OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
OBLIGATIONS AND CONTRACTS
General Provisions/Nature and Effect of
Obligations
QUESTION NO. 1
Distinguish between civil and natural obligations.
Civil and natural obligations may be distinguished as
follows:
a. civil obligations derive their binding force from
positive law; natural obligations derive their
binding effect from equity and natural justice;
and
b. civil obligations can be enforced by court action
or by the coercive power of public authority; the
fulfillment of natural obligations cannot be
compelled by court action but depends
exclusively upon the good conscience of the
debtor.
QUESTION NO. 2
Give the concept of a quasi-contract. Distinguish
it from the other sources of obligations.
A quasi-contract is a juridical relation which arises
from certain lawful, voluntary, and unilateral acts,
for the payment of indemnity to the end that no one
may be unjustly enriched or benefited at the expense
of another. (Art. 2142, Civil Code)
The act giving rise to a quasi-contract must be
lawful, thereby distinguishing it from crime in which
the act or omission is unlawful; it must be voluntary,
thus differentiating it from a quasi-delict, which is
based on fault or negligence or mere lack of
foresight; and it must be unilateral, to distinguish it
from contracts in which there are two parties who
come to an agreement.
QUESTION NO. 3
Abe took his car to a carwash station and asked
to have it washed. While it is being washed, Abe
went to a nearby mall for two hours. In the
meantime, one of the workers at the car wash had
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mistakenly hand-waxed the car. When Abe came
back, he was presented with a bill for a wash job
and a hand wax. Is Abe liable to pay for the hand
wax job?
No. The doctrine of quasi-contract does not apply
when there is a contract between the parties.
Although there was a benefit bestowed to Abe, Abe
did not receive an unjust benefit because the hand
wax job was not contemplated by his agreement with
the owner of the car wash station.
QUESTION NO. 4
Pedro is seriously injured in a vehicular accident.
A bystander calls Dr. Garcia to render medical
treatment while Pedro was unconscious. Dr.
Garcia immediately responds to the call and
attends to Pedro right away. Dr. Garcia later
sends Pedro a bill for the reasonable value of his
medical services. Pedro refuses to pay. Judgment
for whom?
Judgment for Dr. Garcia because Pedro is liable on
the basis of a quasi-
action in responding to a medical emergency was
lawful, voluntary, and unilateral act.
QUESTION NO. 5
D signed a promissory note in 1973 binding
himself to pay C the sum of P20,000. D knew that
the debt had already prescribed, but he still
signed in 1998 another promissory note
acknowledging his old debt, promising to pay the
old debt in six months.
When sued for non-payment of the second note, D
defended that there was no valuable
consideration when he signed the second note
because the old debt had already prescribed. Is
No, because D knew that the debt had already
prescribed when he acknowledged the existence of
the old debt, and promised to pay it, there was an
implied renunciation of the prescription. (Art. 1112,
Civil Code). D, therefore, has a civil obligation to
pay the value of the second note.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
QUESTION NO. 6
Suppose D voluntarily paid the old debt despite
knowing that the debt had already prescribed, is
he allowed to recover what he paid?
knowledge that the debt had already prescribed does
not entitle him to recover. His payment constitutes a
natural obligation under Article 1423 of the Civil
Code.
QUESTION NO. 7
Suppose D did not know of the prescription when
he paid the debt, will he be allowed to recover this
time?
Yes, because there was no renunciation of the
prescription. He can still recover on the basis of
solutio indebiti.
QUESTION NO. 8
What are the other quasi-contracts under the
Civil Code?
Art. 2164: When, without the knowledge of the
person obliged to give support, it is given by a
stranger, the latter shall have a right to claim the
same from the former, unless it appears that he gave
it out of piety and without intention of being repaid.
Art. 2165: When funeral expenses are borne by a
third person, without the knowledge of those
relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third
person, should the latter claim reimbursement.
Art. 2166: When the person obliged to support an
orphan, an insane person, or other indigent person
unjustly refuses to give support to the latter, any third
person may furnish support to the needy individual,
with right of reimbursement from the person obliged
to give support.
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Art. 2167: When through an accident or other cause
a person is injured or becomes seriously ill, and he is
treated or helped while he is not in a condition to give
consent to a contract, he shall be liable to pay for the
services of the physician or other person aiding him,
unless the service has been rendered out of pure
generosity.
Art. 2168: When during a fire, flood, storm or other
calamity property is saved from destruction by
another person without the knowledge of the owner,
the latter is bound to pay the former just
compensation.
Art. 2169: When the government, upon the failure of
any person to comply with health or safety
regulations concerning property, undertakes to do the
necessary work, even over his objection, he shall be
liable to pay the expenses.
Art. 2174: When in a small community majority of
the inhabitants decided upon a measure for
protection against lawlessness, fire, storm, or other
calamity, any one who objects to the plan and refuses
to contribute to the expenses but is benefited by the
project as executed shall be liable to pay his share of
the expenses.
Art. 2175: Any person who is constrained to pay the
taxes of another shall be entitled to reimbursement
from the latter.
QUESTION NO. 9
Debtor signs a promissory note binding himself to
pay Creditor a sum of money, and in case of non-
payment, to render free service as a servant. Is the
obligation valid?
The obligation to pay is valid and cannot be
questioned but the undertaking to render services as
a servant for free is contrary to law and morals, for
es
will be rendered in satisfaction of the debt, the
stipulation can be given effect, for here the services
will not really be gratuitous. Even in this case,
however, specific performance of the service will not
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ATTY. GANDEZA NOTES COMPILED EDITION
be a proper remedy for non-compliance because it
will amount to involuntary servitude. Instead, an
action for damages for payment of the debt should be
brought. (De los Reyes v. Alejado, 16 Phil. 299)
QUESTION NO. 10
While sitting on his front porch, Abe watched
three men paint a fence on his property. The men
later learned that they had made a mistake. The
fence they were to have painted was in the next
block, in the property of Rey. Is Abe obliged to
pay the painters? If so, what would be the basis
of his liability?
By his toleration of the trespassers and by his failure
to protest, Abe is obliged to pay the painters the
reasonable value of the work done and the materials
used. The basis of his liability would be his implied
acceptance of the offer of the painters to paint his
fence. In oth
his implied contract with the painters.
(NOTE: it is error to say that Abe is liable because
of the benefit bestowed; or that his liability is
grounded on the existence of a quasi-contract; or
that he is obliged to pay the painters to prevent unjust
enrichment. This is so because of the existence of an
implied contract between Abe and the painters)
QUESTION NO. 11
Suppose Abe had not been at home, and he did
not discover that the fence had been painted until
he returned in the evening, is Abe liable? If so,
what would be the basis of his liability?
Abe would not be obliged in this situation. He did not
learn of the benefits bestowed until after they had
been completed. There had been no communication
of the offer of the painters and no express or implied
acceptance by Abe of the work done. Neither is Abe
liable to the painters under a quasi-contract. This is
so because there was neither a case of solutio indebiti
or negotiorum gestio in the instant case.
QUESTION NO. 12
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Seller is obliged to give Buyer a particular cow on
October 25. What are the consequences of this
agreement?
Before October 25, Buyer has no right over the cow.
Buyer acquires a personal right against Seller to
comply with the obligation only from October 25.
This is a right which Buyer can demand only against
Seller, and from no other. But if Seller delivers the
cow on October 30, B acquires ownership only from
that time.
If on October 23 Seller sold and delivered the cow to
a third person who acted in good faith, this person
acquires ownership over the cow and is entitled to it
over Buyer.
S is obliged to deliver to B one of his cars. Is the
object of the sale determinate or indeterminate?
QUESTION NO. 13
What are the rules to be observed by the obligor
when the obligation involves a determinate thing?
Before delivery, the obligor is obliged to preserve the
thing with the proper diligence of a good father of a
family. And when the obligation to deliver arises, he
is obliged to deliver the thing, together with its fruits.
The obligor is also required to deliver not only the
thing but also to deliver all its accessions and
accessories, even though they may not have been
mentioned. If he obligor fails to deliver the thing, he
may be compelled to make the delivery or pay
damages in case of breach.
QUESTION NO. 14
Seller is obliged to deliver to Buyer one of his cars.
Is the object of the sale determinate or
indeterminate?
The object of the sale refers to a class which in itself
is determinate. Here, the particular thing to be
delivered is DETERMINABLE without the need of
a new contract between the parties (Art. 1349); it
becomes determinate upon delivery.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
QUESTION NO. 15
What are the legal consequences of delay (default)
in the performance of an obligation?
Delay or default in the performance of an obligation
has the following consequences:
a. The debtor is guilty of breach of the obligation.
b. The debtor is liable to creditor for interest (in
case of obligations to pay money) (Art. 2209,
Civil Code) or damages (in other obligations)
(Art. 1170, Civil Code)
c. In the absence of extrajudicial demand, the
interest begins from the filing of the complaint.
d. The debtor is liable even for a fortuitous event
when the obligation is to deliver a determinate
thing.
QUESTION NO. 16
A brought his car to a repair shop for repairs. The
shop promised to return the car by February 1.
When the date arrived, the repair shop informed
A that the job was not yet finished, and for him to
return five days later. On February 6, A went to
the shop to claim his car only to be informed that
the same was stolen by a thief who entered the
shop the night before. A filed an action for
damages against the shop which put up the
defense of force majeure. Will the action prosper?
The action will prosper. The repair shop was already
in default when it failed to return the car when
delivery was demanded by A on the date the
obligation to deliver arose. The repair shop is
therefore liable for the loss of the car even when the
loss was due to force majeure.
QUESTION NO. 17
When is demand by the creditor not necessary in
order that delay may exist?
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Demand by the creditor is no longer necessary for
delay to exist in the following instances
a. when the law and the obligation expressly
provide.
b. when TIME is of the essence of the contract or
when the fixing of the time was the controlling
motive for the establishment of the contract.
c. demand would be useless because the obligor has
rendered it beyond his power to perform.
QUESTION NO. 18
Debtor borrowed from Creditor on January 25.
He signed a promissory note promising to pay the
loan on December 31. Upon arrival of the
designated date for payment, is demand necessary
for Creditor to incur delay?
Yes. In order that demand may be dispensed with to
put the Debtor in delay, it is indispensable that the
obligation or the law should EXPRESSLY add that
the obligor will be in delay if he fails to fulfill the
obligation upon the arrival of the designated date or
that upon the arrival of such date demand is no longer
necessary. (Art. 1169, Civil Code)
QUESTION NO. 19
In 1989, San Miguel Corporation entered into a
contract with Abe under which San Miguel was to
supply broiler chickens for Abe to raise on his
land. To guarantee full compliance, the contract
was accompanied by a real estate mortgage over
When Abe failed to settle his
account, San Miguel foreclosed the mortgage on
foreclosure sale. Is the foreclosure valid?
No, because San Miguel did not make a previous
demand on Abe to pay his account before foreclosing
the mortgage. The issue of whether demand was
made before the foreclosure was effected is essential.
If demand was made and duly received by Abe and
he still did not pay, then he was already in default
and foreclosure was proper. But if demand was not
made, then the loans had not yet become due. This
meant that Abe had not yet defaulted in his payments
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
and the foreclosure by GMC was premature.
Foreclosure is valid only when the debtor is in
default in the payment of the obligation.
QUESTION NO. 20
Homer obtained a loan from Accord Finance to
buy a car. In consideration of the loan, he signed
a promissory note to pay the loan in monthly
installments and signed a chattel mortgage over
the car. When Homer failed to pay the
installments, Accord filed a collection suit with
prayer for delivery of the car. As a result, Accord
recovered possession of the car.
Homer successfully negotiated with Accord for
the reduction of his loan. He delivered to Accord
agreed upon. But despite payment of the
negotiated amount, the car was not released to
Homer because of his refusal to sign the joint
motion for the dismissal of the case. Homer claims
that he need not sign the joint motion because he
has not yet filed his answer. Accord insists though
that the joint motion is a standard practice to
effect a compromise and to preclude the future
filing of claims, counterclaims or suits for
damages. Is Homer entitled to recover damages
from Accord Finance?
No. The refusal referred to in Article 1170 of the
Civil Code is the deliberate and intentional evasion
of the normal fulfillment of an obligation. The joint
motion to dismiss was for the benefit of Homer, as
the case filed by Accord against him would be
dismissed with prejudice. The whole point of the
parties entering into the compromise agreement was
in order that Homer would pay his outstanding loan
and in return, Accord would return the car and drop
the collection case.
The joint motion was but a natural consequence of
the compromise agreement which simply stated that
Homer had fully settled his obligation; hence, the
Homer to sign the motion to dismiss cannot be said
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to be a deliberate attempt on the part of Accord to
renege on the proposed compromise agreement.
Moreover, it is well to note that in case of breach of
contract, moral damages may only be awarded when
the breach was attended by fraud or bad faith.
The law presumes good faith. Homer failed to
overcome this presumption. In fact, the act of Accord
indicative of its good faith and sincere desire to settle
the case. Necessarily, the claim for exemplary
damages must also fail. In no way may the conduct
International
Corporate Bank v. Gueco, 351 SCRA 516 [2001])
QUESTION NO. 21
X leased to Y a ten-wheeler cargo truck on a
monthly basis. The truck was later burned by
unidentified persons when it was parked
unattended due to a mechanical trouble. X had
the truck repaired for which he spent a
considerable amount. Thereafter, he brought an
action against Y to recover the cost of repairs and
unpaid rentals. Y disclaims liability on the ground
that the burning of the truck was due to a
fortuitous event. Decide.
For a fortuitous event to exempt one from liability, it
is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. An
act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible
negligence may have concurred with an act of God
in producing the damage and injury to another. When
participation -- whether by active intervention,
neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to
acts of God.
In the present case, Y failed to exercise reasonable
care and caution that an ordinary prudent person
would have used in the same situation. Y fell short of
ordinary diligence in safeguarding the leased truck
against the accident, which could have been avoided
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ATTY. GANDEZA NOTES COMPILED EDITION
in the first place. (Mindex Resources Development v.
Morillo, G. R No. 138123, March 12, 2002)
QUESTION NO. 22
Lulu pawned several pieces of jewelry with
Alajera Pawnshop to secure payment of a loan.
Two weeks later, armed men entered the
pawnshop and took away whatever cash and
jewelry found inside the pawnshop, including the
jewelry pawned by Lulu. Lulu now demands
payment of the value of her pawned items. The
pawnshop disclaims liability on the ground of
fortuitous event.
a) Is robbery a fortuitous event?
Robbery per se, just like carnapping, is not a
fortuitous event. It does not foreclose the possibility
of negligence on the part of the party charged. In Co
v. Court of Appeals, 291 SCRA 111 [1998], the
shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed
in its possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and forcefully taken
carnapping, does not automatically give rise to a
fortuitous event. To be considered as such,
carnapping entails more than the mere forceful
established that the event was an act of God or was
done solely by third parties and that neither the
claimant nor the person alleged to be negligent has
any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due
to a fortuitous event rests on him who invokes it --
b)
pawned items?
Yes. It is a settled rule that in order for a fortuitous
event to exempt one from liability, it is necessary that
one has committed no negligence or misconduct that
may have occasioned the loss. In the instant case, the
pawnshop failed to show that it was free from any
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negligence by which the loss of the pawned jewelry
may have been occasioned.
Article 2123 of the Civil Code provides that with
regard to pawnshops and other establishments which
are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall
be observed, and subsidiarily, the provisions on
pledge, mortgage and antichresis. The provision on
pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing
with the diligence of a good father of a family. This
means that the pawnshop must take care of the pawns
the way a prudent person would as to his own
property.
In the case presented, the pawnshop was guilty of
negligence in the operation of its pawnshop business.
Evidently, no sufficient precaution and vigilance
were adopted by the pawnshop to protect its
establishment from unlawful intrusion. There was no
clear showing that there was any security guard at all.
Or, if there was one, that he had sufficient training in
securing a pawnshop. Further, there is no showing
that the alleged security guard exercised all that was
necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to
enter the premises. In fact, it is even doubtful that
there was a security guard, since it is quite impossible
that he would not have noticed that the robbers were
armed. (Sicam v. Jorge, 529 SCRA 443 [2007])
QUESTION NO. 23
Teddy is the disbursing officer of a government
project in Cavite. In the morning of July 1, a
Friday, he went to Manila to encash a check
covering the wages of the project employees. For
some reason, the processing of the check by the
bank was delayed and was completed at 3 p.m.
Despite this, he decided to encash the check
because the project employees would be waiting
for their pay the following day, a Saturday; if not,
the workers would have to wait until July 5, a
Monday, to receive their wages.
Give the situation, he had two choices: 1) return
to Cavite that same afternoon and arrive there
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
early evening; or 2) take the money with him to
his house in Bulacan thinking it was the safer one.
He chose the second option. A little past 3 p.m., he
took a passenger jeep bound for Bulacan. While
the jeep was along EDSA, the jeep was held up
and the money kept by Teddy was taken, and the
robbers jumped out of the jeep and ran. Teddy
chased the robbers and caught up with one of
them who was subsequently charged with
robbery and pleaded guilty. The other robber
who held the stolen money escaped. The
Commission on Audit found Teddy negligent
because he did not bring the proceeds of the
checks to his office in Cavite for safekeeping
which is the normal procedure in the handling of
funds. Was Teddy negligent?
In Hernandez v. Chairman, Commission on Audit,
179 SCRA 39 [1989], the Supreme Court held that
Teddy was not negligent in encashing the check and
bringing it home to Marilao, Bulacan instead of
Cavite because of the lateness of the hour for the
following reasons: 1) he was moved by unselfish
motive for his co-employees to collect their wages
the following day, a Saturday, a non working day,
because to encash the check the next working day
after July 1, would have caused discomfort to
laborers who were dependent on their wages for
sustenance; and 2) that choosing Marilao as a safer
destination, being nearer, and in view of the
comparative hazards in the trips to the two places, the
decision seemed logical at that time. That robbers
attacked him in broad daylight and in the presence of
other passengers could not be said to be a result of
his imprudence and negligence.
(NOTE: Unlike in Sicam where the robbery took
place at a pawnshop which was under the control of
the owner, the robbery in Hernandez took place in a
public utility jeepney. In Sicam, the pawnshop owner
had the means to screen the persons who were
allowed entrance to the premises and to protect itself
from unlawful intrusion)
QUESTION NO. 24
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What are the instances when the debtor is liable
even for a fortuitous event?
These are the instances when the Civil Code provides
liability of the debtor despite a fortuitous event:
a) Art. 552, par. 2: a possessor in bad faith shall be
liable for the deterioration or loss of the thing
possessed in every case, even if caused by a
fortuitous event.
b) Art. 1165, par. 3: if the obligor delays, or has
promised to deliver the same thing to two or more
persons who do not have the same interest, he shall
be responsible for fortuitous event until he has
effected delivery.
c) Art. 1268: when the debt of a thing certain
proceeds from a criminal offense, the debtor shall not
be exempted from the payments of its price,
whatever may be the cause of the loss.
d) Art. 1942: the bailee is liable for the loss of the
thing loaned, even if it should be through a fortuitous
event in the following cases: (1) if he devotes the
thing to any purpose different from that for which it
has been loaned; 2) if he keeps it longer than the
period stipulated, or after the accomplishment of the
use for which the commodatum has been constituted;
3) if the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a
fortuitous event; (4) if he lends or leases the thing to
a third person, who is not a member of his household;
and 5) if, being able to save either the thing borrowed
or his own thing, he chose to save the latter.
e) Art. 1979: the depositary is liable for the loss of
the thing deposited even if due to a fortuitous event
in the following cases: 1) if it is so stipulated; 2) if he
if he delays its return; and 4) if he allows others to
use it, even though he himself may have been
authorized to use the same.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
f) Art. 2147: the officious manager shall be liable for
the loss or destruction of the property or business of
another in certain cases.
g) Art. 2148: liability for loss of the thing even if due
to a fortuitous event due to incompetence.
h) Art. 2159, par, 2: in case of solutio indebiti and
payee in bad faith.
QUESTION NO. 25
Abe and Tessie engaged Visual Artists for the
video coverage of their forthcoming wedding. On
arrived at the residence of the bride and there
recorded her pre-departure activities before
leaving for the church where the wedding
ceremonies were to be held. After the pre-
departure activities, the crew proceeded to the
church and recorded the ceremonies. They then
went to the hotel where the wedding reception
followed. A few days later, Visual informed Abe
and Tessie that the videotape of their wedding
celebration was damaged because of a defect in
their equipment. Visual disclaimed liability on the
basis of fortuitous event. Decide.
For a fortuitous event to exempt Visual from
liability, it is necessary that it be free from
negligence. (Lasam v. Smith, 45 Phil. 657 [1924])
The alleged malfunctioning of the videotape recorder
occurred at the beginning of the video coverage at the
residence of the bride. The video crew miserably
failed to detect the defect in the videotape recorder
and that they discovered it rather too late after the
wedding.
Visual cannot even seek refuge under Article 2180 of
the Civil Code by claiming that it exercised due care
in the selection and supervision of its employees in
their respective trades. That defense, under the last
paragraph of Article 2180 of the Civil Code, may be
availed of only where the liability arises from culpa
aquiliana and not from culpa contractual such as in
the case at bar. (Herbosa vs. Court of Appeals, 374
SCRA 578 [2002])
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DIFFERENT KINDS OF OBLIGATIONS
QUESTION NO. 1
A telephone company and an electric cooperative
entered into an agreement under which: a) the
telephone company is allowed to use the electric
posts of the electric cooperative for the
installment of its telephone and cable wires; b) the
telephone company is obliged to install and allow
the electric cooperative the free use of ten
telephone lines; and c) the contract will subsist
for as long as the telephone company has need for
the electric posts and will terminate only if the
electric cooperative is forced to stop or abandon its
operations as a public service and it becomes
necessary to remove the electric posts. Is the
agreement subject to a potestative condition?
No. The condition that the contract shall be effective
for as long as the telephone company has need for
the electric posts is a potestative condition because it
depends upon the sole will of the telephone
company. But the condition that the contract may be
terminated if the electric cooperative is forced to stop
or abandon its operations is a casual condition which
depends on chance, hazard, or the will of third
persons. In sum, the contract between the telephone
company and the electric cooperative is subject to a
mixed condition, that is, a condition dependent partly
on the will of a party and partly on chance, hazard,
or the will of a third person, which do not invalidate
a contract (Naga Telephone Company, Inc. v. Court
of Appeals, 230 SCRA 351[1994])
QUESTION NO. 2
S sells to B a parcel of land. Their notarized sale
are lessees in
the property at the time of the sale. Buyer now
failure to eject the lessees. He claims that he
failure to eject the lessees. He contends that the
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ATTY. GANDEZA NOTES COMPILED EDITION
his title to and peaceful possession of the property
partakes of the nature of a condition.
No. The buyer failed to appreciate the difference
between a condition and a warranty and the
consequences of the distinction. The failure of the
seller to eject the lessees from the lot and to deliver
its actual and physical possession to the buyer cannot
be considered a substantial breach for two reasons:
First, as not stipulated in the contract
as a condition -- whether resolutory or suspensive;
and second, its effects and consequences were not
specified either.
The stipulation adverted to by the buyer does not
impose a condition or an obligation on the part of the
seller to eject the lessees from the lot. The stipulation
pertains merely to the usual warranty against
eviction, and not a condition that was not met. Had
the parties intended to impose on the seller the
obligation to eject the tenants from the thing sold, the
same should have been expressly provided for in the
contract. For example, the contract may provide that
if the lessees are not ejected with a certain period, the
contract can be rescinded. Regrettably, no such
provision was stipulated upon by the parties.
b) Is the seller liable for breach of warranty
against eviction?
There was no breach of warranty against eviction.
The buyer was not deprived of his title. The presence
of lessees does not even constitute an encumbrance
on the land nor does it deprive the buyer of its control
thereof. (Power Commercial and Industrial Corp. v.
Court of Appeals, 274 SCRA 597 [1997])
QUESTION NO. 3
X leased to Y a building for 15 years. Y occupied
the building and paid rentals for three years, after
which no rentals were paid. X required Y to
return the leased property if he cannot pay the
rents. Because of this demand, Y vacated the
property with notice to X. X later brought an
action to recover the rentals that should have been
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paid under the lease contract for the unexpired
term of 12 years. Is Y liable?
No. Under Article 1191 of the Civil Code, X was
permitted to elect between the two remedies of
resolution or specific performance, with damages in
either case. He is not entitled to pursue both of the
inconsistent remedies. In this case, X clearly elected
to resolve or rescind the lease contract.
In the common case of the resolution or rescission of
a contract of sale for failure of the purchaser to pay
the stipulated price, the seller is entitled to be
restored to the possession of the thing sold, if it has
already been delivered. But he cannot have both the
thing sold and the price which was agreed to be paid,
for the resolution or rescission of the contract has the
effect of destroying the obligation to pay the price.
Similarly, in the case of the resolution of a contract
of lease, the lessor is entitled to be restored to the
possession of the leased premises, but he cannot have
both the possession of the leased premises for the
remainder of the term and the rent which the other
party was contracted to pay. The termination of the
lease has the effect of destroying the obligation to
pay for the future.
QUESTION NO. 25
S sells to B a parcel of land for P2 million. Their
sale agreement contains the following terms and
conditions: 1) B will pay P600,000 as down
payment; 2) the balance of P1.4 million will be
paid in four quarterly installments of P250,000; 3)
that upon full payment of the purchase price, S
and 4) that upon the signing of the agreement, B
will take possession of the property.
B took possession of the property after the signing
of the sale document. To answer for his balance of
P1.4 million, he issued four post-dated checks
payable to S in the amount of P250,000 each. The
checks bounced. B promised to replace the checks
but failed to do so. S then brought an action to
rescind the sale and to recover the property. S
purchase price is a substantial breach of the
obligation which entitles him to rescind under
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Article 1191 of the Civil Code. B invokes Article
1389 of the Civil Code which says that when
specific performance is available as a remedy,
rescission may not be resorted to.
a) Distinguish between the remedy of rescission
under Article 1191 of the Civil Code and the
remedy of rescission under Article 1383.
Rescission of reciprocal obligations under Article
1191 of the Civil Code should be distinguished from
rescission of contracts under Article 1383. Although
both presupposes and both require mutual restitution
when proper, they are not entirely identical.
principal action which is based on the breach of a
party of his obligation, while rescission under Article
1383 is a subsidiary action limited to cases of
rescission for lesion under Article 1381 of the Civil
Code.
b) Is seller entitled to rescind the sale?
Yes. Obviously, the contract entered into by the
parties does not fall under any of those mentioned by
Article 1381. Consequently, Article 1381 is
inapplicable.
A reading of the agreement entered into by S and B
shows that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee
upon the delivery of the thing sold; while in a
contract to sell, ownership is, by agreement, reserved
in the vendor and is not to pass to the vendee until
full payment of the purchase price. In a contract to
sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from
acquiring an obligatory force.
Here, S bound himself to deliver a deed of absolute
sale and clean title covering the parcel of land upon
full payment by B of the purchase price of P2
million. This promise to sell was subject to the
fulfillment of the suspensive condition that B will
Page 10 of 66
pay in full the purchase price. B, however, failed to
complete payment of the purchase price. The non-
fulfillment of the condition of full payment rendered
the contract to sell ineffective and without force and
effect. Failure of B to pay, in this instance, is not
even a breach but merely an event which prevents
binding force. Hence, the agreement of the parties
may be set aside, but not because of a breach on the
part of B to complete payment of the purchase price.
Rather, his failure to do so brought about a situation
which prevented the obligation of S to convey title
from acquiring force (Ong v. Court of Appeals, 310
SCRA 1 [1999])
QUESTION NO. 26
S sold to B in 1985 a parcel of land for P1 million.
Their Contract of Conditional Sale provides that
Bart will pay P100,000 as down payment and the
balance to be paid in 60 days after the squatters
on the property have been removed. Their
contract states that if the squatters are not
removed within six months from the execution of
the contract, the P100,000 down payment shall be
returned by S to B.
S filed an ejectment action against the squatters,
but in spite of the decision in his favor, the
squatters would not leave. Subsequently, S
offered to return the P100,000 down payment to
B on the ground that he is unable to remove the
squatters on the property. B refused; instead, he
demanded that S execute a deed of absolute sale
of the property in his favor, at which time he will
pay the balance of the purchase price. Meanwhile,
the value of the land had appreciated
considerably. S now seeks to rescind the sale and
consign the P100,000 in court. Will the action
prosper?
The action will not prosper. The action for rescission
may be brought only by the aggrieved party to the
contract. Since it was S who failed to comply with
his conditional obligation, he is not the aggrieved
party who may file the action for rescission but B.
However, B is not opting to rescind the contract but
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
condition which he can do under Article 1545 of the
Civil Code.
QUESTION NO. 27
Ferdie leased to Ninoy a building, the latter to pay
P20,000 monthly, including light and water bills.
The contract stipulates that non-payment of the
rent would automatically cancel the contract, but
otherwise Ninoy could stay on indefinitely. After
five years, Ferdie tried to eject Ninoy because he
planned to tear down the building and put up
another. Can Ferdie eject Ninoy?
Yes, he can. Ninoy, the lessee, cannot successfully
set up the defense that under the contract of lease, he
can continue occupying the building so long as he
faithfully fulfills his obligation of paying the rentals.
It is clear that under this stipulation, the continuance
of the fulfillment of the contract would then depend
solely and exclusively upon his uncontrolled choice
between continuing paying the rentals or not,
completely depriving the owner of all say on the
matter. If this defense is allowed, so long as the
lessee elected to continue the lease by continuing the
payment of the rentals, the owner would never be
able to discontinue it; conversely, although the
owner should desire the lease to continue, the lessee
could effectively thwart his purpose by the simple
expedient of stopping payment of rentals. Clearly,
the condition is a purely potestative one rendering the
same void. (Encarnacion v. Baldemar, 77 Phil. 470)
QUESTION NO. 28
What is an alternative obligation?
An alternative obligation is one where out of two or
more prestations which are due, the performance of
one is already sufficient compliance with the
obligation. (Art. 1199, par. 1, Civil Code)
QUESTION NO. 29
X obtains a loan from Y. They agree that upon
maturity of the loan, X will give Y either the sum
Page 11 of 66
owed or a particular house and lot. Is the
stipulation a pactum commissorium?
No. The stipulation is in fact valid because it is
simply an alternative obligation, which is expressly
allowed by the law. The agreement to convey the
debt in money at its maturity does not constitute
pactum commissiorium. It is not an attempt to permit
the creditor Y to declare a forfeiture of the security
upon the failure of the debtor to pay the debt at
maturity. It simply provided that if the debt is not
paid in money, it shall be paid in another specific
way by the transfer of the property at a valuation.
QUESTION NO. 30
Debtor obtained from Creditor a loan payable in
two years. To guarantee payment of the loan,
Debtor mortgaged his uninsured house to
Creditor. Three months after the loan was given,
origin. Thereupon, Creditor demanded
immediate payment from Debtor. Debtor defends
on the ground that the period for payment has not
No. Under Article 1198 of the Civil Code, the debtor
shall lose every right to make use of the period when
the securities disappear through a fortuitous event.
Debtor has to give a satisfactory substitute collateral
for him to enjoy anew the period given to him for the
payment of his loan.
QUESTION NO. 31
What is a facultative obligation?
A facultative obligation is one where only one
prestation has been agreed upon but the obligor may
render another in substitution. (Art. 1206, par. 1,
Civil Code)
QUESTION NO. 32
Distinguish between alternative and facultative
obligations.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Alternative obligation and facultative obligations
may be distinguished as follows:
1) In an alternative obligation, various things are due,
but the giving of one is already sufficient compliance
with the obligation. In a facultative obligation, only
one thing is principally due, and it is that one which
is generally given, but the substitute may be given to
render payment or fulfillment easy.
2) If one of the presentations in an alternative
obligation is illegal and the other prestations are
valid, the obligation remains. In a facultative
obligation, if the principal obligation is void, there is
no longer any need of giving the substitute.
3) In an alternative obligation, if it is impossible to
give all except one, that last one must still be given.
In a facultative obligation, if it is impossible to give
the principal, the substitute does not have to be given,
and if it is impossible to give the substitute, the
principal must still be given.
QUESTION NO. 33
A and B sign a promissory note binding
themselves to pay C jointly and severally the
amount of P30,000. For non-payment of the debt,
C sues both debtors for sum of money. After due
proceedings, judgment is rendered whereby A
and B were ordered to pay C their loan. For one
reason or another, however, the judgment did not
state whether the liability of the defendants is
joint or solidary. C then asked for execution on
the properties of A for the whole obligation. In the
contract, liability was solidary but in the
judgment, nothing was said about the nature of
the obligation.
How should the judgment obligation be
considered: joint or solidary?
The judgment obligation should be considered
merely as a joint one; hence, C can get the properties
of A corresponding to his proportionate share in the
judgment debt. The judgment did not state that the
obligation was solidary, so none of the defendants
may be required to pay for the whole obligation.
Page 12 of 66
QUESTION NO. 34
May a sodidary creditor assign his right under the
obligation?
Under Article 1213 of the Civil Code, a solidary
creditor cannot assign his right without the consent
of the others. This is so because a solidary obligation
implies mutual agency and mutual confidence.
Should the assignee or substitute do acts which
would prejudice the others, there is no doubt that the
right of the other creditors would be endangered,
hence, the necessity of their consent.
QUESTION NO. 25
What is the basis of payment of an obligation in
case of extraordinary inflation or deflation?
If an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there
is an agreement to the contrary. (Art. 1250, Civil
Code)
386. When does extraordinary inflation exist?
Extraordinary inflation exists when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency,
and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation. (Hubonhoa v. Court
of Appeals, December 14, 1999)
387. When are the effects of extraordinary
inflation applicable?
The effects of extraordinary inflation are applicable
only when there is an official declaration to that
effect by competent authorities. (Lantion v. NLRC,
181 SCRA 513)
388. X leased to Y in 1968 a parcel of land. Their
contract of lease provides that the lease shall run
for a period of 20 years and that Y shall pay a
rental of P2.50 per square meter per month for
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
the first ten years of the lease and P3.00 per
square meter per month for the next ten years.
Based on their stipulation, the monthly rental was
fixed at P3,500 for the first ten years, and at
P4,200 for the succeeding ten years of the lease.
In 1983, or five years before the expiration of the
lease, X asked Y to adjust the amount of rentals
on the allegation that the country was at that time
experiencing extraordinary inflation. Y refused.
X then brought an action for the payment of
adjusted rentals based on his claim that since the
execution of the contract of lease in 1968, an
extraordinary inflation had supervened resulting
from the deterioration of worldwide economic
conditions, a circumstance that was not foreseen
by the parties at the time they entered into the
contract. At the trial, X established that the
inflation rate in 1968 was only 2.06%; then it
soared to 34.51% in 1974, and in 1983, it reached
a high of 50.34%. Is X entitled to a favorable
judgment?
No. The supervening of extraordinary inflation is
never assumed. (Sangrador v. Villarama, 168 SCRA
215 [1988]) The party alleging it must lay down the
factual basis for the application of Article 1250 of the
Civil Code. Extraordinary inflation exists only when
there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said
currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time
of the establishment of the obligation.(Hubonhoa v.
Court of Appeals 320 SCRA 625 [1999] )
While there was a decline in the purchasing power of
the Philippine currency from the period 1968 to
1983, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the
Philippine peso which is characteristic of most
description of the trend in the value of the peso in the
past three to four decades. Unfortunate as this trend
may be, it is certainly distinct from the phenomenon
contemplated by Article 1250. Moreover, the
Supreme Court has held that the effects of
extraordinary inflation are not to be applied without
an official declaration thereof by competent
Page 13 of 66
authorities. (Singson v. Caltex (Philippines), Inc.,
342 SCRA 91 [2000])
389. In May 1990, Hector leased to Rene a parcel
of land for six years. The contract contains an
option to buy clause. Under the option, Rene has
the exclusive and irrevocable right to buy the
property within the lifetime of the contract, that
is, until May 1996. Two months before the
contract is set to expire, Rene informed Hector of
his willingness to purchase the property under the
option to buy clause. Because Hector refused to
sign a deed of sale unless Rene delivers the money
to pay for the property, Rene brought an action in
April 1996 with the Lupong Tagapamayapa asking
that he be allowed to purchase the leased property
under the option to buy clause. During the
barangay proceedings, Rene presented a bank
certification that arrangements were being made
to allow him to borrow funds to enable him to
meet his obligations under the option contract.
Failing to reach an agreement at the barangay,
Rene then brought an action for specific
performance against Hector, and deposits with
purchase price of the property. Hector defends
on the ground that he cannot be compelled to sell
the disputed property by virtue of the non-
fulfillment of the obligation under the option
contact. He contends that Rene incurred in delay
when he did not deliver the purchase price or
consign it in the court on or before the expiration
of the contract of lease in May 1996.
a) Is Rene required to consign the purchase price
in court?
No. Obligations under an option to buy are reciprocal
obligations. (Nietes v. Court of Appeals, 46 SCRA
654 [1972]) The performance of one obligation is
conditioned on the simultaneous fulfillment of the
other obligation. (Vermen Realty Devt. Corp. v.
Court of Appeals, 224 SCRA 519 [1993]) In other
words, in an option to buy, the payment of the
purchase price by the creditor is contingent upon the
execution and delivery of a deed of sale by the
debtor. In this case, when Rene opted to buy the
property, his obligation was to advise Hector of his
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
decision and his readiness to pay the price. He was
not yet obliged to make actual payment. Only upon
sale was he required to pay. In Nietes vs. Court of
Appeals, 46 SCA 654 [1972], the Supreme Court
his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to
the owner of the property upon performance of his
part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of
the purchase price was not yet required.
Moreover, it is axiomatic that where no debt is due
and owing, consignation is not proper. Therefore,
his obligation under the option to buy because he
failed to actually deliver the purchase price or
consign it in court before the contract expired and
before they executed a deed of sale, has no leg to
stand on.
b) Did Rene incur delay when he did not pay the
purchase price or consign it in court before the
expiration of the contract of lease with option to
buy?
No. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. Only from the moment one of the parties
fulfills his obligation does delay by the other begins.
(Legaspi v. Court of Appeals, 142 SCRA 82 [1986])
In this case, Rene had already communicated to
Hector his intention to buy the property and he was
at the time undertaking to meet his obligation before
the expiration of the contract in May 1996. However,
Hector refused to execute the deed of sale and it was
Hector
before he would execute the sale document which
prompted Rene to file a complaint before the
barangay. Moreover, the issuance by Rene of the
complaint bolsters his claim that he was then ready
to pay the price. (Bacus v. Court of Appeals, 371
SCRA 295 [2001])
390. D borrowed from C P5,000 payable in one
-year old son
borrowed P2,500 from D for his school tuition.
Page 14 of 66
However, the son spent the money on a cellular
phone. When the debt to C fell due, D tendered
only P2,500 claiming compensation on the P2,500
a) Is D entitled to claim partial legal
compensation?
D cannot claim partial legal compensation. This is so
because under Articles 1278 and 1279 of 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 cannot be considered as a party to the act of
his son in borrowing P2,500 from D. Consequently,
he did not become a principal debtor of D; neither
did D become a principal creditor of C. Therefore,
there can be no partial compensation of the P5,000
borrowed by D from C.
actually used the money for his school tuition?
There would be no difference in my answer. The fact
tuition did not make C a party to the contract between
his son and D. Therefore, C is not the principal debtor
of D and D is not the principal creditor of C with
respect to the subject amount.
391. Arturo owes Bernabe P100,000. Bernabe in
turn owes Arturo P20,000. Both debts are already
due. Later, Bernabe assigns the P100,000 credit to
Carlito without the knowledge of Arturo. This
assignment was made on July 1. On July 15, a
P25,000 debt of Bernabe in favor of Arturo
matured. Arturo learned of the assignment on
August 1. On August 23, a P15,000 debt of
Bernabe in favor of Arturo matured. Later,
Carlito asks Arturo to pay his debt. How much
can Carlito successfully collect from Arturo?
Carlito can collect only P55,000 because Arturo can
set up the defense of partial compensation of the
P20,000 and P25,000 debts which matured and were
therefore already compensable prior to his
knowledge of the assignment. But Arturo cannot set
up the last debt of P15,000 for partial compensation
because this matured only after he knew of the
assignment. (par. 3, Art. 1285, Civil Code)
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
392. A received from B several pieces of jewelry
with the agreement that she will sell them on
commission basis. A failed to remit the proceeds
of the sale to B despite repeated demands.
Thereupon, B brought the matter to the Barangay
Lupon. At the Lupon, A and B executed an
agreement denominated as Kasunduan sa
Bayaran, whereby A promised to pay the amount
of P3,000 per month to B to answer for the value
of the jewelry she received. A failed to comply
with the Kasunduan. Benita then filed a criminal
complaint for estafa. A now claims that the
execution of the Kasunduan constitutes a novation
of her criminal liability. Is she correct?
No. It is well-settled that the following requisites
must be present for novation to take place: 1) a
previous valid obligation; 2) agreement of all the
parties to the new contact; 3) extinguishment of the
old contact; and 4) validity of the new one.
(Velasquez v. Court of Appeals, 309 SCRA 539
[1999]) Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that
are too clear and unequivocal to be mistaken. The test
of incompatibility is whether or not the two
obligations can stand together, each one having its
independent existence. If they cannot, they are
incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental.
The incompatibility must take place in any of the
essential elements of the obligation, such as its
object, cause or principal conditions thereof,
otherwise, the change would be merely modificatory
in nature and insufficient to extinguish the original
obligation. (Quinto v. People, 350 SCRA 708 [1999])
The execution of the Kasunduan sa Bayaran does not
constitute a novation of the original agreement
between A and B. The Kasunduan did not change the
object or principal condition of the contract between
them. The change in the manner of payment o
obligation did not render the Kasunduan
incompatible with the original agreement, and hence,
of the sale of the jewelry or to return the same to B.
to
pay a sum of money is not novated in a new
Page 15 of 66
instrument wherein the old is ratified, by changing
only the terms of payment and adding other
obligations not incompatible with the old one, or
wherein the old contract is merely supplemented by
In any case, novation is not one of the
grounds prescribed by the Revised Penal Code for
the extinguishment of criminal liability. (Ocampo-
Paule v. Court of Appeals, February 4, 2002)
393. Henry died intestate survived by his widow,
Winda, and his legitimate children, Xeres,
estate, Winda and her children executed a Deed
of Partition by virtue of which each of them
several parcels of lands. In their partition
agreement, Winda and her children were
assigned individual parcels of land as their
respective shares in the inheritance. A day after
the execution of the partition agreement, Winda
and her children executed a Memorandum of
Agreement by virtue of which they agreed to
divide equally among themselves the proceeds of
the sale of the lots that were assigned to each of
them. Is the Deed of Partition novated by the
Memorandum of Agreement?
No. The Memorandum of Agreement fell short of
producing a novation because it does not express a
clear intent to dissolve the old obligation as a
consideration for the emergence of a new one.
Likewise, there is no showing that the Deed of
Partition and the Memorandum of Agreement are
materially and substantially incompatible with each
other. Indeed, the Deed of Partition granted title to
the lots to Winda and her children to whom they were
assigned, and the Memorandum of Agreement
created an obligation on the part of Winda to share
with the other co-owners the proceeds of the sale of
such lots. There is no incompatibility between these
two contracts; hence, no novation.
(NOTE: Novation, as a mode of extinguishing an
obligation, requires the concurrence of the
following: 1) there is a previous valid obligation; 2)
the parties concerned agree to a new contract; 3) the
old contract is extinguished; and 4) there is a valid
new contract. Novation may be express or implied.
In order that an obligation may be extinguished by
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms (express),
or that the old and the new obligations be on every
point incompatible with each other (implied) (Cruz
v. Court of Appeals, 293 SCRA 239[1998])
394. C delivers to D several pieces of jewelry to be
sold on commission basis. Despite the lapse of the
period agreed upon, D fails to return the jewelry
items to C. When sued for estafa, D claims that
her agreement with C is deemed novated when the
latter agreed to be paid directly by the buyers of
the jewelry items and on installment basis. She
adds that her liability is merely civil in nature. Is
The acceptance by C of partial payments tendered by
he intention of C to have
their agreement novated. It was simply necessitated
by the fact that, at the time, D had substantial
accounts payable to C. Thus, to obviate the situation
where C would end up with nothing, she was forced
to receive the tender of the buyers. It is thus easy to
installment basis cannot be construed as a case of
either expromision or delegacion sufficient to justify
the attendance of extinctive novation. Not too
uncommon is when a stranger to a contract agrees to
assume an obligation; and while this may have the
effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the
liability of the first debtor. Neither would the fact
alone that the creditor (such as C) receives guaranty
or accepts payments from a third person who has
agreed to assume the obligation, constitute an
extinctive novation, absent an agreement that the first
debtor shall be released from responsibility.
Granting that there was such novation, the criminal
liability for estafa committed by D is then not
affected by the subsequent novation of the contract,
for it is a public offense which must be prosecuted
and punished by the State. (Quinto v. People, 305
SCRA 708 [1999])
Abe leased to Rey a building for a monthly rental
of Php20,000. The contract states that non-
payment of the rent would automatically cancel
Page 16 of 66
the contract, but otherwise Rey could stay on
indefinitely. After five years, Abe tried to eject
Rey because he planned to tear down the building
and put up another. Rey refused. Can Abe eject
Rey?
Yes, because the condition in the contract is purely
potestative rendering it void. The continuance of the
continuing paying the rentals or not, completely
depriving the owner of all say on the matter. So long
as Rey elected to continue the lease by continuing the
payment of the rentals, the owner would never be
able to discontinue it; conversely, although the
owner should desire the lease to continue, the lessee
could effectively thwart his purpose by simply
stopping payment of rentals. (Encarnacion v.
Baldemar, 77 Phil. 470)
QUESTION NO. 38
As stated in the policy, ABC Co. undertakes, upon
total loss, to either pay the insured value of the
house, or rebuild it, upon proof of total loss. If
during the life of the policy the insured property
is completely destroyed, may Pedro insist that
ABC Co. rebuild his house rather than being paid
its insured value?
No, because in alternative obligations, the right of
choice is given to the debtor, unless it has been
expressly granted to the creditor. (par. 1, Art 1200,
Civil Code) In the absence of an agreement in the
insurance policy giving the right of choice to the
insured, the general rule applies, and therefore, the
insurer may choose which of the two prestations to
perform, the performance of one being sufficient.
QUESTION NO. 1
What is an alternative obligation?
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
An alternative obligation is one where out of two or
more prestations which are due, the performance of
one is already sufficient compliance with the
obligation. (Art. 1199, par. 1, Civil Code)
QUESTION NO. 2
X obtains a loan from Y. They agree that upon
maturity, X will give Y either the sum owed or a
particular house and lot. Is the stipulation a
pactum commissorium?
No. The stipulation is simply an alternative
obligation which is expressly allowed by law. The
agreement to convey the house and lot if X fails to
pay the debt in money at its maturity does not
constitute pactum commissiorium. It is not an
attempt to permit Y to declare a forfeiture of the
security upon the failure of the debtor to pay the debt
at maturity. It simply provided that if the debt is not
paid in money, it shall be paid in another specific
way by the transfer of the property at a valuation.
QUESTION NO. 3
Debtor obtains from Creditor a loan payable in
two years. To guarantee payment of the loan,
Debtor mortgages his uninsured house to
Creditor. Three months after the loan was given,
is gutted by fire of accidental
origin. Creditor now demands immediate
payment from Debtor. Debtor defends that the
period for payment has not yet arrived. Is
D A and B sign a promissory note binding
No. Under Article 1198 of the Civil Code, the debtor
loses every right to make use of the period when the
securities disappear through a fortuitous event.
Debtor has to give a satisfactory substitute collateral
for him to enjoy anew the period given to him for the
payment of his loan.
QUESTION NO. 4
What is a facultative obligation?
A facultative obligation is one where only one
prestation has been agreed upon but the obligor may
Page 17 of 66
render another in substitution. (Art. 1206, par. 1,
Civil Code)
QUESTION NO. 5
Distinguish between alternative and facultative
obligations.
Alternative obligation and facultative obligations
may be distinguished as follows:
1) In an alternative obligation, various things are due,
but the giving of one is already sufficient compliance
with the obligation. In a facultative obligation, only
one thing is principally due, and it is that one which
is generally given, but the substitute may be given to
render payment or fulfilment easy.
2) If one of the presentations in an alternative
obligation is illegal and the other prestations are
valid, the obligation remains. In a facultative
obligation, if the principal obligation is void, there is
no longer any need of giving the substitute.
3) In an alternative obligation, if it is impossible to
give all except one, that last one must still be given.
In a facultative obligation, if it is impossible to give
the principal, the substitute does not have to be given,
and if it is impossible to give the substitute, the
principal must still be given.
QUESTION NO. 6
themselves to pay C jointly and severally the
amount of P30,000. For non-payment of the debt,
C sues both debtors for sum of money. After due
proceedings, judgment is rendered whereby A
and B were ordered to pay C their loan. For one
reason or another, however, the judgment did not
state whether the liability of the defendants is
joint or solidary. C then asked for execution on
the properties of A for the whole obligation. In the
contract, liability was solidary but in the
judgment, nothing was said about the nature of
the obligation.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
How would the judgment obligation be
considered: joint or solidary?
The judgment obligation should be considered
merely as a joint one; hence, C can get the properties
of A corresponding to his proportionate share in the
judgment debt. The judgment did not state that the
obligation was solidary, so none of the defendants
may be required to pay for the whole obligation.
QUESTION NO. 7
May a sodidary creditor assign his right under the
obligation?
Under Article 1213 of the Civil Code, a solidary
creditor cannot assign his right without the consent
of the others. This is so because a solidary obligation
implies mutual agency and mutual confidence.
Should the assignee or substitute do acts which
would prejudice the others, there is no doubt that the
right of the other creditors would be endangered,
hence, the necessity of their consent.
QUESTION NO. 8
What is the basis of payment of an obligation in
case of extraordinary inflation or deflation?
In case of extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there
is an agreement to the contrary. (Art. 1250, Civil
Code)
QUESTION NO. 9
When does extraordinary inflation exist?
Extraordinary inflation exists when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency,
and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
Page 18 of 66
establishment of the obligation. (Hubonhoa v. Court
of Appeals, December 14, 1999)
QUESTION NO. 10
When are the effects of extraordinary inflation
applicable?
The effects of extraordinary inflation are applicable
only when there is an official declaration to that
effect by competent authorities. (Lantion v. NLRC,
181 SCRA 513)
QUESTION NO. 11
X leased to Y in 1968 a parcel of land. Their
contract of lease provides that the lease shall run
for a period of 20 years and that Y shall pay a
rental of P2.50 per square meter per month for
the first ten years of the lease and P3.00 per
square meter per month for the next ten years.
Based on their stipulation, the monthly rental was
fixed at P3,500 for the first ten years, and at
P4,200 for the succeeding ten years of the lease.
In 1983, or five years before the expiration of the
lease, X asked Y to adjust the amount of rentals
on the allegation that the country was at that time
experiencing extraordinary inflation. Y refused.
X then brought an action for the payment of
adjusted rentals based on his claim that since the
execution of the contract of lease in 1968, an
extraordinary inflation had supervened resulting
from the deterioration of worldwide economic
conditions, a circumstance that was not foreseen
by the parties at the time they entered into the
contract. At the trial, X established that the
inflation rate in 1968 was only 2.06%; then it
soared to 34.51% in 1974, and in 1983, it reached
a high of 50.34%. Is X entitled to a favorable
judgment?
No. The supervening of extraordinary inflation is
never assumed. (Sangrador v. Villarama, 168 SCRA
215 [1988]) The party alleging it must lay down the
factual basis for the application of Article 1250 of the
Civil Code. Extraordinary inflation exists only when
there is a decrease or increase in the purchasing
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said
currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time
of the establishment of the obligation.(Hubonhoa v.
Court of Appeals 320 SCRA 625 [1999] )
While there was a decline in the purchasing power of
the Philippine currency from the period 1968 to
1983, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the
Philippine peso which is characteristic of most
curren
description of the trend in the value of the peso in the
past three to four decades. Unfortunate as this trend
may be, it is certainly distinct from the phenomenon
contemplated by Article 1250. Moreover, the
Supreme Court has held that the effects of
extraordinary inflation are not to be applied without
an official declaration thereof by competent
authorities. (Singson v. Caltex (Philippines), Inc.,
342 SCRA 91 [2000])
QUESTION NO. 12
In May 1990, Hector leased to Rene a parcel of
land for six years. The contract contains an option
to buy clause. Under the option, Rene has the
exclusive and irrevocable right to buy the
property within the lifetime of the contract, that
is, until May 1996.
Two months before the contract is set to expire,
Rene informed Hector of his willingness to
purchase the property under the option to buy
clause. Because Hector refused to sign a deed of
sale unless Rene delivers the money to pay for the
property, Rene brought an action in April 1996
with the Lupong Tagapamayapa asking that he be
allowed to purchase the leased property under the
option to buy clause. During the barangay
proceedings, Rene presented a bank certification
that arrangements were being made to allow him
to borrow funds to enable him to meet his
obligations under the option contract.
Page 19 of 66
Failing to reach an agreement at the barangay,
Rene then brought an action for specific
performance against Hector, and deposits with
k corresponding to the
purchase price of the property. Hector defends
on the ground that he cannot be compelled to sell
the disputed property by virtue of the non-
fulfillment of the obligation under the option
contact. He contends that Rene incurred in delay
when he did not deliver the purchase price or
consign it in the court on or before the expiration
of the contract of lease in May 1996.
a) Is Rene required to consign the purchase price
in court?
No. Obligations under an option to buy are reciprocal
obligations. (Nietes v. Court of Appeals, 46 SCRA
654 [1972]) The performance of one obligation is
conditioned on the simultaneous fulfillment of the
other obligation. (Vermen Realty Devt. Corp. v.
Court of Appeals, 224 SCRA 519 [1993]) In other
words, in an option to buy, the payment of the
purchase price by the creditor is contingent upon the
execution and delivery of a deed of sale by the
debtor. In this case, when Rene opted to buy the
property, his obligation was to advise Hector of his
decision and his readiness to pay the price. He was
not yet obliged to make actual payment. Only upon
sale was he required to pay. In Nietes vs. Court of
Appeals, 46 SCA 654 [1972], the Supreme Court
held t
his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to
the owner of the property upon performance of his
part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of
the purchase price was not yet required.
Moreover, it is axiomatic that where no debt is due
and owing, consignation is not proper. Therefore,
his obligation under the option to buy because he
failed to actually deliver the purchase price or
consign it in court before the contract expired and
before they executed a deed of sale, has no leg to
stand on.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
b) Did Rene incur delay when he did not pay the
purchase price or consign it in court before the
expiration of the contract of lease with option to
buy?
No. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. Only from the moment one of the parties
fulfills his obligation does delay by the other begins.
(Legaspi v. Court of Appeals, 142 SCRA 82 [1986])
Here, Rene had already communicated to Hector his
intention to buy the property and he was at the time
undertaking to meet his obligation before the
expiration of the contract in May 1996. However,
Hector refused to execute the deed of sale and it was
before he would execute the sale document which
prompted Rene to file a complaint before the
barangay. Moreover, the issuance by Rene of the
complaint bolsters his claim that he was then ready
to pay the price. (Bacus v. Court of Appeals, 371
SCRA 295 [2001])
QUESTION NO. 13
D borrowed from C Php5,000 payable in one year.
-year old son
borrowed Php2,500 from D for his school tuition.
However, the son spent the money on a cellular
phone. When the debt to C fell due, D tendered
only Php2,500 claiming compensation on the
Php
a) Is D entitled to claim partial legal
compensation?
D cannot claim partial legal compensation. This is so
because under Articles 1278 and 1279 of 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 cannot be considered as a party to the act of
his son in borrowing P2,500 from D. Consequently,
Page 20 of 66
he did not become a principal debtor of D; neither
did D become a principal creditor of C. Therefore,
there can be no partial compensation of the P5,000
borrowed by D from C.
actually used the money for his school tuition?
There would be no difference in my answer. The fact
sed the P2,500 for his school
tuition did not make C a party to the contract between
his son and D. Therefore, C is not the principal debtor
of D and D is not the principal creditor of C with
respect to the subject amount.
QUESTION NO. 14
Arturo owes Bernabe Php100,000. Bernabe in
turn owes Arturo Php20,000. Both debts are
already due. Later, Bernabe assigns the
Php100,000 credit to Carlito without the
knowledge of Arturo. This assignment was made
on July 1. On July 15, a Php25,000 debt of
Bernabe in favor of Arturo matured. Arturo
learned of the assignment on August 1. On August
23, a Php15,000 debt of Bernabe in favor of
Arturo matured. Later, Carlito asks Arturo to
pay his debt. How much can Carlito successfully
collect from Arturo?
Carlito can collect only Php55,000 because Arturo
can set up the defense of partial compensation of the
Php20,000 and Php25,000 debts which matured and
were therefore already compensable prior to his
knowledge of the assignment. But Arturo cannot set
up the last debt of Php15,000 for partial
compensation because this matured only after he
knew of the assignment. (par. 3, Art. 1285, Civil
Code)
QUESTION NO. 15
A received from B several pieces of jewelry with
the agreement that she will sell them on
commission basis. A failed to remit the proceeds
of the sale to B despite repeated demands.
Thereupon, B brought the matter to the Barangay
Lupon. At the Lupon, A and B executed an
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
agreement denominated as Kasunduan sa
Bayaran, whereby A promised to pay the amount
of P3,000 per month to B to answer for the value
of the jewelry she received. A failed to comply
with the Kasunduan. Benita then filed a criminal
complaint for estafa. A now claims that the
execution of the Kasunduan constitutes a novation
of her criminal liability. Is she correct?
No. It is well-settled that the following requisites
must be present for novation to take place: 1) a
previous valid obligation; 2) agreement of all the
parties to the new contact; 3) extinguishment of the
old contact; and 4) validity of the new one.
(Velasquez v. Court of Appeals, 309 SCRA 539
[1999]) Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that
are too clear and unequivocal to be mistaken. The test
of incompatibility is whether or not the two
obligations can stand together, each one having its
independent existence. If they cannot, they are
incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental.
The incompatibility must take place in any of the
essential elements of the obligation, such as its
object, cause or principal conditions thereof,
otherwise, the change would be merely modificatory
in nature and insufficient to extinguish the original
obligation. (Quinto v. People, 350 SCRA 708 [1999])
The execution of the Kasunduan sa Bayaran does not
constitute a novation of the original agreement
between A and B. The Kasunduan did not change the
object or principal condition of the contract between
obligation did not render the Kasunduan
incompatible with the original agreement, and hence,
of the sale of the jewelry or to return the same to B.
pay a sum of money is not novated in a new
instrument wherein the old is ratified, by changing
only the terms of payment and adding other
obligations not incompatible with the old one, or
wherein the old contract is merely supplemented by
Page 21 of 66
grounds prescribed by the Revised Penal Code for
the extinguishment of criminal liability. (Ocampo-
Paule v. Court of Appeals, February 4, 2002)
QUESTION NO. 16
Henry died intestate survived by his widow,
Winda, and his legitimate children, Xeres,
estate, Winda and her children executed a Deed
of Partition by virtue of which each of them
several parcels of lands. In their partition
agreement, Winda and her children were
assigned individual parcels of land as their
respective shares in the inheritance. A day after
the execution of the partition agreement, Winda
and her children executed a Memorandum of
Agreement by virtue of which they agreed to
divide equally among themselves the proceeds of
the sale of the lots that were assigned to each of
them. Is the Deed of Partition novated by the
Memorandum of Agreement?
No. The Memorandum of Agreement fell short of
producing a novation because it does not express a
clear intent to dissolve the old obligation as a
consideration for the emergence of a new one.
Likewise, there is no showing that the Deed of
Partition and the Memorandum of Agreement are
materially and substantially incompatible with each
other. Indeed, the Deed of Partition granted title to
the lots to Winda and her children to whom they were
assigned, and the Memorandum of Agreement
created an obligation on the part of Winda to share
with the other co-owners the proceeds of the sale of
such lots. There is no incompatibility between these
two contracts; hence, no novation.
(NOTE: Novation, as a mode of extinguishing an
obligation, requires the concurrence of the
following: 1) there is a previous valid obligation; 2)
the parties concerned agree to a new contract; 3) the
old contract is extinguished; and 4) there is a valid
new contract. Novation may be express or implied.
In order that an obligation may be extinguished by
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms (express),
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
or that the old and the new obligations be on every
point incompatible with each other (implied) (Cruz
v. Court of Appeals, 293 SCRA 239[1998])
QUESTION NO. 17
C delivers to D several pieces of jewelry to be sold
on commission basis. Despite the lapse of the
period agreed upon, D fails to return the jewelry
items to C. When sued for estafa, D claims that
her agreement with C is deemed novated when the
latter agreed to be paid directly by the buyers of
the jewelry items and on installment basis. She
adds that her liability is merely civil in nature. Is
The acceptance by C of partial payments tendered by
does not evince the intention of C to have
their agreement novated. It was simply necessitated
by the fact that, at the time, D had substantial
accounts payable to C. Thus, to obviate the situation
where C would end up with nothing, she was forced
to receive the tender of the buyers. It is thus easy to
installment basis cannot be construed as a case of
either expromision or delegacion sufficient to justify
the attendance of extinctive novation. Not too
uncommon is when a stranger to a contract agrees to
assume an obligation; and while this may have the
effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the
liability of the first debtor. Neither would the fact
alone that the creditor (such as C) receives guaranty
or accepts payments from a third person who has
agreed to assume the obligation, constitute an
extinctive novation, absent an agreement that the first
debtor shall be released from responsibility.
Granting that there was such novation, the criminal
liability for estafa committed by D is then not
affected by the subsequent novation of the contract,
for it is a public offense which must be prosecuted
and punished by the State. (Quinto v. People, 305
SCRA 708 [1999])
AUDIO LECTURE 1
Page 22 of 66
Term or period is a day certain which must
necessarily come like October 25, December 31,
although it may not be known when like the death of
a person
So the question arises when an obligation is
subject to a term or period for whose benefit is the
term or period.
A: As a general rule, a term or a period, is presumed
to be for the benefit of both debtor and creditor but
there is an XPN under A1136 of the Civil Code,
when the tenor of the obligation or other
circumstance the term or period is established in
favor of one or the other.
Let us discuss a problem. In 1980 B borrowed
from C 100,000 with interest payable in 2 years.
To secure the loan B pledged to C several pieces
of jewelry. In 1991 or 11 years later, B brought an
action to recover the pledge items upon payment
of the loan and interest. C resisted the action, he
defended that action has already been prescribed
because the 10 year period of the prescription
must be computed from the date of the loan which
was from 1980 because according to him from
that date we could already have recovered the
pledge items by paying the amount of the loan
with interest. Is he correct?
A: No, he is not correct. There is no circumstance to
show in the problem that the period of the loan was
for the benefit of C or B. If that is so it is presumed
for the benefit of both.
Note that this is a loan with interest in which the
period benefits the borrower, B, by the use of the
money borrowed and for the benefit of C by the
payment of interest. This being so, there have no
right to handle loan before the lapse of 2 years
without the consent of B because such payment
would have deprived C the benefit of the agreed
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
interest. It follows, but the action to recover the thing
pledge accrued only from the date of the maturity of
the loan or in 1982. Therefore, the 10 year period of
prescription of written contracts that was involved in
the problem does not yet expire.
Another problem. Debtor obtained a loan from
Creditor payable in 2 years. To secure payment,
the debtor mortgage his unsecured house to the
house is gutted by fire or accidental original.
Thereupon, Creditor demanded payment from
the debtor. Debtor defense that the period for
payment has not yet arrived. Is debtor correct?
A: No, the provision applicable here is A1198 of the
Civil Code, the debtor leases every right to make use
of the period when the security disappears through a
fortuitous event. The debtor has to give satisfactory
substitute collateral for him to enjoy a new period
given to him for the payment of his loan. For that
instance the, A1198 when the debtor losses the right
to the period, the legal consequence of the debtor
enjoying the legal consequence is that he cannot be
compelled to pay the obligation before the arrival of
the period but upon the arrival of the period the
debtor can be compelled to perform the obligation
and when the debtor losses the right to the period the
obligation becomes a pure obligation. As you know
the distinctive characteristic of an obligation is its
immediate demandability.
What are the instances where the debtor losses the
right to the period?
A:
1. The debtor losses the benefit of the period
after the obligation has been contracted the debtor
the debt
2. The debtor losses the benefit of the period
when he does not furnish the creditor the collateral
which he has promised.
Page 23 of 66
3. The debtor losses the benefit of the period
when by his own acts he has impaired the collaterals
after its establishment or when through a fortuitous
event they disappear unless the debtor gives a new
one equally satisfactorily
4. The debtor losses every right to make use
of the period when he violates any undertaking of
which the creditor agreed to the period
5. When the debtor attempts to abscond he
losses the benefit of the period
We also classify obligations into the number of
prestations involved:
1. Conjunctive obligations
2. Alternative
3. Facultative
Conjunctive obligations-in which the debtor is
bound to perform several prestations and has to
performed all the prestations to extinguish the
obligation. As well as the debtor is bound to
deliver Item B, Item C, Item D. Debtor has the
obligation to deliver all items fo the obligation to
be extinguish.
Our only concern are only limited to Alternative and
Facultative Obligations.
An Alternative Obligation is one out of 2 or more
prestations which may be given only one is due.
Note: 2 or more prestations which may be given only
one is due. As when you say debtor is obliged to
deliver to creditor item A or Item B or Item C. the
delivery of 1 prestation is enough or sufficient to
extinguish the obligation.
In an alternative obligation, who has the right of
choice as to which prestation the debtor is bound
to perform?
A: The GR is that the right of choice belongs to the
debtor. The debtor has the right to choose which out
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
of the prestations he is supposed to give will be
given.
XPN: A1200 of the CC unless the right of
choice has been expressly granted by the creditor.
Problem: XYZ Insurance Company insured Abe
his house for 500,000. In the insurance policy, the
insurance company undertakes the total loss who
either pay the insured value of the house or
rebuild upon proof of total loss. During the life of
the insurance policy, the insured property is
completely destroyed. May Abe the insured insist
that the insurance company rebuild his house
rather than being paid in its insured value?
A: No, because the Insurance company obligation to
perform under the insurance contract is an alternative
obligation. An alternative obligation, the right of
choice is given to the debtor hence it has been
expressly granted by the creditor. In the absence of
the agreement, the insurance policy giving the right
of choice to the insured, the insurer has the right to
choose which of the 2 prestations - to rebuild or to
pay to perform. The performance of one being
sufficient.
You may be confused between the effects of an
alternative obligation and a stipulation loan as
pactum commisorium. A pactum commisorium in a
mortgage contract is void because it recognizes the
stiipulation that mortgagee automatically acquires
ownership of the property mortgage upon failure of
the debtor-mortgagor upon failure to pay the loan.
Problem: X obtained a loan from Y. Upon the
maturity of the loan debtor X will give creditor Y
either the --- or a particular house and lot. X now
says that the agreement is pactum commissorium
because if he fails to pay he will give a particular
house and lot. Is X correct?
Page 24 of 66
A: No, the stipulation is simply an alternative
obligation which is expressly simply allowed by the
law. The agreement from the house and lot to pay the
debt in money at its maturity does not constitute
pactum commissorium. The stipulation is not an
attempt to make the creditor to declare a forfeiture of
the security after the failure of the debtor to pay the
debt at maturity it simply provided that if the debt is
not paid in money it is to be paid in another way.
Now, is the right of the debtor absolute?
A: No, it is GR that in alternative Obligation the right
of choice belongs to the debtor. Failure of the debtor
to choose among the prestations is not absolute.
When the debtor is obliged to deliver 1 sak of rice, 1
sack of marijuana and 10 g of shabu. The right of the
debtor to choose is limited to the fact that only one
of the prestation is legal and the other 2 prestations
are illegal. The effect is that the debtor is liable for
damages when through his fault which is the
alternatively object of the obligation have been lost.
Indemnity of the damages will be fixed taking as the
basis of the value of the things. If everything is lost,
the obligation of the debtor is extinguished.
May a creditor be given the right of choice?
A: Yes that choice must be expressly agreed upon the
parties. When the creditor communicates his
selection to the debtor the obligation ceases to be an
alternative obligation. If all the things are lost
through a fortuitous event, the creditor may choose
among those remaining or that which remains if only
1 exists.
Facultative obligation-where only 1 prestation has
been agreed upon. The debtor may render another
obligation or substitute.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
We may compare these 3 obligation in a grammar
sense, and-conjunctive obligations, or-alternative
obligations, but- facultative.
Alternative (AO) v. Facultative Obligation (FO)
In AO various things are due, the giving of 1 is
sufficient, in FO only one thing is principally due and
of course, it is but it may substitute to render payment
or fulfillment of the obligation.
In AO the right of choice as GR belongs to the debtor
that by the agreement of the parties the right of
choice may be given to the creditor in FO, the right
of choice always belongs to the debtor.
In AO if one of the prestations is illegal the others are
valid the obligation remains but the rule in FO is
different, if the principal obligation is void there is
no necessity in giving the substitute. As well as the
principal obligation is to deliver 100g of shabu and
the substitute is laptop, the obligation is void. In FO,
the nullity of the principal obligation carries with it
the substitute obligation.
AUDIO LECTURE 2
Kinds of Obligations according to the number of
prestations in an obligation (recap from 1st
recorded lecture)
1. Conjunctive
2. Alternative
3. Facultative
Kinds of Obligations according to number of
debtors and creditors in one obligation:
1. Joint Obligation; or
2. Solidary Obligation
Page 25 of 66
Joint Obligation is one where the obligation to be
paid or fulfilled proportionately by the different
debtors or is to be demanded proportionately by the
different creditors. (Article 1208 of the Civil Code)
Solidary Obligation is one where each one of the
debtors is bound to render, and each one of the
creditors has a right to demand from any of the
debtors the entire compliance with the obligation.
(Article 1207 of the Civil Code)
Rule: Where there are two or more debtors, or
two or more creditors in one obligation, the
obligation is presumed to be joint.
Problem: A and B signed a promissory note binding
themselves to pay C jointly and severally the amount
of Php30,000. For non-payment of the debt, C sued
for sum of money. After trial, judgment is rendered,
in which A and B were ordered to pay C their loan
obligation. The judgment however, did not say
whether the liability of A and B is joint or solidary.
C then asked, the execution of the properties of A for
the whole obligation. The liability is solidary, but in
the judgment, nothing is said about the nature of the
obligation. How may the judgment obligation be
considered, joint or solidary?
Answer: The judgment obligation should be
ortionate share
in the judgment debt. Because the judgment did not
say the obligation was solidary, none of the
defendants A and B shall be required to pay for the
whole obligation.
Problem: A and B signed a promissory note binding
themselves to pay Php 180,000 to X, Y and Z. The
note is now due. Can the creditors proceed against A
alone for payment of the obligation?
Answer: No. The promissory note is silent with
respect to the right of the creditors, as well as the
liability of the debtors. The obligation is therefore
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
presumed to be joint. The only right of the creditors
if they proceed against A alone for payment would
proportionate share in the obligation.
Problem: A, B and C sign promissory note binding
themselves Php 180,000 to X. Y and Z. The note is
now due. If X proceeded to A alone, how much can
he collect?
Answer: X can collect against A P20,000 only. The
promissory note is silent with respect to the right of
the creditors, as well as the liability of the debtors.
The obligation is therefore presumed to be joint.
Problem: A and B signed a promissory note binding
themselves to pay Php180,000 to X, Y and Z. The
note is now due. If B is insolvent, can the creditors
Answer: No. This necessarily follows from the
principle that in a joint obligation, the credit or debt
is presumed to be divided into as many equal shares
as there are creditors or debtors. The credits or debts
being distinct from one another.
Obligation is solidary only when the obligation
expressly states so. More the cases when the
likewise solidarity as in the case of tort, as in the case
of quasi-contracts, or the liabilities of bailees in
commodatum. The obligation is also solidary when
the nature of the obligation requires solidarity. And
solidarity also exists when it is imposed in a final
judgment against several defendants.
Question: May a solidary creditor assign his rights
without the consent of the others?
Answer: No. A solidary obligation implies mutual
agency and mutual confidence. The assignment of
rights of a solidary creditor may prejudice or
endanger the rights of the other solidary creditors.
Page 26 of 66
Therefore, the necessity of the consent of the other
creditors.
Question: In a solidary obligation, to whom may the
debtor pay?
Answer: The debtor or debtors may pay any of the
solidary creditors. Payment shall be made to the
demanding creditor.
Rule when a solidary debtor condones the
obligation?
1. If remission was made before the payment,
then the condonation is useless. There is no
more obligation to remit.
Problem: A and B are the solidary debtors of C. If A
pays the obligation, then later on C condones the
share of B, is A still entitled to seek reimbursement
from B?
Answer:
share there was no obligation to condone.
2. If condonation was made first, it gives rise to
a case on solution indebiti under Article 1219
of the Civil Code.
Problem: For instance, A and B are the solidary
debtors of C. When the obligation became due, C
id the entire
obligation. May A seek reimbursement from B?
Answer: No more. What A can do is to seek
reimbursement from C, because insofar as C is
is undue payment.
Rule regarding payment after obligation has
prescribed or after the obligation has become
illegal.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
A and B are solidarily liable to C in the amount of
Php100,000. The debt had already prescribed. If A
nevertheless paid the debt, he cannot collect from B
n A
recover from C. It is not a case of payment by
mistake under Article 1424 of the Civil Code. While
a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor cannot recover
what he has delivered or the value of the services he
has rendered.
When there is total condonation of obligation.
Problem: A and B are solidarily liable to C for
Php100,000. C condoned the whole obligation
having regard for A. What is the legal effect of this
condonation?
Answer: A is not entitled to seek reimbursement
from B, because A did not pay anything to C.
Remission or condonation under Article 1280 is
essentially gratuitous.
Modes of Extinguishment of Obligations [Pa-Lo-
Re-Me-Co-No]
1. Payment or performance of the thing due;
2. Loss of the thing due;
3. Remission or Condonation of the debt;
4. Merger or consolidation of the rights of
creditor and debtor;
5. Compensation; and
6. Novation.
*Aside from the above-mentioned modes, other
modes for extinguishment of obligations are: [A-
F-R-P]
7. annulment of the obligation;
8. fulfillment of a resolutory condition;
Page 27 of 66
9. prescription; and
10. rescission.
Payment of the thing due
Question: If a third person pays for the obligation,
what are the rights which are available to him?
Answer: It depends on whether the payment was
with the knowledge and consent of the debtor, or the
payment was made without the knowledge or against
the will of the debtor.
1. Payment was made with the knowledge and
consent of debtor
Third Person is entitled to full reimbursement.
Third person is also entitled to be subrogated to the
rights of the creditor. (e.g. right to foreclose the
mortgage)
2. Payment without the knowledge, or even
made against the will of the debtor
Third person is entitled only to beneficial
reimbursement.
Third person is NOT entitled to be subrogated to the
rights of the creditor. *Such that, if the debtor fails to
pay, the third person cannot foreclose the mortgage
or the property given as security for the payment of
the loan.
Special forms of payment under the Civil Code:
1. Dation in payment a special form of
payment in which property is alienated by the
debtor to the creditor, in satisfaction of a debt
in money. It is governed by the law of sales.
It is in the nature of a contract of sale. The
creditor is really buying some property of the
debtor, in payment for which is to be charged
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
2. Application of payments simply, the
designation of the particular debt being paid
by the debtor who has two or more debts or
obligations of the same kind in favor of the
same creditor to whom the payment is made.
Question: Which party has the right to designate
which obligation the payment should be applied?
Answer: The debtor has the right to designate or
make an application of payment.
*When the debtor fails to exercise or does not avail
of this right, the creditor may take the initiative to
make application.
*But when neither the debtor nor creditor has made
the application of payment, the application is not
which is invalid. The application is
made by operation of law under Article 1253, that
interest must be paid first before application of
payment is to be done.
3. Payment by cession a special form of
payment in which the debtor furnishes all his
properties for the benefit of his creditor in
order that from the proceeds of the sale, the
creditors may obtain payment.
When the debtor furnishes his properties for the
benefit of his creditors, the creditors do not become
the owners. The creditors acquire debto
as a ____________, with authority to sell.
Question: Are the obligations of the debtor
extinguished?
Page 28 of 66
Answer: It depends. The debtor if released the
proper amount of the net proceeds of the sale, as a
general rule. Unless there is a stipulation to the
contrary, in which case, there would still remain a
balance. Or in some other cases, one or more
4. Tender of payment and consignation
Tender of payment is the act of offering the creditor
what is due him, together with the demand that the
creditor accepts the offer.
Consignation, on the other hand, is the act of
depositing the thing due with the court, whether the
creditor cannot accept, or where the creditor refuses,
such that payment.
General Rule:
Consignation requires a prior tender of payment. One
cannot consign your payment in court without a prior
tender of payment.
However, Article 1256 of the Civil Code provides
that the debtor may consign his payment in court
even without a prior tender of payment.
1. Debtor is justified in consigning his payment
without a prior tender of payment when the
creditor is absent, or when the creditor is
unknown, or when the creditor does not
appear from the place of payment.
2. When the creditor is incapacitated to receive
the payment at the time it is due.
3. When without just cause, the creditor refuses
to give a receipt. This is absurd. When the
creditor refuses to give a receipt, it
presupposes that there is a tender of payment.
But when two or more persons claimed the
same right to collect. Interpleader is the
correct remedy here, not consignation.
4. When the title of the obligation has been lost.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Take note: Two-notice rule in consignation.
Notice required under par. 1 of Article 1257, and the
second notice under par. 2 of Article 1258.
1st notice (par. 1 of Article 1257)
Consignation must be announced to the creditor.
Without the notice, the consignation as a payment is
void.
*The time the debtor consigns his payment in court,
the debtor must first notify the creditor that if the
creditor still refuses to accept payment, the debtor
will consign the payment in court.
2nd notice (par. 2 of Article 1258)
The consignation having been made, the creditor
must be notified of the consignation. This is
mandatory, and without the subsequent notice, the
consignation is void. This 2nd notice can be done by
payment is at your disposal. I have deposited it in
AUDIO LECTURE 3
Today we continue our discussion on the modes of
extinguishment of obligations. We discuss today
compensation.
Compensation is a mode of extinguishing in their
concurrent amount those obligations of persons, who
in their own right, are creditors and debtors of each
other. There are two kinds of compensation
according to their constitution or on how they are
established.
We have of course voluntary compensation which is
a compensation by agreement of the parties. And, we
have legal compensation which is by operation of
Page 29 of 66
law. We had to discuss compensation in relation to
article 1279 of cc which gives us the essential
requisites of legal compensation.
Requisites which when present will compensate to
debts even when the parties are not aware of it.
So, what are the essential requisites of legal
compensation under 1279 of the civil code. In
order that compensation may be proper, it is
necessary:
(First) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(Second) That both debts consist in a sum of money,
or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter
has been stated;
(Third) That the two debts be due;
(Fourth) That they be liquidated and demandable;
(Finally) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the debtor.
We have a problem, D borrowed from C P5,000
-
year old son borrowed P2,500 from D for his
school tuition. However, the son spent the money
on a cellular phone. When the debt to C fell due,
D tendered only P2,500 claiming compensation on
claim partial legal compensation?
NO. D cannot claim partial legal compensation. This
is so because under Articles 1278 and 1279 of 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 cannot be considered as a party
to the act of his son in borrowing P2,500 from D.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Consequently, he did not become a principal debtor
of D; neither did D become a principal creditor of C.
Therefore, there can be no partial compensation of
the P5,000 borrowed by D from C.
actually used the money for his school tuition?
Yes. There would be no difference in my answer.
The fact t
school tuition did not make C a party to the contract
between his son and D.
Therefore, C is not the principal debtor of D and D is
not the principal creditor of C with respect to the
subject amount.
Question: What is the effect of compensation on
assignment of debt?
The application of A 1290 answers the question.
Answer: When all the requisites for legal
compensation are present, compensation takes effect
by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and
debtors are not aware of the compensation.
So, what is the general rule? Kung babasahin natin
ang Article 1290, ito talaga ang effect ng
compensation sa assignment of debts. If after
compensation has taken place, because all the
requisites under a1279 are present, even though the
creditors and debtors are not aware of it, one of the
extinguished debts is assigned or transferred to a
stranger, this would be a useless act because there is
nothing more to assign.
What is the legal effect? The defense of
compensation is proper. The defense of legal
compensation can be set up. Please get a pencil,
paper, and ballpen.
UNCLEAR: JUST READ THE EXAMPLE SA
MODULE
Page 30 of 66
Problem: A is indebted to B in the amount of Php
1, 000.00. B, in turn, owes A Php 400.00. Because
both debts are already due, and because all
requisites of legal compensation are present, both
debts extinguish automatically back to the amount
of Php 400.00. Later, however, B assigns his Php
1000.00 credit to C. How much may C collect from
A.
Answer: C can collect only Php 600.00. A can set up
by way of compensation the Php 600. Owed to him
by B.
Now, let us go to the assignment with the consent of
the debtor, what is the rule on this situation?
Creditor assigns the credit, with the consent of the
debtor, compensation cannot be set up because the
debtor consented to the assignment.
What if the legal effect? With the consent of debtor,
the debtor has waived the compensation. For
example, A owes B Php 1000.00. B, in turn, owes A
Php 400. 00, because both debts are already due, and
because all requisites of legal compensation are
present, both debts extinguish automatically back to
the amount of Php 400.00. Later, however, creditor
B with the consent of debtor
1000.00 credit to C. How much may C collect from
A. Note of the consent.
Answer: C can collect the whole amount of php
1,000.00 because A cannot set up by way of
compensation the php 600.00 owed to him by B
because A consented the assignment. A can reserve
his right to the compensation despite his consent, A
would be liable to pay only php 400.00.
Now, let us go to Novation.
What do we mean by novation?
Novation is the substitution or change of an
obligation by another. Based on this definition, there
is an old obligation, and there is a new obligation
resulting on its extinguishment or modification,
either by changing its object or principal conditions,
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
or by substituting another in place of debtor, or by
subrogating a third person in the rights of the
creditor.
So, let us go to personal novation, change of debtor.
There are two kinds of personal novation under the
civil code. The first one is called expromission, and
the other is called delegacion.
What is expromission?
Expromission is the substitution of the old debtor by
a new debtor without the knowledge or against the
will of the old debtor.
Delegacion, on the other hand, is the substitution of
the original debtor by a new debtor upon the
initiative of a NEW debtor.
So, take note of the distinction between
expromission and delegacion. In delegacion, the
substitution was made upon the initiative of the OLD
debtor. In expromission, the old debtor was
substituted without the knowledge or against the will
of the old debtor.
The problem in personal novation or the
substitution or replacement of the original debtor
by a new debtor arises when the new debtor does
not pay. If the new debtor does not pay, would
that revive the obligation of the original debtor?
Ibig bang sabihin pag hindi nagbayad ung new
debtor, pwede ba uling singilin ni creditor ung
original debtor?
Answer: in expromission, the insolvency of the new
debtor or non-fulfilment of the obligation, walang
If the debtor does not pay for any reason whatsoever,
the liability of the original debtor is not revived.
(Inaudible) What is the reason for this? Because in
expromission, the substitution of the original debtor
by the new debtor is dealt about without his
knowledge or consent without his initiative. In
Page 31 of 66
insolvency was already existing or known to the
debtor (Inaudible) that he may of the substitution.
Take note, I will hold you responsible for reading
subrogation of a third person in the rights of the
creditor. That ends our third recorded lecture. In our
next recorded lecture, we will discuss contracts.
AUDIO LECTURE 4
We now discuss, Contracts. A contract is defined
under Article 1305 of the Civil Code, it is a meeting
of minds between two (2) persons, where one binds
himself with respect to the other to give something
or to render something.
One of these principles is always a potential bar
question. I am referring to the Principle of Mutuality
under Article 1308. But what are the five (5)
principles of contracts.
First, the principle enunciated under Article 1306,
Principle of Autonomy of Contracts.
Second, the principle enunciated under Articles 1159
and 1315 of the Civil Code, the Obligatory Force of
Contracts.
Third, the principle of Consensuality under Article
1315;
Fourth, the principle of Mutuality under Article
1308; and
Fifth, the principle of Relativity of Contracts under
Article 1311.
Principle of Mutuality of Contracts.
Q: What is the Principle of Mutuality of contracts?
A: Mutuality refers to the position of essential
equality which must be occupied by both the
contracting parties in relation to the contract.
Mutuality, simply means that both parties must be
bound by their contract. The principle of mutuality is
violated if only one party is bound and the other is
not. It is repugnant to bind only one party to the
contract and yet leave the other free. Mutuality,
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
simply means that a party cannot revoked or
renounced a contract without the consent of the other
nor a contract can be set aside on the ground that a
party have made a bad bargain.
Q: When do we say that mutuality principle is
considered violated?
A: First, what the law prohibits is the delegation of
the power to determine whether the contract will be
valid or not. Meaning, what is prohibited by law is
the delegation of the power to one contracting party
to determine whether the contract will be valid or not.
Second, what Article 1308 prohibits is the delegation
of the power to determine whether the contract will
be complied with or not.
Problem: X company fired A, the Manager of the
company. In the contract of employment, there is an
agreement that after the termination of the contract,
A is entitled to a bonus and the Board of Directors
may see fit to grant. When the contract was finally
granted A, a bonus of only P100,000.00. Not
satisfied with the amount, A now insists that the
stipulation in the contract of employment, the grant
of a bonus as the Board may see fit to grant violated
the mutuality principle. Is A correct? Is the Board of
Directors of the company violated the mutuality
principle?
A: mise to grant a bonus to
A, with the amount of the bonus depending upon the
discretion of the Board of Directors does not violate
the mutuality principle.
In the problem, there is neither a delegation of the
power to determine the validity nor of the power to
determine the performance of the contract to the
company. As a matter of fact, the company admits
the validity of the promise to grant A, a bonus. What
is deemed was merely to comply with the promise.
Problem: Borrower obtains on a bank a loan of 1M
payable in 5 years. The borrower signs a promissory
note with a provisions that the rate of interest charge
on the obligation is subject to such increase within
the rates allowed by law as the banks Board of
Page 32 of 66
Directors may prescribed for each borrowers. Is the
stipulation valid?
A: No. It is not valid because it violates the mutuality
principle.
The unilateral determination and imposition of
increase interest rate by the bank violates the
principle of mutuality. There can be no modifications
in a contract without the consent of the other party.
Problem:
lease shall be twenty (20) years and can be renewed
asserts that the stipulation is void because it violates
the principle of mutuality of contracts under Article
1308 of the Civil Code. Is the lessor correct?
A: No. The lessor is not correct.
binding only on the lessor and can be exercise only
by the lessee, does not render the option void for lack
of mutuality. After all, the lessor is free to give or not
to give the option to the lessee. And when the lessee
has the right to elect whether to continue with the
lease or not grants the lessee exercises the option to
continue and the lessor accepts both parties are
bound by the new lease agreement.
Principle of Relativity of Contracts.
Note: Principle of relativity is based on a principle in
Evidence, particularly Section 25 of Rule 130 of the
Rules of Court. Principle of relativity is based on the
latin maxim res inter alios acta meaning the act,
declaration or omission of another cannot affect
another except as otherwise provided by law or
agreement.
Q: What is the rule under the principle of relativity?
A: As a general rule, contracts are effective only
between the parties, their assigns and their heirs.
Exceptions: First, obligations arising from the
contract are intransmissible. In case
of a death of the partner, the
partnership is dissolved. In case of
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
death of the agent or death of the
principal, the agency is terminated.
Second, the principle of relativity
does not apply when there is a
stipulation pour autrui.
Q: What is a stipulation pour autrui?
A: Stipulation pour autrui is a stipulation in favor of
a third person conferring a clear and deliberate
favor upon the third person and which a
stipulation is merely a part of a contract entered
into by the parties neither of whom acted as agent
of the third person. This stipulation is therefore
binding on the third person although he may not
be a party to the contract.
Example: Insurance taken by a bus company in
favor of its passengers, the passengers are
not parties to the insurance contract but
they allowed by law to demand
fulfillment of the insurers obligation
when there is an event insured against.
Third exception, to the principle of
relativity, where a third persons
induces another to violate his
contract.
Fourth, when third persons may be
adversely affected a contract where
they did not participate.
Finally, where the law authorizes the
creditor to sue on a contract of his
debtor which is called, accion
directa.
Example: Under Article 1652 of the Civil Code on
Lease, even if a lessor does not have to respect a
sublease. The sublessee is subsidiary liable to the
lessor for any rent due the lessee even if there is
privity between the contract between the lessor and
the sublessee. The sublessor can hold the sublessee
subsidiary liable to the lessor for any rent due to the
lessee.
Requisites of Contracts.
Page 33 of 66
Q: What are the requisites of contracts under the
Civil Code?
A: As a general rule, there are three (3) essential
requisites of contracts.
1) Consent. Consent of the contracting parties.
2) Object. Subject matter of the obligation.
3) Cause or Consideration.
These three (3) requisites apply only to consensual
contracts or contracts which are perfected by mere
consent of the parties. In so far, are real contracts are
concerned, a fourth (4th) requisite is necessary. Aside
from Consent, Object, Cause or Consideration, real
contracts require that the subject matter of the
contract be actually or constructively delivered to the
other party. In so far, as formal contracts are
concerned a fourth requisite is required by law,
formal contracts require that the contract be in the
form prescribed by law.
Rule on Options.
Under Article 1324 of the Civil Code, if the offerer
has allowed the offeree a certain period to accept the
offer may be withdrawn at any time before
acceptance of the thing offered by communicating
such withdrawal. The general rule, that the offer can
be withdrawn at any time by the offeror before
acceptance of the offer. Except when the option is
founded upon a consideration as something paid or
promised.
The rule on options, when the option is not supported
by any consideration distinct from the price, the offer
may be withdrawn any time before acceptance of the
thing offer. But when an option is founded upon a
consideration distinct from the price, the offer cannot
be withdrawn at any time within the option period.
Different vices of consent.
Vices of consent that would annul a marriage.
(Nmemonics: My Funny Valentine Is U.)
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Mistake. Mistake or error that would annul a
contract does not refer to any mistake. The error
mistake must be substantial regarding the object of
the contract, or conditions which principally moved
or induced one of the parties to enter in to the
contract. The error must be substantial regarding the
identity or qualifications of the other party but only
if such identity was the principal cause of the
contract.
Fraud. Fraud is the used of insidious words or
machinations to induced the other party to give
consent.
Two (2) kinds of fraud:
1) Fraud in celebration (dolo causante or
causal fraud) goes into the consent of one
party, where it not for the fraud employed
by the other party, a party would not have
consented to the contract. The contract is
VOIDABLE.; and
2) Fraud in performance (dolo incidente or
incidental fraud) is only incidental in the
performance of the contract. The remedy
of the aggrieved party is damages.
Violence.
Intimidation.; or
Undue Influence
Q: Is form important in a contract?
A: No. Article 1356, form is not required.
A contract under the law is obligatory in whatever
form it may have been entered into as long as all the
essential requisites are present.
Three (3) exceptions:
1) Form is required for the validity
of the contract. As in the case of
formal or solemn contracts.
Example: Donation of an
immovable property requires that
the donation be in a public
instrument and the acceptance be
also in a public instrument for the
validity of the donation.
2) Form is for enforceability of the
agreement. As in the case of
Page 34 of 66
contracts enumerated under
Article 1403, par.2, that should
comply with the Statutes of
Frauds. The statutes of frauds
requires that certain contracts be
in the prescribed form, there must
be a note or memorandum signed
by the party charged for the
contract to become enforceable;
and
3) Form referred to under Article
1358 of the Civil Code, the
requirement of form for the
convenience of the parties.
Importance of form in a contract.
Problem: A donated a real property to B, in a private
instrument. B accepted the donation. Is the donation
valid?
A: No. The donation was not made in a public
instrument.
Form is required in a contract as in the case of
donation in a real property. The donation must have
been in a public document for it to become valid.
Problem: Real property was donated in a public
instrument. The acceptance was made in a private
instrument. Is the donation valid?
A: No. Because the law requires that both the giving
and the accepting be in a public instrument.
The oral sale of realty which is purely executory is a
valid contract of sale, the problem is the
enforceability of the sale. The law requires under the
statute of frauds that there must be some note or
memorandum signed by the party charged for the
contract to become enforceable in court.
Article 1357 of the Civil Code, gives a remedy to a
party to compel the other party to execute the
necessary form.
Q: When does Article 1357 apply?
A: Article 1357 applies when form is needed for
convenience. Does not grant a remedy to compel the
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
other party to execute the necessary form for validity
or enforceability.
Problem: A donated real property to B in a private
instrument. B accepted the private instrument of
donation. B wanted to register the donation, that
donation requires a public instrument. B requested A
to put down the donation in a public instrument. A
refused. B then sued to compel A to observe the
necessary form. Will the action prosper?
A: No. A cannot be compelled under Article 1357,
observe the necessary form because the donation is
not valid. It was made in a private instrument.
Q: Supposed the property has been delivered by A to
B. May A be compelled to execute the needed public
instrument?
A: No. Because the donation is void.
Problem: A sold to B in a private instrument his
property. B later wanted to have the land to be
registered, but registration requires a public
instrument notarized deed of sale. May B compel A
to execute the needed public instrument under
Article 1357?
A: Yes. Because the contract of sale is both valid and
enforceable under the statutes of frauds.
Problem: A orally sold to be his property. B later
wanted to have the land registered, but registration
requires a public instrument. May B compel A to
execute the needed the public instrument of sale?
A: It depends. If the contract is still executory
because the contract is unenforceable the remedy is
not available. The remedy under Article 1357 is not
a proper remedy.
But if the promise has been paid and the property has
been delivered the answer is Yes. The only thing
under Article 1357 is a proper remedy because the
contract is both valid and enforceable.
Formal Contracts.
Page 35 of 66
Q: What are the formal contracts under the Civil
Code? Contracts which are required to be in the
proper form to be valid?
A: 1) Donation of real property under Article 749 of
the Civil Code;
2) Donation of personal property if the value
exceeds P5,000 under Article 748 of the Civil
Code;
3) Anyone who pay interests on loans or interests
for the use of money under Article 1956 of the
Civil Code;
4) Transfer of large cattle, sale of land through an
agent under Article 1874; and
5) A contract of antichresis under Article 1773.
359. Distinguish between civil and natural
obligations.
Civil and natural obligations may be distinguished as
follows: 1) civil obligations derive their binding
force from positive law; natural obligations derive
their binding effect from equity and natural justice;
and b) civil obligations can be enforced by court
action or by the coercive power of public authority;
the fulfillment of natural obligations cannot be
compelled by court action but depends exclusively
upon the good conscience of the debtor.
360. Give the concept of a quasi-contract.
Distinguish it from the other sources of
obligations.
A quasi-contract is a juridical relation which arises
from certain lawful, voluntary, and unilateral acts,
for the payment of indemnity to the end that no one
may be unjustly enriched or benefited at the expense
of another. (Art. 2142, Civil Code)
The act giving rise to a quasi-contract must be lawful,
thereby distinguishing it from crime in which the act
or omission is unlawful; it must be voluntary, thus
differentiating it from a quasi-delict, which is based
on fault or negligence or mere lack of foresight; and
it must be unilateral, to distinguish it from contracts
in which there are two parties who come to an
agreement.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
361. Debtor signs a promissory note binding
himself to pay Creditor a sum of money, and in
case of non-payment, to render free service as a
servant. Is the obligation valid?
The obligation to pay is valid and cannot be
questioned but the undertaking to render services as
a servant for free is contrary to law and morals, for
services will be rendered in satisfaction of the debt,
the stipulation can be given effect, for here the
services will not really be gratuitous. Even in this
case, however, specific performance of the service
will not be a proper remedy for non-compliance
because it will amount to involuntary servitude.
Instead, an action for damages for payment of the
debt should be brought. (De los Reyes v. Alejado, 16
Phil. 299)
362. While sitting on his front porch, Abe
watched three men paint a fence on his property.
The men later learned that they had made a
mistake. The fence they were to have painted was
in the next block, in the property of Rey. Is Abe
obliged to pay the painters? If so, what would be
the basis of his liability?
By his toleration of the trespassers and by his failure
to protest, Abe is obliged to pay the painters the
reasonable value of the work done and the materials
used. The basis of his liability would be his implied
acceptance of the offer of the painters to paint his
fence. In other words, the basis of Ab
his implied contract with the painters.
(NOTE: it is error to say that Abe is liable because
of the benefit bestowed; or that his liability is
grounded on the existence of a quasi-contract; or
that he is obliged to pay the painters to prevent unjust
enrichment. This is so because of the existence of an
implied contract between Abe and the painters)
363. Suppose Abe had not been at home, and he
did not discover that the fence had been painted
until he returned in the evening, is Abe liable? If
so, what would be the basis of his liability?
Page 36 of 66
Abe would not be obliged in this situation. He did not
learn of the benefits bestowed until after they had
been completed. There had been no communication
of the offer of the painters and no express or implied
acceptance by Abe of the work done. Neither is Abe
liable to the painters under a quasi-contract. This is
so because there was neither a case of solutio indebiti
or negotiorum gestio in the instant case.
364. Homer obtains a loan from Accord
Finance to purchase a car. In consideration
thereof, he signs a promissory note to pay the loan
in monthly installments and executes a chattel
mortgage over the car. In consequence of
Accord institutes a collection suit with prayer for
a writ of replevin. Accordingly, Accord recovered
possession of the car.
Without filing an answer, Homer successfully
negotiated with Accord for the reduction of his
outstanding loan. Thereafter, he delivered to
ng to the
amount agreed upon. Despite payment of the
negotiated amount, however, the car was not
released to Homer because of his refusal to sign
the joint motion for the dismissal of the case filed
by Accord against him. Homer claims that he
need not sign the joint motion because he has not
yet filed his answer. Accord insists, however, that
the joint motion is a standard practice to effect a
compromise and to preclude the future filing of
claims, counterclaims or suits for damages. Is
Homer entitled to recover damages from Accord
Finance?
No. The refusal referred to in Article 1170 of the
Civil Code is the deliberate and intentional evasion
of the normal fulfillment of an obligation. The joint
motion to dismiss was for the benefit of Homer, as
the case filed by Accord against him would be
dismissed with prejudice. The whole point of the
parties entering into the compromise agreement was
in order that Homer would pay his outstanding loan
and in return, Accord would return the car and drop
the collection case. The joint motion was but a
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
natural consequence of the compromise agreement
which simply stated that Homer had fully settled his
act of requiring Homer to sign the motion to dismiss
cannot be said to be a deliberate attempt on the part
of Accord to renege on the proposed compromise
agreement. Moreover, it is well to note that in case of
breach of contract, moral damages may only be
awarded when the breach was attended by fraud or
bad faith. The law presumes good faith. Homer failed
to overcome this presumption. In fact, the act of
is indicative of its good faith and sincere desire to
settle the case. Necessarily, the claim for exemplary
damages must also fail. In no way may the conduct
International
Corporate Bank v. Gueco, 351 SCRA 516 [2001])
365. X leased to Y a ten-wheeler cargo truck on
a monthly basis. The truck was later burned by
unidentified persons when it was parked
unattended due to a mechanical trouble. X had
the truck repaired for which he spent a
considerable amount. Thereafter, he brought an
action against Y to recover the cost of repairs and
unpaid rentals. Y disclaims liability on the ground
that the burning of the truck was due to a
fortuitous event. Decide.
For a fortuitous event to exempt one from liability, it
is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. An
act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible
negligence may have concurred with an act of God
in producing the damage and injury to another. When
participation -- whether by active intervention,
neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to
acts of God.
In the present case, Y failed to exercise reasonable
care and caution that an ordinary prudent person
Page 37 of 66
would have used in the same situation. Y fell short of
ordinary diligence in safeguarding the leased truck
against the accident, which could have been avoided
in the first place. (Mindex Resources
Development v. Morillo, G. R No. 138123, March 12,
2002)
366. Lulu pawned several pieces of jewelry with
Alajera Pawnshop to secure payment of a loan.
Two weeks later, armed men entered the
pawnshop and took away whatever cash and
jewelry found inside the pawnshop, including the
jewelry pawned by Lulu. Lulu now demands
payment of the value of her pawned items. The
pawnshop disclaims liability on the ground of
fortuitous event.
a) Is robbery a fortuitous event?
Robbery per se, just like carnapping, is not a
fortuitous event. It does not foreclose the possibility
of negligence on the part of the party charged. In Co
v. Court of Appeals, 291 SCRA 111 [1998], the
shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed
in its possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and forcefully taken
, as in cases of
carnapping, does not automatically give rise to a
fortuitous event. To be considered as such,
carnapping entails more than the mere forceful
established that the event was an act of God or was
done solely by third parties and that neither the
claimant nor the person alleged to be negligent has
any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due
to a fortuitous event rests on him who invokes it --
b) Is the pawnshop liable for the loss of
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Yes. It is a settled rule that in order for a fortuitous
event to exempt one from liability, it is necessary that
one has committed no negligence or misconduct that
may have occasioned the loss. In the instant case, the
pawnshop failed to show that it was free from any
negligence by which the loss of the pawned jewelry
may have been occasioned.
Article 2123 of the Civil Code provides that with
regard to pawnshops and other establishments which
are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall
be observed, and subsidiarily, the provisions on
pledge, mortgage and antichresis. The provision on
pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing
with the diligence of a good father of a family. This
means that the pawnshop must take care of the pawns
the way a prudent person would as to his own
property.
In the case presented, the pawnshop was guilty of
negligence in the operation of its pawnshop business.
Evidently, no sufficient precaution and vigilance
were adopted by the pawnshop to protect its
establishment from unlawful intrusion. There was no
clear showing that there was any security guard at all.
Or, if there was one, that he had sufficient training in
securing a pawnshop. Further, there is no showing
that the alleged security guard exercised all that was
necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to
enter the premises. In fact, it is even doubtful that
there was a security guard, since it is quite impossible
that he would not have noticed that the robbers were
armed. (Sicam v. Jorge, 529 SCRA 443 [2007])
367. Teddy is the disbursing officer of a beach
project of the Philippine Tourism Authority in
Cavite. In the morning of July 1, which was a
Friday, he went to Manila to encash a check
covering the wages of the employees and the
operating expenses of the project. For some
reason, the processing of the check by the bank
was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check
Page 38 of 66
because the project employees would be waiting
for their pay the following day, a Saturday;
otherwise, the workers would have to wait until
July 5 which is a Monday, to receive their wages.
At that time, he had two choices: 1) return to
Ternate, Cavite that same afternoon and arrive
there early evening; or 2) take the money with
him to his house in Marilao, Bulacan, thinking it
was the safer one. He chose the second option.
Thus, a little past 3 p.m., he took a passenger jeep
bound for Bulacan. While the jeep was along
EDSA, the jeep was held up and the money kept
by Teddy was taken, and the robbers jumped out
of the jeep and ran. Teddy chased the robbers and
caught up with one of them who was subsequently
charged with robbery and pleaded guilty. The
other robber who held the stolen money escaped.
Subsequently, the Commission on Audit found
Teddy negligent because he had not brought the
cash proceeds of the checks to his office in
Ternate, Cavite for safekeeping which is the
normal procedure in the handling of funds. Was
Teddy negligent?
In Hernandez v. Chairman, Commission on Audit,
179 SCRA 39 [1989], it was held that Teddy was not
negligent in deciding to encash the check and
bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the
following reasons: 1) he was moved by unselfish
motive for his co-employees to collect their wages
and salaries the following day, a Saturday, a non
working day, because to encash the check on July 5,
the next working day after July 1, would have caused
discomfort to laborers who were dependent on their
wages for sustenance; and 2) that choosing Marilao
as a safer destination, being nearer, and in view of
the comparative hazards in the trips to the two places,
said decision seemed logical at that time. The fact
that robbers attacked him in broad daylight and in the
presence of other passengers could not be said to be
a result of his imprudence and negligence.
(NOTE: Unlike in Sicam where the robbery took
place at the pawnshop establishment which was
under the control of the owner, the robbery in
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 39 of 66

Hernandez took place in a public utility jeepney. In requested that she be freed from accountability
Sicam, the pawnshop owner had the means to screen for the cellular phone. Her request was denied on
the persons who were allowed entrance to the the ground that she lacked the diligence required
premises and to protect itself from unlawful in the custody of government property and was
intrusion) ordered to pay the purchase value of the cellular
phone. Is Martha liable for the loss of the cellular
368. Maria received from Dona Nena a pendant
phone?
with diamonds to be sold on commission basis.
Maria failed to return the diamond pendant No. Riding the LRT cannot per se be denounced as a
because of a robbery committed upon her while
transit was influenced by time and monetary
house. The incident became the subject of a considerations; that she boarded the LRT to be able
criminal case for robbery filed against several to arrive in Caloocan in time for her 3 p.m. meeting;
persons. Dona Nena subsequently brought an that any prudent and rational person under similar
action against Maria for recovery of the pendant circumstances can reasonably be expected to do the
or its value. Maria sets up the defense that the same; that possession of a cellular phone should not
robbery extinguished her obligation. Decide. hinder one from boarding the LRT as Martha did
considering that whether she rode in a jeep or bus,
The factual backdrop of the above problem is
the risk of theft would have also been present; that
identical to Austria v. Court of Appeals, 39 SCRA
because of her relatively low position and pay, she
527, [1971]. Under the circumstances prevailing at
was not expected to have her own vehicle or ride a
the time when the Supreme Court promulgated its
taxi cab; she did not have a government assigned
decision in Austria in 1971, the City of Manila and
vehicle; that placing the cellular phone in a bag away
its suburbs had a high incidence of crimes against
from covetous eyes and holding on to the bag as she
persons and property that rendered travel after
did is ordinarily sufficient care of a cellular phone
nightfall a matter to be sedulously avoided; the
while traveling on board the LRT. (Cruz v. Gangan,
conduct of Maria in returning alone to her house in
395 SCRA 711 [2003])
the evening carrying jewelry of considerable value
would have been negligence per se and would not 370. What are the instances when the debtor is
exempt her from responsibility in the case of liable even for a fortuitous event?
robbery. However, Maria was found not liable for
The following are the instances when the law (Civil
negligence since the robbery happened ten years
Code) provides for liability of the debtor even if due
previously, i.e., in 1961 when criminality had not
to a fortuitous event:
reached the level of incidence obtaining in 1971.
a) Art. 552, par. 2 a possessor in bad
369. Martha, a government employee, boarded
faith shall be liable for the deterioration or
the LRT from Sen. Puyat Avenue to Monumento
loss of the thing
to catch up with a 3 p.m. meeting in Caloocan. On
board the LRT, her handbag was slashed and the possessed in every case, even if caused by a
contents were stolen by an unidentified person. fortuitous event.
Among those stolen were her wallet and the
b) Art. 1165, par. 3- if the obligor
government issued cellular phone. She then
delays, or has promised to deliver the same
reported the incident to the police authorities;
thing to two or
however, the thief was not located, and the
cellular phone was not recovered. She also
reported the loss to her superior, and she
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
more persons who do not have the same interest, he
shall be responsible for fortuitous event until he has
effected delivery.
c) Art. 1268 - when the debt of a thing
certain proceeds from a criminal offense, the
debtor shall
not be exempted from the payments of its price,
whatever may be the cause of the loss.
d) Art. 1942 the bailee is liable for the
loss of the thing loaned, even if it should be
through a fortuitous event in the following
cases: (1) if he devotes the thing to any
purpose different from that for which it has
been loaned; 2) if he keeps it longer than the
period stipulated, or after the
accomplishment of the use for which the
commodatum has been constituted; 3) if the
thing loaned has been delivered with
appraisal of its value, unless there is a
stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) if he lends or leases the thing to a third
person, who is not a member of his
household; and 5) if, being able to save either
the thing borrowed or his own thing, he chose
to save the latter.
e) Art. 1979- the depositary is liable for
the loss of the thing deposited even if due to
a fortuitous
event in the following cases: 1) if it is so stipulated;
permission; (3) if he delays its return; and 4) if he
allows others to use it, even though he himself may
have been authorized to use the same.
f) Art. 2147 - the officious manager
shall be liable for the loss or destruction of
the property or
business of another in certain cases.
Page 40 of 66
g) Art. 2148 - liability for loss of the
thing even if due to a fortuitous event due to
incompetence.
h) Art. 2159, par, 2 - in case of solutio
indebiti and payee in bad faith.
371. Abe and Tessie engaged the services of
Video Artists for the video coverage of their
forthcoming wedding. On the appointed date and
residence of the bride and there recorded her pre-
departure activities before leaving for the church
where the wedding ceremonies were to be held.
Thereafter, the crew proceeded to the church and
recorded the ceremonies. They then went to the
hotel where the wedding reception followed. A
few days later, Video Artists informed Abe and
Tessie that the videotape coverage of their
wedding celebration was damaged due to a
mechanical defect in their equipment. The video
company then disclaimed liability on the ground
of fortuitous event. Decide.
In order that a fortuitous event may exempt the video
company from liability, it is necessary that it be free
from negligence. (Lasam v. Smith, 45 Phil. 657
[1924]) The record shows, however, that the alleged
malfunctioning of the videotape recorder occurred at
the beginning of the video coverage at the residence
of the bride. The video crew miserably failed to
detect the defect in the videotape recorder and that
they discovered the same rather too late after the
wedding.
The video company cannot even seek refuge under
Article 2180 of the Civil Code by claiming that it
exercised due care in the selection and supervision of
its employees in their respective trades. That defense,
as provided in the last paragraph of Article 2180 of
the Civil Code, may be availed of only where the
liability arises from culpa aquiliana and not from
culpa contractual such as in the case at bar. (Herbosa
vs. Court of Appeals, 374 SCRA 578 [2002])
372. A telephone company and an electric
cooperative entered into a Service Contract
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Agreement containing the following terms and
conditions: a) the telephone company is allowed
to use the electric posts of the electric cooperative
for the installment of its telephone and cable
wires; b) the telephone company is obliged to
install and allow the electric cooperative the free
use of ten telephone lines; and c) the contract
shall be for as long as the telephone company has
need for the electric posts and shall terminate only
if the electric cooperative is forced to stop or
abandon its operations as a public service and it
becomes necessary to remove the electric posts. Is
the contact subject to a potestative condition?
No. The condition that the contract shall be effective
for as long as the telephone company has need for the
electric posts is decidedly a potestative condition
because it is dependent upon the sole will of the
telephone company. However, the condition that
such contract may be terminated if the electric
cooperative is forced to stop or abandon its
operations is a casual condition which depends on
chance, hazard, or the will of third persons. In sum,
the contract between the telephone company and the
electric cooperative is subject to a mixed condition ,
that is, a condition dependent partly on the will of a
party and partly on chance, hazard, or the will of a
third person, which do not invalidate a contract
(Naga Telephone
Company, Inc. v. Court of Appeals, 230 SCRA
351[1994])
373. S sells to B a parcel of land. Their
notarized contract of sale contains a provision
that
and peaceful possession of the
time of the sale. Buyer now wants to cancel the
lessees. He claims that he cannot use the property
because of the selle
He contends that the provision where the seller
Page 41 of 66
possession of the property partakes of the nature
of a condition.
a)
e. The buyer failed to
appreciate the difference between a condition and a
warranty and the consequences of such distinction.
The failure of the seller to eject the lessees from the
lot in question and to deliver actual and physical
possession thereof to the buyer cannot be considered
a substantial breach for two reasons: First, such
condition -- whether resolutory or suspensive; and
second, its effects and consequences were not
specified either. The stipulation adverted to by the
buyer does not impose a condition or an obligation
on the part of the seller to eject the lessees from the
lot. Said stipulation pertains merely to the usual
warranty against eviction, and not a condition that
was not met. Had the parties intended to impose on
the seller the obligation to eject the tenants from the
thing sold, the same should have been expressly
provided for in the contract. For example, the
contract may provide that if the lessees are not
ejected with a certain period, the contract can be
rescinded. Regrettably, no such provision was
stipulated upon by the parties.
b) Is the seller liable for breach of
warranty against eviction?
There was no breach of warranty against eviction.
The buyer was not deprived of his title. The presence
of lessees does not even constitute an encumbrance
on the land nor does it deprive the buyer of its control
thereof. (Power Commercial and Industrial Corp. v.
Court of Appeals, 274 SCRA 597 [1997])
374. X leased to Y a building for 15 years. Y
occupied the building and made payments of
rentals for about three years, after which no
rentals were paid. X required Y to return the
leased property if he cannot pay the rents.
Pursuant to this demand, Y vacated the property
with notice to X. X later brought an action to
recover the rentals that should have been paid
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 42 of 66

under the lease contract for the unexpired term of
12 years. Is Y liable?
No. Under Article 1191 of the Civil Code, X was
permitted to elect between the two remedies of
resolution or specific performance, with damages in
either case. He is not entitled to pursue both of the
inconsistent remedies. In this case, X clearly elected
to resolve or rescind the lease contract.
In the common case of the resolution or rescission of
a contract of sale for failure of the purchaser to pay
the stipulated price, the seller is entitled to be
restored to the possession of the thing sold, if it has
already been delivered. But he cannot have both the
thing sold and the price which was agreed to be paid,
for the resolution or rescission of the contract has the
effect of destroying the obligation to pay the price.
Similarly, in the case of the resolution of a contract
of lease, the lessor is entitled to be restored to the
possession of the leased premises, but he cannot have
both the possession of the leased premises for the
remainder of the term and the rent which the other
party was contracted to pay. The termination of the
lease has the effect of destroying the obligation to
pay for the future.
375. S sells to B a parcel of land for the total
sum of P2 million. Their sale agreement contains
the following terms and conditions: 1) B shall pay
P600,000 as down payment; 2) the balance of P1.4
million shall be paid in four quarterly
installments of P250,000; 3) that upon full
payment of the purchase price, S shall execute a
upon the signing of the agreement, B shall take
possession of the property.
As agreed upon, B took possession of the property
after the signing of the sale document. To answer
for his balance of P1.4 million, he issued four post-
dated checks payable to S in the amount of
P250,000 each. The checks bounced. B promised
to replace the checks but failed to do so. S then
brought an action to rescind the sale and to
recov
to completely pay the purchase price is a
substantial breach of the obligation which entitles
him to rescind under Article 1191 of the Civil
Code. B defends by invoking Article 1389 of the
Civil Code that where specific performance is
available as a remedy, rescission may not be
resorted to.
a) Distinguish between the remedy of
rescission under Article 1191 of the Civil
Code and the
remedy of rescission under Article 1383 thereof.
Rescission of reciprocal obligations under Article
1191 of the Civil Code should be distinguished from
rescission of contracts under Article 1383. Although
both presupposes and both require mutual restitution
when proper, they are not entirely identical.
principal action which is based on the breach of a
party of his obligation, while rescission under Article
1383 is a subsidiary action limited to cases of
rescission for lesion under Article 1381 of the Civil
Code.
b) Is seller entitled to rescind the sale?
Yes. Obviously, the contract entered into by the
parties in the case at bar does not fall under any of
those mentioned by Article 1381. Consequently,
Article 1381 is inapplicable.
A reading of the agreement entered into by S and B
shows that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee
upon the delivery of the thing sold; while in a
contract to sell, ownership is, by agreement, reserved
in the vendor and is not to pass to the vendee until
full payment of the purchase price. In a contract to
sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents
the obligation of the vendor to convey title from
acquiring an obligatory force.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
In the instant case, S bound himself to deliver a deed
of absolute sale and clean title covering the parcel of
land upon full payment by B of the purchase price of
P2 million. This promise to sell was subject to the
fulfillment of the suspensive condition that B will
pay in full the purchase price. B, however, failed to
complete payment of the purchase price. The non-
fulfillment of the condition of full payment rendered
the contract to sell ineffective and without force and
effect. Failure of B to pay, in this instance, is not even
obligation to convey title from acquiring binding
force. Hence, the agreement of the parties may be set
aside, but not because of a breach on the part of B to
complete payment of the purchase price. Rather, his
failure to do so brought about a situation which
prevented the obligation of S to convey title from
acquiring force (Ong v. Court of Appeals, 310 SCRA
1 [1999])
376. S sold to B in 1985 a parcel of land for P1
million. Their Contract of Conditional Sale
provides that Bart shall pay P100,000 as down
payment and the balance to be paid in 60 days
after the squatters on the property have been
removed. Their contract stipulates that if the
squatters are not removed within six months from
the execution of the contract, the P100,000 down
payment shall be returned by S to B.
S filed an ejectment action against the squatters,
but in spite of the decision in his favor, the
squatters would not leave. Subsequently, S
offered to return the P100,000 down payment to
B on the ground that he is unable to remove the
squatters on the property. B refused; instead, he
demanded that S execute a deed of absolute sale
of the property in his favor, at which time he will
pay the balance of the purchase price. Meanwhile,
the value of the land had appreciated
considerably. S now seeks to rescind the sale and
consign the P100,000 in court. Will the action
prosper?
The action will not prosper. The action for rescission
may be brought only by the aggrieved party to the
Page 43 of 66
contract. Since it was S who failed to comply with
his conditional obligation, he is not the aggrieved
party who may file the action for rescission but B.
However, B is not opting to rescind the contract but
condition which he can do under Article 1545 of the
Civil Code.
377. Ferdie leased to Ninoy a building, the
latter to pay P20,000 monthly, including light and
water bills. The contract stipulates that non-
payment of the rent would automatically cancel
the contract, but otherwise Ninoy could stay on
indefinitely. After five years, Ferdie tried to eject
Ninoy because he planned to tear down the
building and put up another. Can Ferdie eject
Ninoy?
Yes, he can. Ninoy, the lessee, cannot successfully
set up the defense that under the contract of lease, he
can continue occupying the building so long as he
faithfully fulfills his obligation of paying the rentals.
It is clear that under this stipulation, the continuance
of the fulfillment of the contract would then depend
solely and exclusively upon his uncontrolled choice
between continuing paying the rentals or not,
completely depriving the owner of all say on the
matter. If this defense is allowed, so long as the
lessee elected to continue the lease by continuing the
payment of the rentals, the owner would never be
able to discontinue it; conversely, although the
owner should desire the lease to continue, the lessee
could effectively thwart his purpose by the simple
expedient of stopping payment of rentals. Clearly,
the condition is a purely potestative one rendering the
same void. (Encarnacion v. Baldemar, 77 Phil. 470)
378. What is an alternative obligation?
An alternative obligation is one where out of two or
more prestations which are due, the performance of
one is already sufficient compliance with the
obligation. (Art. 1199, par. 1, Civil Code)
379. X obtains a loan from Y. They agree that
upon maturity of the loan, X will give Y either the
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
sum owed or a particular house and lot. Is the
stipulation a pactum commissorium?
No. The stipulation is in fact valid because it is
simply an alternative obligation, which is expressly
allowed by the law. The agreement to convey the
debt in money at its maturity does not constitute
pactum commissiorium. It is not an attempt to permit
the creditor Y to declare a forfeiture of the security
upon the failure of the debtor to pay the debt at
maturity. It simply provided that if the debt is not
paid in money, it shall be paid in another specific
way by the transfer of the property at a valuation.
380. Debtor obtained from Creditor a loan
payable in two years. To guarantee payment of
the loan, Debtor mortgaged his uninsured house
to Creditor. Three months after the loan was
accidental origin. Thereupon, Creditor
demanded immediate payment from Debtor.
Debtor defends on the ground that the period for
contention tenable?
No. Under Article 1198 of the Civil Code, the debtor
shall lose every right to make use of the period when
the securities disappear through a fortuitous event.
Debtor has to give a satisfactory substitute collateral
for him to enjoy anew the period given to him for the
payment of his loan.
381. What is a facultative obligation?
A facultative obligation is one where only one
prestation has been agreed upon but the obligor may
render another in substitution. (Art. 1206, par. 1,
Civil Code)
382. Distinguish between alternative and
facultative obligations.
Alternative obligation and facultative obligations
may be distinguished as follows:
1) In an alternative obligation, various things
are due, but the giving of one is already sufficient
Page 44 of 66
compliance with the obligation. In a facultative
obligation, only one thing is principally due, and it is
that one which is generally given, but the substitute
may be given to render payment or fulfillment easy.
2) If one of the presentations in an alternative
obligation is illegal and the other prestations are
valid, the obligation remains. In a facultative
obligation, if the principal obligation is void, there is
no longer any need of giving the substitute.
3) In an alternative obligation, if it is impossible
to give all except one, that last one must still be
given. In a facultative obligation, if it is impossible
to give the principal, the substitute does not have to
be given, and if it is impossible to give the substitute,
the principal must still be given.
383. A and B sign a promissory note binding
themselves to pay C jointly and severally the
amount of P30,000. For non-payment of the debt,
C sues both debtors for sum of money. After due
proceedings, judgment is rendered whereby A
and B were ordered to pay C their loan. For one
reason or another, however, the judgment did not
state whether the liability of the defendants is
joint or solidary. C then asked for execution on
the properties of A for the whole obligation. In the
contract, liability was solidary but in the
judgment, nothing was said about the nature of
the obligation.
How shall the judgment obligation be considered:
joint or solidary?
The judgment obligation should be considered
merely as a joint one; hence, C can get the properties
of A corresponding to his proportionate share in the
judgment debt. The judgment did not state that the
obligation was solidary, so none of the defendants
may be required to pay for the whole obligation.
384. May a sodidary creditor assign his right
under the obligation?
Under Article 1213 of the Civil Code, a solidary
creditor cannot assign his right without the consent
of the others. This is so because a solidary obligation
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
implies mutual agency and mutual confidence.
Should the assignee or substitute do acts which
would prejudice the others, there is no doubt that the
right of the other creditors would be endangered,
hence, the necessity of their consent.
385. What is the basis of payment of an
obligation in case of extraordinary inflation or
deflation?
In case of extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there
is an agreement to the contrary. (Art. 1250, Civil
Code)
386. When does extraordinary inflation exist?
Extraordinary inflation exists when there is a
decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency,
and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation. (Hubonhoa v. Court
of Appeals, December 14, 1999)
387. When are the effects of extraordinary
inflation applicable?
The effects of extraordinary inflation are applicable
only when there is an official declaration to that
effect by competent authorities. (Lantion v. NLRC,
181 SCRA 513)
388. X leased to Y in 1968 a parcel of land.
Their contract of lease provides that the lease
shall run for a period of 20 years and that Y shall
pay a rental of P2.50 per square meter per month
for the first ten years of the lease and P3.00 per
square meter per month for the next ten years.
Based on their stipulation, the monthly rental was
fixed at P3,500 for the first ten years, and at
P4,200 for the succeeding ten years of the lease.
Page 45 of 66
In 1983, or five years before the expiration of the
lease, X asked Y to adjust the amount of rentals
on the allegation that the country was at that time
experiencing extraordinary inflation. Y refused
the request. X then brought an action for the
payment of adjusted rentals based on his claim
that since the execution of the contract of lease in
1968, an extraordinary inflation had supervened
resulting from the deterioration of worldwide
economic conditions, a circumstance that was not
foreseen by the parties at the time they entered
into the contract. At the trial, X established that
the inflation rate in 1968 was only 2.06%; then it
soared to 34.51% in 1974, and in 1983, it reached
a high of 50.34%. Is X entitled to a favorable
judgment?
No. The supervening of extraordinary inflation is
never assumed. (Sangrador v. Villarama, 168 SCRA
215 [1988]) The party alleging it must lay down the
factual basis for the application of Article 1250 of the
Civil Code. Extraordinary inflation exists only when
there is a decrease or increase in the purchasing
power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said
currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time
of the establishment of the obligation.(Hubonhoa v.
Court of Appeals 320 SCRA 625 [1999] )
While there was a decline in the purchasing power of
the Philippine currency from the period 1968 to
1983, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the
Philippine peso which is characteristic of most
description of the trend in the value of the peso in the
past three to four decades. Unfortunate as this trend
may be, it is certainly distinct from the phenomenon
contemplated by Article 1250. Moreover, the
Supreme Court has held that the effects of
extraordinary inflation are not to be applied without
an official declaration thereof by competent
authorities. (Singson v. Caltex (Philippines), Inc.,
342 SCRA 91 [2000])
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
389. In May 1990, Hector leased to Rene a
parcel of land for six years. The contract contains
an option to buy clause. Under the option, Rene
has the exclusive and irrevocable right to buy the
property within the lifetime of the contract, that
is, until May 1996. Two months before the
contract is set to expire, Rene informed Hector of
his willingness to purchase the property under the
option to buy clause. Because Hector refused to
sign a deed of sale unless Rene delivers the money
to pay for the property, Rene brought an action in
April 1996 with the Lupong Tagapamayapa asking
that he be allowed to purchase the leased property
under the option to buy clause. During the
barangay proceedings, Rene presented a bank
certification that arrangements were being made
to allow him to borrow funds to enable him to
meet his obligations under the option contract.
Failing to reach an agreement at the barangay,
Rene then brought an action for specific
performance against Hector, and deposits with
he
purchase price of the property. Hector defends on
the ground that he cannot be compelled to sell the
disputed property by virtue of the non-fulfillment
of the obligation under the option contact. He
contends that Rene incurred in delay when he did
not deliver the purchase price or consign it in the
court on or before the expiration of the contract
of lease in May 1996.
a) Is Rene required to consign the purchase
price in court?
No. Obligations under an option to buy are reciprocal
obligations. (Nietes v. Court of Appeals, 46 SCRA
654 [1972]) The performance of one obligation is
conditioned on the simultaneous fulfillment of the
other obligation. (Vermen Realty Devt. Corp. v.
Court of Appeals, 224 SCRA 519 [1993]) In other
words, in an option to buy, the payment of the
purchase price by the creditor is contingent upon the
execution and delivery of a deed of sale by the
debtor. In this case, when Rene opted to buy the
property, his obligation was to advise Hector of his
decision and his readiness to pay the price. He was
Page 46 of 66
not yet obliged to make actual payment. Only upon
sale was he required to pay. In Nietes vs. Court of
Appeals, 46 SCA 654 [1972], the Supreme Court
to exercise
his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to
the owner of the property upon performance of his
part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of
the purchase price was not yet required.
Moreover, it is axiomatic that where no debt is due
and owing, consignation is not proper. Therefore,
his obligation under the option to buy because he
failed to actually deliver the purchase price or
consign it in court before the contract expired and
before they executed a deed of sale, has no leg to
stand on.
b) Did Rene incur delay when he did not pay
the purchase price or consign it in court
before the expiration of the contract of lease with
option to buy?
No. In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. Only from the moment one of the parties
fulfills his obligation does delay by the other begins.
(Legaspi v. Court of Appeals, 142 SCRA 82 [1986])
In this case, Rene had already communicated to
Hector his intention to buy the property and he was
at the time undertaking to meet his obligation before
the expiration of the contract in May 1996. However,
Hector refused to execute the deed of sale and it was
before he would execute the sale document which
prompted Rene to file a complaint before the
barangay. Moreover, the issuance by Rene of the
complaint bolsters his claim that he was then ready
to pay the price. (Bacus v. Court of Appeals, 371
SCRA 295 [2001])
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
390. D borrowed from C P5,000 payable in one
-year old son
borrowed P2,500 from D for his school tuition.
However, the son spent the money on a cellular
phone. When the debt to C fell due, D tendered
only P2,500 claiming compensation on the P2,500
s son.
a) Is D entitled to claim partial legal
compensation?
D cannot claim partial legal compensation. This is so
because under Articles 1278 and 1279 of 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 cannot be considered as a party to the act of
his son in borrowing P2,500 from D. Consequently,
he did not become a principal debtor of D; neither
did D become a principal creditor of C. Therefore,
there can be no partial compensation of the P5,000
borrowed by D from C.
actually used the money for his school tuition?
There would be no difference in my answer. The fact
tuition did not make C a party to the contract between
his son and D. Therefore, C is not the principal debtor
of D and D is not the principal creditor of C with
respect to the subject amount.
391. Arturo owes Bernabe P100,000. Bernabe
in turn owes Arturo P20,000. Both debts are
already due. Later, Bernabe assigns the P100,000
credit to Carlito without the knowledge of Arturo.
This assignment was made on July 1. On July 15,
a P25,000 debt of Bernabe in favor of Arturo
matured. Arturo learned of the assignment on
August 1. On August 23, a P15,000 debt of
Bernabe in favor of Arturo matured. Later,
Carlito asks Arturo to pay his debt. How much
can Carlito successfully collect from Arturo?
Page 47 of 66
Carlito can collect only P55,000 because Arturo can
set up the defense of partial compensation of the
P20,000 and P25,000 debts which matured and were
therefore already compensable prior to his
knowledge of the assignment. But Arturo cannot set
up the last debt of P15,000 for partial compensation
because this matured only after he knew of the
assignment. (par. 3, Art. 1285, Civil Code)
392. A received from B several pieces of jewelry
with the agreement that she will sell them on
commission basis. A failed to remit the proceeds
of the sale to B despite repeated demands.
Thereupon, B brought the matter to the Barangay
Lupon. At the Lupon, A and B executed an
agreement denominated as Kasunduan sa
Bayaran, whereby A promised to pay the amount
of P3,000 per month to B to answer for the value
of the jewelry she received. A failed to comply
with the Kasunduan. Benita then filed a criminal
complaint for estafa. A now claims that the
execution of the Kasunduan constitutes a novation
of her criminal liability. Is she correct?
No. It is well-settled that the following requisites
must be present for novation to take place: 1) a
previous valid obligation; 2) agreement of all the
parties to the new contact; 3) extinguishment of the
old contact; and 4) validity of the new one.
(Velasquez v. Court of Appeals, 309 SCRA 539
[1999]) Novation is never presumed, and the animus
novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that
are too clear and unequivocal to be mistaken. The test
of incompatibility is whether or not the two
obligations can stand together, each one having its
independent existence. If they cannot, they are
incompatible and the latter obligation novates the
first. Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental.
The incompatibility must take place in any of the
essential elements of the obligation, such as its
object, cause or principal conditions thereof,
otherwise, the change would be merely modificatory
in nature and insufficient to extinguish the original
obligation. (Quinto v. People, 350 SCRA 708 [1999])
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
The execution of the Kasunduan sa Bayaran does not
constitute a novation of the original agreement
between A and B. The Kasunduan did not change the
object or principal condition of the contract between
obligation did not render the Kasunduan
incompatible with the original agreement, and hence,
of the sale of the jewelry or to return the same to B.
pay a sum of money is not novated in a new
instrument wherein the old is ratified, by changing
only the terms of payment and adding other
obligations not incompatible with the old one, or
wherein the old contract is merely supplemented by
grounds prescribed by the Revised Penal Code for
the extinguishment of criminal liability. (Ocampo-
Paule v. Court of Appeals, February 4, 2002)
393. Henry died intestate survived by his
widow, Winda, and his legitimate children, Xeres,
estate, Winda and her children executed a Deed
of Partition by virtue of which each of them
several parcels of lands. In their partition
agreement, Winda and her children were
assigned individual parcels of land as their
respective shares in the inheritance. A day after
the execution of the partition agreement, Winda
and her children executed a Memorandum of
Agreement by virtue of which they agreed to
divide equally among themselves the proceeds of
the sale of the lots that were assigned to each of
them. Is the Deed of Partition novated by the
Memorandum of Agreement?
No. The Memorandum of Agreement fell short of
producing a novation because it does not express a
clear intent to dissolve the old obligation as a
consideration for the emergence of a new one.
Likewise, there is no showing that the Deed of
Partition and the Memorandum of Agreement are
Page 48 of 66
materially and substantially incompatible with each
other. Indeed, the Deed of Partition granted title to
the lots to Winda and her children to whom they were
assigned, and the Memorandum of Agreement
created an obligation on the part of Winda to share
with the other co-owners the proceeds of the sale of
such lots. There is no incompatibility between these
two contracts; hence, no novation.
(NOTE: Novation, as a mode of extinguishing an
obligation, requires the concurrence of the
following: 1) there is a previous valid obligation; 2)
the parties concerned agree to a new contract; 3) the
old contract is extinguished; and 4) there is a valid
new contract. Novation may be express or implied.
In order that an obligation may be extinguished by
another which substitutes the same, it is imperative
that it be so declared in unequivocal terms (express),
or that the old and the new obligations be on every
point incompatible with each other (implied) (Cruz
v. Court of Appeals, 293 SCRA 239[1998])
394. C delivers to D several pieces of jewelry to
be sold on commission basis. Despite the lapse of
the period agreed upon, D fails to return the
jewelry items to C. When sued for estafa, D claims
that her agreement with C is deemed novated
when the latter agreed to be paid directly by the
buyers of the jewelry items and on installment
basis. She adds that her liability is merely civil in
extinguished?
The acceptance by C of partial payments tendered by
their agreement novated. It was simply necessitated
by the fact that, at the time, D had substantial
accounts payable to C. Thus, to obviate the situation
where C would end up with nothing, she was forced
to receive the tender of the buyers. It is thus easy to
installment basis cannot be construed as a case of
either expromision or delegacion sufficient to justify
the attendance of extinctive novation. Not too
uncommon is when a stranger to a contract agrees to
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 49 of 66

assume an obligation; and while this may have the

effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the
liability of the first debtor. Neither would the fact
alone that the creditor (such as C) receives guaranty
or accepts payments from a third person who has
agreed to assume the obligation, constitute an
extinctive novation, absent an agreement that the first
debtor shall be released from responsibility.
Granting that there was such novation, the criminal
liability for estafa committed by D is then not
affected by the subsequent novation of the contract,
for it is a public offense which must be prosecuted
and punished by the State. (Quinto v. People, 305
SCRA 708 [1999])
395. In which of the following fact situations
would a court most likely find that an implied
contract existed?
a) Dr. Dumagaling a licensed physician,
sees an unconscious pedestrian lying
bleeding on the shoulder of the
highway. Dr. Dumagaling stops his car,
gets out, and renders emergency
medical care to the injured pedestrian.
b) Mr. Juan Tutri, an octogenarian, asks
her favorite niece, Malou Wang, a
CPA, to fill out and file his income tax
from his monthly pension from SSS
and interest on a bank account. It takes
Malou five minutes to complete the
form, takes a taxi, and goes to
personally files the return at the BIR.
c) Zandro, a contractor, has a contract to
watching until the job is done.
d) Jong, a homeowner, has already paid
his realty property tax. A clerk in the
Jong a bill that should have gone to
citizen and thinking that the
him the bill if he did not owe the
money, Jong pays the bill.
The court would most likely find that an implied
contract existed in (c). An implied contract is a
contract formed by manifestations of the parties
other than oral or written language, i.e., by conduct.
house, has made an offer by his conduct because a
reasonable person would conclude that the services
were offered with the expectation of compensation
accepted by Anton even though the latter said
nothing.
The situation in (a) does not give rise to an implied
contract because the pedestrian has not manifested
his consent to the offer made by Dr. Dumagaling (in
contrast to a patient who goes to Dr.
him). Dr. Dumagaling is not without a remedy,
however, if he wants compensation for his services.
The court may permit Dr. Dumagaling to recover the
value of his services under a quasi-contract. A quasi-
contract is not really a contract at all; rather, it is a
legal fiction designed to avoid injustice by
preventing unjust enrichment of one party to the
detriment of another. Here, Dr. Dumagaling
conferred a benefit on the pedestrian and the law will
presume that the pedestrian would have requested the
emergency medical care had he been able to do so,
and will allow Dr. Dumagaling to recover reasonable
compensation for his services.
The situation in (b) is inaccurate. The conduct of
Juan Trutri and Malou Wang does not appear from
an objective standard to manifest contractual intent
because of the close family relationship of the parties
and the minor burden on Malou Wang to render her
services. Courts generally will not presume that a
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
contractual relationship was intended under these
circumstances.
The situation in (d) is likewise incorrect for the same
reason as (a). Without some conduct on the part of
Mandy, such as knowingly accepting the offered
benefits in silence, a court will not find the
manifestation of mutual consent necessary for an
implied contract.
396. A contract of lease contains the following
years and may be renewed for a like term at the
option of the lessee
stipulation is void for being violative of the
principle of mutuality of contracts under Article
1308 of the Civil Code.
a) may be renewed for a like term
at the option of the lessee
principle of mutuality of contracts?
binding only on the lessor and can be exercised only
by the lessee does not render such option void for
lack of mutuality. After all, the lessor is free to give
or not to give the option to the lessee. And while the
lessee has a right to elect whether to continue with
the lease or not, once he exercises his option to
continue and the lessor accepts, both parties are
thereafter bound by the new lease agreement. Their
rights and obligations become mutually fixed, and
the lessee is entitled to retain possession of the
property for the duration of the new lease, and the
lessor may hold him liable for the rent therefor.
Mutuality obtains in such a contract and equality
exists between the lessor and the lessee since they
remain with the same faculties in respect to
fulfillment.
b) How shall the clause be interpreted or
applied?
may be renewed for a like term at the
means that the exercise by the
lessee of his option resulted in the automatic
extension of the contract of lease under the same
Page 50 of 66
terms and conditions prevailing in the original
contact of lease; i.e. for a
referring to the period of the lease. If the
renewed contract were still subject to mutual
agreement by the lessor and the lessee, then the
option which is an integral part of the consideration
for the contract -- would be rendered worthless. For
by simply imposing unreasonable and onerous
conditions to prevent the parties from reaching an
agreement. (Allied Bank Corp. v. Court of Appeals,
284 SCRA 357 [1998])
397. D obtains from a bank a loan of P1 million
payable in five years. He signs a promissory note
containing a provision that the rate of interest
charged on the obligation shall be subject to such
increase within the rates allowed by law, as the
debtors. Is the stipulation valid?
No. The unilateral determination and imposition of
increased interest rates by the bank is violative of the
principal of mutuality of contracts ordained in
Article 1308 of the Civil Code. As held in Philippine
National Bank v. Court of Appeals, 238 SCRA 20
[1994], it is basic that there can be no contract in the
true sense on the absence of the element of
agreement, or of mutual assent of the parties. If this
assent is wanting on the part of one who contacts, his
act has no more efficacy than if it had been done
under duress or by a person of unsound mind.
Similarly, contract changes must be made with the
consent of the contracting parties. The minds of all
the parties must meet as to the proposed
modifications, especially when it affects an
important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of
interest is always a vital component, for it can make
or break a capital venture. (Mendoza v. Court of
Appeals, 359 SCRA 438 [2001])
398. What are the so-called innominate
contracts?
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
The following are termed innominate contracts: 1) do
ut des I give that you may give; (2) do ut facias I
give that you may do; 3) facio ut des I do that you
may give; and 4) facio ut facias I do that you may
do.
399. X leased to Y a building. Their lease
agreement contains the following terms: a) the
lease shall be for a period of ten years; b) the
lessee shall not assign the lease to third persons
without the prior consent of the lessor; c) lessor
shall have the right to sell the leased premises
during the period of the lease; and d) in the event
that the lessor decides to sell the leased premises,
the lessee has the first option to purchase the
property. On the second year of the lease, the
lessor informed the lessee of his desire to sell the
property. Being then sickly, the lessee assigned his
right of first option under the lease contract to his
son. Does the son have the right to exercise his
contract?
No, because the assignment has no legal basis.
Article 1311 of the Civil Code is too clear to be
only between the parties, their assigns and heirs
except in cases where the rights and obligations
arising from the contract are not transmissible by
In the case at bar, the lease contract between the
lessor and the lessee clearly reveals the intent of the
parties to limit their lease relationship to themselves
alone. It cannot be denied that the right of first option
to buy the leased property given to the lessee in case
of its sale is but part of the bigger right to lease said
property from the lessor. The option was given to the
lessee because he was the lessee of the property. It
was a component of the consideration of the lease. If
the lessee is barred by the contract from assigning his
right to lease the property to any other party, he is
similarly barred from assigning his first option to buy
the leased property to his son. (Bayangan v. Court of
Appeals, 278 SCRA 379 [1997])
Page 51 of 66
400. Which contracts are required to be in the
prescribed form to be valid?
The following contracts are required to be in the form
prescribed by law to be valid: a) if the value of the
personal property donated exceeds P5,000, the
donation and the acceptance shall be made in writing
; otherwise, the donation is void; b) donation of an
immovable, regardless of value, must be in a public
instrument; c) a contract of partnership is void
whenever property is contributed thereto, if an
inventory of said property is not made, signed by the
parties, and attached to a public instrument; d) sale
of piece of land through an agent; e) antichresis; and
f) stipulation to pay interest. (Arts. 748, 1773, 1874,
2134 and 1956, Civil Code)
401. Lebron leased to Kobe a building for a
period of 10 years. Lebron has repeatedly assured
Kobe that if he should decide to sell the building,
he will give Kobe the right of first refusal. On the
6th year of the lease, Lebron informed Kobe thru
a letter that he was willing to sell to the latter the
building for P5 million. Kobe offered to buy the
building for P4.5 million. Lebron did not reply.
One week later, Kobe received a letter from MJ
informing him that the building had been sold to
him by Lebron for P5 million, and that he will not
a)
refusal?
No. The right of first refusal is not based on a
contract but is predicated on the provisions of human
relations and, therefore, its violation is predicted on
a quasi-
refusal does not go so far as to give him the power to
dictate on the lessor the price at which the latter
should sell his property. Upon the facts given, the
lessor had sufficiently complied with his
commitment to give the lessee a right of first refusal
when he offered to sell the property to the lessee for
P5 million, which was the same price he got in
selling it to MJ. He certainly had the right to treat the
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
of his offer to sell at P5 million. Thus, he was free to
find another buyer upon receipt of such counter-
offer.
b) Suppose Lebron gave Kobe an option to
purchase instead of a right of first refusal,
will
your answer be the same?
Yes, the answer will be the same. An option must be
supported by a consideration separate and distinct
from the purchase price. In this case, there was no
separate consideration. Therefore, the option may be
withdrawn by Lebron at anytime.
402. Lessor has repeatedly assured Lessee that if
he should decide to sell the building, he will give
Lessee the pre-emptive right to buy the leased
property. Conformably with their verbal
agreement, Lessor offered to sell to Lessee the
building for P2 million, but the latter counter-
offered to buy it at the lesser price of P1 million.
Lessee later learned that a buyer had already
purchased the property from Lessor for
P800,000. He discovered that the sale had already
been consummated when Lessor offered to sell it
to him. Lessee thus offered to reimburse the buyer
the purchase price of P800,000 plus an additional
P200,000 to complete his earlier offer of P1
million. When the offer was refused, Lessee
brought an action for rescission of the sale. After
due proceedings, however, the court dismissed the
redemption on which the complaint is based is
merely an oral one and as such, is unenforceable
a) Is the right of first refusal governed by the
Statute of Frauds?
No. A right of first refusal is not among those listed
as unenforceable under the Statute of Frauds. The
application of Article 1403, par. 2(e) of the Civil
Code presupposes the existence of a perfected
contract of sale of real property. It is a contractual
grant, not of the sale of the real property involved but
Page 52 of 66
of the right of first refusal over the property sought
to be sold. The right of first refusal need not be
written to be enforceable and may be proved by oral
evidence. (Rosencor Development Corporation v.
Inquing, 354 SCRA 119 [2001])
b) Is a contract of sale which is entered into in
refusal subject to rescission in order that the third
party can exercise the right?
Yes. The prevailing doctrine is that a contract of sale
entered in violation of a right of first refusal of
another person, while valid, is rescissible. There is,
however, a circumstance which prevents the
application of this doctrine in the instant case. In a
number of cases, the Supreme Court ordered the
rescission of contacts of sale made in violation of a
right of first refusal precisely because the vendees
therein could not have acted in good faith as they
were aware or should have been aware of the right of
first refusal granted to another person by the vendors
therein. The rationale for this is found in the
provisions of the Civil Code on rescissible contacts.
Under Article 1381, par. 3 of the Civil Code, a
contract validly agreed upon may be rescinded if it is
Moreover, under Article 1385, rescission shall not
are the object of
the contract are legally in the possession of third
It must be borne in mind that, unlike the cases earlier
decided by the Supreme Court, the right of first
refusal involved in the instant case was an oral one
given to Lessee by Lessor. There is no evidence to
hold that the buyer acted in bad faith in entering into
the deed of sale over the disputed property with
Lessor. Lessee failed to present any evidence that
prior to the sale of the property, the buyer was aware
or had notice of the oral right of first refusal.
(Rosencor Development Corporation v. Inquing, 354
SCRA 119 [2001])
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
403. S is the owner of two adjoining properties
identified as Lots 1 and 2. S sold Lot 1 to B.
However, when the certificate of title to the
property was delivered to the notary public for
the preparation of the document of sale, what was
delivered was the certificate of title for Lot 2.
Thus, what was made to appear in the document
of sale was the sale of Lot 2, instead of Lot 1.
May the buyer file an action for reformation of
the document of sale?
Yes. An action for reformation of instrument under
Article 1359 of the Civil Code may prosper only
upon the concurrence of the following requisites: 1)
there must have been a meeting of the minds of the
parties to the contract; 2) the instrument does not
express the true intention of the parties; and 3) the
failure of the instrument to express the true intention
of the parties is due to mistake, fraud, inequitable
conduct, or accident. All theses requisites are present
in this case. Hence, reformation is proper. (Sarming
v. Dy, G.R. No. 1333643, June 6, 2002)
404. What is meant by contra preferentem?
The ambiguity in a contract is to be taken contra
preferentem, that is, construed against the party who
caused the ambiguity who could have avoided it by
the exercise of a little more care.
QUESTIONS 1-2 are based on the following fact
situation:
405. Maria died, leaving her nephew, Ramon,
as her sole heir. Among the items inherited by
Ramon were some old oil paintings that had been
Ramon knew nothing about art and had no place
to put them in his house. He placed an ad in the
le, a buyer for an
art gallery, responded to the ad and examined the
paintings. From the signature and the style,
Nicole recognized that the artist was Botong
Francisco, a renowned Filipino portrait artist.
Page 53 of 66
Ramon and Nicole agreed upon a price and
executed a contract.
1. Which of the following facts, if true, would give
Ramon the best basis for avoiding the contract
with Nicole?
a) Ramon told Nicole that Maria had
dabbled in painting when she was
younger and had undoubtedly painted
them herself.
b) Ramon did not know that Nicole was a
buyer for an art gallery and was very
familiar with the works of renowned
Filipino artists.
c) Ramon told Nicole that he wanted to
get rid of the paintings as soon as
possible because he was angry at his
aunt for giving away most of her
possessions to her friend just before
she died.
d) Nicole falsely told Ramon that the
paintings were to be used to furnish
house in Tagaytay City.
The statement in (a) would enable Ramon to annul
the contract on the ground of mistake if Nicole was
aware that Ramon was mistaken about the identity of
the artist. Under the facts in this choice, Nicole
knows that Ramon is mistaken about the identity of
the artist, which mistake refers to the substance of the
thing which is the object of the contract. (Art. 1311,
Civil Code)
The statement in (b) is wrong because the fact that
one of the parties to the contract has superior
knowledge about the subject matter of the contract
does not by itself justify annulment, even if the other
pa
lack of it was not the principal cause on which the
contract was made and was not relied on by Ramon
in making the sale.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
The statement in (c) is wrong because the fact that
Ramon was angry when he agreed to the contract is
not a ground for annulment of a contract under the
a meeting of the minds between the parties.
misrepresentations to Ramon as to how she will use
the paintings does not appear to go to the substance
of the thing which is the subject matter of the contract
or to have been relied on by Ramon. Hence, the
misrepresentation is not significant enough to serve
as a ground for annulling the contract.
2. Which of the following facts, if true, would give
Nicole the best basis for annulling the contract
with Ramon?
a) Several of the paintings cracked when
they were being transported by Nicole
because they were brittle with age.
b) The day after the purchase, a respected
art historian announced in a press
release that several of Botong
Francisco paintings were actually done
by his students, causing the value of all
decline.
c) Because of some experimental
pigments that the artist had used, the
colors began to fade rapidly as soon as
the paintings were exposed to light;
within a few days, virtually all of the
colors had faded away.
d) The gallery for which Nicole had
procured the paintings was destroyed
by a fire shortly after the contract was
executed.
The circumstances of (c) offer the best ground for
annulling the contract based on mutual mistake.
When both parties entering into a contract are
mistaken about facts relating to the agreement, the
contract may be voidable by the adversely affected
party if the latter did not assume the risk or
Page 54 of 66
contingency of mistake. Here, both parties believed
that the paintings would be suitable for viewing and
had no reason to suspect that their color would fade
away when exposed to light. Despite Ni
superior knowledge of the subject matter of the
contract, it is doubtful that she would be deemed to
have assumed the risk or contingency of what
occurred to the paintings. (Art. 1311, Civil Code)
The circumstances in (a) are not that strong as basis
for annulment. Even assuming that both parties
mistakenly believed that the paintings were not too
fragile to be transported, that risk is more likely to be
assumed by Nicole.
The circumstances in (b) suggest only that Nicole
have made a mistake as to the value of the paintings,
but since Ramon knew nothing about the identity of
the artist, the mistake is unilateral and Nicole cannot
annul on this ground.
Choice (d) is incorrect because the circumstances do
not satisfy the requirements for annulment. Under
Article 1351 of the Civil Code, the particular motives
of the parties in entering into the contract are
different from the cause thereof. Here, it is doubtful
that the motive for which Nicole made the contract
was rendered inexistent by the destruction of the
gallery, and there is no indication that Ramon was
into the contract.
406. The Statute of Frauds:
a) Mandates that both parties sign the
written contract evidencing their
agreement.
b) Applies to all contracts under which
payment of P500 or more must be
performed.
c) Has no requirement that all terms and
reduced in one document.
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 55 of 66

d) Sets forth the elements of fraud as

applicable to inducing another party to
enter into a contractual relationship.
The statement in (c) is correct. The Statute of Frauds
reduced to one document. The Statute of Frauds
requires the essential terms of certain contracts to be
evidenced by a writing to be enforceable. Any
writing will suffice as long as it contains every
need not be a single document. (Art. 1403 par. 2,
Civil Code)
The statement in (a) is incorrect because the Statute
of Frauds requires only that the party to be charged
sign the note or memorandum evidencing the
existence of their oral agreement. The signature
requirement of the Statute of Frauds is met if the
writing contains the signature of the party to be
charged or that of his agent.
The statement in (b) is incorrect because the P500
threshold under the Statute of Frauds is relevant only
to contracts for the sale of goods. Thus, for example,
a contract for services is not within the Statute, even
if the consideration is P500 or more , as long as it can
be performed within a year from the making thereof.
The statement in (d) is wrong because the Statute of
Frauds contains no such provisions. As already
stated, the Statute of Frauds requires certain
agreements to be evidenced by a writing signed by
the parties to be bound. Despite its name, the Statute
does not set forth the element of fraud as applicable
to contractual relationships.
407. Anthony and Cleopatra agreed that
Anthony would lease office space to Cleopatra for
three years at a fixed rent. Before she took
possession of the premises, Cleopatra learned of a
much more advantageous opportunity and
established her office elsewhere. To force
Cleopatra to perform, Anthony brought an action
strongest argument?
argument because it is a defense to the enforcement
of three-year leases not reduced to writing. To be
enforceable, the Statute of Frauds requires certain
agreements to be evidenced by a writing signed by
the party to be charged, including agreements
creating an interest in land. Leases for more than one
year are therefore generally covered by the Statute of
Frauds. Because the agreement between Anthony
and Cleopatra is for a three-year lease, the Statute of
enforcement of the agreement. (Art. 1403, par. 2 (e),
Civil Code)
408. A friend called Peter by long distance
telephone from Tarlac City to say that he must
have a new tire for his car to get back home to
Baguio City. Over the telephone, Peter said to the
enforceable?
one in which he made himself directly and primarily
responsible for the amount of credit extended. Thus,
Peter made his own contract with the repair shop
This is not a case of a special promise to answer for
the debt, default or miscarriage of another which the
law requisites to be in writing to be enforceable.
409. Divino obtains an agricultural loan of
P350,000 from a rural bank. The loan is secured
by a real estate mortgage on a house and lot
owned by Divino. For failure of Divino to pay the
loan when it matured, the bank foreclosed the
mortgage and bought the foreclosed properties at
the auction sale. Divino failed to redeem the
properties within the one-year redemption period
prompting the bank to consolidate its ownership
over the house and lot. Divino subsequently
brought an action to nullify the mortgage as well
as the foreclosure sale. Divino alleges in his
complaint that the loan and mortgage contracts
were made to appear as several sugar crop loans
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
not exceeding P50,000 each even if they were not
just so the bank could grant and approve the
same pursuant to the Rural Banks Act. In short,
Divino argues that the sugar crop loans were
merely simulated contracts and, therefore,
without any force and effect.
a) What are the two kinds of relatively
simulated contracts?
There are two juridical acts involved in relative
simulation, the ostensible act and the hidden act. The
ostensible act is the contract that the parties pretend
to have executed while the hidden act is the true
agreement between the parties. To determine the
enforceability of the actual agreement between the
parties, it is important to discern whether the
concealed or hidden act is lawful and the essential
requisites of a valid contract are present.
b) Are the loan contracts obtained by
Divino valid?
The loan contracts are void. Given the factual
antecedents of this case, it is obvious that the sugar
crop loans were relatively simulated contracts and
that both parties intended to be bound thereby. In this
case, the juridical act which binds the parties are the
loan and mortgage contracts, i.e
procurement of a loan from the bank. Although these
loan and mortgage contracts were concealed and
made to appear as sugar crop loans to make them fall
within the purview of the Rural Banks Act, all the
essential requisites of a contract were present.
However, the purpose thereof is illicit, intended to
circumvent the Rural Banks Act requirement in the
procurement of loans. Consequently, while the
parties intended to be bound thereby, the agreement
is void and inexistent under Article 1409 of the Civil
Code.
c) If the loan contracts are void, is Divino
entitled to repurchase the properties?
Applying the pari delicto doctrine, Divino is not
entitled to repurchase the properties. In arguing that
the loan and mortgage contracts are null and void.
Page 56 of 66
Divino would impute all fault therefore to the bank.
knowledge and voluntariness on his part to enter into
the simulated contracts. Consequently, the fault for
neither party can maintain an action against the other,
as provided in Article 1412 of the Civil Code.
Moreover, Divino did not come to court with clean
hands. He admitted that he never planted sugarcane
on any property, much less on the mortgaged
property. Yet, he eagerly accepted the proceeds of
the simulated sugar crop loans. Divino readily
participated in the ploy to circumvent the law and
offered no objection when their original loan of
P350, 000 was divided into small separate loans not
exceeding P50,000 each. Clearly, Divino and the
bank are in pari delicto, and neither should be
accorded affirmative relief as against the other.
(Villegas v. Rural Bank of Tanjay, Inc.)
410. When the defect of a void contract consists in
the illegality of the cause or object of the contract,
and both parties are at fault or in pari delicto, the
law refuses them every remedy and leaves them
where they are. This rule which is embodied in
Article 1411 of the Civil Code is what is commonly
known as the principle of in pari delicto. What are
the exceptions to this principle?
1. Payment of usurious interest. In such case,
the law allows the debtor to recover the interest paid
in excess of that allowed by the usury laws, with
interest thereon from the date of payment. (Art. 1413,
Civil Code)
2. Payment of money or delivery of property for
an illegal purpose, where the party who paid or
delivered repudiates the contract before the purpose
has been accomplished, or before any damage has
been caused to a third person. In such case, the courts
may allow such party to recover what he has paid or
delivered, if the public interest will thus be
subserved. (Art. 1414, Civil Code)
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 57 of 66

3. Payment of money or delivery of property by

an incapacitated person . In such case, the courts may
allow such person to recover what he has paid or
delivered, if the interest of justice so demands. (Art.
1415, Civil Code)
4. Agreement or contract which is not illegal
per se but is merely prohibited by law, and the
prohibition is designed for the protection of the
plaintiff. In such case, such plaintiff, if public policy
is thereby enhanced, may recover what he has paid
or delivered. (Art. 1416, Civil Code)
5. Payment of any amount in excess of the
maximum price of any article or commodity fixed by
law. In such case, the buyer may recover the excess.
(Art. 1417, Civil Code)
6. Contract whereby a laborer undertakes to
work longer than the maximum number of hours
fixed by law. In such case, the laborer may demand
for overtime pay. (Art. 1418, Civil Code)
7. Contract whereby a laborer accepts a wage
lower than the minimum wage fixed by law. In such
case, the laborer may demand for the deficiency.
(Art. 1419, Civil Code)
SALES
411. Buyer made a written offer to

property. When the first offer of P500,000 was

rejected, Buyer made a second offer which is
likewise rejected. Undaunted, Buyer made a
third written offer for P600,000 with a check
for P100,000 as earnest money. The last
written offer contains the handwritten
received original (9-4- beside
the signature of Seller. Is there a perfected
contract of sale between Seller and Buyer?
No. It is fundamental principle that before a contract
of sale can be valid, the following elements must be
present: a) consent of the contracting parties; b)
determine subject-matter; and c) price certain in
money or its equivalent. Until the contract of sale is
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation
between the parties.
The annotation in the third written offer amounts
neither to a written nor an implied acceptance by
offer. The requisites of a valid contract of sale are
lacking in said receipt and therefore the sale is
neither valid nor enforceable (Jovan Land v. Court of
Appeals, 268 SCRA 160 [1997])
412. Maria gave Clara the exclusive
right to sell her brand of maong pants in
Davao City, the price of which is to be paid
within 60 days from delivery, and promising
to pay Clara a commission of 20% on all sales.
After delivery of the merchandise to Clara but
before the latter could sell any of them,
burned without her fault, together with all of
pants?
Yes. The contact between Maria and Clara is a sale
and not an agency to sell. This is so because the price
is payable by Clara within 60 days from delivery
even if she is unable to resell it. If Clara were an
agent, she is not bound to pay the price and, under
Article 1504 of the Civil Code, the thing perishes
with the owner. Hence, Clara must still pay the price.
413. in the
law on sales?
principle in law which states that a purchaser of a
property cannot close his eyes to facts which should
put a reasonable man on his guard and claim that he
acted in good faith under the belief that there was no
title will not make him an innocent purchaser for
value (should such title later prove to be defective),
if circumstances are such that a reasonably prudent
man would have taken the necessary precaution if in
Page 58 of 66
the same situation (Embrado v. Court of Appeals,
233 SCRA 333[1994])
414. Distinguish between a contract of
sale and a contract to sell.
A contract of sale and a contract to sell are
distinguished as follows: 1) In a contact of sale, the
non-payment of the purchase price is a resolutory
condition, that is, the contract of sale may such
occurrence put an end to a transaction that once upon
a time existed; in a contract to sell, the payment in
full of the price is a positive suspensive condition.
Hence, if the price is not paid, it is as if the obligation
of the seller to deliver and to transfer ownership
never became effective and binding; 2) In a contract
of sale, title over the property generally passes to the
buyer upon delivery; in a contract to sell, ownership
is retained by the seller, regardless of delivery and is
not to pass until full payment of the price; 3) In a
contract of sale, after delivery has been made, the
seller has lost ownership and cannot recover it unless
the contract is resolved or rescinded; in a contract to
sell, since the seller retains ownership despite
delivery, he is enforcing, not rescinding, the contract
if he seeks to oust the buyer for failure to pay.
415. In a contract to sell, is it necessary
for the vendor to refund what the vendee paid
under the contract?
Yes, the partial payment made by the buyer must be
returned to him, there being no provision regarding
forfeiture of payments made in any of the documents
executed by the parties. Such action is but just and
equitable under the premises. If it were otherwise,
there will be unjust enrichment on the part of the
seller at the expense of the buyer. (Orden v. Aurea,
G.R. No. 172733 August 20, 2008)
416. What is a sale by sample?
A sale by sample is one where a specimen is
exhibited to serve as the standard of quality with the
understanding that the product to be delivered would
correspond with the specimen or sample and creates
an implied warranty that the goods would be free
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
from any defect which is not apparent on reasonable
inspection of the sample.
417. What is a sale by description?
A sale by description is one where the buyer has not
seen the article sold and relies on the description
given to him by the seller and creates a warranty that
the goods will conform to the description by the
seller.
418. What is a sale?
A sale is one where the goods
manufactured and sold are according to the
specifications provided by the buyer as to the
measurement, material, design, and qualify of the
goods to be manufactured.
419. After inspecting the furniture on display at
ordered a dining set
worth P60,000. Beth made known to Amy her
specifications of the set as to material, design, and
measurement to which Amy agreed. Before
leaving, Beth made a deposit of P10,000 and
another deposit of P20,000 the following week.
The following month, Amy delivered the set to
Beth. When Beth saw the delivered item, she
rejected it for poor craftsmanship. She then
requested a refund of her deposits. Amy refused.
Beth later instituted an action to rescind the sale
under Article 1481 of the Civil Code. She
contends that the assailed transaction is a sale by
Is Beth correct?
No. The sale of the dining set in this case is not a sale
by sample. Sale by sample does not include an
agreement to manufacture goods to correspond with
a pattern. Here the set was manufactured according
to the specifications provided by the buyer. Beth did
not order the exact replica of the furniture displayed
the material, design and measurement of the furniture
she ordered. Neither is the transaction a sale by
description. Beth did not rely on any description
made by Amy when she ordered the furniture. The
transaction is actually a perfected contact of sale. For
Page 59 of 66
Beth to be entitled to rescind it, she must prove that
do. (Mendoza v. David, October 22, 2004)
420. Seller sells to Buyer a parcel of land
pursuant to an agreement denominated as
agreement contains the following stipulations: a)
Buyer shall pay the total price of P2 million; b)
Buyer shall pay a down payment of P300,000
upon the signing of the contract; c) Buyer shall
pay the balance of P1.8 million upon presentation
by Seller of a transfer certificate of title in his
name and delivery of a registerable document of
signing of the contract; d) the retained balance of
the purchase price would earn interest at 17%
interest per annum payable to Seller; and e)
Buyer would have absolute and unconditional
possession of the lot as well as the right to
introduce improvements thereon. Is the sale
absolute or conditional?
Although denominated as a conditional sale, the
contract between the vendor and the vendee is one of
absolute sale. A deed of sale is absolute in nature
a stipulation reserving title in the vendor until
payment of the purchase price or a stipulation
allowing the vendor the right to unilaterally rescind
the contract in case of non-payment.
In the instant case, ownership of the lot passed to the
vendee both by constructive and actual delivery.
Constructive delivery was accomplished upon the
execution of the contract without any reservation of
title on the part of the vendor, while actual delivery
was made when the vendee took unconditional
possession of the lot and introduced valuable
improvements thereon. (Babasa v. Court of Appeals,
290 SCRA 532 [1998])
421. Vendor sells to Vendee a parcel of land.
rights and obligations under the contract and
paid in full the selling price of the lot from their
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
own funds. After full payment of the purchase
price, however, Vendor erroneously executed a
deed of absolute
already dead, instead of his children who assumed
his rights and obligations in the contract. Due to
the error, the Register of Deeds issued a
children. The heirs of Vendee subsequently
brought an action for the cancellation or
of a new certificate of title in their names and to
reflect in said title their distributive shares. After
due proceedings, the court dismissed the action on
the ground that it pertains more to the partition
ownership of title of the property to his children
as compulsory heirs. The court thus declared that
Section 108 of P.D. 1529 (which calls for summary
proceedings) does not apply. Is there a valid
Yes. Section 108 of P.D. 1529 is clearly available as
a remedy to correct the erroneous issuance of the
certificate of title in the name of Vendee. It is
undisputed that Vendee died without having
completed the installments on the property. His heirs
then took over the contract to sell, assumed his
obligation thereunder by paying the selling price of
the lot from their own funds, and completed the
payment. Thus, the ownership of the lot had not been
vested in Vendee during his lifetime.
Indeed, Vendor could not have transferred the title
over the lot, through a deed of absolute sale, to
Vendee considering that the latter is already dead.
When Vendor executed the deed of sale, the
deceased Vendee had no more civil personality or
juridical capacity. His juridical capacity, which is the
fitness to be the subject of legal relations, was lost
through death.
Having stepped into the shoes of their father Vendee
upon his death with respect to the contract to sell, and
being the ones who continued the installment
payments of the selling price from their own funds
Page 60 of 66
until its full payment, the children of Vendee
necessarily became the owners of the subject lot in
whose favor the deed of sale should have been
executed by Vendor. (Dawson v. Register of Deeds,
295 SCRA 733[1998])
(NOTE: In a contract to sell, the title over the subject
property vests in the vendee only upon full payment
of the consideration. Where the installments agreed
upon have not been completely paid upon the death
of the original vendee and the certificate of title was
erroneously issued in his name, his heirs, who
assumed his obligation and completed the payment,
can resort to the summary proceedings under Section
108 of P.D. 1529 to correct the manifest mistake)
422. Is it necessary that the seller be the owner of
the thing sold?
A seller need not be the owner of the thing sold at the
time of the perfection of the sale. It is sufficient only
that he is the owner at the time the object is delivered;
otherwise, he may be held liable for breach of
warranty against eviction.
(NOTE: Sale of a parcel of land by a non-owner who
cannot deliver the thing sold is null and void under
Article 1409 of the Civil Code because it
contemplates an impossible service. (Nool v. Court
of Appeals, 276 SCRA 149 [1997])
423. S sells to B a 500-square meter portion of the
second floor of a building which is yet to be
constructed. Is there a perfected contract of sale?
Yes. Being consensual in nature, the contract of sale
was perfected by mere consent when S and B agreed
on the subject matter and the price. The perfection of
the sale is not negated by the fact that the property
subject of the sale was not yet in existence at the time
they entered into the contract. This is so because the
ownership by the seller of the thing sold at the time
of the perfection of the contract of sale is not an
element of its perfection. A perfected contract of sale
cannot be challenged on the ground of nonownership
on the part of the seller at the time of its perfection.
What the law requires is that the seller has the right
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
to transfer ownership at the time the thing is
delivered to the buyer. Perfection per se does not
transfer ownership. What transfers ownership is the
actual or constructive delivery of the thing sold to the
buyer. (Arra Realty Corp. v. Guarantee Devt. Corp.
and Insurance Agency, September 20, 2004) 424.
What is emptio rei sperati? Emptio spei? What is
their effect in a contract of sale?
Emptio rei sperati is the sale of an expected thing;
while emptio spei is the sale of the hope itself. (Art.
1461, Civil Code) If the expected thing in emptio rei
sperati does not materialize, the sale is not effective.
In emptio spei, it does not matter whether the
expected thing materialized or not; what is important
is that the hope itself validly existed.
(NOTE: While there can be no donation of a future
property under Art. 751 of the Civil Code, there can
be a valid sale of a future property)
425. What is meant by icitacion
a determine thing which is not accepted. This
produces no juridical effect, and creates no legal
bond. This is a mere offer, and has not yet been
converted into a contract.
426. S owns a parcel of land which he is
selling for P20 million. B, a car dealer, is
interested in buying the property for his car
sales company. After several failed
- exclusive right to buy the property within the period
money of P1 million on condition that he will
be given the exclusive option to purchase the
property within 60 days to be refunded in case
of failure of the parties to negotiate on the
terms and conditions of the sale of the
-
money. Despite several attempts, the parties
failed to agree on the terms and conditions of
the sale within the stipulated 60-day period. S
thus returned to B the amount of P1 million
the money; instead, he brings an action for
Page 61 of 66
specific performance against S. Will the action
prosper?
No. B did not give the amount of P1 million as
the Civil Code. He presented the amount merely as a
deposit of what would eventually become the earnest
money or down payment should a contract of sale be
made by them. The amount was thus given not as a
part of the purchase price and as proof of the
perfection of the contract of sale but only as a
guarantee that B would not back out of the sale. B in
st-
-
been given as earnest money contemplated in Article
1482 of the Civil Code because, at the time when S
accepted the earnest-deposit money, their contract
had not yet been perfected. This is evident from the
-
option to purchase the property within 60 days from
-
during the option period, the parties would negotiate
the terms and conditions of the purchase.
The first condition sufficiently shows that a sale was
never perfected. Acceptance of this condition did not
give rise to a perfected sale but merely to an option
or an accepted unilateral promise on the part B to buy
the property within 60 days from the date of
acceptance of the offer. Such option giving B the
agreed upon is separate and distinct from the contract
of sale which the parties may enter into. Moreover,
there is no showing of any consideration for the
option. Lacking any proof of such consideration, the
option is unenforceable.
Another proof of the absence of a perfected sale is
the second condition that, during the option period,
the parties would negotiate the terms and conditions
of the sale. In the present case, the parties never got
past the negotiation stage. (San Miguel Properties
Philippines, Inc. v. Huang, 336 SCRA 737 [2000])
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 62 of 66

427. What is an earnest money? What are its ownership of the land to his son. Subsequently,
purposes? prior to the end of the end of the three-year
period, B tendered to S the purchase price. But S
An earnest money (arras) has a dual purpose: a) it is
refused and told him that the land had already
considered as part of the purchase price; and b) as
proof of perfection of a contract of sale.
commitment prompted M to bring an action for
428. In the absence of stipulation, may the specific performance. Will the action proper?
seller of real estate keep the earnest money to
answer for damages in the event that the sale fails
view of the absence of any consideration distinct
due to the fault of the prospective buyer?
from the stipulated price. This is the principle laid
In the absence of a specific stipulation, the seller is down by the second paragraph of Article 1479 of the
not allowed to keep the earnest money in the event
that the sale fails due to the fault of the prospective promise to buy or to sell a determinate thing for a
buyer. Under Article 1482 of the Civil Code, price certain is binding upon the promissory only if
whenever earnest money is given in a contract of the promise is supported by a consideration distinct
sale, it shall be considered as part of the purchase
price and as proof of the perfection of the contract.
The option money serves as an assurance for the
By its very nature, an earnest money is an advance
seller that there is a considerable degree of certainly
payment which must be deducted from the purchase
that the buyer will buy. It also serves as an assurance
price. Hence, the parties could not have intended that
for the buyer that he can freely make up his mind
the earnest money or advance payment would be
without fear that somebody else might buy the thing.
forfeited when the buyer should fail to pay the
Since B did not give option money, S can dispose of
balance of the price, especially in the absence of a
the land without any liability for damages. After all,
clear and express agreement thereon. Moreover, to
during the time she conveyed the land to her son, she
allow the forfeiture of the earnest money or advance
had no assurance that B will eventually buy it.
payment in favor of the seller would amount to unjust
(Montilla v. Court of Appeals, 161 SCRA 167)
enrichment of the seller at the expense of the buyer
(Goldenrod, Inc. v. Court of Appeals, 299 SCRA 141 430. What are some of the basic rules in
[1998]) transactions on sale or return?
429. S owns a parcel of land. Out of friendship, The following are some of the basic in rules in
he promised to sell the property to B for P2 transactions on sale or return.
million. She tells B that the price is to be paid
1) In a transaction on sale or return, the buyer
anytime within a three-year period provided that
becomes the owner of the thing sold upon delivery,
B constructs on the property a house of strong
but he may revest the ownership to the seller by
materials and pays a nominal monthly rental in
returning the thing within the time fixed in the
the meantime while the price has not been
contract; or if no time has been fixed, within a
reasonable time. (Art. 1501, Civil Code)
in turn to pay the price within the three-year
period given to him. 2) The buyer can return the thing even if he
finds nothing wrong with the quality of the thing
B occupied the land and paid nominal rentals
sold. The discretion to return is with the buyer.
thereon. He even constructed a house of strong
materials on the lot. Two years later, while B has
not yet paid the purchase price, S conveyed
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
3) If the thing is lost in the possession of the
buyer, he bears the loss because upon delivery to him
of the thing, he became the owner thereof.
431. What are some of the basic rules in a sale on
approval or trial or satisfaction?
The following are some of the basic rules in the sale
on approval or trial or satisfaction:
1) In a sale on approval or trial or satisfaction,
title remains with the seller, although there has been
delivery, unless the sale becomes absolute.
2) The risk of loss remains with the seller,
although there has been delivery, if the sale has not
yet become absolute, except: a) if buyer is at fault;
and b) if buyer had expressly agreed to bear the loss.
3) If it is stipulated that a third person must
signify approval or satisfaction, such a provision is
valid, but the third person must be in good faith. If
refusal to accept is not justified, seller may still sue.
432. Article 1523 of the Civil Code provides
that delivery to the carrier is presumed to be
delivery to the buyer. Is the rule absolute?
No, the rule is not absolute. While Article 1523 of
the Civil Code provides that delivery to the carrier is
presumed to be delivery to the buyer, such rule would
have no application where the sale itself specifically
called for delivery by the seller to the buyer at the
Mobile Oil
Phils., Inc. v. Court of Appeals, 272 SCRA 548
[1997])
433. Pedro sold to Maria, his common-law wife,
a parcel of land. Because of the sale, Maria
obtained a certificate of title in her name. Maria
later sold the land to Zandro who, at the time, was
not aware of the relationship of Pedro and Maria.
Pedro now seeks to recover the lot from Zandro
on the ground that his previous sale of the
property to Maria is null and void. Will the action
prosper?
Page 63 of 66
The action will not prosper. Pedro is correct in
claiming that the sale to Maria is null and void
because it was a sale between common-law spouses.
However, applying Article 1490 of the Civil Code by
analogy, Pedro can no longer recover the land from
Zandro because the latter is a buyer in good faith and
for value who had the right to rely on the title of
Maria. (Cruz v. court of Appeals, 281 SCRA
491[1997])
434. M executes a real estate mortgage on his
property in favor of S to answer for any deficiency
that may result from the foreclosure of the chattel
mortgage constituted over the car sold on
installments by S to B. Assuming there is a
deficiency after forecolosure of the chattel
mortgage constituted on the car sold, may S
foreclose the real estate mortgage constituted on
No, because in such a case, the third person-
mortgagor (M), after paying the deficiency through
foreclosure of the real estate mortgage, has the right
of a guarantor who can hold the vendee (B) liable for
the payment made, thus indirectly violating the
prohibition under the Recto Law. (Art. 1484, par. 3,
Civil Code)
435. Suppose in the preceding problem S
assigns the promissory note to N, promising the
latter that should B defaults in his payment and
the chattel mortgage is foreclosed resulting in a
deficiency, the assignor (S) shall answer for the
deficiency to the assignee N. Is this stipulation
valid?
Yes, because in such a case, it is no longer the
vendee, B, who is held liable but the vendor, S. There
is thus no violation of the Recto Law that if the
vendor avails himself of the right to foreclose, he is
prohibited from bringing an action against the
purchaser for the unpaid balance.
436. Pursuant to its car plan program for its top
employees, FedEx acquired a 2008 Toyota Altis
worth P800,000, and gave it to Juan subject to the
following conditions: a) in consideration of a
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
monthly rental of P10,000, the company leases to
Juan the vehicle for his use; b) Juan will pay lease
rental thru salary deduction for a period of five
years; c) for the duration of the lease agreement,
all expenses and costs of registration, insurance,
repair and maintenance, fuel and parts
replacement shall be for the account of Juan; d)
at the end of the 5-year period, Juan may
purchase the car from the company and all
monthly rentals shall be applied to the payment of
the purchase price of the car; e) in the event of his
resignation or dismissal from the service, Juan
shall return the car to the company in good
running condition.
FedEx later terminated Juan from the service due
to redundancy. At the time of his separation from
the service, Juan was able to make payments on
the car in the amount of P300,000 and made no
more payments thereafter. As a result, FedEx
recovered the car from Juan by virtue of a writ of
replevin issued by the court. What kind of
agreement was entered into by Juan and his
former employer?
The agreement between Juan and FedEx was one of
sale on installment, not lease. This is so because of
the stipulation in the agreement that all monthly
rentals shall be applied to the payment of the full
purchase price of the car. It is clear that the
transaction in this case is a lease in name only. The
socalled monthly rentals are in truth monthly
amortizations on the price of the car.
The contract being one of sale on installment,
Articles 1484 and 1485 of the Civil Code will apply.
Under Article 1484, the vendor in a sale of personal
property on the installment plan has three remedies
against the vendee; namely: a) to demand exact
fulfillment of the obligation, should the vendee fail
to pay cover two or more installments; and c)
foreclose the chattel mortgage on the thing sold, if
one has been constituted. Article 1485, on the other
hand, provides that Article 1484 shall be applied to
contracts purporting to be leases of personal property
Page 64 of 66
with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
Settled is the rule that the remedies under Article
1484 are alternative, not cumulative. The exercise of
one bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
Article 1485.
In the case at bar, the condition that the lessor has
deprived the lessee of the possession or enjoyment of
the thing for the purpose of applying Article 1485
was fulfilled by the recovery of possession of the car.
By virtue of the writ of replevin issued by the court,
the deputy sheriff seized the vehicle, thereby
Elisco Tool
Manufacturing Corporation v. Court of Appeals,
301 SCRA 731 [1999])
437. B bought from S a car on installments
subject to the following stipulations: 1) B shall
pay a down payment and the balance shall be paid
in 24 equal installments; 2) title to the car shall
remain with the seller until the purchase price has
been paid in full; and 3) if any two installments
are not paid when due, the whole principal sum
shall become due and the sale shall be
automatically rescinded and all sums paid
forfeited and considered as rentals.
B paid only for seven installments. Consequently,
S brought an action for the rescission of the sale
and for the return of the car. After an ex-parte
hearing, S repossessed the car. After trial, the
court rescinded the sale and directed B to pay the
outstanding balance of the purchase price of the
car. Is there ground for B to appeal the decision?
Yes. In a sale by installments, the seller has three
remedies to choose from in case the buyer fails to pay
any installment when due; 1) exact fulfillment of the
obligation; 2) cancel the sale; and 3) foreclose the
chattel mortgage on the thing sold if one has been
constituted (Art. 1484, Civil Code). If the seller
chooses one remedy, he cannot avail himself of the
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
other two. In this case, S chose the second remedy
which was to rescind the sale. This is clear from the
fact that S had taken possession of the car and it took
into account the value of the car repossessed when
the seller made a computation of the outstanding
balance of B. Having done so, the seller is barred
from exacting payment from B of the price of the car
it had already repossessed. (Delta Motor Sales v. Niu
Kim Duan, 213 SCRA 259)
438. Benjie sold his land to Cris who began to
possess it. Darwin, a stranger, sold the same land,
unauthorized by anyone, and in his own name to
Enrico, who registered the same in good faith.
Who owns the land, Cris or Enrico?
Cris should be considered as the owner even if he did
not register the land, because Enrico, who registered
the same, did not buy the land from its lawful owner,
but from a complete stranger totally unconnected
with the land. Article 1544 of the Civil Code cannot
therefore apply, it cannot be said that the land had
been sold twice by the same person.
439. Angelo sold his land to Banjo. Later,
Angelo sold the same land to Crisanto. Banjo in
turn sold the same to Donato, who took possession
of the land. Crisanto, a purchaser in good faith,
registered the land in his name. Who is now the
owner of the land, Crisanto or Donato?
Donato is the owner. It is true that Crisanto was in
good faith, and it is also true that Crisanto was the
first one to register the land, but Article 1544 of the
Civil Code can be applied only if the two buyers
(Crisanto and Donato) had bought the same property
from the same person. Article 1544 indeed does not
apply if there are two different sellers, one of whom,
when he made the conveyance, had long before
disposed of his rights as owner of the same.
440. Paula, by virtue of a Deed of Sale, sold an
unregistered parcel of land to Bernadette. Upon
xecuted an
he adjudicated exclusively unto himself the lot
Page 65 of 66
and simultaneously sold the same to Carmelita
who was unaware of the prior sale.
a) Is the rule on double sale under Article 1544 of
the Civil Code applicable to the problem?
No. Article 1544 of the Civil Code on double sales
applies only where the same thing is sold to different
vendees by the same vendor. It does not apply where
the same thing is sold to different vendees by
different vendors as in the case at bar.
b) Who between the two buyers is the rightful
owner of the lot?
Bernadette is the rightful owner of the property.
When Paula sold to Bernadette the property in
question, ownership thereof was transferred to the
latter in accordance with Article 1496 of the Civil
Code which provides that the ownership of the thing
sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in
Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is
transferred from the vendor to the vendee. Article
1498, in turn, provides that when the sale is made
through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the
contrary does not appear or cannot be clearly
inferred. In the problem presented, the Deed of Sale
between Paula and Bernadette contains nothing
contrary to intent to transfer ownership.
When Paula died, she no longer owned the lot and,
therefore, her brother Senando could not have
inherited it. The
did not thus confer
upon Senando ownership of the lot in question;
hence, he could not have conveyed it to Carmelita.
c) Is the issue of
in resolving whether she has a preferential
right to the lot?
The issue of good faith or bad faith is relevant only
where the subject of the sale is a registered land and
 OBLIGATIONS AND CONTRACTS
ATTY. GANDEZA NOTES COMPILED EDITION
Page 66 of 66

the purchaser is buying the same from the registered
owner whose title to the land is clean. In such case,
the purchaser who relies on the clean title of the
registered owner is protected if he is a purchaser in
good faith and for value. (Ong v. Olasiman, 465
SCRA 464 [2006])
441. S sold to B a parcel of land. B was made to
believe that the land was an unregistered land
when S sold it to him. Unknown to B, S had earlier
obtained a free patent over the property by virtue
of which he was issued a certificate of title. B later
sold the land to C who registered the transaction
under Act 3344 which is the law governing
registration of instruments affecting unregistered
lands. S also sold the land to D who registered the
sale under the Torrens system. Who now owns the
land, C or D?
The controversy involves a double sale. S first sold
the lot to B, from whom C, in turn, derived his right.
Then, after the first sale, S sold the same lot to D. The
applicable law, therefore, is Article 1544 of the Civil
Code which provides that if immovable property is
sold to different vend
the person acquiring it who in good faith first
In the instant case, D should be declared as the lawful
owner of the lot. If a parcel of land which is
registered under the Torrens system is sold, but the
sale is registered not under P.D. 1529 but under Act
No. 3344, such sale is not considered registered as
the term is used under Article 1544 of the Civil Code.
previously sold the same to somebody else even if
the earlier sale was unrecorded.
C cannot argue that he was led into believing that the
property was unregistered because a Torrens title
serves as notice to the whole world. He cannot also
say that the prior registration of his sale under Act
No. 3344 operates as a constructive notice to D that
3344 itself provides that registration thereunder
would not prejudice prior rights in good faith.
(Abrigo vs. de Vera, June 21, 2004)
442. Mariwasa is a company engaged in the sale
of selling roofing materials to the public. Through
extensive advertisements in media and in its
brochures, the company made representations
respecting the durability and the sturdiness of
roofing materials installed in accordance with its
particularly described method. Rey purchased
these roofing materials from Mariwasa. Deliveries
were made by Mariwasa and the materials were
installed by its employees. Rey later brought an
action against the company for damages caused to
his residence when its roof was blown away by a
typhoon. Will the action prosper?
The action will prosper. Mariwasa is liable under
Article 1546 of the Civil Code (express warranty)
because the company, as seller to the had made
affirmations of fact relating to.

sale under Act No. 3344 is not effective for purposes

of Article 1544 of the Civil Code. A registration must
be done in the proper registry in order to bind the
land.
Under Act No. 3344, registration of instruments
affecting unregistered lands is without prejudice to a
third party with a better right. Thus, under Act 3344,

give him any right over the land if the vendor was not
anymore the owner of the land because he had
LAW ON SALES
QUESTION NO. 1
What is a contract of sale?
A contract of sale is a contract where one party
obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party
obligates himself to pay for the thing a price certain
in money or its equivalent. (Art. 1458, CC)
QUESTION NO. 2
Should a sale always involve a determinate thing?
No. The object of a sale need not always be
determinate despite its definition under Article 1458.
It is enough that the thing is capable of being made
determinate without need of further contract.
Accordingly, a sale may cover a generic thing, as
long as the thing is determinate as to its kind as well
as quantity and quality.
QUESTION NO. 3
A contract to sell says
transferred by the seller to the buyer only upon
complete payment of the purch When
buyer failed to pay, seller files an action for
rescission. Is the action proper?
No. In a contract to sell, the seller retains title to the
thing sold until the buyer fully pays the purchase
price. The full payment is a positive suspensive
condition, the non-fulfillment of which is not a
breach of the contract but merely an event that
prevents the seller from conveying title to the
purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without
any effect. (Ayala Life v. Burton Dev. Corp., 479
SCRA 462).
Since the obligation of the seller did not arise because
of the buyer failure to fully pay the purchase price,
Article 1191 of the Civil Code (which provides for
rescission) would have no application.
QUESTION NO. 4
Buyer offered in writing to buy from Seller a
property. When the first offer of Php500,000 was
rejected, Buyer made a second offer which Seller
also rejected. Undaunted, Buyer made a third
written offer for Php600,000 with a check for
Php100,000 as earnest money. The last offer
received
original (9-4- beside the signature of Seller. Is
there a perfected contract of sale?
No. It is fundamental principle that before a contract
of sale can be valid, the following elements must be
present: a) consent of the contracting parties; b)
determine subject-matter; and c) price certain in
money or its equivalent. Until the contract of sale is
perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation
between the parties.
The annotation in the third written offer amounts
neither to a written nor an implied acceptance by
The annotation is merely a
memorandum of the receipt by Se
offer. The requisites of a valid contract of sale are
lacking in the receipt and therefore the sale is neither
valid nor enforceable (Jovan Land v. Court of
Appeals, 268 SCRA 160 [1997])
QUESTION NO. 5
Maria gave Clara the exclusive right to sell her
brand of maong pants in Davao City, the price of
which is to be paid within 60 days from delivery,
and promising to pay Clara a commission of 20%
on all sales. After delivery of the merchandise to
Clara but before Clara could sell any of them,
burned without her fault, together with all of
pants?
Yes. The contact between Maria and Clara is a sale
and not an agency to sell. This is so because the price
is payable by Clara within 60 days from delivery
even if she is unable to resell it. If Clara were an
agent, she is not bound to pay the price and, under
Article 1504 of the Civil Code, the thing perishes
with the owner. Hence, Clara must still pay the price.
QUESTION NO. 6
in the law on sales?
mirror doctrine
principle in law which states that a purchaser of a
property cannot close his eyes to facts which should
put a reasonable man on his guard and claim that he
acted in good faith under the belief that there was no
defect on the ven
will not make him an innocent purchaser for value
(should such title later prove to be defective), if
circumstances are such that a reasonably prudent
man would have taken the necessary precaution if in
the same situation (Embrado v. Court of Appeals,
233 SCRA 333[1994])
QUESTION NO. 7
Distinguish between a contract of sale and a
contract to sell.
A contract of sale and a contract to sell are
distinguished as follows: 1) In a contact of sale, the
non-payment of the purchase price is a resolutory
condition, that is, the contract of sale may such
occurrence put an end to a transaction that once upon
a time existed; in a contract to sell, the payment in
full of the price is a positive suspensive condition.
Hence, if the price is not paid, it is as if the obligation
of the seller to deliver and to transfer ownership
never became effective and binding; 2) In a contract
of sale, title over the property generally passes to the
buyer upon delivery; in a contract to sell, ownership
is retained by the seller, regardless of delivery and is
not to pass until full payment of the price; 3) In a
contract of sale, after delivery has been made, the
seller has lost ownership and cannot recover it unless
the contract is resolved or rescinded; in a contract to
sell, since the seller retains ownership despite
delivery, he is enforcing, not rescinding, the contract
if he seeks to oust the buyer for failure to pay.
QUESTION NO. 8
In a contract to sell, is it necessary for the seller to
refund what the buyer has paid under the
contract?
Yes, the partial payment made by the buyer must be
returned to him, there being no provision regarding
forfeiture of payments made in any of the documents
executed by the parties. This action is but just and
equitable under the premises. If it were otherwise,
there will be unjust enrichment on the part of the
seller at the expense of the buyer. (Orden v. Aurea,
G.R. No. 172733 August 20, 2008)
QUESTION NO. 9
What is a sale by sample?
A sale by sample is one where a specimen is
exhibited to serve as the standard of quality with the
understanding that the product to be delivered would
correspond with the specimen or sample and creates
an implied warranty that the goods would be free
from any defect which is not apparent on reasonable
inspection of the sample.
QUESTION NO. 10
What is a sale by description?
A sale by description is one where the buyer has not
seen the article sold and relies on the description
given to him by the seller and creates a warranty that
the goods will conform to the description by the
seller.
QUESTION NO. 11
What is a sale?
A sale is one where the goods
manufactured and sold are according to the
specifications provided by the buyer as to the
measurement, material, design, and qualify of the
goods to be manufactured.
QUESTION NO. 12
After inspecting the furniture on display
furniture shop, Beth ordered a dining set worth
Php60,000. Beth made known to Amy her
specifications of the set as to material, design, and
measurement to which Amy agreed. Before
leaving, Beth deposited Php10,000 and another
deposit of Php20,000 the following week.
The following month, Amy delivered the set to
Beth. When Beth saw the delivered item, she
rejected it for poor craftsmanship. She requested
a refund of her deposits. Amy refused. Beth now
seeks to rescind the sale under Article 1481 of the
Civil Code. She contends that the transaction is a
Is Beth
correct?
No. The sale of the dining set in this case is not a sale
by sample. Sale by sample does not include an
agreement to manufacture goods to correspond with
a pattern. Here the set was manufactured according
to the specifications provided by the buyer. Beth did
not order the exact replica of the furniture displayed
the material, design and measurement of the furniture
she ordered. Neither is the transaction a sale by
description. Beth did not rely on any description
made by Amy when she ordered the furniture. The
transaction is actually a perfected contact of sale. For
Beth to be entitled to rescind it, she must prove that
do. (Mendoza v. David, October 22, 2004)
QUESTION NO. 13
Seller sells to Buyer a property under a
agreement provides: a) Buyer must pay the total
price of Php2 million; b) Buyer must pay a down
payment of Php300,000 upon the signing of the
contract; c) Buyer must pay the balance of Php1.8
million upon presentation by Seller of a transfer
certificate of title in his name and delivery of a
within 20 months from the signing of the contract;
d) the retained balance of the purchase price
would earn interest at 17% interest per annum
payable to Seller; and e) Buyer would have
absolute and unconditional possession of the lot as
well as the right to introduce improvements on it.
Is the sale absolute or conditional?
Although denominated as a conditional sale, the
contract between Seller and Buyer is one of absolute
sale. A deed of sale is absolute in nature although
stipulation reserving title in the vendor until payment
of the purchase price or a stipulation allowing the
vendor the right to unilaterally rescind the contract in
case of non-payment.
Here, ownership of the lot passed to Buyer both by
constructive and actual delivery. Constructive
delivery was accomplished upon the execution of the
contract without any reservation of title on the part of
Seller, while actual delivery was made when Buyer
took unconditional possession of the lot and
introduced valuable improvements on it. (Babasa v.
Court of Appeals, 290 SCRA 532 [1998])
QUESTION NO. 14
Seller sells to Buyer a property. Upon
death, his children assumed his rights and
obligations under the contract and paid in full the
selling price from their own funds. After full
payment, however, Seller erroneously signed a
deed of sale in name who is already dead,
instead of his children who assumed his rights and
obligations in the contract.
Because of the error, the Register of Deeds issued
a certificate of title in Buyer
children. heirs subsequently brought an
action to cancel or correct their fathe
the issuance of a new certificate of title in their
names and to reflect in the title their distributive
shares.
After trial, the court dismissed the action on the
basis that it pertains more to the partition of
estate which will in effect transfer
ownership of title of the property to his children
as compulsory heirs. The court declared that
Section 108 of P.D. 1529 (which calls for summary
proceedings) does not apply. Is there a valid
ground to appeal the court
Yes. Section 108 of P.D. 1529 is clearly available as
a remedy to correct the erroneous issuance of the
certificate of title in name. It is undisputed
that Buyer died without having completed the
instalments on the property. His heirs then took over
the contract to sell, assumed his obligation
thereunder by paying the selling price of the lot from
their own funds, and completed the payment. Thus,
the ownership of the lot had not been vested in Buyer
during his lifetime.
Indeed, Seller could not have transferred the title
over the lot, through a deed of absolute sale, to Buyer
considering that the latter had already died. When
Seller signed the deed of sale, the deceased Buyer
had no more civil personality or juridical capacity.
His juridical capacity, which is the fitness to be the
subject of legal relations, was lost through death.
Having stepped into the shoes of their father Buyer
upon his death with respect to the contract to sell, and
being the ones who continued the instalment
payments of the selling price from their own funds
until its full payment, the children of Buyer
necessarily became the owners of the subject lot in
whose favor the deed of sale should have been
executed by Vendor. (Dawson v. Register of Deeds,
295 SCRA 733[1998])
(NOTE: In a contract to sell, the title over the
subject property vests in the vendee only upon full
payment of the consideration. Where the
installments agreed upon have not been completely
paid upon the death of the original vendee and the
certificate of title was erroneously issued in his
name, his heirs, who assumed his obligation and
completed the payment, can resort to the summary
proceedings under Section 108 of P.D. 1529 to
correct the manifest mistake)
QUESTION NO. 15
Is it necessary that the seller be the owner of the
thing sold?
A seller need not be the owner of the thing sold at the
time of the perfection of the sale. It is sufficient only
that he is the owner at the time the object is delivered;
otherwise, he may be held liable for breach of
warranty against eviction.
(NOTE: Sale of a parcel of land by a non-owner who
cannot deliver the thing sold is null and void under
Article 1409 of the Civil Code because it
contemplates an impossible service. (Nool v. Court
of Appeals, 276 SCRA 149 [1997])
QUESTION NO. 16
Seller sells to Buyer a 500-square meter portion of
the second floor of a building which is yet to be
constructed. Is there a perfected contract of sale?
Yes. Being consensual in nature, the contract of sale
was perfected by mere consent when S and B agreed
on the subject matter and the price. The perfection of
the sale is not negated by the fact that the property
subject of the sale was not yet in existence at the time
they entered into the contract. This is so because the
ownership by the seller of the thing sold at the time
of the perfection of the contract of sale is not an
element of its perfection. A perfected contract of sale
cannot be challenged on the ground of non-
ownership on the part of the seller at the time of its
perfection. What the law requires is that the seller
has the right to transfer ownership at the time the
thing is delivered to the buyer. Perfection per se does
not transfer ownership. What transfers ownership is
the actual or constructive delivery of the thing sold
to the buyer. (Arra Realty Corp. v. Guarantee Devt.
Corp. and Insurance Agency, September 20, 2004)
QUESTION NO. 17
What is emptio rei sperati? Emptio spei? What is
their effect in a contract of sale?
Emptio rei sperati is the sale of an expected thing;
while emptio spei is the sale of the hope itself. (Art.
1461, Civil Code) If the expected thing in emptio rei
sperati does not materialize, the sale is not effective.
In emptio spei, it does not matter whether the
expected thing materialized or not; what is important
is that the hope itself validly existed.
(NOTE: While there can be no donation of a future
property under Art. 751 of the Civil Code, there can
be a valid sale of a future property)
QUESTION NO. 18
What is
Policitacion promise to buy or to sell
a determine thing which is not accepted. This
produces no juridical effect, and creates no legal
bond. This is a mere offer, and has not yet been
converted into a contract.
QUESTION NO. 19
S owns a property which he is selling for Php20
million. B, a car dealer, is interested in buying the
property for his car sales company. After several
-
money of Php1 million on condition that he will be
given the exclusive option to purchase the
property within 60 days to be refunded if they fail
to negotiate on the terms and conditions of the
-
Despite several attempts, the parties failed to
agree on the terms and conditions of the sale
within the stipulated 60-day period. S then
returned to B the Php -
he brought an action for specific performance.
Will the action prosper?
No. B did not give the amount of Php1 million as
defined under Article 1482 of the
Civil Code. He presented the amount merely as a
deposit of what would eventually become the earnest
money or down payment should a contract of sale be
made by them. The amount was thus given not as a
part of the purchase price and as proof of the
perfection of the contract of sale but only as a
guarantee that B would not back out of the sale. B in
- because of the fault of the prospective buyer. Under
The Php - money is given in a contract of sale, it is to be
been given as earnest money contemplated in Article
1482 of the Civil Code because, at the time when S
accepted the earnest-deposit money, their contract
had not yet been perfected. This is evident from the
- parties could not have intended that the earnest
depos
option to purchase the property within 60 days from
- especially in the absence of a clear and express
during the option period, the parties would negotiate
the terms and conditions of the purchase.
The first condition sufficiently shows that a sale was
never perfected. Acceptance of this condition did not
give rise to a perfected sale but merely to an option
or an accepted unilateral promise on the part B to buy
the property within 60 days from the date of
acceptance of the offer. Such option giving B the
exclusive right to buy the property within the period
agreed upon is separate and distinct from the contract
of sale which the parties may enter into. Moreover,
there is no showing of any consideration for the
option. Lacking any proof of such consideration, the
option is unenforceable.
Another proof of the absence of a perfected sale is
the second condition that, during the option period,
the parties would negotiate the terms and conditions
of the sale. In the present case, the parties never got
past the negotiation stage. (San Miguel Properties
Philippines, Inc. v. Huang, 336 SCRA 737 [2000])
QUESTION NO. 20
What is an earnest money? What are its
purposes?
An earnest money (arras) has a dual purpose: a) it is
considered as part of the purchase price; and b) as
proof of perfection of a contract of sale.
QUESTION NO. 21
In the absence of stipulation, may the seller of real
estate keep the earnest money to answer for
damages in the event that the sale fails due to the
fault of the prospective buyer?
In the absence of a specific stipulation, the seller is
not allowed to keep the earnest money if the sale fails
Article 1482 of the Civil Code, whenever earnest
considered as part of the purchase price and as proof
of the perfection of the contract. By its very nature,
an earnest money is an advance payment which must
be deducted from the purchase price. Hence, the
money or advance payment would be forfeited when
the buyer should fail to pay the balance of the price,
agreement thereon. Moreover, to allow the forfeiture
of the earnest money or advance payment in favor of
the seller would amount to unjust enrichment of the
seller at the expense of the buyer (Goldenrod, Inc. v.
Court of Appeals, 299 SCRA 141 [1998])
QUESTION NO. 22
S owns a property. Out of friendship, he promised
to sell the property to B for Php2 million. He tells
B that the price is to be paid anytime within a
three-year period if B builds on the property a
house of strong materials and pays a nominal
monthly rental in the meantime while the price
and promised in turn to pay the price within the
three-year period given to him.
B occupied the land and paid nominal rentals on
it. He even constructed a house of strong materials
on the lot. Two years later, while B has not yet
paid the purchase price, S conveyed ownership of
the land to his son. Subsequently, before the end
of the end of the three-year period, B tendered to
S the purchase price. S refused and told him that
the land had already
refusal to honor his commitment prompted B to
bring an action for specific performance. Will the
action proper?
im in
view of the absence of any consideration distinct
from the stipulated price. This is the principle laid
down by the second paragraph of Article 1479 of the
promise to buy or to sell a determinate thing for a
price certain is binding upon the promissory only if
the promise is supported by a consideration distinct
The option money serves as an assurance for the
seller that there is a considerable degree of certainly
that the buyer will buy. It also serves as an assurance
for the buyer that he can freely make up his mind
without fear that somebody else might buy the thing.
Since B did not give option money, S can dispose of
the land without any liability for damages. After all,
during the time she conveyed the land to her son, she
had no assurance that B will eventually buy it.
(Montilla v. Court of Appeals, 161 SCRA 167)
QUESTION NO. 23
What are some of the basic rules in transactions
on sale or return?
The following are some of the basic in rules in
transactions on sale or return.
a. In a transaction on sale or return, the buyer
becomes the owner of the thing sold upon
delivery, but he may revest the ownership to the
seller by returning the thing within the time fixed
in the contract; or if no time has been fixed, within
a reasonable time. (Art. 1501, Civil Code)
b. The buyer can return the thing even if he finds
nothing wrong with the quality of the thing sold.
The discretion to return is with the buyer.
c. If the thing is lost in the possession of the buyer,
he bears the loss because upon delivery to him of
the thing, he became the owner thereof.
QUESTION NO. 24
What are some of the basic rules in a sale on
approval or trial or satisfaction?
The following are some of the basic rules in the sale
on approval or trial or satisfaction:
a. In a sale on approval or trial or satisfaction, title
remains with the seller, although there has been
delivery, unless the sale becomes absolute.
b. The risk of loss remains with the seller, although
there has been delivery, if the sale has not yet
become absolute, except: a) if buyer is at fault;
and b) if buyer had expressly agreed to bear the
loss.
c. If it is stipulated that a third person must signify
approval or satisfaction, such a provision is valid,
but the third person must be in good faith. If
refusal to accept is not justified, seller may still
sue.
QUESTION NO. 25
Article 1523 of the Civil Code says that delivery to
the carrier is presumed to be delivery to the
buyer. Is the rule absolute?
No. While Article 1523 of the Civil Code provides
that delivery to the carrier is presumed to be delivery
to the buyer, such rule would have no application
where the sale itself specifically called for delivery
business. (Mobile Oil Phils., Inc. v. Court of Appeals,
272 SCRA 548 [1997])
QUESTION NO. 26
Pedro sold to Maria (his common-law wife) a
property. Because of the sale, Maria obtained a
certificate of title in her name. Maria later sold
the land to Zandro who, at the time, was not
aware of the relationship of Pedro and Maria.
Pedro now seeks to recover the lot from Zandro
on the ground that his previous sale of the
property to Maria is void. Will the action
prosper?
No. Pedro is correct in claiming that the sale to Maria
is void because it was a sale between common-law
spouses. But applying Article 1490 of the Civil Code
by analogy, Pedro can no longer recover the land
from Zandro because the latter is a buyer in good
faith and for value who had the right to rely on
title. (Cruz v. court of Appeals, 281 SCRA
491[1997])
QUESTION NO. 27
M executes a real estate mortgage on his property
in favor of S to answer for any deficiency that may
result from the foreclosure of the chattel
mortgage constituted over the car sold on
instalments by S to B. Assuming there is a
deficiency after foreclosure of the chattel
mortgage on the car sold, may S foreclose the real
No, because in such a case, the third person-
mortgagor (M), after paying the deficiency through
foreclosure of the real estate mortgage, has the right
of a guarantor who can hold the vendee (B) liable for
the payment made, thus indirectly violating the
prohibition under the Recto Law. (Art. 1484, par. 3,
Civil Code)
QUESTION NO. 28
Suppose in the preceding problem S assigns the
promissory note to N, promising the latter that
should B defaults in his payment and the chattel
mortgage is foreclosed resulting in a deficiency,
the assignor (S) will answer for the deficiency to
N. Is this stipulation valid?
Yes, because in such a case, it is no longer the
vendee, B, who is held liable but the vendor, S. There
is thus no violation of the Recto Law that if the
vendor avails himself of the right to foreclose, he is
prohibited from bringing an action against the
purchaser for the unpaid balance.
QUESTION NO. 29
Under its car plan program for its top employees,
FedEx acquired a 2018 Toyota Altis worth
Php800,000, and gave it to Juan subject to the
following conditions: a) in consideration of a
monthly rental of Php10,000, the company leases
to Juan the vehicle for his use; b) Juan will pay
lease rentals thru salary deductions for five years;
c) for the duration of the lease agreement, all
expenses and costs of registration, insurance,
repair and maintenance, fuel and parts
replacement are for account; d) at the end
of the 5-year period, Juan may purchase the car
from the company and all monthly rentals will be
applied to the payment of the purchase price of
the car; e) in the event of resignation or
dismissal from the service, Juan must return the
car to the company in good running condition.
FedEx later terminated Juan from the service
because of redundancy. At the time of his
separation, Juan was able to make payments on
the car in the amount of Php300,000 and made no
more payments thereafter. As a result, FedEx
recovered the car from Juan by virtue of a writ of
replevin issued by a court. What kind of
agreement was entered into by Juan and his
former employer?
The agreement was one of sale on instalment, not
lease. This is so because of the stipulation in the
agreement that all monthly rentals will be applied to
the payment of the full purchase price of the car. It is
clear that the transaction in this case is a lease in
name only. The so-called monthly rentals are in truth
monthly amortizations on the price of the car.
The contract being one of sale on instalment, Articles
1484 and 1485 of the Civil Code will apply. Under
Article 1484, the vendor in a sale of personal
property on the instalment plan has three remedies
against the vendee; namely: a) to demand exact
fulfilment of the obligation, should the vendee fail to
pay cover two or more instalments; and c) foreclose
the chattel mortgage on the thing sold, if one has been
constituted. Article 1485, on the other hand, provides
that Article 1484 shall be applied to contracts
purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee
of the possession or enjoyment of the thing.
Settled is the rule that the remedies under Article
1484 are alternative, not cumulative. The exercise of
one bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
Article 1485.
Here, the condition that the lessor has deprived the
lessee of the possession or enjoyment of the thing for
the purpose of applying Article 1485 was fulfilled by
the recovery of possession of the car. By virtue of
the writ of replevin issued by the court, the deputy
of its use. (Elisco Tool Manufacturing Corporation
v. Court of Appeals, 301 SCRA 731 [1999])
QUESTION NO. 30
B bought from S a car on instalments under the
following conditions: 1) B will pay a down
payment and the balance will be paid in 24 equal
instalments; 2) title to the car will remain with the
seller until the purchase price has been paid in
full; and 3) if any two instalments are not paid
when due, the whole principal sum will become
due and the sale will be automatically rescinded
and all sums paid forfeited and treated as rentals.
B paid only for seven instalments. Consequently,
S brought an action for the rescission of the sale
and for the return of the car. After an ex-parte
hearing, S repossessed the car. After trial, the
court rescinded the sale and directed B to pay the
outstanding balance of the purchase price of the
car. Is there ground for B to appeal the decision?
Yes. In a sale by instalments, the seller has three
remedies to choose from in case the buyer fails to pay
any instalment when due; 1) exact fulfilment of the
obligation; 2) cancel the sale; and 3) foreclose the
chattel mortgage on the thing sold if one has been
constituted (Art. 1484, Civil Code). If the seller
chooses one remedy, he cannot avail himself of the
other two. In this case, S chose the second remedy
which was to rescind the sale. This is clear from the
fact that S had taken possession of the car and it took
into account the value of the car repossessed when
the seller made a computation of the outstanding
balance of B. Having done so, the seller is barred
from exacting payment from B of the price of the car
it had already repossessed. (Delta Motor Sales v. Niu
Kim Duan, 213 SCRA 259)
QUESTION NO. 31
Benjie sold his land to Cris who began to possess
it. Darwin, a stranger, sold the same land,
unauthorized by anyone, and in his own name to
Enrico, who registered the same in good faith.
Who owns the land, Cris or Enrico?
Cris should be considered as the owner even if he did
not register the land, because Enrico, who registered
the same, did not buy the land from its lawful owner,
but from a complete stranger totally unconnected
with the land. Article 1544 of the Civil Code cannot
therefore apply, it cannot be said that the land had
been sold twice by the same person.
QUESTION NO. 32
Angelo sold his land to Banjo. Angelo later sold
the same land to Crisanto. Banjo in turn sold the
same to Donato, who took possession of the land.
Crisanto, a purchaser in good faith, registered the
land in his name. Who is now the owner of the
land, Crisanto or Donato?
Donato is the owner. It is true that Crisanto was in
good faith, and it is also true that Crisanto was the
first one to register the land, but Article 1544 of the
Civil Code can be applied only if the two buyers
(Crisanto and Donato) had bought the same property
from the same person. Article 1544 indeed does not
apply if there are two different sellers, one of whom,
when he made the conveyance, had long before
disposed of his rights as owner of the same.
QUESTION NO. 33
Under a Deed of Sale, Paula sold an unregistered
brother, Senando, signed an
extrajudicial
under which
adjudicated exclusively unto himself the lot and
simultaneously sold it to Carmelita who was
unaware of the prior sale.
a) Is the rule on double sale under Article 1544 of
the Civil Code applicable to the problem?
No. Article 1544 of the Civil Code on double sales
applies only where the same thing is sold to different
vendees by the same vendor. It does not apply where
the same thing is sold to different vendees by
different vendors as in the case at bar.
b) Who between the two buyers is the rightful
owner of the lot?
Bernadette is the rightful owner. When Paula sold to
Bernadette the property, its ownership was
transferred to Bernadette in accordance with Article
1496 of the Civil Code which says that the ownership
of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession
is transferred from the vendor to the vendee. Article
1498, in turn, provides that when the sale is made
through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the
contrary does not appear or cannot be clearly
inferred. In the problem presented, the Deed of Sale
between Paula and Bernadette contains nothing
contrary to intent to transfer ownership.

When Paula died, she no longer owned the lot and,
therefore, her brother Senando could not have
inherited it. The extrajudicial settlement did not thus
confer upon Senando ownership of the lot; hence, he
could not have conveyed it to Carmelita.
c) Is the issue of
in resolving whether she has a preferential right
to the lot?
The issue of good faith or bad faith is relevant only
where the subject of the sale is a registered land and
the purchaser is buying the same from the registered
owner whose title to the land is clean. In such case,
the purchaser who relies on the clean title of the
registered owner is protected if he is a purchaser in
good faith and for value. (Ong v. Olasiman, 465
SCRA 464 [2006])
QUESTION NO. 34
S sold to B a parcel of land. B was made to believe
that the land was an unregistered land when S
sold it to him. Unknown to B, S had earlier
obtained a free patent over the property by virtue
of which he was issued a certificate of title. B later
sold the land to C who registered the transaction
under Act 3344 which is the law governing
registration of instruments affecting unregistered
lands. S also sold the land to D who registered the
sale under the Torrens system. Who now owns the
land, C or D?
The controversy involves a double sale. S first sold
the lot to B, from whom C, in turn, derived his right.
Then, after the first sale, S sold the same lot to D.
The applicable law, therefore, is Article 1544 of the
Civil Code which provides that if immovable
shall belong to the person acquiring it who in good
fait
Here, D should be declared as the lawful owner of
the lot. If a parcel of land which is registered under
the Torrens system is sold, but the sale is registered
not under P.D. 1529 but under Act No. 3344, such
sale is not considered registered as the term is used
under Article 1544 of the Civil Code. Thus, in the
No. 3344 is not effective for purposes of Article 1544
of the Civil Code. A registration must be done in the
proper registry in order to bind the land.
Under Act No. 3344, registration of instruments
affecting unregistered lands is without prejudice to a
third party with a better right. Thus, under Act 3344,
give him any right over the land if the vendor was not
anymore the owner of the land because he had
previously sold the same to somebody else even if
the earlier sale was unrecorded.
C cannot argue that he was led into believing that the
property was unregistered because a Torrens title
serves as notice to the whole world. He cannot also
say that the prior registration of his sale under Act
No. 3344 operates as a constructive notice to D that
3344 itself provides that registration thereunder
would not prejudice prior rights in good faith.
(Abrigo vs. de Vera, June 21, 2004)
QUESTION NO. 35
Mariwasa is a company engaged in the sale of
roofing materials to the public. Through extensive
advertisements in media and in its brochures, the
company made representations respecting the
durability and sturdiness of its roofing materials
installed in accordance with its particularly
described method. Rey purchased these roofing
materials. Deliveries were made by Mariwasa and
the materials were installed by its employees. Rey
later brought an action against Mariwasa for
damages caused to his residence when its roof was
blown away by a typhoon. Will the action
prosper?
The action will prosper. Mariwasa is liable under
Article 1546 of the Civil Code (express warranty)
because the company, as seller to the general public,
had made affirmations of fact relating to its
advertised product, the natural tendency of which
was to induce the buyers, as in fact it did induce Rey,
to purchase the roofing materials, relying thereon.
QUESTION NO. 36
Does the vendee have the right to pay the balance
of the purchase price (or the unpaid instalments)
in a sale involving realty even after the expiration
of the agreed period?
Yes. Under Article 1592 of the Civil Code, even if
the contract of sale stipulates that the contract is
deemed automatically cancelled in case of non-
payment of the price at the agreed time, the vendee
may still pay even after the expiration of the period
as long as no demand for rescission has been made,
either judicially or by a notarial act. If the seller did
not rescind and even accepted late payments, the
seller is deemed to have waived his right to rescind.
(Heirs of Pedro Escanlar v. Court of Appeal, 288
SCRA 144 [1998])
However, the provision under Article 1592 does not
apply to a contract to sell where payment is a positive
suspensive condition. There is no need for rescission
because there can be no rescission of an obligation
which is non-existent. (Pangilinan v. Court of
Appeals, 279 SCRA 590 [1997])
(NOTE: The Maceda Law. R.A. 6552, is applicable
even to contracts to sell and the buyer is entitled to a
grace period earned by him)
QUESTION NO. 37
S sold to B a parcel of land payable in instalments.
The deed of conditional sale contains the
following provisions: a) should the vendee fails to
pay three successive monthly instalments, the sale
shall be considered automatically rescinded
without need of judicial action and all payments
made shall be forfeited in favor of the vendor by
way of rental for the use and occupancy of the
property; and b) all improvements introduced by
the vendee in the property shall belong to the
vendor without any right of reimbursement.
After five years, B has paid the total amount of P2
million, although he admitted having failed to pay
the latest monthly instalments due to a financial
problem. B later tried to pay the unpaid
instalments but S turned him down. S then sent a
letter to B informing the latter that he was
enforcing the provision on automatic rescission
and automatic forfeiture stipulated in their deed
of conditional sale. The letter also made a formal
demand for B to vacate the property.
a) What is the applicability of the requirement of
rescission by suit or by notarial act under Article
1592 of the Civil Code?
It is well-settled that Article 1592 of the Civil Code
requiring demand by suit or by notarial act in case the
vendor of realty wants to rescind applies only to a
contract of sale, and not to a sale on instalments or a
contract to sell, where title remains with the vendor
until full payment of the price. In a contract to sell,
the title over the subject property is transferred to the
vendee only upon full payment of the stipulated
consideration. Unlike in a contract of sale, the title
does not pass to the vendee upon the execution of the
agreement or the delivery of the thing sold. Here, the
deed of conditional sale is of the same nature as a sale
on instalment or a contract to sell, which is not
covered by Article 1592.
b) Is S entitled to enforce the automatic forfeiture
clause in the Deed of Conditional Sale?
No. The validity of the automatic forfeiture clause in
the deed of conditional sale is conceded. However,
S failed to prove the conditions that would warrant
the implementation of this clause. It is clear that S
was not justified in refusing to accept the tender of
payment made by B. Had he accepted it, B would
have paid his unpaid instalments. In other words,
there was a deliberate effort on the part of B to meet
his responsibility to pay. The fact is, S refused to
demand the enforcement of the automatic forfeiture
clause. He cannot be rewarded for his own misdeed.
In any event, the rescission of the contract and the
forfeiture of the payments already made could not be
effected because the case falls squarely under R.A.
6552, otherwise known as the Maceda Law.
Pursuant to Section 3 of said law, B was entitled to a
one-month grace period for every year of instalments
paid, which means that he was entitled to a grace
period when S turned down his offer to pay his
unpaid instalments.
QUESTION NO. 38
In 1968, A leased to B a building for 20 years with
a provision granting B a right of first refusal. In
1975, A sold the property to C who knew about
the lease and agreed to respect it. The sale was
later rescinded on complaint of B. As ordained in
the judgment, A was ordered to return to C the
purchase price and to allow B to buy the property
for the same amount. The decision became final in
1997.
a) Is C entitled to collect back rentals from B from
1975 (when C bought the property from A) until
1997 (when the judgment allowing B to buy the
property for the same amount became final)?
Stated otherwise, has C acquired ownership of the
property during the period?
No. Rent is a civil fruit that belongs to the owner of
the property producing it by right of accession.
Consequently and ordinarily, the rentals that fell due
from the time of the perfection of the sale to C until
its rescission by final judgment should belong to the
owner of the property during that period. C never
acquired ownership of the property during said
period.
obligates himself to transfer ownership of and to
deliver a determinate thing and the other to pay
(Art. 1458, Civil Code) Ownership of the thing sold
is a real right, which the buyer acquires only upon
specified in Articles 1497 to 1501, or in any other
manner signifying an agreement that the possession
Art.
1496, Civil Code). This right is transferred not
merely by contract, but also by tradition or delivery.
And t
execution of a public instrument of sale is recognized
by law as equivalent to the delivery of the thing sold,
such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the
vendee to take actual possession of the land sold.
In the Law on Sales, delivery may either be actual or
constructive, but both forms of delivery contemplate
the property on the part of the vendor, and the
From the peculiar facts of this case, it is clear that C
never took actual control and possession of the
sale and the continued actual possession of the
property. The objection took the form of a court
action impugning the sale which was rescinded by a
judgment rendered by the court. It has been held that
the execution of a contract of sale as a form of
constructive delivery is a legal fiction. It holds true
only when there is no impediment that may prevent
the passing of the property from the hands of the
vendor into those of the vendee. When there is such
the delivery
by way of sale to C was a legally sufficient
impediment that effectively prevented the passing of
The execution of a public instrument gives rise,
therefore, only to a prima facie presumption of
delivery. Such presumption is destroyed when the
instrument itself expresses or implies that delivery
was not intended; or when y other means it is shown
that such delivery was not effected, because a third
person was actually in possession of the thing. In the
latter case, the sale cannot be considered
consummated.
b) Isn rescissible contract valid until
rescinded?
At bottom, it may be conceded that, theoretically, a
rescissible contract is valid until rescinded. However,
this general principle is not decisive to the issue of
whether C acquired the right to collect rentals. What
is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or
delivery. Under the factual environment of this
controversy, C was never put in actual and effective
control or p
timely objection. In short, the sale to C may
have been valid from inception, but it was judicially
rescinded before it could be consummated. C never
acquired ownership, not because the sale was void,
but because the sale was not consummated by a
legally effective delivery of the property sold.
(
Inc., 370 SCRA 56 [2001])
QUESTION NO. 39
Seller sells to Buyer a parcel of land under a
notarized deed of sale. On the same day and along
with the execution of the deed of sale, the parties
executed a separate instrument, denominated as
repurchase the lot within ten years. Seller later
offered to redeem but Buyer refused. Is Seller
entitled to compel Buyer to resell the lot on the
No. The transaction between the parties was not a
sale with right to repurchase, hence, Seller cannot
avail of the right of conventional redemption. The
right of repurchase is not a right granted the vendor
by the vendee in a subsequent instrument, but is a
right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once
the instrument of absolute sale is executed, the
vendor can no longer reserve the right to repurchase,
but some other right like an option to buy. (Vasquez
v. Court of Appeals, 198 SCRA 102 [1991])
QUESTION NO. 40
Samson sold to Delilah a house and lot for Php5
million. Although Delilah paid only Php4.5
million--the balance to be paid within six months-
-title to the property was transferred to Delilah
who immediately took possession.
After six months, Delilah was still unable to pay
the balance. After weeks of negotiations, Samson
and Delilah executed a deed of sale with right to
repurchase within one year, with a stipulation
that should Delilah, as seller, fail to redeem the
property, absolute title should be vested in
Samson, as buyer. The consideration for the sale
was Php1 million. Despite the execution of the
deed, however, Delilah remained in possession of
the property. When the period of redemption
lapsed with Delilah failing to redeem the
property, Samson files an action to consolidate his
ownership over the property. Will the action
prosper?
The action will not prosper. The contract between
Samson, as buyer and Delilah, as seller, was not a
sale with right to repurchase but an equitable
mortgage. Under Article 1602 of the Civil Code, a
contract is presumed to be an equitable mortgage
when, among others, the price of a sale with right to
repurchase is unusually inadequate and when the
vendor remains in possession as a lessee or
otherwise. In this case, Samson paid only P1 million
for a property which is worth P5 million just six
months earlier. Also, Delilah, the vendor, remained
in possession of the property. The contract being an
equitable mortgage, ownership cannot be
consolidated in Samson upon failure of Delilah to
redeem the property since such would be a pactum
commissorium. The mortgagee, Samson, should first
foreclose the mortgage if he wishes to secure a title
to the mortgaged property. (Ching Sen Ben v. Court
of Appeals, 314 SCRA 762 [1990])
QUESTION NO. 41
What is the effect of partial payment of the price
and entry into the land by the buyer in a case of
oral sale of land?
A vendee in an oral contract of sale of land who made
partial payment thereof, took possession of the land,
and made valuable improvements thereon, is entitled
to bring as suit to clear his title against the vendor
who had refused to transfer title to him. It is not
necessary that the vendee has an absolute title, an
equitable title being sufficient to clothe him with
personality to bring an action to quiet title. For,
while the action is denominated as one for specific
performance, it is in effect an action to quiet title.
(Pingol, et al. v. Court of Appeals, 226 SCRA 118
[1993])
QUESTION NO. 42
Seller and Buyer ent
Buyer a piece of land within two years. Buyer
offered to pay on several occasions, but Seller
refused. Buyer files an action for specific
performance. Seller contends that the option is
only a unilateral promise to sell and is
unsupported by consideration distinct from the
contention is not correct. Once a unilateral
promise to sell, even if unsupported by any
consideration is accepted, it results in a perfected
contract of sale. Article 1324 of the Civil Code
applies.
QUESTION NO. 43
Husband and Wife mortgaged to a bank a parcel
of land. When the couple failed to pay their loan,
the bank foreclosed the mortgage, bought the
property at public auction, and consolidated its
ownership over the property when the couple
failed to redeem. Meanwhile, the couple sold the
property to A upon the condition that the couple
may redeem the property at anytime when they
the money. The sale was made after the bank had
already consolidated its title on the land. When A
came to know about the foreclosure sale, he
subsequently bought the land from the bank
resulting in the issuance of a certificate of title in
his name. The problem arose when the couple
asked A to resell the property to them. Is A liable
to resell the property to them?
No. A contract to repurchase arising out of a contract
of sale where the seller did not have any title to the
there is also nothing to repurchase. One
other words, the right to repurchase presupposes a
valid contract of sale between the same parties.
Undisputedly, A acquired title to the property from
the bank, and not from H and W. The subsequent
agreement between the spouses and A is actually an
accepted unilateral promise to sell. Article 1479 of
promise to buy or sell a determinate thing for a price
certain is binding upon the promissor if the promise
is supported by a consideration distinct from the
price. In the present case, the alleged written contract
of repurchase (between A and the couple) is bereft of
any consideration distinct from the price. As an
independent contract, it cannot bind A.
Moreover, the right of repurchase is not a right
granted the vendor by the vendee in a subsequent
instrument, but is a right to be reserved by the vendor
in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of
absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right
thereafter granted the vendor by the vendee in a
separate instrument is not a right of repurchase but
some other right like the option to buy in the instant
case. (Nool v. Court of Appeals, 267 SCRA 149
[1997])
QUESTION NO. 44
In an action for Reformation of Instrument, P
alleges that his contract with D denominated as
reality an equitable mortgage. After trial in due
course, the court declared the transaction to be a
true pacto de retro sale, not an equitable mortgage.
After exhausting all appellate remedies, P now
claims that since the transaction is declared as a
true pacto de retro sale, he is still entitled to
repurchase the property pursuant to the third
paragraph of Article 1606 of the Civil Code which
right to repurchase within thirty days from the
time final judgment was rendered in a civil action
on the basis that the contract was a true sale with
May the vendor in a sale judicially declared as a
pacto de retro sale exercise the right of repurchase
under Article 1606, third paragraph, of the Civil
Code, after he has taken the earlier position that
the same is an equitable mortgage?
No. At the outset, it must be stressed that it has been
the consistent claim of P that his transaction with D
was an equitable mortgage and not a pacto de retro
sale with option to buy. Even after the lower court
declared the transaction to be a pacto de retro sale, P
still maintained that the transaction was an equitable
mortgage. Seeing the chance to turn the decision in
his favor, however, P abandoned his theory that the
transaction was an equitable mortgage and adopted
the finding of the courts that it was in fact a pacto de
retro sale. P now insists that he is entitled to exercise
the right to repurchase pursuant to the third
paragraph of Article 1606 of the Civil Code, which
however, the vendor may still exercise the
right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the
basis that the contract was a true with right to
Under the undisputed facts of this
case, this cannot be done.
In the parallel case of vda. De Macoy v. Court of
Appeals, 206 SCRA 244 [1992], the petitioners
therein raised the defense that the contract was not a
sale with right to repurchase but an equitable
mortgage. They further argued as an alternative
defense that even assuming the transaction to be a
pacto de retro sale, they can nevertheless repurchase
the property by virtue of Article 1606, third
paragraph, of the Civil Code. The Supreme Court
held in vda. De Macoy that said provision was
inapplicable, thus:
of Article 1606 is predicated upon the bona
fides of the vendor a retro. It must appear
that there was a belief on his part, founded
on facts attendant upon the execution of the
sale with pacto de retro, honestly and
sincerely entertained, that the agreement
was in reality a mortgage, one not intended
to affect the title to the property ostensibly
sold, but merely to give it as security for a
loan or other obligation. In that event, if the
matter of the real nature of the contract is
 submitted for judicial resolution, the
application of the rule is proper; that the
vendor a retro be allowed to repurchase the
property sold within 30 days from rendition
of final judgment declaring the contract to be
a true sale with right to repurchase.
Conversely, if it should appear that the
--
transferring ownership to the vendee, but
accompanied by a reservation to the vendor
of the right to repurchase the property -- and
there are no circumstances that may
reasonably be accepted as generating some
proviso is inapplicable. The reason is quite
obvious. If the rule were otherwise, it would
be within the power of every vendor a retro
to set at naught a pacto de retro sale, or
resurrect an expired right of repurchase, by
simply instituting an action to reform the
contract -- known to him in truth as a sale
with pacto de retro -- into an equitable
mortgage. As postulated by the petitioner,
repurchase the property by applying said
paragraph x x x to the case at bar despite the
fact that the stipulated redemption period
had already long expired when they
instituted the present action, would in effect
alter or modify the stipulation in the contract
as to the definite and specific limitation of
the period for repurchase hereby not simply
increasing but in reality resuscitating the
likewise the already terminated and
extinguished obligation to resell by herein
petitioner. The rule would thus be made a
tool to spawn, protect and even reward fraud
and bad faith, a situation surely never
Here, the subject transaction was truly a pacto de
retro sale; and that none of the circumstances under
Article 1602 of the Civil Code exists to warrant a
conclusion that the transaction was an equitable
mortgage. If P really believed that the transaction
was indeed an equitable mortgage, as a sign of good
faith, he should have, at the very least, consigned
with the trial court the amount representing his
alleged loan, on or before the expiration of the right
to repurchase. Clearly, therefore, the declaration of
the transaction as a pacto de retro sale will not, under
the circumstances, entitle P to the right of repurchase
set forth under the third paragraph of Article 1606 of
the Civil Code. (Abilla and Dizon v. Gobonseng, Jr.
and Ong, 374 SCRA 51 [2002])
QUESTION NO. 45
What is the applicability of the Maceda and Recto
laws in the law on sales? Give the most important
features of each law.
The Maceda Law or RA 6552, is applicable only to
the sale of immovable property on instalments. The
most important features of this law are:
1) After having paid instalments for at least two
years, the buyer is entitled to a mandatory grace
period of one month for every year of instalments
paid, to pay the unpaid instalments without interest.
If the contact is cancelled, the seller shall refund to
the buyer the cash surrender value equivalent to fifty
percent (50%) of the total payments made, and after
five years of instalments, an additional five percent
(5%) every year but not to exceed ninety percent
(90%) of the total payments made.
2) If the instalments paid were less than two years,
the seller shall give the buyer a grace period of not
less than 60 days. If the buyer fails to pay the
instalments due at the expiration of the grace period,
the seller may cancel the contract after 30 days from
receipt by the buyer of the notice of cancellation or
demand for rescission by notarial act.
The Recto Law enunciated under Article 1484 of the
Civil Code refers to the sale of movables payable in
installments and limiting the right of the seller, in
case of default by the buyer, to one of three remedies:
a) Exact fulfilment;
b) Cancel the sale if two or more instalments
have not been paid; and
c) Foreclose the chattel mortgage on the thing
sold, also in case of default of two or more
instalments, with no further action against the
purchaser.
QUESTION NO. 46
Buyer bought on instalment a residential
subdivision lot from Seller, but after the 5th year,
was unable to make further instalments. Can
Seller cancel the sale unilaterally, or must he go to
court to obtain rescission? Is Buyer entitlted to a
refund?
Yes, the seller can cancel the sale unilaterally. He
need not go to court to obtain rescission, provided
that the actual cancellation of the contract of sale
shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
(Sec. 3, R.A. No. 8552)
Buyer shall be entitled to the cash surrender value
which is fifty percent (50%) of the total payment
made buy him to the seller. (Ibid.)
QUESTION NO. 47
Ali leased to Ben a parcel of land. Their lease
agreement includes a stipulation granting Ben
to purchase the leased
property in case Ali decides to sell it. Ben
subsequently assigned all his rights and interests
in the leased property to Cocoy. The assignment
is with the conformity of Ali. Ali later sold the
leased property to Ding for P7 million. When
Cocoy complained, Ali had the property
reconveyed to him by Ding for the same amount
of P7 million. Ali then offered the property to
Cocoy for P9 million. Cocoy counter-offered for
P7 million which was the same amount paid by
Ding in the first sale. Because Cocoy turned down
the P7 million offer, Ali then sold the property
again to Ding for P7 million. Cocoy now sues Ali
lleges an
actionable contractual breach on the part of the
defendants Ali and Ding. It was stipulated in the
contract of lease between Ali and Cocoy that the
to
purchase the leased properties in case Ali decides to
sell it. To comply with this obligation, the sale of the
property for the amount of P7 million (the price for
which the property was finally sold to Ding) should
have been first offered to Cocoy.
The basis of the right of first refusal must be the
current offer to sell of the seller or offer to purchase
of any prospective buyer. Only after the grantee fails
to exercise said right could the owner validly offer to
sell the property to a third person under the same
terms as offered to the grantee. (Paranaque Kings
Enterprise, Inc. v. Court of Appeals, 268 SCRA 727
[1997])
QUESTION NO. 48
Dr. Go is the owner of a residential lot in Quezon
City. In 1981, he constructed, at a cost of Php3
million, a residential house on the lot. Five years
later, the market value of the lot already ranged
from Php2,000 to Php5,000 per square meter,
while the house was worth about Php10 million.
In 1987, Dr. Go borrowed Php2.5 million from
Engr. Bersamin to finance his congressional
campaign. Dr. Go was required to sign, as a sort
of collateral, a deed of sale under which he
purportedly sold to Engr. Bersamin his house and
possession of the property.
Without the knowledge of Dr. Go, Engr.
Bersamin caused the cancellation of the certificate
of title on the lot and had a new Torrens title
issued in his name. After the election, Engr.
Bersamin sold the lot and the improvement on it
to Atty. Pe for Php2.75 million. When Dr. Go
discovered the sale of his house and lot, he
immediately brought an action for reformation of
the deed of sale he executed with Engr. Bersamin
to the end that the true intention of the parties
therein be expressed. Dr. Go also sought the
reconveyance of the ownership of the property to
him.
a) Will the action prosper?
Yes. The deed of sale signed by Dr. Go in Engr.
mortgage and not an absolute sale in view of the
following circumstances:
First, the consideration of the sale of Php2.75 million
is grossly and unusually inadequate. The price alone
hp10 million, while
that of the lot commanded a price of from Php2,000
to Php5,000 per square meter when the deed of sale
was executed.
Second, despite the alleged deed of sale, Dr. Go has
remained in actual and physical possession of the
property up to the time when it was sold to Atty. Pe.
Third, Dr. Go was driven to obtain the loan from
Engr. Bersamin

knowing that it did not express their true intention.
b) Is Atty. Pe a buyer in good faith?
No. He was not a buyer in good faith simply because
he paid the consideration of the sale to Engr.
Bersamin. Rather, he was a buyer in bad faith
because he was fully aware that his seller, Engr.
Bersamin, was not in possession of the property at
the time when he purchased it. Atty. Pe did not
deliberately look beyond the title of his seller.
Ordinary and simple prudence dictated that he should
have verified the nature of ownership of the seller
beyond the title, considering the amount involved
(Php2.75 million), the extent of the property, and
knowing that the seller was not in possession of the
property sold, and thus, could not have delivered the
actual and physical possession thereof. (Uy v. Court
of Appeals, 359 SRCA 263 [2001])
QUESTION NO. 49
Ramon is the owner of a parcel of land. To secure
a loan, he mortgaged a portion of the property to
a bank. The bank later foreclosed the mortgage
acquiring title to the property, the bank sold the
land to Pablo. Ramon, on the other hand, sold the
unmortgaged portion to Juan. Can Pablo claim
the right of legal redemption?
The exercise of the right of legal redemption
presupposes the existence of co-ownership at the
time the conveyance is made by a co-owner and
when it is demanded by the other co-owners.
Considering that Pablo was not a co-owner of Ramon
of the portion sold at the time of the conveyance to
Juan, the right of legal redemption cannot be
exercised. (Uy v. Court of Appeals, 246 SCRA 703
[1995])
QUESTION NO. 50
Nagtitinda sold to Nagbibili a house and lot for
Php5 million. Of the stipulated purchase price,
Nagbibili paid only Php4 million but promised to
pay the balance of Php1 million within six
months. Without the balance having been paid,
title was transferred to Nagbibili who immediately
took possession of the property. When Nagbibili
failed to pay the balance within six months, he and
Nagtitinda executed a deed of sale with right to
repurchase, with a stipulation that should
Nagbibili fail to redeem the property within one
year, absolute title shall be vested in Nagtitinda.
The consideration for the latter sale was Php1
million. Despite the sale, however, Nagbibili
remained in possession of the property. When the
period of redemption lapsed, Nagbibili failing to
redeem the property, Nagtitinda then brought an
action to consolidate ownership over the
property.
What remedy does Nagbibili have to prevent
Nagtitinda from consolidating ownership over the
property?
remedy is to file an action for
reformation of the instrument purporting to be a deed
of sale with right to repurchase. (Art. 1605, Civil
Code) The contract between Nagbibili and
Nagtitinda was not a sale with a right of repurchase
but an equitable mortgage. Under Article 1602 of the
Civil Code, a contract is presumed to be an equitable
mortgage when, among others, the price of a sale
with right to repurchase is unusually inadequate and
when the vendor remains in possession as a lessee or
otherwise. In this case, Nagtitinda paid only Php1
million for a property which was worth Php5 million
just six months earlier. Also, Nagbibili, the vendor,
remained in possession of the property. The contract
being an equitable mortgage, ownership cannot be
consolidated in Nagtitinda upon failure of Nagbibili
to redeem the property since such would be a pactum
commissorium. The mortgagee, Nagtitinda, should
first foreclose the mortgage if he wishes to secure a
title to the mortgaged property.
QUESTION NO. 51
Erap sold to Gloria a property. In their
instrument of sale, Erap was granted the right to
repurchase the property within six months from
execution of the sale. When Erap failed to
repurchase the property within the stipulated
period, Gloria immediately filed a petition for
consolidation of ownership over the property. The
court rendered judgment allowing consolidation
of ownership of the property in favor of Gloria,
but gave Erap 30 days from receipt of the decision
within which to redeem the property pursuant to
Articles 1606 and 1607 of the Civil Code.
a) Is there an ambiguity in the decision of the
court?
There is no ambiguity at all in the decision of the
court that warrants clarification. If at all, the
ambiguity is merely ostensible. At first blush, the
disposal portion of the decision declaring the
consolidation of ownership of the property in Gloria,
on one hand, and granting Erap 30 days to repurchase
the property, on the other hand, appears inconsistent.
However, the dispositive portion also makes
reference to Article 1606 of the Civil Code, the third
still exercise the right to repurchase within thirty
days from the time final judgment was rendered in a
civil action on the basis that the contract was a true
becomes obvious that the consolidation of the
30-day period.
b) Is it error for the court to grant Erap the right
to repurchase the property within 30 days from
receipt of the decision?
Yes. By express provision, Article 1606 of the Civil
defenda
that has become final and executory. (Agan v. Heirs
of Nueva, 418 SCRA 421 [2003])
(NOTE: In Agan, the Supreme Court agreed with the
finding of the trial court that the contract entered into
by the parties was one of sale with a right to
repurchase, and not one of equitable mortgage. This
ruling should not be confused with the ruling in
Felicen, Sr. v. Orias, et.al., 156 SCRA 586 [1987]
where the Supreme Court refused to apply the 3rd
paragraph of Article 1606 of the Civil Code because
the vendor a retro acted in bad faith when he
assailed the pacto de retro sale. In Agan, the trial
court made no finding that the vendor a retro acted
in bad faith when he raised the defense that the pacto
de retro sale was an equitable mortgage)
QUESTION NO. 52
Malou is on the verge of being prosecuted for
violation of BP 22 because of the rubber checks
that she issued to Riza amounting to Php4.4
million. To stave off her impending prosecution,
Malou solicited the help of her relative, Zinia. She
requested Zinia to cede to Riza her lot as
settlement of the value of the rubber checks.
After much discussion, Zinia agreed to execute a
repurchase covering the lot subject to the
following conditions: a) the amount to be stated
in the document is Php4.4 million with interest on
it at 5% per month; b) the property will be
repurchased within six months; c) although it
would appear in the document that Zinia is the
vendor, it would be Malou who will provide the
money for the redemption of the property; and d)
title to the property will be delivered to Riza but
the sale will not be recorded in the Register of
Deeds.
To assure Zinia that Malou will redeem the
properties, Malou issued to Zinia two post-dated
checks. One check was for Php4.4 million
supposedly for the selling price of the property
and the other was for Php420,000 corresponding
notarized, it was given to Riza together with the
title of the property. As agreed upon, Riza did not
register the transaction with the Register of
Deeds.
When Zinia presented the two checks for
payment, they were dishonored for having been
drawn against a closed account. When Malou was
nowhere to be found, Zinia immediately filed an
action to annul the sale pacto de retro. She
contends that the sale is void for lack of
consideration because no money changed hands
when she signed it and the checks which were
issued for the redemption of the properties have
been dishonored for having been drawn against a
closed account. Is the pacto de retro sale without a
valuable consideration?
The pacto de retro sale has a valuable consideration.
In preparing and executing the deed of sale with right
of repurchase and in delivering to Riza the land title,
Zinia actually accommodated Malou so she would
not be charged criminally by Riza. It is plain
therefore that consideration existed at the time of the
execution of the deed of sale with right of repurchase.
Malou, being a
relative, but also his receipt of P420,000 from her as
interest for the P4.4 million, which impelled her to
execute such contract. While it is true that the checks
were dishonored, there is absolutely no basis for
Zinia to file a complaint against Riza to annul the
pacto de retro sale on the ground of lack
criminal action against Malou but not a civil action
against Riza to annul the sale.
Moreover, Zinia cannot seek refuge in the equitable
suffer, that person who gave occasion for the
is so because she was not an innocent person. As a
matter of fact, she gave occasion for the damage
caused by virtue of the deed of sale with right to
repurchase which she prepared and signed. (Mate v.
Court of Appeals, 290 SCRA 463 [1998])
QUESTION NO. 53
Maria and her daughters, Angela, Benita and
Carlota are co-owners of an apartment building.
Without the knowledge of her other co-owners,
Maria sold her 1/4 share in the building to her
brother, Dodong. The following month, Angela
received from her uncle, Dodong, a letter
informing her about the sale, with a demand that
the rental corresponding to his 1/4 share on the
subject property be remitted to him. The letter
was sent with an attached copy of the Deed of Sale.
Six months later, Angela brought an action
against Dodong for redemption of the portion sold
to him. She contends that the 30-day period for
redemption under Article 1623 of the Civil Code
has not begun to run against her since her mother
never informed her about the sale.
with the notice requirement under Article 1623 of
the Civil Code? Is Angela still entitled to redeem
the portion sold?
No. Article 1623 of the Civil Code clearly and
expressly provides that the 30-day period of
exercising the rights of pre-emption or redemption
are to be counted from notice in writing by the
vendor or prospective vendor not from any other
person. The reasons for requiring that notice should
be given by the vendor, and not by the vendee, are
easily discernible. The vendor of an undivided
interest is in the best position to know who are his
co-owners that under the law must be notified of the
sale. Also, the notice by the seller removes all doubts
as to the fact of the sale, its perfection, and its
validity, the notice being a reaffirmation thereof, so
that the party notified need not entertain doubt that
the seller may still contest the alienation. This
assurance would not exist if the notice should be
given by the vendee.
Here, Angela has not been furnished any written
notice of the sale or a copy thereof by Maria, the
vendor.
pre-emption or redemption, given to a co-owner
when any one of the other co-owners sells his share
in the thing owned in common to a third person, as
provided for in Article 1623 of the Civil Code, has
not yet accrued. (Francisco v. Boiser, 332 SCRA 792
[2000])
QUESTION NO. 54
Pedro is the registered owner of Lot No. 1 which
Lot No. 2 with an area of 3,500 square meters
owned by Quintin. Unknown to Pedro, Quintin
sold Lot No. 2 to Rustico for the sum of P150,000.
Pedro learned of the sale only when Quintin sold
to him Lot No. 2 which is also adjacent to Lot No
1. Forthwith, Pedro sent a letter to Rustico
signifying his intention to redeem the lot.
Thereafter, he sent another letter to Rustico
tendering payment of the price he paid to Quintin
for Lot No. 2.
a) Is Pedro entitled to redeem the lot?
Yes, because no written notice of the sale was given
by Quintin to Pedro which is required under Article
1623 of the Civil Code. Whenever a piece of rural
land not exceeding one hectare is alienated, the law
grants to the adjoining owners a right of redemption,
except when the grantee or buyer does not own any
other rural land. (Art. 1621, Civil Code) In order that
the right may arise, the land sought to be redeemed
and the adjacent property belonging to the person
exercising the right of redemption must both be rural
lands. If both are urban lands, the right cannot be
invoked. (Primary Structures Corp. v. Valencia, 409
SCRA 371 [2003])
b) Suppose Pedro had actual notice of the sale, is
he still entitled to redeem the lots?
Yes. In Verdad v. Court of Appeals, 256 SCRA 593
written notice of sale is mandatory. This court has
long established the rule that notwithstanding actual
knowledge of a co-owner, the latter is still entitled to
a written notice from the selling co-owner in order to
remove all uncertainties about the sale, its terms and
conditions, as well as it
QUESTION NO. 55
Damian is engaged in the manufacture and sale of
T-shirts, while Urbano is engaged in the
manufacture and sale of plastic toys. Damian and
Urbano entered into a contract whereby the latter
would manufacture for the former 20,000 pieces
of vinyl frogs at P7.00 per piece in accordance
with the sample approved by Damian. These vinyl
frogs were to be attached to the shirts that
Damian would manufacture and sell. Within a
month, Urbano delivered to Damian the 20,000
pieces of vinyl frogs which Damian paid in full.
One year later, Damian returned to Urbano 9,000
pieces of vinyl frogs for being defective. Damian
then demanded from Urbano a refund of the
purchase price for the returned goods. Urbano
refused. Is Damian entitled to a refund?
No. The contract between Damian and Urbano
stipulated that Urbano would manufacture upon
order of Damian 20,000 pieces of vinyl frogs
according to the samples specified and approved by
Damian. Urbano did not ordinarily manufacture
these products, but only upon order of Damian and at
the price agreed upon. Clearly, the contract between
Urbano and Damian was a contract for a piece of
work. But whether the agreement between Urbano
and Damian was one of a contract of sale or a piece
of work, the provisions on warranty against hidden
defects in a contact of sale (Article 1561, Civil Code)
shall also apply to a contract for a piece of work.
Article 1567 of the Civil Code provides for the
remedies available to the vendee in case of hidden
defects, namely: he may elect between withdrawing
from the contract or demanding a proportionate
reduction of the price, with damages in either case.
By returning the 9,000 pieces of vinyl products to
Urbano and asking for a return of their purchase
Code. The prescriptive period for this kind of action
is six months from the delivery of the thing sold,
pursuant to Article 1571 also of the Civil Code.
There is no dispute that Urbano delivered the vinyl
products to Damian. It is also settled that the action
to recover the purchase price of the goods Damian
returned to Urbano was filed more than nine months
from the date of delivery. Damian having filed the
action three months after the six- month period for
filling of an action for breach of warranty against
hidden defects stated in Article 1571, the action had
prescribed. (Dino v. Court of Appeals, 359 SCRA 91
[2001])
-END-
LEASE
QUESTION 1
Pedro leases to Juan a commercial building. The
contract expressly prohibits the assignment of the
lease or any portion of it. Juan later subleases a
portion of the premises to Greg. Is Pedro entitled
ask for cancellation of the lease contract for
violation of the provision against assignment?
No. Juan, the lessee, did not assign the lease or any
portion of it, to the sub-lessee. Since the problem
does not state that the contract of lease contains a
prohibition against sublease, the sublease is lawful,
the rule being that in the absence of an express
prohibition a lessee may sublet the thing leased, in
whole or in part, without prejudice to his
responsibility to the lessor for the performance of the
contract.
QUESTION 2
May the lessee assign the lease contract to a third
person?

No, he may not. Under Article 1649 of the Civil
Code, the lessee cannot assign the lease without the
consent of the lessor, unless there is a stipulation to
the contrary.
QUESTION 3
Why is the lessee not allowed to assign the lease
without the consent of the lessor?
The lessee cannot assign the lease without the
consent of the lessor because an assignment of the
lease constitutes novation (i.e., by substituting the
person of the debtor) so the creditor-lessor must
consent. An assignment exists when the lessee makes
an absolute transfer of his interest as lessee, and has
thus dissociated himself from the original contract of
lease. In such a case, his personality disappears, and
there remains only in the juridical relation two
persons: the lessor and the assignee, who is converted
into a lessee. Indeed the rights of the assignee as
lessee are enforceable not against the assignor, but
against the lessor.
QUESTION 4
May the lessee sub-lease the leased premises?
Yes. Unlike in assignment, a lessee may generally
sub-lease the property in the absence of express
prohibition. This is so because the lessee remains a
party to the lease even if he had already created a sub-
lease thereon.
QUESTION 5
Lessor brings an action for unlawful detainer
against the lessee and the sub-lessee. The lessor
prevailed. If the lessee appeals and the sub-lessee
does not, can execution issue against the sub-
lessee?
No. During the pendency of his appeal, the lessee has
a right to occupy the leased premises; therefore, and
in the meanwhile also, the sub-lessee may remain in
the leased premises.
QUESTION 6
Gohan leased his house to Goku on condition that
the leased premises will be used for residential
purposes only. Goku subleased the house to Lupin
who used it as a warehouse for fabrics. Upon
learning this, Gohan demanded that Lupin stop
using the house as a warehouse, but Lupin
ignored the demand. Gohan filed for ejectment of
Lupin, who raised the defense that there is no
privity of contract between him and Gohan, and
that he has not been remiss in the payment of rent.
Will the action prosper?
Yes, the action will prosper. Under Article 1651 of
the Civil Code, the sublessee is bound to the lessor
for all acts which refer to the use and preservation of
the thing leased in the manner stipulated between the
lessor and the lessee.
QUESTION 7
In June 1984, A leased to B for five years the
ground floor of his three-storey building. The
lease was to take effect in January 1985 and to
expire five years later. As agreed upon, B paid A
the sum equivalent to six months of rentals.
It appears that before leasing the premises to B, A
had already leased the ground floor to C for ten
years from 1980 to 1990. But in a letter in 1984, C
wrote A of his intention to terminate the lease by
the end of 1984. It was this letter that prompted A
to enter into a contract of lease with B for the lease
of the premises occupied by C beginning in
January 1985, or after the announced termination
But came December 1984, C failed to vacate.
vacate the leased premises on the ground that he
still has a subsisting lease up to 1990. For failure
of A to place B in possession of the leased
premises, B commenced judicial action against A
for breach of contract and damages. A disclaims
liability and instead heaped the blame on C
against whom he filed a third-party complaint.
a) Is A liable to B for damages?
Yes. Article 1654 of the Civil Code provides that a
lessor, like A, is obliged to deliver the thing which is
the object of the contract in such a condition as to
render it fit for the use intended. Failure to do so
constitutes a wrong to which A exposes himself to
legal action, including being held liable for damages.
The fact that C did not vacate the premises at the time
B was supposed to occupy it cannot exculpate A from
his liability of non-performance of his obligation
towards B. When A entered into the second lease
contract at the time of the subsistence of the first
lease, he knew that C was still occupying the
premises. Thus, A took the risk that if he could not
deliver the premises for whatever reason, he must
answer to B for damages.
b) Is C liable to B for damages for his refusal to
vacate the leased premises?
No.
comply with his obligation to B, still the latter, as
second lessee, has no cause of action against the first
lessee, C, because there was no privity of contract
between them. (Valgosons Realty, Inc. v. Court of
Appeals, 295 SCRA 449 [1998])
QUESTION 8
What is meant by fair rental value?
In Catungal v. Hao, 355 SCRA 29 [2001], which was
cited in D.O. Plaza Management Corp. v. Co-owners
Heirs of Andres Atega, 447 SCRA 172 [2004], the
Supreme Court defined fair rental value as the
reasonable compensation for the use and occupation
of the leased property. There is no hard and fast rule
in determining the reasonableness of the rental
charged. In Manila Bay Club Corp. v. Court of
Appeals, 245 SCRA [1995], the Supreme Court
considered: a) the prevailing rates in the vicinity; b)
location of the property; c) use of the property; d)
inflation rate; and e) the testimony of the private
respondents. In Umali v. The City of Naga, 96 Phil.
379 [1954], the Supreme Court added a catch-all
into consideration.
QUESTION 9
The lessee constructed an enclosed garage on the
leased premises. What are his rights to the garage,
if any?
The owner of the land, as lessor, can acquire the
improvement by paying for one-half of its value.
Should the lessor refuse to reimburse said amount,
the lessee may remove the improvement, even
though the principal thing may suffer damage
thereby (Art. 1678, Civil Code)
QUESTION 10
Manny leased to Floyd a commercial building for
five years. In consideration of their lease
right and privilege to purchase, within the lease
period, the leased premises and all the
improvements thereon for the aggregate amount
hat
to exercise the option, Floyd has to send a letter to
Manny manifesting his intent to exercise the
option within the lease period.
Three weeks before the expiration of the lease
contract, Floyd notified Manny thru a letter of his
intent to exercise the option with a request for
allow him to generate sufficient funds in order to
When the lease period expired, Floyd wrote
Manny another letter reiterating his decision to
exercise the option to purchase the property and
at the same time he made arrangements for the
payment of the stipulated down payment. Manny
refused to accept the down payment on the
ground that the period within which the option
should have been exercised had already lapsed. Is
Floyd still entitled to exercise the option under the
lease contract?
expiration of the lease was fair notice to the latter of
his intent to exercise the option notwithstanding his
request therein for extension of the lease contact of
sufficient funds in order to exercise his option to buy
option was contained
expiration of the lease, still the intent to exercise the
(Carceller v. Court of Appeals, 302 SCRA 718
[1999])
QUESTION 11
What is the legal basis of the rule recognizing the
validity of a provision in a lease contract which

The reason is that the parties are free to enter into any
contractual stipulation, provided it is not contrary
law, moral, good customs, public order or public
policy. When such agreement, freely and voluntarily
entered into, turns out to be disadvantageous to a
party, the courts cannot rescue him without crossing
the constitutional right to contract. The court is not
authorized to extricate a party from the necessary
consequences of his acts, and the fact that the
contractual stipulation may turn out to be financially
disadvantageous will not relieve the latter of his
obligation. (Torres v. court of Appeals, 320 SCRA
430)
QUESTION 12
Rey leased to Abe on a monthly basis a building.
When Rey decided to sell the building, he offered
to Abe, thru a letter, a right of first refusal to be
exercised within five days from receipt thereof.
When Abe failed to manifest his intention within
the period, Rey sold the building to Amado for
P15 million subject to the condition that the
balance of P5 million would be paid after the
building is completely vacated by Abe.
In another letter, Rey informed Abe about the sale
to Amado and the termination of their lease
agreement with a demand that Abe vacate the
premises. Abe refused to vacate, so Rey sued him
for ejectment. Abe countered by filing an action
for the extension of his lease period conformably
with Article 1687 of the Civil Code for having
occupied the property for more than thirty years
ground that Article 1687 is not available because,
first, the lease was for a definite period and
second, the period expired when the demand to
vacate was made by Rey. Is
action proper?
Article 1687 of the Civil Code is explicit that if the
period for the lease has not been fixed, it is
understood to be from month-to-month if the rent
agreed upon is monthly. However, even though a
monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the
lease after the lessee has occupied the premises for
over a year. Thus, the provision contemplates two
situations. One, where the period of the lease has not
been fixed but the rent agreed upon is monthly, in
which event the period is understood to be month-to-
month. In other words, the law itself fixes the period.
Two, where no period for the lease has been set, a
monthly rent is paid and the lessee has occupied the
premises for over a year authorizing the courts to fix
a longer period of lease. In this second situation, both
circumstances mentioned in the first situation also
exist and coupled with another circumstance, i.e., the
lessee has occupied the premises for over a year. The
law treats the matter differently in the second
situation because the length of stay of the lessee in
the premises may justify the courts to fix longer
periods of lease. The second situation is understood
thus: where no period for the lease has been set and
a monthly rent is paid, the law itself fixes the period
as monthly; yet the circumstance that the lessee has
occupied the premises for over a year warrants the
fixing of a longer period by the courts.
Inasmuch as the existence in the present case of the
circumstances that no period for the lease has been
set, rent was being paid monthly, and Abe has been
occupying the premises for more than thirty years
justify extending the period by the courts. It cannot
be said that the period expired at the end of the period
when Rey stated this in his letter of the termination
of their lease agreement. The unilateral act of the
lessor in terminating the lease should not be
recognized as writing finis to the agreement when the
second situation in Article 1687 of the Civil Code is
involved. A contrary view would result in barring
recourse to judicial lengthening of the period and in
allowing the utilization as subterfuge of the concept
Chua v. Court of Appeal, 356 SCRA 753
[2001])
QUESTION 13
Under what circumstance would an implied new
lease or a tacita reconduccion arise?
An implied new lease or tacita reconduccion arises
if at the end of the contract the lessee should continue
enjoying the thing leased for 15 days with the
acquiescence of the lessor, and unless a notice to the
contrary by either parties has previously been given
(Art. 1670, Civil Code). In short, in order that there
may be tacita reconduccion there must be expiration
of the contract; there must be continuation of
possession for 15 days or more; and there must be no
prior demand to vacate.

QUESTION 14
Is the lessee allowed to invoke the application of
Article 1687 of the Civil Code for the extension of
his lease in the same ejectment case filed by his
lessor?
Yes. The exercise of the power given to the courts in
Article 1687 of the Civil Code to extend the period
of the lease when the lessee has been in occupancy
of the premises for more than a year does not
contemplate a separate action for the purpose. That
power may be exercised as an incident in the action
for ejectment itself and by the court having
jurisdiction over it. (Yap v. Court of Appeals, 353
SCRA 715 [2001])
QUESTION 15
Mr. Chua is the owner of a commercial building
having acquired the same in 1964 through a Deed
of Sale. As early as then, Juan was the occupant
of a unit of the building by way of a verbal
contract of lease on a month-to-month basis. In
1989, Mr. Chua notified Juan of the termination
of their lease agreement on the ground that the
lease being on a month-to-month basis, is
terminated at the end of every month. Juan failed
to vacate despite demand, hence, Mr. Chua filed
a complaint for ejectment. May the court extend
the period of the lease?
No. It is a settled rule that the power of the courts to
fix a longer term for lease is potestative or
discretionary -- -- to be exercised
or not in accordance with the particular
circumstances of the case; a longer term to be granted
where equities come into play, demanding extension,
to be denied where none appear, always with due
deference to the parties freedom to contract. (Ferrer
v. Court of Appeals, 274 SCRA 219 [1997])
Here, it is undisputed that the lease was verbal, that
the rentals were paid monthly, and that proper
demand and notice by the lessor to vacate was given.
Under existing jurisprudence, a verbal contract of
lease between the owner and lessee on a month-to-
month basis is with a definite period and such expires
after the last day of any 30-day period, upon proper
demand and notice by the lessor to vacate. Thus, the
court has no right to extend the period of lease
considering that the potestative authority of the
courts to fix a longer term for a lease under Article
1687 of the Civil Code applies only to a case where
there is no period fixed by the patties. (Jolla, Inc. v.
Court of Appeals, 359 SCRA 102 [2001])
QUESTION 16
Romeo leased to Samuel a piece of land for five
years from 1991 to 1996. Their lease agreement
contains a stipulation that the lease is subject to
Romeo immediately brought an action to eject
Samuel from the leased premises. Samuel defends
that he is entitled to a renewal in view of the
provision in their contract of lease providing for
automatic renewal. Is Samuel entitled to an
extension of his lease contract?
No. The power of the court to fix a longer term for a
lease is discretionary. Such power is to be exercised
only in accordance with the particular circumstances
of a case; a longer term to be granted where equities
demanding extension come into play, to be denied
where none appear always with due deference to
Article 1675 of the Civil Code excludes cases falling
under Article 1673 from those under Article 1687.
may judicially eject the lessee upon the expiration of
the period agreed upon or that which is fixed for the
duration of t
fixed by the parties, the courts, pursuant to Article
1687, have the potestative authority to set a longer
period of lease.
In the present case, the lease contract provided for a
fixed period of five years. Because the lease period
was for a determinate time, it ceased, by express
provision of Article 1669 of the Civil Code, on the
day fixed, without need of a demand. Here, the five-
year period expired, whereas the complaint for
ejectment was filed after its expiration. Because there
was no longer any lease that could be extended, the
court, has no authority to make a new contract for the
parties.
Furthermore, the extension of the lease contract must
be made before the term of the agreement expires,
not after. Upon the lapse of the stipulated period,
courts cannot belatedly extend or make a new lease
for the parties, even on the basis of equity. Because
the lease contract had expired without the parties
reaching any agreement for renewal, Samuel can be
ejected from the premises.
Is Samuel entitled to invoke the option to renew
clause?
No. In Fernandez v. Court of Appeals, 166 SCRA 577
[1988], the Supreme Court declared that in a
reciprocal contract like a lease, the period of lease
must be deemed to have been agreed upon for the
benefit of both parties, absent language showing that
the term was deliberately set for the benefit of the
lessee or lessor alone. Thus, pursuant to Fernandez
and Article 1196 of Civil Code, the period of the
lease contract is deemed to have been set for the
benefit of both parties. Its renewal may be authorized
only upon the mutual agreement or at their joint will.
Its continuance, effectivity or fulfillment cannot be
made to or depend exclusively upon the free and
uncontrolled choice of just one party. While the
lessee has the option to continue or to stop paying the
rentals, the lessor cannot be completely deprived of
any say on the matter. Absent any contrary
stipulation in a reciprocal contract, the period of lease
is deemed to be for the benefit of both parties. (LL
-industrial Corp. vs.
Huang Chao Chun, 378 SCRA 613 [2002])
QUESTION 17
Sta. Lucia Realty is the owner of an apartment
building. For more than 20 years, Unit No. 15 was
leased by Sta. Lucia Realty to Arnel. In 1984,
Arnel, along with the other apartment tenants,
was informed by Alberto Barreto that Sta. Lucia
Realty and its assets had already been assigned
and transferred to Albar Enterprises. Fearing
that they were to be ejected from their respective
units, the tenants formed a tenants association to
negotiate with Albar Enterprises for the purchase
of their respective apartment units. Among those
elected was Anselmo as president.
Believing that negotiations were still ongoing,
Arnel was surprised to learn in 1987 that his unit
was already sold to Anselmo. Shortly thereafter,
he received a letter from Anselmo demanding
that he vacate the leased premises. Arnel refused
on the ground that his right of first refusal was
violated when his unit was sold to Anselmo.
Anselmo acquired the residential apartment unit
by purchase from the owner?
No. As lessee of the residential apartment unit, Arnel
has no right of first refusal to speak of. Apartment
dwellers are excluded from the protective mantle of
the Urban Land Reform Law. The said law grants
the right of first refusal only to legitimate tenants
who have built their homes on the land they are
leasing. Arnel did not lease the land only. Neither
did he build a home thereon. There is no question
that both the land and the building are owned by the
lessor. In the parallel case of Nidoy v . Court of
Appeals, 214 SCRA 394 [1992], the Supreme Court
held that the right of first refusal applies only to
tenants who have resided for ten years or more on the
leased land declared as within the Urban Land
Reform Zone, and who have built their homes on the
land. It does not apply to apartment dwellers.
Co
sale to Anselmo and reconveyance cannot prosper if
based only on the ground that he was denied his right
of first refusal under P.D. 1517, the Urban land
Reform Law.
b) Was an implied or constructive crust created
between Arnel and Anselmo?
Yes. The absence of fraud or mistake on the part of
Anselmo does not prevent the creation of an implied
or constructive trust between him and Arnel. The
fact that Anselmo never received any money from
Arnel, nor was he unjustly enriched, does not negate
the creation of an implied or constructive trust.
Constructive trusts do not only arise out of fraud or
duress, but also by abuse of confidence, in order to
satisfy the demands of justice.
By acquiring for himself the apartment unit without
informing Arnel of the progress of the negotiations,
or of his desire to purchase the said property.
Anselmo did not act with the candor and honesty
expected of him. His successful, albeit clandestine,
ploy to appropriate the apartment unit of Arnel that
he knew fully well Arnel had every intention to buy
violated the trust and confidence so willingly and
without reservation reposed in him. Without doubt,
Anselmo had breached the confidence reposed in
him by Arnel, and an implied trust was created by
force of law in favor of Arnel, a long-time occupant
of the apartment unit which Anselmo surreptitiously
bought. (Arlegui v. Court of Appeals, 378 SCRA 322
[2002])

QUESTION 18

Jay leased to Jim a parcel of land which is subject

to a real estate mortgage executed by Jay in favor
of PNB. Since the loan with PNB remained unpaid
upon maturity, the bank extra judicially
foreclosed the mortgage thereon. At the public
auction sale, the bank emerged as the highest
bidder.

Realizing that he could not possibly raise in time

the money needed to redeem the property within
the redemption period, Jay decided to sell the
same. Since the lease contract contains a provision
that the lessee, Jim has the right of first refusal
should Jay decide to sell the property during the
term of the lease, Jay offered to sell the property
to Jim for P6 million. After several letters, Jim
confirmed his intention to purchase the property

Because of the nearing expiry date of the

redemption period, the money for which he could
not raise on time, Jay then sold the land to Jabbar
for P5.4 million. Such that a few days before the
expiry date of the redemption period, Jabbar
came up with the amount sufficient to cover the
redemption money.

right of first refusal?

No. An examination of the attendant particulars of

the instant case lead to the inescapable conclusion
t
Jim was so intractable in his position and took
advantage of the knowledge of the time element in
his negotiations with Jay as the redemption period of
the subject foreclosed property drew near. Jim
s -
his negotiation with Jay. It would have been far
different had the property been sold to Jabbar at a

Equity in this case tilts in favor of Jay and Jabbar that

the sale between them concerning the property be
given imprimatur, for if Jim lost his opportunity to
acquire it, he has only himself to blame. (Riviera
Filipina, Inc. v. Court of Appeals, April 5, 2002)

END
LAW ON TRUSTS
QUESTION NO. 1
What is a trust?
A trust is the legal relationship between one person
having an equitable ownership over a certain
property and another having a legal title to it.
QUESTION NO. 2
Who are the parties in a trust?
There are three parties in a trust: the trustor, the
trustee, and the beneficiary. The trustor is the person
who establishes the trust; the one in whom
confidence is reposed as regards property for the
benefit of another person is called the trustee; and the
person for whose benefit the trust has been created is
referred to as the beneficiary. (Art. 1140, Civil Code)
QUESTION NO. 3
What are the kinds of trusts?
A trust may either be an express trust or an implied
trust. An express trust in one created by the parties,
or by the intention of the trustor. (Art. 1441, Civil
Code). An implied trust, on the other hand, is one that
comes into being by operation of law. (Art. 1441,
Civil Code)
QUESTION NO. 4
What are the kinds of implied trusts?
Implied trusts may be a resulting trust or a
constructive trust, both of which come into being by
operation of law.
QUESTION NO. 5
How may a resulting trust arise and what is its
basis?
A resulting trust is based on equitable doctrine that
valuable consideration and not legal title determines
the equitable title to or interest over a property and is
presumed always to have been contemplated by the
parties. It arises from the nature or circumstances of
the consideration involved in a transaction under
which one person becomes invested with legal title
for the benefit of another.
QUESTION NO. 6
Ben died of cancer at the age of 34. He was
survived by his wife, Sylvia, and their two minor
children. In the action for the settlement of her
husban
roperty in
Forbes Park registered in name when he
was still single. By way of motion, Sylvia asked the
court for authority to sell the Forbes Park
property to pay the estate tax assessed by the BIR.
action did not sit well with Lauro, Ben
father. Lauro then brought an action for
reconveyance of the Forbes Park property. He
claims that he was the one who bought the
property, and that he registered the property in
the name, who was to hold the property as
a trustee. Who owns the Forbes Park property:
Ben or his father?
While it may be conceded that the purchase price of
existence of an implied trust must be ruled out
because of the last sentence of Article 1448 which
is conveyed is a child, legitimate or illegitimate, of
the one paying the price of the sale, no trust is
implied by law, it being disputably presumed that
Article 1448 of the Civil Code is clear. If the person
to whom the title is conveyed is the child of the one
paying the price of the sale, and in this case this is
undisputed, no trust is implied by law. The law,
instead, disputably presumes a donation in favor of
the net effect of this is that Ben is obliged to collate
into the mass of the estate of his father, in the event
(Ty
v. Ty, G.R. No. 165696, April 30, 2008)
QUESTION NO. 7
How is a constructive trust created and what is its
basis?
A constructive trust is based on equitable doctrine to
satisfy the ends of justice and to prevent unjust
enrichment. It arises when one, by fraud, duress, or
abuse of confidence, obtains or holds the legal right
to property which he ought not, in equity and good
conscience, hold.
QUESTION NO. 8
The tenants of an apartment building, in order to
purchase the building, named the president of
their association to negotiate for them with the
building owner. No sale ripened. Two years later,
the tenants learned that their president became
the new owner of the apartment building. Was a
constructive trust created between the president
and the tenants? Was such trust violated?
Yes, to both questions.
A constructive trust was created between the
president and the tenants in respect to the apartment
building. Constructive trust arises against one who,
by fraud, duress, or abuse of confidence, obtains the
legal right to the property which he ought not, in
equity and good conscience, hold. The trust can be
implied from the nature of the transaction since the
president was not only representing himself but also
the other tenants, hence, showing the confidence
reposed in him.
The president violated the trust when he kept secret
the perfection of the sale for two years. He purchased
the units for himself at bargain prices so he could
resell them at a profit (Policarpio v. Court of
Appeals, 269 SCRA 334 [1997])
QUESTION NO. 9
B is named as a vendee in a deed of sale although
it was A who paid the purchase price. Is there an
implied trust between B and A?
Yes. An implied trust is created between B and A, the
former being the trustee and the latter the beneficiary.
An implied trust arises when a person purchases land
with his own money and takes conveyance of the
land in the name of another. In such case, the
property is held by way of a resulting trust in favor
of the one furnishing the consideration for the
transfer, unless a different intention appears. The
first sentence of Article 1148 of the Civil Code,
purchase money
resulting trust
Although the deed of sale was in the name of B, the
purchase price was paid by A who was the real owner
of the property.
To give rise to a purchase money resulting trust, it is
essential that there be a) an actual payment of money,
property, or services, or an equivalent, constituting
valuable consideration; and b) such consideration
must be furnished by the alleged beneficiary of a
resulting trust (Tigno v. Court of Appeals, 280 SCRA
262 [1997])
QUESTION NO. 10
Does an action to compel the trustee to convey the
property registered in his name for the benefit of
the cestui que trust prescribe?
As a rule, no.
The action to compel the trustee to convey the
property registered in his name for the benefit of the
cestui que trust does not prescribe. If at all, it is only
when the trustee repudiates the trust that the period
of prescription commences to run. (Heirs of dela
Cruz v. Court of Appeals, 182 SCRA 638) The
prescriptive period is ten years from the repudiation
of the trust. The reckoning point is the repudiation of
the trust by the trustee because from that moment his
possession becomes adverse. But before the period
starts to run, it must be shown that: a) the trustee has
performed unequivocal acts of repudiation
amounting to an ouster of the cestrui que trust; b)
such positive acts of repudiation have been made
known to the cestui que trust; and c) the evidence
thereon is clear and convincing. (Valdez v. Olorga,
51 SCRA 71)
QUESTION NO. 11
When does an action for reconveyance based on
implied or constructive trust prescribe?
An action for reconveyance of a parcel of land based
on an implied or constructive trust prescribes in ten
years, the point of reference being the date of
registration of the deed or date of issuance of the
certificate of title over the property. Suffice it to say,
however, that this rule applies only when the plaintiff
or the person enforcing the trust is not in possession
of the property, since if a person claiming to be the
owner thereof is in actual possession of the property,
the right to seek reconveyance which in effect seeks
to quiet title to the property does not prescribe.
QUESTION NO. 12
Manuel, Nestor, and Oswald are co-owners in
pro-indiviso shares of a parcel of land. Manuel
and Nestor sold the entire property to Donato
without the knowledge of their co-owner, Oswald.
A few years later, Oswald sold to Enrico the half
portion of his 1/3 share in the property and
retained the other half for himself. Despite the
sale of the whole estate to Donato, Oswald and his
vendee, Enrico, remained in possession of their
respective portions of the property. Oswald later
files an action against Donato for reconveyance.
Has the action prescribed?
The action has not yet prescribed. In Heirs of Olviga
v. Court of Appeals, 227 SCRA 330, the Supreme
Court held that an action for reconveyance of a parcel
of land based on implied or constructive trust
prescribes in ten years (point of reference being the
date of registration of the deed or the date of issuance
of the certificate of title over the property), but this
rule applies only when plaintiff or the person
enforcing the trust is not in possession of the
property, since, if a person claiming to be the owner
thereof is in actual possession of the property as in
the case of Oswald, the right to seek reconveyance
which is in effect an action to quit title does not
prescribe. The reason for this is that one who is in
actual possession of the land claiming to be the
owner may wait until his possession of the land and
his title is attacked before taking steps to vindicate
his right.
(NOTE: The rule that a trustee cannot acquire by
prescription ownership over property entrusted to
him until and unless he repudiates the trust applies
to express trusts and resulting implied trusts.
However, in constructive implied trusts, prescription
may supervene if the trustee does not repudiate the
relationship (Buan vda. De Esconde v. Court of
Appeals, 253 SCRA 66 [1996])
LAW ON PARTNERSHIP
QUESTION NO. 13
What is a partnership?
A partnership is a contract whereby two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves,
or in order to exercise a profession. (Art. 1767, Civil
Code)
QUESTION NO. 14
What are the tests to determine the existence of a
partnership?
There are two tests to determine whether or not a
partnership exists. The first is to determine whether
there is an agreement to contribute money, property,
or industry to a common fund, and the second test is
to determine whether there is an intent of the
contracting parties to divide the profits among
themselves. Once it can be shown that there was an
agreement to contribute money, property or industry
to a common fund, and that there was an intent to
divide the profits among themselves, then a
partnership contract exists. (Art. 1769, Civil Code)
QUESTION NO. 15
Under Article 1772 of the Civil
contract of partnership having a capital of
Php3,000 or more, in money or property, shall
appear in a public instrument, which must be
recorded in the office of the Securities and
requirement has not been complied with, is the
partnership still la juridical person, assuming
that all other requisites are present?
Yes, because of Article 1768 of the Civil Code which
says
separate and distinct from that of each of the partners,
even in case of failure to comply with the
registration requirement under Article 1772 of the
Civil Code is not intended as a prerequisite for the
acquisition of juridical personality by the
partnership, but merely as a condition for the
issuance of the license to engage in business or trade.

QUESTION NO. 16
What are the different kinds of partnership?
The Civil Code classifies partnership into two:
according to their object and according to the liability
of the partners.
As to object, partnership may be universal or
particular. A universal partnership may refer to all
present property or to all profits. (Art. 1777, Civil
Code) A partnership of all present property is that in
which the parties contribute all property which
actually belongs to them to a common fund, with the
intention of dividing the same among themselves, as
well as all the profits which they may acquire
therewith. (Art. 1778, Civil Code) A universal
partnership of profits comprises all that the partners
may acquire by their industry or work during the
existence of the partnership. (Art. 1780, Civil Code)
A particular partnership, on the other hand, is that
which has for its object determinate things, their use
or fruits, or a specific undertaking, or the exercise of
a profession or vocation. (Art. 1783, Civil Code)
As to liability of the partners, partnerships may be
general or limited. A general partnership is one
where all of the partners are general partners; while
a limited partnership is one where there is at least one
general partner and one limited partner.
QUESTION NO. 17
Is there a prescribed form for the constitution of
a partnership?
It depends. If the partnership is general, the
partnership may be constituted in any form, except
where immovable property or real rights are
contributed to the common fund, in which case a
public instrument, to which is attached an inventory
of said property, signed by all of the partners, shall
be necessary for validity. (Arts. 1771, 1773, Civil
Code) Furthermore, if it has a capital of P3,000 or
more, it must appear in a public instrument, which
shall be recorded in the Securities and Exchange
Commission. However, this is not necessary for
validity. (Art. 1772, Civil Code)
If the partnership is limited, it is required that the
contracting parties, in addition to the formalities
prescribed for the organization of general
partnership, shall execute a certificate of limited
partnership which must be recorded in the Securities
and Exchange Commission. (Art. 1843, Civil Code)
These formalities must be complied with; otherwise,
the partnership is not limited but general.
QUESTION NO. 18
What is a partnership by estoppel?
A partnership by estoppel arises when two persons
who are not partners represent themselves as partners
to strangers. Similarly, when two persons who are
partners, in connivance with a friend who is not a
partner, inform a stranger that said friend is their
partner, a partnership by estoppel may also result to
the end that the stranger should not be prejudiced.
(Art. 1769 (1), and 1825, Civil Code)
QUESTION NO. 19
As regards the liability of partners, how are
partnerships classified?
As regards the liability of partners, a partnership may
either be a general partnership or a limited
partnership. (Art. 1776, Civil Code)
A general partnership is one where all the partners
are general partners, that is, they are liable even with
respect to their individual properties, after the assets
of the partnership have been exhausted.
A limited partnership is one where at least one
partner is a general partner and the others are limited
partners. A limited partner is one whose liability is
limited only up to the extent of his contribution.
QUESTION NO. 20
Rommel, Sherwin and Tito are general partners
in a trading firm. Having contributed equal
amounts to the capital, they agreed on equal
distribution of whatever net profit is realized per
fiscal period. After four years of operation, Tito
conveyed his whole interest in the partnership to
Wanda without the knowledge and consent of
Rommel and Sherwin.
a) Is the partnership dissolved?
No. Under Article 1813 of the Civil Code, the
conveyance by a partner of his or her whole interest
in the partnership does not itself dissolve the
partnership in the absence of an agreement.
b) What are the rights of Wanda, if any, should
she desire to participate in the management of the
partnership and in the distribution of the net
profit of P450,000 which was earned after his
Under Article 1813 of the Civil Code, Wanda cannot
interfere nor participate in the management or
administration of the partnership business affairs.
She may, however, receive the net profits to which
Tito would have otherwise been entitled. In this case,
Wanda is entitled to P150,000 (1/3 of P450,000).
QUESTION NO. 21
Lucy and Fernan formed an entity known as
into a contract with the Government for the
construction of a bridge. After a public bidding,
for implementation. After completion of the
project, Lucy and Fernan parted ways to devote
their time to their own business undertakings.
Efren, a supplier of materials used in the
construction project, brought an action against
Lucy for collection of the amounts owed by the
partnership. Lucy moves to dismiss on the ground
that it was the partnership which is liable for the
debt. Is Lucy liable for the payment of the debt?
Yes, because Lucy is still liable as a general partner
for her 1/2 pro rata share. (Art. 1816, Civil Code)
Dissolution of a partnership caused by the
termination of the particular undertaking specified in
the agreement does not extinguish the obligations of
the partnership which must be liquidated during the
Arts. 1829
and 1830, Civil Code)
QUESTION NO. 22
Can a husband and wife form a limited
partnership?
Yes, they can. The Civil Code prohibits a husband
and wife from constituting a universal partnership.
Since a limited partnership is not a universal
partnership, a husband and wife may validly form
one or be a member thereof (CIR v. Suter, et. al., 27
SCRA 152 [1967])
QUESTION NO. 23
Who are the persons who together cannot form a
universal partnership?
Persons who are prohibited from giving each other
any donation or advantage cannot enter into a
universal partnership. They are as follows: a)
husband and wife (Art. 87, Family Code); b) those
guilty of adultery or concubinage (Art. 739, Civil
Code); and c) those guilty of the same criminal
offense, if the partnership was entered into in
consideration of the same. (Art. 739, Civil Code)
QUESTION NO. 24
Can two corporations organize a general
partnership?
No. A corporation may not be a general partner in a
general partnership, either with an individual or with
another corporation, because the principle of mutual
agency in general partnerships allowing the other
general partner to bind the corporation will violate
the principle in corporation law that only the board
of directors may bind the corporation.
QUESTION NO. 25
A and B orally agreed to form a partnership 18
months from today, each one to contribute a
substantial capital to the proposed business
venture. If at the arrival of the period, A refuses
to go ahead with the agreement; can B enforce the
agreement by court action?
No, because the agreement was merely oral and
executory. It is true that a partnership contract is not
governed by the Statute of Frauds but here, there is
merely an agreement to form a partnership in the
future. Since therefore the agreement is to be formed
after one year from the making thereof, the same
should be in writing to be enforceable under the
Statute of Frauds. (Art. 1403, No. (2) (a), Civil Code)
QUESTION NO. 26
Paquito, Antonio and Fernando are partners in a
construction firm. While operating a bulldozer in
the ordinary course of the partnership business,
Paquito caused damage to the cars of his partner
Antonio and their client, Ramon. Is the
partnership liable for the losses suffered by
Antonio and Ramon?
The partnership is liable for the damage suffered by
Ramon but not to the damage suffered by Antonio.
Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business
of the partnership, or with the authority of his co-
partners, loss or injury is caused to any person, not
being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
QUESTION NO. 27
Because of a misunderstanding, Atty. Dumag
withdrew his membership from a law firm which
does not have a fixed term. He later filed with the
SEC a petition for the dissolution of the firm.
After due proceedings, the SEC hearing officer
denied the petition on the ground that the
withdrawal of Atty. Dumag has not dissolved the
firm. Is the SEC hearing officer correct?
No. A partnership which does not have a fixed term
is a partnership at will. The law firm of Atty. Dumag
is one such partnership. The birth and life of a
partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with
whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each
partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must,
however, act in good faith. If he acted in bad faith, it
would not prevent the dissolution of the partnership
but that it can result in a liability for damages
(Ortega, et. al., v. Court of Appeals, 245 SCRA 529
[1995])
QUESTION NO. 28
Tom and Gerry verbally entered into a
partnership in the distribution of LPG in Manila.
For convenience, Tom and Gerry agreed to
register the business solely in the name of Gerry
as sole proprietor and for him to manage the
business for a fee.
As agreed upon, Tom delivered his capital
contribution of P100,000 to Gerry, while the latter
in turn produced the same amount as his
counterpart contribution, with the intention that
the profits would be equally divided between
them.
took over the operations and management of the
partnership
accounting, winding up, and restitution of his net
shares in the partnership business, Ellen failed to
comply. Instead, Ellen continued the operations of
the business, converting to her own use and
advantage its assets.
In 2002, because of
Up of Partnership Affairs, Accounting and
the following grounds; a) that the oral
partnership agreement between Tom and Gerry
is void; (b) that the action had already prescribed;
and c) that the alleged partnership was not
registered with the SEC.
a) Is the oral partnership agreement between
Tom and Jerry valid?
Yes. A partnership may be constituted in any form,
except where immovable property or real rights are
contributed thereto, in which case a public
instrument shall be necessary. Hence, based on the
intention of the parties, a verbal contract of
partnership was formed between them. The essential
points that must be proven to show that a partnership
was agreed upon are: 1) mutual contribution to a
common stock; and 2) a joint interest in the profits.
Understandably so, in view of the absence of a
written contract of partnership between Tom and
Jerry, Tom may resort to the introduction of
testimonial evidence to prove said partnership.
b) Has the action prescribed?
No. The action for accounting filed by Tom three
prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six
years, while the right to demand an accounting for a
business accrues at the date of dissolution, in the
absence of any contrary agreement. (Art. 1842, Civil
Code)
Considering that the death of a partner results in the
dissolution of the partnership, in this case, it was after
his interest as against Ellen. It bears stressing that
dissolution did not immediately terminate the
partnership. The Civil Code expressly provides that
upon dissolution, the partnership continues and its
personally is retained until the complete winding up
of its business, culminating in its termination. (Art.
1828, Civil Code)
c) Is the requirement under Article 1772 of the
Civil Code for the registration of a partnership
with a capital of P3,000 or more with the SEC
mandatory?
No. The registration requirement under Article 1772
of the Civil Code is not mandatory; it is merely
directory. Article 1768 of the Civil Code explicitly
provides that the partnership retains its juridical
personality even if it fails to register. The failure to
register the contract of partnership does not
invalidate the same as among the partners, so long as
the contract has the essential requisites, because the
main purpose of registration is to give notice to third
parties, and it can be assumed that the members
themselves knew of the contents of their contact. In
the case at bar, non-compliance with this directory
provision of the law will not invalidate the
partnership considering that the totality of the
evidence shows the valid constitution of the
partnership between Tom and Gerry. (Sunga-Chan
v. Chua, 363 SCRA 249 [2001])
QUESTION NO. 29
Aragorn, Legolas and Gimli are partners in a
fishing business venture. Because of a quarrel,
Gimli withdrew from the partnership in 1986 as a
result of which they agreed to dissolve their
partnership and for that purpose they signed an
agreement of partition and distribution of the
partnership properties.
against Legolas and Gimli for accounting of the
partnership assets and partition. Legolas and
Gimli defended on ground of prescription. They
contend that the action had already prescribed
four years after it accrued in 1986 when the
partnership was dissolved by the withdrawal of
Gimli. Has the action prescribed?
The action has not yet prescribed. The three final
stages of a partnership are: 1) dissolution; 2)
winding-up; and 3) termination. (Idos v. Court of
Appeals, 296 SCRA 194 [1998]) The partnership,
although dissolved, continues to exist and its legal
personality is retained, at which time it completes the
winding up of its affairs, including the partitioning
and distribution of the net partnership assets to the
partners, (Sy v. Court of Appeals, 313 SCRA 328
[1999]) For as long as the partnership exists, any of
the partners may demand an accounting of the
starts to run only upon the dissolution of the
partnership when the final accounting is made. (Fue
Leung v. Intermediate Appellate Court, 169 SCRA
746 [1989])
the partnership accrued in 1986 when the partnership
was dissolved, prescribing four years thereafter,
prescription had not even begun to run in the absence
of a final accounting. Applied in relation to Articles
1807 and 1809, which also deal with the duty to
account, Article 1842 of the Civil Code states that the
right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the
contrary. When a final accounting is made, it is only
then that prescription begins to run. In the case at bar,
no final accounting has been made, and that is
precisely what the heirs of Gimli are seeking in their
action before the court, since Legolas and Gimli have
failed or refused to render an accounting of the
is not barred by prescription.(Emnace v. Court of
Appeals, 370 SCRA 431 [2001])
LAW ON AGENCY
QUESTION NO. 30

What is meant by agency?
By the contract of agency a person binds himself to
render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter. (Art. 1868, Civil
Code)
QUESTION NO. 31
What is agency by estoppel?
This kind of agency arises when one clothes another
with apparent authority as his agent, and holds him
out to the public as such, cannot be permitted later to
deny the authority of such person to act as his agent,
to the prejudice of innocent third parties dealing with
such person in good faith, and in the honest belief
that he is what he appears to be. (Macke et. al. v.
Campus 7 Phil 553)
QUESTION NO. 32
Distinguish between agency by estoppel and
implied agency.
As between the principal and the agent: In an implied
agency, the agent is a true agent, with rights and
duties of an agent; in an agency by estoppel (caused
for instance by estoppel on the part of the agent), the
such.
As to third persons: If the estoppel is caused by the
principal, he is liable, but only if the third person
acted on the misrepresentation; in an implied agency,
the principal is always liable. If the estoppel is
caused by the agent, it is only the agent who is liable,
never the alleged principal; in an implied agency, the
agent is never personally liable.
QUESTION NO. 33
What is the doctrine of agency by necessity?
Strictly speaking, an agency can never be created by
existence of an emergency, the authority of an agent
is correspondingly enlarged in order to cope with the
exigencies or the necessities of the moment. Thus, if
a bus conductor is seriously hurt, the driver is
authorized to engage the services of a physician, in
survive. This is really for the interest of all
concerned.
QUESTION NO. 34
P appoints A, a minor, as his agent to sell a
particular car. A sells the car to a buyer, B. P
afterwards seeks to disaffirm the sale, and brings
act was voidable, as a minor cannot be an agent.
Judgment for whom?
Judgment for B. The agent A is deemed to be an
extension of the personality of the principal, who
himself is capacitated. Hence, P cannot annul the
QUESTION NO. 35
Does the power to sell include the power to
mortgage?
No. The power to sell does not include the power to
mortgage or to pledge; neither does it include the
power to barter or exchange. The power to mortgage,
on the other hand, does not include the power to sell
(Art. 1879, Civil Code) or to execute a second
mortgage.
QUESTION NO. 36
Jim appointed Art as his agent to sell his house
and lot. One week later, Jim appointed Ben as his
agent to sell the same property. What is the effect
of
of Art?
Article 1923 of the Civil Code, the appointment of a
new agent for the same business or transaction
revokes the previous agency from the day on which
notice thereof is given to the former agent. However,
this rule is subject to certain exceptions. They are as
follows: (1) if the agency has been entrusted for the
purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were
not given notice thereof (Art. 1921 , Civil Code); and
2) if the agent had general powers, revocation of the
agency does not prejudice third persons who acted in
good faith and without knowledge of the revocation.
(Art. 1922, Civil Code)
QUESTION NO. 37
Pedro owns a car. To raise money for his business
venture, he instructed Oswald to sell the car for
him (Pedro). Oswald, in his own name, sold the
car to Menardo. Can Menardo sue Pedro in case
the car has hidden defects?
Yes. In this case, although Oswald acted in his own
name, still the sale involved a car belonging to Pedro,
the principal. Here we apply the exception stated in
the second paragraph of Article 1883 of the Civil
one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own,
except when the contract involves things belonging
to the principal
completely valid.
QUESTION NO. 38
Distinguish between a commission agent and a
broker.
A commission agent is one engaged in the purchase
and sale for a principal of personal property, which
for this purpose, has to be placed in his possession
and at his disposal (Art. 1903, Civil Code). He has a
relation not only with his principal, and the buyers or
sellers, but also with the property which constitutes
the object of the transaction.
A broker, on the other hand, maintains no relation
with the thing which he purchases or sells. He is
supposed to be merely a go-between, an intermediary
between the seller and the buyer. As such, he does
not have either the custody or the possession of the
thing that he disposes of. His only function is,
therefore, to bring the parties to the transaction.
QUESTION NO. 39
A, B and C are co-owners of a parcel of land.
They employ D as their agent to sell the property,
with D receiving a commission equivalent to 10%
of the selling price of the land. If D is successful in
selling the land, from whom can he collect his
commission?
D can collect from any of the three co-owners
because of their solidary liability under Article 1915
of the Civil Code. If Art pays D his entire
commission, he is entitled to recover from B and C
their respective shares.
(NOTE: If the co-owners engaged D to sell their
separate ideal shares in the property, their liability
to D is merely joint, not solidary. This is so because
the transaction is not a common transaction or
undertaking)
LAW ON LOANS
QUESTION NO. 40
Distinguish between commodatum and mutuum.
a. Commodatum ordinary involves something
not consumable, while in mutuum, the subject
matter is money or other consumable thing.
b. In commodatum, ownership of the thing
loaned is retained by the lender, while in
mutuum, the ownership is transferred to the
borrower.
c. Commodatum is essentially gratuitous, while
mutuum maybe be gratuitous or onerous, that
is, with stipulation to pay interest.
d. In commodatum, the borrower must return
the identical thing loaned, while in mutuum,
the borrower need only pay the same amount
of the same kind and quality.
e. Commodatum may involve real or personal
property, while mutuum refers only to
personal property.
f. Commodatum is a loan for use, while
mutuum, is a loan for consumption.
g. In commodatum, the bailor may demand the
return of thing loaned before the expiration of
the term in case of urgent need, while in
mutuum, the lender may not demand its return
before the lapse of the term agreed upon; and
 h. In commodatum, the loss of the thing loaned
is suffered by the bailor since he is the owner,
while in mutuum, the borrower suffers the
loss even if caused exclusively by a fortuitous
event. ((Arts. 1933, 1935, 1936, 1937, 1946,
1942; 1174, Civil Code)
(NOTE: The bailor in commodatum need not be the
owner of the thing loaned (Art. 1938, Civil Code)
because ownership does not pass to the borrower. It
is sufficient if the bailor has such possessory interest
in the subject-matter or right to its use which he may
assert against the bailee and third persons although
not against the rightful owner)
QUESTION NO. 41
Is the bailee in commodatum entitled to the fruits
of the thing loaned?
As a rule, the bailee in commodatum is not entitled to
the fruits of the thing loaned; otherwise, the contract
may be one of usufruct. However, to stipulate that the
bailee may make use of the fruits would not destroy
the essence of commodatum by express provision of
Article 1940 of the Civil Code; this is so because
liberality is still the actual cause or consideration of
the contract.
QUESTION NO. 42
Angela requested his friend, Franklin, for help in
incorporating her business, rden.
Specifically, Angela requested Franklin to deposit
in a bank Php100,000 in the account of
Garden for incorporation purposes. She assured
Franklin that he could withdraw his money from
the account within a month.
a savings account in the name of
and deposited in the account Php300,000.
Franklin made himself the only authorized
signatory of the account for which a passbook was
issued to him.
Franklin later learned to his dismay that Angela
withdrew Php150,000 from the savings account,
and that only a portion of it remained. He was
informed that he could not even withdraw the
remaining amount because it had to answer for
some post-dated checks issued by Angela.
Franklin also discovered that Angela was allowed
to withdraw money from the savings account
because she was the registered sole proprietor of
.
What kind of transaction did Franklin and
Angela enter into: mutuum or commodatum?
The transaction between them was a commodatum,
not mutuum. Article 1933 of the Civil Code
distinguishes between these two kinds of loan in this
wise:
to another, either something not consumable so that
the latter may use the same for a certain time and
return it, in which case the contract is called a
commodatum; or money or other consumable thing,
upon the condition that the same amount of the same
kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. Simple loan
may be gratuitous or with stipulation to pay interest.
In commodatum, the bailor retains the ownership of
the thing loaned, while in simple loan, ownership
passes to the buyer.
The foregoing provision seems to imply that if the
subject of the contract is a consumable thing, such as
money, the contract would be a mutuum. However,
there are some instances where a commodatum may
have for its object a consumable thing. Article 1936
of the Civil Code provides:
Consumable goods may be the subject of a
commodatum if the purpose of the contract is not the
consumption of the object, as when it is merely for
exhibition.
Thus, if consumable goods are loaned only for
purposes of exhibition, or when the intention of the
parties is to lend consumable goods and to have the
very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a
mutuum.
Here, Franklin agreed to deposit his money in the
savings account of for the purpose
of making it appear that said firm had sufficient
capitalization for incorporation, with the promise
that the said amount shall be returned within 30 days.
his money without consideration, as a favor to his
friend. It was, however, clear to the parties that the
money would be returned to Franklin in 30 days.
(Producers Bank of the Phils.vs. Court of Appeals,
397 SCRA 651 [2003])
QUESTION NO. 43
What are the instances when the bailee is liable
for the loss of the thing loaned even if it should be
due a fortuitous event?
As a general rule, the bailee is not liable for loss or
damage of the thing loaned even if it should be
through a fortuitous event, except in the following
cases:
a. he devotes the thing to any purpose different
from that for which it has been loaned:
b. he keeps it longer than the period stipulated
or after the accomplishment of the use for
which the commodatum has been constituted;
c. if the thing loaned has been delivered with
appraisal of its value, unless there is a
stipulation exempting the bailee from
responsibility in case of a fortuitous event;
d. if he lends or leases the thing to a third person
who is not a member of his household;
e. if, being able to save either the thing
borrowed or his own thing, he chose to save
the latter. (Art. 1942, Civil Code)
QUESTION NO. 44
vehicle, and he saved his car instead of the truck.
Yes. The bailee in commodatum is liable for the loss
of the thing loaned, even if it should be through a
fortuitous event if, being able to save either the thing
borrowed or his own thing, he chose to save the
latter. (Art. 1492, Civil Code)
QUESTION NO. 45
What is meant by precarium?
Precarium is a specie of commodatum where the
bailor has the right to demand at will the return of the
thing which is the object of the contract. This takes
place when: a) neither the duration of the contract nor
the use to which the thing loaned should be devoted
has been stipulated; and b) the use of the thing is
merely tolerated. (Art. 1947, Civil Code)
QUESTION NO. 46
a) In a simple loan with stipulation to pay
usurious interest, what happens to the obligation
of the debtor to pay the principal debt?
In a simple loan with stipulation to pay usurious
interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract, is
not illegal. The illegality lies only in the stipulated
interest. Being separable, only the latter should be
deemed void. To discourage stipulations on usurious
interest, said stipulations are treated as wholly void,
so that the loan becomes one without a stipulation to
pay interest. It should not, however, be interpreted to
mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the
lender. (Puerto v. Court of Appeals, G. R. No.
138210, June 13, 2002)
b) Is the debtor liable to pay only the principal
obligation?
By way of compensatory damages for the breach of
the obligation, the debtor must pay the principal debt,
with interest thereon in the amount of 12% per
annum, to be computed from default, i.e., from
judicial or extrajudicial demand in accordance with
Article 1169 of the Civil Code. Such interest is not
due to stipulation, for there was none, the same being
void. Rather it is due to the general provision of law
that in obligations to pay money, where the debtor
incurs in delay, he has to pay interest by way of
damages, in conformity with the ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals, 234 SCRA
78 [1994].
c) Suppose a loan is secured by a mortgage and
the mortgage is foreclosed for non-payment of the
debt, is the debtor entitled to recover the
foreclosed property?
Since the mortgage is void, the foreclosure of the
property provided for in the mortgage contract is
ineffectual as well. Such foreclosure is invalid
because it stemmed from the enforcement of a
usurious mortgage contract. The parties then must
restore what each had received from the other. The
debtor must pay the principal loan with legal interest
at (12% per annum from the date of demand by way
property that had been invalidly foreclosed. The
transfer certificate of title to the subject property is
cancelled and a new one issued in favor of the debtor.
This is without prejudice to the right of the lender to
proceed against the debtor in the event the latter fails
to satisfy his original obligation including payment
of 12% interest by way of damages.
QUESTION NO. 47
What are the rules on interest rates under the
Civil Code?
The following are the rules on interest rates under the
Civil Code:
1) No interest rate shall be paid unless it is expressly
stipulated in writing.
2) In the absence of stipulation as to the amount,
interest rate of 12% applies to : a) loans (Central
Bank Circular No. 416); (b) forbearance for the use
of money, goods or credit; and c) judgment involving
a loan or forbearance of money, goods or credit.
3) In all other monetary judgments not involving
loans or forbearance for the use of money, goods or
credit, Article 2209 for the Civil Code provides that
the legal interest of 6% per annum shall be applied in
the absence of stipulation. This applies, for example,
in a judgment for non-payment of purchase price or
actions for damages for injury to persons or property.
4) Interest rate for actions for damages under Article
2209 is imposable a) from filing before judgment,
6% per annum; b) from judgment up to the time of
finality, 6% per annum; and c) from finality up to
actual payment, 12% per annum because it partakes
of the nature of forbearance for the use of money.
QUESTION NO. 48
Minda, a Divisoria wholesaler, contracted with
Shiela for the sewing of 20,000 pieces of assorted
Minda obliged herself to pay Shiela, for her
services, the total amount of P200,000, and for
Shiela to deliver the finished products within two
months. In less than two months, Shiela sewed the
denims and delivered them to Minda who
Because Minda failed to pay despite repeated
demands, Shiela instituted an action against her
for collection of the P200,000. In due time, the
court rendered judgment directing Minda to pay
Shiela the sum of P200,000 with interest thereon
at 12% per annum, to be counted from the filing
of the complaint until the amount is fully paid.
Minda now assails the decision on the ground that
it was error for the court to impose the interest of
12% per annum for an obligation that does not
involve a loan or forbearance of money. Is Minda
correct?
Yes. The amount due in this case arose from a
contract for a piece of work, not from a loan or
forbearance of money, hence, the legal interest of 6%
per annum should be applied. Furthermore, since the
amount of the demand could be established with
certainty when the complaint was filed, the 6%
interest should be computed from the filing of the
complaint. But after judgment becomes final and
executory until the obligation is satisfied, the interest
should be computed at 12% per year annum. The
interim period is deemed to be equivalent to a
forbearance of credit. (Crismina Garments, Inc., v.
Court of Appeals, 304 SCRA 356 [1999])
PLEDGE, MORTGAGE AND ANTICHRESIS
(Read: Personal Property Security Act)
QUESTION NO. 49
Samuel borrowed money from Teodoro. To
guarantee payment, Samuel left the Torrens Title
of his land to Teodoro for the latter to hold until
payment of the loan. Is there a) a contract of
pledge? b) a contract of mortgage? c) a contract
of antichresis? or d) none of the above?
None of the above. There is no pledge because only
movable property may be pledged. (Art. 2094, Civil
Code) If at all, there was a pledge of the paper or
document constituting the Torrens Title, as a
movable by itself, but not of the land which the title
represents. There is no mortgage because no deed or
contract was executed in the manner required by law
for a mortgage. (Arts. 2085 to 2092, 2124 to 2131,
Civil Code) There is no contract of antichresis
because no right to the fruits of the property was
given to the creditor. (Art. 2131, Civil Code)
QUESTION NO. 50
What is meant by mortgage in possession?
A mortgage in possession, otherwise known as
antichresis, is one where the mortgagee acquires
actual or constructive possession of the property
mortgaged for purposes only of enforcing his
security over the property and collecting the income
Nadal v. Court of
Appeals, 320 SCRA 699)
QUESTION NO. 51
What is the so-called dragnet clause in a mortgage
contract?
A dragnet clause is a provision in a mortgage
contract specifically phrased to subsume all debts of
past or future origin. (Phil. Bank of communications
v. Court of Appeals, 253 SCRA 241)
QUESTION NO. 52
H and W are the conjugal owners of a parcel of
land which they mortgaged to a bank to secure a
loan. Due to the untimely death of the couple,
however, the loan was not paid in full. As a result,
the bank foreclosed the mortgage. At the public
auction sale, the bank emerged as the highest
bidder. After the lapse of the redemption period,
the bank consolidated its title on the property and
became its registered owner. The heirs of H and
W subsequently instituted an action to annul the
public auction sale and for the reconveyance of
the property. They contend that upon the death of
H and W, the bank should have filed its claim
against the estate of the deceased mortgagors.
Will the suit prosper?
No. A secured creditor holding a real estate
mortgage has three options in case of death of the
debtor. These are:(1) waive the mortgage and claim
the entire debt from the estate of the mortgagor as an
ordinary claim; 2) foreclose the mortgage judicially
and prove any deficiency as an ordinary claim; and
3) rely on the mortgage exclusively, foreclosing the
same at anytime before it is barred by prescription,
without right to file a claim for deficiency.
Obviously, the bank availed itself of the third option.
(Maglaque v. Development Planters Bank, 307
SCRA 156 [1999])
QUESTION NO. 53
When the proceeds of the sale of the mortgaged
property in a chattel mortgage does not fully
satisfy the debt, is the mortgagee entitled to
recover the deficiency from the mortgagor?
Yes. It is a settled rule that if the proceeds of the sale
are insufficient to cover the debt either in an
extrajudicial or judicial foreclosure of the mortgage,
the mortgagee is entitled to claim the deficiency from
the debtor. While the legislature has denied the right
of a creditor to sue for deficiency resulting from
foreclose of security given to guarantee an obligation
as in the case of pledges (Art. 2115, Civil Code) and
in chattel mortgages of a thing sold on installment
basis (Art. 1484, par. 3. Civil Code), the law does not
prohibit recovery of deficiency. Accordingly, a
deficiency claim arising from the extrajudicial
foreclosure of mortgage is allowed (Phil. National
Bank v. Court of Appeals, 308 SCRA 229 [1999])
QUESTION NO. 54
Homer mortgaged to a bank his residential lot in
a posh subdivision to guarantee a loan of P2
million. When Homer failed to pay his loan, the
bank foreclosed the mortgage, and thereafter
acquired the property at the public auction sale
for the amount of P1.7 million. This amount,
however, was short of P450,000 representing the
balance on the principal obligation and accrued
interests. When Homer failed to redeem the
property within the statutory period, the bank
subsequently filed an action to claim the
deficiency. Will the action prosper?
Yes. It is a settled rule that if the proceeds of the sale
are insufficient to cover the debt in an extra-judicial
foreclosure of mortgage, the mortgagee is entitled to
claim the deficiency from the debtor. While the
legislature has denied the right of a creditor to sue for
deficiency resulting from foreclosure of security
given to guarantee an obligation as in the case of
pledges (Art. 2115, Civil Code) and in chattel
mortgages of a thing sold on installment basis (Art.
1484, par. 3, NCC), Act. 3135 which governs the
extra- judicial foreclosure of mortgages, while silent
the other hand, prohibit recovery of deficiency.
Accordingly, a deficiency claim arising from the
extra- judicial foreclosure of a mortgage is allowed.
(PNB v. Court of Appeals, 308 SCRA 229 [1999])
QUESTION NO. 55
Debtor is the owner of a parcel of land. To secure
a loan, he mortgaged the property to Creditor.
When the loan was not paid after maturity,
Creditor extra judicially foreclosed the mortgage,
and later consolidated his title on the land upon
failure of Debtor to redeem within the period
prescribed by law. Debtor later filed suit to annul
the foreclosure sale contending that: a) he was
not notified of the foreclosure sale; b) that the
sheriff who conducted the sale did not submit a
certificate of posting; and c) that the post office
and finance building where the notice of sale was
posted are not public places as required by law.
Will the suit prosper?
The suit will not prosper. There was no irregularity
in the sale at public auction. First, personal notice to
Debtor is not required under Act. 3135. All that is
required is that notice be given by posting notices of
the sale for not less than twenty days in at least three
public places of the city or municipality where the
property is situated, and publication once a week for
at least three consecutive weeks in a newspaper of
general circulation in the city or municipality where
the property is situated, if the property is worth more
than four hundred pesos. (Section 3, Act 3135)
Therefore, any discussion into the issue of whether
Debtor received a notice of foreclosure sale would be
an exercise in futility since it would not have any
bearing at all on the validity or invalidity of the
foreclosure sale in question. Second, a certificate of
posting of the notice of sale is not required, much less
considered indispensable, for the validity of the
foreclosure sale under Act 3135. Rather, it is
significant only in the matter of proving compliance
with the required posting notice. If the sheriff
testifies and declares under oath that he posted
notices of the questioned sale, such testimony
suffices in lieu of the customary certificate of posting
and can properly be accorded the presumption of
regularity of performance having come from a public
officer to whom no improper motive to testify has
been attributed. (Bohanan v. Court of Appeals, 256
SCRA 35 [1996])
(NOTE: The purchaser of a foreclosed property,
upon ex-parte application therefor and the posting of
the requisite bond, has the right to acquire
possession of the foreclosed property during the 12-
month redemption period. This is sanctioned under
Section 7 of Act 3135, as amended by Act 4118. With
more reason, a purchaser can demand for writ of
possession after the expiration of the redemption
period. (Zaballero v. Court of Appeals, 229 SCRA
810 [1994])
QUESTION NO. 56
To secure a loan, Debtor pledged his laptop to
Creditor. It is expressly stipulated in the contract
that Creditor could purchase the thing pledged at
the current price if the debt is not paid on time.
Debtor assails this stipulation for being a pactum
commissorium. Decide.
The stipulation is not a pactum commissorium. What
is prohibited by Article 2088 of the Civil Code,
dealing with pactum commissorium, is the automatic
appropriation by the creditor or pledgee of the thing
pledged in payment of the loan at the expiration of
the period agreed upon. Where there is an express
authorization of the pledgor to pledgee to purchase
the thing pledged at the current market price, the
contract would not come within the prohibition as
there is no automatic appropriation by the creditor or
pledgee of the thing pledged.
QUESTION NO. 57
Creditor gives Debtor a loan of P5 million, in
consideration of which Debtor executed the
following documents: a) a promissory note with
an interest charge of 4% interest per month for
six months; b) a deed of mortgage over a parcel of
registered land; and c) an undated deed of sale of
the mortgaged property in favor of Creditor. The
promissory note expressly provides that upon
failure of Debtor to pay the stipulated interest
without prior arrangements with the Creditor,
full possession of the property mortgaged will be
transferred to the Creditor and the undated deed
of sale will be registered. For this purpose, Debtor
property to Creditor.
When Debtor failed to pay, Creditor caused the
registration of the undated deed of sale of the
mortgaged property in his favor. As a result,
new title is issued in the name of Creditor.
Creditor then demanded possession of the subject
property.
Is Creditor entitled to the possession of the
mortgaged property?
No. The stipulation in the promissory note providing
that, upon failure of Debtor to pay interest,
ownership of the property would be automatically
transferred to Creditor and the stipulation that the
deed of sale in favor of the Creditor would be
registered are, in substance, a pactum commissorium.
They embody the two elements of pactum
commissorium under Article 2088 of the Civil Code:
a) that there should be a pledge or mortgage wherein
a property is pledged or mortgaged by way of
security for hjt payment of a loan; and 2) that there
should be a stipulation for an automatic
appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
The subject transaction being void, the registration of
the deed of sale, by virtue of which Creditor obtained
a title covering the subject lot in his name, must also
be declared void (A. Francisco Realty and Det. Corp.
v. Court of Appeals, 296 SCRA 345 [1988])
QUESTION NO. 58
In order to secure a loan from her depository
bank, Deborah surrendered to the bank her time
deposit certificate. When Deborah defaulted in
paying her loan, the bank encashed the deposit
certificate. Deborah assails the action taken by
the bank as pactum commissorium. The bank
disagrees. Decide.
Judgment for the bank because there is no pactum
commisorium. Deposits of money in banks and
similar institutions are governed by the provisions on
simple loans (Art. 1980, Civil Code) The
relationship between the depositor and a bank is one
of creditor and debtor. Basically, this is a matter of
legal compensation as all the elements of
compensation are present in this case.
QUESTION NO. 59
D obtains from C a loan of P300,000 secured by a
promissory note. Simultaneous with the execution
of the promissory note is the execution of
assigned to C his leasehold rights and interests
over a fishpond, together with all the
improvements thereon. A condition in the deed of
assignment, identified as Condition No. 5,
provides for the appointment of the assignee, C,
as attorney-in-fact with authority to sell or
otherwise dispose of the leasehold rights, in case
of default of D in paying his loan, and to apply the
proceeds to the payment of the loan.
When D defaulted in the payment of his loan, C
over the fishpond and claims ownership over it on
the basis of the deed of assignment executed by D.
C then makes a demand that D vacate the
fishpond. When D refused, C brings an action
eject him therefrom.
a) What is the nature of the deed of assignment
The deed of assignment executed by D merely served
as security for his loan and was never intended to
convey ownership of the leasehold rights to C. C
cannot take refuge in the condition that he can sell or
dispose of the leasehold rights in case D defaults in
the payments of his loan. Said condition in the deed
operate to vest in C ownership of said leasehold
rights. Under the law, an assignment to guarantee an
obligation, as in the instant case, is virtually a
mortgage and not an absolute conveyance of title
which confers ownership on the assignee.
b) Is the deed of assignment a pactum
commissorium?
The Deed of Assignment is not a pactum
commissorium. It is settled that a condition in a deed
of assignment providing for the appointment of the
assignee as attorney-in-fact with authority, among
other things, to sell or otherwise dispose of the
assigned property, in case of default by the assignor,
is a standard condition in mortgage contract and is
in conformity with Article 2087 of the Civil Code
which authorizes the mortgagee to foreclose the
mortgage and alienate the mortgaged property for the
payment of the principal obligations (DBP v. Court
of Appeals, 284 SCRA 14 [1998])
QUESTION NO. 60
Seller sells to Buyer a parcel of land. In their
instrument of sale, Seller is granted an option to
repurchase the property within four years. At the
expiration of the four-year period, Seller failed to
redeem the property. Thereafter, Seller brought
an action against Buyer to sell the property back
to him. After trial, the court rendered judgment
declaring that the transaction entered into by the
parties was an equitable mortgage, not a sale with
right of repurchase. The decision having become
final and executory, Buyer surrendered
possession of the property to Seller. Is Seller
entitled to recover from Buyer the rentals
received by the latter from the tenants of the
property during the time that the property was in
his possession?
Yes. The declaration by the trial court that the deed
of sale with option to repurchase entered into by
Seller and Buyer was an equitable mortgage
necessarily takes the deed out of the ambit of the law
on sales and puts it into the operation of the law on
mortgage.
It is a well-
default does not operate to vest the mortgagee the
ownership of the encumbered property (Montevirgen
v. Court of Appeals, 112 SCRA 641 [1982]) and the
act of the mortgagee in registering the mortgaged
property in
failure to redeem the property amounts to a pactum
commissorium (Reyes v. Sierra, 93 SCRA 472
[1979]), a forfeiture clause declared by the Supreme
Court as contrary to good morals and public policy
and, therefore, void. Before perfect title over a
mortgaged property may thus be secured by the
mortgagee, he must, in case of non-payment of the
debt, foreclose the mortgage first and thereafter
purchase the mortgaged property at the foreclosure
sale.
In fine, the ownership of the property was not vested
indebtedness, the registration of the property in
that he foreclosed the mortgage and purchased the
property at a foreclosure sale. (Ramirez v. Court of
appeals, 409 SCRA 133 [2003])
QUESTION NO. 61
D obtains a loan from C secured by a real estate
mortgage. When D failed to pay the loan despite
repeated demands, C foreclosed the mortgage,
and purchased the property at the foreclosure
sale. Upon issuance of a certificate of the title in
the lapse of the redemption period,
C immediately filed an ex-parte application for
issuance of a writ of possession. S opposes the
application on the ground that he is the actual
occupant and possessor of the foreclosed
property.
Is it the ministerial duty of the court to issue a writ
of possession in favor of the purchaser in an extra
judicial foreclosure sale if the property is in the
possession of a third person?
No. The obligation of the court to issue ex-parte a
writ of possession in favor of the purchaser in an
extrajudicial foreclosure sale ceases to be ministerial
once it appears that there is a third party in possession
of the property who is claiming a right adverse to that
of the debtor-mortgagor. The actual possessor of a
property enjoys a legal presumption of just title in his
favor. Consequently, one who claims to be the owner
of a property possessed by another must bring the
appropriate judicial action for its physical recovery.
An ex-parte petition for the issuance of a writ of
possession is not, strictly speaking, a judicial
process. (PNB v. Court of Appeals, 374 SCRA 23
[2002])
QUESTION NO. 62
Is failure to post a notice of sale a ground to
invalidate a foreclosure sale?
No. The failure to post a notice of sale is not per se a
ground for invalidation of a foreclosure sale provided
that the notice is duly published in newspaper of
general circulation. The publication of the notice of
sale in a newspaper of general circulation alone is
more than sufficient compliance with the notice-
posting requirement of the law. This is so because
newspaper publications have more far-reaching
effects than posting on bulletin boards in public
places. There is a greater probability that an
announcement or notice published in a newspaper of
general circulation, which is distributed nationwide,
shall have a readership of more people than that
posted in a public bulletin board, no matter how
strategic its location may be, which caters only to a
limited few.
However, even if the notice was duly published in a
newspaper of general circulation, but such sale did
not take place on the scheduled date but on another
date, after the published date of the sale, the sale is
void. (DBP v. Aguirre, 364 SCRA 755 [2001])
LAW ON DEPOSIT
QUESTION NO. 63
What is the principal purpose of a contract of
deposit?
The principal purpose of a contract of deposit is the
safekeeping of the thing delivered so that if it is only
an accessory or secondary obligation of the recipient,
deposit is not constituted but some other contract like
lease, commodatum or agency.
QUESTION NO. 64
Is it necessary that the depositor be the owner of
the thing deposited?
The depositor need not be the owner of the thing
deposited considering that the contract does not
involve a transfer of ownership. As a matter of fact,
the depositary cannot even dispute the title of the
depositor to the thing deposited (Art. 1984, Civil
Code) This is so because the depositary is in
estoppel.
QUESTION NO. 65
Is the depositary allowed to use the thing
deposited?
Generally, the depositary cannot make use of the
thing deposited without the express permission of the
depositor. (Art. 1977, par. 1, Civil Code) However,
the depository may make use of the thing deposited
even without the express permission of the depositor
when such use is necessary for its preservation but in
such case the use is limited for that purpose only.
(Art. 1977, par, 3)
QUESTION NO. 66
What are the rules when the depositary is
expressly given permission to use the thing
deposited?
The following are rules under the law when the
depositary is expressly given permission to use the
thing deposited;
1) If the thing deposited is non-consumable and the
depositary is expressly given permission to use the
thing, the contract loses the character of a deposit and
acquires that of a commodatum despite the fact that
the parties may have denominated it is a deposit,
unless safekeeping is still the principal purpose of the
contract.
2) If the thing deposited is money or other
consumable thing, the permission to use it will result
in its consumption and converts the contract into a
simple loan or commodatum. But if safekeeping is
still the principal purpose of the contract, it is still a
deposit but an irregular one; hence, it is called an
irregular deposit.
QUESTION NO. 67
What are the different kinds of deposit?
A deposit may be voluntary or necessary. A
voluntary deposit is made by the free will of the
depositor. In a necessary deposit, this freedom of
choice is absent. A deposit is necessary: 1) when it is
made in compliance with a legal obligation; 2) when
it takes place on the occasion of any calamity, such
as fire, storm, flood, pillage, shipwreck, or other
similar events; 3) when made by travelers in hotels
and inns; and 4) when made by passengers in
common carriers.(Arts. 1996, 1997, 1998 and 1754,
Civil Code)
QUESTION NO. 68
Rey is a guest at the Venus Park View Hotel in
Baguio City. In the middle of the night, Abe, a
stranger, went up the fire escape, slowly raised the
disclaims liability on the ground of force majeure.

No, the problem involves a case of robbery with
force upon things. Under Article 2001 of the Civil
Code, the act of a thief or robber who has entered the
hotel is not deemed force majeure, unless it is done
with the use of arms or through an irresistible force.
(NOTE: If robbery is with force upon things, as in
the above problem, the robbery is not deemed force
majeure, therefore, the hotel is liable. However, if
the robbery is with the use of arms or through an
irresistible force, such kind of robbery is deemed
force majeure, therefore, the hotel is NOT liable)
QUESTION NO. 69
Abe is a bellhop at the Venus Park View Hotel in
Baguio City. At the point of a gun, Abe enters
their valuables. The hotel disclaims liability on the
ground of force majeure. Is the hotel liable?
Yes. It is true that here the robbery was committed
with the use of arms, but then Abe is an employee of
the hotel. The hotel will be liable not because of force
majeure under Article 2001 which evidently refers to
a stranger, but because of Article 2000 which
provides that the master is responsible for the acts of
its servants.
LAW ON GUARANTY AND SURETYS
QUESTION NO. 70
When a party signs a promissory note as a co-
maker and binds himself to be jointly and
severally liable with the principal debtor in case
the latter defaults in the payment of the loan, is
the undertaking that of a surety as an insurer of
the debt, or that of a guarantor who warrants the
solvency of the debtor?
The undertaking is one of suretyship, not guaranty.
The liability of a party who binds himself to be
jointly and severally liable with the principal debtor
is that of a surety. Being such, he is bound equally
and absolutely with the principal debtor and as such
is deemed an original promissor and debtor from the
beginning. This is because in suretyship, there is but
one contract, and the surety is bound by the same
agreement which binds the principal.
A suretyship is an undertaking that the debt shall be
paid; a guaranty, an undertaking that the debtor shall
pay. A surety is an insurer of the debt, whereas a
guarantor is an insurer of the solvency of the debtor.
Stated differently, a surety promises to pay the
principal debt if the principal will not pay; while a
guarantor agrees that the creditor, after proceeding
against the principal, may proceed against the
guarantor if the principal is unable to pay. A surety
binds himself to perform if the principal does not,
without regards to his ability to do so. A guarantor,
on the other hand, does not contract that the principal
will pay, but simply that he is able to do so.
(Palmares v. Court of Appeals, 288 SCRA 422
[1988])
QUESTION NO. 71
to a single transaction, but which contemplates a
future course of dealing, covering a series of
transactions, generally for an indefinite time or until
revoked.
Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may
not be known at the time the guaranty is executed.
This is the basis for continuing guaranty or
suretyship. It is prospective in operation and
intended to provide security with respect to future
transactions within certain limits, and contemplates a
succession of liabilities for which the guarantor
becomes liable as they accrue.
A guaranty shall be construed as continuing when by
the terms thereof it is evident that the object is to give
a standing credit to the principal debtor to be used
from time to time either indefinitely or until a certain
period. Hence, if the contract states that the same
ASSIGNMENT OF CREDIT
QUESTION NO. 72
D obtained in 1973 a P1 million loan from
Philbanking secured by a real estate mortgage on
a parcel of land owned by him. In 1985, the
Central Bank closed Philbanking, placed it under
receivership, and appointed a liquidator. In 1987,

it was not until 1989 that D was informed about it.
assignment of credit or a conventional
subrogation?
credit did not involve any changes in the original
agreement between Philbanking and D; neither did it
vary the rights and the obligations of the parties.
Thus, no novation by conventional subrogation could
have taken place. (Far East Bank and Trust Company
v. Diaz Realty, Inc. 363 SCRA 660 [2001])
b) What is meant by assignment of credit?
An assignment of credit is an agreement by virtue of
which the owner of a credit (known as the assignor),
by a legal cause -- such as sale, dation in payment,
exchange or donation -- and without the need of the
accessory rights to another (known as the assignee),
who acquires the power to enforce it, to the same
extent as the assignor could have enforced it against
the debtor. (Far East Bank and Trust Company v.
Diaz Realty, Inc. 363 SCRA 660 [2001])
QUESTION NO. 73
Debtor issued a promissory note binding himself
to pay Creditor the amount of P1 Million within
five years. The following year, Creditor executed
a document denominated as Assignment of Credit
under which he assigned to Assignee, for valuable
consideration, the credit owing to him from D,
with full power to sue for and collect the P1
Million credit.
When the promissory note became due, Assignee
demanded payment from Debtor but the latter
refused. Debtor maintains that the Assignment of
Credit constitutes conventional subrogation
under the law which requires the consent of
Creditor, Debtor, and Assignee. Since he never
gave his consent to the Assignment of Credit, the
subrogation of Assignee in the rights of Creditor
by virtue of said assignment is without force and
effect.
a) Distinguish between assignment of credit and
conventional subrogation.
An assignment of credit is an agreement by virtue of
which the owner of a credit (known as the assignor),
by a legal cause such as sale, dation in payment or
exchange or donation and without need of the
transfers that credit and its
accessory rights to another (known as the assignee),
who acquires the power to enforce it to the same
extent as the assignor could have enforced it against
the debtor.
On the other hand, subrogation is the transfer of all
the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal
or conventional subrogation. Legal subrogation is
that which takes place without agreement but by
operation of law because of certain acts.
Conventional subrogation is that which takes place
by agreement of the parties.
Although it may be said that the effect of the
assignment of credit is to subrogate the assignee in
the rights of the original creditor, it cannot be
definitively said that assignment of credit and
conventional subrogation are one and the same.
Under the Civil Code, conventional subrogation is
not identical to assignment of credit. In the former,
not required. Subrogation extinguishes an obligation
and gives rise to a new one; assignment refers to the
same right which passes from one person to another.
The nullity of an old obligation may be cured by
subrogation, such that the new obligation will be
perfectly valid; but the nullity of an obligation is not
another.
b) If assignment of credit and conventional
subrogation have the same affect, why is there a
need to distinguish one from the other?
The distinction between the two transactions is
crucial because it would determine the necessity of
an assignment of credit, the
consent of the debtor is not necessary in order that
the assignment may fully produce the legal effects.
What the law requires in an assignment of credit is
not the consent of the debtor, but merely notice to
him as the assignment takes effect only from the time
he has knowledge thereof. A creditor may, therefore,
validly assign his credit and its accessories without on the said document. (Ledonio v. Capitol
Development Corporation, 526 SCRA 379 [2007]
subrogation requires an agreement among the parties
concerned -- the original creditor, the debtor, and the
new creditor. It is a new contractual relation based on
the mutual agreement among all the necessary
parties. (Licaros v. Gatmaitan, 362 SCRA 548
[2001])

c)
assignment of credit, is formal notice necessary to
bind him?

The law does not require any formal notice to bind

the debtor to the assignee. All that the law requires is
knowledge of the assignment. Even if the debtor had
not been notified, but came to know of the
assignment by whatever means, the debtor becomes
bound by it. (Aquintey v. Spouses Tibong, 511 SCRA
414 [2006]) Moreover, even if the consent of the
debtor is unnecessary for the validity and
enforceability of the assignment of credit,
nonetheless, the debtor must have knowledge,
acquired either by formal notice or some other
means, of the assignment so that he may pay the debt
to the proper party, which shall now be the assignee.
This much can be gathered from a reading Article
1626 of the Civil Co
who, before having knowledge of the assignment,
pays his creditor, shall be released from the

d) Was the transaction entered into by Creditor

and Assignee an assignment of credit or a
conventional subrogation?

The transaction was an assignment of credit. The

assignment of credit executed by Creditor in favor of
Assignee is, just as its title suggests, a simple deed of
assignment of credit. There is nothing in the said
Assignment of Credit which imparts, literally or
deductively, that a conventional subrogation was
intended by the parties thereto. The terms of the
Assignment of Credit only convey the

from Debtor. By virtue of the same instrument.

to securing the conformity of Debtor to the

transaction, nor any space provided for his signature
 CIVIL LAW REVIEW 2

OBLIGATIONS

Natural obligation - this juridical relation derives its binding force from equity and justice. It
does not grant a right of action to enforce its performance; but after voluntary fulfillment by
obligor, the law authorizes the retention of what has been delivered or rendered by reason
thereof. [this obligation has no legal remedy]
Civil obligation derives its binding force from positive law; gives a right of action to the
obligee/creditor to compel its performance. [this obligation may be enforced thru court
action]
SOURCES OF OBLIGATIONS (5) - [Art

1157] 1. Law (1158)

Obligations derived from law are not presumed. Only those expressly determined are
demandable, and shall be regulated by the precepts of the law which established
them; and as to what has not been foreseen, by the provisions of the Civil Code.

2. Contracts (1159)
Obligations arising from contracts have the full force of law between the contracting
parties and should be complied with in good faith.
Innominate Contracts:

> do ut des = I give that you may give

> do ut facias = I give that you may do

> facio ut des = I do that you may give

> facio ut facias = I do that you may do
Problem: Atty. Abe is to travel to Naga City for a three-day bar review lecture in
Civil Law. Atty. Abe does not understand a single Bicolano word so he brings with
him his neighbor, Rey, a Bicolano, as his interpreter. If Rey is to be paid for his
services, it is

3. Quasi-Contracts (1160) (2142)

Is a juridical relation resulting from a lawful, unilateral, and voluntary act in which the
parties become bound to each other to the end that no one may be unjustly enriched
or benefitted at the expense of another

^ Negotiorum Gestio:
The voluntary management of the property or affairs of another without the
knowledge or consent of the latter (art 2144)

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example: X goes to Baguio with his family without leaving somebody to look
after his house in Manila. While in Baguio, a big fire broke out near the house
of X. Through the effort of Y, the house of X is saved from being burned. If Y
incurs expenses. X is liable to pay Y on the basis of a quasi-contract negotiorum
gestio.

^ Solutio Indebiti:
The juridical relation which is created when something is received when there
is no right to demand it and it was unduly delivered through mistake.

Example: D owes C 1,000. If D pays T believing that T is authorized to receive

payment for C, the obligation to reimburse on the part of T arises.

Re: Negotiorum Gestio

Problem: Abe took his car to a carwash station and asked to have it washed. While it
is being washed, Abe went to a nearby mall for two hours. In the meantime, one of
the workers at the car wash had mistakenly hand-waxed the car. When Abe came
back, he was presented with a bill for a wash job and a hand wax. Is Abe liable to
pay for the hand wax job?
Answer: No. The doctrine of quasi-contract does not apply when there is a contract
between the parties. Although there was a benefit bestowed to Abe, Abe did not receive
an unjust benefit because the hand wax job was not contemplated by his agreement with
the owner of the car wash station.

Problem: Pedro is seriously injured in a vehicular accident. A bystander calls Dr.

Garcia to render medical treatment while Pedro was unconscious. Dr. Garcia
immediately responds to the call and attends to Pedro right away. Dr. Garcia later
sends Pedro a bill for the reasonable value of his medical services. Pedro refuses to
pay. Judgment for whom?
Answer: Judgment for Dr. Garcia because Pedro is liable on the basis of a quasi-contract
because Dr. action in responding to a medical emergency was lawful, voluntary,
and unilateral act. The voluntary and unilateral act of the doctor in responding to Pedro,
the law creates a juridical relation between them.

Re: Solution Indebiti

Problem: D signed a promissory note in 1973 binding himself to pay C the sum of
P20,000. D knew that the debt had already prescribed, but he still signed in 1998

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another promissory note acknowledging his old debt, promising to pay the old debt
in six months.
When sued for non-payment of the second note, D defended that there was no
valuable consideration when he signed the second note because the old debt had

Answer: No, because D knew that the debt had already prescribed when he
acknowledged the existence of the old debt, and promised to pay it, there was an
implied renunciation of the prescription. (Art. 1112, Civil Code). D, therefore, has a
civil obligation to pay the value of the second note.

Problem: Suppose D voluntarily paid the old debt despite knowing that the debt had
already prescribed, is he allowed to recover what he paid?
Answer: ad
already prescribed does not entitle him to recover. His payment constitutes a natural
obligation under Article 1423 of the Civil Code.

Problem: Suppose D did not know of the prescription when he paid the debt, will he
be allowed to recover this time?
Answer: Yes, because there was no renunciation of the prescription. He can still recover
on the basis of solutio indebiti.

Problem: While sitting on his front porch, Abe watched three men paint a fence on
his property. The men later learned that they had made a mistake. The fence they
were to have painted was in the next block, in the property of Rey. Is Abe obliged to
pay the painters? If so, what would be the basis of his liability?

Answer: By his toleration of the trespassers and by his failure to protest, Abe is obliged
to pay the painters the reasonable value of the work done and the materials used. The
basis of his liability would be his implied acceptance of the offer of the painters to paint
ty is his implied contract with the
painters.
(NOTE: it is error to say that Abe is liable because of the benefit bestowed; or that his
liability is grounded on the existence of a quasi-contract; or that he is obliged to pay the
painters to prevent unjust enrichment. This is so because of the existence of an implied
contract between Abe and the painters)

Problem: Suppose Abe had not been at home, and he did not discover that the fence
had been painted until he returned in the evening, is Abe liable? If so, what would
be the basis of his liability?

Answer: Abe would not be obliged in this situation. He did not learn of the benefits
bestowed until after they had been completed. There had been no communication of the

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offer of the painters and no express or implied acceptance by Abe of the work done.
Neither is Abe liable to the painters under a quasi-contract. This is so because there was
neither a case of solutio indebiti or negotiorum gestio in the instant case; there is no
Negotiorum Gestio because it is not abandoned.

Other Quasi-Contracts (Good Samaritan provisions)

Art. 2164: When, without the knowledge of the person obliged to give support, it is given
by a stranger, the latter shall have a right to claim the same from the former,
unless it appears that he gave it out of piety and without intention of being
repaid.

Art. 2165: When funeral expenses are borne by a third person, without the knowledge
of those relatives who were obliged to give support to the deceased, said
relatives shall reimburse the third person, should the latter claim
reimbursement.

Art. 2166: When the person obliged to support an orphan, an insane person, or other
indigent person unjustly refuses to give support to the latter, any third person
may furnish support to the needy individual, with right of reimbursement
from the person obliged to give support.

Art. 2167: When through an accident or other cause a person is injured or becomes
seriously ill, and he is treated or helped while he is not in a condition to give
consent to a contract, he shall be liable to pay for the services of the physician
or other person aiding him, unless the service has been rendered out of pure
generosity.

Art. 2168: When during a fire, flood, storm or other calamity property is saved from
destruction by another person without the knowledge of the owner, the latter
is bound to pay the former just compensation.

Art. 2169: When the government, upon the failure of any person to comply with health
or safety regulations concerning property, undertakes to do the necessary
work, even over his objection, he shall be liable to pay the expenses.

Art. 2174: When in a small community majority of the inhabitants decided upon a
measure for protection against lawlessness, fire, storm, or other calamity, any
one who objects to the plan and refuses to contribute to the expenses but is
benefited by the project as executed shall be liable to pay his share of the
expenses.

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Art. 2175: Any person who is constrained to pay the taxes of another shall be entitled to
reimbursement from the latter.

4. Acts or omissions punished by law / Delict (1161)

This is an act or omission punishable by law. The principle is that if a person committed
an act or omitted to do an act, and the act or omission is punishable by law, he is civilly
liable.

5. Quasi-Delicts / Torts (1162)

One which caused damage to another, there being fault or negligence, but there is no
pre-existing contractual relation between the parties, is obliged to pay for the damage
done (art 2176)

NATURE AND EFFECTS OF OBLIGATION

Illustration: Seller is obliged to give Buyer a particular cow on October 25. What are
the consequences of this agreement? (re: real & personal right)
Before October 25, Buyer has no right over the cow. Buyer acquires a personal right against
Seller to comply with the obligation only from October 25. This is a right which Buyer can
demand only against Seller, and from no other. But if Seller delivers the cow on October 30,
B acquires ownership only from that time, hence, real right.
If on October 23 Seller sold and delivered the cow to a third person who acted in good faith,
then the 3rd person acquires ownership (=real right) over the cow and is entitled to it over
Buyer.

SPECIFIC and GENERIC THINGS:

Specific the thing is particularly designated or physically segregated from others of the
same class. The debtor cannot substitute the thing with another although the
substitute is of the same kind and quality without the consent of the creditor (art
1244)
Generic the thing refers only to a class or genus to which it pertains and cannot be pointed
out with particularity. The debtor can give anything of the same class as long as
it is of the same kind.
Problem: Seller is obliged to deliver to Buyer one of his cars. Is the object of the sale
determinate or indeterminate?
Answer: The sale is valid. The object of the sale refers to a class which in itself is
determinate. Here, the particular thing to be delivered is DETERMINABLE without the need
of a new contract between the parties (Art. 1349); it becomes determinate upon delivery.

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Rules re: DELIVERY of a DETERMINATE THING,

rules to be observed by the obligor when the obligation involves a determinate thing:

- Before delivery, the obligor is obliged to preserve the thing with the proper
diligence of a good father of a family. And when the obligation to deliver arises,
he is obliged to deliver the thing, together with its fruits. The obligor is also
required to deliver not only the thing but also to deliver all its accessions and
accessories, even though they may not have been mentioned. If the obligor fails
to deliver the thing, he may be compelled to make the delivery or pay damages
in case of breach.

LIABILITY FOR DAMAGES

- Default/ delay (mora)
- Fraud (dolo)
- Negligence (culpa)
- Breach of the tenor of the obligation (art 1170)

DEFAULT:
The debtor incurs in delay from the time the creditor judicially or extra-judicially demands
from him the fulfillment of his obligation and in spite of such demand, he is unable to comply
with the obligation (art 1169, par 1) [Demand = Delay]

Effects of delay:
a. Debtor is guilty of breach of the obligation.
b. Debtor is liable to creditor for interest (in case of obligations to pay money (art
2209)) or damages (in other obligations (art 1170))
c. In absence of extrajudicial demand, the interest shall commence from the filing
of the complaint.
d. Debtor is liable even for a fortuitous event when the obligation is to deliver a
determinate thing.
When demand is NOT NEEDED in order that delay may exist: [LOTUs]

a. when the LAW and the OBLIGATION expressly provide.

b. when TIME is of the essence of the contract or when the fixing of the time was
the controlling motive for the establishment of the contract.
c. demand would be USELESS because the obligor has rendered it beyond his power
to perform.

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FRAUD:
Dolo causante = one that vitiates consent hence rendering the contract void
Dolo incidente = fraud in the performance of obligation (as referred by art 1170)

NEGLIGENCE / CULPA:
- The fault or negligence of the obligor consists in the omission of that *diligence which is
required by the nature of the obligation and corresponds with the circumstances of
person, time, and place. (*As a general rule, this is kind of diligence is an ordinary
diligence)
- Kinds of Negligence:
1) Contractual negligence negligence in the performance of obligation under a
contract.
a.k.a. Culpa Contractual:
- This is negligence in contract resulting in their breach.
- negligence in the performance of obligations under a contractual relationship.
- This kind of negligence is not a source of obligation. (Art. 1157, source of obligation)
- Consequence: It merely makes the debtor liable for damages in view of his
negligence in the fulfillment of a pre-existing obligation. (example: liability of common
carriers to their passengers)
2) Criminal negligence negligence resulting in the commission of a crime
a.k.a. Culpa Criminal:
- Negligence which results in the commission of a crime (Art. 3, 365, RPC)
- Negligence here may be considered as an independent source of obligation because
the essence of the crime committed by the party (dr/cr)
3) Civil negligence the omission of care which results in damages, there being no
contractual relation between parties.
a.k.a. Culpa Acquiliana:
- this is an independent source of an obligation, under Article 1157
- this negligence which by itself is a source of an obligation between the parties not
so related before by any pre-existing contract. It is also called Tort or Quasi-delict
(Art. 2176)
- Culpa Acquiliana presupposes the absence of a juridical relationship between the
parties.
DISTINCTIONS between CONTRACTUAL, CRIMINAL, CIVIL negligence:

Contractual Criminal Civil

contractual relation There is a pre- (X) There is NO pre- (X) There is NO pre-
between the parties existing contractual existing contractual existing contractual
relation relation;(except the relation; (except the
duty to be careful)

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duty not to harm

others)
Nature of negligence(X) Negligence of the The negligence of The negligence of
of the defendant defendant is merely the defendant is the defendant is
an incident (not direct, substantive direct, substantive
substantive) in the and independent. and independent.
performance of an The defendant is The defendant is
obligation. criminally liable civilly liable primarily
Negligence of primarily because of because of his
defendant in culpa his negligence and for negligence and for no
contractual is NOT no any other reason; any other reason.
the source of his a person criminally
obligation; the source liable is also civilly
is his failure to liable as a
perform his consequence of his
contractual criminal act.
obligation caused by
his negligence and
not the negligence
per se.
Source of liability (X) The source of The source is the The source is the
liability of the negligent negligent
defendant is the act of omission itself. act of omission itself.
breach of the
contract
Quantum of proof Proof of the contract The negligence of the The negligence of the
required and its breach is defendant must be defendant must be
sufficient prima facie proved beyond proved; the plaintiff
evidence to warrant reasonable doubt must prove by
recovery; the injured Complainant/PP must preponderance of
party need NOT prove prove beyond evidence the
the reasonable doubt. negligence of the
defendant to warrant
negligence, recovery for
plaintiff/injured party damages.
only needs to prove
that there is a
contract between
them and that the
defendant did not
comply with the
contract.

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Nature / basis of the (X) Liability of er is (X/ ) Liability is based Liability of er is

Liability of employer based upon the upon the principle based upon the
(er) principle that the that the isprinciple that the
negligence of the ee automatically the negligence of the ee is
is conclusively civil guilt, provided prima facie presumed
presumed to be the tha the ee is
to be the negligence
negligence of the er; insolvent; the er is of the er; hence, er
Negligence of ee = liable for damages has a valid defense
negligence er, hence, because ee criminal that he exercised due
defense re: selection guilt = er civil guilt; diligence in the
& supervision of ee is selection &
not an exculpatory subsidiary in nature, supervision of his ees
defense. hence, er is NOT
automatically civilly
liable upon criminal
guilt of his ee because
civil liability of er
attaches only when
the ee is insolvent.
Defense of er (X) proof of due (X)S&S defense also proof of due
diligence in the not available; diligence in the
selection and But he can selection and
supervision of ees is exercise the supervision of ees is
not available as a , that available as a defense
defense before a party who is
subsidiarily liable can
be made to pay the
obligation, there
must be proof that
prevailing party has
exhausted all the
properties of the
party principally
liable but cannot find
sufficient property to
pay the obligation.

FORTUITOUS EVENT: (1174)

- Event which cannot be foreseen, or which though foreseen, is inevitable or unavoidable.
GR: No person is liable for a FE, as it extinguishes obligation. (FE must be proven)

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EXP: except in cases expressly specified by Law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk. (LaStNa)
Note: Fortuitous event begets negligence; The burden of proving whether the loss was due to a
FE rests on the person who invokes it.
---
Problem: which was tied to a tree in
his farm scampered to a nearby field. The crops on the field which were to be harvested in a
few days were totally destroyed. Should Abe be held liable for the damages to the crops?

Answer: No. Article 1174 of the Civil Code expressly provides that no person shall be responsible
for those events which could not be foreseen, or which though foreseen, were inevitable. Here, the

lightnin Abe.
---
Problem: Lulu pawned several pieces of jewelry with Alajera Pawnshop to secure payment of
a loan. Two weeks later, armed men entered the pawnshop and took away whatever cash
and jewelry found inside the pawnshop, including the jewelry pawned by Lulu. Lulu now
demands payment of the value of her pawned items. The pawnshop disclaims liability on the
ground of fortuitous event. a) Is robbery a fortuitous event?

Answer: Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the
possibility of negligence on the part of the party charged. In Co v. Court of Appeals, 291 SCRA
111 [1998],
escape liability simply because the damage or loss of a thing lawfully placed in its possession was
due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a
thing was unlawfully and forcefully taken from a
carnapping, does not automatically give rise to a fortuitous event. To be considered as FE,
be
proved and established that the event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent has any participation. In accordance
with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests
on him who invokes it -- which in this case is the private
---

KINDS OF OBLIGATIONS: [letters A-I]

A. PURE OBLIGATION: one whose effectivity or extinguishment does not depend upon the
fulfillment or non-fulfillment of a condition or upon the expiration of a term or period.
This obligation is characterized by the quality of its demandability. (hence, immediately
demandable)

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B. CONDITIONAL OBLIGATION: an obligation whose effectivity is subordinated to, or is

dependent upom, the fulfillment or non-fulfillment of a future and uncertain event.
(hence, depends upon the non/fulfillment of a condition)

CONDITION
- it is FUTURE and UNCERTAIN: in order to constitute an event as a condition, it is not
enough that it be future, it must also be uncertain.
- it is PAST but UNKNOWN: a condition may refer to a past event BUT unknown to the
parties. The here refers to the knowledge of
the parties as to the occurrence of the event.
condition is a future and uncertain event.
Note: past event but unknown, is still valid.

Kinds of condition:
a) suspensive condition fulfillment will give rise to an obligation. Demadability of
obligation is suspended until the happening of the uncertain event which
constitutes the condition.
b) Resolutory condition fulfillment will extinguish an existing obligation
*Modes of extinguishing obligations: (palomecono afrp)
1) Payment or performance
2) Loss of the thing due
3) Merger or consolidation
4) Condonation
5)Compensation of the debts
6)Novation
7) Amendment of the obligation
8) Fulfillment of a resolutory condition
9)Prescription
10)Rescission
c) Potestative condition fulfillment of the condition depends upon the will of the
debtor. (Art. 1182); (void, because it is illusory)
d) Casual condition depends upon chance, hazard, or upon will of a third person
e) Mixed condition partly potestative and partly casual.
f) Impossible and Illegal Condition: ( re: conditional obligation)
a. Positive Condition: to do an impossible thing conditional obligation here is void
b. Negative condition: not to do an impossible thing
note: in donation/succession (donation mortis causa), the donation is valid even when
the donor imposes an impossible or illegal condition in the deed of donation

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because a donation depends not on the fulfillment of the condition but depends on
the liberality of the donor
Problem: Abe leased to Rey a building for a monthly rental of Php20,000. The contract states
that non-payment of the rent would automatically cancel the contract, but otherwise Rey
could stay on indefinitely. After five years, Abe tried to eject Rey because he planned to tear
down the building and put up another. Rey refused. Can Abe eject Rey?
Answer: Yes, because the condition in the contract is purely potestative on the part of the lessee

continuing paying the rentals or not, completely depriving the owner of all say on the matter. So
long as Rey elected to continue the lease by continuing the payment of the rentals, the owner would
never be able to discontinue it; conversely, although the owner should desire the lease to continue,
the lessee could effectively thwart his purpose by simply stopping payment of rentals.
(Encarnacion v. Baldemar, 77 Phil. 470)
---
Problem: -payment of the rent would
automatically cancel the contract, but otherwise B could stay on idefinitely as long as he pays
fter five years, A tried to eject B from the leased premises because he
planned to tear down the building and put up another. Can A eject B?
Answer: YES. The lessee cannot successfully set up the defense that he can continue accupying
the building so long as he faithfully fulfills his obligation of paying the rentals. Under this contract,
the continuance of the fulfillment of the contract would depend solely and exclusively upon his
uncontrolled choice between continuing paying the rentals or not, completely depriving the owner
of all say on the matter. (this is purely potestative on the part of the lessee)
---
Problem: Grandfather promises to give grandson a car if grandson passes the Bar
examinations. When grandson passes the exam, grandfather refuses to give the car on the
ground that the condition was a purely potestative one.
Answer: No. the condition that the donation becomes binding when grandson passes the exam is
one which does not depend on the sole will of the grandfather, but partly on the will of the donee
and partly upon chance.
---
LOSS OF A DETERMINATE THING EFFECTS: (determinate thing is one that is physically segregated
from its class)
- If loss without the fault of the debtor, obligation is extinguished
- If loss through the fault of debtor, he is liable for damages

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DETERIORATION OF THE DETERMINATE THING EFFECTS

- If without fault of debtor, impairment is to be borne by the creditor
- creditor may choose either to rescind the obligation or demand its
fulfillment, plus damages in either case
IMPROVEMENT OF THE DETERMINATE THING:
- By nature or through time, inure to the benefit of the creditor
- At the expense of the debtor, no right other than that granted to usufructuary in
usufruct(Art. 579-80)

C. RECIPROCAL OBLIGATION: where both parties are bound.

-it is not enough that both parties are indebted to each other. The cause must be identical
and the obligation should arise simultaneously.

c.1) Rescission of reciprocal obligation: Art. 1191

- Art. 1191: The power to *rescind is implied in reciprocal obligation.
Even if there is no stipulation regarding rescission, by the very nature of the
obligation where both parties are bound, the right of one to rescind is implied.
(*rescind here means termination or end the obligation because a party fails to
perform with what is incumbent upon him, this i under
**Art. 1380-1381 of the civil)
- Exists only in reciprocal obligation
- The right to rescind is not absolute: especially when the breach of an obligation is
not substantial. (when the problem/issue is only trivial or minor, the court usually
does not grant rescission) (just cause must exists for fixing of period and only the
innocent party may rescind)
Note: 1191 and Arts.1380-1381
*1191, based on non-fulfillment of the obligation by one of the parties;
rescission here is a principal remedy.
**1380-1381, based on the reason that the contract/stipulation will cause
economic damage to a non-party; it is only a subsidiary remedy,
meaning it is a remedy that may be resorted to by a aggrieved party
when he can no longer collect the claim; this is basically, a resolution.
- May be waived
- It needs judicial approval in certain cases (especially when a thing has been delivered
to the other party)

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D. UNILATERAL OBLIGATION: only one party is bound

---
Problem: X leased a house to Y. the contract says that in case of non-payment of the rent, X
can eject Y without court action. Y later defaulted for two months. As a result, X ejected Y.
can Y claim damages because the renunciation of his day in court as stated in the contract is
void?
Answer: No. In reciprocal obligations (like a contract of lease) there is always a tacit condition
that if one party is unable to comply with his obligation, the injured party has the power to rescind
the obligation. And it is a settled rule that the injured party must invoke judicial aid.
But the judicial aid 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.
-payment of the rent was expressly
recognized in the contract. What X did was merely to enforce what was agreed upon.
---
Problem: S sold to B a parcel of land. Their contract of conditional sale says that B will pay
100,000 as down payment and pay the balance within 60 days after the squatters on the
property have been removed.
Their contract further provided that if the squatters are not removed within 6 mos from the
him.
S subsequently filed an ejectment action against the squatters. In spite of the decision in his
favor, however, the squatters would not leave.
A few weeks later, S offered to return to the buyer the down payment, on the ground that
seller is unable to remove the squatters from the property. B refused. Instead, he demanded
that S execute a deed of absolute sale of property in his favor after which he will pay the
balance of the purchase price in accordance with their agreement. Incidentally, the value of
the land had doubled.
S now seeks to rescind the agreement. Will he succeed?
Answer: S will not succeed. The action for rescission may be brought only by the aggrieved party
to the contract. Between the seller and buyer, the squatter is not an injured party.
Since it was S who failed to comply with his conditional obligation, he is not the aggrieved party
who may file the action for rescission but B. hence, only B can rescind.
-compliance with the
condition which he can do under Art. 1545 of the Civil Code. (note: right to rescind may be waived)

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---
TERM OR PERIOD: (Art. 1193, par. 3) (obligation with a term or period)
- Condition has two characteristics: futurity and uncertainty; a conditionis an event which
is future but uncertain --- while a term/period has two characteristics: future event but
certain to take place.
- It is a day certain which must necessarily come (like, December 13, 2021) , although it
may not be known when (like death of a person).
- When the fulfillment of an obligation is subject to a term or period:
Gr: Term or period is presumed to be for the benefit of both debtor and creditor.
(meaning the cr cannot demand from the dr before the term/period or the dr cannot
compel cr to accept before the rem/period)
Exp: when tenor of obligation or other circumstance the term or period is established in
favor of one of the other (Art. 1196)
---
Problem: In 1980, B borrowed from C 100,000 with interest thereon payable in two years. To
guarantee the loan, B pledged to C several pieces of jewelry. In 1991, B brought an action to
recoverthe pledged items, upon payment of the loan and interest. C defended that the action
had already prescribed because the 10-year period of prescription must be computed from
the date of the loan (1980) because from that date B vould already have recovered the pledged
meritorious?
(note: ask yourself, for whose benefit is the loan?)
Answer: the period of
the loan was for the benefit of B or C; it must be presumed to be the benefit of both.
This is a loan with interest wherein the term benefits B by the use of the money and C by the
interest. This being so, B had no right to pay the loan before the lapse of two years, without the
consent of C because such payment would have deprived C the benefit of the stipulated interest. It
follows that the action to recover the thing pledged accrued only from the date of maturity of the
loan, or in 1982.
Therefore, the 10-year period of prescription on written contracts, such as the one involved in the
problem, has not yet expired.
(If there is no showing as to whose benefit it is, it is presumed to be for the benefit of both parties;
The tern of 2 years is for the benefit of B to use the money and for the benefit of C for the interest);

because the latter will be deprived of the benefit of the interest)

---

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Art.1191: instances where the debtor loses the benefit of the term or period and its effects
- When the debtor loses the benefit of the term or period = the obligation becomes a pure
obligation. (pure obligation, the obligation is demandable at once)
Problem: D obtains from C a loan payable in two years (this is an obligation with a term). To
guarantee payment, D mortgaged his uninsured house to C. Three months after the loan
C demands immediate
payment from D. D defends on the ground that the period for payment has not yet arrived.
Is D correct?
Answer: No. contention is not tenable. (note that this is a collateral loan); under Article 1191,
the debtor shall lose every right to make use of the period when the securities disappear through a
fortuitous event. Debtor has to give a satisfactory substitute collateral for him to enjoy anew the
period given to him for the payment of his loan. (when the security for the payment of the loan
disappears even thru a fortuitous event, the debtor loses every right to make use of the period, so
when that happens, the obligation becomes demandable at once even before the arrival of due date
as in this case, of 2 years)
Note: rule on impairment is not the same when the security disappears thru a fortuitous event.
- When total disappearance/ total loss = the debtor loses every right to make use of the period;

- but when impairment or deterioration of the guarantee/security, you have to make a distinction
first: if the impairment was due to a fortuitous event, the debtor continues to have the right; if
the impairment was thru his own acts or thru his own fault, then the debtor loses every right to
make use of the period.
Problem: After the loan was granted, after the mortgage document has been signed by the parties,
the debtor abandoned the house and it became dilapidated and the value depreciated. Will the
debtor lose the benefit or the right to make use of the term/period?
Answer: Under Article 1198 of the Civil Code, the debtor loses the benefit of the term or period in
the following cases:
Under Article 1198 of the Civil Code, the debtor loses the benefit of the term or period in the
following cases:
a.) When by his own acts he has impaired the guarantees or securities after their establishments,
and when through a fortuitous event they disappear, unless he gives new ones equally satisfactory.
b.) When he violates any undertaking of which the creditor agreed to the period.
c.) When after the obligation has been contracted, debtor becomes insolvent, unless he gives a
guaranty or security for the debt.
d.) When he does not furnish to the creditor the guaranties or securities which he has promised.

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e.) When the debtor attempts to abscond. (Art. 1198, Civil Code)

As to kinds of multiple prestations:

E. ALTERNATIVE OBLIGATIONS: one where out of two or more prestations which may be given,
only one is due. The giving/delivery of one prestation is sufficient to extinguish all obligation.

Gr: the right of choice belongs to the debtor (this is not absolute, it has its limitations)
Limitations on right of choice:
-
alternatively due:
a) the choice produces no effect except from the time it has been communicated
to the creditor; The moment the debtor communicates his choice to the creditor, the
obligation ceases to be an alternative obligation and it becomes a pure obligation
b) the debtor loses the right of choice when among the prestations which are
alternatively due, only one is practicable.
c) the debtor has no right to choose those prestations which are unlawful, impossible or
which could not have been the object of the obligation.
d) the debtor is liable for damages when through his fault, all the things which are
alternatively the object of the obligation have been lost. Indemnity for damages will
be fixed taking as a basis the value of the last thing which disappeared.
e) the debtor may rescind obligation if through acts, he cannot make a choice
according to the terms of the obligation. (Arts. 1201, 1202, 1203, 1204, Civil Code

Exp: unless the right of choice has been expressly granted to the creditor. (hence, only by
expressed agreement by the parties)
Rules when creditor has right of choice:
a) Obligation ceases to be alternative from the day when creditor communicates his
selection to the debtor.
b) if one of the things is lost through a fortuitous event, creditor may choose from among
those remaining, or that which remains if only one subsists. (example: debtor is
alternatively obliged to deliver object 1 or 2 or 3, if dr loses object 1 thru a FE thn the
Cr may choose from those remaining objects 2 or 3; if object 2 is also lost thru FE then
the choice is only limited to the one that remains which is object 3 )

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c) If the loss of one of the things occurs through the fault of the debtor, the creditor may
claim any of those subsisting, or the price of that which, through the fault of the
debtor, has disappeared, with a right to damages.
d) if all the things are lost through the fault of the debtor, the choice by the creditor will
fall upon the price of any one of them, also with indemnity for damages.
(damages referred here is the payment of interest; note that there are two kinds of
interests in the civil code-- monetary interest and compensatory interest)

Problem:
insurance company undertakes, upon total loss, to either pay the insured value of the house,
or rebuild it, upon proof of total loss. If during the life of the policy the insured property is
completely destroyed, may the insured (Abe) insist that the insurance company rebuild his
house rather than being paid its insured value?

Answer: No, because in alternative obligations, the right of choice is given to the debtor, unless it
has been expressly granted to the creditor. (par. 1, Art 1200, Civil Code) In the absence of an
agreement in the insurance policy giving the right of choice to the insured, the general rule applies,
and therefore, the insurer may choose which of the two prestations to perform, the performance of
one being sufficient. (hence, the right of choice belongs to the insurance company)

Problem: Joe obtained a loan from Donald. They agree that upon maturity of the loan, Joe
will give Donald either the sum owed or a particular house and lot. Is the stipulation a pactum
commissorium? (Article 2088 defines pactum commissorium = keyword)

Answer: No. The stipulation is in fact valid because it is simply an alternative obligation, which
is expressly allowed by the law. The agreement to convey the house and lot if Joe fails to pay the
debt in money at its maturity does not constitute pactum commissiorium. It is not an attempt to
permit Donald to declare a forfeiture of the security upon failure to pay the debt at maturity.
It simply provided that if the debt is not paid in money, it will be paid in another specific way by
the transfer of the property at a valuation.
(Note: Special forms of payment: Dacion en pago)

F. FACULTATIVE OBLIGATION: one where only one prestation has been agreed upon but the
debtor may render another in substitution; one thing is principally due but the debtor may render
another in substitution. Right of choice ALWAYS belongs to the debtor.
Alternative obligation and facultative obligations may be distinguished as follows:
a. In an alternative obligation, various things are due, but the giving of one is already
sufficient compliance with the obligation. In a facultative obligation, only one thing is
principally due, and it is that one which is generally given, but the substitute may be
given to render payment or fulfillment easy.

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b. If one of the presentations in an alternative obligation is illegal and the other

prestations are valid, the obligation remains. In a facultative obligation, if the principal
obligation is void, there is no longer any need of giving the substitute (accessory
follows the principal) (if principal is illegal, no need to deliver the subsitute)
c. In an alternative obligation, if it is impossible to give all except one, that last one must
still be given. In a facultative obligation, if it is impossible to give the principal, the
substitute does not have to be given, and if it is impossible to give the substitute, the
principal must still be given.
G. CONJUNCTIVE OBLIGATION: where there are two or more prestatations which are due, the
giving of all will extinguish the obligation (and)

As to multiple parties: Cr/Dr

H. JOINT OBLIGATION: A joint obligation is one where the whole obligation is to be paid or fulfilled
proportionately by the different debtors or is to be demanded proportionately by the different
creditors. (Art. 1208, Civil Code)
- Where there are two or more debtors or creditors in one obligation, the obligation is
presumed to be JOINT obligation.
- Essential characteristic: Debts of the debtors are separate and distinct from each other.
Problem: A and B signed a promissory note binding themselves to pay C, jointly and
severally, Php30,000. For non-payment of the debt, C sued both debtors for sum of money.
After due proceedings, judgment was rendered under which A and B were ordered to pay C
their loan.

For one reason or another, however, the judgment did not state whether the liability of the
defendants is joint or solidary. C then asked for execution on the properties of A for the
whole obligation. In the contract, liability was solidary but in the judgment, nothing was said
about the nature of the obligation. How should the judgment obligation be considered: joint
or solidary?

Answer: The judgment obligation should be considered merely as a joint one; hence, C can get
the properties of A corresponding to his proportionate share in the judgment debt. The judgment
did not state that the obligation was solidary, so none of the defendants may be required to pay for
the whole obligation.

Problem: A and B signed a promissory note binding themselves to pay Php180,000 to X, Y,

and Z. The note is now due and demandable. Can the creditors proceed against A alone for
payment of the entire obligation? (this is a joint obligation because when silent, follow the
general rule)

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Answer: No. Since the promissory note is silent with respect to the right of the creditors as well
as the liability of the debtors, the obligation is, therefore, presumed to be joint. (Art. 1207, Civil
Code) The only right of the creditors if they proceed against A alone for payment would be to
collect from him Php60,000 (so, 30k each from xyz = 90k), which is his proportionate share in the
obligation.

Problem: A and B signed a promissory note binding themselves to pay Php180,000 to X, Y,

and Z. The note is now due and demandable. Can X alone proceed against A, B, and C for
payment of the entire obligation?

Answer: No. Since the promissory note is silent with respect to the right of the creditors as well
as the liability of the debtors, the obligation is, therefore, presumed to be joint. (Art. 1207, Civil
Code) The most that he will be able to collect from the debtors will be his proportionate share in
the obligation which is Php60,000, which is his proportionate share in the obligation/credit.

Problem: A and B signed a promissory note binding themselves to pay Php180,000 to X, Y,

and Z. The note is now due and demandable. If X proceeds against A alone for payment, how
much can he collect?

Answer: If X proceeds against A alone for payment, the most that he will be able to collect will
only be Php20,000. This is so because the promissory note is silent with respect to the right of the
creditors as well as the liability of the debtors, the obligation is, therefore, presumed to be joint.
(Art. 1207, Civil Code)

Problem: A and B signed a promissory note binding themselves to pay Php180,000 to X, Y,

and Z. The note is now due and demandable. Suppose C is insolvent, can A and B be held
liable for his share in the obligation?

Answer: No. This necessarily follows from the principle that in a joint obligation, the credit or
debt is to be presumed to be divided into as many equal shares as are there are creditors or debtors,
the credits or debts being distinct from one another. (Art. 1208, Civil Code) (Art. 1207, Civil Code)

Problem: A and B signed a promissory note binding themselves to pay Php180,000 to X, Y,

and Z. The note is now due and demandable. If the obligation was about to prescribe, but X
wrote a letter to A demanding payment of the entire debt, will this interrupt the running of
the period of prescription?

Answer: No. The demand letter will prejudice A only, not B and C. Consequently, if after ten
years, X, Y, and Z should bring an action against A, B, and C, to collect, the defense of prescription
would be absolute insofar as B and C are concerned, but partial as to A. In other words, A can still
be compelled to pay Php20,000 to X. This is so because the principle of mutual agency does not
apply in joint obligations. (each debt is distinct from each other)

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I. SOLIDARY OBLIGATION: A solidary obligation is one where each one of the debtors is bound to
render, and each one of the creditors has a right to demand from any of the debtors, entire
compliance with the prestation. (Art. 1207, Civil Code) (one for all, all for one) (each creditor is
entitled to demand payment of the entire obligation from one or from all of the debtor)
There is Solidary liability when:
a) the obligation expressly states
b) the law requires solidarity. (tort quasi-contracts, bailees in commodatum)
c) when nature of the obligation requires solidarity (Article 1207):
[NOTE: Where there are two or more debtors or two or more creditors in one obligation, the
obligation is presumed to be joint.]
Problem: May a solidary creditor assign his rights without the consent of the others?

Answer: No. This is so because a solidary obligation implies mutual agency and mutual
confidence. Should the assignee or substitute do acts whish would prejudice the others, there is no
doubt that the right of the other creditors would be endangered, hence, the necessity of their
consent. (Article 1213) (Gr: not allowed; Exp: when all others consented with the assignee)

Problem: In a solidary obligation (each creditor is entitled to demand payment of the entire
obligation from one or from all of the debtor), to whom may the debtor pay?

Answer: To any of the solidary creditors. But if any demand, judicial or extra judicial, has been
made by one of the them (creditor), payment should be made to him.

Problems:

What if an obligation is solidary on the part of the debtors and solidary on the part of the creditors.
Solidary on both parts.:
[Solidary DR: A, B, C] vs. [Solidary CR: D, E, F]

- May A pay D the whole obligation? Yes. The general rule applies that when there is no
judicial or extrajudicial demand has been made by either E or F.
- If F makes judicial demand on B. there is no extrajudicial demand upon A. to whom should
A pay? to F only. Payment to any other creditor will not extinguish the obligation except
insofar as share is concerned.
- If D makes a judicial demand on A. Can E and F sue B? Not yet, because D is deemed to
be representing them (E&F) already.

In case of collusion; Remission of share of a solidary debtor:

[When a solidary creditor condones the share of one solidary debtor]

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[Solidary DR: A&B] VS [Solidary CR: C&D]

- If C condones the share of A in the debit obligation, what is the effect of the said
condonation in the solidary debtors? -- If payment is made first, the remission or waiver is
of no effect because there is no more obligation to condone/remit. A&B are solidarily
indebted to C&D; if A paid the whole obligation, any remission made by any solidary CR is
void.
- C condoned the share of A, but B paid the entire obligation, what is the right of B?
-- if remission is made first before the payment, solution indebiti arises; hence, B has the
right to demand from C the excess payment.

In case of Payment after obligation prescribed or become illegal:

[A and B are solidarily indebted to C in the amount of 100,000. The debt prescribed.]

- If A, nevertheless paid the debt, he cannot collect from B the share corresponding to the
latter. Neither can A recover from C. why? When a right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor cannot recover what he has delivered or the
value of the services he has rendered (Art. 1424) this applies only when the debtor
nevertheless paid even if he knows that the debt has already prescribed.

[A and B are solidarily indebted to C in the amount of 100,000. C remitted/condoned the whole
obligation out of regard for A]
- Effect: A is not entitled to reimbursement from B since A did not pay anything to C.
Remission is essentially gratuitous (Art. 1220).

EXTINGUISHMENT OF OBLIGATIONS: (10: PALOREMECONO ARFP) [letters A-J]

A. By PAyment or performance
- payment/performance must be complete; it must be the DR who should pay the
obligation, but a DR may allow a 3rd person (3P) to pay the obligation and CR also has the
option to accept or refuse the payment offered by the 3P.

Q: if a 3P pays the obligation of the DR to the CR, what are the rights which are available
to him?
A: Depends.

Payment made with the knowledge & consent of DR:

- 3P is entitled to full reimbursement
(so, 3P can recover from the DR everything that he has paid); or
- Subrogation to the rights of the CR
(If DR fails to pay/reimburse 3P, then 3P is subrogated to all the rights of the CR

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Payment made without the knowledge & consent of DR:

- 3P is only entitled to beneficial reimbursement; no subrogation.
(mere reimbursement of the amount to which the DR benefited from the
payment)

Special Forms of Payment:

A.1) Dation in Payment
- payment in kind; governed by the law on sales; payment may be full or partial.
- a special form of payment in which property is alienated by the debtor to the
creditor in satisfaction of a debt in money.
- when the obligation is to pay in cash; he may be allowed to pay in kind.
- dation in payment is governed by the law on sales. This is because the form of
payment really partakes in one sense of the nature of sale, the creditor is really
buying some property of the debtor, in payment for which is to be charged against
debt.

A.2) Application of Payment

- this presupposes that the DR has several obligations with the same kind in favor of
the same CR.
- the designation of the debt to which the payment must be applied when the debtor
has several obligations of the same kind in favor of the same debtor.

Rules on who has the right to say that must apply to

lan
o
Rule #1: the DR has the right to make an application of payment.
Rule #2: if the DR pays without applying payment if DR des not avail himself of
this right, the CR may apply the payment by giving DR a receipt designating
the debt to which the payment will be applied. (Art 1252)
Rule #3: if neither the DR nor the CR has made the application, or if the application
is not valid, then application is made by operation of law. (Arts. 1253-1254)
with this, the payment must be applied first to the most onerous
obligation.
Rule #4: in all either cases above mentioned, INTEREST must be paid first before
the principal.

A.3) Payment by Cession

- voluntary insolvency; may be total or partial
- a special form of payment in which the DR abandons all his property for the benefit
of his CR in order that from the proceeds thereof, the latter may obtain payment
of their credits.
- CR does not become the owner! He merely becomes an assignee with authority to
sell. (ratio: if he becomes the owner then this is dation payment and not cession)
- DR is released up to the amount of the net proceeds of the sale, unless there is a
stipulation to the contrary, then balance remains.

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- Rules on preference of credits apply.

A.4) Tender of Payment and Consignation

Tender of Payment: the act of offering the CR what is due him together witha
demand that the CR accepts the same.

GR: Consignation requires a valid tender of payment, because tender of payment

alone without consignation will not extinguish an obligation.
EXP: prior tender of payment is not required:
^ when CR is absent/unknown, or does not appear at the place of payment.
^ when CR is incapacitated to receive the payment at the time it is due; and there
is no guardian to represent the CR to accept the payment.
^ when without just cause, CR refuses to give a receipt. (<- remedy: interpleader)
^ when two or more persons claim the same right to collect.
^ when the title of the obligation has been lost. (Art 1256)

Consignation: the act of depositing the thing due with the court or judicial
authorities whenever the CR cannot accept or refuses to accept payment.

TWO-NOTICE RULE of Consignation, to extinguish an obligation:

1st notice: the consignation must first be announced to the CR. Without such notice,
the consignation as a payment is void. (Art 1257, par 1)
- [so, before filing a consignation case with the court, you must first
notify/inform the CR of plan to file a case; this notice is to allow the
CR to reconsider his prior refusal to accept tender of payment]

2nd notice: the consignation having been made; the CR shall be notified thereof. This
is mandatory and therefore without such subsequent notice, the
consignation is void. (Art 1258, par 2)
- [so, after filing the case, the DR must write the CR informing him
that he has filed a case]

B. LOss of the thing due

C. Condonation or REmission of the debt
D. Confusion or MErger
E. Compensation
- mode of extinguishing in their concurrent amount those obligation of persons who in
their own right are CR and DR of each other.

LEGAL Compensation REQUISITES: = by operation of law

each of the obligors/debtors be bound principally, and he be at the same time
a principal creditor of the other.

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both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated.
the two debts be due
they be liquidated and demandable.
That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor. (Art 1279)

Problem: DR borrowed from CR 5000 payable in one year. When CR was abroad,

money on cellular phone. When the debt to CR fell due, DR tendered only 2500
claiming compensation on the 2500
to claim partial legal compensation?

Answer: No. Under Art. 1278 and 1279 f 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. CR cannot be
considered as a party t the act of his son in borrowing 2500 from DR. so he did not
become a principal debtor of DR; neither did DR become a principal creditor of CR.
Therefore, there can be no partial compensation of the 5000 borrowed by DR from CR.

Effects of COMPENSATION ON ASSIGNMENT OF DEBTS:

- when all the requisites for legal compensation are present, compensation takes
effect by operation of law, and extinguished both debts to the concurrent
amount, even though the creditors and debtors are not aware of the
compensation. (Art 1290)
- If after compensation has taken place one of the extinguished debts is assigned to
a stranger, this would be a useless act since there is nothing to assign. The
defense of compensation CAN BE SET UP.

Effects of ASSIGNMENT made with the CONSENT of the DEBTOR:

- Compensation CANNOT BE SET UP because debtor has consented to the
assignment and therefore, waived compensation.

Note: to claim compensation right, then you should reserve such right so that even
if you consented to the assignment, you can still set up the defense of
compensation later on.

Problem: A owes B 1000; B in turn owes A 400. Because both debts are
already due, and because all other requisites for legal compensation are
present, both debts are extinguished automatically up to the amount of 400.

how much can C collect from A?

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Answer: C can collect the whole amount of 1000. A cannot set up by way of
compensation the 600 owed to him by B. had A reserved his right to the
compensation, A would be liable to pay only 400.

Effects of ASSIGNMENT with the KNOWLEDGE BUT WITHOUT THE CONSENT or AGAINST
THE WILL of the DEBTOR:
Compensation can be SET UP regarding debts maturing BEFORE/PREVIOUS to
the assignment.
-this refers to debts maturing before the assignment (that is, before notice)
hence, legal compensation has already taken place.

Problem: A owes B 1000; B owes A 400. Both debts are already due. Later
B, with the knowledge but without the consent of A, assigned the 1000 credit
to C.
How much can C collect from A?

Answer: C cannot collect the whole amount of 1000. A cannot set up by way of
compensation the 600 owed to him by B. Had A reserved his right to the
compensation, A would be liable only 400.

Problem: Suppose B assigned his credit of 100 BEFORE the debts became
due, how much can C collect from A?

Answer: 1000 because if at all there would be compensation here, it took place
AFTER the assignment, not before.

Compensation CANNOT BE SET UP regarding debts AFTER the assignment.

Effect of ASSIGNMENT WITHOUT the KNOWLEDGE of the DEBTOR:

- Compensation can be set up for all
knowledge of the assignment (whether the debts matured before or after the
assignment).

Problem: A owes B 1000; B owes A 400. Bothe debts are already due. Later,
B assigns the 1000 credit to C, without the knowledge of A. This assignment
was made on July 1. On July 15, a 250 debt of B in favor of A matured. A
learned of the assignment on August 1. On august 23, a 150 debt of B in
favor of A matured. Later C asks A to pay his debt. How much can C collect
from A?

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Answer: C can collect 350 because A can set up partial compensation regarding
the 400 and the 250 debts, debts which had matured BEFORE his knowledge of
the assignment.

Problem: A owes B 1000; B owes A 400. Both debts are already due. Later B,
with the knowledge but without the consent of A, assigned the 1000 credit to C.
how much can C collect from A?

Answer: C can collect the whole amount of 1000. A cannot set up by way of
compensation the 600 owed to him by B. Had A reserved his right to the
compensation, A would be liable to pay only 400.

Problem: Suppose B assigned his credit of 1000 BEFORE the debts became
due, how much can C collect from A?

Answer: 1000. Because if at all there would be compensation here, it took place
AFTER the assignment, not before.

F. Novation
- The substitution or change of an obligation by another, resulting in its extinguishment or
modification either by changing its object or principal conditions, or by substituting
another in place of the debtor, or by subrogating a third person in the right of the creditor
(Art 1290)

KINDS OF NOVATION:
1) Modificatory
2) Extinctive

MODES of novating an obligation:

1) By changing the object ( this is objective novation)
2) By changing the principal conditions
3) Subjective novation ( changing the person of the DR/changing the person
of the CR)
(substituting in place of the DR or by subrogating a 3P in the rights of the CR)

PERSONAL Novation (= change of the persons of DR or CR or substitution)

1) Expromision Substituting a new debtor in place of the old debtor without the
knowledge or against the will of the latter.
2) Delegacion Substituting a new debtor in place of the original one upon the
initiative of the latter.

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Difference between the two? [I-C-E]

Initiative:
Expromision the DR is substituted without the initiative
Delegacion the initiative came from the original DR

Consent:
Expromision only the new DR and the CR may consent to the substitution of the
original DR.
Delegacion all consent is necessary; original DR, CR, new DR.

Effect of the obligation:

Expromision the original debt is extinguished.
Delegacion original may or may not be extinguished; depending on the
circumstances whether the new DR paid or did not pay the obligation.

If the NEW DR does NOT pay the obligation:

Expromision new DR insolvency or non-fulfillment of the obligation will not revive

[^ratio: the expromision was brought about without his initiative]

Delegacion new insolvency does not revive old liability, unless the
insolvency was already existing or known to the old debtor.
[note! Insolvency is only reason here. So, other reason for non-

G. Annulment
H. Rescission
I. Fulfillment of a resolutory condition
J. Prescription

CONTRACTS
- A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service (Art 1305)

PRINCIPLES OF CONTRACTS:
a) Consensuality of contract (Art 1315)
- contract is perfected y mere consent; meeting of the minds.
b) Relativity of Contract (Art 1311)
- contracts take effect only between the parties or their assigns and heirs, except where
the rights and obligations arising from the contract are not transmissible by their
nature, by stipulation, or by provision of law.

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- this rule is based on the maxim inter alios = the act, declaration, or omission
of another, cannot affect another, except as otherwise provided by law or agreement
(Sec 25, Rule 130, ROC)
GR: contracts are effective only between the parties, their assigns, and heirs.
EXP:
> obligations arising from the contract are intransmissible.
[e.g. death of a partner; death of an agency]
> where there is a stipulation pour autrui.
POUR AUTRUI: is a stipulation in favor of a third person conferring a clear and
deliberate favor upon him, and which stipulation is merely a part of a
contract entered into by the parties, neither of whom acted as agent of
the third person. Hence, such stipulation is binding on the 3rd person
although he may not be a party to the contract.
[example: insurance taken by a bus company in favor of its passengers; a
passenger may sue the insurance company for payment of the insurance
proceed]
> where a 3rd persom induces another to violate his contract, the aggrieved party
may sue the 3rd person for damages despite the absence of an agreement
between them (Art 1314)
> 3rd persons may be adversely affected by a contract where they did not
participate.
> where the law authorizes the creditor to sue on a contract of his debtor (accion
directa)
> instance when lessor can sue the sub-lessee (Art 1652) [example: even if the
lessor does not have to respect a sub-lease, still the sub-lessee is subsidiarily
liable to the lessor for any rent due the lessee]

c) Autonomy of Contract (Art 1306)

- contracting parties are free to agree on anything under the sun as they may deem
convenient as long as the stipulation, clauses, terms and conditions are not contrary
to law, morals, public policy, good customs, or public order.

d) Obligatory force of contracts (Art 1159, 1315)

- that a contract is obligatory in whatever form it may have been entered into; under
this principle, a contract need not be in writing to be obligatory.
- a contracting party may compel the other party to perform his obligation arising from
the contract regardless of the form in which the contract was entered into; form is
not important under this principle.

e) Mutuality of contract (Art 1308)

- refers to the position of essential equality which must be occupied by both of the
contracting parties in relation to the contract.
- both parties are bound by their contracts, because it is repugnant to bind one party
and leave the other one free.

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- a party cannot revoke or renounce a contract without the consent of the other, nor
can it have set aside on the ground that he had made a bad bargain.
- lack of mutuality = void contract.
- if one party is allowed to not follow the contract, without consent of the other, it
violates the principle of mutuality = void contract.

Mutuality Principle is violated when the prohibitions under Art 1308 are made:
> the delegation of the power to determine whether the contract will be valid or
not; or
> the delegation of the power to determine whether the contract will be complied
or not.

Problem: X Co. hired A to become manager of the company. In the contract of

employment, there is a stipulation that after the termination of the contract,

100,000. Not satisfied with the amount, Anow asserts that the stipulation in the
contract of employment violated the mutuality principle. Is A correct?
Answer:
bonus depending upon the discretion of the BoD does not violate the mutuality
principle. Here, there is neither a delegation of the power to determine the validity nor
of the power to determine the performance of the contract to the company. As a matter
of fact, the company admits the validity of the promise to grant A a bonus. What it did
was merely to comply with the promise.

Problem: D obtains from a bank a loan of 1M payable in five years. He signs a

promissory note with a provision that the rate of interest charged on the obligation
is subject to such increase within the rates allowed by law, as the BoD may
prescribe for its debtors. Is the stipulation valid?
Answer: NO. the unilateral determination and imposition f increased interest rates by
the bank violates the principle of mutuality contract under Art 1308 of the Civil Code.
There can be no contract in the absence of the element of agreement, or of mutual assent
of the parties. Contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modifications,
especially when it affects an important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interests is always a vital component,
for it can make or break a capital venture. (Mendoza vs CA)

Problem:

that the stipulation is void because it violates the principle of mutuality of

contracts under Art 1308. Is the lessor correct?
Answer:
option to renew the lease is binding only on the lessor and can be exercised only by the
lessee does not render the option void for lack of mutuality. After all, the lessor is free
to give or not to give the option to the lessee. And while the lessee has a right to elect

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whether to continue with the lease or not, once he exercises his option to continue and
the lessor accepts, both parties are thereafter bound by the new lease agreement.

REQUISITES OF A CONTRACT: C-O-C

1) Consent of the contracting parties
2) Object certain which is the subject matter of the obligation
3) Cause or consideration

KINDS OF CONTRACT according to their perfection:

> Consensual Contract = perfected by COC
[example: Contract of sale]
> Real Contracts = perfected by COC plus Delivery (actual or constructive delivery of the
object)
[example: Commodatum; Pledge]
> Formal/Solemn Contract = perfected by COC plus Form (contract must be executed in
the form prescribed by law)
[example: deed of donation of an immovable]

Problem: is an oral sale of a parcel of land valid? Assuming that there is no

delivery yet, and there no payment of the purchase price yet.
Answer: YES. An oral sale of realty is valid BUT unenforceable under Art
1403/ statute of frauds.

GR: form is not important; as long as there is COC , the contract is valid!
EXP: form is important when
(1) required for the validity of a contract;
(2) required for the enforceability of the contract; and
(3) required for the convenience of the contracting parties.

Importance of FORM:
GR: Form is NOT REQUIRED. A contract is obligatory in whatever form it may have been
entered into, provided all essential requisites are present (Art 1356).
EXP: Form is important when ---
^ required for validity of a contract [formal/solemn contracts; e.g: donations of
immovable when exceeding 5K, contract of antichresis, agreement to pay
interest]
^ for enforceability [statute of frauds, Art 1403]

^ for convenience [Art 1358]

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Note: Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting parties may
compel each other to observe that form, once the contract has been perfected.
This right may be exercised simultaneously with the action upon the contract. [-
this is only for convenience and not for validity nor for enforceability]
^ right of one party to compel the other to execute the necessary form
applies only when form is needed for convenience, and not for validity or
enforceability.
Problem: A donated real property to B in a private instrument. B accepted the
donation. Is the donation valid?
Answer: NO, because the donation was not made in a public instrument as required by
law. The law requires that a donation of a immovable property must be in a proper form to
be valid; the donation and the acceptance must be in a public instrument.

Problem: A donated real property to B in a private instrument. B accepted in the same

instrument. B then wanted to register the donation, but the donation requires a public
instrument. So B requested A to put down the donation in a public instrument. A
refused. B then sued to compel A to observe the necessary form. Will the action
prosper?
Answer: NO, A cannot be compelled under Art 1357 (to observe the necessary form)
because the donation is not valid.

Problem: suppose the property has been delivered by A to B, may A be compelled to

execute the needed public instrument under Art 1357?
Answer: NO, because the donation is void.

Problem: A sold to B in a private instrument his land. Later, B wanted to have the
land registered, but registration requires a public instrument. May B compel seller A
to execute the needed public instrument under Art 1357?
Answer: YES, because the sale is both valid and enforceable under the statute of frauds.

Problem: A orally sold to B his land. Later B wanted to have the land registered, but
registration requires a public instrument. May B compel A to execute the needed
public instrument under Art 1357?
Answer: DEPENDS.
a.
hasn executory.
b. YES, because the contract is both valid and enforceable; If the price has been paid, or
the land has been delivered.
Note: Statute of Frauds only applies to executory contracts; SF does not apply to executed
or partially executed contracts; Oral sale is valid because contract of sale is consensual but
oral sale is unenforceable under the statute of frauds.

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Formal Contracts:
- Donations of real property (Art 749)
- Donations of personal property [value exceeds 5K] (Art 748)
- Stipulation to pay interest on loans, interest for the use of money (Art 1956)
- Sale or transfer of large cattle
- Sale of land thru an agent (Art 1874)
- Antichresis (Art 1773)

OFFER AND ACCEPTANCE Problems Re: CONSENT

Problem: On March 5, A writes a letter to B offering the sale of a car. On March 6 at 1pm,
B sends a letter of acceptance which is received by A at 4pm that day. But at 2pm, A already
sends B a letter withdrawing the offer which is received by B at 5pm. Is there a contract?
Answer: there is NO contract. The decisive moment to consider here is the time when the offeror
A, had knowledge of the acceptance of the offeree B. this is so because a contract is perfected
only from the moment that the offeror has knowledge of the acceptance by the offeree (Art 1319,
par 2). According to the facts in this case, A received the letter of acceptance at 4pm, but two
hours before that, at 2pm, he had already sent a letter to B withdrawing the offer. So at 4pm,
although there was acceptance, there was no longer any offer.

Problem: Seller, in reply to an inquiry from Buyer, sent a letter dated December 8 stating
terms upon which he would sell to Buyer 100 to 300 computer units of a certain brand at a
certain price. On December 16, Buyer sent a letter to Seller ordering 90 computer units on
those terms. On December 18, Seller sent a letter to Buyer rejecting the order. The next
puters per your

Judgement for whom?

Answer: in
letter of December 8, varied the number of computer units, and was therefore a counter-
offer. A counter-offer is in law a rejection of the original offer. On December 8, the Seller

The
therefore, created no rights against the Seller.

Problem: S offers to sell to B a particular car for 300,000. Which of the following events will
offer?
Answer: C

a.
In this situation, the death of S terminates the offer. Since an offer is personal between both
parties, then the death of one party will end the capacity to enter into the proposed contract.
Such rule applies regardless if B knew of the death of S or not.

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b. The night before B accepts, fire destroys the car.

The offer of S is terminated. The termination of an offer is automatic when the car being
the subject matter of the offer is destroyed before the offer is accepted.

c. B pays 1000 for a 30-day option to buy the car. During this period. S dies, and later B
death.
of B amounts to perfection of the
contract regardless of the death of S. The death of Offeror S does not terminate an option
contract because such contract is a separate contract that takes away the power to revoke
the offer for the period of time stated in the said option contract. This rule in option contract

contract.

d. acceptance.
In this event, the offer is terminated because under Article 1323 an offer becomes
ineffective upon the death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed.

Problem: SM engaged Ben, a contractor, for the repainting of all SM malls nationwide. The
contract expressly provided that Ben would use only manufactured and supplied by

Answer: No. Boysen Paints was named in the contract merely as an incidental beneficiary. If a
contract should contain some stipulation in favor of a third person, he may demand its fulfilment
if he communicated his acceptance to the obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting parties must have clearly and deliberately
conferred a favor upon a third person. (par. 2, Art. 1311, Civil Code)

Problem: For damage or injuries arising out of negligence in the operation of a motor
vehicle, what is the nature of the liability of the registered owner?
Answer: The registered owner may be held civilly liable with the negligent driver either
subsidiarily or solidarily. The owner may be held subsidiarily liable if the aggrieved party seeks
relief based on a delict or crime under Articles 100 and 103 of the Revised Penal Code. On the
other hand, the owner may held solidarily if the complainant seeks relief based on a quasi-delict
under Articles 2176 and 2180 of the Civil Code.
Problem: S owns a lot. B, his neighbor, has repeatedly expressed an interest in buying the
property. In a conversation, S and B discussed the sale of the property, including the details
of the sale. S then wrote a note agreeing to sell the property for a fixed amount, P2million,
and S signed the note. B takes the note, and then shows up with a bank check for the fixed
amount and declares that he is purchasing the property. S decides that the terms are not
reasonable, and he claims that B did not accept, and so S backs out. Is there a contract.
Answer: there is a valid contract when B engaged in specific performance by producing the
funds requested by S in response to his written offer.

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RULES ON OPTIONS:
GR: If the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time (within time given) before acceptance (of the thing offered) by
communicating such withdrawal.
EXP: When the option is founded upon a consideration as something paid or promised,
offerer cannot withdraw at any time (Art 1324)

VICES OF CONSENT [My Funny Valentine Is U]

1. MISTAKE error must be substantial regarding:
^ the object of the contract;
^ the conditions which principally moved or induced one of the parties; or
^ identity or qualifications of the other party, but only if such was the
principal cause of the contract (Art 1331)
2. FRAUD use of insidious words or machinations to induce the other party to give
consent.
^ Dolo Causante (causal fraud): were it not for the fraud, the other party
would not have consented. Contract is voidable.
^ Dolo Incidente (incidental fraud): fraud was only incidental in causing
consent. Different terms would have been agreed upon. Remedy is
damages.
3. VIOLENCE an external, serious, or irresistible physical force exerted upon a person to
prevent him from doing something or to compel him to do an act.
4. INTIMIDATION an internal moral force operating in the will and inducing performance
of an act.
5. UNDUE INFLUENCE any means employed upon a party which, under the
circumstances could not be resisted and has the effect of controlling his volition and
inducing him to give his consent to the contract, which otherwise, he would not have
entered into.

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REFORMATION OF INSTRUMENT:
- That remedy in equity by means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties when some error or mistake
has been committed.
DEFECTIVE CONTRACTS:
a. RESCISSIBLE
- Valid until rescinded; there is a sort of extrinsic defect consisting of an economic damage
or lesion to either arty or 3rd party; remember, this is not a void contract; rescissible
contract cannot be collaterally attacked, hence, a direct action is required.
b. VOIDABLE
- Valid until annulled; the defect is more or less intrinsic as in the case of vitiated consent.
c. UNENFORCEABLE
- cannot be sued upon in court or enforced, unless it is ratified; unenforceable contract
may be a valid contract but if there is a violation or a breach of the contract then neither
party can go to court to enforce the contract.
d. VOID
- No effect at all; it cannot be ratified or validated.

REMEDIES for defective contracts:

a. RESCISSIBLE = RESCISSION (Art. 1380)
- process to render inefficacious a contract validly entered into and normally binding,
because of external conditions, causing an economic prejudice to a party or to his
creditors. (note the difference between rescission under Art. 1380 and Art. 1191)
[1191 = rescind here means termination or end the obligation because a party fails to
perform with what is incumbent upon him; the power to rescind is implied
in reciprocal obligations; the rescission here is a principal/independent
remedy and not subsidiary;
1380 = the basis of rescission here is the damage that the contract may cause to a
party or to his creditors; the rescission here is a subsidiary remedy and not
principal]

Problem: what is the legal standing of the sale of the property of the ward entered into
by the guardian without court approval?
Answer: the sale is void because a sale of the property of the ward is not an act of
administration but an act of ownership.

a.1) GROUNDS FOR RESCISSION: [G-A-C-L-O]

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i. contracts entered into by GUARDIANS if their wards suffer lesion by more than
¼ of the value of the things which are the object thereof;
> if the contract involves an act of ownership:
- court approval is required. Otherwise, contract is unenforceable
whether there is lesion or not. [example: contract of sale; contract of
mortgage]
> if the contract involves an act of administration:
- if with court approval = valid, regardless of lesion (Art 1386)
- if without court approval = rescissible, if lesion is more than ¼ of the
subject.
ii. those agreed upon in representation of ABSENTEES, if the latter suffer lesion
by ¼;
iii. those undertaken in fraud of CREDITORS, when the latter cannot in any other
manner collect claims due them (accion pauliana);
> creditor may sue for a contract entered into by his debtor; this is a remedy
for a defrauded creditor.
> Requisites of Accion Pauliana:
- there must be a creditor who became such PRIOR to the contract
sought to be rescinded;
- there must be an alienation made subsequent to such credit;
- the debtor who alienated the property must have acted in bad faith;
- there must be no other remedy for the prejudice creditor because
rescission is merely subsidiary remedy (Art 1383).
> Generally, it is incumbent upon the creditor to prove that the debtor
entered into the contract to defraud the creditor to deny the creditor the
remedy to collect what the debtor owes; EXCEPT in the following cases
where the debtor is presumed fraudulent:
- Gratuitous Alienations, is presumed fraudulent when the debtor did
not reserve sufficient property to pay all debts contracted BEFORE
the donation.
- Onerous Alienations, is presumed fraudulent when made by persons:
(a) against whom some judgement has been rendered in any
instance; or (b) against whom some writ of attachment has been
issued (Art 1387).
iv. things in LITIGATION; or
v. OTHER similar contracts (Art 1381).
a.2) PRESCRIPTION OF RESCISSION:
GR: 4 years from the date the contract was entered into.
EXP:

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> persons under Guardianship: 4 years from termination of incapacity.

> Absentees: 4 years from the tie the domicile is known.

b. VOIDABLE = ANNULMENT
b.1) GROUNDS FOR ANNULMENT
> Incapacity to Consent:
- minors; insane persons; deaf mutes who do not know how to read and write;
those in a state of drunkenness.
> Vitiated Consent:
- mistake; fraud; violence; intimidation; undue influence (my funny valentine
is u)
Note: ratification extinguishes the action to annul a contract (Art 1392), hence, a voidable
contract may be ratified; also, a rescissible contract may as well be ratified. In both cases,
the effect of ratification is to extinguish the right of the aggrieved party to file a case for
rescission or annulment of a contract. In short, ratification cleanses the contract of all its
defects from the moment it was constituted (Art 1396). Note also that ONLY the VICTIM
may ask for annulment (Art 1397), hence, must have clean hands.

b.2) PRESCRIPTION OF ANNULMENT:

> action shall be filed within 4 years reckoned from:
- in cases of intimidation, violence, or undue influence = 4 years from the time
the defect of the consent ceases.
- in cases of mistake or fraud = 4 years from the time of discovery.
- in cases of incapacity = 4 years from the time the guardianship ceases.

c. UNENFORCEABLE contracts = cannot be enforced unless ratified

- unenforceable contracts cannot be sued upon or enforced unless ratified. They have no
effect yet, but once ratified, they become effective.
> Kinds of unenforceable contracts:
- Unauthorized contracts
- contracts that violates or infringes statute of frauds
- contract entered into by both parties who are incapacitated
d. VOID

STATUTE OF FRAUDS
- The term is descriptive of those laws or provisions of law which require certain agreements
to be in writing before they can be enforced by judicial action.
- the Statue is designed to prevent fraud and the commission of perjury.

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- these statutes may be invoked in actions for damages for breach of said agreement or for
specific performance thereof, and not in any other matter.

SPECIAL CONTRACTS

SALES
CONTRACT OF SALE
- By the contract of sale, one of the parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other party obligates himself to pay for the
thing a price certain in money or its equivalent (Art 1458).

REQUISITES of sale: (a-d)

a. Consent of the parties
- contract of sale is consensual; form is not required for its validity.
- this is consent to transfer ownership in exchange for the price.
b. Determinate Subject Matter
- generally, there is no sale of a generic thing. If the parties differ as to the object,
there can be no meeting of the minds.
- the law specifically requires a transfer of ownership of a determinate thing.
However, the object of sale need not always be determinate despite the definition
of sale under Article 1458; it is enough that the thing is capable of being made
determinate without need of further contract.
- a sale may cover a generic thing, as long as the is determinate as to its kind as well
as to its quantity and quality.
c. Price certain in money
- this is the cause pr consideration; price need not be in money.
d. Transfer of ownership
- is essential and indispensable in sale for a seller to transfer ownership of the thing
sold; the seller must be the owner of the thing sold because delivery is an act that
would transfer ownership to the buyer under the principle of nemo dat quod non
habet you cannot give what you do not have.
- the seller need not be the owner of the thing sold at the time of the perfection of
the contract because perfection of a contract of sale does not transfer ownership;
the operative act that would convey ownership of the thing sold is the actual or
constructive delivery of the subject matter of the contract.
- although the seller is required to the the owner of the thing sold at the time of
delivery, he need not be the owner at the time of perfection. (hence, future thing
may be sold as long as owned at the time of delivery; but a future donation or
donation of a future thing is void)

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RIGHT OF FIRST REFUSAL

- This agreement gives the first priority to the person to whom the right given (a.k.a.
prospective buyer) to buy the property, and should the owner decide to sell it, the
owner should offer the property first to such person.

Problem: Mr. Go owns a building which he leased to Mr. Wi for ten years. Their
s if the lessor should desire to
sell the leased premises, the lessee should be given 30 days exclusive option to
buy it. If the leased premises is sold to someone other than the lessee, the lessor
is bound to state in the deed of sale that the buyer must recognize the lease and
- is there an option
contract?
Answer: no. the provision is not an option contract but a right of first refusal in favor
of Mr. Wi. It gives Mr. Wi the right to match the offered selling price of the property
and to buy the property at that price. (also note, that if the consideration is distinct
from the price then an option contract is void)

Contract of SALE vs Contract to SELL:

CONTRACT OF SALE
Non-payment of the purchase price is a
resolutory condition; the contract of sale
may by such occurrence put an end to a
transaction that once upon a time existed
(remember, a resolutory condition
extinguishes a pre-existing obligation upon
happening of the condition)
After delivery has been made, the seller has
lost ownership and cannot recover it unless
the contract is rescinded. (hence, the
remedy of the seller is to file for rescission
under Art. 1191 of the Civil Code, in order to
recover ownership)
CONTRACT TO SELL
The payment in full of the price is a
positive suspensive condition; if the
obligation to deliver and to transfer
ownership never became effective.
(positive suspensive condition = the
nsfer the
object to the buyer, immediately
becomes effective)
Since the seller retains ownership,
despite delivery, he is enforcing, not
rescinding, the contract if he seeks
to oust the buyer for failure to pay.
(hence, the remedy of the seller is to
recover the property from the seller,
if failed to pay)

Problem:

to pay, seller filed an action for rescission. Is the action proper?

Answer: No. the action should have been action to recover. The buyer never became
the owner of the thing hence there is nothing to rescind. In a contract to sell, the seller

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retains title to the thing sold until the buyer fully pays the purchase price. The full
payment is a positive suspensive condition, the non-fulfillment of which is not a breach
of contract but merely an event that prevents the seller from conveying title to the
purchaser. Since the obligation of seller did not arise because of the failure of buyer to
fully pay the purchase price, Art. 1191 would have no application. Non-payment of the
purchase price renders the contract to sell ineffective and without force and effect (Ayala
life vs Burton Dev. Corp., 479 SCRA 462)

CERTAINTY OF THE PURCHASE PRICE

Under Article 1469, the price is certain if:
a) the parties have fixed a definite amount; or
b) it be certain with reference to another certain thing; or
c) the determination of the price is left to the judgement of a specified person/s.
GR: the price fixed by the third person specified by the parties is binding
upon them.
EXP:
> when the third person acts in bad faith or by mistake, the courts may
fix the price.
> when the third person is unable or unwilling to fix the price, the sale is
inefficacious, unless the parties subsequently agree upon the price
(meaning, the sale is no longer valid, unless parties agree upon the
price).
> if the third person is prevented from fixing the price, by the fault of the
seller or buyer, the party not in fault may either obtain rescission or
fulfillment.
> if innocent party chooses fulfillment of the sale, the courts may fix the
price (Art 1469)

MUTUAL PROMISE / ACCEPTEDD UNILATERAL PROMISE

1st paragraph of Art. 1479
The promise here is bilateral. In a bilateral or reciprocal promise, the promise is for the
purchaser to buy and for the seller to sell a determinate thing for a price certain. From
a juridical point of view, this bilateral promise has the same effect as a contract of sale
because in both cases, delivery is necessary for the transfer of ownership.
2nd paragraph of Art. 1479
This provision complements Art. 1324 on options. When a unilateral promise to buy
OR to sell is NOT accepted, no juridical effect is produced. This is known as
policitacion.
But if the unilateral promise is accepted, it is only the promise that is accepted, and
so it is not binding on the promisor. This means that he can withdraw his offer
anytime unless there is a consideration that is distinct from the purchase price.

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Problem: S agrees to sell to B a parcel of land for 100,000. He gives B up to 30

days to raise the necessary funds. B paid nothing for the privilege of making
up his mind. Before the lapse of the 30 day period, S backs out of the
agreement. B now sues to compel S to sell. Is S required to sell the property to
B?
Answer: No. because this was merely a unilateral promise of S to sell, without a
corresponding promise of B to buy. promise is not binding on him because there

already been accepted by the would-be buyer, S could still legally withdraw from
the agreement.

Problem: A promised to sell to his friend B, for 2 million, a piece of land. A told
B that the price is to be paid anytime within a 3-year period if B builds on the
property a house of string materials and pays a nominal monthly rental in the
meantime while the price has not been tendered. B accepted conditions and
promised in turn to pay the price within the 3-year period given to him. B
subsequently occupied the land and paid nominal rentals thereon. He even
built a house of strong materials on the lot. Two years later, while B has not
yet paid the purchase price, S conveyed ownership of the land to his son.
Subsequently, before the end of the 3-year period, B tendered to S the purchase
price. But S refused and told him that he already conveyed the land to his son.
If B files an action for specific performance, what would be the most likely
result?
Answer:
in view of the absence of any consideration distinct form the stipulated price (Art
1324), the option is not valid in this case. This is the rule laid down by the 2nd
paragraph of Article 1479 which states that an accepted unilateral promise to buy
or to sell a determinate thing is supported by a consideration distinct from the price.
Since B did not give option money, A can dispose of the land without any liability
for damages. After all, during the time he conveyed the land to his son, he had no
assurance that B will eventually buy it. (Montilla v. CA, 161 SCAR 167)

LOSS OF THE THING SOLD

Problem: A sold his car to B for 150,000. B advanced the entire purchase price of
150,000 to A. The parties agreed that the car will be delivered to B at the end of
two weeks. Before the arrival of that date, the car was completely destroyed
through no fault of A. Can B now recover the amount which he has advanced to
A?
Who bears the risk of loss of the thing sold after the contract of sale has been
perfected but before the thing sold has been delivered the vendor or the vendee?
Answer:

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If the vendor should bear the risk of loss = vendor will then be obliged to return to the
buyer the purchase price; If the vendee bears the risk of loss = then the vendee need
not demand the reimbursement of payment.

There are two views:

1st view: Vendor bears the risk of loss
- the extinguishment of the obligation due to the loss of the thing affects both
vendor and vendee since their obligations are reciprocal.
- If the obligation of the vendor to deliver is extinguished, the correlative obligation
of the vendee to pay, which depends upon it, is also extinguished.
- Besides, a contract of sale is onerous in character; the cause, as far as the vendee
is concerned, is the acquisition of the thing which is the object thereof.
- Under this view, the risk of losing the thing due falls upon the vendor. If the
vendee cannot acquire the thing sold (which is the object of the sale) then, his
correlative obligation to pay is also extinguished.
nd
2 view: Vendee bears the risk of loss
- when the thing sold is lost without any fault of the vendor, he is released from
his obligation to deliver the thing, while the obligation to pay the
price subsists.
- If the vendee had paid the price in advance, the vendor may retain the same.
-The legal effect, therefore, is that the vendee assumes the risk of loss by
fortuitous event from the time of the perfection of the contract up to the time
of delivery.
- controlling principle is: Perit or thing perishes with the
because the seller has not yet delivered the thing sold to the buyer, hence,
the buyer has not acquired ownership of the thing, and without delivery then
the seller retains the ownership of the thing sold. So, if the thing is lost, even
if no fault of the vendor, the vendor still bears the loss of the thing. When the
vendor bears the loss of the thing, then he must return whatever amount of
money (purchase price or advance payment) given by the buyer to him.
Which view is correct?
- it is submitted that the 1st view is more just and equitable. Besides it is on
conformity with the principle of res perit domino. The owner of the thing must
bear the risk of loss. Consequently, A must return the P150,000 to B.

SALE OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS

a.k.a. Recto Law (Art. 1484 par.3)

Question: What are the rules in sale of personal property payable in installments and
the buyer fails to pay the installment payments?

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Answer: Under Art. 1484, the remedies of the vendor/seller are as follows:
par. 1) Exact fulfillment of the obligation in case vendee fails to pay.
par. 2) Cancel or rescind the sale,
installments (under Art. 1191).
par. 3) Foreclose the chattel mortgage constituted on the thig sold by installments. In
this case, vendor has no further action against vendee to recover any unpaid
balance, and any contrary agreement is void (<- this remedy is actually the
Recto Law)
- when a buyer buys a personal property payable in installments, there
would be security for the payment of the balance. So, the parties will agree
to the chattel mortgage on the thing sold. Hence, one of the remedies of
the seller is to foreclose the chattel mortgage constituted on the thing sold.
- if the chattel mortgage n the thing has been foreclosed, if the thing is sold
in a public auction and there is deficiency = the amount of deficiency can
no longer be recovered from the buyer/debtor, because the moment that
the thing is foreclosed then the end of the remedy. however, this
was amended by the Personal Property Security Act (PPSA)
- At PRESENT, per PPSA = The seller/creditor can recover the deficiency.

Purpose of Recto Law:

- the principal purpose of Recto Law is to remedy the abuses committed in
connection with the foreclosure of chattel mortgages.
- the Recto Law prevents the mortgagee from seizing the mortgaged
property, buying it at foreclosure sale for a low price and then bringing suit
against the mortgagor for a deficiency judgment.

SALE OF REAL PROPERTY PAYABLE IN INSTALLMENTS

- governed by Maceda Law (RA 6552)
- RA 6552 (Real Installment Buyer Protection Act) is intended to protect buyer of real
estate on installment payments against onerous and oppressive conditions.

GR: RA 6552 applies to all transactions or contract involving the sale or financing of
real estate on installment payments including residential condominium
apartments but excluding the following
EXP:
- sale or financing of industrial lots;

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- sale or financing of commercial buildings;

- sales to tenants under the Comprehensive Agrarian Reform Law (CARL)

a) RIGHTS OF BUYER (who paid at least 2 years of installments):

a.1) To pay without additional interest, the unpaid installments due within the total
grace period earned by him.
- under the Maceda Law, there such a thing a as and if the buyer
has earned a grace period then the buyer has the right to pay without
additional interest.
- the grace period is fixed at the rate of one-month grace period for every year
of installment payments made. [example: so, if the buyer has paid 4 years of
installments, then the buyer is entitled to a grace period of 4 months]
- this right shall be exercised by the buyer only once in every five years of the
life of the contract and its extensions, if any.
- note: 2 kinds of interests: compensatory interest, means an interest for the
use of somebody money; moratory interest, means interest by way of
damages.
a.2) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to 50% of the total payment
made and after five (5) years of installment, an additional 5% every year, but not
to exceed 90% of the total payments made.
example: the buyer has paid 8 years of installments, after which the buyer
defaulted in his monthly installments. Despite grace period given to buyer, the
buyer still fails to pay the price. The seller rescinded the sale. The seller now is
obliged to refund or reimburse the buyer of the cash surrendered value of the
payments made by the buyer for 8 years: which shall be 50% for the first 5 years,
and additional 5% for the 6th year, 5% for the 7th year, and 5% for the 8th year =
for a total of 65%. So, if the buyer already paid 1 million, then the buyer is
entitled for a refund of 650,000 of the amount already paid which is the 1
million. But! Remember that a buyer is not entitled to a refund of more than
90% of the amount paid 1 million.

b) LIMITATION of the RIGHTS OF THE BUYER:

- Notarial Rescission: The actual cancellation of the contract shall take place
after 3-days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.
- down payments, deposits, or options on the contract shall be included in the
computation of the total number of installments made.

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c) RIGHTS OF BUYER (who paid less than 2 years of installments):

c.1) If buyer has paid less than 2 years of installments, the seller shall give the buyer
a grace period of not less than 60 days from the date the installment became due
to pay the arrears.
c.2) If buyer fails to pay the installments due at the expiration of the grace period,
seller may cancel the contract or demand for rescission of the contract by a
notarial act.
c.3) The buyer shall have the right to sell his rights or assign the same to another
person, or to reinstate the contract by updating the account during the grace
period and before actual cancellation of the contract (the deed of sale or
assignment shall be done by notarial act); no need for consent of the seller.
Note: an agent is allowed to sell/buy to himself what his principal has ordered
him to buy/sell but only with the permission of his principal. If he does so without
such permission, the sale is void.

TRANSACTION ON SALE or RETURN vs. SALE ON APPROVAL or TRIAL or SATISFACTION

(a) Sale/Return = The buyer acquires ownership of the thing but he has the right to return
it; while (b) Approval/Trial/Satisfaction = the seller retains ownership of the thing despite
delivery.

a) SALE ON SALE or RETURN

- a transaction sale or is a sale that depends on the discretion of one
party of the sale, particularly of the buyer.
- it is a sale with a resolutory condition.
- under a of Sale and R title vests immediately in the buyer who
has the privilege of rescinding the sale, and until the privilege is exercised, title
remains in him.
- in this topic, just remember the effect of delivery: the moment the property or
the thing sold is delivered to the buyer, the buyer acquires ownership; but the
law gives the buyer the privilege of terminating or rescinding the sale; and unless
he rescinds the contract of sale then the title remains with him (buyer).
- buyer acquires ownership but he may return it.

RULES:
a.1) Buyer becomes the owner upon delivery of the thing sold, but he may revest
the ownership of the thing in the seller by returning it within the time fixed in
the contract, or if no time is fixed, within a reasonable time.

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^ buyer may return the thing sold to the seller even if he finds nothing

discretion of the buyer.

a.2) If buyer does not return the thing sold within the time fixed/reasonable time,
then the sale becomes absolute. (Res Perit Domino).
a.3) If the thing is lost due to fortuitous event, the buyer bears the risk of loss. But,
If the thing deteriorates without the fault of the buyer, he can still return it,
provided the period has not yet lapsed.
Problem: X, the owner of a certain jewel entrusts them to Y for sale or return
of the jewel upon a specified period of time. Y sells the jewel to Z, but retains
the price. Can X obtain possession of the jewel from Z?
Answer: It depends.

> If the phrase sale or refers to a true case of sale from X to Y, it is

clear that delivery to Y transferred ownership to him, and the subsequent sale
and delivery of the jewel by Y to Z also transferred ownership to Z. Hence, X

proceed against Y as a buyer who has not paid.

[note that Art. 559 of the Civil Code on recovery of a movable, is not applicable
here because the effect of delivery of the jewel from X to Y. if it is a true sale
or return transaction, then the delivery of the jewel to Y transfers ownership of
the jewel to Y, and because Y is now the owner of the jewel, he can now validly
transfer the jewel to Z; the only remedy of X is that of an unpaid seller to
recover from Y the purchase price of the jewel]

> If on the other hand, the phrase sale or merely means that X was
constituting Y as his agent with authority to sell the jewel, X would still have
no right to recover the jewel from Z (for after all, Z had already paid for it and
therefore, there can possibly be no rescission for nonpayment of the price); [Z

against Y not as a buyer but as an agent who has failed to render an account of
his transaction and who has failed to deliver to the principal whatever he may
have received by virtue of the agency (Art 1891)

b) SALE ON APPROVAL or TRIAL or SATISFACTION

- despite delivery to the buyer, title remains with seller.
- risk of loss remains with seller although there has been delivery, and the sale has
not yet become absolute.
- buyer bears the risk of loss only if:
b.1) buyer is at fault; or

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b.2) buyer expressly agreed to bear loss.

- the sale becomes absolute when signifies his approval or acceptance to the seller
or does any other act adopting the transaction; the sale also becomes absolute
if the buyer does not signify his approval.

Illustration: B is interested in buying a floor polisher. The seller gives possession

of a new model, telling him to take it home and try it out. The sale price is P15K.
if B does not like the polisher, he can bring it back within this period, or if he
approves the offer, the seller will bill him. In the meantime, seller retains
ownership of the polisher. = this is a transaction on sale on approval.

LAW ON DOUBLE SALES (a-b)

- Article 1544 applies only when there is only one seller and 2 different buyers; and this
article applies only to registered lands.

a) PERSONAL property the owner is the one who first gets possession in good faith;
in the absence of possession, the one with the older or oldest title.
^ with respect to personal property, Article 1544 does not make registration as
basis of getting better title. It is the (actual) possession that is the primary basis.
^ even if the law requires registration of title over personal property, in case of
double sales, it is still the one who first gets possession in good faith who has
better right.

b) REAL property the owner is the buyer who first registers in good faith title in the
Register of Deeds (ROD). In the absence of registration, the owner is the one who
first takes possession; and still in the absence of registration or possession the owner
is the one who has the older or oldest title (Art 1544)

Problem: A sold a parcel of land with a Torrens title to B on January 5. A

week later, A sold the same land to C. Neither sale was registered. As soon
as B learned of the sale in favor of C, B registered an adverse claim stating
that he was making the claim because the second sale was in fraud of his
rights as first buyer. Later, C registered the sale that had been made in his
favor. Who is now the owner?
Answer: C (2nd buyer) is clearly the owner, even though he was the second
buyer. This is so not because of the registration of the sale itself but because of
the automatic registration in his favor caused by knowledge being equivalent

owner of the property which was sold twice; there is automatic registration
because of the 1st sale]

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Problem: A sold his land to B, and B began to possess the land. C, a

stranger, sold the same land, unauthorized by anyone, and in his own
name to D, D then registered the same in good faith. Who owns the land,
C or D?
Answer: C is the owner even if he did not register the sale because D, who
registered the same, did not buy the land from its lawful owner (which is B),
but from a complete stranger (which is C) totally unconnected with the land.
Article 1544 cannot therefore apply because it cannot be said that the land
had be sold twice by the same seller.
[Article 1544 does not apply when there are 2 or more sellers.]

Problem: A sold his land to B. later, A sold the same land to C. B in turn
sold the land to D, who took possession thereof. C, a purchaser in good
faith, registered the land in his name. Who is now the owner of the land,
C or D? Answer: D is the owner. It is true that C was in good faith, and it is
also true that C was the first one to register the land, but Article 1544 can be
applied only if the two buyers (C and D) had bought the same property from
the same person. Article 1544 indeed does not apply if there are two different
sellers, one of whom, when he made the conveyance, had long before
disposed of his rights as owner of the same.

Problem:

adjudicated exclusively unto himself the lot and simultaneously sold the
same to D who was unaware of the prior sale. Is the rule on double sale
under Article 1544 applicable to the problem?
Answer: B is the owner. Article 1544 applies only to lands covered by
Torrens titles where the prior sale is neither recorded nor known to the
purchaser at execution sale prior to the levy.
The rule for unregistered lands is different. Registration in good faith prevails
over possession in the event of a double sale by the vendor of the same piece
of land to different vendees, said Article is not applicable even if the latter
vendee was ignorant of the prior sale made by his judgement debtor in favor
of another vendee. The reason is that, the purchaser of unregistered land at a
sale only steps into the shoes of the judgment debtor, and
merely property sold as of the time the
property was levied upon (Rule 39, Sec. 5)

IMPLIED WARRANTY (a-b) [this must co-exist with contract of sale]

a) WARRANTY AGAINST EVICTION

- an implied warranty on the part of the seller that he has a right to sell the thing
at the time when the ownership is to pass, and that the buyer shall enjoy the legal
and peaceful possession of the thing.

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a.1) REQUISITES Of Warranty Against Eviction:

^ The vendee must be deprived in whole or a part of the thing purchased;
^ Such deprivation must be by virtue of a final judgment;
^ The deprivation must be based on a right prior to the sale or an act imputable to
the vendor;
^ The vendor must be summoned in suit for eviction at the instance of the vendee.

a.2) Buyer makes a WAIVER of warranty against eviction.

i) Waiver Consciente This is a voluntary renunciation of the vendee of the right
to the warranty in case of eviction without knowledge of risk of eviction. The
liability of the vendor shall extend only to the payment of the value of the
thing sold at the time of eviction.
[if there is such a waiver in a contract of sale, the buyer may still hold the
seller liable
liability extends only to the value of the thing sold at the time of eviction.
Example: buyer bought a property for P200, then after 7 years the buyer is
evicted from the property at which time the property is valued at P300; the
waiver signed by the buyer is called a voluntary renunciation without
knowledge of risk of eviction. So, in this case the buyer can still enforce the
warranty against eviction despite the waiver and he can demand payment
from the seller P300 which was the value of the property at the time of
eviction]
ii) Waiver Intencionada This is a voluntary renunciation by the vendee of the
right to warranty against eviction, with knowledge of the risk of eviction and
assuming the consequences thereof. (assumption of risk with knowledge of
eviction and assuming the consequences thereof; like if there is lis pendens)

Problem: S sells a piece of land to B who does not register the sale.
Subsequently, S sells the same piece of land to C who registers the sale.
In a suit between the buyers B and C over the land sold, B (the first
buyer) is defeated, and is deprived of the property. May B enforce against
S the warranty against eviction?
Answer: Yes. While it appears that B is evicted by virtue of a right
subsequent to the sale to him (not prior to the sale), the warranty may still be
enforced because the cause of B's eviction is imputable to the vendor S.
nt to the sale between seller and
buyer. But still, the seller is liable for breach of warranty because the
deprivation of B is imputable to the seller S since seller S sold the property
twice.]

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b) WARRANTY OF HIDDEN DEFECTS

- an implied warranty that the thing is free from any hidden defects or faults.

b.1) BREACH of Warranty Against Hidden Defects:

i) Accion Redhibitoria action instituted by the vendee against the vendor to
avoid a sale on account of some vice or defect in the thing sold which renders
it unfit for the use intended or which will diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have
acquired it. [it simply refers to the right of a buyer to avoid a sale for breach
of warranty against hidden defects]
ii) Accion Quanti Minoris this is an action for proportionate reduction of the
price (secs. 1561,1562,1564,1565,1567)
b.2) PRESCRIPTIVE PERIODS to Rescind A Sale On The Ground Of Breach Of Warranty
Against Hidden Defects:
GR: the period of prescription is 6 months for both cases.
EXP: In Redhibitory actions based on defects of animal, the period is 40 days [<-
this is the action with the shortest prescriptive period in law]
Note: the period of rescission is counted form the date of delivery to the vendee
and NOT from the perfection of the sale because the vendee will be able to
discover the hidden defect only upon receipt of the object.

RESCISSION OF SALE OF IMMOVABLE POPERTY:

- This is under Article 1592 applies only to absolute sale; not to conditional sales or
contracts to sell.
- Rescission of sale of immovable property is under Article 1592 (which is the counterpart
of the Maceda Law which applies only to real property payable of installments, hence,
conditional sale)
- Under Article 1592, even if the contract of sale stipulates that the same shall be deemed
automatically cancelled in case of non-payment of the price at the agreed time, the
vendee may still pay even after the expiration of the period as long as no demand for
rescission has been made either judicially or by a notarial act.
Problem: S sold to B a house and lot for 500,000 payable within 60 days after the
execution of the deed of sale. It was expressly agreed in the deed that the sale
would ipso facto be of no effect upon the buyer's failure to pay as agreed. B failed
to pay on maturity, so S sued to declare the contract of no force and effect. If B

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tendered payment before the action was filed, but subsequent to the stipulated
date of payment, would the action prosper?
Answer: The action would not prosper. According to the law, "in the sale of
immovable property, even though it may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, so long as no demand for
the rescission of the contract has been made upon him either judicially or by notarial
act. After the demand, the court may not grant him a new term. "(Art. 1592)
[the action will no longer prosper because the buyer is granted under Art 1592 the
right to pay the purchase price in the absence of a notarial rescission of the contract
of sale; the law does not recognize the automatic rescission clause in absolute sale
of real property because the buyer failed to pay within the period agreed upon.
Notwithstanding the agreement of the parties, that rescission automatically takes
place, the buyer may still pay even after the expiry of the period as long as there is
no demand for the rescission of the contract has been made, either judicially or by
notarial act. The moment there is demand has been made by the seller upon the
buyer, then the buyer loses the right to pay, and the court may not even grant the
buyer a new term to pay the balance of the purchase price]

CONVENTIONAL REDEMPTION
- This is a sale with a right to repurchase or a pacto de retro sale.
- Conventional redemption is that which takes place when the vendor reserves the right
to repurchase the thing sold with the obligation to reimburse to the vendee the price
of the sale, the expenses of the contract, other legitimate payments made by reason
of the sale, as well as necessary and useful expenses made on the thing sold. (Art. 1601,
1616)

IMPORTANCE Of Reservation to Repurchase:

- For conventional redemption to exist, it must be stipulated at the moment of the
perfection of the contract and not afterwards. If the stipulation is made
subsequent to the perfection of the contract, instead of a resale, it becomes a
mere promise to sell. In other words, the reservation as to the right of the vendor
to repurchase must be stipulated in the same instrument of sale
CONCEPT Of Pacto De Retro Sale:
- In a pacto de retro sale, the ownership of the property sold is immediately vested
in the buyer a retro, subject to the repurchase by the seller a retro within the
period agreed upon, or, in the absence of a period then as provided by law;

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- The failure of the buyer a retro to consolidate his title under Article 1607 of the
Civil Code does not impair such title because the method prescribed therein is
merely for the purpose of registering and consolidating title to the property.
[consolidate= meaning to acquire a new one and cancel the title;
the consolidation requirement under Art 1607 not required for the buyer to
acquire absolute ownership because the consolidation requirement is
merely to allow the buyer a retro to register the sale and consolidate his
title to the property]
TIME to redeem:
i) If the parties agree on vendor's right to redeem but without expressly
specifying the period of redemption, redemption must be made within
four
(4) years from date of the contract. [note that what is absent here is the
period of redemption and NOT the reservation of the right of redemption]
example: the stipulation says "Vendor cannot redeem within 3 years
from date of the contract."
Period of redemption: Here no period was specified. Hence, 4 years to
redeem. When to start? Redemption shall be 4 years from the
expiration of the time within which the right to redeem cannot be
exercised.
ii) If the parties agree on the right to redeem and they specify the period, the
period of redemption specified must not exceed 10 years from the date of
the sale.
iii) If the parties agree on the right to redeem without specifying the period,
but from the facts or circumstances it can be inferred that the parties
intended a period, then the period is 10 years.
example: the stipulation says "Vendor can redeem at anytime he has

Period of redemption: 10 years to redeem. There is agreement as to

period but not specified.

>> EQUITABLE MORTGAGE (Art. 1602)

- An equitable mortgage is one which although lacking in some formality, form
or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge a real property purportedly sold as security
for a debt, and contains nothing impossible or contrary to law.

> SALE PRESUMED to be an Equitable Mortgage:

- Price is unusually inadequate.
- Vendor remains in possession as lessee or otherwise.
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- Extension of the period of redemption as agreed by the parties.
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- Vendee retains part of the purchase price.

- Seller binds himself to pay taxes on the things sold.
- Any other case where real intention of the parties shows the property is given
to secure payments of a debt.
> REFORMATION (is the remedy for a pacto de retro sale to be free of defect)
- If a pacto de retro sale is presumed as an equitable mortgage, the remedy of the
owner is to file for reformation of the instrument pursuant to Article 1605 in relation
to Article 1365.
- Prescriptive period is 10 years.

LEGAL REDEMPTION
- Redemption by co-owners. (Art. 1620)

- Redemption by the other co-heirs. (Art. 1088)

- Redemption by an owner of an adjoining RURAL land (Art. 1621)

- Redemption by an owner of an adjoining URBAN land (Art. 1622)

-Redemption by a debtor should the credit or other incorporeal right in litigation be sold
by the creditor to a third person.
Redemption by a judgment debtor within one year should real property be sold
on execution (Sec. 30, Rule 39); Redemption by owner should property be sold for
delinquent realty taxes; Redemption by mortgagor within one year should his
mortgaged property be foreclosed subsequently sold.

[note: forget about section 119 of the commonwealth act 141 because this has been
amended already]
Problem: A is the owner of a parcel of land. In order to secure a loan, he
mortgaged a portion thereof to a bank which immediately foreclosed the
mortgage upon failure of A to pay the loan. Title was later acquired by the
bank which then sold the land to B. A, on the other hand, sold the unmortgaged
portion to C. Can B claim the right of legal redemption?
Answer: The exercise of the right of legal redemption presupposes the existence of
co-ownership AT THE TIME THE CONVEYANCE IS MADE BY A CO OWNER
and when it is demanded by the other co-owners. Considering that B was not a co-
owner of the portion sold at the time of the conveyance to C, the right of legal
redemption cannot be exercised. (Uy v. Court of Appeals, 246 SCRA 703 (1995)

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Problem: A, B, and C, and their mother, M, are the co-owners of a parcel of

land and a building. In 1986, without the knowledge of her other co-owners, M
sold her 1/4 share in the property to her other daughter, D, sister of A, B, and
C. On May 30, 1992, A received from her sister D a letter informing A about
the sale, with a demand that the rental corresponding to her 1/4 share on the
co-owned property be delivered to her. The letter was sent with an attached
copy of the Deed of Sale signed by M, as vendor, and by D as the vendee.
On August 5, 1992, A received a copy of the complaint in a civil case filed by D
demanding her share in the rentals being collected by A from the tenants of
the property. A then informed D that she was exercising her right of
redemption as a co-owner of the property. On September 14, 1995, A instituted
a civil action for redemption of the property, depositing to the court the
redemption money, the amount of which corresponds to the amount stated in
the deed of sale of D and M.
A contends that the 30-day period for redemption period under Article 1623
of the Civil Code had not begun to run against her since the vendor, M, never
informed her and her other sisters about the sale to D. She learned about the
sale only on August 5, 1992, when she received the summons in the complaint
filed by D. Is D's letter to A dated May 30, 1992 sufficient compliance with the
notice requirement under Article 1623 of the Civil Code?
Answer: No. Article 1623 of the Civil Code clearly and expressly provides that the
30-day period of exercising the rights of pre-emption or redemption are to be
counted from notice in writing by the vendor or prospective vendor not from any
other person. The reasons for requiring that the notice should be given by the
vendor, and not by the vendee, are easily discernible.
The vendor of an undivided interest is in the best position to know who are his co-
owners that under the law must be notified of the sale. Also, the notice by the seller
removes all doubts as to the fact of the sale, its perfection, and its validity, the notice
being a reaffirmation thereof, so that the party notified need not to entertain doubt
that the seller may still contest the alienation. This assurance would not exist if the
notice should be given by the vendee. [it is only the vendor or prospective vendor
or vendor co-ownerwho can give the notice.]

LOAN
CONTRACT OF LOAN
- By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; [not consumable = is a thing which can be used
in a manner appropriate to its need or nature, without it being consumed]

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- or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or a
mutuum. (Art. 1933)
- This is a REAL contract; it is neither a consensual contract nor a formal contract.
- the true test of a loan is: the intention of the parties.

KINDS of loan: (a-b)

a) COMMODATUM: where the bailor delivers to the bailee a non-consumable thing so
that the latter may use it for a certain time and return the identical
thing.
a.1) Basic Principles of Commodatum:
i) essentially gratuitous (Art. 1933 (par. 2; Art. 1935)
- must be gratuitous, otherwise, if there is compensation for the use of the
thing, it might be a lease.
ii) loan for use for a certain time.
- certain time, otherwise, if the bailee is not allowed to use the thing, it
might be a deposit
iii) involves only non-consumable things.
- By way of exception, consumable things may be the object of the contract
if the purpose is not the consumption of the object, as when it is merely
for exhibition. (Art. 1936)
iv) Bailor need not be the owner of the thing loaned. (Art. 1938)
- It is enough that the bailor has possessory interest over the property.
v) Generally, bailee can neither lend nor lease the object of the contract to a
third person in the absence of an agreement to that effect.
- The bailee's household are not considered third persons so they may
make use of the thing unless (a) there is a stipulation to the contrary (b)
nature of the thing forbids use.
vi) Enjoyment of the fruits.
- The bailee has no right to use the fruits of the thing loaned; otherwise, it
becomes a usufruct. But a stipulation allowing the bailee to use the fruits
of the thing loaned is valid. (Art. 1940)
- GR: the bailee in commodatum has NO right in the fruits of the thing
loaned, otherwise it becomes a usufruct EXP: But a stipulation allowing
the bailee to use the fruits of the thing loaned is valid if the use of fruits
is incidental to the use of the thing loaned.

illustration: X borrowed from his friend, Y, the latter's car for an out of town
trip. On his way to his proposed destination, X met with an accident which
greatly damaged the car. X was not at fault because he was driving carefully. If

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the car is to be repaired, the expenses for repair shall be borne by: X and Y in
equal shares, the expenses being deemed extraordinary

a.2) OBLIGATIONS of the BAILEE in commodatum:

i) pay for the ordinary expenses for the use and preservation of the thing
loaned. (Art. 1941)
ii) pay one-half of the extraordinary expenses for the preservation of the thing
if the expense arise on the occasion of the use of the thing loaned by the
bailee. (Art. 1949)
iii) bailee must pay for expenses other than those referred to in Art. 1941 and
1949. (Art. 1950) [if it is neither ordinary nor extraordinary]
iv) take good care of the thing with the diligence of a good father of a family
(Art 1163)
v) the bailee is liable to indemnify the bailor for the loss of the thing loaned,
even if due to a fortuitous event in the following cases: (a) bad faith; (b)
delays (c) delivered with appraisal; (d) lends the thing to third person; (e)
ingratitude. (Art. 1942)
vi) obliged to return the thing after the lapse of the period stipulated or after
the accomplishment of the use for which the commodatum has been
constituted.

Problem: A borrowed B's truck. During a fire which broke out in A's
garage, he had time to save only one vehicle, and he saved his car instead
of the truck. Is A liable for the loss of B's truck?
ANSWER: Yes. The bailee in commodatum is liable for the loss of the thing
loaned, even if it should be through a fortuitous event if, being able to save
either the thing borrowed or his own thing, he chose to save the latter. (Art.
1492, Civil Code)

a.3) RIGHT OF RETENTION in commodatum:

i) pursuant to Article 1944, the bailee has no right to retain the thing loaned on
the ground that the bailor owes him something, even if the claims be for
reimbursement of extraordinary expenses.
ii) the only instance when the bailee can retain the thing is under Article 1951
(the bailor who, knowing the flaws of the thing loaned, does not advise the
bailee of the same, shall be liable to the bailee for the damages which he
may suffer by reason thereof)
iii) the bailee's right of retention under Article 1951 extends no further than the
retention of the thing loaned until he is reimbursed for the damages suffered
by him.

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iv) he cannot lawfully sell the thing to satisfy said damages (unlike in pledge,
the creditor has the right to retain the thing pledged until he shall have been
fully reimbursed.)

a.4) EXTRAORDINARY EXPENSES due to actual use:

- If the extra-ordinary expenses arise from the actual use of the bailee of the
thing loaned, even though he acted without fault, the expense is borne
equally by the bailor and the bailee share and share alike. (Art. 1949, par 2.)
> Why 50-50?
^ The bailee pays 1/2 because of the benefit derived from the use of the
thing loaned.
^ The bailor pays the other half because he is the owner and the thing
will be returned to him.
^ EXCEPTION: if the bailor and the bailee stipulated a different
apportionment of such extra-ordinary expenses.

b) MUTUUM: where the lender delivers to the borrower money or other consumable
thing upon the condition that the borrower will pay the same amount
of the same kind and quality. (loan mutuum)

b.1) LOAN WITH USURIOUS INTEREST:

- In a simple loan with stipulation to pay usurious interest, the obligation of the
debtor to pay the principal debt is not illegal. The illegality lies only in the
stipulated interest. Being separable, only the latter should be deemed void.
- To discourage stipulations on usurious interest, said stipulations are treated
as wholly void, so that the loan becomes one without a stipulation to pay
interest. (Puerto v. CA)

b.2) Is debtor liable to pay only the principal obligation?

- By way of compensatory damages for the breach of the obligation, the debtor
must pay the principal debt, with interest thereon in the amount of 12% per
annum, to be computed from default, i.e., from judicial or extrajudicial
demand.
- Such interest is not due to stipulation, for there was none, the same being
void. Rather it is due to the general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has to pay interest by way of
damages, in conformity with the ruling in Eastern Shipping Lines, Inc. vs. CA.
234 SCRA 78.

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Question: Supposed the loan is secured by a mortgage and the mortgage is

foreclosed for non-payment of the debt, is the debtor entitled to recover
the foreclose property?
Answer: YES. Since the mortgage is void, the foreclosure of the property
provided for in the mortgage contract is ineffectual as well. The foreclosure is
void because it stemmed from the enforcement of a usurious mortgage contract.
The parties then must restore what each had received from the other. The debtor
must pay the principal loan with legal interest at (12%) per annum from the
date of demand by way of damages. The lender, must return the debtor's
property that had been invalidly foreclosed. The transfer certificate of title to
the subject property is cancelled and a new one issued in favor of the debtor.

b.3) RULES on INTEREST PAYMENTS:

i) No interest shall be paid unless it is expressly stipulated in writing.
ii) In the absence of stipulation as to the amount, interest rate of 12% applies
to: (a) loans (Central Bank Circular No. 16); (b) forbearance for the use of
money, goods or credit; and (c) judgment involving a loan or Forbearance of
money, goods or credit.
iii) In all other monetary judgments not involving loans or forbearance for the
use of money, goods or credit, the legal interest of 6% per annum shall be
applied in the absence of stipulation. This applies, for example, in a judgment
for non-payment of purchase price or actions for damages for injury to
persons or property.
iv) Interest rate for actions for damages under Article 2209 is imposable (a)
from filing before judgment, 6% per annum; (b) from judgment up to the
time of finality, 6% per annum; and (c) from finality up to actual payment,
12% per annum because it partakes of the nature of forbearance for the use
of money. No interest shall be due unless it has been expressly stipulated in
writing.

Problem: A contracted B to sew 20,000 pieces of assorted maong pants. A

obliged himself to pay B, for his services, the total amount of 200,000, and
for B to deliver the finished products within two months. B sewed the pants
and delivered them to A who promised payment. A failed to pay despite
demands so B instituted an action for collection of the amount due. After
due proceedings, the court directed A to pay B the sum of 200,000 with
interest thereon at 12% per annum, to be counted from the filing of the
complaint until the amount is fully paid. Is the court correct?
Answer: No. The amount due in this case arose from a contract for a piece of
work, not from a loan or forbearance of money, hence, the legal interest of 6%
per annum should be applied. Furthermore, since the amount of the demand
could be established with certainty when the complaint was filed, the 6%

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interest should be computed from the filing of the complaint. But after
judgment becomes final, the interest should be computed at 12% per year
annum. The interim period is deemed to be equivalent to a forbearance of
credit.

LEASE
CONTRACT OF LEASE
- A contract by which one person binds himself to grant temporarily the use of a thing or
the rendering of some service to another who undertakes to pay some rent,
compensation or price. (Art. 1642)

Problem: Abe leased to Rey a commercial building. The contract expressly prohibits the
assignment of the lease contract or any portion thereof. Rey later subleased a portion
of the premises to a third person. Is Abe entitled ask for cancellation of the lease for
violation of the provision against assignment?
Answer: No. Rey, the lessee, did not assign the lease or any portion of it, to the sub-lessee.
Because the problem does not state that the contract of lease contains a prohibition
against sublease, the sublease is therefore lawful. The rule here is that, in the absence of
an express prohibition, a lessee may sublet the thing leased without prejudice to his
responsibility to the lessor for the performance of the contract.
[assignment is different from lease; what the contract prohibited is the assignment and
not the subletting of the premises, there being no prohibition against sublease then the
general rule applies: the lessee is prohibited from assigning the lease but is allowed to
sublet]

A. Assignment of Lease
GR: the lessee CANNOT assign the lease without the consent of the lessor;
EXP: UNLESS there is a stipulation to the contrary (Art 1649)

B. Sub-lease
GR: the lessee MAY sublet the thing leased, in whole or in part;
EXP: UNLESS there is an expressed prohibition to the contrary.

When in the contract of lease of things there is no express prohibition, the lessee may
sublet the thing leased, in whole or in part, without prejudice to his responsibility for the
performance of the contract toward the lessor. (Art. 1650)

B.1) Liability of Sub-lessee towards lessor:

^ 2 aspects of liability:
(a) liability for the use of the property leased

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- the sublessee is directly liable to the lessor for acts appertaining to the use
and preservation of the property (Art 1651)

(b) liability for the unpaid rentals

- the sublessee is only subsidiarily liable to the lessor for the rent owed by the
lessee; and even this subsidiary liability is limited to the rent owing from the
sub-lessee at the time of extrajudicial demand by the lessor (Art 1652)
- subsidiary liability attaches only when the party primarily responsible is
insolvent.

Problem: A leased his house to B with a stipulation that the leased premises
shall be used for residential purposes only. B subleased the house to C who
later used the premises as a bodega for fabrics. Upon learning this, A
demanded that C stop using the house as a bodega, but C ignored the
demand. A then filed an action for ejectment against C, who raised the
defense that there is no privity of contract between them, and that he has
not been remiss in the payment of rent. Will the action prosper?
Answer: Yes, the action will prosper. Under Article 1651 of the Civil Code,
the sub-lessee is bound to the lessor for all acts which refer to the use and
preservation of the thing leased in the manner stipulated between the lessor and
the lessee.
[the sub-lessee is directly liable to the lessor for the use and preservation of the
thing leased, despite the absence of the contractual relationship between the
lessor and the sub-lessee, by an express provision under Art. 1651, the
sublessee is bound to the lessor.]

C. Implied New Lease

- An implied new lease or tacita reconduccion arises if at the end of the contract the
lessee should continue enjoying the thing leased for 15 days with the acquiescence of
the lessor, unless a notice to the contrary by either parties has previously been given.
(Art. 1670); [in short, if the contract has expired and the lessee continued to occupy
the property leased for at least 15 days, then there is an implied renewal of the lease]

C.1) Requisites of Implied New Lease to exist:

^ there must be expiration of the contract;
^ there must be continuation or possession for 15 days or more; and
^ there must be no prior demand to vacate.

Problem: The term of a 5-year lease contract where rents were paid from month
to month came to an end. Still, lessee continued using the property with lessor's
consent. It is understood that lessor and lessee impliedly renewed the lease
what are the terms in period that is renewed?

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Answer: on a month-to-month under the same conditions. (everything on the contract

is renewed except on the period of lease; because period depends on the method of
rental payment.)

DEPOSIT
CONTRACT OF DEPOSIT
- Under Article 1962 of the Civil Code, Deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely keeping it and of
returning the same. [the purpose of deposit is safekeeping]
- under the same article, the subject matter here is a non-fungible thing because the
depository is obliged to return the identical thing deposited.
- Purpose: The principal purpose of a contract of deposit is the safekeeping of the thing
delivered so that if it is only an accessory or secondary obligation of the recipient, deposit
is not constituted but some other contract like lease, commodatum or agency.

Note: This is not a bank deposit. A bank deposit is not a real deposit under the civil
code. A bank deposit creates a creditor-debtor relationship between the bank
depositor and the bank; the bank depositor becomes the creditor of the bank for the
deposit of the depositor because after delivering the money to the bank, the bank
can use the money deposited and return to us the same amount of the money
deposited with interest.

Question: is it necessary that the depositor be the owner of the thing deposited?
Answer: No. the depositor need not be the owner of the thing deposited considering that
the contract does not involve a transfer of ownership. As a matter of fact, the depositary
cannot even dispute the title of the depositor to the thing deposited (Art. 1984), this is so
because the depositary is in estoppel. [in short, the depositary has no right to refuse the
return of the thing deposited even on the basis that the depositor is not the owner,
because the depositary is in estoppel.]

A. Characteristic of contract of deposit

1) it is a real contract perfected by delivery (Art. 1316)
2) only movable things can be the object of deposit (Art. 1966)
3) it is gratuitous contract, except when there is an agreement
4) the principal purpose of deposit is the safekeeping of the thing delivered (Art.
1962) [if it is for a different purpose, other than safekeeping, it ceases to be a
contract of deposit]
5) as a general rule, depositary cannot use the thing deposited, (except: when the use
of the thing is incidental to the safekeeping, then it is still a deposit contract)

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B. Instances when depositary may USE the thing deposited.

^ with the express permission of the depositor.
^ when the preservation of the thing deposited requires its use; but then it must be
used only for that purpose. (Art. 1977)

C. Kinds of deposit
c.1) Voluntary deposit made by the free will of the depositor
c.2) Necessary deposit in a necessary deposit, this freedom of choice is absent. The
person is obliged to deliver a thing to another person for safekeeping.
It is necessary:
- when it is made in compliance with a legal obligation;
- when it takes place on the occasion of any calamity, such as fire, storm,
flood, pillage, shipwreck, or other similar events;
- when made by travelers in hotels and inns; and
- when made by passengers in common carriers. (Arts. 1996, 1997, 1998 and
1754)

Problem: Rey is a guest at the XYZ Hotel in Baguio City. In the middle of the night,
Abe, a stranger, went up the fire escape, slowly raised the window in Rey's room,
went inside the room, and stole Rey's expensive laptop. The hotel disclaims liability
on the ground of force majeure. Is the hotel's defense tenable?
Answer: No, the problem involves & case of robbery with force upon things (not robbery
with violence). Under Article 2001 of the Civil Code, the act of a thief or robber who has
entered the hotel is not deemed force majeure, unless it is done with the use of arms or
through an irresistible force. [liability of the hotel depends on what kind of robbery took
place. If it is a robbery with force upon things, then the hotel is liable because such is not
deemed as force majeure; but if the robbery thru use of arms or irresistible force or
violence, then the hotel is not liable because it is deemed force majeure]
[note: Note: If robbery is with force upon things, as in the above problem, the robbery
is not force majeure, therefore, the hotel is liable. However, if the robbery is with the
use of arms or through an irresistible force, this kind of robbery is deemed force
majeure, therefore, the hotel is not liable.]

Problem: Abe is a bellhop at the XYZ Hotel in Baguio City. At the point of a gun,
Abe enters Rey's room and robs Rey of his valuables. The hotel disowns liability on
the ground of force majeure. Is the hotel liable?
Answer: Yes. It is true that here the robbery was committed with the use of arms, but
then Abe is an employee of the hotel. The hotel will be liable not because of force
majeure under Article 2001 which refers to a stranger, but because of Article 2000 which
provides that the master responsible for the acts of its servants.

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AGENCY
CONTRACT OF AGENCY
- By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the
latter. (Art. 1868)
- The definition excludes, from its concept, the relationship of employer and employee,
of master and servant, and of employer and independent contractor.
- The purpose of agency is to extend the personality of the principal.

A. Form of Agency
GR: There are no formal requirements governing the appointment of an agent.
be oral or written.
EXP: The only instance when the law requires a specific form for agency for validity is
the appointment of an agent for the sale of a piece of land in which case such
authority shall be in writing. (Art. 1874)

B. Authority
- The power to sell does not include the power to mortgage (Art. 1879)
- The power to mortgage does not include the power to sell. (Art. 1879
- The power to compromise does not include the power to authorize to submission
to arbitration. (Art. 1880)

C. Kinds of Agency
c.1) Agency by Estoppel
- This kind of agency arises when one clothes another with apparent authority as
his agent, and holds him out to the public as such.
- The party cannot be permitted later to deny the authority of such person to act
as his agent, to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to be. (Macke
v. Campus 7 Phil 553)
- The authority of the agent is not real but only apparent. If the estoppel is caused
by the principal, he is liable to any third person who relied on the representation.
If the estoppel is caused by the agent, only the agent is liable.

Illustrative example: P tells X that A is authorized to sell certain merchandise. P

privately instructs A not to consummate the sale but merely to find out the
highest price X is willing to pay for the merchandise.
Consequence: If A makes a sale to X, the sale is binding on P who is in estoppel
to deny A's authority. In this case, there is no agency created but there is a power
created in A to create contractual relations between P and a third person,

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without having authority to do so. The legal result is the same as if A had
authority to sell.

Authority by Estoppel:
- Arises in those cases where the principal, by his culpable negligence,
permits his agent to exercise powers not granted to him, even though the
principal may have no notice or knowledge of the conduct of the agent.
Illustrative example: If A collects from X without informing P under
such circumstances as to charge P with knowledge of such collection,
as when X has not paid him even a single installment, even though
several months have already passed, there arises in the case authority
by estoppel founded on the negligence of P.

c.2) Implied Agency

- There is an actual agency; the principal alone is liable.
- as distinguish from agency by estoppel: The authority of the agent is not real but
only apparent.

Illustrative example: P authorized A to sell his car. A sold the car to X who paid
the purchase price. However, A did not give the money to P.
Consequence: X is not liable to P; and A has implied authority to receive payment.
So, if the agent received payment from X, then X alone will shoulder the loss if

Apparent Authority:
- That which though not actually granted, the principal knowingly permits
the agent to exercise or holds him out as possessing.
illustrative example: P authorized A to sell P's land, the purchase price
payable to P in 12 monthly installments. A sold the land to X. [If P
knowingly permits A to collect from X, A may be said to have apparent
authority.]

illustrative example for Estoppel and Implied agency:

Situation: P gave to A a power of attorney authorizing him to sell P's
car for 200,000 payable in cash.
Consequences:
= The authority of A to sell the car is express. It includes the implied
authority to receive payment and to give a receipt as they are acts
necessary to accomplish the purpose of the agency. They are both
actual authority.

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= If P privately instructed A not to consummate the sale, the sale by

A is still binding upon P as A had apparent or ostensible authority
to sell. As far as third persons are concerned, the effect is as if A
had actual authority.

= The same is true if P had not authorized A to sell the car but
knowing that A was acting for him just kept silent and after
consummation of the sale, received the proceeds from A. Here,
A's authority rests on estoppel on the part of P to deny such
authority.

= The authority given to A to sell the car is special because it involves

a particular transaction. A has no authority to use the car for his
own purposes but he can use it in an emergency as, for example,
to take a member of to his family to a hospital. In this case, his
authority is demanded by necessity.

PARTNERSHIP
CONTRACT OF PARTNERSHIP
- A partnership is a contract under which two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves, or to exercise a profession. (Art. 1767)

A. Requisites for the existence of Partnership

- Once it can be shown that there was an agreement to contribute money, property or
industry to a common fund, and that there was an intent to divide the profits among
themselves, then a partnership exists. (Art. 1769)
1st: Whether there is an agreement to contribute money, property, or industry to a
common fund;
nd
2 : Whether there is an intent of the parties to divide the profits among themselves.

Problem: Under the Civil Code, every partnership with a capital of 3,000 or more,
in money or property, must appear in a public instrument, to be recorded in the
office of the SEC. (Art. 1772); Suppose this requirement has not been complied
with, is the partnership still a juridical person, assuming that all other requisites
are present?
Answer: Yes. Yes. Article 1768 of the Civil Code says that "the partnership has a
juridical personality separate and distinct from that of each of the partners, even in
case of failure to comply with the requirements of Article 1772." [The registration
requirement under Article 1772 of the Civil Code is not intended as a condition for

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the acquisition of juridical personality by the partnership, but merely as a condition

for the issuance of the license to engage in business or trade.]

B. Kinds of Partnership
b.1) as to object: a partnership may be universal or particular.

i) Universal Partnership - a universal partnership may refer to all present property or

to all profits (Art. 1777)
^ Universal partnership of all present property That in which the parties
contribute all property which actually belongs to them to a common
fund, with the intention of dividing them among themselves, as well as
all the profits which they may acquire therewith. (Art. 1778)
^ Universal partnership of profits Comprises all that the partners may
acquire by their industry or work during the existence of the
partnership. (Art. 1780)

ii) Particular Partnership - That which has for its object determinate things, their use
or fruits, or a specific undertaking, or the exercise of a profession or vocation. (Art.
1783)

b.2) as to liability of the partners: may be general or limited.

i) General Partnership - One where all the partners are general partners; they are
liable even with respect to their individual properties, after the assets of the
partnership have been exhausted. [liability may go beyond contribution]

ii) Limited Partnership - One where there is at least one general partner and one
limited partner; a limited partner is one whose liability is limited only up to the
extent of his contribution.

C. Constitution of Partnership
c.1) if General Partnership
GR: may be constituted in any form
EXP: If immovable property or real rights are contributed to the common fund,
partnership must be in a public instrument, to which is attached an inventory of
said property, signed by all of the partners. Form here is necessary for validity.
(Arts. 1771, 1773)
[Note: If it has a capital of 3,000 or more, it must appear in a public
instrument, which shall be recorded in the SEC. However, this is not
necessary for validity. (Art. 1772)]

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c.2) if Limited Partnership

- It is required that the contracting parties, in addition to the formalities prescribed
for the organization of general partnership, must execute a certificate of limited
partnership which must be recorded in the SEC. (Art. 1843)
[note: These formalities must be complied with (not for purpose of validity
but for its nature); otherwise, the partnership is not limited but general.]

c.3) if Partnership by Estoppel

- A partnership by estoppel arises when two persons who are not partners represent
themselves as partners to strangers.
- Similarly, when two persons who are partners, in connivance with a friend who is
not a partner, inform a stranger that the friend is their partner, a partnership by
estoppel may also result to the end that the stranger should not be prejudiced. (Art.
1769 (1) and 1825)

Problem: X, Y, and Z entered into a partnership under the firm name XYZ Ltd.
Upon agreement, X withdrew from the partnership and the partnership was
dissolved. But the remaining partners, Y and Z, did not terminate the business.
Instead of winding up partnership business and liquidating its assets, Y and Z
continued the business in the name of XYZ Ltd. apparently without the
objection of X. The withdrawal of X from the partnership was not published in
the papers. Is X liable for any obligation Y and Z might incur while doing
business in the name of XYZ Ltd. after his withdrawal from the partnership?
Answer: Yes, X can be held liable under the doctrine of estoppel. But as regards the
parties among themselves, only Y and Z are liable. X can be held liable since there
was no proper notification or publication to the public in general. - If X is made to
pay the liability to a third person, he has the right to seek reimbursement from Y and
Z. (Arts. 1837 to 1840)

Problem: A, B and C are general partners in a trading firm. Having contributed

equal amounts to the capital, they agreed on equal distribution of whatever net
profit is realized per fiscal period. After four years of operation, A conveyed his
whole interest in the partnership to D without the knowledge and consent of B
and C. Is the partnership dissolved?
Answer: No. Under the law, the sale by a partner of his whole interest in the
partnership does not itself dissolve the partnership in the absence of an agreement.
(Art. 1813)

management of the partnership and in the distribution of the net profit of

450,000 which was earned after his purchase of A's interest?
Answer: Under the law, D can neither interfere nor participate in the management or
administration of the partnership business affairs. But he may receive the net profits

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to which A would have otherwise been entitled. In this case, D is entitled to 150,000
(1/3 of 450,000). (Art. 1813)

Question: May a husband and wife form a limited partnership?

Answer: Yes. What the law prohibits is for a husband and wife constituting a
universal partnership. -- Since a limited partnership is not a universal partnership, a
husband and wife may therefore validly form one or become a member of it. (CIR v.
Suter, et. al., 27 SCRA 152 [1967])

REAL ESTATE MORTGAGE

(Real estate mortgage = REM)

Is one that is constituted on an immovable property to secure the payment of a loan
Only the owner may mortgage a property, unless authorized with a special power of
attorney.
A REM may be foreclosed judicially or extrajudicially.
- If foreclosed extrajudicially, the foreclosure is authorized under Act 3135, as
amended, then the mortgagee must be authorized by a SPA to sell the mortgage
property at public auction. Therefore, to foreclose extrajudicially, there must be a
SPA attached in the REM agreement under which the mortgagee (creditor) is
authorized to sell the property mortgaged at a public auction if the mortgagor fails
to pay the mortgage indebtedness.

^ Redemption in an extrajudicial foreclosure: the mortgagor has a right to

redeem within 1 year. (2 years, if the mortgagee is a rural bank)

^ if the mortgage is foreclosed judicially, then there is no such right of

redemption; only equity of redemption exists.

^ In relation to mortgage, the right of redemption exists in extra-judicial

foreclosure; while equity of redemption exists only in judicial foreclosure. In
extrajudicial foreclosure, the mortgagor may exercise his right of
redemption within 1 year from the registration of the sale in the Office of
the Registry of Deeds; while in judicial foreclosure, the mortgagor may
exercise his equity of redemption during the period of not less than 90 days
nor more than 120 days from entry of judgment of foreclosure or even after
the foreclosure sale but before the judicial confirmation of the sale. There is
no right of redemption in judicial foreclosure of mortgage, except only if the
mortgagee is the Philippine National Bank or any banking institution. Thus,

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in judicial foreclosure of mortgage where the mortgagee is the Philippine

National Bank or any banking institution, there exist both equity of
redemption and right of redemption. (HUERTA ALBA RESORT V. CA, GR
NO. 128567, SEPTEMBER 1, 2000).

TORTS AND DAMAGES

TORTS
- ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
so pre-existing contractual relation between the parties, is called a quasi-delict

A. Elements of Quasi-Delict
- act or omission;
- damage or injury is caused to another;
- fault or negligence is present;
- there is no pre-existing contractual relations between the parties;
- causal connection between damage done and act/omission.

B. Negligence
b.1) Culpa Contractual
- This is negligence in contracts resulting in their breach.
- This kind of negligence is NOT a source of obligation.
- It merely makes the debtor liable for damages in view of his negligence in the
fulfilment of a pre-existing obligation.
b.2) Culpa Aquiliana or Tort or Quasi-Delict
- This is negligence which by itself is a source of an obligation between the parties
not so related before by a pre-existing contract. It is also called tort or quasi-
delict. (Art. 2176)
b.3) Culpa Criminal
- Negligence which results in the commission of a crime (Arts. 3, 365, RPC)

C. Defenses in Quasi-Delict
c.1) Doctrine of Contributory Negligence
- The theory here is that the plaintiff was also negligent together with the
defendant. To constitute a valid defense, the proximate cause of damage or
injury must be the negligence of the defense.
- Contributory negligence is not an absolutory cause, as it will only reduce the
liability.

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c.2) Concurrent Negligence

- The theory here is that both parties are equally negligent. The courts will leave them
as they are. There can be no recovery.
- Concurrent negligence is an absolutory cause, hence, it will exempt the defendant
from liability.

c.3) Doctrine of Last Clear Chance

- Even though a person's own acts may have placed him in a position of peril and an
injury results, the injured is entitled to recover if the defendant, thru the exercise of
reasonable care might have avoided injurious consequences to the plaintiff.
- The defense is available only in an action by the driver or owner of one vehicle
against the driver or owner of the other vehicle.
Elements of Last Clear Chance:
^ plaintiff was in a position of danger by his own negligence;
^ defendant knew of such position of the plaintiff;
^ defendant had the last clear chance to avoid the accident by the exercise
ordinary care, but failed to exercise such last clear chance; and
^ Accident occurred as proximate cause of such failure to exercise ordinary
care.

c.4) Emergency Rule

- A person is not expected to exercise the same degree of care when he is compelled
to act instinctively under a sudden peril because a person confronted with a sudden
emergency may be left with no time for thought and must make a speedy decision
upon impulse or instinct.
- The rule is applicable only to situations that are sudden and unexpected such as to
deprive a person all opportunity for deliberation. -- But action must still be judge by
the standard of ordinary care of a prudent person. Absence of foreseeability.

c.5) Doctrine of Assumption of Risk

- One who voluntarily assumes the risk of an injury from a known danger cannot
recover in an action for negligence or an injury is incurred.
- Plaintiff's acceptance of risk has erased defendant's duty so that his negligence is
not a legal wrong. This applies to all known danger.

c.6) Other Defenses

- due diligence
- fortuitous event
- damnum absque injuria
- law
D. Persons liable for Quasi-delict

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- Tortfeasor: Whoever by act or omission causes damage to another, there being

no fault, is obliged to pay another for the damage done. (Art. 2176)

E. Persons Vicariously liable

- The obligation imposed under Article 2176 is demandable not only for one's own
act or omission but also for the act or omission of a person for whom one is
responsible. (Art. 2180)
- Vicarious liability or the Law on imputed negligence: a person who is himself not
guilty of negligence is made liable for the conduct of another person.
^ Parents The father, and in case of his death or incapacity, the mother is
responsible for the damage caused by minor children who live
in their company.
^ Guardians are liable for damages caused by the minor or incapacitated
persons who are under their authority and who live in their
company.
^ Employers Employers are responsible for damages caused by their
employees and house helpers; provided that (a) they acting
within the scope of their assigned task; (b) even though the
employer is not engaged in any business or industry.
Note: Under the RPC, the employer's subsidiary liability attaches
only when the employer is engaged in business or industry.

Problem: A Honda Civic driven by Miko and owned by Nova,

and a Nissan Sentra driven by its owner, Inah, collided. As a
result, Inah had a concussion. Inah then brought an action
for damages against Miko and Nova. There is no doubt that
the collision was due to Miko's negligence. Is Nova, who was
in the vehicle at the time of the accident, solidarily liable with
her driver?
Answer: Yes. The rule in this jurisdiction is that in motor vehicle
mishaps, the owner is solidarily liable with his driver if the owner
was in the vehicle at the time of the accident and could have, by
the use of due diligence, prevented the mishap. (Caedo v. Yu Khe
Tal, 26 SCRA 410 [1968]). Moreover, it is also a rule that for the
owner of the automobile to be liable, the act complained of must
be continued in the presence of the owner for such a length of
time that the owner, by his acquiescence, makes his driver's act
his own.

Question: what is the concept of res ipsa loquitor?

Answer: the thing speaks for itself. As a rule of evidence, the
doctrine of res ipsa loquitor recognizes that prima facie
negligence
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may be established without direct proof and furnishes a substitute

for specific proof of negligence. (Layugan v. IAC, 169 SCRA 363
[1988]). -- As a rule of evidence, the doctrine of res ipsa loquitor
recognizes that prima facie negligence may be established without
direct proof and furnishes a substitute for specific proof of
negligence. (Layugan v. IAC, 169 SCRA 363 [1988])
While negligence is not ordinary presumed, but as an exception
under the doctrine of res ipsa loquitor (the thing or transaction
speaks for itself) the circumstances accompanying an injury may be
such as to raise a presumption, or at least permit an inference of
negligence on the part of the defendant, or some other person who
is charged with negligence (D.M. Consunji v. Court of Appeals, 357
SCRA 249 [2001])

-end-

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