“Father, not my will, but Yours be done.

” - Luke 22:42

CONTRACTS unilateral acts

(Obligations - No one may be unjustly enriched or
ex benefited at the expense of another
quasi-contrac - Two common types:
OBLIGATIONS IN GENERAL
tu) A. Negotiorum gestio
-​ Voluntary management without
GOVERNING LAW knowledge/consent of another
●​ R.A. No. 386 → Civil Code of the Philippines -​ Requisites: (1) neglected/abandoned;
●​ Book IV Obligations and Contracts (2) no consent/authority
○​ Title I: Obligations -​ Obligation of the owner: liable for
○​ Title II: Contracts obligations incurred
-​ Obligations of the officious manager: (1)
continue until termination; (2) diligence
OBLIGATION of a good father of a family and pay
●​ Juridical necessity to give, to do or not to do damages for his fault; (3) if he delegates
●​ Juridical necessity to another → liable for the acts of that
​ There is a need to perform as it can result to court action person; (4) liable for any FE → risky
operations, preferred own interest, fails
​ Court action: creditor → court → debtor to return business, assumed in bad
●​ Types of obligations: faith; (5) liable for FE (except if it’s to
​ Real → to give save from imminent danger) →
manifestly unfit to manage, prevented a
​ Personal → to do (positive), not to do (negative) more competent person to manage
●​ Form of obligation -​ Multiple OMs: Generally liable solidarily
​ No form required → may be oral, writing, or mix of both unless management was done under
imminent danger → makes it joint
B. Solutio indebiti
KINDS OF OBLIGATIONS (AS TO BASIS AND -​ Something is received when there is no
ENFORCEABILITY) right to demand and it was delivered
through mistake
CIVIL - Give a right of action to compel their -​ Requisites: (1) no right to receive the
performance thing; (2) delivered through mistake
- Based on positive law -​ Multiple payees: liable solidarily for the
- Has juridical necessity return of the payment received

NATURAL - Based on equity and conscience QUASI- - Also known as culpa aquiliana or torts or
- Do not grant a right of action to enforce DELICTS civil negligence
performance (Obligations - By act or omission causes damage to
- After voluntary fulfillment, authorizes the ex another
retention of what has been delivered or rendered quasi-delicto - Has fault or negligence and no pre-existing
- No juridical necessity or ex contractual relation between the parties
quasi-malefic - No imprisonment, only liable to pay
ESSENTIAL ELEMENTS OF OBLIGATION → ABSENCE OF io) damages
- Requisites:
ONE MEANS NO OBLIGATION 1.​ Act or omission
ACTIVE - Creditor/obligee 2.​ Causes damage to another person
SUBJECT - Compels 3.​ Fault/negligence
4.​ Causal connection
PASSIVE - Debtor/obligor 5.​ No pre-existing contractual relation
SUBJECT - Required to fulfill between the parties
- Vicarious liability:
1.​ Minor children who live in company →
PRESTATION - Promise or particular conduct to be
(1) father; (2) mother
performed in the obligation
2.​ Minors and incapacitated → guardians
- Requisites: (1) possible; (2) determinate or
3.​ Employees (branches/functions) →
determinable; (3) has equivalent in money
owners and managers
4.​ Employees and household helpers →
LEGAL TIE - Vinculum juris/juridical tie/efficient cause
employers
- Reason why the obligation exists
5.​ Special agent → the State
6.​ Pupils/students → teachers or heads
TRANSMISSIBILITY OF OBLIGATIONS - Defense: Proof that they observed the
diligence of a good father of a family to
●​ GR: All rights acquired in obligations are transmissible
prevent damage
●​ XPN: Nature is not transmissible, stipulation, law - For employer: Prove due diligence in
selection and supervision of employee (not
available in crimes)

SOURCES OF OBLIGATIONS CRIME - Also known as delict

(Obligations - Punishable by law
SOURCES OF OBLIGATION ex maleficio - Criminally liable for felony → civilly liable
or ex delicto) - Civil liabilities from crime:
LAW - Not presumed 1.​ Restitution → restoration
(Obligations - Only those expressly determined in Civil 2.​ Reparation for damage caused →
ex lege) Code/special laws → demandable and includes price and sentimental value
regulated by the precepts of law 3.​ Indemnification for consequential
damage → includes those suffered by
CONTRACTS - Have the force of law and should be family or third persons
(Obligations complied with in good faith - Proof necessary:
ex contractu) - Not above the law a.​ Criminal liability → proof beyond
reasonable doubt
QUASI- - Arises from certain lawful, voluntary, and b.​ Civil liability → preponderance of
evidence
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Accessions → produced by a thing, or incorporated or
- Persons exempt from criminal liability:
1.​ Imbecile or insane attached thereto, either naturally or artificially; the thing
2.​ Under 18 years of age can still function without these
3.​ Acts under compulsion of irresistible ○​ Accessories → used for the embellishment, use or their
force preservation of another thing or more importance; without
4.​ Acts under impulse of an uncontrollable these, the thing can no longer function
fear of equal or greater injury ●​ To pay damages in case of breach
- Persons exempt from both civil and criminal
liability:
1.​ Acts in self-defense B. OBLIGATIONS IN OBLIGATIONS TO GIVE A GENERIC
2.​ Acts in the performance of THING
duties/obligations ●​ To deliver a thing which must be neither superior nor inferior
3.​ Woman suffering from battered woman ○​ Only the quality agreed upon
syndrome ●​ To pay damages in case of breach of the obligation

MULTIPLE SOURCES OF OBLIGATIONS REMEDIES

●​ Single act can be the source of multiple sources of obligation A.​ Remedies for breach of obligations to give a determinate thing
●​ Crimes are either caused by: B.​ Remedies for breach of obligations to give a generic thing
○​ Dolo → intentional C.​ Remedies for breach of obligations to do
○​ Culpa → negligence D.​ Remedies for breach of obligations not to do
●​ Double recovery not allowed E.​ Remedies for breach of reciprocal obligations
○​ A person cannot recover damages twice for the same act F.​ Damages
○​ Only get the higher amount G.​ Remedies of a judgment creditor in a specific action suit
●​ Contracts
○​ GR: Contract → No quasi-delict A. REMEDIES FOR BREACH OF OBLIGATIONS TO GIVE A
○​ XPN: Breach of contract is caused by quasi-delict → DETERMINATE THING
there is quasi-delict ●​ To ask for specific performance + damages
●​ Doctrine of Vicarious Liability ●​ To ask for rescission + damages → cancellation
○​ Culpa aquiliana → direct, primary, vicarious ●​ To ask for damages alone

B. REMEDIES FOR BREACH OF OBLIGATIONS TO GIVE A

GENERIC THING
NATURE AND EFFECT OF OBLIGATIONS ●​ To ask for delivery of the thing + damages
●​ To ask that the obligation be complied with at the expense of
KINDS OF THING OR OBJECT the debtor + damages
●​ To ask for damages alone
DETERMINATE or - Individualized and can be
SPECIFIC THING identified/distinguished from others of its
C. REMEDIES FOR BREACH OF OBLIGATIONS TO DO
kind
●​ To ask that the obligation will be executed at the cost of the
GENERIC or - Only indicated by its kind, without being debtor + damages
INDETERMINATE designated and distinguished from others ●​ To ask for damages alone
THING of the same kind ●​ Applicable also if it is in contravention to the tenor of the
obligation
OBLIGATIONS ●​ However, if poorly done → be undone at the expense of
A.​ Obligations in obligations to give a determinate thing debtor + damages
B.​ Obligations in obligations to give a generic thing ●​ Only substitute performance is available → could violate the
constitutional prohibition against involuntary servitude
A. OBLIGATIONS IN OBLIGATIONS TO GIVE A DETERMINATE
THING D. REMEDIES FOR BREACH OF OBLIGATIONS NOT TO DO
●​ To deliver the thing itself → actual or constructive ●​ To have it undone at the expense of the debtor + damages
●​ To take care of the thing with the proper diligence of good ●​ To ask for damages alone, if it cannot be undone
father of a family (bonus pater familia), unless there is
stipulation or law requires another standard of care E. REMEDIES FOR RECIPROCAL OBLIGATIONS
○​ Lower standard → VOID ●​ Reciprocal obligation → Arises from the same cause
●​ To deliver the fruits of the thing from the time the obligation to ●​ Each party is a debtor and creditor of the other, such that the
deliver it arises obligation of one is dependent upon the obligation of the other
○​ Creditor will not acquire real rights over the fruits until it is ●​ Primary remedy: Rescission/resolution
delivered to him ○​ The cause of action is substantial or fundamental breach
○​ Kinds of rights: or non-compliance
■​ Personal → right that can be exercised only against ○​ Available when a party is ready to comply and other is not
a specific person (thereby prohibiting an action to ●​ GR: May ask for exact fulfillment + damages, but cannot ask
recover possession, only action for damages) for rescission after initial selection
■​ Real → can be exercised against the whole world ○​ If exact fulfillment → impossible → may ask for rescission
○​ Kinds of fruits: ○​ If elected rescission + damages first → cannot ask for
■​ Natural → spontaneous products of soil, the young, exact fulfillment of obligation
and other products of animals
■​ Industrial → produced by lands of any kind through F. DAMAGES
cultivation or labor ●​ Action for damages may be demanded in case of
■​ Civil → results of civilization or fruit arising out of non-fulfillment of obligations
juridical relations or contracts ●​ Kinds:
●​ To deliver all accessions and accessories ○​ Moral
○​ Exemplary
○​ Nominal
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Temperate ○​ Culpa criminal/criminal negligence → results in the
○​ Actual commission of a crime/delict
○​ Liquidated ●​ If negligence was the cause of the injury → no recovery for
G. REMEDIES OF A JUDGMENT CREDITOR IN A SPECIFIC damages
ACTION SUIT ●​ If negligence was only contributory → he may recover
●​ Judgment creditor → one who has successfully obtained a damages, but the courts can mitigate or reduce the same
favorable judgment in a civil action
●​ To levy by attachment and execution upon all the property of C. DELAY, DEFAULT, OR MORA
the debtor ●​ Non-fulfillment of the obligation with respect to time
●​ To exercise all rights and actions of the debtor, except those ●​ Would constitute a breach of contract
which are inherently personal to him → accion subrogatoria ●​ Types of delay:
○​ Requisites: (1) debtor’s assets are insufficient; (2) creditor ○​ Ordinary delay → did not perform on time
must have pursued all properties subject to execution; (3) ○​ Legal delay → did not perform on time causing breach of
right of action must not be purely persona; and (4) must obligations
be indebted to the creditor ●​ Requisites of legal delay:
●​ To ask for the rescission of the contracts made by the debtor ○​ Obligation is due and demandable
in fraud of creditor’s rights → accion pauliana ○​ Debtor did not perform the obligation on time
○​ Requisites: (1) plaintiff asking for rescission has a credit ○​ There is demand coming from the creditor
prior to the alienation, although demandable later; (2) ○​ Despite demand (extrajudicial or judicial), debtor still did
debtor has made a subsequent contract conveying a not do
patrimonial benefit to a third person; (3) credit has no ●​ Demand cannot be assumed
other legal remedy; (4) act being impugned is fraudulent; ○​ GR: For delay to happen, there must be demand
and (5) third person who received the property conveyed, ○​ XPN: (1) law so provides; (2) obligation so provides; (3)
if by onerous title, has been an accomplice in the fraud time is of the essence; (4) demand would be useless; (5)
●​ To file an action for damages against the third person who reciprocal obligations → one is willing, one is not
acquired the property of debtor in bad faith ●​ Kinds:
○​ Mora solvendi
SPECIFIC CIRCUMSTANCES AFFECTING OBLIGATIONS IN ○​ Mora accipiendi
GENERAL ○​ Compensatio morae
A.​ Fraud
B.​ Negligence MORA SOLVENDI
C.​ Delay ●​ Delay on the part of debtor
D.​ Any other manner of contravention (violatio) ●​ Mora solvendi ex re → real obligations
E.​ Fortuitous event ●​ Mora solvendi ex persona → personal obligations
●​ Requisites:
A. FRAUD/DOLO ○​ Obligation must be liquidated, due, and demandable
●​ Deliberate and intentional evasion of the normal fulfillment of ○​ Debtor is guilty of nonperformance
obligations ○​ There was demand → judicially or extrajudicially
●​ Responsibility arising from fraud is demandable in all ●​ Effects:
obligations ○​ Creditor may ask for damages
●​ Kinds of fraud: ○​ Debtor is liable → even if due to fortuitous event
○​ Dolo causante / causal fraud ○​ Debtor shall bear the risk of loss of the determinate thing
■​ Fraud in obtaining consent
■​ Voidable, annulment is the remedy MORA ACCIPIENDI
■​ Valid until annulled ●​ Delay on the part of the creditor
○​ Dolo incidente / incidental fraud ●​ Requisites:
■​ Fraud in performing a contract ○​ Offer of performance by debtor
■​ Does not affect validity of obligation ○​ Refusal of the creditor to accept without first cause
■​ Proper remedy is damages ●​ Effects:
●​ Waiver ○​ Creditor shall bear the risk of loss of the thing
○​ Future fraud ○​ All expenses for the preservation of the thing after the
■​ Cannot be renounced → advance renunciation of the delay shall be borne by the creditor
creditor would practically leave the obligation without ○​ Creditor is liable for damages
effect
○​ Past fraud COMPENSATIO MORAE
■​ Can be renounced ●​ Delay by both parties
●​ Effects → delay on both parties will be compensated:
B. NEGLIGENCE/FAULT/CULPA ○​ Specific circumstances wherein the debtor can be held
●​ Failure to observe for protection of the interests of another liable to pay damages
person and suffers injury
●​ Degree of care required: D. ANY OTHER MATTER OF CONTRAVENTION (VIOLATIO)
○​ As a rule: (1) required by law; or (2) stipulation ●​ Illicit act which impairs the strict and faithful fulfillment of the
■​ Examples of required by law: contract of common obligation or every kind of defective performance
carrier, contract of necessary deposit, and banks → ●​ Violation of the terms and conditions of obligation or defects in
extraordinary diligence the performance of the obligation
○​ In the absence of the two: diligence of a good father of a
family E. FORTUITOUS EVENT
●​ Kinds of negligence: ●​ Excuse for non-performance
○​ Culpa contractual/contractual negligence → in the ●​ Not foreseeable or avoidable
performance of a contractual obligation ●​ Elements:
○​ Culpa aquiliana/civil negligence/quasi-delict → ○​ Cause is independent of human will
committed independent of contract and w/o criminal intent ○​ Impossible to foresee or impossible to avoid
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Must render it impossible for the debtor to fulfill ○​ Shall extinguish the obligation as soon as the time
obligations in a normal manner expires or it has become indubitable that the event will
○​ Debtor must be free from any participation in the not take place
aggravation of injury or loss ●​ Resolutory condition
●​ GR: No person shall be responsible for FE ○​ Obligation is extinguished
●​ XPN: ○​ Parties should return or restore to each other what they
○​ Declared by stipulation have received including fruits and interest
○​ Nature requires assumption of risk
○​ Expressly specified by law RULES AS TO IMPROVEMENT, LOSS, OR DETERIORATION
○​ When negligence, delay, or fraud concurred with FE
LOSS

W/o fault of the Obligation is extinguished

debtor
KINDS OF CIVIL OBLIGATIONS
With fault of the Debtor is liable for damages
CLASSIFICATIONS OF OBLIGATIONS debtor
A.​ Pure and conditional
B.​ With a period or term DETERIORATION
C.​ Alternative, conjunctive, and facultative
W/o fault of the Impairment is borne by the creditor
D.​ Joint and solidary debtor
E.​ Divisible and indivisible
F.​ With a penal clause With fault of the Creditor can either:
debtor 1. Exact fulfillment and ask for damages
A. PURE AND CONDITIONAL 2. Ask for rescission and damages
●​ Pure obligation
○​ One without a condition or term IMPROVEMENT
○​ Demandable at once
By nature or Improvement will inure to the benefit of the
●​ Conditional obligation
time creditor
○​ There is a condition imposed on its performance
○​ Condition → future and uncertain event At the expense Debtor shall have no right than that granted
of the debtor to a usufructuary (ie. he may remove the
KINDS OF CONDITIONS improvement if it will not cause damage)

SUSPENSIVE Fulfillment will give rise to an obligation

B. WITH A PERIOD OR TERM
RESOLUTORY Fulfillment will extinguish an obligation ●​ Period
○​ Certain length of time which determines the effectivity or
POTESTATIVE Fulfillment depends upon the will of one of the extinguishment of an obligation
the contracting parties ○​ Day certain will necessarily come whether the parties like
it or not
CASUAL Depends upon chance/will of a third person
○​ Presumed benefit of both creditor and debtor in the
MIXED Depends partly upon chance and partly upon absence of contrary agreement
the will of a third person ●​ Types of period:
○​ Suspensive period or ex die → upon arrival, obligation
CONJUNCTIVE All must be performed becomes demandable
○​ Resolutory period or in diem → upon arrival, obligation
ALTERNATIVE Only one must be performed is extinguished
○​ Conventional or voluntary → fixed by parties
POSSIBLE Can be fulfilled
○​ Legal → fixed by law
○​ Judicial → fixed by the court
IMPOSSIBLE Physically or legally impossible

POSITIVE Performance of an act CONDITION VS. PERIOD

CONDITION PERIOD
NEGATIVE Omission of an act
Uncertain event Must necessarily come
EFFECTS OF FULFILLMENT
●​ GR: Shall retroact on the day the obligation is constituted Gives rise/extinguishes an No effect upon the existence
obligation of an obligation but only its
●​ XPN: Suspensive condition
demandability or performance
○​ Unilateral obligation → fruits and interest shall insure to
the benefit of the debtor, unless there is stipulation to the Past event and unknown to Future
contrary parties
○​ Reciprocal obligation → fruits and interests during the
pendency of the condition shall be deemed to have been
BENEFIT OF THE PERIOD
mutually compensated
●​ GR: Presumed to be for the benefit of both debtor and creditor
●​ XPN: Period of prescription → counted still from the time
●​ XPN: From the tenor of the obligation that the period has
the condition was fulfilled
been established in favor of one or the other
●​ Condition where obligation is treated as one with a period
●​ Consequences of GR:
○​ When debtor binds himself to pay when his means permit
○​ Debtor cannot be made to pay before the period
him to do so → obligation shall be deemed as one with a
○​ Creditor cannot be made to accept payment before the
period (instead of conditional)
period
●​ Suspensive condition with a deadline
●​ Debtor’s loss of benefit of the period → debtor loses when:
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Debtor becomes insolvent, unless he gives a
Substitute Extinguished
guaranty/security
○​ Debtor does not furnish to the creditor the
guaranties/securities which he has promised
○​ When by his own acts the guaranties/securities has
impaired, and when through a FE they disappear, unless D. JOINT OBLIGATION VS. SOLIDARY OBLIGATION
he immediately gives new ones satisfactory ●​ Credit or debt shall be presumed to be divided into as many
○​ Debtor violates any undertaking shares as there are creditors or debtors
○​ Debtor attempts to abscond ●​ Credits or debts being considered distinct from one another
unless the law or the wording of the obligation provides
C. ALTERNATIVE VS. CONJUNCTIVE VS. FACULTATIVE otherwise
●​ Joint obligation
ALTERNATIVE CONJUNCTIVE ○​ Each debtor → liable only for a proportionate part of the
debt
- Usually uses the word “or” - Usually uses the word “and”
- Performance of one of the - All the prestations must be ○​ Each creditor → entitled only to a proportionate share of
prestations fulfills obligation complied with to fulfill the credit
●​ Solidary obligation
○​ Each debtor → liable for the entire obligation
RULES
○​ Each creditor → entitled to demand the whole obligation
●​ Where several objects are due, fulfillment of one is sufficient
●​ Indivisibility does not imply solidarity, solidarity does not imply
●​ Right of choice → generally belongs to the debtor, except:
indivisibility
○​ Expressly granted to the creditor; or
●​ Synonyms:
○​ Given to a third party
○​ Joint → prorata, proportionate, mancomunada,
●​ Debtor’s right of choice → limited → cannot choose any
mancomunada simple
prestation that is impossible or unlawful
○​ Solidary → in solidum, jointly and severally, individually
●​ Must be communicated to take effect → concentration
and collectively, mancomunada solidaria, “I promise to
●​ Choice cannot be part of one and part of another
pay” signed by more than one individual
●​ When from all the choices, only one is practicable → debtor
shall lose the right of choice
E. DIVISIBLE VS. INDIVISIBLE OBLIGATION
○​ Obligation would be to deliver that which remains
●​ Divisible obligation
●​ Effect of loss → check tables below
○​ Susceptible of partial performance
○​ Debtor → can legally perform by parts
RIGHT OF CHOICE BELONGS TO DEBTOR:
○​ Creditor → cannot demand a single performance of the
ALL THINGS WERE LOST entire obligation
●​ Indivisible obligation
Fortuitous event Extinguished ○​ Not susceptible of partial performance
○​ Law or contract provides that it is indivisible
Fault of debtor Value of the last + damages ●​ Joint indivisible obligation
○​ Gives rise to indemnity for damages from the time
SOME THINGS WERE LOST
anyone of the debtors does not comply with his
FE/fault of debtor Deliver remaining undertaking
○​ Debtor who’s ready → shall not contribute to the
Fault of creditor → debtor Rescission + damages; or indemnity beyond the corresponding portion of the price
cannot make a choice Perform + damages ●​ Obligations to give definite things and not susceptible of
partial performance → deemed indivisible
RIGHT OF CHOICE BELONGS TO CREDITOR: ●​ Obligation is number of days of work, by metrical units, or
analogous things and nature is susceptible of partial
ALL THINGS WERE LOST performance → shall be divisible
●​ Even if physically divisible → obligation is indivisible if
Fortuitous event Extinguished provided by law or intended of the parties
Fault of debtor Value of any + damages
F. OBLIGATION WITH A PENAL CLAUSE
SOME THINGS WERE LOST ●​ Penal clause
○​ Accessory undertaking to assume greater liability in case
Fortuitous event Demand from remaining of breach
●​ GR: Penalty shall substitute the indemnity for damages and
Fault of debtor Price of that which was lost + damages; or the payment of interest in case of noncompliance, if there is
Demand from remaining + damages no stipulation to the contrary
●​ XPNs:
FACULTATIVE ○​ Stipulation to the contrary
●​ When only one prestation has been agreed upon, but the ○​ Debtor refuses to pay the penalty
obligor may render another in substitution ○​ Debtor is guilty of fraud in the fulfillment of the obligation
●​ Right to substitute → always with the debtor ●​ Nullity of the penal clause → does not carry with it that of
●​ Effect of loss: the principal obligation
○​ Nullity of the principal obligation → carries with it that of
Loss of Obligation the penal clause

BEFORE Principal Extinguished

substitution
Substitute Not extinguished

AFTER Principal Not extinguished

substitution
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Debtor cannot compel the creditor to receive a different
one → although same of more valuable
●​ Delivery of a generic thing
○​ Creditor cannot demand a thing of superior quality
○​ Debtor cannot deliver a thing of inferior quality
MODES OF EXTINGUISHMENT OF OBLIGATION ○​ Purpose and circumstances shall be considered
●​ Obligations to do or not to do
Obligations are extinguished: ○​ Cannot be substituted by another act or forbearance
A.​ By payment or performance; against the obligee’s will
B.​ By loss of the thing due;
C.​ By condonation or remission of the debt; LEGAL TENDER
D.​ By confusion or merger of the rights of creditor and debtor; ●​ Payment which the creditor can be compelled to accept
E.​ By compensation; ●​ Currency notes → no limit
F.​ By novation ●​ Coins → subject to the following limits:
○​ P1 and above → not exceeding P1,000 (now P2,000)
Other causes of extinguishment of obligation: ○​ Below P1 → not exceeding P100 (now P200)
●​ Fulfillment of a resolutory condition ●​ Negotiable instruments and checks → not considered legal
●​ Rescission tender and acceptance depends on creditor
●​ Annulment ○​ If accepted → don’t produce the effect of payment until
●​ Prescription encashed or value becomes impaired
●​ Extraordinary inflation or deflation → value of the currency
A. PAYMENT at the time of the establishment of obligation shall be the basis
●​ Not only the delivery, but also performance of payment, unless there’s agreement to the contrary
●​ GR: Payment must be complete
●​ XPN: PLACE OF PAYMENT
○​ Substantial compliance in good faith → loss is a damage 1.​ Place designated in the obligation
suffered by the creditor 2.​ No stipulation and obligation is delivery of a determinate thing
○​ Creditor accepted without protest or rejection → wherever the thing might be at the constitution of obligation
3.​ Domicile of the debtor
PROVISIONS AS TO THE PAYOR ●​ If debtor changes domicile in bad faith or after he has
●​ Payment made by debtor incurred in delay → additional expenses shall be borne
○​ Valid payment → creditor cannot refuse to accept by him
●​ Payment made by a third person
SPECIAL FORMS OF PAYMENT
With consent of Without
debtor OR with knowledge or 1.​ Dation in payment
interest in consent of the 2.​ Application of payments
fulfillment debtor 3.​ Cession
4.​ Tender of payment and consignation
Compel creditor Yes No
to accept 1. DATION IN PAYMENT
●​ Governed by law on sales
Subrogation to Yes No
●​ Delivery or transmission of ownership of a thing by the debtor
rights of creditor
to the creditor as an accepted equivalent of the performance
Amount of Full reimbursement Beneficial of obligation (includes rights like usufruct or credit)
reimbursement reimbursement* ●​ May be made by a solvent debtor
●​ Requisites:
*Only to the extent the debtor benefited
○​ One debtor and one creditor
●​ Person who has interest in the fulfillment → guarantors,
○​ One property
co-debtors, even 3rd party mortgagors
○​ Acceptance by the creditor
●​ If the 3rd party doesn’t intend to be reimbursed → DONATION
●​ Extent of extinguishment
○​ Necessary that the debtor accept it for validity
○​ GR: Value of the thing delivered as agreed upon or as
○​ Debtor did not consent → no valid donation → 3rd party
may be proved
payor can seek reimbursement from the debtor
○​ XPN: Parties considered it as equivalent through an
○​ In any case → valid payment → obligation extinguished
express or implied agreement or by silence
●​ Capacity and free disposal
○​ Payor should have capacity to alienate and the free
2. APPLICATION OF PAYMENTS
disposal of the thing due for payment to be effective
●​ Designation of the debt which is being paid by a debtor who
has several obligations of the same kind in favor of the
PROVISIONS AS TO THE PAYEE
creditor to whom payment is made
●​ Payment made be made to:
●​ Requisites:
○​ Person in whose favor the obligation was constituted
○​ One debtor
○​ His successor in interest
○​ Several debts
○​ Any person authorized
○​ Debts are of the same kind
○​ Third party
○​ Only and and the same creditor
■​ GR: Invalid if no interest/authority
○​ Payment made by the debtor is not sufficient to pay-off all
■​ XPN: If it redounds to the benefit of creditor
the obligations
●​ Payment to an incapacitated person
●​ Right to apply payment → GR: debtor has the right to apply,
○​ Valid if the IP kept the thing delivered or insofar it was
subject to the following limitations:
beneficial to him
○​ Creditor cannot be compelled to accept partial payment
○​ Debtor cannot apply payment to principal if interest has
THING TO BE PAID OR DELIVERED
not been paid
●​ Delivery of a specific thing
○​ Debt must be liquidated, except agreed otherwise
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Cannot be made when the period hasn’t arrived and ●​ Impossibility of performance
period is in favor of the creditor, unless consented ○​ Extinguished → impossibility happened DURING the
○​ When there is agreement to which must be paid first existence of the obligation
●​ Debtor did not designate → applied to debt chosen by the ○​ Void → impossibility arose BEFORE the obligation
creditor, as reflected in the receipt accepted by debtor without ●​ Types of impossibility:
protest ○​ Nature → physical or legal
●​ Debtor and creditor did not designate: ○​ Whom impossibility refers → objective or subjective
○​ Different nature and burden → most onerous ○​ Extent → partial or total
○​ Same nature and burden → applied proportionately ○​ Period of impossibility → permanent or temporary
●​ Difficulty of prestation
3. PAYMENT BY CESSION OR ASSIGNMENT ○​ Service has become so difficult → obligor may be
●​ Debtor delivers to all his creditors all his properties for selling released therefrom, in whole or in part
and applying proceeds to settle his obligations to them ○​ Debtor may go to court to release him
○​ Obligation is extinguished insofar as the net proceeds,
unless otherwise stipulated C. CONDONATION/REMISSION OF DEBT
●​ Insolvency of debtor is required ●​ Act of liberality in which without receiving any equivalent, the
●​ Kinds: creditor renounces the obligation in its entirety or in part
○​ Voluntary → extent is only to amount of proceeds ●​ Requisites:
○​ Judicial → under FRIA (court discharges and obligations ○​ Gratuitous
are extinguished) ○​ Accepted by debtor
●​ Properties exempt from execution → generally not covered, ○​ Legal capacity
except debtor waives such exemption ○​ Not inofficious
●​ How proceeds are distributed: ○​ Complies with forms of donation
○​ Stipulation ●​ If not gratuitous, it will be considered:
○​ Preference of credit ○​ Dation in payment → creditor receives a different thing
○​ Novation → subject or conditions should be changed
4. TENDER OF PAYMENT AND CONSIGNATION ○​ Compromise → matter renounced is in litigation
●​ Tender of payment ●​ Kinds of condonation:
○​ Manifestation made by the debtor of his desire to comply ○​ As to form → express or implied
with obligation, with offer of immediate performance ○​ As to extent → total or partial
○​ Preparatory act to consignation ○​ As to manner of remission → inter vivos (lifetime) or
○​ Doesn’t extinguish obligation mortis causa (upon death)
●​ Consignation ●​ Express condonation → in the form of ordinary donations:
○​ Deposit of the object in a competent court, AFTER the ○​ Movable property → if oral, simultaneous delivery; if
tender of payment has been refused or because of value exceeds P5,000, must be in writing
circumstances which render direct payment impossible ○​ Immovable property → public document
○​ Extinguishes the obligation
●​ Applies only to extinguish of obligation, not to exercise a right D. CONFUSION OR MERGER OF RIGHTS
●​ Requisites: ●​ Meeting in one person of the qualities of the creditor and
○​ There is a valid debt that is due and demandable debtor with respect to the same obligation
○​ There has been a valid tender of payment and the ●​ Requisites:
creditor unjustly refuses, or even w/o tender payment if: ○​ Must take place between the creditor and principal debtor
■​ Creditor is absent/unknown ○​ Must involve the very same obligation
■​ Creditor is incapacitated to receive ○​ Must be total
■​ Creditor refuses to give a receipt ●​ Merge between creditor and guarantor → debt remains
■​ Two or more persons claim the same right to collect ○​ Debtor is now liable to the guarantor after the assignment
■​ TItle of obligation has been lost of the creditor to the guarantor
○​ There is previous notice (prior notice, subsequent notice)
○​ Amount/thing due is deposited in court E. COMPENSATION
●​ Withdrawal of the thing deposited ●​ Mode of extinguishment to the concurrent amount, the
○​ As a matter of right obligations of those persons who in their own right, are
■​ Debtor withdraws before acceptance by creditor or reciprocally creditors and debtors of each other
before judicial declaration ●​ Kinds of compensation:
■​ No extinguishment yet → no revival ○​ As to effect/extent → total or partial
○​ After acceptance/declaration ○​ As to origin/cause → legal, facultative, conventional, or
■​ Only with the consent of creditor judicial
■​ Obligation → revived ●​ Requisites:
○​ Each one of the obligors be bound principally, and that he
B. LOSS OF THING/IMPOSSIBILITY OF PERFORMANCE be at the same time a principal creditor of the other
●​ Loss → thing goes out of commerce, perishes, or disappears ○​ Debts consist in a sum of money or consumable things of
and cannot be recovered the same kind and quality
●​ If due to FE → GR: Debtor is not liable for damages; XPN: ○​ Two debts be due
Law, stipulation, nature, obligations from criminal offense ○​ Liquidated and demandable
(unless creditor is in mora accipiendi), obligations to give a ○​ Neither of them there be any retention or controversy
generic thing, except limited generic ●​ Guarantors → May set up compensation
●​ Partial loss → may be determined by court ●​ Rescissible or voidable debts → may be the subject of
○​ Intent of parties → necessarily considered compensation before rescinded or avoided/annulled
○​ Test → if the parties would not have entered the ●​ Assignment of credit → debtor may still invoke
obligation without the thing lost → extinguished compensation as against the debt due to him if:
●​ Presumption of fault ○​ He had no knowledge/consent to the assignment; or
○​ Lost in possession of debtor → presumed that loss was ○​ If with knowledge/consent, reserved his right
due to his fault (does not apply to natural calamities) ●​ When compensation may not be proper
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Depositum, bail, support, or civil liability arising from a
of the OD
penal offense
●​ Several debts susceptible of compensation → rules on the Delegacion → Full reimbursement GR: No longer
application of payments shall apply with consent of the liable
●​ Legal compensation → extinguishes debts to concurrent original debtor* XPN: OD may be
amount, even through creditors and debtors are not aware liable if it was
E. NOVATION already existing
●​ Requisites: and of public
knowledge or
○​ Previous valid obligation
known to the
○​ Agreement of all parties to a new contract debtor
○​ Extinguishment of old obligation
○​ Validity of the new obligation *Parties → delegante (old debtor), delegado (new debtor),
●​ Kinds of novation delegatorio (creditor)
○​ As to nature → objective/real, subjective/personal, or ●​ Creditor’s consent → necessary for there to be a novation
mixed
○​ As to form → express or implied
○​ As to extent → total or partial
●​ Accessory obligations
○​ GR: Extinguished as a consequence of novation
○​ XPN: Insofar as pour atrui is concerned and the third
person who benefits did not give his consent
●​ Conditional obligations
○​ If the original obligation was subject to a
suspensive/resolutory condition → new obligation shall
be under the same, unless otherwise stipulated

OBJECTIVE OR REAL NOVATION

●​ Change in the object
●​ Change in the principal conditions of the obligation, either
express or implied
○​ Implied novation → requires clear and convincing proof of
complete incompatibility between the two obligations
○​ Test → whether the two obligations can stand together

SUBJECTIVE NOVATION
●​ Changing the subject
●​ Consists of:
1.​ Active (Subrogation)
2.​ Passive (Substitution)

ACTIVE (SUBROGATION) NOVATION

●​ A third person is subrogated to the rights of the creditor
●​ By agreement or express → requires the consent of original
parties and the third person
●​ By law or implied → there is legal subrogation when:
○​ Creditor pays another creditor who is preferred, even
without debtor’s knowledge
○​ Third person, not interested in the obligation, pays with
the express or tacit approval of the debtor
○​ Even without the knowledge of debtor, a person
interested pays, without prejudice to effects of confusion
●​ Effects of subrogation
○​ Transfers to the persons all the rights thereto
appertaining, either against the debtor or against a third
person
●​ Preference of original creditor
○​ A creditor, to whom partial payment has been made, may
exercise his right for the remainder
○​ Shall be preferred to the person who has been
subrogated

PASSIVE (SUBSTITUTION) NOVATION

●​ Third person is substituted to the person of the debtor
●​ Should be clear that the new debtor is in lieu of the old debtor
●​ Kinds of passive novation
Kinds of Passive Extent of Liability of OD in
Novation Reimbursement the case of
insolvency of ND

Expromision → Beneficial OD is no longer

without reimbursement liable
knowledge/consent
[2] CONTRACTS
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Due to absolute incapacity:
○​ Cannot give consent to a contract → VOIDABLE
as to the party who is incapacitated
○​ Incompetent under the ROC who may be placed
DEFINITION AND ELEMENTS
under guardianship → can enter into contracts, but
VOIDABLE if proven that intelligent consent was
CONTRACT
not given
●​ Meeting of minds between two persons whereby one binds
●​ Due to relative incapacity → PROHIBITED from
himself, with respect to the other, to give something or to
entering SPECIFIC contracts or have certain prohibitions
render some service
in contracts
4.​ Both parties are incapacitated → UNENFORCEABLE
ELEMENTS OF A CONTRACT
5.​ Both parties gave their consent, but such consent was
●​ Natural → do not have to be stipulated, based on law
vitiated → VOIDABLE
●​ Accidental → agreed upon by the parts and cannot exist
without stipulation
KINDS OF CAPACITY
●​ Essential → without which, a contract cannot exist
A.​ Juridical capacity
●​ Fitness to be subject of legal relations, inherent, only lost
STAGES IN THE LIFE OF A CONTRACT
through death
1.​ Negotiation
B.​ Legal capacity (capacity to act)
2.​ Perfection
●​ Power to do acts with legal effect, is acquired, may be lost
3.​ Consummation
●​ May be absolute or relative
●​ Absolute incapacity → party cannot give consent in any
contract
○​ Cannot give consent to a contract:
ESSENTIAL ELEMENTS OF A CONTRACT
■​ Unemancipated minors, insane or demented persons
(XPN: Consent is given during lucid interval),
ESSENTIAL ELEMENTS
deaf-mutes who do not know how to write, drunks or
A.​ Consent of contracting parties
hypnotized
B.​ Object certain which is the subject matter
○​ Incompetent under the Rules of Court:
C.​ Cause
■​ Those suffering civil interdiction, hospitalized lepers,
D.​ Other essential elements
prodigals, deaf and dumb who are unable to read
1.​ Delivery (Real Contracts)
and write, those of unsound mind (even if they have
2.​ Form (Formal Contracts)
lucid intervals), those who by reason of age, disease,
weak mind, and other similar causes, cannot take
A. CONSENT OF CONTRACTING PARTIES
care of themselves
●​ Meeting of the offer and the acceptance upon the thing and
●​ Relative incapacity → may be prohibited from entering
the cause which are to constitute the contract
specific contracts or that in a contract, may be prohibited in a
●​ Offer and acceptance
certain capacity
○​ Offer must be certain
○​ Acceptance must be absolute
VICES OF CONSENT
○​ Acceptance may be express or implied
A.​ Fraud
○​ A qualified acceptance constitutes a counter-offer
●​ Through insidious words or machinations of one of the parties,
○​ The person making the offer may fix the time, place, and
the other is induced to enter into a contract, which, without
manner of acceptance (all of which must be complied
them, he would not have agreed to
with)
●​ To be voidable: It should be serious and should not have
been employed by both contracting parties
THEORIES RE: ACCEPTANCE
●​ Incidental fraud → only obliges the person employing it to
Cognition Acceptance takes effect from the time the pay damages
Theory* offeror knew of the acceptance of the offeree ●​ No vitiation of consent in the following cases:
○​ Failure to disclose facts, without the duty to reveal them
Manifestation Acceptance will take effect once it is ○​ Usual exaggerations in trade
Theory manifested by the offeree
○​ Mere expression of opinion, unless made by an expert
*We follow Cognition Theory in the Philippines ○​ Misrepresentation by a third person, unless it has created
substantial mistake and by both parties
INTERVENING EVENTS ○​ Misrepresentation made in good faith (may constitute
●​ Offer becomes ineffective if any of these happen on either error)
party before acceptance is conveyed: B.​ Intimidation
○​ Death, civil interdiction, insanity, insolvency ●​ One is compelled to give his consent by a reasonable and
well-grounded fear of an imminent and grave evil upon his
ADVERTISEMENTS person or property, or the person or property of his spouse,
●​ Not definite offers, rather, mere invitations to make an offer descendants, or ascendants
●​ Considerations: Age, sex, and condition
SITUATIONS CONCERNING CONSENT OF PARTIES: ●​ Threat to enforce claim through competent authority and it is
1.​ Both parties gave their consent as to the essential elements just or legal → does not vitiate consent
of the contract → VALID C.​ Mistake
2.​ Simulation ●​ To be voidable:
●​ Absolute simulation: One or both parties did not intend ○​ It pertains to the object of the contract
to be bound by the contract → VOID ○​ It pertains to the conditions which principally moved one
●​ Relative simulation: Parties merely conceal their true or both of the parties to enter the contract
agreement → VALID, bound by true agreement ○​ It is about the identity or qualifications of one of the
3.​ Incapacity of ONE of the parties parties which was the principal cause of the contract
●​ Due to juridical capacity → VOID ○​ Mutual error as to the legal effect of an agreement
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Mistakes that do not vitiate consent: A. FORMS REQUIRED FOR VALIDITY
○​ Mistake/error as to motive ●​ Donations of real property → public instrument
○​ Simple mistake of account → correction only ●​ Donations of personal property >P5,000 → written
○​ If the party alleging it knew the doubt, contingency, or risk ●​ Stipulation of interest on a loan → written
affecting the object of the contract ●​ Sale or transfer of a large cattle → public instrument,
D.​ Violence certificate of transfer
●​ To give consent, serious or irresistible force is employed ●​ Contribution of real property into a partnership → public
E.​ Undue influence instrument with inventory attached
●​ A person takes improper advantage of his power over the will
of another, depriving the latter of a reasonable freedom of B. FORMS REQUIRED FOR ENFORCEABILITY →
choice Unenforceable unless written, or some note or memorandum
●​ Considerations: Confidential, family, spiritual, and other and subscribed by the party charged or their agent:
relations between the parties, or the fact that the person ●​ Agreement not to perform within a year from the making
unduly influenced was suffering from mental weakness, ●​ Special promise to answer for debt, default, or miscarriage
ignorance, or in financial distress ●​ Agreement in consideration of marriage
●​ Agreement for sale at a price not less than P500
B. OBJECT CERTAIN WHICH IS THE SUBJECT MATTER ○​ Auction → entry in sales book → sufficient memorandum
●​ To create or end obligations, which, in turn, may involve ●​ Representation as to the credit of a third person
things, rights, or services ●​ Agreement of the leasing for a longer period than one year or
●​ Requisites: sale of real property or interest therein
○​ Must be determinate as to its kind or determinable
without the need of a new contract/agreement C. FORMALITIES REQUIRED FOR CONVENIENCE → To bind
○​ Must be within the commerce of man third persons, these are required to be in public instrument:
○​ Must not be contrary to law, morals, good customs, public ●​ Creation, transmission, modification, or extinguishment of real
order, or public policy rights over immovable/real property
○​ Must not be impossible ●​ Cession, repudiation, or renunciation of hereditary rights or
○​ Must be transmissible of those of the conjugal partnership of gains
●​ Power to administer property or other power which should
C. CAUSE appear in a public document
●​ Essential or impelling reason why a party assumes an ●​ Cession of actions or rights from an act appearing in a public
obligation document

CAUSES OF EACH TYPE OF CONTRACT REMEDY TO REQUIRE A SPECIFIC FORM

●​ If the law requires, the contracting parties may compel each
Onerous Prestation or promise of a thing or service by
the other other to observe that form, once the contract has been
perfected
Gratuitous Mere liberality of the benefactor

Remuneratory Service or benefit already rendered

REFORMATION OF CONTRACTS
RULES ON CAUSE
●​ Contracts without cause or with unlawful cause → produce REFORMATION
no effect ●​ Remedy by means of which a written instrument is made or
●​ Statement of a false cause → VOID, if not proven to be construed so as to express or conform to the true intention of
founded upon another true and lawful cause the parties when some error or mistake has been committed
●​ Even if not stated, presumed that cause exists and it is lawful,
unless the debtor proves otherwise REQUISITES OF REFORMATION
●​ GR: Inadequacy of price will not affect the contract ●​ Meeting of minds
○​ XPN: Expressly provided by law; there’s fraud, mistake, ●​ Written instrument
or undue influence; parties have a different intention ●​ Written instrument does not reflect the true intention of the
(bound by the same) parties
●​ Particular motives are different from the cause thereof
WHEN REFORMATION MAY HAPPEN:
D. OTHER ESSENTIAL ELEMENTS ●​ Mutual mistake of both parties
1.​ DELIVERY → REAL CONTRACTS ●​ One party was mistaken, one concealed their knowledge that
●​ Real contracts are perfected by delivery the instrument did not state their real agreement
●​ Include: ●​ Ignorance, lack of skill, negligence, or bad faith of the person
○​ Deposit, pledge, commodatum, simple loan/mutuum who drafted the instrument
2.​ FORM → FORMAL CONTRACTS
●​ Execution of the required formality is an essential element for WHO MAY ASK FOR REFORMATION:
perfection ●​ Mutual mistake → either of the parties or his successor in
interest
●​ Otherwise → injured party or his heirs or assigns

FORMS OF CONTRACTS REFORMATION IS NOT ALLOWED WHEN:

●​ Simple donations inter vivos
FORMS OF CONTRACT ●​ Wills
●​ GR: No form required for the validity or perfection ●​ One of the parties brought an action to enforce the instrument,
●​ XPN: Required for (1) Validity; (2) Enforceability; (3) cannot subsequently ask for reformation
Convenience ●​ Real agreement is void
“Father, not my will, but Yours be done.” - Luke 22:42
FUNDAMENTAL CHARACTERISTICS / 2.​ Real
PRINCIPLES OF CONTRACTS 3.​ Formal
C.​ Nature of obligation produced
FUNDAMENTAL CHARACTERISTICS: 1.​ Bilateral
A.​ Consensuality 2.​ Unilateral
●​ Perfection of a contract → meeting of the minds or D.​ Cause
consensual between parties 1.​ Onerous
●​ Contract entered into by an unauthorized person or if an 2.​ Gratuitous or lucrative
authorized person acted beyond their powers → 3.​ Remuneratory
UNENFORCEABLE, unless ratified before revocation E.​ Risk
●​ Contract of adhesion → there is already a prepared form 1.​ Commutative
with the stipulations, only asks the other party to agree 2.​ Aleatory
B.​ Autonomy F.​ Name
●​ Contracting parties may establish stipulations → but should 1.​ Nominate
not be contrary to: law, public policy, morals 2.​ Innominate → do ut des, do ut facias, facio ut des, facio
●​ Examples → VOID: ut facias
○​ Law → Pactum Leonina (Partnership), Pactum
Commissorium (Pledge/Mortgage), Pactum De Non
Aliendo (Real Estate Mortgage)
○​ Public policy → Scholarship, running for public office INTERPRETATION OF CONTRACTS
○​ Morals → interest of 50%
C.​ Mutuality ARTICLE 1370
●​ Contracts must bind both parties and its validity or compliance ●​ Terms → clear and leave no doubt → literal meaning of its
cannot be left to the will of one of them stipulations shall control
●​ Consequences: ●​ Intention > words
○​ One party cannot revoke a contract without consent of
the other CONTEMPORANEOUS AND SUBSEQUENT ACTS
○​ Determination of the performance may be left to a third ●​ Considered to determine if the parties’ intentions are different
person: from the words of the agreement
■​ Shall not be binding until known to both
■​ Not obligatory if evidently inequitable; court shall SPECIFIC RULES IN INTERPRETATION:
decide what is equitable 1.​ General words shall not be understood to comprehend things
●​ Escalation clause → one increases/decreases compensation that are distinct and cases that are different
○​ VOID → if dependent to will of one of the parties 2.​ Stipulation should admit of several meanings → understand it
○​ VALID → if dependent on valid and reasonable standards in the way that is most adequate to render it effectual
(independent of the parties’ will) 3.​ Various stipulations shall be interpreted together
D.​ Obligatory force 4.​ Words which may have different significations → understand
●​ Obligations arising from contracts have the force of law in that which is most in keeping with the nature and object of
between them and should be complied with in good faith the contract
E.​ Relativity/Privity 5.​ Usage or custom of the place shall be borne in mind
●​ Contract takes effect between the parties and their privies 6.​ Interpretation of obscure words shall not favor the party who
(assigns and heirs) caused the obscurity
●​ Third parties → GR: Do not have a cause of action to
enforce or annul a contract nor bound by the terms thereof WHEN NONE OF THE ABOVE RULES APPLY (LAST RESORT):
●​ XPN: ●​ Refer to incidental circumstances of:
○​ TP may bound by the contract ○​ Gratuitous contract → least transmission of rights and
■​ Real rights → Mortgage Law and the Land interests
Registration Laws ○​ Onerous contract → in favor of the greatest reciprocity
○​ A creditor may initiate an action against the parties of interests
■​ Accion pauliana → action to rescind the contract ●​ Doubts are cast upon the principal object in a way that it
■​ Accion directa → action to sue on a contract cannot be known what may have been the intention/will of the
○​ TP may be liable under a contract parties → NULL and VOID
■​ Malicious interference by TPs
○​ TP may be benefited by a contract → stipulation pour
atrui
■​ Stipulation pour atrui → stipulation in favor of a TP DEFECTIVE CONTRACTS
conferring a clear and deliberate favor upon him
■​ Communication of acceptance is required, no form is DEFECTIVE CONTRACTS
required (can be implied) A.​ Rescissible → valid until rescinded
■​ Revocation cannot be done by one party alone B.​ Voidable → valid until annulled, with option to ratify
C.​ Unenforceable → no effect until ratified
D.​ Void/Inexistent → either inexistent, illegal, or illicit

CLASSIFICATION OF CONTRACTS A. RESCISSIBLE CONTRACTS

●​ Rescission
ACCORDING TO: ○​ Render inefficacious a contract validly entered into and
A.​ Degree of dependence normally binding
1.​ Principal ○​ Cause: External conditions, causing economic prejudice
2.​ Accessory to a party
3.​ Preparatory ●​ Resolution
B.​ Perfection ○​ Proper term → primary remedy which can be availed and
1.​ Consensual does not require lesion as a ground
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Cause: Non-performance or non-fulfillment of obligation ANNULMENT → Renders the contract non-existing:
or there is substantial breach ●​ Only the injured party may ask for annulment
●​ Creditors of the injured party cannot ask for the annulment
RESCISSIBLE CONTRACTS ●​ Capacitated cannot allege the incapacity nor those who
1.​ Guardians → wards suffer lesion by more than ¼ vitiated consent
●​ Lesion → damage/injury to the party which represents the ●​ When a minor misrepresents his age and was believed → no
difference bet. the price and the actual value of the property annulment
2.​ Representative → absentees suffer lesion by more than ¼ ●​ Effect of loss of the thing:
3.​ Fraud of creditors → cannot collect ○​ Extinguished if the object is lost through fraud or fault of
●​ Accion pauliana the injured party
4.​ Things under litigation have been entered into contract without ○​ If based on incapacity, loss shall not be an obstacle,
the knowledge and approval of the litigants or competent unless through fraud or fault of the incapacitated person
judicial authority
5.​ All other contracts declared by law to be subject to rescission EFFECTS OF ANNULMENT
●​ GR: Restitution, with fruits and interest
OTHER CONTRACTS SUBJECT TO RESCISSION ●​ If service → value of basis shall be the basis for damages
1.​ Rights of an unpaid seller ●​ Incapacity → incapacitated person is n obligated to make any
2.​ Obligations to deliver a specific thing → thing deteriorates due restitution except the value he has benefited from the thing
to the debtor before the suspensive condition is fulfilled ●​ If the person obliged to return cannot do so because it has
3.​ Lesion of at least ¼ in partition been lost through his fault → shall return fruits, value of the
4.​ Sale of real estate → (1) deficient by more than 1/10 or (2) thing at the time of loss, and interest from the same date
buyer would not have entered knowing the actual area ●​ One does not return → cannot compel the other to return

RESCISSION AS A REMEDY C. UNENFORCEABLE CONTRACTS

●​ Subsidiary → last resort ●​ No effect until ratified
●​ Only to the extent necessary to cover the damages caused
●​ Restitution → return the things which were the object of the UNENFORCEABLE CONTRACTS
contract 1.​ Unauthorized contracts → entered into in the name of a
●​ Can only be carried out when the party asking for rescission person by one who has no authority or acted beyond his
can return whatever he may be obliged to restore power
●​ Shall not take place when the things are already legally in the 2.​ Those that do not comply with the Statute of Frauds
possession of 3rd persons who did not act in bad faith (DNMSCL) → required to be writing in order to avoid fraud
○​ Indemnity for damages may be demanded 3.​ Those where both parties are incapable of giving consent
●​ Sale of the property is approved by courts → rescission is not
available as a remedy RULES APPLICABLE TO STATUTE OF FRAUDS
●​ Applies only to executory contracts
PRESUMPTION OF FRAUD ●​ Exclusive list
●​ Alienations by gratuitous title ●​ Defense may be waived
●​ Alienations by onerous title ●​ SoF is a personal defense → cannot be challenged by third
persons
PRESCRIPTIVE PERIOD ●​ If oral evidence is presented and the other does not object →
●​ Action to claim rescission → 4 years deemed waiver of the defense; same if they already accepted
●​ Guardianship and absentees → termination of ward’s the benefits of the contract
incapacity or absentee’s domicile is known
●​ Fraud → from discovery D. VOID OR INEXISTENT
●​ Sale of land → time of registration ●​ Inexistent (required formalities are not complied with for its
perfection → produces no legal effects), illegal, or illicit
B. VOIDABLE CONTRACTS
●​ Valid until annulled; but also subject to ratification ARTICLE 1409 → inexistent and void from the BEGINNING →
CANNOT be ratified:
VOIDABLE CONTRACTS 1.​ Cause, object, or purpose is contrary to law, morals, etc.
1.​ Incapable of giving consent 2.​ Absolutely simulated or fictitious
2.​ Consent is vitiated 3.​ Cause or object did not exist at the time of the transaction
3.​ Hypnotized or under a state of drunkenness 4.​ Object is outside the commerce of men
5.​ Contemplate an impossible service
PRESCRIPTIVE PERIOD 6.​ Intention of the parties relative to the principal object of the
●​ 4 years contract cannot be ascertained
7.​ Expressly prohibited/declared void by law
GROUND COUNTED FROM

Intimidation, violence, or Defect of consent ceases RULES APPLICABLE

undue influence ●​ Action or defense to declare it as inexistent does not prescribe
●​ Cannot be ratified
Mistake or fraud Discovery ●​ Defense of illegality is not available to third persons who are
not directly affected
Minority or incapacity Guardianship ceases
LEGAL EFFECTS
RATIFICATION → Extinguishes the action to annul: ●​ GR: Cannot give rise to valid subsequent contracts if based
●​ May be effected by the guardian on it; produces no effect and no action to declare them void is
●​ Does not require the conformity of the contract party who has needed
no right to annul ●​ Remedy of recovery
●​ Cleanses the contract from all defects ○​ Both parties are at fault (in pari delicto) → no action
●​ May be done expressly (O/W) or tacitly (impliedly) against each other
“Father, not my will, but Yours be done.” - Luke 22:42
○​ One party is innocent, other is at fault → innocent
party can recover
●​ XPNs:
1.​ Money is paid for illegal purpose → may get the money
back before it is accomplished
2.​ Contract is illegal and one party is incapable of giving
consent → court may allow that person to recover the
money
3.​ If prohibited (not illegal) → may be allowed to recover
4.​ Divisible contract → if illegal parts can be separated from
legal, the legal parts may be enforced

ILLEGAL CONTRACTS
1.​ Criminal offense and both parties are at fault (in pari
delicto):
●​ No action against each other and both prosecuted
●​ Effects of the crime shall be confiscated in favor of the
government
2.​ No criminal offense
●​ Same rights as to recovery, except no prosecution
●​ Both are at fault:
○​ No recovery can be made by either
●​ One party is at fault:
○​ Innocent party may demand the return of what was given,
without any obligation to comply with his promise
[3] SALES
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Cannot acquire by purchase → GR: Void, XPN: Agents
(voidable)
■​ Guardians
■​ Agents (XPN: If consented by principal)
CONTRACT OF SALE, IN GENERAL
■​ Executors and administrators of estates
■​ Public officers and employees
CONTRACT OF SALE
■​ Justices, judges, prosecuting attorneys, clerks of
●​ One of the contracting parties obligates himself to transfer the
superior and inferior courts, and other officers and
ownership and to deliver a determinate thing, and the other to
employees (if they handle the case)
pay therefor a price certain in money or its equivalent
■​ Any others specially disqualified by law (eg. aliens
●​ Characteristics:
and lands)
○​ Purpose → To transfer ownership
○​ Consensual
B. CAUSE
○​ Onerous
●​ Prestation or promise to be performed by the other party
○​ Bilateral
○​ Buyer → delivery; seller → payment of price
○​ Nominate → there are specific rules provided by law
●​ Rules as to price:
○​ Commutative → equivalence in the prestation of the
○​ Must be certain
parties
■​ With reference to another thing certain; or
●​ Aleatory → sale of hope where there is no equivalence in the
■​ Determination be left to the judgment of a special
value of prestations (eg. lotto)
person
○​ Gross inadequacy does not affect a contract of sale
CONTRACT OF SALE VS. OTHERS
(XPN: indicates a defect in the consent, parties intended
A. Contract for - Goods are to be manufactured specially a donation (absolute simulation), or lesion)
a piece of work for the customer and upon his special ○​ Price of securities, grain, liquids, etc. shall be certain:
order, not for the general market ■​ On a definite day
- Customized, counted as sale of service
■​ In a particular exchange or market
- Enforceable even if not in writing
■​ Amount is fixed or below, but still certain (can be
B. Dacion en - Extinguishes an obligation computed)
pago - There is a need for pre-existing obligation ○​ Fixing can never be left to the discretion of one of the
contracting parties
C. Barter - Barter: Thing > Money ■​ However, if accepted → sale is perfected
- Sale: Thing < Money ●​ Price cannot be determined in accordance with preceding
rules → contract is inefficacious
D. Contract of - Risk of loss remains with the ●​ Thing or any part has been delivered and appropriated →
agency to sell principal-owner and not transferred
buyer must pay a reasonable price

KINDS OF SALE AS TO TRANSFER OF OWNERSHIP UPON C. OBJECT

DELIVERY ●​ Subject matter which may things or rights
●​ Service → cannot be a valid object
Absolute sale - Ownership transfers upon delivery
●​ Rules as to objects:
Conditional - Ownership automatically transfers upon ○​ Must be licit or within the commerce of men
sale fulfillment of the condition ○​ Vendor must have a right to transfer ownership
○​ Must be determinate
Contract to - Special kind of conditional sale ○​ Fungible goods → there may be a sale of undivided
sell - Will give the buyer the right to demand the share of a specific mass
execution of a deed of sale or compel the ○​ Future goods:
seller to sale upon fulfillment of the condition
■​ Emptio rei speratae → sale of future thing
■​ Emptio spei → sale of hope itself
■​ Vain hope → sale if void
○​ Sole owner may sell an undivided interest therein
ELEMENTS OF A CONTRACT OF SALE ○​ Things subject to a resolutory condition may be the object

ELEMENTS OF A CONTRACT OF SALE

●​ Natural, accidental, essential
PERFECTION OF A CONTRACT OF SALE
ESSENTIAL ELEMENTS OF A CONTRACT OF SALE
A.​ Consent of the contracting parties CONSENSUAL CONTRACT
B.​ Cause ●​ Perfected by mere consent
C.​ Object
TRANSFER OF OWNERSHIP
A. CONSENT OF THE CONTRACTING PARTIES ●​ GR: Happens only after delivery, either actual or constructive
●​ Incapacity → consent may be given, but the one giving it is ●​ XPN: Parties agreed that it will not pass until full payment of
incapacitated; may be absolute or relative price
●​ Absolute incapacity → VOIDABLE or VOID
○​ Party cannot give consent to any and all contract SALE OF AUCTION
○​ Minors and those without capacity to act → may enter ●​ Perfected by the fall of the hammer or in other customary
into a valid contract of sale of “necessaries” manner
●​ Relative incapacity → party is prohibited from entering some ●​ Before perfection
specific transactions with some persons and sometimes over ○​ Any bidder may retract his bid
specific things ○​ Auctioneer may withdraw the goods from the sale
○​ Husband and wife (XPN: Prenuptial agreements, judicial
separation of property)
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Object of a sale by auction 3.​ Foreclose the chattel mortgage on the thing sold, should
○​ In lots (each lot is subject of a separate contract of sale) the vendee fail to pay two or more installments
●​ Seller’s right to bid ●​ Mortgage on the property itself → recovery of deficiency is
○​ GR: The seller has no right to bid not allowed
○​ XPN → Requisites (satisfy all): ●​ Mortgage on any other object → falls under option 1 →
■​ The right to bid was expressly reserved; recovery of deficiency is allowed
■​ Notice was given to the bidders;
■​ Not prohibited by law/stipulation B. MACEDA LAW
●​ Any sale made contradicting the above → may be treated ●​ Applies to a contract of sale of residential realty on
fraudulent by the buyer installments, where the buyer is given protection in case of
failure to pay installments
OPTION AGREEMENT AND CONTRACT ●​ Does not apply to sales on credit
●​ Promise to buy and sell a determinate thing for a price certain
is reciprocally demandable RIGHTS OF THE BUYER UNDER THE MACEDA LAW
●​ Summary: 1.​ If installments already paid are < 2 years equivalent:
●​ Grace period → pay without interest within 60 days (can only
Option Agreement Option Contract
be applied once every 5 years)
Option money ❌ ✅ ●​ Buyer may sell or assign his interest
●​ Pay the entire balance
Binding ❌ ✅ 2.​ After 2 years’ worth of installment → additional rights:
●​ Additional 1 month grace period for every year of installment
Buyer’s Seller cannot Seller cannot payments after the first 2 years installments
acceptance withdraw withdraw ●​ Seller → rescinds the contract → required to first give the
Cash Surrender Value to the buyer
EARNEST MONEY ○​ Minimum of 50% of all payments (+ downpayment); plus
●​ Forms part of the purchase price and is proof of perfection of ○​ 50% for first 5 years; and
a contract of sale ○​ 5% for every additional year thereafter, up to a maximum
of 90%
SALE OF GOODS BY DESCRIPTION AND/OR SAMPLE
●​ Sale by description OR sample VOID STIPULATIONS
○​ Contract may be rescinded if bulk do not correspond with ●​ Stipulations as to interest or damages or penalty during the
description or sample grace period
●​ Sale by description AND sample ●​ Forfeiture clause
○​ Contract may be rescinded if bulk do not correspond with ●​ Automatic cancellation or rescission upon default of the buyer
description and sample
●​ Buyer shall have a reasonable opportunity of comparing RESCISSION REQUIREMENTS → Will take effect only after 30
days from complying with both:
FORM ●​ Notice to be given to the buyer as to the intention to rescind
●​ GR: No specific form is required ●​ Payment of the cash surrender value
●​ XPN: Subject to the Statute of Frauds → must be writing or in
some memorandum to be enforceable C. CONDOMINIUMS
○​ Those not to be performed within 1 year ●​ PD No. 957 or The Subdivision and Condominium Buyers’
○​ Sale of personal property the price not less than P500 Protective Decree → covers the sale of condominium units
○​ Sale of real property
RULES AFFECTING INSTALLMENT PURCHASES OF
CONDOMINIUMS
1.​ Non-forfeiture of payments
INSTALLMENT SALES ●​ No installment payment shall be forfeited in favor of the owner
when the project failed to be developed according to the
INSTALLMENT SALES approved plans and within the timelimit
A.​ Recto Law ●​ Such buyer, at his option, be reimbursed the total amount paid
B.​ Maceda Law including amortization interests but excluding delinquency
C.​ Condominiums interests, with interest thereon at the legal rate
2.​ Failure to pay installments
A. RECTO LAW ●​ Failure to pay installments for reasons other than the failure of
●​ Applies to contract of sale of personal property, payable in the owner shall be governed by the Maceda Law
installments
○​ Does not apply to sales on credit
●​ Applies to contracts leases of personal property with option to
buy (finance lease) OBLIGATIONS OF THE VENDOR

ALTERNATIVE REMEDIES OF THE SELLER (Only one!) OBLIGATIONS OF THE VENDOR → TTPWD
1.​ Exact fulfillment, should the vendee fail to pay A.​ To take care of the thing after the contract has been perfected,
2.​ Cancel the sale, should the vendee fail to pay two or more prior to delivery
installments B.​ To transfer ownership
●​ Rescission → mutual restitution C.​ To pay taxes and other incidents of the sale
●​ GR: Seller is allowed to retain a reasonable amount of the D.​ To warrant the thing
purchase price already paid or all of the amount paid only if E.​ To deliver the determinate or specific thing including the fruits
there is a forfeiture clause from the moment the obligation to deliver arises and the
●​ XPN: Retention of all the purchase price → unconscionable accessions and accessories thereof
“Father, not my will, but Yours be done.” - Luke 22:42
A. TO TAKE CARE OF THE THING, PRIOR TO DELIVERY ○​ Usage of trade;
●​ Loss of the thing pending delivery ○​ Seller’s place of business;
○​ Entirely lost → contract is void ○​ Seller’s residence
○​ Partially lost → buyer may choose between (1) ●​ Seller is not bound to deliver:
withdrawing or (2) paying in proportion the total sum ○​ Pure obligation and buyer does not pay
agreed upon ○​ There is a period agreed upon → delivery shall be
○​ Partially deteriorated → buyer may choose between (1) demandable at that time
cancelling the sale or (2) paying in proportion the agreed ■​ XPN: Buyer loses the right to make use of period
price for the goods not deteriorated (if divisible)
●​ Risk of loss → res perit domino QUANTITY TO BE DELIVERED
○​ XPNs: Stipulation, security title, delay in delivery ●​ Delivery of personal property
●​ Sale or return vs. sale on approval/trial/on satisfaction ○​ Deficiency → delivery < agreed upon
■​ Reject the delivery
SALE OR RETURN SALE ON APPROVAL*
■​ Accept and pay:
DOO ✅ ✅ 1.​ Full contract price → if he knew seller is not
gonna perform the contract in full
TOO ✅ ❌ 2.​ Fair value of goods delivered → if without
such knowledge
*Ownership passes to the buyer: express approval/acceptance,
○​ Excess → delivery > agreed upon
retains the goods without rejection, expiration of time fixed, or
■​ Accept the goods in the quantity agreed upon and
expiration of reasonable time
reject the rest
■​ Accept the whole of the goods and pay for them at
B. TO TRANSFER OWNERSHIP
the contract rate
●​ Seller need not be the owner for validity of the contract
○​ Delivery of goods mixed with goods of different
●​ If seller is not the owner
description not included in the contract → buyer may
○​ GR: Buyer acquires no better title than the seller
accept the goods which are in accordance with the
○​ XPNs (buyer acquires good title to the object) → OJEAM
contract and reject the rest
■​ Owner-authorized
○​ If indivisible → buyer may reject the whole of the goods
■​ Judicially-authorized
●​ Delivery of real estate
■​ Estoppel → estoppel in pais, estoppel in deed
○​ Deficiency → delivery < agreed upon
■​ Sale of an apparent owner → apparent ownership,
■​ Demand delivery of shortage
buyer in good faith and for value, law from which
■​ Accion quanti minoris → ask for proportionate
apparent ownership may be had (PD 1529, Factor’s
reduction of the price
Act, Art. 1518)
■​ Rescission, if:
■​ Purchased from merchant store, market, or fair → if
●​ Area lacking is at least 1/10 of agreed upon; or
bought in public sale, buyer must be reimbursed
●​ Buyer would not have entered into the contract,
had he known of its smaller area
C. TO PAY TAXES AND INCIDENTS OF THE SALE
■​ Note: Same if quality → but inferiority should be
●​ Unless otherwise agreed upon
more than 1/10 of the price agreed upon
○​ Excess → delivery > agreed upon
D. TO WARRANT THE THING
■​ Accept agreed upon and reject the rest
●​ Warrants below!
■​ Accept the whole and pay at the contract rate
●​ Sale of real estate for a lump sum price
E. TO DELIVER THE DETERMINATE/SPECIFIC THING
○​ Whatever is the actual area of the land → buyer is still
INCLUDING THE FRUITS
required to pay the price and seller is bound to deliver the
●​ Delivery → mode by which ownership is transferred
entire area agreed upon
●​ Modes of delivery → things:
○​ If actual area > agreed upon area, and seller should not
○​ Actual delivery
deliver the whole actual area, the buyer may:
○​ Constructive delivery
■​ Reduce the price to be paid, in proportion to what is
■​ Traditio longa manu → long-hand delivery
lacking in the area or number; or
■​ Brevi manu → short-hand delivery
■​ Rescind the contract for failure of the vendor
■​ Symbolic delivery → seller gives the key (movable
property)
■​ Execution of required formality → execution of PI
■​ Constitutum possessorium → seller is and remains in
RIGHTS OF UNPAID SELLER
possession in another concept other than an owner
○​ Delivery to a common carrier → XPN:
UNPAID SELLER
■​ Ownership is reserved by seller
●​ Whole of price has not been paid or tendered
■​ Possession is reserved by seller
●​ Bill of exchange or other negotiable instrument has been
■​ Bill of exchange is drawn against the buyer and is
received as conditional payment → broken by dishonor or
dishonored
insolvency of the buyer
●​ Mode of delivery → rights:
○​ Execution of an instrument
RIGHTS OF UNPAID SELLER
○​ Quasi traditio
A.​ Possessory lien
■​ Title of ownership is placed in possession of buyer
B.​ Stoppage in transitu
■​ By the use of the vendee of the rights with the
C.​ Resale
vendor’s consent
D.​ Rescission
●​ Time of delivery
○​ Stipulation;
A. POSSESSORY LIEN
○​ No stipulation → within a reasonable time
●​ Right to retain or to withhold delivery of the goods
●​ Place of delivery
●​ Requisite: Seller must be in possession
○​ Stipulation;
○​ Specific goods → some other place;
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Cases: ●​ To exercise → must have a right of lien or stoppage in transitu
○​ Goods have been sold without any stipulation as to credit; ●​ Recovery of damages
○​ Goods have been sold on credit, but term has expired; ○​ Seller is not liable to the buyer, but may recover from the
○​ Buyer becomes insolvent buyer damages for any loss by the breach of contract
●​ Partial lien → made part delivery of the goods, may exercise ●​ Notice → not necessary
right of lien on the remainder ○​ But shall be relevant in determining whether the buyer
●​ Loss of possessory lien happens when: has been in default for an unreasonable length of time
○​ Seller delivers to carrier or other bailee without reserving
the ownership or right to possession
○​ Buyer or against lawfully obtains possession
○​ By waiver RULES ON DOUBLE SALE
●​ Sale of the thing by the buyer to third persons:
○​ GR: Seller does not lose his right MOVABLE PROPERTY
○​ XPN: 1.​ First one to take possession in good faith
■​ Seller assented to the transfer;
■​ Goods are covered by a negotiable document of title IMMOVABLE PROPERTY
and it is sold to a purchaser for value in good faith to 1.​ The one to first register in good faith;
whom such document has been negotiated 2.​ The one to first take possession in good faith;
3.​ The one with the oldest title
B. STOPPAGE IN TRANSITU
●​ Right to stop the goods while in transit GOOD FAITH
●​ Requisites: ●​ Time of registration or possession, not the time of perfection
○​ Seller already parted with the possession of the goods of sale
○​ Goods are already in transit
○​ Buyer is insolvent (only for this, for others, just a ground) BOTH SALES MUST BE VALID
●​ Goods are in transit: ●​ Presupposes that both the sale are valid or at least voidable
○​ From the time they are delivered to a carrier or rescissible
○​ Goods are rejected by the buyer and carrier continues in
possession of them
●​ Goods are no longer in transit:
○​ Buyer or his agent obtains delivery before their arrival CONDITIONS
○​ If after the arrival, the carrier acknowledges the buyer and
holds the goods on his behalf CONDITIONS → not performed, parties may:
○​ Carrier wrongfully refuses to deliver the goods to the ●​ Refuse to proceed with the contract
buyer or his agent ●​ Waive the performance of the condition
○​ If part delivery of the goods has been made to the buyer ●​ Treat the non-performance as a breach of warranty and ask
or his agent in that behalf → remainder may be stopped for damages
in transitu
●​ Right of stoppage in transitu is exercised:
○​ By taking actual possession of the goods
○​ By giving notice of his claim to the carrier: WARRANTIES
■​ Carrier must redeliver the goods to the seller
■​ Expenses of such delivery → seller WARRANTIES
■​ Negotiable document of title has been issued by the ●​ Any affirmation of fact or any promise by the seller
carrier → shall not be obliged to deliver or justified in ●​ Natural tendency is to induce the buyer to purchase
not delivering the goods, unless it’s cancelled ●​ Opinion of the seller → not understood to be a warranty,
unless the seller made such as an expert and it was relied
C. RESALE upon by the buyer
●​ Grounds:
○​ Goods are perishable in nature EXPRESS WARRANTY
○​ Seller expressly reserves the right of resale in case the ●​ Affirmation of fact or promise by the seller relating to the thing
buyer defaults which would induce the buyer to buy the same
○​ Buyer has been in default in the payment of the price for
an unreasonable time IMPLIED WARRANTIES
●​ To exercise → seller must have a right of lien or stoppage in A.​ Warranty against eviction
transitu B.​ Warranty against hidden defect or of quality
●​ Resale proceeds C.​ Warranty against non-apparent encumbrances
○​ Less than original → seller can recover deficiency
○​ More than original → seller is entitled to profit A. WARRANTY AGAINST EVICTION
●​ Buyer in the resale acquires a good title ●​ Seller has a right to sell the thing and the buyer shall have
●​ Notice (XPN: Goods are perishable) shall be given to the and enjoy legal and peaceful possession
original buyer: ●​ Requisites for eviction:
○​ Intention to resell ○​ Vendee is deprived of the whole or part of the thing
○​ Date, time, and place of resale ○​ Virtue of a final judgment
●​ Failure to give notice → does not affect validity of the resale ○​ Vendor is summoned in the suit
●​ Participation of seller in the resale is prohibited ○​ Such judgment is based on:
■​ Right prior to the sale;or
D. RESCISSION ■​ Act imputable to the vendor
●​ Grounds: ●​ Rules applicable:
○​ Right to rescind is expressly reserved by the seller ○​ Warranty applies even if there is no agreement to such
○​ Buyer has been in default in the payment for an ○​ Vendee need not appeal from the decision
unreasonable time
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Prescriptive period is completed → vendor shall not be REDHIBITORY DEFECTS IN ANIMALS
liable for eviction ●​ Redhibitory defect
○​ Property is sold for non-payment of taxes due and not ○​ Hidden defect on animals that, even if professional
made known to the vendee before → vendor is liable for inspection was made, it’s not sufficient to discover it
eviction ○​ Veterinarian (ignorance or bad faith) → fail to discover it
○​ Judgment debtor is also responsible for eviction → liable for damages
○​ Defendant vendee shall ask the vendor be made a ●​ Sale of more than 1 animal
co-defendant ○​ GR: Shall only give rise to its redhibition, not the others
●​ Extent of liability ○​ XPN: Vendee would not have purchased the sound
○​ Seller is in bad faith → VICED animal/s without the defective one
■​ Value of thing ●​ No warranty → if sold in fairs or public auctions, or live stock
■​ Income or fruits sold as condemned
■​ Costs of the suit ●​ Void sale of animals
■​ Expenses of the contract ○​ Sale of animals suffering from contagious diseases
■​ Damages and interests ○​ Use/service for which they are acquired has been stated
○​ Seller is in good faith and they are found to be unfit therefor
■​ No waiver → VICE ●​ Remedies and prescriptive period
■​ Waiver ○​ Similar to the remedies for breach of warranty against
●​ Consciente → buyer is not aware → value hidden defects
●​ Intencionada → buyer is aware → not liable ○​ Exercise of the redhibitory action within 40 days
●​ Partial loss → would not have bought without that part → ●​ Other rules:
vendee may demand rescission, but with the obligation to ○​ Animal dies within 3 days after purchase → vendor
return the thing shall be liable if the disease which caused the death
●​ Two or more things sold → same rules as partial loss: existed at the time of the contract
○​ If they have been jointly sold for a lumpsum ○​ Sale is rescinded → animal shall be returned in the
○​ Sold for a separate price but vendee would not have condition in which it was sold and delivered
purchased one without the other ○​ Sale of large cattle → governed by special laws (Cattle
Registration Decree)
B. WARRANTY AGAINST HIDDEN DEFECTS OR OF QUALITY
●​ Thing shall be free from any hidden faults or defects C. WARRANTY AGAINST NON-APPARENT ENCUMBRANCES
●​ Hidden defects ●​ Encumbrance (easement or servitude)
○​ Would render the thing unfit for intended use or diminish ○​ Burden imposed upon an immovable for the benefit of
its fitness another immovable belonging to a different owner
○​ To the extent that had the vendee known, he would not ●​ Warranty arises when the same is:
have acquired or would have given a lower price ○​ Not mentioned in the agreement; or
●​ Vendor not liable when: ○​ Not recorded in the Registry of Property/Deeds
○​ Defects are patent or visible ●​ Remedies, within 1 year, counted from:
○​ If not visible → vendee is an expert, who should have ○​ Rescission → from execution of deed
known ○​ Damages → from discovery
●​ Warranty of fitness of goods → implied warranty that the ●​ Not applicable to persons selling by virtue of authority
goods shall be reasonably fit when:
○​ Buyer makes known to the seller the particular purpose
for which the goods are acquired; and
○​ Buyer relies on the seller’s skills or judgment OBLIGATIONS OF THE VENDEE
●​ Contract of sale of a specified article under its patent or other
trade name → no warranty as to its fitness for any particular OBLIGATIONS OF THE VENDEE
purpose, unless there is a stipulation to the contrary A.​ To pay the price
●​ Warranty of merchantable quality → implied warranty that B.​ To accept delivery
the goods shall be of merchantable quality:
○​ Where the goods are bought by description A. TO PAY THE PRICE
○​ From a seller who deals in goods of that description ●​ At the time and place stipulated, or at the time and place of
●​ Contract of sale by sample → goods shall be free from any delivery of the thing sold
defect ●​ Vendee shall be liable for interest for the period between
●​ Other rules on warranty against hidden defects: delivery and payment of the price in the following cases:
○​ Vendor is responsible for any hidden faults or defects ○​ Stipulated
even though he was not aware thereof ○​ Thing sold and delivered produce fruits or income
○​ Implied warranty may be annexed by the usage of trade ○​ Should he be in default, from
●​ Remedies of the vendee: ●​ Suspension of payments → vendee is disturbed by a
○​ Withdraw + damages vindicatory action (accion reivindicatoria) or foreclosure of
○​ Accion quanti minoris or demand a proportionate mortgage, he may suspend payments,unless:
reduction of the price + damages ○​ Seller gives security for the return of the price;
●​ Loss of the thing with hidden defect → liability of the ○​ Stipulated;
seller: ○​ Only a mere act of trespass
○​ Cause as the defect itself: ●​ Vendor’s remedy of rescission:
■​ Price, expenses, interest (if in good faith), damages ○​ Vendee has not yet paid after delivery is made
(if in bad faith) ○​ Subject matter is immovable property
○​ Cause is a fortuitous event or fault of the vendee: ○​ There is reasonable fear of loss of the property sold and
■​ Liable to refund the price less the value at the time of its price
the loss + damages (if he was aware) ●​ However, the vendee may pay even after the expiration of the
●​ Judicial sales → same rules apply, except the judgment period, as long as no demand for rescission of the contract
debtor shall not be liable for damages has been made upon him judicially or by a notarial act
●​ Prescriptive period → 6 months from delivery
“Father, not my will, but Yours be done.” - Luke 22:42
B. TO ACCEPT DELIVERY AMOUNT TO BE PAID AT THE TIME THE RIGHT IS
●​ Delivery by installments EXERCISED
○​ Buyer is not bound to accept delivery by installments, ●​ Purchase price
unless otherwise agreed upon ●​ Expenses of the contract, and any other legitimate payments
●​ If agreed that delivery will be in installments and payments made by reason of the sale
separate and: ●​ Useful and necessary expenses (eg. fencing of land)
○​ Seller makes defective deliveries; or
○​ Buyer neglects or refuses without just cause FRUITS
●​ It depends in each case, whether the breach is:
Time of Sale Time of Effect
○​ So material as to justify breach of the entire contract; or Redemption
○​ Severable, giving rise to a claim for compensation
●​ Deemed acceptance There are There were - Purchaser paid for the fruits
○​ Buyer intimates to the seller that he has accepted visible or fruits as well existing at time of sale →
○​ He does any act which is inconsistent with the ownership growing fruits entitled to reimbursement or
of the seller pro-rating of the fruits existing at
○​ After the lapse of a reasonable time, he retains the goods time of redemption
- No indemnity paid → no
●​ Buyer’s obligation to notify the seller of breach of
liability for reimbursement
promise/warranty
○​ GR: Seller is not discharged of liability for damages or of No fruits Some exist - Prorated between the
breach of warranty redemptioner and the vendee,
○​ XPN: giving the vendee the part
■​ Agreement to the contrary corresponding to the time he
■​ Buyer fails to give notice to the seller of the breach possessed the land in the last
year, counted from the
within a reasonable times
anniversary of the date of sale
●​ Notify the seller in case of refusal
○​ Buyer refuses → not bound to return them to the seller →
sufficient to notify the seller that he refuses to accept EQUITABLE MORTGAGE → PDR sale (or even an absolute
them contract) → presumed to be an equitable mortgage when:
○​ Constitutes himself a depositary → liable ●​ Price of a PDR sale → usually inadequate
●​ Right to examine ●​ Vendor → remains in possession as lessee or otherwise
○​ Delivered goods not previously examined → ●​ When upon or after the expiration of the right to repurchase →
reasonable opportunity of examining them another instrument extending the period of redemption or
○​ Seller is bound to afford the buyer a reasonable granting a new period is executed
opportunity of examining the goods ●​ Purchaser retains for himself a part of the purchase price
○​ Terms is that the goods shall not be delivered by the ●​ Vendor binds himself to pay the taxes on the thing sold
carrier to the buyer until he has paid the price → ●​ In any other case where it may be fairly inferred
buyer is not entitled to examine the goods before the
payment of the price (COD) REMEDY FOR ABOVE
●​ Vendor’s remedy of rescission → movable property → if the ●​ Ask for the reformation of instrument
vendee upon the expiration of the period fixed for the delivery: ●​ In case of doubt → PDR shall be construed as an equitable
○​ Should not have appeared to receive it; or mortgage
○​ Having appeared, he should not have tendered the price
at the same time, unless a longer period for payment has PERIOD TO EXERCISE RIGHT OF REPURCHASE
been stipulated ●​ Agreement → cannot exceed 10 years
●​ No agreement → 4 years from date of contract
●​ Vendor may exercise right to repurchase within 30 days from
the time final judgment was rendered in a civil action
EXTINGUISHMENT OF A CONTRACT OF SALE
NO REDEMPTION/REPURCHASE WAS MADE
EXTINGUISHMENT OF A CONTRACT OF SALE ●​ Consolidation of ownership → vendee becomes absolute
●​ Sales → extinguished by the same causes as all other and resolutory condition is removed
obligations, and by conventional or legal redemption ●​ Real property → consolidation of ownership shall not be
recorded in ROP without a judicial order, after the owner has
been duly heard
●​ Personal property → consolidation of ownership is by
CONVENTIONAL REDEMPTION operation of law

CONVENTIONAL REDEMPTION VENDOR’S RIGHT OF REPURCHASE

●​ Right of repurchase ●​ Vendor may bring action against every possessor whose right
●​ Takes place when the vendor reserves the right to repurchase is derived from the vendee
the thing sold, with the obligation to return the price and ●​ Vendee is subrogated to the vendor’s rights and actions
expenses related thereto ●​ Creditors of the vendor cannot make use of the right of
●​ Pacto de retro sale redemption against the vendee, until after they have
○​ Sale with a right of repurchase exhausted the property of the vendor

OWNERSHIP MULTIPLE PROPERTIES

●​ Transfers to the vendee-a-retro upon delivery ●​ Sale of undivided immovable
●​ Not absolute but only conditional ○​ Vendee eventually acquires the whole
●​ Ownership will be terminated when vendor-a-retro exercises ○​ May compel the vendor to redeem the whole property
right to repurchase ●​ Several persons jointly and in the same contract → sell
●​ Hence, subject to a resolutory condition an undivided immovable with a right of repurchase
○​ Sellers → can redeem only their share
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Buyer → can compel redemption of the entire property;
cannot be compelled to agree to a partial redemption
●​ Co-owners sold separately
○​ Each can exercise his own right of redemption and
cannot be compelled to redeem the whole property

LEGAL REDEMPTION

LEGAL REDEMPTION
●​ Right to be subrogated, upon the same term and conditions
stipulated in the contact, in the place of one who acquires a
thing by purchase or dation in payment, or by any other
transaction whereby ownership is transmitted by onerous title

AVAILABLE TO
A.​ Co-owners
B.​ Owners of adjoining lands

A. CO-OWNERS
●​ May exercise the right in case the share of all the other
co-owners or any of them are sold to a third person
●​ May be movable or immovable property
●​ Purchase price must be paid, unless the price of alienation is
grossly excessive → pay only a reasonable one
●​ Multiple redemptioners → They may only do so in proportion
to the share they may respectively have in the thing

B. OWNERS OF ADJOINING LANDS

●​ Rural land
○​ Requisites
■​ Subject is rural land
■​ Land does not exceed one hectare (10,000 SQM)
■​ Redemptioner → owner of a land adjoining the
subject rural land
■​ Adjacent land is not separated by brooks, drains,
ravines, roads, etc. for the benefit of other estates
■​ Grantee/buyer owns a rural land
○​ Multiple redemptioners
■​ Owner of the adjoining land of smaller area shall be
preferred; and
■​ Should both lands have the same area → one who
first requested redemption
●​ Urban land
○​ Requisites for redemption and pre-emption
■​ Subject is urban land
■​ Area is so small and so situated that a major portion
cannot be used for any practical purpose within a
reasonable time, having been bought merely for
speculation
■​ The one exercising is an adjoining land owner
○​ Pre-emption
■​ Right exercised by the adjoining land owner if the
sale is not yet perfected
○​ Redemption
■​ Right exercised if the sale is already perfected
○​ Multiple persons → one whose intended use is best
justified shall be preferred

PERIOD TO EXERCISE LEGAL RIGHT OF REDEMPTION

●​ 30 days from notice in writing by the prospective vendor or by
the vendor
●​ DOS shall not be recorded in ROP unless accompanied by an
affidavit of the vendor that he has given written notice thereof
to all possible redemptioners
[4] CONSUMER PROTECTION
“Father, not my will, but Yours be done.” - Luke 22:42
CIRCUMSTANCES THAT SHALL BE CONSIDERED
●​ Took advantage because of the consumer’s inability to
understand the language of an agreement
●​ The price grossly exceeded the price at which similar
GENERAL INFORMATION
products are readily obtainable
●​ The consumer was unable to receive a substantial benefit
CONSUMER PROTECTION ACT
from the subject of the transaction
●​ Republic Act No. 7394
●​ The seller was aware that there was no reasonable probability
●​ Declaration of Basic Policy: Protect the interests of the
or payment of the obligation in full by the consumer
consumer, promote his general welfare, and establish
●​ The seller induced the consumer to enter into a transaction
standards of conduct for business and industry
that was excessively one-sided in favor of the seller
●​ Objectives:
○​ Protection against hazards to health and safety
UNFAIR OR UNCONSCIONABLE SALES ACT
○​ Protection against deceptive, unfair, and unconscionable
●​ Violates this chapter whether it occurs before, during, or after
sales acts and practices
the consumer transaction
○​ Provision of information and education to facilitate sound
choice and the proper exercise of rights by the consumer
CHAIN DISTRIBUTION PLANS
○​ Provision of adequate rights and means of redress
●​ Also known as Pyramid Sales Schemes
○​ Involvement of consumer representatives in the
●​ Sales devices whereby a person, upon condition that he
formulation of social and economic policies
makes an investment, is granted a right to recruit for profit
other persons who will also be granted such right to recruit
CONSTRUCTION
upon condition of making similar investments
●​ The best interest of the consumer shall be considered
●​ Rule: This scheme shall not be employed in the sale of
consumer products

HOME SOLICITATION SALES

PROTECTION AGAINST DECEPTIVE, UNFAIR, AND
●​ Consumer sales or leases which are personally solicited by
UNCONSCIONABLE SALES ACTS OR PRACTICES
any person by telephone, person-to-person contact, or by
written or printed communication at the buyer’s residence,
DECLARATION OF POLICY
seller’s transient quarters, or away from seller’s regular place
●​ State shall promote and encourage fair, honest, and equitable
of business
relations among parties
●​ Rule: No business shall do this without first obtaining a permit
●​ Implementing agency: Department of Trade and Industry
from DTI
(DTI)
●​ When: May be conducted only between 9:00AM and 7:00PM
of each working day
DECEPTIVE SALES ACTS OR PRACTICES
○​ May be made at a time other than the prescribed hours
●​ When concealment, false representation, or fraudulent
when the person solicited has agreed to the same
manipulation induces a consumer to enter into a sales or
●​ By whom: Shall only be conducted by a person who has the
lease transaction
proper identification and authority from his principal to make
such solicitations
DECEPTIVE WHEN IT REPRESENTS THAT
●​ Receipts: Shall be properly receipted
●​ It has the sponsorship, approval, performance,
●​ Prohibited representations → shall not represent that:
characteristics, ingredients, benefits, etc. it does not have
○​ Buyer has been specially selected
●​ It is of a particular standard, quality, grade, style, or model
○​ A survey, test, or research is being conducted
when in fact it is not
○​ Seller is making a special offer to a few persons only for a
●​ It is new, original, or unused, when it is not
limited period of time
●​ It is available for a reason that is different from the fact
●​ It is supplied in accordance with the previous
REFERRAL SALES
representation, when it is not
●​ Buyer is induced to acquire goods or services by representing
●​ It can be supplied in a quantity greater than the supplier
that after the acquisition of goods or services, he will receive a
intends
rebate, commission, or other benefit in return for the
●​ It is needed when in fact is it not
submission of names of potential customers
●​ A specific price advantage of a consumer product exists,
●​ GR: Shall not be used in the sale of consumer products
when it does not
●​ XPN: When the seller executes in favor of the buyer a written
●​ It involves or does not involve a warranty if the indication is
undertaking that will grant a specified compensation or other
false
benefit to said buyer in return for each and every transaction
●​ The seller has a sponsorship, approval, or affiliation he does
consummated with persons referred
not have
PENALTIES*
DECEPTIVE ACT
●​ Violates the act whether it occurs before, during, or after the Fine P5,000 to 1,000
transaction
Imprisonment Nor more than 1 year
UNFAIR OR UNCONSCIONABLE SALES ACT OR PRACTICE *Or both upon the discretion of the court
●​ By taking advantage of the consumer’s physical or mental
infirmity, ignorance, illiteracy, lack of time, or the general
conditions of the environment or surroundings, induces the
consumer to enter into a sales or lease transaction grossly LABELING AND FAIR PACKAGING
inimical to the interests of the consumer or grossly one-sided
in favor of the seller LABELING AND FAIR PACKAGING
●​ Declaration of Policy: Shall enforce compulsory labeling and
fair packing to enable the consumer to obtain accurate
information
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Implementing Agency: Department of Trade Industry
- Other requirements
PROHIBITED ACTS ON LABELING AND PACKAGING DRUGS - Generic Acts shall apply
●​ To display/distribute or to cause to be displayed/distributed in
commerce any consumer product whose package or label CIGARETTES - “Warning: Cigarette Smoking is Dangerous to
does not conform to the provisions hereof your Health” should be displayed
●​ Shall not apply to persons engaged in the business of
wholesale or retail distributors of consumer products, except GROUNDS TO BE MISLABELED
to the extent that such persons: ●​ Check the handout for complete list of grounds to be
○​ Are engaged in the packaging or labeling of such mislabeled for food, cosmetics, and drugs and devices
products
○​ Prescribe or specify by any means the manner in which REGULATION-MAKING EXEMPTIONS
such products are packaged or labeled ●​ Department may promulgate regulations exempting from any
○​ Having knowledge, refuse to disclose the source of the labeling requirements that are to be processed, labeled, or
mislabeled or mispackaged products repacked in substantial quantities

MINIMUM LABELING REQUIREMENTS → Applicable to all MISLABELED HAZARDOUS SUBSTANCES → Shall be deemed
consumer products sold domestically whether manufactured mislabeled when:
locally or imported: ●​ In violation of the special packaging regulations
●​ Correct and registered trade name or brand name ●​ Fails to bear a label which states conspicuously:
●​ Its duly registered trademark ○​ Name and place of the business of the manufacturer, etc.
●​ Its duly registered business name ○​ Common or usual name of the chemical name
●​ The address of the manufacturer, importer, repacker of the ○​ “Danger” on substances that are extremely flammable,
consumer product in the PH corrosive, or highly toxic
●​ Its general make or active ingredients ○​ “Warning” or “caution” with a bright red or orange color
●​ Net quality of contents, rounded off to at least the nearest with a black symbol on all other hazardous substances
tenths in the metric system ○​ A clear statement as to the possible injury it may cause
●​ Country of manufacture, if imported ○​ Precautionary measures describing the action to be
●​ If manufactured, refilled, or repacked under license from a followed or avoided
principal, the label shall also state the fact ○​ Instructions for first-aid treatment
●​ May also be required: ○​ “Poison” for any hazardous substance which is highly
○​ Whether it is flammable or inflammable toxic
○​ Directions for use ○​ Instructions for handling and storage of packages which
○​ Warning of toxicity require special care in handling and storage
○​ Wattage, voltage, or amperes ○​ “Keep out of reach of children” if not intended for use by
○​ Process of manufacture used if necessary children and is not a banned hazardous substance
●​ Fails to bear a label on which any statement required above is
PHILIPPINE PRODUCT STANDARD MARK located prominently in bright red and orange color with a black
●​ May have this if it is certified to have passed the consumer symbol in contrast typography, layout, or color
product standard prescribed
EXEMPTION
AUTHORITY TO PROVIDE FOR ADDITIONAL LABELING AND ●​ If full compliance with the labeling requirements is
PACKAGING REQUIREMENTS impracticable or not necessary for the adequate protection
●​ Whenever necessary to prevent deception or to facilitate
value comparisons, it may issue such rules and regulations to: GROUNDS FOR SEIZURE AND CONDEMNATION OF
○​ Establish and define standards for characterization of the MISLABELED HAZARDOUS SUBSTANCES
size of a package ●​ Requirements shall not apply to a hazardous substance
○​ Regulate the placement intended for export to any foreign country if:
○​ Prevent the nonfunctional slack-fill of packages ○​ It is in a package labeled in accordance with the
●​ Nonfunctional slack-fill → filled to substantially less than its specifications of the foreign purchaser
capacity for reasons other than: ○​ It is labeled in accordance with the laws of the foreign
○​ Protection of contents country
○​ Requirement of machines ○​ It is labeled on the outside of the shipping package to
○​ Inherent characteristics of package materials show that it is intended for export
○​ It is so exported
SPECIAL PACKAGING OF CONSUMER PRODUCTS FOR THE ●​ If condemned → disposed of by destruction or sale
PROTECTION OF CHILDREN ○​ If sold → proceeds less legal costs will go to the PH
●​ May establish standards for special packaging if: treasury; however, no sale can occur if it is in violation
○​ There is a degree of nature of hazard ○​ Release to owner → must be destroyed or altered under
○​ Special packaging required is technically feasible, supervision (owner will shoulder the expenses)
practicable, and appropriate
PENALTIES
ADDITIONAL LABELING REQUIREMENTS
Food, Cosmetic, - Fine of P500 to P20,000
FOOD - Expiration date Drug, Device, - Imprisonment of 3 months to 2 years
- Form (eg. semi-processed, ready-to-eat, etc.) Hazardous - Both
- Nutritive value Substance
- Ingredients are natural or synthetic
- Other requirements Not any of the - Fine of P200 to P5,000
above - Imprisonment of 1 month to 1 year
COSMETICS - Expiration date - Both
- If it may be an irritant
- Precautions or contra-indications
“Father, not my will, but Yours be done.” - Luke 22:42
CONSUMER PRODUCT AND SERVICE WARRANTY PROHIBITED ACTS
●​ Refusal without any valid legal cause
CONSUMER PRODUCT AND SERVICE WARRANTY ●​ Unreasonable delay by the local manufacturer
●​ Implementing Agency: Department of Trade and Industry ●​ Removal by any person of a product’s warranty card
●​ Applicable law: Provisions of the Civil Code ●​ Any false representation in an advertisement

ADDITIONAL PROVISIONS ON WARRANTIES PENALTIES

●​ Terms of express warranty → seller shall:
Any person who - Fine of P500 to P5,000
○​ Set the terms of warranty shall violate the - Imprisonment of 3 months to 2 years
○​ Identify the party to whom the warranty is extended provisions of - Both
○​ State the products or parts covered Article 67
○​ State what the warrantor will do in the event of a defect,
malfunction, or failure Prohibited Acts - Fine of P1,000 to P50,000
○​ Stipulate the period - Imprisonment of 1 to 5 years
●​ Express warranty → operative from moment of sale - Both
○​ Sales report → shall be reported to the manufacturer
sold within 30 days from date of purchase
■​ Report shall contain date of purchase, model, serial
number, name and address of buyer PRICE TAG REQUIREMENT
■​ Shall be equivalent to a warranty registration
○​ Failure to make or send report → relieve the PROHIBITED ACT
manufacturer of its liability under the warranty → ●​ Unlawful to offer any consumer product for retail sale to the
distributor who failed to comply shall be personally liable public without an appropriate price tag, label, or marking
(at his expense) publicly displayed
○​ Retail → retailer shall be subsidiary liable under the ●​ Said products shall not be sold at a price higher than that
warranty stated therein and without discrimination to all buyers
○​ Enforcement of warranty or guarantee → warranty
rights can be enforced by presentment of a claim REQUIREMENTS
■​ Warranty card or receipt, along the product ●​ Lumber → price and corresponding official name of the wood
■​ Immediate seller is manufacturer’s factory or ●​ Small consumer products → a price list placed at the nearest
showroom → immediately honored point where the products are displayed
■​ Distributor → immediately honor
■​ Retailer other than the distributor → take MANNER OF PLACING PRICE TAGS
responsibility without cost to the buyer of presenting ●​ Must be written clearly, indicating the price of the product per
the warranty claim to the distributor unit in pesos and centavos
○​ Record of purchases → distributors and retailers shall
keep a record of all purchases covered by warranties REGULATIONS FOR PRICE TAG PLACEMENT
●​ Designation of warranties ●​ No erasures or alterations of any sort of price tags, labels, or
○​ Full warranty → meets the minimum requirements markings
○​ Limited warranty → does not meet such minimum
requirements PENALTIES*
●​ Minimum standards for warranties
Fine P200 to P5,000
○​ Remedy such product within a reasonable time
○​ Permit the consumer to ask for a refund or replacement Imprisonment 1 month to 6 months, or both
●​ Warrantor is not required to perform if defect was caused by
damage due to unreasonable use thereof *Second conviction → penalty of revocation of business permit
●​ Duration of warranty and license
○​ Seller and consumer may stipulate
■​ If implied warranty accompanies an express
warranty, both will be of equal duration
○​ Any other implied warranty → shall endure not less than
60 days nor more than 1 year following the sale PHILIPPINE LEMON LAW
●​ Breach of warranties ●​ RA No. 10642: An Act Strengthening Consumer Protection in
○​ Express warranty → consumer may have it repaired or the Purchase of Brand New Motor Vehicles
its purchase price refunded ●​ Declaration of policy: Full protection to the rights of
■​ Repair → must be made within 30 days or extended consumers in the sale of motor vehicles
if conditions are beyond the control of the warrantor
■​ Refund → amount attributable to the use of the REQUISITES TO INVOKE LEMON LAW RIGHTS
consumer prior to discovery of conformity is ●​ Brand new motor vehicles
deducted ●​ Purchased in the Philippines
○​ Implied warranty ●​ Reported to be in nonconformity with the vehicle’s
■​ Retain the goods and recover damages; or manufacturer or distributor’s standards or specifications
■​ Reject the goods, cancel the contract, and recover ●​ Within 12 months from the date of original delivery to the
from the seller so much of the price as has been paid consumer, or up to 20,000 kilometers of operation after such
delivery, whichever comes FIRST
PROFESSIONAL SERVICES ●​ Repair attempts
●​ Provisions shall not apply to professional services
MOTOR VEHICLES
GUARANTY OF SERVICE FIRMS ●​ Any self-propelled, 4 wheeled road vehicle designed to carry
●​ Shall guarantee workmanship and replacement of spare parts passengers
for a period not less than 90 days
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Including: Sedans, coupes, station wagons, convertibles, ■​ Accept or return the motor vehicle and pay the
pick-ups, vans, sports utility vehicles (SUVs) and Asian Utility consumer purchase price + collateral charges
Vehicles (AUVs) ■​ Consumer wants to purchase another vehicle with
●​ Excluding: Motorcycles, delivery trucks, dump trucks, buses, higher value → consumer shall pay the difference in
road rollers, trolley cars, street sweepers, sprinklers, lawn cost
mowers and heavy equipment ■​ In replacement and repurchase → reasonable
●​ Trailers having any number of wheels, when propelled or allowance for use shall be deducted in determining
intended by attachment to a motor vehicle, shall be classified the value of the nonconforming motor vehicle
as separate motor vehicle with no power rating ○​ Rule in favor of manufacturer → direct the consumer to
reimburse the costs incurred by the manufacturer
NONCONFORMITY ■​ Appeal may be taken
●​ Any defect or condition that substantially impairs the use, ■​ Secretary shall decide on the appeal within 30 days
value, or safety of a brand new motor vehicle from receipt thereof
●​ Prevents it from conforming to the manufacturer’s or
distributor’s standards or specifications DETERMINATION OF REASONABLE ALLOWANCE FOR USE
●​ Which cannot be repaired ●​ Lower between:
●​ Excluding ○​ 20% per annum deduction from the purchase price; or
○​ Conditions resulting from noncompliance by the ○​ Distance traveled in kilometers
consumer of their obligations under warranty 100,000 kilometers
○​ Modifications not authorized
○​ Abuse or neglect DISCLOSURE ON RESALE
○​ Damage due to accident or force majeure ●​ When made available for resale, disclose in writing to the next
purchaser the following information:
REPAIR ATTEMPTS ○​ Motor vehicle was returned
●​ At any time within the Lemon Law rights period, and after at ○​ Nature of the nonconformity
least 4 separate repair attempts for the same complaint ○​ Condition at the time of the transfer to the manufacturer
remains unresolved ●​ Responsibility of the manufacturer shall cease upon the sale
●​ Repair may include replacement of parts, components, or of the affected motor vehicle
assemblies
PENALTY
NOTICE OF AVAILMENT ●​ If in violation, shall be liable to pay a minimum amount of
●​ Consumer shall, in writing, notify the manufacturer of the P100,000 as damages to the aggrieved party
unresolved complaint and the consumer’s intention to invoke
their rights within the Lemon Law
●​ Warranty booklet
○​ Shall clearly state the manner and form of such notice to
constitute a valid and legal notice
○​ Shall also clearly state the responsibility of the consumer

AVAILMENT OF LEMON LAW RIGHTS

●​ Subsequent to filing the notice of availment, consumer shall
bring the vehicle to the manufacturer for a final attempt to
address the complaint
●​ Duty of the manufacturer to attend to the complaints
●​ Nonconformity issue remains unresolved → consumer
may file a complaint before the DTI
●​ Deemed successful repair
○​ Not returned for repair within 30 calendar days from the
date of notice of release → repair is deemed successful
○​ If nonconformity issue still exists or persists after the 30
day period but still within the Lemon Law rights period →
consumer may be allowed to invoke his rights under it

COMPENSATION FOR NON-USE

●​ Consumer shall be provided a reasonable daily transportation
allowance → covers the transportation of the consumer from
their residence to their regular workplace or destination and
vice versa, equivalent to:
○​ Air-conditioned taxi fare, as evidenced by official receipt
○​ Amount agreed upon by parties
○​ Service vehicle at the option of the manufacturer

REMEDIES FOR DISPUTE RESOLUTION

●​ Mediation
○​ All disputes submitted for mediation shall be settled not
later than 10 working days from the date of filing
●​ Arbitration
●​ Adjudication
○​ In no case shall adjudication proceedings exceed 20
working days
○​ Nonconformity → direct the manufacturer:
■​ Replace the motor vehicle
[5] SECRECY
“Father, not my will, but Yours be done.” - Luke 22:42
PENALTIES FOR VIOLATION
Peso deposits - Imprisonment: Not to exceed 5 years
- Fine: Not to exceed P20,000
PURPOSE: RA 1405, AS AMENDED
●​ Discourage private hoarding Foreign currency - Imprisonment: 1 to 5 years
deposits - Fine: P5,000 to P25,000
●​ Encourage the people to deposit their money in banking
institutions

PROHIBITED ACTS
●​ Bank (any official or employee or independent auditor) → to
disclose to any person other than a bank director, official, or
employee authorized, any information concerning deposits
●​ Any person, including the government → to inquire,
examine, or look into bank deposits or bonds issued by the
government

DEPOSITS COVERED
●​ All deposits of whatever nature, including trust accounts
●​ Investments in bonds issued by the PH government, its
political subdivisions and instrumentalities

EXCEPTIONS → PESO DEPOSITS

●​ Written permission of the depositor or investor
●​ Impeachment cases
●​ Order of a competent court in cases:
○​ Bribery or dereliction of duty of public officials (including
plunder)
○​ Money deposited/invested is subject of litigation
○​ Unexplained wealth under RA 3019
●​ Inquiry by the commissioner of BIR for determining the net
estate of a deceased depositor
●​ Upon order of a competent court or in proper cases by AMLC
●​ Reports
○​ Disclosure to the Treasurer for unclaimed balances
○​ Report of banks to AMLC of covered and/or suspicious
transactions
●​ Ombudsman → subpoena and subpoena duces tecum
○​ There must be a case pending
○​ Account must be clearly identified
○​ Inspection must be limited to the subject matter
○​ Bank personnel and account holder must be notified to be
present during the inspection
●​ Terrorism cases
●​ Examination
○​ Monetary Board (BSP)
○​ PDIC
○​ COA
○​ PCGG
●​ Examination made by an independent auditor

EXCEPTIONS → FOREIGN CURRENCY DEPOSITS

●​ There is written consent of depositor
●​ Under Section 11 of the AMLA
●​ Under Section 27 and 28 of the Human Security Act
●​ Examination by the BSP, PDIC, PCGG, COA, and
independent auditor

GARNISHMENT
●​ Bank accounts may be garnished by the creditors of the
depositor
●​ No violation of the bank secrecy law since the amount of
deposit is not actually disclosed
●​ Deposits exempt:
○​ Foreign currency deposits, Section 8 of RA 6426 (except
for transient foreigners)
○​ Those exempt under Rules of Court
[6] PDIC
“Father, not my will, but Yours be done.” - Luke 22:42
PERIOD TO FILE AND ENFORCE CLAIM
●​ Period to file claim → 2 years from actual takeover of the
closed bank
●​ Period to enforce claim → 2 years after the 2-year period to
FUNCTIONS
file a claim
●​ Deposit insurer → promote and safeguard the interests of the
depositing public
PROOF OF CLAIM
●​ Co-regular of banks → empowered to examine and
●​ PDIC may require proof of claims before paying
investigate banks
●​ Not satisfied → may require final determination of a court of
●​ Receiver and liquidator of closed banks → control, manage,
competent jurisdiction before paying such claim
and administer the affairs of the bank
EFFECTS OF NON-FILING OR NON-ENFORCEMENT OF
INSURED DEPOSIT
CLAIM WITHIN THE PERIODS ABOVE
●​ Amount due to any bona fide depositor for legitimate deposits
●​ All rights of the depositor against the PDIC with respect to the
in an insured bank net of any obligation of the depositor to the
insured deposit shall be barred
insured bank as of the date of closure, but not to exceed
●​ All rights of the depositor against the closed bank shall revert
P1,000,0000 (effective March 15, 2025, previously P500,000)
to the depositor
●​ PDIC shall be discharged from any liability on the insured
COVERAGE
deposit
●​ The deposit liabilities of any bank or banking institution
MODES OF PAYMENT
DEPOSIT ACCOUNTS NOT ENTITLED TO PAYMENT
●​ Cash
●​ Deposit products that resulted from splitting of deposit →
●​ By making available to each depositor a transferred deposit in
occurs whenever:
another insured bank in an amount equal to insured deposit of
○​ A deposit account with an outstanding balance of more
such depositor
than P500,000 is broken down and transferred to two or
more accounts in the name of persons/entities who have
EFFECT OF PAYMENT
no beneficial ownership in the transferred deposits
●​ PDIC shall be subrogated to all rights of the deposit against
○​ Within 120 days immediately preceding or during a
the closed bank to the extent of such payment
bank-declared bank holiday or immediately preceding a
closure order issued by the MB
PREFERENCE
○​ For the purpose of availing the maximum deposit
●​ All payments by PDIC of insured deposits partake the nature
insurance coverage
of public funds → must be considered a preferred credit
○​ Considered a criminal act → imprisonment of not less
similar to taxes due to the NG, in the order of preference upon
than 6 years but not more than 12 years or a fine of not
liquidation proceedings
less than P50,000 but not more than P10,000,000, or
both at the discretion of court
PERIOD FOR THE PDIC TO SETTLE CLAIM
●​ Deposit products or money placements by the head office of a
●​ 6 months from the date of filing of the claim
foreign bank in its branch in the PH
●​ PDIC incurs delay → subjects the directors, officers, or
●​ Deposits that are determined to be the proceeds of an
employees of PDIC to imprisonment from 6 months to 1 year
unlawful activity under AMLA
●​ XPN: Shall not apply if the validity of the claim requires the
●​ Deposits payable in a place outside the PH
resolution of issues of facts and/or law
●​ Deposit accounts/transactions which are unfunded and that
are fictitious or fraudulent
●​ Deposit accounts/transactions emanating from unsafe and
unsound banking practices
●​ Investment products such as bonds and securities, trust
accounts, and other similar instruments

DETERMINATION OF THE AMOUNT DUE

●​ Per bank
○​ Entitlement to deposit insurance is on a per bank basis
●​ Per depositor, per capacity rule
○​ Accounts “By”, “In Trust For (ITF)”, or “For the Account Of
(FAO)” another person:
■​ In a “By” account (A by B) → A is the depositor
■​ In an “ITF” account (A ITF B) → B is the depositor
■​ In a “FAO” account (A FAO B) → B is the depositor
●​ Joint accounts
○​ Conjunctions “and”, “or”, “and/or” → insured separately
from any individually-owned deposit account
○​ Two or more natural persons or two or more juridical
persons/entities → divided into as many equal shares
as there are individuals, juridical persons/entities, unless
there is another stipulation
○​ Juridical person/entity jointly with 1 or more natural
persons → belong entirely to such juridical person/entity
○​ Aggregate of the interest of each co-owner over several
joint accounts → likewise be subject to the maximum
insured deposit of P1,000,000
[7] AMLA
“Father, not my will, but Yours be done.” - Luke 22:42
in excess of P25,000,000 per taxable year for each tax type;
willful misrepresentation or malicious intent; AMLC cannot
institute forfeiture proceedings if the same has been
recovered by BIR
MONEY LAUNDERING → any monetary instrument or
37.​ Felonies or offenses of a similar nature that are punishable
property represents the proceeds of any unlawful activity:
under the penal laws of other countries
●​ Transacts or attempts to transact said monetary instrument or
property
COVERED ENTITIES
●​ Converts, transfers, disposes of, moves, acquires, possesses
1.​ Supervised and/or regulated by the BSP
or uses said monetary instrument or property
2.​ Supervised and/or regulated by the SEC
●​ Conceals or disguises the true nature, source, location,
3.​ Supervised and/or regulated by the Insurance Commission
disposition, movement or ownership of or rights with respect
4.​ Securities dealers, brokers, etc.
to said monetary instrument or property
5.​ Mutual funds or open-end investment companies
●​ Attempts or conspires to commit money laundering offenses
6.​ Jewelry dealers for transactions in excess of P1,000,000
referred to above
7.​ Foreign exchange corporations
●​ Aids, abets, assists in or counsels the commission of the
8.​ Casinos
money laundering offenses referred to above
9.​ Company service providers to 3rd parties including CPAs and
●​ Performs or fails to perform any act as a result of which he
Lawyers
facilitates the offense of money laundering referred to above
10.​ Persons providing services including CPAs and Lawyers
●​ Those committed by failure to report to the AMLC by any
11.​ Real Estate Developers and Brokers
covered person knowing that a covered or suspicious
12.​ Offshore Gaming Operators and their Service Providers
transaction is required under the Anti-Money Laundering Law
to be reported thereto
LAWYERS AND ACCOUNTANTS
●​ Acting as independent legal professionals are not covered
STAGES OF MONEY LAUNDERING
with respect to privileged information covered by
●​ Placement → inserts dirty money
confidentiality and attorney-client relationship
●​ Layering → sending money through various transactions to
change its form and make it more difficult to follow
OBLIGATIONS OF COVERED INSTITUTIONS
●​ Integration → money re-enters mainstream economy
●​ Customer identification
●​ Record keeping → 5 years from date of transactions
UNLAWFUL ACTIVITIES
●​ Reportorial requirements
1.​ Kidnapping for ransom
○​ Covered transactions
2.​ Certain sections of Comprehensive Dangerous Drugs Act (RA
■​ Within 5 WDs from occurrence, unless AMLC
9165)
prescribes a longer period not exceeding 15 WDs
3.​ Certain sections of Anti-Graft and Corrupt Practices Act
■​ Total amount in excess of P500,000 within 1 BD
4.​ Plunder
■​ Casinos → in excess of P5,000,000
5.​ Robbery and extortion
■​ Real estate developers/brokers → single cash
6.​ Jueteng and masiao
transaction involving an amount in excess of
7.​ Piracy on the seas
P7,500,000
8.​ Qualified theft
○​ Suspicious transactions
9.​ Swindling or estafa
■​ Promptly file suspicious transaction reports within the
10.​ Smuggling
next working day from occurrence
11.​ Violations of Electronic Commerce Act
■​ Regardless of the amount, any suspicious indicator
12.​ Hijacking and other violations
exist
13.​ Destructive arson and murder
○​ If both covered and suspicious → reported as suspicious
14.​ Terrorism and conspiracy to commit terrorism
○​ Shall not be considered a violation of bank secrecy laws
15.​ Financing of terrorism
and similar laws
16.​ Bribery and Corruption of Public Officers
17.​ Frauds and Illegal Exactions and Transactions
SAFE HARBOR
18.​ Malversation of Public Funds and Property
●​ No proceedings shall lie against any person for having made
19.​ Forgeries and counterfeiting
a transaction report in the regular performance of his duties
20.​ Anti-trafficking in Persons Act
and in good faith
21.​ Revised Forestry Code
22.​ Philippine Fisheries Code of 1998
ANTI-MONEY LAUNDERING COUNCIL → composed of:
23.​ Philippine Mining Act of 1995
●​ Chairman → BSP Governor
24.​ Wildlife Resources Conservation and Protection Act
●​ Members
25.​ National Caves and Cave Resources Management Act
○​ Commissioner of Insurance Commission
26.​ Anti-Carnapping Act of 2002
○​ Chairman of SEC
27.​ Illegal/unlawful possession, manufacture, dealing in,
acquisition or disposition of firearms, ammunition, or
FREEZING OF MONETARY INSTRUMENT OR PROPERTY
explosives
●​ Court of Appeals, upon application ex parte by AMLC → may
28.​ Anti-fencing Law
issue a freeze order which shall be effective immediately
29.​ Migrant Workers and Overseas Filipinos Act of 1995
(unless extended by the Court, maximum period is 6 months)
30.​ Intellectual Property Code
●​ AMLC may apply to freeze monetary instruments or properties
31.​ Anti-photo and Video Voyeurism Act of 2009
in the names of reported owners/holders, including all other
32.​ Anti-child Pornography Act of 2009
related web of accounts
33.​ Special Protection of Children Against Abuse, Exploitation,
●​ Related web accounts → originated from and/or are
and Discrimination
materially linked to the monetary instruments or properties
34.​ Securities Regulation Code of 2000
subject to the freeze orders
35.​ Violation of Sec. 19(a)(3) of RA 10697 (Strategic Trade
●​ Authority to inquire bank deposits → AMLC may inquire
Management Act)
into deposits upon order of the court when there is probable
36.​ Violations of Section 254 of Chapter II of Title X of the NIRC
(Tax evasion) → where the basic tax in the final assessment is
“Father, not my will, but Yours be done.” - Luke 22:42
cause that the deposits are related to the crime or unlawful
activities
●​ Court order is not necessary for:
○​ Kidnapping for ransom
○​ Comprehensive Dangerous Drugs Act
○​ Hijacking and other violations, destructive arson and
murder, including those perpetrated by terrorists
○​ Terrorism and conspiracy to commit terrorism
●​ Inquiry into deposits may be availed of even in the absence of
a pre-existing criminal case under the same law
●​ Order authorizing bank inquiry cannot be issued ex parte
[8] TILA
“Father, not my will, but Yours be done.” - Luke 22:42

RA NO. 3765
●​ An act to require the disclosure of finance charges in
connection with extensions of credit

DECLARATION OF POLICY
●​ To protect its citizens from a lack of awareness of the true cost
of credit to the user by assuring a full disclosure of such cost
●​ To avoid circumvention of usury law
●​ BSP Circular No. 755 Series of 2012: Objective of transparent
pricing → not to set limits on rates, but rather to make such
rates more understandable, comparable, and known to the
client

REQUIRED INFORMATION
●​ Any creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a
clear statement in writing setting forth:
○​ Cash price or delivered price of the property/service to be
acquired
○​ Amounts to be credited as downpayment and/or trade-in
○​ Difference between the above amounts
○​ Charges
○​ Total amount to be financed
○​ Finance charge expressed in terms of pesos and
centavos
○​ Percentage that the finance charge bears to the total
amount to be financed as a simple annual rate
●​ Section 5 of BSP CN 755, the following are required:
○​ Total amount to be financed
○​ Finance charge expressed in terms of pesos and
centavos
○​ Net proceeds of the loan
○​ Percentage that the finance charge bears to the total
amount to be financed expressed as a simple annual rate
or an effective annual interest rate
●​ All registered CGEs → shall furnish each borrower with a
copy of the disclosure statement, prior to the consummation of
the transaction
●​ Disclosure statement → shall be a required attachment to
the loan contract and the customer has a right to demand a
copy of such disclosure
●​ Loan documents and marketing materials → shall show
repayment schedules in a manner consistent with BSP CN
755
●​ Posters → banks shall post in conspicuous places in their
principal place of business and branches, the information
contained in the revised format of disclosure statement

PENALTIES
●​ Any creditor with any credit transaction that fails to disclose
○​ Whichever is greater between:
■​ In the amount of P100; or
■​ In an amount equal to twice the finance charged
required by such creditor in connection with such
transaction, up to a maximum of P2,000 on any
credit transaction
○​ Prescriptive period → within one year from the date of
the occurrence of the violation
○​ Costs → creditor shall be liable for reasonable attorney’s
fees and court costs
●​ Any person who willfully violates any provision
○​ Subject to:
■​ Fine of not less than P1,000 or more than P5,000; or
■​ Imprisonment for not less than 6 months, nor more
than one year; or both
●​ Shall not apply to the PH government or any agency or
political subdivision thereof
[9] BP 22
“Father, not my will, but Yours be done.” - Luke 22:42
LIABLE FOR BOTH ESTAFA AND BP 22
●​ Single act can give rise to Estafa and at the same time to
violation of BP 22 → no double jeopardy → reasons:
○​ BP 22 → special law; Estafa → RPC
ANTI-BOUNCING CHECKS LAW
○​ BP 22 → malum prohibitum (not inherently wrong); Estafa
●​ BP 22
→ malum in se (inherently wrong)
○​ Elements are not the same
ELEMENTS OF VIOLATION
●​ Making, drawing, and issuance of any check to apply for
account or for value
●​ Knowledge of the maker, drawer, or issuer that at the time he
does not have sufficient funds in or credit with the drawee
bank for the payment of the check in full upon its presentment
●​ Subsequent dishonor of check by the drawee bank for
insufficiency of funds or credit or would have been dishonored
for the same reason had not the drawer, without any valid
cause, ordered the bank to stop payment

KNOWLEDGE OF THE MAKER/DRAWER

●​ Making, drawing, and issuance of a check payment which is
refused of by the drawee because of insufficient funds in or
credit with such bank, when presented within 90 days from the
date of the check → prima facie evidence of knowledge of
such insufficiency of funds or credit

VALID DEFENSE
●​ Payment
●​ Requirement of notice
○​ Not liable if he pays the holder the amount due, within 5
banking days after receiving notice that such check has
not been paid by the drawee

DUTY OF THE DRAWEE

●​ To cause to be written, printed, or stamped in plain language
thereon, or attached thereto, the reason for drawee’s dishonor
or refusal to pay the same
●​ No sufficient funds → explicitly stated in the notice of dishonor
or refusal

CREDIT CONSTRUED
●​ Arrangement or understanding with the bank for the payment
of such check

EFFECT OF ACQUITTAL ON CIVIL LIABILITY

●​ Acquittal does not entail the extinguishment of the civil liability
for the dishonored checks
●​ Acquittal based on lack of proof beyond reasonable doubt →
does not preclude the award of civil damages

PENALTY
●​ Imprisonment → not less than 30 days but not more than 1
year
●​ Fine → not less than but not more than double the amount of
the check, which shall not exceed the amount of P200,000
●​ Both, at the discretion of the court

PRESCRIPTIVE PERIOD
●​ 4 years from the commission of the offense, or from the
discovery (dishonor of check) thereof

ESSENTIAL ELEMENTS OF ESTAFA

●​ PDC or issued in payment
●​ Lack or insufficiency of funds
●​ Damage to the payee

DIFFERENCE WITH ESTAFA

●​ Good faith is a defense in estafa
●​ Payment of a pre-existing obligation
●​ Estafa may be committed by merely issuing a worthless check
●​ Period to make good the check → estafa (3 days), BP 22 (5
days)
[11] PLEDGE AND MORTGAGE
“Father, not my will, but Yours be done.” - Luke 22:42

SIMILARITIES BETWEEN PLEDGE, REAL ESTATE

MORTGAGE, AND CHATTLE MORTGAGE

REQUISITES OF CONTRACTS OF PLEDGE AND MORTGAGE

●​ Constituted to secure the fulfillment of a principal obligation
●​ Pledgor/mortgagor be the absolute owner (at the time of
perfection of the contract of pledge or mortgage) of the thing
pledged or mortgaged
●​ Persons constituting the pledge or mortgage have the free
disposal of their property or that they be legally authorized
●​ When the principal obligation becomes due, the things in
which the pledge or mortgage consists may be alienated for
the payment of the creditor

ACCESSORY CONTRACT
●​ Pledge or mortgage → cannot exist without a valid obligation
or a principal contract

PLEDGE OR MORTGAGE
●​ May be constituted to guarantee the performance of a
voidable or an unenforceable contract
●​ May also guarantee a natural obligation

KINDS OF PRINCIPAL OBLIGATIONS THAT MAY BE

SECURED BY A PLEDGE OR MORTGAGE
1.​ Pure obligation
2.​ Obligation with a suspensive/resolutory period
3.​ Conditional obligations whether suspensive/resolutory
4.​ Natural obligations
5.​ Rescissible obligations
6.​ Voidable obligations
7.​ Unenforceable obligations

VOID OBLIGATIONS
●​ May not be secured by a pledge or mortgage → no obligation
that could arise

PACTUM COMMISSORIUM
●​ Stipulation whereby the thing pledged or mortgaged shall
automatically become the property of the creditor in the event
of non-payment of the secured debt within the term fixed
●​ Null and void → contrary to law and public policy
[12] FRIA
“Father, not my will, but Yours be done.” - Luke 22:42
from making any payment outside the necessary expenses of
the business
●​ Coverage: Individual insolvent debtor under technical
insolvency → file in the court of the city/province they resided
OVERVIEW
6 months prior
●​ Purpose: To suspend or delay the payment of debts
DECLARATION OF POLICY:
○​ Amount of indebtedness is not affected
●​ To encourage debtors, both juridical and natural persons, and
○​ Number of creditors is immaterial
their creditors to collectively and realistically resolve and
●​ Attachments: Schedule of debts and liabilities, inventory of
adjust competing claims and property rights
assets, and proposed agreement to creditors
NATURE → JINS
SUSPENSION ORDER
●​ Jurisdiction → acquired through publication in a general
●​ Court may issue an order suspending any pending execution
circulation newspaper in the PH
against the individual debtor
●​ In rem → binding against the whole world
●​ GR: No creditor shall sue or institute to collect from filing and
●​ Non-adversarial
for as long as the proceedings remain pending
●​ Summary
●​ XPN:
○​ Claims for personal labor, maintenance, and expenses for
DEBTORS
illness and funeral of wife and children incurred in the 60
A.​ Classifications → PICS
days immediately prior to the filing of petition
●​ Partnerships (SEC-registered), Individual debtors (Resident,
○​ Secured creditors
citizen), Corporation (Organized in the PH/domestic), Sole
●​ Shall lapse when 3 months have lapsed without the
proprietorship (DTI-registered)
agreement being accepted or as soon as such is denied
B.​ Group of debtors → FPS
●​ Financially-related corporations (PSAff), Partnerships (>50%
PROHIBITED ACTS OF DEBTOR → After filing and during
owned by same person), Single proprietorships (Same owner)
pendency, the debtor cannot:
C.​ Excluded debtors → BPIG
●​ Dispose in any manner his property, except those used in the
●​ Banks, pre-need companies, insurance companies,
business and making any payment outside of the necessary
government agencies and units
expenses of the business
INSOLVENCY
CREDITORS’ MEETING
●​ Financial condition of a debtor
●​ Quorum: Presence of creditors holding at least ⅗ of the
●​ Kinds:
liabilities of the debtor
○​ Technical insolvency → unable to pay liabilities as they
●​ Approval → double majority is required:
fall due
○​ ⅔ of the creditors voting; and
○​ Actual insolvency → liabilities are greater than assets
○​ Claims of the majority vote amount to at least ⅗ of the
total liabilities
CREDITORS
●​ Creditor whose claim is incurred within 90 days to the
●​ Natural or juridical persons which has a claim against the
filing of petition → not entitled to vote
debtor that arose on or before commencement date
●​ Disapproval → shall be at liberty to enforce their rights
●​ May be unsecured (neither secured, preferred, nor
subordinated) or secured (claims are secured by a lien)
●​ Claim
○​ All claims or demands of whatever nature or character
REHABILITATION
○​ May be claims from government (tax, tariff, custom
duties) or claims against directors and officers of the
REHABILITATION
debtor from acts done in the discharge of function (third
●​ Restoration of the debtor to a condition of successful
parties can still file cases against them acting in their
operation and solvency
personal capacities)
●​ Continuance of operation is economically feasible, creditor
can recover by PV of payments, more if the debtor continues
PROCEEDINGS COVERED
as a going concern than liquidated
A.​ Suspension of payments
B.​ Rehabilitation
TYPES OF REHABILITATION
C.​ Pre-negotiated rehabilitation
A.​ Voluntary → initiated by the debtor:
D.​ Out of court rehabilitation
●​ Filed by owner/proprietor (SP), majority of partners (P),
E.​ Liquidation
majority of the directors/trustees AND stockholders
representing ⅔ of outstanding capital/members (C)
REMEDIES AVAILABLE TO OR AGAINST AN INSOLVENT
B.​ Involuntary → initiated by the creditor/group of creditors:
DEBTOR:
●​ No payment have been made for at least 60 days; or
A.​ Individual insolvent debtor
●​ Debtor has failed to meet liabilities as they are due; or
●​ File a petition for suspension of payment
●​ A creditor (other than the one who filed) has initiated
●​ File or subject to a petition for liquidation
foreclosure proceedings
B.​ Juridical insolvent debtor
●​ Filed by creditor/group of creditors with aggregate claims of at
●​ File or be subject of a petition for rehabilitation
least P1,000,000 or 25% of the subscribed capital stock or
●​ File or be subject of a petition for liquidation
partners’ contributions, whichever is higher

COMMENCEMENT ORDER / STAY ORDER

●​ Purpose:
SUSPENSION OF PAYMENTS
○​ Suspend all actions or proceedings for the enforcement
of claims
SUSPENSION OF PAYMENTS
○​ Suspend all actions to enforce any judgment
●​ Involves calling the creditors to a meeting to propose and
agree on a schedule of payments and to prevent the debtor
“Father, not my will, but Yours be done.” - Luke 22:42
○​ Prohibit the debtor from disposing its properties, except in ●​ Approval required:
the business ○​ Creditors representing more than 50% of total claims and
○​ Prohibit the debtor from making any payments except the confirmation of court; or
provided for by the law ○​ The court, without approval of the creditors or even over
●​ Commencement date → date when the court issues the their objections, if all are present:
Commencement Order retroactive to the date of filing ■​ Complies with FRIA re​requirements
●​ Issued within 5 days from the filing of petition ■​ RR recommends the confirmation
●​ Duration: Entire duration of the rehabilitation proceeding but ■​ The shareholders, owners, etc. of the juridical debtor
may be lifted if there is no substantial likelihood for the debtor lost at least their controlling interest as a result
to be successfully rehabilitated ■​ RP would likely provide the creditors with
compensation which has NPV greater than they
EFFECT OF STAY ORDER ON SECURED CREDITS would have received if the debtor were under
●​ Preference of creditors is retained, but enforcement of such liquidation
preference is suspended ●​ Submission: If RP is approved, the RR shall submit to the
court
EXCEPTIONS TO THE STAY ORDER ○​ Within 5 days from receipt, the court shall notify the
1.​ Supreme court creditors
2.​ Specialized courts ●​ Objection: May be filed within 20 days from receipt of notice
3.​ Securities market claims ●​ Confirmation:
4.​ Clearing agency claims ○​ If no objections are filed
5.​ Criminal actions ○​ If objections are filed but lack in merit
6.​ Third party claims → sureties and solidary co-debtors, ○​ Court determines that the basis for objection has been
accommodation mortgagors, letter of credit issuers cured
7.​ Licensed broker claims (sale of pledged securities) ○​ Court determines that the debtor has complied with an
order to cure the objection
COURT ACTIONS ●​ Period of confirmation: Within 1 year from the date of filing
●​ Give due court to the petition the petition
●​ Deny the petition ○​ If no plan is confirmed within the period, proceedings may
●​ Convert the proceedings to liquidation upon motion (motu propio) be converted into one for the
liquidation
WHO WILL MANAGE THE BUSINESS OF THE DEBTOR? ●​ Cram down effect (in rem) → binding upon the debtor and
●​ Existing board and/or management all persons who may be affected by it
●​ Upon court appointment: Rehabilitation Receiver or
Management Committee
○​ Grounds for appointment:
■​ Danger of dissipation, loss, etc. of debtor’s assets PRE-NEGOTIATED REHABILITATION
■​ Paralyzation of the business operations
■​ Gross mismanagement, fraud, or other wrongful act PRE-NEGOTIATED REHABILITATION
●​ May be approved by the court if it is approved or endorsed by
REHABILITATION RECEIVER creditors holding at least ⅔ of the total liabilities, including:
●​ Duties: ○​ Secured creditors → more than 50% of the total
○​ Preserving value of assets of the debtor secured claims; and
○​ Determining the viability of rehabilitation ○​ Unsecured creditors → more than 50% of the total
○​ Preparing and recommending a Rehabilitation Plan to the unsecured claims
court
○​ Implementing the approved Rehabilitation Plan ISSUANCE OF ORDER
●​ Who may serve? ●​ Within 5 working days and after determining that the petition is
○​ Natural person or juridical person (must designate a sufficient in form and substance
natural person)
●​ Qualifications: APPROVAL OF THE PLAN
○​ Citizen of the PH ●​ Within 10 days from the date of the second publication of the
○​ Resident in the 6 months immediately preceding order, unless there is an objection
○​ Has requisite knowledge of insolvency and commercial
laws GROUNDS FOR OBJECTION
○​ No conflict of interest ●​ Not later than 8 days from the date of the second publication
●​ Hearing → shall not be earlier than 20 days and no later than
MANAGEMENT COMMITTEE 30 days from the date of the second publication of the order
●​ Shall take the place of management and the governing body
and assume their rights and responsibilities COURT ACTIONS
●​ Direct the debtor to cure the defect if the court finds merit in
CREDITORS’ COMMITTEE the objection
●​ Role: To assist the rehabilitation receiver in communicating ●​ Convert the proceedings into liquidation if:
with the creditors and shall be the primary liaison between the ○​ Debtors/creditors are in bad faith; or
RR and the creditors ○​ Objection is non-curable
●​ Cannot exercise or waive any right or give any consent on ●​ Approve the plan if objection has no merit or has been cured
behalf of any creditor unless specifically authorized in writing
PERIOD FOR APPROVAL OF REHABILITATION PLAN
REHABILITATION PLAN ●​ Court shall have a maximum period of 120 days from the date
●​ Plan by which the financial well-being and viability of an of the filing of the petition to approve the RP
insolvent debtor can be restored using various means (eg. ●​ Deemed approved if court fails to act within said period
debt forgiveness, rescheduling, reorganization, etc.) as may
be approved by the court or creditors
“Father, not my will, but Yours be done.” - Luke 22:42
OUT-OF-COURT REHABILITATION RIGHTS OF SECURED CREDITORS
●​ Liquidation will not affect their right to enforce their lien; he
MINIMUM REQUIREMENTS may:
●​ Debtor must agree; ○​ He may waive his right to join the liquidation
●​ Approved by creditors: ○​ Maintain his rights his rights
○​ Representing at least 67% of the secured obligations; ■​ Value is less than the claim → may be admitted in
○​ Representing at least 75% of the unsecured obligations; liquidation as a creditor for the balance
○​ Holding at least 85% of the total liabilities, secured and ■​ Value exceeds his claim → waive the debtor’s right
unsecured of redemption upon receiving the excess from the
creditor
STANDSTILL PERIOD ○​ Liquidator may sell and satisfy entire claim
●​ May be agreed upon by the parties pending negotiation and ○​ SC may enforce the lien and foreclose the property
finalization of the out-of-court or informal restructuring/workout
agreement LIQUIDATOR
●​ It shall be effective and enforceable not only against the ●​ May be removed at any time
contracting parties but also against the other creditors, if:
○​ Such is approved by creditors representing more than LIQUIDATION PLAN
50% of the total liabilities ●​ Within 3 months from his assumption into office
○​ Notice → publishing in a newspaper of general circulation ●​ As a minimum, must enumerate:
in the PH once a week for 2 consecutive weeks; and ○​ All assets of the debtor
○​ Does not exceed 120 days from date of effectivity ○​ Schedule of liquidation of the assets
○​ Payment of the claims
CRAM DOWN EFFECT
●​ Same legal effect SALE OF ASSETS IN LIQUIDATION
●​ Publication requirement: RP or agreement shall be ●​ Liquidator may sell the assets and convert it into money
published once a week for at least 3 consecutive weeks ●​ GR: Sale shall be made at public auction
●​ Effectivity: Shall take effect upon the lapse of 15 days from ●​ XPN: Private sale may be allowed if it is of a perishable
the date of the last publication of notice nature of if it is for the best interest of the debtor and creditors

TERMINATION OF PROCEEDINGS
●​ After completion of liquidation → court shall issue an order to
LIQUIDATION order the SEC to remove the debtor from the registry of legal
entities
LIQUIDATION → proceeding where ●​ Upon receipt that it has been removed from the registry of
●​ Claims are filed; and legal entities at SEC → court shall issue an order terminating
●​ Assets of the insolvent debtor are disposed; and the the proceedings
●​ Proceeds are divided among the creditors

LIQUIDATOR
●​ Appointed by court who will facilitate the liquidation
proceedings
●​ May also be appointed by creditors who have filed their claims
within the period set by court

VOLUNTARY VS. INVOLUNTARY

VOLUNTARY INVOLUNTARY

1. Acts of insolvency need not 1. Creditors must prove acts

be alleged and proved of insolvency
2. Debtor is not absent 2. A creditor/group of creditors
3. Posting of bonds by file the petition
creditors not required 3. Applies even if debtor is
4. Liquidation order issued absent
without trial 4. Posting of bond is required
5. Amount of debt by the 5. Amount of debt by the
individual is more than individual debtor is at least
P500,000 P500,000

ACTS OF INSOLVENCY
●​ Hiding or fleeing
●​ Manipulating legal processes
●​ Transferring property
●​ Failure to pay → has not paid their regular bills for 30 days
●​ No property to seize

LIQUIDATION OF JURIDICAL PERSONS

●​ Voluntary → initiated by the debtor by filing a verified petition
with the court
●​ Involuntary → initiated by 3 or more creditors the aggregate
of whose claims is the higher between:
○​ At least P1,000,000 or;
○​ At least 25% of the subscribed C/S or partners’
contributions
[13] PARTNERSHIPS
“Father, not my will, but Yours be done.” - Luke 22:42
NOTES:
●​ If unclear → ALL PROFITS
●​ Cannot create a universal partnership → those who cannot
donate to each other → HAG
CONTRACT OF PARTNERSHIPS
○​ Husband and wife
○​ Guilty of adultery and concubinage
PARTNERSHIPS
○​ Guilty of same criminal offense
●​ Contract whereby two or more persons bind themselves to
contribute money, property, or industry to a common fund,
B. AS TO LIABILITY
with the intention of dividing the profits among themselves, or
1.​ General → partners are liable up to their personal assets
in order to exercise a profession
when the partnership assets are already exhausted
●​ Characteristics → C2P2BON
2.​ Limited → if there is one limited partner (ie. liable only up to
○​ Consensual, commutative, principal, preparatory,
this contribution)
bilateral/multilateral, onerous, nominate
●​ Essential elements → VLMOC
C. AS TO TERM
○​ Valid, legal capacity, mutual contributions,
1.​ Fixed term, particular undertaking → termination upon
object/purpose, community of benefit
arrival or attainment of such
●​ Principles applicable
2.​ At will → no fixed term or particular undertaking
○​ Affectio societatis and delectus personae

SEPARATE JURIDICAL PERSONALITY → PICO

●​ Can acquire/possess property
KINDS OF PARTNERS
●​ Can be insolvent
●​ Can bring civil or criminal actions
ACCORDING TO:
●​ Can incur obligations
A.​ Contribution → gapitalist, industrial, capitalist-industrial
B.​ Liability → general, limited
DETERMINATION OF EXISTENCE
C.​ Other kinds → silent, secret, dormant, ostensible, managing,
●​ No partnership → TCG
liquidating, incoming
○​ Third parties
○​ Co-ownership/co-possession
○​ Sharing of gross returns
●​ Share in profits
OBLIGATIONS OF A PARTNER TO THE PARTNERSHIP AND
○​ GR: Prima facie evidence of partnership
OTHER PARTNERS
○​ XPN: DWAIGR
■​ Debt, wages, annuity, interest, consideration in sale
OBLIGATIONS
of goodwill of a business, rent
A.​ To give his contribution
B.​ To give additional contribution in case of imminent losses
FORM OF CONTRACT OF PARTNERSHIP
C.​ Prohibition to engage in other businesses
●​ GR: Any form
D.​ Credit to the firm the payment made by a debtor who owes
●​ XPN:
both the partnership and the managing partner
○​ Immovable property → ISAPI (inventory, signed and
E.​ Others
attached to a public instrument)
■​ Non-compliance → VOID
A. CONTRIBUTION
○​ Capital is P3,000 or more → PIRSEC (in public
●​ GR: Partners shall contribute equal shares, except stipulated
instrument and recorded in SEC)
otherwise
■​ Non-compliance → VALID, but will affect liability of
○​ GR: Must be provided upon perfection of the contract,
partnership as to third persons (ie. partnership will
except stipulated otherwise
not be liable, but partners will still be)
●​ Partner who has undertaken to contribute, but fails to do
so → becomes a debtor for the interest and damages from
the time he should have complied
○​ No demand necessary
KINDS OF PARTNERSHIPS
●​ Partner is likewise liable similar to a vendor
○​ Bound to deliver fruits from the time they should have
A. ACCORDING TO OBJECT
been delivered, without need for demand
1.​ Universal
○​ Due diligence; otherwise, liable for loss and deterioration
●​ All Profits
○​ Warrant the thing delivered against eviction
○​ Properties → usufruct only
●​ Risk of loss → borne by the PARTNER:
○​ Profit from industry or work
○​ Thing → specific and determinate, not fungible, and only
○​ By chance → upon stipulation
their use and fruit may be for the common benefit;
○​ Subsequently acquired through legacy, inheritance,
○​ Stipulation
donation → only the fruits therefrom may be
●​ Risk of loss → borne by the PARTNERSHIP:
stipulated
○​ Thing → fungible, cannot be kept without deteriorating, or
●​ All Present Property
contributed to be sold
○​ Properties and profits therefrom
○​ Appraisal in the inventory and no stipulation that partner
○​ Other profits → upon stipulation
will bear the loss
○​ Subsequently acquired through legacy, inheritance,
donation → only the fruits therefrom may be
B. ADDITIONAL CONTRIBUTION
stipulated
●​ GR: Any partner who refuses to contribute additionally →
2.​ Particular
obliged to sell his interest to the other partners
●​ Determinate thing
●​ XPNs:
●​ Specific undertaking
○​ Industrial partners, except there is stipulation
●​ Exercise of profession or occupation
○​ Stipulation to the contrary
“Father, not my will, but Yours be done.” - Luke 22:42
C. PROHIBITION TO ENGAGE IN OTHER BUSINESS
All partners All partners All partners VALID
●​ Industrial partners
○​ Cannot for himself, except when permitted
○​ Effects of non-compliance:
■​ Exclusion; or
■​ Avail themselves of the benefits obtained RIGHTS OF A PARTNER
●​ Capitalist partners
○​ Cannot within the same industry RIGHTS
○​ XPNs: A.​ Rights to share in the profits
■​ Stipulated B.​ Property rights
■​ Other partners allow him C.​ Right to participate in the management
■​ Partnership is already non-existent D.​ Others
■​ Becomes a limited partner in a competitive enterprise
○​ Effects of non-compliance: A. RIGHTS TO SHARE IN THE PROFITS
■​ Bring to the partnership all the profits obtained ●​ Profits → distribution of profits, in proportion to contribution
■​ Liable for all the losses ○​ Industrial partner → just and equitable
■​ May be ousted for loss of trust and confidence ●​ Losses → distribution of losses, distribution of profits, in
proportion to contribution
D. CREDIT TO THE FIRM ○​ Industrial partner → only if stipulated
●​ MP issued a receipt in the name of the partnership ●​ Void stipulation: Pactum leonina
○​ Applied to the partnership
●​ MP issued a receipt in his name B. PROPERTY RIGHTS
○​ Payment shall be applied proportionate to the amounts of ●​ His rights in specific partnership property
the two debts ●​ His interest in the partnership
○​ XPN: Owed to MP is more onerous, debtor may choose
to apply the payment exclusive C. RULES ON MANAGEMENT
●​ MP in the AOP → May execute all AOA, even with opposition
E. OTHERS ○​ Can only be revoked (1) with just or lawful cause and (2)
●​ Not to convert funds/property for own use by a vote of the partners representing the controlling
●​ To account for and hold as trustee, unauthorized (or secret) interest
personal profits ●​ MP after AOP has been constituted → may be revoked
●​ Share with other partners received from an insolvent firm even without just or lawful cause
debtor ●​ Multiple managing partners
●​ Keep the partnership books in the principal office and allow ○​ With stipulation that no MP may act without others’
others to have access consent
●​ Reimburse the partnership damages suffered through his fault ○​ With specification of duties
○​ Not compensable with profits and benefits earned for the ○​ Without specification or without stipulation
partnership ●​ No MP: With stipulation that no partner may act without
○​ Damages, may be decreased by courts, if it earned the support of partners
unusual profits ○​ Concurrence of all is necessary
●​ To inform other partners on affairs ●​ No agreement as to management of partnership
●​ To observe the diligence of a good father of a family ○​ All are considered agents
●​ To adhere to the partnership agreement ○​ XPN: Important alteration in the immovable property
○​ XPN to the XPN: If refusal is manifestly prejudicial to the
interest of the partnership

OBLIGATIONS OF PARTNERS: TO THIRD PARTIES D. OTHER RIGHTS

●​ To associate with another person in his share
OBLIGATIONS ●​ To inspect and copy partnership books
A.​ Firm name ●​ To demand a formal account in the following cases:
B.​ Liability after exhaustion of partnership assets ○​ Partner was wrongfully excluded from business
C.​ Authority to act for and in behalf of the partnership ○​ There is stipulation
D.​ Effects of conveyance of real property ○​ Information affecting partnership affairs
E.​ Solidary liability for torts/quasi-delict ○​ Whenever just and reasonable
F.​ Solidary liability for misappropriation ●​ To ask for a dissolution at the port time and the right to return
G.​ Partner by estoppel of capital and advancements
H.​ Liability of new (or incoming) partner ●​ Right to compensation
●​ Right to reimbursement
EFFECTS OF CONVEYANCE OF REAL PROPERTY
PROPERTY → CONVEYANCE WHO EFFECT
NAME OF → NAME OF CONVEYED
DISSOLUTION & WINDING-UP
Partnership Partnership Partner VALID, but PP
may recover DISSOLUTION
One or more One or more One or more (XPN: Transfer ●​ Change in the relation of the partners caused by any partner
partners partners partners binds the PP,
transferee had ceasing to be associated in the carrying on as distinguished
no knowledge) from the winding up of the business

Partnership Partner Partner Within WINDING-UP

authority:
One or more Partner/ Partner Equitable ●​ Process of settling business affairs after dissolution
partners/third Partnership interest
parties Not: Nothing
“Father, not my will, but Yours be done.” - Luke 22:42
TERMINATION ●​ LP may have it dissolved and its affairs wound up when he
●​ Point where all the partnership affairs have been wound up rightfully but unsuccessfully demands the return of his
contribution
CAUSES OF DISSOLUTION ●​ Distribution of assets of a limited partnership:
●​ Extrajudicial causes → without court intervention ○​ Creditors
○​ Without violation of the agreement → WEAT ○​ LP
○​ With violation of the agreement → express will of any ○​ LP - Profits
partner (liable for damages) ○​ LP - Capital
○​ By operation of law → LUCID ○​ GP
●​ Judicial causes → dissolution is decreed by courts ○​ GP - Profits
○​ B2I2MO ○​ GP - Capital

EFFECTS OF DISSOLUTION → MBC

●​ Mutual agency is terminated
○​ Cause is AID → NOTICE should be given
○​ Not AID → binding even without notice

DISTRIBUTION OF ASSETS
●​ Creditors
●​ Partners
●​ Partners → capital
●​ Partners → profit

PARTNER’S LIABILITY
●​ Assets of partnership are not enough to cover liabilities →
remaining claims may be satisfied against the separate assets
of the partners

CLAIMS AGAINST HIS SEPARATE PROPERTY ORDER

●​ Separate creditors
●​ Partnership creditors
●​ Partners by way of contribution

LIMITED PARTNERSHIP

LIMITED PARTNERSHIP
●​ Formed by two or more persons having as members one or
more general partners and one or more limited partners

LIMITED LIABILITY
●​ Liability is limited only to this capital contribution
●​ After exhaustion of partnership assets, cannot be made to
contribute to answer the remaining liabilities to third parties

LIMITATIONS ON A LIMITED PARTNER → if violated, liable as

if he is a General Partner
●​ Limited partner cannot be an industrial partner
○​ Contributions must always be money or property
●​ Surname of a limited partner shall not appear in the
partnership name, unless:
○​ Also the surname of a general partner
○​ Prior to the time he became an LP, business has been
carried on under a name in which his surname appeared
●​ Limited partner cannot take part in the management of the
partnership

GENERAL-LIMITED PARTNER
●​ A person may be a general partner and a limited partner in the
same partnership, provided that it is stated in the certificate
●​ Rights and powers and be subject to all the restrictions of a
general partner
●​ Except that, in respect of his contributions, he shall the rights
against the other partners which he would have had if he were
not also a general partner

DISSILUTION AND WINDING-UP

●​ Grounds: RIDIC of a General Partner
●​ XPN: Continued by the remaining general partners under a
right to to dso as stated in the Certificate of Limited
Partnership or with the consent of all the partners
😅 [14] CORPORATIONS
“Father, not my will, but Yours be done.” - Luke 22:42
CLASSES OF CORPORATIONS

CLASSES OF CORPORATIONS
A.​ As to distribution of surplus profits → stock, non-stock
DEFINITION AND ATTRIBUTES
●​ Stock → can distribute dividends
●​ Non-stock → surplus profits to be used for furtherance of
REPUBLIC ACT NO. 11232
purpose
●​ Revised Corporation Code of the Philippines
B.​ As to under what law it was created → domestic, foreign
●​ Effectivity date: February 23, 2019
●​ Domestic → created under or by virtue of PH laws
●​ Foreign → under any laws other than those of the PH
CORPORATION
C.​ As to whether the public can own shares → close, open
●​ Artificial being created by operation of law, having the right of
●​ Close → ≤ 20 SHs; restrictions on transfer; cannot list on
succession and the powers, attributes, and properties
the stock exchange
expressly authorized by law or incident to its existence
●​ Open → openly accept outsiders; if listed → Publicly
○​ Definition for private corporations
Listed Corporations
D.​ As to purpose → private, public
ATTRIBUTES
●​ Private → for prate purpose, benefit, aim, or end
A.​ Artificial being
●​ Public → Organized for the State or its political
B.​ Created by operation of law
subdivisions; Provinces, cities/municipalities, barangays
C.​ Right of succession
→ public corporations
D.​ Powers, attributes, and properties expressly authorized by law
E.​ As to religious purpose → ecclesiastical, lay (eleemosynary,
or incidental to its existence
civil)
●​ Ecclesiastical → organized for spiritual purposes
A. ARTIFICIAL BEING
●​ Lay → purposes other than religion
●​ Has a juridical personality, separate and distinct from the
○​ Eleemosynary → for charitable and benevolent
persons composing it
purposes
●​ Corporate Entity Theory
○​ Civil → for the benefit and pecuniary of its members
○​ Also known as Doctrine of Limited Liability
F.​ As to number of persons composing it → aggregate, sole
●​ Piercing the Veil of Corporate Entity
●​ Aggregate → composed of a number of individuals; >1
○​ Applicability of CET → confined to legitimate transactions
●​ Corporation sole → consists of one person or individual
○​ Subject to equitable limitations to prevent its being used
only; already perpetual in term even before the RCC
for fraud or illegality or injustice
○​ Purpose: Defeat public convenience, justify wrong,
CLASSES OF CORPORATIONS ACCORDING TO VALIDITY OF
protect fraud, defend crime
FORMATION
○​ Concept of a separate JP shall be set aside
QUESTIONING
B. CREATED BY OPERATION OF LAW CWRFVI CET
●​ State’s consent through compliance with the requirements DA CA
imposed by law → necessary for its creation
●​ Commencement of corporate existence De Jure
Corporation
Full ✅ ❌ ❌
○​ GR: Time of issuance of COI or COR
○​ XPNs:
■​ Corporations by estoppel → no process
De Facto
Corporation
Colorable* ✅ ✅** ❌
❌*** ✅ ✅
■​ Created by special laws → law itself will provide
■​ Sole corporation → filing of verified articles Corporation No
by Estoppel
C. RIGHT OF SUCCESSION *Requisites for existence: (1) Valid law under which it may be
●​ Death, incapacity, or civil interdiction of one or more of its SHs incorporated; (2) Attempt in good faith to incorporate; (3) Use of
→ does not result in dissolution corporate powers
●​ Otherwise referred to as the corporation’s “strong” JP **Yes, via quo warranto
***SHs are liable as general partners
D. POWERS, ATTRIBUTES, AND PROPERTIES…
●​ Can exercise only such powers and can only hold such DIRECT ATTACK
properties as are granted to it ●​ Legal existence of the corporation → main subject of the case
●​ Also known as Doctrine of Limited Capacity
●​ Powers of a corporation COLLATERAL ATTACK
○​ Express → expressly authorized by the CC and its AOI ●​ Personality of the corporation → questioned as a side subject
○​ Implied → inferred from or necessary for the exercise of
express powers
○​ Incidental → incidental to its existence
●​ Special notes for powers in the CC: ORGANIZATION AND INCORPORATION
○​ Corporations can now also enter into a partnership and
joint venture PROMOTIONAL STAGE
○​ Now, only foreign corporations are not allowed to give ●​ Undertaken by organizers or promoters
political donations ●​ Promoter → held personally liable on contracts made by him
●​ Ultra vires acts for the benefit of a corporation he intends to organize
○​ Those which cannot be executed or performed ○​ Continues even after the formation
○​ Not within its EII powers as defined by its AOI → not ○​ Unless there is novation or substitution
automatically an illegal act
“Father, not my will, but Yours be done.” - Luke 22:42
PROCESS OF INCORPORATION ●​ RCC: Removed the 25% subscription and 25% paid-up
1.​ Drafting of the AOI requirement, but still applies to increase in authorized
2.​ Preparation and submission of additional and supporting capital stock
documents ●​ Authorized capital stock → maximum amount fixed to
3.​ Filing with the SEC be subscribed and paid-in; maximum number of shares
4.​ Subsequent issuance of the COI that a corporation can issue
●​ Subscribed capital stock → total number of shares and
CONTENTS OF THE ARTICLES OF INCORPORATION its total value for which there are contracts for their
A.​ Name of the corporation acquisition/subscription
B.​ Specific purpose or purposes ●​ Paid-up capital stock → actual amount or value which
●​ Non-stock corporation → may not include a purpose has been contributed or paid for the subscriptions
that would change or contradict its nature ●​ Consideration → now includes (1) share of stock in
●​ General limitations: another corporation and (2) other generally accepted
○​ Must be lawful form of consideration
○​ Must be specific or stated concisely ●​ Outstanding capital stock → total issued + subscribed
○​ More than one purpose → primary and secondary and not yet full paid - treasury shares
ones must be specified I.​ If it is a non-stock corporation → (1) amount of its capital;
○​ Purposes must be capable of being lawfully (2) NNR of contributors; (3) amount contributed by each
combined J.​ Such other matters as are not inconsistent with law and
C.​ Place where the principal office is to be located incorporators may deem necessary and convenient
●​ Must be within the PH ●​ Restrictions and preferences:
●​ AOI must not only specify the province, but also the city ○​ Desires to grant options, restrictions, and
or municipality preferences → must be indicated in the AOI and all
●​ Principal office → serves as the residence of the of stock certificates
corporation; important in: ○​ Close corporations → AOI, SC, and embodied in the
○​ Venue of actions by-laws
○​ Registration of chattel mortgage of shares ●​ Other matters to be indicated in the AOI:
○​ Validity of meetings of SHs ○​ Name of the treasurer
D.​ Term for which the corporation is to exist (if did not elect ○​ No transfer clause
perpetual existence) ○​ Execution clause
●​ GR: Perpetual existence (Prior limitation: 50 years unless ○​ Notarial acknowledgement
AOI would provide otherwise)
○​ Applies to existing corporations (XPN: Majority of its AMENDMENT OF THE AOI, IN GENERAL, WOULD REQUIRE:
SH voted to retain its specific term) ●​ Majority approval of the members of the Board;
●​ Definite term ●​ Written assent of SH representing ⅔ of the OCS/M; and
○​ Extension → shall be made no earlier than 3 years ●​ Approval of the SEC
prior to expiry date (5 years before) ○​ If SEC did not act within 6 months from date of filing →
●​ Revival deemed approved
○​ After expiration, may file for revival
○​ Upon approval → revived and a Certificate of Revival
of Corporate Existence shall be issued, giving it PE
unless its application provides otherwise BOARD OF DIRECTORS
E.​ Names, nationalities, and residence addresses of the
incorporators BOARD OF DIRECTORS
●​ Incorporators → those mentioned in the AOI as ●​ Supreme authority in matter of management of the regular
originally forming the corporation and signatories therein and ordinary business affairs of the corporation
●​ Not more than 15 (previously 5 to 15) ○​ Does not extend to the fundamental changes in the
●​ Qualifications for incorporators: corporate charter → belong to SHs
○​ Must be natural persons (or partnership, association, ●​ Qualifications and disqualifications → CBL may provide for
or corporation) additional, but must not do away with minimum (owning at
○​ Of legal age (natural persons) least 1 shares or a member)
○​ Must own or subscribe to at least 1 share ●​ Disqualifications of a director/trustee → if within 5 years prior
F.​ Number of directors/trustees to election/appointment, the person was:
●​ Directors → stock corporation, should not exceed 15 ○​ Convicted by final judgment
●​ Trustees → non-stock corporation, may exceed 15 ■​ Offense punishable by imprisonment for a period > 6
●​ Independent directors → independent of management years
and free from any business or other relationship ■​ Violation of the CC
●​ Corporations vested with public interest shall have IDs ■​ Violation of the SRC
constituting at least 20% of the board (before, higher of ○​ Any offense involving fraud acts
20% or 2, but not to exceed 2): ○​ By a foreign court for acts similar to above
○​ Corporations covered by SRC
○​ Banks, quasi-banks, other financial intermediaries ELECTION OF MEMBERS OF THE BOD/T
○​ Other corporations vested with public interest ●​ Quorum: Majority of the OCS/M, whether in-person or by
G.​ Names, nationalities, and residences of persons who shall act written proxy
as directors/trustees ●​ On the request, may be held by ballot otherwise viva-voce
●​ Until the first regular directors/trustees are duly elected would suffice
H.​ If it is a stock corporation → (1) amount of authorized capital ●​ Candidates receiving the highest number of votes → elected
stock; (2) number of shares into which it is divided; (3) par ●​ Report requirement
value of each; (4) NNR of the original subscribers; (5) amount ○​ Report to be submitted within 30 days in case of
subscribed and paid by each; and (6) a statement the some or non-holding → shall include new date for the election
all of the shares are without par value, if applicable which shall not be later than 60 days from the scheduled
date
“Father, not my will, but Yours be done.” - Luke 22:42
○​ No new date has been designated or if rescheduled DIRECTORS’ DUTY OF LOYALTY
election is likewise not held → SEC may summarily order
than an election be held A. CORPORATE OPPORTUNITY DOCTRINE
●​ Director cannot appropriate to himself opportunity which in
METHODS OF VOTING fairness should belong to the corporation
●​ Straight voting ●​ Ratification → vote by ⅔ of OCS/M
○​ Every SH may vote such number of shares for as many ●​ If not ratified → bound to account for such profits
persons there are directors to be elected
●​ Cumulative voting B. ACQUIRING ADVERSE INTEREST ON A MATTER
○​ Right to give a candidate as many votes as the number of REPOSED IN HIM IN CONFIDENCE
directors to be elected multiplied by the number of his ●​ Liable to account for profits
shares equal (CV for one candidate) or may distribute ●​ Not subject to ratification
among the candidates (CV by distribution)
○​ Number of shares x number of directors = number of C. SELF-DEALING DIRECTORS
votes ●​ Deals or transacts business with his own corporation
○​ Non-stock corporations → generally not allowed, unless ●​ GR: Voidable at the latter’s option
allowed by the AOI or CBL ●​ XPNs → transaction will be valid:
○​ Purpose: To allow minority to have a rightful ○​ All are present:
representation ■​ Presence in the meeting (and not necessary to
constitute a quorum)
REMOVAL AND FILLING-UP OF VACANCIES ■​ ⅔ of entire membership of BOD and majority of the
●​ CBL may provide for causes or grounds for removal IDs (their vote was not necessary for approval)
●​ Director representing the minority → may not be removed ■​ Contract is fair and reasonable
except for causes in the CBL ○​ If any of the first 2 is absent → subject to ratification of
●​ Director not representing the minority → may be removed ⅔ of the OCS/M with the following requirements:
even without a cause ■​ Meeting for that purpose
■​ Full disclosure of the adverse interest of the director
REQUIREMENTS FOR A VALID REMOVAL ■​ Contract is fair and reasonable
●​ Should take place at a general or special meeting duly called ○​ SDD owns all or substantially all shares of stock →
for that purpose reasonableness of the transaction shall be determined
●​ Vote of ⅔ of the OCS/M present in the meeting ●​ Self-dealing officers → generally voidable as well, except
●​ There must be a previous notice either by publication or on previously authorized by BOD/T
written notice
D. INTERLOCKING DIRECTOR
VACANCY ●​ Director in one corporation who deals with another corporation
of which he is also a director
CAUSE WHO WILL FILL ELECTION
●​ Dual agency → divided allegiance
Removal SH Same day of removal ●​ GR: Contract is valid, provided reasonable
●​ XPN:
Term SH No later than the day of ○​ Fraud
expiration such expiration at a ○​ Interest of the ID in one exceeds 20% (substantial) and in
meeting called for that the other nominal (≤ 20%) → voidable at the latter’s
purpose option
●​ Interest is both substantial/nominal → valid
Other BOD → Quorum No later than 45 days from
causes SH → No Quorum the time the vacancy arose
(DRA) REMEDIES AGAINST ERRING OFFICERS/DIRECTORS
●​ Individual or personal action → one stockholder
Increase in SH GSM for the purpose or ○​ Direct injury to his rights
the number same meeting authorizing ●​ Representative or class suit → stockholders
the increase in number ○​ Either as an individual action or a derivative suit
●​ Derivative suit → corporation
REPLACEMENT OF HOLD-OVER DIRECTORS ○​ Action based on injury to the corporation
●​ Holdover capacity → after the expiration and not replaced ○​ To remedy a wrong done directly to the corporation and
●​ If they resign → SH will be the one to replace even if the indirectly to SHs
remaining directors constitute a quorum

EMERGENCY BOARD
●​ Vacancy may be temporarily filled from among the officers of COMMITTEES
the corporation by unanimous vote of the remaining directors
or trustees EXECUTIVE COMMITTEE
●​ Shall be limited to the emergency action necessary ●​ Composed of not less than 3 members of the Board, to be
●​ Term shall cease within a reasonable time from the appointed by the Board
termination of the emergency or upon election of the ●​ May act, by majority vote, on such specific matters within the
replacement director/trustee, whichever comes earlier competence of the board, as may be delegated to it in the
●​ Must notify the SEC within 3 days from the creation of the CBL, or on a majority vote of the board
emergency board, stating the reason for its creation ●​ Board may also create special committees
○​ Examples: Audit, remuneration, nomination
“Father, not my will, but Yours be done.” - Luke 22:42
COMPENSATION OF DIRECTORS CERTIFICATE OF STOCK
●​ Document or instrument evidencing the interest of a SH in the
COMPENSATION OF DIRECTORS/TRUSTEES corporation
●​ GR: Not entitled to receive
●​ XPN: A. COMMON STOCKS
○​ Reasonable per diems*; ●​ Entitles its owner to an equal or pro-rata division of profits, but
○​ As provided in the CBL*; without any preference/advantage over any other class of SH
○​ Upon a majority vote of the SHs*; and ●​ Voting rights → usually carried
○​ If they are performing functions other than that of a ●​ Only time a common stock’s right to vote may be limited is
director where there exists Founders’ Shares
●​ *Limit: Total yearly compensation shall not exceed 10% of the
net income before tax of the corporation during the preceding B. FOUNDERS’ SHARES
year ●​ Shares issued to the founders of the corporation which are
granted certain right and privileges (eg. exclusive right to vote
and be voted for in the election of directors)
●​ Period not to exceed 5 years (non-extendable)
CORPORATE OFFICERS
C. PREFERRED STOCKS
ELECTION OF CORPORATE OFFICERS ●​ Gives the holder preference over C/S with respect to payment
●​ President → must be a director of dividends or with respect to distribution of capital upon
●​ Treasurer → may or may not be a director (required to be a liquidation (must be stated in the contract)
resident) ●​ Limitations:
●​ Secretary → should be a resident and citizen of the PH ○​ Can only be issued with a stated par value
○​ Preferably a lawyer ○​ Preference must be stated in the AOI and in the
●​ Other officers provided for in the CBL Certificate of Stock
●​ Preference as to dividends
COMPLIANCE OFFICER ○​ Participating → entitled for further shares (beyond
●​ Now a required corporate officer in corporations vested with stated preference)
public interest ○​ Non-participating → only to its fixed priority
●​ Voting rights → check wall notes
POSITIONS
●​ GR: Any two or more positions may be held concurrently by D. PAR AND NO-PAR VALUE SHARES
the same person ●​ Par value shares
●​ XPN: ○​ Fixed in the AOI and shown on the certificate
○​ President and secretary (applicable in OPC) ○​ Minimum subscription or original issue price
○​ President and the treasurer (not applicable in OPC, ●​ No-par value shares
except if there’s a bond and written undertaking) ○​ Issue price → not stated in the certificate of stock but
may be fixed in the AOI, by the BOD, CBL, or by the
AUTHORITY TO ACT stockholders themselves
●​ Includes powers which have been: ○​ Limitations to issuance:
○​ Intentionally conferred ■​ Once issued, deemed fully paid and non-assessable
○​ Incidental or implied in the usual course of business ■​ Consideration should not be less than P5
○​ Powers added by custom and usage ■​ Constitutes capital (not available for dividend
○​ Apparent powers declaration)
■​ Cannot be issued as P/S
LIABILITY OF CORPORATE OFFICERS ■​ Cannot be issued by banks, trust companies, public
●​ GR: Not civilly or criminally liable for acts done by him as such utilities, etc. (financial and public interests)
officer or agent, or when absent bad faith or malice
●​ Personal liability → may so validly attach: E. WATERED STOCKS
○​ Assents to a patently unlawful act, for bad faith, gross ●​ Happens when the shares are issued at less than its par value
negligence, or conflict of interest or issue price
○​ Consents to the issuance of watered stocks, or with ●​ Par value share → BOD and purchaser → solidary liable
knowledge but doesn’t file written objection with the ●​ No-par value share → only the BOD is liable
corporate secretary
○​ Agrees to hold himself personally and solidarily liable with F. REDEEMABLE SHARES
the corporation ●​ Those subject to redemption
○​ Made to personally answer for his corporate action ●​ Grants the corporation the right to repurchase the share or at
the option of the holder
ELECTION OF CORPORATE OFFICERS ●​ Redemption may be optional or mandatory at a fixed future
●​ Requires the majority of all members of the board, not just the date
usual majority of those present in the meeting ●​ Repurchase → not subject to the availability of unrestricted
retained earnings

G. TREASURY SHARES
SHARES OF STOCK ●​ Issued and fully paid for, but subsequently reacquired
●​ Can be reissued, be sold, be declared as property dividends
SHARES OF STOCK ●​ Do not form part of outstanding shares and do not have the
●​ Units into which the proprietary interest in a corporation is right to vote and receive dividends
divided
●​ Interest or right in management, surplus profits,and assets H. SUBSCRIPTION CONTRACT
remaining after payment of its debts ●​ Any contract for the acquisition of unissued stock in an
existing corporation or corporation to be formed
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Pre-incorporation subscriptions → deemed irrevocable: 3.​ To receive dividends and to compel their declaration if
○​ For a period of at least 6 months, unless (1) all warranted;
subscribers consent to the revocation or (b) the 4.​ To transfer shares of stock subject only to reasonable
incorporation fails to materialize within said period or restrictions such as the options and preferences to compel the
within longer period than stipulated registration of the transfer in the books of the corporation;
○​ After submission of the AOI to the SEC 5.​ To be issued a certificate of stock for fully paid-up shares;
●​ Post-incorporation subscriptions → made or executed 6.​ To exercise pre-emptive rights;
after the formation of the corporation 7.​ To exercise their appraisal right;
8.​ To institute and file a derivative suit;
ISSUANCE OF CERTIFICATE OF STOCK → REQUISITES: 9.​ To recover shares of stock unlawfully sold for delinquency;
●​ Must be signed by the President or Vice President and 10.​ To inspect the books of the corporation;
countersigned by the Secretary or Assistant Secretary 11.​ To be furnished by the most recent FS of the corporation;
●​ Must be sealed with the corporate seal 12.​ To participate in the distribution of assets upon dissolution;
●​ Entire value (with interest/expenses) should have been paid 13.​ To petition the SEC to arbitrate in the event of a deadlock
(close corporation)
INDIVISIBILITY
●​ Deemed indivisible and no certificate can be issued unless
and until the full amount of his subscription including interest
and expenses is paid BY-LAWS

RIGHTS OF A SUBSCRIBER ●​
●​ Entitled to exercise all the rights of a SH and the
corresponding liability that attach thereunder
●​ XPN:
○​ For the issuance of a certificate of stock
○​ If his shares are declared delinquent
○​ When he exercises appraisal right

DELINQUENT SHARES OF STOCK

●​ No payment made on the balance of all or any portion of the
subscription (1) within 30 days on the date or dates fixed in
the contract of subscription without need of call, or (2) on the
date specified by the BOD pursuant to a call

EFFECT OF DELINQUENCY
●​ GR: SH immediately loses the right to vote and be voted upon
or represented in any SH meeting, as well as the SH’s rights
●​ XPN → right to receive dividends:
○​ Cash dividend → first applied to unpaid balance + cost
and expenses
○​ Stock dividend → shall be withheld until his unpaid
subscription is paid in full
●​ Remedies to enforce payment:
○​ Board action
○​ Collection case in court
●​ Failure/refusal of BOD to collect → creditors or receiver can
still institute a court action to collect unpaid portion thereof
●​ Delinquency sale
○​ Amount to be paid includes: (1) balance due; (2) all
accrued interest; (3) costs of advertisement; (4) expenses
of sale
○​ Bids → amount due above, shall differ only on the
number of shares the bidders are willing to accept
○​ Highest bidder → made for the least number of shares
in exchange for the total amount due
○​ Effect of delinquency sale
■​ Transferred to purchaser
■​ Remaining shares → credited in favor of the
delinquent SH
○​ No bidder → corporation may bid for the same →
treasury shares

RIGHTS OF A STOCKHOLDER

RIGHTS OF A STOCKHOLDER
1.​ Participation in the management of the corporate affairs by
exercising their right to vote and be voted upon either
personally or by proxy;
2.​ To enter into a voting trust agreement;
[16] INSURANCE
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Fire insurance
○​ Loss by fire, lightning, windstorm, tornado, or earthquake
and other allied risks
●​ Casualty
CHARACTERISTICS OF AN INSURANCE CONTRACT
○​ Covering loss or liability arising from accident or mishap
CONTRACT OF INSURANCE
C. MICROINSURANCE
●​ Agreement whereby one undertakes for a consideration to
●​ Risk protection needs of the poor
indemnify another against loss, damage, or liability arising
●​ Contributions do not exceed 7.5% of the current daily MW rate
from an unknown or contingent event
for non-agricultural workers in Metro Manila
●​ Suretyship → a person binds himself solidarily to the creditor
●​ Maximum benefits is not more than 1,000 times of said MW
to fulfill the obligation of the debtor in case they fail to do so
○​ Deemed an insurance contact if the surety is doing an
D. SURETYSHIP
insurance business
●​ Provided above
CHARACTERISTICS OF AN INSURANCE
E. VARIABLE INSURANCE
●​ Synallagmatic → reciprocal obligations of equal value to
●​ Any policy or contract issued by a company providing for
each other
benefits or other contractual payments or values thereunder to
●​ Personal → insurer considered the personal qualification of
vary so as to reflect investment results
the insured
●​ Uberrimae fides contract → at most good faith
●​ Voluntary → not compulsory
●​ Aleatory → arises only upon the happening of an event
INSURABLE INTEREST
●​ Risk distribution device → risk of economic loss is
distributed
LIFE INSURANCE
●​ Contract of indemnity → only the amount of total loss
●​ Interest which the insurer is required to have in the person of
●​ Contract of adhesion → ready-made form of contract
the insured
●​ Measures:
ELEMENTS OF AN INSURANCE CONTRACT
○​ Positive → will you be benefited if the person does not
●​ Insured has an insurable interest
die
●​ Insured is subject to a risk of loss by the happening of the
○​ Negative → amount of loss and effect of that loss, or the
designated peril
amount by which you will be damnified
●​ Insurer assumes the risk
●​ Anyone who is forbidden from receiving any donation cannot
●​ Such assumption of risk is part of a general scheme to
be named beneficiary of a life insurance policy by a person
distribute losses among a large group of persons
who cannot make any donation to him
●​ Insured pays a premium
●​ Creditor → only up to the amount of debt

PROPERTY INSURANCE
●​ Existing interest
CLASSES OF INSURANCE
●​ Inchoate interest founded on existing interest
●​ Expectancy coupled with an existing interest
CLASSES
A.​ Life → individual life, group life, industrial life
INSURABLE INTEREST ON MORTGAGE PROPERTY
B.​ Non-life → marine, fire, casualty
●​ Mortgagor → insurable interest to the extent of its value
C.​ Microinsurance
●​ Mortgagee → interest to the extent of the debt secured
D.​ Suretyship
●​ Loss payable mortgage clause
E.​ Variable insurance
○​ Insurance is deemed to be upon the interest of the
mortgagor
A. LIFE INSURANCE
○​ Any act will have the same effect
●​ Individual life
○​ Any act performed, may also be performed
○​ Insurance on human lives and insurance appertaining
thereto or connected therewith
●​ Group life
○​ Single insurance contract that provides coverage for
PERFECTION OF THE CONTRACT
many individuals → life/health insurance for employees of
one employer
PERFECTION OF CONTRACT
○​ Usually stated in a master agreement/policy
●​ Contract of insurance → consensual contract which is
●​ Industrial life
perfected by the meeting of the minds between the insured
○​ Face amount is not more than 500 times that of the
and insurer
current statutory daily minimum wage in the City of
Manila, payable either monthly or oftener
PREMIUMS
○​ Words "industrial policy” are printed
●​ Consideration paid
○​ Shall not lapse for nonpayment of premium if due to the
●​ GR: No binding contract if no payment of premium
failure of the company to send its agent to the insured →
shall not apply when the premium remains unpaid for a
period of 3 months or 12 weeks after the grace period
has expired
RESCISSION OF INSURANCE CONTRACTS
NON-LIFE INSURANCE
NON-LIFE INSURANCE MAY BE CANCELLED WHEN:
●​ Marine insurance
●​ Nonpayment of premium
○​ Insurance against perils of the sea
●​ Conviction of a crime arising out of acts increasing the hazard
○​ Insurance against perils of the ship
insured against
“Father, not my will, but Yours be done.” - Luke 22:42
●​ Discovery of fraud
●​ Discovery of willful or reckless acts
●​ Physical changes in the property insured
●​ Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured
●​ Determination by the Commissioner

OTHER GROUNDS
●​ Concealment
●​ False representation or misrepresentation
●​ Breach of warranty

CLAIMS SETTLEMENT AND SUBROGATION

LIFE INSURANCE
●​ Maturity → upon maturity
●​ Death → within 60 days after presentation of claim and filing
of proof of death

PROPERTY INSURANCE
●​ Ascertainment of loss → within 30 days
●​ No ascertainment within 60 days → within 90 days after such
receipt

PRESCRIPTION
●​ 10 years in absence of stipulation
●​ If agreed → not less than 1 year from the time the cause of
action accrues

SUBROGATION
●​ Normal incident of indemnity property insurance as a legal
effect of payment
●​ Inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy

CLAIMS
●​ Notice → must be given without undue delay
●​ Proof → insurer may give the best evidence he has