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LEGAL PERSONALITY, CAPACITY TO ACT CAPACITY TO ACT

LEGAL PERSONALITY “Capacity to act” is the power to do acts with legal
effect. As distinguish to “juridical capacity”, which is
the fitness to be the subject of legal relations (Art.37,
Personal Status Laws NCC).
General Rule: Nationality Principle - Laws relating CAPACITY TO ACT JURIDICAL CAPACITY
to family rights and duties, or to the status, condition,
Power to do acts with Fitness to be the subject
and legal capacity of persons are binding upon
legal effect of legal relations
citizens of the Philippines, although living abroad.
(Article 15, NCC) Active Passive
On the matter of status of persons, condition of Merely Acquired Inherent
persons, the legal capacity of persons, and his
Lost through death and Lost only through death
family rights and duties, the applicable law is the
other causes
national law of the person concerned.
Cannot exist without Can exist without capacity
juridical capacity to act
Exceptions:
Can be restricted, Cannot be limited or
1. In a mixed marriage (between an alien and a modified, or limited restricted
Philippine national), a decree of absolute divorce
obtained is recognized as valid even insofar as the
Philippine national is concerned so long as the
divorce decree is valid according to the national law
of the foreigner spouse and it capacitated the latter MARITAL RELATIONS
to remarry, regardless of who may have obtained
the divorce decree (Republic v. Manalo, 862 SCRA
MARRIAGE
580, 2018).
Requisites:
2. Domiciliary theory – the status and capacity of a
person is determined by the law of his domicile. Essential Requisites Formal Requisites:
NOTE: The basis for determining the personal law (a) Legal capacity- (a) Authority of the
of an individual is either the Domiciliary Rule must be male or solemnizing officer;
(Domicile) or Nationality Rule (Citizenship). female of at least 18 (b) Valid marriage
years of age and not license; and
under any of the
PERSONS (c) Marriage
impediments
NATURAL PERSONS ceremony where the
mentioned in Art. 37 which takes place with
BAR 2008 and Art. 38 of the the appearance of the
Family Code; and contracting parties before
The Civil Code Provides that birth determines
personality, but the conceived child shall be (b) Consent – freely the solemnizing officer
considered born for all purposes that are favorable given in the and their personal
to it, provided it is born later with the conditions declaration that they take
presence of
specified in Article 41, NCC (Art. 40, NCC). each other as husband
solemnizing officer
and wife in the presence
(Art. 2 Family of not less than two
Code) witnesses of legal age.
Conditions for the Provisional Personality of a
Conceived Child (Art. 41, NCC):
1. The child must be alive for at least 24 hours from Absence of any of the formal or essential
complete delivery, if it had an intra-uterine life of requisites:
less than seven months; or
General Rule: Marriage is void ab initio (Art. 4, FC).
2. The child must be alive even only for a few hours Exception: Where either or both were contracted
from complete delivery, if it had an intra-uterine with either or both parties believing in good faith that
life of at least seven months. the solemnizing officer had the legal authority to do
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so (Art. 35 [2] FC).
Defect in any of the essential requisites -
Marriage is voidable (Article 45, NCC).
Irregularity in the formal requisites:
General Rule: Will not affect the validity of marriage.
Exception: The marriage is voidable where
contracting party is 18 years old but below 21
without the consent of the parents.
Rule on Marriage License:
General Rule: If the marriage is celebrated without
a marriage license, the same is void.
Exception: Marriages of Exceptional Character
which are Exempt from Marriage License
Requirement:
1) Either or both of the contracting parties are at the
point of death;
2) Marriages in remote places - no means of
transportation to enable the party to personally
appear before the local civil registrar;
3) Marriages among Muslims or members of ethnic
cultural communities. Provided in accordance with
their customs, rites or practices;
4) Marriages of a man and a woman cohabiting for
at least 5 years and without legal impediment to
marry each other (Articles 27-34); and
5) If the marriage is celebrated abroad and valid
there as such because no license is required in the
place of celebration.
Marriages Celebrated Abroad
All marriages solemnized outside the Philippines, in
accordance with the laws in force in the country
where they were solemnized, and valid there as
such, shall also be valid in this country, except those
prohibited under Articles 35 (1), (4), (5) and (6), 36,
37 and 38 (Art. 26, FC).
Foreign Divorces that are Recognized in the
Philippines
1. Marriage between two aliens provided valid in
their national law even celebrated in the
Philippines.
2. Marriage between Filipino citizens, but later
on, one of them becomes naturalized as
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foreign citizen and obtains a divorce decree
(Republic v. Orbecido III).
3. In a mixed marriage, between Filipino and
Alien, provided:
(a) That there is a valid marriage celebrated;
and
(b) That a valid divorce is obtained abroad by
the alien spouse capacitating him or her
to remarry (Art. 26 (2), FC).
NOTE: Art 26(2) of the Family Code, applies when
a Filipino Citizen, who initiated a divorce proceeding
abroad and obtained a favorable judgement against
his/her alien spouse. The law only requires that
there be a divorce decree validly obtained abroad.
The letter of the law does not demand that the alien
spouse should be the one who initiated the
proceeding wherein the divorce decree was granted.
However, as a condition for the Filipino Spouse to
have the capacity to remarry, the divorce decree and
the National Law of the Foreigner Spouse must first
be proven as a fact (Republic v. Manalo, G.R.
221029, April 24, 2018).
Void Marriages
Under Article 35 of the FC; Void from the
Beginning
(1) Those contracted by any party below eighteen
years of age even with the consent of parents or
guardians;
(2) Those solemnized by any person not legally
authorized to perform marriages unless such
marriages were contracted with either or both
parties believing in good faith that the solemnizing
officer had the legal authority to do so;
(3) Those solemnized without license, except those
covered the preceding Chapter;
(4) Those bigamous or polygamous marriages not
failing under Article 41;
(5) Those contracted through mistake of one
contracting party as to the identity of the other; and
(6) Those subsequent marriages that are void
under Article 53.
NOTE: If the first marriage is void and a party to that
marriage subsequently remarries without obtaining
a judicial declaration of nullity of the first marriage,
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the subsequent marriage is likewise void. It is void
not because it is bigamous but because it failed to
comply with the requisites under Art. 40 in relation to
Articles 52 and 53 of the Family Code (Valdez v.
RTC, G.R. No. 122749, July 31, 1996).
Under Article 37 of the FC; Incestuous
Marriages
(1) Between ascendants and descendants of any
degree; and
(2) Between brothers and sisters, whether of the full
or half-blood.
NOTE: These marriages are void from the
beginning, whether relationship between the parties
be legitimate or illegitimate.
Under Article 38 of the FC, by Reason of Public
Policy; Void From the Beginning
(1) Between collateral blood relatives whether
legitimate or illegitimate, up to the fourth civil
degree;
(2) Between step-parents and step-children;
(3) Between parents-in-law and children-in-law;
(4) Between the adopting parent and the adopted
child;
(5) Between the surviving spouse of the adopting
parent and the adopted child;
(6) Between the surviving spouse of the adopted
child and the adopter;
(7) Between an adopted child and a legitimate child
of the adopter;
(8) Between adopted children of the same adopter;
and
(9) Between parties where one, with the intention
to marry the other, killed that other person's
spouse, or his or her own spouse.
Other Void Marriages
(1) A marriage contracted by any party who, at the
time of the celebration, was psychologically
incapacitated to comply with the essential marital
obligations of marriage, shall likewise be void even
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if such incapacity becomes manifest only after its
solemnization (Art. 36 FC).
(2) Failure to secure judicial declaration of previous
marriage before contracting a subsequent marriage
(Art. 40 FC);
(3) Subsequent marriage under Article 41 where
both spouses acted in bad faith.
NOTE: In void marriages regardless of the cause
thereof, the property relations of the parties during
the period of cohabitation are governed by Art. 147
or 148 of the FC.
Exception: If the marriages is declared void by
reason of non-compliance with Art. 40 of the FC, the
applicable property regime is ACP, CPG, or
Complete Separation of Property, as the case may
be.
Psychological Incapacity
Jurisprudential Guidelines to Establish
Psychological Incapacity
1. The burden of proof belongs to the Plaintiff
2. The Root cause of PI must be:
a. medically or clinically identified
b. alleged in the complaint
c. sufficiently proven by experts and
d. clearly explained in the decision
3. The incapacity must be proven to be existing at
"the time of the celebration" of the marriage;
4. Such incapacity must also be shown to be
medically or clinically permanent or incurable;
5. Such illness must be grave enough to bring
about the disability of the party to assume the
essential obligations of marriage;
6. Marital obligations must be those embraced by
Articles 68 up to 71 and Articles 220, 221 and
225 of the Family Code;
7. Interpretations given by the National Appellate
Matrimonial Tribunal of the Catholic Church in
the Philippines, while not controlling or
decisive, should be given great respect by our
courts;
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8. The trial court must order the prosecuting Consent nce of the injured party
attorney or fiscal and the Solicitor General to ground after the
appear as counsel for the State (Republic v. ground
disappears
Molina).
Physical Only the Within 5
incapabil injured years from
NOTE: Senseless and protracted refusal of one of ity party celebration
the parties to fulfill the marital obligation is of marriage Cannot be
equivalent to psychological incapacity (Chi Ming ratified
STD Only the Within 5
Tsoi v. CA).
(Serious injured years from
Personal medical/ psychological examination of and party celebration
person to be declared psychologically incapacitated
Incurable of marriage
is not required for declaration of psychological
incapacity, if the totality of evidence presented is )
enough to sustain a finding of psychological
incapacity (Marcos v. Marcos).
LEGAL SEPARATION

Voidable Marriages
Grounds
Grounds Who may Prescription Ratification
file (a) Repeated physical violence or grossly abusive
conduct directed against the petitioner, a common
Lack of Parents/ Any time child, or a child of the petitioner;
parental guardians before the Free
consent party (b) Physical violence or moral pressure to compel
cohabitation the petitioner to change religious or political
reaches 21 after affiliation;
No- Within 5 attaining 21
years of age (c) Attempt of respondent to corrupt or induce the
consent years
petitioner, a common child, or a child of the
party before
petitioner, to engage in prostitution, or connivance in
reaching 21
such corruption or inducement;
Insanity Sane Anytime
(d) Final judgment sentencing the respondent to
spouse
imprisonment of more than six years, even if
without
Free pardoned;
knowledg
e of cohabitation (e) Drug addiction or habitual alcoholism of the
insanity by the respondent;
insane
Insane During lucid (f) Lesbianism or homosexuality of the respondent;
spouse after
spouse interval coming to (g) Contracting by the respondent of a subsequent
Relative/g Anytime reason bigamous marriage, whether in the Philippines or
uardian during the abroad;
lifetime of (h) Sexual infidelity or perversion;
spouses
(i) Attempt by the respondent against the life of the
Fraud Victim of Within 5 Free petitioner; or
fraud years from cohabitation
discovery by the (j) Abandonment of petitioner by respondent without
injured party justifiable cause for more than one year (Article 55,
after gaining FC).
full
knowledge
Procedure
of fraud
Only the husband or wife may file for a petition for
Vitiation Only the Within 5 Free
legal separation.
of victim years from cohabitation
disappeara by the Cooling-off period- the case shall not be tried on the
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merits within six (6) months since the filing of the
petition. Cooling-off period shall NOT be applicable
when the petition constitutes violence as specified
under R.A. No. 9262 (Sec. 19, R.A. No. 9262).
The cooling-off period does not prevent the court
from hearing a motion for preliminary injunction to
prevent the respondent from managing the
exclusive property of the petitioner. What is
prohibited is trial on the merits of the petition.
(Rabuya, 2021).
Effects of Decree of Legal Separation
(a) Spouses shall be entitled to live separately
from each other;
(b) The absolute community or the conjugal
partnership of gains shall be terminated and
liquidated;
(c) The offended spouse shall be disqualified to
inherit thru intestate succession;
(d) The obligation of mutual support between
spouses ceases;
(e) Custody of minor children is awarded to the
innocent spouse;
(f) Donations propter nuptias made by innocent
spouse in favor of offending spouse may be
revoked by the former; and
(g) Innocent spouse may revoke the designation
offending spouse as beneficiary in the insurance
policy.
Reconciliation
If the spouses reconciled, a joint manifestation of the
spouse under oath, and signed by them, shall be
filed before the court. The court shall issue a Decree
of Reconciliation, which has the effect of setting
aside either the legal separation or the decree of
legal separation.
PROPERTY RELATIONS OF THE SPOUSES
Marriage Settlements
Requisites:
(a) Must be made before the celebration of
marriage;
(b) It must be in writing;
(c) Signed by the parties; and
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(d) Must be registered to be enforceable against
3rd persons.
Modification of Marriage Settlement:
(a) Must be executed before the celebration of
marriage;
(b) Must be in writing; and
(c) Signed by the parties (Article 77, FC).
NOTE: A marriage settlement need not be
notarized. The law merely requires it to be in writing,
signed by the parties, and executed before the
celebration of marriage (Albano 2013).
Donations by Reason of Marriage
Requisites of Donations Propter Nuptias
(a) Must be made before the celebration of the
marriage;
(b) Must be made in consideration of marriage;
and
(c) Must be in favor of one or both of the future
spouses (Art. 82, FC).
Inclusion of present property
Regime of ACP Regime other than
ACP
No limitation on the Cannot donate to each
extent of donation other more than (1/5) of
their present property.
-The excess shall be
void (Article 84, FC).
Void Donations by the Spouses
A donation by reason of marriage may be revoked
by the donor in the following cases:
(a) If the marriage is not celebrated or judicially
declared void ab initio except donations made in
the marriage settlements, which shall be governed
by Article 81;
(b) When the marriage takes place without the
consent of the parents or guardian, as required by
law;
(c) When the marriage is annulled, and the donee
acted in bad faith;
(d) Upon legal separation, the donee being the
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guilty spouse; spouse shall belong all earnings from his or her
profession, business or industry and all fruits,
(e) If it is with a resolutory condition and the
condition is complied with; and natural, industrial or civil, due or received during the
marriage from his or her separate property (Article
(f) When the donee has committed an act of 145, FC).
ingratitude as specified by the provisions of the
Civil Code on donations in general (Article 86, FC). When governing:
(a) When the future spouses adopt it in a
marriage settlement;
Absolute Community of Property
(b) Upon dissolution of ACP or CPG;
Commencement: The absolute community of
property between spouses shall commence at the (c) Failure to comply of the surviving spouse
precise moment that the marriage is with the requirements under Article 103 of
celebrated. Any stipulation to the contrary shall be FC; and
void (Article 88, FC).
(d) By judicial order of Judicial separation of
property.
Excluded from the community property
Prior to Marriage During the Marriage Property Regime of Unions Without Marriage
(a) Those excluded by (a) Those acquired thru The applicable property regime in a void marriage is
virtue of marriage gratuitous title, except not ACP or CPG. In void marriages, regardless of
settlement; expressly provided by the cause thereof, the property relations of the
the grantor to form part parties during the cohabitation is governed by the
(b) Those for personal
of ACP; provisions of Article 147 or Article 148 of the Family
and exclusive use (but
jewelries are included (b) Those for personal Code, as the case may be (Rabuya, 2017).
in the ACP); and and exclusive use (but Applicability:
jewelries are included
(c) Those acquired by Article 147 of the FC applies when a man and a
in the ACP)
either spouse who has woman, suffering no legal impediment to marry each
legitimate descendants other, so exclusively live together as husband and
by a former marriage, wife under void marriage or without the benefit of
(Rabuya, 2021)
including fruits and marriage (Rabuya 2017).
income (Rabuya,
Article 148 of the FC applies to the following cases
2021).
of cohabitation:
(a) when a man and a woman who
Conjugal Partnership of Gains are not capacitated to marry each other live
Commencement: A Conjugal Partnership of Gains exclusively with each other as husband and
shall commence at the precise moment that the wife without the benefit of marriage or under
marriage is celebrated. Any stipulation to the a void marriage; or
contrary, express or implied, shall be void (Rabuya, (b) when the parties do not live exclusively with
2021).
each other as husband and wife although
When Governing: capacitated to marry each other.
(a) If the marriage is celebrated under the Civil
Code; or
Article 147 Article 148
(b) If CPG regime is provided for in the
marriage settlement. Wages and Owned by the Wages and
Salaries parties in equal salaries
shares and will earned by
Regime of Separation of Property be divided each party
equally belong to him
Each spouse shall own, dispose of, possess, between them, or her
administer and enjoy his or her own separate estate, even if only exclusively
without need of the consent of the other. To each one party
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earned the PROPERTY

wages and the
other did not
contribute Concept of Property
thereto. Properties are things which are capable of satisfying
Property Properties Only the human wants and are susceptible of appropriation.
Acquired acquired by properties
during both parties acquired by
Cohabitation during their both parties Requisites of Property:
union through through their 1. Utility, or the capacity to satisfy human wants;
their work and actual joint
industry are contributions 2. Individuality and substance; and
presumed co- of money, 3. Susceptibility of being appropriated (Rabuya,
owned by the property and 2021).
parties. industry shall
be owned by
them in Classification of Property
Efforts in the common in
care and proportion to Immovable Property
maintenance their Buildings are immovable by incorporation. Hence
of the family respective once a house is demolished, it ceases to exist as
and household contributions. such and hence its character as an immovable
are regarded likewise ceases (Rabuya, 2021).
as
contributions Machinery may be considered as immovable
to the when:
acquisition of (a) If it placed by a tenant, except when the tenant
common acts as an agent of the owner;
property.
(b) Docks and structures intended by their nature
and object to remain at a fixed place on river, lake,
ABSENCE or coast;
Presumption of death (c) If it is intended to be actually, directly, and
exclusively used to meet the needs of particular
Rule: industry or activity (Rabuya, 2021).
1. Article 41 of the FC is the applicable law if the
presumption of death is only for the purpose of
contracting a valid subsequent marriage. Movable Property
2. If the presumption of death is for purposes other In general, all things which can be transported from
than remarriage, the applicable law is either Article place to place without impairment of the real
390 or 391 of the Civil Code. property to which they are fixed and are not included
in the enumeration in Article 415 are classified as
Judicial Declaration of Presumptive Death personal or movable property (Rabuya, 2021).
Courts are without any authority to take cognizance
of a petition that only seeks to have a person
declared presumptively dead under the Civil Code. OWNERSHIP
Such a petition is not authorized by law. (Tadeo- Bundle of Rights
Matias v. Republic, G.R. No. 230751, April 25, 2018)
(a) Right to enjoy – an owner must not abuse his
The proper remedy for a judicial declaration of right;
presumptive death obtained by extrinsic fraud is an
action to annul the judgment. An affidavit of (b) Right to recover – Must resort to judicial process;
reappearance is not the proper remedy when the (c) Right to exclude other from the property – every
person declared presumptively dead has never owner has the right to enclose or fence his land or
been absent. (Santos v. Santos, G.R. No. 187061, tenement;
October 8, 2014, J. Leonen)
(d) Right to surface, sub-surface and airship – the
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owner of land has a right everything underneath and
the airspace above it;
(e) Right to hidden treasure; and
(f) Right of accession.
Actions to recover ownership and possession of
real property:
(a) Accion reinvindicatoria – is an action whereby
the plaintiff alleges ownership over a parcel of
land and seeks recovery of its full possession.
(b) Accion publiciana – a plenary action to recover
the right of possession, and the issue is which
party has the better right of possession.
(c) Accion Interdictal – A summary action to recover
physical or material possession of property.
Limitations on Right of Ownership
1. Pursuant to the exercise of the inherent powers
of the State;
2. Limitations imposed by the owner himself; and
3. Limitations arising from conflicts with other
rights (Rabuya, 2021).
MODES OF ACQUIRING OWNERSHIP
Under the CC, what are the modes of acquiring
ownership and other real rights?
1. Occupation;
2. Intellectual creation;
3. Prescription;
4. Law;
5. Donation;
6. Testate and intestate succession; and
7. In consequence of certain contracts, tradition
(Art. 712, NCC).
Occupation
Occupation is a mode of acquiring ownership by the
seizure of corporeal things which do not have an
owner with the intention of acquiring them and in
accordance with the rules prescribed by law (3
Sanchez Roman 210).
Requisites:
1. There must be seizure of a thing;
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2. Which must be a corporeal personal property;
3. Which must be susceptible of appropriation by
nature;
4. The thing must be without an owner; and
5. There must be an intention to acquire ownership.
BAR 2007
Q: Distinguish Occupation from Possession
A: Occupation is a mode of acquiring ownership
which involves some form of holding (Arts. 712 &
713, NCC). Possession is the holding of a thing or
the enjoyment of a right (Art. 532, NCC). Occupation
can take place only with respect to property without
an owner; while possession can refer to all kinds of
property, whether with or without an owner.
Occupation in itself, when proper, confers ownership;
but possession does not by itself give rise to
ownership.
Donation
Donation is an act of pure liberality whereby a
person disposes gratuitously of a thing or right in
favor of another who accepts it (Art. 725, NCC).
Requisites of Donation
1. Donor must have capacity to make the donation;
2. He must have donative intent;
3. There must be delivery in certain cases; and
4. Donee must accept or consent to the donation
during the lifetime of the donor and of the donee in
case of donation inter vivos (Art. 746, NCC);
whereas in case of donation mortis causa,
acceptance is made after donor’s death because
they partake of a will (Art. 728, NCC).
Classifications of Donation
1. Donation inter vivos - When the donation takes
effect during the donor’s lifetime or independently of
the donor’s death or when the full or naked
ownership of the donated properties passes to the
donee during the donor’s lifetime, not by reason of
his death but because of the deed of donation.
2. Donation mortis causa - When the donation takes
effect only upon the donor’s death or when the full
or naked ownership of the donated properties will
pass to the donee only because of the donor’s
death.
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What are the formalities required for donation of
real and personal properties?
1. Of Movable property:
a. With simultaneous delivery of property donated:
• For ₱ 5,000 or less - may be oral/written
• For more than ₱ 5,000 – written in public or
private document
b. Without simultaneous delivery:
The donation and acceptance must be written in a
public or private instrument (Statute of Frauds),
regardless of value. Otherwise, donation is
unenforceable
2. Of Immovable property:
a. Must be in a public instrument specifying the
property donated and the burdens assumed by the
done.
b. Acceptance may be made in either the same
instrument or in another public instrument, notified
to the donor in authentic form, and noted in both
deeds. Otherwise, donation is void.
BAR 1991
Q: In case of non-fulfillment of the condition or
charge imposed by the donor upon the donee,
what is the period of prescription for bringing
the action for revocation of the donation? Is the
action transmissible?
A: The action shall prescribe after four (4) years
from the non-compliance with the condition. It may
be transmitted to the heirs of the donor, and may be
exercised against the donee's heirs (Art. 764, NCC).
CO-OWNERSHIP
Characteristics of co-ownership
1. There must be plurality of owners;
2. The object of ownership must be a thing or right
which is undivided; and
3. Each co-owner’s right must be limited only to his
ideal share of the physical whole (De Leon,
2015).
Other Characteristics are:
1. There is no mutual representation by the co-
owners; and
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2. It exists for the common enjoyment of the co-
owners;
3. It has no distinct legal personality; and
4. It is governed first of all by the contract of the
parties (De Leon, 2015).
Sources of co-ownership
1. By contract, such as when two persons shared
in paying the purchase price of parcel of land
with the agreement to divide the land equally
between them (De Leon, 2015);
2. By law, such as in easement of party walls
absolute community of property between
spouses (De Leon, 2015);
3. By succession;
4. By testamentary disposition or donation inter
vivos;
5. By fortuitous event;
6. By occupancy.
Nature of right before partition
Before a property owned in common is actually
partitioned, all that the co-owner has is an ideal or
abstract quota or proportionate share in the entire
property. A vendee with knowledge that the subject
property was, at one time, co-owned by the vendor
and other persons, relying on the vendor’s word
alone that he was the sole owner of the property,
cannot rightfully claim that he is a buyer in good
faith (De Leon, 2015).
Note: A co-owner who redeems the property in its
entirety does not make him the owner of all of it. The
property remains in a condition of co-ownership as
the redemption does not provide for a mode of
terminating a co-ownership (De Leon, 2015).
ACCESSION
The right of the owner of a thing to become the
owner of everything (Rabuya, 2021).
Hidden Treasure
Requisites:
1. The deposit of money, jewelry or other
precious objects must be hidden or
unknown; and
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2. The lawful ownership of which must not
appear (Rabuya, 2021).
Rule:
1. If the finder is the owner of the property the
treasure is all his;
2. If the finder is a trespasser, the treasure solely
belongs to the owner of the property where the
treasure is found;
3. If the finder is a third person who is not a
trespasser, “by chance”, finder ½ and ½ to the
owner of the land (Rabuya, 2021).
Rules of Accession
To the owner belongs:
a. Natural fruits;
b. Industrial fruits; and
c. Civil Fruits.
Exceptions - The owner is not entitled to the fruits:
a. In usufruct;
b. In lease of rural lands;
c. In antichresis;
d. In case of possessor in good faith; and
e. Fruits naturally falling upon adjacent land
(Rabuya, 2021).
Builders in good faith
Article 448 of the Civil Code applies when the builder
believes that he is the owner of the land or that by
some title he has the right to build thereon, or that,
at least, he has a claim of title thereto (Communities
Cagayan v. Nanol, G.R. No. 176791, November 12,
2012).
NOTE: Good faith is always presumed, and upon
him who alleges bad faith on the part of the
possessor rests the burden of proof (Art. 527, NCC).
However, a lessee is not a builder, planter, or sower
in good faith.
Exception: Article 448 of the Civil Code applies in
cases where the builders knew that they were not
the owners of the land (e.g., lessee) but they
constructed improvements on the land of another
with the consent of the owner. (Sps. Aquino vs. Sps.
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Aguilar, G.R. No. 182754; June 29, 2015)
Exception to the exception: When the owner
prohibits the lessee from building their own structure
on a portion of the subject property. (Sps. Aquino vs.
Sps. Aguilar, supra)
The options of the landowner
Article 448 of the Civil Code provides that if a person
builds on another's land in good faith, the land owner
may either:
1. appropriate the works as his own after paying
indemnity; or
2. oblige the builder to pay the price of the land.
NOTE: The option is to sell the land, not to buy it,
and it is the landowner's choice (Sps. Benitez v. CA,
G.R. No. 1048282, 66 SCRA 242).
EASEMENTS
An easement or servitude is an encumbrance
imposed upon an immovable for the benefit of
another immovable belonging to a different owner
(Art. 613, NCC).
Characteristics:
1. Inherence or intransmissibility:
a. It is inseparable from the estate to which
it actively or passively belongs,
therefore, it cannot be alienated or
mortgaged separately from the estate to
which it forms part
2. Indivisible
a. Even if the servient and dominant
estates are divided between two or
more persons, the easement or the
servitude continues to attach to the
estates originally affected.
3. The right is always enjoyed over an immovable
property
4. It is a right which is enjoyed over another’s
property.
Parties to an Easement
1. Dominant estate – refers to the immovable for
which the easement was established; and
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2. Servient estate – the estate which provides the
service or benefit.
Kinds of easements:
As to recipient of benefit:
1. Real easement - easement is for the benefit of
another immovable belonging to a different
owner;
2. Personal easement – easement is for the benefit
of a community, or of one or more persons to
whom the encumbered estate does not belong.
As to source:
1. Legal or compulsory easement - those
constituted by law which has for its object either
public use or the interest of private persons.
NOTE: Mere convenience of the dominant estate is
not the basis for setting up a compulsory easement.
In compulsory easement of right of way, if the
owner's needs may be satisfied without imposing the
easement, as there already exists in his property an
adequate outlet to public roads, even if the same is
more inconvenient for him/her (i.e. the need to
construct a bridge over the irrigation canal before
she can reach the public road), the right of way
cannot be imposed over the property of another, as
mere convenience of the dominant estate cannot be
the basis for granting compulsory easement. (Reyes
vs. Valentin et.al, G.R. No. 194488, Feb. 11, 2015)
2. Voluntary easement - those constituted by will
or agreement of the parties
Modes of acquiring easements
Continuous and apparent easements are acquired
either by virtue of a title or by prescription of ten
years (Art. 620, CC) while continuous non-apparent
easements and discontinuous easements, whether
apparent or non-apparent, can only be acquired by
virtue of a title (Art. 622, NCC).
Rights of the dominant owner
1. Make on the servient estate all works necessary
for the use and preservation of the servitude
(Art. 627, NCC);
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2. Renounce the easement if he desires to be
exempt from contributing necessary expenses
(Art. 628, NCC);
3. Exercise all rights necessary for the use of the
easement (Art. 625, NCC).
Obligations of the dominant owner
1. He cannot exercise the easement in any other
manner than that previously established (Art.
626, NCC)
2. He cannot alter the easement or render it more
burdensome (Art. 627(1), NCC)
3. He shall notify the servient owner of works
necessary for the use and preservation of the
servitude (Art. 627(2), NCC)
4. He must choose the most convenient time and
manner of making the necessary works as to
cause the least inconvenience to the servient
owner; and
5. If there are several dominant estates, he must
contribute to the necessary expenses in
proportion to the benefits derived from the works
(Art. 628(1), NCC)
6. He can may make, at his own expense, on the
servient estate, any works necessary for the use
of servitude, provided it will not alter or make it
more burdensome (Art. 627(1), NCC)
Rights of the servient owner
1. Retain the ownership of the portion of the estate
on which easement is imposed;
2. Make use of the easement unless there is an
agreement to the contrary (Art. 628(2), NCC)
3. Change the place or manner of the use of the
easement, provided it be equally convenient
(Art. 629(2), NCC)
Obligations or limitations imposed on the
servient owner:
1. He cannot impair the use of the easement.
Exceptions:
a. When the easement has become very
inconvenient to the said servient owner; and
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b. If it prevents him from making any important
works, repairs, or improvements thereon.
(Art. 629, NCC)
2. He must contribute to the necessary expenses in
case he uses the easement, unless otherwise
agreed upon (Art. 628(2), NCC)
NOTE: Convenience of the dominant estate’s owner
is not the basis of granting compulsory easement.
An owner may not exercise some of his or her
property rights for the benefit of the person who was
granted the easement of right of way.
The owner of the servient estate has an obligation
not to obstruct or hinder the free passage over the
servient estate of any person entitled to make us of
it.
Modes of extinguishment
In addition to the causes of extinguishment
enumerated in Article 631 of the NCC, are the
following:
1. Annulment or rescission of title constituting
easement;
2. Termination of the right of the grantor; and
3. Abandonment of the servient estate; and
4. Eminent domain (4 Manresa, 5th ed., 590).
NUISANCE
A nuisance is any act, omission, establishment,
business, condition of property, or anything else
which:
1. Injures or endangers the health or safety of
others;
2. Annoys or offends the senses;
3. Shocks, defies or disregards decency or
morality;
4. Obstructs or interferes with the free passage of
any public highway or street, or any body of
water; or
5. Hinders or impairs the use of property (Art. 694,
NCC).
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Kinds of Nuisance
1. Nuisance per se (nuisance at law)- recognized
as a nuisance under any and all circumstances,
because it constitutes a direct menace to public
health or safety, and, for that reason, may be
abated summarily under the undefined law of
necessity.
Test to determine nuisance per se -
Whether the nuisance has become
dangerous at all times and under all
circumstances to life, health, or property.
2. Nuisance per accidens (nuisance in fact) -
depends upon certain conditions and
circumstances, and its existence being a
question of fact, it cannot be abated without due
hearing thereon in a tribunal authorized to
decide whether such a thing in law constitutes a
nuisance (Knights of Rizal v. DMCI Homes, Inc.
G.R. No. 213948, April 25, 2017).
Who are Liable:
1. Person responsible for creating the nuisance;
2. Every successive owner or possessor of property
who fails or refuses to abate a nuisance in that
property started by a former owner or possessor is
liable therefor in the same manner as the one who
created it. (Art. 696, NCC)
3. A private person or public official shall be liable for
damages if:
a. In an extrajudicial abatement;
b. He causes unnecessary injury; or
c. An alleged nuisance is later declared by
the courts to be not a real nuisance (Art.
707, NCC)
Judgment with Abatement as a remedy
The remedies against a public nuisance are:
1. A prosecution under the Penal Code or any local
ordinance; or
2. A civil action.
If a civil action is brought by reason of the
maintenance of a public nuisance, such action shall
be commenced by the city or municipal mayor. (Art.
701, NCC)
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Extrajudicial Abatement
BAR 1970
Q: What requisites must concur in order that a
private person may summarily abate a
nuisance?
A: Whether public or private, the following
requisites must concur in order that a private
person may summarily abate a nuisance:
1. It must be specially injurious to him;
2. No breach of the peace or unnecessary injury
must be committed;
3. Demand must first be made upon the owner or
possessor to abate the nuisance;
4. The demand has been rejected;
5. The abatement is approved by the district health
officer and executed with the assistance of the
local police; and
6. The value of the destruction does not exceed ₱
3,000 (Arts. 704 & 706, CC).
NOTE: An extra-judicial abatement can only be
applied for if what is abated is a nuisance per se.
No prescription - Lapse of time cannot legalize any
nuisance, whether public or private (Art. 698, NCC)
Criminal prosecution – Only a public nuisance
may be the subject of a criminal prosecution under
the Revised Penal Code or any local ordinance (Art.
699, NCC)
Right to damages
The abatement of a nuisance does not preclude the
right of any person injured to recover damages for
its past existence (Art. 697, NCC).
Defenses to action
A person whose property is seized or destroyed as
a nuisance may resort to the courts to determine
whether or not it was in fact a nuisance.
1. An action for replevin;
2. To enjoin the sale or destruction of the property;
3. An action for the proceeds of its sale and
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damages if it has been sold; or
4. To enjoin private parties from proceeding to abate
a supposed nuisance.
Who may sue on private nuisance?
Any person injured by a private nuisance may abate
it by removing, or if necessary, by destroying the
thing which constitutes the nuisance, without
committing a breach of the peace or doing
unnecessary injury.
NOTE: It is indispensable that the procedure for
extrajudicial abatement of a public nuisance by a
private person be followed (Article 706, NCC)
OBLIGATIONS
A. GENERAL PROVISIONS
I. DEFINITION
An obligation is a juridical necessity to give, to do, or
not to do (Art. 1156, NCC).
II. ESSENTIAL ELEMENTS OF AN OBLIGATION
The obligation is constituted upon the concurrence
of the essential elements thereof:
1. Vinculum juris or juridical tie - which is the
efficient cause established by the various
sources of obligations (law, contracts, quasi-
contracts, delicts and quasi-delicts);
2. Object - which is the prestation or conduct,
required to be observed (to give, to do or not to
do); and
3. Subject-persons - who, viewed from the
demandability of the obligation, are the “Active”
(obligee) and the “Passive” (obligor) subjects
(Wellex v. U-Land, G.R. No. 167519, January
14, 2015).
To be valid, the object/prestation must be:
1. Licit or lawful;
2. Possible, physically, & judicially;
3. Determinate or determinable; and
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4. Pecuniary value or possible equivalent in
money.
III. SOURCES OF OBLIGATIONS
1. Law;
2. Contracts;
3. Quasi-Contracts;
4. Acts or omissions punished by law; and
5. Quasi-delicts (Art. 1157, NCC).
NOTE: The list is exclusive (Orden v. Nacoco, G.R.
No. L-37756, June 30, 1952).
B. NATURE AND EFFECT OBLIGATIONS
I. KINDS OF PRESTATION
1. Obligation to give - is a prestation which consists
in the delivery of a movable or an immovable
thing in order to create a real right, or for the use
of the recipient, or for its simple possession, or
in order to return it to its owner.
2. Obligation to do - An obligation "to do" includes
all kinds of work or service (Philippine National
Construction Corp., v. CA, G.R. No. 115896,
May 5, 1997).
3. Obligation not to do - An obligation "not to do"
consists of refraining from doing certain acts.
II. TRANSMISSIBILITY OF OBLIGATIONS
General Rule:
1. All rights acquired by virtue of an obligation are
transmissible (Art. 1178, NCC);
2. Contracts take effect only between the parties,
their assigns and heirs (Art. 1311, NCC).
3. Death of either creditor or debtor does not
extinguish the obligation unless otherwise
provided by law, stipulations of the parties, or
the nature of obligations. Only obligations that
are personal or are identified with the persons
themselves are extinguished by death.
Exceptions:
1. Their nature, or by stipulation, or by provision of
law provides otherwise (Art. 1311, NCC); and
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2. If there has been no stipulation to the contrary
(Art. 1178, NCC).
III. PERFORMANCE OF OBLIGATIONS
Payment means not only the delivery of money, but
also the performance, in any other manner, of an
obligation (Art. 1232, NCC).
General Rule - for the obligation to be extinguished,
payment must be made in its entirety. The thing or
service in which the obligation consists [must be]
completely delivered or rendered, as the case may
be (Art, 1232, NCC).
Exceptions:
1. Substantial Performance - made in good faith.
The obligor (debtor) may recover as though
there had been a strict and complete fulfillment,
less damages suffered by the obligee (Art.
1234, NCC).
NOTE: The breach must be inessential and not be a
material one, enough to destroys the value or
purpose of the contract (IHC v, Joaquin, G.R. No.
158361, April 10, 2013).
2. Incomplete/Irregular Performance – Obligee
accepts the performance despite knowledge of
its incompleteness or irregularity and without
expressing any protest or objections. The
obligation is deemed fully complied with (Art.
1235, NCC).
NOTE: Art. 1235 does not apply to mere “receipt” of
payment. There must be a showing of “acceptance”
to extinguish obligation (Sta Maria, 2017).
3. Partial Prestation – Creditor cannot be
compelled to receive partial payments. Neither
may the debtor be required to make partial
payments, unless:
a. When expressly stipulated by the parties
(Art. 1248 (1), NCC); and
b. When the creditor accepts and benefited to
the partial payments (Sta Maria, 2017).
4. Partial Liquidation – The debt is partly liquidated
and partly unliquidated.
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The creditor may demand and the debtor may effect
the payment of the liquidated debt without waiting for
the liquidation of the latter (Art. 1248 (2), NCC).
IV. BREACHES OF OBLIGATIONS
1. Fraud (Dolo)
It is an intentional evasion of the faithful
performance of the obligation (8 Manresa 72). It is
also known as deceit or dolo.
Types of Fraud
1. Committed in the performance of a valid and
existing obligation - employed for the purpose of
evading the normal fulfillment of an obligation
which results in nonfulfillment or breach of the
obligation; party may recover damages (Art.
1171, NCC).
2. Committed in the constitution or establishment
of an obligation - Employed to secure the
consent of the other party to enter into the
contract (Art. 1338, NCC).
Dolo Causante v. Dolo Incidente
1. Dolo Causante – The deceptions or
misrepresentations are of a serious character
and without which the other party would not
have entered into the contract -contract is
voidable.
2. Dolo Incidente – The deceptions or
misrepresentations are not serious in character
and without which the other party would still
have entered into the contract – entitled to
recover damages (Tankeh v. DBP, G.R. No.
171428, November 11, 2013).
NOTE: Waiver for future fraud is contrary to law and
public policy. Said waiver is void. But waiver for a
past fraud is valid since such waiver can be deemed
an act of generosity.
2. 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 the persons, of the time and the
place (Article 1173, NCC).
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Test of Negligence
[Whether or not] the defendant in doing the alleged
negligent act use that reasonable care and caution
which an ordinarily prudent person would have used
in the same situation? If not, then he or she is guilty
of negligence. (Dela Cruz v. Capt. Viano, G.R. No.
219649, July 26, 2017).
Diligence of a good father of a family
Ordinary care or that diligence which an average or
reasonably prudent person would exercise over his
own property (De Leon, 2014).
3. Delay (Mora) or Default
Delay is the non-performance of an obligation with
respect to time (Pineda v. VDA. De Vega, G.R. No.
233774, April 10, 2019).
General Rule (No Demand, No Delay)
Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
their obligation (Art. 1169, NCC).
Exceptions (Demand is not necessary)
1. Obligation or law expressly so declares.
2. Time is of the essence in a particular contract.
3. When demand would be useless, as when the
obligor has rendered it beyond his power to
perform (Art. 1169 (2), NCC).
In reciprocal obligations, neither party incurs in delay
(Art. 1169 (3), NCC).
Requisites of Delay or Default
1. Obligation is demandable and liquidated;
2. Delay in the performance by the debtor; &
3. Creditor makes an extrajudicial or judicial
demand requiring payment of performance of
the obligation (SMDC v. UCPB, G.R. No.
165662, May 3, 2006, 489 SCRA 125).
4. Contravention of Terms
The phrase “in any manner contravene the tenor” of
the obligation includes not only any illicit act which
impairs the strict and faithful fulfillment of the
obligation, but also every kind of defective
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performance (Sanico v. Colipano, G.R. No. 209969,
September 27, 2017).
Fortuitous Events
An occurrence or happening which could not be
foreseen, or even if foreseen, is inevitable (Art.
1174, NCC).
Requisites of Fortuitous Events
1. The cause of the breach of the obligation must
be independent of the will of the debtor;
2. The event must be either unforeseeable or
unavoidable;
3. The event must be such as to render it
impossible for the debtor to fulfill his obligation
in a normal manner; and
4. The debtor must be free from any participation
in or aggravation of the injury to the creditor.
General Rule
Loss due to fortuitous events shall extinguish the
obligation (Art. 1174, NCC).
Exceptions
1. The Law provides that the obligor is liable even
for fortuitous event.
2. By Stipulation, the obligor is liable even for
fortuitous event.
3. Nature of the obligation requires the assumption
of the risk.
4. If the loss of the thing occurs after the obligor
incurred in Delay.
5. If the obligor promised to deliver the same thing
to two or more persons who do not have the
same interest.
NOTE: Declaration of martial law per se, Christmas
Season, Mechanical Defects of Motor Vehicle, and
Labor Unrest, does not a fortuitous event.
V. REMEDIES IN CASES OF BREACH
1. Specific or Substituted performance
2. Damages (Art. 1191, NCC).
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3. Resolution/Cancellation - implied in reciprocal
obligations, but not available if the breach is
slight, unless time is of the essence.
4. Rescission - To rescind is to declare a contract
void at its inception and to put an end to it as
though it never was. (CJDC v. CCCC, G.R. No.
198849, August 7, 2019).
Rescission is allowed only where the breach is
substantial and fundamental to the fulfillment of
obligation. It is not permitted in casual or slight
breach (De Leon Vs. Broadwater G.R. No. 252988,
October 7, 2020).
5. Subsidiary Remedies of Creditors
a. Accion Subrogatoria – Right of the creditor
to exercise all of the rights and bring all the
actions which his debtor may have against
third persons.
b. Accion Pauliana - Right of the creditor to
secure the rescission of any act of the
debtor which is in fraud and to the prejudice
of his rights (Jurado, 2010).
C. KINDS OF OBLIGATION
I. OBLIGATION WITH A PERIOD OR TERM
1. Obligations for whose fulfillment a day certain
has been fixed, shall be demandable only when
that day comes (Art. 1193, NCC).
2. Obligations with a resolutory period take effect
at once, but terminate upon arrival of the day
certain (Art. 1193, CC).
3. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall
be deemed to be one with a period (Art. 1180,
NCC).
Instances where the court may fix the period
1. If the obligation does not fix a period, but from
its nature and circumstances it can be inferred
that a period was intended by the parties
2. If the duration of the period depends upon the
sole will of the debtor (Art. 1197, NCC).
3. In case of reciprocal obligations, when there is a
just cause for fixing the period.
4. If the debtor binds himself when his means
permit him to do so (Art. 1180, NCC).
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2017 BAR Effect of Loss of the Substitute (Facultative) - the

loss or deterioration of the thing intended as a
Q: Z and N were best friends for a long time
substitute, through the negligence of the obligor
already. Z borrowed 310K from N, evidenced by
does not render him liable. But once substitution has
a promissory note whereby Z promised to pay
been made, the obligor is liable for the loss of the
the loan "once his means permit." 2 months
substitute on account of his delay, negligence or
later, they had a quarrel that broke their long-
fraud (Art. 1206(2), NCC).
standing friendship. N seeks your advice on
how to collect from Z despite the tenor of the
promissory note. What will your advice be? III. JOINT AND SOLIDARY OBLIGATIONS

A: The remedy of N is to go to court and ask that a Joint Obligations Solidary Obligations
period be fixed for the payment of the debt. Art.
1180 of the NCC provides that when a debtor binds The whole obligation is There is concurrence of
himself to pay when his means permit him to do so, to be paid or fulfilled several creditors, or of
the obligation shall be deemed to be one with a proportionately by several debtors, or of
period. Art. 1197 provides that the Courts may fix a different debtors or several creditors and
period if such was intended from the nature of the demanded several debtors, by
obligation and may also fix the duration of the proportionately by the virtue of which, each of
period when such depends on the will of the debtor. different creditors. Each the creditors has the
debtor is liable only for a right to demand, and
proportionate part of the each of the debtors is
NOTE: Once fixed by the courts, the period cannot debt, and each creditor bound to render, entire
be changed by them. is entitled only to a compliance with the
proportionate part of the prestation which
credit. constitutes the object of
II. ALTERNATIVE OR FACULTATIVE the obligation.
Alternative obligations refer to those juridical
relations which comprehend several objects or
prestations which are due, but the payment or
performance of one of them would be sufficient. Rules in case of loss/impossibility of prestation
While facultative obligations refer to those juridical in a solidary obligation
relations where only one object or prestation has
1. If the thing has been lost or if the prestation has
been agreed upon by the parties to the obligation,
become impossible without the fault of the
but the obligor may deliver or render another in solidary debtors, the obligation shall be
substitution. extinguished.
2. If there was fault on the part of any one of them,
Right of Choice (Art. 1200 (1), NCC) all shall be responsible to the creditor, for the
General Rule: Belongs to the debtor. price and the payment for damages and interest,
without prejudice to their action against the
Exceptions: It is expressly granted to the creditor; or guilty or negligent debtor.
It is expressly granted to a third person; or If only
one prestation is practicable; or If the prestation is 3. If through a fortuitous event, the thing is lost or
impossible, unlawful or which could not have been the performance has become impossible after
the object of the obligation. one of the solidary debtors has incurred in delay
through judicial or extrajudicial demand upon
him by the creditor, 2nd par., shall also apply (Art.
The choice shall produce no effect except from the 1221, NCC).
time it has been communicated (Art. 1201, NCC).
Defenses available to a solidary debtor in all
Form of Notice can vary provided that it clearly actions filed by the creditor, avail himself of: All
conveys the unmistakable choice of the debtor (Sta. defenses which are derived from the nature of the
Maria, 2017). obligation; Defenses which are personal to, or which
pertain to his own share; or with respect to those
which personally belong to the others, he may avail
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himself thereof only as regards that part of the debt
for which the latter are responsible (Art. 1222, NCC).
IV. OBLIGATION WITH A PENAL CLAUSE
One which an accessory undertaking is attached for
the purpose of ensuring its performance by virtue of
which the obligor is bound to pay a stipulated
indemnity or perform a stipulated prestation in case
of breach (Jurado, 2010).
Penalty as Substitute for Damages
General Rule: The penalty fixed by the parties takes
the place of all damages and interests in case of
breach.
Exceptions: There is an express provision to that
effect; or the obligor refuses to pay the penalty; or
the obligor is guilty of fraud in non-fulfillment (Art.
1226, NCC).
Double Functions of Penalty
1. To provide for liquidated damages; and
2. To strengthen the coercive force of the obligation
by threat of greater responsibility in the event of
breach (De Leon, 2014).
D. EXTINGUISHMENT OF OBLIGATIONS
I. PAYMENT OR PERFORMANCE
Payment is the fulfillment of the obligation by the
realization of the purposes for which it was
constituted (Jurado, 2010).
Payment means not only the delivery of money, but
also the performance, in any other manner, of an
obligation (Art. 1232, NCC).
Form of Payment (Art. 1249, NCC)
General Rule: Pay in the currency stipulated.
Exception: If payment is not possible in such
currency, then pay in legal tender.
Extraordinary Inflation or Deflation
In case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of
the currency at the time of the establishment of the
obligation shall be the basis of payment, unless
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there is an agreement to the contrary (Art. 1250,
NCC).
Requisites for Extraordinary Inflation or
Deflation
1. Official declaration of extraordinary inflation or
deflation from the BSP;
2. Obligation is contractual in nature; and
3. Parties expressly agreed to consider the effects
of the extraordinary inflation or deflation.
Application of Payments
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
creditor (Jurado, 2010).
Requisites:
1. There must be one debtor and one creditor;
2. There must be two or more debts;
3. The debts must be of the same kind;
4. The debts to which payment made by the debtor
has been applied must be due; and
5. The payment made must not be sufficient to cover
all the debts.
Application of payments to debts not yet due
cannot be made except:
1. If there is a stipulation; or
2. When it is made by the party for whose benefit the
term has been constituted (Art. 1252, NCC).
Payment Made to a Third Person
It is valid insofar as it has redounded to the benefit
of the creditor (Art. 1241, NCC).
Benefit to the creditor need not be proved in the
following cases:
1. If after payment, the third person acquires the
creditor’s rights;
2. If the creditor ratifies the payment to the third
person;
3. If by the creditor’s conduct, the debtor has been
led to believe that the third person had authority to
receive the payment.
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Effect of Payment by a Third Person
1. If made without the knowledge or against the will
of the debtor, the payer can recover from the
debtor only in so far as the payment has been
beneficial to the latter.
2. If made with knowledge of the debtor, the payer
shall have the rights of reimbursement and
subrogation, to recover what he has paid and to
acquire all the rights of the creditor.
Dation in Payment - Delivery and transmission of
ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of the
obligation (dacion en pago).
Requisites:
1. Existence of a money obligation;
2. Alienation to the creditor of a property by the
debtor with the creditor’s consent; and
3. Satisfaction of the money obligation.
Payment by Cession - Special form of payment
where the debtor assigns/abandons all his property
for the
benefit of his creditors in order that from the
proceeds thereof, the latter may obtain payment of
their credits.
Requisites:
1. Presence of two or more creditors;
2. Debtor must be (partially) insolvent;
3. Assignment must involve all the properties of the
debtor; and
4. Cession must be accepted by creditors.
Tender of Payment
Consists in the manifestation made by the debtor to
the creditor of his decision to comply immediately
with his obligation (Jurado, 2010).
Consignation
Act of depositing the object of the obligation with the
court or competent authority after the creditor has
unjustifiably refused to accept the same or is not in
a position to accept it due to certain reasons or
circumstances (Pineda, 2000).
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Requisites:
1. Valid existing debt which is already due;
2. Prior valid tender of payment except when prior
tender of payment is dispensable;
3. Creditor unjustly refuses the tender of payment;
and
4. Prior notice of consignation given to persons
interested in the fulfillment of the obligation.
II. LOSS OF DETERMINATE THING DUE OR
IMPOSSIBILITY OF DIFFICULTY OF
PERFORMANCE (Art.1189, NCC)
Loss of the thing due means:
1. The object perishes; or
2. It goes out of commerce; or
3. It disappears in such a way that its existence is
unknown or it cannot be recovered.
General Rule: Loss of determinate things
extinguishes the obligation when the thing is lost
without the fault of the debtor, and before he has
incurred delay.
Exceptions:
1. Law or stipulation provides otherwise;
2. Nature of obligation requires the assumption of
risk;
3. Debtor contributed to the lost;
4. Lost occurs after the debtor incurred in delay;
5. Debtor promised to deliver the thing to two or
more persons not having the same interest;
6. When the debt of a certain and determinate thing
proceeds from a criminal offense; or
7. When the obligation is generic as genus never
perishes except when the entire genus is lost.
Effect of Partial Loss (De Leon, 2014)
1. Insignificant – not enough to extinguish obligation.
2. Significant – may be enough to extinguish
obligation.
Impossibility or Difficulty of Performance The
debtor in obligations to do shall also be released
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when the prestation becomes legally or physically
impossible without the fault of the obligor (Art. 1266,
NCC).
III. CONDONATION OR REMISSION OF DEBT
Act of liberality by virtue of which the oblige, without
receiving any price or equivalent, renounces the
enforcement of the obligation, as a result of which it
is extinguished in its entirety or in that part or aspect
of the same to which the remission refers (Jurado,
2010).
Requisites:
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. Formalities provided by law on donations must be
complied with if condonation o remission is express;
and
4. The obligation must be demandable.
same kind, and also of the same quality if the
latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention
or controversy, commenced by third persons
and communicated in due time to the debtor
(Team Image v. Solar, G.R. 191652; September
13, 2017).
Kinds of Compensation
1. Legal compensation – by operation of law.
2. Conventional – by agreement of the parties.
3. Judicial (set-off) – by judgment of the court when
there is a counterclaim duly pleaded, and the
compensation decreed.
4. Facultative – may be claimed or opposed by one
of the parties.

Obligations which cannot be compensated:

IV. CONFUSION
The character of debtor and creditor is merged in
same person with respect to same obligation
(Jurado, 2010).
Requisites:
1. Merger in the same person of the characters of
both a creditor and debtor;
2. Must take place in the persons of a principal
creditor and a principal debtor; and
3. Merger is definite and complete (Art. 1275;76,
NCC).
V. COMPENSATION
It is a mode of extinguishing obligations that take
place when two persons, in their own right, are
creditors and debtors of each other (Art. 1278,
NCC).
1. Contracts of depositum;
2. Contracts of commodatum;
3. Future support due by gratuitous title;
4. Civil liability arising from a penal offense;
5. Obligations due to the government;
6. Damage caused to the partnership by a partner
(Art. 1287; 1288, NCC).
VI. NOVATION
Novation extinguishes an obligation between two
parties when there is a substitution of objects or
debtors or when there is subrogation of the creditor.
It occurs only when the new contract declares so “in
unequivocal terms” or that “the old and the new
obligations be on every point incompatible with each
other.” (Arco v. Lim, G.R. No. 206806, June 25,
2014).

Kinds of Novation Requisites of Novation

Requisites (Art. 1279; 1280, NCC)
1. Express – declared 1. Valid old obligation;
1. That each one of the obligors be bound in unequivocal 2. Intent to extinguish or
principally, and that he be at the same time a terms.
principal creditor of the other; to modify the old
2. Implied – the old obligation;
2. That both debts consist in a sum of money, or if and new
the things due are consumable, they be of the 3. Capacity and consent
obligations are on of all the parties to the
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every point new obligation III. CLASSIFICATION

incompatible with (except in case of 1. As to formation or perfection
each other. expromision where
the old debtor does a. Consensual – consent is sufficient to perfect
the contract (Art. 1315, NCC).
not participate);
b. Real – delivery, actual or constructive, is
4. Substantial difference
required in addition to consent (Art. 1316,
of the old and new CC).
obligation – on every
point incompatible c. Solemn or Formal – where special formalities
are required for perfection (Art. 1356, NCC).
with each other
(implied novation);
and 2. As to relation to other contracts
5. Valid new obligation. a. Principal – may exist alone.
b. Accessory – existence depends on another
Delegacion v. Expromision contract.

In delegacion, the substitution is initiated by the old c. Preparatory – a preliminary step towards the
debtor himself (delegante) by convincing another celebration of a subsequent contract.
person (delegado) to take his place and to pay his
obligation to the creditor. In expromission, the
3. As to the form
substitution of the old debtor by a new debtor is upon
the initiative or proposal of a third person. a. Common or informal – may be entered into in
whatever form as long as there is consent,
object and cause.
CONTRACTS
b. Special or formal – required by law to be in a
certain specified form.
A. IN GENERAL
4. As to the cause/by equivalence of
prestations
I. DEFINITION (Art. 1305, NCC)
a. Onerous – there is an exchange of correlative
A contract is a meeting of minds between two
values.
persons whereby one binds himself, with respect to
the other, to give something or to render some b. Remuneratory – where the outstanding
service. prestation is premised upon services or
benefits already received.
c. Gratuitous – where no correlative prestation is
II. STAGES OF CONTRACTS
received by one party.
1. Preparation (Negotiation) - period from the time
the prospective contracting parties indicate their
interest in the contract to the time the contract is 5. As to the purpose
perfected. a. Transfer of ownership
2. Perfection (Birth) Parties come to an agreement b. Conveyance of Use
and all the essential requisites of contract
concur. c. Rendition of Service
3. Consummation (Death) - period when the
parties perform their respective undertaking 6. As to the Subject Matter
under the contract, culminating in the
extinguishment thereof (De Leon, 2014). a. Things
b. Services
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7. As to the time of fulfillment IV. ESSENTIAL REQUISITES

a. Executed – obligations are fulfilled at the time 1. Consent;
the contract is entered into. 2. Object;
b. Executory – fulfillment does not take place at 3. Cause.
the time the contract is made.

NOTE: All elements should be present in a contract;

8. As to the risk otherwise, it cannot be perfected (Luntao v.
a. Commutative - fulfillment is predetermined in BAPCGC, G.R. No. 204412, September 20, 2017).
advance.
b. Aleatory – fulfillment is dependent upon
B. FORMALITY
chance.
General Rule: Contracts need not be in writing.
Exceptions: When the law requires a contract be in
9. As to the parties obliged
writing for its: 1. Validity (Formal Contracts); 2.
a. Unilateral – only one party is bound by the Enforceability (Under Statute of Frauds); 3. For the
prestation. convenience of the parties.
b. Bilateral – both parties are bound by
reciprocal prestations.

10. As to name or designation

a. Nominate – those which have a specific name
or designation in law (e.g., sale).
b. Innominate – those which have no specific
designation or name in law.

Contracts of Adhesion - its terms are prepared by

only one party while the other party merely affixes
his signature signifying his adhesion (Jurado, 2010).

Contracts that must be in writing Contracts which must appear in Contracts that must be
a public document registered

1. Donation of personal property
whose value exceeds five
thousand pesos (Art. 748, NCC)–
the donation and acceptance
must be in writing;
2. Sale of a piece of land or any
interest therein through an agent
(Art. 1874, NCC) – the authority of
the agent shall appear in writing;
1.Donation of real properties (Art.
749, NCC);
2. Partnership where immovable
property or real rights are
contributed to the common fund
(Arts. 1171 & 1773, NCC);
1. Chattel mortgages (Art. 2140,
NCC);
2. Sale or transfer of large cattle
(Cattle Registration Act).
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3. Agreements regarding payment 3. Acts and contracts which have

of interest in contracts of loan (Art.
1956, NCC);
for their object the creation,
transmission, modification or
extinguishment of real rights over
immovable property; sale of real
property or of an interest therein is
governed by Arts. 1403, No. 2, and
1405 (Art. 1358(1), NCC);

4. Antichresis – the amount of the 4.The cession, repudiation or

principal and the interest shall be renunciation of hereditary rights or
specified in writing (Art. 2134, of those of the conjugal
NCC; Jurado, 2011). partnership of gains (Art. 1358(2),
NCC);

5. The power to administer

property or any other power which
has for its object an act appearing
or which should appear in a public
document or should prejudice a
third person (Art. 1358(3), NCC);

6.The cession of actions or rights

proceeding from an act appearing
in a public document (Art. 1358(4),
NCC).

C. REFORMATION OF INSTRUMENTS Who may ask for reformation:

It is a remedy to conform to the real intention of the
parties due to mistake, fraud, inequitable conduct,
accident (Art. 1359, NCC).
Requisites:
1. There must be a meeting of the minds of the
contracting parties;
2. Their true intention is not expressed in the
instrument; and
3. Such failure to express their true intention is due
to mistake, fraud, inequitable conduct or accident.
1. The party who is not at fault;
2. Party who is not asked to enforce the instrument;
3. If there is a mutual mistake, reformation may be
had by either party or successor-in-interest.
Cardinal Rule of Interpretation of Contracts - in
the interpretation of contracts is to the effect that the
intention of the contracting parties should always
prevail because their will has the force of law
between them.

E. DEFECTIVE CONTRACTS

RESCISSIBLE VOIDABLE UNENFORCEABLE VOID OR INEXISTENT

CONTRACTS CONTRACTS CONTRACTS CONTRACTS
A contract which is valid Voidable contracts are Contracts which cannot be One which lacks absolutely
because it contains all of those where consent is enforced by a proper action either in fact or in law one or
the essential requisites vitiated either by the in court, unless they are some of the elements which
prescribed by law, but incapacity of one of the ratified, because, either they are essential for its validity.
which is defective contracting parties or by are entered into without or in Thus, if there is absolutely
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because of injury or mistake, violence, excess of authority or they no consent, object or cause,
damage to either of the intimidation, undue do not comply with the or if the formalities which are
contracting parties or to influence or fraud. statute of frauds or both of essential for validity are not
third persons, as a the contracting parties do complied with, or even if
consequence of which it not possess the required there is a cause and an
may be rescinded by These contracts are legal capacity (Jurado, object, if such cause or
means of a proper action binding, unless they are 2010). object is contrary to law,
for rescission (Jurado, annulled by a proper morals, good customs,
2010). action in court. These public order or public policy,
are susceptible of or if the contract is expressly
ratification (Art. 1390, prohibited or declared by
NCC). law to be void, the contract
is void or inexistent (Jurado,
2010).

The principle of in pari

delicto is applicable in cases
of void contracts but not in
inexistent contracts (Jurado,
2010).
Contracts that are Contracts that are Contracts that are Contracts that are Void or
Rescissible Voidable Unenforceable Inexistent

1. Those which 1. Those where one of 1. Those entered into the 1. Those whose cause,
entered into by the parties is name of another person object or purpose is
guardians whenever incapable of giving; by one who has been contrary to law, morals,
the wards whom his consent to a given no authority/legal good customs, public
they represent suffer contract; representation or acted order or public policy;
lesion by more than beyond his powers;
2. Those where the 2. Those which are
one-fourth of the
consent is vitiated by 2. Those that do not absolutely simulated or
value of the things
mistake, violence, comply with the Statute fictitious;
which are the object intimidation; undue of Frauds;
thereof; 3. Those whose cause or
influence or fraud
3. Those where both object did· not exist at
2. Those agreed upon (Art. 1390, NCC). parties are incapable of the time of the
in representation of
giving consent to a transaction;
absentees, if the contract (Art. 1403,
latter suffer the 4. Those whose object is
NCC). outside, the commerce
lesion stated in the
preceding number; of men;
3. Those undertaken in 5. Those which
fraud of creditors contemplate an
when the latter impossible service;
cannot in any other 6. Those where the
manner collect the intention of the parties
claims due them; relative to the principal
4. Those which refer to 'object of the contract
things under cannot be ascertained;
litigation if they have 7. Those expressly
been entered into by prohibited or declared
the defendant
without the
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knowledge and void by law (Art. 1409,

approval of the NCC).
litigants or of
competent judicial
authority;
5. All other contracts
specially declared by
law to be subject to
rescission (Art.
1381, NCC);
6. Payments made in a
state of insolvency
for obligations to
whose fulfillment the
debtor could not be
compelled at the
time they were
effected are also
rescissible (Art.
1382, NCC).

RESCISSION OF CONTRACTS As to power of the courts

Rescission of rescissible contracts must not be
confused with the rescission or resolution of
reciprocal obligations under Art. 1191 of the Code.
Although there are similarities both with respect to
validity and effects, they are distinguished from each
other in the following ways (Jurado, 2010):
a. Rescission - there is no power of the courts
to grant an extension of time for
performance of the obligation so long as
there is a ground for rescission.
b. Resolution - the law expressly declares that
courts shall have a discretionary power to
grant an extension for performance
provided that there is a just cause.

As to party who may institute action

As to contracts which may be rescinded or
a. Rescission - action may be instituted not
resolved
only by a party to the contract but even by a
third person. a. Rescission - any contract, whether
b. Resolution - action may be instituted only by unilateral or reciprocal, may be rescinded,
a party to the contract. b. Resolution - only reciprocal contracts may
be resolved.

As to causes
a. Rescission - there are several causes or LOAN
grounds such as lesion, fraud and others
expressly specified by law.
BAR 1977
b. Resolution - the only ground is failure of one
Q. Define and distinguish from each other
of the parties to comply with what is
commodatum and simple loan.
incumbent upon him.
A. Commodatum is defined as a contract by
virtue of which one of the contracting parties
delivers to the other a non-consumable (non-
fungible) thing so that the latter may use the same
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for a certain time and return it. 1943, NCC).

Simple loan or mutuum, on the other hand, is Right of Retention

defined as a contract by virtue of which one of the General Rule: Bailee has no right of retention of the
contracting parties delivers to the other money or thing loaned on the ground that the Bailor owes him
any other consumable (fungible) thing subject to something, even though it may be by reason of
the condition that the same amount of the same expenses (Art. 1944, NCC).
kind and quality be paid or returned. (Art. 1933,
NCC.) Exception: Bailee has the right of retention for
damages arising from hidden flaws (Arts. 1944 &
1951, NCC).
The two (2) may be distinguished from each other in
the following:
Extinguishment
1. As to object: In the first, the object is, as a
general rule, a non-consumable (non-fungible) 1. Death of either the bailor or the bailee (Art. 1939,
thing, whereas in the second, the object is money or NCC)
any consumable (fungible) thing. 2. Expiration of term or accomplishment of purpose
2. As to cause: The first is essentially gratuitous, (Art. 1946, NCC)
whereas the second may or may not be gratuitous. 3. Bailor demands the return in case the bailee
3. As to purpose: The first is a loan for use, committed acts of ingratitude
whereas the second is a loan for consumption. 4. Upon demand in case of precarium
4. As to transmission of ownership: In the first,
the bailor retains the ownership of the thing loaned,
whereas in the second, ownership passes to the 2. Simple Loan
debtor. Nature and characteristics
5. As to what must be returned: In the first, the 1. The purpose of the contract is consumption
bailee must return the specific thing loaned,
whereas in the second, the debtor must pay or return 2. The subject matter is either money or
an equal amount of the same kind and quality. consumable;
3. Ownership passes to the borrower;
1. Commodatum 4. It is a real contract;
Kinds of Commodatum 5. It may be gratuitous or with stipulation to pay
1. Ordinary Commodatum – the use of the thing by interest
the bailee is for a certain period of time (Art. 1933, 6. It is a unilateral contract
NCC)
2. Precarium – one where the bailor may demand
the thing loaned at will; if any one of the following is Resulting Obligation
present: ● The contract gives rise to obligations only on the
• The duration and purpose of the contract is part of the borrower
not stipulated ● A person who receives a loan of money or any
• The use of the thing is merely tolerated by other fungible thing is bound to pay the creditor
the owner (Art. 1947, NCC) an equal amount of the same kind and quality

Liability for Deterioration 3. Interests on Loan

General Rule: The bailee is liable for the a. Conventional Interest

deterioration of the thing loaned. Monetary interest
Exception: When the deterioration of the thing is Interest may only be paid as compensation for the
due only to the use thereof and without his fault (Art. use of money, known as monetary interest. It must
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be expressly stipulated in the writing to be due.
Requisites for interest to be chargeable
1. Must be expressly stipulated (Art. 1956, NCC)
2. Agreement must be in writing (Art.1956, NCC)
3. Must be lawful.
b. Interest on interest
General Rule: Interest due and unpaid shall not
earn interest.
Exceptions:
1. Interest due shall earn legal interest from
the time it is judicially demanded, although
the obligation may be silent upon this point;
or
2. The contracting parties may by stipulation
capitalize the interest due and unpaid which
as added, shall earn new interest.
c. Compensatory, Penalty or Indemnity Interest
Compensatory Interest
Interest paid as damages or penalty. It need not be
stipulated in writing because even in the absence of
such stipulation, the debtor is still liable to pay the
same when he incurs in delay as a form of indemnity
for damages if the obligation consists in the payment
of a sum of money or monetary obligation.
d. Usury
Usury Law (Act No.2566) – an act fixing rates of
interests upon loans and declaring the effect of
receiving or taking usurious rates and for other
purposes (Arevalo v. Dimayuga, G.R. No. 26218,
January 29, 1927).
NOTE: CB Circular No. 905 abolished interest rate
ceilings. With the promulgation of such circular,
usury has become “legally inexistent” as the parties
can now legally agree on any interest that may be
charged on the loan.
Requisites of a Valid Real Estate Mortgage:
1. Consent of the contracting parties, object
certain, and cause of the obligation, (Art. 1318,
NCC)
2. The mortgage must be constituted to secure the
fulfillment of a principal obligation,
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3. The mortgagor must be the absolute owner of
the thing mortgaged,
4. The mortgagor must have free disposal of the
property mortgage, and in the absence thereof,
that the mortgagor be legally authorized for the
purpose (Art. 2085, NCC), and
5. The document in which the mortgage appears
must be recorded in the Registry of Property
(Art. 2125, NCC)
NOTE: Effect of non-registration of the mortgage –
the mortgage is still binding between the parties.
(Article 2125, NCC)
TORTS
Whoever by act or omission caused damage to
another, there being fault or negligence, is obliged
to pay for the damage done. (Art 2176, NCC)
Expanded Scope of Quasi-Delict
Quasi-delicts include acts which are criminal in
character or in violation of the penal law, whether
voluntary or negligent, whether punishable or not
punishable by law, whether criminal or not criminal
in character, whether intentional or voluntary or
negligent, which results damage to another (Elcano
v. Hill, G.R. No. L-24803, May 26, 1977)
Elements of Quasi-Delict
1. There must be an act or omission on the part of
the defendant;
2. Such act or omission causes damage to another;
3. The injury suffered is the proximate cause of the
act or omission of the defendant;
4. There is no contractual relation between the
plaintiff and defendant.
A. NEGLIGENCE
It is the omission of that diligence which is required
by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of
the place (Art 1173, NCC).
I. Presumption of Negligence
In motor vehicle mishaps, the owner is solidarily
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liable with his driver, if the former, who was in the
vehicle, could have, by the use of the due diligence,
prevented the misfortune It is disputable presumed
that a driver was negligent, if he had been found
guilty of reckless driving or violating traffic
regulations at least twice within the next preceding
two months (Art 2184, 1st par, NCC).
Unless there is proof to the contrary, it is presumed
that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was
violating any traffic regulation (Art 2185, NCC).
II. Negligence Per Se
The negligence of a person can be presumed to be
the proximate cause of the injury by the mere fact of
a violation of law. However, this rule is not applicable
to the application of a company policy issued by an
employer for its employee (Marinduque Iron Mines
v. Workmen’s Compensation Commission, G.R. No.
L-8110, June 30, 1956).
III. Doctrine of Last Clear Chance
The person who has the last fair chance to avoid the
impending harm and fails to do so is chargeable with
the consequences, without reference to the prior
negligence of the other party.
IV. Proximate Cause
Proximate cause is the cause which, in natural and
continuous sequence, unbroken by an efficient
intervening cause, produces the injury, and without
which the result would not have occurred (Bataclan
v. Medina, G.R. No. L-101126, Oct 22, 1957).
V. Res Ipsa Loquitor
The thing or transaction speaks for itself.
Elements:
a. The accident was of a kind which does not
ordinarily occur unless someone is negligent;
b. The instrumentality or agency which caused the
injury was under the exclusive control of the person
charged with negligence;
c. The injury suffered must not have been due to any
voluntary action or contribution on the part of the
person injured.
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B. DEFENSES IN CASES INVOLVING
NEGLIGENCE
The defenses are those found in Article 2179 of the
Civil Code regarding contributory negligence and
when the plaintiff’s own negligence was the
proximate cause of their own injury, the doctrine of
assumption of risk or volenti non fit injuria,
emergency rule and the fortuitous event under
Article 1174, NCC (Conceptual Approach to Torts
and Damages, Legaspi, 2020; p. 101, 2020 Edition).
I. Complete Defense or Plaintiff’s Negligence
was the Proximate Cause of the Injury
When the plaintiff’s own negligence was the
immediate and proximate cause of his injury, he
cannot recover damages (Art 2179, 1st par, NCC).
II. Incomplete Defense or Contributory
Negligence
Contributory negligence is conduct on the part of the
injured party, contributing as a legal cause to the
harm they have suffered, which falls below the
standard to which they are required to conform for
their own protection (Legaspi, p. 105).
If his negligence was only contributory, the
immediate and proximate cause of the injury being
the defendant’s lack of due care, the plaintiff may
recover damages, but the courts shall mitigate the
damages to be awarded (Art 2179, 2nd par, NCC).
III. The doctrine of assumption of risk or volenti
non fit injuria
When a person voluntarily assents to a known
danger, they must abide by the consequences
(Ilocos Norte Electric Company v. Court of Appeals,
G.R. No. L-53401, Nov 6, 1989).
Elements:
a. The plaintiff must know that the risk is present;
b. They must further understand its nature;
c. Their choice to incur must be free and voluntary.
Note: Knowledge of the risk is the watchword of
assumption of risk (Abrogar v. Cosmos Bottling,
G.R. No. 164749, March 15, 2017).
Assumption of Risk cannot be applied to the
following:
a. Emergency is found to exist;
 S CBA R STAG NO TES
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b. The life or property of another is in peril;
c. When the plaintiff seeks to rescue their
endangered property (Ilocos Norte Electric
Company v. Court of Appeals, G.R. No. L-53401,
Nov 6, 1989).
IV. Emergency rule
One who suddenly finds themselves in a place of
danger and is required to act without time to
consider the best means that may be adopted to
avoid the impending danger, is not guilty of
negligence, if they fail to adopt what subsequently
and upon reflection may appear to have been a
better method, unless the emergency in which they
find themselves is brought about by their own
negligence. (Gan v. Court of Appeals, G.R. No. L-
44264, September 19, 1988)
Exception: Emergency Rule cannot be applied
when the defendant is guilty of negligence (Marikina
Autoline Transport v. People of the Philippines, G.R.
No. 15204, March 31, 2006).
V. Fortuitous event
Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption
of risk, no person shall be responsible for those
events which could not be foreseen, or which,
though foreseen, were inevitable. (Art 1174, NCC)
Elements of Fortuitous Event:
a. The cause of the unforeseen or the unexpected
occurrence, or the failure to comply with their
obligations, must have been independent of the
human will;
b. The event that constituted the caso fortuito must
have been impossible to foresee or, if
foreseeable, impossible to avoid,
c. The occurrence must have been such as to
render it impossible for the debtors to fulfill the
obligation in a normal manner; and
d. The obligor must have been free from any
participation in the aggravation of the resulting
injury to the creditor. (Cruz v. Sun Holidays, Inc,
G.R. No. 186312, June 29, 2010)
Exceptions where the defendant is still liable
even though the event is considered fortuitous:
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a. When by law a party can still be held liable for
fortuitous event;
b. When it is expressly stipulated in the agreement
in the agreement that the parties are still
responsible even though there is a fortuitous
event;
c. When the nature of the obligation requires the
assumption of risks.
Other exceptions where there is still liability:
a. The obligor will still be liable for damages even
though there is a fortuitous event if they incurred
in delay in the performance of an obligation
(Article 1165, NCC).
C. THEORY OF VICARIOUS LIABILITY OR
DOCTRINE OF IMPUTED NEGLIGENCE (Article
2180, NCC)
I. Liability of Persons exercising Parental
Authority
The father and the mother are responsible for the
damages caused by the minor children who live in
their company.
Guardians are liable for damages caused by the
minors or incapacitated persons who are under their
authority and live in their company.
In default of parents or a judicially appointed
guardian, the following persons shall exercise
parental authority over the child in the order
indicated:
1. The surviving grandparent;
2. The oldest brother or sister, over 21 years
of age, unless unfit or disqualified; and
3. The child’s actual custodian, over 21 years
of age, unless unfit or disqualified.
II. Liability of Employers
The owners and managers of an establishment or
enterprise are likewise responsible for damages
caused by their employees in the service of the
branches in which the latter are employed or on the
occasion of their functions (Enterprise Theory of
Vicarious Liability).
Employers shall be liable for the damages caused
by their employees and household helpers acting
within the scope of their assigned tasks, even
though the former are not engaged in any business
or industry.
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The employer can extricate itself from liability if it
was able to prove that it exercised due diligence in
the selection and supervision of employees (Metro
Manila Transit v. Court of Appeals, G.R. No. 116617,
Nov. 16, 1998).
Application of Article 2180 and the Registered-
Owner Rule
In cases where both the registered-owner rule and
Article 2180 apply, the plaintiff must first establish
that the employer is the registered owner of the
vehicle in question. Once the plaintiff successfully
proves ownership, there arises a disputable
presumption that the requirements of Article 2180
have been proven. As a consequence, the burden of
proof shifts to the defendant to show that no liability
under Article 2180 has arisen. This it can do by
presenting proof of any of the following: first, that it
had no employment relationship with the driver;
second, that the employee acted outside the scope
of his assigned tasks; or third, that it exercised the
diligence of a good father of a family in the selection
and supervision of the employee. (Caravan Travel
Tours International, Inc. v. Abejar, G.R. No. 170631,
February 10, 2016, J. Leonen)
III. Liability of State and Officers
The State is responsible in like manner when it acts
through a special agent; but not when the damage
has been caused by the official to whom the task
done properly pertains, in which case what is
provided in Article 2176 shall be applicable.
Principle of Non-Suability of State
A state cannot be sued without its consent.
However, a state is deemed to have impliedly
waived its non-suability only if it has entered into a
contract in its proprietary capacity. However, when
the contract involves its sovereign or governmental
capacity, no such waiver may be implied
(Department of Health v. Phil Phalma Wealth, Inc,
G.R. No. 182358, February 20, 2013).
Liability of Political Subdivisions of the State or
Local Government Units
Provinces, cities and municipalities shall be liable for
damages for the death of or the injuries suffered by,
any person by reason of the defective condition of
roads, streets, bridges, public buildings, and other
public works under their control or supervision
(Article 2189, NCC)
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Local government units and their officials are not
exempt from liability for the death or injury to
persons or damages to property (Section 24 of the
Local Government Code).
Liability of Public Officers
Public Officers cannot be sued for damages in
connection with the performance of their duties.
However, a public officer is by law not immune from
damages in his/her personal capacity for acts done
in bad faith which, being outside the scope of his
authority, are no longer protected by the mantle of
immunity for official actions (Liwayway Vinzons-
Chato v. Fortune Tobacco Group Corp., G.R. No.
141309, June 19, 2007).
Exception:
a. A public officer shall not be civilly liable for acts
done in the performance of his official duties,
unless there is a clear showing of negligence of
bad faith, malice, or gross negligence (Section
38 (1), Book 1 of the Administrative Code of
1987).
b. Any public officer who, without just cause,
neglects to perform a duty within a period fixed
by law or regulation, or within reasonable period
if none is fixed, shall be liable for damages to the
private party concerned without prejudice to
such other liability as may be prescribed by law
(Section 38(2), Book 1 of the Administrative
Code of 1987)
c. A head of a department or a superior officer
shall not be civilly liable for the wrongful acts,
omissions of duty, negligence, or misfeasance
of his subordinates, unless he has actually
authorized by written order the specific act or
misconduct complained of.
IV. Liability of Schools
Teachers or heads of establishments of arts and
trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they
remain in their custody.
a. If the student is a minor:
The ones to be held vicariously liable are the
schools, its administrators, and teachers who
exercise special parental authority. The parents of
the said minor who caused the damage or injury
shall only be held subsidiarily liable (Amadora v.
Court of Appeals, G.R. No. L-47745, April 15, 1988).
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b. If the student is no longer a minor:
In academic educational institutions, the liability
for the tort committed by the student will attach to
the teacher in charge of such a student. In non-
academic educational institutions, the liability will
attach to the head thereof (Amadora v. Court of
Appeals, G.R. No. L-47745, April 15, 1988).
In both instances, it requires that the student who
caused damage or injury shall be under the custody
of the school, they must be under the control and
influence whether inside or outside the school
premises, or whether the semester has already
ended or not.
D. JOINT TORTFEASORS
Joint tortfeasors are the persons who command,
instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it is
done for their benefit. They are each liable as
principals, to the same extent and in the same
manner as if they had performed the wrongful act
themselves. (Worcestor v. Ocampo, G.R. No. L-
5932, February 27, 1912)
The pecuniary compensation, recompense or
satisfaction for an injury sustained or as otherwise
expressed, the pecuniary consequences which the
law imposes for the breach of some duty or violation
of some rights (People v. Ballesteros, G.R. No.
120921, January 29, 1998).
E. SPECIAL LIABILITY IN PARTICULAR
ACTIVITIES
I. Products liability: manufacturers and
processors
Manufacturers and processors of foodstuffs, drinks,
toilet articles and similar goods shall be liable for
death or injuries caused by any noxious or harmful
substance used, although no contractual relation
exists between the manufacturer and the consumers
(Art 2187, NCC).
II. Possessor of an animal
The possessor of an animal or whoever may make
use of the same is responsible for the damage which
it may cause, although it may escape or be lost. This
responsibility shall cease only in case the damage
should come from force majeure or from the fault of
the person who has suffered damage (Art 2183,
NCC)
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Two situations where such possessor may escape
liability: (a) if the damage is caused by force
majeure; and (b) through the fault of the person who
has suffered damage.
III. Proprietor of building or structure
The proprietor of a building or structure is
responsible for the damages resulting from its total
or partial collapse, if it should be due to the lack of
necessary repairs. (Art 2190, NCC)
IV. Engineer, Architect and Contractor
The engineer or architect who drew up the plans and
specifications for a building is liable for damages if
within fifteen years from the completion of the
structure, the same should collapse by reason of a
defect in those plans and specifications, or due to
the defects in the ground.
The contractor is likewise responsible for the
damages if the edifice falls, within the same period,
on account of defects in the construction or the use
of materials of inferior quality furnished by him, or
due to any violation of the terms of the contract. If
the engineer or architect supervises the
construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does
not imply waiver of any of the cause of action by
reason of any defect mentioned in the preceding
paragraph. The action must be brought within ten
years following the collapse of the building (Art
1723, NCC).
DAMAGES
KINDS OF DAMAGES
a. Actual and Compensatory
Awarded to a person as compensation or indemnity
for such pecuniary loss suffered by him as he has
duly proved (Arts. 2199-2215, NCC)
b. Moral
Cover physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary
computation, moral damages may be recovered if
they are the proximate result of the defendant's
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wrongful act for omission (Article 2217, NCC)

c. Nominal
Are adduced in order that a right of the plaintiff,
which has been violated or invaded by the
defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for
any loss suffered by him (Art. 2221, NCC).

d. Temperate
More than nominal but less than compensatory
damages, may be recovered when the court finds
that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be
provided with certainty (Art. 2224, NCC)
Temperate damages must be reasonable under the
circumstances (Art. 2225, NCC).

e. Liquidated
Whether intended as an indemnity or a penalty,
shall be equitably reduced if they are iniquitous or
unconscionable (Art. 2227, NCC).

f. Exemplary
Are imposed, by way of example or correction for
the public good, in addition to the moral, temperate,
liquidated or compensatory damages (Art. 2229,
NCC).
 S CBA R STAG NO TES
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CORPORATION LAW
Kinds of corporation
Stock corporations are those which have capital
stock divided into shares and are authorized to
distribute to the holders of such shares, dividends,
or allotments of the surplus profits on the basis of
the shares held (Sec. 3, RCC).
Nonstock corporation is one where no part of its
income is distributable as dividends to its members,
trustees, or officers: Provided, That any profit which
a nonstock corporation may obtain incidental to its
operations shall, whenever necessary or proper, be
used for the furtherance of the purpose or purposes
for which the corporation was organized, subject to
the provisions of Title XI of RCC (Sec. 86, RCC).
De facto Corporation is a corporation where there
exists a flaw in its incorporation. Requisites:
(1) Valid law under which incorporated;
(2) Attempt in good faith to incorporate or
colorable compliance;
(3) Assumption of corporate powers;
The defect of the juridical personality of a de
facto corporation cannot be raised collaterally.
The inquiry may be made by the Solicitor
General in a quo warranto proceeding (Sec. 19,
RCC).
Corporation by estoppel. All persons who assume
to act as a corporation knowing it to be without
authority to do so shall be liable as general partners
for all debts, liabilities and damages incurred or
arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be
allowed to use its lack of corporate personality as a
defense (Sec. 20, RCC).
One Person Corporation (OPC) is a corporation
with a single stockholder. The single stockholder
shall be the sole director and president of the OPC,
but may not be appointed as the corporate secretary
(Secs. 121-122, RCC). Only the following may form
an OPC:
(1) natural person
(2) trust, or
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(3) estate (Sec. 116, RCC).
Excepted corporations for OPC:
a. Banks and quasi-banks,
b. Pre-need, trust, insurance,
c. Public and publicly-listed
companies, and non-chartered
GOCC (Sec. 116, RCC).
Liability. A sole shareholder claiming
limited liability has the burden of
affirmatively showing that the corporation
was adequately financed. Where the single
stockholder cannot prove that the property
of the OPC is independent of the
stockholder’s personal property, the
stockholder shall be jointly and severally
liable for the debts and other liabilities of the
One Person Corporation.
The principles of piercing the corporate veil
applies with equal force to One Person
Corporations as with other corporations
(Sec 130, RCC).
Nominee. The single stockholder shall
designate a nominee and an alternate
nominee who shall, in the event of the single
stockholder’s death or incapacity, take the
place of the single stockholder as director
and shall manage the corporation’s affairs
(Sec. 124, RCC).
Close corporation. One whose articles of
incorporation provides that:
(1) all the corporation’s issued stock of all
classes, exclusive of treasury shares, shall
be held of record by not more than a
specified number of persons, not exceeding
twenty (20);
(2) all the issued stock of all classes shall be
subject to one or more specified restrictions
on transfer permitted by this Title; and
(3) the corporation shall not list in any stock
exchange or make any public offering of its
stocks of any class
Notwithstanding the foregoing, a corporation
shall not be deemed a close corporation when
at least two-thirds (2/3) of its voting stock or
voting rights is owned or controlled by another
corporation which is not a close corporation
within the meaning of this Code. (Sec. 95,
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RCC).
Educational corporations. One organized for
educational purposes. Governed by special laws
and by the general provisions of RCC
(a) If organized as a non-stock corporation, the
trustees shall not be less than five (5) nor
more than fifteen (15). Provided, however,
that the number of trustees shall be in
multiples of five (5). They shall classify
themselves in such a way that the term of
1/5 of them expires every year (Sec. 106,
RCC).
(b) If organized as a stock corporation, the
number and term of directors shall be
governed by the provisions on stock
corporations (Sec. 106, RCC).
Religious corporations
(a) Religious societies are religious
corporations incorporated by more than one
person (Sec. 107, RCC).
Unless forbidden by competent
authority, the Constitution, pertinent
rules, regulations, or discipline of the
religious denomination, sect or church
of which it is a part, any religious
society, religious order, diocese, synod,
or district organization of any religious
denomination, sect or church, may,
upon written consent and/or by an
affirmative vote at a meeting called
for the purpose of at least two-thirds
(2/3) of its membership, incorporate
for the administration of its temporalities
or for the management of its affairs,
properties, and estate by filing with the
Commission, articles of incorporation
verified by the affidavit of the presiding
elder, secretary, or clerk or other
member of such religious society or
religious order, or diocese, synod, or
district organization of the religious
denomination, sect or church (Sec. 114,
RCC).
The Articles of Incorporation must
include, among others, the names,
nationalities, and residence addresses
of the trustees, not less than five (5) nor
more than fifteen (15), elected by the
religious society or religious order, or
the diocese, synod, or district
organization to serve for the first year or
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such other period as may be prescribed
by the laws of the religious society or
religious order, or of the diocese, synod,
or district organization (Sec. 114(f),
RCC).
(b) Corporation sole is one formed for the
purpose of administering and managing, as
trustee, the affairs, property and
temporalities of any religious denomination,
sect, or church, by the chief archbishop,
bishop, priest, rabbi, or other presiding elder
of such religious denomination, sect or
church (Sec. 108, RCC).
A corporation sole consists of one
person only, and his successors (who
will always be one at a time), in some
particular station, who are incorporated
by law in order to give them some legal
capacities and advantages, particularly
that of perpetuity, which in their natural
persons they could not have had. In this
sense, the king is a sole corporation; so
is a bishop, or dens, distinct from their
several chapters (Roman Catholic
Apostolic Administrator of Davao v. and
Registration Commission, G.R. No. L-
8451, 20 December 1957).
A corporation sole, at least constituted
on behalf of the Roman Catholic
Church, is deemed to have no
nationality. Even if a corporation sole
had a nationality, the same would be
determined, not by the national of the
sole corporator, but by the nationality of
the constituent of the religious members
constituting the sect (Roman Catholic
Apostolic Administrator of Davao).
In order to become a corporation sole, the
chief archbishop, bishop, priest, minister,
rabbi or presiding elder of any religious
denomination, sect or church must file with
the SEC articles of incorporation setting
forth the following:
(1) That the applicant chief archbishop,
bishop, priest, minister, rabbi, or
presiding elder represents the
religious denomination, sect, or
church which desires to become a
corporation sole;
(2) That the rules, regulations and
discipline of the religious
denomination, sect or church are
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consistent with becoming a
corporation sole and do not forbid it;
(3) That such chief archbishop, bishop,
priest, minister, rabbi, or presiding
elder is charged with the
administration of the temporalities
and the management of the affairs,
estate and properties of the
religious denomination, sect or
church within the territorial
jurisdiction, so described succinctly
in the articles of incorporation;
(4) The manner by which any vacancy
occurring in the office of chief
archbishop, bishop, priest, minister,
rabbi, or presiding elder is required
to be filled, according to the rules,
regulations or discipline of the
religious denomination, sect or
church; and
(5) The place where the principal office
of the corporation sole is to be
established and located, which
place must be within the territory of
the Philippines.
The articles of incorporation may
include any other provision not contrary
to law for the regulation of the affairs of
the corporation (Sec. 109, RCC).
Corporation by prescription. The Roman
Catholic Church is a corporation by prescription,
with acknowledged juridical personality
inasmuch as it is an institution which antedated
by almost a thousand years any other
personality in Europe (Barlin v Ramirez, G.R.
No. L-2832, 1906).
Foreign Corporation is one formed, organized or
existing under laws other than those of the
Philippines’ and whose laws allow Filipino citizens
and corporations to do business in its own country
or State. It shall have the right to transact business
in the Philippines after obtaining a license for that
purpose in accordance with this Code and a
certificate of authority from the appropriate
government agency (Sec. 140, RCC).
Government-owned or controlled corporation is
one which is:
(1) established by original charter or
through the general corporation law;
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(2) vested with functions relating to public
need whether governmental or proprietary
in nature; and
(3) directly owned by the government or by
its instrumentality, or where the government
owns a majority of the outstanding capital
stock (GSIS Family Bank Employees vs.
Sec. Cesar Villanueva, G.R. No. 210773,
January 23, 2019, J. Leonen).
The Constitution recognizes two classes of
corporations. The first refers to private corporations
created under a general law. The second refers to
government-owned or controlled corporations
created by special charters. Private corporations
may exist only under a general law. Congress can
create corporations with special charters only if such
corporations are government-owned or controlled
(Feliciano v. Aranez, G.R. No. 165641 August 25,
2010).
Nationality of corporations
Control Test or the Liberal Rule pertains to the
determination of the nationality of the corporation
wherein the shares belonging to corporations or
partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
Philippine nationality.
The Grandfather Rule is “the method by which the
percentage of Filipino equity in a corporation
engaged in nationalized and/or partly nationalized
areas of activities, provided for under the
Constitution and other nationalization laws, is
computed, in cases where corporate shareholders
are present, by attributing the nationality of the
second or even subsequent tier of ownership to
determine the nationality of the corporate
shareholder.”
It is only when the Control Test is first complied with
that the Grandfather Rule may be applied. Put in
another manner, if the subject corporation’s Filipino
equity falls below the threshold 60%, the corporation
is immediately considered foreign-owned, in which
case, the need to resort to the Grandfather Rule
disappears. On the other hand, a corporation that
complies with the 60-40 Filipino to foreign equity
requirement can be considered a Filipino
corporation if there is no doubt as to who has the
“beneficial ownership” and “control” of the
corporation (Narra Nickel Mining and Development
Corporation, et al. vs. Redmont Consolidated Mines
Corporation, G.R. No. 199580, January 28, 2015).
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The required percentage of Filipino ownership
shall be applied to both:
a. The total number of outstanding shares of
stock entitled to vote in the election of
directors, AND
b. The total number of outstanding shares of
stock, whether or not entitled to vote in the
election of directors. (SEC-MC No. 8, s.
2013, Sec. 2)
Roy v. Herbosa, G.R. No. 207246, November 22,
2016
The Supreme Court upheld SEC-MC No. 8. The
Section 2 of SEC-MC No. 8 goes beyond requiring
a 60-40 ratio in favor of Filipino nationals in the
voting stocks; it moreover requires the 60-40
percentage ownership in the total number of
outstanding shares of stock, whether voting or
not. The SEC formulated SEC-MC No. 8 to adhere
to the Court's unambiguous pronouncement that full
beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of
the voting rights is required.
The Gamboa ruling clarified that the term "capital" in
Section 11, Article XII of the 1987 Constitution is not
limited to voting shares since the constitutional
requirement of at least 60% Filipino ownership
applies not only to voting control of the corporation,
but also to the beneficial ownership of the
corporation. The SEC-MC No. 8 simply
implemented, and is fully in accordance with, the
Gamboa Decision and Resolution. While SEC-MC
No. 8 does not expressly mention the Beneficial
Ownership Test or full beneficial ownership of stocks
requirement in the FIA, this will not, as it does not,
render it invalid meaning, it does not follow that the
SEC will not apply this test in determining whether
the shares claimed to be owned by Philippine
nationals are Filipino, i.e., are held by them by mere
title or in full beneficial ownership.
Philippine national shall mean:
(1) a citizen of the Philippines or a domestic
partnership or association wholly owned by
citizens of the Philippines; or
(2) a corporation organized under the laws of
the Philippines of which at least sixty
percent (60%) of the capital stock
outstanding and entitled to vote is owned
and held by citizens of the Philippines; or
(3) a corporation organized abroad and
registered as doing business in the
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BRAVO BASTE!
Philippines under the Corporation Code of
which 100% of the capital stock outstanding
and entitled to vote is wholly owned by
Filipinos; or
(4) a trustee of funds for pension or other
employee retirement or separation benefits,
where the trustee is a Philippine national
and at least sixty percent (60%) of the fund
will accrue to the benefits of Philippine
nationals;
Provided, That where a corporation and its non-
Filipino stockholders own stocks in a SEC registered
enterprise, at least sixty percent (60%) of the capital
stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of
the Philippines and at least sixty percent (60%) of
the members of the Board of Directors of each of
both corporations must be citizens of the
Philippines, in order that the corporation shall be
considered a Philippine national (Sec. 3(a), Foreign
Investments Act of 1991).
Negative list
Negative List A: Foreign ownership is limited by
mandate of the Constitution and specific laws
Negative List B: Foreign ownership is limited for
reasons of security, defense, risk to health and
morals, and protection of small and medium scale
enterprises
Nationality Industry
Requirement
100% List A
ownership
● Mass media, except recording
Filipino
● Practice of profession
● Retail trade with paid up capital
less than US $2,500,000
● Cooperatives
● Private security agencies
● Small-scale mining
● Utilization of marine resources
in archipelagic waters, territorial
sea, exclusive economic zone,
as well as rivers, lakes, bays,
and lagoons
● Ownership, operation and
management of cockpits
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● Manufacture, repair, stockpiling ● Culture, production, milling,

and/or distribution of nuclear processing and trading of rice
weapons and corn; Acquiring - by barter,
● Manufacture of firecrackers and purchase or otherwise - rice,
other pyrotechnic devices corn, and their byproducts
● Contracts for the supply of
75% List A
ownership materials, goods and
● Private recruitment, whether for commodities to GOCC,
Filipino
local or overseas employment companies, agencies or
● Contracts for construction of municipal corporations
defense-related structures ● Operation of deep sea
70% List A commercial fishing vessels
ownership Advertising ● Ownership of condominium
Filipino
units
60% capital List A
stock Filipino ● Private radio communications
● Contracts for the construction
ownership network
and repair of locally-funded
public works. Exceptions:
Infrastructure/ or development List B
projects covered in RA 7718; ● Manufacture, repair, storage
and Foreign-funded or assisted and/or distribution of products
projects which need to undergo and/or ingredients requiring
international competitive Philippine National Police (PNP)
bidding clearance (i.e., firearms,
● Exploration, development and ingredients used in making
utilization of natural resources explosives, etc.)
● Ownership of private lands ● Manufacture, repair, storage,
and/or distribution of products
● Operation of public utilities.
requiring Department of
Exceptions: Power generation,
National Defense (DND)
Supply of electricity to the
clearance;
contestable market, Similar
businesses or services not ● Manufacture and distribution of
covered by the definition of dangerous drugs
public utilities ● Sauna and steam bathhouses,
● Educational institutions. massage clinics and other like
Exceptions: Institutions founded activities regulated by law
by religious groups and mission because of risks posed to public
boards, Education for foreign health and morals
diplomatic personnel, their ● All forms of gambling, except
dependents, and other foreign those covered by investment
temporary residents, Short-term agreements with PAGCOR
high-level skills development
outside the formal education ● Domestic market enterprises
system as defined in Section 20 with paid-in equity capital of less
ofBP 232 (1982) than the equivalent of
US$200,000
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● Domestic market enterprises
which involve advanced
technology or employ at least
fifty (50) direct employees with
paid-in equity capital of less
than the equivalent of
US$100,000
Corporate juridical personality
Doctrine of separate juridical personality. A
corporation is a juridical entity which is vested with a
legal personality separate and distinct from those
acting for and, in its behalf, and, in general, from the
people comprising it. Obligations incurred by the
corporation, acting through its directors, officers and
employees, are its sole liabilities (Heirs of Uy vs.
International Exchange Bank, February 13, 2013).
Corporate officers as parties to an arbitration
proceedings. As a general rule, therefore, a
corporation’s representative who did not personally
bind himself or herself to an arbitration agreement
cannot be forced to participate in arbitration
proceedings made pursuant to an agreement
entered into by the corporation. However, corporate
representatives may be compelled to submit to
arbitration proceedings pursuant to a contract
entered into by the corporation they represent if
there are allegations of bad faith or malice in their
acts representing the corporation, and it becomes
the duty of courts or tribunals to determine if these
persons and the corporation should be treated as
one. Without a trial, courts and tribunals have no
basis for determining whether the veil of corporate
fiction should be pierced. (Lanuza v. BF Corp., G.R.
No. 174938, October 1, 2014, J. Leonen).
Doctrine of piercing the corporate veil. When the
notion of separate juridical personality is used (1) to
defeat public convenience, justify wrong, protect
fraud or defend crime; (2) as a device to defeat the
labor laws; or (3) when the corporation is merely an
adjunct, a business conduit or an alter ego of
another corporation, this separate personality of the
corporation may be disregarded or the veil of
corporate fiction pierced (Virata vs. Ng Wee, G.R.
Nos. 220926 et.al., July 5, 2017).
Reverse piercing flows in the opposite direction (of
traditional corporate veil-piercing) and makes the
corporation liable for the debt of the shareholders. It
has two (2) types: outsider reverse piercing and
insider reverse piercing. Outsider reverse piercing
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occurs when a party with a claim against an
individual or corporation attempts to be repaid with
assets of a corporation owned or substantially
controlled by the defendant. In contrast, in insider
reverse piercing, the controlling members will
attempt to ignore the corporate fiction in order to
take advantage of a benefit available to the
corporation, such as an interest in a lawsuit or
protection of personal assets (International
Academy of Management and Economics (I/AME),
vs. Litton and Company, Inc., GR No. 191525, Dec.
13, 2017).
Board of Directors
Centralized management. Unless otherwise
provided in this Code, the board of directors or
trustees shall exercise the corporate powers,
conduct all business, and control all properties of the
corporation (Sec. 22, RCC)
Acts of an officer that are not authorized by the
board of directors/trustees do not bind the
corporation unless the corporation ratifies the acts
or holds the officer out as a person with authority to
transact on its behalf. (University of Mindanao, Inc.,
vs. BSP, G.R. No. 194964-65, 11 January 2016, J.
Leonen)
Two types of authorities conferred upon a corporate
officer or agent in dealing with third persons:
1. Actual authority can either be express or
implied. Express actual authority refers to
the power delegated to the agent by the
corporation, while an agent's implied
authority can be measured by his or her
prior acts which have been ratified by the
corporation or whose benefits have been
accepted by the corporation.
2. Apparent authority is based on the
principle of estoppel. The doctrine of
apparent authority provides that even if no
actual authority has been conferred on an
agent, his or her acts, as long as they are
within his or her apparent scope of authority,
bind the principal. However, the principal's
liability is limited to third persons who are
reasonably led to believe that the agent was
authorized to act for the principal due to the
principal's conduct. Apparent authority is
determined by the acts of the principal and
not by the acts of the agent.
When a corporation intentionally or negligently
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clothes its agent with apparent authority to act in its For religious societies, not less than 5 nor more than
behalf, it is estopped from denying its agent's 15 trustees
apparent authority as to innocent third parties who
dealt with this agent in good faith. (Calubad v.
Ricarcen Development Corp., G.R. No. 202364, Independent Director. A person who, apart from
August 30, 2017, J. Leonen). shareholdings and fees received from the
corporation, is independent of management and free
from any business or other relationship which could,
Incorporator or could reasonably be perceived to materially
interfere with the exercise of independent judgment
(a) Any person, partnership, association or
corporation in carrying out the responsibilities as a director.
Independent directors must be elected by the
(b) Incorporators who are natural persons must shareholders present or entitled to vote in absentia
be of legal age. during the election of directors. (Sec. 22, RCC)
(c) Each incorporator of a stock corporation Corporations vested with public interest are required
must own or be a subscriber to at least 1 to have independent directors constituting at least
share of the capital stock (Sec. 10, RCC). 20% of the board. These corporations include:
For practice of profession, natural persons (1) Corporations covered by the Securities
who are licensed to practice a profession, Regulation Code, namely:
and partnerships or associations organized
i. Those whose securities are
for the purpose of practicing a profession,
registered with the Commission;
shall not be allowed to organize as a
corporation unless otherwise provided ii. Corporations listed with an
under special laws (Sec. 10, RCC). exchange or with assets of at least
Fifty million pesos
(P50,000,000.00); and
Composition Qualification Term
iii. Having two hundred (200) or more
Director Not more than Must own at One (1) holders of shares, each holding at
(Stock 15 least one (1) year, least one hundred (100) shares of a
corporat share of stock and until class of its equity shares;
ion) their
(2) Banks and quasi-banks, NSSLAs,
success
pawnshops, corporations engaged in
ors are
money service business, pre-need, trust
elected
and insurance companies, and other
and
financial intermediaries;
qualified
. (3) Other corporations engaged in business
vested with public interest similar to the
Trustee Fixed in the Must be a Not above, as may be determined by the
(Non- articles of member exceedi Commission (Sec. 22, RCC)
stock incorporation ng three
corporat or bylaws (3) years
ion) which may or until Personal liability. Before a director or officer of a
may not be their corporation can be held personally liable for
more than success corporate obligations, however, the following
fifteen (15). ors are requisites must concur:
elected
and (1) the complainant must allege in the
qualified complaint that the director or officer
. assented to patently unlawful acts of the
corporation, or that the officer was guilty of
For educational non-stock corporations: gross negligence or bad faith; and
(1) Trustees may not be less than 5 nor (2) the complainant must clearly and
exceed 15; convincingly prove such unlawful acts,
(2) Number of trustees shall be in negligence or bad faith (Arco Pulp and
multiples of 5
 S CBA R STAG NO TES
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Paper Co., Inc., v. Lim, G.R. No. 206806, 25
June 2014, J. Leonen).
Solidary liabilities for damages. A director,
trustee, or officer of a corporation may be made
solidarily liable with it for all damages suffered by the
corporation, its stockholders or members, and other
persons in any of the following cases:
(a) The director or trustee willfully and
knowingly voted for or assented to a
patently unlawful corporate act;
(b) The director or trustee was guilty of gross
negligence or bad faith in directing
corporate affairs; and
(c) The director or trustee acquired personal or
pecuniary interest in conflict with his or her
duties as director or trustee (Lanuza v. BF
Corp., G.R. No. 174938, October 1, 2014, J.
Leonen).
Solidary liability with the corporation will also attach
in the following instances:
(a) "When a director or officer has consented to
the issuance of watered stocks or who,
having knowledge thereof, did not forthwith
file with the corporate secretary his written
objection thereto";
(b) "When a director, trustee or officer has
contractually agreed or stipulated to hold
himself personally and solidarily liable with
the corporation"; and
(c) "When a director, trustee or officer is made,
by specific provision of law, personally liable
for his corporate action." (Lanuza v. BF
Corp., G.R. No. 174938, October 1, 2014, J.
Leonen)
Disqualification of Directors, Trustees or
Officers. A person shall be disqualified from being
a director, trustee or officer of any corporation if,
within five (5) years prior to the election or
appointment as such, the person was:
(a) Convicted by final judgment:
(1) Of an offense punishable by
imprisonment for a period
exceeding six (6) years;
(2) For violating this Code; and
(3) For violating Republic Act No. 8799,
otherwise known as “The Securities
Regulation Code”;
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(b) Found administratively liable for any
offense involving fraudulent acts; and
(c) By a foreign court or equivalent foreign
regulatory authority for acts, violations
or misconduct similar to those
enumerated in paragraphs (a) and (b)
above.
The foregoing is without prejudice to qualifications
or other disqualifications, which the SEC, the
primary regulatory agency, or the Philippine
Competition Commission may impose in its
promotion of good corporate governance or as a
sanction in its administrative proceedings (Sec. 26,
RCC).
Removal of Directors or Trustees. General Rule:
Any Director or Trustee of a corporation may be
removed from office, with or without cause (Sec. 27,
RCC).
Exception: If the director was elected by the minority,
there must be cause for removal because the
minority may not be deprived of the right to
representation to which they may be entitled to
under Sec. 23 of the Code (Sec. 27, RCC).
Requisites for Removal:
1) It must take place either at a regular
meeting or special meeting of the
stockholders or members called for the
purpose;
2) A special meeting for the purpose of
removing directors or trustees must be
called by:
a. The secretary, on order of the
president; or
b. The secretary, upon written
demand of the stockholders
representing or holding at least a
MAJORITY of the capital stock or a
MAJORITY of the members entitled
to vote;
3) There must be previous notice to the
stockholders or members of the
intention to remove a director; and
4) There must be a vote of the
stockholders representing 2/3 of
outstanding capital stock or in case of a
nonstock corporation, 2/3 of members
entitled to vote.
 S CBA R STAG NO TES
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The Commission shall, motu proprio or upon verified
complaint, and after due notice and hearing, order
the removal of a director or trustee elected despite
the disqualification, or whose disqualification arose
or is discovered subsequent to an election (Sec. 27,
RCC).
Three-fold duty of Directors and Trustees
1) Duty of Obedience - shall direct the affairs
of the corporation only in accordance with
the purposes for which it was organized;
2) Duty of Diligence - shall not willfully and
knowingly vote for or assent to patently
unlawful acts of the corporation or act in bad
faith or with gross negligence in directing
the affairs of the corporation; and
3) Duty of Loyalty - shall not acquire any
personal or pecuniary interest in conflict
with their duty as such directors or trustees
Disloyalty of a Director. General Rule: Where a
director, by virtue of such office, acquires a business
opportunity which should belong to the corporation,
thereby obtaining profits to the prejudice of such
corporation, the director must account for and refund
to the latter all such profits.
Exception: Unless the act has been ratified by a vote
of the stockholders owning or representing at least
two-thirds (2/3) of the outstanding capital stock (Sec.
33, RCC).
Emergency Board. A vacancy may be temporarily
filled from among the officers of the corporation by
unanimous vote of the remaining directors or
trustees when:
(1) The vacancy prevents the remaining
directors from constituting a quorum; and
(2) Emergency action is required to prevent
grave, substantial, and irreparable loss or
damage to the corporation.
The action by the designated director or trustee
shall be limited to the emergency action
necessary.
Executive Committee. If the bylaws so provide, the
board may create an executive committee
composed of at least three (3) directors. Said
committee may act, by majority vote of all its
members, on such specific matters within the
competence of the board, as may be delegated to it
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in the bylaws or by majority vote of the board, except
with respect to the:
(a) approval of any action for which
shareholders’ approval is also required; (b)
filling of vacancies in the board;
(c) amendment or repeal of bylaws or the
adoption of new bylaws;
(d) amendment or repeal of any resolution
of the board which by its express terms is
not amendable or repealable; and
(e) distribution of cash dividends to the
shareholders (Sec. 37, RCC).
Special Committees. The board of directors may
create special committees of temporary or
permanent nature and determine the members’
term, composition, compensation, powers, and
responsibilities (Sec. 37, RCC).
Business judgment rule. The Courts are barred
from intruding into business judgments of
corporations, when the same are made in good faith
(Philippine Stock Exchange Inc. vs Court of
Appeals, G.R. No. 125469, October 27, 1997).
Unless such contracts are so unconscionable and
oppressive as to amount to a wanton destruction of
rights of the minority.
Corporate powers. A corporation may exercise its
powers only within those definitions. Corporate acts
that are outside those express definitions under the
law or articles of incorporation or those "committed
outside the object for which a corporation is created"
are ultra vires.
The only exception to this, rule is when acts are
necessary and incidental to carry out a corporation's
purposes, and to the exercise of powers conferred
by the Corporation Code and under a corporation's
articles of incorporation (University of Mindanao,
Inc., vs. BSP, G.R. No. 194964-65, 11 January
2016, J. Leonen).
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Corporate Power
Power to extend or shorten
corporate term (Sec. 36,
RCC)
Power to increase or
decrease capital stock or
incur, create, increase
bonded indebtedness (Sec.
37, RCC)
Power to deny pre-emptive
rights (Sec. 38, RCC)
Power to sell or dispose
corporate assets (Sec. 39,
RCC)
Power to acquire own shares
(Sec. 40, RCC)
Power to invest corporate
funds in another corporation
or business (Sec. 41, RCC)
Power to declare dividends
(Sec. 42, RCC)
Power to enter into
management contract (Sec.
Votes required
Majority of BOD /BOT
and
At least 2/3 of the outstanding
capital stock or members
Majority of BOD /BOT
and
At least 2/3 of the outstanding
capital stock or members
Majority of BOD /BOT
When sale of all or substantially all
of the corporation’s properties and
assets:
Majority of BOD /BOT
and
At least 2/3 of the outstanding
capital stock or members
Majority of BOD
Majority of BOD /BOT
and
At least 2/3 of the outstanding
capital stock or members
Majority of BOD
In case of stock dividends, with at
least 2/3 of the outstanding capital
stock
The contract is approved by the
BOD/ BOT
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Other requisites
No extension may be made earlier than
3 years prior to the original or
subsequent expiry date(s) unless there
are justifiable reasons for an earlier
extension as may be determined by the
SEC
- Any increase or decrease in the
capital stock or the incurring,
creating or increasing of any
bonded indebtedness shall require
prior approval of the SEC, and
where appropriate, of the Philippine
Competition Commission.
- At least 25% of the increase in
capital stock has been subscribed
and that at least 25% of the amount
subscribed has been paid
- No decrease in capital stock shall
be approved by the SEC if its effect
shall prejudice the rights of
corporate creditors.
When the right is denied by the articles
of incorporation or an amendment
thereto
Subject to the provisions of Republic
Act No. 10667, otherwise known as
“Philippine Competition Act”, and other
related laws
The corporation has unrestricted
retained earnings
Where the investment by the
corporation is reasonably necessary to
accomplish its primary purpose, the
approval of the stockholders or
members shall not be necessary.
The BOD may declare dividends out of
the unrestricted retained earnings
No management contract shall be
entered into for a period longer than 5
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43, RCC) and years for any 1 term.

by stockholders owning at least the
majority of the outstanding capital
stock or members of both the
managing and the managed
corporation

But 2/3 vote of outstanding

stock/members of managed
corporation is necessary where:
- stockholder/s representing the
same interest of both the
managing and managed
corporations own or control more
than 1/3 of the total outstanding
capital stock entitled to vote of the
managing corporation; or
-a majority of the members of the
board of directors of the managing
corporation also constitute a
majority of the members of the
board of directors of the managed
corporation

Stockholders (h) Dissolution of the corporation (Sec. 6,

Corporate Acts Requiring All Shareholders’
Approval
General Rule: Vote necessary to approve a
particular corporate act as provided in this RCC shall
be deemed to refer only to stocks with voting rights
Exception: Holders of nonvoting shares shall
nevertheless be entitled to vote on the following
matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
(c) Sale, lease, exchange, mortgage, pledge,
or other disposition of all or substantially all
of the corporate property;
(d) Incurring, creating, or increasing bonded
indebtedness;
(e) Increase or decrease of authorized capital
stock;
(f) Merger or consolidation of the corporation
with another corporation or other
corporations;
(g) Investment of corporate funds in another
corporation or business in accordance with
this Code; and
RCC).
Voting. Stockholders and members may vote in
person or by proxy in all meetings of stockholders
or members. When so authorized in the bylaws or
by a majority of the board of directors, the
stockholders or members of corporations may also
vote through remote communication or in
absentia (Sec. 57, RCC).
Right to Financial Statement. A corporation shall
furnish a stockholder or member, within ten (10)
days from receipt of their written request, its most
recent financial statement, in the form and
substance of the financial reporting required by the
SEC.
If the total assets or total liabilities of the corporation
is less than Six hundred thousand pesos
(P600,000.00), or such other amount as may be
determined appropriate by the Department of
Finance, the financial statements may be certified
under oath by the treasurer and the president (Sec.
74, RCC).
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Right to inspect corporate records
a. Must be a director, trustee, stockholder or
member of the corporation in person or by a
representative;
b. At reasonable hours on business days,
c. A demand in writing may be made by the
director, trustee or stockholder at their expense,
for such records or excerpts from the records;
and
d. The inspecting or reproducing party shall
remain bound by confidentiality rules under
prevailing laws, such as the Intellectual Property
Code of the Philippines, Data Privacy Act of
2012, The Securities Regulation Code, and the
Rules of Court (Sec. 73, RCC).
Appraisal rights. When available:
(a) In case an amendment to the articles of
incorporation has the effect of changing or
restricting the rights of any stockholder or
class of shares, or of authorizing
preferences in any respect superior to those
of outstanding shares of any class, or of
extending or shortening the term of
corporate existence
Note: For extension of corporate term only
(Sec. 36, RCC)
(b) In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of all
or substantially all of the corporate property
and assets as provided in this Code;
(c) In case of merger or consolidation; and
(d) In case of investment of corporate funds for
any purpose other than the primary purpose
of the corporation (Sec. 80, RCC).
Preemptive right. All stockholders of a stock
corporation shall enjoy preemptive right to subscribe
to all issues or disposition of shares of any class, in
proportion to their respective shareholdings (Sec.
38, RCC).
Exceptions:
(1) Denied by the articles of incorporation or an
amendment
(2) Shares were issued in compliance with laws
requiring stock offerings or minimum stock
ownership by the public; or
(3) Shares were issued in good faith with the
approval of the stockholders representing
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two-thirds (2/3) of the outstanding capital
stock, in exchange for property needed for
corporate purposes or in payment of a
previously contracted debt.
Derivative suit. A derivative suit is an action filed by
stockholders to enforce a corporate action. It is an
exception to the general rule that the corporation’s
power to sue is exercised only by the board of
directors or trustees.
Individual stockholders may be allowed to sue on
behalf of the corporation whenever the directors or
officers of the corporation refuse to sue to vindicate
the rights of the corporation or are the ones to be
sued and are in control of the corporation. It is
allowed when the "directors [or officers] are guilty of
breach of . . . trust, [and] not of mere error of
judgment." In derivative suits, the real party in
interest is the corporation, and the suing stockholder
is a mere nominal party (Villamor v. Umale, G.R. No.
172843, September 24, 2014, J. Leonen).
Impleading the corporation is a condition sine
qua non in derivative suits. Not only is the
corporation an indispensable party, but it is also the
present rule that it must be served with process. The
reason given is that the judgment must be made
binding upon the corporation in order that the
corporation may get the benefit of the suit and may
not bring a subsequent suit against the same
defendants for the same cause of action. In other
words the corporation must be joined as party
because it is its cause of action that is being litigated
and because judgment must be a res judicata
against it (Villamor v. Umale, G.R. No. 172843,
September 24, 2014, J. Leonen).
Section 1, Rule 8 of the Interim Rules imposes the
following requirements for derivative suits:
(1) The person filing the suit must be a
stockholder or member at the time the acts
or transactions subject of the action
occurred and the time the action was filed;
(2) He must have exerted all reasonable
efforts, and alleges the same with
particularity in the complaint, to exhaust all
remedies available under the articles of
incorporation, by-laws, laws or rules
governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the act
or acts complained of; and
 S CBA R STAG NO TES
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(4) The suit is not a nuisance or harassment
suit (Ang v. Spouses Ang, G.R. No. 201675,
June 19, 2013).
What is the difference between an individual,
class and derivative suit?
Individual suits are filed when the cause of action
belongs to the individual stockholder personally, and
not to the stockholders as a group or to the
corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder. If the cause of
action belongs to a group of stockholders, such as
when the rights violated belong to preferred
stockholders, a class or representative suit may be
filed to protect the stockholders in the group.
A derivative suit is an action filed by stockholders
to enforce a corporate action. A derivative suit,
therefore, concerns a wrong to the corporation itself.
The real party in interest is the corporation, not the
stockholders filing the suit. The stockholders are
technically nominal parties but are nonetheless the
active persons who pursue the action for and on
behalf of the corporation.
The fact that stockholders suffer from a wrong done
to or involving a corporation does not vest in them a
sweeping license to sue in their own capacity
When the object is a specific stockholder or a
definite class of stockholders, an individual suit or
class/representative suit must be resorted to.
When the object of the wrong done is the corporation
itself or the whole body of its stock and property
without any severance or distribution among
individual holders, it is a derivative suit that a
stockholder must resort to. (Florete vs. Florete,
January 20, 2016)
Individual suits are filed when the cause of action
belongs to the individual stockholder personally, and
not to the stockholders as a group or to the
corporation, e.g., denial of right to inspection and
denial of dividends to a stockholder. If the cause of
action belongs to a group of stockholders, such as
when the rights violated belong to preferred
stockholders, a class or representative suit may be
filed to protect the stockholders in the group
(Villamor v. Umale, G.R. No. 172843, September
24, 2014, J. Leonen).
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Articles of Incorporation
Contents (Sec. 13, RCC):
(a) Corporate Name;
No corporate name shall be allowed if:
(a) it is not distinguishable from
that already reserved or registered
for the use of another corporation,
(b) already protected by law, or
(c) when its use is contrary to
existing law, rules and regulations.
If the corporate name is not allowed, the
SEC may summarily order the
corporation to immediately cease and
desist from using such name and
require the corporation to register a new
one. The SEC shall also cause the
removal of all visible signages, marks,
advertisements, labels, prints and other
effects bearing such corporate name
(Sec. 17, RCC).
(b) Purpose Clause;
(c) Principal Office;
(d) Corporate Term. A corporation now has
perpetual existence unless its AOI provides
otherwise (Sec. 11, RCC).
For existing corporations prior the
effectivity of RCC, they shall also have
perpetual existence, “unless the
corporation, upon a vote of its
stockholders representing a majority of
its outstanding capital stock, notifies the
Commission that it elects to retain its
specific corporate term pursuant to its
articles of incorporation” (Sec. 11,
RCC).
(e) Names, nationalities, and residence
addresses of the incorporators;
(f) The number of directors, which shall not be
more than fifteen (15) or the number of
trustees which may be more than fifteen;
(g) The names, nationalities, and residence
addresses of persons who shall act as
directors or trustees until the first regular
directors or trustees are duly elected and
qualified in accordance with this Code;
(h) For stock corporations:
1) The authorized capital stock,
2) Number of shares into which it is
divided,
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3) The par value of each share,
4) Names, nationalities, and residence
addresses of the original subscribers,
5) Amount subscribed and paid by each on
the subscription, and
6) A statement that some or all of the
shares are without par value, if
applicable
The RCC deleted the 25% paid-up
capital rule. However, for increase of
capital stock, there must be a sworn
statement of the treasurer of the
corporation showing that at least 25% of
the increase in capital stock has been
subscribed and that at least 25% of the
amount subscribed has been paid (Sec.
37, RCC).
(i) For nonstock corporations:
1) Amount of its capital,
2) The names, nationalities, and
3) Residence addresses of the
contributors, and
4) Amount contributed by each
An arbitration agreement may be provided in the
articles of incorporation pursuant to Section 181 of
RCC.
RCC added new content for the articles of
incorporation, which is the undertaking to change
corporate (Sec 14, RCC).
The articles of incorporation and applications for
amendments thereto may be filed with the
Commission in the form of an electronic document,
in accordance with the Commission’s rules and
regulations on electronic filing.
Amendment of Articles of Incorporation. Unless
otherwise prescribed by RCC or by special law, and
for legitimate purposes, any provision or matter
stated in the articles of incorporation may be
amended:
1. By a majority vote of the BOD or trustees;
and
2. The vote or written assent of
a. 2/3 of the outstanding capital stock,
without prejudice to the appraisal right
of dissenting stockholders, or
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c. 2/3 of the members if it be a nonstock
corporation (Sec. 15, RCC).
Bylaws
For adoption of bylaws by the corporation, the
affirmative vote of the stockholders representing at
least a majority of the outstanding capital stock, or
of at least a majority of the members in case of
nonstock corporations, shall be necessary (Sec. 45
RCC).
- RCC deleted the requirement that a corporation
must adopt within one month after receipt of
official notice of the issuance of its certificate of
incorporation.
But by-laws may be adopted and filed prior to
incorporation; in such case, such bylaws shall be
approved and signed by all the incorporators and
submitted to the SEC, together with the articles of
incorporation (Sec. 45, RCC).
Binding effects. The bylaws shall be effective only
upon the issuance by the SEC of a certification that
the bylaws are in accordance with RCC.
Amendments of bylaws. A majority of the board of
directors or trustees, and the owners of at least a
majority of the outstanding capital stock, or at least
a majority of the members of a nonstock corporation
may amend or repeal the bylaws or adopt new
bylaws (Sec. 47, RCC).
The purpose of a bylaw is to regulate the conduct
and define the duties of the members towards the
corporation and among themselves. They are self-
imposed and, although adopted pursuant to
statutory authority, have no status as public law.
Therefore, it is the generally accepted rule that
third persons are not bound by by-laws, except
when they have knowledge of the provisions
either actually or constructively (China Banking
Corporation vs. CA, and Valley Golf and Country
Club, Inc., G.R. No. 117604, March 26, 1997
Intra-corporate dispute (concept)
An intra-corporate dispute is one that arises from
intra-corporate relation that is:
(a) between the corporation, partnership or
association and the public;
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(b) between the corporation, partnership or
association and its stockholders, partners,
members, or officers;
(c) between the corporation, partnership or
association and the state in so far as its
franchise, permit or license to operate is
concerned; and
(d) among the stockholders, partners or
associates themselves.
This is known as the relationship test. Relationship
alone does not ipso facto make the dispute intra-
corporate. The incidents of that relationship must be
considered to ascertain whether the controversy
itself is intra-corporate.
Under the controversy test, the dispute must be
rooted in the existence of an intra-corporate
relationship, and must refer to the enforcement of
the parties' correlative rights and obligations under
the Corporation Code, as well as the internal and
intra-corporate regulatory rules of the corporation, in
order to be an intra-corporate dispute (Gulfo v
Ancheta, G.R. No. 175301, August 15, 2012). It
requires that the dispute itself must be intrinsically
connected with the regulation of the corporation,
partnership or association.
RCC requires intra-corporate disputes to be
referred to arbitration when an arbitration clause is
provided in the articles of incorporation or bylaws.
Sec 181 of RCC provides:
An arbitration agreement may be provided
in the articles of incorporation or bylaws of
an unlisted corporation. When such an
agreement is in place, disputes between the
corporation, its stockholders or members,
which arise from the implementation of the
articles of incorporation or bylaws, or from
intra-corporate relations, shall be referred to
arbitration. A dispute shall be nonarbitrable
when it involves criminal offenses and
interests of third parties
The Regional Trial Court has jurisdiction over
controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
stockholders, members, or associates, respectively
(Interim Rules of Procedure for Intra-Corporate
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Controversies).
INTELLECTUAL PROPERTY RIGHTS
Intellectual Property Rights
Intangible property rights granted by law to owners
of intellectual creations such as inventions, designs,
signs and names used in commerce, and literary
and artistic works. Intellectual property rights (IPR)
are rights given to persons over the creation of their
minds. It has two (2) categories:
A. Industrial property which includes
inventions (patents), trademarks, industrial
design, and geographic indications of
source; and,
B. Copyright and related rights. Copyright
includes literary and artistic works. Rights
related to copyright include those of
performing artists in their performances,
producers of phonograms in their
recordings, and those of broadcasters in
their radio and television programs. (Divina
on Commercial Law citing Gepty:
Intellectual Property Compendium)
Differences between copyright, trademarks, and
patents
(a) Definition
A trademark is any visible sign capable of
distinguishing the goods (trademark) or services
(service mark) of an enterprise and shall include a
stamped or marked container of goods. In relation
thereto, a trade name means the name or
designation identifying or distinguishing an
enterprise. (Section 121, IPC, as amended)
A patent is an exclusive right granted to an inventor
over an invention or a utility model or industrial
design to sell, use, and make the same for
commerce and industry.
Meanwhile, copyright is defined as an incorporeal
and intangible property granted by law to the
originator or creator of certain literary, artistic,
scientific and scholarly works whereby he or she is
invested for a specific period of time a collection of
economic and moral rights on the terms specified by
statute. (Divina on Commercial Law, Volume 2,
2021)
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(b) Scope of Object conditions specified in the statute. Accordingly, it

can only cover the works falling within the statutory
Trademark attaches to goods or services of an
enterprise and stamped or marked containers. enumeration or description. Only the expression of
an idea is protected by copyright, not the idea itself.
Copyright is confined to literary, artistic and scientific
(Pearl & Dean (Phil.), Inc. vs. Shoemart,
works which are original intellectual creations in the
Incorporated, G.R. No. 148222, August 15, 2003).
literary and artistic domain protected from the
moment of their creation. On the other hand,
patentable inventions refer to any technical solution
Copyrightable works
of a problem in any field of human activity which is
new, involves an inventive step and is industrially a. Original works
applicable. Literary and artistic works, hereinafter referred to as
"works", are original intellectual creations in the
literary and artistic domain protected from the
(c) Term of protection moment of their creation and shall include in
A patent is valid for 20 years from filing of the particular:
application for the grant of patent. Copyright is 1. Books, pamphlets, articles and other
generally valid for 50 years. For trademarks, a writings;
certificate of registration shall remain in force for 10
years, provided, that the registrant shall file a 2. Periodicals and newspapers;
declaration of actual use and evidence to that effect, 3. Lectures, sermons, addresses,
or shall show valid reasons based on the existence dissertations prepared for oral delivery,
of obstacles to such use, within one (1) year from whether or not reduced in writing or other
the fifth anniversary of the date of the registration of material form;
the mark. Otherwise, the mark shall be removed
from the Register by the Office. (ICP, as amended) 4. Letters;
5. Dramatic or dramatico-musical
compositions; choreographic works or
(d) Modes of acquiring the various rights entertainment in dumb shows;
Trademark is acquired solely through registration in 6. Musical compositions, with or without
accordance with the provisions of the Intellectual words;
Property Code (IPC). Patent is likewise acquired
through application with, and grant by, foe IPO. 7. Works of drawing, painting, architecture,
Copyright is acquired from the moment of creation. sculpture, engraving, lithography or other
(Divina on Commercial Law, Volume 2, 2021) works of art; models or designs for works of
art;
8. Original ornamental designs or models for
Copyright articles of manufacture, whether or not
It is a right over literary and artistic works which are registrable as an industrial design, and
original intellectual creations in the literary and other works of applied art;
artistic domain protected from the moment of 9. Illustrations, maps, plans, sketches, charts
creation. (Sec. 171.1, Intellectual Property and three-dimensional works relative to
Code/R.A. 8293) geography, topography, architecture or
science;
PRINCIPLE OF AUTOMATIC PROTECTION 10. Drawings or plastic works of a scientific or
technical character;
Under this principle - works are protected by the sole
fact of their creation irrespective of their content, 11. Photographic works including works
quality or purpose. Such rights are conferred from produced by a process analogous to
the moment of creation. photography; lantern slides;
Copyright, in the strict sense of the term, is purely a 12. Audiovisual works and cinematographic
statutory right. Being a mere statutory grant, the works and works produced by a process
rights are limited to what the statute confers. It may analogous to cinematography or any
be obtained and enjoyed only with respect to the process for making audio-visual recordings;
subjects and by the persons, and on terms and 13. Pictorial illustrations and advertisements;
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14. Computer programs; and
15. Other literary, scholarly, scientific and
artistic works [Sec. 172.1, RA 8293]
b. Derivative works
The following derivative works shall also be
protected by copyright:
1. Dramatizations,
2. Translations,
3. Adaptations,
4. Abridgments,
5. Arrangements, and other alterations of
literary or artistic works; and
6. Collections of literary, scholarly or artistic
works, and
7. Compilations of data and other materials
which are original by reason of the selection
or coordination or arrangement of their
contents. [Sec. 173.1, RA 8293]
Non-copyrightable Works
1. Any idea, procedure, system method or
operation, concept, principle, discovery or
mere data as such, even if they are
expressed, explained, illustrated or
embodied in a work;
2. News of the day and other miscellaneous
facts having the character of mere items of
press information;
3. Any official text of a legislative,
administrative or legal nature, as well as any
official translation thereof;
4. Pleadings;
5. Original decisions of courts and tribunals –
this refers to “original decisions” and not
those annotated like the SCRA.
6. Work of the Government of the Philippines
a. General Rule: Conditions imposed
prior to the approval of the
government agency or office
wherein the work is created shall be
necessary for exploitation of such
work for profit. Such agency or
office, may, among other things,
impose as condition the payment of
royalties.
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b. Exception: Statutes, rules and
regulations, and speeches,
lectures, sermons, addresses, and
dissertations, pronounced, read, or
rendered in courts of justice, before
administration agencies, in
deliberative assemblies and in
meetings of public character (Sec.
176 Intellectual Property Code/R.A.
8293)
7. TV programs, format of TV programs
(Joaquin v. Drilon, G.R. No. 108946, Jan.
28, 1999)
8. Systems of bookkeeping; and
9. Statutes.
Eloise, an accomplished writer, was hired by Petong
to write a bimonthly newspaper column for Diario de
Manila, a newly-established newspaper of which
Petong was the editor-in-chief. Eloise was to be paid
p1, 000.00 for each column that was published. In
the course of two months, Eloise submitted three
columns which, after some slight editing, were
printed in the newspaper. However, Diario de Manila
proved unprofitable and closed only after two
months. Due to the minimal amounts involved,
Eloise chose not to pursue any claim for payment
from the newspaper, which was owned by new
media enterprises, three years later, Eloise was
planning to publish an anthology of her works, and
wanted to include the three columns that appeared
in the Diario de Manila in her anthology. She asks
for your legal advice:
A. Does Eloise have to secure authorization from
new media enterprises to be able to publish Diario
de Manila columns in her own anthology? Explain
fully.
B. Assume that new media enterprises plans to
publish Eloise’s columns in its own anthology
entitled, “The Best of Diario de Manila.” Eloise wants
to prevent the publication of her columns in that
anthology since she was never paid by the
newspaper. Name one irrefutable legal argument
eloise could cite to enjoin new media enterprises
from including her columns in its anthology. (2008
Bar)
A. No. In the case of a work commissioned by a
person other than an employer of the author and
who pays for it and the work is made in pursuance
of the commission, the person who so
commissioned the work shall have ownership of
work, but the copyright thereto shall remain with the
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creator, unless there is a written statement to the
contrary. (Sec. 178.4, Intellectual Property
Code/R.A. 8293) Thus, though Diario de Manila
commissioned the work, it cannot be considered as
its owner because it did not pay Eloise. Ownership
and copyright still belong to Eloise. Authorization is
no longer needed to publish Diario de Manila in her
anthology because Eloise has moral and economic
rights over her works.
B. The fact that Eloise was not paid, ownership over
her work, published in the newspaper, did not vest
upon the latter. She retains full moral and economic
rights over it.
Rights of Copyright Owner
1. Economic rights – The right to carry out, authorize
or prevent the following acts:
A. Reproduction of the work or substantial
portion thereof
B. Carry-out derivative work (dramatization,
translation, adaptation, abridgement,
arrangement or other transformation of the
work)
C. First distribution of the original and each
copy of the work by sale or other forms of
transfer of ownership
D. Rental right
E. Public display
F. Public performance
G. Other communications to the public.
2. Moral rights – For reasons of professionalism and
propriety, the author has the right:
A. To require that the authorship of the works
be attributed to him (attribution right)
B. To make any alterations of his work prior to,
or to withhold it from publication
C. To preserve integrity of work, object to any
distortion, mutilation or other modification
which would be prejudicial to his honor or
reputation; and
D. To restrain the use of his name with respect
to any work not of his own creation or in a
distorted version of his work (Sec. 193,
Intellectual Property Code/R.A. 8293).
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3. Droit de suite or “art proceeds right” is the artist’s
resale right, which requires that a percentage of the
resale price of an artistic work is paid to the author.
The right is exercisable even after the author’s
death, provided the work is still in copyright (David
Bainbridge, Intellectual Property, 3rd Ed., p. 220
1996, also cited in Copyright Law of the Philippines
by D. Funa).
In every sale or lease of an original work of painting
or sculpture or of the original manuscript of a writer
or composer, subsequent to the first disposition
thereof by the author, the author or his heirs shall
have an inalienable right to participate in the gross
proceeds of the sale or lease to the extent of five
percent (5%) (Sec. 200, Intellectual Property
Code/R.A. 8293)
Rights which are not covered under a Droit de
suite
A. Prints
B. Etchings
C. Engravings
D. Works of applied art
E. Similar works wherein the author primarily
derives gain from the proceeds of
reproductions (Sec. 201, Intellectual
Property Code/R.A. 8293)
Rules on Ownership of Copyright
1. Single Creator of an Original Work - Belongs
to the author of the work [Sec. 178.1, RA
8293]
2. Works of Joint Authorship - Belongs of the
co-authors; in the absence of agreement,
their rights shall be governed by the rules on
co-ownership. However, if the work consists
of parts that can be used separately and
identified, the author of each part owns the
copyright of the part he has created. [Sec.
178.2, RA 8293]
3. Work created during the course of
employment - Belongs to the employee if
the creation is not a part of his regular
duties, even if he used the time, facilities
and materials of the employer. However,
copyright belongs to the employer if the
work is in the performance of the
employee’s regular duties unless there is an
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agreement to the contrary. [Sec. 178.3, RA
8293]
4. Work commissioned by a person other than
the employer - The person who
commissioned the work and pays for it holds
ownership of the work per se, but copyright
remains with the creator unless there was a
stipulation to the contrary. [Sec. 178.4, RA
8293]
5. Audio visual works - Belongs to the
producer, author of the scenario, composer
of the music, film director, and author of the
adapted work. However, subject to
stipulations, the producers shall exercise
the copyright as may be required for the
exhibition of the work, except for the right to
collect license fees for the performance of
musical compositions in the work. [Sec.
178.5, RA 8293]
6. Letters - Belongs to the writer, but the court
may authorize their publication or
dissemination of the public good or interest
of justice requires, pursuant to Art. 723,
New Civil Code. [Sec. 178.6, RA 8293]
7. Anonymous and pseudonymous works -
Publishers are deemed to represent the
authors, unless the contrary appears, the
pseudonyms or adopted names leave no
doubt as to the author’s identity or if the
author discloses his identity. [Sec. 179, RA
8293]
8. Collective works - A contributor is deemed
to have waived his right unless he expressly
reserves it. [Sec. 196, RA 8293]
Rudy is a fine arts student in a university. He stays
in a boarding house with Bernie as his roommate.
During his free time, Rudy would paint and leave his
finished works lying around the boarding house.
One day, Rudy saw one of his works - an abstract
painting entitled Manila Traffic Jam - on display at
the university cafeteria. The cafeteria operator said
he purchased the painting from Bernie who
represented himself as its painter and owner. Rudy
and the cafeteria operator immediately confronted
Bernie. While admitting that he did not do the
painting, Bernie claimed ownership of its copyright
since he had already registered it in his name with
the National Library as provided in the intellectual
property code. Who owns the copyright to the
painting? Explain. (2013 Bar)
Rudy owns the copyright to the painting because he
was one who actually created it (Sec. 178.1 of the
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BRAVO BASTE!
Intellectual Property Code/R.A. 8293). His rights
existed from the moment of its creation (Sec. 172,
R.A. 8293; Unilever Philippines (PRC) v. CA, 498
SCRA 334, 2006). The registration of the painting by
Bernie with the National Library did not confer
copyright upon him. The registration is merely for the
purpose of completing the records of the National
Library (Sec. 191, Intellectual Property Code/R.A.
8293)
In a written legal opinion for a client on the difference
between apprenticeship and learnership, Liza
quoted without permission a labor law expert's
comment appearing in his book entitled
"Annotations on the Labor Code." can the labor law
expert hold Liza liable for infringement of copyright
for quoting a portion of his book without his
permission? (2006 Bar)
No. One of the limitations on copyright is the making
of quotations from a published work if they are
compatible with fair use, provided that the source
and the name of the author, if appearing on the work,
are mentioned. The legal opinion made by Liza is
consistent with fair use since the quoted part is
merely used to explain a concept of law for the
benefit of the client and not to defeat the rights of the
author over his copyright (Sec. 184.1(b), Intellectual
Property Code/R.A. 8293)
Limitations on copyright
a. Fair use
DOCTRINE OF FAIR USE - The fair use of
copyrighted work for criticism, news reporting,
teaching (including multiple copies for classroom
use), research and similar purposes is not an
infringement of copyright. [Sec. 185.1, RA 8293]
ABS-CBN charged GMA 7 with copyright
infringement when GMA 7 aired footage of the
arrival and homecoming of OFW Angelo de la Cruz
at the NAIA from Iraq without the consent of ABS-
CBN. GMA 7 alleged that the footage was from a live
news feed from reuters of which GMA 7 is a
subscriber.
GMA 7 claims that it is not aware that ABS-CBN
allowed reuters to air the footage under a special
embargo agreement where there is no access to any
Philippine subscriber. GMA 7 promptly shut off the
broadcast after about 5 seconds upon seeing ABS-
CBN’s logo and reporter. GMA 7 added that the
footage is not subject to copyright protection
 S CBA R STAG NO TES
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because the event or the arrival of Angelo de la Cruz
is a newsworthy event, and its use falls under the
fair use act. GMA 7 added that it is in good faith.
A) Rule on the claims of GMA 7:
1. That the footage is not subject to copyright
because the arrival of Angelo is a
newsworthy event; and
2. That GMA is in good faith.
B) what is the fair use act?
A.
1. A news report expressed in a video footage is
entitled to copyright protection. News or the event
itself is not copyrightable. However, an event can be
captured and presented in a specific medium. News
as expressed in a video footage is entitled to
copyright protection. Broadcasting organizations
have not only copyright on but also neighboring
rights over their broadcasts. Copyrightability of a
work is different from fair use of a work for purposes
of news reporting. (ABS-CBN Co. v. Gozon, G.R.
No. 195956, March 11, 2015).
2. Good faith or lack of knowledge is not a valid
defense in infringement of copyright. A copyright is
infringed by the mere fact of the repetition of it or a
substantial portion of it, without authority from the
author or writer of the copyrighted work. Good faith
or lack of knowledge is not a valid defense.
Offenses involving infringement of copyright
protections should be considered malum prohibitum.
It is the act of infringement, not the intent, which
causes the damage. To require or assume the need
to prove intent defeats the purpose of intellectual
property protection. (ABS-CBN Co. v. Gozon, G.R.
No. 195956, March 11, 2015).
B. Fair use is a limitation to copyright.
A privilege in others than the owner of a copyright to
use the copyrighted material in a reasonable
manner without the owner’s consent,
notwithstanding the monopoly granted to the owner.
To determine whether fair use has been made of
copyrighted material, the quantity and value of
material used and extent to which the use may
diminish the value of the original work must be
considered (Black’s Law Dictionary, 6th ed.).
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Four-factor test if there is fair use:
1. The purpose and character of the use,
including whether such use is of a
commercial nature or is for non-profit
educational purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion
used in relation to the copyrighted work as
a whole; and
4. The effect of the use upon the potential
market for or value of the copyrighted work.
The "transformative test" in fair use. It is generally
used in reviewing the purpose and character of the
usage of the copyrighted work. This court must look
into whether the copy of the work adds "new
expression, meaning or message" to transform it
into something else.
Gravamen of Copyright Infringement. It is not
merely the unauthorized manufacturing of
intellectual works but rather the unauthorized
performance of any of the acts covered by Section
5. Hence, any person who performs any of the acts
under Section 5 without obtaining the copyright
owners prior consent renders himself civilly and
criminally liable for copyright infringement.
Section 5 of Presidential Decree No. 49 specifically
defined copyright as an exclusive right in the
following manner:
A. To print, reprint, publish, copy, distribute,
multiply, sell, and make photographs,
photo-engravings, and pictorial illustrations
of the works;
B. To make any translation or other version or
extracts or arrangements or adaptations
thereof; to dramatize it if it be a non-
dramatic work; to convert it into a non-
dramatic work if it be a drama; to complete
or execute if it be a model or design;
C. To exhibit, perform, represent, produce, or
reproduce, the work in any manner or by
any method whatever for profit or otherwise;
it not reproduced in copies for sale, to sell
any manuscript or any record whatsoever
thereof;
D. To make any other use or disposition of the
work consistent with the laws of the land.
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KK is from Bangkok, Thailand. She studies medicine
in the pontifical University of Santo Tomas (UST).
She learned that the same foreign books prescribed
in UST are 40-50% cheaper in Bangkok. So she
ordered 50 copies of each book for herself and her
classmates and sold the books at 20% less than the
price in the Philippines. XX, the exclusive licensed
publisher of the books in the Philippines, sued KK
for copyright infringement. Decide. (2014 BAR)
KK did not commit copyright infringement. Under the
“first sale” doctrine, the owner of a particular copy or
phonorecord lawfully made is entitled, without the
authority of the copyright owner, to sell or otherwise
dispose of the possession of that copy or
phonorecord. Hence, there is no infringement by KK
since the said doctrine permitted importation and
resale without the publisher’s further permission.
After a test-buy operation where an NBI agent was
able to purchase software of Microsoft from the store
of Manansala who is doing business under the name
and style Dataman trading, a search and seizure
was conducted on the store of Manansala where it
yielded several illegal copies of Microsoft programs.
Microsoft then filed before the DOJ a complaint-
affidavit against Manansala for copyright
infringement, among others.
The charge for copyright infringement was
dismissed. The investigating prosecutor resolved
that although Manansala is selling Microsoft
computer software programs bearing the copyrights
and trademarks owned by Microsoft corporation
without authority from latter, there is no proof that
Manansala was the one who really printed or copied
the products of Microsoft for sale in his store. The
CA upheld the DOJ and ruled that the legislative
intent was to require that the computer programs be
first photographed, photo-engraved, or pictorially
illustrated as a condition for the commission of
copyright infringement.
Is the printing or copying essential in the commission
of the crime of copyright infringement under section
29 of Presidential Decree No. 49?
The mere sale of the illicit copies of the software
programs was enough by itself to show the
existence of probable cause for copyright
infringement. There was no need for Microsoft to still
prove who copied, replicated, or reproduced the
software programs. (Microsoft Corporation vs.
Manansala, 773 SCRA 345, G.R. No. 166391
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INSURANCE
WHAT CAN BE INSURED, CLAIMS FOR LIFE
INSURANCE
What may be insured? Section 3 of the Insurance
Code provides that any contingent or unknown
event, whether past or future, which may damnify a
person having an insurable interest, or create a
liability against him may be insured.
However, in Section 4 of the same Code, it provides
that no insurance can be taken against the drawing
of any lottery, or against any chance or ticket in a
lottery drawing a prize.
What is the basis of insurable interest in life and
in health insurance?
Section 10:
A) Every person has an insurable interest in the life
and health of himself, of his spouse and of his
children;
B) any person on whom he depends wholly or in part
for education or support, or in whom he has a
pecuniary interest.
C) of any person under a legal obligation to him for
the payment of money, respecting property or
service, of which death or illness might delay or
prevent the performance
D) of any person upon whose life any estate or
interest vested in him depends.
Examples of perils which may result in risk of loss
a. Death or injury;
b. Loss of damage in marine insurance
(Section 102, Insurance Code)
c. Fire, including the risks, allied to it, like
lightning, windstorm, tornado, earthquake
and other similar risks. (Section 169,
Insurance Code)
d. Casualty or liability in case of accident or
mishap (Section 176, Insurance Code)
e. Non-performance by the principal debtor
of his obligation to the credit (Section 177,
Insurance Code)
INSURABLE INTEREST
What is insurable interest
In general, an insurable interest is that
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interest which a person is deemed to have in
the subject matter insured, where he has a
relation or connection with or concern in it, such
that the person will derive pecuniary benefit or
advantage from the preservation of the subject
matter insured and will suffer pecuniary loss or
damage from its destruction, termination, or
injury by the happening of the event insured
against.
The existence of an insurable interest gives
a person the legal right to insure the subject
matter of the policy of insurance. (LALICAN VS.
THE INSULAR LIFE ASSURANCE
COMPANY, LTD., G.R. No. 183526, August
25, 2009)
Insurable interest is that interest which a
person is deemed to have in subject matter of
the insurance where he has a relation or
connection to it such that the person will derive
pecuniary benefit or advantage from the
preservation of the subject matter or will suffer
pecuniary loss or damage from its destruction,
termination, or injury by the happening of the
event insured against it. (PHILIPPINE HEALTH
CARE PROVIDERS VS. COMMISSIONER OF
INTERNAL REVENUE, G.R. NO. 177330,
SEPTEMBER 18, 2009)
What is an insurable interest in life and
health? (Section 10, Insurance Code)
Every person has an insurable interest in the life
and health:
a) Of himself, of his spouse and of his
children;
b) Of any person on whom he depends
wholly or in part for education or support, or in
whom he has a pecuniary interest;
c) Of any person under a legal obligation to
him for the payment of money, or respecting
property or services, of which death or illness
might delay or prevent the performance; and
d) Of any person upon whose life any estate
or interest vested in him depends.
What is an insurable interest in property?
(Section 14, Insurance Code)
An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing
interest; or
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An expectancy, coupled with an existing interest
in that out of which the expectancy arises.
Who are the persons specified in Article 739
and as such, cannot be designated
beneficiary of the insured?
According to this provision, the persons who
cannot be designated as beneficiaries of the
insured are the a) person in illicit relations -
adultery or concubinage (note that there is no
need for conviction) b) persons found guilty of
adultery and concubinage and c) public officer or
his wife, descendants or ascendants.
What is the reason for this prohibition?
Life insurance is no different from donation insofar
as the beneficiary is concerned. A beneficiary is
like a donee because from the premiums of the
policy which the insured pay out of liberality the
beneficiary will receive the proceeds of the
insurance. As a consequence, the proscription in
Article 739 of the Civil Code should equally
operate in life insurance contracts.
Can the insured change his beneficiary?
Yes. The insured shall have the right to change
the beneficiary he designated in the policy, unless
he has expressly waived his right in the said
policy. Notwithstanding the foregoing, in the venet
the insured does not change the beneficiary
during his lifetime, the designation shall be
deemed irrevocable. (Section 11)
What is double insurance?
A double insurance exists where the same person
is insured by several insurers separately in
respect to the same subject and interest. (Section
95)
What is the nature of the liability of the several
insurers in double insurance?
In double insurance, the insurers are considered
as co-insurers. Each one, therefore, is bound to
contribute ratably to the loss in proportion to the
amount for which he is liable under his contract.
May an insurance policy be cancelled? If yes,
under what grounds and conditions? (Section
64)
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No policy of insurance other than life insurance
shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based
on the occurrence, after the effective date of the
policy, of one or more of the following:
a. Nonpayment of premium;
b. Conviction of a crime arising out of acts
increasing the hazard insured against;
c. Discovery of fraud or material
misrepresentation
d. Discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
e. Physical changes in the property insured
which result in the property becoming
insurable;
f. Discovery of other insurance coverage
that makes the total insurance in excess
of the value of the property insured; or
g. A determination by the Commissioner
that the continuation of the policy would
violate or would pace the insurer in
violation of the Insurance Code.
PERFECTION OF THE CONTRACT OF
INSURANCE
When is a contract of insurance perfected?
According to the cognition theory, an insurance
contract is perfected when the applicant-insured has
knowledge of the acceptance and approval by the
insurer of his application. This theory should be
construed in relation to the provisions of the
Insurance Code on premium payment. Save the
exceptions, there is no valid and perfected
insurance contract without the payment of a
premium.
What is the Cash and Carry Rule under the
Insurance Code? (Section 77)
The principle requires payment of the premium
before the contract of insurance can be valid and
binding. The philosophy behind this principle is that
the insurer, upon issuance of the policy, is
immediately exposed to liability for the risks insured
against, hence it is entitled to be paid a premium for
extending protection to the insured immediately
upon such exposure.
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The payment of premium is a condition precedent to
and essential for the efficacy of the contract of
insurance. Unless the premium is paid, the policy
shall not be valid and binding notwithstanding any
agreement to the contrary (Section 77, VALENCIA
vs. COURT OF APPEALS 191 Scra 1, 1990)
Payment of premiums by check. Under the cash
and carry doctrine, as a general rule there is no valid
and binding insurance contract unless premium is
paid. With respect to premiums paid by check:
The payment of premium by a
postdated check at a stated
maturity subsequent to the loss is
insufficient to put the insurance into
effect. But payment by a check
bearing a date prior to the loss,
assuming availability of funds,
would be sufficient, even if it
remains unencashed at the time of
the loss. The subsequent effects of
encashment would retroact to the
date of the instrument and its
acceptance by the creditor (Vitug,
Commercial Laws and
Jurisprudence, 2006).
The notice of the availability of the check, by
itself, does not produce the effect of payment of
the premium. In Gaisano v. Development
Insurance and Surety Corporation, G.R. No.
190702, February 27, 2017, petitioner informed the
insurer the check for the payment of premium was
ready for pick-up on September 27, 1996, but the
check was delivered to and was accepted by the
insurer only on September 28, 1996. When the loss
occurred on September 27, 1996, it was held there
was no payment of premium yet to make the
insurance policy effective.
RESCISSION OF INSURANCE CONTRACTS
What is concealment?
It is one of the grounds which entitles an injured
party in an insurance contract to avail of the
remedy of rescission said contract.
It is defined as a neglect to communicate that
which a party knows and ought to communicate.
Section 26
Each party to a contract of insurance must
communicate to the other in good faith, all facts
within his knowledge which are material to the
contract and as to which he makes no warranty,
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and the other has not the means of ascertaining. 3. Failing to adopt and
(Section 28) implement reasonable
standards for the prompt
What is the effect of concealment? investigations of claims
arising under its policies;
A concealment, whether intentional or
unintentional, entitled the injured party to rescind 4. Not attempting in good
the contract of insurance. (GREAT PACIFIC LIFE faith to effectuate
INSURANCE CORPORATION vs. COURT OF prompt, fair and
APPEALS, et al G.R. No. L-57308, April 23, 1990) equitable settlement of
claims submitted in
What is the test of materiality? which liability has
become reasonable
Materiality is to be determined not by event, but
solely by the probable and reasonable influence clear;
of the facts upon the party to whom the 5. Compelling
communication is due, in forming his estimate of policyholders to institute
the disadvantages of the proposed contract, or in
suits to recover amounts
making his inquiries. (Section 31, Insurance
Code) due under its policies by
offering without
justifiable reason
CLAIMS SETTLEMENT AND SUBROGATION substantially less than
1. Notice and proof of loss the amounts ultimately
recovered in suits.
What is loss?
A loss is the inquiry or damage sustained
by the insured as a consequence of the b. Prescription of action
happening of the risk/s insured against
which the insurer, in consideration of the What is the remedy available to
premium, has undertaken to indemnify or the insured in case his insurance
pay the insured. claims are rejected? (Section 63,
Insurance Code)
The insured may file an action for
2. Guidelines on claims of settlement specific performance against the
a. Unfair claims settlement; insurer within the prescriptive
sanctions (Section 247, period as provided by law (one
year from the accrual of cause of
Insurance Code)
action)
What constitutes unfair claim
settlement?
c. Subrogation
1. Knowingly
misrepresenting to What is subrogation and what is
claimants pertinent facts its legal basis?
or policy provisions The basis of subrogation is
relating to coverage at provided under Article 2207 of
issue; the Civil Code of the Philippines
where it provides that “If the
2. Failing acknowledge plaintiff's property has been
with reasonable insured, and he has received
promptness pertinent indemnity from the insurance
communications with company for the injury or loss
arising out of the wrong or breach
respect to claims arising of contract complained of, the
under its policies;
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insurance company shall be Philippines by an entity if:

subrogated to the rights of the
insured against the wrongdoer or
the person who has violated the
contract. If the amount paid by
the insurance company does not
fully cover the injury or loss, the
aggrieved party shall be entitled
to recover the deficiency from the
person causing the loss or
injury.”
DATA PRIVACY ACT OF 2012 “DPA” (R.A.
10173), AS AMENDED BY R.A. 8179
1. Definitions and Scope
DATA SUBJECT – an individual whose personal
information is processed. It is the party sought to
be protected by the DPA (Sec. 7, DPA).
PROCESSING – any operation or any set of
operations performed upon personal information
including, but not limited to, the collection,
recording, organization, storage, updating or
modification, retrieval, consultation, use,
consolidation, blocking, erasure, or destruction of
data (Sec. 3(j), DPA).
DATA SHARING – disclosure or transfer to a third
party of personal data under the custody of a
personal information controller or personal
information processor (NPC Advisory Opinion No.
2017-57, October 3, 2017).
(a) The act, practice or processing relates to
personal information about a Philippine citizen or a
resident;
(b) The entity has a link with the Philippines, and
the entity is processing personal information in the
Philippines or even if the processing is outside the
Philippines as long as it is about Philippine citizens
or residents such as, but not limited to, the
following:
(1) A contract is entered in the Philippines;
(2) A juridical entity unincorporated in the
Philippines but has central management and
control in the country; and
(3) An entity that has a branch, agency, office or
subsidiary in the Philippines and the parent or
affiliate of the Philippine entity has access to
personal information; and
(c) The entity has other links in the Philippines
such as, but not limited to:
(1) The entity carries on business in the
Philippines; and
(2) The personal information was collected or
held by an entity in the Philippines (Sec. 6, DPA).
General Data Privacy principle
The processing of personal information shall be
allowed, subject to compliance with the
requirements of this Act and other laws allowing
disclosure of information to the public and
adherence to the principles of transparency,
legitimate purpose and proportionality (Sec. 11,
DPA).

Distinguish Personal Information (PI) and

SCOPE: DPA applies to the processing of all types Sensitive Personal Information (SPI)
of personal information and to any natural and
juridical person involved in personal information PI SPI
processing including those personal information As to PROCESSING
controllers and processors who, although not found
or established in the Philippines, use equipment that The processing of PI shall The processing of SPI
are located in the Philippines, or those who maintain be PERMITTED only if and privileged information
an office, branch or agency in the Philippines subject not otherwise prohibited shall be PROHIBITED
to the immediately succeeding paragraph: Provided, by law, and when at least except in the cases
That the requirements of Section 5 (Protection one condition for lawful provided in Sec. 13 of
Afforded to Journalists and Their Sources) are processing exists in Sec. DPA.
complied with (Sec. 4, DPA). 12 of DPA.
As to PENALTY
2. Extraterritorial Application. – DPA applies to an The penalties for The penalties provided
act done or practice engaged in and outside of the unauthorized processing, for unlawful acts involving
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accessing, improper SPI, are heavier than
disposal, processing for those involving PI.
unauthorized purposes
and other unlawful acts
involving PI vary
depending on the
corresponding act.
Criteria for Lawful Processing of Personal
Information. – The processing of personal
information shall be permitted only if not otherwise
prohibited by law, and when at least one of the
following conditions exists:
(a) The data subject has given his or her consent;
(b) The processing of personal information is
necessary and is related to the fulfillment of a
contract with the data subject or in order to take
steps at the request of the data subject prior to
entering into a contract;
(c) The processing is necessary for compliance
with a legal obligation to which the personal
information controller is subject;
(d) The processing is necessary to protect vitally
important interests of the data subject, including
life and health;
(e) The processing is necessary in order to
respond to national emergency, to comply with the
requirements of public order and safety, or to fulfill
functions of public authority which necessarily
includes the processing of personal data for the
fulfillment of its mandate; or
(f) The processing is necessary for the purposes of
the legitimate interests pursued by the personal
information controller or by a third party or parties
to whom the data is disclosed, except where such
interests are overridden by fundamental rights and
freedoms of the data subject which require
protection under the Philippine Constitution (Sec.
12, DPA).
Sensitive Personal Information and Privileged
Information. – The processing of sensitive personal
information and privileged information shall be
prohibited, except in the following cases:
(a) The data subject has given his or her consent,
specific to the purpose prior to the processing, or
in the case of privileged information, all parties to
the exchange have given their consent prior to
processing;
(b) The processing of the same is provided for by
existing laws and regulations: Provided, That such
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regulatory enactments guarantee the protection of
the sensitive personal information and the
privileged information: Provided, further, That the
consent of the data subjects are not required by
law or regulation permitting the processing of the
sensitive personal information or the privileged
information;
(c) The processing is necessary to protect the life
and health of the data subject or another person,
and the data subject is not legally or physically able
to express his or her consent prior to the
processing;
(d) The processing is necessary to achieve the
lawful and noncommercial objectives of public
organizations and their associations: Provided,
That such processing is only confined and related
to the bona fide members of these organizations
or their associations: Provided, further, That the
sensitive personal information are not transferred
to third parties: Provided, finally, That consent of
the data subject was obtained prior to processing;
(e) The processing is necessary for purposes of
medical treatment, is carried out by a medical
practitioner or a medical treatment institution, and
an adequate level of protection of personal
information is ensured; or
(f) The processing concerns such personal
information as is necessary for the protection of
lawful rights and interests of natural or legal
persons in court proceedings, or the
establishment, exercise or defense of legal claims,
or when provided to government or public authority
(Sec. 13, DPA).
Subcontract of Personal Information
A personal information controller may subcontract
the processing of personal information: Provided,
That the personal information controller shall be
responsible for ensuring that proper safeguards
are in place to ensure the confidentiality of the
personal information processed, prevent its use for
unauthorized purposes, and generally, comply
with the requirements of this Act and other laws for
processing of personal information (Sec. 14, DPA).
Rights of the Data Subject. – The data subject is
entitled to:
(a) Be informed whether personal information
pertaining to him or her shall be, are being or
have been processed;
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(b) Be furnished the information indicated
hereunder before the entry of his or her personal
information into the processing system of the
personal information controller, or at the next
practical opportunity:
(1) Description of the personal information to be
entered into the system;
(2) Purposes for which they are being or are to
be processed;
(3) Scope and method of the personal
information processing;
(4) The recipients or classes of recipients to
whom they are or may be disclosed;
(5) Methods utilized for automated access, if
the same is allowed by the data subject, and
the extent to which such access is authorized;
(6) The identity and contact details of the
personal information controller or its
representative;
(7) The period for which the information will be
stored; and
(8) The existence of their rights, i.e., to access,
correction, as well as the right to lodge a
complaint before the Commission.
Any information supplied or declaration made to
the data subject on these matters shall not be
amended without prior notification of data
subject: Provided, That the notification under
subsection (b) shall not apply should the
personal information be needed pursuant to a
subpoena or when the collection and processing
are for obvious purposes, including when it is
necessary for the performance of or in relation to
a contract or service or when necessary or
desirable in the context of an employer-
employee relationship, between the collector and
the data subject, or when the information is being
collected and processed as a result of legal
obligation;
(c) Reasonable access to, upon demand, the
following:
(1) Contents of his or her personal
information that were processed;
(2) Sources from which personal
information were obtained;
(3) Names and addresses of recipients of
the personal information;
(4) Manner by which such data were
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processed;
(5) Reasons for the disclosure of the
personal information to recipients;
(6) Information on automated processes
where the data will or likely to be made as
the sole basis for any decision significantly
affecting or will affect the data subject;
(7) Date when his or her personal
information concerning the data subject
were last accessed and modified; and
(8) The designation, or name or identity
and address of the personal information
controller;
(d) Dispute the inaccuracy or error in the
personal information and have the personal
information controller correct it immediately and
accordingly, unless the request is vexatious or
otherwise unreasonable. If the personal
information have been corrected, the personal
information controller shall ensure the
accessibility of both the new and the retracted
information and the simultaneous receipt of the
new and the retracted information by recipients
thereof: Provided, That the third parties who have
previously received such processed personal
information shall he informed of its inaccuracy
and its rectification upon reasonable request of
the data subject;
(e) Suspend, withdraw or order the blocking,
removal or destruction of his or her personal
information from the personal information
controller’s filing system upon discovery and
substantial proof that the personal information
are incomplete, outdated, false, unlawfully
obtained, used for unauthorized purposes or are
no longer necessary for the purposes for which
they were collected. In this case, the personal
information controller may notify third parties who
have previously received such processed
personal information; and
(f) Be indemnified for any damages sustained
due to such inaccurate, incomplete, outdated,
false, unlawfully obtained or unauthorized use of
personal information (Sec. 16, DPA).
Non-Applicability. – The immediately preceding
sections are not applicable if the processed
personal information are used only for the needs
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of scientific and statistical research and, on the

basis of such, no activities are carried out and no
decisions are taken regarding the data subject:
Provided, That the personal information shall be
held under strict confidentiality and shall be used
only for the declared purpose. Likewise, the
immediately preceding sections are not
applicable to processing of personal information
gathered for the purpose of investigations in
relation to any criminal, administrative or tax
liabilities of a data subject (Sec. 19, DPA).