OBLIGATIONS

Solutio indebiti (SI) v. Accion in rem verso (AIRV)

1. Mistake is an essential element in SI which is not necessary in AIRV.
2. An AIRV is merely an auxilliary action, available only when there is no other remedy on contract, quasi-contract, crime or
quasi-delict (Rabuya, 2017).

Scope of civil liability (IRR)

1. Restitution;
2. Reparation for damage caused; and
3. Indemnity for consequential damages (Art. 104, RPC).

DELAY (MORA) OR DEBTOR’S DEFAULT

Those obliged to deliver or to do something incur in delay from the time the obligee (creditor) judicially or extrajudicially
demands from them the fulfillment of their obligation.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the parties fulfills his obligations, delay by the other begins (NCC,
Art. 1169).

FORTUITOUS EVENT / CASO FORTUITO

Requisites: (CODE)
1. Cause of breach is independent of the will of the debtor;
2. The Event is unforeseeable or unavoidable;
3. Occurrence renders it absolutely impossible for the debtor to fulfill his obligation in a normal manner - impossibility
must be absolute not partial, otherwise not force majeure; and
4. Debtor is free from any participation in the aggravation of the injury to the creditor.

Liability for loss due to fortuitous event

GR: There is no liability for loss in case of fortuitous event.
XPNs: (LAS –2C-BFND-C)
1. Law;
2. Nature of the obligation requires the Assumption of risk;
3. Stipulation;
5.has Promised the same thing to two or more persons who does not have the same interest (NCC, Art. 1165);
6. The debtor Contributed to the loss (Tan v. Inchausti & Co., G.R. No. L-6472, March 7, 1912);
7. The possessor is in Bad faith (NCC, Art. 552); or
8. The obligor is Guilty of fraud, negligence or delay or if he contravened the tenor of the obligation

Remedies in connection with specific performance

1. Exhaustion of the properties of the debtor (not exempt from attachment under the law)
2. Accion subrogatoria (subrogatory action) – An indirect action brought in the name of the debtor by the creditor to
enforce the former’s rights except:
a. Personal rights of the debtor;
b. Rights inherent in the person of the debtor;
c. Properties exempt from execution. e.g. family home
3. Accion pauliana (rescissory action) – An action to impugn or assail the acts done or contracts entered into by the debtor
in fraud of his creditor.
NOTE: Resort to the remedies must be in the order stated above (NCC, Art. 1177).
Accion directa
The right of a person to go directly against another who is not a privy to the contract (NCC, Arts. 1652, 1608, 1729 & 1893).
NOTE: (Sublessee-a retro-labor-substitute)
1. Subsidiary liability of sublessee for the rent (NCC, Art. 1652);
2. Right of sellers a retro to redeem property from persons other than the buyer a retro (NCC, Art. 1608);
3. Subsidiary liability of owners to laborers and material men (NCC, Art. 1729);
4. The principal may sue the substitute of the agent with respect to the obligations which the substitute has contracted
under the substitution (NCC, Art. 1893).

Positive suspensive condition

A condition which requires a positive act on the part of the obligor that gives rise to the acquisition of rights.
In case of a contract to sell, the obligation to deliver the subject properties becomes demandable only upon the happening of
the positive suspensive condition (payment of full purchase price). Without full payment, there can be no breach of contract to
speak of because the seller has no obligation yet to turn over the title (Reyes v. Tuparan, G.R. No. 188064, June 1, 2011).

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 will of the debtor
2. In case of reciprocal obligations, when there is a just cause for fixing the period.
3. If the debtor binds himself when his means permit him to do so.
NOTE: Once fixed by the courts, the period cannot be changed by the parties (NCC, Art. 1197).

Instances where the debtor loses his right to make use of the period (IF-IF-VA)
1. When after the obligation has been contracted he becomes insolvent, unless he gives a guaranty or security for the debt;
2. When he does not furnish to the creditor the guaranties or securities which he has promised;
3. When by his own acts he has Impaired said guaranties or securities after their establishment;
4. When through a fortuitous event they disappear, unless he immediately gives new ones or equally satisfactory;
5. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; and
1. When the debtor attempts to abscond (NCC, Art. 1198).

Instances where penalty may be reduced by the courts (PIU)

1. Partial performance of the obligation
2. Irregular performance of the obligation
3. Penalty is Unconscionable even if there has been no performance.

Modes of extinguishment of an obligation

Principal Modes (PaLoCo3N)
1. Payment or performance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger
5. Compensation
6. Novation (NCC, Art. 1231).
Other Modes (PARF)
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription (NCC, Art. 1231).
NOTE: The enumeration is not exclusive.
Other Causes not expressly mentioned (Rabuya, 2017)
11. Death – in obligations which are of purely personal character
12. Arrival of resolutory period
13. Mutual dissent
14. Change of civil status
15. Happening of unforseen events
The requisites for DACION EN PAGO are:
1. There must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of
a corporeal thing or a real right or a credit against the third person;
2. There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and
3. There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason
of the performance of a prestation different from that due (Caltex Philippines, Inc. v. IAC, G.R. No. 72703, November 13,
1992).

Requisites of compensation (Mutual-Money-DLD-Controversy-Not prohibited)

In order that compensation may be proper, it is necessary that (NCC, Art. 1279):
1. Each one of the obligors must be bound principally, and that he be at the same time a principal creditor of the other
except guarantor who may set up compensation as regards what the creditor may owe the principal (NCC, Arts. 1279-
1280);
2. Both debts consist in sum of money, or if the things due are consumable, they be of the same kind and also of the same
quality if the latter has been stated;
3. Both debts are due;
4. Both debts are liquidated and demandable;
5. Neither debt must be retained in a controversy commenced by third person and communicated in due time to the
debtor (neither debt is garnished) (NCC, Art. 1279); and
6. Compensation must not be prohibited by law. (NCC, Art. 1290).

Debts or obligations not subject to compensation

1. Debts or obligations arising from contracts of depositum (NCC, Art. 1287);
2. Debts arising from obligations of a depositary;
3. Debts arising from obligations of a bailee in commodatum;
4. Claims for support due by gratuitous title;
5. Obligations arising from criminal offenses (NCC, Art. 1288);
6. Certain obligations in favor of government. e.g. taxes, fees, duties, and others of a similar nature.

Requisites of STIPULATION POUR ATRUI:

a. Stipulation in favor of a third person;
b. Stipulation is just part and not the whole obligations of the contract;
c. Contracting parties must have clearly and deliberately conferred a favor upon third person;
d. Third person must have communicated his acceptance; and
e. Neither of the contracting parties bears the legal representation of the third person

Formalities required in specific contracts

1. Donations
a. Personal property – if value exceeds 5,000, the donation and acceptance must both be written (NCC, Art. 748).
b. Real property:
i. Donation must be in a public instrument, specifying therein the property donated and value of charges which
donee must satisfy.
ii. Acceptance must be written, either in the same deed of donation or in a separate instrument.
iii. If acceptance is in a separate instrument, the donor shall be notified thereof in authentic form, and this step
shall be noted in both instruments (NCC, Art. 749).
2. Partnership where real property contributed
a. There must be a public instrument regarding the partnership;
b. The inventory of the realty must be made, signed by the parties and attached to the public instrument (NCC,
Art. 1773).
Antichresis - the amount of the principal and interest must be in writing (NCC, Art. 2134).
3. Agency to sell real property or an interest therein - authority of the agent must be in writing (NCC, Art. 1874).
4. Stipulation to charge interest - interest must be stipulated in writing (NCC, Art. 1956).
5. Stipulation limiting common carrier's duty of extraordinary diligence to ordinary diligence:
a. Must be in writing, signed by shipper or owner;
b. Supported by valuable consideration other than the service rendered by the common carrier;
c. Reasonable, just and not contrary to public policy (NCC, Art. 1744).
6. Chattel mortgage - personal property must be recorded in the Chattel Mortgage Register. (NCC, Art. 2140).
Contracts that are RESCISSIBLE
1. Under Art. 1381, those (GAF-LIL)
a. Entered into by guardians whenever the wards whom they represent suffer lesion by more than ¼ of value of the
property [NCC, Art. 1381(1)];
NOTE: Contracts entered by a guardian over the property of his ward, without court approval is void, not merely
rescissible regardless of the existence of lesion.
b. Agreed upon in representation of absentees, if absentee suffers lesion by more than ¼ of value of property [NCC, Art.
1381(2)];
c. Contracts where rescission is based on fraud committed on creditor and cannot collect the claim due (accion pauliana)
[NCC, Art. 1381(3)];
d. Contracts where the object involved is the subject of litigation; contract entered into by defendant without knowledge
or approval of litigants or judicial authority [NCC, Art. 1381(4)];
e. Payment by an insolvent – on debts which are not yet due; prejudices the claim of others (NCC, Art. 1382);
f. Provided for by law

Badges of fraud
1. Consideration for the conveyance of the property is inadequate or fictitious;
2. Transfer was made by the debtor after a suit has commenced and during its pending against him;
3. Sale upon credit by an insolvent debtor;
4. The presence of evidence of large indebtedness or complete insolvency of the debtor;
5. Transfer of all his property by a debtor when he is financially embarrassed or insolvent;
6. Transfer is made between father and son, where there are present some or any of the above circumstances; and
7. Failure of the vendee to take exclusive possession of the property (Oria v. McMicking, 21 Phil. 243, G. R. No. 7003,
January 18, 1912).

Kinds of UNENFORCEABLE contracts

The following contracts are unenforceable unless they are ratified:
1. Those entered into the name of another person by one who has been given no authority/legal representation or acted
beyond his powers;
NOTE: A contract of sale over a piece of land entered by an agent whose authority is not in writing, even if he
acted beyond the scope of his authority is void, not merely unenforceable (NCC, Art. 1874).
2. Those that do not comply with the Statute of Frauds; and
3. Those where both parties are incapable of giving consent to a contract (NCC, Art. 1403).

Contracts or agreements covered by the Statute of Frauds (1Promise-M500-1credit)

1. An agreement that by its terms is not to be performed within a year from the making thereof;
2. A special promise to answer for the debt, default or miscarriage of another;
3. An agreement made in consideration of marriage, other than a mutual promise to marry;
4. An agreement for the sale of goods, chattels or things in action, at a price not less than 500 pesos, unless the buyer
accepts and receives part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at
the time some part of the purchase money; but when a sale is made by an auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient memorandum ;
5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;
5. A representation as to the credit of a third person (NCC, Art. 1403).

Instances where the Statute of Frauds is not essential for the enforceability of a contract of sale
1. When there is a note or memorandum in writing and subscribed to by the party or his agent (contains essential terms of
the contract);
2. When there has been partial performance/execution (seller delivers with the intent to transfer title/receives price);
3. When there has been failure to object to presentation of evidence aliunde as to the existence of a contract without being
in writing and which is covered by the Statute of Frauds;
4. When sales are effected through electronic commerce

Persons who are relatively incapacitated to enter into a contract of sale (SAPCO)
1. Spouses (NCC, Art. 1490);
2. Agents, Guardians, Executors and Administrators;
3. Public Officers and Employees;
4. Court Officers and Employees, and
5. Others specially disqualified by law (NCC, Art. 1491).
Q: Pozzolanic entered a long-term contract with the National Power Corporation (NPC) for the purchase of all fly
ash to be produced by the latter’s future power plants. In the contract, NPC granted Pozzolanic a right of first
refusal to purchase the fly ash that may be generated in the future. When NPC’s two new power plants started
operation, it published an invitation to interested buyers for the purchase of the fly ash. Pozzolanic sent letters to
NPC reminding its right of first refusal. NPC deferred its public bidding with the first power plant’s fly ash but it
nevertheless continued with the bidding of the second power plant’s fly ash. Pozzolanic filed a complaint, but
during the pendency of the case NPC decided to likewise dispose the fly ash from the first power plant without
allowing Pozzolanic to exercise its right of first refusal. Can Pozzolanic exercise its right of first refusal?
A: NO. The right of first refusal granted in favor of Pozzolanic is invalid for being contrary to public policy as the same
violates the requirement of competitive public bidding in the award of government contracts. In this jurisdiction, public
bidding is the established procedure in the grant of government contracts (PSALM Corp., v. Pozzolanic, G.R. No. 183789,
August 24, 2011).

Q: Licup, through a letter, offered to buy parcels of land to The Holy See and Philippine Realty Corporation (PRC).
He enclosed a check for P100,000.00 to “close the transaction” and accepted the responsibility of removing
informal settlers. Msgr. Cirilos, representative of the Holy See and PRC signed the conforme portion of the letter
and accepted the check. A stop-payment order was issued by Licup and the latter requested that the titles to the
land instead be given to SSE. Msgr. Cirilos wrote SSE requesting to remove the informal settlers, otherwise, the
P100,000.00 would be returned. SSE replied with an “updated proposal” that they will comply provided that the
purchase price is lowered. The proposal was rejected. The parcel of land was sold to another third person. Is
there a perfected contract of sale between the two parties?
A: NO. When Msgr. Cirilos affixed his signature on that letter, he expressed his conformity to the terms of Licup’s offer
appearing on it. There was meeting of the minds as to the object and consideration of the contract. But when Licup
ordered a stop-payment on his deposit and proposed in his April 26, 1988 letter to Msgr. Cirilos that the property be
instead transferred to SSE, a subjective novation took place. The proposed substitution of Licup by SSE opened the
negotiation stage for a new contract of sale as between SSE and the owners (Starbright Sales v. Phil. Realty Corp., et. al, G.R.
No. 177936, January 18, 2012).

Kinds of Delivery
1. ACTUAL or REAL – thing sold is placed under the control and possession of buyer/agent;
2. CONSTRUCTIVE or LEGAL – does not confer physical possession of the thing, but by construction of law, is equivalent to
acts of real delivery.
Requisites:
a. The seller must have control over the thing;
b. The buyer must be put under control;
c. There must be intention to deliver the thing for purposes of ownership.
i. Tradicion Symbolica – delivery of certain symbols representing the thing
ii. Tradicion Instrumental – delivery of the instrument of conveyance
iii. Traditio Longa Manu – Delivery of thing by mere agreement; when seller points to the property without need of
actually delivering
NOTE: The thing to be transferred must be within sight at that time (Rabuya, 2017).
iv. Tradicion Brevi Manu – the buyer, being already in possession of the thing sold due to some other cause, merely
remains in possession after the sale is effected, but now in concept of owner. e.g. From lessee to becoming an owner
v. Constitutum Possessorium– the seller remains in possession of the property in a different capacity. e.g. From owner to
lessee
3. QUASI-TRADITION – delivery of rights, credits or incorporeal property, made by:
a. Placing titles of ownership in the hands of the buyer;
b. Allowing buyer to make use of rights.
4. TRADITION BY OPERATION OF LAW – Execution of a public instrument is equivalent to delivery. But to be effective, it
is necessary that the seller have such control over the thing sold that, at the moment of sale, its material delivery could
have been made.
DOUBLE SALE
Rules on preference (NCC, Art. 1544)
1. MOVABLE – Owner who is first to possess in good faith;
2. IMMOVABLE –
a. First to register in good faith
b. No registration – first to possess in good faith
c. No registration & no possession in good faith – person who presents oldest title in good faith.
NOTE: Article 1544 of the Civil Code has no application to lands not registered with the Torrens system. If the sale is not
registered, it is binding only as between the seller and the buyer; it does not affect innocent third persons (De Leon, 2011).
Article 1544 of the Civil Code does not apply to contract to sell.

Application of caveat emptor in judicial sales

Caveat emptor is applicable in judicial sales. The purchaser in a judicial sale acquires no higher or better title or right than that
of the judgment debtor. If it happens that the judgment debtor has no right, interest, or lien on and to the property sold, the
purchaser acquires none

Requisites of Recto Law

1. Valid contract of sale;
2. Subject matter is personal property;
3. Payable in installments; and
4. In the case of the second and third remedies, that there has been a failure to pay two or more installments

Filing of B.P. 22 does not bar foreclosure of mortgage (Spouses Torres v. Medina).
However, in Chieng v. Spouses Santos, it was held that the filing of the B.P. 22 case is equivalent to the filing of a collection suit
for the recovery of the mortgage-loan. The Court explained that the civil action for the recovery of the amount of the
dishonored checks is impliedly instituted in the criminal action. Hence, the impliedly instituted civil action in the criminal case
for violation of B.P. 22 is, in effect, a collection suit or suit for recovery of mortgage debt.

Remedies of an Unpaid Seller

I. Ordinary
1. Action for Price (NCC, Art. 1595)
2. Action for Damages – In case of wrongful neglect or refusal by the buyer to accept or pay for the thing sold.
II.Special (NCC, Art. 1596)
1. Possessory Lien (NCC, Art. 1527) – seller not bound to deliver the object of the contract of sale if buyer has not paid
him the price.
2. Stoppage in Transitu (NCC, Art. 1530)
Requisites: (I-SCENT-U)
a. Insolvent buyer
b. The sale of goods must be on Credit
c. Seller must Surrender the negotiable document of title, if any
d. Seller must bear the Expenses of delivery of the goods after the exercise of the right.
e. Seller must either actually take possession of the goods sold or give Notice of his claim to the carrier or other
person in possession
f. Goods must be in Transit
g. Unpaid seller
3. Special Right to Resell the Goods (NCC, Art. 1533)
Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in case of default, or
c. Buyer in default for unreasonable time
4. Special Right to Rescind (NCC, Art. 1597)
Requisites:
a. Goods have not been delivered to the buyer;
b. Buyer has repudiated the contract of sale; or
c. Has manifested his inability to perform his obligations thereunder; or
d. Has committed a breach thereof, which must be substantial.
Implied warranties
Warranties deemed included in all contracts of sale by operation of law (NCC, Art. 1547).
1. Warranty that seller has right to sell – refers to consummation stage. Not applicable to sheriff, auctioneer, mortgagee,
pledgee (NCC, Art. 1547).
2. Warranty against eviction(Art. 1548)
Requisites: (JPENS)
a. Final Judgment;
b. Buyer is Evicted in whole or in part from the subject matter of sale;
c. Basis of eviction is a right Prior to sale or act imputable to seller;
d. Seller has been Summoned in the suit for eviction at the instance of buyer; or made 3rd party defendant
through 3rd party complaint brought by buyer;
e. No waiver on the part of the buyer.
NOTE: For eviction – disturbance in law is required and not just trespass in fact.
3. GR: Warranty against non-apparent burden or servitude (NCC, Art. 1560).
Requisites:
a. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the agreement;
b. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer would not have
acquired it had he been aware thereof.
XPN: Warranty not applicable when non-apparent burden or servitude is recorded in the Registry of Property –
unless there is expressed warranty that the thing is free from all burdens and encumbrances
4. Warranty against Hidden Defects (NCC, Art. 1561)
Requisites: (HENNAS)
a. Defect is important or Serious;
i. The thing sold is unfit for the use which it is intended;
ii. Diminishes its fitness for such use or to such an extent that the buyer would not have acquired it had
he been aware thereof.
b. Defect is Hidden;
c. Defect Exists at the time of the sale;
d. Buyer gives Notice of the defect to the seller within reasonable time;
e. Action for rescission or reduction of the price is brought within the proper period;
i. 6 months – from delivery of the thing sold (NCC, Art. 1571);
ii. Within 40 days – from the delivery in case of animals (NCC, Art. 1577).
f. There must be No waiver of warranty on the part of the buyer.
NOTE: Hidden faults or defects pertain only to those that make the object of sale unfit for the use for which it
was intended at the time of the sale.

Non-applicability of implied warranty (ASAP)

1. “As is and where is” sale;
2. Sale of second hand articles;
3. Sale by virtue of authority in fact or law;
4. Sale at public auction for tax delinquency

Effect of a breach of warranty against eviction

The buyer shall have the right to demand the R-I-C-E with damages from seller:
1. The Return of the value which the thing sold had at the time of the eviction, be it greater or lesser than the price of the
sale;
2. The Income or fruits, if he has been ordered to deliver them to the party who won the suit against him;
3. The Costs of suit which caused the eviction, and, in a proper case, those of suit brought against the vendor for the
warranty;
4. The Expenses of contract if buyer has paid them;
5. The damages, interests and ornamental expenses if sale was made in bad faith (NCC, Art. 1555).
NOTE: Vendor is liable for any hidden defect even if he is not aware (Caveat Venditor).
Redhibitory defect
It is a defect in the article sold against which defect the seller is bound to warrant. The vice must constitute an
imperfection, a defect in its nature, of certain importance; and a minor defect does not give rise to redhibition (De Leon,
2005).
Redhibitory defect on animals (NCC, Art. 1576)
If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert
knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.

Presumption of an equitable mortgage

A sale with conventional redemption is deemed to be an equitable mortgage in any of the following cases (NCC, Art. 1602)
(AIR-STAR)
1. Price of the sale with right to repurchase is unusually Inadequate;
2. Seller Remains in possession as lessee or otherwise;
3. Upon or after the expiration of the right to repurchase Another instrument extending the
period of redemption or granting a new period is executed;
4. Purchaser Retains for himself a part of the purchase price;
5. Seller binds himself to pay the Taxes on the thing sold;
6. In any other case where the real intention of the parties is that the transaction shall Secure the payment of a debt or the
performance of any other obligation;
7. Art. 1602 shall also apply to a contract purporting to be an Absolute sale (Art. 1604).

Instances of legal redemption

1. Sale of a co-owner of his share to a stranger (NCC, Art. 1620) (2000, 2002 BAR)
2. When a credit or other incorporeal right in litigation is sold (NCC, Art. 1634).
3. Sale of an heir of his hereditary rights to a stranger (NCC, Art. 1088).
4. Sale of adjacent rural lands not exceeding 1 hectare (NCC, Art. 1621).
5. Sale of adjacent small urban lands bought merely for speculation (NCC, Art. 1622).

Rules on lease of things when lessee is an alien

1. Personal property – 99 year limit applies.
2. Aliens cannot lease public lands, and cannot acquire private lands except through succession.
3. If lease of real property (private lands), maximum of 25 years renewable for another 25 years (PD 713).
4. Under the Investor’s Lease Act of 1995 (ILA), the 25 year period was extended to 50 years provided the following
conditions are met:
a. Lessee must make investments;
b. Lease is approved by DTI;
c. If terms are violated, DTI can terminate it

Warranty of the lessor

1. That he has a right to lease the thing;
2. That the lessee shall enjoy the legal and peaceful possession of the thing;
3. That the thing is fit for the use for which it is intended;
4. That the thing is free from any hidden fault or defect

Q: What are the damages recoverable in ejectment cases?

A: Only the rents or the fair rental value of the premises.
The following cannot be successfully claimed:
1. Profits plaintiff could have earned were it not for the possible entry or unlawful detainer;
2. Material injury to the premises;
3. Actual, moral, or exemplary damages (Baens v. Ca, G.R. no. L-57091, November 23, 1983).

When lessee may immediately terminate the lease (NCC, Art. 1660)
1. By notice to the lessor in case the dwelling place or building is unfit for human habitation and is dangerous to life or
health.
2. Even if at the time the contract was perfected, the lessee KNEW of the dangerous condition or WAIVED the right to
rescind.
Reason: Public safety cannot be stipulated against.
The lessor shall pay the lessee one-half of the value of the improvements computed at the time of the termination of the
lease if the following conditions are fulfilled:
1. That the lessee should have made the useful improvements in good faith;
2. The improvements are suitable to the purpose or use for which the lease is intended;
3. That the form and substance of the thing leased are not altered or modified.

PARTNERSHIP

Limited partnership – Must be registered as such with the SEC, otherwise, it is not valid as a limited partnership but may
still be considered a general partnership with juridical personality

Meaning of “cuentas en participacion”

Under the Code of Commerce, “cuentas en participacion” means a sort of an accidental partnership constituted in such a
manner that its existence was only known to those who had an interest in the same, there being no mutual agreement
between the partners, and without a corporate name indicating to the public in some way that there were other people
besides the one who ostensibly managed and conducted the business, governed under Article 239 of the Code of
Commerce (Bourns v. Carman, G.R. No. L-2880, December 4, 1906).

The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business,
but no such inference shall be drawn if such profits were received in payment:
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a deceased partner;
d. As interest on a loan, though the amount of payment vary with the profits of the business;
e. As the consideration for the sale for the sale of a goodwill of a business or other property by instalments or otherwise
(NCC, Art. 1769).

INDUSTRIAL CAPITALIST PARTNER

PARTNER
Prohibition
Absolute: Cannot engage
in business for himself
unless the partnership
expressly permits him
to do so.
Capitalist
partners may:
1. Exclude him from the
firm, or
2. Avail themselves of
the benefits which he
may have obtained;
3. Damages, in either
case (NCC, Art. 1789).
Relative: Cannot engage
in business (with same
kind of business with
the partnership) for his
own account, unless
there is a stipulation to
the contrary.
Capitalist partner, who
violated shall:
1. Bring to the common
fund any profits
accruing to him from
said transaction; and
2. Personally bears all
losses (NCC, Art. 1808).

Article 1809. Any partner shall have the right to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstances render it just and reasonable.

Effects of assignment of partner’s whole interest in the partnership
1. Rights withheld from the assignee:

Such assignment does not grant the assignee the right to:
a. To interfere in the management
b. To require any information or account
c. To inspect partnership books

2. Rights of assignee on partner’s interest:

a. To receive in accordance with his contract the profits accruing to the assigning partner
b. To avail himself of the usual remedies provided by law in the event of fraud in the management
c. To receive the assignor’s interest in case of dissolution
d. To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover
the period from the date only of the last account agreed to by all the partners

Effect of dissolution on the authority of a partner

GR: The partnership ceases to be a going concern.
XPN: The partner’s power of representation is confined only to acts incident to winding up or completing transactions
begun but not then finished (NCC, Art. 1832).
NOTE: Subject to the qualifications set forth in Articles 1833 and 1834 in relation to Article 1832:
1. In so far as the partners themselves are concerned– The authority of any partner to bind the partnership by a new
contract is immediately terminated when the dissolution is not by the act, insolvency, or death of a partner.
2. When the dissolution is by the act, insolvency, or death, the termination of authority depends upon whether or not the
partner had knowledge or notice of dissolution (NCC, Art. 1833)

Q: After the dissolution of a partnership, can a partner still bind the partnership?
A:
GR: A partner continues to bind partnership even after dissolution in the following cases:
1. Transactions to wind up partnership affairs or to complete transactions unfinished at dissolution;
2. Transactions which would bind partnership if dissolution had not taken place, provided the other party/obligee:
a. Had extended credit to partnership prior to dissolution; and had no knowledge/notice of dissolution; or
b. Did not extend credit to partnership; Had known partnership prior to dissolution; AND Had no knowledge/notice of
dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is
regularly carried on (Art. 1834, par 1 nos. 1-2).

Order of priority in the distribution of assets during the dissolution of a limited partnership
In setting accounts after dissolution, the liabilities of the partnership shall be entitled to payment in the following order:
1. Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their
contributions, and to general partners;
2. Those to limited partners in respect to their share of the profits and other compensation by way of income on their
contributions;
3. Those to limited partners in respect to the capital of their contributions;
4. Those to general partners other than for capital and profits;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital (NCC, Art. 1863).

“Doctrine of marshalling of assets”

The doctrine of marshalling of assets provides that:
1. Partnership creditors have preference in partnership assets.
2. Separate or individual creditors have preference in separate or individual properties.
3. Anything left from either goes to the other.
NOTE: The doctrine of marshalling of assets involves the ranking of assets in a certain order toward the payment of
outstanding debts (De Leon, 2010).
Settlement of accounts between partners
1. Assets of the partnership include:
a. Partnership property (including goodwill)
b. Contributions of the partners
2. Order of application of the assets:
a. First, those owing to partnership creditors
b. Second, those owing to partners other than for capital and profits such as loans given by the partners or advances for
business expenses
c. Third, those owing for the return of the capital contributed by the partners
d. Fourth, the share of the profits, if any, due to each partner

Continuation of partnership by a corporation

If a corporation is formed consisted of the members of the partnership, whose business and properties are transferred to
the corporation for continuing its business, in payment of which corporate capital stock was issued, such corporation is
presumed to have assumed the partnership debts and is prima facie liable therefor. The rationale of the rule is that
members of the partnership may be said to have simply put on new coat or taken a corporate cloak and the corporation is
a mere continuation of the partnership (Laguna Transportation Co., Inc. v. SSS, G.R. No. L-14606, April 28, 1960).

Obligations of a Limited PartnerTo the partnership creditors and other partners

1. A limited partner is liable for partnership obligations when he contributed services instead of only money or property
to the partnership.
2. When he allows his surname to appear in the firm name.
3. When he fails to have a false statement in the certificate corrected, knowing it to be false.
4. When he takes part in the control of the business
5. When he receives partnership property as collateral security, payment, conveyance, or release in fraud of partnership
creditors.
6. When there is failure to substantially comply with the legal requirements governing the formation of limited
partnerships

AGENCY

Instances when the agent may incur personal liability

1. Agent expressly bound himself.
2. Agent exceeds his authority
3. Acts of the agent prevent the performance on the part of the principal
4. When a person acts as agent without authority or without a principal.
5. A person who acts as an agent of an incapacitated principal unless the third person was aware of the incapacity at the
time of the making of the contract

Agency by necessity
Agency cannot be created by necessity. What is created instead is additional authority in an agent appointed and
authorized before the emergency arose. By virtue of the existence of an emergency, the authority of an agent is
correspondingly enlarged in order to cope with the exigencies or the necessities of the moment

Requisites for the additional authority of agent in cases of necessity

1. Real existence of emergency;
2. Inability of the agent to communicate with the principal;
3. Exercise of additional authority is for the principal’s protection; and
4. Adoption of fairly reasonable means, premises duly considered.

Breach of loyalty of the agent

In case of breach of loyalty, the agent is NOT entitled to commission
The forfeiture of the commission will take place regardless of whether the principal suffers any injury by reason of such
breach of loyalty. It does not even matter if the agency is for a gratuitous one, or that the principal obtained better results,
or that usage and customs allow a receipt of such a bonus.
NOTE: An agent has an absolute duty to make a full disclosure or accounting to his principal of all transactions and
material facts that may have some relevance with the agency (Domingo v. Domingo, G.R. No. L-30573, October 29, 1971).
Q: When is a third person required to inquire into the authority of the agent?
A:
1. Where authority is not in writing– Every person dealing with an assumed agent must discover upon his peril, if he would
hold the principal liable, not only the fact of the agency but the nature and extent of the authority of the agent.
2. Where authority is in writing – 3rd person is not required to inquire further than the terms of the written power of
attorney.
---
NOTE: A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of
the power of attorney or the instructions as regards the agency (NCC, Art. 1902).

Doctrine of Apparent Authority

The principal is liable only as to third persons who have been led reasonably to believe by the conduct of the principal
that such actual authority exists, although none has been given

AGENCY BY ESTOPPEL
It is when one leads another to believe that a certain person is his agent, when as a matter of fact such is not true, and the
latter acts on such misrepresentation, the former cannot disclaim liability, for he has created an agency by estoppel

Q: In an expropriation case between RP and several property owners in Mandaluyong for construction of the
EDSA-Shaw Boulevard Overpass Project, decision was rendered against the RP. The RP through the OSG received
the decision on October 7, 2002 but it was only October 20, 2003 that RP filed a petition for certiorari. It resorted
to an independent civil action because it failed to file within the 15-day reglementary period. Is the Republic
bound and put in estoppel by the gross negligence/mistake of its agent/former counsel?
A: While the Republic or the government is usually not estopped by the mistake or error on the part of its officials or
agents, the Republic cannot now take refuge in the rule as it does not afford a blanket or absolute immunity. Our
pronouncement in Republic v. CA is instructive: the Solicitor-General may not be excused from its shortcomings by
invoking the doctrine as if it were some magic incantation that could benignly, if arbitrarily, condone and erase its errors.
The rule on non-estoppel of the government is not designed to perpetrate an injustice. In general, the rules on appeal are
created and enforced to ensure the orderly administration of justice. The judicial machinery would run aground if late
petitions, like the present one, are allowed on the flimsy excuse that the attending lawyer was grossly lacking in vigilance
(Leca Realty Corp. v. Republic, G.R. Nos. 155605 & 160179, September 27, 2006).

Guarantee commission (2004 BAR)

It is the fee which is given in return for the risk that the agent has to bear in the collection of credits.
The purpose of the guarantee commission is to compensate the agent for the risks he will have to bear in the collection of
the credit due the principal .

Del credere agent

He is the agent who guarantees payment of the customer’s account in consideration of the commission. A del credere
agent may sue in his name for the purchase price in the event of non-performance by the buyer

Intervention of a notary public in the validity of an SPA

GR: A power of attorney is valid although no notary public intervened in its execution (Barretto v. Tuason, G.R. Nos. L-
36811, 36827, 36840, 36872, March 31, 1934).
XPN: When SPA is executed in a foreign country, it must be certified and authenticated (Sec. 24, Rule 132, Rules of Court).
NOTE: The failure to have the special power of attorney (executed in a foreign country) authenticated is not merely a
technicality – it is a question of jurisdiction. Jurisdiction over the person of the real party-in-interest was never acquired
by the courts

Limitations to a special power of attorney

1. A special power to sell excludes the power to mortgage (NCC, Art. 1879).
2. A special power to mortgage does not include the power to sell (Ibid).
3. A special power to compromise does not authorize submission to arbitration (NCC, Art. 1880).
NOTE: The scope of the agent’s authority is what appears in the written terms of the power of attorney. While third
persons are bound to inquire into the extent or scope of the agent’s authority, they are not required to go beyond the
terms of the written power of attorney. Third persons cannot be adversely affected by an understanding between the
principal and his agent as to the limit of the latter’s authority. In the same way, third persons need not concern
themselves with instruction given by the principal to his agent outside of the written power of attorney (Siredy
Enterprises, Inc. v. CA, G.R. No. 129039, September 27, 2002).
Instances where an agency is created by operation of law
1. When the agent withdraws from the agency for a valid reason, he must continue to act until the principal has had a
reasonable opportunity to take the necessary steps like the appointment of a new agent to remedy the situation caused by
the withdrawal (NCC, Art. 1929).
2. In case a person declines an agency, he is bound to observe the diligence of good father of the family in the custody and
preservation of the goods forwarded to him by the owner until the latter should appoint an agent (NCC, Art. 1885).

Necessity of notice of revocation

1. As to the agent – Express notice is not always necessary; sufficient notice if the party to be notified actually knows, or
has reason to know, a fact indicating that his authority has been terminated/suspended; revocation without notice to the
agent will not render invalid an act done in pursuance of the authority (De Leon 2014).
2. As to 3rd persons – Express notice is necessary.
a. As to former customers – Actual notice must be given to them because they always assume the continuance of the
agency relationship (NCC, Art. 1873).
b. As to other persons – Notice by publication is enough (NCC, Art. 1922).

NOTE: There is implied revocation of the previous agency when the principal appoints a new agent for the same business
or transaction, provided there is incompatibility. But the revocation does not become effective as between the principal
and the agent until it is in some way communicated to the latter

Anything done by the agent, without the knowledge of the death of the principal or on any other cause which extinguishes
the agency is valid and shall be fully effective with respect to third persons who may have contracted with him in good
faith (NCC, Art. 1931).
NOTE: The death of the principal extinguishes the agency; but in the same way that revocation of the agency does not
prejudice third persons who have dealt with the agent in good faith without notice of the revocation (NCC, Arts. 1921 &
1922) such third persons are protected where it is not shown that the agent had knowledge of the termination of the
agency because of the death of the principal or of any other cause which extinguishes the agency (Hererra v. Luy Kim
Guan, G.R. No. L-17043, January 31, 1961).

No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the
instrument constituting the trust (NCC, Art. 1445).
Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary,
his acceptance shall be presumed, if there is no proof to the contrary (NCC, Art. 1446).

Examples of resulting trust (sale, donation, loan, co-sale, benefit)

a. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is by another
for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the
price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child (NCC, Art.
1448).
b. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the done, he nevertheless is either to have no beneficial interest or only a part thereof (NCC, Art. 1449).
c. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to
the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom
the money is loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him
(NCC, Art. 1450).
d. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of
them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each (NCC,
Art. 1452).
e. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or
the grantor, there is an implied trust in favor of the person whose benefit contemplated (NCC. Art. 1453).
The following are examples of constructive trust: (succession, security, fiduciary funds, mistake or fraud)
1. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner (NCC, Art. 1451).
2. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward
the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to him (NCC, Art. 1454).
3. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of
property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in
favor of the person to whom the funds belong. (NCC, Art. 1455).
4. If property is acquired through mistake or fraud, the person obtaining it is, by force of law considered a trustee of an
implied trust for the benefit of the person from whom the property comes (NCC, Art. 1456)

CREDIT TRANSACTIONS

Liability when there are two or more bailees

When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily (NCC, Art.
1945). Their liability is solidary in order to protect the bailor’s rights over the thing loaned. The law presumes that the
bailor takes into account the personal integrity and responsibility of all the bailees, therefore, he could not have
constituted commodatum if there was only one bailee.

Q: Following the principle of autonomy of contracts, may the parties to a contract of commodatum validly
stipulate that the liability of the bailees shall be joint?
A: NO. Article 1245 of the New Civil Code expressly provides that in a contract of commodatum, when there are two or
more bailees to whom a thing is loaned in the same contract, they are liable solidarily. It constitutes as an exception to the
general rule of “joint obligations” where there are two or more debtors, who concur in one and same obligation under
Articles 1207 and 1208. Solidarity is provided to safeguard effectively the rights of the bailor over the thing loaned

Right of retention in commodatum

GR: There is no right of retention in commodatum. The bailee cannot retain the thing loaned on the ground that the bailor
owes the bailee (NCC, Art. 1944).
XPN: The bailee has the right of retention for claims of damages which the bailee incurred or suffered by reason of the
hidden defects or flaws of the thing loaned, of which he was not informed or advised by the bailor (NCC, Art. 1951).

Rules on who shall pay Ordinary, Extraordinary Expenses and other expenses
1. Ordinary Expenses – for both the use and preservation of the thing, it shall be paid or shouldered by the bailee (NCC, Art.
194). (2005 BAR)
2. Extraordinary Expenses (2005 BAR)
a. Preservation – bailor, provided the bailee brings the same to the knowledge of the bailor before incurring
them, except when they are so urgent that the reply to the notification cannot be awaited without danger (NCC,
Art. 1949).
b. Incurred during actual use –
GR: Borne equally by the bailor and bailee
XPN: Stipulation to the contrary (NCC, Art. 1949)
3. Other expenses – bailee (NCC, Art. 1950).

Interest in Equitable mortgage

There can be no interest to be collected in equitable mortgage because the same is not stipulated in writing (Tan v.
Valdehueza, G.R. No. L-38745, August 6, 1975).

Recovery of unstipulated interest

A payment for unstipulated interest can be recovered if paid by mistake, the debtor may recover as in the case of solutio
indebiti or undue payment. However if payment is made voluntarily, no recovery can be made as in the case of natural
obligation (NCC, Art. 1960).

Escalation Clause must have de-escalation clause

An escalation clause can be valid only if it also includes a de-escalation clause or a stipulation that the rate of interest
agreed upon shall be reduced in the event that the maximum rate of interest is reduced by law or by the Monetary Board
(Philippine National Bank vs. Intermediate Appellate Court, G.R. No. 75223 March 14, 1990
Diligence required in a contract of deposit
The depositary shall observe the diligence of a good father of a family in the performance of his obligations to protect and
preserve the thing deposited, unless a higher degree of diligence is stipulated by the parties (NCC, Art. 1175, par. 2).

When is deposit considered as necessary

1. When it is in compliance with a legal obligation;
2. It takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events (NCC,
Art. 1996);
3. Made by passengers with common carriers; or
4. Made by travelers in hotels or inns (NCC, Art. 1998).

Keepers of hotels or inns

1. The keepers of hotels or inns shall be held responsible for loss of thing in case of deposit when both are present:
a. They have been previously informed by guest about the effects the latter brought in, and
b. The guest has taken precautions prescribed for their safekeeping.

2. They are liable regardless of the degree of care exercised when:

a. Loss or injury is caused by his employees or even by strangers (NCC, Art. 2000); or
b. Loss is caused by act of thief or robber when there is no use of arms or irresistible force (NCC, Art. 2001).

3. The keepers of hotels or inns are not liable for loss of thing in case of deposit when:
a. Loss or injury is caused by force majeure; (NCC, Art. 2000)
b. Loss due to the acts of guests, his family, his employees, or visitors; and (NCC, Art. 2002)
c. Loss arises from the character of the goods (NCC, Art. 2002)

NOTE: Liability by the hotel or innkeeper commences as soon as there is evident intention on the part of the travellers to
avail himself of the accommodations of the hotel or inn. It does not matter whether compensation has already been paid
or not, whether the guest has already partaken of food and drink or not

Acceptance of the creditor in a contract of guaranty

GR: The acceptance of the creditor is not essential in contract of guaranty.
XPN: When there is a mere offer of a guaranty or a conditional guaranty wherein the obligation does not become binding
until it is accepted by the creditor and notice of such acceptance is given to the guarantor.

Effect in case of death of a party

Guarantor’s death – his heirs will still liable to the extent of the value of the inheritance because the obligation is not
purely personal and is therefore transmissible (Estate of Hemady v. Luzon Surety & Ins. Co., G.R. No. L-8437, November 28,
1956).
NOTE: An action against a guarantor who dies during pendency of the same, being one for the recovery of money or debt,
should be dismissed, but may be instituted in the proceeding for the settlement of his estate (Villegas v. Zapantaand
Zorilla, L-11056, December 26, 1958).
Debtor’s death – his obligation will survive. His estate will be answerable. If the estate has no sufficient assets, the
guarantor shall be liable.

Excussion, however is not a condition sine qua non for the institution of an action against a guarantor. It is not a
prerequisite to secure judgment against a guarantor. The latter can still demand deferment of the excussion judgment
against him until after the assets of the principal debtor shall have been exhausted

Benefit of excussion shall not take place in the following instances

1. Guarantor has expressly renounced it;
2. Guarantor has bound himself solidarily with the debtor;
3. Debtor is insolvent;
4. Guarantor has absconded, or cannot be sued within the Philippines unless he left a manager or representative;
5. If it may be presumed that an execution on the property of the debtor cannot satisfy the obligation (NCC, Art. 2059);
6. Guarantor does not invoke the benefit against creditor upon demand to him for payment and he does not point out
available property of the Debtor within the Philippines sufficient to cover the obligation (NCC, Art. 2060);
7. Guarantor is a judicial bondsman or sub-surety (NCC, Art. 2084);
8. A pledge or mortgage of his own property has been given by Guarantor as special security; or
9. Guarantor fails to interpose it as a defense before judgment is rendered (Saavedra v. Price, G.R. No. 46702. October 6,
1939).
Compromise agreement between the creditor and the principal debtor
A compromise between the creditor and the principal debtor is valid if the compromise is beneficial to the guarantor;
otherwise, it is not binding upon him (NCC, 1st sentence, Art. 2063).
In a compromise between the creditor and the guarantor to the principal debtor, if compromise is beneficial to the
principal debtor, it is valid; otherwise, it is not binding upon him (NCC, 2nd sentence, Art. 2063). To be binding, it must
benefit both the guarantor and the debtor.

Notification of payment made by the guarantor

GR: Guarantor must first notify the debtor before paying, otherwise, if the debtor pays again, the guarantor can only
collect from the creditor and the guarantor will have no cause of action against the debtor even if the creditor becomes
insolvent (NCC, Art. 2070).
XPN: Guarantor may still recover from debtor if the following circumstances concur:
1. Guaranty is gratuitous;
2. Guarantor was prevented by fortuitous event from notifying the debtor of the payment; and
3. Creditor becomes insolvent.

GR: It is not limited to a single transaction but contemplates a future course of dealings, covering a series of transactions
generally for an indefinite time or until revoked.
XPN: A chattel mortgage can only cover obligations existing at the time the mortgage is constituted and not to obligations
subsequent to the execution of the mortgage.
XPN to the XPN: In case of stocks in department stores, drug stores etc.

MATERIAL ALTERATION OF CONTRACT

An alteration is considered material when there is a change which imposes an obligation or added burden on the party
promising or which takes away some obligation already imposed, changing the legal effect of the original contract and not
merely the form thereof.
NOTE:
a. The increase in the interest rates without the guarantor’s consent does not release the guarantor where the creditor is
demanding only the original and not the increased rate of interest rate.
b. Assignment of the creditor without the knowledge or consent of surety is not material alteration of the contract.
c. Change in the technical specifications of the items to be purchased but their amount, length, and quality remained
unchanged, and the period for payment and the amount of liability of principal debtor and surety were untouched is not
material.

Property acquirable in the future cannot be mortgaged

Where the mortgagor mortgaged a property and in the contract he agreed to mortgage additional properties which he
may acquire in the future, there was no valid mortgage as to the latter because he was not yet the owner of the properties
at the time of the mortgage (Dilag v. Heirs of Ressurrecion, G.R. No. 48941, May 6, 1946).

A thing lawfully pledged to one creditor, cannot be pledged to another as long as the first pledge subsists (Mission de San
Vicente v. Reyes, G.R. No. 5508, August 14, 1911).

Continuous possession is required in pledge

The mere taking of the property is not enough in pledge. There must be continuous possession of the thing. However, the
pledgee is allowed to temporarily entrust the physical possession of the thing pledged to the pledgor without invalidating
the contract. But here, the pledgor would be in possession as a mere trustee and his possession is subject to the order of
the pledgee.

Requisites to bind third persons in a contract of pledge

The following must appear in the public instrument in order to affect third persons:
1. A description of the thing pledged; and
2. Statement of date when the pledge was executed (NCC, Art. 2096).

Constructive/symbolic delivery in a contract of pledge

GR: Constructive or symbolic delivery of the thing is not sufficient to constitute pledge.
XPN: If the pledge consists of goods stored in a warehouse for purposes, of showing the pledgee’s control over the goods,
the delivery to him of the keys to the warehouse is sufficient delivery of possession (constructive/symbolic delivery).
The type of delivery will depend upon the nature and peculiar circumstances of each case (Yuliongsiu v. PNB, G.R. No. L-
19227, February 17, 1968).
Right of an owner of personal property pledged without authority
An owner of personal property pledged without authority may invoke Art. 559 of the New Civil Code. The defense that
pawnshop owner acquired ownership of the thing in good faith is not available

Instances of legal pledges where there is right of retention

1. Art. 546 – Right of the possessor in good faith to retain the thing until refunded of necessary expenses.
2. Art. 1707 – Lien on the goods manufactured or work done by a laborer until his wages had been paid.
3. Art. 1731 – Right to retain of a worker who executed work upon a movable until he is paid.
4. Art. 1914 – Right of an agent to retain the thing subject of the agency until reimbursed of his advances and damages
(NCC, Arts. 1912 and 1913).
5. Art. 1994 – Right of retention of a depositary until full payment of what is due him by reason of the deposit.
6. Art. 2004 – Right of the hotel-keeper to retain things of the guest which are brought into the hotel, until his hotel bills
had been paid

GR: Future property cannot be an object of a contract of mortgage

XPN: A stipulation subjecting to the mortgage lien, properties and improvements (after-acquired properties) added to a
property already mortgaged which the mortgagor may subsequently acquire, install, or use, in connection with real
property already mortgaged belonging to the mortgagor is valid (People’s Bank and Trust Co. v. Dahican, G.R. No. L-17500,
May 16, 1967)

Effect of Registration as to Better Right of Third Parties

A registered mortgage right over property previously sold is inferior to the buyer’s unregistered right.
Reason: If the original owner had sold the thing, then he no longer had ownership and free disposal of it so as to be able to
mortgage it (State Investment House, Inc. v. CA, G.R. No. 115548, March 5, 1996)

Article 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. (n)

Stipulation requiring mortgagee’s consent before alienation

Status: Valid and binding but only in the sense that the mortgagee cannot be compelled to recognize the sale while the
loan is unpaid
The sale of the property does not affect the right of the registered mortgagee to foreclose on the same even if the
ownership has been transferred to another.
NOTE: Such stipulation nonetheless contravenes public policy, being an undue impediment or interference on the
transmission of property

Stipulation of Upset Price or TIPO

Status: Void (property should be sold to the highest bidder)
Upset Price or TIPO is the minimum price at which the property shall be sold at a public auction.

EXTRAJUDICIAL FORECLOSURE
An extrajudicial foreclosure may only be effected if in the mortgage contract covering a real estate, a clause is
incorporated therein giving the mortgagee the power, upon default of the debtor, to foreclose the mortgage by an
extrajudicial sale of the mortgage property (Sec. 1, Act No. 3135, as amended by Act No. 4148).
Authority to sell
The authority to sell may be done in a separate document but annexed to the contract of mortgage. The authority is not
extinguished by the death of the mortgagor or mortgagee as it is an essential and inseparable part of a bilateral agreement
(Perez v. PNB, G.R. No. L-21813, July 30, 1966).

RECOVERY OF DEFICIENCY
Judicial Foreclosure
The mortgagee is specifically given the right to claim for the deficiency (Rules of Court, Sec. 6, Rule 68).
Extrajudicial Foreclosure
The plain result of adopting extrajudicial foreclosure under Act No. 3135 is that the creditor waives his right to recover
any deficiency (Heirs of Sps. Flaviano v. Manila Banking Corporation, G.R. No. 171206, September 23, 2013).
Juridical Person (mortgagor) and Bank (mortgagee) – three (3) months after foreclosure or before registration of
certificate of foreclosure whichever is earlier (RA 8791, Sec. 47).
NOTE: By an amendment by the General Banking Law of 2000, juridical mortgagors like partnerships and corporations
are barred from the right of redemption of mortgaged property sold pursuant to an extrajudicial foreclosure, after the
registration of the certificate of foreclosure with the applicable Register of Deeds.
For purposes of reckoning the one-year redemption period in case of individual mortgagors, or the three-month
reckoning period for juridical persons/mortgagors the same shall be reckoned from the date of confirmation of the
auction sale which is the date when the certificate of title is issued (BIR RMC No. 15-2008, August 15, 2008).

Obligations of an antichretic creditor

1. Pay the taxes and charges assessable against the property like real estate taxes and others (NCC, Art. 2136), unless there
is stipulation to the contrary;

NOTE: The creditor has to pay the taxes even if the fruits be insufficient. If he does not pay taxes, he is, by law, required to
pay indemnity for damages to the debtor (Pando v. Gimenez, G.R. No. 31816, February 15, 1930). Creditor may avoid such
obligation by compelling the debtor to reacquire enjoyment of the property, unless there is a stipulation to the contrary
[NCC, Art. 2136(2)].
2. Bear the necessary expenses for the preservation and repair of the property;
3. Apply the fruits received for payment of the outstanding interests, if any, and thereafter of the principal (NCC, Art.
2132);
4. To render an account of the fruits to the debtor (Diaz v. De Mendezona, G.R. No. L-24824, January 30, 1926).

Effects of failure of registration

If the instrument is not recorded, the mortgage is nevertheless binding between the parties. However, the person in
whose favor the law establishes a mortgage has no other right than to demand the execution and the recording of the
document.

The officious manager shall be liable for any fortuitous event:

a. If he undertakes risky operations which the owner was not accustomed to embark upon;
b. If he has preferred his own interest to that of the owner;
c. If he fails to return the property or business after demand by the owner;
d. If he assumed the management in bad faith (NCC, Art. 2147);
e. Except when the management was assumed to save the property or business from imminent danger;
f. If he is manifestly unfit to carry the management;
g. If by his intervention he prevented a more competent person from taking up the management (NCC, Art. 2148).

Liability of two or more gestors

GR: If there are two or more officious managers, their liability for their acts is solidary.
XPN: When the management was assumed by the officious managers to save the property or business from imminent
danger, in which case, the liability is only joint.

Application of solution indebiti in difficult or doubtful question of law

Solutio indebiti can be applied if there is doubtful or difficult question of law. There can be payment because of “doubtful
or difficult question of law” may lead to solution indebiti because of the mistake committed (NCC, Art. 2155).

Rules on Preference Applicable When

1. There are two or more creditors;
2. With separate and distinct claims;
3. Against the same debtor;
4. Who has insufficient property (Pacific Farms Inc. v. Esguerra, G.R. No. L-21783, November 29, 1969)

There must be a proceeding such as an insolvency proceeding wherein the creditors can file their respective claims. The
right becomes significant only after the properties of the debtor have been inventoried and liquidated, and the claims of
the various creditors have been established (Barretto v. Villanueva, G.R. No. 14038, December 29, 1962; Philippine Savings
Bank v. Lantin, G.R. No. 33929, September 2, 1983; DBP v. NLRC, G.R. No. 86932, June 27, 1990).

Rights of Secured Creditors

The Liquidation Order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable
contract or law.
Rule Involving Property Held in Trust
Property held by the insolvent debtor as a trustee of an express or implied trust, shall be excluded from the insolvency
proceedings (NCC, Art. 2240).
The trustee is NOT the owner of the property held. Hence, it should not respond for the insolvent trustee’s obligations

Persons Vicariously Liable (F-GOES-T)

1. Father, or in case of death or incapacity, mother:
a. Damage caused by minor children
b. Living in their company
2. Guardians:
a. For minors or incapacitated persons
b. Under their authority
c. Living in their company
3. Owners and managers of establishments:
a. For their employees
b. In the service of the branches in which they are employed, or;
c. On the occasion of their functions
4. Employers:
a. Damages caused by employees and household helpers
b. Acting within the scope of their assigned tasks
c. Even if the employer is not engaged in any business or industry
5. State – acting through a special agent and not when the damage has been caused by the official to whom
the task done properly pertains.
6. Teachers or heads of establishments:
a. Of arts and trades
NOTE: Article 2180 of the NCC is applicable to all schools, whether it be academic or nonacademic
(Amadora v. CA, G.R. No. L-47745, April 15, 1988).
b. For damages caused by their pupils and students or apprentices
c. So long as they remain in their custody (NCC, Art. 2180).

Owners and managers

The terms “owners and managers” are used in the sense
of “employer” and do not include the manager of a
corporation who himself is just an employee (Phil. Rabbit
Bus Lines v. Phil. American Forwarders, Inc., G.R. No. L-
25142, March 25, 1975).

An employee who on his own responsibility performs

functions inherent in his office and naturally pertaining
thereto is not a special agent (Meritt v. Government of the
Philippine Islands, G.R. No. 11154, March 21, 1916).
NOTE: Where the government commissions a private
individual for a special governmental task, it is acting
through a special agent within the meaning of the
provision

Age of student immaterial

Even if the student has already reached the age of
majority, the liability can be imputed to the teacher-incharge.
Under Article 2180, age does not matter. Unlike
the parent who will be liable only if the child is still a
minor, the teacher is held answerable by the law for the
act of the student regardless of the age of the student
liable (Amadora v. CA, G.R. No. L-47745, April 15, 1988).

Disputable presumptions of negligence

1. Motor vehicle mishaps – a driver is presumed
negligent if he:
a. was found guilty of reckless driving or violating
traffic regulations at least twice within the
preceding two months (NCC, Art. 2184); or
b. was violating any traffic regulation at the time of
the mishap (NCC, Art. 2185).
2. Possession of dangerous weapons or substances,
results in death or injury, except when the possession or use thereof is indispensable in his
occupation or business (NCC, Art. 2188).
3. Common carriers are presumed to have been at fault
or acted negligently in cases of death or injuries to
passengers. Unless they prove that they observed
extraordinary diligence (NCC, Art. 1733 & 1755).

“Diligence before the fact”

The conduct that should be examined in negligence cases
is prior conduct or conduct prior to the injury that
resulted or, in proper cases, the aggravation thereof.

Doctrine of transferred intent

It arises when a person intends to commit a tort against
one person but instead inflicts injury to another. For
purposes of intentional tort, the intent is deemed to have
transferred from the intended victim to the actual one
(U.S. v. Maisa, G.R. No. L-3728, September 25, 1907).

Seven major intentional torts (FITTED CAB)

1. False Imprisonment (Dignitary Tort)
2. Trespass to land
3. Trespass to chattels (Trover)
4. Intentional Infliction of Emotional Distress
5. Conversion
6. Assault
7. Battery

Wild Beast Theory

A person who for his own purposes brings on his land and
collects and keeps there anything likely to do mischief if it
escapes, must keep it at his peril, and if he does not do so,
is prima facie answerable for all the damages which is the
natural consequence of its escape. It is therefore
unnecessary for the plaintiff to prove negligence, and it is
no defense for a defendant to prove that he has taken all
possible precautions to prevent the damage (Ryland v.
Fletcher, L.R. 1 Ex. 265).

Owner liable if victim is a stranger

The owner of an animal is not liable for injury caused by
it to its caretaker. However, he may be held liable if the
victim is a stranger (Afialde v. Hisole, G.R. No. L-2075,
November 29, 1949).

NUISANCE
Any act, omission, establishment, business, condition of
property, or anything else which condition of property, or
anything else which:
1. Hinders or impairs the user of property;
2. Annoys or offends the senses;
3. Shocks, defies or disregards decency or morality;
4. Injuries or endangers the health or safety of other; or
5. Obstructs or interferes with the free passage of any
public highway or street, or any body of water.
RES IPSA LOQUITUR
The thing speaks for itself. Rebuttable presumption or
inference that defendant was negligent, which arises
upon proof that instrumentality causing injury was in
defendant’s exclusive control, and that the accident was
one which ordinarily does not happen in absence of
negligence
Resort to the doctrine may be allowed only when:
1. The accident is of such character as to warrant an
inference that it would not have happened except for
the defendant’s negligence;
2. The accident must have been caused by an agency or
instrumentality within the exclusive management or
control of the person charged with the negligence
complained of; and
3. The accident must not have been due to any
voluntary action or contribution on the part of the
person injured (Josefa v. MERALCO, G.R. No. 182705,
July 18, 2014).

Doctrine of Captain of the Ship

The surgeon is likened to a ship captain who must not
only be responsible for the safety of the crew but also of
the passengers of the vessel. The head surgeon is made
responsible for everything that goes wrong within the
four corners of the operating room. It enunciates the
liability of the surgeon not only for the wrongful acts of
those who are under his physical control but also those
wherein he has extension of control (Ramos v. CA, G.R. No.
124354, December 29, 1999).
Doctrine of Informed Consent
A physician has a duty to disclose what a reasonably
prudent physician in the medical community in the
exercise of reasonable care would disclose to his patient
as to whatever grave risks of injury might be incurred
from a proposed course of treatment, so that a patient,
exercising ordinary care for his own welfare, and faced
with a choice of undergoing the proposed treatment, or
alternative treatment, or none at all, may intelligently
exercise his judgment by reasonably balancing the
probable risks against the probable benefits (Li v. Sps.
Soliman, G.R. No. 165279, June 7, 2011).

DAMNUM ABSQUE INJURIA(DAMAGE WITHOUT PREJUDICE)

A person who only exercises his legal rights does no
injury. If damages result from such exercise of legal rights,
the consequences must be borne by the injured person
alone. The law affords no remedy for damages resulting
from an act which does not amount to a legal injury or
wrong (Heirs of Purisima Nala v. Cabansag, G.R. No.
161188, June 13, 2008).

VOLENTI NON FIT INJURIA

“to which a person assents is not deemed in law as
injury”
It refers to self-inflicted injury or to the consent to injury
which precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger,
even if he is not negligent in doing so (Nikko Hotel Manila
Garden, et al. v. Reyes, G.R. No. 154259, February 28, 2005).
DOCTRINE OF DISCOVERED PERIL or DOCTRINE OF
SUPERVENING NEGLIGENCE) LAST CLEAR CHANCE
This is also called as the “Humanitarian Negligence
Doctrine.” Where both parties are negligent but the
negligent act of one succeeds that of the other by an
appreciable interval of time, the one who has the last
reasonable opportunity to avoid the impending harm and
fails to do so, is chargeable with the consequences,
without reference to the prior negligence of the other
party (Picart v. Smith, G.R. No. L-12219, March 15, 1918).

Kinds of damages (MENTAL)

1. Moral
2. Exemplary or corrective
3. Nominal
4. Temperate or moderate
5. Actual or compensatory
6. Liquidated

Kinds of Actual or compensatory damages

1. Damnun Emergens/Dano Emergente (actual
damages) – all the natural and probable consequence
of the act or omission complained of, classified as one
for the loss of what a person already possesses
2. Lucrum Cessans/Lucro Cesante (compensatory
damages) – for failure to receive, as benefit, that
which would have pertained to him (expected
profits) (Filipinas Synthetic v. De Los Santos, G.R. No.
152033, March 16, 2011).

GR: Attorney’s fees cannot be recovered as actual

damages.
XPNs: (SWISS- MUD- ERC)
1. Stipulation between parties;
2. Recovery of Wages of household helpers, laborers
and skilled workers;
3. Actions for Indemnity under workmen's
compensation and employer liability laws;
4. Legal Support actions;
5. Separate civil action to recover civil liability arising
from crime;
6. Malicious prosecution;
7. Clearly Unfounded civil action or proceeding against
plaintiff;
8. When Double judicial costs are awarded;
9. When Exemplary damages are awarded;
10. Defendant acted in gross & evident bad faith in
Refusing to satisfy plaintiff's just & demandable
claim; and
11. When defendant's act or omission Compelled
plaintiff to litigate with third persons or incur
expenses to protect his interest
NOTE: If not pleaded and prayed for in the complaint,
attorney’s fees are barred (Tin Po v. Bautista, G.R. No. L-
55514, March 17, 1981).

Actual damages
Rape - For simple rape or qualified rape, where
the penalty imposed is death but reduced to
reclusion perpetua because of RA 9346, the civil
indemnity is ₱100,000.00 (People v. Jugueta, G.R.
No. 202124, April 5, 2016)
Death – P100,000 by way of civil indemnity ex delicto
(People v. Jugueta, G.R. No. 202124, April 5, 2016).
4. Physical Injuries – Civil indemnity of P50,000.00 for
the victims who suffered mortal/fatal wounds and
could have died if not for a timely medical
intervention, and a civil indemnity of P25,000 for the
victims who suffered non-mortal/non-fatal injuries
(ibid.).

The amount of damages for death caused by a crime or

quasi-delict shall be at least P75,000, even though there
may have been mitigating circumstances (People v.
Tabarnero, G.R. No. 168169, February 24, 2010).

MORAL DAMAGES
It includes physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar
injury (NCC, Art. 2217).

When victim bearing a child

An award for the death of a person does not cover the case
of an unborn foetus that is not endowed with personality.
The damages recoverable by the parents of an unborn
child are limited to moral damages for the illegal arrest of
the normal development of the foetus on account of
distress and anguish attendant to its loss (Geluz v. CA, G.R.
No. L-16439, July 20, 1961).

Moral damages may be recovered in the following and

analogous cases (1996, 2002, 2004, 2006, 2009 BAR)
1. A criminal offense resulting in physical injuries;
2. Quasi-delicts causing physical injuries;
3. Seduction, abduction, rape, or other lascivious acts;
4. Adultery or concubinage;
5. Illegal or arbitrary detention or arrest;
6. Illegal search;
7. Libel, slander or any other form of defamation;
8. Malicious prosecution;
9. Acts mentioned in Article 309; and
10. Actions referred to in Articles 21, 26, 27, 28, 29, 30,
32, 34, and 35 (NCC, Art. 2219).

Amount of award in qualified rape

For qualified rape, where the penalty imposed is death
but reduced to reclusion perpetua because of RA 9346,
the amount of damages to be awarded are as follows:
1. Civil indemnity – P100,000.00;
2. Moral damages – P100,000.00;
3. Exemplary damages – P100,000.00
(People v. Jugueta, G.R. No. 202124, April 5, 2016).

Damages that can be recovered in case of death (MEAI3)

1. Moral damages
2. Exemplary damages
3. Attorney's fees and expenses for litigation
4. Indemnity for death
5. Indemnity for loss of earning capacity
6. Interest in proper cases