UNIVERSITY OF THE PHILIPPINESCOLLEGE OF LAW Bar Operations 2008 CIVIL LAW Bar Operations Head │ Arianne Reyes Academics Head │ Henry Aguda Ryan Balisacan Subject Committee │ Dianne Ducepec * Michelle Dy * Jeifan Dizon * Erwin Arandia * Tin Rondario * Margaret Ching* Kitchie Piñgol * Gem Hirang * Lora Inguito * Quino Reyes * Easter Castro * Nino Gonzales * Peach Raymundo Information Management Committee │ Chino Baybay [Head] * Simoun Salinas [Deputy] * Rania Joya [Design & Lay-out] * Ludee Pulido [Documentations] * Linus Madamba * Des Mayoralgo * Jillian De Dumo * Mike Ocampo * Abel Maglanque * Edan Marri R. Cañete PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 2 of 325 Persons and Family Relations TABLE OF CONTENTS I. Civil Personality 3 II. Citizenship and Domicile 6 III. Marriage 6 IV. Void Marriages 8 V. Voidable Marriages 11 VI. Legal Separation 14 VII. Rights and Obligations Between Husband and Wife 16 VIII. Property Relations Between Spouses 16 IX. The Family 25 X. Paternity and Filiation 26 XI. Adoption 29 XII. Support 32 XIII. Parental Authority 32 XIV. Funerals 34 PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 3 of 325 I. CIVIL PERSONALITY A. CONCEPT AND CLASSES OF PERSONS Person - any being, natural (Art. 40, CC) or juridical (Art. 42, CC), susceptible to legal rights and obligations, and can be a subject of legal relations. Kinds of Capacity: (Art. 37, CC) Juridical Capacity Capacity to Act Fitness to be the subject of legal relations. Power to do acts with legal effect Inherent in every natural person Acquired and may be lost Lost only through death Subject to certain restrictions Inherent and ineffaceable attribute of man; attaches to him by the mere fact of his being a man. Conditional and variable, it is acquired and may be lost. Kinds of persons: 1. Natural persons General Rule: Birth determines personality (Art 40). Death extinguishes civil personality (Art 42). Exception: A conceived child is considered born for all purposes that are FAVORABLE to it, provided it be born later (Art 40, 2nd clause) with the following circumstances: a. It is alive at the time it is completely delivered from the mother's womb. b. But if the fetus had an intra-uterine life of less than seven months, it should survive for at least 24 hours after its complete delivery. (Art. 41, CC) Test of life: complete respiration. Burden of proof: The presumption is that it was alive and the burden of proof is on the party who alleges the contrary. Geluz v. CA G.R. No. 16439 (1961) An unborn fetus is not endowed with personality. Parents of an unborn fetus cannot sue for damages on its behalf as the fetus, having no personality, does not have rights which it can pass on. The family, however, can recover moral damages. Effect of Death: The effect of death upon the rights and obligations of the deceased is determined by law, by contract and by will (Art 42, par. 2). Doubt as to the order of death: If they are called to succeed each other, whoever alleges the death of one prior to the other, shall prove the same. In the absence of proof, it is presumed that they died at the same time, and there will be no transmission of rights from one to the other. (Art. 43, CC) Joaquin v. Navarro 93 Phil 257 (1953) The rule on Art. 43 was not applied in determining whether the mother or the son died first. There were eyewitnesses who can give evidence as to who died first. It is only applied when it is impossible to determine who died first that the presumption applies. 2. Juridical persons Kinds of juridical persons: (Art. 44, CC) 1. The State and its political subdivisions; 2. Other corporations, institutions and entities for public interest or purpose, created by law; 3. Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality. Governing laws: Juridical Person Governing law State Constitution Political subdivision Charter Public corporation Charter Private corporation Corporation Code, Articles of Incorporation and By- Laws Partnerships Stipulations of the parties and suppletorily by the general provisions on partnership Juridical persons may acquire and possess property of all kinds, incur obligations, and bring civil or criminal actions (Art. 46, CC). PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 4 of 325 B. CAPACITY TO ACT AND RESTRICTIONS THEREON Presumption of Capacity: Standard Oil Co. v. Arenas 19 Phil 363 (1911) To prove insanity, it has to be proven that: (1) The monomania of wealth was habitual and that it contributed to mental perturbation; (2) that the act was caused by the monomania itself; (3) that the monomania existed at the moment he signed the surety. Capacity to act is presumed unless previously declared incapable by the court. Restrictions/limitations on capacity to act: (Art. 38, 39, CC,) 1. Minority 2. Insanity or imbecility 3. State of being deaf-mute 4. Prodigality 5. Civil interdiction 6. Family relations 7. Alienage 8. Absence 9. Married women (Art. 2259, CC) 1. Minority RA 6809 – Majority commences at the age of 18 years. Effect on Contracts: - Minors cannot give consent to a contract. (Art. 1327, CC). - The parent’s consent is binding on the minor. (Shields v. Gross, 58 NY 2d 338) - If one of the parties to a contract is a minor, the contract is voidable. (Art. 1390, CC) - If both parties are minors, the contract is unenforceable. (Art. 1403, CC) - Persons who are capable cannot allege the incapacity of the other party. (Art. 1379, CC) - The minor is not obliged to make restitution except insofar as he has been benefited. (Art. 1399, CC) - If there is active representation by the minors that they are of legal age, the contract is valid. (Mercado v. Espiritu, 37 Phil. 215) - If there is only passive representation, the contract is not valid. The fraud must be actual and not constructive. Mere silence does not constitute fraud. However, the minors must make restitution to the extent they profited from the money received. (Braganza v. de Villa Abrille, 105 Phil. 456) Effect on Marriage: - Marriage contracted by any minor is VOID. Effect on Crimes: - 9 years and below= EXEMPT from criminal liability. (Art. 12, RPC) - Over 9 years and under 15 = EXEMPT, (Art. 12, RPC) - Unless he acted with discernment = Penalty is lowered by at least 2 degrees. (Art. 68, RPC) - 15 years and below 18 = MITIGATING circumstance. (Art. 13, RPC) 2. Insanity Effect on Contracts: - Insane persons cannot give consent to a contract. (Art. 1327, CC) - Contracts entered into during a lucid interval are valid. (Art. 1328, CC) - The incapacitated person is not obliged to make any restitution except insofar as he has been benefited. (Art. 1399, CC) Effect on Crimes: - Insane persons are EXEMPT from criminal liability unless they acted during a lucid interval. (Art. 12, RPC) Effect on Marriage: - A marriage is VOIDABLE if either party was of unsound mind at the time of the marriage. - Except: When the insane person, after coming to reason, freely cohabited with the other. Dumaguin v. Reynolds 10 Phil. 381 (1952) The presumption of mental incapacity in a person under guardianship for mental derangement may be rebutted by evidence. That person may enter a valid contract provided it is proven— 1. That he was not insane at the time he entered into the contract, and 2. That his mental defect did not affect his capacity to appreciate the meaning and significance of the transaction. 3. State of being deaf-mute - Deaf-mutes cannot give consent to a contract. (Art. 1327, CC) - If the testator is a deaf-mute, he must personally read the will. If unable to read, he must designate 2 persons to read it and communicate to him the contents thereof. (Art. 807, CC) - Deaf-mutes can’t be witnesses to a will. (Art. 820, CC) PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 5 of 325 4. Prodigality Martinez v. Martinez 1 Phil. 182 To make a person legally unfit to run his own affairs, his acts of prodigality must show: 1. A morbid mind, and 2. A tendency to spend or waste the estate so as to expose the family to want or deprive the forced heirs of their inheritance. 5. Civil Interdiction Civil interdiction deprives the offender during the time of his sentence of the following rights— (PA-G-MA-MD) 1. Parental authority, 2. Guardianship as to the person or property of any ward, 3. Marital authority, 4. Management his property 5. Disposition of his property (Art. 34, RPC) 6. Family Relations Effect on Crimes: - No criminal liability if one acts in defense of spouse, ascendants, descendants, brothers or sisters, relatives by affinity and consanguinity within the 4 th civil degree provided the requisites in Art. 11 and 12 of RPC are followed. - Mitigating circumstance: If one acts in immediate vindication of a grave offense committed against his spouse, ascendants, or relatives by affinity within the same degrees. (Art. 13, RPC) Effect on Marriage: - Incestuous and void – Marriages between ascendants and descendants; between brothers and sisters, whether full or half blood. (Art. 37, FC) Effect on Prescription: - Prescription does not run between husband and wife. (Art. 1109, CC) Effect on Property Relations: - Husband and wife cannot sell property to each other except: - When separation of property was agreed in the marriage settlements; - When there has been a judicial separation of property. (Art. 1490, CC) 7. Alienage 8. Absence General Rule: Absence of 7 years + unknown whether the absentee still leaves = presumed dead for all purposes. Except: For the purpose of opening his succession, in which case, the absentee is presumed dead after 10 years. If disappeared after the age of 75 years, 5 years will be sufficient. (Art. 390, CC) Rule: The following are presumed dead for ALL purposes, including the division of estate among the heirs: (VA-A-D) 1. A person on board a vessel during a sea voyage, or an aeroplane which is missing, who has not been heard of for 4 years since the loss of the vessel or aeroplane; 2. A person in the armed forces who has taken part in war, and has been missing for 4 years; 3. A person who has been in danger of death under other circumstances and existence has not been known for 4 years. (Art. 391, CC) Administration and enjoyment of conjugal partnership where one spouse is absent: - The other spouse may assume sole powers of administration. - These powers to NOT include disposition or encumbrance without court authority or written consent of the other spouse. - Effect of want of authority/consent: VOID disposition or encumbrance. - BUT, the transaction is construed as a CONTINUING OFFER on the part of the consenting spouse and the 3 rd person. - It may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. (Art. 124, FC) 9. Married Women General Rule: A married woman may not sue or be sued alone without joining her husband. Except: (Rule 3, Sec. 4, ROC) 1. When they are judicially separated. 2. If they have in fact been separated for at least 1 year; 3. When there is a separation of property agreed upon in the marriage settlements; PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 6 of 325 4. If the administration of all the property in the marriage has been transferred to her; 5. When the litigation is between husband and wife; 6. If the suit concerns her paraphernal property; 7. When the action is upon the civil liability arising from a criminal offense; 8. If the litigation is incidental to the profession, occupation or business in which she is engaged; 9. In any of the civil action referred to in Art. 25-35 CC. 10. In an action upon a quasi-delict. Note: In cases #7-9, the husband must be joined as party defendant if Art. 163, par. 3 applies. II. CITIZENSHIP AND DOMICILE A. FILIPINO CITIZENS 1. Those who are citizens of the Philippines at the time of the adoption of the 1987 Constitution; 2. Those whose fathers or mothers are citizens of the Philippines; 3. Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority; and 4. Those who are naturalized in accordance with law. (Art IV, §1, 1987 Consti.) B. DOMICILE For Natural Persons: The place of their habitual residence (Art. 50, CC). For Juridical Persons: The place where their legal representation is established, or where they exercise their primary functions, unless there is a law or other provision that fixes the domicile (Art. 51, CC). Domicile vs. Residence: While domicile is permanent (there is intent to remain), residence is temporary and may be changed anytime (there is no necessary intent to remain). Requisites of Domicile: 1. Physical Presence 2. Intent to remain permanently Kinds of Domicile: 1. Domicile of Origin Domicile of parents of a person at the time he was born. 2. Domicile of Choice Domicile chosen by a person, changing his domicile of origin. A 3rd requisite is necessary – intention not to return to one’s domicile as his permanent place. 3. Domicile by Operation of Law (i.e., Article 69, domicile of minor) Construction of “residence”: - Although “residence” and “domicile” are used interchangeably, they are NOT synonymous in connection with citizenship, jurisdiction, limitations, school privileges, probate and succession. (Uytengsu v. Republic, 1954) - As used in the Naturalization Law, residence means actual and substantial residence, not domicile. (Uytengsu v. Republic, 1954) - HOWEVER, in election law, residence is synonymous with domicile. (Romualdez-Marcos v. Comelec, 1995) III. MARRIAGE A. DEFINITION AND NATURE OF MARRIAGE Definition of Marriage: 1. A special contract 2. of permanent union 3. between a man and a woman 4. entered into in accordance with law 5. for the establishment of conjugal and family life. 6. It is the foundation of the family and 7. an inviolable social institution 8. whose nature, consequences, and incidents are governed by law and not subject to stipulation, 9. except that marriage settlements may fix the property relations during the marriage within the limits provided by this Code. (Art. 1, FC) Breach of promise to marry: Tanjanco v. CA 18 SCRA 994 Breach of promise to marry is not an actionable wrong. The fact that the woman agreed to have sexual intercourse for a year does not constitute seduction but mutual passion. Wassmer v. Velez 12 SCRA 648 PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 7 of 325 While mere breach is not an actionable wrong, Velez is still liable under Art. 21 of the Civil Code which provides that when a person willfully causes loss or injury contrary to good custom, he shall compensate the latter for damages (costs of the wedding preparations). It is the abuse of right which can be a cause for moral or material damages. Trinidad v. CA 289 SCRA 188 (1998) Absence of a marriage certificate is not proof of absence of marriage. To prove the fact of marriage, the following would constitute competent evidence: (1) the testimony of witnesses to matrimony; (2) the couple’s public cohabitation; and (3) birth and baptismal certificates of children born during the union. Presumption of marriage: In case of doubt, all presumptions favor the solidarity of the family. Thus, every intendment of law or facts leans towards the validity of marriage, the indissolubility of the marriage bonds, etc. (Art. 221, FC) B. ESSENTIAL REQUISITES OF MARRIAGE 1. Legal Capacity of contracting parties who must be Male and Female; 2. Consent freely given in the presence of the solemnizing officer. (Art. 2, FC) Jones v. Hallahan 501 S.W. 2d 588 A license to enter into a same-sex marriage is a nullity since the parties are incapable of entering into a marriage as the term is defined. Marriage is defined by law as one entered into by a man and a woman. People v Santiago 51 Phil 68 When a person only married another to avoid prosecution because he raped her the same morning, the marriage is void for absence of consent on the part of the rapist. It was a mere ruse for him to escape criminal liability. Effects of absence of and defect in the requisites of marriage: (Art. 4, FC) Absence Defect Irregularity Essential Void* Voidable Formal Void* No effect on validity but party responsible will be liable. *Except when it is solemnized by an unauthorized person with either or both contracting parties having good faith that he had authority to do so (Art 35, par. 2) C. FORMAL REQUISITES OF MARRIAGE (SO-ML-MC) 1. Authority of the solemnizing officer; 2. A valid marriage license; 3. Marriage ceremony (Art 3, FC) a. Authority of solemnizing officer Who are authorized to solemnize marriages? (JPSMCM) 1. Any incumbent member of the judiciary within the court’s jurisdiction (Art. 7, par. 1); 2. Any priest, rabbi, imam, or minister of any church or religious sect a. Must be authorized by his church or religious sect. b. Must be registered with the civil registrar general. c. Must act within the limits of the written authority granted by the Church. d. At least one of the parties must be a member of the church or religious sect to which the solemnizing officer belongs. (Art. 7, par. 2) 3. Ship captain or airplane chief in the following cases; a. Where one or both of the parties are in articulo mortis, b. While the ship is at sea or c. While the plane is in flight, or d. At stopovers or ports of call (Art 7, par. 3; Art 31, FC). 4. Any military commander of a unit to which a chaplain is assigned, in the absence of the latter (Art 7, par. 4 FC); a. Can only solemnize marriages in articulo mortis between persons within the zone of military operation, whether members of the armed forces or civilians (Art 32, FC). 5. Consul-general, consul, or vice consul (Art. 7, par. 5 FC) a. Can solemnize marriages between Filipino citizens abroad. The issuance of the marriage license and the duties of the local civil registrar shall also be performed by said consular official. (Art. 10, FC) 6. Mayors (LGC) b. Marriage License Marriages exempt from marriage license requirement: (ARMC) 1. Marriage in articulo mortis (Art. 27, FC) 2. Marriage in remote and inaccessible places (Art. 28, FC) PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 8 of 325 3. Marriages by Muslims and cultural minorities. (Art. 33, FC) 4. Marriage by parties with who have cohabited for at least 5 years. (Art. 34, FC) Ninal v Badayog GR 133778 (2000) There must be no legal impediment during the entire five or more years that the parties are living as husband and wife. Things to do at the local civil registrar: a) File an application of marriage license at the proper local civil registrar. (Art. 11, FC) b) Present birth or baptismal certificate. (Art. 12, FC) c) If aged 18-21 years, present parental consent. (Art. 14, FC) d) If aged 21-25, present parental advice. (Art. 15, FC) e) If aged 18-25, present certificate of marriage counseling from your priest. (PD 965) f) Pay the required fees. (Art 19, FC) g) If foreigner, present certificate of legal capacity issued by diplomat or consular officials. (Art. 21, FC) c. Marriage Ceremony There is no particular form or religious rite required by law. (Art. 6, FC) Minimum requirements by law: 1. The contracting parties appear personally before the solemnizing officer 2. They declare in the presence of at least two witnesses of legal age, 3. That they take each other as husband and wife 4. The declaration shall be contained in the marriage certificate, 5. Which shall be signed by the contracting parties and their witnesses and attested by the solemnizing officer. (Art. 6, FC) Note: In a marriage in articulo mortis, when one or both parties are unable to sign the marriage certificate, it shall be sufficient for one of the witnesses to write the name of said party, which shall be attested by the solemnizing officer. (Art 6, par. 2) Places where marriage may be celebrated (CCO): (Art. 8, FC) General Rule: 1. Chambers of the judge or in open court; 2. Church, chapel, or temple 3. Office of the Consul-general, consul, or vice-consul, as the case may be. Exceptions: 1. Marriage in articulo mortis; 2. Marriage in a remote place in accordance with Art. 29; 3. Where both of the parties request the solemnizing officer in writing, in which case the marriage may be solemnized at a house or place designated by then in a sworn statement. D. MARRIAGES CELEBRATED ABROAD General Rule: Marriages solemnized outside the RP in accordance with the law of the foreign country shall be valid in the Philippines (lex loci celebrationis). (Art. 26, FC) Exceptions: (AgeBI53PIPP) 1. Marriage between persons below 18 years old – Art. 35(1) 2. Bigamous or polygamous marriage – Art. 35(4) 3. Mistake in identity – Art. 35 (5) 4. Marriages void under Article 53 – Art. 35 (6) 5. Psychological incapacity – Art. 36 6. Incestuous marriages – Art. 37 7. Marriage void for reasons of public policy – Art. 38 IV. VOID MARRIAGES A. GROUNDS a. Under Art. 35 1. Contracted by anyone below 18 years old, even with consent of parents 2. Solemnized by anyone not authorized to do so, a. except when one or both parties believe that the solemnizing officer had authority to do so. 3. There is no marriage license, a. except in marriage under exceptional circumstances 4. It is bigamous or polygamous, a. except when first spouse has been absent for four years, or two years under extraordinary circumstances, and the remaining spouse has a well-founded belief that the absent spouse is dead, and is judicially declared presumptively dead. (Art. 41) 5. There is a mistake in identity of the other contracting party. 6. The subsequent marriage is void under Art. 53: a. Marriage is void when Art. 52 is not complied with: the following must be recorded in the appropriate civil registry: PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 9 of 325 i. Judgment of annulment or of absolute nullity of marriage; ii. Partition and distribution of the properties of the spouses iii. Delivery of presumptive legitimes of the children. b. Under Art. 36 7. Psychological incapacity of any contracting party, at the time of the celebration of the marriage, to comply with the essential marital obligations. c. Under Art. 37 (Incestuous Relationships) 8. Between ascendants and descendants of any degree, legitimate or illegitimate. 9. Between brothers and sisters, whether full or half-blood, legitimate or illegitimate. d. Under Art. 38 (For Reasons of Public Policy) 10. Between collateral blood relatives, legitimate or illegitimate, up to the fourth civil degree. 11. Between step-parents and step-children. 12. Between parents-in-law and children-in- law. 13. Between adopting parent and adopted child. 14. Between the surviving spouse of the adopting parent and the adopted child. 15. Between the surviving spouse of the adopted child and the adopter. 16. Between an adopted child and a legitimate child of the adopter. 17. Between adopted children of the same adopter. 18. Between parties where one, with the intention to marry the other, killed that other person's spouse, or his or her own spouse. The following CAN marry each other: 1. Brother-in-law and sister-in-law 2. Stepbrother and stepsister 3. Guardian and ward 4. Adopted child and illegitimate child of the adopted e. Under Art. 44 Subsequent marriage contracted under Art. 41 and both parties are in bad faith. Declaration of nullity of marriage - The action imprescriptible. (Art. 39, FC) - For purposes of remarriage, the nullity of a previous marriage may be invoked solely on the basis of a final judicial declaration of nullity (JDN) of the previous marriage. (Art. 40, FC) Terre v. Terre 211 SCRA 6 Parties are not allowed to assume that their marriage is void even if such is the fact. They must file an action for declaration of nullity under Art. 40 before they remarry. Atienza v. Brillantes 243 SCRA 32 Art. 40 is applicable to remarriages entered into after the effectivity of the Family Code, regardless of the date of the first marriage. The Family Code retroacts to the extent that it does not impair rights. Domingo v. CA 226 SCRA 572 (1993) A marriage void for lack of marriage license still needs a judicial declaration of such fact even for a purpose OTHER than remarriage (e.g. liquidation, partition, distribution and separation of property between spouses, custody and support of children, and delivery of the latter’s presumptive legitime). Art. 40 not mean that JDN can only be invoked for purposes of remarriage. PSYCHOLOGICAL INCAPACITY (Art. 36, FC) Chi Ming Tsoi v. CA 266 SCRA 234 (1997) Psychological incapacity involves the senseless, constant, and prolonged refusal to comply with the essential marital obligations. Procreation is one of the essential marital obligations under the Family Code. The prolonged refusal of a spouse to have sex with his spouse, even though capable, is equivalent to psychological incapacity. Santos v. CA G.R. 112109 (1995) Psychological incapacity under Art. 36, FC is not meant to comprehend all possible cases of psychoses. It should refer, rather, to no less than a mental (not physical) incapacity that causes a party to be truly incognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage. Psychological incapacity must be characterized by (a) gravity, (b) juridical antecedence, and (c) incurability. Carating-Siayngco v. Siayngco G.R. No. 158896 (2004) Sexual infidelity, per se, does not constitute psychological incapacity. It must be shown that respondent’s unfaithfulness is a manifestation of a disordered personality which makes him completely unable to discharge the essential obligations of the marital state and not merely due to his ardent wish to have a child of his own flesh and PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 10 of 325 blood. Mere showing of irreconcilable differences and conflicting personalities does not constitute psychological incapacity. Republic v. Quintero-Hamano G.R. No. 149498 (2004) In proving psychological incapacity, there should be no distinction between an alien spouse and a Filipino spouse. We cannot be lenient in the application of the rules merely because the spouse alleged to be psychologically incapacitated happens to be a foreign national. The medical and clinical rules to determine psychological incapacity were formulated on the basis of studies of human behavior in general. Republic v. Molina 268 SCRA 198 (1997), Guidelines for the interpretation of Art. 36: 1. The burden of proof to show the nullity of the marriage belongs to the plaintiff. 2. The root cause of the psychological incapacity must be: a. medically or clinically identified, b. alleged in the complaint, c. sufficiently proven by the experts,* d. clearly explained in the decision. 3. The incapacity must be proven to be existing at “the time of the celebration” of the marriage. 4. Such incapacity must also be shown to be medically or clinically permanent or incurable. 5. Such illness must be grave enough to bring about the disability of the party to assume the essential obligations of marriage. 6. The essential marital obligations must be those embraced by Articles 68 up to 71 of the Family Code as regards the husband and wife as well as Articles 220, 221, and 225 of the same Code in regard to parents and their children. 7. Interpretations given by the National Appellate Matrimonial tribunal of the Catholic Church in the Philippines, should be given great respect by our courts. 8. The trial court must order the prosecuting attorney or fiscal and the Solicitor General to appear as counsel for the state.** *NOTE HOWEVER, that in the later case of Marcos v. Marcos (343 SCRA 755; 2000), it was held that there is no need for the respondent to be examined by an expert, as the psychological incapacity may be established by the totality of the evidence presented. ** A.M. No. 02-11-10-SC (March 13, 2003) made the ff. modifications to the Molina doctrine: 1. The appearance of the Solicitor General is no longer necessary. 2. Expert opinion need not be alleged, as long as the physical manifestations of psychological incapacity at the time of celebration of marriage are alleged. Tenebro v. CA G.R. No. 150758 (2004) The subsequent judicial declaration of nullity of marriage on the ground of psychological incapacity does not retroact to the date of the celebration of the marriage insofar as the Philippine penal laws are concerned. As such, an individual who contracts a second or subsequent marriage during the subsistence of a valid marriage is criminally liable for bigamy, notwithstanding the subsequent declaration that the second marriage is void ab initio on the ground of psychological incapacity. Buenaventura v. CA G.R. No. 127358 (2005) By declaring the petitioner as psychologically incapacitated (hence beyond the control of the party because of an innate inability), the possibility of awarding moral damages on the same set of facts was negated. The award of moral damages should be predicated, not on the mere act of entering into the marriage, but on specific evidence that it was done deliberately and with malice by a party who had knowledge of his or her disability and yet willfully concealed the same Mallion v. Alcantara G.R. No. 141528 Res judicata applies to a petition for nullity of marriage due to lack of marriage license, where a prior petition for nullity of marriage based on psychological incapacity had been denied. There is only one cause of action for both petitions—the nullity of the marriage. Moreover, in the first case, petitioner impliedly conceded that the marriage was conduced in accordance with law, since he never raised the issue of lack of marriage license. Petitioner is now bound by this admission. PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 11 of 325 BIGAMOUS MARRIAGE (Art. 41, FC) 2 Kinds of bigamous marriage: VOID bigamous marriage VOIDABLE bigamous marriage Contracted during subsistence of previous marriage Contracted by spouse present upon the presumption of death of first spouse Good faith of remarrying party is immaterial; if in bad faith, he becomes liable for bigamy General Rule: Marriage contracted by any person during the subsistence of a previous marriage is VOID. Good faith is immaterial here. Exception: If before the celebration of the subsequent marriage— 1. The first spouse has been absent for four consecutive years, or two years under extraordinary circumstances, and 2. The surviving spouse has a well- founded belief that the spouse is dead, and 3. There is a judicial declaration of presumptive death, without prejudice to the effect of the reappearance of the absent spouse. Note: This is a VOIDABLE bigamous marriage. Exception to the exception: When both parties in the subsequent marriage acted in bad faith, the marriage is still void (Art. 44, FC). People v. Mendoza 95 Phil. 845 (1954) Mendoza contracted three marriages. He contracted the second marriage during the subsistence of the first marriage. He contracted the third marriage after the death of his first wife. He was prosecuted for bigamy on his third marriage. The Supreme Court held that he is not guilty for bigamy for his third marriage, since his prior subsisting marriage has already been extinguished by the death of his first wife. It is the second marriage that is bigamous. Morigo v. People G.R. No. 145226 (2004) General Rule: Even if the first marriage is judicially declared void only after contracting the second marriage, the second marriage is still bigamous. Exception: Said second marriage is not bigamous if the first marriage was void due to the fact that no marriage ceremony was solemnized at all. Here, the parties merely signed a marriage contract on their own. No semblance of marriage, no need for judicial declaration of nullity. B. EFFECTS OF NULLITY (ChiPCuPCDRDIDS) (Arts. 50-54, 43-44) 1. Children – considered illegitimate 2. Property Regime is dissolved – liquidation, partition and distribution of the properties of the spouses. If either spouse acted in bad faith, his/her share in the net profits will be forfeited: a. In favor of the common children b. If none, in favor of the guilty spouse by previous marriage c. If none, in favor of the children of the innocent spouse. 3. Custody and support of the common children will be decided 4. Presumptive legitimes – must be delivered 5. Creditors – of the spouses and of the absolute community or conjugal partnership must be notified of the proceedings of liquidation. 6. Conjugal dwelling – given to the spouse with whom majority of the children choose to remain. 7. Parties can remarry – after compliance with Art. 52, FC. 8. Donation propter nuptias – remains valid, (but if the donee contracted marriage in bad faith, donations will be revoked) 9. Insurance benefits – innocent spouse may revoke designation of guilty party as beneficiary, even if such designation is irrevocable 10. Donations - If both parties of subsequent marriage acted in bad faith, any donations and testamentary dispositions made by one party to the other by reason of marriage will be revoked 11. Succession Rights – Party in bad faith disqualified to inherit from innocent spouse, whether testate or intestate Note: Except for #1, the above also effects apply to marriages which are annulled (and to voidable bigamous marriages.) V. VOIDABLE MARRIAGES A. GROUNDS (CIF-mspd-FIS) (Art. 45, FC) 1. One of the parties is 18 or above but below 21, and there is no parental consent. 2. Either party was of unsound mind (insanity). PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 12 of 325 3. The consent of either party was obtained through fraud (different from mistake in identity): a. through non-disclosure of a previous conviction of a crime involving moral turpitude; b. through concealment of the wife of the fact that she was pregnant by another man; c. through concealment of a sexually- transmitted disease, even if not serious or incurable;* d. through concealment of drug addiction, habitual alcoholism or homosexuality/lesbianism. (Art.46, FC) 4. The consent of either party was obtained through force, intimidation, or undue influence. 5. Either party is physically unable to consummate the marriage (impotence; this is different from sterility). 6. Either party has a serious and incurable sexually-transmissible disease, even if not concealed.* *STD: Art. 45 v. Art. 46 Art. 45 STD Art. 46 STD Ground for annulment The STD is a type of fraud which is a ground for annulment Does not have to be concealed Must be concealed Must be serious and incurable Need not be serious nor incurable It is the concealment that gives rise to the annulment The STD itself is the ground for annulment Buccat v Buccat 72 Phil. 19 It held that it is unbelievable that the wife could have concealed the fact that she was 6 months pregnant at the time of the marriage. Annulment not granted. Aquino v Delizo 109 Phil. 21 The Supreme Court granted annulment because the wife concealed the fact that she was 4 months pregnant during the time of the marriage. It argued that since Delizo was “naturally plump,” Aquino could hardly be expected to know, by mere looking, whether or not she was pregnant at the time of the marriage. Corpuz v. Ochoterena AM No. RTJ-04-1861 (2004) In a legal separation or annulment case, a prior collusion investigation by the prosecuting attorney is a condition sine qua non for further proceedings if the defendant fails to answer. A certification by the prosecutor that he was present during the hearing and even cross-examined the plaintiff does not suffice to comply with the mandatory requirement. Ground (Art. 45) Who can file (Art. 47) Prescrip- tion (Art. 47) Ratifica- tion (Art. 45) Lack of parental consent 1. Underage party 1. 5 years after attaining 21. Free cohabita- tion after attaining age of 21. 2. Parent or guardian 2. Before child reaches 21. Insanity 1. Sane spouse with no knowledge of the other’s insanity 2. Legal guardian of insane party 1. Any time before the death of insane party Free cohabita- tion of insane party after coming to reason 3. Insane party 2. During lucid interval or after regaining sanity, and before death Fraud Injured party (defrau- ded party) Five years after discovery of fraud Free cohabita- tion after having full knowled- ge of fraud Force, intimida tion, undue influen- ce Injured party Five years after disappea -rance of force or intimida- tion Free cohabita- tion after the force has ceased or disappe- red PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 13 of 325 Ground (Art. 45) Who can file (Art. 47) Prescripti on (Art. 47) Ratificati on (Art. 45) Impoten ce Healthy party Five years after marriage Deemed ratified when action prescri- bes STD Healthy party Five years after marriage Deemed ratified when action prescri- bes B. MARRIAGE WHEN ONE SPOUSE IS ABSENT Requirements for subsequent marriage to be valid when prior spouse is absent: (Art. 41, FC) 1. The prior spouse had been absent for 4 consecutive years, or 2 years in cases under Art. 391 CC. 2. The spouse present has a well-founded belief that the absent spouse was already dead. 3. The spouse present must institute a summary proceeding for the declaration of presumptive death of the absentee, without prejudice to the effect of reappearance of the absent spouse. Effect of reappearance of absent spouse: General rule: The subsequent marriage remains valid. Exception: It is automatically terminated by the recording of the affidavit of reappearance of the absent spouse. Exception to the exception: If there is a judgment annulling the previous marriage or declaring it void ab initio. (Art. 42, FC) Republic v. Bermudez-Lorino G.R. No. 160258 (2005) The RTC rendered a decision declaring the presumptive death of respondent’s absent spouse based on Art. 41, FC. The Republic appealed the decision to the CA. Applying Art. 247 FC, the SC ruled that the CA did not have jurisdiction over the appeal because summary proceedings are immediately final and executory, and therefore unappealable. C. EFFECTS OF PENDING ACTIONS/DECREE (Art. 49, FC) 1. The court shall provide for the support of the spouses, 2. The custody of the common children, giving paramount consideration to their moral and material welfare, their choice of parent with whom they wish to remain. 3. The court shall also provide for visitation rights of other parent. No child under 7 years shall be separated from the mother unless there is a compelling reason to do so. To prevent collusion between the parties, fabrication or suppression of evidence, the prosecuting attorney or fiscal shall appear on behalf of the State. (Art. 48, FC) D. VOID MARRIAGES vs. VOIDABLE MARRIAGES Void Marriage Voidable Marriage Nature INEXISTENT from the beginning VALID until annulled by court Co- validatio n CANNOT be covalidated CAN be covalidated by prescription or free cohabitation Effect on property No Community Property, only Co-ownership ACP exists unless another system is instituted through marriage settlement Legiti- macy of children General rule: Children are ILLEGITIMATE (Art. 165) Exception: In void marriages by reason of psychologica l incapacity (Art. 36) or non-partition of properties in a previous marriage (Art. 53), children are considered LEGITIMATE . Children are LEGITIMATE if conceived before decree of annulment PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 14 of 325 Void Marriage Voidable Marriage How to impugn May be attacked DIRECTLY or COLLATERALLY , except for purpose of remarriage (there must be JDN) Can only be attacked DIRECTLY (there must be annulment decree) Effect of death of parties May still be impugned after death of parties Can no longer be impugned after death of parties E. JURISDICTION Tamano v. Ortiz 291 SCRA 584 (1998) PD No. 1083 (Code of Muslim Personal Laws of the Philippines) does not provide for a situation where the parties were married both in civil and Muslim rites. Consequently, the shari'a courts are not vested with original and exclusive jurisdiction when it comes to marriages celebrated under both civil and Muslim laws. Hence, the Regional Trial Courts have jurisdiction over such cases. VI. LEGAL SEPARATION A. GROUNDS (VAPIDHIBLA) (Art. 55, FC) 1. Repeated physical violence or grossly abusive conduct directed against petitioner, a common child, or a child of the petitioner. 2. Physical violence or moral pressure to compel petitioner to change religious or political affiliation. 3. Attempt of respondent to corrupt or induce petitioner, a common child, or child of petitioner, to engage in prostitution or connivance in such corruption or inducement. 4. Final judgment sentencing respondent to imprisonment of more than 6 years, even if pardoned (executive pardon, not pardon from offended party). 5. Drug addiction or habitual alcoholism of respondent. a. When it existed from the time of celebration, and concealed from petitioner, can be a ground for annulment of marriage. b. When it occurred only after the marriage, it is only a ground for legal separation, whether concealed or not. 6. Lesbianism or homosexuality of respondent. a. Same as rules on drug addiction 7. Contracting by respondent of a subsequent bigamous marriage, whether in the Philippines of abroad. 8. Sexual infidelity or perversion. 9. Attempt on the life of petitioner by respondent. a. There is no need for criminal conviction. 10. Abandonment of petitioner by respondent without justifiable cause for more than one year. Gandioco v Peñaranda 155 SCRA 725 (1989) In sexual infidelity as a ground for legal separation, there is no need for prior conviction for concubinage, because legal separation only requires a preponderance of evidence, as opposed to proof beyond reasonable doubt required in concubinage. Lapuz v. Eufemio 43 SCRA 177 The action of the plaintiff in filing for legal separation does not survive after her death. Death of either spouse dissolves the marriage. An action for legal separation is purely personal between the spouses. Dela Cruz. v. Dela Cruz 22 SCRA 333 Abandonment is not mere physical abandonment but also financial and moral desertion. There must be an intention never to return. B. DEFENSES Grounds for denying legal separation (4CMRPD) (Art. 56, FC) 1. Condonation by aggrieved party 2. Consent by aggrieved party to the commission of the offense 3. Connivance between parties in the commission of the offense 4. Mutual guilt in ground for legal separation 5. Collusion between parties to obtain decree of legal separation 6. Prescription of action for legal separation (5 years from occurrence of the cause of action) 7. Death of either party during pendency of action (Lapuz-Sy v Eufemio, G.R. No. L-30977, 1972) 8. Reconciliation of parties during pendency of action (Art. 66 par.1) C. WHEN TO FILE/TRY ACTIONS Prescription: Action prescribes in five years from occurrence of cause (Art. 57, FC) PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 15 of 325 Reconciliation period: Action cannot be tried before six months have elapsed since the filing of the petition (Art. 58. FC) Attempts on reconciliation: Action cannot be tried unless the court has attempted to reconcile the spouses, and determined that despite such efforts, reconciliation is highly improbable (Art. 59, FC) Confession: No decree of legal separation shall be based upon a stipulation of facts or a confession of judgment (Art. 60, par. 1. FC) Collusion: The court shall assign the prosecuting attorney or fiscal to make sure that there is no collusion between the parties, and that evidence is not fabricated or suppressed (Art. 60, par. 2, FC) D. EFFECTS OF FILING PETITION FOR LEGAL SEPARATION (LAC) 1. The spouses are entitled to live separately (Art. 61, par. 1. FC). 2. Administration of Community or Conjugal Property – If there is no written agreement between the parties, the court shall designate one of them or a third person to administer the ACP or CPG. (Art. 61, par. 2, FC) 3. Custody of children – The court shall give custody of children to one of them, if there is no written agreement between the spouses. It shall also provide for visitation rights of the other spouse. (Art. 62, cf. Art. 49. FC) E. EFFECTS OF DECREE FOR LEGAL SEPARATION 1. The spouses can live separately (Art. 63. FC) 2. The ACP of CPG shall be dissolved and liquidated, and the share of the guilty spouse shall be forfeited in favor the common children, previous children, or innocent spouse (Art. 63. cf. Art. 42, par. 2). 3. Custody of the minor children shall be awarded to the innocent spouse (Art. 63. FC) 4. Guilty spouse shall be disqualified from inheriting from innocent spouse by intestate succession. The provisions in favor of the guilty party in the will of the innocent spouse shall also be revoked by operation of law. (Art. 63, FC) 5. Donation propter nuptias in favor of the guilty spouse may be revoked (Art. 64. FC) 6. Innocent spouse may also revoke designation of guilty spouse as beneficiary in an insurance policy, even if such stipulations are irrevocable (Art. 64. FC). 7. Obligation for mutual support ceases, but the court may order the guilty spouse to support the innocent spouse. (Art. 198, FC) 8. The wife shall continue to use the surname of the husband even after the decree for legal separation. (Art. 372, CC) F. RECONCILIATION How done: Should the spouses reconcile, they should file a corresponding joint manifestation under oath of such reconciliation. (Art. 65, FC) Effects of Reconciliation: 1. Proceedings for legal separation shall be terminated at whatever stage. (Art. 66, FC) 2. If there is a final decree of legal separation, it shall be set aside. (Art. 66, FC) 3. The separation of property and forfeiture of share of guilty spouse shall subsist, unless the spouses agree to revive their former property regime or to institute another property regime. ( Art. 66 cf. Art. 67, FC) 4. Joint custody of children is restored. 5. The right to intestate succession by guilty spouse from innocent spouse is restored. 6. The right to testamentary succession depends on the will of the innocent spouse. G. DIVORCE General Rule: Decrees of absolute divorce obtained by Filipinos abroad have no validity and are not recognized in the Phil. dfd Exception (partial recognition of absolute divorce): - When the divorce is validly obtained by the alien spouses abroad which capacitates him/her to remarry, the Filipino spouse shall likewise have the capacity to remarry. (Art. 26, par. 2 FC) Twin elements for the application of par. 2, Art. 26, FC: 1. There is a valid marriage that has been celebrated between a Filipino citizen and a foreigner; and 2. A valid divorce is obtained abroad by the alien spouse capacitating him or her to remarry. PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 16 of 325 Republic v. Orbecido G.R. No. 154380 (2005) Given a valid marriage between 2 Filipino citizens, where one party is later naturalized as a foreign citizen and obtains a valid divorce decree capacitating him or her to remarry, the Filipino spouse remarry under Philippine law. The RECKONING POINT is not the citizenship of the parties at the time of the celebration of the marriage, but their citizenship at the time a valid divorce is obtained abroad by the alien spouse capacitating the latter to remarry. VII. RIGHTS AND OBLIGATIONS BETWEEN HUSBAND & WIFE A. OBLIGATION OF SPOUSES (Arts. 68-71, FC) 1. Live together 2. Observe mutual love, respect, and fidelity 3. Render mutual help and support 4. Fix the family domicile. a. In case of disagreement, the court shall decide. 5. Jointly support the family. 6. Manage the household. B. RIGHTS OF SPOUSES (Arts. 72-73, FC) 1. In case the other spouse neglects his or her duties or commit acts which tend to bring danger, dishonor or injury to the family, the aggrieved party may apply the court for relief. 2. Either spouse may exercise any legitimate profession, without need for consent of the other. a. The other spouse may only object on valid, serious, and moral grounds. b. In case of disagreement, the Court shall decide whether (1) the objection is proper, and (2) benefit has accrued to the family before OR after the objection. i. If BEFORE, enforce obligation against the separate property of spouse who has not obtained consent. ii. If AFTER, enforce obligation against community property C. USE OF SURNAME 1. Married Women: (Art. 370, CC) A married woman may use: 1. Her maiden first name and surname and add her husband's surname, or 2. Her maiden first name and her husband's surname or 3. Her husband's full name, but prefixing a word indicating that she is his wife, such as “Mrs.” Yasin v. Shari’a District Court G.R. No. 94986 (1995) The woman only has an option and not a duty to use the surname of her husband, as provided for in Art. 370, CC. Moreover, when her husband dies, the woman can revert to her old name without need for judicial declaration. 2. Widows: A widow may use the deceased husband’s surname as though he were still living. (Art. 373, CC) 3. Mistresses: Legamia v IAC G.R. No. 63817 (1984) The Supreme Court allowed the mistress to use her live-in partner’s name, since everyone already knew that she was a mistress, so as to avoid confusion. 4. Divorcees Tolentino v. CA G.R. No. 41427 (1988) A divorced woman may continue using the surname of her former husband. Philippine laws are silent in this issue. Moreover, there is no usurpation as she never represented herself as Mrs. Arturo Tolentino after the divorce, but simply as Mrs. Consuela David- Tolentino. VIII. PROPERTY RELATIONS BETWEEN SPOUSES A. GENERAL PROVISIONS Order to be followed: (ARTS. 74, 75, FC): 1. Marriage settlements before marriage – spouses can agree to whatever regime they want, be it ACP, CPG, or complete separation. 2. Family Code– If there are no marriage settlements, or if the regime agreed upon is void, the Absolute Community of Property will be followed 3. Local Customs PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 17 of 325 General Rule: (Art. 80, FC) Property relations between Filipino spouses are governed by Philippine laws, regardless of the place of marriage and their residence. Hence: The rule that ACP is the default mode of property relations absent any marriage settlement applies to all Filipinos, regardless of the place of the marriage and their residence. Exceptions: (Art. 80, FC) 1. Where both spouses are aliens 2. As to the extrinsic validity of contracts 3. Contrary stipulation Requirements for Marriage Settlements: (Art. 77, FC) 1. Must be in writing (public or private) 2. Signed by the parties 3. Executed before the celebration of the marriage 4. If party needs parental consent, parent/guardian must be a party to the settlement 5. If party is under civil interdiction or other disability (not including insanity), court appointed guardian must be a party 6. Must be registered in local civil registry – to affect third persons (If not registered, will not prejudice third persons, ACP will apply) General Rule: All modifications to the marriage settlement must be made before the marriage is celebrated. Exceptions: 1. Legal Separation (Art. 63 (2), FC) o The property regime is dissolved. 2. Revival of the former property regime upon reconciliation if the spouses agree (Art. 66 (2)) 3. A spouse may petition the court for: a. Receivership b. Judicial separation of property, or c. The authority to be the sole administrator of the conjugal partnership If the other spouse abandons the other without just cause or fails to comply with his or her obligations to the family. (Art. 128) 4. Judicial Dissolution (Arts. 135 and 136) B. DONATIONS BY REASON OF MARRIAGE Requisites of donations propter nuptias: (Art. 82, FC) 1. Made before the celebration of marriage 2. Made in consideration of the marriage 3. In favor of one or both spouses Donations excluded: 1. Ordinary wedding gifts given after the celebration of the marriage 2. Donations in favor of future spouses made before marriage but not in consideration thereof 3. Donations made in favor of persons other than the spouses even if founded on the intended marriage Who may donate: 1. spouses to each other 2. parents of one or both spouses 3. 3 rd persons to either or both spouses Solis v. Barroso 53 Phil. 912 (1928) Moreover, in donations propter nuptias, the marriage is really a consideration but not in the sense of giving birth to the obligation. There can be a valid donation even if the marriage never took place. However, the absence of marriage is a ground for the revocation of the donation. Mateo v. Lagua G.R. No. 26270 (1969) Donations propter nuptias are without onerous consideration, marriage being merely the occasion or motive for the donation, not its cause. Being liberalities, they remain subject to reduction for inofficiousness upon the donor’s death, if they should infringe the legitime of a forced heir. Distinguished from Ordinary Donations: DONATIONS PROPTER NUPTIAS ORDINARY DONATIONS Does not require express acceptance Express acceptance necessary May be made by minors (Art. 78) Cannot be made by minors May include future property Cannot include future property If present property is donated and property is not absolute community, limited to 1/5 No limit to donation of present property provided legitimes are not impaired Grounds for revocation - In Art. 86 Grounds for revocation - in donation laws PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 18 of 325 RULES: 1. Before Marriage General Rule: Future spouses cannot donate to each other more than 1/5 of their present property (excess shall be considered void) (Art. 84, FC) Exception: If they are governed by ACP. 2. During Marriage General Rule: Spouses cannot donate to each other, directly or indirectly (donations made by spouses to each other during the marriage are void) (Art. 87, FC) Exception: Moderate gifts on the occasion of any family rejoicing. Grounds for Revocation of Donation Propter Nuptias (Art. 86, FC) 1. If the marriage is not celebrated or judicially declared void ab initio, except donations made in settlements. 2. When the marriage takes place without the consent of the parents or guardians, as required by law. 3. When the marriage is annulled, and the donee acted in bad faith. 4. Upon legal separation, if the donee is the guilty spouse. 5. If there is a resolutory condition, and it is not complied with. 6. When donee has committed an act of ingratitude: (Art. 765, CC) a. An offense against person or property of donor, or his wife or children under parental authority b. An imputation to the donor of any criminal offense, or any act involving moral turpitude, even if proven, unless the crime is committed against the donee, his wife or children under his authority. c. Refusing to support the donor, if he/she is legally required to do so. *The action for filing for revocation of donation prescribes. Matabuena v Cervantes 38 SCRA 284 (1971) The donation between common-law spouses falls within the provision prohibiting donations between spouses during marriage. Harding v. Commercial Union 38 Phil. 464 (1918) The prohibition on donations can only be assailed by persons who bear such relation to the parties or the property itself, that their rights are being interfered with. Here, the insurance company of the donated car cannot assail the validity of the donation. Sumbad v. CA G.R. No. 106060 (1999) The donation made by a man to a woman was held valid because no proof was shown that they were still living in a common-law relationship at the time of the donation. C. ABSOLUTE COMMUNITY OF PROPERTY 1. IN GENERAL When it commences: At the precise moment of the celebration of the marriage (Art. 88, FC). However, if the marriage is celebrated before the Family Code took effect (1988), the default property regime is the Conjugal Partnership of Gains (CPG). Waiver of Rights: (Art. 89, FC) General Rule: NOT ALLOWED Exceptions: 1. When there is judicial separation of property 2. When there is legal separation 3. When the marriage is dissolved (by death of one of the spouses) 4. When the marriage is annulled 2. WHAT CONSTITUTES COMMUNITY PROPERTY What it consists: All the property owned by the spouses at the time of the celebration of the marriage or acquired thereafter. (Art. 91, FC) Under the ACP, spouses cannot exclude specific properties from the regime. What is Excluded (BGM): (Art. 92, FC) 1. Properties acquired by a gratuitous title, i.e. donation, inheritance by testate and intestate succession, including the fruits of such properties EXCEPT: When it was expressly provided by the donor or testator that the property shall form part of the ACP 2. Properties for personal use EXCEPT: Jewelry - they form part of the ACP PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 19 of 325 3. Properties acquired before the marriage, for those with legitimate descendants with a former marriage (to protect rights of children by a former marriage). Presumption: All properties acquired during the marriage form part of the ACP, unless it be proven that they are excluded. (Art. 93, FC) 3. CHARGES UPON THE ACP (Art. 94, FC): (4 debts, 2 taxes, 2 expenses, support, donation) 1. Support - Spouses o Even if not living together except when a spouse leaves conjugal home without just cause o Even during pendency of action for legal separation or annulment of marriage - Common children - Legitimate children of previous marriage 2. Debts and Obligations Contracted During Marriage - Either by both spouses or one of them, with the consent of the other. - In (2) and (3), creditors need not prove that the debts benefited the family. 3. Debts Contracted by one Spouse Without Consent of the other - ACP liable only to the extent that the debt benefited the family. 4. Tax, Liens, Repairs on Community Property - Includes both major and minor repairs 5. Taxes and Expenses for Mere preservation of Separate properties - Applies only to separate properties by either spouse being used by the family, not those that do not benefit the family. - Expenses limited to minor repairs. 6. Expenses for professional, Vocational, or Self-Improvement Course of Spouses 7. Ante-nuptial Debts that Benefited the Family - If the ante-nuptial debt did not benefit the family, applicable rule is (9). 8. Donations by Both Spouses to Common Legitimate Children 9. Ante-Nuptial Debts not under (7), Support of Illegitimate Children, Liabilities of Either Spouse Arising from Crime or Quasi-Delict - Only ff the debtor-spouse has no exclusive property or his or her property is insufficient. - The payments by the ACP are deemed advances to be deducted from the share of the guilty spouse upon the liquidation of the absolute community. 10. Expenses of Litigation between Spouses 4. ADMINISTRATION, OWNERSHIP AND DISPOSITION OF ACP Administration of property: Belongs to both spouses jointly. If they disagree the husband’s decision prevails. However, the wife has five years from the date of the decision to go to court for recourse. Otherwise, it is presumed that she agreed with the husband’s decision. (Art. 96, FC) Except: When the other spouse is incapacitated, or unable to participate in the administration (e.g. when abroad). Disposition of property: Either spouse may, through a will, dispose his/her interest in the community property. (Art. 97, FC) However, the will should refer only to his/her own share in the community property. Donation of property: Donation of one spouse without the consent of the other is not allowed (Art. 98, FC) Except: 1. Moderate donations to charity due to family rejoicing or distress; 2. Moderate gifts by each spouse to the other due to family rejoicing. (note: What’s moderate depends on the socio-economic status of the family) 5. DISSOLUTION OF ACP ACP terminates upon: (Art. 99, FC) 1. Death of either spouse – follow rules in Art. 103 2. Legal Separation – follow rules in Arts. 63 and 64 3. Annulment or judicial declaration of nullity – follow rules in Arts. 50 to 52 4. Judicial separation of property during marriage – follow rules in Arts. 134 to 138 Rules on De Facto Separation: (ART. 100, FC): De facto separation does not affect the ACP. EXCEPT that: 1. Spouse who leaves the conjugal home without just cause shall not be entitled PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 20 of 325 to support. He/She, however, is still required to support the other spouse and the family. 2. If consent is necessary for transaction but is withheld or otherwise unobtainable, authorization may be obtained from the court. 3. Support for family will be taken from the ACP. 4. If ACP is insufficient, spouses shall be solidarily liable. 5. If it is necessary to administer or encumber separate property of spouse who left, spouse present may ask for judicial authority to do this. 6. If ACP is not enough and one spouse has no separate property, spouse who has property is liable for support, according to provisions on support. Abandonment: (Art. 101, FC) Present spouse may petition the court for: (a) receivership; (b) judicial separation of property; or (c) authority to be the sole administrator of the absolute community, subject to precautionary conditions that the court may impose. *Spouse is prima facie considered to have abandoned the other spouse and the family if: 1. he/she has left for a period of three months, 2. he/she has failed to inform his/her whereabouts for a period of three months. 6. LIQUIDATION OF ASSETS AND LIABILITIES Process of liquidation of ACP: (Art. 102, FC) 1. Inventory of assets of ACP and of spouses, with market values. 2. Obligations are paid with community property, and separate obligations not charged to ACP paid by respective assets of spouses. 3. Balance, or net remainder is divided equally between the spouses, irrespective of how much each brought into the community. 4. If obligations exceed the assets of the ACP, nothing is divided. Creditors can go after the separate properties of the spouses, which are solidarily liable for the deficiency. 5. If personal obligations of a spouse exceed his/her separate property, creditor can go after the share of the spouse on the net remainder of the ACP, without prejudice to the provisions of law on forfeitures and delivery of presumptive legitimes. 6. After covering all community obligations and obligations of spouses, balance of separate properties shall be delivered to respective spouses or their heirs, and they will also divide into two equal shares whatever is left of the community assets, without prejudice to the provisions of law on forfeitures and delivery of presumptive legitimes. Rules in Case of Termination of Marriage by Death of One of the Spouses: (Art. 103, FC) 1. The community property shall be liquidated in the same proceeding for the settlement of the estate of the deceased spouse. 2. If no such judicial settlement proceeding is instituted, surviving spouse shall liquidate the community property either judicially or extra- judicially within one year from the death of the deceased spouse. Procedure for Liquidation of Community Properties of Two Marriages: (Art. 104, FC) 1. Determine the capital, fruits, and income of each community upon such proof as may be considered according to the rules of evidence. 2. In case of doubt as to which community the existing properties belong, they shall be divided between two communities in proportion to the capital and duration of each. Onas v. Javillo 59 Phil. 733 (1934) Javillo contracted 2 marriages. SC ruled that each absolute community should be considered owner of the parcels of land acquired during its existence. Death discontinues ACP. Vda. De Delizo v. Delizo G.R. No 32820 (1976) In case of doubt as to which community the existing properties belong, the same shall be divided between the different communities in proportion to the capital and duration of each. D. CONJUGAL PARTNERSHIP OF GAINS WHERE IT APPLIES: 1. For marriages before the implementation of the Family Code. 2. For marriages after the Family Code, if agreed to by the parties through a marriage settlement. HUSBAND AND WIFE PLACE IN COMMON FUND: PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 21 of 325 1. The proceeds, products, fruits, and income of their separate properties; 2. Everything acquired by them within marriage through their own efforts; 3. Everything acquired by them by chance EXCLUSIVE PROPERTIES OF THE SPOUSES: I. Property by direct acquisition, or property that is originally exclusive: 1. Property brought into marriage by each spouse as his/her own – Art. 109(1) 2. Property acquired by either spouse during the marriage by gratuitous title – Art 109 (2) II. Property by substitution: 3. Property acquired by right of redemption, by barter, or by exchange with property belonging to either spouse – Art. 109 (3) 4. Property purchased with exclusive money of either spouse- Art. 109 (4) III. Other Separate Property: 5. Collection of credits belonging to one spouse exclusively 6. Sale of separate property of a spouse 7. Indemnity paid in cash of expropriation of separate property or under an insurance policy covering separate property. 8. Possession does not affect ownership of separate property. PROPERTIES THAT COMPOSE CPG: 1. Acquired by Onerous Title during the Marriage at Expense of Common Fund (Art. 117 (1)); 2. Acquired through the Labor, Industry, Work, Profession of Either or both Spouses (Art. 117 (2)); 3. Fruits from common property; 4. Net fruits of exclusive property of each spouse (Art. 117 (3)); 5. Share of either spouse in hidden treasure, whether as finder or owner of property where treasure is found (Art. 117(4)); 6. Acquired through occupation such as fishing or hunting (Art. 117 (5)); 7. Livestock existing at dissolution of partnership in excess of what is brought by either spouse to the marriage (Art. 117 (6)); 8. Acquired by chance, such as winnings from gambling or betting (Art. 117 (7)) NOTE: A. If winning ticket is bought by a spouse with his or her own money or was given gratuitously by a friend = the prize will be separate property of the spouse who owns the ticket B. If winning ticket is bought by conjugal funds = prize is conjugal - presumption is ticket bought during marriage is bought by conjugal funds Property bought on installments paid partly from exclusive funds of the spouses and partly from conjugal funds: a.If full ownership is vested before the marriage – it shall belong to the buyer- spouse b.If full ownership was vested during the marriage – it shall belong to the conjugal partnership Property belonging to one spouse converted into another kind totally different in nature from its original form during marriage becomes conjugal in the absence of proof that the expenses of conversion were exclusively for the account of the original owner-spouse, subject to reimbursement of the value of the original property from the conjugal partnership Upon dissolution of marriage or partnership, the net gains or benefits from the partnership shall be divided equally between the spouses, unless they have agreed on another manner of division in their marriage settlement. Money received under the Social Security Act is not conjugal, although the employee-spouse contributes to the SSS with his salaries, but belongs to the designated beneficiary under the Social Security Law Intellectual property, like copyright or patent, should, according to Tolentino, citing Planiol and Ripert, be considered separate property of the spouse who produces or invents or discovers it, this property being of a special type, almost a part of one's person or taken from his personality and the physical or external manifestation of his intellect or genius, that it is not simply a product of one's work or industry but should be considered as pertaining exclusively to its creator Business property like trade-marks, trade names, service marks, business goodwill, and similar kinds of property are, however, merely accessories to some commercial establishment or product, so that if such establishment or product is separate property of one spouse, then the business property is separate property, the same being an accessory that follows the principal; but all benefits or earnings derived from these different kinds of property during the marriage should belong to the conjugal property (Tolentino, id., citing the same authority). PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 22 of 325 CHARGES UPON CPG (ART. 121) [cf. Charges to ACP]: (3 debts, 2 taxes, 2 expenses, support, donation) 1. Support of the spouse, their common children, and the legitimate children of either spouse 2. All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the CPG, or by both spouses or by one of them with the consent of the other 3. Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have benefited 4. All taxes, liens, charges, and expenses upon conjugal property 5. All taxes and expenses for mere preservation made during the marriage upon the separate property of either spouse 6. Expenses to enable either spouse to commence or complete a professional, vocational, or other activity for self- improvement 7. Ante-nuptial debts of either spouse insofar as they have redounded to the benefit of the family 8. The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for self-improvement 9. Expenses of litigation between the spouses unless the suit is found to groundless If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses shall be solidarily liable for the unpaid balance with their separate properties. Disposition or encumbrance of conjugal property requires: A. The consent or approval by both spouses; OR B. Judicial authority secured in court Mere awareness of a transaction is NOT consent Ayala Investment v. Ching 286 SCRA272 The Supreme Court ruled that indirect benefits that might accrue to a husband in signing as a surety or guarantee agreement not in favor of the family but in favor of his employer corporation are not benefits that can be considered as giving a direct advantage accruing to the family. Hence, the creditors cannot go against the conjugal partnership property of the husband in satisfying the obligation subject of the surety agreement. A contrary view would put in peril the conjugal partnership by allowing it to be given gratuitously as in cases of donation of conjugal partnership property, which is prohibited. DISSOLUTION OF CPG (ART. 128): 1. Prepare an inventory of all properties 2. Amounts advanced by the conjugal partnership in payment of personal debts and obligations of either spouse shall be credited to the conjugal partnership. 3. Each spouse shall be reimbursed for the use of his or her exclusive funds in the acquisition of property or for the value of his or her exclusive property, the ownership of which has been vested by law in the conjugal partnership. 4. Debts and obligations of the conjugal partnership shall be paid out of the conjugal assets. 5. Whatever remains of the exclusive properties of the spouses shall be delivered 6. Indemnify loss or deterioration of movables belonging to either spouse, even due to fortuitous event, used for the benefit of the family 7. The net remainder of the conjugal partnership properties, or the profits, which shall be divided equally between husband and wife EXCEPTIONS: a. A different proportion or division was agreed upon in the marriage settlements b. There has been a voluntary waiver or forfeiture of such share as provided in this Code. [NOTE: Dissolution of the conjugal property must be recorded in the registry of property in order to affect third persons dealing with registered property.] De Ansaldo v. Sheriff of Manila G.R. No. L-43257 (1937) The Supreme Court ruled that the spouses are not co-owners of the conjugal properties during the marriage and cannot alienate the supposed ½ interest of each in the said properties. The interest of the spouses in the conjugal properties is only inchoate or a mere expectancy and does not ripen into title until it appears after the dissolution and liquidation of the partnership that there are net assets ACP/CPG TERMINATES UPON (ART. 99 AND 126): 5. Death of either spouse – follow rules in Art. 103 6. Legal Separation – follow rules in Arts. 63 and 64 PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 23 of 325 7. Annulment or judicial declaration of nullity – follow rules in Arts. 50 to 52 8. Judicial separation of property during marriage – follow rules in Arts. 134 to 138 CPG vs. ACP: CPG ACP 1. Property acquired before marriage . Each spouse retains his/her property; only fruits part of conjugal property Properties become part of community property 2. Property acquired during marriage Part of conjugal property Becomes conjugal property. CPG ACP 3. Upon dissolu- tion of marriage Separate properties are returned; net profits divided equally between spouses or heirs. Net remainder of ACP divided equally between spouses or heirs. 4. Basis Capital and properties of spouses kept separate and distinct from benefits; insurmoun table obstacle to presump- tion of solidarity Mutual trust and confidence between spouses; fosters oneness of spouses 5. Liquida- tion Exclusive properties will have to be identified and returned, and sometimes , identify- cation is difficult. Easier to liquidate because net remainder of community properties are simply divided between spouses or heirs. E. SEPARATION OF PROPERTIES DURING MARRIAGE In the absence of an express declaration in the marriage settlements, the separation of property between the spouses during the marriage shall not take place except by judicial order. (Art. 134) Judicial separation of property may either be voluntary or for sufficient cause. SUFFICIENT CAUSES FOR JUDICIAL SEPARATION OF PROPERTIES (CALASA) (ART. 135): 1. Spouse of the petitioner has been sentenced to a penalty which carries with it civil interdiction. 2. Spouse of the petitioner has been judicially declared an absentee. 3. Loss of parental authority of the spouse of petitioner has been decreed by the court. 4. Spouse of the petitioner has abandoned the latter or failed to comply with his or her obligations to the family. 5. The spouse granted the power of administration in the marriage settlements has abused that power. 6. At the time of the petition, the spouses have been separated in fact for at least one year and reconciliation is highly improbable. Each spouse shall contribute to the family expenses, in proportion to their income. In case of insufficiency, the market value of their separate properties. (Art. 146) Liability of spouses to the creditors of the family shall be SOLIDARY. (Art. 146, par. 2) EFFECTS OF SEPARATION OF PROPERTY BETWEEN SPOUSES: 1. ACP or CPG is dissolved and liquidated 2. The liability of the spouses to creditors shall be solidary with their separate properties 3. mutual obligation to support each continues except when there is legal separation 4. rights previously acquired by creditors are not prejudiced REVIVAL OF PROPERTY REGIME IN THE FF. INSTANCES (ART. 141): 1.When the civil interdiction terminates. 2.When the absentee spouse reappears. 3.When the court, being satisfied that the spouse granted the power of PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 24 of 325 administration in the marriage settlements will not again abuse that power, authorizes the resumption of said administration. 4.When the spouse who has left the conjugal home without a decree of legal separation resumes common life with the other; 5.When parental authority is judicially restored to the spouse previously deprived thereof; 6.When the spouses who have separated in fact for at least one year, reconcile and resume common life. 7.When after voluntary dissolution of the absolute community of property or conjugal partnership has been judicially decreed upon the joint petition of the spouses, they agree to the revival of the former property regime. No voluntary separation of property may thereafter be granted. TRANSFER OF ADMINISTRATION TO THE OTHER SPOUSE WHEN (GACA) (ART. 142): 1. When one spouse becomes the guardian of the other. 2. When one spouse is judicially declared an absentee. 3. When one spouse is sentenced to a penalty which carries with it civil interdiction. 4. When one spouse becomes a fugitive from justice or is in hiding as an accused in a criminal case. If the other spouse is not qualified by reason of incompetence, conflict of interest, or any other just cause, the court shall appoint a suitable person to be the administrator. F. PROPERTY REGIME OF UNIONS WITHOUT MARRIAGE Art.147 Art.148 Applica- bility 1. man and woman 2. living together as husband and wife 3. with capacity to marry (Art.5 without any legal impedimen t) at least 18 years old 1. man and woman 2. living together as husband and wife 3. NOT capacitated to marry (Art.35(1) under 18 years old) 4. adulterous relationship (e.g. concubinage ) 5. bigamous/p not Art. 37 (incestuo us void marriage) not Art. 38 (void marriage by reason of public policy) not bigamous 4. other void marriages due to absence of formal requisite olygamous marriage (Art.35(4)) 6. incestuous marriages under Art.37 7. Void marriages by reason of public policy under Art.38 Salaries and wages Owned in equal shares Separately owned by parties Art.147 Art.148 Proper- ties acquired through exclusive funds Remains exclusive provided there is proof Remains exclusive Proper- ties acquired by both through work or industry Governed by rules on co- ownership Owned in common in proportion to respective contribution Proper- ties acquired while living together Owned in equal shares since it is presumed to have been acquired through joint efforts if one party did not participate in acquisitio n, presumed to have contribute d through care and maintenan ce of family and household No presumption of joint acquisition. When there is evidence of joint acquisition but none as to the extent of actual contribution, there is a presumption of equal sharing Forfeitu- re When only one of the If one party is validly married PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 25 of 325 parties is in good faith, the share of the party in bad faith shall be forfeited: 1. In favor of their common children 2. In case of default of or waiver by any or all of the common children or their descendan ts, each vacant share shall belong to the respective surviving descendan ts 3. In the absence of such descendan ts, such share belongs to the innocent party to another: - his/her share in the co- owned properties will accrue to the ACP/CPG of his/her existing valid marriage If the party who acted in bad faith is not validly married to another, his/her share shall be forfeited in the same manner as that provided in Art 147 The same rules on forfeiture shall apply if both parties are in bad faith IX. THE FAMILY FAMILY – basic social institution which public policy cherishes and protects hence, no suit between members of the family shall prosper unless compromise between parties has failed. FAMILY RELATIONS INCLUDE: 1. Between husband and wife 2. Between parents and children 3. Among other ascendants and descendants 4. Among brothers and sisters, full or half blood. General Rule: For a suit between members of the same family to prosper, the following are required: 1. Earnest efforts towards a compromise have been made 2. Such efforts have failed 3. Such earnest efforts and the fact of failure must be alleged [NOTE: The case will be dismissed if it is shown that no such efforts were made.] Exceptions to the general rule (VJLAFF): a. Civil status of persons, b. Validity of marriage or a legal separation, c. Any ground for legal separation, d. Future support, e. Jurisdiction of courts, f. Future legitime Hontiveros v. RTC 309 SCRA 340 (1999) Whenever a stranger is a party in a case involving family members, the requisite showing of earnest efforts to compromise is no longer mandatory, as such inclusion of a stranger takes the case out of the ambit of FC 151. FAMILY HOME - dwelling place of a person and his family Guidelines: 1. It is deemed constituted from time of actual occupation as a family residence 2. It must be owned by person constituting it 3. It must be permanent 4. Rule applies to valid and voidable and even to common-law marriages under Arts.147 and 148 5. It continues despite death of one or more spouses or unmarried head of family for 10 years or as long as there is a minor beneficiary (Art.159) 6. Can only constitute one family home GENERAL RULE: The family home is exempt from: 1. Execution 2. Forced sale 3. Attachment Exceptions in the exemption of the family home from execution (Art. 156): 1. Nonpayment of taxes. 2. Debts incurred prior to the constitution of the family home. 3. Debts secured by mortgages on the premises before or after such constitution. 4. Debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 26 of 325 Beneficiaries of the family home (Art. 154): 1. Husband and wife, or an unmarried person who is the head of the family 2. Parents (may include parent-in-laws), ascendants, descendants, brothers and sisters (legitimate/illegitimate), who are living in the family home and who depend on the head of the family for support Requisites to be a beneficiary: 1. The relationship is within those enumerated 2. They live in the family home 3. They are dependent for legal support on the head of the family Requirements for the sale, alienation, donation, assignment, or encumbrance of the family home: 1. the written consent of the person constituting it, 2. his/her spouse, and 3. majority of the beneficiaries of legal age [NOTE: If there is a conflict, the Court will decide.] In case of death (ART. 159): - The family home shall continue despite the death of one or both spouses or of the unmarried head of the family for a period of ten years, or as long as there is a minor beneficiary. - The heirs cannot partition the home unless the court finds compelling reasons therefor. Requisites for creditor to avail of the right under article 160: 1. He must be a judgment creditor; 2. His claim is not among those excepted under Article155, and 3. He has reasonable grounds to believe that the family home is worth more than the maximum amount fixed in Article 157 Procedure to avail of right under Article 160: 1. The creditor must file a motion in the court proceeding where he obtained a favorable for a writ of execution against the family home. 2. There will be a hearing on the motion where the creditor must prove that the actual value of the family home exceeds the maximum amount fixed by the FC either at the time of its constitution or as a result of improvements introduced thereafter its constitution. 3. If the creditor proves that the actual value exceeds the maximum amount the court will order its sale in execution. 4. If the family home is sold for more than the value allowed, the proceeds shall be applied as follows: a. First, the obligation enumerated in Article 155 must be paid b. Then the judgment in favor of the creditor will be paid, plus all the costs of execution c. The excess, if any, shall be delivered X. PATERNITY AND FILIATION PATERNITY - the relationship or status of a person with respect to his or her child (paternity includes maternity). FILIATION - the status of a person with respect to his or her parents. TYPES OF FILIATION: 1. Natural a. Legitimate (Art. 164) b. Illegitimate (Arts.165, 175, 176) c. Legitimated (Arts. 167-172) 2. By Adoption (R.A. No. 8552 (“Domestic Adoption Act”) and R.A. No. 8043 (“Inter- country Adoption Act”) 3 TYPES OF LEGITIMATE CHILDREN: 1. Legitimate proper 2. Legitimated 3. Adopted 2 TYPES OF ILLEGITIMATE CHILDREN: 1. Children of parents disqualified to marry each other at conception and marriage. 2. Children of parents qualified to marry each other A. LEGITIMATE CHILDREN GENERAL RULE: Those who are conceived OR born during a valid marriage EXCEPTIONS to the general rule are those children who are: 1. Conceived as a result of artificial insemination 2. Born of a voidable marriage before decree of annulment 3. Conceived or born before judgment of annulment or absolute nullity under Art. 36 (psychological incapacity) becomes final & executory 4. Conceived or born of a subsequent marriage under Art. 53 (failure to record the judgment, partition and distribution of properties, and delivery of children’s presumptive legitime) 5. Of mothers who may have declared against their legitimacy or was sentenced as an adulteress 6. Legally adopted 7. Legitimated, conceived and born outside of wedlock of parents without impediment at PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 27 of 325 the time of conception and who subsequently married For children by artificial insemination to be considered legitimate: 1. The artificial insemination is made on the wife, not on another woman AND 2. The artificial insemination on the wife is done with the sperm of the husband, or of a donor, or both the husband and a donor AND 3. The artificial insemination has been authorized or ratified by both spouses on a written instrument executed and signed by them before the birth of the child, AND 4. The written instrument is recorded in civil registry together with the birth certificate of the child IMPUGNING LEGITIMACY: Liyao v. Liyao 378 SCRA 563 (2002) A child born within a valid marriage is presumed legitimate even though the mother may have declared against its legitimacy or may have been sentenced as an adulteress. The child himself cannot choose his own filiation. If the husband, presumed to be the father, does not impugn the legitimacy of the child, then the status of the child is fixed, and the latter cannot choose to be the child of his mother’s alleged paramour. Grounds to impugn the legitimacy of the child: 1. Physically impossibility for the husband to have sexual intercourse with his wife within the first 120 days of the 300 days which immediately preceded the birth of the child because of: a. Physical incapacity of the husband to have sexual intercourse with his wife b. The fact that the husband and wife were living separately in such a way that sexual intercourse was not possible, or c. Serious illness of the husband which absolutely prevented intercourse 2. Biological or other scientific grounds that the child could not have been that of the husband, except in the case of children conceived through artificial insemination a. Blood grouping tests – can determine non-paternity but not paternity (ex. A-B-O test). b. Human Leukocyte Antigen Test (HLA) – can prove identity between child and father with a probability exceeding 98%. c. DNA test d. Vasectomy [NOTE: SEMPIO-DIY: A double vasectomy, together with other pieces of evidence, can show the impossibility of the alleged father siring his supposed child; STA. MARIA: The fact that the husband has undergone vasectomy is not enough proof to rebut the presumption of legitimacy (Cocharan v. Cocharan).] 3. Written authorization or ratification of either parent of children conceived through artificial insemination, when the was obtained through mistake, fraud, violence, intimidation, or undue influence Who can impugn the legitimacy of a child General Rule: Only the husband can impugn the legitimacy of a child Exceptions: The heirs of the husband may impugn the child’s filiation in the following cases: a. If the husband dies before the expiration of period for filing the action b. If the husband dies after filing without desisting If the child was born after the death of the husband When to impugn the legitimacy of a child: 1. Within 1 year – from knowledge of the birth or its recording in the civil register, if the impugner resides in the city or municipality where the birth took place or was recorded; 2. Within 2 years – from knowledge of the birth or its recording in the civil register, if the impugner resides in the Philippines other than in the city or municipality where the birth took place or was recorded; 3. Within 3 years – from knowledge of the birth or its recording in the civil register, if the impugner resides abroad NOTE: Legitimacy cannot be collaterally attacked. It can only be impugned in a direct action. Termination of 1 st marriage Celebration of 2 nd marriage 180 days after celebration of 2 nd marriage 300 days after termination of 1 st marriage Child of the 1 st marriage Child of the 2 nd marriage PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 28 of 325 If the birth of the child has been concealed or was unknown to the husband or his heirs, the above periods shall be counted: 1. From the discovery or knowledge of the birth of the child 2. From the discovery or knowledge of the fact of registration of the birth, whichever is earlier. IN CASE OF TWO MARRIAGES OF THE MOTHER: For the child to be considered the child of the 1 st husband, the following requisites must concur: 1. The mother must have married again within 300 days from the termination of her first marriage 2. The child was born within the same 300 days after the termination of the former marriage of its mother 3. The child was born before 180 days after the solemnization of its mother's 2 nd marriage For the child to be considered the child of the 2 nd husband, the following requisites must concur: 1. The mother must have married again within 300 days from the termination of the marriage 2. The child was born within the same 300 days after the termination of its mother's first marriage 3. The child was born after 180 days following the solemnization of its mother's second marriage NOTE: The first marriage must be terminated either by death or annulment. There is no presumptive rule on the status of a child born after 300 days following the termination of the marriage. (Art. 169) [Reason: 300 days is the longest period of gestation.] B. PROOF OF FILIATION 1. The record of birth appearing in the civil register or a final judgment. 2. An admission of legitimate filiation in a public document or a private handwritten instrument and signed by the parent concerned. Or, in their Absence: 1. The open and continuous possession of the status of a legitimate or illegitimate child; or 2. Any other means allowed by the Rules of Court and special laws. Jison v. CA 286 SCRA 495 (1998) To prove open and continuous possession of the status of an illegitimate child, there must be evidence of the manifestation of the permanent intention of the supposed father to consider the child as his, by continuous and clear manifestations of parental affection and care, which cannot be attributed to pure charity. “Continuous” means uninterrupted and consistent, but does not require any particular length of time. Cabatania v.CA G.R. No. 124814 (2004) A certificate of live birth purportedly identifying the putative father is not competent evidence of paternity when there is no showing that the putative father had a hand in the preparation of said certificate. The local civil registrar has no authority to record the paternity of an illegitimate child on the information of a third person. While a baptismal certificate may be considered a public document, it can only serve as evidence of the administration of the sacrament on the date specified but not the veracity of the entries with respect to the child’s paternity. Thus, certificates issued by the local civil registrar and baptismal certificates are per se inadmissible in evidence as proof of filiation and they cannot be admitted indirectly as circumstantial evidence to prove the same. Herrera v. Alba G.R No. 148220 (2005) To be effective, the claim of filiation must be made by the putative father himself and the writing must be the writing of the putative father. A notarial agreement to support a child whose filiation is admitted by the putative father was considered acceptable evidence. Letters to the mother vowing to be a good father to the child and pictures of the putative father cuddling the child on various occasions, together with the certificate of live birth, proved filiation. However, a student permanent record, a written consent to a father’s operation, or a marriage contract where the putative father gave consent, cannot be taken as authentic writing. Standing alone, neither a certificate of baptism nor family pictures are sufficient to establish filiation. ACTION TO CLAIM LEGITIMACY 1. The child can bring the action during his lifetime 2. If the child dies after reaching majority without filing an action, his heirs can longer file the action after death 3. If the child dies during minority in the state of insanity, his heirs can file the action for him within 5 years form the child’s death 4. If the child dies after commencing the action, the action will survive and his heirs will substitute for him PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 29 of 325 5. If the child is a minor, incapacitated or insane, his guardian can bring the action in his behalf C. ILLEGITIMATE FILIATION GENERAL RULE: Those who are conceived and born outside a valid marriage are illegitimate. [NOTE: Proof of filiation is the same as that for legitimate children] RIGHTS OF LEGITIMATE AND ILLEGITIMATE CHILDREN: LEGITIMATE ILLEGITIMATE To bear the surnames of the father and the mother To bear the surname of their mother [may also use the surname of the father if their filiation has been expressly recognized by the father (R.A. 9255)] To receive support from their parents, their ascendants, and in proper cases, their brothers and sisters, in conformity with the provisions of this Code on Support To receive support in conformity with the Family Code Entitled to the legitime and other successional rights granted to them by the New Civil Code The legitime of each illegitimate child shall consist of one-half of the legitime of a legitimate child. D. LEGITIMATED CHILDREN Legitimation takes place by the subsequent marriage of the child’s parents. It confers on the child the rights of legitimate children, and retroacts to the time of the child’s birth. REQUISITES FOR LEGITIMATION: 1. The child was conceived and born outside of wedlock; 2. The parents, at the time of child’s conception, were not disqualified by any impediment to marry each other 3. There is a valid marriage subsequent to the child’s birth. WHO CAN BE LEGITIMATED: 1. Child who is conceived and born outside of wedlock; and 2. At the time of conception, the parents were not disqualified by any impediment to marry each other. [i.e. children of those who are not disqualified by any impediment to marry each other] CHILDREN OF FOLLOWING CANNOT BE LEGITIMATED (BECAUSE OF IMPEDIMENT) (VIBA): 1. Adulterous relationships 2. Incestuous relationships 3. Bigamous relationships 4. Void marriages by reasons of public policy under Art. 38 RIGHTS: Legitimated children shall enjoy the same rights as legitimate children (Art. 179) RETROACTIVITY: The effects of legitimation shall retroact from the time of the child’s birth. (Art. 180) DEATH OF CHILD: When the child dies before the celebration of the marriage, their legitimation shall benefit their descendants. (Art. 181) IMPUGNING: Only those who are prejudiced by their rights, within five years from the time of the cause of action accrues. (Art. 182) XI. ADOPTION LEGITIMATION ADOPTION The law merely makes legal what exists by nature The law merely creates by fiction a relation which did not in fact exist Persons affected Only natural children Generally applies to strangers Procedure Extrajudicial acts of parents Always by judicial decree Who applies Only by both parents By one parent alone Effect Same status and rights as a legitimated child not only in relation to the legitimizing parents but also to other relatives Creates a rel. only between the child and the adopting parent PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 30 of 325 R.A 8552: Domestic Adoption Act of 1998 WHO MAY ADOPT: A. Filipino Citizens 1. Of legal age 2. In possession of full civil capacity and legal rights 3. Of good moral character 4. Has not been convicted of any crime involving moral turpitude 5. Emotionally and psychologically capable of caring for children 6. At least sixteen (16) years older than adoptee, except when adopter is biological parent of the adoptee or is the spouse of the adoptee’s parent 7. In a position to support and care for his/her children in keeping with the means of the family B. Aliens 1. Possession of the same as the qualifications for Filipinos 2. His/her country has diplomatic relations with the Philippines 3. Has been living continuously for 3 years (provided that absences not exceeding 60 days per 1 year for professional, business, or emergency reasons are allowed) in RP prior to filing of decree is entered except this may be waived under the following: (i) A former Filipino Citizen who seeks to adopt a relative within the 4 th degree of consanguinity or affinity (ii) One who seeks to adopt the legitimate or illegitimate child of his/her Filipino spouse (iii)One who is married to a Filipino Citizen and seeks to adopt jointly with his/her spouse a relative within the 4 th degree of consanguinity or affinity of the Filipino spouse 4. Has been certified by his/her diplomatic or consular office or any appropriate government agency that he/she has the legal capacity to adopt in his/her country 5. His/her government allows the adoptee to enter his/her country as his/her adoptee 6. Has submitted all the necessary clearances and such certifications as may be required C. Guardians With respect to theirs ward after the termination of the guardianship and clearance of his/her accountabilities Husband and wife shall adopt jointly except: a. if one spouse seeks to adopt the legitimate child of the other b. if one of the spouse seeks to adopt his/her illegitimate child provided that other spouse has signified his/her consent c. if spouses are legally separated from each other PRE-ADOPTION SERVICES: The DSWD shall provide for the following services: 1. Counseling services for the biological parents, prospective parents, and prospective adoptee 2. Exhaust all efforts to locate the biological parents, if unknown WHO MAY BE ADOPTED: 1. Any person below 18 years old who has been administratively or judicially declared available for adoption 2. The legitimate child of one spouse by the other spouse 3. An illegitimate child by a qualified adopter to improve the child’s status to that of legitimacy 4. A person of legal age if, prior to the adoption, said person has been consistently considered and treated by the adopter(s) as his/her child since minority 5. A child whose previous adoption has been rescinded 6. A child whose biological or adoptive parent(s) has died, provided that no proceedings shall be initiated within 6 months from the time of death of said parent(s) CONSENT NECESSARY FOR ADOPTION: 1. The prospective adoptee if 10 years or older 2. The prospective adoptee’s biological parents or legal guardian 3. The prospective adopters’ legitimate and adopted children who are ten years or over and, if any, illegitimate children living with them 4. The prospective adopter’s spouse in appropriate cases [NOTE: A decree of adoption shall be effective as of the date the original petition was filed. It also applies in case the petitioner dies before the issuance of the decree of adoption to protect the interest of the adoptee.] Tamargo v. CA G.R. No. 85044 (1992) Where the petition for adoption was granted after the child had shot and killed a girl, the Supreme Court did not consider that retroactive effect may be given to the decree of adoption so as to impose a liability upon the adopting parents accruing at a time when adopting parents had no actual or physically custody over the adopted child. Retroactive affect may perhaps be given to the granting of the petition for adoption where such is PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 31 of 325 essential to permit the accrual of some benefit or advantage in favor of the adopted child. In the instant case, however, to hold that parental authority had been retroactively lodged in the adopting parents so as to burden them with liability for a tortious act that they could not have foreseen and which they could not have prevented would be unfair and unconscionable. EFFECTS OF ADOPTION: 1. Parental Authority: All legal ties between biological parents and adoptee are severed, and the same shall be vested on the adopter, except if the biological parent is the spouse of the adopter. 2. Legitimacy: The adoptee shall be considered legitimate son/daughter of the adopter for all intents and purposes. 3. Succession: Adopter and adoptee shall have reciprocal rights of succession without distinction from legitimate filiation, in legal and intestate succession. If adoptee and his/her biological parents had left a will, the law on testamentary succession shall govern. RESCISSION OF ADOPTION: Adoption, being in the best interest of the child, shall not be subject to rescission by the adopter(s). Adopted may request for rescission based on the ff grounds: 1. repeated physical and verbal maltreatment 2. attempt on life of adoptee 3. sexual assault or violence 4. abandonment and failure to comply with parental obligations However, the adopter(s) may disinherit the adopted based on causes ias enumerated in Art. 919 of the NCC. EFFECTS OF RESCISSION: 1. The parental authority of the adoptee's biological parents, if known, OR the legal custody of the DSWD shall be restored if the adoptee is still a minor or incapacitated. 2. The reciprocal rights and obligations of the adopters and the adoptee to each other shall be extinguished. 3. The court shall order the Civil Registrar to cancel the amended certificate of birth of the adoptee and restore his/her original birth certificate. 4. Succession rights shall revert to its status prior to adoption, but only as of the date of judgment of judicial rescission. Vested rights acquired prior to judicial rescission shall be respected. R.A. 8043: Inter-Country Adoption Act of 1995 INTER-COUNTRY ADOPTION refers to the socio-legal process of adopting a Filipino child by a foreigner or a Filipino citizen permanently residing abroad where the petition is filed, the supervised trial custody is undertaken, and the decree of adoption is issued outside the Philippines. WHO MAY BE ADOPTED: Only a legally-free child may be the subject of inter-country adoption. A legally-free child is one who has been voluntarily or involuntarily committed to the DSWD of the Philippines, in accordance with the Child and Youth Welfare Code. No child shall be matched to a foreign adoptive family unless it is satisfactorily shown that the child cannot be adopted locally. WHO MAY ADOPT: Any foreign national or a Filipino citizen permanently residing abroad who has the qualifications and none of the disqualifications under the Act may file an application if he/she: 1. Is least 27 years of age and at least 16 years older than the child to be adopted, at the time of application unless the adopter is the parent by nature of the child to be adopted or the spouse of such parent 2. If married, his/her spouse must jointly file for the adoption 3. Has the capacity to act and assume all rights and responsibilities of parental authority under his national laws, and has undergone the appropriate counseling from an accredited counselor in his/her country 4. Has not been convicted of a crime involving moral turpitude 5. Is eligible to adopt under his/her national law 6. Is in a position to provide the proper care and support and to give the necessary moral values and example to all his children, including the child to be adopted 7. Agrees to uphold the basic rights of the child as embodied under Philippine laws, the U.N. Convention on the PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 32 of 325 Rights of the Child, and to abide by the rules and regulations issued to implement the provisions of this Act 8. Comes from a country with whom the Philippines has diplomatic relations and whose government maintains a similarly authorized and accredited agency and that adoption is allowed under his/her national laws INTER-COUNTRY ADOPTION BOARD: Acts as the central authority in matters relating to inter-country adoption Ensures that all possibilities for adoption of the child under the Family Code have been exhausted and that inter-country adoption is in the best interest of the child. TRIAL CUSTODY: The trial custody shall be for a period of 6 months from the time of placement. It starts upon actual physical transfer of the child to the applicant who, as actual custodian, shall exercise substitute parental authority over the person of the child The adopting parents shall submit to the governmental agency or the authorized and accredited agency, which shall in turn transmit a copy to the Board, a progress report of the child's adjustment. The progress report shall be taken into consideration in deciding whether or not to issue the decree of adoption. XII. SUPPORT SUPPORT consists of everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family. KINDS OF SUPPORT: 1. Legal – that which is required to be given by law 2. Judicial – that which is required to be given by court order whether pendent elite or in a final judgment 3. Voluntary or Conventional – by agreement CHARACTERISTICS OF SUPPORT (PREVIW): 1. Personal 2. Intransmissible 3. Not subject to waiver or compensation with regard to future support 4. Exempt from attachment or execution 5. Reciprocal on the part of those who are by law bound to support each other 6. Variable WHO ARE OBLIGED TO SUPPORT EACH OTHER: 1. The spouses; 2. Legitimate ascendants and descendants; 3. Parents and their legitimate children and the legitimate and illegitimate children of the latter; 4. Parents and their illegitimate children and the legitimate and illegitimate children of the latter; and 5. Legitimate brothers and sisters, whether of full or half-blood. ORDER OF SUPPORT (IF 2 OR MORE ARE TO GIVE SUPPORT): 1. Spouses 2. Descendants, nearest in degree 3. Ascendants, nearest in degree 4. Brothers and Sisters [NOTE: When two or more are obliged to give support, the payment shall be divided between them in proportion to their resources.] XIII. PARENTAL AUTHORITY PARENTAL AUTHORITY (PATRIA POTESTAS): The mass of rights and obligations which parents have in relation to the person and property of their children until their emancipation, and even after this under certain circumstances (Manresa). PARENTAL AUTHORITY INCLUDES: 1. The caring for and rearing of children for civic consciousness and efficiency; 2. The development of the moral, mental and physical character and well-being of said children RULES AS TO THE EXERCISE OF PARENTAL AUTHORITY: 1. The father and the mother shall jointly exercise parental authority over the persons of their common children. In case of disagreement, the father's decision shall prevail, unless there is a judicial order to the contrary (Art.211) 2. If the child is illegitimate, parental authority is with the mother. CHARACTERISTICS OF PARENTAL AUTHORITY: 1. It is a natural right and duty of the parents (Art. 209) 2. It cannot be renounced, transferred or waived, except in cases authorized by law (Art 210) 3. It is jointly exercised by the father and the mother (Art. 211) 4. It is purely personal and cannot be exercised through agents 5. It is temporary PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 33 of 325 PARENTAL PREFERENCE RULE: The natural parents, who are of good character and who can reasonably provide for the child, are ordinarily entitled to custody as against all persons. WHO EXERCISES AUTHORITY IN CASES OF DEATH, ABSENCE, REMARRIAGE, OR SEPARATION OF PARENTS: In case one parent is absent or already dead, the present or surviving parent Remarriage shall not affect the parental authority over the children In case of separation of parents, the parent designated by the court. Innocent spouse gets custody of minor children. The court shall take into account all relevant considerations, especially the choice of the child over seven years of age, unless the parent chosen is unfit. TENDER YEARS PRESUMPTION: NO child under 7 years of age shall be separated from the mother, unless the court finds compelling reasons to order otherwise. Examples of compelling reasons are: o When the mother is insane; o with a communicable disease that might endanger the life or health of the child; o or is maltreating the child. [NOTE: Prostitution or infidelity to husband does not make a mother unfit as parent.] SUBSTITUTE PARENTAL AUTHORITY EXERCISED BY (IN ORDER): 1. The surviving grandparent 2. Oldest brother or sister, over 21 years old, unless unfit or unqualified. 3. Child’s actual custodian, over 21 years old, unless unfit or unqualified SPECIAL PARENTAL AUTHORITY EXERCISED BY: 1. School, its administrators and teachers, or 2. The individual, entity or institution engaged in child care. LIABILITY OF THOSE EXERCISING SPECIAL PARENTAL AUTHORITY OVER THE CHILD: 1. They are principally and solidarily liable for damages caused by the acts or missions of the child while under their supervision, instruction or custody. HOWEVER, this liability is subject to the defense that the person exercising parental authority exercised proper diligence. 2. The parents and judicial guardians of the minor or those exercising substitute parental authority over the minor are subsidiarily liable for said acts and omissions of the minor. Substitute Parental Authority Special Parental Authority It is exercised in case of death, absence, or in case of unsuitability of parents. It is exercised concurrently with the parental authority of the parents and rests on the theory that while the child is in the custody of the person exercising special parental authority, the parents temporarily relinquish parental authority over the child to the latter. St. Mary’s Academy v. Carpitanos 376 SCRA 473 (2002) The special parental authority and responsibility applies to all authorized activities, whether inside or outside the premises of the school, entity or institution. EFFECTS OF PARENTAL AUTHORITY UPON THE PROPERTY OF THE CHILD: The Father and Mother shall jointly exercise legal guardianship over the property of the minor child without court appointment In case of disagreement, the father’s decision shall prevail, unless there is judicial order to the contrary If the market value of the property or the annual income of the child exceeds P50,000, the parent is required to furnish a bond of not less than 10% of the value of the child’s property or income GROUNDS FOR SUSPENSION OF PARENTAL AUTHORITY (CLEBC): 1. Conviction of parent for crime without civil interdiction 2. Treats child with excessive harassment and cruelty 3. Gives corrupting orders, counsel or example 4. Compels child to beg 5. Subjects or allows acts of lasciviousness PARENTAL AUTHORITY TERMINATES: 1. Upon death of parents 2. Upon death of child 3. Upon emancipation of child 4. If the parents exercising parental authority has subjected the child or allowed him to be subjected to sexual abuse RIGHTS OF PARENTS UPON THEIR CHILDREN: To have them in their custody PERSONS & FAMILY RELATIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 34 of 325 To represent them in all matters affecting their interests Demand respect and obedience and impose discipline on them Administer their property and income to support the child and the family To give or withhold consent on marriage, pre-nuptial, donation propter nuptias, adoption, and employment To disinherit them for just cause DUTIES OF PARENTS UPON THEIR CHILDREN: Support and upbringing in accordance to their means Educate, instruct, and provide them with moral and spiritual guidance, and love and understanding Defend them against unlawful aggression Answer for damages caused by their fault or negligence, and for civil liability for crimes committed by them Give their lawful inheritance RIGHTS OF CHILDREN: [ART. 356, NCC] parental care receive at least elementary education be given moral and civil training by parents or guardian live in an atmosphere conducive to his physical, moral, and intellectual development [ART.3, PD603] to be born well right to a wholesome family life right to a well-rounded development right to a balanced diet, adequate clothing, shelter, proper medical attention, and all basic physical requirements of a healthy life raised in an atmosphere of morality and rectitude education commensurate to his abilities full opportunities for a safe and wholesome recreation protection against exploitation and other bad influences right to the care, assistance and protection of the State right to an efficient and honest government right to grow up as a free individual DUTIES OF CHILDREN: [ART.357, NCC] obey and honor his parents or guardian respect old relatives and persons holding substitute parental authority exert his utmost for his education and training cooperate with the family in matters for his own good [ART.4, PD603] strive to live an upright and virtuous life love, obey, respect his parents and cooperate with them in strengthening the family extend his love to his brothers and sisters exert his utmost to develop his potentials XIV. FUNERALS GENERAL GUIDELINES: 1. Duty and right to make arrangement in funerals in accordance with Art. 199 of FC: a. Spouse b. Descendants in nearest degree c. Ascendants in nearest degree d. Brothers and sisters 2. The funeral shall be in keeping with the social position of the deceased 3. The funeral shall be in accordance with the expressed wishes of the deceased a. in the absence of expressed wishes, his religious beliefs or affiliation shall determine b. in case of doubt, the persons in Art. 199 of FC shall decide 4. Any person who disrespects the dead or allows the same shall be liable for damages * * * PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 35 of 325 Property TABLE OF CONTENTS I. Classification 36 II. Ownership 41 III. Accession 42 IV. Quieting of Title 48 V. Ruinous Buildings and Tress in Danger of Falling 49 VI. Co-Ownership 49 VII. Condominium Law (Act. No. 4726) 55 VIII. Possession 57 IX. Usufruct 63 X. Easements 65 XI. Legal Easements 70 XII. Voluntary Easements 77 XIII. Nuisance 78 XIV. Registry of Property 80 XV. Different Modes of Acquiring Ownership 80 XVI. Prescription 81 XVII. Tradition 82 XVIII. Lease 83 XIX. Donation 89 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 36 of 325 PROPERTY CIVIL LAW PROPERTY I. CLASSIFICATION CLASSIFICATION as to mobility Art. 414 (1) Immovable or real property (2) Movable or personal property Art. 415. Immovables : MADAM’S C FLAT 1. Land, buildings, roads, constructions adhered to soil; 2. Trees, plants, growing fruits-- attached to land/form integral part of immovable 3. Everything attached to immovable in fixed manner-- cannot be separated without breaking / deterioration 4. Statues, reliefs, paintings, objects for ornamentation in buildings / on lands a. by the owner of immovable b. manner reveals intention to attach permanently 5. Machinery, receptacles, instruments, implements intended by owner for an industry; works which may be carried on in building or on a piece of land, and tend directly to meet the needs of industry or works 6. (6) Animal houses, pigeon- houses, beehives, fish ponds, breeding places in case owner placed / preserves them with intention to be permanently attached to land, AND form permanent part of it --animals are included 7. Fertilizer actually used on a piece of land 8. Mines, quarries, slag dumps, while matter their matter forms part of the bed, and waters running or stagnant 9. Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast; 10. Contracts for public works, and servitudes and other real rights over immovable property. Classification: 1. immovables by nature - (1) and (8) 2. immovables by incorporation- (2) (3) (7) 3. immovables by destination- (4) (5) (6) (9) and object to remain at a fixed place on a river, lake, or coast 4. immovables by analogy or by law- (10) Art. 416. Personal Property (Movables): FLONTS (1)Those movables susceptible of appropriation Not included in the preceding article; (2)Real property which by law is considered as personal property; (3)Forces of nature which are brought under control by science; (4) all things which can be transported from place to place without impairment of the real property to which they are fixed. Machinery which is movable in nature only becomes immobilized when placed in a plant by the owner of a property or plant, NOT when placed by a tenant, usufructuary etc. unless acting as an agent of the owner. (Davao Sawmill v. Castillo, 1935) ….a building is an immovable property, irrespective of whether or not said structure and the land on which it is adhered belong to the same owner. (Lopez v. Orosa) Since only personal properties could be the subject of a chattel mortgage, the execution and registration of the chattel mortgage and the foreclosure of the house are null and void. (Associated Insurance & Surety Co. v. Iya 1958 ) It is undeniable that parties to a contract may treat as personal property that which by nature would be real property; and for purposes of taxation, what is naturally personal property may be classed as real property. If the properties subject to the chattel mortgage are indeed not personal properties, the mortgage would be ineffective as against third parties, but this is for the courts to determine and not by the register of deeds. (Standard Oil vs. Jaramillo 1923) Re: building under chattel mortgage- - separate treatment by the parties of a building from the land on which it stands does not change the immovable character. An inscription of a deed of sale of real property in the chattel mortgage registry cannot be given the legal effect of an inscription in the registry of real PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 37 of 325 property. (Leung Yee v. Strong Machinery, 1981) Where chattel mortgage is constituted on machinery permanently attached to the ground, machinery is personal property and mortgage is not null and void, regardless of who owns the land. It is undeniable that the parties to a contract may by agreement treat as personal property that which by its nature would be real property, as long as no interest of third parties may be prejudiced thereby. (Makati Leasing and Finance Corp v. Wearever Textile Mills 1983) Differences between Real Rights and Personal Rights Kinds of rights considered as property (a) Real (jus in re)—power belonging to a person over a specific thing. It gives direct and immediate juridical power over a thing susceptible of being exercised against a determinate person and the whole world. (b) Right of obligation or Personal (jus ad rem)—rights belonging to one person to demand of another as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. Real rights arises from (OPLUMEPARP) 1. Ownership 2. Possession 3. Lease 4. Usufruct 5. Mortgage 6. Easement 7. Pledge 8. Antichresis 9. Redemption 10. Preemption Real Rights Personal Rights (1) One definite active subject and the rest of the world as passive (2) Object is a corporeal thing. (3) Real right affects the thing directly. (4) The creation of the juridical relation is by (1) There is a definite active and passive object. (2) Object is an intangible thing. (3) Personal affects the thing directly through the prestation of the debtor. (4) Creation of the juridical title is by title mode and title. (5) Extinguished by the loss or destruction of the thing. (6) Gives rise to real actions against 3 rd persons alone. (5) Not extinguished by the loss or destruction of the thing. (6) Produces only personal actions against definite debtor. Classification of Movables (a) Consumables – includes those movables which cannot be used in a manner appropriate to their nature without their being consumed (b) Non-consumable- includes all others Classification According to Ownership a) Public Dominion 420 i. intended for public use ii. intended for public service of state, provinces, cities & municipalities Characteristics: i. outside the commerce of men ii. cannot be acquired through prescription iii. not subject to attachment & execution iv. cannot be burdened by voluntary easement * Art. 424. Property for public use, in the provinces, cities, and municipalities, consist of: (RSS FW P3) Roads, Streets, Squares, Fountains, Public Waters, Promenades, Public Works for public service paid for by the local government All other property possessed by any of them is patrimonial. b) Private Ownership – 421 i. patrimonial property of state, provinces, cities, municipalities -exist for attaining economic ends of state -property of public dominion when no longer intended for public use/service – declared patrimonial ii. property belonging to private persons – individually or collectively 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 38 of 325 PROPERTY CIVIL LAW Cases Churches and other consecrated objects are outside the commerce of man (Barlin vs. Ramirez, 1907) Reclaimed land is public property. In case of gradual erosion by the ebb and flow of the tide, private property may become property of the public domain, where it appears that the owner abandoned it or permitted it to be destroyed. When they stay in that condition until reclaimed by filling in done by the government, they continue to be government property after reclaiming. Immediate possession by the former owner does not confer on him ownership of the lots, because, as they were converted into property of the public domain, no private person could acquire title except in the form and manner established by law. (Government of the Philippine Islands v. Cabangis) The sale to private parties of a public road which has been validly closed by the city government is valid. Basis : Art 422 CC (Cebu Oxygen and Acetylene v. Bercilles, 1975) The attachment of the municipal trucks, police cars, police station and market stalls is void because the properties levied upon are exempt from execution. Property for public use of the municipality is not within the commerce of man so long as it is used by the public. (Vda. De Tantoco vs. Municipal Council of Iloilo) Under the law on Municipal Corporations, however, to be considered public property, it is enough that property be held and devoted for governmental purposes. (Province of Zamboanga del Norte v. City of Zamboanga, 1967) ACTIONS FOR THE RECOVERY OF IMMOVABLE PROPERTY FORCIBLE ENTRY OR UNLAWFUL DETAINER PLENARY ACTION TO RECOVER POSSESSION (ACCION PUBLICIANA) ACTION TO RECOVER POSSESSION BASED ON OWNERSHIP (ACCION REINVINDICATORIA) FORCIBLE ENTRY UNLAWFUL ENTRY Possession unlawful from time of entry. Prior physical possession is INDISPENSABLE. Decision here is res judicata only as to possession. PRESCRIPTIVE PERIOD 1 year period starts from last demand to vacate. Possession was lawful at first but later became illegal, i.e. defendant withholds possession after expiration of his right. Prior physical possession is NOT REQUIRED. A civil proceeding to recover the better right of possession except in cases of forcible entry/unlawful detainer. Also used to refer to an ejectment suit filed after the expiration of 1 year from the unlawful withholding of possession of the realty. An action to seek the recovery of ownership, necessarily including the jus utendi and jus fruendi. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 39 of 325 WHEN APPLICABLE 1. When dispossession is by any means other than those mentioned in SEC 1 RULE 70 RoC 2. When, although any of the special circumstances is present, where the 1 year prescriptive period for bringing an action for forcible entry or unlawful detainer has expired ISSUE Physical/material possession (possession de facto) (i.e. NOT civil possession or possession de jure, which arises from the ownership or is one of the attributes of ownership), of which a person 1) has been deprived or 2) against whom it has been withheld by any of the means/circumstances mentioned in RULE 70 Possession de jure of realty independent of the title and restitution of possession. This action is distinct and different from an action for recovery of title or ownership. A judgment rendered here is conclusive only as to the question of possession, but not as to the question of ownership. Ownership, recovery of the dominion over the property as owner. If the issue of possession has already been decided, this is the only action that can be filed. WHO MAY INSTITUTE 1. A person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth (forcible entry under RULE 70) ; 2. A landlord, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration/ termination of the right to hold possession by virtue of any contract, express or implied (unlawful detainer); or 3. The legal representatives/ assigns of any such landlord, vendor, An owner who is dispossessed by means other than those mentioned in RULE 70 RoC, or when the possession of land is due to tolerance of the owner. It is not necessary to wait until the expiration of 1 year before commencement of action. It can also be filed after the expiration of the 1 year period if no action for forcible entry or unlawful detainer has been filed during that time, otherwise, barred. Legal owner or one with the better right over the property. In an action for reconveyance, what is sought is the transfer of the property which has been wrongfully/ erroneously registered in another person’s name, to: 1) its rightful and legal owner; or 2) to one with the better right 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 40 of 325 PROPERTY CIVIL LAW vendee or other person WHAT HAS TO BE ALLEGED 1. Prior possession de facto 2. Undue deprivation thereof When the complaint fails to aver acts constitutive of forcible entry/unlawful detainer (how he was dispossessed), the remedy should be either accion publiciana or accion reinvindicatoria. In an ejectment suit, issue of ownership can be passed upon by the court only by determining the issue of possession de facto. An action for ejectment is merely a quieting process. If plaintiff has in his favor priority in time, he has the security that entitles him to remain in the property (even against the owner himself) until he is lawfully ejected by a person having a better right by an accion publiciana or accion reinvindicatoria. For an action to reconveyance to prosper, the property should not have passed into the hands of an innocent purchaser for value. WHERE FILED MTC Summary In nature— these cases involve a disturbance of social order which must be abated as promptly as possible without any undue reliance on technical and procedural rules RTC Prescriptive Periods: 1. 4 years—if based on fraud from date of issuance of certificate of title over property 2. 10 years—if based on implied or constructive trust 3. Imprescriptible— when plaintiff is in possession of property 4. 30 years (without prejudice to what is established for the acquisition of ownership and other real rights by prescription- ART1141)—if real actions over immovables PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 41 of 325 II. OWNERSHIP Art. 427. Ownership may be exercised over things or rights. Ownership is subject to restrictions imposed by: 1. LAW and 2. RIGHTS of others Attributes of Ownership (UFADVPA) 1. Jus possidendi- right to possess 2. Jus Utendi (right to use)—right to enjoy by receiving the thing that it produces. 3. Jus abutendi—right to enjoy by consuming the thing by its use 4. Jus Disponendi—the right to dispose or encumber, transform, and even destroy the thing owned. 5. Jus Fruendi – right to receive fruits 6. Jus vindicandi—right to exclude from the possession of the thing owned by any other person to whom the ownership has not transmitted such thing, by the proper action for restitution, with the fruits, accessions, and indemnification for damages. 7. jus accessionis- right to the accessories Other specific rights: (HARJEES) 8. Right to Exclude: Doctrine of Self- Help (429) Elements: a) Person exercising rights is owner or lawful possessor b) There is actual or threatened unlawful physical invasion of his property (not available to squatters) c) Use force as may be reasonably necessary to repel or prevent it -Available only when possession has not yet been lost, if already lost – resort to judicial process -May be exercised by 3 rd person – negotiorum gestio - Art. 431. cannot make use thereof in such manner as to injure the rights of a third person. 9. Right to Enclose or Fence without detriment to servitudes constituted thereon (430) A person cannot enclose his tenement and construct a fish pond that will obstruct the natural flow of waters from the upper tenements to the injury of the owners of such tenements. (Lunod v. Meneses) 10. Right to Receive Just Compensation in case of Expropriation (435) exception 436: when any property is condemned or seized by competent authority in the interest of health, safety or security 11. Right to Space and Subsoil The right of the owner extends to the space and subsoil as far as necessary for his practical interests or to the point where it is possible to assert his dominion and there is the possibility of obtaining some enjoyment or benefit. Beyond these limits, he would have no legal interests. 12. Right to Hidden Treasure (if found on his property) a) hidden and unknown movables consist of money or precious objects b) owner is unknown c) If treasure is found by a stranger by chance –½ belongs to finder; the finder must not be trespasser be entitled to a share. Discovery by chance When there is no purpose or intent to look for the treasure. 13. Right to accession 14. Right to recovery or possession/ ownership Actions for possession: 1. movable – replevin (return of a movable) 2. immovable – a) forcible entry b) unlawful detainer c) accion publiciana d) accion reinvindicatoria e) Writ of Possession -- the original registered owner is entitled to a writ of possession against the parties who appear and answer in the land registration proceedings and against all those who, having been served with process, do not appear or answer. f) Writ of injunction May be used to prevent or restrain acts of trespass or illegal interference by others of his possession of the property. Requisites in an action to recover (a) Identity of the property (b) Strength of plaintiff’s title/ Better Title Limitation of Real Right of Ownership (1) For the benefit of the state and for public interest (Police power, eminent domain, taxation) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 42 of 325 PROPERTY CIVIL LAW (i) Expropriation for public use (ii) Military requisitions (iii) Zonification laws (iv) Public or government monopolies (v) Law on water and mines (vi) Public health and safety (vii) Public easements (2) Legal servitudes and Voluntary Servitudes (3) Limitations imposed by party transmitting property (i) Either by contract or last will or donations (ii) Stipulation on inalienability (4) True Owner Must Resort to Judicial Process (5) It is unlawful to exercise the right of ownership in such a manner as to have no other effect than to injure a third person without benefit to the owner. (a) Act in State of Necessity The law permits the injury or destruction of things belonging to others provided this is necessary to avert a greater danger or dangers. Different from concept of self- help; the purpose is to protect the actor himself or another person at the expense of the owner of the property who has no part in the state of necessity. (b) Liability of Proprietors under Article 2191, for damagegs caused by exposion of machinery, excessive smoke, falling of trees, emanations from canals (c) Fortified places or Fortresses- must comply with special laws and regulations (d) Easement of Aqueduct- must observe proper distances and prevent damage to neighboring tenements (e) Planting of Trees (f) Easements (g) Lateral and Sub-adjacent Support - Cannot commit crime in the exercise of ownership (People vs Segovia, 1958) - Can file action for recovery of possession even if one has never possessed the land; action is plenary action for recovery of possession (De La Paz vs. Panis, 1995) III. ACCESSION Art. 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially. General Principles of Accession (1) Accessory follows the principal (2) No unjust enrichment (Art. 443) (3) All works, sowing, and planting are presumed made by owner & at his expense, unless otherwise proved (Art. 446) (4) Accessory incorporated to principal such that it cannot be separated without injury to work constructed or destruction to plantings or construction of works. (5) Bad faith involves liability for damages (6) Bad faith of one party neutralizes bad faith of the other (Art. 453). (7) Ownership of fruits belong to the principal thing; Exceptions: (PULA) (i) possession in good faith is entitled to fruits (ii) usufructuary is entitled to fruits (iii) lessee is entitled to fruits (iv) antichretic creditor is entitled to fruits Kinds of Accession (1) Accession discreta – the right pertaining to the owner of a thing over everything produced thereby: (a) Natural fruits, or spontaneous products of the soil, and the young and other products of animals (Art. 442) (b) Industrial fruits, or those produced by lands of any kinds through cultivation or labor (Art. 442) (c) Civil fruits, or rents of buildings, the price of leases of and other property and the amount of perpetual or life annuities or other similar income (Art. 442) A dividend, whether in cash or stock, is income or fruit and consequently should go to the usufructuary, rather than the owner of the shares of stock. Dividend is declared only out of the profits of a corporation and not out of its capital. (Bachrach vs. Seifert). PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 43 of 325 A bonus paid by the mortgage- debtor to another who had mortgaged his land to secure the payment of the debtor’s obligation to a bank is not a civil fruit of the mortgaged property. It is not income delivered from the property but a compensation granted for the risk assumed by the owner of the property. (Bachrach vs. Talisay-Silay) (2) Accession Continua – the right pertaining to the owner of a thing over everything that is incorporated or attached thereto, either naturally or artificially. (a) With regard to immovable property (a.1) Accession industrial (BPS) (i) Building, (ii) Planting, or (iii) Sowing (Arts. 445-456) (a.2) Accession natural (FACA) (i) Alluvium (ii) Avulsion (iii)Change in the course of river (iv)Formation of islands (b) With regard to movable property (ACS) (b.1) Adjunction or conjunction (i) inclusio or engraftment (ii)soldadura or attachment (a) ferruminatio – objects are of the same metal (b) plumbatura – objects are diff. metals (iii) tejido or weaving (iv)pintura or painting (v) escritura or writing (b.2) Commixtion or confusion (b.3) Specification Accession Industrial Art. 446 establishes 2 disputable presumptions regarding BPS: (a) The works etc. were made by the owner (b) They were made at the owner’s expense Exception: When contrary is proven Right of owner of materials (OM) 1. Right to be indemnified or paid of value of property by owner of land 2. Right to remove materials if he can do so w/o injury to work constructed if owner has not paid 3. Right to damages and demolition even if with injury to work if owner of land is in bad faith BUILDING, PLANTING, SOWING a) BPS / Land-owner + Owner of Materials 447 - Land-owner GF: took materials with no knowledge that it belonged to a 3 rd person - Land-owner BF: took materials knowing fully well that it belonged to a 3 rd person - Owner of Materials GF: demanded payment / no idea of taking - Owner of Materials BF: regardless 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 44 of 325 PROPERTY CIVIL LAW Land-owner / BPS (by himself or thru another) Owner of Materials GF: pay value of materials and own the thing built GF: right to be paid value of materials May remove materials if can be separated without injury (no accession) but accession prevails (hence, most likely only get paid) BF: pay value of materials + damages GF: right to be paid value of materials + indemnity or remove materials even with damage + indemnity GF: pay value of materials regardless of bf/gf of OM Another view: 449 by analogy, no reimbursement BF: right to be paid value of materials Another view: 449 by analogy, loses right to materials, no reimbursement BF: (both considered good faith) BF: (both considered good faith) a) BPS / Owner of Materials + Land-owner - Land-owner GF: no knowledge of illegal BPS - Land-owner BF: has knowledge of illegal BPS and does not oppose it 453 (2) - BPS/OM GF: s/he does not know that he built on another’s land - BPS/OM BF: has knowledge that he had no right to build, plant or sow Land-owner BPS / Owner of Materials GF: options 1. Appropriate works, sowing or planting + pay indemnity 2. Oblige BP to pay price of land (or pay rent if land value > building and trees) or Sower to pay rent Rent – fixed by agreement of parties; if not, by court 448 GF GF: options 1. Appropriate without indemnity 449 2. Compel removal without indemnity at BPS’s expense 450 3. Compel BP to pay price of land (no conditions) and Sower, the proper rent 450 Whichever option chosen, entitled to receive damages 451 BF: loses what is built, planted or sown, with no right to indemnity 449 Still entitled to reimbursement for necessary expenses of preservation of the land 452 Whichever option chosen, must pay LO damages 451 BF: 447 by analogy 454 Pay value of materials + damages GF: options (447 by analogy – 454) 1. Remove works, sowing or planting even with damage 2. Force payment of indemnity BF: (both considered GF) BF: (both considered GF) 453 (1) b) BPS + Land-owner + Owner of Materials 455 PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 45 of 325 Land-owner BPS OM GF GF (GF) GF LO appropriates and pays indemnity: OM can proceed against LO only after BPS refuses/cannot pay, OM cannot remove LO sells land to BPS: OM can only proceed against BPS GF BF (GF) GF LO compels demolition: OM cannot claim from LO, BPS solely liable LO appropriates and pays indemnity: OM can proceed against LO only after BPS refuses/cannot pay, OM cannot remove LO sells land to BPS: OM can only proceed against BPS BF GF (GF) GF BPS removes even with damage: OM can only go after BPS BPS forces LO to pay indemnity: OM can’t demand removal/return but OM can proceed against BPS and subsidiarily, the LO BF BF (GF) GF Similar to GF-GF-(GF)-GF LO appropriates and pays indemnity: OM can proceed against LO only after BPS refuses/cannot pay, OM cannot remove LO sells land to BPS: OM can only proceed against BPS GF GF (BF) GF LO appropriates and pays indemnity: OM can proceed against LO only after BPS refuses/cannot pay, OM cannot remove LO sells land to BPS: OM can either ask BPS for indemnity + damages or remove material even with damage GF BF (BF) GF LO compels demolition: OM can compel return of material by removing even with damage + damages or OM can ask for indemnity + damages LO appropriates: OM can’t remove because right of removal applies only to BPS in BF, LO can’t be prejudiced; OM only entitled to the value of materials (indemnity) + damages from LO LO sells land to BPS: OM can compel removal (straightforward 447) or ask BPS for indemnity + damages BF GF (BF) GF BPS removes even with damage: OM can either compel BPS to pay indemnity or to return materials, in both cases + damages BPS forces LO payment of indemnity: OM can’t demand removal/return but OM can proceed against BPS and subsidiarily, the LO BF BF (BF) GF Similar to GF-GF-(BF)-GF LO appropriates and pays indemnity: OM can proceed against LO only after BPS refuses/cannot pay, OM cannot remove LO sells land to BPS: OM can either ask BPS for indemnity + damages or remove material even with damage 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 46 of 325 PROPERTY CIVIL LAW Cases: A forced co-ownership occurs when the BPS has acted in good faith. Owner of the land ihas the right of retention (to pay) because his right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing. (Bernardo vs. Baticlan) Since the option to remove or demolish improvement is given to the LO and it is limited to paying for the improvement or selling his land to the BPS, he cannot refuse to exercise his right of choice and compel the builder to remove or demolish the improvement. He is entitled to such removal only when after choosing to sell his land, the other party fails to pay for the same. (Ignacio vs Hilario) An order by a court compelling a builder in good faith to remove is building from land belonging to another who chooses neither to pay for such building nor sell the land is null and void for being offensive to Art. 448. (Sarmiento v. Agana) While a possessor in good faith may retain the property until he is reimbursed for necessary and useful expenses, all the fruits he receives from the moment his good faith ceases must be deferred or paid by him to the LO. He may, however, secure the reimbursement of his expenses by using the fruits to pay it off (deduct the value of the fruits he receives from the time his good faith ceases from the reimbursement due him). (Ortiz vs Kayanan) A BPS in good faith does not lose his rights under Art. 448 merely because of the fact that some years after acquiring the property in good faith, helearned about and aptly recognized the right of the LO to a portion of the land occupied by the building. The supervening awareness does not prejudice its right to claim the status of a builder in good faith. (Tecnogas Phil. Manufacturing Corp. vs CA) The BPS in good faith should not pay rentals to the LO spouses. The spouses, having opted to appropriate the improvement on the lot, have to reimburse the BPS of the cost of construction of the building (in accordance with Art 546). The BPS has the right to retain the improvements until he is reimbursed. An implied tenancy or possession in fact is created pending the payment of the corresponding indemnity. (Pecson v CA) Good faith consists in the belief of the builder that the land he is building on is his and he is ignorant of any defect or flaw in his title. And as good faith is presumed, the LO has the burden of proving bad faith on the part of the BPS. (Pleasantville Dev’t. Corp. v CA, 1996) After the BPS had refused to restore the land to the LO, to the extent that the latter even had to resort to the present action to recover his property, the LO could no longer be regarded as having impliedly assented or conformed to the improvements thereafter made by appellant on the premises. (Felices v. Iriola) (2) Accession in Natural (i) Alluvium 457 – the accretion which lands adjoining the banks or rivers, lakes, creeks or torrents gradually receive from the Requisites of alluvium: (CANG) (a) The accretion must be gradual (b) The cause must be the current of the water (c) The land where the accretion takes place must be adjacent to the banks (d) must be natural *riparian owner – owner of the land fronting such riverbanks The alluvium, though automatically owned by the riparian owner from the moment the soil deposit can be seen, is not automatically registered property, since it is subject to acquisition through prescription by 3 rd persons. (Grande vs CA) (ii) Avulsion 459– takes place whenever the current of a river, lake, creek or torrent segregates from an estate on its bank a known portion of land and transfers it to another estate Distinguished from Alluvium Alluvium Avulsion 1. Deposit of soil is gradual 2. Deposit of the soil belongs to the owner of the property where the same was deposited 3. The soil cannot be identified 1. Deposit of soil is sudden or abrupt 2. The owner of the property from which a part was detached retains the ownership thereof (2 yrs) 3. The detached portion can be identified PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 47 of 325 Requisites of Avulsion (SIC) (a) The segregation and transfer is caused by current of water (b) The segregation and transfer must be sudden or abrupt (c) The portion of land transported must be known and identifiable Rights of the riparian owner Removal within 2 years The former owner preserves his ownership of the segregated portion provided he removes (not merely claims) the same within the period of 2 yrs. Art. 460 applies only to uprooted trees. If a known portion of land with trees standing thereon is carried away by the current to another land, Art. 459 governs. (iii) Change of river beds – that which takes place when a river bed is abandoned through the natural change in the course of the waters (Art. 461) Requisites for the application of Art. 461: (a) There must be a change in the natural course of the waters of the river. (b) The change must be abrupt or sudden. Right of owner of land occupied by new river course 1. Right to old bed ipso facto in proportion to area lost 2. Owner of adjoining land to old bed shall have right to acquire the same by paying its value – value not to exceed the value of area occupied by new bed 3. Formation of island in non- navigable river a) owner of margin nearest to islands formed – if nearest to it b) owner of both margins – if island is in the middle (divided into halves longitudinally) (iv) Formation of islands either on the seas within the jurisdiction of the Philippines. On lakes, and on navigable or floatable rivers (Art. 464) or non- navigable and non-floatable rivers (Art. 465). (1) Ownership of islands formed through alluvion (a) If formed: (a.1) on the seas within Phil. jurisdiction (a.2) on lakes, and (a.3) on navigable or floatable waters, the island belongs to the State (b) If formed in non-navigable and non-floatable rivers: (b.1) it belongs to the nearest riparian owner or owner of the margin or bank nearest to it as he is considered in the best position to cultivate and develop the island (b.2) it is divided longitudinally in halves, if it is in the middle of the river (c) Concept of navigable river A navigable river is one which forms in its ordinary condition by itself or by uniting with other waters a continuous highway over with other waters a continuous highway over which commerce is or may be carried on. Test: A river is navigable if it is used or susceptible of being used, in its ordinary condition, as a highway of commerce, that is, for trade and travel in the usual and ordinary modes. Accession Continua-Movable property: (1) Adjunction or Conjunction – that which takes place whenever movable things belonging to different owners are united in such a way that they cannot be separated without injury, thereby forming a single object (Art. 466) Ownership of new object formed by adjunction Owner of Principal OP Owner of Accessory OA (a) union in Good Faith OP acquires accessory, AND pays OA for its value in uncontroverted state. (b) union in Bad Faith 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 48 of 325 PROPERTY CIVIL LAW -if OA incorporated in BF 1. lose the thing and 2. indemnify OP for damages -if OP acted in BF 1. OA has right to choose -payment of value -separation (even if destroys principal) 2. OA indemnified (c) If OP or OA made the incorporation with the knowledge and without the objection of the other, their respective rights shall be determined as though both acted in good faith. (d) if involves 3 things Art. 466 should be applied in an equitable manner. The principal should be determined and distinguished from the others which would be considered the accessories. TEST to determine principal in adjunction: In order of application, the principal is that: (a) To which the other (accessory) has seen united as an ornament or for its use or perfection (Art. 467)- INTENT (a) Of greater value, if they are unequal values-VALUE (a) Of greater volume, if they are of an equal value (Art. 468)-VOLUME (a) That of greater merits taking into consideration all the pertinent legal provision applicable as well as the comparative, merits, utility and volume of their respective things. (3) Specification – that which takes place whenever a person imparts a new form to materials belonging to another person (Art. 474). Ownership of the new object in specification Person who made Transformation PT Owner of Material OM (a) If PT is in Good Faith, he shall 1. appropriate thing transformed as his own 2. indemnify owner of material BUT If material is more precious than transformed thing OM may 1. appropriate new thing to himself and indemnify labor OR 2. demand indemnity for materials (b) If PT is in Bad Faith, 1. OM shall appropriate work to himself Without paying maker OR 2. demand indemnity for value of material & damages BUT If transformed thing is more valuable than material, owner of material cannot appropriate (3) Commixtion or confusion – that which takes place whenever there is a mixture of things solid or liquid belonging to different owners, the mixture of solids being called commixtion, while that of liquids, confusion (Art. 472). Rights 1. If both owners are in good faith – Each owner shall acquire a right proportional to the part belonging to him (vis-a-vis the value of the things mixed or confused) 2. If one owner is in bad faith – he shall lose the thing belonging to him plus indemnity for damages caused to owner of other thing mixed with his thing 3. If both in bad faith no cause of action against each other IV. QUIETING OF TITLE It is a remedy or form of proceeding originating in equity jurisprudence, which has for its purpose an adjudication that a claim of title or an interest in property, adverse to that of complainant, is invalid, so that the complainant and those claiming under him may be forever free from any danger of the hostile claim. Requisites (1) There is a cloud on title to real property or any interest to real property (Art. 476) (2) Plaintiff has legal or equitable title to or interest in the subject/real property. (3) Instrument, record, claim, encumbrance or proceeding must be valid and binding on its face but in truth and in fact invalid, ineffective, voidable or unenforceable; contract upon which defendant relies has been extinguished or terminated, or has prescribed (4) Plaintiff must return benefits received from the defendant. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 49 of 325 Differences between action to quiet title, action to remove a cloud, and action to prevent a Cloud QUIET TITLE REMOVE CLOUD PREVENT CLOUD Purpose is to put to an end to vexatious troublesome litigation over the property involved Intended to procure the cancellation; delivery; release of an instrument, encumbrance or claim, which constitutes a claim in plaintiff’s title, and which may be used to injure or to vex him in his enjoyment of his title. Removal of a possible foundation for a future hostile claim. Remedial action: involving a present adverse claim Preventive action: removes cloud which may be used for future actions Preventive action: to prevent a future cloud on the title Plaintiff asserts his own estate and declares generally that the defendant claims some estate on the land, without defining it and avers that the claim is without foundation and calls on the defendant to set forth the nature of his claim for determination Declares his own title and also avers he source and nature of the defendant’s claim, points out its defects and prays it be declared void Filed against people who have claims; claims are more general in nature Filed against defendant who asserts claims based on an invalid instrument (but not apparent) Prescription of action—Imprescriptible if plaintiff is in possession; if not, prescribes within period for filing accion publiciana, accion reivindicatoria. Notes: An action for reconveyance: a) Prescribes in 10 years if the plaintiff is NOT in possession of the property and if the action for reconveyance is based on an implied or constructive trust. The point of reference is the date of registration of the deed or the date of the issuance of the certificate of title over the property. b) Is IMPRESCRIPTIBLE if the person claiming to be an owner is in actual possession of the property. Here, the right to seek reconveyance in effect seeks to quiet title. (Olviga v. CA) It is not necessary that the vendee has an absolute title. An equitable title is sufficient to clothe him with personality to bring an action to quiet title. (Pingol v. CA) What plaintiff imagined as clouds cast on his title were PR’s alleged acts of physical intrusion and not. an instrument, record, claim, encumbrance or proceeding which constitutes or casts a cloud, doubt, question or shadow upon the owner’s title or interest in real property. Clearly, the acts alleged may be considered grounds for an action for forcible entry but definitely not one for quieting of title. (Titong v. CA) V. RUINOUS BUILDINGS AND TREES IN DANGER OF FALLING Liability for damages: 1. collapse – engineer, architect or contractor 2. collapse resulting from total or partial damage; no repair made – owner; state may compel him to demolish or make necessary work to prevent if from falling 3. if no action – done by government at expense of owner VI. CO-OWNERSHIP Art. 484. There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 50 of 325 PROPERTY CIVIL LAW Characteristics of Co-ownership (PUSAM) (1) plurality of owners, but only one real right of ownership (2) unity of material of the object of ownership (3) recognition of ideal shares or aliquot (4) absolute control of each co-owner over his ideal share, not over specific portions of the property (5) mutual respect among co-owners in regard to the use, enjoyment, and preservation of the property owned in common. Differences between co-ownership and joint tenancy Co-ownership Joint Ownership Tenancy in Common, Ownership in Common, Co- dominium Joint tenancy, Tenancy in common, Notion of “all-for one, one- for-all” Civil law origin Common Law/ Anglo-American origin Each co-owner owner of his ideal share Each joint owner, the surviving joint owners are subrogated in his rights by accretion Each co-owner may dispose of his undivided share without the other’s consent. Joint owner must obtain the consent of all the rest to dispose of his share. In case there is a co-owner who is a minor, minority as a defense against prescription is exclusive to him. The defense of one joint owner can be used as a defense by all joint owners. Differences between partnership and co-ownership Ordinary Partnership Co-ownership With legal/juridical personality distinct from its members No legal personality distinct from its members Created only by agreement or contract to that effect created by “LAW FOCUS” [Law, Fortuitous Event, Occupancy, Contract, Succession] Purpose is to obtain profit Purpose is collective enjoyment and to maintain the unity and preservation of the things owned in common. No term set limit set by law As a rule, an agreement to keep the ownership for more than 10 years is void. Creditors of individual partners cannot attach and sell on execution the shares of partners in the partnership Creditors of a co- owner can attach his shares in the co-owners and sold on execution Can be extinguished by the death or incapacity of one party Death or incapacity of a co-owner does not affect existence of a co-ownership There is mutual representation of the parties A special authority is needed for such representation. A partner cannot transfer his rights to a 3 rd person without the consent of the others A co-owner can freely dispose of his share without need to ask the consent of the other co-owners. Distribution of profits can be stipulated upon (profit-sharing) Profits of a co- owner depend on his proportionate share; profit- sharing is invariable (Art. 485) not subject to stipulation Sources of co-ownership (1) Law (a) Cohabitation (i) Between man and woman capacitated to marry each other. (Art 147, FC) (ii) Between man and woman not capacitated to marry each other (Art. 148, FC) (b) Absolute community property (Art. 90, FC) (c) two or more persons purchase property and by common consent legal title is taken in the name of one of them for the benefit of all, an implied trust is created in favor of the others in proportion to each to interest of each. (Art. 1452) (d) Succession (i) Intestate succession (1078) (ii) Testate—if property is given to two or more heirs by the testator PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 51 of 325 Redemption done by one of the co-owners/heirs will benefit his other co-owner heirs despite the fact that they did not contribute to the redemption money. (e) Donation donation to several persons jointly, it is understood to be in equal shares no rights of accretion unless the donor otherwise provides but if donation is made to husband and wife jointly, there shall be a right of accretion, unless contrary so provide. (f) Chance – commixtion in good faith (Art. 472, NCC) (g) Hidden treasure – co-ownership between finder and owner (h) Easement of a party wall (i) Occupation – Harvesting and fishing (Punsalan et al. v. Boon Liat et al.) (j) Condominium law Sec. 6(c) of RA 4726 – unless otherwise provided, common areas are held in common by the holders of the units in equal shares, one for each unit. (2)Contract (a) Two or more persons agree to create a co-ownership—maximum of ten years (494, 2 nd par), extendable by a new agreement. (b) Universal Partnership (i) Of all present properties (Art. 1778-1779, NCC) (ii) Of profits (Art. 1780, NCC) (c) Associations and Societies, whose articles are kept secret wherein anyone of the members may contact in his own name with third persons (no juridical personality) Rights of each co-owner as to the thing owned in common: FRom CUERPO (1) proportionate Fruits and benefits (485) (2) Repairs for preservation (489-490) (3) Compel contribution (488) (4) Use according to purpose intended (486) (5) bring an action for Ejectment (487) (6) legal Redemption (1620) (7) demand Partition and terminate co- ownership (494-496; 498) (8) full Ownership of proportion (493) (1)Right to share in the fruits and benefits in proportion to his interest PROVIDED the charges are borne by each in the same proportion A contrary stipulation is VOID. Portions are presumed equal unless contrary is proved. Accretion added to any portion of land co-owned becomes part of the property in co-ownership and should be divided according to each co- owners proportionate share. (2)Right to make repairs for preservation Necessary expenses - taxes and expenses for the preservation of the thing which if not made would endanger the existence of the thing or reduce its value or productivity - may be incurred upon the will of 1 co-owner, but if practicable, he must give reasonable notice to the other co-owners Useful expenses - increase the income of the thing owned in common for the benefit of all the co-owners - a lone co-owner cannot incur such expenses without the consent of the others and then ask reimbursement (resolution of majority as per Art. 492) - Effect of failure to notify co- owners even if it was practicable to do so: does not deprive co- owner of right to reimbursement. He is merely given the burden to prove the necessity of such repairs. He will not be fully reimbursed if others can prove that i.e., could have hired a contractor who would charge less (3)Right to compel the other co- owner to contribute For: 1. expenses for preservation 2. taxes BUT co-owner has option not to contribute by renouncing so much of his undivided interest equal to the amount of contribution EXCEPT if waiver is prejudicial to co-ownership 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 52 of 325 PROPERTY CIVIL LAW (4)Right to use the thing according to its intended purpose may be altered by agreement, express or implied, provided: - without injury or prejudice to interest of co-ownership; and - without preventing the use of other co-owners Any act against the collective interest is an act against ownership and the remedies available to owners in general may by used by the co- owner (5)Right of to bring an action in ejectment no need to implead all the other co- owners as co-plaintiffs because the suit is deemed to be for the benefit of all: a favorable decision will benefit everyone but an adverse decision will not affect them if they are not parties in the case or they did not give their consent to the action BUT action will not prosper if the action is for the benefit of himself only and not for the co-ownership For title to prescribe in favor of the co-owner, however, there must be a clear showing that he has repudiated the claims of the other co-owners and that they have been categorically advised of the exclusive claim he is making to the property in question. Only then will the period of prescription being to run. (Cortes v. Oliva) (6)Right to exercise legal redemption Redemption of the property by a co- owner does not vest in him sole ownership over said property but will inure to the benefit of all co-owners. Redemption is not a mode of termination of relationship. (Mariano v CA) By the very nature of the right of "legal redemption", a co-owner's right to redeem is invoked only after the shares of the other co-owners are sold to a third party or stranger to the co-ownership. The law does not prohibit a co-owner from selling, alienating or mortgaging his ideal share in the property held in common. The law merely provides that the alienation or mortgage shall be limited only to the portion of the property which may be allotted to him upon termination of the co- ownership and, as earlier discussed, that the remaining co-owners have the right to redeem, within a specified period, the shares which may have been sold to the third party (Reyes vs. Judge Concepcion) Art 1621 presupposes that the land sought to be redeemed is rural. Both lands—that sought to be redeemed and the adjacent lot belonging to the person exercising the right of redemption—must be rural. If one or both are urban, the right cannot be invoked. (Halili v. CA, 1998) Art. 1623 requires that the written notification should come from the vendor or prospective vendor, not from any other person. It is the notification from the seller, which can remove all doubts as to the fact of the sale, its perfection, and its validity, for in a contract of sale, the seller is in the best position to confirm whether consent to the essential obligation of selling the property and transferring ownership thereof to the vendee has been given. (Francisco v. Boiser) The written notice of sale is mandatory for the tolling of the 30- day redemption period, notwithstanding actual knowledge of a co-owner. (Verdad v CA, 1996) A third person, within the meaning of Art. 1620 of the Civil Code (on the right of legal redemption of a co- owner) is anyone who is not a co- owner. (Pilapil v CA) (7)Right to ask for partition PARTITION: a division between two or more persons of real or personal property which they own as co- partners, joins tenants or tenants in common, effected by the setting apart of such interests so that they may enjoy and possess it in severalty. Gen rule: A co-owner can always ask for a partition. There is no prescriptive period. Exceptions: (PUI SCAN) 1. when partition is generally Prohibited by law 2. when partition would render the thing Unserviceable, or the thing PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 53 of 325 in common is essentially Indivisible - no physical partition but thing maybe sold and co-owners shall divide the proceeds 3. when there is a Stipulation against it (not beyond 10 years) 4. when Condition of indivision is imposed by transferor (donor or testator) not exceed 20 years 5. Acquisitive prescription has set in facor of a stranger to co- ownership or in favor of co- owner. 6. when legal Nature of community prevents partition (e.g. party wall) Either co-owner may demand the sale of the house and lot at any time and the other cannot object to such demand. Thereafter the proceeds of the sale shall be divided equally according to their respective interests. (Aguilar v. CA) Effects of partition: 1. It shall NOT prejudice third persons who did not intervene in the partition 2. There should be mutual accounting of benefits, reimbursements, payment of damages due to negligence or fraud, liability for defects of title and quality of portion assigned to each 3. The part allotted to a co-owner at partition will be deemed to be possessed by such co-owner from the time the co-ownership commenced. 4. Heir is exclusive owner of property adjudicated to him. 5. Co-owners reciprocally bound to each other for warranty of title and quality of part given to each (hidden defect) after partition. 6. Under Art. 1093, obligation of warranty is proportionate to respective hereditary shares; insolvency of one makes the others liable subject to reimbursement (joint liability) (8)Right to full ownership of proportion All that he can sell or freely dispose is his undivided interest but he cannot sell or alienate a concrete, specific or definite part of the thing owned in common because his right over the thing is represented by a quota or ideal portion without any physical adjudication. Co-owner can substitute another person in the enjoyment of the thing Effect of transaction by each co- owner: 1. Limited to his share in the partition 2. Transferee does not acquire any specific portion of the whole property until partition 3. Creditors of co-owners may intervene in the partition to attack the same if prejudicial (Art. 499), except that creditors cannot ask for rescission even if not notified in the absence of fraud (Art. 497) Unless the partition is effected, each heir cannot claim ownership over the definite portion and cannot dispose of the same. Co-heir can only sell his successional rights. (Carvajal v CA) Art 493 of the NCC allows the alienation of the co-owner of his part in the co-ownership. The effect of such alienation or mortgage shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership In short, a co-owner can enter into a contract of lease insofar as to his interest. Therefore, he can also cancel such lease without the consent from the other co-owner. (Castro v. Atienza) Duties and Limits to Rights of Co- owners 1. pay for charges (485) 2. not to make alterations (491) after partition… 3. mutually account (500) 4. liability for defects in title and quantity (501) Duty not to make alterations Alteration: act by virtue of which a co- owner changes the thing from the state in which the others believe it should remain or withdraws it from the use to which they are desired to be intended in opposition to the common or tacit agreement Consent of ALL the co-owners is required if it changes the essence or nature of the thing (present article refers to this) because it is an act of ownership. Acts of alteration that do not change the essence or nature of the thing requires 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 54 of 325 PROPERTY CIVIL LAW only the agreement of the majority because it is merely an act of administration. - but if withholding of consent by any one of the co-owners is clearly prejudicial to the common interest, courts may afford adequate relief (491) Acts of Alteration/Acts of Ownership Acts of Administration Relates to the use, substance or form of the thing Also for the better enjoyment of the property Have a more permanent result Effects are of transitory character Consent of all is necessary Consent of the financial majority will be binding Contrary to the co- ownership agreement Does not give rise to a real right over the thing owned in common. Effects of acts of alteration and remedies of non-consenting co- owner : (a) Co-owner who made alterations may lose whatever he has spent as he will not be reimbursed (b) He may be ordered to demolish or remove the alteration at his expense (c) He will be liable for damages and other losses (d) Co-ownership will benefit from the alteration if other co-owners decide to contribute to the expenses by reimbursing him (ratification) (e) If a house is built in a common lot, the co-owners are entitled to the proportionate share of the rent. Lease becomes an act of ownership if: (1) It is recorded in the Registry of Property (2) It is for more than 1 year Management of Property Who may manage: a) The co-owners themselves Court cannot appoint an administrator to manage a property co-owned when the co-owners want to handle the management. In this management, the “majority” control and their decisions are binding upon the minority. Majority may only proceed to act without notice to the minority if the circumstances warrant urgency. b) An administrator who may or may not be a co-owner delegated by the co-owners An administrator cannot, without the unanimous consent of all the co- owners, compromise on, donate, cede, alienate, mortgage, or encumber in any manner the common property. The majority refers to the majority in interest or the financial majority. (50% + 1) When are acts seriously prejudicial? So serious and affects the interest of the co-owners in the community Such that will cause injuries enough to justify the intervention of the court Examples: (1) When the resolution calls for a substantial change or alteration of the common property or of the use to which it has been dedicated by agreement or by its nature (2) When the resolution goes beyond the limits of mere administration, or invades the proprietary rights of the co-owners, in violation of Art. 491 (prohibiting against acts of alteration) (3) When the majority leases, loans, or other contracts without security, exposing the thing to serious danger to the prejudice of the other co- owners. (4) When the majority refuse to dismiss an administrator who is guilty of fraud or negligence in his management, or does not have the respectability, aptitude, and solvency required of persons holding such position. (5) When resolution, if carried out, would cause serious injury to the thing itself, such as an agreement not to borrow money under reasonable terms when it is necessary for urgent repairs for preservation, or for the payment of taxes. Remedies of the minority If the acts of the majority prejudice the minority, the latter may ask for injunction or at worse, a partition. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 55 of 325 Extinguishment of Co-Ownership (1) Total destruction of the thing (2) Merger of all the interest in one person (3) Acquisitive prescription (a) By a third person (b) By one co-owner against the other co-owners Requisites: (i) Unequivocal acts of repudiation of the rights of the other co-owners (acts amounting to ouster of other co-owners) (ii) Open and adverse possession, not mere silent possession for the required period of extraordinary acquisitive prescription. (iii)Presumption is that possession of a co-owner is not adverse. (4) Partition or division (a) Right of Creditors of individual Co-owners Art. 497 All creditors must be considered to intervene in the partition of the common property. They must have become creditors during the co-ownership Co-owner debtors have the duty to notify the creditors of the partition Otherwise partition not binding on them They can contest such partition if they formulate a formal opposition thereto. (b) Partition may be made: (ii.) Orally Valid and enforceable among the parties. Statute of frauds does not operate for partition is not a conveyance of property but merely a segregation and designation of that part of the property which belongs to the co-owners. (ii.) In writing (a) Court will just confirm such written agreement. (a) Rules of Court does not preclude amicable settlement between parties. (b) Two principal issues in an action for partition: (b) plaintiff is indeed a co-owner of the property (c) how the property is to be divided between plaintiff and defendants. If property cannot be divided without great prejudice, the court may order such property be assigned to one co-owner. Such co- owner will pay the others the value of their interests. VII. CONDOMINIUM LAW (ACT NO. 4726) Concept of condominium Exclusive interest in units plus undivided interest in common areas. Partly co-ownership, partly under individual separate ownership Each unit belongs separately to one or more persons The land and the common areas are of common use by the different owners and are under co-ownership either as contemplated by the Civil Code or through a corporation. Not governed by co-ownership as provided for in the Civil Code. External surfaces are common areas Beams and posts are common areas Easement, unless the master deed says otherwise, is an exclusive easement. Interest in the common areas will depend on interest in the condo Important documents in buying a condo unit (i) deed of sale (ii) enabling or master deed (iii)declaration of restrictions Sec. 9 The owner of a project shall, prior to the conveyance of any condominium therein, register a declaration of restrictions relating to such project, which restrictions shall constitute a lien upon each condominium in the project and shall insure to and bind all condominium owners in the project. Such liens, unless otherwise provided, may be enforced by any condominium owner in the project or by the management body of such project. The Register of Deeds shall enter and annotate the declaration of restrictions upon the certificate of title covering the land included within the project, if the land is patented or register under the land included within the project, if the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 56 of 325 PROPERTY CIVIL LAW land is patented or registered under the Land Registration or Cadastral Acts. Method of taxation Sec. 25. Whenever real property has been divided into condominiums, each condominium separately owned shall be separately assessed, for purposes of real property taxation and other tax purposes to the owners thereof and the tax on each such condominium shall constitute a lien solely thereon. Partition of Common Areas Sec.7. Except as provided in the following section, the common areas shall remain undivided, and there shall be no judicial partition thereof. (b) Who manages the condominium? (i) condominium corporation (preferred by law) – co- terminous with the existence of the condominium (ii) co-ownership (iii) association of owners Rights and Obligations of Condominium owner What are the incidents of a condominium grant? (a) The boundary of the unit grant (i) the interior surfaces of the perimeter walls, floors, ceilings, windows, and doors (ii) those which are not part of the unit bearing walls, columns, floors, roofs, foundations, and other common structural elements of the building; lobbies, stairways, hallways, and other areas of common use, elevator equipment and shafts, central heating, central refrigeration, and central air-conditioning equipment, reservoirs, tanks, pumps, and other central services and faicilities, pipes, ducts, flues, chutes, conduits, wires and other utility installations, wherever located, except the outlets thereof when located within the unit. (b) Exclusive easement for the use of the air space encompassed by the boundaries of th unit (i) as it exists at any particular time (ii) as the unit may lawfully be altered or reconstructed from time to time (iii)such easement shall be automatically terminated in any air space upon destruction of the units to render it untenable (c) Unless otherwise provided, the common areas are held in common by the holders of units, in equal shares, one for each unit (d) a non-exclusive ease ment for ingress, egress, and support through the common areas are subject to such easements (e) Each condominium unit owner shall have the exclusive right to paint, repaint, tile, wax, paper, or otherwise refinish and decorate the inner surfaces of the walls, ceilings, floors, windows, and doors, bounding his own unit (f) Each condominium owner shall have the exclusive right to mortgage, pledge, encumber his condominium and to have the same appraised independently of the other condominiums but any obligation incurred by such condominium owner is personal to him. (g) Each condominium owner has also the absolute right to sell or dispose of his condominium unless the master deed contains a requirement that the property be first offered to the condominium owners within a reasonable period of time before the same is offered to outside parties. Case Ownership of a unit, therefore, is a condition sine qua non to being a shareholder in the condominium corporation By necessary implication, the "separate interest" in a condominium, which entitles the holder to become automatically a share holder in the condominium corporation, as provided in Section 2 of the Condominium Act, can be no other than ownership of a unit. (Sunset View Condominium v Judge Campos) PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 57 of 325 VIII. POSSESSION Definition and Concept (1) Possession is the holding of a thing of the enjoyment (exercise) of a right (523), whether by material occupation (de facto possession) or by the fact that the thing or the right is subjected to the action of our will. (2) It is a real right independent of and apart from ownership. Essential requisites of possession (1) Holding or control of a thing or right (corpus) consists of either: (a) the material or physical possession (b) subject action of our will- exercise of a right (c) constructive possession doctrine of constructive possession applies when the possession is under title calling for the whole, i.e., possession of a part is possession of the whole. Constructive possession a) tradicion brevi manu (one who possess a thing short of title of owner – lease ); b) tradicion constitutum possesorium (owner alienates thing but continues to possess – depositary, pledgee, tenant) (2) Intention to possess (animus possidendi) it is a state of mind whereby the possessor intends to exercise and does exercise a right of possession, whether or not such right is legal intention may be inferred from the fact that the thing in question is under the power and control of the possessor may be rebutted by contrary evidence Cases: The general rule is that the possession and cultivation of a portion of a tract of land under a claim of ownership of all is a constructive possession of all, IF the remainder is not in the adverse possession of another. Possession in the eyes of the law does not mean that a man has to have his feet on every square meter of ground before it can be said that he is in possession. (Ramos v. Director of Lands) The rule on constructive possession does not apply when the major portion of the disputed property has been in the adverse possession of homesteaders and their heirs. It is still part of the public domain until the patents are issued. (Director v. CA) Degrees of holding of possession (1) Mere holding or possession without title whatsoever and in violation of the right of the owner. applies to both movables and immovables both the possessor and the public know that the possession is wrongful there can be no acquisitive prescription of movables under the NCC (Art. 1133) (2) Possession with juridical title but not that of ownership. peaceably acquired this will never ripen into full ownership as long as there is no repudiation of concept under which the property is held (if such repudiation is made known to the owner, then extraordinary prescription of 30 yrs will apply) e.g., possession by tenant, depositary, agent, bailee, trustee, lessee, antichretic creditor even actual owner may be prevented by law from taking possession a depositary bank is not a possessor in this degree, since a deposit is actually a loan to the bank (3) Possession with just title or title sufficient to transfer ownership, but not from the true owner title— deed of sale or contract of sale possession of a vendee from vendor who pretends to be the owner, i.e., innocent buyer of stolen goods good faith of buyer = just title if in good faith, extraordinary prescription of 30 years will apply this degree of possession ripens interesting full ownership by lapse of time (4) Possession with just title from the true owner Transfer of possession transfers ownership! (possession as an incident of ownership) Cases of possession (1) Possession for oneself, or possession exercised in one’s own name and possession in the name of another. rights of possession may be exercised through agents 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 58 of 325 PROPERTY CIVIL LAW (a) necessary— exercised on behalf of the conceived child, of juridical persons, of persons not sui juris, and of the conjugal partnership (b) voluntary— in cases of agents or administrators appointed by the owner or possessor (2) Possession in the concept of an owner and possession in the concept of a holder with the ownership belonging to another In the Concept of a Holder such possessor acknowledges in another a superior right which he believes to be ownership, whether his belief be right or wrong e.g. tenant, usufructuary, and borrower In the Concept of Owner such possessor may be the owner himself or one who claims to be so only this class of possession can serve as title for acquiring dominion good faith or bad faith is immaterial except for purposes of prescription (GF: 10 yrs; BF: 30 yrs) Effects of possession in the concept of an owner: (1) possession may by lapse of time ripen into full ownership, subject to certain exceptions (2) presumption of just title and cannot be obliged to show or prove it Exception: for purpose of prescription in Art 1131. (3) possessor can bring all actions an owner can bring to protect his possession, except accion reivindicatoria (4) may employ self-help (Art 429) (5) can ask for the inscription of his possession in the registry of property (6) has right to the fruits and reimbursement for expenses (assuming he is a possessor in GF) (7) upon recovering possession from unlawful deprivers, can demand fruits and damages (8) generally, he can do everything an owner is authorized to do until he is ousted by one who has a better right (e.g., preemption) (9) possession in GF and possession in BF (3) Possession in good faith and possession in bad faith possession in good faith ceases from the moment defects in the title are made known to the possessor when an action is filed to recover possession, good faith ceases from the date of the summons to appear at the trial GF consists in the possessor’s belief that the person from whom he receive a thing was the owner of the same and could convey his title GF is always presumed belief that one is the legal owner must be based on some title or mode of acquisition, i.e., sale, donation, inheritance error in the application of the law, in the legal solutions that arise form such application, in the appreciation of the legal consequences of certain acts, and in the interpretation of doubtful provisions or doctrines, may properly serve as the basis of GF- mistake upon a doubtful or difficult question of law as a basis of good faith [Art 526 (3)] Subjects of possession All rights and things susceptible of appropriation Things which cannot be possessed: (1) property of public dominion (2) res communes (3) easements (discontinuous or non-apparent) (4) things specifically prohibited by law res nullius (abandoned or ownerless property)– may be possessed but cannot be acquired by prescription Acquisition of Possession (1) Ways of acquiring possession (a) Material occupation of the thing occupation is used in the general sense, i.e., a means of acquiring possession of things, not of rights kind of possession acquired is only the fact of possession, not the legal right of possession (i) Doctrine of constructive possession (ii) Includes constructive delivery (equal to material occupation in cases where PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 59 of 325 occupation is essential to the acquisition of prescription) traditio brevi manu one who possesses a thing by title other than ownership continues to possess the same but under a new title, that of ownership traditio constitutum possessorium owner alienates the thing, but continues to possess the same but as that of depositary, pledge, or tenant (b) subjection to the action of our will different from and independent of juridical acts and legal formalities as it refers more to the right of possession that to possession as a fact (i) traditio simbolica -- effected by delivering some object or symbol, placing under the thing under the control of the transferee, such as the keys to the warehouse containing the goods delivered [Art 1498 (2)] (ii) traditio longa manu – effected by the transferor pointing out to the transferee the things which are being transacted (c) proper acts and legal formalities refers to the acquisition of possession by sufficient title, whether inter vivos or mortis causa, or lucrative or onerous e.g., donations, succession, contracts, judicial writs of possession, writs of execution of judgments, and registration of public instruments There was a perfect contract of pledge and the depositary was placed in the possession of the goods after the symbolic transfer by means of delivery to him of the keys to the warehouse where the goods were kept. (Banco Espanol Filipino v. Peterson) (2) By whom possession may be acquired (a) by same person Elements of personal acquisition must have the capacity to acquire possession must have the intent to possess possibility to acquire possession must be present (b) by his legal representative Requisites: representative or agent has the intention to acquire the thing or exercise the right for another, and not for himself person for whom the thing has been acquired or right exercised, has the intention of possessing such thing or exercising such right (c) by his agent (d) by any person without any power whatsoever but subject to ratification, without prejudice to proper case of negotiorum gestio (e) Qualifiedly, minors and incapacitated persons refers only to possession of things, not of rights, and to acquisition of possession by material occupation (3) What do not affect possession (a) acts merely tolerated (b) acts executed clandestinely AND without knowledge of owner (c) acts by violence as long as the possessor objects thereto (i.e., he files a case) If owner of a tract of land, to accommodate the public, permits them to cross his property, it is not his intention to divest himself of ownership or to establish an easement. Such possession is not affected by acts of possessory character which are merely tolerated. (Cuaycong v Benedicto) As a squatter, she has no possessory rights over the disputed lot. The State’s solicitude from the destitutes and the have-nots does not mean that it should tolerate usurpations pf property, public or private. (Astudillo v PHHC) A possessor by mere tolerance is necessarily bound by an implied promise to vacate upon demand. (Peran v CFI) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 60 of 325 PROPERTY CIVIL LAW (4) Rules to solve conflict of possession In case of conflict of possession, the following order of preference must be followed: (1) present possessor or actual possessor (2) if 2 or more possessors, the one longer in possession (3) if dates of possession are the same, the one who presents a title (4) if all the condition are equal, the thing shall be placed in judicial deposit pending determination of possession or ownership through proper proceedings Preference in case of conflict of ownership (double sales) (1) for immovable property (a) first who registered his right in GF in the Registry of Property (b) if no registration, first who possessed in GF (c) if no possession, one who presents the oldest title (2) for movable property: first who possessed in GF Effects of Possession (1) In general, every possessor has a right to be respected in his possession; if disturbed therein, possessor has right to be protected in or restored to said possession (539) (a) action to recover possession (i) summary proceedings – forcible entry and unlawful detainer. Plaintiff may ask for writ of preliminary mandatory injunction may be asked. Within 10 days from filing of complaint in forcible entry - the same writ is available in unlawful detainer actions upon appeal (Art 1674) The acquirer and possessor in good faith of a chattel or movable property is entitled to be respected and protected in his possession as if he were the true owner, until a competent court rules otherwise. Such possession in good faith is equivalent to title and every possessor has a right to be respected in his possession (Arts 539 and 559). (Yu v Honrado) (ii) accion publiciana (based on superior right of possession, not of ownership) (iii)accion reivindicatoria (recovery of ownership) (iv) action for replevin – for recovery of movable property (b) Possessor can employ self-help (2) Entitlement to fruits – possessor in GF/ BF Possessor in GF is entitled to the fruits received before the possession is legally interrupted. Possessor in BF has no right to receive any fruits. Those already gathered and existing will have to be returned; with respect to those lost, consumed, or which could have been received, he must pay the value. But the possessor in BF does not have to pay interest on the value of fruits he has to pay, because such amount is unliquidated. (3) Reimbursement for expenses (See Table below (4) Possession of movable acquired in GF (in concept of an owner) is equivalent to title one who has lost a movable or has been unlawfully deprived thereof may recover it without reimbursement, except if possessor acquired it at a public sale (559) 3 requisites to make possession of movable equivalent to a title: (1) that the possession is in GF (2) that the owner has voluntarily parted with the possession of the thing (3) that the possession is in the concept of an owner Presumptions in favor of the possessor (1) Of good faith until the contrary is proved (Sideco vs. Pascua) (2) Of continutity of initial GF in which possession was commenced or possession in GF does not lose its character Exception: in the case and from the moment the possessor became aware or is not unaware of improper or wrongful possession. (3) Of enjoyment of possession in the same character in which was acquired until the contrary is proved. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 61 of 325 (4) Of non-interruption of possession in favor of present possessor who proves possession at a previous time until the contrary is proved. (554, 1120-1124) 2 Kinds of Interruption (1) Natural (Art 1122)—if interruption is for more than 1 year. (2) Civil (Art 1123)— will start from the service of summons but the proper action must be filed in case of natural interruption, the old possession loses all its juridical effects and therefore cannot be tacked to the new possession for purposes of prescription in case of civil interruption, if possession is recovered, it can be connected to the time that has elapsed as if it were continuous and can be counted in favor of prescription (5) Of exclusive possession of property allotted to a participant in a thing possessed in common for the entire period during which co- possession lasted; (6) Of continuous possession or non- interruption of possession of which he was wrongfully deprived for all purposes favorable to him (561) (7) Other presumptions with respect to specific property rights (i) Of extension of possession of real property to all movables contained therein so long as it is not shown that they should be excluded (Art. 426) (ii) Non-interruption of possession of hereditary property (Art. 533, Art. 1078) (iii)Of just title in favor of possessor in concept of owner, subject to Art. 1141 Loss of Possession (1) Abandonment (2) Assignment—WON gratuitously or onerously (3) Destruction—must be total/goes out of commerce (4) Possession of another—the possession that is lost here refers only to possession as a fact (de facto), not the legal right of possession (de jure) NOTE: all the other 3 cases of loss of possession (abandonment, assignment, destruction) refer to loss of possession de jure (real right of possession) and therefore cannot be recovered anymore by any action. Rules for Loss of Movables General Rule: possession of personal property acquired in GF = title therefore the true owner cannot recover it Exception: if the true owner (1) lost the movable or (2) has been unlawfully deprived In either of these, he may recover the personal property not only from the finder but also from those who may have acquired it in GF from such finder or thief, without paying for any indemnity except if possessor acquired it in public sale but the possessor in GF is entitled to reimbursement. Wild animals are possessed only while they are under one's control; domesticated or tamed animals are considered domestic or tame if they retain the habit of returning to the premises of the possessor. (Art. 560) (5) Reivindication—the most natural mode of losing possession, i.e., recovery or reivindication of the thing by the lawful owner 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 62 of 325 PROPERTY CIVIL LAW Effects of Possession in Good Faith or Bad Faith Good Faith Bad Faith Fruits received Entitled to the fruits while possession is in GF and before legal interruption (Art 544) Must reimburse fruits received or fruits which legitimate possessor could have received (549); Entitled to expenses for production, gathering, and preservation Pending Fruits Entitled to a part of the expenses of cultivation and a part of the network harvest, both proportion to the time of possession (545) Owner may indemnify or allow possessor in GF to finish cultivation and the fruits will be indemnified for his cultivation (545) If possessor refuses concession, no indemnity (545) Charges Must share with the legitimate possessor, in proportion to the time of possession Same as with GF Necessary Expenses Right of reimbursement and retention in the meantime (545) Reimbursement only Useful Expenses Owner’s option to reimburse him either for expenses or for increase in value (546) Retention prior to reimbursement (546) Limited right of removal (but should not damage principal and owner does not exercise option of payment of expenses or increase in value) (547) No right to reimbursement. He also cannot remove improvements even he can do so without injury to the principal thing Ornamental Expenses Limited right of removal as above (548) Limited right of removal (no injury to thing and lawful possessor does not retain by paying for them) (548) Deterioration or Loss No liability unless due to fraud or negligence after becoming in BF Liable WoN due to his fault, negligence, fortuitous event Costs of Litigation Bears cost Bears cost Effects of Recovery of Possession Improvements caused by nature or time shall always insure to the benefit of the person who has succeeded in recovering possession. (Art. 551). One who recovers possession shall not be obliged to pay for improvements which have ceased to exist at the time he takes possession of the thing. (Art. 553) necessary expenses: lawful possessor or owner has to pay for them even if the object for which they were incurred no longer exist PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 63 of 325 IX. USUFRUCT Definition USUFRUCT is a real right which gives the usufructuary - a right to enjoy the property of another - with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides. (Art.562) Characteristics 1. real right of use and enjoyment of property owned by another 2. of a temporary duration 3. transmissible 4. may be constituted on real or personal property, on tangibles or intangibles Rights of Usufructuary: A. As to the thing and its fruits 1. right to possess and enjoy the thing itself, its fruits and accessions (566-567) 2. right to lease the thing (572) 3. right to improve the thing Right to possess and enjoy the thing itself, its fruits and accessions Fruits belong to the usufructuary except when they diminish the substance of the thing (e.g., minerals in quarries), in which case they will belong to the usufruct only when the owner has dedicated the property to the exploitation of such products. Dividends from shares are fruits. Rights may be transferred, assigned, or otherwise disposed of by the usufructuary; As to hidden treasure, usufructuary is a stranger, so no right to it Fruits pending at the beginning of the usufruct belong to the usufructuary, with no obligation to refund the expenses of the owner. But, if expenses for production were incurred by third persons, they must be reimbursed. Fruits growing at the time of the termination of the usufruct belong to the owner, but the usufructuary must be reimbursed from the proceeds of such fruits for his production expenses. Right to lease the thing even without consent of owner BUT no alienation, mortgage, pledge Lease by the owner before the start of the usufruct is not extinguished by such usufruct. Usufructuary will be liable to the owner for damages caused by the fault or negligence of the transferee or lessee. General rule: Lease by the usufruct should terminated at the end of the usufruct or earlier. Exception: leases of rural lands, in which case the lease continues for the remainder of the agricultural year Right to improve the thing Useful improvements or expenses only No alteration of form and substance Usufructuary may remove improvements only if it is possible without damaging the property. The owner cannot compel the usufructuary to remove the improvements. BUT If the usufructuary does not remove, he has no right to be indemnified. Registry of improvements is necessary to protect the usufructuary against third persons regarding the improvements. If improvements cannot be removed, such may be used to offset any damage caused by the usufructuary to the property. B. As to the usufructuary right itself 1. Right to alienate EXCEPT in purely personal ones or when the title constituting the usufruct prohibits the same. Examples: - Legal usufruct of parents (Art. 226 FC) - Usufruct granted the usufructuary in consideration of his person - Usufruct acquired through caucion juratoria Sale by the usufructuary Future crop may be sold; but such sale will be void if not ratified by the owner. It’s a sale of property not belonging to the usufructuary and those gathered at the termination of the usufruct belonging to the owner. If things are consumable or were appraised when delivered, the usufructuary can dispose of them. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 64 of 325 PROPERTY CIVIL LAW Rights of the naked owner 1. At the beginning of the usufruct all obligations of the usufructuary at the beginning of the usufruct 2. During the usufruct retains title to the thing and improve it may alienate the property 3. At the termination or end of the usufruct recover property from the usufructuary in the same preserved form and substance with room for ordinary wear and tear subject to ordinary repairs Obligations of the Usufructuary These requirements are conditions merely to the entry upon the possession and enjoyment of the property. A. At the beginning of the usufruct or before the exercise of the right of the usufruct 1. To make an inventory EXCEPT when No one will be injured thereby Title constituting usufruct excused the making of inventory Title constituting usufruct already makes an inventory 2. To give a bond for the faithful performance of duties as usufructuary EXCEPT when No prejudice would result Usufruct is reserved by donor Title constituting usufruct excused usufructuary Caucion juratoria: a sworn undertaking wherein the usufructuary claims that he is in dire need of the house and the implements/furniture and asks that he be allowed to enjoy the same even without giving the required security B. During the usufruct 1. To take care of the things like a good father of the family bad use of the thing will not extinguish the usufruct Owner becomes entitled to delivery and administration of the thing should the abuse cause substantial injury to the owner 2. To undertake Ordinary Repairs for the preservation if not repairs made by usufructuary, even after the demand by the owner, the latter may pay for the repairs, with right of reimbursement from the usufructuary 3. To Notify the Owner of Need to Undertake Extra-Ordinary Repairs Those caused by exceptional circumstances, WON they are necessary for the preservation of the thing Those caused by the natural use of the thing, but are not necessary for its preservation Naked owner obliged to undertake them but when made by the owner, usufructuary pays legal interest on the amount while usufruct lasts Naked owner cannot be compelled to undertake extra- ordinary repairs If indispensable and owner fails to undertake extraordinary repairs- may be made by the usufructuary 4. To notify owner of any act detrimental to ownership OR ELSE, usufructuary will be liable for damage and he cannot make extraordinary repairs 5. To shoulder costs of litigation regarding the usufruct 6. To answer for the fault of alienee, lessee, or agent of the usufructuary Causes of extinguishment of Usufruct (Art.603) DERM PLT 1. Death of the usufructuary, unless a contrary intention clearly appears; 2. Expiration of the period for which it was constituted, or by the fulfillment of any resolutory condition provided in the title creating the usufruct; 3. Renunciation of the usufructuary; 4. Merger of the usufruct and ownership in the same person; 5. Prescription; 6. Total Loss of the thing in usufruct; 7. Termination of the right of the person constituting the usufruct Special Cases of Usufruct 1. over a pension or periodical income (570) 2. of property owned in common (582) 3. of head of cattle (591) 4. over deteriorable property (578) PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 65 of 325 5. over vineyards and woodlands (575- 576) 6. on mortgaged property (600) 7. over entire patrimony (598) 8. over consumable property (574) quasi-usufruct may be on consumables, e.g., food, but must be replaced with equal quantity if not appraised, must be considered as on their value may also be on non-consumables that gradually deteriorate by use, e,g,, furniture or car in reality, the usufruct is converted into a simple loan not upon consumable things themselves which are delivered to the usufructuary, but upon the sum representing their value or upon a quantity of things of the same kind and quality the usufructuary, in effect, becomes the owner of the things in usufruct, while the grantor becomes a mere creditor entitled to the return of the value or of the things of the same quantity and quality X. EASEMENTS Art. 613. “Easement or Servitude”: encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner... “Dominant estate”: the immovable in favor of which the easement is established “Servient estate”: the immovable which is the subject of the easement. Art. 614. “Personal Easements”: established for the benefit of a community, or of one or more persons to whom the encumbered estate does not belong. - real right or encumbrance imposed on an immovable for the benefit of another immovable belonging to a different owner or for the benefit of a community or one or more persons to whom the encumbered estate does not belong by which the owner is obliged to abstain from doing or to permit a certain thing to be done on his estate. Easements cannot be established on personal property Burden should not be so great as to amount to a taking of his property It is not essential that the benefit be great. It is sufficient that there is a determinate use or utility in favor of a dominant estate. Not necessary that the right acquired under the servitude be exercised. Servitudes can’t be established on things which are outside the commerce of man. Such things are inalienable. Imposition of an encumbrance would constitute an alienation. Servitudes cannot be created on property of public dominion. Easement v. Lease EASEMENT LEASE Real right WON registered, WON real or personal Real right only when it is registered, or when its subject matter is real property and the duration exceeds 1 year. Imposed only on real property May involve either real or personal property Limited right to the use of real property of another, without right of possession. Limited right to both the possession and use of another’s property. Easement v. Usufruct EASEMENT USUFRUCT Imposed only on real property. May involve either real or personal property. Limited to a particular or specific use of the servient estate. Includes all the uses and fruits of the property. Non-possessory right over an immovable Involves right of possession in an immovable or movable. Not extinguished by death of the dominant owner. As a rule, extinguished by the death of the usufructuary. Essential Features of Easements or Real Servitudes (RAIL-IRI-NA- RIP) (1) It is a real right. It gives rise to an action in rem or real action against any possessor of the servient estate. (2) It is a right enjoyed over another property (jus in re aliena). It cannot exist in one’s own property (nulli res sua servit). Servient and dominant 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 66 of 325 PROPERTY CIVIL LAW estates have to belong to different persons. (3) It is a right constituted over an immovable by nature not over movables. (4) It limits the servient owner’s right of ownership or the benefit of the dominant estate. But servient tenement remains unimpaired. Being an abnormal limitation of ownership, it cannot be presumed. (5) It creates a relation between tenements. (6) It can exist only between neighboring tenements. It can’t be created on another servitude. (7) It cannot consist in requiring the owner of the servient estate to do an act unless the act is accessory to a praedial servitude (obligation propter rem). (8) It may consist in requiring the owner of the dominant estate demanding that the owner of the servient estate refrain from doing something (servitus in non faciendo), or that the latter permit that something be done over the servient property (servitus in patendo) but not in the right to demand that the owner of the servient estate do something (servitus in faciendo) except if such act is an accessory obligation to a praedial servitude. (9) It is inherent or inseparable from estate to which they actively or passively belong. (Art. 617) Servitudes cannot exist without tenements. They are merely accessory. This doesn’t mean they don’t have juridical existence of their own. (Solid Manila vs. Bio Hong) Inherence refers only to that portion of the tenement affected by it. Portion not affected can be alienated without the servitude. Contract of transmission of easement by owner of the dominant estate may constitute a renunciation or extinguishments of easement (10) It is intransmissible, cannot be alienated separately from the tenement. It can’t be the object of mortgage and exists even if not annotated. (11) It is indivisible. (618) (12) It has permanence. Classification A s t o r e c e p i e n t o f b e n e f i t Real/Predial In favor of another immovable (Art.613) Personal In favor of a community or of 1 or more persons, may be public or private (Art.614) i. Public: vested in the public at large or in some class of indeterminate individuals ii. Private: vested in a determinate individual or certain persons A s t o i t s s o u r c e Voluntar y Establish ed by will or agreeme nt of the parties or by a testator (Art.619) Legal Impose d by law either for public use or in the interest of private persons (Art.619 ) Mixed Created partly by will or agree- ment and partly by law A s t o i t s e x e r c i s e Continuous Use of which is or may be incessant, without the intervention of any act of man. (Art.615) Discontinou s Used at intervals and depend upon acts of men (Art.615) A s t o W O N i t s e x i s t e n c e i s i n d i c a t e d Apparent Made known and are continually kept in view by external signs that reveal the use and enjoyment of the same (Art.615) Non- apparent Show no external indication of their existence (Art.615) * In general, negative easements are non- apparent. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 67 of 325 A s t o d u t y o f s e r v i e n t o w n e r Positive Imposes upon the owner of the servient estate the obligation of allowing something to be done or of doing it himself (Art.616) Negative Prohibits the owner of the servient estate from doing something which he could lawfully do if the easement did not exist (Art.616) General Rules Relating to Servitudes (1) No one can have a servitude over his own property (2) A servitude cannot consist in doing (3) There cannot be a servitude over another servitude (4) A servitude must be exercised civiliter, in a way least burdensome to the owner of the land. (5) A servitude must have a perpetual cause. Modes of Acquiring Easements (1) By Title a juridical act which gives rise to the servitude such as the law (e.g. donation, contracts and wills) All easements - continious and apparent (Art.620) - continous and non-apparent easements (Art.622) - discontinous easements, whether apparent or non-apparent * Discontinuous easement can only be acquired by title and not by prescription. (2) By Prescription of 10 years Continuous and apparent easements (Art.620) The time for reckoning prescription: (a) Positive easements- from the day on which the owner of the dominant estate, or the person who may have made use of the easement, commenced to exercise it upon the servient estate (b) Negative easements- from the day on which the owner of the dominant estate forbade, by an instrument acknowledged before e notary public, the owner of the servient estate, from executing an act which would be lawful without the easement. (Art.621) * Prescription does not require good faith or just title. General rules for acquisitive prescription of ownership and other real rights do not apply to it. * There must however be adverse possession or exercise of the easement. (3) By deed of recognition (Art.623) If easement has been acquired but no proof of existence is available, and easement is one that cannot be acquired by prescription (4) By final judgment (Art.623) (5) By apparent sign established by the owner of 2 adjoining estates. The existence of an apparent sign of easement between two estates, 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 68 of 325 PROPERTY CIVIL LAW established or maintained by the owner of both, shall be considered, should either of them be alienated, as a title in order that the easement may continue actively and passively, unless, as the time the ownership of the two estates is divided, the contrary should be provided in the title of conveyance of either of them, or the sign aforesaid should be removed before the execution of the deed. This provision shall also apply in case of the division of a thing owned in common by two or more persons. (Art. 624.) Cases The road is clearly a servitude voluntarily constituted in favor of the community under Art. 531. Having been devoted by NNSC to the use of the public in general, the road is charged with public interest. And while so devoted. NNSC may not establish discriminatory exceptions against any private persons. (North Negros Sugar Co. vs Hidalgo) Since the construction of the church, there had been a side door in the wall through which the worshippers attending mass enter and leave, passing and entering the land in question. As this use of the land has been continuous, it is evident that the church has acquired a right to such use by prescription, in view of the time that has elapsed since the church was built and dedicated to religious worship, during which period the Municipality has not prohibited the passage over the land by persons who attend services held by the church. (Municipality of Dumangas vs Bishop of Jaro) Easement of light and view go together. Acquisition of easements is by title or by prescription. The visible and permanent sign of an easement is the title that characterizes its existence. Existence of the apparent sign had the same effect as a title of acquisition of the easement of the light and view upon death of original owner. (Amor vs. Florentino) An easement of a right of way cannot be acquired through prescription because possession of right of way is intermittent and discontinuous. Acquisitive prescription requires that the possession be continuous or uninterrupted (Art. 1118). (Ronquillo v Roco) Rights and Obligations of Owners of Dominant and Servient Estates Art. 625. Upon establishment of an easement, all the rights necessary for its use are considered granted. (1) Rights of the dominant estate (EWW) (a) To use the easement (Art.626) and exercise all rights necessary for the use (Art. 627) (b) To use at his expense all necessary works for the use and preservation of the easement. (Art. 627) (c) In a right of way, to ask for change in width of easement sufficient for needs of dominant estate. Such right of way may be demanded when there is absolutely no access or even when there is one, it is difficult or grossly insufficient. Art. 651 also provides that “the width of the easement of right of way shall be that which is sufficient for the needs of the dominant estate, and may accordingly be changed from time to time.” (Encarnacion v CA) (2)Obligations of dominant estate (UNAC) (a) To use easement for the benefit of immovable and in the manner originally established. (Art. 626) (b) To notify owner of the servient estate before making repairs in manner inconvenient to servient estate. (Art. 627) (c) Not to alter easement or render it burdensome. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 69 of 325 (d) If there are several dominant estates unless he renounces his interest: to contribute the expenses of works necessary for use and preservation servitude. (Art. 628) Owner of dominant estate has the right to use accessory servitudes or those necessary for the use of other servitudes regarded as principals ones. Works must be executed in the manner of least inconvenience to the servient who cannot recover indemnity for the inevitable damages that may be suffered by the servient owner. If dominant owner violates restrictions, he can be compelled to restore the things their original condition and to pay indemnity for the damages. If dominant tenement is alienated, transferee can be required to restore things their original condition but he cannot be required to pay indemnity because this is a personal liability of the former owner. (3) Rights of the servient estate (RC) (a) To retain ownership and use of his property (Art 630) (b) To change the place and manner of the use of the easement (4)Obligations of the servient estate (IC) (a) Not to impair the use of the easement. (Art. 629) (b) To contribute proportionately to expenses to use the easement [Art 628(2)] Owner of servient tenement must abstain from rendering the use of the easement more inconvenient to the owner of the dominant estate. If owner of the servient estate performs act or constructs works impairing the use of the servitude, the owner of the dominant tenement may ask for the destruction of such works and restoration with damages. Injunction is another remedy. Modes of Extinguishment of Easements (Art.631) (MINERRO) (1)Merger – must be absolute, perfect and definite, not merely temporary. If cause for cessation of merger is inherent like nullity or rescission, easement is reestablished. If extrinsic, there is no revival. If the owner of the merged estate sells one of the estates later, easement is not reestablished. (2)Non- user for 10 years (a) Computation of period (1) Discontinuous easements: counted from the day they ceased to be used (2) Continuous easements: counted from the day an act adverse to the exercise took place (b) Use by a co-owner of the dominant estate bars prescription with respect to others (Art.633) (c) Servitudes not yet exercised cannot be extinguished by non-user Non – user must be due to abstention by dominant owner and not to fortuitous event. If dominant estate is used in common, exercise of the easement of one of the co – owner inures to the benefit of all others and preserves the easement which is indivisible. Erection of works incompatible with the exercise of the easement or totally obstructing the servitude, agreed to by the owner of the dominant estate, amounts to tacit renunciation and extinguishes the servitude. Right or power to claim exercise of the legal servitude do not prescribe. (3) Impossibility of use When either or both of the estates fall into such condition that the easement cannot be used; but it shall revive if the subsequent condition of the estates or either of them should again permit its use, unless when the use becomes possible, sufficient time for prescription has elapsed, in accordance with the provisions of the preceding number; This mode arises from the condition of the tenements and only suspends the servitude unlit such time when it can be used again. 10 years cap for suspension, otherwise, extinguished by prescription as previously provided. Eg. Flooding of servient tenement over which a right of way exists. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 70 of 325 PROPERTY CIVIL LAW (4) Expiration of term or fulfillment of resolutory condition By the expiration of the term or the fulfillment of the condition, if the easement is temporary or conditional; (5) Renunciation of owner of the dominant estate It must be specific, clear, express. Fact that owners of the dominant estate refrained from claiming the servitude without any positive act to imply a real waiver or renunciation does not bring the case within the provisions of this article. Occurs only in voluntary easements. (6) Redemption agreed upon between the owners. By the redemption agreed upon between the owners of the dominant and servient estates. -Voluntary -Stipulated conditions, which extinguish easements. (7) Other causes not mentioned (a) Annulment or rescission or cancellation of the title constituting the easement. (b) Termination of the right of grantor to create the easement ( e.g. redemption of the property sold a retro because of the exercise of the right of conventional redemption ( Art. 1618) (c) Abandonment of the servient estate (d) Eminent domain (e) Special cause of extinction of legal right of way, the opening of an adequate outlet to the highway extinguishes the easement, if servient owner makes a demand for such extinguishment.(Art. 655) (f) Registration of the servient estate as FREE (g) Permanent impossibility to make use of the easement. XI. LEGAL EASEMENTS DEFINITION Art. 634. Imposed or mandated by law and which have for their object either public use or the interest of private persons, and thereby become a continuing property right. 2. KINDS (as to their use or object) (1) Public legal easements – for public or communal use (2) Private legal easements – for the interest of private persons or for private use including: Waters Right of way Party Wall Light & View Drainage Intermediate Distances Against Nuisance Lateral & Subjacent Support (1)Laws Governing Legal Easements Generally, special laws and the CC govern easements but note that private legal easements may be governed by agreement of the interested parties whenever the law does not prohibit it and no injury is suffered by a third person. (a) Those established for the use of water or easements relating waters (Arts. 637 – 648) (1) Natural drainage of waters with stones or earth carried with them waters which form in upper tenements and flow to the lower ones by force of nature and not by those caused by acts of man. Owner of tenements cannot construct works to increase the burden of this servitude. Owner of the lower tenements cannot make works which impede the servitude. But he can construct work necessary to prevent damage to himself provided it does not impede the servitude and he does not cause damage to other tenements Rain water from roofs of buildings and water from houses must be received on one’s own land. It is the duty of the owner of the building to direct the rainwater to a public place or to establish an easement of passage of water through a neighboring tenement. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 71 of 325 Case The dikes are continuous easements since it does depend upon the act of man, but is due to gravity. Being such, it is subject to the extinction to the non- user (20 years in the Old Code and 10 years in the New Code). (Ongsiaco v. Ongsiaco) (2) Easements on lands along riverbanks For public use: 3m zone along margins for navigation, floatage, fishing and salvage. If navigable – Towpath easement for navigation and floatage If private land – expropriate, since it is for private use. (3) Abutment of Land Non – owner builder of the dam pay owner of land for the abutment of the land. abutment – part of dam that extends to the riverbank or dam if no easement previously established, and the dam floods the land – injured owner or his representative can remove it as private nuisance. (4) Aqueduct Any person who may wish to use upon his own estate any water of which he can dispose shall have the right to make it flow through the intervening estates, with the obligation to indemnify their owners, as well as the owners of the lower estates upon which the waters may filter or descend. (Art. 642.) Obligation of the dominant estate: (1) To prove that he can dispose of the water and that it is sufficient for the use for which it is intended; (2) To show that the proposed right of way is the most convenient and least onerous to third persons; (3) To indemnify the owner of the servient estate The easement of aqueduct for private interest cannot be imposed on buildings, courtyards, annexes, or outhouses, or on orchards or gardens already existing. For legal purposes, the easement of aqueduct shall be considered as continuous and apparent. (5) Drawing waters and watering materials Compulsory easements for drawing water or for watering animals can be imposed only for reasons of public use in favor of a town or village, after payment of the proper indemnity. (Art. 640) Easements for drawing water and for watering animals carry with them the obligation of the owners of the servient estates to allow passage to persons and animals to the place where such easements are to be used, and the indemnity shall include this service. (Art. 641) Easements of the right of way for the passage of livestock known as animal path, animal trail or any other, and those for watering places, resting places and animal folds, shall be governed by the ordinances and regulations relating thereto, and, in the absence thereof, by the usages and customs of the place. (Art. 657) Without prejudice to rights legally acquired, the animal path shall not exceed the width of 75 meters, and the animal trail that of 37 meters and 50 centimeters. Whenever it is necessary to establish a compulsory easement of the right of way or for a watering place for animals, the provisions of this Section and those of Articles 640 and 641 shall be observed. In this case the width shall not exceed 10 meters. (6) Stop lock and sluice gate Art. 647. One who for the purpose of irrigating or improving his estate, has to construct a stop lock or sluice gate in the bed of the stream from which the water is to be taken, may demand that the owners of the banks permit its construction, after payment of damages, including those caused by the new easement to such owners and to the other irrigators. (a)Easement of right of way Requisites before demanding a right of way (Articles 649-650) (a) owner, or anyone with a real right to cultivate, or use immovable (b) not due to acts of the proprietor of the dominant estate (c) surrounded by immovables belonging to others, without adequate outlet to public highway i. absolutely no access 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 72 of 325 PROPERTY CIVIL LAW ii. difficult or dangerous to use (d) right of way claimed is the least prejudicial to the servient estate (e) payment of the proper indemnity (i) permanent passage – value of the land (ii) without permanent passage – payment of damages To justify the imposition of this servitude, there must be a real necessity for it. Mere convenience is not enough. Even when there is a necessity, if it can be satisfied without imposing the servitude, servitude should not be imposed. Owner can not by his own act isolate his property from the public highway and then claim an easement of way through an adjacent estate. Access to highway may be demanded: (a) when there is absolutely no access to a public highway (b) when even if there is one, it is difficult or dangerous to use or is grossly insufficient Payment of the value of the land for permanent use of easement does not mean an alienation of the land occupied. Criterion of the least prejudice to the servient estate must prevail over the criterion of the shortest distance. (Quimen v. Quimen) Before judicial decision, establishment of any road would constitute an invasion of the land with all consequences resulting from such transgression. It is the needs of the dominant estate which determines the width of the passage. Servitude may thus be modified after it has already been established. Whenever a piece of land acquired by sale, exchange or partition, is surrounded by other estates of the vendor, exchanger, or co-owner, he shall be obliged to grant a right of way without indemnity. In case of a simple donation, the donor shall be indemnified by the donee for the establishment of the right of way. (Art. 652) Servitude without indemnity is considered as a tacit condition of the sale, exchange or partition, but not implied in a simple donation. When the right of way originally established without indemnity should disappear or become useless, a legal servitude may be demanded with the payment of the indemnity. On the other hand, if grantor/ exchanger/ vendor‘s property becomes isolated, he must pay indemnity. Art. 654. If the right of way is permanent, the necessary repairs shall be made by the owner of the dominant estate. A proportionate share of the taxes shall be reimbursed by said owner to the proprietor of the servient estate. Obligations of praedium dominans; necessary repairs, proportionate share of taxes. Art. 655. If the right of way granted to a surrounded estate ceases to be necessary because its owner has joined it to another abutting on a public road, the owner of the servient estate may demand that the easement be extinguished, returning what he may have received by way of indemnity. The interest on the indemnity shall be deemed to be in payment of rent for the use of the easement. The same rule shall be applied in case a new road is opened giving access to the isolated estate. In both cases, the public highway must substantially meet the needs of the dominant estate in order that the easement may be extinguished. Extinguishment Not Ipso Jure – (only) owners of the servient estate has to ask for it and return indemnity. Owner of the dominant estate may not ask for the return of the indemnity unless servient owner asks for the extinguishment. Offset interest of the indemnity with rentals of the land. Art. 656. If it be indispensable for the construction, repair, improvement, alteration or beautification of a building, to carry materials through the estate of another, or to raise therein scaffolding or other objects necessary for the work, the owner of such estate shall be obliged to permit the act, after receiving payment of the proper indemnity for the damage caused him. This may be demanded by owner and usufructuary. Word indispensable should not be understood as indicating that it would be impossible to construct or repair the building. It is enough that PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 73 of 325 it would be extremely difficult to do so without the easement. Animal Path Without prejudice to rights legally acquired, the animal path shall not exceed the width of 75 meters, and the animal trail that of 37 meters and 50 centimeters. Whenever it is necessary to establish a compulsory easement of the right of way or for a watering place for animals, the provisions of this Section and those of articles 640 and 641 shall be observed. In this case the width shall not exceed 10 meters.(570a) Cases A voluntary easement of right of way could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate. The opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements. (La Vista v. CA) An easement of right of way can be established through continued use. (Vda. de Baltazar v CA) (c) Easement of party wall Art. 658. The easement of party wall shall be governed by the provisions of this Title, by the local ordinances and customs insofar as they do not conflict with the same, and by the rules of co- ownership Party wall is a co-ownership in a special class by itself: (1) It is indivisible. (2) The part pertaining to each co- owner can be materially designated. (3) Rights of a co-owner of a party wall are greater than those of an ordinary co-owner and with respect to increasing the height of the wall. Wall may be owned in common by the adjoining owners either form its construction or by a subsequent act. Each owner can insert the beams of his building in the wall to the extent of its entire thickness. A party wall is one which is built by common agreement by getting land from the adjoining tenements in equal parts. Each owner may use the wall but only to the extent of one- half of its thickness. Art. 659. The existence of an easement of party wall is presumed, unless there is a title, or exterior sign, or proof to the contrary: (1) In dividing walls of adjoining buildings up to the point of common elevation; (2) In dividing walls of gardens or yards situated in cities, towns, or in rural communities; (3) In fences, walls and live hedges dividing rural lands. Co-ownership must be accepted unless the contrary appears from the title showing that the entire wall belongs exclusively to one of the property owners or unless there is an exterior sign to destroy such presumption. Art. 660. It is understood that there is an exterior sign, contrary to the easement of party wall: (1) Whenever in the dividing wall of buildings there is a window or opening; (2) Whenever the dividing wall is, on one side, straight and plumb on all its facement, and on the other, it has similar conditions on the upper part Art. 657. Easements of the right of way for the passage of livestock known as animal path, animal trail or any other, and those for watering places, resting places and animal folds, shall be governed by the ordinances and regulations relating thereto, and, in the absence thereof, by the usages and customs of the place. Without prejudice to rights legally acquired, the animal path shall not exceed in any case the width of 75 meters, and the animal trail that of 37 meters and 50 centimeters. Whenever it is necessary to establish a compulsory easement of the right of way or for a watering place for animals, the provisions of this Section and those of Articles 640 and 641 shall be observed. In this case the width shall not exceed 10 meters. (570a), but the lower part slants or projects outward; (3) Whenever the entire wall is built within the boundaries of one of the estates; (4) Whenever the dividing wall bears the burden of the binding beams, floors and roof frame of one of the buildings, but not those of the others; (5) Whenever the dividing wall between courtyards, gardens and tenements is constructed in such a way that the coping sheds the water upon only one of the estates; 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 74 of 325 PROPERTY CIVIL LAW (6) Whenever the dividing wall, being built of masonry, has stepping stones, which at certain intervals project from the surface on one side only, but not on the other; (7) Whenever lands inclosed by fences or live hedges adjoin others which are not inclosed. In all these cases, the ownership of the walls, fences or hedges shall be deemed to belong exclusively to the owner of the property or tenement which has in its favor the presumption on any one of these signs. (573) Art. 661. Ditches or drains opened between two estates are also presumed as common to both, if there is no title or sign showing the contrary. There is a sign contrary to the part- ownership whenever the earth or dirt removed to open the ditch or to clean it is only on one side thereof, in which case the ownership of the ditch shall belong exclusively to the owner of the land having this exterior sign in its favor. Art. 662. The cost of repairs and construction of party walls and the maintenance of fences, live hedges, ditches, and drains owned in common, shall be borne by all the owners of the lands or tenements having the party wall in their favor, in proportion to the right of each. Nevertheless, any owner may exempt himself from contributing to this charge by renouncing his part-ownership, except when the party wall supports a building belonging to him. Art. 663. If the owner of a building, supported by a party wall desires to demolish the building, he may also renounce his part-ownership of the wall, but the cost of all repairs and work necessary to prevent any damage which the demolition may cause to the party wall, on this occasion only, shall be borne by him. Art. 664. Every owner may increase the height of the party wall, doing at his own expense and paying for any damage which may be caused by the work, even though such damage be temporary. The expenses of maintaining the wall in the part newly raised or deepened at its foundation shall also be paid for by him; and, in addition, the indemnity for the increased expenses which may be necessary for the preservation of the party wall by reason of the greater height or depth which has been given it. If the party wall cannot bear the increased height, the owner desiring to raise it shall be obliged to reconstruct it at his own expense and, if for this purpose it be necessary to make it thicker, he shall give the space required from his own land. Art. 665. The other owners who have not contributed in giving increased height, depth or thickness to the wall may, nevertheless, acquire the right of part-ownership therein, by paying proportionally the value of the work at the time of the acquisition and of the land used for its increased thickness. Art. 666. Every part-owner of a party wall may use it in proportion to the right he may have in the co-ownership, without interfering with the common and respective uses by the other co-owners. Each part-owner can use the party wall only in proportion to his interest (d) Easement of Light and View Art. 667. No part-owner may, without the consent of the others, open through the party wall any window or aperture of any kind. Such act would imply the exercise of the right of ownership by the use of the entire thickness of the wall. It would be an invasion of the right of the other part owners. Art. 668. The period of prescription for the acquisition of an easement of light and view shall be counted: (1) From the time of the opening of the window, if it is through a party wall; or (2) From the time of the formal prohibition upon the proprietor of the adjoining land or tenement, if the window is through a wall on the dominant estate. Art. 669. When the distances in Article 670 are not observed, the owner of a wall which is not party wall, adjoining a tenement or piece of land belonging to another, can make in it openings to admit light at the height of the ceiling joints or immediately under the ceiling, and of the size of thirty centimeters square, and, in every case, with an iron grating imbedded in the wall and with a wire screen. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 75 of 325 Nevertheless, the owner of the tenement or property adjoining the wall in which the openings are made can close them should he acquire part-ownership thereof, if there be no stipulation to the contrary. He can also obstruct them by constructing a building on his land or by raising a wall thereon contiguous to that having such openings, unless an easement of light has been acquired. Openings allowed are for the purpose of admitting light. They can be made only in the walls of buildings and not in the walls separating gardens or yards because they have no need for such openings The period to require the closing of the illegal opening begins to run from the moment such opening is made. But it is only the action to compel the closure which prescribes Although action to compel the closing has prescribed, this does not mean servitude has been acquired by person who opened them. Servitude is negative and period for acquisitive prescription will begin to run only from the time that the owner asserting the servitude has forbidden the owner of adjoining tenement from doing something he latter could lawfully do without the servitude. Art. 670. No windows, apertures, balconies, or other similar projections which afford a direct view upon or towards an adjoining land or tenement can be made, without leaving a distance of two meters between the wall in which they are made and such contiguous property. Neither can side or oblique views upon or towards such conterminous property be had, unless there be a distance of sixty centimeters. The nonobservance of these distances does not give rise to prescription. Direct View— that which is obtained from a wall parallel to the boundary line, such that from the opening in such wall, it is possible to see the adjoining tenement without the necessity of putting out or turning one’s head Side or oblique view—that which is obtained from a wall a an angle with the boundary line such that in order to see the adjoining tenement, it is necessary to put out or turn one’s head to the left or to the right Mere opening of windows in violation of the present article does not give rise to the easement of light and view by prescription. Art. 672. The provisions of Article 670 are not applicable to buildings separated by a public way or alley, which is not less than three meters wide, subject to special regulations and local ordinances. Art. 673. Whenever by any title a right has been acquired to have direct views, balconies or belvederes overlooking an adjoining property, the owner of the servient estate cannot build thereon at less than a distance of three meters to be measured in the manner provided in Article 671. Any stipulation permitting distances less than those prescribed in Article 670 is void. Art. 673. Whenever by any title a right has been acquired to have direct views, balconies or belvederes overlooking an adjoining property, the owner of the servient estate cannot build thereon at less than a distance of three meters to be measured in the manner provided in Article 671. Any stipulation permitting distances less than those prescribed in Article 670 is void. This article refers to a true servitude. Acquisition may be through contact, testament, or prescription. Distance may be increased by stipulation of the parties. It may also be extended by prescription. (e)Drainage of Buildings Art. 674. The owner of a building shall be obliged to construct its roof or covering in such manner that the rain water shall fall on his own land or on a street or public place, and not on the land of his neighbor, even though the adjacent land may belong to two or more persons, one of whom is the owner of the roof. Even if it should fall on his own land, the owner shall be obliged to collect the water in such a way as not to cause damage to the adjacent land or tenement. Falling water is res nullius and has no owner. Every owner of a house or building would have aright to dispose of it in any manner even to the prejudice of neighbors had it not been for the provisions in this Code Last sentence is an exception to Art 637 which requires lower tenements to receive water flowing naturally from higher tenements. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 76 of 325 PROPERTY CIVIL LAW Art. 675. The owner of a tenement or a piece of land, subject to the easement of receiving water falling from roofs, may build in such manner as to receive the water upon his own roof or give it another outlet in accordance with local ordinances or customs, and in such a way as not to cause any nuisance or damage whatever to the dominant estate. Receive water through (1) another roof (2) another outlet In accordance with local ordinances or customs Not a nuisance to the dominant estate Art. 676. Whenever the yard or court of a house is surrounded by other houses, and it is not possible to give an outlet through the house itself to the rain water collected thereon, the establishment of an easement of drainage can be demanded, giving an outlet to the water at the point of the contiguous lands or tenements where its egress may be easiest, and establishing a conduit for the drainage in such manner as to cause the least damage to the servient estate, after payment of the property indemnity. (f) Intermediate Distances and Works for Certain Constructions and Plantings Art. 677. No constructions can be built or plantings made near fortified places or fortresses without compliance with the conditions required in special laws, ordinances, and regulations relating thereto. Art. 678. No person shall build any aqueduct, well, sewer, furnace, forge, chimney, stable, depository of corrosive substances, machinery, or factory which by reason of its nature or products is dangerous or noxious, without observing the distances prescribed by the regulations and customs of the place, and without making the necessary protective works, subject, in regard to the manner thereof, to the conditions prescribed by such regulations. These prohibitions cannot be altered or renounced by stipulation on the part of the adjoining proprietors. In the absence of regulations, such precautions shall be taken as may be considered necessary, in order to avoid any damage to the neighboring lands or tenements. Art. 679. No trees shall be planted near a tenement or piece of land belonging to another except at the distance authorized by the ordinances or customs of the place, and, in the absence thereof, at a distance of at least two meters from the dividing line of the estates if tall trees are planted and at a distance of at least fifty centimeters if shrubs or small trees are planted. Every landowner shall have the right to demand that trees hereafter planted at a shorter distance from his land or tenement be uprooted. The provisions of this article also apply to trees which have grown spontaneously. (591a) Art. 680. If the branches of any tree should extend over a neighboring estate, tenement, garden or yard, the owner of the latter shall have the right to demand that they be cut off insofar as they may spread over his property, and, if it be the roots of a neighboring tree which should penetrate into the land of another, the latter may cut them off himself within his property. Owner of the neighboring tenement can cut the roots without necessity of notice to the owner of the trees. But as to the branches, it is necessary to as that they be cut. Art. 681. Fruits naturally falling upon adjacent land belong to the owner of said land. (g) Easement against Nuisance Art. 682. Every building or piece of land is subject to the easement which prohibits the proprietor or possessor from committing nuisance through noise, jarring, offensive odor, smoke, heat, dust, water, glare and other causes. Art. 683. Subject to zoning, health, police and other laws and regulations, factories and shops may be maintained provided the least possible annoyance is caused to the neighborhood. Nuisance—that class of wrongs which arise from unreasonable, unwarranted, or unlawful use by a person of his own property and which produces material annoyance, inconvenience, discomfort, PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 77 of 325 or harm that the law will presume a consequent damage. Whether the effects of the use of one’s property constitutes a nuisance depends upon the circumstances. Their penetration into another tenement in a limited measure is permissible. Even if these effects cause material injury, they would constitute a nuisance if they result from the utilization of a tenement in a manner which is usual or current in the locality. (h) Easement of Lateral and Subjacent Support Art. 684. No proprietor shall make such excavations upon his land as to deprive any adjacent land or building of sufficient lateral or subjacent support. Owner has a right to excavate on his own land up to the boundary line of the building land. This easement prevents him from excavating so close as to deprive the adjoining estate of its natural support and cause it to crumble. There are cases where surface belongs to one person and substrata may belong to or be lawfully used by others. This is where easement of subjacent support exists. Owners of rights below the surface may excavate but this imposes upon them the duty to refrain from removing such sufficient support which will protect the surface from subsiding Remedies for violation: (1) Action for damages (2) Injunction Action may be maintained against anyone who causes the injury whether he is the owner or not. Contractor is liable jointly with the owner of the land. It is the person who made the excavation which causes the injury and not the person in possession when the injury occurs, who is liable for damages. Art. 685. Any stipulation or testamentary provision allowing excavations that cause danger to an adjacent land or building shall be void. Art. 686. The legal easement of lateral and subjacent support is not only for buildings standing at the time the excavations are made but also for constructions that may be erected. Art. 687. Any proprietor intending to make any excavation contemplated in the three preceding articles shall notify all owners of adjacent lands. Notice enables the adjoining owner to take the necessary precautions to protect their lands and buildings. It must be sufficient to inform the nature and the extent of the proposed excavation. Although person making the excavation has given notice, he is bound to exercise reasonable care and skill so as not to cause damage. XII. VOLUNTARY EASEMENTS Art. 688. Every owner of a tenement or piece of land may establish thereon the easements which he may deem suitable, and in the manner and form which he may deem best provided he does not contravene the laws, public policy or public order Art. 690. Whenever the naked ownership of a tenement or piece of land belongs to one person and the beneficial ownership to another, no perpetual voluntary easement may be established thereon without the consent of both owners. Art. 691. In order to impose an easement on an undivided tenement, or piece of land, the consent of all the co- owners shall be required. The consent given by some only, must be held in abeyance until the last one of all the co-owners shall have expressed his conformity. But the consent given by one of the co- owners separately from the others shall bind the grantor and his successors not to prevent the exercise of the right granted. Art. 693. If the owner of the servient estate should have bound himself, upon the establishment of the easement, to bear the cost of the work required for the use and preservation thereof, he may free himself from this obligation by renouncing his property to the owner of the dominant estate. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 78 of 325 PROPERTY CIVIL LAW Who may establish voluntary easements: The OWNER possessing capacity to ENCUMBER property may constitute voluntary servitudes. (Art. 688) The usufructuary, and even the possessor in good faith, does not have the right to do so because the creation of a servitude is a disposition of part of the right of ownership, and no one but an owner may do this. A general capacity to contract is not sufficient. If there are various owners, ALL must CONSENT, but consent once given is irrevocable. (Art. 690 and 691) Hence, their consent need not be simultaneous. In whose favor they are established: (a)Praedial Servitudes For the owner of the dominant estate For any other person having any juridical relation with the dominant estate, if the owner ratifies it. (b)Personal Servitudes For anyone capacitated to accept In case of property under usufruct The usufructuary must not be prejudiced (Art 689) Rights and Obligations These are determined by the— (1) Title, and (2) Possession (in case of prescription enlarging or diminishing the initial voluntary easement) (Art. 692) Where the owner bound himself to pay for the maintenance or do some service he may abandon his tenement and relieve himself of his obligation (Art. 693) To produce the transmission of ownership over the tenement abandoned, the abandonment must be made in the proper juridical form required for the transmission of the ownership of immovable property. XIII. NUISANCE Art. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: (HOSDU) (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property. Classification of Nuisance Nature 1. Nuisance Per Se or at Law 2. Nuisance Per Accidens or in Fact Scope Of Their Injurious Effects 1. Public 2. Private 3. Mixed Nuisance Per Se (Nuisance at Law) nuisance at all times and under any circumstances, REGARDLESS OF LOCATION OR SURROUNDINGS. Nuisance Per Accidens (Nuisance in Fact) One that becomes a nuisance by reason of circumstances and surroundings Public Nuisance It causes hurt, inconvenience, or injury to the public, generally, or to such part of the public as necessarily comes in contact it public nuisance=common nuisance It is a direct encroachment upon public rights or property which results injuriously to the public Private Nuisance One which violates only private rights and produces damages to but one or a few persons Liability of Creator of Nuisance General Rule: he who creates a nuisance is liable for the resulting damages and, ordinarily, his liability continues as long as the nuisance continues. He whose duty is to abate a nuisance should answer for the consequences resulting from its continuance No one is to be held liable for a nuisance which he cannot himself physically abate All parties to the creation or maintenance of a nuisance per se are responsible for its effect without limitation of conditions or of time. Liability of Transferees To render him liable, he must knowingly continue the nuisance, and generally, he is not liable for PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 79 of 325 continuing it in its original form, unless he has been notified of its existence and requested to remove it, or has actual knowledge that it is a nuisance and injurious to the rights of others. Nature of liability is solidary Art. 697. The abatement of a nuisance does not preclude the right of any person injured to recover damages for its past existence. Art. 698. Lapse of time cannot legalize any nuisance, whether public or private. No Prescription The creation and maintenance of a public nuisance is punishable criminally hence, it should prevent the acquisition of a right to maintain it. Art. 699. The remedies against a public nuisance are: (1) A prosecution under the Penal Code or any local ordinance (only for public nuisance): or (2) A civil action; or (3) Abatement, without judicial proceedings. Judgment With Abatement Art. 700. The district health officer shall take care that one or all of the remedies against a public nuisance are availed of. Art. 701. If a civil action is brought by reason of the maintenance of a public nuisance, such action shall be commenced by the city or municipal mayor. Art. 702. The district health officer shall determine whether or not abatement, without judicial proceedings, is the best remedy against a public nuisance. Art. 703. A private person may file an action on account of a public nuisance, if it is specially injurious to himself. Special Injury to Individual GENERAL RULE: a public nuisance gives no right of action to any individual but must be abated by a proceeding instituted in the name of the State EXCEPTION: an individual who suffered some special damage by reason of a public nuisance, different from that sustained by the general public, may maintain a suit in equity for an injunction to abate it, or an action for damages In other words, a public nuisance is not actionable by an individual unless and until it becomes as to him, a private nuisance; i.e., until he suffers some special and definite harm. Art. 704. Any private person may abate a public nuisance which is specially injurious to him by removing, or if necessary, by destroying the thing which constitutes the same, without committing a breach of the peace, or doing unnecessary injury. But it is necessary: (1) That demand be first made upon the owner or possessor of the property to abate the nuisance; (2) That such demand has been rejected; (3) That the abatement be approved by the district health officer and executed with the assistance of the local police; and (4) That the value of the destruction does not exceed three thousand pesos. Right of Individual to Abate a Public Nuisance Requisites 1. Must be exercised only in cases of urgent or extreme necessity 2. Nuisance must be actually existing at the time when abatement is undertaken 3. The summary abatement should be resorted to within a reasonable time after knowledge of the nuisance is acquired or should have been acquired by the person entitled to abate 4. Must give a reasonable notice of his intention; a demand must be made 5. The means employed must be reasonable 6. The abatement must be approved by the district health officer 7. The property must not be destroyed unless it is absolutely necessary to do so; the civil code, however, provides a limitation, that the value of destruction shall not exceed three thousand pesos 8. The right must always be exercised with the assistance of the local police Art. 705. The remedies against a private nuisance are: (1) A civil action; or (2) Abatement, without judicial proceedings. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 80 of 325 PROPERTY CIVIL LAW Right to Damages A person may maintain an action at law for damages caused by a nuisance The payment of damages is generally a mere reparation for past injuries, and not an authority to continue the wrong. each repetition of it gives rise to a new cause of action Defenses to Action Public Necessity Estoppel Art. 706. Any person injured by a private nuisance may abate it by: removing, or if necessary, by destroying the thing which constitutes the nuisance o without committing a breach of the peace or doing unnecessary injury o procedure for extrajudicial abatement of a public nuisance by a private person be followed Who may sue on Private Nuisances Ownership of the legal title is not necessary. Even a possessor may sue Art. 707. A private person or a public official extrajudicially abating a nuisance shall be liable for damages: (1) If he causes unnecessary injury; or (2) If an alleged nuisance is later declared by the courts to be not a real nuisance. Remedies of Property Owner He may bring an action for replevin, or enjoin its sale and damages if it is has been sold; or action to enjoin private parties from proceeding to abate a supposed nuisance Ask court to determine WON it is indeed a nuisance XIV. REGISTRY OF PROPERTY Art. 708. The Registry of Property has for its object the inscription or annotation of acts and contracts relating to the ownership and other rights over immovable property. Concept The Registry of Real Property may be defined as a public center where the true condition of real estate is made clear by registering all transferable title of ownership and of real rights which affect it and even where the capacity of free disposition on the part of an individual is modified Purposes of the Principle of Publicity To give notice of the true status of the property To record transmissions and modifications of real rights To prevent fraud To guarantee the effectivity of rights Art. 709. The titles of ownership, or of other rights over immovable property, which are not duly inscribed or annotated in the Registry of Property shall not prejudice third persons. Art. 710. The books in the Registry of Property shall be public for those who have a known interest in ascertaining the status of the immovables or real rights annotated or inscribed therein. Art. 711. For determining what titles are subject to inscription or annotation, as well as the form, effects, and cancellation of inscriptions and annotations, the manner of keeping the books in the Registry, and the value of the entries contained in said books, the provisions of the Mortgage Law, the Land Registration Act, and other special laws shall govern. XV. DIFFERENT MODES OF ACQUIRING OWNERSHIP TITLE - the remote cause of acquisition Every juridical right which gives a means to the acquisition or real rights but which in itself is insufficient MODE- the proximate cause of acquisition The specific cause which produces dominion and other real rights as a result of the co-existence of special status of things, capacity, and intention of persons and fulfillment of the requisites of law Modes of acquiring ownership (POSTDI) 1) Occupation 2) Intellectual Creation 3) Donation 4) Prescription 5) Succession 6) Tradition PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 81 of 325 XVI. PRESCRIPTION It is the mode by which one acquires ownership and other real rights thru lapse of time; also a means by which one loses ownership, rights & actions; retroactive from the moment period began to run Kinds: 1. Acquisitive 1. Extinctive Comparison between Acquisitive Prescription and Extinctive Prescription Acquisitive Prescription Extinctive Prescription Usurpacion Prescription It is the possessor who does the act One looks at the neglect of the owner/ his omission Expressly vests the property and raised a new title in the occupant Statute of limitation that merely bars the right of action Important feature is the claimant in possession Important feature is the owner out of possession Who may acquire by prescription: a. person who are capable of acquiring property by other legal modes b. STATE c. minors – through guardians of personally Against whom prescription run: 1. minors & incapacitated person who have guardians 2. absentees who have administrators 3. persons living abroad who have administrators 4. juridical persons except the state with regards to property not patrimonial in character 5. between husbands & wife 6. between parents & children (during minority/insanity) 7. between guardian & ward (during guardianship) 8. between co-heirs/co-owners 9. between owner of property & person in possession of property in concept of holder Things subject to prescription: all things within the commerce of men a. private property b. patrimonial property of the state Things not subject to prescription: 1. public domain 2. in transmissible rights 3. movables possessed through a crime 4. registered land Renunciation of prescription: persons with capacity to alienate may renounce prescription already obtained but not the right to prescribe in the future may be express or tacit prescription is deemed to have been tacitly renounced; renunciation results from the acts w/c imply abandonment of right acquired creditors & persons interested in making prescription effective may avail themselves notwithstanding express or tacit renunciation Prescription Of Ownership & Other Real Rights Kinds of Acquisitive prescription 1. ordinary 2. extra-ordinary Requisites for ordinary prescription: 1. possession in good faith 2. just title 3. within time fixed by law 4 years for movables 8 years for immovables 4. in concept of an owner 5. public, peaceful, uninterrupted Requisites for extra-ordinary prescription: 1. just title is proved 2. within time fixed by law 10 years for movables 30 years for immovables 3. in concept of an owner 4. public, peaceful, uninterrupted GOOD FAITH- Reasonable belief that person who transferred thing is the owner & could validly transmit ownership -Must exist throughout the entire period required for prescription JUST TITLE (TRUE & VALID) – must be proved & never presumed a) Titulo Colorado - b) Titulo putativo - title must be one which would have been sufficient to 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 82 of 325 PROPERTY CIVIL LAW transfer ownership if grantor had been the owner through one of the modes of transferring ownership but there is vice/defect in capacity of grantor to transmit ownership IN CONCEPT OF OWNER possession not by mere tolerance of owner but adverse to that of the owner claim that he owns the property PUBLIC, PEACEFUL & UNINTERRUPTED Must be known to the owner of the thing Acquired & maintained w/o violence Uninterrupted (no act of deprivation by others) in the enjoyment of property Interruption a) Natural -through any cause, possession ceases for more than 1 year -if 1 year of less – as if no interruption b) Civil -produced by judicial summons; except void for lack of legal solemnities plaintiff desist from complaint/allow proceedings to lapse possessor is absolved from complaint i. express or tacit renunciation ii. possession in wartime RULES IN COMPUTATION OF PERIOD: a. Present possessor may tack his possession to that of his grantor or predecessor in interest b. Present possessor presumed to be in continuous possession I intervening time unless contrary is proved c. First day excluded, last day included Tacking Period there must be privity between previous & present possessor possible when there is succession of rights if character of possession different: predecessor in bad faith possessor in good faith – use extraordinary prescription Prescription of Actions By lapse of time fixed by law 30 years -action over immovables from time possession is lost 10 years -mortgage action -upon written contract -upon obligation created by law -upon a judgement 8 years -action to recover movables from time possession is lost 6 years -upon an oral contract -upon a quasi-contract 5 years -actions if periods are not fixed by law 4 years -upon injury to rights of plaintiff -upon a quasi-delict 1 year -for forcible entry & detainer -for defamation Rights not extinguished by prescription: 1. demand right of way 2. abate public /private nuisance 3. declare contract void 4. recover property subject to expressed trust 5. probate of a will 6. quiet title XVII. TRADITION Requisites: 1. Pre-existence of right in estate of grantor 2. Just cause or title for the transmission 3. Intention- of both grantor and grantee 4. Capacity- to transmit and to acquire 5. An act giving it in outward form, physically, symbolically, or legally Legal Maxim: “Non nudis pactis, sed tranditione, dominia rerum transferentur” (Not by mere agreement but by delivery, is ownership transferred) Kinds of Tradition: a. Real Tradition b. Constructive Tradition i. Symbolic Delivery ii. Delivery by Public Instrument iii. Traditio Longa Manu- “long hand”; placed in the sight of PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 83 of 325 vendee so that he can take possession of the property anytime iv. Traditio Brevi Manu- “short hand”; transferee already in possession of the property but not as owner v. Traditio Constitum Possessorium- owner remains in possession but not as owner e.g. lease vi. Quasi-Tradition- subject matter: property right; e.g. right to collect credit vii. Tradition by operation of law XVIII. LEASE General Characteristics of Every Lease (1) Temporary duration (2) Onerous (3) Price is fixed according to contract duration Kinds of Lease (1) Lease of things—movables and immovables no lease for more than 99 years shall be valid (2) Lease of work or contract of labor no relation of principal and agent does not exist between them. (3) Lease of Services no principle of representation unlike in agency The will of both parties is necessary for the extinguishment of the obligation (i) Lease of Service Contract for a piece of work Manner of paying the price The price is paid in relation to the duration of the labor or service In proportion to the work accomplished Existence of a relation of dependenc e between lessor and lessee If the lessor workstation under the direction of the lessee, receiving instructions from him on the manner of rendering If the lessor works by himself, independently of the lessee, in the manner he deems most adequate for the execution of the work service or labor Lease of things (1) Concept Art. 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety- nine years shall be valid. (2) Consumable things cannot be the subject matter of lease, Except (a) consumables only for display or advertising. eg. Wedding cakes for display in Goldilocks, wine in a showcase of a store (b) goods are accessory to an industrial establishment e.g., coal in a factory (3) Special characteristics of lease of things; (a) essential purpose is to transmit the use and enjoyment of a thing (b) consensual (c) onerous (d) price fixed in relation to period of use or enjoyment (e) temporary (4) Lease distinguished from sale, usufrunct, commodatum In case of doubt-INTENTION of the parties should be the guide in determining the contract entered into. Lease Sale Only the use or enjoyment of the things is transferred, and only for a determinate period Plain redundancy to fix or mention the price of the thing which is the subject- matter thereof Price of the thing was fixed in the contract May be in money, or in fruits, or in some other useful thing or some other prestation Price must be in money or its equivalent Lease Usufruct 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 84 of 325 PROPERTY CIVIL LAW Real right only by exception: when registered and for more than 1 year Always a real right Constitutor/Lessor need not be an owner e.g. sublessor, usufruct To constitute usufruct, constitutor must be the owner Lessor places and maintains lessee in the enjoyment of the thing Owner merely allows usufructuary to use and enjoy the property Use is limited to that written in the contract Includes all possible uses and manner of enjoyment of property EXCEPT in distinction of normal or abnormal usufruct Must be definite, otherwise court may fix the same through the proper action Maybe for an indefinite period of time BOTH the lessee and the usufructuary USE and ENJOY the thing. Lease Commodatum Consists in the cessation of the use of a thing to another but this is essentially onerous Consists in the cessation of a thing to another but this is essentially gratuitous BOTH consist in the cession of the use of a thing to another (5) Price In Lease Price may be in money, or in fruits, or in some other useful things; some other prestation TENANCY CONTRACT- when the price consists of a certain percentage of the fruits obtained from the thing. But is regarded as having the character more of a partnership rather than a lease. Amount of Rent If the parties are not able to fix the price, or the basis for its determination, the contract is ABSOLUTELY VOID. If the lessee has entered upon the possession and enjoyment of the thing, he will be liable for the damages for the occupation of the thing. (6) Period of lease When the lease is for such time as the lessor or lessee may please, it is considered as on for life, ending upon the death of the party who would have terminated the contract. CANNOT be perpetual- there must always be a period, which may be definite or indefinite If the period is indefinite, and the thing leased is rural land, art.1682 shall apply; if it is urban land art. 1687 governs. If the thing is neither rural nor urban land, the provisions of the two articles should be applied by analogy. (i) rural land Art. 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years have to elapse for the purpose. (ii) urban land Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. Rent Courts can fix a longer term monthly lessee occupied premises for more than a year weekly lessee has been in possession for over six months Daily lessee has stayed in the place for over one month Capacity of Lessee Those who are disqualified to buy certain things cannot lease such things. (ART. 1646, 1490,1491) Lease of Real Estate Every lease of real estate may be recorded in the Registry of Property to be binding upon 3 rd persons. Purchase of Leased Land Where a purchaser of land at the time of the purchase has FULL KNOWLEDGE of the fact that the land has been leased to a third person, he is BOUND to respect said lease, although it is not recorded upon the certificate of title. (7) Assignment of lease Art. 1649. The lessee cannot assign the lease without the consent of the lessor, PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 85 of 325 unless there is a stipulation to the contrary. However, a mere transfer of rights of the lessee, and not of the contract itself, would not require the lessor’s consent, unless there is an express stipulation to the contrary. (8) Sublease Art. 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. Assignment of lease Sublease There is a transfer to a third person of the rights and obligations arising from the lease contract Merely another contract of lease, where the original lessee becomes in turn a lessor A sale of the lessee’s rights, and when the lessor gives his consent, the original lessee is released Even when the lessor consents to the sub-lease, the original lease contract subsists and is binding on the lessee Succession by particular title to one contract of lease Juxtaposition of 2 leases Effects (1) Remedy when property is subleased despite prohibition: recission and damages, or damages only. (2) When in the contract of lease, there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. (a) House Rental Law (RA 877)— there is a presumption that there would be no sublease unless the lessor allows it (b) obligation of sublessee to lessor Art. 1651. Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (i) for rents Art. 1652. The sublessee is subsidiarily liable to the lessor for lessee’s rent but not responsible beyond the amount of rent due from him at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. (ii) for the use and preservation of the thing leased Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all the acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (9) Rights and obligations of lessor and lessee (a) obligation of lessor Art. 1654. The lessor is obliged: (1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; (2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; (3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. (i) Warranty of Lessor IN the cases where the return of the price is required, REDUCTION shall be made in proportion to the time during which the lessee enjoyed the thing. Art. 1547, 1555, 1561, 1566, 1567, 1568, 1569 Liability for the warranty is not equivalent to liability in damages. The lessor is liable for the warranty of the thing leased against any hidden defects it may have, even when UNKNOWN to said lessor. But this liability for warranty of the thing leased does not amount to an obligation to indemnify the tenant for damages, which is only to be 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 86 of 325 PROPERTY CIVIL LAW allowed, when lessor acted with fraud and in bad faith by concealing the defect and not revealing it to the lessee. (ii) Making of Repairs It implies the putting of something back into the condition in which it was originally and NOT an improvement It is the duty of the lessee to give NOTICE of the need of repairs to the lessor, and he shall be liable for the damages which by his neglect may be suffered by the owner. Lessor is NOT bound to make repairs caused by the lessee himself. Effect of Urgent Repairs During the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work. If the repair lasts for more than 40 days, the rent shall be reduced in proportion to the time-including the 40 days- and the part of the property of which the lessee has been deprived. When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling for the lessee. If after having been notified, the lessor fails to make urgent repairs, the lessee, to avoid imminent danger, may order the repairs at the lessor’s expense. Dangerous Conditions The lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of the condition. Alteration Art. 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. (iii) Peaceful Possession To maintain the lessee on the peaceful and adequate enjoyment of the lessee for the entire duration of the contract. Failure to do so releases the lessee from the obligation to pay what is stipulated in the contract from the date he ceased to occupy the premises. (b) obligations of lessee (Art. 1657) (i) Pay Rent arises only when the contract has been actually carried into effect by the delivery of the thing leased to the lessee for the purpose stipulated in the contract. Increase and Decrease of Rent Increase and decrease in the price of lease shall be 10% per year, net of the assessed violation of the property Failure to Pay for Rent Eviction, recover the unpaid rent, plus accrued legal interest thereon at the rate of 6% per year. Place and Time Payment of rent shall be made at the domicile of the lessee; and with respect to the time, the custom of the place shall be followed. ii. Use the Thing Leased as a Diligent Father Standard: diligent father of a family, in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place. The lessee is responsible for the deterioration of the thing leased, unless he proves that it took place without his fault. The lessee is liable for any deterioration caused by members of his household and by his guest and visitors. iii. Pay Expenses for the Deed of Lease (Art. 1662-1667) c. Right of lessee to suspend payment of rentals Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 87 of 325 maintain the lessee in peaceful and adequate enjoyment of the property leased. d. Right to ask for rescission Liability for Breach of Duties If the lessor or lessee should not comply with the obligation set forth in ART 1654 and 1657, the aggrieved party may ask for: (1) rescission of the contract; (2) indemnification for damages; (3) only damages, allowing the contract to remain in force The lessor cannot be held responsible for damages from defects unknown to both parties. Alternative Remedies Performance of the contract and rescission In either case, the aggrieved party is entitled to such damages but may not upon rescission of the contract recover the damages that are appropriate only where the performance is demanded. Rescission of the Contract Where the plaintiff alleges and submits proof that the defendant is in possession of a parcel of land as lessee, and the latter has not paid the proper rents, he may be compelled, by reason of his inability to pay to: (1) return the leased property; (2) the lessor has a right to rescind the contract; (3) recover the unpaid rents (4) eject the tenant from the land The execution of the deed shall be equivalent to delivery but this is a rebuttable presumption. If the thing leased has never been placed in possession of the lessee, he has the remedy of rescission. Enforcement of Lease Where the lessor resumes possession of his leased property for its protection after the lessee has abandoned the same, the lessor has still the right to hold the lessee responsible until the termination of the lease. (e) Lessor not obliged to answer for mere act of trespass by a third person (10) Grounds for ejectment of lessee by lessor Termination of Lease (1) by the expiration of the period; (2) by the total loss of the thing; (3) by the resolution of the right of the lessor, such as when the lessor is usufruct is terminated; (4) by the will of the purchaser or transferee of the things; (5) by rescission due to nonperformance of the obligation of one of the parties. Period If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously given, it is understood that there is an implied new lease, not for the period of the original contract but for the time established in art. 1682(rural) and 1687(urban) When the parties have made no agreement and the tenant remains in possession with the acquiescence of the lessor for 15 days after the expiration of the term, the duration of the tenancy is governed by article 1682 and 1687. Tacit Renewal The fifteen-day period which brings about a tacit renewal of the lease, is not applicable to successive renewals. Judicial Ejectment The lessor may judicially eject the lessee for any of the following causes: (1) When the period agreed upon, or that which is fixed for the duration of leases under Art 1682 (rural) and 1687(urban), has expired; 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 88 of 325 PROPERTY CIVIL LAW (2) Lack of payment of the price stipulated; (3) Violation of any of the conditions agreed upon in the contract; (4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof, or if he does not observe due diligence in its use. When the lease contract does not have a definite period, but is terminable upon 30 days notice, the lease will terminate upon the expiration of 30 days from the receipt of notice, whether the termination coincides with the rent day or not. The landlord has the right to increase the rent after the expiration of the stipulated period. And if no period is stipulated, in a lease of urban property, notice by the lessor of an increase in rent is equivalent to notice of termination of the original agreement. (12) Right of purchaser of leased land Art. 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnifies him for damages suffered. If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. Art. 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. Sale Of Leased Property The purchaser which is under a lease that is not recorded in the Registry of Property may terminate the lease except when the contract provided otherwise or purchaser is aware of lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered. This right does not extend to the gathering of fishes, which require 2 years before they are of any commercial value. The act of the new owner of giving notice of an increase of rent, when the existing lease is of an indefinite time, or when the original period has expired, constitutes a notice of termination of the original lease. Right to Repurchase The purchaser in a sale with the right to redemption cannot make use of the power to eject the lessee until the end of the period of redemption. But when the vendor remains in possession as a tenant, and he fails to pay the agreed rent, he may be evicted by the vendee even before the period of redemption has expired. (13) Useful improvements in good faith made by lessee. Indemnity For Improvements If the lessee makes, in good faith, useful improvements the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. (14) Special provisions for leases of rural lands It is urban when the principal purpose is dwelling. It is rural when the principal purpose is exploitation of the soil. PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 89 of 325 XIX. DONATION Characteristics: a) Unilateral – obligation imposed on the donor b) Consensual – perfected at time donor knows of acceptance Requisites of Donation: (1) Consent and capacity of parties (2) Animus donandi (causa) (3) Delivery of thing donated (4) Form as prescribed by law There must be impoverishment in fact of donor’s patrimony and enrichment on part of donee. Requirements of a donation: 1. subject matter – anything of value; present property & not future, must not impair legitime 2. causa – anything to support a consideration: generosity, charity, goodwill, past service, debt 3. capacity to donate & dispose & accept donation 4. form – depends on value of donation Kinds of Donation A. As to its taking effect 1. Inter Vivos (729, 730, 731) 2. Donation mortis causa (728) 3. Propter nuptias (Art. 82, 87 Family Code) o Nature of a donation is not made to depend by the title given by the donor but by what is expressed. o To determine whether mortis causa or inter vivos, nature of act, whether it is disposition or execution, is controlling. Inter vivos In doubt, conveyance should be deemed a donation inter vivos to avoid uncertainty as to the ownership of the property. Where the ownership and possession as well as administration were turned over to the donee but right to reap and dispose of the fruits was deferred until after donor’s death, donation is inter vivos General rule: Donation inter vivos is irrevocable EXCEPT: 1. During the subsequent birth of the donor’s children 2. Failure of donee to comply which conditions imposed 3. Ingratitude of donee; and 4. Reduction of the donation by reason of inofficiousness Donation mortis causa A donation mortis causa not in the form of a will is not valid and does not transmit any right. If the donor reserves the right to dispose of all the properties purportedly donated, there is no donation inter vivos but mortis causa. What rules govern Intention of the parties prevail A S T O W H E N T H E Y T A K E E F F E C T Inter vivos – take effect during the lifetime of the donor Governed by the rules on contracts and obligations with regard to portions not provided in the title on donations ART 732 if the intention is to make the donation effective during the donor’s lifetime: ART 729: even if the thing donated is delivered only at the time of the donor’s death, it is inter vivos and the fruits of the thing belongs to the donee unless the donor provides otherwise ART 730: even if there is a fixing of an event or the imposition of a suspensive condition which may take place beyond the natural expectation of the life of the donor ART 731: If the resolutory condition is the donor’s survival (i.e. if donor does not die, the donation already effective shall terminate) Mortis causa – take effect upon the death of the donor They partake of the nature if testamentary provisions and are governed by the rules on Succession ART 728 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 90 of 325 PROPERTY CIVIL LAW B. As to Cause or Consideration 1. Simple (Art.725) 2. Remuneratory (Art.726) 3. Onerous (Art.733) (See Table in the appendix) C. As to its Effectivity or Extinguishment 1. Pure 2. Conditional (730, 731)—donation is not carried out until the day comes but it produces effects With a term – He who donates with a term has already disposed of the thing donated and cannot revoke it nor can he dispose the thing in favor of another unless the donor postpones execution and reserves the right to revoke Perfection of Donation presumes a demandable juridical relation. The donor can no longer withdraw and he can be compelled to comply. Acceptance is necessary because nobody is obliged to receive a benefit against his will. When the donation and the acceptance are in the same instrument, signed by both donor and donee, donation is perfected. After perfection, donation can only be revoked by the consent of the donee or by judicial decree especially when the donation is onerous. Mere declaration of an intention without intent to transfer is not a donation even if accepted. DONATION OF MOVABLES; ART 748 Oral In writing Value of the thing donated < or = P5,000 Value of the thing donated > P5,000; otherwise, void Requires simultaneous delivery of the thing or the document which represents the thing WHEN PERFECTED: ACCEPTANCE BY THE DONEE: GENERALLY ART 734: Donation is perfected at the moment the donor knows of the donee’s acceptance WHO MAY ACCEPT: ART 745: Only these persons may accept; otherwise, void 1) donee personally 2) authorized person with a special power for the purpose or with a general sufficient power WHEN TO ACCEPT ART 746: During lifetime of donor and donee DONATION OF IMMOVABLES: DONATION AND ACCEPTANCE FORM OF DONATION Public document CONTENTS OF DONATION Property donated is specified and the value of the charges which the donee must satisfy FORM OF ACCEPTANCE Same deed of donation or in a separate public document; if separate, the donor shall be notified in an authentic form and this shall be noted in both instruments WHEN TO ACCEPT During lifetime of donor PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 91 of 325 DONOR DONEE W H O A R E A L L O W E D ART 735: All persons who may contract and dispose of their property ART 736: Donor’s capacity determined at the time of the making of the donation ART 738; All those not specially disqualified by law W H O A R E N O T A L L O W E D ART 736: Guardians and trustees with respect to the property entrusted to them ART 739: Void donations: 1) those made between persons guilty of adultery or concubinage at the time of the donation (the declaration of nullity may be brought by the spouse of the donor or donee and only preponderance of evidence is needed) 2) those found guilty of the same criminal offense inconsideration thereof ART 739 (3): public officer or his wife, descendants and ascendants by reason of his office ART 740: Those who cannot succeed by will cannot be donees ART 743: Donations made to incapacitated persons are void although made under the quise of another contract W I T H Q U A L I F I C A T I O N S ART 741: Minors may become donees but acceptance must be made through their parents or legal representative ART 742: Donations made to unborn children may be accepted by persons who would legally represent them if they were already born Who may receive? e. All those who are not specially disqualified by law – e.g. husband and wife during marriage, not propter nuptias f. Even if incapacitated – e.g. minors, insane, etc. (acceptance made through parents or legal guardian); conceived and unborn (acceptance made through legal representatives if they were born) Capacity required is for disposition inter vivos and not mortis causa. Both capacity to contract and the capacity to dispose of property must exist in order to have capacity to donate. Capacity to accept is also governed by rules on succession Other persons disqualified to receive donations: 1. priest who heard confession of donor during his last illness 2. relatives of priest within 4 th degree, church, order, community where priest belongs 3. physician, nurse, etc. who took care of donor during his last illness 4. individuals, corporations, associations not permitted 5. Art. 2012 “Any person who is forbidden from receiving a donation under Art. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him.” Double Donations Apply double sales to double donations Who may accept (Art. 745, 747) - donee personally or through authorized person - representatives of incapacitated must make notification and notation If the donor dies before he learns of the acceptance, the donation does not take effect, even if the acceptance is made during the lifetime of the donor. Form of Donations (a) Personal property (Art. 748) Document of donation need not be public instrument. When donation does not exceed P5,000, it may be made orally or in writing. If made orally, there must be simultaneous delivery. If no 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 92 of 325 PROPERTY CIVIL LAW simultaneous delivery, donation is void unless it is made in writing. The law does not require that when the donation is made in writing the acceptance should also be in writing (if value does not exceed P5,000). (b) Real property (Art. 749) Art. 1357 is not applicable. Donee cannot bring an action to compel the donor to execute a public instrument of donation. That article is applicable only to contracts which validly exist and cannot be held applicable to a case where the form is required in order to make it valid. Where the donor executed private instruments of donation and after his death his only heir executed a public instrument ratifying the donation, such public instrument cannot be considered as having retroactively perfected the gift. It might serve as a quitclaim on the part of the heir who is estopped from asserting any right to the properties. If the instrument of donation has been recorded in the registry of property, the instrument that shows the acceptance should also be recorded. If acceptance has been made but before the donor has been notified, the donor dies, the donation is not perfected. If the donor’s heirs ratify the donation and the donee or his heirs accept, the donation subsists but in reality it is a new and valid one. While a donation of immovable property not made in a public instrument is not effective as a transfer of title, it is a circumstance which may explain the adverse and exclusive character of the possession of the intended donee and such possession may ripen into ownership by prescription. Rules in Art. 748 and 749 not applicable to: i. onerous donations ii. modal donations iii. mortis causa donations iv. donations propter nuptias What may be given: All or part of donor’s present property provided he reserves sufficient means for the support of the ff: himself relatives who by law are entitled to his support legitimes shall not be impaired when w/o reservation or if inofficious, may be reduced on petition of persons affected except: conditional donation & donation mortis causa except: future property (Osorio vs. Osorio) PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 93 of 325 WHAT MAY BE DONATED ART 750 All present property of the donor or part thereof LIMITATION: he reserves in full ownership or in usufruct, sufficient means for his support and of all relatives who at the time of acceptance of the donation are by law entitled to be supported EFFECT OF NON RESERVATION: reduction of the donation WHAT MAY NOT BE DONATED: ART 751; Donations cannot comprehend future property; those which the donor cannot dispose of at the time of the donation ART 752: No person may give or receive by way of donation more than what he may give or receive by will EFFECT OF EXCESS: inofficious DONATIONS MADETO SEVERAL PERSONS JOINTLY ART 753: No accretion (i.e. one donee does not get the share of the other donees who did not accept) EXCEPTION: those given to husband and wife except when the donor otherwise provides WHAT THE DONEE ACQUIRES WITH THE THING ART 754: to be subrogated to all the rights and actions that would pertain to the donor in case of eviction OBLIGATIONS OF THE DONOR ART 754: No obligation to warrant EXCEPT: when donation is onerous EFFECT: if the donor shall be liable This also applies in case of bad faith on his part with regard to hidden defects WHAT MAY BE RESERVED BY THE DONOR ART 755: Right to dispose may be reserved If donor dies without exercising this right, the portion reserved shall belong to the donee USUFRUCT vs. OWNERSHIP ART 757: The ownership of the property may be donated to one person and the usufruct to another REVERSION ART 758: The donor may provide that the property will go back to him or to another person for any case or circumstances LIMITATION: The third person should be living at the time of the donation OTHERWISE: reversion is void but obligations subsists OBLIGATION OF DONEE TO PAY DONOR’S DEBTS ART 758: If the donation imposes this obligation on the donee, only those debts previously contracted shall be paid by said donee and in no case shall he be responsible for debts exceeding the value of the thing donated EXCEPT: When contrary intention appears IN FRAUD OF CREDITORS ART 759: If there is no stipulation for the donee to pay debts, he shall only be responsible when the donation was made in fraud of creditors PRESUMPTION that donation in fraud of creditors: when at the time of donation, the donor did not reserve sufficient property to pay his debts prior to the donation 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 94 of 325 PROPERTY CIVIL LAW In General (1) Donee may demand actual delivery of the thing donated. (2) Donee is subrogated to rights of donor in the property donated. (3) Donor not obligated to warrant things donated, except in onerous donations in which case, donor is liable for eviction up to the extent of the burden. (4) Donor is liable for eviction or hidden defects in case of bad faith on his part. Donations propter nuptias of property subject to encumbrances are valid. Art. 85 FC-Effect of foreclosure- Donations by reason of marriage of property subject to encumbrances shall be valid. In case of foreclosure of the encumbrance and the property is sold for less than the amount of the obligation secured, the donee shall not be liable for the deficiency. If the property is sold than the total amount of said obligation, the donee shall be entitled to the excess. Donation to several donees jointly—no right of accretion Except 1. donation provides otherwise 2. donation to husband and wife jointly with right of accretion (jus accrescendi), unless the donor provides otherwise. Special Provisions (1) Reservation by donor of power to dispose (in whole or in part) or to encumber property donated. (755) (2) Donation of naked ownership to one donee and usufruct to another. (756) (3) Conventional reversion in favor of donor or other person. (757) (4) Payment of donor’s debt (758) (a) If expressly stipulated-donee to pay debts contracted before the donation, unless specified otherwise, but in no case shall the donee be responsible for debts exceeding value of property donated, unless clearly intended (b) If there is no stipulation- donee answerable only for donor’s debt only in case of donation in fraud of creditors. Liability of the donee for the debts of the donor should be considered as limited to the value of the thing donated. Creditors may demand the rescission of the donation. If the credits exceed the value of the property, the donee cannot be held liable for such excess. If the donee has alienated the property to one who acquired it in good and he is unable to return it, he will be held liable in damages but the damages cannot exceed the value of the property itself. Donations of Future Property (751) Future property includes all property that belongs to others at the time the donation is made, although it may or may not later belong to the donor. BUT these can be donated: 1. properties to which the donor has a RIGHT, although the delivery of such properties to him may be fixed for a future date 2. those properties which pertain to him CONDITIONALLY, and will become his upon the happening of a suspensive condition. Properties of an existing INHERITANCE cannot be considered future property of the heirs after the death of the predecessor, because the rights of the heirs are acquired on the moment of death, even if the delivery to them of the property may be delayed. Revocation of Donations - applies only to donation inter vivos - not applicable to onerous donations With regards to donations made by person without children or descendants at time of donation: 1. If donor should have legitimate, legitimated or illegitimate children 2. If child came out to be alive & not dead contrary to belief of donor 3. If donor subsequently adopts a minor child Action for revocation based on failure to comply with condition in case of conditional donations Action for revocation by reason of ingratitude 1. Donee commits offense against person, honor, property of donor, spouse, children under his parental authority PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 95 of 325 2. Donee imputes to donor any criminal offense or any cat involving moral turpitude even if he should prove it unless act/crime has been committed against donee himself, spouse or children under his parental authority 3. Donee unduly refuses to give support to donor when legally or morally bound to give support to donor Exception to rule on intransmissibility of action with regards to revocation due to ingratitude: 1. personal to the donor; general rule is heir cannot institute if donor did not institute 2. heirs can only file in the ff cases: a) donor has instituted proceedings but dies before bringing civil action for revocation b) donor already instituted civil action but died, heirs can substitute c) donee killed donor or his ingratitude caused the death of the donor d) donor died w/o having known the ingratitude done e) criminal action filed but abated by death 3. can only make heirs of donee liable if complaint was already filed when donee died Inofficious donations: 1. shall be reduced with regards to the excess 2. action to reduce to be filed by heirs who have right to legitimate at time of donation 3. donees/creditors of deceased donor cannot ask for reduction of donation 4. if there are 2 or more donation: recent ones shall be suppressed 5. if 2 or more donation at same time – treated equally & reduction is pro rata but donor may impose preference which must be expressly stated in donation KINDS OF DONATION Pure/Simple Remuneratory Conditional Onerous a) Consideration Merits of donee Liberality or merits of donee or burden/ charge of past services provided they do not constitute demandable debt Valuable consideration is imposed but value is less than value of thing donated Valuable consideration given b) law to apply/ forms Law on donations Law on donations Extent of burden Law on obligations imposed>oblicon excess>donation c) form of acceptance Required Required Required Required d) reservation w/regards to personal support & legitime Applicable Applicable Applicable Not Applicable e) warranty against eviction & hidden defects In bad faith only In bad faith only In bad faith only Applies f) revocation Applicable Applicable Applicable Applicable g) effect of impossible/ illegal conditions considered not written considered not written considered not written Obligation nullified 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 96 of 325 PROPERTY CIVIL LAW MODES OF EXTINGUISHMENT BIRTH OF CHILD NON-FULFILLMENT OF CONDITION INGRATITUDE Ipso jure revocation, no need for action., court decision is merely declaratory needs court action needs court action Extent: portion which may impair legitime of heirs Extent: whole portion but court may rule partial revocation only Extent: Whole portion returned Property must be returned Property in excess Property to be returned Alienation/mortgages done prior to recording in Register of Deeds: If already sold or cannot be returned – the value must be returned If mortgaged – donor may redeem the mortgage with right to recover from donee Alienations/mortgages imposed are void unless registered with Register of Deeds Prior ones are void; demand value of property when alienated and can’t be recovered or redeemed from 3rd persons Fruits to be returned at filing of action for revocation Fruits to be returned at filing of complainant Prescription of action is 4 years from birth, etc. Prescription is 4 years from non-fulfilment Prescription is 1 year from knowledge of fact and it was possible for him to bring action Action cannot be renounced Action cannot be renounced in advance Right of action transmitted to heirs Right of action at instance of donor but may be transmitted to heirs Heirs can’t file action Action extends to donee’s heirs Action does not extend to donee’s heirs PROPERTY CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 97 of 325 REVOCATION/ REDUCTION OF DONATION BASIS TIME OF ACTION TRANSMISSIBILITY EFFECT LIABILITY (FRUITS) Birth, appearance, adoption Within 4 years from birth, legitimation and adoption Transmitted to children and descendants upon death of donor Property returned/ value (if sold)/ redeem mortgage with right to recover Fruits returned from the filing of the complaint Non compliance with condition Within 4 years from non compliance May be transmitted to donor’s heirs and may be exercised against donee’s heirs Property returned, alienations and mortgages void subject to rights of third person in good faith Fruits received after having failed to fulfill condition returned Ingratitude Within 1 year after knowledge of the fact Generally not transmitted to heirs of donor/donee Property returned but alienations and mortgages effected before the notation of the compliant for revocation in the registry of property subsist Fruits returned from the filing of the complaint Failure to reserve sufficient means for support At any time by the donor or relatives entitled to support Not transmissible Reduced to the extent necessary to provide support Donee entitled Inofficiousness for being in excess of what the donor can give by will Within 5 years from death of donor Transmitted to donor’s heirs Donation takes effect on the lifetime of donor. Reduction only upon his death with regard to the excess Donee entitled Fraud against creditors Rescission within 4 years from the perfection of donation/ knowledge of the donation Transmitted to creditor’s heirs or successors in interest Returned for the benefit of creditor who brought action Fruits returned/ if impossible indemnify creditor for damages 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 98 of 325 SUCCESSION CIVIL LAW Succession TABLE OF CONTENTS I. Succession in General 99 II. Testamentary Succession 99 III. Legal or Intestate Succession 109 IV. Provisions Common to Testamentary and Intestate Succession 114 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 99 of 325 SUCCESSION CIVIL LAW DEFINITION OF SUCCESSION (Art. 774, CC) - It is a mode of acquisition - by virtue of which the property, rights and obligations - to the extent of the value of the inheritance, of a person - are transmitted through his death to another or others - either by his will or by operation of law KINDS OF SUCCESSION 1. Testamentary – that which results from the designation of an heir, made in a will executed in the form prescribed by law. (Art. 779, CC) 2. Legal or Intestate – that which takes place by operation of law in the absence of a valid will. 3. Mixed – that which is effected partly by will and partly by operation of law. (Art. 780, CC) KINDS OF HEIRS 1. Compulsory – those who succeed by force of law to some portion of the inheritance, in an amount predetermined by law, of which they cannot be deprived by the testator, except by a valid disinheritance. They succeed regardless of a will. 2. Voluntary or Testamentary – those who are instituted by the testator in his will, to succeed to the portion of the inheritance of which the testator can freely dispose. They succeed by reason of a will. 3. Legal or Intestate – those who succeed to the estate of the decedent who dies without a valid will, or to the portion of such estate not disposed of by will. They succeed in the absence of a valid will. I. TESTAMENTARY SUCCESSION A. CONCEPT DEFINITION OF WILL (Art. 783, CC) - It is an act - whereby a person is permitted - with the formalities prescribed by law - to control to a certain degree - the disposition of his estate - to take effect after his death B. TESTAMENTARY CAPACITY TESTAMENTARY CAPACITY 1. All persons who are not expressly prohibited by law (Art. 796, CC) 2. Eighteen (18) years old and above (Art. 797, CC) 3. Of sound mind at the time of the execution of the will (Art. 798, CC) *Supervening capacity or incapacity does not affect the will. C. FORMALITIES OF WILLS KINDS OF WILLS 1. Notarial – an ordinary or attested will (Articles 804-808, CC) 2. Holographic – a handwritten will (Art. 810, CC) COMMON REQUIREMENTS TO BOTH WILLS (Art. 804, CC) 1. In writing 2. In a language or dialect known to the testator REQUISITES FOR A VALID NOTARIAL WILL 1. In writing (Art. 804, CC) 2. In a language or dialect known to the testator (Art. 804, CC) 3. Subscribed at the end by the testator himself or by the testator’s name written by some other person in his presence, and by his express direction (Art. 805, CC) *Requisite of a signature: satisfied by a thumbprint Matias vs. Salud. However, a cross does not. Garcia vs. Lacuesta 4. Attested and subscribed by three or more credible witnesses in the presence of the testator and of one another (Art. 805, CC) *Test of Presence: Not whether they actually saw each other sign, but whether they might have seen each other sign had they chosen to do so considering their mental and physical condition and position with relation to each other at the moment of inscription of each signature. Jaboneta vs. Gustilo, 5 Phil. 541 5. Each and every page, except the last, must be signed by the testator or by the person requested by him to write his name, and by the instrumental witnesses of the will, on the left margin. (Art. 805, CC) *Exceptions: a. when the will consists of only one page b. when the will consists of only two pages, the first of which contains all dispositions and is signed at the bottom by the testator and the witnesses, and the second page contains only the attestation clause duly signed at the bottom by the witnesses. Abangan vs. Abangan *Note: The inadvertent failure of one witness to affix his signature to one 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 100 of 325 SUCCESSION CIVIL LAW page of a testament, due to the simultaneous lifting of two pages in the course of signing, is not per se sufficient to justify denial of probate. Icasiano vs. Icasiano, 11 SCRA 422 6. Each and every page of the will must be numbered correlatively in letters placed on the upper part of each page. (Art. 805, CC) example, page one of five pages 7. It must contain an attestation clause, stating the following (Art. 805, CC) a. The number of pages used upon which the will is written. b. The fact that the testator signed the will and every page, or caused some other person to write his name, under his express direction, in the presence of the instrumental witnesses. c. All the instrumental witnesses witnessed and signed the will and all the pages in the presence of the testator and of one another. 8. It must be acknowledged before a notary public by the testator and the witnesses. (Art. 806, CC) * Note: The notary public before whom the will was acknowledged cannot be considered as the third instrumental witness since he cannot acknowledge before himself his having signed the will. To allow such would have the effect of having only two attesting witnesses to the will which would be in contravention of Articles 805 and 806. Cruz vs. Villasor, 54 SCRA 31 ADDITIONAL REQUISITES FOR A NOTARIAL WILL IF THE TESTATOR BE DEAF OR A DEAF-MUTE (Art. 807, CC) 1. Testator must personally read the will, if able to do so. 2. Otherwise, testator shall designate two persons to read the will and communicate its contents to him in some practicable manner. ADDITIONAL REQUISITES FOR A NOTARIAL WILL IF THE TESTATOR BE BLIND (Art. 808, CC) The will shall be read to the testator twice – 1. Once by one of the subscribing witnesses 2. Once by the notary public before whom the will is acknowledged REQUISITES FOR A HOLOGRAPHIC WILL 1. In writing (Art. 804, CC) 2. In a language or dialect known to the testator (Art. 804, CC) 3. Entirely written, dated, and signed by the hand of the testator himself (Art. 810, CC) AMENDING A WILL 1. Notarial – only through a codicil 2. Holographic – a. Dispositions may be added below the signature, provided that said dispositions are also dated and signed, and everything is written by the hand of the testator himself b. Certain dispositions or additional matter may be suppressed or inserted provided that such is signed by the testator and written by the hand of the testator himself c. Through a codicil which may either be notarial or holographic EFFECT OF INSERTION WRITTEN BY ANOTHER PERSON ON THE VALIDITY OF A HOLOGRAPHIC WILL WRITTEN BY THE TESTATOR When Made Effect After the execution of the will, without the consent of the testator Insertion is considered not written. The validity of the will cannot be defeated by the malice or caprice of a third person. After the execution of the will, with the consent of the testator Will is valid. Insertion is void. After the execution of the will, validated by the testator by his signature Insertion becomes part of the will. Entire will becomes void because it did not comply with the requirement that it must be wholly written by the testator. Contemporaneous to the execution of the will Will is void because it is not written entirely by the testator. RULES IN CASE OF SUBSEQUENT DISPOSITIONS Subsequent Disposition Effect Signed Not dated Last disposition is signed and dated Valid Not signed Dated Void Signed Not dated Void but it does not affect the validity of the other dispositions or the will itself QUALIFICATIONS OF WITNESSES TO A NOTARIAL WILL (Arts. 820 – 821, CC (SABRDC)) 1. Of sound mind 2. Of the age of 18 years or more 3. Not blind, deaf or dumb 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 101 of 325 SUCCESSION CIVIL LAW 4. Able to read and write 5. Domiciled in the Philippines 6. Have not been convicted of falsification of a document, perjury or false testimony INTERESTED WITNESS (Art. 823, CC) - A witness who attests to the execution of a will which gives a legacy or devise to that witness, or his spouse, or his parent or his child. *Effect: The devise or legacy, insofar as it concerns that witness or his spouse or his parent or his child, shall be void unless there are three other witnesses to such will. His competence as a witness shall subsist. GOVERNING LAW As to time Governing Law Formal Validity Law in force at the time the will is made Intrinsic Validity Law of decedent’s nationality at the time of his death (Art. 16, CC) As to Place Testator Place of Execution of the Will Governing Law Filipino Philippines (Art. 16, CC) Philippine Law Outside of the Philippines (Art. 815, CC) 1. Law of the country in which it is executed; or 2. Philippine Law Alien Philippines (Art. 817, CC) 1. Philippine Law; or 2. Law of the Country of which testator is a citizen or subject. Outside the Philippines (Art. 816, CC) 1. Law of the place where the will is executed; or 2. Law of the place where the testator resides; or 3. Law of the testator’s country; or 4. Philippine Law ASPECTS OF THE WILL GOVERNED BY THE NATIONAL LAW OF THE DECEDENT (Arts. 16 and 1039, CC) 1. Order of succession 2. Capacity to succeed 3. Amount of successional rights 4. Intrinsic validity of testamentary provisions JOINT WILL - A single testamentary instrument - which contains the wills of two or more persons - jointly executed by them - either for their reciprocal benefit or for the benefit of a third person MUTUAL WILLS - Executed pursuant to an agreement between two or more persons - to dispose of their property in a particular manner - each in consideration of the other separate wills of two persons which are reciprocal in their provisions RECIPROCAL WILLS - Testators name each other as beneficiaries - under similar testamentary plans Note: A will that is both joint and mutual is one executed jointly by two or more persons, the provisions of which are reciprocal and which shows on its face that the devises are made in consideration of the other. Such is prohibited under Art. 819, CC. Prohibition is applicable only to joint wills executed by Filipinos. D. CODICIL AND INCORPORATION BY REFERENCE DEFINITION OF A CODICIL (Arts. 825 – 826, CC) - It is a supplement or addition to a will - made after the execution of a will - and annexed to be taken as a part of the will - by which any disposition made in the original will is explained, added to, or altered - It is executed as in the case of a will. REQUISITES FOR INCORPORATION BY REFERENCE (Art. 827, CC) 1. The document or paper referred to in the will must be in existence at the time of the execution of the will. 2. The will must clearly describe and identify the same, stating among other things the number of pages thereof. 3. It must be identified by clear and satisfactory proof as the document or paper referred to therein. And 4. It must be signed by the testator and the witnesses on each and every page, except in case of voluminous books of account or inventories. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 102 of 325 SUCCESSION CIVIL LAW E. REVOCATION OF WILLS AND TESTAMENTARY DISPOSITIONS MODES OF REVOKING A WILL (Art. 830, CC) 1. By implication of law 2. By the execution of a will, codicil or other writing executed as provided in the case of wills 3. By burning, tearing, canceling, or obliterating the will with the intention of revoking it, by the testator himself, or by some other person in his presence, and by his express direction *Note: It must be done any time before the death of the testator. The right of revocation cannot be waived or restricted. (Art. 828, CC) LAWS WHICH GOVERN REVOCATION (Art. 829, CC) PLACE OF REVOCATION TESTATOR’S DOMICILE GOVERNING LAW In the Philippines Philippines or in some other country Philippine Law Outside the Philippines Philippines Philippine Law Foreign country 1. Law of the place where the will was made; or 2. Law of the place in which the testator had his domicile at the time of revocatio n. DOCTRINE OF DEPENDENT RELATIVE REVOCATION - A revocation subject to a condition does not revoke a will unless and until the condition occurs. Thus, where a testator “revokes” a will with the proven intention that he would execute another will, his failure to validly make a latter will would permit the allowance of the earlier will. - Where the act of destruction is connected with the making of another will so as to fairly raise the inference that the testator meant the revocation of the old to depend upon the efficacy of the new disposition intended to be substituted, the revocation will be conditional and dependent upon the efficacy of the new disposition; and if for any reason, the new will intended to be made as a substitute is inoperative, the revocation fails and the original will remain in full force. Molo vs. Molo, 90 Phil. 37 F. ALLOWANCE AND DISALLOWANCE OF WILLS PROBATE - It is a special proceeding by which the validity of a will may be established. - Probate court may pass upon the title thereto, but such determination is provisional, not conclusive, and is subject to the final decision in a separate action to resolve title. Pastor vs. CA 1983 - Probate of a will bars criminal prosecution of the alleged forger of the probated will. Mercado vs. Santos 1938 MATTERS TO BE PROVED IN A PROBATE 1. Whether the instrument which is offered for probate is the last will and testament of the decedent 2. Whether the will has been executed in accordance with the formalities prescribed by law 3. Whether the testator had testamentary capacity at the time of the execution of the will GROUNDS FOR DISALLOWANCE OF A WILL (Art. 839, CC) – FIFU SM 1. If the Formalities required by law have not been complied with. 2. If the testator was Insane, or otherwise mentally incapable of making a will, at the time of its execution. 3. If it was executed through Force or under duress, or the influence of fear, or threats. 4. If it was procured by Undue and improper pressure and influence, on the part of the beneficiary or of some other person. 5. If the Signature of the testator was procured by fraud. 6. If the testator acted by Mistake or did not intend that the instrument he signed should be his will at the time of affixing his signature thereto. *This list is exclusive. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 103 of 325 SUCCESSION CIVIL LAW REVOCATION VS. DISALLOWANCE REVOCATION DISALLOWANCE Voluntary act of the testator Given by judicial decree With or without cause Must always be for a legal cause May be partial or total Always total except when the ground of fraud or influence for example affects only certain portions of the will G. INSTITUTION OF HEIRS DEFINITION OF INSTITUTION OF HEIRS (Art. 840, CC) - It is an act by virtue of which a testator designates in his will - the person/s who are to succeed him in his property and transmissible rights and obligations. REQUISITES FOR A VALID INSTITUTION OF HEIR (DACCVP) 1. Designation in will of person/s to succeed 2. Will specifically assigns to such person an inchoate share in the estate 3. The person so named has capacity to succeed 4. The will is formally valid 5. No vice of consent is present 6. No preterition results from the effect of such will THREE PRINCIPLES IN THE INSTITUTION OF HEIRS 1. Equality – heirs who are instituted without designation of shares shall inherit in equal parts. (Art. 846, CC) 2. Individuality – heirs collectively instituted are deemed individually named unless a contrary intent is proven. (Art. 847, CC) 3. Simultaneity – when the testator calls to the succession a person and his children, they are all deemed to have been instituted simultaneously and not successively. (Art. 849, CC)i INSTITUTION BASED ON A FALSE CAUSE (Art. 850, CC) - General Rule: The statement of a false cause for the institution of an heir shall be considered as not written. - Exception: If it appears from the will that the testator would not have made such institution if he had known the falsity of such cause. In this case, the institution shall be annulled. - Requisites of Annulment under 850: 1. cause for institution of heirs must be stated in the will 2. cause must be shown as false 3. it must appear form the face of the will that the testator would not have made such institution if he had known the falsity of the cause. Austria vs. Reyes 1970 RULES REGARDING A PERSON’S RIGHT TO DISPOSE OF HIS ESTATE (Art. 842, CC) 1. If testator has no compulsory heirs a. He can give his estate to any person having capacity to succeed. b. He must respect restriction imposed by special laws. 2. If testator has compulsory heirs a. He can give the disposable portion to strangers. b. Legitimes of compulsory heirs must be respected. CONCEPT OF PRETERITION (Art. 854, CC) 1. There must be a total omission of one, some or all of the heir/s in the will. 2. The omission must be that of a compulsory heir. 3. The compulsory heir omitted must be of the direct line. 4. The omitted compulsory heir must be living at the time of the testator’s death or must at least have been conceived before the testator’s death. EFFECTS OF PRETERITION (Art. 854, CC) 1. The institution of the heir is annulled. 2. Devises and legacies shall remain valid as long as they are not inofficious. 3. If the omitted compulsory heir should die before the testator, the institution shall be effectual, without prejudice to the right of representation. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 104 of 325 SUCCESSION CIVIL LAW PRETERITION VS. DISINHERITANCE PRETERITION DISINHERITANCE Tacit deprivation of legitime Express deprivation of legitime Presumed to be involuntary as it is an omission to mention an heir or though mentioned, is not instituted as an heir. But it may also be voluntary. Always voluntary Presumed by law to be a mere oversight or mistake Legal cause is present The omitted compulsory heir gets his legitime plus his share in the free portion not disposed of by way of legacies and devises. Even a compulsory heir may be totally excluded. If disinheritance is not lawfully made, the compulsory heir is restored to his legitime. EFFECTS OF PREDECEASE, INCAPACITY, REPUDIATION HEIR PRE DECEASE IN CAPACITY REPUDIA TION Voluntary No right transmitted to the heirs of the voluntary heir. No right transmitted to the heirs of the voluntary heir. Voluntary heir who repudiated cannot transmit any right to his own heirs. Compulsory Right to the legitime and not to the free portion transmitted to the representatives of the compulsory heir. Compulsory heir may be represented but only with respect to his legitime. Compulsory heir who repudiated cannot transmit any right to his own heirs. KINDS OF INSTITUTIONS 1. Simple or Pure – the rights to the succession are transmitted from the moment of the death of the decedent. (Art. 777, CC) 2. Conditional – may be potestative, causal or mixed. (See Arts. 871 – 884) *Disposicion Captatoria – disposition made upon the condition that the heir shall make some provision in his will in favor of the testator or of any other person. This is void. (Art. 875, CC) 3. With a Term – designation of the day or time when the effects of the institution of an heir shall commence or cease. (Art. 885, CC) 4. Modal – institution where the testator states the following: (Art. 882, CC) a. the object of the institution; or b. the purpose of the application of the property left by the testator; or c. the charge imposed by the creator upon the heir. *Doctrine of Constructive Compliance – When without the fault of the heir, the modal institution cannot take effect in the exact manner stated by the testator, it shall be complied with in a manner most analogous to and in conformity with his wishes. (Art. 883, CC) H. SUBSTITUTION OF HEIRS DEFINITION OF SUBSITUTION (Art. 857, CC) - It is the appointment of another heir - so that he may enter into the inheritance in default of the heir originally instituted. CLASSES OF SUBSITITUTION 1. Vulgar or Simple – the testator may designate one or more person/s to substitute the heir/s instituted in case such heir/s should: (Art. 859, CC) a. die before him (predecease) b. should not wish to accept the inheritance (renounce) c. should be incapacitated to accept the inheritance (incapacitated) 2. Brief or Compendious (Art. 860, CC) a. Brief - two or more persons designated by the testator to substitute for only one heir. b. Compendious – One person is designated to take the place of two or more heirs. 3. Reciprocal – If the heirs instituted in unequal shares should be reciprocally substituted, the substitute shall acquire the share of the heir who dies, renounces, or is incapacitated, unless it clearly appears that the intention of the testator was otherwise. If there are more than one substitute, they shall have the same share in the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 105 of 325 SUCCESSION CIVIL LAW substitution as in the institution. (Art. 861, CC) 4. Fideicommissary – if the testator institutes an heir with an obligation to preserve and to deliver to another the property so inherited. The heir instituted to such condition is called the first heir or the fiduciary heir, the one to receive the property is the fideicommissary or the second heir. (Art. 863, CC) REQUISITES FOR A FIDEICOMMISSARY SUBSTITUTION (Arts. 863 – 865, CC) 1. A fiduciary or first heir instituted entrusted with the obligation to preserve and to transmit to a fideicommissary substitute or second heir the whole or part of the inheritance. 2. The substitution must not go beyond one degree from the heir originally instituted. 3. The fiduciary heir and the fideicommissary are living at the time of the death of the testator. 4. The fideicommissary substitution must be expressly made. 5. The fideicommissary substitution is imposed on the free portion of the estate and never on the legitime. I. LEGITIMES DEFINITION OF LEGITIME (Art. 886, CC) - It is that part of the testator’s property which he cannot dispose of - because the law has reserved it for his compulsory heirs CLASSES OF COMPULSORY HEIRS (Art. 887, CC) 1. Primary – those who have precedence over and exclude other compulsory heirs a. Legitimate children and legitimate descendants with respect to their legitimate parents and ascendants 2. Secondary – those who succeed only in the absence of the primary compulsory heirs a. Legitimate parents and legitimate ascendants with respect to their legitimate children and descendants b. Illegitimate parents with respect to their illegitimate children 3. Concurring – those who succeed together with the primary or the secondary compulsory heirs a. Widow or widower (legitimate) b. Illegitimate children and illegitimate descendants Legitmate children- LC Illegitimate children- ILC Surviving spouse- SS Legimate Parents- LP Illegitimate Parents- ILP COMPULSORY HEIRS If the testator is a LEGITIMATE CHILD If the testator is an ILLEGITIMATE CHILD 1. LC and descendants 1. LC and descendants 2. In default of no. 1, LP and ascendants 2. ILC and descendants 3. SS 3. In default of nos. 1- 2, ILP only 4. IC and descendants 4. SS SPECIFIC RULES ON LEGITIMES 1. Direct Descending Line a. Rule of preference between lines - Those in the direct descending line shall exclude those in the direct ascending and collateral lines, and those in the direct ascending line shall, in turn, exclude those in the collateral line. b. Rule of proximity – the relative nearest in degree excludes the farther one c. Right of representation ad infinitum in case of predecease, incapacity or disinheritance. For decedents who are legitimate children, only the legitimate descendants can represent. For decedents who are illegitimate children, both the legitimate and illegitimate descendants can represent. d. If all the legitimate children repudiate their legitime, the next generation of legitimate descendants succeed in their own right. 2. Direct Ascending Line a. Rule of division by lines b. Rule of equal division – the relatives who are in the same degree shall inherit in equal shares 3. Non-impairment of legitime 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 106 of 325 SUCCESSION CIVIL LAW SUMMARY OF LEGITIMES OF COMPULSORY HEIRS SURVIVING REL. LC & DESCENDANTS SS ILC LP & ASCENDANT S ILP LC alone ½ (divided by # of children) 1 LC, SS ½ ¼ LC, SS ½ (divided by # of children) Same as the share of 1 LC LC, ILC ½ ½ of the share of 1 LC 1 LC, SS, ILC ½ ¼ (preferred) ½ of the share of 1 LC 2 or more LC, SS, ILC ½ (divided by # of children) Same as the share of 1 LC ½ of the share of 1 LC LP alone ½ LP, ILC ¼ ½ LP, SS ¼ ½ LP, SS, ILC 1/8 ¼ ½ ILC alone ½ (divided by # of children) ILC, SS 1/3 1/3 (divided by # of children) SS alone ½ or 1/3 if marriage in articulo mortis ILP alone ½ ILP, SS ¼ ¼ Adopter ILC, SS 1/3 1/3 1/3 (adopter) STEPS IN DETERMINING THE LEGITIME OF COMPULSORY HEIRS 1. Determine the gross value of the estate at the time of the death of the testator. 2. Determine all debts and charges which are chargeable against the estate. 3. Determine the net value of the estate by deducting all debts and charges from the gross value of the estate. 4. Collate or add the value of all donations inter vivos to the net value of the estate. 5. Determine the amount of the legitime from the total thus found. 6. Impute the value of all donations inter vivos made to compulsory heirs against their legitime and of the value of all donations inter vivos made to strangers against the disposable free portion and restore it to the estate if the donation is inofficious. 7. Distribute the residue of the estate in accordance with the will of the testator. REMEDY OF COMPULSORY HEIR IN CASE OF IMPAIRMENT OF LEGITIME 1. If the impairment is total, then there may be preterition if the compulsory heir omitted is either an ascendant or descendant. Art. 854, CC would come in to play, i.e., there will be an annulment of the institution of heirs and a reduction of devises and legacies. 2. If the impairment is partial, then the compulsory heir is entitled to completion of legitime under Art. 906, CC. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 107 of 325 SUCCESSION CIVIL LAW 3. If the impairment is through donation, the remedy is collation. CONCEPT OF RESERVA TRONCAL (Art. 891, CC) - The ascendant who inherits from his descendant - any property which the latter may have acquired by gratuitous tile - from another ascendant, or a brother or sister, - is obliged to reserve such property - as he may have acquired by operation of law - for the benefit of relatives within the third degree - and who belong to the line from which said property came. REQUISITES FOR RESERVA TRONCAL Chua vs. CFI, 78 SCRA 406 and Gonzales vs. CFI, 104 SCRA 161 1. that the property was acquired by a descendant (prepositus) from an ascendant or from a brother or sister (source) by gratuitous title 2. that the prepositus died without an issue 3. that the property is inherited by another ascendant (reservista) by operation of law 4. that there are relatives within the 3 rd degree (reservatarios) belonging to the line from which said property came J. DISINHERITANCE DEFINITION OF DISINHERITANCE (Art. 915, CC) - It is the act by which the testator - for just cause - deprives a compulsory heir of his right to the legitime. REQUISITES FOR A VALID DISINHERITANCE 1. Heir disinherited must be designated by name or in such a manner as to leave no room for doubt as to who is intended to be disinherited. 2. It must be for a cause designated by law. 3. It must be made in a valid will. 4. It must be made expressly, stating the cause in the will itself. 5. The cause must be certain and true, and must be proved by the interested heir if the person disinherited should deny it. 6. It must be unconditional. 7. It must be total. SUMMARY OF CAUSES OF DISINHERITANCE Art. 919- children/ descendants Art. 920- parents/ ascendants Art. 921- spouse Art. 1032- unworthiness GROUNDS FOR DISINHERITANCE 919 920 921 10 32 Guilty/convicted of attempt against life of testator/spouse/ ascendant/descendant * * * * Accused testator/decedent of crime punishable by imprisonment of 6 years or more, found groundless, false * * * * Causes testator/decedent to make will or change one by fraud, violence, intimidation, or undue influence * * * * Unjustified refusal to support testator * * * Convicted of adultery or concubinage with spouse of testator/decedent * * * Maltreatment of testator by word and deed * Leading a dishonorable or disgraceful life * Conviction of crime which carries penalty of civil interdiction * Abandonment of children or inducing children to live corrupt and immoral life or attempted against virtue * * Loss of parental authority * * Attempt by one parent against life of the other UNLESS there is reconciliation between parents * Spouses given cause * (Source) A C (Reservatario) B E F D G (Reservista) H (Prepositus) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 108 of 325 SUCCESSION CIVIL LAW for legal separation Failure to report violent death of decedent within one month, unless authorities have already taken action * Force, violence, intimidation or undue influence to prevent another from making a will or revoking one already made or who supplants or alters the latter’s will * Falsifies or forges a supposed will of the decedent * REVOCATION OF DISINHERITANCE 1. Reconciliation 2. Subsequent institution of the disinherited heir 3. Nullity of the will which contains the disinheritance *Note: The moment the testator uses one of the acts of unworthiness as a cause for disinheritance, he thereby submits it to the rules on disinheritance. Thus, reconciliation renders the disinheritance ineffective. K. LEGACIES AND DEVISES PERSONS CHARGED WITH LEGACIES AND DEVISES 1. Compulsory heir 2. Voluntary heir 3. Legatee or devisee 4. Estate VALIDITY AND EFFECT OF LEGACY OR DEVISE STATUS OF PROPERTY GIVEN BY LEGACY/DEVISE EFFECT ON THE LEGACY/DEVISE 1. Belonging to the testator at the time of the execution of the will until his death Effective 2. Belonging to the testator at the time of the execution of the will but alienated in favor of a 3 rd person Revoked 3. Belonging to the testator at the time of the execution of the will but alienated in favor of the legatee or devisee gratuitously No revocation. There is a clear intention to comply with the legacy/devise. 4. Belonging to the testator at the time of the execution of the will but alienated in Legatee/devisee can demand reimbursement from the heirs or the favor of the legatee/devisee onerously estate. 5. Not belonging to the testator at the time the will is executed but he has ordered that the thing be acquired in order that it be given to the legatee/devisee. Effective 6. Not belonging to the testator at the time the will is executed and the testator erroneously believed that the thing pertained to him. Void 7. Not belonging to the testator at the time the will is executed but afterwards it becomes his by whatever title. Effective 8. Already belonged to the legatee/devisee at the time of the execution of the will even though another person may have interest therein Ineffective 9. Already belonged to the legatee/devisee at the time of the execution of the will even though it may have been subsequently alienated by him. Ineffective 10. Testator had knowledge that the thing bequeathed belonged to a third person and the legatee/devisee acquired the property gratuitously after the execution of the will. Legatee/devisee can claim nothing by virtue of the legacy/devise 11. Testator had knowledge that the thing bequeathed belonged to a third person and the legatee/devisee acquired the property by onerous title. Legatee/devisee can demand reimbursement from the heir or estate. ORDER OF PAYMENT IN CASE THE ESTATE IS INSUFFICIENT TO COVER ALL LEGACIES AND DEVISES – ART. 911, CC VS. ART. 950, CC ART. 911 ART. 950 Order of Preference Order of Preference 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 109 of 325 SUCCESSION CIVIL LAW (LIPO) (RPSESO) 1. Legitime of compulsory heirs 2. Donations Inter vivos 3. Preferential legacies or devises 4. All Other legacies or devises pro rata 1. Remuneratory legacy/devise 2. Preferential legacy/devise 3. Legacy for Support 4. Legacy for Education 5. Legacy/devise of Specific, determinate thing which forms a part of the estate 6. All Others pro rata Application: Application: 1. When the reduction is necessary to preserve the legitime of compulsory heirs from impairment whether there are donations inter vivos or not; or 2. When, although, the legitime has been preserved by the testator himself there are donations inter vivos. *Art. 911 governs when there is a conflict between compulsory heirs and the devisees and legatees. 1. When there are no compulsory heirs and the entire estate is distributed by the testator as legacies or devises; or 2. When there are compulsory heirs but their legitime has already been provided for by the testator and there are no donations inter vivos. *Art. 950 governs when the question of reduction is exclusively among legatees and devisees themselves. *Note: In case of reduction, the inverse order of payment should be followed. GROUNDS FOR REVOCATION OF LEGACIES AND DEVISES (Art. 957, CC) 1. Testator transforms the thing bequeathed in such a manner that it does not retain either the form or the denomination it had. 2. Testator by any title or for any cause alienates the thing bequeathed, or any part thereof, it being understood that in the latter case the legacy or devise shall be without effect only with respect to the part alienated. Except: When the thing should again belong to the testator after alienation by virtue of the exercise of the right of repurchase. 3. Thing bequeathed is totally lost during the lifetime of the testator, or after his death without the heirs’ fault. 4. Other causes: nullity of the will; non- compliance with suspensive conditions affecting the bequests; sale of the thing to pay the debts of the deceased during the settlement of his estate. *Note: List is not exclusive. II. LEGAL OR INTESTATE SUCCESSION CAUSES OF VACANCY IN SUCCESSION 1. Disinheritance – the testator creates it himself 2. Repudiation – the heir does something 3. Incapacity or Predecease – something happens to the heir HOW VACANCIES ARE FILLED 1. Substitution (Art. 857, CC) 2. Representation (Art. 970, CC) 3. Accretion (Art. 1015, CC) 4. Intestate Succession CAUSES FOR LEGAL OR INTESTATE SUCCESSION (Art. 960, CC) 1. If a person dies without a will 2. If a person dies with a void will 3. If a person dies with a will which has subsequently lost its validity 4. When the will does not institute an heir 5. When the will does not dispose of all the property belonging to the testator. Legal succession shall take place only with respect to the property which the testator has not disposed. 6. If the suspensive condition attached to the institution of the heir does not happen or is not fulfilled 7. If the heir dies before the testator 8. If the heir repudiates the inheritance, there being no substitution, and no right of accretion takes place 9. When the heir instituted is incapable of succeeding, except in cases provided in the Civil Code FUNDAMENTAL UNDERLYING PRINCIPLES IN LEGAL OR INTESTATE SUCCESSION 1. Rule of Preference Between Lines – Those in the direct descending line shall exclude those in the direct ascending and collateral lines, and those in the direct ascending line shall, in turn, exclude those in the collateral line. 2. Rule of Proximity – the relative nearest in degree excludes the farther one. (Art. 962, CC) 3. Rule of Equal Division – the relatives who are in the same degree shall inherit in equal shares. (Articles 987 and 1006, CC) Exceptions: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 110 of 325 SUCCESSION CIVIL LAW a. Division in the ascending line (between paternal and maternal grandparents) b. Division among brothers and sisters, some of whom are of the full and others of half-blood c. Division in cases where the right of representation takes place 4. Rule of Barrier between the legitimate family and the illegitimate family – the illegitimate family cannot inherit by intestate succession from the legitimate family and vice-versa. (Art. 992, CC) 5. Rule of Double Share for full blood collaterals – when full and half-blood brothers or sisters, nephews or nieces, survive, the full blood shall take a portion in the inheritance double that of the half-blood. (Articles 895 and 983, CC) RELATIONSHIP (Articles 963 – 969, CC) 1. Number of generations determines proximity. 2. Each generation forms a degree. 3. A series of degrees forms a line. 4. A line may either be direct or collateral. 5. A direct line is that constituted by the series of degrees among ascendants and descendants (ascending and descending). 6. A collateral line is that constituted by the series of degrees among persons who are not ascendants or descendants, but who come from a common ancestor. 7. Full blood – same father and mother. 8. Half-blood – only one of either parent is the same. 9. In adoption, the legal filiation is personal and exists only between the adopter and the adopted. The adopted is deemed a legitimate child of the adopter, but still remains as an intestate heir of his natural parents and other blood relatives. DEFINITION OF THE RIGHT OF REPRESENTATION (Art. 970, CC) - It is a right created by fiction of law - by virtue of which the representative is raised to the place and degree of the person represented - and acquires the rights which the latter would have if he were living or if he would have inherited. *Notes: - In the direct line, representation takes place ad infinitum in the direct descending line, never in the ascending. - In the collateral line, representation takes place only in favor of the children of the brothers or sisters (i.e., nephews and nieces) whether of the full or half-blood and only if they concur with at least one uncle or aunt. RIGHT OF REPRESENTATION IN TESTAMENTARY SUCCESSION 1. When a compulsory heir in the direct descending line had predeceased the testator and was survived by his children or descendants. 2. When a compulsory heir in the direct descending line is excluded from the inheritance due to incapacity or unworthiness and he has children or descendants. 3. When a compulsory heir in the direct descending line is disinherited and he has children or descendants; representation covers only the legitime. 4. A legatee or devisee who died afther the death of the testator may be represented by his heirs. RIGHT OF REPRESENTATION IN INTESTATE SUCCESSION 1. When a legal heir in the direct descending line had predeceased the decedent and was survived by his children or descendants. 2. When a legal heir in the direct descending line is excluded from the inheritance due to incapacity or unworthiness and he has children or descendants. 3. When brothers or sisters had predeceased the decedent and they had children or descendants. 4. When illegitimate children represent their deceased illegitimate parents in the estate of their grandparents. 5. When nephews and nieces inherit together with their uncles and aunts in representation of their deceased parents who are brothers or sisters of said uncles and aunts. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 111 of 325 SUCCESSION CIVIL LAW ORDER OF LEGAL OR INTESTATE SUCCESSION DECEDENT IS A LEGITIMATE CHILD DECEDENT IS AN ILLEGITIMATE CHILD DECEDENT IS AN ADOPTED CHILD 1 LC and Legitimate descendants LC and Legitimate descendants LC and Legitimate descendants 2 LP and Legitimate ascendants ILC and Illegitimate descendants ILC and Illegitimate descendants 3 ILC and Illegitimate descendants ILP LP or ILP and Legitimate ascendants, Adoptive parents 4 SS SS SS 5 Legitimate siblings, Nephews, Nieces Illegitimate siblings, Nephews, Nieces Siblings, Nephews, Nieces 6 Legitimate collateral relatives within the 5 th degree State State 7 State CONCURRENCE IN LEGAL OR INTESTATE SUCCESSION Intestate Heir EXCLUDES EXCLUDED BY CONCURS WITH LC and Legitimate descendants Ascendants, Collaterals and State No one SS and ILC ILC and Descendants ILP, Collaterals and State No one SS LC and LP LP and Legitimate ascendants Collaterals and State LC ILC and SS ILP Collaterals and State LC and ILC SS SS Collaterals other than siblings, nephews and nieces No one LC, ILC, LP, ILP Siblings Nephews Nieces Siblings, Nephews Nieces All other collaterals and State LC, ILC, LP, ILP SS Other collaterals within 5 th degree Collateral more remote in degree and State LC, ILC, LP, ILP and SS Collaterals in the same degree State No one Everyone No one A MORE DETAILED SUMMARY OF INTESTATE SHARES 1 LEGITIMATE CHILDREN AND LEGITIMATE DESCENDANTS ALONE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ ½ 1 TOTAL ½ ½ 1 2 ONE LEGITIMATE CHILD AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ ½ SS ¼ ¼ ½ TOTAL ¾ ¼ 1 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 112 of 325 SUCCESSION CIVIL LAW 3 LEGITIMATE CHILDREN AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ Remaining portion of estate after paying legitimes Whole estate divided equally between total # of children plus the SS SS Same as share of 1 LC Legitimes to be divided equally between total # of children plus the SS # of children plus the SS (see above) TOTAL Varies on no. of children Varies on no. of children 1 4 LEGITIMATE CHILDREN AND ILLEGITIMATE CHILDREN Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ Remaining portion of estate after paying legitimes Whole estate divided by the ratio of 2:1 for each LC as compared to the ILC ILC ½ share of 1 LC Legitimes to be divided by the ratio of 2 for each LC, 1 for each ILC 1 for each ILC provided that legitimes wouldn’t be impaired TOTAL Varies on # of children Varies on # of children 1 5 ONE LEGITIMATE CHILD, ILLEGITIMATE CHILD, AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ Remaining portion of estate after paying legitimes to be divided by the ratio of 2:1 for each LC and each ILC, respectively Whole estate divided by the ratio of 2 for each LC ILC ½ share of 1 LC or ¼ 1 for each ILC (see above) 1 for each ILC SS ¼ Same share as a LC Legitimes wouldn’t be impaired TOTAL Varies depending on # of ILC Varies depending on # of ILC 1 6 LEGITIMATE CHILDREN, ILLEGITIMATE CHILDREN AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LC ½ Remaining portion of estate, if any after paying legitimes to be divided by the ratio of 2 for each LC Whole estate divided by the ratio of 2:1 for each LC and ILC respectively ILC ½ share of each LC 1 for each ILC (see above) 1 for each ILC (see above) SS Same share as one LC Same share as a LC, provided legitimes are not impaired Same share as a LC, provided legitimes are not impaired TOTAL Varies depending on no. of ILC Varies depending on no. of ILC 1 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 113 of 325 SUCCESSION CIVIL LAW 7 LEGITIMATE PARENTS ALONE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LP ½ ½ 1 TOTAL ½ ½ 1 8 LEGITIMATE PARENTS AND ILLEGITIMATE CHILDREN In testate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LP ½ ½ ILC ¼ ¼ ½ TOTAL ¾ ¼ 1 9 LEGITIMATE PARENTS AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LP ½ ½ SS ¼ ¼ ½ TOTAL ¾ ¼ 1 10 LEGITIMATE PARENTS, SURVIVING SPOUSE AND ILLEGITIMATE CHILDREN Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE LP ½ ½ SS 1/8 1/8 ¼ ILC ¼ ¼ TOTAL 7/8 1/8 1 11 ILLEGITIMATE CHILDREN ALONE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE ILC alone ½ ½ 1 TOTAL ½ ½ 1 12 ILLEGITIMATE CHILDREN AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE ILC 1/3 1/6 ½ SS 1/3 1/6 ½ TOTAL 2/3 1/3 1 13 SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE SS ½ or 1/3 ½ or 1/3 1 TOTAL ½ or 1/3 ½ or 1/3 1 14 ILLEGITIMATE PARENTS ALONE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE ILP ½ ½ 1 TOTAL ½ ½ 1 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 114 of 325 SUCCESSION CIVIL LAW 15 ILLEGITIMATE PARENTS AND SURVIVING SPOUSE Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE ILP ¼ ¼ ½ SS ¼ ¼ ½ TOTAL ½ ½ 1 16 SIBLINGS, NEPHEWS AND NIECES ALONE (SPECIAL KIND OF COLLATERAL RELATIVES) Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE Siblings, nephews, nieces ½ ½ 1 TOTAL ½ ½ 1 17 SURVIVING SPOUSE, SIBLINGS, NEPHEWS AND NIECES Intestate Heir SHARE AS LEGITIME SHARE AS FREE DISPOSAL TOTAL INTESTATE SHARE SS ½ ½ Siblings, nephews, nieces ½ ½ TOTAL ½ ½ 1 ORDER OF CONCURRENCE IN THE CASE OF AN ADOPTED CHILD (Art. 190, FC) SURVIVORS SHARE LC, ILC, SS As in the case of ordinary intestate succession LP or ascendants or ILP Adopter ½ ½ LP or ascendants or ILP or Adopter SS ½ ½ LP or ascendants Adopter ILC or descendants ½ ½ LP or ascendants Adopter SS ILC or descendants 1/3 1/3 1/3 Adopter alone Entire estate Collateral blood relatives As in the case of ordinary intestate succession III. PROVISIONS COMMON TO TESTAMENTARY AND INTESTATE SUCCESSIONS A. ACCRETION DEFINITION OF ACCRETION (Art. 1015, CC) - It is a right by virtue of which - when two or more persons are called to the same inheritance, devise or legacy - the part assigned to one who renounces or cannot receive his share or who died before the testator - is added or incorporated to that of his co-heirs, co-devisees, or co-legatees. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 115 of 325 SUCCESSION CIVIL LAW EFFECT OF PREDECEASE, INCAPACITY, DISINHERITANCE OR REPUDIATION IN TESTAMENTARY AND INTESTATE SUCCESSION CAUSE OF VACANCY TESTAMENTARY SUCCESSION INTESTATE SUCCESSION LEGITIME FREE PORTION Predecease Representat'n Intestate Succession Accretion Intestate Succession Representat'n Intestate Succession Incapacity Representat'n Intestate Succession Accretion Intestate Succession Representat'n Intestate Succession Disinheritance Representat'n Intestate Succession - - Repudiation Intestate Succession Accretion Accretion B. CAPACITY TO SUCCEED REQUISITES FOR CAPACITY TO SUCCEED BY WILL OR BY INTESTACY (Art. 1024 – 1025, CC) 1. The heir, legatee or devisee must be living or in existence at the moment the succession opens; and 2. He must not be incapacitated or disqualified by law to succeed. WHO ARE INCAPABLE OF SUCCEEDING 1. BASED ON UNDUE INFLUENCE OR INTEREST (Art. 1027, CC) - PIGRAP a. Priest who heard the last confession of the testator during his last illness, or the minister of the gospel who extended spiritual aid to him during the same period; b. Individuals, associations and corporations not permitted by law to inherit; c. Guardian with respect to testamentary dispositions given by a ward in his favor before the final accounts of the guardianship have been approved, even if the testator should die after the approval thereof; except if the guardian is his ascendant, descendant, brother, sister, or spouse; d. Relatives of the priest or minister of the gospel within the fourth degree, the church, order, chapter, community, organization, or institution to which such priest or minister may belong; e. Attesting witness to the execution of a will, the spouse, parents, or children, or any one claiming under such witness, spouse, parents, or children; f. Physician, surgeon, nurse, health officer or druggist who took care of the testator during his last illness. 2. BASED ON MORALITY OR PUBLIC POLICY (Art. 739, CC) a. Those made in favor of a person with whom the testator was guilty of adultery or concubinage at the time of the making of the will. b. Those made in consideration of a crime of which both the testator and the beneficiary have been found guilty. c. Those made in favor of a public officer or his spouse, descendants and ascendants, by reason of his public office. 3. BASED ON ACTS OF UNWORTHINESS (Art. 1032, CC) – See table under disinheritance PARDON OF ACTS OF UNWORTHINESS EXPRESS IMPLIED Made by the execution of a document or any writing in which the decedent condones the cause of incapacity Effected when the testator makes a will instituting the unworthy heir with knowledge of the cause of incapacity Cannot be revoked Revoked when the testator revokes the will or the institution 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 116 of 325 SUCCESSION CIVIL LAW C. ACCEPTANCE AND REPUDIATION OF INHERITANCE CHARACTERISTICS – VIR (Articles 1041 – 1042, 1056, CC) 1. Voluntary and free 2. Irrevocable except if there is vitiation of consent or an unknown will appears 3. Retroactive REQUISITES (Art. 1043, CC) 1. certainty of death of the decedent 2. certainty of the right to the inheritance ACCEPTANCE VS. REPUDIATION 1. Acceptance involves the confirmation of transmission of successional rights, while repudiation renders such transmission ineffective. 2. Repudiation is equivalent to an act of disposition and alienation. 3. The publicity required for repudiation is necessary for the protection of other heirs and also of creditors. FORMS OF ACCEPTANCE (Articles 1049 – 1050, CC) 1. Express Acceptance – one made in a public or private document. 2. Tacit Acceptance – one resulting from acts by which the intention to accept is necessarily implied or from acts which one would have no right to do except in the capacity of an heir. Examples would be when the heir sells, donates or assigns his right, when the heir demands partition of the inheritance, when the heir alienates some objects of the inheritance, etc. FORMS OF REPUDIATION (Art. 1051, CC) 1. in a public instrument acknowledged before a notary public; or 2. in an authentic document – equivalent of an indubitable writing or a writing whose authenticity is admitted or proved; or 3. by petition presented to the court having jurisdiction over the testamentary or intestate proceeding HEIRS IN TWO CAPACITIES (Art. 1055, CC) - If a person is called to the same inheritance as an heir by will and by law and he repudiates the inheritance in his capacity as a testamentary heir, he will be considered to have also repudiated the inheritance as a legal heir. - If he repudiates it as a legal heir, without his being a testamentary heir, he may still accept it in the latter capacity. D. COLLATION (Articles 1061 – 1077, CC) CONCEPT OF COLLATION - To collate is to bring back or to return to the hereditary mass - in fact or by fiction - property which came from the estate of the decedent, during his lifetime by donation or other gratuitous title - but which the law considers as an advance from the inheritance. - It is the act by virtue of which, the compulsory heir who concurs with other compulsory heirs in the inheritance bring back to the common hereditary mass - the property which they may have received from the testator - so that a division may be effected according to law and the will of the testator. OPERATIONS RELATED TO COLLATION 1. Collation – adding to the mass of the hereditary estate the value of the donation or gratuitous disposition. 2. Imputing or Charging – crediting the donation as an advance on the legitime (if the donee is a compulsory heir) or on the free portion (if the donee is a stranger). 3. Reduction – determining to what extent the donation will remain and to what extent it is excessive or inofficious. 4. Restitution – return or payment of the excess to the mass of hereditary estate. PERSONS OBLIGED TO COLLATE 1. General Rule: compulsory heirs Exceptions: a. when the testator should have so expressly provided b. when the compulsory heir should have repudiated his inheritance 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 117 of 325 SUCCESSION CIVIL LAW 2. Grandchildren who survive with their uncles, aunts, or first cousins and inherit by right of representation *Note: Grandchildren may inherit from their grandparent in their own right, i.e., as heirs next in degree, and not by right of representation if their parent repudiates the inheritance of the grandparent, as no living person can be represented except in cases of disinheritance and incapacity in which case grandchildren are not obliged to bring to collation what their parent has received gratuitously from their grandparent. WHAT TO COLLATE 1. Any property or right received by gratuitous title during the testator’s lifetime. 2. All that they may have received from the decedent during his lifetime. 3. All that their parents would have brought to collation if alive. PROPERTIES NOT SUBJECT TO COLLATION 1. Absolutely no collation a. Expenses for support, education (only elementary and secondary), medical attendance, even in extraordinary illness, apprenticeship, ordinary equipment, or customary gifts. (Art. 1067, CC) 2. Generally not imputable to legitime a. Expenses incurred by parents in giving their children professional, vocational or other career unless the parents so provide, or unless they impair the legitime. b. Wedding gifts by parents and ascendants consisting of jewelry, clothing, and outfit except when they exceed 1/10 of the sum disposable by will. E. PARTITION AND DISTRIBUITON OF ESTATE (Articles 1078 – 1105, CC) CONCEPT OF PARTITION (Art. 1079, CC) - It is the separation, division and assignment - of a thing held in common among those to whom it may belong. - The thing itself or its value may be divided. WHO MAY EFFECT PARTITION 1. decedent, during his lifetime by an act inter vivos or by will 2. heirs 3. competent court 4. third person designated by the decedent WHO CAN DEMAND PARTITION 1. compulsory heir 2. voluntary heir 3. legatee or devisee 4. any person who has acquired interest in the estate WHEN PARTITION CANNOT BE DEMANDED – PAPU 1. when expressly Prohibited by the testator for a period not exceeding 20 years 2. when the co-heirs Agreed that the estate shall not be divided for a period not exceeding 10 years, renewable for another 10 years 3. when Prohibited by law 4. when to partition the estate would render it Unserviceable for the use for which it is intended PROHIBITION TO PARTITION 1. The prohibition to partition for a period not exceeding 20 years can be imposed on the legitime. 2. If the prohibition to the partition is for more than 20 years, the excess is void. 3. Even if a prohibition is imposed, the heirs by mutual agreement can still make the partition. PARTITION INTER VIVOS (Art. 1080, CC) - It is one that merely allocates specific items or pieces of property on the basis of the pro-indiviso shares fixed by law or given under the will to heirs or successors. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 118 of 325 SUCCESSION CIVIL LAW EFFECTS OF INCLUSION OF INTRUDER IN PARTITION 1. Between a true heir and several mistaken heirs – partition is void. 2. Between several true heirs and a mistaken heir – transmission to mistaken heir is void 3. Through error or mistake, share of true heir is allotted to mistaken heir – partition shall not be rescinded unless there is bad faith or fraud on the part of the other persons interested, but the latter shall be proportionately obliged to pay the true heir of his share. The partition with respect to the mistaken heir is void. A VOID WILL MAY BE A VALID PARTITION 1. If the will was in fact a partition 2. If the beneficiaries of the void will were legal heirs IMPORTANT PERIODS TO REMEMBER 1 month or less before making a will Testator, if publicly known to be insane, burden of proof is on the one claiming validity of the will 20 years Maximum period testator can prohibit alienation of dispositions 5 years from delivery to the State To claim property escheated to the State 1 month To report knowledge of violent death of decedent lest he be considered unworthy 5 years from the time disqualified person took possession Action for declaration of incapacity & for recovery of the inheritance, devise or legacy 30 days from issuance of order of distribution Must signify acceptance/repudiation otherwise, deemed accepted 1 month form written notice of sale Right to repurchase hereditary rights sold to a stranger by a co-heir 10 years To enforce warranty of title/quality of property adjudicated to co-heir from the time right of action accrues 5 years from partition To enforce warranty of solvency of debtor of the estate at the time partition is made 4 years form partition Action for rescission of partition on account of lesion SAMPLE BAR QUESTIONS 1. Alfonso, a bachelor without any descendant or ascendant, wrote a last will and testament in which he devised, “all the properties of which I may be possessed at the time of my death” to his favorite brother Manuel. At the time he wrote the will, he owned only one parcel of land. But by the time he died, he owned 20 parcels of land. His other brothers and sisters insist that his will should pass only the parcel of land he owned at the time it was written, and did not cover his properties acquired, which should be by intestate succession. Manuel claims otherwise. Who is correct? Explain. Answer: Manuel is correct because under Art. 793, NCC, property acquired after the making of a will shall only pass thereby, as if the testator had possessed it at the time of making the will, should it expressly appear by the will that such was his intention. Since Alfonso’s intention to devise all properties he owned at the time of his death expressly appears on the will, then all the 20 parcels of land are included in the devise. 2. Cristina, the illegitimate daughter of Jose and Maria, died intestate, without any descendant or ascendant. Her valuable estate is being claimed by Ana, the legitimate daughter of Jose, and Eduardo, the legitimate son of Maria. Is either, both, or neither of them entitled to inherit? Explain. Answer: Neither Ana nor Eduardo is entitled to inherit ab intestate from Cristina. Both are legitimate relatives of Cristina’s illegitimate parents and therefore they fall under the prohibition prescribed un Art. 992, NCC (Manuel vs. Ferrer, 242 SCA 477; Diaz vs. CA, 182 SCRA 427). 3. (a) Luis was survived by 2 legitimate children, 2 illegitimate children, his parents, and 2 brothers. He left an estate of P1 million. Who are the compulsory heirs of Luis, how much is the legitime of each, and how much is the free portion of his estate, if any? (b) Suppose Luis, in the preceding question, died intestate. Who are his intestate heirs, and how much is the share of each in his estate? 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 119 of 325 SUCCESSION CIVIL LAW Suggested Answer: (a) The compulsory heirs are the 2 legitimate children and the 2 illegitimate children. The parents are excluded by the legitimate children, while the brothers are not compulsory heirs at all. Their respective legitimes are: 1. The legitime of the 2 legitimate children is ½ of the estate (P500,000) to be divided between them equally, or P250,000 each. 2. The legitime of each illegitimate child is ½ the legitime of each legitimate child or P125,000. Since the total legitimes of the compulsory heirs is P750,000, the balance of P250,000 is the free portion. (b) The intestate heirs are the 2 legitimate children and the 2 illegitimate children. In intestacy, the estate of the decedent is divided among the legitimate and illegitimate children such that the share of each illegitimate child is ½ the share of each legitimate child. Their shares are: 1. For each legitimate child: P333,333.33 2. For each illegitimate child: P166,666.66 OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 120 of 325 Obligations and Contracts TABLE OF CONTENTS Title 1. Obligations 121 I. General Provisions 121 II. Effect of Obligations 122 III. Different Kinds of Obligations 128 IV. Extinguishment of Obligations 141 Title 2. Contracts 148 I. General Provisions 148 II. Essential Requisites of a Contract 149 III. Form of Contracts 155 IV. Reformation of Instruments 157 V. Interpretation of Contracts 158 VI. Rescissible Contracts 159 VII. Voidable Contracts 161 VIII. Unenforceable Contracts 162 IX. Void or Inexistent Contracts 163 Title 3. Natural Obligations 166 Title 4. Estoppel 166 OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 121 of 325 TITLE I: OBLIGATIONS Chapter I: General Provisions I. Concept Definition Art. 1156, NCC An obligation is a juridical necessity to give, to do or not to do. The legal relation established between one party and another, whereby the latter is bound to the fulfillment of a prestation which the former may demand of him. (Manresa) Elements Active subject (obligee/ creditor) - the one in whose favor the obligation is constituted - the person who is entitled to demand Passive subject (obligor / debtor) - the one bound to the fulfillment - the person who has the duty of giving, doing or not doing Prestation (object) - the conduct which has to be observed by the debtor/obligor - duties of the obligor Requisites: 1. it must be Licit 2. it must be Possible, physically and judicially 3. it must be Determinate or determinable; and 4. it must have a Possible equivalent in money Vinculum juris (efficient cause; juridical or legal tie) – that which binds or connects the parties to the obligation. This can be easily known by knowing the sources of obligations. (de Leon Distinction between natural and civil obligations Civil Obligations (Art. 1156) Natural Obligations (Art. 1423) Based on positive law Based on equity and natural law Give a right of action to compel their performance Do not grant a right of action to enforce their performance; but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof II. Sources (Art. 1157) Law Contracts Quasi-contracts Delicts Quasi-delicts LAW General Rule Obligations derived from law are not presumed; only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (Article 1158) *Those imposed by the law itself. CONTRACTS Definition A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (1305) General Rule The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to Law, Morals, Good customs, Public order and Public policy (1306) Contracts as force of law between parties – obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith (1159) QUASI-CONTRACTS (LoVe yoU) Definition It is the juridical relation resulting from lawful, voluntary, and unilateral acts by virtue of which the parties become bound to each other to the end that no one shall be unjustly enriched or benefited at the expense of another (2142) Lawful Distinguishing it from crimes Voluntary Differentiating it from quasi-delict, which are based on fault and negligence Unilateral Distinguishing it from contract which is based on agreement OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 122 of 325 Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book (1160) Kinds of quasi-contracts 1. Negotiorum gestio (unauthorized management) 2. Solutio Indebiti (undue payment) 1. Negotiorum Gestio This takes place when a person voluntarily takes charge of another’s abandoned business or property without the owner’s authority (Article 2144) This juridical relation does not arise in either of these instances: a. When the property or business is not neglected or abandoned b. If in fact the manager has been tacitly authorized by the owner 2. Solutio Indebiti This takes place when something is received when there is no right to demand it, and it was unduly delivered thru mistake (2154) DELICTS (Obligations Ex Delicto) Governing Rules Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code Art. 100, RPC Every person criminally liable for a felony is also civilly liable Chapter 2, Preliminary title, on Human Relations (Civil Code) Title 18 of Book IV of the Civil Code - on damages What civil liability arising from a crime includes Restitution Reparation of damage caused Indemnity for consequential damages QUASI-DELICTS Definition An act or omission with fault or negligence causing damage to another; not a crime nor contract Article 2176, New Civil Code Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. Governing Rules – Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws (1162) – Title XVIII on damages – Articles 19-36 on human relations Chapter II: Effect of Obligations I. KINDS OF PRESTATION 1. Obligation to Give 2. Obligation to Do 3. Obligation Not to do OBLIGATION TO GIVE: Specific/ determinate thing Generic thing (1246) It is identified by its individuality; hence, it cannot be substituted with another although the intended substitute is of the same kind and quality. It is identified only by its specie. The debtor can give anything of the same class as long as it is of the same kind. Creditor cannot demand a thing of superior quality; neither can the debtor deliver a thing of inferior quality. *Limited Generic thing – when the generic objects are confined to a particular class, e.g., an obligation to deliver one of my horses (Tolentino) Specific/ Determinate Thing Duties of the obligor: 1. To preserve or take care of the thing due (1163) *Standard of care: that of a good father of a family unless the law or stipulation requires another standard of care 2. To deliver the thing itself (1244) 3. To deliver the fruits of the thing (Art. 1164, par. 1) *When does the right to the fruits begin to exist? From the time the duty to deliver arises: when there is no term/condition OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 123 of 325 – from the perfection of the contract when there is a term/condition – from the moment the term or condition arises 4. To deliver the accessions and accessories of the thing (Art. 1166) *Accessories - those joined to or included with the principal for the latter’s better use, perfection or enjoyment *Accessions – additions to or improvements upon a thing 5. To pay for damages in case of breach (1170) Generic Thing Duties of the obligor: 1. To deliver a thing which is of the quality intended by the parties taking into consideration the purpose of the obligation and other circumstances (1246) 2. To be liable for damages in casa of fraud, negligence, or delay, in the performance of his obligation, or contravention of the tenor itself (1170) Personal Right Real Right Before delivery After delivery Jus ad rem/ jus in personam – a right enforceable only against a definite passive subject, the debtor jus in re – a right enforceable against the world. Right pertaining to the person to demand from another, as a definite passive subject, the fulfillment of a prestation to give, to do or not to do Right pertaining to a person over a specific thing, without a passive subject individually determined against whom such right may be personally enforced Rights of a Creditor Specific Generic To compel specific performance To ask for performance of the obligation To recover damages in case of breach of the obligation, exclusive or in addition to specific performance To ask that the obligation be complied with at the expense of the debtor Entitlement to To recover fruits, interests from the time the obligation to deliver arises. damages in case of breach of obligation OBLIGATION TO DO: – To do it (1167) – To shoulder the cost if someone else does it (1167) – To undo what has been poorly done (1167) – To pay damages (1170-1172, 2201-2202) If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it is in contravention of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1167) *The creditor may demand that the obligation be performed by the debtor himself or by a third person at the expense of the debtor. However, in cases where the personal qualifications of the debtor are taken into account, the only remedy of the creditor is an action for damages. In the Balane notes, there is no action for compliance for an obligation to do because such would be involuntary servitude which is prohibited by the constitution. OBLIGATION NOT TO DO: – Not to do what should not be done – To shoulder the cost to undo what should not have been done (1168) – To pay damages (1170, 2201-2202) *If undoing is not possible, either physically or legally, or because of rights acquired by third persons who acted in good faith, or for some other reason, his remedy is an action for damages caused by the debtor’s violation of his obligation. (Manresa) II. BREACH OF OBLIGATION Voluntary - the debtor, in the performance of the obligation is guilty of fraud, negligence, delay or contravention of the tenor of the obligation Involuntary – debtor is unable to comply with his obligation because of a fortuitous event A. MODES OF BREACH (1170) 1. Fraud 2. Negligence 3. Delay 4. Contravention the tenor thereof OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 124 of 325 FRAUD It is the deliberate or intentional evasion of the normal fulfillment of an obligation. (Manresa) It implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors in judgment made in good faith. It is synonymous to bad faith. (O’leary v. Macondray & Co., Inc., G.R. No. 21383, March 25, 1924) *Responsibility arising from fraud is demandable in all obligations (fraud in the performance) *Waiver of action for future fraud is void for being contrary to law and public policy (Art. 1171) because the advance renunciation of the creditor would practically leave the obligation without effect. *Past fraud can be renounced. The fraud referred to is fraud in Article 1170, which is the malice or bad faith in the performance of the obligation. Kinds of Fraud Fraud in the Performance (Art. 1170) Fraud in the Execution Causal Fraud (dolo causante) (Art. 1338) Incidental Fraud (dolo incidente) (Art. 1344) Present during the performance of a pre- existing obligation Present during the perfection of a contract Present during the perfection of a contract Purpose is to evade the normal fulfillment of the obligation Purpose is to secure the consent of another to enter into the contract Purpose is to secure the consent of the other party but the fraud was not the principal inducement in making the contract Results in the breach of an obligation Results in vitiation of consent; voidable contract Does not result in the vitiation of consent Gives rise to a right in favor of the creditor to recover damages Gives rise to a right of an innocent party to annul the contract Gives rise to a right of an innocent party to claim for damages NEGLIGENCE (fault or culpa) It is the absence of due diligence. It is any voluntary act or omission, there being no malice, which prevents the normal fulfillment of an obligation. (1173, 1174) Distinction between fraud and negligence Fraud Negligence There is deliberate intention to cause damage. There is no deliberate intention to cause damage. Liability cannot be mitigated. Liability may be mitigated. Waiver for future fraud is void. Waiver for future negligence may be allowed in certain cases: a) gross – can never be excused in advance; against public policy b) simple – may be excused in certain cases Diligence Required 1. That agreed upon by the parties 2. In the absence of stipulation, that required by law in the particular case 3. If both the contract and law are silent, diligence of a good father of a family *Deligence of a Good Father of a Family: That reasonable diligence which an ordinary prudent person would have had under the same circumstances. Test of Negligence Did the defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary and prudent person would have used in the same situation? If not, then he is guilty of negligence. (Mandarin Villa, Inc. v. CA, 257 SCRA 538, 1996) The rule for measuring degree of care and vigilance is dependent upon the circumstances in which a person finds himself situated. (Cusi v. Phil. National Railways, 90 SCRA 357, 1979) Kinds of Culpa 1. Culpa Aquiliana (quasi-delict) – wrong or negligence committed independent of contract and without criminal intent OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 125 of 325 2. Culpa Contractual – wrong or negligence in the performance of an obligation 3. Culpa Criminal – wrong or negligence in the commission of a crime DELAY (mora) It is the non-fulfillment of an obligation with respect to time. 1 st GENERAL RULE: Delay occurs from the time of creditor’s judicial or extrajudicial demand Exception: Demand is not necessary to incur in delay when: obligation or law expressly declares time is a controlling motive demand would be useless 2 nd GENERAL RULE: In reciprocal obligations, delay happens from the moment one party fulfills his undertaking. (1169) If neither party performs his undertaking, neither incurs delay Kinds of delay 1. Mora solvendi 2. Mora accipiendi 3. Compensatio morae – the delay of the obligors in reciprocal obligations 1. Mora Solvendi There is a delay on the part of the debtor to fulfill his obligation (to give or to do) a) Mora Solvendi Ex re – default in real obligations b) Mora Solvendi Ex persona – default in personal obligations Requisites: – The obligation must be liquidated, due and demandable. – The debtor is guilty of non-performance. – There was demand made judicially or extra-judicially. Effects when these elements are present: The creditor may ask for damages/ the debtor is liable for damages The debtor is liable even if the loss is due to fortuitous events. The debtor shall bear the risk of loss. Instance when there is no default or mora solvendi: a) In negative obligations, because one can never be late in not doing or not giving something b) In natural obligations, because the performance is optional or voluntary on the part of the debtor. 2. Mora Accipiendi There is a delay on the part of the creditor to accept the performance of the obligation Requisites: 1. Offer of performance by the debtor who has the required capacity. 2. Offer must be to comply with the prestation as it should be performed. 3. Creditor refuses the performance without just cause. Effects when these elements are present: 1. The responsibility of debtor is reduced to fraud and gross negligence. 2. The debtor is exempted from risk of loss of thing or the creditor bears risk of loss. 3. The expenses incurred by the debtor for the preservation of the thing after the mora shall be chargeable to the creditor. 4. If the obligation bears interest, the debtor does not have to pay from time of delay. 5. The creditor is liable for damages. 6. The debtor may relieve himself of obligation by consigning the thing. 3. Compensatio Morae It is the delay of the parties or the obligors in reciprocal obligations. The effect is that it is as if there is no default. Rules on Mora, Delay or Default Unilateral Obligations Reciprocal Obligations General Rule: “No demand – no delay.” The mere expiration of the period fixed by the parties is not enough in order that the debtor may incur in delay. One party incurs in delay from the moment the other party fulfills his obligation, while he himself does not comply or is not ready to comply in a proper manner with what is incumbent upon him. The general rule is that fulfillment by both parties should be simultaneous. Exception: when the obligation or law expressly declares when time is of the essence in the contract when the demand would be useless when the debtor acknowledged When different dates for the performance of obligation is fixed by the parties. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 126 of 325 that he is in default It is not enough that there is a specific date of performance, the words “without the need of demand” should appear in the face of the instrument. The demand is still necessary only when the respective obligations are to be performed on separate dates. If neither party complies with the prestation, the default on one compensates the default of another. *Delay in payment of money is indemnified through interest unless a gratuitous mutuum or simple loan. If no stipulated interest, default interest is (6%) six percent. (2209) *If obligation consists in payment of a sum of money, and debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. (2209) *When there is delay, the injured party may ask for damages. But this benefit arising from Mora, default or delay may cease upon: - Renunciation of the creditor - Prescription of action - Extension of time for the fulfillment of the obligation Bragaza v. CA A contract was entered into for delivery of materials on Dec. 22, 1990 in time for the aggrieved party’s wife who expressly wished that she be buried before Christmas day, and where, despite knowing this timetable and having been paid for the materials, the supplier failed to make the delivery despite pleas and earnest follow-ups by the widower. Supreme Court ruled that time was of the essence of such contract and the supplier should be liable for the delay and breach. N.B. Example of incurring delay without judicial or extrajudicial demand. (#2)Time is of the essence. Contract was entered into in view of burial before Christmas. Agcaoili v. GSIS The parties entered into a contract of sale of a government housing unit on the condition that Agcaoili should occupy the same within three days from the receipt of notice. Failure to immediately occupy contractually allowed GSIS to terminate the contract. Agcaoli upon receipt of notice, immediately went to the place and found a house in a state of incompleteness that civilized occupation was not possible. He made the first monthly installment but refused to make further payments until and unless GSIS completed the housing unit. GSIS cancelled the award and required Agcaoili to vacate the premises. Held: GSIS had no right to rescind sale. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (1169, par. 6) CONTRAVENTION TO THE TENOR OF THE OBLIGATION This is the violation of the terms and conditions stipulated in the obligation. And such contravention must not be due to a fortuitous event or force majeure. In general, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby. The phrase “in any manner contravenes the tenor” means any illicit act, which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. It is therefore immaterial whether or not the actor is in bad faith or negligent, what is required is that it is his fault or the act done contravenes their agreement. B. FORTUITOUS EVENTS DEFINITION Events which could not be foreseen, or which though foreseen are inevitable. (Article 1174) Act of God An act of God is defined as an accident, due directly and exclusively to natural causes without human intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. (Nakpil v. CA) Act of Man In contrast, force majeure is a superior or irresistible force, which is essentially an act of man, such as wars, strikes, riots, acts of robbers, pirates, and brigands. *In our law, acts of man and acts of God are identical in so far as they exempt an obligor from liability because the events happened independent of the will of the obligor. (Republic v. Stevedoring Corp., 21 SCRA 279, 1967 and UST v. Descals, 38 Phil. 287, 1918) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 127 of 325 Kinds of Fortuitous Events 1. Ordinary – those which are common and which the contracting parties could easily foresee. 2. Extraordinary – those which are uncommon and which the contracting parties could not have reasonably foreseen. (see 1680) General Rule Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligations requires assumption of risk, no person shall be responsible for those events which, could not be foreseen, or which though foreseeable, are inevitable. *When a debtor is unable to fulfill his obligation because of fortuitous events or force majeure, his obligation to comply is extinguished subject to the following exceptions: – cases expressly specified by law (i.e., 552(2), 1165, 1268, 1942, 2147, 2148, 2159) – declared by stipulation – nature of the obligation requires the assumption of risk (1174) – when the obligor is in default or has promised to deliver the same thing to two or more persons who do not have the same interests. (1165(3)) Requisites for exemption 1. cause of event or debtor’s failure independent of human will 2. impossible to foresee or avoid 3. impossible for debtor to fulfill his obligation in a normal manner 4. debtor free from participation in the aggravation of the injury to the creditor (Nakpil v. CA and Lasam v. Smith) *It must be the ONLY and SOLE cause, not merely a proximate cause. Effect of Concurrent Fault One who negligently creates a dangerous situation cannot escape liability for the natural and probable consequences thereof although an act of God intervened to precipitate the loss. There must be no fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation. (Nakpil v. CA) When the effect is found to be in part the result of the participation of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and removed from the rules applicable to the acts of God. (NAPOCOR v. CA, 211 SCRA 162, 1992) Herbosa v. CA 374 SCRA 578 (2002) PVE, a subsidiary of SD, Inc., was not able to cover the wedding celebration of EH and RH allegedly due to the gross negligence of the crew and the lack of supervision from PVE’s general manager. Held: PVE or SD, Inc. cannot take refuge under Article 1280 of the New Civil Code. The defense that they exercised due care in the selection and supervision of their employees can only be availed of when the liability arises from culpa aquiliana and not from culpa contractual. C. REMEDIES OF CREDITORS GENERAL RULE Rights acquired by virtue of an obligation are transmissible in character. Exception a) when they are not transmissible by their very nature (Personal obligation) b) when there is Stipulation of the parties that they are not transmissible c) when they are not transmissible by operation of Law Rights of Creditor against Debtor (E-PAA, electronic paa/foot or e-foot) 1. Exact fulfillment – to demand fulfillment of the obligation or specific performance – either specific, substitute or equivalent performance 2. Pursue the leviable – to attach the properties of the debtor, except those exempt by law, from execution. 3. Accion subrogatoria 4. Accion Pauliana Accion Subrogatoria Definition Novation via change of creditor (1291, par. 3); This involves the right of the creditor to exercise all of the rights and bring all of the actions which the debtor may have against third persons. Requisites 1. Creditor must have the right of return against debtor 2. The debt is due and demandable OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 128 of 325 3. There is a failure of the debtor to collect his own debt from 3 rd persons either through malice or negligence 4. The debtor's assets are insufficient 5. The right of account is not purely personal Accion Pauliana Definition Rescission, which involves the right of the creditor to attack or impugn by means of a rescissory action any act of the debtor which is in fraud and to the prejudice of his rights as creditor. Requisites 1. There is a credit in favor of plaintiff 2. The debtor has performed an act subsequent to the contract, giving advantage to other persons 3. The creditor has no other legal remedy 4. The debtor's acts are fraudulent 5. The creditor is prejudiced by the debtor's act which are in favor of 3 rd parties and rescission will benefit the creditor Chapter III: Different Kinds of Obligations PRIMARY CLASSIFICATION (PaPA, Just Don’t Preach) 1. Pure and conditional obligations (1179- 1192) 2. Obligations with a Period (1193-1198) 3. Alternative obligations (1199-1206) 4. Joint and solidary obligations (1207-1222) 5. Divisible and indivisible obligations (1223- 1225) 6. Obligations with a Penal clause (1226- 1230) SECONDARY CLASSIFICATION (U R D PoLiCe) 1. Unilateral and bilateral 2. Real and personal 3. Determinate and indeterminate 4. Positive and negative 5. Legal and conventional 6. Civil and natural Classification according to Sanchez Roman: 1. Juridical quality and efficaciousness 2. By parties or subject 3. By the object of the obligation or prestation 4. By their juridical perfection and extinguishment Juridical quality and efficaciousness a. Civil obligations b. Natural obligations c. Mixed – according to natural and civil law By the parties or subject a. Unilateral or Bilateral b. Individual or Collective c. Joint or Solidary By the object of the obligation or prestation a. Specific or Generic b. Positive or Negative c. Real or Personal d. Possible or Impossible e. Divisible or Indivisible f. Principal or Accessory g. Simple or Compound If compound: Conjunctive (demandable at the same time) Distributive (alternative or facultative) By their juridical perfection or fulfillment a. Pure or Conditional b. With a Period I. PURE AND CONDITIONAL OBLIGATIONS PURE OBLIGATION The effectivity or extinguishment is not subject to any condition and no specific date is mentioned for its fulfillment and is, therefore, immediately demandable. (1179, par. 1) CONDITIONAL OBLIGATION The consequences are subject in one way or another to the fulfillment of a condition. Condition It is a future and uncertain event, upon the happening of which, the effectivity or extinguishment of an obligation (or rights) subject to it depends. Term A day certain is understood to be that which must necessarily come, although it may not be known when. *Difference between conditional and those with a term: There is uncertainty or certainty of day or time. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section. (1193) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 129 of 325 Pay v. Viuda de Palanca The debtor issued a promissory note to the creditor to pay a sum of money payable upon receipt of a particular sum of money from the estate of a certain deceased person upon demand. The case for collection on the note was filed 15 years after its execution. The Supreme Court ruled that, since the prescriptive period for filing the action was 10 years and considering that the promissory note’s payment constituted a pure obligation and therefore demandable at once, the action to collect could no longer prosper. It was deemed pure since satisfaction of credit could be realized either through the debtor sued receiving the cash payment from the estate of the deceased or “upon demand”. Classification of Conditions 1. As to effect a. Suspensive b. Resolutory 2. As to form a. Express – the condition is clearly stated b. Implied – the condition is merely inferred 3. As to possibility a. Possible b. Impossible 4. As to cause or origin a. Potestative b. Casual c. Mixed 5. As to mode a. Positive – the condition consists in the performance of an act (1184) b. Negative – the condition consists in the omission of an act 6. As to numbers a. Conjunctive – there are several conditions and all must be fulfilled b. Disjunctive – there are several conditions and only one or some of them must be fulfilled 7. As to divisibility a. Divisible – the condition is susceptible of partial performance b. Indivisible – the condition is not susceptible of partial performance Suspensive and Resolutory (1179) SUSPENSIVE CONDITION (Condition precedent or condition antecedent) It suspends the acquisition of rights until the conditions are fulfilled; that is, until the happening of the uncertain event which constitutes the condition. RESOLUTORY CONDITION (Condition subsequent) It causes the extinguishment or loss of rights already acquired upon the fulfillment of the condition, that is, the happening of the event which constitutes the condition. In other words, the fulfillment of which will extinguish an obligation (or right) already existing. Suspensive Resolutory When it is fulfilled, the obligation arises. The obligation is extinguished. When it takes place, the tie of law (juridical or legal tie) does not appear The tie of law is consolidated Until it takes place, the existence of the obligation is a mere hope Its effects flow, but over it, hovers the possibility of termination Effect: The acquisition of rights The loss (termination) of rights already acquired (Manresa) Potestative, Casual and Mixed (1182) POTESTATIVE CONDITION (facultative condition) It is a condition which is suspensive in nature and which depends upon the sole will of one of the contracting parties. Suspensive condition Resolutory condition Depends upon the will of the debtor The condition and obligation are void because the validity and compliance are left to the will of the debtor and it cannot, therefore, be legally demanded as it will cause the debtor not to fulfill the condition to escape liability. Except when the obligation is a pre- existing one; hence, only the The condition and obligation are still valid because the debtor is interested in the fulfillment of a condition which causes the extinguishment or loss of rights already acquired by the creditor. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 130 of 325 condition is void. Depends upon the will of the creditor The condition and obligation are valid because the creditor is interested in the fulfillment of the obligation as it will benefit him. CASUAL CONDITION The condition depends upon chance or the will of a third person. MIXED CONDITION The condition depends partly on the will of a party and partly on chance or the will of a 3 rd person. The obligation is valid if the suspensive condition depends partly upon chance and partly upon the will of a third person. (Naga Telephone, Co., Inc. v. CA, 230 SCRA 351, 1994) Possible and Impossible Conditions (1183) *Applies to suspensive conditions. POSSIBLE CONDITIONS The condition is capable of fulfillment, legally and physically. IMPOSSIBLE CONDITIONS The condition is not capable of fulfillment, legally or physically. Two Kinds 1. Physically impossible conditions – those, in the nature of things, cannot exist or cannot be undone. 2. Legally impossible conditions – those which are contrary to law, morals, good customs, public order and public policy. General Rule They shall annul the obligation which depends upon them Exceptions 1. pre-existing obligation 2. divisible obligations 3. simple or remuneratory donations 4. testamentary dispositions 5. in case of conditions not to do an impossible thing Effect It renders the conditional obligation void since the obligor knows that his obligation cannot be fulfilled; thus, showing that he has no intention to comply with his obligation. Effects of Impossible and Illegal Conditions If the condition is: 1. To do an impossible or illegal thing, the condition and the obligation are void. 2. Negative (not to do an illegal thing), the condition and the obligation are valid. 3. Negative (not to do the impossible thing), disregard the condition, however, the obligation remains. Positive and Negative Conditions POSITIVE CONDITION (suspensive) The obligation is extinguished: a) as soon as the time expires without the event taking place b) as soon as it has become indubitable that the event will not take place although the time specified has not yet expired (1184) NEGATIVE CONDITION (suspensive) The obligation becomes effective: a) from the moment the time indicated has elapsed without the event taking place; or b) from the moment it has become evident that the event cannot occur, although the time indicated has not yet elapsed (1185) Constructive Fulfillment (1186) For Suspensive Conditions Requisites 1. The condition is suspensive; 2. The obligor actually prevents the fulfillment of the condition; and 3. He acts voluntarily. For Resolutory Condition This also applies to a resolutory condition when the debtor is bound to return what he has received upon fulfillment of the condition. Effects of Suspensive Conditions 1. Before the condition is fulfilled, the demandability and acquisition or effectivity OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 131 of 325 of the rights arising from the obligation is suspended. 2. After the condition has been fulfilled, the obligation arises or becomes effective. 3. The effects of a conditional obligation to give, once the condition has been fulfilled shall retroact to the day the obligation was constituted. *The law allows retroactivity because the condition is not an essential requisite of an obligation. 1. When the obligation imposes reciprocal prestations upon the parties, the fruits and interests shall be deemed to have been mutually compensated (this assumes a simultaneous performance of prestations). *The fruits are mutually compensated for convenience. 2. In a unilateral obligation, the debtor shall appropriate the fruits and interests received unless the intention constituting such was different. 3. In obligations to do or not to do, the court shall determine the retroactive effect of the condition that has been complied with. Rights Pending Fulfillment of a Suspensive Condition Of the creditor Of the debtor He may take or bring appropriate actions for the preservation of his right, as the debtor may render nugatory the obligation upon the happening of the condition. He is entitled to recover what he has paid by mistake prior to the happening og the suspensive condition. Loss, Deterioration or Improvement Pending the Happening of the Condition (1189) Requisites for 1189 to apply 6. The obligation is a real obligation; 7. The object is a specific or determinate thing; 8. The condition is subject to a suspensive condition; 9. The condition is fulfilled; and 10. There is loss, deterioration, or improvement of the thing during the pendency of the the condition. LOSS Kinds of loss 1. Physical loss (the thing perishes) 2. Legal loss (the thing goes out of commerce) 3. Civil loss (the thing disappears and the existence is unknown or unrecoverable as a matter of fact or of law) Rules 1. When the thing is lost without the debtor’s fault, the obligation is extinguished. 2. When the thing is lost with the debtor’s fault, the debtor pays for damages. DETERIORATION Rules 1. When the thing deteriorates without the debtor’s fault, the creditor will suffer the deterioration of impairment. 2. When the thing deteriorates with the debtor’s fault, the creditor may choose between: a. Rescission (cancellation) of the obligation with indemnity for damages, or b. Fulfillment of the obligation also with damages IMPROVEMENT Rules 1. When the thing is improved by nature or by time, the improvement shall inure to the benefit of the creditor. 2. When the thing is improved at the expense of the debtor, the debtor shall have no other right than that granted to a usufructuary. Effect of the Fulfillment of Resolutory Conditions (1190) 1. Extinguishment of the obligation 2. Mutual restitution (the parties restore to each other what they have received including the fruits and interest) 3. Art. 1189 applies to whoever has the duty to return in case of loss, deterioration or improvement of the thing 4. If the obligation is to do or not to do, the courts determine the retroactivity of the fulfillment of the condition as stated in 1187 Kinds of Obligation according to the Person Obliged UNILATERAL OBLIGATION It is when only one party is obliged to comply with a prestation. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 132 of 325 BILATERAL OBLIGATION It is when both parties are mutually bound to each other making them both the debtors and creditors of each other. It may be: – reciprocal, or – non-reciprocal Reciprocal Obligations Those which arise from the same cause and in which each party is debtor and creditor of the other. Implied Condition There must be compliance by the other with the duties incumbent upon him as party to the debt. In reciprocal obligations, a party cannot demand unless he complies or is ready to comply with obligations (inferred from 1169). *This is subject to same rules on interim obligations and interim remedies. Non-Reciprocal Obligations Those which do not impose simultaneous and correlative performance on both parties. The performance of one party does not depend upon the simultaneous performance of another. Remedies in Reciprocal Obligations RESCISSION IN ARTICLE 1191 The power to rescind means the right to cancel or to resolve the contract in case of non-fulfillment of the obligation on the part of one of the parties. It is the breach of faith committed by the person who is supposed to comply with obligation. It is not the rescission in 1380 which involves damage or lesion, or injury to the economic interest of a person. Characteristics 1. It only exists in reciprocal obligations. 2. It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and the other is not. (Seva v. Berwia, 48 Phil. 581) General Rule Judicial approval is necessary for rescission, except: a. When the object is not yet delivered b. When, even if there has been delivery, the contract states that either party can rescind the same or take possession of the property upon non-fulfillment of the obligation by the other party. By one party: (1191) 1. Implied in reciprocal obligations, when the other does not comply 2. Power to rescind plus damages 3. Compel fulfillment and then rescind if such becomes impossible 4. The Court decrees rescission unless just cause for authorizing a period 5. Must be without prejudice to third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. By both parties: (1192) In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. 1. Rule against the first infractor, as tempered by courts 2. If first infractor cannot be determined, obligation extinguished *Rescission should be done judicially unless stipulated in the contract. Rescission will only be granted if breach of the obligation is substantial and not mere occasional malfunction of the machine without even an allegation of loss of income. (Philippine Amusement Enterprises, Inc. v. Natividad) *Injured party has the power to rescind but only through the courts in proper proceedings. (Ocejo v. International Banking Corp.) UP v. de los Angeles The parties stipulated rescission of logging agreements without the need for any judicial pronouncement. N.B. Judicial pronouncement of rescission was unnecessary as it was clearly expressed in their contract. No law prohibits parties from entering agreements wherein violation of the terms of contract would cause cancellation even without court intervention. Rescission on account of infractions by the other party by one of the parties must be made known to that other party who in turn can seek for judicial remedy should he feel that rescission is unjustified. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 133 of 325 Obligations Rendered Void By Certain Conditions Annulling conditions: a. Potestative – only if suspensive condition is solely upon the will of the debtor (1182) b. Impossible Conditions (1183) c. those contrary to law, good customs, morals, public order or public policy (1183) d. Not to do an impossible thing – not agreed upon (1183, par. 2) Lao Lim v. CA The stipulation that the lessee has the right to renew contract of lease as long as he needs the premises and he can pay for the same is invalid. It would leave the lessee, Dy, the sole power to determine whether the lease should continue or not. The lease contract is deemed extinguished at the end of a year, subject to renewal by means of a new agreement but since the lessor did not want to renew, there is no more lease. Romero v. CA This case shows that one cannot rescind a contract on account of one’s own failure to fulfill an obligation. Ducusin v. CA Only that which is dependent on the sole will of the debtor is invalid. No one is supposed to have sole power. In this case, since the condition is dependent on the will of third persons, the condition was held to be valid. II. OBLIGATIONS WITH A TERM Those whose consequences are subjected in one way or another to the expiration of a period or term. (Manresa, Lirag Textiles, Inc. v. CA, 63 SCRA 374, 1975) PERIOD or TERM It is a future and certain event upon the arrival of which the obligation (or right) subject to it either arises or is terminated. *The demandability is suspended by the term, not the acquisition of the right or the effectivity of the obligation. *Fortuitous events do interrupt the running of the period. Distinguishing a period from a condition Period/ Term Condition As to fulfillment Certain event Uncertain event As to time Refers only to the May also refer to a past event future unknown to parties As to influence on the obligation – Merely fixes the time for the efficaciousness of the obligation. – If suspensive, it cannot prevent the birth of the obligation in due time. – If resolutory, it does not annul, even in fiction, the fact of its existence. It causes an obligation to arise or be terminated. As to effect, when left to the debtor’s will – Depends upon the will of the debtor empowers the court to fix its duration Depends upon the sole will of the debtor, thus, invalidates the obligation As to retroactivity of effects – Unless stipulated, the arrival of a period has no retroactive effect. The happening of the condition has retroactive effect. Classifications of Term/ Period 1. According to effect a. suspensive period (ex die) – obligation becomes demandable only upon the arrival of a certain day b. resolutory period (in diem) – obligation is valid up to a day certain and terminated upon the arrival of period. 2. According to source a. legal period – provided for by law b. conventional/ voluntary period – agreed to by the parties c. judicial period – fixed by the court 3. According to definiteness a. definite period – fixed or the coming of which is known b. indefinite period – not fixed or the coming of which is not known (usually, the law empowers the courts to fix the period) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 134 of 325 Requisites of Period/ Term It must refer to the future. It must be certain. It must be possible. Effect of payment before the arrival of the period The debtor may recover what he has paid including the fruits and interest if he is unaware of the period or believed that the obligation has become due and demandable (1195). If he paid voluntarily knowing that the obligation is not yet due, he cannot recover what he has paid. General Rule The period attached to the obligation is for the benefit of both parties. Exception When it appears from the tenor of the obligation or other circumstances that the period has been established in favor of one or the other subject to an express stipulation of the parties, the period may be benefit the debtor or the creditor alone. Period for the benefit of the debtor alone: The debtor cannot be compelled to pay prematurely, however, he may renounce the benefit of the period by performing his obligation in advance. (Manresa) Period for the benefit of the creditor alone: The creditor may demand fulfillment even before the arrival of the term but the debtor cannot compel him to accept before the expiration of the period (i.e., “on demand”). Interim obligations In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be observed. i. Exercise due diligence; otherwise, responsibility for loss, deterioration (1189) ii. Improvement inures to creditor, if at expense of debtor only usufructuary right (1189) iii. Recover payment or delivery before due and demandable ABESAMIS V. WOODCRAFT WORKS, INC. THE CONTRACT PROVIDED THAT THE APPELLANT SHALL MAKE SHIPMENT BEFORE THE END OF JULY, BUT WILL NOT COMMENCE EARLIER THAN APRIL WITH THE OPTION TO MAKE PARTIAL SHIPMENT DEPENDING ON THE AVAILABILITY OF LOGS AND VESSELS. THE SUPREME COURT, IN DECIDING WHO WAS TO BEAR THE LOSS AS A RESULT OF THE TYPHOON IN A CONTRACT FOR DELIVERY OF LOGS, RULED THAT THE QUOTED PROVISION PROVIDES FOR A PERIOD. THE DESIGNATED TIME WAS CALCULATED TO AVOID TYPHOONS. ON MAY 5, 1951 THE APPELLANT FAILED TO SEND A VESSEL TO PICK UP THE LOGS, WHICH WERE CONSEQUENTLY SWEPT AWAY BY A TYPHOON. SINCE THE SAID DATE WAS WITHIN THE PERIOD PRESCRIBED, NONE OF THE PARTIES COULD INCUR DELAY NOR DEMAND PERFORMANCE. THE LOSS SHOULD BE SHOULDERED BY THE APPELLEE OR THE LOGGER. FIXING OF A PERIOD The Court May Fix a Period When: 1. There is no express stipulation, but a period is intended by the parties as can be inferred from the nature and circumstances of the obligation. 2. If the duration of the period depends upon the will of the debtor. 3. If the debtor promises to pay when his means permit him to do so. (1197) The Court May NOT Fix a Period When: 1. When no term has been specified by the parties because no term was ever intended, in which case it is considered a pure obligation. 2. When the obligation is payable on demand. 3. When specified period is provided by law. Araneta, Inc. v. Philippine Sugar Estates Development Co., Ltd. The parties in the case intended to defer performance of obligations until after the squatters were duly evicted. Although it was indefinite, such was the intention of the parties and courts could not just assign a period out of thin air. The requisite and guideline for setting a period is when there is no period specified but such was intended, courts should just fix a period, which the parties could have intended. Reasons for Fixing a Period 1. There can be no possibility of any breach of contract or failure to perform the obligation unless the period is fixed by the courts. 2. When the court has not yet fixed the period, it is premature to collect. A Debtor Loses the Right to Make Use of a Period (when the creditor can demand even when the obligation is not yet due) (1198) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 135 of 325 1. When after contracting the obligation, the debtor suffers from insolvency, unless he gives guaranties or securities for the debt 2. When the debtor does not furnish promised guaranties or securities he promised 3. When by his own act, the debtor has impaired established guaranties or securities and when through a fortuitous event they disappear, unless he gives new ones equally satisfactory when the debtor violates any undertaking in consideration of which the creditor agreed to the period 4. When the debtor attempts to abscond. *IN ALL THE CASES ABOVE, DESPITE THE FACT THAT THE PERIOD HAS NOT YET LAPSED, THE OBLIGATION SHALL BECOME IMMEDIATELY PAYABLE OR DEMANDABLE. *THE WORD “INSOLVENT” DOES NOT REQUIRE A JUDICIAL DECREE OF INSOLVENCY. IT SHOULD BE UNDERSTOOD IN ITS ORDINARY MEANING WHICH MAY EMBRACE DIFFERENT DEGREES OF FINANCIAL EMBARRASSMENT. THE INSOLVENCY MUST HAVE OCCURRED AFTER THE OBLIGATION WAS CONSTITUTED. Gaite v. Fonacier Payment of obligation was secured by two surety bonds: one from a mining company and its stockholders and the other from a bonding company. The obligor was obliged to pay the indebtedness from the time it received the proceeds of the sale of iron ore, the Supreme Court ruled that the obligor in this case lost its right to the period. Failure to renew an expired surety with the bonding company constituted an impairment of the securities or guaranties. Thus, Fonacier lost his right to the period, i.e. time to sell the iron ore, unless he immediately gives new ones equally satisfactory. III. ALTERNATIVE OBLIGATIONS Kinds of Obligation according to Object 1. Simple obligation – one where there is only one prestation 2. Compound obligation – one where there are two or more prestations a. Conjunctive obligation – one where there are several prestations and all of them are due b. Distributive obligation – one where one of two or more of the prestations is due *A distributive obligation may be – alternative (1199), or – facultative (1206) ALTERNATIVE OBLIGATION It is one wherein various prestations are due but the performance of one of them is sufficiently determined by the choice which, as a general rule, belongs to the debtor. (Manresa) FACULTATIVE OBLIGATION It one where only one prestation has been agreed upon but the obligor may render another in substitution. Distinguising Alternative and Facultative Obligations Alternative Facultative Number of prestations Several prestations are due but compliance with one is sufficient Only one prestation is due although the debtor is allowed to substitute another Right of choice May be given to the creditor or to a third person The right to make the substitution is given only to the debtor Loss through a fortuitous event The loss of one or more of the alternatives does not extinguish the obligation The loss of the thing due extinguishes the obligation. Loss through fault of debtor a) Does not render the debtor liable b) Where the choice belongs to the creditor, the loss of one alternative gives rise to liability a) The debtor is liable b) The loss of the substitute before the substitution does not render the debtor liable Nullity of prestation a) The nullity of one prestation does not invalidate the others b) the debtor or creditor should choose from among the remainder a) The nullity of the prestation agreed upon invalidates the obligation b) the debtor is not bound to choose the substitute OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 136 of 325 Right of Choice General Rule The right of choice belongs to the debtor. Except: When expressly granted to the creditor, or When expressly granted to a third person *A right of choice becomes a simple obligation when a person who has a right of choice has communicated his choice and that one choice is the only practicable one (i.e., the others may have become illegal or impossible). (1202) Limitations on the Debtor’s Right of Choice 1. The debtor cannot choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1200) 2. The debtor has no more right of choice when among the prestations whereby he is alternatively bound, only one is practicable. 3. The debtor cannot choose the part of one prestation and part of another. The Right of Choice belongs to the Debtor As a general rule, in alternative obligations, the right of choice belongs to the debtor. However, the debtor may expressly give the right of choice to the creditor. Rules in Alternative Obligations Debtor’s choice Creditor’s choice Due to a Fortuitous Event All Extinguish Extinguish Some Deliver any of the remaining Deliver any of the remaining One Deliver Deliver Debtor’s Fault All Value of the last thing lost and damages Value of any of the things and damages Some Deliver any of the remaining, no damages Value of the thing lost, damages or any of the remaining One Deliver, no damages Loss of Last Thing Extinguish Value of any of the things lost due to the creditor’s fault and damages Rules in Facultative Obligations Before Substitution After Substitution Loss of the Principal Fortuitous Event The obligation is extinguished The debtor is not liable whatever may be the cause Fault of Debtor The debtor is liable for damages Loss of the Substitute The debtor is not liable whether the loss is due to the fault of the debtor or to a fortuitous event. Fortuitous Event The obligation is extinguished Fault of Debtor The debtor is liable for damages IV. JOINT AND SOLIDARY OBLIGATIONS JOINT OBLIGATIONS Obligacion Mancomunada It is an obligation where the whole liability is to be paid or fulfilled proportionately by the different debtors; and/or is to be demanded proportionately by the different creditors. SOLIDARY OBLIGATION Obligacion Solidaria It is an obligation where each one of the debtors is bound to render, and/ or each one of the creditors has a right to demand compliance with the prestation. (1207) *In a joint obligation, each debtor shall be liable only for his part of the debt presumed to be equal with the other debtors. The above provision is consistent with the rule that a joint obligation is presumed in case of plurality of debtors or creditors for solidary obligation exists only when the law so provides, when expressly stipulated by the parties or when called for by the nature of the obligation. (Jurado) (see 1208) General Rule By default, collective obligations are presumed to be joint if there is concurrence of two or more debtors and/ or creditors. Solidarity exists only 1. When Stipulated by the parties using such words like “jointly and severally,” “in solidum,” “I promise to pay” in a note signed by two or more debtors, or similar words. (conventional solidarity) 2. When solidary liability is provided by Law, hence, civil liability arising from crimes, OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 137 of 325 negotiorum gestio, commodatum or quasi- delict shall be solidary. (legal solidarity) 3. When the Nature of the obligation requires solidarity. 4. When a charge or condition is imposed upon heirs or legatees, and the Testament expressly makes the charge or condition “in solidum”. 5. When a solidary responsibility is imputed by a Final judgment upon several defendants. Some Features of Joint Liability 1. Insolvency of one debtor does not make the others liable. 2. Vitiated consent on the part of one debtor does not affect the others. 3. Demand made to one of the debtors is not a demand to all because the debt of one is distinct from the others. *In a given contract, wherein a party signs as a surety but the agreement states joint and several liabilities, there is a solidary obligation. (Jaucian v. Querol) Kinds of Solidarity (PAMela Anderson) 1. Passive Solidarity 2. Active Solidarity 3. Mixed Solidarity – solidarity among creditors and debtors Passive Solidarity Active Solidarity Solidarity of debtors Solidarity of creditors Any one of the debtors can be made liable for the fulfillment of the entire obligation, with the consequent right to demand from the others their corresponding shares in the liability. Any one of the creditors may demand fulfillment of the entire obligation. It is in the nature of a mutual guaranty. Its essential feature is that of mutual representation. Joint Indivisibility A joint indivisible obligation is one in which the object or prestation is indivisible, not susceptible of division; while the tie between the parties is joint, that is, liable only to a proportionate share. (1209) *In a joint indivisible obligation, the liabilities of the debtors or the rights of the creditors are joint, but they are indivisible as to compliance. (1224) The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to all like interruption of prescription may be performed by one of the creditors. Indivisible obligations are not necessarily solidary (1210) Indivisibility Solidarity Refers to the prestation Refers to the legal or juridical tie binding the parties Only the debtor who is guilty of breach of obligation is liable for damages, thereby terminating the agency. All of the debtors are liable for the breach of obligation committed by any one of the debtrs. Can exist even if there is only one debtor or one creditor Can only exist when there is at least two debtors or creditors The others are not liable in case of insolvency of one debtor The others are proportionately liable in case of insolvency of one debtor Characteristics 1. Demand must be made to all the joint debtors. 2. The creditor must proceed against all the joint debtors, because the compliance of the obligation is possible only if all of the joint debtors would act together. 3. If one of the debtors is insolvent, the other(s) shall not be liable for his share. 4. If one of the debtors cannot comply, the obligation is converted into monetary consideration. One who is ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share plus damages when his financial condition improves. 5. If there is more than one creditor, delivery must be made to all, unless one is authorized to receive for the others. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 138 of 325 RULES 1. GIVES RISE TO INDEMNITY FOR DAMAGES: NON-COMPLIANCE WITH UNDERTAKING (1224) 2. DEBTORS READY TO FULFILL SHALL NOT BE LIABLE (1224) *AS ALREADY STATED, IN A JOINT INDIVISIBLE OBLIGATION, A SUIT FOR SPECIFIC PERFORMANCE MUST BE DIRECTED AGAINST ALL THE DEBTORS AND IF ANY ONE OF THEM IS NOT WILLING TO FULFILL, THE ACTION SHALL BE CONVERTED INTO ONE FOR DAMAGES WHERE THE DEBTORS SHALL BE LIABLE FOR THEIR RESPECTIVE SHARES WHILE THE UNWILLING DEBTOR SHALL PAY HIS SHARE PLUS DAMAGES FOR HE ALONE SHALL BE LIABLE FOR DAMAGES, THE OTHER DEBTORS BEING WILLING TO DELIVER. 3. Prejudiced only by collective acts of ALL creditors / enforced against ALL debtors (1209) *Article 1209 contemplates an obligation which is joint as to the parties but indivisible as to compliance. The concurrence of all the creditors is necessary for demanding compliance due to the indivisibility of the obligation. The same is inversely true as regards the debtors. The concurrence of all the creditors is also necessary for acts which are prejudicial. But an act beneficial to all like interruption of prescription may be performed by one of the creditor. Inchausti & Co. v. Yulo Six brothers and sisters admitted solidary liability. Gregorio Yulo was sued for payment of entire indebtedness. However, solidary debtors Francisco, Manuel and Carmen entered into a compromise agreement with plaintiff. Gregorio was ordered to pay the part of the reduced indebtedness, only insofar as such is demandable. Greg Yulo was solidarily liable, he benefited from the remission, but not the extension of the period for payment, thus there was partial demandability. Debtor/ Passive Solidarity Distinguished From Suretyship By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. A solidary guaranty is suretyship. Suretyship If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. (2047) Distinguishing Suretyship from Solidarity 1. A surety does not have an actual loan of his own, solidary debtor is also liable for his own debt in addition to that of others. 2. After paying the debt, a surety has right to collect from principal debtor, while a solidary debtor has right to collect from solidary co-debtor. 3. Most importantly, an extension of time would benefit the surety and such would not benefit solidary co-debtors who did not know or consent to an extension of time. (Villa v. Garcia Bosque) (Jurado) Rights of solidary creditor/s 1. Do only what is useful to others, nothing prejudicial to co-creditors. (1212) 2. There is no assignment without the consent of others (1213) *The consent of the other co-solidary creditors is necessary because they may not trust the new creditor who would thereby be entitled to collect the entire debt. (Jurado) 3. Anyone has right to receive the payment; but the first one to demand receives the payment. (1214) *Payment made by the debtor to any one of the solidary creditors extinguishes the obligation. If one of the solidary creditors demands payment of the debt, he has the right to do so and payment must be made to him. (Jurado) Quiombing v. CA Only one of the solidary creditors filed a suit for collection against the solidary debtors. The debtors moved for the dismissal of the suit on the ground that the other solidary creditors should have been included in the case. The Supreme Court rejected the dismissal of the suit invoking Art. 1212 and stated that recovery of the contract price was surely a useful act and can be done even by one solidary creditor. Furthermore, the question as to who should sue was a personal issue among the solidary creditors. N.B. As to who sues for recovery of the obligation should not matter to the debtors as they are wholly obligated to either one of the solidary creditors. 4. Action against and payment by solidary debtor. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 139 of 325 a. Proceed against anyone, some, or all of them simultaneously (1216) b. Demand against one: not obstacle for demand against another, unless paid (1216) Effect of Loss or Impossibility 1. Without any fault of any of the debtors: Extinguishment (1221) 2. With fault of any of the debtors: all are responsible but co-debtors have a right against negligent debtor 3. Due to a fortuitous event, but with delay: all are responsible with right of action against the negligent debtor Rules of Payment in Solidary Obligations 1. The creditor may proceed against any one of the solidary debtors or some or all of them as long as the debt has not been fully collected. (1316) 2. Payment made by one of the solidary debtors extinguishes the obligation. (1217) 3. If two or more debtors offer to pay, the creditor may choose which offer to accept. (1217) 4. The paying debtor may ask for reimbursement with interest from his co- debtors. (1217) 5. The share of the insolvent debtor shall be borne by all his co-debtors, pro-rata. (1217) 6. There shall be no reimbursement if the solidary debtor paid AFTER the obligation has prescribed or has become illegal. (1218) Rights of Solidary Debtor 1. Set-up all defenses 2. Right of action against solidary co-debtors Set-up Defenses (1222) a. Defenses derived from the nature of the obligation available to all debtors as a defense to compliance with the entire obligation; b. Defenses personal to the debtor like minority, insanity, civil interdiction, etc. not available to the other debtors so as to free the latter from their liability for their own shares in the obligation; c. Defenses that pertain to his co- debtor(s), like the existence of a period or condition available only as regards the share of such co-debtor(s) for solidarity may exist even if the debtors are bound under different periods or conditions. Imperial Insurance, Inc. v. David Husband and wife bound themselves solidarily in favor of obligee for a sum of money and when the husband died, the obligee demanded payment from the wife who resisted payment, claiming that the obligee’s claim is barred by it’s failure to file a claim in the intestate proceeding of the deceased husband. The Supreme Court ruled that the obligee can properly claim from the wife as the nature of the obligation is solidary. N.B. If obligation were solidary, the entire obligation is demandable from anyone of the solidary obligors. Right of action against solidary co-debtors The payor of the obligation may claim from each co-debtor his share of the debt with interest, unless paid before debt is due or demandable (with no interest). (1217) V. DIVISIBLE & INDIVISIBLE OBLIGATIONS The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (1210) DIVISIBLE OBLIGATIONS Those obligations whose objects are capable of partial performance in their delivery or performance. INDIVISIBLE OBLIGATIONS Those obligations whose objects are not capable of partial fulfillment in delivery or performance. Test for Distinction The determining factor is the purpose of the obligation or the intention of the parties and NOT the possibility or impossibility of partial prestation. (1225) Presumptions 1. INDIVISIBLE: DEFINITE THINGS, NOT PARTIAL PERFORMANCE 2. DIVISIBLE: PARTIAL PERFORMANCE; BY DAYS OF WORK, METRICAL UNITS, OR ANALOGOUS THINGS 3. PHYSICALLY DIVISIBLE: SUBJECT TO LAW OR WHAT IS INTENDED BY THE PARTIES 4. NOT TO DO: DETERMINED BY CHARACTER OF PRESTATION OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 140 of 325 KINDS OF INDIVISIBILITY OF AN OBLIGATION a. LEGAL INDIVISIBILITY - BY LAW, AS WHEN TAXES ARE TO BE PAID IN FULL BECAUSE THE LAW DOES NOT PERMIT PAYING THE SAME BY INSTALLMENTS b. CONVENTIONAL INDIVISIBILITY - BY STIPULATION OF THE PARTIES OR INTENTION BY THEM TO TREAT THE THINGS AS INDIVISIBLE EVEN IF THEY ARE ACTUALLY DIVISIBLE c. NATURAL INDIVISIBILITY - BY THE NATURE OF THE OBLIGATION Quantum Meruit Principle Divisible Obligation If only partially performed, the obligor can enforce his right in proportion to the services performed. Indivisible Obligation If obligor fails to perform the work completely, he cannot recover on this principle because in indivisible obligations, partial performance is equivalent to non- performance. This principle allows recovery of the reasonable value of the work done regardless of any agreement as to the value. It entitles the party to “as much as he reasonably deserves” as distinguished from quantum valebant or “to as much as what is reasonably worth”. The sellement of claim under this principle requires application of judgment and discretion and cannot be adjusted by simple arithmetical process. (F.F. Manocop v. CA, GR 122196, Jan. 15, 1997) VI. OBLIGATIONS WITH A PENAL CLAUSE In an obligation with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interest in case of non-compliance, if there is no stipulation to the contrary. A penal clause is an accessory undertaking to assume greater liability in case of breach. Principal and Accessory Obligations PRINCIPAL OBLIGATION That which can stand by itself and does not depend upon other obligations for its validity and existence. ACCESSORY OBLIGATION That which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach of the principal prestation intended primarily to induce its fulfillment. Purposes of Penalty 1. Funcion coercitiva or de garantia - to ensure performance of the obligation 2. Funcion liquidatoria - to substitute a penalty for the indemnity of damages and the payment of interest in case of non- compliance. 3. Funcion estrictamente penal - to punish the debtor for the non-fulfillment of his obligation. Penalty as a Substitute for Damages General Rule The penalty fixed by the parties is a compensation or substitute for damages in case of breach. Exceptions 1. When there is a stipulation to the contrary 2. When the debtor is sued for refusal to pay the agreed penalty 3. When the debtor is guilty of fraud Distinguishing a Penal Clause from a Condition Penal Clause Condition There is obligation through an accessory No obligation through an accessory May become demandable in default of an unperformed obligation and sometimes jointly with it Is never demandable (Manresa) Kinds of Penal Clause As to origin Legal penal clause – provided by law Conventional penal clause – provided for by stipulation of the parties As to its purpose Compensatory penal clause – the penalty takes the place of damages Punitive penal clause – the penalty is imposed merely as a punishment for breach As to its dependability or effect Subsidiary or alternative penal clause – only the penalty can be enforced Joint or cumulative penal clause – both the principal obligation and the penal clause can be enforced (Manresa) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 141 of 325 Effect of Nullity of the Penal Clause If only the penal clause is void, the principal obligation remains valid and demandable. (1230) Nullity of the Principal Obligation If the principal is void, the penal clause is also void because the penal clause cannot stand along without the principal obligation to which it is subordinated. However, if the nullity of the principal obligation is due to the debtor’s fault who acted in bad faith, and by reason of which the creditor suffered damages on equitable grounds, the penalty may be enforced. Chapter IV: Extinguishment of Obligations Classification of the Modes of Extinguishment of Obligations 1. Novation 2. Compensation 3. Merger or confusion 4. Remission or condonation 5. Payment or performance 6. Loss of the thing due 7. Prescription 8. Rescission 9. Fulfillment of the Resolutory condition 10. Annulment I. PAYMENT OR PERFORMANCE The delivery of money, the delivery of the thing (other than money), the doing of an act, or not doing of an act. Elements The elements of payment are analyzed into: 1. persons- who may pay to whom payment may be made 2. thing or object in which the payment must consist 3. the cause thereof 4. the mode or form thereof 5. the place and time in which it must be made 6. the imputation of expenses occasioned by it 7. the special parts which may modify the same and the effects they generally produce Requisites for Valid Payment With respect to prestation itself: (1) identity (2) integrity or completeness (3) indivisibility With respect to parties This must be made by the proper party to the proper party (1) Payor (a) Payor - the one performing, he can be the debtor himself or his heirs or assigns or his agent, or anyone interested in the fulfillment of the obligation; can be anyone as long as it is with the creditor's consent (b) 3 RD person pays/performs - only the creditor's consent; If performance is done also with debtor's consent - he takes the place of the debtor. There is subrogation except if the 3 rd person intended it to be a donation (c) 3 rd person pays/performs with consent of creditor but not with debtor's consent, the repayment is only to the extent that the payment has been beneficial to debtor (2) Payee (a) payee - creditor or obligee or successor in interest of transferee, or agent (b) 3 rd person - if any of the ff. concur: i. it must have redounded to the obligee's benefit and only to the extent of such benefit ii. it falls under art 1241, par 1,2,3 - the benefit is total so, performance is total (c) anyone in possession of the credit - but will apply only if debt has not been previously garnished Payment made to an Incapacitated Person It is valid when: 1. The incapacitated person kept the thing delivered, or 2. Insofar as the payment has been beneficial to him Payment to a 3 rd party not authorized, valid if proved & only to the extent of benefit Presumed if: 1. After payment, 3 rd person acquires the creditor’s rights 2. Creditor ratifies payment to 3 rd person 3. By creditor’s conduct, debtor has been led to make the payment (estoppel) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 142 of 325 Payment made in good faith to a person in possession of credit shall release debtor Requisites: 1. Payment by debtor must be made in good faith 2. Creditor must be in possession of the credit & not merely the evidence of indebtedness With respect to time and place of payment Where payment should be made 1. In the place designated in the obligation 2. If there is no express stipulation and the undertaking is to deliver a specific thing – at the place where the thing might be at the moment the obligation was constituted 3. In other cases – in the place of the domicile of the debtor Time of payment This is the time stipulated by the parties. Effect of payment The obligation is extinguished. Except in an order to retain the debt. Substantial Performance 1. Attempt in Good Faith to perform without willful or intentional departure 2. Deviation is slight 3. Omission/Defect is technical or unimportant 4. Must not be so material that intention of parties is not attained Effect of Substantial performance in good faith 1. Obligor may recover as though there has been strict and complete fulfillment, less damages suffered by the obligee 2. Right to rescind cannot be used for slight breach Currency Stipulated (1249) Philippine legal tender The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. (1249) Mercantile documents, payable to order: only when cashed or impaired by creditor. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. (1249) *Impairment contemplates an issuance by a third party, otherwise, creditor can just ask from creditor again but without interest as there was no delay. (Jurado, Balane) During encashment: action in abeyance. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) Extraordinary inflation/ deflation Stipulation (1250) Currency value at time of agreement. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (1250) Expenses: Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1247) Special Rules/Forms Of Payment – Application of Payments – the designation of the debt which payment shall be made, out of 2 or more debts owing the same creditor: 1. May be made according to the stipulation of the parties or application of party given benefit of period; 2. For the application to be valid, it must be debtor’s choice or w/ consent of debtor Requisites for the Application of payment 1. Various debts of the same kind 2. Same debtor 3. Same creditor 4. All debts must be due Exception: there may be application of payment even if all debts are not yet due if: a) parties so stipulate b) when application of payment is made by the party for whose benefit the term has been constituted OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 143 of 325 5. Payment is not enough to extinguish all debts How the application is made: 1. Debtor makes the designation 2. If not, creditor makes it by so stating in the receipt that he issues, unless there is cause for invalidating the contract 3. If neither the debtor nor creditor has made the application or if the application is not valid, then application, is made by operation of law Who makes the application: General Rule: Debtor Exception: Creditor – a) Debtor without protest accepts receipt in which creditor specified expressly and unmistakably the obligation to which such payment was to be applied *The debtor in this case renounced the right of choice b) When monthly statements were made by the bank specifying the application and the debtor signed said statements approving the status of her account as thus sent to her monthly by the bank In case no application has been made 1. Apply payment to the most onerous 2. If debts are of the same nature and burden, application shall be made to all proportionately Dacion en Pago The mode of extinguishing an obligation whereby the debtor alienates in favor of the creditor property for the satisfaction of monetary debt; extinguish up to amount of property unless w/ contrary stipulation; A special form of payment because 1 element of payment is missing: IDENTITY. *Governed by the law on sales Conditions for a valid dacion: 1) If creditor consents, for a sale presupposes the consent of both parties 2) If dacion will not prejudice the other creditors 3) If debtor is not judicially declared insolvent Cession/Assignment in Favor of creditors The process by which debtor transfer all the properties not subject to execution in favor of creditors is that the latter may sell them and thus, apply the proceeds to their credits; extinguish up to amount of net proceeds ( unless w/ contrary stipulation ) Kinds 1. Legal – governed by the insolvency law 2. Voluntary – agreement of creditors Requisites for voluntary assignment a) More than 1 debt b) More than 1 creditor c) Complete or partial insolvency of debtor d) Abandonment of all debtor’s property not exempt from execution e) Acceptance or consent on the part of the creditors Effects a) Creditors do not become the owner; they are merely assignees with authority to sell b) Debtor is released up to the amount of the net proceeds of the sale, unless there is a stipulation to the contrary c) Creditors will collect credits in the order of preference agreed upon, or in default of agreement, in the order ordinarily established by law Consignation Tender -the act of offering the creditor what is due him together with a demand that the creditor accept the same (When creditor refuses w/o just cause to accept payment, he becomes in mora accepiendi & debtor is released from responsibility if he consigns the thing or sum due) Consignation – the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment; generally requires prior tender of payment Requisites of valid consignation: 1. Existence of valid debt 2. Consignation was made because of some legal cause - previous valid tender was unjustly refused or under circumstances making previous tender exempt. 3. Prior Notice of Consignation had been given to the person interested in performance of obligation (1 st notice) 4. Actual deposit/Consignation with proper judicial authorities OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 144 of 325 5. Subsequent notice of Consignation (2 nd notice) Effects: Extinguishment of obligation (1) Debtor may ask judge to order cancellation of obligation (2) Running of interest is suspended (3) Before creditor accepts or before judge declares consignation has been properly made, obligation remains (debtor bears risk of loss at the meantime, after acceptance by creditor or after judge declares that consignation has been properly made – risk of loss is shifted to creditor) Consignation w/o prior tender This is allowed when: a. creditor absent or unknown/ does not appear at the place of payment b. incapacitated to receive payment at the time it is due c. refuses to issue receipt w/o just cause d. 2 or more creditor claiming the same right to collect e. title of obligation has been lost II. LOSS OF THE THING DUE This is partial or total which includes the impossibility of performance. CONCEPT Meaning of loss of the thing 1) When the object perishes (physically) 2) When it goes out of commerce 3) When it disappears in such a way that its existence is unknown or it cannot be recovered When is there impossibility of performance 1) Physical impossibility 2) Legal impossibility : EFFECT OF TOTAL LOSS In obligations to deliver a specific thing General Rule: Extinguished Exceptions: a) Debtor is at fault b) Debtor is made liable for fortuitous event because of a provision of law, contractual stipulation or the nature of the obligation requires assumption of risk on part of debtor In obligations to deliver a generic thing General Rule: Not extinguished Exceptions: a) if the generic thing is delimited b) if the generic thing has already been segregated c) monetary obligation In obligations to do General Rule: Debtor is released when prestation becomes legally or physically impossible without fault on part of debtor EFFECT OF PARTIAL LOSS Judicial determination of extent is necessary. a) when loss is significant – may be enough to extinguish obligation b) when loss insignificant – not enough to extinguish obligation WHEN THING IS LOST IN THE POSSESSION OF THE DEBTOR Presumption: Loss due to debtor’s fault (disputable) Exception: natural calamity, earthquake, flood, storm REBUS SIC STANTIBUS A doctrine which holds that an agreement is valid only if the same conditions prevailing at time of contracting continue to exist at the time of performance. Effect of Difficulty Beyond Parties’ Contemplation Rule: The obligor may be released in whole or in part. Requisites: (a) The event or change could not have been foreseen at the time of the execution of the contract (b) The performance is extremely difficult, but not impossible (because if it is impossible, it is extinguished by impossibility) (c) The event was not due to the act of any of the parties (d) The contract is for a future prestation III. CONDONATION/REMISSION OF THE DEBT An act of pure liability by virtue of which the obligee, without receiving any price or equivalent, renounces the enforcement of the obligation, as a result of which it is OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 145 of 325 extinguished in its entirety or in part or aspect of the same to which the remission refers. *It is the gratuitous abandonment of the creditor of his rights. Requisites a. There must be an agreement b. There must be a subject matter (object of the remission, otherwise there would be nothing to condone) c. Cause of consideration must be liberality Essentially gratuitous, an act of liberality d. Parties must be capacitated and must consent; requires acceptance by obligor- implied in mortis causa & express inter vivos e. Formalities of a donation are required in the case of an express remission f. Revocable – subject to rule on inofficious donation (excessive, legitime is impaired) & ingratitude & condition not followed g. Obligation remitted must have been demandable at the time of remission h. Waivers or remission are not to be presumed generally Forms Extent Kinds Express – formalities of donation total Principal – accessory also condoned Implied – conduct is sufficient partial accessory – principal still outstanding accessory obligation of pledge – condoned; presumption only, rebuttable Implied Condonation 1. voluntary delivery – presumption; when evidence of indebtedness is w/ debtor – presumed that it is a voluntary delivery by creditor; rebuttable 2. effect of delivery of evidence of indebtedness: conclusion that debt is condoned Voluntary Delivery of Private Document 1. if in the hands of joint debtor – only his share is condoned 2. if in the hands of solidary debtor - whole debt is condoned Tacit: Voluntary destruction of instrument by creditor; made to prescribe w/o demanding IV. CONFUSION OR MERGER OF RIGHTS It is the merger of the characteristics of the creditor and the debtor in one and the same person by virtue of which the obligation is extinguished. Requisites a. It must take place between the principal debtor & the principal creditor only b. The merger must be clear & definite c. The obligation involved must be the same & identical – one obligation only d. Revocable, if for any reason the confusion ceases, the obligation is revived V. COMPENSATION Extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and creditors of each other. Requisites 1. Both parties must be mutually creditors and debtors - in their own right and as principals 2. Both debts must consist in sum of money or if consumable, of the same kind or quality 3. Both debts are due 4. Both debts are liquidated & demandable 5. Neither debt must be retained in a controversy commenced by 3 rd person & communicated w/ debtor (neither debt is garnished) Kinds 1. Legal – by operation of law; as long as 5 requisites concur- even if unknown to parties & if payable in diff places; indemnity for expense of exchanges; even if not equal debts – only up to concurring amount 2. Conventional – agreement of parties is enough, forget other requirement as long as both consented 3. Facultative – one party has choice of claiming/opposing – one who has benefit of period may choose to compensate - not all requisites are present - depositum; commodatum; criminal offense; claim for future support; taxes 4. Judicial – set off; upon order of the court; needs pleading & proof; all requirements must concur except liquidation 5. Total – when 2 debts are of the same amount 6. Partial – when 2 debts are not of the same amount OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 146 of 325 Effect of assignment of credit to 3 rd person; can there still be compensation 1. if made after compensation took place – no effect; compensation already perfected 2. if made before compensation took place – depends a) with consent of debtor – debtor is estopped unless he reserves his right & gave notice to assignee b) with knowledge but w/o consent of debtor – compensation may be set up as to debts maturing prior to assignment c) w/o knowledge – compensation may be set-up on all debts prior to his knowledge VI. NOVATION The substitution or change of an obligation by another, resulting in its extinguishment or modification, either by changing its object or principal conditions, or by substituting another in place of the debtor, or by subrogating a 3 rd person in the rights of the creditor. It is the total or partial extinction of an obligation through the creation of a new one which substitutes it. Requisites 1. The existence of a previous valid obligation 2. The intention or agreement and capacity of the parties to extinguish or modify the obligation 3. The extinguishment or modification of the obligation 4. The creation of a valid new obligation (Tiu Siuco v. Habana, 45 Phil. 707, 1924) Purpose of Novation 1. The original obligation is extinguished 2. A new obligation is created Kinds of Novation 1. As to essence a. Objective/ Real – This refers to the change in either the cause, object or principal b. Subjective/ Personal – This refers to the substitution of the person of the debtor or to the subrogation of the 3 rd person in the rights of the creditor c. Mixed 2. As to its form/ constitution a. Express – When it is declared in unequivocal terms that the old obligation is extinguished by a new one which substitutes the same b. Implied – When the old and new obligation are incompatible with each other on every point Forms of Substitution by Debtors 1. Expromision 2. Delegacion EXPROMISION It is effected with the consent of the creditor at the instance of the new debtor even without the consent or even against the will of the old debtor. Requisites 1. Initiative for substitution must emanate from the new debtor 2. Consent of the creditor to the substitution Kinds 1. Substitution with the knowledge and consent of the old debtor 2. Substitution without the knowledge or against the will of the old debtor (Jurado) Effect of Payment by the New Debtor 1. Substitution with the knowledge and consent of the old debtor The new debtor is entitled to reimbursement of the entire amount paid and subrogation. 2. Substitution without the knowledge or against the will of the old debtor The new debtor is entitled to reimbursement in so far as beneficial to the old debtor with no right if subrogation Effect of Insolvency of the New Debtor There are two prevailing views: 1. The new debtor’s insolvency or non- fulfillment of the obligation shall not revive the original debtor’s liability to the creditor whether the substitution is effected with or without the knowledge or against the will of the original debtor. (Tolentino) 2. If the substitution was effected with the knowledge and consent of the original debtor, the new debtor’s insolvency or non-fulfillment of the obligation shall revive the original debtor’s liability to the creditor. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 147 of 325 DELEGACION It is effected with the consent of the creditor at the instance of the old debtor, with the concurrence of the new debtor. Requisites 1. Initiative for substitution must emanate from the old debtor 2. Consent of the new debtor 3. Acceptance by the creditor Effect of Payment by the New Debtor The new debtor is entitled to reimbursement of the entire amount paid and subrogation. Effect of Insolvency of the New Debtor The creditor can sue the old debtor when the insolvency was prior to the delegation and publicly known or when the old debtor knew of such insolvency at the time he delegated the obligation. Effects of Novation to Accessory When the principal obligation is extinguished in consequence of a novation, accessory obligation must subsist only insofar as they may benefit 3 rd persons who did not give consent. Effects of Condition in Novation 1. If the original obligation was subject to condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. 2. If the new obligation and the old obligation are subject to different conditions: a. If the conditions are compatible, both must be fulfilled otherwise there is nothing to novate. b. If the conditions are incompatible, the latter should be fulfilled. Kinds of Subrogation 1. Conventional 2. Legal CONVENTIONAL That which takes place by agreement of the parties. This kind of subrogation requires the intervention and consent of 3 persons: the original creditor, the new creditor and the debtor. LEGAL That which takes place without the agreement but by operation of law because of certain acts. General Rule Legal subrogation cannot be presumed. Exception 1. The creditor pays another creditor who is preferred, without the debtors knowledge 2. A third person is not interested in the obligation pays with the express or tacit approval of the debtor 3. Even without the debtor’s knowledge, a person interested in the fulfillment of the obligation pays without prejudice to the effects of confusion as to the latter’s share Magdalena Estates, Inc. v. Spouses Rodriguez The mere fact that the creditor accepts payments from a third person who agreed to assume the obligation, when there is no agreement that the first debtor shall be released from the responsibility does not constitute obligation. Kabankalan Sugar Co., Inc v. Josefa Pacheco When an easement of right of way is one of the principal conditions of a contract, and the duration of said easement is specified, the reduction of said period in a subsequent contract, wherein the same obligation is one of the principal conditions, constitutes a novation and to that extent extinguishes the former contract. Aquintey v. Spouses Tibong (511 SCRA 414, G.R. No. 166704, 2006) The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee who steps into the shoes of the original creditor as subrogee of the latter from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 148 of 325 TITLE II: CONTRACTS Chapter I: General Provisions Definition A contract is a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1305) A contract is a juridical convention manifested in legal form, by virtue of which, one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do. Principal Characteristics (AMOR = love) 1. Autonomy 2. Mutuality 3. Obligatory Force and Consensuality 4. Relativity AUTONOMY This is the freedom or liberty to stipulate. General Rule The parties are free to stipulate anything they may deem convenient. Except As long as the stipulation are not contrary to: 1. Law 2. Morals 3. Good Customs 4. Public Order 5. Public Policy (1306) MUTUALITY Performance or validity of the contract binds both parts and it cannot be left to the will of one of them. (1308) OBLIGATORY FORCE & CONSENSUALITY Contracts are perfected by mere consent and from that moment, the parties are bound, not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. RELATIVITY General Rule Contracts take effect only between parties, their assigns and their heirs. Exceptions 1. Obligations arising from contract which are not transmissible by their nature, stipulation, or provision of law. 2. Stipulation Pour Autrui – a stipulation in favor of a third person Requisites a. The stipulation must only be a part of the contract; it must not be the whole of the contract. b. The contracting parties clearly and deliberately conferred the favor to the third person. c. The 3 rd person must have communicated his acceptance to the obligor before its revocation by the original parties. d. Neither of the contracting parties bears the legal representation or authorization of a 3 rd party. e. The favorable stipulation should not be conditioned or compensated by any kind of obligation. 3. When a third person induces another to violate his contract. (1314) Requisites Existence of a valid contract Knowledge of the contract by a 3 rd person Interference by the 3 rd person without legal justification or excuse 4. Accion Directa - the right of a creditor to sue on a contract entered into by his debtor. (1313) 5. Third persons who come into possession of the object of the contact creating real rights (1312) 6. Accion Pauliana (see Obligations > Breach of Obligation > Remedies of Creditors) Kinds of Contracts 1. According to perfection Consensual – a contract that is perfected by agreement of the parties Real – a contract that is perfected by delivery Formal/ Solemn – a contract perfected by conformity to essential formalities, e.g., donation 2. According to degree of importance a. Principal – a contract that can stand alone b. Accessory – a contract that is dependent upon another contract for its existence and validity c. Preparatory – means through which other (future) contracts may be made; not an end in itself, e.g. Agency OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 149 of 325 3. According to subject matter a. Involving things, such as sale or barter b. Involving rights or credits, such as usufruct or assignment of credits c. Involving services such as agency, carriage, etc. 4. According to name a. Nominate – a contract that has its own individuality and id regulated by a special provision of law, i.e., pledge, mortgage, etc. b. Innominate – a contract that lacks individuality and is not regulated by a special provision of law - Do ut des – I give that you may give - Do ut facias – I give that you may do - Facio ut des – I do that you may give - Facio ut facias – I do that you may do *facio/ facias – do *do - give 5. According to cause a. Onerous – a contract with an exchange of valuable considerations b. Gratuitous – a contract with no consideration received in exchange for what has been given c. Remuneratory – a contract in which something (a prestation) is given for a benefit or service performed without any legal obligation to do so 6. According to nature of obligation produced or number of parties obligated a. Unilateral – a contract with only one party with an obligation, e.g. Commodatum and Mutuum b. Bilateral – a contract in which both parties are required to render reciprocal prestations 7. According to risk a. Commutative – a contract where equivalent values are given by both parties, i.e., sale, barter and lease b. Aleatory – a contract where fulfillment is dependent upon chance, such as insurance Stages of a Contract (PPC) 1. Preparation or conception – bargaining point, negotiation 2. Perfection or birth – the meeting of minds regarding the subject matter and the cause of the contract. 3. Consummation or death – parties have performed their respective obligations and the contract is put to an end Chapter II: Essential Requisites Essential Requisites of a Contract (Always COCa-Cola) 1. Consent of the contracting parties; 2. Object certain which is the subject matter of the contract; 3. Cause of the obligation which is established. (1318) I. CONSENT Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. (1319) Requisites 1. Plurality of subject 2. Capacity 3. Intelligence and free will 4. Manifestation of intent of parties 5. Cognition by the other party 6. Conformity of manifestation and cognition *We follow the theory of cognition and not the theory of manifestation. Under our civil law, the offer and acceptance concur only when the offeror comes to know, and not when the offeree merely manifests his acceptance Auto Contract A contract made by a person acting in another’s name in one capacity and his own name or that of another in another capacity. Collective Contract A contract where the law authorizes that the will of the majority binds a minority to an agreement, notwithstanding the opposition of the latter. Contract of Adhesion A contract in which one party has already prepared a form of a contract, containing stipulations desired by him and he simply asks the other party to agree to them if he wants to enter into the contract. Offer and Acceptance OFFER A proposal made by one party to another to enter into a contract. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 150 of 325 Elements of Valid Offer 1. Definite 2. Complete 3. Intentional Mode of acceptance as stipulation The person making the offer may fix the time, place, and manner of acceptance, all of which must be complied with. (1321) Agent as offerer An offer made through an agent is accepted from the time acceptance is communicated to him. (1322) Withdrawal of Offer (1324) General Rule: An offer or proposal may be withdrawn as long as the offeror has no knowledge that the offeree has already accepted the offer. Exception: When the option is founded upon a consideration, as something paid or promised, the offer cannot be withdrawn. When does the offer become ineffective? 1. Death, civil interdiction, insanity or insolvency of either party before acceptance is conveyed 2. Express or implied revocation of the offer by the offeree 3. Qualified or conditional acceptance of the offer 4. Subject matter becomes illegal or impossible before acceptance is communicated Rule on Complex Offers 1. When offers are interrelated - the contracted can only be perfected if all the offers are accepted. 2. When offers are not interrelated – the single acceptance of each offer results in a perfected contract unless the offeror has made it clear that one is dependent upon the other and acceptance of both is necessary *An Offer inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective, but it takes the form of a counter-offer which the offeror may accept or reject. (Malbarosa vs. CA, G.R. No. 12576, 2003) Advertisements as Offers Business advertisements of things for sale are not definite offers, but mere invitations to make an offer, unless it appears otherwise. (1325) Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. (1326) ACCEPTANCE The manifestation by the offeree of his assent to the terms of the offer. Elements of Valid Acceptance 1. Unequivocal 2. Unconditional *If qualified, constitutes a counter-offer. Forms of Acceptance (1320) 1. Express Acceptance - may be oral or written. 2. Implied Acceptance - may be inferred from the act or conduct of the offeree. Period for Acceptance 1. stated fixed period in the offer 2. no stated fixed period a) offer is made to a person present – acceptance must be made immediately b) offer is made to a person absent – acceptance may be made within such time that, under normal circumstances, an answer can be received from him *Acceptance may be revoked before the offeror finds out about it. *Amplified Acceptance - under certain circumstances, a mere amplification on the offer must be understood as an acceptance of the original offer, plus a new offer which is contained in the amplification. Withdrawal of Acceptance 1. First View (Manresa): It is to be observed that although the offeror is not bound until he learns of the acceptance, the same thing can not be said of the offeree who, from the moment he accepts, loses the power to retract such acceptance since the right to withdraw between the time of the acceptance and its communication is a right which is expressly limited by law to the offeror. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 151 of 325 *To justify the inequality between the contracting parties, Manresa said that since the offeree is the first to know about the concurrence of will if the parties, as a consequence, the obligation, as far as he is concerned, must also commence earlier. 2. Second View (Tolentino): Acceptance may be revoked before it comes to the knowledge of the offeror because in such a case, there is still no meeting of minds, since the revocation has cancelled or nullified the acceptance which thereby ceased to have any legal effect. Acceptance by Letter or Telegram (1319) When is it binding? Acceptance is binding only from the time the offerer had knowledge of it. Where is it binding? he contract is presumed to have been entered into in the place where the offer was made. Theories on Acceptance of an Offer by Telegram 1. Manifestation Theory – a contract is perfected from the moment the acceptance is declared or made 2. Expedition Theory – contract is perfected from the moment the acceptance is declared or made even if not made known to the offeror 3. Cognition Theory – perfected from the moment the acceptance comes to the knowledge of the offeror; adopted in Philippines 4. Reception Theory – the contract is perfected from the moment the offeror receives the letter *Revocation of Acceptance: The acceptance by the offeree may be revoked before reaching the knowledge of the offeror. If it is revoked, the contract is not perfected if the notice of revocation reaches the offeror before the letter of acceptance is received. *In unilateral promises, when offer is made to the public, specific acceptance is not required to bind the obligor. OPTION It is a preparatory contract in which one party grants to the other, for a fixed period to decide whether or not to enter into a principal contract. *An option may be withdrawn anytime before acceptance is communicated but not when supported by a consideration other than purchase price: option money *A unilateral promise to buy or sell, if not supported by a distinct consideration, may be withdrawn but may not be done whimsically or arbitrarily; the right of the grantee here is damages and not specific performance. (Ang Yu v. CA, 1994) *An option clause in order to be valid and enforceable must indicate the definite price at which the person granting the option is willing to sell, contract can be enforced and not only damages. (Equatorial v. Mayfair, 24 SCRA 483) *The right of first refusal may be enforced by specific performance. (Paranaque Kings v. CA, 1997) Persons Who Cannot Give Valid Consent to a Contract 1. Unemancipated Minors 2. Insane or demented persons 3. Deaf-mutes or illiterates who do not know how to write 4. Intoxicated persons and hypnotized persons 5. A person under Mistake since a mistake may deprive one of intelligence. (1331) 6. A person induced by Fraud (dolo causante) (1338) *Dolus bonus (usual exaggerations in trade) are not in themselves fraudulent Article 1330 A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Rule on Contracts Entered into By Minors General Rule These contracts are considered voidable. Exceptions 1. Minor is Estopped for having misrepresented his age and misled the other party (when age is close to age of majority as in the Mercado v. Espiritu & Sia Suan v. Alcantara cases) 2. They were contracts for Necessities such as food, but here the persons who are bound to give them support should pay therefor Upon reaching age of majority – they ratify the same 3. They were entered unto by a Guardian and the court having jurisdiction had approved the same right of first refusal may be enforced by specific performance 4. Voluntary fulfillment of a natural obligation provided that the minor is between 18-21 years of age. 5. Contracts of Life, health or accident insurance taken on the life of the minor. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 152 of 325 Rule on Contracts Entered into by Insane or Demented Persons or Those Who Were Intoxicated or Hypnotized Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. (1328) The incapacity declared in article 1327 is subject to the modifications determined by law, and is understood to be without prejudice to special disqualifications established in the laws. (1329) Rule on Contracts Entered into under Mistake In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. (1331) As to identity or qualifications: Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. Correction only if: A simple mistake of account shall give rise to its correction. (1331) - Error must be excusable, not caused by negligence - Error must be a mistake of fact, not of law Exceptions on Mistake: 1. Illiterate party (1332) 2. Knowledge of doubt, contingency, risk affecting the object of the contract (1333) 3. Mutual error (1334) Disqualified to Enter into Contracts Contracts consented into by the following are void: 1. those under civil interdiction 2. hospitalized lepers 3. prodigals 4. deaf and dumb who are unable to read and write 5. those who by reason of age, disease, weak mind and other similar causes, cannot without outside aid, take care of themselves and manage their property, becoming an easy prey for deceit and exploitation Distinguishing Incapacity from Disqualification Incapacity Disqualification Restrains the exercise of the right to contract Restrains the very right itself May still enter into contract through parent, guardian or legal representative Absolutely disqualified Based upon subjective circumstance of certain person Based upon public policy and morality Contracts entered into are merely voidable Contracts entered into are void Causes which Vitiate Freedom to Consent 1. Violence 2. Intimidation 3. Mistake 4. Fraud 5. Undue Influence VIOLENCE There is violence when in order to wrest consent, serious or irresistible force is employed. Requisites a. Irresistible physical force b. Such force is the determining cause for giving consent INTIMIDATION There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants or ascendants, to give his consent. (1335) Requisites a. One of the parties is compelled to give his consent by a reasonable and well- grounded fear of an evil b. The evil must be imminent and grave. c. The evil must be unjust. d. The evil must be the determining cause for the party upon whom it is employed in entering into the contract. Reluctant Consent A contract is valid even though one of the parties entered into it against his wishes and desires or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit. (Martinez v. Hongkong and Shanhai Bank, 15 Phil 252) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 153 of 325 MISTAKE It is not only a wrong conception of the thing but also the lack of knowledge with respect to it. (Manresa) General Rule Mistake does not vitiate consent. Exception: Mutual error as to the effect of an agreement when the real purpose of the parties is frustrated. Requisites: a. Mistake must be with respect to the legal effect of an agreement b. It must be mutual c. The real purpose of the parties must have been frustrated FRAUD There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (1338) (Dolo Causante) Failure to disclose facts When there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud. (1339) Kinds of Fraud Fraud in the perfection of the contract 1. Dolo Causante (1338) – renders the contract voidable 2. Dolo Incidente (1344) – holds the guilty party liable for damages (see Obligations > Effect of Obligations > Breach of Obligation > Fraud) Fraud in the performance of an obligation (1170) Requisites of Fraud a. Insidious words or machinations are employed b. It must be serious c. It induced another party to enter into a contract d. It is not employed by both parties nor by 3 rd parties Exceptional Cases These are not fraud unless Dolo Causante or substantial/ principal condition: i. Usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (1340) *Caveat Emptor – dealer’s talk, buyer beware ii. Opinions: A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (1341) iii. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (1342) iv. Misrepresentation made in good faith is not fraudulent but may constitute error. (1343) General Rule on Fraud In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. (1344) 1. There must be a deliberate intent to deceive or to induce 2. The other party relied on this untrue statement. 3. Incidental fraud only obliges the person employing it to pay damages. (1344) Fraud by Third Persons General Rule: Fraud by a 3 rd person does not vitiate consent and merely gives tise to action for damages. Except when: 1. There is collusion by one of the parties o fthe contract with the 3 rd person. 2. There is misrepresentation that has created a substantial mistake and the same is mutual. UNDUE INFLUENCE There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. (Coso v. Fernandez Deza, 42 Phil. 595) Simulated Contracts SIMULATION Simulation is the declaration of a fictitious intent manifested deliberately and by agreement by the parties in order to produce, for the purpose of deceiving others, the appearance of a transaction which does not exist or which is different from the true agreement. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 154 of 325 Kinds of Simulated Contracts a. Absolute – There is no intention on the part of the contracting parties to be bound by the contract at all. The contract is merely fictitious making it void from beginning b. Relative – There is an intention by the parties to be bound but they conceal their true agreement *Relative simulated contracts are binding when: i. It does not prejudice 3 rd persons ii. It is not contrary to law, morals, good customs, public order or public policy. II. OBJECT The thing, right or service which is the subject matter of the obligation arising from the contract. Requisites (PLDT-Ctc) a) The prestation must be within the Commerce of man, either existing or in potency b) It must be Licit or not contrary to law, morals, good customs, public order, or public policy. c) It must be Possible or real. d) It must be Determinate as to its kind or determinable without the need to enter into a new contract. (1349) e) It must be Transmissible. Those which Cannot be the Object of a Contract (Fruits In Cream – IOI) 1. Future inheritance (1347) 2. Impossible things or services cannot be the object of contracts. (1348) 3. Contrary to law morals, good customs, public order, and public policy. 4. Indeterminable as to their kind. 5. Outside the commerce of men 6. Intransmissible rights Future Things May be interpreted in two ways (Manresa): 1. Conditional Contract – the thing must come into existence otherwise the contract is void. 2. Aleatory Contract – One of the parties bears the risk of loss that the thing might not come into existence. III. CAUSA It is the “why” of the contract, the essential reason which impels the parties to enter into the contract. Requisites 1. It must Exist at the time of the celebration of the contract. 2. It must be Real (true). 3. It must be Licit or lawful. Distiguishing Cause from Motive Cause Motive Direct and most proximate reason of a contract Indirect and remote reason Objective and juridical reason Psychological or purely personal reason Cause is always same for each contracting party Motive differs for each contracting party The legality or illegality of cause affects the existence or validity of the contract The legality or illegality of motive does not affect the existence or validity of the contract. Causes according to type of contract a. In onerous contracts: the cause is understood to be, for both parties, the prestation or promise of a thing or service by the other. b. In remuneratory contracts: the cause is the service or benefit remunerated c. Of Pure beneficence: liberality of donor or benefactor (1350) d. In accessory contracts: the cause is identical with the cause of the principal contract, that is the loan from which it derives lide and existence. Effects of Cause When Cause Renders Contract Void: 1. Absence of cause/ unlawful cause (1352) 2. False unless to prove another cause (1353) Want of Cause – There is a total lack or absence of consideration. Illegal Cause – The cause is contrary to law, morals, good custom, public order, or public policy. False Cause – The cause is stated but that cause is not true. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 155 of 325 When Cause Renders Contract Voidable: Unless specified by law, lesion or inadequacy will not invalidate a contract as long as there has been no fraud, mistake or undue influence. (1355) Cause Effect Absence of causa VOID - produce no legal effect Illegality of causa VOID - produce no legal effect Falsity of causa VOIDABLE – party must prove that cause is untruthful; presumption of validity but rebuttable Causa not stated in contract PRESUMED TO EXIST - burden of proof is on the person assailing its existence Inadequacy of causa DOES NOT INVALIDATE CONTRACT PER SE Exceptions: 1. when there is fraud, mistake or undue influence, or 2. when the parties intended a donation or some other contract Chapter III: Form of Contracts Form is a manner in which a contract is executed or manifested Forms of Contracts a. Informal – may be entered into whatever form as long as there is consent, object & cause b. Formal – required by law to be in certain specified form such as: donation of real property, stipulation to pay interest, transfer of large cattle, sale of land thru agent, contract of antichresis, contract of partnership, registration of chattel mortgage, donation of personal prop in excess of 5,000 c. Real – creation of real rights over immovable property – must be written General Rule SPIRITUALITY PRINCIPLE Contracts are valid and enforceable in whatever form, even if orally entered into, as long as all essential requisites are present. (1356) EXCEPTION 1. Law requires contract to be in some form for validity - donation and acceptance of real property 2. Law requires contract to be in some form to be enforceable - Statute of Frauds; contract is valid but right to enforce cannot be exercised; need ratification to be enforceable 3. Law requires contract to be in some form for convenience - contract is valid and enforceable, needed only to bind 3rd parties Ex: public documents needed for the ff: a. Contracts w/c object is creation, transmission or reformation of real rights over immovables b. Cession, repudiation, renunciation of hereditary rights/CPG c. Power to administer property for another d. Cession of action of rights proceeding from an act appearing in a public inst. e. All other docs where amount involved is in excess of 500 ( must be written even private docs ) When is Form Important 1. When form is required for Validity 2. When form is required for Enforceability 3. When form is required for Convenience FOR VALIDITY (formal/solemn contracts) 1. Donation of real property must be in a public instrument, otherwise, void. 2. Donation of personal property exceeding P5,000 must be in writing, otherwise void. 3. Contribution of a partner of immovable property in a partnership, must be in writing, otherwise void. 4. Authority of agent to sell land must be in writing, otherwise sale is void. Dievas v. Acuna Articles 1357 and 1358 do not require a particular form to validate or enforce a contract, only to ensure its efficacy, so that after its existence have been admitted, the party bound may be compelled to execute necessary document. Solis v. Barroso Even where the contract has not been reduced to the required form, it is still valid and binding as far as contracting parties are concerned. Consequently both presuppose the existence of a valid and enforceable contract. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 156 of 325 FOR ENFORCEABILITY (Statute of Frauds) (1403, par. 2, in relation to 1405) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: 1. An agreement that by its terms is not to be performed within a year from the making thereof; 2. A special promise to answer for the debt, default, or miscarriage of another; 3. An agreement made in consideration of marriage, other than a mutual promise to marry; 4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; 5. An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; 6. A representation as to the credit of a third person. FOR CONVENIENCE Public Document The following must appear in a public document: (1358) 1. Real rights over immovable property, sales of real property - Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed by articles 1403, No. 2, and 1405; 2. Hereditary rights and conjugal property of gains -The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains 3. Power to administer property, other powers to act, prejudice 3 rd persons - The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; 4. Cession of actions from public documents - The cession of actions or rights proceeding from an act appearing in a public document. Private Document 1. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405. (1358) 2. Donations exceeding five thousand pesos (Art. 748) 3. Giving authority to an agent for the Sale of land. (Art. 1874) 4. Agreements on payment of interests on contracts of loan (art. 1956) 5. Antichresis (Art. 2134) Electronic Commerce Act (RA 8792) 1. Amends Art. 1403 by including computers and their networks as means against frauds and proof of contracts 2. Expressly provides for the application of the same principles as normal contracts but adds more presumptions wherein such should be known by both parties. Presumptions from rules of court and doctrines as applied to e-mail, internet, and networks Receipt of letter – presumed to come to knowledge regardless of actual reading Regular functions have been carried out regularly *However, special presumptions for computers were made into law by the e- commerce act. In IBM v. Sec. of Labor, the Supreme Court ruled that Local Area Network or LAN is not sufficient notice for firing an employee since there was still no law providing for such presumptions. Remember that presumptions facilitate transactions and rules of evidence by being pragmatic about it. Otherwise, proving the propositions as found in the presumptions would be impossible and uncertain. E.g. no one can really prove that person A read his e- mail, thus it is more practical to presume that he had done so given proof of his receiving such e-mail. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 157 of 325 Provisions of the E-commerce Act 1. Present laws apply; electronic documents are valid like ordinary ones. 2. In using ATM of network banks, transaction is final at actual debiting; presumption of authority upon the holder of the ATM card. 3. Electronic devices are valid 4. Message from originator presumed to be made by the owner thereof regardless of who actually typed it. There must be express statement that he (owner) would be held liable for that ID. Receiver has right to assume his actual authorship. 5. On agreements of acknowledgement of receipt, such as actual reply of the receiver, or notice by the server. If no reply or acknowledgement, presumption that it was not sent. 6. As to time, presumption is at the time such was received by the designated information system or server, or that of the receiver. This also requires a system of acknowledgement of receipt. 7. Web sites – require proof or acknowledgement of visiting the site. This is usually done by pre-program procedure like requirement of registration before being given access. 8. On security of signature – electronic imprints, identification systems, and codes Tip: Always have a hard copy back-up Acts Required for the Perfection of Certain Contracts REGISTRATION Chattel Mortgages (art. 2140) b. Sales or Transfers of Large Cattle (Cattle Registration act) DELIVERY OF THE THING (for Real contracts) Pledge - In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement. (2093) Deposit- A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (1962) Chapter IV: Reformation of Contracts (Arts.1359-1369) Reformation is that remedy in equity by means of which a written instrument is made or construed so as to express or conform to the real intention of the parties when some error or mistake has been committed. Requisites for Reformation 1. Meeting of minds. 2. True intention not expressed within the instrument by reason of mistake, fraud, inequitable conduct, or accident. 3. There is clear and convincing proof of mistake, accident, fraud, simulation or inequitable conduct. Causes for Reformation (MUMO – ghost) 1. Mutual: instrument includes something w/c should not be there or omit what should be there a. Mutual b. Mistake of fact c. clear and convincing proof d. causes failure of instrument to express true intention 2. Unilateral a. one party was mistaken b. other either acted fraudulently or inequitably or knew but concealed c. party in good faith may ask for reformation 3. Mistake by 3rd persons – due to ignorance, lack of skill, negligence , bad faith of drafter, clerk, typist 4. Others specified by law – to avoid frustration of true intent Special Cases 1. Mutual mistake - When a mutual mistake of the parties causes the failure of the instrument to disclose their real agreement, said instrument may be reformed. 2. Mistaken party, not fraudulent - If one party was mistaken and the other acted fraudulently or inequitably in such a way that the instrument does not show their true intention, the former may ask for the reformation of the instrument. 3. Mistaken party, other knew of mistake and non-conformity of instrument – When one party was mistaken and the other knew or believed that the instrument did not state OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 158 of 325 their real agreement, but concealed that fact from the former, the instrument may be reformed. 4. Ignorance, lack of skill, negligence, or bad faith of drafter, clerk, typist of instrument - When through the ignorance, lack of skill, negligence or bad faith on the part of the person drafting the instrument or of the clerk or typist, the instrument does not express the true intention of the parties, the courts may order that the instrument be reformed. 5. Agreement on pledge or mortgage but with instrument on sale – If two parties agree upon the mortgage or pledge of real or personal property, but the instrument states that the property is sold absolutely or with a right of repurchase, reformation of the instrument is proper. Prescriptive period: 10 years from the date of the execution of the instrument. When No Reformation Is Allowed (SWV- E, Sisters With Voices-E) (Arts. 1366-1367) 1. Simple donations inter vivos wherein no condition is imposed; 2. Wills; 3. When the real agreement is Void. 4. Estoppel – When one of the parties has brought an action to enforce the instrument, he cannot subsequently ask for its reformation. Standing: Reformation may be ordered at the instance of: either party or his successors in interest, if the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns. (1368) Chapter V: Interpretation of Contracts (Arts. 1370-1379) LITERAL MEANING OF CLEAR TERMS If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. EVIDENT INTENTION PREVAILS OVER LETTER If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. CONTEMPORANEOUS AND SUBSEQUENT ACTS CONSIDERED In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. GENERAL TERMS IN ACCORDANCE TO INTENTION However general the terms of a contract may be, they shall not be understood to comprehend things that are distinct and cases that are different from those upon which the parties intended to agree. INTERPRET TO EFFECTUATE If some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. READ AS A WHOLE The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. (1374) IN KEEPING WITH NATURE AND OBJECT OF CONTRACT Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract. CUSTOMS FACILITATE INTERPRETATION The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established. OBSCURE WORDS FOR NON-OBSCURERS The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. DOUBTS 1. Doubts with regard to incidental circumstances: OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 159 of 325 When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. 2. Doubts with regard to principal object: If the doubts are cast upon the principal object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the contract shall be null and void. *Principles of interpretation under ROC also observed (Rule 140 B (4)) *DEFECTIVE CONTRACTS Kinds of Defective Contracts (VURV, The VURV Pipe or, a VURV – an action word) 1. Rescissible Contracts 2. Voidable Contracts 3. Unenforceable Contracts 4. Void or Inexistent Contracts Chapter VI: Rescissible Contracts Rescission is a process to render inefficacious a contract validly entered into, and normally binding, by reason of external conditions, causing an economic prejudice to a party or his creditor. *According to the SC, it is a relief to protect one of the parties or a third person from all injury and damages which the contract may cause, to protect some preferential right. Rescission in 1191 Rescission Proper in 1381 It is a principal action retaliatory in character It is a subsidiary remedy Only ground is non- performance of one’s obligation or what is incumbent upon him There are 5 grounds to rescind. Non- performance by the other is not important Applies only to reciprocal obligation It applies to both unilateral and reciprocal obligations Only a party to Even a third person the contract may demand fulfillment or seek the rescission of the contract who is prejudiced by the contract may demand the rescission of the contract. Court may fix a period or grant extension of time for the fulfillment of the obligation Court cannot grant extension of time for fulfillment of the obligation Its purpose is to cancel the contract Its purpose is to seek reparation for the damage or injury caused, thus allowing partial rescission of the contract Requisites of Rescission 1. Contract is essentially valid. 2. There is lesion or pecuniary prejudice. 3. Plaintiff has no other means to obtain reparation. 4. Plaintiff must be able to return whatever he may be obliged to return due to rescission. The things must not have been passed to 3 rd parties who did not act in bad faith. It must be made within the prescribed period. Grounds for Rescission (1381) The following contracts are rescissible: (FLAG) 1. Those entered into by Guardians where the ward suffers lesion of more than ¼ of the value of the things which are the objects thereof 2. Those agreed upon in representation of Absentees, of the latter suffers lesion by more than ¼ of the value of things which are the subject thereof 3. Those undertaken in Fraud of creditors when the latter cannot in any manner claim what are due them 4. Those which refer to things under Litigation if they have been entered into by the defendant without the knowledge and approval of the litigants of the court 5. All other contracts especially declared by law to be subject to rescission and payments made in the state of insolvency. a. Payment made by insolvent b. Partition with lesion to heirs by at least ¼ (1098) c. Deterioration because suspensive condition debtor’s fault d. When the conditions have been imposed with the intention of OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 160 of 325 suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition (1198) e. If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case f. Unpaid seller may rescind (1534) g. Sale of object which is inferior by more than 10% (1539) h. Sale of land for lack of measurement (1542) i. Sale because of loss of important part through eviction (1556) j. Sale of animals w/ redhibitory defects warranty vs. Hidden faults & defects (1567) k. Lease (1659) Obligation to Return in Rescission Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. (1385) Extent Necessary Rescission shall be only to the extent necessary to cover the damages caused. (1384) When is Rescission NOT Allowed 1. When there are other means (1383) 2. When he who demands rescission has no ability to restore. (1385) 3. In possession of a 3 rd person in good faith (1385) 4. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1386) Who Can Bring Action for Rescission the injured party; his heirs; the creditor, if the transaction is fraudulent. Effect of Rescission 1. As to the parties – Mutual restitution together with the fruits and interest. 2. As to 3 rd persons a. If he acted in bad faith or he was not legally in possession, he is obliged to return. b. If he legally possess the object in good faith, he is not obliged to return. Mutual Restitution Things w/c are the objects of the contract and their fruits Price with interest When Mutual Restitution is not Applicable a. When the creditor did not receive anything from the contract. b. When the thing is already in possession of the party in good faith; subject to indemnity only; if there are 2 or more alienations, it is the liability of the 1 st infractor When Contracts can be Rescinded on the Ground of Lesion 1. The contract must have been entered into by a guardian in behalf of his ward or by a legal representative in behalf of an absentee. 2. The ward or absentee must have suffered lesion of more than ¼ of the value of the property which is the object of the contract. 3. The contract must have been entered into without judicial approval. (court approval) 4. There must be no other legal means of obtaining separation for the lesion. (subsidiary character of rescission) 5. The person bringing the action must be able to return whatever he may be obliged to restore. (mutual restitution) 6. The object of the contract must not be legally in the possession of a third person who did not act in bad faith. When Contracts can be Rescinded on the Ground of Fraud (Accion Pauliana) 1. There must be credit existing prior to the celebration of the contract. 2. There must be fraud or, at least, the intent to commit fraud to the prejudice of the creditor seeking rescission. 3. The creditor cannot, in any legal manner, collect his credit. 4. The object of the contract must bot be legally in possession of a 3 rd person who did not act in bad faith. Presumptions of Fraud By Gratuituous Title All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 161 of 325 By Onerous Title Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission. *In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1387) Badges of Fraud 1. Consideration of the conveyance is inadequate or fictitious 2. Transfer was made by a debtor after a suit has been begun and while it is pending against him 3. Sale upon credit by an insolvent debtor 4. Evidence of indebtedness or complete insolvency 5. Transfer of all his property by a debtor when he is financially embarrassed or insolvent 6. Transfer made between father and son where there is present any of the above circumstances 7. Failure of the vendee to take exclusive possession of the property Reliefs 1. Grant rescission – only to extent necessary; no other means; ability to restore; no acquirer in good faith; nos. 1 and 2 are not court approved 2. Order return – ability to restore; object of contract or its price, together with fruits, plus interests 3. Damages: Who are liable? a. Art. 1189 – rules on improvement, loss, or deterioration b. Acquirer in bad faith (1388) *If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1388) c. One who alienates to acquirer in good faith (1385, par. 3) Prescriptive Period General Rule Within four (4) years from the date it was entered into: a. If the person is under guardianship, within 4 years from the time the guardianship ceases b. In case of absentees, within 4 years from the time domicile is known c. In case of alienation in fraud of creditor, things under litigation and payment of the state of insolvency, within 4 yeas from the time of discovery of fraud. Exception In certain contracts of sale which are specially declared by law to be rescissible, the period is 6 months or even 40 days, counted from the day of deliver. (1542, 1571, 1577) Chapter VII: Voidable Contracts Voidable Contracts are those which possess all the essential requisites of a valid contract but either on of the grounds under 1390 is present. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. Characteristics 1. Effective until set aside 2. May be assailed or attacked only in an action for that purpose 3. Can be confirmed ( NOTE: confirmation is the proper term for curing the defect of a voidable contract) 4. Can be assailed only by the party whose consent was defective or his heirs or assigns Grounds 1. One of the parties is incapable of giving consent to a contract 2. The consent is vitiated by mistake, violence, intimidation, undue influence or fraud (Art 1390) Contracts are voidable when entered into by: a. Minors ( below 18 ) b. Insane persons unless they acted in lucid interval c. Deaf mutes who cannot read or write d. Persons who are specially disqualified, i.e., due to civil interdiction e. Intoxicated persons f. Hypnotized persons The Person who has the Right to Annul a Voidable Contract General Rule The party prejudiced has the right to annul a voidable contract. Exception OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 162 of 325 If a 3 rd person is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from the contract in which he has no intervention. (Teves v. People’s Homesite and Housing Corp., 23 SCRA 1141) Causes of Extinction of an Action to Annul 1. Prescription 2. Ratification 3. Loss of the thing due to default of the plaintiff and loss of the thing during the plaintiff’s incapacity or after he had acquired incapacity PRESCRIPTION The action must be commenced within 4 years from: a. the time the incapacity ends b. the time the violence, intimidation or undue influence ends c. the time the mistake or fraud is discovered *The discovery of fraud must be reckoned to have taken place from the time the document was registered in the office of the registrar of deeds. Registration constitutes constructive notice to the whole world. (Carantes v. CA, 76 SCRA 514) RATIFICATION Requisites a. The contract should be tainted with a vice which is susceptible of being cured b. The confirmation should be effected by the person who is entitled to do so under the law c. The cause of the nullity or defect should have already disappeared d. It should be effected with the knowledge of the vice or defect of the contract. Restitution between Parties Obligation of Mutual Restitution 1. Obligation to do or not to do – there will be apportionment of damages based onteh value of such prestation with corresponding interests. (Jurado) 2. Obligation to give – Restoe to each other the things which have been the subject matter of the contract with fruits and the price with interest, except in cases provided by law. *Articles 1398-1402 are not applicable to consummated contracts *The incapacitated person is not obliged to make restitution except insofar as he has been benefited by the thing or price received by him. (1399) *It is presumed in the absence of proof that no such benefit has accrued to the incapacitated person. (Manresa) Effect of a Failure to make a Restitution When the thing is lost: 1. Due to the fault of the defendant, he shall be obliged to pay the value of the thing at the same time of the loss including the interest from the same date. 2. Due to the fault of the plaintiff, there is no restitution, annulment cannot be made 3. Due to a fortuitous event, the person obliged to return shall pay the value of the thing at the time of loss, but without interest thereon 4. Due to the fault of an incapacitated person, no restitution can be made. Chapter VIII: Unenforceable Contracts They are contracts which cannot be enforced in court or sued upon by reason of defects provided by law until and unless they are ratified according to law. It is considered valid but one cannot compel its execution unless ratified due to the extrinsic defect of the contract. It produces legal effects only after ratified. Kinds 1. Unauthorized or No sufficient authority – entered into in the name of another when: a. No authority conferred b. In excess of authority conferred (ultra vires) 2. Curable by Ratification - Both parties incapable of giving consent -2 minor or 2 insane persons 3. Curable by Acknowledgment - Failure to comply with Statute of Frauds a. Agreement to be performed within a year after making contract b. Special promise to answer for debt, default or miscarriage of another c. Agreement made in consideration of promise to marry d. Agreement for sale of goods, chattels or things in action at price not less than 500; exception: auction when recorded sale in sales book e. Agreement for lease of property for more than one year and sale of real property regardless of price f. Representation as to credit of another OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 163 of 325 Grounds for Unenforceable Contracts (1403) 1. Those contracts which are entered into in the name of another by one without or acting in excess of authority. 2. Those which do not comply with the Statute of Frauds 3. Those contracts in which both parties are incapable of giving consent. WITHOUT OR IN EXCESS OF AUTHORITY Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers. STATUTE OF FRAUDS Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: - An agreement that by its terms is not to be performed within a year from the making thereof (executory contracts) - A special promise to answer for the debt, default, or miscarriage of another; - Propter nuptias - An agreement made in consideration of marriage, other than a mutual promise to marry; - Sale of at least Php 500, unless partial compliance / Auction entry in sales book sufficient - An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; - An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; - A representation as to the credit of a third person. *The contact or agreement under the Statute of Frauds require that the same be evidenced by some note, memorandum or writing, subscribed by the party charged or by his agent, otherwise, the said contract shall be unenforceable. Curing Unenforceable Contracts 1. Failure of defendant to object in time, to the presentation of parole evidence in court, the defect of unenforceability is cured 2. Acceptance of benefits under the contract. If there is performance in either part and there is acceptance of performance, it takes it out of unenforceable contracts; also estoppel sets in by accepting performance, the defect is waived Chapter IX: Void & Inexistent Contracts These are contracts which have absolutely no force and effect and are inexistent from the beginning. The maxim is “no contract at all”. VOID CONTRACTS Those where all the requisites of a contract are present but the cause, object or purpose is contrary to law, morals, good customs, public order or public policy; or the contract itself is prohibited or declared void by law. INEXISTENT CONTRACTS Those where one or some or all of the requisites essential for the validity of a contract are absolutely lacking. Grounds (Art.1409) Void Contracts 1. The cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (1347 par. 3, 1352) 2. The object is outside the commerce of men; (1347, par. 1) 3. It contemplates an impossible service; (1348) 4. The intention of the parties relative to the principal object of the contract cannot be ascertained; (1378) 5. Those expressly prohibited or declared void by law. (1347, par. 3) Inexistent Contracts 6. It is absolutely simulated or fictitious; (1346) 7. The cause or object did not exist at the time of the transaction; (1318) OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 164 of 325 Characteristics 1. It produces no effect whatsoever either against or in favor of anyone 2. There is no action for annulment necessary as such is ipso jure. A judicial declaration to that effect is merely a declaration 3. It cannot be confirmed, ratified or cured. 4. If performed, restoration is in order, except if pari delicto will apply 5. The right to set up the defense of nullity cannot be waived 6. Imprescriptible 7. Anyone may invoke the nullity of the contract whenever its juridical effects are asserted against him Illegal Contracts Kinds of Illegal Contracts In Pari Delicto Doctrine *Only applicable to void contracts and not to inexistent contracts. General Rule When the defect of a void contract consists in the illegality of the cause or object of the contract and both of the parties are at fault or in pari delicto, the law refuses them every remedy and leaves tehm where they are. Contract constitute criminal offense Contract does not constitute criminal offense but is illegal or unlawful per se The parties are in pari delicto No action for specific performance No action for restitution on either side. Both shall be prosecuted Thing/price to be confiscated in favor of government No action for specific performance No action for restitution on either side. No confiscation Only One Party is guilty No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution Guilty party will be prosecuted Instrument of crime No action for specific performance Innocent party is entitled to restitution Guilty party is not entitled to restitution will be confiscated in favor of the governement Exception 1. If the purpose has not yet been accomplished and if the damage has not been cause to any 3 rd person 2. Payment of usurious interest (1413) 3. Payment of money or delivery of property for an illegal purpose, where the party who paid or delivered repudiates the contract before the purpose has been accomplished, or before any damage has been caused to a 3 rd person (1415) 4. Payment of money or delivery of property made by an incapacitated person (1416) 5. Agreement or contract which is not illegal in itself and the prohibition is designed for the protection of the plaintiff (1416) 6. Payment of any amount in excess of the maximum price of any article or commodity fixed by law or regulation by competent authority (1417) 7. Contract whereby a laborer undertakes to work longer than the maximum number of hours fixed by law. (1418) 8. Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law. (1419) 9. One who lost in gambling because of fraudulent schemes practiced on him is allowed to recover losses even if the gambling is prohibited. (315, RPC) Requisites of illegal contracts 1. Contract is for an illegal purpose 2. Contract must be repudiated by any of the parties before purpose is accomplished or damage is caused to 3 rd parties 3. The court believes that public interest will be served by allowing recovery (discretionary upon the court ) – based on remorse; illegality is accomplished when parties entered into contract; before it takes effect – party w/c is remorseful prevents it Where Laws Are Issued To Protect Certain Sectors 1. Consumer protection 2. Labor 3. Usury law Consumer protection – if price of commodity is determined by statute, any OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 165 of 325 person paying an amount in excess of the maximum price allowed may recover such excess Labor – if the law sets the minimum wage for laborers, any laborer who agreed to receive less may still be entitled to recover the deficiency; if law set max working hours and laborer who undertakes to work longer may demand additional compensation Interest paid in excess of the interest allowed by the usury law may be recovered by debtor with interest from date of payment Effects of Illegal Contracts If one party is incapacitated, courts may allow recovery of money, property delivered by incapacitated person in the interest of justice; pari delicto cannot apply because an incapacitated person does not know what he is entering into; unable to understand the consequences of his own action If agreement is not illegal per se but merely prohibited and prohibition is designated for the protection of the plaintiff – may recover what he has paid or delivered by virtue of public policy Mutual Restitution in Void Contracts General Rule The parties should return to each other what they have given by virtue of the void contract in case Where nullity arose from defect in essential elements return object of contract and fruits return price plus interest Exception No recovery can be had in cases where nullity of contract arose from illegality of contract where parties are in pari delicto; except: a. incapacitated – not obliged to return what he gave but may recover what he has given b. other party is less guilty or not guilty Angeles v. CA A sale of homestead within five year prohibitive period is void but in pari delicto does not apply because of public policy. However, recovery does not extend to products or fruits of the land, and the improvements made by the other party. The unjust enrichment principle must apply as to the recovery of the price paid. Philippine Banking Corp. v. Lui She A virtual sale through a very long-term lease of 50 years was deemed void for its contravention to the prohibition on foreign ownership. However, since the prohibition was only for protection and security of Filipino ownership of land, applying article 1416, pari- delicto does not apply. OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 166 of 325 TITLE III: NATURAL OBLIGATIONS Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary They are real obligations to which the law denies an action, but which the debtor may perform voluntarily. They are patrimonial, and presupposes a prestation. The binding tie of these obligations is in the conscience of man, for under the law, they do not have the necessary efficacy to give rise to an action. Features 1. no positive law giving right of action 2. no right of action to enforce performance 3. voluntary fulfillment of obligation by obligor 4. authorize retention of what has been fulfilled; 5. no right to recover, or demand return of what has been fulfilled fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. The following are natural obligations 1. Prescribed action of obligee. (1424) 2. Prescribed action of 3 rd person payor who pays without knowledge and consent of debtor against the latter. (1425) 3. Annulled contract of minor without consent of parents. (1426, 1427) a. returns whole thing or price he has received (Relate to Art. 1241, “only insofar benefited”) b. fulfills obligation, and good faith consummation and spending of what has been delivered (Relate to Art. 1327, unemancipated minors cannot give consent to contracts) 4. Voluntary performance after failed action to enforce contract (Art. 1428) 5. Succession a. Heirs paying decedent’s debt beyond what he has received (1429) b. The will is voided by lack of formalities, intestate heir pays a legacy (1430) TITLE IV: ESTOPPEL It is the admission or representation conclusive upon person making such; cannot be denied or disproved. General Rule Effective only between parties thereto or successors in interest. (1439) Types of Estoppel 1. By Conduct (in pais) – intentional and culpable negligence Elements a. acts inducing another to believe certain facts to exist b. with intent or culpable negligence c. the other party rightfully relies and acts on such belief d. other party would be prejudiced if the guilty party is allowed to deny facts first represented by him Types: a. by silence b. by acceptance of benefits c. by acts – representations or admissions 2. By Deed - cannot question admission in document or deeds 3. By Record – cannot question executive and legislative records 4. By Judgment – no denial of adjudicated facts by competent court 5. By Laches Failure or neglect, for an unreasonable and unexplainable length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Distinguishing Laches from Prescription Laches Prescription Concerned with the effect of delay Concerned with the fact of delay Question of inequity of permitting the claim to be enforced Question or matter of time Not statutory Statutory Applies in equity Applies at law Not based on a fixed time Based on a fixed time OBLIGATIONS & CONTRACTS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 167 of 325 Elements 1. Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy. 2. Delay in asserting the complainant’s rights, the complainant having knowledge or notice, of the defendant’s conduct and having been afforded the opportunity to institute a suit 3. Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit 4. Injury to the defendant in the event relief is accorded to the complainant The following are estopped Ownership transfers to the buyer (in Sales) 1. Seller or grantor who is not owner at time of sale but he later acquires ownership of such (1434) 2. Seller represents owner in a sale; cannot contest title of ownership of buyer (1435) Lessee or bailee cannot claim ownership of thing leased or received against lessor or bailor (1436) Misleader in 3 rd party contracts on immovable property Requisites 1. fraudulent representation or wrongful concealment of facts known to the party estopped; 2. intent by party precluded that the other should act upon the facts as misrepresented; 3. party misled must have been unaware of the true facts; and 4. party defrauded must have acted in accordance with the misrepresentation. Owner allowing another to feign ownership, cannot claim ownership as defense against pledge. (In pledge) (1438) * * * 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 168 of 325 SALES CIVIL LAW Sales TABLE OF CONTENTS I. Contract of Sale 169 II. Elements of a Valid Sale 172 III. Transfer of Ownership 175 IV. Risk of Loss 176 V. Document of Title 176 VI. Obligations of Seller and Buyer 178 VII. Remedies of Seller and Buyer 182 VIII. Double Sale 189 IX. Extinguishment of Sale 190 X. Assignment 192 XI. Special Laws 193 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 169 of 325 SALES CIVIL LAW SALES (Title VI, Book 4, Arts 1458- 1637, Civil Code) I. CONTRACT OF SALE 1 A contract of sale only constitutes a TITLE or right to the transfer of ownership, but is NOT the MODE of transferring ownership. (Aznar v. Yapdiangco, 1965) A. ESSENTIAL REQUISITES: (Art. 1318) 1. Consent- meeting of offer and acceptance on the thing and the price 2. Object- determinate thing 3. Cause - for the seller: payment of price - for the buyer: transfer of ownership and delivery of thing B. STAGES: 1. Negotiation - from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected 2. Perfection – upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price 3. Consummation - begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof (Ang Yu Asuncion v. CA, 1994) C. CHARACTERISTICS: 1. Nominate 2. Consensual- perfected by mere consent 3. Real obligation (‘to give’) a determinate thing is created 4. Bilateral- with reciprocal obligations 5. Onerous- with exchange of equivalent values 6. Principal 7. Commutative- fulfillment predetermined in advance D. KINDS: (Art. 1458(2)) 1. ABSOLUTE sale 2. CONDITIONAL sale (“Contract to sell”) o Ownership of the thing sold is retained until the fulfillment of a positive suspensive condition, 1 Art. 1458. By the contract of sale, one of the parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. A contract of sale may be absolute or conditional. normally the full payment of the purchase price. o Breach of the condition prevents the obligation to convey title from acquiring obligatory force. (Ang Yu Asuncion v. CA, 1994) In some cases, the SC makes finer distinctions between a conditional sale and a contract to sell in that: o In a contract to sell- the fulfillment of the suspensive condition, which is the full payment of the purchase price, will not automatically transfer ownership to the buyer although the property may have been previously delivered to him; o In a conditional sale- the fulfillment of the suspensive condition renders the sale absolute and affects the seller’s title thereto such that if there was previous delivery of the property, the seller’s ownership or title to the property is automatically transferred to the buyer (see Ursal v. CA, 2005) E. FORM (Art. 1483) GEN. RULE: NO form required – may be o Written o Oral o Partly written, partly oral o Inferred from the conduct of the parties Why: because sale is consensual (Art. 1475) EXCEPTIONS: 1. Under Statute of Frauds (contract or some memorandum thereof must be written and subscribed; otherwise, contract unenforceable UNLESS ratified by failure to object to oral evidence OR acceptance of benefits under the contract) (Art1403(2)): a. Sale not to be performed within 1 year b. Sale of personal property at a price of P500 up. c. Sale of real property or an interest therein The Statute of Frauds applies only to executory contracts, NOT to contracts either partially or totally performed. (Iñigo v. Estate of Maloto, 1967) 2. Transmission of real rights over immovable property (must appear in public document to bind third parties) (Art.1358(1)) 3. When certain form required by other law a. Transfer of large cattle must be registered with the municipal treasurer to be valid (Sec. 529, 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 170 of 325 SALES CIVIL LAW Revised Administrative Code of 1917) b. In sale of land through agent, the authority of the agent must be written; otherwise, sale is void (Art.1874) F. REMEDIES: 1. Specific Performance + damages (Arts. 1191 and 1165(1)) 2. Rescission + damages (Art. 1191) 3. Damages (Art. 1170) G. VIS-A-VIS: 1. Bilateral promise to buy and sell (Art. 1479(1) 2 ) o LIKE sale: there must be a - determinate thing to be sold - price certain to be paid o UNLIKE sale: the promise to buy is the consideration for the promise to sell and vice versa (de la Cavada v. Diaz, 1918) o Manresa: has the same effect as a contract of sale since parties can reciprocally demand fulfillment 2. Option to buy or to sell (accepted unilateral promise to buy or to sell) (1479(2) 3 ) o Example: “if the financial condition of the mortgagees will permit, they may purchase said land absolutely on any date within the 2 year term of this mortgage at the agreed price of P3,900.” (Soriano v. Bautista, 1962) o LIKE sale: there must be a - determinate thing to be sold - price certain to be paid o UNLIKE sale: it is unilateral- it gives a right to buy or to sell, but imposes no obligation on the part of the option-holder, aside from the consideration for the offer o It must be supported by a consideration distinct from the price. o RULES re SEPARATE CONSIDERATION: (Bible Baptist Church v. CA, 2004) 1. An option contract must be supported by a separate consideration. 2 A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 3 An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. Money advanced but eventually utilized as rental payments is NOT a separate consideration for an option to buy in a lease contract; hence, the option is not binding. 2. The consideration may be in money OR in kind (things or undertakings) 3. If the consideration is not monetary, a. these must be things or undertakings of value, in view of the onerous nature of the contract of option; b. said consideration must be clearly specified as such in the option contract or clause. - example: an undertaking on the part of the optionee (lessee) to sell the improvements made on the property if the option to buy is not exercised o Arts. 1324 4 and 1479(2), as interpreted by the Supreme Court 5 : - IF the option is supported by consideration distinct from the price: it is both a binding contract of option and an offer of a contract of sale. - IF the option is NOT supported by consideration distinct from the price: it is NOT binding as a contract of option, but is a mere offer of a contract of sale. - IF the offer is accepted (i.e., option is exercised) BEFORE withdrawal, a contract of sale is perfected, hence the remedy of specific performance lies. (Soriano v. Bautista, 1962; Sanchez v. Rigos, 1972) - IF the offer is withdrawn BEFORE acceptance, specific performance does not lie because no contract of sale was perfected.(Ang Yu Asuncion v. CA, 1994) Remedies in Case of Breach Option with distinct consideration Withdrawal of offer BEFORE acceptance Damages for breach of option contract AFTER acceptance of offer Specific performance of sales contract Option w/o Withdrawal Damages 4 When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. 5 Sanchez v. Rigos (1972); Ang Yu Asuncion v. CA (1994) ; Limson v. CA (2001). 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 171 of 325 SALES CIVIL LAW Distinct consideration of offer BEFORE acceptance ONLY IF there is an abuse of right under Art. 19, CC (no damages for breach of option contract) AFTER acceptance of offer Specific Performance of sales contract 3. Right of first refusal o Example: “That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same.” (Tanay Recreation Center and Development Corp. v. Fausto, 2005) o LIKE sale: there must be a determinate thing to be sold o UNLIKE sale: - price and other terms yet to be agreed upon (Ang Yu Asuncion v. CA, 1994) - it is unilateral o UNLIKE option: - The grantee has no right to buy or sell, only a right to the first offer should the grantor decide to sell (Polytechnic University of the Philippines v. CA, 2001) 6 - Separate consideration NOT required 7 - rescission and specific performance available in case of breach Prevailing doctrine: A sale made in violation of a right of first refusal is valid but rescissible under Art 1381(3),CC, and may be the 6 The basis of the right of first refusal must be the current offer to sell of the seller or offer to buy of any prospective buyer. Only after the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again under the same terms as offered to the optionee. (Parañaque Kings Enterprises, Inc. v. CA, 1997) 7 When contained in a lease contract, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the parties. (Equatorial Realty Development, Inc. v. Mayfair Theater Inc., 1996) subject of an action for specific performance (Tanay Recreation Center and Development Corp. v. Fausto, 2005) 8 H. DISTINGUISHED FROM OTHER ACTS/CONTRACTS 1. Contract for a piece of work (Art.1467) SALE CONTRACT FOR A PIECE OF WORK Goods manufactured or procured in the ordinary course of business (WON on hand) Goods manufactured specially for the customer upon his special order For the general market Not for the general market Essence is the object Essence is skill Tests under jurisprudence: 1. Habituality test: WON the job requires the use of extraordinary or additional equipment, or involves services not generally performed (Celestino v. CIR, 1956) 2. WON the thing is one which would have never existed but for the order of the party desiring to acquire it, or one which would have existed and have been the subject of sale to some other person even f the order had not been given (CIR v. Eng.&Supply, 1975) 2. Agency to Sell (Art.1467) O Look at essential clauses- cause and subject matter SALE AGENCY TO SELL Buyer pays price (WON he sells the thing to a 3 rd person) Agent does not pay price, but only delivers to the principal the price he obtains from the sale to a third person Buyer becomes the owner Agent does not become the owner Buyer can make profit if he resells Agent cannot make secret profit in selling 3. Barter SALE BARTER Price in money or its equivalent Consideration is another thing If the consideration is partly in money and partly in another thing: 1. look at manifest intention of the 8 Equatorial, reverting to the doctrine in Guzman, reversed Ang Yu Asuncion where it was held that the remedy in case of a sale violative of a right of first refusal is limited to damages. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 172 of 325 SALES CIVIL LAW parties to characterize the transaction; 2. if no manifest intention: o barter: if value of thing > amt of money or its equivalent o sale: if value of thing < amt of money or its equivalent 4. Dation (Art. 1245) SALE DATION No pre-existing debt w/ pre-existing debt Creates obligation Extinguishes obligation (mode of payment) 5. Lease of things SALE LEASE OF THING Ownership transferred Ownership not transferred 6. Donation SALE DONATION onerous gratuitous Other contracts governed by the law of sales: 1. Dation (Art.1245) - a mode of payment where property is alienated to the creditor in satisfaction of a debt in money 2. Barter (Art. 1641) - a contract where one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing (Art.1638) - governed by title on sales in matters not specifically provided for in title on barter 3. Innominate contracts most analogous to sale (Art. 1307) II. ELEMENTS OF A VALID SALE A. THING sold must be: 1. Determinate (Art.1458) 2. Licit (1459) 3. Actual or Possible (Arts. 1461 & 1462) A thing is DETERMINATE when it is: 1. Particularly designated; 2. Physically segregated; or 3. Capable of being made determinate without the necessity of a new or further agreement between the parties. (Art. 1460) Example: specific mention of some lots plus the phrase “lots needed for the city hall site, avenues and parks, according to the Arellano development plan of the Municipality” (Melliza v. City of Iloilo, 1968) A thing is LICIT if it is NOT: (Art. 1409) 1. Contrary to law, morals, good customs, public order, or public policy; - e.g. dangerous drugs; land acquired by homestead or free patent- within 5 years from issuance of patent or grant, except if sale in favor of the Gov.t or any of its units, braches or institutions (CA 141) 2. Outside the commerce of men; e.g. property of public dominion such as a river (Martinez v. CA, 1974) A thing is o ACTUAL when it is existing, o POSSIBLE when it is has a potential existence. - sale of “future goods” (goods to be manufactured, raised, or acquired by the seller after the perfection of sale): VALID - sale of a mere hope or expectancy: subject to the CONDITION that the thing will come into existence - sale of a vain hope or expectancy: VOID Future inheritance cannot be the object of sale (Art.1347(2)) but heir may sell his hereditary rights (Art.1088) Rules in case of loss at perfection (Baviera: loss occurred before the contract was entered into without the knowledge of both parties) (Arts. 1493-1495): Total loss contract without any effect (no object) Partial loss OR material deterioration in whole or in part Buyer may: 1. Withdraw from contract OR 2. Demand remaining part and pay proportional price The following may be objects of sale: 1. Undivided interest in a thing (Art.1463) 2. Things under litigation; BUT if without the knowledge and approval of the litigants or of the court, sale rescissible (Art.1381(4)) 3. Things subject to a resolutory condition (Art. 1465) - e.g. things acquired under a legal or conventional right of redemption B. PRICE must be: 1. Certain (Art. 1458) 2. In money or its equivalent (Art. 1458) 3. Real (Art 1471) 4. True (Art. 1353) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 173 of 325 SALES CIVIL LAW Price is CERTAIN when it is: 1. Fixed by agreement of the parties (Art. 1473) 2. Certain with reference to another thing certain (Art. 1469) - e.g. 10% below invoice price 3. The price which the thing sold would have on a definite day, or a particular exchange or market, or a certain amount above or below such price (Art. 1472) 4. To be fixed by a third person (Art. 1469) - If 3 rd person unable or unwilling to fix price: sale inefficacious UNLESS the parties subsequently agree upon the price - If 3 rd person acts in BF or by mistake: courts may fix price - If 3 rd person prevented from fixing price by fault of the buyer or seller: party not in fault may avail of remedies against the other o If price CANNOT be determined: - sale INEFFICACIOUS - BUT if the thing or part thereof has been delivered to and appropriated by the buyer, he must pay a reasonable price therefor (Art.1474) Price must be in o MONEY or o its EQUIVALENT - e.g. letter of credit (Baviera) Price must be REAL, not simulated. o Price is real when there is an intention (on the part of the buyer) to pay and an expectation on the part of the seller) to receive it. o If price is simulated: - sale is vOID - BUT the act may be shown to have been really a donation or some other act or contract (Art.1471) Price must be TRUE, not false. o The price is false when the real consideration is not the same as that stated in the contract (Mapalo v. Mapalo, 1966) o If false price stated - sale void unless proved to be founded on another true and lawful price (Art. 1353) - SC says the contract is not void but is a relatively simulated contract; hence, the parties are bound by their real agreement. (Balite v. Lim, 2004) GROSS INADEQUACY of price does not affect a contract of sale, except that: 1. It may indicate a defect in the consent such as fraud, mistake, or undue influence (Arts.1470 & 1355) 2. It may indicate that the parties intended a donation or some other act or contract (Art1470) e.g. when the price of a sale with right to repurchase is unusually inadequate, it is presumed to be an equitable mortgage (Art1602(1)) 3. Sale is rescissible if: a. the sale is entered into by a guardian or by a representative of an absentee; b. the ward or absentee represented suffers lesion by more than ¼ of the value of the thing sold; AND c. the sale is not approved by the court (Arts.1381(1)(2) & 1386) 4. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one’s conscience as to justify the courts to interfere; BUT such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. (Hulst v. PR Builders, Inc. , 2007) C. CONSENT perfects a contract of sale. o Consent: meeting of offer and acceptance on the 1. thing sold 2. price - Manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price (Toyota Shaw v. CA, 1995) The buyer and the seller must have CAPACITY to enter into a contract of sale. Absolute Incapacity: (MIDDD-HI-C) 1. Minors 2. Insane Except: during lucid interval (Art.1328) 3. Demented persons 4. Deaf-mutes who do not know how to write (Art. 1327) 5. Persons suffering civil interdiction (Art.34, RPC) 6. Drunk person 7. Hypnotized person (Art.1328) 8. Those judicially declared “Incompetent” a) prodigals b) hospitalized lepers 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 174 of 325 SALES CIVIL LAW c) persons not being of unsound mind, but by reason of age, disease, weak mind, and other similar causes, cannot, without outside aid, take care of themselves and manage their property, becoming thereby an easy prey for deceit and exploitation (Sec.2, Rule 92,ROC) o Status of sale: - Where 1 party incapacitated: VOIDABLE (Art.1390(1)) - Where both parties incapacitates: UNENFORCEABLE (Art.1403(3)) o BUT when necessaries (those indispensable for sustenance, clothing, dwelling, medical attendance, education, transportation) are sold and delivered to incapacitated person, he must pay a reasonable price therefor. (Art.1489) Relative Incapacity to buy (HW-PAGE-JLO) 1. Husband/Wife - What: property of spouse - Except: when property regime is separation of property (marriage settlement or judicial order) - Prohibition applies to common-law spouses (Matabuena v. Cervantes, 1971) 2. Guardian - What: property of ward 3. Agent - What: property of principal - Except: principal consents 4. Executor/Administrator - What: property of estate administered - Does NOT apply to sale of hereditary right bec. it is not administered by the executor/administrator (Naval v Enriquez, 1904) 5. Public officers and employees - What: property of State, GOCC, institution administered - Applies to judges and gov’t. experts who, in any manner, take part in the sale 6. Judicial officers and employees (justices, judges, prosecuting attorneys, court clerks, other officers and employees connected with the administration of justice) - What: property or rights in litigation or levied upon an execution before the court within their territorial jurisdiction 7. Lawyers - What: property and rights object of any litigation handled by them (Art. 1491) 8. Others specially disqualified by law - e.g. aliens, wrt private land in the Philippines (Art.12, sec.7, Constitution) o Status of sale: VOID (Art. 1409(7)) o BUT sale to guardians, agents, executors/administrators can be “ratified” by the execution of a new contract, making the sale valid from the time the new contract is executed, unlike sale to public or judicial officers and employees and lawyers which cannot be so “ratified” because it is contrary to public policy (Rubias v. Batiller, 1973) The OFFER must be CERTAIN (Art. 1319) as to the object and the price (Villanueva v. PNB, 2006). o Offer a.k.a. imperfect promise or policitacion (Litonjua v. L&R Corp., 2000) o The ff. are not definite offers but mere invitations to make an offer, unless the contrary appears: 1. Business advertisements of things for sale (Art.1325) 2. Advertisements for bidders (Art.1326) The ACCEPTANCE must be ABSOLUTE. (Art. 1319) o Qualified acceptance= counter-offer Consent must not be VITIATED, otherwise sale is VOIDABLE. (Arts. 1330 &1390(2)) o Vices of consent: 1. Fraud 2. Mistake 3. Violence 4. Intimidation 5. Undue influence Payment of EARNEST MONEY is considered as proof of the perfection of sale. (Art. 1482) o BUT mere payment of earnest money is not sufficient proof of a perfected sale when some essential element (e.g. agreement on terms of payment) is admittedly lacking (Velasco v. CA, 1973) EARNEST MONEY v. OPTION MONEY (Limson v. CA, 2001) part of purchase price given as a distinct consideration for an option contract given only when there is already a sale applies to a sale not yet perfected when given, the buyer is bound to pay the balance when given, the would-be- buyer is not required to buy, but may even forfeit it depending on the terms of the option 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 175 of 325 SALES CIVIL LAW III. TRANSFER OF OWNERSHIP A perfected contract of sale per se does NOT transfer ownership over the thing sold. For ownership to transfer, there must be: 1. Right to transfer ownership at the time of delivery (Art.1459) a. owner (Art. 428) b. authorized by owner 2. Delivery (Art. 1496) 3. Intention to transfer ownership (Norkis Distributors Inc. v. CA, 1991) 4. If delivery is symbolic, control of the seller over the thing sold that its material delivery could have been made. (Vda. de Sarmiento v. Lesaca, 1960) A. RIGHT TO TRANSFER OWNERSHIP 1. When the seller has NO TITLE Gen. Rule: One cannot give what one does not have (Nemo dat quod non habet) o Art. 559: When the owner has lost or has been unlawfully deprived of a movable, he may recover it even from a buyer in good faith (Aznar v. Yapdiangco, 1965) - limitation: if buyer in good faith acquired it in a public sale, the owner must reimburse the price paid therefor Exceptions: a. Estoppel: when the owner is by his conduct precluded from denying the seller’s authority to sell (Art. 1505) b. Sale under court order (Art. 1505) o But in execution sale, the buyer merely steps into the shoes of the judgment debtor (Rule 39, sec. 33, ROC) c. When goods are purchased in a - merchant’ store, - fair, or - market (Art. 1505) d. Registered land bought in good faith - Gen rule: buyer need not go beyond the Torrens title - Exception: when he has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make further inquiry No factors’ acts or recording laws (referred to in Art1505(1)) in the Philippines (Baviera) 2. When the seller has a voidable title which has not been avoided at the time of the sale, a buyer in good faith acquires a good title to the goods. (Art.1506) o BUYER in GOOD FAITH is one who buys property from another - without notice that some other person has a right to or interest in it, AND - who pays a full and fair price therefor at the time of the purchase or before receiving such notice. o When the seller voluntarily delivers the thing sold to the buyer but is swindled, - the seller is not “unlawfully deprived” of the thing under Art. 559; the buyer who practiced fraud acquires a voidable title which, if not avoided at the time of sale, confers a good title on a subsequent buyer in good faith and for value - a good title means an indefeasible title even as against the original owner. (Tagatac v. Jimenez, 1957; Edca v. Santos, 1990) B. DELIVERY o Ownership over the thing sold is transferred by DELIVERY or tradition (Aznar v. Yapdiangco, 1965) o Sale without delivery gives the buyer no rights over the property except those of a creditor (Kuenzle & Streiff v. Macke & Chandler, 1909) o Delivery may be actual or constructive 1. Actual delivery o placing the thing sold in the control and possession of the buyer (Art.1497) 2. Constructive Delivery (Arts. 1498-1501) Kind How Made Applies to 1. Symbolic o By execution of public instrumen t evidencin g sale except: if contrary appears or can be clearly inferred real or personal property; incorporeal property o delivery of keys where stored/ke pt personal property 2. Traditio longa manu By mere agreement of the buyer personal property 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 176 of 325 SALES CIVIL LAW Kind How Made Applies to and seller if possession cannot be transferred at the time of the sale 3. Traditio brevi manu By mere agreement of the buyer and seller if the buyer already had possession for any other reason personal property 4. Traditio constitutum possessorium Seller remains in possession of the property in a different capacity e.g. as lessee real or personal property 5. Quasi- tradition Placing of the titles of ownership in the possession of the buyer or allowing the buyer to use his rights incorporeal property 6. Tradition by operation of law (Art.1434) When a non- owner who sells a thing later acquires title thereto real or personal property 7. Delivery to a carrier 9 delivery to a carrier for transmission to the buyer goods C. INTENTION TO TRANSFER OWNERSHIP Ownership is not transferred despite delivery in the following cases: 1. Ownership is reserved, as o In conditional sale o When under the bill of lading, the goods are deliverable to the seller or his agent, or to the order of the seller or his agent (Art.1503(2)) 2. Sale on approval (trial or satisfaction), where ownership transfers only when the buyer o signifies his approval or acceptance to the buyer or does any other act adopting the transaction; OR o retains the goods without giving notice of rejection within the time fixed or a 9 Discussed in detail under obligation of the seller to deliver. reasonable time, if no time has been fixed. (Art.1502 (2)) - cf. Sale on return where o ownership passes to the buyer upon delivery o BUT he may revest ownership in the seller by returning the goods within the time fixed or a reasonable time, if no time has been fixed. (Art. 1502 (1)) D. CONTROL o The efficacy of symbolic delivery can be prevented if the seller does not possess control over the thing sold, in which case this legal fiction must yield to reality. o The key word is control, NOT possession. The presence of lessees or illegal occupants who do not have claims of ownership does not prevent symbolic delivery (Power Commercial and Industrial Corp. v. CA, 1997; Sabio v. The International Corporate Bank, Inc., 2001) IV. RISK OF LOSS Transfer of ownership is relevant in determining who bears the risk of loss. A. GEN RULE: owner bears the risk of loss (res perit domino:the thing is lost to the owner) B. EXCEPTIONS: (Art.1504) 1. Stipulation to the contrary 2. Security title: goods delivered and ownership retained by the seller merely to secure payment- buyer bears the risk from the time of delivery 3. Delay in actual delivery through the fault of the seller or buyer- party in fault bears the risk V. DOCUMENT OF TITLE Document of title is a document o used as proof of possession or control of the goods sold, or o authorizing or purporting to authorize the possessor of the document to transfer or receive goods represented by such document (Art.1636(1)) Examples: - bill of lading - quedan - warehouse receipt It may be negotiable (bearer or order) or non- negotiable. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 177 of 325 SALES CIVIL LAW o Words like “not negotiable” or “non- negotiable” do not affect negotiability When document of title is negotiable: o It may be negotiated - if bearer, by delivery - if order, by indorsement indorsement of a non-negotiable document gives the transferee no additional right (Art.1511) o Goods in the possession of the bailee cannot be attached or levied under an execution unless the document - be first surrendered or - its negotiation enjoined o Bailee cannot be compelled to deliver up the actual possession of the goods until the document is - surrendered to him or - impounded by the court (Art.1519) - IMPLIED WARRANTIES of indorser or transferor (unless a contrary intention appears): 1. Genuineness of document 2. Legal right to negotiate or transfer 3. No knowledge of fact which would impair the validity or worth of the document 4. Right to transfer the title to the goods and merchantability or fitness for a particular purpose, whenever such warranties would have been implied had the contract been transfer the goods without a document (Art.1516) o The indorser does NOT warrant the fulfillment by the bailee issuing the document or previous indorsers of their respective obligations (Art.1517) Rights under negotiation Rights under transfer 1. title to the goods of the one who negotiated and of the original consignee (Art.1513(1)) 2. direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him (Art.1513(2)) 3. freedom from the defenses of: - breach of duty - loss - theft - accident - mistake - conversion, if the buyer of the document paid value therefor in good faith and without notice (Art.1518) 1. title to the goods as against the transferor, subject to any agreement with the latter 2. right to notify the bailee issuing the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him accdg to the terms of the document o prior to the notification of the bailee, the title and right of the transferee may be defeated by - levy of attachment of execution upon the goods by the transferor’s creditor, or - a notification to such bailee by the transferor or a subsequent buyer of a subsequent sale of the goods by the transferor (Art. 1519) 3. If the document is negotiable, right to compel the transferee to indorse it, unless a contrary intention appears o negotiation takes effect from actual indorsement (Art. 1515) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 178 of 325 SALES CIVIL LAW VI. RECIPROCAL OBLIGATIONS OF THE SELLER AND THE BUYER A. OBLIGATIONS OF THE SELLER: (WPD) 1. Preserve (take care of) the thing sold until delivery (Art. 1480 in rel. to Art.1163) 2. Deliver o Thing sold (Art. 1495) o Fruits (Arts. 1164 &1537) o Accessions and accessories (Arts.1166 &1537) If the thing is improved by nature: improvement inures to the benefit of the buyer If the thing is improved at the seller’s expense: seller only entitled to the right of a usufructuary- not entitled to indemnity but may remove the improvement if it can be done without damage tot the thing sold. (Art. 1538 in rel. to Arts. 1198 & 579) 3. Warrant the thing sold (Art.1495) 1. Preservation o Standard of care: diligence of a good father of a family - UNLESS another standard of care required is required by law or stipulation o Liability for fortuitous event: 1. By Law a. Guilty of delay b. Promised to deliver the same thing to 2 or more persons who do not have the same interest 2. By Stipulation 3. Nature of obligation requires assumption of risk 2. Delivery o Recall: kinds of delivery o Unless otherwise agreed, when symbolic delivery has been made, the seller is not obliged to remove tenants to place the buyer in actual possession of the property as he has already complied with his obligation to transfer ownership of and deliver the thing sold. (Power Commercial and Industrial Corp. v. CA, 1997; Sabio v. The International Corporate Bank, Inc., 2001) o The seller is NOT bound to deliver if: 1. the buyer has not paid him the price or no period for payment has been fixed in the contract (Art.1524); 2. the buyer loses the right to make use of the term, as when: a. he becomes insolvent UNLESS he gives a guaranty or security for the debt; b. he does not does not furnish the seller the guaranties or securities he promised; c. he impairs the guaranties or securities or they disappear fortuitously UNLESS he immediately gives new ones equally satisfactory; d. he violates any undertaking, in consideration of which the seller agreed to the period; e. he attempts to abscond. (Art.1536 in rel. to Art.1198) o Rules wrt delivery of goods (tangibles) 1. Whether it is for the buyer to take possession of the goods or for the seller to send them depends on the contract between the parties. 2. place of delivery: seller’s place of business or residence if no place of business exceptions: a. contract (express or implied) or usage of trade to the contrary b. sale of specific goods which parties knew to be in some other place at the time of sale- that place is the place of delivery 3. Where the seller is bound to send the goods but no time for sending is fixed, he must send them w/in a reasonable time. What constitutes a reasonable time is determined by the circumstances of the particular transaction, such as: - the character of the goods, - the purpose for which they are intended, - the ability of the seller to produce the goods if they are manufactured, - the facilities available for transportation and the distance the goods must be carried, and - the usual course of business in the particular trade (Smith Bell & Co., Ltd. V. Matti, 1922) 4. Where the goods at the time of sale are possessed by a 3 rd person, no delivery unless and until such 3 rd person acknowledges to the buyer that he holds the goods on the buyer’s behalf. 5. Demand or tender of delivery must be made at a reasonable hour, otherwise it may be treated as ineffectual. 6. Expenses of and incidental to putting the goods in a deliverable state (state that the buyer would be bound to take delivery) must be borne by the seller, UNLESS otherwise agreed. (Art.1521) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 179 of 325 SALES CIVIL LAW 7. Where the seller is authorized or required to send the goods, delivery to a carrier for transmission to the buyer is deemed delivery to the buyer Exceptions: a. contrary stipulation b. contrary intent - A specification in the contract relative to the payment of freight may indicate the intention of the parties as to the place of delivery (i.e., the owner pays for the freight); however the terms “F.O.B.,” “c.i.f.,” and “F.a.S.” merely make rules of presumption which yield to proof of contrary intention. - the best indication of the intention of the parties as to the place of delivery is the manner and place of payment of the price. F.O.B. (free on board) c.i.f (cost, insurance, freight) F.a.s (free alongside) Seller bears the expenses of transportation up to the f.o.b. point Price quoted includes the costs of the goods, insurance, and freight charges on the goods up to the place of destination Seller bears the expenses of transportation until he delivers the goods alongside a vessel at a named port c. under bill of lading, goods deliverable to the seller or his agent or to the order of the seller of his agent (seller reserves ownership in the goods) - cf. under bill of lading, goods deliverable to the order of the buyer or his agent, but the seller or his agent retains possession of the BoL- only right of possession reserved (Art.1523 in rel. to Art. 1503) o The expenses for the execution and registration of the sale shall be borne by the seller, unless there is a contrary stipulation. (Art.1487) 3. Warranty o may be express or implied o cf. condition on performance of obligation: - if condition not performed, party whose obligation is subject to the condition may refuse to proceed with the contract OR may waive performance of the condition. - Example of condition on performance of obligation: obligation of the buyer to pay the balance of the purchase price made subject to the condition that the seller first deliver the reconstituted title of the house and lot (Laforteza v. Machuca, 2000) o If seller has promised that the condition should happen or be performed, the buyer may treat the nonperformance of the condition as a breach of warranty. (Art.1545) Express Warranty (APIR) There is an EXPRESS warranty when: 1. The seller makes an affirmation of fact or any promise relating to the thing sold; 2. The natural tendency of such affirmation or promise is to induce the buyer to buy; AND 3. The buyer buys the thing relying thereon. Affirmation of the value of the thing or statement of the seller’s opinion only is NOT a warranty unless: o The seller made it as an expert; AND o It was relied upon by the buyer. (Art.1546) Cf. Dealer’s talk (usual exaggerations of trade) o Ordinarily, what does not appear on the face of the written instrument should be regarded as dealer's or trader's talk; conversely, what is specifically represented as true in said document cannot be considered as mere dealer's talk. (Moles v. IAC, 1989) o The refusal of the seller to warrant his estimate should have admonished the purchaser that that estimate was put forth as a mere opinion; and we will not now hold the seller to a liability equal to that which would have been created by a warranty, if one had been given. A man who relies upon an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his peril, and must take the consequences of his own imprudence. (Songco v. Sellner, 1917) Examples of express warranty: o certification that the machine sold was in “A-1 condition” (Moles v. IAC, 1989) o express intimation that all taxes and duties had already been paid (Harrison Motors Corporation v. Navarro, 2000) An express warranty can be made by and also be binding on the seller even in the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 180 of 325 SALES CIVIL LAW sale of a secondhand article. (Moles v. IAC, 1989) Cf. fraud: in fraud, there must be an intention to deceive or mislead the other party to his prejudice (Philippine Manufacturing Co. v. Go Jucco, 1926) Implied Warranty IMPLIED warranties (unless a contrary intention appears) 10 : (Art.1547) 1. Implied Warranty of Title 2. Implied Warranty against Encumbrance 3. Implied warranty against Hidden Defects Implied Warranty of Title o Seller’s right to sell at the time the ownership is to pass and the buyer’s peaceful and legal possession of the thing from that time o Does NOT apply to a sheriff, auctioneer, mortgagee, pledge, or other person professing to sell by virtue of authority in fact or law. o Requisites for breach of warranty against eviction: a. Buyer is deprived of the whole or a part of the thing sold; b. Eviction is by final judgment c. Final judgment based on A right prior to the sale OR An act imputable to the vendor d. Seller is summoned and made co- defendant in the suit for eviction at the instance of the buyer. (Arts. 1548, 1558, Power Commercial and Industrial Corp. v. CA, 1997) Implied Warranty against Encumbrance o Requisites for breach: a. thing sold is an immovable b. burden or servitude encumbering the thing sold is non-apparent not mentioned in the agreement of such nature that it must be presumed that the buyer would not have bought it had he been aware thereof not recorded in the Registry of Property UNLESS there is an express warranty that the thing is free from all burdens and encumbrances (Art.1560) Implied warranty against Hidden Defects o Requisites for breach: a. The defect renders the thing sold unfit for the use for which it was intended OR diminishes its fitness for such use to such an extent that had the buyer been aware thereof, 10 These also apply in a contract of lease and a contract for a piece of work if the contractor agrees to produce the work from material furnished by him. (Arts. 1653 & 1714) he would not have bought it or would have paid a lower price; b. The defect is not patent or visible; c. The buyer is not an expert who, by reason of his trade or profession, should have known the defect d. The seller is aware of the hidden fault or defect, OR even he is not aware thereof if there is no stipulation to the contrary (Arts.1561 &1566) o Implied warranty as to Merchantable Quality and Fitness of Goods a. Merchantable Quality: 1) Where the goods are brought by description from a seller who deals in goods of that description (Art.1562(2)) 2) In a sale by sample, if the seller is a dealer in goods of that kind and the defect is not apparent on reasonable examination of the sample (Art.1566) b. Fitness for a particular purpose: Where the buyer expressly or impliedly makes known to the seller the particular purpose for which the goods are acquired AND it appears that the buyer relies on the seller’s skill or judgment (Art.1562(1)) o Implied warranty against Redhibitory Defect in the Sale of Animals Redhibitory defect- a hidden defect of animals of such nature that expert knowledge is not sufficient to discover it, even in case a professional inspection has been made No warranty in case of: a. animals sold at fairs or public auctions b. livestock sold as condemned The following sales are void: a. sale of animals suffering from contagious diseases b. sale of animals unfit for the purpose for which they are acquired as stated in the contract Veterinarian liable if he fails to discover or disclose the hidden defect through ignorance or bad faith Seller liable if animal dies within 3 days after its purchase due to a disease that existed at the time of sale. OTHER warranties 1. Warranty in sale of CONSUMER GOODS o Consumer goods- goods primarily for personal, family, household or agricultural purposes, which shall include but not 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 181 of 325 SALES CIVIL LAW limited to food, drugs, cosmetics, and devices (Sec.4(q), RA 7493 11 ) o Kinds of express warranty: 1. “Full warranty”- if the written warranty meets the minimum standards 2. “Limited warranty- if the written warranty does not meet the minimum standards (Sec.6(c), RA7394) o Minimum standard for warranties that the warrantor shall: 1. remedy such consumer product within a reasonable time and without charge in case of a defect, malfunction or failure to conform to such written warranty; 2. permit the consumer to elect whether to ask for a refund or replacement without charge of such product or part, as the case may be, where after reasonable number of attempts to remedy the defect or malfunction, the product continues to have the defect or to malfunction BUT the warrantor will not be required to perform the above duties if he can show that the defect, malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use thereof. (Sec.68(d), RA 7394) 2. Warranty in sale of SUBDIVISION LOT or CONDOMINIUM UNIT o The owner or developer shall be answerable and liable for the facilities, improvements, infrastructures or other forms of development represented or promised in brochures, advertisements and other sales propaganda disseminated by the owner or developer or his agents and the same shall form part of the sales warranties enforceable against said owner or developer, jointly and severally. (Sec.19, PD 957 12 ) B. OBLIGATIONS OF THE BUYER 1. Accept delivery of the thing sold 2. Pay the price of the thing sold (Art.1582) 1. Acceptance o Modes of accepting goods: (AIR) 1. Buyer intimates to the seller that he has accepted the goods. 2. Goods delivered to the buyer and he does any act in relation to them which is inconsistent with the ownership of the seller. 3. After the lapse of a reasonable time, the buyer retains the goods without intimating 11 Consumer Act of the Philippines 12 The Subdivision and Condominium Buyers’ Protective Decree. to the seller that he has rejected them. (Art.1585) o Rights of the buyer (UNLESS otherwise agreed): 1. Not bound to accept delivery of goods by installments (Art. 1583) 2. Reasonable opportunity to examine the goods upon delivery to ascertain WON they are in conformity with the contract before accepting the same BUT when the seller delivers the goods to a carrier upon the terms that the same shall not be delivered to the buyer until he has paid the price, the buyer has no right to examine the goods before payment unless there is an agreement or usage of trade permitting such examination. (Art.1584) 3. Acceptance of the goods shall not discharge the seller from liability for breach of any promise or warranty BUT the buyer must give the seller notice of the breach of promise or warranty within a reasonable time after the buyer knows or ought to know of such breach, otherwise the seller shall not be liable therefor. (Art.1586) o The buyer must notify the seller of the breach of warranty at any time BEFORE the latter has filed the suit for the collection of the unpaid price since the purpose of the rule requiring notice is to prevent the buyer from interposing belated claims for damages as an offset to a suit begun by the seller for the purchase price (de Guzman v. Triangle Ace Corp., 2001) 4. Reject delivery of a wrong quantity of goods or of goods of a different description not included in the contract which are mixed with the goods sold. (Art.1522) 5. If he refuses to accept the goods, having the right to do so, he is not bound to return them to the seller; it being sufficient that he notifies the seller of his refusal to accept. If he voluntarily constitutes himself a depositary of the goods, he shall be liable as such. (Art.1587) o Effect of refusal to accept goods without just cause: title to the goods passes to the buyer from the moment they are placed at his disposal, except if ownership has been reserved by the seller (Art.1588) 2. Payment o 3 cases where the buyer is liable for interest for the period between delivery and payment: (STD) 1. It is stipulated; 2. Thing sold produces fruits or income; 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 182 of 325 SALES CIVIL LAW 3. Buyer is in default (interest accrues from the time of judicial or extrajudicial demand for the payment of the price) o Rights of the buyer: 1. Suspend payment When: a) he is disturbed in the possession or ownership of the thing acquired or has reasonable grounds to fear such disturbance, b) by a vindicatory action or a foreclosure of mortgage Until when: until the seller has caused the disturbance or danger to cease Exceptions: b) When the seller gives security for the return of the price in a proper case c) When it has been stipulated that, notwithstanding any such contingency, the buyer shall be bound to pay A mere act of trespass shall not authorize the suspension of the payment. (Art.1590) 2. In the sale of immovable property, to pay even after the expiration of the period agreed upon, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act, even though it may have been stipulated that rescission shall of right take place upon failure to pay the price at the time agreed upon. (Art.1592) VII. REMEDIES IN CASE OF BREACH 13 A. GENERAL REMEDIES (Art.1191) 1. Specific performance 2. Rescission 3. Damages o The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement (Song Fo & Co. v. Hawaiian-Philippine Co., 1925) o In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. (Art.1169 last par.) o Prescriptive periods: - 10 years if based on written contract - 6 years if based on oral contract 13 Includes both extrajudicial and judicial remedies. B. PARTICULAR REMEDIES OF THE BUYER 1. Breach of Obligation to Preserve Loss (Arts.1538 & 1189) Without fault of seller No breach (obligation extinguished) Through fault of seller OR through fortuitous event if seller liable even for fortuitous events Damages o A thing is lost when it: 1. perishes; 2. goes out of commerce; or 3. disappears in such a way that its existence is unknown or it cannot be recovered Deterioration (Arts.1538 & 1189) Without fault of seller No breach (impairment borne by buyer) Through the fault of seller 1. Rescission + damages OR 2. SP + damages 2. Breach of Obligation to Deliver Delivery of wrong quantity Goods (Art.1522) Less 1. Reject OR 2. Accept and pay - at contract rate: if he accepts knowing that the seller is not going to perform in full; or - fair value: if he used the goods delivered before knowing that the seller is not going to perform in full More 1. Reject the excess or the whole if indivisible OR 2. Accept the whole and pay at contract rate o In the sale of an undivided share of a specific mass of fungible goods, if the mass contains less than the number, weight, or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, UNLESS a contrary intent appears. (Art.1464) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 183 of 325 SALES CIVIL LAW Real estate (Arts.1539-1543) per unit of measure less (in area or quality) 1. proportional reduction of price OR 2. rescission, if - lack in area or inferior quality at least 1/10 of area stated or price; OR - the buyer would not have bought had he known of smaller area or inferior quality prescriptive pd: 6 mos. from delivery more 1. Reject the excess OR 2. Accept the whole and pay at contract rate. Lump sum/ sale of 2 or more immovables for a single price Everything w/in boundaries, even if less or more than stated area No remedy o Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. (Rudolf Lietz, Inc. v. CA, 2005) NOT everything w/in boundaries 1. proportional reduction in price OR 2. rescission Real estate (Arts.1539-1543) prescriptive pd: 6 mos. from delivery 3. Breach of Warranty Express Warranty o Prescriptive period: 1. Period specified in the express warranty; OR 2. If no period specified, 4 years, following the general rule on rescission of contract (Engineering & Machinery Corp. v. CA, 1996) o Remedies in case of sale of goods: 1. Accept goods + demand diminution or extinction of price 2. Accept goods + action for damages 3. Refuse to accept goods + action for damages 4. Rescind (refuse to accept OR return or offer to return) + recover price paid Rescission NOT available IF buyer: - knew of the breach of warranty when he accepted the goods without protest; - fails to notify seller of the election to rescind w/in a reasonable time; - fails to return or to offer to return the goods to the seller in substantially as good condition as they were in when delivered, unless the deterioration is due to the breach of warranty Measure of damages in case of breach of warranty of quality (in the absence of special circumstances showing proximate damage of a greater amt): difference between the value of goods at the time of delivery and the value they would have had if they had answered to the warranty. Effects of rescission: 1. Buyer no longer liable for price and entitled to return of any part thereof paid, concurrently with or immediately after an offer to return the goods. 2. If seller refuses to accept offer to return goods, buyer deemed bailee for the seller and has right of lien to secure payment of any part of price paid. Implied Warranty Against Eviction (Arts.1555&1556) Total eviction Enforce liability for eviction (demand VICED from seller) o Value of thing sold at the time of eviction o Income or fruits, IF he has been ordered to deliver them to the party who won the eviction suit 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 184 of 325 SALES CIVIL LAW o Costs of - eviction suit and - in a proper case, suit against seller for the warranty o Expenses of the contract, IF the buyer has paid them o Damages and interests, and ornamental expenses, IF the sale was made in BF Partial eviction 1. Enforce liability for eviction (VICED) OR 2. Rescind, IF he would not have bought the thing sold without the part lost (but he must return the thing without other encumbrances than those which it had when he acquired it) o RULES: (Arts.1549-1554) 1. Buyer need not appeal from the decision to hold seller liable for eviction. 2. When adverse possession commenced before sale but prescriptive pd. completed after transfer- seller not liable 3. If property sold for nonpayment of taxes due and not made known to the buyer before sale- seller liable 4. Judgment debtor also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment 5. If there is waiver of warranty: a. if seller acted in BF- seller liable for eviction (waiver void) b. if buyer made waiver without knowledge of the risks of eviction- seller liable only for the value of the thing sold at the time of eviction c. if buyer made waiver with knowledge of the risks of eviction and assumed its consequences- seller not liabl Implied Warranty Against Encumbrances (Art.1560) 1. Rescission- w/in 1 yr. from execution of deed of sale; OR 2. Damages- w/in 1 yr from execution of deed of sale or from discovery of burden or servitude Implied Warranty Against Hidden Defects (Arts.1567-1571) Thing not lost 1. Withdraw from contract (accion redhibitoria) + damages; OR 2. Demand a proportionate reduction of the price (accion quanti minoris)+damages Thing lost Due to hidden fault o If seller aware of defect- may demand: - return of price - refund of expenses of contract - damages o If seller not aware of defect- may demand price and expenses but not damages Due to fortuitous event or to fault of buyer Demand: o Price paid minus value of thing when it was lost o Damages IF the seller acted in BF o Prescriptive period: 6 mos. from delivery Implied Warranty Against Redhibitory Defect of Animals 1. Withdraw from contract (accion redhibitoria) + damages; OR 2. Demand a proportionate reduction of the price (accion quanti minoris)+damages o If sale rescinded, buyer must return animal in the condition in which it was sold and delivered (liable for injury due to his negligence and not arising from the redhibitory fault or defect) o Prescriptive period: 40 days from delivery Warranty in Sale of Consumer Goods (Sec. 68 (e)(f), RA 7394) Express warranty 1. Demand repair w/in 30 days (extendible for causes beyond the control of the warrantor; OR 2. Demand refund of price minus amount directly attributable to the use of the consumer prior to the discovery of the non- conformity Implied warranty 1. Retain the goods and recover damages; OR 2. Reject the goods, cancel contract and recover from the seller so much of the purchase price as has been paid, including damages. o Duration of warranty if implied warranty accompanies express warranty: - If the implied warranty on merchantability accompanies an express warranty, both will be of equal duration. - Any other implied warranty shall endure not less than sixty (60) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 185 of 325 SALES CIVIL LAW days nor more than one (1) year following the sale of new consumer products. C. PARTICULAR REMEDIES OF THE SELLER NON-ACCEPTANCE OF GOODS 1. Action for damages for nonacceptance, where the buyer wrongfully neglects or refuses to accept and pay for the goods (Art.1596) Measure of damages: - estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach - where there is an available market for the goods (in the absence of special circumstances): difference between the contract price and the market price at the time the goods ought to have been accepted or if no time fixed, at the time of refusal to accept - labor performed and expenses made by the seller before receiving notice of the buyer’s repudiation or countermand - profit the seller would have made if sale had been fully performed 2. Rescission by giving notice of election to rescind to the buyer (Arts.1597&1593) NONPAYMENT In sale of movables: 1. Self-help remedies of unpaid seller of goods 2. Action for the price of goods 3. Alternative remedies under the Recto Law (Arts. 1484 & 1485) Self-help remedies of an unpaid seller of goods (Arts.1525-1535) o “unpaid seller” when: 1. the whole of the price has not been paid or tendered 2. a bill of exchange or other negotiable instrument received as conditional payment has been dishonored seller includes: - seller’s agent to whom the BOE has been endorsed - a consignor or agent who has himself paid, or is directly responsible for the price - any other person who is in the position of a seller o Self-help remedies: 1. Lien- right to retain the goods while he is in possession of them 2. Stoppage in transitu- right to resume possession of the goods at any time while they are in transit as if he never parted with the possession 3. Resale 4. Rescission –rescind transfer of title and resume ownership in the goods Right of LIEN o Available when: 1. Goods sold w/o any stipulation as to credit; 2. Goods sold on credit, but the term of credit has expired; or 3. Buyer becomes insolvent 14 o Lost when: 1. Seller delivers goods to carrier or other bailee for transmission to the buyer w/o reserving ownership or right to possession; 2. Buyer or his agent lawfully obtains possession of the goods 3. Seller waives it o NOT lost by reason only that the buyer has obtained judgment for the price of the goods o In case of part delivery: may exercise right of lien as to remainder UNLESS part delivery made with intent to waive the lien o NOT affected by any sale or other disposition of goods which the buyer may have made UNLESS the seller has consented thereto BUT if negotiable doc of title has been issued, right of a holder in due course NOT defeated, whether the negotiation be prior or subsequent to the notification of the carrier or other bailee of the seller’s claim to a lien. Right of STOPPAGE IN TRANSITU o Available when the buyer of the goods is or becomes insolvent o Goods are in transit: 1. From the time they are delivered to a carrier or other bailee for transmission to the buyer until buyer or his agent takes delivery; 2. If buyer rejects the goods and the carrier or bailee continues in possession, even if the seller has refused to receive them back o Goods no longer in transit if: 1. Buyer or his agent obtains delivery of the goods before their arrival at the appointed destination; 2. After the arrival of the goods at the appointed destination, carrier or bailee acknowledges to the buyer or his 14 Insolvency under Title on Sales refers to insolvency in fact- when a person has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, WON insolvency proceedings have been commenced (Art.1636(2)) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 186 of 325 SALES CIVIL LAW agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent (immaterial if buyer indicates further destination for the goods; 3. The carrier or baileewrongfully refuses to deliver the goods to the buyer or his agent o Exercised by: 1. Obtaining actual possession of the goods; OR 2. Notifying carrier or bailee of his claim If carrier or bailee has issued a negotiable document of title, it must first be surrendered for cancellation before the goods are redelivered to the seller o In case of part delivery: may exercise right of stoppage in transitu as to remainder UNLESS circumstances of part delivery show an agreement with the buyer to give up possession of the whole of the goods. o NOT affected by any sale or other disposition of goods which the buyer may have made UNLESS the seller has consented thereto BUT if negotiable doc of title has been issued, right of a holder in due course NOT defeated, whether the negotiation be prior or subsequent to the notification of the carrier or other bailee of the seller’s claim to a right of stoppage in transitu Right of RESALE o Available to unpaid seller who: 1. has a right of lien; OR 2. has stopped the goods in transitu o Available when: 1. Goods are of a perishable nature; 2. Seller expressly reserves the right of resale in case the buyer defaults; or 3. Buyer defaults in payment for an unreasonable time o For the resale to be valid, the seller need NOT notify the original buyer of: 1. the intention to resell 2. the time and place of the resale o BUT giving or failure to give notice of intention to resell is relevant in determining WON the buyer had been in default for an unreasonable time before the resale was made. o The seller must exercise reasonable care and judgment in making a resale o The resale may be by public or private sale. o The seller CANNOT buy the goods, directly or indirectly. o Effects of resale: 1. The seller is NOT liable anymore to the original buyer: - upon the contract of sale; OR - for any profit made by the resale 2. The seller may recover damages from the original buyer for any loss occasioned by the breach of the contract of sale. 3. The buyer in the resale acquires a good title as against the original buyer. Right to RESCIND o Available to unpaid seller who: 1. has a right of lien; OR 2. has stopped the goods in transitu o Available when: 1. Seller expressly reserved the right to rescind in case the buyer defaults; or 2. Buyer defaults in payment for an unreasonable time. o Rescission made by manifesting an intention to rescind by: 1. notice to the buyer; OR 2. some other overt act which need not be communicated to the buyer o BUT giving or failure to give notice of intention to rescind is relevant in determining WON the buyer had been in default for an unreasonable time before the rescission. Action for the price of goods o Available when: 1. Ownership has passed to buyer and buyer wrongfully neglects or refuses to pay; 2. Price payable on a certain day irrespective of delivery and buyer wrongfully neglects or refuses to pay; or 3. Buyer notifies seller of his repudiation of the contract after the seller has completed the manufacture of the goods or had procured the goods to be delivered, and the goods cannot readily be resold for a reasonable price. (Art.1595) Under the Recto Law (Arts.1484 & 1485) o Applies in cases of: 1. sale of movables in installment 2. lease of personal property - with option to buy - when the lessor has deprived the lessee of the possession or enjoyment of the thing When the seller assigns his credit to another person, the assignee is likewise bound by the same law. (Borbon II v. Servicewide Specialists, Inc., 1996) Stipulation that the installments or rents paid shall not be returned to the buyer or lessee VALID insofar as the same may not be unconscionable (Art. 1486) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 187 of 325 SALES CIVIL LAW Sale of movables in installment The Recto law does NOT apply to a straight term sale in which the balance, after payment of the initial sum, should be paid in full at the time specified, because the law attempts to protect improvident buyers from the great temptation of buying beyond their means. In a straight term sale, the partial payments are not so small as to place buyers off their guard and delude them to a miscalculation of their ability to pay. (Levy Hermanos, Inc. v. Gervacio, 1939) Lease of personal property with option to buy The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 is fulfilled when the lessor files a complaint for replevin to recover possession of the movable property. By virtue of the writ of seizure, the lessee is deprived of the use of the property. (Elisco Tool Manufacturing Corp., v. CA, 1999) The Recto law does not apply to a financial leasing agreement which, by definition under RA 8556 15 , does not give the lessee an option to buy. (Sing, Jr. v. FEB Leasing and Finance Corp., 2007) BUT when a contract purporting to be a financial leasing agreement is in reality a contract of lease with option to buy, the Recto law applies. When the lessor, in its demand letter, gives the defaulting lessee the option of either returning the movable property or keeping it by paying the outstanding balance, the lessee is in effect given an option to buy, even if the “lease agreement” does not contain a “purchase option” clause.(PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc., 2007) The Recto law does not apply to a creditor-mortgagee in a loan secured by a chattel mortgage on the property purchased with the proceeds of the loan, absent proof that: - the agreement was in fact a consumer loan agreement (i.e., the mortgagee in fact bought the property from the original seller and in turn, sold it to the mortgagor) (Superlines Transportation Company, Inc. v. Lavides, 2003); or - the seller assigned to the creditor the right to collect the balance of the purchase price from the buyer. (Rosario v. PCI Leasing and Finance, Inc., 2005) o Alternative remedies under the Recto law: 1. Specific performance 15 Financing Company Act of 1998 2. Cancellation of sale, IF the buyer fails to pay 2 or more installments 3. Foreclosure of chattel mortgage on the thing sold, if one has been constituted, IF the buyer fails to pay 2 or more installments. o Nature of the remedies: ALTERNATIVE, NOT CUMULATIVE- the exercise of one bars the exercise of the others (Cruz v. Filipinas Investment & Finance Corp., 1968) 16 SPECIFIC PERFORMANCE o When the seller-mortgagee first seeks to enforce additional mortgages, guarantees or other security arrangements, he loses his lien on the chattel mortgage of the personal property he sold, although he may still levy on it. (Borbon II v. Servicewide Specialists, Inc., 1996) o When there is a chattel mortgage on the thing sold but the seller elects to sue on a promissory note to exact fulfillment of the obligation to pay, the seller is not limited to the proceeds, on execution, of the mortgaged property, as there is no foreclosure of chattel mortgage nor a foreclosure sale of the thing sold in such a case. Hence, other properties of the buyer may be levied upon in case of deficiency. (Tajanlangit v. Southern Motors, Inc., 1957) CANCELLATION OF SALE o Available when the buyer fails to pay 2 or more installments o When the seller cancels the sale by repossessing the property sold, it is barred from exacting payment of the balance of the price thereof. (Nonato v. IAC, 1985) FORECLOSURE OF CHATTEL MORTGAGE o Available when the buyer fails to pay 2 or more installments o Foreclosure may be judicial or extrajudicial- that is, by ordinary action or by foreclosure under power of sale contained in the mortgage. (Magna Financial Services Group, Inc. v. Colarina, 2005) o Effect of foreclosure: seller shall have “no further action” to recover any “unpaid balance” of the price; any contrary agreement VOID. Purpose of the law is to remedy the abuses committed in foreclosure of 16 QUOTABLE QUOTE: SC always says, “It cannot have its cake and eat it too.” 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 188 of 325 SALES CIVIL LAW chattel mortgages. It prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness. (Bachrach Motor Co., Inc. v. Millan, 1935) It is the fact of foreclosure and actual sale of the mortgaged chattel that would bar the seller from recovering any unpaid balance; hence, after filing an action for replevin but before the foreclosure sale, the seller may accept payments voluntarily tendered by the buyer who admits a subsisting indebtedness. (Northern Motors, Inc. v. Sapinoso, 1970) The further “action” referred to may be judicial or extrajudicial; hence, it includes extrajudicial foreclosure of a real estate mortgage given as additional security. (Cruz v. Filipinas Investment & Finance Corp., 1968) After foreclosure of the chattel mortgage, the seller cannot proceed against additional security put up by the buyer himself (Ridad v. Filipinas Investment and Finance Corp., 1983) or even by a third person, because the buyer would still be the one ultimately burdened- the guarantor can recover from him what it had paid. (Cruz v. Filipinas Investment & Finance Corp., 1968) Where the buyer-mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of 2 or more installments, or if he concealed the chattel to place it beyond the reach of the seller- mortgagee, that thereby constrained the latter to seek court relief, the expenses incurred for the prosecution of the case, such as attorney’s fees, could rightly be awarded (Borbon II v. Servicewide Specialists, Inc., 1996) In sale of immovables 1. Rescission for anticipatory breach (Art.1591) 2. Specific Performance + damages under Art.1191 3. Rescission + damages under Art.1191 Subject to the provisions of: - Art.1592 in case of an absolute sale (Odyssey Park, Inc. v. CA, 1997); OR - RA 6552 17 in case of a sale in installment 17 Realty Installment Buyer Act Rescission for anticipatory breach o Available when the seller has reasonable grounds to fear the loss of immovable property sold and its price Rescission o Available even after the seller has chosen specific performance IF the latter becomes impossible o Instead of decreeing rescission, the court may authorize the fixing of a period for a just cause. o In case of an absolute sale, the seller must make a demand for rescission either - judicially OR - by a notarial act (Art. 1592) A judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. (Iringan v. CA, 2001) Effect of lack of demand: buyer can still pay Effect of demand: the court may not grant the buyer a new term The ff. have been considered by the SC as constituting a judicial demand for rescission: 1. Cross-claim (Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 1972); 2. Action for Judicial Confirmation of Rescission and Damages (Iringan v. CA, 2001) 3. Defense in the seller’s Answer to the buyer’s Action for Specific Performance (Ramel v. Aquino, 2006) o In installment sale of realty, RA 6552 imposes additional requirements for a valid rescission RA 6552 does not apply to: 1. industrial lots 2. commercial buildings 3. sale to tenants under RA 3844 18 Requirements for a valid rescission if buyer has paid at least 2 years of installments: (Sec.3) 1. Grace period- 1 mo/1 yr of installment payments made; BUT buyer may avail of it only once in every 5 yrs. 2. Refund of cash surrender value (CSV): 50% of total amt paid + 5% for every yr after the first 5 years of installments, BUT not > 90% of total amt paid 3. Notice of cancellation or demand for rescission by notarial act, effective 30 days from the buyer’s receipt thereof and upon full payment of the CSV 18 Agricultural Land Reform Code 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 189 of 325 SALES CIVIL LAW Requirements for a valid rescission if buyer has paid less than 2 yrs of installments: (Sec.4) 1. Grace period of at least 60 days 2. Notice of cancellation or demand for rescission by notarial act, effective 30 days from the buyer’s receipt thereof Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. (Sec.3) The seller can go to court to demand judicial rescission in lieu of a notarial act of rescission. (Olympia Housing, Inc. v. Panasiatic Travel Corp, 2003) The requirement of a notarial act of rescission is dispensed with when the seller files an action for annulment of contract, which is a kindred concept of rescission (Layug v. IAC, 1988); but NOT when he files - an action for reconveyance (Ramos v. Heruela, 2005; Olympia Housing, Inc. v. Panasiatic Travel Corp., 2003); OR - an action for unlawful detainer (Pagtalunan v. Vda. De Manzano, 2007) Automatic cancellation clause is void under Section 7 of R.A. 6552 (Fabrigas v. San Francisco Del Monte, Inc., 2005) VIII. DOUBLE SALE (Art.1544) A. REQUISITES: (Cheng v. Genato, 1998) 1. 2 or more valid sales; 2. same subject matter; 3. 2 or more buyers with conflicting interests at odds over the rightful ownership of the thing sold; 4. same seller O No double sale when one of the two contracts is a mere contract to sell. (San Lorenzo Development Corp. v. CA, 2005; Coronel v. CA, 1996) O No double sale where there is only one valid sale, the other sale being forged. (Fudot v. Cattleya Land, Inc., 2007) O No double sale when the two different contracts of sale are made by two different persons, one of them not being the owner of the property sold.(Salera v. Rodaje, 2007) O When not all requisites for the application of Art. 1544 are present, the principle of prior tempore, potior jure (“he who is first in time is preferred in right”) should apply. The only essential requisite of this rule is priority in time; in other words, the only one who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith because at the time he bought the real property, there was still no sale to a second vendee.(Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 2005) o Art. 1544 does NOT apply to the sale of unregistered land at an execution sale because a buyer of unregistered land at a execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of the time the property was levied upon. (Carumba v. CA, 1970) B. RULES OF PRIORITY UNDER ART.1544 IN CASE OF MOVABLES: - Possession in good faith IN CASE OF IMMOVABLES: 1. Registration in good faith 2. If no prescription, possession in good faith 3. If no registration or possession, oldest title acquired in good faith. o Good faith- lack of knowledge of any defect in the title over the property sold (Vda de Melencion v. CA, 2007) o Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except where the second buyer registers in good faith the second sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to register first her purchase as against the second buyer. But in converso, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior registration with bad faith. (Uraca v. CA, 1997) o Registration- any entry made in the books of the registry, including both registration in its ordinary and strict sense and cancellation, annotation, and even marginal notes. (Cheng v. Genato, 1998) o If the land is registered under the Land Registration Act (and therefore has a Torrens Title), and it is sold and the sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered registered under Art. 1544 of the Civil Code; neither does such registration operate as constructive notice to the second buyer.(Vda de Melencion v. CA, 2007) o Possession includes not only material(actual) possession, but also symbolic possession, which is acquired by 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 190 of 325 SALES CIVIL LAW the execution of a public instrument (Sanchez v. Ramos, 1919) o Older title- any document showing acquisition of the land in good faith, like a receipt for the price. (Baviera) IX. EXTINGUISHMENT OF SALE A. CAUSES: (Arts.1600 &1231) (P-PLAN-CCC-RRR) 1. Payment/performance 2. Presription 3. Loss of thing due 4. Annulment 5. Novation 6. Condonation/remission 7. Confusion/merger 8. Compensation 9. Rescission 10. Resolutory condition fulfilled 11. Redemption a. Legal b. Conventional B. CONVENTIONAL REDEMPTION (Arts.1601-1618) o Available when the seller reserves the right to repurchase the thing sold in the same instrument of sale as one of the stipulations of the contract (Villarica v CA, 1968) An agreement to repurchase becomes a promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the object. (Ramos v. Icasiano, 1927) o Period for redemption: - pd. stipulated, but NOT > 10 yrs; OR - 4 yrs from date of contract, if no pd. stipulated o Available to: 1. Seller (or his agent/heirs/assigns) 2. Creditors of seller, AFTER they have exhausted the seller’s property If co-owners, jointly and in the same contract, sell an undivided immovable, each may redeem only his respective share If a sole owner sells an immovable and leaves several heirs, each heir may redeem only his share. In these 2 cases, the buyer a retro may demand all the sellers a retro or heirs to buy redeem the whole thing and he cannot be compelled to agree to a partial redemption. o Enforceable against: 1. Buyer (or his agent/heirs/assigns) If the land is registered, the right to redeem must be annotated in the title in order to prejudice a subsequent buyer from the buyer a retro. A buyer of a part of an undivided immovable who acquires the whole thereof may compel the seller to redeem the whole property. If the buyer leaves several heirs, action to redeem may be brought against each heir only for his own share, WON the thing has been partitioned, UNLESS in the partition, one heir was awarded with the thing sold, in which case he may be sued for redemption of the whole thing o Redemption exercised by: 1. Returning the ff. to the buyer: (PEN) a. Price of the sale; b. Expenses of the contract and other legitimate payments made by reason of the sale; c. Necessary and useful expenses made on the thing sold 2. Complying with any other stipulation agreed upon, if any. The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment for the full amount of the repurchase price. (BPI Family Savings Bank, Inc. v. Veloso, 2004) Tender of payment is enough (i.e., consignation is not necessary), if made on time, as a basis for action against the buyer to compel him to resell. But that tender does not in itself relieve the buyer from his obligation to pay the price when redemption is allowed by the court. (Paez v. Magno, 1949) o Effects of redemption: 1. The seller shall receive the thing free from all charges or mortgages constituted by the buyer BUT he shall respect leases executed by the buyer in good faith and in accordance with local custom. 2. If there are growing fruits at the time of sale and at the time of redemption: no reimbursement or prorating if the buyer did not pay indemnity at the time of sale 3. If there were no growing fruits at the time of sale, but some exist at the time of redemption: fruits prorated (buyer entitled to part corresponding to time he possessed the land in the last year, counted from the anniversary of the date of sale) o Effect of non-redemption: Ownership consolidated in the buyer BUT the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 191 of 325 SALES CIVIL LAW consolidation shall not be recorded in the Registry of property w/o a judicial order, after the vendor has been duly heard. If the court declares the contract as an equitable mortgage, the right of action to foreclose the mortgage or to collect the indebtedness arises from the judgment, even if it is not alternatively prayed for. (Heirs of Arches v. Diaz, 1973) CONTRACT OF SALE (with right to repurchase or absolute) vis-à-vis EQUITABLE MORTGAGE o An equitable mortgage is defined as one which, although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. (Molina v. CA, 2003) o Contract of sale (whether with right of purchase or purported as absolute) is presumed to be an equitable mortgage in ANY of the ff. cases: (5P-R) 1. Price unusually inadequate; 2. Possession retained by the seller as lessee or otherwise; 3. Period of redemption extended (or granted anew) upon or after the expiration of the right to repurchase; 4. Part of the purchase price retained by the seller; 5. Payment of taxes on the thing sold borne by the seller; 6. Any other case where it may be fairly inferred that the real intention of the parties is for the transaction to secure a debt or other obligation. o For the presumption of an equitable mortgage to arise under Art. 1602, two (2) requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that their intention was to secure an existing debt by way of a mortgage. (Molina v. CA, 2003) o In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. o Remedy of apparent vendor if equitable mortgage is the real intention: REFORMATION If decreed to be an equitable mortgage- any money, fruits or other benefit to be received by the buyer as rent or otherwise considered as interest. If decreed as a true sale with right to purchase- seller may redeem w/in 30 days from finality of judgment, even if the period for redemption has expired. C. LEGAL REDEMPTION (Arts. 1619-1623) o Legal redemption - the right to be subrogated, - upon the same terms and conditions, - in the place of one who acquires a thing by onerous title (such as sale or dation) o Instances of legal redemption and periods for their exercise To whom granted Period Co-owner (Art.1620, CC) 30 days from notice - in writing - by the seller - of the actual execution and delivery of the deed of sale *Actual knowledge of the sale immaterial (Doromal v CA, 1975) Adjoining owner of rural land (Art.1621,CC) Adjoining owner of urban land (Art.1622,CC) Debtor in case a credit or incorporeal right in litigation is sold (Art.1634) 30 days from the date the assignee demands payment from debtor Applicant or his widow or legal heirs in case of sale of homestead (Sec.119, Public Land Act) 5 yrs. from date of conveyance Taxpayer in case of tax sale (Sec. 215, NIRC) 1 year from date of forfeiture Judgment debtor, successor–in- interest, or creditor with subsequent lien, in case of execution sale (Rule 39, Sec.27, ROC) 1 year from the date of registration of the certificate of sale Debtor-mortgagor, successors-in- interest, judicial/judgment creditor, any person having a lien on the property, in case of extrajudicial foreclosure of mortgage (Act No. 3135. Sec. 6. ) 1 year from the date of the sale debtor-mortgagor in case of judicial foreclosure of real estate mortgage IF the mortgagee is a 90 days from finality of judgment 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 192 of 325 SALES CIVIL LAW To whom granted Period bank or a banking institution. (The General Banking Law of 2000) Agricultural lessee w/o knowledge of sale of landholding (Agrarian Land Reform Code, Sec.12) 2 years from the registration of the sale o How exercised: by either a formal offer to redeem or the filing of an action in court together with the consignation of the redemption price within the reglementary period. (Lee Chuy Realty Corp., v. CA, 1995) Redemption by co-owner o Available when the shares of any or all of the other co-owners are sold to a 3 rd person (anyone not a co-owner) o If price grossly excessive, the redemptioner shall pay only a reasonable one. o If 2 or more co-owners want to redeem: they may do so in proportion to their respective shares o The right of redemption of co-owners excludes that of adjoining owners. Redemption by adjoining owner of rural land o Available when the area of rural land is 1 hectare or less, unless the grantee does not own any rural land. o NOT available when the adjoining lands are separated by brooks, drains, ravines, roads, and other permanent servitudes for the benefit of other estates o Priority if 2 or more adjoining owners want to redeem: 1. owner of smaller adjoining land;or 2. if with same area, owner who first requested redemption Redemption by adjoining owner of urban land o Granted in addition to right of pre-emption o Available when the urban land: 1. is so small and so situated that a major portion of it cannot be used for any practical purpose w/in a reasonable time; 2. was bought merely for speculation; and 3. was resold. o Priority if 2 or more adjoining owners want to redeem: owner whose intended use of the land appears to be best justified Redemption of credit or incorporeal right o Available when it is sold while in litigation (from the time the complaint is answered) o NOT available when the assignment in favor of: 1. co-heir/co-owner of right assigned 2. creditor in payment of his credit 3. possessor of a tenement or piece of land which is subject to the right assigned o How exercised: reimburse the assignee for the: - Price paid - Judicial expenses incurred - Interest on the price from date of payment X. ASSIGNMENT o Assignment: a sale of credits and other incorporeal rights o Requirement to bind third persons: - if involving credit, right, or action: must appear in public instrument; - if involving right over real property: must be recorded in Registry of property o Debtor who pays his creditor before having knowledge of the assignment is released from the obligation. o Assignment of credit includes all accessory rights, such as: - Guaranty; - Mortgages; - Pledge - Preference o Warranties in assignment of credit: 1. Seller warrants existence and legality of the credit at the time of the sale, UNLESS it should have been sold as doubtful; 2. Seller does NOT warrant solvency of the debtor, UNLESS: - expressly stipulated or - the insolvency was prior to the sale AND of common knowledge If seller warrants debtor’s solvency but duration of liability not stipulated: duration is 1 year from - time of assignment, if the period for payment had already expired, or - maturity, if period has not yet expired o Liability of assignor of credit in case of breach of warranty: - if in GF: price received + expenses of contract - if in BF: price received + all expenses + damages o Other warranties: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 193 of 325 SALES CIVIL LAW 1. If inheritance sold w/o enumerating the things composing it, seller only warrants his character as an heir 2. If certain rights, rents, or products sold for lump sum, seller warrants only the legitimacy of the whole in general and not each part composing it, EXCEPT in case of eviction from the whole or the part of greater value XI. SOME SPECIAL LAWS A. RA 6552 TITLE: Realty Installment Buyer Act PURPOSE OF THE LAW: to protect buyers of real estate on installment payments against onerous and oppressive conditions (Sec.2) SCOPE OF APPLICATION: (Sec.3) o Applies to: sale or financing of real estate on installment payments, including residential condominium apartments o Does NOT apply to: 1. industrial lots; 2. commercial buildings; and 3. sales to tenants under the Agrarian Land Reform Code RIGHTS/BENEFITS GRANTED TO BUYERS 1. Additional requirements for rescission in case of default in payment: 19 a. grace period b. notice of cancellation or demand for rescission by notarial act c. payment of CSV, if at least 2 yrs of installments paid (Secs.3&4) 2. During the grace period and before actual cancellation of the contract: a. right to assign by a notarial act his rights to another person, or b. right to reinstate the contract by updating the account. (Sec.5) 3. Right to pay in advance - any installment or the full unpaid balance of the purchase price - any time - without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. (Sec.6) o Any contrary stipulation NULL & VOID. (Sec.7) B. PD 957 TITLE: The Subdivision and Condominium Buyers’ Protective Decree 19 Discussed in detail under rescission. PURPOSE OF THE LAW: to regulate the sale of subdivision lots and condominiums and impose penalties on fraudulent practices and manipulations committed in connection therewith (Whereas clause) SCOPE OF APPLICATION: “Sale” of subdivision lot (inc. the building or other improvements) or condominium unit, which includes: - a contract to sell, - a contract of purchase and sale, - an exchange, - an attempt to sell, - an option of sale or purchase, - a solicitation of a sale, or - an offer to sell, directly or by an agent, or by a circular, letter, advertisement or otherwise. REGULATION BY THE NATIONAL HOUSING AUTHORITY 1. Approval of plan for subdivision or condominium project and registration of approved plan. (Sec.4) 2. License to sell (subdivision lots or condominium units) and performance bond, except in the ff. cases: a. Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs. b. Sale or transfer of a subdivision lot by the original buyer thereof and any subsequent sale of the same lot. c. Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee - in the ordinary course of business - when necessary to liquidate a bona fide debt. (Secs.4-7) 4. Power to suspend license to sell (Sec.8) 5. Power to revoke registration certificate and license to sell after notice and hearing (Sec.9) 6. Registers of subdivision lots and condominium units where all NHA orders affecting the condition or status thereof shall be entered (Sec.10) 7. Registration of dealers, brokers, and salesmen (Sec.11) 8. Revocation of registration of dealers, brokers, and salesmen after notice and hearing (sec12) 9. Prior written approval for any mortgage on the unit or lot to be made by the owner or developer (sec.18) 10. Permission for alteration of approved subdivision plan (Sec.22) 11. Visitorial powers (Sec34) 12. Take-over development at the expenses of the owner or developer, jointly and severally, in cases where the owner or developer has refused or failed to develop or complete the development of the project as provided for in this Decree. o NHA may, after such take-over, demand, collect and receive from the buyers the installment payments due 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 194 of 325 SALES CIVIL LAW on the lots, which shall be utilized for the development of the subdivision. (Sec.35) RIGHTS/BENEFITS GRANTED TO BUYERS 1. If the owner or developer mortgaged the lot or unit to secure a loan: - buyer must be notified before the release of the loan - buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto (Sec.18) 2. Warranties enforceable - against the owner or developer, jointly and severally, - for the facilities, improvements, infrastructures or other forms of development represented or promised in brochures, advertisements and other sales propaganda disseminated by the owner or developer or his agents (Sec.19) o The owner or developer must complete the construction within 1 year from the date of the issuance of the license for the subdivision or condominium project or such other period of time as may be fixed by the NHA (Sec.20) 3. Consent by the homeowners association or majority of the lot buyers required for any alteration of the approved subdivision plan (Sec.22) 4. Non-forfeiture of installment payments when the buyer, - after due notice to the owner or developer, - desists from further payment - due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. o Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. (Sec.23) 5. Rights under RA 6552 if the buyer defaults in payment for reasons other than the failure of the owner or developer to develop the project (Sec.24) 6. Issuance of title upon full payment of the lot or unit o No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. o In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance. (Sec.25) 7. Payment of real estate tax and assessment on a lot or unit by the owner or developer without recourse to the buyer for as long as the title has not passed the buyer o BUT if the buyer has actually taken possession of and occupied the lot or unit, he shall be liable to the owner or developer for such tax and assessment effective the year following such taking of possession and occupancy. (Sec.26) 8. Freedom from any collection of charges by the owner or developer for an alleged community benefit. o Fees to finance services for common comfort, security and sanitation may be collected only by a properly organized homeowners association and only with the consent of a majority of the lot or unit buyers actually residing in the subdivision or condominium project. (Sec.27) 9. Right of way to public road must be secured by the owner or developer of a subdivision without access to any existing public road or street (Sec.29) 10. Organization of Homeowners Association to be initiated by the owner or developer for the purpose of promoting and protecting the mutual interest of the buyers and assisting in their community development. (Sec.30) o Any waiver of compliance with any provision of PD957 VOID (Sec.33) o Sanctions in case of violation: 1. Administrative fine: up to P10K 2. Criminal liability: fine up to P20K and/or imprisonment up to 10 yrs. C. ACT NO. 3952 TITLE: The Bulk Sales Law PURPOSE OF THE LAW: To protect persons who extended credit to merchants, relying on the fact that their stock of merchandise was not to be sold in bulk, but kept up and replenished from time to time. Credit was extended, presupposing continuance in the business of merchandising (Baviera, citing US case) SCOPE OF APPLICATION o Applies to: a “sale and transfer in bulk”, which includes any sale, transfer, mortgage or assignment of: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 195 of 325 SALES CIVIL LAW 1. a stock of goods, wares, merchandise, provisions or materials NOT in the ordinary course of trade and the regular prosecution of the business of the seller, transferor, mortgagor, or assignor 2. all, or substantially all, of the business or trade theretofore conducted by the seller, transferor, mortgagor, or assignor 3. all, or substantially all, of the fixtures and equipment used in and about the business of the seller, transferor, mortgagor, or assignor o Does not apply : 1. If the vendor, transferor, mortgagor or assignor, produces and delivers a written waiver of the provisions of the Act from his creditors as shown by verified statements (Sec.2) 2. To executors, administrators, receivers, assignees in insolvency, or public officers, acting under judicial process. (Sec.8) REQUIREMENTS: (SPIN-C) 1. Sworn statement of list of creditors 2. Pro-rata application of the purchase or mortgage money to the payment of listed creditors 3. Inventory of the goods, wares, merchandise, provisions or materials 4. Notice to listed creditors 5. Consideration for the sale, transfer, mortgage or assignment Sworn statement of list of creditors o Contents: 1. names and addresses of all creditors of seller or mortgagor 2. amount of indebtedness due or owing, or to become due or owing to each o When delivered: before receiving any part of the purchase price, or any promissory note, memorandum, or other evidence of indebtedness therefor o To who delivered: - to such buyer, mortgagee, or agent; or - if the buyer, mortgagee, or agent be a corporation: to the president, vice- president, treasurer, secretary or manager of said corporation; or - if such vendee or mortgagee be a partnership firm: to a member thereof Inventory o Contents: 1. quantity 2. cost price of each article, so far as possible o When made: at least 10 days before sale or mortgage Notice to creditors o Contents: price, terms, and conditions of the sale, transfer, mortgage or assignment o When made: at least 10 days before transferring possession o How made: personally or by registered mail Consideration - must not be nominal EFFECT OF NON-COMPLIANCE: o Criminal liability: 6 mos.-5yrs imprisonment, or fine of P5K or less, or both. o In addition, if the purchase or mortgage money is not applied pro-rata to the bona fide claims of listed creditors, the sale, transfer or mortgage shall be FRAUDULENT and VOID. Q 2007 BAR Seeking to streamline its operations and to bail out its losing ventures, the stockholders of X Corporation unanimously adopted a proposal to sell substantially all of the machineries and equipment used in and about its manufacturing business and to sink the proceeds of the sale for the expansion of its cargo transport services. (a) Would the transaction be covered by the provisions of the Bulk Sales Law? (b) How would X Corporation effect a valid sale? CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 196 of 325 AGENCY Agency TABLE OF CONTENTS Section 1. Nature, Form, and Kinds of Agency 197 Section 2. Obligations of the Agent 202 Section 3. Liabilities of the Agent 204 Section 4. Obligations of the Principal 205 Section 5. Extinguishment of Agency 206 CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 197 of 325 AGENCY NATURE, FORM, AND KINDS OF AGENCY Definition and concept Contract of agency: where a person binds himself, 1. to render some service, or 2. to do something in representation or on behalf of another, with the latter’s consent or authority. (Art. 1868, CC) AGENCY is a relationship which implies a power in an agent to contract with a 3rd person on behalf of a principal. [Humble Oil & Refining v Beu Tex. Cir. App.] AGENCY is personal, representative, and derivative in nature. The authority to act emanates from the powers granted to him by his principal. His act is the act of the principal if done within the scope of the authority. [Rallos v Felix Go Chan & Sons Realty, 1978] Nature, basis and purposes Since agency is a contract, there must consent, object, and cause. The purpose of agency is to extend the principal’s personality. General rule: What a man may do in person, he may do thru another. Exceptions: There are acts which the agent may not do for the principal: 1. Personal acts, and 2. Criminal acts. Knowledge of the agent is imputed to the principal. Exceptions: 1. Agent’s interests are adverse to those of the principal; 2. Agent’s duty is not to disclose information; and 3. 3rd person claiming the benefit of the rule colludes with agent to defraud principal. The theory of imputed knowledge ascribes the knowledge of the agent, to the principal, not the other way around. The knowledge of the principal can’t be imputed to its agent (Sunace Internat’l Mgt. Services v. NLRC, 2006). Characteristics 1. Consensual: Perfected by mere consent. General Rule: On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions; and on the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. [Victorias Milling v CA, 2000] Exception: One who clothes another with apparent authority as his agent, and holds him out to the public as such, can’t be permitted to deny the authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person in good faith. [Macke v Camps, 1907] 2. Nominate: Has its own name. 3. Preparatory: Entered into as a means to an end. 4. Principal: Can stand by itself without need of another contract: 5. If gratuitous, unilateral: Creates obligations for only one of the parties. If for compensation, bilateral: Gives rise to reciprocal rights and obligations. (CNPPU/B) Essential elements 1. Consent, express or implied 2. Object of the contract, which is the execution of a juridical act in relation to third persons; 3. Agent acts as a representative; and 4. Agent acts within the scope of his authority. (Rallos v Felix Go Chan & Sons Realty, 1978) The agent may also be called an attorney, proxy, delegate or representative. (Angeles v. PNR, 2006) Relationship between the parties is fiduciary: With respect to the property that is subject matter of the agency, the agent is estopped from asserting an interest adverse to the interest of the principal. The agent cannot bind the principal where the agent has an adverse interest. Exception: 1. If agent acts with the knowledge and consent of both, in which case either party may repudiate the transaction. 2. If agent is mere intermediary with no independent initiative. The agent must not use or divulge confidential information. After agency terminates, the agent is no longer under a duty to abstain from competition and may use general information (not acquired in violation of his duty as agent). While acting as an agent of his employer, an employee owes the duty of fidelity and loyalty. Being a fiduciary, he can’t solicit his employer’s customers or co-employees for himself or for a business competitor of his employer. (Molina v. Pacific Plans, 2006) CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 198 of 325 AGENCY The rules on service of process make service on "agent", whether general or special, sufficient even if agent has limited authority. An employee of a corporation may not be deemed an agent under the above rule unless his/her duties are so integrated to the business that his/her absence or presence won’t toll the business’ operations (Aboitiz Internat’l Forwarders, Inc. v. CA, 2006). Determination of existence of agency 1. Designation by parties is not controlling. 2. Fact of existence: if relations that constitute agency exist, there is agency regardless of WON parties understood the exact nature of the relation. 3. No presumption of existence: agency must exist as a fact. Exceptions: a) When agency arises ipso jure b) To prevent unjust enrichment 4. Intention of the parties to create relationship. As between principal and 3rd person, agency may exist without the direct assent of the agent. Against the principal, the agent has the obligation to determine existence and scope of agency… Against the agent, the third person has the obligation to determine existence and scope of agency…The person dealing with the agent must also act with ordinary prudence and reasonable diligence. If he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. [Harry Keeler Electric v Rodriguez, 1922] Agency vs. similar contracts 1. Partnership a. An agent acts only for his principal; a partner acts for his partners, the partnership, and for himself. b. Parity of standing test: A partnership generally presupposes a parity of standing between the partners-- equal proprietary interest in the capital or property and exercises equal rights in the conduct of the business. 2. Independent contractor Agent independent contractor Represents his principal. Employed by the employer. Acts under the principal’s control and instruction. Acts according to his own method. Principal is liable for torts committed by the agent within the scope of his authority. Employer not liable for torts committed by the independent contractor. 3. Lease agency lease of service Based on representation. Based on employment. Agent exercises discretionary powers. Lessor ordinarily performs only ministerial functions. 3 parties: Principal, agent and the 3rd person with whom the agent contracts. 2 parties: Lessor and lessee. Relates to commercial or business transactions. Relates more to matters of mere manual or mechanical execution. agency lease of property Agent is controlled by the principal. Lessee is not controlled by the lessor. Agency may involve things other than property. Lease of property involves property.. Agent can bind the principal. Lessee cannot bind the lessor. 4. Contract of sale agency to sell sale Agent receives the goods as the principal’s goods. Buyer receives the goods as owner. Agent delivers the proceeds of the sale. Buyer pays the price. Agent can return the object in case he is unable to sell the same to a 3rd person. Buyer, as a general rule, cannot return the object sold. CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 199 of 325 AGENCY Agent in dealing with the thing received is bound to act according to the instructions of his principal. Buyer can deal with the thing as he pleases, being the owner. 5. Guardianship agency guardianship Agent represents a capacitated person. A guardian represents an incapacitated person. Agent is appointed by the principal and can be removed by the latter. Guardian is appointed by the court and stands in loco parentis. Agent is subject to the directions of the principal. Guardian is not subject to the directions of the ward but must act for the benefit of the latter Agent can make the principal personally liable. Guardian has no power to impose personal liability on the ward. In agency, the agent acts not on his own behalf but on behalf of his principal. In assignment, there is total transfer or relinquishment of right by the assignor to the assignee. (Apex Mining Co. v. Southeast Asia Mindanao Gold Mining, Corp., 2006) Kinds 1. As to manner of creation a. Express: where the agent has been actually authorized by the principal, i. Orally, or ii. In writing. (Art. 1869, CC) b. Implied: where the agency created is deduced from the i. Acts or conduct of the principal; ii. Silence or lack of action of the principal; iii. Principal’s failure to repudiate the agency; (Art. 1869, CC) iv. Agent’s acts which carry out the agency; or v. Agent’s silence or inaction. (Art. 1870, CC) 2 situations of implied acceptance from silence – a. The persons are present: if the principal delivers his power of attorney to the agent, who receives it without any objection (Art. 1871, CC); and b. The persons are absent: acceptance isn’t implied from the agent’s silence, except 1. When the principal transmits his power of atty. to the agent, who receives it without any objection; 2. When the principal entrusts to him by letter/telegram a power of atty. with respect to the business in which he’s habitually engaged as an agent, and he didn’t reply (Art. 1872, CC). By special notification: The person appointed as agent is considered such with respect to the person to whom it was given. (Art. 1873, CC) By public advertisement: The agent is considered such with regard to any person. (Art. 1873, CC) 2. As to formalities Gen. Rule: No formal requirements governing the appointment of an agent. Except: When the law requires a specific form, i.e. if the sale of a piece of land or any interest therein is through an agent, the agent’s authority shall be in writing, or the sale is void. (Art. 1874, CC) Note: If the owner himself sells realty/interest therein, if not made in writing, the contract of sale is unenforceable but subject to ratification (Art. 1403, par. 2(e), CC). 3. As to cause or consideration a. Gratuitous b. Onerous: there is compensation. Agency is presumed to be for compensation (Art. 1875, CC) 4. As to extent of business covered a. General: comprises all the business of the principal; or b. Special: comprises one or more specific transactions. (Art. 1876, CC) Universal agent: authorized to do all acts that the principal may personally do, and which he can lawfully delegate to another the power of CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 200 of 325 AGENCY doing. (Mechem, Sec. 58) general agent special agent Scope of authority All acts connected with the business or employment in which he is engaged. Specific acts in pursuance of particular instructions or with restrictions necessarily implied from the act to be done. Nature of service authorized Involves continuity of service. No continuity of service. Extent to which agent may bind the principal May bind his principal by an act within the scope of his authority although it may be contrary to the latter’s special instructions. Cannot bind his principal in a manner beyond or outside the specific acts which he is authorized to perform. Termination of authority Apparent authority does not terminate by the mere revocation of his authority without notice to the 3rd party. Duty imposed upon the 3rd party to inquire makes termination of the relationship as between the principal and agent effective as to such 3rd party, unless the agency has been entrusted for the purpose of contracting with such 3rd party. Construction of principal’s instructions Merely advisory in nature. Strictly construed as they limit the agent’s authority. 5. As to authority conferred a. Couched in general terms: comprise only acts of administration, even if – i. the principal states that he withholds no power, ii. that the agent may execute such acts as he may consider appropriate, or iii. the agency authorizes a general and unlimited management. (Art. 1877, CC) b. Couched in specific terms: authorizing only the performance of a specific act/s. (Art. 1878, CC) Power of attorney: a written authorization to an agent to perform specified acts in behalf of his principal which acts, when performed, shall have binding effect on the principal (2 Am. Jur. 30). Purpose: Not to define the agent’s authority, but to evidence such authority to 3rd parties Interpretation: Strictly construed Exception: When strict construction will destroy the very purpose of the power. Special power of attorney: an authority granted by the principal to the agent where the act for which it is drawn is expressly mentioned. (Strong v. Repide) A special power can be included in a gen. power of attorney, either by giving authority for all acts of a particular character or by specifying therein the act/transaction for which a special power is needed. (Tolentino) When special powers are necessary: for acts of strict dominion/ownership – a. To make payments; b. To effect novations; c. To compromise, submit questions for arbitration, renounce the right to appeal from judgment, waive objections to venue of actions, or abandon a prescription already acquired; d. To effect remission/condonation; e. To enter into any contract by which the ownership of an immovable is transmitted/acquired; f. To make gifts; g. To loan or borrow money; h. To lese any realty to another for more than a year; i. To bind the principal to render some service without compensation; j. To bind the principal in a contract of partnership; k. To obligate the principal as a guarantor or surety; l. To create or convey real rights over immovables; m. To accept or repudiate an inheritance; n. To ratify or recognize obligations contracted before the agency; and o. Any other act of strict dominion. (Art. 1878, CC) 6. As to nature and effects a. Ostensible or Representative CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 201 of 325 AGENCY b. Simple or commission: agent acts in his own name but for the principal’s account. (Art. 1883, CC) c. Agency by estoppel: there is no agency, and the alleged agent seemed to have apparent or ostensible, but not real, authority to represent another. apparent authority authority by estoppel Though not actually granted, principal knowingly permits or holds out the agent as possessing the necessary powers to act in a certain way. Where the principal, by his negligence, permits his agent to exercise powers not granted to him, even though the principal may have no notice or knowledge of the conduct of the agent. Implied Agency Agency by Estoppel 1. There is actual agency; thus with rights & duties as an agent. 1. There is no actual agency; thus without rights & duties as an agent. 2. Principal alone is liable. 2. If caused by the principal, he is responsible. If caused by the agent, he is responsible. Provided, 3 rd person in good faith. One professing to act as agent for another is estopped to deny his agency both as against his asserted principal and third persons interested in the transaction which he engaged in. (Angeles v. PNR, 2006) In general, a hospital isn’t liable for the negligence of an independent contractor- physician. The exception is if the physician is the hospital’s “ostensible” agent. Under the doctrine of apparent authority a hospital can be held vicariously liable for the negligent acts of a physician, WON the physician is an independent contractor, unless the patient knows, or should’ve known that the physician is an independent contractor. This doctrine involves 2 factors to determine liability. The first factor focuses on the hospital’s manifestations, whether the hospital acted in a manner which would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital. The hospital need not make express representations to the patient that the treating physician is an employee of the hospital; a representation may be general and implied. The second factor focuses on the patient’s reliance-whether the plaintiff relied upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. (Nogales v. Capitol Medical Center, 2006) Apparent authority/doctrine of ostensible agency/agency by estoppel, imposes liability because of the actions of a principal/ employer in misleading the public into believing that the relationship or the authority exists. The question is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question. In cases where it can be shown that a hospital, by its actions, has held out a particular physician as its agent and/or employee and that a patient has accepted treatment from that physician in the reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be liable for the physician’s negligence. (Professional Services Inc v. Agana, 2007) d. Agency by Ratification Conditions for ratification: 1. The principal must have capacity and power to ratify. 2. He must have had knowledge of material facts. 3. He must ratify the acts in its entirety. 4. The act must be capable of ratification. 5. The act must be done in behalf of the principal. Ratification need not be expressed to the agent or 3rd party. Before ratification, the 3rd party may revoke the unauthorized contract. Effects of ratification: 1. With respect to the agent: It relieves the agent from liability. He may also recover compensation. 2. With respect to the principal: He assumes responsibility for the unauthorized act, as fully as if the agent had acted under original authority; but he is not liable for acts outside the authority approved by his ratification. 3. With respect to 3rd persons: They are bound by ratification. They cannot question agent’s authority. Ratification Estoppel Rests on intention. Rests on prejudice. CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 202 of 325 AGENCY Affects the entire transaction from the beginning. Affects only relevant parts of the transaction. The substance of ratification is confirmation of unauthorized acts or conduct after it has been done. The substance of estoppel is the principal’s inducement to another to act to his prejudice. 7. Kinds of principal a. Disclosed b. Partially disclosed third is unaware of the principal’s identity. c. Undisclosed General rule: If the principal is undisclosed, the agent is directly liable to the person with whom he had contracted as if the transaction were his own. (Art. 1883, CC) Rationale: There is no representation. Exception: When the contract involves things belonging to the principal, in order to protect 3rd persons against possible collusion between the agent and the principal. (Art. 1883, CC) The agents who made a contract in their own names may sue the third person. (Behn Mayer & Co. v. Banco Español-Fil.) The undisclosed principal can’t sue the third person on a contract concluded by the agent in his own name (Smith Bell & Co. v. Sotto Matti). His recourse is against the agent. OBLIGATIONS OF THE AGENT a) To carry out the agency he accepted Acceptance of agency: person is free to refuse the agency, but once he accepts he’s bound to carry it out (Art. 1884, CC) in accordance with its terms in good faith and following the principal’s instructions. Obligation to answer for damages: the agent is liable for damages suffered by the principal due to his non-performance (Art. 1884, CC). Obligation to finish business upon principal’s death: if delay will entail any danger to the subject of the agency/principal, the agent must finish the transaction/business already begun on the principal’s death (Art. 1884, CC). This is an exception to the gen. rule that death extinguishes agency. Obligation of person who declines an agency: under equity he is still bound to observe bono paterfamilias in the custody and preservation of the property forwarded to him by the owner. However, the owner must act as soon as practicable either by appointing an agent or by taking charge of the property. (Art. 1885, CC) When agency shouldn’t be carried out: if its execution would manifestly result in loss/damage to the principal (Art. 1888, CC). b) To act within the scope of authority The agent must act within the scope of his authority (Art. 1881, CC): authority is the power to act within the scope of his assignment on his principal’s behalf with binding effect on the latter. But the agent isn’t deemed to have exceeded the limits of his authority should he perform the agency in a manner more advantageous to the principal (Art. 1882, CC) since he’s authorized to do such acts as may be conducive to the accomplishment of the agency’s purpose (Art. 1881, CC). c) To advance the necessary funds Obligation to advance funds: when the contract stipulates that the agent shall advance the necessary funds. (Art. 1886, CC) Basis: principal’s obligation to reimburse the agent Exception: insolvent principal (Art. 1886, CC) d) To act in accordance with instructions When departure from instructions is justified: a. In sudden emergencies b. If there are ambiguous instructions c. Insubstantial departures Absence of instructions: agent shall exercise the diligence of a good father of a family as required by the nature of the business/transaction (Art. 1888, CC) Authority Instructions The sum total of the powers committed or permitted to the agent Only a private rule of guidance to the agent Relates to the subject (biz/transaction) with which the agent is empowered to deal or act. Refers to the manner or mode of agent’s action with respect to matters within the permitted scope of action. CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 203 of 325 AGENCY Limits of authority operate vs those who have/are charged with knowledge of them. Binding only on the principal and agent e) To be loyal Obligation not to prefer own interest: agent is liable for damages if, there being a conflict of interests, he prefers his own (Art. 1889, CC). Exception: a. The principal waives the benefit of the rule, provided he does so with full knowledge of the facts. b. The interests of the agent are superior. f) To borrow money a. Agent empowered to borrow money: agent may himself be the lender at current rate of interest (Art. 1890, CC), for there is no danger of damage to principal. b. Agent authorized to lend money: needs the principal’s consent (Art. 1890, CC) for he may be a bad debtor. g) To render accounts and deliver things received by virtue of the agency Obligation to render accounts: agent’s duty to account for and deliver to the principal all money and property received by virtue of the agency (Art. 1891, CC). If he fails to do so or uses the money/property for his own use, the agent is liable for estafa (Art. 315, RPC). Stipulation exempting the agent from this duty is void (Art. 1891, CC). Inapplicability: a. The agent or broker acted only as a middleman (Domingo v. Domingo) b. The agent or broker informed the principal of the gift or bonus or profit he received from the vendee, and the principal did not object. c. A right of lien exists in favor of the agent. d. Solutio indebiti h) To be responsible for substitutes Sub-agent: Person to whom the agent delegates, as his agent, the performance of an act for the principal which the agent has been empowered to perform through his representative. (Restatement of the Law on Agency, Sec. 5) Power to appoint sub-agent/substitute: unless prohibited by the principal, the agent may appoint one (Art. 1892, CC). The principal has a right of action against both the agent and substitute (Art. 1893, CC). Effects of Substitution: a. Substitution prohibited – all the substitute’s acts are void (Art. 1892, CC) b. Substitution authorized – agent is released from responsibility unless substitute is notoriously incompetent or insolvent (Art. 1892, CC). - if the substitute is the one designated by the principal, agent is absolutely exempted c. Substitution not authorized, not prohibited – valid if beneficial to the principal - if caused damage to principal, agent is responsible for substitute’s acts (Art. 1892, CC) and principal with right of action against substitute (Art. 1893). Relation among the principal, agent and sub- agent: a. If sub-agent is appointed by the agent on the agent’s sole account, the sub-agent is a stranger to the original principal. b. If sub-agent is appointed by the agent with the principal’s authority, the relation of principal-agent generally exists between the original principal and the sub-agent. Effect of death of the original agent: a. If the authority of the sub-agent proceeds from the principal- not terminated. b. If the sub-agent is a substitute for, acts under the authority of, and is accountable to, the agent, the sub-agent’s authority is terminated even if the power of substitution is given in the original power. Applying the law to the SPA executed by Rubio in favor of his daughter Llamas, it is clear that she isn’t prohibited from appointing a substitute. By authorizing Lim to sell the subject properties, Llamas merely acted within the limits of the authority given by her father, but she will have to be "responsible for the acts of the sub-agent," among which is precisely the sale of the subject properties in favor of respondent. (Escueta v. Lim, 2007) i) To pay interest 2 cases under Art. 1896, CC: a. Sums belonging to the principal applied to agent’s own use: agent liable for interest as compensation/indemnity from the day on which he did so, without prejudice to criminal liability (Art. 315, RPC) b. Agent owes sums even after the end of the agency: agent liable for interest from the date the agency is extinguished. Agent is bound to deliver the money hence, demand unnecessary. (Art. 1891, CC) CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 204 of 325 AGENCY j) To answer for his fraud/negligence Liability: that the agency is or isn’t gratuitous will be considered by the court in fixing the liability of the agent (Art. 1909, CC) k) Factor/Commission agents Factor/commission agent: one whose business is to receive & sell goods for a commission, and is entrusted by the principal with its possession (Mechem on Agency) Obligations of a commission agent: a. Responsibility for goods received as described in the consignment – to avoid liability, make a written statement of the damage and deterioration of the goods upon receiving them (Art. 1903, CC) b. If handling goods of same kind and mark with different owners – distinguish them by countermarks and designate the goods owned by each principal (Art. 1904, CC) c. Sale on credit – only if with principal’s express or implied consent (Art. 1905, CC). If without authority, principal with 2 alternatives: 1. require payment in cash – any interest/benefit from the sale shall go to the agent 2. ratify the sale - if authorized, shall be deemed to have been made on a cash basis if agent fails to inform the principal of such sale and of the names of the buyers (Art. 1906, CC) d. If agent receives a guarantee commission – agent bears the risk of collection (Art. 1907, CC). The guarantee commission is paid to the agent in addition to the ordinary commission agreed upon. e. To collect the principal’s credits when they are due & demandable – agent is liable for damages if he fails to do so, unless he can show that the credit is uncollectible despite the exercise of due diligence (Art. 1908, CC). This exception doesn’t apply if there’s a guarantee commission. ordinary agent commission agent Acts for and in behalf of the principal. Acts in his own name or in that his principal. Need not have possession of the goods of the principal. Must be in possession of the goods of the principal. commission agent Broker Engaged in the purchase and sale, for a principal, of personal property which has to be placed in his possession and disposal. Has no custody or possession of the thing he disposes; merely acts as an intermediary between the sellers and the buyer. Has a relation with the principal (buyers or sellers) and the property which is the object of the transaction. Maintains no relation with the thing which he purchases or sells. [Pacific Commercial v Yatco, 1939] LIABILITIES OF THE AGENT When liable, not liable Gen. rule: an agent who acts as such isn’t personally liable to the party with whom he contracts (Art. 1897, CC) Exceptions: 1. The agent acts in his own name (Art. 1883, CC): he is directly bound in favor of the person with whom he contracted. Exception: if the contract involves things owned by the principal. (Art. 1883, CC) 2. The agent expressly binds himself (Art. 1897, CC): he obligates himself personally and by his own act. 3. The agent exceeds his authority without giving the other party sufficient notice of his powers (Art. 1897, CC): the contract is unenforceable against the principal; for depriving the third party of any remedy against the principal, the agent is liable. (NPC v. Nat’l Merchandising Corp.) 4. The agent exceeded the scope of his authority and undertook to secure principal’s ratification (Art. 1898, CC). That the agent has also bound himself to pay the debt doesn’t relieve the principal, for whose benefit the debt was incurred, from liability. The agent’s individual liability constitutes a further security in the creditor’s favor and doesn’t affect/preclude the principal’s liability. [Tuason v Orozco, 1906] Art. 1897 presents 2 instances when an agent becomes personally liable to a third person: when he expressly binds himself to the obligation, and when he exceeds his authority. In the last instance, the agent can be held liable if he does not give the third party sufficient notice of his powers. In case of CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 205 of 325 AGENCY excess of authority, the law doesn’t say that a third person can recover from both the principal and the agent. (Eurotech Industrial Technologies Inc. v. Cuizon, 2007) Though the entrustee is a corporation, the law specifically makes the officers/employees responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors. Such officers/employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable. The principle applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act. (Ching v. Sec. of Justice, 2006) Where agency exists, the third party's liability on a contract is to the principal and not to the agent. However, where an agent is constituted as an assignee, the agent may, in his own behalf, sue on a contract made for his principal. (Angeles v. PNR, 2006) Effect where 3 rd person aware of limits of power: if agent exceeded the scope of his authority and the principal didn’t ratify the contract, the contract is unenforceable against the principal, and void between the agent and the third person. (Art. 1898, CC) 1. Agent promised to secure the principal’s ratification and failed – agent is liable. (Art. 1898, CC) 2. Contract ratified – principal is liable. Effect of agent’s ignorance: if the agent acted in accordance with the principal’s orders, the latter can’t use the agent’s ignorance as to circumstances where he himself was/ought to have been aware. (Art. 1899, CC) The principal is liable. When 3 rd person can’t use as a defense the agent’s lack of authority: 1. The principal has ratified the contract; or 2. Principal signified his willingness to ratify. (Art. 1901, CC) Ratification: if the agent exceeds his authority, the principal isn’t bound unless he ratifies it. (Art. 1910, CC) Without ratification, the agent is liable. When agent acts within scope of authority Within the scope of authority: for third persons, an act is within the scope of authority if it’s within the terms of the power of attorney as written, even if the agent in fact exceeded the limits of authority based on an understanding between him and the principal (Art. 1900, CC). Presentation of power of attorney or instructions: may be required by 3 rd persons (Art. 1902, CC). As a rule, a 3 rd person deals with an agent at his peril. But he can’t be bound by private/secret orders and instructions of the principal (Art. 1902, CC). Liability of 2 or more agents Gen. rule: joint liability Except: if solidarity is expressly stipulated, solidary liability (Art. 1894, CC) for: 1. non-fulfillment of the agency; or 2. fault/negligence of fellow agents. Exception to exception: when some agents acted beyond the scope of their authority, innocent agents aren’t liable. (Art. 1895, CC) OBLIGATIONS OF THE PRINCIPAL 1. To comply with the obligations contracted by the agent Principal is bound: he must comply with all the obligations arising from the agent’s authorized acts. If the agent acted beyond his authority, the principal is bound if he ratifies the contract (Art. 1910, CC). Principal is estopped: though the agent exceeded his authority, the principal is liable if he allowed the former to act as if he had full powers (Art. 1911, CC). If 2 persons contract simultaneously with agent & principal for the same thing: a. Contract of prior date prevails. b. If applicable, follow the rule on double sales in Art. 1544, CC. (Art. 1916, CC) Liability to 3 rd persons, if agent & principal contracted separately: a. Agent in good faith – principal is liable for damages. b. Agent in bad faith – agent is liable. (Art. 1917, CC) 2. To advance the necessary sums and reimburse the agent Obligation to advance funds: the principal must advance to the agent, upon his request, the sums necessary for the execution of the agency. (Art. 1912, CC) Obligation to reimburse: if the agent advanced the sums necessary, these must be reimbursed by the principal with interest from CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 206 of 325 AGENCY the day the advance was made, even if the business wasn’t successful (Art. 1912, CC). Exceptions to the obligation of advancement/ reimbursement: a. If the agent acted in contravention of the principal's instructions, unless principal derives benefits. b. When the expenses were due to the fault of the agent. c. When the agent incurred them knowing that an unfavorable result would ensure, if the principal was unaware thereof. d. When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum. (Art. 1918, CC) Agent’s right to retain object of agency in pledge: if the principal fails to reimburse the agent (Art. 1914, CC). But agent isn’t entitled to the excess in case the thing was sold to satisfy his claim, and the proceeds are more than his claim (Arts. 2115, 2121, CC). Also he must possess the thing lawfully in his capacity as agent (2 C.J. 457). When principals solidarily liable for the agency’s consequences: a. There are 2/more principals; b. They all concurred in the appointment of the same agent; and c. The agent is appointed for a common transaction/undertaking. (Art. 1915, CC) 3. To indemnify the agent for damages Obligation to indemnify agent: for damages which the execution of the agency has caused the agent, so long as the agent isn’t at fault (Art. 1913, CC). This is based on fairness. Note: Arts. 1914-1915 are applicable here. 4. To pay the agent’s compensation Presumed for compensation: the principal must pay the compensation – a. agreed upon, or b. the reasonable value of the services. When agent is entitled to compensation: only after he has completed/substantially completed his obligation. Agent can’t be deprived of agreed commission by the principal by dealing directly with the buyer. The principal’s act is unfair as would amount to bad faith. (Infante v. Cunanan) It would be in the height of injustice to permit the principal to terminate the contract to the broker’s prejudice when he had already reaped the benefits of the broker’s efforts. (Lim v. Saban) In case of double agency: a. If both principals have knowledge of the double employment, the agent can recover from both of the principals. b. If both principals have no knowledge of the double employment, the agent can’t recover from either. c. If the 2nd employer has knowledge of the 1st employment, both he and the agent are guilty, and an executory contract entered into in fraud of the 1st employer is unenforceable. Brokers: One who negotiates contracts relative to property in behalf of others and for a fee. Since a brokerage relationship is essentially a contract of agency, principles of contract law apply. Since the principals of the broker are generally undisclosed, the broker is personally liable. Hence, petitioner had to advance the payments for respondent’s trades. Brokers have a right to be reimbursed for sums advanced by them. (Abacus Securities Corp. v. Ampil, 2006) If a broker isn’t efficient in procuring cause in bringing about the sale, he isn’t entitled to compensation. (Prats v. CA) EXTINGUISHMENT OF AGENCY Quick glance: Ways to extinguish agency Mode Way of extinguishing 1. By the parties’ subsequent acts a. Principal’s revocation b. Agent’s withdrawal 2. By operation of law a. By the principal’s/agent’s - death - civil interdiction - insanity, or - insolvency b. By the firm’s/corporation’s dissolution 3. By agreement a. Accomplishment of object/purpose CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 207 of 325 AGENCY b. Expiration of period 4. Other modes a. Other modes of extinguishment of obligations b. Changes in law c. Changes in conditions d. War Modes of extinguishment (Art. 1919, CC) 1. By the subsequent acts of the parties either by mutual consent or unilaterally. a. By the principal’s revocation. Revocation: termination by the subsequent acts of the principal. May be express or implied. If the agent’s authority is in writing, the principal may compel him to return this document (Art. 1920, CC). Gen. rule: principal may revoke the agency at will (Art. 1920,CC). Except (BIW): 1. the revocation is done in bad faith (Danon v. Brimo); 2. the agency is coupled with an interest, such as when – a. a bilateral contract depends on it; b. it’s the means of fulfilling an obligation already contracted; c. a partner is appointed manager of a partnership and is removed unjustifiably. (Art. 1927, CC) 3. the principal waived his right to revoke (New Manila Lumber Co. v. Rep.) Agency coupled with an interest can’t be terminated by the sole will of the principal since third persons are involved, though it’s revocable after the interest ceases. The interest of the agent must be in the subject matter of the power conferred, and not merely in the exercise of the power as it entitles him to compensation. (Del Rosario v. Abad) An agency coupled with interest may be revoked when the agent acts to defraud the principal. The irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust. [Coleongco v Claparols, 1964] Irrevocability of the contract cannot affect 3rd persons and is obligatory only on the principal who executed the agency. [New Manila Lumber v Republic, 1960] Principal’s liability for damages despite revocation of agency: 1. Agency with a fixed period: principal liable due to wrongful discharge of agent before end of the period. 2. No period fixed: principal liable if the agent can prove the former acted in bad faith. Effect of revocation wrt 3 rd persons: (Arts. 1921-1922, CC) Agency to contract with specific persons Agency to contract with general public Won’t prejudice 3 rd persons until notice is given them. Won’t prejudice those in good faith & w/o knowledge. Notice must be personal. Notice may be personal. The principal has a duty to give actual notice of the revocation of the agency to third parties. [La Compania General de Tobacos v Diaba, 1911] As to the agent: Express notice is always necessary. Revocation without notice to the agent will not render invalid an act done in pursuance of the authority. As to 3rd persons: Express notice is necessary. Insofar as 3rd parties acting in good faith and without knowledge of revocation, acts of the agent are deemed valid. As to former customers: Actual notice must be given to them because they always assume the continuance of the agency relationship. As to other persons: Notice by publication is enough. Revocation by appointment of a new agent: effective when notice is given to the former agent (Art. 1923, CC). The 2 agencies must be incompatible. This is an implied revocation. Revocation by direct management by principal: when the principal deals directly with 3 rd persons (Art. 1924, CC). This is an implied revocation. CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 208 of 325 AGENCY Revocation if with 2/more principals: one of the principals may revoke the power of attorney without the others’ consent (Art. 1925, CC). Partial revocation of gen. power: a gen. power is revoked by a special one wrt the special matter involved in the latter (Art. 1926, CC). b. By the agent’s withdrawal. The agent may withdraw at will, subject to the contractual obligations to the principal (fixed period of agency, purposes not accomplished). Right to withdraw: based on the prohibition against involuntary servitude (Art. III, Sec. 18, 1987 Constitution). 1. without just cause: agent with duty to give due notice to the principal and to indemnify the latter, should he suffer damages due to the withdrawal (Art. 1928, CC) 2. with just cause: if due to impossibility of continuing with the agency without grave detriment to himself (Art. 1928, CC), or due to a fortuitous event (Art. 1174, CC), the agent can’t be held liable. Obligation to continue to act: agent must continue to act until the principal has had reasonable opportunity to take the necessary steps to remedy the situation caused by the withdrawal (1929, CC). Implied renunciation: 1. agent conducts himself in a way incompatible with his duties. 2. agent abandons the object of agency and acts for himself in committing a fraud upon the principal. 3. files a complaint against the principal and adopts an antagonistic attitude towards him (Valera v. Velasco). 2. By operation of law. a. By the principal’s/agent’s death, civil interdiction, insanity or insolvency. As there’s an integration of the principal’s personality into the agent’s, it’s impossible for agency to continue once the death of either is established. (Rallos v. Felix Go Chan & Sons) Except: 1. the agency is constituted in the common interest of the principal and agent, or in the interest of a 3 rd person who accepted the stipulation in his favor (Art. 1930, CC). 2. wrt acts done by the agent who didn’t know of the principal’s death (Art. 1931, CC) 3. wrt business already begun when the principal died, if delay would cause danger (Art. 1884, CC). An act done by the agent after the principal’s death is valid and effective only if the agent and the 3 rd person knew of the death. The knowledge of the 2 must concur; otherwise the agent’s act void and unenforceable. (Rallos v. Go Chan & Sons) Agent’s death: his heirs are obligated to notify the principal and to adopt such measures as the circumstances may demand for the principal’s interest (Art. 1932, CC). But they cannot continue the agency. Exceptions: a. agency by operation of law b. agency coupled with an interest in the subject matter of the agency b. By the dissolution of the firm/corporation. 3. By agreement. a. By the accomplishment of the agency’s object/purpose. b. By the expiration of the period of the agency. Other Modes The modes enumerated in Art. 1919 are those peculiar to agency. The list isn’t exclusive. Other modes: 1. Modes of extinguishment of obligations (Art. 1291, CC) 2. Changes in law affecting the subject matter/transaction involved in the agency (2 Am. Jur. 75) 3. Changes in conditions not anticipated by the parties (2 Am. Jur. 61) Except: a. the original circumstances are restored within a reasonable period of time b. agent has reasonable doubts as to whether the principal would want him to act, his authority won’t be terminated if he acts reasonably c. the principal and agent are in close daily contact, and the agent knows that the principal is aware of the change and CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 209 of 325 AGENCY doesn’t give him new instructions 4. Outbreak of war Presumption of continuance of agency: once shown to have existed, agency is presumed to continue, without anything showing termination. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 210 of 325 PARTNERSHIP CIVIL LAW Partnership TABLE OF CONTENTS Section 1. Nature; Creation of a Partnership 211 Section 2. Classification of Partnerships and Partners 212 Section 3. Obligations of Partners 214 Section 4. Obligations of Partnerships 217 Section 5. Rights of Partners 218 Section 6. Rights of Partnerships 220 Section 7. Dissolution and Winding Up 220 Section 8. Settlement of Accounts Between Partners 223 Section 9. Limited Partnership 223 Section 10. Limited Partner 225 CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 211 of 325 NATURE; CREATION OF A PARTNERSHIP Essential Features Contract of Partnership: a. 2/more persons bind themselves b. to contribute money, property, or industry to a common fund, c. with the intent of dividing the profits among themselves. (Art. 1767, CC) Essential features: 1. There must be a valid contract 2. The parties must have legal capacity 3. A mutual contribution of money, property, or industry to a common fund 4. Has a lawful object (Art. 1770, CC) 5. The primary purpose is to obtain profits and divide the same among the parties Characteristics: 1.Fiduciary 2.Nominate 3.Consensual 4.Bilateral/multilateral 5.Principal 6.Onerous 7.Preparatory 8.With legal personality (Art. 1768, CC) 9.Profit oriented The partners can’t be held liable for the partnership’s obligations unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes (Aguila v CA). Principle of delectus personae: no one can be a partner without the consent of all the partners. Form of Contract General Rule: No special form is required (Art. 1771, CC) Exceptions: 1. Where immovable property or real rights are contributed (Art. 1771, CC) – written in a public instrument with a signed inventory of the contributions. (Art. 1773, CC) 2. Where the capital is at least P3,000, in money or property – need a public instrument, which must be recorded in the SEC. (Art. 1772, CC) But a partnership has a juridical personality even if requirement is not complied with. Rules to determine the existence of a partnership (Art. 1769, CC) 1. General Rule: Persons who are not partners to each other are not partners as to third persons. exception: partnership by estoppel. 2. Co-ownership and sharing of gross returns don’t establish a partnership, by itself 3. Prima facie evidence of partnership: receipt of a share of the business profits Except if received in payment as: a. A debt by installment b. Wages or rent c. An annuity d. Interest on a loan e. Consideration in a sale For tax purposes, a co-ownership of inherited properties is automatically converted to an unregistered partnership when these are used as a common fund with intent to produce profits for the heirs in proportion to their shares in the inheritance as determined in a project of partition. (Oña v. CIR) Whether a partnership exists is a factual matter. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, the collective effect of these circumstances may be such as to support a finding of the existence of the parties’ intent. (Heirs of Tan Eng Kee v CA) Distinctions Partnership Corporation Created by mere agreement of the parties; Created by operation of law May be organized by only two persons Requires at least 5 incorporators; Juridical personality commences from the moment of execution of the contract of partnership Personality commences from SEC’s issuance of the certificate of incorporation May exercise any power authorized by the partners as long as it is not contrary to law, etc. Can exercise such powers expressly granted by law or incident to its existence If no agreement as to mgt. - every partner is an agent of the partnership Power to do business is vested in the board of directors/ trustees A partner as such may sue a co- partner who mismanages Suit against the board/director who mismanages must be brought in the corp.’s name 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 212 of 325 PARTNERSHIP CIVIL LAW Has no right of succession Has right of succession The partners are liable personally and subsidiarily for partnership debts The stockholders are liable to the extent of the shares subscribed by them Based on delectus personam Not based on delectus personam May be established for any period of time stipulated May not be formed for a period exceeding 50 years May be dissolved at anytime by the will of any or all partners May be dissolved only with the consent of the state Governed by the Civil Code Governed by the Corporation Code Partnershi p Co- ownership Creation Always created by a contract Gen., created by law, may exist even without a contract Juridical Personality Has a separate, distinct juridical personality Has no juridical personality Purpose Realization of profits Common enjoyment of a thing or right Duration No limitation upon the duration is set by law Property can’t be undivided for more than 10 years Transfer of Interests Need unanimous consent of partners to make assignee of interest a partner A co-owner can dispose of his share without the consent of the others Power to act with Third Persons A partner may bind the partnership A co-owner can’t represent the co-ownership Dissolution Death or incapacity of a partner dissolves the partnership Death or incapacity of a co-owner doesn’t dissolve the co-ownership Representa -tion There is mutual agency There is no mutual agency Profits Must be stipulated upon Must always depend upon proportionate shares and any stipulation to the contrary is void. A corp. can’t enter into a partnership contract. This is based on public policy, since in a partnership the corporation would be bound by the acts of persons who aren’t duly appointed and authorized agents and officers, which would be inconsistent with the policy that the corporation shall manage its own affairs, separately and exclusively. (SEC OPINION to Antonio Librea dated Feb. 29, 1980) The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint adventure is formed for the execution of a single transaction, and is of a temporary nature. Under Phil. law, a joint adventure is a form of partnership. Although a corporation cannot enter into a partnership contract, it may engage in a joint venture (Heirs of Tan Eng Kee v CA). CLASSIFICATION OF PARTNERSHIPS AND PARTNERS Kinds of Partnerships 1. As to nature a. Commercial/trading b. Professional 2. As to duration a. With a fixed term - (Art. 1830[1a], CC) unless continued by some/all the partners (Art. 1785, CC) b. At will (Art. 1785, CC) 3. As to legality of existence a. De jure – has complied with all the necessary requisites for lawful establishment (Arts. 1772, 1773, CC) b. De facto – failed to comply with the requisites 4. As to representation to others a. Ordinary/real – really exists between & among the partners themselves and as to third persons b. Ostensible/by estoppel – deemed one only in relation to transacting third persons (Art. 1825, CC) 5. As to publicity a. Open – known to the public b. Secret 6. As to its object a. Universal (Art. 1777, CC) i. As to all present property (Art. 1778, CC) ii. As to profits (Art. 1780, CC) b. Particular (Art. 1783, CC) 7. As to partners’ liability CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 213 of 325 a. General – liable pro rata (Art. 1816, CC) or solidarily (Arts. 1822-1824, CC) b. Limited (Art. 1843, CC) Types, Universal Partnership: All present property All profits All present property actually owned by partners are contributed become common property of the partnership & the partners. Property owned by the partners when the partnership was formed continue to pertain to them only the usufruct becomes common property Only profits from the property contributed become common property; other profits may, by stipulation, be considered as common property. All profits acquired through partners’ industry/work become common property. Who are prohibited from entering into universal partnerships: those prohibited from giving donations (Art. 1782, CC), such as: a. legally married, common law spouses (Art. 87, FC) b. parties guilty of adultery/concubinage c. criminals convicted for the same offense in consideration of the same d. a person & a public officer (or his wife, descendants, ascendants) by reason of his office (Art. 739, CC) Kinds of Partners 1. As to membership a. Real – a contributing member b. By estoppel/Quasi-partner – not really a partner but represents himself as one 2. As to continuation of business affairs after dissolution a. Continuing b. Discontinuing 3. As to value of contribution a. Majority b. Nominal 4. As to nature of membership a. Original b. Incoming 5. As to state of survivorship a. Surviving – continues to be a partner after dissolution due to death of a partner b. Deceased 6. As to effect of expulsion a. Expelled (Art. 1840[6], CC) b. Expelling 7. As to nature of contribution a. Capitalist – contribute money or property b. Industrial – contribute industry/labor. He can’t engage in business for himself unless expressly permitted (Art. 1789, CC) 8. As to liability a. General/Real – liability extend to separate property (Art. 1776, CC) b. Limited/Special – only to extent of contribution (Art. 1843, CC) c. Capitalist-Industrial 9. As to management a. Managing – manages the firm’s affairs b. Silent – doesn’t participate in management c. Liquidating – winds up the affairs after dissolution 10. Other special classifications a. Subpartner – related only to the regular partner (Art. 1804, CC) b. Retiring – withdraws/retires from the partnership Industrialist Partner Capitalist Partner Contribution Contributes his industry Contributes money or property Prohibition to engage in other business Cannot engage in any business for himself Can’t engage in the same or similar enterprise Profits Receives a just and equitable share Shares in profits according to agreement thereon; if none, pro rata to his contribution Losses Exempted as to losses as between partners but it is liable to 3rd persons without prejudice to reimburseme nt from the capitalist partners 1. stipulation as to losses 2. if none, the agreement as to profits 3. if none, pro rata to contribution Partnership and Partner by Estoppel Partner by estoppel: the representation of being a partner is done by 1 person only Partnership by estoppel: the representation involves several persons pretending to be a firm Requisites of “Partner By Estoppel”: 1. The person – a. represents himself as a partner of an existing partnership when he isn’t, or b. consents to another representing him to anyone as a partner in an existing partnership, or 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 214 of 325 PARTNERSHIP CIVIL LAW c. consents to another representing him to anyone as a partner with 1/more persons not actual partners. 2. Third person relied on the misrepresentation, unaware of the deception. 3. On the faith of the misrepresentation, the 3 rd person gave credit to the actual/apparent partnership. 4. The alleged partner can’t disallow liability by claiming he isn’t actually a partner. He is bound as a “partner” though he actually isn’t. (Art. 1825, CC) Partnership by estoppel: composed of the alleged partner and the partnership itself. It arises when all the members of the existing partnership consented to the representation (Art. 1825, CC). The person becomes an agent of the existing firm and his act/obligation binds the firm. No real partnership is created by estoppel. It’s only insofar as 3 rd persons are involved and for the purpose of protecting them that the principal of estoppel is recognized. When liability is: Situation Who are liable Pro rata no existing partner ship existing partner ship all those represented as partners consented to the representatio n or not all of the partners consented person who represente d/was represente d as a partner and all those who consented Separat e no existing partner ship Existin g partner ship only some of those represented as partners consented to the representatio n or none of the partners consented person who represente d/was represente d as a partner and all those who consented He who contracts with a partnership as such is estopped in a suit by the partnership against him growing out of such contract to claim that the partnership was not properly organized (Behn, Meyer & Co. v. Rozamin). Applicability of general provisions of partnership: 1. If the law recognizes a defectively organized partnership as de facto as far as 3rd persons are concerned, it should have such attribute of partnership as domicile. (MacDonald v. National City Bank) 2. Although it has no legal standing or juridical personality, it is a partnership de facto and the general provisions of the Civil Code applicable to all partnerships apply to it. Corporation by estoppel: all persons are liable as general partners (Sec. 21, Corp. Code). A de facto partnership is created. OBLIGATIONS OF PARTNERS A. Contribute 1. Obligation with respect to contribution of property Partner is a debtor: for whatever he had promised to contribute thereto (Art. 1786, CC) Partner is a warrantor wrt contributions of specific & determinate things: he’s bound to warrant vs. eviction (Art. 1786, CC) Liability for undelivered fruits: if the property is fruit-producing, and the fruits weren’t delivered at the execution of the contract or any specified time, the partner will be liable for the value of these fruits (Art. 1786, CC). No demand is necessary. Remedy for breach of warranty: partnership may recover indemnity from contributing partner. If the partnership wouldn’t have been constituted had it not been for the contribution, the other partners may dissolve the firm (11 Planiol & Ripert, 276) Other duties of contributing partners: a. to preserve the property with the diligence of a good father of a family (Art. 1163, CC) b. to indemnify the partnership for damages caused to it by delay in contribution of property (Art. 1170, CC) 2. Appraisal of goods or property contributed Rule when contribution is in goods: the amount must be determined by proper appraisal at the time of contribution. a.Comply if mode of appraisal is agreed upon b. no agreement– by experts chosen by partners (Art. 1787, CC) Subsequent changes in value: will be for the firm’s account (Art. 1787, CC) 3. Obligation with respect to contribution of money, and money converted to personal use Sanctions: a.partner becomes the firm’s debtor for interest and damages from the time of CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 215 of 325 his failure to contribute or from time of conversion (Art. 1788, CC) b. payment of 12% interest as interest on forbearance of money (Martinez v. Ong Pang Co) When money or property have been received by a partner for a specific purpose and he later misappropriated it, such partner is guilty of estafa. (Liwanag v CA) 4. Bring to partnership capital credit received Equal contribution by general partners: capitalist partners shall contribute equal shares to the capital of the partnership (Art. 1790, CC). 5. Obligation of capitalist partner to contribute additional capital To contribute additional capital in case of imminent loss, requisites: a. There is an imminent loss of the business b. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business c. Capitalist partner refuses deliberately to contribute an additional share d. There is no agreement to the contrary If refused to contribute: the partner must sell his interest in the partnership to the other partners (Art. 1791, CC) Industrial partner is exempt from sanction. 6. Obligation of collecting managing partner Requisites: a. 2 separate credits, both demandable, b. one credit is owed to the partnership, c. the other to the collecting partner who’s a managing partner. Managing partner should: a. If issued receipt for own account only apply the sum to the 2 credits in proportion to their amounts b. Issued receipt for partnership’s account apply whole sum to partnership’s credit (Art. 1792, CC) 7. Obligation of partner who receives share of partnership credit Receipt of share in partnership credit: if a debtor made a partial payment of his debt to the partnership, where a partner received his share of the credit and the others haven’t, and the debtor later becomes insolvent, the partner who received his share shall bring to the partnership capital what he received though the receipt he issued covered only his share (Art. 1793, CC). Cf. 1792: in 1793 there’s only 1 debt where the partnership is the creditor. B. Pay damages Liability for damages due to partner’s fault: the damages can’t be compensated with the profits & benefits he may have earned for the partnership by his industry (Art. 1794, CC). Compensation is inapplicable as its requisites are absent. Mitigation of liability: if through his extraordinary efforts in other activities unusual profits have been realized (Art. 1794, CC) C. Bear risk of loss Risk of loss of things contributed (Art. 1795, CC): owner bears the loss Specific & determinate things, not fungible where only usufruct is contributed Risk is borne by partner Specific & determinate things, with ownership transferred to partnership Risk is borne by partnership Fungible things (consumable) Risk is borne by partnership Things contributed to be sold Risk is borne by partnership Things brought and appraised in the inventory Risk is borne by partnership D. Mutual Agency Appointed managing partner’s (MP) power: execute all acts of administration despite his partners’ opposition unless he acts in bad faith (Art. 1800, CC). He has the powers of a general agent and all incidental powers essential for the carrying on of the firm’s purposes. If MP appointed in the articles of partnership: power is irrevocable Except: 1. with just, lawful cause 2. upon the vote of the partners representing the controlling interest (Art. 1800, CC) If power granted after constitution of partnership: revocable any time, for any cause (Art. 1800, CC) In case of conflict: if – 1. 2/more partners are appointed MPs, 2. there’s no specification of their respective duties, 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 216 of 325 PARTNERSHIP CIVIL LAW 3. there’s no stipulation that 1 of them shall not act without the others’ unanimous consent, Then – each MP may separately execute all acts of administration. If any MPs oppose the others’ acts – the issue shall be decided by the majority of the MPs. In case of tie – the issue shall be decided by the partners owning the controlling interest (Art. 1801, CC). Joint management: if there’s a stipulation that none of the MPs shall act without the others’ consent. Unanimity is required, even if an MP is absent/incapacitated unless there’s imminent danger of grave or irreparable injury (Art. 1802, CC) If without agreement on manner of mgt: 1. all partners are considered agents 2. Important changes in the firm’s realty require unanimity (Art. 1803, CC) Judicial intervention to get total consent: if the important alteration is necessary & unanimous consent can’t be obtained (Art. 1803, CC) Kinds of acts of a partner (Art.1818, CC) Those apparently for the carrying of the partnership’s business in the usual way These acts bind the partnership, unless the partner had in fact no authority and the 3 rd person dealing with him knew of such fact Those not apparently for carrying on the partnership’s business in the usual way These acts only bind the partnership if the partner was in fact authorized by the co- partners Those in contravention of a restriction on authority Not binding on the partnership if the 3 rd person knew of the restriction Presumption: that each individual partner is the firm’s agent & that he has authority to bind the firm in carrying on the partnership transactions. This presumption permits 3 rd persons to hold the firm liable on transactions entered into by any of its members acting apparently on its behalf & within the scope of his authority (Litton v. Hill). A 3 rd person has the right to presume that a gen. partner dealing with partnership property has the requisite authority from his co-partner (Goquiolay v. Sycip). Re: 7 acts of dominion in Art.1818, CC: can be done on the partnership’s behalf if all the partners jointly act. Except: 1. all the co-partners have authorized a partner to execute the act 2. all the co-partners have abandoned the business Liability of a partner acting without authority: personal liability E. Render full information Duty to give info: on demand, to give true & full info relating to partnership affairs (Art. 1806, CC). He’s also under the duty of voluntary disclosure of material facts within his knowledge relating to/affecting partnership affairs (Art. 1821, CC). F. Account for benefits A partner can’t, to the other’s detriment, apply exclusively to his own benefit the results of the knowledge and info gained in the character of partner (Pang Lim v. Lo Seng). Partner shall hold as trustee for partnership any profits: 1. derived without the others’ consent from any transaction connected to the – a. formation, b. conduct, or c. liquidation of the partnership. 2. derived from the use of the partnership’s funds or property (Art. 1807, CC). G. Liable for Partnership contracts Liability of partnership & partners for partnership contracts: pro rata, with all their property (Art. 1816, CC). The private property of the partners can’t be seized for satisfaction of partnership debts until all the partnership assets have been exhausted. The exemption of an industrial partner from paying losses relates exclusively to the settlement of the partnership affairs among the partners themselves, and not with the partners’ liabilities to 3 rd persons (La Compania Maritima v Munoz). While the liability of the partners are joint in transactions entered into by the partnership, a 3 rd person who transacted with the partnership can hold partners solidarily liable for the whole obligation if the 3 rd person’s case falls under Arts. 1822-1823 (Muñasque v. CA). Partner acting in his own name: he is solely liable Gen. rule: stipulation against pro rata liability is void Except: such stipulation is valid by & among the partners (Art. 1817, CC) Art. 1817 vs. 1799: it is permissible to stipulate among partners that a capitalist partner will be exempted from liability in excess of the original capital contributed; but CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 217 of 325 won’t be exempted insofar as his capital is concerned (Paras). The dismissal of the complaint to favor 1 of the general partners doesn’t increase the remaining partners’ liability. (Island Sales v. United Pioneers). Liability of a newly-admitted partner: 1.obligations contracted before his admission: liable only up to his share in the partnership property unless there’s a contrary stipulation (Art. 1826, CC). 2.obligations contracted after admission: liable as an ordinary original partner. Liability of outgoing partner: 1. when he gives notice of his retirement or withdrawal, he’s freed from liability on contracts entered into thereafter but still liable on existing incomplete contracts 2. he’s liable for goods sold & delivered after his retirement/withdrawal if the sale was pursuant to a contract made before such retirement/withdrawal H. Solidarily liable with partnership Solidary liability of partnership & partners: for everything chargeable to the partnership under Arts. 1822-1823 (Art. 1824, CC). This is an exception to Art. 1816 as it involves torts. Vicarious liability, requisites: 1.the partner committed a wrongful act/omission; 2.he acted in the ordinary course of the partnership business or with the authority of the co-partners even if the act wasn’t connected with the partnership business; 3.loss/injury is caused to a 3 rd person by the wrongful act/omission; 4.3 rd person isn’t a partner (Art. 1822, CC); 5.there’s no pre-existing contract between the partnership & 3 rd person; if there is, but was grossly & deliberately violated, this itself constitutes quasi-delict (Air France v. Carrascoso). Extent of liability: firm is liable to the same extent as the partner (Art. 1822, CC) & all partners are solidarily liable with the firm (Art. 1824, CC). Misapplication of money/property resulting in losses: if loss is suffered by the 3 rd person who delivered the money/property, the partnership is solidarily liable with the misappropriating partner (Art. 1823, CC) & all partners are solidarily liable with the firm (Art. 1824, CC). The liability of partners under the Workmen’s Compensation Act also solidary. If their responsibility was merely joint and one became insolvent, the amount awarded would only be partially satisfied, which is contrary to the law’s purpose (Liwanag v. Workmen’s Compensation Comm.) OBLIGATIONS OF PARTNERSHIPS A. Bear risk of loss Partnership bears the risk: when what is contributed is a fungible thing, thing which can’t be kept without deteriorating, if the thing was contributed to be sold, and contributions are appraised in the inventory (Art. 1795, CC) B. Reimburse 3 obligations of the partnership: 1. refund disbursements with legal interest 2. answer for obligations contracted in good faith in the partnership’s interest 3. answer for risks (Art. 1796, CC) Partner = agent. Being a mere agent, he isn’t personally liable as long as he’s not at fault (Art. 1912, CC) and acted within the scope of his authority. But unlike an ordinary agent, the paying partner doesn’t have the right of retention if he isn’t paid. C. Operate under firm name Required: every partnership shall operate under a firm name (Art. 1815, CC) to distinguish the partnership from other entities & from the individual partners. Non-members whose names were used: don’t have the rights of a partner but are liable to 3 rd persons without notice as partners (Art. 1815, CC). They become partners by estoppel (PNB v. Lo). Use of deceased partner’s name in law firm: permissible as long as it’s indicated in the firm’s communications that the partner is deceased (Rule 3.02, CPR) Other rules: 1. a person continuing the partnership after a dissolution uses the firm name/name of deceased partner as part of the name: deceased partner’s individual property isn’t liable for debts contracted (Art. 1840, CC) 2. the limited partner’s surname shall not appear in the firm name unless a. it’s also the surname of a general partner b. before the limited partner became such, the business had been carried on under a name in which his surname appeared (Art. 1846, CC) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 218 of 325 PARTNERSHIP CIVIL LAW D. Bound by partner’s admission Requisites to be admissible against the partnership: 1. it must be connected with partnership affairs 2. it’s within the scope of the partner’s authority (Art. 1820, CC) 3. it’s made during the firm’s existence Exception: when a partner makes admissions for himself only without purporting to act for the partnership Admission by a former partner not admissible in evidence against the partnership. (Congco vs. Trillana) E. Bound by notice to partner Notice to the firm: 1. Notice to a partner while already a partner 2. Knowledge is acquired by a partner who’s acting in a particular matter, WON a partner at the time as long as he still remembers the partnership matter 3. The partner who acquired it has reason to believe that it be the subject of the business, and could’ve communicated it to the acting partner (Art. 1821, CC) F. Liable for wrongful act of partner Extent of liability for wrongful acts, omissions of a partner: firm is liable to the same extent as the partner (Art. 1822, CC). Misapplication of money/property resulting in losses: if loss is suffered by the 3 rd person who delivered the money/property, the partnership is solidarily liable with the misappropriating partner (Art. 1823, CC). RIGHTS OF PARTNERS A. Share in losses and profits Rules for distribution of profits and losses, (Art. 1797, CC) OF PROFITS OF LOSSES With agreement According to agreement According to agreement Without agreement 1. Share of capitalist partner is in proportion to his capital contribution 2. Share of purely industrial partner is not fixed - 1. If sharing of profits is stipulated - apply to sharing of losses 2.If no profit sharing stipulated - losses shall be borne as may be just and equitable under the circumstanc es according to capital contribution 3.Purely industrial partner not liable for losses For capitalist-industrial partner: wrt his capital contribution, he shall, in addition, receive a share in the profits in proportion to the amount of his capital contribution. Industrial partner not liable for losses Designation of shares: by agreement, may be entrusted to a 3rd person. Designation made by the 3 rd person is binding on partners, unless it is manifestly inequitable or unreasonable (Art. 1798, CC). When the designation of a 3 rd person can no longer be impugned: 1. the partner has begun to execute the decision 2. he hasn’t questioned it within 3 months from knowledge of it (Art.1798, CC) Prohibited stipulation: the exclusion of a partner from the profits or from sharing in the losses (Art. 1799, CC). B. Associate another person Subpartnership: partnership of a partner with another person wrt the former’s share. The subpartner isn’t a part of the partnership. Requisite so subpartner is part of the main partnership: consent of all (Art. 1804, CC). C. Access partnership books Partnership books: open to inspection of all the partners at a reasonable hour (Art. 1805, CC). Where kept: 1. place agreed upon 2. if without agreement, at principal place of business (Art. 1805, CC) Reasonable hours on business days throughout the year, not merely during some arbitrary period of a few days chosen by the managing partners (Pardo v. Lumber Co.) D. Obtain formal account Gen. rule: a partner isn’t entitled to a formal account, save in dissolution Basis: his right of access to the books Except: 1. if he’s wrongfully excluded from the business/possession of the property by his co- partners CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 219 of 325 2. if the right exists by agreement 3. as provided in Art. 1807 4. whenever other circumstances render it just & reasonable (Art. 1809, CC) The right of a partner to demand an accounting exists as long as the partnership exists. The prescription period begins to run only upon the dissolution when the final accounting is done (Fue Leung v. IAC). E. Property rights Property rights (Art. 1810, CC): 1.in the specific partnership property 2.in the partnership, and 3.to participate in the management Partnership capital vs. partnership property Capital Property With a constant value Value varies, in accordance with market value Includes only the actual capital contributed & promised to the partnership Includes the contribution & all property later acquired on the partnership’s account Partners are co-owners of specific partnership property: the incidents are – 1. a partner has an equal right with his co- partners to possess specific property for partnership purposes if excluded from this, can seek a formal accounting (Art. 1809, CC) or judicial dissolution (Art. 1831, CC) 2. a partner’s right in specific property can’t be assigned except when all partners assign their rights in that property 3. a partner’s right in specific property isn’t subject to attachment/execution except on a claim against the partnership 4. a partner’s right in specific property isn’t subject to support payment (Art.1811, CC) Property used by the partnership: a partner may 1. contribute only the use of property 2. allow partnership to use his separate property 3. hold the title to partnership property in his own name without having it belong to him Property acquired by a partner with partnership funds: partnership property Except: 1. contrary intention appears 2. property was acquired after dissolution but before winding up Partner’s interest in the partnership: his share in the profits & surplus (Art. 1812, CC). This may be assigned, attached, & subject to payment of support as there was already a liquidation of the partnership affairs. The assignee is only entitled to the profits assigned. The partner isn’t a creditor of the partnership for the amount of the shares (Leyte-Samar Sales v. Cea). Conveyance of partner’s entire interest: doesn’t, of itself, dissolve the partnership (Art. 1813, CC) Rights of the transferee or assignee What assignees cannot do To receive in accordance with his contract the profits accruing to the assigning partner Interfere in the management; To avail of the usual remedies provided by law in the event of fraud in the management Require any information or account To receive the assignor’s interest in case of dissolution Inspect any of the partnership books. Enforcement of a judgment vs. a debtor- partner’s interest (Art. 1814, CC): the judgment creditor may – 1. apply for an order charging the partner’s interest with payment of the unsatisfied amount of the final judgment with interest 2. have a receiver appointed Redemption: a partner or more may redeem the interest with – 1. their separate property 2. with partnership property, with the consent of all partners whose interests aren’t charged/sold (Art. 1814, CC) F. Convey real property Effects of Conveyance (Art. 1819, CC): Title in partnership name - Any partner may convey under partnership name Conveyance passes title but partnership can recover unless: 1)The partner who sold it was carrying on in the usual way the business of the partnership hence binding the partnership; or 2) Buyer had no knowledge of the lack of authority of the seller Title in partnership name - Conveyance in partner's name Conveyance does not pass title but only equitable interest. Provided that: The partner who sold it was carrying on in the usual way the business of the partnership hence binding the partnership 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 220 of 325 PARTNERSHIP CIVIL LAW Title in name of 1/ more partners, Conveyance in name if partner/partners in whose name title stands Conveyance passes title but partnership can recover unless: 1)The partner who sold it was carrying on in the usual way the business of the partnership hence binding the partnership; or 2) Buyer had no knowledge of the lack of authority of the seller Title in name of 1/more/all partners or 3 rd person in trust for partnership, Conveyance executed in partnership name of in name of partners Conveyance will only pass equitable interest. Provided that: The partner who sold it was carrying on in the usual way the business of the partnership hence binding the partnership Cf agency: this is different from the provisions on agency, which provide that a special power to sell excludes the power to mortgage (Art. 1879, CC). RIGHTS OF PARTNERSHIPS A. Acquire immovables Immovables/an interest therein may be acquired in the partnership name, and title so acquired can only be conveyed in the partnership name (Art. 1774, CC). Cf Art. 1819: if the immovable is in the firm’s name, it must be alienated in the name of the firm; if it’s in the partner/s’ name, it must be alienated in the name of said partner/s. If the immovable is in the firm’s name but conveyed by a partner or some of them in his/their names, only the equitable interest is passed to the buyer in good faith. B. Preference of creditors Preference: partnership creditors preferred to creditors of individual partners (Art. 1827, CC). Remedy of private creditors of partners: seek the attachment/public sale of the shares DISSOLUTION AND WINDING UP Definitions: 1. Dissolution: the change in the partners’ relation caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828, CC). 2. Winding up: process of settling business affairs after its dissolution. 3. Termination: point in time after all partnership affairs have been wound up. (Idos v. CA) Effect of dissolution: partnership continues until winding up is completed (Art. 1829, CC). Effect of dissolution on the partners: 1. they can’t evade prior obligations 2. generally they’re spared from new obligations to which they didn’t consent, unless these are essential for the winding up (Testate Estate of Mota v. Serra) Causes of Dissolution 1.Extrajudicial causes (Art. 1830, CC) a. Causes w/o violation of partnership agreement i. End of the definite term or agreed undertaking ii. By a partner’s express will, in good faith. If in bad faith, he’ll be liable for damages but he can’t be compelled to remain in the firm (Rojas v. Maglana) iii. Express will of all partners who haven’t assigned their interests or suffered them to be charged for their separate debts iv. Expulsion of a partner in good faith b. Causes in violation of partnership agreement c. Business becoming unlawful d. Loss of specific thing i. Promised specified thing lost before delivery – dissolved ii. Promised specific thing lost after delivery & transfer of ownership – not dissolved iii. Transfer of usufruct – dissolved e. Death of any partner f. Insolvency g. Civil interdiction h. Court decree in relation to Art. 1831 The articles didn’t provide that the heirs would be limited partners; they expressly stipulated that in case of death, the co-partnership would be continued with the heirs. It couldn’t be continued if it were to be converted from a general partnership to a limited one since the difference between the 2 is fundamental and as this would leave the heirs without a share in the management (Goquiolay v. Sycip). The death of a partner causes dissolution. A new partnership (with the same name) was formed with the remaining living partners. It may be that the succeeding partnerships merely continued the business started by the original one. This element of continuity doesn’t detract from the fact that the partnerships of the same name formed after the partner’s demise are entities altogether different and with personalities distinct from the original partnership. (Estate of Grimm v. Estate of Parsons, 2006) CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 221 of 325 The death of 2 partners didn’t disqualify the partnership from being an awardee of a foreshore lease, as it was survived by 7 partners who continued the operations of the partnership. The death of a partner won’t disqualify the partnership from awards and rights it had gained before the partner’s death. (Lu Do and Lu Ym Corp. v. Aznar Brothers Realty Co., 2006) No profits gained after dissolution by death will be due to the heirs, who are entitled only to the profits already obtained at the time of death. After death, the partnership was merely a “partnership in liquidation” (Bearneza v. Dequilla). The partners can’t enter into an agreement where the automatic dissolution caused by law will be limited/restricted (Lichauco v. Lichauco). 2.Judicial causes (Art. 1831, CC) a. On application by/for a partner when: i. A partner is insane/of unsound mind ii. A partner is incapable of performing his part in the contract iii. A partner is guilty of prejudicial acts iv. A partner breaches the partnership agreement v. The business can only be carried on at a loss vi. Other equitable circumstances b. On application by the buyer of partner’s interest under Art. 1813 or 1814: i. After the end of the specified term/agreed undertaking ii. Any time if it’s a partnership at will when the partner’s interest had already been assigned/charged 3.Membership changes (Art. 1840, CC) (ARADE) a. Admission of new member b. Partner’s retirement c. Assignment of rights in partnership property d. Death of a partner e. Expulsion of a partner Consequences of dissolution 1. As to partner's authority to act for the partnership Gen. rule: terminates the partners’ authority to bind the partnership (Art. 1832, CC) Exceptions: a. to wind up partnership affairs and complete unfinished transactions (Art. 1832, CC) b. With respect to the partners (Art. 1833, CC): if dissolved by act, death, or insolvency of a partner, a partner remains liable to his co-partners for his share of any liability incurred by any partner acting for the partnership as if there is no dissolution Except: i. The dissolution being by act, the representing partner knew of such. ii. The dissolution being by death/insolvency, the representing partner knew/had notice of such. c. With respect to third persons (Art. 1834, CC) if: i. The business/transaction is necessary for the winding up ii. There’s a need to complete unfinished business already begun iii. New transactions entered into by a partner with a 3 rd person in good faith. Stipulation expressly declared not binding after dissolution (Art. 1834, CC): a. When dissolved because it’s unlawful to carry on the business, unless the act’s appropriate for winding up b. Insolvency of a partner c. The partner is w/o authority to wind up partnership affairs, except in transactions with one who – i. Had extended credit before dissolution and had no knowledge/notice of the want of authority ii. Hadn’t extended credit before dissolution, and had no knowledge/notice of want of authority due to lack of advertisement of such If after dissolution a person pretends to be a partner though he isn’t, he’ll be liable as a “partner by estoppel” under Art. 1825 (Art.1834, CC) 2. As to partner's existing liability Gen. rule: dissolution doesn’t by itself discharge the partner’s existing liability Except: if there’s an agreement to that effect between the partner, the creditor & the person/partnership continuing the business (Art. 1835, CC) Death of a partner: his individual property shall be liable for all partnership obligations incurred while he was still a partner, subject to prior payment of his separate debts. 3. Liability of person/partnership continuing the business (Art. 1840,CC) When applicable: a partnership is dissolved due to change in membership but the remaining partners continue the business without liquidation. Effect: unpaid old creditors of the dissolved partnership automatically become creditors of the new partnership. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 222 of 325 PARTNERSHIP CIVIL LAW New partner’s liability: satisfied out of partnership property only, unless with a contrary stipulation Not only the retiring partners but also the new partnership itself which continued the business of the dissolved one, are liable for the debts of the prior partnership. A withdrawing partner remains liable to a 3 rd party creditor of the old partnership (Singsong vs. Isabela Sawmill). Rights of partners upon dissolution 1. Right to wind up (Art. 1836, CC) Kinds of winding up: judicial & extrajudicial Who can initiate: (PALA) a. the partner expressly authorized b. if there’s no agreement, all the partners c. the legal representative of the last surviving partner who’s not insolvent for cause d. assignee Powers of a liquidating partner: limited to what’s necessary to wind up the affairs - a. may enter into new contracts necessary for winding up. b. may borrow money or sell property to pay its debts (40 Am. Jur. 325). c. may incur obligations necessary to complete existing contracts or to preserve partnership assets (40 Am. Jur. [1960] Supp. 36). d. may engage the services of counsel to prosecute/defend the firm’s cases. The action for accounting & liquidation of partnership against the deceased industrial & managing partner can’t be continued against the heirs. When a partner dies, the duty of liquidating its affairs devolves on the surviving partners, not on the deceased’s legal representatives (Lota v. Tolentino). 2. Right to damages for wrongful dissolution When arises: if he’s an innocent partner (haven’t caused a wrongful dissolution), he has the right to claim damages against the partner who caused the wrongful dissolution, based on breach of the agreement (Art. 1837, CC). 3. Right to continue business on wrongful dissolution (Art. 1837, CC) To continue: all innocent partners may continue the partnership business in the same name either by themselves or jointly with others during the agreed term of the partnership subject to certain conditions – a. secure by bond or pay the value of the guilty partner’s partnership interest (less the value of damages he caused), and b. to indemnify him against all partnership’s liabilities, present & future. 4. Rights where dissolution not in contravention of agreement Rights of each partner against his co- partners: a. to have the partnership property applied to discharge partnership liabilities b. the surplus assets, if any, distributed in cash to the respective partners, after deducting what may be due to the firm from them as partners (Art. 1837, CC) 5. Rights of innocent party If dissolution in contravention of agreement: a. Apply partnership property to discharge its liabilities b. Have the surplus, if any, for payment in cash of the net amount owed to partners c. Claim for damages against guilty partner d. To continue the business in the same name e. To possess partnership property if the business is continued (Art. 1837, CC) 6. Rights of guilty party (Art. 1837, CC) Business isn’t continued Business is continued Guilty partner with all the ff. rights of innocent partners - i. apply partnership property to discharge the partnership liabilities ii. receive in cash his share of surplus less damages he caused Guilty partner shall - i. have the value (in cash or secured by a bond) of his interest in the partnership less damages ii. be released from all the firm’s existing liabilities 7. Rights of expelled partner Expelled with just cause Expelled without just case Receive in cash only the net amount due him from the partnership, if he’s discharged from all liabilities Have all the rights of an innocent partner plus damages for his unlawful exclusion (Art. 1837, CC) 8. Rights of parties entitled to annul When entitled to rescind: if with fraud or misrepresentation Rights: a. Of lien/retention of the surplus of the partnership property after satisfaction of the partnership liabilities to 3 rd persons for any sum paid or for any capital/advances contributed b. To subrogate partnership creditors after his payment of liabilities to them. CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 223 of 325 c. To be indemnified by the supposed guilty partner against all debts & liabilities of the partnership (Art. 1838, CC). 9. Right of retiring/ deceased partner When applicable: a partner retires/dies & the business is continued without any settlement of accounts Except: no liquidation is necessary when there’s an agreement as to what the retiree shall receive & he in fact received that amount (Bonnevie v. Hernandez). If no agreement, liquidation: a. The retiree/legal rep. of the deceased may have the value of the interest at the date of dissolution. b. He shall receive as an ordinary creditor an amount equal to the value of his interest in the partnership with interest or, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership (Art. 1841, CC). 10. Right to account (Art. 1842, CC) Right to demand accounting of partner’s interest: reckoned from the date of dissolution, unless with a contrary agreement. Duty to make an account: the winding up/surviving partners or those continuing the business. Right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership, after final accounting (Fue Leung v IAC). Art. 1842 Art. 1809 Accounting upon dissolution Accounting before dissolution SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS (Art. 1839, CC) The rules for distribution won’t apply if there’s a contrary agreement between the partners. Rule of preference in the payment of partnership liabilities: 1.those owed to creditors other than partners 2.those owed to partners other than capital and profits 3.those owed to partners in respect of capital 4.those owed to partners in respect of profits When assets are insufficient to satisfy liabilities: the partners are required to contribute, based on contributed capital. If refuses to contribute – a petition in court may be filed for its enforcement. If partner is dead – contribution may be enforced against his private property through the administrator Doctrine of Marshalling of Assets: If there are claims over both partnership assets & partners’ individual properties, both in custody of the court for distribution: 1. Partnership creditors are preferred with regard to partnership property 2. Individual creditors are preferred wrt individual properties of partners. 3. Anything left from either goes to the other. Order in case of insolvency of a partner or his estate (in case of death): 1.Separate creditors 2.Partnership creditors 3.Partners who gave contributions Liquidation needed. The business profits can’t be determined by taking into account the result of 1 transaction instead of all the transactions had, thus the need for a general liquidation before a partner may claim a specific sum as his share of the profits (Sison v. McQuaid). No return of shares without dissolution & liquidation, for the firm’s outside creditors have preference over the firm’s assets and the firm’s property can’t be diminished to their prejudice (Magdusa v. Albaran). LIMITED PARTNERSHIP Limited partnership: a. formed by 2/more persons, b. in accordance with the requirements of law, c. composed of 1/more general partners & 1/more limited partners (Art. 1843, CC). Limited partners: not bound by the partnership’s obligations (Art. 1843, CC). A limited partnership that hasn’t complied with the law of its creation is but a general partnership in which all members are liable (Jo Chung Cang v. Pacific Commercial). Characteristics: 1. Complied with the statutory requirement of form (Art. 1844 CC) 2. The business is controlled by 1/more gen. partners who are personally liable to creditors (Arts. 1848, 1850 CC) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 224 of 325 PARTNERSHIP CIVIL LAW 3. 1/more limited partners contribute to the capital & share in the profits but don’t manage the business 4. The limited partners aren’t personally liable for obligations beyond their contribution (Arts. 1845, 1848, 1856 CC) 5. Obligations/debts are paid out of partnership assets and the gen. partners’ separate assets 6. Limited partners may get back their capital contributions subject to conditions prescribed by law (Arts. 1844, 1857 CC) Advantages of limited partnerships: 1. For gen. partners: secure capital from others while retaining control & supervision of the business 2. For limited partners: share in the profits without the risk of personal liability General Partner Limited Partner extent of liability Personally liable for partnership obligations Only to the extent of his capital contributions right to participate in managemen t If manner of mgt. not agreed upon, all gen partners have an equal right in business mgt No participation in management contribution Cash, property or industry Cash or property only, not industry proper party to proceedings by or against the partnership Proper party to proceeding s by/against partnership Not proper party to proceedings by/against partnership unless: 1. he is also a gen. partner 2. where the object of the proceedings is to enforce a limited partner's right against or liability to the partnership Name in firm name Name may appear in firm name Name must appear in firm name prohibition to engage in other business Prohibited No prohibition effect of retirement death insanity or Dissolves the partnership Different effect; rights transferred to legal rep. insolvency Assignability of interest in partnership Not assignable Assignable Gen. Partnership Limited Partnership Creation In any form unless immovables are contributed Executed in a cert. of limited partnership containing the required data, duly signed & sworn to by all partners & filed in the SEC Composition Only gen. partners 1/more gen. partners and 1/more limited partners Firm name Must contain the word “Company” (SEC Memo Circ. #14-00) unless it’s a professional partnership Name must include the word “Limited” (SEC Memo Circ. #14-00) Who may be limited partners: 1. A partnership – no 2. A gen. partnership may be changed into a limited one, & a partner in the former gen. partnership may be a limited partner in the limited partnership formed. When the cert. of partnership may be amended: 1. Change in partnership name or in the amount/character of contribution of any limited partner 2. Substitution of a limited partner 3. Additional limited partner is admitted 4. A gen. partner is admitted 5. Gen. partner retires, dies, becomes insolvent or insane, or under civil interdiction & the business is continued 6. A change in the character of business 7. A false/erroneous statement in the cert. 8. A change in the time as stated in the cert. for the dissolution of the partnership or return of a contribution 9. To fix the time for dissolution or return of a contribution 10. The members want to change a statement in the cert. to make it more accurate (Art. 1864, CC) Requirements to amend: 1. Must be in writing, under oath, & set forth clearly the change desired 2. Signed & sworn to by all the members, including the new members & assigning members 3. The cert., as amended, must be filed in the SEC (Art. 1865, CC) When the certificate shall be cancelled: CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 225 of 325 1. When the partnership is dissolved 2. When all limited partners cease to be such (Art. 1864, CC) Requirements to cancel: 1. Must be in writing 2. Signed by all the members 3. Filed with the SEC; if cancellation is court- ordered, a certified copy of the order shall also be filed (Art.1865, CC) LIMITED PARTNER Contribution Restriction: only cash or property, not services (Art. 1845, CC). Liabilities of a limited partner Gen. rule: not liable as a gen. partner. His liability is limited to the extent of his contribution to the partnership. 1. To the partnership (Art. 1858, CC) Limited partner is responsible for: a. Difference between his actual contribution & that stated in the certificate as having been made b. Unpaid contributions which he agreed to make at specified future time & on the conditions stated in the certificate Liability as trustee for the partnership: a. Specific property which he committed but didn’t contribute, or which he contributed but was wrongfully returned to him b. Money/property wrongfully paid or conveyed to him Waiver of liability: if all the partners consent but waiver can’t include the right of a creditor who extended credit or whose claim arose after the filing & before a cancellation/amendment of the certificate is made. Return of contribution: if a limited partner rightfully received back his contribution to capital, he remains liable to the partnership for any sum necessary to discharge the liabilities of the partnership to creditors who extended credit/whose claims arose before such return. 2. Liabilities to partnership creditors & other partners a. Contributes services (Art. 1845, CC) Effect: he will be considered an industrial & general partner. If the certificate states that he’s a limited partner, he will be a general partner & limited partner at the same time. Here he divests himself of the privilege of limited liability & will be exposed to all the liabilities of a gen. partner. b. Surname in firm name (Art.1846, CC) Gen. rule: the surname of a limited partner shall not appear in the partnership name If used in firm name: he is liable as a gen. partner to creditors who didn’t know that he isn’t a gen. partner. c. False statement (Art. 1847, CC) Who’s liable: any party to the certificate who knew the falsity of a statement therein, which is relied upon by an innocent person and who suffered loss because of the falsity d. Control of business (Art. 1848, CC) Effect: he becomes liable as a gen. partner without acquiring the rights of one. Control here contemplates active participation in the business. e. Fraud on creditors (Art. 1854, CC) Prohibited transactions of limited partners: 1. Receiving/holding as collateral security any partnership property 2. Receiving any payment, conveyance, or release from liability if it will prejudice the rights of 3 rd persons If performed prohibited acts: presumption of fraud on the creditors. But the law doesn’t absolutely prohibit the taking as collateral security of the property, as the prohibitions are modify by the requirement of sufficient assets to discharge the partnership obligations. f. Non-compliance with requisites for formation (Art. 1844 par.2, CC) Effect of lack of substantial compliance: partnership becomes a general partnership wrt 3 rd persons, and the members are liable as general partners. 3. Liabilities to separate creditors Right of creditors: to petition the court to charge the interest of the indebted limited partner with the payment of the unsatisfied amount of the claim. A receiver may be appointed to preserve the interest. Redemption: with the separate property of any gen. partner. (Art. 1862, CC) Rights of Limited Partners Common rights of limited & gen. partners: 1.Demand that partnership books be kept at the principal place of business 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 226 of 325 PARTNERSHIP CIVIL LAW 2.Inspect & copy any of the books, content 3.Demand true & full info of all things affecting the partnership 4.Demand a formal account 5.Resort to the court for the dissolution and winding up of the business 6.Receive a share of the profits & surplus 7.Demand the return of his contribution provided assets are more than the liabilities (Art. 1851, CC) Restrictions on gen. partners: gen. partners can’t, without the written consent or written ratification of all limited partners, do the ff: 1. Any act in contravention of the certificate 2. Any act which would make it impossible to carry on the partnership business 3. Confess judgment 4. Possess partnership property, or assign their rights in specific partnership property for other than a partnership purpose 5. Admit a person as a gen. partner 6. Admit a person as a limited partner, unless the right is granted in the certificate 7. Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a gen. partner, unless the power is granted in the certificate (Art. 1850, CC) Loan & other business transactions Allowed to loan money, transact business: the relationship between the limited partner & partnership isn’t based on trust & confidence. There is no conflict of interests. Sharing pro rata: he’s entitled to a pro rata share of the partnership assets together with the creditors. (Art. 1854, CC) Return of contribution (Art.1857,CC) Conditions for return: 1. All liabilities to non-partner creditors had been paid, or there are sufficient assets to satisfy them 2. All members consent, unless the limited partner desiring the return has lawfully demanded the return of his contribution. 3. The certificate had been cancelled or amended as to reflect the withdrawal/reduction of contribution. When return may be demanded: 1. On the dissolution of the partnership 2. On the arrival of the date specified in the certificate 3. On the lapse of 6 months from notice in writing to all other members if no time is specified Gen. rule: return of contribution is in cash Except: if there’s a statement to that effect in the certificate or all partners consent Dissolution, upon petition of limited partner: 1.When his demand for return of contribution wasn’t acted upon/denied 2.His contribution wasn’t returned/paid In case of several limited partners: members may agree to give priority to 1/more limited partners, and this must be stated in the certificate of partnership. The preference covers – 1. return of contributions, 2. compensation, and 3. other matters where some benefit is granted (Art. 1855, CC). Share of profits (Art. 1856, CC) Partner’s share: when the assets exceed liabilities (except those to limited & general partners), a limited partner may recover a share in the profits/compensation by way of income stipulated in the certificate. Assign interests (Art. 1859, CC) Substituted limited partner: a person admitted to all the rights of a limited partner who has died or assigned his interest in a partnership Rule: limited partner’s interest is assignable. The assignee may become a substituted limited partner if – 1. all the members consent, or 2. the assignor is empowered in the articles of partnership, and he gave the assignee the right to be a substituted limited partner. It is still required that the certificate be amended (Art. 1865, CC) and registered with the SEC. Rights of substituted limited partner: 1. To require any info/account of the transactions 2. To inspect partnership books Liability of substituted limited partner: 1. all restrictions & liabilities of the assignor 2. responsible for the liabilities of the assignor except those he was ignorant of when he became a limited partner and couldn’t be ascertained in the certificate Effect on assignor: that the assignee has become a substituted limited partner doesn’t relieve the assignor of all liabilities to the partnership (Arts. 1847, 1858 CC). If assignee didn’t become a substituted limited partner: 1.remains a mere assignee 2.with right to receive the share of the profits/compensation by way of income, or the return of his contribution to which the assignor would’ve been entitled to CIVIL LAW PARTNERSHIP 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 227 of 325 Effect of death (Art. 1861, CC) Rights of executors/administrators: 1.All the rights of a limited partner for the purpose of settling the estate 2. If the deceased had assigned his interest in the partnership, the executor or administrator may constitute the assignee a substituted limited partner if the deceased was empowered to do so Estate’s liability: for all the deceased’s obligations & liabilities to the partnership as a limited partner Person erroneously believing he’s a limited partner (Art. 1852, CC) Effect: he doesn’t, by reason of his exercise of the rights of a limited partner, become a gen. partner. Neither is he bound by the obligations of the person/partnership. He’s exempt from general liability. Conditions for exemption: 1. on ascertaining the mistake, he promptly renounces his interest in the profits of the business 2. his surname doesn’t appear in the partnership name 3. he doesn’t participate in the management of the business Dissolution When a limited partnership may be dissolved: 1. The misconduct of a general partner 2. Fraud on the limited partner by the general partner 3. The retirement, death, insolvency, insanity, or civil interdiction of a general partner Except: if the business is continued by the remaining general partners – i. under a right stated in the cert. ii. when all members consented to the continuation (Art. 1860, CC) 4. When all the limited partners ceased to be such (Art. 1864, CC) 5. End of the term for which it was to exist (Art. 1844, CC) 6. By mutual consent of the partners before the end of the firm’s original term 7. When the limited partner demanded the return of his contribution but was unjustifiably denied (Art. 1857, CC) 8. The causes in Arts. 1830 & 1831. If dissolved by expiration of the fixed term: the notice of dissolution need not be given since the papers filed in the SEC are notice to the world. If dissolved by express will of the partners: the certificate should be cancelled, and a dissolution isn’t effected until there has been compliance with this requirement. Settling accounts after dissolution Order of priority in the payment of liabilities (Art. 1863, CC): 1. Those owed to creditors, in the order of priority provided by law (Arts. 2236- 2251, CC), except those to limited partners on account of their contribution & to general partners 2. Those to limited partners in respect to their share of the profits and other compensation by way of income in their contributions 3. Those to limited partners in respect of their capital contributions 4. Those to general partners other than for capital and profits 5. Those to general partners in respect to profits 6. Those to general partners in respect to capital Winding up: general partners have the duty & power to wind up the partnership’s affairs If there’s no agreement, the limited partners shall share in the partnership assets and profits in proportion to the respective amounts of their claims (Art. 1863, CC). CREDIT TRANSACTIONS CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 228 of 325 Credit Transactions TABLE OF CONTENTS Section 1. Credit Transactions 229 Section 2. Loan 229 Section 3. Deposit 233 Section 4. Guaranty 240 Section 5. Legal and Judicial Bonds 246 Section 6. Pledge, Mortgage, Antichresis 248 Section 7. Concurrence and Preference of Credit 255 Section 7. Special Laws 256 Section 9. Warehouse Receipts Law 256 Section 10. Insolvency Law 261 Section 11. Sample Questions 268 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 229 of 325 CREDIT TRANSACTIONS CIVIL LAW CREDIT TRANSACTIONS include all transactions involving the purchase or loan of goods, services or money in the present with a promise to pay or deliver in the future (contract of security) 2 TYPES OF CREDIT TRANSACTIONS: 1. SECURED TRANSACTIONS – THOSE SUPPORTED BY A COLLATERAL OR AN ENCUMBRANCE OF PROPERTY 2. UNSECURED TRANSACTIONS – THOSE SUPPORTED ONLY BY A PROMISE TO PAY OR THE PERSONAL COMMITMENT OF ANOTHER SUCH AS A GUARANTOR OR SURETY SECURITY is something given, deposited or serving as a means to ensure the fulfillment or enforcement of an obligation or of protecting some interest in the property 2 TYPES OF SECURITY: 1. personal – when an individual becomes a surety or a guarantor 2. real or property – when an emcumbrance is made on property BAILMENT is the delivery of property of one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed and the property returned or duly accounted for when a special purpose is accomplished or kept until the bailor reclaims it. PARTIES IN BAILMENT 1. bailor – the giver, the party who delivers possession/custody of the thing bailed 2. bailee – the recipient, the party who receives the possession/custody of the thing delivered KINDS OF CONTRACTUAL BAILMENT W/ REFERENCE TO COMPENSATION 1. for the sole benefit of the bailor (gratuitous) e.g. gratuitous deposit, mandatum (do some act w/ respect to a thing) 2. for the sole benefit of the bailee (gratuitous) e.g. commodatum, gratuitous simple loan or mutuum 3. for the benefit of both parties e.g. deposit for compensation, involuntary deposit, pledge and bailments for hire: a. hire of things – temporary use b. hire of service – for work or labor c. hire of carriage of goods – for carriage d. hire of custody – for storage LOAN LOAN is a contract by which one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called commodaturm; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.(Art 1933) CHARACTERISTICS OF A LOAN: 1. real contract – delivery is essential for perfection of the loan (BUT a promise to lend, being consensual, is binding upon the parties) 2. unilateral contract - only the borrower has the obligation Cause or consideration in a contract of loan: 1. as to the borrower – the acquisition of the thing 2. as to the lender – the right to demand its return or its equivalent 2 KINDS OF LOAN: Commodatum Mutuum or simple loan nature bailor delivers to the bailee a non- consumable thing so that the latter may use it for a certain time and return the identical thing bailor (creditor) delivers to the bailee (debtor) money or other consumable thing upon the condition that the latter will pay the same amount of the same kind and quality Subject matter Non- consumable thing (Art 1936) Except: when purpose of contract is not consumption, but merely for exhibition the subject matter may be a consumable Money or other consumable thing 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 230 of 325 CREDIT TRANSACTIONS CIVIL LAW thing. In this case, the use is exhibition of the thing, so the consumable thing is not being used in a manner appropriate to its purpose, but for another purpose. Transfer of ownership None, ownership is retained by bailor (Art 1933) Ownership is transferred to the debtor consideration None, essentially gratuitous (Art 1933) Note that if there is any compensation, the contract that arises is a lease contract (Art. 1643) May be gratuitous or onerous, i.e. w/ stipulation to pay interest need to return and what Bailee must return the same thing loaned (Art 1933) debtor needs only to pay the same amount of the same kind and quality Nature of property involved May involve real or personal property (Art 1937) Only personal property Purpose of loan Loan for use (Art 1935) If the bailee is not entitled to the use of the thing, the contract may be a deposit. (Art 1962) Loan for consumption WON return may be demanded before end of term YES, in case of urgent need (Art 1946) NO, creditor may not demand its return before the lapse of the term agreed upon who suffers the loss Bailor, since he is the owner (Art 1942, Art 1174) Debtor suffers the loss A thing is consumable when it is used in a manner appropriate to its purpose or nature. (Art 418) COMMODATUM 2 KINDS OF COMMODATUM: 1. ordinary commodatum - use by the bailee of the thing is for a certain period of time 2. precarium – one whereby the bailor may demand the thing loaned at will; exists in cases where: i. neither the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated ii. if the use of the thing is merely tolerated by the owner. (Art 1947) General rule: In a commodatum, the right to use is limited to the thing loaned, and not to its fruits. Except: There is stipulation to the contrary. (Art 1940) In cases where there is such a stipulation, enjoyment of the fruits must be incidental to the use of the thing itself. Otherwise, if the use of the fruits is the main cause, the contract ma be one of usufruct. (Art 562) What is the effect of an accepted promise to deliver by way of commodatum or mutuum? It is binding upon the parties, but the contract of loan shall not be perfected until delivery of the contract. (Art 1934) Who may be bailor in commodatum? Anyone. The bailor in commodatum need not be the owner of the thing loaned. (Art 1938) But the bailee himself may not lend nor lease the thing loaned to him to a third person (Art 1939(2)) General rule: Commodatum is purely personal in character. (Art 1939) 1. death of either party extinguishes the contract 2. bailee can neither lend nor lease the thing lent to him to a third person Except: Members of the bailee’s household may make use of the thing loaned Except: Bailee’s household may NOT use it when: 1. there is stipulation to the contrary, or 2. the nature of the thing forbids such use. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 231 of 325 CREDIT TRANSACTIONS CIVIL LAW What are the OBLIGATIONS OF THE BAILEE in commodatum? 1. obligation to pay for the ordinary expenses for the use and preservation of the thing loaned (Art 1941) 2. obligation to take good care of the thing with the diligence of a good father of a family (Art 1163) 3. liability for loss, even if loss through fortuitous event, in certain circumstances (Art 1942) 4. liability for deterioration of thing loaned, except under certain circumstances (Art 1943) 5. obligation to return the thing upon expiration of term or upon demand in case of urgent need 6. solidary obligation where there are 2 or more bailees to whom a thing was loaned in the same contract (Art 1945) General rule: Bailee is not liable for loss or damage due to a fortuitous event (Art 1174), since the bailor retains ownership of the thing Except: Bailee is liable even for loss due to a fortuitous event when: (Art 1942) 1. he devotes the thing to any purpose different from that for which it was loaned 2. he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted 3. the thing loaned has been delivered with appraisal of its value, unless there is stipulation exempting the bailee from responsibility in case of a fortuitous event 4. he lends or leases the thing to a third person who is a not a member of his household 5. being able to save either the thing borrowed or his own thing, he chose to save the latter. General rule: Bailee is liable for deterioration of thing loaned. Except: The deterioration of the thing is due only to the use thereof and without his fault, then bailee is not liable. (Art 1943) General rule: Bailee has no right of retention of the thing loaned, on the ground that the bailor owes him something. Except: Bailee has a right of retention for damages for known hidden flaws mentioned in Art 1951. (Art 1944) What are the requisites for the application of Art 1951? 1. There is a flaw or defect in the thing loaned 2. The flaw or defect is hidden 3. The bailor is aware thereof 4. He does not advise the bailee of the same, and 5. The bailee suffers damages by reason of said flaw or defect What are the OBLIGATIONS OF THE BAILOR in a commodatum? 1. obligation to respect the duration of the loan: The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted. Except: Bailor may demand return or temporary use before end of term when: 1. he should have urgent need of the thing (Art 1946) 2. bailee commits an act of ingratitude specified in Art 765 (Art 1948) The law uses “its return” or “temporary use” because the return demanded may be temporary or permanent. In case of temporary use by the bailor, the rights and duties of the parties are temporarily suspended while the thing is in the possession of the bailor. (Art 1946, par 2) Any of the following constitutes acts of ingratitude: 1. bailee commits offenses against the person, the honor, or the property of the bailor, or of his wife or children under his parental authority 2. bailee imputes to the bailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the bailee himself, his wife, or children under his authority, and 3. if the bailee unduly refuses the bailor support when the bailee is legally or morally bound to give support to the bailor Article 765 is applicable, because like a donation, a commodatum is essentially gratuitous. (Art 1933, par 2) 2. obligation to refund extraordinary expenses (Art 1949): a. extraordinary expenses for the preservation of the thing are borne by the bailor. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 232 of 325 CREDIT TRANSACTIONS CIVIL LAW Requisites for liability of bailor to arise: 1. extraordinary expense for preservation 2. bailee gives bailor notice before incurring the expenses, except when the expense is so urgent that a reply to notice cannot be awaited without danger to the thing b. extraordinary expenses on the occasion of actual use by bailee, even if without fault are borne equally by the bailor and the bailee, unless there is contrary stipulation c. ordinary expenses for use and preservation are also borne by bailor (Art 1950, in rel Art 1941) Bailor has no right of abandonment: He cannot exempt himself from payment of expenses to bailee by abandoning the thing to the latter. (Art 1952) MUTUUM OR SIMPLE LOAN A mutuum or simple loan is a contract by which a person (creditor) delivers to another (debtor) money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid. (Art 1953) Elements of a mutuum: 1. delivery of a money or other consumable thing 2. obligation on the part of debtor to pay (not exactly to return) When is a contract deemed a barter? (Art 1954) 1. transfer of ownership of non-fungible thing to another 2. obligation on the part of the latter to give things of the same kind, quantity, and quality What is a fungible thing? Fungibles are those which are dealt with by number, weight, or measure, such as grain, oil, sugar, etc. Whether a thing is consumable or not depends on the nature and whether it is fungible or not depends on the intention of the parties. e.g. Wine is consumable by nature, but it may be non-fungible if the intention is merely for display or exhibition. Loan (both kinds) barter Subject matter Money or any other fungible things Non-fungible things obligation Obligation to return or to pay Obligation to give an equivalent of that received consideration Loan may be gratuitous (commodatum) Barter is always onerous The object of simple loan may be either money or consumable or fungible things. 1. loan of money 2. loan of fungible thing Kinds of interest: 1. Simple interest – which is paid for the principal at a certain rate fixed or stipulated by the parties 2. Compound Interest – that which is imposed interest due and unpaid. The accrued interest is added to the principal sum and the whole is treated as a new principal upon which the interest for the next period is calculated 3. Legal Interest – that which the law directs to be charged in the absence of any agreement as to the rate between the parties. 4. Lawful Interest – that which the laws allow or do not prohibit 5. Unlawful or Usurious Interest – paid or stipulated to be paid beyond the maximum fixed by law General Rule: If the exact rate of interest is not mentioned, the legal rate shall be imposed Except: a. the debtor is liable to pay legal interest (12%) as indemnity even in the absence of stipulation for the payment of interest b. interest due shall earn legal interest from the time it is judicially demanded although the obligation may be silent upon this point General Rule: Accrued interest shall not earn interest Except: a. when judicially demanded as provided in art 2122. b. when there is an express stipulation made by the parties that the interest due and unpaid shall be added to the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 233 of 325 CREDIT TRANSACTIONS CIVIL LAW principal obligation and the resulting total amount shall earn interest Payment of unstipulated interest 1. where unstipulated interest is paid by mistake the debtor may recover as this would be a case of solution indebiti or undue payment 2. where the unstipulated interest is paid voluntarily because the debtor feels morally obliged to do so there can be no recovery as in the case of natural obligations USURY 1. Usury is contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels 2. Forbearance signifies the contractual obligation of the creditor to forbear or refrain during a period to require the debtor payment of an existing debt then due and payable. 3. Where there is no loan or forbearance there is no usury 4. The usury law has not been repealed, it is just suspended; there may still be unconscionable interest if the court finds it so 5. Interest is the compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods or chattels 6. a floating interest rate is not invalid per se but there must be a reference point 7. Requirements for a valid escalation clause a. increase is provided by law/ resolution by the monetary board b. there is a corresponding de- escalation clause c. the effectivity of the clause is on or after the effect of increase ordered on the maximum interest DEPOSIT DEPOSIT is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (Art. 1962) CHARACTERISTICS OF A DEPOSIT 1. Real – like commodatum & mutuum; bec it’s perfected by the delivery of the subj matter. Where there is no delivery, there is merely an agreement to deposit w/c, however, is binding & enforceable upon the parties. Hence, a contract of future deposit is consensual (see 1934 CC). 2. Unilateral– if it’s gratuitous; bec only the depositary has an oblig. 3. Bilateral – if it’s for a compensation; bec it gives rise to obligs on both the depositary & the depositor. 4. Voluntary as a general rule. It becomes necessary in the 3 cases in 1996 & 1998 CC and in cases of deposit of goods made by travelers/passengers w/ common carriers, which may also be regarded as necessary. 5. Gratuitous as a general rule Exceptions: 1. where there is contrary stipulation 2. where depositary engaged in the business of storing goods 3. where property saved from destruction w/o knowledge of the owner PRINCIPAL PURPOSE Safekeeping of the thing delivered. (This is why if it’s only an accessory or secondary oblig of the recipient, deposit is not constituted but some other contract). 1. Deposit v. Mutuum Purpose Safekeeping or mere custody Consumption of the Subj Matter Demandability Depositor can demand the return of the subject matter at will Lender must wait until the expiration of the period granted to the debtor Object May be both movable & immovable property Only money & other fungible thing 2. Deposit v. Commodatum Purpose Safekeepin g Transfer of the Use Remuneratio n May be gratuitous Essentially & always gratuitous Object In extrajudicia l deposit, only Both movable & immovable property 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 234 of 325 CREDIT TRANSACTIONS CIVIL LAW movable things may be the object may be the object CREATION OF A DEPOSIT 1. By virtue of a court order; or 2. By law 3. Not by the will of the parties 4. It is essential that the depositary is not the owner of the property deposited (Art. 1962) EXTINGUISHMENT OF DEPOSIT 1. A deposit is extinguished: a. upon the loss or deterioration of the thing deposited; b. upon the death of the depositary, ONLY in gratuitous deposits; c. other provisions in the Civil Code (novation, merger, etc.) KINDS OF DEPOSIT 1. judicial - when an attachment or seizure of property in litigation is ordered 2. extrajudicial (Art. 1967) a. voluntary- delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited; b. necessary- made in compliance with a legal obligation, or on the occasion of any calamity, or by travelers in hotels and inns or by travelers with common carriers Judicial Extrajudici al creation Will of the court Will of the contracting parties purpose Security or ensure the right of a party to property or to recover in case of favorable judgment Custody and safekeeping Subject matter Generally immovables cause Always onerous Maybe compensate d but generally gratuitious Return of thing Upon order of the court/ end of Upon demand of depositor litigation In whose behalf held Person who has a right Depositor or 3rd person designated SUBJECT MATTER OF DEPOSIT 1. Only movable/personal property may be the object of extrajudicial deposit, whether voluntary or necessary. The provisions do not embrace incorporeal or intangible property, like rights & actions. 2. Judicial deposit may cover movable as well as immovable property, its purpose being to protect the rights of the parties to a suit. PARTIES TO A DEPOSIT 1. Ordinarily, there are only 2 persons involved. Sometimes, however, the depositary may be a 3 rd person. 2. The main difference btw a voluntary deposit & a necessary deposit is that in voluntary deposit, the depositor has complete freedom in choosing the depositary, whereas in the latter, there is lack of free choice in the depositor. 3. As a general rule, the depositor must be the owner of the thing deposited. However, it may belong to another person than the depositor. For example, when two or more persons claiming to be entitled to a thing may deposit the same with a third person. In such case, the third person assumes the obligation to deliver to the one to whom it belongs. The depositary may bring an action of interpleader to compel the depositors to settle their conflicting claims. Here one of the depositors is not the owner. EFFECTS OF INCAPACITY Depositary is capacitated; Depositor is incapacitated Depositary is incapacitated; Depositor is capacitated Depositary is subject to ALL the obligations of a depositary Depositary does not incur the obligations of a depositary Depositary must return the property either to: a) the legal representative of the incapacitated, OR b) the depositor himself if he Depositary, however is liable to: a) return the thing deposited while still in his possession; AND b) pay the depositor the amount by which 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 235 of 325 CREDIT TRANSACTIONS CIVIL LAW should acquire capacity he may have benefited himself with the thing or its price subject to the right of any 3 rd person who acquires the thing in good faith OBLIGATIONS OF THE DEPOSITARY 1. Two primary obligations (Art. 1972) a) safekeeping of the object, using as a degree of care the same diligence that the depositary would exercise over his property 20 Exception: The depositary cannot excuse himself from liability in the event of loss by claiming that he exercised the same amount of care toward the thing deposited as he would towards his own if such care is less than that required by the circumstances. Rationale: i. Essential requisite of judicial relation which involves the depositor’s confidence in his good faith and trust worthiness; ii. The presumption that the depositor took into account the diligence which the depositary is accustomed with respect to his own property. b) Return of the thing when required – even though a specified term or time for such may have been stipulated in the contract. 2. Obligation not to transfer deposit (Art. 1973) a) General rule the depositary is not allowed to deposit the thing with a third person. 20 THE ROMAN CATHOLIC BISHOP OF JARO v. DE LA PEÑA: “Although the CC states that "a person obliged to give something is also bound to preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or those in which the obligation so declares."” (Thus, in this case, the defendant cannot be held liable for the loss of the money he deposited in his personal trust fund because such was not illegal and the Court cannot say “that in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other”). Rationale A deposit is founded on trust and confidence and it can be supposed that the depositor, in choosing the depositary, has taken into consideration the latter’s qualification. Exception The depositary is authorized by express stipulation. b) General rule: Depositary is liable for loss of the thing deposited when: i. He transfers the deposit with a third person without authority although there is no negligence on his part and the third person; ii. He deposits the thing with a third person who is manifestly careless or unfit although authorized, even in the absence of negligence; or iii. The thing is lost through the negligence of his employees whether the latter are manifestly careless or not. Exception: There is an exemption from liability when The thing is lost without the negligence of the third person with whom he was allowed to deposit the thing if such third person is not “manifestly careless or unfit.” 3. Obligation not to change the way of deposit (Art. 1974) General rule: Depositary may not change the way of the deposit Exception: If there are circumstances indicating that the depositor would consent to the change. This is a situation wherein the depositary would reasonably presume that the depositor would agree to the change if he knows of the facts of the situation. Requisites: a) The depositary must notify the depositor of such change and b) Must wait for the reply of the depositor to such change. Exception: If the delay of the reply would cause danger. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 236 of 325 CREDIT TRANSACTIONS CIVIL LAW 4. Obligation to collect on the choses in action deposited (Art. 1975) a) If the thing deposited should earn interest, the depositary is under the obligation to: i. Collect the capital and interest as they become due; ii. Take such steps as may be necessary to preserve its value and the right corresponding to it. b) A contract for the rent of safety deposit boxes is not an ordinary contract of lease of things, but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit. The prevailing rule in the US is that the relation between a bank renting out safety deposit boxes and its customer with respect to the contents of the box is that of bailor and bailee. 21 5. Obligation not to commingle things if stipulated (Art. 1976) General rule: The depositary is permitted to commingle grain or other articles of the same kind and quality. Effects: a) The various depositors of the mingled goods shall own the entire mass in common. b) Each depositor shall be entitled to such portion of the entire as the amount deposited by him bears the whole. Exception: When there is a stipulation to the contrary. 6. Obligation not to make use of the thing deposited (Art. 1977) a) General rule: Deposit is for safekeeping of the subject matter and not for its use 22 . Exceptions: a) Expressly authorized by the depositor; 21 CA AGRO-INDUSTRIAL DEV. CORP. v CA: “ the contractual relation between a commercial bank and another party in a contract of rent of a safety deposit box is one of deposit” 22 JAVELLANA v. LIM ET AL.: “a depositary CANNOT make use of the thing deposited w/o the express permission of the depositor. Article 1768 CC also states that when the depositary has permission to make use of the thing deposited, the contract LOSES the character of a deposit & becomes a LOAN or BAILMENT.” b) Such use is necessary for its preservation but limited for the purpose only. b) Unauthorized use will result in liability for damages. In addition, unauthorized use will have the following effects: i. If the thing deposited is nonconsumable: General rule: The contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as a deposit. Exception: Safekeeping is still the principal purpose of the contract. ii. Thing deposited is money or other consumable thing: General rule: Converts the contract into a simple loan or mutuum. Exception: Safekeeping is still the principal purpose of the contract, but it becomes an irregular deposit. Bank deposits are in the nature of irregular deposits but they are really loans governed by the law on loans. 7. Liability for loss through fortuitous events (Art. 1979) General rule: If the thing deposited is lost without a fortuitous event, the depositary is presumed at fault. If it was lost through a fortuitous event, the depositary is not liable without his fault. Exceptions: a) If it is so stipulated; b) If he uses the thing without the depositor’s permission c) If he delays in its return; d) If he allows others to use it, even though he himself may have been authorized to use the same. 8. Relation between bank and depositor (Art. 1980) Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 237 of 325 CREDIT TRANSACTIONS CIVIL LAW a) Contract of loan – deposits in banks are really loans because the bank can use the same for its ordinary transactions b) Relation of creditor and debtor – the relation between a depositor and a bank is that of a creditor and a debtor. 9. Obligation when the thing deposited is closed and sealed (Art. 1981) General rule: The depositary has the obligation to: a) return the thing deposited when delivered closed and sealed in the same condition; b) pay for damages should the seal or lock be broken through his fault, which is presumed unless proven otherwise; c) Keep the secret of the deposit when the seal or lock is broken, with or without his fault. Exception: The depositary is justified in opening a closed and sealed subject matter a) When the depositary is presumed authorized to do so (the presumption applies if the key has been delivered to him) b) When the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. (Necessity) 10.Obligation to return products, accessories and accessions (Art. 1983) 11.Obligation to pay interest on sums converted for personal use (Art. 1983) 12.The depositary who receives the thing in deposit cannot require that the depositor prove his ownership over the thing (Art. 1984) 13.Where a third person appears to be the owner. (Art. 1984) The depositary may be relieved from liability when: a) He advised the true owner of the thing of the deposit. b) If the owner, is spite of such information, does not claim it within the period of one month (30 days) 14.Obligation of the depositary when there are two or more depositors. (Art. 1985) a) In cases of a divisible thing and joint depositors – each one of the depositors can demand only his share proportionate thereto. b) In cases of an Indivisible thing and solidary depositors – rules on active solidarity i) General Rule: Each one of the depositors may do whatever may be useful to the others. (Art. 1212) Exception: Anything which may be prejudicial to the other depositors. ii) General Rule: The depositary may return the thing to any one of the solidary depositors Exception: When a demand, judicial or extrajudicial, for its return has been made by one of them in which case delivery should be made to him. c) In cases where there is a stipulation of return to one of the depositors – if by stipulation, the thing should be returned to one of the depositors, the depositary is bound to return it only to the person designated although he has not made any demand for its return. 15.Obligation to return to the person to whom return must be made. (Art. 1986) a) The depositary is obliged to return the thing deposited, when required, to: The depositor; To his heirs or successors; or To the person who may have been designated in the contract. b) If the depositor was incapacitated at the time of making the deposit, the property must be returned to: His guardian or administrator; To the person who made the deposit; To the depositor himself should he acquire capacity. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 238 of 325 CREDIT TRANSACTIONS CIVIL LAW c) Even if the depositor had capacity at the time of making the deposit but he subsequently loses his capacity during the deposit, the thing must be returned to his legal representative. 16.Obligation to return at the place of return (Art. 1987) General rule: At the place agreed upon by the parties, transportation expenses shall be borne by the depositor. Exception: (In the absence of stipulation) At the place where the thing deposited might be even if it should not be the same place where the original deposit was made. 17.Obligation to return upon the time of return. (Art. 1988) General rule: The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed. Exceptions: a) When the thing is judicially attached while in the depositary’s possession b) When notified of the opposition of a third person to the return or the removal of the thing deposited 18.Right of the depositary to return the thing deposited. (Art. 1989) (NOTE: in this case, it is the depositary who is returning the deposit WITH OR WITHOUT THE DEMAND of the depositor) General rule: The depositary may return the thing deposited notwithstanding that a period has been fixed for the deposit if: a) The deposit is gratuitous; b) The reason is justifiable. If the depositor refuses to receive the thing, the depositary may deposit the thing at the disposal of the judicial authority. Exception: When the deposit is for a valuable consideration, the depositary has no right to return the thing before the expiration of the time designated even if he should suffer inconvenience as a consequence. 19.Depositary’s liability in case of loss by force majeure or government order. (Art. 1990) The depositary is not liable in cases of loss by force majeur or by government order. However, he has the duty to deliver to the depositor money or another thing he receives in place of the thing. 20.Liability in case of alienation of the depositary’s heir. (Art. 1991) When alienation is done in GOOD FAITH: a) Return the value of the thing deposited b) Assign the right to collect from the buyer. The heir does not need to pay the actual price of the thing deposited. When alienation is done in BAD FAITH: a) Liable for damages; b) Pay the actual price of the thing deposited. 21.Depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. (Art. 1994) The thing retained serves as security for the payment of what may be due to the depositary by reason of the deposit. (see Art. 1965, 1992, 1993). Note: The debt must be prior to the deposit. OBLIGATIONS OF THE DEPOSITOR 1. Obligation to pay expenses of preservation. (Art. 1992) 2. Obligation to pay losses incurred due to character of thing deposited. (Art. 1993) General rule: The depositary must be reimbursed for loss suffered by him because of the character of the thing deposited. Exceptions: a) Depositor was not aware of the danger; b) Depositor was not expected to know the dangerous character of the thing; c) Depositor notified the depositary of such dangerous character; d) Depositary was aware of the danger without advice from the depositor. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 239 of 325 CREDIT TRANSACTIONS CIVIL LAW 3. Effect of death of depositor or depositary. (Art. 1995) a) Deposit gratuitous – death of either of the depositor or depositary extinguishes the deposit (personal in nature). By the word “extinguished,” the law really means that the depositary is not obliged to continue with the contract of deposit. b) Deposit for compensation – not extinguished by the death of either party. NECESSARY DEPOSITS A deposit is necessary when: 1. It is made in compliance with a legal obligation, in which case it is governed by the law establishing it, and in case of deficiency, the rules on voluntary deposit e.g. Arts. 538, 586 and 2104 2. It takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events. There must be a causal relation between the calamity and the constitution of the deposit. In this case the deposit is governed by the rules on voluntary deposit and Art. 2168 3. Made by passengers with common carriers., as to those baggage the passengers or their agents carry 4. Made by travelers in hotels or inns. (Art. 1998) The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. (Art. 2003) Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former (as set forth in Art. 1998-2001) is suppressed or diminished shall be VOID. Before keepers of hotels or inns may be held responsible as depositaries with regard to the effects of their guests, the following must concur: Elements: a) They have been previously informed about the effects brought by the guests; and b) The latter have taken the precautions prescribed regarding their safekeeping. Extent of liability: a) Liability in hotel rooms which come under the term “baggage” or articles such as clothing as are ordinarily used by travelers b) Include those lost or damages in hotel annexes such as vehicles in the hotel’s garage. In the following cases, the hotel- keeper is liable REGARDLESS of the amount of care exercised: a) The loss or injury to personal property is caused by his servants or employees as well as by strangers (Art. 2000). b) The loss is caused by the act of a thief or robber done without the use of arms and irresistible force. (Art. 2001) In the following cases, the hotel- keeper is not liable: a) The loss or injury is cause by force majeure, like flood, fire, theft or robbery by a stranger (not the hotel-keeper’s servant or employee) with the use of firearms or irresistible force. Exception: Unless the hotel- keeper is guilty of fault or negligence in failing to provide against the loss or injury from his cause. b) The loss is due to the acts of the guests, his family, servants, visitors. c) The loss arises from the character of the things brought into the hotel. Hotel-keeper’s right to retain The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of: a) lodging; b) supplies usually furnished to hotel guests. Rationale It is given to hotel-keepers to compensate them for the liabilities imposed upon them by law. The right of retention recognized in this article is in the nature of a pledge created by operation of law. JUDICIAL DEPOSIT 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 240 of 325 CREDIT TRANSACTIONS CIVIL LAW When judicial deposit takes place: Judicial deposit takes place when an attachment or seizure of property in litigation is ordered by a court. (Art. 2005) Nature: Auxiliary to a case pending in court. Purpose: To maintain the status quo during the pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment. Depositary of sequestered property: person appointed by the court. (Art. 2007) Obligations: a) To take care of the property with the diligence of a good father of the family. (Art. 2008) b) He may not be relieved of his responsibility until the litigation is ended or the court so orders. (Art. 2007) Applicable law: The law on judicial deposit is remedial or procedural in nature. Hence, the Rules of Court are applicable. (Art. 2009) Basis of Compariso n Judicial Deposit Extra- judicial Deposit Cause or origin By will of the courts By will of the parties. Hence, there is a contract Purpose Security; Secure the right of a party to recover in case of favorable judgment. Custody; Safekeeping of the thing Subject Matter Either movable or immovable property but generally, immovable Only movable property Remunerati on Always remunerate d (onerous) Generally gratuitous, but may be compensate d In whose behalf it is held In behalf of the person who, by the judgment, has a right In behalf of the depositor or third person designated GUARANTY GUARANTY is a contract whereby a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. (Art. 2047) CHARACTERISTICS 1. Accessory – dependent for its existence upon the principal obligation guaranteed by it; 2. Subsidiary and conditional – takes effect only when the principal debtor fails in his obligation subject to limitation 3. Unilateral – a. It gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa b. It may be entered into even without the intervention of the principal debtor. 4. Guarantor must be a person distinct from the debtor – a person cannot be the personal guarantor of himself CLASSIFICATION OF GUARANTY 1. Guaranty in the broad sense: a. Personal – guaranty is the credit given by the person who guarantees the fulfillment of the principal obligation; or b. Real – guaranty is property, movable, or immovable i. Real mortgage (2124) or antichresis (2132) – guaranty is immovable ii. Chattel mortgage (2140) or pledge (2093) – guaranty is movable 2. As to its origin: a. Conventional – constituted by agreement of the parties (2051[1]) b. Legal – imposed by virtue of a provision of law c. Judicial – required by a court to guarantee the eventual right of one of the parties in a case. 3. As to consideration: a. Gratuitous – guarantor does not receive any price or remuneration for acting as such (2048) b. Onerous – one where the guarantor receives valuable consideration for his guaranty 4. As to person guaranteed: a. Single – constituted solely to guarantee or secure performance by the debtor of the principal obligation; 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 241 of 325 CREDIT TRANSACTIONS CIVIL LAW b. Double or sub-guaranty – constituted to secure the fulfillment by the guarantor of a prior guaranty 5. As to its scope and extent: a. Definite – where the guaranty is limited to the principal obligation only, or to a specific portion thereof; b. Indefinite or simple – where the guaranty included all the accessory obligations of the principal, e.g. costs, including judicial costs. RULES GOVERNING GUARANTY 1. A guaranty is generally gratuitous (2048) General Rule: Guaranty is gratuitous Exception: When there is a stipulation to the contrary 2. On the cause of a guaranty contract a. Presence of cause which supports principal obligation: Cause of the contract is the same cause which supports the obligation as to the principal debtor 23 . The consideration which supports the obligation as to the principal debtor is a sufficient consideration to support the obligation of a guarantor or surety. b. Absence of direct consideration or benefit to guarantor: Guaranty or surety agreement is regarded valid despite the absence of any direct consideration received by the guarantor or surety, such consideration need not pass directly to the guarantor or surety; a consideration moving to the principal will suffice. 3. A married woman who is a guarantor binds only her separate property, generally Exceptions: 1. With her husband’s consent, bind the community or conjugal partnership property 2. Without husband’s consent, in cases provided by law, such as when the guaranty has redounded to the benefit of the family. 4. A guaranty need not be undertaken with the knowledge of the debtor (2050) 23 SEVERINO v SEVERINO: “A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto.” 1. Guaranty is unilateral – exists for the benefit of the creditor and not for the benefit of the principal debtor 2. Creditor has every right to take all possible measures to secure payment of his credit – guaranty can be constituted even against the will of the principal debtor However, as regards payment made by a third person: 1. Payment without the knowledge or against the will of the debtor: a. Guarantor can recover only insofar as the payment has been beneficial to the debtor b. Guarantor cannot compel the creditor to subrogate him in his rights 2. Payment with knowledge or consent of the debtor: Subrogated to all the rights which the creditor had against the debtor 5. The guaranty must be founded on a valid principal obligation (2052[1]) Guaranty is an accessory contract: It is an indispensable condition for its existence that there must be a principal obligation. Hence, if the principal obligation is void, it is also void. 6. A guaranty may secure the performance of a voidable, unenforceable, and natural obligation (2052[2]) A guaranty may secure the performance of a: 1. Voidable contract – such contract is binding, unless it is annulled by a proper court action 2. Unenforceable contract – because such contract is not void 3. Natural obligation – the creditor may proceed against the guarantor although he has not right of action against the principal debtor for the reason that the latter’s obligation is not civilly enforceable. When the debtor himself offers a guaranty for his natural obligation, he impliedly recognizes his liability, thereby transforming the obligation from a natural into a civil one. 7. A guaranty may secure a future debt (2053) Continuing Guaranty or Suretyship 24 : 24 DIÑO v. CA: “Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 242 of 325 CREDIT TRANSACTIONS CIVIL LAW 1. Future debts, even if the amount is not yet known, may be guaranteed but there can be no claim against the guarantor until the amount of the debt is ascertained or fixed and demandable. Rationale: A contract of guaranty is subsidiary. a. To secure the payment of a loan at maturity – surety binds himself to guarantee the punctual payment of a loan at maturity and all other obligations of indebtedness which may become due or owing to the principal by the borrower. b. To secure payment if any debt to be subsequently incurred – a guaranty shall be construed as continuing when by the terms therof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. c. To secure existing unliquidated debts – refer to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown and not to dents not yet incurred and existing at that time. The surety agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. A continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one.” 8. A guaranty may secure the performance of a conditional obligation 1. Principal obligation subject to a suspensive condition – the guarantor is liable only after the fulfillment of the condition. 2. Principal obligation subject to a resolutory condition – the happening of the condition extinguishes both the principal obligation and the guaranty 9. A guarantor’s liability cannot exceed the principal obligation (2054) General Rule: Guaranty is a subsidiary and accessory contract – guarantor cannot bind himself for more than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. But the guarantor may bind himself for less than that of the principal. Exceptions: 1. Interest, judicial costs, and attorney’s fees as part of damages may be recovered – creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the legal rate, judicial costs, and attorney’s fees when appropriate, even without stipulation and even if the surety would thereby become liable to pay more than the total amount stipulated in the bond. Interest runs from: a. Filing of the complaint (upon judicial demand); or b. The time demand was made upon the surety until the principal obligation is fully paid (upon extra-judicial demand) Rationale Surety is made to pay, not by reason of the contract, but by reason of his failure to pay when demanded and for having compelled the creditor to resort to the courts to obtain payment. 2. Penalty may be provided – a surety may be held liable for the penalty provided for in a bond for violation of the condition therein. Principal’s liability may exceed guarantor’s obligations The amount specified in a surety bond as the surety’s obligation does not limit the extent of the damages that may be recovered from the principal, the latter’s liability being governed by the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 243 of 325 CREDIT TRANSACTIONS CIVIL LAW obligations he assumed under his contract. 10. The existence of a guaranty is not presumed (2055) Guaranty requires the expression of consent on the part of the guarantor to be bound. It cannot be presumed because of the existence of a contract or principal obligation. Rationale: 1. There be assurance that the guarantor had the true intention to bind himself; 2. To make certain that on making it, the guarantor proceeded with consciousness of what he was doing. 11. A contract of guaranty is covered by the Statute of Frauds Guaranty must not only be expressed but must so be reduced into writing. Hence, it shall be unenforceable by action, unless the same or some note or memorandum thereof be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents. However, It need not appear in a public document. GUARANTY DISTINGUISHED FROM WARRANTY GUARANTY WARRANTY Contract by which a person is bound to another for the fulfillment of a promise or engagement of a third party An undertaking that the title, quality, or quantity of the subject matter of a contract is what it has been represented to be, and relates to some agreement made ordinarily by the party who makes the warranty GUARANTY DISTINGUISHED FROM SURETYSHIP GUARANTY SURETYSHIP Liability depends upon an independent agreement to pay the obligation if the primary debtor fails to do so Assumes liability as a regular party to the undertaking Engagement is a collateral Charged as an original promisor undertaking Secondarily liable – he contracts to pay if, by the use of due diligence, the dent cannot be paid Primarily liable – undertakes directly for the payment without reference to the solvency of the principal, and is so responsible at once the latter makes default, without any demand by the creditor upon the principal whatsoever or any notice of default Only binds himself to pay if the principal cannot or unable to pay Undertakes to pay if the principal does not pay, without regard to his ability to do so Insurer of the solvency of the debtor Insurer of the debt Does not contract that the principal will pay, but simply that he is able to do so Pay the creditor without qualification if the principal debtor does not pay. Hence, the responsibility or obligation assumed by the surety is greater or more onerous than that of a guarantor 13. On the guarantor (2056-2057) 1. He possesses integrity; 2. He has capacity to bind himself; 3. He has sufficient property to answer for the obligation which he guarantees. Exception: The creditor waives the requirements The qualifications above need only be present at the time of the perfection of the contract. The subsequent loss of integrity or property or supervening incapacity of the guarantor would not operate to exonerate the guarantor of the eventual liability he has contracted, and the contract of guaranty continues. The creditor can merely demand another guarantor with the proper qualifications except that the creditor may waive such remedy if he chooses and hold the guarantor to his bargain. Selection of Guarantor: 1. Specified person stipulated as guarantor: Substitution of guarantor may not be demanded 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 244 of 325 CREDIT TRANSACTIONS CIVIL LAW Reason: The selection of the guarantor is: a. Term of the agreement; b. As a party, the creditor is, therefore, bound thereby. 2. Guarantor selected by the principal debtor: Debtor answers for the integrity, capacity, and solvency of the guarantor. 3. Guarantor personally designated by the creditor: Responsibility of the selection should fall upon the creditor because he considered the guarantor to have the qualifications for the purpose. EFFECTS OF GUARANTY BETWEEN THE GUARANTOR AND THE CREDITOR 1. The guarantor has the right to benefit from excussion/ exhaustion 25 Exceptions to the benefit of excussion (2059) 1. As provided in Art. 2059: a. If the guarantor has expressly renounced it ;waiver is valid but it must be made in express terms. b. If he has bound himself solidarily with the debtor, the liability assumed is that of a surety. The guarantor becomes primarily liable as a solidary co- debtor. In effect, he renounces in the contract itself the benefit of exhaustion 26 . c. In case of insolvency of the debtor – guarantor guarantees the solvency of the debtor. If the debtor becomes insolvent, the liability of the guarantor as the debtor cannot fulfill his obligation d. When he (debtor) has absconded, or cannot be sued within the Philippines – the creditor is not required to go after a debtor who is hiding or cannot be sued in our courts, and to incur the delays and expenses incident thereto. The exception is when the debtor has left a manager or representative; e. If it may be presumed that an execution on the property of the 25 SOUTHERN MOTORS, INC. v BARBOSA: “The right of guarantors…to demand exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has not been given as special security for the payment of the principal obligation.” 26 LUZON STEEL CORP. v SIA: “The surety in the present case bound itself "jointly and severally" (in solidum) with the defendant; and excussion (previous exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound himself solidarily with the debtor".” principal debtor would not result in the satisfaction of the obligation – if such judicial action including execution would not satisfy the obligation, the guarantor can no longer require the creditor to resort to all such remedies against the debtor as the same would be but a useless formality. It is not necessary that the debtor be judicially declared insolvent. 2. If he does not comply with Art. 2060: In order that the guarantor may make use of the benefit of excussion, he must: a. Set it up against the creditor upon the latter’s demand for payment from him; b. Point out to the creditor: i. Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. ii. Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. iii. Sufficient to cover the amount of the debt. 3. If he is a judicial bondsman and sub- surety (2084) 4. Where a pledge or mortgage has been given by him as a special security. 5. If he fails to interpose it as a defense before judgment is rendered against him. 2. The creditor has the right to secure a judgment against the guarantor prior to the excussion General rule: An ordinary personal guarantor (NOT a pledgor or mortgagor), may demand exhaustion of all the property of the debtor before he can be compelled to pay. Exception: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 245 of 325 CREDIT TRANSACTIONS CIVIL LAW The creditor may, prior thereto, secure a judgment against the guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him, until after the properties of the principal debtor shall have been exhausted, to satisfy the latter’s obligation. 3. The creditor has the duty to make prior demand for payment from the guarantor (2060) 1. The demand is to be made only after judgment on the debt 2. Joining the guarantor in the suit against the principal debtor is not the demand intended by law. Actual demand has to be made. 4. The guarantor has the duty to set up the benefit of excussion (2060) As soon as he is required to pay, guarantor must also point out to the creditor available property (not in litigation or encumbered) of the debtor within the Philippines. 5. The creditor has the duty to resort to all legal remedies (2061) a) After the guarantor has fulfilled the conditions required for making use of the benefit of exhaustion, it becomes the duty of the creditor to: b) Exhaust all the property of the debtor pointed out by the guarantor; c) If he fails to do so, he shall suffer the loss but only to the extent of the value of the said property, for the insolvency of the debtor. 6. The creditor has the duty to notify the guarantor in the action against the debtor Under this article, notice to the guarantor is mandatory in the action against the principal debtor. The guarantor, however, is not duty bound to appear in the case, and his non- appearance shall not constitute default, w/ its consequential effect. Rationale: The purpose of notification is to give the guarantor the opportunity to allege and substantiate whatever defenses he may have against the principal obligation, and chances to set up such defenses as are afforded him by law if he so desires 7. A compromise shall not prejudice the person not party to it. 1. A compromise between creditor and principal debtor benefits the guarantor but does not prejudice him. 2. A compromise between guarantor and the creditor benefits but does not prejudice the principal debtor. 8. Co-guarantors are entitled to the benefit of division (2065) The benefit of division applies only when there are several guarantors and one debtor for a single debt. Except when solidarity has been stipulated among the co-guarantors, a co- guarantor is liable only to the extent of his share in the obligation as divided among all the co-guarantors. EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR 1. The guarantor has the right to be subrogated to the rights of the creditor A guarantor who pays the debt is entitled to every remedy which the creditor has against the principal debtor, to enforce every security and all means of payments; to stand in the place of the creditor not only through the medium of the contract, but even by means of the securities entered into w/out the knowledge of the surety; having the right to have those securities transferred to him though there was no stipulation for it, and to avail himself of all securities against the debtor The need to enforce the provisions on indemnity in Article 2066 forms the basis for the subrogation clause of Article 2067. The assumption, however, is that the guarantor who is subrogated to the rights of the creditor, has the right to be reimbursed for his answering for the obligation of the debtor. Absent this right of reimbursement, subrogation will not be proper. 2. The guarantor has the duty to notify the debtor before paying the creditor. Should payment be made without notifying the debtor, and supposing the debtor has already made a prior payment, the debtor would be justified in putting up the defense that the obligation has already been extinguished by the time the guarantor made the payment. In this case, the guarantor will lose the right of reimbursement and consequently the right of subrogation as well. 3. The guarantor cannot make payment before the obligation has become due. General rule: Since a contract of guaranty is only subsidiary, the guarantor cannot be liable for 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 246 of 325 CREDIT TRANSACTIONS CIVIL LAW the obligation before the period on which the debtor’s liability will accrue. Any payment made by the guarantor before the obligation is due cannot be indemnified by the debtor. Exception: Prior consent or subsequent ratification by the debtor 4. The guarantor may proceed against the debtor even before payment has been made General rule: Guarantor has no cause of action against the debtor until after the former has paid the obligation. Exceptions: 1. When he is sued for the payment; 2. In case of insolvency of the principal debtor; 3. When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired; 4. When the debt has become demandable, by reason of the expiration of the period for payment; 5. After the lapse of 10 years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than 10 years; 6. If there are reasonable grounds to fear that the principal debtor intends to abscond; 7. If the principal debtor is in imminent danger of becoming insolvent. Rationale To enable the guarantor to take measures for the protection of his interest in view of the probability that he would be called upon to pay the debt. As such, he may, in the alternative, obtain release from the guaranty; or demand security that shall protect him from any proceedings by the creditor; and against the insolvency of the debtor. EEFECTS OF GUARANTY AS BETWEEN CO- GUARANTORS Requisites for the applicability of Art. 2073: 1. Payment has already been made by one guarantor; 2. The payment was made because a. Of the insolvency of the debtor, or b. By judicial demand 3. The paying guarantor seeks to be indemnified only to the extent of his proportionate share in the total obligation. For purposes of proportionate reimbursement, the other guarantors may interpose such defenses against the paying guarantor as are available to the debtor against the creditor, except those that are personal to the debtor. EXTINGUISHMENT OF GUARANTY 1. Once the obligation of the debtor is extinguished in any manner provided in the Civil Code, the obligation of the guarantor is also extinguished. However, there may be instances when, after the extinguishment of the guarantor’s obligation (as in the case of a release from the guaranty), the obligation of the debtor still subsists. 2. Although the guarantor generally has to make payment in money, any other thing of value, if accepted by the creditor, is valid payment and therefore releases the guarantor. 3. If one guarantor is released, the release would benefit the co-guarantors to the extent of the proportionate share of the guarantor released. 4. A guarantor is also released if the creditor, without the guarantor’s consent, extends the time within which the debtor may perform his obligation. This is to protect the interest of the guarantor should the debtor be insolvent during the period of extension and deprive the guarantor of his right to reimbursement. 5. If through the fault of the creditor the guarantors are precluded from being subrogated to the former’s rights, the latter are released from the obligation. LEGAL AND JUDICIAL BONDS Bond – an undertaking that is sufficiently secured, and not cash or currency. Bondsman – a surety offered in virtue of a provision of law or a judicial order. Qualifications of personal bondsman: 1. He possesses integrity; 2. He has capacity to bind himself; 3. He has sufficient property to answer for the obligation which he guarantees. PLEDGE OR MORTGAGE IN LIEU OF BOND Guaranty or suretyship is a personal security. Pledge or mortgage is a property or real security. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 247 of 325 CREDIT TRANSACTIONS CIVIL LAW If the person required to give a legal or judicial bond should not be able to do so, a pledge or mortgage sufficient to cover the obligation shall be admitted in lieu thereof. BONDSMAN NOT ENTITLED TO EXCUSSION A judicial bondsman and the sub-surety are not entitled to the benefit of excussion. Reason: They are not mere guarantors, but sureties whose liability is primary and solidary. Effect of negligence of creditor: Mere negligence on the part of the creditor in collecting from the debtor will not relieve the surety from liability. SURETYSHIP is a relation which exists where one person (principal) has undertaken an obligation and another person (surety) is also under a direct and primary obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, the second, rather than the first should perform. If a person binds himself solidarily with the principal debtor, the contract is called suretyship and the guarantor is called a surety. NATURE OF SURETY’S UNDERTAKING 1. Liability is contractual and accessory but direct: 2. Liability is limited by terms of contract 3. Liability arises only if principal debtor is held liable a. In the absence of collusion, the surety is bound by a judgment against the principal event though he was not a party to the proceedings; b. The creditor may sue, separately or together, the principal debtor and the surety; c. A demand or notice of default is not required to fix the surety’s liability Exception: Where required by the provisions of the contract of suretyship d. A surety bond is void where there is not principal debtor because such an undertaking presupposes that the obligation is to be enforceable against someone else besides the surety, and the latter can always claim that it was never his intention to be the sole person obligated thereby. NOTE: Surety is not entitled to exhaustion 4. Undertaking is to creditor, not to debtor: The surety makes no covenant or agreement with the principal that it will fulfill the obligation guaranteed for the benefit of the principal. The surety’s undertaking is that the principal shall fulfill his obligation and that the surety shall be relieved of liability when the obligation secured is performed. Exception: Unless otherwise expressly provided. NOTE: Surety is not entitled to notice of principal’s default 5. Prior demand by the creditor upon principal not required Surety is not exonerated by neglect of creditor to sue principal STRICTISSIMI JURIS RULE APPLICABLE ONLY TO ACCOMMODATION SURETY Reason: An accommodation surety acts without motive of pecuniary gain and hence, should be protected against unjust pecuniary impoverishment by imposing on the principal, duties akin to those of a fiduciary. This rule will apply only after it has been definitely ascertained that the contract is one of suretyship or guaranty. STRICTISSIMI JURIS RULE NOT APPLICABLE TO COMPENSATED SURETIES Reasons: 1. Compensated corporate sureties are business association organized for the purpose of assuming classified risks in large numbers, for profit and on an impersonal basis. 2. They are secured from all possible loss by adequate counter-bonds or indemnity agreements. 3. Such corporations are in fact insurers and in determining their rights and liabilities, the rules peculiar to suretyship do not apply. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 248 of 325 CREDIT TRANSACTIONS CIVIL LAW PLEDGE, MORTGAGE, ANTICHRESIS ESSENTIAL REQUISITES COMMON TO PLEDGE AND MORTGAGE 1) Constituted to secure the fulfillment of a principal obligation 27 . 2) Pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged. 3) The persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 4) Cannot exist without a valid obligation. 5) Debtor retains the ownership of the thing given as a security. 6) When the principal obligation becomes due, the thing pledged or mortgaged may be alienated for the payment to the creditor. IMPORTANT POINTS 1) Future property cannot be pledged or mortgaged. 2) Pledge or mortgage executed by one who is not the owner of the property pledged or mortgaged is without legal existence and registration cannot validate it. 3) Mortgage of a conjugal property by one of the spouses is valid only as to ½ of the entire property. 4) In case of property covered by Torrens title, a mortgagee has the right to rely upon what appears in the certificate of title and does not have to inquire further. 5) Pledgor or mortgagor has free disposal of property. 6) Thing pledged or mortgaged may be alienated. 7) Creditor not required to sue to enforce his credit. 8) Pledgor or mortgagor may be a third person. RIGHT OF CREDITOR WHERE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION 1) Creditor is merely entitled to move for the sale of the thing pledged or mortgaged with the formalities required by law in order to collect. 27 MANILA SURETY V VELAYO: The accessory character is of the essence of pledge and mortgage. As stated in Art 2085 CC, an essential requisite of these contracts is that they be constituted to secure the fulfillment of a principal obligation 2) Creditor cannot appropriate to himself the thing nor can he dispose of the same as owner. pledge mortgage Constituted on movables. Constituted on immovables. Property is delivered to the pledgee, or by common consent to a 3 rd person. Delivery not necessary. Not valid against 3 rd persons unless a description of the thing pledged and the date of the pledge appear in a public instrument. Not valid against 3 rd persons if not registered. PROHIBITION AGAINST PACTUM COMMISSORIUM 1. Stipulation is null and void: Stipulation where thing or mortgaged shall automatically become the property of the creditor in the event of nonpayment of the debt within the term fixed. 2. Requisites of pactum commissorium 28 : a) Pledge or mortgage. b) A stipulation for an automatic appropriation by the creditor of the property in the event of nonpayment. 3. Effect on security contract: Nullity of the stipulation does not affect validity and efficacy of the principal contract. IMPORTANT POINTS 1) Debtor-owner bears the risk of loss of the property. 2) Pledge or mortgage is indivisible. Exceptions: a) Where each of several things guarantees a determinate portion of the credit. b) Where only a portion of loan was released. c) Where there was failure of consideration. 3) Rule that real property, consisting of several lots should be sold separately, applies to sales in execution, and not to foreclosure of mortgages. 4) The mere embodiment of a real estate mortgage and a chattel mortgage in one 28 UY TONG v CA: The 2 elements for pactum commissorium to exist: (1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of the principal obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing pledged or mortgaged in the event of non-payment of the principal obligation within the stipulated period. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 249 of 325 CREDIT TRANSACTIONS CIVIL LAW document does not have the effect of fusing both securities into an indivisible whole 29 . 5) Pledge or mortgage may secure all kinds of obligation, be they pure or subject to suspensive or resolutory conditions. 6) A promise to constitute pledge or mortgage creates no real right, only a personal right binding upon the parties, only right of action to compel the fulfillment of the promise but there is no pledge or mortgage yet. 7) Under the RPC, estafa is committed by a person who, pretending to be the owner of any real property, shall convey, sell, encumber or mortgage the same knowing that the real property is encumbered and shall dispose of the same as unencumbered. It is essential that fraud or deceit be practiced upon the vendee at the time of the sale. PLEDGE is a contract by virtue of which the debtor delivers to the creditor or to a third person a movable or document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. (Art.2085 in rel to 2093) KINDS 1) Voluntary or conventional – Created by agreement of parties. 2) Legal – Created by operation of law. 29 CENTRAL BANK vs. CA: The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract. For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art. 2052, of the Civil Code). It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage. It may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay. And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due. The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply; BELO vs. PNB: From Art. 2089 is excepted the case in w/c, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit. The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for w/c each thing is specially answerable is satisfied. From the wordings of the law, indivisibility arises only when there is a debt, that is, there is a debtor-creditor relationship. CHARACTERISTICS 1) Real – Perfected by delivery. 2) Accessory – Has no independent existence of its own. 3) Unilateral – Creates obligation solely on the part of the creditor to return the thing subject upon the fulfillment of the principal obligation. 4) Subsidiary – Obligation incurred does not arise until the fulfillment of the principal obligation. CAUSE OR CONSIDERATION 1) Principal obligation – In so far as the pledgor is concerned. 2) Compensation stipulated for the pledge or mere liberality of the pledgor – If pledgor is not the debtor. PROVISIONS APPLICABLE ONLY TO PLEDGE 1) Transfer of possession to the creditor or to third person by common agreement is essential in pledge. - Actual delivery is important. - Constructive or symbolic delivery of the key to the warehouse is sufficient to show that the depositary appointed by common consent of the parties was legally placed in possession. 2) All movables within the commerce of man may be pledged as long as they are susceptible of possession. 3) Incorporeal rights may be pledged. The instruments representing the pledged rights shall be delivered to the creditor; if they be negotiable instruments, they must be indorsed. 4) Pledge shall take effect against 3 rd persons only if the following appear in a public instrument: a) Description of the thing pledged. b) Date of the pledge. 5) The thing pledged may be alienated by the pledgor or owner only with the consent of the pledgee. Ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledgee consents to the alienation, but the latter shall continue to have possession. 6) Pledge gives the creditor the right to retain the thing in his possession or in that of a third person to whom it has been delivered, until the debt is paid. 7) Special Laws apply to pawnshops and establishments engaged in making loans secured by pledges. Provisions of the Civil Code shall apply subsidiarily to them. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 250 of 325 CREDIT TRANSACTIONS CIVIL LAW RIGHTS AND DUTIES OF CREDITOR IN A PLEDGE 1) Shall take care of the thing pledged with the diligence of a good father of a family. 2) Has right to reimbursement of the expenses made for preserving the thing. Shall be liable for loss or deterioration of the thing by reason of fraud, negligence, delay or violation of the terms of the contract, but not for fortuitous events. 3) May bring actions pertaining to the owner of the thing in order to recover it from, or defend it against, a 3rd person. 4) Cannot use the thing without the authority of the owner. If he uses the thing without authority, or if he misuses the thing when he was authorized to use it, the owner may ask that it be judicially or extrajudicially deposited. 5) May use the thing if necessary for its preservation. 6) May either claim another thing in pledge or demand immediate payment of the principal obligation if he is deceived on the substance or quality of the thing. RIGHTS AND DUTIES OF THE PLEDGEE 1) Cannot deposit the thing pledged with a 3rd person, unless there is a contrary stipulation 30 . 2) Is responsible for the acts of his agents or employees with respect to the thing pledged. 3) Has no right to use the thing or to appropriate its fruits without authority from the owner 31 . 4) May cause the public sale of the thing pledged if, without fault on his part, there is danger of destruction, impairment or dimunition in value of the thing. The proceeds of the auction shall be a security for the principal obligation. PLEDGOR 1) Takes responsibility for the flaws of the thing pledged. 2) Cannot ask for the return of the thing against the will of the creditor, unless and until he has paid the debt and its interest, with expenses in proper cases. 30 YULIONGSIU vs. PNB: There is authority supporting the proposition that the pledgee can temporarily entrust me physical possession of the chattels pledged to the pledgor without invalidating the pledge. In such a case, the pledgor is regarded as holding the pledged property merely as trustee for the pledgee. The type of delivery will depend upon the nature and the peculiar circumstances of each case. 31 PNB vs. ATENDIDO: according to law, a pledgee cannot become the owner of, nor appropriate to himself, the thing given in pledge. If by the contract of pledge the pledgor continues to be the owner of the thing pledged during the pendency of the obligation, it stands to reason that in case of loss of the property, the loss should be borne by the pledgor. 3) Is allowed to substitute the thing which is in danger of destruction or impairment without any fault on the part of the pledgee, with another thing of the same kind and quality. 4) May require that the thing be deposited with a 3rd person, if through the negligence or willful act of the pledgee the thing is in danger of being lost or impaired. EXTINGUISHMENT OF A PLEDGE 1) Ways to extinguish a pledge: a) Payment of the debt. b) Sale of the thing pledged at public auction. c) Thing pledged is returned by the pledgee to the pledgor or owner. d) Written statement by the pledgee that he renounces or abandons the pledge. For this purpose, neither the acceptance by the pledgor or owner nor the return of the thing pledged is necessary, and the pledgee becomes a depositary. 2) Presumptions 32 : a) If, subsequent to the perfection of the pledge, the thing is found in the possession of the pledgor or owner, there is prima facie presumption that the thing has been returned by the pledgee. b) If the thing is in the possession of a 3rd person who received it from the pledgor or owner after the constitution of the pledge, there is prima facie presumption that the thing has been returned by the pledgee. REQUIREMENTS IN SALE OF THE THING PLEDGED BY A CREDITOR, IF CREDIT IS NOT PAID ON TIME 1) Debt is due and unpaid. 2) Sale must be at a public auction. 3) Notice to the pledgor and owner, stating the amount due. 4) Sale must be made with the intervention of a notary public. EFFECT OF THE SALE OF THE THING PLEDGED 1) Extinguishes the principal obligation, whether the price of the sale is more or less than the amount due. 32 MANILA BANKING v TEODORO: In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests (as earlier established in Lopez v. Court of Appeals) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 251 of 325 CREDIT TRANSACTIONS CIVIL LAW 2) if the price is more than amount due, the debtor is not entitled to the excess unless the contrary is provided. 3) If the price of the sale is less, neither is the creditor entitled to recover the deficiency. A contrary stipulation is void. LEGAL PLEDGES 1) Necessary expenses shall be refunded to every possessor, but only a possessor in good faith may retain the thing until he has been reimbursed. - Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired and by reason thereof (Art. 546) 2) He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. (Art. 1731) 3) The agent may retain the things which are the objects of agency until the principal effects the reimbursement and pays the indemnity. (Art. 1914) 4) The laborer’s wages shall be a lien on the goods manufactured or the work done. (Art. 1707) MORTGAGE is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated 33 . OBJECTS OF REAL MORTGAGE 1) Immovables. 2) Alienable real rights in accordance with the laws, imposed upon immovables. - Future property cannot be object of mortgage. KINDS 1) Voluntary 2) Legal 3) Equitable – One which, although lacking the proper formalities of a mortgage, 33 DAYRIT v CA: Well-entrenched in law is the rule that a mortgage directly and immediately subjects the property upon which it is imposed, the same being indivisible even though the debt may be divided, and such indivisibility likewise being unaffected by the fact that 'the debtors are not solidarity liable. "When several things are pledged or mortgaged, each thing for a determinate portion of the debt, the pledges or mortgage, are considered separate from each other. But when the several things are given to secure the same debt in its entirety, all of them are liable for the debt, and the creditor does not have to divide his action by distributing the debt among the various things pledged or mortgaged. Even when only a part of the debt remains unpaid, all the things are still liable for such balance." (Tolentino) shows the intention of the parties to make the property as a security for a debt. - Provisions governing equitable mortgage: Arts. 1365, 1450, 1454, 1602, 1603, 1604 and 1607. ESSENTIAL REQUISITES 1) Constituted to secure the fulfillment of a principal obligation 34 . 2) Mortgagor must be the absolute owner of the thing mortgaged. 3) The persons constituting the mortgage have free disposal of the property; in the absence thereof, they should be legally authorized for the purpose. 4) Cannot exist without a valid obligation. 5) When the principal obligation becomes due, the thing in which the mortgage consists may be alienated for payment to the creditor. 6) Must appear in a public document duly recorded in the Registry of Property, to be validly constituted. - In a legal mortgage, the persons in whose favor the law establishes a mortgage have the right to demand the execution and recording of a document formalizing the mortgage. EFFECTS 1) Creates real rights, a lien inseparable from the property mortgaged, enforceable against the whole world. 2) Creates merely an encumbrance. LAWS GOVERNING MORTGAGE 1) New Civil Code. 2) PD 1952. 3) Revised Administrative Code. 4) RA 4882, regarding aliens becoming mortgagees. IMPORTANT POINTS 1) As a general rule, the mortgagor retains possession of the property. He may deliver said property to the mortgagee without altering the nature of the contract of mortgage. 2) It is not an essential requisite that the principal of the credit bears interest, or 34 MOJICA v CA: Mortgages given to secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the amount for which the mortgage may stand as security if from the 4 corners of the instrument the intent to secure future and other indebtedness can be gathered. A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid (as established earlier in Lim Julian v. Lutero). 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 252 of 325 CREDIT TRANSACTIONS CIVIL LAW that the interest as compensation for the use of the principal and the enjoyment of its fruits be in the form of a certain percentage thereof. INCIDENTS OF REGISTRATION OF MORTGAGE 1) Mortgagee is entitled to registration of mortgage as a matter of right. 2) Proceedings for registration do not determine validity of the mortgage or its effect 35 . 3) Registration is without prejudice to better rights of third parties. 4) Mortgage deed, once duly registered, forms part of the records for the registration of the mortgaged property. 5) Mortgage by a surviving spouse of his/her undivided share in the conjugal property can be registered. EFFECT OF INVALIDITY OF MORTGAGE ON THE PRINCIPAL OBLIGATION 1) Principal obligation remains valid. 2) Mortgage deed remains evidence of a personal obligation. FORECLOSURE OF MORTGAGE It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation secured by the mortgage. KINDS OF FORECLOSURE 1) Judicial. - Rule 68, ROC: May be availed of by bringing an action in the proper court which has jurisdiction over the area wherein the real property involved or a portion thereof is situated. If the court finds the complaint to be well-founded, it shall order the mortgagor to pay the amount due with interest and other charges within a period of not less than 90 days nor more than 120 days from the entry of judgment If the mortgagor fails to pay at the time directed, the court, upon 35 SAMANILLA v CAJUCOM: A mortgage, whether registered or not, is binding between the parties, registration being necessary only to make the same valid against third persons (Art. 2125, CC). Registration only operates as a notice of the mortgage to others, but neither adds to its validity nor convert an invalid mortgage into a valid one between the parties. In Gurbax Singh Pabla vs. Reyes, SC ruled that "if the purpose of registration is merely to give notice, the questions regarding the effect or invalidity of instruments are expected to be decided after, not before, registration. It must follow as a necessary consequence that registration must first be allowed and validity or effect litigated afterwards". motion, shall order the property to be sold to the highest bidder at a public auction. Upon confirmation of the sale by the court, also upon motion, it shall operate to divest the rights of all parties to the action and to vest their rights to the purchaser subject to such rights of redemption as may be allowed by law. Before the confirmation, the court retains control of the proceedings The proceeds of the sale shall be applied to the payment of the: - Costs of the sale; - Amount due the mortgagee; - Claims of junior encumbrancers or persons holding subsequent mortgages in the order of their priority; and - Balance, if any shall be paid to the mortgagor. Sheriff’s certificate is executed, acknowledged and recorded to complete the foreclosure. - NATURE OF JUDICIAL FORECLOSURE PROCEEDINGS: a) Quasi in rem action. b) Foreclosure is only the result or incident of the failure to pay debt. c) Survives death of mortgagor. 2) Extrajudicial. - Act No. 3135, as amended: a) Express authority to sell is given to the mortgagee. b) Authority is not extinguished by death of mortgagor or mortgagee. c) Public sale should be made after proper notice. d) Surplus proceeds of foreclosure sale belong to the mortgagor. e) Debtor has the right to redeem the property sold within 1 year from and after the date of sale. f) Remedy of party aggrieved by foreclosure is a petition to set aside sale and cancellation of writ of possession. - Nature of power of foreclosure by extrajudicial sale: a) Conferred for mortgagee’s protection. b) An ancillary stipulation. c) A prerogative of the mortgagee. - Both should be distinguished from execution sale governed by Rule 39, ROC. - Foreclosure retroacts to the date of registration of mortgage. - A stipulation of upset price, or the minimum price at which the property shall be sold to become operative in the event of a foreclosure sale at public auction, is null and void. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 253 of 325 CREDIT TRANSACTIONS CIVIL LAW RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY 1) Mortgagee is entitled to recover deficiency. 2) If the deficiency is embodied in a judgment, it is referred to as deficiency judgment. 3) Action for recovery of deficiency may be filed even during redemption period. 4) Action to recover prescribes after 10 years from the time the right of action accrues. EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE 1) Where there is right to redeem, inadequacy of price is immaterial because the judgment debtor may redeem the property. - Exception: Where the price is so inadequate as to shock the conscience of the court, taking into consideration the peculiar circumstances. 2) Property may be sold for less than its fair market value, upon the theory that the lesser the price the easier it is for the owner to redeem. 3) The value of the mortgaged property has no bearing on the bid price at the public auction, provided that the public auction was regularly and honestly conducted. WAIVER OF SECURITY BY CREDITOR 1) Mortgagee may waive right to foreclose his mortgage and maintain a personal action for recovery of the indebtedness. 2) Mortgagee cannot have both remedies. REDEMPTION 1) It is a transaction by which the mortgagor reacquires the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created 36 . 2) Kinds: a) Equity of redemption: Right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property or confirmation of sale b) Right of redemption: Right of the mortgagor to redeem the property 36 MEDIDA v CA: The rule up to now is that the right of a purchaser at a foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. The title to land sold under mortgage foreclosure remains, in the mortgagor or his grantee until the expiration of the redemption period and conveyance by the master's deed. within a certain period after it was sold for the satisfaction of the debt. ANTICHRESIS is a contract whereby the creditor acquires the right to receive the fruits of an immovable of the debtor, with the obligation to apply then to the payment of the interest, if owing, and thereafter to the principal of the credit (Art 2132) CHARACTERISTICS 1. Accessory contract – it secures the performance of a principal obligation 2. formal contract – it must be in a specified form to be valid (Art. 2134) SPECIAL REQUISITES: 1. it can cover only the fruits of an immovable property 2. delivery of the immovable is necessary for the creditor to receive the fruits and not that the contract shall be binding 3. amount of principal and interest must be specified in writing 4. express agreement that debtor will give possession of the property to creditor and that the latter will apply the fruits to the interest, if any, then to the principal of his credit 5. NOTE: The obligation to pay interest is not of the essence of the contract of antichresis; there being nothing in the Code to show that antichresis is only applicable to securing the payment of interest-bearing loans. On the contrary, antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional Antichresis Pledge Refers to real property Refers to personal property Perfected by mere consent Perfected by delivery of the thing pledged Consensual contract Real contract Antichresis Real Mortgage Property is delivered to creditor Debtor usually retains possession of the property Creditor acquires only the right to receive the fruits of the property, hence, it does not produce a real right Creditor does not have any right to receive the fruits, but the mortgage creates a real right over the property The creditor, unless there is stipulation to the contrary, is obliged to pay the taxes and charges upon the estate The creditor has no such obligation It is expressly There is no such 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 254 of 325 CREDIT TRANSACTIONS CIVIL LAW stipulated that the creditor given possession of the property shall apply all the fruits thereof to the payment of interest, if owing, and thereafter to the principal obligation on part of mortgagee Subject matter of both is real property OBLIGATIONS OF ANTICHRETIC CREDITOR 1. to pay taxes and charges on the estate, including necessary expenses Creditor may avoid said obligation by: a. compelling debtor to reacquire enjoyment of the property b. by stipulation to the contrary 2. to apply all the fruits, after receiving them, to the payment of interest, if owing, and thereafter to the principal 3. to render an account of the fruits to the debtor 4. to bear the expenses necessary for its preservation and repair REMEDIES OF CREDITOR IN CASE OF NON-PAYMENT OF DEBT 1. action for specific performance 2. petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the Rules of Court the parties, however, may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge (Tavera v. El Hogar Filipino, Inc. 68 Phil 712) a stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt within the agreed period is void (Art. 2088) CHATTEL MORTGAGE is a contract by virtue of which a personal property is recorded in the Chattel Mortgage Register as security for the performance of an obligation. - IF THE MOVABLE, INSTEAD OF BEING RECORDED, IS DELIVERED TO THE CREDITOR, IT IS PLEDGE AND NOT CHATTEL MORTGAGE. chattel mortgage pledge Involves movable property. Involves movable property. Delivery of the personal property is NOT necessary. Delivery of the personal property is necessary. Registration is necessary for validity. Registration is NOT necessary for validity. Procedure: Sec. 14 of Act 1508, as amended. Procedure: Art. 2112, CC. If the property is foreclosed, the excess over the amount due goes to the debtor. If the property is sold, the debtor is not entitled to the to the excess UNLESS it is otherwise agreed or in case of legal pledge. Creditor is entitled to deficiency from the debtor EXCEPT if it is a security for the purchase of personal property in installments. Creditor is not entitled to recover deficiency notwithstanding any stipulation to the contrary. LAWS GOVERNING CHATTEL MORTGAGE 1) Chattel Mortgage Law 37 (Act.1508, as amended). 2) Civil Code. 3) Revised Administrative Code. 4) Revised Penal Code. 5) Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels of domestic ownership. AFFIDAVIT OF GOOD FAITH An oath in a contract of chattel mortgage wherein the parties "severally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud. EFFECT OF REGISTRATION 1) Creates real rights. 2) Adds nothing to mortgage. 37 ACME SHOE vs. CA: A chattel mortgage must comply substantially with the form prescribed by the Chattel Mortgage Law itself. One of the requisites, under Sec 5 thereof, is an affidavit of Good Faith. While it is not doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be valid between the parties (not against third persons acting in GF), the fact, however, that the statute has provided that the parties to the contract must execute an oath that "x x x mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud." makes it obvious that the debt referred to in the law is a current, not an obligation that is yet merely contemplated. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 255 of 325 CREDIT TRANSACTIONS CIVIL LAW - Registration of assignment of mortgage is not required. RIGHT OF REDEMPTION 1. When the condition of a chattel mortgage is broken, the following may exercise redemption: a. Mortgagor. b. Person holding a subsequent mortgage. c. Subsequent attaching creditor. 2. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner as a mortgagee. 3. Redemption is made by paying or delivering o the mortgagee the amount due on such mortgage and the costs and expenses incurred by such breach of condition before the sale. FORECLOSURE OF CHATTEL MORTGAGE 1. Public sale. 2. Private sale – There is nothing illegal, immoral or against public order in an agreement for the private sale of the personal properties covered by chattel mortgage. PERIOD TO FORECLOSE 1. After 30 days from the time of the condition is broken. 2. The 30-day period is the minimum period after violation of the mortgage condition for the creditor to cause the sale at public auction with at least 10 days notice to the mortgagor and posting of public notice of time, place, and purpose of such sale, and is a period of grace for the mortgagor, to discharge the obligation. 3. After the sale at public auction, the right of redemption is no longer available to the mortgagor. CIVIL ACTION TO RECOVER CREDIT 1. Independent action not required. 2. Mortgage lien is deemed abandoned by obtaining a personal judgment. RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY 1. Where mortgage foreclosed: Creditor may maintain action for deficiency although The Chattel Mortgage Law is silent on this point, because a chattel mortgage is given only as a security and not as payment of the debt. 2. Where mortgage constituted as security for purchase of personal property payable in installments: No deficiency judgment can be asked and any contrary agreement shall be void. 3. Where mortgaged property subsequently attached and sold: Mortgagee is entitled to deficiency judgment in an action for specific performance. APPLICATION OF PROCEEDS OF SALE 1. Costs and expenses of keeping and sale. 2. Payment of the obligation. 3. Claims of persons holding subsequent mortgages in their order. 4. Balance, if any, shall be paid to the mortgagor, or person holding rights under him. CONCURRENCE AND PREFERENCE OF CREDITS CONCURRENCE OF CREDIT implies possession by two or more creditors of equal right or privileges over the same property or all of the property of a debtor. PREFERENCE OF CREDIT is the right held by a creditor to be preferred in the payment of his claim above other out of the debtor’s assets. GENERAL PROVISIONS 1) The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subjects to exemptions provided by law. - Exempt property: a. Present property: 1. Family home. (Arts. 152, 153 and 155, CC) 2. Right to receive support, as well as money or property obtained by such support, shall not be levied upon on attachment or execution. (Art. 205, CC) 3. Sec. 13, Rule 39, ROC. 4. Sec 118, Public Land Act. (CA 141, as amended) b. Future property: A debtor who obtains a discharge from his debts on account of insolvency, is not liable for the unsatisfied claims of his creditors with said property. (Sec. 68 and 69, Insolvency Law, Act 1956) c. Property in custodia legis and of public dominion. 2) Insolvency shall be governed by the Insolvency Law. (Act 1956, as amended) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 256 of 325 CREDIT TRANSACTIONS CIVIL LAW 3) Exemption of conjugal property or absolute community or property, provided that: - Partnership or community subsists. - Obligations of the insolvent spouse have not redounded to the benefit of the family. 4) If there is co-ownership, and one of the co-owners is the insolvent debtor, his undivided share or interest in the property shall be possessed by the assignee in insolvency proceedings because it is part of his assets. 5) Property held by the insolvent debtor as a trustee of an express or implied trust, shall be excluded from the insolvency proceedings CLASSIFICATION OF CREDITS 1) Special preferred credits. (Art. 2241 and 2242, CC) a) Considered as mortgages or pledges of real or personal property or liens within the purview of legal provisions governing insolvency. b) Taxes due to the State shall first be satisfied. 2) Ordinary preferred credits (Art. 2244) – Preferred in the order given by law. 3) Common credits (Art. 2245) – Credits of any other kind or class, or by any other right or title not comprised in Arts. 2241- 2244 shall enjoy no preference. ORDER OF PREFERENCE OF CREDIT 1) Credits which enjoy preference with respect to specific movables exclude all others to the extent of the value of the personal property to which the preference refers. 2) If there are 2 or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any subdivision thereof 3) Those credits which enjoy preference in relation to specific real property or real rights exclude all others to the extent of the value of the immovable or real right to which the preference refers. 4) If there are 2 or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessment of the taxes and assessments upon the immovable property or real right. 5) The excess, if any, after the payment of the credits which enjoy preference with respect to specific property, real or personal, shall be added to the free property which the debtor may have, for the payment of other credits. 6) Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules: - Order established by Art 2244 - Common credits referred to in Art 2245 shall be paid pro rata regardless of dates. S P E C I A L L A W S WAREHOUSE RECEIPTS LAW SCOPE All warehouses, whether public or private, bonded or not. APPLICATION The special law applies to warehouse receipts issued by a warehouseman as defined in Sec. 58(a); while the Civil Code, to other cases where receipts are not issued by a warehouseman. WHO MAY ISSUE WAREHOUSE RECEIPTS Only a warehouseman; but a duly authorized officer or agent of a warehouseman may do so. Warehouseman: Person lawfully engaged in the business of storing goods for profit. Receipts not issued by a warehouseman, although in the form of warehouse receipts, are not warehouse receipts FORM AND CONTENT Need not be in particular form, but certain essential terms must be present: 1. Location of warehouse: Because the warehouseman may have other warehouses. 2. Date of issue and receipt: Indicates prima facie the date when the contract of deposit has been perfected and when the computation of storage charges shall begin. 3. Consecutive number of receipt: To identify each receipt with the goods for which it was issued. 4. Person to whom goods are deliverable: Determines the persons who shall prima facie be entitled lawfully to the possession of the goods deposited. 5. Rate of storage charges: Consideration for the contract from the point of view of the warehouseman. 6. Description of goods or packages: For identification purposes. 7. Signature of warehouseman: Best evidence of the fact that the warehouseman has received the goods 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 257 of 325 CREDIT TRANSACTIONS CIVIL LAW and has bound himself to assume all obligations connected therewith. 8. Warehouseman’s ownership of or interest in the goods: To prevent abuses in the past when warehouseman issued receipt on their goods. 9. Statement of advances made and liabilities incurred (if present): To preserve the lien of the warehouseman over the goods he stores or the proceeds thereof in his hands - Effect of omission of any of the essential terms: a. validity and negotiability of receipt is not affected. b. warehouseman will be liable for damages. c. the contract will be converted to an ordinary deposit. - Any other terms or conditions may be inserted, except: a. Those contrary to this Act (e.g. exemption from liability for misdelivery in Sec. 10, not giving statutory notice in case of sale of goods in Sec. 33 and 34). b. Exemption from liability and negligence. c. Those contrary to law, morals, good customs, public order or public policy. DEFINITIONS 1) Negotiable receipt: Receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt. - A provision in a negotiable receipt that it is non-negotiable is void. 2) Non-negotiable receipt: Receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person. - A negotiable warehouse receipt is not a negotiable instrument in the same sense as in the NIL. DUPLICATE RECEIPTS - Applies only to negotiable warehouse receipts: - Whenever more than one negotiable receipt is issued for the same goods, the word ‘DUPLICATE” shall be placed on the face of the receipt except the one first issued. - Effect: The warehouseman shall be liable for damages for failing to do this to any one who purchased the subsequent receipt (1) for value, and (2) supposing it to be an original, even though the purchase be after delivery of the goods by the warehouseman to the holder of the original receipt. FAILURE TO MAKE RECEIPT NON-NEGOTIABLE - Applies only to non-negotiable warehouse receipts: - A non-negotiable receipt must contain the word “non-negotiable”. - Effect: Failure to do so will make a holder who (1) purchased for value AND (2) supposing it to be negotiable, may at his option treat it as negotiable. CONSTRUCTION OF WAREHOUSE RECEIPTS: Liberal construction of the law in favor of bona fide holders. This has no application to actions against any party other than a warehouseman. OBLIGATION AND RIGHTS OF A WAREHOUSEMAN UPON THEIR RECEIPTS Principal obligations of a warehouseman 1. To take care of the goods, and be liable for failure to exercise care; but he is not liable for loss or injury which could not have been avoided, unless there is a stipulation to the contrary. 2. To deliver the goods to the holder of the receipt or the depositor upon demand, accompanied with: a. An offer to satisfy the warehouseman’s lien: Because a warehouseman may refuse delivery until his lien is satisfied b. An offer to surrender the receipt: For the protection of the warehouseman and to avoid criminal liability; this is subject to waiver. c. A offer to sign when the goods are delivered, an acknowledgment that they have been delivered. - But warehouseman may still refuse delivery on the grounds of some lawful excuse: a. Sec. 10 1. he has been requested by the person lawfully entitled to the goods not to make delivery; 2. he has information that the delivery about to be made was to one not lawfully entitled to the goods; b. Sec. 16: He has acquired title to the goods which was derived from 1. transfer made by the depositor at the time of the deposit for storage or subsequent thereto 2. the warehouseman’s lien c. Sec. 18: If there are several claimants to the goods d. Sec. 21: If the goods were lost and he had no fault e. Sec. 36: He has already lawfully sold the goods Persons to whom the goods must be delivered 1. Persons lawfully entitled to the possession of the goods or its agent 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 258 of 325 CREDIT TRANSACTIONS CIVIL LAW 2. Persons entitled to deliver under: a. a non-negotiable receipt; or b. with written authority 3. person in possession of a negotiable receipt (which was lawfully negotiated) - A warehouseman does not have a cause of action against a person to whom he misdelivered the thing, unless the depositor sues him. Acts for which a warehouseman is liable (1) Failure to stamp “duplicate” on copies of a negotiable receipt (Sec. 6 and 15) - When more than one negotiable receipts are issued for the same goods, the word “duplicate” must be plainly placed by the warehouseman upon the face of every such receipt except the 1 st . In such case, the warehouseman warrants: a. that the duplicate is an accurate copy of the original receipt b. such original receipt is uncancelled at the date of the issue of the duplicate - The duplicate imposes no other liability upon the warehouseman. (2) Failure to place “non-negotiable” on a non-negotiable receipt (Sec. 7) (3) Misdelivery of the goods (Sec. 10) a. To one not lawfully entitled to possession - Liable for conversion (unauthorized assumption and exercise of the right of ownership over goods belonging to another through alteration or the exclusion of the owner’s right) b. To a person entitled to delivery under a non-negotiable receipt or written authorization OR person in possession of a negotiable receipt - Still liable for conversion if: 1. prior to delivery, he had been requested NOT to make such delivery 2. he had received notice of the adverse claim or title of a 3 rd person (4) Failure to effect cancellation of a negotiable receipt upon delivery of the goods (Sec. 11) - This is applicable ONLY to negotiable receipts but NOT to a situation where there was a valid sale in accordance with Sec. 36 a. When the goods are delivered already: Failure to cancel will make him liable to any one who purchased for value in good faith such receipt b. When only some of the goods were delivered: Failure to cancel or to state plainly in the receipt that some goods were delivered will make him liable to any one who purchased for value in good faith such receipt (5) Issuing receipt for non-existing goods or misdescribed goods (Sec. 20) - General rule: A warehouseman is under obligation to deliver the identical property stored with him and if he fails to do so he is liable. - Exception: If the description consists merely of marks or labels upon the goods or upon the packages containing them, etc., the warehouseman is not liable even if the goods are not of the kind as indicated in the marks or labels (6) In case of lost or destroyed receipts (Sec. 14) - Remember that a warehouseman must deliver to the one who has the receipt but if such was lost, a competent court may order the delivery of the goods only: a. upon proof of the loss or destruction of the receipt; and b. upon giving of a bond with sufficient securities - The warehouseman is still liable to a holder of the receipt for value without notice since the warehouseman can secure himself in the bond given. (7) Failure to take care of the goods (Sec. 12) (8) Failure to give notice in case of sales of goods to satisfy his lien (Sec. 33) or because the goods are perishable and hazardous (Sec. 34) EFFECTS OF ALTERED RECEIPTS a. Alteration immaterial: whether fraudulent or not, authorized or not, the warehouseman is liable on the altered receipt according to its original tenor; b. Alteration material: but it was authorized, the warehouseman is liable according to the terms of the receipts as altered; c. Material alteration innocently made: though unauthorized, the warehouseman is liable on the altered receipt according to its original term; d. Material alteration fraudulently made: warehouseman is liable according to the original tenor to a: 1. purchaser of the receipt for value without notice; and 2. to the alterer and subsequent purchasers with notice ( BUT his liability is limited only to delivery as he is excused from any other liability) - Even a fraudulent alteration cannot divest the title of the owner of stored goods and the warehouseman is liable to return them to the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 259 of 325 CREDIT TRANSACTIONS CIVIL LAW owner. But a bona fide holder acquires no right to the goods under a negotiable receipt which has been stolen or lost or which the indorsement has been forged. WITH REGARD TO OWNERSHIP a. Ownership is not a defense for refusal to deliver - The warehouseman cannot refuse to deliver the goods on the ground that he has acquired title or right to the possession of it unless such is derived: 1. directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto; 2. from the warehouseman’s lien b. Adverse title of a 3 rd person is not a defense for refusal to deliver by a warehouseman to his bailor on demand, except: 1. To persons to whom the goods must be livered (Sec. 9) 2. To the person who wins in the interpleader case (Sec. 17) 3. To the person he finds to be entitled to the possession after investigation (Sec. 18) 4. To the buyer in case there was a valid sale of the goods (Sec. 36) DUTY OF WAREHOUSEMAN WHEN THERE ARE SEVERAL CLAIMANTS - The warehouseman may either: a. Investigate and determine within a reasonable time the validity of the claims, and deliver to the person whom he finds is entitled to the possession of the goods - Effect: He is not excused from liability in case he makes a mistake b. He may bring a complaint in interpleader - Effect: a) he will be relieved from liability in delivering the goods to the person whom the court finds to have better right; b) he is liable for refusal to deliver to the rightful claimant when it is required to have an interpleader; c. He may not do (a) and (b) - Effect: He will be liable after a lapse of a reasonable time, of conversion as of the date of the original demand for the goods. - This does NOT apply to cases where the warehouseman himself makes a claim to the goods. COMMINGLING OF DEPOSITED GOODS - General rule: A warehouseman may not mingle goods belonging to different depositors. - Exception: In case of fungible goods of the same kind and grade provided: a. he is authorized by agreement b. he is authorized by custom - Effects: a. each depositor shall own the entire mass in common and entitled to his portion b. warehouseman is severally liable to each depositor for the care and redelivery of their portion as if the goods had been kept separate ATTACHMENT OR LEVY ON NEGOTIABLE RECEIPTS A warehouseman has the obligation to hold the goods for the owner or for the person to whom the negotiable receipt has been duly negotiated. Therefore, the goods cannot be attached or levied upon under an execution, unless: a. the document be first surrendered; or b. the negotiation is enjoined, or c. the document is impounded by the court The warehouseman cannot be compelled to deliver the goods until: a. the receipt is surrendered to him; b. it is impounded by the court - This provision does not apply if the person depositing is not the owner of the goods or one who has not the right to convey title to the goods binding upon the owner. REMEDY OF CREDITOR WHOSE DEBTOR OWNS A NEGOTIABLE RECEIPT Attachment of the negotiable receipt, not on the goods. - The goods themselves cannot readily be attached or levied upon by ordinary legal process EXTENT OF WAREHOUSEMAN’S LIEN a. lawful charges for 1. storage, and 2. preservation of the goods b. lawful claims for 1. money advanced 2. labor 3. interest 4. weighing 5. insurance 6. cooperating 7. transportation c. other charges and expenses in relation to such goods d. reasonable charges and expenses for notice and advertisements of sale 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 260 of 325 CREDIT TRANSACTIONS CIVIL LAW e. sale of the goods where defaults has been made in satisfying the lien EXTENT OF THE LIEN WHEN A NEGOTIABLE RECEIPT HAS BEEN ISSUED a. charges for storage and preservation of the goods b. other charges expressly enumerated (from b, c, d and e above) although the amount is NOT stated - For claims not specified, the warehouseman shares pro rata with the other creditors of the depositor the balance of the proceeds of the sale for the satisfaction of the claims. GOODS SUBJECT TO LIEN a. goods of the depositor who is liable to the warehouseman as debtor wherever such goods are deposited; b. goods of other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge - A warehouseman has NO lien on goods belonging to another and stored by a stranger in fraud of the true owner’s right. - The lien may be lost through: a. voluntarily surrendering possession of goods - constitutes a waiver or abandonment - A warehouseman may NOT claim a lien on other goods of the same depositor for unpaid charges on the goods surrendered if the goods were delivered to him under different receipts. b. wrongfully refusing to deliver the goods to a person who holds the receipt or the depositor upon DEMAND accompanied with: 1. an offer to satisfy the warehouseman’s lien (because a warehouseman may refuse delivery until his lien is satisfied) 2. an offer to surrender the receipt a. for the protection of the warehouseman and to avoid criminal liability b. this is subject to waiver 3. an offer to sign when the goods are delivered, an acknowledgment that they have been delivered REMEDIES FOR A WAREHOUSEMAN 1. Even if without lien, all remedies allowed by law to a creditor against his debtor for collection of charges; 2. By refusing to deliver the goods until his lien is satisfied; 3. All remedies allowed by law for the enforcement of a lien against personal property and recovery of any deficiency in case it exists after the sale of the property; 4. By causing the extrajudicial sale of the property and applying the proceeds to the value of the lien Process: A. Written notice to the person on whose account the goods are held or to persons who claim an interest in the goods containing: a. itemized statement of warehouseman’s lien showing the sum due and when it became due b. brief description of the goods c. a demand that a claim be paid on or before a day mentioned, not less than 10 days from: 1. delivery of notice if personally delivered 2. time when notice should reach its destination if sent by mail d. statement that if the claim is not paid, the goods will be advertised for sale and then sold at a specified time and place B. After the time for payment of the claim if the notice has elapsed, the sale will be advertised stating: a. a description of the goods to be sold b. the name of the owner or person on whose account the goods were held c. time and place of the sale C. Publication: a. if there is a newspaper published in the place of sale: once a week for 2 consecutive weeks and the sale not held less than 15 days from the time of the 1 st publication b. if there is no newspaper: posted at least 10 days before the sale in not less than 6 conspicuous places in the place of sale D. Sale itself in: a. place where the lien was acquired b. if such place is manifestly unsuitable for the purpose, at the nearest suitable place E. From the proceeds of the sale: a. the warehouseman shall satisfy his lien b. including the reasonable charges of notice, advertisement and sale c. the balance shall be held by the warehouseman and delivered on demand to the person to whom he should deliver it F. Any time before the goods are sold, any person may pay the warehouseman for his lien and the other expenses. The warehouseman shall deliver the goods to that person if he is entitled under this Act, to the possession of the goods on payment of the charges. Otherwise, the warehouseman shall retain ownership of the goods. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 261 of 325 CREDIT TRANSACTIONS CIVIL LAW PERISHABLE AND HAZARDOUS GOODS - Warehouseman will give notice to owner or person in whose name the goods are stored: a. to satisfy his lien b. to remove the goods c. failure to do a &b will give the warehouseman authority to sell the goods without advertising d. if sale is not possible, he may dispose of the goods in any lawful manner without liability - Proceeds of the sale shall be disposed of in accordance with the process in the sale of the goods. EFFECTS OF SALE a. warehouseman is NOT liable for non- delivery even if the receipt was given for the goods when they were deposited be negotiated b. when the sale was made without the publication required and before the time specified by law, such sale is void and the purchaser of the goods acquires no title in them NEGOTIATION AND TRANSFER OF RECEIPTS - Negotiable receipts negotiable by delivery: 1. if the goods are deliverable to the bearer; or 2. when indorsed in blank; or 3. person to whose order the goods are delivered or by a subsequent indorsee indorsed it to bearer INSOLVENCY LAW INSOLVENCY – state of a person whose liabilities are more than his assets. It is the inability of a person to pay his debys as they become due in the ordinary course of business. Balance Sheet Test – relative condition of a man’s assets and liabilities that the former if all made immediately available, would not be sufficient to discharge the latter. Equity Test – a person may be insolvent although he may be able to pay his debts at some future time on a settlement and winding up of his affairs. INSOLVENCY vs. BANKRUPTCY The only distinction between insolvency and bankruptcy is a matter of terminology and the source of the laws relating thereto. Either a bankruptcy or insolvency statute may operate to discharge a debt as well as release the debtor from imprisonment, and either may operate on the petition of the debtor or that of his creditors. INSOLVENCY PRIMARILY GOVERNED BY THE CC Insolvency shall be governed by special laws insofar as they are not inconsistent with the CC. Insolvency is thus primarily governed by the CC and subsidiarily by the Insolvency Law. The Insolvency Law is intended to cover the entire subject of insolvency and bankruptcy and must be treated as a complete body of law upon the subject. PURPOSES OF INSOLVENCY LAW: 1. To effect an equitable distribution of the bankrupt’s property among his creditors; and 2. To benefit the debtor in discharging him from his liabilities and enabling him to start afresh with the property set apart to him as exempt. 3. The regulatory and unifying influence of the law on credit transactions and business usage throughout the country. WHAT MAY BE PERMITTED OF A DEBTOR BY THE INSOLVENCY LAW 1. Petition the court to suspend payments; 2. To be discharged from his debts and liabilities by voluntary or involuntary insolvency proceedings. SUSPENSION OF PAYMENTS – postponement, by court order, of the payment of debts of one who, while possessing sufficient property to cover his debts, foresees the impossibility of meeting them when they respectively fall due. PURPOSE: To suspend or delay the payment of debts the amount of which is not affected although a postponement is declared. BASIS: Probability of the debtor’s inability to meet his obligations when they respectively fall due, despite the fact that he has sufficient assets to cover all his liabilities. REQUISITES OF PETITION FOR SUSPENSION OF PAYMENTS: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 262 of 325 CREDIT TRANSACTIONS CIVIL LAW 1. Petition is filed by a debtor; 2. Possessing sufficient property to cover all his debts; 3. Foreseeing the impossibility of meeting them when they respectively fall due; and 4. Petitioning that he be declared in the state of suspension of payments RULE ON DOUBLE MAJORITY IN THE MEETING OF CREDITORS Majority shall be: 1. Two thirds (2/3) of the creditors voting upon the same proposition, which 2. Represents at least three fifths (3/5) of the total liabilities of the debtor. KINDS OF INSOLVENCY VOLUNTARY INSOLVENCY – an insolvent debtor owing debts exceeding the amount of P1,000.00 may apply to be discharged from his debts and liabilities by petition to the RTC of the province or city in which he has resided for six months next preceding the filing of the petition. DISTINCTIONS BETWEEN SUSPENSION OF PAYMENTS AND INSOLVENCY suspension of payments insolvency Purpose Suspend or delay the payment of debts Discharge the debtor from the payment of debts Sufficie ncy of property Debtor has sufficient property to pay his debts Debtor does not have sufficient property to pay all his debts Effect on amount of debt Amount of indebtedness is not affected The creditors receive less than their credits, and in case where there are preferences, some creditors may not receive any amount at all Number of creditor s required Number of creditors is immaterial In case of involuntary insolvency, three or more creditors are required EFFECT OF COURT ORDER DECLARING DEBTOR INSOLVENT 1. All the assets of the debtor not exempt from execution are taken possession of by the sheriff until the appointment of a receiver or assignee. 2. The payment to the debtor of any debts due to him and the delivery to the debtor or to any person for him of any property belonging to him and the transfer of any property by him are forbidden. 3. All civil proceedings pending against the insolvent debtor shall be stayed. 4. Mortgages or pledges, attachments or executions on property of the debtor duly recorded and not dissolved are not affected by the order. INVOLUNTARY INSOLVENCY – an adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippines, whose credits or demands accrued in the Philippines, and the amount of which credits or demands are in the aggregate of not less than P1,000.00 DISTINCTIONS BETWEEN VOLUNTARY INSOLVENCY AND INVOLUNTARY INSOLVENCY voluntary insolvency involuntary insolvency Number of creditors One creditor is sufficient Three or more creditors are required Who may petition Filed by the insolvent debtor Filed by three or more creditors who possess the qualifications required by law Acts of insolvency Debtor must not be guilty of any of the acts of insolvency (Sec. 20) Debtor must have committed one or more of such acts of insolvency Amount of debt The amount of indebtednes s must exceed P1,000.00 Amount must not be less than P1,000.00 (aggregate) Posting of bond Bond is not required Petition must be accompanied by a bond Ex parte adjudication An order of adjudication may be An order of adjudication granted only 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 263 of 325 CREDIT TRANSACTIONS CIVIL LAW granted ex parte after a hearing Residency duration to vest jurisdiction in courts Petition is filed in the RTC of the province or city where the debtor has resided for six months Length of residence is immaterial Requirement of hearing Court issues the order of adjudication declaring the petitioner insolvent upon the filing of the voluntary petition The debtor is not adjudicated insolvent until after hearing of the case ASSIGNEE – person elected by the creditors or appointed by he court to whom an insolvent debtor makes an assignment of all his property for the benefit of his creditors. CREDITORS NOT ENTITLED TO VOTE IN THE ELECTION OF ASSIGNEE 1. Those who did not file their claims at least two days prior to the time appointed for such election 2. Those whose claims are barred by the statute of limitations 3. Secured creditors unless they surrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed 4. Holders of claims for unliquidated damages arising out of pure tort. EFFECTS OF ASSIGNMENT 38 1. Assignee takes the property in the plight and conditions that the insolvent held it. 2. Upon appointment, the legal title to all the property of the insolvent is vested in the assignee, and the 38 SERVICEWIDE v. CA: Assignment of Credit/Consent: As provided in Article 2096 in relation to Article 2141 of the Civil Code, a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee. This provision is in accordance with Act No. 1508 which provides that a mortgagor of personal property shall not sell or pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is recorded. A mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel is mortgaged, it follows that the assignee’s consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor- mortgagor This is tantamount to a novation. control of the property is vested in the court. 3. All actions to recover all the estate, debts, and effects of the insolvent shall be brought by the assignee and not by the creditors. 4. The assignment shall: a. Dissolve any attachment levied within one month next preceding the commencement of insolvency proceedings; b. Vacate and set aside judgment entered in any action commenced within 30 days immediately prior to the commencement of insolvency proceedings; c. Vacate and set aside execution issued thereon; d. Vacate and set aside any judgment entered by default or consent of the debtor within 30 days prior to the commencement of insolvency proceedings BOND OF THE ASSIGNEE After his election, the assignee is required to give a bond for the faithful performance of his duties. Purpose: 1. To establish his official character 2. To establish his right to sue in that capacity The bond is solely for the benefit of the creditors of the insolvent, and that third persons have no remedy against the sureties if the assignee, purporting to be as such, wrongfully takes property from such third persons and converts it to his own use. PROPERTIES OF INSOLVENT THAT PASS TO THE ASSIGNEE 1. All real and personal property, estate, and effects of the debtor, including all deeds, books, and papers in relation thereto; 2. Properties fraudulently conveyed; 3. Right of action for damages to real property 4. The undivided share or interest of the insolvent debtor in property held under co-ownership PROPERTIES OF INSOLVENT THAT DO NOT PASS TO THE ASSIGNEE 1. Property exempt from execution; 2. Property held in trust; 3. Property of the conjugal partnership or absolute community except 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 264 of 325 CREDIT TRANSACTIONS CIVIL LAW insofar as the debtor’s obligations redounded to the benefit of the family. 4. Property to which a mortgage or pledge exists unless the creditor surrenders his security or lien. 5. After-acquired property except fruits and income of property owned by the debtor 6. Non-leviable assets like life insurance policy which do not have any cash surrender value 7. Right of action for tort which is purely personal in nature. POWERS OF THE ASSIGNEE 1. To sue and recover all the estate, debts, and claims belonging to or due to the debtor; 2. To take into his possession all the estate of the debtor except property exempt from execution; 3. In case of non-resident or absconding or concealed debtor, to demand and receive of every sheriff all the property and money in his possession belonging to the debtor. 4. To sell, upon order of the court, any estate of the debtor which has come into his possession; 5. To redeem all mortgages and pledges and to satisfy any judgment which may be an encumbrance on any property sold by him. 6. To settle all accounts between the debtor and his debtors subject to the approval of the court; 7. To compound, under the order of the court, with any person indebted to such debtor; 8. To recover any property fraudulently conveyed by the debtor. CREDITOR’S LIABILITY FOR FRAUDULENTLY ASSIGNING HIS CREDIT A creditor’s transfer or assignment of his credit to another without the knowledge and at the back of other creditors of the insolvent may be a shrews surprise move that enables the transferor creditor to collect almost if not the entire amount of the said creditor. REMEDY OF THE ASSIGNEE: SECTION 37 OF THE INSOLVENCY LAW: The creditor coming within this purview is liable to an action by the assignee for double the value of the property so embezzled or disposed of, to be received for the benefit of the insolvent’s estate. Section 37 constitutes a sort of penal clause which shall be strictly construed. When Sec. 37 does not apply: Not applicable where what has been disposed of is the creditor’s own credit and not the insolvent’s property. DIVIDENDS IN INSOLVENCY Dividends in insolvency – parcel if the fund arising from the assets of the estate, rightfully allotted to a creditor entitled to share in the fund, whether in the same proportion with other creditors or in a different proportion. It is paid by the assignee only upon order of the court. CLASSIFICATION AND PREFERENCE OF CREDITORS PREFERENCE – an exception to the general rule. By it, one person is given a superior right or claim over another. Hence, the law on preferences is strictly construed. (The general rule is that the purpose of insolvency proceeding is the equitable distribution of the insolvent’s assets among the debtor’s creditors.) RULES ON ORDER OF DISTRIBUTION 1. The priorities fixed by law govern 2. The claims which are given priority must be paid in full in the order of their priority, before the general creditors receive anything. 3. Creditors claiming preference must sufficiently establish their credits and their right to preference to entitle them to such preference. ORDER OF DISTRIBUTION 1. Equitable claims under Sec. 48; 2. Preferred claims with respect to specific movable property and specific immovable property under Art. 2241 and 2242 of the CC. 3. Preferred claims as to unencumbered property of the debtor which shall be paid in the order named in Art. 2244 of the CC. 4. Common or ordinary credits which shall be paid pro rata regardless of dates under Art. 2245 of the CC. With reference to specific movable and immovable property of the debtor, the taxes due the State shall first be satisfied. The preferred claims enumerated in Art. 2241 and 2242 are considered as mortgages and pledges of real or personal property or liens within the purview of the Insolvency Law. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 265 of 325 CREDIT TRANSACTIONS CIVIL LAW EQUITABLE CLAIMS UNDER THE INSOLVENCY LAW Section 48 of the Insolvency Law: Any property found among the property of the insolvent, the ownership of which has not been conveyed to him by legal and irrevocable title, shall not be considered to be property of the insolvent and shall be placed at the disposal of its lawful owners, on order of the court on petition of the assignee or any creditor whose right to the estate of the insolvent has been established. 1. Paraphernal property belonging to the wife of the insolvent; 2. Property held by the insolvent on deposit, administration, lease, or usufruct; 3. Merchandise held by the debtor on commission; 4. Negotiable instruments for collection or remittance; 5. Money held by the debtor for remittance; 6. Amounts due the insolvent for sales or merchandise on commission; 7. Merchandise bought by the insolvent on credit where no delivery is made or where the right of ownership or possession has been retained by the seller; 8. Goods or chattels wrongfully taken by the insolvent or the amount of the value thereof. ALTERNATIVE RIGHTS OF SECURED CREDITOR 1. To maintain his right under his security or lien and ignore the insolvency proceedings – it is the duty of the assignee to surrender to him the property encumbered; 2. To waive his right under the security or lien – thereby, share in the distribution of the assets of the debtor; 3. To have the value of the encumbered property appraised and then share in the distribution of the assets of the debtor with respect to the balance of his credit. Waiver – release or surrender of the claim to the receiver, sheriff, or assignee. The following do not constitute waiver: 1. Mere recommendation that the assignee be appointed; 2. Voting of a secured claim. COMPOSITION An agreement, made upon a sufficient consideration, between an insolvent or embarrassed debtor and his creditors, whereby the latter for the sake of immediate or sooner payment, agree to accept a dividend less than the whole amount of their claims, to be distributed pro rata, in discharge and satisfaction of the whole debt. composition accord Designates an arrangement between a debtor and the whole body of his creditors (or at least a considerable portion of them) for the liquidation of their claims by the dividend offered. An agreement between a debtor and a single creditor for a discharge of the obligation by a part payment or on different terms. REQUIREMENTS FOR A VALID OFFER OF COMPOSITION 1. The offer of the terms of composition must be made after the filing in court of the schedule of property and submission of his list of creditors; 2. The offer must be accepted in writing by a majority of the creditors representing a majority of the claims which have been allowed; 3. It must be made after depositing in such place designated by the court, the consideration to be paid and the costs of the proceedings; and 4. The terms of the composition must be approved or confirmed by the court. WHEN COURT MAY CONFIRM A COMPOSITION 1. If it is in the best interest of the creditors; 2. The debtor has not been guilty of any of the acts, or of a failure to perform any of the duties which would create a bar to his discharge; and 3. The offer and its acceptance are in good faith and have not been made or procured in a manner forbidden by the Act. EFFECTS OF CONFIRMATION OF COMPOSITION 1. The consideration shall be distributed as the judge shall direct; 2. The insolvency proceedings shall be dismissed; 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 266 of 325 CREDIT TRANSACTIONS CIVIL LAW 3. The title to the insolvent’s property shall revest in him; and 4. The insolvent shall be released from his debts. 5. The substitution, in a certain sense, composition for the insolvency proceedings. 6. A lawful composition and its performance by the insolvent has the same effect of a written discharge, although no written discharge is granted. 7. For all legal and practical purposes, the insolvency ended on the date of the confirmation of composition and the firm was restored to its status quo. It reacquired its personality. Its properties ceased to be in custodia legis. WHEN CONFIRMATION MAY BE SET ASIDE 1. Any time within six months after the composition has been confirmed; 2. Fraud was practiced in procuring such composition; 3. Knowledge thereof has come to the petitioner after the confirmation of such composition. DISCHARGE The formal and judicial release of an insolvent debtor from his debts with the exception of those expressly reserved by law. WHEN AN INSOLVENT DEBTOR MAY APPLY FOR A DISCHARGE General rule: A debtor may apply to the RTC for a discharge at three months to one year after the adjudication of insolvency. Exception: The property of the insolvent has not been converted into money without his fault, thereby delaying the distribution of dividends among the creditors in which case the court may extend the period. DEBTS RELEASED BY A DISCHARGE 1. All claims, debts, and liabilities, and demands set forth in the schedule; and 2. All claims, debts, liabilities and demands which were or might have been proved against the estate in insolvency DEBTS NOT RELEASED BY DISCHARGE 1. Taxes or assessments due the Government; 2. Any debt created by the fraud or embezzlement of the debtor; 3. Any debt created by the defalcation of the debtor as a public officer or while acting in a fiduciary capacity; 4. Debt of any person liable for the same debt, for or with the insolvent debtor, either as a partner, joint contractor, indorser, surety or otherwise; 5. Debts of a corporation (Reason: Corporation is not granted a discharge) 6. Claim for support (Reason: It will make the law a means of avoiding the enforcement of the obligation) 7. Discharged debt but revived by a subsequent new promise to pay (Reason: Discharge does not end the moral obligation to pay) 8. Debts which have not been duly schedules in time for proof and allowance. Exception: The creditors had notice or actual knowledge of the insolvency proceedings 9. Claims for: a. Unliquidated damages; b. Secured creditors; c. Not in existence or not mature at the time of the discharge; d. Contingent at the time of the discharged. LEGAL EFFECTS OF DISCHARGE Discharge takes effect from the commencement of the proceedings in insolvency. 1. Releases the debtor from all claims, debts, liabilities and demand set forth in the schedule or which were or might have been proved against his estate in insolvency. 2. Operates as a discharge of the insolvent and future acquisitions but permits mortgages and other lien 3. It is a special defense which may be pleaded and be a complete bar to all suits brought on any such debts, claims, liabilities or demands. 4. It does not operate to release any person liable for the same debts, for or with the debtor, either as partner, joint contractor, indorser, surety, or otherwise. 5. The certificate of discharge is prima facie evidence of the fact of release, and the regularity of such discharge. Remedy of guarantor or surety when debtor declared judicially insolvent: File a contingent claim in the insolvency proceeding, if his rights as such guarantor or surety are not to be barred by the subsequent discharge of the insolvent debtor from all his liabilities. WHEN DISCHARGE MAY BE REVOKED Discharge may be revoked by the court which granted it upon petition of any creditor: 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 267 of 325 CREDIT TRANSACTIONS CIVIL LAW 1. Whose debt was proved or provable against the estate in insolvency, on the ground that the discharge was fraudulently obtained; and provided, 2. The petition is filed within one year after the date of the discharge. FRAUDULENT PREFERENCES AND TRANSFERS TRANSFER – includes the sale and every other and different modes of disposing of or parting with property, or the possession of property, absolutely or conditionally, as a payment, pledge, mortgage, gift, or security. WHEN PREFERENTIAL TRANSFER EXISTS 1. There must be a parting of the insolvent’s property; 2. For the benefit of the creditor; 3. Consequent diminution of the insolvent’s estate; 4. With the result that such creditor receives a greater proportion of his claim than other creditors of the same class. General rule: A debtor is not prohibited from paying one creditor in preference to another Exception: In cases mentioned in the Insolvency Law Deposit of money to one’s credit on a bank does not create any preference. Reason: The estate of the depositor is not diminished for there is an obligation on the part of the bank to pay the amount of the deposit as soon as the depositor may see fit to draw a check against it. WHEN FRAUDULENT PREFERENCE EXISTS Fraudulent preference – when the debtor procures any part of his property to be attached, sequestered, or seized on execution or makes any payment, pledge, mortgage, assignment, transfer, sale or conveyance of any part of his property, whether directly or indirectly, absolutely or conditionally, to any one under the following circumstances: 1. The debtor is insolvent or in contemplation of insolvency; 2. The transaction in question is made within 30 days before the filing of a petition by or against the debtor; 3. It is made with a view to giving preference to any creditor or person having a claim against him; and 4. The person receiving a benefit thereby has reasonable cause to believe: a. That the debtor is insolvent; b. That the transfer is made with a view to prevent his property from coming to his assignee in insolvency, or to prevent the same from being distributed ratably among his creditors, or to defeat the object of or any way hinder the operation or evade the provisions of the Insolvency Law. *Date of registration of sale of real property should determine whether the sale was prohibited by the Insolvency Law or not. WHEN PRESUMPTION OF FRAUD EXISTS 1. If such payment, pledge, mortgage, conveyance, sale, assignment or transfer is not made in the usual and ordinary course of business of the debtor; or 2. If such seizure is made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud. EQUAL EXCHANGE NOT A PREFERENCE An exchange of securities within the thirty-day period is not a fraudulent preference under the law, even when both parties know that the debtor is insolvent, if: 1. The security given up is a valid one at the time the exchange; 2. Of equal value with the one received in exchange. Reason: Exchange takes nothing away from the other creditor Equal value: Not necessary that their value should be mathematically equal, but it is sufficient if they are substantially equal. WHEN FRAUDULENT TRANSFER EXISTS 1. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character; 2. Made by the insolvent; 3. Within one month before the filing of the petition in insolvency against him Exception: Transfer for a valuable pecuniary consideration in good faith Effect of fraudulent transfer: Such transfer is VOID RIGHT OF ASSIGNEE TO RECOVER PROPERTY OR ITS VALUE The creditors of the insolvent are not authorized to institute an independent action. In all actions or proceedings to set aside or nullify fraudulent preferences or transactions as VOID, the assignee appears for, and represents the general creditors. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 268 of 325 CREDIT TRANSACTIONS CIVIL LAW EFFECT OF DEATH OF INSOLVENT DEBTOR 1. Death after the order of adjudication – the proceedings shall be continued and concluded in like manner and with like validity and effects as if he had lived. 2. Death before the order of adjudication – the proceedings shall be discontinued. Remedy: File claims in the proper testate or intestate proceedings WHEN RECEIVER MAY BE APPOINTED Anytime before the election of an assignee, when it appears by the verified petition of a creditor: 1. That the assets of the insolvent or a considerable portion thereof have been pledged, mortgaged, transferred, assigned, conveyed, or seized on legal process in violation of Sec. 70; 2. That it is necessary to commence an action to recover the same; The receiver shall deliver all the property, assets, or effects remaining in his hands to the assignee who shall be substituted for him in all pending actions or proceedings. WHEN PETITION MAY BE DISMISSED At anytime before the appointment of an assignee: 1. Voluntary petition – upon the application of the debtor, if no creditor files written objections; 2. Involuntary petition – a. Upon the application of the petitioning creditors; or b. By written consent of all creditors filed in court, in which case, the proceedings may be dismissed at any time. After the appointment of an assignee, dismissal is not allowed without the consent of all parties interested in or affected thereby. WHEN APPEAL MAY BE TAKEN TO THE SUPREME COURT From an order granting or refusing: 1. An adjudication in insolvency and in the latter case, from the order fixing the amount of costs, expenses, damages, and attorney’s fees allowed the debtor; 2. A creditor’s claim when the amount in dispute exceeds P300.00 3. A claim for property not belonging to the insolvent, presented under Sec. 48 (equitable claims) 4. Settling an account of an assignee; 5. Setting apart homestead or other property claimed as exempt from execution. 6. A discharge to the debtor. SAMPLE QUESTIONS a. What are the preferred claims that shall be satisfied first from the assets of an insolvent corporation? How shall the remaining non-preferred creditors share in the estate of the insolvent corporation above? Multiple choice: Choose the right answer. 1. The parties to a bailment are the: a. bailor; b. bailee; c. comodatario; d. all the above; e. letters a and b 2. A deposit made in compliance with a legal obligation is: a. an extrajudicial deposit; b. a voluntary deposit; c. a necessary deposit; d. a deposit with a warehouseman; e. letters a and b 3. A contract of antichresis is always: a. a written contract; b. a contract, with a stipulation that the debt will be paid through receipt of the fruits of an immovable; c. Involves the payment of interests, if owing; d. All of the above; e. Letters a and b 4. An, assignee in a proceeding under the Insolvency Law does not have the duty of: a. suing to recover the properties of the state of the insolvent debtor; b. selling property of the insolvent debtor; c. ensuring that a debtor corporation operate the business efficiently and effectively while the proceedings are pending; d. collecting and discharging debts owed to the insolvent debtor. 5. In order to obtain approval of the proposed settlement of the debtor in an insolvency proceeding. a. the court must initiate the proposal b. 2/3 of the number of creditors should agree to the settlement; c. 3/5 of the number of creditors should agree to the settlement; d. 1/3 of the total debts must be represented by the approving creditors; e. Letters a and b Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 269 of 325 CREDIT TRANSACTIONS CIVIL LAW Tito, with the understanding that the latter could use it for one year for his personal or family use while Pedro works in Riyadh. He did not tell Tito that the brakes of the van were faulty. Tito had the van tuned up and the brakes repaired. He spent a total amount of P15,000.00. After using the vehicle for two weeks, Tito discovered that it consumed too much fuel. To make up for the expenses, he leased it to Annabelle. Two months later, Pedro returned to the Philippines and asked Tito to return the van. Unfortunately, while being driven by Tito, the van was accidentally damaged by a cargo truck without his fault. a) Who shall bear the P15,000.00 spent for the repair of the van? Explain. b) Who shall bear the costs for the van’s fuel, oil and other materials while it was with Tito? Explain. c) Does Pedro have the right to retrieve the van even before the lapse of one year? Explain. d) Who shall bear the expenses for the accidental damage caused by the cargo truck, granting that the truck driver and truck owner are insolvent? Explain. A real estate mortgage may be foreclosed judicially or extrajudicially. In what instance may a mortgagee extrajudicially foreclose a real estate mortgage? Aaron, a well-known architect, is suffering from financial reverses. He has four creditors with a total claim of P26 Million. Despite his intention to pay these obligations, his current assets are insufficient to cover all of them. His creditors are about to sue him. Consequently, he was constrained to file a petition for insolvency. a) Since Aaron was merely forced by circumstances to petition the court to declare him insolvent, can the judge properly treat the petition as one for involuntary insolvency? Explain. b) If Aaron is declared an insolvent by the court, what would be the effect, if any, of such declaration on his creditors? Explain. c) Assuming that Aaron has guarantors for his debts, are the guarantors released from their obligations once Aaron is discharged from his debts? Explain. d) What remedies are available to the guarantors in case they are made to pay the creditors? Explain. Ricardo mortgaged his fishpond to AC Bank to secure a P1 Million loan. In a separate transaction, he opened a letter of credit with the same bank for $500,000.00 in favor of HS Bank, a foreign bank, to purchase outboard motors. Likewise, Ricardo executed a Surety Agreement in favor of AC Bank. The outboard motors arrived and were delivered to Ricardo, but he was not able to pay the purchase price thereof. a) Can AC Bank take possession of the outboard motors? Why? b) Can AC Bank also foreclose the mortgage over the fishpond? Explain. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 270 of 325 TORTS & DAMAGES CIVIL LAW Torts and Damages TABLE OF CONTENTS Title 1. Torts 271 I. In General 271 II. Negligence Torts 272 III. Intentional Torts 280 IV. Other Torts 281 V. Strict Liability Tort 282 VI. Torts with Independent Civil Action 285 VII. Civil Liability Arising from Crime 287 Title 2. Damages 288 I. Definition and Concept 288 II. Kinds of Damages 288 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 271 of 325 TORTS & DAMAGES CIVIL LAW TORTS I. IN GENERAL A. What is a TORT? Essentially, "tort" consists in the violation of a right given or the omission of a duty imposed by law. Tort is a breach of a legal duty. (Naguiat vs. NLRC) A tort is civil wrong, other than breach of contract, for which a court of law will afford a remedy in the form of an action for damages. Elements: 1) A legal duty 2) Breach 3) Causation 4) Damage B. What is a QUASI-DELICT? Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of the Civil Code Chapter on quasi- delicts. (Art. 2176) Elements: 1) Act or omission 2) Damage or injury is caused to another 3) Fault or negligence is present 4) There are no pre-existing contractual relations between the parties 5) Causal connection between damage done and act/omission C. What is the relation of quasi- delict to tort? Quasi-delict, known in Spanish legal treatises as culpa aquiliana, is a civil law concept while torts is an Anglo-American or common law concept. Torts, in common law, embrace both delicts and quasi-delicts. Quasi-delict is seemingly a refinement of the torts concept in that it refers particularly to wrongful, negligent, injurious acts outside the ambit of penal laws. Our concept of culpa aquilania embraces both negligent and intentional acts. (Barredo vs. Garcia) D. How is a quasi delict different from a crime? Crime Quasi-delict public interest private concern RPC punishes and corrects the act CC repairs the damage by indemnification punishes only when there is a penal law covering the act includes all acts in which "any kind of fault or negligence intervenes." subsidiary liability of employer solidary liability of employer ER’s defense is that employee’s resources must first be exhausted ER’s defense is that accused observed due diligence of a good father of a family (Barredo vs. Garcia) Acquittal from an accusation of criminal negligence, whether on reasonable doubt or not, shall not be a bar for a subsequent civil action, not for civil liability arising from the criminal act, but for damages due to a quasi- delict. (Elcano vs. Hill, 1977) E. What is the relation of quasi-delict to breach of contract and delict? CONTRAC T QUASI DELICT DELICT Vinculu m Juris Contract Negligent act/ omission (culpa, imprudence) Act/omis sion committ ed by means of dolo (delibera te, maliciou s, in bad faith) Proof Neede d Preponder ance of evidence Preponderan ce of evidence Proof beyond reasona ble doubt Defens e availab le Exercise of extraordin ary diligence (in contract of carriage), Force Majeure Exercise of diligence of good father of a family in the selection and supervision of employees Pre- existin g contra There is pre- existing contract No pre- existing contract No pre- existing contract 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 272 of 325 TORTS & DAMAGES CIVIL LAW ct Burden of proo f Contractu al party. Prove the ff.: 1. existen ce of a contra ct 2. breach Victim. Prove the ff.: 1. damage 2. negligen ce 3. causal connecti on between negligen ce and damage done Prosecut ion. Accused is presume d innocent until the contrary is proved. F. What are some classifications of tort? 1. Negligence tort 2. Intentional tort 3. Strict liability tort 4. Other Torts (Human relations torts) II. NEGLIGENCE TORT A. What are the elements of negligence tort (Art. 2176)? 1. Legal duty 2. Breach 3. Causation 4. Damage B. What is NEGLIGENCE? Negligence is lack of due care required by a particular situation, conduct which falls below the standard required by law. (US vs. Barias, 1912) An accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant. (Jarco Marketing vs. CA, 1999) C. What is the relation of negligence to the elements of negligence tort? Negligence is the breach (element no. 2) of the legal duty (element no. 1) to observe a certain standard of conduct in a particular situation. D. What are the tests of negligence? Since negligence is the lack of due care required by the circumstances, the test is whether due care was observed. 1. Ordinarily prudent man; 2. Reasonable man; 3. And most commonly, good father of the family or bonus paterfamilias A standard of extraordinary diligence is imposed by law in certain situations, such as in the case of a common carrier. E. What is the “emergency rule?” Under the "emergency rule," an individual who suddenly finds himself in a situation of danger and is required to act without much time to consider the best means that may be adopted to avoid the impending danger, is not guilty of negligence if he fails to undertake what subsequently and upon reflection may appear to be a better solution, unless the emergency was brought by his own negligence. (Valenzuela vs. CA) F. Who has the burden of proving negligence? Generally, it is the plaintiff or injured party. In cases where the law creates a presumption of negligence, such as for common carriers or for persons vicariously liable, the burden is then placed on the defendant. G. When is negligence presumed? In motor vehicle mishaps: a) A driver was negligent, if he had been found guilty of 1. reckless driving OR 2. violating traffic regulations at least twice within the next preceding two months. (Art. 2184) b) Driver has been negligent if at the time of the mishap, he was violating any traffic regulation. (Art. 2185) Other cases: There is prima facie presumption of negligence on the part of the DEFENDANT if the death or injury results from his possession of dangerous weapons or substances, such as firearms and poison, EXCEPT when the possession or use thereof is indispensable in his occupation or business. (Art. 2188) Elsewhere, the Civil Code provides for other instances where negligence is presumed. Example: Art. 1756 regarding common carriers. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 273 of 325 TORTS & DAMAGES CIVIL LAW H. What is RES IPSA LOQUITUR? The doctrine of res ipsa loquitur (the thing speaks for itself) states that the happening of an injury permits an inference of negligence where plaintiff produces substantial evidence that injury was caused by an agency or instrumentality under exclusive control and management of defendant, and that the occurrence was such that in the ordinary course of things would not happen if reasonable care had been used. (Layugan vs. IAC) To be applicable, res ipsa loquitur requires: 1) Evidence of the specific acts of negligence is absent and not readily available; 2) The accident is of a kind which does not necessarily occur unless someone is negligent; 3) The instrumentality which caused the injury was under the exclusive control of the person in charge; and 4) The injury suffered must not have been due to any voluntary action or contribution of the injured person. In this jurisdiction, res ipsa loquitur is not a rule of substantive law but a mere evidentiary rule. Mere invocation and application of the doctrine does not dispense with the requirement of proof of negligence. Prof. Services Inc. vs. Agana For purposes of apportioning responsibility in medical negligence cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. The control test is determinative. Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospital’s liability for the negligent acts of health practitioners, absent facts to support the application of respondeat superior or apparent authority. Its formulation proceeds from the judiciary’s acknowledgment that in these modern times, the duty of providing quality medical service is no longer the sole prerogative and responsibility of the physician. I. What is CAUSATION? Causation is the bringing about of a result, and a necessary element in establishing legal liability. J. What is PROXIMATE CAUSE? Proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result. (Vda. De Bataclan vs. Medina, 1957) A prior and remote cause cannot be made the basis of an action if such remote cause did nothing more than furnish the condition and give rise to the occasion by which the injury was made possible, if there intervened between such prior or remote cause and the injury, a distinct, successive, unrelated and efficient cause of the injury, even though such injury would not have happened for such condition or occasion. If no danger existed in the condition except because of the independent cause, such condition was not the proximate cause and if an independent negligent act which results in injury because of the prior defective condition, such subsequent act or condition is the proximate cause. (Manila Electric Co. vs. Remoquillo, 1956) K. What is the relation of proximate cause to the elements of negligence tort? The most basic element of any tort action is the causal connection between the act or omission of the tortfeasor and the plaintiff’s injury such that without it, no action will prosper. L. When is proximate cause presumed? RULE: Injured party must show that the violation of the enactment is the proximate cause of his injury or that it substantially contributed to it. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 274 of 325 TORTS & DAMAGES CIVIL LAW EXCEPTION: However, the character and purpose of a particular statute may be such that the courts will deem a reasonable connection between the injury and the violation sufficient to award damages based on negligence. In this case, proximate cause is presumed and the injured party need not establish proximate cause in the traditional sense. If the very injury which a particular statute intends to prevent happens, the violation of the statute is presumed to be, the proximate cause of the injury. The violation of ordinance intended to promote safety is in itself negligence. (Teague vs. Fernandez) M. Is the presumption that the violation of the statute is the proximate cause disputable? It depends. DISPUTABLE in the ff. cases: violation creates a prima facie case of negligence violation constitutes evidence of negligence The defense that the violation was either justifiable or excusable under the circumstances of the case is available. The legal grounds or excuse for violation of a statute: 1. Anything that would make complying with the statute IMPOSSIBLE; 2. Anything over which the defendant has NO CONTROL and places him in a position contrary to that required by the statute; 3. An EMERGENCY not of the defendant’s making causing him to violate the statute; and 4. Conduct that is precisely excused or EXEMPTED by the statute. CONCLUSIVE: It is not available in cases where the statute provides for negligence per se. N. What is NEGLIGENCE PER SE? Negligence per se is the legal doctrine whereby certain acts are considered intrinsically negligent. It is the law that determines which acts constitute negligence per se. (Anonuevo vs. CA, 2004) Illustration: The law requires registration of service and repair enterprises for motor vehicles. There is thus a statutory duty imposed on petitioner and it is for his failure to comply with this duty that he was guilty of negligence rendering him liable for damages to private respondent for the destruction of the car which was serviced by the petitioner due to the fire. (Cipriano vs. CA, 1996) O. What Civil Code provisions on obligations are applicable in quasi-delict? The provisions of Articles 1172 to 1174 are also applicable to a quasi-delict. (Art. 2178) Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. Art. 2201, par.2 In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. P. What are some of the defenses to prevent or mitigate negligence tort liability? 1. “I was not negligent. I exercised due diligence.” (Art. 2176) 2. “Even if I was negligent, it was not the proximate cause of the damage.” (Art. 2176) 3. “There was no damage.” (Art. 2176) 4. “I was not negligent. What happened was a fortuitous event.” 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 275 of 325 TORTS & DAMAGES CIVIL LAW RULE: No person shall be seen responsible for those events which, could not foreseen, or which, though foreseen, were inevitable. EXCEPTIONS (LAS): 1. Cases expressly specified by law 2. Nature of obligation requires assuming the risk 3. Cases declared by stipulation (Art. 1174) Q. What is a FORTUITOUS EVENT? A fortuitous event presents the following essential characteristics: 1. The cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligation, must be independent of the human will; 2. It must be impossible to foresee the event or if it can be foreseen, it must be impossible to avoid; 3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner and 4. The obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the creditor. (Juntillla vs. Fontanar, 1985) DEFENSES “The plaintiff voluntarily assumed the risk. Volenti non fit injuria.” What is the maxim of “VOLENTI NON FIT INJURIA”? RULE: The maxim “volenti non fit injuria” states that when a person voluntarily assents to a known danger, he must abide by the consequences. Illustration: The owner of an animal is answerable only for damages caused to a stranger, and that for damage caused to the caretaker of the animal. A caretaker of animals voluntarily assumes the risks of his occupation. The owner would be liable only if he had been negligent or at fault under article 1902 of the Civil Code. (Afialde vs. Hisolde) EXCEPTION: If an emergency is found to exist or if the life or property if another is in peril or when he seeks to rescue his endangered property. (Ilocos Norte Electric Company vs. CA, 1989) “I was just exercising my rights. Damnum absque injuria.” What is the maxim of “DAMNUM ABSQUE INJURIA”? If damage results from a person's exercising his legal rights, it is damnum absque injuria. Since conjunction of damage and wrong is absent, damage sustained is not actionable. “I was negligent and I am the proximate cause of the damage but the plaintiff was guilty of contributory negligence.” What is the effect of plaintiff’s negligence on his right to recover? IF it is the immediate and proximate CAUSE of his injury, he CANNOT recover damages. IF only CONTRIBUTORY, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff may recover damages, but the courts shall MITIGATE the damages to be awarded. (Art. 2179) “I was negligent and I am the proximate cause of the damage, but I already paid.” Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. BUT THE PLAINTIFF CANNOT RECOVER DAMAGES Damage v. Injury INJURY is the illegal invasion of a legal right; DAMAGE is the loss, hurt, or harm which results from the injury; and DAMAGES are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. These situations are often called damnum absque injuria. In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff. There must be damnum et injuria. (Custodio vs. CA) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 276 of 325 TORTS & DAMAGES CIVIL LAW TWICE FOR THE SAME ACT OR OMISSION OF THE DEFENDANT. (Art. 2177) Article 2177 of the Civil Code forbids ACTUAL double recovery of damages for the same negligent act or omission. Hence, an award of damages in a civil case does not preclude an award of damages in the subsequent criminal case. (Padua vs. Robles) “I was negligent but the defendant had the last clear chance.” What is the doctrine of “LAST CLEAR CHANCE”? The doctrine of “last clear chance” (also “supervening negligence” or “discovered peril”) states that where both parties are negligent, but the negligent act of one is appreciably later in time than that of the other, or when it is impossible to determine whose fault or negligence should be attributed to the incident, the one who had the last clear opportunity to avoid the impending harm and failed to do so is chargeable with the consequences thereof. An antecedent negligence of a person doesn’t preclude the recovery of damages for the supervening negligence of, or bar a defense against liability sought by another, if the latter, who had the last fair chance, could have avoided the impending harm by the exercise of due diligence. (PBCom vs. CA, 1997) Illustration: A calesa being driven on the road side of the road and a car converged on a bridge. A collision was averted when the car swerved suddenly but the calesa still fell of the bridge. Although the plaintiff was guilty of negligence in being in the wrong side of the bridge, the defendant was nevertheless civilly liable for the legal damages resulting from the collision, as he had a fair opportunity to avoid the accident after he realized the situation created by the negligence of the plaintiff and failed to avail himself of that opportunity; while the plaintiff could by no means then place himself in a position of greater safety. (Picart vs. Smith, 1918) Last clear chance is inapplicable in culpa contractual. (Consolidated Bank vs. CA, 2003) Waiver What is the test of validity of a waiver? A waiver, to be valid and effective, must be couched in CLEAR and UNEQUIVOCAL TERMS which leave no doubt as to the INTENTION of a person to give up a right or benefit which legally pertains to him. (Gatchalian vs. Delim, 1991) Prescription - 4 years for Quasi-Delict (Art. 1146) - 1 year for defamation (Art. 1147) PERSONS LIABLE A. Who is liable for the obligation imposed by Article 2176? The obligation imposed by Article 2176 is demandable from: 1. one's own acts or omissions, 2. acts or omissions of persons for whom one is responsible. (Art. 2180) A tortfeasor (liable directly or vicariously) may be a natural or a juridical person. B. What is VICARIOUS LIABILITY? Vicarious liability is the imposition of liability on one person for the actionable conduct of another, based solely on a relationship between the two persons. The liability is primary and solidary. (Black’s Law Dictionary) Extra-contractual liability of this kind has been limited to cases wherein “moral culpability” can be directly imputed to the person charged. BASES: a. Doctrine of Imputed Negligence This doctrine places upon one person the responsibility for another’s negligence. b. Respondeat superior It means nothing more than “look to the man higher up,” (usually the employer or person under whose control the tortfeasor was under) which is a manifestation of vicarious liability. c. Bonus paterfamilias. The relationship of pater familias is the basis of civil law liability, particularly for an employer. It is a defense for all instances of vicarious liability based on Art. 2180. C. Who are liable vicariously? a. The FATHER and, in case of his death or incapacity, the MOTHER, are responsible for the damages caused by the minor children who live in their company. b. GUARDIANS are liable for damages caused by the minors or incapacitated 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 277 of 325 TORTS & DAMAGES CIVIL LAW persons who are under their authority and live in their company. c. The OWNERS and MANAGERS of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. d. EMPLOYERS shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. C. Who are liable vicariously? (continued) e. The STATE is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the official to whom the task done properly pertains, in which case what is provided in Article 2176 shall be applicable. f. Lastly, TEACHERS or HEADS of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody. (Art. 2180) Rule on Construction: Because it imposes strict liability, Art. 2180 should be interpreted strictly and cannot be extended to persons not enumerated therein. D. Instances where there is vicarious liability. Parents and Guardians Article 2180 (a) has been REPEALED by Art. 221 of the Family Code. Now, parent(s) exercising parental authority is liable for the torts of their children. Art. 221 (Family Code) PARENTS and OTHER PERSONS EXERCISING PARENTAL AUTHORITY shall be civilly liable for the injuries and damages caused by the acts or omissions of their unemancipated children living in their company AND under their parental authority subject to the appropriate defenses provided by law. Despite the lowering of the age of majority from 21 to 18, parents are still liable for the torts committed by their children below 21 years of age. (Art 236, par 3 FC, as amended by RA 6809). REQUISITES for liability to attach: Parents (mnemonic: 21 + Authority & Company): 1. The child is below 21 years old 2. The child is under the parental authority of the parents 3. The child is living in the company of the parents Guardians (mnemonic: Authority & Company) 1. The ward if minor is below 21 years old. If Incapacitated, the guardian is liable for the acts of the ward regardless of the latter’s age. The child is under the parental authority of the parents 2. The tortfeasor is under his authority 3. The tortfeasor is living in his company Is a minor or insane tortfeasor with NO parent or guardian liable? Yes. He shall be answerable with his own property in an action against him where a guardian ad litem shall be appointed. (Art. 2182) Owners and managers of establishments or enterprises Who are liable For whose acts Requisites for liability to attach Owners and managers of an establishment or enterprise Their employees The damage was caused in the service of the branches in which the employees are employed -OR- The damage was caused on the occasion of their functions The term “owners and managers of an establishment or enterprise” is used in the sense of an “EMPLOYER;” hence, managers cannot be liable since they themselves are employees of the enterprise. Art 2180, par 4 may be unnecessary as Art 2180, par 5 already covers the cases under par 4. Employers The liability of an employer is based primarily on the presumption that he failed to exercise due diligence in the selection and supervision of his employees. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 278 of 325 TORTS & DAMAGES CIVIL LAW REQUISITES OF LIABILITY: 1) existence of the employer-employee relationship 2) THE EMPLOYER WAS CHOSEN BY THE EMPLOYEE; 3) THE WORK BEING PERFORMED WAS IN ACCORDANCE WITH A VALID ORDER; AND 4) THE ILLICIT ACTS OF THE EMPLOYEE WAS ON THE OCCASION OR BY REASON OF THE FUNCTIONS ENTRUSTED TO HIM. The employer can interpose the defense of due diligence in selection and supervision of his employees. BAR QUESTION After working overtime up to midnight, Alberto, an executive of an insurance company drove a company vehicle to a favorite videoke bar where he had some drinks and sang some songs with friends to “unwind.” At 2:00 a.m., he drove home, but in doing so, he bumped a tricycle, resulting in the death of its driver. May the insurance company be held liable for the negligent act of Alberto? Why? Suggested Answer: The insurance company is not liable because when the accident occurred, Alberto was not acting within the assigned tasks of his employment. It is true that under Art. 2180 (par. 5) of the Civil Code, employers are liable for damages caused by their employees who were acting within the scope of their assigned tasks. However, the mere fact that Alberto was using a service vehicle of the employer at the time of the injurious accident does not necessarily mean that he was operating the vehicle within the scope of his employment. In Castilex Industrial Corp. vs. Vasquez, Jr. (321 SCRA 393 [1999]), the Supreme Court held that notwithstanding the fact that the employee did some overtime work for the company, the former was, nevertheless, engaged in his own affairs or carrying out a personal purpose when he went to a restaurant at 2:00 a.m. after coming out from work. The time of the accident (also 2:00 a.m.) was outside normal working hours. Alternative Answer: The insurance company is liable if Alberto was negligent in the operation of the car and the car was assigned to him for the benefit of the insurance company, and even though he was not within the scope of his assigned tasks when the accident happened. In one case decided by the Supreme Court, where an executive of a pharmaceutical company was given the use of a company car, and after office hours, the executive made personal use of the car and met an accident, the employer was also made liable under Art. 2180 of the Civil Code for the injury caused by the negligent operation of the car by the executive on the ground that the car which caused the injury was assigned to the executive by the employer for the prestige of the company. The insurance company was held liable even though the employee was not performing within the scope of his assigned tasks when the accident happened (Valenzuela vs. CA, 253 SCRA 303 [1996]). State General Rule: The State cannot be sued. (Sec 3, Art XVI, Consti) Exceptions: a. There is express legislative consent b. The State filed the case Instances where the state gives its consent to be sued: a. Art. 2180 (6) is an example of an express legislative consent. Here, the State assumes a limited liability for the acts of its special agents. b. Art. 2189 provides for state liability for damages caused by defective condition of public works. c. Local Government Code provides for the liability of local government units for the for the wrongful exercise of its proprietary (as opposed to its governmental) functions. The latter is the same as that of a private corporation or individual. (Mendoza vs. De Leon) Who is a special agent? A special agent is a. A public official required to do a particular task that is foreign to said official’s usual government functions, or B. A PRIVATE INDIVIDUAL WHO IS COMMISSIONED FOR A SPECIAL GOVERNMENT TASK. The agent must be empowered by a definite order or commission to perform some act. This act must be the one that gives rise to the injury claimed. (Merritt vs. Government) If the State’s agent is not a public official and is commissioned to perform non- governmental functions, then the State assumes the role of an ordinary employer and can be held liable for the agent’s tort. Does state immunity mean that injured persons are deprived of remedy? 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 279 of 325 TORTS & DAMAGES CIVIL LAW No. A regular official is liable under Art 2176 for the damage he causes. But as a rule, even if injury is caused in the course of the performance of a governmental duty, no recovery can be had from the government’s officers so long as they performed their duty honestly and in good faith or that they did not act wantonly or maliciously. Teachers and heads of establishments of arts and trades Art. 2180 must be read together with the provisions of the Family Code, thus: Art. 218. The school, its administrators and teachers, or the individual, entity or institution engaged in child care shall have special parental authority and responsibility over the minor child while under their supervision, instruction or custody. Authority and responsibility shall apply to all authorized activities whether inside or outside the premises of the school, entity or institution. Art. 219. Those given the authority and responsibility under the preceding Article shall be principally and solidarily liable for damages caused by the acts or omissions of the unemancipated minor. The parents, judicial guardians or the persons exercising substitute parental authority over said minor shall be subsidiarily liable. The respective liabilities of those referred to in the preceding paragraph shall not apply if it is proved that they exercised the proper diligence required under the particular circumstances. All other cases not covered by this and the preceding articles shall be governed by the provisions of the Civil Code on quasi-delicts. Who are liable? Persons exercising substitute parental authority (SATI) 1) School 2) Administrators 3) Teachers 4) Individual/entity/institution engaged in child care Substitute parental authority is intermittent What are the requisites for liability to attach under the Family Code? REQUISITES: 1) The tortfeasor is a minor (below 18 only) 2) Under their supervision, instruction or custody RA 6809 does not provide that persons exercising subsidiary parental authority are liable for the torts of those who are between 18 and 21, unlike in the case of parents and guardians. Cases which do not fall under the provision on substitute parental authority will be governed by Art 2180 of the Civil Code. What are the requisites for liability to attach under Article 2180? REQUISITES: 1) The defendant must be the teacher or the head of a school of arts and trades; 2) THE DAMAGE TO THE PLAINTIFF MUST BE CAUSED BY THE ACT OR OMISSION OF A STUDENT WHO, AT THE TIME OF ITS COMMISSION, WAS UNDER THE CUSTODY OF THE DEFENDANT; AND 3) Proof of the amount of damage. “Custody” means the protective and supervisory custody the school and its head and teachers exercise over the students for as long as they are at attendance in the school, including break times (lunch or recess). E. Do tortfeasors vicariously liable under Art. 2180 have a defense? Yes. Responsibility ceased when they prove that they observed all the diligence of a good father of a family to prevent damage. (Art. 2180) F. What is the liability of joint tortfeasors? The responsibility of two or more persons who are liable for quasi-delict is SOLIDARY. (Art. 2194) G. May they recover what they paid and from whom? Yes. Whoever pays for the damage caused by his dependents or employees may recover from the latter what he has paid or delivered in satisfaction of the claim. (Art. 2181) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 280 of 325 TORTS & DAMAGES CIVIL LAW III. INTENTIONAL TORTS What are intentional torts? A. Abuse of Rights Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (Art. 19) Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. (Art. 20) Art 19 contains a mere declaration of principles. The declaration is implemented by Art. 20. (Globe Mackay vs. CA) A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 (i.e. to act with justice; to give everyone his due; and to observe honesty and good faith) and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. An action for damages under either Article 20 or Article 21 would be proper. (Cebu Country Club, Inc., et al. vs. Ricardo F. Elizagaque) REQUISITES to find the existence of an abuse of right under Article 19: 1) There is a legal right or duty; 2) Which is exercised in BAD FAITH; 3) FOR THE SOLE INTENT OF PREJUDICING OR INJURING ANOTHER. Good faith is presumed and the burden of proving bad faith is on the party alleging it. B. Acts contra bonus mores Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. (Art. 21) REQUISITES: 1) A person has a legal right 2) Such right is violated by another in a manner contrary to morals, good customs or public policy; 3) Act is done with intent to injure; 4) There is a loss or injury suffered as a result of said violation. (Ruiz vs. Secretary of Defense; Albenson vs. CA) There is an act which is legal but which may be contrary to morals, good custom, public order, or public policy. (Albeson vs. CA) Illustrations: a. Breach of promise to marry, seduction and sexual assault Mere breach of promise to marry is not an actionable wrong. But to formally set a wedding and go through all the above- described preparation and publicity, only to walk out of it when the matrimony is about to be solemnized, is quite different. This is palpably and unjustifiably contrary to good customs for which defendant must be held answerable in damages in accordance with Article 21. (Wassmer vs. Velez) Who are liable For whose Acts Requisite for Liability to Attach Teacher- in- charge (the one designated to exercise supervision over students) pupils and students pupils and students remain in teacher’s custody regardless of the age Head of establishme nt of arts and trades Apprentices custody regardless of the age School (generally not held liable) a. if the tortfeasor is a student of the school (Art 218 FC) b. if the tortfeasor is a teacher/ employee of the school, it is liable as employer under 2180 (5) of CC (St. Francis vs. CA) c. if the tortfeasor is a stranger, it is liable for breach of contract. (PSBA vs. CA) must be below 18 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 281 of 325 TORTS & DAMAGES CIVIL LAW b. Disconnection of Utilities A prior written notice to the customer is required before disconnection of the service. Failure to give such prior notice amounts to a tort. (Meralco vs. CA) c. Malicious Prosecution RULE: One cannot be held liable in damages for maliciously instituting a prosecution where he acted with probable cause. Reason: It would be a very great discouragement to public justice if prosecutors, who had a tolerable ground of suspicion, were liable to be sued at law when their indictments miscarried. (Que vs. IAC) EXCEPTION: An action for damages brought by one against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such prosecution, suit or other proceeding in favor of the defendant herein. The gist of the action is the putting of legal process in force, regularly, for the mere purpose of vexation or injury. Requisites for Malicious Prosecution: (1) Fact of the prosecution (2) Defendant was himself the prosecutor (3) Action was terminated with an acquittal (4) Prosecutor acted without probable cause (5) Prosecutor was impelled by legal malice, that is by improper or sinister motive (Drilon vs. CA) As to the elements of malicious prosecution, the presence of probable cause signifies the absence of malice. (Albenson vs. CA) Note: It seems that the second and third elements are REDUNDANT. d. Public Humiliation Carpio vs. Valmonte Wedding coordinator accused by bride’s aunt for stealing jewelry, in the presence of other people in hotel room. True, petitioner had the right to ascertain the identity of the malefactor, but to malign respondent without an iota of proof is impermissible. e. Unjustified Dismissal Quisaba vs. Sta. Ines If the dismissal was done anti-socially or oppressively, as the complaint alleges, then the respondents violated Art. 1701 of the CC and Art 21 of the CC. Abuse of Rights vs. Acts Contra Bonus Mores Article 19 (as implemented by Art. 20) Article 21 Act is Contrary to law Contrary to morals, good customs, public policy Manner Willfully or negligently Willfully Result Damage Injury or loss Sanction Indemnify Compensate IV. OTHER TORTS (OTHER HUMAN RELATIONS TORTS) A. Unjust Enrichment Art. 22. (CC) Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. Art. 23.(CC) Even when an act or event causing damage to another's property was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited. Art. 2154.(CC) If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. REQUISITES: 1) defendant is enriched 2) plaintiff suffered damage or loss 3) there is no just or legal ground for defendant's enrichment 4) enrichment is at the expense of plaintiff B. Ostentatious Display of Wealth Thoughtless extravagance in expenses for pleasure or display during a period of acute public want or emergency may be stopped by order of the courts at the instance of any government or private charitable institution. (Art. 25) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 282 of 325 TORTS & DAMAGES CIVIL LAW C. Dereliction of Duty Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against he latter, without prejudice to any disciplinary administrative action that may be taken. (Art. 27) REQUISITES (Amaro vs. Samanguit): (1) Defendant is a public officer charged with a performance of a duty in favor of the plaintiff (2) He refused or neglected without just cause to perform the duty (3) Plaintiff sustained material or moral loss as a consequence of such non- performance (4) The amount of such damages, if material Note (Sangco): REFUSAL implies a deliberate act which may be due to erroneous belief in good faith or plain ignorance; while NEGLECT which is the failure to do a thing, may be intentional or unintentional. Furthermore, the duty to act must be MINISTERIAL, and must be owed only to the person who sustains the loss by the failure to fulfill it. For discretionary “duties,” there should be proof of malice or arbitrariness in the action. D. Respect for Dignity, Personality, Privacy and Peace of Mind of Another Art. 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief: (5) Prying into the privacy of another's residence: (2) Meddling with or disturbing the private life or family relations of another; (3) Intriguing to cause another to be alienated from his friends;(4) Vexing or humiliating another on account of his religious beliefs, lowly station in life, place of birth, physical defect, or other personal condition. Acts listed are not exclusive. Illustration of a “similar act”: Wrongful advertisement of house in the Sunday times. The acts and omissions of the firm fall under Article 26. Persons who know the residence of Doctor Aramil, were confused by the distorted, lingering impression that he was renting his residence from Arcadio or that Arcadio had leased it from him. Either way, his private life was mistakenly and unnecessarily exposed. (St. Louis Realty Corporation vs. CA, 1984) E. Unfair Competition Art. 28 (CC). Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. For a defendant to be liable, the plaintiff must show that the former’s conduct was PURELY MALICIOUS and served no legitimate purpose, or that any trade or competitive motive was absent. Unfair competition includes, but is not limited to: 1. PHYSICAL INTERFERENCES, VIOLENCE AND THREATS (BOTH AGAINST COMPETITORS AND THEIR CUSTOMERS); 2. Competition with malice; 3. Passing off; a tortuous interference with another’s patronage that may, but need not involve, trade mark infringement, for example, selling homemade ice cream as Magnolia ice cream. A civil action based on Art. 28 may be pursued entirely independent from a criminal action. V. STRICT LIABILITY TORT What is a STRICT LIABILITY TORT? Tort liability that does not depend on actual negligence or intent to harm but that is based on the breach of an absolute duty to make something safe; most often applies to ultra- hazardous activities and products-liability cases; also known as absolute liability, liability without fault. What are the types of strict liability tort? 1. Damages caused by an animal 2. Motor vehicle mishaps 3. Product Liability 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 283 of 325 TORTS & DAMAGES CIVIL LAW 4. Defective condition of public works 5. Collapse of a building 6. Things thrown or falling from a building A. Damages caused by an animal Who is liable for damages caused by an animal? The POSSESSOR of an animal or WHOEVER MAY MAKE USE of the same is responsible for the damage which it may cause. NOT available as a defense: Although animal may escape or be lost. Available defenses: Damage should come from force majeure or from the fault of the person who has suffered damage. (Art. 2183) What must be determined is possession regardless of the ownership. It holds the possessor liable even if the animal should "escape or be lost" and so be removed from his control. And it does not matter either that the animal was tame as the law does not speak only of vicious animals. (Vestil vs. IAC) B. Motor Vehicle Mishaps Who is liable in motor vehicle mishaps? If owner was in the motor vehicle: DRIVER and OWNER, he is solidarily liable with his driver IF he could have, by the use of the due diligence, prevented the misfortune. If the owner was NOT in the motor vehicle: Article 2180 is applicable. (i.e. person who caused the injury and the employer) (Art. 2184.) The law requires every owner of a motor vehicle to file with the proper government office a bond executed by a government- controlled corporation or office, to answer for damages to third persons. The amount of the bond and other terms shall be fixed by the competent public official. (Art. 2186) BAR QUESTION A van owned by Orlando and driven by Diego, while negotiating a downhill slope of a city road, suddenly gained speed, obviously beyond the authorized limit in the area, and bumped a car in front of it, causing severe damage to the car and serious injuries to its passengers. Orlando was not in the car at the time of the incident. The car owner and the injured passengers sued Orlando and Diego for damages cause by Diego’s negligence. In their defense, Diego claims that the downhill slope caused the van to gain speed and that, as he stepped on the brakes to check the acceleration, the brakes locked, causing the van to go even faster and eventually to hit the car in front of it. Orlando and Diego contend that the sudden malfunction of the van’s brake system is a fortuitous event and that, therefore, they are exempt from any liability. (a) Is this contention tenable? Explain. (b) Explain the concept of vicarious liability in quasi-delicts. (c) Does the presence of the owner inside the vehicle causing damage to a third party affect his liability for his driver’s negligence? Explain. Suggested Answer: (a) No. Mechanical defects of a motor vehicle do not constitute fortuitous event, since the presence of such defects would have been readily detected by diligence maintenance check. The failure to maintain the vehicle in safe running condition constitutes negligence. (b) The doctrine of vicarious liability is that which renders a person liable for the negligence of others for whose acts or omission the law makes him responsible on the theory that they are under his control and supervision. (c) In motor vehicle mishaps, the owner is made solidarily liable with his driver if he (the owner) was in the vehicle and could have, by the use of due diligence, prevented the mishap (Caedo vs. Yu Khe Thai, 26 SCRA 410 [1968]). However, this question has no factual basis in the problem given, in view of the express given fact that “Orlando was not in the car at the time of the incident.” C. Product Liability Who is liable for death or injuries caused by any noxious or harmful substances used? MANUFACTURERS and PROCESSORS of foodstuffs, drinks, toilet articles and similar goods shall be liable ALTHOUGH no contractual relation exists between them and the consumers. (Art. 2187) D. Defective condition of public works Who are liable for damages caused by defective condition of public works? LGUs (provinces, cities and municipalities) shall be liable for damages for the death of, or injuries suffered by, any person by reason of 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 284 of 325 TORTS & DAMAGES CIVIL LAW the defective condition of roads, streets, bridges, public buildings, and other public works UNDER THEIR CONTROL OR SUPERVISION. (Art. 2189) Requisite for liability is supervision NOT ownership. E. Collapse of a building When are proprietors liable for damages? PROPRIETORS shall be responsible for damages caused: a) By the total or partial collapse of a building or structure if it should be due to the lack of necessary repairs. (Art. 2190) b) By the explosion of machinery which has not been taken care of with due diligence, and c) By the inflammation of explosive substances which have not been kept in a safe and adequate place; d) By excessive smoke, which may be harmful to persons or property; e) By the falling of trees situated at or near highways or lanes, if not caused by force majeure; f) By emanations from tubes, canals, sewers or deposits of infectious matter, constructed without precautions suitable to the place. (Art. 2191) F. Things thrown or falling from a building The HEAD OF A FAMILY that lives in a building or a part thereof. (Art 2193) QUICKGLANCE Person Strictly Liable For What Defenses or Exception s Possessor of an animal or whoever makes use of them even if the animal is lost or escaped For the damage it may cause Force majeure Fault of the person who suffered damage Owner of Motor Vehicle Motor vehicle mishaps Solidary liability only if the owner was in the vehicle and if he could have prevented it thru due diligence Person Strictly Liable For What Defenses or Exception s If not in vehicle 2180 Manufacturers and Processors of foodstuffs, drinks, toilet articles and similar goods (FDTAS) death and injuries caused by any noxious or harmful substances used Absence on contractual relation NOT a defense Defendant in possession of dangerous weapons/ substances such as firearms and poison death or injury results from such possession possession or use thereof is indispensab le in his occupation or business Provinces, Cities and Municipalities the death or injuries suffered by any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works Public works must be under their supervision s Proprietor of building/ structure total or partial collapse of building or structure if due to lack of necessary rep airs explosion of machinery which has not been taken cared of with due diligence, and the inflammation of explosive substances which have not been kept in a safe and adequate place by excessive smoke, which may be harmful to persons or property by falling of trees situated at or near Responsibili ty for collapse should be due to the lack of necessary repairs 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 285 of 325 TORTS & DAMAGES CIVIL LAW Person Strictly Liable For What Defenses or Exception s highways or lanes, if not caused by force majeure by emanations from tubes, canals, sewers or deposits of infectious matter, constructed without precautions suitable to the place Engineer, Architect or Contractor if damage of building or structure is caused by defect in construction which happens within 15 years from construction; action must be brought within 10 years from collapse Head of the Family that lives in a building or any part thereof liable for damages caused by things thrown or falling from the same VI. TORTS WITH INDEPENDENT CIVIL ACTION A. Violation of Civil and Political Rights 32 CC. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: 1. Freedom of religion 2. Freedom of speech 3. Freedom to write for the press or to maintain a periodical publication 4. Freedom from arbitrary or illegal detention 5. Freedom of suffrage 6. The right against deprivation of property without due process of law 7. The right to just compensation when property is taken for public use 8. The right to equal protection of the laws 9. The right to be secure in one’s person, house, papers and effects against unreasonable searches and seizures 10. The liberty of abode and of changing the same 11. The right to privacy of communication and correspondence 12. The right to become a member of associations and societies for purposes not contrary to law 13. The right to take part in a peaceable assembly and petition the government for redress of grievances 14. The right to be free from involuntary servitude in any form 15. The right of the accused against excessive bail 16. The right of the accused to be heard by himself and counsel, to be informed of the nature and the cause of the accusation against him, to have a speedy and public trial, to meet the witnesses face to face, to have compulsory process to secure the attendance of witnesses on is behalf; 17. Freedom form being compelled to be witness against one’s self, or from being forced to confess his guilt, or from being induced by a promise of immunity or reward to make such confession, except when the person confessing becomes a State witness. 18. Freedom of access to the courts In any of the cases referred to in this article, whether or not the defendant’s act or omission constitutes a criminal offense, the aggrieved party has a right to commence an entirely separate and distinct civil action for damages, and for other relief. Such civil action shall proceed independently of any criminal prosecution (if the latter be instituted) and may be proved by a preponderance of evidence. The indemnity shall include moral damages. Exemplary damages may also be adjudicated. The responsibility herein set forth is not demandable from a judge unless his act or omission constitutes a violation of the Penal code or any other penal statute. REQUISITE: FACT OF VIOLATION To be liable under Article 32 of the New Civil Code, it is enough that there was a violation of the constitutional rights of the plaintiffs and 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 286 of 325 TORTS & DAMAGES CIVIL LAW it is not requires that defendants should have acted with malice or with bad faith.” Allowing good faith as an excuse would defeat the main purpose of the provision which is the effective protection of individual rights and its objective is to put an end to official abuse by the pleas of good faith. (Lim vs. Ponce De Leon) B. Defamation, Fraud, Physical injuries Art. 33 CC. In cases of DEFAMATION, FRAUD, and PHYSICAL INJURIES, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance of evidence. Article 33 speaks only of defamation, fraud and physical injuries. The case of reckless imprudence resulting in physical injuries and homicide is not one of the three crimes mentioned in article 33 and therefore, no civil action shall proceed independently of the criminal prosecution. The essence of the crime of criminal negligence, is the execution of the imprudent or negligent act that, if intentionally done would be punishable as a felony, and hence the law penalizes the negligent or careless act and no the result thereof. (Marcia, et. al vs. CA) The civil action for damages which it allows to be instituted is ex-delicto. This is manifest in the provision which uses the expressions “criminal action” and “criminal prosecution”. This conclusion is supported by the comment of the Code Commission. (Madeja vs. Hon. Caro) 1. Defamation Defamation, which includes libel and slander, means the offense of injuring a person’s character, fame or reputation through false and malicious statements. It is that which tends to injure reputation or to diminish the esteem, respect, good will or confidence in the plaintiff or to excite derogatory feelings or opinions about the plaintiff. Words which are merely insulting or offensive are not actionable. There must be a presence of allegations as to special damages suffered by the plaintiff. (MVRS Publications vs. Islamis Da’wah Council of the Philippines, Inc., et al.) REQUISITES for recovery; Prove that the defendant (1) Published a statement that was, (2) defamatory, (3)concerning the plaintiff. 2. Fraud Under article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal action may be brought by the injured party in cases of defamation, fraud and physical injuries, Estafa falls under fraud.” (Prudential Bank vs. IAC) 3. Physical Injuries The term “physical injuries” is used in a generic sense. It is not the crime of physical injuries defined in the RPC. It includes not only physical injuries, but consummated, frustrated and attempted homicide. The ruling in Corpus vs. Paje, which states that reckless imprudence or criminal negligence is not included in Art. 33 is not authoritative. (Madeja vs. Hon. Caro) C. Neglect of Duty 34 CC. When a member of the city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages and the city or municipality shall be subsidiarily responsible therefore. The civil action herein recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such action. D. Action for damages where no independent civil action is provided 35 CC. When a person claiming to be injured by a criminal offense, charges another with the same, for which no independent civil action is granted in this code or any special law, but the justice of the peace finds no reasonable ground to believe that a crime has been committed, or the prosecuting attorney refuses or fails to institute criminal proceedings, the complainant may bring a civil action for damages against the alleged offender. Such civil action may be supported by a preponderance of evidence. Upon the defendant’s motion, the court may require the plaintiff to file a bond to indemnify the defendant in case the complaint should be found to be malicious. If during the pendency of the civil action, a information should be presented by the prosecuting attorney, the civil action shall be suspended until the termination of the criminal proceedings. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 287 of 325 TORTS & DAMAGES CIVIL LAW Notes: Because of the last sentence, the civil action provided under this article cannot strictly be considered as an independent civil action. It should be emphasized that the same negligent act causing damages may produce a civil liability arising from a crime under Art. 100 of the Revised Penal Code or create an action for quasi-delict or culpa extra- contractual under Arts. 2176-2194 of the New Civil Code. (Garcia vs. Florido) If Liability being predicated on quasi-delict the civil case may proceed as a separate and independent civil action, as specifically provided for in Article 2177 of the Civil Code. (Cinco vs. Canonoy) VII. CIVIL LIABILITY ARISING FROM CRIME Responsibility for fault or negligence is entirely separate and distinct from the civil liability arising from negligence under the RPC. But double recovery is not allowed. (Art. 2177) RPC Art. 100 provides that every person who is criminally liable for a felony is also civilly liable. This general rule however presupposes that the felony had resulted in damage or injury to another’s person or property. To create an obligation or give rise to civil liability, an act or omission, whether intentional or negligent, must have caused damage or injury to another, otherwise only criminal liability will attach. Though the general rule provides that one who is not criminally liable cannot be civilly liable, RPC Arts. 101-103 provide exceptions as they provide for vicarious liability for certain types of offenders and subsidiary liability in case of default of the offender. The civil liability established by RPC Arts. 100-103 include: a. Restitution; b. Reparation of the damage caused; and c. Indemnification for consequential damages. Deemed instituted in every criminal prosecution is the civil liability arising from the crime or delict per se (civil liability ex delicto), but not those liabilities from quasi-delicts, contracts or quasi-contracts. (Neplum vs. Orbeso) An accused in a pending criminal case can validly file, simultaneously and independently, a separate civil action for quasi-delict against the private complainant in the criminal case. (Casupanan vs. Laroya) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include the corresponding civil action and that no reservation to file such civil action separately shall be allowed. But a separate proceeding for the recovery of civil liability in cases of violations of B.P. No. 22 is allowed when the civil case is filed ahead of the criminal case. (Sps. Benito Lo Bun Tiong etc. vs. Vicente Balboa) BAR QUESTION As a result of a collision between a taxicab owned by A and another taxicab owned by B, X, a passenger of the first taxicab, was seriously injured. X later filed a criminal action against both drivers. (a) (a) Is it necessary for X to reserve his right to institute a civil action for damages against both taxicab owners before he can file a civil action for damages against them? Why? (b) May both taxicab owners raise the defense of due diligence in the selection and supervision of their drivers to be absolved from liability for damages to X? Reason. Suggested Answer: (a) It depends. If the separate civil action is to recover damages arising from the criminal act, reservation is necessary. If the civil action against the taxicab owners is based on culpa contractual or on quasi- delict, there is no need for reservation. (b) It depends. If the civil action is based on quasi-delict, the taxicab owners may raise the defense of diligence of a good father of a family in the selection and supervision of the driver; if the action against them is based on culpa contractual or civil liability arising from a crime, they cannot raise the defense. Alternative Answer: No such reservation is necessary. Under Section 1 Rule 111 of the 2000 Rules on Criminal Procedure, what is “deemed instituted” with the criminal action is only the action to recover civil liability arising from the crime or ex delicto. All the other civil actions under Articles 32, 33, 34, 2176 of the New Civil Code are no longer “deemed instituted,” and may be filed separately and prosecuted independently even without any reservation in the criminal action (Section 3, Rule 111, 2000 Rules on Criminal Procedure). The failure to make a reservation the criminal action is not a waiver of the right to file a separate and independent civil action based on these articles of the New Civil Code (Casupanan vs. Laroya, G.R. No. 145391, August 26, 2002) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 288 of 325 TORTS & DAMAGES CIVIL LAW DAMAGES I. DEFINITION AND CONCEPT Art. 2195. The provisions of this Title shall be respectively applicable to all obligations mentioned in Article 1157. What are damages? Damages may be defined as the pecuniary compensation, recompense, or satisfaction for an injury sustained, or as otherwise expressed, the pecuniary consequences which the law imposes for the breach of some duty or the violation of some right (People vs. Ballesteros). The obligation to repair the damages exists whether done intentionally or negligently and whether or not punishable by law (Ocena vs. Icamina). Elements for recovery of damages: 1. Right of action 2. For a wrong inflicted by the defendant 3. Damage resulting to the plaintiff II. KINDS OF DAMAGES Kinds of Damages (MENTAL) (1) ACTUAL/COMPENSATORY- for loss actually suffered (2) MORAL- mental anguish, etc. (3) NOMINAL- for rights recognized and violated (4) TEMPERATE/MODERATE- for damages proved but the amount was not proven (5) LIQUIDATED- stipulated damages in the contract (6) EXEMPLARY/CORRECTIVE- to serve as an example for the common good (Art. 2197) A. Actual or Compensatory When is a person entitled to actual or compensatory damages?(Art. 2199) A) When there is a pecuniary loss suffered by him When he has alleged and prayed for such relief (Manchester Dev’t Corp vs. CA) When he has duly proved it B) When provided by law Or by stipulation No proof of pecuniary loss is necessary for: moral, nominal, temperate, liquidated or exemplary damages. The assessment of such damages is discretionary upon the court, except liquidated ones. (Art. 2216) Kinds of Actual Damages CC Art. 2200 A. Damnum emergente- value of the loss suffered B. Lucro cessante- profits which the obligee failed to obtain 2205 A. Loss of earning capacity due to injury (temporary or permanent) B. Damage to Business Standing or Commercial Credit 2206 A. Fixed indemnity for death = Php 50,000 (as of 2005) B. Loss of Earning Capacity of the Deceased 2209 Interest 2208 Attorney’s Fees & Expenses of Litigation General Principles for Recovery (1) The amount of damages must be fair and just and commensurate to the loss. - In case of contracts, only those injuries which could have been reasonably foreseen by the parties by the parties at the time the contract was entered into are recoverable. (2) The damages must be proximate damages and not remote or speculative. (3) The damages must be proven by competent evidence (admissible or probative) - It is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence obtainable by the injured party, the actual amount of loss. (Integrated Packaging Corp. vs. CA; Fuentes vs. CA) (4) Complaint and prayer must specify amount of damages and pay filing fees before it may be accepted and admitted for filing. (Circ. No. 7, Mar. 24, 1988; Manchester Dev’t. Corp. vs. CA, 1987). (5) The requirement of certainty does not prevent the drawing of reasonable inferences from the fact and circumstance in evidence. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 289 of 325 TORTS & DAMAGES CIVIL LAW (6) Events which occur after the wrong complained of may serve to render the damage sufficiently certain. (7) The damages must be susceptible of ascertainment in some manner other than by mere speculation, conjecture or surmise and by reference to some fairly definite standard, such as market value, established experience or direct inference from known circumstances. Where, however, it is reasonably certain that injury consisting of failure to realize otherwise reasonably expected profits had been incurred, uncertainty as to the precise amount of such unrealized profits will not prevent recovery or the award of damages. (Talisay- Silay vs. Associacion) What is the extent of recovery? Recovery of all proximately traceable to the primary negligence, including subsequent aggravations, the probability of which the law regards as a consequence and natural result likely to flow form the original injury. However, note that if the subsequent aggravations are due to his own negligence then the tortfeasor shall not be liable for such since Art. 2203 imposes a duty on the injured party to avoid loss or minimize resulting damages. Art. 220 1 Contra cts and quasi contrac ts Liability extends to those: 1. natural and probable consequences of the breach 2. those that have been foreseen 3. those that could have been reasonably foreseen Provided: obligor in good faith Note: Liability extends to all damages which may be reasonably attributed to the non- performance of the obligation in case of fraud, bad faith, malice or wanton attitude (FBM-WA). Art. 220 2 Crimes and quasi- delicts Liability extends to all damages which are the natural and probable consequence Note: WON damage is foreseen is irrelevant Actual damages for a negligent act or omission are confined to those which "were foreseen or might have been foreseen," or those which were "the natural and probable consequences" or "the direct and immediate consequences" of the act or omission (Algarra vs. Sandejas). Extent of recovery in breach of contract: The damages recoverable upon breach of contract are, primarily, the ordinary, natural and in a sense the necessary damage resulting from the breach. Other damages, known as special damages, are recoverable where it appears that the particular conditions which made such damages a probable consequence of the breach were known to the delinquent party at the time the contract was made. This proposition must be understood with the qualification that, if the damages are in the legal sense remote or speculative, knowledge of the special conditions which render such damages possible will not make them recoverable. Special damages of this character cannot be recovered unless made the subject of special stipulation. The damages ordinarily recoverable against a vendor for failure to deliver land which he has contracted to deliver is the value of the use and occupation of the land for the tune during which it is wrongfully withheld (Daywalt vs. Recoletos et al.). What must be proved to allow recovery? Proof Fact of Injury Reasonable certainty – only that the fact and cause of injury must be taken out of the area of speculation. Usual burden of proof required in a negligence case, prove the substantive right, its breach and the amount of damages flowing from the breach. Cause Proximate cause – the cause, which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the injury would not have occurred. (“without which test of cause in fact”) Amount Need not be proved with the same degree of certainty. Fair and reasonable estimate of the amount of damage. When pecuniary loss need not be proved 1) Liquidated damages previously agreed upon 2) If damages other than actual are sought (Art. 2216) 3) Loss is presumed (ex: loss of a child or spouse) 4) Forfeiture of bonds in favor of the government for the purpose of promoting public interest or policy (ex: bond for temporary stay of alien) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 290 of 325 TORTS & DAMAGES CIVIL LAW Damages for Personal Injury & Death (Art. 2206) Recoverable damages for death caused by a crime or quasi-delict: (a) At least three thousand pesos, even though there may have been mitigating circumstances. - As of 2008, it is P75,000 (People vs. Robert Brodett y Pajaro, Jan. 18, 2008) (b) Loss of the earning capacity of the deceased, - paid to his heirs - unless the deceased on account of permanent physical disability not caused by the defendant, had no earning capacity at the time of death; (c) Support according to the provisions of Article 291 - the recipient who is not a testate or intestate heir may demand support from the person causing the death, for a period not exceeding five years (d) Moral damages - demanded by the spouse, legitimate and illegitimate descendants and ascendants of the deceased Factors: 1. Earning Capacity 2. Obligation to Support 3. Moral Damages to heirs Compensation should be allowed for loss of earning capacity resulting from the death of a minor who has not yet commenced employment or training for a specific profession if sufficient evidence is presented to establish the amount thereof. The argument for allowing compensation for loss of earning capacity of a minor is even stronger if he or she was a student, whether already training for a specific profession or still engaged in general studies. Formula established in decided cases for computing net earning capacity: Net earning capacity (X) = life expectancy * [gross annual income – reasonable, necessary living expenses] Life expectancy= 2/3 (80- age of deceased) (MMTC v. CA) ATTORNEY’S FEES Attorney’s Fees is the exception NOT the general rule. When can attorney’s fees, other than judicial costs, be recovered? (SELMUBS- CREWD) (Art. 2208). (1) If there is a stipulation to that effect (2) When exemplary damages are awarded; (3) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (4) In criminal cases of malicious prosecution against the plaintiff; (5) In case of a clearly unfounded civil action or proceeding against the plaintiff; (6) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (7) In actions for legal support; (8) In actions for the recovery of wages of household helpers, laborers and skilled workers; (9) In actions for indemnity under workmen's compensation and employer's liability laws; (10) In a separate civil action to recover civil liability arising from a crime; (11) When at least double judicial costs are awarded; (12) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases, the attorney's fees and expenses of litigation must be reasonable. 2 Concepts of Attorney’s Fees (1) Retainer’s agreement between the lawyer and the client (in writing). (2) Award as an indemnity to the client. (BELONGS to the client hence the litigant is the judgment creditor who may enforce the judgment by execution) (Quirante vs. IAC) INTEREST When shall interest accrue as indemnity for damages? - the obligation consists in the payment of a sum of money - debtor incurs in delay - there being no stipulation to the contrary If there is no stipulated interest the legal interest of 6%. (Art. 2209) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 291 of 325 TORTS & DAMAGES CIVIL LAW Interest due From Art. 2210 Breach of contract Discretion of the court Interest imposed on damages awarded Art. 2211 Crimes and quasi- delicts Discretion of the court Interest is awarded as part of damages When shall interest earn legal interest? - from judicial demand - even if the obligation is silent upon this point. (Art. 2212) When is interest not recovered? - When claims/ damages are unliquidated - EXCEPT when the demand can be established with reasonably certainty. (Art. 2213) Legal Interests The rules of thumb in the determination of legal interests are as follows: 1. When an obligation, regardless of its source (i.e., law, contracts, quasi- contracts, delicts or quasi-delicts) is breached, the contravenor can be held liable for damages. 2. With regard particularly to an AWARD OF INTEREST in the concept of actual and compensatory damages, the RATE of interest, as well as the ACCRUAL thereof, is imposed, as follows: BASE RATE ACCRUAL a. When the obligation is breached, and it consists in the PAYMENT OF A SUM OF MONEY, i.e., a loan or forbearance of money, the interest due should be a) That which may have been stipulated in writing. b) In the absence of stipulation, the rate of interest shall be 12% per annum (legal interest) to be computed from default, i.e., from JUDICIAL or EXTRAJUDICIAL demand under and subject to the provisions of Article 1169 of the Civil Code. b. Furthermore, the INTEREST DUE shall itself earn legal interest from the time it is JUDICIALLY demanded. BASE RATE ACCRUAL c. When an obligation, NOT constituting a loan or forbearance of money, is breached, an interest on the AMOUNT OF DAMAGES awarded may be imposed at the discretion of the court. The actual base for the computation of legal interest shall be on the amount finally adjudged. at the rate of 6% per annum. If claim or damages are LIQUIDATED, from default, i.e., from judicial or extrajudicial demand. (Art. 1169, Civil Code) If UNLIQUIDATED, from the time the demand can be established with reasonable certainty. Hence, the interest shall begin to run only FROM THE DATE THE JUDGMENT OF THE COURT IS MADE (at which time the quantification of damages may be deemed to have been reasonably ascertained). c. When the JUDGMENT of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under a,b, or c, above, shall be 12% per annum from such FINALITY UNTIL ITS SATISFACTION, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Eastern Shipping Lines vs. CA, 1994) Start of Delay (1) Extrajudicial: demand letter (2) Judicial: Filing of complaint (3) Award Crismina Garments vs. CA “Forbearance” in the context of the usury law is a contractual obligation of lender or creditor to refrain during a given time period from requiring payment of a loan then due and payable. Here, the contract is for a “piece of work,” hence not a forbearance. When are damages mitigated? 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 292 of 325 TORTS & DAMAGES CIVIL LAW 1. In quasi-delicts contributory negligence (Art. 2214) 2. Doctrine of avoidable consequences a) This refers to the duty to minimize damages once a cause of action has accrued. Standard: good father of a family (Art. 2203) 3. In contracts, quasi-contracts and quasi-delict (C-BELL): a) plaintiff has contravened the terms of contract b) plaintiff derived some benefit as result of contract c) in case where exemplary damages are to be awarded, that the defendant acted upon the advise of counsel d) that the loss would have resulted in any event e) that since the filing of the action, the defendant has done his best to lessen the plaintiff's loss or injury (Art. 2215) 4. In crimes→ mitigating circumstances (Art. 2204) Note: aggravating circumstances in case of crimes can increase the damages adjudicated (Art. 2204) The inordinate amount of damages calls for the moderating hand of the court, that justice may be tempered with reason instead of being tainted when it appears to be a result of ruthless vindictiveness. B. Moral What is the nature of moral damages? Moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. (Visayan Sawmill vs. CA) When are moral damages awarded? - If injury consists of any of the ff: (PBMF-MWSSS) a. Physical suffering b. Besmirched reputation c. Mental anguish d. Fright e. Moral shock f. Wounded feelings g. Social humiliation h. Serious anxiety i. Similar injury - Though incapable of pecuniary computation - If such is the proximate result of defendant’s act or omission. (Art. 2217) What are the requisites for awarding moral damages? (1) there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the defendant must be the proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on any of the cases stated in ART. 2219 NCC. (Villanueva vs. Salvador) General Principles of Recovery (as outlined in Expertravel & Tours vs. CA #1 to 7) 1. Moral damages must somehow be proportional to the suffering inflicted. 2. In culpa contractual or breach of contract, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of his contractual obligation and, exceptionally, when the act of breach of contract itself is constitutive of tort resulting in physical injuries. 3. By special rule in Article 1764, in relation to Article 2206, moral damages may also be awarded in case the death of a passenger results from a breach of carriage. 4. In culpa aquiliana, or quasi-delict, (a) when an act or omission causes physical injuries, or (b) where the defendant is guilty of intentional tort, moral damages may aptly be recovered. This rule also applies to contracts when breached by tort. 5. In culpa criminal, moral damages could be lawfully due when the accused is found guilty of physical injuries, lascivious acts, adultery or concubinage, illegal or arbitrary detention, illegal arrest, illegal search, or defamation. 6. Malicious prosecution can also give rise to a claim for moral damages. The term "analogous cases," referred to in Article 2219, following the ejusdem generis rule, must be held similar to those expressly enumerated by the law. 7. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 293 of 325 TORTS & DAMAGES CIVIL LAW fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages. 8. The burden rests on the person claiming moral damages to show convincing evidence for good faith is presumed. In a case involving simple negligence, moral damages cannot be recovered. (Villanueva vs. Salvador) 9. Failure to use the precise legal terms or "sacramental phrases" of "mental anguish, fright, serious anxiety, wounded feelings or moral shock" does not justify the denial of the claim for damages. It is sufficient that these exact terms have been pleaded in the complaint and evidence has been adduced (Miranda-Ribaya vs. Bautista) 10. Even if the allegations regarding the amount of damages in the complaint are not specifically denied in the answer, such damages are not deemed admitted. (Raagas, et al. vs. Traya et al.) 11. An appeal in a criminal case opens the whole case for review and this 'includes the review of the penalty, indemnity and damages. Even if the offended party had not appealed from said award, and the only party who sought a review of the decision of said court was the accused, the court can increase damages awarded (Sumalpong vs. CA) Cases where recovery of moral damages are allowed (1) A criminal offense of physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander, defamation; (8) Malicious prosecution; (9) Article 309; (10) Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Art. 2219) (11) wilful injury to property (Art. 2220) (12) breach of contract (Art. 2220) (13) death of passenger from breach a breach of carriage (Art. 1764 in relation to Art. 2206 and (Expertravel & Tours vs. CA) Art. 2219. Moral damages may be recovered in the following and analogous cases: (not an exclusive list; 2PI-SALAMI- 309-Others) (1) A criminal offense resulting in physical injuries; (2) Quasi-delicts causing physical injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4) Adultery or concubinage; (5) Illegal or arbitrary detention or arrest; (6) Illegal search; (7) Libel, slander or any other form of defamation; (8) Malicious prosecution; (9) Acts mentioned in Article 309; (disrespect for the dead) (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. Who else can recover moral damages? - Parents of the female seduced, abducted, raped, or abused, referred to in No. 3 - The spouse, descendants, ascendants, and brothers and sisters (SDABS) may bring the action mentioned in No. 9 in the order named. What are the other legal grounds for awarding moral damages? - Willful injury to property if such damages are justly due. - Breaches of contract where the defendant acted fraudulently or in bad faith. (Art. 2220) Labor Cases Moral damages are recoverable only where the dismissal of the employee: (1) Was attended by bad faith or fraud (2) Constituted an act oppressive to labor (3) Was done in a manner contrary to morals, good customs, or public policy. BAR QUESTION Ortillo contracts Fabricato, Inc. to supply and install tile materials in a building he is donating to his province. Ortillo pays 50% of the contract price as per agreement. It is also agreed that the balance would be payable periodically after every 10% performance until completed. After performing about 93% of the contract, for which it has been paid an additional 40% as per agreement, Fabricato, Inc. did not complete the project due to its sudden cessation of operations. Instead, Fabricato, Inc. demands payment of the last 10% of the contract despite its non-completion of the project. Ortillo refuses to pay, invoking the stipulation that payment of the last amount of 10% shall be upon completion. Fabricato, Inc. brings suit for the entire 10% plus damages. Ortillo counters with claims for (a) moral damages for Fabricato, Inc.’s unfounded suit which has damaged his reputation as a philanthropist and respected businessman in his community, and (b) attorney’s fees. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 294 of 325 TORTS & DAMAGES CIVIL LAW (a) Does Ortillo have a legal basis for his claim for moral damages? (b) How about his claim for attorney’s fees, having hired a lawyer to defend him? Suggested Answer: (a) There is no legal basis to Ortillo’s claim for moral damages. It does not fall under the coverage of Article 2219 of the New Civil Code. Ortillo is entitled to attorney’s fees because Fabricato’s complaint is a case of malicious prosecution or a clearly unfounded civil action (Art. 2208 [4] and [11], NCC). Illustrations: Moral damages in malicious prosecution Mijares vs. CA Moral damages cannot be recovered from a person who has filed a complaint against another in good faith, or without malice or bad faith. If damage results from the filing of the complaint, it is damnum absque injuria. Castillo vs. Castillo While it must be admitted that this case is peculiar in that it is one filed by a daughter against her own mother, that alone does not justify any counterclaim, specifically for the exemplary damages and moral damages sought to be collected since the complaint as has been said has been found to have some merit. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously." Moral damages in rape People vs. Calongui Anent the award of damages, civil indemnity ex delicto is mandatory upon finding of the fact of rape while moral damages is awarded upon such finding without need of further proof because it is assumed that a rape victim has actually suffered moral injuries entitling the victim to such award. No factual and legal bases, no award of exemplary damages should be allowed. Moral damages in murder People vs. Barcena TC correctly awarded P75K as civil indemnity which is awarded if the crime is qualified by circumstances which warrant the imposition of the death penalty. However, the award of P50K as moral damages must be increased to P75K in line with prevailing jurisprudence. In addition, the presence of the qualifying circumstances of minority and relationship entitles the offended party to exemplary damages in the amount of P25K. People vs. Teodorico Cleopas and Pirame (2000) The award of P50,000 from each accused as moral and exemplary damages, however, is unsupported. The widow of the victim did not testify on any mental anguish or emotional distress, which she suffered as a result of her husband's death. Arcona vs. CA As borne out by human nature and experience, a violent death invariably and necessarily brings about emotional pain and anguish on the part of the victim’s family. Such violent death or brutal killing not only steals from the family of the deceased his precious life, deprives them forever of his love, affection and support, but often leaves them with the gnawing feeling that an injustice has been done to them. For this reason, moral damages must be awarded even in the absence of any allegation and proof of the heirs’ emotional suffering. Labor Cases Triple Eight Integrated Services, Inc. vs. NLRC Moral damages are recoverable where the dismissal of the employee was attended by bad faith or fraud or constituted an act oppressive to labor, or was done in a manner contrary to morals, good customs, or public policy. Likewise, exemplary damages may be awarded if the dismissal was effected in a wanton, oppressive or malevolent manner. Factors for the Amount of Moral Damages (1) Political, social, financial status, of the person offended as well as the business and financial standing of the offender. (2) Degree of anguish (3) Sentimental value where applicable Illustrations: Kierulf et al. vs. CA The social and financial standing of a claimant of moral damages may be considered in awarding moral damages only if he or she was subjected to contemptuous conduct despite the offender's knowledge of his or her social and financial standing. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 295 of 325 TORTS & DAMAGES CIVIL LAW Factors in Determining Amount PNB vs. CA Petitioner has not presented adequate evidence to show that private respondent is indeed a big time gambler. Petitioner has besmirched private respondent's reputation and has considerably caused him undue humiliation. The records further show that plaintiff is a prominent businessman, licensed and engaged in the real estate business. He is at the same time a consultant of Dizon- Esguerra Real Estate Company. Defendant treated him as a valued and VIP client. Because of the bank's refusal to encash the entire one million face amount of his manager's checks, he was so embarrassed for he was not able to purchase a house and lot in Baguio City. Lopez, et al. vs. Pan American World Airways International carriers like defendant know the prestige of such an office. For the Senate is not only the Upper Chamber of the Philippine Congress, but the nation's treaty-ratifying body. And he was former Vice-President of the Philippines. An award of P100,000,000 is appropriate. Mrs. Maria J. Lopez, as wife of Senator Lopez, shared his prestige and therefore his humiliation. Mr. and Mrs. Alfredo Montelibano, Jr. were traveling as immediate members of the family of Senator Lopez. As such they likewise shared his prestige and humiliation. Producers Bank vs. CA In the case of Leopoldo Araneta v. Bank of America, we held that: "The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some financial loss to him.” The damage to private respondents' reputation and social standing entitles them to moral damages. Who may recover moral damages? Strebel vs. Figueras, et al. As a general rule, the right of recovery for mental suffering resulting from bodily injuries is restricted to the person who has suffered the bodily hurt, and there can be no recovery for distress caused by sympathy for another's suffering, or for fright due to a wrong against a third person. A husband or wife cannot recover for mental suffering caused by his sympathy for the other's suffering. Exception: Art. 2219 ABS-CBN vs. CA The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental anguish, which call be experienced only by one having a nervous system. The statement in People vs. Manero and Mambulao Lumber Co. vs. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. NAPOCOR vs. Philipp Brothers While it is true that besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish. BAR QUESTION Rosa was leasing an apartment in the city. Because of the Rent Control Law, her landlord could not increase the rental as much as he wanted to, nor terminate her lease as long as she was paying her rent. In order to force her to leave the premises, the landlord stopped making repairs on the apartment, and cause the water and electricity services to be disconnected. The difficulty of living without electricity and running water resulted in Rosa’s suffering a nervous breakdown. She sued the landlord for actual and moral damages. Will the action prosper? Explain. Answer: Yes, based on quasi-delict under the human relations provisions of the New Civil Code (Articles 19, 20 and 21) because the act committed by the lessor is contrary to morals. Moral damages are recoverable under Article 2219 (10) in relation to Article 21. Although the action is based on quasi-delict and not on contract, actual damages may be recovered if the lessee is able to prove the losses and expenses she suffered. Alternative Answers: (a) Yes, based on breach of contract. The lessor has the obligation to undertake repairs to make the apartment habitable and to maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract (Article 1654, NCC). Since there was willful breach of contract by the lessor, the lessee is entitled to moral damages under Article 2220, NCC. She is also entitled to actual damages, e.g. loss of income, medical expenses, etc., which she can prove at trial. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 296 of 325 TORTS & DAMAGES CIVIL LAW (b) Yes, based on contract and/or on tort. The lessor willfully breached his obligations under Article 1654, NCC, hence, he is liable for breach of contract. For such breach, the lessee may recover moral damages under Art. 2220 of the NCC, and actual damages that she may have suffered on account thereof. And since the conduct of the lessor was contrary to morals, he may also be held liable for quasi-delict. The lessee may recover moral damages under Article 2219 (10) in relation to Article 21, and all actual damages which she may have suffered by reason of such conduct under Articles 9, 20 and 21. Yes, the action should prosper for both actual and moral damages. In fact, even exemplary damages and attorney’s fees can be claimed by Rosa, on the authority of Magbanua vs. IAC (137 SCRA 328), considering that, as given, the lessor’s willful and illegal act of disconnecting the water and electric services resulted in Rosa’s suffering a nervous breakdown. Art. 20 NCC and Art. 21 NCC authorize the award of damages for such willful and illegal conduct. C. Nominal Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Art. 2222. The court may award nominal damages: - in every obligation in Article 1157, or - where any property right has been invaded. Art. 2223. What is precluded by the adjudication of nominal damages? - further contest upon the right involved - all accessory questions - between the parties or their respective heirs and assigns. Requisites: (1) A legal right has been violated. (2) There is no loss or damage suffered or such cannot be proven or was not proved. (3) The award is to vindicate the right violated. General Rule: One does not ask for nominal damages and it is in lieu of the actual, moral, temperate, or liquidated damages. Nominal damages are incompatible with: actual, temperate and exemplary damages. Armovit vs. CA Nominal damages cannot co-exist with actual or compensatory damages. Francisco v. Ferrer No moral or exemplary damages was awarded. Nevertheless, when confronted with their failure to deliver on the wedding day the wedding cake ordered and paid for, petitioners gave the lame excuse that delivery was probably delayed because of the traffic, when in truth, no cake could be delivered because the order slip got lost. For such prevarication, petitioners must be held liable for nominal damages for insensitivity, inadvertence or inattention to their customer's anxiety and need of the hour. D. Temperate What is the nature of temperate or moderate damages? Temperate or moderate damages, which are more than nominal but less than compensatory damages. It may be recovered when some pecuniary loss has been suffered but its amount can not be provided with certainty. (Art. 2224) Temperate damages must be reasonable under the circumstances. (Art. 2225) Requisites: (1) There is actual damage. (2) The pecuniary amount of the damage cannot be proved. (3) Amount must be reasonable. In cases where the resulting injury might be continuing and possible future complications directly arising from the injury, while certain to occur are difficult to predict, temperate damages can and should be awarded on top of actual or compensatory damages; in such cases there is no incompatibility between actual and temperate damages. Temperate damages are incompatible with nominal damages hence, cannot be granted concurrently (Citytrust Bank vs. IAC) Pleno vs. CA Temperate damages are included within the context of compensatory damages (RCPI vs. CA). ". . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 297 of 325 TORTS & DAMAGES CIVIL LAW instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms of money. NOTE: In this case actual and temperate damages were awarded. It is postulated that the actual damages is for the car while the temperate damages is for the lost actual income not sufficiently proved. E. Liquidated What are liquidated damages? Those agreed upon by the parties to a contract, to be paid in case of breach thereof. (Art. 2226) What are the grounds for equitable reduction of liquidated damages? - iniquitous or - unconscionable. (Art. 2227) In what instance is the stipulation not controlling? When the breach of the contract is not the one contemplated by the parties in agreeing upon the liquidated damages. In this case, the law shall determine the measure of damages. (Art. 2228) Notes (1) These damages are agreed upon in a contract in case of breach thereof. (2) There is no need to prove the amount, only the fact of the breach. (3) The amount can be reduced if: a. unconscionable as determined by the court (Art. 2227) b. partial or irregular performance General Rule: The penalty shall substitute the indemnity for damages and the payment of the interests in case or breach. Exceptions (1) When there is stipulation to the contrary. (2) When the obligor is sued for refusal to pay the agreed penalty. (3) When the obligor is guilty of fraud. F. Exemplary or Corrective Art. 2229. Nature of exemplary or corrective damages - Imposed by way of example - or correction for the public good - in addition to the moral, temperate, liquidated or compensatory damages. Exemplary damages cannot be recovered as a matter of right; discretion of the court. (Art. 2233) Requisites to recover exemplary damages and liquidated damages agreed upon in addition to exemplary (Art.2234): The plaintiff must show that he is entitled to moral, temperate or compensatory damages If arising from When exemplary damages are granted Art. 2230 Crimes the crime was committed with an aggravating circumstance/s Art. 2231 Quasi-delicts defendant acted with gross negligence Art. 2232 Contracts and Quasi- contracts defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner (WFROMM) A stipulation whereby exemplary damages are renounced in advance shall be null and void. (Art. 2235) Notes (1) Amount need not be proven. (2) Cannot be recovered as a matter or right; may be waived. An employer may be subsidiarily liable to pay moral, actual, temperate or liquidated damages arising from an employee’s criminal offense, but NOT as to exemplary damages because aggravating circumstances are personal to the accused. PNB vs. CA However, the award of P1,000,000 exemplary damages is also far too excessive and should likewise be reduced to an equitable level. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. EXEMPLARY OR CORRECTIVE DAMAGES 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 298 of 325 LAND TITLES AND DEEDS CIVIL LAW Land Titles and Deeds TABLE OF CONTENTS I. Introduction 299 II. Torrens Certificate of Title 299 III. Original Registration 300 IV. Cadastral Registration Proceedings 305 V. Subsequent Registration 305 VI. Dealings with Unregistered Lands 309 VII. Patents 309 VIII. Remedies of Aggrieved Party 311 IX. Replacement and Reconstitution 312 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 299 of 325 LAND TITLES AND DEEDS CIVIL LAW I. INTRODUCTION A. CONCEPTS AND DEFINITIONS 1. THE TORRENS SYSTEM A system for registration of land under which, upon landowner’s application, the court may, after appropriate proceedings, direct the issuance of a certificate of title. (Black’s Law Dictionary) 2. LAND TITLE Evidence of the right of the owner or the extent of his interest, and by which means he can maintain control, and as a rule assert right to exclusive possession and enjoyment of property. 3. DEED A written instrument executed in accordance with law, wherein a person grants or conveys to another certain land, tenements, or hereditaments. 4. FEE SIMPLE Absolute title; absolute estate in perpetuity. Land is conferred upon a man and his heirs absolutely and without any limitation imposed upon the state. 5. REGISTRATION The State provides a public record of the title itself upon which a prospective purchaser or someone else interested may rely. 6. RECORDING Provides for the recording of conveyance and other instrument without guaranteeing the title, leaving to the prospective purchasers or other persons interested to examine the instruments in the records and formulate their own conclusions as to their effect on the title. B. NATURE Land registration is a proceeding in rem (Sec. 2, PD 1529). A proceeding in rem, dealing with a tangible res, may be instituted and carried to judgment, without personal service Roxas vs. Enriquez. C. PURPOSE OF REGISTRATION The real purpose of that system is to quiet title to land; to put a stop forever to any questions of the legality of the title, except claims which were noted at the time of the registration, in the certificate, or which may arise subsequent thereto Legarda vs. Saleeby. To establish and certify to the ownership of an absolute and indefeasible title to realty, and to simplify its transfer Grey Alba vs. CA. D. JURISDICTION RTCs of province or city where the land or a portion or it lies- land registration proceedings and over all petitions filed after original registration of titles (Sec. 2, PD 1529) MTCs- cadastral and land registration cases covering: o lots without controversy or opposition o contested lots where the value does not exceed P100,000.00 (sec. 34, BP 129) II. TORRENS CERTIFICATE OF TITLE A. KINDS 1. OCT The first title issued in the name of a registered owner by the Register of Deeds covering a parcel of land which had been registered under the Torrens System, by virtue of judicial or administrative proceedings. 2. TCT The certificate shall show the number of the next previous certificate covering the same land and also the fact that it was originally registered, giving the record number, the number of the original certificate of title, and the volume and page of the registration book in which the latter is found. (Sec. 43, PD 1529) 3. PATENTS Whenever public land is by the Government alienated, granted or conveyed to any person, the same shall be brought forthwith under the operation of this Decree. It shall be the duty of the official issuing the instrument of alienation, grant, patent or conveyance in behalf of the Government to cause such instrument to be filed with the Register of Deeds of the province or city where the land lies, and to be there registered like other deeds and conveyance. The deed, grant, patent or instrument of conveyance from the Government to the grantee shall not take effect as a conveyance or bind the land but shall operate only as a 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 300 of 325 LAND TITLES AND DEEDS CIVIL LAW contract between the Government and the grantee and as evidence of authority to the Register of Deeds to make registration. It is the act of registration that shall be the operative act to affect and convey the land. After due registration and issuance of the certificate of title, such land shall be deemed to be registered land (sec. 103, PD 1529) B. ENFORCEABILITY OF TORRENS TITLE The title, once registered, is notice to the world. All persons must take notice. No one can plead ignorance of the registration Egao vs. CA. III. ORIGINAL REGISTRATION A. LAWSGOVERNINGLANDREGISTRATION 1. PD No. 1529 Property Registration Decree covers both ordinary and cadastral registration proceedings. It supersedes the Land Registration Act and the Cadastral Act. 2. CA141 Public Land Act governs the procedure for the judicial confirmation of imperfect or incomplete titles. o It applies to lands of the public domain which have been declared open to disposition or concession and officially delimited and classified o Under section 103 of PD 1529 whenever public land is alienated, granted, conveyed to any person by the government, the same shall be brought forthwith under the operation of the Decree 3. RA No. 8371 The Indigenous Peoples Rights Act (Oct. 29, 1997) recognize the rights of ownership and possession of indigenous cultural communities to their ancestral domains and lands on the basis of native title, and defines the extent of these lands and domains. It expressly converts ancestral lands into public agricultural lands, and individuals members of the cultural communicates shall have the option to secure title to their ancestral lands under the CA 141 or PD 1529. B. EFFECT OF REGISTRATION Registration does not vest or give title to the land, but merely confirms and thereafter protects the title already possessed by the owner, making it imprescriptible by occupation of third parties. it does not give the owner any better title than he has. Registration is not a mode of acquiring ownership. A certificate of title cannot be used to protect a usurper from the true owner or as a shield for the commission of fraud (Vagalidad vs. Vagalidad, GR No. 161136. C. ORIGINALREGISTRATIONPROCEEDINGS Steps in Original Registration Proceedings 1) Determine if the land is registrable 2) Determine if you are qualified to apply 3) Survey the land 4) File the application (survey attached) for land registration with the appropriate court 5) Court sets initial hearing 6) Publication of the initial hearing 7) File an opposition to the application 8) Hearing 9) Judgment 10)Issuance of decree 1. WHAT ARE THE REGISTRABLE LANDS? PRIVATE LANDS If in the public domain, the land must be classified as alienable and disposable. It must be classified as such AT THE TIME OF FILING THE APPLICATION FOR REGISTRATION. (Republic vs. CA and Naguit, GR No. 144057) With the exception of agricultural lands, all other natural resources shall not be alienated. (sec. 2 and 3 Art. XII of the Constitution) NON- REGISTRABLE LANDS 1.) Forest or timberland, public forest, forest reserves lands, mineral lands (Sec. 2 and 3 Art. XII of the Constitution) 2.) Those intended for public use, such as roads, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character 3.) Those which belong to the State, without being for public use, and are intended for some 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 301 of 325 LAND TITLES AND DEEDS CIVIL LAW public service or for the development of the national wealth. (Art. 420, CC) 2. WHO MAY APPLY? (OCEN-PAAL) 1) Those who by themselves or through their predecessors-in- interest have been in open, continuous, exclusive and notorious (OCEN) possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. 2) Those who have acquired ownership of private lands by prescription under the provision of existing laws. 3) Those who have acquired ownership of private lands or abandoned river beds by right of accession or accretion under the existing laws. 4) Those who have acquired ownership of land in any other manner provided for by law. If co-owned, file the application jointly. If sold under pacto de retro, the vendor a retro may file an application for the original registration of the land BUT should the period for redemption expire during the registration proceedings and ownership consolidated in the vendee a retro, the latter shall be substituted for the applicant. A trustee may apply for original registration, unless prohibited by the instrument creating the trust. (Sec. 14, PD 1529) Persons must be natural-born Filipino citizens (sec. 2 Art. XII of the Constitution) Exceptions: (a) Aliens by way of hereditary succession (b) Natural born citizens who have lost their citizenship- limited to 5,000 sqm for urban land and 3 hectares for rural land (RA No. 7042 as amended by RA No. 8179) As for private corporations, they may not hold such alienable lands of the public domain except by lease of 1,000 hectares for 25 years renewable for not more than 25. (Sec. 3 Article XII of the 1987 Constitution) Private lands may be owned for as long as the corporation is at least 60% Filipino. (sec. 7 Article XII of the 1987 Constitution) 3. SURVEY The survey may be done by a public or private surveyor. When done by a private surveyor it has to be approved by the Land Management Bureau. PD 239 withdrew the authority of the Land Registration Authority to approve original survey plans. 4. APPLICATION The application for land registration shall be: in writing and signed and sworn to by the applicant or the person duly authorized in his behalf If there is more than one applicant, the application shall be signed and sworn to by and in behalf of each. It shall contain: description of the land citizenship and civil status of the applicant o if married, the name of the wife or husband o if the marriage has been legally dissolved, when and how full names and addresses of all occupants and those of the adjoining owners, if known if not known, it shall state the extent of the search made to find them. (Sec. 15, PD 1529) If the application describes the land as bounded by a public or private way or road, it shall state WON the applicant claims any portion of the land within the limits of the way or road, and whether the applicant desires to have the line of way or road determined (Sec. 20, PD 1529) If the applicant is a non-resident of the Philippines, he shall file an instrument appointing a resident agent in the Phils. and shall agree that service of nay legal process (Sec. 16, PD 1529) It must be accompanied by the original tracing cloth plan, white or 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 302 of 325 LAND TITLES AND DEEDS CIVIL LAW blue copes thereof, the original and copies of the technical description and geodetic engineer’s certification. A person claiming ownership of real property must clearly identify the land claimed by him. Intestate Estate of Don Mariano San Pedro vs. CA. 5. INITIAL HEARING The court shall issue an order setting the date and hour of the initial hearing within five days from filing of the application. The initial hearing shall be 45-90 days from the date of the order. (Sec. 23, PD 1529) 6. PUBLICATION The public shall be notified of the initial hearing by means of (1) publication; (2) mailing; and (3) posting. The court may also cause notice to be served and in such manner as it may deem proper. (a) By Publication The Commissioner of Land Registration shall cause it to be published: once in the Official Gazette (sufficient to confer jurisdiction) and once in a newspaper of general circulation in the Philippines The notice is addressed to: all persons appearing to have an interest in the land the adjoining owners so far as known "to all whom it may concern" (b) By Mailing Within 7 days from publication in the OG, the Commissioner of Land Registration shall mail a copy of the notice to: every person named in the notice whose address is known. the Secretary of Public Highways, to the Provincial Governor, and to the Mayor of the municipality or city, in which the land lies, if the applicant requests to have the line of a public way or road determined Secretary of Agrarian Reform, the Solicitor General, the Director of Lands, the Director of Mines and/or the Director of Fisheries and Aquatic Resources, (as appropriate) if the land borders on a river, navigable stream or shore, or on an arm of the sea where a river or harbor line has been established, or on a lake, or if it otherwise appears from the application or the proceedings that a tenant-farmer or the national government may have a claim adverse to that of the applicant (c) By Posting CLR shall cause the sheriff or his deputy to post the notice at least 14 days before the hearing: in a conspicuous place on each parcel of land included in the application and in a conspicuous place on the bulletin board of the municipal building of the municipality or city in which the land or portion thereof is situated (Sec. 23, PD 1529) 7. OPPOSITION Any person claiming an interest may appear and file an opposition: on or before the date of initial hearing, or within such further time as may be allowed by the court. The opposition shall state: all the objections and the interest claimed by the party the remedy desired. It shall be signed and sworn to by him or by some other duly authorized person. (Sec. 25, PD 1529) If no person appears and answers within the time allowed, the court shall, upon motion order a default to be recorded. By the description in the notice "To all Whom It May Concern", all the world are made parties defendant and shall be concluded by the default order. Where an appearance has been entered and an answer filed, a default order shall be entered against 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 303 of 325 LAND TITLES AND DEEDS CIVIL LAW persons who did not appear and answer. (Sec. 26, PD 1529) Absence of opposition does not justify outright registration Director of Lands vs. Agustin. 8. HEARING Proof of Ownership (a) Tax declaration and receipts- not conclusive but have strong probative value when accompanied by proof of actual possession Municipality of Santiago vs. CA (b) Payment of taxes- payment in one lump sum to cover all past taxes is “irregular” and affects the validity of the applicant’s claim of ownership Republic vs. Tayag (c) Spanish titles- no longer admissible 9. JUDGMENT Judgment becomes final upon expiration of 30 days from receipt of notice of judgment (Sec. 30, PD 1529). Other incidents: WRIT OF POSSESSION The writ may be issued not only against the person defeated in the registration case but also against any one adversely occupying the land during the proceedings Vencilao vs. Vano. The writ does not lie against a person who entered the land after the issuance of the decree and who was not a party in the case. He can only be proceeded against in a separate action for ejectment or reinvindicatory action Bernas vs. Nuevo. WRIT OF DEMOLITION This writ is a complement of the writ of possession Gawaran vs. IAC. 10. Issuance of Decree Within 15 days from entry of judgment, the court shall issue an order directing the Land Registration Authority to issue a decree of registration and certificate of Title. The decree of registration shall be signed by the Commissioner, entered and filed in the Land Registration Commission. The original of the original certificate of title shall be sent, together with the owner's duplicate certificate, to the Register of Deeds where the property is situated for entry in his registration book. (sec. 39, PD No. 1529). The Register of Deeds shall forthwith send notice by mail to the registered owner that his owner's duplicate is ready for delivery to him upon payment of legal fees. (sec. 40, PD 1529) - Appeal reckoned from the Solgen’s receipt of the decision. - Becomes final 15 days from receipt Court retains jurisdiction over the case until after the expiration of 1 year from the issuance of the decree of registration Gomez vs. CA. D. ATTRIBUTES OF AND LIMITATION ON CERTIFICATE OF TITLE AND REGISTERED LAND (FIIC) 1. Free from Liens and Encumbrances except (NCTHA) Those noted in the certificate Liens, claims or rights existing under the laws and Constitution which are not required to appear of record in the Registry of Deeds Unpaid real estate taxes levied and assessed within 2 yrs preceding the acquisition of any right over the land Any public highway or private way established or recognized by law, or any government irrigation canal or lateral thereof, if the certificate of title does not state that the boundaries of such have been determined. Any disposition of the property or limitation on the use thereof by virtue of, or pursuant to, Presidential Decree No. 27 or any other laws on agrarian reform. (Sec. 44, PD 1529) 2. Indefeasible The decree of registration shall not be reopened or revised by reason of absence, minority, or other disability of any person adversely affected thereby. Ground for reopening and reviewing the decree of registration: Actual fraud. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 304 of 325 LAND TITLES AND DEEDS CIVIL LAW It must be reopened not later than 1 yr from and after the date of the entry of such decree. No petition shall be entertained where an innocent purchaser for value may be prejudiced. This includes an innocent lessee, mortgagee, or other encumbrancer for value. Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. The only remedy left is an action for damages. (Sec. 32, PD 1529) The rule on the incontrovertible nature of a certificate of title applies when what is involved is the validity of the OCT, not when it concerns that of the TCT Arguelles vs. Timbancaya). 3. Imprescriptible No title to registered land shall be acquired by prescription or adverse possession. (Sec. 47, PD 1529) Prescription is unavailing not only against the registered owner but also against his hereditary successors because the latter merely step into the shoes of the decedent by operation of law and are merely the continuation of the personality of their predecessor-in- interest Barcelona vs. Barcelona. 4. Not Subject to Collateral Attack A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or canceled except in a direct proceeding in accordance with law. (Sec. 48, PD 1529) E. JUDICIAL CONFIRMATION OF IMPERFECT OR INCOMPLETE TITLES General Rule: No title or right to, or equity in, any lands of the public domain may be acquired by prescription or by adverse possession or occupancy except as expressly provided by law. (Sec. 57, CA 141) The Public Land Act recognizes the concept of ownership under the civil law. This ownership is based on adverse possession and the right of acquisition is governed by the Chapter on judicial confirmation of imperfect or incomplete titles. This applies only to alienable and disposable (A&D) agricultural lands of the public domain. Under Sec. 6 of CA 141, the classification of public lands into A&D, forest lands, or mineral lands is the prerogative of the Executive Department. The rule on confirmation of imperfect title does not apply unless and until the land classified as, say, forest land, is released in an official proclamation to that effect so that if may form part of the disposable agricultural lands of the public domain. (Bracewell vs. CA, GR. NO 107247) 1) PERIOD OF FILING RA No. 9176 extended the period to file an application for judicial confirmation of imperfect or incomplete title to December 31, 2020. It further limited the area applied for to 12 hectares. 2) REQUISITES Filipino citizen He must have, by himself, or thru his predecessors-in- interest, possessed and occupied an alienable and disposable agricultural portion of the public domain Such possession and occupation must have been OCEN and in the concept of owner since June 12, 1945 Application filed with proper court 3) PRIVATE CORPORATIONS Where at the time the corporation acquired the land, its predecessor- in-interest had been in possession and occupation thereof in the manner and for the period prescribed by law as to entitle him to registration in his name, then the proscription against corporation acquiring alienable lands of the public domain does not apply for the land was no longer public land but private property Dir. Of Lands vs. IAC and Acme Plywood and Veneer Co., G.R. 73002. Since the land is private, the corporation can institute confirmation proceedings. * Requirements of the proceedings are governed by PD 1529. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 305 of 325 LAND TITLES AND DEEDS CIVIL LAW IV. CADASTRAL REGISTRATION PROCEEDINGS Unlike other kinds of registration, this is compulsory as it is initiated by the government. Steps in Cadastral Registration Proceedings (sec. 35-36, PD 1529): 1. Determination of the President that public interest requires title to unregistered lands be settled 2. Director of lands shall make a cadastral survey 3. Director of Lands gives notice to interested persons 4. Publication of notice 5. A copy of the notice shall also be sent to the mayor and the sanggunian 6. Geodetic engineers/ Bureau of Land employees shall notify (re: survey) by posting at the municipal building 7. Interested persons should communicate with the geodetic engineer if he requests for any information about the land 8. Actual survey/ plotting of the land 9. Director of Lands represented by Solgen shall institute original registration proceedings 10. Publication, mailing posting 11. Hearing 12. Decision 13. Issuance of the decree and certificate of title NOTE In voluntary registration proceedings, there is no res judicata when the applicant fails to prove his title. In cadastral registration, if the applicant cannot prove that he is entitled to the land, the land becomes public land. There is res judicata. V. SUBSEQUENT REGISTRATION A. TWO TYPES OF DEALINGS 1. VOLUNTARY DEALINGS Deeds, instruments, documents which are the results of free and voluntary acts of parties thereto. 2. INVOLUNTARY DEALINGS Writ, order, or process issued by the court of record affecting registered land, also other instruments which are not willful acts of the registered owner, executed without his knowledge or consent. B. NECESSITY/EFFECTS OF REGISTRATION An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. The deed, mortgage, lease, or other voluntary instrument, except a will shall ONLY operate as: 1.) A contract between the parties and 2.) Evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies. (Sec. 51, PD 1529) Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed or entered in the office of the Register of Deeds be constructive notice to all persons from the time of registering. (sec. 52, PD 1529) C. VOLUNTARY VS. INVOLUNTARY DEALINGS VOLUNTARY DEALINGS INVOLUNTARY DEALINGS Ex. Sale, mortage, lease, patent, powers of attorney, trusts Attachment, injunction, mandamus, levy on execution, notice of lis pendens Presentation of the owner’s duplicate certificate of title is required to notify; mere entry insufficient Entry in the day book is sufficient notice to all persons An innocent purchaser for value of registered land becomes the registered owner the moment he presents and files a duly notarized and valid deed of sale and the same is entered in the day book and at the same time he surrenders or presents the Entry thereof in the day book of the ROD is sufficient notice to all persons even if the owner’s duplicate certificate of title is not presented to the ROD. (Lenin vs. Bass, 1952) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 306 of 325 LAND TITLES AND DEEDS CIVIL LAW owner’s duplicate certificate of title covering the land sold and pays the registration fees. It is necessary to register the deed or instrument in the entry book and a memorandum thereof shall also be made in the owner’s duplicate certificate and its original (Villasor vs. Camon, 1951) Entry in the day book is sufficient notice to all persons of an adverse claim without the same being annotated at the back of the certificate of title (Dir. Of Lands vs. Reyes, 1976) General Rule: A person dealing with registered property need not go beyond, but only has to rely on, the title. He is charged with notice only of such burdens and claims which are annotated on the title, for registration is the operative act that binds the property Campillo vs. PNVB. When should a purchaser investigate? Banks are required to exercise more care and prudence in dealing with registered lands for their business is one affected with public interest. The general rule does not apply. when party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make inquiry Leung Yee vs. Strong Machinery When purchaser is in bad faith; e.g. he had full knowledge of a previous sale Jamoc vs. CA, 1991 When a person buys land from one whose rights over the land is evidenced only by a deed of sale and an annotation in the certificate of title but no TCT Quiniano vs. CA D. REGISTRATION OF VOLUNTARY INSTRUMENTS Steps in registration in general: 1. File with the Register of Deeds the voluntary instrument for registration (Sec. 54, PD 1529). It shall contain full name, nationality, residence and postal address of the grantee or other person acquiring or claiming an interest under such instrument. It shall also contain the grantee’s civil status. If the grantee is a corporation or association, it must show that it is qualified to acquire private lands. (Sec. 55, PD 1529) 2. Present owner’s duplicate. The issuance of a new transfer certificate without presentation of such is un warranted and confers no right on the purchaser PNB vs. Fernandez, 1935 3. Show that you have paid taxes. RA 456 prohibits registration of documents affecting real property which is delinquent in the payment of real estate taxes. If evidence of such pament is not presented with 15 days form the date of entry of said document in the primary entry book of the register of deeds the entry shall be deemed cancelled. 4. Pay fees and DST (government is exempt) 5. Register of Deeds shall enter the instruments filed with him relating to registered land. He shall note in such book the date, hour and minute of reception of all instruments, in the order in which they were received. They shall be regarded as registered from the time so noted, and the memorandum of each instrument, when made on the certificate of title to which it refers, shall bear the same date. (sec. 56, PD 1529) 6. All deeds and voluntary instruments shall be presented with their respective copies and shall be attested and sealed by the Register of Deeds, endorsed with the file number, and copies may be delivered to the person presenting them. (sec. 56, PD 1529) 7. TCT shall be issued. E. REGISTRATION OF DEEDS OF SALE (CONVEYANCES) AND TRANSFERS 1. ENTIRE PROPERTY IS SUBJECT SECTION 57 a. An owner shall execute and register a deed of conveyance in a form sufficient in law. b. The Register of Deeds shall thereafter make out in the registration book a new certificate of title to the grantee and shall prepare and deliver to him an owner's duplicate certificate. c. The Register of Deeds shall note upon the original and duplicate certificate the date of transfer, the volume and page of the 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 307 of 325 LAND TITLES AND DEEDS CIVIL LAW registration book in which the new certificate is registered and a reference by number to the last preceding certificate. d. The original and the owner's duplicate of the grantor's certificate shall be stamped "canceled". e. The deed of conveyance shall be filed and indorsed with the number and the place of registration of the certificate of title of the land conveyed. 2. PORTIONOF PROPERTYISSUBJECT SECTION 58 a. Have the plan showing all the portions or lots into which it has been subdivided and the corresponding technical descriptions verified and approved. Otherwise, such deed may only be annotated by way of memorandum to serve as a notice to third persons of the fact that certain unsegregated portion of the land described therein has been conveyed b. The original of the plan and a certified copy of the technical descriptions shall be filed with the Register of Deeds for annotation in the corresponding certificate of title c. Officer shall issue a new certificate of title and cancel the grantor's certificate partially with respect only to said portion conveyed, OR certificate may be canceled totally and a new one issued describing therein the remaining portion 3. SUBSISTINGENCUMBRANCES/ ANNOTATIONS Encumbrances or annotations that appear in the registration book shall be carried over in the new certificate or certificates; except so far as they may be simultaneously released or discharged. (Sec. 59, PD 1529) F. MORTGAGES AND LEASES Mortgage and leases shall be registered in the manner provided in Section 54 of this Decree. Such deed of mortgage or lease shall take effect upon the title only from time of registration. (Sec. 60, PD 1529) Upon presentation for registration of the deed of mortgage or lease with the owner's duplicate, the Register of Deeds shall enter upon the original of the certificate of title and also upon the owner's duplicate certificate a memorandum thereof and shall sign. (Sec. 61, PD 1529) G. POWERS OF ATTORNEY; TRUSTS Powers of attorney to deal with registered land shall be registered with the Register of Deeds of the province or city where the land lies. Revocation of power shall be registered in like manner (Sec. 64, PD 1529). To transfer registered land in trust or to create or declare a trust or other equitable interests in such land without transfer, the particulars of the trust shall not be entered on the certificate; but only a memorandum thereof shall be entered by the words "in trust", or "upon condition", or other apt words, and by a reference by number to the instrument. A similar memorandum shall be made upon the original instrument (Sec. 65, PD 1529). No instrument which transfers, mortgages or in any way deals with registered land in trust shall be registered, unless the enabling power thereto is expressly conferred in the trust instrument, or unless a final judgment or order of a court of competent jurisdiction has construed the instrument in favor of the power, in which case a certified copy of such judgment or order may be registered (Sec. 66, PD 1529). Whoever claims an interest in registered land by reason of any implied or constructive trust shall file for registration with the Register of Deeds a sworn statement. Such claim shall not affect the title of a purchaser for value and in good faith before its registration (Sec. 68, PD 1529). H. INVOLUNTARY DEALINGS 1. ATTACHMENT An attachment, or a copy of any writ, order or process issued by a court of record, intended to create or preserve any lien, status, right, or attachment upon registered land, shall be filed and registered in the Registry of Deeds for the province or city in which the land lies. It shall contain a reference to the number of the certificate of title to be affected and its registered owner. If not claimed on all the land, include a description sufficiently accurate for identification of the land affected. 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 308 of 325 LAND TITLES AND DEEDS CIVIL LAW A restraining order, injunction or mandamus issued by the court shall be entered and registered on the certificate of title affected, free of charge. (sec. 69, PD 1529) The duplicate certificate must be presented for registration. If not, the Register of Deeds shall, within 36 hours, send notice by mail to the registered owner, stating that such paper has been registered, and requesting him to send or produce his duplicate certificate so that a memorandum of the attachment or other lien may be made thereon. If the owner neglects or refuses to comply within a reasonable time, the Register of Deeds shall report the matter to the court so that it may order the owner to produce his certificate. (sec. 70, PD 1529) In case of conflict between a vendee and an attaching creditor, if the attaching creditor registered first then he acquires a valid title over the property. But where a party has knowledge of a prior existing interest, which is unregistered at the time he acquired a right to the same land, his knowledge of that prior unregistered interest has the effect of registration as to him Ruiz vs. CA, 2001. 2. EXECUTION AND TAX DELINQUENCY SALES Whenever registered land is: - sold on execution - taken or sold for taxes or for any assessment or - to enforce a lien of any character, or for any costs and charges incident to such liens Any execution, any officer's return, or any deed, demand, certificate, or affidavit, or other instrument made in the course of the proceedings, shall be filed with the Register of Deeds and registered in the registration book, and a memorandum made upon the proper certificate of title in each case as lien or encumbrance. (Sec. 74, PD 1529) 3. NOTICE OF LIS PENDENS This does not create a lien. Notice of lis pendens may involve actions that deal not only with title or possession of a property but also with the use or occupation of property. The litigation must directly involve a specific property which is necessarily affected by judgment. It is proper in the ff cases: - action to recover possession of real estate - action to quiet title - action to remove clouds upon the title - action for partition or - other proceedings of any kind in court directly affecting the title to land or the use or occupation thereof or the buildings thereon A memorandum or notice must be filed and registered so that judgment shall have an effect on the land and 3 rd persons. It should contain: - institution of such action or proceeding - in which court it is pending - date of the institution - number of the certificate of title - description of the land affected and - the registered owner (sec. 76, PD 1529) It is not proper in: - preliminary attachments - proceedings for probate of wills - levies on execution - proceedings for administration of estates - proceedings the object of which is a money judgment * In case of subsequent sales or transfers, the Register of Deeds is duty bound to carry over the notice of lis pendens on all titles to issued. Before final judgment, the court may order the cancellation: - After showing that notice is only for purpose of molesting an adverse party - When it is shown that it is not necessary to protect the right of the party who caused the registration thereof - When the consequences of the trial are unnecessarily delaying the determination of the case to the prejudice of the other party - When party who caused registration filed a verified petition - Deemed cancelled when certificate issued by clerk of court stating manner of disposal of proceeding is registered at any time after final judgment in favor of the defendant, or other disposition of the action such as to terminate finally all rights of the plaintiff (Sec. 77, PD 1529) 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 309 of 325 LAND TITLES AND DEEDS CIVIL LAW 4. ADVERSE CLAIM WHEN IS A CLAIM ADVERSE? When a person claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration. (Sec. 70, PD 1529) The adverse claim shall be effective for a period of 30 days from the date of registration. After that the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest. After cancellation, no second adverse claim based on the same ground shall be registered by the same claimant (Sec. 70, PD 1529). Requisites: 1. The adverse claimant must state the ff in writing: - his alleged right or interest - how and under whom such alleged right or interest is acquired - the description of the land in which the right or interest is claimed and - the number of the certificate of title 2. The statement must be signed and sworn to before a notary public or other officer authorized to administer oath and 3. The claimant should state his residence or the place to which all notices may be served upon him. Non-compliance with the above requisites renders the adverse claim non registrable and ineffective. VI. DEALINGS WITH UNREGISTERED LANDS No deed, conveyance, mortgage, lease, or other voluntary instrument affecting land not registered under the Torrens system shall be valid, except as between the parties thereto, unless such instrument shall have been recorded under PD 1529. (Sec. 113, PD 1529) The recording of the deed and other instruments relating to unregistered lands shall be effected by any of annotation on the space provided therefor in the Registration Book, after the same shall have been entered in the Primary Entry Book. In case the Register of Deeds refuses to record, said official shall advise the party in interest in writing and the latter may appeal the matter to the Commissioner of Land Registration. Any recording made under this section shall be without prejudice to a third party with a better right. Tax sale, attachment and levy, notice of lis pendens, adverse claim with respect to unregistered lands shall likewise be admissible to record. Fees shall be same amount of fees prescribed for similar services for the registration of deeds or instruments concerning registered lands. VII. Patents The classification of public lands is a function of the executive branch of government Republic vs. Imperial, 2000. Lands of the public domain which are alienable or open to disposition may be further classified as: - agricultural - residential, commercial, industrial, or for similar productive purposes - educational, charitable or other similar purposes - reservations for townsites and for public and quasi- public uses MODES OF DISPOSITION Public lands suitable for agricultural purposes can be disposed of only as follows: - homestead settlement - sale - lease - confirmation of imperfect or incomplete titles o judicial legalization o administrative legalization (free patent) Kinds Applicant Requirements Homest ead Patent The Public Land Act provides that any Filipino citizen over the age of 18 or head of the family may enter a homestead - Max of 12 hectares of agricultura l land - Applicant must have cultivated and improved at least 1/5 of the land continuous ly since the approval of the application resided for 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 310 of 325 LAND TITLES AND DEEDS CIVIL LAW at least 1 yr in the municipalit y in which the land is located or in an adjacent to the same - Payment of fee required Sales Patent Public Agricult ural Lands Lands for residen tial, comme rcial or industri al purpos es Lands for Any Filipino of lawful age or the head of a family may purchase any tract of public agricultural land not to exceed 12 hectares. -Filipino citizen of legal age - not the owner of a home lot in the mun where he - Sold thru sealed bidding - Purchase price may be paid in full upon the making of the award or in not more that 10 installment s from the date of the award - Purchaser shall have not less than 1/5 of the land cultivated w/in 5 yrs from the date of the award - Before any patent is issued he must show actual occupancy, cultivation and improveme nt of at least 1/5 of the land until the date of final payment. - Lands reclaimed by the govt and foreshore shall be disposed by lease only - Marshy residen tial purpos es reisides - have established in good faith his residence on a parcel of public land which is not needed for public service (RA 730) lands and other lands may be sold on condition that the purchaser shall make improveme nts of a permanent character for the purpose for which the land is purchased w/in 18 moms. From the date of the award. - exception to CA 141 - area does not exceed 1,000 sqm - it shall be an essential condition of this sale that the occupants has constructe d his house on the land and occupants has constructe d his house on the land and actually resided therein Free patent To any natural born Filipino citizen (filing ended Dec. 31, 2000) -does not own more than 12 hectares of land - continuously occupied and cultivated, either by himself or his predecessors- in-interest, tracts of agricultural public lands subject to 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 311 of 325 LAND TITLES AND DEEDS CIVIL LAW disposition for at least 30 years prior to March 28,1990 - paid real property taxes on the property while the same has not been occupied by any person Special patent Issued upon the promulgation of a special law or act of Congress or by the Sec of DENR as authorized by an EO e.g. issued by the Pres. In 1988 to the Public Estates Authority under PD 1085 over 3 reclaimed islands in the name of PEA VIII. REMEDIES OF AGGRIEVED PARTY Motion for New Trial - 15 days from notice of judgment Grounds: - Fraud, accident, mistake, excusable negligence - Newly discovered evidence - Awarded excessive damages, or insufficiency of evidenc, or that the decision is against law Appeal - 15 days from notice - appealable to the CA or to the SC in the same manner as in ordinary actions Relief from Judgm ent - 60 days after petitioner learns of judgment, but not more than 6 months after judgment was entered Grounds: Fraud, accident, mistake, excusable negligence Petition Requisites: for Review 1. petitioner must have an estate or interest in the land 2. he must show actual fraud 3. petition must be filed within one year form the issuance of the decree by LRA 4. property has not yet passed to an innocent purchaser for value. Walstrom vs. Mapa, GR No. 38387 Grounds: - extrinsic fraud, - void decision for want of due process - lack of jurisdiction Under the Torrens system of registration, the Torrens still becomes indefeasible and incontrovertible one year form the issuance of the final decree and is generally conclusive evidence of the ownership (Calalang vs. Register of Deeds). This applies as well to title acquired through homestead or free patents Iglesia ni Cristo vs. CFI, GR No. L- 35273 Action for Reconv eyance - before issuance of decree, or within/after 1 year from entry - if based on implied trust, 10 years; - if based on expressed trust and void contract, imprescriptible - if based on fraud, 4 years from the discovery It does not reopen proceedings but a mere transfer of the land from registered owner to the rightful owner Esconde vs. Barlongay. It is available in case of fraud thereby creating a constructive trust between parties Huang vs. CA. It is not available if the property has already been transferred to an innocent purchaser for value. Damag es It can be availed of when reconveyance is no longer possible as when the land has been transferred to an innocent purchaser for value 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 312 of 325 LAND TITLES AND DEEDS CIVIL LAW Ching vs. CA. Action for Compe nsation from the Assura nce Fund 39 Requisites: - A person sustains loss or damage or is deprived by any estate or interest in land - On account of bringing of land under the Torrens system - Through (FEMOM) fraud, error, mistake, omission, or misdescription in the certificate of entry in the registration book - Without negligence on his part - And is barred from bringing an action for recovery of the land. - The action has not prescribed. It must be instituted within 6 years from the time the right to bring such action first occurred-- > date of issue of the certificate of title Against whom filed: against the Register of Deeds and the National Treasurer if FEMOM is caused by court personnel, Register of Deeds, his deputy or other employees of the Registry If other those above mentioned: the Register of Deeds, the National Treasurer and other person or persons, as co-defendants. Annulm ent of Judgm ent Grounds: extrinsic fraud and lack of jurisdiction. Ordinary remedies of appeal, motion for new trial etc should no longer be available. If based on extrinsic fraud, file 4 within years from discovery. If based on lack of jurisdiction, before it is barred by laches or estoppel Galicia vs. Marquez 2007. Reversi on Instituted by the government, thru Solgen in all cases where lands of public domain are held in violation of the Constitution or were fraudulently conveyed. 39 Upon registration, there shall be paid to the Register of Deeds ¼ of 1% of the assessed value of the real estate on the basis of the last assessment for taxation purposes, as contribution to the Assurance Fund. Indefeasibility of title, prescription, laches, and estoppel do not bar reversion suits. Crimin al Action Perjury, Forgery, Others involving fraud IX. REPLACEMENT AND RECONSTITUTION A. REPLACEMENT In case of loss or theft of an owner's duplicate certificate of title, due notice under oath shall be sent by the owner or by someone in his behalf to the Register of Deeds of the province or city where the land lies as soon as the loss or theft is discovered. If a duplicate certificate is lost or destroyed, or cannot be produced by a person applying for the entry of a new certificate to him or for the registration of any instrument, a sworn statement of the fact of such loss or destruction may be filed by the registered owner or other person in interest and registered. Upon the petition of the registered owner or other person in interest, the court may, after notice and due hearing, direct the issuance of a new duplicate certificate, which shall contain a memorandum of the fact that it is issued in place of the lost duplicate certificate, but shall in all respects be entitled to like faith and credit as the original duplicate, and shall thereafter be regarded as such for all purposes of this decree. B. RECONSITUTION Original copies of certificates of title lost or destroyed in the offices of Register of Deeds as well as liens and encumbrances affecting the lands covered by such titles shall be reconstituted judicially in accordance with the procedure prescribed in Republic Act No. 26 insofar as not inconsistent with this Decree. The procedure relative to administrative reconstitution of lost or destroyed certificate prescribed in said Act is hereby abrogated. Notice of all hearings of the petition for judicial reconstitution shall be given to the Register of Deeds of the place where the land is situated and to the Commissioner of Land Registration. No order or judgment ordering the reconstitution of a certificate of title shall become final 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 313 of 325 LAND TITLES AND DEEDS CIVIL LAW until the lapse of thirty days from receipt by the Register of Deeds and by the Commissioner of Land Registration of a notice of such order or judgment without any appeal having been filed by any of such officials. PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 314 of 325 Private International Law TABLE OF CONTENTS Section 1. Conflict of Laws 315 Section 2. Jurisdiction 315 Section 3. Choice of Law 317 Section 4. Recognition and Enforcement of Judgment 324 PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 315 of 325 CONFLICT OF LAWS PRIVATE INTERNATIONAL LAW : that part of municipal law which governs cases involving a foreign element o The principles of conflict of laws incorporated in municipal laws of many states are based on comity of nations. o COMITY: is the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws (Hilton v. Guyot, 1895) o FOREIGN ELEMENT may refer to parties, property, events, or transactions. PRIVATE INTERNATIONAL LAW vs. PUBLIC INTERNATIONAL LAW Basis PRIL PIL Parties Individuals or corporations Primarily states and international organizations Sources - treaty - custom - generally recognized principles of law - judicial decisions - teachings of the most highly qualified publicists - National conflict rules - International conflict rules Remedies - diplomatic protest - negotiation, conciliation, arbitration - adjudicatio n before internation al tribunal - use of force - war - resort to forum court or administrat ive tribunals PRIL v. Municipal law: presence of foreign element SOURCES 1. Codes and statutes 2. Treaties and international conventions 3. Treatises, commentaries, and studies of learned societies 4. Judicial decisions 3 PHASES INVOLVED IN THE JUDUCIAL RESOLUTION OF A CONFLICTS CASE (Hasegawa v. Kitamura, 2007) 1. Jurisdiction - Where can or should litigation be initiated? 2. Choice of law - Which law will the court apply? 3. Recognition and enforcement of judgments - Where can the resulting judgment be enforced? JURISDICTION JURISDICTION 40 : the power of a court to TRY a case, RENDER judgment, and EXECUTE it in accordance with law ASPECTS OF JURISDICTION: 1. Jurisdiction over the parties 2. Jurisdiction over the property (res) 3. Jurisdiction over the subject-matter JURISDICTION OVER THE PARTIES o Over the plaintiff: acquired by the filing of suit o Over the defendant: acquired by entry of appearance or service of legal process JURISDICTION OVER THE PROPERTY o Acquired by: - seizure of the property by legal process or - institution of legal proceedings wherein the court’s power over the property is recognized and made effective JURISDICTION OVER THE SUBJECT-MATTER o conferred by LAW (e.g., BP 129) o CANNOT be conferred by consent of the parties o SUBJECT MATTER: refers to the nature of the cause of action and of the relief sought (Idonah Perkins v. Roxas, 1941) BASIS OF THE EXERCISE OF JURISDICTION TRADITIONAL BASIS: State’s PHYSICAL POWER over persons and property within its territory 40 This more properly refers to judicial jurisdiction, as opposed to legislative jurisdiction or the ability of the sate to promulgate laws and enforce them on all persons and property within its territory. PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 316 of 325 This explains the distinctions made between actions in personam 41 and actions in rem or quasi in rem 42 , dating back to the case of Pennoyer v. Neff(1878). o In actions in personam, wherein the defendant is a non-resident who does not voluntarily submit himself to the authority of the court, personal service of summons within the state is essential to the acquisition of jurisdiction over her person. - This method of service is possible if such defendant is physically present in the country. If he is not found therein, the court cannot acquire jurisdiction over his person and therefore cannot validly try and decide the case against him. - An exception was laid down in Gemperle v. Schenker wherein a non- resident was served with summons through his wife, who was a resident of the Philippines and who was his representative and attorney-in-fact in a prior civil case filed by him; moreover, the second case was a mere offshoot of the first case. o On the other hand, in a proceeding in rem or quasi in rem, jurisdiction over the person of the defendant is not a prerequisite to confer jurisdiction on the court provided that the court acquires jurisdiction over the res. Nonetheless summons must be served upon the defendant not for the purpose of vesting the court with jurisdiction but merely for satisfying the due process requirements. (Asiavest Limited v. CA, 1998) In the US: The conceptual basis for the exercise of jurisdiction has shifted from territorial power to considerations of MINIMUM CONTACTS and FUNDAMENTAL FAIRNESS. o International Shoe Co. v. Washington (1945): Due process only requires that the defendant who is not present within the territory of the forum have minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. 41 Actions in personam are directed against specific persons and seek personal judgments. 42 Actions in rem or quasi in rem are directed against the thing or property or status of a person and seek judgments with respect thereto as against the whole world. o Mullane v. Central Hanover Bank & Trust Co. (1950): The standard for adequate notice is WON it is reasonably certain to inform those affected or, where conditions do not reasonably permit such notice, WON the form chosen is not substantially less likely to bring home notice than other of the feasible and customary substitutes. o Shaffer v. Heitner (1977): The minimum contacts and fundamental fairness test should be satisfied regardless of whether the proceedings are in rem, quasi in rem, or in personam, and the minimum contacts must exist among the forum, defendant, and the cause of action. o Long-arm statutes: statutes that allow the forum state to exercise jurisdiction over a non-resident defendant, provided that the prospective defendant has sufficient minimum contacts with the forum state. 2 types: - first type enumerates factual situations likely to satisfy the minimum-contacts test; - second type is much broader and provides jurisdiction over an individual or corporation as long as that jurisdiction is not inconsistent with constitutional restrictions 3 WAYS OF DEALING WITH A CONFLICTS CASE: 1. Dismiss the case because of a. lack of jurisdiction or b. forum non conveniens 2. Assume jurisdiction over the case and apply the internal law of the forum 3. Assume jurisdiction over the case and take into account or apply the law of some other State or States (Hasegawa v. Kitamura, 2007) Doctrine of FORUM NON CONVENIENS o literal meaning: the forum is inconvenient o emerged in private international law to deter the practice of global forum shopping- that is, to prevent non-resident litigants from choosing the forum or place wherein to bring their suit for malicious reasons, such as to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 317 of 325 o Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most “convenient” or available forum and the parties are not precluded from seeking remedies elsewhere. o Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court. o Philippine Court may assume jurisdiction over the case if it chooses to do so, provided the local judicial machinery is adequate in that the following requisites are met: 1. The Philippine Court is one to which the parties may conveniently resort to; 2. The Philippine Court is in a position to make an intelligent decision as to the law and the facts; and 3. The Philippine Court has or is likely to have power to enforce its decision. o The doctrine of forum non conveniens should NOT be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as a ground. o The propriety of dismissing a case based on this principle of forum non conveniens requires a factual determination, hence it is more properly considered a matter of defense. (Bank of America NT&SA v. CA, 2003) CHOICE OF LAW APPROACHES TO CHOICE OF LAW 1. Traditional approach: simplicity, convenience, uniformity 2. Modern approach: reaching appropriate results in particular cases TRADITIONAL APPROACH THEORIES: 1. Vested Rights Theory o An act done in a foreign jurisdiction gives rise to the existence of a right if the laws of that state provide so. This right vests in the plaintiff and he carries it with him to be enforced in any forum he chooses to bring suit o The applicable law is the law of the place of occurrence of the LAST ACT necessary to complete the cause of action. 2. Local Law Theory o The power of the state to regulate within its territory has no limitation except such as may be imposed by its own positive law. o In conflicts problems, the court does not enforce a foreign right but a right created by its own law by treating the case as a purely domestic case without a foreign element. MODERN APPROACHES: 1. Place of the most significant relationship o FACTUAL CONTACTS evaluated depending on their RELATIVE IMPORTANCE & RELEVANCE to the issue at hand 2. Interest analysis o Looks at the POLICY behind the laws of the involved states and the INTEREST each state has in applying its own law o Factual contacts alone not determinative of the outcome of the case unless they reflected a state policy which would be advanced by the application of the substantive state law 3. Comparative impairment o Subordination of the state objective which would be least impaired 4. Functional analysis o Looks at the policies and considers their relative weight (“policy-weighing’) o Considers whether the law of a state reflects an “emerging” or “regressing” policy 5. Choice-influencing considerations (BOPIS) a. Predictability of results; b. Maintenance of interstate and international order; c. Simplification of the judicial task; d. Application of the better rule of law; e. Advancement of the forum’s governmental interests ESCAPE DEVICES: used to avoid the inherent rigidity and unjust decisions that may result from the application of traditionally- oriented rules 1. Characterization 2. Renvoi CHARACTERIZATION: assigning a disputed question to an area of substantive law 1. Subject-matter characterization: classifying a FACTUAL SITUATION into a LEGAL CATEGORY 2. Substance-procedure characterization PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 318 of 325 - if issue substantive: may apply foreign law - if issue procedural: apply forum law Statue of Frauds - substantive if it forbids the creation of the obligation (“void”) - procedural if it forbids the enforcement of the obligation (“no action shall be brought”) Statue of Limitations - traditionally considered procedural - substantive if they provide for a SHORTER PERIOD for certain types of claims that fall within a wider classification covered by a general statute of limitations Specificity test: substantive when the limitation was directed to the newly created liability so SPECIFICALLY as to warrant saying that it qualified the right - Borrowing statute: a statute which bars the filing of a suit in the forum if it is already barred by the SOL in the place where the cause of action arose Dépecage (“to dissect”) o Nuanced single-aspect method o Cutting up the case issue by issue and applying the pertinent laws to the different aspects RENVOI (“send back”) o A procedure whereby the conflicts rule of the forum refers the jural matter to a foreign state and in turn, the conflicts rule of such foreign state refers the matter back to the law of - the forum (REMISSION); OR - a 3 rd state (TRANSMISSION) 4 ways of dealing with renvoi: 1. REJECT renvoi and apply internal law of the foreign state (that applied to a purely domestic case) 2. ACCEPT renvoi and apply the “whole” law of the foreign state (including its conflict rules) o Effect: forum law applied 3. DESISTANCE or mutual disclaimer of jurisdiction o Upon reference to another state’s law, the court sees that such law is limited to its own national and has no provision for application to a non- national o Same effect as acceptance: forum law applied 4. DOUBLE RENVOI (“foreign court theory”) o Forum court would apply the law the foreign court would have applied Renvoi does NOT apply to a false conflict. FOREIGN LAW PLEADING AND PROOF Gen. Rule: Foreign law must be pleaded and proved as a fact o The party whose cause of action or defense depended on the foreign law has the burden of proving the foreign law. Exception: Court may take judicial notice of foreign laws which are already within its ACTUAL KNOWLEDGE such as when: - they are well and generally known OR - they have been actually ruled upon in other cases before it and none of the parties concerned claim otherwise (PCIB v. Escolin, 1974) Foreign law proved by: 1. an OFFICIAL PUBLICATION of the law; OR 2. a COPY of the law ATTESTED by the officer having the legal custody of the record, or by his deputy. - If such record is not kept in the Philippines, it must be accompanied with a certificate that such officer has the custody 3 Alternatives in case of failure to plead and prove foreign law 1. DISMISS the case for failure to establish a cause of action 2. Apply FORUM LAW 3. PROCESSUAL PRESUMPTION Factors in deciding whether to apply domestic law or decide against the party who has the burden of proving the contents of foreign law: 1. degree of PUBLIC INTEREST involved 2. ACCESSIBILITY of the foreign law materials to the parties 3. probability that the plaintiff is merely FORUM-SHOPPING 4. SIMILARITIES between the forum law and foreign law EXCEPTIONS TO THE APPLICATION OF FOREIGN LAW 1. Local law expressly so provides 2. Failure to plead and prove the foreign law or judgment 3. Exceptions to the rule of comity: (4P-FAG-UV) a. The foreign law is contrary to an IMPORTANT PUBLIC POLICY of the forum PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 319 of 325 b. The foreign law is PROCEDURAL in nature c. The foreign law is PENAL in nature d. Issues related to PROPERTY e. The issue involved in the enforcement of foreign claim is FISCAL or ADMINISTRATIVE f. The foreign law is contrary to GOOD MORALS (contra bonus mores) g. The application of foreign law will work UNDENIABLE INJUSTICE to citizens of the forum h. The application of foreign law might endanger the VITAL INTERESTS of the state PERSONAL LAW o One’s personal law follows him wherever he is and governs those transactions which affect him most closely. o Determined either by one’s nationality or domicile o Most civil law countries such as the Philippines follow the national law theory Nationality Domicile Merits - logical since lawmakers considered the qualities of its citizens in making the laws - easily verifiable from documents Demerits - does not provide solution with respect to stateless persons those with multiple nationalitie s states with diverse legal systems - person’s ties to his nation may be so attenuated if he has lived in another country most of his life Merits - genuine link - suitable for countries with a federal system Demerits - not easily determinable - concept not clear-cut - if domicile of origin given much weight, connection attenuated NATIONALITY o Each state has the prerogative and authority to determine by its own municipal law who are its nationals or citizens. Statelessness o De jure statelessness: person has been stripped of his nationality by his former gov’t. without having an opportunity to acquire another o De facto statelessness: person possessed of a nationality but his country does not give him protection outside its own territory (refugee) DOMICILE GENERAL RULES ON DOMICILE 1. No person shall be without domicile o One’s domicile of origin prevails until he acquires anew domicile 2. A person cannot have 2 simultaneous domiciles for a given purpose or a given time under the law of a particular state 3. Domicile establishes a connection between a person and a particular territory 4. Burden of proving a change of domicile is on the one alleging it 3 KINDS OF DOMICILE 1. Domicile of ORIGIN 2. Domicile of CHOICE 3. CONSTRUCTIVE domicile Domicile of Origin o Person’s domicile at birth o Legitimate child: father’s domicile o Illegitimate child: mother’s domicile Domicile of Choice o Voluntary domicile o To acquire: actual residence + animo manendi (intent to make it one’s home) Domicile of Origin Domicile of Choice - NOT lost by mere abandonment and remains until replaced by a domicile of choice - Presumed to be revived once the domicile of choice is given up and before a new one is acquired (reverter or revival doctrine) - deemed extinguished by removal of intent even prior to the acquisition of a new domicile PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 320 of 325 Constructive Domicile o Domicile assigned to persons legally incapable of choosing their own domicile: - minors - mentally disabled - married women SPECIAL PROBLEMS IN DOMICILE 1. People kept under physical or legal compulsion (e.g. military personnel) o Modern view: if person under compulsion intends to remain even after the compulsion has been removed, he acquires domicile of choice 2. Married women seeking to acquire a separate domicile from their husbands o Modern view: altogether dispenses with any presumption that the wife’s domicile is the same as her husband’s CHOICE OF LAW PROBLEMS PERSONAL STATUS o Includes condition and capacity o Embraces - beginning and end of human personality - juridical capacity - capacity to act - family relations - succession o Applicable law: personal law - if Filipino: national law (Art.15,CC) - if alien: law of nationality or domicile, depending on what the alien’s country follows FAMILY RELATIONS 1. Marriage a. extrinsic validity: lex loci celebrationis (Art.26, FC; Hague Convention) b. intrinsic validity: personal law - refers to capacity c. effects of marriage: personal law d. property relations of spouses - Hague Convention: - law designated before marriage - in default, law of state of first habitual residence - Art 80, FC 43 : generally follows lex situs 43 Art. 80. In the absence of a contrary stipulation in a marriage settlement, the property relations of the spouses shall be governed by Philippine laws, regardless of the place of celebration of the marriage and their residence. This rule shall not apply: (1) Where both spouses are aliens; (2) With respect to the extrinsic validity of o Doctrine of Immutability of Matrimonial Property Regime: The change of the nationality on the part of the husband or wife or both does not affect the original property regime except when the law of the original nationality itself changes the marital regime, hence, the property regime has to change accordingly. 2. Divorce and separation o Hague Convention: national law of spouses and lex fori o Grounds for divorce: lex fori o Divorce decrees affecting Filipinos: Art.26(2), FC 44 o Foreign divorce between foreigners - Hague Convention: a foreign divorce decree will be recognized in all contracting states if, at the date of the institution of the proceedings, a. either spouse had his habitual residence there; b. both spouses were nationals of that state; or c. if only the petitioner was a national, he should have his habitual residence there 3. Annulment and declaration of nullity o Traditional approach: lex loci celebrationis o Policy-centered approach: law of the state of marital domicile 4. Parental relations o legitimacy: personal law of the parents o parental authority: personal law of the father 5. Adoption o Process of adoption: - personal law of the child (best interests); or - personal law of the adopter, if the child’s domicile is merely constructive o effects of adoption: personal law of the adopting parents - adoption does not effect changes in the political rights of the adopted child contracts affecting property not situated in the Philippines and executed in the country where the property is located; and (3) With respect to the extrinsic validity of contracts entered into in the Philippines not affecting property situated in a foreign country whose laws require different formalities for their extrinsic validity. 44 Art.26(2).Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her to remarry, the Filipino spouse shall have capacity to remarry under Philippine law. PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 321 of 325 PROPERTY 1. Immovables: lex situs 2. Movables: a. lex domicilii (mobilia sequuntur personam); b. lex situs; c. lex loci actus (law of the place where the transaction was completed); or d. proper law of the forum (law of the state which has the most real connection with the transfer) In the Philippines: o Gen. rule: lex situs wrt both personal and real property (Art. 16,CC) - capacity to acquire or transfer property - extrinsic validity of conveyance - intrinsic validity of conveyance UNLESS lex intentionis is clearly established - effects of conveyance o Exceptions to lex situs rule: 1. where the transaction does not affect transfer of title to or ownership of land o applicable law: lex intentionis or lex voluntatis 2. in contracts where real property is offered by way of security for the performance of an obligation such as a loan o applicable law: lex situs as to the mortgage, lex intentionis as to the loan contract 3. testate or intestate succession and capacity to succeed o applicable law: national law of the decedent (Art. 16(2), CC) 4. under policy-centered approach: a. when the situs of the movable property at the time of the transfer was insignificant or accidental b. where the issue involves considerations other than the validity and effect of the transfer itself o Situs of shares of stock is NOT the same as situs of the income derived from the sale of shares (CIR v. Anglo California National Bank, 1960) CONTRACTS 1. Extrinsic validity: lex loci celebrationis (Sec. 9, Restatement 2 nd ; Art.17,CC) - principle of LOCUS REGIT ACTUM: place governs the act 2. Intrinsic validity: 3 possible law: a. Lex loci CONTRACTUS b. Lex loci SOLUTIONIS c. Lex loci INTENTIONIS LEX LOCI CONTRACTUS o law of the place of making o merits: - relative ease in establishing - certainty and stability o demerit: unjust results when place of making entirely incidental LEX LOCI SOLUTIONIS O law of the place of performance O governs: - time, place, and manner of performance - sufficiency of performance - excuses for non-performance O merit: always connected to the contract in a significant way O demerits not helpful when the contract is performed in 2 or more states with conflicting laws LEX LOCI INTENTIONIS o law intended by the parties o may be express or implied o express - choice of law provision in the contract - must be recognized unless there are cogent reasons for not doing so o implied - based on contemporaneous and subsequent acts of the parties - often upheld with reference to the rule of validity of contracts which presumes that the parties contemplate to enter into a valid contract 3. Capacity to contract: personal law Choice of Forum Clause O A case arising from a contract will be litigated in the forum chosen by the parties if the choice of forum clause specifically identifies it as the ONLY VENUE. o When there is no fraud or overreaching, and there is no showing that the choice-of-forum clause would be unreasonable and unjust, the clause must be given effect. Contracts with Arbitration Clause o An arbitration clause, stipulating that the arbitral award of an arbitral panel in a foreign country is FINAL AND BINDING, is not contrary to public policy. It does not oust our courts of jurisdiction as the international arbitral award, the award of which is not absolute and without exceptions, is still judicially reviewable under certain conditions provided for by the PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 322 of 325 UNCITRAL Model Law on ICA as applied and incorporated in RA 9285. ( Korea Technologies Co., Ltd. v. Lerma, 2008) o It is regarded as the “wave of the future” in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward. Consistent with the policy of encouraging alternative dispute resolution methods, courts should liberally construe arbitration clauses. (Ibid.) Adhesion Contracts o Adhesion contracts are not entirely prohibited. The one who agrees to the contract is in reality, free to reject it entirely; if he adheres, he gives his consent. o Void if there is UNDUE ADVANTAGE on the part of the dominant party o Ambiguity construed strictly against the drafter Special Contracts 1. Sale or barter of goods: lex situs 2. Simple loan granted by financial institutions: law of the permanent place of business 3. Loan granted by a private individual or where subject matter of loan is personal: law of the place where the loan was obtained 4. Pledge, Chattel Mortgage, Antichresis: lex situs 5. Carriage of goods by sea: - law of the place of destination (Art.1753, CC) - Code of Commerce - COGSA 6. International Air Transportation: Warsaw Convention Limitations to the parties’ choice of law 1. Cannot be a law which has NO connection at all with the transaction or the parties 2. Law as changed will govern EXCEPT if the change is so revolutionary that it was never contemplated by the parties 3. Choice of law should not be interpreted to oust the jurisdiction which the court has already acquired over the parties and the subject-matter. 4. Cannot contract away provisions of law especially peremptory provisions heavily impressed with public interest 5. Cognovit clause (confession-of-judgment clause) valid only if the parties were of equal bargaining power and the defendant agreed to it voluntarily Applicable law in the absence of effective choice o 2 nd Restatement: law of the place of the MOST SIGNIFICANT RELATIONSHIP with the contract as a whole or with a specific issue arising therefrom o Factors to consider: 1. Place of contracting 2. Place of negotiating 3. Place of performance 4. Situs of the subject-matter of the contract 5. Parties’ domicile, residence, nationality, place of incorporation, place of business 6. Place under whose local law the contract will be most effective SUCCESSION 1. Extrinsic validity of wills (Arts.17, 815-817, CC) Testator Place of Execution Applicable Law Filipino Philippines Philippine law Foreign country 1. Lex loci celebrationi s 2. Philippine law Alien Philippines 1. law of nationality 2. Philippine law Foreign country 1. Law of nationality; 2. Law of domicile; 3. Lex loci celebrationi s; 4. Philippine law o Filipinos prohibited from making joint wills, either here or abroad (Arts.818- 819,CC) o Code silent as to validity of a joint will executed by an alien in the Philippines. It is suggested that it should not be probated if it would affect heirs in the Philippines. (Coquia and Pangalangan) 2. Intrinsic validity of wills: national law of decedent (Arts.16(2) and 1039,CC) 3. Interpretation of wills: national law of decedent 4. Revocation of wills (Art. 829, CC) PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 323 of 325 Testator Place of revocation Applicable law Philippine domiciliary Philippines Philippine law Non- domiciliary Philippine law Philippine domiciliary Foreign country 1. Philippine law 2. lex loci actus (law of the place of revocation) (Coquia & Pangalanga n) Non- domiciliary 1. lex loci celebrationi s 2. lex domicilii at the time of the revocation. 5. Probate o Law of the forum governs procedural matter o Compliance with extrinsic requirements governed by Arts.17,815-817, CC) 6. Administration of estates o Territorial: governed by the law of the place where the administration takes place, and that is the law of the country from which the administrator derives his authority. 7. Testamentary trusts o Extrinsic validity: rules governing wills apply o Intrinsic validity: lex situs since a trust involves property TORTS TRADITIONAL APPROACH 1. lex loci delicti commissi applies in matters concerning conduct and safety 2. lex domicilii of parties applies in matters concerning loss distribution or financial protection Lex loci delicti commissi where tortuous conduct and injury take place in different states: 1. common law: place of injury - last act (vested rights theory) 2. civil law: place of tortuous conduct - principle is that the legality or illegality of a person’s act should be determined by the law of the state where he is at the time he does such act MODERN APPROACH o In determining the state which has the most significant relationship, the following factors are to be taken into account: a. place of tortuous conduct b. place of injury c. victim’s and tortfeasor’s domicile, residence, nationality, place of incorporation and place of business d. place where the relationship between the parties is centered FOREIGN TORT CLAIMS o Tort liability is transitory. An action for tort may be brought wherever the tortfeasor is subject to suit. Conditions for enforcement of foreign tort claims: 1. The foreign tort is based on a civil action and not on a crime. 2. The enforcement of the tort would not infringe the public policy of the forum; and 3. The judicial machinery of the forum is adequate for its proper enforcement. ATCA (Alien Tort Claims Act) o Grants US district courts original jurisdiction over any civil action by an alien for a tort committed in violation of the law of nations or a treaty of the US. In the Philippines, no specific statutory law governing the enforcement of claims arising from foreign torts. CRIMES o Applicable law: lex loci delicti commissi o 2 principles: 1. nullum crimen sine lege 2. territoriality principle o Exceptions to the territoriality principle in the Philippine: 1. crimes committed by state officials, diplomatic representatives and officials of recognized international organizations. - based on the theory of state immunity from suits - limited to official acts 2. crimes committed on board a foreign vessel even if within the territorial waters of the coastal state, as long as the effect of such crime does not affect the peace and order of the coastal state. 3. Crimes which, although committed by Philippine nationals abroad are PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 324 of 325 punishable under Philippine law, to wit: - crimes committed while on Philippine ship or airship - forging or counterfeiting Philippine coins or currency - introducing counterfeit coins or currency into the Philippines - Public officers or employees committing offenses in the exercise of their functions - Crimes against national security and the law of nations (Art. 2, RPC) CORPORATIONS AND OTHER JURIDICAL ENTITIES CORPORATION OR PARTNERSHIP PERSONAL LAW General Rule: Law of the place of incorporation Exceptions to incorporation test: a. Constitutional and statutory restrictions (Art. XII, 1987 Constitution) b. Control Test during war – Courts may pierce the veil of corporate identity and look into the nationality of the stockholders to determine the citizenship of the corporation. Personal law of the corporation governs the following issues: a. existence and the legal character of the corporation b. capacity and powers of the corporation c. internal organization of the corporate enterprise d. alteration of the charter and the dissolution of the corporation DOMICILE OR RESIDENCE OF FOREIGN CORPORATIONS o that fixed by the law creating them; or o if not so fixed, the place where their legal representation is or where they exercise their principal functions. (Art. 51, CC) A foreign corporation granted license to operate in the Philippines acquires domicile here. All foreign corporations lawfully doing business here in the Philippines shall be bound by all laws and rules and regulations applicable to domestic corporations except provisions for the creation, formation, organization or dissolution of corporations or liabilities, responsibilities or duties of stockholders, members or officers of the corporation to each other. Service of summons upon foreign corporations doing business in the Philippines may be made: a. on its resident agent b. in the absence thereof, on the government official designated by law or any of its officers or agents within the Philippines c. on any officer or agent of said corporation in the Philippines d. by serving summons through diplomatic channels. RIGHT OF A FOREIGN CORPORATION TO BRING SUIT General Rule: license to do business in the Philippines required Exceptions: 1. isolated transactions 2. action to protect trademark, trade name, goodwill, patent or for unfair competition 3. agreements fully transacted outside the Philippines 4. petition filed is merely corollary defense in a suit against the corporation EFFECT OF FAILURE TO SECURE A LICENSE TO TRANSACT BUISNESS o The foreign corporation has no right to sue in the Philippines but it can still be sued. o Although the contracts entered into may be valid as between the parties, it may not be enforced in the Philippine courts. RECOGNITION AND ENFORCEMENT OF FOREIGN JUDGMENTS FOREIGN JUDGMENT: a decision rendered outside the forum and encompasses judgments, decrees and orders of courts of foreign countries. RECOGNITION OF FOREIGN JUDGMENT - Passive act of giving the same effect that it has in the State where it was rendered with respect to the parties, the subject matter of the action and the issues involved without the necessity of filing an action in the forum giving effect to the judgment. - Examples of foreign judgments which can only be recognized: declaratory judgments, judgments which give no affirmative relief, judgments which determine the parties’ interests in a thing or status. PRIVATE INTERNATIONAL LAW CIVIL LAW 1 0 0 % U P L A W U P B A R O P S 2 0 0 8 Page 325 of 325 ENFORCEMENT OF A FOREIGN JUDGMENT - A foreign judgment is enforced when, in addition to being recognized, a party is given affirmative relief to which the judgment entitles him and it necessarily requires the filing of an action. - This necessarily implies recognition. BASES OF RECOGNITION AND ENFORCEMENT 1. COMITY- requires reciprocity between the concerned jurisdictions 2. DOCTRINE OF OBLIGATION - foreign judgment of a court of competent jurisdiction imposes a duty on the losing litigant - based on the vested rights theory POLICY OF PRECLUSION UNDERLYING RECOGNITION AND ENFORCEMENT o The policy of preclusion seeks to protect party expectations resulting from previous litigation, to safeguard against the harassment of defendants, to insure that the task of courts not be increased by never-ending litigation of the same disputes, and – in a larger sense – to promote what Lord Coke in the Ferrer’s Case of 1599 stated to be the goal of all law: “rest and quietness.”(Mijares v. Ranada, 2005) RELATED CONCEPTS 1. Res judicata: once there is a final judgment, resolution on the issues litigated is binding on the parties and their privies 2. Merger: Plaintiff’s cause of action is merged in the judgment so that he may not relitigate that exact claim 3. Bar: successful defendant can interpose as a defense the judgment in his favor to avert a 2 nd action by the plaintiff on the same claim 4. Direct estoppel: relitigation of all matters decided are precluded 5. Indirect estoppel: all essential issues of fact actually litigated cannot be relitigated REQUISITES FOR RECOGNITION OR ENFORCEMENT 1. Foreign court had JURISDICTION over the parties and the case 2. Judgment VALID under the laws of the country that rendered it 3. Judgment FINAL and EXECUTORY to constitute res judicata in another action 4. RECIPROCITY: state where foreign judgment was obtained allows recognition and enforcement of Philippine judgments 5. Judgment is for a FIXED SUM of money 6. Foreign judgment not contrary to PUBLIC POLICY or GOOD MORALS of country where it is sought to be enforced 7. Judgment not obtained by EXTRINSIC FRAUD, COLLUSION, MISTAKE of fact or law PROCEDURES FOR ENFORCEMENT 1. SUMMARY PROCEEDING o Followed in most civil law countries o Validation proceeding: authenticated copy of foreign judgment validated by clerk of court 2. JUDGMENT REGISTRATION o Authenticated copy filed in the registrar’s office with the proofs required 3. PETITION o Followed in common law countries and in the Philippines o The rules are silent as to what initiatory procedure must be undertaken in order to enforce a foreign judgment in the Philippines. But there is no question that the filing of a civil complaint is an appropriate measure for such purpose (Mijares v. Ranada, 2005) EFFECT OF FOREIGN JUDGMENT IN THE PHILIPPINES (Section 48, Rule 39, Rules of Court) o In an action in rem: the foreign judgment is deemed conclusive upon the title to the thing, o In an action in personam, the foreign judgment is presumptive, and not conclusive, of a right as between the parties and their successors in interest by a subsequent title. o However, in both cases, the foreign judgment is susceptible to impeachment in our local courts on the grounds of: - want of jurisdiction - want of notice to the party - collusion - fraud - clear mistake of law or fact o It has been recognized that “public policy” as a defense to the recognition of judgments serves as an umbrella for a variety of concerns in international practice which may lead to a denial of recognition. (Mijares v. Ranada, 2005)