Professor: Atty.

Carla Santamaria-Sea

Transcribers:
Marc Roby de Chavez (MARX)

Mon Cristhoper Pasia (MON)

 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

What is the definition of the term obligation? What are the elements of Obligation?
Art. 1156.. An obligation is a juridical necessity to give, to do or not 1. Active subject
to do.
2. Passive subject who is bound to perform the
prestation, known as the debtor or obligor
That is the definition provided by law, but that is an 3. Objectt or Prestation
incomplete definition because it focuses on the passive 4. Efficient cause or the juridical tie
aspect of the obligation
Active subject
Total relation obligation is the juridical relation, created by who has the power to demand the prestation,
virtue of certain facts, between two or more persons, known as the creditor or oblige
whereby one of them, known as the creditor or obligee,
oblige may
demand from the other, known as the debtor or obligor, a Passive subject
definite prestation. who is bound to perform the prestation, known as
the debtor or obligor
Complete definition: An obligation is a juridical relation
whereby a person (called the creditor) may demand from With regard to the personal
ersonal elements of the Obligation (active
another (called the debtor) the observance of a determinate
determinat and passive subjects) do we need to identify their
conduct, and, in case of breach, may obtain satisfaction from personalities? Must they be identified?
the assets of the latter They need not be identified or determined in the act
constituting the obligation, but they must at least be
The obligation pertaining to Art. 1156 refers only to civil identifiable orr determinable by some kind of criteria
obligations.
Example of determinable active subject:
How civil obligation differs from natural obligation?
In a raffle draw, the debtor (organization) is
Civil Obligations- can be enforced in the court
identified, but the creditor (the winner) is not yet
Natural Obligations- natural obligation is also an
identified.
obligation because it is also included in the
classification of an obligation.
When will be the creditor be identified?
When the raffle ticket is drawn
Should the debtor choose to honor his obligation
and perform it, there is nothing wrong w/ it
Example of determinable passive subject:
In case of theft, the active subject is the victim. The
The enforceability of natural obligation is more or
perpetrator is not yet identified. The one who took it
less dictated by the conscience of the debtor. But it
is civilly liable to return the thing stolen. The
does not make it less than an obligation. It is still an
perpetrator may not be known but he is i already
obligation only that you do not have any recourse in
obligated.
law to enforce it. You are totally at the mercy of the
debtorhishis conscience, W/N he would like to
Prestation
comply w/ his obligation.
The prestation is referred to as the object of the obligation, do
Examples of Natural Obligation:
we take it as an object or a thing?
A owes B sum of money evidenced by Promissory
No, it is the conduct which calls for the giving, doing
Note. But B condoned the obligation of A. Despite
or not doing on the part of the debtor
the condonation, A still pays B. But here the
condonation is w/o the consent of A. The Obligation
The prestation should be susceptible of valuation in terms of
is evidenced by a prescribed Promissory Note.
money, why?
The thing that gives an obligatory force to an
It is still an obligation, prescription does not
obligation is the possibility of sanction, and it is only
extinguish the obligation. What does it extinguish is
possible if failing fulfillment of the prestation, you
the right to enforce the action, since it is Promissory
are able to proceed to the assets of your debtor.
debt
Note (legal contract),
ontract), then your right prescribes w/in
the period of 10 yrs. You have 10 yrs to enforce the
obligation.

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Is it the same as taking that we can only have prestation
which are of economic in character?
The prestation need not be of an economic value
because, all interest, even moral ones, in view of the
protection given to them by law, have some
pecuniary value
An example of an obligation which is economic in character is
a contract of sale. We can easily appreciate that there is
pecuniary valuation in case of breach. If the party does not
pay by way of the purchase price, then the other party may
sue and recover the value of the purchase price. We can
quantify it. Or, if the property is not delivered, again, it can
still be quantified because the sanction is economic in
character. It can be easily be translated into monetary value.
But what about an obligation
gation which is not economic in
character, because it is our theory that all interest are
susceptible of pecuniary valuation. What can be an example
of an obligation which is not of economic in character but is
susceptible of monetary value?
Obligation between
etween Husband and wife
In case of breach, what will be the remedy of the
aggrieved spouse?
Seek damages
It cannot be really quantified because it is
not economic in character but we have to
quantify it. We have to assume that it is
susceptible of monetary
ary valuation.
There is no clear basis of the damages but
we have to assume that there is
Our theory is that all interests are susceptible of pecuniary
valuation and this has to be so, otherwise, whatever remedy
we may have under the law will be all for naught. If we
cannot obtain satisfaction from the assets of the debtor, it is
useless to have cause of action, right of action and judgment
in our favor.
What will be the requisites for a valid prestation?
1. It must be licit, possible, physically and judic
judicially
2. Must be determinate or at least determinable
3. Must have a possible equivalent in money or
susceptible of economic valuation
Obligation to give: one in which the prestation 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
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Example: Contract of Sale, Sale
Sal of land?
an obligation to give
Contract of lease, Is it an obligation
obli to give, to do or not?
it is an obligation to give
Are you giving the lease premises? How do we define the
prestation to give?
If you would think literally to give means to give, to
transfer. So it always involves transfer of ownership.
Supposing the contract is one that does not invoke transfer of
ownership. As for instance it is only a contract of lease, would
it still qualify as an obligation to give?
Yes
Justification of that classification that it is an obli to give?
Act required of the debtor: to deliver
Either movable or immovable property. The purpose
of the delivery may vary
Contract of Sale: to transfer ownership
Contract of lease: to deliver the prop for purpose of giving
him possession.
In a usufruct: to allow him the possession of the prop as well
the enjoyment of the fruits
Obligation to do: It includes all kinds of work or services
Obligation to do and Obligation to give: sometimes
overlapped
Example: if you are a craftsman, sell things to the
public
When is it that the work you are doing pertains to an
obligation to give because you are simply selling and
when does it become an obligation
ob to do, you are
performing a work or service?
if one that is obligated to be delivered is
one of the several objects w/c he has in
stock, ex., wooden chairs, if you are going
to sell this to specific person and this is
available on stock this is an Obligation to
give (delivery of what is available at the
time)
Buyer gives specification Obligation to
do,, because it is a work or service w/c is
performed specifically for you.
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Why is it important to distinguish? not involve a quasi-delict,

Because of the remedies available.
The remedies available to obligation to give are
different from the remedies available to obligation
to do.
Obligation not to do - Obligation not to do an obligation w/c
he may otherwise do. This already includes the obligation
obli not
to give
Ex. of obligation not to do: Imposed as a condition
Prohibition to contract Marriage: it is valid provided
it is given by a relative, or if it is an absolute
prohibition to contract subsequent marriage, so long
as it is it is imposed by the deceased or descendants
of the deceased
Efficient cause
This refers to the reason why the obligation exists.
This will be the source of the obligation
quasi delict, quasi-contract. We
can only look only into 2 only possible sources,
source that
is law and contract.
There is no contract between the doctor and in-laws.
in
Based on the fact, they only summoned the doctor.
They did not really engaged his services. So we are
left with the law. But there is nothing in the law
which makes an in-lawin liable for the support
(medical expenses)
ses) of a spouse. This liability
devolves upon the other spouse
Similar case, a security guard who is caught in a fight and he
injured a third person while he was on duty. Perhaps he is
acting to attend the interest of his employer. Whether or not
the employer
loyer is obligated to provide him legal defense, in
other words, spent for his defense. Can the company be
compelled to spend the defense of the security guard? Is the
employer obligated to extend legal services for free to any
employee?
None, there is no legal obligation. The employer
cannot be compelled.

What are the sources of obligation under the law? This is however different from a moral obligation,
Art. 1157. Obligations arise from: particularly is the employee is acting to protect the
1. Law
interest of his employer.
2. Contracts
3. Quasi-contracts
4. Acts or omissions punished by law Art. 1159. Obligations arising from contracts have the force of law bet
between
5. Quasi-delicts the contracting parties and should be complied with in good faith.

How law can be a source of obligation?
What is the rule with regard to obligation created by law?
Art. 1158. Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen, by
the provisions of this Book.
Next source of obligation: Contracts. What is this principle of
autonomy of will?
The will of the parties in the contracts has the force
of law and should be complied it in good faith. This
will serve as the law between the parties
Art. 1160. Obligations derived from quasi-contracts
quasi shall be subject to the
provisions of Chapter 1, Title XVII,
VII, of this Book.

Obligations arising from law are not presumed, they What about quasi-contracts
contracts as a source of obligation? What
must be expressly provided for is a quasi-contract?
Art. 2142. Certain lawful, voluntary and unilateral acts give rise to
Case: Pelayo vs Lauron the juridical relation of quasi-contract
quasi to the end that no one shall
be unjustly enriched
ched or benefited at the expense of another.
In that case, why is that the in-laws
laws are not responsible for
the claim of the doctor? A juridical relation which arises from certain lawful,
The approach should be one of elimination. If we are unilateral and voluntary acts to the end that no one
going to answer this question, we should not jump shall be unjustly enriched or benefited at the
right away that there is no provision in the law expense of another
making the in-laws
laws of a person liable for her medical
expenses. How many quasi-contracts
contracts do we have?
Principally, there are 2
We have to say that: Under the law an obligation can o Negotiorium Gestio
be sourced from the law, contract, quasi-delict,
quasi o Solutio Indebiti
delict or quasi-contract. Obviously, this case does
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These are just the principal kinds, there are other
quasi-contracts
contracts recognized in our law.
What is the basis of the obligation created from these acts
that give rise to quasi-contracts?
The
he basis is the presumed will or the presumed
intent of the debtor in accordance with the principle
of equity, specifically, the principle that no one shall
be unjustly enriched at the expense of the another
ano
(Unjust enrichment)
If we look at our 2 principal kinds of quasi--contracts, we will
note that the obligations involved in these 2 quasi
quasi-contracts
are? What are the obligations created?
Negotiorium Gestio: The obligation to indemnify or
to reimburse
Solutio Indebiti: The obligation to return the thing
by mistake and the obligation to give back what has
been received by mistake
Both are based on the presumed will of the debtor that he
would want to give back what he had received by mistake; he
would want to reimbursed the officious manager for all his
troubles in managing his business in his absence. We
presume that such is the intent of the debtor because he will
not want to be unjustly enriched at the expense of the payor
or officious manager.
What is negotiorium Gestio?
Art. 2144. Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any
power from the latter, is obliged to continue the same until the
termination of the affair and its incidents, or to require the th person
concerned to substitute him, if the owner is in a position to do so. This
juridical relation does not arise in either of these instances:
(1) When the property or business is not neglected or
abandoned;
(2) If in fact the manager has been tacitly authorized by the
owner.
In the first case, the provisions of Articles 1317, 1403, No. 1, and 1404
regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be
applicable.
It is a juridical relation
tion w/c takes place when somebody
takes charge of the agency or management of the
business or property of another w/o any power from the
latter
For us to have negotiorium gestio, there are 2 elements that
must be establish. What are the elements?
(1) That thee business or property must be abandoned or
neglected
(2) The officious manager must not have been
authorized by the owner
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If any of the 2 elements are not present, then we do not have
negotiorium gestio
What happens if there is tacit authorization?
We do not have negotiorium gestio, we have a
contract of agency. There may be obligation that is
created but it is not sourced from a quasi-contract.
quasi
What would be its source?
A contract, specifically, a contract of agency
What happens if the property or business was not actually
abandoned or neglected?
The same will be governed by 1317, 1403 (1), 1404
Art. 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked
voked by the other contracting party.
Art. 1403.. The following contracts are unenforceable, unless they
are ratified:
(1) Those entered into in the name of another
person by one who has been given no authority
or legal representation, or who has acted beyond
his powers;
Art. 1404. Unauthorized contracts are governed by Article 1317
and the principles of agency in Title X of this Book.
Example: (give ur own)
What if in a farm, there was a caretaker, he was attending to
the corns. And then a neighbor went over
ove and proceeded to
boss the caretaker around. Lets say he commanded the
caretaker to clean up the farm, ask suppliers to supply seeds
for planting of onions and for the construction of fish pond.
pond
And when the owner came back, can the officious manager
(neighbor)
ighbor) charge him for all his expenses?
He cannot because the farm is not abandoned in the
first place
How do we treat these obligations that the officious manager
had incurred? Who shall be liable? Who shall pay for the
planting of the onion and construction
constru of the fish pond?
The officious manager
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Why it cannot be enforced against the owner? Can the 3rd
person (suppliers and laborers) use the representation against
the owner? The officious manager acted without authority of
the owner, how would that affect the contracts he entered
into in the name of the owner? What will be the status of the
contracts that
at the officious manager entered into in the name
of the owner?
Unenforceable. No one can enter into a contract in
the name of the other person without the consent of
such other person. And if he does so, the contract is
unenforceable as against the supposed
suppos principal.
But as against him (officious manager), that
contracts will be his personal liability.
Art. 2152. The officious manager is personally liable for contracts which
he has entered into with third persons, even though he acted in the
name of the owner, and there shall be no right of action between the
owner and third persons. These provisions shall not apply:
app
(1) If the owner has expressly or tacitly ratified the
management, or
(2) When the contract refers to things pertaining to the owner
of the business.
In essence, we said that the obligation of the owner to the
officious manager is to reimburse the officious manager. But
when will the officious manager be entitled to
reimbursement? Is it a requirement that there should be some
benefit that has accrued to the owner as a result of the
management of the officious manager?
None, no requirement of benefit.
Under article 2149,, the law says that if there has been
ratification, then there will be an obligation for
reimbursement but it will be under the provisions of the
express agency that has been created.
Art. 2149. The ratification of the management by the owner of
the business produces the effects of an express agency, even if
the business may not have been successful.
If there is no ratification for the acts of the officious manager,
meaning to say that an agency has not been constituted, then
we need to look for or benefits that may have been accrued to
the owner. If there are benefits that had been accrued to
him, the officious manager shall be entitled to
reimbursement for necessary and useful expenses, as well as
indemnification for any damage that he may have suffered as
a result of his management.
Art. 2150. Although the officious management may not have been
expressly ratified, the owner of the property or business who
enjoys the advantages of the same shall be liable for obligations
incurred in his interest, and shall reimburse the officious manager
for the necessary and useful expenses and for the damages which
the latter may have suffered in the performance of his duties.
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The same obligation shall be incumbent upon him when the
management had for its purpose the prevention of an imminent
and manifest loss,, although no benefit may have been derived.
But what if there is no ratification nor benefit and no
imminent and manifest loss to the property,
property would there still
be a right for reimbursement?
Yes, there will be reimbursement of necessary
expenses and indemnification
ind of damages but
subject to a condition that
(1) The officious manager has acted in good
faith, and
(2) The property or business is intact, ready to
be returned to the owner.
Art. 2151. Even though the owner did not derive any benefit and
there has been
een no imminent and manifest danger to the property
or business, the owner is liable as under the first paragraph of the
preceding article, provided:
(1) The officious manager has acted in good faith, and
(2) The property or business is intact, ready to be return
returned
to the owner.
At the very least, to be entitled to reimbursement,
reimbursement the
officious manager must be in good faith and he did not cause
any damage (thats what the law means that the property
was still intact).
What is Solutio Indebiti?
Juridical relation w/c takes place when somebody
received something from another w/o any right to
demand for it, and the thing was unduly delivered to
him through mistake.
Art. 2154. If something is received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
The payment must have been made by mistake and must not
have been motivated by any act of liberality. If it is by
liberality, then it becomes donation.
Usually, the law refers to Solutio Indebiti as payment by
mistake.
And when we speak of mistake, does that include mistake of
law?
Yes
IF payment by mistake includes mistake of law, then we are
deviating from the provisions of Art. 3. Art 3 tells us thattha
ignorance of the law excuses no one. Which means that no
one can ever claim a mistake of law as a defense. Then here
we have a provision that payment by a mistaken
interpretation of a difficult question of law, it qualifies as a
mistake that can justify an act of recovery of what have been
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paid under the principle of solution indebiti. For us to deviate
of what art 3 says, we need a solid basis, the basis is Art 2155
Art. 2155. Payment by reason of a mistake in the construction or
application of a doubtful
tful or difficult question of law may come
within the scope of the preceding article.
What happens if the property that is delivered by mistake
does not belong to the payor but belongs to a 3rd person?
Art. 2158. When the property delivered or money paid belongs to
a third person, the payee shall comply with the provisions of
article 1984.
Art. 1984. The depositary cannot demand that the depositor
prove his ownership of the thing deposited.
Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the
deposit.
If the owner, in spite of such information, does not claim it within
the period of one month, the depositary shall be relieved of all
responsibility
ility by returning the thing deposited to the depositor.
If the depositary has reasonable grounds to believe that the thing
has not been lawfully acquired by the depositor, the former may
return the same.
The obligation of the payee was to give back what he have
received. When we speak of payment, we are not limited to
money, we can also pay by delivering property or some other
objects
Apart from this main obligation (to giveback what has been
received by mistake) would there be any other obligations or
duties that the law imposes upon the payee?
When we speak here of liability for damage or impairment of
the thing, do we even consider what the cause of the damage
is?
Yes
Good faith payee: exempted from liability in case of loss or
damage on account of fortuitous event will be applicable.
If there is damage that is caused to the thing by reason of the
fault or negligence of the payee who is now obligated to give
back what he had received by mistake then still his liability
would still be mitigated because
use his liability would only to the
extent that he has been benefited.
He would not also have any liability in case he has already
disposed on the thing save for the obligation to deliver the
price or assign his right to recover the thing from the person
to whom it has been transferred.
Art. 2160. He who in good faith accepts an undue payment of a
thing certain and determinate shall only be responsible for the
impairment or loss of the same or its accessories and accessions
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insofar as he has thereby been benefited. If he has alienated it, he
shall return the price or assign the action
a to collect the sum.
Art. 2161. As regards the reimbursement for improvements and
expenses incurred by him who unduly received the thing,
the provisions of Title V of Book II shall govern.
It is a total different scenario if the payee is in Bad faith. The
payee is liable for the loss or impairment regardless of the
cause. This can include fortuitous event.
Apart from this extended liability for loss or damage to the
property, what else? If the thing received by mistake is a sum
of money?
He must pay legal interest
If it is not money?
Payment of fruits
What will be the extent of his liability for the payment of
fruits?
Liable for the fruits received and or which should
have been received if the thing produces fruits.
Art. 2159. Whoever in bad faith accepts an undue payment, shall
pay legal interest if a sum of money is involved, or shall be liable
for fruits received or which should have been received if the thing
thin
produces fruits.
He shall furthermore be answerable for any loss or impairment of
the thing from any cause, and for damages to the person who
delivered the thing, until it is recovered.
Other Quasi-contracts
Lets us say, someone caught in an accident,
accident you helped him.
You brought him in the emergency room in a hospital, that
will incur expenses. Would you be liable for the payment of
expenses for his hospitalization? Will you be liable for the
doctors because you are the one who brought the victim to
the hospital?
No
Supposing the victim died and there is no identification of
such person and the person who keeps the victim could no
longer be located, will you be liable?
No
Remember: the mere act of bringing someone to the hospital,
that cannot be interpreted to an act of entering into a
contract with the doctors. That is merely an exercise of civic
duty.
Then who would be liable?
His heirs or his estate
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Art. 2167. When through an accident or other cause a person is
injured or becomes seriously ill, and he is treated or helped while
he is not in a condition to give consent to a contract, he shall be
liable to pay for the services of the physician or other person
aiding him, unless thehe service has been rendered out of pure
generosity.
Art. 2164. When, without the knowledge of the person obliged to give
support, it is given by a stranger, the latter shall have a right to claim the
same from the former, unless it appears that he gave it out of piety and
without intention of being repaid.
Art. 2165. When funeral expenses are borne by a third person, without the
knowledge of those relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third person, should the latter
claim reimbursement.
Art. 2166. When the person
erson obliged to support an orphan, or an insane or
other indigent person unjustly refuses to give support to the latter, any third
person may furnish support to the needy individual, with right of
reimbursement from the person obliged to give support. The provisions of
this article apply when the father or mother of a child under eighteen years
of age unjustly refuses to support him.
Art. 2168. When during a fire, flood, storm, or other calamity, property is
saved from destruction by another person withoutt the knowledge of the
owner, the latter is bound to pay the former just compensation.
Art. 2169. When the government, upon the failure of any person to comply
with health or safety regulations concerning property, undertakes to do the
necessary work, even n over his objection, he shall be liable to pay the
expenses.
Art. 2170. When by accident or other fortuitous event, movables separately
pertaining to two or more persons are commingled or confused, the rules on
co-ownership shall be applicable.
Art. 2171. The rights and obligations of the finder of lost personal property
shall be governed by Articles 719 and 720.
Art. 2172. The right of every possessor in good faith to reimbursement for
necessary and useful expenses is governed by Article 546.
Art. 2173. When a third person, without the knowledge of the debtor, pays
the debt, the rights of the former are governed by Articles 1236 and 1237.
Art. 2174. When in a small community a nationality of the inhabitants of age
decide upon a measure for protection against lawlessness, fire, flood, storm
or other calamity, any one who objects to the plan and refuses to contribute
to the expenses but is benefited by the project as executed shall be liable to
pay his share of said expenses.
Art. 2175. Any person who iss constrained to pay the taxes of another shall be
entitled to reimbursement from the latter.
DELICTS
Why do we say that delicts or crimes are source of
obligations?
Because of Art. 100 of the RPC
How will we enforce civil liability arising from a crime?
By default: the civil action is impliedly instituted in
the criminal action
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The default procedure will not apply if there is a:
Reservation to file a separate civil action
The civil action was filed ahead of the criminal action
Waiver of civil liability
liabi
Supposing that the civil action was filed ahead of the criminal
action or the civil action has been reserved, when can you file
the civil action or when can you proceed with the civil action?
If the civil action is filed ahead of the criminal action
and the criminal action is subsequently filed, the civil
action is suspended.
If the civil action is reserved, it cannot be
commenced until the final judgment of the criminal
action
What happens to the prescriptive period of filing the civil
action?
Thee period will not run during the time that the
criminal action is pending
Is there any exception to the rule where the civil action is
either suspended or if the same is not yet filed, its filing had to
be deferred?
Prejudicial Questions
Independent Civil actions
Independent civil actions can be filed before, during or after
the filing of the criminal action
Do we need to make a reservation for independent civil
actions? Is it considered as impliedly instituted?
It is not impliedly instituted anymore. There are
changes in the Rules on Criminal Procedure of 2000.
In the same act, we have two actions: criminal w/
accompanying civil liability or civil obligation
obli arising
from quasi-delict.
delict.
Strictly speaking, it is not really an exception because what
we haveve in mind here is an INDEPENDENT CIVIL ACTION
That Independent Civil Action is not always deemed a civil
obligation or civil liability that arises from a criminal act.
Would there be an instance where it is civil liability?
yes, if for instance it is defamation. In this case it is
explicitly allowed to be an independent civil action.
The damages that you want to recover because of
the defamation taken against
again you, that is recognized
as Independent Civil Action. But there are other
Independent Civilivil Action that may invoke the same
act but not classified as civil obligation arising from
criminal act as for instance the quasi-delict.
quasi To two
separate and distinct actions in law .
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For criminal action involving reckless imprudence and it has
an accompanying civil action, is the civil action accompanying
this crime reckless imprudence considered to be an
independent civil action?
No
Can he proceed independently of the criminal action?
Yes because under Art. 31 of CC this is not based on
the same criminal act. It is based on a contract of
carriage w/ the bus operator. So it proceeds
independently.

So it is either impliedly instituted or it is rese

reserved, or start
prior to the criminal action for reckless imprudence, what will
happen, it would be suspended or be barred until there is a
final judgment in the criminal action for reckless imprudence.
Take the same act of negligence, this time it can als also be
pursued or prosecuted as civil action for damages arising
from quasi-delict.
What are these independent civil actions recognized by the
law?
Art. 32. (violation of civil liberties)
Art. 33. In cases of defamation, fraud, and physical injuries a civil
action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil
action shall proceed indepe
independently of the criminal prosecution,
and shall require only a preponderance of evidence.

Does it involve the same act? Art. 34. When a member of a city or municipal police force
Yes refuses or fails to render aid or protection to any person in case of
danger to life or property, such peapeace officer shall be primarily
liable for damages, and the city or municipality shall be
Can it proceed independently of the criminal action?
subsidiarily responsible therefor. The civil action herein
Yes because it is considered to be an Independent recognized shall be independent of any criminal proceedings, and
Civil Action a preponderance of evidence shall suffice to support such action.

Can it proceed independently? Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
Yes.
done. Such fault or negligence, if there is no pre pre-existing
contractual relation between the parties, iis called a quasi-delict
Is it the same civil obligation that arises from a criminal act of and is governed by the provisions of this Chapter.
reckless imprudence?
No, because it is a civil action that arises from a Would art 31 constitute an independent civil action?
quasi-delict
delict even though that quasi-delict
quasi also No, because there is no criminal component
pertains to the same act of negligence.
Art. 31. When the civil action is based on an obligation not arising
from the act or omission complained of as a felony, such civil
Another instance when you a civil action proceed action may proceed independently of the criminal proceedings
independently of the criminal action even though it pertains and regardless of the result of the latter.
to the same act:
Example: you are a passenger aboard a bus. Driver is The concept of independent civil action is that it has a
driving recklessly. Driver figured in an accident, corresponding criminal aspect or criminal liability. If a civil
collided w/ another bus. liability arises from a crime, then we apply art 100 of the RPC.
But if there is no criminal component, would the rule of
Who can be sued? Can you sue the driver of reckless precedence of criminal action ahead of the civil action be
imprudence? relevant?
Yes. The precedence will not apply because there is no
criminal component
Could that have an accompanying civil obligation
gation?
Yes. Prejudicial Question as an exception to the precedence
(Please refer to the discussion in Civil Law Review 1)
Can you sue the bus operator?
Yes.

Would your suit against the bus operator involve the same
act?
Yes, the act of collusion
ion perpetrated by his driver.

But what is the cause of action against the owner?

owner
Breach of Contract of Carriage - - Culpa Contractual.

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QUASI-DELICT Example: Inooperahan. May naiwan na scissors sa tyan ng

Art. 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing
existing contractual relation between the
parties, is called a quasi-delict and is governed
verned by the provisions of this
Chapter.
What will be the requisites for quasi-delicts?
delicts?
1. there is fault or negligence on the part of the
defendant resulting to a wrongful act or omission,
whether voluntary or not, and whether criminal or
not.
2. There is damage and injury suffered by another
(plaintiff)
3. There is a direct causal relation bet. the fault or
negligence and the resulting damage and injury
(PROXIMATE CAUSE)
Who has the burden of proving the cause and the connection
to the damage suffered by the plaintiff?
The plaintiff that there is damage, fault or negligence
and connection
patient. Negligence has been committed--
committed Res Ipsa Loquitor
Another relevant concept is proximate cause
Proximate cause will only be relevant if there are more than
one possible obligors or possible candidates who shall be
liable for the damage.
What is Proximate Cause?
Proximate cause is the adequate and efficient cause
which by the natural order of events, unbroken by
any efficient intervening cause would produce the
injury and w/o w/c the result thereof would not
have occurred.
Illustration:
Accident. The bus turned over, gasoline spilled.
s No
electricity. People who rescued brought torches.
Immediate cause: Fire
Proximate cause: negligence of the bus driver

On this point, it is relevant to understand the principle of Res Negligence is Culpa. Culpa can be culpa contractual or culpa
Ipsa Loquitor aquiliana

What is Res Ipsa Loquitor? Culpa contractual the fault or negligence of the debtor as
Literally means the thing speaks for itself an incident in the fulfillment of an existing obligation

This can be appliedd when an injury takes place or Culpa aquiliana the fault or negligence which constitutes an
when an injury incurred. And when we take independent source of obligation between parties not
occurrence of the injury w/ the surrounding previously bound
circumstances, you are allowed by law, by virtue of
this principle to make an inference that negligence Culpa Aquiliana Culpa Contractual
may have been committed by the defendant.
def And Considered as source of Source of damage,
this inference requires
ires the defendant to come up obligation negligence in the
with an explanation as to why the injury is performance of the contract
committed. And failure to come up without
w an
acceptable explanation would dispense with any No pre-existing
existing contract There is a pre-exsiting
further proof of negligence. between the parties contract bet. the parties

This principle draws largely on human experience. If the Due diligence of the Not a valid defense
circumstances based on ordinary human experience would employer in the selection
ordinarily preclude the occurrence of this damage then it can and supervision of the
only be because there was fault or negligence on the part of employees is a valid defense
the defendant
Never presumed, there is a Negligence is presumed e.g.
Fault - when a person acts w/c are contrary to what should need to prove negligence contract of carriage
have been done before one can recover

Negligence - failure to observe the care, diligence, vigilance Which culpa is a source of obligation?
required under the circumstances. Culpa aquiliana

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It is important to know when an act is culpa aquiliana or culpa When it comes to obligations to give, can this be further
contractual because of the difference in the matters that will classified?
have to be proven Yes

If it is culpa contractual, there is no need to prove negligence, Generic Obligation to give - Obligation to give a
we only have to prove the existencee of the contract and the generic thing
fact that the contract was not performed in accordance with gation to give - Obligation to give a
Specific Obligation
its terms specific thing

In culpa aquiliana,, we need to prove the negligence of the What is a specific thing?
defendant; the damage caused to the plaintiff; and the A specific thing is one which is specifically designated
connection between the damage and negligence and particularly segregated from others of the same
class.
In culpa aquiliana, what happens if the plaintiff is also guilty
of contributory negligence? What is a generic thing?
It will not extinguish the liability of the defendant A generic things is one which is indicated only by its
but it can justify mitigation of liability class or genus

Is the liability created by quasi-delicts

delicts limited to the person Give an example of a specific thing.
who committed the negligence act? An obligation to give a Toyota car with plate no. TRP
No, concept of vicarious liability 380

Art. 2180. The obligation imposed by Article 2176 is demandable not only for Give an example of a generic thing.
one's own acts or omissions, but also for those of persons for whom one is
An obligation to give a car.
responsible.

The father and, in case

ase of his death or incapacity, the mother, are responsible What will be the obligations of the debtor in a specific
for the damages caused by the minor children who live in their company. obligation to give?
Obligation to give the very thing due under the
Guardians are liable for damages caused by the minors or incapacitated
persons who are under their authority and live in their
eir company. obligation

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.
Can the debtor insist on delivering another thing on the
premise that this thing is more valuable or more expensive?
He cannot insist.

Employers shall bee liable for the damages caused by their employees and What if the creditor agrees?
household helpers acting within the scope of their assigned tasks, even
He can deliver
though the former are not engaged in any business or industry.

The State is responsible in like manner when it acts through a special

sp agent; If he insists and the creditor agrees, what happens to the
but not when the damage has been caused by the official to whom the task original obligation?
done properly pertains, in which case what is provided in Article 2176 shall
The original obligation is extinguished. In novation,
novation
be applicable.
the original obligation is extinguished by
Lastly, teachers or heads of establishments of arts and trades shall be liabl
liable simultaneous creation
crea of a new obligation.
for damages caused by their pupils and students or apprentices, so long as
they remain in their custody.
What are the other obligations of the debtor in a specific
The responsibility treated of in this article shall cease when the persons obligation to give?
herein mentioned prove that they observed all the diligence of a good father
fat Duty to preserve the thing that is due
of a family to prevent damage. Duty to deliver the fruits, accessions, and accessories

Civ2 Dec 7 Art. 1163. Every person obliged to give something is also obliged to
take care of it with the proper diligence of a good father of a family,
What are the different kinds of obligations? unless the law or the stipulation of the parties requires another
standard of care.
Obligations to give
Obligations to do
Obligations not to do
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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1164. The creditor has a right to the fruits of the thing from the
time the obligation to deliver it arises. However, he shall acquire no real
right over it until the same has been delivered to him.
What is entailed by this obligation to preserve?
So that the obligation will not be rendered nugatory
Why is diligence of a good father of a family required?
This is the standard of diligence required under the
law if there is no stipulation as to the standard of
care.
What does diligence of good father of a family mean?
The diligence whichich a reasonable person would
exercise over his own belongings. Ordinary diligence.
Can the parties stipulate on a different degree of diligence?
Yes
Would there be any limitations or parameters on the
stipulation they can make?
Ordinary diligence is the limit. It is the minimum
amount of care. The parties cannot stipulate on
another degree of care that is lesser than ordinary
diligence.
Why does the law disallows a lower degree of diligence
diligence?
The obligation will be illusory
Obligation to deliver the fruits,
its, accessions, and accessories
What is the basis of this obligation?
When the obligation to deliver the thing due arises,
the creditor has a right to the fruits under the law.
Art. 1165. When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by Article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery. (1096)
Art. 1166.. The obligation to give a determinate thing includes that
of delivering all its accessions and accessories, even though they
may not have been mentioned.
When does the obligation to deliver arise?
It depends on the source of obligation. If the source
of the obligation is the law, quasi-contract,
contract, delict, or
quasi-delict
delict we can always consult the provision of
the law as to when his obligation is created.
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When it comes to contracts, when does the obligation to
deliver arise?
Upon the perfection of the contract.
Why do you say upon perfection of the contract?
There is no specific provision in the chapters on
obligation and contracts which tell us when the
obligation to deliver arises. What we do have is a
specific provision in the chapter on sales Art. 1523
which says that upon the perfection of the contract
of sale then the obligation to deliver arises.
Can we use this rule provided in the Law on Sales to apply the
contracts in general and say that the obligation to deliver
arises from the moment of perfection
p of the contract?
Yes
How do we justify the application of this rule considering that
it was specifically meant to apply to sales?
Since the contract of sale is consensual in nature. It
is perfected upon the meeting of the minds of the
parties. Most
ost contracts are consensual in nature as
well. So it goes to reason that we can apply this
provision on law on sales to contracts in general.
What kind of right is acquired by the creditor over the fruits of
the thing due?
Only a personal right
What is a personal right?
The power belonging to one person to demand of
another, as a definite passive subject, the fulfillment
of the prestation to give, to do or not to do
What is a real right?
The power belonging to a person over a specific
thing, without a passive subject individually
determined against whom such right may be
personally exercised
If there is no definite passive subject against whom can the
right be enforced?
against anyone and everyone, against the whole
world
Give an example that would illustrate
i both real rights and
personal rights over the fruits of a specific object due under
an obligation
X sells his dog to Y. The dog is to be delivered 1 week
after the contract was entered into. Prior to the
delivery of the dog to Y, the dog gave birth
bi to several
puppies. The puppies were sold and delivered to Z.
When the time to deliver the dog to Y arrived, X
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
refused to deliver the puppies together with the
puppies.
Will it matter if there is more than one dog in the example?
Yes, because it would d no longer be a specific
obligation to give, and there would no longer be an
obligation to deliver the fruits.
What would be the remedies available to Y?
Y can only run after X, not to Z because there is no
privity of contract between Y and Z. Y has a pe
personal
right only against X.
What is the cause of action of Y against X?
Action for specific performance and damages.
In an action for specific performance,
performance the plaintiff is
enforcing his personal right, the right under the
contract.
If Y names Z as a party defendant, what defense can Z invoke
to resist the complaint against him?
Lack of cause of action because Z is not a party to
the contract. Only the parties to the contract are
bound by the agreement.
Supposing there has been delivery made to Y, and then for
some reason, X managed to still sell and deliver the puppies to
Z. What will be the remedies of Y?
In running after Z, what would be his objective?
The recovery of the puppies. Y must not be
concerned with the contract between X and Z.
In what capacity should he bring that action? Is it in his
capacity as a creditor?
Not anymore, but as owner.
As an owner, does he have a cause of action against Z?
Yes, because as owner he enjoys real right
rights over the
puppies and this can be enforced against anyone in
possession of the puppies.
In obligations to give a generic object, what are the
obligations of the debtor?
To deliver a thing that is of the same quantity,
quality, and kind as agreed upon by tthe parties
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In a generic obligation to give, the debtor would enjoy a
certain degree of discretion,
discretion unlike in specific obligation to
give. Would there be a limitation on his exercise of his
discretion when it comes to complying with his obligation to
deliver?
It should not be of inferior quality than that intended
by the parties, but he cannot be compelled to
deliver something of superior quality.
In the obligation to deliver the dog, he has 3 dogs Labrador,
German Shepherd, and Aspin. Yung aspin ang pinakapayat,
galisin at pilay pa. These are choices. In the same manner
that he cannot be compelled
compelle to deliver the Labrador, he
cannot also compel the creditor to settle for the aspin. He
cannot also compel his creditor to accept the most inferior of
the choices.
Aspin is asong pinoy
What other obligations are imposed on the debtor in a
generic obligation
igation to give? Is there a duty to preserve as well?
In an obligation to give a limited generic thing the
obligor must preserve the source.
Let us say it is simply a generic object, pure and
simple generic. There is no obligation to preserve. So
we do nott even speak of taking care of it with the
diligence of good father of a family.
Why?
The rationale for requiring this obligation (to
preserve the thing) in specific obligations does not
apply in generic obligations. In specific obligation,
you only have one obligation which is to deliver the
specific thing and it can only be delivered in one
way, which is delivering the very thing itself. If this
specific thing is lost, the obligation will be useless.
Yes, there
here is the remedy of damages, but damages
will not always be sufficient to correct the wrong
which has been done to you. If it is a family heirloom
which was lost, no matter how much money is paid
to you, the damage will still remain. If you would not
obligate your debtor to take care of the thing, then
th
the possibility of abuse is very great, in which case
that would defeat the obligatory force of the
agreement.
In a generic obligation,
obligation the same danger does not
exist because you can always comply with the
obligation by delivering anything of the same kind,
quality, and quantity. (take note this is Atty S
reasoning)
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Fruits, accessions, and accessories do we also have that kind
of obligation?(obligation
(obligation to give a generic thing)
None. Unless you segregate you would not know
whether it has produced fruits ts or it has accessions
and accessories.
Supposing that the debtor does not comply with his
obligations in a specific obligation to give, what are the
remedies of the creditor?
Specific performance an action to compel the
compliance with the obligation
What about in generic obligation to give?
Specific Performance
Substitute performance
What do you mean by at the expense of the debtor?
The debtor will have to pay
Which will you opt for, substitute performance or specific
performance?
Substitute performance because you go to court no
longer to secure the delivery that should have been
delivered to you. You already have it because of
substitute performance. You only go the court to
acquire reimbursement or indemnification for your
expenses.
How will this be more practical to you?
In the meantime you can do what you need to do
using the object which should have been delivered
to you.
For example cement for the construction of your
house. The construction will not be delayed. Unlike
in specific performance,
formance, you go to courteven after
5 years you still dont have a writ of execution
because you are still on trial stage. In the meantime
your house remains unfinished and the materials
deteriorated even before the construction.
Any other remedies available
able to the creditor?
Seek indemnity for damages
Damages here, is it in conjunction with specific performance,
or in substitute performance or must it stand alone?
It can be in conjunction with either specific
performance or substitute performance.
The same
ame holds true for specific obligations to give
the damages may be in conjunction with specific
performance.
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Can you think of an instance where the creditor would have to
settle for damages alone?
When the obligation could no longer be performed
In the previous example,
example where the dogs and the
puppies were sold to another person prior to the
delivery to the buyer, his only recourse there is to
rd
ask for damages assuming that the 3 person was
acting in good faith.
What is the obligation of the debtor in an
a obligation to do?
Basically to do what is asked of him.
What are the remedies of the creditor?
Substitute performance
What about specific performance?
It is not available because it will amount to
involuntary servitude
Is substitute performance available
avai in all kinds of obligation to
do?
No. It is not available when the personal
qualification of the obligor is taken into
consideration.
Give an example an obligation where substitute performance
is available as a remedy
If I ask my neighbor
neighbo to paint my fence and then my
neighbor did not do
d so, I can ask another to paint it.
The personal qualification of the person who will be
painting your fence is not really important.
Compare this to the personal qualification of a
person who will be painting your face on a canvass.
When it comes having your portrait done, you have
to consider the qualification of the painter.
What is your remedy? (in case personal qualification
of the obligor is taken into consideration in
obligation to do)
Only damages
Damages as a remedys is always available. But what would
be the basis of our claim for damages?
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
The basis of a claim for damages can be any of the
following:
Fraud
Delay
Negligence
igence
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Contravention of the tenor of the obligation
What is fraud?
There has been a lot of SC ruling to the effect that
they do not equate fraud with malice. Fraud does
not translate to malice or bad faith. Although
admittedly there can be fraud attended by bad faith
or malice. But, it would be an error for us to think
that every case of fraud as always attended by bad
faith or malice because as defined by law, fraud is
simply a deliberate or intentional evasion of the
performance of an obligation. Not necnecessarily ill-
motivated but it is intentional.
Dolo can be understood in 2 senses
Dolo incidente
Dolo causante
What is the kind of dolo involved here that will entitle the
creditor to damages?
Dolo Incidente
Dolo incidente which is the fraud in the performance of the
obligation.
Dolo causante, on the other hand, is the fraud used to induce
another to enter into a contract. This goes to consent. When
we speak of dolo causante, this
his would have the nuance of
deceit because youu are using fraud to secure consent to an
obligation which the other party would not otherwise
entered into.
Give an example of dolo incidente
A undertook to deliver a brand new car to B. When
the car was delivered it turned out to be not brand
new but one that is already used. There will be a
deliberate evasion of the obligation to deliver a
brand new car.
Is this attended by bad faith?
Apparently so because he said he will deliver a brand
new car, but what he delivered was a used car
There can be an instance that there is dolo but there is good
faith. Example:
A obliged himself to deliver a box of imported wine
to B. When the box was delivered,, it was opened, it
turned out that the box did not contain imported
wine but just a local variety.
Is there dolo here?
Yes, because the obligation was not performed.
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Was there bad faith here?
Not necessarily, because it could be that A simply
delivered what was delivered to him. He did not
know. So he is in good faith and yet at the same time
he is guilty of dolo.
If he knew from the start that the box contains local
wine instead of imported wine then he would be in
bad faith and still he will be in dolo.
d
Can you waive a cause of action arising from future fraud in
advance?
No, because it would be against public policy.
If you are going to waive your right of action for
future fraud then there is question why enter into a
contract at all? Why even bind yourself to a
contract or obliga
obligation? That is basically a license for
the other party to disregard the obligation if and
when he decides that he wants to disregard the
obligation. In that sense public policy might be
affected. Because if everything
everyth is like that it could
undermine our economic structure.
Art. 1171. Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.
Another basis for damages
Delay which is the failure to comply with the
obligation with respect to time
Is it enough that there is just delay?
No. There should be a demand.
Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
ex
demands from them the fulfillment of their obligation.
xxxxxxx
What role does demand play?
It is only from that time that it is considered that
there is legal delay.
How is legal delay different from ordinary delay?
Demand is not necessary to enforce the obligation.
Demand is vital to determine that there is already
delay which is a basis for damages. It is independent
of enforcing the obligation itself. You do not have to
wait for the delay to enforce. Unless there is a
contrary stipulatio
stipulation, that should be performed or
that should be enforced. You have to pay. It is your
obligation to pay. There is no need for me to
demand for you to pay.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What is the significance of my demand?
It will only determine from what time you will be
liable to me for damages. It is independent of your
duty to perform the obligation.
So demand would place the debtor in legal delay
What form should demand be made?
Judicial or extrajudicial
How do you effect judicial demand?
Through a complaint. If you are effecting a judicial
demand you have to comply with the form required
in filing a complaint.
What about extrajudicial demand? Is there a form required?
It can be orally done or it can be in writing.
It is better to do it in writing because it is easier to prove.
Do not think that because it is an oral demand there is no
proof. There can still be proof such as when the oral demand
is video recorded.
If it is in writing then chances are it is properly documented.
When you say properly documented, it is not enough that
there is a written copy of demand. It must further show that
the demand was received by the other debtor. Otherwise, it
will be useless.
Since you can make a demand judicially or extrajudicially. Is
there a requirement that you must first make an ext
extrajudicial
demand before you make a judicial demand?
There is no requirement. You can always go directly
to court.
But just to avoid unnecessary expenses, file a
demand letter first.
Is it always sufficient that demand has been made for legal
delay to arise? When is demand not enough when in addition
to demand there must be something else which must be
present to place the debtor in legal delay?
in case of reciprocal obligation
Most of the condominium buildings being built today go
through a pre-selling route. That means that your contractor
is building the condominium using your money. Lets say that
there is one particular contractor at the middle of the
construction of the condominium building his funds run out.
He doesnt want to continue anymore and sell it to somebody
else who will take over the project. But the thing is he is
obligated to his buyers because they have a turn over date.
He said I will make a demand for the full purchase price and if
they are not able to pay then they will now be in ddelay. They
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will now be in default and under the contract they forfeit
everything they have paid to me and I in turn will be free from
any obligations to them. He makes a demand,
demand the buyer was
not able to pay. Can he now walk away from his obligations
to the buyer on the premise that the buyer defaulted?
No
Is the buyer in default notwithstanding the fact that he has
made a demand and there was no payment made?
No. In reciprocal obligations it is not enough that
demand is made. It must further be shown that the
party making the demand himself is ready to comply
with his obligation; otherwise no amount of demand
would put the other party in delay.
In this case, the contractor cann
cannot say I am free because the
buyer is already in default because he himself is not ready to
turn over the unit to the buyer. No amount of demand on o his
part can put the buyer in default.
Art 1169. xxxx
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
When is demand not necessary?
Art 1169
Art. 1169. xxxx
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the timtime
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
xxxx
Give an example where in the law provides that demand is
not necessary.
In both instances where the law or the stipulation of the
parties provides for delay without need of demand, it must
be expressly stated that after the lapse of the period for
payment delay will commence.
ence.
Payment of taxes. Lets say estate taxes, you are
supposed to pay within 6 months after the death of
the decedent. If the 6 months lapsed and you have
not paid you will automatically be liable for penalties
and surcharges. Liability for penalties and
an surcharges
is an indication that you are already in delay because
you are paying damages.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
When it is stipulated in the obligation, how can the parties
stipulate on this? Is it enough that they specify a period of
time for the payment of the obligation?
No.
o. It is not enough that they specify that payment
must be made on Jan. 12 2012 at 12 pm. Even if they
are specific down to the time when payment should
be made that will not be sufficient to dispense with
the need to demand.
When from the nature and circumstances
umstances of the obligation it
appears that the designation of the time when the thing is to
be delivered or service to be rendered is a controlling motive
for the establishment of the contract. Example:
Wedding gown. You dont need a demand. He
should already
eady be liable for damages, because this is
one instance that time is obviously a factor or
consideration for the contract.
Lastly, when the demand would be useless if the debtor
made beyond his power to comply with the obligation
Different kinds of delay
1. Mora Solvendi
Delay on the part of the debtor
2. Mora Accipiendi
Delay on the part of the crediotr
3. Compensatio Morae
Delay on the part of both
Civ3 Dec10
Damages may be recovered whenever there is delay, fraud,
negligence, or when an obligation is performed in
contravention with its tenor.
The presence of any of these instances will not necessarily
mean that there can be the recovery for damages.
Particularly, if these instances of this fraud, negligence, delay,
or contravention of the obligation is attended by a fortuitous
event.
What is a fortuitous event?
An event which is unforeseen or though foreseen is
inevitable
Are we limited to acts of God or calamities
lamities or disasters when
we speak of fortuitous event?
No, it includes both acts of man and acts of God
Acts of man refers to events which prevented the
performance of the obligation which are attributable to
people other than the obligor. On a grand scale
sc this can refer
to war, rebellion, kidnapping. On a small scale this can be
16 | P a g e
ordinary as a simple accident on the road. If someone bumps
you while you are driving on the road and prevents you from
going to your appointment and performing your obligation
then you can invoke fortuitous event.
Bottom-line so long as the debtor had no hand in the
occurrence of the event which prevented you from
performing the obligation, then that can be classified as a
fortuitous event.
What are the requisites of a fortuitous
fortui event?
the event must be independent of the will of the
debtor
the event is unforeseen or if foreseen is inevitable
the event must render it impossible for the debtor to
fulfill the obligation in a normal manner
the debtor must be free of participation
participatio or the
aggravation of the injury to the creditor
If you invoke fortuitous event as a defense, it will have the
effect of
Extinguishing obligation and exempting you from
any liability
To what kinds of obligations can we apply this defense of
fortuitous event?
You apply this to all kinds of obligations because the
words or the tenor of Art 1174 is broad enough.
Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
It is broad enough to cover all kinds of obligations both
obligations to give and obligations
obliga to do. But, we would need
to qualify with regards to obligations to give.
How should we qualify in obligation to give?
give
You cannot raise fortuitous event as defense against
any claim of liability involving generic objects on the
premise that genus never
ne perishes.
When will there be liability notwithstanding that there is a
fortuitous event?
By express provision of the law
By express stipulation between the parties
Nature of the obligation requires the assumption of
risk
When the obligation arises from
fro a criminal offense
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What is an example an instance where there is liability for a
fortuitous event by express stipulation of the law?
Art 1165. When there is delay and there is a promise
to deliver the same thing to two different people
Art. 1165. When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by Article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to
two or more persons who do not have the same interest, he shall
be responsible for any fortuitous event until he has effected the
delivery.
When the nature of the obligation requires the assumption of
risk
Previously, an insurance contract would be one such
obligation, but when on the event of Typhoon Ondoy
had shown us if your car gets flooded or gets
submerged in the water it shall not be covered by
your policy
olicy unless you have also involved in the acts
of God policy of the insurance company.
Ordinarily that may be included. That is the reason
why you applied for an insurance to include acts of
God. Perhaps in the specific insurance policy
involved there was an exclusion that when it comes
to fortuitous events, this will not be covered by the
insurance policy. If you want to have a coverage
even for flooding, you have to pay additional
premium.
If an obligation arises from a criminal offense
offense. Crime of theft.
If you are guilty what would be you civil liability? If the Mona
Lisa painting was stolen, what is the liability an obligation of
the thief?
The thief must return it.
Should the Mona Lisa painting be lost due to a fortuitous
event before it is returned,
ed, is the liability of the thief be
extinguished?
No. This would fall under the exception.
How can he comply with the obligation if the Mona Lisa has
been destroyed by a fortuitous event?
His liability will be one for damages. Thats why we
said that the obligation is not extinguished because
in lieu of giving back what was stolen, he has to pay
for its value
Exception to the exception
If the creditor for unjustified reasons refuses to
accept the thing stolen and thereafter it is lost due
17 | P a g e
to a fortuitous event. It will revert to the general rule
that civil liability is extinguished.
Art 1177 speaks of the extreme remedies of Accion
Subrogatoria and accion Pauliana. But before we go to these
extreme remedies, we should discuss first the remedy of
rescission under Art 1191
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing
xing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The choices are as follows: either you ask for performance,
whether specific
pecific or substitute, or for rescission. You cannot
ask for both performance and rescission. Choosing one
means foregoing with the other. However,
However if after choosing
specific performance and going to court suing for specific
performance, it turns out that the obligation can no longer be
performed, it will be alright to opt for rescission instead.
You can always ask for damages in conjunction with either
specific performance or rescission, or just damages by itself if
either one of the two are no longer available.
ava
It is not correct to say the rescission is limited only it
reciprocal obligation. It is implied in reciprocal obligation
which simply means that you do not have to stipulate on the
availability of rescission as a remedy for reciprocal
obligations.
Why?
By its nature, a reciprocal obligation can only allow
one party to make a demand upon the other for the
performance of the obligation if he himself is ready
to comply with the obligation. So necessarily if you
are not ready to perform or if you do n not perform
your obligation, then that constitutes a resolutory
condition which should extinguish the other parties
parties
obligation as well. That is natural effect of rescission.
That is why we say that in reciprocal obligations
obligations, it is
already implied. No need to stipulate on its
existence.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
But, when it comes to unilateral obligation
obligations this
must be stipulated upon by the parties.
What exactly is rescission?
Rescission simply means that you want the contract
to be set aside and having the contract set aside th
the
parties should be reinstated to their former
conditions. The status quo before the contract was
entered into. There will be mutual restitution.
However, the term rescission in Art 1191 is not accurate.
The term m which should have been used should be
resolution. The term rescission is understood in a
different sense, legally speaking. This is provided for under
Art 1384.
The grounds for rescission under that article (1384) would
include fraud. The ground for rescission under Art 1191
would include breach of the obligation.
Apart from that rescission under Art 1191 is a primary
remedy. This can be availed of by the aggrieved party without
having to comply with any other requisite, whereas rescission
under Art 1384, this is a subsidiary remedy. You can only
resort to rescission as accion pauliana if all other remedies
have failed you. Otherwise any resort to accion pauliana
would be premature.
Lastly, rescission under Art 1191 is available only to parties to
the agreement. If you are not a party to the agreement you
cannot ask for rescission under Art 1191. Rescission as accion
rd
pauliana, on the other hand, this is available to 3 persons. In
fact this is the very essence of accion pauliana that you, as
creditor, you are allowed to ask for the setting
set aside of a
contract that you are not even a party to. That is why it is an
extraordinary remedy, because it is particularly invasive.
Who can avail of the remedy of rescission under Art 1191?
Only the injured party.
What happens if both parties committed
itted the breach?
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished,
hed, and each shall bear his own damages.
If you want to rescind the obligation, how will you go about in
rescinding the same?
Either Judicial or extrajudicial
What is the default mode for rescinding?
Under the law the party aggrieved must go to court
and ask for rescission
18 | P a g e
Until the court rescinds the contract, the contract stays alive
because the contract is valid. The fact that there is a ground
for rescission does not make the contract invalid. But it is not
really an issue here. The contract has been
bee breached but until
it is set aside it remains to be subsisting and must be
complied with.
Lets say you have a management contract and then your
manager has been committing a breach of the contract. You
want out. But the thing is there is no provision for f
extrajudicial rescission in your contract. So what is the default
mode?
It is judicial rescission. You have to go to court.
You understand how long it can take for the court to say yes
there is ground for rescission let us rescind the contract
contract -
years. In the meantime, this manager can continue to
represent you in transactions. He will continue earning from
you. And you will be bound by whatever contract he enters
into in your behalf. You dont want that.
Whereas, if you have a provision for the t extrajudicial
rescission you can immediately free yourself from the contract
by simply giving what?
Notice of rescission
But the thing is for extrajudicial rescission
re to be available to
you; this
his must be expressly stipulated by the parties.
Otherwise, you have no other choice but the go to court and
seek judicial rescission.
The basic requirement to effect an extrajudicial rescission is
There should be notice to the other party
What is the purpose served by this notice?
Firstly, to inform him so that he will be able to act
accordingly
Secondly, the notice will serve as an opportunity for
the other party to question the rescission. This is the
downside of extrajudicial rescission. It does not
attain any degree of finality because the court can
always review whether or not it is valid. But, in the
meantime, you are free. You can already enter into a
contract without need of this manager; or if we are
talking about a contract of lease, you can lease the
house to another; or if it is a contract of sale you can
sell it to another.
What kind of breach would justify rescission?
It should be substantial breach.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
If the breach is not found to be substantial what will the court
do?
The court fix the period for the performance of the
obligation.
Extraordinary remedies in Art 1177
Art. 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those which are inherent in
his person; they may also impugn gn the acts which the debtor may have done
to defraud them.
Why do we say that these are extraordinary remedies?
These are extreme remedies because to be availed
avail
of these remedies, the minimum requirement is that
you must have an unsatisfied writ of execution.
What does that mean?
It means that you already have a judgment on your
action for specific performance and that judgment
has become final and executory. A writ of execution
has been issued but when you try to carry out the
writ of execution it was returned to you unsatisfied
because you could not obtain properties belonging
to the debtor.
While your writ of execution is unsatisfied and you
learn that there are recoverable debts
d or there are
properties due to the debtor but he is not taking any
steps to recover then apply for accion subrogataria.
That means another round of litigation.
If he does not have recoverable debts or recoverable
properties but you learned that he has
h entered into
transactions that appear to have been entered into
to defeat your rights then you avail of accion
pauliana.
So there is a hierarchy.
1. unsatisfied writ of execution,
2. accion subrogatoria,
3. and only when accion subrogatoria is not available
will you resort to accion pauliana because accion
pauliana is particularly invasive of the rights of
others.
What is the rationale of the law for making these remedies
available to the creditor?
The debtor is liable for the obligation with all of his
properties,
erties, present and future. In the end,end it is
needed that the obligation has economic value
because eventually it may happen that the only
possible satisfaction that he can get would be
monetary in nature. And the same could only be
19 | P a g e
satisfied from the properties
pro of your debtor. But he
will not willingly give them. That is why you need a
writ of execution. But writ of execution is only
feasible if the debtor has properties that can be
identified and levied upon.
If you are the debtor and you know that the creditor will
execute the judgment on you. What will you do?
You will hide your properties.
What if your properties involve house and lot?
You would have to enter into transactions either
simulated or real but for a much lower price. He may
rd
be in connivance with the 3 person or he may be in
good faith. He may also give it.
In accion subrogatoria, if you are bequeathed with something
and you do not want to accept, under wills and successions
creditors can intervene and accept the inheritance to thet
extent necessary to satisfy the obligation to them.
What will be our ground for accion pauliana to prosper?
The ground under Art 1191 is simply s breach of
contract. In accion
ion pauliana the ground is fraud.
Who must be guilty of fraud?
The obligor
The fraud
raud here consists of
His act of entering into other transactions or fraud
aimed to defeat the rights of the creditor
The fraudulent transaction is the one you want to be
set aside, the transaction that does not involve
yourself.
Is it also required that
hat the other party in the transaction be
also in bad faith or must be in connivance with your debtor?
We can be certain that with regard to the debtor he
has the bad intention of defeating the rights of his
creditor because of the timing.
It is required in accion pauliana that he entered into
transactions after the obligations to the creditor
have become due or demandable or after he brings
an action against you.
What is unknown would be the intention of the other party
party to the transaction.
st
1 , is he in good faith or in bad faith?
nd
2 Does it matter if the other party is in good faith
or in bad faith?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Requiring the other party to be in connivance with the debtor
would mean an added requisite.
There are will be more requisites before your accion pauliana
could prosper.
Is that the intention of the law?
We have to qualify as to the nature of the
transaction you are seeking to set aside.
If the transaction with the 3rd person is onerous in
nature, then
hen we look into the good faith or bad faith
of the other party.
If the other party is in good faith then we have to
respect his rights because he has legally acquired
rights in good faith.
If he is in bad faith then accion pauliana will have to
prosper
rosper and any transaction will have to be set
aside.
rd
However, if the transaction with the 3 person is
gratuitous in nature, you only have to look at the
side of the debtor as to whether or not he is in good
faith or in bad faith.
If he is in bad faith then the accion pauliana should
prosper and in this regard the law has provided us
with a presumption.
What is the presumed intention of the debtor when he makes
dispositions he makes by gratuitous title after his obligation
to the creditor has become due or has probability of being
executed?
If you dispose by gratuitous title not leaving enough
properties to answer for your obligations
obligations, the
presumption is you had intention to defraud your
creditors.
Rescission under Art 1191 has a prescriptive period of 10
years from the time that the breach was committed.
What about rescission as accion pauliana what is the
prescriptive period?
The law itself is silent. It simply says that it must be
commenced within a period of 4 years but it does
not say when we begin n counting the 4 year period.
This provision has already been interpreted by the
SC in case of _____vs CA, March 2001.
This case involved an accion pauliana that was brought to set
aside deeds of donations that were registered way back in
1989. If you do treat the registration as a constructive notice
20 | P a g e
to everyone, the 4 year period should commence from 1989.
So it will expire in 1993. But the accion pauliana was only
brought in 1997 because this was the time when the sheriff
came back with the unsatisfied writ of execution and
reported to the creditor that there is nothing to execute. The
properties were transferred under the names of other
persons through these deeds of donations. When the creditor
filed accion pauliana, the defense was that the accion has
already prescribed.
The SC said no, because the law is silent as to
when we start counting the prescriptive period then
the general rule which is we count it from the time
the cause of action appears.
When does the cause of action for accion pauliana
appear?
Only from the time that you had an
unsatisfied writ of execution and that was
in 1997.
If you brought that at anytime earlier than 1997, your action
would have been dismissed. Why dismissed?
Because prior to that time your main action where
you got
ot a writ of execution was still being litigated. It
is not yet final and executory. You dont have writ of
execution, much less do you have a return from the
sheriff saying it is unsatisfied. These are all
requirements.
Had you brought it within the 4 year
ye period from
1989 but before you have this unsatisfied writ of
execution your case would have been dismissed for
being premature.
Prescriptive period of
accion pauliana - 4 years from the time the cause of
action appears
rescission under Art 1191 10 years from the time
the breach is committed
What are the different kinds of obligations?
Pure and conditional obligations
Joint and solidary obligations
Positive and negative obligations
Alternative obligations
Facultative obligations
Obligations with a penal clause
Divisible and Indivisible obligations
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the event.
What are pure obligations?
These are obligations which are not subject to a
condition or term and are immediately demandable.
Would it be correct
ct to say that all immediately demandable
obligations are pure obligations?
No. Obligations subject to a resolutory condition or
resolutory period are also immediately demandable.
What is the concept of being immediately demandable?
The creditor can demand d the performance of an
obligation at any time
Example: A obtained a loan from B for P10K. Can A ask for it
back after an hour?
No. He must be given a reasonable period of time to
make use of whatever it is that he derived from the
obligation.
What are conditional obligations?
Obligations which are subject to a future and
uncertain event
A condition is something which is in the future and is
uncertain, even though under the law it is erroneously
referred to as a future
future or uncertain event.
event That is not
correct because uncertainty and the fact it is in the future
must concur.
By way of exception, event that happened in the past may
constitute as a condition. How can this happen?
If the past event is not yet known to the parties.
It is not really the happening of the event, but it is
the acquisition of knowledge by the parties.
Example:
I will give you P10K if the reason between the
breakup between this high profile couple is the
reason you gave.
The obligation is not conditioned on the event that
happened, but the acquisition of knowledge of what
really caused that event to take place.
What are the different kinds of conditions?
Suspensive and resolutory
Suspensive, mixed and casual
21 | P a g e
Possible and impossible
Positive and negative
Potestative Condition
One that is subject to the will of the either of the
parties either the creditor or the debtor
Casual condition
One which is subject to chance or to the will of a 3
rd
person
Mixed Condition
One that is subject to will of either of the parties and
rd
upon chance or will of a 3 person
These conditions are not mutually exclusive. We can have
various permutations involving combinations of these
different kinds. It can potestative at the same time it is
negative at the same time resolutory.
What would be a lethal combination involving potestative,
casual and mixed conditions? What combination would
render the obligation null and void?
Potestative subject to the debtor
debtors will and at the
same time suspensive.
Why is this lethal?
This type of condition would bring about the nullity
not only the condition but also the obligation itself.
This is because
We have here an obligation, the creation of which is
dependent solely on the person who will be
obligated. Do you think he would want w to be
obligated? It destroys the efficacy of the legal tie. It
can be said to be an obligation because he can
disregard the same whenever he wants to. He can
suspress it and no one can force him.
Example:
I will give you money if I want to. This is not an
obligation.
Art. 1182. When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be void.
If it depends upon chance or upon the will of a third person, the
obligation shall take effect in confo
conformity with the provisions of
this Code.
If it is potestative but it is dependent upon the will of the
creditor and at the same time it is suspensive would it have
the same effect on the validity of the obligation?
It will not bring about the nullity of the
th obligation
because the creditor is naturally interested in
making the obligation binding. So there is no danger
in the efficacy of the legal tie.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Supposing the debtor says to creditor that II will pay when my
means permit me to do so. Would this be an example e of a
potestative condition?
No, because by the express provision of Art 1180.
Art. 1180. When the debtor binds himself to pay when his means
permit him to do so, the obligation shall be deemed to be one
with a period, subject to the provisions of Article
rticle 1197.
Art. 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
i
depends upon the will of the debtor.
In every case, the courts shall determine such period as may
under the circumstances have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be
changed by them.
Art 1180 provides that when the debtor binds himself to pay
when his means permit him to do so, it shall be deemed to be
one with a period, subject to the provision of Art 1197.
1197 Which
in turn provides that the courts will fix the period if the
parties intended the period. If somehow they fail to state the
period then the courts will step in and fix it for them but
bearing in mind always what the parties would have intended
as a period.
In this case, the law is taking its cue from the promise of the
debtor that he will pay when his means permit him to do so.
The court itself is declaring that this is not an expression of a
condition but a period. There should be no uncertainty with
regard to the obligation to pay.
What about impossible conditions?
Those which are legally impossible
possible or physically
impossible
Art. 1183. Impossible conditions, those contrary to good customs
or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or
unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as
not having been agreed upon.
How will it affect the obligation to which it is attached?
It will nullify the obligation itself.
This is different from the one we observed
bserved when it comes to
impossible conditions attached to testamentary dispositions
and donations.
22 | P a g e
How is this different?
In donations and testamentary dispositions we
simply consider them as not written on the theory
that the primary consideration for the donation or
disposition is actually the liberality of the donor or
the testator, but not so in obligations particularly on
contractual obligations where the condition, more
often than not, is a big part of the consideration.
To make the condition invalid,
inv when should the impossibility
of the condition exist?
It must be impossible at the inception of the
obligation to affect its validity. Ensuing or
supervening impossibility of the condition will not
make the obligation invalid.
What would be the effect ct of supervening impossibility of the
condition?
It will not affect its validity, but its effect on the
obligation itself as to whether or not it will be
considered extinguished or perfected will depend
upon the nature of the event if it is positive or
negative.
The rule on Art 1184 and 1185, the condition that some event
must take place at a certain time will extinguish the
obligation if it appears that the event can no longer take
place. In that sense it can extinguish the obligation.
However, if the condition imposed in this manner that a
certain event must not take place at a certain time then it will
give rise to the obligation, if it appears that it can no longer
take place or has become impossible.
So there are two possibilities either give rise
ris to the obligation
or extinguish the obligation. That will be the effect of
supervening impossibility of the condition. But, clearly it has
no effect on the validity of the obligation.
Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
Art. 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot
occur.
Most important classification of condition
Suspensive and Resolutory
What is a suspensive condition?
The happening of the event gives rise to the
obligation until the happening of the condition we
do not have the obligation.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What is a resolutory condition?
The happening of the event extinguishes the
obligation. This does not suspend the creation of the
obligation. The obligation is immediately
demandable. Impliedplied from this rule is that the
obligation is already existing.
Suspensive condition
Before the happening of the condition, we dont have an
obligation yet. What can the creditor do to protect his rights
while he is waiting of the fulfillment of the condition?
The law allows him such appropriate actions to
preserve his rights.
Art. 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the preservation of his
right.
The debtor may recover what during the same ame time he has paid
by mistake in case of a suspensive condition.
In wills and succession, when we were tackling reserve troncal
which party had rights which are conditional?
The resertavatarios
His rights are conditioned on what?
Reservista dying before them
What can they do in the meantime that the reservista is still
alive?
They can ask for the annotation of the reservable
character of the property before the register of
deeds and this will be sufficient to protect their
rights so that even if the reservista dispose of the
property, any person who buys it would still be
bound by its reservable character.
Additionally if payment is made before the condition is
fulfilled, this can be a case for solutio indebiti
indebi because
payment is made even though therere is no obligation to make
payment.
It can be that during the time that the condition is still
pending fulfillment, the property may have suffered a lost; it
may have deteriorated or it may have undergone an
improvement.
What would be the rules regardingg the ownership or the
burden for these changes in the meantime the condition is
pending fulfillment?
Art. 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed
rved in case of the improvement, loss
23 | P a g e
or deterioration of the thing during the pendency of the
condition:
(1) If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor,
he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes,
or goes out of commerce, or disappears in such a
way that its existence is unknown or it cannot be
recovered
recovered;
(3) When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission
of the obligation and its fulfillment, with
indemnity
ndemnity for damages in either case;
(5) If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor, he
shall have no other right than that granted to the
usufructuary.
fructuary.
The law provides that:
that
in case of loss without fault of the debtor
the obligation will be extinguished
when the loss due to the fault of the debtor
he shall be obliged to pay damages
When is a thing considered lost?
When a thing perishes, goes
go out of commerce, lost
in such a way that it can no longer be located
What about deterioration?
deterioration without the fault of the debtor must
be borne by creditor; like wear and tear
deterioration through the fault of the debtor,
debtor the
creditor may choose between rescission of the
obligation or its fulfillment plus damages
Improvement
if the improvement of the thing is improved by
nature or by time it should inure to the benefit of
the creditor
if the improvement is at the expense of the debtor
the debtor shall have same rights of usufructuary
What are the rights of a usufructuary?
usufructu
Limited right of removal and should removal not be
feasible because damages will cause to the property,
then he shall have the right to off-set
off the cost of the
improvementent against whatever damage he may
have caused.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Upon the happening of the condition, what happens if the
condition is fulfilled?
If a suspensive condition is fulfilled, then it shall give
rise to the obligation. You will now have the
obligation.
Would it be correct to say that even though the parties came
to an agreement to have the obligation subject to a condition
6 mos. ago, would it be right to say that the efficacy can only
be counted from today when the obligation was fulfilled?
It is not correct to say that the efficacy of the
obligation can be counted only from today because
efficacy of the obligation has retroactive effect. It
retroacts to 6 mos. ago when the parties entered
into the transaction.
Art. 1187. The effects of a conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless, when the obligation
imposes reciprocal prestations upon the parties, the fruits and
interests
rests during the pendency of the condition shall be deemed to
have been mutually compensated. If the obligation is unilateral,
the debtor shall appropriate the fruits and interests received,
unless from the nature and circumstances of the obligation it
should
uld be inferred that the intention of the person constituting
the same was different.
In obligations to do and not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has been
complied with.
How do we treat the fruits may have been earned during the
pendency of the fulfillment of the condition?
We qualify as to the nature of the obligation.
If the obligation is reciprocal, the fruits and interest
are deemed to have been mutually compensated
If it is unilateral, the fruits are will be for the benefit
of the debtor
What about obligations to do or not to do, how do we
determine the effect of the happening of the obligation?
It would be determine by the court taking into
consideration nature and circumstances surrounding
the obligation
Supposing it is a resolutory condition which has become
fulfilled, how will this affect the rights and obligations of the
parties?
The obligation will be extinguished and there will be
a need for mutual restitution between the p parties.
Because of this mutual restitution we can say that
there is a reversal of roles between the parties. Our
creditor before will be the debtor so that rules
24 | P a g e
governing loss, deterioration, and improvement that
we applied previously may also be applicable.
applicab
Art. 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they
have received.
In case of the loss, deterioration or improvement
improvem of the thing, the
provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to
return.
As for the obligations to do and not to do, the provisions of the
second paragraph of Article 1187 shall be observed as regards the
effect of the extinguishment of the obligation.
OBLIGATIONS WITH A TERM
ERM OR PERIOD
What is a term or a period?
Future and certain event
Would death be a period?
Yes
I will give you a pizza if my neighbors dog dies
It is a term because everyone dies
I will give you a pizza if my dog dies because someone killed it
It is a condition because the dog must be killed and
that would bring in an element of uncertainty
What is the influence of a term or a period on the obligation?
If the period is suspensive,
suspensive the demandability of the
obligation is suspended pending the arrival of the
period.
Art. 1193. Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes.
Obligations
ons with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily
come, although it may not be known when.
If the uncertainty consists in whether the day will come
co or not,
the obligation is conditional, and it shall be regulated by the rules
of the preceding Section.
What about the creation of the obligation?
The obligation is already existing,
existing it is only the
demandability which is suspended.
Example
A will give B a parcel of land upon Cs death
What about a resolutory period?
The obligation is immediately demandable
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Its effect on the obligation would be
It will extinguish the obligation upon its the arrival
How is a resolutory condition different from a resolutory
reso
period?
In terms of effect they are the same. The difference
lies in the nature of the event constituting the
period, constituting the condition. There is certainty
in one, there is uncertainty in the other.
What rules do we apply in case of loss, deterioration or
improvement of the thing due in an obligation subject to a
suspensive term?
We apply the same rules as provided in Art 1189
Art. 1194. In case of loss, deterioration or improvement of the
thing before the arrival of the day certain, the rules
r in Article 1189
shall be observed.
Should the debtor pay before the obligation becomes
demandable, can we also recover what he has paid?
Yes, if he has no knowledge of the period or if he
believes that the obligation is already due and
demandable.
Art. 1195. Anything paid or delivered before the arrival of the
period, the obligor being unaware of the period or believing that
the obligation has become due and demandable, may be
recovered, with the fruits and interests.
Basically this the same right given to the debtor in an
obligation subject to a suspensive condition who pays ahead
or before the fulfillment of the condition that is recovery of
what has been paid.
Would you know the rights of a debtor in an obligation
subject to a suspensive period be different from the rights of a
debtor in an obligation subject to a suspensive condition
where both of them paid before the condition is fulfilled or the
period has arrived?
Both of these has the right to recover what has been
paid, but its only with regard
gard to the debtor in an
obligation subject to a suspensive period does the
law explicitly provide that he can recover what he
has paid together with the fruits and interests.
The law is silent with regard to the recovery of the
fruits and interests insofar
far as the debtor in an
obligation subject to a suspensive condition is
concerned. Although authorities believe that
notwithstanding the silence of the law, debtor who
pays ahead in an obligation subject to a suspensive
condition may still recover fruits aand interests on
what he has paid under the principle of solutio
indebiti.
25 | P a g e
In an obligation subject to a period, who is intended to be
benefited by the period?
The presumption in the law is that both parties are
intended to be benefited
Art. 1196. Whenever er in an obligation a period is designated, it is
presumed to have been established for the benefit of both the
creditor and the debtor, unless from the tenor of the same or
other circumstances it should appear that the period has been
established in favor of one or of the other.
We only discard this presumption if
From the tenor of the obligation or circumstances
surrounding the obligation it can be inferred that it
was constituted to favor one of the parties
If the obligation is worded as follows: A will pay B the amount
of P10k after a period of 10 years. A after a period of 5 years
decides that he wants to pay the obligation can he compel B
to accept the payment?
The period is for the benefit of both parties. The
creditor in the meantime would not have
h the money
in the meantime. He may be spendthrift so it
benefits him that he does not have ready access to
the money. It is with the debtor. The debtor on the
other hand is benefited because he gets to keep the
money, he gets to use the money for the entire en
period.
He cannot insist that the creditor accept payment
because the period is for the benefit of the creditor
as well. He can waive the period but he cannot
compel the creditor to make a similar waiver.
Compare this to this obligation: Debtor will pay the creditor
the amount of P1M within a period of 10 years. Analyzing the
obligation itself does it carry any implication that it is for the
benefit of one of the parties alone?
Yes, because it is within, as though the debtor has
an option. He can payp anytime within the period of
10 years. It can be after 2 years, after 6 years, after 9
years. If he decides that he would want to forgo
the longer period that is within his rights to do.
So he can compel that the creditor to accept payment, except
iff interest is being paid the creditor. The complexion of the
obligation will change again.
Notwithstanding the fact that it is the tenor of the obligation,
he can pay within so many years if interest is being earned by
the creditor it is arguable that it is not just for the benefit of
the debtor because the creditor is benefiting as well because
of the payment of interest.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended,
ntended, the courts may
fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the
will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated
ntemplated by the parties. Once fixed
by the courts, the period cannot be changed by them.
If the debtor promises to pay when his means allow him to do
so, then we consider this as an obligation subject to a period
and not one subject to a condition. This is not the only
instance where we have an obligation subject to a period and
yet there is no specific period. There are other instances
where the parties intend to be bound by a period but
somehow failed to provide one. How can we ascertain this?
In an ideal
deal situation the parties would be clear that we intend
to have a period but we failed to specify the period. This will
not happen in real life.
We have to look at the circumstances. How do we know that
there is such an intention?
You look at the nature of the obligation. Is it
something which could be done within a short
period of time? If it is something that can be done
then we should classify this as immediately
demandable.
sari store to buy soft drinks, would it take
If you buy in a sari-sari
years before the soft drinks is given to you? You can see that
it is immediately demandable. It precludes the possibility of
an intention to provide for a period.
If you are having your dream house built. You are newlyweds.
You ordered your contractor to build the house 1 week after
your return from your honeymon. Upon your return there is
no house yet. Can you go to court and say we would like to
place the contractor in delay?
It will be premature because the period has not
lapsed yet.
You say what period, we dont have a period?
Yes, you dont have a specific period but you
obviously intended to subject your obligation to a
period.
You ask how did that happen?
By the nature of the obligation you imposed on your
contractor.
What will the court do now?
The court
rt will fix the period for you.
26 | P a g e
Courts cannot make contracts for the parties. So whatever
period the court comes up with this must based on what the
parties must have intended.
Usually, industry wise, how long would it take to build a
house from 2 storey,y, 3 storey, 4 storey? Maybe 8 months to 1
year. That would be reasonable. How are the circumstances?
How is the supply of cement in the Philippines, supply of
steel. So these are the factors to be taken by the court.
After the court has fixed the period and the period has lapsed
then you say that there is delay. You can now have the right
to make a demand to place your debtor in delay.
Until that happens, there is no delay there is no default. You
dont have any right for damages
Read the case of Gaite vs Fonacier
Is the right to make use of the period ever lost?
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately
i gives
new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration
of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
Pay attention to paragraph 3. There is a qualification which is
important.
ortant. The law makes a distinction between impairment
and loss.
If it is mere impairment but it is through the act of
the debtor himself, then the period is lost.
If the cause is a fortuitous event,
even mere impairment is
not sufficient to give rise to the loss
lo of the period. It
must be that the se
security itself must be lost
Example:
There is a lightning that struck the car which was
given as a security. The car was only damaged a
little.
Would this give rise to the loss of the period?
No, because this is simply impairment and
one which is not cause by the fault of the
debtor but by a fortuitous event.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

CIV4 Jan 4 Happy New Year PALMA hahahah Prestation C immediate delivery
of the apple as ease
How many objects can an obligation have?
One or more Although we still have the same object
involving these prestations, there are
What do we call an obligation which has only one object? differences in the terms and conditions in
Pure or simple the performance of the prestations

And if it has several objects? In alternative obligation who enjoys the right to make the
Multiple choice as to which prestation will be performed?
General Rule: debtor
Multiple obligations, in turn, may be classified into:
Conjunctive Exception: creditor
Alternative
Facultative If the choice will be given to the creditor, how should the
choice be given?
Conjunctive Obligation: one where the debtor has to There must be an express grant in favor of the
perform several prestation; it is extinguished only by the creditor of the right to make the choice
performance of all of them
Art. 1200. The right of choice belongs to the debtor, unless it has
been
een expressly granted to the creditor.
Alternative Obligation: there are several prestations but xxxxx
only one is needed to be performed to extinguished the
obligation Would there any limitation on the right of the debtor to make
the choice?
Facultative Obligation: When only one prestation has been Yes
agreed upon, but the obligor may render another in
substitution Art. 1200. x x x x

Do not say that there are several obligations due because we The debtor shall have no right to choose those prestations which
are impossible, unlawful or which could not have been the object
are just speaking of a single obligation involving several of the obligation.
prestations

ALTERNATIVE OBLIGATION Why does the law imposes these limitations on the right of
the debtor to choose the prestations?
prestations
Art. 1199. A person alternatively bound by different prestations shall
completely perform one of them.
Doing so basically exempts the debtor from
performing his obligation. It calls for the
The creditor cannot be compelled to receive part of one and part of the extinguishment of the obligation
obligati although the
other undertaking. debtor basically did nothing

For us to say that there are several prestation due, is it
required that
at these prestations be entirely different from one
another? That they, for instance involve different objects?
No
Lets say that if the debtor chooses the impossible
prestation, then he will be exempt from liability
although he did not do anything owe to the
impossibility of the prestation that he chose

The prestations may involve the same object. For
example:
The object is an Apple but there would be
differences in the terms and conditions for
the performance of the prestations. Like:
Prestation A delivery of the
apple cooked in any manner
Prestation B - delivery of the apple
at a certain place
27 | P a g e
When will the choice made by the debtor produce its intended
effect?
Art. 1201. The choice shall produce no effect except from the
time it has been communicated.
It is the communication of the choice which will
produce the legal effect
How should this choice be communicated to the creditor?
Oral, in writing or tacitly
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What do we mean by tacit choice?
One way of making a tacit choice is by performing
the chosen prestation right away
Should there be consent on the part of the creditor?
No
Why?
Because first, the law simply requires
communication, it did not require consent on the
part of the creditor for the choice to have any effect
Secondly, the essence of the alternative obligation is
that there is concentration on choice present. The
choice is given to the debtor.
btor. And for him to be
require to get the consent of the creditor before his
choice can be made would run counter to the very
essence of this characteristic of the alternative
obligation because we will deprive the debtor of the
right to choose the prestation
tion that he wants to
perform
We said that the choice will have its effect once it was
communicated to the creditor, what is this effect that will
arise from this making of the choice?
The obligation becomes pure
So what if it becomes pure obligation?
Fromom that moment the debtor, for some instances
the creditor, will now be bound by his choice. And he
cannot say that he is changing his mind and he is
deciding to pursue the other prestation. The choice
becomes irrevocable
It may happen that all of the prestation due, except for one,
may have already been rendered impossible or may have
been lost due to the fault of the debtor. So he is left with one
option, would he face any liability for the loss of all this other
prestations?
No
We do not even consider er the cause for the loss or the
impossibility of the other prestations?
No
Why?
Because it will be no different from a situation
where he can still choose the last remaining option.
Parang ine-chepwera
chepwera nya lng ung iba. So regardless
of the reason for the loss or impossibility of the
other prestations, there would be no liability on the
part of the debtor. He would still be allowed to
discharged the obligation by performing the last
remaining possible prestation
28 | P a g e
Art. 1202. The debtor shall lose the right o of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
It may happen that all of the prestations are either lost or
rendered impossible, what will happen then?
We consider first upon whom between the parties
cause the impossibility or the loss of all of the
prestation
If the cause for the loss or impossibility of all of the
prestation is due to the fault of the debtor then the
creditor may demand indemnity for damages
Art. 1204. The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost,
or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last
thing which disappeared, or that of the service which last became
impossible.
Damages other than the value of the last thing or service may also
be awarded.
The indemnity for damages, which should be?
the value of the last thing which disappeared, or that
of the service which last became impossible plus
damages
Supposing the debtor loses all of his options or as the law puts
it, the debtor cannot make a choice according to the terms of
the obligation due to the fault of the creditor, what will be the
options of the debtor?
Art. 1203. If through the creditor's acts the debtor cannot make a
choice according to the terms of the obligation, the latter may
rescind the contract with damages
In this case, are we limited to instance that all of the
prestations are rendered impossible or lost?
No, there may be a situation that all but one have
been lost, the bottom line is the debtor could no
longer make the choice in accordance of what has
been agreed upon
It is not always the case that all of o the prestation becomes
impossible or will be lost all at once, the loss may due, solely,
with the fault of the debtor, sometimes it can be a
combination of fortuitous event for some prestation and fault
of the debtor for the others. How should meet the liability
l of
the debtor if we have several prestations.
prestations Lets we have:
Prestation A lost thru a fortuitous event
Prestation B lost thru a fortuitous event
Prestation C lost thru the fault of the debtor
(in that chronological order)
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Would the debtorr have any liability or would the obligation be
simply extinguished?
The debtor is liable
Could the debtor say I would have chose prestation A or B
and since I chose them and they were lost by fortuitous event,
then my obligation should be considered extinguished?
inguished?
He cannot because the obligation has been
transformed into a simple obligation. Earlier in the
discussion that should any of the prestations
become impossible or lost regardless of the reason,
then there would be no liability on the part of the
debtor because it is as though he made the choice to
perform the last prestation available. The same
scenario is also applicable in this given example, the
last prestation available will constitute a simple
obligation. So, if it cannot be performed becaus
because of
the fault of the debtor, then we go by the general
rules of obligation and contracts which would make
him liable for the loss or impossibility of the last
available prestation.
Lets say that:
Prestation A lost thru the fault of the debtor
Prestation B lost thru the fault of the debtor
Prestation C impossible thru a fortuitous event
(in that chronological order)
Would there be any liability on the part of the debtor?
With the same logic, we said that if all the other
prestations have been lost or rendered impossible
then the last remaining prestation will now be the
only choice of the debtor and has the effect of being
transformed into a simple obligation. So, it goes to
reason that if the simple obligation is rendered
impossible by fortuitous event, then the obligation
should be considered extinguished
Accdg to Senator Tolentino: there should be liability
on the part of the debtor, since it was due to his
fault that the other 2 prestations were lost
Accdg to Justice Caguioa: from the legal point of
view, the obligation is extinguished. (we apply this
rule)
Art. 1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternati
alternative from the day
when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by
the following rules:
(1) If one of the things is lost through a fortuitous event,
he shall perform the obligation by delivering
deliv
which the creditor should choose from among the
remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault
of the debtor, the creditor may claim any of those
subsisting, or the price of that
tha which, through the fault
of the former, has disappeared, with a right to
damages;
(3) If all the things are lost through the fault of the debtor,
the choice by the creditor shall fall upon the price of
any one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in
case one, some or all of the prestations should become
impossible.
Facultative Obligation
What is facultative obligation?
Art. 1206. When only one prestation has been agreed upon, but
the obligor may render another in substitution, the obligation is
called facultative.
The loss or deterioration of the thing intended as a substitute,
through the negligence of the obligor, does not render
rend him liable.
But once the substitution has been made, the obligor is liable for
the loss of the substitute on account of his delay, negligence or
fraud.
the debtor is given the right to render a different
prestation as a substitute
How can this kind of obligation can arise?
The parties can stipulate
If the parties where to stipulate, must the parties also
stipulate the substitute?
They may or may not, for as long as they agreed that
the debtor can give something or perform some
other service in substitu
substitution
Example: (the parties did not stipulate a substitute)
uuwi ako ng probinsya, dadalhan kita ng bigas pag
uwi ko, pero pag walang bigas iba na lng dadalhin ko
para sayo
The choice of what will be the substitute depends on
the discretion of the debtor
debto in that example
Example: (the parties stipulated a substitute)
uuwi ako ng probinsya, dadalhan kita ng bigas pag
uwi ko, pero pag walang bigas unggoy na lang
In this example: the debtor stipulated on what
would the substitute would be and that is fine fin as
well, because the essence of a facultative obligation
is that the debtor is allowed to render a different
prestation in substitution of the first that has been
originally agreed upon
that
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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

JOINT AND SOLIDARY OBLIGATION

What would be the implication of having a joint obligation?
When do we need to consider joint and solidary obligation? Each one of the debtors would be proportionately
Art. 1207. The concurrence of two or more creditors or of two or liable for his share of the obligation and in the same
more debtors in one and the same obligation does not imply that
manner, each one of the creditors would only be
each one of the former has a right to demand, or that each one of
the latter is bound to render, entiree compliance with the entitled to a proportionate share of the obligation
prestation. There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the So, if we have joint debtors, then each one of them would be
obligation requires solidarity.
liable for how much?
In other words, whenever we have plurality of Creditor Debtor1 = ()
subjects Debtor2 = ()
Debtor3 = ()
If we have more than one creditor, are we required to have Debtor4 = ()
more than one debtor?
No,, it suffice that there is plurality on either sides of Each one will be liable for of the obligation (equal)
the subjects but we are only dividing it equally because there is
no indication that they are bound by different
We can have: (plural active subjects) proportions
Creditor1 Debtor But it can happen that the debtors are bound differently
differe in
Creditor2 terms of proportion:
Creditor3
Creditor4 Creditor Debtor1 = ()
Debtor2 = ()
Or: (plural passive subjects) Debtor3 = (1/8)
Debtor4 = (1/8)
Creditor Debtor1
Debtor2 So that means, Creditor can get how much ffrom
Debtor3 Debtor1?
Debtor4
Example: mga Bombay From debtor2?

Or: (we can have plurality of subject on both sides)
From debtor3?
Creditor1 Debtor1 1/8
Creditor2 Debtor2
Creditor3 Debtor3 From debtor4?
Creditor4 Debtor4 Also 1/8

If we have plurality of creditors, same thing, that means that

What is the default mode in obligations involving plurality of they will only be proportionately entitled to their share in the
subjects? obligation
Joint obligation
1/3 = Creditor1 Debtor
Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does 1/3 = Creditor2
not appear, the credit or debt shall be presumed to be divided 1/3 = Creditor3
into as many shares as there are creditors or debtors, the credits
or debts
ebts being considered distinct from one another, subject to
How much Creditor1
Creditor asks from the debtor?
the Rules of Court governing the multiplicity of suits.
1/3

Same with Creditor2 and creditor3. And they are

only again assuming that they are equally entitled
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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

because of the absence of any other indication as to So how much can Creditor1 get from Debtor1?
Debtor
their proportionate shares)
3 3 9
1/2 = Creditor1 Debtor X =
1/4 = Creditor2 4 5 20
1/4 = Creditor3
Creditor 1 gets 9/20
In which case Creditor1
1 can go to Debtor and he can
only ask for from Debtor What about creditor2
creditor from debtor1?

Creditor2 can onlyy ask for , same with creditor

creditor3 1 3 3
X =
If we have plurality on both sides: 4 5 20

= Creditor1 Debtor1
1= 9 3 12 3
= Creditor2 Debtor2
2= + = or
20 20 20 5
In which case how much creditor1 1 can demand from
debtor1? 9/20 plus 3/20 is equal to 12/20. 12/20 12/20 when
Creditor1 can only ask for ( of the ) reduced
ed to its simple form, it is 3/5

3/5 representss the total liability of debtor1

Creditor1 debtor1
1 1 1 If debtor2 becomes insolvent, debtor1
debtor will not have any
X = concern or liability because the obligation is joint
2 2 4
Think that you are eating in a restaurant, when the bill
In the example, Creditor1 1 is entitled to , where can arrives, you and your friends divide the amount contained in
he get the rest of his share? the bill. The restaurant represents the single creditor and
He gets the rest from debtor 2 your friends will be the joint debtors

Because from debtor2, he (creditor1)

(creditor can get how When will the default obligation not be applicable?
much? when the obligation expressly so states
Also ( of the ) when the law requires solidarity
when the nature of the obligation requires solidarity
So if we combine the share that creditor1
creditor can get
from debtor1
tor1 and the share from debtor
debtor2, he can Example of an obligation which because of its nature, it is
get his full share of treated as solidary?
When there are several Joint torfeasors in quasi-
quasi
In the same manner, creditor2 2 can collect from delicts
debtor1 (1/4) and from debtor2
2 (1/4)
Example of an obligation which is solidary because of an
If the proportions are specified: express provision of law?
In contract of commodatum, if we have more one
3/4 = Creditor1 Debtor1
1 = 3/5 bailee thenn the bailees will be solidarily liable for the
1/4 = Creditor2 Debtor2
2 = 2/5 loss of the thing that is loaned

Creditor1
1 is entitled to of the obligation and it was Example of an obligation which is solidary that has been
also given that 3/5 of the obligation wil
will have to be stipulated by the parties?
answered by debtor1 In an instrument, it was written I promise to pay
then it was signed by several debtors

together or separately, it is also an indication that

it is a solidary obligation
31 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What is the difference of a solidary obligation from a joint
obligation?
Each one of the debtors may be asked to perform
per
the entire obligation and each one of the creditor
may demand the performance of the entire
obligation
There are different kinds of solidarity depending on which
part of the obligation exist
Active Solidarity Solidarity among the creditors
Passive Solidarity Solidarity among the debtors
Mixed Solidarity Solidarity on both creditors and
debtors
But it is possible that there is solidarity among the debtors on
one hand and then on the part of the creditors, we have a
joint obligation. Like the promissory
missory note, that is if the payee
is more than one person and there is no indication that will
justify the application of the exception allowing solidary bond
among the creditors, then we will have to consider them as
jointly entitled to the obligation
In that case how are we suppose to proceed?
Creditor1 Debtor1
Solidary
Joint Creditor2 Debtor2
Creditor3 Debtor3
The promissory is signed by 3 debtors for 360K and the
payees are 3 creditors and in the promissory note, there was
no indication
ndication that they will be active solidary creditors and
the exceptions do not apply. Then we shall have to treat the
creditors jointly entitled.
How much can be demanded by these creditors from the
debtors? We all know that debtor1, debtor2 and debtor3 are
solidary bound, so each one of them can be compelled to pay
up the entire 360k. That is consistent with the passive
solidarity existing among them. The problem is in the
creditors, there is no active solidarity on their part, so how
can they proceed against
ainst anyone of the debtors?
They will have to proceed against the debtors as
one. Meaning that Creditor1, creditor2, and
creditor3 will have to make a collective demand
upon debtor1 if they want to get the entire 360k
from debtor1 or upon debtor2 or debto
debtor3
32 | P a g e
If the creditors will make a demand on their own, then
consistent with their right as joint creditor, they can ask for
how much?
1/3 = Creditor1 Debtor1
1/3 = Creditor2 Debtor2
1/3 = Creditor3 Debtor3
360k 3 = 120k
120k pertains to the share of each creditor to the
obligation
It is easier if the situation is passive solidarity but how can we
have active solidarity?
It appears that we can only have that by stipulation
Active Solidarity
What does active solidarity means for the creditors?
creditor What
does active solidarity allow them to do?
It is said that there is some kind of mutual agency
among the creditors such that any one of them can
demand for the performance of the entire obligation
from anyone of the debtors
Should a demand be made from anyone of the creditors, how
would that demand affect the others?
It limits the right of the other co-creditors
co because
once a solidary creditor has made a demand upon a
debtor then that debtor must pay the obligation to
the creditor who has made the demand. So in a way,
it limits the right of the other creditors because
apparently, any demand that they make could now
be useless because one of them has already made a
demand. But although it limits their rights, they are
not prejudice because of the presence
pre of the
concept of mutual agency. That demand made by
one of the creditors is being made on their behalf as
well not just for the benefit of the creditor making
the demand
Art. 1214. The debtor may pay any one of the solidary creditors;
but if any demand, judicial or extrajudicial, has been made by one
of them, payment should be made to him.
Upon whom can the creditor makes a demand?
Anyone of the debtor
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Supposing that creditor 1 made a demand upon debtor3, can
creditor1 still make a demand from debtor1 or debtor2?
debtor2
Creditor1 Debtor1
Creditor2 Debtor2
Creditor3 Debtor3
Yes
Supposing that creditor1 has instituted a complaint for
collection against debtor3, can he still send letters of demand
to debtor1 and debtor2?
Yes, because the law says that he can make a
demand upon any of the debtors so long as the
obligation remains unpaid
Art. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others, so
long as the debt has nott been fully collected.
Once a demand is made then, hopefully, it will have its
desired effect, which is to instigate payment. And if payment
is made, what will be the effect of that payment?
It will extinguish the obligation of the debtors to the
creditors
But will happen after the extinguishment of the obligation of
the debtors to the creditors?
The creditor who received payment is now obligated
to give the shares of the other creditors
Is payment is the only means by which the obligation of the
debtorss to the creditors may be extinguished?
no
How else can it be extinguished?
Loss of the thing
Remission
Confusion or merger
Compensation
Novation
Art. 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to the others for the share in the
obligation corresponding to them.
If the obligation is extinguished for any cause other than
payment, we can say that such extinguishment would be
prejudicial to the other creditors, because the creditor who
caused the extinguishment did not receive anything in return
33 | P a g e
from the debtors for which the other creditors will get their
share. So how can we reconcile this provision in the law which
allows the solidary creditor to do all of these things with the
provision in the law that none of the creditors
cr can do anything
which is prejudicial to the others? (reconciling Art 1215 with
Art 1212)
Should there be any extinguishment of the
obligation for causes other than payment, then the
creditor who is either remitting, condoning or
undergoing compensation
compensa or confusion with any of
the solidary debtors will be similarly liable as though
he received payment. It means that such creditor
will still have to give to the other creditor their share
in the payment supposedly of the obligation. He will
not be excused.
used. In addition, he may even made
liable for damages
Take note that, on the surface, when it comes to solidary
obligations, it may appear that we have singleness of
prestation (unity of prestation) as though there is only one
relationship existing, that is between the creditors on one
hand, and the debtors on the other. But once the obligation
between the creditors and debtors is extinguished another
set of obligation among the creditors themselves would arise.
And that will be dictated by the obligation of the creditor
receiving payment to give the others their share. That is
mutual agency, pag natanggap ko, agent mo ako, I need to
remit to you. And the remittance or the giving of the shares
share
will not always be equal.. No matter the apparent singleness
of the prestation, the creditors may still be bound by
different proportions of their rights. It is not always equal.
Passive Solidarity
What does passive solidarity imply to our debtors?
Each one of the debtors may be asked to perform
the entire obligation
And should this debtor who may be asked to perform the
whole obligation, what happens then?
The obligation between the creditors and debtors
will be extinguished and the debtor making payment
may demand reimbursement from the other debtors
Will the debtor
or making payment insist that he should be now
subrogated to the rights of the creditors?
He cannot, because that obligation has already been
extinguished and with its extinguishment there will
be another set of obligation that will arise among
the debtors themselves
This obligation consist of?
Reimbursing
imbursing the paying debtor proportionately
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What happens if anyone of the other solidary debtors
happens to be insolvent?
Then the other debtors will be liable for the share of
the insolvent debtors. Mutual Guaranty among the
debtors, by allowing themselves to bound solidary,
they guaranty the solvency of all of the other
debtors. Such that should anyone of them be
insolvent, then in addition to their share in the
liability, they will also have to bear propor
proportionately
the share belonging to the insolvent debtor
General Rule: a joint debtor will not answer for the
insolvency of his co-debtor
Exception: in case of co-guaranty. In co-guaranty,
guaranty, we also
apply the general rule that the co-guarantors
guarantors will only be
jointly liable but despite the fact that they are only jointly
liable, they are answerable for the insolvency of their co co-
guarantees
If there is passive solidarity, does it also follows that all the
debtors will be uniformly bound by the same terms and
conditions?
No
Art. 1211. Solidarity may exist although the creditors and the
debtors may not be bound in the same manner and by the same
periods and conditions.
It can happen that one of the solidary debtors may
have his obligation subject to a suspensiv
suspensive term;
another may his obligation subject to condition. That
will not detract from the fact that they are solidarily
bound
Why is it important to know this?
It is important because this may be relevant when it
comes to the defenses available to a solidary
solidar debtor.
This is one of the sources that may be raised by a
solidary debtor in an action brought by a creditor
against him
What are the defenses that may be raised by a solidary
debtor in an action brought by a creditor?
Defenses which are inherent in the e obligation itself
Defenses which is personal to the debtor
Defenses which pertains to the share in the
obligation
Defenses which are personal to his co co-debtors
If the defense is inherent in the obligation itself, it calls for
total exemption from liability
34 | P a g e
If the defense is personal to the debtor,
debtor it calls for total
exemption from liability in so far as that debtor is concerned
If the defense pertains to the share in the obligation, it calls
for partial exemption from liability. Why only partial?
Because he may still be asked to pay for entire
obligation less the share pertaining to him subject
for his right to ask for reimbursement from the other
debtors who are not entitled to any defenses
If the defense is personal to his co-debtors,
co it calls for partial
exemption from liability because the exemption can only
extend to the share of the debtor entitled to that personal
defense
Lets us say we have passive solidarity, and the contract is an
oral contract of sale of land:
land
Creditor Debtor1 his obligation is subject
to a suspensive period
Debtor2 - Minor
Debtor3
Debtor4 Vitiated Consent
Demand is made by the creditor upon debtor1, what defenses
may be raised by debtor1? Note that the demand must be in
the form of a complaint because
bec the law speaks of defenses
which may be raised in an action brought by the creditor so
it must be a judicial demand
The contract is unenforceable and that will entitle
him to total exemption because that will go to the
very obligation (Defense which are inherent in the
obligation itself)
The obligation is due only with regard to his share it
is subject to a suspensive period. Since he is the only
one affected by the period, so he can raised it as a
defense but only as to his share. So he can say that I
will pay you but less my share because of the
suspensive period. I will be only liable to my share
once the period arrives (Defense which pertains to
the share in the obligation)
Minority of Debtor2 and vitiated consent of Debtor4,
but this will not for the total exemption. It can only
be for partial exemption from liability to the extent
of the shares pertaining to debtor2 and debtor4.
(Defense which are personal to his co-debtors)
co
Of all the modes of extinguishing an obligation, the more
significantt mode would be remission. If there is remission,
there is really nothing received by the creditor who is
effecting remission. The remission may either be total or
partial.
If it is a total remission then it has the effect of extinguishing
the obligation in its entirety and it may happen that the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
remission was secured by one of the solidary debtors, would
this scenario give the debtor any special rights as against his
co-debtors?
It will not entitle him to any right to be reimbursed
What if the remission was partial?
If there was already payment made by the other co-
co
debtors before the remission, it will not excuse the
debtor effecting remission for any liability for
reimbursement. Because the payment of the paying
debtor preceded the remission, then there was
nothing to condone anymore because the obligation
was extinguished
What if the remission came before payment?
We have to qualify:
The solidary debtor benefited by the
remission may still be liable to the other
creditors. Na-condone
condone nga yung share nya
but if demand is made upon him by other
creditors, he cannot say I will not be liable
anymore because of the remission. The
remission only extend to extinguish his
share in the obligation but it did not
dissolve the solidary bond among the
debtos. He is still a solidary debtor, so he
may still be asked to pay the obligation by
the creditor making the demand less his
share. Then after making payment, he may
go to the other debtor to ask for
reimbursement
But if the demand is made upon the
solidary debtor benefited by the remission
by the other debtor who paid after the
remission, then he can rightfully say wla na
akong liability because of the remission, you
can no longer claim from me in this case,
who can the paying debtor run after for his
share?
The creditor who received the
payment because that payment is
no longer due because of the
remission
So if the question is what will be the effect of a remission
that is made prior to payment, then we have to qualify: who
is demanding payment? Is it the creditor or a co-debtor
co
Art. 1219. The remission made by the creditor of the share which affects one
of the solidary debtors does not release the latter from his responsibility
towards the co-debtors,
debtors, in case the debt had been totally paid by anyone of
them before the remission was effected. (1146a)
35 | P a g e
Art. 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
co
LOSS or IMPOSSIBILITY OF PERFORMANCE
it will render the ob
obligation extinguish
Qualify as to the nature of the obligation: As to the reason of
the loss or impossibility of performance
in ordinary obligation
gation, the.. determinate or specific
otherwise it is not susceptible to loss and the loss to
completely absolve the t debtors, it must be due to
fortuitous event or due to reasons not attributable
to them.
But supposing that due to the fault of any one of the solidary
debtors or due to fortuitous event but it is due to the fault or
delay of any of the solidary debtors, how will this affect the
rights of the solidary debtors?
if the loss is due to fortuitous event, then the
obligation is extinguished w/o any liability for
damages. Loss due to the fortuitous
f event only the
obligation has already been attended by fault
f or by
delay, demand has already been made to one of the
solidary debtors, he did not perform w/c is sufficient
to put them in delay and the fortuitous
f event
happens.
As a group, are they liable for damages?
Yes,, liable for damages to the creditor
What is the indemnity that must be given to the creditor?
Price of the obligation. If
I there is fault or delay,
fortuitous event does not excuse non-performance,
even if the thing due has been lost due to fortuitous
f
event, the obligation
gation remains. But this time it is
converted into one for damages. Actual damage
you have to give the actual value of the thing that
was lost. Apart from the value of the thing lost, they
are also liable for consequential damages or even
interest.
Can this be claim by the creditor
cred from any one of the debtors?
Liable for the entire
ire indemnity w/c is the price
pric of the
thing due plus damages.
Supposing C (one of the solidary debtors),
debtors) is an innocent
solidary debtor, he pays A (creditor). C now is entitled to be
reimburse.
What can he ask from B and D by way of reimbursement?
Entire indemnity
From whom can he claim the demand?
From the guilty debtor.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
The paying debtor can claim the entire indemnity from the
guilty debtor. Anything that has been paid by the debtor w/o
deducting his share. He will not participate for the payment
at all. There is loss here of the thing
hing due because of the
fortuitous event and they would have been excused from
performing if it has not been due to the fault of the guilty
debtor. Because of this loss, the other debtors are no longer
required to contribute in the indemnity. They will not
contribute - - it makes sense because they are not guilty. They
are not also required to contribute in the value of the
obligation because of the loss that took place on
o account of
the fortuitous event and the indemnity must be shouldered
by the guilty debtor.
It is a different thing if there is no loss, but there is simply
delay or fault. In this case, the other innocent solidary
debtors will also liable but only for their share in the
obligation. The guilty debtor will be answerable for the
damages.
Art. 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary debtors, the
obligation shall be extinguished.
If there
re was fault on the part of any one of them, all shall be
responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against
the guilty or negligent debtor.
If through a fortuitous event, the thingg is lost or the performance
has become impossible after one of the solidary debtors has
incurred in delay through the judicial or extrajudicial demand
upon him by the creditor, the provisions of the preceding
paragraph shall apply
Divisible and Indivisible Obligations
Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does not
alter or modify the provisions of Chapter 2 of this Title.
What is indivisible and divisible obligation?
Indivisible Obligation not susceptible of partial
performance
Divisible Obligation susceptible of partial
performance
Joint Indivisible Obligation
It is only indivisible because of the subject matter. It
may be indivisible because of its nature or because it
is so stipulated by the parties or by law
Example: A race horse, if the same is going to be delivered,
then it must be delivered wholly. And just because it is
indivisible, it does not mean that we are precluded from
having
ving plurality of subjects, we can still have more than one
creditor and more than one debtor. In this scenario, the
36 | P a g e
parties will just have to perform together. The debtors has to
perform together and the creditors must also make the
demand together. In case se there is any breach, then the
obligation will be converted into a divisible obligation
because in that situation, it will just an obligation to pay
damages
Art. 1209. If the division is impossible, the right of the creditors
may be prejudiced only by their
t collective acts, and the debt can
be enforced only by proceeding against all the debtors. If one of
the latter should be insolvent, the others shall not be liable for his
share.
Art. 1224. A joint indivisible obligation gives rise to indemnity for
damages
mages from the time anyone of the debtors does not comply
with his undertaking. The debtors who may have been ready to
fulfill their promises shall not contribute to the indemnity beyond
the corresponding portion of the price of the thing or of the value
off the service in which the obligation consists.
Obligations with a Penal Clause
What is a penal clause?
An accessory obligation to assume greater liability in
case of breach
By its term alone accessory it means that it requires a
principal obligation in order to validly exist
It has a 3-fold purpose
Ensure the performance of the obligation
o If the debtor did not perform the obligation,
then he will be liable for payment of the
penalty in the penal clause
To provide for liquidated damages
o Liquidated damages does away the need to
prove the damages suffered
o If there is liquidated damages, then there is
no need to prove the actual amount of
damages, there is only need to prove
breach
To punish the other party in case of breach
Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with
the provisions of this Code.
If there is a penal clause that will take the place of damages
and interest, he can no longer claim except if there is a
stipulation to the contrary or if the debtor is guilty of fraud in
the performance of the obligation or if there is refusal on the
part of the debtor to pay the penalty
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1228. Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded.
The courts may step in and mitigate the liability is it is
unconscionable or if there has been partial or irregular
performance
Art. 1229. The judge shall equitably reduce the penalty when the
principal
incipal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable.
Since it is an accessory obligation, then the nullity
nullit of the
penal clause will not affect the principal obligation
Art. 1230. The nullity of the penal clause does not carry with it
that of the principal obligation.
The nullity of the principal obligation carries with it that of the
penal clause.
Art. 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor demand the fulfillment
of the obligation and the satisfaction off the penalty at the same time, unless
this right has been clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the performance thereof
should become impossible without his fault, the penalty may be enforced.
EXTINGUISHMENT OF OBLIGATION
LIGATION
What are the different modes of extinguishing an obligation?
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code.
Would these be exclusive such that if there is a mode that is
not included in the list, it cannot be said that it also
extinguishes an obligation?
It is not exclusive
What can be an example of a caused that is not included in
the list that will cause the extinguishment of an obligation?
Renunciation by the creditor in favor of the debtor
Compromise of the parties
What about death?
Only those obligations which are purely personal to
the debtor are extinguished by death
37 | P a g e
PAYMENT
What is payment?
The fulfillment of the prestation due, a fulfillment
that extinguishes the obligation by the realization of
the purposes for which it was constituted
Payment is commonly perceived as something that which
involved delivery of money, would this be an accurate
understanding of payment?
No,
Art. 1232. Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation.
Essentially, payment can refer to any manner of performance
of the obligation. It may include the delivery of money but it
is not limited to the delivery of money
What are the characteristics of payment?
Integrity (Art 1233)
Identity (Art 1244)
Indivisibility (Art 1248)
What does integrity means?
The payment must be complete
Art. 1233. A debt shall not be understood to have been paid
unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be.
What are the exceptions to the characteristic of integrity?
Substantial performance (Art 1234)
Waiver or estoppel (art 1235)
Art. 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
Art. 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
What will be the requisites for substantial performance?
Attempt in good faith to perform the obligation
The obligation must be performed but it was not
performed to meet in accordance with its tenor
When we say that there is substantial performance, it
indicates that the obligation was performed but it was not
performed
med to be in accordance with its tenor. So there is
some kind of deviation.
Does it matter what the nature of deviation is?
Yes, it is required that the deviation should not
pertain to the material aspect of the obligation. it
must be something that is incidental
in or trivial
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Example of a deviation that is not material:
The debtor is supposed to deliver a cake and he is
also required to place the cake in a container. The
container must be color blue so that it will be in
accordance with the partys motif. But
Bu at the time of
delivery the debtor placed the cake in a container a
litter similar with blue, like purple or violet. The
placing of the cake in a purple or violet container is
immaterial. It does not go to the very essence of the
obligation. In which case, e, substantial performance
will be acceptable.
The idea is that if there is substantial performance then it is
to be treated as though there was complete performance and
that should be sufficient to extinguish the obligation.
The next exception is despite knowledge of incompleteness
or irregularity of performance. This
is is waiver or estoppel
The law made use of the word irregularity and
incompleteness, are they the same or different?
Different
Incomplete refers to the amount of the
performance. If the obligation is not fully performed,
there is incomplete performance.
Irregular refers to the kind of per
performance. If the
whole obligation is fully performed but not in the
manner agreed upon, there is irregular performance.
We can have ave an irregular performance that is
complete. The performance is complete only that it
is not in accordance with the tenor of the obligation.
If there is incomplete performance, then there are
some portions which were not performed
What does identity of payment mean?
To be valid, the payment must consist the
performance of the very prestation that has been
agreed upon
If the obligation is to give a specific thing, then the
very thing that is promised to be given should be
delivered
If it is an obligation
ion to be a generic thing, then a
thing that is belong to the same kind, quality and
quantity should be delivered
What are the exceptions to the characteristic of identity?
Dacion en pago (art 1245)
Facultative obligation
38 | P a g e
Why dacion en pago is an exception?
The obligation is payment of sum of money but the
parties agreed that instead of paying in sum of
money what is delivered is a property belonging to a
debtor. The sanction is that it will govern by the law
on sales
Art. 1245. Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be governed
by the law of sales.
What is indivisibility of payment?
The creditor cannot be compelled to received partial
performance
When you perform, you must perform
perfo the obligation
in its entirety
How can we distinguish integrity of payment from
indivisibility of payment?
In both characteristics, the end result is the same.
The debtor must perform the entire obligation.
If we have incomplete performance, that means that
it is lacking of some aspects and the debtor has no
intention or no means to complete it anymore.
Whereas, if the debtor wants to render partial
performance, there is still an intention or at least a
possibility that there would be subsequent
performances
erformances yet to come that will complete the
performance.
Example: in sum money, if the debtor is going to pay
the down payment. It is also incomplete and at the
same time the debtor is insisting on partial payment.
But if the debtor will not pay anymore
anymor aside from
the first down payment, then we have incomplete
performance, the characteristic of integrity is
violated. But if the debtor has the intention to
complete payment but not in one instance, instance we
cannot say that the characteristic of integrity of
payment
yment is violated because the debtor will
complete the payment, but this time around the
debtor is insisting divisible performance or partial
performance of the obligation, what we are violating
is the characteristic of indivisibility
What are the exceptions
ons to the indivisibility of payment?
If there is stipulation to the contrary
when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the
debtor may effect the payment of the former
without waiting for the liquidation of the latter
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
in solidary obligations, where the debtors are not
bound by the same terms and conditions
in case of compensation of unequal amounts
in case there are several guarantors for the same
obligation and they or one of them demands the
benefit of division
when the work is to be done by parts
when the debtor dies and he has several heirs and
the obligation is divisible
in joint obligations where each debtor is bound to
pay only his proportionate share
Example of stipulation to the contrary
Delivery of 100 sacks of rice in 10 equal installments
Sale on installments. In the absence of stipulation
the purchase price must be paid all at once. But if
the parties agreed, then payment can be made by
installments
What does liquidated mean?
The thing or amount nt is already determined,
ascertained, settled, there is no dispute as to
amount, as to what is due and as to how much is due
Example of an obligation which is composed of portions which
are liquidated or parts which are unliquidated:
The creditor was off-loaded
loaded from a passenger plane
that means that the value of the creditors ticket has
become useless to him. Essentially, he suffered loss
corresponding to the amount of the ticket. But aside
from that, he also suffered emotional pain and a Does she have an interest in the obligation?
humiliation of being asked to leave the plane and for
that one he is entitled to moral damages. The thing
is moral damages is something that has to be proven
in court. And until the court says that he is entitled
to moral damages in such amount, it is not n yet
liquidated. So the obligations of the airline to the
creditor consist of actual damages (the cost of the
ticket) plus moral damages. The cost of the ticket is
liquidated because that is already a certainty, there
is no dispute as to how much the debtor
deb paid for the
ticket. But the other part, the moral
ral damages, that is
still unliquidated. The creditor can ask for the value
of the ticket.
Who can make payment?
In literal sense and if the obligation does not call for
the personal qualification of the debtor, then
essentially anyone can make payment.
39 | P a g e
But if we are going to take the question as to who
can compel the creditor
cred to accept payment, then
these are the people who can compel:
Debtor himself
His heirs and assigns
His agents and representatives
Third person interested in the obligation
Why is this important?
Because it the end, it is the consent of the
creditor to accept payment, which will
extinguish the obligation. the consent of the
original debtor will only determined the
rights acquired by b the person making
payment on his behalf
As to the question of who can compel the creditor to accept
payment, then the people enumerated earlier. They cannot
be refused by the creditor. If the creditor refuses, then the
creditor will be in mora accipiend
accipiendi. And mora accipiendi in
turn, will trigger legal consequences to arise. There will be a
shifting for one of the burden for the loss of the thing due
rd
Who is this 3 person who has an interest in the obligation?
rd
3 person who has material interest in the
obligation
Can it be the debtors mother? Can the debtors mother
compel the creditor to accept payment?
No
She may have an interest but it is not the interest
contemplated by law
What is this interest contemplated by law?
Material interest
Example:
3rd party Mortgagors, surety, guarantors
What would be his interest in the obligation?
That in case of non performance of the obligation,
there will be loss in his part
What loss will he suffer?
He will lose his properties
What will happen to his properties?
It will be foreclosed. So instead of going thru the
process of foreclosure, the process to redeem, the
rd
3 party mortgagor can cut it off by paying the
obligation
tion and he is allowed by law because he has a
material interest in the obligation
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Supposing that there is a third person who has no material
interest, he pays the obligation, would that be a valid
payment? Will that extinguish the obligation?
It will extinguish the obligation. When we say that
payment is made to the creditor, it presupposes that
the creditor accepted the payment. When he
accepts, the obligation is extinguished.
Does it matter, whether or not the debtor gave his consent?
It matters in determining only the rights acquired by
the 3rd person, but the obligation is still extinguished
rd
If the debtor consented, the 3 person who made payment
acquires:
The right of subrogation
Entitled to full reimbursement
rd
If the debtor did not gave his consent, the 3 person who
made payment:
No right of subrogation
Entitled to reimbursement only insofar as the
payment has been beneficial to the debtor
Art. 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest terest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has
paid, except that if he paid without the knowledge or against the will of
the debtor, he can recoverr only insofar as the payment has been
beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the creditor
to subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty.
rd
Is it possible that a 3 person paying the obligation of the
debtor may not recover the entire amount that he gave as
payment to the creditor?
Yes, it is possible because if the consent is not given
or it is against the will of the debtor, then the basis
of recovery will be the extent of benefit. And there
are instances when the benefit does not correspond
to the amount paid. When will this happe
happen?
If there is already prescription. There is no
obligation to pay anymore but the 3
rd
person pays. It means that there is no
benefit to the debtor. He cannot ask
reimbursement from the debtor.
Or, if there is partial payment made earlier,
then that is less
ss benefit to the debtor
40 | P a g e
If he cannot recover from the debtor, who can the 3rd
person recover from?
From the creditor
On what basis?
Solutio indebiti
Should the payor has the capacity to act?
yes
Why?? Do we distinguish as to the kind of obligation involved?
In obligation to do, it does not matter because by
performing, he effects payment and the obligation is
extinguished
In obligations to give, the debtor must deliver the
thing but not just physical delivery, there must be
transfer of title. He cannot
ca transfer title unless he
has capacity to act because capacity to act is the
power to do acts with legal effect
Art. 1239. In obligations to give, payment made by one who does
not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of
Article 1427 under the Title on "Natural Obligations."
The law makes reference
eference to art 1427, will this exception still
apply?
Not anymore, because the age of majority now is 18
Art. 1427. When a minor between eighteen and twenty-one
twenty years
of age, who has entered into a contract without the consent of
the parent or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the obligation, there shall
be no rightt to recover the same from the obligee who has spent
or consumed it in good faith.
To whom should payment be made?
Creditor
Successors in interest
Assigns
Any person authorized to receive payment by law or
by stipulation
If the debtor makes payment not to the enumeration above,
then the payment will be invalid. And if the payment is
invalid, then the obligation is not extinguished and it still
subsist
Art. 1240. Payment shall be made to the person in whose favor
the obligation has been constituted, or h
his successor in interest,
or any person authorized to receive it.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What is the exception that if payment is made to someone
who is not among those enumerated, the payment will still be
valid?
Payment to a third person is valid provided that it
redounded too the benefit of the creditor
Payment made in good faith to any person in
possession of the credit shall release the debtor.
Art. 1241. Payment to a person who is incapacitated to administer
his property shall be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it
has redounded to the benefit of the creditor.
xxxx
Art. 1242. Payment made in good faith to any person in
possession of the credit shall release the debtor.
The law tells us the instances when we presume that the
benefit has redounded to the creditor, what are these
instances?
Art. 1241. x x x x
x x x x Such benefit to the creditor need not be proved in the
following cases:
(1) If after the payment, the third persperson 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.
Example of number 3:
This usually happens
appens in Big corporations. The
corporation is engaged in the manufacturer of
cement. Lets say in a telephone conversation, the
corporation will deliver the cement and the
corporation asked to whom it should be delivered,
then the other corporation said basta may tao
dun. In the delivery receipt, there is someone who
signed but no printed name and position. So in case,
there was no payment made but there was delivery,
there will be a problem if other corporation deny
payment and the cement corporation doesdo not know
upon who should pay. One remedy to such a
problem would be saying that the cement
corporation was led to believe that such person has
the authority to receive payment (delivery of
cement)
Payment made in good faith to any person son in possession of
the credit. Take note that the law requires that the person to
whom payment is made must be in possession of the credit
not just in possession of the evidence of credit
41 | P a g e
Lets say that Mr. de Chavez has issued a promissory
note in favor of Mr. Gotohio anda the promissory note says
payable to the order of Mr. Gotohio. One day Ms. Taganas
shows up at the luxurious door step of Mr. de Chavez
and she is in possession of the promissory note payable to Mr.
Gotohio. If Mr. de Chavez were to pay Ms. Taganas, can
we say that it is a valid payment? Such that the obligation
under the promissory note will now be extinguish?
No
Why?
Because Ms. Taganas was not in possession of the
credit
What do Ms. Taganas possess?
Only evidence of the credit
What can we change in the example given that would Ms.
Taganas in possession of the credit and not just evidence of
the credit?
The promissory note must be payable to bearer.
That will be sufficient to clothe Ms. Taganas at least
an ostensible right to the promissory note, that
t will
serve as basis on the part of Mr. de Chavez to
make the payment in good faith
When should payment be made?
At the time stipulated by the parties
Is it also dependent at the kind of obligation involved?
Yes
If the obligation is a pure obligation or subject to a resolutory
condition or period
Upon demand
If the obligation is subject to suspensive condition or period
The payment must be made upon the happening of
the condition or arrival of the period
How should payment be made?
It depends on what
wha kind of obligation
In obligation to do or not to do,
the debtor performs the obligation by doing the
specified task or prestation or refraining from the
prohibited prestation or act
In obligation to give a specific thing
He must deliver the very thing that has been agreed
upon as well as it accessions, accessories, fruits and
income
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1166. The obligation to give a determinate thing includes that
of delivering all its accessions and accessories, even though they
may not have been mentioned.
In obligation to give a generic thing
He must deliver the thing that belong to the same
genus or kind as that agreed upon. As to quality, the
debtor is required to delivery something of superior
quality but he cannot also delivery a thing of inferior
quality
Art. 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances
have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior
quality.
ality. The purpose of the obligation and other circumstances
shall be taken into consideration.
In obligation involves payment of sum of money
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
d such
currency, then in the currency which is legal tender in the
Philippines.
xx xx
There was a time when we had this law that is the Uniform
currency act (RA 529). That law actually prohibited the parties
from stipulating on the payment of monetaryetary obligation in
currencies other than the Philippine Peso.. In other words,
that law suppressed Art 1249.
Such law is repealed by RA 8183 and the effect of the repeal
is to revert the rule to that provided in art 1249, meaning to
say that the parties are now again allowed to stipulate on the
currency which payment of monetary obligation may be
made
What is considered legal tender in the Philippines?
Coins, bills, notes issued by the Bangko Sentral ng
Pilipinas and which cannot be refused by the
creditor
What about promissory notes, bills of exchange or checks?
They are not considered as legal tender unless it is
encashed
Art. 1249. x x x x
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall
sh produce the effect
of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in the abeyance.
For a while, there were various rulings by the SC to the effect
that cashiers checks and managers checks issued by banks
are as good as cash, such that payment made in these checks
42 | P a g e
would be tantamount to payment by money. Do we still
adhere to these rulings?
Not anymore
What is the value of receipt when it comes to payment?
It is the best evidence of payment
Is it the only evidence of payment that can be used?
No, parole evidence that the declaration of the
debtor that he has paid and his witnesses
As an evidence of payment
paymen is a receipt presumptive or
conclusive?
Presumptive, meaning to say that the fact of
payment as proof by the receipt may still be
rebutted
If a receipt is issued to acknowledge payment made by check,
it does not mean that the presence of the receipt will already
be conclusive proof of payment because the debtor must still
show, if the proof is rebutted, that the check was actually
encashed
Art. 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
Example: A indebted to B for 10k. C is indebted to A
for the same amount. In an action by B against A, C
upon petition may be ordered
or by the court not to
pay A and for the meantime retain the debt
Place of payment, where should payment be made?
Art. 1251. Payment shall be made in the place designated in the
obligation.
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made wherever
the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of
the debtor.
If the debtor changes his domicile in bad fait
faith or after he has
incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules
of Court.
Art. 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene,
ervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
How will they determine that there is inflation?
There must be a competent authority declaring
declarin
extraordinary inflation
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

What are the special forms of payment? There must be an agreement between the creditor
Application of payments and debtor that the obligation is immediately
Dacion en pago extinguished by reason of the performance of a
Payment by cession prestation different from that due
Tender of payment and consignation
A is the creditor of B for 200k. he likewise delivered his parcel
Dacion En pago or Dation in payment of land as a security. Upon failure to pay, can B(debtor) sell
the collateral to A(creditor) for 200k? is this valid?
What is dacion en pago? No, this is pactum commissorium
An act by virtue of which the debtor voluntarily
performs in favor of the creditor, by way of How can we say that it is dacion en pago and not pactum
payment, a prestation different from that due, and commissorium?
which the latter accepts as a valid substitute Dacion enpago applies to all kinds of obligations
while pactum commissorium applies only to those
Art. 1245. Dation in payment, whereby property is alienated to obligations which are secured either by mortgage or
the creditor in satisfaction off a debt in money, shall be governed pledge. Futher, in the former, there is a separate
by the law of sales.
agreement between the parties, on the other hand,
in the latter,, it is included in the document or
We said before that dacion en pago will be governed by the
agreement.
law on sales because here, we have a substitution of the
payment of a monetary obligation with the delivery of
By virtue of the fact that dation in payment involves ceding
property belonging to the debtor.
ebtor. So, in effect the value of
property belonging to the debtor for the creditor, we can say
the amount due would now be treated as the purchase price
that there is some kind of similarity between dation in
for the thing to be delivered.
payment and payment by cession.
ce But the circumstances in
payment by cession are different from the circumstances in
But looking at it in a legal point of view, what actually
dation in payment.
transpires in dation in payment?
Novation, there is novation because we exextinguish
Dation in Payment Payment by Cession
the first obligation which is payment of a sum of
only one creditor there is more than one
money thru the creation of new obligation in which
creditor
now consisting now of the sale of a property for the
a transfer of property it calls for a transfer of
amount originally due from the debtor
belonging to the debtor patrimony: all properties
Would it be correct to say that we only have dation in does not presuppose when the debtors entire
payment if the obligation involves a payment of a sum of insolvency or illiquidity patrimony is being called
money? upon for the satisfaction of
No, if we would go to that premise that dation en your indebtedness, it implies
pago is essentially a novation, then there is no that the debtor has difficulty
reason why we should limit it to those instances in paying the obligation.
where the obligation involved is one pertain to essentially, insolvent. If not
payment in sum of money. The only consequence insolvent, illiquid, that the
would be that the resulting new obligation will no debtor is suffering from
longer be govern by the law on sales liquidity problems
there is transfer of there is no transfer of
To what extent the obligation be extinguished? ownership over the property ownership but the debtor
Absolute extinguishment because it is novation that the debtor is giving in gives the authority to sell the
lieu of money. properties
Requisites of dation en pago: gives the debtor total gives the debtor
There must be performance of the prestation in lieu extinguishment of the extinguishment of the
of payment (animo solvendi) which may consist in obligation obligation to the extent of
the delivery of a corporeal thing or a real right or a what may be covered by the
credit agasint the 3rd person proceeds of the sale
There must be some difference between the
prestation due
ue and that which is given in substitution
43 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
In payment by cession, what is the purpose of giving the
authority to sell the properties?
For using the proceeds to satisfy the obligation
Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which,
ich, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws.
Application of payments
What is application of payments?
The designation of the debt to which should be
applied the payment made by a debtor
debt who owes
several debt to the same creditor
Requisites:
Several debts are due
The same debtor and the same creditor
The debts are all of the same kind
The debts are all due
The payment made is not sufficient to cover all debts
The parties have not agreed d previously on the
application
In payment by cession, we have several creditors, in
application of payment, we have several debts or obligations
but in favor of one and the same creditor.
Also in application of payments, the debtor is making
payment and the payment that he is making should not be
sufficient to cover all of the obligations, why not? What
happens if it is sufficient?
There is no need to designate which obligation will
be satisfied first because the essence of application
of payment is that the debtor gets to choose which
obligations will be satisfied ahead of the others
Who is given this option of choosing which obligation will be
paid first?
The debtor
Art. 1252. He who has various debts of the same kind in favor of
one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made
by the party
arty for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.
xxxx
How can the creditor exercise this option of applying
payments?
By designating the obligation which the payment is
applied in the
he receipts. And if the debtor simply
44 | P a g e
accepts the receipt of the creditor where he made
application of payment, then he is already estopped
Art. 1252. x x x x
If the debtor accepts from the creditor a receipt in which an
application of the payment is made,
ma the former cannot complain
of the same, unless there is a cause for invalidating the contract.
Art. 1253. If the debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
Art. 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other
circumstances, the debt which is most onerous to the debtor, among those
due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately.
Tender of payment and Consignation
What is Tender of payment?
Declaration of intention by the debtor manifesting
his firm decision to pay immediately the obligation
Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
sum due.
It is not correct to say that it is simply an offer to pay, it must
be coupled with the readiness to perform the obligation
Why is tender of payment important?
When validly made, a tender of payment that is
refused by the creditor without justifiable reason will
put the creditor in mora accipiendi. So in a sense,
thiss is a counterpart on the debtor. If the creditor
has demand on his side, then the debtor has tender
on his part
When is tender validly made?
It must pertain to an obligation that is already due
It must be paid by the debtor or any other person
who can compel
mpel payment on the part of the creditor
The payment offered must comply with all the
characteristics of payment, meaning to say, it cannot
be partial, it must be complete. And if it is for sum of
money, it must be payment in legal tender
Requisites of tender
nder of payment:
The tender must be made to the creditor, and not to
third person, although the latter is interested in the
obligation
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
The tender must be of the very thing due or if the
obligation is monetary, it must be made in legal
tender
The tender mustt be of the whole amount due
including interest
The tender must be made at the time the obligation
is due
The tender must be unconditional
Aside from triggering delay on the part of the creditor, tender
can also paved the way for consignation which in turn, tur if
found by the court to have been properly made may result in
the extinguishment of the obligation.
There are instances where we do not make a tender of
payment prior to making consignation, what are these
instances:
Art. 1256. x x x x
Consignation alone shall produce the same effect in the following
cases:
(1) When the creditor is absent or unknown, or does not
appear at the place of payment;
(2) When he is incapacitated to receive the payment at
the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to
collect;
(5) When the title of the obligation has been lost.
Why is it better to consign instead of tendering to an
incapacitated creditor? Why would allow the debtor to effect
consignation right
ight away instead of making a tender of
payment to an incapacitated creditor?
Because making a tender of payment to an
incapacitated creditor will not necessarily result in
the extinguishment the obligation should he
received the payment. The law makes a
qualification.
ualification. The obligation will only be extinguished
to the extent that there has been benefit to the
incapacitated payee or should he retain the thing
that has been delivered
Art. 1241. Payment to a person who is incapacitated to administer
his propertyy shall be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial to him.
xxxx
in that instance that if there are 2 or more persons taking the
same claim, the action for consignation should be coupled
with an action for?
Interpleader
When the debtor consigns, it presupposes that he know who
the creditor is, but in the case that there are 2 or more
people are fighting over the same thing, the debtor is not
45 | P a g e
certain who is entitled. To be safe, file an action for
interpleader
leader and at the same time consign the thing with the
court
Requisites for a valid consignation
A debt must be due
Tender of payment and unjustified refusal to accept
by the creditor
Notice of consignation to all the parties interested
Filing of the complaint against creditor coupled with
judicial deposit of the thing due with proof of tender
and notice
Notice after consignation to all the parties interested
Process of consignation
There must be tender of payment unless it is
exempted
There must be notice of the intention to consign to
the creditor. The notice must already indicate where
the debtor intends to make the consignation (first
notice)
Filing of the complaint against creditor coupled with
judicial deposit of the thing due with proof of tender
tend
and notice
Notice to the creditor (second notice)
Notice to all person interested
There will be proceeding, the debtor must establish
that consignation is proper:
o The obligation is existing
o The obligation is due
o The debtor made a tender
o The tender was rrefused without justified
reason
After presentation of evidence of the debtor and
creditor, the debtor may call upon the court to make
a declaration regarding the validity of the
consignation
What is the purpose of the first notice?
To give the creditor an opportunity to reconsider his
unjustified refusal for him to accept the payment in
order to avoid litigation because should the
consignation become properly made, then the
expenses incurred by the debtor in making the
consignation would be for the account of the
creditor
What is the purpose of the second notice?
To give the creditor the opportunity to protest the
consignation. He may question the validity of the
consignation.
Prior to the judicial declaration of the validity of the
consignation or prior to the creditor accepting the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
consignation, the debtor may still change his mind and take
back the thing that he has consigned and allow the obligation
to subsist
Art. 1260. Once the consignation has been duly made, the debtor
may ask the judge to order the
e cancellation of the obligation.
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly made,
the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
Art. 1261. If, the consignation having been made, the creditor
should authorize the debtor to withdraw the same, he shall lose
every preference which he may have over the thing. The co- co
debtors, guarantors and sureties shall be released.
If the court finds that the consignation was properly made,
then it will have the effect of?
Extinguishing the obligation
Do not think that obligation will be extinguished the moment
the debtor filed a complaint in court. There must be a finding
on the part of the
he court that the debtor has properly made a
consignation
LOSS OF THE THING DUE
A thing is considered loss,, when it perishes, it goes out of
commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered
Art. 1262. An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous
f events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk.
Requisites
The thing must be determinate
The debtor must not be at fault
The debtor is not in default
The loss occurs after the perfection of the obligation
General Rule: loss of the thing if all requisites concur will
extinguish the obligation and will relieve the debtor from
liability
Exceptions:
When the law expressly so provides
When the parties expressly so stipulate
When the nature of the obligation requires
assumption of risk
When the debtor is guilty of concurrent negligence
When the debtor is in mora
46 | P a g e
When the debtor has promised to deliver the same
thing to two or more different parties
Where the obligation to deliver a determinate object
arises from a criminal act, unless the creditor
unjustly refuses
In obligations to deliver generic things
Art. 1263. In an obligation to deliver a generi
generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
Exception from Art 1263: in case the generic object
is to be taken from a specific mass or source
Art. 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor.
Loss, in obligations to do, translate to impossibility of
performance
If the Impossibility of performance occurs at the time of the
constitution of the obligation, it prevents the birth of the
obligation since there would be missing the object of the
same
If the impossibility of performance occurs at the time of
execution or performance, then it will
w either extinguish the
obligation or not depending on whether the same is
imputable to the debtor or not
There is a presumption in the law when it comes to loss of the
thing due while in the possession of the debtor. What is that
presumption?
If the thing
ing is lost, it was due to the fault of the
debtor. The presumption is rebuttable
Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary, and without
wi prejudice to the
provisions of article 1165. This presumption does not apply in
case of earthquake, flood, storm, or other natural calamity.
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the part
parties, the obligor may also be released
therefrom, in whole or in part.
Art 1267 suppose to be an application of the doctrine of
rebus sic stantibus
What does it mean?
When the parties entered into a contract they are
presumed to have taken into consideration
considerat the
circumstances prevailing at the time so that in case
later on the circumstances so materially change,
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
making it difficult, but not impossible for the debtor
to perform, the debtor may rescind the same
Art 1267 speaks of difficulty only, not impossibility.
imposs What is
involved in art 1267 is that there is a change of circumstances
of the parties as to make the service difficult in such a way
that is manifestly beyond what was earlier contemplated by
the parties. This is an embodiment of the doctrine of
unforeseen events, on the theory that, when a debtor enters
into transaction, he entered into a transaction based on the
prevailing circumstances. So that if the circumstances
drastically changed as to make it so difficult as to manifestly
beyond what was earlier contemplated, then the obligation
should be considered extinguished and the debtor is freed
from the obligation either in full or in part
This is an extreme exceptional circumstance, we are not to
apply art 1267 liberally. Applying liberally would impair the
security of contracts
Art. 1268. When the debt of a thing certain and determinate proceeds from
a criminal offense, the debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless the thing having been
offered by him to the person who should receive it, the latter refused
without justification to accept it.
Art. 1269. The obligation having been extinguished by the loss of the thing,
the creditor shall have all the rights of action which the debtor may have
against third persons by reason of the loss.
CONDONATION OR REMISSION
SION OF THE DEBT
Condonation - an act of liberality whereby the creditor
waives the enforcement of the obligation contracted in his
favor
Art. 1270. Condonation or remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly
or impliedly.
One and the other kind shall be subject to the rules which govern
inofficious donations. Express condonation shall, furfurthermore,
comply with the forms of donation.
Is this similar to donation?
Yes, it is essentially donation, but a donation of
credit
It is subject to the same rules of inofficious donations. And if
we make an express donation, it is required that it must
follow the form for donations
Requisites:
Capacities of the parties, that is, creditor and debtor
must have the capacity to make and accept
donations
Consent of the parties since remission is an
agreement and requires acceptance by the obligors
47 | P a g e
ance of the remission of the debt all
The acceptance
kinds of debts may be condoned whether pure or
conditional or with a term
The remission must be gratuitous
In case of express remission, the formalities required
by law for ordinary donation must be complied with
Art. 1271. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the
action which the former had against the latter.
If in order to nullify this waiver it should be claimed to b
be inofficious, the
debtor and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of the debt.
Art. 1272. Whenever the private document in which the debt appears is
found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved.
Art. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force.
Art. 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who owns the thing.
CONFUSION OR MERGER OF RIGHTS
RIGHT
What is confusion or Merger?
Meeting in one person of the qualities of creditor
and debtor of the same obligation
Art. 1275. The obligation is extinguished from the time the
characters of creditor and debtor are merged in the same person.
Requisites:
It must take place between the creditor and the
principal debtor
It must be complete and definite
How many obligations are involved in confusion?
One obligation. only this time the creditor and
debtor are the same person
Does it always start of the there is only one obligation?
No
How can we have confusion or merger? Example:
Mr. Gotohio issued a promissory note to Mr. Flores.
Mr. Flores to Mr. de Chavez. Mr. de
Chavez to Ms. Pascua. Ms. Pascua to Ms. Taganas,
then Ms. Taganas issued the same promissory note
to Mr. Gotohio.. And now Mr. Gotohio is the holder
of the promissory note which he also issued. On that
strength, he is now the debtor and the creditor
under the promissory
missory note, so the obligation should
be considered extinguished
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
If the obligation has accessory obligation and the principal
obligation is extinguished by virtue of confusion of merger,
what happens to the accessory obligation?
It will be extinguished because the accessory cannot
exist without the principal obligation
Art. 1276. Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. Confusion which takes
place in the person of any of the latter does not extinguish the
obligation.
If the obligation is secured by Guaranty and the obligation is
extinguished by remission, the guarantor would be benefitted
because he would have to be released
But supposing that the confusion does not take
ta place in the
person of the creditor and debtor, but it takes place in the
person of the guarantor, what would be the effect of his
acquisition of credit on the principal obligation and on the
contract of guaranty?
There is no confusion affecting the principal
pri
obligation
What we have is Assignment of credit, such that the
guarantor is now replacing the creditor
Given that the guarantor becomes the creditor, what happens
in the contract of guaranty?
Extinguished. The creditor cannot be his own
guarantor. It will be absurb. The idea of guaranty is
that it requires that it should be given by a person
other than the debtor mostly other than the creditor
Can confusion be revoked?
Yes because it takes place by agreement of the
parties. It does not always take place by operation of
law
Art. 1277. Confusion does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in whom the two
characters concur.
Confusion on joint obligation will not extinguish the
obligation,, only the part of the debtor whose personality of
creditor and debtor merged.
If the obligation is solidary, the confusion will extinguished
the entire obligation however, the solidary debtors will have
to reimburse the person to whom confusion happened
48 | P a g e
COMPENSATION
How confusion or merger different from compensation?
Compensation involves 2 obligations
Compensation the extinction in the concurrent amounts of
the obligations of those persons who are mutually debtors
and creditors of each other
Art. 1278. Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other.
Example: A obligated himself to deliver 5k to B. B obligated
himself to deliver 10k to A. there is compensation up to the
concurrent amount
Different kinds of compensation:
compensation
Legal Compensation it takes place by operation of
law
Conventional when the parties agree to the
compensation of the mutual obligations even though
all the requisites required by law for compensation
are not present
Judicial when compensation is decreed by the
court when there is a counterclaim or set off
interposed by a party
Facultative when the compensation can be
claimed by the party who can oppose it and who is
the only party prejudiced by the compensation
Judicial Compensation happens when there is a counterclaim
filed by the plaintiff. At the end of the trial,
trial while the court
may find for the plaintiff that he is entitled to recover
something from the defendant, the court might as well find
that the defendant is entitled to some of his counterclaim.
Instead of asking the plaintiff to pay so much to the
defendant,
nt, the defendant being also allowed to recover so
much from the plaintiff, the court may, by virtue of judicial
compensation, deduct the amounts due to the defendant
from the amount he has to pay to the plaintiff.
In conventional compensation, why would the parties have to
come into agreement?
Conventional compensation may be relevant if
anyone of the requisites for legal compensation may
not be present. To correct the absence of such
requisites, we may have the parties agreeing to
effect a conventional compensation.
Facultative compensation is a specie of conventional
compensation
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Why is it a specie?
Because it is also by agreement of the parties only
this time that we recognize that the option to call
the compensation applies to only one party.
Which party is this?
The party entitled to resist the compensation
It may happen that one obligation is already due and
demandable while the other is still subject to a period. But
the period is for the benefit of the debtor. If that person so
chooses, he can simply waive the period to make way for the
compensation to take place.
What are the requisites for legal compensation?
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
th
On the 5 requisites, there must be no writ of garnishment or
levy that has been
een issued against anyone of the parties which
will prevent them from effecting payment
Once all of these requisites concur, compensation will take
place as a matter of law. The parties need not even be aware
that a compensation has taken place. If they only
o become
aware of it after the compensation has taken place, then
either one of them can invoked it and the same will be
recognized as having occurred as of the time the requisites
concurred.
Art. 1280. Notwithstanding the provisions of the preceding ararticle, the
guarantor may set up compensation as regards what the creditor may owe
the principal debtor.
Art. 1281. Compensation may be total or partial. When the two debts are of
the same amount, there is a total compensation.
Art. 1282. The parties mayy agree upon the compensation of debts which are
not yet due.
Art. 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to
said damages and the amount thereof.
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided.
49 | P a g e
What can happen if there is any assignment of credit that has
been made? How will this affect the capacity of either one of
the parties to invoke compensation?
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain to
him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right
to the compensation.
If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subse
subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the assignment.
Illustration:
A to B - - - (E)
B to A
The thing with assignment is that unlike subrogation,
assignment does not require the consent of the
debtor. So B can assign his credit as against A to E
without need of getting As consent. In lieu of
consent, only notice has to be given by B to A.
The purpose of the notice is not to make the
assignment valid but to bind A
We said that compensation takes place by operation
of law. The turning point here is the giving of notice.
Because once notice is given or once knowledge of
the assignment is made, that will be the cut off
point, beyond which no compensation may be
invoked.
If B made an assignment to E, after both obligation
became due. If both obligations became due, there
is legal compensation. Since there is no notice of
assignment was made to A, then A can still st invoked
the compensation that has taken place because he
still has every right to treat the credit still belonging
to B. but once notice is given to him, he is already
bound by the assignment and he can no longer treat
the credit as belonging to B but already belonging to
E.
The important thing to look out is when notice is
given and the notice in relation to when the
compensation takes place.
If the compensation takes place ahead of notice, A
can invoked compensation after learning of the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
assignment because the compensation preceded the
assignment.
If there is no notice given, we abide by the same
rule. Once there is knowledge of the assignment, he
can no longer invoked any compensation that may
take place after the knowledge of the assignment
As we have said, there is no need to get the consent
of the debtor, but if the creditor gets the consent,
the debtor should grab the opportunity to make
reservation with regard to his right to invoke
compensation. Why is it important to preserve the
right to compensation?
Because compensation is a sure thing in
terms of payment. If the debtor will let go
of the compensation, he has to wait for
payment which there is no certainty
Art. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up
against the assignee the compensation which would pertain to
him against the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he reserved his right
to the compensation.
If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subse
subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the assignment.
Art. 1286. Compensation takes place by operation of law,
l even though the
debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
Art. 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301.
Art. 1288. Neither shall there be compensation if one of the debts consists in
civil liability arising from a penal offense.
Art. 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation.
Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts
to the concurrent amount, even though the creditors and debtors
deb are not
aware of the compensation.
50 | P a g e
NOVATION
What is novation?
The substitution or alteration of an obligation by a
subsequent one that cancels or modifies the
preceding one
It is a juridical act with a dual function of
extinguishing an old obligation and the creation of a
new obligation that will replace the old obligation
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the
t person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
Novation is a peculiar means of extinguishing an obligation.
why is it peculiar?
Because, we extinguish an old obligation by creating
a new one
The purpose of novation is extinguishment. However, the
wording in our law does not appear to limit the effects of
novation to extinguishment. If we pay attention to the
wording of Art 1291, the law says obligations may be
modified. This itself is an acknowledgment that we can have
ha
a novation although the purpose is not really to
extinguishment but mere modification.
Kinds of novation
Real or objective where there is a change in the
obligation itself as to its cause, object or principal
conditions
Personal or subjective where the change is in the
parties
Mixed where there is a change of both the object
and the parties in the obligation
Personal or subjective, there is a change in the person of
either the creditor or debtor
If there is a change in the person of the creditor, we
call it subrogation
If there is a change in the person of the debtor, it is
either expromision or delegacion
Requisites
An old valid obligation
A new valid obligation
A substantial difference between the old and new
obligation
Capacity of the parties
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Animus novandi
The first requisite is that there must be a prior obligation
which must not be invalid. It may be voidable, rescissible,
natural obligation, what we cannot have is an invalid or void
obligation as a subject of novation, why not?
If there iss no valid prior obligation then there is
nothing to extinguish or more specifically to novate
because an old obligation is an inexistent obligation
Example: if the old obligation is for a delivery of cocaine and
the parties novate this obligation for the payment of 1M.
there is no novation that has taken place. The creditor cannot
demand for the payment of 1M because that obligation never
came to existence because
cause the first obligation was void in the
first place.
if the law requires that the old obligation be valid, how do we
explain the tenor of Art 1298 which seems to imply that you
can actually have an old obligation that is void so long as it
falls under the 2 exceptions provided in Art 1298?
Art 1298 speaks about an obligation which is
voidable, not void. And a voidable obligation is a
valid obligation. it is valid until it is annulled.
Art. 1298. The novation is void if the original obligation was void,
void
except when annulment may be claimed only by the debtor or
when ratification validates acts which are voidable.
Until when can you ask for the novation of a voidable old
obligation?
Before it is annulled, because once it is annulled, it is
set aside and no obligation that can be the subject of
novation
When do we apply the exceptions provided for in Art 1298?
The law had to provide for these exceptions because
we have a voidable obligation and there is a period
to ask for an annulment. Basically, its 4 years.
Within that 4 year period, a lot of things can happen.
If we ask for novation, what will be our assurance
that there would be no annulment that will take
place after we ask for novation. So we have place
some kind of cut-off period.
od. Some kind of assurance
as
that the obligation will no longer be allowed and
therefore there will be no cloud of doubt that we
____ to cast on the novation that we have effected.
And this will take place if the obligation has been
ratified because the effect of ratification on a
voidable obligation is that it cleanses the obligation
from all of its defect. Ratification is a bar to
annulment.
51 | P a g e
Another instance in 1298 is if the ground for
annulment is one which can only be invoked by the
debtor and the novation is effected with
wit the consent
of the debtor. So by consenting, he is in effect
ratifying the voidable obligation. Which again clears
the way for a valid novation of the obligation
So the exceptions are:
when annulment may be claimed only by the debtor
when ratification validates acts which are voidable
It is also required that the second obligation be valid. It should
not be void. What happens if the new obligation is void? Do
we have a novation?
There will be no novation and the old obligation will
subsist unless the parties intended that the former
relation should be extinguished in any event.
Art. 1297. If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation
should be extinguished in any event.
How do we determine
etermine if there is animus novandi or intention
to novate?
Express or implied
Express when the parties so state in the new
obligation
Implied it can be implkied from the fact that the
old and new obligations are on every point
incompatible with each other
Art. 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Still on the relationship between the old obligation and new
obligation, is it a requirement that the new obligation take on
the same nature as the old obligation?
So if the old obligation was pure and we want to novate it,
are we required to make the new obligation will be pure as
well?
No requirement. However the law specifies if the
original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be
under the same condition, unless
un it is otherwise
stipulated
Art. 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.
The law says that the new obligation does not have to take
the nature or character of the old obligation. So it is possible
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
that we have an old obligation that is pure and the new
obligation will be subject to a condition or period.
However, if our old obligation is once subject to a condition
and the new obligation is the same obligation, only this time,
without a condition, we do not have novation. If the only
difference between the old and the new obligation is the
suppression of the condition, then we do not have a
novation, we simply have a modification.
The parties can do that (suppress
ess the condition). Agreements
are subject to amendments or modification. However, there
is one instance where the law goes out of its way to
specifically require that the new obligation should be subject
to the same condition. And this is when the old obl obligation is
subject to a suspensive condition. The law says that the new
obligation should be subject to the same condition. And this
rule is made to apply not just in the case of an obligation
subject to a suspensive condition but also to one subject to a
resolutory condition. If we are going to novate this then, the
law says, that the new obligation must be subject to a
resolutory condition as well.
Why does the law make such requirement?
Novation is premised on the efficacy of the prior
obligation. That is why, it is one of the requirement
that we must have a prior valid obligation.
otherwise, logic tells us that there is nothing to
extinguish by novation.
If our prior obligation is subject to a suspensive
condition,, we all know that the obligation doe
does not
exist until the condition is fulfilled. And if we will
have a new obligation that is not subject to the same
condition, it may happen that we already have the
new obligation but our prior obligation has not been
come to life so to speak, pending the fulfillment of
the condition.
Does it make it invalid or wrong if we subject them to
different condition?
No, do not be mislead into thinking that novation
will be become impossible or the novation in this
case will be invalid. But it will be inconvenien
inconvenient.
It is much more convenient if we subject them to the
same condition because the moment the condition
is fulfilled, that is the same moment that our prior
obligation will come to life. Simultaneous to its birth,
will also be its extinguishment because of th the
concurrent work of the new obligation.
Instantaneous, the prior obligation will be created
upon the happening of the condition and at the
same time it will be extinguished. No need for us to
52 | P a g e
reckon the period or the term when the prior
obligation existed.
existed No need for us to account to any
intervening gaps of time between the creation of the
prior obligation and its extinguishment.
Same principle if the prior obligation is subject to a
resolutory condition. If it is resolutory in character
that means it will
wi only exist to a certain period of
time, then it may be extinguished in some point by
the fulfillment of the resolutory condition. And if
that happens, we no longer have any obligation. It
has been extinguished.
Again for convenience, it is easier for us
u to reckon
the effects of the novation
nova if we subject it to the
same condition.
As we know, life is not simple. We may encounter clients who
do not want things to be done simply. They may insist on
different conditions. Is that invalid? No. Does that prevent
novation? No, because the law itself provides for a
qualification unless the parties stipulate otherwise. So the
parties are allowed to stipulate otherwise.
Example: the first condition is passing the bar exams. The
new obligation made subject to a different condition: birds
falling down from the sky. For those who are scenical, the
probability of birds falling down from the sky will be greater
than the probability of passing the bar. What do we do now?
How will we determine when novation takes place?
plac
We look into the conditions, are they incompatible?
No. there is no incompatibility between passing the
bar and having the birds falling down from the sky.
What this implies is that, we need both conditions to
be fulfilled before we can say that novation
novat has been
effected. We have to wait. That is the down side
because passing the bar is to take place next year.
But when there will be another instance of birds
falling down the sky? Another 10, 20 years? So in the
meantime, we have this period of time, where the
obligation is in limbo,
limbo because we are awaiting for
the effectivity or for the birth of the new obligation
that will extinguish the prior obligation.
If the conditions are not just different but downright
incompatible: lets say the first condition is passing the bar.
The new obligations condition is failing the bar. Obviously,
these are incompatible. In this case, authorities believed that
it becomes very clear that there is an intention to suppress
the prior obligation. Such that we will only wait for the
fulfillment of the condition attaching the second obligation.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Recap:
For convenience, it is better that both obligations
(prior & new) are subject with the same condition.
If we want to complicate our lives, we can have
different conditions.
onditions. It is inconvenient, but the same
is legally possible. But in this instance we need to
look at the incompatibility of the conditions.
o If both conditions are compatible (they can
stand together), then the requirement is
that both must be fulfilled
o If the conditions are incompatible, then we
take that as a clear intention to suppress
the prior obligation and we just have to
await for the fulfillment of the condition
attaching to the new obligation
Kinds of novation
Real or objective where there is a change in the
obligation itself as to its cause, object or principal
conditions
Personal or subjective where the change is in the
parties
Mixed where there is a change of both the object
and the parties in the obligation
Personal or subjective novation
It may either be passive or active
o Passive for the debtor
o Active for the creditor
Passive, in turn, may classified into:
Expromision
Delegacion
Expromision: when a third person, distinct from the creditor
and debtor spontaneously assumes the obligation of the
debtor, relieving him of the same, with the creditor accepting
the change without any intervention on the part of the
original debtor.
the act of the thirdird person in volunteering to
substitute for the debtor may either be with or
without the consent or approval of the debtor.
Delegacion: which takes place when the old debtor presents
a third person who will assume the obligation, relieving the
debtor of the same, and with the change being accepted by
the creditor.
In delegacion, this is obviously with the consent and
with the knowledge of the debtor because after all
53 | P a g e
he is the one who presents the third person to the
creditor as his substitute.
Is it significant that the substitution of the debtor is thru
expromision or delegacion?
Yes. It becomes significant insofar as the rights of the
rd
3 person are concerned. Depending on whether or
not, it is with the consent or without the consent of
the debtor
This comes back to the rule on payment made by a
third person. If the third person pays and the
payment is accepted by the creditor, then his right
against the debtor will all depend on whether
w or not
there was consent on the part of the debtor
regarding the payment that he made.
If there was consent, then he is not just
entitled to a reimbursement of what he has
paid but he is further entitled to be
subrogated to the rights of the creditor
credito
If it is without the consent, then only right is
to be reimbursed not for what has been
paid but only to the extent that his payment
may have benefited the debtor.
Do not make the mistake of equating expromision with lack
of consent on the part of the debtor.
d It is possible that there
is tacit consent or approval even in expromision.
Another significance of the mode of substitution of the debtor
would be on the point of liability of the insolvency of the new
debtor
Art. 1294. If the substitution is without
with the knowledge or against
the will of the debtor, the new debtor's insolvency or non- non
fulfillment of the obligations shall not give rise to any liability on
the part of the original debtor.
Art. 1295. The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor,
shall not revive the action of the latter against the original obligor,
except when said insolvency was already existing and of public
knowledge, or known to the debtor, when the delegated his debt.
If we would read Art 1294 and 1295, we will get the
impression that art 1294 pertains to all instances of
expromision just because Art 1295 appears to be
pertaining to delegacion.
The problem with Art 1294 is that it equates
expromision, appararently, with all instances
whether its tacit approval or consent on the part of
the debtor, which we said earlier that it is not always
the case.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
There would be no problem, except if we would
imply Art 1295 thatt the debtor actually volunteers a
rd
third person has less liability for that 3 persons
insolvency.. Compare to a debtor who did not
volunteer the third person but may have merely
tacitly given his approval to the assumption by the
third person of his indebtedness.
btedness. Why do we say
this?
Because in Art 1295, the law says that there
would be no revival of the obligation of the
original debtor in case of the insolvency of
the new debtor except if when said
insolvency was already existing and of
public knowledge, or known to the debtor,
when the delegated his debt.
General Rule: no liability anymore
Exceptions:
when said insolvency was already
existing
ing and of public knowledge,
when said insolvency was known
to the debtor, when the delegated
his debt.
Compare this to Art 1294, it says that if it is
by expromision, then the old debtor will be
liable for his own obligation. but what did
the old debtor do in expromision? He was
not the one who chose the new debtor.
Why should he be more liable as compared
to the debtor who volunteered, who had
presented the new debtor to the creditor?
The better interpretation here
according to prominent authorities
would be: to exempt an old debtor
for any liability in case of non-
non
payment by the new debtor in all
cases of expromision
sion regardless of
whether or not he gave his tacit
approval to the substitution. Basta
in Expromission, the old debtor will
not be liable at all for the
insolvency of the new debtor
Active Substitution this is on the part of the creditor and
this is known as?
Subrogation
Subrogation can either be?
Legal
Conventional
Art. 1300. Subrogation of a third person in the rights of the creditor is
either legal or conventional. The former is not presumed, except in
54 | P a g e
cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect.
Legal subrogation cannot be presumed but in Art 1302, we
are given exceptions to this rule. Art 1302 enumerates the
instances legal subrogation may be presumed to exist.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor cred who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a
person interested in the fulfillment
fulfillme of the obligation
pays, without prejudice to the effects of confusion as
to the latter's share.
Conventional subrogation is by agreement of the parties
Art. 1301. Conventional subrogation of a third person requires the
consent of the original parties and
a of the third person.
Subrogation is very similar to assignment of credit. It has the
same effect which is the substitution of a third for the old
creditor. So where do we draw the line? When is a
substitution a mere assignment and when is it an actual
subrogation?
Subrogation is much more complicated to carry out.
After all, it brings about the extinguishment,
supposedly, of an old obligation and then the
creation of a new obligation.
Subrogation: it requires the consent of all the
rd
parties (3 person,
person creditor, and debtor)
Assignment: we do not need the consent of the
debtor but the debtor must be given a notice. The
assignment takes effect only upon notification. But
consent is not required for the validity of the
assignment. The notice to him is only onl for the
purpose of giving effect to the assignment.
Subrogation: Subrogation would cleanse the old
obligation of whatever defects it may have because
it is extinguished and replaced by a new obligation
Assignment: in assignment, it does not have that
effect
fect (as provided above) because essentially we
are just transferring the same bundle of rights and
rd
obligations under the contract to a 3 person. So the
rd
3 person takes it as is. Same defenses, vices, all
these will still be present. And any vices or defects
may still be invoked against the creditor by the
debtor.
Real or Objective Novation:
This change in the principal condition of the object of the
obligation
gation is more relevant if our novation is implied
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
For lawyers, they will just make the novation expressly. The
problem would be when there is no such express stipulation.
When we need to infer from the circumstances that there
was an intention to novate. That why in this case, we need to
look at the changes in the principal condition of the contract.
The only thing we need to know is that the essence of the
contract must change so that the new contract should be
essentially incompatible with the old contract.
act. That should be
our standard.
Example:
In a construction of a house, this will take months before it is
completed. In the course of the construction, the owner will
come up with ideas that will be deviating from the original
design. At first, the owner wants one car garage. After 2
months, the owner wants a 2 car garage. At first, the owner
does not want a balcony. After several months, he wants a
balcony. Would this changes amount to the extinguishment of
the original contract? such that the contractor can now
charge the owner, no longer based on the original agreement
but on quantum meruit, which would be higher than what
was agreed upon. Will the contractor be justified?
In a decided case, the SC said no because
essentially, it is the same contract. In making those
additions and deletions, the owner is simply
modifying/amending the contract.
Is the owner entitled to do that (amend/modify)?
Yes,
But in introducing those modifications, did the owner intend
to extinguish the original contract?
No. so it goes to the intention as reflected by the
circumstances. If we could still recognized our
contract (the one originally agreed upon), then there
is no novation that is effected.
In obligation involving sums of money, the SC said that in
obligations involving sums of money, any extension of thet
period or any restructuring of the loan or any change in the
rate of interest, does not amount to a novation.
In one case, there was a loan that was secured by a chattel
mortgaged. The bank and the company entered into a
subsequent agreement, where the company provided for an
additional security, a real estate mortgage. The bank tried to
foreclose the chattel mortgage.
gage. The company objected saying
that obligation has been extinguished because of the
execution of the real estate mortgage.
The SC said no, there is no incompatibility between
having a chattel mortgage to secure the obligation
and at the same time havingg an additional real
estate mortgage to secure the same obligation.
What we have is simply an additional security.
55 | P a g e
If we have a judgment of credit that has been affirmed by the
court and instead of asking for a writ of execution, the
creditor entered into
o an agreement with the debtor, where
the debtor acknowledged the indebtedness and provides for
a mortgage to secure the same, the creditor will not be
stopped from asking for that writ of execution because that
old obligation (judgment credit) has not been
bee extinguished by
novation. There is only an added security
Such principle also applies to novation through substitution
of debtors. If we get another debtor but we did not free the
old debtor, then that means no novation that is effected. For
novation to take place, the substitution of the old debtor, the
old debtor must be freed from liability by the creditor. So, it
all boils down to intention. In the absence of express
stipulation, we need to look at the circumstances surrounding
the obligations
What willill be our standard?
There should be incompatibility between the old and
the new obligation. they must not be able to stand
up together.
CONTRACTS
What is a contract?
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.
The definition in the law has been criticized for being
limited in its focus.
focus It emphasizes the role of the
obligor and not much in the role of the obligee. The
definition also limits to only one kind of contract -
consensual
A juridical convention manifested in legal form, by
virtue of which one or more persons bind
themselves in favor of another, or others, or
reciprocally to the fulfillment of a prestation to give,
to do, or not to do. (Sanchez Roman)
What are the characteristics of contracts?
Autonomy of the will of the parties
Obligatory force
Mutuality of contracts
Relativity of contracts
Autonomy
my if the will of the parties
Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order, or public policy.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Examplele of stipulation contrary to morals, good customs,
public order or public policy:
Same gender marriages in abroad. These are
ordinary contracts recognized in the place where the
same entered into. But lets us say that 2 foreigners
are parties to the samee gender marriage came to the
Philippines, and they would want to be recognized in
the Philippines as spouses based on the marriage
contract that they have entered into. What can be
our argument against recognizing their marriage in
our country?
There is no law that expressly prohibits
marriage between persons of the same
gender. But we can argue that there is a
public policy embodied in our law on
marriage which speaks against same gender
marriages
How is this public policy expressed?
We dont find it the our law that the provision will
say it outright it is a public policy of this country.
Where can we find such public policy?
We find these public policies mostly in the definition
provided in the law
Art. 1. Marriage is a special contract of permanent union between
a man and a woman entered into in accordance with law for the
establishment of conjugal and family life. It is the foundation of
the family and an inviolable social institution whose nature,
consequences, and incidents are governed by law and not subject
to stipulation, except that marriage settlements may fix the
property relations during the marriage within the limits provided
by this Code. (Family Code)
There we can see our public policy
Obligatory Force the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature may be
in keeping with good faith, usage and law
Art. 1315. Contracts are perfected by mere consent,
consent and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and law.
This is usually expressed with
ith a statement that the
contracts constitutes the law between the parties.
They are bound on what they have stipulated and
they cannot renege on what they have agreed to
simply because they have changed their minds
Mutuality of Contracts
Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
56 | P a g e
If a contract is entered into by the parties whereby one of
them is given the power to terminate the contract by simply
giving notice to the other contracting party, would this be
violative of the characteristic of mutality of contracts?
No, for 2 reasons:
It has been defined that mutuality of
contracts will be limited only to matters
pertaining to creation as well as the
performance of the obligation under the
contract
By having agreed to let the other party have
the power to terminate the contract
presupposes that there is already mutuality.
Kaya lng nmn tyo nagkaroon
nagkaro ng ganun
stipulation because the parties came to an
agreement. So that in i enforcing that
stipulation allowing one of the party to
terminate the contract is giving effect to
what has been agreed upon.
Relate the rule on mutuality to the potestative condition. How
potestative condition be violative of the rule on mutuality of
contracts?
Potestative condition is dependent upon the will of
one of the parties. If the condition is purely
potestative and suspensive, it is void because the
determination of the effectivity is on the debtor who
is less interested in the fulfillment of the obligation
Would there be exceptions to this characteristic of mutuality
of contracts?
rd
Yes. The law recognizes that a 3 person may be
given a power to determine the performance of the
contract. It is likewise provided that such
determination will not
no be given effect in case it is
inequitable or unjust
Art. 1309. The determination of the performance may be left to a
third person, whose decision shall not be binding until it has been
made known to both contracting parties.
Art. 1310. The determinatio
determination shall not be obligatory if it is
evidently inequitable. In such case, the courts shall decide what is
equitable under the circumstances.
Relativity of Contracts
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, x x x x
xxxx
The law itself provides for an exception or for those instances
when the contract will only bind the parties and not bind their
heirs or assigns, when will this happen?
Art. 1311. x x x x except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

by stipulation or by provision of law. The heir is not liable beyond When we say that the acceptance must be communicated,
the value of the property he received from the decedent.
how should be the acceptance
eptance be made?
xxxx It can be express or implied

These exceptions pertain to the exclusion of heirs

and assigns from being bound by the contract. When
these exceptions apply then only the parties will be
bound by the contract that they entered into.
But relativity of contract, as a concept, meansmean that the
parties, their heirs and assigns are bound by the contract.
So when we speak of exceptions to the principle of relativity
of contracts, we do not refer to those instances involving
intransmissible rights.
What are the exceptions to the principle of relativity of
contracts?
Stipulation pour atrui
Contracts creating real rights
Contractual interference
Whenever a contract is entered into to defraud a
creditor or accion pauliana
Stipulation pour atrui
Art. 1311. x x x x
If a contract should
uld contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting partiess must have clearly and deliberately conferred a
favor upon a third person.
Requisites of Stipulation Pour Atrui:
That the contracting parties must have clearly and
deliberately conferred a favor upon the third person
That there should be no compensation for the
stipulation in favor of the third person
That the stipulation in favor of the 3 person should
rd
not be the entire contract but merely a part thereof
That neither of the contracting parties bear the legal
rd
representation or authorization of the 3 person,
that is, there is no agency
That the 3 person communicated his acceptance to
rd
the obligor before its revocation by the original
parties
How can we have an implied acceptance of a favorable
stipulation?
rd
It can be implied from the fact that the 3 party-
beneficiary brings a suit to enforce the right made in
his favor
ur atrui:
Example of Stipulation Pour
Insurance contract. The insured named some else as
his beneficiary. The contract is between the insured
and the insurance company, but the benefit is for a
rd
3 person
Contract creating real rights
Art. 1312. In contracts creating real rights, third
th persons who
come into possession of the object of the contract are bound
thereby, subject to the provisions of the Mortgage Law and the
Land Registration Laws.
Real rights are rights which follow the property affected by
them wherever they go. Any possessor
pos of a property affected
by real rights would also be bound by these real rights even
though they were not parties to the transaction giving to the
real rights
Example: Mortgage. If the property is mortgage and such
property is sold from one person to another,
another the present
possessor cannot complain if the mortgage property is
foreclosed and was deprived of its possession. He cannot
invoke relativity of contracts to defeat the mortgage because
this is an exception. It is an exception because a contract of
mortgage creates real rights
Take note on how the law qualifies the rule by referring to
the applicability of the mortgage law and the land registration
rd
law. To put it simply,
imply, it only means that to bind 3 persons,
we also have to observe the rules pertaining to the torrrens
system. And what is that rule?
rd
3 person can rely on what appears and what does
not appear on the torrens title. So to be bound on a
real right affecting
fecting registered property, the real right
must also be recorded in the title of the property,
rd
otherwise, it does not bind 3 person

There must be a contract between the parties. The contract Contractual interference
rd
must confer a direct benefit in favor of a 3 person. The Art. 1314. Any third person who induces another to violate his
benefit must not be incidental only; it must be a direct contract shall be liable for da
damages to the other contracting
party.
benefit. There must be acceptance that must be
communicated before the stipulation is revoked by the
parties. What are requisites of contractual interference?
The existence of a valid contract
57 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
rd
Knowledge by the 3 person of the existence of the
said contract
rd
Interference by the 3 person in the contractual
relation without legal justification
Example:
Kapuso vs Kapamilya vs Kapatid. Exclusive artist of which
studio. Lets say Sharon Cuneta, she made a switch from
channel 2 to channel 5. Assuming that Sharon Cuneta has a
contract with channel 2, if Channel 5 went out of its way to
induce Sharon Cuneta to disregard her contract with channel
2 and enter into a contract with them, then that will be
contractual interference because channel 5 persuaded this
party (Sharon Cuneta) to the contract to disregard her
existing contract withith the other party. The elements are all
present. The element of knowledge of the other party is
essential because if there is no knowledge then there is no
rd
interference to speak of. The 3 element is what we need to
determine whether it exists that there ere be no legal
justification for the interference.
What will be the motive of channel 5 in pirating Sharon
Cuneta?
To further their business interest
The SC has already ruled that if that is the motivation
for effecting the contractual interference to further
f formalities prescribed by law for its enforceability
the business interest, then the party is guilty of
contractual interference but he may not be liable for
damages because furthering your own interest is
considered as a legally justified reason.
When will there be liability for damages?
If the interferer is motivated by bad faith
Example: Ms. Velasco was the manager of Mr. Ang. Mr. Ang
left Ms. Velasco, he did not renew his contract with Ms.
Velasco. Then Mr. Ang and Ms. Reyes-Vega Vega entered into a
management contract with her. What Ms. Velasco d did is
sinulsulan nya si Ms Reyes-Vega
Vega to drop Mr. Ang as her
talent. Is there a contractual interference?
Yes
Would there be liability for damages?
Yes, because in this case Ms. Velasco is motivated
not by to further her own business interest but to
get back at her former talent Mr. Ang
Mr. Ang Angtv star
Stages in the life of a contract
Preparation, conception or generation the period
from the start of negotiations till the moment just
before the agreement of the parties
58 | P a g e
Perfection or Birth of the contract the precise
moment when the parties come into agreement on
the terms of the contract
Consummation or death the date when the
contract is fully executed, that is, when the terms
agreed upon in the contract are completely fulfilled
or formed
When
hen does the perfection take place?
Basically, there is a meeting of the minds those
contracts are consensual. There is acceptance. There
is a meeting of the offer and acceptance
Art. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage
ge and law.
What are real contracts?
Those which, in addition to the consent, require the
delivery of a thing by one of the parties to the other.
Art. 1316. Real contracts, such as deposit, pledge and
Commodatum, are not perfected until the delivery of the object
of the obligation.
What are Formal Contracts?
Those contracts which must comply with the certain
enforceabili
Example: Contract of Donation of Real Property
Innominate Contracts
No designated name
Elements of a Contract
Essential Elements those without which there can
be no contract
Natural elements those which are part of the
contract without need for the parties to stipulate
upon them
Accidental Elements those elements which the
parties must stipulate upon. If they fail to stipulate
upon them, then will not exist in the contract.
Example: conditions,
tions, periods ..
What are the essential elements of a contract?
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract;
(3) Cause of the obliga
obligation which is established.
What is consent?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
This refers with the meeting of the minds between
the parties. The meeting of offer and acceptance
Art. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
constitute the contract. x x x x
xxxx
We are supposed to be adhering to Cognition Theory when it
comes to consent. What is cognition theory?
y?
Cognition means that the acceptance only becomes
binding upon knowledge of the person who has
made the offer.
So that means, if the acceptance made by a letter,
then the acceptance will not bind the offeror until
the letter reaches him.
What is the significance?
Until he is bound by the acceptance, he can still
withdraw the offer
Art. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made.
Art. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or
promised.
What happens if consent is accepted by with qualification?
Art. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to
constitute the contract. The
he offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed
med to have been entered into in the place
where the offer was made.
It means that the negotiations are still ongoing. Only
when there is absolute and unqualified acceptance
of the offer, then we can say that there is consent
Are there people who cannot give consent to the contracts?
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deafdeaf-mutes who do
not know how to write
59 | P a g e
Would it still be correct to use the term unemancipated
minor?
Not anymore, right now emancipation equals
capacity to act. Being emancipated means that you
already have capacity to act. And being emancipated
means that you are no longer a minor
What will be the effect of the status of the contract if one of
the parties happens
appens to be incapacitated?
voidable
Characteristic of consent
It should be intelligent, that is, the same is not
vitiated by error or mistake
It should be free and voluntary, that is, not vitiated
by violence, intimidation or undue influence
It should be spontaneous, that is, not vitiated by
fraud
It should be real, that is, the consent is not simulated
or given as a joke
It may also happen that there is capacity to act but a vice of
consent affects the contract reducing it to a voidable status.
What are these vices of consent?
Art. 1330. A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is voidable.
What is the difference between reluctant consent and vitiated
consent?
Reluctant consent consent against your better
judgment. But it is still consent nonetheless. It will
still be valid consent.
Vitiated Consent defective consent for lack of
voluntariness. You were not have given your consent
were it not for the vices of consent present
presen
What can be used as Object of the contract?
Any object that is within the commerce of man,
must not be impossible and it must be determinate
as to its kind, if not determinate then at least
determinable
Art. 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights
which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except
in
n cases expressly authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a
contract
Art. 1348. Impossible things or services cannot be the object of
contracts.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1349. The object of every contract must be determinate as to
its kind. The fact that the quantity is not determinate shall not be
an obstacle to the existence of the contract, provided it is possible
to determine the same, without the need of a new contr
between the parties.
Why is it required that the object should be determinate or at
least be determinable?
The heart of every contract whether it is consensual,
real or formal would be the meeting of the minds
between the parties. How can the partie
parties have this
meeting of the minds if the hey have no idea what
the object is? That is why the object is determinate
or at least determinable, meaning to say that it can
be determine without a need for a new contract
Cause or consideration
Would cause be the same as motive?
No
If the party is impelled by an evil or ill-motive,
motive, would that
invalidate the contract?
No, usually, it has no bearing on the validity of the
contract for as long as there is a legitimate
consideration supporting the contract.
Example: Mr. Ang is a real estate agent, he fancies Ms.
Albania. Ms. Albania, in turn, does not fancy Mr. Ang. Mr. Ang
is married. Lets say that Mr. Ang is really determined to
make Ms. Albania fall for him, so what he did is he agreed to
sell a condo unit to o Ms. Albania at a reduced price. The
discount is so big that he is suffering a loss to the transaction.
But he wants to push thru to the transaction because it is a
part of his plan to make Ms. Albania his mistress.
There is no question that the motive is i evil or illicit.
But we cannot deny the fact that what we have here
is a valid contract of sale, that is supported by a
legitimate consideration which is the reduced price
for the condominium unit
Forms of contracts
In what form a contract should be to be valid?
General rule: contracts are valid in any form
Exception: if the law prescribes a specific form either
for validity or enforceability or manner of proof.
In these cases, the proper form must be observed.
And in these cases, the parties cannot aavail of the
rights given in Art 1357 which is the right to compel
the other party to observe the proper form
If the form is required for validity, enforceability or as a
manner of proof, we cannot avail of the right under Art 1357
contract and bring an action to compel
ompel the other party to reduce the
contract in the required form.
Example of a contract that is required to be in writing to be
valid:
Pre nuptial agreement
Art. 1356. Contracts shall be obligatory, in whatever form they
may have been entered into, provided all the essential requisites
for their validity are present. However, when the law requires
that a contract be in some form in order that it may be valid or
enforceable,
ble, or that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such cases, the right
of the parties stated in the following article cannot be exercised.
Art. 1357. If the law requires a document or other special form, as
in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be exercised
simultaneously
imultaneously with the action upon the contract.
Pre nuptial agreements must be in writing, under the family
code to be valid but under the civil code to be enforceable. If
we had husband and wife and who had prior to their
marriage, they had entered to an a agreement whereby they
agreed that they will be governed by separation of property
regime; and they have observed the rules on separation if
property regime throughout their marriage, can the husband,
later on, insist that the wife execute an agreement with
w him
embodying the separation of property regime in writing by
invoking Art 1357?
He cannot because the requirement that it should be
in writing is essential to make the agreement valid.
That right under art 1357 will not be available to the
husband
Iff we have an oral contract of sale involving real property, this
we said, unenforceable. Can we also bring an action to
compel the other party to reduce the agreement into writing?
No, because the form is required to make the
contract enforceable
But if the
he contract of sale already in writing but only in a
private instrument, and we need it to have it in a public
instrument to be able to register it to the registry of deeds,
can we now compel the other party to reduce the contract in
a public instrument under
der art 1357?
Yes, because we have already a valid and
enforceable contract. There is compliance with the
required form. Having it reduce in a public
instrument is only required for convenience, so that
we may be able to register it to the registry of deeds.
deed
The right to Art 1357 would be available
60 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
In addition, Art 1358 also enumerates other contracts which
are required to be in a public instrument, not for validity,
enforceability or even for proof but for simply for
convenience. So the right given under Art 1357 would be
applicable to all these contracts under Art 1358.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable
movable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing
in a public document.
All other contracts where the amount involved exceeds five hundred pesos
must appear in writing, even a private one. But sales of goods, chattels or
things in action are governed by Articles, 1403, No. 2 and 1405.
REFORMATION OF INSTRUMENT
What is reformation of instrument?
A remedy in equity by means of which a written
instrument is made or construed so as to express or
conform to the real intention of the parties when
some error or mistake has been committed
It simply means that we are moving the instrument
or document corrected to reflect the true intention
between the parties.
There are requisites that must be observed, what these
requisites?
There must be a meeting of the minds between the
parties
The instrument does not express the true intention
of the parties
The failure to express the true intention is due to
mistake, fraud, inequitable conduct, accident or
relative simulation
There must be clear and convincing proof
Art. 1359. When, there having been a meeting of the minds of the
parties
ies to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement, by reason of mistake,
fraud, inequitable conduct or accident, one of the parties may ask for
the reformation of the instrument to the end that su
such true intention
may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a
meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
There must be meeting of the minds between the parties
because if the mistake, fraud, inequitable conduct, or
61 | P a g e
accident prevented a meeting of the minds to take place
between the parties, then we have no cause action for
reformation of instrument. Because reformation
r of the
instrument presupposes the existence of an agreement.
There is an agreement but they only failed to reflect what the
agreement is.
When can mistake be a ground for reformation of
instrument? Is it required that the mistake always be mutual?
Supposing that there is mistake, but the mistake is only on the
party of one of the contracting parties?
Reformation is still available even if the mistake is
not mutual for as long as the mistake of one of the
contracting parties is coupled with and a brought
about by fraud on the part of the other party or
inequitable conduct.
conduct It may happen that the
contracting party knows that the other contracting
party is mistaken with regard to the nature of the
agreement. And yet he does not do anything, he
even
n conceals the mistake.
Art. 1361.. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real agreement, said
instrument may be reformed.
Art. 1362. If one party was mistaken and the other acted
fraudulently or inequitably
itably in such a way that the instrument does
not show their true intention, the former may ask for the
reformation of the instrument.
Art. 1363. When one party was mistaken and the other knew or
believed that the instrument did not state their real agree
agreement,
but concealed that fact from the former, the instrument may be
reformed.
What about accident? How do we picture in the accident as a
giving rise to an action for reformation of instrument?
It can be when the instrument is drafter by a third
person, that mechanical act of drafting that was
delegated to the secretary or assistant. And such
secretary was not able to follow instructions
correctly, instead of writing a contract of lease, she
types a contract of sale and then the parties did not
bother to read the contract they signed. So here, we
can see that reformation of instrument was caused
by an accident or due to the negligence or ignorance
of the party who actually drafted the instrument.
Art. 1364. When through the ignorance, lack of skill, negligence
negli or
bad faith on the part of the person drafting the instrument or of
the clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the instrument
be reformed.
What is peculiar is that the law singles
singl out an instance where
the parties instead of executing a contract of loan with right
of mortgage, executed a contract of sale with right of
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
repurchase. And the law declared that herehere, the reformation
would instrument would be proper. Why is reformation of
instrument is proper?
Because essentially, by saying that reformation of
instrument is proper here, the law is recognizing that
this is not the true intention of the parties. It was not
the agreement of the parties to have a contract of
sale with right of repurchase that instead, their true
intention was to have a contract of loan with right of
mortgage.
This practice was so rampant. Usually, the creditor
takes advantage with the debtor. Papipirmahin nya
ng kontrata, saying that the same is a contract ofo
loan evidencing his mortgage on the property. But in
reality, what makes the other party sign would be a
contract of sale with right of repurchase.
Why do the creditor prefers the contract of sale over
the contract of loan?
Because in a contract of sale with right of
repurchase, he immediately acquires
ownership over the security without going
to the process of foreclosure, observing the
redemption period, asking for consolidation
of title. So, if the debtor was able to pay,
then the creditor will just ttransfer it again.
Art. 1365. If two parties agree upon the mortgage or pledge of
real or personal property, but the instrument states that the
property is sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
What are the instances where reformation of instruments is
not allowed by law?
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no
condition is imposed;
(2) Wills;
(3) When the real agreement is void.
INTERPRETATION OFF CONTRACTS
No need to discuss this because these are almost the same in
the rules of statutory construction or even the rules in
interpretation of wills.
The overriding consideration is to give effect with the
intention of the parties
Different classes of defective contracts
Rescissible contracts
Voidable contracts
Unenforceable contracts
Void Contracts
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RESCISSIBLE CONTRACTS
Rescissible Contracts are valid contracts. It can be enforce
and we can sue on this contract until they are rescinded. The
grounds for rescission do not really have any bearing on their
validity because the grounds for rescission usually stem from
the presence
ence of damage either to the contracting parties or
to a third person who is interested in the obligation or the
object of the contract.
What are rescissible contracts?
Until it is rescinded, what is the status of a rescissible
contract?
Valid
Can it be enforced? Can right be rights be obtained under a
rescissible contracts?
Yes
What are the grounds for rescission?
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one-fourth
fourth of the value of the things which are
the object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the latter
latt
cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of
competent judicial authority;
(5) All other cont
contracts specially declared by law to be
subject to rescission.
In the first 2 grounds for recission, is there any absolute
defense that may be used to defeat an action for rescission?
If there is court approval then it cannot be set aside
on the ground of lesion
l or damage.
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381
shall not take place with respect to contracts approved by the
courts.
In par 3 of Art 1381, this action is also known as?
Accion pauliana
All other contracts which the law declares to be subject to
rescission.
In art 1191, it says that contracts which can be rescinded. Is
this an instance where recission as contemplated in Art 1381
is made applicable?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art 1191 is not an instance where rescission as
contemplated in Art 1381 381 is applicable because
rescission under Art 1191 is based on breach.
Any other ground for rescission aside from Art 1381?
Art. 1382. Payments made in a state of insolvency for obligations
to whose fulfillment the debtor could not be compelled at the
time
me they were effected, are also rescissible.
When we say payments made in a state of insolvency are
subject rescission, how do we understand the term
insolvency?
Insolvency in fact. So we do not need a judicial
declaration that a person is insolvent
So when
hen is there insolvency as a matter of fact?
If the persons liability is more than his assets
When we asked for rescission, is it always to the full extent of
the obligation?
No, Only to the extent of the damage incurred
Art. 1384. Rescission shall be only to the extent necessary to
cover the damages caused.
What does it mean only to the extent of the damage
incurred?
Only to the extent that is allowed to the aggrieved
party to recover the damage to him
Only to the extent required to effect recovery of
damage on the part of the aggrieved party.
Insofar as the first 2 grounds are concerned, we did
mentioned of an absolute defense against an action for
rescission. But as a general rule or generally speaking, there
are other defenses that may be availed of against an action
for rescission. What are these defenses?
Ratification
Prescription
if the party asking for rescission is no longer in the
position to give back what he received under the
contract by reason of loss or when the thing subject
of the contract is in the hands of a third person
acting in good faith
Why would the loss of the thing subject of the contract to be
rescinded on account of the fault of the plaintiff prevent
rescission?
Art. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to restore.
63 | P a g e
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person
on causing the loss.
Why would the law say that?
Because the law requires that there be mutual
restitution. So that if the party asking for rescission is
no longer in the position to give back what he
received under the contract, then he cannot ask for
rescission
Aside from losing of the thing, another instance when the
thing subject of the contract can longer be returned would
take place if?
When it is in the hands of a third person who did not
act in bad faith
Example: A, in order to defraud his creditors,
credito he transferred
his land to another, the transferee is not aware of the debt in
favor of B. the transferee acquired the property in good faith
What is the period for prescription for rescission?
4 years
When do we reckon the 4 year period?
Art. 1389. The action to claim rescission must be commenced
within four years.
For persons under guardianship and for absentees, the period of
four years shall not begin until the termination of the former's
incapacity, or until the domicile of the latter is known.
For persons under guardianship - the period of four
years shall not begin until the termination of the
former's incapacity
For absentees - until the domicile of the latter is
known
In all other cases? When do we say that the action has
accrued?
The 4 year
ear period shall be reckoned from the time of
the execution of the contract
A rescissible contract can only be assailed in a direct action. It
cannot be collaterally attacked.
VOIDABLE CONTRACTS
What is a voidable contract?
A defective contract that is valid until annulled
And the significance of that statement valid until annulled
It produces legal effects until it is annulled
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1390. The following contracts are voidable or annullable,
even though there may have been no damage to the contracting
parties:
(1) Those where one of the parties is incapable of giving
consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence,
e, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
Are their defenses for an action of annulment?
Ratification
Prescription
Is ratification the same with confirmation?
Under the new civil code, there is no more
difference between ratification and confirmation
But is there any technical difference between ratification and
confirmation?
Confirmation is the act of purging the voidable
contract off its defect through the renunciation of the
action of nullity made by the person who can invoke
the vice or defect of said contract.
Ratification is the act of curing the defect of
contracts celebrated in the name and for the
account of another without authority
uthority or in excess of
authority by the approval thereof.
Technically, which should be applied to voidable contracts?
Confirmation, but now our no longer makes a
distinction between confirmation and ratification
Prescription
Art. 1391. The action for annulment shall be brought within four
years.
This period shall begin:
In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the
discovery of the same.
And when
hen the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship
ceases.
4 years counted from?
It depends on the grounds:
intimidation, violence or undue influence -
from the time the defect of the cconsent
ceases
mistake or fraud - from the time of the
discovery of the same
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Even there is a remainder of the prescriptive period, the
annulment may not be available anymore if there has been
ratification. The right to ask for annulment prescribes in 4
years.
rs. But even before the period lapses, the right to ask for
annulment can longer be available if there has been
ratification.
Art. 1392. Ratification extinguishes the action to annul a voidable
contract.
Ratification may be done either:
Express or tacit
Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of
the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should
executete an act which necessarily implies an intention to waive his
right.
When is there tacit ratification
ratification?
there is a tacit ratification if, with knowledge of the
reason which renders the contract voidable and such
reason having ceased, the person who has a rightri to
invoke it should execute an act which necessarily
implies an intention to waive his right
What will be the nature of this act which will give this
necessary implication that he is no longer pursuing the
annulment of the action of the contract? Should it be akin to
the party giving his consent to the contract? Should it be
indicative that he is consenting to the contract? That he is
accepting the contract?
yes
Minors can enter into a contract provided that they are
represented by their parents o
or legal guardians
Example of an act of ratification: the minors, own their own,
entered into a contract of loan. Upon reaching the age of
majority and without asking for annulment, they still paid of
the loan.
Even though that there is still some balance balanc in the
prescriptive period, they can no longer ask for annulment
because they have already ratified the contract.
In a contract of marriage, where the husband is afflicted with
AIDS, the wife knew about it before marrying the Husband.
Can she still ask for the annulment of the marriage?
No, there is no ratification but prescription
Why not ratification?
Because the ground is affliction of sexually
transmitted disease and not concealment thereof
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
and the action for annulment on such ground is only
subject to the defense of prescription.
The prescriptive period is 5 years. For as long as the
5 year period has not lapsed, the action for
annulment cannot be barred by any act that may be
akin to ratification because it is not subject to
ratification
Who can ratify? Who may effect for ratification
Only the party whose consent is vitiated or only the
party who is suffering from incapacity.
The action for annulment cannot be availed of by the
capacitated party or by the party whose consent was
not vitiated.
Supposing that the party asking for ratification is suffering
from some kind of incapacity?
Art. 1394. Ratification may be effected by the guardian of the
incapacitated person.
If a party wants to ratify, must he get the consent of the other
party?
No
Art. 1395. Ratification does not require the conformity of the
contracting party who has no right to bring the action for
annulment.
Who can ask for annulment?
Art. 1397. The action for the annulment of contracts may be
instituted by all who are thereby obliged bliged principally or
subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their acti
action upon these
flaws of the contract.
Basically, only parties to the contract may ask for an
annulment
Would there be any exception to this rule? Would there be an
rd
instance when an exception may be made such that a 3
person who is not a party to the contract may seek its
annulment?
Jurisprudence provided an exception:
If a person is prejudiced in his rights with
respect to one of the contracting parties
and he can positively show that the
detriment that will result to him from the
contract in which he had no intervention,
then he can seek the annulment of the
contract. (Teves
eves vs Peoples home site and
housing corp)
65 | P a g e
Facts: there was this woman who has been
occupying a parcel of land for the longest time with
her husband. d. Her husband is some kind of
government official who perished with president
Magsaysay in the plane crash. After her husband
demise, she applied to be awarded for this parcel of
land that they have been occupying with Peoples
Home site and Housing corporation.
corpo Her application
rd
has been pending, there was this 3 person (santos)
who was able to scratched the application. It was
allege that there was connivance between Santos
and the corporation. And it was not made known to
the woman that there was an application
app that was
also filed by Santos. When this woman found out
that the award was made in favor of Santos, she
sought to have the contract set aside. She filed an
action for annulment. Santos invoked as a defense of
no cause of action for annulment because
beca she was
not a party to the contract between Santos and the
corporation.
Probably, the SC is acting in equity
This is an exceptional instance. Had she been a
creditor, her remedy is accion pauliana
Going back to the general rule, the question is who between
the parties is given the right to ask for annulment?
If the ground is incapacity, then the right to ask for
annulment belongs to the person who is
incapacitated
If the ground is intimidation, violence, or undue
influence, fraud, or mistake, then the person who
employs the vice affecting consent cannot ask for
annulment
In line with the provision of Art 1397, the law clearly excludes
the party who employed vices of consent from having the
right to ask for annulment.
annulment But is it still possible for both of
the contracting parties to have the right to ask for annulment
if the ground is any of the vices of consent?
There are instances that consent may be vitiated
without the fault of either parties
When it comes to fraud, it should be
employed by the other party but when it
comes to Force force may be employed by
a third person. And this person may or may
not be acting under the directive of anyone
of the parties. If he is acting under any
directivee by one of the parties, then that is
the same as that party employing the force
rd
or violence himself. But if the 3 person is
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
acting independently, then we can say that
the parties are innocent of the employment
of the vice of consent. In which case, if we
w (2)
would adhere to Art 1397, both of them
should be allowed to ask for annulment. Art
1397 says that it is only the person who
employs the vice of consent who is not
allowed from asking for annulment
Another instance: if there is mutual mistake
that arises from the misrepresentation of
another person or on account of a question
of law.
What is the effect of the annulment?
Art. 1398. An obligation having been annulled, the contracting
parties shall restore to each other the things which have been the
subjectt matter of the contract, with their fruits, and the price with
its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the
basis for damages.
Supposing that A and B entered into a contract of lease for 1
year. It was paid for 1 year. The contract is voidable. And then
after 6 months that B is occupying the apartment, he seeks
annulment. The annulment is granted. Can A still give back
the rentals from the time that B is occupying the apartment?
No, the lessor has the right to retain the retain the
amount of rentals for 6 months that the lessee was
occupying the apartment because of unjust
enrichment
Can voidable contracts be collaterally attacked?
If we are going to attack it by way of defense, we
cannot. If we want to attack it collaterally, then we
must allege it as a counterclaim in the action.
Just like in rescission, if we ask for annulment there should be
a readiness to effect mutual restitution.
However, unlike rescission, annulment can onl
only be availed of
by a party in the contract, it cannot be availed of by a 3rd
person.
UNENFORCEABLE CONTRACTS
What is an unenforceable contracts?
Those contracts by reason of defects provided for by
law do not give rise to any action to enforce the
same until and after they are ratified according to
law.
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
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(1) Those entered into in the name of another person by one who has
been given no authority or legal representation, or who has acted
beyond his powers;
Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter
made shall be unenforceable by action, unless the same, or some
note or memorandum, thereof, be in wri writing, and subscribed by
the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things
in action, at a price
pr not less than five hundred pesos,
unless the buyer accept and receive part of such goods
and chattels, or the evidences, or some of them, of
such things in action or pay at the time some part of
the purchase money; but when a sale is made by
auction and
an entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale
is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an
interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a
contract.
3 kinds or classes of Unenforceable contracts
Contracts where both parties are incapacitated
(Incapacitated parties)
Contracts entered into in the name of another
without authority or in excess of authority
(unauthorized contract)
Contracts embodied in the Statute of Frauds (Statute
of Frauds)
What is the status of an unenforceable contract?
Valid but because of the defect affecting the
contract, it is a contract which cannot be enforce in
court
Unauthorized contract (Art 1403 par 1) - Can you enter into a
contract in the name of another person in your own instance?
No
And should you enter into a contract in the name of A and
without A knowing about it and the contract which was
entered into is a contract to sell on behalf of A to C and C
went to A to demand the object of sale
When we speak of unenforceability in this case
(Unauthorized contract), we refer to
unenforceability as against the party supposed to be
represented
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Example: Mr. Clet is the representative of the students of UST
because he was once the president of thehe student council. He
entered into a contract with a contractor to make uniforms
for the entire student population and he represented himself
as acting under the authority of all the students. The fact is
there is no such authority because the students di did not
authorize him to do that. The contractor cannot run after the
students for the payment of the uniforms because the
contract will be unenforceable as against the students.
However, as against Mr. Clet, the contract will be enforceable
because he will not be treated as the principal party in the
contract. The thing is, if the students decided to ratify and
confirm the actions of Mr. Clet as having authorized by them,
then the contract would now be cured of its defect and it will
now be enforced as against st the student because of the
ratification.
Statue of Frauds (Art 1403 par 2)
What is Statute of Frauds
Statute of Frauds is descriptive of a law which
requires certain classes of contracts to be in writing.
It is a list of contracts which must be undertaken in
accordance with the provision or requirements
imposed by law, failing which, it cannot be enforced.
The purpose for this requirement is to prevent fraud,
it is not meant to perpetuate fraud
If a contract
ract falls under the statute of frauds, then the
contract must comply with certain forms. What is this form
required by the statute of frauds?
It should be in writing
When we say that it should be in writing, must be it in a
formal written document? Is that
hat what the statute of frauds
require?
No
What do we understand by the term written instrument?
The law says that it must be in writing
writing, but not
necessarily in a formal document or instrument, on
the contract itself or some note or memorandum
thereof be in writing
It would be ideal if we would have it in a formal
instrument. But then again that law does not
imposed that requirement. It can in a simple letter
sent by one of the parties to the other and the same
letter being given back, but this time arou
around with
the approval or consent of the other party. That can
be a written testament of the transaction and that is
67 | P a g e
sufficient. It does not have to be contained in one
instrument or in one writing, it can be in a series of
letters or series of notes
Example: In a class room, there is negotiation for a sale of a
real property. One classmate will put in a note that he wants
to buy a property, then he will crumple the note and give it to
the other. The other classmate will write on the note asking
for how much,, then he will pass it again. The process go on,
there are exchange of notes. They dont have the entire
document of a deed of sale but if we would use of those
notes, we can see that the parties was able to put down their
agreement in writing. And this will
wi be sufficient to take the
contract out of the coverage of the statue of frauds meaning
the contract will now not be unenforceable under the statute
of frauds.
In the absence of compliance that there should be a written
testament of the contract, does it mean that the contract is
invalid?
The contract is still valid but we are not allowed to
enforce it in court
Does it mean that there is a bar against us in court that in the
first instance, we cannot file an action to enforce the
contract?
No, the problem
lem will arise at the time when we
present evidence, when we try to prove the contract
by parole evidence
Will all be lost if there is nothing is in writing to evidence the
contract?
The effect of non compliance with the statute of
frauds that we are not suppose to be able to prove
the contract thru Parole evidence. Parole evidence
means oral testimony. Not being allowed to prove it
by oral testimony is tantamount of not being able to
pursue our claim at all.
Contracts that are covered by the statute of frauds
An agreement that by its terms is not to be performed within
a year from the making thereof; (Art 1403 par 2 a)
We reckon the one year period from the making of
the agreement, from the perfection of the
agreement
What does the law means when it says that it should be one
wherein performance is not suppose to take place within one
year from the making of the agreement? What does the law
mean that performance should not be in one year? Does it
speak of the beginning of the performance such that if the
performance is deferred, that the obligation is subject to a
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
suspensive period, they ___, and the deferment exceeds one
year? Does it fall under the statute of fraud?
yes
Supposing that there will be performance within one year but
it will not be completedleted until after one year, but the
performance of the contract itself exceeds one year? Is it
covered by the statute of frauds?
It covers all contract where the obligation cannot be
completely performed within 1 year from the time of
the making of the contract
How do we know that it cannot be performed within one
year?
This can be stipulated upon by the parties, in which
case, there would be no problem
But in the absence of stipulation, it is possible for us
to determine whether or not there will be
performance
ormance within the one year period, we do this
by assessing the nature of the obligation.
Example: there was an agreement of a mansion under the
sea, can this be completed within a period of one year? No.
and despite the enormous amount of money involved for
some reason, you did not enter into any written agreement
with the contractor. Is this agreement enforceable?
Another Example: your services were engage to direct the
Lord of the rings trilogy. It is an obligation that cannot be
fulfilled within a period of 1 year. You agree. But then the
agreement is not in writing. This is unenforceable, so that if
you decide to suddenly quit, can you be forced by the
company to pay damages,, can the company go to court to sue
you for breach of contract?
They can, but they will not able to prove their claims
because you will object to the introduction of parole
evidence
Supposing that you have been fully paid by the production
company for your services
rvices for shooting the trilogy, would that
change things?
Yes, because complete performance on the part of
either party within the one year period will take the
agreement out of the coverage of statute of frauds
and therefore it is not enforceable.
enforceable And therefore
parole evidence may now be presented to prove
existence of the contract. No less than complete
performance on the part of the other party within
the one year period is required
A special promise to answer for the debt, default, or
miscarriage of another; (Art 1403 par 2 b)
68 | P a g e
For this special promise to fall under the statute of frauds,
how should it be characterized? Should it be an independent
promise or should it be a collateral promise?
It should be a collateral promise
How is a collateral promise be different from an independent
promise?
To determine whether the promise is collateral or
independent, we go by the words used
Illustration:
Independent promise: II will pay for any damage that A may
caused you
Collateral promise:: I will pay for any damage that A may
caused you, if she fails to pay you
In the example of collateral promise, it shows that the
promise is simply subsidiary or collateral in nature because
b it
is conditioned on the failure of A to pay the other.
In the example of independent promise, the promissory is
disregarding whether or not A will pay because you are taking
on the responsibility in all
What is the effect of making this collateral promise? If you
would assign a specific contract to this collateral, what would
be that contract?
Contract of guaranty/surety
An agreement made in consideration of marriage, other than
a mutual promise to marry; (Art 1403 par 2 c)
When you promise to give something out of liberality to
people who intend to marry in consideration of their
impending marriage, what are you doing exactly? Are making
already a donation propter nuptias?
Not yet
What are you doing?
You are making a promise that you will make a
donation propter nuptias in their favor should they
get married in the future.
This will be an example of an agreement in
consideration of marriage
The main consideration should be the marriage, it should not
be an incident
What about ante-nuptial
nuptial agreement, is it covered by the
statute of frauds?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Yes
What will be the implication of that statement that it should
be covered by the statute of frauds?
Ante-nuptial
nuptial agreements are required to be in
writing to be valid under the Family Code
Before the family
amily code (New Civil Code), ante-nuptial
ante
agreement would be valid even if they are not in
writing. They are simply unenforceable.
But in the advent of the family code (Art 77), it is not
enough that there should an agreement in whatever
form, to be valid, the ante-nuptial
nuptial agreement must
now be in writing, otherwise, it will be void.
Let us compare the effects, we have ante-nuptial
nuptial agreement
for separation of property. The parties have abided by what
they have agreed upon. Everything has been separate,
separate
eparate income, separate expenses etc lets say the
husband has died, the settlement of his estate is now in
question. When there is now a supposed division of his estate,
can the wife claim the half as her share of the supposed
conjugal partnership that have created between them?
Under the civil code the status is valid but
unenforceable
Under the Family Code if oral, void
Under the Civil Code she cannot. She cannot say
that is automatically hers as her share in the
conjugal partnership because the ante ante-nuptial
agreement, being merely unenforceable is subject to
ratification. And the same was ratified by abiding
that is they received benefits
ts under the agreement.
She benefited because she also got to keep
whatever she own as her own. There is ratification.
The entire estate of the husband has to be treated as
his separate property
Under the family code although the parties have
complied with
ith their agreement but the agreement is
void. The wife can claim the as her share because
the contract is void and therefore by default they are
governed by the absolute community of property
and she is entitled to just as her share in the
community property
roperty and on top of her share in the
community property, she still gets to inherit from his
share in the community property.
What is the effect of non compliance of statute of frauds?
It cannot be enforced in court
When we say it cannot be enforced
d in court what exactly it
means?
69 | P a g e
In reality, it does not really preclude the parties in
going to court. There is really a contract between the
parties. It is a valid contract. So there being a
contract, the parties are bound. But it is
unenforceable in the sense because since they do
not have any written documentation of the contract,
they only have to rely on parole evidence
Can they avail parole evidence to prove a contract which is
not in compliance with the statute of frauds?
No
So when it is unenforceable,
rceable, it actually means that?
Neither of the parties can introduce parole evidence,
but this must be objected to other party. If he fails to
object to the introduction of parole evidence, the
party is now allowed in a sense to enforce. In a
sense because
use you are able to prove the existence
of the contract on the basis of parole evidence which
is previously inadmissible parole evidence.
But failure on the part of the opposing counsel to
object on the introduction of parole evidence is not
the only way by which you can get around the effect
of non-compliance
compliance with the statute of frauds.
Another way to get the contract out of the coverage
of the Statute of frauds is if there has been partial
execution
Illustration of partial execution:
execution
A sold a parcel of land to B for 1M. B has already
paid half of the amount. B in this case has already
partially performed his obligation by the partial
payment and it is taken out of the coverage of the
statute of frauds
In this example, the reason why it is taken out of the
coverage of statute of frauds is because it involves the sale of
a realty.
ty. That is why partial performance will be sufficient.
However, if their ground as why the sale or contract is
covered by the statute te of frauds is because, it is a contract
which requires performance to be completed for more than
within a period of one year, we modify the rule a bit. We do
not simply accept partial performance on either side, there
must be complete performance within a period of one year
on the part of either party.
In the same way, when we discussed the rule that there
should be some kind of a note or memorandum in writing of
the contract, in all other cases covered by the Statute of
frauds, a simple note or memorandum
memorand evidencing the
transaction of the parties would be acceptable. However, by
jurisprudence, if you are dealing or trying to prove a sale or
lease of real property for more than 1 year, it comes with the
coverage by the Statute of frauds, then if that is the
t reason
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
why it is covered by the Statute of Frauds, then your note or
memorandum, aside from being subscribed by the parties,
must also contain a description of the property plus the price
for which it is being sold.
Will all be lost if there is nothing is in writing to evidence the
contract?
The effect of non compliance with the statute of
frauds that we are not suppose to be able to prove
the contract thru Parole evidence. Parole evidence
means oral testimony. Not being allowed to prove it
by oral testimony
imony is tantamount of not being able to
pursue our claim at all.
How can we get out of this runt? (means of curing the defect
brought about by non-compliance
compliance with the stature of frauds)
Prove that there is partial performance. If there is
partial performance then we can allege that the
contract of sale that was entered into involving
chattels, goods or choses in actions at a price not
less than five hundred pesos would no longer be
governed by the statute of frauds and would now be
enforceable
Ratification
fication for failure to object to the oral evidence
of the sale
rd
3 class of unenforceable contract - Those where both parties
are incapable of giving consent to a contract. (Art 1403 par3)
If only one of the parties is incapacitated, the contract is
considered voidable
Unenforceable contracts, just like voidable contracts are
subject to ratification.
What happens if one of the parties is able to ratify the
contract or if the contract is ratified by the legal guardian of
one of these parties, what happens
ens to the contract?
It becomes voidable
Art. 1407. In a contract where both parties are incapable of giving
consent, express or implied ratification by the parent, or guardian,
as the case may be, of one of the contracting parties shall give the
contract the same effect as if only one of them were
incapacitated.
If ratification is made by the parents or guardians, as the case may
be, of both contracting parties, the contract shall be validated
from the inception.
VOID OR INEXISTENT CONTRACTS
Is there a difference between a void and an inexistent
contract?
Void contracts when we have a void contract, we
have a contract where all the essential requisites are
70 | P a g e
present only the purpose or the cause is something
which is prohibited by law, morals, or public policy.
Or in some cases, the contract itself is declared to be
null and void by the law
Example of a contract where the cause or purpose is
illegal:
Judge who entered into a contract with a
law office while he is actively serving as a
judge. In that case,
cas it can be declared by law
as void because it is contrary to public
policy. An incumbent judge must not enter
into a private practice
Sale of illegal drugs, there is consent,
consideration and cause but the cause is
illegal. So the contract is void
Example
ample of a contract where the contract itself
without any regard to its cause is declared null and
void by the law:
Contract which involves future inheritance
because the law itself declared the contract
null and void.
Under the family code, if there is a sale of
conjugal or community property without
the consent of the other spouse, then the
sale is considered to be null and void
Inexistent Contracts if one of the essential
requisites of contract is lacking
Example: A and B entered in a contract of sale.
sale It is
indicated in the deed of sale that a purchase price
was paid when in truth and in fact, there was no
consideration paid.
What do we call this contract? How do we
characterize this contract?
Simulated contract
And what kind of simulation in that example:
Absolute simulation. If a contract is a
relative simulated contract, then may still
have some cause or consideration only that
it is not declared out in the open
Art. 1409. The following contracts are inexist
inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of th the
transaction;
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

(4) Those whose object is outside the commerce of men; On the first situation, there is no contract at all.
all The creditor
(5) Those which contemplate an impossible service;
can also attack
tack that contract but not on the ground that it is
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained; rescissible for fraud but on the ground that it is void. It is
(7) Those expressly prohibited or declared void by law. absolutely simulated.

These contracts cannot be ratified. Neither can the right to set up the
What about relative simulation?
defense of illegality be waived.
There is really a contract but the true nature of the
contract is hidden by another contract which is the
one made public

Those which are absolutely simulated or fictitious (Art 1409 Why would the parties enter into a relative simulated
par 2) contract?
They hide it because either what they are doing is
Absolute Simulation the parties do not intend to
bad or it may not be bad but it can hurt people who
be bound
are close to them
Relative Simulation not automatically void unless
rd
it prejudice 3 person or it is contrary to law, morals
Example: if a person is in already
alre in the twilight of his years,
or public policy
but he has a mistress who is still young and who is not known
to his family or wife. But he is worried about his mistress. Can
Why would 2 people enter into a simulated contract if they do
he give her something in his last will? No. so what he may
not intend to be bound?
want to do is to execute some kind of o a deed of sale in her
In order to defeat the rights of another person
favor. But she does not have any money of her own. So he
will not be receiving material consideration. What he is really
If you are the lawyer and you are approached by the debtor
intending to do is to make a donation to the mistress. What is
who is facing a ___ of creditors. What will you advise him if
this contract?
you are not a Thomasian lawyer?
A relatively simulated contract because
b it is made to
Enterer into a simulated contracts. Make it appear that
appear that there is a deed of sale but in reality what
youu have disposed of this property where in fact, the
he is effecting is a donation in favor of the mistress.
other party into the agreement is in connivance with
The law says that the contract would be valid
you. You will make it appear that you have sold this
provided that the contract is not contrary to law.
property to him but in truth and in fact, the debtor is
still the owner. You are not bound by this contract of
In this case, the contr
contract of sale is set aside. Now the
sale. But the same will help the debtor to insulate
issue is whether or not the parties are bound by the
this property from his creditors
real contract, which in this case a donation, that is
against the law. Then, the transaction would also be
What is the status of that contract?
null and void
It is absolutely simulated, therefore it is void
Compare this into a situation where we have a mother.
m And
Compare this to a situation where in order to defeat the
she feel sorry for one of her 3 children. But of course, she
rights of the creditor, the debtor will enter into a contract rd
does not want her 2 children to think that the 3 one is more
with another. It is an honest to goodness contract but the
special. What she will do is to execute a deed of sale giving
other person knew that the debtor is disposing his property
the 3rd child most of her properties but in reality there is i
because he wanted to defeat the right of his creditor. And he
really no consideration for the sale but she really intend is to
also knows that he is selling
ing the property at a much lower
donate her properties. Is donating a property to her child
price. There is really a contract. Is it a relatively simulated
wrong?
contract? No. it is a valid contract. But since it is affected by
No. but she only have to answer to possible
fraud, that contract may be set aside because it is rescissible.
inofficiousness of the donation. In this case, unlike
Accion pauliana
the first one where the real contract was also
rd declared null and void, we can possible give effect to
Compare the 2 situations, the remedy of the 3 person in the
the donation subject only to consideration of
second situation is rescission thru accion pauliana because
rd inofficious.
there is really a contract between the debtor and the 3
person.
If we would look att the list in Art 1409, we can pin point
which contract is void or which contract is inexistent.
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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1409. The following contracts are inexistent and void from
the beginning:
(1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public
policy; (VOID)
(2) Those which are absolutely simulated or fictitious;
(INEXISTENT)
(3) Those whose cause or object did not exist at the time
of the transaction; (INEXISTENT)
(4) Those whose object is outside the commerce of men;
(VOID)
(5) Those which contemplate an impossible service;
(VOID)
(6) Those where the intention of the parties relative to the
th
principal object of the contract cannot be ascertained;
(INEXISTENT)
(7) Those expressly prohibited or declared void by law.
(VOID)
Why is it important for us to know when a contract is simply
void or when a contract is simply inexistent?
The remedy would still be the same whether the
contract is void or inexistent, either we invoke the
nullity as a defense or go to court and ask for a
declaration of nullity of the contract. The distinctions
becomes material in action in relation to the rule on
pari delicto
What is pari delicto of rule?
If the parties is void, then the parties cannot go to
court and enforce upon the contract against each
other. That presupposes that the contract has not
yet been executed yet.
Art. 1411. When the nullity proceeds from the illegality
i of the
cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relativ relative to the
disposal of effects or instruments of a crime shall be applicable to
the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty;
but the innocent one may claim what he has given, and shall not
be bound to comply with his promise.
What if the contract has been executed either on both parties
or one of the parties? Can there be recovery?
We only make a distinction or the qualification as to
who cannot recover from whom, if fault is only on
the part of one of the parties
To what kind of contract does the pari delicto rule apply?
Void contracts, not to inexistent contracts
Why do we say that it only applies to void contracts?
Because Art 1411 specifically says When the nullity
proceeds from the illegality
egality of the cause or object of
the contract,, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall
72 | P a g e
have no action against each other, and both shall be
prosecuted.
What is the rule if there is fault on the part of both parties?
They may not recover what they have given and they
cannot compel each other to perform. The law will
leave them where they are
If it so happens that the illegality of the cause or
object amounts to a criminal offense, then the
parties would furthermore be subject to a criminal
prosecution and the proceeds of the contract will be
confiscated in accordance with our law on the crime
involved.
Example:
A agrees to pay B if the latter will kill C. if A fails to
pay B and the latter has already killed
k C, B cannot
ask assistance from the court.
If C was not yet killed by B, but A has already paid B,
the same rule applies. The pari delicto rule will
prevent them from being able to sue each other on
the contract, what is more that they will be liable
liabl
criminally because in this case the illegality of the
cause amounts to a criminal offense
It is possible that only one of that parties is at fault. What is
the rule?
If only one of the parties is at fault, we make a
distinction as to what stage the contract
cont is in:
If it is executed already
If it is still in the executor
executory stage
Example of pari delicto that only one of the parties is at fault:
In case the buyer did not know that the object
subject of the sale is stolen. The sale is void. The
anti-fencing
fencing law is violated. But the buyer may
recover from the seller the amount that the former
paid to the latter because the buyer did not know
that the object of sale is a stolen item. The buyer, in
this case, is not at fault. He may recover because the
contract is at the stage that it was already executed.
But if the contract is still in the executory stage, the
rule is simply that they will not have any action
against each other. The seller cannot compel the
buyer to deliver the money to him in exchange of
the delivery of the stolen goods. At the same way,
the buyer cannot compel the seller who is at fault to
deliver that property stolen, in exchange for
payment. But if it happens that the buyer has
already paid, the pari delicto rule will not operate
o to
protect the seller because buyer, since he is not at
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

fault, will be allowed to recover what he has paid. also extends him special protection by allowing him to
The pari delicto rule will not operate against him recover what he has paid
(buyer).
A void contract would arise from:
Art. 1412. If the act in which the unlawful or forbidden cause absence of any of the essential requisites. Take note,
not
consists does not constitute a criminal offense, the following rules
shall be observed:
ABSENCE not just defective.
(1) When the fault is on the part of both contracting If there is no observance of the proper formalities
parties, neither may recover what he has given by if there is impossibility in the object or in the
virtue of the contract, or demand the performance of prestation that have agreed upon.
the other's undertaking;
(2) When only one of the contracting parties is at fault, he If there is any violation of the characteristics of a
cannot recover what he has given by reason of the contract like there is no mutuality
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
A void contract, just like in a void marriage, it is legally
demand the return of what he has given without any
obligation to comply his promise. inexistent

The law itself also provides for clear examples where the
exceptions to the pari delicto rule is observed. Art 1413-1419
1413
are instances where the other party is usually the one
intended to be protected by the law which de declares the
contract void is allowed to recover whatever he has given.
Art. 1413. Interest paid in excess of the interest allowed by the
usury laws may be recovered by the debtor, with interest thereon
from the date of the payment.
Art. 1414. When money iss paid or property delivered for an illegal
purpose, the contract may be repudiated by one of the parties
before the purpose has been accomplished, or before any damage
has been caused to a third person. In such case, the courts may, if
the public interest will thus be subserved, allow the party
repudiating the contract to recover the money or property.
Art. 1415. Where one of the parties to an illegal contract is
incapable of giving consent, the courts may, if the interest of
justice so demands allow recovery
very of money or property delivered
by the incapacitated person.
Art. 1416. When the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designated for the
protection of the plaintiff, he may, if public policy is thereby
th
enhanced, recover what he has paid or delivered.
Art. 1417. When the price of any article or commodity is
determined by statute, or by authority of law, any person paying
any amount in excess of the maximum price allowed may recover
such excess.
Art. 1418. When the law fixes, or authorizes the fixing of the
maximum number of hours of labor, and a contract is entered into
whereby a laborer undertakes to work longer than the maximum
thus fixed, he may demand additional compensation for service
rendered beyond the time limit.
Art. 1419. When the law sets, or authorizes the setting of a
minimum wage for laborers, and a contract is agreed upon by
which a laborer accepts a lower wage, he shall be entitled to
recover the deficiency.
The right to question a null and void contract either by action
by direct attack or by way of defense by collateral attack, this
never prescribes.
So if you are a party to a null and void contract, you can
actually just opt to not do anything, just wait for the other
party to enforce the contract and then raised the nullity of
the contract as a defense.
rd
The nullity of a contract may also be assailed by a 3 person
who happens to be damage by the contract.
A void contract is never susceptible of ratification.
Example: Oral pre nuptial agreement, no amount of
ratification will cure the defect
Pari delicto rule:
Parties to a void contract will have no remedy in the
law. The law will leave them where they are. But
take note that this is specifically limited to contracts
which are null and void on account of the illegality of
its cause or object.
If the fault lies with both of the parties,
then both of them will not be afforded
relief
If fault lies with only one of them, then he
will be afforded relief, in that he can
recover whatever that has been given and
he will not even be compelled to comply
comp
with he has promised.
There will be complication if the nullity
makes the prestation a criminal act.

Take note that in casess where one of the parties is

incapacitated when he enters into a void contract, the law

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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
SALES
What is a contract of sale?
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
conditi
What are the obligations created in a contract of sale?
Obligation of the seller to transfer possession and
ownership
Obligation of the buyer to pay the price
Considering that a contract of sale gives rise to these
obligations, who may enter into a contract of sale?
Art. 1489. All persons who are authorized in this Code to obligate
themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or
other person without capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Article 290.
Anybody may obligate himself. Who may obligate himself?
Those who have capacity to act
Who are these people?
Generally, it refers to people who are 18 years of age
and above
Why do we refer to those 18 years and above?
Because they have reached the age of o majority and
under Philippine laws capacity to act is acquired by
reaching the age of majority
What happens upon reaching the age of majority? What
takes place?
There is emancipation
How else can there be emancipation under Philippine laws?
Only by attaining the age of majority. Previously, we
have emancipation by attainment and marriage but
this no longer apply
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What will be the status by the contract of sale entered into by
someone who is not capacitated?
Voidable
And when we say that a person is incapacitated, this is not
limited to minors because it may happen that once reaching
the age of majority but still he is incapacitated as in the case
of insane.
A contract of sale that is entered into by minors or some
incapacitated person is voidable
Is there any instance where a contract of sale entered into by
a minor or some incapacitated person would be perfectly valid
and not voidable?
Sale of necessaries
Art. 1489. All persons who are authorized in this Code to obligate
themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or
other person without capacit
capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Article 290.
The minor or other incapacitated person must pay a
reasonable price and that is the indication that the sale is
valid
Would there be condition for the transaction
t (sale of
necessaries) for it to be perfectly valid? We said that if a
contract of sale is entered into by someone who is
incapacitated, generally, the contract is voidable. By way of
exception we recognize when necessaries are sold to a minor
or some other incapacitated person, the contract is not
voidable because it actually requires the minor to pay the
reasonable price for the subject matter. But this will take
place if certain conditions are met, what will these conditions
be?
It is not enoughh that the contract of sale has been
entered into, it is also required that the necessaries
had been delivered to the minor or other
incapacitated person
Why would the contract of sale entered into by minor or some
incapacitated person be voidable? What is i the reason for this
rule? What is the essence of a voidable contract? What is the
defect affecting a voidable contract?
It can be because of impaired capacity to understand
what one is getting into. If there is impairment in the
understanding then it follows
fol the consent given is
not perfect. There is vitiation of consent. There is
consent but it is vitiated. In this instance where it is
rooted in capacity, the vitiation pertains to lack of
understanding.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Take note however the rulings made by the SC, wherwhere instead
of declaring the contracts of sale voidable, the SC takes one
step further andd declare the contracts to be null and void. In
these contracts, one of the parties is advance in age and
suffering from senility. That one can be liken to someone who
has
as loss his mind. People suffering from senility, they revert
to childhood. In that case, the contract should be voidable
but in the cases of Domingo vs CA (367 SCRA 368) and
Paragas vs Heirs of Domingo Balanco (468 SCRA 717), the SC
said that the contractss involved where null and void.
As it is our requirement for a person to be able to enter into a
contract of sale he must have capacity to act and given that
requirement everybody apparently can enter into a contract
of sale. So it may be more appropriate for us to enumerate
who are not allowed to enter into a contract of sale
Are there people who are prohibited to enter into a contract
of sale?
Art. 1490. The husband and the wife cannot sell property to each other,
except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation or property under
Article 191.
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either
er in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who
may be under his guardianship;
(2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal
has been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State or
of any subdivision thereof, or of any government-owned
government
controlled corporation, or institution, the administration of
which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees
connected with the administration of justice, the property
and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes the act
of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object
of any litigation in which they may take part by virtue of
their profession.
(6) Any others specially disqualified by law.
Husband and wife cannot sell to each other. Why not?
In order to prevent defrauding creditors
To prevent undue influence of one spouse to the
other
In relation with the law on donations, the spouses
may enter into a simulated sale where the real
intent is to enter into donation
Would there be exception to the prohibition?
Art. 1490. The husband and the wife cannot sell property to each other,
except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial
jud separation or property under
Article 191.
Essentially, if they are governed by separation of property
regime either from the start of their marriage or somewhere
along the way in the course of their marriage
What about common law spouses? Are they also subject to
the same prohibition? Because, as far as the spouses are
concerned, donation is prohibited. Then we have that ruling in
matabuena vs cervantes which extended the prohibition to
common law spouses. And eventually, the family code
adopted the ruling of the SC as one of its provisions. we do
not have the same provision in the NCC in so far as sales
between common-law law spouses are concerned. But considering
the same reasoning or rationale may be applied to sales
between common law spouses, should we also say that the
prohibition also extends to them? To those who are living
together without the benefit of the marriage?
It will also extend to common law spouses
Basis?
SC already ruled so our basis is jurisprudence, the SC
ruled in the case of Calilim-Canulas vs Fortun (129
scra 675) that the prohibition against sales between
spouses also applies to those who are living together
without the benefit of marriage
or
When do we say that the spouses are living together without
the benefit of a marriage?
If they live together in one room, if they sleep in one
room and having sexual relations with each other,
they generally portray themselves as husband and
wife in public. The SC have told us that having
illegitimate children is an indication as well of being
b
common law spouses.
What is the status of a sale that was entered into by husband
and wife?
Void
How else does marriage affect ones capacity to enter into a
contract of sale?
The spouses are not allowed to disposed of the
conjugal or community property
prope without the
consent of the other spouse. Without the consent,
the sale is null and void
75 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Would the nullity affecting the sale of the conjugal or
community property be susceptible of ratification?
No. Null and void contracts are not susceptible of
ratification
Would there be a special rule provided when it comes to
contracts of sale involving community property entered into
without the consent of one of the spouses?
Yes
There is a special rule affecting the sale of
community or conjugal property without withou the
consent of one spouse. And it akin to ratification but
it is not strictly speaking ratification because once a
contract of sale is considered null and void, it is also
considered d as a continuing offer which any an be
accepted by the non consenting spous spouse. And once
accepted it gives rise to a valid contract of sale.
Art. 96. The administration and enjoyment of the community
property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise unable
to participate in the administration of the common properties, the
other spouse may assume sole powers of administration.
administrati These
powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse.
In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either
or both offerors. (Family Code)
Is it ratification?
No, because there is no retroactive effect. We
reckon from the acceptance. It will be considered as
a valid contract from the time of acceptance. It does
not retroact to the past as though to cure the defect.
Aside
ide from husband and wife, are there other people who
suffer from some kind of incapacity, when it comes into
entering into a contract of sale?
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person
son or through the mediation of
another:
(1) The guardian, the property of the person or persons who
may be under his guardianship;
(2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal
has been given;
(3) Executors and administrators, the property of the estate
under administration;
76 | P a g e
(4) Public officers and employees, the property of the State or
of any subdivision thereof, or of any government
government-owned or
controlled corporation, or institution, the administration
admin of
which has been intrusted to them; this provision shall apply
to judges and government experts who, in any manner
whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other off officers and employees
connected with the administration of justice, the property
and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise
their respective functions; this prohibition includes the act
of acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object
of any litigation in which they may take part by virtue of
their profession.
(6) Any others specially disqualified by law.
What aree the status of sales entered into in violation of the
prohibitions?
Null and void
Is it susceptible of ratification?
No
called ratification spoken of as made applicable to
The so-called
the first 3 in the enumeration on Art 1491 namely those
involving guardians, agents, executors or administrators
would be similar to the ratification that we speak of when it
comes to sales involving community property without the
consent of the other spouse. Not really a ratification, it simply
refers to a new contractt that is perfected once the parties
come to an agreement after the reason for the prohibition is
given. It just so happen that for the first group involving
agents, guardians, administrator or executors, these
circumstances will change and allow the prohibition
proh cease to
exist. But as pointed out in the SC in the case Rubias vs
Batiller (51 SCRA 120) the prohibition affecting the second
group involving judges, justices, clerks of court, lawyers,
public officer and employees, this would be permanent in and
no new contract may be entered into that can served as some
kind of ratification.
What is the nature of a contract of sale in terms of its manner
of its perfection?
Consensual
Art. 1475. The contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
In terms of manner of perfection a contract of sale is
consensual in nature and it is consensual in nature because it
is perfected upon by mere consent of the parties
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

There is consent if there is what? The contract of sale will not be void. We still have a
Meeting of the minds valid contract of sale

And their minds must meet on 2 things? Can it still be performed?

Subject matter and the price It cannot

Subject matter.. What can be a valid subject matter of a Then what will be the status of the contract in the course of
contract of sale? the performance?
Requisites: The contract is extinguished
It must be existing, having potential We cannot have a subject matter an impossible
existence, a future thing, or even obligation, the contract will be null and void. But if
contingent or subject to a resolutory the impossibility takes place after the parties have
condition; in other words, it must be a come to an agreement, the obligation of the seller is
Possible thing extinguished.. The obligation of the seller is
It must be Licit extinguished on account of the impossibility of the
It must be determinate or at least prestation.
determinable
In Obligation and contracts, there are 2 kinds of
Would ownership be a requisite for a valid subject matter? impossibility, legal and physical
No
It is not correct to say that the contract is void
So a seller can sell something which he do not own without because at the time that the contract is ent
entered into
being an agent of the actual owner provided at the time of was perfectly valid but now since it is legally
delivery he already owns the property impossible to comply with the obligation the
Art. 1459. The thing must be licit and the vendor must have a contract should be considered extinguished
right to transfer the ownership thereof at the time it is delivered.
delivered
Dean Dimafelix hehehe
The Subject matter must be licit, what does that mean?
A thing is licit and may be the object of a contract Determinate or determinable subject matter, what is meant
when it is not outside the commerce of men, and all by determinate or determinable
inable by way of review?
rights which are not intransmissible Art. 1460. A thing is determinate when it is particularly
designated or physical segregated from all other of the same
Art. 1347. All things which are not outside the commerce of men, class.
including future things, may be the object of a contract. All rights
which are not intransmissible
ansmissible may also be the object of contracts. The requisite that a thing be determinate is satisfied if at the time
the contract is entered into, the thing is capable of being made
No contract may be entered into upon future inheritance except determinate without the necessity of a new or further agreement
in cases expressly authorized by law. between the parties

All services which are not contrary to law, morals, good customs, Determinate - when it is particularly designated or
public order or public policy may likewise
wise be the object of a
contract.
physical segregated from all other of the same class

Example: Prohibited Drugs Determinable - if at the time the contract is entered

into, the thing is capable of being made determinate
What is the status of the contract? without the necessity of a new or further agreement
Void between the parties

Supposing that at the time the contract is entered into the Given these requisites, would it be possible for us to have
thing in question was neither a prohibited drug nor a generic objects as a subject matter of sale?
regulated drug. But after the perfection of the contract of sale Yes
it has become a regulated drug. Since it was declared as a
regulated drug, it cannot be a subject of any sale outside of How?
hospitals. What happens to the contract of sale that was A generic object cannot be determinate but it is
entered into by the fact of inclusion of thee drug in question in determinable
the regulated list?
77 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What will be the test to say that generic object is
determinable?
There must be meeting of minds as to the subject
matter. With regard to generic object, the parties
can agree on quality, quantity or kind.
The thing must be existing or capable of coming into
existence. Can we have something as a subject matter of sale
which is at one time existing but may disappear in the future?
Yes
Art. 1465. Things subject to a resolutory condition may be the
object of the contract of sale.
Example: Reserva Troncal. The Reservista owns the
reservable property subject to a resolutory condition
Things which are susceptible of existence, what are these?
Future goods
Art. 1462. The goods which form the subject of a contract of sale
may be either existing goods, owned or possessed by the seller, or
goods to be manufactured, raised, or acquired by the seller after
the perfection of the contract of sale,, in this Title called ""future
goods."
There may be a contract of sale of goods, whose acquisition by
the seller depends upon a contingency which may or may not
happen.
Is certainty of existence a requisite?
here may be a contract of sale of goods, whose
No, there
acquisition by the seller
er depends upon a contingency
which may or may not happen. (art 1462 par 2)
If we are selling or buying future goods the commutative
characteristic of sale is present, we get value for value
But we are buying or selling a mere hope or expectancy, the
commutative
mutative characteristic of sale is compromised because
we may actually end up with nothing.
What is emptio spei?
The sale of hope or expectancy
Example: Sale of a raffle ticket
In that example, what we are paying for is what?
The hope or expectancy that we will win the prize
If we do not win the prize?
The sale is still valid but we did not get something
from the raffle, we end up with nothing that is why
the commutative characteristic is compromised
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We said earlier that in emptio rei speretae, certainty is not a
requirement. What about in emptio spei? Should there be
certainty? Does the law require that hope or expectancy will
become true?
No
What does the law require then in order that the sale of a
mere hope or expectancy be valid?
The sale of hope or expectancy must not be vain
What does that mean? (vain)
A vain hope or expectancy has nothing to do with
the authenticity of the prize for as long as it is a
raffle, we have the ticket we can always enforce our
right as the winner. When we say that the sale
should not in vain, it means that it should be a sale
of a hope or expectancy that is no longer exist or
cannot exist
Example: Sale of raffle ticket that was already been drawn
Why does the law prohibits that?
There is no transparency on how the winners are
picked or how the raffle is conducted such that it is
very possible that there is no raffle at all and what
were being sold are vain hopes or expectancy
We go to Price, the law requires that the price should be?
A sum certain in money or its equivalent
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
The law speaks of certainty of the price but not adequacy of
the price. Why?
Requisites:
It must be real
It must be in Money or its equivalent
It must be certain or ascertainable
When do we say that the price given for a thing
thin that is sold is
adequate?
Adequacy is subjective, the seller is given the
prerogative on what will be the price
Marina is shocking to the Conscience of mankind
Clet is an apparent expert of Jaguar cars
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Example of shocking to the conscience of man:
Sale of a Brand new Jaguar worth 10M for 200k
In that example, how will that affect the sale?
Valid. Marina sold the jaguar for 200k without her
consent being vitiated because for her insofar as she
is concerned that price is adequate, that price was
sufficient. And that is what matters in a contract of
sale, we go by a subjective standard
standard. It may be worth
so much more out in the market but insofar as the
seller is concerned the price is adequate, then it will
be a valid sale.
If there is gross inadequacy
equacy of the price, does that affect the
sale?
No
Art. 1470. Gross inadequacy of price does not affect a contract of
sale, except as it may indicate a defect in the consent, or that the
parties really intended a donation or some other act or contract.
Except?
Art. 1470. Gross inadequacy of price does not affect a contract of
sale, except as it may indicate a defect in the consent, or that the
parties really intended a donation or some other act or contract.
o Defect in consent
o Donation
The price must bee agreed upon, what about the manner of
payment?
The manner of payment may be agreed upon by the
parties
And if the manner of payment was not agreed upon, will this
affect the perfection of the contract of sale? What does the
Civil Code provides is there is no agreement as to the manner
of payment, how should payment be made? What is the
default rule? When is an obligation due? When can demand
be made?
We can make a demand when the obligation
becomes due
When does the obligation becomes due?
If it is a pure obligation, then it becomes
demandable at once
So, if we dont have an agreement as to the manner of
payment, what will be the implication?
It is demandable at once but it may be qualified by
the reciprocal nature of a contract of sale
And does it qualify its manner in this case?
We can only make a demand if we ourselves is ready
to comply with our own obligation
79 | P a g e
Given that we have this default rule in the law on obligations
and contracts, is there a need for us to have an agreement on
the manner of payment?
It is not required
Except?
If the seller wants to deviate from this default rule
This usually happens in the purchase of vehicles or other
items which are far more valuable than other things.
Example: when you buy a car, the assumption is the default
rule, you will pay in cash and at once. But if you have a
different manner of payment in mind, then you have to tell
the other party because he has to agree to your proposal.
Otherwise, you cannot have a contract of sale. In this regard,
the mannerr of payment becomes relevant to the perfection
of the contract of sale, but only because you are deviating
from the default rule that is you are to pay at once and upon
demand
CIV8
A contract of sale is a consensual contract and it is perfected
upon meeting of the minds between the parties.
The parties must have the meeting of the minds on 2 matters:
the subject matter of the sale
the price at which the thing would be sold
Requisites
tes of a valid subject matter
Price, What are the requisites of a valid price?
Real
Money or its equivalent
Certain or ascertainable
For a price to be considered real, should it always be
adequate?
Adequacy of is a relative matter. It is subjective. As
long as the seller believes that the price is adequate
then there should be no question on the adequacy
of the price. And it finds it support in Art 1470
Art. 1470. Gross inadequacy of price does not affect a contract of
sale, except as it may indicate a defect in the consent, or that the
parties really intended a donation or some other act or contract.
Gross inadequacy of the price does not affect the validity of
the sale, except:
It may indicate a defect in the consent, which will
make the sale voidable,
voidable not because of the
inadequacy of the price but because the inadequacy
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
of the price indicates that consent to the sale may
have been vitiated; or
The gross inadequacy of the price may be indicative
of the fact that parties really intended to have some
other
er kind of transaction. In which case this should
not be governed by any contract of sale, but by their
true agreement. Their true agreement will be subject
to whether or not their true agreement complies
with all the requisites of the law, including the
proper form.
Why do we emphasize the proper form?
Because iff their true intention is a donation, it is a
formal contract. There are formalities which must be
complied with.
Art. 1470 basically tells us that if you agree to the price and
later on you regret your decision because it is grossly
inadequate you have no remedy in the law. You cannot go to
court and complain.
What could be the reason would make a person who acted on
his better judgment, who made a foolish decision without any
protection?
It all boils down to the freedom given to the parties
to contract. As a consequence of that freedom they
cannot go to court and complain and say that I made
a bad choice in the exercise of this freedom given to
me.
The court will not step in and protect a person from
a stupid decision that he makes. The court only
protects those who are suffering from some kind of
incapacity, because they have an excuse.
If you are fully capacitated you have no excuse. So
you suffer the consequence of your own decision.
Is this an absolute rule? (the rule that gross inadequacy of
price cannot be used as a basis to assail the validity of a
contract of sale)
Not on instances where there is a sale without the
element of freedom.
What are these instances?
Execution sales or forced sales.
In forced sales, will the owner have any say on the price that
his property will be sold?
None, because it is sold at a public auction. It all
depends on those who are bidding on the property.
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So if the price for which the property is sold
sol is
grossly inadequate or shocking the conscience of
man, then the sale can be set aside.
But, it is still subject an exception to the exception.
Sometimes far from putting the owner at a disadvantage,
selling the property at a lower price can actually be beneficial
to him in an auction or forced sale. When does this happen?
When there is a right to redeem.
r
Name a forced sale or an auction sale where there is a right to
redeem.
Extrajudicial foreclosure of a mortgage. There is
period to redeem. The lowelower the price at which the
property was sold then the better for the owner,
because it is easier for him to redeem the property.
The price itself constitutes the consideration of the contrary
in so far as the seller is concerned.
On the other hand, the consideration of the buyer is the
acquisition of the property subject of the sale.
What happens if the price is not real, do we still have a
contract of sale?
There is no contract of sale.
Art. 1471. If the price is simulated, the sale is void, but the act
a
may be shown to have been in reality a donation, or some other
act or contract.
What happens to the transaction for example,
example the property
has been delivered but it turns out that the price is absolutely
simulated?
The contract of sale is void.
What about the parties, would there be still a transaction
existing between them? But the property has been delivered
to one party
This is no different from a simulated contract. It will
not be given effect as the apparent contract of sale
or as what the contract
contra be made to appear, in this
case it will not be effect as a contract of sale, but it
can be given effect as a donation or some other kind
of contract or transaction.
Price must be in Money or its Equivalent
The traditional concept of sale is that you pay
p for the
subject matter in money, but legally speaking you
are not limited to money because the law says
anything equivalent to money may be accepted as
consideration for the contract of sale.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What can be an equivalent of money that can be used in
sales?
Objects or things
If you give an object and in exchange for the acquisition of
ownership of another wouldnt it be barter? What is
considered as equivalent of money if you are precluded from
using objects exclusively as consideration because that will
make
ake the transaction a contract of barter, not a contract of
sale? What can we use as a equivalent of money and still we
can take the transaction as a contract of sale?
Is there really a need to distinguish sales from barters?
No
Why not?
There is no need for us to avoid crossing the line
because under Art. 1641, a contract of barter shall
be governed by the same rules affecting sales. We
can just treat it as a contract of sale under Art. 1641.
It is a logical conclusion because if otherwise, if we
give something in exchange for this person to earn
something then that will be an inominate contract I
will give so that will do. The law even makes it a
point to include a provision to determine when a
contract is a barter and when a contract is a sale, if
the consideration is a combination of money and
things
Art. 1641. As to all matters not specifically provided for in this
Title, barter shall be governed by the provisions of the preceding
Title relating to sales.
Art. 1468. If the consideration of the contract consists partly in
money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a barter if
i price or terms by fault of the seller or the buyer, the party not in
the value of the thing given as a party of the consideration
exceeds the amount of the money or its equivalent; otherwise, it
is a sale.
May be in a limited way you would need to distinguish
between them:
For purposes of applying the provisions of statute
statu of
frauds, because statute of frauds does not appear to
cover barter; and
In so far as the applicability of the legal right of
redemption for owners in urban area
Certain and Ascertainable, Why should there be certainty?
This is the counter part of the subject matter being
determinate or at least determinable
To allow the parties to have a meeting of the mind,
there are two things: the subject matter and price
81 | P a g e
certain. It is required that the subject matter must
be determinate or at least determinable to allow the
parties to have meeting of the minds. In the same
way that making the price certain or ascertainable
also allows the parties to have a meeting of the
minds on the price. These would in turn give rise to a
perfected contract of sale.
When is a price certain?
If the price has been specified
Example: If you walk into a department store, can there be
any doubt the price is certain?
No, because the prices for the items are on display.
If you take an item, and you go to the counter, it
means that you are accepting the price.
When is the price ascertainable? Can we refer to other things
for the price?
In order that the price may be considered
ascertainable, it shall be sufficient that it be so with
reference to another thing certain, or that the
determination
termination thereof be left to the judgment of a
specified person or persons.
Art. 1469. In order that the price may be considered certain, it
shall be sufficient that it be so with reference to another thing
certain, or that the determination thereof be left to the judgment
of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the
contract shall be inefficacious, unless the parties subsequently
agree upon the price.
If the third person or persons acted in bad faith
fa or by mistake, the
courts may fix the price.
Where such third person or persons are prevented from fixing the
fault may have such remedies against the party in fault as are
allowed the
he seller or the buyer, as the case may be.
Can the parties, instead of referring the matter to a 3rd
person, leave the determination of the price to the discretion
of one of the parties?
No
Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if the price
fixed by one of the parties is accepted by the other, the sale is
perfected.
Example: When you eat at a restaurant did they ask how
much you want to pay?
No.
Who determined the price?
The restaurant
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

If the third person or persons acted in bad faith or by mistake, the

courts may fix the price.
Would that be valid?
Yes Where such third person or persons are prevented from fixing the
price or terms by fault of the seller or the buyer, the party not in
Would that not be violative of the mutuality of contracts? fault may have such remedies against the party in fault as are
allowed the seller or the buyer, as the cas
case may be.
Initially, it may have been violative of mutuality of
contract because that is not allowed. One of the
parties cannot dictate the price, but eventually when Having the parties have a meeting of the minds on the
t price
you ordered, you acceptinging the price that will cure and subject matter and the price would give rise to a
the defect of the price which hass been determined perfected contract of sale.
by thee seller because you have accepted the price
that was determined by one party Perfection is only one of the 3 stages in the life of a contract
of sale.
st
1 Negotiation
nd
2 Perfection
rd
3 Performance or Consummation
Art. 1473. The fixing of the price can never be left to the discretion of one of
Negotiation, What takes place in negotiation?
the contracting parties. However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected. It all begins with an offer.

rd Who between the buyer and the seller can make an offer?
It is not just a 3 person who can determine the price. There
are some other indicator that may be used by the parties. Both can initiate

Example: What can the offeror impose by way of terms and conditions
Fair market value. You need dollars. These are not legal in his offer?
tender in the Philippines so when you need dollars you have All terms and conditions
to buy them either from the bank or forex center.
Example:
If you buy it from a friend, nahihiyang magpresyo sa iyo. Ikaw You are the owner of a condominium unit, which has
naman you have no idea how much to pay him. You guys been damages by a storm and you want to sell the
agreed to the prevailing rate in the newspapers or in the property.
internet.
net. Para mayroon ka naming tubo, lets agree to add on
to the prevailing market rate, plus 25 centavos or 50 How would you make the offer?
centavos. O kung gusto mo naman siyang bigyan ng discount, Sell the unit at a discounted price, provided that the
prevailing rate less P1 or less 50 centavos. At that point, it is offeree undertakes to make the repairs himself. That
not certain what the price
rice is but it is ascertainable because would be condition.
you can refer to the foreign exchange rate
If the discount is not commensurate to the damage, can that
What happen if there is uncertainty in the price of the subject be questioned?
rd No. You can attach all kinds of conditions.
of the sale? The parties resorted to 3 person to determine
rd
the price but the 3 person does not want to appraisea the
value of the property or there are various prevailing foreign If you impose a period, are you required to comply with the
exchange rates and the disparity is quite huge, what happens test of reasonableness?
to the status of the sale? No, because you are the one making the offer and
The sale would be ineffective. This is a new specie. you have the discretion to dictate on the terms of
It would still be valid only that it would
wo be somehow your offer.
suspended in its efficacy.
Can you also dictate on the manner of the acceptance of the
Art. 1469. In order that the price may be considered certain, it offer?
shall be sufficient that it be so with reference to another thing Yes.
certain, or that the determination thereof be left to the judgment
of a special person or persons.
Example:
Should such person or persons be unable or unwilling to fix it, the You can put an ad in a newspaper, make the offer to
contract shall be inefficacious, unless the parties subsequently the public and say anyone who is interested to take
agree upon the price.

82 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
up this offer cannot call you directly. He must also
publish the acceptance in a newspaper.
What can you do as the offeree to the offer made by the
offeror, in this example?
Make a counter offer
Example:
The offeror will make the repairs and you are willing
to increase his price.
Would there be a contract of sale between the 2 of you?
Not yet, because you have just made a counter-
counter
offer.
What does a counter offer do to the offer? And a counter
offer is essentially what?
It is a rejection of the offer and also a new offer on
your part.
Until you come to an agreement as to the terms,
there will be no contract of sale between the 2 of
you.
What is the significance of having a contract of sale between
the parties?
It is only from that moment on that they will have
rights and obligations arising from the contract of
sale. Until a contract of sale is perfected, then they
have no rights and obligations as buyer and seller.
Would it be correct to say they have absolutely no rights as
against one another until there is a perfected contract of
sale?
They will not have any rights as buyer and seller for
the simple reason that there iss no contract of sale
yet, but there can be some other kind of transaction
between them that peculiar to the negotiation stage
that will give them rights and obligations.
What kinds of transaction may arise or take place in the
negotiation stage?
Option contract is simply a specie of a simple offer.
A simple offer that we are discussing in the example
example, is not
supported by a separate consideration. It means that it places
all the power in the offeror because he can withdraw the
offer any time. He is not bound by what he said. The Offeree
cannot really decide in this point. But he is interested, only
that he can also stand the risk of waiting too long he can still
withdraw the offer or change the terms.
83 | P a g e
What can you do?
You can solidify the offer into a contract
c by giving a
separate consideration for the offer. The offer to sell
made by the seller is equivalent to an option to buy
created on the part of the buyer. Offer to sell on the
part of the seller; option to buy on the part of the
buyer
If there is a separate consideration, how will that affect the
offer to sell?
It elevates the offer into an option contract with
consideration.
What is an option contract?
An option contract is a preparatory contract in which
one party grants to the other, for a fixed
fixe period and
under specified conditions, the power to decide,
whether or not to enter into a principal contract. It
binds the party who has given the option, not to
enter into the principal contract with any other
person during the period designated, and, within
that period, to enter into such contract with the one
to whom the option was granted, if the latter should
decided to use the option. It is a separate agreement
distinct from the contract which the parties may
enter into upon the consummation f the option.
An option contract is already complete in its details.
If it is an option to buy, it means that there is a subject matter
and the price to be sold and the period within which the
option would be exercised would also be specified.
Elements of option contract
Consent or the meeting of the minds upon:
Subject matter: an option right to an unaccepted
unilateral offer to sell/accepted promise to sell, or
unaccepted unilateral offer to buy/accepted promise
to buy:
o A determinate or determinable objec
object
o For a price certain, including the manner of
payment thereof
Prestation: A consideration separate and distinct
from the purchase price for the option given
What can the offeror not do if he is already bound with the
option contract with consideration?
Hee cannot withdraw the offer until the period has
lapsed and he cannot change the terms because he
agree to be bound by his offer.
On the part of the optionee/offeree, what does he acquire by
virtue of the option contract?
Privilege to buy within the period.
perio
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Does he acquire any rights to the property?
No. What he acquires is simply the right to elect to
buy the property.
Why is it important to emphasize this?
Because contracts are made to be broken broken.
Madalang ang kontrata na would faithfully complied
with by the parties especially with a longer period of
performance. The more likely that there would be
some kind of violation.
What happens if the option contract is breached, what would
be the remedy of the offeree?
Damages only.
or specific performance and compel the
Can the optionee sue for
offeror to execute a contract of sale?
No, because that remedy is available only to a
contract of sale. There is no contract of sale here
yet. The parties have not yet reached the perfection
stage.
Can he bring an action for specific performance for the option
contract itself?
No, because an option contract is only a preparatory
contract, there is really nothing to execute. There is
no obligation that can be the subject of execution.
You are only given the right to elect, to accept the
offer. The offer has been made and then you are
preserving the offer by having this option contract.
What left is for you to accept the offer.
If it has been breached by selling the property to
another, what can you do? Even if you choose
ch to
elect or to accept the offer it cannot be given any
effect anymore because the subject matter is no
longer in the hands of the offeror.
So your remedy is only to ask for damages.
Right of First Refusal: Is this the same as an option contract?
The distinction between option contract and right of first
refusal cannot be on the presence or absence of a
consideration.
At this point there is no complete offer yet for the offeree
to buy the property. When we say that there is no complete
offer yet, this means that there is no intention to sell yet at
this present hour. In
In the future I might want to sell this. If I
do decide I want to sell this in the future, then you get first
crack at the sale. I will give you the first option to buy from
me.
84 | P a g e
In an option contract, the intention to sell is present as
evidence by the fact that it is already complete with the
details of the terms of the sale.
In a right of first refusal, what i is specific?
The subject matter
As to the when, how much and the conditions of the
sale that has not yet been decided.
If you look at the hierarchy, the right of first refusal would
give lesser rights than an option contract.
Must it be supported by a separate consideration?
Not necessarily. If there is no separate
consideration, the right of first refusal would be a
mere promise.
If there is a breach of that promise, what will be your remedy?
Can you go to court and sue?
May be not under the auspices of law on contracts,
but under the human relations abuse of rights. You
have a right to sell your property as you see fit, but
you have no right to trample on my interests or
emotions, because you promised this to me.
But can it be supported by a consideration?
Yes. That would mean that the right of first refusal
would now be elevated to status of a contract but
still lesser than an option contract.
Example:
In a lease contract it is stipulate that if the lessor
decides to sell the unit, the lessee will be given the
option to buy the property.
Is that supported byy a separate consideration?
No.
Is there a consideration for the right of first refusal?
Yes, the same consideration which supports the
contract of lease.
Give an example where there is a separate consideration for a
right of first refusal given in a contract of lease
Under jurisprudence usual consideration would be
the improvements introduced in the leased
premises. Improvements would inure to the benefit
of the lessor. This is specially works for lease of
parcels of lands or vacant lot.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
The lessee will be the one to construct the building
or improvement and this would be for a long period
of time. In exchange, itt is agreed that at the end of
the lease all improvements would now belong in
ownership to the lessor. At the same time there is an
undertaking
ing that should the lessor decide to sell the
property in the future then the first optoption will be
given to the lessee because when we lease a vacant
property and wielded on the property, then more or
less, you are looking at the property in terms of
ownership.
ship. Parang you are acting as though you are
the owner. It is only logical that you are interested in
acquiring the property. You will not introduce
substantial improvements if there is no such
consideration. So for surrendering your rights in the
improvements,
ments, you are given the right of first
refusal.
You will appreciate how this is commutative in
nature, like the rights of the parties are are
reciprocal.
In that point it is unclear what the terms are, how much the
price is, for the sale of the property because the seller has not
yet decided to sell.
Mr. De Jesus and the perfect world of sale
How do you determine what the terms and conditions of the
potential sale would be?
In case the owner decided to sell to someone less,
the property should be sold to you at the same price
and under the same terms and conditions as the sale
rd
being offered to the 3 person. That is the essence
of the right of first refusal.
If an option contract is breached, your only remedy is to sue
for damages. Do we adhere to the same rule when it comes to
the rights of first refusal?
No because specific performance is available
Is rescission available as a remedy?
Yes
Is the recission that we are speaking here is the recission of
rd
the sale between the seller-lessor and the 3 person?
Yes
Basis?
The lessee has incurred damages
Jurisprudence seems to imply that the remedies in a right of
first refusal embodied in a principal contract therefore
supported by a separate consideration would be more -
85 | P a g e
conducive than the remedies for breach of option contract,
whereas we said that the option contract should be elevated
to a level higher than right of first refusal. How do we
reconcile this disparity?
(This answer is from Villanueva Book on law on sales. Atty S wasnt
w able to
answer this because of a campaign for elections)
In case an option is
supported by a separate consideration, the optionee
shall have the right to exercise the option or accept
the offer at anytime during the option period and
the same would giveg rise to a valid and binding
contract of sale. In the same manner, if separate
consideration has been received by the optioner for
the grant of the option, he cannot withdraw the
offer during the option period, and any attempt to
so withdraw the offer during the option period shall
be void.
It may happen that the optioner does not only
withdraw the offer during the option but also sells
the property to a third party during that period.
period Such
a situation does not affect the above proposed rule
since the acceptance of the offer (i.e., the exercise of
the option) by the optionee during the optionperiod
would still give rise to a valid sale over the subject
property, but that the rules on third party buyer in
good faith should prevail. If the third party buyer
buy
bought the property from the optioner knowing of
the existence of the option in favor of the optionee,
he would be a property party to the action for
specific performance that the optionee can bring
against the optioner once he has exercised his
option. On the other hand, if the third party buyer
bought the property in good faith and for value, then
he is protected by law, and the remedy of the
optionee (who has become the buyer in a valid and
binding sale) is to sue the optioner (who has become
the seller)
er) for recovery of damages for breach of
contract of sale, rather than to sue for damages for
breach of the option contract.
CIV9
We have discussed option contracts and the right of first
refusal. These are transactions which are unilateral in
character.
What happens if the preparatory transaction is already
attended by mutuality at the instance, a mutual promise to
buy and sell? What contract arises from such mutual
promise?
A contract to sell
The contract to sell is a promise of both parties to
buy and sell.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Does that give rise to a contract of sale?
No
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
Why is it we have a contract to sell and not a contract of sale?
What is lacking in a contract to sell which prevent it from
becoming to a contract of sale?
Is there an agreement on the price?
yes
Is there an agreement on the subject matter?
yes
We can have a contract to sell that is not subject to a
condition. We can have a contract to sell that is pure. In fact
Art 1479 is an example of a pure contract to sell
Do we have meeting of minds in a contract to sell?
Yes
Example of a contract to sell (mutual promise to buy and sell)
under Art 1479:
Shopping in a mall, the shopper goes to store to
store. The shopper is scouting whatever is available.
She does not make a decision to buy until she find
the apparel (by Ms. Velasco) that is perfect in
terms of design and the price. When she found one,
she did not buy it yet because she has not visited
other stores. What she did is that she told the sales
lady babalikan ko
When she made that statement babalikan ko what
essentially is she making or establishing?
establishing
She is making a promise to buy
And if the sales lady said sige po balik kyo or
acknowledges the buyer gesture or statement, what
is she making?
Promise to sell the item to the buyer
So we have here a mutual promise to buy and sell.
At that point there is no contract of sale yet because
what we have is simply a contract to sell (mutual
promise); a promise on the sales ladys part to sell
and the promise on the part of the buyer to buy but
the buyer is not buying yet, she had not made that
commitment. But we already know the item (subject
86 | P a g e
matter) and we also know what the price is. So there
is a meeting of the minds in the price and on the
item, only there is no agreement yet that there
would be a buy and sale as of that moment.
What happens if the mutual promise to buy and to sell is
breached? Do we have a contract on that point?
Yes, a contract to sell
What happens if there is breach? In our example, when the
buyer comes back, the item is sold to another, what will be
the remedy?
Damages
To demand the seller to enter in a contract of sale
If the buyer demand for the item, that will be premised on
what?
It presupposes that there is a con
contract of sale
So, in a contract to sell, the buyer cannot demand
for the delivery of the item
If the seller refuses to enter in a contract of sale with the
buyer, what will be the remedy?
Damages
The law says that once there is a mutual promise to buy and
sell, the same is demandable from the parties, isnt that
contradictory to the answer that specific performance does
not lie to enforce a contract to sell under Art 1479?
What does the law mean when it says reciprocally
demandable?
To fulfill the mutual promise to buy and sell
How can we reconcile in the statement that a contract to sell
cannot be a subject for specific performance, when the law
itself says that it is reciprocally demandable?
The fact that the obligation is demandable it does
not always mean that performance can be
compelled by court action. Remember that
obligation to do (contract to sell), they are also
demandable meaning to say that the other party can
demand performance. But Bu should there be a refusal
on the part of the debtor to perform what is
incumbent upon him in obligation to do, he cannot
be compelled by court action to perform.
Even though the law says that it will be reciprocally
demandable from the parties, the remedy
rem cannot
include specific performance. It will be necessarily
limited to damages
Just to be clear, this is different from a situation involving an
option contract. In option contract, we said that specific
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
performance is also not available but not because
becau it will be
violative of the constitutional prohibition against involuntary
servitude but because there is no contract to speak of yet.
Kasi option pa lang un, preparatory transaction. It is not really
a mutually binding contract. So the recourse is to ask a for
damages.
Contract to sell vs Conditional contract of sale
There are various rulings in the Supreme Court where it seems
to have confusion with regard to the concept of contract to
sell and conditional contract of sale, particularly if the
condition
on consists of withholding title to the property until
there is full payment of the purchase price. In this situation,
how do we know when is it a contract to sell and when is it a
conditional contract of sale? We have encountered cases
where the conditionss appear to be the same. The conditions
are reserving title in the seller despite delivery until there is
full payment of the purchase price. But the treatment of the
condition sometimes vary, sometimes it is treated as a
contract to sell and sometimes it is a conditional contract of
sale. How we know the conception where the same condition
that is attached is a contract to sell? And when do we know
that such transaction where the same condition is attached is
a contract of sale subject to a condition?
In a conditional contract of sale,, the condition is
attached to the performance of the obligation
In a contract to sell,, the condition attaches to the
perfection of the contract
Does it matter that we know if it is a contract to sell
sel or a
conditional contract of sale?
Yes
Why?
Because of the remedies available
In one, you dont have to do anything. It is though
you are never bound by the contract. In the other,
you have to effect rescission. If the sale involves
immovable property, more will be ask of you, it is
not just a plain recission, you to do some kind of
notarial act.
Example of a condition attaching perfection:
I will give you a car if you pass the bar exam. That is
a suspensive condition. It attaches to the perfection
of the contract.
Why does it attach in the perfection of the contract?
Because fulfillment
illment of the condition determines
whether or not will exist
87 | P a g e
The same thing with a contract to sell, where the same
condition is imposed. Most probably, the contract will be
worded as follows. the obligation of the seller to sell and
deliver is condition n on the payment by the buyer of the full
purchase price. Note that it attaches not just to the
obligation to deliver or to transfer ownership but the very
essence of the contract of sale, which is obligation to sell. I
will only sell to you. I will only
onl execute the deed of sale once
you pay the purchase price, that attaches to the point of
perfection. It is a contract to sell because there is no contract
of sale yet.
But if the condition is fulfilled, it is no longer preparatory,
what we have is a perfected
fected contract of sale.
Example of a condition can also be attached to the
performance:
Lets say the subject matter of sale is a parcel of land
and it is populated by Squatters. The Buyer says I
will pay you, we have a contract of sale, but I will pay
you once
nce you have successfully evicted all of these
people from this parcel of land
Do we have a contract of sale?
Yes
But is there a condition affecting the obligation?
Yes
What aspect, is it perfection?
No, because they have already perfected the
contract of sale. The sale is existing but what is
affected by the condition is the performance by b the
buyer of his obligation. Demandability
D is suspended
until such time that the other party is able to comply
or fulfill the condition
How will these different
rent characterizations affect the remedies
available to the aggrieved parties? What will be the effect of
the non-fulfillment
fulfillment of the condition? How do we treat the
condition in a contract to sell?
It has to happen to give rise to the obligation. So it is
a positive suspensive condition
If it is a positive suspensive condition, what will happen if it is
not fulfilled?
No contract of sale will exist between the parties
Is there a need to rescind the contract?
No,
Why?
Because there is no contract to rescind,
rescin it did not
reached perfection
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

On the other hand, a contract of sale subject to a condition, The offer must be certain and the acceptance must
how do we treat the condition affecting the performance of be absolute and unconditional
the obligation of the parties?
If the condition did not happen, the obligation will When do we say that there is acceptance?
be extinguished. It is a negative resolutory condition
Must the acceptance be express?
What will be the remedy of the parties here? No
Rescission is available
But it does not have to be spelled out like I accept?
Why is rescission available? No
There is now a contract to rescind

Remember in this case, the nonperformance of the condition How else can there be an acceptance?
amounts to a breach of the contract. Rescission is available It can be implied from the acts or conduct of the
both under Art 1191 and Art 1545 person accepting

Art. 1545. Where the obligation of either party to a contract of sale is subject Example: when the person accepting retains the thing
to any condition which is not performed, such party may refuse to proceed
with the contract or he may waive performance of the condition. If the other
party has promised that the condition
ion should happen or be performed, such Must the acceptance be done personally?
first mentioned party may also treat the nonperformance of the condition as No
a breach of warranty.
What other ways?
Where the ownership in the thing has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described and Telegram, letters
as warranted expressly or by implication in the contract of sale as a condition
of the obligation of the buyer to perform his promise to accept and pay for What is a telegram?
the thing.

If send your acceptance either by letter or telegram the

But rescission is not the only option, what else?
Under
nder art 1545, he may opt to just waived the
condition and still proceed with the contract
notwithstanding non fulfillment of the condition.
Just to be clear, can we have other conditions affecting a
contract of sale, other than retention of the title of the seller
until there is full payment of the purchase price
price?
Yes
Laforteza vs Machuca June 2000
Spouses Valenzuela vs kalayaan development corporation
When is a contract of sale perfected?
Art. 1475. The contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the
contract and upon the price.
acceptance will not bind the offeror until he learns of the
acceptance and until he learns of the acceptance, he can still
withdraw the offer.
Art. 1319. Consent is manifested by the meet meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
counter
Acceptance made by letter or telegram does no
not bind the offerer except from
the time it came to his knowledge. The contract, in such a case, is presumed
to have been entered into in the place where the offer was made.
What role, if any, does earnest money play in the perfection
of contract of sale?
Art. 1482. Whenever earnest money is given in a contract of sale,
it shall be considered as part of the price and as proof of the
perfection of the contract.

From that moment, the parties may reciprocally demand How is it different from the separate consideration given in an
performance, subject to the provisions of the law gov
governing the
option contract?
form of contracts.
Earnest Money: part
p of the purchase price
This is usually evidenced by, when we say that we have Option Money: the money given as a distinct
meeting of the minds upon the subject matter and the price, consideration for an option contract
what 2 elements concur when there is meeting of the minds?
Acceptance of the offer Earnest Money: given only where there is already a
sale
What should be the characteristics
eristics of the offer and the Option Money: applies to a sale not yet perfected
acceptance?
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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Earnest Money: when given, the buyer is bound to
pay the balance
Option Money: when given, the would
would-be buyer is
not required to buy or to pay the purchase price
because there is no contract of sale to speak of yet,
but may even forfeit it depending on the terms of
the option
If there is a meeting of the minds between the parties with
regard to the subject matter and the price, would the sale be
valid already even if the same is not reduced in writing?
Yes, it may be oral, in writing or partly oral and
partly in writing
Art. 1483. Subject to the provisions of the Statute of Frauds and
of any other applicable statute, a contract of sale may be made in
writing, or by word of mouth, or partly in writing and partly by
word of mouth, or may be inferred from the conduct of the
parties.
Example of a contract of sale that is partly in writing and
partly oral:
Lets say you are planning a party. You look in the
internet for suppliers and the suppliers sent you a
proposal by fax. The proposal that they sent is
complete that willl be an offer. The terms are there.
Then you call them up, to seal the deal. Then there
will be delivery.
Under the law, it does not really matter in what form the
contract of sale is, it will still be valid. The only consideration
that we have to factor in would be?
The provisions of the statute of frauds
The provisions of statute of frauds would only affect, the
enforceability of the contract of sale, not its validity
When do the statutes of frauds apply?
A sale agreement which by its terms is not to be
performed within a year from the making thereof
An agreement for the sale of goods, chattels or
things in action, at a price not less than P500
A sale of real property or of an interest therein
What takes place in performance or Consummation?
The parties will be performing their respective
obligations.
Can we have a contract of sale that the subject matter is
generic things?
Yes
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And if the subject matter is generic, does the seller have an
obligation to deliver the fruits, accession and accessories
accessori and
obligation to preserve the subject matter?
No
What are the obligations of the seller?
To deliver and to transfer ownership and possession
to the buyer
To warrant the thing which is the object of the sale
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale.
What are the obligations of the buyer?
to accept delivery
to pay the price of the thing sold
Art. 1582. The vendee is bound to accept delivery and to pay the price
pri
of the thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the thing sold.
Obligation to deliver, what is the significance of delivery
under our law?
Without delivery, there will be no transfer of
ownership
Art. 1477. The ownership of the thing sold shall be transferred to
the vendee upon the actual or constructive delivery thereof.
Why? If it is delivery which transfers ownership, what good
does the contract of sale serve? What does it give to the
buyer?
The contract of sale gives a Personal right to the
buyer
Ownership is acquired upon delivery and it is a real right
because the buyer can enforce his right of ownership against
the entire world. But it does not mean that the buyer do not
get anything from the contract of sale. The contract of sale
gives the buyer title. Title means the buyers basis for
acquiring ownership. Title is also a right, it is an existing
exist right
but it is personal in nature because the buyer can only
enforce this against the other party to the contract of sale
Who must make the delivery?
The seller
At the point of delivery, what rights must the seller possess?
He must have ownership
Att the point of perfection in the contract, the seller
does not have to be the owner of the subject matter
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
but it is imperative that he has ownership at the
time of delivery.
Art. 1459. The thing must be licit and the vendor must have a
right to transfer the
he ownership thereof at the time it is delivered.
delivered
Why should he be the owner at the time of delivery?
Because of the legal principle that a person cannot
transfer what he does not have and you cannot
transfer ownership, if you yourself is not the owner
of the thing that you are delivering
Do we recognize any exceptions to the rule that the seller
should be the owner at the time of delivery?
When the owner is, by his conduct, precluded from
denying the sellers authority to sell (estoppels)
When the contraryrary is provided for in recording laws
When the sale is made under the statutory power of
sale or under the order of a court of competent
jurisdiction
When the sale is made in a merchants store in
accordance with the code of commerce and special
laws
Underr Art 1506, the sale by a seller who at the time
of delivery had voidable title to the thing delivered
Art. 1505. Subject to the provisions of this Title, where goods are
sold by a person who is not the owner thereof, and who does not
sell them under authority
ority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had,
unless the owner of the goods is by his conduct precluded from
denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or
any other provision of law enabling the apparent
owner of goods to dispose of them as if he were the
true owner thereof;
(2) The validity of any contract of sale under statutory
power of sale or under the order of a court of
competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or
markets, in accordance with the Code of Commerce
and special laws.
Art. 1506. Where the seller of goods has a voidable title thereto,
but his title has not been avoided at the time of the sale, the
buyer acquires a good title to the goods, provided he buys them
in good faith, for value, and without notice of the seller's defect of
title.
Supposing that the title of the seller is voidable?
The seller can effectively transfer title provided that
the buyer is in good faith
Example when the sale is made in a merchants store in
accordance with the code of commerce and special laws:
90 | P a g e
A, the seller, has a stall in a markets. The dresses
that he sells are on display. One of the dresses he
sells is stolen.
What is a merchant store?
It is where the goods are displayed and sold
If you buy from a market, merchant stores or fairs and it turns
out that the thing being sold does not belong to the seller,
selle he
has no ownership over the same, the buyer will be protected.
The real owner cannot take the goods from you. Although the
seller has no ownership, the buy may still acquire ownership
over the thing sold to the buyer
Why is the buyer protected from the law? What is the purpose
of the law in allowing the buyer to acquire rights of ownership
from a seller who is not the owner of the item that she bought
from the market?
We cannot afford requiring the public to check every
time they buy from the market, fa fairs or merchant
stores whether the seller really has title
Ruling otherwise (disregarding the rights of the
buyer), the buyer would be on guard in the next time
shes buying and require the seller to prove
ownership over the thing he is selling
We cannot afford that to happen because it goes to
business stability and in the larger scale the
economy. People will stop buying. When people stop
buying then that is bad for the economy, there will
be no movement of money
The provisions of any factors' act, recording
rec laws, or any
other provision of law enabling the apparent owner of
goods to dispose of them as if he were the true owner
thereof
At least by paper, he is the apparent owner but he has no
right to the property at all and the only reason by allowing
the transfer of rights to the buyers because of a provision in a
recording law.
Example of recording will be property registration
Example: lets say that there is a land that is registered in the
name of Mr. Ponce but he has sold the same to someone
else. The sale has not been unregistered, the sale has not
been annotated. The title remains with Mr. Ponce but he is
no longer the owner of the property, then he sells it again to
Mr. Anarna. Mr. Anarna relying on the certificate of title that
the property still on Mr. Ponces name. Applying the general
rule, Mr. Ponce cannot transfer title to Mr. Anarna because
he is no longer the owner. However,
However by virtue of the
provision of property registration law, Mr. Anarna has every
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

right to rely on what appears on the title. And since the title
shows that Mr. Ponce is still the owner, then it is possible,
subject on the rules of double sale, that he can aacquire rights
of ownership over the property even though his seller is no
longer the rightful owner
How should delivery be made?
Actual or constructive delivery
What is actual delivery?
Art. 1497. The thing sold shall be understood as delivered, when it
is placed in the control and possession of the vendee.
Traditio Symbolica
Physical actual and possession
Constructive delivery
when the delivery of movable or immovable things is
not physical or material but merely by indicative sign
Which is preferred?
In point of law, there is no preference. Both are
equally effective
When at the time of execution of instrument,
subject matter was not subject to control of the
seller
Example: when the property is in the actual
possession of a third person with an interest adverse
to the seller
A certain date is fixed for the purchaser to take
possession of the property subject of the
conveyance
In case of sale by installment is made, the title to the
property should remain with the seller
When the seller reserves the right to use and enjoy
the property until the gathering of the pending crops
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing
which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.
able property, its delivery may also be made
With regard to movable
by the delivery of the keys of the place or depository where it is
stored or kept.
Example: Keys of Bank vault where the contents of
the vault is the subject matter of sale

How do we effect constructive delivery? Traditio longa manu made by the grantor
gr pointing out the
Tradition through public Instrument things to the grantee which things must be within their sight
Traditio Symbolica Art. 1499. The delivery of movable property may likewise be
made by the mere consent or agreement of the contracting
Traditio longa manu parties, if the thing sold cannot be transferred to the possession
Traditio brevi manu of the vendee at the time of the sale, or if the latter already had it
Traditio constitutum possessorium in his possession for any other reason.
Quasi-tradition
Tradition by operation of law Example: selling crops growing in this particular area

Tradition through public Instrument Traditio brevi manu where before the sale, the would
would-be
Art. 1498. When the sale is made through a public instrument, the buyer was already
eady in possession of the would-be
would subject
execution thereof shall be equivalent to the delivery of the thing matter of the sale, say as a lessee, and pursuant to sale, he
which is the object of the contract, if from the deed the contrary would now hold possession in the concept of an owner
does
es not appear or cannot clearly be inferred.

With regard to movable property, its delivery may also be made
by the delivery of the keys of the place or depository where it is
stored or kept.
It must be in public instrument
When does the execution of a public instrument not amount
to delivery?
When there is stipulation to contrary or contrary
intention appears,, execution does not produce
effect of delivery
Example: lessee of a condominium unit who
subsequently purchased to the owner. He continues
to be in possession but not anymore as a lessee but
an owner. There is no need for the lessor-owner
lessor to
take back the unit and deliver to the lessee-buyer
lessee
because the latter is already in possession of the
subject matter of sale
Traditio constitutum possessorium
possessori takes effect when at
the time of the perfection of the sale, the seller held
possession of the subject matter in the concept of owner, and
pursuant to the contract, the seller continues to hold physical
possession thereof no longer in the concept of ana owner, but

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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

as a lessee or any other form of possession other than in the The buyer purchases the thing relying on such
concept of owner affirmation or promise thereon

Quasi-tradition What are implied warranties?

Art. 1501. With respect to incorporeal property, the provisions of
the first paragraph of article 1498 shall govern. In any other case
wherein saidid provisions are not applicable, the placing of the titles
of ownership in the possession of the vendee or the use by the
vendee of his rights, with the vendor's consent, shall be
understood as a delivery.
Tradition by operation of law comprises all those cases
which are not covered by the previous modes of delivery and
by which tradition is effected solely by virtue of a legal
precept
Example: Intestate Succession
Warranties of the seller
How many warranties do we recognize under the law?
2 sell the thing at the time when the ownership is to pass, and that
What are these?
Express warranties and implied warranties
Warranties: a statement or representation made by the seller
contemporaneously and as a part of the contract of sale,
having reference to the character, quality or title of the
goods, and by which he promises or undertakes to insure that
certain facts are or shall be as he then represents
When do we have an express warranty?
If the party so stipulates in their contract
There are a lot of things that may be included in a contract
but not everything will be a warranty. It is important for us to
know which stipulation will amount to a warranty because
this will give a cause of action to the buyer incase there is
breach of the warranty
What is an express warranty?
Art. 1546. Any affirmation of fact or any promise by the seller
relating to the thing is an express warrantyy if the natural tendency
of such affirmation or promise is to induce the buyer to purchase
the same, and if the buyer purchase the thing relying thereon. No
affirmation of the value of the thing, nor any statement
purporting to be a statement of the seller's
r's opinion only, shall be
construed as a warranty, unless the seller made such affirmation
or statement as an expert and it was relied upon by the buyer.
Express Warranties (requisites)
It must be an affirmation of fact or any promise by
the seller relating
ing to the subject matter of the sale
The natural tendency of such affirmation or promise
is to induce the buyer to purchase the thing
Implied warranties are those which by law constitute
part of every contract of sale, whether or not the
parties were aware of them, and whether or not the
parties intended them
There is no need for the parties to stipulate on them
What are the implied warranties
arranties in a contract of sale?
Warranty against eviction
Warranty against non-apparent servitude
Warranty against hidden defect
Warranty of Quality and Warranty of
Merchantability
Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to
the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden
faults or defects, or any charge or encumbrance not declared or
known to the buyer.
This Article shall not, however, be held to render liable a sheriff, auctioneer,
mortgagee, pledgee, or other person professing to sell by virtue of authority
in fact or law, for the sale of a thing in which a third person has a legal or
equitable interest.
What is warranty against eviction?
An implied warranty on the part of the seller that
when the ownership is to pass, the buyer shall from
that time have and enjoy the legal and peaceful
possession.
It goes without saying that this stems by the
warranty of the seller that he has the right to
transfer ownership and
a possession to the buyer and
he (seller) that in entering in a contract of sale, that
at the time there is delivery to the buyer, the buyer
will be kept in peaceful possession and enjoyment of
the property
When do we say that there is a breach of this warranty
w
against eviction?
Purchaser has been deprived of, or evicted from, the
whole or part of the thing sold
Eviction is by a final judgment
Art. 1557. The warranty cannot be enforced until a
final judgment has been rendered, whereby the
vendee loses the thing acquired or a part thereof.
Basis thereof is by virtue of a right prior to the sale
made by the seller.
seller The final judgment must be
based on a prior right enjoyed by a 3rd person.

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 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Seller has been summoned and made co-defendant
co
in the suit for eviction
on at the instance of the buyer
Art. 1548. Eviction shall take place whenever by a final judgment based
on a right prior to the sale or an act imputable to the vendor, the
vendee is deprived of the whole or of a part of the thing purchased.
The vendor shall
all answer for the eviction even though nothing has been
said in the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress
this legal obligation of the vendor.
If the buyer is forcibly evicted from the property, lets say a
condominium unit, he was physically dragged out and the
premises are lock by the one who forced him out, could there
be a breach of this warranty against eviction?
No
Why not?
It is not a disturbance in law
What kind of disturbance is required?
It must be by virtue of a final judgment
What kind of action that was brought against the buyer that
will result in a final judgment in breach of this warranty
against eviction?
Ejectment cases (Accion Interdictal)
Accion publiciana
Accion reinvidicatoria
Replevin
Can there be an eviction with regard to personal properties?
Yes
What kind of action that can give rise to a final judgment that
in turn can be a basis to pray that there was a breach of
warranty against eviction involving personal properties?
pr
Replevin
Basis thereof is by virtue of a right prior to the sale made by
the seller. The final judgment must be based on a prior right
rd
enjoyed by a 3 person.
If it is after the sale, then the seller no longer has
responsibility for the eviction
The law requires a final judgment, so this presupposes that
some kind of proceeding has taken place, does the buyer has
any obligation when regard to resisting the complaint
rd
brought by a 3 person who appears to have a better right?
He is required to include the seller. He is required to
implead the seller as defendant. It is the sellers
obligation to defend the title of the buyer to the
property.
93 | P a g e
Art. 1558. The vendor shall not be obliged to make good the
proper warranty, unless he is summoned in the
th suit for eviction at
the instance of the vendee.
The buyer is not required to appeal in the judgment of the
trial court, but he is required to do something at the first
instance, at the trial court level
Art. 1549. The vendee need not appeal from the de
decision in order
that the vendor may become liable for eviction.
If the buyer did not do this (implead the seller), if he only
gives notice or sent copies of the complaint, he does not have
any cause of action to sue for breach of warranty against
eviction.. The seller must be given an opportunity to defend
his title. There is no better opportunity to do so but that in
the same proceeding where the eviction is being sought by
rd
this 3 person claiming to have a better right to the property
than the seller.
fter trial, if the judgment is adverse, the buyer is no longer
After
obligated to appeal the judgment. If he did not appeal and
gets evicted, he can now sue for breach of warranty against
eviction
CIV10
Is the warranty against eviction available in judicial sales?
s
It is also available in judicial sales unless the
judgment itself provides that there will be no
warranty against eviction
Art. 1552. The judgment debtor is also responsible for eviction in
judicial sales, unless it is otherwise decreed in the judgment.
What are the exceptions or instances, where a cause of action
for breach of warranty against eviction will not exist even if
there has been judicial eviction?
Express waiver on the part of the buyer
Art. 1554. If the vendee has renounced the right to warranty in
case of eviction, and eviction should take place, the vendor shall
only pay the value which the thing sold had at the time of the
eviction. Should the vendee have made the waiver with
knowledge of the risks
isks of eviction and assumed its consequences,
the vendor shall not be liable.
If the reason for eviction is premised on an adverse
possession that was commenced before the sale but
that was completed after the sale
Art. 1550. When adverse possession ha had been commenced before
the sale but the prescriptive period is completed after the
transfer, the vendor shall not be liable for eviction.
the property is sold for nonpayment of taxes due
and the buyer knew of the risk attach to the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
property with regard to the potential foreclosure for
nonpayment of taxes
Express waiver of the buyer must be coupled with?
Good faith on the part of the vendor
When we speak of waivers of warranty against eviction, do
we differentiate as to what kind?
Yes, the waiver can either
ther be consciente
con or
intencionada
Is it important for us to know how they are different?
Yes
Why?
Because it affects the right of the buyer
Consciente if the waiver is made without knowledge of the
risk of eviction and the assumption of the consequences
Intencionada if the waiver is made with the knowledge of
the risk of eviction and the assumption of the consequences
How would this affect the right of the buyer?
If the waiver is intencionada,, there will be no liability
on the part of the seller;
If the waiver is consciente,, the seller shall only pay
the value of the thing sold had at the time of eviction
This is significant because the value of the thing at the time of
eviction may either lesser or greater than its price at the time
of the sale.
If the reason for eviction is premised on an adverse possession
that was commenced before the sale but that was completed
after the sale,, hence there is no action for breach of warranty
against eviction. Why not?
Because the eviction here is not really for acts
imputable to seller, there is some degree of liability
or accountability on the part of the buyer because
the acquisitive period was completed after the sale.
So he is also negligent, if he allowed
llowed the prescriptive
period to be completed under his watch
Supposing that the property is confiscated by the government
and sold at auction sale to satisfy unpaid taxes, can there still
be liability against eviction on the part of the seller?
There would
uld still be liability on the part of the seller
unless the buyer knew of the risk attach to the
property with regard to the potential foreclosure for
nonpayment of taxes
94 | P a g e
Art. 1551. If the property is sold for nonpayment of taxes due and
not made known to the vendee before the sale, the vendor is
liable for eviction.
Supposing that there is a breach of the warranty against
eviction, what will be the remedies available to the buyer?
Rescind the sale
Enforce the liability of the seller under Art 1555
(damages)
When is rescission available?
When there is partial eviction and the law further
requires the portion that the buyer was deprived
must be important. Important in the sense that the
buyer would not have bought the property without
that portion
Art. 1556. Should the vendee lose, by reason of the eviction, a
part of the thing sold of such importance, in relation to the whole,
that he would not have bought it without said part, he may m
demand the rescission of the contract; but with the obligation to
return the thing without other encumbrances that those which it
had when he acquired it.
He may exercise this right of action, instead of enforcing the
vendor's liability for eviction.
The same rule shall be observed when two or more things have
been jointly sold for a lump sum, or for a separate price for each
of them, if it should clearly appear that the vendee would not
have purchased one without the other.
Is this available in case of total eviction?
No
Why not?
Because in rescission there must be mutual
restitution. Under Art 1556, it is specifically required
that the buyer who invokes rescission should be able
to return the thing sold to the seller.
It goes without saying that this is impossible in total
eviction because the thing sold is in possession of
rd
the 3 person proven to have a better right than the
seller
In lieu of rescission, the buyer may opt for enforcing the
liability under Art 1555. What comprises the sellers liability
l
under this provision in the law?
Art. 1555. When the warranty has been agreed upon or nothing
has been stipulated on this point, in case eviction occurs, the
vendee shall have the right to demand of the vendor:
(1) The return of the value which the thing
t sold had at the
time of the eviction, be it greater or less than the price
of the sale;
(2) The income or fruits, if he has been ordered to deliver
them to the party who won the suit against him;
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(3) The costs of the suit which caused the eviction, and, in
a proper case, those of the suit brought against the
vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid
them;
(5) The damages and interests, and ornamental expenses,
if the sale was made in bad faith.
The costs of the suit which caused the eviction, and, in a
proper case, those of the suit brought against the vendor for
the warranty. Litigation or suit for?
Cost of the suit which led to the buyers eviction and
expenses that the he buyer would have to incur to
make the seller pay him, damages. Because even
though he has been summoned, the seller can refuse
to defend his title or even if the seller defended his
title, he refuses to pay the damages which would
now compel the buyer to o go court to enforce the
warranty against eviction against the seller
Warranty against non-apparent servitude
Art. 1560. If the immovable sold should be encumbered with any non- non
apparent burden or servitude, not mentioned in the agreement, of such a
nature that it must be presumed that the vendee would not have acquired it
had he been aware thereof, he may ask for the rescis
rescission of the contract,
unless he should prefer the appropriate indemnity. Neither right can be
exercised if the non-apparent
apparent burden or servitude is recorded in the Registry
of Property, unless there is an express warranty that the thing is free from all
burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the vendee
may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an
equal period, to be counted
ted from the date on which he discovered the
burden or servitude.
An example of a non-apparent
apparent servitude would be easement
of lateral and subjacent support. This is not apparent because
there is visible manifestation of its existence
What is the rule with th regard to warranty against non
apparent servitude?
There is a breach of this warranty if:
it is not disclosed in the contract of sale,
it is of such a nature that the buyer would
not have bought the property had he know
the of its existence
If the non apparent servitude is registered in the registry of
property, there will be no breach of this warranty because
registration is a notice to the world.
But such notice that is effected by registration will not be
available to preclude the buyer from
om suing for breach of
warranty against non-apparent
apparent servitude if?
95 | P a g e
There is an express warranty that the thing is free
from all burdens and encumbrances.
What would be the remedy of the buyer?
Rescission or indemnity for damages
Within what period should the buyer ask for either remedy?
For rescission and damages, within one year. After
the lapse of one year, then he may not use the right
to ask for rescission
In which case, he may only ask for?
Indemnity for damages. Damages is also available
even during
ng the one year period that rescission is
available
In what kind of sales would this be available?
Sale of immovable property
Warranty against Hidden Defects
Art. 1561. The vendor shall be responsible for warranty against
the hidden defects which the thing sold may have, should they
render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the
vendeee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or
for those which are not visible if the vendee is an expert who, by
reason
ason of his trade or profession, should have known them.
Requisites for Breach of warranty against hidden defects
Defect must be hidden
Defect must exist at the time the sale was made
Defect must ordinarily have been excluded from the
contract
Defect, mustt be important (render the thing unfit or
considerably decreases fitness)
Action must be instituted within the statute of
limitations
When is a defect hidden?
If the buyer, by a careful examination of the thing in
the usual form and manner, could not have
discovered the defect
Example:
Sale of a straightening Iron for Hair for P4000. It was
demonstrated by the seller and it was shown that it
heat up for a few seconds. When the buyer bought it
and used it, the thing bought was heat up but it last
only for 1 minute. After 1 minute, it was not heating
anymore. It did not serve the purpose.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
It was something that it cannot be detected at the
time of sale
What happens if there are visible defects and the buyer
accepts?
The seller is not answerable for patent d defects or
those which are visible, or even for those which are
not visible, if the buyer is an expert who, by reason
of his trade or profession, should have known them.
If there is a visual defect and this is accepted then
that means that the buyer waived whatever right of
action that the buyer have with regard that visible
defect but not so with regard with hidden defects.
The Rationale of warranty against hidden defects is
that the buyer has no way of telling that there is a
hidden defect affecting the thing
What do we mean by redhibitory action?
An avoidance of the sale that is usually associated
with the action that is brought to set aside the sale
of animals due to hidden defects
Art. 1572. If two or more animals are sold together, whether for a
lump sum or for a separate price for each of them, the redhibitory
defect of one shall only give rise to its redhibition, and not that of
the others; unless it should appear that the vendee would not
have purchased the sound animal or animals without the
defective one.
The latter case shall be presumed when a team, yoke pair, or set
is bought, even if a separate price has been fixed for each one of
the animals composing the same.
Art. 1576. If the hidden defect of animals, even in case a
professional inspection
pection has been made, should be of such a
nature that expert knowledge is not sufficient to discover it, the
defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith should fail
to discover or disclose it, he shallll be liable for damages.
What would hidden defects afflict animals? Example:
The animal is afflicted with disease
What will be the remedies of the buyer in case of hidden
defects?
Rescission of the sale
Ask for diminution of the price
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the
vendee may elect between withdrawing from the contract and
demanding a proportionate reduction of the price, with damages in
either case.
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Art. 1580. In the sale of animals with redhibitory defects,
def the vendee
shall also enjoy the right mentioned in article 1567; but he must make
use thereof within the same period which has been fixed for the
exercise of the redhibitory action.
What is the prescriptive period?
Art. 1571. Actions arising from th
the provisions of the preceding ten
articles shall be barred after six months, from the delivery of the
thing sold.
Art. 1577. The redhibitory action, based on the faults or defects of
animals, must be brought within forty days from the date of their
delivery
ry to the vendee.
If it required that the buyer should give notice to the seller,
within reasonable time
Art. 1586. In the absence of express or implied agreement of the
parties, acceptance of the goods by the buyer shall not discharge
the seller from liability
bility in damages or other legal remedy for
breach of any promise or warranty in the contract of sale. But, if,
after acceptance of the goods, the buyer fails to give notice to the
seller of the breach in any promise of warranty within a
reasonable time after the buyer knows, or ought to know of such
breach, the seller shall not be liable therefor.
Why is notice is required to be given to the seller?
Because the seller has the right to ascertain the
authenticity of the claim made by buyer. It is
possible that the seller may not be aware that there
is a hidden defect in the product that he has sold
Warranty of Quality and Warranty of Merchantability
Art. 1562. In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the
th goods, as follows:
(1) Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which
the goods are acquired, and it appears that the buyer
relies on the seller's skill or judgment (whether he be
the grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
(2) Where the goods are brought by description from a
seller who deals in goods of that description (whether
he be the grower or manufacturer or not), there is an
implied warranty
warran that the goods shall be of
merchantable quality.
Warranty of Fitness or Quality the goods are fit for specific
purpose intended by the buyer
Warranty of Merchantability the goods are fit for the
general purpose
Example:
Sale of corn that is especially intended to make
Chichacorn (cornic) warranty of quality because we
cannot make chichacorn without this special kind of
corn. If the buyer buys an ordinary corn, this cannot
be used to make chichacorm. So when we sell this
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
speciall kind of corn and we guaranty that this corn
can be used to make chichacorn, then we are giving
the warranty of fitness or quality
If we sell an ordinary corn, this is for ordinary human
consumption then that will be a warranty of
merchantability
What are the Obligations of the Buyer?
Pay the purchase price
Accept delivery of thing bought
Art. 1582. The vendee is bound to accept delivery and to pay the price
of the thing sold at the time and place stipulated in the contract.
uld not have been stipulated, the payment
If the time and place should
must be made at the time and place of the delivery of the thing sold.
When should the purchase price be paid and in what manner
should the payment be made?
It should be paid at the time, place and manner
stipulated in the contract
Art. 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the
contract.
If the time and place should not have been stipulated, the
payment must be made at the time and place of the delivery of
the thing sold.
What happens if there is failure to pay the purchase price but
delivery has been made? Would this affect the legal
consequences of delivery? What will be the effect non non-
payment of the price in relation to the delivery?
Despite non-payment
payment of the price, ownership will be
transferred because what determines transfer of
ownership is simply delivery with all the intention of
transferring ownership
If there is transfer of ownership but the price is not paid yet
yet,
will this give any right to the seller?
The seller has the right to be paid except if there is a
stipulation that payment may be made after the
delivery
In that case, would there be any liability on the part of the
buyer to pay interest from the time delivery
livery is made to the
time when price is paid?
Art. 1589. The vendee shall owe interest for the period between
the delivery of the thing and the payment of the price, in the
following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold andnd delivered produce fruits or
income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.
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How should the stipulation for the payment of interest be
made?
It must be an express stipulation in writing anything
less will be null and void
Is the obligation of the buyer to accept delivery absolute? Can
he refuse to accept delivery?
Yes, if there is a defect
But supposing that the buyer simply does not want to accept
delivery without any reason?
There willl be delay on the part of the buyer
This delay is known as?
Mora accipiendi
If the buyer refuses to accept delivery and with a just cause,
what is required of him by the law?
Give notice to the seller
To return the thing that was delivered to him, if
there
ere is an agreement
Art. 1586. In the absence of express or implied agreement of the
parties, acceptance of the goods by the buyer shall not discharge
the seller from liability in damages or other legal remedy for
breach of any promise or warranty in the contract of sale. But, if,
after acceptance of the goods, the buyer fails to give notice to the
seller of the breach in any promise of warranty within a
reasonable time after the buyer knows, or ought to know of such
breach, the seller shall not be liable therefor.
Art. 1587. Unless otherwise agreed, where goods are delivered to
the buyer, and he refuses to accept them, having the right so to
do, he is not bound to return them to the seller, but it is sufficient
if he notifies the seller that he refuses to accept them. If he
voluntarily constitutes himself a depositary thereof, he shall be
liable as such.
Is Art 1587 significant?
Yes
Why?
Because from that point, the buyer is liable as a
depositary. He will have to safe keep the thing sold
and to return the same return the same upon
demand by the seller
Remedies of the Seller
Supposing that there is non-payment
non of the purchase price,
what will be the remedy of the vendor? In case of sale of
movables by installments (RECTO LAW)
Specific Performance
Rescission
Foreclosure of the mortgage
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1484. In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following
remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to
pay;
(2) Cancel the sale, should the vendee's failure to pay cover two
or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be
void.
In case of foreclosure, the seller is limited to the proceeds of
the foreclosure of the sale. He will not be entitl
entitled to recover
the unpaid balance.
Is this the general rule to foreclosure of mortgages that there
can be no recovery of a deficiency?
No
General Rule: In mortgages under credit transactions, in case
the proceeds of the foreclosure sale are not sufficient to
cover all that is owing, the mortgagee is not prevented from
suing for the deficiency.. The mortgagee is entitled to a
deficiency judgment
Exception: Art 1484 par 3
Why did the Recto law make an exception when it comes to
the sale of movable properties on installments? Why did the
recto deviate from the general rule allowing the mortgagee to
recover deficiency against the mortgagor?
The recto law wass enacted because of the practice of
the sellers on installments of participating in the
foreclosure sale and bidding very low prices for the
items such that they end up getting the item and still
having such a huge deficiency because they paid a
low price for the item foreclosed. Following the
general rule, sellers can sue for deficiency. They get
the item and still allowed to sue for deficiency a
huge percent of the purchase price. The huge
percent constitutes the deficiency of the foreclosure
sale. To avoid
oid that practice, the law says that they
can longer sue for deficiency as an exception to the
general rule.
The reality is this, in a foreclosure sale, there are
only few participants in the sale. With all the
probability, it might be the tauhan of th
the
mortgagee. So they can dictate the price which the
item will be sold
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When is a sale considered to be on installments? How many
installments are requireded in order for us to consider that the
sale is on installments?
There must be partial payments in small amounts
Why? Are these target transactions of the law?
yes
why?
The Recto law is aimed at those sales where the
price is payable in several installments, for, generally
it is in these cases that partial payments consists in
relatively small amounts,
amounts constituting thus a great
temptation for improvident purchasers to buy
beyond their means. There is no such temptation
where the price is to be paid in cash, or, as in the
instant case (the example below), partly in cash and
partly in one term, for, in the
t latter case the partial
payments are not so small as to place purchasers off
their guard and delude them to a miscalculation of
their ability to pay
Example of a Straight Sale:
If the buyer pays an initial payment at the time the
sale was contracted and then he undertake to effect
full payment at the end of the month. It is not a sale
on installments, that would be a straight sale. (Levy
Hermanos, Inc vs Gervacio 69 phil 52)
If it is simply a sale where there is initial payment
and there will be full payment at the end of a term,
that is not a sale on installment, that will be a
straight sale
Art 1484 itself contemplates a situation where there are
more than 2 installments because
becau in order for the buyer to
invoke Art 1484 par 2 and 3, 2 or more installments must
have been missed
How do we treat the remedies (specific performance,
rescission, foreclosure)?
Alternatively
What does that mean?
The remedies are not cumulative but exclusive.
Choosing one would mean giving up the other
remedies
The first remedy is Specific performance, the seller can avail
this remedy even if there is a chattel mortgage on the
property sold on installments.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
When can we say that the seller have availed
avai of specific
performance as to exclude all the other remedies
remedies?
Judicial demand by the seller of the purchase price
meaning the seller have elected specific
performance if he bring an action in court for
specific performance.
We the seller availed of the remedy of specific performance, it
means that the other remedies are excluded. Would there be
an instance when the seller can still sue for rescission even if
after he elected specific performance?
Performance of the obligation of the buyer has
become impossible
When is rescission available?
When there is failure to pay 2 or more installments
What would happen in rescission or cancellation?
Mutual Restitution. The buyer must return of what
has been sold to him. On the part of the seller, he
must return n the installments paid unless there is a
stipulation to the contrary
Any exception to the obligation of the seller to return the
installments that he has received?
If there is a stipulation of forfeiture
Why does the law allow the seller to keep the in installments
that has been paid to him despite the fact that the buyer is
being required to give back what was sold to him?
This is justified by the fact that during the times that
the property had been in the possession of the
buyer, the buyer had been usingg the property. And
for his use or for the benefits he derived, it is only
right that he be made to pay reasonable rental for
the use of the property.
Such stipulation will be sustained except?
If it is unconscionable
When is foreclosure of the chattel mortgage available?
When the buyer fails to pay 2 or more installments
and this presupposes that he constituted a mortgage
on the property
Can the buyer constitute a mortgage on the property he
bought that has not been paid whole yet?
Yes
Why can he do that considering that he has not paid the
property in whole?
He is already the owner notwithstanding the fact
that he has not fully paid the purchase price. And as
the owner, he can constitute a mortgage on the
99 | P a g e
property even if the mortgage is supposed
s to secure
the payment of the purchase price of the seller
himself
Should he miss 2 or more installments, then that
gives the seller the right to foreclose on the
mortgage on the property
CIV 11
Are these 3 remedies in Art 1484 available to the seller on
account of the existence of the contract of sale? Is the mere
fact that we have a contract of sale of movable property on
installments and the fact that this sale has been breached by
the buyer for failure to pay the purchase price will necessarily
necessari
give rise to the availability of these 3 remedies?
No
Which remedy will not be necessarily available simply because
of the contract of sale?
rd
The 3 , remedy of foreclosure
Why?
because you cannot speak of foreclosure if there is
no showing that there
ther is a mortgage constituted on
the thing sold.
It is possible that a contract of sale on installment is
unsecured, in which case your only remedy is either
specific performance or rescission with damages in
either case or just for damages alone
On the other
her hand, it is also
al possible that we have a
secured contract of sale, but then again still it does
not follow that a mortgage is constituted on the
thing sold itself because a different property may be
given by way of security. Or it does not even have to
be property. It can be a personal guaranty of another
a
person.
And then we have that situation,
situation where a mortgage is
constituted on the thing sold, in which case foreclosure as
enshrined on Art 1484 will now be an additional option.
Which of these remedies would be advisable to be taken by
the seller?
Rescission does not appear to be that attractive
because you end up with a depreciated value of the
property and plus, as a general rule you have to
return the installments that you have received.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Rescission may be a viable option if the seller really
wants to get back the property but no longer for its
monetary value but for some sentimental value
Is foreclosure of mortgage a viable option?
Foreclosure of mortgage is a viable option because
the seller is secured.
What is the downside of foreclosure of mortgage under Art
1484?
It is not a concern that the property mortgaged has
been sold because by its nature a mortgage attaches
to the property it does not matter who is in
possession because it follows
lows the property wherever
it goes.
The downside of this remedy is that you are limited
to the value of the property. This falls under the
exceptions to the general rule.. The general rule is
that the mortgagee is entitled to a deficiency
judgment.
Whyy would specific performance be the best remedy?
It allows the seller to recover the entire unpaid
balance. There is no limitation; and
It is possible for the seller to levy on execution on
the thing sold the subject matter of the sale.
The downside of this remedy is that:
You waive any preference that you previously enjoy
as mortgagee of the property that you have sold to
the buyer;
You become unsecured. You take the risk that the
seller had enough assets with which to pay you. You
also take the risk that there are no other preferred
creditors, who can defeat your right as an unsecured
creditor. Before you can even come up with levying
levy
in execution, you must already have a judgment in
your favor that is final and executory. The litigation
takes time and through out that time the seller is
unsecured so there is a possibility that the buyer will
dispose of his properties including the thing you sold
to him. This time around there is no lien in your
favor which will follow the property wherever it
goes.
Though you have no lien in your favor, you ou have the remedy
of what?
Requesting for a writ of attachment which you can
avail of at the beginning of the action
action. The purpose is
100 | P a g e
to make sure that at the end of the litigation,
litigation there
will still be properties reserved for the execution of
the judgment in your favor.
However, the court will not just issue a writ of
attachment for any reason. You have to show that
you fall under the enumerated instances where such
issuance is warranted.
anted.
But the pay back of this remedy is good because as a
judgment creditor, the seller is not limited to the
property sold. He can levy in execution any other
available assets of his debtor and that will include
the property sold. And levy will continue
continu until such
time the judgment in the sellers favor is satisfied
What kind of creditor does the seller become is he chooses
specific performance?
Unsecured creditor
What is the assurance of an secured creditor?
The assurance is that the seller is certai
certain that there
is specific property in the patrimony of the debtor
that is segregated specifically and solely for the
purpose of satisfying the obligation in his favor,
whereas, if he is an unsecured creditor, then he will
have to look for properties without any assurance
that there is such a property that is still available to
satisfy the obligation to him. Even if he secures a
judgment, if there is no longer available property of
the debtor, then he ends up without being paid
So in specific performance, thet seller is not assured that he
will be able to get the full purchase price
Lease with Option to Purchase
One way of circumventing the law is instead of making the
transaction appear as it is (i.e. instead of saying that it is a
sale on installments) people will make it appear as a contract
of lease with option to purchase.
How does it work as a sale on installments?
The rentals of the supposed lease would be the
installments, and only after the period has been
completed and the rentals havehav already been given
will there be an option to purchase at a minimal
value the thing leased.
How will this benefit the lessor-seller?
lessor
He is benefitted iin case there is non-exercise of the
so-called
called option, he gets to take back the property
and whats more he gets the right to sue for all the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

unpaid rentals. The net result is that he gets the It applies to sale of immovable properties by
property back and he gets the installments as well. installments
ts and to contract to sell

That is why in contract of lease with option to In essence, what does the Maceda Law do to the rights of the
purchase the law also treats this as a sale of movable seller?
on installments that will be governed by the In essence this somehow tempers the right of the
prohibition in Art 1484. seller to cancel the contract of sale.

Art. 1485. The preceding article shall be applied to contracts How so?
purporting to be leases of personal
sonal property with option to buy,
It introduces the concepts of a grace period and cash
when the lessor has deprived the lessee of the possession or
enjoyment of the thing. surrender value. Both of which will have the
amounts varying depending on the number of
Sale of Immovable installments that have been paid.

When it comes to immovable properties we have to deal with Maceda Law RA 6552
Art 1592 and Maceda Law. The remedies are still the same
(specific performance, substitute performance, rescission, Purpose of Maceda Law
damages), but these are provisions in the law which qualify To protect buyers of real estate on installment basis
the rights of the seller. against onerous and oppressive condition

What does Art 1592 provide? Scope of Maceda law

Art 1592 recognizes the right of the seller to rescind Contract of sale
a contract of sale of immovablevable property, but Contract to sell
together with that recognition, it also qualify the
exercise of this right. Basis in including contract to sell
The law uses the term cancellation
We said that under Art 1191, the parties can The transaction should involved more than 2 installments to
stipulate for extrajudicial rescission and the only be paid in the future at the time of the perfection of the
th
requirement is that notice to be given. Notice does contract
not have to o be in any particular form to be effective,
because the only purpose of the notice in Art 1191 is Transaction not included in the coverage:
to afford the other party the opportunity to question Sales covering industrial lots
the decision of in court. Sales covering commercial buildings
Art 1592 is different. When it comes to the sale of Sales to tenants under agrarian reform
immovable property, the law aw requires no less than a
judicial action or a notarial act. Until that is done the Rights granted to the Buyer
buyer would have the right to effect payment even If the buyer paid at least 2 years of installment
after the period for payment has lapsed. If the buyer If the buyer paid for less than 2 years
pays, that means that the seller will not have any
right to rescind or cancel the contract. If the buyer paid at least 2 years of installment
To pay, without additional interest, the unpaid
Art 1592 applies to contracts of absolute sale of installments due within to total grace period.
immovable property. It does not apply to a contract o Total grace period is fixed at the rate of 1
to sell. month for every one year of installment
payments
yments
Art. 1592. In the sale of immovable property, even though it may o Grade period can only be exercised once
have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take every 5 years
place, the vendee may pay, even after the expiration of the If the contract is cancelled
period, as long as no demand for rescission of the contract has o The seller shall refund to the buyer the cash
been made upon him either judicially or by a notarial act. After
surrender value of the payments on the
the demand, the court may not grant him a new term.
property
o Cash Surrender Value: 50% of the total
What about the Maceda Law?
payments made

101 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
o If there is afterr 5 years of installments,
additional 5% every year but not to exceed
90% of the total payments made
Effecting the sellers right of cancellation
30 days from receipt by the buyer of the notice of
cancellation or demand for rescission of the contract
by notarial
otarial act and upon payment of the cash
surrender value
If the buyer paid for less than 2 years
There is a grace period of 60 days from the date if
installment became due for the buyer to pay
If the buyer fails to pay within the 60-day
60 grade
period, the seller may cancel the contract after 30
days from receipt of the buyer of the notice of
cancellation
60 days vs 30 days grade period
60 days: availment of the right to update the
installment payments without interest and penalties
30 days: the buyer would d be liable for and would
have to include in his payment the stipulated
interest and penalties incurred
Double Sales
Another situation where rights of the parties may be qualified
would be in thee case of double sales and there can be double
sales of both movable and immovable properties.
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should
d be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in
n good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith.
Elements of Double Sale
The two (or more) sales transactions must constitute
valid sales
The two (or more) salesles transactions must pertain to
exactly the same subject matter
The two (or more) buyers at odds over the rightful
ownership of the subject matter must each
represent conflicting interests
The two (or more) buyers at odds over the rightful
ownership of thee subject matter must each have
bought from the veru same seller
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What rule do we observe when it comes to double sale of
movable property?
When it comes to movables, the rules are simple:
Possession equates to title. In movable properties,
properties
when you are in possession as the owner then with
all indications is you are the owner.
This is not so when it comes to immovable property,
particularly when you are dealing with registered land,
because the property registration law will come in under our
Torrens System.
When it comes to immovable property, what rules would be
applicable?
Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall
sha belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith.
Going to the last rule, the one who possess the oldest title,
is the oldest title referred to in the last sentence the same title
that may be acquired if a person registers the sale
sal in his
name?
No. It is not Torrens Title.
What title is referred to?
Title refers to the legal basis for claiming ownership
over the property. In this case it would be the deed
of sale.
Is there any principle of law embodied in this rule that he who
hass oldest title shall be referred?
He who has first
irst in time, would have priority in right
If you have a first buyer and a second buyer, who precisely
should have priority of right?
The first buyer
What about the second buyer, what would be the status of
the sale to him?
It is valid
It is established that at the time of the 2nd sale is made, the
first sale has already been perfected. Does it mean that the
nd
seller can still enter into a contract of sale with the 2 buyer
over the same property?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Can the first
rst buyer be ever be in bad faith in making the
purchase?
We have 3 rules: registration, acquisition of possession, and
rd
oldest title. Does it mean that the 3 rule is the weakest?
No. Instead of looking Art 1544 from top to bottom,
look at it from the bottom going up,
Why bottom going up?
because the oldest title is the general rule.
Under obligations and contracts on relativity of contracts in
case there is a contract of sale to a person and the same
property is sold to another person, the person to whom the
property was first sold enjoys a personal right against his
seller. But, if the property sold to him has been delivered to
rd
the 3 person,, his personal right did not ripen into a real
right. A personal right cant be enforced against the 3rd
person for lack of privity of contract in accordance with the
principle of relativity of contracts.
The same is true in the case of sale.
st
The 1 buyer is the one who has the oldest title.
title Although the
st
1 buyer should have priority
rity of right, this right that he
enjoys can be defeated if the real right is acquired by the
second buyer.
nd
How can the 2 buyer acquire a real right that will defeat the
first buyers personal right?
nd
If there is delivery to the 2 buyer which gives him
the real right of ownership
So personal right against real right, talo ang oldest
title
st
What happens if the 1 buyer have oldest ti title and there was
delivery to him?
He has ownership. However, this his is registered
property and he has not registered his title so that
title is still in the name of his seller.
Can my seller still sell?
The rule is that you ou cannot transfer what you no
longer have. So you can no longer transfer anything
to the buyer. However, that rules admits of
exceptions, one ne of which would be contrary
provisions in any recording law which is the Torrens
System. Under Torrens System the buyer can rely on
what appears on the title. So that even if the first
buyer already have possession, this can still be
defeated by registration
tion in good faith.
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As you can see we did not depart from the general rule. the
st nd
1 buyer still enjoys preference in terms of right over the 2
st
buyer, because the 1 buyer is in good faith. He can never be
in bad faith. He could not have been aware any defect in his
title at the time the sale because there was none. But, his
right can still be defeated.
How?
nd
If the 2 buyer acquires possession first, because
possession transfers ownership and
Even if there has been delivery to the first buyer,
buyer if
there is registration and we are dealing with
registered land
st
The point is this, as the 1 buyer, he is supposed to be
secured in my place.
Who is supposed to make a move to dislodge the 2st buyer
from his secured place?
nd
It is the 2 buyer who must try to have possession
delivered to him, but he must be in good faith;
otherwise even if he acquires possession in ahead of
the 2st buyer,, if he is in bad faith or if he knows a
st
first sale has been made in the 1 buyers favor, he
st
cannot defeat the 1 buyers rights.
nd
Similarly
imilarly even in registration, the 2 buyer must be
in goodd faith. He must not be aware of the existence
of the 1st buyer. Once he becomes aware he cannot
st
do anything
nything to defeat the 1 buyers rights.
st
What about the 1 buyer,, does
do he ceased to be in good faith if
nd
I learn about the 2 buyer? What will be your natural
nd
reaction when you learn that there is a 2 buyer?
May be you will immediately cause the possession to
be transferred to you, or take care of the registration
of title in your name.
Will that be an end to your good faith?
No. You are acting well within your right, because if
you dont do anything that would be negligence on
your part.
We still adhere to the general rule. The enumeration of
nd
remedies 2 and 1 are meant to the 2 buyer to do to defeat
or justify deviation from the general rule; otherwise if he
does not do these things we apply the general rule and it is
st
the 1 buyer who shall be made to prevail.
Case: Carbonell vs CA.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

Scope of Credit Transaction

Principal contracts of loan and deposit
Accessory contracts:
o personal guaranty
o real guaranty real and chattel mortgage,
antichresis, pledge
Preference and concurrence of credits.

What are the principal contracts?

These are the so--called Bailment contracts. Hence
the terms bailor and bailee

The bailment contracts covers:

Mutuum or simple loan
Commodatum
Deposits

The accessory contracts therefore is to secure the obligations

created under the bailment contract
Accessory contracts: Security transactions
Guaranty
Mortgage
Pledge
Antichresis
Chattel Mortgage
CREDIT TRANSACTIONS (2011 Bar Review + Power Point +
2012 class room lectures)
Concurrence of preference of credit, that is, if the properties
of the debtor are not sufficient to cover all of his obligations
What is credit transaction?
This covers all transactions involving the purchase or
First kind of Bailment contract LOAN
loan of goods, services, or money in the present with
a promise to pay or deliver in the future. As a
What is a loan?
subject, we go beyond contracts of bailment, we also
The term loan has a legal significance and that it
include security transactions or those contracts
refers into 2 kinds of contracts: Mutuum and
which are meant to secure the performance of the
Commodatum
obligations created by these contracts of bailment.
And for that matter, even other kinds of contracts as Art. 1933. By thehe contract of loan, one of the parties delivers to
well. another, either something not consumable so that the latter may
use the same for a certain time and return it, in which case the
At the end of the day, under in obligations and contract is called a commodatum; or money or other consumable
thing, upon the
he condition that the same amount of the same kind
contracts, a person is liable for his obligations, and quality shall be paid, in which case the contract is simply
ultimately for his properties. We look to these called a loan or mutuum.
properties for satisfaction. It is possible that you are
the only creditor who is running after the t debtor, Commodatum is essentially gratuitous.
there may be other creditors as well. If the Simple loan may be gratuitous or with a stipulation to pay
properties is sufficient to satisfy all the obligations, interest.
then there is no problem. If it is not, then there
would be a need for us to apply the rules on In commodatum
modatum the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the borrower.
concurrence and preference of credits
What are the characteristics of loan?
By the use
se of credit, more exchanges are possible,
It is a real contract.
persons are able to enjoy a thing today but pay for it
It is generally unilateral because only the borrower
later.
has obligations after the loan is perfected.

104 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
It is a real contract.
A loan is a real contract. Real meaning that it
requires delivery for its perfection. Absent of
delivery, we do not have a perfected contract of loan
It is also unilateral. In that, it is only the borrower
which has the obligation once the loan is perfected.
There are rulings by the SC to the effect that the
contract of loan is consensual in nature, meaning to
say that it is perfected by mere consent. Perfection
by mere consent is far easier that requiring delivery
for perfection. This was laidd down in the case of
Bonnevie
vie vs CA (not sure with the case name) but
note that this ruling has already been corrected in
the subsequent ruling in the case of BP
BPI investment
corp vs CA. the statement that a contract of loan is
consensual in nature is actually limited to the first
part of Article 1934
And what does that part refers to?
It refers to the agreement to lend
We can agree that I will lend you and you
will
ill receive something from me in loan and
this is consensual. It will be perfected by
mere consent.
Art. 1934. An accepted promise to deliver something
by way of commodatum or simple loan is binding upon
parties,, but the commodatum or simple loan itself shall
s action against ABC Bank?
not be perfected until the delivery of the object of the
contract.
Is this significant in any way?
Yes, because the characterization of
contract of loan, either as consensual or
real, has legal consequences on the rights of
the parties
For example:
a bank which have entered in to an agreement with
a depositor for a loan of sum of money. We are
familiar with banks work, it requires a lot of paper
works. A tons of requirement will have to be
satisfied before the loan is released to you. And in
the
he meantime, the borrower is making his own
plans. What if the bank back out and decided not to
push thru with the transaction? What will be your
rights?
If the contract of loan will be taken as
consensual, then the mere fact that we
have agreed, we alre already have an
105 | P a g e
enforceable and perfectly binding contract,
which can be enforce in the court.
But if we stick in the characterization that it
is a real contract, which requires delivery,
then that means that we do not have a
contract of loan to speak of.
Sample Problem:
A company applied a loan with a bank. The bank approved
the loan. There was even a mortgage that was executed and
then served. However the money was not released by the
bank for no justifiable reasons. What cause of action if any
does the company has against the bank?
a. specific performance plus damages to compel
delivery of the money
b. Damages for breach of the perfected
perfec consensual
contract of loan
c. Damages for breach of the perfected contract to
lend
d. No cause of action for there being no perfected
perfe
contract between the bank and the company
Answer: C
XYZ Company applied for a loan of P500,000 with ABC Bank.
The latter approved the application through a board
resolution. Thereafter, the corresponding mortgage was
executed and registered. However, because of acts
attributable to XYZ Company, the loan was not released.
Later, XYZ Company instituted an action for damages
against ABC Bank. Does XYZ Company have any cause of
Although there was no perfected contract of loan
between
ween the company and the bank, there was
nonetheless a perfected consensual contract
which under normal circumstances could have
made the bank liable for not releasing the loan.
However, since the fault was attributable to
petitioner therein, the court did not award it
damages.
A perfected consensual contract, as shown above,
can give rise to an action for damages. However,
said contract does not constitute the real contract
of loan which requires the delivery of the object of
the contract for its perfection
perfect and which gives rise
to obligations only on the part of the borrower.
(Saura Import and Export Co. Inc. vs. Development
Bank of the Philippines, 44 SCRA 445)
It is generally unilateral because only the borrower has
obligations after the loan is perfec
perfected.
But note the same case of BPI Investment
Corporation vs. CA ruled that a contract of loan
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
imposes reciprocal obligations upon the lender
and the buyer.
This, however, should not be controlling doctrine.
The SC treated the loan as reciprocal to justi
justify its
ruling that the debtor was not liable for interests
prior to the release of the loan. The SC said the
promise of the Bank to extend and deliver the loan
was upon the consideration that ALS and Litonjua
shall pay the monthly amortization commencing
on
n May 1, 1981, one month after the supposed
release of the loan.
It is a basic principle in reciprocal obligations
that 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. h 9 Only
when a party has performed his part of the
contract can he demand that the other party also
fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only
demand for the payment of the monthly
amortization
ion after September 13, 1982 for it was
only then when it complied with its obligation
under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the
mortgage, the starting date is October
Oc 13, 1982
and not May 1, 1981.
From the definition given in the law, we also know that loan
has 2 kinds: either commodatum or mutuum
Distinction between commodatum and mutuum
Commodatum: non-consumable
consumable thing because of
the requirement that the thing being borrowed must
be returned
Mutuum: consumable things because ownership
passes on to the bailee and the bailee has the
obligation to give back the same thing of the same
kind and quantity
Commodatum: essentially gratuitous. If it is not
gratuitous, then it is not commodatum, in which
case we may have a contract of lease
Mutuum: may be gratuitous or onerous
Onerous: if there is a stipulation for the
payment of interest
Commodatum: the bailor
lor retains ownership
Mutuum: the bailee acquires ownership
Commodatum: the property loaned can be real or
personal
Mutuum: personal property only
106 | P a g e
Commodatum: personal in nature because just put
yourselves in the shoes of the bailor. Basically, what
takess place here is you lending out your property to
somebody else. Of course, you value your property
and you will not lend it to anyone if that person does
not enjoy your trust and confidence. So there is this
personal element involved. You are only lending it
out because you trust this person. This person will
take care of your property.
Mutuum: not personal in nature. Whether you trust
this person or not, it does not matter because what
will be given back to you is not the very same
property, it is simply a substitute or an equivalent.
For as long as he is capable of doing that obligation
then you will proceed with the loan; you will deliver
the property to him.
Going back to the first distinction that commodatum has, for
its subject matter, nonconsummable things. Is this really an
accurate premise in distinguishing commodatum from
mutuum? Note that the law itself says that even consumable
objects may be the subject of commodatum. And on the part
of mutuum, the law also quivered between saying that
consumablee objects are the subject of mutuum and at the
same time fungible objects are the subject of mutuum.
Perhaps the better approach is to look at the
contracts from the point of view of what the parties
really intended.
What is the goal here?
In commodatum,
commodat to get back what u lent
In mutuum, to get an equivalent.
equivalent It is a
generic obligation to give
It is better to say that for commodatum, the object,
which is the subject matter, is basically non fungible
because it is irreplaceable. For muttum, on the other
hand, it is fungible because a substitute of the same
kind, quantity and quality is acceptable.
CONSUMMABLE a thing is consummable when it
cannot be used in a manner appropriate
appr to its nature
without being consumed.
FUNGIBLE is one where the parties have agreed to
allow the substitution of the thing given or delivered
with an equivalent thing.
COMMODATUM
What kind of obligation is created by the contract of
commodatum? m? If we are required to give back the very same
property, and none other is acceptable, what kind of
obligation is created?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
It can be an obligation to give a specific object. And
this will give rise to legal consequences. Primarily if
which will be the obligation
ligation may therefore be
extinguished by the loss of the thing due because it
is specific. So if u lose the thing that is supposed to
be returned, then the obligation is extinguished.
In Commodatum, the obligation is to give back the very same
thing thatt was loan to him. So it must be something that
cannot be consumed. Otherwise, it is gets consumed, then
you can no longer give it back.
But by way of exception, the law also allows consumable
things to be the subject of commodatum. When can this
happen?
If there is no intention to consume the thing subject
of the loan. As for instance, you only intend to
exhibit the property loaned to you
Art. 1936. Consumable goods may be the subject of commodatum
if the purpose of the contract is not the consumption of the
object, as when it is merely for exhibition.
What will be you liability if you dont give back the thing
loaned? (Commodatum)
Estafa, there is criminal liability
In mutuum, if you dont pay back, is there a criminal liability?
None, because you acquired ownership over the
thing that was loaned to you by way of simple loan
or mutuum
Sample Problem: Frank agreed to deposit his P200,000 in the
savings account of Sterela Marketing, a sole proprietorship, to
make it appear that it had sufficient capitalization.
talization. Armando,
the owner of Sterela Marketing promised that he would
return the amount within thirty (30) days.
Later, however, part of the money was withdrawn by
Armando who also opened a current account and authorized
the bank to debit the savingss account to cover overdrawing in
the current account. Frank filed a case seeking to hold the
Bank solidarily liable with Armando. In its defense, the Bank
claimed that the contract between Armando and Frank was
one of mutuum and ownership over the amount was
transferred to Armando. Is the Bank correct?
The SC said that the contract was one of
commodatum, not mutuum because it was clearly
agreed that the amount will not be removed from
the savings account of the single proprietorship and
will, in fact, be returned to the lender after 30 days.
But what about the fact that Armando does not have
to return the very same notes?
107 | P a g e
An essential feature of commodatum is that it is gratuitous.
What happens if commadatum is not gratuitous in nature?
It ceases to be commodatum, it will now become a
contract of lease
Art. 1935. The bailee in commodatum acquires the used of the
thing loaned but not its fruits; if any compensation is to be paid by
him who acquires the use, the contract ceases to be a
commodatum.
A contract
ract of lease is similar to commodatum, there
is also allowance on the part of the lessee to make
use or enjoy the possession of the thing that is
leased to him but for valuable consideration
In commodatum, the bailee gets possession and enjoyment of
the thing. What is the extent of the right given to the bailee?
Does it extend to the fruits of the thing loaned?
No, it does not include the right to the fruits, except
when there is a stipulation to the contrary
Art. 1935. The bailee in commodatum acquires the used of the
thing loaned but not its fruits; if any compensation is to be paid by
him who acquires the use, the contract ceases to be a
commodatum.
Art. 1940. A stipulation that the bailee may make use of the fruits
of the thing loaned is valid.
The primary obligation of a bailee in commodatum is to?
To return the thing that was loaned to him
When is he supposed to return?
Art. 1946. The bailor cannot demand the return of the thing
loaned till after the expiration of the period stipulated,
stipulated or after
the
he accomplishment of the use for which the commodatum has
been constituted. However, if in the meantime, he should have
urgent need of the thing, he may demand its return or temporary
use.
In case of temporary use by the bailor, the contract of
commodatum is suspended while the thing is in the possession of
the bailor.
Another feature of commodatum is that the use of
the thing belonging to another is for a certain
period. Thus, the bailor cannot demand the return of
the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for
which thee commodatum is constituted.
Can we also have a commodatum where the object must be
return upon demand by the bailee?
Yes
What is precarium?
Art. 1947. The bailor may demand the thing t at will, and the
contractual relation is called a precarium, in the following cases:
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(1) If neither the duration of the contract nor the use to
which the thing loaned should be devoted, has been
stipulated; or
(2) If the use of the thing is merely tolerated by the
owner.
If the bailor should have urgent need of the thing, he may
demand its return for temporary use. If the use of the thing is
merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is
called a precarium. Under the Civil Code, precarium is a kind
of commodatum.
Aside from the principal obligation of the bailee, what are his
other obligations?
To preserve and take good care of the property that
is loaned to him
And as a consequence off this obligation to preserve, who shall
be liable for the ordinary expenses for the preservation of the
thing loaned?
Art. 1941. The bailee is obliged to pay for the ordinary expenses
for the use and preservation of the thing loaned.
What about extraordinary expenses?
The bailors obligation is to refund extraordinary
expenses to the bailee
Would there be any condition that must be met before the
bailor may be liable for the reimbursement of the
extraordinary expenses?
There must be notice
Is notice only required not consent?
Consent is necessary
Why is consent necessary?
While the law does not expressly state that consent
mus be secured. It is nonetheless implied from the
provision which says that if the situation is urgent
then the bailee can already act without waiting for
the reply of the bailor
The clear implication is, the bailee has to give the
bailor an opportunity to decide and to tell the bailee
whether or not to proceed with the extraordinary
expense. It is only when the situation is so urgent
that he can no longer wait for the reply. What is just
dispensed with is the waiting for the reply, he must
still give notice
Art. 1949. The bailor shall refund the extraordinary expenses
during the contract for the preservation of the thing loaned,
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.
108 | P a g e
If the extraordinary expenses arise on the occasion of the actual
use of the thing by the bailee, even thoug
though he acted without fault,
they shall be borne equally by both the bailor and the bailee,
unless there is a stipulation to the contrary.
Is there an instance where the bailee has to share with the
extraordinary expense?
Art. 1949. The bailor shall refund the extraordinary expenses
during the contract for the preservation of the thing loaned,
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
a without danger.
If the extraordinary expenses arise on the occasion of the actual
use of the thing by the bailee, even though he acted without fault,
they shall be borne equally by both the bailor and the bailee,
unless there is a stipulation to the
th contrary.
Sample Problem: Based on their Kasunduan, Pajuyo
permitted Guevarra to reside in his house and lot free of
rent, but Guevarra was under obligation to maintain the
premises in good condition. What is the contract between
the parties?
In PAJUYO O vs. COURT OF APPEALS, G.R. No.
146364. June 3, 2004, the SC held that the
Kasunduan reveals that the accommodation
accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did
not require Guevarra to pay rent, it obligated him
to maintain the property in good condition.
The imposition of this obligation makes the
Kasunduan a contract different from a
commodatum.
Note, however, that under Article 1941, the bailee
is already obliged to do exactly just that to
preserve the thing loaned and keep it in good
condition. And even independently of Article
1941, the obligation to deliver a specific thing also
includes the e duty to take care of it with the
diligence of a good father of the family.
Who bears the loss?
General Rule: Applying the principle of res peri
domino, it will be the bailor or owner who shall bear
the loss if the same is due to fortuitous event.
Meaningng to say, that if the bailee did not have any
participation in the loss or destruction of the thing
due.
Exceptions: Art 1942
Art. 1942. The bailee is liable for the loss of the thing, even if
it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different
from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or
after the accomplishment of the use for which
the commodatum has been constituted;
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case
of a fortuitous event;
(4) If he lends or leases the thing to a third person,
who is not a member of his household;
(5) If, being able to save either
ither the thing borrowed
or his own thing, he chose to save the latter.
But note that in the case of Republic vs Bagtas,
consideration is actually given for the use of the
carabao, so it is not really a contract of
commodatum but a contract of lease. But had it
been strictly a contract of commodatum, then
grounds number 2 and 3 were the basis for
exempting the bailor from the burden of the loss of
the carabao. It was withheld from him far beyond
the period for which it was loaned and there was an
appraisal of its value that was delivered together
with the carabao.
Commodatum is personal in nature; Consequences:
(1) The contract of commodatum is extinguished upon
the death of either party;
(2) The bailee cannot lend the thing loaned to another
person but the members of his household may make
use of the thing loaned UNLESS there is a stipulation
to the contrary, or UNLESS the nature of the thing
forbids such use.
(3) The bailee cannot exercise the right of retention
against the bailor except on account of dama damages
suffered by the bailee because of flaws that the
bailor knew of but did not disclose to the bailee.
In commodatum, ownership is not transferred by the bailor, it
is retained by the bailor. So that means that the bailor does
not have to be the owner of the thing to be loaned
Would this fact have any bearing on who can act as a bailor in
a contract of commodatum or mutuum considering that there
is transfer of ownership in one and there is no transfer of
ownership in the other?
Yes, in a contract of commodatum, the bailor need
not be the owner
Art. 1938. The bailor in commodatum need not be the owner of
the thing loaned.
109 | P a g e
Who then may act as a bailor?
Anyone who has a possessory interest in the object
or right to its use which he may assert against the
t
bailee or a third person
Who fix that deal?
A lessee. A lessee can be a bailor. A lessee can lend.
For example: a house which is leased by A from the lessor. A is
not going to occupy it for the next 4 weeks. Can A allow
someone else to use the house?
Yes, and by so doing he entered into a contract of
commodatum. And yet A is not the owner of the
house because he is leasing simply the same. But
what he have, in lieu of ownership, is a possessory
right. A right which he can enforce against third
person and
nd even against his prospective bailee
But does that follow that the bailee himself can act as a bailor
for the same thing that was loaned to him?
No, because it is a personal contract and the bailee is
not supposed to lend it to other people.
people The bailee
cannot act as a bailor with regard to the same
property. But the fact that you are a bailee for one
property will not necessarily preclude you from
property belonging to you. Yun nga lng, you cannot
lend the same property that is lend to you because
b
of the personal nature of the contract of
commodatum
Why do we say that this is a personal contract?
Because it is based on trust and confidence
Why is there a need for trust and confidence in the bailee?
It is consistent with ordinary human experience.
With the presence of trust and confidence, that is
the bailors assurance that the thing will be returned
to him
The bailor does not really benefit from the
transaction.
A contract of commodatum is extinguished upon the death of
either party owing again to its personal nature. As we
mentioned, the bailee cannot lend the thing owned to
another person but the members of his household may make
used of the thing loaned. There are exceptions to this
exception. These are:
Unless there is a stipulation
stipulati to the contrary
Unless the nature of the thing forbids such use
Concept of utang na loob. If someone lents you something
then you are in that persons ___. You are not supposed to go
against him. That is why, although this is a contract of
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
bailment, there is generally no right of retention that is given
to the bailee. Again, this goes to the personal nature of
commodatum.
Art. 1939. Commodatum is purely personal in character. Consequently:
(1) The death of either the bailor or the bailee extinguishes the
contract;
(2) The bailee can neither lend nor lease the object of the contract to
a third person. However, the members of the bailee's household
may make use of the thing loaned, unless there is a stipulation to
the contrary, or unless the nature of the thing
thin forbids such use.
Why mutuum is an impersonal contract?
Because the obligation is to give back the same kind,
quantity and quality
In so far as extinguishment of the obligation by reason of a
fortuitous event is concerned, we have no problem or issue
with
ith regard to mutuum because the obligation is to give a
generic object. It will become more relevant in the case of
commodatum because the happening of the fortuitous event
that results to the loss of the thing due can actually
extinguish the obligation off the bailee. Save for certain
exceptions, what are these exceptions?
Art. 1942. The bailee is liable for the loss of the thing, even if it
should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from
that for which it has been
en loaned;
(2) If he keeps it longer than the period stipulated, or after
the accomplishment of the use for which the
commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exemption the
bailee from responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is
not a member of his household;
(5) If, being able to save either the thing borrowed or his
own thing, he chose to save the latter.
For example there is an extraordinary expense and the law
provides that the bailee has the right to recover from the
bailor. What will be the remedy of the bailee if the bailor
refuses to pay? Can he withhold possession of the property
from the bailor until he is paid?
He cannot, he has no right of retention with regard
to extraordinary expenses. He should file an action
for collection to recover
Art. 1944. The bailee cannot retain the thing loaned on the
ground that the bailor owes him something, even though it may
be by reason of expenses.. However, the bailee has a right of
retention for damages mentioned in Article 1951.
What is the right of retention?
It is the right to retain possession of the thing until
there is satisfaction of the obligation to the bailee
bai
As a general rule, the bailee in commodatum does not have
right of retention
110 | P a g e
Exception: if the obligation arises from damages suffered by
the bailee because flaws that he bailor knew but did not
disclosed to the bailee. If the thing loaned suffers from
fr defect
and the thing loaned causes damage to the bailee. Then the
bailees right to damages is secured by this right of retention.
Condition for the exercise of the right of retention in
commodatum
The bailor knew of the flaw and he did not disclose it
to the bailee and the bailee suffers damages
Art. 1951. The bailor who, knowing the flaws of the thing loaned,
does not advise the bailee of the same, shall be liable to the latter
for the damages which he may suffer by reason thereof.
n to advise the bailee about the thing loaned
Is the obligation
absolute?
The law does not say hidden flaw. If the bailee
himself knew that the thing is suffering from defects
What is the basis of the liability of the bailor in this case? Is it
the fact that the thing suffers flaws?
No, it is the failure to advise or failure to give notice
to the bailee
But what exactly is the nature of this right of retention given
by way of exception to the bailee?
It is meant for the security for the satisfaction of the
damages suffered
ered by the bailee but it is also limited
in nature. Because as we pointed out, it can only be
availed of with regard to damages suffered by the
bailee because of the flaws of the thing loaned
which the bailor knew but did not disclosed to the
bailee and the he right extends no further than
retention of the thing loaned until payment is made.
We may ask, is there any other variety of this right of
retention?
Yes, because other kinds of retention created in the
law are created in the concept or by way of pledge.
And this simple because if the right of retention is
created by way of a pledge then apart from the right
to retain the property, you are also given the
th right to
sell the property in satisfaction of the obligation
owing to you. This is not granted to the bailee in
commodatum.
Let us compare, there are articles in the civil code where it is
specifically provided that the right created is a legal pledge.
We have article 1731, 1914, and 1994. These are the
aforesaid provisions.
Art. 1731. He who has executed work upon a movable has a right to retain it
by way of pledge until he is paid.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1914. The agent may retain in pledge the things which are the object of
the agency until the principal effects the reimbursement and pays the
indemnity set forth in the two preceding articles.
Art. 1994. The depositary may retain the thing in pledge until the full
payment of what may be due him by reason of the deposit.
depo
This right is not given to the bailee in a contract of
commodatum
In conclusion, the bailee in commodatum has the right of
retention only by way of exception. It does not apply to
obligation arising from the expenses that he incurred in which
he used d in the thing loaned and even though the right of
retention may exist by way of exception, it is limited both in
scope and in its effects. There is no right to sell given to the
bailee.
MUTUUM
The person who received the loan or any other fungible thing
acquires the ownership thereof and is bound to pay the
creditor the equal amount of the same kind and quality
One of the distinguishing characteristics of mutuum over
commodatum is the fact thatt mutuum transfers ownership
of the thing loaned to the bailee. This rule is embodied in
Art 1953..
The fact that mutuum transfers ownership to the borrower
has legal consequences. For one, the borrower cannot be
held liable for estafa for misappropriation
tion or for failure to
pay back the amount or thing he borrowed. However, if
the creditor was induced to extend a loan upon the false or
fraudulent misrepresentations of the borrower, he may be
liable for estafa committed by means of deceit. The
borrower would not be generally liable for estafa through
misappropriation if he or she fails to repay the loan, since
the liability in such instance is ordinarily civil in nature.
Sample Problem: Franco opened an account with XYZ Bank
by depositing checks funded by money traceable to checks
issued by Tevesteco. The funding for the checks issued by
Tevesteco to Franco was part of the P80,000,000.00 debited
by XYZ Bank from the time deposit account of FMIC, another
one of its depositors, and credited to Tevesteco's current
account pursuant to an Authority to Debit purportedly
signed by FMIC's officers.
111 | P a g e
It turned out that the Authority to Debit was forged. XYZ
Bank returned the amounts debited to FMICs account. To
protect its interests, XYZ Bank debited Francos account of
the amounts still remaining therein. This resulted in the
dishonor of the checks issued by Franco against his account.
Franco sued XYZ Bank.
XYZ claims that the legal consequence of FMIC's forgery
claim is that the money it transferred to Te
Tevesteco was its
own, and considering that it was able to recover possession
of the same when the money was redeposited by Franco, it
had the right to set up its ownership thereon and freeze
Franco's accounts. Is the Bank correct?
BPI FAMILY BANK vs. FRANCO,
FRANC et al., [G.R. No.
123498. November 23, 2007]. There is no doubt
that the Bank owns the deposited monies in the
accounts of Franco, but not as a legal consequence
of its unauthorized transfer of FMIC's deposits to
Tevesteco's account.
The Bank conveni
conveniently forgets that the deposit of
money in banks is governed by the Civil Code
provisions on simple loan or mutuum. As there is
a debtor-creditor
creditor relationship between a bank
and its depositor, BPI
BPI-FB ultimately acquired
ownership of Franco's deposits, but such
ownership is coupled with a corresponding
obligation to pay him an equal amount on
demand. Although BPI BPI-FB owns the deposits in
Franco's accounts, it cannot prevent him from
demanding payment of BPI-FB's
BPI obligation by
drawing checks against his curren
current account, or
asking for the release of the funds in his savings
account. Thus, when Franco issued checks drawn
against his current account, he had every right as
creditor to expect that those checks would be
honored by BPI-FB
FB as debtor.
Can the delivery of crossed checks payable to a third person
give rise to a contract of loan between the issuer of the check
and the person who received the check?
Sample Problem: Rica received a crossed check in the
amount of US$100,000.00 from Carolyn. The crossed chec check
was payable to the order of Marilou Santiago. A year after,
Carolyn demanded payment of the US$100,000 from Rica.
Rica denied that she contracted any loan from Carolyn,
claiming that it was Marilou to whom Carolyn lent the
money. Rica insists that the money was never delivered to
her as the check issued by Carolyn in Marilous name was
crossed. Was there delivery of the money to Rica that would
give rise to a contract of loan between her and Carolyn?
It must be noted that crossing a check has the
following effects: (a) the check may not be
encashed but only deposited in the bank; bank (b)
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
the check may be negotiated only once to
one who has an account with the bank; (c) and
the act of crossing the check serves
erves as warning
to the holder that the check has been issued
for a definite purpose so that he must inquire if
he has received the check pursuant to that
purpose, otherwise, he is not a holder in due
course.
GARCIA vs. THIO, [G.R. No. 154878. March 16,
2007.]
Delivery is the act by which the res or
substance thereof is placed within the actual
or constructive possession or control of
another. Although Rica did not physically
receive the proceeds of the checks, these
instruments were placed in her contro
control and
possession under an arrangement whereby
she actually re-lent
lent the amounts to Santiago.
Be warned, however, that the SC considered a host
of other factors in arriving at this conclusion: (1)
Carolyn did not know Marilou personally; (2) Rica
issued her own checks for 8 months to pay for the
interests on the loan; (3) there was testimony to
the effect that it was Ricas plan to borrow money
from Carolyn to lend to Marilou at a higher rate.
So we can have 2 kinds of Mutuum. It can be:
Loan of a fungible thing
Loan of sums of money
Now, loans can either be gratuitous or onerous. If it is
onerous, the borrower is liable for the payment of interest.
Under Art. 1956 no interest shall be due unless expressly
stipulated in writing.
Loan for a sum of money. ey. There are 2 things that we have to
look into in loan for a sum of money. We have the:
Form of payment
Liability for interest
With regard to the form of payment, we look to Art 1249 and
1250
Art. 1249. The payment of debts in money shall be made in th the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the
he effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in the abeyance.
112 | P a g e
Art. 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
Meaning to say that payment of the loan for sum of money
must be paid in the currency that has been stipulated in. The
parties can actually stipulate on the currency that they want
payment be made in.
If such stipulation has been made, then the next question
ques
would be, what date of exchange will be used? Because the
value of foreign currency fluctuates. It may be higher at the
time the obligation was entered into then it can be lower at
the time when the obligation is performed
The rule is that, we apply the
t date of exchange that
prevails at the time of the performance of the
obligation. However, should there be extra-ordinary
extra
inflation or deflation of the currency, then we apply
the exchange rate at the time of the establishment
of the obligation. This is more in keeping of what the
parties may have intended.
In the absence of any stipulation for the payment of the loan
in any other currency or in payment of such currency not
possible, then we have to pay using of what is considered
legal tender in the Philippines.
lippines. What is legal tender in the
Philippines would refer to the notes, coins or bills that are
issued by the BSP
Will check be a legal tender as to effect payment if the same
is given?
No, checks only produce the effects of payment once
this has beenn encashed or if for some reason that is
attributable to the payee, checks lose their effect.
Apart from payment, there is liability for interest. In a
contract of loan for a sum of money, the bailee may be liable
for 2 kinds of interest:
Monetary interest
interes interest for the use of the
money that is lent to the bailee
Compensatory interest interest in the form of
damages that may fall due because of legal delay
committed by the bailee in the performance of his
obligation
There is only one obligation of the bailee, which is the
payment of the amount that is loaned to him.
Mutuum: may be gratuitous or onerous. Onerous: if there is a
stipulation for the payment of interest. How is interest paid?
Is it always in money?
No, it can also be in kind
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Example: you borrow 1 cup of sugar. The obligation is to give
1 cup of sugar. But there is a stipulation that what should be
return is 1 cup of sugar, the contract is still a loan but it is
onerous in nature because there is interest. The interest paid
here is in
n the form of additional amount of sugar
Monetary interest, the applicable provision of law is art 1956
Art. 1956. No interest shall be due unless it has been expressly
stipulated in writing.
The bar is quiet high, it does not only require that
there must be a written stipulation, it also require
that it should be an express stipulation. So it cannot
be inferred or implied from the agreement of the
parties
What exactly must be stipulated upon expressly in writing?
The parties should stipulate on the payment of
monetary interest, failing which no monetary
interest can be recovered.
When we recover monetary interest, when do we start
reckoning the accrual of monetary interest? We reckon this
from the time that there is breach or we can reckon it from
the time that there is delivery of the amount loan?
From the time we received the money (from
delivery) because this is interest for the use of
money. We do not associate monetary interest with
breach.
There must be an express stipulation. There being
none, we cannot recover interest, no matter how
long the loan may exist, no matter how long the
period may be for the borrower to pay you back, you
cannot recover interest
Must the rate be stipulated upon as well?
The rate may or may not be specified. That is why
we can simply say this obligation shall earn interest
from this day on until it is paid that will be
sufficient.
How much monetary interest can they stipulate upon? Is
there a limit to the maximum amount that can be imposed?
As of this moment, the usury law has been virtually
non-existent.
existent. The parties are now allowed to
stipulate on the rate of interest that they wish to
apply in their transaction.
Does it mean that it is free for all? That the parties can just
take advantage of one another?
113 | P a g e
No, because the court may be asked to stepped in
and strike down whatever interest may be found to
be unconscionable
What if the parties do not stipulate, what will be the legal
rate of interest that will be applicable?
Legal rate, 12% per annum. We are speaking of
monetary interest. And monetary interest
specifically in relation to loans or forbearance of
money
What about compensatory interest? Are the parties required
to have this stipulation to t make compensatory interest
recoverable?
No need to stipulate because this is provided in the
law, specifically article 2209
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages,, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
When it comes to compensatory interest, when do we start
the reckoning period for its accrual? Is it before breach at the
time of the obligation was entered into or after breach?
After the fact of breach. After the obligation has
been breached
In which case, we do not a written stipulation, it will
accrue as a matter of law by virtue of Art 2209
What will be the rate that will be applicable for compensatory
interest? How much compensatory interest may be
recovered?
The rule is that, it depends.
If the rate of compensatory interest is not specified but
there is a stipulation for monetary interest, then the rate
for monetary interest will be followed. This tells us 2 two
things:
It is possible for compensatory interest to be
recovered on top of monetary interest
It is also possible to stipulate the payment of
compensatory interest
inte on top of monetary
interest
We have been emphasizing that compensatory
interest does not have to be stipulated upon by
the parties. But the fact that the parties do not
have to, does not mean that they cannot
stipulate. They can.
But if neither compensatory interest has been stipulated
and neither the monetary interest also has been
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
stipulated, then the legal rate of interest will be
applicable, that is 12%. We are speaking of contracts of
loan and forbearances of money.
If we would
uld try to go back to Article 2209, we would note that
the article speaks of damages that may be recovered in
obligations to pay a sum of money. And we know that this is
not just limited to loans, there are other obligations which
will consist of payment off money but are not considered to
be loans or forbearances of money. As for instance, if we
enter into a contract of sale and we are the buyer, our
obligation as a buyer is to pay the purchase for the thing that
has been sold to us. And how would we charac characterized this
obligation? is this a loan, is this a forbearance of money or
would this fall under the classification of an obligation
consisting in a payment of sum of money?
It will be an obligation consisting of payment of sum
of money
And if we incur delay, would we be liable for compensatory
interest?
Yes, by virtue of the provisions of Art 2209
But at what rate? Would it be 12% or 6%?
6%
The bottom line is, if it is not a loan, forbearance of money or
goods, then it will be a generall obligation consisting in the
payment of a sum of money, in which case the rate applicable
is 6%. But if it is a loan or a forbearance of money, the rate
will be 12%
Eastern Shipping Lines vs CA
This ruling lays down the guidelines to be followed in
the computation of compensatory interest, not
monetary interest.
Par 1. All obligations regardless of its source (Law, contracts,
quasi-contracts, delicts or quasi-delicts),
delicts), when breached, may
make the debtor liable for damages if the obligation that is
created
ed by these sources consist of payment of sum of
money.
Par 2. When we say obligations of all sources, this would also
include obligations arising from loans or forbearance of
money, in which case the compensatory interest due would
be that which has been n stipulated. And when the law says
that which would have been stipulated this actually refers
to 2 things:
The specific compensatory interest rate that may
have been stipulated, or
In the absence of such specific rate for
compensatory interest, it may refer to the regular
monetary interest rates that may have been
stipulated which may be applicable by default.
114 | P a g e
In the absence of stipulation specifying the rate applicable,
what do we apply?
We apply the legal rate which is 12% per annum
computed from the time of default.
When is there default?
There is default from the time of judicial or extra
judicial demand. So we accrue it from the time of
demand.
In eastern shipping case, we would note that this is a point of
difference from the manner of computation
computa when it comes to
compensatory interest in other obligations. Because in loans
and forbearances of money, the computation may be made
to accrue, right from the time of demand. Because in
compensatory interest from other obligations, the accrual
would have
ave to depend on liquid nature of the obligation, if
the obligation has been liquidated.
When we speak of an obligation arising from loans or
forbearances of money, this are necessarily liquidated. There
is really no doubt as to how much is due. In all ____
_ your
loans is evidenced by a promissory note or a check that has
been unpaid which would show the amount due from the
time that it has remain unpaid which makes computation
easy resulting in a liquidated amount that has not been paid
and for which the debtor has defaulted. That is why we can
accrue the compensatory interest easily from the time of
judicial or extra judicial demand.
But as we pointed out, this is not the only kind of obligation
for which compensatory interest may be recovered, we can
also
so have obligations not constituting loan or forbearance of
money or the other obligations. Here what rate do we
apply?
We apply the legal rate of 6%
Would it be possible that there would be a stipulated
compensatory interest rate in this other kinds of o
obligations?
If the obligation arising from law, quasi-delict,
quasi delict
or quasi-contract,
contract, it is not possible but if the
obligation arises from a contract, like a deed of sale
or contract of lease, then the parties would have the
opportunity to stipulate on the compensatory
interest as well. The deed of sale can provide if the
buyer was not able to pay at the due date, then
purchase price will earn interest at this rate until it
is paid would this be the same as monetary
interest?
No because here, this is accrued from the
time that there is breach
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
If we are clear as from what point of accrual
will be done, we would also be clear as to
the type of interest will be recovered
So in the absence of such stipulated rate, we apply
the legal rate of 6% per annum, a but the
compensatory interest will not accrue until the
damages may have been already liquidated
When do we consider this liquidated?
When it can be established with reasonable
certainty.
When do we learn with certainty how much damages
are due?
From the time of judgment at least at the
trial court level in which case, we may start
the accrual of compensatory interest
What happens if there is an appeal? And it is
reversed or the amount is lowered or increased?
It will not affect the period of accrual,
a it will
still continue to accrue but at the end it will
be still the amount that is finally adjudged
that is served as the base for the
compensatory interest
Par 3. When the judgment of the court becomes final and
executory, the rate of legal interest when the case falls under
par 1 or par 2 of the guidelines shall be 12% per annum from
such finality until its satisfaction because at this point the
interim period would be considered to be that of a
forbearance of credit.
Application of eastern shipping case guidelines
The plaintiff is a business partner of the defendant and was
awarded damages consisting of 35k monthly from January
1988 until May 30, 1992 representing earned but unremitted
profits. The plaintiff was likewise awarded moral and
exemplary
xemplary damages, attys fees and litigation fees. The award
was made by the RTC in its decision dated Oct 7 1997. The
decision attains finality on Dec 20, 2001. How would you
compute the total amount that the defendant may pay the
plaintiff if you were to apply the guidelines in eastern
shipping?
First, we have to characterized the kind of obligation that is
involved here, if the obligation for the defendant to pay
damages consisting of 35k monthly representing earned but
unremitted profits, is this constitutive
itutive of forbearance of loan
or money?
115 | P a g e
If it not a loan, then it is necessarily some other kind
of obligations to pay a sum of money, in which case
it will earn compensatory interest at the rate of 6%
per annum reckon from the time that there is a
reasonable
able certainty as to its amount, which is the
time when the decision is rendered by the trial court
until the decision became final in December in 2001
Thereafter the total of monthly profits inclusive of
the add on interest shall earn 12% per annum
reckoned
ned from December 2001 until it is fully paid as
award of that item is considered to be,be by then,
equivalent to a forbearance of credit.
Likewise the award for moral and exemplary
damages, attys fees and litigation fees shall earn
interest rate of 12% per pe annum from December
2001 until it is fully paid.
What about interest earning interest? When will interest earn
interest? What kind of interest will earn interest?
Art 1959 and Art 2212
Art. 1959. Without prejudice to the provisions of Article 2212,
interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due
and unpaid, which as added principal, shall earn new interest.
Art. 2212. Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon
this point.
Art 1959 is self explanatory that if there is an
agreement between the parties for the capitalization
of interest earned
ned then interest will earn interest
because it will form part of the capital.
Art 2212 is a different matter. What kind of interest
that will earn interest under Art 2212?
Both monetary and compensatory interest
shall earn this legal interest from the time
t
they are judicially demanded. But for this to
be the rule, both monetary and
compensatory interest must be
conventional in nature, meaning that both
monetary and compensatory interest must
have been stipulated upon by the parties to
be recoverable in their
t transaction. If they
are not conventional in nature, then they
will not earn interest under art 2212.
Which of the following statements which are considered true?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
a. Monetary interest will always earn interest upon
judicial demand
b. Compensatory interest will always earn interest
upon judicial demand
c. Monetary interest will sometimes earn interest upon
judicial demand
d. Compensatory interest will sometimes earn interest
upon judicial demand
Correct answers: A and D
A because monetary interest to be recovera recoverable must
necessary be conventional in nature. If it is not conventional
in nature, we cannot recover monetary interest
D because compensatory interest may be or may not be the
subject of stipulation and in both cases it can still be
recovered. An added benefit of stipulating upon
compensatory interest would be that it will earn interest as
well upon judicial demand because it will become
conventional in nature
If there is no written stipulation for the payment of interest
but the borrower pays interest, can the lender be ordered to
return the interest paid?
Yes, this is on the basis of principle of solutio indebiti
If the borrower had to go to court to recover interest that was
paid although said interest is not due, then that means that
there is alreadyy demand for payment of the undue interest
from the lender. So there was demand, so there was already a
breach, would compensatory interest would be recoverable in
this instance? We are clear that there was an obligation to
return the amount that was received ved but not due. This
obligation was breached, when there was a refusal to pay
which compelled the borrower to go to court to recover
payment. Would this give rise to a right to compensatory
interest?
Yes
Would there be a stipulation for the payment of
compensatory interest in this case?
None, it is very unlikely, because the obligation was
created by a quasi-contract
How much is the compensatory interest recoverable? What
rate?
6% because it falls under the general classification of
other obligations payable
yable in money. it will be
computed from the time of extra judicial demand
How should the interest rate be stipulated upon?
This becomes relevant because of the prevalence of
credit cards and the usual loans that are taken from
116 | P a g e
banking institution. Usually,
Usuall it is the bank or the
credit card company which imposes the interest
rates but even in these situations, there should an
adherence to the principle of mutuality of contracts.
It cannot just be imposed by one party upon the
other
What is the effect of the he invalidity of a stipulated rate of
interest?
As what have been void _____ to the rate of
interest, then legal rate will still be applicable
Article 1956 refers to monetary interest
What should be stipulated upon in writing?
The parties should stipulate on the payment of
monetary interest in writing. Failing which, no
monetary interest can be recovered. The rate may
or may not be specified.
But to be clear, this rule is only limited to
monetary interest under Article 1956. Insofar as
compensatory
tory interest is concerned, no
stipulation is required.
How much in monetary interest can be stipulated
upon by the parties? Limit has been removed.
Parties can now stipulate on any amount of
interest but the same is subject to the exercise by
the courtt of its discretion to reduce the same on
equitable grounds.
In the absence of stipulation, the legal rate is 12%.
Otherwise formulated, the norm to be followed in the future
on the rates and application thereof is:
I. When an obligation, regardless of its source, is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in
the
he concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation breached consists in the
payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should
shou be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn
legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be
computed from default,
def i.e., from judicial or
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation not constituting loans or
forbearance of money is breached, an interest on
the amount of damages awarded may be impo imposed
at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established
shed with reasonable certainty,
the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the
demand is made, the interest shall hall begin to run
only from the date the judgment of the court is
made (at which time the quantification of
damages may be deemed to have been reasonably
ascertained). The actual base for the computation
of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction,
sat
this interim period being deemed to be by then an
equivalent to a forbearance of credit.
For Compensatory interest, we look to the provisions
of Article 2209 and the ruling of the SC in Eastern
Shipping Lines, Inc. vs. CA, G.R. No. 97412, July 12,
1994, 234 SCRA 78. The said case synthesized the rules
on the imposition of interest, if proper, and the applicable
rate, as follows:
The 12% per annum rate under CB Circular No. 416 shall
apply only to loans or forbearance of money, goods, or
credits,
s, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in
the performance of obligations in general", with the
application of both rates reckoned "from the time the
complaint was filed until the [adjudged] amount is fully
paid." 33 In either instance, the reckoning period for the
commencement of the running of the legal interest shall be
subject to the condition "that the courts are vested with
discretion, depending on the equities of each case, on the
award of interest." 34
When the obligation breached consists in the payment of a
sum of money,
ney, i.e., a loan or forbearance of money, the
interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
117 | P a g e
itself earn legal interest from the time it is judicially
demanded.. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil
Code.
This provision is actually based on Article 2112 of
the Civil Code.
From the foregoing provisions you can see that it
speaks of compensatory interest itself earning
interest from the time of judicial demand. Two
questions, should immediately cross our minds
(1) does the same rule apply to monetary interest,
i.e., it earns
rns interest upon judicial demand? And
(2) does this rule still apply if the payment of
compensatory interest has not been stipulated by
the parties?
Article 1959. Without prejudice to the provisions of Article 2212,
interest due and unpaid shall not earn interest. However, the contracting
parties may by stipulation capitalize the interest due and unpaid, which
as added principal, shall earn new interest.
Article 2212. Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this
point.
as Art. 2212 of the Civil Code which stipulates: "Interest
due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this
point." Both legal provisions are in applicable for they
contemplate the presence of stipulated or conventional
interest which had accrued when demand was judicially
made. (Sunico vs. Ramirez, 14 Phil.
P 500 [1909]; Salvador
vs. Palencia, 25 Phil. 661 [1913]; Bachrach vs. Golingco, 39
Phil. 912 [1919]; Robinson vs. Sackermann, 46 Phil. 539
[1924]; Philippine Engineering Co. vs. Green, 48 Phil. 466
[1925]; and Cu Unjieng vs. Mabalacat Sugar Co., 54 Phil.Phi
916 [1930].) In this case no interest had been stipulated by
the parties. In other words, there was no accrued
conventional interest which could further earn interest
upon judicial demand.
Thus, in the absence of a stipulation on the payment of
interest,t, Article 2212 cannot be made to apply. In other
words, there can be no accrued conventional interest
which could further earn interest upon judicial demand.
(The Philippine American Accident Insurance Company,
Inc., vs. Flores [G.R. No. L--47180. May 19, 1980.])
Article 2212 of the Civil Code has been interpreted
as contemplating the presence of stipulated or
conventional interest which had accrued when
demand was judicially made. (Sunico vs. Ramirez,
14 Phil. 500 [1909]; Salvador vs. Palencia, 25 Phil.
661 [1913]; Bachrach vs. Golingco, 39 Phil. 912
[1919]; Robinson vs. Sackermann, 46 Phil. 539
[1924]; Philippine Engineering Co. vs. Green, 48
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Phil. 466 [1925]; and Cu Unjieng vs. Mabalacat
Sugar Co., 54 Phil. 916 [1930].) In this case no
interest had beenn stipulated by the parties. In
other words, there was no accrued conventional
interest which could further earn interest upon
judicial demand.
Is this rule on compounding of interest under Article 2112
limited to compensatory interest as the ruling in Eastern
E contract of solutio indebiti and not
Shipping seems to imply?
No, It is not. In the case of Tan vs. Court of
Appeals.
According to the petitioner, there is no legal basis
for the imposition of interest on the penalty
charge for the reason that the law only allows
imposition of interestst on monetary interest but
not the charging of interest on penalty. He claims
that since there is no law that allows imposition of
interest on penalties, the penalties should not
earn interest. But as we have already explained,
penalty clauses can be in thehe form of penalty or
compensatory interest.. Thus, the compounding
of the penalty or compensatory interest is
sanctioned by and allowed pursuant to the above
above-
quoted provision of Article 1959 of the New Civil
Code considering that:
Second, Article 2212 of the New Civil Code
provides that "Interest due shall earn legal
interest from the time it is judicially demanded,
although the obligation may be silent upon this
point." In the instant case, interest likewise began
to run on the penalty interest upon the ffiling of the
complaint in court by respondent CCP on August
29, 1984. Hence, the courts a quo did not err in
ruling that the petitioner is bound to pay the
interest on the total amount of the principal, the
monetary interest and the penalty interest.
Be aware,
are, however, of the ruling of the SC in Siga-
Siga
An vs. Villanueva, 20 January 2009, where it held
that the penalty imposed under Article 2212 was
only applicable to compensatory interests, or
those imposed as a penalty or damages for breach
of contractual obligations.
ligations. This is not correct in
light of the clear wording of Article 2212 which
does not make any distinctions and the ruling in
Tan vs. Court of Appeals.
There is no written stipulation for the payment of interest,
but the borrower pays interest. Can
an the lender be ordered to
return the interest paid?
Under Article 1960 of the Civil Code, if the
borrower of loan pays interest when there has
been no stipulation therefor, the provisions of the
Civil Code concerning solutio indebiti shall be
118 | P a g e
applied. The Supreme Court has repeatedly held
that the principle of solutio indebiti applies in case
of erroneous payment of undue interest.
Corollary to the previous question, how much interest, if any,
is the borrower entitled to receive on the amount to be
refunded to him?
The obligation to return the interest paid arose
from a quasi-contract
from a loan or forbearance of money. Thus, an
interest of 6% per annum should be imposed on
the amount to be refunded to be computed from
the time of the extra-judicial
extra demand up to the
finality of this Decision. In addition, the interest
shall become 12% per annum from the finality of
this Decision up to its satisfaction pursuant to the
ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals.
Can compensatory interest be stipulated upon on top of
monetary interest?
Yes, the Supreme Court has long recognized the
validity of stipulations relating to the imposition
of penalty charges for breach of the obligation to
pay on top of monetary interest. However, unlike
in the case of monetary interest, compensatory
interest will still be due even in the absence of any
written stipulation by virtue of Article 2209.
Term Reminders
"Penalty fee" is entirely different from "bank
charges". The phrase
ph "bank charges" is normally
understood to refer to compensation for services.
A "penalty fee" is likened to a compensation for
damages in case of breach of the obligation. Being
penal in nature, such fee must be specific and fixed
by the contracting parties,
pa unlike in the present
case which slaps a 3% penalty fee per month of
the outstanding amount of the obligation.
(Spouses Viola vs. EPCIB, G.R. No. 177886, 27
November 2008.)
What about the rate of interest, must this also be stipulated
upon?
After stipulating on the payment of interest, the
parties MAY or MAY NOT stipulate on the rate of
interest. If they so stipulate, then the rate agreed
upon will apply. If they do not stipulate, then the
legal rate shall be applicable.
What is the legal rate of interest?
It depends. If it is monetary interest, then the
legal rate is 12%. If it is compensatory interest,
then the legal rate is either 12% or 6% per annum.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
When is the legal rate of compensatory interest 12% and
when is it 6%?
12% per annum Loan, oan, Forbearance of Money
and Judgments involving loans and forbearance of
money (Reformina vs. Tomol, Jr., 139 SCRA 260,
CB Circular No. 416.)
6% per annum - Transactions involving payment
of indemnities in the concept of damages arising
from default in the performance of obligations in
general and/or for money judgment not involving
a loan or forbearance of money, goods, or credit,
in accordance with Art. 2209 of the Civil Code.
Term Reminders
Forbearance of Money
The term "forbearance", within the context of
usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during
a given period of time, from requiring the
borrower or debtor to repay the loan or debt then
due and payable.
How should the interest rate be stipulated upon?
The imposition of interest rates should not
infringe on the principle of mutuality of contracts.
Guiding rule: if one of the parties can fix the rate at
will, there is violation of the principle of mutuality
of contracts.
Sample Problem:
The following provision was included in the promissory
notes that the Bank asked its borrowers to execute:
FOR VALUE RECEIVED, I, and/or We, on or before
due date, SPS. SAMUEL AND ODETTE BELUSO
(BORROWER), jointly and severally promise to
pay to UNITED COCONUT PLANTERS BANK
(LENDER) or order at UCPB Bldg., Makati Avenue,
Makati City, Philippines, the sum of ______________
PESOS, (P ____), Philippine Currency, with interest
thereon at the rate indicative of DBD retail rate or
as determined by thee Branch Head.
Is this valid?
NOT VALID.
Both choices are dependent solely on the will of
UCPB. Clearly, a rate "as determined by the Branch
Head" gives the latter unfettered discretion on
what the rate may be. The Branch Head may
choose any rate hee or she desires.
119 | P a g e
As regards the rate "indicative of the DBD
retail rate," the same cannot be considered as
valid for being akin to a "prevailing rate" or
"prime rate" previously allowed by the
Supreme Court in Polotan vs. CA. The interest
rate in Polotan reads:
The Cardholder agrees to pay interest per annum
at 3% plus the prime rate of Security Bank and
Trust Company. . . . . There is a ceiling, iow.
In this provision in Polotan, there is a fixed
margin over the reference rate: 3%. Thus, the
parties can easily determine the interest rate by
applying simple arithmetic. On the other hand, the
provision in the case at bar does not specify any
margin above or below the DBD retail rate. UCPB
can peg the interest at any percentage above or
below the DBD retail rate, again giving it
unfettered discretion in determining the interest
rate. (UCPB vs. Spouses Beluso, 17 August 2007.)
What is the effect of the invalidity of the stipulate rate of
interest?
As what has been voided is merely the stipulated
rate of interest and not the stipulation that the
loan shall earn interest, then the loan shall earn
interest at the legal rate of 12% per annum. (UCPB
vs. Spouses Beluso, G.R. No. 159912, 17 August
2007.)
DEPOSIT
What is a contract of deposit?
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there
is no
o deposit but some other contract.
Characteristics of contract of deposit
1) It is a real contract.
2) It can only have movable things for its object.
3) Its principal purpose is the safekeeping of the thing
deposited.
4) It is generally gratuitous, unless there is a contrary
agreement or if the depositary is engaged in the
business of storing goods such as a warehouseman.
5) The depositary cannot use the thing deposited
It is a real contract.
Art 1963, an agreement to constitute a deposit is
binding, but the contract of deposit itself is not
perfected until the delivery of the thing.
It can only have movable things for its object.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

take note of Art. 538 which recognizes the judicial Judicial deposit deviates from the general rule that
deposit of land. only movable properties may be the subject of
deposit because in judicial deposit, this can even
The depositary cannot use the thing deposited include real properties.
exception: with the permission
ermission of the depositor or if
the preservation of the thing requires its use. General Rule: Art. 1966. Only movable things may be the
object of a deposit.
A contract of deposit may entered into orally or in writing.
Exception: Judicial deposit
Who are the parties in a contract of deposit?
Depositor What is the consideration for contract of deposit?
Depositary Generally, liberality of the depositary. Liberality
because generally a contract of deposit is gratuitous
Classes of deposits in nature
Judicial deposits one brought about by attachment
or seizure of property by order of the court such as General Rule: it is gratuitous
execution, attachment or replevin.
replevin The property is Exception:
placed in the custody of the court. Judicial deposit unless there is a contrary agreement or
deviates from the general rule that only movable if the depositary is engaged in the business of storing
properties may be the subject of deposit because in goods such as a warehouse
judicial deposit, this can even include real if the deposit is made under the condition of
properties. calamity, under quasi contracts, compensation must
Extrajudicial deposit: be made to the person who constituted
constitute the deposit
o Voluntary deposit: one wherein the to the benefit of a person
delivery made by the will of the depositor
Art. 1965. A deposit is a gratuitous contract, except when there is an
or by two or more persons each of whom
agreement to the contrary, or unless the depositary is engaged in the
believes to be entitled d to the thing business of storing goods.
deposited
Extinguishment: If both voluntary and necessary deposits are both extra-
1) Loss or destruction of thing judicial, what will be their difference?
deposited; Voluntary deposits, the depositor deposit a thing at
2) in gratuitous deposit, upon his own will. If it is at his own will, the depositor gets
death of either depositor or to choose his depositary. Not so in a necessary
depositary; deposit
3) other causes (return of thing,
novation, expiration of the Art. 1968. A voluntary deposit is that wherein the delivery is made
term, fulfillment of resolutory by the will of the depositor. A deposit may also be made by two or
more persons each of whom believes himself entitled to the thing
condition)
deposited with a third person, who shall deliver it in a proper case
ca
o Necessary deposit: one made in compliance to the one to whom it belongs.
with the legal obligation or on the occasion
of any calamity or by in some taverns, Who can be a depositor?
hotels and inns or by travelers with He does not have to be the owner of the thing
common carriers deposited.

Art. 1964. A deposit may be constituted judicially or

Should the parties be capacitated to enter into a contract of
extrajudicially.
deposit?
Art. 1967. An extrajudicial deposit is either voluntary or Yes
necessary.
Effect of incapacity on the part of the depositor or depositary
Judicial deposits Status of the contract of deposit voidable
one brought about by attachment or seizure of
property by order of the court such as execution, Incapacitated depositor the capacitated person
attachment or replevin. who received the thing delivered shall be subject to
The property is placed in the custody of the court.
120 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
all the obligations of a depositary and may be
compelled to return the thing by the guardian, or
administrator or by the depositor himself if he
should acquire capacity. (Art. 1970)
If the depositor is incapacitated, then the rules
would still be the same because the depositary will
still be subject to the same obligation of preserving
and safely keeping the thing deposited with him. The
only qualification would be with regard to the
matter on to whom should the deposited thing be
returned because the depositary cannot return it to
the incapacitated depositor, otherwise, the
depositary will not be freed from the obligation as
depositary. Remember the rules under obligations
and contracts, if the obligee is not capacitated and
there is payment to him, the payment will not be
effective unless he has retain some of the payment
to him and he benefitted.
Art. 1970. If a person having capacity to contract accepts a
deposit made by one who is incapacitated, the former shall be
subject to all the obligations of a depositary, and may be
compelled to return the thing by the guardian, or administrator,
of the
he person who made the deposit, or by the latter himself if he
should acquire capacity.
What if it is the depositary who is incapacitated? Will the
incapacity of the depositary have a greater impact of the
relations of the parties?
mpact because it goes to the
Yes, it has a greater impact
very essence of a contract of deposit. Reading the
rules, it would appear that the depositary will be
free of any obligation because of his incapacity.
Incapacitated depositary the depositor shall only
have an action to recover er the thing deposited while
it is still in the possession of the depositary OR to
compel the depositary to pay him the amount by
which he has enriched or benefited himself with
the thing or its price. However, if the third person
who acquired the thing acted cted in bad faith, the
depositor may bring an action against him for its
recovery.
Art. 1971. If the deposit has been made by a capacitated person
with another who is not, the depositor shall only have an action to
recover the thing deposited while it is still in the possession of the
depositary, or to compel the latter to pay him the amount by
which
ich he may have enriched or benefited himself with the thing
or its price. However, if a third person who acquired the thing
acted in bad faith, the depositor may bring an action against him
for its recovery.
Can the depositor ask for the annulment of the contract of
deposit on the ground of incapacity of the depositary? What
if he did not know?
121 | P a g e
When you park in the parking premises of SM San Lazaro, are
you entering in a contract of deposit with SM? Such that any
loss, damage that is caused in your vehicle
vehic should be for the
account of SM management?
Contract of lease because it is not as though you are
giving up possession of your car to SM, it is the other
way around, it is SM which is giving up possession of
that tiny portion in the parking lot to you. SM is
leasing that portion of that parking lot (more
convenient view)
If you are for the lawyer of the owner of the car, we
can argue that he doesnt have any control of the
premises.
But take note of BPI vs. IAC, GR No. 66826, August 19, 1988
delivery of dollars to the bank was held to be constitutive of
a contract of deposit. Bank claimed that it was a contract of
deposit which it cannot enter into and that its officer
exceeded his authority when he received the money;
personal liability CB
B Circular No. 20
The delivery of the $3,000 was attended by the
execution of a document whereby the bank through
its manager acknowledged receipt of the money for
safekeeping.
At the time, residents were not allowed to maintain
foreign currency deposits.
depos Residents in receipt of
foreign exchange were required to sell these within
one business day to authorized dealers of the
Central Bank.
Bank actually used this as a defense to resist the
action to recover the money. There was only a list of
transactions
tions that the then prevailing law allowed in
relation to the foreign currency and this did not
include delivery of foreign exchange to a bank for
safekeeping.
What about Bank Deposit? How would you classify the
deposit that are maintained with banks and other financial
institution?
The law is clear that these are not ordinary deposits,
these are considered to be loan. The depositor is
actually the creditor of the bank. The bank is
borrowing from the depositor. The bank is supposed
to return is not really the same money that the bank
received. In simple loan, you are only supposed to
give back something of the same kind. The obligation
to give involves a fungible thing.
thing But in contract of
deposit, you are supposed to give back the very
thing deposited to you,
yo which does not happen in
the contract of deposit with bank
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Art. 1980. Fixed, savings, and current deposits of money in banks
and similar institutions shall be governed by the provisions
concerning simple loan.
What is the obligation of the bank to the depositor?
It is one which is immediately demandable
And since this is a load and not a deposit, the bank acquires
ownership over the depositors money. And when the
depositor effect withdrawal, he receives payment for the loan
that was made to the bank.
What about safety deposit box? Is it a lease contract? Or
contract of deposit?
It has been declared that in the case of CA agro
industrial, that they are treated as special kind of
deposit. They are not ordinary lease contract on the
theory that the depositor
epositor does not really enjoy
absolute control over the safety deposit boxes. What
happens is that the depositor will have a key but the
bank will also have its own key and both keys will
have to access the box. So there being no absolute
control, then this
is cannot be taken as ordinary but a
special kind of deposit. This ruling is supported by
the provision of the General Banking law which
provided that banks can enter into this transaction
(the renting out of safety deposit boxes), in their
capacity as either
her agents or depositary.
What is the contention of the bank in this case?
It is a contract of lease
Why would the bank want to classify the contract as
a contract of lease? What can a lessor do which a
depositary cannot do?
The lessor can negate liability by providing
for an appropriate disclaimer in the
contract. Which the bank, in this case, tried
to do. The bank included a provision in the
contract saying that it will not be liable for
any loss that may be suffered.
Is a depositary allowed to do this?
No, because if the depositary is allowed to
do that, then we are negating the very
essence of the contract of deposit which is
safekeeping
The SC said that the bank cannot hide behind the
stipulation exempting themselves from liability
because
se the rent of safety deposit box is not a
contract of lease, while it is not an ordinary contract
of deposit, it is nonetheless a special kind of deposit.
122 | P a g e
The reason why it cannot be classified as an ordinary
kind of deposit is because there is no complete
surrender of possession of the contents. As provided
in their contract, neither the bank nor the depositor
can open and take out the contents of the safety
deposit box without the participation of the other.
Having said that, we should be aware of o the
provision inn General Banking Act of 2000, we must
pay attention to Section 52, because section 53
enumerates the other banking services that may be
extended by banking institution. Note that this
includes renting out of safety deposit boxes under
Section
tion 53.5 but also note the succeeding paragraph,
the banks shall also perform services permitted
provided in section 53.1, 53.2, 53.3 and 53.4 as
depositary or as an agent. Delivery left out in section
53.5 to emphasize that they are not acting as a
depositary
itary when it comes to renting out of safety
deposit boxes.
Since General Banking Act came out after the ruling
of CA agro industrial, we can take this as a
revocation by congress of the ruling of the SC in CA
agro industrial
What will be the obligations of the depositor?
To reimburse the expenses incurred by the
depositary
To pay the fees of the depositary
To pay damages
Art. 1992. If the deposit is gratuitous, the depositor is obliged to
reimburse the depositary for the expenses he may have incurred for
fo
the preservation of the thing deposited.
When there will be liability for damages?
When there is loss on the part of the depositary
caused by the character of the thing deposited
Art. 1993. The depositor shall reimburse the depositary for any
loss arising from the character of the thing deposited, unless at
the time of the constitution of the deposit the former was not
aware of, or was not expected to know the dangerous character
of the thing, or unless he notified the depositary of the same, or
the latter was aware of it without advice from the depositor.
Is this liability for damages available in all instances?
No
Art. 1993. The depositor shall reimburse the depositary for any
loss arising from the character of the thing deposited, unless at
the time of the constitution of the deposit the former was not
aware of, or was not expected to know the dangerous character
of the thing,, or unless he notified the depositary of the same, or
the latter was aware of it without advice from the depositor.
depositor
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
How will the obligations of the depositor be enforced?
He can compel payment thru a right of retention he
enjoys over the thing deposited.
Art. 1994. The depositary may retain the thing in pledge until the
full payment of what may be due him by reason of the deposit.
What will be the scope of this right of retention of the
depositary?
All payments that is due to the depositary
Does a baileeee in a contract of commodatum, have a similar
right of retention?
The bailee in commodatum has also a right of
retention but it is different from the right of
retention enjoyed by a depositary because the right
of retention of the bailee is limited to the right to
recover damages
Under what circumstances can the bailee recover damages
for which he exercises the right of retention?
When the bailor knew the flaws of the thing but he
did not advse the bailee and the bailee suffers
damages because of these flaws
When it comes to deposit, the right of retention of the
depositary is more extensive, why is it more extensive?
He enjoys right of retention with regard to the
payments of his fees, reimbursement of the ordinary
and extraordinary expenses and the satisfaction of
damages that the depositary have suffered
Aside from the extent and scope of retention, how else the
right of retention of the bailee different from the right of
retention of a depositary?
The right of retention enjoyed by the depositary
carries
arries with the right to sell and use the proceeds to
satisfy whatever is due to him. This is not so in
commodatum
Why do we say that the depositarys right of retention
includes the right to sell and use the proceeds?
Because a pledge is created
Art. 1994. The depositary may retain the thing in pledge until the
full payment of what may be due him by reason of the deposit.
Is this the same with commodatum?
No, because the law simply says that there will a
right of retention but it does not go as far as deposit
d
where the law explicitly says that right to retain in
pledge
123 | P a g e
What are the obligations of the depositary?
To safe keep the thing deposited
To return the thing upon demand
Art. 1972. The depositary is obliged to keep the thing safely and to
return it,
t, when required, to the depositor, or to his heirs and
successors, or to the person who may have been designated in the
contract. His responsibility, with regard to the safekeeping and the loss
of the thing, shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe.
Is the depositary required to look into the ownership by the
depositor over the thing deposited?
No, because the depositor need not be the owner of
the thing deposited
If there is a dispute regarding ownership, is the depositary is
supposed to make some kind of stand?
The depositary should advise the true owner of the
deposit.
Art. 1984. The depositary cannot demand that the depositor
prove his ownership of the thing deposited.
Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the
deposit.
If the owner, in spite of such information, does not claim it within
the period of one month, the depositary shall be relieved of all
responsibility by returning the thing deposited to the depositor.
If the depositary has reasonable grounds to believe that the thing
has not been lawfully acquired by
b the depositor, the former may
return the same.
Is there anything provided in the law which authorizes the
depositary to refuse to return the thing to the depositor?
There is no express provision but it may be inferred
Why?
Because of the 1 month period given to the owner of
the thing deposited to claim
Is there a need to go to court?
Yes, if the depositary is not certain who among the
claimants is the true owner
Why is there a need to go to court?
Would the obligation of the depositary be considered perform
if he return the thing to the depositor?
Yes, if after the 1 month period
Can the depositary transfer the thing deposited to a 3
rd
person?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
As a general rule, no
Art. 1973. Unless there is a stipulation to the contrary, the
depositary cannot deposit the thing with a third person
person. If deposit
with a third person is allowed, the depositary is liable for the loss
if he deposited the thing with a person who is manifestly careless
or unfit. The depositary is responsible for the negligence of his
employees.
Lets say the Ms Capellan deposited her things to Ms. Barquez
and she told Ms Barquez that if she needs to get out of the
room, she may ask someone else to look after her things. So
Ms Barquez, deposited
eposited the things to Ms Albaa.
Alba There is a
loss while
ile the things are in the possession of Ms Alba
Albaa,
would Ms. Barquez has any liability?
She will not be liable
Is there an instance where Ms. Barquez will be liable
notwithstanding allowance on the part of Ms Capellan for ms
Barquez to transfer the property?
Yes, if Ms Albaaa is MANIFESTLY unfit or she is an
employee of Ms. Barquez
Supposing that what was deposited where intangibles, how
will the depositary exercise the obligation to preserve them?
If it earns interest, to collect the same when due and
also
so to make proper presentation of notes, bills of
exchange so as to preserve or to prevent them from
___
Art. 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the
latter when it becomes
mes due, and to take such steps as may be
necessary in order that the securities may preserve their value
and the rights corresponding to them according to law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes.
Necessary Deposit
When is there a necessary deposit?
Art. 1996. A deposit is necessary:
1. When it is made in compliance with a legal obligation;
2. When it takes place on the occasion of any calamity, such as
fire, storm, flood, pillage, shipwreck, or other similar events.
Art. 1998. The deposit of effects made by the travellers in hotels or inns
shall also be regarded as necessary. The keepers of hotels or inns shall
be responsible for them as depositaries, provided that notice was given
to them, or to theirr employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions which said
hotel-keepers
keepers or their substitutes advised relative to the care and
vigilance of their effects.
When it comes to hotels and inns, whathat will be the extent of
the responsibility of the hotels or inns for the effects carried
by the guest? When will the responsibility attaches?
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If there is loss and there was notice given to the
hotels or inns
What is the purpose of this notice? What happen if there is no
notice?
The depositary may be exempted from liability
Why?
Because there is no way for the depositary to know
if there are effects
effects.
The notice is not just an for the opportunity for the
guest to be apprised of the precautions of the guest
gu
must take, it actually provides for the factual basis
for the existence of the responsibility. Otherwise,
what will be your basis to even say that the hotels
should be responsible? They are not even aware that
were valuables that is inside his room.
Do hotels enjoy some kind of right of retention over the
effects carried by the guest?
Yes
Art. 2004. The hotel
hotel-keeper has a right to retain the things
brought into the hotel by the guest, as a security for credits on
account of lodging, and supplies usually furnished to hotel guests.
GUARANTY
(Art. 2047 2081)
Contract of Guaranty
What happens to a contract
ontract of guaranty?
Art. 2047. By a guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal
debtor in case the latter fails to do so.
If a person himself is solidarily liable with the principal de
debtor, the
provisions of Section 4, Chapter 3 Title I of this Book shall be
observed. In such case the contract is called a suertyship.
What would be the concept of a contract of guaranty?
This is an accessory contract because it requires a
presence of a principal contract
We said that we have the principal contract of bailment, loan
or commodatum and deposit. Sometimes the creditor would
not be satisfied
fied with just the assurance of the debtor or
o with
just the promise that
hat the debtor would be able to pay him
with all of his properties. He needs security.
Security can either be personal or real. If it is personal
security that he is after, then he looks for a guarantor and this
person guarantees that the obligation will be paid.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
There is another kind of a personal guarantor, and this is
known as the surety.
Guarantor VS Surety
GUARANTOR
subsidiary liability
insurer of the debtors insolvency
SURETY
primary liability
insurer of the debt
Discussion of suretys primary liability: the first
distinction refers to the fact that a surety is solidarily liable
with the principal debtor. This simply means that the
creditor can directly go after him. There is no need for him
to go after the principal debtor before he can c go after the
surety.
A guarantor, on the other hand, can only be proceeded
against by the creditor after the latter has exhausted all the
property of the debtor and he has resorted to all the legal
remedies against the debtor. Basically, this means thatt the
creditor should have already gone to court, have obtained
a final judgment and have secured a writ of execution
against the properties of the debtor. The best proof of the
debtors inability to pay is an unsatisfied writ of execution.
Needless too say, this a tall requirement to fulfill for the
creditor. A lot of time and effort will have to be spent on
the court proceedings before the creditor will be able to
get to the point where he can go after the guarantor. To
expedite the situation, the law
aw allows the court to render
judgment against both the debtor and the guarantor
should the guarantor, after being given notice, decides to
make an appearance in the action filed by the creditor
against the debtor. (Art. 2062.) But note that just the same,
even if judgment has been rendered against him and the
debtor, the guarantor is still entitled to invoke the benefit
of excussion. (Art. 2062).
Discussion of second distinction: what does it mean to
say that the guarantor is the insurer of the debtors
solvency, while a surety is an insurer of the debt itself? We
say that the guarantor is the insurer of the debtors
insolvency because he is obligated to pay if the guarantor
CANNOT pay. Conversely, if the debtor is solvent and can
pay, the guarantor will not be obligated to pay. On the
other hand, a surety will be liable so long as the debtor
DOES NOT pay regardless of whether or not the debtor is
insolvent.
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Gateway Electronics vs. Asian Bank, G.R. No. 172041, 18
December
cember 2008. SC held that the surety may be proceeded
against by the creditor independently of the insolvent
principal.
Who has the bigger obligation?
The surety, because a surety is primarily and
solidarily liable. The guarantor is only subsidiarily
liable.
For this reason it hass been said that the guarantor, he is only
an insurer of the debtors insolvency, while the surety is an
insurer of the debt.
What does that mean?
It means that the guarantor only steps in if the
principal debtor is not able to pay the obligation.
The surety, on the other hand, he is an insurer of the
debt. He will pay in case the principal debtor does
not pay. It is nott even matter why. So long as it can
be shown that the principal debtor does not pay,
then surety will be liable.
l
You can even sue the surety ahead of the principal
debtor because of their solidary liability. But, you
cannot do that with regard to the guarantor. You
cannot proceed against the guarantor ahead of the
principal debtor.
In fact you are not even supposed to include the guarantor in
the action against the principal debtor. You are only
supposed to give notice to him. But he is not supposed to be
made as a party defendant.
Art. 2062. In every action by the creditor, which must be against
the principal
pal debtor alone, except in the cases mentioned in
Article 2059, the former shall ask the court to notify the guarantor
of the action.. The guarantor may appear so that he may, if he so
desire, set up such defenses as are granted him by law. The
benefit of excussion mentioned in Article 2058 shall always be
unimpaired, even if judgment should be rendered against the
principal debtor and the guarantor in case of appearance by the
latter.
You give him a notice and he participates in the proceedings,
would thatt mean that he will now be primarily liable
alongside the principal debtor?
No, because even if judgment is rendered against
him and the principal debtor, he can still invoke the
benefit of excussion.
excussion The creditor must still proceed
first against the principal debtor.
How does a surety be different from a solidary co-debtor
co
notwithstanding the same underlying nature of their liability?
liability
A surety is not a party to the obligation. He does not
benefit from the transaction between the creditor
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
and the solidary
dary debtors. Also, when it comes to the
right to be indemnified for what he has paid, a
surety is entitled to obtain indemnification for the
entire amount. Entire means that there is no
provision for any deduction for his participation in
the indebtedness because he is not a party to the
principal obligation. Whereas, a solidary co-debtor
co is
entitled to be reimburse but his right for
reimbursement is subject to deductions pertaining
to his share or at times even pertaining to his
proportionate share in the portion that should have
been paid by an insolvent solidary debtor
Surety can be proceeded against by the creditor
independently of the debtor
Characteristics of Contract of guaranty
Consensual
Nominate
Gratuitous
Accessory
Unilateral
governed by the statute of frauds
The contract of guaranty is characterized as consensual. It is
perfected by mere consent.
But whose consent is required?
The contract of guaranty is actually between the
creditor and the guarantor. So it is the creditor and
the guarantor who must have a meeting of the
minds.
Of course there are instances when the debtor would be the
one recommending or volunteering the person who shall act
as a guarantor. There is no problem with that.
What we are emphasizing here is that we can have a contract
of the guaranty even if without the participation of the
debtor. But if he does participate then well and good. But he
is not indispensable.
If the debtor does not participate in the contract of guaranty
or does not give his consent, how will it affect the contract of
guaranty?
It will not have an adverse effect. If there would be
any adverse effect, it would be in relation to the
right of the guarantor to recover. This is no different
from a situation where payment of an obligation is
made by a third person who is a stranger to the
contract.
Under Obligations and Contracts, in those situations
the right to be reimbursed would be dependent on
the amount of benefit that may have been enjoyed
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by the debtor who did not give his consent for the
payment,
ent, or in this instance who did not give his
consent to the contract of guaranty.
Art. 2050. If a guaranty is entered into without the knowledge or
consent, or against the will of the principal debtor, the provisions
of Articles 1236 and 1237 shall apply
apply.
rule The parties can stipulate on
It is gratuitous as a general rule.
the payment of consideration.
Would you know of any person or entity who acts as a
guarantor for consideration?
Example is Bonding companies. In Labor Law, when
there is an adverse judgment rendered against the
employer, there is an appeal bond that must be
posted. The bond is supposed to cover the award
made by the labor arbiter.
The appeal bond is a form guaranty and it is for a
consideration, because a premium is paid.
When you say that a contract of guaranty gratuitous. Does it
mean that the guarantor will be paying the obligation out of
the goodness of his heart and does not expect to be
reimbursed?
No. It means that he is not receiving consideration
for acting as a guarantor, but whatever he pays to
the creditor may be recovered by him from the
principal debtor. There is a right to be reimbursed
that the law creates in favor of the guarantor.
Sometimes, even with this right that is automatically
created in the law, some guara
guarantors would even
require the execution of the so called indemnity
agreements.
What is an indemnity agreement?
It is an agreement entered into between the debtor
and the guarantor, that if the guarantor be made to
pay the debtor would indemnify him for whatever
wha
he has paid as well as for his expenses.
Gratuitous
By provision of law, we know that a contract of
guaranty is generally gratuitous in nature and that
it only becomes onerous if the parties stipulate to
the contrary.
Art. 2048. A guaranty is gratuitous, unless there is a stipulation to
the contrary.
If a contract of guaranty is gratuitous, does this mean that it
is not supported by any consideration?
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

Of course not. You know well enough that no valid
obligation can exist without
ut consideration.
What serves as consideration for the contract of guaranty?
The same consideration that supports the
principal obligation. There is no need for the
consideration to pass directly to the guaranty or
surety. This stems from the fact that a guaranty is
an accessory contract.
What is ironic is that the guarantor himself may even ask for
someone else to guaranty the satisfaction of the indemnity
agreement or he may ask for some other forms of securities
such as mortgage or pledge just to make ake sure that the
indemnity agreement will be complied with by the principal
debtor. So there is always the intention to be reimbursed on
the part of the guarantor.
Art. 2051. A guaranty may be conventional, legal or judicial,
gratuitous, or by onerous title.
The creditor who can run after the guarantor must
be judgment creditor and he must have already tried
to levy on execution upon the properties of the
debtor but these were not successful.
If the obligation is a natural obligation or an unenforceable
obligation, do you think it will be possible for the creditor to
go to court to obtain a judgment and more than that to
obtain a writ of execution that is not satisfied?
The unenforceable nature of the contract or even
the fact that the contract is a natural obligation will
prevent the creditor from getting these requisites.
So there will be a stalemate now.
What would happen then?
The key would be, in determining
dete what exactly was
the role played by the guarantor.

It may also be constituted, not only in favor of the principal

debtor, but also in favor of the other guarantor, with the latter's
consent, or without his knowledge, or even
ven over his objection.

Did he represent to be the guarantor? Did he know of the

It is accessory, that means that there must be a principal
unenforceable nature of the contract? Was he aware that the
obligation. Since it is an accessory contract, the principal
obligation is a natural obligation, owing perhaps to onset of
obligation must be valid.
prescription?
Art. 2052. A guaranty cannot exist without a valid obligation. If this is the case then we can say that he has waived
the benefit of the excussion. Alam nya na
anty may be constituted to guarantee the performance
Nevertheless, a guaranty unenforceable but he guaranteed the obligation. He
of a voidable or an unenforceable contract. It may also guarantee a natural knew that there is no way that a writ of execution
obligation.
would be obtained by the creditor, but he went
ahead. Specially
pecially if it is a natural obligation or an
Art 2052 provides that a guaranty may constituted to
obligation that may perhaps prescribed, he would
guarantee the performance of a voidable or an unenforceable
also not be able to get a writ of execution here,
contract.
ontract. It may also guarantee a natural obligation.
much less, a judgment affirming the obligation.
How will this affect the rights of the guarantor? How will this
So the conclusion we can make is that he has waived
affect the rights of the debtor?
the benefitt of excussion and he may now be
If contract happens to be voidable and the guarantor
proceeded against. And once he pays, it will now be
has no knowledge that it is voidable, then it gives
his problem to collect on what is unenforceable or
him an added defense apart from the benefit of
on what appears to be a natural obligation.
excussion that he may raise against the creditor. He
may also raise all other defenses that may be
Maybebe he is confident that he can collect without
applicable given the voidable nature of the contract.
having to go to court because
bec of personal ties or
It may be the debtor was under age when he
friendship. So these are personal matters that are
entered the contract or his consent was vitiated.
possible consideration for the guarantor to agree to
These matters can be raised by the guarantor
guarantee an unenforceable obligation or a natural
obligation.
What if the contract is unenforceable or it is a natural
obligation? How will this affect the rights of the guarantor? Art. 2053. A guaranty may also be given as security for future debts, the
In this question, we have to remember that in theory amount of which is not yet known; there can be no claim against the
the creditor can only run after the guarantor if he is guarantor until the debt is liquidated. A conditional obligation may also be
equipped with an unsatisfied writ of execution. secured.

127 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
A guaranty may also be given as a security for future debts,
the amount of which is not yet known This is what is known
as?
Continuing guaranty. This has been repeatedly held
as valid by the SC starting from the case Dino vs CA.
But then as examining art 2053, it is said that a guaranty may
be given as a security for future debts the amount oof which is
not yet known. It means that there must at least be a basis
for a guaranty to exist. There must be at least a potential for
the existence of the loan.
It cannot be that the parties did not even come to an
agreement as of yet and there is already a contract of
guaranty.
Usually this takes place when there is credit line that is
extend by the bank to a depositor or to a client.
When you have a credit line, what do you usually have?
Basically an agreement to lend. At that point, you
dont have a contract of loan yet.
But, once you have drawn on a credit line then there
would be a contract of loan and the guaranty may
now kick in. it will trigger the effectivity of the
guaranty. And this is justify under Art. 2053.
Significance of using future
uture debts rather than future
obligation
This is significant because this sets the limit.
Although the law recognizes that you can guaranty
future obligation but it does not mean that it can
guaranty any and all obligations in the future even if
they dont
ont have any foundation yet at the present
time. By saying future debts although it is not yet
determined, the law limits to situations where we
already have at least an agreement to lend. Like in a
credit line
Sample problem: If no use of the credit line ine has been made
yet, what defense can Y raise to resist the banks demands?
A. There can be no claim against Y because the debt is
not yet liquidate
B. There can be no claim against Y because there is no
valid obligation yet
C. There can be no claim against Y because bec he is
entitled to the benefit of excussion
Answer: There can be no claim by X against Y because there
is no valid obligation yet. There is no loan yet. There is only a
perfected consensual agreement to lend. But the contract of
loan will not be perfected.
cted. It will not exist until there is
delivery of the amount loaned.
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Term Reminder
Continuing Guaranty
In Dio v. Court of Appeals,
Appeals the SC said that by
its very nature, a continuing guaranty is
prospective in its operation and is generally
intended to provide security with respect to
future transactions. By no means, however, was it
meant in that case that in all instances a contract
of guaranty or suretyship should be prospective in
application.
Can you guaranty the guaranty itself?
Yes. It is after all also a contract, an obligation. And
in this case the guarantor or the contract will known
as sub-guaranty.
Art. 2064. The guarantor of a guarantor shall enjoy the benefit of
excussion, both with respect to the guarantor and to the principal
debtor.
It is unilateral
frauds What would be the
It is governed by the statute of frauds:
implication if it is governed by the statute of fraud?
It must be in writing to be enforceable
If it is not in writing do you still have a valid contract of
guaranty?
Yes, being unenforceable doesnt mean that it is
invalid. It is valid but unenforceable. It is subject to
ratification.
How is an unenforceable contract under the statutes of fraud
ratified?
If there is partial performance
If there is failure to object to the introduction
intro of oral
evidence
Classification of Guaranty,, Generally they are:
Personal Guaranty it is a person, individual or
entity which guarantees the performance of the
obligation.
Real Guaranty the security consists in property
such as in case of pledge, mortgage or antichresis
Classification according to manner of creation
Conventional by agreement
Legal when required by law
Judicial when required by the court
Classification according to consideration
Gratuitous
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Onerous
Classification according to the scope
Definite when the guaranty is limited to the
principal obligation only or a specific part thereof
Indefinite or simple the guaranty covers not only
the principal obligations but also its accessories
including the cost incurred after the guarantor which
has been required to pay by the court
How do we differentiate a personal guaranty from a real
guaranty? Which will be more extensive?
Personal guaranty
Why is it more extensive?
In real guaranty, the guaranty is limited to the
property given as security. So that if the proceeds of
that property will not be sufficient, then there will
be no cause of action against the mortgagor. The
rd
mortgagor here is not a debtor-mortgagor
mortgagor but a 3
party mortgagor. If you are just simply a mortgagor
rd
(3 party mortgagor), then your liability is limited to
the value of the property you have mortgage. Should
the proceeds not be sufficient to satisfy the entire
obligation, you as mortgagor, you no longer have
any other liability to the mortgagee. Your liability
begins and ends with the property mortgage.
But if you are a debtor-mortgagor,
mortgagor, then that means
you may still be liable for any deficiencies. But no
longer in your capacity as a mortgagor but in your
capacity as the principal debtor. The only time that
you will be exempted from any further liability for
deficiency would be if the law itself provides, like in
the case of RECTO law
If you are a personal guarantor, the liability will be
more extensive
tensive because the court can actually run
after all of your properties, there is no limitation.
Unless there is a stipulation limiting your liability
Art. 2049. A married woman may guarantee an obligation without the
husband's consent, but shall not thereby
eby bind the conjugal partnership,
except in cases provided by law.
CHING vs. CA, [G.R. No. 124642. February 23, 2004.]
The CA, likewise, erred in holding that by executing a
continuing guaranty and suretyship agreement with the
private respondent bank nk for the payment of the PBMCI
loans, the petitioner-husband
husband was in the exercise of his
profession, pursuing a legitimate business. The appellate
court erred in concluding that the conjugal partnership is
liable for the said account of PBMCI under Article 161(1)
of the New Civil Code.
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Article 161(1) of the New Civil Code (now Article 121[2
and 3] 60 of the Family Code of the Philippines) provides:
Art. 161. The conjugal partnership shall be liable for:
(1) All debts and obligations contracted by the husband
husban
for the benefit of the conjugal partnership, and those
contracted by the wife, also for the same purpose, in
the cases where she may legally bind the
partnership.
The petitioner-husband
husband signed the continuing guaranty
and suretyship agreement as security for the payment of
the loan obtained by the PBMCI from the private
respondent in the amount of P38,000,000. In Ayala
Investment and Development Corp. v. Court of Appeals, 61
this Court ruled "that the signing as surety is certainly not
an exercise of an industry
ndustry or profession. It is not
embarking in a business. No matter how often an executive
acted on or was persuaded to act as surety for his own
employer, this should not be taken to mean that he thereby
embarked in the business of suretyship or guaranty."
guaranty.
It could be argued that the petitioner-husband
petitioner was a
member of the Board of Directors of PBMCI and was one of
its top twenty stockholders, and that the shares of stocks
of the petitioner-husband
husband and his family would appreciate
if the PBMCI could be rehabilitated
reha through the loans
obtained; that the petitioner
petitioner-husband's career would be
enhanced should PBMCI survive because of the infusion of
fresh capital. However, these are not the benefits
contemplated by Article 161 of the New Civil Code. The
benefits must be those directly resulting from the loan.
They cannot merely be a by by-product or a spin-off of the
loan itself.
This is different from the situation where the husband
borrows money or receives services to be used for his own
business or profession. In the Ayala case, we ruled that it is
such a contract that is one within the term "obligation for
the benefit of the conjugal partnership."
(A) If the husband himself is the principal obligor in
the contract, i.e., he directly received the money and
services
vices to be used in or for his own business or his own
profession, that contract falls within the term ". . .
obligations for the benefit of the conjugal partnership."
Here, no actual benefit may be proved. It is enough that the
benefit to the family is ap
apparent at the time of the signing
of the contract. From the very nature of the contract of
loan or services, the family stands to benefit from the loan
facility or services to be rendered to the business or
profession of the husband. It is immaterial, if iin the end, his
business or profession fails or does not succeed. Simply
stated, where the husband contracts obligations on behalf
of the family business, the law presumes, and rightly so,
that such obligation will redound to the benefit of the
conjugal partnership.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Scope of the Obligation of the Guarantor
Art. 2054. A guarantor may bind himself for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature of the
conditions.
Should he have bound himself for more, his obligations shall be reduced to
the limits of that of the debtor.
This provision applies also to a surety.
It only goes to reason that the rules is made this way because
after all as a guarantor his obligation is only accessory.
Example:
A borrowed d from B P10M. There is no mortgage constituted.
C guaranteed to B the payment of As debt and in order to
show his sincerity C even mortgage his land in favor of B. If A
cannot pay and C cannot pay, may B foreclose the mortgage
on Cs land? (This
This all boils down to the validity of the
mortgage constituted by C. Is this something that he can be
held liable for in his capacity as guarantor or would this be a
situation where his liability as guarantor exceeds the liability
of the principal debtor such his liability must be reduced to
that of the debtors level)
No, because of the provision of Art. 2054.
This cannot be considered as a real guaranty of
mortgage because the guaranty was constituted by C
and on top of his personal assurance,
assurance he also gave a
security not for the principal obligation, but for his
obligation as guarantor. The mortgage was meant to
be as security for his obligation as guarantor.
In which case if you would compare the obligation of
the debtor and the obligation of the guarantor,
guar you
would see the debtors obligation is without a
mortgage. It is unsecured, while the obligation of the
guarantor is secured and subject to the guaranty of a
mortgage, which makes it more onerous than the
obligation of the debtor.
We cannot take it as a guaranty of the principal
obligation itself because it was never intended to
secure the principal obligation. It was intended to
secure the obligation of C as guarantor.
Take note: an obligation which is in a small amount may be
secured by a property
rty of bigger value. Like securing a 100k
loan for a house in Forbes park. That is a real guaranty.
Because the excess will be returned to the guarantor.
It is not more onerous if the guarantor gives a property
because the guarantor can give property as ssecurity (real
130 | P a g e
guaranty) and the value of the property even if it exceeds the
value of the obligation will not make it more onerous for the
real guarantor.
What makes it more onerous is that a situation where the
guarantor gives real guaranty but not to secure the principal
obligation, but he is giving a security guaranteeing his
obligation as a guarantor
Who may act as a guarantor?
Art. 2056. One who is obliged to furnish a guarantor shall present
a person who possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he
guarantees.. The guarantor shall be subject to the jurisdiction of
the court of the place where this obligation is to be complied
with.
Are these characteristics required to be continui
continuing or only at
the time that the guaranty is entered into?
Continuing
Why?
Supposing any characteristics is lost after the contract of
guaranty has been constituted, what will be the effect on the
guaranty?
No effect, but the creditor may ask for a new
guarantor
Art. 2057. If the guarantor should be convicted in first instance of
a crime involving dishonesty or should become insolvent, the
creditor may demand another who has all the qualifications
required in the preceding article. The case is excepted where the
creditor has required and stipulated that a specified person
should be the guarantor.
Supposing that the guarantor dies, is the guaranty
extinguished?
No, it will pass to the heirs of the guarantor because
a contract of guaranty is not personal in nature. The
obligation of the guarantor is not personal so it
cannot be extinguished by the death of the
guarantor
It is not personal in nature because the obligation
essentially is to pay. It cannot be extinguished by
death. Even if we say that it should
shoul be extinguished
because with death there is no longer integrity to
speak of, loss of such characteristic (integrity) may
be waived by the creditor. If he will not ask for
another guarantor, then he is waiving that
characteristic
Whose obligation may be guaranteed?
Principal debtor
Guarantor (sub guaranty)
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
A sub guarantor guarantees the obligation of another
guarantor. A co-guarantor
guarantor guarantees the obligation of the
principal debtor along with other guarantors
Benefit of Excussion (Art 2058)
The benefit of excussion is intended to defeat any
attempt on the part of the creditor to claim from the
guarantor right away.
But to be able to avail of this benefit,
benefit it must be
shown that none of the provision of Art. 2059 are
applicable and furthermore the guarantor
guara has
complied with the provision of Art. 2060.
Art. 2058. The guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor, and
has resorted to all the legal remedies against the debtor.
Conditions for the Exercise of the Benefit of Excussion
1) none of the provisions of Art. 2059 are applicable
2) the guarantor complies with Article 2060.
Art. 2059. The excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himselff solidarily with the debtor; (which makes
him a surety)
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines
unless he has left a manager or representative;
(5) If it may be presumed that an execution on the property of the
principal debtor would not result in the satisfaction of the
obligation.
In addition, there are additional instances when excussion will
not be applicable.
In case of a judicial bondsman under Art 2084 is not
entitled to excussion.
Art. 2084. A judicial bondsman cannot demand the exhaustion of
the property of the principal debtor.
A sub-surety
surety in the same case, cannot demand the exhaustion of
the property of the debtor of the surety.
If the principal obligation is a natural or
unenforceable
ble obligation and the guarantor had
knowledge of the characterization of the principal
obligation in this manner, in which case he is placed
in estoppel. He is deemed to have renounced the
benefit of excussion.
Guarantors are also required to comply with the conditions of
Art. 2060.
Art. 2060. In order that the guarantor may make use of the
benefit of exclusion, he must set it up against the creditor upon
the latter's demand for payment from him, and point out to the
creditor available property of the debtor ebtor within Philippine
territory, sufficient to cover the amount of the debt.
131 | P a g e
Requisites under Article 2060 before Guarantor can make use
of Excussion:
the guarantor must set s up the benefit of excussion
against the creditor
credito upon the latters demand for
payment
ayment from him; and
the guarantor must point out to the creditor
available property of o the debtor within Philippine
territory, sufficient
ent to cover the amount of the debt.
The benefit of excussion
cussion is not the only defense available to
the guarantor, because it is possible that you have more than
one guarantor. In which case there is the additional defense
of the benefit of the division.
Why properties in the Philippines?
Because the Philippine courts cannot acquire
jurisdiction over properties abroad
If an obligation is guaranteed, who may the creditor sue?
The principal debtor
Can the creditor sue the guarantor along side the debtor?
As a general rule,, no
Exception: if the benefit of excussion is not
available. (art
art 2071)
But, payment to the creditor is not always required before
the guarantor may proceed against the debtor. He may do so
if his objective is not to ask for reimbursement because he
has not paid yet, but to ask for a release or a demand for a
security for his indemnity. These are the instances when he
can do so:
Art. 2071. The guarantor, even before having paid, may proceed
against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the d debtor has bound himself to relieve him
from the guaranty within a specified period, and this
period has expired;
(4) When the debt has become demandable, by reason of
the expiration of the period for payment;
(5) After the lapse of ten years, when the principal
obligation has no fixed period for its maturity, unless it
be of such nature that it cannot be extinguished except
within a period longer than ten years;
(6) If there are reasonable grounds to fear that the
principal debtor intends to abscond;
(7) If the princip
principal debtor is in imminent danger of
becoming insolvent.
In all these cases, the action of the guarantor is to obtain release
from the guaranty, or to demand a security that shall protect him
from any proceedings by the creditor and from the danger of
insolvency
vency of the debtor.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Supposing that the benefit of excussion is available, therefore
the creditor must only sue the debtor, how should the creditor
proceed?
Art. 2062. In every action by the creditor, which must be against
the principal debtor alone, except in the cases mentioned in
Article 2059, the former shall ask the court to notify the
guarantor of the action.. The guarantor may appear so that he
may, if he so desire,, set up such defenses as are granted him by
law. The benefit of excussion mentioned in Article 2058 shall
always be unimpaired, even if judgment should be rendered
against the principal debtor and the guarantor in case of
appearance by the latter.
What is the purpose of the notice?
To inform the guarantor that a cliam is already be
made and if the guarantor so desire, he can
participate
If he so participates, does it means that he has also waived
the benefit of excussion?
No
Benefit of Division (Art 2065)
The benefit of division is a defense available to a co- co
guarantor, not available to a sub-guarantor.
A sub-guarantor
guarantor is entitled the benefit of excussion both with
respect to the principal debtor and the guarantor. But if you
only have one sub-guarantor,
uarantor, then there is no basis for the
benefit of division.
Art. 2065. Should there be several guarantors of only one debtor
and for the same debt, the obligation to answer for the same is
divided among all. The creditor cannot claim from the guarantors
except the shares which they are respectively bound to pay,
unless solidarity has been expressly stipulated.
guarantors ceases in the
The benefit of division against the co-guarantors
same cases and for the same reasons as the benefit of excussion
against the principal debtor.
Can you have more than 1 sub-guarantor?
Yes. You will have sub-co-guarantors,
guarantors, in which case
you will be entitled to the benefit of excussion twice
over then to the principal debtor and the guarantor
and then the benefit of division.
The benefit it of division stems from the basic premise that
whenever there are more than one debtor, debtor the nature of
their liability is automatically taken to be joint, not solidary.
Similarly, if you have more than one guarantor and you have
several co-guarantor, then n nature of their liability is not
solidary, it is joint. In which case each one can only be made
liable only for a specific portion of the guaranteed obligation.
The creditor, if he is to go to one of the co-guarantors,
co may
find himself faced with, first, the benefit of excussion. If he
passed through, then there is the additional defense of
132 | P a g e
benefit of division. You can collect from me but only up to
this portion of the obligation.
The benefit of division is supposed to be lost for the same
reason or upon the same grounds for the loss of the benefit
of excussion under Art. 2059. But, what is significant is that
there is no added requirement in order for a co-guarantor to
invoke this benefit of division.
A co-guarantor
guarantor is not required to point out the properties of
his co-guarantors
guarantors in the Philippines which may be levied upon
in the satisfaction of his obligation. He simply has to point out
that he is jointly liable and can only collect this much.
So apply the rules on joint obligation but with a twist.
t What is
the twist here?
In joint obligation there would be as many debts are
there are debtors. In other words, kankanya-kanya sila.
There is no mutual guaranty among the joint
debtors. That is the general rule. But, it is different
when it comes to co co-guarantors. Even though they
are only jointly liable under the law, should anyone
of them be insolvent, then the other co-guarantors
must bear the share of the insolvent co-guarantor.
co
So this is a departure of the general rule.
But, this is not to say that
tha it is impossible for the co-
guarantors to be solidarily liable. It is not, because
they can still expressly stipulate for the solidary
liability.
Art. 2073. When there are two or more guarantors of the same
debtor and for the same debt, the one among them who has paid
may demand of each of the others the share which is
proportionally owing from him.
If any of the guarantors should be insolvent, his share shall
sha be
borne by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the
payment has been made by virtue of a judicial demand or unless
the principal debtor is insolvent.
Guarantor does nott act as guarantor for the love of it. There
is always an expectation of reimbursement.
What right does a guarantor who pays the obligation of the
principal acquire against the latter?
Art. 2066. The guarantor who pays for a debtor must be
indemnified by the latter.
The indemnity comprises:
(1) The total amount of the debt;
(2) The legal interests thereon from the time the payment
was made known to the debtor, even though it did not
earn interest for the creditor;
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(3) The expenses incurred by the guarantor after having
notified the debtor that payment had been demanded
of him;
(4) Damages, if they are due.
All these rights can only be enforced once the guarantor has
effected payment to the creditor.
Art. 2079. An extension on granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty. The mere failure on the
part of the creditor to demand payment after the debt has become due does
not of itself constitute any extention of time referred
ed to herein.
Hence, his obligation as a surety should be
deemed extinguished, pursuant to Article 2079 of
the Civil Code, which specifically states that "[a]n
extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes
extinguis
the guaranty. . . . . " In an earlier case, 26 the Court
explained the rationale of this provision in this
wise:
"The theory behind Article 2079 is that an
extension of time given to the principal
debtor by the creditor without the
surety's consent would ld deprive the surety
of his right to pay the creditor and to be
immediately subrogated to the creditor's
remedies against the principal debtor
upon the maturity date. The surety is said
to be entitled to protect himself against
the contingency of the principal
prin debtor or
the indemnitors becoming insolvent
during the extended period."
COMMON PROVISIONS PLEDGE & MORTGAGE
The law provides for common provisions on pledge and
mortgage and it also enumerated the similarities between
pledge and mortgage as follows:
(1) Both are accessory contract (art 2085)
(2) The obligation may be pure or subject to a
suspensive or resolutory condition, which explains
how a pledge or a mortgage can secure future
advancement or renewals (art 2091)
(3) Both the pledgor and a mortgagor m must be the
absolute owners of the property pledge or
mortgage, but take note that the mortgagor or
pledgor need not be the principal debtor. They must
be the owners but they need not be principal
debtors in the obligation because a pledge or a
mortgage may be constituted to secure an obligation
rd
of a 3 person (art 2085)
(4) Both the pledgor or mortgagor must have free
disposal of their property or be authorized to do so
(art 2085)
133 | P a g e
(5) In both pledge or mortgage, the thing given as a
security may be sold at a public
publi auction when the
principal obligation becomes due and no payment is
made by the debtor
(6) The creditor cannot appropriate the thing pledge or
mortgage or disposed of them. Any stipulation to the
contrary will be null and void
(7) both may be constituted by a person other than the
principal debtor
(8) Both are indivisible
Both are accessory contract
The pledge or mortgage cannot exist without a valid
principal obligation. But it may be given to secure
voidable, unenforceable and even natural
obligations.
The obligation may be pure or subject to a
suspensive or resolutory condition.
Both the pledgor and a mortgagor must be the absolute
owners of the property pledge or mortgage
If torrens title of the mortgage property is subsequently
declared void, what happens on the mortgage constituted in
the property? Will it be voided as well?
This is address by the SC in Canilaw vs PNB, the SC
said that the voiding of the torrens title does not
justify the cancellation of the mortgage lien. After
all, the title,, in that case, was still issued by the
registry of deeds and there was basis for the
mortgagee to rely on what appears on the title.
What is the point of this situation?
It can be an exception to the requirement that the
mortgage or pledge becomes be constituted
con by the
owner of the property. That exception applies in
cases where the law explicitly allows reliance upon
(and in this case), what appears in the certificate of
title. The mortgagee or a buyer in good faith is
protected by the law
If the pledgor or mortgagor is not the owner of the property
pledged or mortgaged, the pledge or mortgaged is null and
void. Note, however, that the law gives protection to the so
called mortgagee in good faith. This happens if the
mortgagee relied on what appeared
appe in the torrens title.
(Duran vs. IAC, 138 SCRA 491.)
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
However, because of the nature of their business, banks are
not extended the protection given to ordinary mortgagees
who relied on the torrens title. (Robles vs. CA, 328 SCRA 97.)
Both the pledgoror or mortgagor must have free disposal of
their property or be authorized to do so
In the case of a married person, under the Family Code,
neither the husband or the wife may encumber conjugal or
community property without the other persons consent
In both pledge or mortgage, the thing given as a security
may be sold at a public auction when the principal
obligation becomes due and no payment is made by the
debtor
In which case, we may ask, can there be a foreclosure
for of a
mortgage only if there is nonpayment
ayment of the debt?
Not necessarily, because such foreclosure may also
be availed of if it has been stipulated that
foreclosure is justified by any of the violation of the
condition of the contract of mortgage
Art. 2087. It is also of the essence of these
se contracts that when
the principal obligation becomes due, the things in which the
pledge or mortgage consists may be alienated for the payment to
the creditor.
The creditor cannot appropriate the thing pledge or
mortgage or disposed of them. Any stipulation
stipul to the
contrary will be null and void
This is a prohibition against pactum commissorium
This rule is found in Article 2088. Article 2088
proscribes Pactum Commissorium. Pactum
Commissorium is an agreement in a contract of loan
whereby the property pledged or mortgaged to
secure the payment thereof, will automatically
become the property of the creditor upon the failure
of the debtor to pay the obligation on the time
stipulated. The reason for the prohibition is that the
amount of the loan obtained from the creditor is
usually much less than the actual value of the thing
pledged or mortgaged. If there is a public auction, as
required, there is a good chance and possibility of
securing offers for the higher purchase price from
the public bidders by virtue
rtue of which excess in the
proceeds may be realized.
And for pactum commisorium to be present, the following
elements must be established:
There is a pledge, mortgage or antichresis of
property given by way of security of a payment of a
principal obligation
134 | P a g e
There is an express stipulation for automatic
appropriation by the creditor of the property in case
of nonpayment of the principal obligation within the
period stipulated upon
Effect of a stipulation amounting to pactum commissorium
only the stipulation is rendered void. It does not
affect the pledge, mortgage or antichresis.
Art. 2088. The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.
D borrowed
rowed a sum of 4k from C payable in Jan 2008, with the
agreement that if at the expiration of the said period, the said
amount should not be paid, D house and lot should be
considered as absolutely sold to the plaintiff for the said sum.
So if we are to apply
ply these elements to this case, what would
our conclusion be? Would the stipulation be effective?
effective What
is the effect of the stipulation? Does it amount to a stipulation
for pactum commissorium and therefore be null and void?
Applying the elements, is there a stipulation for mortgage,
pledge or antichresis?
There is none. In the absence of such stipulation is
vital because this removes the stipulation from the
scope of pactum commissorium. This would be a
valid stipulation. It will not amount to pactum
commissorium
The property does not appear mortgaged in favor of
the creditor, because in order to constitute a valid
mortgage it is indispensable that the instrument be
registered in the Register of Property, in accordance
with article 1875 of the Civil Code.
C
By the aforesaid document, Exhibit A, said property
could not be pledged, not being personal property,
and notwithstanding the said double contract the
debtor continued in possession thereof and the said
property has never been occupied by the creditor.
credit
Neither was there ever any contract of antichresis by
reason of the said contract of loan, as is provided in
articles 1881 and those following of the Civil Code,
inasmuch as the creditor-plaintiff
creditor has never been in
possession thereof, nor has he enjoyed
enjoy the said
property, nor for one moment ever received its
rents; therefore, there are no proper terms in law,
taking into consideration the terms of the conditions
contained in the aforesaid contract, whereby this
court can find that the contract was null,
null and under
no consideration whatever would it be just to apply
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

to the plaintiff articles 1859 and 1884 of the same There must be delivery of the Does not require delivery for
code. object of the pledge its perfection

both may be constituted by a person other than the To bind third persons, the To bind third persons, the
principal debtor description of the thing and contract must be registered
the date of the pledge must
a third person may give his property in mortgage or pledge to appear in a public
secure the obligation of another. instrument.

Both are indivisible
You cannot ask for the return of the thing pledged. You
cannot ask for the portion of the property mortgaged be
freed in correspondence to whatever part of the obligation
has been paid.
Art. 2089. A pledge or mortgage is indivisible, even though the
debt may be divided among the successors in interest of the
debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt
cannot ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt
return the pledge or cancel the mortgage, to the prejudi
prejudice of the
other heirs who have not been paid.
From these provisions is expected the case in which, there being
several things given in mortgage or pledge, each one of them
guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment
of the pledge or mortgage as the portion of the debt for which
each thing is specially answerable is satisfied.
PLEDGE
(Art. 2093 2123)
It does not create any real Creates a real right and
right attaches to the property
May the pledgor alienate the thing pledged while the pledge
is subsisting? Art. 2103-
2103 unless the thing pledged is
expropriated, the pledgor remains to be the owner thereof.
Yes, under Art. 2097, which states: With the
consent of the pledgee, the thing pledged may be
alienated by the pledgor or owner, subject to the
pledge. The ownership of the thing pledged is
transmitted to the vendee or transferee as soon as
the pledgee consents to the alienation, but the
latter shall continue in possession.
But can he pledge it anew?
No. (Mission de San Vicente vs. Reyes, 19 Phil
524.)
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpo
purpose.

Pledge is an accessory contract whereby the debtor delivers Third persons who are not parties to the principal obligation may secure the
to the creditor or to a third person a movable or personal latter by pledging or mortgaging their own property.

property or document evidencing incorporeal rights to secure

the fulfillment of a principal obligation with the condition that Requisites of a Valid Pledge
when the obligation is satisfied, the thing delivered shall be 1) It is constituted to secure a principal obligation;
returned to the pledgorr with all fruits and accessions if any 2) The pledgor is the absolute owner of the thing
pledged;
The key here is that pledge requires delivery of the movable 3) The person constituting the pledge has the free
or personal property.. This is what distinguishes it from a disposal of the thing pledged, or in the absence
mortgage (Chattel Mortgage) thereof, that he be legally authorized to make the
pledge;
Pledge Real Estate Mortgage 4) The thing must be placed in the actual possession of
the pledgee or of a third person designated by the
The subject matter is Pertains to real property
parties;
movable property that is
5) A description of the thing pledged and the date of
susceptible of possession.
the pledge must appear in a public instrument to
This is important because of
bind third persons.
the requirement of delivery.

135 | P a g e
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
6) If an incorporeal right is pledged, the instrument
evidencing the right should be delivered, and if
negotiable, indorsed.
What are the requisites of a valid pledge?
st
Apart from the 1 three common requisites that also
apply to mortgages, it has the requirement that the
thing must be placed in the actual possession of the
rd
pledgee or 3 person designated by the parties.
Art. 2093. In addition to the requisites prescribed in Article 2085,
it is necessary, in order to constitute the contract of pledge, that
the thing pledged be placed in the possession of the creditor, or
of a third person by common agreement.
Is it enough that delivery is effected?
No, because there should be continuous possession
of the thing as well. To prove this point, note that
once the thing pledged is found in the possession of
the pledgor, then the pledge is considered
cons
extinguished.
In fact, even though the pledgor remains to be the owner of
the thing pledged, he can effect its sale without taking the
thing pledged from the pledgee. The mere consent of the
pledgee to the sale will be sufficient to transfer the
ownership (Art. 2097).
Art. 2097. With the consent of the pledgee, the thing pledged
may be alienated by the pledgor or owner, subject to the pledge.
The ownership of the thing pledged is transmitted to the vendee
or transferee as soon as the pledgee consentsents to the alienation,
but the latter shall continue in possession.
Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or
owner, the pledge is extinguished. Any stipulation to the contrary shall be
void.
If subsequent to the perfection of the pledge, the thing is in the possession of
the pledgor or owner, there is a prima facie presumption that the same has
been returned by the pledgee. This same presumption exists if the thing
pledged is in the possession of a third person who o has received it from the
pledgor or owner after the constitution of the pledge
The pledge is presumed to have been returned to the pledgor
and thereby extinguishes the pledge, if subsequent to the
perfection of the pledge, the thing is in the possession of the
pledgor or the owner, or the thing pledge is found in the
possession of a third person who has received it from the
pledgor or owner after the constitution of the pledge
". . . the Pledgor . . . hereby gives Possession of such property
for the purpose
rpose of this pledge to the Pledgor who shall hold
said property, subject to the order of the Pledgee.
In other words, the type of delivery will depend
upon the nature and the peculiar circumstances of
each case. The parties here agreed that the vessels
bee delivered by the "pledgor to the pledgor who
136 | P a g e
shall hold said property subject to the order of the
pledgee." Considering the circumstances of this
case and the nature of the objects pledged, i.e.,
vessels used in maritime business, such delivery is
sufficient.
The pledgee is presumed to have returned the thing pledged
and thereby extinguished the pledge, if subsequent to the
perfection of the pledge:
(1) the thing is in the possession of the pledgor or
owner;or
(2) the thing pledged is in the possession of a third
th
person who has received it from the pledgor or
owner after the constitution of the pledge.
The following are the instance when the pledgee can be made
to give up possession without causing the extinguishment of
the pledge:
(1) If the pledgee uses the thing pledged without
authority
(2) If the pledge is misusing the thing pledged
pledge
In the first 2 instances,
tances, the pledgor may ask that the
thing pledge be judicially or extrajudicially
deposited.
(3) If the thing pledge is in the danger of being lost or
impaired through the negligence or willful act of the
pledge act.
In this 3rd instance the pledgor can ask the thing
rd
pledge be deposited with a 3 person.
(4) If the thing pledged is in the danger of being lost or
destroyed without the fault of the pledge.
In this case the pledgor may demand the return of
the thing pledged upon the offering of another thing
in pledged,, provided the latter is of the same kind as
the former and not of inferior quality. But, this right
of the pledgor may be defeated by the pledgee if the
pledgee chooses to avail of his right to have the
thing sold at a public auction.
auction
Is the actual return of the thing pledged always indispensable
for its extinguishment?
Not necessarily, because under Art. 2111
Art. 2111. A statement in writing by the pledgee that he
renounces or abandons the pledge is sufficient to extinguish the
pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledgpledged is necessary, the
pledgee becoming a depositary.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
the description of the thing pledged and the date of the
rd
pledge must appear in a public instrument to bind 3
persons.
Note that the contract of pledge itself is not required to
appear in a public instrument.
What are required are simply the description of the thing
pledged and the date of the pledge and that will be sufficient
rd
to bind 3 persons.
the pledge instrument itself is not required to appear in a
public instrument. Rationale behind 2096 The requirement
is not a mere rule of adjective law prescribing the mode
whereby proof may be made of the he date of the pledge
contract, but a rule of substantive law prescribing a condition
without which the execution of the contract of pledge cannot
affect
ect third persons adversely. (Caltex [Phils.], Inc. vs. Court of
Appeals, 212 SCRA 448.)
If it is an incorporeal right which is pledge, the instrument
evidencing the right should be delivered and if it is
negotiable it must also be indorsed.
Example: If it is a share of stock, then the instrument
evidencing the share of stock should be delivered and must
also be indorsed in favor of the pledgee.
The concept of pledge is that you are giving personal property
or movable property as a means of satisfying
satisfyin the obligation
that it secures.
Normally, when there is an obligation secured by the pledged
and there is non-payment
payment of the obligation, you are given law
the right, if you are the pledgee, to proceed to having the
thing pledge sold at a public auction.
Procedure for Conduct of Auction Sale:
1) the obligation has fallen due and remains unpaid;
2) foreclosure of the pledge is initiated before a notary
public;
3) notice is given to the debtor and the owner of the
thing pledged, stating the amount for which the
public sale is to be held;
4) the sale is made at a public auction;
5) all bids at the public auction shall offer to pay the
purchase price at once;
6) if two or more things are pledged, the pledgee may
choose which he will cause to be sold, unless there is
a stipulation to the contrary. He may demand the
137 | P a g e
sale of as many of the things as are necessary for the
payment of the debt;
7) the sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of
the sale are equal to the amount
amo of the principal
obligation, interest and expenses in a proper case;
8) if the thing is not sold at the first auction, a second
one with same formalities shall be held; and if at the
second auction there is no sale either, the creditor
may appropriate the thing pledged;
9) the pledgee shall promptly advise the pledgor or
owner of the result of the public auction.
it must be shown that the obligation has fallen due and
remains unpaid.
Does it mean that you are required as pledgee to make a
demand for payment on the pledgor?
As a general rule there is no need for demand,
unless you are dealing with a legal pledge, in which
case, demand is necessary for you to be able to sell
the property. Moreover, you must conduct the sale
within a period of 30 days after making
ma the demand.
Art. 2122. A thing under a pledge by operation of law may be sold
only after demand of the amount for which the thing is retained.
The public auction shall take place within one month after such
demand. If, without just grounds, the credi
creditor does not cause the
public sale to be held within such period, the debtor may require
the return of the thing.
Why do we need to make a demand in legal pledge? Why is
there a need to give the legal pledgor the opportunity to claim
the property and yet we do not give the same opportunity in
an ordinary pledgor?
It goes to the nature of ordinary pledge as voluntary.
There is necessarily awareness that a pledge exist.
On the part of the legal pledge, this is not voluntary.
This is constituted by law. The legal pledgor will not
be even be aware that the legal pledgee (e.g.
depositary) is no longer possessing the property
prope as
depositary but as a legal pledgee. The demand will
put him on notice and preclude any need to go thru
the process of foreclosure
Within what period should the auction for the legal pledge be
conducted?
Within 30 days
The foreclosure of the pledge is initiated before a notary
public.
A.M. 01-1-01-0 0 clarify the procedure in the
foreclosure of pledge before a notary public. In that,
it does not require the submission of a petition for
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
extra-judicial
judicial foreclosure before the executive judge
of the appropriate
opriate RTC or through the clerk of court.
The procedure will be conducted/initiated before a
notary public
Notice must be given to the debtor and the owner of the
thing pledged, stating the amount for which the property to
be sold, date and place where the public sale is to be held.
The sale is made at a public auction.
The purpose of the law in requiring a public auction
is to ensure that the pledgor is able to get the best
deal possible for the value of the thing he has given
in pledge.
Can the parties stipulate to the effect that there is no need for
a public auction? Would this be a valid stipulation? Example:
Debtor has a promissory note issued in favor of the creditor
with a sum of P3,800, and to secure the promissory note,
several pieces of jewelry were given. It was provided that if
the debt is not paid on or before maturity, the Creditor with
rd
the cooperation of a 3 person would be entitled to sell the
jewelries at the best price obtainable in the market. The
debtor bound himself to pay whatever
atever balance might still be
due. Note that in this example, the parties have by stipulation
dispensed with the need of a public auction. Can the parties
validly agree on the private sale of the thing pledged to satisfy
the obligation?
Yes, the will of thee parties as expressed in the
contract is the law, and the conditions stipulated
with regard to the jewelries in this case are not in
contravention
travention with the law, morals or public order.
All the bids at the public auction shall offer to pay the
purchase price at once.
Art. 2114. All bids at the public auction shall offer to pay the
purchase price at once. If any other bid is accepted, the pledgee is
deemed to have been received the purchase price, as far as the
pledgor or owner is concerned.
If the pledgeeee is amenable to receiving payment by
installments or in payment other than in cash, that will be
allowed
Payment for a sum of money in any form other than in legal
tender will not bring about the immediate satisfaction of the
obligation. But if the pledgee
gee would agree to payment to be
made at a later time or payment other than in cash, cash the
obligation is arguably still unsatisfied and the pledgor may
still be held liable under the same obligation.
What happens if the bid which
ich does not offer to settle the
price at once is accepted?
138 | P a g e
far as the pledgor is concerned, the price has
Insofar
already been paid and he is relieved from any
responsibility for the purchase price.
Whose problem would the payment of the purchase price be?
It will be the problem of the pledgee, who has
agreed to accept the offer which does not pay the
purchase price at once.
Who may bid at a public auction?
Anyone can bid at a public auction
Can the pledgor also bid?
Yes, and if the offer has the same terms as the
others, his bid will be preferred.
The pledgees bid will not be valid if it is the only
bidder.
Art. 2113. At the public auction, the pledgor or owner may bid. He
shall, moreover, have a better right if he should offer the same
terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is
the only bidder.
if two or more things are pledged, the pledgee may choose
which he will cause to be sold, unless there is a stipulation
to the contrary. He may demand the sale of as many of the
things ass are necessary for the payment of the debt;
It is possible that more than one thing is given in
pledge. In which case the pledgee is given the liberty
to choose which will caused to be sold, unless there
is a stipulation to the contrary.
So if there are 5 items given by way pledge, the
pledgee can run through them, selling one at a time
until the amount of the obligation is satisfied.
Art. 2119. If two or more things are pledged, the pledgee may
choose which he will cause to be sold, unless there
th is a stipulation
to the contrary. He may demand the sale of only as many of the
things as are necessary for the payment of the debt.
the sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are
equal
qual to the amount of the principal obligation, interest and
expenses in a proper case;
What would be the effect of the sale of the thing pledged?
It will extinguish the principal obligation and this is
where, we said earlier with regard with the pledge isi
being given as payment for the obligation will come
in, because here, it does not matter whether the
proceeds of the sale are equal to the amount of the
principal obligation, interest and expenses in proper
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
cases. Once the thing pledge is sold then those
amounts, the obligation of the pledgor are deemed
to be satisfied.
Would the pledgeee be entitled to any deficiency judgment in
case the proceeds are insufficient to cover the amount of the
obligation?
The rule is that the creditor/pledge
creditor/pledgee is not entitled
to any deficiency judgment, notwithstanding any
stipulation to the contrary.
Just to be clear, the pledgee is not entitled to
recover for the deficiency in case the proceeds of
the sale are not sufficient to satisfy the obligation
and any stipulation to the contrary will be void.
The pledgor, on the other hand, will not be entitled
to the excess, in case the proceeds of the sale are
more than the amount of the obligation, unless
there is a stipulation giving him the rights to recover
the excess.
Art. 2115. The sale of the thing pledged shall extinguish the
principal obligation, whether or not the proceeds of the sale are
equal to the amount of the principal obligation, interest and
expenses in a proper case. If the price of the sale is more
mo than said
amount, the debtor shall not be entitled to the excess, unless it is
otherwise agreed. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding
any stipulation to the contrary.
It may happen that the thing is not sold at the 1 auction. A
st
second one with the same formalities will to be held and if
in the second auction, there is no sale either, then the
creditor may appropriate the thing pledged.
The provision may be significant, in that, it
constitutes an exception to the prohibition against
pactum commissorium. In this case the
appropriation of the thing pledged is already
allowed.
Art. 2112. The creditor to whom the credit has not been satisfied
in due time, may proceed before a Notary Public to the sale of the
thing pledged. This sale shall be made at a public auction, and
with notification to the debtor and the owner of the thing pledged
in a proper case, stating the amount for which the public sale is to
be held. If at the firstt auction the thing is not sold, a second one
with the same formalities shall be held; and if at the second
auction there is no sale either, the creditor may appropriate the
thing pledged. In this case he shall be obliged to give an
acquittance for his entire claim.
The pledgee will thereafter advice the owner or pledgor
about the results of the auction.
139 | P a g e
It is very easy to imagine the conduct of the auction, if you are
dealing with property that is tangible. What if you are dealing
money itself? What if you are dealing with credit?
Example: The thing pledged was composed of savings in a
bank and the thing was pledged to him through the delivery
of bank deposit passbooks.
How would you foreclose on this pledge? Would it make sense
to go through this procedure,
cedure, holding a public auction; selling
the savings deposit account, when that passbook represents
money that can be immediately used or apply for the
satisfaction of the obligation
st
1 question: Is it possible to give,
give by way of pledge, negotiable
instruments
ruments or any instruments representing right to money -
credit for instance, a promissory note? Is it allowed by law?
Yes and explicitly so. You can have a check that will
be payable to your debtor as a pledge or a passbook
representing the savings your debtor
d given to you as
a pledge.
How do you enforce the pledge on these things given to you?
SC was faced with such a situation. In this case what
was given to the creditor were deeds of assignment
and subject to the assignments were money market
placements (these are basically money entrusted
with the broker for the broker to invest in the money
market). This is no different from the passbook
because this gives you direct right of access to
money.
D obtained a loan from City Bank. To secure the loan she
executed deeds of assignment over the 2 promissory notes
issued
sued to her by her broker, F & C Finance, for her money
market placement. The deeds provide that in the event that
obligations are not paid, the assignee is fully authorized and
empowered to collect and receive the placement and apply
the same in payment of the obligations.
What will this provision remind you of? Does this not amount
to pactum commissorium, since there is a license for
immediate appropriation and application of the proceeds to
the payment of the obligation?
That is the question facing the SC: Whether or not Citibank
can usese the proceeds of the promissory note paid by the
petitioner F &C Finance to satisfy this outstanding obligation.
SC said that although the pertinent
pertine documents were
entitled deeds of assignment, they are in reality
more of a pledge by the respondent to the t
petitioners Citibank of her credit due from her
broker. In this case Art. 2118 would be applicable.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What does Art. 2118 say?
Art. 2118. If a credit which has been pledged becomes due before
it is redeemed, the pledgee may collect and receive the amount
due. He shall apply the same to the payment of his claim, and
deliver the surplus, should there be any, to the pledgor.
So there is an explicit allowance in the law for the
use of the proceeds of the credit and its application
to the satisfaction the obligation.
REAL ESTATE MORTGAGE (REM)
Real Estate Mortgage is a contract in which the debtor
guarantees to the creditor the fulfillment of a principal
obligation or the faithful compliance therewith,
therewith a real
property in case of non-fulfillment
fulfillment of the obligation at the
time stipulated.
Kinds of REM
Conventional mortgage voluntarily constituted by
the parties
Legal mortgage one required by law to guaranty
performance
Equitable mortgage which reveals an intent to make
a property a security even if the contract lacks the
proper formalities of a REM
Example: Deed of sale with a right to repurchase. The
purchase price representing the amount that is due.
Why would a creditor prefer a deed of sale with right of
repurchase over a contract of loan secured by a REM?
It benefits the creditor more than the debtor. If it is
a deed of sale with right of repurchase that means
that the creditor immediately acquires ownership
over the property.
His security is not just a right to proceed against the property
in case of non-payment, his security is actually a conditional
ownership. He becomes the owner and the burden and
problem will lie on the on the mortgagor. The mortgagor
would be the one who would d run after him to get the
property. This is unfair to the mortgagor that is why the law
treats such transactions as equitable mortgages.
Art. 2085. The following requisites are essential to the contracts of pledge
and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
140 | P a g e
What are the characteristics of REM?
a) It is a real right and it is inseparable
i from the real
property on which it is constituted;
b) It is an accessory contract;
c) It is indivisible;
d) It is real property;
e) It is a limitation on ownership;
f) It can secure all kinds of obligations;
It is a real right and it is inseparable from the real property
on which it is constituted;
Note the provisions of Articles 2126 and 2129.
Art. 2126. The mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may
be, to the fulfillment of the obligation for
f whose security it was
constituted.
Art. 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the part of
the credit secured by the property which said third person
possesses, in the terms and with the formalities which the law
establishes.
This, however, presupposes that the mortgage is
either registered or if not, the existence of the
mortgage is known to the present possessor of the
property.
Explain how a pledge is not a real right but a
mortgage is
Pledge is not a real right? Why?
Because if the thing pledged is found in the
rd
possession of a 3 person, the pledge is
deemed extinguished because of the
presumption in the law that it was returned
by the pledgee.
A real right is something which is enforceable against the
whole world. That is why if you have a mortgage on your
favor, it does not matters how many transfers of ownership
the property undergoes.
Example:
The mortgagor may have been Juan and the
property may have been transferred from to Pedro
to Celso to Cesar to Egay. Egay will still stand to lose
the property to you if you choose to foreclose the
mortgage. He cannot even say that he is not a party
to the loan or he was not a party to the mortgage,
because the mortgage is a lien that subjects the
property and follows it whenever it goes.
It is an accessory contract
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
It is indivisible
It is real property by virtue of Art. 415 par. 10. A real right
constituted
uted over a real property is also considered as real
property.
It is a limitation on ownership, but it does not deprive the
owner of his ownership. The owner can still sell the property
subject to the mortgage.
It can secure all kinds of obligations eve
even unenforceable,
natural obligations and voidable obligations.
If you would differentiate REM from CM, their basic
differences would be: REM vs Chattel Mortgage (CM)
Subject matter
REM is constituted on immovable
CM is constituted over movable
Whether future obligation may be secured
REM may guarantee future obligations
CM cannot guarantee future obligations.
This is how CM is different from a pledge,
REM, and antichresis.
Requisites of a valid mortgage
1) It is constituted to secure a principal obligation;
2) The mortgagor is the absolute owner of the thing
pledged;
3) The person constituting the mortgage has the free
disposal of the thing mortgaged,
ged, or in the absence
thereof, that he be legally authorized to make the
mortgage;
4) The mortgage must appear in a public instrument;
5) The mortgage must be recorded in the Registry of
Property.
The mortgage must appear in a public instrument.
Take note of the provisions of Articles 1357 and 1358. This
would explain that the purpose of the requirement of
registration
ation is not really for the validity of the mortgage but
for its binding effect upon 3rd person.
You can have a REM that is embodied in a private instrument
and whats more, you can compel the mortgagor to reduce
the mortgage in a public instrument.
Art. 1357. If the law requires a document or other special form, as
in the acts and contracts enumerated in the following article, the
contracting parties may compel each other to observe that form,
once the contract has been perfected. This right may be exercised
e
simultaneously with the action upon the contract. (1279a)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
141 | P a g e
of real rights over imm
immovable property; sales of real
property or of an interest therein a governed by
Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer proper
property, or any other power
which has for its object an act appearing or which
should appear in a public document, or should
prejudice a third person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405
Art. 2125. In addition to the requisites stated in Article 208 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between
the parties.
The persons in whose favor the law establishes a mortgage have no other
right than to demand the execution and the recording of the document in
which the mortgage is formalized.
Although Art 2125 says that registration is indispensable to
the validity of a real
al mortgage, the fact remains that the
unregistered mortgage is nonetheless binding between the
parties. Thus, registration is only required to bind third
persons.
Art. 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order
rder that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between
the parties.
The persons in whose favor the law establishes a mortgage have no other
right than to demand the execution and the recording of the document in
which the mortgage is formalized.
Manresa (vol. 12, 3d ed., p. 513), commenting on
the above-quoted
quoted second paragraph of article
1875, states as fo
follows:
"We then likewise state that before the publication
of the Mortgage Law, legal mortgages were
classified according to their nature into implied,
necessary and general mortgages, which, without
being evidenced by any document and without
referring to determinate or known properties,
subjected all that a person owned in favor of
another, creating an odious privilege which
was highly prejudicial to business transactions
in the sense that under said system the
purchaser or mortgage creditor was always
exposed
posed to the risk that a hidden mortgage
would appear, the existence of which there
was no means of knowing. But with the
promulgation of the aforesaid law, the old ways
were abandoned, although special care was taken
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
to preserve the benefit conceded by the
th old laws
to persons in whose favor said mortgages were
constituted, without prejudice, however, to the
publicity which the property must have in order to
attain the ends of the Mortgage Law.
"Its effect was the continuance of legal mortgages,
but of a new ew nature, for hidden and general
encumbrances had to be converted into public and
special ones through the exercise of the right
granted for the purpose to the holders thereof.
"The second paragraph of the article under
consideration therefore provides tthat the persons
in whose favor the law creates a mortgage shall
have no other right than to demand the execution
and registration of the instrument by which the
mortgage is to be evidenced. Thus at the present
time, as well as from January 1, 1863, when th the
original Mortgage Law became effective, to have a
legal mortgage is to have, not the real
encumbrance or charge on the properties of
the debtor whose obligation is secured by it or
the mortgage already constituted, but solely
the right to compel another to execute the
same . . .." (Italics ours.)
The mortgage must be recorded in the registry of property.
This is for your protection as mortgagee, because if it is a real
property covered by the Torrens System,, any buyer in good
faith or any mortgagee in good faith takes the property free
from liens and encumbrances apart from those which appear
on the certificate of title.
So it is not a requirement for validity but for your protection
as mortgagee.
On the topic of registration with the register of deeds, we
may want to consider the 2nd paragraph of Art 2125
Art. 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have
no other right than to demand the execution and the recording of
the document in which the mortgage is formalized.
What are these legal mortgages that are referred to in Art
2125?
These refer to those properties that are made
subject to lien under the rules on concurrence and
preference of credits.
142 | P a g e
The purpose of the requirement of registration is to be able
to give notice to the public that this property is subject to a
mortgage, because you wouldnt know that the purchase
price on this parcel of land remains unpaid. In which case case,
there is a lien that is constituted for the unpaid portion of the
purchase price on that property.
How would you know? There would be no tell tale signs. That
is why you need registration with the registry of deeds to give
notice that such legal mortgage is in existence, but
registration does not create the legal mortgage. It is created
by law.
What is the extent of a REM?
1) the natural accessions, to the improvements,
growing fruits and the rents or income not yet
received when the obligation becomes due;
2) the amount
mount of the indemnity granted or owing to
the proprietor from the insurers f the property
mortgaged, or in virtue of expropriation for public
use. (Art. 2127.)
Example:
A mortgaged his land on which an old building stands. The old
building was destroyed by fire. A decided to build a factory
where the old build used to stand. 2 years after, the debt fell
due and B proceeded to foreclose the land and the factory. Is
B correct to proceed even against the factory considering it
was build after the mortgage was constituted on the land?
Art. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet
received when thee obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation
for public use, with the declarations, amplifications and
limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third
person.
From art 2127, the
he mortgagee has the right to proceed even
against the factory that was built after the constitution of the
mortgage because this represents improvement introduced
upon the property before the obligation became due.
If there is an intention for the parties to exclude any of these
items from the scope of the mortgage, then they must so
stipulate.
Just like in a contract of pledge
ple property in mortgage is given
for one purpose only, that is to secure the satisfaction of the
obligation such that should there be non-payment
non of the
obligation, then the mortgagee
mort looks to the remedy of
foreclosure.
Foreclosure the remedy made available by law to the
mortgagee by which he subjects the mortgaged property to
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
the satisfaction of the obligation for which the mortgage was
given.
How do you foreclose the mortgage?
You have 2 options:
Extrajudicial Foreclosure
Judicial Foreclosure
Judicial foreclosure involves court intervention and anything
that goes to court, takes a lot of time to be completed. You
would be better off with extrajudicial foreclosure.
What takes place in judicial foreclosure?
This is governed by the Rule 68 of the Rules of Court.
It is an action quasi-in
in rem because it is based on
personal claim against a specific property.
It survives the death of the mortgagor and
may be prosecuted outside the proceedings
for the settlement of the estate of the
deceased mortgagor.
There can be no redemption of the property once
the sale has been confirmed.
The mortgagee has the right to claim deficiency.
Extrajudicial Foreclosure
This is governed by Act 3135 as amended by
Administrative Order 99-10-05-0
This can only be availed of if there is a clause
expressly granting the mortgagee the power to
extra-judicially foreclose.
The mortgagor has the right to redeem the property
mortgaged within 1 year from the registration of the
certificate of sale.
The mortgagee
rtgagee has the right to recover deficiency
but by stipulation.
Equity of Redemption and Right of Redemption
In judicial foreclosure there is equity of redemption,
but there is no right of redemption except where the
mortgagee happens to a banking institu
institution.
In extra-judicial foreclosure, there is a right of
redemption within the period of 1 year from the
time of registration of the certificate of sale.
Period of equity of redemption
With regard to Equity of Redemption, the
reckoning period is from thee date of service of the
143 | P a g e
order issued by the court requiring the debtor to
pay the judgment within 90 days. However,
jurisprudence thus nonetheless recognized that
this equity of redemption may still be exercised
even beyond the 9090-day period, so long as it is
exercised before the sale has been confirmed by
the court.
How is equity of redemption different from right of
redemption?
Equity of redemption is available in judicial
foreclosure
Right of redemption is available in extra-judicial
foreclosure
Equity of redemption is exercised after the
mortgagor defaults
default in the performance of the
obligation but before the sale of the mortgage
property or confirmation of the sale by the court
Right of redemption is exercised at any time
within 1 year after the date of the registration of the
certificate of sale
While the law specifies a period of 1 year as the time within
which the right of redemption may be exercised, in reality,
reality
this translates to more than 1 year,
year especially when the
mortgagee is remised in his obligation to have the sale
registered. It may happen that more than a year has passed
since the sale of the property and the certificate has not been
registered yet. In that case,
case the period is deemed not to have
commenced the period of redemption.
redemption
What are the requisites of right of redemption?
1) The redemption must be exercised within one year
from the date of registration of the certificate of
sale.
2) There must be actual and simultaneous tender of
payment of the redemption price.
pric
3) There must be payment of:
The purchase price plus 1% interest per
month thereon;
Assessments and taxes paid by the
purchaser after the sale plus 1% interest per
month.
4) Written notice of the redemption must be served on
the officer who made the same and a duplicate filed
with the proper Register of Deeds.
The redemption must be exercised within one year from the
date of registration of the certificate of sale.
Act 3135 in relation to Secs. 464 to 466 of the Code
of Civil Procedure (now, Section 28 of Rule
Rul 39 of the
Revised Rules of Civil Procedure.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Time and manner of, and amounts payable on,
SECTION 28.Time
successive redemptions; notice to be given and filed. The
judgment obligor, or redemptioner, may redeem the property
from the purchaser, at any time within one (1) year from the date
of the registration of the certificate of sale, by paying the
purchaser the amount of his purchase, with one per centum per
month interest thereon in addition, up to the time of redemption,
together with the amount of any assessments or taxes which the
purchaser may have paid thereon after purchase, and interest on
such last named amount at the same rate; and if the purchaser be
b Filing of a judicial action by the redemptioner and
also a creditor having a prior lien to that of the redemptioner,
other than the judgment under which such purchase was made,
the amount of such other lien, with interest.
What will be the effect of the exercise of the right of
redemption? Does it amountt to recovery of ownership by the
mortgagor? Has the mortgagor lost the ownership of his
property because of its sale?
No, the mortgagor remains to be the owner of the
property, notwithstanding its sale in the public
auction.
Throughout the period of redemption,
emption, he remains to
be the owner. He cannot be evicted from the
property. He cannot be required to pay rent on the
theory that he has lost ownership.
So when he effects redemption by exercising it
within the 1 year period, he does not recover
ownership. He is simply removing
moving the lien on his
property.
Any sale of the property during the period of redemption is
valid. What basis will the buyer of the property be bound by
the previous foreclosure sale?
The buyer will just step into the shoes of the
mortgagor. What he acquires is the right to redeem
the property as well
What happens if there is failure to exercise the right of
redemption?
In this case, we can now say that the mortgagor has
lost the right over his property and the purchaser is
entitled
d as a matter of right to consolidate title and
this time around to possess the property. He is now
entitled to evict the mortgagor from the property
How does the mortgagee consolidate its title and obtain
possession? Must the mortgagee initiate a new proproceeding in
court? Must he file an action for unlawful detainer or an
action reinvindicatoria?
He does not have to. He only has to ask the court for
the issuance of a writ of possession and once it is
issued he can enforce this against the mortgagor. He
144 | P a g e
can now have the possession and enjoyment of the
property.
There must be actual and simultaneous tender of payment
of the redemption price.
Is there an exception to the requirement that there should be
tender of redemption price?
the purpose is supposedly
suppose to fix the redemption
price, the redemptioner
edemptioner would make it appear that
there is some kind of confusion or vagueness with
just how much by way of redemption price should
be paid.
In reality, this is resorted
resor to obtain an extension of
the period to redeem.
In a way you can also understand the predicament of the
mortgagor
agor because he stands to lose property that may be
valuable to him. He may want to redeem but he does not
have the capacity to do so. So to forestall
f the lapsing of the
period he resorts to an action for judicial redemption.
How much is the redemption price?
In this instance, it is important to know who your
mortgagee is, because as a general rule the
redemption price would be simply the purchase
price + 1% interest per month, assessments and
taxes paid by the purchaser after the sales + 1% per
month
This can be relatively lower than the amount due
under the obligation under the contract.
Why so?
This is because the property is sold at a public
auction. The purchase price would be controlled by
the public bidding. So it is possible that you can
actually acquire the property for a fraction of its
value.
If your mortgagee happens to be a bank or a credit institution
the rules would be different.
ferent.
You may be required to pay a higher amount by way
of redemption price because even expenses for
litigation,, if litigation has to be resorted to, expenses
for attorneys fees may also be charged as part of
the redemption price.
Take note, the amount nt fixed by the court in the order of
execution and the amount due on the mortgage deed. In this
item alone, it is already possible that the
th figure may already
be bloated. We are speaking of the amount due under the
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
mortgage contract. And a mortgage contract act prepared by a
banking institution may have provisions for add-ons
add on top of
the amount loaned. You have penalty charges, bank charges.
All of these may be included in the award made by the court.
If not, it would be included in the amount due under the
mortgage deed.
Interest would also be recoverable; and then, then the most
substantial would be, all costs, judicial and other expenses.
This would include attorneys fees.
All of these may be recovered from you, if you choose to
redeem the property. So it pays to know who your mortgagee
is. This will have a direct bearing on the amount of the
redemption price that will have to pay.
Banking institution or Financial Institution (purchase price)
Principal payment the original debt as t he same is
describe in the mortgage deed or such amount as
may be directed by the court to be paid in its
judgment
Interest it has the potential of ballooning the
purchase price because we will be following the
interest imposed by the bank. We follow the interest
imposed by the bank because the law says that the
interest that will be applied is the interest in the
mortgage.
Penalties, surcharges
Cost - litigation expenses and attorneys fees
The notice of redemption must be served to the officer who
made the same and the duplicate filed with the proper
register of deeds
Judicial Redemption
In theory, it is deemed to be equivalent to a formal offer to
redeem.. It has the effect of fixing the redemption period and
preserving the right of the mortgagor to redeem the property
foreclosed.
Where the right to redeem is exercised through judicial
action within the reglementary period, the offer to redeem
accompanied by bona fide tender of the redemption price,
while proper, may be unessential. This is what makes a
judicial action for redemption attractive for the mortgagor,
who do not have the capacity to pay the redemption price. So
this is prone to abuse. So it must be always remember that a
valid action for judicial redemption has 3 critical dimensions:
dimensions
(1) Timeliness
(2) Good faith meaning that the filing to the action must
have been for the sole purpose of determining the
redemption price and not to stretch the redemption
period.
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(3) Once the redemption price is determined
determi within in a
reasonable time, the redemptioner must make
prompt payment
ent in full
Sample Problem:
Foreclosure sale was conducted on 19 June 1984 and the
Certificate of Sale was registered on 20 June 1984. On 11
December 1984,, the Spouse Mortgagors (SMs) filed an
action to annul the foreclosure sale. On 02 February 1985,
and while the annulment case was pending, the SMs wrote
the Mortgagee Bank a letter proposing to redeem the
property on installment. The Bank refused. In the meantime,
the foreclosure sale was sustained as valid by the Supreme
Court on 14 September 1995.
The SMs then filed a complaint for specific performance
against the Bank in 1997. Should the complaint prosper?
The complaint should not prosper. The SMs did not
exercise their right of redemption validly.
1) The action for specific performance was wa
only filed
ed in 1997, more than twelve years
after the registration of the certificate of
sale.
2) The offer to redeem was not accompanied
by an actual and simultaneous tender of
payment.
The action for specific performance was only filed in 1997,
more than twelve years after the registration of the
certificate of sale.
Their right to redeem expired on 20 June 1985, or
one year after the registration of the sale on 20 June
1984. It must be noted that the case filed by the
mortgagors here was not an action for judicial judici
redemption which would have tolled the running of
the period.
What if the mortgagors insist that their action to
annul the foreclosure sale operated to toll the one-
one
year period?
No, settled is the rule that the period within
which to redeem the property
proper sold at a
sheriffs sale is not suspended by the
institution of an action to annul the
foreclosure sale. (Metrobank vs. Sps. Tan,
G.R. No. 178449, 17 October 2008.)
The period to redeem is not tolled by the
filing of an action to annul the foreclosure
sale. (Metrobank vs. Spouses Tan, G.R. No.
178449, 17 October 2008.)
The offer to redeem was not accompanied by an actual and
simultaneous tender of payment.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
The general rule in redemption is that it is not
sufficient that a person offering to redeem manifests
man
his/her desire to do so. The statement of intention
must be accompanied by an actual and simultaneous
tender of payment. This constitutes the exercise of
the right of repurchase. There is no cogent reason
for requiring the vendee to accept payment by
installments from the redemptioner, as it would
ultimately result in an indefinite extension of the
redemption period.
Can the mortgagors argue that the complaint they
filed in 1984 for the annulment of the foreclosure
sale amounted to a judicial redemption
mption that had the
effect of freezing the redemption period and
dispensing with the need for simultaneous tender of
payment?
An action for judicial redemption is an
action to enforce the correct redemption
price. (1) It is deemed to be equivalent to a
formal
rmal offer to redeem. It has the effect of
freezing the redemption period and
preserving the right of the mortgagor to
redeem the property foreclosed. (2) Where
the right to redeem is exercised through
judicial action within the reglementary
period, the offerfer to redeem, accompanied
by a bona fide tender of the redemption
price, while proper, may be unessential.
(Heirs of Quisumbing vs. PNB, 20 January
2009.)
The 1984 action was not for redemption but
for nullification of the foreclosure sale.
ANTICHRESIS
Art. 2132. By the contract of antichresis the creditor acquires the right to
receive the fruits of an immovable of his debtor, with the obligation to apply
them to the payment of the interest, if owing, and thereafter to the principal
of his credit.
What is exactly is an antichresis? What exactly is involved in
the contract of antichresis?
The situation contemplated by law is one where
there is a period for the payment of the loan, and in
the interim that the loan remains to be unpaid,
unpaid the
creditor is given possession of the real property with
the right to make use of its fruits.
The security actually pertains to the fruits of the
immovable, not on the immovable itself.
The purpose of the right given to him with regard to the fruits
is very specific. He is supposed to apply the fruits towards the
146 | P a g e
obligation 1st , he must satisfy this to the
satisfaction of the obligation.
interests, if any, is owing; and then to the principal
He is entitled to retain the property in his possession until it is
fully satisfied.
So, those will be the mechanics of antichresis
It is much different from a mortgage because here you are
given the immediate access to the satisfaction of the
obligation owing to you through the fruits of the immovable.
Characteristics of an Antichresis
It is an accessory contract
It is a real right
It is a formal contract
Why is it a formal contract?
Because the
he law prescribes specific form for its
validity.
Art. 2134. The amount of the principal and of the interest shall be
specified in writing; othe
otherwise, the contract of antichresis shall be
void.
Supposing you are able to put the amount of the principal in
writing but you failed to stipulate on the amount of interest,
what would be the consequence?
Under Art. 1956, the effect would simply either to
apply the legal rate of interest, if the stipulation
expressly provides for payment of interest; or
disallow the payment of interest altogether, but
allowing the obligation to subsist.
subs
But, it appears that
th under Art.2134 the entire
contract of antichresis is rendered null and void.
How should the amount of interest be stipulated?
By specifying the amount of interest
Does this mean that the specific rate or interest is
indispensable?
Not necessarily, because
be under Art. 2138, the parties
can simply provide that the interest due on the
obligation shall be equivalent to the fruits of the
property. In other words, the interest may be made
to be equal to the fruits produced by the property.
Art. 2138. The contracting
ntracting parties may stipulate that the interest
upon the debt be compensated with the fruits of the property
which is the object of the antichresis, provided that if the value of
the fruits should exceed the amount of interest allowed by the
laws against usury, the excess shall be applied to the principal.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
What are the rights of the antichretic creditor?
right to receive the fruits and income of the property
right to retain the property until the debt is fully paid
right to have the property sold upon non-payment
no of
the debt when due
right of preference to proceeds of the property
What are the obligations of the antichretic creditor?
to pay the taxes and charges assessable against the
property, like real estate taxes and others
to bear the necessary expenses for preservation
to bear the necessary expenses for the repair of the
property
to apply the fruits received for the payment of
outstanding interest, if any and thereafter to the
principal
st
The 1 three obligations are the obligations that the creditor
may exempt himself from by compelling the debtor to enter
upon the enjoyment of the property, except when there is
stipulation to the contrary.
If the creditor avails himself of this option, is theth antichresis
extinguished? Is the possession indispensable to the existence
of an antichresis?
Not really, because itt is not really the immovable per
se which constitutes the security for the obligation
but the right to the fruits. You can enjoy the fruits
fruit
without having to be in possession of the property.
That is why the essence of antichresis is the
extinguishment of the obligation by allowing the
creditor to apply the fruits of the immovable to the
interest owing and thereafter to the principal.
When should the application be made?
If we look at Art. 2137, it will seem that the creditor
must make the application before the obligation
becomes due, thereby implying that the obligation
secured by an antichresis must be one subject to a
period.
That is why
hy there is an interim period during which
there would be application of the fruits to the
interest and thereafter to the principal. Its like the
creditor is given the period of time within which to
have the obligation satisfied through the fruits of the
immovable.
Art. 2137. The creditor does not acquire the ownership of the real
estate for non-payment
payment of the debt within the period agreed
upon.
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Every stipulation to the contrary shall be void. But the creditor
may petition the court for the payment of the
th debt or the sale of
the real property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply.
What happens when the obligation falls due and the
application off the fruits has not resulted in its complete
satisfaction?
Apply Art. 2137. The creditor may now petition the
court either for the payment of the debt or the sale
of the real property. If he opts the latter, then the
Rules of Court on the foreclosure of mortgages shall
apply.
Although it did not start as a contract
contra of mortgage, it appears
that should certain conditions apply, at the end,
end it is the rules
on foreclosure of mortgage which would be applicable for the
satisfaction of the principal obligation.
We only apply this, if the application of the fruits fails to
satisfy the obligations within the period for payment or
performance.
CHATTEL MORTGAGE (CM)
Characteristics of CM
It is a formal contract
It is an accessory contract
It is a unilateral contract
It does not convey
nvey dominion
It creates a real right/lien which is being recorded
re
and followss the Chattel wherever it goes
It cannot secure after incurred obligations, unlike
pledge, REM, and antichresis
Why is it a formal contract?
It is required to be registered to be valid.
It is an accessory contract it is given to secure a principal
obligation
It is a unilateral contract it does not convey dominion or
ownership
It creates a real right/lien which is being recorded
r and follows
the Chattel wherever it goes
It cannot secure after incurred obligations, unlike pledge,
REM, and antichresis
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Compare CM to Pledge, There are several points of
distinctions:
In CM, delivery is not necessary
In Pledge, Delivery is necessary for perfection of
pledge;
In CM, registration is required for its validity
In pledge, it is not required
The procedure for foreclosure in CM is governed Act
1508
The foreclosure in Pledge is governed by Art 2112
NCC
CM - Excess over the amount pertains to the
mortgagor
Pledge - Excess pertains to the
he pledgee
pledge unless
otherwise stipulated
CM - The creditor is entitled to recover deficiency
Pledge - The creditor is not entitled to recover
deficiency even if it is so stipulated
How is CM constituted?
Only by registration. Registration of the mortgage is
tantamount to the symbolical delivery of the chattel
to the mortgagee and this is taken to be equivalent
to actual delivery.
Where should registration be made?
The register of deed where the mortgagor resides.
However, if the personal property is located in the
province different from the residence of the
mortgagor, then the registration should be made in
the registries of deed of both provinces.
When the object of CM is a vessel, registration of the
mortgage must be made in the office of the
Philippine
ippine Coast Guard of the port of documentation
of such vessel.
For motor vehicles both with the CM Registry and
the Motor Vehicles Office
What is the effect of non-registration?
It will still be binding between the parties
Is the CM still valid even iff it does not have an affidavit of
good faith?
Yes, because the purpose of an affidavit of good
faith is simply to give the mortgage preference. It is
not a requirement for its validity.
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The affidavit of good faith required in a contract of
chattel mortgagege is an oath of the contracting
parties where they severally swear that the
mortgage is made for the purpose of securing
obligation specified in the conditions thereof and for
no other purposes and that the same is just and valid
obligation and one not entered
e into for the purpose
of fraud.
The AOGF is only required for the purpose of
transforming an already valid mortgage into a
preferred mortgage. Thus, it is not necessary for
the validity of the chattel mortgage itself but only
to give it a preferred
prefer status.
May a real property be the subject of CM?
As a general rule, no,
no it is null and void. The law is
quite clear that only a movable property can be the
subject of a CM.
However, by way of jurisprudential rulings,
rulings if the
rd
mortgage is not prejudicial to any 3 person and
there is an agreement between the parties, then the
CM can be taken as valid even though it has for its
subject a real property.
Is there a right to redeem in a CM?
What we have in a CM is something similar to equity
of redemption in judicial foreclosure. It must be
exercised prior to the sale at a public auction of the
property.
There is no right of redemption in a movable
property.
CONCURRENCE AND PREFERENCE OF CREDITS
(Art.2236 2253)
The law provides for different kinds of obligations but in the
end no matter the nature of the obligations they will all be
satisfied through one means and that is through levy on
execution of the properties of the debtor. No matter
mat what
the obligation may be.. When W there is a breach/non-
performance, it will ultimately be reduced to an obligation for
damages which can be satisfied by proceeding against the
properties of the debtor.
What properties of the debtor are liable for these
thes obligations?
All of his properties past, present and future
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
Past properties mean properties that he may have
acquired prior to the obligations for which he is
being made liable.
Present and future properties in some cases, for
instance inheritance that he has yet to accept but
has already accrued, his debtors can actually receive
this for him. They can accept the inheritance on his
behalf.
But there are certain properties that are exempt from
execution
Family home
Right to support
Future inheritance, meaning the person that you are
receiving from has not decided to die yet
Properties in custodia legis
As provided in the Rules of Court, 3 horses, 3 cows
or 3 carabaos.
These are not the totality of the exempt properties.
There are still properties exempt from execution. The
point is that, iff you are going to determine that there are
sufficient properties for the satisfaction of the debtors
obligations, you need to know what properties may be
levied upon execution and what are those which are
exempt and whatever remains will comprise the assets of
the debtor that may be used to satisfy his obligation.
Why do you need to know the assets?
Because it is only when the assets are not sufficient
to cover all of the obligations of the debtor do the
rules on concurrence and preference of credits
become relevant.
You may be faced with the problem in the bar bar, where there is
an enumeration of all the obligations and nothing has been
mentioned about the assets. In which case, you cannot jump
into conclusion that you need to apply the rules on
concurrence and preference of credits. Absent of an
indication that there is insufficiency of the assets
Apart from knowing what the rules on the concurrence and
preference of credits are, it is also important to know the
conditions which will justify their application.
1. The debtor must have two or more creditors and
he cannot pay in full.
2. There is some kind of proceeding pending where
the claims of the preferred creditor may be b
bindingly adjudicated, such as an insolvency
proceeding. (required by due process)
3. With particular regard to Articles 2241 and 2242,
the same specific property of the debtor must be
subjected to the claims of several creditors and
149 | P a g e
the value of such property
prope is insufficient to pay in
full all the creditors.
Apart from insolvency proceeding, can you name any kind of
proceeding which will justify the application of Rules for
concurrence and preference of credit?
Settlement of Estate
For married people: Liquidation of the conjugal
assets or the community property
What is so special about these proceedings that they will
allow the application of the rules on concurrence and
preference of credit?
It will be binding to the whole world. It is a
proceeding in rem
All the creditors will be given notice and the
opportunity to participate and make their claim.
With particular regards with Art 2241 and 2244, it is required
that the same specific property of the debtor must be
subjected to the claims of several creditors
credi and the value of
such property is insufficient to pay in full all the creditors
The provisions of the law in concurrence and preference of
credit may appear to be daunting at first. It is daunting
because of the very long enumerations.
But more that having to memorize what the enumerations
are, it is more important to know, how apply these rules.
If you have an insolvent mortgagor, would the fact that he is
insolvent and there is an insolvency proceeding taking place,
prevent you as a mortgagee in foreclosing the mortgage?
No
What would be the effect of the insolvency proceedings on
your right as a mortgagor? Does the mortgagee lose his lien?
No, he does not lose the lien. But the right to
foreclose the mortgage will be suspended because
of the pendency
dency of the insolvency proceeding
First, we must know what are the classifications of credits
under the law,
special preferred credits under articles 2241 and
2242.
ordinary preferred credits under Articles 2244 and
common credits under article 2245
Which of this long enumeration are we required to memorize
verbatim?
Enumeration of ordinary preferred credit under art
2244, because this establishes a hierarchy of
obligations
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
With regard to the enumeration under Art 2241 and 2242,
2242 it
is enough that you are familiar with what items are included
in the respective enumerations
As we said, wee have the patrimony of your debtor. Patrimony
would pertain to all of his properties. All of these are
answerable for his liabilities and obligations, except for those
which are exempt.
So we take away the exempt properties and we are left with
his net assets. Within this totality of net assets
assets, we have
certain properties which are subject to liens and preferences.
What are these liens?
rt 2241 and 2242
These are those enumerated in Art
What is the significance of these liens?
They have the effect of making the property that
they pertain to as being subjected to their
satisfaction immediately. It is like an allotment that
all of these properties of the debtor, these
thes certain
assets are allotted for the satisfaction of these debts
and obligations under Art. 2241 and 2242 to the
exclusion of all other credits.
The rest would be known as free properties,
properties not subject to any lien or preference
What is the significance
ce if a property is subjected to liens or
preferences?
It means that it is dedicated to the satisfaction of the
obligations constituting that lien.
Can there be more than one obligation affecting a specific
property?
Yes
Example:
If you purchase a real property and the purchase
price has not yet been paid, then that unpaid
purchase price constitutes lien on the real property.
At the same time if that real property has been
mortgaged to another person to satisfy another
obligation then that mortgage constitutes another
lien on that property.
So you have two liens affecting that real property.
On top of that, taxes that are due
ue to the government
on this property also constitute a lien on that
property.
150 | P a g e
How many liens do we have on that one specific real
property?
We have taxes, unpaid purchase price, and
mortgage.
What would be the effect on the presence of these liens?
This means that this property can no longer be used
to satisfy other obligations.
It cannot be used to satisfy obligations other than
three mentioned. The property will be dedicated to
the satisfaction of taxes, unpaid purchase price and
the mortgage.
Among themselves, the obligations enumerated in 2241 and
2242 are not supposed to enjoy any preference over each
other. There is no hierarchy, but there are two tiered
classifications in Articles 2241 and 2242.
Two Tiered Classifications
st
1 tier: Taxes due to the government
nd
2 tier: All other liens and preferences
st
1 tier,, that means it enjoys absolute preference over all the
other liens in Art 2241 and 2242.
2242 You have to dedicate the
property for the satisfaction of those taxes first. Should there
be any thatt remains in excess, you can use this for the full
satisfaction of your remaining liens, in this case, namely your
unpaid purchase price and your mortgage.
How will the satisfaction be carried out?
Only pro rata, because they do not enjoy any
preference over
er each other.
After you satisfy the liens established in Articles 2241 and
2242, there are two possible scenarios:
st
1 Scenario: The value of the property is not sufficient to
satisfy the liens in their entirety,
entirety in which case, you still have
portions of the obligations that remains unpaid.
How will you treat these unpaid portions?
You treat them as ordinary preferred credits or as
common credits, depending on the circumstances.
As ordinary credits or preferred credits,
credits what properties do
you run after to satisfy them?
You go after the so called free properties, properties
not subject to any liens or preferences.
nd
2 Scenario: The proceeds are more than sufficient and there
is an excess.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
After paying the government, after paying
ing the seller, after
paying the mortgagee, there still remains property available
to satisfy other obligations.
How do we treat the excess of value of the property here after
the satisfaction of the liens?
We treat these as free property. It will now join
joi the
other free properties that we have earlier set aside.
What do we use the free properties for?
We can use this for the satisfaction of the ordinary
preferred credits and the common credits.
How do we satisfy the ordinary preferred credits?
Here, we go through the hierarchy established in Art.
2244.
After we satisfied the ordinary preferred credits, that is only
the time that we go to the common credits. They will be the
last priority.
That in essence that is the procedure. That is what takes
place whenever we have to apply concurrence and
preference of credits.
Important Things to Remember:
Exclude all other properties to the extent of the
value of the property to which the preference refers.
They will be satisfied pro rata after the payment of
the taxes and assessments upon the property.
By way of exception pay particular attention to Art.
2242, item 7. This is only an exception to what we
have been emphasizing that there would be no
preference. This refers to judgment credits, where
we look at the date of the annotations of the credits.
We follow the order.
The excess if any after payment of the preferred
credit
edit shall be added to the free property, which the
debtor may have for the payment of other credits.
When it comes to the obligations of banks arising
from electronic transaction, meaning ATM, like Bank
Net, Mega Link, that allows depositors to withdraw
from banks other than their own bank, and when
that happen, it creates an obligation between the
banks for the payment of whatever has been
withdrawn.
Under E-Commerce Act, the obligation of one bank
to another arising from such transactions shall be
considered
dered absolute and not subject to the order of
preference of credits.
Art. 2241. With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
151 | P a g e
(1) Duties, taxes and fees due thereon to the State or any subdivision
subdivisio
thereof;
Example: Custom duties
(2) Claims arising from misappropriation, breach of trust, or
malfeasance by public officials committed in the performance of
their duties, on the movables, money or securities obtained by
them;
(3) Claims for the unpaid pric
price of movables sold, on said movables, so
long as they are in the possession of the debtor, up to the value of
the same; and if the movable has been resold by the debtor and
the price is still unpaid, the lien may be enforced on the price; this
right is not lost by the immobilization of the thing by destination,
provided it has not lost its form, substance and identity; neither is
the right lost by the sale of the thing together with other property
for a lump sum, when the price thereof can be determined
proportionally;
There are two liens here: possessory lien
and ordinary lien. Possessory lien and
ordinary lien on the price so long as the
property has been resold and still unpaid.
(4) Credits guaranteed with a pledge so long as the things pledged
are in the hands of the creditor, or those guaranteed by a chattel
mortgage, upon the things pledged or mortgaged, up to the value
thereof;
(5) Credits for the making, repair, safekeeping or pres
preservation of
personal property, on the movable thus made, repaired, kept or
possessed;
(6) Claims for laborers' wages, on the goods manufactured or the
work done;
the laborer must have been employed by the owner
of the goods, not by a contractor.
(7) ses of salvage, upon the goods salvaged;
For expenses
(8) Credits between the landlord and the tenant, arising from the
contract of tenancy on shares, on the share of each in the fruits or
harvest;
(9) Credits for transportation, upon the goods carried, for the price of
thee contract and incidental expenses, until their delivery and for
thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to travellers by
hotel keepers, on the movables belonging to the guest as long as
such movables are in the hotel, but not for money loaned to the
guests;
this has been held to be applicable to even the
clothing of a guest (Goodmand vs. Lichauco, 71 Phils.
237.)
(11) Credits for seeds and expenses for cultivation and harvest
advanced to the debtor, upon the fruits harvested;
harve
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(12) Credits for rent for one year, upon the personal property of the
lessee existing on the immovable leased and on the fruits of the
same, but not on money or instruments of credit;
(13) Claims in favor of the depositor if the depositary has wrongfully
sold
old the thing deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or preference
attaches have been wrongfully taken, the creditor may demand them from
any possessor, within thirty days from the unlawful seizure.
The last paragraph contemplates a situation where the
property has been wrongfully taken. It does not apply if the
property has been sold by the owner
Art. 2242. With reference to specific immovable property and real rights of
the debtor, the following claims, mortgages and liens shall be preferred, and
shall constitute an encumbrance on the immovable or real right:
(1) Taxes due upon the land or building;
What kind of taxes would this be?
Real estate taxes
(2) For the unpaid price of real property sold, upon the immovable
sold;
(3) Claims of laborers, masons, mechanics and other workmen, as
well as of architects, engineers and contractors, engaged in the
construction, reconstruction
construction or repair of buildings, canals or other
works, upon said buildings, canals or other works;
(4) Claims of furnishers of materials used in the construction,
reconstruction, or repair of buildings, canals or other works, upon
said buildings, canals or other works;
How do we refer to this credit?
This is known as refectionary credit
Ordinarily, this is a credit for the repair or
reconstruction of something that had previously
been made. Ordinarily, an entirely new work is not
included, although Spanish jurisprudence appears to
have sanctioned this broader conception in certain
cases.
(5) Mortgage credits recorded in the Registry of Property, upon the
real estate mortgaged;
(6) Expenses for the preservation or improvement of real property
when the law authorizes reimbursement, upon the immovable
preserved or improved;
Example:
Can this be availed of by a possessor in bad faith?
Yes, because a possessor in bad faith is
entitled to reimbursement for necessary
expenses
But how is this right different from a possessor in
good faith?
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He does not enjoy the right of retention
(7) Credits annotated in the Registry of Property, in virtue of a judicial
order, by attachments or executions, upon the property affected,
and only as to later credits;
This is some kind of exception to the rule that there
is no preference among the special preferred credits
themselves
(8) Claims of co-heirs
heirs for warranty in the partition of an immovable
among them, upon the real property thus divided;
action to enforce warranty must be made within 10
years from time cause of action accrues
(9) Claims of donors or real property for pecuniary ccharges or other
conditions imposed upon the donee, upon the immovable
donated;
(10) Credits of insurers, upon the property insured, for the insurance
premium for two years.
Now, Art. 2243 provides. In view of these provisions of
ARTICLE 2243, we might wonder how the pendency of
insolvency or liquidation proceedings affect the mortgage
right of a creditor.
Article 2243
The claims or credits enumerated in the two preceding
articles shall be considered as mortgages or pledges of real
or personal property, or liens within the purview of legal
provisions governing insolvency. Taxes mentioned in No. 1,
article 2241, and No. 1, article 2242, shall first be satisfied.
Art. 2244. With reference to other property, real and personal, of the debtor,
the following claims or credits shall be preferred in the order named:
(1) Proper funeral expenses for the debtor, or children under his or
her parental authority who have no property of their own, when
approved by the court;
court
(2) Credits for services rendered the insolvent b by employees,
laborers, or household helpers for one year preceding the
commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her
spouse and children under his or her parental authority, if they
have no property of their own;
(4) Compensation due the laborers or their dependents under laws
providing for indemnity for damages in cases of labor accident, or
illness resulting from the nature of the employment;
(5) Credits and advancements made to the debtor for support of
himself or herself, and family, during the last year preceding the
insolvency;
(6) Support during the insolvency proceedings, and for three months
thereafter;
(7) Fines and civil indemnification arising
arisin from a criminal offense;
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON
(8) Legal expenses, and expenses incurred in the administration of
the insolvent's estate for the common interest of the creditors,
when properly authorized and approved by the court;
(9) Taxes and assessments due the national government, other than
those mentioned in Articles 2241, No. 1, and 2242, No. 1;
(10) Taxes and assessments due any province, other than those
referred to in Articles 2241, No. 1, and 2242, No. 1;
(11) Taxes and assessments due any city or municipality, other than
those indicated in Articles 2241, No. 1, and 2242, No. 1;
(12) Damages for death or personal injuries caused by a quasi-delict;
quasi
(13) Gifts due to public and private institutions of charity or
beneficence;
(14) Credits which,, without special privilege, appear in (a) a public
instrument; or (b) in a final judgment, if they have been the
subject of litigation. These credits shall have preference among
themselves in the order of priority of the dates of the instruments
and of the judgments, respectively.
In item 14, this illustrates how, remember in our first example
where there are liens enjoyed by the mortgage credit and the
unpaid purchase price
If the value of the property is not sufficient to
answer for these special preferred red credit,
credit item 14
Art. 2244 shows us how your mortgage credit can be
transformed from a special preferred credit to an
ordinary preferred credit, because it is nec
necessarily in
a public instrument. So o after seizing to be a special
preferred credit under Art. t. 2242,
2242 it can now be
considered as an ordinary preferred credit under
item 14 in Art. 2244.
Let us apply what we have discussed.
Examples:
1) An employer has closed his business. He is being sued by his
employees for unpaid wages and separation pay. The
employees wanted to enforce their claims against the
manufacturing plant of the company which was his only
remaining asset. The plant and the land on which it was built
were, however, mortgaged to Mighty Bank. Mighty Bank was
likewise forced to foreclose
se the mortgage. The employees
invoke Art. 110 of the Labor Code in support of their position
that their claims enjoy absolute preference over the mortgage
credit of Mighty Bank. Are they correct?
Art. 110. Worker preference in case of bankruptcy. In the event of
bankruptcy or liquidation of an employers business, his workers
shall enjoy first preference as regards their wages and other
monetary claims, any provisions of law to the contrary
notwithstanding. Such unpaid wages and monetary claims shall be
paid
aid in full before claims of the government and other creditors
may be paid.
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Would this be sufficient to give the workers absolute
preference to the only remaining asset of the employer over
the mortgagee of the employer?
SC ruled that No, they do not enjoy absolute
preference because the mortgage is a special
preferred credit under Art. 2242. The workers
preference on the other hand under Art. 110 is an
ordinary preferred credit. The amendment in the law
only had an effect
effec of raising the workers money
st
claim to 1 priority in the order of preference
established under Art. 2244 of the NCC but it does
not enjoy preference over special preferred credits.
In the light of this ruling of the SC, you have to take
note that the workers preference are now on top of
the list of priorities under Art. 2244.
2.) Ingrid
d bought luxury vehicle in the States
S worth P1M. The
seller shipped the vehicle to the Philippines. Taxes and duties
upon the vehicle amounted to P500K and they remained
unpaid. Upon the release of the vehicle to her on May 2, 2009,
Ingrid
d delivered the vehicle to Marie in pledge to secure her
debt to Marie in the amount of P500K. It turns out that the
shipping company has also not been paid for expenses for its
transport for the amount of P200K. Ingrid is insolvent. Her
business failed and she owes the bank P750k
P750 for the loan she
obtained. How should the claims against her be satisfied?
So you have 1 property. The property is a luxury vehicle.
Is it exempt?
It is not.
Is there a reason for us to apply the rules on preference and
concurrence of credits?
Yes. Her assets are not sufficient to satisfy all her
obligations.
How should be we go about it?
The claimss of the government for taxes and duties
enjoy absolute preference, but only because these
taxes and duties pertains specifically
s to the property.
These are the taxes and duties under Art. 2241 par.
1, that must be satisfied first.
The remaining balance of the vehicle will be distributed pro
rate among Marie,, the pledge
pledgee and the shipper. Why?
Because they enjoy special preferred credits
Would they enjoy preference over each other?
No.
 CIVIL LAW REVIEW 2 REVIEWER by MARX & MON

The bank does not enjoy preference with regard to the

vehicle. It will have to content itself with the other available
properties of Ingrid.

The unpaidd portion of the credit of Marie and the shipper

would have to be treated as ordinary preferred credit just like
that of the bank. Their satisfaction will be governed by the
hierarchy in Art. 2244 if applicable. If not applicable, they will
be treated as common credits.

If the pledge and the bank loan are embodied in a public

instrument, they will be satisfied ahead of the shippers
shipper
claim.

The shippers claim will be satisfied last and will not enjoy any
preference.

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