraudulent
RULE ON CONTRACTS ENTERED INTO BY MINORS

General Rule: VOIDABLE
EXCEPTIONS:
1. Upon reaching age of majority – they ratify the same
2. They were entered unto by a guardian and the court having
jurisdiction had approved the same
3. They were contracts for necessities such as food, but here the persons
who are bound to give them support should pay therefor
4. Minor is estopped for having misrepresented his age and misled the
other party (when age is close to age of majority as in the Mercado v
Espiritu &SiaSuan v Alcantara cases)
Note: In the SiaSuan v Alcantara case, there is a strong dissent by

J.Padilla to the effect that the minor cannot be estopped if he is too
young to give consent; one that is too young to give consent is too young
to be estopped. Subsequently, in Braganza v Villa-Abrille, the dissent
became the ruling. Minors could not be estopped
DISQUALIFIED TO ENTER INTO CONTRACTS: (contracts

entered into are void)
1. those under civil interdiction
2. hospitalized lepers
3. prodigals
4. deaf and dumb who are unable to read and write
5. those who by reason of age, disease, weak mind and other similar
causes, cannot without outside aid, take care of themselves and
manage their property, becoming an easy prey for deceit and
exploitation
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CAUSES WHICH VITIATE FREEDOM
1. violence
REQUISITE:
a. Irresistable physical force
b. Such force is the determining cause for giving consent
2. Intimidation
REQUISITE:
a. Determining cause for the contract
b. Threatened act is unjust and unlawful
c. Real and serious
d. Produces a well grounded fear that the person making it will carry
it over
3. undue influence
SIMULATED CONTRACTS
a. absolute – no intention to be bound at all, fictitious only – void from
beginning
b. relative – there is intention to be bound but concealed; concealed
contract binds:
1. no prejudice to 3rd persons
2. not contrary to law, morals, etc.
2. OBJECT – The prestation
REQUISITES:
a) Within the commerce of man - either existing or in potency
b) Licit or not contrary to law, good customs
c) Possible
d) Determinate as to its kind or determinable w/o need to enter into a new
contract
e) Transmissible
3. CAUSA – reason why parties enter into contract
REQUISITES:
a) It must exist
b) It must be true
c) It must be licit
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MOTIVE - purely private reason; illegality does not invalidate contract
except when it predetermines purpose of contract; when merged into one
ABSENCE OF VOID - produce no legal effect

CAUSA
ILLEGALITY OF VOID - produce no legal effect
CAUSA
FALSITY OF CAUSA VOIDABLE – party must prove that cause is
untruthful; presumption of validity but rebuttable
CAUSA NOT PRESUMED TO EXIST - burden of proof is on the
STATED IN person assailing its existence
CONTRACT
INADEQUACY OF DOES NOT INVALIDATE CONTRACT PER SE
CAUSA
Exceptions:
1. fraud
2. mistake
3. undue influence
4. cases specified by law
- contracts entered when ward suffers
lesion of more than 25%
4. FORM – in some kind of contracts only as contracts are generally

consensual; form is a manner in which a contract is executed or manifested
a. Informal – may be entered into whatever form as long as there is
consent, object & cause
b. Formal – required by law to be in certain specified form such as:
donation of real property, stipulation to pay interest, transfer of large
cattle, sale of land thru agent, contract of antichresis, contract of
partnership, registration of chattel mortgage, donation of personal
prop in excess of 5,000
c. Real – creation of real rights over immovable prop – must be written
WHEN FORM IS IMPORTANT:

1) for validity (formal/solemn contracts)
2) for enforceability (statute of frauds)
3) for convenience
General Rule: contract is valid & binding in whatever form provided that 3
essential requisites concur
Exception:
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a. Law requires contract to be in some form for validity - donation &
acceptance of real property
b. Law requires contract to be in some form to be enforceable - Statute of

Frauds; contract is valid but right to enforce cannot be exercised; need
ratification to be enforceable
c. Law requires contract to be in some form for convenience - contract is

valid & enforceable, needed only to bind 3rd parties
- ex: public documents needed for the ff:
1. contracts w/c object is creation, transmission or reformation of real
rights over immovables
2. cession, repudiation, renunciation of hereditary rights/CPG
3. power to administer property for another
4. cession of action of rights proceeding from an act appearing in a
public inst.
5. all other docs where amount involved is in excess of 500 ( must be
written even private docs )
REFORMATION OF CONTRACTS – remedy to conform to real intention

of parties due to mistake, fraud, inequitable conduct, accident
CAUSES/GROUNDS:
a. mutual: instrument includes something w/c should not be there or omit
what should be there
 mutual
 mistake of fact
 clear & convincing proof
 causes failure of instrument to express true intention
b. unilateral
 one party was mistaken
 other either acted fraudulently or inequitably or knew but concealed
 party in good faith may ask for reformation
c. mistake by 3rd persons – due to ignorance, lack of skill, negligence , bad
faith of drafter, clerk, typist
d. others specified by law – to avoid frustration of true intent
REQUISITES:
1. there is a written instrument
2. there is meeting of minds
3. true intention not expressed in instrument
4. clear & convincing proof
5. facts put in issue in pleadings
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Note: prescribes in 10 years from date of execution of instrument
WHEN NOT AVAILABLE:

a. simple donation inter vivos
b. wills
c. when real agreement is void
d. estoppel; when party has brought suit to enforce it
KINDS OF DEFECTIVE CONTRACTS:
Differences
Void Voidable Rescissible Unenforceable
Defect is caused Defect is caused Defect is caused Defect is caused
by lack of by vice of by injury or by lack of form,
essential consent damage either to authority or
elements or one of the parties capacity of both
illegality or to a third parties not cured
person by prescription
Do not as a Valid and Valid and Cannot be
general rule enforceable until enforceable until enforced by a
produce a legal annulled by a rescinded by a proper action in
effect competent court competent court court
Action for the Action for Action for Corresponding
declaration or annulment or rescission may action for
nullity or defense of prescribe recovery, if there
inexistence or annulability may was a total or
defense of nullity prescribe partial
or inexistence performance of
does not the unenforceable
prescribe contract under
No. 1 and 3 of
article 1403 may
prescribe
Not cured by Cured by Cured by Not cured by
prescription prescription prescription prescription
Cannot be Can be ratified Need not be Can be ratified
ratified ratified
Assailed by a Assailed by a Assailed by a Assailed by a
contracting party contracting party contracting party contracting party
or a third person and a third
whose interest is person who is
directly affected prejudiced or
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damaged by the
contract
Assailed directly Assailed directly Assailed directly Assailed directly
or collaterally or collaterally only or collaterally
1. RESCISSIBLE CONTRACTS – Those which have caused a particular

economic damage either to one of the parties or to a 3rd person and which
may be set aside even if valid. It may be set aside in whole or in part, to the
extent of the damage caused'
REQUISITES:
a. Contract must be rescissible
(1) Under art 1381:
i. Contracts entered into by persons exercising fiduciary capacity
(a) Entered into by guardian whenever ward suffers damage by
more than 1/4 of value of object
(b) Agreed upon in representation of absentees, if absentee suffers
lesion by more than ¼ of value of property
(c) Contracts where rescission is based on fraud committed on
creditor (accionpauliana)
(d) Objects of litigation; contract entered into by defendant w/o
knowledge or approval of litigants or judicial authority
(e) Payment by an insolvent – on debts w/c are not yet due;
prejudices claim of others
(f) Provided for by law - art 1526, 1534, 1538, 1539, 1542, 1556,
1560, 1567 and 1659
ii.Under art 1382 - Payments made in a state of insolvency
b. Plaintiff has no other means to obtain reparation
b. Plaintiff must be able to return whatever he may be obliged to return due
to rescission
c. The things must not have been passed to 3rd parties who did not act in bad
faith
d. It must be made within the prescribed period
OBLIGATION CREATED BY THE RESCISSION OF THE

CONTRACT: Mutual Restitution
1. Things w/c are the objects of the contract & their fruits
2. Price with interest
Note: Mutual restitution N.A. when:
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1. creditor did not receive anything from contract
2. thing already in possession of party in good faith; subject to
indemnity only; if there are 2 or more alienations – liability of
1stinfractor
2. VOIDABLE CONTRACTS – intrinsic defect; valid until annulled; defect

is due to vice of consent or legal incapacity
CHARACTERISTICS:
a. Effective until set aside
b. May be assailed or attacked only in an action for that purpose
c. Can be confirmed ( Note: CONFIRMATION IS THE PROPER TERM
FOR CURING THE DEFECT OF A VOIDABLE CONTRACT)
d. Can be assailed only by the party whose consent was defective or his
heirs or assigns
WHAT CONTRACTS ARE VOIDABLE:

a. THOSE WHERE ONE OF THE PARTIES IS INCAPABLE OF
GIVING CONSENT TO A CONTRACT (legal incapacity)
(1) minors ( below 18 )
(2) insane unless acted in lucid interval
(3) deaf mute who can’t read or write
(4) persons specially disqualified: civil interdiction
(5) in state of drunkenness
(6) in state of hypnotic spell
b. THOSE WHERE THE CONSENT IS VITIATED BY MISTAKE,

VIOLENCE, INTIMIDATION, UNDUE INFLUENCE OR FRAUD
(vice of consent)
(1) mistake – false belief into something
REQUISITES:
1. Refers to the subject of the thing which is the object of the contract
2. Refers to the nature of the contract
3. Refers to the principal conditions in an agreement
4. Error as to person - when it is the principal consideration of the
contract
5. Error as to legal effect - when mistake is mutual and frustrates the
real purpose of parties
(2) violence – serious or irresistible force is employed to wrest consent
74
(3) intimidation – one party is compelled by a reasonable & well-
grounded fear of an imminent & grave danger upon person & property
of himself, spouse, ascendants or descendants (moral coercion)
(4) undue influence – person takes improper advantage of his power over
will of another depriving latter of reasonable freedom of choice
(5) fraud – thru insidious words or machinations of contracting parties,

other is induced to enter into contract w/o w/c he will not enter
(dolocausante)
PERIOD TO BRING ACTION FOR ANNULMENT
Intimidation, violence, undue 4 years from time defect of consent

influence ceases
Mistake, fraud 4 years from time of discovery
Incapacity from time guardianship ceases
EFFECTS OF ANNULMENT:
1. Obligation to give – mutual restitution
2. Obligation to do – value of service
PRESCRIPTION IN ACTION FOR ANNULMENT OF VOIDABLE CONTRACTS:
Intimidation/Violence/undue 4 years from time defect of consent

Influence ceases
Mistake/Fraud 4 years from time of discovery
Contracts entered into by 4 years from time guardianship ceases
minors/incapacitated persons
3. UNENFORCEABLE CONTRACT – valid but cannot compel its

execution unless ratified; extrinsic defect; produce legal efefcts only after
ratified
KINDS/VARIETIES:
1. Unauthorized/No sufficient authority – entered into in the name of
another when:
a. no authority conferred
b. in excess of authority conferred ( ultra vires )
75
Note: Curable by RATIFICATION
2. Both parties incapable of giving consent -2 minor or 2 insane persons
Note: Curable by ACKNOWLEDGEMENT

3. Failure to comply with Statute of Frauds
a. Agreement to be performed within a year after making contract
b. Special promise to answer for debt, default or miscarriage of another
c. Agreement made in consideration of promise to marry
d. Agreement for sale of goods, chattels or things in action at price not
less than 500; exception: auction when recorded sale in sales book
e. Agreement for lease of property for more than 1 year & sale of real
property regardless of price
f. Representation as to credit of another
2 WAYS OF CURING UNENFORCEABLE CONTRACTS:

1. Failure of defendant to object in time, to the presentation of parole
evidence in court, the defect of unenforceability is cured
2. Acceptance of benefits under the contract. If there is performance in
either part and there is acceptance of performance, it takes it out of
unenforceable contracts; also estoppel sets in by accepting performance,
the defect is waived
4. VOID OR INEXISTENT – of no legal effect
CHARACTERISTICS:
a. It produces no effect whatsoever either against or in favor of anyone
b. There is no action for annulment necessary as such is ipso jure. A judicial
declaration to that effect is merely a declaration
c. It cannot be confirmed, ratified or cured
d. If performed, restoration is in order, except if pari delicto will apply
e. The right to set up the defense of nullity cannot be waived
f. Imprescriptible
g. Anyone may invoke the nullity of the contract whenever its juridical
effects are asserted against him
KINDS OF VOID CONTRACT:
1) Those lacking in essential elements: no consent, no object, no cause

(inexistent ones) – essential formalities are not complied with ( ex:
donation propter nuptias – should conform to formalities of a donation to
be valid )
(a) Those w/c are absolutely simulated or fictitious – no cause
76
(b) Those which cause or object did not exist at the time of the transaction
– no cause/object
(c) Those whose object is outside the commerce of man – no object
(d) Those w/c contemplate an impossible service – no object
(e) Those w/c intention of parties relative to principal object of the
contract cannot be ascertained
2) Prohibited by law
(f) Those expressly prohibited or declared void by law - Contracts w/c
violate any legal provision, whether it amounts to a crime or not
3) Illegal/Illicit ones – Those whose cause, object or purpose is contrary to

law, morals, good customs, public order or public policy ; Ex: Contract to
sell marijuana
KINDS OF ILLEGAL CONTRACTS
CONTRACT CONSTITUTE CONTRACT DOES NOT

CRIMINAL OFFENSE CONSTITUTE CRIMINAL
OFFENSE BUT IS ILLEGAL
OR UNLAWFUL PER SE
Parties are in  No action for specific  No action for specific
pari delicto performance performance
 No action for restitution  No action for restitution on
on either side. The law either side. The law will
will leave you where you leave you where you are
are  No confiscation
 Both shall be prosecuted
 Thing/price to be
confiscated in favor of
government
Only one  No action for specific  No action for specific
party is guilty performance performance
 Innocent party is entitled  Innocent party is entitled to
to restitution restitution
 Guilty party is not entitled  Guilty party is not entitled
to restitution to restitution
 Guilty party will be
prosecuted
 Instrument of crime will
be confiscated in favor of
govt
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PARI DELICTO DOCTRINE -both parties are guilty, no action against
each other; those who come in equity must come with clean hands; applies
only to illegal contracts & not to inexistent contracts; does not apply when a
superior public policy intervenes
EXCEPTION TO PARI DELICTO RULE

1. If purpose has not yet been accomplished & If damage has not been
caused to any 3rd person
Requisites:
a) contract is for an illegal purpose
b) contract must be repudiated by any of the parties before purpose is
accomplished or damage is caused to 3rd parties
c) court believes that public interest will be served by allowing recovery
(discretionary upon the court ) – based on remorse; illegality is
accomplished when parties entered into contract; before it takes effect
– party w/c is remorseful prevents it
2. Where laws are issued to protect certain sectors: consumer protection,

labor, usury law
a) Consumer protection – if price of commodity is determined by statute,
any person paying an amount in excess of the maximum price allowed
may recover such excess
b) Labor – if law sets the minimum wage for laborers, any laborer who
agreed to receive less may still be entitled to recover the deficiency; if
law set max working hours &laborer who undertakes to work longer
may demand additional compensation
c) Interest paid in excess of the interest allowed by the usury law may be
recovered by debtor with interest from date of payment
3. If one party is incapacitated, courts may allow recovery of money,

property delivered by incapacitated person in the interest of justice; pari
delicto cannot apply because an incapacitated person does not know what
he is entering into; unable to understand the consequences of his own
action
4. If agreement is not illegal per se but merely prohibited & prohibition is

designated for the protection of the plaintiff – may recover what he has
paid or delivered by virtue of public policy
MUTUAL RESTITUTION IN VOID CONTRACTS

General Rule: parties should return to each other what they have given by
virtue of the void contract in case where nullity arose from defect in
essential elements
1. return object of contract & fruits
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2. return price plus interest
Exception: No recovery can be had in cases where nullity of contract arose

from illegality of contract where parties are in pari delicto; except:
a. incapacitated – not obliged to return what he gave but may recover
what he has given
b. other party is less guilty or not guilty
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Special Laws
80
Republic Act No. 9653
AN ACT ESTABLISHING REFORMS IN THE REGULATION OF
RENT OF CERTAIN RESIDENTIAL UNITS, PROVIDING THE
MECHANISMS THEREFOR AND FOR OTHER PURPOSES.
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. Short Title. – This Act shall be known and cited as the “Rent
Control Act of 2009.“
SEC. 2. Declaration of Policy. – The State shall, for the common good,
undertake a continuing program of encouraging the development of affordable
housing for the lower income brackets and other beneficiaries.
Toward this end, the State shall continue to protect housing tenants in the lower
income brackets and other beneficiaries from unreasonable rent increases.
SEC. 3. Definition of Terms. – The following terms as used in
this Act shall be understood as:
(a) “Rent” shall mean the amount paid for the use or occupancy of a residential
unit whether payment is made on a monthly or other basis.
(b) “Residential unit” shall refer to an apartment, house and/or land on which
another’s dwelling is located and used for residential purposes and shall include
not only buildings, part or units thereof used solely as dwelling places,
boarding houses, dormitories, rooms and bedspaces offered for rent by their
owners, except motels, motel rooms, hotels, hotel rooms, but also those used for
home industries, retail stores or other business purposes if the owner thereof
and his or her family actually live therein and use it principally for dwelling
purposes.
(c) “Immediate members of family of the lessee or lessor” for purposes of

repossessing the leased premises, shall be limited to his or her spouse, direct
descendants or ascendants, by consanguinity or affinity.
(d) “Lessee” shall mean the person renting a residential unit.
(e) “Owner/Lessor” shall include the owner or administrator or agent of the

owner of the residential unit.
(f) “Sublessor” shall mean the person who leases or rents out a residential unit
leased to him by an owner.
81
(g) “Sublessee” shall mean the person who leases or rents out a residential unit
from a sublessor.
SEC. 4. Limit on Increases in Rent. – For a period of one (1) year from its
effectivity, no increase shall be imposed upon the rent of any residential unit
covered by this Act: Provided, that after such period until December 31, 2013,
the rent of any residential unit covered by this Act shall not be increased by
more than seven (7%) annually as long as the unit is occupied by the same
lessee: Provided, further, That when the residential unit becomes vacant, the
lessor may set the initial rent for the next lessee: Provided, however, That in the
case of boarding houses, dormitories, rooms and bedspaces offered for rent to
students, no increase in rental more than once per year shall be allowed.
SEC. 5. Coverage of this Act. – All residential units in the National Capital
Region and other highly urbanized cities, the total monthly rent for each of
which ranges from One peso (P1.00) to Ten thousand pesos (P10,000.00) and
all residential units in all other areas, the total monthly rent for each of
which ranges from One peso (P1.00) to Five thousand pesos
(P5,000.00) as of the effectivity date of this Act shall be covered, without
prejudice to existing contracts.
SEC. 6. Authority to Continue Rental Regulation. – Notwithstanding the lapse

of the period provided in Section 4 of this Act, the Housing and Urban
Development Coordinating Council (HUDCC) is hereby granted the authority
to continue the regulation of the rental of certain residential units, to determine
the period of regulation and its subsequent extensions if warranted, to determine
the residential units covered and to adjust the allowable limit on rental increases
per annum, taking into consideration, among others, National Statistics Office
(NSO) census on rental units, prevailing rental rates, the monthly
inflation rate on rentals of the immediately preceding year, and rental
price index.
SEC. 7. Rent and Requirement of Bank Deposit. – Rent shall be paid in advance
within the first five (5) days of every current month or the beginning of the
lease agreement unless the contract of lease provides for a later date of
payment. The lessor cannot demand more than one (1) month advance rent.
Neither can he/she demand more than two (2) months deposit which shall be
kept in a bank under the lessor’s account name during the entire duration of the
lease agreement. Any and all interest that shall accrue therein shall be returned
to the lessee at the expiration of the lease contract. In the event however, that
the lessee fails to settle rent, electric, telephone, water or such other utility bills
or destroys any house components and accessories, the deposits and interests
therein shall be forfeited in favor of the latter in the amount commensurate to
the pecuniary damage done by the former.
SEC. 8. Assignment of Lease or Subleasing. – Assignment of lease or

subleasing of the whole or any portion of the residential unit, including the
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acceptance of boarders or bedspacers, without the written consent of the
owner/lessor is prohibited.
SEC. 9. Grounds for Judicial Ejectment. – Ejectment shall be allowed on the

following grounds:
(a) Assignment of lease or subleasing of residential units in whole or in part,

including the acceptance of boarders or bedspacers, without the written consent
of the owner/lessor;
(b) Arrears in payment of rent for a total of three (3) months: Provided, That in
the case of refusal by the lessor to accept payment of the rent agreed upon, the
lessee may either deposit, by way of consignation, the amount in court, or with
the city or municipal treasurer, as the case may be, or barangay chairman, or in
a bank in the name of and with notice to the lessor, within one (1) month after
the refusal of the lessor to accept payment. The lessee shall thereafter deposit
the rent within ten (10) days of every current month. Failure to deposit the
rent for three (3) months shall constitute a ground for ejectment.
The lessor, upon authority of the court in case of consignation or upon joint
affidavit by him and the lessee to be submitted to the city or municipal treasurer
or barangay chairman and to the bank where deposit was made, shall be
allowed to withdraw the deposits;
(c) Legitimate need of the owner/lessor to repossess his or her property for his
or her own use or for the use of any immediate member of his or her family as a
residential unit: Provided, however, That the lease for a definite period has
expired: Provided, further, that the lessor has given the lessee the formal notice
three (3) months in advance of the lessor’s intention to repossess the property
and: Provided, finally, that the owner/lessor is prohibited from leasing the
residential unit or allowing its use by a third party for a period of at least (1)
year from the time of repossession;
(d) Need of the lessor to make necessary repairs of the leased premises which is
the subject of an existing order of condemnation by appropriate authorities
concerned in order to make the said premises safe and habitable: Provided,
That after said repair, the lessee ejected shall have the first preference to lease
the same premises: Provided, however, That the new rent shall be reasonably
commensurate with the expenses incurred for the repair of the said residential
unit and: Provided, finally, That if the residential unit is condemned or
completely demolished,
the lease of the new building will no longer be subject to the aforementioned
first preference rule in this subsection; and
(e) Expiration of the period of the lease contract.
SEC. 10. Prohibition Against Ejectment by Reason of Sale or Mortgage. – No

lessor or his successor-in-interest shall be entitled to eject the lessee upon the
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ground that the leased premises have been sold or mortgaged to a third person
regardless of whether the lease or mortgage is registered or not.
SEC. 11. Rent-to-Own Scheme. – At the option of the lessor, he or she may

engage the lessee in a written rent-to-own agreement that will result in the
transfer of ownership of the particular dwelling in favor of the latter. Such an
agreement shall be exempt from the coverage of Section 5 of this Act.
SEC. 12. Application of the Civil Code and Rules of Court of the Philippines. –
Except when the lease is for a definite period, the provision of paragraph (1) of
Article 1673 of the Civil Code of the Philippines, insofar as they refer to
residential units covered by this Act, shall be suspended during the effectivity
of this Act, but other provisions of the Civil Code and the Rules of Court on
lease contracts, insofar as they are not in conflict with the provisions of this Act
shall apply.
SEC. 13. Penalties. – A fine of not less than Twenty-five thousand pesos

(P25,000.00) nor more than Fifty thousand pesos (P50,000.00) or imprisonment
of not less than one (1) month and one (1) day to not more than six (6) months
or both shall be imposed on any person, natural or juridical, found guilty of
violating any provision of this Act.
SEC. 14. Information Drive. – The Department of the Interior and Local

Government and the HUDCC, in coordination with other concerned agencies,
are hereby mandated to conduct a continuing information drive about the
provisions of this Act, which shall be translated and be made available in major
regional dialects and shall be posted in conspicuous public places, including
barangay halls.
SEC. 15. Review of the Rental Regulation – The HUDCC is hereby mandated to

conduct every three (3) years from the effectivity of this Act a review of its
implementation and a study on rental regulation, and submit to
Congress its recommendation on whether a continuing regulation is still
necessary or deregulation is already warranted.
SEC. 16. Program to Cushion Impact in the Event of a Regulation-Free Rental

Housing Market – The HUDCC and its attached agencies are hereby
mandated to formulate and implement a two (2) year transition program
which will provide for safety measures to cushion the impact in the event of a
regulation-free housing market.
SEC. 17. Separability Clause. – If any provision or part hereof is
held invalid or unconstitutional, the remainder of the law or the provision not
otherwise affected shall remain valid and subsisting.
SEC. 18. Repealing Clause. – Any law, presidential decree or issuance,

executive order, letter of instruction, administrative order, rule or regulation
84
contrary to or inconsistent with the provisions of this Act is hereby repealed,
modified or amended accordingly.
SEC. 19. Effectivity Clause. – This Act shall take effect beginning fifteen (15)
days after its complete publication in at least two (2) newspapers of general
circulation.
Approved: JUL 14 2009
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REPUBLIC ACT NO. 7652
AN ACT ALLOWING THE LONG-TERM LEASE OF PRIVATE
LANDS BY FOREIGN INVESTORS
Section 1. Title. — This Act shall be known as the "Investors' Lease Act."
Sec. 2. Declaration of Policy. — It is hereby declared the policy of the State
to encourage foreign investments consistent with the constitutional mandate to
conserve and develop our own patrimony. Towards this end, the State hereby
adopts a flexible and dynamic policy on the granting of long-term lease on
private lands to foreign investors for the establishment of industrial estates,
factories, assembly or processing plants, agro-industrial enterprises, land
development for industrial, or commercial use, tourism, and other similar
priority productive endeavors.
Sec. 3. Definitions. — For purposes of this Act, unless the context indicates
otherwise, the term:
(1) "Investing in the Philippines" shall mean making an equity investment in

the Philippines through actual remittance of foreign exchange or transfer of
assets, whether in the form of capital goods, patents, formulae, or other
technological rights or processes, upon registration with the Securities and
Exchange Commission; and
(2) "Withdrawal of approved investment" shall mean either; (a) the failure to
operate the investment project for any three (3) consecutive years; or (b)
outright abandonment of the investment project at any time during the approved
lease period: provided, that failure to pay lease rental for three (3) consecutive
months coupled with the failure to operate the investment project for the same
period shall be deemed an outright abandonment of the project.
Sec. 4. Coverage. — Any foreign investor investing in the Philippines shall be
allowed to lease private lands in accordance with the laws of the Republic of
the Philippines subject to the following conditions:
(1) No lease contract shall be for a period exceeding fifty (50) years,
renewable once for a period of not more than twenty- five (25) years;
(2) The leased area shall be used solely for the purpose of the investment
upon the mutual agreement of the parties;
(3) The leased premises shall comprise such area as may reasonably be
required for the purpose of the investment subject however to the
Comprehensive Agrarian Reform Law and the Local Government Code.
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The leasehold right acquired under long-term lease contracts entered into
pursuant to this Act may be sold, transferred, or assigned: provided, that when
the buyer, transferee, or assignee is a foreigner or a foreign-owned enterprise,
the conditions and limitations in respect to the use of the leased property as
provided for under this Act shall continue to apply.
Sec. 5. Limitations. — (1) Foreign individuals, corporations, associations, or

partnerships not otherwise investing in the Philippines as defined herein shall
continue to be covered by Presidential Decree No. 471 and other existing laws
in lease of lands to foreigners.
(2) Withdrawal of the approved investment in the Philippines within the

period of the lease agreement entered into under this Act, or use of the leased
area for the purpose other than that authorized, shall warrant the ipso facto
termination of the lease agreement without prejudice to the right of the lessor to
be compensated for the damages he may have suffered thereby.
(3) Any lease agreement under this Act which is renewable at the option of
the lessee subject to the same terms and conditions of the original contract shall
be interpreted to mean as renewable upon the mutual agreement of the parties.
(4) In addition to the conditions for the renewal of a lease agreement after the
period of fifty (50) years as provided herein, the foreign lease shall show that it
has made social and economic contributions to the country.
(5) In the case of tourism projects, lease of private lands by foreign investors
qualified herein shall be limited to projects with an investment of not less than
five million (5M) US dollars, seventy percent (70%) of which shall be infused
in said project within three years from the signing of the lease contract.
Sec. 6. Termination of Lease Contract. — The Secretary of Trade and

Industry shall terminate any lease contract entered into under the provisions of
this Act, if the investment project is not initiated within three (3) years from the
signing of the lease contract.
Sec. 7. Penal Provision. — Any contract or agreement made or executed in

violation of any of the following prohibited acts shall be null and void ab initio
and both contracting parties shall be punished by a fine of not less than One
Hundred thousand pesos (P100,000) nor more than One million pesos
(P1,000,000), or imprisonment of six (6) months to (6) years, or both, at the
discretion of the court:
(1) Any provision in the lease agreement stipulating a lease period in excess
of that provided in paragraph (1) of Sec. 4;
(2) Use of the leased premises for the purpose contrary to existing laws of the
land, public order, public policy, morals, or good customs;
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(3) Any agreement or agreements resulting is the lease of land in excess of the
area approved by the DTI: provided, that, where the excess of the totality of the
area leased is due to the acts of the lessee, the lessee shall be held solely liable
therefore: provided, further, that, in the case of corporations, associations, or
partnerships, the president, manager, director, trustee, or officers responsible for
the violation hereof shall bear the criminal liability.
Sec. 8. Separability Clause. — In case any provision of this Act or the
application of such provision is deemed unconstitutional, the remaining
provisions of this Act or the application of such provisions shall not be affected
thereby.
Sec. 9. Repealing Clause. — All acts, rules and regulations contrary to or
inconsistent with this Act are hereby repealed or modified accordingly.
SECTION 10. Effectivity Clause. — this Act shall take effect immediately
upon its approval.
Approved: June 4, 1993
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Republic Act No. 9507 October 13, 2008
AN ACT TO ESTABLISH A SOCIALIZED AND LOW-COST HOUSING

LOAN RESTRUCTURING AND CONDONATION PROGRAM,
PROVIDING THE MECHANISMS THEREFOR, AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled::
Section 1. Short Title.- This Act shall be known as the "Socialized and Low-
Cost Housing Loan Restructuring Act of 2008".
Section 2. Declaration of Policy. - It is the policy of the State to undertake a

continuing program of urban land reform and housing that will make available
at affordable cost decent housing to underprivileged and homeless citizens.
Toward this end, a rational loan restructuring and condonation program shall be
instituted that takes into consideration the credit wothiness and credit discipline
of the borrowers, and the financial viability of the lending institutions.
SECTION 3. Coverage of the Restructuring Program for Delinquent Socialized

and Low-Cost Housing Loan Accounts. - There is hereby established a
Socialized and Low-Cost Housing Loan Restructuring and Condonation
Program. Under this program:
(a) for a period of eighteen (18) months after the issuance of the implementing
rule and regulations of this Act, all socialized and low-cost housing loans, the
original principal amount of which are within the housing loan ceilings as
determined by the Housing and Urban Development Coordinating Council
(HUDCC), with any of the government financial institutions (GFIs) and
agencies involved in the National Shelter Program (NSP), including, but not
limited to, the Government Service Insurance System (GSIS), Social Security
System (SSS), Home Development Mutual Fund (HDMF) or Pag IBIG Fund,
National Home Mortgage Finance Corporation (NHMFC), Social Housing
Finance Corporation (SHFC), Home Guaranty Corporation (HGC), and the
National Housing Authority (NHA) that have at least three (3) months of
unpaid monthly ammortizations as of the effectivity of this Act are hereby
declared covered by the benefits of this loan restructuring and condonation
program notwithstanding that the same accounts have availed of the benefits of
a previous restructuring or condonation program: Provided, That the original
principal amount of the housing loans shall not exceed Two Million Five
Hundred Thousand pesos (P2,500,000.00). Provided, further, That every year
after the effectivity of this Act, HUDCC is authorized to increase the amount
herein stated;
(b) an application for restructuring shall only be charged a processing fee and
no downpayment which shall be required for a borrower to apply for the
benefits of this loan restructuring and condonation program;
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(c) all penalties and surcharges shall be condoned upon approval of the
restructuring application under this Act. Provided, That a reasonable portion of
the accrued interest on the housing loan shall also be condoned, the amount or
percentage of which shall be determined by the respective boards of the GFIs
and housing agencies mentioned in Section 3(a) hereof. Provided, further, That
all remaining accrued interests shall be treated as non-interest bearing principal
to be equally repaid during the term of the restructured loan. Provided,
moreover, That an interest rate of not more than the interest of the original loan
or more than twelve percent (12%) whichever is lower, shall be imposed upon
the restructured loan: Provided, finally, That all corresponding penalties and
surcharges which the NHMFC and SHFC may have to pay their funders as a
result of the implementation of this Act may be adjusted and condoned;
(d) Pag-IBIG Fund, GSIS and SSS may allow the borrower-applicant to use the
total accumulated value of his/her membership contribution or savings to
update his/her housing loan;
(e) the term of a housing loan account being applied for restructuring may be
extended for a period longer than its original term in order to lower the amount
of the monthly amortization. Provided, That in no instance shall the extension
of the restructured loan exceed the difference between the borrower’s age at the
time of application and age seventy (70). In the event that the borrower fails to
pay three (3) consecutive monthly amortization during the term of the
restructured loan, the concerned GFI or housing agency may pursue foreclosure
proceedings on the property;
(f) in case of permanent physical incapacity of a borrower, his/her legal heirs

and successors-in-interest may assume payment of his/her outstanding housing
loan; Provided, That in case of death of the borrower, the proceeds of the
Mortgage Redemption Insurance (MRI) shall have been fully applied: Provided,
further, That such legal heirs and successors-in-interest must pass the GFIs'
and/or housing agencies' eligibility requirement before they are allowed to
assume payment of the borrower's loan obligation;
(g) the loan restructuring under this Act may be availed of only once except in
case of force majeure affecting the ability of the borrower to fulfill his/her
financial obligation; and
(h) the loan restructuring and condonation program provided for in this Act
shall be construed as a separate and distinct program from the ones being
implemented by the respective GFIs and housing agencies mentioned in Section
3(a) hereof, and the borrower has the option to choose which loan restructuring
and condonation program he/she may avail of.
Section 4. Authority to Continue the Restructuring Program. - Notwithstanding

the lapse of the period provided in Section 3 (a) of this Act, the governing
boards of HDMF/Pag-IBIG Fund, SSS, GSIS, NHMFC, SHFC, HGC and NHA
90
are hereby authorized to continue the loan restructuring and condonation
program under this Act.
Section 5. Exclusion from Coverage. - In no instance shall the following
housing loan accounts be covered by this Act:
(a) any account without a single payment since take out;
(b) an account which housing unit has been abandoned by the borrower-owner
for more than one (1) year from the date of delinquency;
(c) an account which housing unit is occupied by a third party other than the
original registered beneficiary or his/her legal heirs;
(d) an account that has been foreclosed or a contract-to-sell that has been
cancelled, or has been surrendered to the GFIs or housing agencies through
dacion en pago, the title of which has already been consolidated/transferred in
the name of the GFI or the housing agency; and
(e) Pag-IBIG Fund contract-to-sell accounts covered by the developers's buy-

back guaranty.
Section 6. Remedies Against Delinquent Accounts. - Without prejudice to the

resort to foreclosure as provided for by law or contract in proper cases, the GFIs
and housing agencies shall continue to exercise their right to foreclose
properties covered by accounts excluded in subparagraphs (a) through (e) under
Section 5 hereof or of delinquent accounts of borrowers who shall fail to avail
of the benefits under this Act and that such foreclosure proceedings shall be
exempt from publication in newspapers: Provided, that posting of the date and
place of auction shall be made in at least three (3) conspicuous public places
similar to that provided for under Act 3135 as amended, otherwise known as An
Act To Regulate The Sale of Property Under Special Powers Inserted In Or
Annexed To Real-Estate Mortgages: Provided, further, That notice to the
borrower at his/her last known address shall likewise be made: Provided,
finally, That the foreclosure proceedings mentioned above should be observed
in the event that the borrower avails of the benefits of this Act but subsequently
defaults under the loan restructuring and condonation program.
Section 7. Incentive for Prompt Payment of Monthly Amortization. - Upon the

effectivity of this Act, all accounts whose monthly amortizations are paid on
time shall be entitled to incentives, including but not limited to, a reasonable
discount on loan interest, the amount or percentage of which shall be
determined by the respective boards of the (GFls) and housing agencies.
Section 8. Implementing Rules and Regulations. - There is hereby created an

interagency committee, headed by the HUDCC and composed of all the
government institutions and agencies enumerated in Section 3(a) hereof, tasked
to promulgate the implementing rules and regulations within sixty (60) days
from the effectivity of this Act.
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Section 9. Congressional Oversight Committee. - There is hereby created a
Congressional Oversight Committee composed of the Chairman of the Senate
Committee on Urban Planning, Housing and Resettlement and the Chairman of
the House Committee on Housing and Urban Development, four (4) members
of the Senate and four (4) members of the House of Representatives. The
members from the Senate shall be appointed by the Senate President from
among the members of the Senate Committee on Urban Planning, Housing and
Resettlement based on the proportional representation of the parties or coalition
therein. The members from the House of Representatives shall be appointed by
the Speaker from among the members of the House Committee on Housing and
Urban Development based on the proportional representation of the parties or
coalitions therein.
The Oversight Committee upon review and approval of the Implementing rules
and regulations shall become functus officio and therefore cease to exist:
Provided, however, That the GFIs and housing agencies cited in Section 3(a)
hereof shall submit to the Committee on Urban Planning, Housing and
Resettlement of the Senate and the Committee on Housing and Urban
Development of the House of Representatives an annual report on the availment
of the loan restructuring and condonation program under this Act.
Section 10. Repealing Clause. - All laws, including Republic Act No 8501,
otherwise known as the Housing Loan Condonation Act of 1998, executive
orders, rules or regulations, or any part thereof, inconsistent with any provisions
of this Act are hereby repealed or modified accordingly.
Section 11. Separability Clause. - If any provision of this Act is held invalid or
unconstitutional, the provisions not otherwise affected shall remain valid and
subsisting.
Section 12. Effectivity Clause. - This Act shall take effect fifteen (15) days after
its complete publication in the Official Gazette or in at least two (2) newspapers
of general circulation.
92
[REPUBLIC ACT NO. 10642]
AN ACT STRENGTHENING CONSUMER PROTECTION IN THE

PURCHASE OF BRAND NEW MOTOR VEHICLES
Be it enacted by the Senate and House of Representatives of the Philippines in

Congress assembled:
SECTION 1. Short Title. – This Act shall be known as the “Philippine Lemon
Law”.
SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to
promote full protection to the rights of consumers in the sale of motor vehicles
against business and trade practices which are deceptive, unfair or otherwise
inimical to consumers and the public interest.
The State recognizes that a motor vehicle is a major consumer purchase or

investment. Hence, the rights of consumers should be clearly defined, including
the means for redress for violations thereof.
SEC. 3. Definition of Terms. – As used in this Act:
(a) Brand new motor vehicle refers to a vehicle constructed entirely from new

parts and covered by a manufacturer’s express warranty at the time of purchase
that it has never been sold or registered with the Department of Transportation
and Communications (DOTC) or an appropriate agency or authority, and has
never been operated on any highway of the Philippines, or in any foreign state
or country;
(b) Collateral charges refer to the fees paid’ to the Land Transportation Office

(LTO) for the registration of a brand new motor vehicle and other incidental
expenses such as, but not limited to, the cost of insurance pertaining to the
vehicle, chattel mortgage fees and interest expenses if applicable;
(c) Comparable motor vehicle refers to a motor vehicle that is identical or

reasonably equivalent to the motor vehicle to be replaced, in terms of
specifications and values, subject to availability, as the motor vehicle existed at
the time of purchase:Provided, That there shall be an offsetting from this value
for reasonable allowance for its use;
(d) Consumer refers to any person, natural or juridical, who purchases a brand

new motor vehicle either by cash or credit from an authorized distributor, dealer
or retailer in the Philippines;
(e) Dealer or retailer refers to any person, natural or juridical, authorized by

the manufacturer or distributor to sell brand new motor vehicles directly to the
retail buyers and the public;
93
(f) Distributor refers to any person, natural or juridical, authorized by the
manufacturer to sell brand new motor vehicles to duly authorized dealers or
retailers;
(g) Implementing agency refers to the Department of Trade and Industry (DTI),

reorganized under Title X, Book IV of Executive Order No. 292, series of 1987,
otherwise known as the “Administrative Code of 1987″;
(h) Lemon Law rights period refers to the period ending twelve (12) months
after the date of the original delivery of a brand new motor vehicle to a
consumer or the first twenty thousand (20,000) kilometers of operation after
such delivery, whichever comes first. This shall be the period during which the
consumer can report any nonconformity, as defined in paragraph (k) herein, to
the standards and specifications of the manufacturer, authorized distributor,
authorized dealer or retailer, and pursue any right as provided for under this
Act;
(i) Manufacturer refers to any person, natural or juridical, engaged in the

business of manufacturing or assembling motor vehicles;
(j) Motor vehicle refers to any self-propelled, four (4) wheeled road vehicle

designed to carry passengers including, but not limited to, sedans, coupes,
station wagons, convertibles, pick-ups, vans, sports utility vehicles (SUVs) and
Asian Utility Vehicles (AUVs) but excluding motorcycles, delivery trucks,
dump trucks, buses, road rollers, trolley cars, street sweepers, sprinklers, lawn
mowers and heavy equipment such as, but not limited to, bulldozers,
payloaders, graders, forklifts, amphibian trucks, cranes, and vehicles which run
only on rails or tracks, and tractors, trailers and traction engines of all kinds
used exclusively for agricultural purposes. Trailers having any number of
wheels, when propelled or intended by attachment to a motor vehicle, shall be
classified as separate motor vehicle with no power rating;
(k) Nonconformity refers to any defect or condition that substantially impairs

the use, value or safety of a brand new motor vehicle which prevents it from
conforming to the manufacturer’s or distributor’s standards or specifications,
which cannot be repaired, but excluding conditions resulting from
noncompliance by the consumer of his or her obligations under the warranty,
modifications not authorized by the manufacturer or distributor, abuse or
neglect, and damage due to accident or force majeure;
(l) Purchase price refers to the invoice price or the amount of money which the
dealer or retailer actually received for the brand new motor vehicle, in
consideration of the sale of such brand new motor vehicle;
(m) Warranty refers to the written assurance, so labeled, of the manufacturer of

a brand new motor vehicle including any term or condition precedent to the
enforcement of obligations under the warranty; and
(n) Warranty rights period refers to the period provided for under the contract
of sale when the manufacturer would guarantee the materials used, the
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workmanship and the roadworthiness of a brand new motor vehicle for ordinary
use or reasonable intended purposes.
SEC. 4. Coverage. – This Act shall cover brand new motor vehicles purchased
in the Philippines reported by a consumer to be in nonconformity with the
vehicle’s manufacturer or distributor’s standards or specifications within twelve
(12) months from the date of .original delivery to the consumer, or up to twenty
thousand (20,000) kilometers of operation after such delivery, whichever comes
first. The following causes of nonconformity shall be excluded:
(a) Noncompliance by the consumer of the obligations under the warranty;
(b) Modifications not authorized by the manufacturer, distributor, authorized

dealer or retailer;
(c) Abuse or neglect of the brand new motor vehicle; and
(d) Damage to the vehicle due to accident or force majeure.
SEC. 5. Repair Attempts. – At any time within the Lemon Law rights period,
and after at least four (4) separate repair attempts by the same manufacturer,
distributor, authorized dealer or retailer for the same complaint, and the
nonconformity issue remains unresolved, the consumer may invoke his or her
rights under this Act.
The repair may include replacement of parts components, or assemblies.
SEC. 6. Notice of Availment of Lemon Law Rights. – Before availing of any

remedy under this Act and subject to compliance with the provisions of Section
5 hereof, the consumer shall, in writing, notify the manufacturer, distributor,
authorized dealer or retailer of the unresolved complaint, and the consumer’s
intention to invoke his or her rights under this Act within the Lemon Law rights
period.
The warranty booklet issued by the manufacturer, distributor, authorized dealer

or retailer shall clearly state the manner and form of such notice to constitute a
valid and legal notice to the manufacturer, distributor, authorized dealer or
retailer. It shall also clearly state the responsibility of the consumer under this
section.
SEC. 7. Availment of Lemon Law Rights. – Subsequent to filing the notice of

availment referred to in the preceding section, the consumer shall bring the
vehicle to the manufacturer, distributor, authorized dealer or retailer from where
the vehicle was purchased for a final attempt to address the complaint of the
consumer to his or her satisfaction.
It shall be the duty of the manufacturer, distributor, authorized dealer or retailer,

upon receipt of the motor vehicle and the notice of nonconformity required
under Section 6 hereof, to attend to the complaints of the consumer including,
as may be necessary, making the repairs and undertaking such actions to make
95
the vehicle conform to the standards or specifications of the manufacturer,
distributor, authorized dealer or retailer for such vehicle.
In case the nonconformity issue remains unresolved despite the manufacturer,

distributor, authorized dealer or retailer’s efforts to repair the vehicle, pursuant
to the consumer’s availment of his or her Lemon Law rights, the consumer may
file a complaint before the DTI as provided for under this Act: Provided,
however, That if the vehicle is not returned for repair, based on the same
complaint, within thirty (30) calendar days from the date of notice of release of
the motor vehicle to the consumer following this repair attempt within the
Lemon Law rights period, the repair is deemedsuccessful: Provided,
finally, That, in the event that the nonconformity issue still exists or persists
after the thirty (30)-day period but still within the Lemon Law rights period, the
consumer may be allowed to avail of the same remedies under Sections 5 and 6
hereof.
To compensate for the non-usage of the vehicle while under repair and during
the period of availment of the Lemon Law rights, the consumer shall be
provided a reasonable daily transportation allowance, an amount which covers
the transportation of the consumer from his or her residence to his or her regular
workplace or destination and vice versa, equivalent to air-conditioned taxi fare,
as evidenced by official receipt, or in such amount to be agreed upon by the
parties, or a service vehicle at the option of the manufacturer, distributor,
authorized dealer or retailer. Any disagreement on this matter shall be resolved
by the DTI.
Nothing herein shall be construed to limit or impair the rights and remedies of a
consumer under any other law.
SEC. 8. Remedies for Dispute Resolution. – The DTI shall exercise exclusive
and original jurisdiction over disputes arising from the provisions of this Act.
All disputes arising from the provisions of this Act shall be settled by the DTI
in accordance with the following dispute resolution mechanisms:
(a) Mediation
(1) The principles of negotiation, conciliation and mediation towards amicable

settlement between the manufacturer, distributor, authorized dealer or retailer
and the consumer shall be strictly observed;
(2) In the course of its dispute resolution efforts, the DTI shall endeavor to
independently establish the validity of the consumer’s outstanding complaint.
The DTI shall likewise retain the services of other government agencies or
qualified independent private entities in the ascertainment of the validity of the
consumer’s complaint. Any cost incurred in establishing the validity of the
consumer’s complaint shall be bornejointly by the consumer and the
manufacturer, distributor, authorized dealer or retailer;
96
(3) The complaint shall be deemed valid if it is independently established that
the motor vehicle does not conform to the standards or specifications set by the
manufacturer, distributor, authorized dealer or retailer;
(4) Upon failure of the negotiation or mediation between the manufacturer,

distributor, authorized, dealer or retailer and the consumer, the parties shall
execute a certificate attesting to such failure; and
(5) At any time during the dispute resolution period, the manufacturer,
distributor, authorized dealer or retailer and the consumer shall be encouraged
to settle amicably. All disputes that have been submitted for mediation shall be
settled not later than ten (10) working days from the date of filing of the
complaint with the DTI.
(b) Arbitration
In the event there is a failure to settle the complaint during the mediation
proceedings, both parties may voluntarily decide to undertake arbitration
proceedings.
(c) Adjudication
(1) In the event that both parties do not undertake arbitration proceedings, at
least one of the parties may commence adjudication proceedings, administered
by the DTI. The DTI shall rely on the qualified independent findings as to
conformity to standards and specifications established herein. In no case shall
adjudication proceedings exceed twenty (20) working days;
(2) In case a finding of nonconformity is arrived at, the DTI shall rule in favor
of the consumer and direct the manufacturer, distributor, authorized dealer or
retailer to grant either of the following remedies to the consumer:
(i) Replace the motor vehicle with a similar or comparable motor vehicle in
terms of specifications and values, subject to availability; or
(ii) Accept the return of the motor vehicle and pay the consumer the purchase
price plus the collateral charges.
In case the consumer decides to purchase another vehicle with a higher value
and specifications from the same manufacturer, distributor, authorized dealer or
retailer, the consumer shall pay the difference in cost.
In both cases of replacement and repurchase, the reasonable allowance for use,
as defined in this Act, shall be deducted in determining the value of the
nonconforming motor vehicle; and
(3) In case a nonconformity of the motor vehicle is not found by the DTI, it
shall rule in favor of the manufacturer, distributor, .authorized dealer or retailer,
and direct the consumer to reimburse the manufacturer, distributor, authorized
97
dealer or retailer the costs incurred by the latter in validating the consumer’s
complaints.
An appeal may be taken from a final judgment or order of the Adjudication

Officer which completely disposes of the case within fifteen (15) days from
receipt thereof. The appeal shall be taken by filing a Memorandum of Appeal
with the Secretary of the DTI, with Notice of Appeal to the Adjudication
Officer, and with a copy duly furnished the adverse party or parties on any of
the following grounds:
(i) Grave abuse of discretion;
(ii) The decision/order is in excess of jurisdiction or authority of the

Adjudication Officer; and
(iii) The decision/order is not supported by the evidence or there is serious error
in the findings of facts.
The Secretary of the DTI shall decide on the appeal within thirty (30) days from
receipt thereof. A party seeking further appeal from the decision of the
Secretary of the DTI may file a case for certiorari to the Court of Appeals
under Section 4, Rule 65 of the Revised Rules of Court.
SEC. 9. Determination of Reasonable Allowance for Use. – For purposes of this

Act, “reasonable allowance for use” shall mean twenty percent (20%) per
annum deduction from the purchase price, or the product of the distance
traveled in kilometers and the purchase price divided by one hundred thousand
(100,000) kilometers, whichever is lower.
SEC. 10. Disclosure on Resale. – Should the returned motor vehicle be made

available for resale, the manufacturer, distributor, authorized dealer or retailer
shall, prior to sale or transfer, disclose in writing to the next purchaser of the
same vehicle the following information:
(a) The motor vehicle was returned to the manufacturer, distributor, authorized
dealer or retailer;
(b) The nature of the nonconformity which caused the return; and
(c) The condition of the motor vehicle at the time of the transfer to the
manufacturer, distributor, authorized dealer or retailer.
The responsibility of the manufacturer, distributor, authorized dealer or retailer

under this section shall cease upon the sale of the affected motor vehicle to the
first purchaser.
SEC. 11. Penalty. – The manufacturer, distributor, authorized dealer or retailer

adjudged to have violated the provisions requiring disclosure as mentioned in
the preceding section shall be liable to pay a minimum amount of One hundred
thousand pesos (P100,000.00) as damages to the aggrieved party without
98
prejudice to any civil or criminal liability they and/or the responsible officer
may incur under existing laws.
SEC. 12. Assistance by Other Agencies. – The DOTC and other agencies,

political subdivisions, local government units, including government-owned
and/or controlled corporations, shall render such assistance as required by the
DTI in order to effectively implement the provisions of this Act.
SEC. 13. Implementing Rules and Regulations. – The DTI shall promulgate the
necessary implementing rules and regulations within, ninety (90) days from the
effectivity of this Act.
SEC. 14. Separability Clause. – If, for any reason, any part or provision of this
Act is declared invalid, such declaration shall not affect the other provisions of
this Act.
SEC. 15. Repealing Clause. – All laws, decrees, executive orders, issuances,

rules and regulations or parts thereof which are inconsistent with the provisions
of this Act are hereby deemed repealed, amended or modified accordingly.
SEC. 16. Effectivity. – This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in any newspaper of .general circulation.
Approved: JUL 15 2014
99
ACT No. 3952
THE BULK SALES LAW (as amended)
AN ACT TO REGULATE THE SALE, TRANSFER, MORTGAGE OR

ASSIGNMENT OF GOODS, WARES, MERCHANDISE, PROVISIONS
OR MATERIALS, IN BULK, AND PRESCRIBING PENALTIES FOR
THE VIOLATION OF THE PROVISIONS THEREOF
Section 1. This Act shall be known as "The Bulk Sales Law."
Sec. 2. Sale and transfer in bulk. — Any sale, transfer, mortgage or assignment
of a stock of goods, wares, merchandise, provisions, or materials otherwise than
in the ordinary course of trade and the regular prosecution of the business of the
vendor, mortgagor, transferor, or assignor, or sale, transfer, mortgage or
assignment of all, or substantially all, of the business or trade theretofore
conducted by the vendor, mortgagor, transferor, or assignor, or of all, or
substantially all, of the fixtures and equipment used in and about the business of
the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale and
transfer in bulk, in contemplation of this Act: Provided, however, That if such
vendor, mortgagor, transferor or assignor, produces and delivers a written
waiver of the provisions of this Act from his creditors as shown by verified
statements, then, and in that case, the provisions of this section shall not apply.
Sec. 3. Statement of creditors. — It shall be the duty of every person who shall
sell, mortgage, transfer, or assign any stock of goods, wares, merchandise,
provisions or materials in bulk, for cash or on credit, before receiving from the
vendee, mortgagee, or his, or its agent or representative any part of the purchase
price thereof, or any promissory note, memorandum, or other evidence therefor,
to deliver to such vendee, mortgagee, or agent, or if the vendee, mortgagee, or
agent be a corporation, then to the president, vice-president, treasurer, secretary
or manager of said corporation, or, if such vendee or mortgagee be a partnership
firm, then to a member thereof, a written statement, sworn to substantially as
hereinafter provided, of the names and addresses of all creditors to whom said
vendor or mortgagor may be indebted, together with the amount of
indebtedness due or owing, or to become due or owing by said vendor or
mortgagor to each of said creditors, which statement shall be verified by an oath
to the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally appeared

__________________ (vendor, mortgagor, agent or representative, as the case
may be), bearing cedula No. ____________ issued at ___________ on the day
of _____________ who, by me being first duly sworn, upon his oath, deposes
and states that the foregoing statement contains the names of all of the creditors
of ________________ (vendor, or mortgagor) together with their addresses,
and that the amount set opposite each of said respective names, is the amount
now due and owing, and which shall become due and owing by _____________
100
(vendor or mortgagor) to such creditors, and that there are no creditors holding
claims due or which shall become due, for or on account of goods, wares,
merchandise, provisions or materials purchased upon credit or on account of
money borrowed, to carry on the business of which said goods, wares,
merchandise, provisions or materials are a part, other than as set forth in said
statement.
______________________
Subscribed and sworn to before me this _______ day of ______, 19___, at

________
Sec. 4. Fraudulent and void sale, transfer or mortgage. — Whenever any person
shall sell, mortgage, transfer, or assign any stock of goods, wares, merchandise,
provisions or materials, in bulk, for cash or on credit, and shall receive any part
of the purchase price, or any promissory note, or other evidence of indebtedness
for said purchase price or advance upon mortgage, without having first
delivered to the vendee or mortgagee or to his or its agent or representative, the
sworn statement provided for in section three hereof, and without applying the
purchase or mortgage money of the said property to the pro rata payment of the
bona fide claim or claims of the creditors of the vendor or mortgagor, as shown
upon such sworn statement, he shall be deemed to have violated this Act, and
any such sale, transfer or mortgage shall be fraudulent and void.
Sec. 5. Inventory. — It shall be the duty of every vendor, transferor, mortgagor,

or assignor, at least ten days before the sale, transfer or execution of a mortgage
upon any stock of goods, wares, merchandise, provisions or materials, in bulk,
to make a full detailed inventory thereof and to preserve the same showing the
quantity and, so far as is possible with the exercise of reasonable diligence, the
cost price to the vendor, transferor, mortgagor or assignor of each article to be
included in the sale, transfer or mortgage, and notify every creditor whose name
and address is set forth in the verified statement of the vendor, transferor,
mortgagor, or assignor, at least ten days before transferring possession thereof,
personally or by registered mail, of the price, terms conditions of the sale,
transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or assignor of any stock of goods,

wares, merchandise, provisions or materials, in bulk, or any person acting for,
or on behalf of any such vendor, transferor, mortgagor, or assignor, who shall
knowingly or willfully make, or deliver or cause to be made or delivered, a
statement, as provided for in section three hereof, which shall not include the
names of all such creditors, with the correct amount due and to become due to
each of them, or shall contain any false or untrue statement, shall be deemed to
have violated the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or corporation, as owner of any
stock of goods, wares, merchandise, provisions or materials, in bulk, to transfer
title to the same without consideration or for a nominal consideration only.
101
Sec. 8. Nothing in this Act contained shall apply to executors, administrators,
receivers, assignees in insolvency, or public officers, acting under judicial
process.
Sec. 9. The sworn statement containing the names and addresses of all creditors
of the vendor or mortgagor provided for in section three of this Act, shall be
registered in the Bureau of Commerce. For the registration of each such sworn
statement a fee of five pesos shall be charged to the vendor or mortgagor of the
stock of goods, wares, merchandise, provisions or materials, in bulk.
Sec. 10. The provisions of this Act shall be administered by the Director of the
Bureau of Commerce and Industry, who is hereby empowered, with the
approval of the Department Head, to prescribe and adopt from time to time such
rules and regulations as may be deemed necessary for the proper and efficient
enforcement of the provisions of this Act.
Sec. 11. Any person violating any provision of this Act shall, upon conviction
thereof, be punished by imprisonment not less than six months, nor more than
five years, or fined in sum not exceeding five thousand pesos, or both such
imprisonment and fine, in the discretion of the court.
Sec. 12. This Act shall take effect on its approval.
Approved: 01 December 1972
102
Republic Act No. 133
AN ACT TO AUTHORIZE THE MORTGAGE OF PRIVATE REAL

PROPERTY IN FAVOR OF ANY INDIVIDUAL, CORPORATION, OR
ASSOCIATION SUBJECT TO CERTAIN CONDITIONS
Section 1. Any provision of law to the contrary notwithstanding, private real

property may be mortgaged for a period not exceeding five years, renewable for
another five, in favor of any individual, corporation, or association, but the
mortgagee or his successor in interest, if disqualified to acquire or hold lands of
the public domain in the Philippines, shall not bid or take part in any sale of
such real property as a consequence of such mortgage.
Section 2. All laws, orders, or regulations, or parts thereof inconsistent with the
provisions of this Act, are repealed or modified accordingly.
Section 3. This Act shall take effect upon its approval.
103
REPUBLIC ACT NO. 4381
AN ACT TO AMEND SECTION ONE OF REPUBLIC ACT

NUMBERED ONE HUNDRED AND THIRTY-THREE, ENTITLED "AN
ACT TO AUTHORIZE THE MORTGAGE OF PRIVATE REAL
PROPERTY IN FAVOR OF ANY INDIVIDUAL, CORPORATION, OR
ASSOCIATION SUBJECT TO CERTAIN CONDITIONS"
Section 1. Section one of Republic Act Numbered One hundred and thirty-
three is hereby amended to read as follows:
"Section 1. Any provision of law to the contrary notwithstanding, private real
property may be mortgaged in favor of any individual, corporation, or
association, but the mortgage or his successor in interest, if disqualified to
acquire or hold lands of the public domain in the Philippines, shall not take
possession or enjoy the fruits of the mortgaged property during the existence of
the mortgage and shall not bid or take part in any sale of such real property in
case of foreclosure."
Sec. 2. This Act shall take effect upon its approval.
104
ACT NO. 3135
AN ACT TO REGULATE THE SALE OF PROPERTY UNDER

SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE
MORTGAGES
Section 1. When a sale is made under a special power inserted in or attached to
any real-estate mortgage hereafter made as security for the payment of money
or the fulfillment of any other obligation, the provisions of the following
election shall govern as to the manner in which the sale and redemption shall be
effected, whether or not provision for the same is made in the power.
Sec. 2. Said sale cannot be made legally outside of the province in which the
property sold is situated; and in case the place within said province in which the
sale is to be made is subject to stipulation, such sale shall be made in said place
or in the municipal building of the municipality in which the property or part
thereof is situated.
Sec. 3. Notice shall be given by posting notices of the sale for not less than
twenty days in at least three public places of the municipality or city where the
property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or city.
Sec. 4. The sale shall be made at public auction, between the hours or nine in
the morning and four in the afternoon; and shall be under the direction of the
sheriff of the province, the justice or auxiliary justice of the peace of the
municipality in which such sale has to be made, or a notary public of said
municipality, who shall be entitled to collect a fee of five pesos each day of
actual work performed, in addition to his expenses.
Sec. 5. At any sale, the creditor, trustee, or other persons authorized to act for
the creditor, may participate in the bidding and purchase under the same
conditions as any other bidder, unless the contrary has been expressly provided
in the mortgage or trust deed under which the sale is made.

Sec. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors in interest or any
judicial creditor or judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of trust under which the
property is sold, may redeem the same at any time within the term of one year
from and after the date of the sale; and such redemption shall be governed by
the provisions of sections four hundred and sixty-four to four hundred and
sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not
inconsistent with the provisions of this Act.
Sec. 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property
or any part thereof is situated, to give him possession thereof during the
105
redemption period, furnishing bond in an amount equivalent to the use of the
property for a period of twelve months, to indemnify the debtor in case it be
shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion in the registration or cadastral
proceedings if the property is registered, or in special proceedings in the case of
property registered under the Mortgage Law or under section one hundred and
ninety-four of the Administrative Code, or of any other real property
encumbered with a mortgage duly registered in the office of any register of
deeds in accordance with any existing law, and in each case the clerk of the
court shall, upon the filing of such petition, collect the fees specified in
paragraph eleven of section one hundred and fourteen of Act Numbered Four
hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred
and sixty-six, and the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in which the property
is situated, who shall execute said order immediately.
Sec. 8. The debtor may, in the proceedings in which possession was requested,
but not later than thirty days after the purchaser was given possession, petition
that the sale be set aside and the writ of possession cancelled, specifying the
damages suffered by him, because the mortgage was not violated or the sale
was not made in accordance with the provisions hereof, and the court shall take
cognizance of this petition in accordance with the summary procedure provided
for in section one hundred and twelve of Act Numbered Four hundred and
ninety-six; and if it finds the complaint of the debtor justified, it shall dispose in
his favor of all or part of the bond furnished by the person who obtained
possession. Either of the parties may appeal from the order of the judge in
accordance with section fourteen of Act Numbered Four hundred and ninety-
six; but the order of possession shall continue in effect during the pendency of
the appeal.
Sec. 9. When the property is redeemed after the purchaser has been given
possession, the redeemer shall be entitled to deduct from the price of
redemption any rentals that said purchaser may have collected in case the
property or any part thereof was rented; if the purchaser occupied the property
as his own dwelling, it being town property, or used it gainfully, it being rural
property, the redeemer may deduct from the price the interest of one per centum
per month provided for in section four hundred and sixty-five of the Code of
Civil Procedure.
Sec. 10. This Act shall take effect on its approval.
Approved: March 6, 1924
106
ACT NO. 1508
AN ACT PROVIDING FOR THE MORTGAGING OF PERSONAL

PROPERTY AND FOR THE REGISTRATION OF THE MORTGAGES
SO EXECUTED
Section 1. The short title of this Act shall be "The Chattel Mortgage Law."
Sec. 2. All personal property shall be subject to mortgage, agreeably to the

provisions of this Act, and a mortgage executed in pursuance thereof shall be
termed chattel mortgage.
Sec. 3. Chattel mortgage defined. — A chattel mortgage is a conditional sale of

personal property as security for the payment of a debt, or the performance of
some other obligation specified therein, the condition being that the sale shall
be void upon the seller paying to the purchaser a sum of money or doing some
other act named. If the condition is performed according to its terms the
mortgage and sale immediately become void, and the mortgagee is thereby
divested of his title.
Sec. 4. Validity. — A chattel mortgage shall not be valid against any person
except the mortgagor, his executors or administrators, unless the possession of
the property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province in
which the mortgagor resides at the time of making the same, or, if he resides
without the Philippine Islands, in the province in which the property is situated:
Provided, however, That if the property is situated in a different province from
that in which the mortgagor resides, the mortgage shall be recorded in the office
of the register of deeds of both the province in which the mortgagor resides and
that in which the property is situated, and for the purposes of this Act the city of
Manila shall be deemed to be a province.
Sec. 5. Form. —A chattel mortgage shall be deemed to be sufficient when made

substantially in accordance with the following form, and shall be signed by the
person or persons executing the same, in the presence of two witnesses, who
shall sign the mortgage as witnesses to the execution thereof, and each
mortgagor and mortgagee, or, in the absence of the mortgagee, his agent or
attorney, shall make and subscribe an affidavit in substance as hereinafter set
forth, which affidavit, signed by the parties to the mortgage as above stated, and
the certificate of the oath signed by the authority administering the same, shall
be appended to such mortgage and recorded therewith.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
"This mortgage made this ____ day of ______19____ by _______________, a

resident of the municipality of ______________, Province of ____________,
Philippine Islands mortgagor, to ____________, a resident of the municipality
of ___________, Province of ______________, Philippine Islands, mortgagee,
witnesseth:
107
"That the said mortgagor hereby conveys and mortgages to the said mortgagee
all of the following-described personal property situated in the municipality of
______________, Province of ____________ and now in the possession of said
mortgagor, to wit:
(Here insert specific description of the property mortgaged.)
"This mortgage is given as security for the payment to the said ______,
mortgagee, of promissory notes for the sum of ____________ pesos, with (or
without, as the case may be) interest thereon at the rate of ___________ per
centum per annum, according to the terms of __________, certain promissory
notes, dated _________, and in the words and figures following (here insert
copy of the note or notes secured).
"(If the mortgage is given for the performance of some other obligation aside
from the payment of promissory notes, describe correctly but concisely the
obligation to be performed.)
"The conditions of this obligation are such that if the mortgagor, his heirs,
executors, or administrators shall well and truly perform the full obligation (or
obligations) above stated according to the terms thereof, then this obligation
shall be null and void.
"Executed at the municipality of _________, in the Province of ________, this

_____ day of 19_____
____________________
(Signature of mortgagor.)
"In the presence of
"_________________
"_________________
(Two witnesses sign here.)
FORM OF OATH.
"We severally swear that the foregoing mortgage is made for the purpose of
securing the obligation specified in the conditions thereof, and for no other
purpose, and that the same is a just and valid obligation, and one not entered
into for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.

"At ___________, in the Province of _________, personally appeared
____________, the parties who signed the foregoing affidavit and made oath to
the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the case may be.)
108
Sec. 6. Corporations. — When a corporation is a party to such mortgage the
affidavit required may be made and subscribed by a director, trustee, cashier,
treasurer, or manager thereof, or by a person authorized on the part of such
corporation to make or to receive such mortgage. When a partnership is a party
to the mortgage the affidavit may be made and subscribed by one member
thereof.
Sec. 7. Descriptions of property. — The description of the mortgaged property

shall be such as to enable the parties to the mortgage, or any other person, after
reasonable inquiry and investigation, to identify the same.
If the property mortgaged be large cattle," as defined by section one of Act

Numbered Eleven and forty-seven, 2 and the amendments thereof, the
description of said property in the mortgage shall contain the brands, class, sex,
age, knots of radiated hair commonly known as remolinos, or cowlicks, and
other marks of ownership as described and set forth in the certificate of
ownership of said animal or animals, together with the number and place of
issue of such certificates of ownership.
If growing crops be mortgaged the mortgage may contain an agreement

stipulating that the mortgagor binds himself properly to tend, care for and
protect the crop while growing, and faithfully and without delay to harvest the
same, and that in default of the performance of such duties the mortgage may
enter upon the premises, take all the necessary measures for the protection of
said crop, and retain possession thereof and sell the same, and from the
proceeds of such sale pay all expenses incurred in caring for, harvesting, and
selling the crop and the amount of the indebtedness or obligation secured by the
mortgage, and the surplus thereof, if any shall be paid to the mortgagor or those
entitled to the same.
A chattel mortgage shall be deemed to cover only the property described therein
and not like or substituted property thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged, anything in
the mortgage to the contrary notwithstanding.
Sec. 8. Failure of mortgagee to discharge the mortgage. — If the mortgagee,

assign, administrator, executor, or either of them, after performance of the
condition before or after the breach thereof, or after tender of the performance
of the condition, at or after the time fixed for the performance, does not within
ten days after being requested thereto by any person entitled to redeem,
discharge the mortgage in the manner provided by law, the person entitled to
redeem may recover of the person whose duty it is to discharge the same twenty
pesos for his neglect and all damages occasioned thereby in an action in any
court having jurisdiction of the subject-matter thereof.
Sec. 9-12. (inclusive) 3
Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or

109
person holding a subsequent mortgage, or a subsequent attaching creditor may
redeem the same by paying or delivering to the mortgagee the amount due on
such mortgage and the reasonable costs and expenses incurred by such breach
of condition before the sale thereof. An attaching creditor who so redeems shall
be subrogated to the rights of the mortgagee and entitled to foreclose the
mortgage in the same manner that the mortgagee could foreclose it by the terms
of this Act.
Sec. 14. Sale of property at public auction; Officer's return; Fees; Disposition of

proceeds. — The mortgagee, his executor, administrator, or assign, may, after
thirty days from the time of condition broken, cause the mortgaged property, or
any part thereof, to be sold at public auction by a public officer at a public place
in the municipality where the mortgagor resides, or where the property is
situated, provided at least ten days' notice of the time, place, and purpose of
such sale has been posted at two or more public places in such municipality,
and the mortgagee, his executor, administrator, or assign, shall notify the
mortgagor or person holding under him and the persons holding subsequent
mortgages of the time and place of sale, either by notice in writing directed to
him or left at his abode, if within the municipality, or sent by mail if he does not
reside in such municipality, at least ten days previous to the sale.
The officer making the sale shall, within thirty days thereafter, make in writing
a return of his doings and file the same in the office of the register of deeds
where the mortgage is recorded, and the register of deeds shall record the same.
The fees of the officer for selling the property shall be the same as in the case of
sale on execution as provided in Act Numbered One hundred and ninety, 4 and
the amendments thereto, and the fees of the register of deeds for registering the
officer's return shall be taxed as a part of the costs of sale, which the officer
shall pay to the register of deeds. The return shall particularly describe the
articles sold, and state the amount received for each article, and shall operate as
a discharge of the lien thereon created by the mortgage. The proceeds of such
sale shall be applied to the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or obligation secured by such
mortgage, and the residue shall be paid to persons holding subsequent
mortgages in their order, and the balance, after paying the mortgages, shall be
paid to the mortgagor or person holding under him on demand.
If the sale includes any "large cattle," a certificate of transfer as required by

section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be
issued by the treasurer of the municipality where the sale was held to the
purchaser thereof.
Sec. 15. 6, 6a
Sec. 16. This Act shall take effect on August first, nineteen hundred and six.
Enacted, July 2, 1906.
110
Examples of
Contracts
111
LEASE CONTRACT

KNOW ALL MEN BY THESE PRESENTS:
This CONTRACT OF LEASE is made and executed at the City of _____, this
day of _______________, 20__, by and between:

(NAME OF LESSOR), of legal age, single/married to (Name of spouse if
any), Filipino, and with residence and postal address at (Address), hereinafter
referred to as theLESSOR.

-AND-

(NAME OF LESSEE), Filipino and with residence and postal address at
(Address), hereinafter referred to as the LESSEE.

WITNESSETH; That

WHEREAS, the LESSOR is the owner of THE LEASED PREMISES, a
residential property situated at (Address of property to be leased);

WHEREAS, the LESSOR agrees to lease-out the property to the LESSEE and
the LESSEE is willing to lease the same;

NOW THEREFORE, for and in consideration of the foregoing premises, the
LESSOR leases unto the LESSEE and the LESSEE hereby accepts from the
LESSOR the LEASED premises, subject to the following:

TERMS AND CONDITIONS

1. PURPOSES: That premises hereby leased shall be used exclusively by the
LESSEE for residential purposes only and shall not be diverted to other uses. It
is hereby expressly agreed that if at any time the premises are used for other
purposes, the LESSOR shall have the right to rescind this contract without
prejudice to its other rights under the law.

2. TERM: This term of lease is for ONE (1) YEAR. from (Date) to (Date)
inclusive. Upon its expiration, this lease may be renewed under such terms and
conditions as my be mutually agreed upon by both parties, written notice of
intention to renew the lease shall be served to the LESSOR not later than seven
(7) days prior to the expiry date of the period herein agreed upon.

3. RENTAL RATE: The monthly rental rate for the leased premises shall be
in PESOS: AMOUNT IN WORDS (P 00,000.00), Philippine Currency. All
rental payments shall be payable to the LESSOR.

4. DEPOSIT: That the LESSEE shall deposit to the LESSOR upon signing of
this contract and prior to move-in an amount equivalent to the rent for THREE
112
(3) MONTHS or the sum of PESOS: AMOUNT IN WORDS (P
00,000.00), Philippine Currency. wherein the two (2) months deposit shall be
applied as rent for the 11th and 12th months and the remaining one (1) month
deposit shall answer partially for damages and any other obligations, for
utilities such as Water, Electricity, CATV, Telephone, Association Dues or
resulting from violation(s) of any of the provision of this contract.

5. DEFAULT PAYMENT: In case of default by the LESSEE in the payment
of the rent, such as when the checks are dishonored, the LESSOR at its option
may terminate this contract and eject the LESSEE. The LESSOR has the right
to padlock the premises when the LESSEE is in default of payment for One (1)
month and may forfeit whatever rental deposit or advances have been given by
the LESSEE.

6. SUB-LEASE: The LESSEE shall not directly or indirectly sublet, allow
or permit the leased premises to be occupied in whole or in part by any person,
form or corporation, neither shall the LESSEE assign its rights hereunder to any
other person or entity and no right of interest thereto or therein shall be
conferred on or vested in anyone by the LESSEE without the LESSOR'S
written approval.

7. PUBLIC UTILITIES: The LESSEE shall pay for its telephone, electric,
cable TV, water, Internet, association dues and other public services and
utilities during the duration of the lease.

8. FORCE MAJEURE: If whole or any part of the leased premises shall be
destroyed or damaged by fire, flood, lightning, typhoon, earthquake, storm, riot
or any other unforeseen disabling cause of acts of God, as to render the leased
premises during the term substantially unfit for use and occupation of the
LESSEE, then this lease contract may be terminated without compensation by
the LESSOR or by the LESSEE by notice in writing to the other.

9. LESSOR'S RIGHT OF ENTRY: The LESSOR or its authorized agent
shall after giving due notice to the LESSEE shall have the right to enter the
premises in the presence of the LESSEE or its representative at any reasonable
hour to examine the same or make repairs therein or for the operation and
maintenance of the building or to exhibit the leased premises to prospective
LESSEE, or for any other lawful purposes which it may deem necessary.

10. EXPIRATION OF LEASE: At the expiration of the term of this lease or
cancellation thereof, as herein provided, the LESSEE will promptly deliver to
the LESSOR the leased premises with all corresponding keys and in as good
and tenable condition as the same is now, ordinary wear and tear expected
devoid of all occupants, movable furniture, articles and effects of any kind.
Non-compliance with the terms of this clause by the LESSEE will give the
LESSOR the right, at the latter's option, to refuse to accept the delivery of the
premises and compel the LESSEE to pay rent therefrom at the same rate plus
Twenty Five (25) % thereof as penalty until the LESSEE shall have complied
with the terms hereof. The same penalty shall be imposed in case the LESSEE
113
fails to leave the premises after the expiration of this Contract of Lease or
termination for any reason whatsoever.

11. JUDICIAL RELIEF: Should any one of the parties herein be compelled
to seek judicial relief against the other, the losing party shall pay an amount of
One Hundred (100) % of the amount clamed in the complaint as attorney's fees
which shall in no case be less than P50,000.00 pesos in addition to other cost
and damages which the said party may be entitled to under the law.

12. This CONTRACT OF LEASE shall be valid and binding between the
parties, their successors-in-interest and assigns.

IN WITNESS WHEREOF, parties herein affixed their signatures on the date
and place above written.

(Name of Lessor) (Name of Lessee)
LESSOR LESSEE

Signed in the presence of:

_____________________________
______________________________

ACKNOWLEDGEMENT

Republic of the Philippines)
_________________________) S.S

BEFORE ME, personally appeared:

Name CTC Number Date/Place Issued

(Name of Lessor) 10000000 February 24, 20__ /
Cavite City
(Name of Lessee) 10000000 January 07, 20__ / Makati

Known to me and to me known to be the same persons who executed the
foregoing instrument and acknowledged to me that the same is their free and
voluntary act and deed.

This instrument consisting of ____ page/s, including the page on which this
acknowledgement is written, has been signed on each and every page thereof by
the concerned parties and their witnesses, and and sealed with my notarial seal.

WITNESS MY HAND AND SEAL, on the date and place first above written.
Notary Public

REAL ESTATE MORTGAGE
114
This Real Estate Mortgage, made by and between:
_____________, of legal age, (single / married / widow), and a
resident of _____________, Philippines (hereinafter known as the
MORTGAGOR);
- and -
_____________, of legal age, (single / married / widow), and a
resident of _____________, Philippines (hereinafter known as the
MORTGAGEE);
WITNESSETH; That:
The MORTGAGOR is indebted unto the MORTGAGEE in the
sum of _____________ (P__________), Philippine Currency, receipt of which
is acknowledged by the MORTGAGOR upon the signing of this instrument,
payable to the order of the MORGAGEE without need of prior demand or
notice within a period of _____________ (years/months/weeks/days), at
_____________ (P__________) (monthly/weekly/daily) starting on
_____________ and on every _____________ thereafter until fully paid, with
interest thereon at the rate of_____________ (______%) percent per
(month/annum).
NOW, THEREFORE, for and consideration of the afore-mentioned
indebtedness, and to assure the performance ofsaid obligation to pay, the
MORTGAGOR does hereby convey and DELIVER by way of MORTGAGE
unto the MORTGAGEE, (his/her) heirs, successors and as signs, the following
parcel of land, together with all the improvements found and standing thereon,
more particularly described as follows:
(Technical Description of Property)
That it is the condition of this Mortgage that should the MORTGAGOR
perform the obligation to pay the afore-cited indebtedness of _____________
together with accrued interest thereon, within the agreed term, this Real Estate
Mortgage shall be discharged and shall at once become null and void and of no
effect whatsoever, otherwise, it shall subsist and remain in full force and effect
and be subject to foreclosure in the manner andform prescribed by law.
IN WITNESS WHEREOF, we have have hereunto set their hands, this
_____________ at _____________, Philippines.
MORTGAGOR MORTGAGEE
With my Marital Conformity:
Mortgagor's Spouse
SIGNED IN THE PRESENCE OF:
_________________ __________________
(ACKNOWLEDGMENT)
DEED OF CHATTEL MORTGAGE
115
That I, JUAN DELA CRUZ, of legal age, married and resident of 9000
Hormiga Street, Makati City, for and in consideration of the loan of FIVE
HUNDRED THOUSAND PESOS (P500,000.00), granted to me by PEDRO
DELOS SANTOS, also of legal age, married and resident of 800 Theresa
Street, Makati City, to be paid one (1) year from date hereof, have transferred
and conveyed by way of chattel mortgage unto said PEDRO
DELOS SANTOS, his heirs, successors and assigns, free from all liens and
encumbrances that certain motor vehicle, presently in my possession, more
particularly described as:
MODEL/MAKE : 2011 Isuzu

COLOR : Black
BODY : Canter
MOTOR NO. : 123456
SERIAL/CHASSIS NO. : 789666
PLATE NO. : XYZ-123
of which I am the true and absolute owner by title thereto, being evidenced by
Registration Certificate of Motor Vehicle No. 1122 issued in my name by the
Land Transportation Office on July 6, 2011.
This chattel mortgage has been executed in order to secure the full and

faithful payment of my obligation to PEDRO DELOS SANTOS in accordance
with the terms and conditions of this instrument. Upon payment, this contract
shall become null and void; otherwise, it shall continue in full force
and effect and may be foreclosed in accordance with law.
IN WITNESSS WHEREOF, I have hereunto signed this deed of

chattel mortgage, this 5th day of May 2013 at Makati City, Philippines.
JUAN DELA CRUZ

Mortgagor
With my marital consent (if married):
MARIA DELA CRUZ
Mortgagor’s wife
AFFIDAVIT OF GOOD FAITH
We, the undersigned MORTGAGOR and MORTGAGEE, severally swear

that the foregoing chattel mortgage is made and executed for the purpose of
securing the obligation specified therein, and for no other purpose, and that the
same is a just and valid obligation, and one notentered into for the purposes of
fraud.
116
JUAN DELA CRUZ PEDRO DELOS SANTOS
Mortgagor Mortgagee

MARIA MAKILING JUAN TAMAD

Witness Witness
ACKNOWLEDGMENT
Republic of the Philippines)

City of Makati ) S.S.
BEFORE ME, a Notary Public, for and in the City of Makati, this 25th
day of June 2013 personally appeared:
Name Identification Card Issued On/At
JUAN DELA CRUZ SSS I.D. No. 123 1-1-11/Makati

PEDRO DELOS SANTOS SSS I.D. No. 222 2-1-11/Makati
MARIA DELA CRUZ SSS I.D. No. 333 3-1-
11/Makati
MARIA MAKILING SSS I.D. No. 444 4-1-
11/Makati
JUAN TAMAD SSS I.D. No. 555 5-1-11/Makati
all known to me to be the same persons who executed the foregoing

instrument and hereby acknowledged to me that the same is their free and
voluntary act and deed.
This instrument consisting of two (2) pages, including this page on which
this acknowledgment is written refers to a DEED OF
CHATTEL MORTGAGE and has been signed by the parties and their
witnesses and sealed with my notarial seal.
WITNESS MY HAND AND NOTARIAL SEAL.
Doc. No. ____
Page No. ____
Book No. ____
Series of 2013.
DEED OF SALE WITH MORTAGE

117
This DEED, made and executed in the _____________________ Philippines,
by and between—
____________________________, of legal age, single/ married to
___________________________________ citizen, and with residence and
postal address at ________________________, hereinafter the VENDOR,
— and —
____________________________, of legal age, single/ married to
________________________________ citizen, and with residence and postal
address at _________________________, hereinafter the VENDEE,
WITNESSETH: THAT—
WHEREAS, the VENDOR is the owner in fee simple of that certain parcel of
land, together with all the buildings and improvements existing thereon,
situated at ___________________, and more particularly described in
Original/Transfer Certificate of Title No. __________ issued by the Register of
Deeds of ___________, as follows:

(Description appearing in the title)
WHEREAS, the VENDOR has offered to sell and the VENDEE has agreed to
buy the above-described properly at a price payable under the terms and
conditions herein set forth;
NOW, THEREFORE, for and in consideration of the total agreed purchase
price of ________________________________PESOS
(P_____________________), Philippine currency, part of which amounting to
__________________________________ PESOS (P_________________) has
upon the execution of this instrument been paid to the VENDOR by the
VENDEE, the said VENDOR does hereby sell, transfer and convey unto the
said VENDEE, his/her heirs and assigns the above-described real property,
including the buildings and improvements existing thereon, free and clear of
any lien or encumbrance, except such as herein otherwise stated:
That to secure the payment of the aforementioned balance of the purchase price
and such other obligations as may arise hereunder, the VENDEE does hereby
constitute a first mortgage on the real property above described and object of
this sale in favor of the VENDOR, his/her heirs and assigns;
That it is principal condition of this mortgage that if the VENDEE shall well
and truly pay or cause to be paid to VENDOR the obligations set forth
hereinabove on the dates therein stipulated, then this mortgage shall be of no
further force and effect; otherwise, the same shall remain in full force and be
subject to foreclosure in the manner provided by law; and in the latter event,
the VENDOR shall have the option to proceed judicially or extrajudicially and
in the latter case said VENDOR shall be, as he/she is hereby, appointed
attorney-in-fact of the VENDEE with special power of sale, and thereupon
proceed to sell the mortgaged property at public auction in accordance with the
procedure prescribed by Act 3135, as amended by Act 4118, and out of the
proceeds thereof recover the obligations secure by this mortgage and other legal
expenses incident to foreclosure, including attorney’s fees in a sum equivalent
10% of the obligations secured but in no case to be less than
P___________________.
118
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at
the place first above written on this __________day of ___________________,
20____.
______________________ _______________________
Vendee Vendor
TAN ___________ TAN ______________
WITH OUR MARITAL CONSENT:
______________________ ________________________
Wife of Vendee Wife of Vendor
______________________________ -
_______________________________
ACKNOWLEDGMENT
Republic of the Philippines ]
Province of _____________________________ |SS.
City/ Municipality of ____________________)
BEFORE ME, a Notary Public in and for _____________ City, Philippines,
this _____ day of _________________, 20____ personally appeared:
Name Res. Cert. Date/Place Issued
_________________ ____________ ________________
________________
________________ ____________ ________________
________________
all known to me and to me known to be the same persons who executed the
foregoing instrument and they acknowledged to me that the same is their free
and voluntary act and deed.
IN TESTIMONY WHEREOF, I hereunto set my hand and affix my notarial
seal on the date and at the place first above written.
Doc No. _______
Page No._______
Book No. ______
Series of 19_____
DEED OF SALE OF CONDOMINIUM UNIT
119
This DEED, made and executed this ____________________ at

_____________________, by:
_______________, single, Filipino, of legal age, with
residence and postal address at _________________, represented
herein by his Attorney-in-Fact, ____________________, by virtue
of the Special Power of Attorney hereto attached as Annex “A”,
hereinafter referred to as the VENDOR,
IN FAVOR OF:
_________________, single, Filipino, of legal age, with
residence and postal address at ________________________,
hereinafter referred to as the VENDEE,
W I T N E S S E T H : THAT.
WHEREAS,VENDOR is the legal and registered owner of Pacific Plaza

Ayala Condominium Unit No. _______ located at Ayala Avenue, Makati City,
Philippines, containing a floor area of TWO HUNDRED EIGHT FIVE (285)
SQUARE METERS, more or less, and two (2) assigned parking slots known as
______ and _____ Basement 1-B covered by Condominium Certificate of Title
No. __________ of the Registry of Deeds for Makati City, photocopy of which
is hereto attached and made an integral part hereof as Annex “B”;
WHEREAS, the Pacific Plaza Ayala Condominium Corporation was

duly organized in accordance with law for purpose of holding title to all
common areas of the Pacific Plaza Ayala Condominium, including the land, and
is in charge of managing and administering the Pacific Plaza Ayala
Condominium;
WHEREAS, VENDEE offered to buy and the VENDOR agreed to sell

the said condominium unit as well as any and all rights and interest appertaining
thereto under the Master Deed with Declaration of Restriction (the “Master
Deed”), as amended, the Articles of Incorporation and the By-Laws of the
Condominium Corporation;
NOW, THEREFORE, for and in consideration of the foregoing
premises and subject to the terms and conditions herein set forth, the VENDEE
buys and the VENDOR sells, transfers and conveys, by way of absolute sale,
unto the VENDEE, her successors and assigns, the said condominium unit as
120
well as any all rights and interest appertaining thereto under the Master Deed,
as amended, the Articles of Incorporation and By-Laws of the Condominium
Corporation.
1. The purchase price for the said condominium unit and two (2)
assigned parking slots shall be PHILIPPINE PESOS
------------------------------------, receipt of which in full is hereby acknowledged
by the VENDOR.
2. VENDOR warrants that the title to the said condominium unit is

free and clear of any and all liens and encumbrances, except the restrictions
contained in the Master Deed, as amended, as annotated and inscribed at the
back of Condominium Certificate of Title No. ________.
3. VENDEE accepts and binds herself to all conditions and
restrictions embodied in the Mater Deed, as amended, the Articles of
Incorporation and By-Laws of the Condominium Corporation, and agrees to
faithfully observe and comply with the House Rules and Regulations of the
Condominium Corporation and any amendment or supplement thereto.
4. The capital gains tax, documentary stamps tax, value-added tax
(VAT), if any, broker’s commission, registration fee, legal and notarial fee and
other incidental expenses in the registration of the sale and title transfer shall be
for the account of the VENDEE.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands on the date and at the place herein first above-written.
__________________________
_______________________________
By:
______________________________
Attorney-in-Fact
Signed in the presence of :
_______________________
___________________________
121
ACKNOWLEDGMENT
LOAN AGREEMENT

This Loan Agreement is executed this (insert date) by and between:
(state name of corporation), a corporation organized and existing

under the laws of the Philippines, with business address at (insert
address) herein duly represented by its (insert position of signatory),
(insert name of signatory), hereinafter referred to as the LENDER;
- and –
(state name of corporation), a corporation organized and

existing under the laws of the Philippines, with office
address at (insert address) herein duly represented by its
(insert position of signatory), (insert name of signatory),
BORROWER.
-WITNESSETH-
The LENDER has sufficient cash to lend to BORROWER, and the latter has
agreed to avail of a loan thereof, subject to the following terms and condition:
1. LENDER shall extend to BORROWER a cash loan in the amount Pesos:

(Insert amount in words), (Php__________), receipt of which is hereby
acknowledged by the parties.
2. The principal amount shall bear an interest of (insert rate of interest in
words) (___ %) per annum.
3. The BORRIWER shall pay the principal amount plus the interest at the rate specified under
Sec. 2 according to the following schedule of payment:
Payment Due Date Interest Total Amount

Due
First Installment Xxx Xxx Xxx
Second Xxx Xxx Xxx
Installment
Third Installment Xxx Xxx Xxx
Total Xxx Xxx
122
4. In case of failure to pay the full stipulated amount within the stipulated
periods, the BORROWER shall be liable to pay a penalty equivalent to
the rate of 1% per month and other damages which the latter maybe
entitled under the law, in addition to the above interest.
5. The PARTIES warrant that they have the necessary corporate powers and
are duly authorized to execute, deliver and perform its obligations and
duties under this Agreement;
6 This Agreement shall be binding upon the BORROWER, its successors
and permitted assigns and shall inure to the benefit of the LENDER, its
successors and assigns;
7. This Agreement, executed hereafter pursuant to the same, constitutes the

entire understanding between the parties in respect of the matters dealt
with therein and the terms and conditions hereof may only be modified,
altered or amended with the prior written consent of the party of or
parties against whom, such modification, alteration, or amendment shall
take effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and place above specified.
LENDER BORROWER
________________
___________________
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES)

)S.S.
BEFORE ME, this (insert date) in (insert place), personally appeared:
Name CTC No. Issued at Issued on
known to me to be the same persons who executed the foregoing instrument

consisting two (2) pages including this Acknowledgment, and who
acknowledged to me that the same is their voluntary and free act and deed and
those of the parties represented.
IN WITNESS WHEREOF, I set my hand and affix my notarial sea on the date
and place above written.
Notary Public
Doc. No. _____;
Page No. _____;
Book No. _____;
123
Series of ______.
DEED OF ABSOLUTE SALE OF A MOTOR VEHICLE

This Deed is executed by (seller's name), Filipino, of legal age,
single/married, with residence and postal address at
_______________________________________, hereinafter known as the
VENDOR.
WITNESSETH:
That the herein Vendor is the owner of a motor vehicle which is more
particularly described as follows:
Make :
Type of Body :
Serial/Chassis No.:
Motor No. :
Year Model :
Plate No. :
MV File No. :

That for and in consideration of the sum of
_____________________________ (P _____________), Philippine currency,
in hand paid and receipt of which is hereby acknowledged by the VENDOR to
his entire satisfaction from (buyer's name), of legal age, Filipino, single/married
and a resident of ______________________________________, by virtue of
these presents, hereby SELL, CEDE, TRANSFER, and CONVEY unto the
said(buyer's name), his heirs and assigns the above described motor vehicle,
free from all liens and encumbrances.
That the herein VENDOR hereby warrants his full right and civil
capacity to transfer and dispose said motor vehicle, and will defend the same
against any adverse claims whatsoever.

IN WITNESS WHEREOF, the parties hereto have signed this deed this
________ day of ____________, 20___, at __________________________,
Philippines.

_____________________
Vendor
124
Signed in the Presence of:
____________________________ _____________
_________________
ACKNOWLEDGMENT

City of ________ ) S.S.
BEFORE ME this _____ day of ___________, 20___, at

_____________, Philippines, personally
appeared_____________________________, known to me to be the same
person who executed/signed the foregoing document in my presence, identified
through his _______________ Identification Card No. _____________, which
bears his photograph and signature, and he acknowledged under oath to me
under penalty of law, that the whole contents therein are true and that the same
is his free and voluntary act and deed.
WITNESS MY HAND AND SEAL.
Notary
Public
Doc. No. _____________

Page No. _____________
Book No. _____________
Series of 20_______.
MEMORANDUM OF AGREEMENT - SALE OF MOTOR VEHICLE
Agreement for the sale of a motor vehicle Entered into between:
________________________________________________________________
_________________________________________
(Name of seller)
________________________________________________________________
_________________________________________
(Address)
(Hereinafter referred to as the “SELLER”)
125
And
________________________________________________________________
________________________________________
(Name of purchaser)
________________________________________________________________
________________________________________
(Address)
(Hereinafter referred to as the “PURCHASER”)

SALE & PURCHASE OF THE VEHICLE
The PURCHASER hereby agrees to purchase the vehicle subject to the details
and terms and conditions as appearing hereinafter and the SELLER hereby
agrees to sell the mentioned motor vehicle described below and hereinafter
referred to as the “VEHICLE” subject to the following conditions:
The VEHICLE being sold:

Make :
_________________________________________________________
___
Model :
_________________________________________________________
___
Registration Number :
_________________________________________________________
___
Colour :
_________________________________________________________
___
Date first registered :
_________________________________________________________
___
VIN No :
_________________________________________________________
___
Engine No :
_________________________________________________________
___
126
Speedometer Reading :
_________________________________________________________
___
Particulars of other accessories or other conditions, if any, included in the sale:
________________________________________________________________
_________________________________________
________________________________________________________________
_________________________________________
PRICE AND PAYMENT METHOD
The purchase price amounts to R _______________________,

( __________________________________________ Rand) VAT
(*inclusive/exclusive) and is payable as follows: N.B: VAT IS ONLY
APPLICABLE IF THE SELLER IS REGISTERED AS A VENDOR UNDER
THE VALUE ADDED TAX ACT, 1991 (Delete whichever is not applicable)
A deposit of
___________________________( ____________________________________
_____________ Rand) in cash on advice of acceptance of this agreement.
For the balance of R
________________________(_______________________________________
_ Rand) a guarantee by an approved financial institution shall be furnished to
the SELLER within __________ days of acceptance of this offer.
INSURANCE
The PURCHASER shall undertake to take out comprehensive insurance with a

reputable insurance company. The present insurance on the vehicle will be
cancelled on____________________________________ by the SELLER.
LIABILITY
The vehicle is sold "As-Is" and the SELLER shall not be liable for any defects,
patent, latent or otherwise. The PURCHASER admits having inspected the
vehicle to his/her satisfaction and that no guarantees or warranties of any nature
127
were expressed or implied by the SELLER regarding its condition or quality.
All benefits and risk of ownership shall pass to the PURCHASER who shall
pay the full balance of the purchase price despite any depreciation or other
damages that might arise from whatever cause.
DELIVERY
Vehicle will be supplied by the SELLER to the PURCHASER on delivery and
acceptance of the full purchase price.
REGISTRATION & TRANSFER OF OWNERSHIP
The PURCHASER shall be liable for all costs relating to the registration of the
vehicle into his/her name and all costs relating to the Roadworthy Certificate.
The SELLER shall sign / provide all necessary documents to enable the
Purchaser to register the Vehicle in his name timeously.
The Parties agree to sign all documents necessary to transfer ownership of the
vehicle from the SELLER onto the name of the PURCHASER within
______________________________________days of signing this agreement
of sale.
BREACH / DEFAULT
If the PURCHASER fails to pay the deposit amount, any instalment, or balance
of payment punctually or/on due date or is in breach of any of the terms and
conditions contained herein, then the SELLER shall have the right to:
Claim for specific performance thereof, without prejudice to any other rights
which he/she may have by action in a magistrate’s court, or;
Cancel this agreement, take occupation of the vehicle and claim such damages
as he may have suffered, in which event any monies paid by the PURCHASER
shall be forfeited by the PURCHASER.
SIGNED at _______________________________on this

__________________day of ________________________________
1 ________________________________
Signature of Seller
2 ________________________________
Signatures of witnesses
128
1 ________________________________
Signature of Purchaser
2 ________________________________
Signatures of witnesses
CONSTRUCTION CONTRACT
KNOW ALL MEN BY THIS PRESENTS:

THAT WE, (Contractor's Name), of legal age, single/married, a
resident of (Address), hereinafter known as the CONTRACTOR and (Name of
Owner), of legal age, single/married, a resident of (Address) and hereinafter
known as the OWNER, do hereby agree as follows:
ARTICLE 1
---------
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement are Drawings,
Specification, Cost Breakdown (attached), Construction Schedule, signed and
sealed by respective professional architect, civil engineer, sanitary engineer,
electrical engineer and mechanical engineer, all approved by Owner. The
Contract represents the entire and integrated agreement between the parties
hereto and supersedes prior negotiations, representations or agreements, either
written or oral.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Construction Work described in the
Contract Documents, except for Work not indicated in the Cost Breakdown or
other Contract to be the responsibility of others.
2.2 Costs of materials as enumerated and required in the Cost Breakdown and
Materials Specifications and Building Permits are all included in this Contract.
2.3 Cost of Labor to complete the construction and installation in the highest
acceptable quality of all items found in Paragraph 2.2 are also included.
2.4 Other costs including tools, equipment, transportation, and other incidental
cost to complete Paragraph 2.2 and 2.3 are incorporated herein.
2.5 The contractor will provide preconstruction services to come up with the
schematic designs, preliminary drawings, final drawings, materials
129
specifications, cost estimates, construction schedule, building permit forms, all
signed and sealed by respective trade professionals.
ARTICLE 3
---------
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement is the date from which the Owner remits his/her
full construction down payment to the Contractor, or it shall be the date of this
Agreement, as first written above, or upon receipt of the Notice –to-Proceed
from Owner, which ever comes later.
3.2 The Contractor shall achieve Substantial Completion (90%) of the entire
Work after One Hundred Eighty (180) days reckoned from Paragraph 3.1.
ARTICLE 4
---------
CONTRACT SUM, DOWNPAYMENT, PRECONSTRUCTION FEE AND
PROGRESS PAYMENTS
4.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the total sum of PHILIPPINE PESOS: EIGHT
MILLION THREE HUNDRED THOUSAND SIX HUNDRED SIXTY
THREE ONLY (PHP 8,300,663.00)
SCHEDULE OF PAYMENTS
4.2 The 1ST down payment for the preparation of blue prints to be prepared and
signed by respective professionals (Architect, Structural Engineer, Sanitary
Engineer, Electrical Engineer and Mechanical Engineer) and processing of
Building Permits, is equivalent to PHILIPPINE PESOS: FOUR HUNDRED
NINETY FIVE THOUSAND THREE HUNDRED TWENTY TWO & 17/100
ONLY (PHP 495,322.17).
4.3 The 2nd down payment intended for the construction of the two (2)
residential buildings which is equivalent to 50% of the remaining contract
amount is PHILIPPINE PESOS: THREE MILLION NINE HUNDRED TWO
THOUSAND SIX HUNDRED SEVENTY & 42/100 ONLY (PHP
3,902,670.42) and is due before the start of the construction. Validity of our
offer is good until --.
PROGRESS PAYMENTS
130
4.4 Based upon the weighted percentage progress of the works, a Progress
Accomplishment Billing will be submitted to the Owner by the Contractor, and
the Owner shall make progress payments on account of the Contract Sum to the
Contractor as provided below and elsewhere in the Contract Documents.
4.5 Progress Accomplishment Billing shall be every fifteen (15) days. or as
follows:
Progress Accomplishment # 1, March 30,2011, Construction Stage and Hence
forth- 1st Billing
Progress Accomplishment # 2, April 15,2011
Progress Accomplishment # 3, April 30,2011
Progress Accomplishment # 4, May 15,2011
Progress Accomplishment # 5, May 30,2011
Progress Accomplishment # 6, June 15,2011
Progress Accomplishment # 7, June 30,2011
Progress Accomplishment # 8, July 15, 2011
Progress Accomplishment # 9, July 30, 2011
Progress Accomplishment # 10, August 15,2011
Progress Accomplishment # 11, August 30,2011
Last Progress Accomplishment # 12, September 15, 2011
4.6 Provided the Progress Accomplishment is received by the Owner or her
representative in person or thru emails not later than the day specified above,
the Owner shall make payment to the Contractor not later than seven (7) days
thereafter.
4.7 With each Progress Accomplishment Billing, the Contractor shall submit
pictures or evidence required by the Owner to substantiate the actual progress
of the Project.
4.8 Should the progress or any other payments becomes due and unpaid within
seven (7) days, the Contractor has the right to pullout any
equipment/manpower/materials from the site and any re-mobilization after will
be charge for the account of the Owner.
ARTICLE 5
---------
CHANGES IN THE WORK
5.1 In calculating adjustments to this Contract, the term "unit cost" as used in
the attached Cost Breakdown shall form as the basis of cost adjustments or at
mutually agreed prices.
131
ARTICLE 6
---------
SUBCONTRACTS AND OTHER AGREEMENTS
6.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall not be required to contract with anyone to whom the Owner
has reasonable objection.
ARTICLE 7
----------
MISCELLANEOUS PROVISIONS
7.1 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing (not less than 10% per annum) from time to time at the
place where the Project is located.
7.2 Delay in payments shall be considered time extension of the Contract
equivalent to the number of days delayed by these payments.
7.3 The work may not be terminated by the Owner without due cause.
7.4 The warranty for the buildings applies only when the project is fully paid.
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to the
Owner, one to the Contractor.
_________________ ___________________
IN WITNESS WHEREOF, we have hereunder signed our names, this

___day of ______________, 20__ at______________________, Philippines.
_____________________________
_______________________________
OWNER CONTRACTOR

_____________________________
________________________________
132
ACKNOWLEDGMENT

) S.S.
BEFORE ME, a notary public for and in the City of

___________________, this ____ day of January, 20__, personally came and
appeared:
________________________________
_____________________________
OWNER CONTRACTOR
TIN #___________________________ TIN

#___________________________
CTC # __________________________ CTC
#__________________________
Issued On_______________________ Issued
On_______________________
Issued At________________________ Issued
At________________________
known to me and to me known to be the same persons who executed the

foregoing instrument which consist of three pages, including this page,
acknowledged before me as their free and voluntary act and deed.
WITNESS MY HAND AND SEAL this _______ day of January, 20__.
NOTARY PUBLIC
Doc No.______;
Page No.______;
Book No.______;
Series of 20___.
133
ARTICLES OF PARTNERSHIP (GENERAL)
(Articles of Partnership General Partnership)
ARTICLES OF PARTNERSHIP
Of
That we, __Partner 1__, (single / married / widow), and __Partner 2__, (single /
married / widow), and __Partner 3__, (single / married / widow), all Filipinos,
of legal ages, and residents of _____________,
Philippines, have on this day, covenanted to establish a partnership, in
accordance with the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
1. That the names and addresses of the respective partners are as follows:

NameAddress
_______________________
_____________ ______________
_____________ ______________
2. That the name of this partnership shall be _____________ and it shall exist
for _____________ (_____) years from the execution of this instrument, unless
the partners mutually agree in writing to a shorter period. Should the
partnership be terminated by unanimous vote, the assets and cash of the
partnership shall be used to pay all creditors, with the remaining amounts to be
distributed to the partners according to their proportionate share.
3. That the capital of this partnership shall be _____________ (P_________),

Philippine Currency, broken down, incontributions, as follows:
Name of Partner Contribution

_____________ P_____________
_____________ P_____________
_____________ P_____________
The partnership shall maintain a capital account record for each partner; should
any partner's capital account fall below the agreed to amount, then that partner
shall (1) have his share of partnership profits then due and payable applied
instead to his capital account; and (2) pay any deficiency to the partnership if
134
his share of partnership profits is not yet due and payable or, if it is, his share is
insufficient to cancel the deficiency.
4. That the purpose(s) for which this partnership is established (is/are) as

follows: __________________________;
5. The partners shall provide their full-time services and best efforts on behalf
of the partnership. No partner shall receive a salary for services rendered to the
partnership. Each partner shall have equal rights to manage and control the
partnership and its business. Should there be differences between the partners
concerning ordinary business matters, a decision shall be made by unanimous
vote. It is understood that the partners may elect one of the partners to conduct
the day-to-day business of the partnership; however, no partner shall be able to
bind the partnership by act or contract to any liability exceeding Pesos:
__________________________ (P_____________), Philippine
Currency, without the prior written consent of each partner.
6. That the profits and losses shall be divided among the partners pro rata, in
proportion to their respective contributions.
7. In the event a partner withdraws or retires from the partnership for any

reason, including death, the remaining partners may continue to operate the
partnership using the same name. A withdrawing partner shall be obligated to
give _____________ (______) days' prior written notice of (his/her) intention
to withdraw or retire and shall be obligated to sell (his/her) interest in the
partnership.
8. No partner shall transfer interest in the partnership to any other party without

the written consent of the remaining partner(s). The remaining partner(s) shall
pay the withdrawing or retiring partner, or to the legal representative of the
deceased or disabled partner, the value of his interest in the partnership, or (a)
the sum of his capital account, (b) any unpaid loans due him, (c) his
proportionate share of accrued net profits remaining undistributed in his capital
account, and (d) hisinterest in any prior agreed appreciation in the value of the
partnership property over its book value. No value for good will shall be
included in determining the value of the partner's interest.
9. A partner who retires or withdraws from the partnership shall not directly or
indirectly engage in a business which is or which would be competitive with the
existing or then anticipated business of the partnership for a period of
_____________ (____) years within the City/Province of _____________
where the partnership is currently doing or planning to do business.
IN WITNESS WHEREOF, we have hereunto set our hands this

_____________ at _____________, Philippines
(SIGNATURES OF PARTNERS)
____________________________________
135
ACKNOWLEDGMENT
Articles of Incorporation of a Stock Corporation
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
The undersigned incorporators, all of legal age and a majority of whom are
residents of the Philippines, have this day voluntarily agreed to form a (stock)
(non-stock) corporation under the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be "_____________________,

INC. or CORPORATION";
SECOND: That the purpose or purposes for which such corporation is

incorporated are: (If there is more than one purpose, indicate primary and
secondary purposes);
THIRD: That the principal office of the corporation is located in the

City/Municipality of ________________________, Province of
_______________________, Philippines;
FOURTH: That the term for which said corporation is to exist is

_____________ years from and after the date of issuance of the certificate of
incorporation;
136
FIFTH: That the names, nationalities and residences of the incorporators of the
corporation are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
SIXTH: That the number of directors or trustees of the corporation shall be

_______; and the names, nationalities and residences of the first directors or
trustees of the corporation are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
137
SEVENTH: That the authorized capital stock of the corporation is
______________________ (P___________) PESOS in lawful money of the
Philippines, divided into __________ shares with the par value of
____________________ (P_____________) Pesos per share.
(In case all the share are without par value):
That the capital stock of the corporation is ______________ shares without par
value. (In case some shares have par value and some are without par value):
That the capital stock of said corporation consists of _____________ shares of
which ______________ shares are of the par value of _________________
(P____________) PESOS each, and of which _________________ shares are
without par value.
EIGHTH: That at least twenty five (25%) per cent of the authorized capital
stock above stated has been subscribed as follows:
Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
NINTH: That the above-named subscribers have paid at least twenty-five (25%)
percent of the total subscription as follows:
138
Name of Subscriber Amount Subscribed Total Paid-In
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is
non-stock, Nos. 7, 8 and 9 of the above articles may be modified accordingly,
and it is sufficient if the articles state the amount of capital or money
contributed or donated by specified persons, stating the names, nationalities and
residences of the contributors or donors and the respective amount given by
each.)
TENTH: That _____________________ has been elected by the subscribers as

Treasurer of the Corporation to act as such until his successor is duly elected
and qualified in accordance with the by-laws, and that as such Treasurer, he has
been authorized to receive for and in the name and for the benefit of the
corporation, all subscription (or fees) or contributions or donations paid or
given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business or activity

reserved for Filipino citizens shall provide the following):
"No transfer of stock or interest which shall reduce the ownership of Filipino
citizens to less than the required percentage of the capital stock as provided by
existing laws shall be allowed or permitted to be recorded in the proper books
of the corporation and this restriction shall be indicated in all stock certificates
issued by the corporation."
139
IN WITNESS WHEREOF, we have hereunto signed these Articles of
Incorporation, this __________ day of ________________, 19 ______ in the
City/Municipality of ____________________, Province of
________________________, Republic of the Philippines.
_______________________ _______________________
_______________________ _______________________
________________________________
(Names and signatures of the incorporators)
_______________________ _______________________
(Notarial Acknowledgment)
TREASURER'S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES )
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
I, ____________________, being duly sworn, depose and say:
That I have been elected by the subscribers of the corporation as Treasurer

thereof, to act as such until my successor has been duly elected and qualified in
accordance with the by-laws of the corporation, and that as such Treasurer, I
hereby certify under oath that at least 25% of the authorized capital stock of the
corporation has been subscribed and at least 25% of the total subscription has
140
been paid, and received by me, in cash or property, in the amount of not less
than P5,000.00, in accordance with the Corporation Code.
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the
City/Municipality of___________________Province of
_____________________, this _______ day of ___________, 19 _____; by
__________________ with Res. Cert. No. ___________ issued at
_______________________ on ____________, 19 ______
NOTARY PUBLIC
My commission expires on
_________, 19 _____
Doc. No. _________;
Page No. _________;
Book No. ________;
Series of 19____ (7a)
141
EASEMENT OF RIGHT OF WAY
This AGREEMENT OF EASEMENT OF RIGHT OF WAY, entered into

this ______ day of ______________, 2001 by and between “A” owner of the
dominant estate, of legal age, single (or married to ___________________) and
a resident of _________________ and “B” , owner of the servient estate, also of
legal age, single (or married to ____________________), and a resident of
________________________ witnesseth:
That “A” is the owner of a parcel of agricultural land located in the

municipality of ________________, province of ________________, and more
particularly described as follows, to wit:
(Description of “A’s” property)
which property is covered by T.C.T. No. ________ of the Register of Deeds of

______________, province of _______________, which lot is adjacent to
“A’s” property, and more particularly described as follows, to wit:
(Description of “B’s” property)
which property is covered by T.C.T. No. _____________ of the Register of

Deeds of the province of _____________________.
That “A” in order to have an access to and from, and to cultivate the
above-mentioned land, and so as to have an outlet to ________________,
which is the nearest public road and least burdensome to the servient estate and
to third persons, it would be necessary for him to pass through “B’s” property,
and for this purpose, a path or passageway of not less than two (2) meters wide
through the whole length of the western side of “B’s” property is necessary for
the use of “A” and for all his needs in cultivating his estate;
That said path or passageway is particularly described in the attached

plan, “Annex A’,
WHEREFORE, for and in consideration of the sum of

_____________________ PESOS (P_________) the receipt whereof is hereby
142
acknowledged by “B”, the latter agrees and permits “A” to have a permanent
easement of right of way over the above-mentioned property of said “B” limited
to not more than two (2) meters wide throughout the whole length of the
western side of said property and as specifically indicated in the attached plan
which is made an integral part of this contract, as “Annex A”.
It is further agreed that “B” shall deliver unto “A” all the necessary
papers, deed, and titles in relation to the servient estate in order to facilitate the
registration of the above-mentioned right of way, in accordance with.
This agreement shall be binding between the parties and upon all their
heirs, successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have signed this agreement

the day and the year first above written, in the municipality of
_______________, province of _______________, Philippines.
__________________________
__________________________
(Signature of owner of the (Signature of owner of
dominant estate) servient estate)
__________________________
___________________________
ACKNOWLEDGMENT
References:
143
Icao, J &Icao, A. (2005).Answers to Bar Examination Questions in Civil Law
Arranged Topic (1975-2004). Dumaguete, Negros Oriental: Siliman
University College of Law. Retrieved February 6, 2015 from
https://www.scribd.com/doc/185962564/Civil-Law-Q-A-1975-to-2004
Icao, J &Icao, A. (2005).Answers to Bar Examination Questions in Civil Law
Arranged Topic (1990-2006). Dumaguete, Negros Oriental: Siliman
University College of Law. Retrieved February 6, 2015 from
https://upangphinmalaw.files.wordpress.com/2011/03/suggested-
answers-in-civil-law-bar-exams1990-2006.pdf
Jurado, D. (2010). Comments and Jurisprudence on Obligations and Contracts
(12th ed.). Metro Manila: Rex Publishing.
UP Law Obligations and Contracts Reviewer
UST Law Obligations and Contracts Reviewer
Hector de Leon 2011 Edition
Paras 2013 edition
San Beda Law Obligations and Contracts Reviewer
Civil Code of the Philippines
http://www.lawphil.net/statutes/acts/act_3952_1972.html
http://www.chanrobles.com/acts/actsno496.html
http://legal-forms.philsite.net/lease-contract.htm
http://www.foreclosurephilippines.com/republic-act-ra-no-9653-rent-control-
act-of-2009-full-text-copy/
http://www.chanrobles.com/republicacts/republicactno7652.html#.VN8rlfnF_d
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OBLIGATIONS AND

I. Bar Questions and Suggested Answers 6

Lease Contract .................................................................................................112

A executed in favor of B a promissory note for P10,000, payable after

2. Joint obligation (1971 BAR)

4. Novation; Expromision (1975 BAR)

5. Novation; delegacion (1975 BAR)

6. Obligations; conditional obligations (1975 BAR)

8. Reciprocal obligations; implicit resolutory condition; damages (1977

9. Contracts; stipulation pour autrui (1977 BAR)

10. Resolutory condition; right of usurfruct (1979 BAR)

11. Contracts; voidable contracts (1979 BAR)

13. Relativity of contracts; exception (1980 BAR)

14. Contracts; consent; invitation to bid (1980 BAR)

15. Solidary liability (1981 BAR)

(b) O can demand reconstruction of the building. The obligation of both A

16. Fortuitous event; Depositary or bailee; Tender of payment (1981 BAR)

20. Application of payment (1982 BAR)

21. Obligations; extinguishment; payment (1983 BAR)

23. Fortuitous events; Liability of obligor (1983 BAR)

24. Obligations; extinguishment; payment (1983 BAR)

25. Obligations; extinguishment; payment; consignation, when applicable

26. Contracts; perfection of contracts; obligations with a period (1988 BAR)

27. Obligations; extinguishment; novation (1988 BAR)

28. Contracts; voidable contracts (1990 BAR)

29. Nature of Contracts; Obligatoriness (1991 BAR)

30. Period; Suspensive Period (1991 BAR)

31. Extinguishment; Loss; Impossible Service (1993 BAR)

32. Contracts; annulment of contracts; capacity to sue (1996 BAR)

33. Nature of Contracts; Privity of Contract (1996 BAR)

34. Rescission of Contracts; Proper Party (1996 BAR)

35. Conditional Obligations; Promise (1997 BAR)

37. Extinguishment; Compensation vs. Payment (1998 BAR)

38. Extinguishment; Compensation/Set-Off; Banks (1998 BAR)

39. Conditional Obligations; Resolutory Condition (1999 BAR)

 Second Alternative Answer:

40. Conditional Obligations (2000 BAR)

41. Extinguishment; Condonation (2000 BAR)

42. Extinguishment; Extraordinary Inflation or Deflation (2001 BAR)

43. Obligations; joint/ solidary liability; joint (2001 BAR)

44. Nature of Contracts; Relativity of Contracts (2002 BAR)

45. Obligations; joint/ solidary liability; solidary (2003 BAR)

46. Liability; Solidary Obligation; Mutual Guaranty (2003 BAR)

47. Conditional Obligations (2003 BAR)

48. Inexistent Contracts vs. Annullable Contracts (2004 BAR)

A) From the viewpoint of sanction:

(a) CIVIL OBLIGATION

(c) MORAL OBLIGATION

B) From the viewpoint of subject matter:

(a) REAL OBLIGATION

C) From the affirmativeness and negativeness of the obligation:

(a) POSITIVE OR AFFIRMATIVE OBLIGATION

D. From the viewpoint of persons obliged:

1. Active subject ( obligee/creditor )

2. Passive subject ( obligor/debtor )

1. LAW (OBLIGATION EX LEGE ) - Must be expressly or impliedly set

2. CONTRACT( OBLIGATION EX CONTRACTU ) - Must be complied

3. QUASI-CONTRACT ( OBLIGATION EX QUASI-CONTRACTU ) -

4. DELICTS ( OBLIGATION EX MALEFICIO OR EX DELICTO )

What civil liability arising from a crime includes:

Effect of acquittal in criminal case:

5. QUASI-DELICT/TORTS ( OBLIGATION EX QUASI-DELICTO or